<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
After the substantial decline in interest rates we witnessed in 1995,
it's not surprising that the trend reversed course and interest rates rose
during the six months ended June 30, 1996, the first half of Vanguard Bond
Index Fund's 1996 fiscal year.
The reversal in rates was sharp enough to cause a retracement of more
than one-half of 1995's rate drop, resulting in a decline in bond prices. This
decline, as you would expect, ranged from relatively modest for short-term
bonds to fairly steep for long-term bonds. On balance, the total bond market
earned a total return (capital change plus reinvested dividends) of -1.2%. Our
Portfolios, of course, accurately mirrored the results of their respective
target indexes, as shown in this table presenting total returns for the past
six months:
<TABLE>
<CAPTION>
- ------------------------------------------------------
TOTAL RETURN
------------------------
SIX MONTHS ENDED
JUNE 30, 1996
------------------------
VANGUARD TARGET
PORTFOLIO INDEX*
- ------------------------------------------------------
<S> <C> <C>
TOTAL BOND MARKET -1.3% -1.2%
TOTAL BOND MARKET--
INSTITUTIONAL SHARES -1.3 -1.2
- ------------------------------------------------------
SHORT-TERM BOND +0.8% +0.8%
INTERMEDIATE-TERM BOND -2.4 -2.4
LONG-TERM BOND -6.3 -6.0
- ------------------------------------------------------
</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 our
Portfolio returns are presented in the table at the end of this letter.
The presentation of semi-annual returns for bond funds, of course,
accounts for only one-half of the year's interest income. Over the long run,
however, interest income accounts for virtually 100% of the total return on a
bond fund; thus, a full year's interest income should be considered. The
following table presents the return of each Portfolio for the past twelve
months, divided into its income and capital components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
COMPONENTS OF TOTAL RETURN
-----------------------------------
TWELVE MONTHS ENDED
JUNE 30, 1996
-----------------------------------
INCOME CAPITAL TOTAL
PORTFOLIO RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C>
TOTAL BOND MARKET +6.6% -1.6% +5.0%
TOTAL BOND MARKET--
INSTITUTIONAL SHARES* +5.0 -1.8 +3.2
- ---------------------------------------------------------
SHORT-TERM BOND +6.2% -0.9% +5.3%
INTERMEDIATE-TERM BOND +6.4 -2.1 +4.3
LONG-TERM BOND +6.7 -3.1 +3.6
- ---------------------------------------------------------
</TABLE>
* Performance figures since inception, September 18, 1995.
This table illustrates the relative price volatility of each Portfolio during a
period of rising interest rates. It also illustrates the importance of
interest income in shaping the total returns of these Portfolios during such a
period, turning negative capital returns into total returns that, while hardly
awesome, were at least positive. The higher current yield levels engendered by
the general decline in bond prices appear in the table on page 3 of this
Report.
THE PERIOD IN REVIEW
One year ago, in the midst of a booming bond market (and following an extremely
difficult 1994), we stated that the central message was: "Financial markets
change quickly and unpredictably!" Today, under exactly the opposite
circumstances--a bond market tumbling in response to sharply rising rates--the
message is precisely the same.
This year's rate change was, as usual, most strongly illustrated among
long-term bonds. The yield on the long-term (30-year) U.S. Treasury bond leaped
upward from 6.0% at the beginning of 1996 to 7.0% at the end of June, a major
increase, albeit well below the yield of 7.8% that prevailed as 1995 began.
Other maturities followed suit: yields on intermediate-term Treasury bonds rose
from 5.6% to 6.8% during the past six months; yields on short-term Treasury
bonds rose from 5.3% to 6.4%.
(continued)
1
<PAGE> 2
While the yield increases in the three maturity classes were similar
(+1.0% to +1.2%), the price changes were not. As we have frequently emphasized,
the impact of changing yields on bond prices is magnified as a bond's maturity
lengthens. For example, in the face of a 1% increase (or decrease) in yield,
the price of a long (30-year) bond will move down (or up) about 10%, while the
price of a short bond will move down (or up) by roughly 2%. This relationship
simply reflects the immutable mathematics of the bond market.
Why interest rates rose during the first half of 1996 is less easy to
explain. But most informed observers believe that faster-than-expected growth
in the U.S. economy led to concerns that inflation would increase,
theoretically threatening the purchasing power of a bond's future fixed income
payments. Should inflation rise from today's level, it is possible--even
likely--that the Federal Reserve Board would act to raise the Federal funds
rate (the interest rate at which banks borrow from one another). Whether the
Fed will do so is anyone's guess, as is the future course of the economy. In
any event, the current structure and level of interest rates would seem to have
anticipated some reasonable increase in inflation, and bond investors may well
have already adjusted to that fact.
IN SUMMARY
In our 1995 Annual Report six months ago, we noted that the remarkable increase
in bond prices during the year "is in itself a reason for caution." The events
of the first half of 1996 have proved that caution to be well-placed.
Nevertheless, we believe that bonds--in whatever maturity class reflects your
income goals and your tolerance for market volatility--continue to represent an
essential risk-reducing element in a balanced portfolio comprising stocks,
bonds, and reserves. We also believe that the higher yields available today
have increased the relative attractiveness of bonds.
The role of Vanguard Bond Index Fund is to provide superior bond returns
over the long haul to fixed-income investors. We look forward to reporting to
you in our 1996 Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- ----------------------
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
- ---------------------
John J. Brennan
President
July 25, 1996
2
<PAGE> 3
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
TOTAL PER SHARE LATEST TOTAL RETURNS*
NET ASSETS ----------------- 12 MONTHS ------------------- CURRENT
(MILLIONS) AVERAGE AVERAGE DEC. 31, JUNE 30, INCOME TWELVE SIX SEC
PORTFOLIO JUNE 30, 1996 MATURITY QUALITY 1995 1996 DIVIDENDS MONTHS MONTHS YIELD
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL BOND MARKET $2,611 8.8 YEARS Aaa $10.14 $9.69 $.642 +4.9% -1.3% 6.83%
INSTITUTIONAL SHARES 725 8.8 YEARS Aaa 10.14 9.69 .495 +3.2** -1.3 6.93
SHORT-TERM BOND 283 2.4 YEARS Aaa 10.07 9.85 .600 +5.3*** +0.7*** 6.35
INTERMEDIATE-TERM BOND 470 7.5 YEARS Aa1 10.37 9.80 .641 +4.3+ -2.4*** 6.97
LONG-TERM BOND 35 21.6 YEARS Aaa 10.82 9.80 .680 +3.6++ -6.3+++ 7.26
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance figures are adjusted for the $10 annual account maintenance
fee.
** Performance figure since inception.
*** Includes capital gains distribution of $.004.
+ Includes capital gains distributions of $.031.
++ Includes capital gains distributions of $.033.
+++ Includes capital gains distributions of $.009.
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, 1996. 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>
INITIAL (12/86) $10.00 -- -- $10.00 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
1986 9.94 -- $.028 9.98 - 0.6% +0.4% - 0.2% - 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 + .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 10.14 -- .650 20.84 +10.6 +7.6 +18.2 +18.5
- ----------------------------------------------------------------------------------------------------------------------
1996 (6/30) 9.69 -- .316 20.57 - 4.4 +3.1 - 1.3 - 1.2
- ----------------------------------------------------------------------------------------------------------------------
LIFETIME +104.8% +114.5%
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN +7.8% +8.3%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes reinvestment of income dividends and any capital gains distributions
for both the Portfolio and the Index. Portfolio performance 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
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
June 30, 1996
<TABLE>
<CAPTION>
Face Market
TOTAL BOND MARKET Amount Value
PORTFOLIO (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (68.9%)
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (37.7%)
U.S. Treasury Bonds
7.25%, 5/15/16 $ 680 $ 696
7.50%, 11/15/16 2,135 2,243
7.625%, 2/15/07 670 695
7.875%, 11/15/07-2/15/21 15,095 16,555
8.00%, 11/15/21 15,950 17,737
8.125%, 8/15/19-8/15/21 56,145 63,158
8.50%, 2/15/20 38,670 45,093
8.75%, 5/15/17-8/15/20 90,800 108,070
8.875%, 8/15/17-2/15/19 78,050 93,760
9.125%, 5/15/09-5/15/18 56,340 69,296
9.25%, 2/15/16 435 538
9.375%, 2/15/06 110 130
9.875%, 11/15/15 4,390 5,715
10.00%, 5/15/10 2,000 2,415
10.375%, 11/15/09-11/15/12 60,095 75,351
10.75%, 2/15/03-8/15/05 40,880 51,883
11.125%, 8/15/03 1,135 1,421
11.25%, 2/15/15 200 289
11.625%, 11/15/02-11/15/04 13,650 17,240
11.75%, 2/15/10-11/15/14 1,085 1,518
12.00%, 8/15/13 350 493
12.375%, 5/15/04 100 134
12.75%, 11/15/10 380 534
13.375%, 8/15/01 2,600 3,376
14.00%, 11/15/11 3,420 5,217
U.S. Treasury Notes
4.75%, 8/31/98 4,560 4,431
5.25%, 7/31/98 5,600 5,503
5.375%, 5/31/98 1,800 1,776
5.625%, 11/30/00 59,675 57,801
5.75%, 8/15/03 42,600 40,570
5.875%, 7/31/97 12,000 12,004
6.00%, 8/31/97-11/30/97 7,100 7,104
6.25%, 4/30/01-2/15/03 7,175 7,071
6.375%, 1/15/99-8/15/02 29,315 29,179
6.50%, 8/15/97 675 679
6.75%, 5/31/99-6/30/99 16,400 16,589
6.875%, 7/31/99 18,710 18,976
7.00%, 4/15/99 18,750 19,087
7.25%, 8/31/96-8/15/04 29,145 29,762
7.50%, 10/31/99 19,125 19,750
7.75%, 11/30/99-2/15/01 46,035 47,972
7.875%, 1/15/98-11/15/04 102,245 108,943
8.00%, 1/15/97-8/15/99 46,575 48,672
8.25%, 7/15/98 36,725 38,177
8.50%, 7/15/97-2/15/00 63,255 65,713
8.625%, 8/15/97 24,850 25,576
8.75%, 10/15/97 7,000 7,241
8.875%, 11/15/98-2/15/99 17,000 18,050
9.00%, 5/15/98 40,350 42,386
9.25%, 8/15/98 1,000 1,060
U.S. Treasury Strip
0.00%, 8/15/01 1,000 721
------------
SECTOR TOTAL 1,258,350
------------
- ------------------------------------------------------------------------------------
AGENCY BONDS AND NOTES (1.4%)
Federal Home Loan Bank
6.85%, 2/25/97 560 564
8.60%, 1/25/00 110 117
Federal Home Loan Mortgage Corp.
6.09%, 3/1/00 285 280
Federal Land Bank
7.95%, 10/21/96 175 176
Federal National Mortgage Assn.
4.95%, 9/30/98 2,350 2,283
5.30%, 3/11/98 10,400 10,273
5.35%, 8/12/98 12,350 12,136
5.80%, 12/10/03 2,300 2,172
6.20%, 7/10/03 625 594
6.40%, 3/25/03 5,000 4,828
8.10%, 8/12/19 110 119
8.20%, 3/10/98 225 232
8.35%, 11/10/99 170 179
8.45%, 7/12/99 110 116
8.625%, 10/18/21 1,170 1,220
8.70%, 6/10/99 110 117
9.55%, 3/10/99 225 242
Government Trust Certificate
9.625%, 5/15/02 550 589
Private Export Funding Corp.
7.70%, 1/31/97 500 505
8.40%, 7/31/01 225 240
Resolution Funding Corp.
8.125%, 10/15/19 550 606
8.625%, 1/15/30 110 131
8.875%, 7/15/20 280 333
Small Business Administration
Variable Rate Interest Only
Custodial Receipts
2.719%, 6/25/00 25,558 2,536
Tennessee Valley Authority
8.375%, 10/1/99 610 643
8.625%, 11/15/29 4,000 4,251
------------
SECTOR TOTAL 45,482
------------
- ------------------------------------------------------------------------------------
MORTGAGE OBLIGATIONS (29.8%)
Bear Stearns Collateralized Mortgage
Obligation Series 1988-4B
(Secured by Federal Home Loan
Mortgage Corp.)
9.20%, 11/1/18 130 133
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
TOTAL BOND MARKET Amount Value
PORTFOLIO (continued) (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corp.
5.50%, 12/1/98-6/1/11 $ 7,519 $ 7,209
6.00%, 6/1/98-4/1/26 31,985 30,399
6.50%, 2/1/98-5/1/26 76,533 73,167
7.00%, 1/1/98-6/1/26 86,449 84,125
7.50%, 6/1/97-6/1/26 56,305 55,958
8.00%, 7/1/96-5/1/26 37,030 37,519
8.50%, 9/1/01-1/1/26 17,813 18,333
9.00%, 8/1/01-6/1/25 13,631 14,277
9.50%, 2/1/17-2/1/25 6,330 6,780
10.00%, 7/1/00-4/1/25 2,670 2,889
10.50%, 9/1/00-12/1/15 782 815
11.25%, 8/1/14 48 52
Federal Housing Administration
7.43%, 10/1/20 548 532
Federal National Mortgage Assn.
5.50%, 1/1/01-6/1/09 2,578 2,429
6.00%, 1/1/00-2/1/26 31,702 30,015
6.50%, 2/1/00-5/1/26 77,736 74,098
7.00%, 9/1/99-5/1/26 99,592 96,701
7.50%, 1/1/00-5/1/26 65,093 64,646
7.75%, 10/1/02 1,470 1,466
8.00%, 9/1/98-6/1/26 49,581 50,151
8.50%, 12/1/98-9/1/25 22,749 23,416
9.00%, 6/1/97-11/1/25 15,022 15,689
9.50%, 10/1/01-2/1/25 8,193 8,759
10.00%, 8/1/05-6/1/22 4,065 4,354
10.50%, 11/1/00-8/1/20 1,197 1,294
(Collateralized Mortgage Obligation)
9.50%, 7/25/07 16 16
Government National Mortgage Assn.
6.00%, 3/1/09-1/15/26 4,612 4,268
6.50%, 9/15/08-5/15/26 28,782 27,124
7.00%, 6/15/08-4/15/26 62,900 60,673
7.50%, 1/15/08-3/15/26 56,708 56,154
8.00%, 11/15/01-6/15/26 49,156 49,863
8.50%, 5/15/10-12/15/25 24,812 25,625
9.00%, 8/15/01-1/15/26 29,655 31,170
9.50%, 1/1/04-6/15/25 14,022 15,066
10.00%, 3/15/00-8/15/25 7,932 8,668
10.50%, 11/15/10-1/15/21 5,006 5,517
11.00%, 4/15/13 20 23
11.50%, 3/15/10-11/15/17 501 563
12.00%, 4/15/15 4 4
Resolution Trust Corp. Collateralized
Mortgage Obligations
7.75%, 12/25/18 3,918 3,913
10.40%, 8/25/21 1,567 1,636
------------
SECTOR TOTAL 995,489
------------
- ------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $2,302,766) 2,299,321
- ------------------------------------------------------------------------------------
CORPORATE BONDS (26.4%)
- ------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (6.1%)
Banc One Credit Card Master Trust
7.55%, 12/15/99 8,850 9,005
Chase Manhattan Credit Card Trust
7.40%, 5/15/00 3,850 3,880
8.75%, 8/15/99 1,925 1,935
Discover Card Master Trust
5.40%, 11/16/01 27,450 26,832
First Chicago Master Trust
6.25%, 8/15/99 5,400 5,397
8.40%, 6/15/98 2,850 2,862
First Deposit Master Trust
5.75%, 6/15/01 10,320 10,213
6.05%, 8/15/02 33,600 33,432
MBNA Master Credit Card Trust
5.40%, 9/15/00 5,000 4,888
6.20%, 8/15/99 5,700 5,693
7.75%, 10/15/98 3,208 3,226
Sears Credit Card Master Trust
5.90%, 11/15/98 865 865
6.25%, 1/15/03 20,000 19,956
7.00%, 1/15/04 3,000 3,031
7.25%, 7/16/01 8,850 8,961
7.75%, 9/15/98 3,850 3,864
8.10%, 6/15/04 1,900 1,981
Signet Credit Card Master Trust
4.85%, 4/15/00 5,615 5,592
Standard Credit Card Master Trust
6.80%, 4/7/01 15,850 15,939
6.75%, 6/7/00 20,000 20,125
7.85%, 2/7/02 7,750 8,019
7.875%, 1/7/00 3,600 3,702
8.875%, 9/7/99 2,085 2,181
9.375%, 9/10/98 2,000 2,060
------------
SECTOR TOTAL 203,639
------------
- ------------------------------------------------------------------------------------
FINANCE (9.8%)
American Express Credit Corp.
8.50%, 6/15/99 2,325 2,430
American General Finance Corp.
5.875%, 7/1/00 3,770 3,633
7.45%, 7/1/02 1,575 1,606
8.00%, 2/15/00 11,700 12,117
8.50%, 8/15/98 700 726
Associates Corp.
5.875%, 8/15/97 300 299
6.25%, 3/15/99 7,500 7,438
7.25%, 5/15/98 4,800 4,864
7.50%, 4/15/02 4,800 4,920
AVCO Financial Services
5.50%, 5/1/98 750 738
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------
<S> <C>
BankAmerica Corp.
6.00%, 7/15/97 $ 1,000 $ 999
7.50%, 10/15/02 400 408
7.625%, 6/15/04 1,050 1,075
9.625%, 2/13/01 1,100 1,216
10.00%, 2/1/03 4,900 5,625
Bear Stearns Co.
6.50%, 6/15/00 500 494
6.625%, 1/15/04 3,150 3,009
6.75%, 8/15/00 2,000 1,991
9.125%, 4/15/98 2,100 2,191
Beneficial Corp.
9.125%, 2/15/98 5,710 5,943
CIT Group Holdings
6.625%, 6/15/05 7,900 7,570
Chase Manhattan Corp.
6.625%, 1/15/98 200 201
7.375%, 6/15/97 150 152
Chemical Banking Corp.
7.25%, 9/15/02 500 505
Chrysler Finance Corp.
5.375%, 10/15/98 850 829
5.625%, 1/15/99 2,725 2,662
6.50%, 6/15/98 4,000 4,006
6.625%, 8/15/00 2,550 2,531
Citicorp
8.625%, 12/1/02 2,000 2,151
9.75%, 8/1/99 4,000 4,327
10.15%, 2/15/98 6,500 6,883
Commercial Credit Corp.
5.90%, 9/1/03 550 513
CoreStates Capital
9.375%, 4/15/03 1,250 1,395
Countrywide Funding
8.25%, 7/15/02 3,750 3,942
Dean Witter Discover & Co.
6.00%, 3/1/98 19,350 19,237
6.75%, 8/15/00 4,000 3,984
6.75%, 10/15/13 800 724
6.875%, 3/1/03 1,600 1,579
First Chicago Corp.
6.875%, 6/15/03 5,000 4,921
7.625%, 1/15/03 2,400 2,455
9.25%, 11/15/01 1,225 1,343
10.25%, 5/1/01 2,750 3,116
First Fidelity Bancorp
9.625%, 8/15/99 700 754
First Interstate Bancorp
8.625%, 4/1/99 8,295 8,686
10.875%, 4/15/01 2,750 3,169
First Union Corp.
8.00%, 11/15/02 100 105
8.125%, 6/24/02 2,900 3,048
Fleet Financial Group, Inc.
6.875%, 3/1/03 500 491
7.25%, 9/1/99 1,000 1,012
7.25%, 10/15/97 3,580 3,625
Fleet/Norstar Group
8.125%, 7/1/04 4,600 4,807
Ford Motor Credit Corp.
6.25%, 2/26/98 1,000 998
6.75%, 5/15/05 1,385 1,327
9.00%, 9/15/01 3,250 3,519
9.375%, 12/15/97 125 130
General Electric Capital Corp.
8.30%, 9/20/09 275 300
General Motors Acceptance Corp.
6.625%, 10/1/02 5,800 5,663
7.00%, 8/15/97 4,000 4,031
7.125%, 6/1/99 2,950 2,983
8.00%, 10/1/99 3,000 3,113
8.40%, 10/15/99 4,190 4,398
8.50%, 1/1/03 500 532
8.625%, 6/15/99 4,250 4,467
9.625%, 12/15/01 1,000 1,115
Great Western Bank
9.50%, 7/1/97 3,500 3,610
Great Western Finance
6.375%, 7/1/00 16,100 15,814
Household Finance Corp.
6.45%, 2/1/09 2,430 2,230
7.65%, 5/15/07 3,250 3,300
7.75%, 6/15/97 1,500 1,520
7.75%, 6/1/99 1,000 1,023
8.95%, 9/15/99 3,000 3,190
International Lease Finance
6.50%, 7/15/97 1,300 1,303
Lehman Brothers, Inc.
5.75%, 2/15/98 3,000 2,960
6.625%, 11/15/00 5,000 4,911
Mellon Bank
6.75%, 6/1/03 2,775 2,713
Mellon Financial Corp.
7.625%, 11/15/99 850 870
Merrill Lynch & Co., Inc.
8.00%, 2/1/02 2,600 2,707
8.30%, 11/1/02 2,735 2,906
9.00%, 5/1/98 2,450 2,555
Morgan Stanley Group, Inc.
9.25%, 3/1/98 4,625 4,829
NCNB Corp.
9.50%, 6/1/04 1,725 1,948
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
TOTAL BOND MARKET Amount Value
PORTFOLIO (continued) (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
NationsBank Corp.
6.625%, 1/15/98 $ 3,900 $ 3,912
6.75%, 8/15/00 9,600 9,551
6.875%, 2/15/05 580 562
7.25%, 10/15/25 1,625 1,514
Norwest Financial, Inc.
6.65%, 10/15/23 40 35
Orion Capital
9.125%, 9/1/02 3,921 4,273
PaineWebber Inc.
6.50%, 11/1/05 500 460
7.00%, 3/1/00 4,350 4,335
7.875%, 2/15/03 2,250 2,306
Pitney Bowes Credit Corp.
9.25%, 6/15/08 2,000 2,313
Republic Bank of New York
7.75%, 5/15/02 3,000 3,112
Smith Barney Holdings, Inc.
5.50%, 1/15/99 5,000 4,868
6.625%, 6/1/00 10,000 9,910
7.00%, 5/15/00 6,000 6,020
7.98%, 3/1/00 2,000 2,071
Suntrust Banks
8.875%, 2/1/98 115 119
Tenneco Credit
9.625%, 8/15/01 5,500 6,128
10.125%, 12/1/97 1,500 1,572
Transamerica Financial Corp.
6.75%, 1/15/98 1,200 1,206
8.375%, 2/15/98 100 103
Travelers/Aetna Property
Casualty Corp.
6.75%, 4/15/01 9,000 8,934
7.75%, 4/15/26 1,000 987
U.S. Leasing International
6.625%, 5/15/03 195 189
Wachovia Corp.
6.375%, 4/15/03 110 106
------------
SECTOR TOTAL 327,996
------------
- ------------------------------------------------------------------------------------
INDUSTRIAL (7.2%)
AMAX, Inc.
9.875%, 6/13/01 1,000 1,109
American Airlines
(Equipment Trust Certificate)
9.71%, 1/2/07 2,902 3,204
American Brands, Inc.
7.875%, 1/15/23 1,900 1,919
Amoco Canada
6.75%, 2/15/05 145 142
Anheuser Busch Co., Inc.
7.375%, 7/1/23 800 766
8.625%, 12/1/16 2,900 3,042
Applied Materials, Inc.
8.00%, 9/1/04 1,625 1,680
Archer-Daniels-Midland Co.
6.25%, 5/15/03 1,000 959
8.875%, 4/15/11 3,745 4,264
Auburn Hills
12.00%, 5/1/20 800 1,156
BP America, Inc.
8.875%, 12/1/97 4,350 4,503
9.375%, 11/1/00 1,500 1,642
Baxter International, Inc.
9.25%, 12/15/99 100 107
Boeing Co.
8.75%, 8/15/21 1,800 2,041
Burlington Northern Santa Fe Corp.
6.375%, 12/15/05 2,000 1,855
6.875%, 2/15/16 2,900 2,631
CSX Corp.
8.625%, 5/15/22 875 951
9.00%, 8/15/06 700 778
Caterpillar, Inc.
9.00%, 4/15/06 1,600 1,797
Chrysler Corp.
10.40%, 8/1/99 3,550 3,702
Conrail Corp.
9.75%, 6/15/20 1,680 2,047
Cyprus AMAX Minerals Co.
7.375%, 5/15/07 6,000 5,901
Deere & Co.
8.50%, 1/9/22 985 1,079
Delta Airlines, Inc.
(Equipment Trust Certificates)
8.54%, 1/2/07 4,138 4,314
Dow Chemical Co.
8.50%, 6/8/10 2,500 2,719
Eastman Chemical Co.
6.375%, 1/15/04 4,975 4,726
7.25%, 1/15/24 1,700 1,601
Federal Express Corp.
10.00%, 9/1/98 1,500 1,598
Ford Capital BV
9.00%, 8/15/98 6,300 6,602
9.125%, 5/1/98 6,500 6,794
9.50%, 7/1/01 1,925 2,122
9.50%, 6/1/10 825 949
9.875%, 5/15/02 1,250 1,413
Ford Holdings
9.25%, 7/15/97 1,050 1,082
9.25%, 3/1/00 5,900 6,357
Ford Motor Corp.
7.50%, 11/15/99 2,000 2,042
9.95%, 2/15/32 835 1,044
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
Gannett Co.
5.25%, 3/1/98 $ 190 $ 187
General Motors Corp.
7.00%, 6/15/03 2,000 1,980
9.125%, 7/15/01 7,900 8,590
9.625%, 12/1/00 5,750 6,335
W.R. Grace & Co.
7.40%, 2/1/00 3,200 3,239
7.75%, 10/1/02 500 511
8.00%, 8/15/04 2,900 3,021
H.J. Heinz Co.
6.875%, 1/15/03 100 99
International Business Machines Corp.
6.375%, 11/1/97 100 100
International Paper Co.
7.625%, 1/15/07 1,765 1,791
7.875%, 8/1/06 500 517
Kellogg Co.
5.90%, 7/15/97 120 120
May Department Stores Co.
9.75%, 2/15/21 1,680 1,978
9.875%, 12/1/02 1,775 2,013
McDonald's Corp.
6.75%, 2/15/03 945 929
Mobil Corp.
7.625%, 2/23/33 920 896
Occidental Petroleum
8.50%, 11/9/01 2,600 2,768
9.25%, 8/1/19 1,750 2,043
10.125%, 11/15/01 7,000 7,955
J.C. Penney Co., Inc.
6.125%, 11/15/03 2,000 1,882
6.875%, 6/15/99 3,000 3,013
7.125%, 11/15/23 1,855 1,713
9.05%, 3/1/01 625 676
PepsiCo, Inc.
6.125%, 1/15/98 3,550 3,534
Philip Morris Co.
6.00%, 7/15/01 110 104
8.25%, 10/15/03 1,900 2,005
Phillips Petroleum Co.
8.49%, 1/1/23 3,000 3,043
9.00%, 6/1/01 2,900 3,136
Quaker State Corp.
6.625%, 10/15/05 3,275 3,104
Rockwell International
8.875%, 9/15/99 110 117
Sears, Roebuck & Co.
6.25%, 1/15/04 1,200 1,138
6.50%, 6/15/00 9,360 9,253
8.55%, 8/1/96 125 125
9.25%, 8/1/97 6,800 7,013
9.25%, 4/15/98 8,550 8,946
9.375%, 11/1/11 1,845 2,152
Tenneco Inc.
8.00%, 11/15/99 12,500 12,874
9.875%, 2/1/01 1,850 2,043
10.00%, 8/1/98 2,250 2,398
10.375%, 11/15/00 4,900 5,495
Texaco Capital Corp.
7.50%, 3/1/43 850 817
8.25%, 10/1/06 1,000 1,078
8.875%, 9/1/21 705 807
9.00%, 12/15/99 300 321
Union Carbide Corp.
6.75%, 4/1/03 3,500 3,420
7.875%, 4/1/23 4,755 4,775
Union Oil of California
7.20%, 5/15/05 3,500 3,452
9.125%, 2/15/06 2,935 3,264
9.25%, 2/1/03 1,045 1,151
9.75%, 12/1/00 5,840 6,477
Union Pacific Corp.
8.625%, 5/15/22 2,865 3,037
Whirlpool Corp.
9.00%, 3/1/03 2,250 2,469
9.10%, 2/1/08 940 1,057
------------
SECTOR TOTAL 241,599
------------
- ------------------------------------------------------------------------------------
UTILITIES--ELECTRIC & Gas (2.1%)
Alabama Power Co.
6.00%, 3/1/00 1,950 1,902
8.75%, 12/1/21 1,147 1,224
Arizona Public Service Co.
7.625%, 3/15/98 12,700 12,913
8.00%, 2/1/25 2,510 2,453
Baltimore Gas & Electric Co.
8.375%, 8/15/01 5,570 5,921
Carolina Power & Light Co.
6.875%, 8/15/23 2,550 2,300
8.20%, 7/1/22 110 112
Cincinnati Gas & Electric Co.
6.45%, 2/15/04 1,000 952
8.125%, 8/1/03 2,250 2,302
Coastal Corp.
7.75%, 10/15/35 3,050 2,946
Connecticut Power and Light Co.
7.625%, 4/1/97 483 483
Consolidated Edison Co. of
New York, Inc.
6.625%, 2/1/02 1,000 983
Enron Corp.
7.125%, 5/15/07 6,100 5,985
7.625%, 9/10/04 2,000 2,034
9.65%, 5/15/01 4,150 4,576
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
TOTAL BOND MARKET Amount Value
PORTFOLIO (continued) (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
Houston Lighting and Power Co.
8.75%, 3/1/22 $ 1,050 $ 1,093
Pacific Gas and Electric Co.
6.75%, 10/1/23 150 130
Pennsylvania Power & Light Co.
6.50%, 4/1/05 135 128
Public Service Electric & Gas Co.
6.50%, 5/1/04 170 161
South Carolina Electric & Gas
9.00%, 7/15/06 145 161
Southern California Gas
7.375%, 3/1/23 120 113
Texas Utilities Co.
5.75%, 7/1/98 1,200 1,185
5.875%, 4/1/98 4,200 4,160
7.125%, 6/1/97 800 806
7.375%, 8/1/01 2,800 2,836
7.875%, 3/1/23 2,975 2,894
8.25%, 4/1/04 3,250 3,407
8.75%, 11/1/23 180 185
Union Electric Power Co.
6.75%, 5/1/08 40 38
7.65%, 7/15/03 2,000 2,058
Virginia Electric & Power Co.
6.625%, 4/1/03 2,300 2,238
Wisconsin Electric Power
7.70%, 12/15/27 65 63
------------
SECTOR TOTAL 68,742
------------
- ------------------------------------------------------------------------------------
UTILITIES--TELEPHONE (1.2%)
GTE Corp.
7.83%, 5/1/23 4,000 3,931
8.75%, 11/1/21 750 834
8.85%, 3/1/98 2,300 2,385
9.10%, 6/1/03 225 249
MCI Communications Corp.
7.50%, 8/20/04 4,050 4,136
7.75%, 3/23/25 4,650 4,566
Michigan Bell Telephone Co.
6.375%, 2/1/05 155 146
7.50%, 2/15/23 2,510 2,438
New England Telephone &
Telegraph Co.
6.875%, 10/1/23 890 803
8.625%, 8/1/01 2,000 2,147
New Jersey Bell Telephone Co.
6.625%, 4/1/08 190 178
New York Telephone Co.
7.00%, 8/15/25 1,925 1,749
7.75%, 12/15/06 120 121
Pacific Bell Corp.
7.00%, 7/15/04 2,275 2,253
7.25%, 7/1/02 250 254
Southern Bell Telephone Co.
7.625%, 3/15/13 4,950 4,893
Southwestern Bell Telephone Co.
7.625%, 10/1/13 1,620 1,593
7.625%, 3/1/23 8,355 8,185
U S WEST Communications Group
6.875%, 9/15/33 165 144
------------
SECTOR TOTAL 41,005
------------
- ------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $890,170) 882,981
- ------------------------------------------------------------------------------------
FOREIGN & INTERNATIONAL AGENCY
BONDS (DOLLAR DENOMINATED) (3.2%)
- ------------------------------------------------------------------------------------
Province of Alberta
9.20%, 11/1/97 145 151
9.25%, 4/1/00 5,075 5,499
Asian Development Bank
9.125%, 6/1/00 740 794
Bayerische Landesbank
7.375%, 12/14/02 145 148
British Aerospace
8.50%, 6/10/02 3,000 3,196
Province of British Columbia
7.00%, 1/15/03 2,550 2,566
British Columbia Hydro
12.50%, 9/1/13 400 461
European Investment Bank
8.875%, 3/1/01 4,300 4,645
10.125%, 10/1/00 125 140
Export Import Bank Japan
7.50%, 3/9/97 110 111
9.00%, 4/15/98 600 626
Finland Global Bond
6.75%, 11/24/97 200 201
Grand Metropolitan
Investment Corp.
9.00%, 8/15/11 2,225 2,585
Hanson Overseas
7.375%, 1/15/03 6,500 6,579
Inter-American Development Bank
7.125%, 3/15/23 975 911
8.50%, 3/15/11 2,705 3,031
9.50%, 10/15/97 5,400 5,612
International Bank for
Reconstruction & Development
8.125%, 3/1/01 800 846
9.25%, 7/15/17 1,615 1,933
12.375%, 10/15/02 966 1,234
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
KFW, Inc.
7.20%, 3/15/14 $ 3,550 $ 3,529
7.625%, 2/15/04 6,025 6,219
8.85%, 6/15/99 1,025 1,087
9.125%, 5/15/01 2,400 2,629
Province of Manitoba
7.75%, 2/1/02 3,600 3,737
8.75%, 5/15/01 5,700 6,138
9.25%, 4/1/20 2,645 3,148
9.50%, 10/1/00 1,560 1,713
9.625%, 3/15/99 2,500 2,685
National Westminster Bancorp Inc.
9.375%, 11/15/03 2,800 3,157
Province of New Brunswick
6.75%, 8/15/13 210 197
8.75%, 5/1/22 1,850 2,103
New Zealand Government
8.75%, 12/15/06 1,175 1,312
10.625%, 11/15/05 400 494
Province of Ontario
7.375%, 1/27/03 915 935
7.75%, 6/4/02 1,175 1,226
Philips Electronics NV
7.75%, 4/15/04 2,000 2,041
8.375%, 9/15/06 5,050 5,391
Republic of Portugal
5.75%, 10/8/03 2,150 2,006
Province of Saskatchewan
7.125%, 3/15/08 1,200 1,184
7.375%, 7/15/13 1,800 1,777
8.00%, 7/15/04 6,800 7,120
Sweden Global Bond
6.50%, 3/4/03 145 143
Kingdom of Thailand
8.25%, 3/15/02 4,100 4,325
Tokyo Metro Govt.
10.375%, 10/20/97 135 142
- ------------------------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $106,182) 105,707
- ------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.8%)
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.35%, 7/1/96
(Cost $25,621) 25,621 25,621
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.3%)
(Cost $3,324,739) 3,313,630
- ------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.7%)
- ------------------------------------------------------------------------------------
Other Assets--Notes B and E $ 113,726
Liabilities--Note E (91,446)
----------
22,280
- ------------------------------------------------------------------------------------
NET ASSETS (100%) $3,335,910
====================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------
AMOUNT
(000)
-----------
<S> <C>
PAID IN CAPITAL $3,357,692
UNDISTRIBUTED NET
INVESTMENT INCOME --
ACCUMULATED NET
REALIZED LOSSES (10,673)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE D (11,109)
- ----------------------------------------------------------------------
NET ASSETS $3,335,910
- ----------------------------------------------------------------------
INDIVIDUAL CLASS--
NET ASSETS APPLICABLE TO
269,476,282 OUTSTANDING
$.001 PAR VALUE SHARES
(AUTHORIZED 300,000,000 SHARES) $2,611,222
- ----------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INDIVIDUAL CLASS $9.69
======================================================================
INSTITUTIONAL CLASS--
NET ASSETS APPLICABLE TO
74,787,335 OUTSTANDING
$.001 PAR VALUE SHARES
(AUTHORIZED 250,000,000 SHARES) $724,688
- ----------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INSTITUTIONAL CLASS $9.69
======================================================================
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
SHORT-TERM BOND Amount Value
PORTFOLIO (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (71.2%)
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (70.3%)
U.S. Treasury Notes
4.75%, 8/31/98 $ 1,575 $ 1,531
5.125%, 4/30/98-6/30/98 1,675 1,646
5.25%, 7/31/98 3,925 3,857
5.375%, 11/30/97-5/31/98 3,175 3,134
5.625%, 11/30/00 21,875 21,188
5.875%, 7/31/97 7,600 7,602
6.25%, 8/31/00-4/30/01 19,200 19,055
6.375%, 1/15/00-3/31/01 7,850 7,817
6.75%, 5/31/99-6/30/99 2,725 2,757
6.875%, 7/31/99-3/31/00 8,250 8,368
7.00%, 4/15/99 7.050 7,177
7.25%, 2/15/98 7,900 8,040
7.50%, 10/31/99 4,350 4,492
7.75%, 11/30/99-1/31/00 13,710 14,286
7.875%, 1/15/98-11/15/99 1,050 1,081
8.00%, 8/15/99 10,125 10,587
8.25%, 7/15/98 21,395 22,241
8.50%, 7/15/97 17,150 17,598
8.625%, 8/15/97 4,450 4,580
8.75%, 10/15/97 10,100 10,447
8.875%, 11/15/98-2/15/99 8,640 9,173
9.00%, 5/15/98 9,525 10,006
9.125%, 5/15/99 2,050 2,199
------------
SECTOR TOTAL 198,862
------------
- ------------------------------------------------------------------------------------
AGENCY NOTES (.9%)
Federal National Mortgage Assn.
4.95%, 9/30/98 700 680
5.30%, 3/11/98 1,075 1,062
5.35%, 8/12/98 700 688
------------
SECTOR TOTAL 2,430
------------
- ------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (Cost $202,013) 201,292
- ------------------------------------------------------------------------------------
CORPORATE BONDS (25.6%)
- ------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (6.1%)
Banc One Credit Card Master Trust
7.55%, 12/15/99 650 661
Chase Manhattan Credit Card Trust
7.40%, 5/15/00 300 302
8.75%, 8/15/99 150 151
Discover Card Master Trust
5.40%, 11/16/01 3,150 3,079
First Chicago Master Trust
6.25%, 8/15/99 300 300
First Deposit Master Trust
5.75%, 6/15/01 2,500 2,474
6.05%, 8/15/02 2,500 2,488
MBNA Master Credit Card Trust
7.75%, 10/15/98 250 252
Sears Credit Card Master Trust
7.25%, 7/16/01 650 658
7.75%, 9/15/98 300 301
8.10%, 6/15/04 2,500 2,607
Signet Credit Card Master Trust
4.85%, 4/15/00 650 647
Standard Credit Card Master Trust
6.80%, 4/7/01 650 654
7.875%, 1/7/00 2,500 2,571
------------
SECTOR TOTAL 17,145
------------
- ------------------------------------------------------------------------------------
FINANCE (11.5%)
American General Finance Corp.
5.875%, 7/1/00 450 434
8.00%, 2/15/00 1,400 1,450
8.50%, 8/15/98 300 311
Associates Corp.
5.875%, 8/15/97 200 199
6.25%, 3/15/99 500 496
7.25%, 5/15/98 200 203
9.125%, 4/1/00 1,000 1,075
AVCO Financial Services
5.50%, 5/1/98 250 246
BankAmerica Corp.
6.00%, 7/15/97 250 250
Bear Stearns Co.
7.625%, 4/15/00 750 768
9.125%, 4/15/98 650 678
Chase Manhattan Corp.
6.625%, 1/15/98 200 201
7.375%, 6/15/97 200 202
7.75%, 11/1/99 135 139
Chrysler Finance Corp.
5.375%, 10/15/98 400 390
5.625%, 1/15/99 350 342
6.625%, 8/15/00 450 447
6.50%, 6/15/98 250 250
Citicorp
9.75%, 8/1/99 1,000 1,082
10.15%, 2/15/98 1,000 1,059
Dean Witter Discover & Co.
6.00%, 3/1/98 1,800 1,789
6.25%, 3/15/00 210 206
First Chicago Corp.
9.875%, 8/15/00 150 166
First Fidelity Bancorp
9.625%, 8/15/99 800 862
First Interstate Bancorp
8.625%, 4/1/99 900 942
Fleet Financial Group, Inc.
7.25%, 10/15/97 1,500 1,519
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
Ford Motor Credit Corp.
6.25%, 2/26/98 $ 250 $ 250
General Motors
Acceptance Corp.
7.125%, 6/1/99 500 506
8.625%, 6/15/99 750 788
Great Western Finance
6.375%, 7/1/00 2,000 1,964
Household Finance Corp.
7.75%, 6/15/97 750 760
7.80%, 11/1/96 135 136
International Lease Finance Corp.
6.20%, 5/1/00 2,000 1,950
6.50%, 7/15/97 200 201
Lehman Brothers Inc.
5.75%, 2/15/98 750 740
Manufacturers Hanover Corp.
8.50%, 2/15/99 900 940
Mellon Financial Corp.
6.50%, 12/1/97 300 300
7.625%, 11/15/99 600 614
Merrill Lynch & Co., Inc.
9.00%, 5/1/98 300 313
Morgan Stanley Group, Inc.
9.25%, 3/1/98 200 209
NCNB Corp.
8.50%, 11/1/96 170 171
NationsBank Corp.
6.625%, 1/15/98 350 351
6.75%, 8/15/00 700 696
PaineWebber Inc.
7.00%, 3/1/00 1,450 1,445
Smith Barney Holdings, Inc.
5.50%, 1/15/99 500 487
5.625%, 11/15/98 700 685
7.98%, 3/1/00 1,000 1,035
Suntrust Banks
8.875%, 2/1/98 500 518
Transamerica Financial Corp.
6.75%, 1/15/98 300 301
8.375%, 2/15/98 400 411
Travelers/Aetna Property
Casualty Corp.
6.75%, 4/15/01 1,000 993
------------
SECTOR TOTAL 32,470
------------
- ------------------------------------------------------------------------------------
INDUSTRIAL (6.5%)
BP America, Inc.
8.875%, 12/1/97 800 828
Chrysler Corp.
10.40%, 8/1/99 350 365
Federal Express Corp.
10.00%, 9/1/98 600 639
Ford Capital BV
9.00%, 8/15/98 535 561
9.125%, 5/1/98 1,215 1,270
9.375%, 1/1/98 750 781
Ford Holdings
9.25%, 7/15/97 500 515
9.25%, 3/1/00 1,000 1,077
General Motors Corp.
9.125%, 7/15/01 1,000 1,087
9.625%, 12/1/00 400 441
W.R. Grace & Co.
7.40%, 2/1/00 800 810
Mobil Corp.
8.375%, 2/12/01 1,000 1,062
J.C. Penney Co., Inc.
6.875%, 6/15/99 750 753
PepsiCo, Inc.
6.125%, 1/15/98 200 199
Philip Morris Co.
8.875%, 7/1/96 110 110
Phillips Petroleum Co.
9.00%, 6/1/01 1,000 1,081
Sears, Roebuck & Co.
9.25%, 8/1/97 555 572
9.25%, 4/15/98 1,300 1,360
Tenneco Inc.
8.00%, 11/15/99 350 360
10.00%, 8/1/98 1,750 1,865
10.375%, 11/15/00 1,400 1,570
Texaco Capital Corp.
9.00%, 11/15/97 105 109
9.00%, 12/15/99 700 749
Union Oil of California
9.75% 12/1/00 210 233
------------
SECTOR TOTAL 18,397
------------
- ------------------------------------------------------------------------------------
UTILITIES (1.5%)
Alabama Power Co.
6.00%, 3/1/00 1,050 1,024
Arizona Public Service Co.
7.625%, 3/15/98 800 814
GTE Corp.
8.85%, 3/1/98 700 726
Texas Utilities Co.
5.75%, 7/1/98 300 296
5.875%, 4/1/98 800 792
7.125%, 6/1/97 480 484
------------
SECTOR TOTAL 4,136
------------
- ------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $72,693) 72,148
- ------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
SHORT-TERM BOND Amount Value
PORTFOLIO (continued) (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN & INTERNATIONAL AGENCY
BONDS (DOLLAR DENOMINATED) (1.2%)
- ------------------------------------------------------------------------------------
Asian Development Bank
9.125%, 6/1/00 $ 700 $ 751
Export Import Bank of Japan
9.00%, 4/15/98 500 522
Inter-American Development Bank
9.50%, 10/15/97 600 624
Province of Manitoba
8.75%, 5/15/01 500 538
9.50%, 10/1/00 450 494
9.625%, 3/15/99 500 537
- ------------------------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $3,461) 3,466
- ------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.1%)
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.35%, 7/1/96
(Cost $340) 340 340
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.1%)
(Cost $278,507) 277,246
- ------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.9%)
- ------------------------------------------------------------------------------------
Other Assets--Notes B and E 11,236
Liabilities--Note E (5,739)
------------
5,497
- ------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------
Applicable to 28,714,171 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $282,743
- ------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.85
====================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
------ -----
<S> <C> <C>
PAID IN CAPITAL $283,925 $9.89
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED GAINS 79 --
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE D (1,261) (.04)
- ------------------------------------------------------------------------------------
NET ASSETS $282,743 $9.85
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM BOND Amount Value
PORTFOLIO (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (62.7%)
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (61.9%)
U.S. Treasury Bonds
10.375%, 11/15/09-11/15/12 $36,535 $ 45,231
10.75%, 8/15/05 21,890 27,790
U.S. Treasury Notes
4.75%, 8/31/98 500 486
5.25%, 7/31/98 750 737
5.625%, 11/30/00 1,275 1,235
5.75%, 8/15/03 47,520 45,255
5.875%, 7/31/97-2/15/04 3,325 3,267
6.25%, 4/30/01-2/15/03 15,799 15,551
6.375%, 3/31/01-8/15/02 25,770 25,566
6.875%, 3/31/00 700 710
7.125%, 2/29/00 100 102
7.25%, 5/15/04-8/15/04 42,608 44,134
7.50%, 11/15/01 3,335 3,481
7.75%, 2/15/01 1,200 1,262
7.875%, 8/15/01-11/15/04 64,285 68,953
8.00%, 5/15/01 2,025 2,153
8.25%, 7/15/98 3,000 3,119
8.625%, 8/15/97 1,000 1,029
8.75%, 10/15/97 550 569
------------
SECTOR TOTAL 290,630
------------
- ------------------------------------------------------------------------------------
AGENCY NOTES (.8%)
Federal National Mortgage Assn.
5.80%, 12/10/03 900 850
7.00%, 8/12/02 2,900 2,860
Tennessee Valley Authority
6.875%, 1/15/02 200 200
------------
SECTOR TOTAL 3,910
------------
- ------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (Cost $299,041) 294,540
- ------------------------------------------------------------------------------------
CORPORATE BONDS (27.7%)
- ------------------------------------------------------------------------------------
FINANCE (11.8%)
American General Finance Corp.
7.45%, 7/1/02 425 433
Associates Corp.
7.50%, 4/15/02 2,400 2,460
BankAmerica Corp.
6.20%, 2/15/06 3,000 2,755
7.50%, 10/15/02 400 408
7.625%, 6/15/04 450 461
7.75%, 7/15/02 250 259
9.625%, 2/13/01 400 442
10.00%, 2/1/03 700 804
Bear Stearns Co.
6.625%, 1/15/04 350 334
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
Chase Manhattan Corp.
8.625%, 5/1/02 $ 1,000 $ 1,074
Chemical Banking Corp.
7.25%, 9/15/02 3,565 3,602
CIT Group Holdings
6.625%, 6/15/05 350 335
Citicorp
7.125%, 6/1/03 135 135
8.625%, 12/1/02 1,500 1,614
Commercial Credit Corp.
5.90%, 9/1/03 450 420
7.875%, 7/15/04 2,000 2,069
CoreStates Capital Corp.
9.375%, 4/15/03 500 558
Countrywide Funding
8.25%, 7/15/02 250 263
Dean Witter Discover & Co.
6.875%, 3/1/03 400 395
First Chicago Corp.
7.625%, 1/15/03 600 614
10.25%, 5/1/01 250 283
First Interstate Bancorp
10.875%, 4/15/01 250 288
First Union Corp.
8.00%, 11/15/02 2,000 2,090
8.125%, 6/24/02 1,600 1,682
Fleet Financial Group, Inc.
6.875%, 3/1/03 600 590
Fleet/Norstar Group
8.125%, 7/1/04 900 940
Ford Motor Credit Corp.
6.625%, 6/30/03 3,000 2,912
8.20%, 2/15/02 900 947
9.00%, 9/15/01 1,750 1,895
General Motors Acceptance Corp.
5.50%, 12/15/01 750 693
6.625%, 10/1/02 3,200 3,125
9.625%, 12/15/01 1,200 1,337
Household Finance Corp.
7.625%, 1/15/03 3,500 3,599
7.65%, 5/15/07 850 863
International Lease Finance Corp.
6.20%, 5/1/00 1,000 975
Mellon Bank
6.75%, 6/1/03 225 220
Merrill Lynch & Co., Inc.
8.00%, 2/1/02 400 416
8.30%, 11/1/02 250 266
NCNB Corp.
9.50%, 6/1/04 2,000 2,258
NationsBank Corp.
6.50%, 3/15/06 1,500 1,410
6.875%, 2/15/05 325 315
7.75%, 8/15/04 500 514
8.125%, 6/15/02 1,000 1,052
Norwest Financial, Inc.
7.00%, 1/15/03 110 110
Orion Capital
9.125%, 9/1/02 3,000 3,269
Paine Webber Group, Inc.
7.875%, 2/15/03 250 256
Republic Bank of New York
7.75%, 5/15/02 700 726
Sears Roebuck Acceptance Corp.
6.75%, 9/15/05 3,000 2,881
------------
SECTOR TOTAL 55,347
------------
- ------------------------------------------------------------------------------------
INDUSTRIAL (10.1%)
AMAX, Inc.
9.875%, 6/13/01 600 665
Air Products & Chemicals, Inc.
6.25%, 6/15/03 125 118
American Airlines
(Equipment Trust Certificates)
9.71%, 1/2/07 484 534
Applied Materials, Inc.
8.00%, 9/1/04 150 155
Archer-Daniels-Midland Co.
6.25%, 5/15/03 250 240
Burlington Northern
Santa Fe Corp.
6.375%, 12/15/05 3,000 2,782
CSX Corp.
9.00%, 8/15/06 275 305
Caterpillar, Inc.
9.00%, 4/15/06 500 561
Coastal Corp.
10.25%, 10/15/04 2,000 2,329
Cyprus Minerals Co.
10.125%, 4/1/02 1,500 1,697
Delta Airlines, Inc.
(Equipment Trust Certificates)
8.54%, 1/2/07 520 542
Eastman Chemical Co.
6.375%, 1/15/04 2,625 2,494
First Data Corp.
6.625%, 4/1/03 2,000 1,962
Ford Capital BV
9.50%, 7/1/01 675 744
9.875%, 5/15/02 2,520 2,849
General Motors Corp.
7.00%, 6/15/03 500 495
9.125%, 7/15/01 2,700 2,936
9.625%, 12/1/00 1,000 1,102
</TABLE>
15
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM BOND Amount Value
PORTFOLIO (continued) (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
W.R. Grace & Co.
7.75%, 10/1/02 $ 500 $ 511
8.00%, 8/15/04 1,850 1,927
Johnson & Johnson
7.375%, 6/29/02 200 204
Kimberly-Clark
8.625%, 5/1/01 100 107
Lockheed Martin
6.50%, 4/15/03 2,000 1,940
May Department Stores Co.
9.875%, 12/1/02 225 255
McDonald's Corp.
6.75%, 2/15/03 450 442
McDonnell Douglas
9.25%, 4/1/02 1,000 1,100
Mobil Corp.
8.375%, 2/12/01 1,238 1,315
Occidental Petroleum
8.50%, 11/9/01 1,000 1,064
J.C. Penney Co., Inc.
6.125%, 11/15/03 130 122
9.05%, 3/1/01 375 406
Philip Morris Co.
8.25%, 10/15/03 250 264
Phillips Petroleum Co.
9.00%, 6/1/01 1,500 1,622
Quaker State
6.625%, 10/15/05 800 758
Sears, Roebuck & Co.
6.25%, 1/15/04 650 616
Tenneco Inc.
9.875%, 2/1/01 3,300 3,645
Texas Instruments
6.125%, 2/1/06 1,000 921
Union Carbide Corp.
6.75%, 4/1/03 3,050 2,981
Union Oil of California
6.375%, 2/1/04 2,000 1,882
7.20%, 5/15/05 1,500 1,479
9.125%, 2/15/06 200 223
9.25%, 2/1/03 550 607
Whirlpool Corp.
9.00%, 3/1/03 400 439
Xerox Corp.
8.125%, 4/15/02 150 158
------------
SECTOR TOTAL 47,498
------------
- ------------------------------------------------------------------------------------
UTILITIES--ELECTRIC & GAS (3.6%)
Baltimore Gas & Electric Co.
7.25%, 7/1/02 200 202
Cincinnati Gas & Electric Co.
6.45%, 2/15/04 1,000 952
8.125%, 8/1/03 250 256
Consolidated Edison Co.
of New York, Inc.
6.625%, 2/1/02 500 491
Enron Corp.
7.125%, 5/15/07 2,300 2,257
7.625%, 9/10/04 1,000 1,017
Florida Power & Light Co.
6.625%, 2/1/03 210 203
Pacific Gas & Electric
7.875%, 3/1/02 3,000 3,113
Public Service of Colorado
6.00%, 1/1/01 1,000 962
Texas Utilities Co.
7.375%, 8/1/01 450 456
8.125%, 2/1/02 600 627
8.25%, 4/1/04 1,650 1,730
Union Electric Corp.
7.65%, 7/15/03 1,000 1,029
Virginia Electric & Power Co.
6.625%, 4/1/03 4,000 3,892
------------
SECTOR TOTAL 17,187
------------
- ------------------------------------------------------------------------------------
UTILITIES--TELEPHONE (2.2%)
MCI Communications Corp.
7.50%, 8/20/04 3,250 3,319
New England Telephone
& Telegraph Co.
8.625%, 8/1/01 3,500 3,757
Pacific Bell Corp.
7.00%, 7/15/04 900 891
7.25%, 7/1/02 450 457
Southwestern Bell Telephone
5.75%, 9/1/04 2,000 1,821
------------
SECTOR TOTAL 10,245
------------
- ------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $131,012) 130,277
- ------------------------------------------------------------------------------------
FOREIGN & INTERNATIONAL AGENCY
BONDS (DOLLAR DENOMINATED) (7.5%)
- ------------------------------------------------------------------------------------
Province of British Columbia
7.00%, 1/15/03 400 403
European Investment Bank
8.875%, 3/1/01 1,100 1,188
Hanson Overseas
7.375%, 1/15/03 2,500 2,531
International Bank for
Reconstruction & Development
8.125%, 3/1/01 700 740
12.375%, 10/15/02 1,000 1,277
KFW, Inc.
7.625%, 2/15/04 5,625 5,806
9.125%, 5/15/01 400 438
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
Province of Manitoba
7.75%, 2/1/02 $ 4,875 $ 5,060
8.75%, 5/15/01 1,000 1,076
National Westminster Bancorp Inc.
9.375%, 11/15/03 1,150 1,296
9.45%, 5/1/01 250 275
New Zealand Government
8.75%, 12/15/06 125 140
10.625%, 11/15/05 600 741
Noranda Inc.
8.625%, 7/15/02 500 533
Bank of Nova Scotia
6.875%, 5/1/03 750 740
Province of Ontario
7.75%, 6/4/02 550 574
Philips Electronics NV
8.375%, 9/15/06 2,750 2,936
Republic of Portugal
5.75%, 10/8/03 600 560
Province of Saskatchewan
7.125%, 3/15/08 500 494
8.00%, 7/15/04 3,700 3,874
Kingdom of Thailand
8.25%, 3/15/02 4,000 4,219
- ------------------------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $35,239) 34,901
- ------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (7.5%)
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.35%, 7/1/96
(Cost $35,172) 35,172 35,172
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS (105.4%)
(Cost $500,464) 494,890
- ------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-5.4%)
- ------------------------------------------------------------------------------------
Other Assets--Notes B and E 12,363
Payables for Investment Securities Purchased (36,117)
Other Liabilities--Note E (1,545)
------------
(25,299)
- ------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------
Applicable to 47,936,416 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $469,591
- ------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.80
====================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
------ -----
<S> <C> <C>
PAID IN CAPITAL $475,296 $9.92
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (131) --
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE D (5,574) (.12)
- ------------------------------------------------------------------------------------
NET ASSETS $469,591 $9.80
- ------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
LONG-TERM BOND Amount Value
PORTFOLIO (000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT &
AGENCY OBLIGATIONS (72.6%)
- ------------------------------------------------------------------------------------
U.S. Treasury Bonds
7.875%, 2/15/21 $ 145 $ 159
8.00%, 11/15/21 1,150 1,279
8.125%, 8/15/19-8/15/21 4,635 5,213
8.50%, 2/15/20 570 665
8.75%, 5/15/17-5/15/20 6,235 7,411
8.875%, 8/15/17-2/15/19 3,415 4,104
9.125%, 5/15/18 2,820 3,471
U.S. Treasury Notes
5.75%, 8/15/03 125 119
6.375%, 3/31/01 300 299
7.875%, 11/15/04 2,725 2,929
- ------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $25,909) 25,649
- ------------------------------------------------------------------------------------
CORPORATE BONDS (19.8%)
- ------------------------------------------------------------------------------------
FINANCE (3.9%)
Chemical Bank Corp.
6.125%, 11/1/08 100 89
Dean Witter Discover & Co.
6.75%, 10/15/13 200 181
Ford Motor Credit Corp.
6.75%, 5/15/05 115 110
Household Finance Corp.
6.45%, 2/1/09 70 65
7.65%, 5/15/07 150 153
NationsBank Corp.
6.875%, 2/15/05 95 92
7.25%, 10/15/25 375 350
Norwest Corp.
6.65%, 10/15/23 60 53
Travelers/Aetna Property
Casualty Corp.
7.75%, 4/15/26 275 272
------------
SECTOR TOTAL 1,365
------------
- ------------------------------------------------------------------------------------
INDUSTRIAL (8.7%)
Archer-Daniels-Midland Co.
8.875%, 4/15/11 80 91
Auburn Hills
12.00%, 5/1/20 60 87
Burlington Northern
6.875%, 2/15/16 300 272
CSX Corp.
8.625%, 5/15/22 25 27
9.00%, 8/15/06 25 28
Caterpillar, Inc.
9.00%, 4/15/06 100 112
Deere & Co.
8.50%, 1/9/22 115 126
Eastman Chemical Co.
7.25%, 1/15/24 250 235
Ford Capital BV
9.50%, 6/1/10 180 207
Ford Motor Corp.
9.95%, 2/15/32 100 125
International Paper Co.
7.625%, 1/15/07 35 36
May Department Stores Co.
9.75%, 2/15/21 40 47
Mobil Corp.
7.625%, 2/23/33 230 224
Occidental Petroleum
9.25%, 8/1/19 250 292
J.C. Penney Co., Inc.
7.125%, 11/15/23 220 203
Quaker State
6.625%, 10/15/05 150 142
Sears, Roebuck & Co.
9.375%, 11/1/11 195 227
Texaco Capital Corp.
8.875%, 9/1/21 155 177
Union Carbide Corp.
7.875%, 4/1/23 220 221
Union Oil of California
9.125%, 2/15/06 90 100
Union Pacific Corp.
8.625%, 5/15/22 35 37
Whirlpool Corp.
9.10%, 2/1/08 60 67
------------
SECTOR TOTAL 3,083
------------
- ------------------------------------------------------------------------------------
UTILITIES--ELECTRIC & Gas (3.9%)
Alabama Power Co.
8.75%, 12/1/21 140 149
Arizona Public Service Co.
8.00%, 2/1/25 315 308
Coastal Corp.
7.75%, 10/15/35 250 241
Enron Corp.
7.125%, 5/15/07 246 241
Texas Utilities Co.
7.875%, 3/1/23 190 185
8.75%, 11/1/23 50 51
Union Electric Power Co.
6.75%, 5/1/08 120 114
Wisconsin Electric Power Co.
7.70%, 12/15/27 75 73
------------
SECTOR TOTAL 1,362
------------
- ------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--TELEPHONE (3.3%)
GTE Corp.
7.83%, 5/1/23 $ 250 $ 246
8.75%, 11/1/21 250 278
MCI Communications Corp.
7.75%, 3/23/25 250 245
Michigan Bell Telephone Co.
7.50%, 2/15/23 140 136
New England Telephone &
Telegraph Co.
6.875%, 10/1/23 110 99
Southern Bell Telephone Co.
7.625%, 3/15/13 50 49
Southwestern Bell Telephone Co.
7.625%, 10/1/13 80 79
7.625%, 3/1/23 45 44
------------
SECTOR TOTAL 1,176
------------
- ------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $7,111) 6,986
- ------------------------------------------------------------------------------------
FOREIGN & INTERNATIONAL AGENCY
BONDS (DOLLAR DENOMINATED) (5.9%)
- ------------------------------------------------------------------------------------
British Columbia Hydro
12.50%, 9/1/13 100 115
Grand Metropolitan Investment Corp.
9.00%, 8/15/11 75 87
Inter-American Development Bank
7.125%, 3/15/23 25 23
8.50%, 3/15/11 110 123
International Bank for Reconstruction
& Development
9.25%, 7/15/17 135 162
KFW, Inc.
7.20%, 3/15/14 150 149
Province of Manitoba
9.25%, 4/1/20 235 280
Province of New Brunswick
8.75%, 5/1/22 250 284
New Zealand Government
8.75%, 12/15/06 200 223
Philips Electronics NV
8.375%, 9/15/06 150 160
Province of Saskatchewan
7.125%, 3/15/08 100 99
7.375%, 7/15/13 400 395
- ------------------------------------------------------------------------------------
TOTAL FOREIGN & INTERNATIONAL
AGENCY BONDS (Cost $2,117) 2,100
- ------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.8%)
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.35%, 7/1/96
(Cost $296) 296 296
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.1%)
(Cost $35,433) 35,031
- ------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.9%)
- ------------------------------------------------------------------------------------
Other Assets--Note B 690
Liabilities (387)
------------
303
- ------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------
Applicable to 3,604,394 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $35,334
- ------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.80
====================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
------ ------
<S> <C> <C>
PAID IN CAPITAL $35,850 $9.94
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET REALIZED LOSSES (114) (.03)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE D (402) (.11)
- ------------------------------------------------------------------------------------
NET ASSETS $35,334 $9.80
- ------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TOTAL BOND SHORT-TERM
MARKET PORTFOLIO BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1996
(000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . $ 101,380 $ 7,629
- ----------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 101,380 7,629
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . . . $ 171 $ 13
Management and Administrative . . . . . . . . . . 713 135
Shareholder Account Maintenance+ . . . . . . . . . 1,165 43
Marketing and Distribution+ . . . . . . . . . . . 443 2,492 35 226
------ ----
Taxes (other than income taxes) . . . . . . . . . . 115 9
Custodian Fees . . . . . . . . . . . . . . . . . . . 56 9
Auditing Fees . . . . . . . . . . . . . . . . . . . 6 4
Shareholders' Reports+ . . . . . . . . . . . . . . . 58 1
Annual Meeting and Proxy Costs+ . . . . . . . . . . 14 1
Directors' Fees and Expenses . . . . . . . . . . . . 4 --
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 2,745 250
- ----------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 98,635 7,379
- ----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT
SECURITIES SOLD . . . . . . . . . . . . . . . . . . . (2,893) 76
- ----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES . . . . . . . (131,105) (5,663)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . $ (35,363) $ 1,792
======================================================================================================================
</TABLE>
+Expenses of the Total Bond Market Portfolio are:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(000)
-------------------------------------
Individual Institutional
Class Class Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class-Specific Expenses:
Shareholder Account Maintenance $1,162 $ 3 $1,165
Marketing and Distribution 398 45 443
Shareholders' Reports 58 -- 58
Annual Meeting and Proxy Costs 14 -- 14
------ ---- ------
Total Class-Specific Expenses 1,632 48 1,680
All Other Portfolio Expenses 830 235 1,065
------ ---- ------
Total Expenses $2,462 $283 $2,745
- -----------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
BOND PORTFOLIO BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1996
(000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . $ 13,200 $ 1,016
- ----------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 13,200 1,016
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B . . . . . . . . . . . . .
Investment Advisory Services . . . . . . . . . . . $ 22 $ 2
Management and Administrative . . . . . . . . . . 179 --
Shareholder Account Maintenance . . . . . . . . . 110 9
Marketing and Distribution . . . . . . . . . . . . 57 368 4 15
----- ---
Taxes (other than income taxes) . . . . . . . . . . 15 1
Custodian Fees . . . . . . . . . . . . . . . . . . . 9 8
Auditing Fees . . . . . . . . . . . . . . . . . . . 4 4
Shareholders' Reports . . . . . . . . . . . . . . . 4 1
Annual Meeting and Proxy Costs . . . . . . . . . . . 1 --
Directors' Fees and Expenses . . . . . . . . . . . . 1 --
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 402 29
- ----------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 12,798 987
- ----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT
SECURITIES SOLD . . . . . . . . . . . . . . . . . . . (123) (114)
- ----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES . . . . . . . (22,570) (2,643)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . $ (9,895) $(1,770)
======================================================================================================================
</TABLE>
21
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL BOND MARKET PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
JUNE 30, December 31,
1996 1995
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,635 $ 146,726
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . (2,893) 4,808
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . . . (131,105) 210,856
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . (35,363) 362,390
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Individual Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (79,954) (141,500)
Institutional Class . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,681) (5,226)
Realized Net Gain
Individual Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Institutional Class . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- ----------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (98,635) (146,726)
- ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INDIVIDUAL CLASS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 787,955 1,132,841
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . . 68,053 121,731
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (538,536) (787,427)
- ----------------------------------------------------------------------------------------------------------------
Net Increase--Individual Class . . . . . . . . . . . . . . . . . . . . . 317,472 467,145
- ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL CLASS (2)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387,807 403,027
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . . 15,795 3,862
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69,383) (2,189)
- ----------------------------------------------------------------------------------------------------------------
Net Increase--Institutional Class . . . . . . . . . . . . . . . . . . . . 334,219 404,700
- ----------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517,693 1,087,509
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,818,217 1,730,708
- ----------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,335,910 $2,818,217
================================================================================================================
(1) Shares Issued and Redeemed--Individual Class
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,004 116,319
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 6,942 12,465
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54,682) (80,354)
- ----------------------------------------------------------------------------------------------------------------
32,264 48,430
- ----------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed--Institutional Class
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,534 40,585
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 1,617 384
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,117) (216)
- ----------------------------------------------------------------------------------------------------------------
34,034 40,753
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended
JUNE 30, December 31,
1996 1995
(000) (000)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,379 $ 9,250
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . 76 539
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . . . (5,663) 6,934
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . 1,792 16,723
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,379) (9,250)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89) --
- ----------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,468) (9,250)
- ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,517 140,245
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . . 6,533 8,107
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,228) (25,210)
- ----------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . . . . . 80,822 123,142
- ----------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,146 130,615
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,597 76,982
- ----------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $282,743 $207,597
================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,883 14,263
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 659 818
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,442) (2,567)
- ----------------------------------------------------------------------------------------------------------------
8,100 12,514
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
BOND PORTFOLIO BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JUNE 30, December 31, JUNE 30, December 31,
1996 1995 1996 1995
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . $ 12,798 $ 13,240 $ 987 $ 974
Realized Net Gain (Loss) . . . . . . . . . . . . (123) 1,817 (114) 134
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . (22,570) 20,339 (2,643) 2,639
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . (9,895) 35,396 (1,770) 3,747
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . (12,798) (13,240) (987) (974)
Realized Net Gain . . . . . . . . . . . . . . . . (166) (888) (26) (54)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . (12,964) (14,128) (1,013) (1,028)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . 180,638 294,078 21,054 18,312
Issued in Lieu of Cash Distributions . . . . . . 11,375 12,148 791 741
Redeemed . . . . . . . . . . . . . . . . . . . . (45,195) (53,262) (8,210) (5,884)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions . . . . . . . . . . . . 146,818 252,964 13,635 13,169
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . 123,959 274,232 10,852 15,888
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . 345,632 71,400 24,482 8,594
- ----------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . $469,591 $345,632 $35,334 $24,482
============================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . 17,996 29,647 2,079 1,816
Issued in Lieu of Cash Distributions . . . . . 1,144 1,208 79 73
Redeemed . . . . . . . . . . . . . . . . . . . (4,539) (5,300) (816) (586)
- ----------------------------------------------------------------------------------------------------------------------------
14,601 25,555 1,342 1,303
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TOTAL BOND MARKET PORTFOLIO--INDIVIDUAL CLASS
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended December 31,
For a Share Outstanding Throughout Each Period JUNE 30, 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . $10.14 $ 9.17 $10.06 $ 9.88 $9.99 $9.41
------ ------ ------ ------ ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .316 .650 .622 .638 .699 .766
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . (.450) .970 (.888) .300 (.018) .605
------ ------ ------ ------ ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . . (.134) 1.620 (.266) .938 .681 1.371
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . (.316) (.650) (.622) (.638) (.699) (.766)
Distributions from Realized Capital Gains . . . . -- -- (.002) (.120) (.092) (.025)
------ ------ ------ ------ ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.316) (.650) (.624) (.758) (.791) (.791)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . $ 9.69 $10.14 $ 9.17 $10.06 $9.88 $9.99
======================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . . -1.31% +18.18% -2.66% +9.68% +7.14% +15.25%
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . $2,611 $2,405 $1,731 $1,540 $1,066 $849
Ratio of Total Expenses to Average Net Assets . . . .20%* .20% .18% .18% .20% .16%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . 6.47%* 6.66% 6.57% 6.24% 7.06% 7.95%
Portfolio Turnover Rate . . . . . . . . . . . . . . 35%* 36% 33% 50% 49% 31%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total return figures do not reflect the annual account maintenance fee of
$10.
<TABLE>
<CAPTION>
TOTAL BOND MARKET PORTFOLIO--INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED September 18+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . $10.14 $ 9.87
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .321 .174
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . (.450) .270
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . (.129) .444
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . (.321) (.174)
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . -- --
------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . (.321) (.174)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . $ 9.69 $10.14
================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1.26% +4.53%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . $725 $413
Ratio of Total Expenses to Average Net Assets . . . . . . . . . . . . . . . . . .10%* .10%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . 6.59%* 6.48%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35%* 36%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Commencement of Operations.
25
<PAGE> 26
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SHORT-TERM BOND PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended March 1+ to
For a Share Outstanding Throughout Each Period . . . . . . . . . JUNE 30, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $10.07 $ 9.50 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . .291 .623 .463
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . . . (.216) .570 (.500)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . .075 1.193 (.037)
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . (.291) (.623) (.463)
Distributions from Realized Capital Gains . . . . . . . . . . (.004) -- --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . (.295) (.623) (.463)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 9.85 $10.07 $ 9.50
================================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . +0.75% +12.88% -0.37%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . $283 $208 $77
Ratio of Total Expenses to Average Net Assets . . . . . . . . . . .20%* .20% .18%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . 5.87%* 6.28% 5.77%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . 63%* 65% 53%
- --------------------------------------------------------------------------------------------------------------------------------
</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.
26
<PAGE> 27
<TABLE>
<CAPTION>
INTERMEDIATE-TERM BOND PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended March 1+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $10.37 $ 9.18 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . .315 .661 .533
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . . . (.566) 1.217 (.820)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . (.251) 1.878 (.287)
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . (.315) (.661) (.533)
Distributions from Realized Capital Gains . . . . . . . . . . (.004) (.027) -
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . (.319) (.688) (.533)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 9.80 $10.37 $ 9.18
================================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . -2.43% +21.07% -2.88%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . $470 $346 $71
Ratio of Total Expenses to Average Net Assets . . . . . . . . . . .20%* .20% .18%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . 6.34%* 6.55% 6.88%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . 40%* 71% 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.
27
<PAGE> 28
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
LONG-TERM BOND PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended March 1+ to
For a Share Outstanding Throughout Each Period . . . . . . . . . JUNE 30, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . $10.82 $ 8.96 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . .336 .692 .586
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . . . . . . . . (1.011) 1.884 (1.040)
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . (.675) 2.576 (.454)
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . (.336) (.692) (.586)
Distributions from Realized Capital Gains . . . . . . . . . . (.009) (.024) --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . (.345) (.716) (.586)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . $ 9.80 $10.82 $ 8.96
================================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . -6.27% +29.72% -4.53%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . $35 $24 $9
Ratio of Total Expenses to Average Net Assets . . . . . . . . . . .20%* .20% .18%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . 6.71%* 6.90% 7.70%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . 55%* 45% 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.
28
<PAGE> 29
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, transfers uninvested cash balances into a Pooled
Cash Account, the daily aggregate of which is invested in repurchase
agreements secured by U.S. Government obligations. Securities pledged as
collateral for repurchase agreements are held by a custodian bank until
maturity of each repurchase agreement. Provisions of the agreement require
that the market value of 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 furnishes at cost investment advisory, corporate
management, administrative, shareholder accounting, 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, 1996, the Fund had contributed
capital of $404,000 to Vanguard (included in Other Assets), representing 2.0%
of Vanguard's capitalization. The Fund's directors and officers are also
directors and officers of Vanguard.
C. The Total Bond Market Portfolio offers two classes of shares, the
Individual Class and the Institutional Class. Institutional shares are designed
primarily for institutional investors that meet certain administrative and
servicing criteria and have a minimum investment of $10 million. Individual
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.
D. During the six months ended June 30, 1996, 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 $198,018 $162,071
SHORT-TERM BOND 22,870 11,829
INTERMEDIATE-TERM BOND 34,215 15,238
LONG-TERM BOND 3,811 2,239
- -------------------------------------------------------
</TABLE>
29
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (continued)
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(000)
----------------------------
Portfolio Purchases Sales
- -------------------------------------------------------
<S> <C> <C>
TOTAL BOND MARKET $1,060,094 $365,116
SHORT-TERM BOND 135,912 65,394
INTERMEDIATE-TERM BOND 192,229 63,469
LONG-TERM BOND 17,381 5,754
- -------------------------------------------------------
</TABLE>
At December 31, 1995, the Total Bond Market Portfolio had available a capital
loss carryforward of $7,307,000 to offset future net capital gains through
December 31, 2002.
At June 30, 1996, unrealized depreciation of investment securities for
financial reporting and Federal income tax purposes were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(000)
---------------------------------------------------
Appreciated Depreciated Net Unrealized
Portfolio Securities Securities Depreciation
- ------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL BOND MARKET $29,553 $(40,662) $(11,109)
SHORT-TERM BOND 957 (2,218) (1,261)
INTERMEDIATE-TERM
BOND 1,853 (7,427) (5,574)
LONG-TERM BOND 384 (786) (402)
- ------------------------------------------------------------------------
</TABLE>
E. The market values of securities on loan to broker/ dealers at June 30,
1996, 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 $78,307 $26,705 $53,459
SHORT-TERM BOND 1,045 1,060 --
INTERMEDIATE-TERM BOND 11,869 -- 12,724
- ----------------------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
30
<PAGE> 31
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board
Chairman and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The
Vanguard Group.
JOHN J. BRENNAN, President and Chief Executive Officer
President and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus of Rhone-Poulenc Rorer Inc.; Director of
Sun Company, Inc.; Director of Westinghouse Electric Corporation.
BARBARA BARNES HAUPTFUHRER, Director of The Great
Atlantic and Pacific Tea Co., Alco Standard Corp.,
Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BRUCE K. MACLAURY, President Emeritus of The
Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National
Steel Corporation.
BURTON G. MALKIEL, Chemical Bank Chairman's
Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern
New England Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and
Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co.,
and The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer
of The Nature Conservancy; formerly, Director and
Senior Partner of McKinsey & Co. and President of New
York University; Director of Pacific Gas and Electric Co.
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco
Brands, Inc.; retired Vice Chairman and Director of RJR
Nabisco; Director of TECO Energy, Inc. and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive
Officer of Rohm & Haas Co.; Director of Cummins
Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice
President and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The
Vanguard Group, Inc., and of each of the investment
companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The
Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Information Technology Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
31
<PAGE> 32
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
Income Portfolio
Conservative Growth Portfolio
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Growth Portfolio
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GROWTH FUNDS
Vanguard/Morgan Growth Fund
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Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
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Global Asset Allocation Portfolio
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INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
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International Portfolio
INDEX FUNDS
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500 Portfolio
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Index Fund
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Pacific Portfolio
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Vanguard Bond Index Fund
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[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1 (800) 662-7447 1 (800) 662-2739
This Report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus.
All Funds in the Vanguard Family are offered by prospectus only.
Q842-6/96
VANGUARD
BOND INDEX
FUND
SEMI-ANNUAL REPORT
JUNE 30, 1996
