<PAGE> 1
VANGUARD
MONEY MARKET RESERVES
ANNUAL REPORT 1994
THE VANGUARD VOYAGE . . . STAYING THE COURSE
<PAGE> 2
THE VANGUARD VOYAGE . . . STAYING THE COURSE
WE ARE PRESENTLY OBSERVING TWO MILESTONES IN OUR HISTORY: (1) THE 20TH
ANNIVERSARY OF THE VANGUARD GROUP; AND (2) THE 65TH ANNIVERSARY YEAR OF
WELLINGTON FUND, THE OLDEST MUTUAL FUND ASSOCIATED WITH VANGUARD. WE CELEBRATE
THESE TWO EVENTS SINCE THEY HAVE INDELIBLY ALTERED THE MUTUAL FUND INDUSTRY--IN
OUR VIEW, FOR THE BETTER.
Wellington Fund--a pioneer in the mutual fund industry--began operations on June
30, 1929. Its first fifteen years were a struggle for survival in an industry
that was shaken to its roots by the Great Crash of 1929-1933. From an initial
base of $100,000, Wellington's assets had grown to but $27 million by the end of
World War II. The Vanguard Group was founded on September 24, 1974. Soon
thereafter, we assumed responsibility for the management of Wellington Fund and
ten associated funds, with assets aggregating $1.4 billion.
The years that followed the founding of The Vanguard Group were marked by
exceptional growth. Today, Wellington Fund, with assets of nearly $9 billion,
remains one of the largest mutual funds in the nation. And Vanguard, now
managing 85 mutual fund portfolios, is entrusted with assets of $134 billion,
and ranks as the second largest fund complex in the world.
Our durability in an era of change--and our longevity in an era of
challenge--didn't "just happen." What brought us to where we are today is what
we were when we began. Put another way, we set our original investment course
based on sound principles, and our corporate course based on a single focus:
serving solely the interests of our Fund shareholders.
FOUNDING INVESTMENT PRINCIPLES
The founding investment principles of Wellington Fund were, above all,
conservative. The Fund provided a broadly diversified portfolio at a time when
holding individual securities was the conventional strategy. It incurred no debt
in an era of high leverage that would soon come back to haunt less cautious
investors. And it was a "balanced" fund--in fact, Wellington is America's oldest
balanced fund--with holdings from each of the three basic financial asset
classes: cash reserves, bonds, and common stocks. In short, Wellington Fund was
a staid investment in an era of stock speculation that was to become, almost
within moments, an era of conservatism.
For Vanguard, these investment principles endure. "Balance" is still our
watchword, because the three basic financial asset classes have different--and
usually countervailing--investment characteristics. When it began, Wellington
Fund provided a balanced program in a single investment; in 1994, such a balance
is often achieved by a combination of Vanguard money market, bond, and stock
funds.
"Conservatism," too, remains our standard. Over the years, we have tried to
maintain the discipline to eschew offering funds that lack sound financial
principles, often based on marketplace fads that could not--and did not--endure.
Our conservatism applies not only to the funds we offer, but to the instruments
in which they invest. For example, we have steered clear of exotic derivative
securities with unpredictable investment characteristics. Too many fund managers
have been taken in by these highly risky instruments, and their shareholders
have paid a heavy price--except in cases where the manager has "made the fund
whole," when to do otherwise would have shocked investors and impaired their
confidence in the fund complex.
Speculation, it seems, comes and goes, albeit in different guises. But the
investment principles to which we have adhered since Wellington Fund began in
1929 remain firm:
* We offer Funds with sound and durable investment objectives, designed for
long-term investors.
(please turn to inside back cover)
VANGUARD MONEY MARKET RESERVES SEEKS MAXIMUM CURRENT INCOME CONSISTENT WITH
PRESERVATION OF CAPITAL AND LIQUIDITY. EACH PORTFOLIO INTENDS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE. YOU MAY CHOOSE THE PORTFOLIO THAT
IS MOST SUITED TO YOUR PARTICULAR INVESTMENT OBJECTIVE: PRIME PORTFOLIO, FEDERAL
PORTFOLIO, OR U.S. TREASURY PORTFOLIO.
<PAGE> 3
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
Reversing a steady decline that began five years ago, short-term interest rates
rose sharply during the twelve months ended November 30, the 1994 fiscal year
for Vanguard Money Market Reserves. This reversal was good news indeed for the
Fund's shareholders.
The interest rate increase resulted in higher income yields for the
Portfolios for the full year, and, even more dramatically, still higher yields
at year end. Indeed, the current yields on our three Portfolios are running
about +70% above the figures presented one year ago. This table summarizes our
results:
- ---------------------------------------------------------
Total Return
----------------- Yield at Year End
Fiscal Year Ended -------------------
Portfolio November 30, 1994 1994 1993
- ---------------------------------------------------------
PRIME +3.87% 5.12% 3.00%
FEDERAL +3.82 5.03 2.95
U.S. TREASURY +3.63 4.76 2.77
- ---------------------------------------------------------
Source: Donoghue's Money Fund Report
As we shall discuss later, the Vanguard Portfolio yield in each category
significantly exceeds competitive norms, not by reason of any sacrifice in the
quality of our Portfolios, but because of the extremely low level of our
expenses. The Vanguard expense advantage is our obvious and above-board method
of assuring that the maximum portion of the Fund's gross yield flows through to
the net yield received by our investors.
THE FISCAL YEAR IN REVIEW
Surely fiscal 1994 will go into the record book as "the year of the soaring
yields." In the short-term arena, the yield on the 90-day U.S. Treasury bill
rose from 3.2% to 5.8%; in the long-term arena, the yield on the 30-year U.S.
Treasury bond jumped from 6.3% to 8.0%. Yields on short-term notes and long-term
bonds rose accordingly in all sectors of the credit market, including bank
certificates of deposit, corporate and municipal obligations, and agency
securities of the Federal government.
A primary cause of the interest rate rise was investor fears about a
resurgence of inflation. So far, at least, the U.S. Consumer Price Index gives
little evidence of it. The CPI has risen just 2.7% over the past twelve months,
although more sensitive indicators--such as commodity prices and producer
prices--have been rising at higher rates.
In an effort to quell inflationary fears, the Federal Reserve has acted
to "tighten" the money supply in order to slow economic growth and rein in
potential future inflation. Fully six rate increases--in February, March, April,
May, August, and again in November--combined to raise the Federal funds rate (at
which banks borrow from one another) from 3.00% to 5.50%. Still, the specter of
inflation remains, and further rate increases may well lie in prospect.
While the rate rise over the past twelve months was dramatic, it ought
to be placed in some sort of perspective. We attempt to do so with the chart at
the top of the following page, which shows the yields on U.S. Treasury bills and
U.S. Treasury bonds over the past five years. You will note that the 5.8% bill
yield is now approximately at the level reached in mid-1991, but is well below
the 8% level that prevailed when 1990 began. By the same token, the 8.0% bond
yield has merely returned to its level in mid-1992, about the same as the yield
reached at the beginning of 1990.
(continued)
[FIGURE 1]
1
<PAGE> 4
[FIGURE 2]
The interplay of bill yields and bond yields has resulted in a dramatic
change in the yield "spread" (i.e., the difference between the two yields), as
shown in the lower chart. At the start of the period, both yields were at 8%, a
spread of zero. By late 1992, the spread had risen to nearly 5% (500 "basis
points"), and investors who decided to choose bills over bonds had to
relinquish nearly two-thirds of their yield. Today, however, the spread has
narrowed to about 230 basis points, representing a significant increase in the
relative attractiveness of Treasury bills. The same principle, of course, has
been manifested over the past two years in the improving yields on money market
mutual funds relative to bond funds.
VANGUARD MONEY MARKET RESERVES IN 1994
Headlines in the press--sometimes they seem to appear on a daily basis--warn of
the danger that higher interest rates pose for the economy. But if high
short-term rates are a bane to borrowers, they are a boon to lenders. And since
money market funds are lenders--essentially they lend your savings to banks,
corporations, government agencies, and the U.S. Treasury--1994 provided a
significant increase in the yields that our Portfolios earn.
Not only are the absolute yields on our Portfolios much improved, but
our yields relative to those of our peers remain at a solid premium. This table
presents the comparison in each Portfolio's investment category:
- ----------------------------------------------------------
Annualized Current Yields
November 30, 1994
--------------------------------------
Investment Vanguard Average Vanguard
Category Portfolio Competitor Advantage
- ----------------------------------------------------------
PRIME 5.12% 4.76% +0.36%
FEDERAL 5.03 4.68 +0.35
U.S. TREASURY 4.76 4.50 +0.26
- ----------------------------------------------------------
Source: Donoghue's Money Fund Report
Our substantial yield advantage is accounted for principally by our low expense
ratio (annual operating expenses as a percentage of average net assets) relative
to those of our competitors. The expense ratio of Vanguard Money Market Reserves
for 1994 was 0.32%; the average ratio for money market funds as a group was
0.72%. Other factors held equal, this simple difference gives us "a leg up" in
yield equal on average to 0.40% annually. Put another way, at current yield
levels, and holding risk constant, this advantage increases the dividends you
receive from the Fund by 9%, and should add to our relative performance
margin--month after month, year after year--over competitive norms.
Money market funds, in the final analysis, are designed to provide you
with safety, liquidity, and yield. I want to take this opportunity to assure you
that we would never compromise on safety and liquidity in order to increase our
yield. As a matter of sound investment principle, we would not make this
compromise under any circumstances. As a matter of sensible investment practice,
we are not tempted to make this compromise because our low expenses make it easy
to provide a premium yield without incurring extra risk. Indeed, we believe our
quality standards are among the highest--if not the highest--in the field.
2
<PAGE> 5
[FIGURE 3]
SOME THOUGHTS ABOUT INVESTMENT QUALITY
During the past year, it seems to me, too many money market funds were too
willing to compromise their quality standards to eke out a few extra basis
points in yield, often to offset their higher costs. Those that went too far
"out on a limb" found that the maintenance of their net asset values at $1.00
per share was endangered. In order to protect the $1.00 value, the sponsors of
most of these funds injected their own capital into the fund.
Few of these problems occurred in the "traditional" money market funds
with long histories of operation. Rather, most occurred in bank-managed money
market funds--including funds managed by some of the largest and best-known
banks in America--which held such investments as higher-yielding derivative
securities and "structured notes" (which reset their yields periodically). The
market value of these investments is hostage to sharp interest rate jumps, such
as those that have occurred in 1994.
On this point, I would reemphasize that no prime money market portfolio
is exempt from credit and maturity risk. Hence, there is no principal guarantee
such as that provided through bank savings accounts and certificates of deposit
insured by the Federal Deposit Insurance Corporation. Absent a major national
credit crunch, however, we believe that the $1.00 net asset value will be
preserved by prime money market funds that hold top-quality paper and maintain
their average portfolio maturities within a normal maximum of about 60 days.
(The average maturity of our three Portfolios at fiscal year end was 38 days.)
That said, there is absolutely no reason for investors who are concerned
about investment quality to assume any credit risk whatsoever. A ready
alternative is a money market fund investing solely in U.S. Treasury bills. It
can be argued, indeed, that such a fund provides higher credit quality than an
insured bank account. The fund's investments are backed by the "full faith and
credit" of the U.S. Treasury; the bank account, on the other hand, is backed
only by an agency of the Federal government.
(continued)
3
<PAGE> 6
On November 30, 1994, the difference between the yield on our Prime
Portfolio and our U.S. Treasury Portfolio was but 36 basis points, equivalent to
an income reduction of $36 per year (or $3 per month) on a $10,000 investment.
For extremely cautious and concerned shareholders, that income diminution would
seem like a small price to pay for a bit of extra comfort. (A compromise
position, which would result in an income reduction of only $9 per year, or
$0.75 per month, might be our Federal Portfolio, composed solely of the
short-term securities of U.S. Government agencies.)
For investors who do not require the credit quality of the U.S.
Treasury, our Prime Portfolio is the second ranking money market mutual fund in
total return among all 156 funds that have been in business for ten years or
more. This table shows our comparative return relative to the average money
market fund (including Prime, Federal, and U.S. Treasury funds) over the decade
ended November 30, 1994:
- -----------------------------------------------------------
Decade Ended
November 30, 1994
----------------------------
Average Final Value
Annual of $10,000
Return Initial Investment
- -----------------------------------------------------------
VANGUARD PRIME PORTFOLIO 6.4% $18,540
AVERAGE MONEY MARKET FUND 5.9 17,670
- -----------------------------------------------------------
As you know, we're not much into "bragging" about our mutual fund rankings. In
general, such rankings of the past returns of mutual funds rarely--if ever--have
any relevance to future returns, and are wholly non-predictive. But we believe
that our low-cost structure will give the Vanguard Money Market Portfolios a
sustainable competitive advantage. Year after year in the coming decade, we
should achieve--if not the highest yield--among the highest yields in the field.
The record of the past decade (as shown in the above table) reflects a
cumulative $870 of extra return for each $10,000 initially invested. Assuming
only that we continue to be such a low-cost provider of money market funds, a
comparable margin should be achievable in the coming decade. It is an advantage
worth considering.
A LONGER-TERM VIEW
Vanguard Money Market Reserves began operations nearly 20 years ago on June 4,
1975, right after Vanguard's inception, with but a single (Prime) Portfolio and
$100,000 of total net assets. Today, as we prepare for our twentieth
anniversary, our assets total $19 billion, remarkable growth by any standard.
During these past two decades, we have survived just about anything the
financial markets could throw at us. Indeed, the yields available to money
market investors have fluctuated widely over the period. Using the yield on the
90-day U.S. Treasury bill as our measuring stick, the chart on page 3 shows that
the nominal (stated) yields on money market instruments were fairly generous at
the outset of our history, but not sufficiently generous to provide positive
real yields (nominal yields less the rate of inflation). As concerns about
future inflation mounted and return expectations increased, nominal yields
soared (reaching above 15% in 1980--think of that!), and bills soon were
generating positive real yields in the area of 5% during 1981-1986.
By the beginning of 1989, rates had begun to tumble, and while the
inflation rate fell too, real yields had declined to about zero during
1992-1993. Then, Treasury bill yields began a sustained rise that has continued
to this day. With inflation, as I noted earlier, seemingly muted, real returns
today, at about 3.1%, are far higher than in our early years, albeit below the
"good old days" (for lenders, not borrowers) in the early 1980s.
Above all, the chart provides an important long-term perspective on the
pattern of short-term interest rates. Looking at but five years (as we did at
the outset of this letter) makes it appear that Treasury bill yields have
soared, and, in a sense they have. But Treasury bill yields remain well below
their 20-year average of 7.5% on a nominal basis, even as bills currently
provide a real yield (3.1%) that is well above the historical norm (1.8%). With
savers presumably having learned from the lessons of the past--and demanding
higher real returns--I think that it is reasonable to expect that the present
level of real returns is sustainable.
4
<PAGE> 7
LOOKING AHEAD
Money market funds have a purpose: to provide you with safety, liquidity, and
yield. They can be held as a continuing permanent cash reserve, or they can be
used as a temporary haven from the vicissitudes of volatile financial markets.
But money market funds should be considered as only a portion of an investor's
overall investment program. Bonds and stocks, too, are necessary investment
holdings, as their likely higher long-term returns should compensate for their
higher short-term risks.
Whatever purpose you have in holding a money market fund, we think we
have few peers in serving you effectively, efficiently, and profitably. We shall
"stay the course" we have set for ourselves, and for you.
Sincerely,
/s/ JOHN C. BOGLE
- -------------------
John C. Bogle
Chairman of the Board
December 12, 1994
MORE RETURN WITH LESS RISK?
There need be no sacrifice in yield whatsoever for investors who shift from
non-Vanguard (higher-cost) prime money market funds into the much- lower-cost
Vanguard Federal and U.S. Treasury Money Market Portfolios. That is because our
low expenses make it possible for such investors to earn higher net income, even
while reducing risk, by owning a fund that holds only Federal agency or U.S.
Treasury obligations.
If this sounds like a "free lunch"--of which there is supposed to be no
such thing--we believe that is exactly what it is. This table shows the net
yields on our Federal and U.S. Treasury Portfolios at fiscal year end, as well
as the number of "garden variety" prime money market funds we "out-yield":
- -----------------------------------------------------------------
Prime Funds
Total With Lower
Vanguard Yield at Prime Yield than
Portfolio November 30, 1994 Funds Vanguard
- -----------------------------------------------------------------
FEDERAL 5.03% 245 211
U.S. TREASURY 4.76 245 121
- -----------------------------------------------------------------
Source: Donoghue's Money Fund Report
Simply put, the table shows that investors in 211 of 245 prime money market
funds (almost 90% of such funds!) could increase their yield--and reduce their
risk--by moving their assets to Vanguard's Federal Portfolio. By the same token,
investors in 121 of 245 such funds (a "mere" 49% of the total) could make this
profitable "swap" into Vanguard's U.S. Treasury Portfolio and reduce their
credit risk even further.
At Vanguard, of course, you earn a premium market yield on our Prime
Portfolio reflecting the marginally higher credit risk. If it is a small
premium, it nonetheless enhances your yield, by nine basis points at year end
over the Federal Portfolio and 36 basis points over the U.S. Treasury Portfolio.
So why are we telling our own shareholders something that applies to
other money market funds? First, because you may also own shares in some of
them; second, because you might want to tell your friends who own other money
funds "what they are missing": more return with less risk.
5
<PAGE> 8
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS QUOTED IN THE CHAIRMAN'S LETTER ARE CALCULATED IN
ACCORDANCE WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED SEPTEMBER 30, 1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
INCEPTION ------------------------------------------
PORTFOLIO DATE 1 YEAR 5 YEAR 10 YEAR
-------------- --------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIME 6/4/75 +3.54% +5.22% +6.47%
FEDERAL 7/13/81 +3.50 +5.10 +6.30
U.S. TREASURY 3/13/89* +3.33 +4.94 +6.04
</TABLE>
* TOTAL RETURNS PROVIDED PRIOR TO MARCH 13, 1989, ARE FOR THE INSURED
PORTFOLIO, WHICH BEGAN OPERATIONS ON MARCH 9, 1983.
THESE DATA REPRESENT PAST PERFORMANCE; FUTURE RETURNS WILL FLUCTUATE. 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 $1.00 PER SHARE.
6
<PAGE> 9
REPORT FROM THE INVESTMENT ADVISER
In a departure from a five-year downward trend, short-term interest rates rose
dramatically during the fiscal year ended November 30, 1994. The increase in
rates came in response to actions taken by the Federal Reserve (the "Fed")--a
powerful force on short-term interest rates--to slow the growth of the economy
and counter the threat of inflation posed by rapid economic growth. By
influencing the cost of borrowing money for businesses and consumers, the Fed
attempts to encourage or restrain economic activity.
During the year, the Fed fully deployed its arsenal of available
monetary policy options. The year opened with interest rates at very low levels,
a holdover from the Fed's efforts to stimulate the economy through one of the
most anemic recoveries this century. Not wanting to plant the seeds of inflation
by overstaying the period of easy monetary policy (a mistake committed often in
past cycles), the Fed began raising rates in February of this year, with the
stated goal of having a neutral impact on the economy.
Late in the year, economic statistics showed that the pace of growth in
the economy had not been slowed by previous Fed rate hikes, and that spare
capacity in the economy--which acts as a cap on inflationary pressures--was
being consumed in the present growth phase. In response to this evidence, the
Fed increased rates further, to a level intended to restrict the growth rate of
the economy.
One of the most important aspects of the Fed's monetary policy stance as
it relates to money market investors is the relationship of short-term interest
rates to inflation. With the Fed in a restrictive policy mode, short-term
interest rates currently exceed the annual rate of inflation by about 3
percentage points.
In a low expense money market investment such as Vanguard Money Market
Reserves, the present interest rate environment provides investors with a
positive real (after inflation) return. Investors in high tax brackets may find
themselves breaking even with inflation on an after-tax basis. Certainly there
is no guarantee that money market investors can expect substantial positive real
after-tax returns into the future, but today's yield levels are a definite
improvement over recent years in both absolute and real terms. (For more
specific information on the returns of the various Portfolios of Vanguard Money
Market Reserves, please refer to the Chairman's letter.)
The rapid rise in short-term interest rates this year has brought its
share of bad news to some money market investment managers and shareholders.
These managers made investments that were inappropriate to the money market fund
goal of maintaining a stable principal value. In order to preserve the value of
their shareholders' investments, they "bailed out" the funds by purchasing these
soured investments at their funds' cost. However, for the first time in industry
history, a money market fund allowed its net asset value per share to fall below
$1.00 because its sponsor did not have the resources for a bailout.
All of these investment managers made investments whose value could
reasonably have been foreseen to be unstable, and therefore, were inappropriate
for money market funds. However painful, these losses should serve as a reminder
that, even in conservative investments like money market funds, there are no
guarantees against loss.
We find these examples of overstepping the bounds of safety for some
nominal yield enhancement to be abhorrent. At Vanguard, our investment policies
are more stringent than the rules set down by the U.S. Securities and Exchange
Commission--both in terms of credit quality and price stability--because we do
not think the incremental yields to be gained by testing the regulatory limits
are worth the risks. Throughout the year, net asset values of the three
Portfolios have been stable based on market prices, and we have never invested
in risky or exotic derivative securities--nor will we. We rely on sound money
management practices and low costs as a formula to provide our investors with
competitive returns.
Sincerely,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Vice President
John Hollyer, Assistant Vice President
Vanguard Fixed Income Group
December 12, 1994
7
<PAGE> 10
FINANCIAL STATEMENTS
November 30, 1994
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
Amount Value
PRIME PORTFOLIO (000) (000)+
- ----------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (15.0%)
- ----------------------------------------------------------
Federal Home Loan Bank
5.001%-5.355%,
12/5/94-2/8/95 $219,500 $ 218,375
5.29%-5.637%,
12/2/94-1/3/95(1) 227,000 226,861
Federal Home Loan
Mortgage Corp.
4.931%-5.757%,
12/2/94-3/3/95 951,399 948,250
4.816%, 12/5/94(1) 100,000 99,943
Federal National Mortgage Assn.
4.95%-5.751%,
12/8/94-3/22/95 430,000 426,128
5.455%-5.799%,
12/2/94-1/18/95(1) 350,000 349,677
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(Cost $2,269,234) 2,269,234
- ----------------------------------------------------------
COMMERCIAL PAPER (59.4%)
- ----------------------------------------------------------
BANK HOLDING COMPANIES (3.5%)
Banc One Corp.
5.628%-5.886%,
2/2/95-2/27/95 50,000 49,380
Bankers Trust New York Corp.
5.848%, 2/9/95 100,000 98,876
J.P. Morgan & Co., Inc.
5.242%-5.523%,
12/14/94-12/15/94 226,295 225,862
Norwest Corp.
5.015%-6.017%,
12/7/94-2/16/95 111,000 110,359
Republic New York Corp.
5.617%, 2/16/95 50,000 49,410
----------
GROUP TOTAL 533,887
----------
- ----------------------------------------------------------
FINANCE--AUTO (3.1%)
Ford Motor Credit Corp.
4.991%-5.536%,
12/1/94-12/19/94 295,000 294,385
Toyota Motor Credit Corp.
5.83%-5.997%,
2/2/95-2/10/95 182,060 180,096
----------
GROUP TOTAL 474,481
----------
- ----------------------------------------------------------
FINANCE--SECURITIES DEALERS (1.9%)
Merrill Lynch & Co.
5.024%-5.931%,
12/5/94-2/1/95 291,100 289,807
----------
- ----------------------------------------------------------
FINANCE--OTHER (17.6%)
A.I. Credit Corp.
4.93%-5.991%,
12/1/94-2/27/95 95,000 94,501
American Express Credit Corp.
5.512%, 12/6/94 50,000 49,962
Ameritech Capital Funding Corp.
5.159%-5.617%,
1/17/95-2/17/95 70,000 69,430
Asset Securitization
Cooperative Corp.
5.486%-5.726%,
1/17/95-2/7/95 260,000 257,627
Associates Corp.
5.172%-5.841%,
12/7/94-2/1/95 275,000 273,650
Ciesco L.P.
5.483%-5.833%,
12/20/94-2/21/95 142,600 141,759
CIT Group Holdings Inc.
5.082%-5.563%,
12/6/94-12/16/94 300,000 299,597
Commercial Credit Co.
4.981%-5.185%,
12/1/94-12/13/94 250,000 249,750
Corporate Asset Funding Corp.
5.141%-5.833%,
12/1/94-2/21/95 295,300 294,128
John Deere Capital Corp.
5.172%-5.374%,
12/7/94-12/16/94 100,000 99,846
Eiger Capital Corp.
5.172%-5.558%,
12/7/94-12/15/94 75,000 74,907
General Electric Capital Corp.
4.866%-6.018%,
12/5/94-3/22/95 435,000 430,982
5.281%-5.69%,
12/2/94-1/6/95(1) 140,000 140,000
Harvard University
5.012%, 12/6/94 25,000 24,983
Matterhorn Capital Corp.
5.172%-5.374%,
12/7/94-12/15/94 80,000 79,913
Norwest Financial Inc.
5.545%, 12/16/94 35,000 34,920
Pitney Bowes Credit Corp.
4.879%-5.025%,
12/6/94-12/9/94 44,700 44,657
----------
GROUP TOTAL 2,660,612
----------
- ----------------------------------------------------------
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------
<S> <C> <C>
INDUSTRIAL (8.0%)
Amtrak Trust
5.75%, 12/5/94(1)* $ 80,580 $ 80,580
Chevron Oil Finance Co.
5.152%-5.492%,
12/6/94-12/13/94 217,000 216,777
Chevron Transport Corp.
5.512%, 12/6/94 15,000 14,989
Coca-Cola Co.
5.171%, 1/27/95 20,000 19,840
Dun & Bradstreet Corp.
5.38%-5.538%,
1/10/95-1/24/95 40,000 39,719
Exxon Imperial U.S. Inc.
5.524%, 12/16/94 60,000 59,863
Eli Lilly Co.
6.008%, 3/13/95 150,000 147,493
Miles Inc.
5.189%-5.323%,
12/6/94-12/15/94 76,000 75,887
Mobil Australia Finance Co.
5.196%-5.521%,
12/13/94-12/15/94 53,453 53,349
Nestle Capital Corp.
5.042%-5.141%,
12/6/94-12/8/94 125,000 124,895
Norfolk Southern Corp.
5.676%, 2/3/95 18,537 18,352
Pitney Bowes Inc.
5.527%, 12/20/94 11,400 11,367
Procter & Gamble Co.
5.844%, 2/16/95 105,800 104,494
Schering Corp.
5.201%, 3/6/95 50,000 49,331
SmithKline Beecham Corp.
5.50%-5.527%,
12/13/94-12/20/94 69,000 68,847
Texaco Inc.
5.204%, 12/12/94 68,000 67,892
Vermont American Corp.
5.121%, 12/6/94 15,000 14,989
Wal-Mart Stores Inc.
5.48%-5.482%,
12/1/94-12/6/94 36,542 36,530
----------
GROUP TOTAL 1,205,194
----------
- ----------------------------------------------------------
INSURANCE (3.1%)
AIG Funding Inc.
5.172%-5.177%,
12/7/94-2/28/95 64,400 63,868
Metlife Funding Corp.
5.152%-5.881%,
12/7/94-2/21/95 243,547 241,222
Prudential Funding Corp.
5.293%-5.69%,
12/14/94-2/7/95 75,000 74,422
SAFECO Credit Co. Inc.
5.734%, 2/16/95 13,500 13,337
St. Paul Companies
5.204%, 12/12/94 10,000 9,984
USAA Capital Corp.
5.002%-5.855%,
12/5/94-2/27/95 60,000 59,434
----------
GROUP TOTAL 462,267
----------
- ----------------------------------------------------------
UTILITIES (4.9%)
Ameritech Corp.
5.594%-5.649%,
1/30/95-2/24/95 93,000 91,949
AT&T Corp.
5.507%-5.888%,
12/20/94-2/24/95 555,621 549,448
Citizens Utilities Co.
4.95%-5.913%,
12/27/94-3/6/95 55,400 54,696
US WEST Communications Inc.
5.445%-5.503%,
1/19/95-1/27/95 47,000 46,644
----------
GROUP TOTAL 742,737
----------
- ----------------------------------------------------------
FOREIGN BANKS (7.8%)
Abbey National N.A.
5.465%-5.897%,
1/19/95-2/22/95 215,000 213,026
Barclays U.S. Funding Corp.
5.033%, 12/5/94 100,000 99,944
Canadian Imperial Holdings Inc.
5.182%-5.532%,
12/8/94-12/19/94 200,000 199,624
Commerzbank U.S. Finance Inc.
5.013%-5.374%,
12/1/94-12/15/94 128,300 128,116
Internationale Nederlanden
U.S. Funding Corp.
5.535%-5.537%,
12/19/94-12/21/94 191,634 191,075
Toronto Dominion Holdings
USA Inc.
4.889%-5.214%,
12/8/94-12/12/94 150,000 149,827
UBS Finance (Delaware) Inc.
5.75%, 12/1/94 200,000 200,000
----------
GROUP TOTAL 1,181,612
----------
- ----------------------------------------------------------
</TABLE>
9
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------
<S> <C> <C>
CANADIAN GOVERNMENTS--
NATIONAL AND PROVINCIAL (4.6%)
Canada Bills
4.811%-5.867%,
12/2/94-2/24/95 $310,403 $ 308,557
Canadian Wheat Board
5.171%-5.323%,
12/7/94-2/28/95 137,000 136,367
Ontario Hydro
5.104%-5.951%,
12/8/94-2/21/95 98,500 98,174
Province of Alberta
5.68%, 2/6/95 20,000 19,792
Province of British Columbia
5.041%-5.982%,
1/25/95-4/5/95 123,900 122,096
----------
GROUP TOTAL 684,986
----------
- ----------------------------------------------------------
OTHER FOREIGN GOVERNMENT (4.1%)
Caisse des Depots et Consignations
5.214%-5.907%,
12/13/94-2/7/95 239,000 237,274
Electricite de France
5.623%, 2/23/95 40,000 39,485
KFW International Finance Inc.
5.571%, 1/31/95 15,000 14,860
New South Wales Treasury Corp.
5.172%-5.896%,
12/8/94-2/21/95 113,000 112,275
Oesterreichische Kontrollbank
5.991%, 1/31/95 148,800 147,305
Wool International
5.405%-5.73%,
1/18/95-2/6/95 68,500 67,927
----------
GROUP TOTAL 619,126
----------
- ----------------------------------------------------------
FOREIGN INDUSTRIAL (.8%)
British Telecommunications PLC
5.388%, 2/23/95 8,000 7,891
Siemens Corp.
5.54%-5.777%,
1/19/95-4/4/95 119,500 117,977
----------
GROUP TOTAL 125,868
----------
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $8,980,577) 8,980,577
- ----------------------------------------------------------
CERTIFICATES OF DEPOSIT (16.1%)
- ----------------------------------------------------------
U.S. BANKS (2.4%)
American Express Centurion Bank
5.06%-5.20%,
12/5/94-12/8/94 73,000 73,000
National Bank of Detroit
5.51%-5.87%,
12/20/94-2/27/95 247,000 246,997
Wachovia Bank of Georgia
5.52%, 12/19/94 50,000 50,000
----------
GROUP TOTAL 369,997
----------
- ----------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--
CANADIAN BRANCHES (1.0%)
ABN AMRO
5.576%-5.876%,
1/26/95-2/23/95 55,000 54,365
Barclays Bank
5.273%-5.538%,
12/14/94-12/21/94 104,400 104,157
----------
GROUP TOTAL 158,522
----------
- ----------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--
U.S. BRANCHES (12.7%)
ABN AMRO
5.54%-5.81%,
2/1/95-2/17/95 117,000 117,003
Barclays Bank
5.61%, 2/6/95 50,000 50,000
Bayerische Hypo Bank
5.90%, 2/23/95 24,000 24,003
Caisse Nationale de Credit Agricole
4.96%-5.65%,
12/9/94-2/27/95 185,000 185,000
Canadian Imperial
Bank of Commerce
4.94%-5.53%,
12/12/94-12/19/94 83,000 83,000
Commerzbank
5.18%-5.90%,
12/8/94-2/2/95 150,000 150,000
Credit Suisse
4.11%, 2/23/95 35,000 34,905
Lloyds Bank
5.12%, 1/17/95 25,000 25,000
National Westminster Bank
5.35%, 1/13/95 50,000 50,001
Rabobank Nederlanden
5.00%-5.30%,
12/29/94-3/16/95 436,500 436,480
Societe Generale
5.05%-5.60%,
12/1/94-2/2/95 230,000 230,000
Swiss Bank
5.49%-5.64%,
1/18/95-2/28/95 186,000 186,000
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------
<S> <C> <C>
Union Bank of Switzerland
4.80%, 12/14/94 $ 40,000 $ 39,997
Westdeutsche Landesbank
5.03%-5.15%,
1/5/95-1/18/95 300,000 300,000
----------
GROUP TOTAL 1,911,389
----------
- ----------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $2,439,908) 2,439,908
- ----------------------------------------------------------
EURODOLLAR CERTIFICATES
OF DEPOSIT (4.3%)
- ----------------------------------------------------------
Abbey National
5.22%, 2/22/95-3/1/95 41,000 41,000
Caisse Nationale De Credit Agricole
4.97%-5.33%,
12/9/94-3/16/95 35,000 35,002
Deutsche Bank
4.80%-5.20%,
12/20/94-3/9/95 80,000 80,001
Lloyds Bank
4.73%-5.51%,
12/12/94-2/6/95 185,000 185,002
National Westminster Bank
5.09%-5.51%,
1/13/95-3/15/95 305,000 304,998
- ----------------------------------------------------------
TOTAL EURODOLLAR
CERTIFICATES OF DEPOSIT
(Cost $646,003) 646,003
- ----------------------------------------------------------
BANKERS ACCEPTANCES (.3%)
- ----------------------------------------------------------
Republic Bank of New York
5.347%-5.466%,
1/12/95-2/13/95 28,000 27,740
Wachovia Bank of Georgia
5.171%, 12/7/94 10,000 9,991
Wachovia Bank of North Carolina
4.878%, 12/5/94 10,000 9,995
- ----------------------------------------------------------
TOTAL BANKERS ACCEPTANCES
(Cost $47,726) 47,726
- ----------------------------------------------------------
OTHER NOTES (4.0%)
- ----------------------------------------------------------
Bank One (Texas)
5.769%-5.799%,
12/2/94(1) 145,000 144,995
Morgan Bank (Delaware)
5.63%, 12/6/94(1) 95,000 94,964
Morgan Guaranty Trust
5.63%-5.65%, 12/6/94(1) 200,000 199,959
National Bank of Detroit
5.07%, 1/19/95 38,000 37,995
SMM Trust
6.118%, 2/22/95(1) 20,000 20,000
Wachovia Bank of North Carolina
5.18%-5.30%,
12/12/94-12/15/94 90,000 90,000
Westdeutsche Landesbank
3.70%, 1/11/95 13,000 12,980
- ----------------------------------------------------------
TOTAL OTHER NOTES
(Cost $600,893) 600,893
- ----------------------------------------------------------
REPURCHASE AGREEMENT (.6%)
- ----------------------------------------------------------
Greenwich Capital
5.65%, 12/1/94
(Collateralized by U.S. Treasury
Bill 11/16/95) (Cost $84,768) 84,768 84,768
- ----------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(Cost $15,069,109) 15,069,109
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.3%)
- ----------------------------------------------------------
Other Assets--Note B 139,250
Liabilities (99,642)
----------
39,608
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 15,108,530,554 outstanding
$.001 par value shares
(authorized 25,000,000,000 shares) $15,108,717
- ----------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
==========================================================
+ See Note A to Financial Statements.
(1) Floating Rate Notes.
* Put Option Obligation.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
AT NOVEMBER 30, 1994,
NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
Amount Per
(000) Share
----------- -----
<S> <C> <C>
Paid in Capital $15,108,529 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 188 --
Unrealized Appreciation
of Investments -- --
- ----------------------------------------------------------
NET ASSETS $15,108,717 $1.00
- ----------------------------------------------------------
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
FEDERAL PORTFOLIO (000) (000)+
- ----------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (85.9%)
- ----------------------------------------------------------
Federal Home Loan Bank
4.363%-5.658%,
12/2/94-1/3/95(1) $150,000 $ 149,947
5.003%-5.794%,
12/8/94-2/21/95 367,865 365,245
Federal Home Loan
Mortgage Corp.
4.685%, 12/5/94(1) 100,000 99,943
4.951%-5.84%,
12/2/94-3/6/95 550,797 548,010
Federal National Mortgage Assn.
4.951%-5.926%,
12/9/94-3/22/95 610,390 603,693
Overseas Private Investment Corp.
(U.S. Government Guaranteed)
5.082%-6.58%,
12/6/94-2/25/95*(1) 119,514 119,514
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(Cost $1,886,352) 1,886,352
- ----------------------------------------------------------
REPURCHASE AGREEMENTS (15.8%)
- ----------------------------------------------------------
C.S. First Boston Inc.
5.70%, 12/1/94
(Collateralized by U.S.
Treasury Note
5.875%, 5/31/96) 46,943 46,943
Eastbridge Capital
5.75%, 12/1/94
(Collateralized by U.S.
Treasury Bill 5/25/95 and
U.S. Treasury Notes
5.125%-6.50%,
3/31/96-4/30/99) 150,000 150,000
NationsBank (Texas)
5.75%, 12/1/94
(Collateralized by U.S.
Treasury Note
3.875%, 2/28/95) 150,000 150,000
- ----------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $346,943) 346,943
- ----------------------------------------------------------
TOTAL INVESTMENTS (101.7%)
(Cost $2,233,295) 2,233,295
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
- ----------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-1.7%)
- ----------------------------------------------------------
Other Assets--Note B $ 12,126
Liabilities (48,997)
----------
(36,871)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 2,196,318,241 outstanding
$.001 par value shares
(authorized 5,000,000,000 shares) $2,196,424
- ----------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
==========================================================
+ See Note A to Financial Statements.
* Put option obligation.
(1) Floating Rate Notes.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
AT NOVEMBER 30, 1994,
NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
Amount Per
(000) Share
---------- -----
<S> <C> <C>
Paid in Capital $2,196,347 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 77 --
Unrealized Appreciation
of Investments -- --
- ----------------------------------------------------------
NET ASSETS $2,196,424 $1.00
- ----------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- ----------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (102.1%)
- ----------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bills
4.53%-5.618%,
12/1/94-3/2/95 $1,695,379 $1,686,148
U.S. Treasury Notes
4.25%-8.625%,
12/31/94-2/15/95 412,045 412,179
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(Cost $2,098,327) 2,098,327
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.1%)
- ----------------------------------------------------------
Other Assets--Note B 17,844
Liabilities (60,114)
(42,270)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 2,055,865,836 outstanding
$.001 par value shares
(authorized 5,000,000,000 shares) $2,056,057
- ----------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
==========================================================
+See Note A to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
AT NOVEMBER 30, 1994,
NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
Amount Per
(000) Share
---------- -----
<S> <C> <C>
Paid in Capital $2,055,884 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Gains 173 --
Unrealized Appreciation
of Investments -- --
- ----------------------------------------------------------
NET ASSETS $2,056,057 $1.00
- ----------------------------------------------------------
</TABLE>
13
<PAGE> 16
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PRIME FEDERAL U.S. TREASURY
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
November 30, 1994 November 30, 1994 November 30, 1994
(000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest...................................... $552,670 $83,281 $75,370
- ------------------------------------------------------------------------------------------------------------------------
Total Income......................... 552,670 83,281 75,370
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services............... $ 1,460 $ 224 $ 212
Management and Administrative.............. 35,390 5,392 5,121
Marketing and Distribution................. 3,553 40,403 547 6,163 517 5,850
------- ------- -------
Custodian's Fees.............................. 380 74 56
Taxes (other than income taxes)............... 1,075 164 154
Auditing Fees................................. 21 9 9
Shareholders' Reports......................... 521 78 64
Annual Meeting and Proxy Costs................ 39 6 21
Directors' Fees and Expenses.................. 67 10 9
- ------------------------------------------------------------------------------------------------------------------------
Total Expenses....................... 42,506 6,504 6,163
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income............. 510,164 76,777 69,207
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON
INVESTMENT SECURITIES SOLD ...................... (97) (55) (24)
- ------------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION
(DEPRECIATION) OF
INVESTMENT SECURITIES ........................... -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations...... $510,067 $76,722 $69,183
========================================================================================================================
</TABLE>
14
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PRIME FEDERAL U.S. TREASURY
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended YEAR ENDED Year Ended YEAR ENDED Year Ended
NOVEMBER 30, November 30, NOVEMBER 30, November 30, NOVEMBER 30, November 30,
1994 1993 1994 1993 1994 1993
(000) (000) (000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
OPERATIONS
Net Investment Income......... $ 510,164 $ 368,074 $ 76,777 $ 56,180 $ 69,207 $ 53,345
Realized Net Gain (Loss)...... (97) 37 (55) 121 (24) (50)
Unrealized Appreciation
(Depreciation)............. -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net Increase in
Net Assets
Resulting from
Operations........... 510,067 368,111 76,722 56,301 69,183 53,295
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income......... (510,164) (368,074) (76,777) (56,180) (69,207) (53,345)
- ------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
(AT $1.00 PER SHARE)
Issued --Regular........... 12,442,610 12,433,362 1,302,611 1,384,996 1,583,805 1,392,485
--In Lieu of Cash
Distributions... 489,573 354,746 73,348 53,652 66,010 50,552
--Exchange.......... 5,289,175 3,266,455 643,634 372,470 594,652 406,070
Redeemed --Regular........... (11,774,731) (11,774,422) (1,294,420) (1,244,605) (1,269,326) (1,226,276)
--Exchange.......... (3,705,050) (4,551,214) (435,756) (646,049) (670,287) (1,192,291)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease)
from Capital Share
Transactions............... 2,741,577 (271,073) 289,417 (79,536) 304,854 (569,460)
- ------------------------------------------------------------------------------------------------------------------------
Total Increase
(Decrease)................. 2,741,480 (271,036) 289,362 (79,415) 304,830 (569,510)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year............. 12,367,237 12,638,273 1,907,062 1,986,477 1,751,227 2,320,737
- ------------------------------------------------------------------------------------------------------------------------
End of Year................... $15,108,717 $12,367,237 $2,196,424 $1,907,062 $2,056,057 $1,751,227
========================================================================================================================
(1) Income Dividends
Per Share................. $.038 $.030 $.038 $.029 $.036 $.028
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
----------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR .................. $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income............................. .038 .030 .038 .062 .080
Net Realized and Unrealized Gain
(Loss) on Investments.......................... -- -- -- -- --
TOTAL FROM INVESTMENT OPERATIONS ........... .038 .030 .038 .062 .080
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income.............. (.038) (.030) (.038) (.062) (.080)
Distributions from Realized Capital Gains......... -- -- -- -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ........................ (.038) (.030) (.038) (.062) (.080)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ........................ $1.00 $1.00 $1.00 $1.00 $1.00
=======================================================================================================================
TOTAL RETURN ........................................ +3.87% +3.02% +3.89% +6.39% +8.32%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions)................... $15,109 $12,367 $12,638 $13,496 $13,579
Ratio of Expenses to Average Net Assets.............. .32% .32% .30% .30% .30%
Ratio of Net Investment Income to
Average Net Assets................................ 3.84% 2.98% 3.82% 6.20% 8.06%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FEDERAL PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
----------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR .................. $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income............................. .038 .029 .038 .060 .078
Net Realized and Unrealized Gain
(Loss) on Investments.......................... -- -- -- -- --
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ........... .038 .029 .038 .060 .078
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income.............. (.038) (.029) (.038) (.060) (.078)
Distributions from Realized Capital Gains......... -- -- -- -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ........................ (.038) (.029) (.038) (.060) (.078)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ........................ $1.00 $1.00 $1.00 $1.00 $1.00
=======================================================================================================================
TOTAL RETURN ........................................ +3.82% +2.98% +3.83% +6.18% +8.14%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions)................... $2,196 $1,907 $1,986 $2,000 $1,950
Ratio of Expenses to Average Net Assets.............. .32% .32% .30% .30% .30%
Ratio of Net Investment Income to
Average Net Assets................................ 3.78% 2.94% 3.76% 6.01% 7.90%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
U.S. TREASURY PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
----------------------------------------------
For a Share Outstanding Throughout Each Year 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR .................. $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income............................. .036 .028 .036 .058 .077
Net Realized and Unrealized Gain
(Loss) on Investments.......................... -- -- -- -- --
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ........... .036 .028 .036 .058 .077
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income.............. (.036) (.028) (.036) (.058) (.077)
Distributions from Realized Capital Gains......... -- -- -- -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ........................ (.036) (.028) (.036) (.058) (.077)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ........................ $1.00 $1.00 $1.00 $1.00 $1.00
=======================================================================================================================
TOTAL RETURN ........................................ +3.63% +2.86% +3.68% +5.94% +8.02%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions)................... $2,056 $1,751 $2,321 $2,092 $1,594
Ratio of Expenses to Average Net Assets.............. .32% .32% .30% .30% .30%
Ratio of Net Investment Income to
Average Net Assets................................ 3.59% 2.83% 3.60% 5.76% 7.74%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
Vanguard Money Market Reserves is registered under the Investment Company Act of
1940 as a diversified open-end investment company and consists of the Prime,
Federal, and U.S. Treasury Portfolios. The Prime Portfolio invests in short-term
debt instruments of companies primarily operating in specific industries; the
issuers' abilities to meet their obligations may be affected by economic
developments in such industries. The Federal Portfolio invests in short-term
debt instruments issued by the U.S. Government or its agencies and
instrumentalities. The U.S. Treasury Portfolio invests in short-term debt
instruments backed by the full faith and credit of the U.S. Government.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Securities are stated at amortized cost which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute
all of its taxable income. Accordingly, no provision for Federal income
taxes is required in the financial statements.
3. OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Costs used in determining realized gains and losses on the
sale of investment securities are those of specific securities sold.
Discounts and premiums are accreted and amortized, respectively, to interest
income over the lives of the respective securities. Distributions from net
investment income are declared on a daily basis payable on the first business
day of the following month.
4. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by the Fund's custodian bank until maturity of the
repurchase agreement. Provisions of each agreement ensure that the market
value of the collateral is sufficient in the event of default; however, in
the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
B. The Vanguard Group, Inc. furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the Fund under methods approved by the Board of
Directors. At November 30, 1994, the Fund had contributed capital of
$2,852,000 to Vanguard (included in Other Assets), representing 14.3% of
Vanguard's capitalization. The directors and officers of the Fund are also
directors and officers of Vanguard.
18
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard Money Market Reserves
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Prime Portfolio, Federal Portfolio, and U.S. Treasury Portfolio of Vanguard
Money Market Reserves (the "Fund") at November 30, 1994, the results of each of
their operations, the changes in each of their net assets and the financial
highlights for each of the respective periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at November 30, 1994, by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 30, 1994
19
<PAGE> 22
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc
Rorer Inc.; Director of Sun Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and Scott Paper
Company.
BURTON G. MALKIEL, 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
Communications Company.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company,
Reliance Electric Company, and The Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric
Company and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas
Company; Director of Cummins Engine Company; Trustee of Vanderbilt University
and the Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of each
of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD VINCENT S. MCCORMACK
Senior Vice President Senior Vice President
Planning & Development Operations
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Institutional Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
20
<PAGE> 23
THE VANGUARD VOYAGE . . . STAYING THE COURSE
(continued from inside front cover)
* We set specific standards for each Fund's investment policies and principles.
* We adhere to the highest standards of investment quality, consistent with each
Fund's objectives.
* We offer candor in our Fund descriptions (including full disclosure of
risk) to prospective investors, and in our description to shareholders of
each Fund's success (or, sometimes, lack of the same).
These principles make at least as much sense today as they did in 1929, perhaps
even more. For we live in an era when many fund organizations have become
asset-gathering machines, capitalizing on past performance that is unrepeatable
and investment fads that today, as yesterday, will come and go. The new
marketing policy is too often "if investors want it, we'll sell it to them." But
our principle remains "if it makes sound investment sense, we'll offer it, even
if it takes years to attract substantial assets."
FOUNDING CORPORATE VALUES
With the founding of The Vanguard Group in 1974, a new concept of values was
brought to bear on mutual fund management. Unlike other fund organizations,
Vanguard alone is structured to serve only its Funds' shareholders. Vanguard's
corporate structure places not the fund management company, but the fund
shareholders, "at the top" of the organizational chart. Vanguard Fund
shareholders are literally the owners of the firm and are entitled to all of the
benefits that, at other fund firms, accrue to the owners of the management
company.
Because of this unique structure, Vanguard has become best known for its
low costs, which we believe are just as essential a consideration in investing
in mutual funds as risk potential and total return. We call this relationship
between risk, return, and cost the "eternal triangle" of mutual fund investing.
We take special pride in our position as (by far) the lowest-cost
provider of financial services in the world. Under our "no-load" offering
structure, shareholders begin their Vanguard investment program with $1,000 of
assets (not, say, $950) for each $1,000 investment. Then, under our "at-cost"
operating structure, each $1,000 is managed for only about $3 per year; our
competitors may charge three, four, or even five times that amount.
In all, Vanguard has distinguished itself by providing Funds with sound and
durable goals to investors with long-term time horizons, and doing so at the
fairest financial terms available. We believe that the unique Vanguard structure
"promotes a healthy and viable mutual fund complex within which each Fund can
better prosper; enables the Funds to realize substantial savings from advisory
fee reductions; promotes savings from economies of scale; and provides the Funds
with direct and conflict-free control over distribution functions." We are not
alone in this belief. Indeed, the quotation is taken verbatim from the unanimous
decision of the U.S. Securities and Exchange Commission when, in 1981, it
approved our application for the structure under which we operate today.
A CLOSING THOUGHT
We are proud of what Wellington Fund, the other Vanguard Funds, and The Vanguard
Group have come to represent, and we are grateful for the success and growth
with which we have been blessed. We are an industry leader, and, as a competitor
observed a few years ago, we are "the standard by which all fund organizations
are judged."
In battle terms, "the vanguard" is the first wave of troops or ships, and
Vanguard surely is in the first wave of the battle for investment survival. As
we look behind us, however, the "second wave" is not in sight. No fund
organization has followed our lead, leaving ours a lonely course. No matter. We
have an organization that places the interests of our Fund shareholders first.
We have Funds that shall endure the vicissitudes of the future. Come what may,
we intend to "stay the course," and we shall do our very best to continue to
deserve your confidence and loyalty. We hope that you will stay the course with
us.
<PAGE> 24
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: 1-(800) 662-7447 Shareholder Account Services: 1-(800) 662-2739
</TABLE>
This Report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus. All Funds in
the Vanguard Family are offered by prospectus only.
Q300-11/94
<PAGE> 25
EDGAR APPENDIX
This appendix describes the components of the printed version of this
report that do not translate into a format acceptable to the EDGAR system.
The front cover of the printed version of this report features the
Vanguard ship in the crashing sea.
A small picture of a rear view of the Vanguard ship crashing through
the sea appears at the top of the inside covers of the report.
A running head featuring a sextant appears on pages one through five.
A photograph of John C. Bogle appears at the lower-right of page one.
Two line charts appear at the upper-left of page two--the top chart
depicts the month-end yields of a 30-Year U.S. Treasury Bond and a 90-Day U.S.
Treasury Bill for the fiscal years 1990 to 1994, and the bottom chart indicates
the yield spread for the same periods.
A line chart showing U.S. Treasury Bill Yields for the calendar years
1975 through November 30, 1994 appears on page 3.
A running head featuring a coiled rope appears on page six.
A running head featuring a map and telescope appears on pages seven.
A running head featuring a log book and pen appears on pages eight
through nineteen.
A running head featuring a compass appears on page twenty.
At the bottom of the back cover there appears a triangle with the sides
labeled "risk," "cost," and "return."
A seagull in flight is featured at the top of the outside back cover of
the report.
