VANGUARD(R) INSTITUTIONAL INDEX FUND
June 30, 2000
SEMIANNUAL
[GRAPHIC]
[THE VANGUARD GROUP(R) LOGO]
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HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment. Valuations of market indexes are at or near historic highs. The
strength and duration of the bull market in U.S. stocks have inflated people's
expectations and diminished their recognition of the market's considerable
risks. And the incredible divergence in stock returns--many technology-related
stocks gained 100% or more in 1999, yet prices fell for more than half of all
stocks--has made some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not
the same as wisdom. Indeed, much of the information, opinion, and rumor that
swirl about financial markets each day amounts to "noise" of no lasting
significance. And the fact that rapid-fire trading is easy does not make it
beneficial. Frequent trading is almost always counterpro-ductive because
costs--even at low commission rates--and taxes detract from the returns that the
markets provide. Sadly, many investors jump into a "hot" mutual fund just in
time to see it cool off. Meanwhile, long-term fund investors are hurt by
speculative trading activity because they bear part of the costs involved in
accommodating purchases and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
* Invest for the long term. Pursuing your long-term investment goals is
more like a marathon than a sprint.
* Diversify your investments with holdings in stocks, bonds, and cash
investments. Remember that, at any moment, some part of a diversified portfolio
will lag other parts, and be wary of taking on more risk by "piling onto" the
best-performing part of your holdings. Today's leader could well be tomorrow's
laggard.
* Step back from the daily frenzy of the markets; focus on your overall
asset allocation.
* Capture as much of the market's return as possible by minimizing costs
and taxes. Costs and taxes diminish long-term returns while doing nothing to
reduce the risks you incur as an investor.
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CONTENTS
REPORT FROM THE CHAIRMAN .......1 PERFORMANCE SUMMARIES ..........8
THE MARKETS IN PERSPECTIVE .....4 FINANCIAL STATEMENTS ...........9
FUND PROFILE ...................6
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All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R),"
"Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies,
Inc. Frank Russell Company is the owner of trademarks and copyrights relating to
the Russell Indexes. "Wilshire 5000(R)" and "Wilshire 4500" are trademarks of
Wilshire Associates Incorporated.
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1
REPORT FROM THE CHAIRMAN
[PHOTO]
John J. Brennan
The U.S. stock market endured a choppy six months during the first half of 2000,
as many investors struggled to sort out the implications of rising interest
rates, strong economic growth, and the sky-high valuations of some technology
companies.
In this challenging environment, Vanguard Institutional Index Fund provided
a total return of -0.4% for the six months ended June 30. The fund's return
matched that of its target benchmark, the Standard & Poor's 500 Index, but fell
short of the 1.3% return of the average large- capitalization core mutual fund.
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TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 2000
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Vanguard Institutional Index Fund -0.4%
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Average Large-Cap Core Fund* 1.3%
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S&P 500 Index -0.4%
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Plus Shares -0.4%
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*Derived from data provided by Lipper Inc.
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 our
average peer. The performance of the fund's Plus Shares, which are available for
a minimum investment of $200 million, is presented at the bottom of the table.
Vanguard Institutional Index Fund's return is based on a decrease in net asset
value from $134.02 per share on December 31, 1999, to $132.85 per share on June
30, 2000, and is adjusted for distributions totaling $0.680 per share paid from
net investment income. (For the Plus Shares, the total return is based on a
decrease in net asset value from $134.02 per share to $132.86 per share and is
adjusted for distributions totaling $0.702 per share.)
THE PERIOD IN REVIEW
The first half of 2000 was a tumultuous time in the financial markets, which
were buffeted by a complex set of crosscurrents. The domestic economy continued
to grow at a strong pace: The production of goods and services during the second
quarter of 2000 was about 6% higher than in the same period last year, even
after adjusting for inflation.Unemployment remained low, hovering around 4% of
the workforce. Elsewhere in the world, growth was picking up from more subdued
levels.
Economic growth is generally good for corporate earnings and, thus, for
stock prices. But investors and economic policymakers have worried that the
combination of rapid economic growth and low unemployment would trigger sharply
higher wages and inflation. The Federal Reserve Board, in an effort to slow the
economy's momentum and forestall an inflationary outburst, continued to raise
short-term interest rates during the half-year. The Fed boosted its target for
the federal funds rate three times by a total of 1.0 percentage point (100 basis
points). In all, the Fed has raised its target rate by 175 basis points in the
past 12 months.
For most of the first quarter of 2000, a continuing boom in technology
stocks kept the market averages rising, despite the threat of higher interest
rates. But during the second quarter, tech stocks in particular cooled off. The
market may have reacted to evidence that the ideal combination of rapid growth
and low inflation was coming to an end. If the Fed succeeds in slowing the
economy, corporate earnings growth might slow, too. And if earnings growth
slowed, some investors reasoned, technology and
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2
telecommunications stocks would have a tough time maintaining their lofty
price/earnings multiples. The split between the two quarters was evident in the
results for the tech-dominated Nasdaq Composite Index, which rose 12.7% in the
first quarter, only to slide -14.7% in the second. End result? A -3.9% return
for the half-year.
The overall U.S. stock market, as measured by the Wilshire 5000 Total
Market Index, posted a -0.7% return for the six months. The small-cap Russell
2000 Index gained 3.0%, outpacing the large-cap Standard & Poor's 500 Index,
which posted a negative return of -0.4%. Leadership within the market during the
period switched back and forth between growth stocks-those whose prices reflect
high expectations for future profitability-and value stocks, whose low prices in
relation to earnings, book value, and dividends reflect lower expectations by
the market. Growth stocks were in front early on, but value stocks performed
best in late March and April. Growth issues bounced back in June, however, and
for the full six months, growth generally outpaced value. For example, the
growth stocks within the Russell 1000 Index (comprising the 1,000 largest U.S.
stocks) earned 4.2%, while the value stocks declined by an equal amount.
The Fed's efforts succeeded in pushing up short-term interest rates: The
yield of 3-month U.S. Treasury bills climbed 52 basis points (from 5.33% to
5.85%) during the half-year. But after rising early in the year, yields for
longer-term Treasuries began to fall after the Treasury announced that it would
use rising federal budget surpluses to buy back billions of dollars' worth of
long-term bonds. A shrinking supply of long-term Treasuries caused their prices
to rise and their yields to fall. By June 30, the 30-year Treasury bond's yield
had fallen 58 basis points, from 6.48% to 5.90%. Yields on high-quality
corporate bonds were flat to slightly higher. But for low-quality corporate
("junk") bonds, prices fell and yields rose as investors worried about increased
defaults.
PERFORMANCE OVERVIEW
As you should expect, Vanguard Institutional Index Fund earned a return that was
in line with the market segment in which it invests, namely large-cap stocks.
However, as the previous table indicates, our fund did not keep pace with its
average peer.
Your fund registered a return of -0.4% during the half-year, an exact
match with its target index but a good deal short of the average return of 1.3%
earned by large-cap core mutual funds. Our shortfall versus our average peer is
owed largely to the generally lackluster performance of several of the large
companies that dominate the index but whose returns were generally outpaced by
companies further down the capitalization ladder. The index's relatively heavy
weighting in larger companies can work in our fund's favor in relation to our
actively managed competitors when the largest companies are powering the S&P
500's performance-as they did for the past several years. However, it can work
to our detriment when smaller-cap stocks lead the market, as they did during the
past six months.
Over the past several years, technology companies have played an
increasingly large role in the S&P 500 Index, and their performance has set the
pace for the index. During the half-year, much of the volatility in the S&P 500
Index was attributed to tech shares, which constituted an average of nearly 28%
of the index in the period. The technology sector posted a return of 4.6% for
the six months, while the overall index returned -0.4%. Two of the other largest
sectors within the S&P 500 registered negative returns: financial services
shares declined -0.1% and consumer discretionary companies-a category composed
mainly of retailers-returned -15.9%. Among the bright spots were health care
stocks, which gained 23.4%, and "other energy" companies, which benefited from
higher oil prices and rose 34.4% as a group.
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3
We again point out that the S&P 500 Index is a good measure of large-cap
stocks but does not represent the entire U.S. stock market. In fact, the S&P 500
excludes about 6,400 stocks that total about 21% of the value of the U.S. equity
market. To gain exposure to mid- and small-cap stocks that the S&P 500 excludes,
an investor must look to an index that captures the entire market or to those
that specifically target smaller companies.
It's worth noting that matching the return of an unmanaged index is no
small feat. All mutual funds incur operating expenses and administrative costs
that indexes, which are theoretical constructs, do not bear. Our low expense
ratio-just 0.06% of average net assets, or 60 cents for every $1,000 invested
(0.025% for Plus Shares)-helps keep our returns closely in line with those of
our target indexes. (By way of comparison, the average large-cap core mutual
fund levies an expense ratio of 1.31%, or $13.10 per $1,000 invested.) And
Vanguard Quantitative Equity Group, which provides investment management for all
of Vanguard's index funds, offset the effects of our costs through skillful
portfolio management. When reviewing our performance, keep in mind that our low
costs provide our funds, and thus our shareholders, with a powerful advantage
over long periods, but they do not guarantee superior performance during all
periods.
IN SUMMARY
During the first half of 2000, we witnessed very sharp day-to-day price
fluctuations in the stock market, significant swings in investor sentiment, and
sudden shifts in market leadership. All of this volatility, squeezed into a mere
six months, underscored the fact that unpredictability is par for the course in
financial markets. The timing, extent, and duration of such episodes are
impossible to foretell with precision, but investors must be willing to endure
them to reap the long-term rewards of investing.
At Vanguard, we reiterate our long-standing recommendation for navigating
stormy seas toward long-term financial goals. First, create an investment plan
with a balance of stock funds, bond funds, and money market funds suited to your
time horizon, investment objectives, and tolerance for market fluctuations.
Then, once you have such a diversified plan in place, stick with it. Avoid the
impulse to alter it based on short-term events-whether those be unsettling
turbulence in the market or glittery returns from some particular corner of the
market. "Stay the course" is timeless investment wisdom.
/S/ John J. Brennan
John J. Brennan
Chairman and Chief Executive Officer July 18, 2000
IN MEMORY
It is with great sadness that I report the death of John C. Sawhill, an
independent trustee of the fund and a member of The Vanguard Group's board of
directors since 1991. John, an economist who was president and chief executive
officer of The Nature Conservancy, died on May 18 at age 63. He was a senior
lecturer at the Harvard Business School and had formerly served as president of
New York University and as deputy secretary of the U.S. Department of Energy
under President Jimmy Carter. John was a remarkable man who was full of energy,
vigor, and life. His experience and wisdom added a great deal to Vanguard, and
his death is a blow to everyone who knew and loved him. Though John's work on
behalf of our funds was often carried on behind the scenes, he was a dedicated
advocate for the best interests of our shareholders. He will be missed.
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4
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JUNE 30, 2000
The perpetual tug-of-war in the financial markets ended in a near stalemate
during the first half of 2000, despite lots of back-and-forth movement. On
average, neither stock nor bond prices ended the period far from where they
began it. However, bonds, thanks to their superior income, outpaced stocks in
total return.
Economic signals were conflicting. Growth continued at a rapid pace, and
corporate profits rose smartly. On the other hand, stock prices as the year
began already reflected high levels of optimism, and the market administered
severe punishment to companies that failed to live up to earnings expectations.
Also weighing on the market were concerns that the economy's vigor at a time of
low unemployment would inevitably push labor costs and other prices higher.
Indeed, higher costs for oil and natural gas pushed broad gauges of inflation
higher (the Consumer Price Index gained 2.4% for the six months and 3.7% for the
twelve months ended June 30). Yet core inflation, which excludes energy and food
items, registered a moderate 2.4% gain during the 12 months ended June 30.
The Federal Reserve Board raised short-term interest rates by 0.25
percentage point in February and again in March, before adding a half-point
boost in May. These steps, which followed three quarter- percentage-point
increases in 1999, took the Fed's target for short-term rates to 6.5%.
Thereafter, signs of a slowing in economic activity cropped up, although it was
not certain that the Fed was done trying to throttle down the economic engine.
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TOTAL RETURNS
PERIODS ENDED JUNE 30, 2000
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6 MONTHS 1 YEAR 5 YEARS*
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STOCKS
S&P 500 Index -0.4% 7.2% 23.8%
Russell 2000 Index 3.0 14.3 14.3
Wilshire 5000 Index -0.7 10.0 22.6
MSCI EAFE Index -4.0 17.4 11.6
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BONDS
Lehman Aggregate Bond Index 4.0% 4.6% 6.3%
Lehman 10 Year Municipal Bond Index 4.0 4.5 6.0
Salomon Smith Barney 3--Month
U.S. Treasury Bill Index 2.8 5.3 5.2
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OTHER
Consumer Price Index 2.4% 3.7% 2.5%
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*Annualized.
U.S. STOCK MARKETS
Stock prices were quite volatile during the half-year, and large day-to-day
price fluctuations in market averages were commonplace. There also were two
swift shifts in market leadership. The year began with a continuance in the
rapid rise for the "TMT" stocks (technology, media, telecommunications) that
were the market's darlings during 1999. Through mid-March, the surge in these
"new economy" groups left "old economy" stocks far behind. For example, the
Nasdaq Composite Index, which is dominated by tech-related stocks, gained 15.6%
and the Russell 1000 Value Index fell -10.4% during January and February. But in
mid-March, value stocks took charge and TMT stocks slumped. The Russell 1000
Value Index returned 12.1% while the Nasdaq plummeted to a -27.4% return in the
March-May period. But June brought another flip-flop: The value index declined
-4.6%, while the Nasdaq rebounded with a 14.5% return.
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5
When the half-year was over, most broad market indexes had modest declines.
The all-market Wilshire 5000 Index returned -0.7%, the large-capitalization S&P
500 Index slipped -0.4%, and the Nasdaq fell -3.9%. Small- and mid-cap stocks
did better: The small-cap Russell 2000 Index gained 3.0% and the Wilshire 4500
Completion Index, comprising virtually all the U.S. stocks outside of the S&P
500, eked out a 0.3% return.
U.S. BOND MARKETS
The Federal Reserve most directly influences interest rates of short-term
securities. The Fed pushed up its target federal funds rate (charged on
overnight loans between banks) by 1 percentage point to 6.5%. But yields of
3-month U.S. Treasury bills rose only half as far (0.52 percentage point, or 52
basis points to 5.85%). And yields actually declined on long-term Treasury
securities, whose prices rose. Big federal budget surpluses are causing a
shrinking supply of Treasury bonds. The 10-year Treasury note's yield fell 41
basis points to 6.03% as of June 30, and the yield of the 30-year Treasury
declined 58 basis points-from 6.48% to 5.90%-during the half-year.
The upshot was an unusual "inversion" in the yield curve. Instead of
sloping upward-with yields increasing along with the maturity of Treasury
securities-the curve descended. The 5.90% yield of 30-year Treasuries on June 30
was 49 basis points below the 6.39% yield on 3-year Treasury notes.
Corporate bonds did not perform as well as Treasuries for two main reasons:
a record level of new offerings and investors' concern that credit quality might
be declining. The rise in yields (and fall in prices) was slight for
higher-quality corporate bonds but more severe for high-yield "junk" bonds.
Investors grew wary of riskier bonds due to an increase in defaults. The Lehman
High Yield Bond Index saw a price decline of -5.7% during the first half of
2000, more than offsetting its six-month income of 4.5%. Tax-exempt municipal
bonds generally outperformed corporates but did not do as well as Treasury
securities. The overall taxable bond market, as measured by the Lehman Aggregate
Bond Index, returned 4.0%, as a price gain of 0.4% augmented a 3.6% income
return.
INTERNATIONAL STOCK MARKETS
International stock markets were generally unprofitable for U.S. investors due
to lack- luster local market performances and a stronger U.S. dollar during the
half-year. Although economic growth in most of Europe appeared to be
strengthening, stocks were hurt by continued economic weakness in Japan and from
expectations of higher interest rates. On the other hand, European stock prices
got some support from an increase in corporate takeovers.
In local currencies, European stocks posted a 1.7% return in the aggregate
and stocks from the Pacific region recorded a modest decline of -2.6%. However,
the dollar's strength diminished those results for U.S. investors, for whom the
Morgan Stanley Capital International (MSCI) Europe Index returned -3.0% and the
MSCI Pacific Free Index returned -5.9%. The MSCI Europe, Australasia, Far East
(EAFE) Index of developed foreign markets registered a -4.0% return for U.S.
investors.
The Select Emerging Markets Free Index fell -9.6% in U.S. dollars, having
declined -3.5% in local currencies. The index was hit by weakness in South
Africa (-15%) and several emerging Asian markets, including Indonesia (-44%),
Thailand (-36%), and the Philippines (-36%). The biggest gains among emerging
markets were in Israel (+27%) and Venezuela (+19%).
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6
FUND PROFILE
INSTITUTIONAL INDEX FUND
This Profile provides a snapshot of the fund's characteristics as of June 30,
2000, compared where appropriate to its unmanaged target index. Key elements of
this Profile are defined on page 7.
PORTFOLIO CHARACTERISTICS
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INSTITUTIONAL
INDEX S&P 500
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Number of Stocks 514 500
Median Market Cap $94.9B $94.9B
Price/Earnings Ratio 28.7x 28.7x
Price/Book Ratio 5.2x 5.2x
Yield 1.1% 1.1%
Yield--Plus Shares 1.1% 1.1%
Return on Equity 24.5% 24.5%
Earnings Growth Rate 17.3% 17.3%
Foreign Holdings 1.2% 1.2%
Turnover Rate 11%* --
Expense Ratio 0.06%* --
Expense Ratio--
Plus Shares 0.025%* --
Cash Investments 0.0% --
*Annualized.
INVESTMENT FOCUS
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MARKET CAP - LARGE
STYLE - BLEND
VOLATILITY MEASURES
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INSTITUTIONAL
INDEX S&P 500
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R-Squared 1.00 1.00
Beta 1.00 1.00
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
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General Electric Co. 4.2%
Intel Corp. 3.6
Cisco Systems, Inc. 3.5
Microsoft Corp. 3.3
Pfizer, Inc. 2.4
Exxon Mobil Corp. 2.2
Wal-Mart Stores, Inc. 2.0
Oracle Corp. 1.9
Citigroup, Inc. 1.6
Nortel Networks Corp. 1.6
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Top Ten 26.3%
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
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JUNE 30, 1999 JUNE 30, 2000
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INSTITUTIONAL INSTITUTIONAL
INDEX INDEX S&P 500
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Auto & Transportation ........ 2.5% 1.6% 1.6%
Consumer Discretionary ....... 12.8 11.8 11.8
Consumer Staples ............. 7.8 5.7 5.7
Financial Services ........... 16.5 13.4 13.4
Health Care .................. 11.1 11.7 11.7
Integrated Oils .............. 5.4 4.5 4.5
Other Energy ................. 1.1 1.8 1.8
Materials & Processing ....... 3.7 2.2 2.2
Producer Durables ............ 4.1 2.9 2.9
Technology ................... 18.4 29.9 29.9
Utilities .................... 11.3 8.6 8.6
Other ........................ 5.3 5.9 5.9
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7
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH INVESTMENTS. The percentage of a fund's net assets invested in "cash
equivalents"-highly liquid, short-term, interest-bearing securities. This figure
does not include cash invested in futures contracts to simulate 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 35%.) 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.
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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 fund. Note, too, that both
share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
INSTITUTIONAL INDEX FUND
TOTAL INVESTMENT RETURNS: JULY 31, 1990-JUNE 30, 2000
--------------------------------------------------------
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
1995 34.4 3.2 37.6 37.6
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INSTITUTIONAL INDEX FUND S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
--------------------------------------------------------
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 19.7 1.5 21.2 21.0
2000* -0.9 0.5 -0.4 -0.4
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*Six months ended June 30, 2000.
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, 2000
--------------------------------------------------------
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
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INSTITUTIONAL INDEX FUND
PLUS SHARES S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
--------------------------------------------------------
1999 19.7% 1.5% 21.2% 21.0%
2000* -0.9 0.5 -0.4 -0.4
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*Six months ended June 30, 2000.
See Financial Highlights table on page 18 for dividend and capital gains
information since inception.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000
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SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
--------------------------------------------------------------------------------
Institutional Index Fund 7/31/1990 7.42% 23.91% 15.41% 2.61% 18.02%
Institutional Index Fund
Plus Shares 7/7/1997 7.47 -- 7.10 1.65 18.75
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9
FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
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
shareholders 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.
<TABLE>
<CAPTION>
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MARKET
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
-------------------------------------------------------------------------------------
COMMON STOCKS (99.6%)(1)
-------------------------------------------------------------------------------------
<S> <C> <C>
General Electric Co. 29,026,553 $1,538,407
Intel Corp. 9,825,672 1,313,570
o Cisco Systems, Inc. 20,408,704 1,297,228
o Microsoft Corp. 15,439,533 1,235,163
Pfizer, Inc. 18,467,699 886,450
Exxon Mobil Corp. 10,213,400 801,752
Wal-Mart Stores, Inc. 13,067,738 753,028
o Oracle Corp. 8,327,658 700,044
Citigroup, Inc. 9,901,093 596,541
Nortel Networks Corp. 8,685,281 592,770
International Business
Machines Corp. 5,201,419 569,880
Lucent Technologies, Inc. 9,553,979 566,073
American International
Group, Inc. 4,522,273 531,367
Merck & Co., Inc. 6,746,347 516,939
o EMC Corp. 6,366,431 489,817
SBC Communications Inc. 9,980,387 431,652
o Sun Microsystems, Inc. 4,654,434 423,263
The Coca-Cola Co. 7,256,937 416,820
Johnson & Johnson 4,080,740 415,725
Royal Dutch Petroleum
Co. ADR 6,286,985 387,043
o WorldCom, Inc. 8,400,042 385,352
o Dell Computer Corp. 7,554,817 372,547
Hewlett-Packard Co. 2,934,261 366,416
o America Online, Inc. 6,735,827 355,315
Home Depot, Inc. 6,783,175 338,735
Bristol-Myers Squibb Co. 5,787,465 337,120
Eli Lilly & Co. 3,313,387 330,925
Texas Instruments, Inc. 4,801,079 329,774
o Viacom Inc. Class B 4,435,229 302,427
AT&T Corp. 9,280,362 293,491
Time Warner, Inc. 3,860,279 293,381
Morgan Stanley Dean
Witter & Co. 3,320,682 276,447
The Walt Disney Co. 6,096,161 236,607
BellSouth Corp. 5,516,628 235,146
Tyco International Ltd. 4,952,474 234,623
Bell Atlantic Corp. 4,534,801 230,425
American Home Products Corp. 3,826,451 224,804
Procter & Gamble Co. 3,837,216 219,681
Corning, Inc. 809,227 218,390
Schering-Plough Corp. 4,293,957 216,845
o Applied Materials, Inc. 2,367,676 214,571
o Amgen, Inc. 3,012,466 211,626
Bank of America Corp. 4,862,246 209,077
American Express Co. 3,916,819 204,164
Abbott Laboratories 4,542,821 202,439
o Yahoo!, Inc. 1,592,809 197,309
Pharmacia Corp. 3,724,064 192,488
PepsiCo, Inc. 4,227,815 187,874
Motorola, Inc. 6,314,558 183,517
Wells Fargo Co. 4,727,177 183,178
Philip Morris Cos., Inc. 6,704,460 178,087
GTE Corp. 2,824,676 175,836
Medtronic, Inc. 3,511,619 174,923
The Chase Manhattan Corp. 3,628,514 167,138
Chevron Corp. 1,912,825 162,231
U S WEST, Inc. 1,867,674 160,153
o Sprint PCS 2,669,582 158,840
Fannie Mae 2,955,606 154,246
Ford Motor Co. 3,536,240 152,058
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
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MARKET
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
-------------------------------------------------------------------------------------
<S> <C> <C>
o Micron Technology, Inc. 1,626,748 $ 143,255
Enron Corp. 2,146,292 138,436
o NEXTEL Communications, Inc. 2,223,407 136,045
E.I. du Pont de Nemours & Co. 3,072,766 134,434
Charles Schwab Corp. 3,992,452 134,246
Sprint Corp. 2,571,883 131,166
Merrill Lynch & Co., Inc. 1,137,289 130,788
o QUALCOMM, Inc. 2,172,642 130,359
McDonald's Corp. 3,920,397 129,128
Compaq Computer Corp. 4,981,764 127,346
Schlumberger Ltd. 1,669,614 124,595
o MediaOne Group, Inc. 1,820,132 120,700
o Broadcom Corp. 515,900 112,950
The Boeing Co. 2,659,699 111,209
o Veritas Software Corp. 977,092 110,427
Gillette Co. 3,062,659 107,002
Colgate-Palmolive Co. 1,691,842 101,299
The Bank of New York Co., Inc. 2,162,441 100,553
Anheuser-Busch Cos., Inc. 1,325,479 98,997
Automatic Data Processing, Inc. 1,838,945 98,498
o Comcast Corp.-Special Class A 2,413,580 97,750
o Agilent Technologies, Inc. 1,325,295 97,741
Minnesota Mining &
Manufacturing Co. 1,161,227 95,801
o Siebel Systems, Inc. 585,264 95,727
Walgreen Co. 2,955,023 95,115
Kimberly-Clark Corp. 1,630,124 93,528
General Motors Corp. 1,569,652 91,138
FleetBoston Financial Corp. 2,644,013 89,896
Bank One Corp. 3,362,594 89,319
Computer Associates
International, Inc. 1,726,526 88,377
Texaco Inc. 1,619,637 86,246
o ADC Telecommunications, Inc. 985,256 82,638
Freddie Mac 2,038,291 82,551
Marsh & McLennan Cos., Inc. 790,398 82,547
o Tellabs, Inc. 1,201,441 82,224
United Technologies Corp. 1,380,448 81,274
Honeywell International Inc. 2,341,779 78,889
o Analog Devices, Inc. 1,037,347 78,838
The Gap, Inc. 2,496,430 78,013
o Xilinx, Inc. 941,994 77,773
Target Corp. 1,337,883 77,597
Emerson Electric Co. 1,251,140 75,538
o Clear Channel
Communications, Inc. 993,706 74,528
The Seagram Co. Ltd. 1,279,568 74,215
Alcoa Inc. 2,535,020 73,516
o Solectron Corp. 1,749,202 73,248
Unilever NV ADR 1,675,858 72,062
o Network Appliance, Inc. 892,948 71,882
First Union Corp. 2,874,865 71,333
o Global Crossing Ltd. 2,585,611 68,034
o Safeway, Inc. 1,456,392 65,720
MBNA Corp. 2,350,779 63,765
Halliburton Co. 1,301,629 61,421
Duke Energy Corp. 1,078,102 60,778
First Data Corp. 1,209,603 60,027
Firstar Corp. 2,845,990 59,944
Baxter International, Inc. 851,656 59,882
Dow Chemical Co. 1,983,486 59,876
Cardinal Health, Inc. 807,221 59,734
o Altera Corp. 583,700 59,501
o 3Com Corp. 1,029,274 59,312
Linear Technology Corp. 912,152 58,321
Household International, Inc. 1,387,276 57,659
Fifth Third Bancorp 908,259 57,447
ALLTEL Corp. 924,349 57,252
o AES Corp. 1,249,703 57,018
o Seagate Technology Inc. 1,028,620 56,574
Electronic Data Systems Corp. 1,366,652 56,374
o Maxim Integrated Products, Inc. 828,674 56,298
Bestfoods 804,971 55,744
Eastman Kodak Co. 908,860 54,077
o The Kroger Co. 2,449,811 54,049
Williams Cos., Inc. 1,296,126 54,032
Gateway, Inc. 943,551 53,547
o Kohl's Corp. 956,424 53,201
Mellon Financial Corp. 1,441,207 52,514
J.P. Morgan & Co., Inc. 476,022 52,422
Illinois Tool Works, Inc. 884,659 50,426
State Street Corp. 471,706 50,030
o Apple Computer, Inc. 954,355 49,984
HCA-The Healthcare Co. 1,634,962 49,662
Sara Lee Corp. 2,549,516 49,238
o LSI Logic Corp. 900,055 48,715
Allstate Corp. 2,184,663 48,609
Associates First Capital Corp. 2,135,537 47,649
Gannett Co., Inc. 781,418 46,739
Omnicom Group Inc. 521,191 46,419
Washington Mutual, Inc. 1,606,054 46,375
Lowe's Cos., Inc. 1,121,680 46,059
CVS Corp. 1,144,723 45,789
Paychex, Inc. 1,089,352 45,753
Adobe Systems, Inc. 351,001 45,630
H.J. Heinz Co. 1,033,445 45,213
Conoco Inc. Class B 1,830,392 44,959
CIGNA Corp. 477,436 44,640
o Guidant Corp. 899,141 44,507
American General Corp. 728,266 44,424
Southern Co. 1,901,742 44,334
Costco Wholesale Corp. 1,309,918 43,227
U.S. Bancorp 2,204,367 42,434
Northern Trust Corp. 651,795 42,407
International Paper Co. 1,417,316 42,254
o Comverse Technology, Inc. 447,727 41,639
Albertson's, Inc. 1,242,103 41,300
Sysco Corp. 976,928 41,153
UnitedHealth Group Inc. 476,220 40,836
Xerox Corp. 1,954,730 40,561
SunTrust Banks, Inc. 886,744 40,513
PE Corp.-PE Biosystems Group 610,731 40,232
PNC Financial Services Group 851,487 39,913
Coastal Corp. 627,611 38,206
Interpublic Group of Cos., Inc. 884,630 38,039
o Best Buy Co., Inc. 599,299 37,906
Phillips Petroleum Co. 744,305 37,727
Providian Financial Corp. 418,053 37,625
o Teradyne, Inc. 507,769 37,321
o MedImmune Inc. 498,124 36,861
o Sanmina Corp. 430,004 36,765
o Computer Sciences Corp. 490,906 36,665
</TABLE>
<PAGE>
11
<TABLE>
<CAPTION>
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MARKET
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
-------------------------------------------------------------------------------------
<S> <C> <C>
Campbell Soup Co. 1,238,790 $ 36,080
AFLAC, Inc. 778,287 35,753
Kellogg Co. 1,189,917 35,400
The Hartford Financial Services
Group Inc. 630,457 35,266
Scientific-Atlanta, Inc. 465,890 34,709
o Advanced Micro Devices, Inc. 449,176 34,699
Caterpillar, Inc. 1,022,069 34,623
Waste Management, Inc. 1,822,193 34,622
El Paso Energy Corp. 678,471 34,560
Carnival Corp. 1,772,193 34,558
Harley-Davidson, Inc. 890,094 34,269
Sears, Roebuck & Co. 1,033,702 33,725
Lehman Brothers Holdings, Inc. 354,337 33,507
Transocean Sedco Forex Inc. 617,082 32,975
General Mills, Inc. 854,643 32,690
o FedEx Corp. 850,098 32,304
Wachovia Corp. 593,618 32,204
NIKE, Inc. Class B 802,280 31,941
o KLA-Tencor Corp. 545,305 31,934
The Chubb Corp. 512,967 31,547
Baker Hughes, Inc. 968,795 31,001
Conexant Systems, Inc. 637,239 30,986
Avon Products, Inc. 696,103 30,977
Tribune Co. 882,585 30,890
The Clorox Co. 688,212 30,840
The McGraw-Hill Cos., Inc. 570,248 30,793
General Dynamics Corp. 588,338 30,741
National City Corp. 1,777,472 30,328
Pitney Bowes, Inc. 756,172 30,247
Dominion Resources, Inc. 697,827 29,919
o National Semiconductor Corp. 517,606 29,374
Weyerhaeuser Co. 683,025 29,370
o Cendant Corp. 2,095,218 29,333
Lockheed Martin Corp. 1,173,540 29,118
Kansas City Southern
Industries, Inc. 326,896 28,992
The Quaker Oats Co. 383,838 28,836
Burlington Northern
Santa Fe Corp. 1,255,726 28,803
Allergan, Inc. 379,960 28,307
o Biogen, Inc. 435,342 28,080
American Electric Power
Co., Inc. 943,872 27,962
PG&E Corp. 1,129,727 27,820
Molex, Inc. 575,194 27,681
Southwest Airlines Co. 1,454,897 27,552
ConAgra, Inc. 1,443,260 27,512
The Limited, Inc. 1,259,616 27,239
Union Pacific Corp. 726,650 27,022
Wrigley, (Wm.) Jr. Co. 334,610 26,832
Aetna Inc. 413,522 26,543
o Boston Scientific Corp. 1,195,381 26,224
o BMC Software, Inc. 716,388 26,137
RadioShack Corp. 547,237 25,925
FPL Group, Inc. 522,724 25,875
Reliant Energy, Inc. 867,444 25,644
Capital One Financial Corp. 574,569 25,640
o Lexmark International Group,
Inc. Class A 379,218 25,502
Deere & Co. 686,681 25,407
Marriott International, Inc.
Class A 702,523 25,335
Nabisco Group Holdings Corp. 957,136 24,826
o Tenet Healthcare Corp. 917,615 24,776
BB&T Corp. 1,021,975 24,400
Burlington Resources, Inc. 631,597 24,159
Dover Corp. 595,212 24,143
Delphi Automotive
Systems Corp. 1,651,765 24,054
Masco Corp. 1,314,047 23,735
Unocal Corp. 712,488 23,601
May Department Stores Co. 974,931 23,398
Aon Corp. 750,200 23,303
Textron, Inc. 423,048 22,977
USX-Marathon Group 913,382 22,892
TXU Corp. 773,281 22,812
Occidental Petroleum Corp. 1,080,813 22,765
PPG Industries, Inc. 510,896 22,639
KeyCorp 1,275,632 22,483
Avery Dennison Corp. 328,856 22,074
Rohm & Haas Co. 638,222 22,019
Public Service Enterprise
Group, Inc. 634,329 21,964
Franklin Resources Corp. 714,546 21,704
o Staples, Inc. 1,403,279 21,575
Becton, Dickinson & Co. 740,634 21,247
St. Paul Cos., Inc. 622,137 21,230
o Federated Department
Stores, Inc. 627,882 21,191
Barrick Gold Corp. 1,159,068 21,081
Air Products & Chemicals, Inc. 672,803 20,731
o Novellus Systems, Inc. 365,987 20,701
Comerica, Inc. 458,957 20,596
Danaher Corp. 415,414 20,537
Lincoln National Corp. 562,466 20,319
Unicom Corp. 521,304 20,168
Coca-Cola Enterprises, Inc. 1,233,810 20,127
Newell Rubbermaid, Inc. 781,410 20,121
PECO Energy Corp. 497,144 20,041
Edison International 974,265 19,972
Alcan Aluminium Ltd. 641,493 19,886
Circuit City Stores, Inc. 596,588 19,799
New York Times Co. Class A 498,624 19,696
Apache Corp. 333,373 19,606
Hershey Foods Corp. 402,411 19,517
Union Carbide Corp. 393,487 19,478
PaineWebber Group, Inc. 426,955 19,426
o American Power
Conversion Corp. 470,161 19,188
Ingersoll-Rand Co. 474,849 19,113
Dow Jones & Co., Inc. 259,955 19,042
Golden West Financial Corp. 463,499 18,917
Dollar General Corp. 964,911 18,816
Anadarko Petroleum Corp. 375,762 18,530
o Sapient Corp. 172,619 18,459
Consolidated Edison Inc. 621,843 18,422
Entergy Corp. 674,752 18,345
AmSouth Bancorp 1,152,673 18,155
Delta Air Lines, Inc. 359,069 18,155
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
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MARKET
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
-------------------------------------------------------------------------------------
<S> <C> <C>
o Convergys Corp. 345,328 $ 17,914
Ralston-Ralston Purina Group 893,614 17,816
o ALZA Corp. 300,950 17,794
Rockwell International Corp. 551,689 17,378
Loews Corp. 289,181 17,351
Archer-Daniels-Midland Co. 1,766,660 17,335
Praxair, Inc. 462,556 17,317
McKesson HBOC, Inc. 826,640 17,308
SLM Holding Corp. 459,140 17,189
Jefferson-Pilot Corp. 302,486 17,072
Norfolk Southern Corp. 1,124,037 16,720
TJX Cos., Inc. 880,091 16,502
Mattel, Inc. 1,246,744 16,441
Amerada Hess Corp. 265,806 16,414
o Starbucks Corp. 427,975 16,343
Union Pacific Resources
Group, Inc. 739,504 16,269
Kerr-McGee Corp. 275,994 16,266
Progressive Corp. of Ohio 214,334 15,861
Raytheon Co. Class B 823,358 15,850
FirstEnergy Corp. 677,430 15,835
IMS Health, Inc. 871,959 15,695
TRW, Inc. 361,593 15,684
Columbia Energy Group 236,550 15,524
o Watson Pharmaceuticals, Inc. 282,244 15,171
T. Rowe Price 354,313 15,058
CP&L, Inc. 468,323 14,957
o Bed Bath & Beyond, Inc. 411,702 14,924
Ecolab, Inc. 380,378 14,859
Cincinnati Financial Corp. 472,110 14,842
Synovus Financial Corp. 828,507 14,602
Tiffany & Co. 212,506 14,344
Constellation Energy Group 438,907 14,292
Eaton Corp. 213,317 14,292
UnumProvident Corp. 705,436 14,153
Charter One Financial 614,411 14,131
MGIC Investment Corp. 310,502 14,128
J.C. Penney Co., Inc. 765,234 14,109
Fort James Corp. 603,681 13,960
MBIA, Inc. 288,457 13,900
Ameren Corp. 402,559 13,586
CSX Corp. 640,890 13,579
Florida Progress Corp. 288,799 13,537
Dun & Bradstreet Corp. 472,855 13,535
Northrop Grumman Corp. 204,279 13,533
Bear Stearns Co., Inc. 324,543 13,509
o Cabletron Systems, Inc. 534,762 13,503
o PeopleSoft, Inc. 801,245 13,421
o Unisys Corp. 913,012 13,296
o Wellpoint Health Networks Inc.
Class A 182,090 13,190
Georgia Pacific Group 500,291 13,133
Biomet, Inc. 336,193 12,922
Johnson Controls, Inc. 251,554 12,908
Regions Financial Corp. 646,919 12,858
o Sealed Air Corp. 245,479 12,857
o Mercury Interactive Corp. 132,315 12,801
DTE Energy Co. 418,529 12,791
Summit Bancorp 515,772 12,701
Vulcan Materials Co. 295,550 12,616
o Tricon Global Restaurants, Inc. 432,533 12,219
Knight Ridder 227,835 12,118
Bausch & Lomb, Inc. 155,700 12,047
Tosco Corp. 423,200 11,982
Young & Rubicam Inc. 208,287 11,911
Cinergy Corp. 466,305 11,862
CenturyTel, Inc. 411,431 11,829
o AMR Corp. 439,174 11,611
Harcourt General, Inc. 210,318 11,436
o St. Jude Medical, Inc. 245,915 11,281
Parker Hannifin Corp. 328,453 11,250
SouthTrust Corp. 492,999 11,154
Union Planters Corp. 396,999 11,091
o Compuware Corp. 1,056,909 10,965
Equifax, Inc. 414,170 10,872
o NCR Corp. 279,137 10,869
Brown-Forman Corp. Class B 200,968 10,802
Sabre Holdings Corp. 378,450 10,786
Old Kent Financial Corp. 402,932 10,778
Eastman Chemical Co. 224,992 10,743
The BFGoodrich Co. 314,708 10,720
Fortune Brands, Inc. 464,519 10,713
Newmont Mining Corp. 492,348 10,647
Genuine Parts Co. 518,492 10,370
Huntington Bancshares Inc. 651,285 10,298
o Citrix Systems, Inc. 542,791 10,279
Tektronix, Inc. 138,798 10,271
o Ceridian Corp. 424,886 10,224
New Century Energies, Inc. 339,720 10,192
Sempra Energy 599,256 10,187
Sherwin-Williams Co. 480,480 10,180
Hilton Hotels Corp. 1,080,559 10,130
Countrywide Credit
Industries, Inc. 332,255 10,071
Millipore Corp. 133,123 10,034
Whirlpool Corp. 214,144 9,984
Black & Decker Corp. 249,794 9,820
o Thermo Electron Corp. 457,342 9,633
GPU, Inc. 355,695 9,626
o Kmart Corp. 1,410,308 9,608
Nordstrom, Inc. 394,950 9,528
Leggett & Platt, Inc. 576,419 9,511
Dana Corp. 446,997 9,471
PerkinElmer, Inc. 142,386 9,415
H & R Block, Inc. 288,621 9,344
Conseco Inc. 954,313 9,305
Northern States Power Co. 460,948 9,305
Torchmark Corp. 375,964 9,282
PPL Corp. 422,490 9,268
o Toys R Us, Inc. 634,436 9,239
The Goodyear Tire & Rubber Co. 458,760 9,175
Placer Dome, Inc. 958,209 9,163
International Flavors &
Fragrances, Inc. 301,698 9,107
PACCAR, Inc. 224,508 8,910
o Parametric Technology Corp. 809,762 8,907
Cooper Industries, Inc. 273,240 8,897
o Novell, Inc. 959,995 8,880
Willamette Industries, Inc. 324,992 8,856
o AutoZone Inc. 392,468 8,634
</TABLE>
<PAGE>
13
<TABLE>
<CAPTION>
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MARKET
VALUE*
INSTITUTIONAL INDEX FUND SHARES (000)
-------------------------------------------------------------------------------------
<S> <C> <C>
Phelps Dodge Corp. 231,009 $ 8,591
Mallinckrodt, Inc. 197,058 8,560
o Comcast Corp. Class A 218,396 8,490
Maytag Corp. 229,790 8,473
W.W. Grainger, Inc. 274,485 8,458
Pinnacle West Capital Corp. 248,629 8,422
Nucor Corp. 249,484 8,280
o Rowan Cos., Inc. 271,684 8,252
o Inco Ltd. 532,721 8,191
o HEALTHSOUTH Corp. 1,130,823 8,128
R.R. Donnelley & Sons Co. 357,650 8,069
VF Corp. 335,024 7,978
o Andrew Corp. 236,400 7,934
ITT Industries, Inc. 257,953 7,835
Sunoco, Inc. 259,629 7,643
o US Airways Group, Inc. 195,430 7,622
The Mead Corp. 301,385 7,610
Hasbro, Inc. 505,015 7,607
o Harrah's Entertainment, Inc. 358,562 7,507
SAFECO Corp. 374,415 7,441
SuperValu Inc. 385,725 7,353
Sigma-Aldrich Corp. 250,069 7,315
Westvaco Corp. 294,575 7,309
Ashland, Inc. 207,104 7,262
C.R. Bard, Inc. 148,019 7,123
CMS Energy Corp. 321,736 7,118
Fluor Corp. 224,089 7,087
o Niagara Mohawk Holdings Inc. 505,360 7,043
UST, Inc. 475,576 6,985
o Adaptec, Inc. 304,969 6,938
Pall Corp. 362,741 6,711
Adolph Coors Co. Class B 107,637 6,512
Temple-Inland Inc. 153,849 6,462
Engelhard Corp. 372,539 6,356
The Stanley Works 256,921 6,102
Winn-Dixie Stores, Inc. 423,666 6,064
Wendy's International, Inc. 333,500 5,940
Autodesk, Inc. 171,009 5,932
Darden Restaurants Inc. 362,816 5,896
o Office Depot, Inc. 927,757 5,798
Shared Medical Systems Corp. 79,335 5,786
Liz Claiborne, Inc. 160,159 5,646
Crown Cork & Seal Co., Inc. 375,823 5,637
o Navistar International Corp. 181,410 5,635
o Visteon Corp. 463,076 5,615
o Allied Waste Industries, Inc. 553,484 5,535
Homestake Mining Co. 762,815 5,244
Bemis Co., Inc. 153,596 5,165
o FMC Corp. 89,019 5,163
Great Lakes Chemical Corp. 159,685 5,030
o Owens-Illinois, Inc. 429,711 5,022
Meredith Corp. 148,476 5,011
Eastern Enterprises 79,368 5,000
Deluxe Corp. 212,087 4,997
Alberto-Culver Co. Class B 163,416 4,994
Rite Aid Corp. 758,907 4,980
USX-U.S. Steel Group 259,092 4,809
o Quintiles Transnational Corp. 337,889 4,773
Snap-On Inc. 171,813 4,575
NICOR, Inc. 136,282 4,446
Allegheny Technologies Inc. 244,055 4,393
Hercules, Inc. 312,259 4,391
Boise Cascade Corp. 167,828 4,343
Crane Co. 177,587 4,318
Brunswick Corp. 257,809 4,270
Centex Corp. 174,026 4,090
o Pactiv Corp. 495,725 3,904
o Consolidated Stores, Inc. 325,172 3,902
Tupperware Corp. 169,275 3,724
o Freeport-McMoRan Copper &
Gold Inc. Class B 396,688 3,669
American Greetings Corp.
Class A 189,252 3,596
Dillard's Inc. 274,556 3,363
Peoples Energy Corp. 103,581 3,353
Raytheon Co. Class A 171,471 3,333
The Timken Co. 178,860 3,331
Louisiana-Pacific Corp. 305,430 3,322
Cummins Engine Co., Inc. 121,613 3,314
Ryder System, Inc. 174,172 3,298
Thomas & Betts Corp. 169,811 3,248
Ball Corp. 87,224 2,808
Potlatch Corp. 84,075 2,785
Kaufman & Broad Home Corp. 137,751 2,729
Worthington Industries, Inc. 252,906 2,656
o Reebok International Ltd. 165,545 2,638
Pulte Corp. 120,844 2,613
Longs Drug Stores, Inc. 115,395 2,510
o Viacom Inc. Class A 36,030 2,464
Cooper Tire & Rubber Co. 216,567 2,409
o W.R. Grace & Co. 197,645 2,396
o Humana, Inc. 491,217 2,395
Polaroid Corp. 131,421 2,374
National Service Industries, Inc. 119,291 2,326
Briggs & Stratton Corp. 65,478 2,243
ONEOK, Inc. 85,460 2,217
o Manor Care, Inc. 300,085 2,101
Russell Corp. 95,265 1,905
Great Atlantic & Pacific Tea
Co., Inc. 112,337 1,868
Armstrong Holdings, Inc. 117,929 1,806
Springs Industries Inc. Class A 52,512 1,680
McDermott International, Inc. 174,486 1,538
Owens Corning 160,882 1,488
o Bethlehem Steel Corp. 386,305 1,376
o MIPS Technologies, Inc. Class B 34,355 1,323
o Qwest Communications
International Inc. 13,620 677
IKON Office Solutions, Inc. 171,644 665
o Freeport-McMoRan Copper &
Gold, Inc. Class A 72,417 661
NACCO Industries, Inc. Class A 16,656 585
o Silicon Graphics, Inc. 114,911 431
Milacron Inc. 5,348 78
-------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $22,735,898) 36,829,833
-------------------------------------------------------------------------------------
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
INSTITUTIONAL INDEX FUND (000) (000)
-------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.2%)(1)
-------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corp.
(2) 6.25%, 7/27/2000 $ 3,000 $ 2,986
Federal National Mortgage Assn.
(2) 6.06%, 7/13/2000 8,000 7,986
(2) 6.454%, 8/3/2000 4,000 3,976
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
6.71%, 7/3/2000 61,422 61,422
6.71%, 7/3/2000--Note E 9,469 9,469
-------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $85,838) 85,839
-------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $22,821,736) 36,915,672
-------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
-------------------------------------------------------------------------------------
Other Assets 568,922
Liabilities--Note E (493,705)
------------
75,217
-------------------------------------------------------------------------------------
NET ASSETS (100%) $36,990,889
=====================================================================================
</TABLE>
* See Note A in Notes to Financial Statements.
o Non-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 100.2% and -0.4%, respectively, of net assets. See Note D in Notes
to Financial Statements.
(2)Securities with an aggregate value of $14,948,000 have been segregated as
initial margin for open futures contracts.
ADR--American Depositary Receipt.
--------------------------------------------------------------------------------
AMOUNT
(000)
--------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Paid in Capital--Note C $23,146,600
Undistributed Net Investment Income 9,195
Accumulated Net
Realized Losses--Note C (253,923)
Unrealized Appreciation
(Depreciation)--Note D
Investment Securities 14,093,936
Futures Contracts (4,919)
--------------------------------------------------------------------------------
NET ASSETS $36,990,889
================================================================================
Institutional Shares--Net Assets
Applicable to 223,137,592 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $29,644,343
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
INSTITUTIONAL SHARES $132.85
================================================================================
Plus Shares-Net Assets
Applicable to 55,295,792 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $7,346,546
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
PLUS SHARES $132.86
================================================================================
<PAGE>
15
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, 2000
(000)
--------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $203,483
Interest 3,658
Security Lending 406
-----------
Total Income 207,547
-----------
EXPENSES
The Vanguard Group--Note B
Management and Administrative-Institutional Shares 8,679
Management and Administrative-Plus Shares 834
-----------
Total Expenses 9,513
--------------------------------------------------------------------------------
NET INVESTMENT INCOME 198,034
--------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 308,990
Futures Contracts (5,705)
--------------------------------------------------------------------------------
REALIZED NET GAIN 303,285
--------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (602,911)
Futures Contracts (6,103)
--------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (609,014)
--------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(107,695)
================================================================================
<PAGE>
16
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>
<CAPTION>
-----------------------------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND
---------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 2000 DEC. 31, 1999
(000) (000)
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 198,034 $ 398,042
Realized Net Gain 303,285 2,524,562
Change in Unrealized Appreciation (Depreciation) (609,014) 3,298,626
-------------------------------
Net Increase (Decrease in Net Assets Resulting from Operations (107,695) 6,221,230
-------------------------------
DISTRIBUTIONS
Net Investment Income
Institutional Shares (152,822) (321,409)
Plus Shares (36,427) (79,609)
Realized Capital Gain
Institutional Shares -- (203,084)
Plus Shares -- (49,082)
-------------------------------
Total Distributions (189,249) (653,184)
-------------------------------
CAPITAL SHARE TRANSACTIONS-INSTITUTIONAL SHARES1
Issued 5,323,619 10,303,020
Issued in Lieu of Cash Distributions 135,560 477,316
Redeemed (4,503,124) (8,693,972)
-------------------------------
Net Increase--Institutional Shares 956,055 2,086,364
-------------------------------
CAPITAL SHARE TRANSACTIONS-PLUS SHARES2
Issue 998,736 3,550,850
Issued in Lieu of Cash Distributions 32,394 119,924
Redeemed (477,953) (2,835,223)
-------------------------------
Net Increase--Plus Shares 553,177 835,551
-----------------------------------------------------------------------------------------------------
Total Increase 1,212,288 8,489,961
-----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 35,778,601 27,288,640
End of Period $36,990,889 $35,778,601
=====================================================================================================
1Shares Issued (Redeemed)--Institutional Shares
Issued 40,598 85,337
Issued in Lieu of Cash Distributions 1,002 3,891
Redeemed (34,245) (71,396)
-------------------------------
Net Increase in Shares Outstanding 7,355 17,832
=====================================================================================================
2Shares Issued (Redeemed)--Plus Shares
Issued 7,544 29,551
Issued in Lieu of Cash Distributions 240 978
Redeemed (3,679) (23,207)
-------------------------------
Net Increase in Shares Outstanding 4,105 7,322
=====================================================================================================
</TABLE>
<PAGE>
17
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>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND INSTITUTIONAL SHARES
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 2000 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $134.02 $112.85 $89.56 $68.86 $57.93 $43.22
------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .71 1.501 1.429 1.391 1.38 1.28
Net Realized and Unrealized Gain (Loss)
on Investments (1.20) 22.143 24.177 21.415 11.90 14.86
----------------------------------------------------------------
Total from Investment Operations (.49) 23.644 25.606 22.806 13.28 16.14
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.68) (1.514) (1.416) (1.391) (1.36) (1.27)
Distributions from Realized Capital Gains -- (.960) (.900) (.715) (.99) (.16)
----------------------------------------------------------------
Total Distributions (.68) (2.474) (2.316) (2.106) (2.35) (1.43)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $132.85 $134.02 $112.85 $89.56 $68.86 $57.93
==================================================================================================================
TOTAL RETURN -0.37% 21.17% 28.79% 33.36% 23.06% 37.60%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $29,644 $28,918 $22,338 $15,348 $11,426 $6,674
Ratio of Total Expenses to
Average Net Assets 0.06%* 0.06% 0.06% 0.06% 0.06% 0.06%
Ratio of Net Investment Income to
Average Net Assets 1.10%* 1.25% 1.46% 1.77% 2.18% 2.49%
Portfolio Turnover Rate** 11%* 14% 11% 7% 9% 4%
==================================================================================================================
*Annualized.
**Portfolio turnover rates excluding in-kind redemptions were 7%, 3%, 7%, 6%,9%, and 4%, respectively.
</TABLE>
<PAGE>
18
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS (CONTINUED)
------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL INDEX FUND PLUS SHARES
YEAR ENDED DEC. 31,
SIX MONTHS ENDED ------------------------ JUL. 7* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD JUN. 30, 2000 1999 1998 DEC. 31, 1997
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $134.02 $112.85 $89.56 $84.91
------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .734 1.542 1.464 .681
Net Realized and Unrealized Gain (Loss)
on Investments (1.192) 22.143 24.177 5.455
----------------------------------------------------------
Total from Investment Operations (.458) 23.685 25.641 6.136
----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.702) (1.555) (1.451) (.866)
Distributions from Realized Capital Gains -- (.960) (.900) (.620)
----------------------------------------------------------
Total Distributions (.702) (2.515) (2.351) (1.486)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $132.86 $134.02 $112.85 $89.56
==================================================================================================================
TOTAL RETURN -0.35% 21.21% 28.83% 7.29%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $7,347 $6,861 $4,951 $3,488
Ratio of Total Expenses to Average Net Assets 0.025%** 0.025% 0.025% 0.025%**
Ratio of Net Investment Income to Average Net Assets 1.14%** 1.29% 1.49% 1.72%**
Portfolio Turnover Rate+ 11%** 14% 11% 7%
==================================================================================================================
*Inception.
**Annualized.
+Portfolio turnover rates excluding in-kind redemptions were 7%, 3%, 7%, and 6%, respectively.
</TABLE>
<PAGE>
19
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 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. FUTURES CONTRACTS: 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,
<PAGE>
20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
expenses not attributable to a specific class, and realized and unrealized gains
and losses on investments are allocated to each class of shares based on its
relative net assets.
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, 2000, 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, 2000, the fund purchased $3,450,265,000
of investment securities and sold $1,988,077,000 of investment securities, other
than temporary cash investments.
During the six months ended June 30, 2000, the fund realized $551,662,000
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, 2000, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $14,093,936,000,
consisting of unrealized gains of $15,662,703,000 on securities that had risen
in value since their purchase and $1,568,767,000 in unrealized losses on
securities that had fallen in value since their purchase.
At June 30, 2000, the aggregate settlement value of open futures contracts
expiring in September 2000 and the related unrealized depreciation were:
--------------------------------------------------------------------------------
(000)
------------------------------
NUMBER OF AGGREGATE
LONG SETTLEMENT UNREALIZED
FUTURES CONTRACTS CONTRACTS VALUE DEPRECIATION
--------------------------------------------------------------------------------
S&P 500 Index 603 $221,316 $(4,919)
--------------------------------------------------------------------------------
E. The market value of securities on loan to broker/dealers at June 30, 2000,
was $7,597,000, for which the fund held cash collateral of $9,469,000. Cash
collateral received is invested in repurchase agreements.
<PAGE>
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Six of Vanguard's seven board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new trustees/directors; and electing
Vanguard officers.
The list below provides a brief description of each trustee's professional
affiliations. Noted in parentheses is the year in which the trustee joined the
Vanguard board.
TRUSTEES
JOHN J. BRENNAN, (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN, (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
Johnson*Merck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY, (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL, (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR., (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JAMES O. WELCH, JR., (1971) Retired Chairman of Nabisco Brands, Inc.; retired
Vice Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc., and
Kmart Corp.
J. LAWRENCE WILSON, (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, Cummins Engine Co., and The Mead Corp.; Trustee
of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. Gregory Barton, Legal Department.
Robert A. DiStefano, Information Technology.
James H. Gately, Individual Investor Group.
Kathleen C. Gubanich, Human Resources.
Ian A. MacKinnon, Fixed Income Group.
F. William McNabb, III, Institutional Investor Group.
Michael S. Miller, Planning and Development.
Ralph K. Packard, Chief Financial Officer.
George U. Sauter, Quantitative Equity Group.
<PAGE>
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
[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 082000
(C)2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
