VANGUARD
INSTITUTIONAL INDEX
FUND
[PHOTO]
SEMIANNUAL
REPORT
JUNE 30, 1999
[THE VANGUARD GROUP LOGO]
<PAGE>
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 9,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
Our report cover pays homage to three anniversaries, each of great significance
to The Vanguard Group:
o The 200th anniversary of the Battle of the Nile, which commenced on August
1, 1798. HMS VANGUARD, the victorious British flagship at the Nile, is our
namesake. And its motto-- "Leading the way"--serves as a guiding principle
for our company.
o The 100th birthday, on July 23, 1998, of Walter L. Morgan, founder of
Wellington Fund, the oldest member of what became The Vanguard Group. Mr.
Morgan was friend and mentor to Vanguard founder John C. Bogle, and helped
to shape the standards and business principles that Mr. Bogle laid down for
Vanguard at its beginning nearly 25 years ago: a stress on balanced,
diversified investments; insistence on fair dealing and candor with
clients; and a focus on long-term investing. To our great regret, Mr.
Morgan died on September 2, 1998.
o The 70th anniversary, on December 28, 1998, of the incorporation of
Vanguard Wellington Fund. It is the nation's oldest balanced mutual fund,
and one of only a handful of funds created in the 1920s that are still in
operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
CONTENTS
A Message to
Our Shareholders
1
The Markets in
Perspective
4
Fund Profile
6
Performance Summaries
8
Financial Statements
9
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE>
DEAR SHAREHOLDER,
[PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
Large-capitalization stocks again led the U.S. stock market higher during the
six months ended June 30, 1999, buoyed by strong economic growth and stabilizing
overseas markets. In this environment, Vanguard Institutional Index Fund
returned +12.4% for the first half of its fiscal year, matching the return of
the S&P 500 Index--which, of course, your fund tracks--and topping the +11.0%
return of the average general equity fund.
The adjacent table compares the fund's six-month total return (capital
change plus reinvested dividends) with the returns of the S&P 500 Index and the
average general equity mutual fund. The performance of the fund's Institutional
Plus shares, which are available for a minimum investment of $200 million, is
presented at the bottom of the table. The fund's return is based on an increase
in net asset value from $112.85 per share on December 31, 1998, to $125.60 per
share on June 30, 1999, and is adjusted for distributions of $0.73 per share
paid from net investment income and a distribution of $0.42 per share paid from
net realized capital gains. (For the Institutional Plus shares, the
distributions were $0.748 and $0.42, respectively.)
- ----------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 1999
- ----------------------------------------------------
Vanguard Institutional Index Fund +12.4%
Average General Equity Fund +11.0
S&P 500 Index +12.4
- ----------------------------------------------------
Plus Shares +12.4%
- ----------------------------------------------------
THE PERIOD IN REVIEW
The key influences on financial markets during the first half of 1999 were the
surprising strength of the U.S. economy's long-running expansion, promising
corporate earnings, and the increasing signs that a number of shaky foreign
economies were on firmer footing. These factors were partly responsible for both
broad-based gains in U.S. stocks and increases in interest rates, which sent
bond prices lower.
The overall U.S. stock market, as measured by the Wilshire 5000 Equity
Index, gained +11.8%--equivalent to more than a full year's return based on
historical norms. But the half-year saw a sharp rotation in market leadership.
As the outlook for global economic growth kept improving, there was a notable
revival in cyclical stocks--commodity-related companies, machinery makers, and
other firms whose profit prospects are most closely tied to the economy's ups
and downs. This was a welcome change for cyclicals and other "value" stocks,
which had lagged the market not just in the first quarter but for much of the
last five years.
Within the S&P 500 Index, the value stocks--those generally
characterized by above-average dividend yields and below-average price/earnings
ratios--carried the day during the second quarter. For the first half of the
year, they gained +14.0% versus a gain of +11.0% for growth stocks. Many
industrial companies posted spectacular returns during the quarter, in stark
contrast to their lagging performance during the first quarter. For example,
aluminum maker Alcoa gained +50% from the end of March until June 30.
For bond investors, a surging economy has a dark side: the possibility
that prices and wages will rise and push up inflation, which diminishes the
buying power of future bond interest and principal payments. Interest rates held
steady in January, but rose throughout
1
<PAGE>
the rest of the half-year. And on the final day of the period, the Federal
Reserve Board hiked its target for short-term interest rates by 0.25% amid
concerns about higher inflation. The yield of the benchmark 30-year Treasury
bond increased 86 basis points (0.86 percentage point) on balance during the six
months, rising from 5.10% to 5.96%. The rate rise was less pronounced for
short-term securities, with the 3-month Treasury bill's yield rising 33 basis
points, from 4.45% on December 31 to 4.78% on June 30.
PERFORMANCE OVERVIEW
The performance of Vanguard Institutional Index Fund during the half-year was
excellent, both on an absolute basis and relative to our comparative benchmarks.
Our +12.4% return matched that of the S&P 500 Index, and was 1.4 percentage
points ahead of the return of the average general equity mutual fund. Our
advantage over the average fund can be attributed partly to the strong
performance of large companies, which dominate the index and led the market
despite the second-quarter resurgence of mid- and small-cap shares. The index
was powered by technology stocks, which make up 17% of its assets and returned
+24% for the half-year. Strong contributions also came from the "other energy"
sector (up +40% thanks to higher oil prices), producer durables (+26%), and
materials & processing stocks (+25%). Meanwhile, health-care issues and consumer
staples (large consumer-product companies) lagged, posting negative returns for
the period.
Our fund's achievement in matching the return of its index benchmark is
noteworthy because, unlike a mutual fund, an index incurs no operating costs.
That the fund overcame this disadvantage is a credit to our tiny expense ratio
(just 0.03% for the six months and 0.06% on an annual basis), as well as to the
expertise of Vanguard Core Management Group, which oversees the investments for
all Vanguard stock index funds. Our Institutional Plus shares, with their
minuscule annual expense ratio of 0.025%, also provided a +12.4% return for the
half-year.
While our excellent absolute performance is surely welcome, returns on
the order of +12% for a six-month period are well above what should be expected
from any investment. We believe that investors who understand the cyclical
nature of the financial markets will be best prepared for the inevitable period
when stock returns revert to their (much lower) long-term historical norms. For
its part, Vanguard Institutional Index Fund will continue to provide investors
with an excellent way to capture the returns of the large-cap stock market--at
one of the lowest costs in the mutual fund industry.
IN SUMMARY
Sticking with a portfolio diversified across various asset classes and market
segments can be trying at times, particularly when one segment runs ahead of the
others and seems to be "the only game in town." But in the long run, investors
are well served by investment programs constructed with the knowledge that
market leadership can change abruptly and unpredictably. So once you've decided
on an investment plan suited to your time horizon, goals, and tolerance for
risk, we urge you to stay the course.
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
July 17, 1999
2
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NOTICE TO SHAREHOLDERS
In the past, the quarterly income dividends that Vanguard Institutional Index
Fund distributed to shareholders were paid at a "set rate." Income the fund
earned during the first three quarters that was in excess of the set rate was
distributed in the December income dividend. In June 1999, the fund began
distributing income on a "pay as you go" basis, rather than according to a set
rate. This policy change provides for a more even distribution of income by
distributing substantially all of the income earned during each quarter to the
fund's shareholders at the end of the quarter. As a result, the fund's June
dividend of $0.43 per share ($0.44 per share for Institutional Plus) included
about $0.03 of residual income that remained in the fund after the March
dividend.
3
<PAGE>
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JUNE 30, 1999
[PHOTO]
A markedly improved global economic outlook during the first half of 1999 led to
mostly positive stock market returns and lower bond prices.
As the year began, many observers expected that severe economic crises
in Asia, Russia, and some Latin American nations would restrain business
activity worldwide, even in the United States, which has been the world's
economic locomotive. By spring, however, a consensus emerged that global
economic activity was likely to be solid, if not robust. This change in
sentiment stemmed from several factors, including further vigorous growth in the
U.S. economy, a belief that Asia's slump had bottomed out, and moves in Europe
to ease monetary policy to encourage growth.
Interest rates rose as investors stopped wondering whether the Federal
Reserve Board would lower interest rates--as it had three times in autumn
1998--and began to wonder when the Fed would increase rates to slow growth and
thereby forestall inflation. Indeed, on the final day of the period, the Fed
boosted short-term rates by 0.25 percentage point. In the stock market, the
brighter economic outlook led to a change in leadership from glamorous
large-capitalization growth stocks to value stocks and small-cap stocks, both of
which had been among Wall Street's wallflowers in recent years.
- --------------------------------------------------------------------------------
Total Returns
Periods Ended June 30, 1999
---------------------------------------
6 Months 1 Year 5 Years*
- --------------------------------------------------------------------------------
STOCKS
S&P 500 Index 12.4% 22.8% 27.9%
Russell 2000 Index 9.3 1.5 15.4
Wilshire 5000 Index 11.8 19.5 25.7
MSCI EAFE Index 4.1 7.9 8.5
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index -1.4% 3.2% 7.8%
Lehman 10 Year Municipal Bond Index -1.7 2.3 6.8
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.2 4.7 5.2
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.4% 2.0% 2.3%
- --------------------------------------------------------------------------------
*Annualized.
U.S. STOCK MARKETS
The rise in stock prices reflected the healthy domestic economy and improving
prospects for corporate earnings. The overall market, as measured by the
Wilshire 5000 Index, rose 11.8% during the period, while the S&P 500 Index, a
yardstick for large-cap stocks, gained 12.4%.
Large-cap growth stocks, which are generally perceived as less
vulnerable than other stocks to economic slowdowns, continued to lead the
market's climb during the first quarter of the year. During the second quarter,
however, value stocks--especially producers of commodity products such as oil,
aluminum, and chemicals--moved to the front of the pack. Providing support were
generally upbeat corporate profit reports. Indeed, earnings gains were
sufficient to send prices higher despite rising interest rates, which often
depress stock prices as well as bond prices. For the six months, the S&P 500
Index's value stocks posted a 14.0% return while its growth stocks gained 11.0%
as a group.
4
<PAGE>
Small-cap stocks, as measured by the Russell 2000 Index, gained 9.3%,
although that fact masks a remarkable turnaround: Small-caps declined 5.4%
during the first quarter of 1999, then advanced 15.6% during the second quarter.
Even so, the cumulative return of the Russell 2000 over the past three years
lags the S&P 500 Index by nearly 80 percentage points (+37.6% for the Russell
2000 versus +115.2% for the S&P 500).
Four of the top-performing sectors within the S&P 500 Index during the
half-year were solidly in the value camp--the "other energy" group (+40%);
producer durables (+26%); materials & processing (+25%); and integrated-oils
(+17%). The strongest growth-oriented sector was the irrepressible technology
group (+24%). The poor performance of the consumer staples sector (-8%) was due
in part to the gains of the U.S. dollar against most foreign currencies, which
reduced the value of earnings from overseas operations.
U.S. BOND MARKETS
The powerful economic expansion that buoyed corporate profits and stock prices
was too much of a good thing for the bond market. Inflation was well
behaved--consumer prices rose 1.4% for the six months and 2.0% for the twelve
months ended June 30--but investors and Fed policymakers clearly were concerned
that an overheated economy might yet trigger significant increases in wages and
overall prices. Certainly, there was no evidence of the "natural slowing" that
many analysts expected for the economy, which is in the longest peacetime
expansion ever.
Yields on U.S. Treasury bonds rose by approximately 1 percentage
point--a significant rise for a six-month period. The yield of the 30-year
Treasury bond rose 86 basis points, to 5.96% on June 30 from 5.10% on December
31, 1998. The yield of the 10-year Treasury rose 113 basis points, to 5.78% from
4.65%. Money market rates didn't rise as far: Yields on 3-month T-bills
increased on balance by only 33 basis points, to 4.78% on June 30. Bond prices,
which move in the opposite direction from interest rates, fell. The Lehman
Aggregate Bond Index, a benchmark for investment-grade taxable bonds, declined
1.4% on a total-return basis, as bond prices declined an average of 4.4%,
outweighing the 3.0% in interest income for the period.
INTERNATIONAL STOCK MARKETS
Led by sharp recoveries in stock prices in Japan and many emerging markets,
international stock prices generated positive returns in local currencies during
the six months. However, a pervasive rise in the value of the U.S. dollar
against other currencies reduced returns for U.S. investors (returns from abroad
are augmented when the dollar falls in value against other currencies).
Overall, the developed markets outside the United States gained 4.1% in
U.S.-dollar terms, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index. The biggest increases were in the
Pacific region--up 27.3% in local-currency terms and 21.1% when measured in U.S.
dollars. Europe, which accounts for the lion's share of EAFE's market
capitalization, was up 8.2% in local currencies. But in U.S. dollars, the return
from European stocks was a negative 2.3%, as weakness in European
currencies--notably in the euro, the new 11-nation common currency--lopped more
than 10 percentage points from the local-currency returns. The MSCI Select
Emerging Markets Free Index shot up 31.5% in dollar terms, led by Asian markets
that rebounded from severe losses suffered in 1997 and 1998.
5
<PAGE>
FUND PROFILE
INSTITUTIONAL INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of June 30,
1999, compared where appropriate to its unmanaged target index. Key elements of
this Profile are defined on page 7.
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------
INSTITUTIONAL
INDEX S&P 500
- --------------------------------------------------------------
Number of Stocks 511 500
Median Market Cap $70.1B $70.1B
Price/Earnings Ratio 29.6x 29.6x
Price/Book Ratio 5.2x 5.2x
Yield 1.2% 1.2%
Yield--Plus Shares 1.3% 1.2%
Return on Equity 22.4% 22.4%
Earnings Growth Rate 14.8% 14.8%
Foreign Holdings 1.6% 1.6%
Turnover Rate 12%* --
Expense Ratio 0.06%* --
Expense Ratio--
Plus Shares 0.025%* --
Cash Reserves 0.1% --
*Annualized.
INVESTMENT FOCUS
- ---------------------------------
[GRID]
STYLE - BLEND
MARKET CAP - LARGE
VOLATILITY MEASURES
- ------------------------------------------
INSTITUTIONAL
INDEX S&P 500
- ------------------------------------------
R-Squared 1.00 1.00
Beta 1.00 1.00
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- ---------------------------------------------
Microsoft Corp. 4.1%
General Electric Co. 3.3
International Business Machines Corp. 2.1
Wal-Mart Stores, Inc. 1.9
Cisco Systems, Inc. 1.8
Lucent Technologies, Inc. 1.8
Intel Corp. 1.8
Exxon Corp. 1.7
AT&T Corp. 1.6
Merck & Co., Inc. 1.5
- ---------------------------------------------
Top Ten 21.6%
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- --------------------------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1999
--------------------------------------------------------
INSTITUTIONAL INSTITUTIONAL
INDEX INDEX S&P 500
--------------------------------------------------------
Auto & Transportation .... 3.3% 2.5% 2.5%
Consumer Discretionary ... 10.2 12.8 12.8
Consumer Staples ......... 10.7 7.8 7.8
Financial Services ....... 18.5 16.5 16.5
Health Care .............. 12.1 11.1 11.1
Integrated Oils .......... 6.5 5.1 5.1
Other Energy ............. 1.0 1.4 1.4
Materials & Processing ... 5.3 3.5 3.5
Producer Durables ........ 3.5 3.5 3.5
Technology ............... 13.0 18.9 18.9
Utilities ................ 10.3 11.3 11.3
Other .................... 5.6 5.6 5.6
- --------------------------------------------------------------------------------
6
<PAGE>
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate stock
investment.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or American Depositary Receipts of companies based outside the United States.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: market capitalization (large, medium, or small) and relative
valuation (growth, value, or a blend).
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a fund holds,
the more diversified it is and the more likely to perform in line with the
overall stock market.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a fund's common stocks that come from
each of the major industry groups that compose the stock market.
TEN LARGEST HOLDINGS. The percentage of net assets that a fund has invested in
its ten largest holdings. (The average for stock mutual funds is about 30%.) As
this percentage rises, a fund's returns are likely to be more volatile because
they are more dependent on the fortunes of a few companies.
TURNOVER RATE. An indication of trading activity during the period. Funds with
high turnover rates incur higher transaction costs and are more likely to
distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
7
<PAGE>
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 fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
INSTITUTIONAL INDEX FUND
TOTAL INVESTMENT RETURNS: JULY 31, 1990-JUNE 30, 1999
- --------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1990 -7.3% 1.6% -5.7% -5.7%
1991 26.4 3.9 30.3 30.5
1992 4.5 3.0 7.5 7.6
1993 7.1 2.9 10.0 10.1
1994 -1.5 2.8 1.3 1.3
- --------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1995 34.4% 3.2% 37.6% 37.6%
1996 20.6 2.5 23.1 23.0
1997 31.2 2.2 33.4 33.4
1998 27.1 1.7 28.8 28.6
1999* 11.7 0.7 12.4 12.4
- --------------------------------------------------------------------------------
*Six months ended June 30, 1999.
See Financial Highlights table on page 17 for dividend and capital gains
information for the past five years.
INSTITUTIONAL INDEX FUND PLUS SHARES
TOTAL INVESTMENT RETURNS: JULY 7, 1997-JUNE 30, 1999
- --------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND
PLUS SHARES S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1997 6.2% 1.1% 7.3% 7.3%
1998 27.1 1.7 28.8 28.6
- --------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND
PLUS SHARES S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1999* 11.7% 0.7% 12.4% 12.4%
- --------------------------------------------------------------------------------
*Six months ended June 30, 1999.
See Financial Highlights table on page 18 for dividend and capital gains
information since the fund's inception.
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1999
- -----------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional Index Fund 7/31/1990 22.93% 27.94% 16.49% 2.79% 19.28%
Institutional Index Fund Plus Shares 7/7/1997 22.97 -- 23.03 1.88 24.91
- -----------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.), with the
fund's S&P 500 Index common stocks listed in descending market value order.
Other assets are added to, and liabilities are subtracted from, the value of
Total Investments to calculate the fund's Net Assets. Finally, Net Assets are
divided by the outstanding shares of the fund to arrive at its share price, or
Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the fund's net assets. Because all income and any realized
gains must be distributed to shareholders each year, the bulk of net assets
consists of Paid in Capital (money invested by shareholders). The amounts shown
for Undistributed Net Investment Income and Accumulated Net Realized Gains
usually approximate the sums the fund had available to distribute to share-
holders as income dividends or 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 income or net realized
gains, will appear as negative balances. Unrealized Appreciation (Depreciation)
is the difference between the market value of the fund's investments and their
cost, and reflects the gains (losses) that would be realized if the fund were to
sell all of its investments at their statement-date values.
- --------------------------------------------------------------
Market
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
- --------------------------------------------------------------
COMMON STOCKS (99.7%)(1)
o Microsoft Corp. 14,890,492 $ 1,342,936
General Electric Co. 9,545,672 1,078,661
International Business
Machines Corp. 5,294,734 684,344
Wal-Mart Stores, Inc. 12,983,242 626,441
o Cisco Systems, Inc. 9,319,554 599,364
Lucent Technologies, Inc. 8,868,785 598,089
Intel Corp. 9,680,243 575,974
Exxon Corp. 7,082,986 546,275
AT&T Corp. 9,283,778 518,151
Merck & Co., Inc. 6,886,886 509,629
Citigroup, Inc. 9,858,610 468,284
o MCI WorldCom, Inc. 5,428,470 467,188
The Coca-Cola Co. 7,199,193 449,949
American International
Group, Inc. 3,614,355 423,105
Pfizer, Inc. 3,775,981 414,414
Bristol-Myers Squibb Co. 5,793,648 408,090
Johnson & Johnson 3,924,575 384,608
Royal Dutch Petroleum
Co. ADR 6,255,947 376,921
Bank of America Corp. 5,090,709 373,213
o America Online, Inc. 3,169,872 350,271
Procter & Gamble Co. 3,875,905 345,924
SBC Communications Inc. 5,729,483 332,310
Hewlett-Packard Co. 2,961,228 297,603
Bell Atlantic Corp. 4,528,823 296,072
Philip Morris Cos., Inc. 7,045,707 283,149
Home Depot, Inc. 4,318,253 278,257
o Dell Computer Corp. 7,399,244 273,772
BellSouth Corp. 5,525,889 259,026
Time Warner, Inc. 3,480,091 255,787
Ameritech Corp. 3,206,331 235,665
Eli Lilly & Co. 3,211,836 230,048
Schering-Plough Corp. 4,294,895 227,629
Tyco International Ltd. 2,393,117 226,748
Mobil Corp. 2,278,793 225,601
E.I. du Pont de Nemours & Co. 3,290,629 224,791
American Home
Products Corp. 3,817,307 219,495
GTE Corp. 2,832,975 214,598
The Chase Manhattan Corp. 2,461,155 213,197
Wells Fargo Co. 4,817,174 205,934
Bank One Corp. 3,445,433 205,219
Fannie Mae 2,990,410 204,469
Abbott Laboratories 4,435,788 201,828
Ford Motor Co. 3,532,430 199,361
The Walt Disney Co. 6,008,032 185,122
Chevron Corp. 1,911,981 181,997
Warner-Lambert Co. 2,477,194 171,855
Morgan Stanley Dean
Witter & Co. 1,673,429 171,526
American Express Co. 1,314,277 171,020
Nortel Networks Corp. 1,936,060 168,074
PepsiCo, Inc. 4,309,163 166,711
Motorola, Inc. 1,759,241 166,688
Texas Instruments, Inc. 1,143,559 165,816
McDonald's Corp. 3,961,813 163,672
o EMC Corp. 2,947,997 162,140
o Oracle Corp. 4,191,959 155,626
o Sun Microsystems, Inc. 2,253,617 155,218
9
<PAGE>
- --------------------------------------------------------------
Market
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
- --------------------------------------------------------------
First Union Corp. 2,867,569 134,776
Sprint Corp. 2,523,906 133,294
Gillette Co. 3,235,881 132,671
Medtronic, Inc. 1,700,519 132,428
o MediaOne Group, Inc. 1,761,984 131,048
Charles Schwab Corp. 1,188,776 130,617
The Gap, Inc. 2,498,863 125,880
General Motors Corp. 1,898,078 125,273
The Boeing Co. 2,833,925 125,224
Freddie Mac 2,025,126 117,457
Compaq Computer Corp. 4,950,625 117,268
Unilever NV ADR 1,661,702 115,904
Xerox Corp. 1,929,379 113,954
AlliedSignal Inc. 1,619,651 102,038
Minnesota Mining &
Manufacturing Co. 1,169,841 101,703
Schlumberger Ltd. 1,595,902 101,639
United Technologies Corp. 1,386,651 99,406
Anheuser-Busch Cos., Inc. 1,387,783 98,446
Texaco Inc. 1,560,950 97,559
Waste Management, Inc. 1,776,911 95,509
Associates First Capital Corp. 2,130,677 94,416
o Amgen, Inc. 1,490,977 90,763
o CBS Corp. 2,074,781 90,123
Kimberly-Clark Corp. 1,568,258 89,391
o Viacom Inc. Class B 1,977,150 86,995
Carnival Corp. 1,782,345 86,444
U S WEST, Inc. 1,463,606 85,987
Computer Associates
International, Inc. 1,562,060 85,913
Merrill Lynch & Co., Inc. 1,070,238 85,552
Walgreen Co. 2,908,073 85,425
Allstate Corp. 2,374,615 85,189
Enron Corp. 1,031,728 84,344
Colgate-Palmolive Co. 850,241 83,961
Pharmacia & Upjohn, Inc. 1,474,723 83,783
Dayton Hudson Corp. 1,288,392 83,745
The Bank of New York Co., Inc. 2,219,835 81,440
Dow Chemical Co. 640,998 81,327
Electronic Data Systems Corp. 1,431,592 80,974
o Applied Materials, Inc. 1,086,186 80,242
Emerson Electric Co. 1,267,820 79,714
Atlantic Richfield Co. 947,156 79,147
Automatic Data
Processing, Inc. 1,795,631 79,008
o Tellabs, Inc. 1,132,267 76,499
Comcast Corp. Class A Special 1,941,824 74,639
Fleet Financial Group, Inc. 1,664,130 73,846
o Sprint PCS 1,278,610 73,041
J.P. Morgan & Co., Inc. 517,422 72,698
Monsanto Co. 1,842,295 72,656
U.S. Bancorp 2,115,470 71,926
o Safeway, Inc. 1,448,836 71,717
MBNA Corp. 2,331,007 71,387
o The Kroger Co. 2,412,115 67,388
o Clear Channel
Communications, Inc. 968,822 66,788
Alcoa Inc. 1,071,156 66,278
Household International, Inc. 1,397,134 66,189
SunTrust Banks, Inc. 933,639 64,830
Eastman Kodak Co. 937,447 63,512
Albertson's, Inc. 1,230,634 63,455
The Seagram Co. Ltd. 1,254,867 63,214
First Data Corp. 1,281,151 62,696
Caterpillar, Inc. 1,037,980 62,279
ALLTEL Corp. 868,829 62,121
Lowe's Cos., Inc. 1,085,025 61,507
Washington Mutual, Inc. 1,727,483 61,110
International Paper Co. 1,197,725 60,485
National City Corp. 917,341 60,086
Sara Lee Corp. 2,640,488 59,906
Illinois Tool Works, Inc. 727,690 59,671
Campbell Soup Co. 1,286,643 59,668
Gannett Co., Inc. 822,656 58,717
Marsh & McLennan Cos., Inc. 767,990 57,983
Halliburton Co. 1,279,788 57,910
CVS Corp. 1,140,196 57,865
Duke Energy Corp. 1,056,291 57,436
Raytheon Co. Class B 803,618 56,555
Firstar Corp. 1,997,467 55,929
American General Corp. 731,967 55,172
Mellon Bank Corp. 1,516,227 55,153
CIGNA Corp. 606,349 53,965
Southern Co. 2,026,740 53,709
Williams Cos., Inc. 1,261,461 53,691
H.J. Heinz Co. 1,054,168 52,840
Fifth Third Bancorp 782,409 52,079
NIKE, Inc. Class B 817,739 51,773
Baxter International, Inc. 850,737 51,576
o Costco Cos., Inc. 640,804 51,304
Cardinal Health, Inc. 791,607 50,762
PNC Bank Corp. 880,186 50,721
Pitney Bowes, Inc. 789,051 50,697
o Boston Scientific Corp. 1,149,998 50,528
Wachovia Corp. 589,687 50,455
Corning, Inc. 707,481 49,612
Sears, Roebuck & Co. 1,109,481 49,441
o Solectron Corp. 732,588 48,854
o FDX Corp. 862,954 46,815
o Cendant Corp. 2,234,743 45,812
Guidant Corp. 878,754 45,201
BankBoston Corp. 865,866 44,267
o NEXTEL Communications, Inc. 861,808 43,252
Honeywell, Inc. 368,998 42,758
Lockheed Martin Corp. 1,144,230 42,623
o Burlington Northern
Santa Fe Corp. 1,370,854 42,496
KeyCorp 1,317,347 42,320
Avon Products, Inc. 762,064 42,295
Union Pacific Corp. 719,804 41,974
o Staples, Inc. 1,356,124 41,955
Omnicom Group Inc. 520,974 41,678
Bestfoods 826,140 40,894
Weyerhaeuser Co. 584,394 40,177
State Street Corp. 467,276 39,894
May Department Stores Co. 974,877 39,848
The Hartford Financial
Services Group, Inc. 681,587 39,745
Kellogg Co. 1,178,001 38,874
Providian Financial Corp. 412,826 38,599
Columbia/HCA
Healthcare Corp. 1,690,181 38,557
10
<PAGE>
- --------------------------------------------------------------
Market
VALUE*
SHARES (000)
- --------------------------------------------------------------
Textron, Inc. 462,556 38,074
Newell Rubbermaid, Inc. 817,512 38,014
ConAgra, Inc. 1,419,591 37,797
J.C. Penney Co., Inc. 766,233 37,210
o BMC Software, Inc. 688,673 37,188
Phillips Petroleum Co. 736,817 37,071
AFLAC, Inc. 774,013 37,056
Aetna Inc. 413,721 37,002
Coca-Cola Enterprises, Inc. 1,233,991 36,711
o Kohl's Corp. 474,713 36,642
The Clorox Co. 342,333 36,565
PG&E Corp. 1,113,012 36,173
General Mills, Inc. 444,597 35,734
Interpublic Group of Cos., Inc. 406,441 35,208
o Best Buy Co., Inc. 514,808 34,750
United Healthcare Corp. 539,698 33,799
o Compuware Corp. 1,061,420 33,766
Texas Utilities Co. 815,455 33,638
Rockwell International Corp. 552,388 33,558
Norfolk Southern Corp. 1,108,471 33,393
BB&T Corp. 909,138 33,354
The Chubb Corp. 471,032 32,737
o Federated Department
Stores, Inc. 614,612 32,536
o AES Corp. 553,733 32,186
Capital One Financial Corp. 577,252 32,146
Mattel, Inc. 1,210,298 31,997
o Computer Sciences Corp. 461,352 31,920
Baker Hughes, Inc. 950,630 31,846
TJX Cos., Inc. 948,825 31,608
Northern Trust Corp. 325,761 31,599
The McGraw-Hill Cos., Inc. 577,607 31,155
Ingersoll-Rand Co. 480,232 31,035
Vodafone AirTouch PLC ADR 157,407 31,009
o AMR Corp. 451,541 30,818
Consolidated Edison, Inc. 680,261 30,782
Aon Corp. 743,206 30,657
Progressive Corp. of Ohio 211,304 30,639
o Unisys Corp. 786,675 30,631
Southwest Airlines Co. 981,127 30,538
Lincoln National Corp. 583,623 30,531
Delphi Automotive
Systems Corp. 1,640,026 30,443
Wrigley, (Wm.) Jr. Co. 337,812 30,403
Tribune Co. 344,623 30,025
PPG Industries, Inc. 508,323 30,023
Franklin Resources Corp. 733,281 29,790
Frontier Corp. 501,404 29,583
o Micron Technology, Inc. 730,528 29,449
The Limited, Inc. 644,371 29,238
USX-Marathon Group 895,393 29,156
Ralston-Ralston Purina Group 949,248 28,893
IMS Health, Inc. 922,422 28,826
Sysco Corp. 961,580 28,667
CSX Corp. 631,126 28,598
FPL Group, Inc. 522,872 28,562
Conseco, Inc. 936,092 28,492
Masco Corp. 979,778 28,291
Tandy Corp. 578,405 28,270
o 3Com Corp. 1,055,729 28,175
Unocal Corp. 704,049 27,898
Circuit City Stores, Inc. 293,774 27,321
Deere & Co. 689,064 27,304
Edison International 1,019,642 27,275
Transamerica Corp. 362,343 27,176
Comerica, Inc. 456,779 27,150
Pioneer Hi-Bred
International, Inc. 695,873 27,096
PECO Energy Corp. 646,828 27,086
o Gateway, Inc. 454,484 26,815
Air Products & Chemicals, Inc. 666,185 26,814
Marriott International, Inc.
Class A 717,208 26,806
The Goodyear Tire & Rubber Co. 453,426 26,667
Rohm & Haas Co. 616,868 26,448
Public Service Enterprise
Group, Inc. 644,495 26,344
Mercantile Bancorp, Inc. 458,326 26,182
The Quaker Oats Co. 393,533 26,121
Archer-Daniels-Midland Co. 1,689,258 26,078
Loews Corp. 328,453 25,989
o Novell, Inc. 975,841 25,860
McKesson HBOC, Inc. 803,937 25,826
General Dynamics Corp. 369,598 25,317
Regions Financial Corp. 653,712 25,127
Coastal Corp. 618,960 24,758
Hershey Foods Corp. 413,885 24,574
Unicom Corp. 635,408 24,503
Dominion Resources, Inc. 564,798 24,463
Georgia Pacific Group 516,344 24,462
Fort James Corp. 641,140 24,283
o Tricon Global Restaurants, Inc. 445,025 24,087
Reliant Energy, Inc. 862,897 23,838
o Kmart Corp. 1,436,153 23,607
Delta Air Lines, Inc. 409,479 23,596
Danaher Corp. 391,532 22,758
Dana Corp. 491,367 22,634
Paychex, Inc. 709,418 22,613
Dover Corp. 645,211 22,582
Praxair, Inc. 458,250 22,426
Entergy Corp. 716,851 22,402
Burlington Resources, Inc. 515,371 22,290
UNUM Corp. 403,124 22,071
SLM Holding Corp. 481,659 22,066
Barrick Gold Corp. 1,135,590 22,002
Becton, Dickinson & Co. 724,790 21,744
St. Paul Cos., Inc. 682,351 21,707
Allergan, Inc. 192,798 21,401
Huntington Bancshares Inc. 609,173 21,321
Occidental Petroleum Corp. 1,008,798 21,311
FirstEnergy Corp. 685,267 21,243
Republic New York Corp. 310,108 21,145
Lehman Brothers Holdings, Inc. 339,315 21,122
American Electric Power
Co., Inc. 562,276 21,120
o General Instrument Corp. 495,487 21,058
o Apple Computer, Inc. 454,353 21,042
Alcan Aluminium Ltd. 658,718 21,038
Summit Bancorp 502,380 21,006
Avery Dennison Corp. 342,477 20,677
o Office Depot, Inc. 931,359 20,548
Fortune Brands, Inc. 494,438 20,457
11
<PAGE>
- --------------------------------------------------------------
Market
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
- --------------------------------------------------------------
Kansas City Southern
Industries, Inc. 319,685 20,400
Jefferson-Pilot Corp. 307,910 20,380
New York Times Co. Class A 542,287 19,963
PaineWebber Group, Inc. 421,094 19,686
Browning-Ferris Industries, Inc. 457,615 19,677
TRW, Inc. 351,120 19,268
Eaton Corp. 208,025 19,138
o LSI Logic Corp. 413,822 19,088
Rite Aid Corp. 766,472 18,874
MBIA, Inc. 291,127 18,850
Carolina Power & Light Co. 439,804 18,829
Union Carbide Corp. 384,666 18,752
SouthTrust Corp. 487,199 18,696
Dollar General Corp. 642,642 18,637
Nabisco Group Holdings Corp. 943,636 18,460
o HEALTHSOUTH Corp. 1,223,027 18,269
Union Planters Corp. 408,410 18,251
Genuine Parts Co. 519,438 18,180
Cincinnati Financial Corp. 482,710 18,132
Maytag Corp. 260,089 18,125
o Seagate Technology, Inc. 705,435 18,077
Johnson Controls, Inc. 252,727 17,517
SAFECO Corp. 393,873 17,380
Dun & Bradstreet Corp. 477,522 16,922
DTE Energy Co. 421,471 16,859
PE Corp. - PE Biosystems Group 146,831 16,849
Consolidated Natural Gas Co. 277,319 16,847
o Tenet Healthcare Corp. 901,975 16,743
o KLA-Tencor Corp. 253,789 16,465
Ecolab, Inc. 376,398 16,420
Provident Cos., Inc. 406,653 16,266
o Wellpoint Health Networks Inc.
Class A 190,183 16,142
Golden West Financial Corp. 164,529 16,124
Black & Decker Corp. 254,247 16,049
CenturyTel, Inc. 403,169 16,026
Winn-Dixie Stores, Inc. 429,571 15,867
Hasbro, Inc. 567,207 15,846
Whirlpool Corp. 214,078 15,842
PacifiCorp 859,439 15,792
UST, Inc. 537,796 15,731
Sempra Energy 694,555 15,714
o Sealed Air Corp. 241,097 15,641
GPU, Inc. 369,900 15,605
Synovus Financial Corp. 783,327 15,569
Amerada Hess Corp. 261,193 15,541
Bear Stearns Co., Inc. 332,041 15,523
MGIC Investment Corp. 316,874 15,408
Service Corp. International 790,118 15,210
Equifax, Inc. 426,139 15,208
Columbia Energy Group 241,484 15,138
o Toys R Us, Inc. 729,739 15,096
o ALZA Corp. 295,446 15,031
Ameren Corp. 390,165 14,973
W.W. Grainger, Inc. 274,237 14,757
Cinergy Corp. 458,889 14,684
Willamette Industries, Inc. 316,624 14,584
VF Corp. 340,799 14,569
o Owens-Illinois, Inc. 443,168 14,486
Dow Jones & Co., Inc. 271,684 14,416
Adobe Systems, Inc. 175,179 14,392
R.R. Donnelley & Sons Co. 387,252 14,353
Parker Hannifin Corp. 313,523 14,344
CMS Energy Corp. 339,388 14,212
Central & South West Corp. 606,693 14,181
Countrywide Credit
Industries, Inc. 330,683 14,137
H & R Block, Inc. 282,521 14,126
Cooper Industries, Inc. 270,124 14,046
PP&L Resources, Inc. 450,325 13,847
Sherwin-Williams Co. 496,470 13,777
Nordstrom, Inc. 411,069 13,771
o Ceridian Corp. 418,207 13,670
International Flavors &
Fragrances, Inc. 307,047 13,625
Anadarko Petroleum Corp. 366,416 13,489
Champion International Corp. 276,572 13,241
Northrop Grumman Corp. 199,179 13,208
The Times Mirror Co. Class A 219,648 13,014
o AutoZone, Inc. 431,578 13,001
New Century Energies, Inc. 333,402 12,940
Torchmark Corp. 379,198 12,940
Biomet, Inc. 324,979 12,918
Brown-Forman Corp. Class B 198,041 12,910
Constellation Energy Group 433,627 12,846
Knight Ridder 229,946 12,633
Apache Corp. 323,742 12,626
Bausch & Lomb, Inc. 164,756 12,604
Kerr-McGee Corp. 250,470 12,570
Allegheny Teledyne Inc. 550,219 12,449
The Mead Corp. 294,634 12,301
o National Semiconductor Corp. 483,256 12,232
PACCAR, Inc. 226,034 12,065
o PeopleSoft, Inc. 692,377 11,944
AmSouth Bancorp 513,882 11,916
Union Pacific Resources
Group, Inc. 729,898 11,906
Raytheon Co. Class A 171,471 11,810
Eastman Chemical Co. 228,005 11,799
Tenneco, Inc. 493,272 11,777
Nucor Corp. 248,180 11,773
Hercules, Inc. 292,008 11,480
Harcourt General, Inc. 221,469 11,419
Placer Dome, Inc. 936,360 11,061
o US Airways Group, Inc. 253,026 11,022
Dillard's, Inc. 310,049 10,890
Reynolds Metals Co. 183,422 10,822
Temple-Inland Inc. 158,380 10,809
Northern States Power Co. 444,290 10,746
o Parametric Technology Corp. 768,857 10,668
Hilton Hotels Corp. 751,381 10,660
Sonat, Inc. 319,193 10,573
ITT Industries, Inc. 277,036 10,562
Phelps Dodge Corp. 167,509 10,375
Case Corp. 213,907 10,294
Wendy's International, Inc. 357,989 10,136
Crown Cork & Seal Co., Inc. 353,614 10,078
Sigma-Aldrich Corp. 286,621 9,871
Inco Ltd. 543,425 9,782
Nalco Chemical Co. 187,830 9,744
o Watson Pharmaceuticals, Inc. 275,114 9,646
12
<PAGE>
- --------------------------------------------------------------
Market
VALUE*
SHARES (000)
- --------------------------------------------------------------
o Mirage Resorts, Inc. 574,486 9,623
Newmont Mining Corp. 483,317 9,606
o Navistar International Corp. 191,372 9,569
Florida Progress Corp. 230,721 9,532
o Thermo Electron Corp. 459,645 9,222
The BFGoodrich Co. 215,181 9,145
Deluxe Corp. 232,853 9,067
o Silicon Graphics, Inc. 545,523 8,933
SuperValu Inc. 347,461 8,925
Harris Corp. 226,679 8,883
Fluor Corp. 218,680 8,857
Darden Restaurants, Inc. 398,733 8,697
o St. Jude Medical, Inc. 243,519 8,675
o Niagara Mohawk Holdings Inc. 538,808 8,655
Ashland, Inc. 213,926 8,584
o Consolidated Stores, Inc. 316,492 8,545
Westvaco Corp. 290,267 8,418
Engelhard Corp. 370,079 8,373
The Stanley Works 256,995 8,272
Raychem Corp. 222,665 8,239
Sunoco, Inc. 268,369 8,101
o Harrah's Entertainment, Inc. 368,117 8,099
Pall Corp. 360,001 7,988
Comcast Corp. Class A 218,396 7,821
Scientific-Atlanta, Inc. 216,562 7,796
o HCR Manor Care, Inc. 320,749 7,758
Great Lakes Chemical Corp. 166,113 7,652
Thomas & Betts Corp. 161,734 7,642
o Advanced Micro Devices, Inc. 422,524 7,632
Brunswick Corp. 270,527 7,541
Mallinckrodt, Inc. 204,400 7,435
Louisiana-Pacific Corp. 312,566 7,423
C.R. Bard, Inc. 153,744 7,351
Freeport-McMoRan Copper &
Gold Inc. Class B 402,287 7,216
o King World Productions, Inc. 205,674 7,160
Laidlaw, Inc. 946,778 6,982
Boise Cascade Corp. 161,976 6,965
Cummins Engine Co., Inc. 120,096 6,860
USX-U.S. Steel Group 253,376 6,841
Snap-On Inc. 187,890 6,799
o Network Appliance, Inc. 121,317 6,779
Centex Corp. 180,310 6,773
Liz Claiborne, Inc. 185,227 6,761
Armstrong World Industries, Inc. 114,719 6,632
o FMC Corp. 95,792 6,544
o Cabletron Systems, Inc. 495,138 6,437
IKON Office Solutions, Inc. 427,371 6,411
o Humana, Inc. 479,977 6,210
Crane Co. 196,774 6,186
Homestake Mining Co. 744,750 6,098
American Greetings Corp.
Class A 201,187 6,061
Bemis Co., Inc. 149,589 5,946
Owens Corning 155,967 5,361
Ryder System, Inc. 204,811 5,325
Meredith Corp. 149,863 5,189
NICOR, Inc. 136,136 5,182
Adolph Coors Co. Class B 104,551 5,175
Cooper Tire & Rubber Co. 217,439 5,137
Millipore Corp. 126,089 5,114
Autodesk, Inc. 169,028 4,997
Shared Medical Systems Corp. 76,217 4,973
McDermott International, Inc. 169,322 4,783
R.J. Reynolds Tobacco
Holdings, Inc. 146,998 4,630
o Andrew Corp. 241,562 4,575
EG&G, Inc. 128,057 4,562
o Rowan Cos., Inc. 240,389 4,432
Alberto-Culver Co. Class B 163,524 4,354
Worthington Industries, Inc. 263,375 4,329
National Service Industries, Inc. 117,877 4,244
Tupperware Corp. 164,994 4,207
Tektronix, Inc. 134,667 4,065
Cyprus Amax Minerals Co. 260,551 3,957
Great Atlantic & Pacific Tea
Co., Inc. 115,760 3,914
Briggs & Stratton Corp. 67,236 3,883
o W.R. Grace & Co. 210,914 3,876
Longs Drug Stores, Inc. 111,640 3,859
Peoples Energy Corp. 101,793 3,836
Ball Corp. 88,012 3,719
Potlatch Corp. 82,964 3,645
Vulcan Materials Co. 73,695 3,556
Polaroid Corp. 125,697 3,472
The Timken Co. 177,893 3,469
Kaufman & Broad Home Corp. 137,403 3,418
Helmerich & Payne, Inc. 141,196 3,362
The Pep Boys
(Manny, Moe & Jack) 150,605 3,257
o Reebok International Ltd. 162,323 3,023
o Bethlehem Steel Corp. 392,011 3,014
ONEOK, Inc. 90,389 2,870
Pulte Corp. 123,732 2,854
Fleetwood Enterprises, Inc. 98,900 2,615
Eastern Enterprises 63,681 2,531
Springs Industries, Inc. Class A 50,768 2,215
ASARCO, Inc. 112,466 2,116
Jostens, Inc. 100,224 2,111
o Data General Corp. 141,936 2,067
Fruit of the Loom, Inc. Class A 208,935 2,037
Milacron Inc. 109,063 2,018
Russell Corp. 102,508 1,999
NACCO Industries, Inc. Class A 22,926 1,685
Foster Wheeler Corp. 115,415 1,630
o Viacom Inc. Class A 36,030 1,590
Battle Mountain Gold Co.
Class A 651,602 1,588
Freeport-McMoRan Copper &
Gold, Inc. Class A 72,417 1,213
o Triad Hospitals, Inc. 84,388 1,139
o PE Corp.-Celera Genomics Group 36,458 590
o LifePoint Hospitals, Inc. 41,888 563
Moore Corp. Ltd. 37,194 311
- --------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $19,146,025) 32,790,756
- --------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------
Face Market
Amount VALUE*
INSTITUTIONAL INDEX FUND (000) (000)
- --------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.1%)(1)
- --------------------------------------------------------------
Federal Home Loan Mortgage Corp.
(2)4.71%, 7/28/1999 $ 3,000 2,988
Federal National Mortgage Assn.
(2)4.69%, 7/22/1999 10,000 9,970
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
4.87%, 7/1/1999 17,400 17,400
- --------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $30,362) 30,358
- --------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $19,176,387) 32,821,114
- --------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- --------------------------------------------------------------
Other Assets 905,805
Liabilities (826,809)
-------------
78,996
- --------------------------------------------------------------
NET ASSETS (100%) $32,900,110
==============================================================
*See Note A in Notes to Financial Statements.
oNon-Income-Producing Security.
(1)The fund invests a portion of its cash reserves in equity
markets through the use of index futures contracts. After
giving effect to futures investments, the fund's effective
common stock and temporary cash investment positions
represent 99.4% and -0.2%, respectively, of net assets.
See Note D in Notes to Financial Statements.
(2)Security segregated as initial margin for open futures
contracts.
ADR--American Depositary Receipt.
- --------------------------------------------------------------
Amount
(000)
- --------------------------------------------------------------
AT JUNE 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------
Paid in Capital--Note C $19,143,191
Undistributed Net Investment Income 10,396
Accumulated Net Realized Gains--Note C 99,987
Unrealized Appreciation--Note D
Investment Securities 13,644,727
Futures Contracts 1,809
- --------------------------------------------------------------
NET ASSETS $32,900,110
==============================================================
Institutional Shares--Net Assets
Applicable to 211,933,241 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $26,617,972
- --------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INSTITUTIONAL SHARES $125.60
==============================================================
Plus Shares--Net Assets
Applicable to 50,016,305 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $6,282,138
- --------------------------------------------------------------
NET ASSET VALUE PER SHARE--
PLUS SHARES $125.60
==============================================================
14
<PAGE>
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by the fund during the
reporting period, and details the operating expenses charged to each class of
its shares. These expenses directly reduce the amount of investment income
available to pay to shareholders as dividends. This Statement also shows any Net
Gain (Loss) realized on the sale of investments, and the increase or decrease in
the Unrealized Appreciation (Depreciation) on investments during the period. If
the fund invested in futures contracts during the period, the results of these
investments are shown separately.
- --------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND
SIX MONTHS ENDED JUNE 30, 1999
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 201,921
Interest 4,467
Security Lending 362
-----------
Total Income 206,750
-----------
EXPENSES
The Vanguard Group--Note B
Management and Administrative 3,013
Shareholder Services--Institutional Shares 4,811
Shareholder Services--Plus Shares 152
-----------
Total Expenses 7,976
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 198,774
- --------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold 1,120,813
Futures Contracts 10,529
- --------------------------------------------------------------------------------
REALIZED NET GAIN 1,131,342
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 2,246,476
Futures Contracts 655
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 2,247,131
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,577,247
================================================================================
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts 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
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
fund, either by purchasing shares or by reinvesting distributions, as well as
the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
<TABLE>
- --------------------------------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND
-------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 1999 DEC. 31, 1998
(000) (000)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 198,774 $ 329,784
Realized Net Gain 1,131,342 973,438
Change in Unrealized Appreciation (Depreciation) 2,247,131 4,558,793
-------------------------------------
Net Increase in Net Assets Resulting from Operations 3,577,247 5,862,015
-------------------------------------
DISTRIBUTIONS
Net Investment Income
Institutional Shares (152,725) (265,299)
Plus Shares (39,039) (61,192)
Realized Capital Gain
Institutional Shares (86,316) (173,026)
Plus Shares (21,390) (38,070)
-------------------------------------
Total Distributions (299,470) (537,587)
-------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES(1)
Issued 5,698,125 7,240,319
Issued in Lieu of Cash Distributions 217,313 397,936
Redeemed (4,282,895) (4,971,503)
-------------------------------------
Net Increase--Institutional Shares 1,632,543 2,666,752
-------------------------------------
CAPITAL SHARE TRANSACTIONS--PLUS SHARES(2)
Issued 2,112,730 1,688,651
Issued in Lieu of Cash Distributions 56,346 97,590
Redeemed (1,467,926) (1,324,588)
-------------------------------------
Net Increase--Plus Shares 701,150 461,653
- --------------------------------------------------------------------------------------------------------
Total Increase 5,611,470 8,452,833
- --------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 27,288,640 18,835,807
-------------------------------------
End of Period $32,900,110 $27,288,640
========================================================================================================
(1)Shares Issued (Redeemed)--Institutional Shares
Issued 48,053 72,174
Issued in Lieu of Cash Distributions 1,834 3,762
Redeemed (35,904) (49,354)
-------------------------------------
Net Increase in Shares Outstanding 13,983 26,582
========================================================================================================
(2)Shares Issued (Redeemed)--Plus Shares
Issued 17,840 16,963
Issued in Lieu of Cash Distributions 476 924
Redeemed (12,168) (12,964)
-------------------------------------
Net Increase in Shares Outstanding 6,148 4,923
========================================================================================================
</TABLE>
17
<PAGE>
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
<TABLE>
- ----------------------------------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND INSTITUTIONAL SHARES
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------------------------
THROUGHOUT EACH PERIOD JUN. 30, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $112.85 $ 89.56 $68.86 $57.93 $43.22 $44.20
- ----------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .755 1.429 1.391 1.38 1.28 1.23
Net Realized and Unrealized Gain (Loss)
on Investments 13.145 24.177 21.415 11.90 14.86 (.66)
------------------------------------------------------------
Total from Investment Operations 13.900 25.606 22.806 13.28 16.14 .57
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.730) (1.416) (1.391) (1.36) (1.27) (1.21)
Distributions from Realized Capital Gains (.420) (.900) (.715) (.99) (.16) (.34)
------------------------------------------------------------
Total Distributions (1.150) (2.316) (2.106) (2.35) (1.43) (1.55)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $125.60 $112.85 $89.56 $68.86 $57.93 $43.22
==========================================================================================================
TOTAL RETURN 12.38% 28.79% 33.36% 23.06% 37.60% 1.31%
==========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $26,618 $22,338 $15,348 $11,426 $6,674 $3,265
Ratio of Total Expenses to
Average Net Assets 0.06%* 0.06% 0.06% 0.06% 0.06% 0.07%
Ratio of Net Investment Income to
Average Net Assets 1.31%* 1.46% 1.77% 2.18% 2.49% 2.80%
Portfolio Turnover Rate** 12%* 11% 7% 9% 4% 23%
==========================================================================================================
*Annualized.
**Portfolio turnover rates excluding in-kind redemptions were 3%, 7%, 6%, 9%, 4%, and 19%, respectively.
</TABLE>
17
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND PLUS SHARES
- ----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUL. 7* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD JUN. 30, 1999 DEC. 31, 1998 DEC. 31, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $112.85 $ 89.56 $84.91
- ----------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .773 1.464 .681
Net Realized and Unrealized Gain (Loss) on Investments 13.145 24.177 5.455
----------------------------------------------------
Total from Investment Operations 13.918 25.641 6.136
----------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.748) (1.451) (.866)
Distributions from Realized Capital Gains (.420) (.900) (.620)
----------------------------------------------------
Total Distributions (1.168) (2.351) (1.486)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $125.60 $112.85 $89.56
==========================================================================================================
TOTAL RETURN 12.40% 28.83% 7.29%
==========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $6,282 $4,951 $3,488
Ratio of Total Expenses to Average Net Assets 0.025%** 0.025% 0.025%**
Ratio of Net Investment Income to Average Net Assets 1.36%** 1.49% 1.72%**
Portfolio Turnover Rate+ 12%** 11% 7%
==========================================================================================================
*Inception.
**Annualized.
+Portfolio turnover rates excluding in-kind redemptions were 3%, 7%, and 6%, respectively.
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Vanguard Institutional Index Fund is registered under the Investment Company Act
of 1940 as a diversified open-end investment company, or mutual fund. The fund
offers two classes of shares, Institutional Shares and Plus Shares. Plus Shares
are designed primarily for institutional investors that meet certain
administrative and servicing criteria and have a minimum investment of $200
million. Institutional Shares are offered to other institutional investors that
have a minimum investment of $10 million.
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: Equity securities are valued at the latest quoted
sales prices as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on the valuation date; such securities not
traded on the valuation date are valued at the mean of the latest quoted bid and
asked prices. Prices are taken from the primary market in which each security
trades. Temporary cash investments acquired over 60 days to maturity are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services. Other temporary cash
investments are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued by
methods deemed by the Board of Trustees to represent fair value.
2. Federal Income Taxes: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. Repurchase Agreements: The fund, along with 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. Futures: The fund uses S&P 500 Index futures contracts to a limited
extent, with the objectives of maintaining full exposure to the stock market,
enhancing returns, maintaining liquidity, and minimizing transaction costs. The
fund may purchase futures contracts to immediately invest incoming cash in the
market, or sell futures in response to cash outflows, thereby simulating a fully
invested position in the underlying index while maintaining a cash balance for
liquidity. The fund may seek to enhance returns by using futures contracts
instead of the underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated with
the use of futures contracts are imperfect correlation between changes in market
values of stocks held by the fund and the prices of futures contracts, and the
possibility of an illiquid market.
Futures contracts are valued at their quoted daily settlement prices. The
aggregate principal amounts of the contracts are not recorded in the financial
statements. Fluctuations in the value of the contracts are recorded in the
Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
5. Distributions: Distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes.
6. Other: Dividend income is recorded on the ex-dividend date. 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. Income, expenses
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
not attributable to a specific class, and realized and unrealized gains and
losses on investments are allocated to each class of shares based on its
relative net assets.
B. The Vanguard Group provides investment advisory, corporate management,
administrative, marketing, and distribution services and pays for all other
operating expenses, except for taxes, in return for a fee calculated at an
annual percentage rate of the average net assets of the fund. For the six months
ended June 30, 1999, the annualized fees for such services were 0.06% and
0.025%, respectively, of average net assets for the Institutional and Plus
Shares of the fund, of which 0.04% and 0.005%, respectively, related to
class-specific shareholder services. The fund's Trustees and officers are also
Directors and officers of Vanguard.
C. During the six months ended June 30, 1999, the fund purchased $4,106,065,000
of investment securities and sold $1,869,747,000 of investment securities, other
than temporary cash investments.
During the six months ended June 30, 1999, the fund realized $1,026,534,000
of net capital gains resulting from in-kind redemptions--in which shareholders
exchanged fund shares for securities held by the fund rather than for cash.
Because such gains are not taxable to the fund, and are not distributed to
shareholders, they have been reclassified from accumulated net realized gains to
paid in capital.
D. At June 30, 1999, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $13,644,727,000,
consisting of unrealized gains of $13,965,791,000 on securities that had risen
in value since their purchase and $321,064,000 in unrealized losses on
securities that had fallen in value since their purchase.
At June 30, 1999, the aggregate settlement value of open futures contracts
expiring in September 1999 and the related unrealized appreciation were:
- --------------------------------------------------------------------------------
(000)
--------------------------------------
NUMBER OF AGGREGATE
LONG SETTLEMENT UNREALIZED
FUTURES CONTRACTS CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------
S&P 500 Index 242 $83,593 $1,809
- --------------------------------------------------------------------------------
20
<PAGE>
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and
Director/Trustee of The Vanguard Group, Inc.,
and each of the investment companies in
The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer,
and Director/Trustee of The Vanguard Group, Inc.,
and each of the investment companies in
The Vanguard Group.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson
& Johnson; Director of Johnson & JohnsonoMerck
Consumer Pharmaceuticals Co., Women First
HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and
Women's Research and Education Institute.
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, Banco Bilbao Gestinova, Baker
Fentress & Co., The Jeffrey Co., and Southern
New England Telecommunications 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., NACCO Industries, and Newfield
Exploration Co.
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. and The Mead
Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary
of The Vanguard Group, Inc.; Secretary of
each of the investment companies in The
Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.;
Treasurer of each of the investment companies in
The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell Company
is the owner of trademarks and copyrights relating to the Russell Indexes.
"Wilshire 4500" and "Wilshire 5000" are trademarks of Wilshire Associates.
<PAGE>
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28,1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[SHIP LOGO]
[THE VANGUARD GROUP (R) LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the fund's
shareholders. It may not be distributed
to prospective investors unless it
is preceded or accompanied by the
current fund prospectus.
Q942-08/16/1999
(C) 1999 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.