<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
During the six months ended May 31, 1996, the semi-annual period for Vanguard
Money Market Reserves, short-term interest rates continued their decline that
began during the second half of our 1995 fiscal year. As a result, the yields
available on our four Portfolios slipped below their levels at the outset of
the fiscal year.
This table presents the yields of each of our four Portfolios on May
31, 1996, compared with those of six months and one year ago:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SEVEN-DAY ANNUALIZED YIELD
-----------------------------------------
MAY 31, NOVEMBER 30, MAY 31,
PORTFOLIO 1996 1995 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
PRIME 5.08% 5.50% 5.86%
FEDERAL 5.04 5.46 5.84
U.S. TREASURY 4.87 5.21 5.54
- ---------------------------------------------------------------
PRIME INSTITUTIONAL 5.25% 5.67% 6.03%
- ---------------------------------------------------------------
</TABLE>
Short-term interest rates--as measured by the benchmark U.S. Treasury
bill--have declined fairly steadily from their February 1995 high of 6.0%,
sliding to 5.5% by the close of the 1995 fiscal year and sinking to 5.2% at the
halfway point of our 1996 fiscal year. The earlier decline seemed to reflect
investors' expectations that the Federal Reserve Board would elect to prop up
the weakening U.S. economy by lowering the Federal funds rate (the rate at
which banks borrow from one another). When the Fed actually lowered short rates
in December 1995 and January 1996, these expectations proved to be right on the
mark.
At the same time that short-term interest rates were falling,
long-term rates were rising. On balance, during the past six months, the yield
on the long-term U.S. Treasury bond rose from 6.1% to 6.9%, pushing the prices
of long-term bonds lower by about 10% (excluding interest income).
In this environment of declining short-term interest rates, our
yields, not surprisingly, eased downward. Nonetheless, as shown in the table
that follows, we have sustained "across the board" the yield advantage that
shareholders in our Money Market Portfolios have come to expect:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
SEVEN-DAY ANNUALIZED YIELD
MAY 31, 1996
-------------------------------------------
INVESTMENT VANGUARD AVERAGE VANGUARD
CATEGORY PORTFOLIO COMPETITOR ADVANTAGE
- -------------------------------------------------------------------
<S> <C> <C> <C>
PRIME 5.08% 4.67% +0.41%
FEDERAL 5.04 4.59 +0.45
U.S. TREASURY 4.87 4.51 +0.36
- -------------------------------------------------------------------
PRIME INSTITUTIONAL 5.25% 5.01% +0.24%
- -------------------------------------------------------------------
</TABLE>
Source: IBC's Money Fund Report.
Despite this net yield (after expenses) advantage, the gross yields (before
expenses) of our Portfolios are quite similar to those of their competitors.
Our advantage is derived from our much lower expense ratios. The expense ratios
of our three "regular" Portfolios average only 0.32% of average net assets,
compared to a ratio of 0.72% for the average competitor. (Our Prime
Institutional Shares Portfolio incurs a paltry annual expense ratio of 0.15%,
compared to 0.41% for the average institutional money market portfolio.) This
expense differential represents a boost in yield that is there for the taking,
at no additional risk to the investor.
We look forward to providing you with more detail on the Portfolios'
results in our Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- -----------------
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
- -------------------
John J. Brennan
President June 18, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
1
<PAGE> 2
AVERAGE ANNUAL TOTAL RETURNS
THE CURRENT YIELDS QUOTED IN THE MESSAGE TO SHAREHOLDERS ARE CALCULATED IN
ACCORDANCE WITH SEC GUIDELINES. THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED MARCH 31, 1996) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
INCEPTION --------------------------------
PORTFOLIO DATE 1 YEAR 5 YEARS 10 YEARS
- -------------------- ------------ ------- ------- --------
<S> <C> <C> <C> <C>
PRIME 6/4/75 +5.69% +4.46% +6.06%
FEDERAL 7/13/81 +5.64 +4.40 +5.91
U.S. TREASURY 3/13/89* +5.40 +4.21 +5.69
PRIME INSTITUTIONAL 10/27/95** +5.87 +4.63 +5.47+
</TABLE>
* TOTAL RETURNS PROVIDED PRIOR TO MARCH 13, 1989, ARE FOR THE INSURED
PORTFOLIO, WHICH BEGAN OPERATIONS ON MARCH 9, 1983.
** TOTAL RETURNS PROVIDED PRIOR TO OCTOBER 28, 1995, ARE FOR VANGUARD
INSTITUTIONAL MONEY MARKET PORTFOLIO, WHICH BEGAN OPERATIONS ON
OCTOBER 3, 1989.
+ SINCE THE INCEPTION OF VANGUARD INSTITUTIONAL MONEY MARKET PORTFOLIO.
ALL OF 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.
2
<PAGE> 3
REPORT FROM THE INVESTMENT ADVISER
During the first half of the 1996 fiscal year, money market interest rates
declined modestly, with yields on three-month Treasury bills and certificates
of deposit falling about one-third of a percent to 5.2% and 5.4%, respectively.
The returns of the various Portfolios of Vanguard Money Market Reserves fell
commensurately, as one would expect. (Please refer to the Message To
Shareholders for a complete discussion of returns.)
As usual, the actions of the Federal Reserve (the Fed) had a
significant impact on the short-term markets. In December and January, the
Central Bank eased monetary policy, causing a reduction in short-term interest
rates. Typically, when changing monetary policy, the Fed adds or removes
reserves from the banking system to make sizable adjustments to the cost of
borrowing for businesses and consumers, thereby influencing economic growth and
inflation pressures over a period best measured in years. In contrast, the
relatively small changes recently made by the Fed (a combined total reduction
of 0.5% in short-term rates) might better be described as a "fine tuning" of
real (after inflation) short-term rates in response to a favorable inflation
outlook rather than an attempt to stimulate a substantial increase in growth.
(In comparison, during 1994 they had increased short-term rates from 3.0% to
5.5%). Subsequently, market rates declined even more, as participants
anticipated further Fed easing. By many measures, the elusive "soft landing"
had become a reality in 1995, with moderate growth and unemployment at or near
the minimum levels considered to be non-inflationary.
By February, the temporary shutdowns of the Federal government, the
January blizzard in the eastern states, and continuing production slowdowns for
the liquidation of oversized inventories fostered a progressively more downbeat
interpretation of the economic indicators, despite the fact that these one-time
shocks would have little or no long-term impact on the economy. These factors
helped to extend the bond market rally, bringing yields on three-month Treasury
bills under 5% and long-term Treasury bonds to within 0.2% of the historic lows
reached in 1993.
During the latter part of the fiscal period, the economy seemed to
have rebounded from the temporary shocks described earlier, dashing hopes of
significant additional short-term rate reductions from the Fed. This removed
the key assumption on which the bond market rally was based, and prices
tumbled. The continuing strength of economic statistics, particularly in
employment, wages, and housing, extended this sell-off. At current levels, the
market has begun to factor in the possibility that the Fed will tighten reserve
policy and cause short-term rates to rise sometime over the next six months.
While money market rates have fallen in step with the Fed's actions in
recent months, they still offer historically attractive premiums of more than
2% over inflation. In managing the Portfolios, we have stayed faithful to the
conservative practices that have served us well in the past. In particular, we
have steered clear of lower credit quality issues. While SEC (Securities and
Exchange Commission) and prospectus guidelines would allow us to make some
lower-quality investments, we have concluded that there is not adequate
additional yield to compensate for the extra risk, especially in light of our
primary mission to maintain a stable net asset value.
In addition, we have kept each Portfolio's interest rate sensitivity
in the market-neutral portion of our investment policy, an appropriate
compromise between locking in attractive yields and keeping a healthy liquidity
cushion in the form of maturing issues. At times, we have extended the average
maturity of the Treasury Portfolio when anomalies in the short-term Treasury
yield curve provide relatively large amounts of incremental yield for slightly
longer maturities. In general, with our low cost structure, we have delivered
highly competitive returns without reaching to the extreme of the allowable
limits of credit quality or interest rate exposure.
Sincerely,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Principal
John Hollyer, Principal
Vanguard Fixed Income Group June 13, 1996
3
<PAGE> 4
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
May 31, 1996
<TABLE>
<CAPTION>
Face Market
Amount Value
PRIME PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS (26.4%)
- ----------------------------------------------------------------------------
Federal Home Loan Bank
5.10%-5.288%,
6/4/96-8/20/96(1) $1,858,000 $ 1,857,025
4.957%-5.86%, 6/6/96-7/17/96 92,000 91,654
Federal Home Loan Mortgage Corp.
5.055%, 6/3/96(1) 100,000 100,000
Federal National Mortgage Assn.
5.234%-5.35%,
6/13/96-8/21/96(1) 2,597,000 2,596,018
5.10%-5.83%, 6/6/96-12/26/96 806,000 798,539
U.S. Treasury Note
6.50%, 11/30/96 25,000 25,120
- ----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(Cost $5,468,356) 5,468,356
- ----------------------------------------------------------------------------
COMMERCIAL PAPER (47.2%)
- ----------------------------------------------------------------------------
BANK HOLDING COMPANIES (3.8%)
Banc One Corp.
5.29%-5.355%, 6/14/96-8/15/96 92,600 91,964
BankAmerica Corp.
5.35%, 8/15/96 50,000 49,450
CoreStates Capital
5.325%, 6/10/96 50,000 49,934
J.P. Morgan & Co., Inc.
5.165%-5.34%, 6/5/96-8/15/96 282,776 281,164
NationsBank Corp.
5.392%, 6/12/96 150,000 149,755
Norwest Corp.
5.323%-5.354%, 6/6/96-6/21/96 120,000 119,713
Republic New York Corp.
5.32%, 7/5/96 30,000 29,853
SunTrust Bank
5.359%, 7/19/96 20,000 19,859
------------
SECTOR TOTAL 791,692
------------
- ----------------------------------------------------------------------------
FINANCE--AUTO (2.9%)
Ford Motor Credit Corp.
5.319%-5.353%, 6/18/96-7/29/96 350,000 348,425
New Center Asset Trust
5.343%-5.387%, 6/7/96-6/21/96 150,000 149,789
Toyota Motor Credit
5.328%-5.343%, 6/5/96-6/28/96 95,150 95,008
------------
SECTOR TOTAL 593,222
------------
- ----------------------------------------------------------------------------
FINANCE--OTHER (17.6%)
A.I. Credit Corp.
5.318%-5.349%, 6/3/96-8/7/96 89,000 88,720
American Express Credit Corp.
5.344%-5.366%, 6/7/96-8/15/96 300,000 298,795
Ameritech Capital Funding Corp.
5.166%-5.347%,
6/6/96-8/22/96 102,200 101,269
Asset Securitization
Cooperative Corp.
5.329%-5.378%, 6/10/96-7/26/96 325,000 322,618
Associates Corp.
5.337%-5.357%, 6/14/96-8/26/96 300,000 298,138
Ciesco L.P.
5.305%-5.371%, 6/3/96-8/27/96 313,800 312,275
CIT Group Holdings Inc.
5.319%-5.399%, 6/12/96-8/21/96 250,000 248,897
Commercial Credit Co.
5.324%-5.344%, 6/12/96-6/20/96 100,000 99,779
Corporate Asset Funding Corp.
5.30%-5.372%, 6/5/96-7/25/96 326,800 325,307
John Deere Capital Corp.
5.324%, 6/12/96 75,000 74,879
Delaware Funding
5.332%-5.37%, 6/4/96-7/9/96 281,162 280,770
Eiger Capital Corp.
5.327%-5.339%, 6/6/96-6/19/96 120,905 120,658
General Electric Capital Corp.
5.287%-5.376%, 6/7/96-8/23/96 681,718 675,148
Household Finance Corp.
5.324%-5.333%, 6/6/96-6/21/96 150,000 149,669
Norwest Financial
5.322%, 6/21/96 50,000 49,853
Panasonic Finance
5.35%, 7/12/96 15,000 14,909
Pitney Bowes Credit Corp.
5.315%-5.326%, 6/6/96-7/18/96 100,000 99,646
Transamerica Finance
5.322%-5.375%, 6/7/96-6/12/96 77,000 76,902
------------
SECTOR TOTAL 3,638,232
------------
- ----------------------------------------------------------------------------
INDUSTRIAL (7.1%)
Abbott Laboratories
5.339%-5.341%, 7/8/96-7/10/96 130,000 129,277
Bayer Corp.
5.315%-5.352%, 6/25/96-8/26/96 113,000 112,145
Campbell Soup Co.
5.182%, 10/4/96 20,000 19,653
Cargill Inc.
5.268%-5.371%, 6/7/96-8/20/96 53,000 52,634
Chevron Transport Corp.
5.363%-5.387%, 6/6/96-7/17/96 35,000 34,854
Chevron U.K.
5.359%-5.384%, 7/9/96-8/22/96 52,000 51,490
The Coca-Cola Co.
5.302%-5.332%, 6/14/96-7/26/96 98,000 97,507
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
E.I. du Pont de Nemours & Co.
5.319%-5.329%,
6/7/96-6/21/96 $ 71,500 $ 71,393
Exxon Imperial U.S. Inc.
5.313%, 6/13/96 50,000 49,912
H.J. Heinz Co.
5.326%-5.336%, 6/10/96-6/12/96 41,000 40,938
Hewlett Packard Co.
5.236%-5.301%, 6/11/96-7/19/96 266,050 264,916
Kellogg
5.274%-5.28%, 6/21/96-6/28/96 25,000 24,918
Kimberly-Clark
5.299%, 6/13/96 13,000 12,977
Koch Industries
5.307%, 6/6/96 150,000 149,890
Eli Lilly & Co.
5.152%-5.379%, 6/11/96-9/27/96 166,000 164,205
Minnesota Mining &
Manufacturing Co.
5.279%-5.296%, 6/14/96-6/20/96 22,000 21,948
Norfolk Southern Corp.
5.30%-5.353%, 6/19/96-6/21/96 60,000 59,836
Procter & Gamble Co.
5.141%-5.304%, 6/12/96-6/25/96 73,000 72,837
Vermont American
5.329%, 6/14/96 38,000 37,927
------------
SECTOR TOTAL 1,469,257
------------
- ----------------------------------------------------------------------------
INSURANCE (2.8%)
AIG Funding Inc.
5.31%-5.331%, 6/21/96-7/12/96 32,300 32,169
MetLife Funding Corp.
5.305%-5.34%, 6/4/96-7/12/96 230,694 230,054
Prudential Funding Corp.
5.334%-5.37%, 6/7/96-6/14/96 38,000 37,954
SAFECO Credit Co. Inc.
5.34%-5.377%, 6/7/96-8/15/96 64,600 64,064
USAA Capital Corp.
5.306%-5.372%, 6/5/96-8/22/96 208,008 207,295
------------
SECTOR TOTAL 571,536
------------
- ----------------------------------------------------------------------------
UTILITIES (1.8%)
AT&T Corp.
5.28%-5.36%, 6/26/96-7/16/96 178,000 177,123
Ameritech Corp.
5.338%-5.459%, 7/1/96-11/25/96 130,000 127,723
BellSouth Telecommunications
5.311%, 6/11/96 15,835 15,812
U S WEST Communications Inc.
5.334%-5.341%, 6/12/96-7/3/96 49,000 48,838
------------
SECTOR TOTAL 369,496
------------
- ----------------------------------------------------------------------------
FOREIGN BANKS (3.9%)
ABN AMRO
5.36%-5.446%,
8/26/96-11/29/96 90,000 87,882
Abbey National
5.353%, 8/30/96 145,475 143,550
Barclays US Funding
5.445%, 11/27/96 100,000 97,365
Canadian Imperial Holdings Inc.
5.171%-5.372%, 6/7/96-8/30/96 125,000 123,964
Commonwealth Bank of Australia
5.383%, 7/11/96 70,000 69,587
National Australia Funding
5.334%-5.335%, 8/16/96-8/27/96 89,000 87,931
Toronto Dominion Holdings
USA Inc.
5.35%-5.382%, 7/12/96-8/15/96 200,000 198,385
------------
SECTOR TOTAL 808,664
------------
- ----------------------------------------------------------------------------
CANADIAN GOVERNMENT--
NATIONAL AND PROVINCIAL (1.6%)
Canada Bills
5.315%-5.323%, 6/27/96-6/28/96 150,000 149,425
Canadian Wheat Board
5.285%-5.352%, 6/14/96-8/16/96 127,550 127,046
Province of Alberta
5.318%-5.331%, 6/3/96-6/11/96 50,000 49,956
Province of British Columbia
5.168%, 8/12/96 11,716 11,598
------------
SECTOR TOTAL 338,025
------------
- ----------------------------------------------------------------------------
OTHER FOREIGN GOVERNMENT (2.7%)
Australian Wheat Board
5.378%, 7/3/96 10,000 9,953
Caisse des Depots et Consignations
5.075%-5.362%, 6/5/96-8/28/96 300,000 298,477
KFW International Finance Inc.
5.33%-5.394%, 6/14/96-8/19/96 158,000 156,827
Oesterreichische Kontrollbank
5.289%-5.299%, 6/10/96-6/19/96 66,450 66,311
Wool International
5.394%, 7/12/96 25,000 24,849
------------
SECTOR TOTAL 556,417
------------
- ----------------------------------------------------------------------------
FOREIGN INDUSTRIAL (2.2%)
Ciba Geigy
5.38%, 6/10/96 15,000 14,980
Glaxo Wellcome
5.289%-5.372%, 6/10/96-7/19/96 258,560 257,645
Reed Elsevier
5.319%, 6/7/96 19,000 18,983
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
PRIME Amount Value
PORTFOLIO (continued) (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
Siemens Corp.
5.306%-5.40%,
6/28/96-7/19/96 $ 35,000 $ 34,799
Unilever Capital Corp.
5.181%-5.45%,
6/28/96-11/26/96 140,000 137,582
------------
SECTOR TOTAL 463,989
------------
- ----------------------------------------------------------------------------
FOREIGN UTILITIES (.8%)
Electricite de France
5.338%-5.344%, 7/3/96-8/30/96 140,000 138,465
France Telecom
5.346%, 7/30/96 35,000 34,698
------------
SECTOR TOTAL 173,163
------------
- ----------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $9,773,693) 9,773,693
- ----------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (14.2%)
- ----------------------------------------------------------------------------
YANKEE CERTIFICATE OF DEPOSIT--
CANADIAN BRANCH (.1%)
Barclays Bank
5.337%, 6/3/96 23,800 23,793
------------
- ----------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--
U.S. BRANCHES (14.1%)
ABN AMRO
5.07%-5.16%, 6/7/96-6/24/96 187,000 186,996
Bank of Nova Scotia
5.31%-5.33%, 6/12/96-7/1/96 86,000 85,999
Bayerische Landesbank Girozentrale
5.16%-5.36%, 7/8/96-10/24/96 111,000 110,999
Bayerische Vereinsbank
5.06%-5.15%, 6/4/96-8/5/96 224,000 224,002
Caisse Nationale de Credit Agricole
5.35%-5.47%, 7/5/96-10/16/96 250,000 250,000
Deutsche Bank
5.06%-5.48%, 6/17/96-12/31/96 373,000 372,976
Dresdner Bank
5.30%-5.50%, 6/4/96-8/16/96 250,000 250,001
Landesbank Hessen-Thueringen
5.21%-5.25%, 6/28/96-7/25/96 198,000 198,002
Lloyds Bank
5.10%-5.36%, 6/10/96-7/25/96 167,000 167,002
National Westminster Bank
5.29%-5.35%, 6/14/96-7/26/96 350,000 350,005
Rabobank Nederlanden
5.21%-5.40%, 6/21/96-9/24/96 84,000 83,993
Societe Generale
5.36%-5.40%, 6/3/96-8/12/96 198,000 198,000
Swiss Bank
5.35%-5.96%, 6/10/96-6/3/97 400,000 400,019
Westdeutsche Landesbank
Girozentrale
5.28%-5.33%, 7/12/96-7/18/96 50,000 50,000
------------
SECTOR TOTAL 2,927,994
------------
- ----------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $2,951,787) 2,951,787
- ----------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (8.8%)
- ----------------------------------------------------------------------------
Abbey National
5.10%-5.345%, 6/17/96-7/17/96 164,000 164,002
ABN AMRO
4.94%-5.38%, 9/30/96-10/1/96 63,000 62,959
Bayerische Landesbank Girozentrale
5.06%-5.64%, 6/24/96-10/15/96 112,000 112,018
Bayerische Vereinsbank
5.30%-5.33%, 6/18/96-6/24/96 250,000 250,001
Deutsche Bank
5.09%-5.51%, 6/28/96-12/4/96 241,000 241,007
Dresdner Bank
5.35%, 6/10/96 23,000 23,000
Landesbank Hessen-Thueringen
5.26%-5.37%, 6/4/96-6/12/96 198,000 198,001
Lloyds Bank
5.48%, 11/20/96 12,000 12,002
Morgan Guaranty
5.12%-5.35%, 7/15/96-8/8/96 150,000 149,965
National Westminster Bank
5.51%-5.52%, 6/17/96-12/4/96 36,000 36,002
Rabobank Nederlanden
5.11%-5.535%, 7/9/96-12/4/96 83,000 83,004
Republic Bank of New York
5.31%, 6/28/96 20,000 20,000
Toronto Dominion
5.16%, 6/5/96 31,000 30,999
Union Bank of Switzerland
5.30%-5.52%, 6/17/96-10/4/96 159,000 159,010
Westdeutsche Landesbank
Girozentrale
5.38%-5.415%, 6/4/96-8/12/96 282,000 282,006
- ----------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(Cost $1,823,976) 1,823,976
- ----------------------------------------------------------------------------
BANKERS ACCEPTANCES (.4%)
- ----------------------------------------------------------------------------
U.S. BANKS
Republic National Bank of New York
5.331%, 8/28/96 10,000 9,872
Seafirst National Bank
5.359%, 8/13/96 10,000 9,893
SunTrust Bank
5.372%-5.392%, 7/12/96-8/6/96 35,943 35,649
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
Wachovia Bank of Georgia
5.312%, 6/5/96 $ 22,000 $ 21,987
- ----------------------------------------------------------------------------
TOTAL BANKERS ACCEPTANCES
(Cost $77,401) 77,401
- ----------------------------------------------------------------------------
OTHER NOTES (2.9%)
- ----------------------------------------------------------------------------
Amtrak Trust
5.438%, 6/10/96(1) 78,561 78,561
Bank of America, Illinois
5.33%-5.38%, 6/3/96-6/11/96 248,000 248,000
NBD Bank
5.38%, 9/3/96 100,000 100,003
NationsBank of North Carolina
5.60%, 7/8/96 100,000 100,007
SMM Trust
5.43%, 6/15/96(1) 40,000 39,995
Wachovia Bank
4.47%-4.60%, 8/26/96-11/15/96 38,000 37,878
- ----------------------------------------------------------------------------
TOTAL OTHER NOTES
(Cost $604,444) 604,444
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.2%)
- ----------------------------------------------------------------------------
Citicorp Securities
5.375%, 6/3/96
(Collateralized by U.S. Treasury
Notes 6.00%, 5/31/98)
(Cost $249,429) 249,429 249,429
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS (101.1%)
(Cost $20,949,086) 20,949,086
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
- ----------------------------------------------------------------------------
Other Assets--Note B 170,372
Liabilities (399,667)
------------
(229,295)
- ----------------------------------------------------------------------------
NET ASSETS (100%) $20,719,791
============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------
AMOUNT
(000)
------------
<S> <C>
PAID IN CAPITAL $20,719,798
UNDISTRIBUTED NET
INVESTMENT INCOME --
ACCUMULATED NET REALIZED LOSSES (7)
UNREALIZED APPRECIATION
OF INVESTMENTS --
- -------------------------------------------------------------
NET ASSETS $20,719,791
- -------------------------------------------------------------
INDIVIDUAL CLASS--
NET ASSETS APPLICABLE TO
19,879,566,210 OUTSTANDING
$.001 PAR VALUE SHARES
(AUTHORIZED 25,000,000,000 SHARES) $19,879,572
- -------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INDIVIDUAL CLASS $1.00
=============================================================
INSTITUTIONAL CLASS--
NET ASSETS APPLICABLE TO
840,230,487 OUTSTANDING
$.001 PAR VALUE SHARES
(AUTHORIZED 2,000,000,000 SHARES) $840,219
- -------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INSTITUTIONAL CLASS $1.00
=============================================================
</TABLE>
+ See Note A to Financial Statements.
(1) Floating Rate Note.
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
FEDERAL PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS (101.1%)
- ----------------------------------------------------------------------------
Federal Home Loan Bank
5.214%-5.288%,
6/4/96-8/20/96(1) $ 325,000 $ 324,857
5.23%-5.404%,
6/19/96-12/3/96 173,160 171,974
Federal Home Loan Mortgage Corp.
5.055%, 6/3/96(1) 100,000 100,000
5.096%-5.403%, 6/4/96-12/2/96 876,755 870,213
Federal National Mortgage Assn.
5.234%-5.26%,
6/13/96-6/29/96(1) 163,000 162,867
5.106%-5.394%,
6/12/96-10/24/96 1,128,875 1,120,531
Overseas Private Investment Corp.
(U.S. Government Guaranteed)
5.364%-5.72%, 6/4/96-7/15/96(1) 95,283 95,283
- -----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(Cost $2,845,725) 2,845,725
- -----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
- -----------------------------------------------------------------------------
Other Assets--Note B 9,690
Liabilities (40,349)
------------
(30,659)
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------
Applicable to 2,815,131,280 outstanding
$.001 par value shares
(authorized 5,000,000,000 shares) $2,815,066
- -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
=============================================================================
</TABLE>
+ See Note A to Financial Statements.
(1) Floating Rate Note.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
----------- -----
<S> <C> <C>
PAID IN CAPITAL $2,815,160 $1.00
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (94) --
UNREALIZED APPRECIATION
OF INVESTMENTS -- --
- ---------------------------------------------------------------------------
NET ASSETS $2,815,066 $1.00
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (99.0%)
- ----------------------------------------------------------------------------
U.S. Treasury Bills
4.93%-5.186%,
6/18/96-6/20/96 $ 829,695 $ 827,629
U.S. Treasury Notes
4.375%-8.00%,
7/15/96-10/15/96 1,909,362 1,910,759
- ----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $2,738,388) 2,738,388
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.0%)
- ----------------------------------------------------------------------------
Receivables for Securities Sold 648,446
Other Assets--Note B 39,380
Payables for Securities Purchased (648,594)
Other Liabilities (11,132)
------------
28,100
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 2,766,489 outstanding
$.001 par value shares
(authorized 5,000,000,000 shares) $2,766,488
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
============================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AT MAY 31, 1996, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
----------- -----
<S> <C> <C>
PAID IN CAPITAL $2,766,509 $1.00
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (21) --
UNREALIZED APPRECIATION
OF INVESTMENTS -- --
- ----------------------------------------------------------------------------
NET ASSETS $2,766,488 $1.00
- ----------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PRIME FEDERAL U.S. TREASURY
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
May 31, 1996 May 31, 1996 May 31, 1996
(000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . $553,507 $74,311 $73,258
- --------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . 553,507 74,311 73,258
- --------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . $ 1,154 $ 155 $ 152
Management and Administrative . . . . . . 8,888 1,727 2,080
Shareholder Account Maintenance+ . . . . 16,713 1,823 1,552
Marketing and Distribution+ . . . . . . . 3,070 29,825 411 4,116 414 4,198
-------- ------- -------
Custodian Fees . . . . . . . . . . . . . . 266 41 33
Taxes (other than income taxes) . . . . . 736 97 100
Auditing Fees . . . . . . . . . . . . . . . 12 4 4
Shareholders' Reports+ . . . . . . . . . . 347 60 50
Annual Meeting and Proxy Costs+ . . . . . . 162 20 20
Directors' Fees and Expenses . . . . . . . 33 5 4
- --------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . 31,381 4,343 4,409
- --------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . 522,126 69,968 68,849
- --------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT
SECURITIES SOLD . . . . . . . . . . . . . . (95) (166) (241)
- --------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES . . . . . . . . . . -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . $522,031 $69,802 $68,608
====================================================================================================================
</TABLE>
+ Expenses of the Prime Portfolio by Class are:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(000)
--------------------------------------
Individual Institutional
Class Class Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Class-Specific Expenses:
Shareholder Account Maintenance $16,703 $ 10 $16,713
Marketing and Distribution 2,991 79 3,070
Shareholders' Reports 347 -- 347
Annual Meeting and Proxy Costs 162 -- 162
-------------------------------------
Total Class-Specific Expenses 20,203 89 20,292
All Other Portfolio Expenses 10,544 545 11,089
-------------------------------------
Total Expenses $30,747 $634 $31,381
- ---------------------------------------------------------------------------
</TABLE>
The Institutional Class commenced operations October 28, 1995. See Note C.
9
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PRIME FEDERAL
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended SIX MONTHS Year Ended
ENDED November 30, ENDED November 30,
MAY 31, 1996 1995 MAY 31, 1996 1995
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . $ 522,126 $ 968,085 $ 69,968 $ 134,601
Realized Net Gain (Loss) . . . . . . . . (95) (95) (166) (5)
Unrealized Appreciation (Depreciation) . -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . 522,031 967,990 69,802 134,596
- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Individual Class+ . . . . . . . . . . . . (499,392) (963,945) (69,968) (134,601)
Institutional Class . . . . . . . . . . . (22,734) (4,140) -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Dividends . . . . . . . . (522,126) (968,085) (69,968) (134,601)
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--
INDIVIDUAL CLASS+ (AT $1.00)
Issued . . . . . . . . . . . . . . . . . 12,859,724 20,415,125 1,249,291 2,174,887
Issued in Lieu of Cash Distributions . . 476,102 920,077 67,002 128,608
Redeemed . . . . . . . . . . . . . . . . (12,220,066) (17,679,924) (1,137,666) (1,863,309)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase--Individual Class . 1,115,760 3,655,278 178,627 440,186
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--
INSTITUTIONAL CLASS (AT $1.00)
Issued . . . . . . . . . . . . . . . 219,107 78,717 -- --
Issued in Lieu of Cash Distributions . . 20,802 6,578 -- --
Issued in Exchange for Net Assets
of Vanguard Institutional Money
Market Portfolio--Note D . . . . . . . -- 734,329 -- --
Redeemed . . . . . . . . . . . . . . . (192,633) (26,674) -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Increase--Institutional Class 47,276 792,950 -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . 1,162,941 4,448,133 178,461 440,181
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . 19,556,850 15,108,717 2,636,605 2,196,424
- --------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . $ 20,719,791 $ 19,556,850 $ 2,815,066 $ 2,636,605
==========================================================================================================================
</TABLE>
+Amounts for the Federal and U.S. Treasury Portfolios are Portfolio totals.
10
<PAGE> 11
<TABLE>
<CAPTION>
U.S. TREASURY
PORTFOLIO
- ------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended
ENDED November 30,
MAY 31, 1996 1995
(000) (000)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . $ 68,849 $ 122,920
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . (241) 47
Unrealized Appreciation (Depreciation) . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . 68,608 122,967
- ------------------------------------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Individual Class+ . . . . . . . . . . . . . . . . . . . . (68,849) (122,920)
Institutional Class . . . . . . . . . . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------
Total Dividends . . . . . . . . . . . . . . . . . . . (68,849) (122,920)
- ------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INDIVIDUAL CLASS+ (AT $1.00)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . 1,995,352 2,714,966
Issued in Lieu of Cash Distributions . . . . . . . . . . 65,698 117,383
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . (1,821,747) (2,361,027)
- ------------------------------------------------------------------------------------------------------
Net Increase--Individual Class . . . . . . . . . . . 239,303 471,322
- ------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL CLASS (AT $1.00)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Issued in Lieu of Cash Distributions . . . . . . . . . . -- --
Issued in Exchange for Net Assets of Vanguard Institutional
Money Market Portfolio--Note D . . . . . . . . . . . . -- --
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------
Net Increase--Institutional Class . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . 239,062 471,369
- ------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . 2,527,426 2,056,057
- ------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . $ 2,766,488 $ 2,527,426
======================================================================================================
</TABLE>
+ Amounts for the Federal and U.S. Treasury Portfolios are Portfolio totals.
11
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME PORTFOLIO--INDIVIDUAL CLASS
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED ---------------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .026 .057 .038 .030 .038 .062
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . .026 .057 .038 .030 .038 .062
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . (.026) (.057) (.038) (.030) (.038) (.062)
Distributions from Realized Capital Gains . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.026) (.057) (.038) (.030) (.038) (.062)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . +2.63% +5.82% +3.87% +3.02% +3.89% +6.39%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . $19,880 $18,764 $15,109 $12,367 $12,638 $13,496
Ratio of Total Expenses to Average Net Assets . . . .32%* .32% .32% .32% .30% .30%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . 5.21%* 5.64% 3.84% 2.98% 3.82% 6.20%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
12
<PAGE> 13
<TABLE>
<CAPTION>
PRIME PORTFOLIO--INSTITUTIONAL CLASS(1)
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED Oct. 28, 1995- Dec. 1, 1994- -----------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 Nov. 30, 1995 Oct. 27, 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .027 .005 .053 .040 .031 .040
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . .027 .005 .053 .040 .031 .040
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.027) (.005) (.053) (.040) (.031) (.040)
Distributions from Realized Capital Gains . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.027) (.005) (.053) (.040) (.031) (.040)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +2.72% +.53% +5.45% +4.06% +3.19% +4.02%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . $840 $793 $734 $677 $306 $269
Ratio of Total Expenses to Average Net Assets . .15%* .15%* .15%* .15% .15% .15%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 5.35%* 5.65%* 5.85%* 4.14% 3.14% 3.93%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(1) Results up to October 27, 1995, are for the former Vanguard Institutional
Money Market Portfolio. See Note D to Financial Statements.
13
<PAGE> 14
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
FEDERAL PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED ----------------------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .026 .056 .038 .029 .038 .060
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . .026 .056 .038 .029 .038 .060
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.026) (.056) (.038) (.029) (.038) (.060)
Distributions from Realized Capital Gains . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.026) (.056) (.038) (.029) (.038) (.060)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +2.61% +5.77% +3.82% +2.98% +3.83% +6.18%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . $2,815 $2,637 $2,196 $1,907 $1,986 $2,000
Ratio of Total Expenses to Average Net Assets . .32%* .32% .32% .32% .30% .30%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 5.14%* 5.61% 3.78% 2.94% 3.76% 6.01%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30,
SIX MONTHS ENDED -----------------------------------------------------------------
For a Share Outstanding Throughout Each Period MAY 31, 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .025 .053 .036 .028 .036 .058
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . .025 .053 .036 .028 .036 .058
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . (.025) (.053) (.036) (.028) (.036) (.058)
Distributions from Realized Capital Gains . . -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.025) (.053) (.036) (.028) (.036) (.058)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +2.53% +5.47% +3.63% +2.86% +3.68% +5.94%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . $2,766 $2,527 $2,056 $1,751 $2,321 $2,092
Ratio of Total Expenses to Average Net Assets . .32%* .32% .32% .32% .30% .30%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . 4.98%* 5.33% 3.59% 2.83% 3.60% 5.76%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
14
<PAGE> 15
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 a 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 furnishes at cost investment advisory, corporate
management, administrative, shareholder accounting, marketing, and distribution
services. The costs of such services are allocated to the Fund under methods
approved by the Board of Directors. At May 31, 1996, the Fund had contributed
capital of $2,632,000 to Vanguard (included in Other Assets), representing
13.2% of Vanguard's capitalization. The directors and officers of the Fund are
also directors and officers of Vanguard.
C. The Prime Portfolio offers two classes of shares, the Individual Class and
the Institutional Class. Institutional shares are designed primarily for
institutional investors that meet certain administrative and servicing criteria
and have a minimum investment of $10 million. Individual shares are offered to
all other investors. Both classes of shares have equal rights as to assets and
earnings, except that each class bears certain class-specific expenses related
to its shareholder activity.
D. In accordance with the terms of an agreement approved by the shareholders
of Vanguard Institutional Money Market Portfolio (the "Portfolio"), on October
27, 1995, the Prime Portfolio issued 734,329,000 of its Institutional Class
shares in exchange for the net assets of the Portfolio of $734,329,000;
combined net assets were $19,180,185,000 as of the merger date. Shareholders of
the Portfolio received 1.000 Prime Portfolio-Institutional Class share for each
share of the Portfolio. This tax-free exchange has been accounted for by
combining the assets and liabilities of the Prime Portfolio and the Portfolio
at their values on the date of the merger. The identified cost of investments
were similarly combined.
15
<PAGE> 16
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 Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
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 Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
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
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Q302-5/96
VANGUARD
MONEY MARKET
RESERVES
SEMI-ANNUAL REPORT
MAY 31, 1996
