<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO. 333-11763) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 4
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 5
VANGUARD TREASURY FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
R. GREGORY BARTON, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE
on September 9, 1998, pursuant to paragraph (3) of Rule 485(a) of the Securities
Act of 1933.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.
WE HAVE ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES UNDER THIS
REGISTRATION STATEMENT PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. WE FILED OUR RULE 24f-2 NOTICE FOR THE PERIOD ENDED NOVEMBER 30, 1997
ON FEBRUARY 27, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
VANGUARD TREASURY FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <C>
Item 1. Cover Page........................................... Cover Page
Item 2. Synopsis............................................. Highlights
Item 3. Condensed Financial Information...................... Financial Highlights
Item 4. General Description of Registrant.................... Investment Strategies; Investment
Limitations; Investment Policies;
General Information
Item 5. Management of the Fund............................... Management of the Fund; The Funds and
Vanguard
Item 5A. Management's Discussion of Fund Performance.......... Herein incorporated by reference to
Registrant's Annual Report to
Shareholders dated November 30, 1997
filed with the Securities & Exchange
Commission's EDGAR system on January
23, 1998
Item 6. Capital Stock and Other Securities................... Investing with Vanguard; Buying
Shares; Redeeming Shares; Share
Price; Dividends and Taxes; General
Information
Item 7. Purchase of Securities Being Offered................. Cover Page; Investing with Vanguard;
Buying Shares
Item 8. Redemption or Repurchase............................. Redeeming Shares
Item 9. Pending Legal Proceedings............................ Not Applicable
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
Item 10. Cover Page........................................... Cover Page
Item 11. Table of Contents.................................... Cover Page
Item 12. General Information and History...................... Investment Objectives and Policies
Item 13. Investment Objective and Policies.................... Investment Objectives and Policies;
Investment Limitations
Item 14. Management of the Registrant......................... Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities........................................... Management of the Fund
Item 16. Investment Advisory and Other Services............... Management of the Fund
Item 17. Brokerage Allocation................................. Not Applicable
Item 18. Capital Stock and Other Securities................... Financial Statements
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered.............................................. Purchase of Shares; Redemption of
Shares
Item 20. Tax Status........................................... Appendix
Item 21. Underwriters......................................... Not Applicable
Item 22. Calculations of Performance Data..................... Calculation of Yield
Item 23. Financial Statements................................. Financial Statements
</TABLE>
<PAGE> 3
VANGUARD MONEY
MARKET PORTFOLIOS
Prospectus
September 9, 1998
VANGUARD MONEY MARKET RESERVES
- - PRIME PORTFOLIO
- - FEDERAL PORTFOLIO
VANGUARD TREASURY
MONEY MARKET PORTFOLIO
This prospectus contains financial data for the Portfolios through the fiscal
year ended November 30, 1997, and the six months ended May 31, 1998.
[GRAPHIC OF SHIP] A member of THE VANGUARD GROUP (R)
<PAGE> 4
VANGUARD MONEY MARKET RESERVES,
VANGUARD TREASURY MONEY MARKET PORTFOLIO
Money Market Mutual Funds
CONTENTS
Portfolio Profile 1
Portfolio Expenses 3
Financial Highlights 5
A Word About Risk 7
The Portfolios'
Objectives 7
Who Should Invest 7
Investment Policies 8
Investment Limitations 11
Investment
Performance 11
Share Price 12
Dividends and Taxes 12
The Portfolios and
Vanguard 13
Investment Adviser 13
General Information 14
Investing
with Vanguard 15
Services and
Account Features 15
Types of Accounts 16
Distribution Options 17
Buying Shares 17
Redeeming Shares 19
Transferring
Registration 22
Portfolio and Account
Updates 22
Prospectus Postscript 24
Glossary Inside Back Cover
INVESTMENT OBJECTIVES AND POLICIES
Vanguard Money Market Reserves is a diversified, open-end investment
company that consists of two separate Portfolios: Federal and Prime. The
Treasury Money Market Portfolio is part of Vanguard Treasury Fund, which is a
diversified, open-end investment company as well.
Each Portfolio seeks to provide current income while maintaining liquidity
and a stable share price of $1. Each Portfolio focuses on specific high-quality,
short-term money market instruments, such as securities backed by the full faith
and credit of the U.S. government, securities issued by U.S. government
agencies, or obligations issued by corporations and financial institutions.
IT IS IMPORTANT TO NOTE THAT EACH PORTFOLIO SEEKS TO MAINTAIN, BUT DOES NOT
GUARANTEE, A STABLE NET ASSET VALUE OF $1 PER SHARE. IN ADDITION, NONE OF THE
PORTFOLIOS' SHARES IS GUARANTEED OR INSURED BY THE FDIC, THE U.S. GOVERNMENT, OR
ITS AGENCIES.
FEES AND EXPENSES
The Portfolios are offered on a no-load basis, which means that you pay no sales
commissions or 12b-1 marketing fees. You will, however, incur expenses for
investment advisory, management, administrative, and distribution services,
which are included in each Portfolio's expense ratio.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Statements of Additional Information (dated September 9, 1998) containing more
information about the Portfolios are, by reference, part of this prospectus and
may be obtained without charge by writing to Vanguard, calling our Investor
Information Department at 1-800-662-7447, or visiting the Securities and
Exchange Commission's website (www.sec.gov).
The Prime Portfolio features two separate classes of shares: Investor Shares
and Institutional Shares. Prime Portfolio Investor Shares are available through
this prospectus (for individual investors) and through a separate prospectus
(for institutional clients and participants in employer-sponsored retirement or
savings plans). Prime Portfolio Institutional Shares have an investment minimum
of $10 million or more, and are available through a separate prospectus. Prime
Portfolio Investor Shares and Prime Portfolio Institutional Shares do not have
the same expenses; as a result, the performance of these separate classes could
differ.
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objectives, risks, and policies of the three
Portfolios. To highlight terms and concepts important to mutual fund investors,
we have provided "Plain Talk" explanations along the way. Reading the prospectus
will help you to decide whether one of the Portfolios is the right investment
for you. We suggest that you keep it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE> 5
Vanguard Money Market Reserves
PORTFOLIO PROFILE Vanguard Treasury Money Market Portfolio
WHO SHOULD INVEST (page 7)
- - Investors seeking a money market mutual fund as part of a balanced and
diversified investment program.
- - Investors uncomfortable with share-price fluctuations.
- - Investors seeking current income.
- - Investors needing a temporary holding place for a portion of their assets.
WHO SHOULD NOT INVEST
- - Investors seeking growth of their investment over time.
- - Investors looking for a fund that invests in stocks or bonds.
RISKS OF THE PORTFOLIOS (pages 7 - 11)
Each Portfolio is subject to income risk (the chance that falling short-term
interest rates will cause the Portfolio's income -- and thus the Portfolio's
return -- to decline) and manager risk (the chance that poor security selection
will cause a Portfolio to lag similar funds). In addition, while the credit
quality of all three Portfolios is expected to be very high, each Portfolio is
subject to some degree of credit risk (the chance that the issuer of a security
will be unable to pay interest and principal in a timely manner). More detailed
information about risk -- including risks specific to each Portfolio -- is
provided beginning on page 7.
DIVIDENDS (page 12)
Dividends are declared daily and paid on the first business day of each month.
INVESTMENT ADVISER (page 13)
Vanguard Fixed Income Group, Valley Forge, Pa., manages each of the three
Portfolios.
MINIMUM INITIAL INVESTMENT FOR EACH PORTFOLIO:
$3,000; $1,000 for IRAs and custodial accounts for minors.
ACCOUNT FEATURES (page 15)
- - Telephone Redemption
- - Checkwriting
- - Vanguard Direct Deposit Service(TM)
- - Vanguard Automatic Exchange Service(sm)
- - Vanguard Fund Express(R)
- - Vanguard Dividend Express(sm)
AVERAGE ANNUAL TOTAL RETURNS -- PERIODS ENDED MAY 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
-------------------------------
<S> <C> <C> <C>
Treasury Money Market
Portfolio* 5.2% 4.7% 5.5%
Lipper U.S. Treasury Money
Market Average 4.9 4.4 5.2
- -----------------------------------------------------------
Federal Portfolio 5.4% 4.9% 5.7%
Lipper U.S. Government
Money Market Average 5.0 4.4 5.2
- -----------------------------------------------------------
Prime Portfolio 5.5% 4.9% 5.8%
Lipper Non-Government
Money Market Average 5.0 4.5 5.3
</TABLE>
*Formerly known as Vanguard Money Market Reserves - U.S. Treasury Portfolio.
IN EVALUATING PAST PERFORMANCE, REMEMBER THAT IT IS NOT INDICATIVE OF FUTURE
PERFORMANCE. PERFORMANCE FIGURES INCLUDE THE REINVESTMENT OF ANY DIVIDENDS. THE
RETURNS SHOWN ARE NET OF EXPENSES, BUT THEY DO NOT REFLECT INCOME TAXES AN
INVESTOR WOULD HAVE INCURRED. AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT
THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
1
<PAGE> 6
Vanguard Money Market Reserves
PORTFOLIO PROFILE (continued) Vanguard Treasury Money Market Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TREASURY
MONEY MARKET* FEDERAL PRIME
INCEPTION DATE: 3/9/1983 7/13/1981 6/4/1975
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSETS AS OF 5/31/1998: $ 3.50 billion $ 3.73 billion $ 29.28 billion
EXPENSE RATIO FOR THE SIX MONTHS
ENDED 5/31/1998 (ANNUALIZED): 0.33% 0.33% 0.33%
FEES
LOADS, 12b-1 MARKETING FEES: None None None
SUITABLE FOR IRAs: Yes Yes Yes
NEWSPAPER ABBREVIATION:** VangTrsy VangFdl VangPr
CUSIP NUMBER: 921948105 922906300 922906201
QUOTRON SYMBOL: VMPXX.Q VMFXX.Q VMMXX.Q
VANGUARD FUND NUMBER: 050 033 030
- ---------------------------------------------------------------------------------------------------
</TABLE>
*On 12/2/1996, Vanguard Money Market Reserves - U.S. Treasury Portfolio was
reorganized as a separate portfolio of Vanguard Treasury Fund and renamed the
Treasury Money Market Portfolio. Prior to 3/13/1989, the Portfolio was known
as the Insured Portfolio.
**Money market portfolios are listed separately from the daily mutual fund
listings.
2
<PAGE> 7
PORTFOLIO EXPENSES
The examples below are designed to help you understand the various costs you
would bear, directly or indirectly, as an investor in one of the Portfolios.
As noted in this table, you do not pay fees of any kind when you buy, sell,
or exchange shares of any Portfolio:
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
The next table illustrates the operating expenses that you would incur as a
shareholder of each Portfolio. These expenses are deducted from the Portfolio's
income before it is paid to you. Expenses include investment advisory fees as
well as the costs of maintaining accounts, administering the Portfolios,
providing shareholder services, and other activities. The expenses shown in the
table are based upon expenses incurred in the fiscal year ended November 30,
1997.
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
TREASURY
MONEY MARKET FEDERAL PRIME
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management and
Administrative Expenses: 0.27% 0.26% 0.26%
Investment Advisory Expenses: 0.01% 0.01% 0.01%
12b-1 Marketing Fees: None None None
Other Expenses
Marketing and Distribution
Costs: 0.03% 0.03% 0.03%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.01% 0.02% 0.02%
----- ---- ----
Total Other Expenses: 0.04% 0.05% 0.05%
---- ---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.32% 0.32% 0.32%
==== ==== ====
</TABLE>
PLAIN TALK ABOUT
THE COSTS OF INVESTING
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund plus any transaction
costs associated with buying, selling, or exchanging shares. These costs can
erode a substantial portion of the gross income a fund achieves. Even seemingly
small differences in fund expenses can, over time, have a dramatic impact on a
fund's performance.
PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the average net
assets of the fund. For instance, the Prime Portfolio's expense ratio in fiscal
year 1997 was 0.32%, or $3.20 per $1,000 of average net assets. The average
money market fund had expenses in 1997 of 0.83%, or $8.30 per $1,000 of average
net assets, according to Lipper Analytical Services, which reports on the mutual
fund industry.
3
<PAGE> 8
The following example is intended to help you compare the costs of investing
in a Portfolio to the costs of investing in other mutual funds, by illustrating
the hypothetical expenses that you would incur on a $1,000 investment over
various periods. The example assumes that (1) the Portfolio provides a return of
5% a year and (2) you redeem your investment at the end of each period.
- -----------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
Treasury Money
Market $3 $10 $18 $41
Federal $3 $10 $18 $41
Prime $3 $10 $18 $41
- -----------------------------------------------------------------
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
The following financial highlights tables show the results for a share
outstanding of each Portfolio for each of the fiscal years in the decade ended
November 30, 1997, and the six months ended May 31, 1998. The financial
statements for the fiscal years ended November 30, were audited by
PricewaterhouseCoopers LLP, independent accountants. The information for the
six-month period ended May 31, 1998, has not been audited by independent
accountants. You should read this information in conjunction with each
Portfolio's financial statements and accompanying notes, which appear along with
the audit report from PricewaterhouseCoopers in Vanguard Money Market Reserves'
and Vanguard Treasury Money Market Portfolio's most recent annual report to
shareholders. The annual report is incorporated by reference in the Statements
of Additional Information and in this prospectus, and contains a more complete
discussion of each Portfolio's performance. You may have the report sent to you
without charge by writing to Vanguard or by calling our Investor Information
Department.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET PORTFOLIO*
------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
MAY 31, 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income .025 .050 .050 .053 .036 .028 .036 .058 .077 .085 .068
Net Realized and Unrealized
Gain (Loss) on Investments -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------- ------ ------ ------ ------ ------ ------- -------
TOTAL FROM INVESTMENT
OPERATIONS .025 .050 .050 .053 .036 .028 .036 .058 .077 .085 .068
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.025) (.050) (.050) (.053) (.036) (.028) (.036) (.058) (.077) (.085) (.068)
Distributions from
Realized Capital Gains -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
TOTAL DISTRIBUTIONS (.025) (.050) (.050) (.053) (.036) (.028) (.036) (.058) (.077) (.085) (.068)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 2.55% 5.10% 5.11% 5.47% 3.63% 2.86% 3.68% 5.94% 8.02% 8.89% 7.02%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $3,500 $3,237 $2,917 $2,527 $2,056 $1,751 $2,321 $2,092 $1,594 $ 412 $ 140
Ratio of Total Expenses to
Average Net Assets 0.33%+ 0.32% 0.32% 0.32% 0.32% 0.32% 0.30% 0.30% 0.30% 0.31%** 0.70%**
Ratio of Net Investment
Income to Average
Net Assets 5.05%+ 4.98% 4.99% 5.33% 3.59% 2.83% 3.60% 5.76% 7.74% 8.44% 6.85%
- ----------------------------------------------------------------------------------------------------------------------------------
*Formerly known as Vanguard Money Market Reserves - U.S. Treasury Portfolio
(prior to 12/2/1996) and the Insured Portfolio (prior to 3/13/1989).
**Insurance premiums represent 0.03% and 0.37%, respectively.
+ Annualized.
</TABLE>
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
This explanation uses the Treasury Money Market Portfolio as an example. The
Treasury Money Market Portfolio began fiscal 1997 with a net asset value (price)
of $1 per share. During six months ended May 31, 1998, the Portfolio earned
$0.025 per share from investment income (interest and dividends). All of these
earnings were returned to shareholders in the form of dividend distributions.
The earnings ($0.025 per share) less distributions ($0.025 per share) resulted
in a share price of $1 at the end of the period. Assuming that the shareholder
had reinvested the distribution in the purchase of more shares, total return
from the Portfolio was 2.55% for the period.
As of May 31, 1998, the Portfolio had $3.50 billion in net assets; an
annualized expense ratio of 0.33% ($3.30 per $1,000 of net assets); and net
investment income amounting to 5.05% of its average net assets.
5
<PAGE> 10
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERAL PORTFOLIO
----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------------------
SIX MONTHS ENDED
MAY 31, 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income .026 .052 .051 .056 .038 .029 .038 .060 .078 .088 .070
Net Realized and Unrealized
Gain (Loss) on Investments -- -- -- -- -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .026 .052 .051 .056 .038 .029 .038 .060 .078 .088 .070
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.026) (.052) (.051) (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070)
Distributions from
Realized Capital Gains -- -- -- -- -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.026) (.052) (.051) (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN 2.67% 5.35% 5.26% 5.77% 3.82% 2.98% 3.83% 6.18% 8.14% 9.15% 7.20%
======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $3,731 $3,495 $3,100 $2,637 $2,196 $1,907 $1,986 $2,000 $1,950 $1,531 $1,214
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.32% 0.32% 0.32% 0.32% 0.32% 0.30% 0.30% 0.30% 0.28% 0.33%
Ratio of Net Investment
Income to Average
Net Assets 5.28%* 5.22% 5.13% 5.61% 3.78% 2.94% 3.76% 6.01% 7.90% 8.78% 7.00%
- ---------------------------------------------------------------------------------------------------------------------------------
*Annualized.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PRIME PORTFOLIO - INVESTOR SHARES
--------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED ---------------------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income .027 .053 .052 .057 .038 .030 .038 .062 .080 .090
Net Realized and Unrealized
Gain (Loss) on Investments -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS .027 .053 .052 .057 .038 .030 .038 .062 .080 .090
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.027) (.053) (.052) (.057) (.038) (.030) (.038) (.062) (.080) (.090)
Distributions from
Realized Capital Gains -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS (.027) (.053) (.052) (.057) (.038) (.030) (.038) (.062) (.080) (.090)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN 2.70% 5.41% 5.31% 5.82% 3.87% 3.02% 3.89% 6.39% 8.32% 9.40%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $29,289 $26,480 $22,218 $18,764 $15,109 $12,367 $12,638 $13,496 $13,579 $11,067
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.32% 0.32% 0.32% 0.32% 0.32% 0.30% 0.30% 0.30% 0.28%
Ratio of Net Investment
Income to Average
Net Assets 5.35%* 5.28% 5.18% 5.64% 3.84% 2.98% 3.82% 6.20% 8.06% 9.05%
- --------------------------------------------------------------------------------------------------------------------------------
*Annualized.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------
PRIME PORTFOLIO -
INVESTOR SHARES
-----------------------
YEAR ENDED NOVEMBER 30,
-----------------------
1988
- -------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00
------
INVESTMENT OPERATIONS
Net Investment Income .072
Net Realized and Unrealized
Gain (Loss) on Investments --
------
TOTAL FROM INVESTMENT
OPERATIONS .072
- ------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.072)
Distributions from
Realized Capital Gains --
------
TOTAL DISTRIBUTIONS (.072)
NET ASSET VALUE,
END OF PERIOD $ 1.00
======
TOTAL RETURN 7.47%
======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $6,863
Ratio of Total Expenses to
Average Net Assets 0.33%
Ratio of Net Investment
Income to Average
Net Assets 7.28%
- -------------------------------------------------
*Annualized.
</TABLE>
From time to time, the Vanguard funds advertise yield and total return
figures. Yield is a historical measure of dividend income, and total return is a
measure of past dividend income (assuming that it has been reinvested) plus
realized and unrealized capital appreciation (or depreciation). Neither yield
nor total return should be used to predict the future performance of a fund.
6
<PAGE> 11
A WORD ABOUT RISK
This prospectus describes the risks you would face as an investor in the
Treasury Money Market, Federal, and Prime Portfolios. It is important to keep in
mind one of the main axioms of investing: The higher the risk of losing money,
the higher the potential reward. The reverse, also, is generally true: The lower
the risk, the lower the potential reward. As you consider an investment in one
or more of the Portfolios, you should weigh your desire for income with your
need to protect your investment.
Look for this "warning flag" symbol [FLAG] throughout the prospectus. It is
used to mark detailed information about each type of risk that you, as a
shareholder of any of the three Portfolios, would confront.
THE PORTFOLIOS' OBJECTIVES
Each Portfolio seeks to provide current income while maintaining liquidity and a
stable net asset value of $1 per share. These objectives are fundamental, which
means that they cannot be changed unless a majority of a Portfolio's
shareholders vote to do so.
WHO SHOULD INVEST
Any of the Portfolios may be a suitable investment for you if:
- - You wish to add a money market portfolio to your existing holdings, which
could include other cash -- as well as stock, bond, and tax-exempt --
investments.
- - You want an investment that does not fluctuate in value.
- - You want current income.
- - You characterize your investment temperament as "very conservative."
- - You want to be able to move your money into stock or bond investments quickly
and without penalty.
Each Portfolio is intended to serve most investors' short-term needs.
However, investors who engage in excessive in-and-out trading activity generate
additional costs that are borne by all of the Portfolio's shareholders. To
minimize such costs, which reduce the ultimate returns achieved by you and other
shareholders, the Portfolios have adopted the following policies:
- - Each of the Portfolios reserves the right to reject any purchase request --
including exchanges from other Vanguard funds -- that it regards as
disruptive to the efficient management of the Portfolio. This could be
because of the timing of the investment or because of a history of excessive
trading by the investor.
- - The Portfolios reserve the right to stop offering shares at any time.
7
<PAGE> 12
PLAIN TALK ABOUT
CASH RESERVES
Cash reserves are investments that can be easily converted into cash with little
or no cost or penalty. A money market mutual fund, a checking account or
certificate of deposit (CD) at a bank, or Treasury bills issued by the U.S.
government are examples of cash reserves. Keep in mind, however, that each type
varies in its credit quality and its ability to provide a competitive yield.
PLAIN TALK ABOUT
CONVERSION PERIOD
FOR MONEY MARKET FUNDS
Before it can begin earning dividends, your investment in a money market fund
must be converted to federal funds, which are Federal Reserve deposits that
banks and other financial institutions "borrow" from one another to meet
short-term cash needs -- and which fund advisers must use to pay for the
securities they buy. Conversion of your money market investment to federal funds
is done by the fund management and usually takes one business day. Because of
this conversion period, your money market account will be credited on the
business day following the day your investment is received. You will begin
earning dividends on your investment on the next calendar day. For example, if
your check is received on a Thursday before the close of trading on the New York
Stock Exchange, your account will be credited the next business day (Friday) and
you will begin earning dividends on Saturday.
INVESTMENT POLICIES
This section explains how the Portfolios' investment adviser pursues the
objectives of income, liquidity, and stability. It also explains several
important risks -- income risk, manager risk, and credit risk -- faced by
Portfolio shareholders. Unlike the Portfolios' objectives, the Portfolios'
policies are not fundamental and can be changed by a Portfolio's Board of
Trustees without shareholder approval. However, before making any important
change in its policies, a Portfolio will give shareholders 30 days' notice,
in writing.
MARKET EXPOSURE
Each Portfolio invests in very high-quality money market instruments -- also
known as cash reserves -- that are considered short term (that is, they mature
in 13 months or less). Each Portfolio will maintain a dollar-weighted average
maturity of 90 days or less.
[FLAG] EACH PORTFOLIO IS SUBJECT TO INCOME RISK, WHICH IS THE POSSIBILITY
THAT A PORTFOLIO'S DIVIDENDS (THAT IS, INCOME) WILL DECLINE BECAUSE OF
FALLING INTEREST RATES. BECAUSE THE PORTFOLIOS' INCOME IS BASED ON
SHORT-TERM INTEREST RATES -- WHICH CAN FLUCTUATE SIGNIFICANTLY OVER SHORT
PERIODS -- INCOME RISK IS EXPECTED TO BE HIGH FOR ALL THREE PORTFOLIOS.
To illustrate how the yields of short-term securities can fluctuate as
interest rates rise and fall, the following chart shows month-end yields for
short-term securities (as represented by 90-day Treasury bills) and long-term
securities (as represented by 30-year U.S. Treasury bonds) over the past five
years.
SHORT-TERM AND LONG-TERM MONTH-END YIELDS
1993 - 1997
[LINE GRAPH]
- ---------------------------------
These yields reflect past performance and should not be regarded as an
indication of future returns from either Treasury bills or bonds as a whole or
any of the Portfolios in particular.
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<PAGE> 13
SECURITY SELECTION
Vanguard Fixed Income Group, adviser to the Portfolios, selects high-quality
money market instruments. Each Portfolio focuses on securities of a particular
class of issuer (for example, the U.S. government, U.S. government agencies,
financial institutions).
[FLAG] EACH PORTFOLIO IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY
THAT VANGUARD FIXED INCOME GROUP MAY DO A POOR JOB OF SELECTING SECURITIES.
The Treasury Money Market Portfolio invests solely in securities whose
interest and principal payments are backed by the full faith and credit of the
U.S. government. At least 80% of the Portfolio's assets will always be invested
in U.S. Treasury securities. The remainder of the Portfolio's assets may include
securities issued by the U.S. Treasury and other government agencies, such as
the Government National Mortgage Association (GNMA), the Small Business
Administration, and the Federal Financing Bank.
The Federal Portfolio invests in securities whose interest and principal
payments are backed by the full faith and credit of the U.S. government or by an
agency of the government (these agency securities are not backed by the full
faith and credit of the U.S. government). These agencies include, among others,
the Federal Home Loan Bank, the Federal National Mortgage Association (FNMA),
the Tennessee Valley Authority, and the Federal Land Bank.
The Prime Portfolio invests in certificates of deposit, banker's acceptances,
commercial paper, and other money market securities rated Prime-1 by Moody's
Investors Service, Inc., or A-1 by Standard & Poor's Corporation. Securities
that are unrated must be issued by a corporation with a debt rating of Aa3 or
better by Moody's or AA- or better by Standard & Poor's. The Prime Portfolio
also invests in short-term corporate, state, and municipal obligations rated Aa3
or better by Moody's or AA- or better by Standard & Poor's, and in securities
that are considered suitable for the Federal Portfolio (see the previous
paragraph).
The Prime Portfolio may also invest in Eurodollar and Yankee obligations,
which are certificates of deposit issued in U.S. dollars by foreign banks and
foreign branches of U.S. banks. Eurodollar and Yankee obligations have the same
risks, such as income risk and credit risk, as U.S. money market instruments.
Other risks of Eurodollar and Yankee obligations include the possibility that a
foreign government will not let U.S. dollar-denominated assets leave the
country; the possibility that the banks that issue Eurodollar obligations may
not be subject to the same regulations as U.S. banks; and the possibility that
adverse political or economic developments will affect investments in a foreign
country. Before the Portfolio's adviser selects a Eurodollar or Yankee
obligation, however, any foreign issuer undergoes the same credit-quality
analysis and tests of financial strength as the issuers of domestic securities.
PLAIN TALK ABOUT
MONEY MARKET INSTRUMENTS
The term "money market instruments" refers to a variety of short-term
investments, usually with a maturity of 13 months or less. Some common types are
Treasury bills and notes, which are securities issued by the U.S. government;
commercial paper, which is a promissory note issued by a large company or
financial firm; banker's acceptances, which are credit instruments guaranteed by
a bank; and negotiable certificates of deposit, which are issued by banks in
large denominations.
PLAIN TALK ABOUT
CREDIT QUALITY AND RATINGS
A money market instrument's credit quality depends upon the issuer's ability to
pay interest on the security and, ultimately, to repay the debt. The lower the
rating by one of the independent bond-rating agencies (for example, Moody's or
Standard & Poor's), the greater the chance (in the rating agency's opinion) the
security's issuer will default, or fail to meet its payment obligations. Direct
U.S. Treasury obligations (that is, securities backed by the U.S. government)
carry the highest credit ratings. All things being equal, money market
instruments with greater credit risk offer higher yields.
9
<PAGE> 14
PLAIN TALK ABOUT
REPURCHASE AGREEMENTS
A means of investing money for a short period, repurchase agreements are
contracts in which a U.S. commercial bank or securities dealer sells government
securities and agrees to repurchase the securities on a specific date (normally
the next business day) and at a specific price.
PLAIN TALK ABOUT
DERIVATIVES
A derivative is a financial contract whose value, or interest rate, is based on
(or "derived" from) a traditional security (such as a stock or bond), money
market benchmark (such as U.S. Treasury bill rates or Federal Funds Effective
Rate), an asset (such as a commodity like gold), or a market index (such as the
S&P 500 Index).
In addition, each Portfolio may invest up to 10% of its net assets in
restricted or illiquid securities. Restricted or illiquid securities are not
freely marketable or are subject to legal restrictions on their sale.
[FLAG] EACH PORTFOLIO IS SUBJECT, TO A LIMITED EXTENT, TO CREDIT RISK, WHICH
IS THE POSSIBILITY THAT THE ISSUER OF A SECURITY WILL BE UNABLE TO REPAY
INTEREST AND PRINCIPAL IN A TIMELY MANNER.
The three Portfolios differ mainly in terms of credit risk. In absolute
terms, each Portfolio's credit quality is very high.
In relative terms, the Treasury Money Market Portfolio, which invests in
securities backed by the full faith and credit of the U.S. government, offers
the lowest credit risk -- and generally the lowest yield -- of the three
Portfolios.
Not all of the securities included in the Federal Portfolio are backed by the
full faith and credit of the U.S. government, and so the Portfolio's potential
credit risk and yield are somewhat higher than the Treasury Money Market
Portfolio.
While the credit quality of its securities is very high, the Prime Portfolio
invests in money market securities of private financial and nonfinancial
corporations; therefore, it offers the highest credit risk and generally the
highest yield of the three Portfolios.
Bear in mind that, while each Portfolio invests in high-quality money market
instruments, the three Portfolios are not insured or guaranteed by the FDIC or
any other agency of the U.S. government.
[FLAG] THE PRIME AND FEDERAL PORTFOLIOS RESERVE THE RIGHT TO INVEST IN
REPURCHASE AGREEMENTS, WHICH ARE SUBJECT TO SPECIFIC RISKS.
Repurchase agreements carry several risks. For instance, if the seller is
unable to repurchase the securities as promised, the Portfolio may experience a
loss when trying to sell the securities to another person. Or, if the seller
becomes insolvent, a bankruptcy court may determine that the securities do not
belong to the Portfolio and order that the securities be sold to pay off the
seller's debts. The Portfolio's adviser believes that these risks can be
controlled through careful security selection and monitoring.
[FLAG] THE PORTFOLIOS RESERVE THE RIGHT TO INVEST, TO A LIMITED EXTENT, IN
FLOATING-RATE SECURITIES, WHICH ARE TRADITIONAL TYPES OF DERIVATIVES.
10
<PAGE> 15
A floating-rate security's interest rate, as the name implies, is not set;
instead, it fluctuates periodically. Generally, the security's yield is based on
a U.S. dollar-based interest-rate benchmark such as the Federal Funds Rate, the
90-day Treasury bill rate, or the London Interbank Offered Rate (LIBOR). These
securities reset their yields on a periodic basis (for example, daily, weekly,
or quarterly) and are closely correlated to changes in money market interest
rates.
The Portfolios will not use derivatives for speculative purposes or as
leveraged investments that magnify the risks of an investment.
PORTFOLIO TURNOVER
Because of the short-term nature of money market instruments, the turnover rate
for each Portfolio is expected to be high. This high turnover rate should not
increase Portfolio costs, however, since brokerage commissions are not usually
charged for the purchase or sale of money market instruments.
INVESTMENT LIMITATIONS
The Portfolios have adopted limitations on some of their investment policies.
Some of these limitations are that each Portfolio will not:
- - Invest more than 5% of its assets in the securities of any one issuer,
excluding the U.S. government.
- - Invest more than 25% of its assets in any one industry, excluding obligations
of the U.S. government, certificates of deposit, and U.S. banker's
acceptances.
- - Borrow money from a bank, except for temporary or emergency purposes. Amounts
borrowed will not exceed 15% of the Portfolio's net assets. When borrowing
exceeds 5% of the Portfolio's net assets, the Portfolio will not make
additional investments. In borrowing, each Portfolio may be leveraged and may
rise or fall in value more rapidly.
A complete list of the Portfolios' investment limitations can be found in the
Statements of Additional Information. These limitations are fundamental and may
be changed only by approval of a majority of the Portfolios' shareholders.
INVESTMENT PERFORMANCE
The Portfolios invest in short-term securities; therefore, their performance is
closely correlated to short-term interest rates. Historically, short-term
interest rates' up-and-down fluctuations have been influenced primarily by
Federal Reserve policy and by market supply and demand.
PLAIN TALK ABOUT
PAST PERFORMANCE
Whenever you see information on a fund's performance, do not consider the
figures to be an indication of the performance you could expect by making an
investment in the fund today. The past is an imperfect guide to the future;
history does not repeat itself in neat, predictable patterns.
11
<PAGE> 16
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED MAY 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------
<S> <C> <C> <C>
Treasury Money Market Portfolio* 5.2% 4.7% 5.5%
Lipper U.S. Treasury
Money Market Average 4.9 4.4 5.2
- ----------------------------------------------------------------
Federal Portfolio 5.4% 4.9% 5.7%
Lipper U.S. Government
Money Market Average 5.0 4.4 5.2
- ----------------------------------------------------------------
Prime Portfolio 5.5% 4.9% 5.8%
Lipper Non-Government
Money Market Average 5.0 4.5 5.3
- ----------------------------------------------------------------
</TABLE>
*Formerly known as Vanguard Money Market Reserves - U.S. Treasury Portfolio
(prior to 12/2/96) and Insured Portfolio (prior to 3/13/89).
The results shown above represent the Portfolios' "average annual total
return" performance, which assumes that any distributions of dividends were
reinvested for the indicated periods. Also included is comparative information
on industry money market averages. The chart does not make any allowance for
federal, state, or local income taxes that shareholders must pay on a current
basis.
SHARE PRICE
Each Portfolio's share price, called its net asset value, is expected to remain
at a constant $1. Although the stable share price is not guaranteed, the
Portfolios are managed and securities are purchased to maintain that price.
DIVIDENDS AND TAXES
Each Portfolio's dividends accrue daily. On the first business day of every
month, the Portfolios distribute to shareholders virtually all of their income
from interest as dividend distributions. As a shareholder, you are entitled to
your share of a Portfolio's income from interest and dividends. You can choose
to receive your income distributions in cash, or you can have them automatically
reinvested in more shares of the Portfolio. In either case, these distributions
are taxable to you. It is important to note that distributions that are declared
in December -- if paid to you by the end of January -- are taxed as if they had
been paid in December. Vanguard will send you a statement each year showing the
tax status of all of your distributions.
- - Distributions of dividends may be subject to state and local taxes as well.
However, depending on your state's tax rules, the portion of a Portfolio's
dividends that come from U.S. Treasury
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<PAGE> 17
securities and other "direct" U.S. Treasury obligations may be exempt from
state and local income taxes. The Portfolios will notify you each year how
much, if any, of your distribution may qualify for this exemption.
- - As a Delaware business trust and a portfolio made up of direct U.S.
government obligations, the Treasury Money Market Portfolio should be exempt
from any intangibles taxes to the extent that its securities are direct U.S.
government obligations. The Portfolio will notify you each year how much, if
any, of the Portfolio's assets qualify for this exemption.
The tax information in this prospectus is provided as general information.
You should consult your own tax adviser about the tax consequences of an
investment in one or more of the Portfolios.
THE PORTFOLIOS AND VANGUARD
The Portfolios of Vanguard Treasury Fund and Vanguard Money Market Reserves (the
Funds) are members of The Vanguard Group, a family of more than 30 investment
companies with more than 95 distinct investment portfolios and total net assets
of more than $390 billion. All of the Vanguard funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each fund
pays its allocated share of The Vanguard Group's costs.
A list of each Fund's Trustees and officers, and their
present positions and principal occupations during the past five years, can be
found in each Fund's Statements of Additional Information.
INVESTMENT ADVISER
Vanguard Fixed Income Group, P.O. Box 2600, Valley Forge, PA 19482, provides
advisory services on an at-cost basis to the Treasury Money Market, Federal, and
Prime Portfolios. For the six months ended May 31, 1998, the investment advisory
expenses for each Portfolio represented an effective annual rate of 0.01% of
each Portfolio's average net assets.
The Group places all orders for purchases and sales for Portfolio
securities, and is directed to get the best available price and most favorable
execution with respect to all transactions.
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE
The Vanguard Group, Inc., is the only MUTUAL mutual fund company. It is
owned jointly by the funds it oversees and by the shareholders in those funds.
Other mutual funds are operated by for-profit management companies that may be
owned by one person, by a group of individuals, or by investors who bought the
management company's publicly traded stock. Because of its structure, Vanguard
operates its funds at cost. Instead of distributing profits from operations to a
separate management company, Vanguard returns profits to fund shareholders in
the form of lower operating expenses.
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<PAGE> 18
PLAIN TALK ABOUT
THE PORTFOLIOS' ADVISER
Vanguard Fixed Income Group provides investment advisory services to more than
40 Vanguard portfolios; as of May 31, 1998, the Group managed more than $100
billion in assets.
The managers responsible for the Portfolios' investments are:
IAN A. MACKINNON, Managing Director of Vanguard; has worked in investment
management since 1974; primary responsibility for Vanguard's internal
fixed-income policy and strategy since 1981; B.A., Lafayette College, M.B.A.,
Pennsylvania State University.
ROBERT F. AUWAERTER, Principal of Vanguard and Portfolio Manager; has worked in
investment management since 1978; B.S., University of Pennsylvania; M.B.A.,
Northwestern University.
JOHN HOLLYER, Principal of Vanguard and Portfolio Manager; has worked in
investment management since 1987; B.S., University of Pennsylvania.
DAVID R. GLOCKE, Principal of Vanguard and Portfolio Manager; has worked in
investment management since 1991; B.S., University of Wisconsin.
Mr. Auwaerter, Mr. Hollyer, and Mr. Glocke manage the Portfolios on a
day-to-day basis. Mr. MacKinnon is responsible for setting the Portfolios' broad
investment policies and for overseeing the Portfolio managers.
GENERAL INFORMATION
Effective May 29, 1998, Vanguard Money Market Reserves, Inc., was reorganized
from a corporation under the laws of the state of Maryland into a Delaware
business trust. Until December 2, 1996, the Treasury Money Market Portfolio was
a Portfolio of Vanguard Money Market Reserves, known as the U.S. Treasury
Portfolio. On that date, the Treasury Money Market Portfolio was reorganized
into a Portfolio of Vanguard Treasury Fund, a Delaware business trust.
Shareholders of the Portfolios have rights and privileges similar to those
enjoyed by other trust shareholders. For example, shareholders will not be
responsible for any liabilities of the trust. If any matters are to be voted on
by shareholders (such as a change in a fundamental investment objective or the
election of Trustees, shareholders would be entitled to one vote for each dollar
of net asset value owned. Annual meetings will not be held by the Funds except
as required by the Investment Company Act of 1940.
"Standard & Poor's," "Standard & Poor's 500," "S&P 500," "S&P," and "500" are
trademarks of The McGraw-Hill Companies, Inc.
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<PAGE> 19
INVESTING WITH VANGUARD
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services
we offer you as a shareholder of the Treasury Money Market, Federal, or Prime
Portfolios. Booklets providing detailed information are available on the
services marked with a [BOOK]. Please call us to request copies.
SERVICES AND ACCOUNT FEATURES
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares.
TELEPHONE REDEMPTIONS Automatically set up for these Portfolios
(SALES AND EXCHANGES) unless you notify us otherwise.
CHECKWRITING Method for drawing money from your account
by writing a checkwriting draft for $250 or
more.
VANGUARD DIRECT DEPOSIT Automatic method for depositing your
SERVICE(TM) paycheck or U.S. government payment
[BOOK] (including Social Security and government
pension checks) into your account.*
VANGUARD AUTOMATIC EXCHANGE Automatic method for moving a fixed amount
SERVICE(SM) of money from one Vanguard fund account to
[BOOK] another.*
VANGUARD FUND EXPRESS(R) Electronic method for buying or selling
[BOOK] shares. You can transfer money between your
Vanguard fund account and an account at your
bank, savings and loan, or credit union on a
systematic schedule or whenever you wish.*
VANGUARD DIVIDEND EXPRESS(SM) Electronic method for transferring dividends
[BOOK] directly from your Vanguard fund account to
your bank, savings and loan, or credit union
account.
VANGUARD BROKERAGE SERVICES A cost-effective way to trade stocks, bonds,
(VBS) and options on major exchanges, Nasdaq, and
[BOOK] other domestic over-the-counter markets at
reduced rates, and to buy and sell shares of
non-Vanguard mutual funds. Call VBS
(1-800-992-8327) for additional information
and the appropriate forms.
*Can be used to invest a fixed amount on a regular basis or contribute to an IRA
or other retirement plan.
Investor Information 1-800-662-7447 * Client Services 1-800-662-2739 *
Tele-Account 1-800-662-6273
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<PAGE> 20
Investor Information 1-800-662-7447 * Client Services 1-800-662-2739 *
Tele-Account 1-800-662-6273
TYPES OF ACCOUNTS
INDIVIDUAL OR OTHER ENTITY
Vanguard's account registration form can be used to establish a variety of
nonretirement accounts.
FOR ONE OR MORE PEOPLE To open an account in the name of one
(individual) or more (joint tenants) people.
$3,000 minimum initial investment.
FOR A MINOR CHILD To open an account as an UGMA/UTMA (Uniform
[BOOK] Gifts/Transfers to Minors Act). Age of
majority and other requirements are set by
state law. $1,000 minimum initial
investment.
FOR A MINOR CHILD To open an account as an Education IRA.
(Vanguard Fiduciary Trust Eligibility and other requirements are
Company is the custodian.) established by federal tax law. (Note: You
[BOOK] should establish this type of account with a
Vanguard adoption agreement -- not an
account registration form.) Please call
Investor Information to request the
appropriate brochure and forms. $500 minimum
initial investment.
FOR HOLDING TRUST ASSETS To invest assets held in an existing trust.
[BOOK] $3,000 minimum initial investment.
FOR THIRD-PARTY TRUSTEE To open an account as a retirement trust or
RETIREMENT INVESTMENTS plan based on an existing corporate or
(Vanguard is not the custodian institutional plan. These accounts are
or trustee.) established by the custodian or trustee of
1-800-662-2003 the existing plan. $1,000 minimum initial
Individual Retirement Plans investment.
FOR AN ORGANIZATION To open an account as a corporation,
partnership, or other entity. These accounts
may require a corporate resolution or other
documents to name the individuals authorized
to act. $3,000 minimum initial investment.
RETIREMENT
You establish these accounts with a Vanguard adoption agreement -- not a
Vanguard account registration form. To request the appropriate adoption
agreement and forms, or to ask questions about investing for retirement, call
Investor Information.
FOR A TRADITIONAL INDIVIDUAL To open a retirement account in the name of
RETIREMENT ACCOUNT an individual. Traditional IRAs can be
(TRADITIONAL IRA) established with a contribution; a direct
(Vanguard Fiduciary Trust rollover from an employer's plan, such as a
Company is the custodian.) 401(k); or an asset transfer or rollover
from another financial institution, such as
a bank or mutual fund company. $1,000
minimum initial investment.
FOR A ROTH INDIVIDUAL To open an after-tax retirement savings
RETIREMENT ACCOUNT account in the name of an individual. Roth
(ROTH IRA) IRAs can be established with an after-tax
(Vanguard Fiduciary Trust contribution, an asset transfer or rollover
Company is the custodian.) from another financial institution such as a
bank or mutual fund company, or a conversion
of an existing IRA. Eligibility and other
requirements are established by federal tax
law. $1,000 minimum initial investment.
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<PAGE> 21
FOR A SIMPLIFIED EMPLOYEE To open a retirement account in the name of
PENSION PLAN ACCOUNT (SEP-IRA) an employee. SEPs allow employers to make
(Vanguard Fiduciary Trust deductible contributions directly to IRAs
Company is the custodian.) established by their employees. SEPs can be
1-800-662-2003 established by people who are self-employed,
Individual Retirement Plans small-business owners, partnerships, or
corporations.
FOR A SAVINGS INCENTIVE MATCH To open a retirement account in the name of
PLAN FOR EMPLOYEES ACCOUNT an employee. Created as part of the Small
(SIMPLE IRA) Business Job Protection Act of 1996, SIMPLEs
(Vanguard Fiduciary Trust replace SAR-SEPs. SIMPLEs are exclusively
Company is the custodian.) for employers that had 100 or fewer
1-800-662-2003 employees in the most recent calendar year
Individual Retirement Plans and that do not maintain another
employer-sponsored retirement plan. SIMPLEs
can be established by people who are
self-employed, small-business owners,
partnerships, or corporations. Salary
reduction contributions may be made by the
employee, with matching or nonmatching
contributions from the employer.
FOR A QUALIFIED RETIREMENT To open a retirement account that allows
PROGRAM ACCOUNT small-business owners or people who are
(Vanguard Fiduciary Trust self-employed to make tax-deductible
Company can be the trustee.) retirement contributions for themselves and
1-800-662-2003 their employees into Profit-Sharing and
Individual Retirement Plans Money Purchase Pension (Keogh) plans.
FOR A 403(b)(7) CUSTODIAL ACCOUNT To open a retirement account that allows
(Vanguard Fiduciary Trust employees of tax-exempt institutions (for
Company is the custodian.) example, schools or hospitals) to make
1-800-662-2003 pretax retirement contributions.
Individual Retirement Plans
DISTRIBUTION OPTIONS
You can receive your dividend distributions in one of two ways:
REINVESTMENT Dividends are automatically reinvested in
additional shares of the Portfolio unless
you request a different distribution method.
DIVIDENDS IN CASH Dividends are paid by check and mailed to
your account's address of record.
To electronically transfer cash dividends to your bank, savings and loan, or
credit union account, see Vanguard Dividend Express under "Services and Account
Features."
If you have elected to receive dividend distributions in cash, but the Postal
Service is unable to make delivery to your address of record, your distribution
option will be changed to reinvestment. No interest will accrue on amounts
represented by uncashed distribution checks.
BUYING SHARES
You buy your Portfolio shares at a net asset value of $1 per share. Before it
can begin earning dividends, your investment must be converted to federal funds,
which usually takes one business day. (Federal funds are Federal Reserve
deposits that banks and other financial institutions "borrow" from one another
to meet short-term cash needs; portfolio advisers must use federal
Investor Information 1-800-662-7447 - Client Services 1-800-662-2739 -
Tele-Account 1-800-662-6273
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<PAGE> 22
Investor Information 1-800-662-7447 - Client Services 1-800-662-2739 -
Tele-Account 1-800-662-6273
BUYING SHARES (continued)
funds to pay for the securities they buy.) You begin earning dividends the
calendar day after the Portfolio receives the federal funds.
The Portfolios are offered on a no-load basis, meaning that you do not pay
sales commissions or 12b-1 marketing fees.
<TABLE>
<CAPTION>
OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT
<S> <C> <C>
MINIMUM INVESTMENT $3,000 (regular account); $1,000 $100 by mail or exchange; $1,000
(Traditional IRAs, Roth IRAs, and by wire.
custodial accounts for minors); $500
(Education IRAs).
BY MAIL Complete and sign the application form. Mail your check with an Invest-
[ENVELOPE] By-Mail form detached from your
FIRST-CLASS mail to: confirmation statement to the address
The Vanguard Group listed on the form.
P.O. Box 2600
Valley Forge, PA 19482-2600 Make your check payable to: Make your check payable to:
The Vanguard Group - (appropriate The Vanguard Group - (appropriate
EXPRESS or REGISTERED mail to: Portfolio number; see below) Portfolio number; see below)
The Vanguard Group Treasury Money Market 50 Treasury Money Market 50
455 Devon Park Drive Federal 33 Federal 33
Wayne, PA 19087-1815 Prime 30 Prime 30
All purchases must be made in U.S. All purchases must be made in U.S.
dollars, and checks must be drawn on dollars, and checks must be drawn
U.S. banks. on U.S. banks.
</TABLE>
If Vanguard receives your check by the close of trading on the New York Stock
Exchange (generally 4 p.m. Eastern time), your investment is converted to
federal funds the following business day, and you begin earning dividends the
next calendar day. (For instance, if we received your check before the
Exchange's close of trading on a Thursday, your account would be credited
Friday, and you would begin earning dividends Saturday.)
If the check arrives after the close of trading on the New York Stock
Exchange, your account is credited after two business days, and you begin
earning dividends the calendar day after that. (If we received your check after
the Exchange's close of trading on a Thursday, your account would be credited
Monday, and you would begin earning dividends Tuesday.)
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
<TABLE>
<S> <C> <C>
BY TELEPHONE Call Vanguard Tele-Account* 24 hours Call Vanguard Tele-Account* 24 hours
[PHONE RECEIVER] a day -- or Client Services during a day -- or Client Services during
1-800-662-6273 business hours -- to exchange from business hours -- to exchange from
Vanguard Tele-Account(R) another Vanguard fund account with the another Vanguard fund account with the
same registration (name, address, same registration (name, address,
1-800-662-2739 taxpayer I.D., and account type). taxpayer I.D., and account type).
Client Services
Use Vanguard Fund Express (see "Services
and Account Features") to transfer assets
from your bank account. Call Client Services
before your first use to verify that this
option is in place.
*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.
</TABLE>
18
<PAGE> 23
If you buy Portfolio shares through an exchange from another Vanguard fund by
the close of trading on the New York Stock Exchange, your investment does not
have to be converted to federal funds; you begin earning dividends the next
calendar day.
IMPORTANT NOTE: Once a telephone transaction has been approved by you and a
confirmation number assigned, it cannot be revoked. We reserve the right to
refuse any purchase.
<TABLE>
<S> <C> <C>
BY WIRE Call Client Services to arrange Call Client Services to arrange
[WIRE] your wire transaction. your wire transaction.
Wire to:
CoreStates Bank, N.A. Wire transactions are not available Wire transactions are not available
ABA 031000011 for retirement accounts, except for for retirement accounts, except for
CoreStates No. 0144 6936 asset transfers and direct rollovers. asset transfers and direct rollovers.
[Temporary Account Number]
Vanguard Treasury Fund OR
Vanguard Money Market Reserves
[Account Registration]
Attention Vanguard
</TABLE>
If you buy Portfolio shares through a federal funds wire, your investment begins
earning dividends the next calendar day. You can begin earning dividends
immediately if you notify Vanguard by 10:45 a.m. Eastern time that you intend to
make a wire purchase that day.
<TABLE>
<S> <C> <C>
AUTOMATICALLY -- Vanguard offers a variety of ways that
[GRAPHIC OF ARROWS IN A CIRCLE] you can add to your account automatically.
See "Services and Account Features."
</TABLE>
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed as soon as it is received, your redemption proceeds will not be
available until payment for your purchase is collected, which may take up to ten
calendar days.
NOTE: If you buy Portfolio shares through a registered broker/dealer or
investment adviser, the broker/dealer or adviser may charge you a service fee.
It is important that you call Vanguard before you invest a large dollar
amount by wire or check. We must consider the interests of all Portfolio
shareholders and so reserve the right to delay or refuse any purchase that will
disrupt the Portfolio's operation or performance.
REDEEMING SHARES
IMPORTANT TAX NOTE: Any sale or exchange of shares in a nonretirement account
could result in a taxable gain or a loss. However, because the Portfolios seek
to maintain a stable net asset value of $1 per share, you will not incur a
taxable gain or loss when you sell or exchange shares of these Portfolios.
The ability to redeem (that is, sell or exchange) Portfolio shares by telephone
is automatically established for your nonretirement account unless you tell us
in writing that you do not want this option.
Investor Information 1-800-662-7447 - Client Services 1-800-662-2739 -
Tele-Account 1-800-662-6273
19
<PAGE> 24
INVESTOR INFORMATION 1-800-662-7447 * CLIENT SERVICES 1-800-662-2739 *
TELE-ACCOUNT 1-800-662-6273
REDEEMING SHARES (continued)
To protect your account from unauthorized or fraudulent telephone
instructions, Vanguard follows specific security procedures. When we receive a
call requesting an account transaction, we require the caller to provide:
[CHECKMARK] Portfolio name.
[CHECKMARK] 10-digit account number.
[CHECKMARK] Name and address exactly as registered on that account.
[CHECKMARK] Social Security or employer identification number as registered
on that account.
If you call to sell shares, the sale proceeds will be made payable to you,
as the registered shareholder, and mailed to your account's address of record.
If we follow reasonable security procedures, neither the Portfolio nor
Vanguard will be responsible for the authenticity of transaction instructions
received by telephone. We believe that these procedures are reasonable and that,
if we follow them, you bear the risk of any losses resulting from unauthorized
or fraudulent telephone transactions on your account.
HOW TO SELL SHARES
You may withdraw any part of your account, at any time, by selling shares.
One way to sell shares is the checkwriting option, which can be established
when you set up your account or complete a Checkwriting Signature Form. (This
form can be ordered by calling Client Services.) Your personalized Vanguard
checks work in much the same way as bank checks, except that Vanguard checks are
considered drafts and cannot be cashed immediately like a bank check. You cannot
write a Vanguard check to redeem shares that you purchased by check within the
previous ten calendar days.
When you sell shares by telephone or mail, sale proceeds are normally mailed
within two business days after Vanguard receives your request in good order.
Good order means that the request includes:
[CHECKMARK] Portfolio name and account number.
[CHECKMARK] Amount of the transaction (in dollars).
[CHECKMARK] Signatures of all owners exactly as registered on the account.
[CHECKMARK] Signature guarantees (if required).
[CHECKMARK] Any supporting legal documentation that may be required.
[CHECKMARK] Any certificates you are holding for the account.
Sales or exchange requests received after the close of trading on the New
York Stock Exchange (generally 4 p.m. Eastern time) are processed the next
business day. No interest will accrue on amounts represented by uncashed
redemption checks. The Portfolios will not cancel any trade (e.g., purchase,
redemption, or exchange) believed to be authentic, once the trade request has
been received in writing or by telephone.
The Portfolios reserve the right to close any nonretirement or UGMA/UTMA
account whose balance falls below the minimum initial investment. The Portfolios
will deduct a $10 annual fee in either June or December if your nonretirement
account balance falls below $2,500 or if your UGMA/UTMA account balance falls
below $500. The fee is waived if your total Vanguard account assets are $50,000
or more.
Some written requests require a signature guarantee from a bank, broker, or
other acceptable financial institution. A notary public cannot provide a
signature guarantee.
HOW TO EXCHANGE SHARES
An exchange is the selling of shares of one Vanguard fund to purchase shares of
another.
Although we make every effort to maintain the exchange privilege, Vanguard
reserves the right to revise or terminate the exchange privilege, limit the
amount of an exchange, or reject any exchange, at any time, without notice.
20
<PAGE> 25
Before you exchange into a new Vanguard fund, be sure to read its
prospectus. For a copy and for answers to questions you might have, call
Investor Information.
SELLING OR EXCHANGING SHARES ACCOUNT TYPE
BY TELEPHONE ALL TYPES EXCEPT RETIREMENT:
Call Vanguard Tele-Account* 24 hours a day
-- or Client Services during business hours
1-800-662-6273 -- to sell or exchange shares. You can
Vanguard Tele-Account(R) exchange shares from any of these Portfolios
to open an account in another Vanguard fund
1-800-662-2739 or to add to an existing Vanguard fund
Client Services account with an identical registration.
[PHONE]
RETIREMENT:
You can exchange -- but not sell -- shares
by calling Tele-Account or Client Services.
*You must obtain a Personal Identification
Number through Tele-Account at least seven
days before you request your first
redemption.
BY MAIL ALL TYPES EXCEPT RETIREMENT:
[ENVELOPE] Send a letter of instruction signed by all
FIRST-CLASS mail to: registered account holders. Include the
The Vanguard Group Portfolio name and account number and (if
Vanguard Treasury Fund OR you are selling) a dollar amount OR (if you
Vanguard Money Market Reserves are exchanging) the name of the fund you
P.O. Box 1120 want to exchange into and a dollar amount.
Valley Forge, PA 19482-1120 To exchange into an account with a different
registration (including a different name,
EXPRESS or REGISTERED mail to: address, or taxpayer identification number),
The Vanguard Group you must provide Vanguard with written
Vanguard Treasury Fund OR instructions that include the guaranteed
Vanguard Money Market Reserves signatures of all current account owners.
455 Devon Park Drive
Wayne, PA 19087-1815 RETIREMENT:
For information on how to request
distributions from:
- Traditional IRAs, Roth IRAs, Education
IRAs -- call Client Services.
- SEP-IRAs, 403(b)(7) custodial accounts,
SIMPLE IRAs, and Profit-Sharing and Money
Purchase Pension (Keogh) Plans -- call
Individual Retirement Plans at
1-800-662-2003.
Depending on your account registration type,
additional documentation may be required.
EXCHANGING SHARES ONLINE You may use your personal computer to
[COMPUTER] exchange shares of most Vanguard funds by
accessing Vanguard's website
(www.vanguard.com). To establish this
service for your account, you must first
register through our website. We will then
send to you, by mail, an account access
password that will enable you to make online
exchanges.
The Vanguard funds that you cannot purchase
or sell through online exchange are VANGUARD
INDEX TRUST, VANGUARD BALANCED INDEX FUND,
VANGUARD INTERNATIONAL EQUITY INDEX FUND,
VANGUARD REIT INDEX PORTFOLIO, VANGUARD
TOTAL INTERNATIONAL PORTFOLIO, AND VANGUARD
GROWTH AND INCOME PORTFOLIO. These funds do
permit online exchanges within IRAs and
other retirement accounts.
INVESTOR INFORMATION 1-800-662-7447 * CLIENT SERVICES 1-800-662-2739 *
TELE-ACCOUNT 1-800-662-6273
21
<PAGE> 26
Investor Information 1-800-662-7447 Client Services 1-800-662-2739
Tele-Account 1-800-662-6273
REDEEMING SHARES (continued)
BY CHECK ALL TYPES EXCEPT RETIREMENT:
[CHECK] You can sell shares by writing a
checkwriting draft for $250 or more.
RETIREMENT:
Checkwriting is not available for retirement
accounts.
AUTOMATICALLY ALL TYPES EXCEPT RETIREMENT:
[ARROWS] Vanguard offers several ways to sell or
exchange shares automatically (see "Services
and Account Features"). Call Investor
Information for the appropriate booklet and
application if you did not elect a feature
when you opened your account.
It is important that you call Vanguard before you redeem a large dollar amount.
We must consider the interests of all Portfolio shareholders and so reserve the
right to delay delivery of your redemption proceeds -- up to seven days -- if
the amount will disrupt a Portfolio's operation or performance.
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in the "Redeeming Shares" section.
TRANSFERRING REGISTRATION
HOW TO TRANSFER SHARES
You may transfer the registration of any of your Portfolio shares to another
owner by completing a transfer form and sending it to: The Vanguard Group,
Attention: Transfer Department, P.O. Box 1110, Valley Forge, PA 19482-1110.
PORTFOLIO AND ACCOUNT UPDATES
STATEMENTS AND REPORTS
We will send you clear, concise account and tax statements to help you keep
track of your Portfolio account throughout the year, as well as when you are
preparing your income tax returns.
In addition, you will receive financial reports about the Treasury Money
Market, Federal, and Prime Portfolios twice a year. These comprehensive reports
include an assessment of each Portfolio's performance (and a comparison to its
industry benchmark), an overview of the markets, a report from the adviser, a
listing of the Portfolio holdings, and other financial statements.
CONFIRMATION STATEMENT Sent each time you buy, sell, or exchange
shares; confirms the trade date and the
amount of your transaction.
22
<PAGE> 27
PORTFOLIO SUMMARY Mailed quarterly; shows the market value of
[BOOK] your account at the close of the statement
period, as well as distributions, purchases,
sales, and exchanges for the current
calendar year.
FUND FINANCIAL REPORTS Mailed in January and July for these
Portfolios.
TAX STATEMENTS Generally mailed in January; report previous
year's dividend distributions as well as
distributions from IRAs or other retirement
accounts.
CHECKWRITING STATEMENT Sent monthly to shareholders using
Vanguard's checkwriting option. Our clear,
easy-to-use statement provides images of the
front and back of each checkwriting draft
paid in the previous month. This
consolidated statement is sent instead of
the original canceled drafts, which will not
be returned.
AUTOMATED TELEPHONE ACCESS
VANGUARD TELE-ACCOUNT Toll-free access to Vanguard fund and
1-800-662-6273 account information -- as well as some
Any time, seven days a week, transactions -- through any TouchTone(TM)
from anywhere in the continental telephone. Tele-Account provides total
United States and Canada. return, share price, price change, and yield
quotations for all Vanguard funds; gives
your account balances and history (e.g.,
last transaction, latest dividend
distribution, redemptions by check during
the last three months); and allows you to
sell or exchange fund shares.
COMPUTER ACCESS
VANGUARD ONLINE(R) Use your personal computer to learn more
www.vanguard.com about Vanguard's funds and services; keep in
touch with your Vanguard accounts; map out a
long-term investment strategy; initiate
certain transactions; and ask questions,
make suggestions, and send messages to
Vanguard.
Our education-oriented website provides
timely news and information about Vanguard's
funds and services; an online "university"
that offers a variety of mutual fund
classes; and easy-to-use, interactive tools
to help you create your own investment and
retirement strategies.
Investor Information 1-800-662-7447 - Client Services 1-800-662-2739 -
Tele-Account 1-800-662-6273
23
<PAGE> 28
PLAIN TALK ABOUT
KEEPING YOUR PROSPECTUS
Reading this prospectus will help you to decide whether one or more of the
Portfolios is suitable for your investment goals. If you decide to invest, don't
throw the prospectus out; you will no doubt need it for future reference.
PROSPECTUS POSTSCRIPT
This prospectus is designed to provide you with pertinent information about the
Treasury Money Market, Federal, and Prime Portfolios, including their investment
objectives, risks, and expenses, as well as services available to you as a
shareholder.
It is important that you understand these facts so that you can decide
whether an investment in any of the Portfolios is right for you. The following
questions offer a quick review of some of the subjects covered by this
prospectus.
IN READING THE PROSPECTUS, DID YOU LEARN:
[ ] Each Portfolio's objectives? (page 7)
[ ] Each Portfolio's investment policies? (page 8)
[ ] Who should invest in each Portfolio? (page 7)
[ ] The risks associated with each Portfolio? (pages 7 - 11)
[ ] Whether each Portfolio is federally insured? (inside front cover)
[ ] Each Portfolio's expenses? (page 3)
[ ] The background of the Portfolios' investment managers? (page 14)
[ ] How to open an account? (pages 16 - 17)
[ ] How to sell or exchange shares? (pages 19-22)
[ ] How often you'll receive statements and financial reports?
(pages 22 - 23)
24
<PAGE> 29
GLOSSARY OF INVESTMENT TERMS
CASH RESERVES
Cash deposits as well as short-term bank deposits, money market instruments,
U.S. Treasury bills, bank certificates of deposit (CDs), repurchase agreements,
commercial paper, and banker's acceptances.
DIVERSIFICATION
Spreading your investments among many issuers (that is, organizations that sell
securities).
DIVIDEND INCOME
Payment to shareholders of net income from interest or dividends generated by
the fund's investments.
EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
marketing fees.
FIXED-INCOME SECURITIES
Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.
INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a portfolio's
investments.
LIQUIDITY
The degree of a security's marketability (that is, how quickly the security can
be sold at a fair price and converted to cash).
MONEY MARKET FUND
A mutual fund that seeks to provide income, liquidity, and a stable share price
by investing in very short-term, liquid investments.
MUTUAL FUND
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
PORTFOLIO DIVERSIFICATION
Holding a variety of securities so that a portfolio's return is not hurt by the
poor performance of a single security.
PRINCIPAL
The amount of your own money you put into an investment.
SECURITIES
Stocks, bonds, money market instruments, and other investment vehicles.
TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
VOLATILITY
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
YIELD
Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE> 30
<TABLE>
<S> <C> <C>
[VANGUARD LOGO]
THE VANGUARD GROUP(R)
Post Office Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION VANGUARD BROKERAGE ELECTRONIC ACCESS TO THE
DEPARTMENT SERVICES VANGUARD MUTUAL FUND
1-800-662-7447 (SHIP) 1-800-992-8327 EDUCATION AND INFORMATION
TEXT TELEPHONE: For information on trading CENTER
1-800-952-3335 stocks, bonds, and options World Wide Web
For information on our funds, at reduced commissions www.vanguard.com
fund services, and retirement
accounts; requests for VANGUARD TELE-ACCOUNT(R) E-mail
literature 1-800-662-6273 (ON-BOARD) [email protected]
For 24-hour automated access
CLIENT SERVICES DEPARTMENT to price and yield, information
1-800-662-2739 (CREW) on your account, and certain
TEXT TELEPHONE: transactions
1-800-662-2738
For information on your
account, account transactions,
and account statements
(C) 1998 Vanguard Marketing
Corporation, Distributor
P030N
</TABLE>
<PAGE> 31
VANGUARD MONEY
MARKET PORTFOLIOS
Institutional Prospectus
September 9, 1998
VANGUARD MONEY MARKET RESERVES
- - PRIME PORTFOLIO
- - FEDERAL PORTFOLIO
VANGUARD TREASURY MONEY MARKET PORTFOLIO
This prospectus contains financial data for the Portfolios through the fiscal
year ended November 30, 1997, and the six months ended May 31, 1998.
[VANGUARD]
<PAGE> 32
VANGUARD MONEY MARKET RESERVES,
VANGUARD TREASURY MONEY MARKET PORTFOLIO Money Market Mutual Funds
INVESTMENT OBJECTIVES AND POLICIES
Vanguard Money Market Reserves is a diversified, open-end investment
company that consists of two separate Portfolios: Federal and Prime. The
Treasury Money Market Portfolio is part of Vanguard Treasury Fund, which is a
diversified, open-end investment company as well.
Each Portfolio seeks to provide current income while maintaining
liquidity and a stable share price of $1. Each Portfolio focuses on specific
high-quality, short-term money market instruments, such as securities backed by
the full faith and credit of the U.S. government, securities issued by U.S.
government agencies, or obligations issued by corporations and financial
institutions.
IT IS IMPORTANT TO NOTE THAT EACH PORTFOLIO SEEKS TO MAINTAIN, BUT DOES
NOT GUARANTEE, A STABLE NET ASSET VALUE OF $1 PER SHARE. IN ADDITION, NONE OF
THE PORTFOLIOS' SHARES IS GUARANTEED OR INSURED BY THE FDIC, THE U.S.
GOVERNMENT, OR ITS AGENCIES.
FEES AND EXPENSES
The Portfolios are offered on a no-load basis, which means that you pay no sales
commissions or 12b-1 marketing fees. You will, however, incur expenses for
investment advisory, management, administrative, and distribution services,
which are included in each Portfolio's expense ratio.
IMPORTANT NOTE
This prospectus is intended for institutional clients and for participants in
employer-sponsored retirement or savings plans. Another version -- for
individuals who would like to open a personal account -- can be obtained by
calling Vanguard at 1-800-662-7447.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS
Statements of Additional Information (dated September 9, 1998) containing more
information about the Portfolios are, by reference, part of this prospectus and
may be obtained without charge by contacting Vanguard (see back cover) or
visiting the Securities and Exchange Commission's website (www.sec.gov).
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objectives, risks, and policies of the three
Portfolios. To highlight terms and concepts important to mutual fund investors,
we have provided "Plain Talk" explanations along the way. Reading the prospectus
will help you to decide whether one or more of the Portfolios is the right
investment for your needs. We suggest that you keep it for future reference.
CONTENTS
Portfolio Profile 1
Portfolio Expenses 3
Financial Highlights 5
A Word About Risk 7
The Portfolios'
Objectives 7
Who Should Invest 7
Investment Policies 8
Investment Limitations 11
Investment
Performance 11
Share Price 12
Dividends and Taxes 12
The Portfolios and
Vanguard 13
Investment Adviser 13
General Information 14
Investing
with Vanguard
- - For Plan Participants 15
- - For Other
Institutional Investors 15
Accessing Portfolio
Information
by Computer 16
Glossary Inside Back Cover
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
4
<PAGE> 33
Vanguard Money Market Reserves
Vanguard Treasury Money Market Portfolio
PORTFOLIO PROFILE
WHO SHOULD INVEST (page 7)
- - Investors seeking a money market mutual fund as part of a balanced and
diversified investment program.
- - Investors uncomfortable with share-price fluctuations.
- - Investors seeking income.
WHO SHOULD NOT INVEST
- - Investors seeking growth of their investment over time.
- - Investors looking for a fund that invests in stocks or bonds.
RISKS OF THE PORTFOLIOS (pages 7 - 11)
Each Portfolio is subject to income risk (the chance that falling short-term
interest rates will cause the Portfolio's income -- and thus the Portfolio's
return -- to decline) and manager risk (the chance that poor security selection
will cause a Portfolio to lag similar funds). In addition, while the credit
quality of all three Portfolios is expected to be very high, each Portfolio is
subject to some degree of credit risk (the chance that the issuer of a security
will be unable to pay interest and principal in a timely manner). More detailed
information about risk -- including risks specific to each Portfolio -- is
provided beginning on page 7.
DIVIDENDS (page 12)
Dividends are declared daily and paid on the first business day of each month.
In participant accounts, all distributions are automatically reinvested.
INVESTMENT ADVISER (page 13)
Vanguard Fixed Income Group, Valley Forge, Pa., manages each of the three
Portfolios.
AVERAGE ANNUAL TOTAL RETURNS --
PERIODS ENDED MAY 31, 1998
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Treasury Money Market
Portfolio* 5.2% 4.7% 5.5%
Lipper U.S. Treasury
Money Market Average 4.9 4.4 5.2
Federal Portfolio 5.4% 4.9% 5.7%
Lipper U.S. Government
Money Market Average 5.0 4.4 5.2
Prime Portfolio 5.5% 4.9% 5.8%
Lipper Non-Government
Money Market Average 5.0 4.5 5.3
</TABLE>
*Formerly known as Vanguard Money Market Reserves - U.S. Treasury Portfolio.
IN EVALUATING PAST PERFORMANCE, REMEMBER THAT IT IS NOT INDICATIVE OF FUTURE
PERFORMANCE. PERFORMANCE FIGURES INCLUDE THE REINVESTMENT OF ANY DIVIDENDS. THE
RETURNS SHOWN ARE NET OF EXPENSES, BUT THEY DO NOT REFLECT INCOME TAXES AN
INVESTOR WOULD HAVE INCURRED. AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT
THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
1
<PAGE> 34
Vanguard Money Market Reserves
Vanguard Treasury Money Market Portfolio
PORTFOLIO PROFILE (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
TREASURY
MONEY MARKET* FEDERAL PRIME
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCEPTION DATE: 3/9/1983 7/13/1981 6/4/1975
NET ASSETS AS OF 5/31/98: $3.50 billion $3.73 billion $29.28 billion
EXPENSE RATIO FOR THE SIX MONTHS
ENDED 5/31/1998 (ANNUALIZED): 0.33% 0.33% 0.33%
NEWSPAPER ABBREVIATION:** VangTrsy VangFdl VangPr
CUSIP NUMBER: 921948105 922906300 922906201
QUOTRON SYMBOL: VMPXX.Q VMFXX.Q VMMXX.Q
VANGUARD FUND NUMBER: 050 033 030
- -------------------------------------------------------------------------------------------------
</TABLE>
*On 12/2/1996, Vanguard Money Market Reserves - U.S. Treasury Portfolio was
reorganized as a separate portfolio of Vanguard Treasury Fund and renamed the
Treasury Money Market Portfolio. Prior to 3/13/1989, the Portfolio was known as
the Insured Portfolio.
**Money market portfolios are listed separately from the daily mutual fund
listings.
2
<PAGE> 35
PORTFOLIO EXPENSES
The examples below are designed to help you understand the various costs you
would bear, directly or indirectly, as an investor in one of the Portfolios.
As noted in this table, you do not pay fees of any kind when you buy, sell,
or exchange shares of any Portfolio:
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
The next table illustrates the operating expenses that you would incur as a
shareholder of each Portfolio. These expenses are deducted from the Portfolio's
income before it is paid to you. Expenses include investment advisory fees as
well as the costs of maintaining accounts, administering the Portfolios,
providing shareholder services, and other activities. The expenses shown in the
table are based upon expenses incurred in the fiscal year ended November 30,
1997.
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TREASURY
MONEY MARKET FEDERAL PRIME
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management and
Administrative Expenses: 0.27% 0.26% 0.26%
Investment Advisory Expenses: 0.01% 0.01% 0.01%
12b-1 Marketing Fees: None None None
Other Expenses
Marketing and Distribution
Costs: 0.03% 0.03% 0.03%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.01% 0.02% 0.02%
---- ---- ----
Total Other Expenses: 0.04% 0.05% 0.05%
---- ---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.32% 0.32% 0.32%
==== ==== ====
</TABLE>
PLAIN TALK ABOUT
THE COSTS OF INVESTING
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund plus any transaction
costs associated with buying, selling, or exchanging shares. These costs can
erode a substantial portion of the gross income a fund achieves. Even seemingly
small differences in fund expenses can, over time, have a dramatic impact on a
fund's performance.
PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the average net
assets of the fund. For instance, the Prime Portfolio's expense ratio in fiscal
year 1997 was 0.32%, or $3.20 per $1,000 of average net assets. The average
money market fund had expenses in 1997 of 0.83%, or $8.30 per $1,000 of average
net assets, according to Lipper Analytical Services, which reports on the mutual
fund industry.
3
<PAGE> 36
The following example is intended to help you compare the costs of investing
in a Portfolio to the cost of investing in other mutual funds, by illustrating
the hypothetical expenses that you would incur on a $1,000 investment over
various periods. The example assumes that (1) the Portfolio provides a return of
5% a year and (2) you redeem your investment at the end of each period.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury Money
Market $3 $10 $18 $41
Federal $3 $10 $18 $41
Prime $3 $10 $18 $41
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
4
<PAGE> 37
FINANCIAL HIGHLIGHTS
The following financial highlights tables show the results for a share
outstanding of each Portfolio for each of the fiscal years in the decade ended
November 30, 1997, and the six months ended May 31, 1998. The financial
statements for the fiscal year ended November 30, were audited by
PricewaterhouseCoopers LLP, independent accountants. The information for the
six-month period ended May 31, 1998, has not been audited by independent
accountants. You should read this information in conjunction with each
Portfolio's financial statements and accompanying notes, which appear, along
with the audit report from PricewaterhouseCoopers, in Vanguard Money Market
Reserves' and Vanguard Treasury Money Market Portfolio's most recent annual
report to shareholders. The annual report is incorporated by reference in the
Statements of Additional Information and in this prospectus, and contains a more
complete discussion of each Portfolio's performance. You may have the report
sent to you without charge by writing to or calling Vanguard (see back cover).
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
This explanation uses the Treasury Money Market Portfolio as an example. The
Treasury Money Market Portfolio began fiscal 1997 with a net asset value (price)
of $1 per share. During the six months ended May 31, 1998, the Portfolio earned
$0.025 per share from investment income (interest and dividends). All of these
earnings were returned to shareholders in the form of dividend distributions.
The earnings ($0.025 per share) less distributions ($0.025 per share) resulted
in a share price of $1 at the end of the period. Assuming that the shareholder
had reinvested the distribution in the purchase of more shares, total return
from the Portfolio was 2.55% for the period.
As of May 31, 1998, the Portfolio had $3.50 billion in net assets; an annualized
expense ratio of 0.33% ($3.30 per $1,000 of net assets); and net investment
income amounting to 5.05% of its average net assets.
<TABLE>
<CAPTION>
TREASURY MONEY MARKET PORTFOLIO*
-----------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -----------------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .025 .050 .050 .053 .036 .028 .036
Net Realized and Unrealized
Gain (Loss) on Investments -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS .025 .050 .050 .053 .036 .028 .036
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.025) (.050) (.050) (.053) (.036) (.028) (.036)
Distributions from
Realized Capital Gains -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.025) (.050) (.050) (.053) (.036) (.028) (.036)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================================================================================================================
TOTAL RETURN 2.55% 5.10% 5.11% 5.47% 3.63% 2.86% 3.68%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $ 3,500 $ 3,237 $ 2,917 $ 2,527 $ 2,056 $ 1,751 $ 2,321
Ratio of Total Expenses to
Average Net Assets 0.33%+ 0.32% 0.32% 0.32% 0.32% 0.32% 0.30%
Ratio of Net Investment
Income to Average
Net Assets 5.05%+ 4.98% 4.99% 5.33% 3.59% 2.83% 3.60%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TREASURY MONEY MARKET PORTFOLIO*
---------------------------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------
1991 1990 1989 1988
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .058 .077 .085 .068
Net Realized and Unrealized
Gain (Loss) on Investments -- -- -- --
---------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS .058 .077 .085 .068
DISTRIBUTIONS
Dividends from Net
Investment Income (.058) (.077) (.085) (.068)
Distributions from
Realized Capital Gains -- -- -- --
---------------------------------------------------
TOTAL DISTRIBUTIONS (.058) (.077) (.085) (.068)
- ---------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
=================================================================================
TOTAL RETURN 5.94% 8.02% 8.89% 7.02%
=================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $ 2,092 $ 1,594 $ 412 $ 140
Ratio of Total Expenses to
Average Net Assets 0.30% 0.30% 0.31%** 0.70%**
Ratio of Net Investment
Income to Average
Net Assets 5.76% 7.74% 8.44% 6.85%
- ---------------------------------------------------------------------------------
</TABLE>
*Formerly known as Vanguard Money Market Reserves - U.S. Treasury Portfolio
(prior to 12/2/1996) and the Insured Portfolio (prior to 3/13/1989).
**Insurance premiums represent 0.03% and 0.37%, respectively.
+ Annualized.
5
<PAGE> 38
<TABLE>
<CAPTION>
FEDERAL PORTFOLIO
-------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -------------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .026 .052 .051 .056 .038 .029 .038 .060 .078 .088 .070
Net Realized and Unrealized
Gain (Loss) on Investments -- -- -- -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS .026 .052 .051 .056 .038 .029 .038 .060 .078 .088 .070
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.026) (.052) (.051) (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070)
Distributions from
Realized Capital Gains -- -- -- -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.026) (.052) (.051) (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================================
TOTAL RETURN 2.67% 5.35% 5.26% 5.77% 3.82% 2.98% 3.83% 6.18% 8.14% 9.15% 7.20%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $3,731 $3,495 $3,100 $2,637 $2,196 $1,907 $1,986 $2,000 $1,950 $1,531 $1,214
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.32% 0.32% 0.32% 0.32% 0.32% 0.30% 0.30% 0.30% 0.28% 0.33%
Ratio of Net Investment
Income to Average
Net Assets 5.28%* 5.22% 5.13% 5.61% 3.78% 2.94% 3.76% 6.01% 7.90% 8.78% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
PRIME PORTFOLIO - INVESTOR SHARES
-----------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
SIX MONTHS ENDED -----------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .027 .053 .052 .057 .038 .030 .038 .062
Net Realized and Unrealized
Gain (Loss) on Investments -- -- -- -- -- -- -- --
TOTAL FROM INVESTMENT ----------------------------------------------------------------------------------
OPERATIONS .027 .053 .052 .057 .038 .030 .038 .062
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.027) (.053) (.052) (.057) (.038) (.030) (.038) (.062)
Distributions from
Realized Capital Gains -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.027) (.053) (.052) (.057) (.038) (.030) (.038) (.062)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
============================================================================================================================
TOTAL RETURN 2.70% 5.41% 5.31% 5.82% 3.87% 3.02% 3.89% 6.39%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $29,289 $26,480 $22,218 $18,764 $15,109 $12,367 $12,638 $13,496
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.32% 0.32% 0.32% 0.32% 0.32% 0.30% 0.30%
Ratio of Net Investment
Income to Average
Net Assets 5.35%* 5.28% 5.18% 5.64% 3.84% 2.98% 3.82% 6.20%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRIME PORTFOLIO - INVESTOR SHARES
---------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------
1990 1989 1988
- ------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period $1.00 $1.00 $1.00
---------------------------
Investment Operations
Net Investment Income .080 .090 .072
Net Realized and Unrealized
Gain (Loss) on Investments -- -- --
Total from Investment
---------------------------
Operations .080 .090 .072
- ------------------------------------------------------------
Distributions
Dividends from Net
Investment Income (.080) (.090) (.072)
Distributions from
Realized Capital Gains -- -- --
---------------------------
Total Distributions (.080) (.090) (.072)
- ------------------------------------------------------------
Net Asset Value,
End of Period $1.00 $1.00 $1.00
============================================================
Total Return 8.32% 9.40% 7.47%
============================================================
Ratios/Supplemental Data
Net Assets, End of
Period (Millions) $13,579 $11,067 $6,863
Ratio of Total Expenses to
Average Net Assets 0.30% 0.28% 0.33%
Ratio of Net Investment
Income to Average
Net Assets 8.06% 9.05% 7.28%
- ------------------------------------------------------------
</TABLE>
*Annualized.
From time to time, the Vanguard funds advertise yield and total return
figures. Yield is a historical measure of dividend income, and total return is a
measure of past dividend income (assuming that it has been reinvested) plus
realized and unrealized capital appreciation (or depreciation). Neither yield
nor total return should be used to predict the future performance of a fund.
6
<PAGE> 39
A WORD ABOUT RISK
This prospectus describes the risks you would face as an investor in the
Treasury Money Market, Federal, and Prime Portfolios. It is important to keep in
mind one of the main axioms of investing: The higher the risk of losing money,
the higher the potential reward. The reverse, also, is generally true: The lower
the risk, the lower the potential reward. As you consider an investment in one
or more of the Portfolios, you should weigh your desire for income with your
need to protect your investment.
Look for this "warning flag" symbol [FLAG] throughout the prospectus.
It is used to mark detailed information about each type of risk that you, as a
shareholder of any of the three Portfolios, would confront.
THE PORTFOLIOS' OBJECTIVES
Each Portfolio seeks to provide current income while maintaining liquidity and a
stable net asset value of $1 per share. These objectives are fundamental, which
means that they cannot be changed unless a majority of a Portfolio's
shareholders vote to do so.
WHO SHOULD INVEST
Any of the Portfolios may be a suitable investment for you if:
- - You wish to add a money market portfolio to your existing holdings,
which could include other cash--as well as stock and bond--investments.
- - You want an investment that does not fluctuate in value.
- - You want income.
- - You characterize your investment temperament as "very conservative."
Each Portfolio is intended to serve most investors' short-term needs.
However, investors who engage in excessive in-and-out trading activity generate
additional costs that are borne by all of the Portfolio's shareholders. To
minimize such costs, which reduce the ultimate returns achieved by you and other
shareholders, the Portfolios have adopted the following policies:
- - Each of the Portfolios reserves the right to reject any purchase
request--including exchanges from other Vanguard funds--that it regards
as disruptive to the efficient management of the Portfolio. This could
be because of the timing of the investment or because of a history of
excessive trading by the investor.
- - The Portfolios reserve the right to stop offering shares at any time.
If you own shares of one of the Portfolios as an investment option in
an employer-sponsored retirement or savings plan, your plan dictates the rules
governing exchanges. Contact your plan administrator for details.
7
<PAGE> 40
PLAIN TALK ABOUT
CASH RESERVES
Cash reserves are investments that can be easily converted into cash with little
or no cost or penalty. A money market mutual fund, a checking account or
certificate of deposit (CD) at a bank, or Treasury bills issued by the U.S.
government are examples of cash reserves. Keep in mind, however, that each type
varies in its credit quality and its ability to provide a competitive yield.
PLAIN TALK ABOUT
CONVERSION PERIOD FOR MONEY MARKET FUNDS
Before it can begin earning dividends, your investment in a money market fund
must be converted to federal funds, which are Federal Reserve deposits that
banks and other financial institutions "borrow" from one another to meet
short-term cash needs--and which fund advisers must use to pay for the
securities they buy. Conversion of your money market investment to federal funds
is done by the fund management and usually takes one business day. Because of
this conversion period, your money market account will be credited on the
business day following the day your investment is received. You will begin
earning dividends on your investment on the next calendar day. For example, if
your check is received on a Thursday before the close of trading on the New York
Stock Exchange, your account will be credited the next business day (Friday) and
you will begin earning dividends on Saturday.
INVESTMENT POLICIES
This section explains how the Portfolios' investment adviser pursues the
objectives of income, liquidity, and stability. It also explains several
important risks--income risk, manager risk, and credit risk--faced by Portfolio
shareholders. Unlike the Portfolios' objectives, the Portfolios' policies are
not fundamental and can be changed by a Portfolio's Board of Trustees without
shareholder approval. However, before making any important change in its
policies, a Portfolio will give shareholders 30 days' notice, in writing.
MARKET EXPOSURE
Each Portfolio invests in very high-quality money market instruments--also known
as cash reserves--that are considered short term (that is, they mature in 13
months or less). Each Portfolio will maintain a dollar-weighted average maturity
of 90 days or less.
[FLAG] EACH PORTFOLIO IS SUBJECT TO INCOME RISK, WHICH IS THE POSSIBILITY THAT
A PORTFOLIO'S DIVIDENDS (THAT IS, INCOME) WILL DECLINE BECAUSE OF
FALLING INTEREST RATES. BECAUSE THE PORTFOLIOS' INCOME IS BASED ON
SHORT-TERM INTEREST RATES--WHICH CAN FLUCTUATE SIGNIFICANTLY OVER SHORT
PERIODS--INCOME RISK IS EXPECTED TO BE HIGH FOR ALL THREE PORTFOLIOS.
To illustrate how the yields of short-term securities can fluctuate as
interest rates rise and fall, the following chart shows month-end yields for
short-term securities (as represented by 90-day Treasury bills) and long-term
securities (as represented by 30-year U.S. Treasury bonds) over the past five
years.
SHORT-TERM AND LONG-TERM MONTH-END YIELDS
1993-1997
[LINE GRAPH]
These yields reflect past performance and should not be regarded as an
indication of future returns from either Treasury bills or bonds as a whole or
any of the Portfolios in particular.
8
<PAGE> 41
SECURITY SELECTION
Vanguard Fixed Income Group, adviser to the Portfolios, selects high-quality
money market instruments. Each Portfolio focuses on securities of a particular
class of issuer (for example, the U.S. government, U.S. government agencies,
financial institutions).
[FLAG] EACH PORTFOLIO IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY
THAT VANGUARD FIXED INCOME GROUP MAY DO A POOR JOB OF SELECTING
SECURITIES.
The Treasury Money Market Portfolio invests solely in securities whose
interest and principal payments are backed by the full faith and credit of the
U.S. government. At least 80% of the Portfolio's assets will always be invested
in U.S. Treasury securities. The remainder of the Portfolio's assets may include
securities issued by the U.S. Treasury and other government agencies, such as
the Government National Mortgage Association (GNMA), the Small Business
Administration, and the Federal Financing Bank.
The Federal Portfolio invests in securities whose interest and
principal payments are backed by the full faith and credit of the U.S.
government or by an agency of the government (these agency securities are not
backed by the full faith and credit of the U.S. government). These agencies
include, among others, the Federal Home Loan Bank, the Federal National Mortgage
Association (FNMA), the Tennessee Valley Authority, and the Federal Land Bank.
The Prime Portfolio invests in certificates of deposit, banker's
acceptances, commercial paper, and other money market securities rated Prime-1
by Moody's Investors Service, Inc., or A-1 by Standard & Poor's Corporation.
Securities that are unrated must be issued by a corporation with a debt rating
of Aa3 or better by Moody's or AA- or better by Standard & Poor's. The Prime
Portfolio also invests in short-term corporate, state, and municipal obligations
rated Aa3 or better by Moody's or AA- or better by Standard & Poor's, and in
securities that are considered suitable for the Federal Portfolio (see the
previous paragraph).
The Prime Portfolio may also invest in Eurodollar and Yankee
obligations, which are certificates of deposit issued in U.S. dollars by foreign
banks and foreign branches of U.S. banks. Eurodollar and Yankee obligations have
the same risks, such as income risk and credit risk, as U.S. money market
instruments. Other risks of Eurodollar and Yankee obligations include the
possibility that a foreign government will not let U.S. dollar-denominated
assets leave the country; the possibility that the banks that issue Eurodollar
obligations may not be subject to the same regulations as U.S. banks; and the
possibility that adverse political or economic developments will affect
investments in a foreign country. Before the Portfolio's adviser selects a
Eurodollar or Yankee obligation, however, any foreign issuer undergoes the same
credit-quality analysis and tests of financial strength as the issuers of
domestic securities.
PLAIN TALK ABOUT
MONEY MARKET INSTRUMENTS
The term "money market instruments" refers to a variety of short-term
investments, usually with a maturity of 13 months or less. Some common types are
Treasury bills and notes, which are securities issued by the U.S. government;
commercial paper, which is a promissory note issued by a large company or
financial firm; banker's acceptances, which are credit instruments guaranteed by
a bank; and negotiable certificates of deposit, which are issued by banks in
large denominations.
PLAIN TALK ABOUT
CREDIT QUALITY AND RATINGS
A money market instrument's credit quality depends upon the issuer's ability to
pay interest on the security and, ultimately, to repay the debt. The lower the
rating by one of the independent bond-rating agencies (for example, Moody's or
Standard & Poor's), the greater the chance (in the rating agency's opinion) the
security's issuer will default, or fail to meet its payment obligations. Direct
U.S. Treasury obligations (that is, securities backed by the U.S. government)
carry the highest credit ratings. All things being equal, money market
instruments with greater credit risk offer higher yields.
9
<PAGE> 42
PLAIN TALK ABOUT
REPURCHASE AGREEMENTS
A means of investing money for a short period, repurchase agreements are
contracts in which a U.S. commercial bank or securities dealer sells government
securities and agrees to repurchase the securities on a specific date (normally
the next business day) and at a specific price.
PLAIN TALK ABOUT
DERIVATIVES
A derivative is a financial contract whose value, or interest rate, is based on
(or "derived" from) a traditional security (such as a stock or bond), money
market benchmark (such as U.S. Treasury bill rates or Federal Funds Effective
Rate), an asset (such as a commodity like gold), or a market index (such as the
S&P 500 Index).
In addition, each Portfolio may invest up to 10% of its net assets in restricted
or illiquid securities. Restricted or illiquid securities are not freely
marketable or are subject to legal restrictions on their sale.
[FLAG] EACH PORTFOLIO IS SUBJECT, TO A LIMITED EXTENT, TO CREDIT RISK, WHICH
IS THE POSSIBILITY THAT THE ISSUER OF A SECURITY WILL BE UNABLE TO
REPAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
The three Portfolios differ mainly in terms of credit risk. In absolute
terms, each Portfolio's credit quality is very high.
In relative terms, the Treasury Money Market Portfolio, which invests
in securities backed by the full faith and credit of the U.S. government, offers
the lowest credit risk -- and generally the lowest yield -- of the three
Portfolios.
Not all of the securities included in the Federal Portfolio are backed
by the full faith and credit of the U.S. government, and so the Portfolio's
potential credit risk and yield are somewhat higher than the Treasury Money
Market Portfolio.
While the credit quality of its securities is very high, the Prime
Portfolio invests in money market securities of private financial and
nonfinancial corporations; therefore, it offers the highest credit risk and
generally the highest yield of the three Portfolios.
Bear in mind that, while each Portfolio invests in high-quality money
market instruments, the three Portfolios are not insured or guaranteed by the
FDIC or any other agency of the U.S. government.
[FLAG] THE PRIME AND FEDERAL PORTFOLIOS RESERVE THE RIGHT TO INVEST IN
REPURCHASE AGREEMENTS, WHICH ARE SUBJECT TO SPECIFIC RISKS.
Repurchase agreements carry several risks. For instance, if the seller is
unable to repurchase the securities as promised, the Portfolio may experience a
loss when trying to sell the securities to another person. Or, if the seller
becomes insolvent, a bankruptcy court may determine that the securities do not
belong to the Portfolio and order that the securities be sold to pay off the
seller's debts. The Portfolio's adviser believes that these risks can be
controlled through careful security selection and monitoring.
[FLAG] THE PORTFOLIOS RESERVE THE RIGHT TO INVEST, TO A LIMITED EXTENT, IN
FLOATING-RATE SECURITIES, WHICH ARE TRADITIONAL TYPES OF DERIVATIVES.
A floating-rate security's interest rate, as the name implies, is not set;
instead, it fluctuates periodically. Generally, the security's yield is based on
a U.S. dollar-based interest-rate benchmark such as the Federal Funds Rate, the
90-day Treasury bill rate, or the London Interbank Offered Rate (LIBOR). These
securities reset their yields
10
<PAGE> 43
on a periodic basis (for example, daily, weekly, or quarterly) and are closely
correlated to changes in money market interest rates.
The Portfolios will not use derivatives for speculative purposes or as
leveraged investments that magnify the risks of an investment.
PORTFOLIO TURNOVER
Because of the short-term nature of money market instruments, the turnover rate
for each Portfolio is expected to be high. This high turnover rate should not
increase Portfolio costs, however, since brokerage commissions are not usually
charged for the purchase or sale of money market instruments.
INVESTMENT LIMITATIONS
The Portfolios have adopted limitations on some of their investment policies.
Some of these limitations are that each Portfolio will not:
- - Invest more than 5% of its assets in the securities of any one issuer,
excluding the U.S. government.
- - Invest more than 25% of its assets in any one industry, excluding
obligations of the U.S. government, certificates of deposit, and U.S.
banker's acceptances.
- - Borrow money from a bank, except for temporary or emergency purposes.
Amounts borrowed will not exceed 15% of the Portfolio's net assets.
When borrowing exceeds 5% of the Portfolio's net assets, the Portfolio
will not make additional investments. In borrowing, each Portfolio may
be leveraged and may rise or fall in value more rapidly.
A complete list of the Portfolios' investment limitations can be found
in the Statements of Additional Information. These limitations are fundamental
and may be changed only by approval of a majority of the Portfolios'
shareholders.
INVESTMENT PERFORMANCE
The Portfolios invest in short-term securities; therefore, their performance is
closely correlated to short-term interest rates. Historically, short-term
interest rates' up-and-down fluctuations have been influenced primarily by
Federal Reserve policy and by market supply and demand.
PLAIN TALK ABOUT
Whenever you see information on a fund's performance, do not consider the
figures to be an indication of the performance you could expect by making an
investment in the fund today. The past is an imperfect guide to the future;
history does not repeat itself in neat, predictable patterns.
11
<PAGE> 44
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED MAY 31, 1998
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Treasury Money Market Portfolio* 5.2% 4.7% 5.5%
Lipper U.S. Treasury
Money Market Average 4.9 4.4 5.2
Federal Portfolio 5.4% 4.9% 5.7%
Lipper U.S. Government
Money Market Average 5.0 4.4 5.2
Prime Portfolio 5.5% 4.9% 5.8%
Lipper Non-Government
Money Market Average 5.0 4.5 5.3
</TABLE>
*Formerly known as Vanguard Money Market Reserves - U.S. Treasury Portfolio
(prior to 12/2/96) and Insured Portfolio (prior to 3/13/89).
The results shown above represent the Portfolios' "average annual total
return" performance, which assumes that any distributions of dividends were
reinvested for the indicated periods. Also included is comparative information
on industry money market averages. The chart does not make any allowance for
federal, state, or local income taxes that shareholders must pay on a current
basis.
SHARE PRICE
Each Portfolio's share price, called its net asset value, is expected to remain
at a constant $1. Although the stable share price is not guaranteed, the
Portfolios are managed and securities are purchased to maintain that price.
DIVIDENDS AND TAXES
Each Portfolio's dividends accrue daily. On the first business day of every
month, the Portfolios distribute to shareholders virtually all of their income
from interest as dividend distributions.
If you own shares of a Portfolio as an investment option in an
employer-sponsored retirement or savings plan, these dividends will be
reinvested in additional Portfolio shares and accumulate on a tax-deferred
basis. You will not owe taxes on these distributions until you begin
withdrawals. You should consult your plan administrator, your plan's Summary
Plan document, or your own tax adviser about the tax consequences of an
investment in a Portfolio or of any plan withdrawals.
If your Portfolio investment is not part of an employer-sponsored
plan, you can choose to receive distributions in cash, or you can have them
automatically reinvested in more shares of the Portfolio. Dividend distributions
- -- whether received in cash or reinvested in additional shares -- are subject to
federal (and possibly
12
<PAGE> 45
state and local) income taxes, no matter how long you have held the shares in
the Portfolio. In addition, if your investment is not part of an
employer-sponsored plan, you may be eligible for other tax considerations:
- - Depending on your state's tax rules, the portion of a Portfolio's
dividends that comes from U.S. Treasury securities and other "direct"
U.S. Treasury obligations may be exempt from state and local taxes. The
Portfolios will notify you each year how much, if any, of your
distribution may qualify for this exemption.
- - As a Delaware business trust and a portfolio made up of direct U.S.
government obligations, the Treasury Money Market Portfolio should be
exempt from any intangibles taxes. The Portfolio will notify you each
year how much, if any, of the Portfolio's assets qualify for this
exemption.
You should consult your own tax adviser about other tax consequences of an
investment in any of the Portfolios.
THE PORTFOLIOS AND VANGUARD
The Portfolios of Vanguard Treasury Fund and Vanguard Money Market Reserves (the
Funds) are members of The Vanguard Group, a family of more than 30 investment
companies with more than 95 distinct investment portfolios and total net assets
of more than $390 billion. All of the Vanguard funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each fund
pays its allocated share of The Vanguard Group's costs.
A list of each Fund's Trustees and officers, and their present
positions and principal occupations during the past five years, can be
found in each Fund's Statement of Additional Information.
INVESTMENT ADVISER
Vanguard Fixed Income Group, P.O. Box 2600, Valley Forge, PA 19482, provides
advisory services on an at-cost basis to the Treasury Money Market, Federal, and
Prime Portfolios. For the six months ended May 31, 1998, the investment advisory
expenses for each Portfolio represented an effective annual rate of 0.01% of
each Portfolio's average net assets.
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE
The Vanguard Group, Inc. is the only MUTUAL mutual fund company. It is owned
jointly by the funds it oversees and by the shareholders in those funds. Other
mutual funds are operated by for-profit management companies that may be owned
by one person, by a group of individuals, or by investors who bought the
management company's publicly traded stock. Because of its structure, Vanguard
operates its funds at cost. Instead of distributing profits from operations to a
separate management company, Vanguard returns profits to fund shareholders in
the form of lower operating expenses.
13
<PAGE> 46
PLAIN TALK ABOUT
THE PORTFOLIOS' ADVISER
Vanguard Fixed Income Group provides investment advisory services to more than
40 Vanguard portfolios; as of May 31, 1998, the Group managed more than $100
billion in assets.
The managers responsible for the Portfolios' investments are:
IAN A. MACKINNON, Managing Director of Vanguard; has worked in
investment management since 1974; primary responsibility for Vanguard's internal
fixed-income policy and strategy since 1981; B.A., Lafayette College, M.B.A.,
Pennsylvania State University.
ROBERT F. AUWAERTER, Principal of Vanguard and Portfolio Manager; has
worked in investment management since 1978; B.S., University of Pennsylvania,
M.B.A., Northwestern University.
JOHN HOLLYER, Principal of Vanguard and Portfolio Manager; has worked
in investment management since 1987; B.S., University of Pennsylvania.
DAVID R. GLOCKE, Principal of Vanguard and Portfolio Manager; has
worked in investment management since 1991; B.S., University of Wisconsin.
Mr. Auwaerter, Mr. Hollyer, and Mr. Glocke manage the Portfolios on a
day-to-day basis. Mr. MacKinnon is responsible for setting the Portfolios' broad
investment policies and for overseeing the Portfolio managers.
The Group places all orders for purchases and sales for Portfolio
securities, and is directed to get the best available price and most favorable
execution with respect to all transactions.
GENERAL INFORMATION
Effective May 29, 1998, Vanguard Money Market Reserves, Inc., was reorganized
from a corporation under the laws of the state of Maryland into a Delaware
business trust. Until December 2, 1996, the Treasury Money Market Portfolio was
a Portfolio of Vanguard Money Market Reserves, known as the U.S. Treasury
Portfolio. On that date, the Treasury Money Market Portfolio was reorganized
into a Portfolio of Vanguard Treasury Fund, a Delaware business trust.
Shareholders of the Funds' Portfolios have rights and privileges
similar to those enjoyed by other trust shareholders. For example, shareholders
will not be responsible for any liabilities of the trust. If any matters are to
be voted on by shareholders (such as a change in a fundamental investment
objective or the election of Directors or Trustees), shareholders would be
entitled to one vote for each dollar of net asset value owned. Annual meetings
will not be held by the Funds except as required by the Investment Company Act
of 1940.
The Prime Portfolio features two separate classes of shares. For
investments of $10 million or more, the Portfolio offers Prime Portfolio
Institutional Shares (available through a separate prospectus); for investments
of lesser amounts the Portfolio offers Prime Portfolio Investor Shares, which is
the share class described in this prospectus (for institutional clients and
participants in employer-sponsored retirement or savings plans) and in a
separate prospectus for individual investors. Prime Portfolio Institutional
Shares and Prime Portfolio Investor Shares do not have the same expenses; as a
result, the performance of these separate share classes could differ.
"Standard & Poor's," "Standard & Poor's 500," "S&P," and "500" are trademarks of
The McGraw-Hill Companies, Inc.
14
<PAGE> 47
INVESTING WITH VANGUARD
FOR PLAN PARTICIPANTS
One or more of the three Portfolios described in this prospectus is an
investment option in your retirement or savings plan. Your plan administrator or
your employee benefits office can provide you with detailed information on how
to participate in your plan and how to elect a Portfolio as an investment
option.
- - If you have any questions about a Portfolio or Vanguard, including the
Portfolio's investment objectives, policies, or risks, contact
Vanguard's Participant Services Center, toll-free, at 1-800-523-1188.
- - If you have questions about your account, contact your plan
administrator or the organization that provides record keeping services
for your plan.
INVESTMENT OPTIONS AND ALLOCATIONS
Your plan's specific provisions may allow you to change your investment
selections, the amount of your contributions, or how your contributions are
allocated among the investment choices available to you. Contact your plan
administrator or employee benefits office for more details.
TRANSACTIONS
Contributions, exchanges, or redemptions of a Portfolio's shares are processed
as soon as they have been received by Vanguard in good order. Good order means
that your request includes complete information on your contribution, exchange,
or redemption, and that Vanguard has received the appropriate assets.
EXCHANGES
The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. Although we
make every effort to maintain the exchange privilege, Vanguard reserves the
right to revise or terminate the exchange privilege, limit the amount of an
exchange, or reject any exchange, at any time, without notice. Because excessive
exchanges can potentially disrupt the management of a Portfolio and increase its
transaction costs, Vanguard limits exchange activity to FOUR SUBSTANTIVE
EXCHANGE REDEMPTIONS (at least 30 days apart) from any Portfolio during any
12-month period. "Substantive" means either a dollar amount or a series of
movements between Vanguard funds that Vanguard determines, in its sole
discretion, could have an adverse impact on the management of the Fund. In
addition, certain investment options, particularly funds made up of company
stock or investment contracts, may be subject to unique restrictions. Contact
your plan administrator for details on the exchange policies that apply to your
plan.
Before making an exchange, you should consider the following:
- - Before you exchange to another Vanguard fund available in your plan,
you should read that fund's prospectus. Contact Vanguard's Participant
Services Center, toll-free, at 1-800-523-1188 for a copy.
- - Vanguard can accept exchanges only as permitted by your plan. Your plan
administrator can explain how frequently exchanges are allowed.
FOR OTHER INSTITUTIONAL INVESTORS
If you have questions about the Treasury Money Market, Federal, or Prime
Portfolios, including how to establish an account, call Vanguard, toll-free, at
1-800-523-1036.
If you have questions about an existing account, contact your Vanguard
account administrator.
15
<PAGE> 48
INVESTING WITH VANGUARD (continued)
TRANSACTIONS
Purchases, exchanges, or redemptions of a Portfolio's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your purchase, exchange, or
redemption, and that Vanguard has received the appropriate assets.
Vanguard must consider the interests of all Portfolio shareholders and
so reserves the right to:
- - Delay or reject any purchase or exchange request that may disrupt the
Portfolio's operation or performance.
- - Revise or terminate the exchange privilege or limit the amount of an
exchange, at any time, without notice.
- - Take up to seven days to deliver your redemption proceeds.
- - Pay redemption proceeds -- in whole or in part -- through a
distribution in kind of readily marketable securities.
ACCESSING PORTFOLIO INFORMATION BY COMPUTER
VANGUARD ONLINE(R)
www.vanguard.com
Use your personal computer to learn more about Vanguard's funds and services;
keep in touch with your Vanguard accounts; map out a long-term investment
strategy; initiate certain transactions; and ask questions, make suggestions,
and send messages to Vanguard.
Our education-oriented website provides timely news and information about
Vanguard's funds and services; an online "university" that offers a variety of
mutual fund classes; and easy-to-use, interactive tools to help you create your
own investment and retirement strategies.
16
<PAGE> 49
GLOSSARY OF INVESTMENT TERMS
CASH RESERVES
Cash deposits as well as short-term bank deposits, money market instruments,
U.S. Treasury bills, bank certificates of deposit (CDs), repurchase agreements,
commercial paper, and banker's acceptances.
DIVERSIFICATION
Spreading your investments among many issuers (that is, organizations that sell
securities).
DIVIDEND INCOME
Payment to shareholders of net income from interest or dividends generated by
the fund's investments.
EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
marketing fees.
FIXED-INCOME SECURITIES
Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.
INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a portfolio's
investments.
LIQUIDITY
The degree of a security's marketability (that is, how quickly the security can
be sold at a fair price and converted to cash).
MONEY MARKET FUND
A mutual fund that seeks to provide income, liquidity, and a stable share price
by investing in very short-term, liquid investments.
MUTUAL FUND
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
PORTFOLIO DIVERSIFICATION
Holding a variety of securities so that a portfolio's return is not hurt by the
poor performance of a single security.
PRINCIPAL
The amount of your own money you put into an investment.
SECURITIES
Stocks, bonds, money market instruments, and other investment vehicles.
TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
VOLATILITY
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
YIELD
Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE> 50
[VANGUARD LOGO]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482
FOR PARTICIPANTS IN
EMPLOYER-SPONSORED PLANS
PARTICIPANT SERVICES
CENTER
1-800-523-1188
TEXT TELEPHONE:
1-800-523-8004
For information on the
Vanguard funds in your plan,
Monday through Friday
8:30 a.m. to 9 p.m.,
Eastern time
FOR OTHER INSTITUTIONAL
INVESTORS
1-800-523-1036
For information on Vanguard funds and services
ELECTRONIC ACCESS TO THE VANGUARD MUTUAL
FUND EDUCATION AND INFORMATION CENTER
World Wide Web
www.vanguard.com
E-mail
[email protected]
(C) 1998 Vanguard Marketing
Corporation, Distributor
I030N
<PAGE> 51
PART B
VANGUARD TREASURY FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 9, 1998
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated September 9, 1998). To obtain the
Prospectus please call the Investor Information Department:
1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund.................................................... 1
Investment Objectives and Policies.......................... 1
Investment Limitations...................................... 2
Yield and Total Return...................................... 3
Calculation of Yield........................................ 4
The Share Price of the Fund................................. 4
Purchase of Shares.......................................... 5
Redemption of Shares........................................ 5
Shareholder Services........................................ 5
Comparative Indexes......................................... 7
Management of the Fund...................................... 9
Description of the Trust.................................... 12
Financial Statements........................................ 13
Appendix -- Description of Securities and Ratings........... 13
</TABLE>
THE FUND
Vanguard Treasury Fund (the "Fund") is an open-end, diversified, management
investment company whose shares are currently offered in one distinct Portfolio.
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objective and policies set
forth in the Fund's Prospectus:
RESTRICTED SECURITIES The Portfolio may invest in restricted securities
(privately placed debt securities) and other securities which are not readily
marketable, but will not acquire such securities if as a result they, together
with the aggregate of other securities for which no quotations are readily
available, would comprise more than 10% of the value of the Portfolio's net
assets. Pursuant to Section 4(2) of the Securities Act of 1933 and Rule 144A
under the Securities Act of 1933, as amended, if a substantial market among
qualified institutional buyers develops for restricted securities held by any
Portfolio, the Fund intends to treat such securities as liquid securities, in
accordance with procedures approved by the Fund's Board of Trustees.
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933. Where registration is required, a
Portfolio may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Portfolio may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Portfolio might obtain a less favorable price than prevailed
when it decided to sell. Restricted securities will be priced at fair value as
determined in good faith by the Board of Trustees. If through the appreciation
of restricted securities or the depreciation of unrestricted securities, a
Portfolio should be in a
1
<PAGE> 52
position where more than 10% of the value of its net assets are invested in
restricted or illiquid assets, including restricted securities, the Portfolio
will take appropriate steps to protect liquidity.
ILLIQUID SECURITIES Illiquid securities are securities that may not be
sold or disposed of in the ordinary course of business within seven business
days at approximately the value at which they are being carried on a Fund's
books. An illiquid security includes repurchase agreements which have a maturity
of longer than seven days, securities which are illiquid by virtue of the
absence of a readily available market, and demand instruments with a demand
notice exceeding seven days. Illiquid securities may include securities that are
not registered under the Securities Act of 1933 (the "1933 Act"); however,
unregistered securities that can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act will not be considered illiquid so
long as it is determined by the Fund's adviser that an adequate trading market
exists for the security. From time to time, the Fund's Board of Trustees may
determine that certain restricted securities known as Rule 144A securities are
liquid and not subject to the 10% limitation described above.
SECURITIES OF OTHER INVESTMENT COMPANIES The Portfolio may invest in
securities of other investment companies if the securities are acquired as part
of a merger, consolidation or acquisition of assets approved by the Portfolio's
shareholders or otherwise to the extent permitted by Section 12 of the
Investment Company Act of 1940. The Portfolio will invest only in investment
companies which have investment objectives and policies consistent with those of
the Portfolio. When investing in the securities of other investment companies,
the Portfolio may incur fees and expenses of the underlying fund in addition to
the Portfolio's own fees and expenses.
INVESTMENT LIMITATIONS
The following policies supplement the investment limitations set forth in
the Prospectus. It is a fundamental policy of the Portfolio not to engage in any
of the following activities or business practices. These restrictions may not be
changed with respect to the Portfolio without the approval of a majority of the
Portfolio's outstanding shares (as defined in the Investment Company Act of
1940). The Portfolio may not:
1) purchase securities other than the securities in which the Portfolio is
authorized to invest as set forth in the Prospectus;
2) borrow money in excess of 15% of the net assets of the Portfolio taken
at market value and then only from banks as a temporary measure for
extraordinary or emergency purposes; provided, the Portfolio may borrow
from any existing and future investment company member of The Vanguard
Group of Investment Companies, or its predecessors, through its
interfund lending facility; the Portfolio will not borrow to increase
income (leveraging) but only to facilitate redemption requests which
might otherwise require untimely dispositions of portfolio securities;
to the extent that borrowing exceeds 5% of a Portfolio's net assets,
the Portfolio will repay all borrowings before making additional
investments and interest paid on such borrowings will reduce net
income;
3) make loans to other persons (except by the purchase of obligations in
which the Portfolio is authorized to invest); provided, the Portfolio
may make loans to any existing and future investment company member of
The Vanguard Group or its predecessors, through its interfund lending
facility; and provided further, that the Portfolio will not enter into
repurchase agreements if, as a result thereof, more than 10% of the net
assets of the Portfolio (taken at current value) would be subject to
repurchase agreements maturing in more than seven days;
4) purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the Government of the United
States, its agencies or instrumentalities) if, as a result, more than
5% of the Portfolio's total assets (taken at current value) would be
invested in the securities of such issuer;
5) write, or invest in, put, call, straddle or spread options or invest in
interests in oil, gas or other mineral exploration or development
programs;
6) purchase securities on margin or sell any securities short;
2
<PAGE> 53
7) purchase any securities which could cause more than 25% of the value of
the Portfolio's total net assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that there
is no limitation with respect to investments in United States Treasury
Bills, other obligations issued or guaranteed by the Federal
Government, its agencies and instrumentalities or certificates of
deposit or bankers' acceptances of domestic institutions;
8) mortgage, pledge or hypothecate its assets except in an amount up to
15% (10% as long as the Fund's shares are registered for sale in
certain states) of the value of the Portfolio's total assets but only
to secure borrowings for temporary or emergency purposes;
9) engage in the business of underwriting securities issued by other
persons, except to the extent that the Portfolio may technically be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in disposing of investment securities;
10) purchase or otherwise acquire any security if, as a result, more than
10% of its net assets (including any investment in The Vanguard Group,
Inc.) would be invested in securities that are illiquid;
11) purchase or sell real estate, real estate investment trust securities,
commodities, or commodity contracts;
12) invest in companies for the purpose of exercising control;
13) invest in securities of other investment companies, except as may be
acquired as a part of a merger, consolidation or acquisition of assets
approved by the Portfolio's shareholders or otherwise to the extent
permitted by Section 12 of the Investment Company Act of 1940. The
Portfolio will invest only in investment companies which have
investment objectives and investment policies consistent with those of
the Portfolio;
14) issue senior securities.
Notwithstanding these limitations, the Portfolio may own all or any portion
of the securities of, or make loans to, or contribute to the costs or other
financial requirements of, any company which will be: (1) wholly owned by the
Fund and one or more other investment companies, and is (2) primarily engaged in
the business of providing, at-cost, management, administrative, distribution or
related services to the Fund and other investment companies. See "Management of
the Fund."
As an operational policy of the Portfolio, the Portfolio will not, in the
aggregate, enter into repurchase agreements maturing in more than seven days, or
invest in any other illiquid securities if, as a result thereof, more than 10%
of the net assets of the Portfolio would be invested in such assets.
The above-mentioned investment limitations are considered at the time
investment securities are purchased.
YIELD AND TOTAL RETURN
The yield of the Portfolio for the 7-day period ended May 31, 1998 is set
forth below. Yields are calculated daily for the Portfolio.
<TABLE>
<S> <C>
Treasury Money Market Portfolio............................. 4.95%
</TABLE>
The average annual total return of the Portfolio for the one-, three-,
five- and ten-year periods ending May 31, 1998 is set forth below:
<TABLE>
<CAPTION>
1 YEAR ENDED 3 YEARS ENDED 5 YEARS ENDED 10 YEARS ENDED
5/31/98 5/31/98 5/31/98 5/31/98
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Treasury Money Market
Portfolio*.................... 5.16% 5.17% 4.66% 5.49%
</TABLE>
- ---------------
*Formerly the U.S. Treasury Portfolio of Vanguard Money Market Reserves, Inc.
3
<PAGE> 54
Total return is computed by finding the average compounded rates of return
over the periods set forth above that would equate an initial amount invested at
the beginning of the periods to the ending redeemable value of the investment.
CALCULATION OF YIELD
The current yield of the Portfolio is calculated daily on a base period
return of a hypothetical account having a beginning balance of one share for a
particular period of time (generally 7 days). The return is determined by
dividing the net change (exclusive of any capital changes) in such account by
its average net asset value for the period, and then multiplying it by 365/7 to
get the annualized current yield. The calculation of net change reflects the
value of additional shares purchased with the dividends by the Portfolio,
including dividends on both the original share and on such additional shares. An
effective yield, which reflects the effects of compounding and represents an
annualization of the current yield with all dividends reinvested, may also be
calculated for the Portfolio by adding 1 to the net change, raising the sum to
the 365/7 power, and subtracting 1 from the result.
Set forth below is an example, for purposes of illustration only, of the
current and effective yield calculations for the Portfolio for the 7-day base
period ended May 31, 1998.
<TABLE>
<CAPTION>
TREASURY MONEY
MARKET PORTFOLIO
----------------
5/31/98
-------
<S> <C>
Value of account at beginning of period..................... $1.00000
Value of same account at end of period*..................... 1.00095
--------
Net Change in account value................................. $ .00095
Annualized Current Net Yield (Net
Change X 365/7) / average net asset value................. 4.95%
Effective Yield [(Net Change)+1]365/7-1..................... 5.20%
Average Weighted Maturity of Investments.................... 78 Days
</TABLE>
- ---------------
*Exclusive of any capital changes.
The net asset value of a share of the Portfolio is $1.00 and it is not
expected to fluctuate. However, the yield of the Portfolio will fluctuate. The
Fund has obtained private insurance that partially protects the Treasury Money
Market Portfolio against default of principal or interest payments on the
instruments it holds, and against bankruptcies by issuers of instruments and
credit enhancers on instruments. Treasury and other U.S. Government securities
held by the Portfolio are excluded from this coverage. The annualization of a
week's dividend is not a representation by the Portfolio as to what an
investment in the Portfolio will actually yield in the future. Actual yields
will depend on such variables as investment quality, average maturity, the type
of instruments the Portfolio invests in, changes in interest rates on
instruments, changes in the expenses of the Fund and other factors. Yields are
one basis investors may use to analyze the Portfolio of the Fund, and other
investment vehicles; however, yields of other investment vehicles may not be
comparable because of the factors set forth in the preceding sentence,
differences in the time periods compared, and differences in the methods used in
valuing portfolio instruments, computing net asset values and calculating
yields.
THE SHARE PRICE OF THE FUND
The Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. The net asset value is determined as of the close of the
New York Stock Exchange (generally 4:00 p.m. Eastern time) on each day that the
exchange is open for trading.
It is the policy of the Fund to attempt to maintain a net asset value of
$1.00 per share for sales and redemptions. The instruments held by the Fund are
valued on the basis of amortized cost, which does not take into account
unrealized capital gains or losses. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in
4
<PAGE> 55
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price which the Fund would receive
if it sold the instrument.
The use of amortized cost and the maintenance of the Fund's net asset value
at $1.00 is based on its election to operate under Rule 2a-7 under the
Investment Company Act of 1940. As a condition of operating under that rule, the
Fund must maintain a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining maturities of 397 days or less,
and invest only in securities that are determined by methods approved by the
Trustees to present minimal credit risks and that are of high quality as
determined by the requisite rating services, or in the case of an instrument not
so rated, determined by methods approved by the Trustees to be of comparable
quality.
PURCHASE OF SHARES
The Fund reserves the right in its sole discretion (i) to suspend the
offerings of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum investment for or any other restrictions on initial
and subsequent investments for certain fiduciary accounts or under circumstances
where certain economies can be achieved in sales of the Fund's shares.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges for the Portfolio or postpone
the date of payment (i) during any period that the New York Stock Exchange is
closed, or trading on the Exchange is restricted as determined by the Securities
and Exchange Commission (the "Commission"), (ii) during any period when an
emergency exists as defined by the rules of the Commission as a result of which
it is not reasonably practicable for the Portfolio to dispose of securities
owned by it, or fairly to determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
The Fund will make an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part, in investment in readily marketable securities or in
cash, as the Trustees may deem advisable; however, payment will be made wholly
in cash unless the Trustees believe that economic or market conditions exist
which would make such a practice detrimental to the best interests of the Fund.
If redemptions are paid in investment securities, such securities will be valued
as set forth in the Prospectus under "Share Price" and a redeeming shareholder
would normally incur brokerage expenses if he converted these securities to
cash.
No charge is made by the Fund for redemptions; except for wire withdrawals
in amounts less than $5,000 which will be subject to a maximum charge of $5.00
which will be deducted from the principal in your account. Any redemption may be
more or less than the shareholder's cost depending on the market value of the
securities held by each Portfolio.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE The Portfolio's shares may be exchanged without cost
for shares of any open-end Fund currently offering its shares to new investors
in The Vanguard Group ("Vanguard"). A shareholder of any other open-end Vanguard
Fund may likewise exchange his shares for shares of the Portfolio. Exchange
requests may be made either by mail or telephone.
Telephone exchanges (referred to as "expedited exchanges") will be accepted
only if the registration of the two accounts is identical. Requests for
expedited exchanges received prior to the close of the New York Stock Exchange
(generally 4:00 P.M. Eastern time) will be processed at the next determined net
asset value after such request is received. Requests received after the close of
the New York Stock Exchange (generally 4:00 P.M. Eastern time), will be
processed on the next business day. NO EXPEDITED EXCHANGES WILL BE ACCEPTED
5
<PAGE> 56
INTO, OR FROM, VANGUARD BALANCED INDEX FUND, VANGUARD INDEX TRUST, VANGUARD
GROWTH AND INCOME PORTFOLIO and VANGUARD INTERNATIONAL EQUITY INDEX FUND.
Neither the Fund nor Vanguard will be responsible for the authenticity of
exchange instructions received by telephone or telegraph. Expedited exchanges
may also be subject to limitations as to amounts and frequency, and to other
restrictions established by the Board of Trustees to assure that such exchanges
do not disadvantage the Fund and its shareholders. Shareholders may obtain the
terms of these limitations, which may be revised at any time, from Vanguard.
Any such exchange will be based on the respective net asset values of the
shares involved. There are no sales commissions or charges of any kind. Before
making an exchange, a shareholder should consider the investment objectives and
policies of the Portfolio or Fund to be purchased, and other relevant
information (including the minimum initial investment), which can be found in
the prospectus relating to that particular Portfolio or Fund. A prospectus for
any of the Vanguard Funds or Portfolios may be obtained from Vanguard.
For Federal income tax purposes an exchange between Funds is a taxable
event and, accordingly, a capital gain or loss may be realized. In a revenue
ruling relating to circumstances similar to the Fund's, an exchange between
series of a Fund was also deemed to be a taxable event. It is likely, therefore,
that a capital gain or loss would be realized on an exchange between Portfolios;
you may want to consult your tax adviser for further information in this regard.
The exchange privilege may be modified or terminated at any time, and the
Portfolio or Vanguard Funds may limit or discontinue the offering of their
shares without notice to shareholders.
TRANSFER OF SHARES Fund shares may be transferred to another person by
sending appropriate written instructions to Vanguard. The account must be
clearly identified and include the number of shares to be transferred and the
signatures of all registered owners. The signature on the letter of instructions
or any stock power must be guaranteed. As in the case of withdrawals, the
written request must be received in "Good Order" before any transfer can be
made.
INFORMATION FOR SHAREHOLDERS Following any purchase or redemption, a
shareholder will receive a statement which reflects all activity during the
current calendar year. Each shareholder will also receive a quarterly statement,
which includes a valuation as of the day the statement is prepared.
Shareholders will receive semi-annual financial statements audited at least
annually by independent accountants whose selection is ratified by shareholders.
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<PAGE> 57
COMPARATIVE INDEXES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member funds of The Vanguard Group of Investment Companies.
Vanguard Treasury Fund may use one or more of the following unmanaged
indexes for comparative performance purposes:
STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified
list of 500 companies representing the U.S. Stock Market.
STANDARD & POOR'S MIDCAP 400 INDEX -- is composed of 400 medium sized domestic
stocks.
STANDARD & POOR'S SMALLCAP 600/BARRA VALUE INDEX -- contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.
STANDARD & POOR'S SMALLCAP 600/BARRA GROWTH INDEX -- contains stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.
WILSHIRE 5000 EQUITY INDEX -- consists of more than 7,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.
RUSSELL 3000 STOCK INDEX -- a diversified portfolio of approximately 3,000
common stocks accounting for over 90% of the market value of publicly traded
stocks in the U.S.
RUSSELL 2000 STOCK INDEX -- composed of the 2,000 smallest stocks contained in
the Russell 3000, representing approximately 7% of the Russell 3000 total market
capitalization.
RUSSELL 2000(R) VALUE INDEX -- contains stocks from the Russell 2000 Index with
a less-than-average growth orientation.
RUSSELL 1000 VALUE INDEX -- consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios comprising 50% of the
market capitalization of the Russell 1000.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia, Asia, and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
LEHMAN LONG-TERM TREASURY BOND INDEX -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND INDEX -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
LEHMAN CORPORATE (BAA) BOND INDEX -- all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX -- is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.
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<PAGE> 58
BOND BUYER MUNICIPAL BOND INDEX -- is a yield index on current coupon high-grade
general obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX -- is a yield index based upon the average
yield of four high-grade, non-callable preferred stock issues.
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
COMPOSITE INDEX -- 65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's/BARRA Value
Index, 12.5% Standard & Poor's Utilities Index and 12.5% Standard & Poor's
Telephone Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX -- consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market-weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated Baa- or better. The Index has a market value of over
$4 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.6 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX -- is
a market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $700 billion.
LEHMAN BROTHERS LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a market-weighted
index that contains individually priced U.S. Treasury, agency, and corporate
securities rated BBB- or better with maturities greater than 10 years. The index
has a market value of over $900 billion.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Funds that constituted the Group at its inception.)
LIPPER BALANCED FUND AVERAGE -- an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.
LIPPER GENERAL EQUITY FUND AVERAGE -- an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
LIPPER FIXED INCOME FUND AVERAGE -- an industry benchmark of average fixed
income funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
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<PAGE> 59
MANAGEMENT OF THE FUND
OFFICERS AND TRUSTEES
The Fund's Officers, under the supervision of the Board of Trustees, manage
the day-to-day operations of the Fund. The Trustees, who are elected annually by
shareholders, set broad policies for the Fund. A list of the Trustees and
Officers of the Fund and a brief statement of their present positions and
principal occupations during the past 5 years is set forth below. The mailing
address of the Trustees and Officers of the Fund is Post Office Box 876, Valley
Forge, PA 19482.
JOHN C. BOGLE, (DOB: 5/8/1929) Senior Chairman and Trustee*
Senior Chairman and Director of The Vanguard Group, Inc., and of each of
the investment companies in The Vanguard Group. Director of The Mead
Corporation, General Accident Insurance, and Chris-Craft Industries, Inc.
JOHN J. BRENNAN, (DOB: 7/29/1954) Chairman, Chief Executive Officer & Trustee*
Chairman, Chief Executive Officer and Director of The Vanguard Group, Inc.
and each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, (DOB: 4/28/1935) Trustee
Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Managing
Director of Global Health Care Partners/DLJ Merchant Banking Partners;
Director of Sun Company, Inc., and Westinghouse Electric Corporation.
BARBARA BARNES HAUPTFUHRER, (DOB: 10/11/1928) Trustee
Director of The Great Atlantic and Pacific Tea Company, IKON Office
Solutions, Inc., Raytheon Company, Knight-Ridder Inc., Massachusetts Mutual
Life Insurance Co., and Ladies Professional Golf Association; and Trustee
Emerita of Wellesley College.
BRUCE K. MACLAURY, (DOB: 5/7/1931) Trustee
President Emeritus of The Brookings Institution; Director of American
Express Bank, Ltd., The St. Paul Companies, Inc., and National Steel
Corporation.
BURTON G. MALKIEL, (DOB: 8/28/1932) Trustee
Chemical Bank Chairman's Professor of Economics, Princeton University;
Director of Prudential Insurance Co. of America, Amdahl Corporation, Baker
Fentress & Co., The Jeffrey Co., and Southern New England
Telecommunications Company.
ALFRED M. RANKIN, JR., (DOB: 10/8/1941) Trustee
Chairman, President, Chief Executive Officer, and Director of NACCO
Industries, Inc.; Director of The BFGoodrich Company, and The Standard
Products Company.
JOHN C. SAWHILL, (DOB: 6/12/1936) Trustee
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co., and President of New York
University; Director of Pacific Gas and Electric Company, Procter & Gamble
Company, and NACCO Industries.
JAMES O. WELCH, JR., (DOB: 5/13/1931) Trustee
Retired Chairman of Nabisco Brands Inc.; retired Vice Chairman and Director
of RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corporation.
J. LAWRENCE WILSON, (DOB: 3/2/1936) Trustee
Chairman and Chief Executive Officer of Rohm & Haas Company; Director of
Cummins Engine Company, and The Mead Corporation; and Trustee of Vanderbilt
University.
RAYMOND J. KLAPINSKY, (DOB: 12/7/1938) Secretary*
Managing Director and Secretary of The Vanguard Group, Inc.; Secretary of
each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND, (DOB: 3/22/1937) Treasurer*
Treasurer of The Vanguard Group, Inc. and of each of the investment
companies in The Vanguard Group.
KAREN E. WEST, (DOB: 9/13/1946) Controller*
Principal of The Vanguard Group, Inc.; Controller of each of the investment
companies in The Vanguard Group.
- ---------------
*Officers of the Fund are "interested persons" as defined in the Investment
Company Act of 1940.
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<PAGE> 60
THE VANGUARD GROUP
The Fund is a member of The Vanguard Group of Investment Companies. Through
their jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Fund
and the other Funds in the Group obtain at cost virtually all of their corporate
management, administrative and distribution services. Vanguard also provides
investment advisory services on an at-cost basis to certain of the Vanguard
Funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Funds and also
furnishes the Funds with necessary office space, furnishings and equipment. Each
Fund pays its share of Vanguard's total expenses which are allocated among the
Funds under methods approved by the Board of Trustees of each Fund. In addition,
each Fund bears its own direct expenses such as legal, auditing and custodian
fees.
The Fund's Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external adviser
for the Funds.
Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.
Vanguard was established and operates under a Funds' Service Agreement
which was approved by the shareholders of each of the Funds. The amounts which
each of the Funds has invested are adjusted from time to time in order to
maintain the proportionate relationship between each Fund's relative net assets
and its contribution to Vanguard's capital. At May 31, 1998, Vanguard Treasury
Money Market Portfolio had contributed capital of $194,000 to Vanguard,
representing .969% of Vanguard's capitalization. The Funds' Service Agreement
provides as follows: (a) each Vanguard Fund may invest up to 0.40% of its
current assets in Vanguard and (b) there is no other limitation on the amount
that each Vanguard Fund may contribute to Vanguard's capitalization.
MANAGEMENT Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
six months ended May 31, 1998, the Portfolio's share of Vanguard's actual net
costs of operation relating to management and administrative services (including
transfer agency) totaled approximately $2,135,000.
DISTRIBUTION Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of Vanguard, acts as Sales Agent for the shares of the Funds, in
connection with any sales made directly to investors in the states of Florida,
Missouri, New York, Ohio, Texas and such other states as it may be required.
The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The Directors and
Officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon relative net assets. The remaining one
half of those expenses is allocated among the Funds based upon each Fund's sales
for the preceding 24 months relative to the total sales of the Funds as a Group,
provided, however, that no Fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
average distribution expense rate for the Group, and that no Fund shall incur
annual distribution expenses in excess of 20/100 of 1% of its average month-end
net assets. During the fiscal year ended November 30, 1997 and the six months
ended May 31, 1998, the Portfolio
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<PAGE> 61
paid approximately $1,010,000 and $621,000 of the Group's distribution and
marketing expenses or .03% and .03% of the Portfolio's average month-end net
assets.
INVESTMENT ADVISORY SERVICES Vanguard also provides the Fund, Vanguard
Money Market Reserves, Vanguard Municipal Bond Fund, Vanguard Bond Index Fund,
several Portfolios of Vanguard Fixed Income Securities Fund, Vanguard Admiral
Funds, Vanguard California Tax-Free Fund, Vanguard Pennsylvania Tax-Free Fund,
Vanguard Ohio Tax-Free Fund, Vanguard New York Tax-Free Fund, Vanguard New
Jersey Tax-Free Fund, Vanguard Florida Insured Tax-Free Fund, Vanguard Index
Trust, Vanguard Balanced Index Fund, Vanguard Institutional Index Fund, Vanguard
Tax-Managed Fund, Reit Index Portfolio of Vanguard Specialized Portfolios,
several Portfolios of Vanguard Variable Insurance Fund, Vanguard International
Equity Index Fund, Aggressive Growth Portfolio of Vanguard Horizon Fund, Total
International Portfolio of Vanguard STAR Fund, a portion of Vanguard/Windsor II,
a portion of Vanguard/Morgan Growth Fund as well as several indexed separate
accounts with investment advisory services. These services are provided on an
at-cost basis from a money management staff employed directly by Vanguard. The
compensation and other expenses of this staff are paid by the Funds utilizing
these services. During the years ended November 30, 1995, 1996, 1997, and the
six months ended May 31, 1998, the Portfolio paid approximately $297,000,
$338,000, $466,000, and $227,000 respectively, of Vanguard's expenses relating
to investment advisory services.
TRUSTEE COMPENSATION
The individuals in the table below serve as Trustees of all Vanguard Funds,
and each Fund pays a proportionate share of the Trustees' compensation. The
Funds employ their officers on a shared basis, as well. However, officers are
compensated by The Vanguard Group, Inc., not the Funds.
INDEPENDENT TRUSTEES. The Funds compensate their independent
Trustees -- that is, the ones who are not also officers of the Fund -- in three
ways:
- The independent Trustees receive an annual fee for their service to the
Funds, which is subject to reduction based on absences from scheduled
Board meetings.
- The independent Trustees are reimbursed for the travel and other expenses
that they incur in attending Board meetings.
- Upon retirement, the independent Trustees receive an aggregate annual fee
of $1,000 for each year served on the Board, up to fifteen years of
service. This annual fee is paid for ten years following retirement, or
until the Trustees' death.
"INTERESTED" TRUSTEES. The Funds' interested Trustees -- Messrs. Bogle and
Brennan -- receive no compensation for their service in that capacity. However,
they are paid in their role as officers of The Vanguard Group, Inc.
COMPENSATION TABLE. The following table provides compensation details for
each of the Trustees. For the Fund, we list the amounts paid as compensation and
accrued as retirement benefits by the Fund for each Trustee. In addition, the
table shows the total amount of benefits that we expect each Trustee to
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<PAGE> 62
receive from all Vanguard Funds upon retirement, and the total amount of
compensation paid to each Trustee by all Vanguard Funds. All information shown
is for the fiscal year ended November 30, 1997:
VANGUARD TREASURY FUND
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM ALL VANGUARD FUNDS
NAMES OF TRUSTEES FROM FUND PART OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES(2)
----------------- ------------ --------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1) None None None None
John J. Brennan(1) None None None None
Barbara Barnes Hauptfuhrer $866 $125 $15,000 $70,000
Robert E. Cawthorn $866 $104 $13,000 $70,000
Bruce K. MacLaury $925 $120 $12,000 $65,000
Burton G. Malkiel $872 $ 84 $15,000 $70,000
Alfred M. Rankin, Jr. $866 $ 66 $15,000 $70,000
John C. Sawhill $866 $ 78 $15,000 $70,000
James O. Welch, Jr. $866 $ 96 $15,000 $70,000
J. Lawrence Wilson $866 $ 69 $15,000 $70,000
</TABLE>
(1) As "Interested Trustees," Messrs. Bogle and Brennan receive no compensation
for their service as Trustees.
(2) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 35 Vanguard Funds (34 in
the case of Mr. Malkiel; 28 in the case of Mr. MacLaury).
DESCRIPTION OF THE TRUST
ORGANIZATION
Vanguard Treasury Fund (the "Trust") was organized as a Delaware business
trust on December 2, 1996. Prior to its organization as a Delaware business
trust, the Trust operated as the U.S. Treasury Portfolio of Vanguard Money
Reserves, a separate investment company. The Trust is registered with the United
States Securities and Exchange Commission under the Investment Company Act of
1940 (the "1940 Act") as an open-end, diversified management investment company.
It currently offers the following series and classes of shares: Vanguard
Treasury Money Market Fund.
The Trust has the ability to offer additional series or classes of shares.
There is no limit on the number of full and fractional shares that the Trust may
issue for a single series or class of shares.
CHARACTERISTICS OF THE TRUST'S SHARES
RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions
on the right of shareholders to retain or dispose of the Trust's shares, other
than the possible future termination of the Trust or any of its series. The
Trust or any of its series may be terminated by reorganization into another
mutual fund or by liquidation and distribution of the assets of the affected
series. Unless terminated by reorganization or liquidation, the Trust and its
series will continue indefinitely.
SHAREHOLDER LIABILITY. The Trust is organized under Delaware law, which
provides that shareholders of a business trust are entitled to the same
limitations of personal liability as shareholders of a corporation organized
under Delaware law. Effectively, this means that a shareholder of the Trust will
not be personally liable for payment of the Trust's debts except by reason of
his or her own conduct or acts. In addition, a shareholder could incur a
financial loss on account of a Trust obligation only if the Trust itself had no
remaining assets with which to meet such obligation. We believe that the
possibility of such a situation arising is extremely remote.
DIVIDEND RIGHTS. The shareholders of a series are entitled to receive any
dividends or other distributions declared for such series. No shares have
priority or preference over any other shares of the same series with respect to
distributions. Distributions will be made from the assets of a series, and will
be paid ratable to
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<PAGE> 63
all shareholders of the series (or class) according to number of shares of such
series (or class) held by shareholders on the record date. The amount of income
dividends per share may vary between separate share classes of the same series
based upon differences in the way that expenses are allocated between share
classes pursuant to a multiple class plan.
VOTING RIGHTS. Shareholders are entitled to vote on a matter if: (i) a
shareholder vote is required under the 1940 Act; (ii) the matter concerns an
amendment to the Declaration of Trust that would adversely affect to a material
degree the rights and preferences of the shares of any class or series; or (iii)
the Trustees determine that it is necessary or desirable to obtain a shareholder
vote. The 1940 Act requires a shareholder vote under various circumstances,
including to elect or remove Trustees upon the written request of shareholders
representing 10% or more of the Trust's net assets, and to change any
fundamental policy of the Trust. Shareholders of the Trust receive one vote for
each dollar of net asset value owned on the record date, and a fractional vote
for each fractional dollar of net asset value owned on the record date. However,
only the series of shares affected by a particular matter are entitled to vote
on that matter. Voting rights are non-cumulative and cannot be modified without
a majority vote of shareholders.
LIQUIDATION RIGHTS. In the event of liquidation, shareholders will be
entitled to receive a pro rata share of the net assets of applicable series of
the Trust.
PREEMPTIVE RIGHTS. There are no preemptive rights associated with the
Trust.
CONVERSION RIGHTS. There are no conversion rights associated with the
Trust.
REDEMPTION PROVISIONS. The Trust's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional
Information.
SINKING FUND PROVISIONS. The Trust has no sinking fund provisions.
CALLS OR ASSESSMENT. The Trust's shares are fully paid and non-assessable.
TAX STATUS OF THE TRUST
Each series of the Trust qualifies as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. This special tax status means
that a series will not be liable for federal tax on income and capital gains
distributed to shareholders. In order to preserve its tax status, each series of
the Trust must comply with certain requirements. If a series fails to meet these
requirements in any taxable year, it will be subject to tax on its taxable
income at corporate rates, and all distributions from earnings and profits,
including any distributions of net tax-exempt income and net long-term capital
gains, will be taxable to shareholders as ordinary income. In addition, the
series could be required to recognize unrealized gains, pay substantial taxes
and interest, and make substantial distributions before regaining its tax status
as a regulated investment company.
FINANCIAL STATEMENTS
The Vanguard Treasury Money Market Portfolio's financial statements as of
and for the year ended November 30, 1997, including the financial highlights for
each of the five fiscal years in the period ended November 30, 1997, appearing
in the Vanguard Treasury Money Market Portfolio's 1997 Annual Report to
Shareholders, and the report thereon of PricewaterhouseCoopers LLP, independent
accountants, also appearing therein, are incorporated by reference in this
Statement of Additional Information. The Vanguard Money Market Reserves 1997
Annual Report to Shareholders is available to investors at no charge by calling
Vanguard.
APPENDIX -- DESCRIPTION OF SECURITIES AND RATINGS
DESCRIPTION OF U.S. GOVERNMENT SECURITIES
As used in this prospectus, the term "U.S. Government Securities" refers to
a variety of securities which are issued or guaranteed by the United States
Treasury, by various agencies of the United States Government,
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and by various instrumentalities which have been established or sponsored by the
United States Government. The term also refers to "repurchase agreements"
collateralized by such securities.
U.S. Treasury Securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and the U.S.
Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and the Federal National Mortgage Association.
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