<PAGE> 1
VANGUARD
BOND INDEX
FUND
Semiannual Report
June 30, 1997
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 2
[PHOTO]
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our
course toward the twenty-first century. Our Report cover reflects that blending
of tradition and innovation, of past, present, and future. The montage includes
a bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's
flagship at The Battle of the Nile); a clock built circa 1816 in Scotland,
featuring a portrait of Nelson; and several views of our recently completed
campus, which is steeped in nautical imagery--from our buildings named after
Nelson's warships (Victory, Majestic, and Goliath are three shown), to our
artwork and ornamental compass rose.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Performance
Summaries
6
Financial
Statements
8
Directors And
Officers
INSIDE BACK COVER
All comparative mutual fund data
are from Lipper Analytical Services, Inc.
or Morningstar unless otherwise noted.
<PAGE> 3
[PHOTO]
FELLOW SHAREHOLDER,
During the first six months of Vanguard Bond Index Fund's 1997 fiscal year, the
U.S. stock market continued to race ahead, while the bond market ambled along
at a deliberate pace. On balance during the six months ended June 30, 1997,
bond prices in the aggregate were roughly unchanged.
In this environment--one in which bond mutual funds essentially earned
their coupons--the returns of our four Portfolios mirrored the results of their
respective target indexes, varying according to their average maturities.
The adjacent table presents the total return (capital change plus
reinvested dividends) for each Portfolio during the past six months compared
with that of its respective target index.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 1997
--------------------------
VANGUARD TARGET
PORTFOLIO INDEX*
- ---------------------------------------------------------------
<S> <C> <C>
Total Bond Market-
Investor Shares +2.9% +3.1%
Institutional Shares +3.0 +3.1
Short-Term Bond +2.8 +2.9
Intermediate-Term Bond +2.7 +2.8
Long-Term Bond +2.4 +2.5
- ---------------------------------------------------------------
</TABLE>
*Respectively, the Lehman Brothers Aggregate Bond Index
and its Short-Term Bond, Intermediate-Term Bond, and
Long-Term Bond components.
Detailed per-share figures for each Portfolio, including net asset
values and income dividends, are presented, along with yield and maturity data,
in the table that follows this letter.
In reviewing our half-year performance, it's important to note that the
period's returns for bond funds include interest income for only one-half year.
Over the long run, however, interest income accounts for virtually all of the
total return on a bond fund; thus, a full year's interest income should be
considered. The table on the following page presents each Portfolio's return
for the past twelve months, divided into its income and capital components.
THE PERIOD IN REVIEW
Interest rates began the half-year on a steady march upward in response to
growing fears that inflation would soon accelerate. But those fears rapidly
dissipated over the final three months of the period, and interest rates
settled near their starting point.
On balance, the yield on the benchmark 30-year U.S. Treasury bond rose
14 basis points, from 6.64% to 6.78% during the period, while the yield on
intermediate-term Treasury bonds inched up 8 basis points to 6.50%. Although
the Federal Reserve Board raised its target for the federal funds rate by a
quarter-point to 5.50% on March 25, short-term interest rates ended the period
where they began it (5.17% for three-month U.S. Treasury bills).
A period that was uneventful for the bond market was anything but for
the stock market, which chalked up a gain of +20.6% for the six months (as
measured by the Standard & Poor's 500 Composite Stock Price Index). A nearly
perfect climate for common stocks--strong economic growth, rising corporate
profits, and decelerating inflation--helped push many segments of the market
higher, but particularly favored large-capitalization stocks.
1
<PAGE> 4
For the Portfolios of Vanguard Bond Index Fund, the modest uptick in
interest rates during the half-year engendered a slightly negative capital
return that nicked each Portfolio's total return (consistent with its average
maturity). Over the past twelve months, however, a slight decline in interest
rates provided a slightly positive capital return. Of course, the prices of
longer-term bonds suffer more from a rise in interest rates than do the prices
of short-term bonds, just as long-term bond prices benefit more when interest
rates are falling. For more information on each Portfolio's income and capital
return, see the Performance Summaries beginning on page 6.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
COMPONENTS OF TOTAL RETURN
TWELVE MONTHS ENDED
JUNE 30, 1997
-------------------------------------
INCOME CAPITAL TOTAL
PORTFOLIO RETURN RETURN RETURN
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Total Bond Market-
Investor Shares +6.9% +1.1% +8.0%
Institutional Shares +7.0 +1.1 +8.1
Short-Term Bond +6.2 +0.5 +6.7
Intermediate-Term Bond +7.0 +0.9 +7.9
Long-Term Bond +7.2 +1.7 +8.9
- ---------------------------------------------------------------------------
</TABLE>
Our Fixed Income Group managed the Portfolios ably--as it has
consistently done--keeping our Portfolios in a tight match with their
respective indexes. For the half-year, our Total Bond Market Portfolio tracked
its target within 0.2 percentage point, while our other Portfolios tracked
their respective targets within 0.1 percentage point. This close tracking was
accomplished despite our (extremely low) expenses and the costs of portfolio
transactions--performance handicaps that indexes do not bear.
IN SUMMARY
For bond investors, appreciating the benefits of a balanced investment program
can be a stern challenge during a period of awesome stock returns.
However, it is this lack of correlation between the asset classes that
makes the creation and maintenance of a balanced investment program of stock
funds, bond funds, and money market funds a prudent move. As the gap between
the performance of stocks and bonds narrows--or opens in favor of bonds over
stocks, as it will from time to time--the true value of a balanced program will
be evident.
We look forward to reporting to you in further detail in our 1997 Annual
Report six months hence.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
July 20, 1997
2
<PAGE> 5
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
TOTAL PER SHARE LATEST TOTAL RETURNS SEC
NET ASSETS ------------------ 12 MONTHS ---------------- CURRENT
(MILLIONS) AVERAGE AVERAGE DEC. 31, JUN. 30, INCOME TWELVE SIX ANNUALIZED
PORTFOLIO JUN. 30, 1997 MATURITY QUALITY 1996 1997 DIVIDENDS MONTHS MONTHS YIELD
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Bond Market-
Investor Shares $4,103 8.6 years Aaa $ 9.84 $9.80 $0.645 +8.0% +2.9% 6.69%
Institutional Shares 1,269 8.6 years Aaa 9.84 9.80 0.655 +8.1 +3.0 6.79
Short-Term Bond 448 2.7 years Aaa 9.92 9.90 0.593 +6.7 +2.8 6.10
Intermediate-Term
Bond 562 7.6 years Aa1 9.96 9.89 0.663 +7.9 +2.7 6.64
Long-Term Bond 56 21.7 years Aa1 10.08 9.97 0.676 +8.9 +2.4 6.97
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
[PHOTO]
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JUNE 30, 1997
U.S. EQUITY MARKETS
As the economy continued to grow while the rate of inflation did not, a robust
market provided solid gains to investors in U.S. common stocks during the first
half of 1997. The best performers were primarily larger-capitalization issues,
although the small-company indexes exhibited some strength in the final two
months of the period. Over the half-year, the Standard & Poor's 500 Composite
Stock Price Index gained 20.6%, fueled by a 10.8% boost since the end of April.
Reflecting the gains among smaller companies, the Russell 2000 Index posted a
10.2% increase for the six-month period, driven by an 11.1% jump in May and a
4.3% rise in June. It was particularly noteworthy that the recent small-cap
gains were led by small growth stocks, the worst segment of the U.S. market
during the past 12 months. This group has surged 17.6% since the end of March,
although at the half-year's end it still lagged the S&P 500 Index by a sizable
margin (5.2% versus 20.6%).
Stocks benefited from the continued strength of corporate earnings,
which rose some 15% during the past year, and from a widespread confidence
reflected in increased price/earnings ratios. The strength in earnings, the
expectation that income will continue to increase at an attractive pace, and
the further conviction that inflation is not a problem helped stocks to
continue to produce solid gains in the fiscal period. What's more, earnings
have shown not only good strength but remarkable consistency in beating the
consensus forecasts of Wall Street analysts.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JUNE 30, 1997
-----------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 20.6% 34.7% 19.8%
Russell 2000 Index 10.2 16.3 17.9
MSCI EAFE Index 11.4 13.2 13.2
- --------------------------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 3.1% 8.2% 7.1%
Lehman 10-Year Municipal
Bond Index 3.3 8.3 7.4
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.6 5.3 4.5
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.1% 2.3% 2.7%
- --------------------------------------------------------------------------------
</TABLE>
*Average annual.
The strongest gains in the S&P 500 Index during the past six months came
from the health-care sector (up 31.4%) and the consumer-staples sector (up
23.9%). By contrast, numerous uncertainties for utilities caused the issues in
that sector to lag the broad market, although, on an absolute basis, their 8.2%
return over six months is quite good.
U.S. FIXED-INCOME MARKETS
The modest rise in interest rates during the past six months reflects the
economy's underlying momentum. The 10-year U.S. Treasury's yield increased from
6.42% at the end of December to 6.97% by the middle of April. In the following
weeks, economic reports indicated a slowing in economic growth and further
reduced fears of an increase in inflation. This news helped interest rates fall
to 6.50% by the end of June.
4
<PAGE> 7
Fueled by robust consumer spending, the U.S. economy expanded at a
remarkable 5.8% rate in the first three months of 1997. Reflecting the vibrant
economy, the nation's unemployment rate stood at 5.0% in June. Strong economic
growth and tight labor markets have often led to rising inflation because of
increased demand for goods and services. With this in mind, the Federal Reserve
raised its federal funds interest rate target by 0.25% on March 25 in a
"preemptive" strike against mounting inflationary pressures. Observed price
increases have been subdued in recent months, however. Wholesale prices have
fallen in each of the first six months of 1997, and so far this year consumer
prices have risen at a slower pace than last year.
With interest rates very close to year-end levels, bond investors have
fared reasonably well during the past six months, as illustrated by the 3.1%
return of the Lehman Brothers Aggregate Bond Index. Investors who favored
shorter-maturity and lower-quality issues achieved somewhat better returns.
Mortgage-backed securities continued to perform well because refinancing
activity has been reduced to historically low levels as interest rates have
risen. Municipal issues also tended to perform better than their taxable
counterparts.
INTERNATIONAL EQUITY MARKETS
International investors received fairly good returns over the past six months.
As measured by the broad Morgan Stanley Capital International Europe,
Australasia, Far East Index, foreign markets gained 11.4%.
The period saw two major developments. First, the Japanese stock market
moved sharply higher in the spring, returning 11.1% in May and 7.5% in June to
U.S. investors. Better tone in the economy, plus strong earnings reported by
export-oriented companies benefiting from the weak yen, gave Japan a
long-awaited boost. For the six months, the Japanese market is up 9.2%. The
competitive benefits of a weak currency relative to the dollar extended to
Germany, where the export-driven capital goods and chemical manufacturers
gained; overall, the German market rose 17.0% during the six-month period.
Arguably the biggest news came from the French elections at the end of
May. The new government is considered to be less friendly toward the austerity
measures needed to meet the eligibility requirements for the European Monetary
Union (EMU) in 1999. The French elections also had a broad impact across the
continent. Although most investors appear to agree that the elections won't
jeopardize the continent's move toward the EMU, the timing and intensity of the
fiscal measures are now less certain. For the six months, Europe gained 24.8%
in local currencies, which a strong dollar trimmed to 14.4% for U.S. investors.
5
<PAGE> 8
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolios. Note, too,
that both share price and return can fluctuate so that an investment in the
Portfolios could lose money.
TOTAL BOND MARKET PORTFOLIO-INVESTOR SHARES
TOTAL INVESTMENT RETURNS: DECEMBER 11, 1986-JUNE 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
TOTAL BOND MARKET PORTFOLIO-
INVESTOR SHARES LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1986 -0.6% 0.4% -0.2% -0.2%
1987 -7.4 8.5 1.1 2.8
1988 -1.6 9.0 7.4 7.9
1989 4.3 9.3 13.6 14.5
1990 -0.3 8.9 8.6 9.0
1991 6.4 8.8 15.2 16.0
1992 -0.2 7.3 7.1 7.4
1993 3.0 6.7 9.7 9.8
1994 -8.8 6.1 -2.7 -2.9
1995 10.6 7.6 18.2 18.5
1996 -3.0 6.6 3.6 3.6
1997** -0.4 3.3 2.9 3.1
- ----------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
**Six months ended June 30, 1997.
See Financial Highlights table on page 32 for dividend and capital gains
information for the past five years.
TOTAL BOND MARKET PORTFOLIO-INSTITUTIONAL SHARES
TOTAL INVESTMENT RETURNS: SEPTEMBER 18, 1995-JUNE 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
TOTAL BOND MARKET PORTFOLIO-
INSTITUTIONAL SHARES LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1995 2.7% 1.8% 4.5% 4.4%
1996 -3.0 6.7 3.7 3.6
1997** -0.4 3.4 3.0 3.1
- ----------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
**Six months ended June 30, 1997.
See Financial Highlights table on page 32 for dividend and capital gains
information since the Portfolio's inception.
SHORT-TERM BOND PORTFOLIO
TOTAL INVESTMENT RETURNS: MARCH 1, 1994-JUNE 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
SHORT-TERM BOND PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -5.0% 4.6% -0.4% -0.2%
1995 6.0 6.9 12.9 12.9
1996 -1.5 6.0 4.5 4.7
1997** -0.2 3.0 2.8 2.9
- ----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Government/Corporate Bond Index.
**Six months ended June 30, 1997.
See Financial Highlights table on page 33 for dividend and capital gains
information since the Portfolio's inception.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Bond Market-Investor Shares* 12/11/86 8.00% 7.00% 0.64% 7.77% 8.41%
Total Bond Market-Institutional Shares 9/18/95 8.14 -- -0.40** 6.76** 6.36**
Short-Term Bond Portfolio* 3/1/94 6.70 -- -0.29** 6.14** 5.85**
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the $10 annual account maintenance fee.
**Since inception.
6
<PAGE> 9
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolios. Note, too,
that both share price and return can fluctuate widely so that an investment in
the Portfolios could lose money.
INTERMEDIATE-TERM BOND PORTFOLIO
TOTAL INVESTMENT RETURNS: MARCH 1, 1994-JUNE 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
INTERMEDIATE-TERM BOND PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -8.2% 5.3% -2.9% -2.9%
1995 13.3 7.8 21.1 21.4
1996 -3.9 6.5 2.6 2.7
1997** -0.7 3.4 2.7 2.8
- ----------------------------------------------------------
</TABLE>
*Lehman 5-10 Year Government/Corporate Bond Index.
**Six months ended June 30, 1997.
See Financial Highlights table on page 33 for dividend and capital gains
information since the Portfolio's inception.
LONG-TERM BOND PORTFOLIO
TOTAL INVESTMENT RETURNS: MARCH 1, 1994-JUNE 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------
LONG-TERM BOND PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -10.4% 5.9% -4.5% -4.6%
1995 21.0 8.7 29.7 30.0
1996 -6.8 6.5 -0.3 0.1
1997** -1.1 3.5 2.4 2.5
- ----------------------------------------------------------
</TABLE>
*Lehman Long Government/Corporate Bond Index.
**Six months ended June 30, 1997.
See Financial Highlights table on page 34 for dividend and capital gains
information since the Portfolio's inception.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Intermediate-Term Bond Portfolio* 3/1/94 7.90% -0.24% 6.84% 6.60%
Long-Term Bond Portfolio* 3/1/94 8.85 0.00 7.24 7.24
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Performance figures are adjusted for the $10 annual account maintenance fee.
7
<PAGE> 10
[PHOTO]
FINANCIAL STATEMENTS
JUNE 30, 1997 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's holdings, including
each security's market value on the last day of the reporting period.
Securities are grouped and subtotaled by bond type (U.S. government and agency
issues, corporate bonds, foreign bonds, etc.); corporate bonds are further
classified by industry sector. Other assets are added to, and liabilities are
subtracted from, the value of Total Investments to calculate the Portfolio's
Net Assets. Finally, Net Assets are divided by the outstanding shares of the
Portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets of each Portfolio, you will
find a table displaying the composition of the Portfolio's net assets on both a
dollar and per-share basis. Undistributed Net Investment Income is usually zero
because the Portfolio distributes its net income to shareholders as a dividend
each day. Any realized gains must be distributed annually, so the bulk of net
assets consists of Paid in Capital (money invested by shareholders). The
balance shown for Accumulated Net Realized Gains usually approximates the
amount available to distribute to shareholders as capital gains as of the
statement date, but may differ because certain investments or transactions may
be treated differently for financial statement and tax purposes. Any
Accumulated Net Realized Losses, and any cumulative excess of distributions
over net realized gains, will appear as negative balances. Unrealized
Appreciation (Depreciation) is the difference between the value of the
Portfolio's investments and their cost, and reflects the gains (losses) that
would be realized if the Portfolio were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (70.9%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (39.0%)
U.S. Treasury Bonds 7.25% 5/15/16-8/15/22 $ 3,205 $ 3,345
U.S. Treasury Bonds 7.50% 11/15/16 1,135 1,213
U.S. Treasury Bonds 7.625% 2/15/07 670 696
U.S. Treasury Bonds 7.875% 11/15/07-2/15/21 15,095 16,826
U.S. Treasury Bonds 8.00% 11/15/21 12,800 14,482
U.S. Treasury Bonds 8.125% 8/15/19-8/15/21 279,595 319,417
U.S. Treasury Bonds 8.50% 2/15/20 38,670 45,817
U.S. Treasury Bonds 8.75% 5/15/17-8/15/20 79,350 95,889
U.S. Treasury Bonds 8.875% 8/15/17-2/15/19 72,635 88,529
U.S. Treasury Bonds 9.125% 5/15/09-5/15/18 29,040 36,212
U.S. Treasury Bonds 9.25% 2/15/16 435 544
U.S. Treasury Bonds 9.375% 2/15/06 110 130
U.S. Treasury Bonds 9.875% 11/15/15 4,390 5,774
U.S. Treasury Bonds 10.00% 5/15/10 2,000 2,406
U.S. Treasury Bonds 10.375% 11/15/09-11/15/12 147,120 182,624
U.S. Treasury Bonds 10.75% 2/15/03-8/15/05 40,880 51,526
U.S. Treasury Bonds 11.125% 8/15/03 1,135 1,400
U.S. Treasury Bonds 11.25% 2/15/15 200 291
U.S. Treasury Bonds 11.625% 11/15/02-11/15/04 13,650 16,897
U.S. Treasury Bonds 11.75% 2/15/10-11/15/14 1,085 1,515
U.S. Treasury Bonds 12.00% 8/15/13 350 493
U.S. Treasury Bonds 12.375% 5/15/04 100 132
U.S. Treasury Bonds 12.75% 11/15/10 380 527
U.S. Treasury Bonds 13.375% 8/15/01 2,600 3,254
U.S. Treasury Bonds 14.00% 11/15/11 3,420 5,153
U.S. Treasury Inflation Indexed Note 3.375% 1/15/07 16,076 15,700
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes 4.75% 8/31/98 $ 4,560 $ 4,502
U.S. Treasury Notes 5.125% 11/30/98 13,250 13,104
U.S. Treasury Notes 5.25% 12/31/97-7/31/98 6,630 6,596
U.S. Treasury Notes 5.375% 5/31/98 1,800 1,794
U.S. Treasury Notes 5.50% 11/15/98 45,300 45,027
U.S. Treasury Notes 5.625% 11/30/98-2/28/01 65,950 65,359
U.S. Treasury Notes 5.75% 10/31/00-8/15/03 6,025 5,910
U.S. Treasury Notes 5.875% 8/15/98 210 210
U.S. Treasury Notes 6.00% 11/30/97 1,900 1,903
U.S. Treasury Notes 6.25% 7/31/98-1/31/02 179,655 178,924
U.S. Treasury Notes 6.375% 1/15/99-3/31/01 205,850 206,812
U.S. Treasury Notes 6.50% 5/31/01-8/15/05 745 747
U.S. Treasury Notes 6.625% 6/30/01 1,300 1,312
U.S. Treasury Notes 6.75% 5/31/99-4/30/00 99,675 100,931
U.S. Treasury Notes 6.875% 7/31/99-5/15/06 58,935 60,025
U.S. Treasury Notes 7.00% 4/15/99 18,750 19,051
U.S. Treasury Notes 7.25% 8/15/04 375 391
U.S. Treasury Notes 7.50% 10/31/99-11/15/01 99,030 102,939
U.S. Treasury Notes 7.75% 11/30/99-2/15/01 86,635 89,716
U.S. Treasury Notes 7.875% 11/15/99-11/15/04 20,960 21,989
U.S. Treasury Notes 8.00% 8/15/99 44,775 46,430
U.S. Treasury Notes 8.25% 7/15/98 51,475 52,713
U.S. Treasury Notes 8.50% 2/15/00 7,050 7,434
U.S. Treasury Notes 8.75% 8/15/00 86,625 92,644
U.S. Treasury Notes 8.875% 11/15/98-2/15/99 55,275 57,453
U.S. Treasury Notes 9.25% 8/15/98 1,000 1,036
U.S. Treasury Strip 0.00% 8/15/01 1,000 772
----------
2,096,516
----------
AGENCY BONDS AND NOTES (1.3%)
Federal Home Loan Bank 5.90% 6/9/00 1,000 989
Federal Home Loan Bank 8.60% 1/25/00 110 116
Federal Home Loan Mortgage Corp. 6.09% 3/1/00 285 282
Federal Home Loan Mortgage Corp. 6.155% 9/15/00 1,000 995
Federal Home Loan Mortgage Corp. 6.785% 3/1/06 9,525 9,253
Federal Home Loan Mortgage Corp. 7.09% 6/1/05 4,400 4,364
Federal National Mortgage Assn. 4.95% 9/30/98 2,350 2,320
Federal National Mortgage Assn. 5.35% 8/12/98 12,350 12,274
Federal National Mortgage Assn. 5.80% 12/10/03 2,300 2,203
Federal National Mortgage Assn. 5.90% 7/6/00 3,000 2,966
Federal National Mortgage Assn. 6.20% 7/10/03 625 605
Federal National Mortgage Assn. 6.25% 8/12/03 8,200 7,951
Federal National Mortgage Assn. 6.40% 3/25/03 5,000 4,889
Federal National Mortgage Assn. 7.55% 6/10/04 8,900 8,974
Federal National Mortgage Assn. 8.10% 8/12/19 110 121
Federal National Mortgage Assn. 8.20% 3/10/98 225 229
Federal National Mortgage Assn. 8.35% 11/10/99 170 178
Federal National Mortgage Assn. 8.45% 7/12/99 110 115
Federal National Mortgage Assn. 8.625% 10/18/21 1,170 1,234
Federal National Mortgage Assn. 8.70% 6/10/99 110 115
Federal National Mortgage Assn. 9.55% 3/10/99 225 238
Government Trust Certificate 9.625% 5/15/02 463 492
Private Export Funding Corp. 8.40% 7/31/01 225 241
Resolution Funding Corp. 8.125% 10/15/19 550 618
Resolution Funding Corp. 8.625% 1/15/30 110 133
Resolution Funding Corp. 8.875% 7/15/20 280 339
Small Business Administration Variable Rate Interest-Only
Custodial Receipts 2.719% 6/25/00 20,677 1,964
Tennessee Valley Authority 8.375% 10/1/99 610 638
Tennessee Valley Authority 8.625% 11/15/29 4,000 4,312
----------
69,148
----------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE OBLIGATIONS (30.6%)
Bear Stearns Collateralized Mortgage Obligation Series 1988-4B
(Secured by Federal Home Loan Mortgage Corp.) 9.20% 11/1/18 $ 97 $ 98
Federal Home Loan Mortgage Corp. 5.50% 12/1/98-6/1/11 6,370 6,193
Federal Home Loan Mortgage Corp. 6.00% 6/1/98-4/1/26 48,589 47,069
Federal Home Loan Mortgage Corp. 6.50% 2/1/98-6/1/27 127,676 124,421
Federal Home Loan Mortgage Corp. 7.00% 1/1/98-6/1/27 160,966 159,497
Federal Home Loan Mortgage Corp. 7.50% 12/1/97-6/1/27 129,802 130,935
Federal Home Loan Mortgage Corp. 8.00% 5/1/02-7/1/27 82,138 84,310
Federal Home Loan Mortgage Corp. 8.50% 9/1/01-1/1/27 26,913 28,038
Federal Home Loan Mortgage Corp. 9.00% 8/1/01-10/1/26 11,298 11,969
Federal Home Loan Mortgage Corp. 9.50% 4/1/16-6/1/25 11,289 12,155
Federal Home Loan Mortgage Corp. 10.00% 7/1/00-4/1/25 2,082 2,260
Federal Home Loan Mortgage Corp. 10.50% 9/1/00-12/1/15 557 589
Federal Home Loan Mortgage Corp. 11.25% 8/1/14 35 38
Federal Housing Administration 7.43% 10/1/20 533 522
Federal National Mortgage Assn. 5.50% 1/1/01-6/1/09 2,273 2,182
Federal National Mortgage Assn. 6.00% 10/1/00-2/1/27 39,053 37,582
Federal National Mortgage Assn. 6.50% 2/1/00-3/1/27 104,332 101,252
Federal National Mortgage Assn. 7.00% 9/1/99-3/1/27 155,917 153,860
Federal National Mortgage Assn. 7.50% 1/1/00-6/1/27 125,040 125,937
Federal National Mortgage Assn. 7.75% 10/1/02 1,010 1,021
Federal National Mortgage Assn. 8.00% 9/1/98-5/1/27 74,412 76,298
Federal National Mortgage Assn. 8.50% 12/1/98-11/1/26 33,071 34,405
Federal National Mortgage Assn. 9.00% 6/1/98-1/1/27 20,200 21,315
Federal National Mortgage Assn. 9.50% 10/1/01-2/1/25 8,242 8,879
Federal National Mortgage Assn. 10.00% 8/1/05-6/1/22 3,185 3,432
Federal National Mortgage Assn. 10.50% 11/1/00-8/1/20 914 997
Government National Mortgage Assn. 6.00% 3/1/09-3/15/26 5,230 4,961
Government National Mortgage Assn. 6.50% 9/15/08-6/15/26 44,868 43,467
Government National Mortgage Assn. 7.00% 6/15/08-4/15/27 97,334 96,166
Government National Mortgage Assn. 7.50% 1/15/08-6/15/27 105,423 106,203
Government National Mortgage Assn. 8.00% 11/15/01-3/15/27 96,035 98,748
Government National Mortgage Assn. 8.50% 5/15/10-12/15/26 37,403 39,144
Government National Mortgage Assn. 9.00% 8/15/01-6/15/27 36,566 38,973
Government National Mortgage Assn. 9.50% 1/1/04-9/15/25 25,153 27,230
Government National Mortgage Assn. 10.00% 3/15/00-8/15/25 6,064 6,660
Government National Mortgage Assn. 10.50% 11/15/10-1/15/21 3,775 4,175
Government National Mortgage Assn. 11.50% 3/15/10-11/15/17 424 483
Government National Mortgage Assn. 12.00% 4/15/15 4 4
Resolution Trust Corp. Collateralized Mortgage Obligations 10.40% 8/25/21 1,272 1,328
----------
1,642,796
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $3,768,106) 3,808,460
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (24.6%)
- -------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (3.1%)
Chase Manhattan Credit Card Master Trust 7.40% 5/15/00 963 963
Discover Card Master Trust 5.40% 11/16/01 27,450 27,218
First Chicago Master Trust 6.25% 8/15/99 3,600 3,604
First Deposit Master Trust 5.75% 6/15/01 10,320 10,329
First Deposit Master Trust 6.05% 8/15/02 33,600 33,658
MBNA Master Credit Card Trust 5.40% 9/15/00 5,000 4,961
MBNA Master Credit Card Trust 6.20% 8/15/99 3,800 3,803
Sears Credit Card Master Trust 6.25% 1/15/03 20,000 20,111
Sears Credit Card Master Trust 7.00% 1/15/04 3,000 3,050
Sears Credit Card Master Trust 7.25% 7/16/01 5,900 5,934
Sears Credit Card Master Trust 8.10% 6/15/04 1,900 1,983
Standard Credit Card Master Trust 6.75% 6/7/00 20,000 19,960
Standard Credit Card Master Trust 6.80% 4/7/01 15,850 15,984
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard Credit Card Master Trust 7.85% 2/7/02 $ 7,750 $ 7,995
Standard Credit Card Master Trust 7.875% 1/7/00 3,600 3,682
Standard Credit Card Master Trust 8.875% 9/7/99 2,085 2,144
Standard Credit Card Master Trust 9.375% 9/10/98 2,000 2,001
----------
167,380
----------
FINANCE (9.9%)
American Express Credit Corp. 6.50% 8/1/00 2,200 2,194
American Express Credit Corp. 8.50% 6/15/99 2,325 2,415
American General Finance Corp. 5.875% 7/1/00 3,770 3,693
American General Finance Corp. 7.45% 7/1/02 1,575 1,610
American General Finance Corp. 8.00% 2/15/00 11,700 12,091
American General Finance Corp. 8.50% 8/15/98 700 718
Associates Corp. 6.25% 3/15/99 7,500 7,498
Associates Corp. 6.625% 5/15/01 3,300 3,295
Associates Corp. 6.625% 6/15/05 1,000 973
Associates Corp. 7.25% 5/15/98 4,800 4,856
Associates Corp. 7.50% 5/15/99 3,700 3,775
Associates Corp. 7.50% 4/15/02 4,800 4,932
Associates Corp. 9.125% 4/1/00 1,000 1,063
AVCO Financial Services 5.50% 5/1/98 750 748
BankAmerica Corp. 7.50% 10/15/02 400 411
BankAmerica Corp. 7.625% 6/15/04 1,050 1,082
BankAmerica Corp. 9.625% 2/13/01 1,100 1,202
BankAmerica Corp. 10.00% 2/1/03 4,900 5,588
Barnett Banks, Inc. 8.50% 1/15/07 5,000 5,434
Bear Stearns Co. 6.50% 6/15/00 500 498
Bear Stearns Co. 6.625% 1/15/04 3,150 3,072
Bear Stearns Co. 6.75% 8/15/00 2,000 2,005
Camden Property Trust 7.00% 11/15/06 4,250 4,118
Chase Manhattan Corp. 8.50% 2/15/02 10,000 10,654
Chase Manhattan Corp. 10.375% 3/15/99 3,000 3,196
Chemical Banking Corp. 7.25% 9/15/02 500 509
Chrysler Finance Corp. 5.375% 10/15/98 850 842
Chrysler Finance Corp. 5.625% 1/15/99 2,725 2,703
Chrysler Finance Corp. 5.875% 2/7/01 3,500 3,410
Chrysler Finance Corp. 6.50% 6/15/98 4,000 4,020
Chrysler Finance Corp. 6.625% 8/15/00 3,050 3,051
CIT Group Holdings 6.625% 6/15/05 7,900 7,689
Citicorp 8.625% 12/1/02 2,000 2,157
Citicorp 9.75% 8/1/99 4,000 4,257
Comerica, Inc. 7.125% 12/1/13 5,000 4,768
Commercial Credit Corp. 5.90% 9/1/03 550 522
CoreStates Capital Corp. 6.625% 3/15/05 6,900 6,701
CoreStates Capital Corp. 9.375% 4/15/03 1,250 1,393
Countrywide Funding 8.25% 7/15/02 3,750 3,954
Dean Witter Discover & Co. 6.75% 8/15/00 4,000 4,018
Dean Witter Discover & Co. 6.75% 10/15/13 800 744
Dean Witter Discover & Co. 6.875% 3/1/03 1,600 1,597
Fifth Third Bancorp 6.75% 7/15/05 5,000 4,897
First Bank N.A. 7.55% 6/15/04 10,000 10,281
First Bank System 7.625% 5/1/05 5,000 5,168
First Chicago Corp. 6.375% 1/30/09 5,000 4,648
First Chicago Corp. 6.875% 6/15/03 5,000 4,980
First Chicago Corp. 7.625% 1/15/03 2,400 2,474
First Chicago Corp. 9.25% 11/15/01 1,225 1,336
First Chicago Corp. 10.25% 5/1/01 2,750 3,067
First Fidelity Bancorp 9.625% 8/15/99 700 744
First Interstate Bancorp 8.625% 4/1/99 8,295 8,599
First Interstate Bancorp 10.875% 4/15/01 2,750 3,121
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Union Corp. 8.00% 11/15/02 $ 100 $ 105
First Union Corp. 8.125% 6/24/02 2,900 3,049
Fleet Financial Group, Inc. 6.875% 3/1/03 500 498
Fleet Financial Group, Inc. 7.125% 4/15/06 5,700 5,663
Fleet Financial Group, Inc. 7.25% 9/1/99 1,000 1,016
Fleet/Norstar Group 8.125% 7/1/04 4,600 4,861
Ford Motor Credit Corp. 6.75% 5/15/05 1,385 1,355
Ford Motor Credit Corp. 9.00% 9/15/01 5,000 5,395
Ford Motor Credit Corp. 9.375% 12/15/97 125 127
General Electric Capital Corp. 8.30% 9/20/09 275 304
General Motors Acceptance Corp. 6.625% 10/1/02 5,800 5,729
General Motors Acceptance Corp. 7.125% 6/1/99 2,950 2,991
General Motors Acceptance Corp. 8.00% 10/1/99 3,000 3,094
General Motors Acceptance Corp. 8.40% 10/15/99 4,190 4,362
General Motors Acceptance Corp. 8.50% 1/1/03 5,500 5,906
General Motors Acceptance Corp. 8.625% 6/15/99 4,250 4,424
General Motors Acceptance Corp. 9.625% 12/15/01 1,000 1,105
Great Western Finance 6.125% 6/15/98 10,100 10,108
Great Western Finance 6.375% 7/1/00 16,100 15,963
Great Western Finance 8.625% 12/1/98 2,275 2,347
Household Finance Corp. 6.45% 2/1/09 2,430 2,264
Household Finance Corp. 7.65% 5/15/07 3,250 3,348
Household Finance Corp. 7.75% 6/1/99 1,000 1,024
Household Finance Corp. 8.95% 9/15/99 3,000 3,148
Lehman Brothers Holdings 6.625% 11/15/00 7,861 7,820
Lehman Brothers Holdings 6.90% 1/29/01 10,800 10,817
Lehman Brothers Holdings 8.375% 2/15/99 5,400 5,559
Mellon Bank 6.75% 6/1/03 2,775 2,744
Mellon Financial Corp. 7.625% 11/15/99 850 871
Merrill Lynch & Co., Inc. 6.50% 4/1/01 18,000 17,882
Merrill Lynch & Co., Inc. 7.00% 3/15/06 300 298
Merrill Lynch & Co., Inc. 8.00% 2/1/02 2,600 2,723
Merrill Lynch & Co., Inc. 8.30% 11/1/02 2,735 2,913
Merrill Lynch & Co., Inc. 9.00% 5/1/98 2,450 2,512
NAC Re Corp. 7.15% 11/15/05 1,500 1,483
National City Corp. 7.20% 5/15/05 10,000 10,066
NationsBank Corp. 6.50% 3/15/06 5,000 4,800
NationsBank Corp. 6.875% 2/15/05 580 574
NationsBank Corp. 7.00% 9/15/01 1,800 1,816
NationsBank Corp. 7.25% 10/15/25 1,625 1,544
NationsBank Corp. 7.75% 8/15/04 5,000 5,198
NationsBank Texas 6.75% 8/15/00 9,600 9,646
NCNB Corp. 9.50% 6/1/04 1,725 1,954
Norwest Financial, Inc. 6.25% 11/1/02 1,000 976
Norwest Financial, Inc. 6.65% 10/15/23 40 36
Norwest Financial, Inc. 7.875% 2/15/02 1,000 1,044
Orion Capital Corp. 7.25% 7/15/05 9,200 9,123
Orion Capital Corp. 9.125% 9/1/02 3,921 4,268
Paine Webber Group, Inc. 6.50% 11/1/05 500 472
Paine Webber Group, Inc. 7.00% 3/1/00 4,350 4,378
Paine Webber Group, Inc. 7.875% 2/15/03 2,250 2,317
Pitney Bowes Credit Corp. 9.25% 6/15/08 2,000 2,339
Realty Income Corp. 7.75% 5/6/07 3,000 3,050
Republic New York Corp. 7.75% 5/15/02 3,000 3,114
Republic New York Corp. 7.75% 5/15/09 4,300 4,495
Republic New York Corp. 9.70% 2/1/09 5,000 5,995
Salomon, Inc. 6.50% 3/1/00 15,000 14,897
Salomon, Inc. 6.70% 12/1/98 3,000 3,015
Sears, Roebuck & Co. Acceptance Corp. 6.125% 1/15/06 4,500 4,235
Security Capital Pacific Trust 8.05% 4/1/17 4,300 4,417
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shurgard Storage Centers, Inc. 7.50% 4/25/04 $ 3,000 $ 3,049
Smith Barney Holdings, Inc. 5.50% 1/15/99 5,000 4,950
Smith Barney Holdings, Inc. 5.875% 2/1/01 13,200 12,838
Smith Barney Holdings, Inc. 6.50% 10/15/02 300 295
Smith Barney Holdings, Inc. 6.625% 6/1/00 10,000 9,997
Smith Barney Holdings, Inc. 7.00% 5/15/00 6,000 6,057
Smith Barney Holdings, Inc. 7.98% 3/1/00 2,000 2,066
Summit Bancorp 8.625% 12/10/02 5,000 5,371
SunTrust Banks, Inc. 6.00% 2/15/26 5,000 4,664
SunTrust Banks, Inc. 7.375% 7/1/02 5,000 5,120
SunTrust Banks, Inc. 7.375% 7/1/06 5,000 5,086
SunTrust Banks, Inc. 8.875% 2/1/98 115 117
Travelers/Aetna Property Casualty Corp. 6.75% 4/15/01 9,000 9,008
Travelers/Aetna Property Casualty Corp. 7.75% 4/15/26 1,000 1,011
U.S. Leasing International 6.625% 5/15/03 195 192
United Dominion Realty Trust, Inc. 7.25% 1/15/07 3,500 3,499
USF&G Corp. 7.125% 6/1/05 600 596
Wachovia Corp. 6.375% 4/15/03 110 108
Wachovia Corp. 6.80% 6/1/05 10,000 9,874
Wachovia Corp. 7.00% 12/15/99 600 607
Wells Fargo & Co. 6.125% 11/1/03 5,000 4,785
Wells Fargo & Co. 6.875% 4/1/06 6,400 6,288
----------
531,926
----------
INDUSTRIAL (8.3%)
Amoco Canada Petroleum Co. 6.75% 2/15/05 145 144
Anheuser-Busch Cos., Inc. 7.10% 6/15/07 5,050 5,066
Anheuser-Busch Cos., Inc. 7.375% 7/1/23 800 778
Anheuser-Busch Cos., Inc. 8.625% 12/1/16 1,245 1,301
Applied Materials, Inc. 8.00% 9/1/04 1,625 1,709
Archer-Daniels-Midland Co. 6.25% 5/15/03 1,000 975
Archer-Daniels-Midland Co. 8.875% 4/15/11 3,745 4,339
Auburn Hills 12.00% 5/1/20 970 1,444
C.R. Bard, Inc. 6.70% 12/1/26 7,350 7,138
Baxter International, Inc. 9.25% 12/15/99 100 106
Black & Decker Corp. 6.625% 11/15/00 11,000 10,942
Black & Decker Corp. 7.50% 4/1/03 17,200 17,528
The Boeing Co. 8.75% 8/15/21 1,800 2,088
Bowater, Inc. 9.375% 12/15/21 3,000 3,548
BP America, Inc. 9.375% 11/1/00 1,500 1,625
Burlington Northern Santa Fe Corp. 6.375% 12/15/05 6,750 6,425
Burlington Northern Santa Fe Corp. 6.875% 2/15/16 2,900 2,718
Burlington Northern Santa Fe Corp. 7.00% 12/15/25 2,350 2,185
CSX Corp. 8.625% 5/15/22 875 964
CSX Corp. 9.00% 8/15/06 700 786
Caterpillar, Inc. 9.00% 4/15/06 1,600 1,801
Chrysler Corp. 7.45% 2/1/2097 4,375 4,257
Chrysler Corp. 10.40% 8/1/99 3,550 3,561
Conrail Corp. 9.75% 6/15/20 1,680 2,064
Cyprus Amax Minerals Co. 7.375% 5/15/07 6,000 6,020
Deere & Co. 8.50% 1/9/22 985 1,098
Delta Airlines, Inc. (Equipment Trust Certificates) 8.54% 1/2/07 3,965 4,196
Dow Chemical Co. 8.50% 6/8/10 2,500 2,769
Eastman Chemical Co. 6.375% 1/15/04 5,525 5,356
Eastman Chemical Co. 7.25% 1/15/24 3,700 3,543
Falconbridge Ltd. 7.35% 11/1/06 1,000 1,006
Federal Express Corp. 10.00% 9/1/98 1,500 1,561
Ford Capital BV 9.00% 8/15/98 6,300 6,495
Ford Capital BV 9.125% 5/1/98 6,500 6,668
Ford Capital BV 9.50% 7/1/01 1,925 2,107
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ford Capital BV 9.50% 6/1/10 $ 825 $ 978
Ford Capital BV 9.875% 5/15/02 1,250 1,406
Ford Holdings 9.25% 3/1/00 5,900 6,270
Ford Motor Corp. 7.50% 11/15/99 2,000 2,046
Ford Motor Corp. 9.95% 2/15/32 835 1,070
Fortune Brands 7.875% 1/15/23 1,900 1,959
Gannett Co. 5.25% 3/1/98 190 190
Gannett Co. 5.85% 5/1/00 1,000 982
General Motors Corp. 7.00% 6/15/03 2,000 2,014
General Motors Corp. 9.125% 7/15/01 7,900 8,560
General Motors Corp. 9.625% 12/1/00 9,050 9,864
W.R. Grace & Co. 7.40% 2/1/00 6,700 6,828
W.R. Grace & Co. 7.75% 10/1/02 500 518
W.R. Grace & Co. 8.00% 8/15/04 11,950 12,520
H.J. Heinz Co. 6.875% 1/15/03 100 101
HNG Internorth 9.625% 3/15/06 4,680 5,415
International Business Machines Corp. 6.375% 11/1/97 100 100
International Business Machines Corp. 6.375% 6/15/00 500 497
International Business Machines Corp. 7.125% 12/1/2096 5,525 5,231
International Paper Co. 7.875% 8/1/06 2,265 2,386
Kellogg Co. 5.90% 7/15/97 120 120
Kroger Co. 8.15% 7/15/06 2,700 2,862
Lockheed Martin Corp. 6.85% 5/15/01 500 500
Lockheed Martin Corp. 7.65% 5/1/16 5,000 5,062
May Department Stores Co. 9.75% 5/16/04 1,680 2,030
May Department Stores Co. 9.875% 12/1/02 1,775 2,009
McDonald's Corp. 6.75% 2/15/03 945 940
MedPartners Inc. 7.375% 10/1/06 3,950 3,963
Mobil Corp. 7.625% 2/23/33 920 897
News America Holdings 7.50% 3/1/00 1,100 1,121
News America Holdings 8.00% 10/17/16 9,750 9,612
News America Holdings 8.50% 2/15/05 1,600 1,704
News America Holdings 9.125% 10/15/99 14,600 15,359
Norfolk Southern Corp. 6.875% 5/1/01 21,375 21,502
Norfolk Southern Corp. 7.70% 5/15/17 1,750 1,790
Norfolk Southern Corp. 7.90% 5/15/2097 1,750 1,801
Northrop Grumman Corp. 7.00% 3/1/06 15,700 15,445
Occidental Petroleum Corp. 8.50% 11/9/01 14,750 15,532
Occidental Petroleum Corp. 8.50% 9/15/04 2,500 2,577
Occidental Petroleum Corp. 9.25% 8/1/19 1,750 2,087
Occidental Petroleum Corp. 10.125% 11/15/01 7,000 7,807
J.C. Penney & Co., Inc. 6.125% 11/15/03 2,000 1,917
J.C. Penney & Co., Inc. 6.875% 6/15/99 3,000 3,029
J.C. Penney & Co., Inc. 7.125% 11/15/23 1,855 1,750
J.C. Penney & Co., Inc. 9.05% 3/1/01 625 673
PepsiCo, Inc. 6.25% 9/1/99 500 499
Petro-Canada 7.875% 6/15/26 10,000 10,361
Philip Morris Cos., Inc. 6.00% 7/15/01 110 106
Philip Morris Cos., Inc. 8.25% 10/15/03 1,900 2,004
Phillips Petroleum Co. 8.49% 1/1/23 3,000 3,111
Phillips Petroleum Co. 9.00% 6/1/01 3,400 3,649
Praxair, Inc. 6.75% 3/1/03 1,000 992
Praxair, Inc. 6.90% 11/1/06 10,750 10,651
Quaker State Corp. 6.625% 10/15/05 3,275 3,158
Rockwell International 8.875% 9/15/99 110 116
Rohm & Haas Co. 9.80% 4/15/20 5,000 6,037
Seagate Technology, Inc. 7.45% 3/1/37 8,875 8,891
Sears, Roebuck & Co. 6.25% 1/15/04 1,200 1,156
Sears, Roebuck & Co. 6.50% 6/15/00 18,185 18,128
Sears, Roebuck & Co. 9.375% 11/1/11 1,845 2,206
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tenneco, Inc. 8.20% 11/15/99 $ 12,500 $ 12,933
Tenneco, Inc. 10.075% 2/1/01 5,150 5,686
Texaco Capital Corp. 7.50% 3/1/43 850 831
Texaco Capital Corp. 8.25% 10/1/06 1,000 1,089
Texaco Capital Corp. 8.875% 9/1/21 705 819
Texaco Capital Corp. 9.00% 12/15/99 300 317
Texas Instruments Inc. 6.125% 2/1/06 6,300 5,939
Union Carbide Corp. 6.75% 4/1/03 3,500 3,463
Union Carbide Corp. 7.75% 10/1/2096 800 797
Union Carbide Corp. 7.875% 4/1/23 4,755 4,849
Union Oil of California 7.20% 5/15/05 5,000 5,063
Union Oil of California 9.125% 2/15/06 2,935 3,322
Union Pacific Corp. 8.625% 5/15/22 2,865 3,065
United Technologies Corp. 8.875% 11/15/19 5,000 5,760
Whirlpool Corp. 9.00% 3/1/03 2,250 2,460
Whirlpool Corp. 9.10% 2/1/08 940 1,072
----------
443,865
----------
UTILITIES (3.3%)
Alabama Power Co. 6.00% 3/1/00 1,950 1,926
Alabama Power Co. 8.75% 12/1/21 1,147 1,185
Arizona Public Service Co. 7.25% 8/1/23 2,150 2,027
AT&T Corp. 7.125% 1/15/02 1,100 1,116
AT&T Corp. 8.35% 1/15/25 2,350 2,455
Baltimore Gas & Electric Co. 8.375% 8/15/01 5,570 5,897
Carolina Power & Light Co. 6.875% 8/15/23 2,550 2,334
Carolina Power & Light, Co. 8.20% 7/1/22 110 113
Cincinnati Gas & Electric Co. 6.45% 2/15/04 1,000 973
Coastal Corp. 7.75% 10/15/35 6,600 6,603
Coastal Corp. 8.125% 9/15/02 1,300 1,367
Coastal Corp. 9.625% 5/15/12 5,000 5,980
Consolidated Edison Co. of New York, Inc. 6.375% 4/1/03 5,000 4,870
Consolidated Edison Co. of New York, Inc. 6.625% 2/1/02 1,000 994
Enron Corp. 6.875% 10/15/07 10,000 9,748
Enron Corp. 7.125% 5/15/07 6,100 6,070
Enron Corp. 7.625% 9/10/04 2,000 2,069
Enron Corp. 9.65% 5/15/01 4,150 4,534
GTE Corp. 7.83% 5/1/23 4,000 3,966
GTE Corp. 8.75% 11/1/21 750 847
GTE Corp. 9.10% 6/1/03 225 249
GTE Florida, Inc. 6.31% 12/15/02 5,000 4,894
Houston Lighting & Power Co. 8.75% 3/1/22 1,050 1,115
Illinois Power Co. 7.50% 7/15/25 4,200 3,977
MCI Communications Corp. 7.50% 8/20/04 4,050 4,196
MCI Communications Corp. 7.75% 3/23/25 4,650 4,652
Michigan Bell Telephone Co. 6.375% 2/1/05 155 149
Michigan Bell Telephone Co. 7.50% 2/15/23 2,510 2,461
New England Telephone & Telegraph Co. 6.875% 10/1/23 890 817
New England Telephone & Telegraph Co. 8.625% 8/1/01 2,000 2,137
New England Telephone & Telegraph Co. 9.00% 8/1/31 3,750 4,057
New Jersey Bell Telephone Co. 6.625% 4/1/08 190 182
New York Telephone Co. 7.00% 8/15/25 1,925 1,778
New York Telephone Co. 7.25% 2/15/24 5,000 4,743
New York Telephone Co. 7.75% 12/15/06 120 121
Northern States Power Co. 7.125% 7/1/25 5,000 4,853
Northern Telecom Ltd. 6.875% 9/1/23 4,565 4,227
Pacific Bell Telephone Co. 7.00% 7/15/04 2,275 2,290
Pacific Bell Telephone Co. 7.25% 7/1/02 250 255
Pacific Gas & Electric Co. 6.25% 8/1/03 5,000 4,855
Pacific Gas & Electric Co. 6.75% 10/1/23 150 136
Pacific Gas & Electric Co. 8.25% 11/1/22 5,000 5,176
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TOTAL BOND MARKET PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Gas & Electric Co. 8.375% 5/1/25 $ 5,000 $ 5,159
Pacific Gas & Electric Co. 8.75% 1/1/01 2,000 2,129
Pennsylvania Power & Light Co. 6.50% 4/1/05 135 131
Public Service Electric & Gas Co. 6.50% 5/1/04 170 166
South Carolina Electric & Gas 9.00% 7/15/06 145 164
Southern Bell Telephone Co. 7.625% 3/15/13 4,950 4,858
Southern California Edison Co. 6.375% 1/15/06 5,350 5,126
Southern California Edison Co. 6.75% 1/15/00 600 603
Southern California Gas 7.375% 3/1/23 120 116
Southwestern Bell Telephone Co. 7.25% 7/15/25 10,650 10,190
Southwestern Bell Telephone Co. 7.625% 10/1/13 1,620 1,597
Southwestern Bell Telephone Co. 7.625% 3/1/23 8,355 8,261
Texas Utilities Co. 5.75% 7/1/98 1,200 1,196
Texas Utilities Co. 7.375% 8/1/01 2,800 2,857
Texas Utilities Co. 7.875% 3/1/23 2,975 2,949
Texas Utilities Co. 8.25% 4/1/04 3,250 3,466
Texas Utilities Co. 8.75% 11/1/23 180 190
U S WEST Communications Group 6.875% 9/15/33 165 147
Union Electric Power Co. 6.75% 5/1/08 40 39
Union Electric Power Co. 7.65% 7/15/03 2,000 2,079
Virginia Electric & Power Co. 6.625% 4/1/03 2,300 2,278
Wisconsin Electric Power Co. 7.70% 12/15/27 65 65
----------
176,160
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $1,318,749) 1,319, 331
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(3.2%)
- -------------------------------------------------------------------------------------------------------------------------
Province of Alberta 9.20% 11/1/97 145 147
Province of Alberta 9.25% 4/1/00 5,075 5,428
Asian Development Bank 9.125% 6/1/00 740 791
Bayerische Landesbank 7.375% 12/14/02 145 149
British Aerospace 8.50% 6/10/02 3,000 3,187
British Columbia Hydro 12.50% 9/1/13 400 443
Province of British Columbia 7.00% 1/15/03 2,550 2,589
European Investment Bank 10.125% 10/1/00 125 138
Finland Global Bond 6.75% 11/24/97 200 201
Finland Global Bond 7.875% 7/28/04 10,300 10,971
Grand Metropolitan Investment Corp. 9.00% 8/15/11 2,225 2,577
Hanson Overseas 7.375% 1/15/03 6,500 6,623
Inter-American Development Bank 7.125% 3/15/23 975 928
Inter-American Development Bank 8.50% 3/15/11 2,705 3,073
International Bank for Reconstruction & Development 9.25% 7/15/17 1,615 1,988
KFW International Finance, Inc. 7.20% 3/15/14 3,550 3,565
KFW International Finance, Inc. 7.625% 2/15/04 7,025 7,341
KFW International Finance, Inc. 8.85% 6/15/99 1,025 1,073
KFW International Finance, Inc. 9.125% 5/15/01 2,400 2,604
Korean Development Bank 6.25% 5/1/00 5,000 4,937
Korean Development Bank 6.625% 11/21/03 11,100 10,799
Korean Development Bank 7.00% 7/15/99 1,300 1,313
Korean Development Bank 7.25% 5/15/06 6,250 6,211
Province of Manitoba 6.125% 1/19/04 6,500 6,276
Province of Manitoba 7.75% 2/1/02 3,600 3,747
Province of Manitoba 8.75% 5/15/01 5,700 6,108
Province of Manitoba 9.25% 4/1/20 2,645 3,187
Province of Manitoba 9.50% 10/1/00 1,560 1,691
Province of Manitoba 9.625% 3/15/99 2,500 2,637
Province of Manitoba 9.625% 12/1/18 3,500 4,345
National Westminster Bancorp Inc. 9.375% 11/15/03 2,800 3,148
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Province of New Brunswick 6.75% 8/15/13 $ 210 $ 201
Province of New Brunswick 8.75% 5/1/22 1,850 2,140
New Zealand Government 8.75% 12/15/06 1,175 1,332
New Zealand Government 10.625% 11/15/05 400 497
Province of Newfoundland 7.32% 10/13/23 8,050 7,789
Noranda, Inc. 7.50% 7/15/03 6,825 6,970
Province of Ontario 7.375% 1/27/03 915 943
Province of Ontario 7.75% 6/4/02 1,175 1,229
Republic of Portugal 5.75% 10/8/03 14,650 13,981
Province of Saskatchewan 7.125% 3/15/08 1,200 1,208
Province of Saskatchewan 7.375% 7/15/13 1,800 1,808
Province of Saskatchewan 8.00% 7/15/04 15,950 16,913
Sweden Global Bond 6.50% 3/4/03 145 144
Kingdom of Thailand 8.25% 3/15/02 8,100 8,499
Tokyo Metro Government 10.375% 10/20/97 135 137
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $171,755) 172,006
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.6%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $35,202) 5.93% 7/1/97 35,202 35,202
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.3%)
(COST $5,293,812) 5,334,999
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.7%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Notes B and F 164,487
Liabilities--Note F (128,322)
----------
36,165
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $5,371,164
- -------------------------------------------------------------------------------------------------------------------------
*See Note A in Notes to Financial Statements.
- -------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT
(000)
- -------------------------------------------------------------------------------------------------------------------------
Paid in Capital $5,347,275
Undistributed Net Investment Income --
Accumulated Net Realized Losses (17,298)
Unrealized Appreciation--Note E 41,187
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,371,164
=========================================================================================================================
Investor Shares--Net Assets Applicable to 418,436,593 outstanding $.001 par value shares** $4,102,522
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $9.80
=========================================================================================================================
Institutional Shares--Net Assets Applicable to 129,395,097 outstanding $.001 par value shares** $1,268,642
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $9.80
=========================================================================================================================
</TABLE>
**Authorized 1,250,000,000 shares for Total Bond Market Portfolio.
17
<PAGE> 20
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM BOND PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (79.1%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (78.8%)
U.S. Treasury Notes 4.75% 8/31/98 $ 1,575 $ 1,555
U.S. Treasury Notes 5.125% 6/30/98-11/30/98 9,200 9,100
U.S. Treasury Notes 5.25% 7/31/98 3,925 3,902
U.S. Treasury Notes 5.50% 11/15/98 10,800 10,735
U.S. Treasury Notes 5.625% 11/30/98-11/30/00 18,825 18,458
U.S. Treasury Notes 6.25% 8/31/00-1/31/02 41,375 41,172
U.S. Treasury Notes 6.375% 5/15/99-3/31/01 29,350 29,473
U.S. Treasury Notes 6.625% 6/30/01-3/31/02 7,275 7,340
U.S. Treasury Notes 6.75% 5/31/99-6/30/99 11,975 12,125
U.S. Treasury Notes 6.875% 7/31/99-3/31/00 6,450 6,548
U.S. Treasury Notes 7.00% 4/15/99 7,050 7,163
U.S. Treasury Notes 7.50% 10/31/99-11/15/01 24,750 25,746
U.S. Treasury Notes 7.75% 11/30/99-2/15/01 22,710 23,538
U.S. Treasury Notes 7.875% 11/15/99-8/15/01 13,000 13,701
U.S. Treasury Notes 8.00% 8/15/99 36,950 38,316
U.S. Treasury Notes 8.25% 7/15/98 17,795 18,223
U.S. Treasury Notes 8.50% 2/15/00 2,350 2,478
U.S. Treasury Notes 8.75% 8/15/00 35,975 38,475
U.S. Treasury Notes 8.875% 11/15/98-2/15/99 42,540 44,191
U.S. Treasury Notes 9.125% 5/15/99 950 1,001
----------
353,240
----------
AGENCY NOTES (0.3%)
Federal National Mortgage Assn. 4.95% 9/30/98 700 691
Federal National Mortgage Assn. 5.35% 8/12/98 700 696
----------
1,387
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $353,675) 354,627
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (17.8%)
- -------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (3.3%)
Chase Manhattan Credit Card Master Trust 7.40% 5/15/00 75 75
Discover Card Master Trust 5.40% 11/16/01 3,150 3,123
First Chicago Master Trust 6.25% 8/15/99 200 200
First Deposit Master Trust 5.75% 6/15/01 2,500 2,502
First Deposit Master Trust 6.05% 8/15/02 2,500 2,504
Sears Credit Card Master Trust 7.25% 7/16/01 433 436
Sears Credit Card Master Trust 8.10% 6/15/04 2,500 2,610
Standard Credit Card Master Trust 6.80% 4/7/01 650 655
Standard Credit Card Master Trust 7.875% 1/7/00 2,500 2,557
----------
14,662
----------
FINANCE (7.7%)
American General Finance Corp. 5.875% 7/1/00 450 441
American General Finance Corp. 8.00% 2/15/00 1,400 1,447
American General Finance Corp. 8.50% 8/15/98 300 308
Associates Corp. 6.25% 3/15/99 500 500
Associates Corp. 7.25% 5/15/98 200 202
Associates Corp. 9.125% 4/1/00 1,000 1,063
AVCO Financial Services 5.50% 5/1/98 250 249
BankAmerica Corp. 9.625% 2/13/01 400 437
Bear Stearns Co. 7.625% 4/15/00 750 769
The Chase Manhattan Corp. 7.75% 11/1/99 135 139
Chrysler Finance Corp. 5.375% 10/15/98 400 397
Chrysler Finance Corp. 5.625% 1/15/99 350 347
Chrysler Finance Corp. 6.50% 6/15/98 250 251
Chrysler Finance Corp. 6.625% 8/15/00 450 450
Citicorp 9.75% 8/1/99 1,000 1,064
Dean Witter, Discover & Co. 6.25% 3/15/00 210 208
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Chicago Corp. 9.875% 8/15/00 $ 150 $ 163
First Chicago Corp. 10.25% 5/1/01 250 279
First Fidelity Bancorp 9.625% 8/15/99 800 850
First Interstate Bancorp 8.625% 4/1/99 900 933
First Interstate Bancorp 10.875% 4/15/01 250 284
General Motors Acceptance Corp. 7.125% 6/1/99 500 507
General Motors Acceptance Corp. 8.625% 6/15/99 750 781
Great Western Finance 6.125% 6/15/98 1,500 1,501
Great Western Finance 6.375% 7/1/00 2,000 1,983
International Lease Finance Corp. 6.20% 5/1/00 3,000 2,968
Lehman Brothers Holdings 6.90% 1/29/01 2,000 2,003
Manufacturers Hanover Corp. 8.50% 2/15/99 900 930
Mellon Financial Corp. 6.50% 12/1/97 300 301
Mellon Financial Corp. 7.625% 11/15/99 600 615
Merrill Lynch & Co., Inc. 6.50% 4/1/01 2,000 1,987
Merrill Lynch & Co., Inc. 9.00% 5/1/98 300 308
NationsBank Corp. 7.00% 9/15/01 1,500 1,513
NationsBank Texas 6.75% 8/15/00 700 703
PaineWebber Group, Inc. 7.00% 3/1/00 1,450 1,459
Salomon, Inc. 6.70% 12/1/98 1,500 1,508
Smith Barney Holdings, Inc. 5.50% 1/15/99 500 495
Smith Barney Holdings, Inc. 5.625% 11/15/98 700 695
Smith Barney Holdings, Inc. 5.875% 2/1/01 700 681
Smith Barney Holdings, Inc. 7.98% 3/1/00 1,000 1,033
SunTrust Banks, Inc. 8.875% 2/1/98 500 509
Travelers/Aetna Property Casualty Corp. 6.75% 4/15/01 1,000 1,001
----------
34,262
----------
INDUSTRIAL (6.3%)
Black & Decker Corp. 6.625% 11/15/00 1,000 995
Chrysler Corp. 10.40% 8/1/99 350 351
Federal Express Corp. 10.00% 9/1/98 600 624
Ford Capital BV 9.00% 8/15/98 535 552
Ford Capital BV 9.125% 5/1/98 1,215 1,246
Ford Capital BV 9.50% 7/1/01 675 739
Ford Holdings 9.25% 3/1/00 1,000 1,063
General Motors Corp. 9.125% 7/15/01 1,000 1,084
General Motors Corp. 9.625% 12/1/00 1,100 1,199
W.R. Grace & Co. 7.40% 2/1/00 1,550 1,580
Kimberly-Clark 8.625% 5/1/01 100 107
Mobil Corp. 8.375% 2/12/01 2,238 2,367
News America Holdings 7.50% 3/1/00 400 408
News America Holdings 9.125% 10/15/99 2,900 3,051
Norfolk Southern Corp. 6.875% 5/1/01 5,250 5,281
Occidental Petroleum Corp. 8.50% 11/9/01 500 527
J.C. Penney & Co., Inc. 6.875% 6/15/99 750 757
J.C. Penney & Co., Inc. 9.05% 3/1/01 375 404
Phillips Petroleum Co. 9.00% 6/1/01 2,000 2,146
Praxair, Inc. 6.25% 6/30/00 1,250 1,235
Sears, Roebuck & Co. 6.50% 6/15/00 1,500 1,495
Tenneco, Inc. 8.20% 11/15/99 350 362
Texaco Capital Corp. 9.00% 11/15/97 105 106
Texaco Capital Corp. 9.00% 12/15/99 700 740
----------
28,419
----------
UTILITIES (0.5%)
Alabama Power Co. 6.00% 3/1/00 1,050 1,037
Public Service of Colorado 6.00% 1/1/01 1,000 978
Texas Utilities Co. 5.75% 7/1/98 300 299
----------
2,314
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $79,702) 79,657
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM BOND PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(1.1%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asian Development Bank 9.125% 6/1/00 $ 700 $ 749
KFW International Finance, Inc. 9.125% 5/15/01 400 434
Province of Manitoba 8.75% 5/15/01 1,500 1,607
Province of Manitoba 9.50% 10/1/00 450 488
Province of Manitoba 9.625% 3/15/99 500 527
National Westminster Bancorp Inc. 9.45% 5/1/01 250 272
Kingdom of Thailand 8.25% 3/15/02 1,000 1,049
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $5,097) 5,126
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $951) 5.93% 7/1/97 951 951
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.2%)
(COST $439,425) 440,361
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Notes B and F 38,951
Liabilities--Note F (31,010)
----------
7,941
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 45,286,195 outstanding $.001 par value shares
(authorized 250,000,000 shares) $448,302
=========================================================================================================================
NET ASSET VALUE PER SHARE $9.90
=========================================================================================================================
*See Note A in Notes to Financial Statements.
- -------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
Paid in Capital $447,677 $9.89
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (311) (.01)
Unrealized Appreciation--Note E 936 .02
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $448,302 $9.90
=========================================================================================================================
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM BOND PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (57.7%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (54.2%)
U.S. Treasury Bonds 10.00% 5/15/10 10,990 13,221
U.S. Treasury Bonds 10.375% 11/15/09-11/15/12 85,215 105,154
U.S. Treasury Bonds 10.75% 8/15/05 21,890 27,601
U.S. Treasury Inflation Indexed Note 3.375% 1/15/07 10,616 10,368
U.S. Treasury Notes 5.75% 8/15/03 19,345 18,677
U.S. Treasury Notes 5.875% 7/31/97 1,000 1,000
U.S. Treasury Notes 6.25% 1/31/02-2/15/03 10,524 10,441
U.S. Treasury Notes 6.375% 5/15/99-8/15/02 20,870 20,878
U.S. Treasury Notes 6.875% 5/15/06 26,000 26,540
U.S. Treasury Notes 7.00% 7/15/06 31,545 32,459
U.S. Treasury Notes 7.125% 2/29/00 100 102
U.S. Treasury Notes 7.25% 5/15/04-8/15/04 15,283 15,925
U.S. Treasury Notes 7.875% 11/15/04 18,330 19,770
U.S. Treasury Notes 8.75% 10/15/97 550 555
U.S. Treasury Notes 8.875% 11/15/98 2,250 2,335
----------
305,026
----------
AGENCY NOTES (3.5%)
Federal Home Loan Mortgage Corp. 6.785% 3/1/06 4,500 4,371
Federal Home Loan Mortgage Corp. 7.09% 6/1/05 3,000 2,976
Federal National Mortgage Assn. 5.80% 12/10/03 900 862
Federal National Mortgage Assn. 6.25% 8/12/03 5,600 5,430
Federal National Mortgage Assn. 7.00% 8/12/02 2,900 2,877
Federal National Mortgage Assn. 7.55% 6/10/04 2,900 2,924
Tennessee Valley Authority 6.875% 1/15/02 200 201
----------
19,641
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $322,734) 324,667
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (32.5%)
- -------------------------------------------------------------------------------------------------------------------------
FINANCE (14.5%)
American General Finance Corp. 7.45% 7/1/02 425 435
Associates Corp. 7.50% 4/15/02 2,400 2,466
BankAmerica Corp. 6.20% 2/15/06 3,000 2,818
BankAmerica Corp. 7.50% 10/15/02 400 411
BankAmerica Corp. 7.625% 6/15/04 450 464
BankAmerica Corp. 7.75% 7/15/02 250 260
BankAmerica Corp. 10.00% 2/1/03 700 798
Bear Stearns Co. 6.625% 1/15/04 350 341
Camden Property Trust 7.00% 11/15/06 2,000 1,938
The Chase Manhattan Corp. 8.625% 5/1/02 1,000 1,072
Chemical Banking Corp. 7.25% 9/15/02 3,565 3,631
CIT Group Holdings 6.625% 6/15/05 350 341
Citicorp 7.125% 6/1/03 135 136
Citicorp 8.625% 12/1/02 1,500 1,618
Commercial Credit Corp. 5.90% 9/1/03 450 427
Commercial Credit Corp. 7.875% 7/15/04 2,000 2,095
CoreStates Capital Corp. 6.625% 3/15/05 2,400 2,331
CoreStates Capital Corp. 9.375% 4/15/03 500 557
Countrywide Funding 8.25% 7/15/02 250 264
Dean Witter, Discover & Co. 6.875% 3/1/03 400 399
First Chicago Corp. 7.625% 1/15/03 600 618
First Union Corp. 8.00% 11/15/02 2,000 2,096
First Union Corp. 8.125% 6/24/02 1,600 1,682
Fleet Financial Group, Inc. 6.875% 3/1/03 600 597
Fleet Financial Group, Inc. 7.125% 4/15/06 1,300 1,292
Fleet/Norstar Group 8.125% 7/1/04 900 951
Ford Motor Credit Corp. 6.625% 6/30/03 3,000 2,956
Ford Motor Credit Corp. 8.20% 2/15/02 900 947
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM BOND PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Motors Acceptance Corp. 5.50% 12/15/01 $ 750 $ 711
General Motors Acceptance Corp. 6.625% 10/1/02 3,200 3,161
Household Finance Corp. 7.625% 1/15/03 3,500 3,604
Household Finance Corp. 7.65% 5/15/07 850 876
Mellon Bank 6.75% 6/1/03 225 222
Merrill Lynch & Co., Inc. 8.00% 2/1/02 400 419
Merrill Lynch & Co., Inc. 8.30% 11/1/02 250 266
NAC Re Corp. 7.15% 11/15/05 2,500 2,472
NationsBank Corp. 6.50% 3/15/06 2,900 2,784
NationsBank Corp. 6.875% 2/15/05 325 321
NationsBank Corp. 7.75% 8/15/04 500 520
NationsBank Corp. 8.125% 6/15/02 1,000 1,052
NCNB Corp. 9.50% 6/1/04 2,000 2,265
Norwest Financial, Inc. 7.00% 1/15/03 110 111
Orion Capital Corp. 7.25% 7/15/05 500 496
Orion Capital Corp. 9.125% 9/1/02 3,000 3,265
Paine Webber Group, Inc. 7.875% 2/15/03 250 257
Realty Income Corp. 7.75% 5/6/07 2,000 2,033
Republic New York Corp. 7.75% 5/15/02 700 727
Republic New York Corp. 7.75% 5/15/09 2,400 2,509
Sears Roebuck & Co. Acceptance Corp. 6.75% 9/15/05 3,000 2,937
Shurgard Storage Centers, Inc. 7.50% 4/25/04 3,000 3,049
Smith Barney Holdings, Inc. 6.875% 6/15/05 3,300 3,234
SunTrust Banks, Inc. 7.375% 7/1/06 2,400 2,441
United Dominion Realty Trust, Inc. 7.25% 1/15/07 2,500 2,499
USF&G Corp. 7.125% 6/1/05 2,400 2,384
Wells Fargo & Co. 6.875% 4/1/06 3,000 2,948
----------
81,504
----------
INDUSTRIAL (12.8%)
Air Products & Chemicals, Inc. 6.25% 6/15/03 125 122
Anheuser-Busch Cos., Inc. 7.10% 6/15/07 3,000 3,009
Applied Materials, Inc. 8.00% 9/1/04 150 158
Archer-Daniels-Midland Co. 6.25% 5/15/03 250 244
C.R. Bard, Inc. 6.70% 12/1/26 2,300 2,234
Black & Decker Corp. 7.50% 4/1/03 4,500 4,586
Burlington Northern Santa Fe Corp. 6.375% 12/15/05 3,000 2,856
CSX Corp. 9.00% 8/15/06 275 309
Caterpillar, Inc. 9.00% 4/15/06 500 563
Cyprus Amax Minerals Co. 10.125% 4/1/02 1,500 1,682
Delta Airlines, Inc. (Equipment Trust Certificates) 8.54% 1/2/07 498 527
Eastman Chemical Co. 6.375% 1/15/04 3,475 3,369
Falconbridge Ltd. 7.35% 11/1/06 1,000 1,006
First Data Corp. 6.625% 4/1/03 2,000 1,976
Ford Capital BV 9.875% 5/15/02 2,520 2,835
General Motors Corp. 7.00% 6/15/03 500 503
W.R. Grace & Co. 7.75% 10/1/02 500 518
W.R. Grace & Co. 8.00% 8/15/04 3,150 3,300
HNG Internorth 9.625% 3/15/06 2,000 2,314
Johnson & Johnson 7.375% 6/29/02 200 207
Kroger Co. 8.15% 7/15/06 3,500 3,710
Lockheed Martin Corp. 6.50% 4/15/03 2,000 1,959
Lockheed Martin Corp. 7.70% 6/15/08 3,200 3,333
May Department Stores Co. 9.875% 12/1/02 225 255
McDonald's Corp. 6.75% 2/15/03 450 447
McDonnell Douglas Corp. 9.25% 4/1/02 1,000 1,103
MedPartners, Inc. 7.375% 10/1/06 600 602
News America Holdings 8.50% 2/15/05 2,000 2,130
Norfolk Southern Corp. 7.35% 5/15/07 2,000 2,031
Northrop Grumman Corp. 7.00% 3/1/06 3,500 3,443
Occidental Petroleum Corp. 8.50% 11/9/01 1,000 1,053
Occidental Petroleum Corp. 8.50% 9/15/04 3,000 3,092
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J.C. Penney & Co., Inc. 6.125% 11/15/03 $ 130 $ 125
Philip Morris Cos., Inc. 8.25% 10/15/03 250 264
Praxair, Inc. 6.75% 3/1/03 2,500 2,481
Praxair, Inc. 6.90% 11/1/06 1,500 1,486
Quaker State Corp. 6.625% 10/15/05 800 771
Seagate Technology, Inc. 7.45% 3/1/37 1,900 1,904
Sears, Roebuck & Co. 6.25% 1/15/04 650 626
Texas Instruments Inc. 6.125% 2/1/06 2,800 2,640
Union Carbide Corp. 6.75% 4/1/03 3,050 3,017
Union Oil of California 6.375% 2/1/04 2,000 1,938
Union Oil of California 9.125% 2/15/06 525 594
Whirlpool Corp. 9.00% 3/1/03 400 437
Xerox Corp. 8.125% 4/15/02 150 158
----------
71,917
----------
UTILITIES (5.2%)
Baltimore Gas & Electric Co. 7.25% 7/1/02 200 204
Cincinnati Gas & Electric Co. 6.45% 2/15/04 1,000 973
Coastal Corp. 8.125% 9/15/02 2,700 2,840
Consolidated Edison Co. of New York, Inc. 6.625% 2/1/02 500 497
Enron Corp. 7.125% 5/15/07 2,300 2,289
Enron Corp. 7.625% 9/10/04 1,000 1,035
Florida Power & Light Co. 6.625% 2/1/03 210 206
MCI Communications Corp. 7.50% 8/20/04 3,250 3,367
New England Telephone & Telegraph Co. 8.625% 8/1/01 3,500 3,740
Pacific Bell Telephone Co. 7.00% 7/15/04 900 906
Pacific Bell Telephone Co. 7.25% 7/1/02 450 459
Pacific Gas & Electric Co. 7.875% 3/1/02 3,000 3,133
Southwestern Bell Telephone Co. 5.75% 9/1/04 2,000 1,865
Texas Utilities Co. 7.375% 8/1/01 450 459
Texas Utilities Co. 8.125% 2/1/02 600 631
Texas Utilities Co. 8.25% 4/1/04 1,650 1,760
Union Electric Power Co. 7.65% 7/15/03 1,000 1,039
Virginia Electric & Power Co. 6.625% 4/1/03 4,000 3,962
----------
29,365
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $181,360) 182,786
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(7.6%)
- -------------------------------------------------------------------------------------------------------------------------
Bank of Nova Scotia 6.875% 5/1/03 750 748
Province of British Columbia 7.00% 1/15/03 400 406
Finland Global Bond 7.875% 7/28/04 3,500 3,728
Hanson Overseas 7.375% 1/15/03 2,500 2,547
KFW International Finance, Inc. 7.625% 2/15/04 4,625 4,833
Korean Development Bank 6.625% 11/21/03 2,250 2,189
Korean Development Bank 7.25% 5/15/06 3,000 2,981
Province of Manitoba 6.125% 1/19/04 1,500 1,448
Province of Manitoba 7.75% 2/1/02 4,875 5,074
National Westminster Bancorp Inc. 9.375% 11/15/03 1,150 1,293
New Zealand Government 8.75% 12/15/06 125 142
New Zealand Government 10.625% 11/15/05 600 745
Noranda, Inc. 7.50% 7/15/03 1,000 1,021
Noranda, Inc. 8.125% 6/15/04 1,000 1,048
Noranda, Inc. 8.625% 7/15/02 500 535
Province of Ontario 7.75% 6/4/02 550 575
Republic of Portugal 5.75% 10/8/03 4,700 4,485
Province of Saskatchewan 7.125% 3/15/08 500 503
Province of Saskatchewan 8.00% 7/15/04 3,900 4,135
Kingdom of Thailand 8.25% 3/15/02 4,000 4,197
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $42,589) 42,633
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM BOND PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.1%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government obligations in a
Pooled Cash Account
(COST $6,176) 5.93% 7/1/97 6,176 6,176
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.9%)
(COST $552,859) 556,262
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Notes B and F 48,344
Liabilities--Note F (42,176)
----------
6,168
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
==========================================================================================================================
Applicable to 56,886,041 outstanding $.001 par value shares
(authorized 250,000,000 shares) $562,430
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.89
- -------------------------------------------------------------------------------------------------------------------------
*See Note A in Notes to Financial Statements.
- -------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
Paid in Capital $564,217 $9.92
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (5,190) (.09)
Unrealized Appreciation--Note E 3,403 .06
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS $562,430 $9.89
=========================================================================================================================
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM BOND PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (65.1%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 7.25% 8/15/22 $ 100 $ 104
U.S. Treasury Bonds 7.875% 2/15/21 145 162
U.S. Treasury Bonds 8.00% 11/15/21 970 1,097
U.S. Treasury Bonds 8.125% 8/15/19-8/15/21 19,975 22,828
U.S. Treasury Bonds 8.50% 2/15/20 570 675
U.S. Treasury Bonds 8.75% 5/15/17-5/15/20 3,015 3,631
U.S. Treasury Bonds 8.875% 8/15/17-2/15/19 3,275 3,994
U.S. Treasury Bonds 9.125% 5/15/18 1,495 1,867
U.S. Treasury Bonds 10.375% 11/15/12 275 349
U.S. Treasury Notes 6.25% 1/31/02 600 597
U.S. Treasury Notes 6.375% 5/15/99-3/31/01 500 501
U.S. Treasury Notes 6.875% 5/15/06 475 485
U.S. Treasury Notes 7.875% 11/15/04 125 135
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $35,582) 36,425
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (27.2%)
- -------------------------------------------------------------------------------------------------------------------------
FINANCE (4.8%)
Chemical Banking Corp. 6.125% 11/1/08 500 460
Dean Witter, Discover & Co. 6.75% 10/15/13 200 186
Ford Motor Credit Corp. 6.75% 5/15/05 115 113
Household Finance Corp. 6.45% 2/1/09 70 65
Household Finance Corp. 7.65% 5/15/07 150 154
NationsBank Corp. 6.875% 2/15/05 95 94
NationsBank Corp. 7.25% 10/15/25 375 356
Norwest Financial, Inc. 6.65% 10/15/23 60 54
Orion Capital Corp. 7.25% 7/15/05 300 298
Sears, Roebuck & Co. Acceptance Corp. 6.125% 1/15/06 150 141
Security Capital Pacific Trust 8.05% 4/1/17 200 205
Travelers/Aetna Property Casualty Corp. 7.75% 4/15/26 275 278
United Dominion Realty Trust, Inc. 7.25% 1/15/07 300 300
----------
2,704
----------
INDUSTRIAL (15.0%)
Anheuser-Busch Cos., Inc. 7.10% 6/15/07 400 401
Archer-Daniels-Midland Co. 8.875% 4/15/11 80 93
Auburn Hills 12.00% 5/1/20 60 89
C.R. Bard, Inc. 6.70% 12/1/26 350 340
Bowater, Inc. 9.375% 12/15/21 250 296
Burlington Northern Santa Fe Corp. 6.875% 2/15/16 300 281
Burlington Northern Santa Fe Corp. 7.00% 12/15/25 50 46
Caterpillar, Inc. 9.00% 4/15/06 100 113
Chrysler Corp. 7.45% 2/1/2097 225 219
CSX Corp. 8.625% 5/15/22 25 28
CSX Corp. 9.00% 8/15/06 25 28
Deere & Co. 8.50% 1/9/22 115 128
Eastman Chemical Co. 7.25% 1/15/24 250 239
Ford Capital BV 9.50% 6/1/10 180 213
Ford Motor Corp. 9.95% 2/15/32 100 128
International Business Machines Corp. 7.125% 12/1/2096 250 237
International Paper Co. 7.875% 8/1/06 35 37
Kroger Co. 8.15% 7/15/06 300 318
Lockheed Martin Corp. 7.70% 6/15/08 500 521
May Department Stores Co. 9.75% 5/16/04 40 48
Mobil Corp. 7.625% 2/23/33 230 224
News America Holdings 8.00% 10/17/16 250 246
News America Holdings 8.50% 2/15/05 400 426
Norfolk Southern Corp. 7.70% 5/15/17 100 102
Norfolk Southern Corp. 7.90% 5/15/2097 100 103
Northrop Grumman Corp. 9.375% 10/15/24 400 443
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM BOND PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Occidental Petroleum Corp. 9.25% 8/1/19 $ 250 $ 298
J.C. Penney & Co., Inc. 7.125% 11/15/23 220 208
Praxair, Inc. 6.90% 11/1/06 400 396
Quaker State Corp. 6.625% 10/15/05 150 145
Seagate Technology, Inc. 7.45% 3/1/37 250 251
Sears, Roebuck & Co. 9.375% 11/1/11 395 472
Texaco Capital Corp. 8.875% 9/1/21 155 180
Texas Instruments Inc. 6.125% 2/1/06 300 283
Union Carbide Corp. 7.75% 10/1/2096 50 50
Union Carbide Corp. 7.875% 4/1/23 220 224
Union Oil of California 9.125% 2/15/06 390 442
Union Pacific Corp. 8.625% 5/15/22 35 37
Whirlpool Corp. 9.10% 2/1/08 60 68
----------
8,401
----------
UTILITIES (7.4%)
Alabama Power Co. 8.75% 12/1/21 140 145
Arizona Public Service Co. 7.25% 8/1/23 200 189
AT&T Corp. 8.35% 1/15/25 300 313
Coastal Corp. 7.75% 10/15/35 400 400
Enron Corp. 7.125% 5/15/07 246 245
GTE Corp. 7.83% 5/1/23 250 248
GTE Corp. 8.75% 11/1/21 250 282
Illinois Power Co. 7.50% 7/15/25 300 284
MCI Communications Corp. 7.75% 3/23/25 250 250
Michigan Bell Telephone Co. 7.50% 2/15/23 140 137
New England Telephone & Telegraph Co. 6.875% 10/1/23 110 101
New England Telephone & Telegraph Co. 9.00% 8/1/31 250 271
Northern Telecom Ltd. 6.875% 9/1/23 250 232
Southern Bell Telephone Co. 7.625% 3/15/13 50 49
Southwestern Bell Telephone Co. 7.25% 7/15/25 450 431
Southwestern Bell Telephone Co. 7.625% 10/1/13 80 79
Southwestern Bell Telephone Co. 7.625% 3/1/23 45 44
Texas Utilities Co. 7.875% 3/1/23 190 188
Texas Utilities Co. 8.75% 11/1/23 50 53
Union Electric Power Co. 6.75% 5/1/08 120 117
Wisconsin Electric Power Co. 7.70% 12/15/27 75 75
----------
4,133
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $15,168) 15,238
- -------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(5.2%)
- -------------------------------------------------------------------------------------------------------------------------
British Columbia Hydro 12.50% 9/1/13 100 111
Grand Metropolitan Investment Corp. 9.00% 8/15/11 75 87
Inter-American Development Bank 7.125% 3/15/23 25 24
Inter-American Development Bank 8.50% 3/15/11 110 125
International Bank for Reconstruction & Development 9.25% 7/15/17 135 166
KFW International Finance, Inc. 7.20% 3/15/14 600 602
Province of Manitoba 9.25% 4/1/20 485 584
Province of New Brunswick 8.75% 5/1/22 250 289
New Zealand Government 8.75% 12/15/06 200 227
Province of Saskatchewan 7.125% 3/15/08 100 101
Province of Saskatchewan 7.375% 7/15/13 600 603
- -------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $2,886) 2,919
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.5%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Polled Cash Account
(COST $249) 5.93% 7/1/97 249 249
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.0%)
(COST $53,885) 54,831
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Assets--Note B $ 1,667
Liabilities (531)
-----------
1,136
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 5,612,391 outstanding $.001 par value shares
(authorized 250,000,000 shares) $55,967
==========================================================================================================================
NET ASSET VALUE PER SHARE $9.97
==========================================================================================================================
*See Note A in Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1997, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
Paid in Capital $55,597 $9.91
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (576) (.10)
Unrealized Appreciation--Note E 946 .16
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $55,967 $9.97
==========================================================================================================================
</TABLE>
27
<PAGE> 30
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. The Total
Bond Market Portfolio also reports the breakdown of expenses charged to each
class of its shares. These expenses directly reduce the amount of investment
income available to pay to shareholders as income dividends. This Statement
also shows any Net Gain (Loss) realized on the sale of investments, and any
Unrealized Appreciation (Depreciation) on investments during the period.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TOTAL BOND SHORT-TERM INTERMEDIATE- LONG-TERM
MARKET BOND TERM BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $165,922 $11,656 $17,923 $1,680
-------------------------------------------------------------------
Total Income 165,922 11,656 17,923 1,680
-------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 356 27 39 4
Management and Administrative 959 184 233 --
Shareholder Account Maintenance(1) 1,885 76 119 22
Marketing and Distribution(1) 712 57 83 7
Taxes (other than income taxes) 189 3 19 2
Custodian Fees 101 18 13 7
Auditing Fees 6 4 4 4
Shareholders' Reports(1) 59 3 4 1
Annual Meeting and Proxy Costs(1) 3 -- -- --
Directors' Fees and Expenses 6 -- -- --
-------------------------------------------------------------------
Total Expenses 4,276 372 514 47
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 161,646 11,284 17,409 1,633
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT
SECURITIES SOLD (4,004) (225) (1,251) (103)
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES (4,563) (154) (1,988) (241)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $153,079 $10,905 $14,170 $1,289
=========================================================================================================================
(1)Expenses of the Total Bond Market Portfolio by class of shares are:
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(000)
----------------------------------------------
INVESTOR INSTITUTIONAL
SHARES SHARES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class-Specific Expenses:
Shareholder Account Maintenance $1,872 $ 13 $1,885
Marketing and Distribution 539 173 712
Shareholders' Reports 59 -- 59
Annual Meeting and Proxy Costs 3 -- 3
----------------------------------------------
Total Class-Specific Expenses 2,473 186 2,659
All Other Portfolio Expenses 1,240 377 1,617
- -------------------------------------------------------------------------------------------------------------------------
Total Expenses $3,713 $563 $4,276
=========================================================================================================================
</TABLE>
See Note C in Notes to Financial Statements.
28
<PAGE> 31
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes
information that is detailed in the Statement of Operations. Because the
Portfolio distributes its income to shareholders each day, the amounts of
Distributions--Net Investment Income generally equal the net income earned as
shown under the Operations section. The amounts of Distributions--Realized
Capital Gain may not match the capital gains shown in the Operations section,
because distributions are determined on a tax basis and may be made in a period
different from the one in which the gains were realized on the financial
statements. The Capital Share Transactions section shows the amount
shareholders invested in the Portfolio, either by purchasing shares or by
reinvesting distributions, and the amounts redeemed. The corresponding numbers
of Shares Issued and Redeemed are shown at the end of the Statement. The Total
Bond Market Portfolio-Investor and -Institutional shares' Distributions,
Capital Share Transactions, and Shares Issued and Redeemed are shown
separately.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TOTAL BOND MARKET PORTFOLIO
--------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 1997 DEC. 31, 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 161,646 $ 219,381
Realized Net Loss (4,004) (5,514)
Change in Unrealized Appreciation (Depreciation) (4,563) (74,246)
--------------------------------
Net Increase in Net Assets Resulting from Operations 153,079 139,621
--------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (123,611) (171,657)
Institutional Shares (38,035) (47,724)
Realized Capital Gain
Investor Shares -- --
Institutional Shares -- --
--------------------------------
Total Distributions (161,646) (219,381)
--------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES(1)
Issued 1,430,651 1,373,171
Issued in Lieu of Cash Distributions 109,059 147,464
Redeemed (391,874) (893,692)
--------------------------------
Net Increase--Investor Shares 1,147,836 626,943
--------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES2
Issued 312,235 702,749
Issued in Lieu of Cash Distributions 33,454 41,752
Redeemed (99,230) (124,465)
--------------------------------
Net Increase--Institutional Shares 246,459 620,036
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 1,385,728 1,167,219
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 3,985,436 2,818,217
--------------------------------
End of Period $5,371,164 $3,985,436
=========================================================================================================================
(1)Shares Issued (Redeemed)--Investor Shares
Issued 146,363 139,884
Issued in Lieu of Cash Distributions 11,198 15,068
Redeemed (40,226) (91,062)
--------------------------------
Net Increase in Shares Outstanding 117,335 63,890
=========================================================================================================================
(2)Shares Issued (Redeemed)--Institutional Shares
Issued 32,089 71,819
Issued in Lieu of Cash Distributions 3,434 4,272
Redeemed (10,223) (12,749)
--------------------------------
Net Increase in Shares Outstanding 25,300 63,342
=========================================================================================================================
</TABLE>
29
<PAGE> 32
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INTERMEDIATE-TERM
BOND PORTFOLIO BOND PORTFOLIO
----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUN. 30, 1997 DEC. 31, 1996 JUN. 30, 1997 DEC. 31, 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 11,284 $ 16,550 $ 17,409 $ 28,307
Realized Net Loss (225) (90) (1,251) (3,931)
Change in Unrealized Appreciation
(Depreciation) (154) (3,312) (1,988) (11,605)
----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 10,905 13,148 14,170 12,771
----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (11,284) (16,550) (17,409) (28,307)
Realized Capital Gain -- (88) -- (166)
----------------------------------------------------------------------
Total Distributions (11,284) (16,638) (17,409) (28,473)
----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 149,758 166,669 145,806 281,767
Issued in Lieu of Cash Distributions 9,561 14,288 14,339 24,466
Redeemed (38,930) (56,772) (54,835) (175,804)
----------------------------------------------------------------------
Net Increase from Capital
Share Transactions 120,389 124,185 105,310 130,429
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 120,010 120,695 102,071 114,727
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 328,292 207,597 460,359 345,632
----------------------------------------------------------------------
End of Period $448,302 $328,292 $562,430 $460,359
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 15,167 16,763 14,790 28,221
Issued in Lieu of Cash Distributions 969 1,443 1,459 2,469
Redeemed (3,944) (5,726) (5,569) (17,819)
-------------------------------------------------------------------
Net Increase in Shares Outstanding 12,192 12,480 10,680 12,871
=========================================================================================================================
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM BOND PORTFOLIO
--------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 1997 DEC. 31, 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,633 $ 2,389
Realized Net Loss (103) (473)
Change in Unrealized Appreciation (Depreciation) (241) (1,054)
--------------------------------
Net Increase in Net Assets Resulting from Operations 1,289 862
--------------------------------
DISTRIBUTIONS
Net Investment Income (1,633) (2,389)
Realized Capital Gain -- (26)
--------------------------------
Total Distributions (1,633) (2,415)
--------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 19,759 36,232
Issued in Lieu of Cash Distributions 1,310 1,913
Redeemed (8,882) (16,950)
--------------------------------
Net Increase from Capital Share Transactions 12,187 21,195
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 11,843 19,642
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 44,124 24,482
--------------------------------
End of Period $55,967 $44,124
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 2,001 3,616
Issued in Lieu of Cash Distributions 133 192
Redeemed (898) (1,693)
--------------------------------
Net Increase in Shares Outstanding 1,236 2,115
=========================================================================================================================
</TABLE>
31
<PAGE> 34
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis; the Total Bond Market Portfolio-Investor and
- -Institutional shares' results are shown separately. It also presents the
Portfolio's Total Return and shows net investment income and expenses as
percentages of average net assets. These data will help you assess: the
variability of the Portfolio's net income and total returns from year to year;
the relative contributions of net income and capital gains to the Portfolio's
total return; how much it costs to operate the Portfolio; and the extent to
which the Portfolio tends to distribute capital gains. The table also shows the
Portfolio Turnover Rate, a measure of trading activity. A turnover rate of 100%
means that the average security is held in the Portfolio for one year.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TOTAL BOND MARKET PORTFOLIO-INVESTOR SHARES
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.84 $10.14 $ 9.17 $10.06 $ 9.88 $9.99
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .321 .640 .650 .622 .638 .699
Net Realized and Unrealized Gain
(Loss) on Investments (.040) (.300) .970 (.888) .300 (.018)
----------------------------------------------------------------------
Total from Investment Operations .281 .340 1.620 (.266) .938 .681
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.321) (.640) (.650) (.622) (.638) (.699)
Distributions from Realized Capital Gains -- -- -- (.002) (.120) (.092)
----------------------------------------------------------------------
Total Distributions (.321) (.640) (.650) (.624) (.758) (.791)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.80 $ 9.84 $10.14 $ 9.17 $10.06 $9.88
=========================================================================================================================
TOTAL RETURN* 2.93% 3.58% 18.18% -2.66% 9.68% 7.14%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $4,103 $2,962 $2,405 $1,731 $1,540 $1,066
Ratio of Total Expenses to
Average Net Assets 0.20%** 0.20% 0.20% 0.18% 0.18% 0.20%
Ratio of Net Investment Income to
Average Net Assets 6.65%** 6.54% 6.66% 6.57% 6.24% 7.06%
Portfolio Turnover Rate 32%** 39% 36% 33% 50% 49%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not reflect the annual account maintenance fee of $10.
**Annualized.
<TABLE>
<CAPTION>
TOTAL BOND MARKET PORTFOLIO-INSTITUTIONAL SHARES
SIX MONTHS ENDED YEAR ENDED SEP. 18* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD JUN. 30, 1997 DEC. 31, 1996 DEC. 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.84 $10.14 $ 9.87
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .326 .650 .174
Net Realized and Unrealized Gain (Loss) on Investments (.040) (.300) .270
--------------------------------------------------
Total from Investment Operations .286 .350 .444
--------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.326) (.650) (.174)
Distributions from Realized Capital Gains -- -- --
--------------------------------------------------
Total Distributions (.326) (.650) (.174)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.80 $ 9.84 $10.14
==========================================================================================================================
TOTAL RETURN 2.98% 3.68% 4.53%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,269 $1,024 $413
Ratio of Total Expenses to Average Net Assets 0.10%** 0.10% 0.10%**
Ratio of Net Investment Income to Average Net Assets 6.75%** 6.66% 6.48%**
Portfolio Turnover Rate 32%** 39% 36%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
32
<PAGE> 35
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND PORTFOLIO
YEAR ENDED
DECEMBER 31
SIX MONTHS ENDED ------------------ MAR. 1* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD JUNE 30, 1997 1996 1995 DEC. 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.92 $10.07 $ 9.50 $10.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .296 .587 .623 463
Net Realized and Unrealized Gain (Loss) on Investments (.020) (.146) .570 (.500)
-------------------------------------------------------
Total from Investment Operations .276 .441 1.193 (.037)
-------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.296) (.587) (.623) (.463)
Distributions from Realized Capital Gains -- (.004) -- --
-------------------------------------------------------
Total Distributions (.296) (.591) (.623) (.463)
-------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.90 $ 9.92 $10.07 $ 9.50
=========================================================================================================================
TOTAL RETURN** 2.83% 4.55% 12.88% -0.37%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $448 $328 $208 $77
Ratio of Total Expenses to Average Net Assets 0.20%+ 0.20% 0.20% 0.18%+
Ratio of Net Investment Income to Average Net Assets 6.06%+ 5.93% 6.28% 5.77%+
Portfolio Turnover Rate 54%+ 65% 65% 53%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*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.
**Total return figures do not reflect the annual account
maintenance fee of $10.
+Annualized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM BOND PORTFOLIO
YEAR ENDED
DECEMBER 31,
SIX MONTHS ENDED ------------------ MAR. 1* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD JUNE 30, 1997 1996 1995 DEC. 31, 1994
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.96 $10.37 $ 9.18 $10.00
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS
Net Investment Income .330 .648 .661 .533
Net Realized and Unrealized Gain (Loss) on Investments (.070) (.406) 1.217 (.820)
--------------------------------------------------------
Total from Investment Operations .260 .242 1.878 (.287)
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.330) (.648) (.661) (.533)
Distributions from Realized Capital Gains -- (.004) (.027) --
--------------------------------------------------------
Total Distributions (.330) (.652) (.688) (.533)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.89 $ 9.96 $10.37 $ 9.18
==========================================================================================================================
TOTAL RETURN** 2.68% 2.55% 21.07% -2.88%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $562 $460 $346 $71
Ratio of Total Expenses to Average Net Assets 0.20%+ 0.20% 0.20% 0.18%+
Ratio of Net Investment Income to Average Net Assets 6.76%+ 6.54% 6.55% 6.88%+
Portfolio Turnover Rate 43%+ 80% 71% 63%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*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.
**Total return figures do not reflect the annual account maintenance fee
of $10.
+Annualized.
33
<PAGE> 36
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM BOND PORTFOLIO
YEAR ENDED
DECEMBER 31,
SIX MONTHS ENDED ------------------- MAR. 1* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD JUNE 30, 1997 1996 1995 DEC. 31, 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.08 $10.82 $ 8.96 $10.00
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .338 .674 .692 .586
Net Realized and Unrealized Gain (Loss) on Investments (.110) (.731) 1.884 (1.040)
--------------------------------------------------------
Total from Investment Operations .228 (.057) 2.576 (.454)
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.338) (.674) (.692) (.586)
Distributions from Realized Capital Gains -- (.009) (.024) --
--------------------------------------------------------
Total Distributions (.338) (.683) (.716) (.586)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.97 $10.08 $10.82 $ 8.96
==========================================================================================================================
TOTAL RETURN** 2.35% -0.26% 29.72% -4.53%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $56 $44 $24 $9
Ratio of Total Expenses to Average Net Assets 0.20%+ 0.20% 0.20% 0.18%+
Ratio of Net Investment Income to Average Net Assets 6.91%+ 6.75% 6.90% 7.70%+
Portfolio Turnover Rate 38%+ 46% 45% 70%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*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.
**Total return figures do not reflect the annual account maintenance fee
of $10.
+Annualized.
NOTES TO FINANCIAL STATEMENTS
Vanguard Bond Index Fund is registered under the Investment Company Act of 1940
as a diversified open-end investment company, or mutual fund, and comprises 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 their obligations may be affected
by economic developments in their respective industries.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Bonds, and temporary cash investments acquired
over 60 days to maturity, are valued using the latest bid prices or using
valuations based on a matrix system (which considers such factors as security
prices, yields, maturities, and ratings), both as furnished by independent
pricing services. Other temporary cash investments are valued at amortized
cost, which approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as
a regulated investment company and distribute all of its income. Accordingly,
no provision for federal income taxes is required in the financial statements.
34
<PAGE> 37
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, which is invested in repurchase agreements secured by U.S.
government securities. Securities pledged as collateral for repurchase
agreements are held by a custodian bank until the agreements mature. Each
agreement requires that the market value of the collateral be sufficient to
cover payments of interest and principal; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
4. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
5. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums
and discounts on debt securities purchased are amortized and accreted,
respectively, to interest income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the board of
directors. At June 30, 1997, the Fund had contributed capital aggregating
$481,000 to Vanguard (included in Other Assets), representing 2.4% 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 Investor
Shares and the Institutional Shares. Institutional shares are designed
primarily for institutional investors that meet certain administrative and
servicing criteria and have a minimum investment of $10 million. Investor
shares are offered to all other investors. Both classes of shares have equal
rights as to assets and earnings, except that each class bears certain
class-specific expenses related to its shareholder activity.
D. During the six months ended June 30, 1997, 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 $388,126 $131,392
Short-Term Bond 10,544 14,316
Intermediate-Term Bond 39,455 6,716
Long-Term Bond 4,256 353
----------------------------------------------------------------------
</TABLE>
Purchases and sales of U.S. government securities were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(000)
-------------------------------
PORTFOLIO PURCHASES SALES
----------------------------------------------------------------------
<S> <C> <C>
Total Bond Market $1,836,220 $629,488
Short-Term Bond 207,998 84,917
Intermediate-Term Bond 173,567 103,640
Long-Term Bond 16,238 8,711
----------------------------------------------------------------------
</TABLE>
35
<PAGE> 38
E. At December 31, 1996, the Portfolios had available realized capital losses
to offset future taxable capital gains through the following fiscal year-ends:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
EXPIRATION
FISCAL YEAR(S) ENDING AMOUNT
PORTFOLIO DECEMBER 31, (000)
----------------------------------------------------------------------------
<S> <C> <C>
Total Bond Market 2002-2004 $12,831
Short-Term Bond 2004 90
Intermediate-Term Bond 2004 3,931
Long-Term Bond 2004 473
----------------------------------------------------------------------------
</TABLE>
At June 30, 1997, unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
---------------------------------------------------------
APPRECIATED DEPRECIATED NET UNREALIZED
PORTFOLIO SECURITIES SECURITIES APPRECIATION
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Bond Market $60,713 $(19,526) $41,187
Short-Term Bond 1,706 (770) 936
Intermediate-Term Bond 4,841 (1,438) 3,403
Long-Term Bond 1,153 (207) 946
-----------------------------------------------------------------------------------------------
</TABLE>
F. The market values of securities on loan to broker/dealers at June 30, 1997,
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 $69,153 $44,877 $25,900
Short-Term Bond 16,329 16,640 --
Intermediate-Term Bond 97,349 37,805 62,498
------------------------------------------------------------------------------------------------
</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, retention of the
collateral may be subject to legal proceedings.
36
<PAGE> 39
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of The
Vanguard Group, Inc. and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer,
Inc.; Managing Director of Global Health Care Partners/DLJ Merchant
Banking Partners; Director of Sun Company, Inc. and Westinghouse
Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Ikon Business Solutions, Inc., Raytheon Co., Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.; Trustee Emerita of Wellesley
College.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and National
Steel Corp.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, 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., Procter & Gamble 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; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of
each of the investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President,
Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President,
Institutional Investor Group.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[THE VANGUARD GROUP LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge,
Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
http://www.vanguard.com [email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses
may be obtained directly from The Vanguard Group.
(C) 1997 Vanguard Marketing Corporation, Distributor
<PAGE> 40
[PHOTO]
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Growth and Income Portfolio
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard International Value Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Treasury Money Market Portfolio
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q842-6/97
