N-30D 1 bondindex02inprog.txt BOND INDEX FUNDS ANNUAL REPORT [FRONT COVER] VANGUARD(R)BOND INDEX FUNDS ANNUAL REPORT DECEMBER 31, 2002 VANGUARD TOTAL BOND MARKET INDEX FUND VANGUARD SHORT-TERM BOND INDEX FUND VANGUARD INTERMEDIATE-TERM BOND INDEX FUND VANGUARD LONG-TERM BOND INDEX FUND THE VANGUARD GROUP(R) EARNING YOUR TRUST EVERY DAY The latter part of 2001 and the first half of 2002 brought news of too many corporate scandals, with tales of greed and deception tarnishing Enron, Arthur Andersen, and WorldCom, among others. Given the questionable business dealings at some high-profile companies, investors can hardly be blamed for wondering whom they can trust. Vanguard is a name that should stand out. Why? Our unique corporate structure--The Vanguard Group is owned by each of its independently operated mutual funds and is charged with solely serving the funds' shareholders--ensures that our interests are aligned with yours. We have no other constituency to serve. We are client-focused because, quite frankly, it makes good business sense. Your trust is our most valuable asset, and every one of our crew members understands that his or her actions must meet the highest standards of ethical behavior and fiduciary responsibility. When you assess the combination of our organizational structure, the independent nature of each of our funds, our long track record of conducting business with integrity, and our total commitment to ethical behavior, we hope you will feel completely secure in entrusting your assets to us. There is no better place for them. --JOHN J. BRENNAN CHAIRMAN AND CHIEF EXECUTIVE OFFICER [PHOTO OF JOHN J BRENNAN] ================================================================================ SUMMARY * The Vanguard Bond Index Funds earned solid absolute total returns during 2002, outpacing their average peer mutual funds but falling well short of their target indexes. * Interest rates declined during the year and the yields of the funds followed along. The yield of the Total Bond Market Index Fund's Investor Shares fell to 4.16% from 5.63% a year earlier. * While bonds provided strong returns, stocks suffered deep losses. -------------------------------------------------------------------------------- CONTENTS 1 Letter from the Chairman 8 Fund Profiles 12 Glossary of Investment Terms 13 Performance Summaries 17 Results of Proxy Voting 18 Financial Statements 83 Advantages of Vanguard.com ================================================================================ LETTER FROM THE CHAIRMAN Fellow Shareholder, Investment-grade bonds provided excellent total returns during 2002, as prices rose in response to falling interest rates and a terrible stock market. As the table below shows, the four Vanguard(R) Bond Index Funds outperformed their average mutual fund peers--in two cases by wide margins--but failed to keep pace with the unmanaged indexes that they aim to track. Our tracking of the indexes was disappointing to us. But we're encouraged that the difficulties encountered by our funds, which we described to you in our semiannual report, appear to be behind us. This is in part because market conditions have improved and in part because of steps we've taken to ensure tighter track-ing of our benchmarks in a changed environment. In short, our relative performance has been quite good since August. Later in this letter, I'll recap our performance, and I'll outline some of the positive developments that have taken place since I wrote to you six months ago. In tandem with falling interest rates, the yields of our funds tumbled during 2002, dropping 171 basis points (about 1.7 percentage points) in the case of Vanguard(R) Short-Term Bond Index Fund's Investor Shares. The table on page 3 presents yields for each fund. Detailed figures for each fund, including net asset values and distributions are presented in the table that follows this letter. ================================================================================ 2002 TOTAL RETURNS YEAR ENDED DECEMBER 31 -------------------------------------------------------------------------------- VANGUARD TOTAL BOND MARKET INDEX FUND Investor Shares 8.3% Admiral Shares 8.3 Institutional Shares 8.4 Average Intermediate Investment Grade Fund* 8.1 Lehman Aggregate Bond Index 10.3 -------------------------------------------------------------------------------- VANGUARD SHORT-TERM BOND INDEX FUND Investor Shares 6.1% Admiral Shares 6.2 Average 1-5 Year Investment Grade Fund* 5.6 Lehman 1-5 Year Government/Credit Index 8.1 -------------------------------------------------------------------------------- VANGUARD INTERMEDIATE-TERM BOND INDEX FUND Investor Shares 10.9% Admiral Shares 10.9 Average Intermediate Investment Grade Fund* 8.1 Lehman 5-10 Year Government/Credit Index 13.0 -------------------------------------------------------------------------------- VANGUARD LONG-TERM BOND INDEX FUND 14.4% Average Corporate A-Rated Fund* 8.4 Lehman Long Government/Credit Index 14.8 -------------------------------------------------------------------------------- *Derived from data provided by Lipper Inc. ================================================================================ BONDS SHONE AS THE ECONOMY GREW AND STOCKS PLUNGED Prices of investment-grade bonds rose during 2002, as many investors sought shelter from the stock market's volatility. But parts of the bond market, too, 1 were shaken by the year's events. As revelations of fraudulent accounting practices mounted--helping to push a handful of well-known companies into bankruptcy--investors seemed to lose some confidence in the financial markets generally. Economic uncertainty, the threat of terrorism, and the prospect of war with Iraq also weighed on the nation. ================================================================================ MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2002 --------------------------------- ONE THREE FIVE YEAR YEARS YEARS -------------------------------------------------------------------------------- BONDS Lehman Aggregate Bond Index 10.3% 10.1% 7.5% (Broad taxable market) Lehman Municipal Bond Index 9.6 8.8 6.1 Salomon Smith Barney 3-Month U.S. Treasury Bill Index 1.7 3.9 4.3 -------------------------------------------------------------------------------- STOCKS Russell 1000 Index (Large-caps) -21.7% -14.2% -0.6% Russell 2000 Index (Small-caps) -20.5 -7.5 -1.4 Wilshire 5000 Index (Entire market) -20.9 -14.4 -0.9 MSCI All Country World Index Free ex USA (International) -14.7 -16.4 -2.7 -------------------------------------------------------------------------------- CPI Consumer Price Index 2.4% 2.4% 2.3% ================================================================================ Although the recession of 2001 gave way to halting economic growth, the stock market seemed largely oblivious for much of 2002. Despite a strong fourth-quarter rally, the Wilshire 5000 Total Market Index skidded -20.9% for the 12 months. Share prices declined -22.0%--their worst calendar-year performance since 1974--while stock dividends provided an income return of just 1.1%. It was the third consecutive down year for stocks, and the longest bear market since 1939-1941. No size or style of stock was spared. The Federal Reserve Board responded to the mixed economic signals by holding its target for interest rates steady for most of the year, and then by making a sizable cut of 50 basis points in November. At the end of 2002, the federal funds rate stood at 1.25%, its lowest level in four decades. The yield of the 3-month U.S. Treasury bill fell 53 basis points to 1.19% as of December 31, while the yield of the 10-year Treasury note declined 124 basis points to 3.81%. The decline in interest rates led to a mortgage refinancing boom that supported consumer spending. The rise in bond prices, which move in the opposite direction from interest rates, sup-plemented the income from bonds, resulting in terrific returns. The Lehman Brothers Aggregate Bond Index, which tracks the market for U.S. taxable investment-grade bonds, returned 10.3% for the year. However, not all types of bonds went ================================================================================ ADMIRAL(TM) SHARES A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund. INSTITUTIONAL SHARES This class of shares also carries low expenses and is available for a minimum investment of $10 million. ================================================================================ 2 along for the ride. In fact, high-yielding bonds--those issued by less- creditworthy companies--returned -1.4% for the 12 months. Mortgage-backed securities performed well; the Lehman GNMA Index returned 8.7%. Between corporate bonds and Treasury securities, there was no clear winner. Government bonds did better than corporates in the long-term segment of the market, and short-term corporates outperformed short-term Treasuries. During the final three months of the year, corporate bonds soared as investors appeared to be more willing to take on risk. OUR FUNDS OUTPACED THEIR PEER GROUP AVERAGES On an absolute basis, 2002 was a good year for our funds. The table below presents the 12-month total return, broken down into its income and capital components, for each fund's Investor Shares. The chart makes clear how the decline in interest rates benefited returns. As noted earlier, the performance of our funds relative to their mutual fund peers also was good. The Long-Term Bond Index Fund bested the average return of its peers by 6 percentage points, while the Intermediate-Term Bond Index Fund topped its average peer by nearly 3 percentage points. Of course, the objective of an index fund is to track its target benchmark closely. On this score, three of our four funds came up significantly short. The Total Bond Market Index Fund--our oldest and biggest bond index fund--returned 8.3%, well below the 10.3% return of the Lehman Aggregate Bond Index. Our Short-Term and Intermediate-Term Bond Index Funds also trailed their target indexes by about 2 percentage points. The Long-Term Bond Index Fund's return was within 0.4 percentage point of the target. The fund's results during 2002 can really be divided into three distinct periods. During the first five months of the year, the funds tracked their index targets closely, well within normal ranges. In June and July, however, the gap between the funds and the indexes widened to unusual levels--tracking was ================================================================================ YIELDS AND RETURNS COMPONENTS OF TOTAL RETURNS YIELDS AT YEAR-END YEAR ENDED DECEMBER 31, 2002 --------------------- -------------------------------- INDEX FUND 2001 2002 CAPITAL INCOME TOTAL -------------------------------------------------------------------------------- Total Bond Market Investor Shares 5.63% 4.16% 2.4% 5.9% 8.3% Short-Term Bond Investor Shares 4.29 2.58 1.5 4.6 6.1 Intermediate-Term Bond Investor Shares 6.00 4.57 4.7 6.2 10.9 Long-Term Bond Investor Shares 6.41 5.28 7.8 6.6 14.4 ================================================================================ 3 ================================================================================ DIFFERENCE IN 2002 MONTHLY RETURNS TOTAL BOND MARKET INDEX FUND AND LEHMAN AGGREGATE BOND INDEX Jan-02 -0.121 Feb-02 -0.117 Mar-02 0.203 Apr-02 -0.247 May-02 -0.051 Jun-02 -0.576 Jul-02 -0.723 Aug-02 -0.026 Sep-02 -0.092 Oct-02 -0.156 Nov-02 0.051 Dec-02 0.006 -------------------------------------------------------------------------------- Source: Lehman Brothers and The Vanguard Group. ================================================================================ quite bad. But in the final five months, from August through December, the tracking again was within normal ranges. Since the end of July, for example, the Total Bond Market Index Fund's return (after adjusting for expenses) was just 14 basis points behind that of the Lehman Aggregate Bond Index. The gaps for our three other funds were even smaller. The chart above, which presents a monthly comparison of returns from the Total Bond Market Index Fund and its target, shows the distinct improvement in tracking after the shortfalls in June and July. To understand what happened during 2002, one must focus on the remarkable turmoil that beset the bond market and the credit ratings of corporate bonds last summer. Here are a few points that illustrate the severity of the bond market's difficulties during mid-2002: * Lehman Brothers recently ranked the 50 worst credit blowups since 1989. (The list was made up of issues whose bonds had the worst one-month performances throughout the 14 years.) Of the 50 debacles, 32 occurred in 2002--and half of the total in July alone! * Many companies that suffered financial difficulties saw their bonds' credit ratings fall several notches from investment-grade status to the "junk" level in a matter of days. Such rapid declines in credit quality struck even relatively healthy companies in troubled sectors. * By late summer, the returns of Baa-rated corporate bonds--the lowest level of investment-grade issues--were more than 8 percentage points below those of comparable Treasury securities, based on rolling two-month returns. This was by far the biggest gap since Lehman began tracking the returns in 1988. On two other occasions--during the deep recession of 1990 and the 1998 bond market turbulence that was precipitated by the collapse of hedge 4 ================================================================================ WE HAVE MADE SOME ADJUSTMENTS TO ENSURE GREATER DIVERSIFICATION AND LESS EXPOSURE TO LOW-QUALITY BONDS. ================================================================================ fund operator Long-Term Capital Management-- the underperformance of Baa-rated bonds approached just 4 percentage points. Although this extremely challenging market environment does not excuse our funds' shortfalls to their indexes, it does help to explain them. For our funds, the trouble began in June and intensified in July. As we explained in our report to you six months ago, our funds' returns will typically differ from those of the indexes for two primary reasons: The funds incur expenses that the indexes do not, and the funds' holdings do not exactly replicate those held by the indexes. The expense difference will always work against us in our goal of providing close tracking. The difference in holdings arises from our "sampling" approach to indexing, which is necessary because it would be impractical and very costly to own all the bonds in the target indexes. The sampling strategy--in which we buy some, but not all, of the securities in an index--is designed to provide our funds with characteristics that are similar to those of their targets. Our portfolio managers and analysts carefully select bonds so that the funds' weightings among sectors closely match those of the indexes. However, during June and July, the relative performance of some "subsectors"--in contrast to historical experience--diverged widely. At that time, our funds had larger stakes than their indexes in several subsectors. In particular, at a subsector level we had heavier weightings in bonds issued by telecommunications and energy-trading companies. These groups were hit extremely hard by the WorldCom bankruptcy, the Enron scandal, and accounting irregularities at a number of other companies. In recognition of the radical change in the market's reaction to credit risk, we have made some adjustments to ensure greater diversification and less exposure to lower-quality bonds. For example, we have taken our tight controls on sectors to the subsector level. These changes have already supported closer tracking of our target indexes. Finally, I'd like to emphasize that we have great confidence in the skill of our bond management team, Vanguard's Fixed Income Group, and in the power of the indexed approach to fixed income investing. Our funds' long-term records justify our confidence. OUR LONGER-TERM PERFORMANCE SHINES Though an annual review of a fund's performance can be instructive, the fund's longer-term record is a more useful measure of its success. And a long-term perspective clearly shows that the Vanguard Bond Index Funds have provided exceptionally strong returns relative to competitors while tracking 5 their target indexes very closely. ================================================================================ TOTAL RETURNS AVERAGE ANNUAL RETURNS PERIODS ENDED DECEMBER 31, 2002* --------------------------------------- AVERAGE VANGUARD COMPARABLE TARGET INDEX FUND (INCEPTION DATE) FUND FUND INDEX -------------------------------------------------------------------------------- Total Bond Market Investor Shares (12/11/1986) 7.3% 6.1% 7.5% Institutional Shares (9/18/1995) 7.4 6.3 7.6 Short-Term Bond Investor Shares (3/1/1994) 6.5 5.5 6.8 Intermediate-Term Bond Investor Shares (3/1/1994) 7.7 6.1 7.9 Long-Term Bond (3/1/1994) 8.8 6.2 8.8 -------------------------------------------------------------------------------- *Ten years for the Total Bond Market Index Fund Investor Shares; since inception for the Total Bond Market Index Fund Institutional Shares and the other funds. ================================================================================ It's important to note that the returns shown in the adjacent table came during a period of generally declining interest rates--an ideal environment for fixed income securities. Since many rates are now at long-time lows, it's wise to assume that at some point they will start to rise again, cutting into total returns on bonds. Also, keep in mind that while falling interest rates push up bond prices, they also diminish the income paid by bond investments. Over the long run, lower rates diminish the income earned on reinvested dividends. We must emphasize the important role that fund expenses have on returns. A significant portion of our funds' success relative to their mutual fund peers--both for the year and since their inceptions--can be attributed to our low expense ratios (annualized expenses as a percentage of average net assets). In 2002, the Investor Shares of the Total Bond Market Index Fund had an expense ratio of 0.22%, or $2.20 per $1,000 invested, a fraction of the 0.91%, or $9.10 per $1,000 invested, charged by the average intermediate investment-grade fund, according to Lipper Inc. Expense ratios for our Admiral and Institutional Shares were even lower. Because expenses are deducted from a fund's income, lower costs mean that our shareholders keep more of the fund's return. PREPARE FOR THE BEST--AND FOR THE WORST Bond and stock investors alike are asking the same question: Is the worst over for the stock market? The fourth-quarter rally was encouraging, but the truth is that no one knows what the future returns will be for any asset class, let alone for individual securities within an asset class. That uncertainty doesn't make us powerless. Rather, it puts a premium on sensible planning. That's why Vanguard advocates a balanced investment approach that includes stock, bond, and money market funds in proportions appropriate for your goals and unique financial circumstances. Diversification among asset classes is the best way to manage investment risk while still positioning your portfolio to take advantage of the markets' long-term rewards. 6 It's also important to diversify within the different asset classes. In the bond market, the broadly diversified Vanguard Bond Index Funds are an excellent place to start. You can achieve the greatest diversification by investing in the Total Bond Market Index Fund, or you can tailor the risk in your bond portfolio with our Short-, Intermediate-, and Long-Term Bond Index Funds. By following these simple principles, you enhance your ability to stick with an investment program through the tough times so that your portfolio gets the most benefit from the eventual--and inevitable--market recovery. We thank you for entrusting your hard-earned money to us. SINCERELY, JOHN J. BRENNAN CHAIRMAN AND CHIEF EXECUTIVE OFFICER JANUARY 13, 2003 ================================================================================ YOUR FUND'S PERFORMANCE AT A GLANCE DECEMBER 31, 2001-DECEMBER 31, 2002 DISTRIBUTIONS PER SHARE -------------------- STARTING ENDING INCOME CAPITAL SEC INDEX FUND SHARE PRICE SHARE PRICE DIVIDENDS GAINS YIELD -------------------------------------------------------------------------------- Total Bond Market Investor Shares $10.15 $10.38 $0.570 $0.011 4.16% Admiral Shares 10.15 10.38 0.576 0.011 4.21 Institutional Shares 10.15 10.38 0.583 0.011 4.28 Short-Term Bond Investor Shares 10.19 10.32 0.452 0.022 2.58 Admiral Shares 10.19 10.32 0.457 0.022 2.63 Intermediate-Term Bond Investor Shares 10.28 10.75 0.597 0.008 4.57 Admiral Shares 10.28 10.75 0.602 0.008 4.61 Long-Term Bond 10.83 11.67 0.658 0.000 5.28 ================================================================================ 7 FUND PROFILES AS OF DECEMBER 31, 2002 These Profiles provide snapshots of each fund's characteristics, compared where indicated with both an appropriate market index and a broad market index. Key terms are defined on page 12. TOTAL BOND MARKET INDEX FUND ================================================================================ -------------------------------------------- FINANCIAL ATTRIBUTES BROAD FUND INDEX* -------------------------------------------- Number of Issues 1,059 6,918 Yield 4.1% Investor Shares 4.2% Admiral Shares 4.2% Institutional Shares 4.3% Yield to Maturity 3.5% 4.1% Average Coupon 6.5% 6.1% Average Maturity 6.9 years 6.8 years Average Quality Aa1 Aaa Average Duration 3.8 years 3.8 years Expense Ratio -- Investor Shares 0.22% Admiral Shares 0.17% Institutional Shares 0.10% Cash Investments 1.2% -- -------------------------------------------- ----------------------------------------------- DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) Treasury/Agency** 62.0% Aaa 7.9 Aa 6.0 A 12.6 Baa 10.6 Ba 0.9 B 0.0 Not Rated 0.0 ----------------------------------------------- Total 100.0% ----------------------------------------------- ----------------------------------------------- DISTRIBUTION BY MATURITY (% OF PORTFOLIO) Under 1 Year 2.3% 1-5 Years 58.6 5-10 Years 25.1 10-20 Years 6.5 20-30 Years 6.8 Over 30 Years 0.7 ------------------------------------------------ Total 100.0% ------------------------------------------------ ------------------------------------------------ VOLATILITY MEASURES BROAD FUND INDEX* ------------------------------------------------ R-Squared 0.96 1.00 Beta 0.96 1.00 ------------------------------------------------ ------------------------------------------------ INVESTMENT FOCUS CREDIT QUALITY - TREASURY/AGENCY AVERAGE MATURITY - MEDIUM ------------------------------------------------ ------------------------------------------------ DISTRIBUTION BY ISSUER (% OF PORTFOLIO) Asset-Backed/Commercial Mortgage-Backed+ 6.9% Finance 11.9 Foreign 3.4 Government Mortgage-Backed+ 36.4 Industrial 13.2 Treasury/Agency 25.6 Utilities 2.6 ------------------------------------------------- Total 100.0% ------------------------------------------------- *Lehman Aggregate Bond Index. **Includes government mortgage-backed bonds. +Adjusted for swaps. ================================================================================ Visit our website at WWW.VANGUARD.COM for regularly updated fund information. 8 SHORT-TERM BOND INDEX FUND ================================================================================ ------------------------------------------------------------------------- FINANCIAL ATTRIBUTES COMPARATIVE BROAD FUND INDEX* INDEX** ------------------------------------------------------------------------ Number of Issues 363 2,166 6,918 Yield 2.5% 4.1% Investor Shares 2.6% Admiral Shares 2.6% Yield to Maturity 2.5% 2.6% 4.1% Average Coupon 5.8% 5.2% 6.1% Average Maturity 2.6 years 2.7 years 6.8 years Average Quality Aa1 Aaa Aaa Average Duration 2.4 years 2.3 years 3.8 years Expense Ratio -- -- Investor Shares 0.21% Admiral Shares 0.16% Cash Investments 2.1% -- -- -------------------------------------------------------------------------- ------------------------------------------------ DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) Treasury/Agency 58.7% Aaa 8.6 Aa 8.5 A 15.1 Baa 8.9 Ba 0.2 B 0.0 Not Rated 0.0 ------------------------------------------------ Total 100.0% ------------------------------------------------ ------------------------------------------------ DISTRIBUTION BY MATURITY (% OF PORTFOLIO) Under 1 Year 4.1% 1-3 Years 57.7 3-5 Years 37.4 Over 5 Years 0.8 ------------------------------------------------- Total 100.0% ------------------------------------------------- ----------------------------------------------------- VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** ----------------------------------------------------- R-Squared 0.92 1.00 0.85 1.00 Beta 0.92 1.00 0.58 1.00 ----------------------------------------------------- ----------------------------------------------------- INVESTMENT FOCUS AVERAGE MATURITY - SHORT CREDIT QUALITY - TREASURY/AGENCY ----------------------------------------------------- ----------------------------------------------------- DISTRIBUTION BY ISSUER (% OF PORTFOLIO) Asset-Backed 3.9% Commercial Mortgage-Backed 0.0 Finance 16.1 Foreign 5.8 Government Mortgage-Backed 0.0 Industrial 13.6 Treasury/Agency 58.7 Utilities 1.9 ------------------------------------------------------ Total 100.0% ------------------------------------------------------ *Lehman 1-5 Year Government/Credit Index. **Lehman Aggregate Bond Index. 9 FUND PROFILES (CONTINUED) INTERMEDIATE-TERM BOND INDEX FUND ================================================================================ ------------------------------------------------------------------------- FINANCIAL ATTRIBUTES COMPARATIVE BROAD FUND INDEX* INDEX** ------------------------------------------------------------------------ Number of Issues 342 1,399 6,918 Yield 4.6% 4.1% Investor Shares 4.6% Admiral Shares 4.6% Yield to Maturity 4.5% 4.8% 4.1% Average Coupon 6.7% 6.5% 6.1% Average Maturity 7.5 years 7.7 years 6.8 years Average Quality Aa2 Aa2 Aaa Average Duration 5.9 years 5.9 years 3.8 years Expense Ratio -- -- Investor Shares 0.21% Admiral Shares 0.16% Cash Investments 1.7% -- -- ------------------------------------------------------------------------- ------------------------------------------------ DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) Treasury/Agency 44.2% Aaa 3.1 Aa 10.4 A 21.4 Baa 20.8 Ba 0.1 B 0.0 Not Rated 0.0 ------------------------------------------------ Total 100.0% ------------------------------------------------ ------------------------------------------------ DISTRIBUTION BY MATURITY (% OF PORTFOLIO) Under 1 Year 0.4% 1-5 Years 5.8 5-10 Years 91.5 10-20 Years 2.2 20-30 Years 0.1 Over 30 Years 0.0 ------------------------------------------------ Total 100.0% ------------------------------------------------ ------------------------------------------------ VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** ------------------------------------------------ R-Squared 0.98 1.00 0.92 1.00 Beta 0.97 1.00 1.31 1.00 ------------------------------------------------ ------------------------------------------------ INVESTMENT FOCUS CREDIT QUALITY - TREASURY/AGENCY AVERAGE MATURITY - MEDIUM ------------------------------------------------ ------------------------------------------------ DISTRIBUTION BY ISSUER (% OF PORTFOLIO) Asset-Backed 0.2% Commercial Mortgage-Backed 0.0 Finance 20.4 Foreign 5.8 Government Mortgage-Backed 0.0 Industrial 24.6 Treasury/Agency 44.2 Utilities 4.8 ------------------------------------------------- Total 100.0% ------------------------------------------------- *Lehman 5-10 Year Government/Credit Index. **Lehman Aggregate Bond Index. 10 LONG-TERM BOND INDEX FUND ================================================================================ -------------------------------------------------------------------------- FINANCIAL ATTRIBUTES COMPARATIVE BROAD FUND INDEX* INDEX** -------------------------------------------------------------------------- Number of Issues 251 1,268 6,918 Yield 5.3% 5.5% 4.1% Yield to Maturity 5.3% 5.6% 4.1% Average Coupon 7.6% 7.3% 6.1% Average Maturity 20.9 years 21.4 years 6.8 years Average Quality Aa1 Aa1 Aaa Average Duration 10.9 years 10.9 years 3.8 years Expense Ratio 0.21% -- -- Cash Investments 2.6% -- -- --------------------------------------------------------------------------- ------------------------------------------------ DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO) Treasury/Agency 61.1% Aaa 2.5 Aa 5.9 A 13.2 Baa 17.0 Ba 0.3 B 0.0 Not Rated 0.0 ------------------------------------------------ Total 100.0% ------------------------------------------------ ------------------------------------------------ DISTRIBUTION BY MATURITY (% OF PORTFOLIO) Under 1 Year 0.9% 1-5 Years 1.5 5-10 Years 3.0 10-20 Years 46.7 20-30 Years 45.3 Over 30 Years 2.6 ------------------------------------------------ Total 100.0% ------------------------------------------------ ------------------------------------------------ VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** ------------------------------------------------ R-Squared 0.99 1.00 0.83 1.00 Beta 0.99 1.00 1.91 1.00 ------------------------------------------------ ------------------------------------------------ DISTRIBUTION BY ISSUER (% OF PORTFOLIO) Asset-Backed 0.4% Commercial Mortgage-Backed 0.0 Finance 7.4 Foreign 4.7 Government Mortgage-Backed 0.0 Industrial 23.7 Treasury/Agency 61.1 Utilities 2.7 ------------------------------------------------- Total 100.0% ------------------------------------------------- ------------------------------------------------- INVESTMENT FOCUS AVERAGE MATURITY - LONG CREDIT QUALITY - TREASURY/AGENCY ------------------------------------------------- *Lehman Long Government/Credit Index. **Lehman Aggregate Bond Index. Visit our website at WWW.VANGUARD.COM for regularly updated fund information. 11 ================================================================================ GLOSSARY OF INVESTMENT TERMS AVERAGE COUPON. The average interest rate paid on the securities held by a fund. It is expressed as a percentage of face value. -------------------------------------------------------------------------------- AVERAGE DURATION. An estimate of how much a bond fund's share price will fluctuate in response to a change in interest rates. To see how the price could shift, multiply the fund's duration by the change in rates. If interest rates rise by one percentage point, the share price of a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the fund's share price would rise by 5%. -------------------------------------------------------------------------------- AVERAGE MATURITY. The average length of time until securities held by a fund reach maturity (or are called) and are repaid. In general, the longer the average maturity, the more a fund's share price will fluctuate in response to changes in market interest rates. -------------------------------------------------------------------------------- AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the ratings assigned to a fund's fixed income holdings by credit-rating agencies. The agencies make their judgment after appraising an issuer's ability to meet its obligations. Quality is graded on a scale, with Aaa or AAA indicating the most creditworthy bond issuers. U.S. Treasury securities are considered to have the highest credit quality. -------------------------------------------------------------------------------- BETA. A measure of the magnitude of a fund's past share-price fluctuations in relation to the ups and downs of a comparative index and an overall market index. Each index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 would have seen its share price rise or fall by 12% when the index 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 bond investment. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- R-SQUARED. A measure of how much of a fund's past returns can be explained by the returns from the market in general, as measured by a comparative index and by an overall market index. If a fund's total returns were precisely synchronized with an index's returns, its R-squared would be 1.00. If the fund's returns bore no relationship to the index's returns, its R-squared would be 0. -------------------------------------------------------------------------------- YIELD. A snapshot of a fund's interest income. 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. -------------------------------------------------------------------------------- YIELD TO MATURITY. The rate of return an investor would receive if the securities held by a fund were held to their maturity dates. -------------------------------------------------------------------------------- 12 PERFORMANCE SUMMARIES AS OF DECEMBER 31, 2002 All of the data in this report represent past performance, which cannot be used to predict future returns that may be achieved by the funds. 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. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. TOTAL BOND MARKET INDEX FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE DECEMBER 31, 1992-DECEMBER 31, 2002 TOTAL BOND MKT AVG INTER-TERM LEHMAN AGGREGATE INDEX INV INV GRADE FUND BOND INDEX -------------- -------------- ---------------- 12/1992 10,000 10,000 10,000 03/1993 10,417 10,385 10,413 06/1993 10,698 10,614 10,689 09/1993 10,989 10,843 10,968 12/1993 10,968 10,826 10,975 03/1994 10,671 10,559 10,660 06/1994 10,564 10,416 10,550 09/1994 10,618 10,436 10,615 12/1994 10,677 10,423 10,655 03/1995 11,191 10,902 11,192 06/1995 11,863 11,455 11,874 09/1995 12,086 11,620 12,107 12/1995 12,618 12,058 12,623 03/1996 12,378 11,863 12,399 06/1996 12,452 11,886 12,470 09/1996 12,675 12,058 12,700 12/1996 13,070 12,381 13,082 03/1997 12,989 12,322 13,008 06/1997 13,452 12,703 13,486 09/1997 13,910 13,043 13,934 12/1997 14,304 13,381 14,344 03/1998 14,526 13,584 14,568 06/1998 14,869 13,853 14,908 09/1998 15,483 14,417 15,538 12/1998 15,531 14,409 15,590 03/1999 15,464 14,323 15,513 06/1999 15,313 14,172 15,377 09/1999 15,433 14,206 15,481 12/1999 15,414 14,167 15,462 03/2000 15,786 14,462 15,804 06/2000 16,021 14,672 16,079 09/2000 16,512 15,021 16,563 12/2000 17,170 15,677 17,260 03/2001 17,726 16,108 17,784 06/2001 17,866 16,127 17,884 09/2001 18,632 16,836 18,709 12/2001 18,617 16,762 18,717 03/2002 18,629 16,760 18,735 06/2002 19,151 17,213 19,427 09/2002 19,862 17,789 20,317 12/2002 20,154 18,126 20,637 --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2002 ------------------------------- FINAL VALUE ONE FIVE TEN OF A $10,000 YEAR YEARS YEARS INVESTMENT ------------------------------------------------------------------------------------------ Total Bond Market Index Fund Investor Shares* 8.26% 7.10% 7.26% $20,154 Average Intermediate-Term Invesment Grade Fund** 8.14 6.26 6.13 18,126 Lehman Aggregate Bond Index 10.26 7.55 7.51 20,637 ------------------------------------------------------------------------------------------
FINAL VALUE ONE SINCE OF A $250,000 YEAR INCEPTION+ INVESTMENT ------------------------------------------------------------------------------------ Total Bond Market Index Fund Admiral Shares 8.32% 5.41% $265,385 Lehman Aggregate Bond Index 10.26 7.02 269,984 ------------------------------------------------------------------------------------
FINAL VALUE OF ONE FIVE SINCE A $10,000,000 YEAR YEARS INCEPTION+ INVESTMENT -------------------------------------------------------------------------------------------- Total Bond Market Index Fund Institutional Shares 8.39% 7.22% 7.40% $16,823,375 Lehman Aggregate Bond Index 10.26 7.55 7.64 17,094,101 --------------------------------------------------------------------------------------------
================================================================================ FISCAL-YEAR TOTAL RETURNS (%) December 31, 1992-December 31, 2002 TOTAL BOND MARKET INDEX FUND INVESTOR SHARES -------------------------------- LEHMAN++ FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN -------------------------------------------------------------------- 1993 3.0% 6.7% 9.7% 9.7% 1994 -8.8 6.1 -2.7 -2.9 1995 10.6 7.6 18.2 18.5 1996 -3.0 6.6 3.6 3.6 1997 2.5 6.9 9.4 9.7 1998 2.2% 6.4% 8.6% 8.7% 1999 -6.8 6.0 -0.8 -0.8 2000 4.2 7.2 11.4 11.6 2001 1.9 6.5 8.4 8.4 2002 2.4 5.9 8.3 10.3 -------------------------------------------------------------------- *Total return figures do not reflect the $10 annual account maintenance fee applied on balances under $10,000. **Derived from data provided by Lipper Inc.; based on the Average Intermediate U.S. Government Fund through December 31, 2001, and the Average Intermediate-Term Investment Grade Fund thereafter. +Inception dates are November 12, 2001, for the Admiral Shares and September 18, 1995, for the Institutional Shares. ++Lehman Aggregate Bond Index. Note: See Financial Highlights tables on pages 71 and 72 for dividend and capital gains information. 13 PERFORMANCE SUMMARIES (CONTINUED) SHORT-TERM BOND INDEX FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE March 1, 1994-December 31, 2002 SHORT-TERM BOND AVG 1-5 YEAR LEHMAN 1-5 YEAR LEHMAN AGGREGATE INDEX INV INV. GRADE FUND GOVERNMENT/ CREDIT INDEX BOND INDEX --------------- --------------- ------------------------ --------------- 3/1/1994 10,000 10,000 10,000 10,000 03/1994 9,933 9,933 9,935 9,808 06/1994 9,904 9,846 9,905 9,707 09/1994 9,985 9,916 9,995 9,766 12/1994 9,963 9,887 9,979 9,803 03/1995 10,357 10,221 10,365 10,297 06/1995 10,763 10,564 10,780 10,925 09/1995 10,934 10,720 10,945 11,139 12/1995 11,247 11,000 11,264 11,614 03/1996 11,233 10,987 11,254 11,408 06/1996 11,331 11,040 11,352 11,473 09/1996 11,514 11,210 11,549 11,685 12/1996 11,758 11,423 11,790 12,036 03/1997 11,802 11,487 11,829 11,968 06/1997 12,091 11,726 12,127 12,408 09/1997 12,361 11,957 12,405 12,820 12/1997 12,585 12,148 12,630 13,197 03/1998 12,774 12,329 12,820 13,403 06/1998 12,986 12,494 13,035 13,716 09/1998 13,464 12,869 13,523 14,296 12/1998 13,545 12,909 13,594 14,344 03/1999 13,593 12,980 13,647 14,273 06/1999 13,623 12,955 13,677 14,147 09/1999 13,770 13,059 13,830 14,243 12/1999 13,827 13,101 13,878 14,226 03/2000 14,019 13,290 14,057 14,540 06/2000 14,248 13,490 14,299 14,793 09/2000 14,636 13,778 14,674 15,239 12/2000 15,049 14,186 15,115 15,880 03/2001 15,536 14,580 15,596 16,362 06/2001 15,746 14,656 15,767 16,454 09/2001 16,358 15,178 16,417 17,213 12/2001 16,386 15,186 16,480 17,221 03/2002 16,377 15,242 16,472 17,237 06/2002 16,692 15,477 16,982 17,874 09/2002 17,158 15,828 17,567 18,693 12/2002 17,385 16,029 17,818 18,987 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2002 ------------------------------- FINAL VALUE ONE FIVE SINCE OF A $10,000 YEAR YEARS INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Short-Term Bond Index Fund Investor Shares** 6.10% 6.68% 6.46% $17,385 Average 1-5 Year Investment Grade Fund+ 5.55 5.70 5.48 16,029 Lehman 1-5 Year Government/Credit Index 8.12 7.12 6.76 17,818 Lehman Aggregate Bond Index 10.26 7.55 7.53 18,987 -------------------------------------------------------------------------------- FINAL VALUE ONE SINCE OF A $250,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Short-Term Bond Index Fund Admiral Shares 6.15% 4.40% $262,522 Lehman 1-5 Year Government/Credit Index 8.12 6.26 267,822 -------------------------------------------------------------------------------- ================================================================================ FISCAL-YEAR TOTAL RETURNS (%) March 1, 1994-December 31, 2002 SHORT-TERM BOND INDEX FUND INVESTOR SHARES ------------------------------ LEHMAN++ FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN -------------------------------------------------------------------- 1994 -5.0% 4.6% -0.4% -0.2% 1995 6.0 6.9 12.9 12.9 1996 -1.5 6.0 4.5 4.7 1997 0.8 6.2 7.0 7.1 1998 1.7 5.9 7.6 7.6 1999 -3.3% 5.4% 2.1% 2.1% 2000 2.4 6.4 8.8 8.9 2001 3.0 5.9 8.9 9.0 2002 1.5 4.6 6.1 8.1 -------------------------------------------------------------------------------- *Inception dates are March 1, 1994, for the Investor Shares and November 12, 2001, for the Admiral Shares. **Total return figures do not reflect the $10 annual account maintenance fee applied on balances under $10,000. +Derived from data provided by Lipper Inc; based on the Average 1-5 Year U.S. Government Fund through December 31, 2001, and the Average 1-5 Year Investment Grade Fund thereafter. ++Lehman 1-5 Year Government/Credit Index. Note: See Financial Highlights tables on page 73 for dividend and capital gains information. 14 INTERMEDIATE-TERM BOND INDEX FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE March 1, 1994-December 31, 2002 INTER-TERM BOND AVG INTER-TERM LEHMAN 5-10 YEAR LEHMAN AGGREGATE INDEX FUND INVESTMENT GRADE GOVERNMENT/CREDIT INDEX BOND INDEX --------------- ----------------- ----------------------- -------------- 3/1/1994 10,000 10,000 10,000 10,000 03/1994 9,790 9,790 9,771 9,808 06/1994 9,663 9,665 9,648 9,707 09/1994 9,704 9,699 9,705 9,766 12/1994 9,712 9,685 9,707 9,803 03/1995 10,242 10,107 10,257 10,297 06/1995 10,996 10,625 11,022 10,925 09/1995 11,199 10,799 11,238 11,139 12/1995 11,759 11,204 11,787 11,614 03/1996 11,462 10,998 11,495 11,408 06/1996 11,473 11,024 11,509 11,473 09/1996 11,680 11,206 11,725 11,685 12/1996 12,059 11,504 12,104 12,036 03/1997 11,929 11,424 11,971 11,968 06/1997 12,382 11,783 12,436 12,408 09/1997 12,829 12,122 12,884 12,820 12/1997 13,193 12,433 13,245 13,197 03/1998 13,412 12,594 13,466 13,403 06/1998 13,730 12,849 13,780 13,716 09/1998 14,569 13,398 14,620 14,296 12/1998 14,525 13,388 14,588 14,344 03/1999 14,333 13,279 14,396 14,273 06/1999 14,103 13,145 14,172 14,147 09/1999 14,167 13,202 14,247 14,243 12/1999 14,088 13,163 14,168 14,226 03/2000 14,419 13,407 14,438 14,540 06/2000 14,593 13,609 14,678 14,793 09/2000 15,110 13,960 15,175 15,239 12/2000 15,889 14,566 15,930 15,880 03/2001 16,499 14,933 16,526 16,362 06/2001 16,557 14,959 16,517 16,454 09/2001 17,421 15,647 17,419 17,213 12/2001 17,363 15,574 17,335 17,221 03/2002 17,246 15,538 17,240 17,237 06/2002 17,826 15,966 17,998 17,874 09/2002 18,855 16,532 19,181 18,693 12/2002 19,248 16,842 19,593 18,987 ================================================================================
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2002 ------------------------------- FINAL VALUE ONE FIVE SINCE OF A $10,000 YEAR YEARS INCEPTION* INVESTMENT ------------------------------------------------------------------------------------------- Intermediate-Term Bond Index Fund Investor Shares** 10.85% 7.85% 7.69% $19,248 Average Intermediate-Term Investment Grade Fund+ 8.14 6.26 6.08 16,842 Lehman 5-10 Year Government/Credit Index 13.03 8.15 7.91 19,593 Lehman Aggregate Bond Index 10.26 7.55 7.53 18,987 -------------------------------------------------------------------------------------------
FINAL VALUE ONE SINCE OF A $250,000 YEAR INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Intermediate-Term Bond Index Fund Admiral Shares 10.91% 6.96% $269,835 Lehman 5-10 Year Government/Credit Index 13.03 9.33 276,605 -------------------------------------------------------------------------------- ================================================================================ FISCAL-YEAR TOTAL RETURNS (%) March 1, 1994-December 31, 2002 INTERMEDIATE-TERM BOND INDEX FUND INVESTOR SHARES ---------------------------------- LEHMAN++ FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN ------------------------------------------------------------------ 1994 -8.2% 5.3% -2.9% -2.9% 1995 13.3 7.8 21.1 21.4 1996 -3.9 6.5 2.6 2.7 1997 2.4 7.0 9.4 9.4 1998 3.5 6.6 10.1 10.1 1999 -9.0% 6.0% -3.0% -2.9% 2000 5.4 7.4 12.8 12.4 2001 2.6 6.7 9.3 8.8 2002 4.7 6.2 10.9 13.0 ------------------------------------------------------------------- *Inception dates are March 1, 1994, for the Investor Shares and November 12, 2001, for the Admiral Shares. **Total return figures do not reflect the $10 annual account maintenance fee applied on balances under $10,000. +Derived from data provided by Lipper Inc; based on the Average Intermediate U.S. Government Fund through December 31, 2001, and the Average Intermediate-Term Investment Grade Fund thereafter. ++Lehman 5-10 Year Government/Credit Index Note: See Financial Highlights tables on page 74 for dividend and capital gains information. 15 PERFORMANCE SUMMARIES (CONTINUED) LONG-TERM BOND INDEX FUND -------------------------------------------------------------------------------- CUMULATIVE PERFORMANCE March 1, 1994-December 31, 2002 LONG-TERM AVERAGE CORPORATE LEHMAN LONG LEHMAN AGGREGATE BOND INDEX A-RATED FUND GOVERNMENT/CREDIT INDEX BOND INDEX ---------- ------------------ ----------------------- ---------------- 3/1/1994 10,000 10,000 10,000 10,000 03/1994 9,706 9,706 9,683 9,808 06/1994 9,438 9,534 9,411 9,707 06/1994 9,391 9,559 9,377 9,766 12/1994 9,547 9,578 9,535 9,803 03/1995 10,160 10,032 10,164 10,297 06/1995 11,203 10,654 11,224 10,925 09/1995 11,486 10,878 11,515 11,139 12/1995 12,384 11,345 12,391 11,614 03/1996 11,620 11,043 11,641 11,408 06/1996 11,608 11,087 11,649 11,473 09/1996 11,799 11,303 11,849 11,685 12/1996 12,352 11,627 12,408 12,036 03/1997 12,003 11,511 12,061 11,968 06/1997 12,642 11,939 12,720 12,408 09/1997 13,356 12,388 13,428 12,820 12/1997 14,118 12,693 14,210 13,197 03/1998 14,307 12,849 14,413 13,403 06/1998 14,945 13,176 15,025 13,716 09/1998 15,855 13,676 15,919 14,296 12/1998 15,809 13,642 15,883 14,344 03/1999 15,277 13,496 15,348 14,273 06/1999 14,841 13,321 14,937 14,147 09/1999 14,793 13,377 14,890 14,243 12/1999 14,568 13,285 14,667 14,226 03/2000 15,436 13,544 15,486 14,540 06/2000 15,498 13,692 15,627 14,793 09/2000 15,993 14,091 16,072 15,239 12/2000 16,991 14,586 17,037 15,880 03/2001 17,468 15,003 17,501 16,362 06/2001 17,460 15,087 17,392 16,454 09/2001 18,370 15,720 18,292 17,213 12/2001 18,379 15,676 18,278 17,221 03/2002 18,200 15,576 18,056 17,237 06/2002 18,874 16,075 18,838 17,874 09/2002 20,657 16,784 20,600 18,693 12/2002 21,017 16,996 20,984 18,987 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2002 ------------------------------- FINAL VALUE ONE FIVE SINCE OF A $10,000 YEAR YEARS INCEPTION* INVESTMENT -------------------------------------------------------------------------------- Long-Term Bond Index Fund** 14.35% 8.28% 8.77% $21,017 Average Corporate A-Rated Fund+ 8.42 6.01 6.19 16,996 Lehman Long Government/Credit Index 14.81 8.11 8.75 20,984 Lehman Aggregate Bond Index 10.26 7.55 7.53 18,987 -------------------------------------------------------------------------------- ================================================================================ FISCAL-YEAR TOTAL RETURNS (%) March 1, 1994-December 31, 2002 LONG-TERM BOND INDEX FUND -------------------------------- LEHMAN++ FISCAL CAPITAL INCOME TOTAL TOTAL YEAR RETURN RETURN RETURN RETURN ------------------------------------------------------------------------- 1994 -10.4% 5.9% -4.5% -4.7% 1995 21.0 8.7 29.7 29.9 1996 -6.8 6.5 -0.3 0.1 1997 6.9 7.4 14.3 14.5 1998 5.5 6.5 12.0 11.8 1999 -13.5% 5.6% -7.9% -7.7% 2000 9.1 7.5 16.6 16.2 2001 1.6 6.6 8.2 7.3 2002 7.8 6.6 14.4 14.8 -------------------------------------------------------------------------------- *March 1, 1994. **Total return figures do not reflect the $10 annual account maintenance fee applied on balances under $10,000. +Derived from data provided by Lipper Inc.; based on the Average General Government Fund through December 31, 2001, and the Average Corporate A-Rated Fund thereafter. ++Lehman Long Government/Credit Index. Note: See Financial Highlights table on page 75 for dividend and capital gains information. 16 ================================================================================ NOTICE TO SHAREHOLDERS At a special meeting of shareholders on December 3, 2002, fund shareholders approved the following proposals: - Elect trustees for each fund.* The individuals listed in the table below were elected as trustees for each fund. All trustees served as trustees to the funds prior to the shareholder meeting. ================================================================================ PERCENTAGE TRUSTEE FOR WITHHELD FOR -------------------------------------------------------------------------------- John J. Brennan 19,342,428,841 162,614,683 99.2% Charles D. Ellis 19,345,873,727 159,169,798 99.2 Rajiv L. Gupta 19,318,716,374 186,327,150 99.0 JoAnn Heffernan Heisen 19,342,725,697 162,317,828 99.2 Burton G. Malkiel 19,309,261,779 195,781,746 99.0 Alfred M. Rankin, Jr. 19,347,778,181 157,265,344 99.2 J. Lawrence Wilson 19,328,774,168 176,269,356 99.1 -------------------------------------------------------------------------------- *Results are for all funds within the same trust. - Change each fund's policy on investing in other mutual funds. This change enables each fund to invest its cash reserves in specially created money market and short-term bond funds. This new cash management program, which is similar to those of other large mutual fund complexes, should help the funds to achieve greater diversification and to earn modestly higher returns on their cash reserves. The funds will need Securities and Exchange Commission approval before implementing this new cash management program.
BROKER PERCENTAGE VANGUARD FUND FOR AGAINST ABSTAIN NON-VOTES FOR ----------------------------------------------------------------------------------------------------- Total Bond Market Index 13,503,848,905 382,363,805 383,759,231 923,879,187 88.9% Short-Term Bond Index 1,409,754,955 58,533,661 54,540,188 348,092,501 75.4 Intermediate-Term Bond Index 1,678,326,604 64,768,806 96,403,831 77,140,608 87.6 Long-Term Bond Index 476,406,090 21,462,784 9,568,997 16,193,373 91.0 -----------------------------------------------------------------------------------------------------
- Change each fund's policy on borrowing money. This change enables each fund to take advantage of certain investment opportunities that do not involve leverage or a change to the fund's objective or risk profile.
Broker Percentage Vanguard Fund For Against Abstain Non-Votes For ----------------------------------------------------------------------------------------------------- Total Bond Market Index 13,281,614,685 560,585,877 427,771,378 923,879,187 87.4% Short-Term Bond Index 1,381,629,146 80,484,552 60,715,105 348,092,501 73.8 Intermediate-Term Bond Index 1,591,056,802 81,719,455 166,722,983 77,140,608 83.0 Long-Term Bond Index 471,881,453 25,252,000 10,304,418 16,193,373 90.1 -----------------------------------------------------------------------------------------------------
Note: Vote tabulations are rounded to the nearest whole number. 17 FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 STATEMENT OF NET ASSETS This Statement provides a detailed list of each fund's holdings, including each security's market value on the last day of the reporting period. Securities are grouped and subtotaled by bond type (U.S. government and agency issues, corporate bonds, sovereign bonds, etc.); corporate bonds are further classified by industry sector. Other assets are added to, and liabilities are subtracted from, the value of Total Investments to calculate the 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 of each fund, you will find a table displaying the composition of the fund's net assets. Undistributed Net Investment Income is usually zero because the fund distributes its net income to shareholders as a dividend each day. Any realized gains must be distributed annually, so the bulk of net assets consists of Paid-in Capital (money invested by shareholders). The balance shown for Accumulated Net Realized Gains usually approximates the amount available to distribute to shareholders as capital gains as of the statement date, but may differ because certain investments or transactions may be treated differently for financial statement and tax purposes. Any Accumulated Net Realized Losses, and any cumulative excess of distributions over net realized gains, will appear as negative balances. Unrealized Appreciation (Depreciation) is the difference between the value of the 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.
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS (60.0%) ------------------------------------------------------------------------------------------------------------- U.S. Government Securities (14.0%) Private Export Funding Corp. (U.S. Government Guaranteed) 7.20% 1/15/2010 32,875 39,677 U.S. Treasury Bond 11.875% 11/15/2003 236,920 258,563 U.S. Treasury Bond 5.50% 5/15/2009 310,300 352,249 U.S. Treasury Bond 10.375% 11/15/2009 151,320 175,425 U.S. Treasury Bond 10.00% 5/15/2010 12,005 14,227 U.S. Treasury Bond 5.00% 8/15/2011 190,005 208,502 U.S. Treasury Bond 10.625% 8/15/2015 7,725 12,485 U.S. Treasury Bond 7.50% 11/15/2016 22,689 29,710 U.S. Treasury Bond 8.75% 5/15/2017 34,685 50,195 U.S. Treasury Bond 8.875% 8/15/2017 52,740 77,167 U.S. Treasury Bond 8.125% 8/15/2019 150,895 210,366 U.S. Treasury Bond 8.75% 5/15/2020 40,575 59,890 U.S. Treasury Bond 7.875% 2/15/2021 95,452 131,074 U.S. Treasury Bond 8.125% 8/15/2021 180,025 253,520 U.S. Treasury Bond 8.00% 11/15/2021 74,930 104,487 U.S. Treasury Bond 7.25% 8/15/2022 22,333 29,090 U.S. Treasury Bond 7.625% 11/15/2022 120,030 162,407 U.S. Treasury Bond 7.125% 2/15/2023 355 457 U.S. Treasury Bond 7.50% 11/15/2024 26,490 35,755 U.S. Treasury Bond 6.75% 8/15/2026 120,545 150,890 U.S. Treasury Bond 6.625% 2/15/2027 102,495 126,696 U.S. Treasury Bond 6.375% 8/15/2027 23,410 28,145 U.S. Treasury Note 5.50% 5/31/2003 500 509 U.S. Treasury Note 3.00% 1/31/2004 47,800 48,700 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- U.S. Treasury Note 3.00% 2/29/2004 25,750 26,266 U.S. Treasury Note 3.375% 4/30/2004 336,809 345,957 U.S. Treasury Note 2.125% 8/31/2004 78,075 78,958 U.S. Treasury Note 7.875% 11/15/2004 44,700 49,912 U.S. Treasury Note 6.125% 8/15/2007 4,675 5,377 U.S. Treasury Note 5.625% 5/15/2008 39,875 45,246 U.S. Treasury Note 5.75% 8/15/2010 58,465 67,275 U.S. Treasury Note 5.00% 2/15/2011 253,795 279,098 U.S. Treasury Note 5.375% 2/15/2031 600 654 U.S. Treasury Strips 0.00% 8/15/2005 1,500 1,428 U.S. Treasury Strips 0.00% 11/15/2005 250 237 U.S. Treasury Strips 0.00% 11/15/2008 1,250 1,041 U.S. Treasury Strips 0.00% 11/15/2012 3,208 2,116 U.S. Treasury Strips 0.00% 2/15/2015 22,000 12,620 U.S. Treasury Strips 0.00% 5/15/2017 62,000 30,649 ------------ 3,507,020 ------------ AGENCY BONDS AND NOTES (11.3%) Federal Farm Credit Bank 4.80% 11/6/2003 33,795 34,784 Federal Farm Credit Bank 5.75% 9/1/2005 700 766 Federal Farm Credit Bank 6.12% 1/22/2008 270 271 Federal Home Loan Bank 5.66% 1/13/2003 150 150 Federal Home Loan Bank 4.775% 10/15/2003 500 514 Federal Home Loan Bank 4.875% 4/16/2004 8,400 8,768 Federal Home Loan Bank 3.375% 6/15/2004 203,400 208,857 Federal Home Loan Bank 4.75% 6/28/2004 125 131 Federal Home Loan Bank 4.125% 1/14/2005 1,290 1,349 Federal Home Loan Bank 8.00% 2/15/2005 100 111 Federal Home Loan Bank 5.375% 2/15/2006 1,000 1,091 Federal Home Loan Bank 5.375% 5/15/2006 500 546 Federal Home Loan Bank 6.40% 8/1/2007 500 572 Federal Home Loan Bank 6.50% 8/15/2007 38,810 44,638 Federal Home Loan Bank 5.845% 1/22/2008 680 765 Federal Home Loan Bank 5.865% 9/2/2008 45,070 50,839 Federal Home Loan Bank 5.88% 11/25/2008 15,125 15,640 Federal Home Loan Bank 5.79% 4/27/2009 900 1,012 Federal Home Loan Bank 7.05% 8/19/2009 130 140 Federal Home Loan Bank 7.155% 1/12/2010 130 142 Federal Home Loan Bank 7.625% 5/14/2010 72,450 89,821 Federal Home Loan Bank 6.50% 7/25/2011 80 82 Federal Home Loan Bank 4.50% 11/15/2012 31,100 31,479 Federal Home Loan Bank 6.45% 9/5/2013 100 103 Federal Home Loan Bank 8.00% 1/27/2015 270 271 Federal Home Loan Bank 8.00% 2/25/2015 130 131 Federal Home Loan Bank 8.00% 8/14/2015 100 104 Federal Home Loan Bank 7.00% 7/27/2016 100 100 Federal Home Loan Bank 7.00% 7/27/2016 130 130 Federal Home Loan Bank 6.70% 8/10/2016 270 286 Federal Home Loan Bank 6.65% 12/29/2016 50 52 Federal Home Loan Bank 6.70% 2/13/2017 100 105 Federal Home Loan Bank 6.50% 3/8/2017 100 104 Federal Home Loan Bank 7.00% 4/24/2017 80 81 Federal Home Loan Mortgage Corp. 5.63% 1/10/2003 625 626 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 7.00% 2/15/2003 305 307 Federal Home Loan Mortgage Corp. 6.375% 11/15/2003 195 204 Federal Home Loan Mortgage Corp. 5.375% 1/5/2004 7,600 7,904 Federal Home Loan Mortgage Corp. 5.25% 2/15/2004 2,525 2,633 Federal Home Loan Mortgage Corp. 5.00% 5/15/2004 70,650 73,978 Federal Home Loan Mortgage Corp. 3.75% 6/4/2004 270 272 Federal Home Loan Mortgage Corp. 6.25% 7/15/2004 73,050 78,275 Federal Home Loan Mortgage Corp. 4.50% 8/15/2004 500 523 Federal Home Loan Mortgage Corp. 6.875% 1/15/2005 79,525 87,506 Federal Home Loan Mortgage Corp. 4.50% 4/15/2005 250 252 Federal Home Loan Mortgage Corp. 7.00% 7/15/2005 323,075 362,219 Federal Home Loan Mortgage Corp. 5.25% 1/15/2006 145 157 Federal Home Loan Mortgage Corp. 6.75% 5/30/2006 1,250 1,423 Federal Home Loan Mortgage Corp. 5.75% 4/15/2008 151,300 169,730 Federal Home Loan Mortgage Corp. 5.75% 4/29/2009 315 329 Federal Home Loan Mortgage Corp. 6.625% 9/15/2009 12,350 14,465 Federal Home Loan Mortgage Corp. 7.00% 3/15/2010 98,925 118,466 Federal Home Loan Mortgage Corp. 6.875% 9/15/2010 69,225 82,839 Federal Home Loan Mortgage Corp. 6.00% 6/15/2011 545 615 Federal Home Loan Mortgage Corp. 6.65% 3/18/2013 270 273 Federal Home Loan Mortgage Corp. 6.65% 4/11/2016 130 132 Federal Home Loan Mortgage Corp. 6.105% 10/12/2016 210 219 Federal Home Loan Mortgage Corp. 6.50% 6/27/2017 130 133 Federal Home Loan Mortgage Corp. 6.00% 10/24/2017 80 80 Federal Home Loan Mortgage Corp. 6.75% 3/15/2031 39,600 47,324 Federal National Mortgage Assn. 5.25% 1/15/2003 750 751 Federal National Mortgage Assn. 4.75% 11/14/2003 500 515 Federal National Mortgage Assn. 5.125% 2/13/2004 650 677 Federal National Mortgage Assn. 4.75% 3/15/2004 500 520 Federal National Mortgage Assn. 3.625% 4/15/2004 1,250 1,285 Federal National Mortgage Assn. 3.75% 5/12/2004 330 333 Federal National Mortgage Assn. 5.625% 5/14/2004 950 1,003 Federal National Mortgage Assn. 3.00% 6/15/2004 57,725 58,964 Federal National Mortgage Assn. 6.50% 8/15/2004 74,470 80,265 Federal National Mortgage Assn. 3.50% 9/15/2004 250 258 Federal National Mortgage Assn. 7.125% 2/15/2005 49,580 54,978 Federal National Mortgage Assn. 3.875% 3/15/2005 500 522 Federal National Mortgage Assn. 5.75% 6/15/2005 3,270 3,564 Federal National Mortgage Assn. 7.00% 7/15/2005 176,335 197,700 Federal National Mortgage Assn. 5.80% 2/22/2006 200 221 Federal National Mortgage Assn. 6.375% 8/15/2006 500 564 Federal National Mortgage Assn. 5.25% 4/15/2007 35,560 38,928 Federal National Mortgage Assn. 6.00% 5/15/2008 26,210 29,687 Federal National Mortgage Assn. 6.16% 7/9/2008 500 511 Federal National Mortgage Assn. 5.64% 12/10/2008 25,000 25,832 Federal National Mortgage Assn. 5.80% 1/26/2009 1,000 1,038 Federal National Mortgage Assn. 6.40% 5/14/2009 66,625 70,349 Federal National Mortgage Assn. 6.375% 6/15/2009 2,743 3,170 Federal National Mortgage Assn. 6.625% 9/15/2009 126,815 148,532 Federal National Mortgage Assn. 7.25% 1/15/2010 86,265 104,403 Federal National Mortgage Assn. 7.50% 2/2/2010 450 495 Federal National Mortgage Assn. 6.25% 2/1/2011 14,600 16,329 =============================================================================================================
20
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn. 5.50% 3/15/2011 23,975 26,316 Federal National Mortgage Assn. 5.875% 3/21/2011 582 639 Federal National Mortgage Assn. 6.125% 3/28/2011 310 313 Federal National Mortgage Assn. 6.00% 5/15/2011 32,675 36,945 Federal National Mortgage Assn. 6.25% 7/19/2011 685 724 Federal National Mortgage Assn. 5.50% 10/18/2011 430 447 Federal National Mortgage Assn. 5.375% 11/15/2011 3,950 4,286 Federal National Mortgage Assn. 6.00% 12/21/2011 15 16 Federal National Mortgage Assn. 6.125% 3/15/2012 10,590 12,083 Federal National Mortgage Assn. 4.375% 9/15/2012 8,550 8,582 Federal National Mortgage Assn. 6.44% 1/22/2013 270 271 Federal National Mortgage Assn. 8.20% 3/10/2016 50 67 Federal National Mortgage Assn. 6.10% 10/25/2016 130 136 Federal National Mortgage Assn. 6.78% 12/28/2016 80 88 Federal National Mortgage Assn. 6.63% 1/30/2017 210 211 Federal National Mortgage Assn. 6.625% 3/13/2017 100 101 Federal National Mortgage Assn. 6.50% 4/24/2017 80 87 Federal National Mortgage Assn. 6.76% 4/24/2017 160 162 Federal National Mortgage Assn. 6.25% 6/13/2017 80 81 Federal National Mortgage Assn. 6.61% 6/27/2017 80 82 Federal National Mortgage Assn. 7.00% 2/25/2022 130 131 Federal National Mortgage Assn. 6.25% 5/15/2029 900 1,003 Federal National Mortgage Assn. 7.125% 1/15/2030 805 997 Federal National Mortgage Assn. 7.25% 5/15/2030 156,601 196,559 Federal National Mortgage Assn. 8.00% 6/1/2030 986 1,061 Federal National Mortgage Assn. 8.50% 9/1/2030 19 21 Federal National Mortgage Assn. 6.625% 11/15/2030 40,150 47,157 Federal National Mortgage Assn. 6.00% 8/1/2032 4,879 5,043 Resolution Funding Corp. 8.125% 10/15/2019 550 743 Resolution Funding Corp. 8.875% 7/15/2020 280 406 Resolution Funding Corp. 8.625% 1/15/2030 110 159 Small Business Administration Variable Rate Interest Only Custodial Receipts 2.719% 7/15/2017 5,006 253 Tennessee Valley Auth. 5.375% 11/13/2008 32,075 35,355 Tennessee Valley Auth. 7.125% 5/1/2030 34,650 42,475 ------------ 2,809,213 ------------ MORTGAGE-BACKED SECURITIES (34.7%)(2) Federal Home Loan Mortgage Corp. 4.50% 1/27/2008(1) 4,000 4,102 Federal Home Loan Mortgage Corp. 5.00% 6/1/2007-1/1/2025(1) 132,570 136,109 Federal Home Loan Mortgage Corp. 5.50% 12/1/2005-11/1/2032(1) 323,156 333,928 Federal Home Loan Mortgage Corp. 6.00% 1/1/2003-12/1/2032(1) 1,009,514 1,049,663 Federal Home Loan Mortgage Corp. 6.50% 2/1/2003-8/1/2032(1) 1,046,380 1,094,240 Federal Home Loan Mortgage Corp. 7.00% 7/1/2003-6/1/2032(1) 510,174 537,841 Federal Home Loan Mortgage Corp. 7.50% 8/1/2003-2/1/2032(1) 121,518 129,550 Federal Home Loan Mortgage Corp. 8.00% 6/1/2003-1/1/2032(1) 76,636 82,557 Federal Home Loan Mortgage Corp. 8.50% 1/1/2005-11/1/2030(1) 10,493 11,381 Federal Home Loan Mortgage Corp. 9.00% 11/1/2005-4/1/2031(1) 7,425 8,091 Federal Home Loan Mortgage Corp. 9.50% 4/1/2016-6/1/2025(1) 1,871 2,062 Federal Home Loan Mortgage Corp. 10.00% 7/1/2009-4/1/2025(1) 322 359 Federal Home Loan Mortgage Corp. 10.50% 11/1/2003-12/1/2015(1) 10 11 Federal Housing Administration 7.43% 10/1/2020(1) 283 317 Federal National Mortgage Assn. 4.50% 1/1/2025(1) 4,500 4,586 =============================================================================================================
21
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn. 5.00% 3/1/2006-1/1/2018(1) 116,662 119,628 Federal National Mortgage Assn. 5.50% 11/1/2008-1/1/2033(1) 411,948 424,476 Federal National Mortgage Assn. 6.00% 3/1/2003-11/1/2032(1) 1,110,756 1,154,788 Federal National Mortgage Assn. 6.50% 3/1/2003-8/1/2032(1) 1,277,253 1,333,392 Federal National Mortgage Assn. 7.00% 5/1/2003-8/1/2032(1) 401,336 422,836 Federal National Mortgage Assn. 7.50% 9/1/2007-3/1/2032(1) 202,910 215,710 Federal National Mortgage Assn. 8.00% 11/1/2006-6/1/2031(1) 46,700 50,300 Federal National Mortgage Assn. 8.50% 4/1/2006-4/1/2031(1) 16,601 17,920 Federal National Mortgage Assn. 9.00% 10/1/2003-8/1/2030(1) 3,222 3,503 Federal National Mortgage Assn. 9.50% 6/1/2005-11/1/2025(1) 3,327 3,653 Federal National Mortgage Assn. 10.00% 8/1/2005-6/1/2022(1) 469 516 Federal National Mortgage Assn. 10.50% 6/1/2004-8/1/2020(1) 152 166 Government National Mortgage Assn. 4.25% 6/20/2029(1) 5,602 5,730 Government National Mortgage Assn. 5.00% 1/20/2018(1) 2,500 2,581 Government National Mortgage Assn. 5.50% 2/15/2017-1/22/2033(1) 48,129 49,611 Government National Mortgage Assn. 6.00% 3/1/2009-12/15/2032(1) 288,067 300,927 Government National Mortgage Assn. 6.50% 10/15/2007-8/15/2032(1) 505,103 531,180 Government National Mortgage Assn. 7.00% 11/1/2007-6/15/2032(1) 346,814 368,240 Government National Mortgage Assn. 7.25% 9/15/2025(1) 174 186 Government National Mortgage Assn. 7.50% 2/15/2007-6/15/2032(1) 148,806 159,189 Government National Mortgage Assn. 7.75% 2/15/2030(1) 48 52 Government National Mortgage Assn. 7.90% 2/15/2021(1) 21 23 Government National Mortgage Assn. 8.00% 2/15/2007-12/15/2030(1) 78,615 85,243 Government National Mortgage Assn. 8.50% 5/15/2010-2/15/2031(1) 16,790 18,328 Government National Mortgage Assn. 9.00% 4/15/2005-3/15/2031(1) 25,878 28,526 Government National Mortgage Assn. 9.50% 1/1/2004-9/15/2030(1) 4,376 4,867 Government National Mortgage Assn. 10.00% 9/15/2003-8/15/2025(1) 981 1,102 Government National Mortgage Assn. 10.50% 7/15/2015-1/15/2021(1) 660 748 Government National Mortgage Assn. 11.50% 3/15/2010-11/15/2017(1) 98 111 ------------ 8,698,329 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $14,269,176) 15,014,562 ------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (35.3%) ------------------------------------------------------------------------------------------------------------- ASSET-BACKED/COMMERCIAL MORTGAGE-BACKED SECURITIES--FIXED RATE (4.6%)(2) Bank of America Mortgage Securities 4.654% 7/25/2032(1) 12,113 12,332 Bank One Issuance Trust 2.96% 10/23/2005(1) 42,400 42,851 Bear Stearns Commercial Mortgage Securities Inc. 5.61% 8/15/2011(1) 7,550 8,127 California Infrastructure & Econ. Dev. Bank Special Purpose Trust PG&E-1 6.42% 9/25/2008(1) 47,255 51,562 California Infrastructure & Econ. Dev. Bank Special Purpose Trust SCE-1 6.38% 9/25/2008(1) 43,255 47,136 California Infrastructure & Econ. Dev. Bank Special Purpose Trust SDG&E 6.31% 9/25/2008(1) 7,747 8,430 Capital Auto Receivables Asset Trust 4.16% 7/16/2007(1) 14,975 15,656 Capital One Auto Finance Trust 4.88% 9/15/2008(1) 16,175 17,079 Centex Home Equity Loan Trust 4.64% 8/25/2026(1) 8,400 8,687 Chase Manhattan Auto Owner Trust 4.24% 9/15/2008(1) 22,250 23,275 CIT RV Trust 5.96% 4/15/2011(1) 12,343 12,422 Citibank Credit Card Master Trust 5.50% 2/15/2006(1) 350 365 Citibank Credit Card Master Trust 4.95% 2/9/2009(1) 43,650 46,759 Citibank Credit Card Master Trust 5.875% 3/10/2011(1) 3,200 3,546 =============================================================================================================
22
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- ComEd Transitional Funding Trust 5.63% 6/25/2006(1) 510 556 Commercial Mortgage Lease-Backed Certificate 6.746% 6/20/2031(1)(3) 20,584 22,777 Countrywide Home Loan 4.633% 7/1/2032(1) 17,503 17,744 DaimlerChrysler Auto Trust 2.56% 10/25/2004(1) 55,750 56,242 DaimlerChrysler Auto Trust 3.09% 10/25/2005(1) 16,000 16,211 Discover Card Master Trust I 5.60% 5/16/2006(1) 750 776 Discover Card Master Trust I 6.85% 7/17/2007(1) 250 274 First Union Corp. 6.223% 12/12/2033(1) 12,050 13,348 Ford Credit Auto Owner Trust 7.09% 11/17/2003(1) 31 31 Ford Credit Auto Owner Trust 7.40% 4/15/2005(1) 18,300 18,998 Ford Credit Auto Owner Trust 3.62% 1/15/2006(1) 20,400 20,730 Ford Credit Auto Owner Trust 4.36% 8/15/2006(1) 23,200 24,142 Ford Credit Auto Owner Trust 3.13% 11/15/2006(1) 27,700 28,266 GMAC Capital Auto Receivables Asset Trust 2.64% 11/15/2005(1) 35,000 35,219 Harley-Davidson Motorcycle Trust 4.50% 1/15/2010(1) 12,350 13,015 Honda Auto Receivables Owner Trust 2.19% 9/15/2006(1) 47,250 47,665 Honda Auto Receivables Owner Trust 4.22% 4/15/2007(1) 30,775 32,167 Hyundai Auto Receivables Trust 2.80% 2/15/2007(1)(3) 16,300 16,538 Mach One CDO, Ltd. 6.70% 3/15/2030(1)(3) 4,386 4,825 Marshall & Ilsley Auto Loan Trust 2.49% 10/22/2007(1) 38,200 38,485 Marshall & Ilsley Auto Loan Trust 3.04% 10/20/2008(1) 8,100 8,149 MBNA Master Credit Card Trust 4.95% 6/15/2009(1) 43,950 47,114 Nissan Auto Receivables 4.60% 9/15/2005(1) 26,525 27,881 PECO Energy Transition Trust 5.63% 3/1/2005(1) 17,173 17,287 PECO Energy Transition Trust 5.80% 3/1/2007(1) 8,289 8,816 PECO Energy Transition Trust 6.05% 3/1/2009(1) 14,800 16,344 PP&L Transition Bond Co. LLC 6.96% 12/26/2007(1) 6,900 7,648 PP&L Transition Bond Co. LLC 7.15% 6/25/2009(1) 850 996 PSE&G Transition Funding LLC 6.89% 12/15/2017(1) 19,800 22,925 Residential Asset Securities Corp. 4.988% 2/25/2027(1) 40,150 41,971 Sears Credit Account Master Trust 6.35% 2/16/2007(1) 5,000 5,018 Sears Credit Account Master Trust 6.05% 1/15/2008(1) 9,042 9,274 Standard Credit Card Master Trust 6.55% 10/7/2007(1) 2,850 3,149 Toyota Auto Receivables Owner Trust 2.65% 11/15/2006(1) 22,950 23,228 Toyota Auto Receivables Owner Trust 4.00% 7/15/2008(1) 10,000 10,391 USAA Auto Owner Trust 2.41% 10/16/2006(1) 35,000 35,276 USAA Auto Owner Trust 2.93% 7/16/2007(1) 3,200 3,223 Volkswagen Auto Lease Trust 2.36% 12/20/2005(1) 52,300 52,645 WFS Financial Owner Trust 4.50% 2/20/2010(1) 16,500 17,380 Washington Mutual Mortgage Pass-Through Certificate 5.435% 2/25/2032(1) 16,625 17,052 Washington Mutual Mortgage Pass-Through Certificate 5.55% 3/25/2032(1) 18,925 19,354 Washington Mutual Mortgage Pass-Through Certificate 5.598% 4/25/2032(1) 32,850 33,515 World Omni Master Owner Trust 3.79% 11/20/2005(1) 16,825 17,138 ------------ 1,152,010 ------------ ASSET-BACKED SECURITIES--FLOATING RATE (3.3%) (2) American Express Credit Card Master Trust 1.99% 8/15/2004(1) 46,000 46,043 American Express Credit Card Master Trust 1.56% 12/15/2006(1) 9,400 9,412 Bank of America Credit Card Master Trust 1.53% 3/17/2003(1) 5,000 5,000 Capital One Credit Card Master Trust 1.94% 8/15/2006(1) 24,000 24,017 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- CARCO Auto Loan Master Trust 1.872% 11/15/2005(1) 20,000 19,997 Chase Credit Card Master Trust 1.49% 5/17/2004(1) 50,000 50,024 Chase Credit Card Master Trust 1.52% 7/15/2005(1) 12,500 12,501 Chase Credit Card Master Trust 1.96% 1/15/2006(1) 78,000 78,073 Chase Credit Card Master Trust 1.97% 7/15/2006(1) 30,000 30,025 Chase Credit Card Master Trust 1.58% 9/15/2006(1) 47,500 47,582 Chase Credit Card Master Trust 1.51% 10/15/2006(1) 10,000 10,007 Chase Credit Card Master Trust 1.923% 2/15/2007(1) 5,000 5,004 Discover Card Master Trust I 1.51% 4/15/2004(1) 25,000 25,015 Discover Card Master Trust I 1.60% 12/18/2006(1) 5,000 5,009 Discover Card Master Trust I 1.70% 2/16/2007(1) 29,900 30,011 Discover Card Master Trust I 1.55% 4/16/2007(1) 6,050 6,058 Discover Card Master Trust I 1.46% 7/15/2007(1) 16,500 16,507 First Bankcard Master Credit Card Trust 1.531% 11/15/2006(1) 102,000 102,075 First Chicago Master Trust II 1.57% 6/15/2005(1) 23,000 23,010 First USA Credit Card Master Trust 1.50% 9/10/2006(1) 12,500 12,510 First USA Credit Card Master Trust 1.51% 11/20/2006(1) 2,500 2,501 First USA Credit Card Master Trust 1.98% 12/19/2006(1) 14,810 14,830 Ford Credit Floor Plan Master Owner Trust 1.471% 7/17/2006(1) 12,725 12,732 MBNA Master Credit Card Trust 1.511% 3/15/2006(1) 50,000 50,024 MBNA Master Credit Card Trust 1.55% 2/15/2007(1) 23,800 23,832 Superior Wholesale Inventory Finance Trust 1.892% 3/15/2006(1) 40,000 40,021 Superior Wholesale Inventory Finance Trust 1.545% 5/15/2006(1) 30,000 30,000 Superior Wholesale Inventory Finance Trust 1.50% 6/15/2006(1) 5,500 5,503 Target Credit Card Master Trust 1.49% 7/25/2008(1) 75,000 74,684 Wachovia Credit Card Master Trust 1.57% 8/15/2006(1) 10,000 10,010 World Omni Master Owner Trust 1.55% 2/15/2006(1) 17,315 17,313 ------------ 839,330 ------------ FINANCE (11.8%) BANKING (4.4%) Abbey National Capital Trust I 8.963% 12/29/2049 3,265 3,967 Abbey National PLC 7.95% 10/26/2029 17,715 21,512 Associates Corp. of North America 5.75% 10/15/2003 1,200 1,239 Associates Corp. of North America 5.75% 11/1/2003 990 1,024 BBVA-Bancomer Capital Trust I 10.50% 2/16/2011(3) 29,200 32,412 Bank of America Corp. 7.125% 9/15/2006 3,000 3,407 Bank of America Corp. 8.50% 1/15/2007 5,000 5,982 Bank of America Corp. 5.25% 2/1/2007 20,000 21,503 Bank of America Corp. 7.40% 1/15/2011 35 41 Bank of America Corp. 10.20% 7/15/2015 10,290 14,564 Bank of New York 3.75% 2/15/2008 10,720 10,819 Bank One Corp. 6.50% 2/1/2006 11,055 12,184 Bank One Corp. 6.875% 8/1/2006 9,585 10,805 Bank One Corp. 5.50% 3/26/2007 12,890 13,903 Bank One Corp. 7.875% 8/1/2010 8,905 10,742 BankAmerica Capital II 8.00% 12/15/2026 250 285 BankAmerica Corp. 6.625% 6/15/2004 5,250 5,620 BankAmerica Corp. 7.625% 6/15/2004 1,630 1,757 BankAmerica Corp. 6.625% 10/15/2007 7,500 8,537 Barclays Bank PLC 8.55% 6/15/2011(3) 10,800 12,930 Barclays Bank PLC 7.375% 12/15/2011(3) 13,525 15,174 The Chase Manhattan Corp. 5.75% 4/15/2004 5,975 6,224 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- The Chase Manhattan Corp. 6.00% 11/1/2005 3,665 3,952 The Chase Manhattan Corp. 7.125% 2/1/2007 6,122 6,814 The Chase Manhattan Corp. 6.375% 4/1/2008 75 82 Citicorp 7.125% 6/1/2003 135 138 Citicorp 7.125% 3/15/2004 1,550 1,642 Citicorp 7.00% 7/1/2007 400 453 Citicorp Capital II 8.015% 2/15/2027 1,300 1,434 Citicorp Lease Pass-Through Trust 7.22% 6/15/2005(1)(3) 4,665 5,107 Citicorp Lease Pass-Through Trust 8.04% 12/15/2019(3) 18,025 20,799 Citigroup Inc. 4.125% 6/30/2005 56,000 58,469 Citigroup Inc. 6.75% 12/1/2005 34,900 38,818 Citigroup Inc. 5.50% 8/9/2006 39,000 42,044 Citigroup Inc. 6.20% 3/15/2009 140 151 Citigroup Inc. 7.25% 10/1/2010 9,905 11,398 Citigroup Inc. 5.625% 8/27/2012 7,900 8,314 Commercial Credit Corp. 5.90% 9/1/2003 550 566 Commercial Credit Corp. 6.625% 11/15/2006 2,000 2,220 CoreStates Capital Corp. 9.375% 4/15/2003 1,750 1,787 CoreStates Capital Corp. 6.625% 3/15/2005 5,900 6,436 CoreStates Capital Corp. 8.00% 12/15/2026(3) 13,475 14,852 Credit Suisse First Boston USA Inc. 5.75% 4/15/2007 51,375 54,640 Donaldson Lufkin & Jenrette, Inc. 8.00% 3/1/2005 6,000 6,574 Fifth Third Bancorp 6.75% 7/15/2005 4,500 4,943 First Bank NA 7.55% 6/15/2004 10,000 10,809 First Bank System 7.625% 5/1/2005 5,000 5,610 First Chicago Corp. 7.625% 1/15/2003 2,400 2,404 First Chicago Corp. 6.875% 6/15/2003 5,000 5,114 First Union Corp. 6.625% 7/15/2005 8,063 8,881 First Union Corp. 7.55% 8/18/2005 5,000 5,634 First Union Corp. 7.80% 8/18/2010 10,000 12,154 Fleet Boston Financial Corp. 7.25% 9/15/2005 4,175 4,619 Fleet Boston Financial Corp. 4.875% 12/1/2006 26,150 27,351 Fleet Capital Trust II 7.92% 12/11/2026 3,040 3,257 Fleet Financial Group, Inc. 6.875% 3/1/2003 1,100 1,109 Fleet Financial Group, Inc. 7.125% 4/15/2006 5,700 6,245 Fleet/Norstar Group 8.125% 7/1/2004 4,600 4,988 Golden West Financial 4.125% 8/15/2007 15,000 15,407 HSBC Bank PLC 6.95% 3/15/2011 11,700 13,289 HSBC Holdings PLC 7.50% 7/15/2009 2,500 2,969 ING Capital Funding Trust III 8.439% 12/31/2010 14,925 17,152 J.P. Morgan Chase & Co. 6.50% 8/1/2005 3,625 3,929 J.P. Morgan Chase & Co. 5.625% 8/15/2006 13,125 13,938 J.P. Morgan Chase & Co. 6.875% 1/15/2007 11,000 12,160 J.P. Morgan Chase & Co. 5.25% 5/30/2007 10,685 11,315 Manufacturers & Traders Bank 8.00% 10/1/2010 6,000 7,200 MBNA America Bank NA 5.375% 1/15/2008 1,000 1,021 Marshall & Ilsley Bank 4.125% 9/4/2007 5,000 5,163 Mellon Bank NA 6.75% 6/1/2003 2,775 2,830 Mellon Bank NA 6.50% 8/1/2005 5,300 5,706 Mellon Bank NA 7.375% 5/15/2007 3,500 4,059 Mellon Capital II 7.995% 1/15/2027 6,150 6,853 Mellon Financial Co. 5.75% 11/15/2003 4,400 4,553 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Mercantile Bancorp (Firstar) 7.30% 6/15/2007 2,500 2,899 NB Capital Trust II 7.83% 12/15/2026 5,000 5,500 NB Capital Trust IV 8.25% 4/15/2027 3,400 3,921 National City Corp. 7.20% 5/15/2005 9,200 10,174 National Westminster Bancorp Inc. 9.375% 11/15/2003 1,950 2,080 NationsBank Corp. 6.50% 3/15/2006 1,000 1,104 NationsBank Corp. 6.95% 3/20/2006 3,000 3,354 NationsBank Corp. 7.50% 9/15/2006 2,500 2,871 NationsBank Corp. 6.375% 2/15/2008 1,240 1,388 NationsBank Corp. 7.25% 10/15/2025 1,125 1,307 Norwest Corp. 5.75% 2/1/2003 4,000 4,011 Norwest Corp. 6.65% 10/15/2023 40 43 PNC Funding Corp. 7.00% 9/1/2004 5,500 5,919 PNC Funding Corp. 5.75% 8/1/2006 4,000 4,271 PNC Funding Corp. 6.50% 5/1/2008 500 540 PaineWebber Group, Inc. 7.875% 2/15/2003 2,250 2,265 PaineWebber Group, Inc. 6.375% 5/15/2004 850 902 Regions Financial Corp. 7.00% 3/1/2011 2,500 2,912 Regions Financial Corp. 6.375% 5/15/2012 18,125 20,306 Republic New York Corp. 9.70% 2/1/2009 5,000 6,357 Republic New York Corp. 7.75% 5/15/2009 4,300 5,082 Royal Bank of Scotland PLC 7.648% 9/30/2031 20,295 21,919 Santander Central Hispano SA 7.625% 9/14/2010 325 369 Sanwa Bank Ltd. 7.40% 6/15/2011 1,600 1,569 Standard Chartered Bank 8.00% 5/30/2031(3) 7,675 8,842 Sumitomo Mitsui Banking Corp. 8.00% 6/15/2012 3,765 4,202 SunTrust Banks, Inc. 7.375% 7/1/2006 3,500 3,986 SunTrust Banks, Inc. 6.00% 2/15/2026 4,500 4,907 Suntrust Capital 7.90% 6/15/2027 1,885 2,090 Swiss Bank Corp. 7.25% 9/1/2006 2,500 2,823 Swiss Bank Corp. 7.375% 7/15/2015 1,825 2,190 Swiss Bank Corp. 7.00% 10/15/2015 750 884 Swiss Bank Corp. 7.375% 6/15/2017 1,600 1,920 Synovus Financial Corp. 7.25% 12/15/2005 16,325 17,920 UBS Preferred Funding Trust I 8.622% 10/1/2010 19,925 23,855 UBS Preferred Funding Trust II 7.247% 6/29/2049 4,650 5,216 US Bancorp 6.875% 12/1/2004 22,075 24,118 US Bancorp 8.27% 12/15/2026 3,250 3,574 Union Planters Corp. 7.75% 3/1/2011 28,225 33,027 Wachovia Corp. 6.375% 4/15/2003 110 111 Wachovia Corp. 6.80% 6/1/2005 10,000 11,034 Wachovia Corp. 4.95% 11/1/2006 29,425 31,390 Wachovia Corp. 6.625% 11/15/2006 750 838 Wachovia Corp. 6.25% 8/4/2008 850 949 Wachovia Corp. 7.875% 2/15/2010 5,550 6,647 Washington Mutual Bank 5.50% 1/15/2013 6,000 6,136 Washington Mutual Bank 6.875% 6/15/2011 33,345 37,181 Wells Fargo & Co. 6.125% 11/1/2003 5,000 5,186 Wells Fargo & Co. 6.875% 4/1/2006 5,700 6,329 Wells Fargo & Co. 6.75% 10/1/2006 1,000 1,119 Wells Fargo & Co. 6.85% 7/15/2009 3,000 3,370 Wells Fargo & Co. 6.45% 2/1/2011 2,485 2,798 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- BROKERAGE (2.0%) Bear Stearns & Co., Inc. 6.625% 1/15/2004 2,000 2,095 Bear Stearns & Co., Inc. 7.80% 8/15/2007 8,900 10,354 Bear Stearns & Co., Inc. 4.00% 1/31/2008 10,000 10,141 Bear Stearns & Co., Inc. 5.70% 11/15/2014(1) 16,900 17,304 Dean Witter, Discover & Co. 6.875% 3/1/2003 1,800 1,815 Dean Witter, Discover & Co. 6.75% 10/15/2013 800 892 Fidelity Investments 7.49% 6/15/2019(3) 1,000 1,148 Goldman Sachs Group Inc. 7.625% 8/17/2005 13,900 15,624 Goldman Sachs Group Inc. 6.875% 1/15/2011 20 22 Goldman Sachs Group Inc. 6.60% 1/15/2012 55 61 Goldman Sachs Group Inc. 5.70% 9/1/2012 6,500 6,771 Goldman Sachs Group Inc. 5.50% 5/15/2014 18,150 18,298 Lehman Brothers Holdings Inc. 7.75% 1/15/2005 500 553 Lehman Brothers Holdings Inc. 6.625% 2/5/2006 15,550 17,085 Lehman Brothers Holdings Inc. 6.25% 5/15/2006 86,235 94,307 Lehman Brothers Holdings Inc. 7.625% 6/1/2006 5,000 5,650 Lehman Brothers Holdings Inc. 7.50% 9/1/2006 5,000 5,683 Merrill Lynch & Co., Inc. 6.80% 11/3/2003 6,000 6,257 Merrill Lynch & Co., Inc. 5.88% 1/15/2004 6,925 7,201 Merrill Lynch & Co., Inc. 5.35% 6/15/2004 26,957 28,155 Merrill Lynch & Co., Inc. 7.00% 3/15/2006 300 331 Merrill Lynch & Co., Inc. 4.00% 11/15/2007 4,000 4,047 Merrill Lynch & Co., Inc. 6.875% 11/15/2018 3,150 3,468 Morgan Stanley Dean Witter Discover & Co. 5.625% 1/20/2004 10,400 10,777 Morgan Stanley Dean Witter Discover & Co. 7.75% 6/15/2005 8,300 9,292 Morgan Stanley Dean Witter Discover & Co. 6.10% 4/15/2006 35,575 38,696 Morgan Stanley Dean Witter Discover & Co. 5.80% 4/1/2007 42,975 46,829 Morgan Stanley Dean Witter Discover & Co. 7.00% 10/1/2013 700 797 Morgan Stanley Dean Witter Discover & Co. 7.25% 4/1/2032 6,215 7,058 Salomon Smith Barney Holdings Inc. 5.875% 3/15/2006 25,075 27,092 Salomon Smith Barney Holdings Inc. 7.375% 5/15/2007 500 573 Spear, Leeds & Kellogg, LP 8.25% 8/15/2005(3) 48,050 54,619 Waddell & Reed Financial 7.50% 1/18/2006 40,600 43,776 FINANCE COMPANIES (3.6%) American Express Co. 3.75% 11/20/2007 6,125 6,206 American General Finance Corp. 6.375% 3/1/2003 900 907 American General Finance Corp. 6.20% 3/15/2003 3,100 3,127 Associates Corp. 6.44% 1/15/2004 1,625 1,698 Boeing Capital Corp. 5.75% 2/15/2007 3,000 3,170 Boeing Capital Corp. 6.50% 2/15/2012 21,600 23,058 Boeing Capital Corp. 5.80% 1/15/2013 12,000 12,214 CIT Group Holdings 7.375% 4/2/2007 4,400 4,776 CIT Group Holdings 7.75% 4/2/2012 4,400 4,878 Capital One Bank 6.875% 2/1/2006 15,425 15,117 Countrywide Funding Corp. 6.28% 1/15/2003 2,000 2,002 Countrywide Funding Corp. 7.26% 5/10/2004 2,000 2,127 Countrywide Home Loan 6.45% 2/27/2003 1,000 1,007 Countrywide Home Loan 5.50% 8/1/2006 56,450 59,852 Countrywide Home Loan 5.50% 2/1/2007 1,200 1,273 Countrywide Home Loan 5.625% 5/15/2007 15,645 16,728 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Ford Motor Credit Co. 7.50% 3/15/2005 1,250 1,277 Ford Motor Credit Co. 6.875% 2/1/2006 28,300 28,409 Ford Motor Credit Co. 6.50% 1/25/2007 74,335 73,599 Ford Motor Credit Co. 7.75% 2/15/2007 800 824 Ford Motor Credit Co. 5.80% 1/12/2009 5,000 4,636 Ford Motor Credit Co. 7.375% 10/28/2009 3,850 3,791 Ford Motor Credit Co. 7.25% 10/25/2011 26,000 25,234 General Electric Capital Corp. 5.00% 2/15/2007 1,000 1,060 General Electric Capital Corp. 5.375% 3/15/2007 41,700 44,785 General Electric Capital Corp. 4.625% 9/15/2009 20,500 20,945 General Electric Capital Corp. 8.30% 9/20/2009 275 335 General Electric Capital Corp. 6.125% 2/22/2011 6,000 6,465 General Electric Capital Corp. 5.875% 2/15/2012 90 96 General Electric Capital Corp. 6.75% 3/15/2032 32,845 36,484 General Motors Acceptance Corp. 7.48% 2/28/2003 1,000 1,006 General Motors Acceptance Corp. 5.80% 3/12/2003 28,000 28,120 General Motors Acceptance Corp. 5.25% 5/16/2005 31,950 32,127 General Motors Acceptance Corp. 7.50% 7/15/2005 3,000 3,153 General Motors Acceptance Corp. 6.625% 10/15/2005 900 931 General Motors Acceptance Corp. 6.75% 1/15/2006 4,500 4,656 General Motors Acceptance Corp. 6.125% 9/15/2006 37,600 38,194 General Motors Acceptance Corp. 6.125% 2/1/2007 7,300 7,416 General Motors Acceptance Corp. 7.75% 1/19/2010 5,690 5,967 General Motors Acceptance Corp. 6.875% 9/15/2011 31,715 31,629 General Motors Acceptance Corp. 7.00% 2/1/2012 20,705 20,821 General Motors Acceptance Corp. 6.875% 8/28/2012 15,500 15,348 General Motors Acceptance Corp. 8.00% 11/1/2031 3,800 3,827 Household Finance Corp. 7.25% 7/15/2003 1,000 1,018 Household Finance Corp. 8.00% 5/9/2005 5,000 5,435 Household Finance Corp. 6.50% 1/24/2006 40,000 42,218 Household Finance Corp. 7.20% 7/15/2006 8,325 9,041 Household Finance Corp. 5.75% 1/30/2007 95 99 Household Finance Corp. 7.65% 5/15/2007 3,250 3,617 Household Finance Corp. 5.875% 2/1/2009 360 367 Household Finance Corp. 6.45% 2/1/2009 2,430 2,539 Household Finance Corp. 6.375% 10/15/2011 12,775 13,394 Household Finance Corp. 7.00% 5/15/2012 12,400 13,588 Household Finance Corp. 7.35% 11/26/2032 3,650 3,962 International Lease Finance Corp. 5.625% 6/1/2007 50,750 52,939 John Deere Capital Corp. 7.00% 3/15/2012 8,750 10,156 MBNA America Bank NA 7.75% 9/15/2005 31,650 34,230 Norwest Financial, Inc. 7.20% 5/1/2007 1,005 1,159 Norwest Financial, Inc. 6.25% 12/15/2007 2,000 2,262 Pitney Bowes Credit Corp. 9.25% 6/15/2008 1,500 1,867 SLM Corp. 5.05% 11/14/2014 2,700 2,694 Toyota Motor Credit 5.625% 11/13/2003 3,750 3,878 USA Education Inc. 5.625% 4/10/2007 56,450 61,826 Washington Mutual Finance Corp. 6.25% 5/15/2006 24,775 26,807 INSURANCE (1.2%) ACE Capital Trust II 9.70% 4/1/2030 3,000 3,594 Ace Ltd. 6.00% 4/1/2007 29,600 30,930 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- AIG SunAmerica Global Financing IX 6.90% 3/15/2032(3) 5,410 6,196 Allstate Corp. 5.375% 12/1/2006 9,000 9,702 Allstate Corp. 7.20% 12/1/2009 9,890 11,367 American General Capital II 8.50% 7/1/2030 12,690 15,892 American International Group 2.85% 12/1/2005 13,500 13,572 Fidelity National Financial Inc. 7.30% 8/15/2011 15,500 17,151 John Hancock Global Funding II 5.625% 6/27/2006(3) 26,250 27,802 Jackson National Life Insurance Co. 5.25% 3/15/2007(3) 31,125 32,854 Jackson National Life Insurance Co. 6.125% 5/30/2012(3) 4,950 5,243 Lincoln National Corp. 6.20% 12/15/2011 575 609 Marsh & McLennan Cos. Inc. 6.25% 3/15/2012 8,800 9,735 Metlife Inc. 5.25% 12/1/2006 11,375 12,124 Monumental Global Funding II 6.05% 1/19/2006(3) 26,725 28,991 NAC Re Corp. 7.15% 11/15/2005 1,500 1,661 Nationwide Life Global Funding 5.35% 2/15/2007(3) 23,225 24,507 Principal Life Global Funding I 6.125% 3/1/2006(3) 14,600 15,719 Progressive Corp. 6.625% 3/1/2029 4,600 4,879 Prudential Holdings, LLC 8.695% 12/18/2023(3) 6,500 7,246 Prudential Insurance Co. of America 6.375% 7/23/2006(3) 2,000 2,144 Prudential Insurance Co. of America 8.30% 7/1/2025(3) 4,925 5,515 Reinsurance Group of America 6.75% 12/15/2011 11,500 12,159 St. Paul Cos. Inc. 5.75% 3/15/2007 4,450 4,618 Travelers Property Casualty Corp. 7.75% 4/15/2026 1,000 1,122 REAL ESTATE INVESTMENT TRUSTS (0.6%) Camden Property Trust 7.00% 11/15/2006 6,250 6,799 EOP Operating LP 7.75% 11/15/2007 3,200 3,638 EOP Operating LP 7.875% 7/15/2031 3,850 4,185 Equity Residential Properties Trust 6.95% 3/2/2011 1,500 1,645 Equity Residential Properties Trust 6.625% 3/15/2012 14,150 15,301 First Industrial LP 6.875% 4/15/2012 2,000 2,125 HRPT Properties Trust 6.50% 1/15/2013 6,800 6,967 Health Care Property Investment Inc. 6.45% 6/25/2012 10,425 10,561 Mack-Cali Realty Corp. 7.00% 3/15/2004 5,000 5,229 New Plan Excel Realty Trust 5.875% 6/15/2007 7,125 7,462 Realty Income Corp. 7.75% 5/6/2007 5,000 5,354 Regency Centers LP 6.75% 1/15/2012 8,250 8,876 Security Capital Pacific Trust 8.05% 4/1/2017 4,300 4,737 Simon DeBartolo Group, Inc. 6.75% 7/15/2004 10,000 10,485 Simon DeBartolo Group, Inc. 6.75% 6/15/2005 265 282 Simon Property Group LP 6.375% 11/15/2007 30,200 32,587 Susa Partnership LP 7.00% 12/1/2007 3,950 4,472 Susa Partnership LP 7.50% 12/1/2027 5,025 5,678 Vornado Realty 5.625% 6/15/2007 18,425 18,737 ------------ 2,945,282 ------------ INDUSTRIAL (13.0%) BASIC INDUSTRY (1.1%) Alcoa Inc. 4.25% 8/15/2007 34,850 36,281 Celulosa Arauco Constitution SA 8.625% 8/15/2010 7,350 8,410 Cemex SA de CV 8.625% 7/18/2003(3) 6,025 6,228 Cemex SA de CV 9.625% 10/1/2009 5,000 5,625 Chevron Philips Chemical Co. 5.375% 6/15/2007 15,050 15,827 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Corporacion Nacional del Cobre de Chile (CODELCO) 7.375% 5/1/2009(3) 5,800 6,401 Domtar Inc. 7.875% 10/15/2011 13,200 15,393 Dow Chemical Co. 8.50% 6/8/2010 2,500 3,000 Dow Chemical Co. 6.125% 2/1/2011 9,525 9,836 Dow Chemical Co. 7.375% 11/1/2029 3,400 3,624 Eastman Chemical Co. 6.375% 1/15/2004 10,850 11,308 Eastman Chemical Co. 7.00% 4/15/2012 1,525 1,705 Eastman Chemical Co. 7.60% 2/1/2027 2,838 3,183 International Paper Co. 7.875% 8/1/2006 1,515 1,703 Kennametal Inc. 7.20% 6/15/2012 1,875 1,938 Potash Corp. of Saskatchewan 7.75% 5/31/2011 11,575 13,547 Praxair, Inc. 6.90% 11/1/2006 14,525 16,258 Rohm & Haas Co. 6.95% 7/15/2004 6,750 7,234 Rohm & Haas Co. 7.40% 7/15/2009 495 571 Rohm & Haas Co. 9.80% 4/15/2020(1) 3,894 4,996 Sappi Papier Holding AG 6.75% 6/15/2012(3) 8,690 9,606 Sappi Papier Holding AG 7.50% 6/15/2032(3) 6,300 7,045 Union Carbide Corp. 6.75% 4/1/2003 3,500 3,520 Union Carbide Corp. 7.875% 4/1/2023 4,755 4,822 Union Carbide Corp. 7.75% 10/1/2096 7,250 6,700 Vale Overseas Ltd. 8.625% 3/8/2007 7,750 7,779 Westvaco Corp. 8.20% 1/15/2030 1,175 1,388 Weyerhaeuser Co. 5.50% 3/15/2005 29,010 30,330 Weyerhaeuser Co. 6.125% 3/15/2007 10,000 10,692 Weyerhaeuser Co. 6.75% 3/15/2012 8,650 9,431 Weyerhaeuser Co. 7.375% 3/15/2032 17,555 19,051 CAPITAL GOODS (1.1%) Bae Systems Holdings Inc. 6.40% 12/15/2011(3) 22,775 23,060 The Boeing Co. 8.75% 8/15/2021 1,650 2,040 The Boeing Co. 6.625% 2/15/2038 10,750 10,808 Bombardier Capital Corp. 6.125% 6/29/2006(3) 12,025 10,934 British Aerospace 7.156% 12/15/2011(1)(3) 14,582 15,348 Caterpillar, Inc. 9.00% 4/15/2006 1,600 1,898 Caterpillar, Inc. 5.95% 5/1/2006 3,500 3,825 Caterpillar, Inc. 6.95% 5/1/2042 1,525 1,773 Caterpillar, Inc. 7.375% 3/1/2097 8,300 9,734 CRH Capital Inc. 6.95% 3/15/2012 6,810 7,626 Deere & Co. 8.50% 1/9/2022 260 331 Emerson Electric 4.625% 10/15/2012 4,000 4,003 Goodrich Corp. 6.45% 12/15/2007 1,000 1,019 Hutchison Whampoa International Ltd. 7.00% 2/16/2011(3) 2,250 2,405 Ingersoll-Rand Co. 6.25% 5/15/2006 14,850 16,262 Lafarge Corp. 6.375% 7/15/2005 2,000 2,158 Lockheed Martin Corp. 7.65% 5/1/2016 4,350 5,396 Lockheed Martin Corp. 8.50% 12/1/2029 9,750 13,008 Masco Corp. 6.75% 3/15/2006 22,700 24,752 Masco Corp. 7.75% 8/1/2029 450 535 Noranda Inc. 7.25% 7/15/2012 1,925 1,943 Raytheon Co. 4.50% 11/15/2007 2,000 2,028 Raytheon Co. 6.15% 11/1/2008 2,000 2,165 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Raytheon Co. 5.50% 11/15/2012 3,000 3,047 Raytheon Co. 7.20% 8/15/2027 2,000 2,161 Republic Services Inc. 7.125% 5/15/2009 9,265 10,574 Republic Services Inc. 6.75% 8/15/2011 15,000 16,503 Textron Inc. 6.50% 6/1/2012 9,025 9,878 USA Waste Services 7.125% 10/1/2007 250 275 United Technologies Corp. 4.875% 11/1/2006 29,475 31,310 United Technologies Corp. 8.875% 11/15/2019 4,000 5,366 United Technologies Corp. 6.70% 8/1/2028 492 555 Waste Management, Inc. 6.50% 11/15/2008 14,725 15,696 Waste Management, Inc. 7.75% 5/15/2032(3) 12,400 13,411 COMMUNICATION (3.6%) AT&T Broadband 9.455% 11/15/2022 2,336 2,727 AT&T Corp. 6.50% 11/15/2006 18,365 19,467 AT&T Corp. 7.80% 11/15/2011 6,800 7,386 AT&T Corp. 6.50% 3/15/2013 2,090 2,090 AT&T Corp. 8.00% 11/15/2031 21,375 23,646 AT&T Wireless Services Inc. 7.875% 3/1/2011 11,250 11,250 AT&T Wireless Services Inc. 8.125% 5/1/2012 11,820 11,820 AT&T Wireless Services Inc. 8.75% 3/1/2031 6,920 6,782 Ameritech Capital Funding 7.50% 4/1/2005 4,950 5,479 Bell Atlantic Corp. 7.00% 6/15/2013 4,000 4,535 BellSouth Capital Funding 7.875% 2/15/2030 18,900 23,072 BellSouth Corp. 5.00% 10/15/2006 1,459 1,561 British Telecommunications PLC 7.875% 12/15/2005 34,450 38,800 British Telecommunications PLC 8.875% 12/15/2030 4,710 5,971 Centurytel Inc. 7.875% 8/15/2012(3) 5,800 6,739 China Telecom 7.875% 11/2/2004 32,575 35,526 Cingular Wireless 5.625% 12/15/2006 5,000 5,278 Cingular Wireless 6.50% 12/15/2011 950 1,019 Citizens Communications 8.50% 5/15/2006 2,000 2,127 Citizens Communications 9.25% 5/15/2011 2,050 2,434 Citizens Communications 9.00% 8/15/2031 1,200 1,368 Clear Channel Communications 7.875% 6/15/2005 1,100 1,218 Clear Channel Communications 7.65% 9/15/2010 1,355 1,536 Clear Channel Communications 7.25% 10/15/2027 1,300 1,340 Comcast Cable Communication 6.375% 1/30/2006 23,150 24,277 Comcast Cable Communication 8.375% 5/1/2007 3,000 3,378 Comcast Cable Communication 6.75% 1/30/2011 3,600 3,744 Comcast Cable Communication 8.875% 5/1/2017 2,600 3,045 Cox Communications, Inc. 6.875% 6/15/2005 800 855 Cox Communications, Inc. 7.75% 11/1/2010 6,850 7,765 Cox Enterprises 7.875% 9/15/2010(3) 13,925 15,142 Deutsche Telekom International Finance 8.25% 6/15/2005 3,000 3,280 Deutsche Telekom International Finance 8.50% 6/15/2010 11,475 13,202 Deutsche Telekom International Finance 8.25% 6/15/2030 13,375 15,333 France Telecom 8.70% 3/1/2006 9,500 10,387 France Telecom 10.00% 3/1/2031 16,350 19,803 GTE Corp. 9.10% 6/1/2003 225 232 GTE Corp. 6.36% 4/15/2006 1,045 1,117 GTE Corp. 8.75% 11/1/2021 3,835 4,515 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- GTE Corp. 7.83% 5/1/2023 3,500 3,739 GTE South Inc. 6.125% 6/15/2007 10,625 11,679 Grupo Televisa SA 8.625% 8/8/2005 26,375 29,078 Intel Telecom Satellite 7.625% 4/15/2012(3) 8,900 8,904 Koninklijke KPN NV 8.00% 10/1/2010 16,190 18,972 Koninklijke KPN NV 8.375% 10/1/2030 12,615 15,483 Michigan Bell Telephone Co. 7.50% 2/15/2023 1,610 1,675 New England Telephone & Telegraph Co. 6.875% 10/1/2023 2,815 2,846 New England Telephone & Telegraph Co. 7.875% 11/15/2029 6,050 7,289 New York Telephone Co. 7.25% 2/15/2024 4,900 5,097 News America Holdings Inc. 9.25% 2/1/2013 3,341 4,022 News America Holdings Inc. 8.00% 10/17/2016 9,000 10,202 News America Holdings Inc. 7.75% 1/20/2024 2,000 2,056 News America Holdings Inc. 7.75% 12/1/2045 475 464 News America Holdings Inc. 8.25% 10/17/2096 1,800 1,859 PCCW Hong Kong Capital Ltd. 7.75% 11/15/2011(3) 13,875 14,916 SBC Communications Inc. 6.25% 3/15/2011 5,025 5,508 SBC Communications Inc. 5.875% 8/15/2012 7,500 8,105 Scholastic Corp. 5.75% 1/15/2007 9,600 10,109 Southwestern Bell Telephone Co. 6.625% 7/15/2007 4,500 5,047 Southwestern Bell Telephone Co. 7.625% 3/1/2023 8,355 8,788 Southwestern Bell Telephone Co. 7.25% 7/15/2025 10,475 11,033 Sprint Capital Corp. 7.90% 3/15/2005 16,750 17,001 Sprint Capital Corp. 6.00% 1/15/2007 12,800 12,096 Sprint Capital Corp. 8.75% 3/15/2032 25,825 24,663 TCI Communications Inc. 8.65% 9/15/2004 5,000 5,225 TCI Communications Inc. 7.875% 8/1/2013 13,950 15,215 TCI Communications Inc. 8.75% 8/1/2015 17,495 20,321 TCI Communications Inc. 9.875% 6/15/2022 500 592 TPSA Finance BV 7.75% 12/10/2008(3) 8,250 8,224 Telecomunicaciones de Puerto Rico 6.65% 5/15/2006 11,475 12,242 Telecomunicaciones de Puerto Rico 6.80% 5/15/2009 4,100 4,240 Telefonica Europe BV 7.35% 9/15/2005 6,975 7,681 Telefonica Europe BV 7.75% 9/15/2010 5,000 5,777 Telefonos de Mexico SA 8.25% 1/26/2006 44,700 48,946 Thomson Corp. 5.75% 2/1/2008 13,400 14,386 USA Interactive 7.00% 1/15/2013(3) 12,300 12,732 Verizon Global Funding Corp. 6.75% 12/1/2005 20,875 23,069 Verizon Global Funding Corp. 7.375% 9/1/2012 5,500 6,324 Verizon New Jersey Inc. 5.875% 1/17/2012 21,825 23,012 Verizon New York Inc. 6.875% 4/1/2012 16,325 18,290 Verizon New York Inc. 7.375% 4/1/2032 12,325 13,666 Verizon Pennsylvania Inc. 5.65% 11/15/2011 11,325 11,670 Verizon Wireless Inc. 5.375% 12/15/2006 22,600 23,612 Vodafone AirTouch PLC 7.625% 2/15/2005 32,475 35,978 Vodafone AirTouch PLC 7.875% 2/15/2030 4,875 5,877 CONSUMER CYCLICAL (2.0%) AOL Time Warner Inc. 5.625% 5/1/2005 29,225 29,954 AOL Time Warner Inc. 6.125% 4/15/2006 10,900 11,220 AOL Time Warner Inc. 6.15% 5/1/2007 31,700 32,871 AOL Time Warner Inc. 6.75% 4/15/2011 3,775 3,916 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- AT&T Corp.-Liberty Media Corp. 7.875% 7/15/2009 3,000 3,276 Arvinmeritor Inc. 6.80% 2/15/2009 1,500 1,440 Auburn Hills Trust 12.375% 5/1/2020 670 1,018 CVS Corp. 5.50% 2/15/2004 4,150 4,294 Cendant Corp. 6.875% 8/15/2006 12,560 12,874 Chrysler Corp. 7.45% 3/1/2027 4,000 4,338 Costco Wholesale Corp. 5.50% 3/15/2007 11,950 12,897 DaimlerChrysler North America Holding Corp. 7.40% 1/20/2005 4,250 4,618 DaimlerChrysler North America Holding Corp. 7.375% 9/15/2006 1,750 1,953 DaimlerChrysler North America Holding Corp. 7.75% 1/18/2011 5,085 5,804 DaimlerChrysler North America Holding Corp. 7.30% 1/15/2012 10,000 11,218 DaimlerChrysler North America Holding Corp. 8.50% 1/18/2031 13,035 15,917 Dayton Hudson Corp. 6.75% 1/1/2028 1,000 1,092 Dayton Hudson Corp. 6.65% 8/1/2028 5,250 5,668 The Walt Disney Co. 5.50% 12/29/2006 2,925 3,109 The Walt Disney Co. 5.375% 6/1/2007 17,496 18,543 The Walt Disney Co. 6.375% 3/1/2012 3,000 3,289 Ford Capital BV 9.50% 6/1/2010 600 614 Ford Motor Co. 6.375% 2/1/2029 16,750 12,849 Ford Motor Co. 7.45% 7/16/2031 11,775 10,248 Ford Motor Co. 9.98% 2/15/2047 4,125 4,205 General Motors Corp. 7.20% 1/15/2011 5,000 5,010 General Motors Corp. 6.75% 5/1/2028 1,075 942 Harrahs Operating Co. Inc. 7.125% 6/1/2007 15,325 16,894 Harrahs Operating Co. Inc. 7.50% 1/15/2009 2,335 2,660 Kohl's Corp. 6.00% 1/15/2033 10,000 10,046 Liberty Media Corp. 7.75% 7/15/2009 8,500 9,226 Liberty Media Corp. 8.25% 2/1/2030 14,950 15,994 Lowe's Companies, Inc. 6.50% 3/15/2029 2,726 2,929 May Department Stores Co. 7.625% 8/15/2013 950 1,119 May Department Stores Co. 7.45% 10/15/2016 2,000 2,363 May Department Stores Co. 9.75% 2/15/2021 999 1,317 McDonald's Corp. 6.00% 4/15/2011 3,410 3,695 Pulte Homes Inc. 7.875% 6/15/2032 13,825 14,129 Safeway, Inc. 5.80% 8/15/2012 1,000 1,047 Safeway, Inc. 7.25% 2/1/2031 5,000 5,611 Sears Roebuck Acceptance Corp. 7.00% 2/1/2011 4,500 4,309 Sears Roebuck Acceptance Corp. 7.00% 6/15/2007 3,850 3,901 Sears Roebuck Acceptance Corp. 6.70% 4/15/2012 2,000 1,880 Sears Roebuck Acceptance Corp. 7.00% 6/1/2032 3,350 2,846 Target Corp. 5.40% 10/1/2008 1,000 1,075 Target Corp. 7.00% 7/15/2031 18,250 20,578 Time Warner Entertainment 8.375% 3/15/2023 8,190 9,079 Time Warner Entertainment 8.375% 7/15/2033 1,685 1,875 Time Warner Inc. 7.75% 6/15/2005 1,580 1,681 Time Warner Inc. 8.18% 8/15/2007 2,000 2,200 Time Warner Inc. 9.125% 1/15/2013 1,000 1,150 Time Warner Inc. 7.57% 2/1/2024 1,500 1,474 Viacom Inc. 7.75% 6/1/2005 24,825 27,828 Viacom Inc. 6.40% 1/30/2006 4,150 4,551 Viacom Inc. 7.70% 7/30/2010 5,000 5,940 Viacom Inc. 6.625% 5/15/2011 1,000 1,131 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Viacom Inc. 5.625% 8/15/2012 6,500 6,942 Viacom Inc. 7.875% 7/30/2030 1,085 1,351 Wal-Mart Stores, Inc. 6.55% 8/10/2004 750 806 Wal-Mart Stores, Inc. 6.875% 8/10/2009 75 88 Wal-Mart Stores, Inc. 7.55% 2/15/2030 27,200 34,168 Wal-Mart Stores, Inc. Canada 5.58% 5/1/2006(3) 42,200 45,942 Wendy's International, Inc. 6.20% 6/15/2014 4,675 5,153 CONSUMER NONCYCLICAL (2.0%) Anheuser-Busch Cos., Inc. 7.10% 6/15/2007(1) 7,050 7,579 Anheuser-Busch Cos., Inc. 7.50% 3/15/2012 750 916 Anheuser-Busch Cos., Inc. 7.125% 7/1/2017 2,800 3,243 Anheuser-Busch Cos., Inc. 7.375% 7/1/2023 800 856 Anheuser-Busch Cos., Inc. 6.75% 12/15/2027 1,600 1,828 Anheuser-Busch Cos., Inc. 7.55% 10/1/2030 6,500 8,181 Anheuser-Busch Cos., Inc. 6.80% 1/15/2031 3,000 3,485 Archer-Daniels-Midland Co. 6.25% 5/15/2003 1,370 1,392 Bottling Group PLC 4.625% 11/15/2012(3) 31,000 30,950 Bristol-Myers Squibb 5.75% 10/1/2011 2,550 2,683 C.R. Bard, Inc. 6.70% 12/1/2026 12,525 13,748 Campbell Soup Co. 6.75% 2/15/2011 2,600 2,962 Cia. Brasil de Bebidas AmBev 10.50% 12/15/2011 3,530 3,177 Coca-Cola Enterprises, Inc. 6.125% 8/15/2011 7,700 8,558 Conagra Foods, Inc. 7.875% 9/15/2010 8,500 10,215 Conagra Foods, Inc. 8.25% 9/15/2030 2,500 3,240 Diageo PLC 3.50% 11/19/2007 19,050 19,167 General Mills Inc. 5.125% 2/15/2007 26,750 28,397 General Mills Inc. 6.00% 2/15/2012 90 98 Grand Metropolitan Investment Corp. 9.00% 8/15/2011 1,825 2,388 HCA Inc. 6.95% 5/1/2012 12,750 13,543 Healthcare Services 7.75% 6/15/2011(3) 10,000 11,030 International Flavors & Fragrances 6.45% 5/15/2006 12,400 13,472 Kellogg Co. 6.00% 4/1/2006 28,650 31,112 Kellogg Co. 7.45% 4/1/2031 7,715 9,379 Kraft Foods Inc. 4.625% 11/1/2006 17,475 18,420 Kraft Foods Inc. 5.625% 11/1/2011 14,930 15,956 Kraft Foods Inc. 6.50% 11/1/2031 29,000 31,932 Kroger Co. 8.15% 7/15/2006 4,700 5,330 Kroger Co. 7.625% 9/15/2006 3,900 4,376 Kroger Co. 7.25% 6/1/2009 4,225 4,816 Kroger Co. 7.70% 6/1/2029 9,825 11,053 Kroger Co. 8.00% 9/15/2029 300 352 McKesson Corp. 7.75% 2/1/2012 6,210 7,118 Fred Meyer, Inc. 7.375% 3/1/2005 14,000 15,267 Newell Rubbermaid Inc. 6.00% 3/15/2007 12,875 13,935 Newell Rubbermaid Inc. 6.75% 3/15/2012 7,100 7,827 Pharmacia Corp. 5.75% 12/1/2005 16,115 17,586 Pharmacia Corp. 6.60% 12/1/2028 2,750 3,109 Philip Morris Cos., Inc. 8.25% 10/15/2003 1,900 1,985 Philip Morris Cos., Inc. 7.00% 7/15/2005 5,650 6,111 Philip Morris Cos., Inc. 7.20% 2/1/2007 950 1,054 Procter & Gamble Co. ESOP 9.36% 1/1/2021 15,600 21,559 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Quest Diagnostic Inc. 6.75% 7/12/2006 15,005 16,294 Quest Diagnostic Inc. 7.50% 7/12/2011 9,860 11,262 RJ Reynolds Tobacco Holdings Inc. 6.50% 6/1/2007 12,600 13,095 Safeway, Inc. 6.85% 9/15/2004 18,125 19,388 Sara Lee Corp. 6.125% 11/1/2032 8,625 9,077 United Health Group Inc. 5.20% 1/17/2007 4,600 4,856 Wellpoint Health Network 6.375% 1/15/2012 11,715 12,860 ENERGY (1.4%) Alberta Energy Co. Ltd. 7.375% 11/1/2031 11,550 13,215 Amerada Hess Corp. 5.30% 8/15/2004 4,150 4,329 Amerada Hess Corp. 5.90% 8/15/2006 7,575 8,111 Amerada Hess Corp. 7.30% 8/15/2031 11,100 12,040 Amerada Hess Corp. 7.125% 3/15/2033 13,000 13,824 Amoco Canada Petroleum Co. 6.75% 2/15/2005 145 159 Anadarko Finance Co. 6.75% 5/1/2011 2,500 2,810 Anadarko Finance Co. 7.50% 5/1/2031 4,450 5,295 Burlington Resources Inc. 6.50% 12/1/2011 2,625 2,922 Burlington Resources Inc. 7.40% 12/1/2031 3,025 3,472 CNOOC Finance 6.375% 3/8/2012(3) 5,000 5,362 Conoco Funding Co. 5.45% 10/15/2006 4,000 4,327 Conoco Funding Co. 6.35% 10/15/2011 8,485 9,504 Conoco Inc. 6.35% 4/15/2009 75 85 Devon Financing Corp. 6.875% 9/30/2011 1,010 1,140 Devon Financing Corp. 7.875% 9/30/2031 2,450 2,953 Kerr McGee Corp. 7.875% 9/15/2031 2,750 3,349 LG Caltex Oil Corp. 7.75% 7/25/2011(3) 20,500 23,681 Marathon Oil Corp. 5.375% 6/1/2007 15,925 16,812 Marathon Oil Corp. 6.125% 3/15/2012 11,770 12,490 Marathon Oil Corp. 6.80% 3/15/2032 3,525 3,646 Mobil Corp. 7.625% 2/23/2033 920 981 Occidental Petroleum 7.20% 4/1/2028 5,350 5,965 PF Export Receivables Master Trust 6.60% 12/1/2011(1)(3) 17,225 18,600 PanCanadian Energy Corp. 7.20% 11/1/2031 13,050 14,724 Petronas Capital Ltd. 7.00% 5/22/2012(3) 12,200 13,371 Petronas Capital Ltd. 7.875% 5/22/2022(3) 13,400 14,505 Phillips Petroleum Co. 8.50% 5/25/2005 42,850 48,845 Phillips Petroleum Co. 8.75% 5/25/2010 1,250 1,564 Phillips Petroleum Co. 8.49% 1/1/2023 2,100 2,189 Schlumberger Technology Corp. 6.50% 4/15/2012(3) 8,600 9,571 Suncor Energy Inc. 7.15% 2/1/2032 11,875 12,901 Texaco Capital Corp. 8.25% 10/1/2006 2,800 3,305 Texaco Capital Corp. 8.875% 9/1/2021 130 176 Texaco Capital Corp. 8.625% 4/1/2032 1,575 2,118 Texaco Capital Corp. 7.50% 3/1/2043 850 1,009 Tosco Corp. 7.25% 1/1/2007 1,500 1,707 Tosco Corp. 7.80% 1/1/2027 1,650 2,012 Tosco Corp. 8.125% 2/15/2030 22,500 28,663 Transocean Sedco Forex Inc. 7.50% 4/15/2031 3,000 3,435 Union Oil of California 6.375% 2/1/2004 2,000 2,083 Valero Energy Corp. 6.125% 4/15/2007 8,000 8,254 Valero Energy Corp. 6.875% 4/15/2012 2,075 2,148 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- TECHNOLOGY (0.5%) Applied Materials, Inc. 8.00% 9/1/2004 1,625 1,759 Computer Sciences Corp. 6.75% 6/15/2006 6,775 7,442 First Data Corp. 6.625% 4/1/2003 7,735 7,826 First Data Corp. 4.70% 11/1/2006 11,350 11,985 First Data Corp. 6.375% 12/15/2007 2,600 2,927 First Data Corp. 5.625% 11/1/2011 21,700 23,191 Hewlett-Packard Co. 7.15% 6/15/2005 11,640 12,868 International Business Machines Corp. 4.875% 10/1/2006 4,500 4,800 International Business Machines Corp. 6.45% 8/1/2007 2,500 2,816 International Business Machines Corp. 7.50% 6/15/2013 4,000 4,884 International Business Machines Corp. 7.00% 10/30/2025 100 112 International Business Machines Corp. 7.125% 12/1/2096 16,285 18,166 Motorola Inc. 7.625% 11/15/2010 10,500 10,815 Motorola Inc. 6.50% 11/15/2028 1,200 996 Texas Instruments Inc. 6.125% 2/1/2006 6,200 6,564 TRANSPORTATION (1.2%) American Airlines Inc. Pass-Through Certificates 6.855% 4/15/2009 8,042 7,640 American Airlines Inc. Pass-Through Certificates 7.024% 10/15/2009 5,425 5,099 American Airlines Inc. Pass-Through Certificates 6.817% 5/23/2011 15,300 12,852 Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 5,750 6,321 Burlington Northern Santa Fe Corp. 9.25% 10/1/2006 2,750 3,276 Burlington Northern Santa Fe Corp. 7.875% 4/15/2007 5,000 5,843 Burlington Northern Santa Fe Corp. 6.75% 7/15/2011 3,240 3,698 Burlington Northern Santa Fe Corp. 8.75% 2/25/2022 2,250 2,847 Burlington Northern Santa Fe Corp. 7.00% 12/15/2025 9,350 10,388 Burlington Northern Santa Fe Corp. 7.082% 5/13/2029 3,805 4,253 Burlington Northern Santa Fe Corp. 6.53% 7/15/2037 850 871 Burlington Northern Santa Fe Corp. 7.25% 8/1/2097 4,100 4,466 CSX Corp. 9.00% 8/15/2006 2,300 2,691 Canadian National Railway Co. 6.80% 7/15/2018 13,375 14,681 Canadian Pacific Rail 6.25% 10/15/2011 26,975 29,656 Canadian Pacific Rail 7.125% 10/15/2031 2,000 2,336 Continental Airlines, Inc. (Equipment Trust Certificates) 6.648% 3/15/2019 9,388 8,155 Continental Airlines, Inc. Pass-Through Certificates 6.563% 2/15/2012 3,000 3,149 Delta Air Lines, Inc. (Equipment Trust Certificates) 8.54% 1/13/2003(1) 2,689 1,989 Delta Air Lines, Inc. Pass-Through Certificates 7.111% 9/18/2011 17,825 17,647 ERAC USA Finance Co. 7.35% 6/15/2008(3) 16,525 18,357 Hertz Corp. 7.40% 3/1/2011 22,775 21,427 Hertz Corp. 7.625% 6/1/2012 18,165 17,243 Norfolk Southern Corp. 8.375% 5/15/2005 3,800 4,296 Norfolk Southern Corp. 7.70% 5/15/2017 1,500 1,873 Norfolk Southern Corp. 7.90% 5/15/2097 1,425 1,709 NorthWest Airlines, Inc. Pass-Through Certificates 6.841% 4/1/2011 9,400 8,930 Southwest Airlines Co. 6.50% 3/1/2012 8,500 9,001 US Airways Pass-Through Trust 8.11% 2/20/2017 31,700 32,651 Union Pacific Corp. 7.60% 5/1/2005 1,200 1,338 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Union Pacific Corp. 7.25% 11/1/2008 2,200 2,577 Union Pacific Corp. 6.65% 1/15/2011 5,700 6,401 Union Pacific Corp. 6.50% 4/15/2012 75 84 Union Pacific Corp. 7.00% 2/1/2016 950 1,124 Union Pacific Corp. 7.125% 2/1/2028 1,000 1,144 United Air Lines 7.032% 10/1/2010 35,007 27,655 United Air Lines 7.186% 4/1/2011 196 155 OTHER (0.1%) Black & Decker Corp. 7.125% 6/1/2011 500 573 Steelcase Inc. 6.375% 11/15/2006 14,875 15,551 ------------ 3,249,337 ------------ UTILITIES (2.6%) ELECTRIC (1.9%) AEP Resources Inc. 6.50% 12/1/2003(3) 8,225 8,277 Alabama Power 4.70% 12/1/2010 7,925 7,891 Alabama Power 5.50% 10/15/2017 18,125 18,937 American Electric Power 6.125% 5/15/2006 10,050 9,849 Arizona Public Service Co. 7.25% 8/1/2023 1,450 1,491 Cincinnati Gas & Electric Co. 6.45% 2/15/2004 2,000 2,068 Commonwealth Edison 6.15% 3/15/2012 6,000 6,636 Consolidated Edison Inc. 6.625% 12/15/2005 51,025 56,203 Constellation Energy Group Inc. 6.125% 9/1/2009 6,500 6,744 Constellation Energy Group Inc. 7.00% 4/1/2012 2,075 2,180 Constellation Energy Group Inc. 7.60% 4/1/2032 4,875 4,970 Detroit Edison 7.50% 2/1/2005 7,000 7,724 Detroit Edison 5.20% 10/15/2012 5,000 5,188 Detroit Edison 6.35% 10/15/2032 2,525 2,689 Dominion Resources Capital Trust III 8.40% 1/15/2031 4,075 4,240 Duke Capital Corp. 6.75% 2/15/2032 8,675 7,097 Duke Energy Corp. 6.25% 1/15/2012 2,500 2,638 Energy East Corp. 6.75% 6/15/2012 6,000 6,516 FPL Group Capital Inc. 7.625% 9/15/2006 5,000 5,556 Firstenergy Corp. 5.50% 11/15/2006 6,400 6,426 Firstenergy Corp. 6.45% 11/15/2011 1,430 1,419 Firstenergy Corp. 7.375% 11/15/2031 8,945 8,624 Florida Power & Light 6.875% 12/1/2005 18,500 20,563 Georgia Power Co. 5.125% 11/15/2012 6,675 6,799 HQI Transelec Chile SA 7.875% 4/15/2011 21,425 23,696 Israel Electric Corp. Ltd. 7.25% 12/15/2006(3) 200 215 Israel Electric Corp. Ltd. 7.75% 3/1/2009(3) 13,275 13,991 Israel Electric Corp. Ltd. 7.95% 5/30/2011(3) 6,000 6,390 Israel Electric Corp. Ltd. 8.10% 12/15/2096(3) 8,100 6,570 MidAmerican Energy Co. 6.75% 12/30/2031 15,850 16,396 NRG Energy, Inc. 7.50%* 6/15/2007(1) 7,000 1,820 NRG Energy, Inc. 8.625%* 4/1/2031 4,850 1,212 National Rural Utilities Corp. 6.50% 3/1/2007 900 989 National Rural Utilities Corp. 6.20% 2/1/2008 1,200 1,312 National Rural Utilities Corp. 5.75% 12/1/2008 3,500 3,751 National Rural Utilities Corp. 5.75% 8/28/2009 4,250 4,506 National Rural Utilities Corp. 7.25% 3/1/2012 10,500 12,105 Northern States Power Co. 7.125% 7/1/2025 5,000 4,900 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Oncor Electric Delivery 6.375% 1/15/2015(3) 5,075 5,164 Oncor Electric Delivery 7.25% 1/15/2033(3) 6,525 6,616 PECO Energy Co. 5.95% 11/1/2011 4,600 5,023 PPL Energy Supply LLC 6.40% 11/1/2011 25 25 PSEG Power Corp. 6.875% 4/15/2006 13,875 14,135 PSEG Power Corp. 6.95% 6/1/2012 1,100 1,086 PSEG Power Corp. 8.625% 4/15/2031 2,125 2,189 PacifiCorp 6.90% 11/15/2011 20,225 23,110 PacifiCorp 7.70% 11/15/2031 4,000 4,630 Pennsylvania Power & Light Co. 6.50% 4/1/2005 135 147 Pinnacle West Capital Corp. 4.50% 2/9/2004(3) 9,000 9,120 Progress Energy Inc. 6.05% 4/15/2007 1,650 1,756 Progress Energy Inc. 5.85% 10/30/2008 1,000 1,059 Progress Energy Inc. 7.10% 3/1/2011 3,390 3,727 Progress Energy Inc. 7.00% 10/30/2031 6,000 6,279 Public Service Electric & Gas Co. 6.50% 5/1/2004 170 177 Reliant Energy Resources 8.125% 7/15/2005 11,900 10,769 SCANA Corp. 6.25% 2/1/2012 6,900 7,488 South Carolina Electric & Gas Co. 6.625% 2/1/2032 4,000 4,414 Southwestern Electric Power 4.50% 7/1/2005 15,425 15,588 Teco Energy Inc. 7.00% 5/1/2012 6,200 5,084 Texas Utilities Co. 8.75% 11/1/2023 180 187 Union Electric Power Co. 6.75% 5/1/2008 40 45 Virginia Electric & Power Co. 5.375% 2/1/2007 13,000 13,749 Virginia Electric & Power Co. 6.75% 10/1/2023 16,825 16,795 NATURAL GAS (0.7%) Consolidated Natural Gas 5.375% 11/1/2006 19,275 20,634 Consolidated Natural Gas 6.25% 11/1/2011 5,400 5,850 Duke Energy Field Services 7.50% 8/16/2005 11,105 11,627 Duke Energy Field Services 7.875% 8/16/2010 9,100 9,554 Duke Energy Field Services 8.125% 8/16/2030 1,050 1,060 Enron Corp. 7.625%* 9/10/2004 2,000 260 Enron Corp. 6.625%* 11/15/2005 1,375 179 Enron Corp. 7.125%* 5/15/2007 8,646 1,124 Enron Corp. 6.875%* 10/15/2007 8,500 1,105 Enron Corp. 6.75%* 8/1/2009 6,445 838 Enterprise Products 8.25% 3/15/2005 22,400 24,338 Enterprise Products 7.50% 2/1/2011 22,975 24,674 HNG Internorth 9.625%* 3/15/2006 4,680 608 Keyspan Corp. 7.25% 11/15/2005 17,460 19,505 Sempra Energy 6.80% 7/1/2004 4,200 4,310 Sempra Energy 6.95% 12/1/2005 41,050 43,699 Yosemite Security Trust 8.25%* 11/15/2004(3) 31,685 5,386 ------------ 641,691 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost $8,438,118) 8,827,650 ------------------------------------------------------------------------------------------------------------- SOVEREIGN BONDS (U.S. Dollar-Denominated)(3.3%) ------------------------------------------------------------------------------------------------------------- Asia Development Bank 4.875% 2/5/2007 33,600 36,321 European Investment Bank 4.00% 3/15/2005 16,000 16,690 European Investment Bank 5.625% 1/24/2006 29,500 31,902 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Export-Import Bank of Korea 6.375% 2/15/2006 8,077 8,787 Export-Import Bank of Korea 7.10% 3/15/2007 3,250 3,665 Federation of Malaysia 8.75% 6/1/2009 5,000 6,142 Federation of Malaysia 7.50% 7/15/2011 1,500 1,726 Inter-American Development Bank 3.875% 9/27/2004 10,000 10,350 Inter-American Development Bank 6.375% 7/21/2005 20,758 22,995 Inter-American Development Bank 5.375% 1/18/2006 12,500 13,600 Inter-American Development Bank 6.125% 3/8/2006 10,000 11,086 Inter-American Development Bank 6.375% 10/22/2007 2,400 2,750 Inter-American Development Bank 5.375% 11/15/2008 7,400 8,179 Inter-American Development Bank 5.625% 4/16/2009 24,450 27,399 Inter-American Development Bank 8.50% 3/15/2011 2,315 2,968 Inter-American Development Bank 4.375% 9/20/2012 6,000 6,075 International Bank for Reconstruction & Development 4.375% 9/28/2006 5,000 5,320 International Bank for Reconstruction & Development 4.125% 8/12/2009 2,249 2,349 International Bank for Reconstruction & Development 8.875% 3/1/2026 1,250 1,845 KFW International Finance, Inc. 7.625% 2/15/2004 9,650 10,307 KFW International Finance, Inc. 2.50% 10/17/2005 38,400 38,709 Korea Development Bank 7.375% 9/17/2004 6,100 6,601 Korea Development Bank 8.09% 10/6/2004 8,980 9,833 Korea Development Bank 7.25% 5/15/2006 10,768 12,089 Korea Development Bank 5.25% 11/16/2006 7,540 8,007 Korea Electric Power 4.25% 9/12/2007(3) 12,175 12,307 Landwirtschaft Rentenbank 3.375% 11/15/2007 16,100 16,274 Ontario Hydro Electric 7.45% 3/31/2013 2,300 2,869 Pemex Global 6.50% 2/1/2005(3) 19,800 20,963 Pemex Master Trust 7.875% 2/1/2009(3) 25,730 27,905 Pemex Master Trust 8.00% 11/15/2011(3) 9,550 10,292 Pemex Master Trust 7.375% 12/15/2014(3) 8,000 8,328 Pemex Master Trust 8.625% 2/1/2022(3) 5,720 6,017 Petroliam Nasional Bhd. 7.625% 10/15/2026(3) 9,075 9,525 Province of British Columbia 7.00% 1/15/2003 1,550 1,552 Province of Manitoba 6.125% 1/19/2004 6,000 6,282 Province of New Brunswick 3.50% 10/23/2007 19,000 19,266 Province of New Brunswick 6.75% 8/15/2013 210 249 Province of Newfoundland 9.00% 6/1/2019 1,400 1,917 Province of Newfoundland 7.32% 10/13/2023 7,250 8,835 Province of Ontario 7.375% 1/27/2003 915 918 Province of Ontario 5.50% 10/1/2008 28,500 31,544 Province of Ontario 5.125% 7/17/2012 7,500 8,025 Province of Quebec 7.00% 1/30/2007 8,000 9,206 Province of Quebec 5.75% 2/15/2009 9,262 10,301 Province of Quebec 5.00% 7/17/2009 23,100 24,728 Province of Quebec 6.125% 1/22/2011 5,000 5,638 Province of Quebec 7.125% 2/9/2024 1,030 1,224 Province of Quebec 7.50% 9/15/2029 5,810 7,296 Province of Saskatchewan 6.625% 7/15/2003 19,550 20,071 Province of Saskatchewan 8.00% 7/15/2004 15,800 16,939 Province of Saskatchewan 7.125% 3/15/2008 1,200 1,417 =============================================================================================================
39
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* TOTAL BOND MARKET INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Province of Saskatchewan 7.375% 7/15/2013 900 1,121 Republic of Chile 5.625% 7/23/2007 24,795 26,156 Republic of Chile 7.125% 1/11/2012 5,000 5,528 Republic of El Salvador 8.25% 4/10/2032(3) 12,950 12,238 Republic of Finland 7.875% 7/28/2004 8,300 9,093 Republic of Italy 3.625% 9/14/2007 30,750 31,540 Republic of Italy 5.625% 6/15/2012 28,500 31,720 Republic of Korea 8.875% 4/15/2008 10,000 12,360 Republic of Portugal 5.75% 10/8/2003 19,175 19,785 Republic of South Africa 7.375% 4/25/2012 15,175 16,427 Tenaga Nasional 7.50% 1/15/2096(3) 13,225 10,683 United Mexican States 9.875% 1/15/2007 5,150 6,159 United Mexican States 10.375% 2/17/2009 18,500 22,847 United Mexican States 8.375% 1/14/2011 9,817 11,108 United Mexican States 8.30% 8/15/2031 17,500 18,506 United Mexican States Value Recovery Rights -- 6/3/2003 38,725 136 ------------------------------------------------------------------------------------------------------------- TOTAL SOVEREIGN BONDS (Cost $790,159) 830,990 ------------------------------------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (5.6%) ------------------------------------------------------------------------------------------------------------- Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account--Note E 1.21-1.22% 1/2/2003 878,533 878,533 Collateralized by U.S. Government Obligations in a Pooled Cash Account 1.22% 1/2/2003 516,043 516,043 ------------------------------------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $1,394,576) 1,394,576 ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (104.2%) (Cost $24,892,029) 26,067,778 ------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-4.2%) ------------------------------------------------------------------------------------------------------------- Other Assets--Note B 689,461 Payables for Investment Securities Purchased (751,613) Security Lending Collateral Payable to Brokers--Note E (878,533) Other Liabilities (120,652) ------------ (1,061,337) ------------ ------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) $25,006,441 =============================================================================================================
*See Note A in Notes to Financial Statements. *Non-income-producing security--security in default. (1) The average maturity is shorter than the final maturity shown due to scheduled interim principal payments. (2) After giving effect to swap contracts, the fund's investments in asset-backed/commercial mortgage-backed securities and mortgage-backed securities represent 6.8% and 36.0%, respectively, of net assets. See Note C in Notes to Financial Statements. (3) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the aggregate value of these securities was $898,691,000, representing 3.6% of net assets. 40 ================================================================================ AMOUNT (000) -------------------------------------------------------------------------------- AT DECEMBER 31, 2002, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- Paid-in Capital $24,105,930 Undistributed Net Investment Income 5,303 Accumulated Net Realized Losses (285,712) Unrealized Appreciation Investment Securities 1,175,749 Swap Contracts 5,171 -------------------------------------------------------------------------------- NET ASSETS $25,006,441 ================================================================================ Investor Shares--Net Assets Applicable to 1,606,595,875 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $16,675,893 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE--INVESTOR SHARES $10.38 ================================================================================ Admiral Shares--Net Assets Applicable to 173,933,268 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $1,805,366 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE--ADMIRAL SHARES $10.38 ================================================================================ Institutional Shares--Net Assets Applicable to 628,651,717 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $6,525,182 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $10.38 ================================================================================ See Note C in Notes to Financial Statements for the tax-basis components of net assets. 41
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS (57.3%) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES (33.0%) U.S. Treasury Bond 11.875% 11/15/2003 40,050 43,709 U.S. Treasury Note 3.00% 1/31/2004 76,275 77,711 U.S. Treasury Note 3.00% 2/29/2004 45,875 46,795 U.S. Treasury Note 3.375% 4/30/2004 279,750 287,348 U.S. Treasury Note 7.25% 5/15/2004 66,175 71,503 U.S. Treasury Note 7.25% 8/15/2004 9,725 10,638 U.S. Treasury Note 13.75% 8/15/2004 7,775 9,310 U.S. Treasury Note 2.125% 8/31/2004 76,975 77,846 U.S. Treasury Note 7.875% 11/15/2004 160,560 179,283 U.S. Treasury Note 5.75% 11/15/2005 25,025 27,668 U.S. Treasury Note 6.875% 5/15/2006 41,650 47,932 U.S. Treasury Note 7.00% 7/15/2006 39,275 45,543 U.S. Treasury Note 6.50% 10/15/2006 23,900 27,458 U.S. Treasury Note 6.125% 8/15/2007 126,875 145,934 ------------ 1,098,678 ------------ AGENCY BONDS AND NOTES (24.3%) Federal Farm Credit Bank 4.80% 11/6/2003 10,000 10,293 Federal Home Loan Bank 4.875% 4/16/2004 1,100 1,148 Federal Home Loan Bank 3.375% 6/15/2004 44,575 45,771 Federal Home Loan Bank 7.31% 6/16/2004 1,250 1,354 Federal Home Loan Bank 4.625% 4/15/2005 20,000 21,204 Federal Home Loan Bank 5.125% 3/6/2006 100,000 108,412 Federal Home Loan Mortgage Corp. 5.375% 1/5/2004 1,825 1,898 Federal Home Loan Mortgage Corp. 5.00% 1/15/2004 50,500 52,384 Federal Home Loan Mortgage Corp. 5.25% 2/15/2004 6,650 6,933 Federal Home Loan Mortgage Corp. 5.00% 5/15/2004 21,075 22,068 Federal Home Loan Mortgage Corp. 6.25% 7/15/2004 52,500 56,255 Federal Home Loan Mortgage Corp. 6.875% 1/15/2005 7,675 8,445 Federal Home Loan Mortgage Corp. 7.00% 7/15/2005 28,275 31,701 Federal Home Loan Mortgage Corp. 5.50% 7/15/2006 86,800 95,269 Federal National Mortgage Assn. 5.125% 2/13/2004 489 509 Federal National Mortgage Assn. 5.625% 5/14/2004 6,080 6,417 Federal National Mortgage Assn. 3.00% 6/15/2004 13,400 13,688 Federal National Mortgage Assn. 6.50% 8/15/2004 107,215 115,559 Federal National Mortgage Assn. 7.125% 2/15/2005 22,000 24,395 Federal National Mortgage Assn. 7.00% 7/15/2005 136,925 153,515 Federal National Mortgage Assn. 5.50% 2/15/2006 22,000 24,079 Federal National Mortgage Assn. 5.00% 1/15/2007 1,125 1,219 Federal National Mortgage Assn. 6.625% 10/15/2007 5,500 6,365 ------------ 808,881 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $1,868,297) 1,907,559 ------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (34.9%) ------------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES (3.9%) Bank of America Mortgage Securities 4.654% 7/25/2032(1) 1,072 1,091 Bank One Issuance Trust 2.96% 10/23/2005(1) 5,000 5,053 California Infrastructure & Econ. Dev. Bank Special Purpose Trust SCE-1 6.38% 9/25/2008(1) 10,500 11,442 =============================================================================================================
42
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- California Infrastructure & Econ. Dev. Bank Special Purpose Trust PG&E-1 6.42% 9/25/2008(1) 7,400 8,074 California Infrastructure & Econ. Dev. Bank Special Purpose Trust SDG&E 6.31% 9/25/2008(1) 1,000 1,088 Capital Auto Receivables Asset Trust 4.16% 7/16/2007(1) 1,400 1,464 Capital One Auto Finance Trust 4.88% 9/15/2008(1) 1,575 1,663 Centex Home Equity Loan Trust 4.64% 8/25/2026(1) 750 776 Chase Manhattan Auto Owner Trust 4.24% 9/15/2008(1) 3,450 3,609 CIT RV Trust 5.96% 4/15/2011(1) 890 896 Citibank Credit Card Master Trust 5.30% 1/9/2006(1) 400 415 Citibank Credit Card Master Trust 5.50% 2/15/2006(1) 1,000 1,043 Countrywide Home Loan 4.633% 7/1/2032(1) 1,708 1,731 DaimlerChrysler Auto Trust 3.09% 10/25/2005(1) 19,000 19,251 First USA Credit Card Master Trust 5.28% 9/18/2006(1) 245 255 Ford Credit Auto Owner Trust 7.40% 4/15/2005(1) 1,450 1,505 Ford Credit Auto Owner Trust 3.62% 1/15/2006(1) 1,850 1,880 Ford Credit Auto Owner Trust 4.36% 8/15/2006(1) 2,300 2,393 Ford Credit Auto Owner Trust 3.13% 11/15/2006(1) 1,050 1,071 GMAC Capital Auto Receivables Asset Trust 2.64% 11/15/2005(1) 4,100 4,126 Harley-Davidson Motorcycle Trust 4.50% 1/15/2010(1) 2,500 2,635 Honda Auto Receivables Owner Trust 2.19% 9/15/2006(1) 2,800 2,825 Hyundai Auto Receivables Trust 2.80% 2/15/2007(1) (2) 1,900 1,928 MBNA Master Credit Card Trust 5.80% 12/15/2005(1) 300 307 Marshall & Ilsley Auto Loan Trust 2.49% 10/22/2007(1) 4,800 4,836 Marshall & Ilsley Auto Loan Trust 3.04% 10/20/2008(1) 1,000 1,006 Nissan Auto Receivables 4.60% 9/15/2005(1) 5,000 5,256 PECO Energy Transition Trust 5.63% 3/1/2005(1) 1,247 1,256 PECO Energy Transition Trust 5.80% 3/1/2007(1) 2,220 2,361 PECO Energy Transition Trust 6.05% 3/1/2009(1) 9,000 9,939 PP&L Transition Bond Co. LLC 6.96% 12/26/2007(1) 1,000 1,108 Residential Asset Securities Corp. 4.988% 2/25/2027(1) 3,800 3,972 Sears Credit Account Master Trust 6.35% 2/16/2007(1) 417 418 Toyota Auto Receivables Owner Trust 2.65% 11/15/2006(1) 2,800 2,834 Toyota Auto Receivables Owner Trust 4.00% 7/15/2008(1) 950 987 USAA Auto Owner Trust 2.41% 10/16/2006(1) 4,100 4,132 USAA Auto Owner Trust 2.93% 7/16/2007(1) 400 403 Volkswagen Auto Lease Trust 2.36% 12/20/2005(1) 3,150 3,171 WFS Financial Owner Trust 4.50% 2/20/2010(1) 1,550 1,633 Washington Mutual Mortgage Pass-Through Certificate 5.435% 2/25/2032(1) 1,525 1,564 Washington Mutual Mortgage Pass-Through Certificate 5.55% 3/25/2032(1) 1,700 1,739 Washington Mutual Mortgage Pass-Through Certificate 5.598% 4/25/2032(1) 3,200 3,265 World Omni Master Owner Trust 3.79% 11/20/2005(1) 1,225 1,248 ------------ 127,649 ------------ FINANCE (15.8%) BANKING (6.4%) Associates Corp. 7.75% 2/15/2005 4,300 4,760 BBVA-Bancomer Capital Trust I 10.50% 2/16/2011(2) 5,000 5,550 Bank of America Corp. 8.50% 1/15/2007 2,350 2,812 =============================================================================================================
43
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Bank of America Corp. 5.25% 2/1/2007 2,000 2,150 Bank of America Corp. 6.625% 8/1/2007 2,100 2,378 Bank of New York 3.75% 2/15/2008 3,250 3,280 Bank of Nova Scotia 6.875% 5/1/2003 750 762 Bank One Corp. 7.625% 8/1/2005 10,170 11,435 Bank One Corp. 7.60% 5/1/2007 2,000 2,323 Bank One Corp. 4.125% 9/1/2007 4,500 4,623 BankAmerica Corp. 10.00% 2/1/2003 5,600 5,633 BankAmerica Corp. 6.625% 6/15/2004 800 856 BankAmerica Corp. 7.625% 6/15/2004 870 938 BankAmerica Corp. 6.20% 2/15/2006 1,600 1,773 BankAmerica Corp. 7.125% 5/1/2006 3,700 4,171 The Chase Manhattan Corp. 7.625% 1/15/2003 2,000 2,003 The Chase Manhattan Corp. 6.00% 11/1/2005 1,610 1,736 The Chase Manhattan Corp. 7.125% 2/1/2007 1,650 1,836 Citicorp 7.125% 3/15/2004 3,000 3,179 Citicorp 7.625% 5/1/2005 7,500 8,388 Citigroup Inc. 5.80% 3/15/2004 340 355 Citigroup Inc. 4.125% 6/30/2005 8,725 9,110 Commercial Credit Corp. 7.875% 7/15/2004 2,000 2,167 CoreStates Capital Corp. 6.625% 3/15/2005 2,400 2,618 Credit Suisse First Boston USA Inc. 5.75% 4/15/2007 5,075 5,398 Donaldson Lufkin & Jenrette, Inc. 8.00% 3/1/2005 2,500 2,739 First Chicago Corp. 7.625% 1/15/2003 600 601 First Union Corp. 6.625% 7/15/2005 6,000 6,608 First Union Corp. 7.80% 9/16/2006 1,900 2,205 Fleet Boston Financial Corp. 4.875% 12/1/2006 1,575 1,647 Fleet Financial Group, Inc. 7.125% 4/15/2006 1,300 1,424 Fleet/Norstar Group 8.125% 7/1/2004 900 976 Golden West Financial 4.125% 8/15/2007 7,500 7,704 J.P. Morgan Chase & Co. 6.50% 8/1/2005 1,200 1,301 J.P. Morgan Chase & Co. 5.625% 8/15/2006 1,900 2,018 J.P. Morgan Chase & Co. 5.25% 5/30/2007 6,075 6,433 MBNA America Bank NA 5.375% 1/15/2008 2,500 2,552 Marshall & Ilsley Bank 4.125% 9/4/2007 10,000 10,326 Mellon Bank NA 6.75% 6/1/2003 225 229 Mellon Bank NA 6.50% 8/1/2005 3,000 3,230 Mercantile Bancorp (Firstar) 7.30% 6/15/2007 1,000 1,159 National City Corp. 7.20% 5/15/2005 3,375 3,732 NationsBank Corp. 7.50% 9/15/2006 1,500 1,723 PNC Funding Corp. 7.00% 9/1/2004 2,000 2,152 PNC Funding Corp. 5.75% 8/1/2006 10,300 10,999 PaineWebber Group, Inc. 7.875% 2/15/2003 250 252 PaineWebber Group, Inc. 6.375% 5/15/2004 2,500 2,652 SunTrust Banks, Inc. 7.375% 7/1/2006 4,500 5,124 SunTrust Banks, Inc. 7.25% 9/15/2006 1,000 1,142 Swiss Bank Corp. 6.75% 7/15/2005 1,500 1,661 Swiss Bank Corp. 7.25% 9/1/2006 500 565 Synovus Financial Corp. 7.25% 12/15/2005 1,350 1,482 US Bancorp 6.875% 12/1/2004 500 546 US Bancorp 5.10% 7/15/2007 7,500 8,033 Wachovia Corp. 7.45% 7/15/2005 1,500 1,685 =============================================================================================================
44
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Wachovia Corp. 4.95% 11/1/2006 6,500 6,934 Wells Fargo & Co. 6.875% 4/1/2006 1,100 1,221 Wells Fargo & Co. 5.90% 5/21/2006 1,900 2,081 Wells Fargo & Co. 5.125% 2/15/2007 1,850 1,984 Wells Fargo & Co. 4.875% 6/12/2007 11,000 11,685 Wells Fargo & Co. 5.25% 12/1/2007 5,000 5,419 BROKERAGE (2.8%) Bear Stearns & Co., Inc. 6.20% 3/30/2003 3,455 3,491 Bear Stearns & Co., Inc. 7.25% 10/15/2006 2,300 2,590 Bear Stearns & Co., Inc. 5.70% 1/15/2007 1,875 2,024 Bear Stearns & Co., Inc. 7.00% 3/1/2007 5,300 5,943 Bear Stearns & Co., Inc. 7.80% 8/15/2007 1,000 1,163 Dean Witter, Discover & Co. 6.875% 3/1/2003 400 403 Goldman Sachs Group Inc. 7.625% 8/17/2005 3,900 4,384 Lehman Brothers Holdings Inc. 7.75% 1/15/2005 7,350 8,123 Lehman Brothers Holdings Inc. 6.625% 2/5/2006 5,260 5,779 Lehman Brothers Holdings Inc. 6.25% 5/15/2006 4,000 4,374 Merrill Lynch & Co., Inc. 5.88% 1/15/2004 2,500 2,600 Merrill Lynch & Co., Inc. 5.35% 6/15/2004 3,355 3,504 Merrill Lynch & Co., Inc. 6.55% 8/1/2004 100 107 Merrill Lynch & Co., Inc. 8.00% 6/1/2007 1,000 1,171 Merrill Lynch & Co., Inc. 4.00% 11/15/2007 750 759 Morgan Stanley Dean Witter Discover & Co. 5.625% 1/20/2004 1,265 1,311 Morgan Stanley Dean Witter Discover & Co. 6.10% 4/15/2006 1,150 1,251 Morgan Stanley Dean Witter Discover & Co. 5.80% 4/1/2007 13,325 14,520 Salomon Smith Barney Holdings Inc. 6.125% 1/15/2003 125 125 Salomon Smith Barney Holdings Inc. 7.20% 2/1/2004 6,000 6,305 Salomon Smith Barney Holdings Inc. 6.875% 6/15/2005 3,300 3,606 Salomon Smith Barney Holdings Inc. 5.875% 3/15/2006 6,000 6,483 Salomon Smith Barney Holdings Inc. 7.375% 5/15/2007 2,000 2,290 Spear, Leeds & Kellogg, LP 8.25% 8/15/2005(2) 5,500 6,252 Waddell & Reed Financial 7.50% 1/18/2006 3,750 4,043 FINANCE COMPANIES (5.3%) Boeing Capital Corp. 5.75% 2/15/2007 5,000 5,283 CIT Group Inc. 6.50% 2/7/2006 5,300 5,547 CIT Group Inc. 5.75% 9/25/2007 5,000 5,153 Capital One Financial 7.125% 8/1/2008 5,000 4,300 Countrywide Home Loan 7.45% 9/16/2003 4,500 4,676 Countrywide Home Loan 5.625% 5/15/2007 5,500 5,881 Ford Motor Credit Co. 7.50% 1/15/2003 2,525 2,528 Ford Motor Credit Co. 6.625% 6/30/2003 1,500 1,525 Ford Motor Credit Co. 7.75% 3/15/2005 2,500 2,566 Ford Motor Credit Co. 6.875% 2/1/2006 11,800 11,845 Ford Motor Credit Co. 6.50% 1/25/2007 21,500 21,287 General Electric Capital Corp. 6.80% 11/1/2005 9,970 11,079 General Electric Capital Corp. 5.00% 2/15/2007 2,000 2,119 General Electric Capital Corp. 5.375% 3/15/2007 3,900 4,189 General Electric Capital Corp. 8.75% 5/21/2007 2,500 2,997 General Electric Capital Corp. 4.25% 1/15/2008 4,000 4,109 General Electric Capital Corp. 5.875% 2/15/2012 3,500 3,739 =============================================================================================================
45
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- General Motors Acceptance Corp. 8.50% 1/1/2003 6,200 6,199 General Motors Acceptance Corp. 5.875% 1/22/2003 400 401 General Motors Acceptance Corp. 5.80% 3/12/2003 2,950 2,963 General Motors Acceptance Corp. 7.125% 5/1/2003 1,300 1,315 General Motors Acceptance Corp. 5.25% 5/16/2005 4,550 4,575 General Motors Acceptance Corp. 7.50% 7/15/2005 1,000 1,051 General Motors Acceptance Corp. 6.125% 9/15/2006 7,000 7,111 General Motors Acceptance Corp. 6.125% 2/1/2007 4,000 4,063 Heller Financial Inc. 8.00% 6/15/2005 3,605 4,022 Household Finance Corp. 6.50% 1/24/2006 6,000 6,333 Household Finance Corp. 7.20% 7/15/2006 1,250 1,358 Household Finance Corp. 5.75% 1/30/2007 7,325 7,661 International Lease Finance Corp. 5.625% 6/1/2007 6,225 6,494 MBNA America Bank NA 7.75% 9/15/2005 4,750 5,137 Norwest Financial, Inc. 7.00% 1/15/2003 110 110 USA Education Inc. 5.625% 4/10/2007 6,775 7,420 Washington Mutual Finance Corp. 6.25% 5/15/2006 9,075 9,819 INSURANCE (1.1%) Ace Ltd. 6.00% 4/1/2007 2,900 3,030 Allstate Corp. 5.375% 12/1/2006 7,000 7,546 American International Group 2.85% 12/1/2005 5,000 5,027 John Hancock Global Funding II 5.625% 6/27/2006(2) 700 741 Jackson National Life Insurance Co. 5.25% 3/15/2007(2) 2,900 3,061 Metlife Inc. 5.25% 12/1/2006 5,000 5,329 Monumental Global Funding II 6.05% 1/19/2006(2) 3,500 3,797 NAC Re Corp. 7.15% 11/15/2005 2,500 2,768 Nationwide Life Global Funding 5.35% 2/15/2007(2) 4,250 4,485 Principal Life Global Funding I 6.125% 3/1/2006(2) 2,000 2,153 REAL ESTATE INVESTMENT TRUSTS (0.2%) Cabot Industrial Properties LP 7.125% 5/1/2004 430 447 EOP Operating LP 7.75% 11/15/2007 1,300 1,478 New Plan Excel Realty Trust 5.875% 6/15/2007 1,125 1,178 Simon DeBartolo Group, Inc. 6.75% 7/15/2004 4,000 4,194 ------------ 525,148 ------------ INDUSTRIAL (13.3%) BASIC INDUSTRY (0.7%) Cemex SA de CV 8.625% 7/18/2003(2) 2,525 2,610 Champion International 7.10% 9/1/2005 2,000 2,191 Chevron Philips Chemical Co. 5.375% 6/15/2007 2,500 2,629 Eastman Chemical Co. 6.375% 1/15/2004 1,150 1,199 Noranda Inc. 8.125% 6/15/2004 1,000 1,053 Rohm & Haas Co. 6.95% 7/15/2004 4,000 4,287 Union Carbide Corp. 6.75% 4/1/2003 2,000 2,011 Vale Overseas Ltd. 8.625% 3/8/2007 1,350 1,355 Weyerhaeuser Co. 5.50% 3/15/2005 4,550 4,757 CAPITAL GOODS (1.5%) Bombardier Capital Corp. 6.125% 6/29/2006(2) 1,300 1,182 Caterpillar, Inc. 5.95% 5/1/2006 5,000 5,465 Deere & Co. 4.125% 7/15/2005 4,000 4,152 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Goodrich Corp. 6.45% 12/15/2007 3,000 3,057 Hutchison Whampoa Finance Ltd. 6.95% 8/1/2007(2) 10,000 11,149 Lafarge Corp. 6.375% 7/15/2005 4,500 4,856 Masco Corp. 6.75% 3/15/2006 3,500 3,816 Raytheon Co. 6.75% 8/15/2007 1,500 1,661 Raytheon Co. 4.50% 11/15/2007 2,000 2,028 Textron Financial Corp. 5.875% 6/1/2007 5,000 5,310 United Technologies Corp. 4.875% 11/1/2006 8,000 8,498 Waste Management, Inc. 6.50% 11/15/2008 275 293 COMMUNICATION (3.3%) AT&T Corp. 6.50% 11/15/2006 8,000 8,480 AT&T Wireless Services Inc. 7.875% 3/1/2011 2,000 2,000 British Telecommunications PLC 7.875% 12/15/2005 8,750 9,855 BellSouth Corp. 5.00% 10/15/2006 4,650 4,974 China Telecom 7.875% 11/2/2004 6,700 7,307 Citizens Communications 8.50% 5/15/2006 1,000 1,064 Clear Channel Communications 7.875% 6/15/2005 3,700 4,099 Comcast Cable Communication 6.375% 1/30/2006 6,150 6,449 Deutsche Telekom International Finance 8.25% 6/15/2005 6,400 6,998 France Telecom 8.70% 3/1/2006 5,600 6,123 Grupo Televisa SA 8.625% 8/8/2005 3,000 3,308 Lenfest Communications, Inc. 8.375% 11/1/2005 1,550 1,699 Pacific Bell Telephone Co. 7.00% 7/15/2004 3,175 3,395 SBC Communications Inc. 5.75% 5/2/2006 3,000 3,252 Scholastic Corp. 5.75% 1/15/2007 1,700 1,790 Sprint Capital Corp. 7.90% 3/15/2005 6,100 6,192 Telecomunicaciones de Puerto Rico 6.65% 5/15/2006 2,400 2,560 Telefonica Europe BV 7.35% 9/15/2005 1,000 1,101 Telefonos de Mexico SA 8.25% 1/26/2006 1,000 1,095 Verizon Global Funding Corp. 6.75% 12/1/2005 8,000 8,841 Verizon Wireless Inc. 5.375% 12/15/2006 4,950 5,172 Vodafone AirTouch PLC 7.625% 2/15/2005 13,000 14,402 CONSUMER CYCLICAL (2.2%) AOL Time Warner Inc. 6.15% 5/1/2007 3,325 3,448 Cendant Corp. 6.875% 8/15/2006 2,350 2,409 Costco Wholesale Corp. 5.50% 3/15/2007 1,250 1,349 CVS Corp. 5.50% 2/15/2004 7,175 7,424 DaimlerChrysler North America Holding Corp. 7.40% 1/20/2005 8,000 8,693 DaimlerChrysler North America Holding Corp. 6.40% 5/15/2006 4,500 4,868 DaimlerChrysler North America Holding Corp. 7.75% 1/18/2011 200 228 The Walt Disney Co. 6.75% 3/30/2006 3,000 3,284 The Walt Disney Co. 5.375% 6/1/2007 4,000 4,239 General Motors Corp. 7.00% 6/15/2003 2,500 2,529 McDonalds Corp. 3.875% 8/15/2007 12,080 12,358 Sears Roebuck Acceptance Corp. 7.00% 6/15/2007 800 811 Time Warner Inc. 7.75% 6/15/2005 5,400 5,745 Viacom Inc. 7.75% 6/1/2005 2,000 2,242 Viacom Inc. 6.40% 1/30/2006 4,650 5,099 Wal-Mart Stores, Inc. 5.45% 8/1/2006 4,400 4,793 Wal-Mart Stores, Inc. Canada 5.58% 5/1/2006(2) 3,400 3,701 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- CONSUMER NONCYCLICAL (2.0%) Abbott Laboratories 5.625% 7/1/2006 1,200 1,308 Archer-Daniels-Midland Co. 6.25% 5/15/2003 250 254 Conagra Inc. 7.50% 9/15/2005 3,820 4,288 Diageo PLC 3.50% 11/19/2007 4,650 4,679 International Flavors & Fragrances 6.45% 5/15/2006 1,050 1,141 Kellogg Co. 6.00% 4/1/2006 850 923 Kraft Foods Inc. 4.625% 11/1/2006 5,000 5,270 Kroger Co. 8.15% 7/15/2006 500 567 Fred Meyer, Inc. 7.375% 3/1/2005 2,000 2,181 Newell Rubbermaid Inc. 6.00% 3/15/2007 7,000 7,576 Pharmacia Corp. 5.75% 12/1/2005 6,000 6,548 Philip Morris Cos., Inc. 7.00% 7/15/2005 2,200 2,380 Procter & Gamble Co. 4.75% 6/15/2007 2,000 2,143 Quest Diagnostic Inc. 6.75% 7/12/2006 5,000 5,429 RJ Reynolds Tobacco Holdings Inc. 6.50% 6/1/2007 2,275 2,364 Safeway Inc. 6.85% 9/15/2004 3,500 3,744 Safeway Inc. 6.50% 11/15/2008 3,800 4,204 United Health Group Inc. 5.20% 1/17/2007 10,000 10,556 ENERGY (1.6%) Amerada Hess Corp. 5.30% 8/15/2004 8,000 8,344 Burlington Resources 5.60% 12/1/2006 1,300 1,388 Conoco Funding Co. 5.45% 10/15/2006 5,000 5,409 Conoco Inc. 5.90% 4/15/2004 3,500 3,682 Kerr McGee 5.875% 9/15/2006 2,875 3,085 Marathon Oil Corp. 5.375% 6/1/2007 3,575 3,774 Occidental Petroleum 5.875% 1/15/2007 5,000 5,413 Pemex Master Trust 8.50% 2/15/2008 2,000 2,242 Petroliam Nasional Bhd. 8.875% 8/1/2004(2) 8,350 9,162 Phillips Petroleum Co. 8.50% 5/25/2005 9,450 10,772 TECHNOLOGY (0.9%) Applied Materials, Inc. 8.00% 9/1/2004 150 162 First Data Corp. 6.625% 4/1/2003 4,200 4,250 First Data Corp. 4.70% 11/1/2006 7,650 8,078 Hewlett-Packard Co. 7.15% 6/15/2005 6,500 7,186 International Business Machines Corp. 4.875% 10/1/2006 5,000 5,334 Motorola Inc. 6.75% 2/1/2006 2,100 2,153 Texas Instruments Inc. 6.125% 2/1/2006 3,100 3,282 TRANSPORTATION (0.7%) Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 3,000 3,298 Burlington Northern Santa Fe Corp. 7.875% 4/15/2007 8,000 9,349 Illinois Central Railroad Co. 6.75% 5/15/2003 3,000 3,043 Norfolk Southern Corp. 8.375% 5/15/2005 650 735 Union Pacific Corp. 7.60% 5/1/2005 2,000 2,229 Union Pacific Corp. 6.40% 2/1/2006 5,965 6,509 OTHER (0.4%) Black & Decker Corp. 7.50% 4/1/2003 6,900 6,983 Steelcase Inc. 6.375% 11/15/2006 5,000 5,227 ------------ 443,579 ------------ =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- UTILITIES (1.9%) ELECTRIC (1.0%) AEP Resources Inc. 6.50% 12/1/2003(2) 1,000 1,006 Consolidated Edison Inc. 6.375% 4/1/2003 5,000 5,056 Consolidated Edison Inc. 6.625% 12/15/2005 6,000 6,609 Firstenergy Corp. 5.50% 11/15/2006 2,000 2,008 Florida Power & Light 6.875% 12/1/2005 1,650 1,834 National Rural Utilities Corp. 6.50% 3/1/2007 3,600 3,955 PSEG Power Corp. 6.875% 4/15/2006 1,375 1,401 Progress Energy Inc. 6.05% 4/15/2007 2,500 2,661 Reliant Energy Resources 8.125% 7/15/2005 350 317 Southwestern Electric Power 4.50% 7/1/2005 3,000 3,032 Union Electric Power Co. 7.65% 7/15/2003 3,000 3,096 Virginia Electric & Power Co. 5.375% 2/1/2007 2,500 2,644 NATURAL GAS (0.9%) Consolidated Natural Gas 5.375% 11/1/2006 8,000 8,564 Duke Energy Field Services 7.50% 8/16/2005 3,500 3,665 Enron Corp. 9.125%* 4/1/2003 2,000 260 Enron Corp. 7.625%* 9/10/2004 1,000 130 Enterprise Products 8.25% 3/15/2005 6,900 7,497 HNG Internorth 9.625%* 3/15/2006 1,500 195 Keyspan Corp. 7.25% 11/15/2005 1,500 1,676 Sempra Energy 6.80% 7/1/2004 3,500 3,592 Sempra Energy 6.95% 12/1/2005 3,500 3,726 Yosemite Security Trust 8.25%* 11/15/2004(2) 3,225 548 ------------ 63,472 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost $1,117,131) 1,159,848 ------------------------------------------------------------------------------------------------------------- SOVEREIGN BONDS (U.S. Dollar-Denominated)(5.7%) ------------------------------------------------------------------------------------------------------------- Asia Development Bank 4.875% 2/5/2007 7,000 7,567 European Investment Bank 4.00% 3/15/2005 26,000 27,122 Inter-American Development Bank 3.875% 9/27/2004 10,000 10,350 Inter-American Development Bank 6.50% 10/20/2004 1,530 1,656 Inter-American Development Bank 6.625% 3/7/2007 2,375 2,720 Inter-American Development Bank 6.375% 10/22/2007 2,425 2,778 International Bank for Reconstruction & Development 4.375% 9/28/2006 25,000 26,601 KFW International Finance, Inc. 2.50% 10/17/2005 21,000 21,169 Korea Development Bank 8.09% 10/6/2004 1,000 1,095 Korea Development Bank 6.75% 12/1/2005 2,035 2,242 Korea Development Bank 5.25% 11/16/2006 14,130 15,005 Korea Electric Power 6.375% 12/1/2003 310 321 Landwirtschaft Rentenbank 3.375% 11/15/2007 6,200 6,267 Pemex Global 6.50% 2/1/2005(2) 1,500 1,588 Province of Ontario 3.50% 9/17/2007 7,500 7,633 Province of Quebec 7.00% 1/30/2007 6,478 7,454 Province of Saskatchewan 6.625% 7/15/2003 4,500 4,620 Province of Saskatchewan 8.00% 7/15/2004 3,900 4,181 Republic of Chile 5.625% 7/23/2007 8,100 8,545 Republic of Finland 7.875% 7/28/2004 3,500 3,834 Republic of Italy 4.375% 10/25/2006 5,000 5,248 =============================================================================================================
49
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* SHORT-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Republic of Italy 3.625% 9/14/2007 15,000 15,386 United Mexican States 9.875% 1/15/2007 4,700 5,621 United Mexican States Value Recovery Rights -- 6/3/2003 15,384 54 ------------------------------------------------------------------------------------------------------------- TOTAL SOVEREIGN BONDS (Cost $185,452) 189,057 ------------------------------------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (7.7%) ------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS Collateralized by U.S. Government Obligations in a Pooled Cash Account--Note E 1.21-1.22% 1/2/2003 250,957 250,957 Collateralized by U.S. Government Obligations in a Pooled Cash Account 1.22% 1/2/2003 4,943 4,943 ------------------------------------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $255,900) 255,900 ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (105.6%) (Cost $3,426,780) 3,512,364 ------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-5.6%) ------------------------------------------------------------------------------------------------------------- Receivables for Capital Shares Sold 113,275 Other Assets--Note B 50,478 Security Lending Collateral Payable to Brokers--Note E (250,957) Other Liabilities (98,662) ------------ (185,866) ------------ ------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) $3,326,498 =============================================================================================================
*See Note A in Notes to Financial Statements. *Non-income-producing security--security in default. (1) The average maturity is shorter than the final maturity shown due to scheduled interim principal payments. (2) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the aggregate value of these securities was $58,913,000, representing 1.8% of net assets. ================================================================================ AT DECEMBER 31, 2002, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- AMOUNT (000) -------------------------------------------------------------------------------- Paid-in Capital $3,252,425 Undistributed Net Investment Income -- Accumulated Net Realized Losses (11,511) Unrealized Appreciation 85,584 -------------------------------------------------------------------------------- NET ASSETS $3,326,498 ================================================================================ Investor Shares--Net Assets Applicable to 247,333,585 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $2,553,166 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE--INVESTOR SHARES $10.32 ================================================================================ Admiral Shares--Net Assets Applicable to 74,915,262 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $773,332 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE--ADMIRAL SHARES $10.32 ================================================================================ See Note C in Notes to Financial Statements for the tax-basis components of net assets. 50
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS (43.5%) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES (23.3%) Private Export Funding Corp. (U.S. Government Guaranteed) 7.20% 1/15/2010 6,500 7,845 U.S. Treasury Bond 10.375% 11/15/2007 66,075 88,375 U.S. Treasury Bond 5.00% 8/15/2011 95,895 105,230 U.S. Treasury Bond 13.25% 5/15/2014 34,025 53,428 U.S. Treasury Note 3.375% 4/30/2004 10,000 10,272 U.S. Treasury Note 2.125% 8/31/2004 11,875 12,009 U.S. Treasury Note 7.875% 11/15/2004 17,425 19,457 U.S. Treasury Note 6.125% 8/15/2007 7,350 8,454 U.S. Treasury Note 5.625% 5/15/2008 196,920 223,443 U.S. Treasury Note 5.00% 2/15/2011 170,190 187,158 ------------ 715,671 ------------ AGENCY BONDS AND NOTES (20.2%) Federal Home Loan Bank 5.925% 4/9/2008 4,000 4,519 Federal Home Loan Bank 5.865% 9/2/2008 10,000 11,280 Federal Home Loan Bank 5.88% 11/25/2008 5,000 5,170 Federal Home Loan Bank 5.79% 4/27/2009 10,000 11,249 Federal Home Loan Bank 7.625% 5/14/2010 40,250 49,901 Federal Home Loan Mortgage Corp. 5.75% 3/15/2009 47,750 53,595 Federal Home Loan Mortgage Corp. 7.00% 3/15/2010 138,000 165,259 Federal Home Loan Mortgage Corp. 5.75% 1/15/2012 7,575 8,410 Federal Home Loan Mortgage Corp. 5.125% 7/15/2012 10,000 10,643 Federal National Mortgage Assn. 6.19% 7/7/2008 4,325 4,417 Federal National Mortgage Assn. 5.64% 12/10/2008 10,380 10,725 Federal National Mortgage Assn. 6.40% 5/14/2009 5,000 5,279 Federal National Mortgage Assn. 6.625% 9/15/2009 91,600 107,287 Federal National Mortgage Assn. 7.25% 1/15/2010 55,800 67,533 Federal National Mortgage Assn. 7.125% 6/15/2010 7,500 9,044 Federal National Mortgage Assn. 6.25% 2/1/2011 3,350 3,747 Federal National Mortgage Assn. 6.00% 5/15/2011 32,675 36,945 Federal National Mortgage Assn. 5.375% 11/15/2011 2,150 2,333 Federal National Mortgage Assn. 6.125% 3/15/2012 28,460 32,473 Federal National Mortgage Assn. 4.375% 9/15/2012 2,275 2,284 Federal National Mortgage Assn. 6.625% 11/15/2030 500 587 Tennessee Valley Auth. 5.375% 11/13/2008 18,503 20,395 ------------ 623,075 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $1,251,729) 1,338,746 ------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (49.1%) ------------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES (0.1%) Bear Stearns Commercial Mortgage Securities Inc. 5.61% 11/15/2033(1) 2,500 2,691 Mach One CDO, Ltd. 6.70% 3/15/2030(1)(2) 2,384 2,622 ------------ 5,313 ------------ FINANCE (20.1%) BANKING (8.4%) BBVA-Bancomer Capital Trust I 10.50% 2/16/2011(2) 6,000 6,660 Bank of America Corp. 7.80% 2/15/2010 4,400 5,223 Bank of America Corp. 7.40% 1/15/2011 9,150 10,756 Bank of America Corp. 6.25% 4/15/2012 14,150 15,709 =============================================================================================================
51
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Bank One Corp. 6.00% 2/17/2009 5,000 5,368 Bank One Corp. 7.875% 8/1/2010 9,150 11,037 BankBoston NA 6.375% 3/25/2008 12,000 13,211 Barclays Bank PLC 8.55% 6/15/2011(2) 4,050 4,849 The Chase Manhattan Corp. 6.375% 4/1/2008 1,950 2,129 Chemical Bank Corp. 6.125% 11/1/2008 500 538 Citicorp Lease Pass-Through Trust 8.04% 12/15/2019(2) 2,100 2,423 Citigroup Inc. 7.25% 10/1/2010 10,600 12,198 Citigroup Inc. 6.50% 1/18/2011 5,000 5,584 Citigroup Inc. 5.625% 8/27/2012 15,900 16,733 Credit Suisse First Boston USA, Inc. 6.50% 1/15/2012 7,940 8,467 First Union Corp. 7.80% 8/18/2010 15,255 18,541 FirstStar Bank 7.125% 12/1/2009 5,960 6,939 HSBC Holdings PLC 7.50% 7/15/2009 5,840 6,936 ING Capital Funding Trust III 8.439% 12/31/2010 500 575 J.P. Morgan Chase & Co. 5.75% 1/2/2013 6,400 6,509 Manufacturers & Traders Bank 8.00% 10/1/2010 1,650 1,980 Marshall & Ilsley Bank 5.25% 9/4/2012 6,000 6,270 National City Bank 6.25% 3/15/2011 1,500 1,637 North Fork Bancorp 5.875% 8/15/2012 8,000 8,616 Regions Financial Corp. 7.00% 3/1/2011 9,500 11,066 Republic New York Corp. 7.75% 5/15/2009 2,400 2,836 Santander Central Hispano SA 7.625% 9/14/2010 900 1,023 Sanwa Bank Ltd. 7.40% 6/15/2011 3,900 3,825 Sumitomo Mitsui Banking Corp. 8.00% 6/15/2012 800 893 SunTrust Banks, Inc. 6.25% 6/1/2008 2,000 2,247 SunTrust Banks, Inc. 6.375% 4/1/2011 2,080 2,331 Toronto-Dominion Bank 6.50% 8/15/2008 3,000 3,395 UBS Preferred Funding Trust I 8.622% 10/1/2010 4,500 5,388 US Bank NA Minnesota 6.50% 2/1/2008 5,000 5,665 US Bank NA Minnesota 5.70% 12/15/2008 2,000 2,195 US Bank NA Minnesota 6.375% 8/1/2011 3,000 3,370 Union Planters Corp. 7.75% 3/1/2011 6,000 7,021 Washington Mutual Bank 6.875% 6/15/2011 7,300 8,140 Washington Mutual Bank 5.50% 1/15/2013 3,700 3,784 Wells Fargo & Co. 7.55% 6/21/2010 5,000 5,948 Wells Fargo & Co. 6.45% 2/1/2011 5,000 5,630 Wells Fargo & Co. 6.125% 4/18/2012 5,000 5,517 BROKERAGE (2.6%) Bear Stearns & Co., Inc. 7.625% 12/7/2009 1,000 1,160 Bear Stearns & Co., Inc. 5.70% 11/15/2014 7,000 7,167 Goldman Sachs Group Inc. 6.875% 1/15/2011 10,000 11,188 Goldman Sachs Group Inc. 6.60% 1/15/2012 7,000 7,749 Goldman Sachs Group Inc. 5.70% 9/1/2012 10,000 10,417 Goldman Sachs Group Inc. 5.50% 5/15/2014 3,650 3,680 Lehman Brothers Holding Inc. 7.375% 1/15/2007 10,000 11,270 Lehman Brothers Holding Inc. 6.625% 2/15/2008 10,175 11,374 Morgan Stanley Dean Witter Discover & Co. 6.75% 4/15/2011 6,320 7,018 Morgan Stanley Dean Witter Discover & Co. 6.60% 4/1/2012 8,840 9,755 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- FINANCE COMPANIES (6.3%) Boeing Capital Corp. 6.50% 2/15/2012 2,400 2,562 Boeing Capital Corp. 5.80% 1/15/2013 5,000 5,089 Countrywide Home Loan 6.935% 7/16/2007 1,490 1,673 Countrywide Home Loan 6.25% 4/15/2009 7,600 8,394 John Deere Capital Corp. 7.00% 3/15/2012 2,720 3,157 Ford Motor Credit Co. 7.375% 10/28/2009 1,200 1,182 Ford Motor Credit Co. 7.375% 2/1/2011 1,100 1,081 Ford Motor Credit Co. 7.25% 10/25/2011 34,000 32,998 General Electric Capital Corp. 4.625% 9/15/2009 25,000 25,543 General Electric Capital Corp. 7.375% 1/19/2010 6,000 6,896 General Electric Capital Corp. 6.125% 2/22/2011 4,615 4,972 General Electric Capital Corp. 8.125% 5/15/2012 5,638 6,864 General Motors Acceptance Corp. 6.125% 1/22/2008 5,000 5,013 General Motors Acceptance Corp. 7.75% 1/19/2010 9,200 9,648 General Motors Acceptance Corp. 6.875% 9/15/2011 7,500 7,480 General Motors Acceptance Corp. 7.00% 2/1/2012 16,500 16,592 General Motors Acceptance Corp. 6.875% 8/28/2012 9,800 9,704 Household Finance Corp. 7.65% 5/15/2007 1,000 1,113 Household Finance Corp. 6.40% 6/17/2008 9,500 10,129 Household Finance Corp. 6.45% 2/1/2009 70 73 Household Finance Corp. 6.75% 5/15/2011 10,000 10,679 Household Finance Corp. 6.375% 10/15/2011 6,000 6,291 Household Finance Corp. 7.00% 5/15/2012 5,000 5,479 MBNA Corp. 7.50% 3/15/2012 2,400 2,541 SLM Corp. 5.125% 8/27/2012 6,500 6,729 INSURANCE (1.2%) Allstate Corp. 7.20% 12/1/2009 8,000 9,195 Equitable Cos., Inc. 6.50% 4/1/2008 2,000 2,157 Fidelity National Financial Inc. 7.30% 8/15/2011 5,000 5,533 Jackson National Life Insurance Co. 6.125% 5/30/2012(2) 3,975 4,211 Lincoln National Corp. 6.20% 12/15/2011 4,000 4,235 Marsh & McLennan Cos. Inc. 6.25% 3/15/2012 1,900 2,102 Nationwide Financial Services 5.90% 7/1/2012 2,475 2,532 Reinsurance Group of America 6.75% 12/15/2011 6,500 6,872 REAL ESTATE INVESTMENT TRUSTS (1.6%) Camden Property Trust 5.875% 11/30/2012 3,000 3,047 Centerpoint Properties 5.75% 8/15/2009 6,750 6,977 EOP Operating LP 7.00% 7/15/2011 6,000 6,557 Equity Residential Properties Trust 6.95% 3/2/2011 6,500 7,128 Equity Residential Properties Trust 6.625% 3/15/2012 7,000 7,569 First Industrial LP 6.875% 4/15/2012 3,500 3,719 HRPT Properties Trust 6.50% 1/15/2013 2,000 2,049 Health Care Property Investment Inc. 6.45% 6/25/2012 3,025 3,064 Regency Centers LP 6.75% 1/15/2012 1,100 1,183 Shurgard Storage Centers, Inc. 7.75% 2/22/2011 3,650 4,050 Simon Property Group LP 6.375% 11/15/2007 3,900 4,208 ------------ 618,210 ------------ =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- INDUSTRIAL (24.2%) BASIC INDUSTRY (2.0%) Alcoa Inc. 5.375% 1/15/2013 13,000 13,786 Celulosa Arauco Constitution SA 8.625% 8/15/2010 1,750 2,002 Corporacion Nacional del Cobre de Chile (CODELCO) 7.375% 5/1/2009(2) 5,000 5,518 Dow Chemical Co. 6.125% 2/1/2011 10,000 10,327 Eastman Chemical Co. 7.00% 4/15/2012 2,325 2,600 International Paper Co. 7.875% 8/1/2006 35 39 International Paper Co. 6.75% 9/1/2011 3,300 3,678 International Paper Co. 5.85% 10/30/2012(2) 1,900 1,993 MeadWestvaco Corp. 6.85% 4/1/2012 1,000 1,111 Noranda Inc. 7.25% 7/15/2012 1,575 1,589 Potash Corp. of Saskatchewan 7.75% 5/31/2011 2,500 2,926 Sappi Papier Holding AG 6.75% 6/15/2012(2) 2,375 2,625 Weyerhaeuser Co. 6.75% 3/15/2012 12,000 13,083 CAPITAL GOODS (1.6%) Bae Systems Holdings Inc. 6.40% 12/15/2011(2) 1,500 1,519 Bemis Co. Inc. 6.50% 8/15/2008 5,000 5,614 British Aerospace 7.156% 12/15/2011(1)(2) 3,235 3,405 CRH Capital Inc. 6.95% 3/15/2012 2,275 2,548 Caterpillar, Inc. 6.55% 5/1/2011 5,000 5,691 Caterpillar, Inc. 9.375% 8/15/2011 2,000 2,653 Goodrich Corp. 7.625% 12/15/2012 3,000 3,097 Hanson PLC 7.875% 9/27/2010 1,000 1,157 Hutchison Whampoa International Ltd. 7.00% 2/16/2011(2) 1,000 1,069 Kennametal Inc. 7.20% 6/15/2012 1,750 1,809 Lockheed Martin Corp. 7.70% 6/15/2008 3,800 4,531 Masco Corp. 7.125% 8/15/2013 1,050 1,216 Raytheon Co. 6.00% 12/15/2010 1,980 2,073 Raytheon Co. 5.50% 11/15/2012 1,250 1,269 Republic Services Inc. 7.125% 5/15/2009 4,850 5,535 Republic Services Inc. 6.75% 8/15/2011 3,000 3,301 Textron Inc. 6.50% 6/1/2012 2,450 2,682 COMMUNICATION (6.4%) AT&T Corp. 7.80% 11/15/2011 11,600 12,600 AT&T Wireless Services Inc. 7.875% 3/1/2011 16,000 16,000 Ameritech Capital Funding 6.15% 1/15/2008 6,000 6,643 BellSouth Corp. 6.00% 10/15/2011 5,500 6,011 British Telecommunications PLC 8.375% 12/15/2010 6,650 7,978 Centurytel Inc. 7.875% 8/15/2012(2) 3,400 3,951 Cingular Wireless 6.50% 12/15/2011 2,000 2,145 Citizens Communications 9.25% 5/15/2011 2,600 3,087 Clear Channel Communications 7.65% 9/15/2010 6,500 7,368 Comcast Cable Communication 6.75% 1/30/2011 6,000 6,239 Cox Communications, Inc. 7.75% 11/1/2010 1,550 1,757 Cox Communications, Inc. 6.75% 3/15/2011 5,000 5,358 Deutsche Telekom International Finance 8.50% 6/15/2010 10,900 12,540 France Telecom 9.25% 3/1/2011 10,650 12,214 GTE Northwest Inc. 5.55% 10/15/2008 3,000 3,185 Intel Telecom Satellite 7.625% 4/15/2012(2) 3,500 3,502 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Koninklijke KPN NV 8.00% 10/1/2010 7,800 9,140 PCCW Hong Kong Capital Ltd. 7.75% 11/15/2011(2) 2,325 2,499 SBC Communications Inc. 6.25% 3/15/2011 1,200 1,315 SBC Communications Inc. 5.875% 8/15/2012 2,500 2,702 Sprint Capital Corp. 6.00% 1/15/2007 2,000 1,890 Sprint Capital Corp. 6.125% 11/15/2008 4,000 3,680 Sprint Capital Corp. 6.375% 5/1/2009 3,000 2,760 Sprint Capital Corp. 8.375% 3/15/2012 5,000 4,975 TCI Communications Inc. 7.875% 8/1/2013 1,701 1,855 TCI Communications Inc. 8.75% 8/1/2015 3,095 3,595 TPSA Finance BV 7.75% 12/10/2008(2) 1,045 1,042 Telefonica Europe BV 7.75% 9/15/2010 6,500 7,510 Thomson Corp. 5.75% 2/1/2008 1,850 1,986 USA Interactive 7.00% 1/15/2013(2) 3,500 3,623 Verizon Global Funding Corp. 7.375% 9/1/2012 2,500 2,875 Verizon New Jersey Inc. 5.875% 1/17/2012 14,875 15,684 Verizon New York Inc. 6.875% 4/1/2012 2,300 2,577 Verizon Pennsylvania Inc. 5.65% 11/15/2011 8,025 8,270 Vodafone AirTouch PLC 7.75% 2/15/2010 7,860 9,260 CONSUMER CYCLICAL (3.6%) AOL Time Warner Inc. 6.75% 4/15/2011 9,100 9,440 AT&T Corp.-Liberty Media Corp. 7.875% 7/15/2009 2,000 2,184 Arvinmeritor Inc. 6.80% 2/15/2009 2,500 2,400 DaimlerChrysler North America Holding Corp. 7.75% 1/18/2011 7,300 8,332 DaimlerChrysler North America Holding Corp. 7.30% 1/15/2012 6,475 7,263 The Walt Disney Co. 6.375% 3/1/2012 4,114 4,511 Federated Department Stores 6.625% 4/1/2011 3,000 3,280 Ford Capital BV 9.50% 6/1/2010 180 184 Ford Motor Co. 7.25% 10/1/2008 3,700 3,669 Harrahs Operating Co., Inc. 8.00% 2/1/2011 2,200 2,537 Liberty Media Corp. 7.75% 7/15/2009 5,000 5,427 May Department Stores Co. 8.00% 7/15/2012 1,500 1,798 McDonald's Corp. 5.75% 3/1/2012 3,300 3,536 Sears Roebuck Acceptance Corp. 6.75% 8/15/2011 2,400 2,278 Sears Roebuck Acceptance Corp. 6.70% 4/15/2012 5,500 5,169 Target Corp. 5.40% 10/1/2008 19,000 20,421 Time Warner Inc. 7.48% 1/15/2008 2,050 2,186 Viacom Inc. 5.625% 8/15/2012 11,500 12,282 Wal-Mart Stores, Inc. 6.875% 8/10/2009 11,000 12,841 CONSUMER NONCYCLICAL (4.5%) Anheuser-Busch Cos., Inc. 7.50% 3/15/2012 4,600 5,615 Archer-Daniels-Midland Co. 8.875% 4/15/2011 80 102 C.R. Bard, Inc. 6.70% 12/1/2026 2,300 2,525 Bottling Group PLC 4.625% 11/15/2012(2) 6,000 5,990 Bristol-Myers Squibb 5.75% 10/1/2011 5,800 6,102 Campbell Soup Co. 6.75% 2/15/2011 5,000 5,697 Coca-Cola Enterprises, Inc. 6.125% 8/15/2011 3,000 3,334 Conagra Foods, Inc. 7.875% 9/15/2010 9,000 10,816 Eli Lilly & Co. 6.00% 3/15/2012 3,000 3,341 General Mills Inc. 6.00% 2/15/2012 3,000 3,266 Grand Metropolitan Investment Corp. 9.00% 8/15/2011 3,075 4,024 =============================================================================================================
55
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- HCA Inc. 6.95% 5/1/2012 1,000 1,062 Healthcare Services 7.75% 6/15/2011(2) 5,000 5,515 Imperial Tobacco 7.125% 4/1/2009 7,775 8,513 Kellogg Co. 6.60% 4/1/2011 7,500 8,471 Kraft Foods Inc. 5.625% 11/1/2011 13,600 14,534 Kroger Co. 8.15% 7/15/2006 300 340 Kroger Co. 7.65% 4/15/2007 8,080 9,210 Kroger Co. 7.25% 6/1/2009 1,500 1,710 Kroger Co. 8.05% 2/1/2010 1,700 1,966 McKesson Corp. 7.75% 2/1/2012 3,000 3,439 Newell Rubbermaid Inc. 6.75% 3/15/2012 7,000 7,717 Procter & Gamble Co. 8.50% 8/10/2009 1,000 1,272 Quest Diagnostic Inc. 7.50% 7/12/2011 5,000 5,711 RJ Reynolds Tobacco Holdings Inc. 7.25% 6/1/2012 6,000 6,200 Safeway, Inc. 5.80% 8/15/2012 9,000 9,421 Supervalu Inc. 7.50% 5/15/2012 2,500 2,544 Wellpoint Health Network 6.375% 1/15/2012 1,300 1,427 ENERGY (3.4%) Amerada Hess Corp. 6.65% 8/15/2011 7,000 7,664 Anadarko Finance Co. 6.75% 5/1/2011 1,600 1,798 Apache Corp. 6.25% 4/15/2012 5,500 6,172 Ashland Inc. 6.86% 5/1/2009 4,000 4,401 Baker Hughes Inc. 6.25% 1/15/2009 2,300 2,563 Burlington Resources Inc. 6.50% 12/1/2011 1,500 1,670 CNOOC Finance 6.375% 3/8/2012(2) 5,000 5,362 Conoco Funding Co. 6.35% 10/15/2011 5,800 6,497 Conoco Inc. 6.35% 4/15/2009 2,700 3,042 Devon Financing Corp. 6.875% 9/30/2011 7,000 7,900 Emerson Electric 4.625% 10/15/2012 7,000 7,005 Kerr McGee Corp. 7.00% 11/1/2011 1,230 1,245 LG Caltex Oil Corp. 7.75% 7/25/2011(2) 2,500 2,888 Marathon Oil Corp. 6.125% 3/15/2012 2,300 2,441 Occidental Petroleum 6.75% 1/15/2012 8,000 9,028 Petronas Capital Ltd. 7.00% 5/22/2012(2) 7,075 7,754 PF Export Receivables Master Trust 6.60% 12/1/2011(1)(2) 5,000 5,399 Phillips Petroleum Co. 8.75% 5/25/2010 3,500 4,379 Schlumberger Technology Corp. 6.50% 4/15/2012(2) 10,000 11,129 Texaco Capital Inc. 5.50% 1/15/2009 3,000 3,249 Valero Energy Corp. 6.875% 4/15/2012 2,500 2,588 TECHNOLOGY (0.6%) Electronic Data Systems 7.125% 10/15/2009 1,500 1,507 First Data Corp. 5.625% 11/1/2011 6,000 6,412 International Business Machines Corp. 7.50% 6/15/2013 4,000 4,884 Motorola Inc. 5.80% 10/15/2008 2,000 1,940 Motorola Inc. 7.625% 11/15/2010 3,600 3,708 TRANSPORTATION (2.1%) American Airlines Inc. Pass-Through Certificates 7.024% 10/15/2009 7,800 7,332 American Airlines Inc. Pass-Through Certificates 6.817% 5/23/2011 3,000 2,520 =============================================================================================================
56
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 6.75% 7/15/2011 1,590 1,815 Burlington Northern Santa Fe Corp. 5.90% 7/1/2012 5,000 5,453 CSX Corp. 6.30% 3/15/2012 7,500 8,202 Canadian Pacific Rail 6.25% 10/15/2011 1,900 2,089 Continental Airlines, Inc. Pass-Through Certificates 6.563% 2/15/2012 2,500 2,625 Delta Air Lines, Inc. (Equipment Trust Certificates) 8.54% 1/2/2007(1) 379 280 Delta Air Lines, Inc. Pass-Through Certificates 7.111% 9/18/2011 5,000 4,950 ERAC USA Finance Co. 7.35% 6/15/2008(2) 5,000 5,554 Hertz Corp. 7.40% 3/1/2011 1,000 941 Hertz Corp. 7.625% 6/1/2012 4,975 4,723 NorthWest Airlines, Inc. Pass-Through Certificates 6.841% 4/1/2011 2,000 1,900 Southwest Airlines Co. 6.50% 3/1/2012 2,400 2,541 US Airways Pass-Through Trust 8.11% 2/20/2017 59 60 Union Pacific Corp. 7.25% 11/1/2008 3,500 4,099 Union Pacific Corp. 6.65% 1/15/2011 355 399 Union Pacific Corp. 6.50% 4/15/2012 1,500 1,686 United Air Lines 7.032% 10/1/2010 7,840 6,194 OTHER Black & Decker Corp. 7.125% 6/1/2011 500 573 ------------ 744,425 ------------ UTILITIES (4.7%) ELECTRIC (3.6%) Alabama Power 4.70% 12/1/2010 950 946 Commonwealth Edison 6.15% 3/15/2012 4,000 4,424 Consolidated Edison 8.125% 5/1/2010 2,500 2,963 Consolidated Edison 4.875% 2/1/2013 5,000 5,064 Constellation Energy Group Inc. 6.125% 9/1/2009 2,000 2,075 Constellation Energy Group Inc. 7.00% 4/1/2012 2,100 2,207 Detroit Edison Company 6.125% 10/1/2010 10,000 10,904 Duke Energy Corp. 6.25% 1/15/2012 3,800 4,010 Energy East Corp. 6.75% 6/15/2012 1,750 1,901 Firstenergy Corp. 6.45% 11/15/2011 3,000 2,977 HQI Transelec Chile SA 7.875% 4/15/2011 8,500 9,401 Israel Electric Corp. Ltd. 7.75% 3/1/2009(2) 2,250 2,371 Israel Electric Corp. Ltd. 7.95% 5/30/2011(2) 3,800 4,047 NRG Energy Inc. 8.25%* 9/15/2010 5,750 1,495 National Rural Utilities Corp. 6.20% 2/1/2008 2,850 3,116 National Rural Utilities Corp. 5.75% 8/28/2009 7,000 7,422 National Rural Utilities Corp. 7.25% 3/1/2012 460 530 Oncor Electric Delivery 6.375% 1/15/2015(2) 1,450 1,475 PECO Energy Co. 5.95% 11/1/2011 5,000 5,460 PPL Energy Supply LLC 6.40% 11/1/2011 5,000 4,945 PSEG Power 6.95% 6/1/2012 6,200 6,122 PacifiCorp 6.90% 11/15/2011 5,500 6,285 Progress Energy Inc. 7.10% 3/1/2011 9,200 10,115 SCANA Corp. 6.25% 2/1/2012 1,320 1,433 Southern Power 6.25% 7/15/2012 5,785 6,097 Teco Energy Inc. 7.00% 5/1/2012 4,600 3,772 Union Electric Power Co. 6.75% 5/1/2008 120 135 =============================================================================================================
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============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* INTERMEDIATE-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Natural Gas (1.1%) Consolidated Natural Gas 6.25% 11/1/2011 14,100 15,275 Duke Energy Field Services 7.875% 8/16/2010 2,400 2,520 Enterprise Products 7.50% 2/1/2011 300 322 Keyspan Corp. 7.625% 11/15/2010 3,000 3,546 Kinder Morgan Inc. 6.50% 9/1/2012 10,000 10,424 ------------ 143,779 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost $1,425,009) 1,511,727 ------------------------------------------------------------------------------------------------------------- SOVEREIGN BONDS (U.S. Dollar-Denominated)(5.7%) ------------------------------------------------------------------------------------------------------------- Asian Development Bank 4.50% 9/4/2012 2,000 2,037 Federation of Malaysia 8.75% 6/1/2009 4,350 5,344 Federation of Malaysia 7.50% 7/15/2011 3,850 4,429 Inter-American Development Bank 5.375% 11/15/2008 7,400 8,179 Inter-American Development Bank 5.625% 4/16/2009 10,000 11,206 Inter-American Development Bank 4.375% 9/20/2012 6,000 6,075 International Bank for Reconstruction & Development 4.125% 8/12/2009 2,400 2,506 Pemex Finance Ltd. 9.69% 8/15/2009(1) 5,000 5,838 Pemex Master Trust 7.875% 2/1/2009(2) 6,750 7,321 Pemex Master Trust 8.00% 11/15/2011(2) 10,000 10,777 Province of British Columbia 5.375% 10/29/2008 7,000 7,676 Province of Manitoba 5.50% 10/1/2008 2,500 2,785 Province of Ontario 5.50% 10/1/2008 17,000 18,815 Province of Quebec 5.75% 2/15/2009 10,000 11,122 Province of Quebec 5.00% 7/17/2009 5,100 5,459 Province of Quebec 6.125% 1/22/2011 3,715 4,189 Province of Saskatchewan 7.125% 3/15/2008 600 708 Republic of Italy 5.625% 6/15/2012 16,000 17,808 Republic of Korea 8.875% 4/15/2008 9,000 11,124 Republic of South Africa 7.375% 4/25/2012 4,150 4,492 United Mexican States 9.875% 2/1/2010 17,000 20,604 United Mexican States 8.375% 1/14/2011 5,000 5,658 ------------------------------------------------------------------------------------------------------------- TOTAL SOVEREIGN BONDS (Cost $163,133) 174,152 -------------------------------------------------------------------------------------------------------------
58
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (6.9%) ------------------------------------------------------------------------------------------------------------- Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account--Note E 1.21-1.22% 1/2/2003 $183,068 183,068 Collateralized by U.S. Government Obligations in a Pooled Cash Account 1.22% 1/2/2003 27,778 27,778 ------------------------------------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $210,846) 210,846 ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (105.2%) (Cost $3,050,717) 3,235,471 ------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-5.2%) ------------------------------------------------------------------------------------------------------------- Other Assets--Note B 52,192 Security Lending Collateral Payable to Brokers--Note E (183,068) Other Liabilities (27,922) ------------ (158,798) ------------ ------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) $3,076,673 =============================================================================================================
*See Note A in Notes to Financial Statements. *Non-income-producing security--security in default. (1)The average maturity is shorter than the final maturity shown due to scheduled interim principal payments. (2)Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, the aggregate value of these securities was $127,093,000, representing 4.1% of net assets. ================================================================================ AT DECEMBER 31, 2002, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- AMOUNT (000) -------------------------------------------------------------------------------- Paid-in Capital $2,915,523 Undistributed Net Investment Income -- Accumulated Net Realized Losses (23,604) Unrealized Appreciation 184,754 -------------------------------------------------------------------------------- NET ASSETS $3,076,673 ================================================================================ Investor Shares--Net Assets Applicable to 224,663,071 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $2,414,609 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE--INVESTOR SHARES $10.75 ================================================================================ Admiral Shares--Net Assets Applicable to 61,600,580 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $662,064 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE--ADMIRAL SHARES $10.75 ================================================================================ See Note C in Notes to Financial Statements for the tax-basis components of net assets. 59
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* LONG-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS (59.6%) ------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES (50.6%) U.S. Treasury Bond 9.375% 2/15/2006 2,000 2,441 U.S. Treasury Bond 5.50% 5/15/2009 1,350 1,533 U.S. Treasury Bond 11.25% 2/15/2015 540 900 U.S. Treasury Bond 9.25% 2/15/2016 25,900 38,466 U.S. Treasury Bond 7.50% 11/15/2016 17,275 22,621 U.S. Treasury Bond 8.75% 5/15/2017 28,715 41,555 U.S. Treasury Bond 8.875% 8/15/2017 10,265 15,019 U.S. Treasury Bond 8.875% 2/15/2019 1,950 2,881 U.S. Treasury Bond 8.125% 8/15/2019 9,895 13,795 U.S. Treasury Bond 8.50% 2/15/2020 900 1,298 U.S. Treasury Bond 8.75% 5/15/2020 4,700 6,937 U.S. Treasury Bond 8.75% 8/15/2020 400 591 U.S. Treasury Bond 7.875% 2/15/2021 25,730 35,332 U.S. Treasury Bond 8.125% 8/15/2021 10,210 14,378 U.S. Treasury Bond 8.00% 11/15/2021 31,985 44,602 U.S. Treasury Bond 7.25% 8/15/2022 9,900 12,895 U.S. Treasury Bond 7.625% 11/15/2022 31,145 42,141 U.S. Treasury Bond 6.75% 8/15/2026 21,645 27,094 U.S. Treasury Bond 6.625% 2/15/2027 21,650 26,762 U.S. Treasury Bond 6.375% 8/15/2027 22,975 27,622 U.S. Treasury Bond 6.125% 11/15/2027 625 731 U.S. Treasury Note 3.375% 4/30/2004 1,275 1,310 U.S. Treasury Note 7.875% 11/15/2004 3,675 4,104 U.S. Treasury Note 5.75% 11/15/2005 1,025 1,133 U.S. Treasury Note 6.875% 5/15/2006 1,425 1,640 U.S. Treasury Note 6.125% 8/15/2007 600 690 U.S. Treasury Note 5.625% 5/15/2008 11,175 12,680 U.S. Treasury Note 6.00% 8/15/2009 550 640 ------------ 401,791 ------------ AGENCY BONDS AND NOTES (9.0%) Federal Home Loan Mortgage Corp. 6.875% 9/15/2010 425 509 Federal Home Loan Mortgage Corp. 6.75% 3/15/2031 1,625 1,942 Federal Home Loan Mortgage Corp. 6.25% 7/15/2032 14,425 16,235 Federal National Mortgage Assn. 5.75% 5/15/2012 3,225 3,589 Federal National Mortgage Assn. 6.25% 5/15/2029 1,400 1,561 Federal National Mortgage Assn. 7.125% 1/15/2030 2,000 2,476 Federal National Mortgage Assn. 7.25% 5/15/2030 19,860 24,927 Federal National Mortgage Assn. 6.625% 11/15/2030 1,225 1,439 Tennessee Valley Auth. 6.25% 12/15/2017 1,100 1,255 Tennessee Valley Auth. 6.75% 11/1/2025 2,500 2,891 Tennessee Valley Auth. 7.125% 5/1/2030 9,000 11,032 Tennessee Valley Auth. 6.875% 12/15/2043 3,000 3,185 ------------ 71,041 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost $428,135) 472,832 ------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (33.3%) ------------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES (0.3%) PSE&G Transition Funding LLC 6.89% 12/15/2017(1) 2,500 2,895 ------------ =============================================================================================================
60
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- FINANCE (7.2%) BANKING (3.6%) Abbey National Capital Trust I 8.963% 12/29/2049 1,550 1,883 Bank One Corp. 7.75% 7/15/2025 2,000 2,448 Barnett Capital Trust II 7.95% 12/1/2026 3,000 3,267 Citicorp Capital II 8.015% 2/15/2027 450 496 Citicorp Lease Pass-Through Trust 7.22% 10/1/2004(1) 111 121 Citicorp Lease Pass-Through Trust 8.04% 12/15/2019 450 519 Citigroup Inc. 7.875% 5/15/2025 3,250 3,942 CoreStates Capital Corp. 8.00% 12/15/2026 3,000 3,307 Fleet Capital Trust II 7.92% 12/11/2026 1,150 1,232 Mellon Capital II 7.995% 1/15/2027 2,100 2,340 NB Capital Trust IV 8.25% 4/15/2027 400 461 NationsBank Corp. 7.25% 10/15/2025 375 436 Norwest Corp. 6.65% 10/15/2023 1,145 1,240 Royal Bank of Scotland PLC 7.648% 9/30/2031 3,000 3,240 Suntrust Capital II 7.90% 6/15/2027 750 832 Swiss Bank Corp. 7.375% 7/15/2015 750 900 Swiss Bank Corp. 7.00% 10/15/2015 750 884 Swiss Bank Corp. 7.375% 6/15/2017 300 360 US Bancorp Capital I 8.27% 12/15/2026 750 825 BROKERAGE (0.7%) Dean Witter, Discover & Co. 6.75% 10/15/2013 200 223 Goldman Sachs Group Inc. 5.50% 5/15/2014 450 454 Merrill Lynch & Co., Inc. 6.875% 11/15/2018 1,250 1,376 Morgan Stanley Dean Witter Discover & Co. 7.25% 4/1/2032 2,750 3,123 FINANCE COMPANIES (1.4%) Bear Stearns & Co., Inc. 5.70% 11/15/2014 250 256 Boeing Capital Corp. 5.80% 1/15/2013 2,000 2,036 General Electric Capital Corp. 6.75% 3/15/2032 4,200 4,665 General Motors Acceptance Corp. 8.00% 11/1/2031 2,220 2,236 Household Finance Corp. 7.625% 5/17/2032 500 564 Household Finance Corp. 7.35% 11/26/2032 200 217 SLM Corp. 5.05% 11/14/2014 1,400 1,397 INSURANCE (1.3%) ACE Capital Trust II 9.70% 4/1/2030 2,000 2,396 American General Capital II 8.50% 7/1/2030 1,000 1,252 AIG SunAmerica Global Financing IX 6.90% 3/15/2032 2,300 2,634 Progressive Corp. 6.625% 3/1/2029 1,000 1,061 Prudential Holdings, LLC 8.695% 12/18/2023 2,500 2,787 Travelers Property Casualty Corp. 7.75% 4/15/2026 275 309 REAL ESTATE INVESTMENT TRUSTS (0.2%) EOP Operating LP 7.875% 7/15/2031 600 652 Security Capital Pacific Trust 8.05% 4/1/2017 200 220 Susa Partnership LP 7.50% 12/1/2027 400 452 ------------ 57,043 ------------ =============================================================================================================
61
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* LONG-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- INDUSTRIAL (23.1%) BASIC INDUSTRY (1.3%) Alcoa Inc. 5.375% 1/15/2013 2,000 2,121 Dow Chemical Co. 7.375% 11/1/2029 500 533 Eastman Chemical Co. 7.60% 2/1/2027 300 337 Rohm & Haas Co. 9.80% 4/15/2020(1) 481 617 Sappi Papier Holding AG 7.50% 6/15/2032 850 951 Union Carbide Corp. 7.875% 4/1/2023 220 223 Union Carbide Corp. 7.75% 10/1/2096 1,150 1,063 Westvaco Corp. 8.20% 1/15/2030 1,000 1,181 Weyerhaeuser Co. 8.50% 1/15/2025 600 717 Weyerhaeuser Co. 7.375% 3/15/2032 1,500 1,628 Willamette Industries 7.85% 7/1/2026 1,000 1,124 CAPITAL GOODS (1.9%) The Boeing Co. 6.625% 2/15/2038 700 704 Caterpillar, Inc. 6.95% 5/1/2042 3,175 3,690 Caterpillar, Inc. 7.375% 3/1/2097 50 59 Deere & Co. 8.50% 1/9/2022 115 147 Lockheed Martin Corp. 8.50% 12/1/2029 3,350 4,469 Masco Corp. 7.75% 8/1/2029 550 653 Northrop Grumman Corp. 7.75% 2/15/2031 1,500 1,788 Raytheon Co. 7.00% 11/1/2028 1,000 1,064 United Technologies Corp. 8.875% 11/15/2019 545 731 Waste Management Inc. 7.75% 5/15/2032 1,325 1,433 COMMUNICATION (6.5%) AT&T Broadband 9.455% 11/15/2022 1,498 1,749 AT&T Corp. 6.50% 3/15/2013 5,500 5,500 AT&T Wireless Services Inc. 8.75% 3/1/2031 2,000 1,960 Alltel Corp. 7.875% 7/1/2032 1,000 1,220 BellSouth Capital Funding 7.875% 2/15/2030 2,500 3,052 BellSouth Corp. 6.875% 10/15/2031 1,000 1,114 British Telecommunications PLC 8.875% 12/15/2030 1,800 2,282 Cingular Wireless 7.125% 12/15/2031 500 525 Citizens Communications 9.00% 8/15/2031 425 485 Clear Channel Communications 7.25% 10/15/2027 700 722 Comcast Cable Communication 7.125% 6/15/2013 1,100 1,180 Comcast Cable Communication 8.875% 5/1/2017 1,000 1,171 Deutsche Telekom International Finance 8.25% 6/15/2030 2,825 3,239 France Telecom 10.00% 3/1/2031 1,775 2,150 GTE Corp. 8.75% 11/1/2021 900 1,060 Harcourt General, Inc. 8.875% 6/1/2022 850 1,085 Koninklijke KPN NV 8.375% 10/1/2030 2,250 2,762 Michigan Bell Telephone Co. 7.85% 1/15/2022 1,522 1,860 Michigan Bell Telephone Co. 7.50% 2/15/2023 1,040 1,082 New England Telephone & Telegraph Co. 6.875% 10/1/2023 110 111 New England Telephone & Telegraph Co. 7.875% 11/15/2029 600 723 News America Holdings Inc. 9.25% 2/1/2013 1,500 1,806 News America Holdings Inc. 8.00% 10/17/2016 750 850 News America Holdings Inc. 7.75% 1/20/2024 1,000 1,028 News America Holdings Inc. 7.75% 12/1/2045 125 122 =============================================================================================================
62
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Southwestern Bell Telephone Co. 7.625% 3/1/2023 45 47 Southwestern Bell Telephone Co. 7.25% 7/15/2025 450 474 Sprint Capital Corp. 6.875% 11/15/2028 600 486 Sprint Capital Corp. 8.75% 3/15/2032 3,375 3,223 TCI Communications Inc. 7.875% 8/1/2013 1,000 1,091 TCI Communications Inc. 9.875% 6/15/2022 500 592 Telefonica Europe BV 8.25% 9/15/2030 800 980 Verizon Global Funding Corp. 7.375% 9/1/2012 750 862 Verizon Global Funding Corp. 7.75% 12/1/2030 2,500 2,905 Verizon New York Inc. 7.375% 4/1/2032 1,400 1,552 Vodafone AirTouch PLC 7.875% 2/15/2030 500 603 CONSUMER CYCLICAL (4.3%) AOL Time Warner Inc. 7.625% 4/15/2031 5,750 5,898 Auburn Hills Trust 12.375% 5/1/2020 260 395 Chrysler Corp. 7.45% 3/1/2027 1,000 1,085 DaimlerChrysler North America Holding Corp. 8.50% 1/18/2031 1,000 1,221 Dayton Hudson Corp. 6.75% 1/1/2028 750 819 Dayton Hudson Corp. 6.65% 8/1/2028 500 540 The Walt Disney Co. 7.00% 3/1/2032 1,000 1,102 Ford Motor Co. 6.625% 10/1/2028 1,000 793 Ford Motor Co. 6.375% 2/1/2029 1,500 1,151 Ford Motor Co. 7.45% 7/16/2031 4,750 4,134 Ford Motor Co. 8.90% 1/15/2032 1,000 971 General Motors Corp. 6.75% 5/1/2028 3,600 3,154 Liberty Media Corp. 8.25% 2/1/2030 1,000 1,070 Lowe's Co. Inc. 6.875% 2/15/2028 1,050 1,178 May Department Stores Co. 9.75% 2/15/2021 37 49 May Department Stores Co. 6.70% 9/15/2028 1,375 1,403 Pulte Homes Inc. 7.875% 6/15/2032 1,375 1,405 Sears Roebuck Acceptance Corp. 7.00% 6/1/2032 1,300 1,104 Target Corp. 7.00% 7/15/2031 200 226 Time Warner Entertainment 8.375% 3/15/2023 1,650 1,829 Time Warner Inc. 7.57% 2/1/2024 500 491 Viacom Inc. 7.875% 7/30/2030 1,165 1,451 Wal-Mart Stores, Inc. 7.55% 2/15/2030 2,000 2,512 Wendy's International Inc. 6.20% 6/15/2014 500 551 CONSUMER NONCYCLICAL (3.5%) Anheuser-Busch Cos., Inc. 7.125% 7/1/2017 600 695 Anheuser-Busch Cos., Inc. 6.75% 12/15/2027 250 286 Anheuser-Busch Cos., Inc. 6.80% 1/15/2031 3,000 3,485 Archer-Daniels-Midland Co. 5.935% 10/1/2032 1,250 1,262 C.R. Bard, Inc. 6.70% 12/1/2026 500 549 Conagra Foods, Inc. 8.25% 9/15/2030 2,700 3,500 Eli Lilly & Co. 7.125% 6/1/2025 1,000 1,181 Kellogg Co. 7.45% 4/1/2031 2,000 2,431 Kraft Foods Inc. 6.50% 11/1/2031 3,000 3,303 Kroger Co. 7.70% 6/1/2029 1,000 1,125 Kroger Co. 8.00% 9/15/2029 1,175 1,378 Pharmacia Corp. 6.60% 12/1/2028 2,000 2,261 Procter & Gamble Co. ESOP 9.36% 1/1/2021 2,505 3,462 =============================================================================================================
63
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* LONG-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- RJ Reynolds Tobacco Holdings Inc. 7.25% 6/1/2012 1,250 1,292 Safeway, Inc. 7.25% 2/1/2031 1,431 1,606 ENERGY (3.2%) Alberta Energy Co. Ltd. 7.375% 11/1/2031 1,800 2,059 Amerada Hess Corp. 7.30% 8/15/2031 1,000 1,085 Amerada Hess Corp. 7.125% 3/15/2033 2,000 2,127 Anadarko Finance Co. 7.50% 5/1/2031 150 178 Apache Corp. 7.375% 8/15/2047 1,000 1,188 Burlington Resources Inc. 7.40% 12/1/2031 150 172 Conoco Funding Co. 7.25% 10/15/2031 500 586 Devon Financing Corp. 7.875% 9/30/2031 150 181 Kerr McGee Corp. 7.875% 9/15/2031 1,200 1,461 Marathon Oil Corp. 6.80% 3/15/2032 1,000 1,034 Mobil Corp. 7.625% 2/23/2033 230 245 Occidental Petroleum 7.20% 4/1/2028 1,400 1,561 PanCanadian Energy Corp. 7.20% 11/1/2031 975 1,100 Pemex Master Trust 7.375% 12/15/2014 400 416 Petronas Capital Ltd. 7.875% 5/22/2022 1,000 1,082 Phillips Petroleum Co. 8.49% 1/1/2023 900 938 Suncor Energy Inc. 7.15% 2/1/2032 1,300 1,412 Talisman Energy, Inc. 7.25% 10/15/2027 1,000 1,017 Texaco Capital Corp. 8.875% 9/1/2021 155 210 Tosco Corp. 7.80% 1/1/2027 350 427 Tosco Corp. 8.125% 2/15/2030 2,500 3,185 Transocean Sedco Forex Inc. 7.50% 4/15/2031 2,000 2,290 Union Oil Co. of California 7.50% 2/15/2029 1,000 1,138 TECHNOLOGY (0.5%) International Business Machines Corp. 7.00% 10/30/2025 350 393 International Business Machines Corp. 6.50% 1/15/2028 2,000 2,146 International Business Machines Corp. 7.125% 12/1/2096 500 558 Motorola Inc. 6.50% 11/15/2028 800 664 TRANSPORTATION (1.9%) Burlington Northern Santa Fe Corp. 6.75% 3/15/2029 1,000 1,082 Burlington Northern Santa Fe Corp. 7.95% 8/15/2030 1,300 1,633 Burlington Northern Santa Fe Corp. 7.25% 8/1/2097 250 272 CSX Corp. 7.95% 5/1/2027 1,250 1,516 Canadian National Railway Co. 6.80% 7/15/2018 725 796 Canadian Pacific Rail 7.125% 10/15/2031 1,800 2,102 Continental Airlines, Inc. (Equipment Trust Certificates) 6.648% 3/15/2019 2,545 2,211 Norfolk Southern Corp. 7.70% 5/15/2017 2,400 2,997 Norfolk Southern Corp. 7.90% 5/15/2097 100 120 US Airways Pass-Through Trust 8.11% 2/20/2017 1,805 1,859 Union Pacific Corp. 7.00% 2/1/2016 550 651 ------------ 183,326 ------------ UTILITIES (2.7%) ELECTRIC (2.2%) Alabama Power 5.50% 10/15/2017 3,500 3,657 Arizona Public Service Co. 7.25% 8/1/2023 200 206 =============================================================================================================
64
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- Commonwealth Edison Co. 7.50% 7/1/2013 750 902 Constellation Energy Group Inc. 7.60% 4/1/2032 125 127 Detroit Edison 6.35% 10/15/2032 1,775 1,890 Dominion Resources Capital Trust III 8.40% 1/15/2031 300 312 Duke Capital Corp. 8.00% 10/1/2019 1,400 1,402 Firstenergy Corp. 7.375% 11/15/2031 1,800 1,735 MidAmerican Energy Co. 6.75% 12/30/2031 1,675 1,733 NRG Energy, Inc. 8.625%* 4/1/2031 300 75 Oncor Electric Delivery 6.375% 1/15/2015 225 229 Oncor Electric Delivery 7.25% 1/15/2033 225 228 PSEG Power Corp. 8.625% 4/15/2031 400 412 PacifiCorp 7.70% 11/15/2031 400 463 Progress Energy Inc. 7.00% 10/30/2031 1,000 1,046 South Carolina Electric & Gas Co. 6.625% 2/1/2032 1,550 1,710 Texas Utilities Co. 8.75% 11/1/2023 50 52 Virginia Electric & Power Co. 6.75% 10/1/2023 1,000 998 NATURAL GAS (0.5%) Duke Energy Field Services 8.125% 8/16/2030 400 404 Kinder Morgan Energy Partners, LP 6.50% 9/1/2012 1,000 1,042 Kinder Morgan Energy Partners, LP 7.30% 8/15/2033 1,500 1,559 TransCanada Pipelines 6.49% 1/21/2009 1,000 1,052 ------------ 21,234 ------------ ------------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (Cost $244,395) 264,498 ------------------------------------------------------------------------------------------------------------- SOVEREIGN BONDS (U.S. Dollar-Denominated)(4.6%) ------------------------------------------------------------------------------------------------------------- Inter-American Development Bank 7.125% 3/15/2023 25 26 International Bank for Reconstruction & Development 7.625% 1/19/2023 1,507 1,973 International Bank for Reconstruction & Development 8.875% 3/1/2026 1,000 1,476 Ontario Hydro Electric 7.45% 3/31/2013 2,700 3,368 Province of Newfoundland 9.00% 6/1/2019 300 411 Province of Newfoundland 10.00% 12/1/2020 750 1,124 Province of Newfoundland 7.32% 10/13/2023 200 244 Province of Quebec 7.125% 2/9/2024 2,000 2,376 Province of Quebec 7.50% 9/15/2029 1,500 1,884 Province of Saskatchewan 7.375% 7/15/2013 600 747 Quebec Hydro Electric 7.50% 4/1/2016 6,000 7,482 Republic of El Salvador 8.25% 4/10/2032 950 898 Republic of Italy 6.875% 9/27/2023 2,200 2,643 Republic of South Africa 8.50% 6/23/2017 750 849 United Mexican States 8.00% 9/24/2022 4,000 4,140 United Mexican States 8.30% 8/15/2031 6,200 6,557 United Mexican States Value Recovery Rights -- 6/3/2003 1,750 6 ------------------------------------------------------------------------------------------------------------- TOTAL SOVEREIGN BONDS (Cost $34,217) 36,204 -------------------------------------------------------------------------------------------------------------
65
============================================================================================================= FACE MARKET MATURITY AMOUNT VALUE* LONG-TERM BOND INDEX FUND COUPON DATE (000) (000) ------------------------------------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (6.0%) ------------------------------------------------------------------------------------------------------------- Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account--Note E 1.21-1.22% 1/2/2003 39,099 39,099 Collateralized by U.S. Government Obligations in a Pooled Cash Account 1.22% 1/2/2003 8,919 8,919 ------------------------------------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $48,018) 48,018 ------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (103.5%) (Cost $754,765) 821,552 ------------------------------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-3.5%) ------------------------------------------------------------------------------------------------------------- Other Assets--Note B 15,001 Security Lending Collateral Payable to Brokers--Note E (39,099) Other Liabilities (3,521) ------------ (27,619) ------------ ------------------------------------------------------------------------------------------------------------- NET ASSETS (100%) ------------------------------------------------------------------------------------------------------------- Applicable to 68,031,041 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $793,933 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE $11.67 =============================================================================================================
*See Note A in Notes to Financial Statements. *Non-income-producing security--security in default. (1)The average maturity is shorter than the final maturity shown due to scheduled interim principal payments. ================================================================================ AT DECEMBER 31, 2002, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- AMOUNT PER (000) SHARE -------------------------------------------------------------------------------- Paid-in Capital $730,990 $10.75 Undistributed Net Investment Income -- -- Accumulated Net Realized Losses (3,844) (0.06) Unrealized Appreciation 66,787 0.98 -------------------------------------------------------------------------------- NET ASSETS $793,933 $11.67 ================================================================================ See Note C in Notes to Financial Statements for the tax-basis components of net assets. 66 STATEMENT OF OPERATIONS This Statement shows the types of income earned by each 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 income 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) of investments during the period. TOTAL BOND SHORT-TERM INTERMEDIATE- LONG-TERM MARKET INDEX BOND INDEX TERM BOND BOND INDEX FUND FUND INDEX FUND FUND ------------------------------------------------- YEAR ENDED DECEMBER 31, 2002 ------------------------------------------------- (000) (000) (000) (000) -------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Interest $1,383,255 $116,291 $162,190 $39,855 Security Lending 2,552 378 405 54 -------------------------------------------------------------------------------- Total Income 1,385,807 116,669 162,595 39,909 -------------------------------------------------------------------------------- EXPENSES The Vanguard Group--Note B Investment Advisory Services 3,054 315 348 81 Management and Administrative Investor Shares 28,721 3,529 3,923 1,153 Admiral Shares 2,055 757 729 -- Institutional Shares 4,594 -- -- -- Marketing and Distribution Investor Shares 2,610 363 353 88 Admiral Shares 143 56 50 -- Institutional Shares 1,277 -- -- -- Custodian Fees 467 46 27 6 Auditing Fees 11 11 11 11 Shareholders' Reports and Proxies Investor Shares 495 73 87 44 Admiral Shares 3 1 1 -- Institutional Shares 17 -- -- -- Trustees' Fees and Expenses 27 3 3 1 -------------------------------------------------------------------------------- Total Expenses 43,474 5,154 5,532 1,384 -------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,342,333 111,515 157,063 38,525 -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) Investment Securities Sold (251,513) (11,328) (23,624) (1,672) Swap Contracts 1,696 -- -- -- -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) (249,817) (11,328) (23,624) (1,672) -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities 832,169 61,462 156,718 54,550 Swap Contracts 5,171 -- -- -- -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 837,340 61,462 156,718 54,550 -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,929,856 $161,649 $290,157 $91,403 ================================================================================ 67 STATEMENT OF CHANGES IN NET ASSETS This Statement shows how each fund's total net assets changed during the two most recent reporting periods. The Operations section summarizes information detailed in the Statement of Operations. Because the fund distributes its income to shareholders each day, the amounts of Distributions--Net Investment Income generally equal the net income earned as shown under the Operations section. The amounts of Distributions--Realized Capital Gain may not match the capital gains shown in the Operations section, because distributions are determined on a tax basis and may be made in a period different from the one in which the gains were realized on the financial statements. The Capital Share Transactions section shows the net amount shareholders invested in or redeemed from the fund. Distributions and Capital Share Transactions are shown separately for each class of shares. TOTAL BOND MARKET INDEX FUND ---------------------------- YEAR ENDED DECEMBER 31, ---------------------------- 2002 2001 (000) (000) -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income $ 1,342,333 $ 1,178,342 Realized Net Gain (Loss) (249,817) 107,660 Change in Unrealized Appreciation (Depreciation) 837,340 163,321 -------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 1,929,856 1,449,323 -------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (859,766) (817,046) Admiral Shares (81,176) (4,836) Institutional Shares (397,784) (356,460) Realized Capital Gain* Investor Shares (15,843) -- Admiral Shares (1,366) -- Institutional Shares (7,626) -- -------------------------------------------------------------------------------- Total Distributions (1,363,561) (1,178,342) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--Note F Investor Shares 2,189,084 2,731,009 Admiral Shares 900,037 873,138 Institutional Shares (408,466) 2,134,233 -------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 2,680,655 5,738,380 -------------------------------------------------------------------------------- Total Increase (Decrease) 3,246,950 6,009,361 -------------------------------------------------------------------------------- NET ASSETS Beginning of Period 21,759,491 15,750,130 -------------------------------------------------------------------------------- End of Period $25,006,441 $21,759,491 ================================================================================ *Includes fiscal 2002 short-term gain distributions totaling $4,515,000 that are treated as ordinary income dividends for tax purposes. 68
==================================================================================================== SHORT-TERM INTERMEDIATE-TERM BOND INDEX FUND BOND INDEX FUND -------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------- 2002 2001 2002 2001 (000) (000) (000) (000) ---------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income $ 111,515 $ 88,572 $ 157,063 $ 126,357 Realized Net Gain (Loss) (11,328) 24,045 (23,624) 34,177 Change in Unrealized Appreciation (Depreciation) 61,462 14,984 156,718 2,690 ---------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 161,649 127,601 290,157 163,224 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (87,655) (87,353) (127,180) (124,135) Admiral Shares (23,860) (1,219) (29,883) (2,222) Institutional Shares -- -- -- -- Realized Capital Gain* Investor Shares (3,707) (11,320) (1,594) -- Admiral Shares (887) (1,801) (368) -- Institutional Shares -- -- -- -- ---------------------------------------------------------------------------------------------------- Total Distributions (116,109) (101,693) (159,025) (126,357) ---------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--Note F Investor Shares 839,186 363,709 214,012 414,701 Admiral Shares 488,589 276,668 287,761 350,667 Institutional Shares -- -- -- -- ---------------------------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 1,327,775 640,377 501,773 765,368 ---------------------------------------------------------------------------------------------------- Total Increase (Decrease) 1,373,315 666,285 632,905 802,235 ---------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Period 1,953,183 1,286,898 2,443,768 1,641,533 ---------------------------------------------------------------------------------------------------- End of Period $3,326,498 $1,953,183 $3,076,673 $2,443,768 ====================================================================================================
*The Short-Term Bond Index Fund's 2002 and 2001 distributions include short-term gain distributions totaling $2,506,000 and $12,741,000, respectively, that are treated as ordinary income dividends for tax purposes. 69 STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) ================================================================================ LONG-TERM BOND INDEX FUND ----------------------- YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 (000) (000) -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income $ 38,525 $ 30,315 Realized Net Gain (Loss) (1,672) 6,228 Change in Unrealized Appreciation (Depreciation) 54,550 (857) -------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 91,403 35,686 -------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (38,525) (30,315) Admiral Shares -- -- Institutional Shares -- -- Realized Capital Gain Investor Shares -- -- Admiral Shares -- -- Institutional Shares -- -- -------------------------------------------------------------------------------- Total Distributions (38,525) (30,315) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--Note F Investor Shares 198,594 120,119 Admiral Shares -- -- Institutional Shares -- -- -------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 198,594 120,119 -------------------------------------------------------------------------------- Total Increase (Decrease) 251,472 125,490 -------------------------------------------------------------------------------- NET ASSETS Beginning of Period 542,461 416,971 -------------------------------------------------------------------------------- End of Period $793,933 $542,461 ================================================================================ 70 FINANCIAL HIGHLIGHTS This table summarizes each 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.
TOTAL BOND MARKET INDEX FUND INVESTOR SHARES ================================================================================================================= YEAR ENDED DECEMBER 31, FOR A SHARE OUTSTANDING --------------------------------------------------- THROUGHOUT EACH PERIOD 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.15 $ 9.96 $9.56 $10.27 $10.09 ----------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .572 .632 .648 .617 .624 Net Realized and Unrealized Gain (Loss) on Investments .239 .190 .400 (.695) .218 ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations .811 .822 1.048 (.078) .842 ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.570) (.632) (.648) (.617) (.624) Distributions from Realized Capital Gains (.011) -- -- (.015) (.038) ----------------------------------------------------------------------------------------------------------------- Total Distributions (.581) (.632) (.648) (.632) (.662) ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.38 $10.15 $9.96 $9.56 $10.27 ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN* 8.26% 8.43% 11.39% -0.76% 8.58% ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $16,676 $14,116 $11,180 $9,477 $7,765 Ratio of Total Expenses to Average Net Assets 0.22% 0.22% 0.22% 0.20% 0.20% Ratio of Net Investment Income to Average Net Assets 5.63% 6.21% 6.72% 6.26% 6.10% Portolio Turnover Rate 75% 67% 53% 55% 57% =================================================================================================================
*Total returns do not reflect the $10 annual account maintenance fee applied on balances under $10,000. 71 FINANCIAL HIGHLIGHTS (CONTINUED) TOTAL BOND MARKET INDEX FUND ADMIRAL SHARES ================================================================================ YEAR ENDED NOV. 12* TO DEC. 31, DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2002 2001 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.15 $10.44 -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .578 .082 Net Realized and Unrealized Gain (Loss) on Investments .239 (.290) -------------------------------------------------------------------------------- Total from Investment Operations .817 (.208) -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.576) (.082) Distributions from Realized Capital Gains (.011) -- ------------------------------------------------------------------------------- Total Distributions (.587) (.082) -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.38 $10.15 -------------------------------------------------------------------------------- TOTAL RETURN 8.32% -2.00% -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $1,805 $866 Ratio of Total Expenses to Average Net Assets 0.17% 0.17%** Ratio of Net Investment Income to Average Net Assets 5.66% 5.97%** Portfolio Turnover Rate 75% 67% -------------------------------------------------------------------------------- *Inception. **Annualized.
TOTAL BOND MARKET INDEX FUND INSTITUTIONAL SHARES ----------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.15 $9.96 $9.56 $10.27 $10.09 ----------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .585 .644 .659 .627 .635 Net Realized and Unrealized Gain (Loss) on Investments .239 .190 .400 (.695) .218 ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations .824 .834 1.059 (.068) .853 ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.583) (.644) (.659) (.627) (.635) Distributions from Realized Capital Gains (.011) -- -- (.015) (.038) ----------------------------------------------------------------------------------------------------------------- Total Distributions (.594) (.644) (.659) (.642) (.673) ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.38 $10.15 $9.96 $ 9.56 $10.27 ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN 8.39% 8.56% 11.52% -0.66% 8.69% ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $6,525 $6,778 $4,570 $3,204 $2,493 Ratio of Total Expenses to Average Net Assets 0.10% 0.10% 0.10% 0.10% 0.10% Ratio of Net Investment Income to Average Net Assets 5.77% 6.32% 6.84% 6.36% 6.21% Portfolio Turnover Rate 75% 67% 53% 55% 57% =================================================================================================================
72
SHORT-TERM BOND INDEX FUND INVESTOR SHARES ----------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.19 $9.96 $9.73 $10.10 $10.00 ----------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .452 .568 .601 .539 .574 Net Realized and Unrealized Gain (Loss) on Investments .152 .299 .230 (.336) .168 ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations .604 .867 .831 .203 .742 ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.452) (.568) (.601) (.539) (.574) Distributions from Realized Capital Gains (.022) (.069) -- (.034) (.068) ----------------------------------------------------------------------------------------------------------------- Total Distributions (.474) (.637) (.601) (.573) (.642) ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.32 $10.19 $9.96 $ 9.73 $10.10 ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN* 6.10% 8.88% 8.84% 2.08% 7.63% ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $2,553 $1,680 $1,287 $1,156 $709 Ratio of Total Expenses to Average Net Assets 0.21% 0.21% 0.21% 0.20% 0.20% Ratio of Net Investment Income to Average Net Assets 4.37% 5.45% 6.16% 5.48% 5.68% Portfolio Turnover Rate 139% 156% 74% 108% 112% =================================================================================================================
*Total returns do not reflect the $10 annual account maintenance fee applied on balances under $10,000. SHORT-TERM BOND INDEX FUND ADMIRAL SHARES -------------------------------------------------------------------------------- YEAR ENDED NOV. 12* TO DEC. 31, DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2002 2001 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.19 $10.44 -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .457 .069 Net Realized and Unrealized Gain (Loss) on Investments .152 (.181) -------------------------------------------------------------------------------- Total from Investment Operations .609 (.112) -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.457) (.069) Distributions from Realized Capital Gains (.022) (.069) -------------------------------------------------------------------------------- Total Distributions (.479) (.138) -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.32 $10.19 -------------------------------------------------------------------------------- TOTAL RETURN 6.15% -1.08% -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $773 $273 Ratio of Total Expenses to Average Net Assets 0.16% 0.17%** Ratio of Net Investment Income to Average Net Assets 4.37% 5.01%** Portfolio Turnover Rate 139% 156% ================================================================================ *Inception. **Annualized. 73 FINANCIAL HIGHLIGHTS (CONTINUED)
INTERMEDIATE-TERM BOND INDEX FUND INVESTOR SHARES ----------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.28 $10.02 $9.51 $10.48 $10.20 ----------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .597 .651 .654 .628 .647 Net Realized and Unrealized Gain (Loss) on Investments .478 .260 .510 (.936) .353 ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations 1.075 .911 1.164 (.308) 1.000 ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.597) (.651) (.654) (.628) (.647) Distributions from Realized Capital Gains (.008) -- -- (.034) (.073) ----------------------------------------------------------------------------------------------------------------- Total Distributions (.605) (.651) (.654) (.662) (.720) ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.75 $10.28 $10.02 $9.51 $10.48 ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN* 10.85% 9.28% 12.78% -3.00% 10.09% ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $2,415 $2,096 $1,642 $1,449 $1,102 Ratio of Total Expenses to Average Net Assets 0.21% 0.21% 0.21% 0.20% 0.20% Ratio of Net Investment Income to Average Net Assets 5.75% 6.33% 6.83% 6.33% 6.23% Portfolio Turnover Rate 141% 135% 81% 120% 77% =================================================================================================================
*Total returns do not reflect the $10 annual account maintenance fee applied on balances under $10,000. INTERMEDIATE-TERM BOND INDEX FUND ADMIRAL SHARES -------------------------------------------------------------------------------- YEAR ENDED NOV. 12* TO DEC. 31, DEC. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2002 2001 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.28 $10.65 -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .602 .085 Net Realized and Unrealized Gain (Loss) on Investments .478 (.370) -------------------------------------------------------------------------------- Total from Investment Operations 1.080 (.285) -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.602) (.085) Distributions from Realized Capital Gains (.008) -- -------------------------------------------------------------------------------- Total Distributions (.610) (.085) -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.75 $10.28 -------------------------------------------------------------------------------- TOTAL RETURN 10.91% -2.68% -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $662 $348 Ratio of Total Expenses to Average Net Assets 0.16% 0.17%** Ratio of Net Investment Income to Average Net Assets 5.78% 6.17%** Portfolio Turnover Rate 141% 135% ================================================================================ *Inception. **Annualized. 74
LONG-TERM BOND INDEX FUND ----------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.83 $10.66 $9.77 $11.32 $10.78 ----------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .658 .683 .679 .662 .666 Net Realized and Unrealized Gain (Loss) on Investments .840 .170 .890 (1.531) .588 ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations 1.498 .853 1.569 (.869) 1.254 ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.658) (.683) (.679) (.662) (.666) Distributions from Realized Capital Gains -- -- -- (.019) (.048) ----------------------------------------------------------------------------------------------------------------- Total Distributions (.658) (.683) (.679) (.681) (.714) ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $11.67 $10.83 $10.66 $9.77 $11.32 ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN* 14.35% 8.17% 16.64% -7.85% 11.98% ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $794 $542 $417 $313 $210 Ratio of Total Expenses to Average Net Assets 0.21% 0.21% 0.21% 0.20% 0.20% Ratio of Net Investment Income to Average Net Assets 5.92% 6.30% 6.71% 6.39% 6.01% Portfolio Turnover Rate 141% 107% 56% 61% 57% =================================================================================================================
*Total returns do not reflect the $10 annual account maintenance fee applied on balances under $10,000. 75 NOTES TO FINANCIAL STATEMENTS Vanguard Bond Index Funds comprise the Total Bond Market Index Fund, Short-Term Bond Index Fund, Intermediate-Term Bond Index Fund, and Long-Term Bond Index Fund, each of which is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Certain of the funds' investments are in corporate debt instruments; the issuers' abilities to meet their obligations may be affected by economic developments in their respective industries. The Total Bond Market Index Fund offers three classes of shares: Investor Shares, Admiral Shares, and Institutional Shares. The Short-Term Bond Index and Intermediate-Term Bond Index Funds each offer two classes of shares, Investor Shares and Admiral Shares. The Long-Term Bond Index Fund offers only Investor Shares. Investor Shares are available to any investor who meets the fund's minimum purchase requirements. Admiral Shares were first issued on November 12, 2001, and are designed for investors who meet certain administrative, servicing, tenure, and account-size criteria. Institutional Shares are designed for investors who meet certain administrative and servicing criteria and invest a minimum of $10 million. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The funds consistently follow such policies in preparing their financial statements. 1. SECURITY VALUATION: Bonds, and temporary cash investments acquired over 60 days to maturity, are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued by methods deemed by the board of trustees to represent fair value. 2. SWAP CONTRACTS: The Total Bond Market Index Fund has entered into swap transactions to earn the total return on a specified mortgage-backed security or index of mortgage-backed securities. Under the terms of the swaps, the fund receives the total return (either receiving the increase or paying the decrease) on a reference security or index applied to a notional principal amount. In return, the fund agrees to pay the counterparty a floating rate, which is reset periodically based on short-term interest rates, applied to the same notional amount. At the same time, the fund invests an amount equal to the notional amount of the swaps in high-quality floating-rate asset-backed securities. The notional amounts of swap contracts are not recorded in the financial statements. Swaps are valued daily and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time realized gain (loss) is recorded. Interest income is accrued daily in an amount equivalent to the interest return on the reference security or index, less the floating-rate interest payable under the terms of the swap. The primary risk associated with total return swaps is that a counterparty will default on its obligation to pay net amounts due to the fund. 76 3. REPURCHASE AGREEMENTS: Each 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. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a regulated investment company and distribute all of its income. Accordingly, no provision for federal income taxes is required in the financial statements. 5. DISTRIBUTIONS: Distributions from net investment income are declared daily and paid on the first business day of the following month. Annual distributions from realized capital gains, if any, are recorded on the ex-dividend date. 6. OTHER: Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses), shareholder reporting, and proxies. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets. B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the funds under methods approved by the board of trustees. Each fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At December 31, 2002, the funds had contributed capital to Vanguard (included in Other Assets) of: ================================================================================ CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF TO VANGUARD OF FUND VANGUARD'S INDEX FUND (000) NET ASSETS CAPITALIZATION -------------------------------------------------------------------------------- Total Bond Market $4,579 0.02% 4.58% Short-Term Bond 576 0.02 0.58 Intermediate-Term Bond 551 0.02 0.55 Long-Term Bond 140 0.02 0.14 -------------------------------------------------------------------------------- The funds' trustees and officers are also directors and officers of Vanguard. 77 NOTES TO FINANCIAL STATEMENTS (CONTINUED) C. Capital gain distributions are determined on a tax basis and may differ from realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when gains or losses are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. During the year ended December 31, 2002, the Total Bond Market Index Fund realized $33,590,000 of net capital gains resulting from in-kind redemptions--in which shareholders exchange 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. Realized and unrealized gains and losses on the Total Bond Market Index Fund's swap contracts are treated as income for tax purposes. Realized gains on swap contracts of $1,696,000 have been reclassified from accumulated net realized gains to undistributed net investment income. The net amount of realized and unrealized gains and losses on swap contracts is accumulated monthly and included in income dividends paid to shareholders in the following month. At December 31, 2002, the fund had $10,474,000 of net swap gains available to distribute to shareholders as ordinary income dividends. At December 31, 2002, the funds had available the following capital losses available to offset future net capital gains: ================================================================================ CAPITAL LOSSES AVAILABLE ------------------------------------------- EXPIRATION: FISCAL AMOUNT YEAR(S) ENDING INDEX FUND (000) DECEMBER 31 -------------------------------------------------------------------------------- Total Bond Market $284,855 2010 Short-Term Bond 11,474 2010 Intermediate-Term Bond 23,624 2010 Long-Term Bond 3,031 2008-2011 ================================================================================ At December 31, 2002, net unrealized appreciation (depreciation) of investment securities for tax purposes was: ================================================================================ (000) ---------------------------------------------------------- NET UNREALIZED APPRECIATED DEPRECIATED APPRECIATION INDEX FUND SECURITIES SECURITIES (DEPRECIATION) -------------------------------------------------------------------------------- Total Bond Market $1,270,472 $(94,723) $1,175,749 Short-Term Bond 92,768 (7,184) 85,584 Intermediate-Term Bond 192,790 (8,036) 184,754 Long-Term Bond 68,593 (1,806) 66,787 ================================================================================ 78 At December 31, 2002, the Total Bond Market Index Fund had the following open swap contracts:
================================================================================================== FLOATING UNREALIZED NOTIONAL INTEREST APPRECIATION AMOUNT RATE (DEPRECIATION) REFERENCE ENTITY/TERMINATION DATE DEALER* (000) PAID** (000) -------------------------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities Index 2/28/03 JPM $23,000 0.83% $ 375 Commercial Mortgage-Backed Securities Index 2/28/03 MS 50,000 0.93 818 Commercial Mortgage-Backed Securities Index 1/31/03 MS 94,000 1.03 (312) Commercial Mortgage-Backed Securities Index 7/31/03 MS 90,000 0.93 385 Mortgage-Backed Securities Index 1/31/03 UBS 100,000 1.20 (94) Commercial Mortgage-Backed Securities Index 5/31/03 ML 91,000 0.88 2,046 Commercial Mortgage-Backed Securities Index 6/30/03 FB 62,000 0.93 1,396 Mortgage-Backed Securities Index 2/28/03 JPM 100,000 1.13 557 Mortgage-Backed Securities Index 3/31/03 JPM 100,000 1.13 -- Commercial Mortgage-Backed Securities Index 4/30/03 MS 121,000 1.03 -- Commercial Mortgage-Backed Securities Index 6/30/03 LB 8,000 1.03 -- --------- $5,171 --------- ==================================================================================================
*JPM--J.P. Morgan. MS--Morgan Stanley. UBS--UBS Warburg. ML--Merrill Lynch. FB--Credit Suisse First Boston. LB--Lehman Brothers. **Based on one-month London InterBank Offered Rate (LIBOR). Unrealized appreciation (depreciation) on open swap contracts is required to be treated as ordinary income (loss) for tax purposes. The floating-rate asset-backed securities associated with the swap transactions are shown as a separate category of corporate bonds in the Statement of Net Assets. D. During the year ended December 31, 2002, purchases and sales of investment securities other than temporary cash investments were: ================================================================================ U.S. GOVERNMENT SECURITIES OTHER INVESTMENT SECURITIES (000) (000) ----------------------- --------------------------- INDEX FUND PURCHASES SALES PURCHASES SALES -------------------------------------------------------------------------------- Total Bond Market $17,111,432 $12,502,953 $ 6,333,455 $ 5,095,849 Short-Term Bond 3,647,593 2,786,472 1,223,825 721,838 Intermediate-Term Bond 2,970,217 2,751,600 1,315,943 1,036,755 Long-Term Bond 695,424 579,873 391,840 320,493 ================================================================================ 79 NOTES TO FINANCIAL STATEMENTS (CONTINUED) E. The market value of securities on loan to broker/dealers at December 31, 2002, and collateral received with respect to such loans, were: ================================================================================ (000) ----------------------------------------------------------- COLLATERAL RECEIVED ----------------------------------------- MARKET VALUE MARKET VALUE OF LOANED OF U.S. TREASURY INDEX FUND SECURITIES CASH SECURITIES -------------------------------------------------------------------------------- Total Bond Market $3,692,764 $878,533 $2,905,916 Short-Term Bond 775,485 250,957 543,430 Intermediate-Term Bond 414,085 183,068 240,529 Long-Term Bond 48,840 39,099 11,049 ================================================================================ The funds invest cash collateral received in repurchase agreements, and record a liability for the return of the collateral, during the period the securities are on loan. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned; however, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. F. Capital share transactions for each class of shares were:
================================================================================================== YEAR ENDED DECEMBER 31, ---------------------------------------------- 2002 2001 -------------------- ----------------- AMOUNT SHARES AMOUNT SHARES INDEX FUND (000) (000) (000) (000) -------------------------------------------------------------------------------------------------- TOTAL BOND MARKET Investor Shares Issued $ 5,937,280 583,205 $ 6,191,699 609,148 Issued in Lieu of Cash Distributions 810,276 79,511 739,524 72,683 Redeemed (4,558,472) (447,514) (4,200,214) (412,644) -------------------------------------------------- Net Increase (Decrease)--Investor Shares 2,189,084 215,202 2,731,009 269,187 -------------------------------------------------- Admiral Shares Issued 1,327,581 130,559 892,722 87,286 Issued in Lieu of Cash Distributions 66,787 6,549 4,008 394 Redeemed (494,331) (48,531) (23,592) (2,324) -------------------------------------------------- Net Increase (Decrease)--Admiral Shares 900,037 88,577 873,138 85,356 -------------------------------------------------- Institutional Shares Issued 2,791,047 274,296 2,962,267 290,842 Issued in Lieu of Cash Distributions 341,935 33,561 299,978 29,479 Redeemed (3,541,448) (347,301) (1,128,012) (110,932) -------------------------------------------------- Net Increase (Decrease)--Institutional Shares (408,466) (39,444) 2,134,233 209,389 ==================================================================================================
80
================================================================================================== YEAR ENDED DECEMBER 31, ---------------------------------------------- 2002 2001 -------------------- ----------------- AMOUNT SHARES AMOUNT SHARES INDEX FUND (000) (000) (000) (000) -------------------------------------------------------------------------------------------------- SHORT-TERM BOND Investor Shares Issued $1,658,450 162,990 $1,083,305 105,932 Issued in Lieu of Cash Distributions 78,271 7,697 86,585 8,482 Redeemed (897,535) (88,217) (806,181) (78,704) -------------------------------------------------- Net Increase (Decrease)--Investor Shares 839,186 82,470 363,709 35,710 -------------------------------------------------- Admiral Shares Issued 609,230 59,923 281,280 27,291 Issued in Lieu of Cash Distributions 22,036 2,166 2,793 274 Redeemed (142,677) (14,017) (7,405) (722) -------------------------------------------------- Net Increase (Decrease)--Admiral Shares 488,589 48,072 276,668 26,843 -------------------------------------------------------------------------------------------------- INTERMEDIATE-TERM BOND Investor Shares Issued $1,056,505 102,161 $1,090,263 105,468 Issued in Lieu of Cash Distributions 108,429 10,466 101,799 9,884 Redeemed (950,922) (91,852) (777,361) (75,294) -------------------------------------------------- Net Increase (Decrease)--Investor Shares 214,012 20,775 414,701 40,058 -------------------------------------------------- Admiral Shares Issued 472,233 45,667 354,209 34,144 Issued in Lieu of Cash Distributions 23,449 2,263 1,947 189 Redeemed (207,921) (20,129) (5,489) (533) -------------------------------------------------- Net Increase (Decrease)--Admiral Shares 287,761 27,801 350,667 33,800 -------------------------------------------------------------------------------------------------- Long-Term Bond Issued $ 387,743 35,133 $ 266,395 24,499 Issued in Lieu of Cash Distributions 32,900 2,968 25,847 2,376 Redeemed (222,049) (20,141) (172,123) (15,907) -------------------------------------------------- Net Increase (Decrease) 198,594 17,960 120,119 10,968 ==================================================================================================
81 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Trustees of Vanguard Bond Index Funds: In our opinion, the statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Total Bond Market Index Fund, Short-Term Bond Index Fund, Intermediate-Term Bond Index Fund, and Long-Term Bond Index Fund (constituting Vanguard Bond Index Funds, hereafter referred to as the "Funds") at December 31, 2002, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2002 by correspondence with the custodians and brokers, provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP PHILADELPHIA, PENNSYLVANIA JANUARY 30, 2003 ================================================================================ SPECIAL 2002 TAX INFORMATION (UNAUDITED) FOR VANGUARD BOND INDEX FUNDS This information for the fiscal year ended December 31, 2002, is included pursuant to provisions of the Internal Revenue Code. The Total Bond Market Index, Short-Term Bond Index, and Intermediate-Term Bond Index Funds distributed $20,320,000, $2,101,000, and $2,120,000, respectively, as capital gain dividends (from net long-term capital gains) to shareholders during the fiscal year, all of which is designated as a 20% rate gain distribution. ================================================================================ 82 INVESTING IS FAST AND EASY ON VANGUARD.COM If you're like many Vanguard investors, you believe in planning and taking control of your own investments. Vanguard.com(R) was built for you--and it's getting better all the time. MANAGE YOUR INVESTMENTS WITH EASE Log on to Vanguard.com and: * See what you own (at Vanguard and elsewhere) and how you're doing by using our Consolidated View(TM) tool. * Check your overall asset allocation, no matter where your assets are held. * Compare your holdings with industry benchmarks. * Analyze your personal performance. * Invest online and even manage the mail you get from us. (Prefer to get fund reports like this one online? Just let us know!) * Set up a Watch List to make it easy to track funds and securities of interest. PLAN YOUR INVESTMENTS WITH CONFIDENCE Go to our PLANNING & Advice and RESEARCH FUNDS & Stocks sections and: * Take our Investor Questionnaire to find out what asset allocation might best suit your needs. * Find out how much you should save for retirement and for college costs. * Discover how investment costs affect your bottom line by using our Compare Fund Costs tool. * Find out how to maximize your after-tax returns in our PlainTalk(R) guide Be a Tax-Savvy Investor. * Attend our quarterly PlainTalk webcasts on investing. Find out what Vanguard.com can do for you. Log on today! 83 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 a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard(R) funds and provides services to them on an at-cost basis. A majority of Vanguard's 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. Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the
==================================================================================================================================== NAME POSITION(S) HELD WITH FUND (YEAR OF BIRTH) (NUMBER OF VANGUARD FUNDS TRUSTEE/OFFICER SINCE OVERSEEN BY TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS ------------------------------------------------------------------------------------------------------------------------------------ JOHN J. BRENNAN* Chairman of the Board, Chairman of the Board, Chief Executive Officer, and (1954) Chief Executive Officer, Director/Trustee of The Vanguard Group, Inc., and of each of the May 1987 and Trustee investment companies served by The Vanguard Group. (112) ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Adviser (1937) (112) to Greenwich Associates (international business strategy consulting); January 2001 Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. ------------------------------------------------------------------------------------------------------------------------------------ RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice (1945) (112) Chairman (January-September 1999), and Vice President (prior to December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of Technitrol, Inc. (electronic components), and Agere Systems (communications components); Board Member of the American Chemistry Council; Trustee of Drexel University. ------------------------------------------------------------------------------------------------------------------------------------ JOANN HEFFERNAN HEISEN Trustee Vice President, Chief Information Officer, and Member of the Executive (1950) (112) Committee of Johnson & Johnson (pharmaceuticals/consumer products); July 1998 Director of the Medical Center at Princeton and Women's Research and Education Institute. ------------------------------------------------------------------------------------------------------------------------------------ BURTON G. MALKIEL Trustee Chemical Bank Chairman's Professor of Economics, Princeton University; (1932) (110) Director of Vanguard Investment Series plc (Irish investment fund) (since May 1977 November 2001), Vanguard Group (Ireland) Limited (Irish investment management firm) (since November 2001), Prudential Insurance Co. of America, BKF Capital (investment management), The Jeffrey Co. (holding company), and NeuVis, Inc. (software company). ------------------------------------------------------------------------------------------------------------------------------------ ALFRED M. RANKIN, JR. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO (1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of January 1993 Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (a supplier for the automotive industry) until 1998. ------------------------------------------------------------------------------------------------------------------------------------ J. LAWRENCE WILSON Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University. ------------------------------------------------------------------------------------------------------------------------------------
84 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. Each trustee serves a fund until its termination; or until the trustee's retirement, resignation, or death; or otherwise as specified in the fund's organizational documents. Any trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.
==================================================================================================================================== NAME POSITION(S) HELD WITH FUND (YEAR OF BIRTH) (NUMBER OF VANGUARD FUNDS TRUSTEE/OFFICER SINCE OVERSEEN BY TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS ------------------------------------------------------------------------------------------------------------------------------------ EXECUTIVE OFFICERS* R. GREGORY BARTON Secretary Managing Director and General Counsel of The Vanguard Group, Inc. (1951) (112) (since September 1997); Secretary of The Vanguard Group and of June 2001 each of the investment companies served by The Vanguard Group; Principal of The Vanguard Group (prior to September 1997). ------------------------------------------------------------------------------------------------------------------------------------ THOMAS J. HIGGINS Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the (1957) (112) investment companies served by The Vanguard Group. July 1998 ------------------------------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment Company Act of 1940. More information about the trustees is in the Statement of Additional Information, available from The Vanguard Group. VANGUARD SENIOR MANAGEMENT TEAM MORTIMER J. BUCKLEY, Information Technology. F. WILLIAM MCNABB, III, Institutional Investor Group. JAMES H. GATELY, Direct Investor Services. MICHAEL S. MILLER, Planning and Development. KATHLEEN C. GUBANICH, Human Resources. RALPH K. PACKARD, Finance. IAN A. MACKINNON, Fixed Income Group. GEORGE U. SAUTER, Quantitative Equity Group. -------------------------------------------------------------------------------- JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996. -------------------------------------------------------------------------------- Vanguard, The Vanguard Group, Vanguard.com, Admiral, and the ship logo are trademarks of The Vanguard Group, Inc. All other marks are the exclusive property of their respective owners. THE VANGUARD GROUP(R) POST OFFICE BOX 2600 VALLEY FORGE, PA 19482-2600 ABOUT OUR COVER The photographs of the sails and ship that appear on the cover of this report are copyrighted by Michael Kahn. FOR MORE INFORMATION This report is intended for the funds' shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the current fund prospectus. To receive a free copy of the prospectus or the Statement of Additional Information, or to request additional information about the funds or other Vanguard funds, please contact us at one of the adjacent telephone numbers or by e-mail through Vanguard.com(R). Prospectuses may also be viewed online. All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc., unless otherwise noted. WORLD WIDE WEB www.vanguard.com FUND INFORMATION 1-800-662-7447 DIRECT INVESTOR ACCOUNT SERVICES 1-800-662-2739 INSTITUTIONAL INVESTOR SERVICES 1-800-523-1036 TEXT TELEPHONE 1-800-952-3335 (C)2003 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Q840 022003