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FUND PROFILE
FOR
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October 16, 1996
The Prime Portfolio is part of
Vanguard Money Market Reserves,
which also includes the Federal and
U.S. Treasury Portfolios.
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1 OBJECTIVE
Vanguard Money Market Reserves - Prime Portfolio seeks to provide maximum
current income while preserving your investment and protecting your ability to
convert to cash when needed.* The Portfolio may not meet this objective.
2 INVESTMENT STRATEGIES
The Prime Portfolio invests in high-quality money market obligations issued by
banks and other financial institutions, nonfinancial corporations, and the
U.S., state, and municipal governments and their agencies.
The Portfolio seeks an average maturity of 90 days or less, and maintains the
following quality ratings:
<TABLE>
<CAPTION>
MONEY MARKET MINIMUM
OBLIGATIONS QUALITY RATINGS **
----------- ------------------
<S> <C>
Certificates of Deposit (CDs) A-1
Commercial Paper
(short-term promissory notes) Prime-1
Short-Term Corporate Obligations Aa3
</TABLE>
3 RISKS
Investors in the Portfolio are exposed to . . .
o A VERY LOW degree of interest rate risk because the short-term nature of
the Portfolio's investments tends to minimize the impact of interest rate
changes.
o A HIGH degree of income risk (the possibility that the Portfolio's income
will fluctuate when interest rates change).
o A LOW degree of credit risk (the possibility that the issuer of a money
market instrument will fail to repay interest and principal) because of
the high quality of the Portfolio's securities.
* 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.
** As rated by Moody's Investors Services, Inc.
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4 APPROPRIATENESS
This Portfolio may be suitable for investors who . . .
o Are seeking a market rate of income in very short-term securities.
o Want to protect the value of their investment.
o Have short-term goals or need a temporary place to hold money.
The Portfolio is not suitable for investors who . . .
o Want a steady level of income.
o Are seeking capital growth.
5 FEES AND EXPENSES
The Prime Portfolio -- like all Vanguard Funds -- is offered on a pure no-load
basis (that is, the Portfolio has no 12b-1 fees or charges to buy or sell
shares).
The Portfolio's operating expenses are deducted from its total assets before
daily share prices and income distributions are calculated. The Portfolio's
expense ratio for fiscal year 1995 was 0.32% of assets.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
------------------------------
<S> <C>
Investment Advisory Fees . . . . . . . . . . . . . . . . . . 0.01%
Distribution Costs . . . . . . . . . . . . . . . . . . . . . 0.03
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . 0.28
----
Total Operating Expenses . . . . . . . . . . . . . . . . . . 0.32%
====
</TABLE>
The following example illustrates the expenses that you would incur on a $1,000
investment over various periods, assuming (1) a 5% annual rate of return and
(2) redemption at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C>
$3 $10 $18 $41
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown.
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6 PAST PERFORMANCE
PERFORMANCE
ANNUAL RETURNS (%) 1986-1995
<TABLE>
<CAPTION>
LIPPER
NON-GOVERNMENT
VANGUARD MONEY MARKET
PRIME FUNDS
PORTFOLIO AVERAGE+
--------- --------
<S> <C> <C>
1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 6.3
1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 6.1
1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 7.0
1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 8.8
1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 7.8
1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 5.7
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 3.3
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 2.6
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 3.7
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 5.4
</TABLE>
PERFORMANCE SUMMARY
PERIODS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Average Annual Total Return
Prime Lipper
Portfolio Average+
--------- --------
<S> <C> <C>
1 Year 5 .4% 4.9%
5 Years 4 .4% 3.9%
10 Years 6 .0% 5.5%
</TABLE>
Performance figures include the reinvestment of all dividends. All returns are
net of expenses. The performance data quoted represent past performance; future
returns will fluctuate.
Annualized current yield for the
seven-day period ended September 30, 1996:
5.21%
For the latest yield, call Vanguard at
1-800-662-7447
The average annualized current yield represents the Portfolio's average
income less all expenses for the seven-day period, annualized by 365 days
and divided by the average total net assets over the same period.
+ Lipper Non-Government Money Market Funds Average is an industry benchmark
of non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
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7 INVESTMENT ADVISER
The Portfolio is managed by Vanguard Fixed Income Group, which manages total
assets of some $77 billion.
John Hollyer, Principal of Vanguard, has managed the Portfolio since 1989.
8 PURCHASES
You may purchase shares by mail, wire, or exchange from another Vanguard Fund.
The minimum initial investment is $3,000 ($1,000 for IRAs and custodial
accounts for minors).
9 REDEMPTIONS
You may redeem shares by writing a check ($250 minimum), sending a letter to,
or calling Vanguard.
10 DISTRIBUTIONS
Dividends are declared each business day and are paid on the first business day
of each month. Dividend distributions can be automatically reinvested or
received in cash. Dividend distributions are taxable to you whether reinvested
in additional shares or received in cash.
11 OTHER SERVICES
o Free checkwriting.
o Vanguard Fund Express(R) -- electronic transfers between your bank account
and the Portfolio.
o Vanguard Tele-Account(R) -- around-the-clock access to Vanguard Fund
information, account balances, and some transactions by calling 1-
800-662-6273 (ON-BOARD).
o Investor Information -- toll-free access to Vanguard Associates by calling
1-800-662-7447 (SHIP).
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This Fund Profile contains key information about the Portfolio. If you would
like more information before you invest, please consult the Portfolio's
accompanying prospectus. For details about the Portfolio's holdings or recent
investment strategies, please review the Portfolio's most recent annual or
semi-annual report. The prospectus and reports may be obtained at no cost by
calling 1-800-662-7447.
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1096-42M (C) 1996 Vanguard Marketing Corporation, Distributor FP30
