<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO. 2-52698) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. /X/
POST-EFFECTIVE AMENDMENT NO. 48 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 50 /X/
VANGUARD MONEY MARKET RESERVES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
IT IS PROPOSED THAT THIS AMENDMENT BECOME EFFECTIVE:
on March 8, 1996, pursuant to paragraph (b) of Rule 485 of the Securities Act of
1933.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.
REGISTRANT ELECTS TO REGISTER AN INDEFINITE NUMBER OF SHARES PURSUANT TO
REGULATION 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. REGISTRANT FILED ITS
RULE 24F-2 NOTICE FOR THE PERIOD ENDED NOVEMBER 30, 1995 ON JANUARY 26, 1996.
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<PAGE> 2
VANGUARD MONEY MARKET RESERVES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <C>
Item 1. Cover Page.................................... Cover Page
Item 2. Synopsis...................................... Highlights
Item 3. Condensed Financial Information............... Financial Highlights
Item 4. General Description of Registrant............. Investment Objective; Investment
Limitations; Investment Policies;
General Information
Item 5. Management of the Fund........................ Directors and Officers; Management of
the Fund; The Vanguard Group
Item 6. Capital Stock and Other Securities............ Opening an Account and Purchasing
Shares; Selling Your Shares; The
Share Price of Each Portfolio;
Dividends and Taxes; General
Information
Item 7. Purchase of Securities Being Offered.......... Cover Page; Opening an Account and
Purchasing Shares
Item 8. Redemption or Repurchase...................... Selling Shares
Item 9. Pending Legal Proceedings..................... Not Applicable
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Cover Page
Item 12. General Information and History............... Investment Objectives and Policies
Item 13. Investment Objective and Policies............. Investment Objectives and Policies;
Investment Limitations
Item 14. Management of the Fund........................ Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund
Item 16. Investment Advisory and Other Services........ Management of the Fund
Item 17. Brokerage Allocation.......................... Not Applicable
Item 18. Capital Stock and Other Securities............ Financial Statements
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption of
Shares;
Item 20. Tax Status.................................... Appendix
Item 21. Underwriters.................................. Not Applicable
Item 22. Calculations of Yield Quotations of Money
Market Fund................................... Calculation of Yield.
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE> 3
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[VANGUARD MONEY MARKET RESERVES LOGO] A Member of The Vanguard Group
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PROSPECTUS -- MARCH 8, 1996
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT -- 1-800-662-7447
(SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT -- 1-800-662-2739
(CREW)
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INVESTMENT
OBJECTIVE
AND POLICIES Vanguard Money Market Reserves, Inc. (the "Fund") is an
open-end, diversified investment company known as a money
market fund. The Fund offers three separate Portfolios.
The objective of each Portfolio is to provide the maximum
current income that is consistent with the preservation of
capital and liquidity by investing in specified money
market instruments. Each Portfolio seeks to maintain, but
does not guarantee, a constant net asset value of $1.00
per share. An investment in the Portfolios is neither
insured nor guaranteed by the U.S. Government and there
can be no assurance that each Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
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OPENING AN
ACCOUNT To open a regular (non-retirement) account, please
complete and return the Account Registration Form. If you
need assistance in completing this Form, please call the
Investor Information Department. To open an Individual
Retirement Account (IRA), please use a Vanguard IRA
Adoption Agreement. To obtain a copy of this form, call
1-800-662-7447, Monday through Friday, from 8:00 a.m. to
9:00 p.m. and Saturday from 9:00 a.m. to 4:00 p.m.
(Eastern time). The minimum initial investment is $3,000
per Portfolio or $1,000 for Uniform Gifts/Transfers to
Minors Act accounts. For certain investors investing $10
million or more in the Prime Portfolio, the Fund offers a
second class of shares, Prime Portfolio Institutional
Shares, which are offered through a separate prospectus.
To obtain information on the Prime Portfolio Institutional
Shares, please call 1-800-523-1188. The Fund is offered on
a no-load basis (i.e., there are no sales commissions or
12b-1 fees). However, the Fund incurs expenses for
investment advisory, management, administrative and
distribution services.
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ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information you should know about the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Fund has been filed with
the Securities and Exchange Commission. This Statement is
dated March 8, 1996, and has been incorporated by
reference into this Prospectus. A copy may be obtained
without charge by writing to the Fund or by calling the
Investor Information Department.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page Page Page
Highlights ....................... 2 Implementation of Policies......... 9 SHAREHOLDER GUIDE
Fund Expenses ................... 4 Investment Limitations ........... 10 Opening an Account and
Financial Highlights .............. 4 Management of the Fund ............ 10 Purchasing Shares ............... 16
Yield and Total Return ............ 6 Investment Adviser ................ 11 When Your Account Will Be
Dividends and Taxes ............... 12 Credited ........................ 19
FUND INFORMATION The Share Price of Each Selling Your Shares ............... 19
Investment Objective .............. 6 Portfolio ....................... 13 Exchanging Your Shares ............ 22
Investment Policies ............... 7 General Information ............... 14 Important Information about
Investment Risks ................. 8 Telephone Transactions .......... 23
Who Should Invest ................ 9 Transferring
Registration .................... 24
Other Vanguard Services ........... 24
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE> 4
HIGHLIGHTS
OBJECTIVE AND
POLICIES
Vanguard Money Market Reserves, Inc. (the "Fund") is an
open-end, diversified investment company known as a money
market fund. The Fund offers three separate Portfolios.
The objective of each Portfolio is to provide the maximum
current income that is consistent with the preservation of
capital and liquidity by investing in specified money
market instruments.
Each Portfolio seeks to maintain a constant net asset
value of $1.00 per share. In pursuit of this objective,
each Portfolio will invest in securities that mature in
less than 13 months, and each Portfolio will maintain an
average weighted maturity of 90 days or less. PAGE 6
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THREE SEPARATE
PORTFOLIOS Investors may choose from three separate Portfolios, each
of which invests in specified money market instruments:
PRIME PORTFOLIO -- invests in high-quality money market
obligations issued by financial institutions, nonfinancial
corporations, and the U.S. Government, state and municipal
governments and their agencies or instrumentalities, as
well as repurchase agreements collateralized by such
securities. The Prime Portfolio also invests in Eurodollar
obligations (dollar-denominated obligations issued outside
the U.S. by foreign banks or foreign branches of domestic
banks) and Yankee obligations (dollar-denominated
obligations issued in the U.S. by foreign banks).
FEDERAL PORTFOLIO -- invests in securities issued by the
United States Government or its agencies and
instrumentalities, and repurchase agreements
collateralized by such securities. A portion of the U.S.
Government securities held by the Federal Portfolio may
not be backed by the full faith and credit of the U.S.
Government.
U.S. TREASURY PORTFOLIO -- invests in securities backed by
the full faith and credit of the U.S. Government. PAGE 7
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RISK
CHARACTERISTICS The three Portfolios of the Fund differ primarily in terms
of credit risk. Credit risk is the possibility that an
issuer of securities held by a Portfolio will fail to make
timely payments of either interest or principal. The
credit risk of a Portfolio is a function of the credit
quality of its underlying securities. All other things
being equal, money market instruments with greater credit
risk offer higher yields. Although each Portfolio invests
in high-quality instruments, money market portfolios,
unlike federally-insured bank deposits, are not insured or
guaranteed.
In absolute terms, the credit quality of each Portfolio is
very high. In relative terms, the U.S. Treasury Portfolio,
which invests in full faith and credit obligations of the
U.S. Government, offers the lowest credit risk and
therefore usually the lowest yield. The Federal Portfolio
includes U.S. Government securities that are not backed by
the full faith and credit of the U.S. Government, and so
potential credit risk and yield are somewhat higher. The
Prime Portfolio, although of a very high credit quality in
general, invests in the money market obligations of
private financial and
2
<PAGE> 5
nonfinancial corporations. It therefore offers the highest
relative credit risk and yield of the three
Portfolios. PAGE 8
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THE VANGUARD
GROUP The Fund is a member of The Vanguard Group of Investment
Companies, a group of more than 30 investment companies
with more than 90 distinct investment portfolios and total
assets in excess of $190 billion. The Vanguard Group, Inc.
("Vanguard"), a subsidiary jointly owned by the Vanguard
Funds, provides all corporate management, administrative,
distribution and shareholder accounting services on an
at-cost basis to the Funds in the Group. PAGE 10
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INVESTMENT
ADVISER The Fund receives investment advisory services on an
at-cost basis from Vanguard's Fixed Income Group. As a
result, the Fund receives its investment advisory services
at a substantially lower cost than would be possible if
the Fund paid an investment advisory fee to an external
investment adviser. PAGE 11
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DIVIDEND POLICY Each Portfolio declares a dividend each business day based
on its ordinary income. Dividends are paid monthly and may
be received in cash or reinvested in additional
shares. PAGE 12
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PURCHASING SHARES You may purchase shares by mail, wire or exchange from
another Vanguard Fund. The minimum initial investment is
$3,000 per Portfolio; the minimum for subsequent
investments is $100. There are no sales commissions or
12b-1 fees. PAGE 16
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SELLING SHARES You may redeem shares of each Portfolio by mail,
telephone, wire or check. There is no charge for
redemption, except for wire withdrawals under $5,000,
which are subject to a $5 charge. Your bank may also
assess a fee for incoming wires.
PAGE 19
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SERVICES TO
SHAREHOLDERS The Fund offers free checkwriting services (minimum $250
per check) for easy access to your account balance.
PAGE 19
The Fund also offers two special services: Fund Express,
for electronic transfers between the Fund and your bank
account; and Tele-Account, for around-the-clock telephone
access to your Fund account balance and certain
transactions. PAGE 24
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3
<PAGE> 6
FUND EXPENSES The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Fund. The expenses
set forth below are for the 1995 fiscal year.
<TABLE>
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
----------------------------------------------------------------------------------
Sales Load Imposed on Purchases................................... None
Sales Load Imposed on Reinvested Dividends........................ None
Redemption Fees*.................................................. None
Exchange Fees..................................................... None
PRIME FEDERAL U.S. TREASURY
ANNUAL PORTFOLIO OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------
Management & Administrative 0.26% 0.26% 0.26%
Expenses............................
Investment Advisory Fees.............. 0.01 0.01 0.01
12b-1 Fees............................ None None None
Other Expenses
Distribution Costs.................. 0.03% 0.03% 0.03%
Miscellaneous Expenses.............. 0.02 0.02 0.02
----- ----- ------
Total Other Expenses.................. 0.05 0.05 0.05
----- ----- -----
TOTAL OPERATING EXPENSES..... 0.32% 0.32% 0.32%
----- ----- -----
----- ----- -----
* Wire redemptions of less than $5,000 are subject to a $5 processing fee.
</TABLE>
The purpose of this table is to assist you in
understanding the various expenses that you would bear
directly or indirectly as an investor in the Fund.
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. As noted in the table above,
the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Portfolio.............. $ 3 $ 10 $ 18 $ 41
Federal Portfolio............ $ 3 $ 10 $ 18 $ 41
U.S. Treasury Portfolio...... $ 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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FINANCIAL
HIGHLIGHTS The following financial highlights for a share outstanding
throughout each period, insofar as they relate to each of
the five years in the period ended November 30, 1995, have
been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. This
information should be read in conjunction with the Fund's
financial statements and notes thereto, which, together
with the remaining portions of the Fund's 1995 Annual
Report to Shareholders, are incorporated by reference in
the Statement of Additional Information and this
Prospectus, and which appear, along with the report of
Price Waterhouse LLP, in the Fund's 1995 Annual Report to
Shareholders. For a more complete discussion of the Fund's
performance, please see the Fund's 1995 Annual Report,
which may be obtained without charge by writing to the
Fund or by calling our Investor Information Department at
1-800-662-7447.
4
<PAGE> 7
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
PRIME PORTFOLIO
------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
YEAR......................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income........ .057 .038 .030 .038 .062 .080 .090 .072 .063 .066
Net Realized and Unrealized
Gain on Investment
Securities................. -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS............... .057 .038 .030 .038 .062 .080 .090 .072 .063 .066
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment
Income..................... (.057) (.038) (.030) (.038) (.062) (.080) (.090) (.072) (.063) (.066)
Distributions from Realized
Capital Gains.............. -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS........ (.057) (.038) (.030) (.038) (.062) (.080) (.090) (.072) (.063) (.066)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN................... 5.82% 3.87% 3.02% 3.89% 6.39% 8.32% 9.40% 7.47% 6.49% 6.78%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)................... $18,764 $15,109 $12,367 $12,638 $13,496 $13,579 $11,067 $6,863 $4,088 $2,186
Ratio of Expenses to Average
Net Assets................... .32% .32% .32% .30% .30% .30% .28% .33% .37% .48%
Ratio of Net Investment Income
to Average Net Assets........ 5.64% 3.84% 2.98% 3.82% 6.20% 8.06% 9.05% 7.28% 6.30% 6.60%
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
FEDERAL PORTFOLIO
-----------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
YEAR.......................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income......... .056 .038 .029 .038 .060 .078 .088 .070 .061 .064
Net Realized and Unrealized
Gain on Investment
Securities.................. -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM
INVESTMENT OPERATIONS..... .056 .038 .029 .038 .060 .078 .088 .070 .061 .064
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income........... (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070) (.061) (.064)
Distributions from Realized
Capital Gains............... -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS......... (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070) (.061) (.064)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.................... 5.77% 3.82% 2.98% 3.83% 6.18% 8.14% 9.15% 7.20% 6.25% 6.56%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions).................... $2,637 $2,196 $1,907 $1,986 $2,000 $1,950 $1,531 $1,214 $839 $545
Ratio of Expenses to Average
Net Assets.................... .32% .32% .32% .30% .30% .30% .28% .33% .37% .48%
Ratio of Net Investment Income
to Average Net Assets......... 5.61% 3.78% 2.94% 3.76% 6.01% 7.90% 8.78% 7.00% 6.10% 6.40%
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
U.S. TREASURY PORTFOLIO
-------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR............ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income........ .053 .036 .028 .036 .058 .077 .085 .068 .058 .060
Net Realized and Unrealized
Gain
on Investment Securities... -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS............... .053 .036 .028 .036 .058 .077 .085 .068 .058 .060
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment
Income..................... (.053) (.036) (.028) (.036) (.058) (.077) (.085) (.068) (.058) (.060)
Distributions from Realized
Capital Gains.............. -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS........ (.053) (.036) (.028) (.036) (.058) (.077) (.085) (.068) (.058) (.060)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN................... 5.47% 3.63% 2.86% 3.68% 5.94% 8.02% 8.89% 7.02% 5.99% 6.15%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)................... $2,527 $2,056 $1,751 $2,321 $2,092 $1,594 $412 $140 $113 $56
Ratio of Expenses to Average
Net Assets................... .32% .32% .32% .30% .30% .30% .31%+ .70%+ .79%+ .93%+
Ratio of Net Investment Income
to
Average Net Assets........... 5.33% 3.59% 2.83% 3.60% 5.76% 7.74% 8.44% 6.85% 5.80% 6.00%
+ Insurance premiums represent .40%, .42%, .44%, .44% and .42%.
</TABLE>
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YIELD AND
TOTAL RETURN From time to time a Portfolio of the Fund may advertise
its yield and total return. Both yield and total return
figures are based on historical earnings and are not
intended to indicate future performance. The "total
return" of a Portfolio refers to the average annual
compounded rates of return over one-, five- and ten-year
periods or over the life of a Portfolio (as stated in the
advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the
reinvestment of all dividends and distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, a Portfolio's
"seven-day" or "current" yield reflects the income earned
by a hypothetical account in the Portfolio during a
seven-day period, expressed as an annual percentage rate.
A Portfolio's "effective yield" assumes the income over
the seven-day period is reinvested weekly, resulting in a
slightly higher stated yield through compounding. Methods
used to calculate advertised yields are standardized for
money market funds. However, these methods differ from the
accounting methods used by a Portfolio to maintain its
books and records, and so advertised yields may not fully
reflect the income paid to an investor's account.
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE The Fund offers three separate Portfolios. The objective
of each Portfolio is to provide the maximum current income
that is consistent with the preservation of capital and
liquidity by investing in specified money market
instruments. Each Portfolio also seeks to maintain a
constant net asset value of $1.00 per share.
- --------------------------------------------------------------------------------
6
<PAGE> 9
INVESTMENT
POLICIES
Each Portfolio of the Fund invests in money market
instruments that mature in 13 months or less, and each
Portfolio maintains an average weighted maturity of 90
days or less. The Portfolios differ chiefly in terms of
the types of securities in which they invest.
THE PRIME PORTFOLIO
INVESTS IN HIGH-
QUALITY, MONEY
MARKET SECURITIES
The Prime Portfolio will invest in the following
high-quality, money market obligations issued by financial
institutions, nonfinancial corporations, and the U.S.
Government, state and municipal governments and their
agencies or instrumentalities:
(1) Negotiable certificates of deposit and bankers'
acceptances of U.S. banks having total assets in
excess of $1 billion.
(2) Repurchase agreements that are collateralized by U.S.
Treasury obligations, including bills, notes, bonds
and other debt obligations or securities issued or
guaranteed by agencies and instrumentalities of the
U.S. Government (as described in (1) and (2) for the
Federal Portfolio).
(3) Commercial paper (including variable amount master
demand notes) rated Prime-1 by Moody's Investors
Services, Inc. or A-1 by Standard & Poor's Corporation
or, if unrated, issued by a corporation having an
outstanding debt issue rated Aa3 or better by Moody's
or AA- or better by Standard & Poor's.
(4) Short-term corporate obligations rated Aa3 or better
by Moody's or AA- or better by Standard & Poor's.
(5) Short-term Eurodollar and Yankee bank obligations.
Eurodollar bank obligations are dollar-denominated
certificates of deposit or time deposits issued
outside the U.S. capital markets by foreign branches
of U.S. banks or by foreign banks; Yankee bank
obligations are dollar-denominated obligations issued
in the U.S. capital markets by foreign banks.
(6) Securities eligible for purchase by the Federal
Portfolio, as described below.
THE FEDERAL PORTFOLIO
INVESTS IN SHORT-TERM,
U.S. GOVERNMENT
OBLIGATIONS
In contrast with the Prime Portfolio, which invests in
both corporate and government securities, the Federal
Portfolio will invest only in the following U.S.
Government obligations and repurchase agreements
collateralized by such securities:
(1) United States Treasury obligations including bills,
notes, bonds, and other debt obligations issued by the
United States Treasury. These securities are backed by
the full faith and credit of the U.S. Government.
(2) Securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government. These
include securities issued by the Federal Home Loan
Banks, Federal Land Bank, Farmers Home Administration,
Farm Credit Banks, Federal Intermediate Credit Bank,
Federal National Mortgage Association, Federal
Financing Bank, Tennessee Valley Authority, and
others. Such "agency" securities may not be backed by
the full faith and credit of the U.S. Government.
(3) Repurchase agreements that are collateralized by the
securities listed in (1) and (2) above.
7
<PAGE> 10
THE U.S. TREASURY
PORTFOLIO INVESTS
IN "FULL FAITH AND
CREDIT" SECURITIES The U.S. Treasury Portfolio will invest 100% of its assets
in securities backed by the full faith and credit of the
U.S. Government. Such securities include:
(1) U.S. Treasury obligations backed by the full faith and
credit of the U.S. Government (at least 65% of the
Portfolio's assets will be invested in such
obligations).
(2) Other full faith and credit obligations of the U.S.
Government. These include securities issued by the
General Services Administration, Government National
Mortgage Association, Rural Electrification
Administration, Small Business Administration, Federal
Financing Bank, and others.
In addition, each Portfolio may invest up to 10% of its
net assets in securities that are illiquid.
See "Implementation of Policies" for a further description
of the Fund's investment practices.
The Fund is responsible for voting the shares of all
securities it holds.
The investment policies of each Portfolio are not
fundamental, and so may be changed without shareholder
approval by the Board of Directors. However, shareholders
would be notified of any material change in a Portfolio's
policies.
- --------------------------------------------------------------------------------
INVESTMENT
RISKS
THE PORTFOLIOS VARY
IN TERMS OF CREDIT
RISK The three Portfolios of the Fund differ primarily in terms
of credit risk. Credit risk is the possibility that an
issuer of securities held by a Portfolio will fail to make
timely payments of either interest or principal. The
credit risk of a Portfolio is a function of the credit
quality of its underlying securities. Although each
Portfolio invests in high-quality instruments, money
market portfolios, unlike federally-insured bank deposits,
are not insured or guaranteed.
The U.S. Treasury Portfolio invests solely in full faith
and credit United States Government securities and
therefore has a very low credit risk.
The Federal Portfolio invests in securities issued by
agencies and instrumentalities sponsored by the U.S.
Government. Not all securities issued by U.S. agencies and
instrumentalities are backed by the full faith and credit
of the U.S. Government. As a result, the Federal
Portfolio, which is of very high quality in absolute
terms, is subject to a slightly higher degree of credit
risk than the U.S. Treasury Portfolio. The Federal
Portfolio is therefore expected to provide a
correspondingly higher yield.
The Prime Portfolio invests primarily in high-quality bank
and corporate money market obligations. These obligations,
though highly rated, are of somewhat lower credit quality
than those issued by the U.S. Government or its agencies
and instrumentalities. Thus, the Prime Portfolio is
generally expected to provide the highest yield of the
three Portfolios.
THE PORTFOLIOS ARE
SUBJECT TO INCOME
RISK Income risk is the potential for a decline in a
Portfolio's income due to falling market interest rates.
Because the Fund's Portfolios' income is based on
short-term interest rates, which can fluctuate
substantially over short periods, income risk is expected
to be high for the Fund.
- --------------------------------------------------------------------------------
8
<PAGE> 11
WHO SHOULD
INVEST
INVESTORS SEEKING
CURRENT INCOME AND
PRINCIPAL STABILITY
The Fund is intended for investors seeking maximum current
income, consistent with the preservation of capital and
liquidity. In addition, each Portfolio expects to maintain
a constant net asset value of $1.00 per share. The Fund is
thus appropriate for investors who desire maximum
principal stability.
The Fund is designed to be a convenient and economical
medium for investing short-term funds. It is also useful
as a component of a long-term, balanced investment
program, consisting of money market instruments, bonds and
stocks.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES
THE PRIME AND FEDERAL
PORTFOLIOS MAY INVEST
IN REPURCHASE
AGREEMENTS The Fund follows a number of additional investment
practices in pursuit of its objective.
The Prime and Federal Portfolios may invest in repurchase
agreements according to the restrictions and limitations
set forth on page 8 under "Investment Policies." A
repurchase agreement is a means of investing monies for a
short period. In a repurchase agreement, a seller -- a
U.S. commercial bank or recognized U.S. securities
dealer -- sells securities to a Portfolio and agrees to
repurchase the securities at the Portfolio's cost plus
interest within a specified period (normally one day). In
these transactions, the securities purchased by the
Portfolio will have a total value equal to or in excess of
the value of the repurchase agreement, and will be held by
the Fund's Custodian Bank until repurchased.
The use of repurchase agreements involves certain risks.
For example, if the seller of the agreement defaults on
its obligation to repurchase the underlying securities at
a time when the value of these securities has declined,
the Portfolio may incur a loss upon disposition of them.
If the seller of the agreement becomes insolvent and
subject to liquidation or reorganization under the
bankruptcy code or other laws, a bankruptcy court may
determine that the underlying securities are collateral
not within the control of the Portfolio and therefore
subject to sale by the trustee in bankruptcy. Finally, it
is possible that the Portfolio may not be able to
substantiate its interest in the underlying securities.
While the Fund's management acknowledges these risks, it
is expected that they can be controlled through stringent
security selection and careful monitoring.
THE PRIME PORTFOLIO
MAY INVEST IN
EURODOLLAR OR YANKEE
OBLIGATIONS
Eurodollar bank obligations are dollar-denominated
certificates of deposit and time deposits issued outside
the U.S. capital markets by foreign branches of U.S. banks
and by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital
markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same
risks that pertain to domestic issues, notably credit
risk, market risk and liquidity risk. Additionally,
Eurodollar (and to a limited extent, Yankee) obligations
are subject to certain sovereign risks. One such risk is
the possibility that a foreign government might prevent
dollar-denominated funds from flowing across its borders.
Other risks include: adverse political and economic
developments in a foreign country; the extent and quality
of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes;
and expropriation or nationalization of foreign issuers.
However, Eurodollar and Yankee obligations will undergo
the same
9
<PAGE> 12
credit analysis as domestic issues in which the Prime
Portfolio invests, and foreign issuers will be required to
meet the same tests of financial strength as the domestic
issuers approved for the Prime Portfolio.
PORTFOLIO TURNOVER
WILL BE HIGH
Each Portfolio of the Fund is expected to have a high
portfolio turnover rate due to the short maturities of the
securities purchased. However, this high turnover rate
should not increase the Fund's costs since brokerage
commissions are not normally charged on the purchase or
sale of money market instruments.
DERIVATIVE
INVESTING
THE FUND MAY
INVEST IN DERIVATIVE
SECURITIES
Derivatives are instruments whose values are linked to or
derived from an underlying security or index. The Fund
invests only in derivative securities such as floating
rate instruments with returns derived directly from
standard, U.S. dollar-denominated short-term taxable
interest rate benchmarks such as short-term LIBOR rates,
Federal Reserve Daily Federal Funds Effective Rate and
U.S. Treasury Bill auction results. The Fund does not use
derivatives to apply leverage, nor does it invest in
futures or options.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE FUND HAS
ADOPTED CERTAIN
FUNDAMENTAL
LIMITATIONS
Each Portfolio of the Fund has adopted certain limitations
designed to reduce its risk exposure. These limitations
include the following:
(a) A Portfolio will not invest more than 5% of its
assets in the securities of any single company,
excluding obligations of the United States
Government.
(b) A Portfolio will not purchase more than 10% of any
class of securities of any issuer.
(c) A Portfolio will not invest more than 25% of its
assets in any one industry, excluding obligations of
the United States Government or certificates of
deposit or bankers' acceptances of domestic
institutions.
(d) A Portfolio will not borrow money except for
emergency purposes and then not in excess of 15% of
total assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information may be changed only with the approval of a
majority of the Fund's shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT
OF THE FUND
VANGUARD ADMINISTERS
AND DISTRIBUTES THE
FUND
The Fund is a member of The Vanguard Group of Investment
Companies, a family of more than 30 investment companies
with more than 90 distinct investment portfolios and total
assets in excess of $190 billion. Through their
jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other funds in the Group
obtain at cost virtually all of their corporate
management, administrative, shareholder accounting and
distribution services. Vanguard also provides investment
advisory services on an at-cost basis to certain Vanguard
funds. As a result of Vanguard's unique corporate
structure, the Vanguard funds have costs substantially
lower than those of most competing mutual funds. In 1995,
the average expense ratio (annual costs including advisory
fees divided by total net assets) for the Vanguard
10
<PAGE> 13
funds amounted to approximately .31% compared to an
average of 1.11% for the mutual fund industry (data
provided by Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's total expenses, which
are allocated among the funds under methods approved by
the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing and custodian fees.
Vanguard also provides distribution and marketing services
to the Vanguard funds. The funds are available on a
no-load basis (i.e., there are no sales commissions or
12b-1 fees). However, each fund bears its share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER
VANGUARD MANAGES
THE FUND'S
INVESTMENTS The three Portfolios of the Fund receive all investment
advisory services on an at-cost basis from Vanguard's
Fixed Income Group. The Group also provides investment
advisory services to more than 40 Vanguard money market
and bond portfolios, both taxable and tax-exempt. Total
assets under management by Vanguard's Fixed Income Group
were approximately $67 billion as of November 30, 1995.
The Fixed Income Group is supervised by the Officers of
the Fund. Ian A. MacKinnon, Senior Vice President of
Vanguard, has been in charge of the Group since its
inception in 1981.
The Fixed Income Group manages the investment and
reinvestment of the assets of the Fund's Portfolios and
continuously reviews, supervises and administers each
Portfolio's investment program, subject to the maturity
and quality standards specified in this Prospectus and
supplemental guidelines approved by the Fund's Board of
Directors. The Fixed Income Group's selection of
investments for the Portfolios is based on: (a) continuing
credit analysis of those instruments held in the
Portfolios and those being considered for inclusion
therein; (b) possible disparities in yield relationships
between different money market instruments; and (c) actual
or anticipated movements in the general level of interest
rates.
The Fixed Income Group is also responsible for the
allocation of principal business and portfolio brokerage
and the negotiation of commissions. The purchase and sale
of investment securities by the Fund will ordinarily be
principal transactions. Portfolio securities will normally
be purchased directly from the issuer or from an
underwriter or market maker for the securities. There
usually will be no brokerage commissions paid by a
Portfolio for securities purchased from an issuer.
Purchases from underwriters of securities will include a
commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market
makers will include a dealer's mark-up.
11
<PAGE> 14
In purchasing and selling securities for each of the
Portfolios, it is the Fund's policy to seek to obtain
quality execution at the most favorable prices through
issuers or responsible broker-dealers. In selecting
broker-dealers to execute the securities transactions for
the Portfolios, consideration will be given to such
factors as: the price of the security; the rate of the
commission; the size and difficulty of the order; the
reliability, integrity, financial condition, general
execution and operational capabilities of competing
broker-dealers; and the overall brokerage and research
services provided to the Fund.
- --------------------------------------------------------------------------------
DIVIDENDS AND
TAXES
DIVIDENDS ARE PAID
ON THE FIRST
BUSINESS DAY OF
EACH MONTH Each Portfolio's dividends are accrued daily based on
ordinary income and are distributed on the first business
day of the month. A Portfolio's dividends may be
automatically reinvested in additional shares or received
in cash. See "Choosing a Distribution Option" for a
description of these distribution methods.
Each Portfolio's dividends are computed and declared daily
as of the regular close of the New York Stock Exchange
(generally 4:00 p.m. Eastern time), and are payable to
shareholders of record as of 10:45 a.m. (Eastern time) on
that day. In other words, shareholders whose purchases of
shares are effective as of 10:45 a.m. will receive the
dividend for that day. See "When Your Account Will Be
Credited" for more information on the crediting of
dividends.
Net realized short-term capital gains of each Portfolio,
if any, will be distributed whenever the Directors
determine that such distributions would be in the best
interest of shareholders, but in any event at least once a
year. The Portfolios do not expect to realize any
long-term capital gains. Should any such gains be
realized, they will be distributed annually.
In addition, in order to satisfy certain distribution
requirements of the Tax Reform Act of 1986, the Fund may
declare special or regular year-end dividend and capital
gains distributions during December. Such distributions,
if received by shareholders by January 31, are deemed to
have been paid by the Fund and received by shareholders on
December 31 of the prior year.
DIVIDENDS WILL BE
SUBJECT TO FEDERAL
INCOME TAX
Each Portfolio of the Fund intends to continue to qualify
for taxation as a "regulated investment company" under the
Internal Revenue Code so that it will not be subject to
federal income tax to the extent its income is distributed
to shareholders. Dividends paid by each Portfolio from net
investment income, whether received in cash or reinvested
in additional shares, will be taxable to shareholders as
ordinary income. For corporate investors, dividends from
net investment income will not qualify for the
intercorporate dividends-received deduction.
Although the Portfolios do not expect to distribute any
long-term capital gains, any capital gains distribution
made by a Portfolio would be subject to federal income
tax. Such distributions would not qualify for the
intercorporate dividends-received deduction.
A sale of shares of a Portfolio, either by redemption or
exchange, is a taxable event, and may result in a capital
gain or loss. However, since each Portfolio seeks to
12
<PAGE> 15
maintain a constant $1.00 share price for both purchases
and redemptions, shareholders are not expected to realize
a capital gain or loss upon sale.
Dividend distributions, any capital gains distributions,
and any capital gains or losses from redemptions and
exchanges may be subject to state and local taxes.
However, depending on your state's tax rules, the portion
of a Portfolio's income derived from direct U.S. Treasury
obligations may be exempt from state and local taxes. The
Fund will indicate each year the portion of a Portfolio's
income, if any, that may qualify for this exemption.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to
shareholders who have not complied with IRS taxpayer
identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration
Form your proper Social Security or Employer
Identification Number and certifying that you are not
subject to backup withholding.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania, and
does business and maintains an office in that state. In
the opinion of counsel, the shares of the Fund are exempt
from Pennsylvania personal property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of
an investment in the Fund.
- --------------------------------------------------------------------------------
THE SHARE PRICE OF
EACH PORTFOLIO Each Portfolio's share price or "net asset value" per
share is determined daily at the close of trading on the
New York Stock Exchange (generally 4:00 p.m. Eastern
time). Each Portfolio determines its net asset value per
share by subtracting the Portfolio's liabilities
(including accrued expenses and dividends payable) from
the total value of the Portfolio's investments and other
assets and by dividing the result by the total outstanding
shares of the Portfolio.
For the purpose of calculating each Portfolio's net asset
value per share, securities are valued by the "amortized
cost" method of valuation, which does not take into
account unrealized gains or losses. This involves valuing
an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in
periods during which value, as determined by amortized
cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument.
The use of amortized cost and the maintenance of each
Portfolio's per share net asset value at $1.00 is based on
its election to operate under the provisions of Rule 2a-7
under the Investment Company Act of 1940. As a condition
of operating under that rule, each Portfolio must maintain
a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining
maturities of 13 months or less, and invest only in
securities that are determined by the Directors to present
minimal credit risks and that are of high quality as
determined
13
<PAGE> 16
by any major rating service, or in the case of any
instrument not so rated, considered by the Directors to be
of comparable quality.
The Directors have established procedures designed to
stabilize the net asset value per share as computed for
the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem
appropriate and at such intervals as are reasonable in
light of current market conditions, of the relationship
between the amortized cost value per share and a net asset
value per share based upon available indications of market
value. In such a review, investments for which market
quotations are readily available are valued at the most
recent bid price or quoted yield equivalent for such
securities or for securities of comparable maturity,
quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other
investments and assets are valued at fair value, as
determined in good faith by the Directors.
In the event of a deviation of over 1/2 of 1% between a
Portfolio's net asset value based upon available market
quotations or market equivalents and $1.00 per share based
on amortized cost, the Directors will promptly consider
what action, if any, should be taken. The Directors will
also take such action as they deem appropriate to
eliminate or to reduce, to the extent reasonably
practicable, any material dilution or other unfair results
to investors or existing shareholders which might arise
from differences between the two. Such action may include
redeeming shares in kind, selling instruments prior to
maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying
distributions from capital or capital gains, or utilizing
a net asset value per share based upon available market
quotations.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION The Fund, formerly known as "Whitehall Money Market
Trust," and then as "Vanguard Money Market Trust, Inc.,"
is a Maryland corporation. The Fund's Articles of
Incorporation permit the Directors to issue 37,000,000,000
shares of common stock, with a $.001 par value. The Board
of Directors has the power to designate one or more
Portfolios or classes of shares of common stock of such
Portfolios and to classify or reclassify any unissued
shares with respect to such Portfolios and classes.
Currently the Fund is offering shares of three Portfolios.
The Prime Portfolio offers two distinct classes of shares.
One class of Prime Portfolio shares is available for
investors with a minimum initial investment of $3,000; the
Institutional class of Prime Portfolio shares is designed
for investors who can make an initial investment of at
least $10 million and do not require administrative
services such as employee recordkeeping and checkwriting.
The shares of each Portfolio are fully paid and
non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, meaning that the
holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if
they choose to do so.
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will
14
<PAGE> 17
be held on the removal of a Director or Directors of the
Fund if requested in writing by holders of not less than
10% of the outstanding shares of the Fund.
CoreStates Bank, N.A., Philadelphia, PA, has been retained
to act as Custodian of the assets of each Portfolio of the
Fund. The Vanguard Group, Inc., Valley Forge, PA, serves
as the Fund's Transfer and Dividend Disbursing Agent.
Price Waterhouse LLP, serves as independent accountants
for the Fund and will audit its financial statements
annually. The Fund is not involved in any litigation.
- --------------------------------------------------------------------------------
15
<PAGE> 18
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES You may open a regular (non-retirement) account, either by
mail or wire. Simply complete and return an Account
Registration Form and any required legal documentation,
indicating the Portfolio you have chosen and the amount
you wish to invest. Your purchase must be equal to or
greater than the $3,000 minimum initial investment
requirement in any Portfolio ($1,000 for Uniform
Gifts/Transfers to Minors Act accounts). You must open a
new Individual Retirement Account by mail (IRAs may not be
opened by wire) using a Vanguard IRA Adoption Agreement.
Your purchase must be equal to or greater than the $1,000
minimum initial investment requirement, but no more than
$2,000 if you are making a regular IRA contribution.
Rollover contributions are generally limited to the amount
withdrawn within the past 60 days from an IRA or other
qualified Retirement Plan. If you need assistance with the
forms or have any questions about this Fund, please call
our Investor Information Department at 1-800-662-7447.
Note: For other account registrations (e.g., corporations,
associations, other organizations, trust or powers of
attorney), please call us to determine which additional
forms you may need.
Each Portfolio's shares are purchased at a $1.00 net asset
value after your investment has been received in the form
of Federal Funds. See "When Your Account Will Be
Credited". The Fund is offered on a no-load basis (i.e.,
there are no sales commissions or 12b-1 fees).
PURCHASE
RESTRICTIONS
Vanguard will not accept third-party checks to purchase
shares of the Fund. Please be sure your purchase check is
made payable to the Vanguard Group.
ADDITIONAL
INVESTMENTS Subsequent investments to regular accounts may be made by
mail ($100 minimum per Portfolio), wire ($1,000 minimum
per Portfolio), exchange from another Vanguard Fund
account ($100 minimum per Portfolio), or Vanguard Fund
Express. Subsequent investments to Individual Retirement
Accounts may be made by mail ($100 minimum) or exchange
from another Vanguard Fund account. In some instances,
contributions may be made by wire or Vanguard Fund
Express. Please call us for more information on these
options.
- --------------------------------------------------------------------------------
16
<PAGE> 19
<TABLE>
<S> <C> <C>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of Additional investments should
Complete and sign the your initial investment and the include the Invest-by-Mail
enclosed Account name of the Portfolios you have remittance form attached to your
Registration Form selected on the registration Fund confirmation statements.
form, make your check payable to Please make your check payable
The Vanguard Group (Portfolio to The Vanguard Group (Portfolio
Number), see below for the Number), see below for the
appropriate number and mail to: appropriate number. Write your
account number on your check
VANGUARD FINANCIAL CENTER and, using the return envelope
P.O. BOX 2600 provided, mail to the address
VALLEY FORGE, PA 19482 indicated on the Invest-by-Mail
Form.
For express or VANGUARD FINANCIAL CENTER All written requests should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the addresses
send to: WAYNE, PA 19087 indicated for new accounts. Do
not send registered or express
mail to the post office box
address.
VANGUARD MONEY MARKET RESERVES PORTFOLIOS:
Prime Portfolio -- 30
Federal Portfolio -- 33
U.S. Treasury Portfolio -- 50
--------------------------------
PURCHASING BY WIRE CORESTATES BANK, N.A.
Money should be ABA 031000011
wired to: CORESTATES NO 01446936
ATTN VANGUARD
BEFORE Wiring VANGUARD MONEY MARKET RESERVES
Please contact NAME OF PORTFOLIO
Client Services ACCOUNT NUMBER
(1-800-662-2739) ACCOUNT REGISTRATION
</TABLE>
To assure proper receipt, please be sure your bank
includes the Portfolio name, the account number Vanguard
has assigned to you and the eight digit CoreStates number.
If you are opening a new account, please complete the
Account Registration Form and mail it to the "New Account"
address after completing your wire arrangement. Note:
Federal Funds wire purchase orders will be accepted only
when the Fund and Custodian Bank are open for business.
- --------------------------------------------------------------------------------
PURCHASING BY
EXCHANGE (from a
Vanguard account) You may open an account or purchase additional shares by
making an exchange from an existing Vanguard Fund account.
Call our Client Services Department at 1-800-662-2739. The
new account will have the same registration as the
existing account.
- --------------------------------------------------------------------------------
17
<PAGE> 20
PURCHASING BY
FUND EXPRESS
Special Purchase and
Automatic Investment The Fund Express Special Purchase option lets you move
money from your bank account to your Vanguard account on
an "as needed" basis. Or if you choose the Automatic
Investment option, money will be moved automatically from
your bank account to your Vanguard account on the schedule
(monthly, bimonthly [every other month], quarterly or
yearly) you select. To establish these Fund Express
options, please provide the appropriate information on the
Account Registration Form. We will send you a confirmation
of your Fund Express service; please wait three weeks
before using the service.
- --------------------------------------------------------------------------------
CHOOSING A
DISTRIBUTION
OPTION
You must select one of three distribution options:
1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and
capital gains distributions will be reinvested in
additional Fund shares. This option will be selected
for you automatically unless you specify another
option.
2. CASH DIVIDEND OPTION -- Your dividends will be paid in
cash and your capital gains will be reinvested in
additional Fund shares.
3. ALL CASH OPTION -- Both dividend and capital gains
distributions will be paid in cash.
In addition, an option to invest your cash dividends
and/or capital gains distributions in another Vanguard
Fund Account is available. Please call our Client Services
Department (1-800-662-2739) for information. You may also
elect Vanguard Dividend Express which allows you to
transfer your cash dividends and/or capital gains
distributions automatically to your bank account. Please
see "Other Vanguard Services" for more information.
You may change your option by calling our Client Services
Department (1-800-662-2739).
- --------------------------------------------------------------------------------
IMPORTANT ACCOUNT
INFORMATION
ESTABLISHING
OPTIONAL
SERVICES
The easiest way to establish optional Vanguard services on
your account is to select the options you desire when you
complete your Account Registration Form. IF YOU WISH TO
ADD SHAREHOLDER OPTIONS LATER, YOU MAY NEED TO PROVIDE
VANGUARD WITH ADDITIONAL INFORMATION AND A SIGNATURE
GUARANTEE. PLEASE CALL OUR CLIENT SERVICES DEPARTMENT
(1-800-662-2739) FOR FURTHER ASSISTANCE.
SIGNATURE GUARANTEES For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature, and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A
SIGNATURE GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES
Share certificates will not be issued.
BROKER-DEALER
PURCHASES
If you purchase shares in Vanguard Funds through a
registered broker-dealer or investment adviser, the
broker-dealer or adviser may charge a service fee.
18
<PAGE> 21
CANCELLING TRADES The Fund will not cancel any trade (e.g., a purchase,
exchange or redemption) believed to be authentic, received
in writing or by telephone, once the trade request has
been received.
- --------------------------------------------------------------------------------
WHEN YOUR
ACCOUNT WILL
BE CREDITED The trade date is the date on which your account is
credited. It is generally the day on which the Fund
receives your investment in the form of Federal Funds
(monies credited to the Fund's Custodian Bank by a Federal
Reserve Bank). Your trade date varies according to your
method of payment for your shares.
For purchases by check, the Fund is ordinarily credited
with Federal Funds within one business day. Thus, if your
purchase by check is received by the regular close of the
New York Stock Exchange (generally 4:00 p.m. Eastern
time), your trade date is the business day following
receipt of your check. If your purchase is received after
the close of the Exchange, your trade date is the second
business day following receipt of your check.
For purchases by Federal Funds wire or exchange from
another Vanguard Fund, the Fund is credited immediately
with Federal Funds. Thus, if your purchase by Federal
Funds wire or exchange is received by the close of the
Exchange, your trade date is the day of receipt. If your
purchase is received after the close of the Exchange, your
trade date is the business day following receipt of your
wire or exchange.
Your shares are purchased at a $1.00 net asset value. You
will begin to earn dividends on the calendar day following
the trade date. (For a Friday trade date, you will begin
earning dividends on Saturday.) For a purchase by Federal
Funds wire, you may qualify for a dividend on the date of
purchase if you have notified the Fund of your intention
to make the purchase by 10:45 a.m. (Eastern time) on the
business day of the wire.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, Vanguard will only accept
a foreign check which has been drawn in U.S. dollars and
has been issued by a foreign bank with a U.S.
correspondent bank. The name of the U.S. correspondent
bank must be printed on the face of the foreign check.
Each Portfolio reserves the right to suspend the offering
of shares for a period of time. Each Portfolio also
reserves the right to reject any specific purchase
request.
- --------------------------------------------------------------------------------
SELLING YOUR
SHARES You may withdraw any portion of the funds in your account
by redeeming shares at any time. You generally may
initiate a request by writing or by telephoning. Your
redemption proceeds are normally mailed, credited or
wired -- depending upon the method of withdrawal you have
PREVIOUSLY chosen -- within two business days after the
receipt of the request in Good Order.
SELLING BY WRITING
A CHECK
You may withdraw funds from your account by writing a
check payable in the amount of $250 or more. When a check
is presented for payment to the Fund's agent, CoreStates
Bank, the Fund will redeem sufficient shares in your
account to cover the amount of the check.
19
<PAGE> 22
In order to establish the checkwriting option on your
account, all registered shareholders must sign a signature
card. After your completed signature card is received by
the Fund, an initial supply of checks will be mailed
within 10 business days. There is no charge for checks or
for their clearance. CORPORATIONS, TRUSTS AND OTHER
ORGANIZATIONS SHOULD CALL OUR CLIENT SERVICES DEPARTMENT
(1-800-662-2739) BEFORE SUBMITTING SIGNATURE CARDS, AS
ADDITIONAL DOCUMENTS MAY BE REQUIRED TO ESTABLISH THE
CHECKWRITING SERVICE.
Before establishing the checkwriting option, you should be
aware that:
1. The Fund does not allow an account to be closed through
the checkwriting option.
2. Vanguard cannot guarantee a stop payment on any check.
If you wish to reverse a stop payment order, you must
do so in writing.
3. The Fund reserves the right to terminate or alter this
service at any time.
- --------------------------------------------------------------------------------
SELLING BY MAIL
Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD MONEY MARKET RESERVES, P.O. BOX 1120, VALLEY
FORGE, PA 19482. (For express or registered mail, send
your request to Vanguard Financial Center, Vanguard Money
Market Reserves, 455 Devon Park Drive, Wayne, PA 19087.)
The redemption price of shares will be at a $1.00 net
asset value per share. All requests must be received in
Good Order.
DEFINITION OF
GOOD ORDER
Good Order means that the request includes the following:
1. The account number and Portfolio name.
2. The amount of the transaction (specified in dollars or
shares).
3. The signatures of all owners EXACTLY as they are
registered on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required, in the case of estates, corporations, trusts,
and certain other accounts.
IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS
TO YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES
DEPARTMENT AT 1-800-662-2739.
- --------------------------------------------------------------------------------
SELLING BY
TELEPHONE
To sell shares by telephone, you or your pre-authorized
representative may call our Client Services Department at
1-800-662-2739. For telephone redemptions, you may have
the proceeds sent to you by mail, or by wire. In addition
to the details below, please see "Important Information
About Telephone Transactions."
BY MAIL: Telephone mail redemption is automatically
established on your account unless you indicate otherwise
on your Account Registration Form. You may redeem any
amount by calling Vanguard. The proceeds will be paid to
the registered shareholders and mailed to the address of
record. PLEASE NOTE: As a protection against fraud, your
telephone mail redemption privilege will be suspended for
10 calendar days following any expedited address change to
your account. An expedited address change is one that is
made by telephone, by Vanguard Online or, in writing,
without the signatures of all account owners.
20
<PAGE> 23
BY WIRE: Telephone wire redemption must be specifically
elected for your account. The best time to elect telephone
wire redemption is at the time you complete your Account
Registration Form. If you do not presently have telephone
wire redemption and wish to establish it, please contact
our Client Services Department.
With the wire redemption option, you may withdraw a
minimum of $1,000 and have the amount wired directly to
your bank account. Wire redemptions less than $5,000 are
subject to a $5 charge deducted by Vanguard. There is no
Vanguard charge for wire redemptions of $5,000 or more.
However, your bank may assess a separate fee to accept
incoming wires.
A request to change the bank associated with your wire
redemption option must be received in writing, signed by
each registered shareholder, and accompanied by a voided
check or preprinted deposit slip. A signature guarantee is
required if your bank registration is not identical to
your Vanguard Fund account registration.
- --------------------------------------------------------------------------------
SELLING BY FUND
EXPRESS
Automatic Withdrawal
& Special Redemption If you select the Fund Express Automatic Withdrawal
option, money will be automatically moved from your
Vanguard Fund account to your bank account according to
the schedule you have selected. The Special Redemption
option lets you move money from your Vanguard account to
your bank account on an "as needed" basis. To establish
these Fund Express options, please provide the appropriate
information on the Account Registration Form. We will send
you a confirmation of your Fund Express service; please
wait three weeks before using the service.
- --------------------------------------------------------------------------------
SELLING BY EXCHANGE You may sell shares of a Portfolio by making an exchange
into another Vanguard Fund account. Please see "Exchanging
Your Shares" for details.
- --------------------------------------------------------------------------------
IMPORTANT REDEMPTION
INFORMATION
Shares purchased by check or Fund Express may be redeemed
at any time. However, your redemption proceeds will not be
paid until payment for the purchase is collected, which
will take ten calendar days.
- --------------------------------------------------------------------------------
DELIVERY OF
REDEMPTION PROCEEDS Redemption requests received by telephone prior to the
close of the New York Stock Exchange (generally 4:00 p.m.
Eastern time) are processed on the day of receipt and the
redemption proceeds are normally sent on the following
business day.
Redemption requests received by telephone after the close
of the Exchange are processed on the business day
following receipt and the proceeds are normally sent on
the second business day following receipt. Redemption
proceeds must be sent to you within seven days of receipt
of your request in Good Order, except as described above
in "Important Redemption Information."
If you experience difficulty in making a telephone
redemption during periods of drastic economic or market
changes, your redemption request may be made by regular or
express mail. It will be implemented at the net asset
value next determined after your request has been received
by Vanguard in Good Order. The Fund reserves the right to
revise or terminate the telephone redemption privilege at
any time.
21
<PAGE> 24
The Fund may suspend the redemption right or postpone
payment at times when the New York Stock Exchange is
closed or under any emergency circumstances as determined
by the United States Securities and Exchange Commission.
- --------------------------------------------------------------------------------
VANGUARD'S AVERAGE
COST STATEMENT If you make a redemption from a qualifying account,
Vanguard will send you an Average Cost Statement which
provides you with the tax basis of the shares you
redeemed. Please see "Statements and Reports" for
additional information.
- --------------------------------------------------------------------------------
LOW-BALANCE FEE
AND MINIMUM ACCOUNT
BALANCE REQUIREMENT Due to the relatively high cost of maintaining smaller
accounts, the Fund will automatically deduct a $10 annual
fee from non-retirement accounts with balances falling
below $2,500 ($1,000 for Uniform Gifts/Transfers to Minors
Act accounts). This fee deduction will occur mid-year,
beginning in 1996. The fee generally will be waived for
investors whose aggregate Vanguard assets exceed $50,000.
In addition, the Fund reserves the right to liquidate any
non-retirement account that is below the minimum initial
investment amount of $3,000. If at any time your total
investment does not have a value of at least $3,000, you
may be notified that your account is below the Fund's
minimum account balance requirement. You would then be
allowed 60 days to make an additional investment before
the account is liquidated. Proceeds would be promptly paid
to the registered shareholder.
Vanguard will not liquidate your account if it has fallen
below $3,000 solely as a result of declining markets
(i.e., a decline in a Fund's net asset value).
- --------------------------------------------------------------------------------
EXCHANGING YOUR
SHARES Should your investment goals change, you may exchange your
shares of Vanguard Money Market Reserves for those of
other available Vanguard Funds.
EXCHANGING BY
TELEPHONE
Call Client Services
at 1-800-662-2739 When exchanging shares by telephone, please have ready the
Portfolio name, account number, Social Security Number or
Employer Identification number listed on the account, and
the exact name and address in which the account is
registered. Only the registered shareholder may complete
such an exchange. Requests for telephone exchanges
received prior to close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) are processed
at the close of business that same day. Requests received
after close of the Exchange are processed the next
business day. Telephone exchanges are not accepted into or
from VANGUARD BALANCED INDEX FUND, VANGUARD INDEX TRUST,
VANGUARD INTERNATIONAL EQUITY INDEX FUND AND VANGUARD
QUANTITATIVE PORTFOLIOS. If you experience difficulty in
making a telephone exchange, your exchange request may be
made by regular or express mail, and it will be
implemented at the closing net asset value on the date
received by Vanguard provided the request is received in
Good Order.
- --------------------------------------------------------------------------------
EXCHANGING BY MAIL Please be sure to include on your exchange request the
name and account number of your current Fund, the name of
the Fund you wish to exchange into, the amount you wish to
exchange, and the signatures of all registered account
holders. Send your request to VANGUARD FINANCIAL CENTER,
VANGUARD MONEY MARKET RESERVES, P.O. BOX 1120, VALLEY
FORGE, PA 19482. (For express or registered mail, send
22
<PAGE> 25
your request to Vanguard Financial Center, Vanguard Money
Market Reserves, 455 Devon Park Drive, Wayne, PA 19087.)
- --------------------------------------------------------------------------------
IMPORTANT EXCHANGE
INFORMATION
Before you make an exchange, you should consider the
following:
- Please read the Fund's prospectus before making an
exchange. For a copy and for answers to any questions
you may have, call our Investor Information Department
(1-800-662-7447).
- An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on
the transaction.
- Exchanges are accepted only if the registrations and the
Taxpayer Identification numbers of the two accounts are
identical.
- New accounts are not currently accepted in
Vanguard/Windsor Fund or Vanguard/PRIMECAP Fund.
- Shares will be redeemed by exchange at the net asset
value per share.
- When opening a new account by exchange, you must meet
the minimum investment requirement of the new Fund.
Every effort will be made to maintain the exchange
privilege. However, the Fund reserves the right to revise
or terminate its provisions, limit the amount of or reject
any exchange, as deemed necessary, at any time.
The exchange privilege is only available in states in
which shares of the Fund are registered for sale. The
Fund's shares are currently registered for sale in all 50
states and the Fund intends to maintain such registration.
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION ABOUT
TELEPHONE
TRANSACTIONS The ability to initiate redemptions (except wire
redemptions) and exchanges by telephone is automatically
established on your account unless you request in writing
that telephone transactions on your account not be
permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions,
Vanguard adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio;
(ii) the 10-digit account number; (iii) the exact name
and address used in the registration; and (iv) the
Social Security or Employer Identification number
listed on the account.
2. PAYMENT POLICY. The proceeds of any telephone
redemption made by mail will be made payable to the
registered shareowner and mailed to the address of
record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by
telephone, provided that reasonable security procedures
have been followed. Vanguard believes that the security
procedures described above are reasonable, and that if
such procedures are followed, you will bear the risk of
any losses resulting from unauthorized or fraudulent
telephone transactions on your account. If
23
<PAGE> 26
Vanguard fails to follow reasonable security procedures,
it may be liable for any losses resulting from
unauthorized or fraudulent telephone transactions on your
account.
- --------------------------------------------------------------------------------
TRANSFERRING
REGISTRATION You may transfer the registration of any of your Fund
shares to another person by completing a transfer form and
sending it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110,
VALLEY FORGE, PA 19482 ATTENTION: TRANSFER DEPARTMENT. The
request must be in Good Order. Before mailing your
request, please call our Client Services Department
(1-800-662-2739) for full instructions.
- --------------------------------------------------------------------------------
STATEMENTS AND
REPORTS Vanguard will send you a confirmation statement each time
you initiate a transaction in your account except for
checkwriting redemptions from Vanguard money market
accounts. You will also receive a comprehensive account
statement at the end of each calendar quarter. The
fourth-quarter statement will be a year-end statement,
listing all transaction activity for the entire calendar
year.
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using
the average cost single category method. This service is
available for most taxable accounts opened since January
1, 1986. In general, investors who redeem shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement in February of the following year.
Please call our Client Services Department
(1-800-662-2739) for information.
Financial reports on the Fund will be mailed to you
semiannually, according to the Fund's fiscal year-end.
- --------------------------------------------------------------------------------
OTHER VANGUARD
SERVICES For more information about any of these services, please
call our Investor Information Department at
1-800-662-7447.
VANGUARD DIRECT
DEPOSIT SERVICE
With Vanguard's Direct Deposit Service, most U.S.
Government checks (including Social Security and military
pension checks) and private payroll checks may be
automatically deposited into your Vanguard Fund account.
Separate brochures and forms are available for direct
deposit of U.S. Government and private payroll checks.
VANGUARD AUTOMATIC
EXCHANGE SERVICE Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan. Please
contact our Client Services Department at 1-800-662-2739
for additional information.
VANGUARD FUND
EXPRESS
Vanguard's Fund Express allows you to transfer money
between your Fund account and your account at a bank,
savings and loan association, or a credit union that is a
member of the Automated Clearing House (ACH) system. You
may elect this service on the Account Registration Form or
call our Investor Information Department (1-800-662-7447)
for a Fund Express application.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition,
some services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
24
<PAGE> 27
VANGUARD DIVIDEND
EXPRESS
Vanguard's Dividend Express allows you to transfer your
dividends and/or capital gains distributions
automatically from your Fund account, one business day
after the Fund's payable date, to your account at a bank,
savings and loan association, or credit union that is a
member of the Automated Clearing House (ACH) system. You
may elect this service on the Account Registration Form
or call our Investor Information Department
(1-800-662-7447) for a Vanguard Dividend Express
application.
VANGUARD
TELE-ACCOUNT Vanguard's Tele-Account is a convenient, automated service
that provides share price, price change and yield
quotations on Vanguard Funds through any TouchTone(TM)
telephone. This service also lets you obtain information
about your account balance, your last transaction, and
your most recent dividend or capital gains payment. To
contact Vanguard's Tele-Account service, dial
1-800-ON-BOARD (1-800-662-6273). A brochure offering
detailed operating instructions is available from our
Investor Information Department (1-800-662-7447).
- --------------------------------------------------------------------------------
25
<PAGE> 28
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 29
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 30
<TABLE>
<S> <C> <C>
P030 LOGO
LOGO LOGO
--------------------------- P R O S P E C T U S
THE VANGUARD GROUP
OF INVESTMENT MARCH 8, 1996
COMPANIES LOGO
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON-BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[VANGUARD
MONEY MARKET
RESERVES LOGO] A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- MARCH 8, 1996
- --------------------------------------------------------------------------------
FUND INFORMATION: PARTICIPANT SERVICES -- 1-800-523-1188
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE AND
POLICIES
Vanguard Money Market Reserves, Inc. (the "Fund") is an
open-end, diversified investment company known as a money
market fund. The Fund offers three separate Portfolios.
The objective of each Portfolio is to provide the maximum
current income that is consistent with the preservation of
capital and liquidity by investing in specified money
market instruments. Each Portfolio seeks to maintain a
constant net asset value of $1.00 per share. AN INVESTMENT
IN THE PORTFOLIOS IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT EACH
PORTFOLIO WILL BE ABLE TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
IMPORTANT NOTE This Prospectus is intended exclusively for participants
in employer-sponsored retirement or savings plans, such as
tax-qualified pension and profit-sharing plans and 401(k)
thrift plans, as well as 403(b) custodial accounts for
non-profit educational and charitable organizations.
Another version of this Prospectus, containing information
on how to open a personal investment account with the
Fund, is available for individual investors. To obtain a
copy of that version of the Prospectus, please call
1-800-662-7447. For certain investors investing $10
million or more in the Prime Portfolio, the Fund offers a
second class of shares, Prime Portfolio Institutional
Shares, which are offered through a separate prospectus.
To obtain information on the Prime Portfolio Institutional
Shares, please call 1-800-523-1188.
- --------------------------------------------------------------------------------
OPENING AN
ACCOUNT A Portfolio of the Fund is an investment option under a
retirement or savings program sponsored by your employer.
The administrator of your retirement plan or your employee
benefits office can provide you with detailed information
on how to participate in your plan and how to elect a
Portfolio of the Fund as an investment option.
If you have any questions about the Fund, please contact
Participant Services at 1-800-523-1188. If you have any
questions about your plan account, contact your plan
administrator or the organization that provides
recordkeeping services for your plan.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information you should know about the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Fund has been filed with
the Securities and Exchange Commission. This Statement is
dated March 8, 1996, and has been incorporated by
reference into this Prospectus. A copy may be obtained
without charge by writing to the Fund or by calling the
Investor Information Department.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page Page Page
Highlights ....................... 2 Investment Risks ................. 8 Dividends and Taxes ............... 12
Fund Expenses ................... 4 Who Should Invest ................ 9 The Share Price of Each
Financial Highlights ...............4 Implementation of Policies......... 9 Portfolio .... 12
Yield and Total Return .............6 Investment Limitations ............ 10 General Information ............... 13
Investment Objective .............. 7 Management of the Fund ........... 10
Investment Policies ................7 Investment Adviser ................ 11 SERVICE GUIDE
Participating in Your
Plan .............................. 15
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 32
HIGHLIGHTS
OBJECTIVE AND
POLICIES
Vanguard Money Market Reserves, Inc. (the "Fund") is an
open-end, diversified investment company known as a money
market fund. The Fund offers three separate Portfolios.
The objective of each Portfolio is to provide the maximum
current income that is consistent with the preservation of
capital and liquidity by investing in specified money
market instruments.
Each Portfolio seeks to maintain a constant net asset
value of $1.00 per share. In pursuit of this objective,
each Portfolio will invest in securities that mature in
less than 13 months, and each Portfolio will maintain an
average weighted maturity of 90 days or less. PAGE 7
- --------------------------------------------------------------------------------
THREE SEPARATE
PORTFOLIOS Investors may choose from three separate Portfolios, each
of which invests in specified money market instruments:
PRIME PORTFOLIO -- invests in high-quality money market
obligations issued by financial institutions, nonfinancial
corporations, and the U.S. Government, state and municipal
governments and their agencies or instrumentalities, as
well as repurchase agreements collateralized by such
securities. The Prime Portfolio also invests in Eurodollar
obligations (dollar-denominated obligations issued outside
the U.S. by foreign banks or foreign branches of domestic
banks) and Yankee obligations (dollar-denominated
obligations issued in the U.S. by foreign banks).
FEDERAL PORTFOLIO -- invests in securities issued by the
United States Government or its agencies and
instrumentalities, and repurchase agreements
collateralized by such securities. A portion of the U.S.
Government securities held by the Federal Portfolio may
not be backed by the full faith and credit of the U.S.
Government.
U.S. TREASURY PORTFOLIO -- invests in securities backed by
the full faith and credit of the U.S. Government. PAGE 7
- --------------------------------------------------------------------------------
RISK
CHARACTERISTICS The three Portfolios of the Fund differ primarily in terms
of credit risk. Credit risk is the possibility that an
issuer of securities held by a Portfolio will fail to make
timely payments of either interest or principal. The
credit risk of a Portfolio is a function of the credit
quality of its underlying securities. All other things
being equal, money market instruments with greater credit
risk offer higher yields. Although each Portfolio invests
in high-quality instruments, money market portfolios,
unlike federally-insured bank deposits, are not insured or
guaranteed.
In absolute terms, the credit quality of each Portfolio is
very high. In relative terms, the U.S. Treasury Portfolio,
which invests in full faith and credit obligations of the
U.S. Government, offers the lowest credit risk and
therefore usually the lowest yield. The Federal Portfolio
includes U.S. Government securities that are not backed by
the full faith and credit of the U.S. Government, and so
potential credit risk and yield are somewhat higher. The
Prime Portfolio, although of a very high credit quality in
general, invests in the money market obligations of
private financial and nonfinan-
2
<PAGE> 33
cial corporations. It therefore offers the highest
relative credit risk and yield of the three
Portfolios. PAGE 8
- --------------------------------------------------------------------------------
THE VANGUARD
GROUP The Fund is a member of The Vanguard Group of Investment
Companies, a group of more than 30 investment companies
with more than 90 distinct investment portfolios and total
assets in excess of $190 billion. The Vanguard Group, Inc.
("Vanguard"), a subsidiary jointly owned by the Vanguard
Funds, provides all corporate management, administrative,
distribution and shareholder accounting services on an
at-cost basis to the Funds in the Group. PAGE 10
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER The Fund receives investment advisory services on an
at-cost basis from Vanguard's Fixed Income Group. As a
result, the Fund receives its investment advisory services
at a substantially lower cost than would be possible if
the Fund paid an investment advisory fee to an external
investment adviser. PAGE 11
- --------------------------------------------------------------------------------
DIVIDEND POLICY Each Portfolio declares a dividend each business day based
on its ordinary income (interest income less expenses).
Dividends are paid monthly. Dividends are automatically
reinvested in additional shares. PAGE 12
- --------------------------------------------------------------------------------
3
<PAGE> 34
FUND
EXPENSES The following table illustrates ALL expenses and fees that
a shareholder of the Fund would incur. The expenses set
forth below are for the 1995 fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
-----------------------------------------------------------------------------------
<S> <C>
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Redemption Fees*....................................................... None
Exchange Fees.......................................................... None
</TABLE>
<TABLE>
<CAPTION>
PRIME FEDERAL U.S. TREASURY
ANNUAL PORTFOLIO OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
------------------------------------------------------------------------------------
Management & Administrative Expenses... 0.26% 0.26% 0.26%
Investment Advisory Fees............... 0.01 0.01 0.01
12b-1 Fees............................. None None None
Other Expenses
Distribution Costs................... 0.03% 0.03% 0.03%
Miscellaneous Expenses............... 0.02 0.02 0.02
----- ----- ------
Total Other Expenses................... 0.05 0.05 0.05
----- ----- ------
TOTAL OPERATING EXPENSES...... 0.32% 0.32% 0.32%
------ ------ -------
------ ------ -------
</TABLE>
* Wire redemptions of less than $5,000 are subject to a $5
processing fee.
The purpose of this table is to assist you in
understanding the various expenses an investor would bear
directly or indirectly as a shareholder in the Fund.
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. As noted in the table above,
the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
------ ------- ------- --------
Prime Portfolio................. $3 $10 $18 $41
Federal Portfolio............... $3 $10 $18 $41
U.S. Treasury Portfolio......... $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.
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS The following financial highlights for a share outstanding
throughout each period, insofar as they relate to each of
the five years in the period ended November 30, 1995, have
been audited by Price Waterhouse LLP, independent
accountants, whose report thereon was unqualified. This
information should be read in conjunction with the Fund's
financial statements and notes thereto which, together
with the remaining portions of the Fund's 1995 Annual
Report to Shareholders, are incorporated by reference in
the Statement of Additional Information and this
Prospectus, and which appear, along with the report of
Price Waterhouse LLP, in the Fund's 1995 Annual Report to
Shareholders. For a more complete discussion of the Fund's
performance, please see the Fund's 1995 Annual Report to
Shareholders, which may be obtained without charge by
writing to the Fund or by calling Participant Services at
1-800-523-1188.
4
<PAGE> 35
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
PRIME PORTFOLIO
-----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment
Income............... .057 .038 .030 .038 .062 .080 .090 .072 .063 .066
Net Realized and
Unrealized
Gain on Investment
Securities........... -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS......... .057 .038 .030 .038 .062 .080 .090 .072 .063 .066
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment
Income............... (.057) (.038) (.030) (.038) (.062) (.080) (.090) (.072) (.063) (.066)
Distributions from
Realized Capital
Gains................ -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL
DISTRIBUTIONS...... (.057) (.038) (.030) (.038) (.062) (.080) (.090) (.072) (.063) (.066)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............. 5.82% 3.87% 3.02% 3.89% 6.39% 8.32% 9.40% 7.47% 6.49% 6.78%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)............. $18,764 $15,109 $12,367 $12,638 $13,496 $13,579 $11,067 $6,863 $4,088 $2,186
Ratio of Expenses to
Average Net Assets..... .32% .32% .32% .30% .30% .30% .28% .33% .37% .48%
Ratio of Net Investment
Income to Average Net
Assets................. 5.64% 3.84% 2.98% 3.82% 6.20% 8.06% 9.05% 7.28% 6.30% 6.60%
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
FEDERAL PORTFOLIO
----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR....... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income... .056 .038 .029 .038 .060 .078 .088 .070 .061 .064
Net Realized and
Unrealized
Gain on Investment
Securities............ -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS.......... .056 .038 .029 .038 .060 .078 .088 .070 .061 .064
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment
Income................ (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070) (.061) (.064)
Distributions from
Realized Capital
Gains............... -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS... (.056) (.038) (.029) (.038) (.060) (.078) (.088) (.070) (.061) (.064)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............. 5.77% 3.82% 2.98% 3.83% 6.18% 8.14% 9.15% 7.20% 6.25% 6.56%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions).............. $2,637 $2,196 $1,907 $1,986 $2,000 $1,950 $1,531 $1,214 $839 $545
Ratio of Expenses
to Average Net Assets... .32% .32% .32% .30% .30% .30% .28% .33% .37% .48%
Ratio of Net Investment
Income to Average Net
Assets.................. 5.61% 3.78% 2.94% 3.76% 6.01% 7.90% 8.78% 7.00% 6.10% 6.40%
</TABLE>
5
<PAGE> 36
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
U.S. TREASURY PORTFOLIO
----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR....... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income... .053 .036 .028 .036 .058 .077 .085 .068 .058 .060
Net Realized and
Unrealized Gain on
Investment
Securities............ -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS.......... .053 .036 .028 .036 .058 .077 .085 .068 .058 .060
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income..... (.053) (.036) (.028) (.036) (.058) (.077) (.085) (.068) (.058) (.060)
Distributions from
Realized Capital
Gains............... -- -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS... (.053) (.036) (.028) (.036) (.058) (.077) (.085) (.068) (.058) (.060)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.............. 5.47% 3.63% 2.86% 3.68% 5.94% 8.02% 8.89% 7.02% 5.99% 6.15%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions).............. $2,527 $2,056 $1,751 $2,321 $2,092 $1,594 $412 $140 $113 $56
Ratio of Expenses to
Average Net Assets...... .32% .32% .32% .30% .30% .30% .31%+ .70%+ .79%+ .93%+
Ratio of Net Investment
Income to Average Net
Assets.................. 5.33% 3.59% 2.83% 3.60% 5.76% 7.74% 8.44% 6.85% 5.80% 6.00%
</TABLE>
+ Insurance premiums represent .40%, .42%, .44%, .44% and .42%.
- --------------------------------------------------------------------------------
YIELD AND TOTAL
RETURN From time to time a Portfolio of the Fund may advertise
its yield and total return. Both yield and total return
figures are based on historical earnings and are not
intended to indicate future performance. The "total
return" of a Portfolio refers to the average annual
compounded rates of return over one-, five- and ten-year
periods or over the life of a Portfolio (as stated in the
advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the
reinvestment of all dividends and distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, a Portfolio's
"seven-day" or "current" yield reflects the income earned
by a hypothetical account in the Portfolio during a
seven-day period, expressed as an annual percentage rate.
A Portfolio's "effective yield" assumes the income over
the seven-day period is reinvested weekly, resulting in a
slightly higher stated yield through compounding. Methods
used to calculate advertised yields are standardized for
money market funds. However, these methods differ from the
accounting methods used by a Portfolio to maintain its
books and records, and so advertised yields may not fully
reflect the income paid to an investor's account.
- --------------------------------------------------------------------------------
6
<PAGE> 37
INVESTMENT
OBJECTIVE The Fund offers three separate Portfolios. The objective
of each Portfolio is to provide the maximum current income
that is consistent with the preservation of capital and
liquidity by investing in specified money market
instruments. Each Portfolio also seeks to maintain a
constant net asset value of $1.00 per share.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES Each Portfolio of the Fund invests in money market
instruments that mature in 13 months or less, and each
Portfolio maintains an average weighted maturity of 90
days or less. The Portfolios differ chiefly in terms of
the types of securities in which they invest.
THE PRIME PORTFOLIO
INVESTS IN HIGH-
QUALITY, MONEY
MARKET SECURITIES The Prime Portfolio will invest in the following
high-quality, money market obligations issued by financial
institutions, nonfinancial corporations, and the U.S.
Government, state and municipal governments and their
agencies or instrumentalities:
(1) Negotiable certificates of deposit and bankers'
acceptances of U.S. banks having total assets in
excess of $1 billion.
(2) Repurchase agreements that are collateralized by U.S.
Treasury obligations, including bills, notes, bonds
and other debt obligations or securities issued or
guaranteed by agencies and instrumentalities of the
U.S. Government (as described in (2) for the Federal
Portfolio).
(3) Commercial paper (including variable amount master
demand notes) rated Prime-1 by Moody's Investors
Services, Inc. or A-1 by Standard & Poor's Corporation
or, if unrated, issued by a corporation having an
outstanding debt issue rated Aa 3 or better by Moody's
or AA- or better by Standard & Poor's.
(4) Short-term corporate obligations rated Aa 3 or better
by Moody's or AA- or better by Standard & Poor's.
(5) Short-term Eurodollar and Yankee bank obligations.
Eurodollar bank obligations are dollar-denominated
certificates of deposit or time deposits issued
outside the U.S. capital markets by foreign branches
of U.S. banks or by foreign banks; Yankee bank
obligations are dollar-denominated obligations issued
in the U.S. capital markets by foreign banks.
(6) Securities eligible for purchase by the Federal
Portfolio, as described on the following page.
THE FEDERAL PORTFOLIO
INVESTS IN SHORT-TERM,
U.S. GOVERNMENT
OBLIGATIONS
In contrast with the Prime Portfolio, which invests in
both corporate and government securities, the Federal
Portfolio will invest only in the following U.S.
Government obligations and repurchase agreements
collateralized by such securities:
(1) United States Treasury obligations including bills,
notes, bonds, and other debt obligations issued by the
United States Treasury. These securities are backed by
the full faith and credit of the U.S. Government.
(2) Securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government. These
include securities issued by the Federal Home Loan
7
<PAGE> 38
Banks, Federal Land Bank, Farmers Home Administration,
Farm Credit Banks, Federal Intermediate Credit Bank,
Federal National Mortgage Association, Federal Financing
Bank, Tennessee Valley Authority, and others. Such
"agency" securities may not be backed by the full faith
and credit of the U.S. Government.
(3) Repurchase agreements that are collateralized by the
securities listed in (1) and (2) above.
THE U.S. TREASURY
PORTFOLIO INVESTS IN
"FULL FAITH AND CREDIT"
SECURITIES
The U.S. Treasury Portfolio will invest 100% of its assets
in securities backed by the full faith and credit of the
U.S. Government. Such securities include:
(1) U.S. Treasury obligations backed by the full faith and
credit of the U.S. Government (at least 65% of the
Portfolio's assets will be invested in such
obligations).
(2) Other full faith and credit obligations of the U.S.
Government. These include securities issued by the
General Services Administration, Government National
Mortgage Association, Rural Electrification
Administration, Small Business Administration, Federal
Financing Bank, and others.
In addition, each Portfolio may invest up to 10% of its
net assets in securities that are illiquid.
See "Implementation of Policies" for a further description
of the Fund's invest-ment practices.
The Fund is responsible for voting the shares of all
securities it holds.
The investment policies of each Portfolio are not
fundamental, and so may be changed without shareholder
approval by the Board of Directors. However, shareholders
would be notified of any material change in a Portfolio's
policies.
- --------------------------------------------------------------------------------
INVESTMENT
RISKS
THE PORTFOLIOS VARY IN
TERMS OF CREDIT RISK
The three Portfolios of the Fund differ primarily in terms
of credit risk. Credit risk is the possibility that an
issuer of securities held by a Portfolio will fail to make
timely payments of either interest or principal. The
credit risk of a Portfolio is a function of the credit
quality of its underlying securities. Although each
Portfolio invests in high-quality instruments, money
market portfolios, unlike federally-insured bank deposits,
are not insured or guaranteed.
The U.S. Treasury Portfolio invests solely in full faith
and credit United States Government securities and
therefore has a very low credit risk.
The Federal Portfolio invests in securities issued by
agencies and instrumentalities sponsored by the U.S.
Government. Not all securities issued by U.S. agencies and
instrumentalities are backed by the full faith and credit
of the U.S. Government. As a result, the Federal
Portfolio, which is of very high quality in absolute
terms, is subject to a slightly higher degree of credit
risk than the U.S. Treasury Portfolio. The Federal
Portfolio is therefore expected to provide a
correspondingly higher yield.
The Prime Portfolio invests primarily in high-quality bank
and corporate money market obligations. These obligations,
though highly rated, are of somewhat lower credit quality
than those issued by the U.S. Government or its agencies
and
8
<PAGE> 39
instrumentalities. Thus, the Prime Portfolio is generally
expected to provide the highest yield of the three
Portfolios.
THE PORTFOLIOS ARE
SUBJECT TO INCOME
RISK Income risk is the potential for a decline in a
Portfolio's income due to falling market interest rates.
Because the Fund's Portfolios' income is based on
short-term interest rates, which can fluctuate
substantially over short periods, income risk is expected
to be high for the Fund.
- --------------------------------------------------------------------------------
WHO SHOULD
INVEST
INVESTORS SEEKING
CURRENT INCOME AND
PRINCIPAL STABILITY
The Fund is intended for investors seeking maximum current
income, consistent with the preservation of capital and
liquidity. In addition, each Portfolio expects to maintain
a constant net asset value of $1.00 per share. The Fund is
thus appropriate for investors who desire maximum
principal stability.
The Fund is designed to be a convenient and economical
medium for investing short-term funds. It is also useful
as a component of a long-term, balanced investment
program, consisting of money market instruments, bonds and
stocks.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES
THE PRIME AND FEDERAL
PORTFOLIOS MAY INVEST
IN REPURCHASE
AGREEMENTS The Fund follows a number of additional investment
practices in pursuit of its objective.
The Prime and Federal Portfolios may invest in repurchase
agreements according to the restrictions and limitations
set forth on page 8 under "Investment Policies." A
repurchase agreement is a means of investing monies for a
short period. In a repurchase agreement, a seller -- a
U.S. commercial bank or recognized U.S. securities
dealer -- sells securities to a Portfolio and agrees to
repurchase the securities at the Portfolio's cost plus
interest within a specified period (normally one day). In
these transactions, the securities purchased by the
Portfolio will have a total value equal to, or in excess
of, the value of the repurchase agreement, and will be
held by the Fund's Custodian Bank until repurchased.
The use of repurchase agreements involves certain risks.
For example, if the seller of the agreement defaults on
its obligation to repurchase the underlying securities at
a time when the value of these securities has declined,
the Portfolio may incur a loss upon disposition of them.
If the seller of the agreement becomes insolvent and
subject to liquidation or reorganization under the
bankruptcy code or other laws, a bankruptcy court may
determine that the underlying securities are collateral
not within the control of the Portfolio and therefore
subject to sale by the trustee in bankruptcy. Finally, it
is possible that the Portfolio may not be able to
substantiate its interest in the underlying securities.
While the Fund's management acknowledges these risks, it
is expected that they can be controlled through stringent
security selection and careful monitoring.
THE PRIME PORTFOLIO
MAY INVEST IN
EURODOLLAR OR YANKEE
OBLIGATIONS Eurodollar bank obligations are dollar-denominated
certificates of deposit and time deposits issued outside
the U.S. capital markets by foreign branches of U.S. banks
and by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital
markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same
risks that pertain to domestic issues, notably credit
risk, market risk and liquidity risk. Additionally,
Eurodollar (and to a limited extent, Yankee) obligations
are subject to certain
9
<PAGE> 40
sovereign risks. One such risk is the possibility that a
foreign government might prevent dollar-denominated funds
from flowing across its borders. Other risks include:
adverse political and economic developments in a foreign
country; the extent and quality of government regulation
of financial markets and institutions; the imposition of
foreign withholding taxes; and expropriation or
nationalization of foreign issuers. However, Eurodollar
and Yankee obligations will undergo the same credit
analysis as domestic issues in which the Prime Portfolio
invests, and foreign issuers will be required to meet the
same tests of financial strength as the domestic issuers
approved for the Prime Portfolio.
PORTFOLIO TURNOVER
WILL BE HIGH
Each Portfolio of the Fund is expected to have a high
portfolio turnover rate due to the short maturities of the
securities purchased. However, this high turnover rate
should not increase the Fund's costs since brokerage
commissions are not normally charged on the purchase or
sale of money market instruments.
DERIVATIVE
INVESTING
THE FUND MAY INVEST
IN DERIVATIVE
SECURITIES
derived from an underlying security or index. The Fund
invests only in derivative securities such as floating
rate instruments with returns derived directly from
standard, U.S. dollar-denominated short-term taxable
interest rate benchmarks such as short-term LIBOR rates,
Federal Reserve Daily Federal Funds Effective Rate and
U.S. Treasury Bill auction results. The Fund does not use
derivatives to apply leverage, nor does it invest in
futures or options.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL
LIMITATIONS
Each Portfolio of the Fund has adopted certain limitations
designed to reduce its risk exposure. These limitations
include the following:
(a) A Portfolio will not invest more than 5% of its assets
in the securities of any single company, excluding
obligations of the United States Government.
(b) A Portfolio will not purchase more than 10% of any
class of securities of any issuer.
(c) A Portfolio will not invest more than 25% of its
assets in any one industry, excluding obligations of
the United States Government or certificates of
deposit or bankers' acceptances of domestic
institutions.
(d) A Portfolio will not borrow money except for emergency
purposes and then not in excess of 15% of total
assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information may be changed only with the approval of a
majority of the Fund's shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT
OF THE FUND
VANGUARD ADMINISTERS
AND DISTRIBUTES THE
FUND
The Fund is a member of The Vanguard Group of Investment
Companies, a family of more than 30 investment companies
with more than 90 distinct investment portfolios and total
assets in excess of $190 billion. Through their
jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other funds in the Group
obtain at cost virtually all of their corporate
management, administrative, shareholder accounting and
distribution services. Vanguard also provides investment
advisory services on an at-cost basis to certain Vanguard
funds. As a result of Vanguard's unique corporate
structure, the Vanguard funds
10
<PAGE> 41
have costs substantially lower than those of most
competing mutual funds. In 1995, the average expense ratio
(annual costs including advisory fees divided by total net
assets) for the Vanguard funds amounted to approximately
.31% compared to an average of 1.11% for the mutual fund
industry (data provided by Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's total expenses, which
are allocated among the funds under methods approved by
the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing and custodian fees.
Vanguard also provides distribution and marketing services
to the Vanguard funds. The funds are available on a
no-load basis (i.e., there are no sales commissions or
12b-1 fees). However, each fund bears its share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER
VANGUARD MANAGES
THE FUND'S
INVESTMENTS The three Portfolios of the Fund receive all investment
advisory services on an at-cost basis from Vanguard's
Fixed Income Group. The Group also provides investment
advisory services to more than 40 Vanguard money market
and bond portfolios, both taxable and tax-exempt. Total
assets under management by Vanguard's Fixed Income Group
were $67 billion as of November 30, 1995. The Fixed Income
Group is supervised by the Officers of the Fund. Ian A.
MacKinnon, Senior Vice President of Vanguard, has been in
charge of the Group since its inception in 1981.
The Fixed Income Group manages the investment and
reinvestment of the assets of the Fund's Portfolios and
continuously reviews, supervises and administers each
Portfolio's investment program, subject to the maturity
and quality standards specified in this Prospectus and
supplemental guidelines approved by the Fund's Board of
Directors. The Fixed Income Group's selection of
investments for the Portfolios is based on: (a) continuing
credit analysis of those instruments held in the
Portfolios and those being considered for inclusion
therein; (b) possible disparities in yield relationships
between different money market instruments; and (c) actual
or anticipated movements in the general level of interest
rates.
The Fixed Income Group is also responsible for the
allocation of principal business and portfolio brokerage
and the negotiation of commissions. The purchase and sale
of investment securities by the Fund will ordinarily be
principal transactions. Portfolio securities will normally
be purchased directly from the issuer or from an
underwriter or market maker for the securities. There
usually will be no brokerage commissions paid by a
Portfolio for securities purchased from an issuer.
Purchases from underwriters of securities will include a
commission or concession paid by the
11
<PAGE> 42
issuer to the underwriter, and purchases from dealers
serving as market makers will include a dealer's mark-up.
In purchasing and selling securities for each of the
Portfolios, it is the Fund's policy to seek to obtain
quality execution at the most favorable prices through
issuers or responsible broker-dealers. In selecting
broker-dealers to execute the securities transactions for
the Portfolios, consideration will be given to such
factors as: the price of the security; the rate of the
commission; the size and difficulty of the order; the
reliability, integrity, financial condition, general
execution and operational capabilities of competing
broker-dealers; and the overall brokerage and research
services provided to the Fund.
- --------------------------------------------------------------------------------
DIVIDENDS AND
TAXES
DIVIDENDS ARE PAID ON
THE FIRST BUSINESS DAY
OF EACH MONTH Each Portfolio's dividends are accrued daily based on
ordinary income and are distributed on the first business
day of the month. All dividend distributions are
automatically reinvested in additional shares of a
Portfolio. Each Portfolio of the Fund intends to continue
to qualify as a "regulated investment company" under the
Internal Revenue Code so that it will not be subject to
federal income tax to the extent its income is distributed
to its shareholders.
If you utilize the Fund as an investment option in an
employer-sponsored retirement savings plan, dividend
distributions from the Fund will generally not be subject
to current taxation, but will accumulate on a tax-deferred
basis. In general, employer-sponsored retirement and
savings plans are governed by complex tax rules. If you
participate in such a plan, consult your plan
administrator, your plan's Summary Plan Description, or a
professional tax adviser regarding the tax consequences of
your participation in the plan and of any plan
contributions or withdrawals.
- --------------------------------------------------------------------------------
THE SHARE PRICE OF
EACH PORTFOLIO Each Portfolio's share price or "net asset value" per
share is determined daily at the close of trading on the
New York Stock Exchange (generally 4:00 p.m. Eastern
time). Each Portfolio determines its net asset value per
share by subtracting the Portfolio's liabilities
(including accrued expenses and dividends payable) from
the total value of the Portfolio's investments and other
assets and by dividing the result by the total outstanding
shares of the Portfolio.
For the purpose of calculating each Portfolio's net asset
value per share, securities are valued by the "amortized
cost" method of valuation, which does not take into
account unrealized gains or losses. This involves valuing
an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in
periods during which value, as determined by amortized
cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument.
The use of amortized cost and the maintenance of each
Portfolio's per share net asset value at $1.00 is based on
its election to operate under the provisions of Rule 2a-7
under the Investment Company Act of 1940. As a condition
of operating under that rule, each Portfolio must maintain
a dollar-weighted average portfolio
12
<PAGE> 43
maturity of 90 days or less, purchase only instruments
having remaining maturities of 13 months or less, and
invest only in securities that are determined by the
Directors to present minimal credit risks and that are of
high quality as determined by any major rating service, or
in the case of any instrument not so rated, considered by
the Directors to be of comparable quality.
The Directors have established procedures designed to
stabilize the net asset value per share as computed for
the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem
appropriate and at such intervals as are reasonable in
light of current market conditions, of the relationship
between the amortized cost value per share and a net asset
value per share based upon available indications of market
value. In such a review, investments for which market
quotations are readily available are valued at the most
recent bid price or quoted yield equivalent for such
securities or for securities of comparable maturity,
quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other
investments and assets are valued at fair value, as
determined in good faith by the Directors.
In the event of a deviation of over 1/2 of 1% between a
Portfolio's net asset value based upon available market
quotations or market equivalents and $1.00 per share based
on amortized cost, the Directors will promptly consider
what action, if any, should be taken. The Directors will
also take such action as they deem appropriate to
eliminate or to reduce, to the extent reasonably
practicable, any material dilution or other unfair results
to investors or existing shareholders which might arise
from differences between the two. Such action may include
redeeming shares in kind, selling instruments prior to
maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying
distributions from capital or capital gains, or utilizing
a net asset value per share based upon available market
quotations.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION The Fund, formerly known as "Whitehall Money Market
Trust," and then as "Vanguard Money Market Trust, Inc.,"
is a Maryland corporation. The Fund's Articles of
Incorporation permit the Directors to issue 37,000,000,000
shares of common stock, with a $.001 par value. The Board
of Directors has the power to designate one or more
Portfolios or classes of shares of common stock and to
classify or reclassify any unissued shares with respect to
such Portfolios and classes. Currently the Fund is
offering shares of three Portfolios. The Prime Portfolio
offers two distinct classes of shares. One class of Prime
Portfolio shares is available for investors with a minimum
initial investment of $3,000; the Institutional class of
Prime Portfolio shares is designed for investors who can
make an initial investment of at least $10 million and do
not require administrative services such as employee
recordkeeping and checkwriting.
The shares of each Portfolio are fully paid and
non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, meaning that the
holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if
they choose to do so.
13
<PAGE> 44
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held on the
removal of a Director or Directors of the Fund if
requested in writing by holders of not less than 10% of
the outstanding shares of the Fund.
CoreStates Bank, N.A., Philadelphia, PA, has been retained
to act as Custodian of the assets of each Portfolio of
the Fund. The Vanguard Group, Inc., Valley Forge, PA,
serves as the Fund's Transfer and Dividend Disbursing
Agent. Price Waterhouse LLP, serves as independent
accountants for the Fund and will audit its financial
statements annually. The Fund is not involved in any
litigation.
- --------------------------------------------------------------------------------
14
<PAGE> 45
SERVICE GUIDE
PARTICIPATING IN
YOUR PLAN One or more Portfolios of the Fund is available as an
investment option in your retirement or savings plan. The
administrator of your plan or your employee benefits
office can provide you with detailed information on how to
participate in your plan and how to elect a Portfolio of
the Fund as an investment option.
If you have any questions about a Portfolio, including the
Portfolio's investment objective, policies, risk
characteristics or historical performance, please contact
Participant Services at 1-800-523-1188.
If you have questions about your account, contact your
plan administrator or the organization which provides
recordkeeping services for your plan.
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS
AND ALLOCATIONS You may be permitted to elect different investment
options, alter the amounts contributed to your plan, or
change how contributions are allocated among your
investment options in accordance with your plan's specific
provisions. See your plan administrator or employee
benefits office for more details.
- --------------------------------------------------------------------------------
TRANSACTIONS IN
FUND SHARES Contributions, exchanges or redemptions of a Portfolio's
shares are effective when received in "good order" by
Vanguard. "Good order" means that complete information on
the contribution, exchange or redemption and the
appropriate monies have been received by Vanguard.
- --------------------------------------------------------------------------------
MAKING EXCHANGES Your plan may allow you to exchange monies from one
investment option to another. Check with your plan
administrator for details on the rules governing exchanges
in your plan. Certain investment options, particularly
company stock or guaranteed investment contracts (GICs),
may be subject to unique restrictions.
Before making an exchange, you should consider the
following:
- If you are making an exchange to another Vanguard Fund
option, please read the Fund's prospectus. Contact
Participant Services at 1-800-523-1188 for a copy.
- Exchanges are accepted by Vanguard only as permitted by
your plan. Your plan administrator can explain how
frequently exchanges are allowed.
- --------------------------------------------------------------------------------
15
<PAGE> 46
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 47
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 48
<TABLE>
<S> <C>
[VANGUARD MONEY MARKET RESERVES LOGO] [VNANGUARD FLAG LOGO]
--------------------------- [VANGUARD MONEY
THE VANGUARD GROUP MARKET RESERVES
OF INVESTMENT LOGO]
COMPANIES INSTITUTIONAL
Institutional Division PROSPECTUS
P.O. Box 2900 MARCH 8, 1996
Vanguard Financial Center
Valley Forge, PA 19482
PARTICIPANT SERVICES:
1-800-523-1188
I030 [THE VANGUARD GROUP LOGO]
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 49
<TABLE>
<S> <C>
[VANGUARD MONEY MARKET RESERVES LOGO]
-------------------------------------
PRIME PORTFOLIO
INSTITUTIONAL SHARES
P R O S P E C T U S
MARCH 8, 1996
[VANGUARD GROUP LOGO]
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[VANGUARD MONEY MARKET RESERVES LOGO]
A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- MARCH 8, 1996
- --------------------------------------------------------------------------------
NEW ACCOUNT INFORMATION: 1-800-523-8066
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE AND
POLICIES The Prime Portfolio of Vanguard Money Market Reserves,
Inc. (the "Portfolio") is an independent series of shares
of Vanguard Money Market Reserves, Inc., an open-end
diversified investment company (the "Fund"). The
Portfolio's objective is to provide the maximum current
income that is consistent with the preservation of capital
and liquidity by investing in specified money market
instruments. The Portfolio seeks to maintain a constant
net asset value of $1.00 per share. AN INVESTMENT IN THE
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
INVESTMENT
ALTERNATIVES The Portfolio offers two separate classes of shares to
investors. The "Prime Portfolio Institutional Shares" are
designed primarily for investors who meet a minimum
initial investment of $10 million and certain
administrative criteria, such as no employee
recordkeeping, checkwriting or other shareholder services.
Only the Institutional class of shares are offered through
this prospectus. The second class of shares, "Prime
Portfolio" are available to all institutional and
individual investors and are offered through a separate
prospectus. To obtain information on the "Prime Portfolio"
class of shares, please call 1-800-662-7447 (SHIP), Monday
through Friday, from 8:00 a.m. to 9:00 p.m. and Saturday
from 9:00 a.m. to 4:00 p.m. (Eastern time).
- --------------------------------------------------------------------------------
OPENING AN
ACCOUNT Shares of the Portfolio may be purchased by Federal Funds
wire. The minimum initial investment is $10 million.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information an investor should know about the Portfolio
before investing. It should be retained for future
reference. A "Statement of Additional Information"
containing additional information about the Portfolio has
been filed with the Securities and Exchange Commission.
This Statement is dated March 8, 1996 and has been
incorporated by reference into this Prospectus. A copy may
be obtained without charge by writing to or calling
Vanguard at 1-800-523-8066.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page Page Page
Portfolio Expenses .............2 Investment Limitations .........6 SHAREHOLDER GUIDE
Yield and Total Return .........3 Management of the Portfolio ....6 Opening an Account and
PORTFOLIO INFORMATION Investment Adviser .............7 Purchasing Shares .............11
Investment Objective ...........4 Dividends and Taxes ............8 Dividend and Trade Date
Investment Policies ............4 Share Price Determination ......9 Policy ........................12
Implementation of General Information ...........10 Selling Shares ................13
Policies .....................5 Exchanging Shares ............ 13
Important Information About
Telephone Transactions ........14
Other Account
Information ...................14
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 51
PORTFOLIO
EXPENSES The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Fund's "Prime
Portfolio Institutional Shares." The expenses set forth
below for the "Prime Portfolio Institutional Shares" are
estimates for its first full year of operation.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
---------------------------------------------------------------------------------
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Redemption Fees*....................................................... None
Exchange Fees.......................................................... None
ANNUAL FUND OPERATING EXPENSES
---------------------------------------------------------------------------------
Management & Administrative Expenses................................... 0.12%
Investment Advisory Fees............................................... 0.01
12b-1 Fees............................................................. None
Other Expenses
Distribution Costs........................................... 0.02%
Miscellaneous Expenses....................................... 0.00
----
Total Other Expenses................................................... 0.02
-----
TOTAL OPERATING EXPENSES...................................... 0.15%
=====
* Wire redemptions of less than $5,000 are subject to a $5 processing fee.
</TABLE>
The purpose of this table is to assist an investor in
understanding the various expenses that an investor in the
Portfolio would bear directly or indirectly.
The following example illustrates the expenses that an
investor 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. As noted in the
table above, the Portfolio charges no redemption fees of
any kind.
<TABLE>
<CAPTION>
1 YEAR
------ 3 YEARS 5 YEARS 10 YEARS
------- ------- --------
<S> <C> <C> <C>
$2 $ 5 $ 8 $ 19
</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.
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS The following financial highlights for a share outstanding
throughout each period presented have been audited by
Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. This information should be
read in conjunction with the financial statements and
notes thereto, which, together with the remaining portions
of the Fund's 1995 Annual Report to Shareholders, are
incorporated by reference in the Statement of Additional
Information and this Prospectus, and which appear, along
with the report of Price Waterhouse LLP, in the Vanguard
Money Market Reserves' 1995 Annual Report to Shareholders.
For a more complete discussion of the Portfolio's
performance, please see the Fund's 1995 Annual Report to
Shareholders, which may be obtained without charge by
writing to the Portfolio or by calling Vanguard at
1-800-523-8066.
2
<PAGE> 52
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
PRIME PORTFOLIO -- INSTITUTIONAL CLASS(1)
--------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
OCT. 28, 1995 TO DEC. 1, 1994- ------------------------------------- OCT. 3, 1989*
NOV. 30, 1995 OCT. 27, 1995 1994 1993 1992 1991 1990 TO NOV. 30, 1989
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD........................ $ 1.00 $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net investment Income............ .005 .053 .040 .031 .040 .063 .082 .014
Net Realized and Unrealized Gain
on Investments................. -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS................... .005 .053 .040 .031 .040 .063 .082 .014
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment
Income......................... (.005) (.053) (.040) (.031) (.040) (.063) (.082) (.014)
Distributions from Realized
Capital Gains.................. -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS............ (.005) (.053) (.040) (.031) (.040) (.063) (.082) (.014)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD..... $ 1.00 $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN....................... .53% 5.45% 4.06% 3.19% 4.02% 6.52% 8.49% 1.40%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(Millions)....................... $793 $734 $677 $306 $269 $218 $91 $69
Ratio of Expenses to Average
Net Assets....................... .15%** .15%** .15% .15% .15% .15% .15% .15%**
Ratio of Net Investment Income to
Average Net Assets............... 5.65%** 5.85%** 4.14% 3.14% 3.93% 6.14% 8.24% 8.90%**
</TABLE>
* Commencement of operations.
** Annualized.
(1) Results up to October 27, 1995, are for the former Vanguard Institutional
Money Market Portfolio.
- --------------------------------------------------------------------------------
YIELD AND TOTAL
RETURN From time to time the Portfolio may advertise its yield
and total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Portfolio refers to the average annual compounded rates of
return over one-, five- and ten-year periods or over the
life of the Portfolio (as stated in the advertisement)
that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all
dividends and distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "seven-day"
or "current" yield of the Portfolio reflects the income
earned by a hypothetical account in the Portfolio during a
seven-day period, expressed as an annual percentage rate.
The "effective yield" of the Portfolio assumes the income
over the seven-day period is reinvested weekly, resulting
in a slightly higher stated yield through compounding.
Methods used to calculate advertised yields are
standardized for all money market funds. However, these
methods differ from the accounting methods used by the
Portfolio to maintain its books and records, and so
advertised yields may not fully reflect the income paid to
an investor's account.
- --------------------------------------------------------------------------------
3
<PAGE> 53
INVESTMENT
OBJECTIVE The Institutional Shares are designed primarily for
institutional investors. The Portfolio's objective is to
provide the maximum current income that is consistent with
the preservation of capital and liquidity by investing in
specified money market instruments. The Portfolio also
seeks to maintain a constant net asset value of $1.00 per
share.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES
THE PORTFOLIO INVESTS
HIGH QUALITY MONEY
MARKET SECURITIES The Portfolio will invest in the following high-quality
money market obligations issued by financial institutions,
non-financial corporations, the U.S. Government, its
agencies and instrumentalities and state and municipal
governments and their agencies or instrumentalities:
(1) Negotiable certificates of deposit and bankers'
acceptances of U.S. banks having total assets in
excess of $1 billion.
(2) Commercial paper (including variable amount master
demand notes) rated Prime-1 by Moody's Investors
Services, Inc. or A-1 by Standard & Poor's Corporation
or, if unrated, issued by a corporation having an
outstanding debt issue rated Aa3 or better by Moody's
or AA- or better by Standard & Poor's.
(3) Short-term corporate obligations rated Aa3 or better
by Moody's or AA- or better by Standard & Poor's.
(4) Eurodollar and Yankee bank obligations. Eurodollar
bank obligations are dollar-denominated certificates
of deposit or time deposits issued outside the U.S. by
the foreign branches of U.S. banks and by foreign
banks; Yankee bank obligations are dollar-denominated
obligations issued in the U.S. by foreign banks.
(5) United States Treasury obligations including bills,
notes, bonds, and other debt obligations issued by the
United States Treasury. These securities are backed by
the full faith and credit of the U.S. Government.
(6) Securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government. These
include securities issued by the Federal Home Loan
Bank, Federal Land Bank, Farmers Home Administration,
Farm Credit Bank, Federal Intermediate Credit Bank,
Federal National Mortgage Association, Federal
Financing Bank, Tennessee Valley Authority, and
others. Such "agency" securities may not be backed by
the full faith and credit of the U.S. Government.
(7) Repurchase agreements collateralized by the securities
listed in (5) and (6) above.
In addition, the Portfolio may invest up to 10% of its net
assets in securities that are illiquid.
The Portfolio invests in money market instruments that
mature in 13 months or less. The Portfolio will also
maintain an average weighted maturity of 90 days or less.
- --------------------------------------------------------------------------------
4
<PAGE> 54
IMPLEMENTATION
OF POLICIES
THE PORTFOLIO MAY
INVEST IN REPURCHASE
AGREEMENTS The Portfolio may invest in repurchase agreements
according to the restrictions and limitations set forth on
page 3 in "Investment Policies." A repurchase agreement is
a means of investing monies for a short period. In a
repurchase agreement, a seller -- a U.S. commercial bank
or recognized U.S. securities dealer -- sells securities
to the Portfolio and agrees to repurchase the securities
at the Portfolio's cost plus interest within a specified
period (normally one day). In these transactions, the
securities purchased by the Portfolio will have a total
value equal to or in excess of the value of the repurchase
agreement, and will be held by the Portfolio's Custodian
Bank until repurchased.
The use of repurchase agreements involves certain risks.
For example, if the seller of the agreement defaults on
its obligation to repurchase the underlying securities at
a time when the value of these securities has declined,
the Portfolio may incur a loss upon disposition of them.
If the seller of the agreement becomes insolvent and
subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a bankruptcy court may
determine that the underlying securities are collateral
not within the control of the Portfolio and therefore
subject to sale by the trustee in bankruptcy. Finally, it
is possible that the Portfolio may not be able to
substantiate its interest in the underlying securities.
While the Portfolio's management acknowledges these risks,
it is expected that they can be controlled through
stringent security selection and careful monitoring.
THE PORTFOLIO MAY
INVEST IN EURODOLLAR
OR YANKEE OBLIGATIONS Eurodollar bank obligations are dollar-denominated
certificates of deposit or time deposits issued outside
the U.S. capital markets by the foreign branches of U.S.
banks and by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital
markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same
risks that pertain to domestic issues, notably credit
risk, market risk and liquidity risk. Additionally,
Eurodollar (and to a limited extent, Yankee) obligations
are subject to certain sovereign risks. One such risk is
the possibility that a foreign government might prevent
dollar-denominated funds from flowing across its borders.
Other risks include: adverse political and economic
developments in a foreign country; the extent and quality
of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes;
and expropriation or nationalization of foreign issuers.
However, Eurodollar and Yankee obligations will undergo
the same credit analysis as domestic issues in which the
Portfolio invests, and foreign issuers will be required to
meet the same tests of financial strength as the domestic
issuers approved for the Portfolio.
PORTFOLIO TURNOVER
WILL BE HIGH The Portfolio is expected to have a high portfolio
turnover rate due to the short maturities of the
securities purchased. However, this high turnover rate
should not increase the Portfolio's costs since brokerage
commissions are not normally charged on the purchase or
sale of money market instruments.
5
<PAGE> 55
DERIVATIVE
INVESTING
THE FUND MAY
INVEST IN DERIVATIVE
SECURITIES Derivatives are instruments whose values are linked to or
derived from an underlying security or index. The Fund
invests only in derivative securities such as floating
rate instruments with returns derived directly from
standard, U.S. dollar-denominated short-term taxable
interest rate benchmarks such as short-term LIBOR rates,
Federal Reserve Daily Federal Funds Effective Rate and
U.S. Treasury Bill auction results. The Fund does not use
derivatives to apply leverage, nor does it invest in
futures or options.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE PORTFOLIO HAS
ADOPTED CERTAIN
FUNDAMENTAL
LIMITATIONS The Portfolio has adopted certain limitations designed to
reduce its risk exposure. These limitations include the
following:
(a) The Portfolio will not invest more than 5% of its
assets in the securities of any single company,
excluding obligations of the United States Government.
(b) The Portfolio will not purchase more than 10% of any
class of securities of any issuer.
(c) The Portfolio will not invest more than 25% of its
assets in any one industry, excluding obligations of
the United States Government or certificates of
deposit or banker's acceptances of domestic
institutions.
(d) The Portfolio will not borrow money except for
emergency purposes and then not in excess of 15% of
total assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information may be changed only with the approval of a
majority of the Portfolio's shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT OF
THE PORTFOLIO
VANGUARD ADMINISTERS
AND DISTRIBUTES THE
PORTFOLIO Vanguard Money Market Reserves is a member of The Vanguard
Group of Investment Companies, a family of more than 30
investment companies with more than 90 distinct investment
portfolios and total assets in excess of $190 billion.
Through their jointly-owned subsidiary, The Vanguard
Group, Inc. ("Vanguard"), the Fund and the other funds in
the Group obtain at cost virtually all of their corporate
management, administrative, shareholder accounting and
distribution services. Vanguard also provides investment
advisory services on an at-cost basis to certain Vanguard
funds. As a result of Vanguard's unique corporate
structure, the Vanguard funds have costs substantially
lower than those of most competing mutual funds. In 1995,
the average expense ratio (annual costs including advisory
fees divided by total net assets) for the Vanguard funds
amounted to approximately .31% compared to an average of
1.11% for the mutual fund industry (data provided by
Lipper Analytical Services).
The Officers of Vanguard Money Market Reserves manage the
day-to-day operations of the Portfolio and are responsible
to the Vanguard Money Market Reserves Board of Directors.
The Directors set broad policies for the Portfolio and
choose its Officers. A list of Directors and Officers of
the Fund and a statement of their present positions and
principal occupations during the past five years can be
found in the Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds
6
<PAGE> 56
with necessary office space, furnishings and equipment.
Each fund pays its share of Vanguard's total expenses,
which are allocated among the funds under methods approved
by the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing and custodian fees.
Vanguard also provides distribution and marketing services
to the Vanguard funds. The funds are available on a
no-load basis (i.e., there are no sales commissions or
12b-1 fees). However, each fund bears its share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER
VANGUARD MANAGES
THE PORTFOLIO'S
INVESTMENTS The Portfolio receives all investment advisory services on
an at-cost basis from Vanguard's Fixed Income Group. The
Group provides investment advisory services to more than
40 Vanguard money market and bond portfolios, both taxable
and tax-exempt. Total assets under management by
Vanguard's Fixed Income Group were $67 billion as of
November 30, 1995. The Fixed Income Group is supervised by
the Officers of the Portfolio. Ian A. MacKinnon, Senior
Vice President of Vanguard, has been in charge of the
Group since its inception in 1981.
The Fixed Income Group manages the investment and
reinvestment of the assets of the Portfolio and
continuously reviews, supervises and administers the
Portfolio's investment program, subject to the maturity
and quality standards specified in this Prospectus and
supplemental guidelines approved by the Board of
Directors. The Fixed Income Group's selection of
investments for the Portfolio is based on: (a) continuing
credit analysis of those instruments held in the Portfolio
and those being considered for inclusion therein; (b)
possible disparities in yield relationships between
different money market instruments; and (c) actual or
anticipated movements in the general level of interest
rates.
The Fixed Income Group is also responsible for the
allocation of principal business and portfolio brokerage
and the negotiation of commissions. The purchase and sale
of investment securities will ordinarily be principal
transactions. Portfolio securities will normally be
purchased directly from the issuer or from an underwriter
or market maker for the securities. There usually will be
no brokerage commissions paid by the Portfolio for
securities purchased directly from an issuer. Purchases
from underwriters of securities will include a commission
or concession paid by the issuer to the underwriter.
Purchases from dealers serving as market makers will
include a dealer's mark-up.
In purchasing and selling securities, it is the
Portfolio's policy to seek to obtain quality execution at
the most favorable prices through responsible
broker-dealers. In selecting broker-dealers to execute the
securities transactions for the Portfolio, consideration
will be given to such factors as: the price of the
security; the rate of the commission; the size and
difficulty of the order; the reliability, integrity,
financial condition, general execution and operational
capabilities of competing broker-dealers; and the
brokerage and research services provided to the Portfolio.
- --------------------------------------------------------------------------------
7
<PAGE> 57
DIVIDENDS
AND TAXES
DIVIDENDS ARE PAID
ON THE FIRST BUSINESS
DAY OF EACH MONTH The Portfolio's dividends are accrued daily and are
distributed on the first business day of the month. The
Portfolio's dividends will be automatically reinvested in
additional shares unless the Portfolio is notified
otherwise.
The Portfolio's dividends are computed and declared as of
the regular close of the New York Stock Exchange
(generally 4:00 p.m. Eastern time) each day, and are
payable to shareholders of record as of 10:45 a.m.
(Eastern time) on that day. In other words, shareholders
whose purchases of shares are effective as of 10:45 a.m.
will receive the dividend for that day. See "Dividend and
Trade Date Policy" for more information about the
crediting of dividends.
Net realized short-term capital gains of the Portfolio, if
any, will be distributed whenever the Directors determine
that such distributions would be in the best interest of
shareholders, but in any event at least once a year. The
Portfolio does not expect to realize any long-term capital
gains. Should any such gains be realized, they will be
distributed annually.
In addition, in order to satisfy certain distribution
requirements of the Tax Reform Act of 1986, the Portfolio
may declare special or regular year-end dividend and
capital gains distributions during December. Such
distributions, if received by shareholders by January 31,
are deemed to have been paid by the Fund and received by
shareholders on December 31 of the prior year.
DIVIDENDS WILL BE
SUBJECT TO FEDERAL
INCOME TAX The Portfolio intends to continue to qualify for taxation
as a "regulated investment company" under the Internal
Revenue Code so that it will not be subject to federal
income tax to the extent its income is distributed to
shareholders. Dividends paid by the Portfolio from net
investment income, whether received in cash or reinvested
in additional shares, will be taxable to shareholders as
ordinary income. For corporate investors, dividends from
net investment income will not qualify for the
intercorporate dividends-received deduction.
Although the Portfolio does not expect to distribute any
long-term capital gains, any capital gains distribution
made by the Portfolio would be subject to federal income
tax. Such distributions would not qualify for the
intercorporate dividends-received deduction.
A sale of shares of the Portfolio, either by redemption or
exchange, is a taxable event, and may result in a capital
gain or loss. However, since the Portfolio seeks to
maintain a constant $1.00 share price for both purchases
and redemptions, shareholders are not expected to realize
a capital gain or loss upon sale.
Dividend distributions, any capital gains distributions,
and any capital gains or losses from redemptions and
exchanges may be subject to state and local taxes.
However, depending on a state's tax rules, the portion of
the Portfolio's income derived from direct U.S. Treasury
obligations may be exempt from state and local taxes.
Vanguard will indicate each year the portion of the
Portfolio's income, if any, that may qualify for this
exemption.
8
<PAGE> 58
The Portfolio is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with IRS
taxpayer identification regulations. This withholding
requirement may be avoided by certifying on the Account
Registration Form the appropriate Taxpayer Identification
Number and by certifying that backup withholding does not
apply.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania, and
does business and maintains an office in that state. In
the opinion of counsel, the shares of each Portfolio of
the Fund will be exempt from Pennsylvania personal
property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of
an investment in the Portfolio. The Portfolio is managed
without regard to tax ramifications.
- --------------------------------------------------------------------------------
SHARE PRICE
DETERMINATION The Portfolio's share price or "net asset value" per share
is determined daily at the regular close of trading on the
New York Stock Exchange (generally 4:00 p.m. Eastern
time.) The Portfolio determines its net asset value per
share by subtracting the Portfolio's liabilities
(including accrued expenses and dividends payable) from
the total value of the Portfolio's investments and other
assets and dividing the result by the total outstanding
shares of the Portfolio.
For the purpose of calculating the Portfolio's net asset
value per share, securities are valued by the "amortized
cost" method of valuation, which does not take into
account unrealized gains or losses. This involves valuing
an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in
periods during which value, as determined by amortized
cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument.
The use of amortized cost and the maintenance of the
Portfolio's per share net asset value at $1.00 is based on
its election to operate under the provisions of Rule 2a-7
under the Investment Company Act of 1940. As a condition
of operating under that rule, the Portfolio must maintain
a dollar-weighted average portfolio maturity of 90 days or
less, purchase only instruments having remaining
maturities of 13 months or less, and invest only in
securities which are determined by the Directors to
present minimal credit risks and which are of high-quality
as determined by any major rating service, or in the case
of any instrument not so rated, considered by the
Directors to be of comparable quality.
The Directors have established procedures designed to
stabilize the net asset value per share as computed for
the purposes of sales and redemptions at $1.00. These
procedures include periodic review, as the Directors deem
appropriate and at such intervals as are reasonable in
light of current market conditions, of the relationship
between the amortized cost value per share and a net asset
value per share based upon available indications of market
value. In such a review, investments for which
9
<PAGE> 59
market quotations are readily available are valued at the
most recent bid price or quoted yield equivalent for such
securities or for securities of comparable maturity,
quality and type as obtained from one or more of the major
market makers for the securities to be valued. Other
investments and assets are valued at fair value, as
determined in good faith by the Directors.
In the event of a deviation of over 1/2 of 1% between the
Portfolio's net asset value based upon available market
quotations or market equivalents and $1.00 per share based
on amortized cost, the Directors will promptly consider
what action, if any, should be taken. The Directors will
also take such action as they deem appropriate to
eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair results
to investors or existing shareholders which might arise
from differences between the two. Such action may include
redeeming shares in kind, selling instruments prior to
maturity to realize capital gains or losses or to shorten
average maturity, withholding dividends, paying
distributions from capital or capital gains, or utilizing
a net asset value per share based upon available market
quotations.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION The Prime Portfolio Institutional Shares, is a class of
shares offered by Vanguard Money Market Reserves, Inc., a
Maryland corporation. The Articles of Incorporation permit
the Directors to issue 37,000,000,000 shares of common
stock, with a $.001 par value. The Board of Directors has
the power to designate one or more Portfolios or classes
of shares of common stock and to classify or reclassify
any unissued shares with respect to such Portfolios and
classes. Currently, the Vanguard Money Market Reserves is
offering shares of three Portfolios. The Prime Portfolio
offers two distinct classes of shares. One class of Prime
Portfolio shares is available for investors with a minimum
initial investment of $3,000; the Institutional class of
Prime Portfolio shares is designed for investors who can
make an initial investment of at least $10 million and do
not require administrative services such as employee
recordkeeping and checkwriting.
The shares of the Portfolio are fully paid and
non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no pre-emptive rights. The shares of the Portfolio
have non-cumulative voting rights, meaning that the
holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if
they choose to do so.
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held to vote on
the removal of a Director or Directors of the Fund if
requested in writing by holders of not less than 10% of
the outstanding shares of the Fund.
CoreStates Bank, N.A., Philadelphia, PA, has been retained
to act as Custodian of the assets of the Portfolio. The
Vanguard Group, Inc., Valley Forge, PA, serves as the
Portfolio's Transfer and Dividend Disbursing Agent. Price
Waterhouse LLP serves as independent accountants for the
Portfolio and will audit its financial statements
annually. The Portfolio is not involved in any litigation.
- --------------------------------------------------------------------------------
10
<PAGE> 60
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES To open a new account, complete an Account Registration
Form and mail it to:
VANGUARD FINANCIAL CENTER
VANGUARD PRIME PORTFOLIO INSTITUTIONAL SHARES
ATTN: INSTITUTIONAL INVESTOR SERVICES
P.O. BOX 1472
VALLEY FORGE, PA 19482
For express or registered mail, send your registration
form to: Vanguard Financial Center, Vanguard Prime
Portfolio Institutional Shares, Attn: Institutional
Investor Services, 100 Vanguard Boulevard, Malvern, PA
19355.
Once the account has been opened, Vanguard will assign an
Institutional Investor Services Representative for future
account transactions.
Shares of the Portfolio may be purchased by Federal Funds
wire. The minimum initial investment for the Portfolio is
$10 million. Please contact your Institutional Investor
Services Representative or call the Vanguard Group at
1-800-523-8066 to notify the Portfolio of the intended
investment and to receive an account number. Wiring
instructions are provided below.
Subsequent investments of $5 million or more will qualify
for dividends on the date of purchase if Vanguard is
notified one business day in advance of the intended
purchase, and a Federal Funds wire is received by the
close of the New York Stock Exchange (generally 4:00 p.m.
Eastern time) on the date of purchase. See "Dividend and
Trade Date Policy".
PURCHASE
RESTRICTIONS Vanguard will not accept third-party checks to purchase
shares of the Fund. Please be sure your purchase check is
made payable to the Vanguard Group.
ADDITIONAL
INVESTMENTS
Please contact your
Institutional
Investor Services
Representative Additional investments may be made at any time by wiring
monies to Vanguard. As noted above, subsequent investments
of $5 million or more require prior day notification to
qualify for dividends on the date of purchase. To ensure
prompt investment, please notify your Institutional
Investor Services Representative in advance of the wire.
- --------------------------------------------------------------------------------
PURCHASING BY WIRE
BEFORE WIRING
Please contact
your institutional
Investor Services
Representative Monies should be wired to:
CORESTATES BANK, N.A.
ABA 031000011
CORESTATES NO 0144 6936
ATTN VANGUARD
VANGUARD MONEY MARKET RESERVES
VANGUARD PRIME PORTFOLIO INSTITUTIONAL SHARES
ACCOUNT NUMBER
ACCOUNT REGISTRATION
11
<PAGE> 61
To ensure proper receipt, please be sure to include in the
wiring instructions the complete Portfolio name and the
account number Vanguard has assigned. Note: Federal Funds
wire purchase orders will be accepted only when the
Portfolio and Custodian Bank are open for business.
- --------------------------------------------------------------------------------
PURCHASING BY
EXCHANGE (from a
Vanguard account) Purchases may also be made by exchange from an existing
Vanguard Fund account. However, the Portfolio reserves the
right to refuse any exchange purchase request. Please call
your Institutional Investor Services Representative or
call Participant Services at 1-800-523-8066 for more
information.
DIVIDEND
DISTRIBUTIONS Dividend distributions paid by the Portfolio will be
automatically reinvested in additional Portfolio shares. A
cash dividend option is also available from the Portfolio.
Please contact your Institutional Investor Services
Representative for further information.
CERTIFICATES Share certificates will not be issued for the Portfolio.
ELECTRONIC
PROSPECTUS
DELIVERY If you would prefer to receive a prospectus for the Fund
or any of the Vanguard Funds in an electronic format,
please call 1-800-231-7870 for additional information. If
you elect to do so, you may also receive a paper copy of
the prospectus, by calling 1-800-523-8066.
- --------------------------------------------------------------------------------
DIVIDEND AND
TRADE DATE POLICY Investments will qualify for dividends on the date of
purchase under the following conditions:
- FOR INVESTMENTS OF $5 MILLION OR MORE: The Portfolio
must be notified of the intended purchase by 4:00 p.m.
(Eastern time) on the prior business day and the Federal
Funds wire must be received by Vanguard by 4:00 p.m.
(Eastern time) on the day of purchase.
- FOR INVESTMENTS OF LESS THAN $5 MILLION: The Portfolio
must be notified of the intended purchase by 10:45 a.m.
(Eastern time) on the day of purchase and the Federal
Funds wire must be received by 4:00 p.m. (Eastern time).
Generally, if these requirements are not met, an
investment will begin to earn dividends on the business
day following receipt of a Federal Funds wire.
The trade date, the day on which an account is credited,
is generally the day on which the Portfolio receives an
investment in the form of Federal Funds. For purchases by
Federal Funds wire or by exchange, the Portfolio is
credited immediately with Federal Funds. If a purchase by
Federal Funds wire or exchange is received by the close of
the Exchange, the trade date is the day of receipt. If a
purchase is received after the close of the Exchange, the
trade date is the business day following the receipt of
the wire or exchange.
The Portfolio reserves the right to suspend the offering
of shares for a period of time. The Portfolio also
reserves the right to reject any specific purchase
request.
- --------------------------------------------------------------------------------
12
<PAGE> 62
SELLING SHARES
WIRE PROCEEDS Any portion of an account may be withdrawn by contacting
your Institutional Investor Services Representative. The
redemption proceeds will be wired to the bank account
indicated on the Account Registration Form normally on the
business day following receipt of a request.
For a redemption of an entire account balance, accrued
dividends will not be included in the initial redemption
wire, but will be sent separately by check or wire.
Wire redemptions of less than $5,000 are subject to a $5
charge deducted from the principal in your account. There
is no charge for wire redemptions of $5,000 or more, or
for subsequent dividend wires.
For our mutual protection, wiring instructions must be on
file at Vanguard prior to executing any redemption
request. A request to change the bank account associated
with the wire redemption feature or a request to wire
funds to a bank other than that on file must be received
in writing. A signature guarantee of an authorized officer
is required if the bank registration is not identical to
the Vanguard Fund account registration.
- --------------------------------------------------------------------------------
SELLING BY EXCHANGE Shares may also be sold by making an exchange to another
Vanguard Fund account. For further information, please
contact your Institutional Investor Services
Representative.
- --------------------------------------------------------------------------------
OTHER REDEMPTION
INFORMATION The Portfolio may suspend the redemption rights or
postpone payment at times when the New York Stock Exchange
is closed or under any emergency circumstances as
determined by the United States Securities and Exchange
Commission.
The Portfolio reserves the right, for any account with a
balance of less than $10 million, either to redeem shares
or to transfer the account balance to another identically
registered Vanguard money market portfolio. Shareholders
will be provided with 60 days notice before any action is
taken.
- --------------------------------------------------------------------------------
EXCHANGING
SHARES Shares of the Portfolio may be exchanged for those of
other available Vanguard Funds either by telephone or
mail. Contact your Institutional Investor Services
Representative for further information. Telephone exchange
requests must ordinarily be received by the close of
trading on the New York Stock Exchange (generally 4:00
p.m. Eastern time) in order to be processed on the date of
receipt. The new Fund account will bear the identical
registration of the Vanguard Prime Portfolio Institutional
account.
Telephone exchanges are not permitted for several Vanguard
Funds, and there also may be restrictions on new
investments in certain Funds. Large exchange requests
(i.e., those over $250,000) require prior approval by
Vanguard on behalf of the Fund. Contact your Institutional
Investor Services Representative for full information,
including a prospectus.
13
<PAGE> 63
Neither the Portfolio nor Vanguard is responsible for the
authenticity of exchange instructions received by
telephone. Every effort will be made to maintain the
exchange privilege. However, the Portfolio reserves the
right to revise or terminate its provisions, limit the
amount of or reject any exchange, as deemed necessary, at
any time.
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION
ABOUT TELEPHONE
TRANSACTIONS The ability to initiate redemptions (except wire
redemptions) and exchanges by telephone is automatically
established on your account unless you request in writing
that telephone transactions on your account not be
permitted. The ability to initiate wire redemptions by
telephone will be established on your account only if you
specifically elect this option in writing.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions,
Vanguard adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio;
(ii) the 10-digit account number; (iii) the exact name
and address used in the registration; and (iv) the
Social Security or Employer Identification number
listed on the account.
2. PAYMENT POLICY. The proceeds of any telephone
redemption by mail will be made payable to the
registered shareowner and mailed to the address of
record, only. In the case of a telephone redemption by
wire, the wire transfer will be made only in accordance
with the shareowner's prior written instructions.
Neither the Portfolio nor Vanguard will be responsible for
the authenticity of transaction instructions received by
telephone, provided that reasonable security procedures
have been followed. Vanguard believes that the security
procedures described above are reasonable, and that if
such procedures are followed, you will bear the risk of
any losses resulting from unauthorized or fraudulent
telephone transactions on your account. If Vanguard fails
to follow reasonable security procedures, it may be liable
for any losses resulting from unauthorized or fraudulent
telephone transactions on your account.
- --------------------------------------------------------------------------------
OTHER ACCOUNT
INFORMATION For corporate investors, a current corporate resolution
must be maintained on file at Vanguard at all times. The
initial application serves as a corporate resolution. Any
revisions to a corporate resolution must be submitted to
your Institutional Investor Services Representative at
Vanguard.
To change the registration of an account, a request must
be submitted in writing to Vanguard and include the
following information: the account number and portfolio
name; authorized signatures; any applicable signature
guarantees; and other supporting legal documents as
necessary.
All requests should be mailed to the following address:
VANGUARD FINANCIAL CENTER
ATTN: INSTITUTIONAL INVESTOR SERVICES
P.O. BOX 1472
VALLEY FORGE, PA 19482
- --------------------------------------------------------------------------------
14
<PAGE> 64
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 65
<TABLE>
<S> <C>
[VANGUARD MONEY MARKET RESERVES LOGO]
-------------------------------------
PRIME PORTFOLIO
INSTITUTIONAL SHARES
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
INSTITUTIONAL INVESTOR SERVICE
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
PARTICIPANT SERVICES:
1-800-523-8066
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
I066
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 66
PART B
VANGUARD MONEY MARKET RESERVES
STATEMENT OF ADDITIONAL INFORMATION
MARCH 8, 1996
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated March 8, 1996). To obtain the Prospectus
please call the Investor Information Department:
1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Limitations.................................................................... 1
Yield and Total Return.................................................................... 2
Calculation of Yield...................................................................... 3
Purchase of Shares........................................................................ 3
Redemption of Shares...................................................................... 4
Shareholder Services...................................................................... 4
Performance Measures...................................................................... 5
Management of the Fund.................................................................... 7
Description of Shares and Voting Rights................................................... 10
Financial Statements...................................................................... 10
Appendix--Description of Securities and Ratings........................................... 10
</TABLE>
INVESTMENT LIMITATIONS
The following restrictions and fundamental policies cannot be changed
without approval of the holders of a majority of the outstanding shares of the
Fund (as defined in the Investment Company Act of 1940), including a majority of
the shares of each Portfolio. The Fund may not under any circumstances:
1) purchase securities for any Portfolio of the Fund other than the
securities in which the Portfolio is authorized to invest as set forth
in the Prospectus under "Investment Objectives" and "Investment
Policies";
2) borrow money in excess of 15% of the total assets of any Portfolio
taken at market value and then only from banks as a temporary measure
for extraordinary or emergency purposes; the Fund will not borrow to
increase income (leveraging) but only to facilitate redemption requests
which might otherwise require untimely dispositions of portfolio
securities; the Fund will repay all borrowings before making additional
investments and interest paid on such borrowings will reduce net
income;
3) make loans to other persons (except by the purchase of obligations in
which the Fund is authorized to invest); provided, however, that the
Fund will not enter into repurchase agreements if, as a result thereof,
more than 10% of the net assets of any Portfolio (taken at current
value) would be subject to repurchase agreements maturing in more than
seven days;
4) purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the Government of the United
States, its agencies or instrumentalities) if, as a result, (a) more
than 5% of a Portfolio's total assets (taken at current value) would be
invested in the securities of such issuer, or (b) any Portfolio would
hold more than 10% of any class of securities of such issuer (for this
purpose, all debt obligations of an issuer maturing in less than one
year are treated as a single class of securities);
5) write, or invest in, put, call, straddle or spread options or invest in
interests in oil, gas or other mineral exploration or development
programs;
1
<PAGE> 67
6) purchase securities on margin or sell any securities short;
7) purchase or retain securities of an issuer if an officer or director of
such issuer is an officer or Director of the Fund or its investment
adviser and one or more of such officers or directors (trustees) of the
Fund or its investment adviser owns beneficially more than 1/2% of the
shares of securities of such issuer and all such directors and officers
owning more than 1/2% of such shares or securities together own more
than 5% of such shares or securities;
8) purchase any securities which could cause more than 25% of the value of
a Portfolio's total net assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their
principal business activities in the same industry, provided that there
is no limitation with respect to investments in United States Treasury
Bills, other obligations issued or guaranteed by the Federal
Government, its agencies and instrumentalities or certificates of
deposit or bankers' acceptances of domestic institutions;
9) mortgage, pledge or hypothecate its assets except in an amount up to
15% (10% as long as the Fund's shares are registered for sale in
certain states) of the value of a Portfolio's total assets but only to
secure borrowings for temporary or emergency purposes;
10) engage in the business of underwriting securities issued by other
persons, except to the extent that the Portfolio may technically be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in disposing of investment securities;
11) purchase or otherwise acquire any security if, as a result, more than
10% of its net assets (including any investment in The Vanguard Group
Inc.) would be invested in securities that are illiquid;
12) purchase or sell real estate, real estate investment trust securities,
commodities, or commodity contracts;
13) invest in companies for the purpose of exercising control;
14) invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of
assets; and
15) issue senior securities.
Notwithstanding these limitations, the Fund may own all or any portion of
the securities of, or make loans to, or contribute to the costs or other
financial requirements of, any company which will be: (1) wholly owned by the
Fund and one or more other investment companies, and is (2) primarily engaged in
the business of providing, at-cost, management, administrative, distribution or
related services to the Fund and other investment companies. See "Management of
the Fund."
As an operational policy of the Fund, the Fund will not in the aggregate,
enter into repurchase agreements maturing in more than seven days, purchase
restricted securities or invest in any other illiquid securities if, as a result
thereof, more than 10% of the net assets of the Fund would be invested in such
assets.
The above-mentioned investment limitations are considered at the time
investment securities are purchased.
YIELD AND TOTAL RETURN
The yield of each Portfolio of the Fund for the 7-day period ended November
30, 1995 is set forth below. Yields are calculated daily for each Portfolio.
<TABLE>
<S> <C>
Prime Portfolio.................................................................. 5.50%
Federal Portfolio................................................................ 5.46%
U.S. Treasury Portfolio.......................................................... 5.21%
Prime Portfolio-Institutional Class.............................................. 5.67%
</TABLE>
2
<PAGE> 68
The average annual total return of each Portfolio of the Fund for the one-,
five- and ten-year periods ending November 30, 1995 is set forth below:
<TABLE>
<CAPTION>
1 YEAR ENDED 5 YEARS ENDED 10 YEARS ENDED
11/30/95 11/30/95 11/30/95
------------ ------------- --------------
<S> <C> <C> <C>
Prime Portfolio.......................... + 5.82% +4.59% + 6.13%
Federal Portfolio........................ + 5.77% +4.51% + 5.98%
U.S. Treasury Portfolio.................. + 5.47% +4.31% + 5.75%
Prime Portfolio-Institutional Class...... + 6.00% +4.75% + 5.46%*
</TABLE>
- ---------------
*Since inception of Vanguard Institutional Money Market Portfolio on October
3,1989.
Total return is computed by finding the average compounded rates of return
over the periods set forth above that would equate an initial amount invested at
the beginning of the periods to the ending redeemable value of the investment.
CALCULATION OF YIELD
The current yield of each of the Fund's Portfolios is calculated daily on a
base period return of a hypothetical account having a beginning balance of one
share for a particular period of time (generally 7 days). The return is
determined by dividing the net change (exclusive of any capital changes) in such
account by its average net asset value for the period, and then multiplying it
by 365/7 to get the annualized current yield. The calculation of net change
reflects the value of additional shares purchased with the dividends by the
Portfolio, including dividends on both the original share and on such additional
shares. An effective yield, which reflects the effects of compounding and
represents an annualization of the current yield with all dividends reinvested,
may also be calculated for the Portfolio by adding 1 to the net change, raising
the sum to the 365/7 power, and subtracting 1 from the result.
Set forth below is an example, for purposes of illustration only, of the
current and effective yield calculations for each of the Portfolios for the
7-day base period ended November 30, 1995.
<TABLE>
<CAPTION>
PRIME INSTITUTIONAL U.S. TREASURY
PRIME PORTFOLIO PORTFOLIO FEDERAL PORTFOLIO PORTFOLIO
--------------- ------------------- ----------------- -------------
11/30/95 11/30/95 11/30/95 11/30/95
--------------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Value of account at beginning of
period................................ $ 1.00000 $ 1.00000 $ 1.00000 $ 1.00000
Value of same account at end of
period*............................... 1.00105 1.00109 1.00105 1.00100
--------------- ------------------- ----------------- -------------
Net Change in account value............. $ .00105 $ .00109 $ .00105 $ .00100
Annualized Current Net Yield (Net
Change X 365/7) average net asset
value................................. 5.50% 5.67% 5.46% 5.21%
Effective Yield [(Net
Change)+1]365/7-1..................... 5.65% 5.82% 5.61% 5.37%
Average Weighted Maturity of
Investments........................... 53 Days 53 Days 51 Days 58 Days
</TABLE>
- ---------------
*Exclusive of any capital changes.
The net asset value of a share of each Portfolio is $1.00 and it is not
expected to fluctuate. However, the yield of each Portfolio will fluctuate. The
annualization of a week's dividend is not a representation by the Portfolio as
to what an investment in the Portfolio will actually yield in the future. Actual
yields will depend on such variables as investment quality, average maturity,
the type of instruments the Portfolio invests in, changes in interest rates on
instruments, changes in the expenses of the Fund and other factors. Yields are
one basis investors may use to analyze the Portfolios of the Fund, and other
investment vehicles; however, yields of other investment vehicles may not be
comparable because of the factors set forth in the preceding sentence,
differences in the time periods compared, and differences in the methods used in
valuing portfolio instruments, computing net asset values and calculating
yields.
PURCHASE OF SHARES
The Fund reserves the right in its sole discretion (i) to suspend the
offerings of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and
3
<PAGE> 69
(iii) to reduce or waive the minimum investment for or any other restrictions on
initial and subsequent investments for certain fiduciary accounts or under
circumstances where certain economies can be achieved in sales of the Fund's
shares.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges for each Portfolio or postpone
the date of payment (i) during any period that the New York Stock Exchange is
closed, or trading on the Exchange is restricted as determined by the Securities
and Exchange Commission (the "Commission"), (ii) during any period when an
emergency exists as defined by the rules of the Commission as a result of which
it is not reasonably practicable for a Portfolio to dispose of securities owned
by it, or fairly to determine the value of its assets, and (iii) for such other
periods as the Commission may permit.
The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or l% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part, in investment readily marketable securities or in
cash, as the Directors may deem advisable; however, payment will be made wholly
in cash unless the Directors believe that economic or market conditions exist
which would make such a practice detrimental to the best interests of the Fund.
If redemptions are paid in investment securities, such securities will be valued
as set forth in the Prospectus under "The Share Price of Each Portfolio" and a
redeeming shareholder would normally incur brokerage expenses if he converted
these securities to cash.
No charge is made by the Fund for redemptions; except for wire withdrawals
in amounts less than $5,000 which will be subject to a maximum charge of $5.00
which will be deducted from the principal in your account. Any redemption may be
more or less than the shareholder's cost depending on the market value of the
securities held by each Portfolio.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE Each Portfolio's shares may be exchanged without cost
for shares of any other Portfolio, or for the shares of any open-end Fund
currently offering its shares to new investors in The Vanguard Group
("Vanguard"). A shareholder of any other open-end Fund in Vanguard may likewise
exchange his shares for shares of any of the Fund's Portfolios. Exchange
requests may be made either by mail, telephone or telegraph.
Telephone and telegraph exchanges (referred to as "expedited exchanges")
will be accepted only if the account of the shareholder and the registration of
the two accounts is identical. Requests for expedited exchanges received prior
to the close of the New York Stock Exchange (generally 4:00 P.M. Eastern time)
will be processed at the next determined net asset value after such request is
received. Requests received after the close of the New York Stock Exchange
(generally 4:00 P.M. Eastern time), will be processed on the next business day.
NO EXPEDITED EXCHANGES WILL BE ACCEPTED INTO, OR FROM, VANGUARD BALANCED INDEX
FUND, VANGUARD INDEX TRUST, VANGUARD QUANTITATIVE PORTFOLIOS AND VANGUARD
INTERNATIONAL EQUITY INDEX FUND. Neither the Fund nor Vanguard will be
responsible for the authenticity of exchange instructions received by telephone
or telegraph. Expedited exchanges may also be subject to limitations as to
amounts and frequency, and to other restrictions established by the Board of
Directors to assure that such exchanges do not disadvantage the Fund and its
shareholders. Shareholders may obtain the terms of these limitations, which may
be revised at any time, from Vanguard.
Any such exchange will be based on the respective net asset values of the
shares involved. There are no sales commissions or charges of any kind. Before
making an exchange, a shareholder should consider the investment objectives and
policies of the Portfolio or Fund to be purchased, and other relevant
information (including the minimum initial investment), which can be found in
the prospectus relating to that particular Portfolio or Fund. A prospectus for
any of the Vanguard Funds or Portfolios may be obtained from Vanguard.
4
<PAGE> 70
For Federal income tax purposes an exchange between Funds is a taxable
event and, accordingly, a capital gain or loss may be realized. In a revenue
ruling relating to circumstances similar to the Fund's, an exchange between
series of a Fund was also deemed to be a taxable event. It is likely, therefore,
that a capital gain or loss would be realized on an exchange between Portfolios;
you may want to consult your tax adviser for further information in this regard.
The exchange privilege may be modified or terminated at any time, and any of the
Portfolios or Vanguard Funds may limit or discontinue the offering of its shares
without notice to shareholders.
TRANSFER OF SHARES Fund shares may be transferred to another person by
sending appropriate written instructions to Vanguard. The account must be
clearly identified and include the number of shares to be transferred and the
signatures of all registered owners. The signature on the letter of instructions
or any stock power must be guaranteed. As in the case of withdrawals, the
written request must be received in "Good Order" before any transfer can be
made.
INFORMATION FOR SHAREHOLDERS Following any purchase or redemption, a
shareholder will receive a statement which reflects all activity during the
current calendar year. Each shareholder will also receive a monthly statement,
which includes a valuation as of the day the statement is prepared.
Shareholders will receive semi-annual financial statements audited at least
annually by independent accountants whose selection is ratified by shareholders.
PERFORMANCE MEASURES
Vanguard may use reprinted material discussing the Vanguard Group, Inc. or
any of the member funds of the Vanguard Group of Investment Companies.
Vanguard Money Market Reserves may use one or more of the following
unmanaged indexes for comparative performance purposes:
STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified
list of 500 companies representing the U.S. Stock Market.
WILSHIRE 5000 EQUITY INDEX -- consists of more than 6,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.
RUSSELL 3000 STOCK INDEX -- a diversified portfolio of approximately 3,000
common stocks accounting for over 90% of the market value of publicly traded
stocks in the U.S.
RUSSELL 2000 STOCK INDEX -- a subset of approximately 2,000 of the smallest
stocks contained in the Russell 3000; a widely used benchmark for small
capitalization common stocks.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
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<PAGE> 71
MERRILL LYNCH CORPORATE & GOVERNMENT BOND -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
LEHMAN CORPORATE (BAA) BOND INDEX -- all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX -- is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.
BOND BUYER MUNICIPAL INDEX (20 YEAR) BOND -- is a yield index on current coupon
high-grade general obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX -- is a yield index based upon the average
yield of four high-grade, non-callable preferred stock issues.
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 35% Standard & Poor's 500 Index and 65% Lehman Long Term
Corporate Bond Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Salomon Brothers
High-Grade Bond Index.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market-weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated Baa- or better. The Index has a market value of over
$4 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.3 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX -- is
a market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $600 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities greater than 10
years. The index has a market value of over $900 billion.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Funds that constituted the Group at its inception.)
LIPPER BALANCED FUND AVERAGE -- an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.
LIPPER GENERAL EQUITY FUND AVERAGE -- an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
LIPPER FIXED INCOME FUND AVERAGE -- an industry benchmark of average fixed
income funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
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<PAGE> 72
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's Officers, under the supervision of the Board of Directors,
manage the day-to-day operations of the Fund. The Directors, who are elected
annually by shareholders, set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund and a brief statement
of their present positions and principal occupations during the past 5 years is
set forth below. The mailing address of the Directors and Officers of the Fund
is Post Office Box 876, Valley Forge, PA 19482.
JOHN C. BOGLE, Chairman and Director*
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group. Director of The Mead
Corporation and General Accident Insurance.
JOHN J. BRENNAN, President, Chief Executive Officer & Director*
President, Chief Executive Officer and Director of The Vanguard Group, Inc.
and each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Director
Chairman of Rhone-Poulenc Rorer, Inc.; Director of Sun Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director
Director of The Great Atlantic and Pacific Tea Company, Alco Standard
Corp., Raytheon Company, Knight-Ridder Inc., and Massachusetts Mutual Life
Insurance Co. and Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY, Director
President, The Brookings Institution; Director of American Express Bank,
Ltd., The St. Paul Companies, Inc. and Scott Paper Company.
BURTON G. MALKIEL, Director
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., Director
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of The BFGoodrich Company and The Standard Products Company.
JOHN C. SAWHILL, Director
President and Chief Executive Officer, of The Nature Conservancy; formerly,
Director and Senior Partner, McKinsey & Co.; President, New York
University; Director of Pacific Gas and Electric Company and NACCO
Industries.
JAMES O. WELCH, JR., Director
Retired Chairman of Nabisco Brands Inc., retired Vice Chairman and Director
of RJR Nabisco; Director of TECO Energy, Inc. and Director of Kmart
Corporation.
J. LAWRENCE WILSON, Director
Chairman and Chief Executive Officer, Rohm & Haas Company; Director of
Cummins Engine Company and Trustee of Vanderbilt University.
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.
RICHARD F. HYLAND, Treasurer*
Treasurer of The Vanguard Group, Inc. and 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.
- ---------------
*Officers of the Fund are "interested persons" as defined in the Investment
Company Act of 1940.
THE VANGUARD GROUP
The Fund is a member of The Vanguard Group of Investment Companies. Through
their jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Fund
and the other Funds in the Group obtain at cost
7
<PAGE> 73
virtually all of their corporate management, administrative and distribution
services. Vanguard also provides investment advisory services on an at-cost
basis to certain of the Vanguard Funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Funds and also
furnishes the Funds with necessary office space, furnishings and equipment. Each
Fund pays its share of Vanguard's total expenses which are allocated among the
Funds under methods approved by the Board of Directors (Trustees) of each Fund.
In addition, each Fund bears its own direct expenses such as legal, auditing and
custodian fees.
The Fund's Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external adviser
for the Funds.
The Vanguard Group adheres to a Code of Ethics established pursuant to Rule
17j-I under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.
The Vanguard Group, Inc. ("Vanguard") was established and operates under a
Funds' Service Agreement which was approved by the shareholders of each of the
Funds. The amounts of which each of the Funds has invested are adjusted from
time to time in order to maintain the proportionate relationship between each
Fund's relative net assets and its contribution to Vanguard's capital. At
November 30, 1995, the Fund had contributed capital of $2,887,000 to Vanguard,
representing 14.4% of Vanguard's capitalization. The Fund's Service Agreement
provides as follows: (a) each Vanguard Fund may invest up to 0.40% of its
current assets in Vanguard and (b) there is no other limitation on the amount
that each Vanguard Fund may contribute to Vanguard's Capitalization.
MANAGEMENT Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended November 30, 1995, the Fund's share of Vanguard's actual net
costs of operation relating to management and administrative services (including
transfer agency) totaled approximately $20,714,000.
DISTRIBUTION Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for the shares of
the Funds, in connection with any sales made directly to investors in the states
of Florida, Missouri, New York, Ohio, Texas and such other states as it may be
required.
The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The Directors and
Officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon relative net assets. The remaining one
half of those expenses is allocated among the Funds based upon each Fund's sales
for the preceding 24 months relative to the total sales of the Funds as a Group,
provided, however, that no Fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
average distribution expense rate for the Group, and that no Fund shall incur
annual distribution expenses in excess of 20/100 of 1% of its average month-end
net assets. During the fiscal year ended November 30, 1995, the Fund paid
approximately $5,896,000 of the Group's distribution and marketing expenses or
.03 of 1% of the Fund's average month-end net assets.
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<PAGE> 74
INVESTMENT ADVISORY SERVICES Vanguard also provides the Fund, Vanguard
Municipal Bond Fund, Vanguard Bond Index Fund, several Portfolios of Vanguard
Fixed Income Securities Fund, Vanguard Admiral Funds, Vanguard California
Tax-Free Fund, Vanguard Pennsylvania Tax-Free Fund, Vanguard Ohio Tax-Free Fund,
Vanguard New York Insured Tax-Free Fund, Vanguard New Jersey Tax-Free Fund,
Vanguard Florida Insured Tax-Free Fund, Vanguard Index Trust, Vanguard Balanced
Index Fund, Vanguard Institutional Index Fund, Vanguard Tax-Managed Fund,
several Portfolios of Vanguard Variable Insurance Fund, Vanguard International
Equity Index Fund, Aggressive Growth Portfolio of Vanguard Horizon Fund, a
portion of Vanguard/Windsor II, a portion of Vanguard/Morgan Growth Fund as well
as several indexed separate accounts with investment advisory services. These
services are provided on an at-cost basis from a money management staff employed
directly by Vanguard. The compensation and other expenses of this staff are paid
by the Funds utilizing these services. During the years ended November 30, 1993,
1994 and 1995, the Fund paid approximately $1,603,000, $1,896,000 and $2,788,000
respectively, of Vanguard's expenses relating to investment advisory services.
REMUNERATION OF DIRECTORS The Fund pays each Director (Trustee), who is
not also an Officer, an annual fee plus travel and other expenses incurred in
attending Board meetings. The Fund's Officers and employees are paid by Vanguard
which, in turn, is reimbursed by the Fund and each other Fund in the Group, for
its proportionate share of Officers' and employees' salaries and retirement
benefits.
The following information is furnished with respect to the Directors and
Officers of the Fund for whom the Fund's proportionate shares of remuneration
exceeded $60,000 for the fiscal year ended November 30, 1995, and for all
Directors:
VANGUARD MONEY MARKET RESERVES
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM ALL VANGUARD FUNDS
NAMES OF DIRECTORS FROM FUND PART OF FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS(3)
- --------------------------- ------------ --------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1),(2) $408,820 $ 4,320 -- --
John J. Brennan(2) $205,080 $ 4,320 -- --
Barbara Barnes Hauptfuhrer $ 9,344 $ 1,571 $15,000 $60,000
Robert E. Cawthorn $ 9,344 $ 1,309 $13,000 $60,000
Bruce K. MacLaury $ 10,131 $ 1,549 $12,000 $55,000
Burton G. Malkiel $ 9,344 $ 1,047 $15,000 $60,000
Alfred M. Rankin, Jr. $ 9,344 $ 827 $15,000 $60,000
John C. Sawhill $ 9,344 $ 982 $15,000 $60,000
James O. Welch, Jr. $ 9,344 $ 1,209 $15,000 $60,000
J. Lawrence Wilson $ 9,344 $ 873 $15,000 $60,000
</TABLE>
(1)For the period reported in this table, Mr. Bogle was the Fund's Chief
Executive Officer, and therefore an "Interested Director."
(2)As "Interested Directors," Messrs. Bogle and Brennan receive no compensation
for their service as Directors. Compensation amounts reported for Messrs.
Bogle and Brennan relate to their respective positions as Chief Executive
Officer and President of the Fund.
(3)The amounts reported in this column reflect the total compensation paid to
each Director for their service as Director or Trustee of 34 Vanguard Funds
(27 in the case of Mr. MacLaury).
Under its retirement plan, Vanguard contributes annually an amount equal to
10% of each eligible Officer's annual compensation plus 5.7% of that part of an
eligible Officer's compensation during the year, if any, that exceeds the Social
Security Taxable Wage Base then in effect. Under the Thrift Plan, all eligible
Officers are permitted to make pre-tax basic contributions in a maximum amount
equal to 4% of total compensation which are matched by Vanguard on a 100% basis.
Directors who are not Officers are paid an annual fee based on the number of
years of service on the board, up to fifteen years of service, upon retirement.
The fee is equal to $1,000 for each year of service and each investment company
member of The Vanguard Group contributes a proportionate amount of this fee
based on its relative net assets. This fee is paid, subsequent to a Director's
retirement, for a period of ten years or until the death of a retired Director.
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<PAGE> 75
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Articles of Incorporation, as amended and restated, permit the
Directors to issue 37,000,000,000 shares of common stock, with a $.001 par
value. The Board of Directors has the power to designate one or more classes
("Portfolios") of shares of common stock and to classify or reclassify any
unissued shares with respect to such Portfolios. Currently the Fund is offering
shares of three Portfolios.
The shares of each Portfolio are fully paid and nonassessable, and have no
preference as to conversion, exchange, dividends, retirement or other features.
The shares of each Portfolio have no pre-emptive rights. The shares of each
Portfolio have non-cumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of Directors can elect 100%
of the Directors if they choose to do so. A shareholder is entitled to one vote
for each full share held (and a fractional vote for each fractional share held),
then standing in his name on the books of the Fund. On any matter submitted to a
vote of shareholders, all shares of the Fund then issued and outstanding and
entitled to vote, irrespective of the class, shall be voted in the aggregate and
not by class: except (i) when required by the Investment Company Act of 1940,
shares shall be voted by individual class; and (ii) when the matter does not
affect any interest of a particular class, then only shareholders of the
affected class or classes shall be entitled to vote thereon.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended November 30, 1995,
including the financial highlights for each of the five fiscal years in the
period ended November 30, 1995, appearing in the Fund's 1995 Annual Report to
Shareholders, and the report thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, are incorporated by reference in this
Statement of Additional Information. The Fund's Annual Report to Shareholders is
enclosed with this Statement of Additional Information.
APPENDIX -- DESCRIPTION OF SECURITIES AND RATINGS
A-1 AND PRIME-1 COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) long-term senior debt is rated "A" or better; (3) the issuer has access to
at least two additional channels of borrowing; (4) basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances; (5)
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and (6) the reliability and quality of management
are unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is A-1, A-2, or A-3. The rating Prime-1 is
the highest commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following: (1) evaluation of
the management of the issuer; (2) economic evaluation of the issuer's industry
or industries and the appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.
BOND RATINGS
Bonds rated AA by Standard & Poor's are judged by S&P to be high-grade
obligations, and in the majority of instances differs only in small degrees from
issues rated AAA (the AA rating may be modified by the addition of a plus or
minus sign to show relative standing with the AA category). Bonds rated AAA are
considered by S&P to be the highest grade obligations and possess the ultimate
degree of protection as to principal and interest. Bonds rated Aa by Moody's are
judged by Moody's to be of high quality by all
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<PAGE> 76
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's also supplies numerical
indicators, 1, 2 and 3 to the Aa rating category. The modifier 1 indicates that
the security is in the higher end of its rating category; the modifier 2
indicates a mid-range ranking and 3 indicates a ranking toward the lower end of
the category.
VARIABLE AMOUNT MASTER DEMAND NOTES
Variable amount master demand notes are demand obligations that permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to an arrangement between the issuer and a commercial bank acting as agent for
the payees of such notes, whereby both parties have the right to vary the amount
of the outstanding indebtedness on the notes. Because variable amount master
demand notes are direct lending arrangements between a lender and a borrower, it
is not generally contemplated that such instruments will be traded, and there is
no secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. In connection with a Portfolio's investment in variable amount master
demand notes, Vanguard's investment management staff will monitor, on an ongoing
basis, the earning power, cash flow and other liquidity ratios of the issuer,
and the borrower's ability to pay principal and interest on demand.
DESCRIPTION OF U.S. GOVERNMENT SECURITIES
As used in this prospectus, the term "U.S. Government Securities" refers to
a variety of securities which are issued or guaranteed by the United States
Treasury, by various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. The term also refers to "repurchase agreements" collateralized by
such securities.
U.S. Treasury Securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and the U.S.
Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and the Federal National Mortgage Association.
DESCRIPTION OF REPURCHASE AGREEMENTS
Repurchase agreements are transactions by which a person purchases a
security and simultaneously commits to resell that security to the seller (a
member bank of the Federal Reserve System or recognized securities dealer) at an
agreed upon price on an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
The use of repurchase agreements involves certain risks. For example, if
the seller of the agreement defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has declined,
the Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may
11
<PAGE> 77
determine that the underlying securities are collateral not within the control
of the Portfolio and therefore subject to sale by the trustee in bankruptcy.
Finally, it is possible that the Portfolio may not be able to substantiate its
interest in the underlying securities. While the Fund's management acknowledges
these risks, it is expected that they can be controlled through stringent
security selection criteria and careful monitoring procedures.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of deposit
and time deposits issued outside the U.S. capital markets by foreign branches of
banks and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the U.S. capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across their borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes; and
expropriation or nationalization of foreign issuers. However, Eurodollar and
Yankee obligations will undergo the same credit analysis as domestic issues in
which the Prime Portfolio invests, and will have at least the same financial
strength as the domestic issuers approved for the Prime Portfolio.
12
