<PAGE> 1
VANGUARD
MONEY MARKET
RESERVES
Annual Report
November 30, 1996
THE VANGUARD GROUP: LINKING TRADITION AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our course
toward the twenty-first century. Our Report cover reflects that blending of
tradition and innovation, of past, present, and future.
The montage includes a bronze medallion with a likeness of our namesake, HMS
Vanguard (Lord Nelson's flagship at The Battle of the Nile); a clock built circa
1816 in Scotland, featuring a portrait of Nelson (who is also shown, accepting a
surrender, in a detail from a nineteenth-century engraving); and several views
of our recently completed campus, which is steeped in nautical imagery--from our
buildings named after Nelson's warships (Victory, Majestic, and Goliath are
three shown), to our artwork and ornamental compass rose.
<PAGE> 2
[PHOTO]
VANGUARD HAS ALWAYS STRIVED TO BE THE STANDARD-BEARER for mutual fund
disclosure, going well beyond the "letter of the law" in our shareholder
communications. During the past year, we raised the standard once again by
rewriting and reformatting our Fund prospectuses. They are designed to ensure
that prospective investors fully understand, before they make an investment,
each Fund's investment strategies, risks, and costs. In that spirit, we have
redesigned our Annual Reports to shareholders, which provide a comprehensive
discussion and analysis of the year's results in the context of each Fund's
investment objectives and policies. Since Vanguard has long been recognized for
the quality and content of these Fund Reports, our overriding objective was to
maintain the character of the previous Reports, while adding information to
assist shareholders in understanding the investment characteristics of their
Fund.
THE NEW FUND REPORTS INCLUDE A MESSAGE TO SHAREHOLDERS from Chairman John C.
Bogle and President John J. Brennan. This Message continues to provide a candid
assessment of the Fund's performance relative to an appropriate unmanaged
market benchmark and a peer group of mutual funds with similar investment
policies. It also reviews the principal factors contributing to--and detracting
from--the returns earned by the Fund. To help you evaluate your Fund's
current-year performance, the Message includes a discussion of the Fund's
long-term investment results, as well as a look ahead to the prospects for the
coming year. A recap of the financial markets, which had been included as part
of the Chairman's letter, now appears in The Markets In Perspective. This
overview covers the world's financial markets, putting the results of the
Fund's strategy in a global perspective.
THE PORTFOLIO PROFILE REPRESENTS AN ADDITION TO OUR FUND REPORTS. In this day
and age, many investors use detailed statistical information to evaluate their
mutual fund holdings, and our new Portfolio Profile furnishes shareholders with
comprehensive data on key characteristics--sector diversification, volatility,
top-ten holdings, among others--that ultimately define how a Fund is likely to
perform in various market environments. For this information to be used
effectively, we include a brief description of the profiled characteristics.
The Report From The Adviser (for our traditionally managed Funds) now covers
specific topics that we have defined as being the important ones for the
adviser to address--and we do our best to ensure that this Report is written in
the same simple and candid manner that characterizes all Vanguard
communications. Finally, each Adviser's Report will include an inset reminder
of the adviser's basic investment philosophy.
WE TRUST THAT THIS REDESIGNED FUND REPORT will continue to meet your need for a
fair, candid, and clear presentation of your Fund's investment results and a
thorough portfolio review. We welcome any comments that you might have at any
time regarding these Reports.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Report From
The Adviser
6
Portfolio
Profiles
8
Performance
Summaries
11
Financial
Statements
15
Report Of
Independent
Accountants
32
Directors And
Officers
INSIDE BACK COVER
<PAGE> 3
[PHOTO]
John C. Bogle
[PHOTO]
John J. Brennan
FELLOW SHAREHOLDER,
Short-term interest rates were stable, on balance, during the fiscal year
ended November 30, 1996. While a bit lower than in 1995, rates remained well
above the rate of inflation. The total return of our Prime Portfolio during
fiscal 1996 was +5.3%, down about 0.5% from our return in the previous year,
but still more than two percentage points above the 3.2% rise in the Consumer
Price Index.
The table below presents the total return for each Portfolio and for the
average competing money market fund. It also shows the premium that each
Portfolio provided over its average competitor, an edge we call the "Vanguard
Advantage."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
TOTAL RETURNS
FISCAL YEAR ENDED NOVEMBER 30, 1996
--------------------------------------
AVERAGE
VANGUARD COMPETITIVE VANGUARD
PORTFOLIO PORTFOLIO FUND ADVANTAGE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Prime +5.3% +4.8% +0.5%
Federal +5.3 +4.8 +0.5
U.S. Treasury +5.1 +4.8 +0.3
- --------------------------------------------------------------------------
Prime-
Institutional Class +5.5% +5.2% +0.3%
- --------------------------------------------------------------------------
</TABLE>
FISCAL 1996 PERFORMANCE OVERVIEW
Money market interest rates fluctuated moderately during the fiscal year ended
November 30, 1996, but the yield on the 90-day U.S. Treasury bill ended the
fiscal year at 5.1%, a shade below the yield of a year earlier. Rates declined
early in the fiscal year--reaching a low of 4.9% in mid-February--largely as a
result of the Federal Reserve Board's decisions to cut the federal funds rate
by 0.25% in December 1995, and to repeat the action in January. The Fed's
action stemmed from its perception--which was widely shared by financial
markets participants--that the U.S. economy was weakening.
Investors' perceptions soon changed, however, as a variety of economic
indicators suggested the economy was picking up steam. The yield on the 90-day
T-bill reversed course, topping out at 5.3% in early July, amid widespread
speculation that the Fed would raise interest rates to keep the economy from
overheating and inflation from accelerating. In the end, inflation did not
flare up through the rest of the fiscal year, and money market interest rates
gradually eased.
All four of our Portfolios maintained their customary margin of
superiority over our competitors. The main reason is that our operating
expenses are lower than that of the typical money market fund. The Prime,
Federal, and U.S. Treasury Portfolios operated in fiscal 1996 at an expense
ratio (expenses as a percentage of average net assets) of 0.32%, less than half
the 0.72% ratio of our average competitor. Our Institutional Portfolio operated
at an expense ratio of 0.15%, compared to 0.41% for the average institutional
money market portfolio.
Another of our competitive strengths is the professional management
provided
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ANNUALIZED 7-DAY YIELD
ON NOVEMBER 30,
-----------------------
PORTFOLIO 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Prime 5.17% 5.50%
Federal 5.12 5.46
U.S. Treasury 5.03 5.21
- --------------------------------------------------------------------------
Prime-Institutional Class 5.34% 5.67%
- --------------------------------------------------------------------------
</TABLE>
1
<PAGE> 4
by Vanguard Fixed Income Group. Our managers make certain that the Portfolios
provide the highest yields possible while maintaining liquidity and the highest
levels of credit quality. This Group's professional management and rigorous
standards for high quality and liquidity should help to maintain the stability
of our net asset values. Of course, there are no guarantees--either by us or
any other money market fund--that the $1.00 per share net asset value will be
maintained under all future circumstances.
LONG-TERM PERFORMANCE OVERVIEW
The excellent performance of our Portfolios relative to competing money market
funds in fiscal 1996 was no fluke. Our low operating costs, we believe, give us
a sustainable advantage in our quest to provide top returns to our
shareholders. The adjacent table tells the tale for the past ten years.
The margin our Portfolios have earned over their competitors translates
over time to significant sums--amounting for our Prime and Federal Portfolios
to roughly $800 on initial investments of $10,000 made a decade ago. Those
additional earnings are essentially a "free lunch" available to the money
market fund investor, for they are attained with no sacrifice whatsoever in
credit quality or liquidity.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
TOTAL RETURNS
10 YEARS ENDED NOVEMBER 30, 1996
-----------------------------------------------
FINAL VALUE OF
AVERAGE A $10,000
ANNUAL RATE INITIAL INVESTMENT
---------------------- ---------------------
AVERAGE AVERAGE
VANGUARD COMPETITIVE VANGUARD COMPETITIVE
PORTFOLIO PORTFOLIO FUND PORTFOLIO FUND
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime +6.0% +5.5% $17,884 $17,081
Federal +5.8 +5.4 17,650 16,894
U.S. Treasury +5.6 +5.4 17,324 16,984
- ------------------------------------------------------------------------------
Prime-
Institutional Class* +5.5% +5.2% $14,639 $14,378
- ------------------------------------------------------------------------------
</TABLE>
*Since Portfolio's inception on October 3, 1989.
IN SUMMARY
Money market mutual funds can play two important roles: (1) in a savings plan,
providing superior yields over time; and (2) in a balanced investment program,
providing safety, liquidity, and current income as the short-term reserves
complement to stock funds and bond funds. Money market funds provide a harbor
sheltered from the volatile, stormy seas of long-term investing. Whatever your
purpose in holding our Money Market Portfolios, we pledge to continue to offer
low-cost, high-quality Portfolios professionally managed to provide returns
that will closely track those of the overall money market. In short, we will
"stay the course" we have followed for more than two decades.
/s/ JOHN C BOGLE /s/ JOHN J. BRENNAN
Chairman of the Board President
December 12, 1996
2
<PAGE> 5
SPECIAL NOTICE TO SHAREHOLDERS OF THE U.S. TREASURY PORTFOLIO
Shareholders of the U.S. Treasury Portfolio approved on November 19, 1996, a
reorganization of the Portfolio within a Delaware business trust. On December
2, the effective date of the reorganization, the Portfolio became an
independent entity named Vanguard Treasury Money Market Portfolio and is no
longer structured as a part of Vanguard Money Market Reserves. The change,
proposed for the sole purpose of reducing state taxes payable by the U.S.
Treasury Portfolio, has no effect on shareholders of the Prime Portfolio or
Federal Portfolio. Despite this technical change, we will continue to report to
the shareholders of all the Portfolios in our existing format.
SUMMARY OF SPECIAL MEETING RESULTS
The Annual Meeting of shareholders of the U.S. Treasury Portfolio of Vanguard
Money Market Reserves was held at Vanguard's corporate headquarters on November
19, 1996, to approve a plan of reorganization of the U.S. Treasury Portfolio of
Vanguard Money Market Reserves, Inc. into a Portfolio (the "Treasury Money
Market Portfolio") of a Delaware business trust named Vanguard Treasury Fund.
As shown in the table summarizing the results of the meeting, 94% of the shares
that were voted endorsed management's recommendation to make this change.
<TABLE>
----------------------------------
<S> <C>
For: 1,416,129,328
Against: 35,633,075
Abstain: 55,235,382
Not voted: 1,336,223,865
----------------------------------
</TABLE>
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE: FISCAL YEAR ENDED NOVEMBER 30, 1996
[PHOTO]
U.S. EQUITY MARKETS
Few investors would have expected the stock market over the past 12 months to
come close to matching the 37.0% return of the prior 12. Yet when the past two
fiscal years are considered cumulatively, the Standard & Poor's 500 Composite
Stock Price Index has risen 75.1%. Not surprisingly, many of the factors that
drove the market higher in 1995 were also in place this year. Once again,
steady economic growth and low inflation were powerful motivators.
The equity markets were decidedly "un-equitable," however, when it came to
size and sectors. Companies with larger market values, such as those that
dominate the S&P 500 Index, prevailed. In fact, even within the Index, it was
the largest companies that turned in the best performance. The 50 biggest
companies in the S&P 500 Index (which account for roughly half its market
value) gained 31.8% in the fiscal year ended November 30, compared with an
increase of 27.9% for the entire Index. Looking at the S&P 500 Index's
performance by sector, financial stocks were strongest, closing the year with a
41.9% gain. Technology stocks were a close second, gaining 39.3%. Utilities,
plagued early in the year by higher interest rates and a rapidly changing
competitive landscape, eked out a 4.4% return, the lowest within the Index.
With the largest companies performing so well, it was difficult for
smaller issues to keep pace. This was evidenced in the considerable difference
between the 27.9% return of the S&P 500 Index and the 16.5% return of the
Russell 2000 Small Stock Index. Even for the smaller companies, there was a
significant range of performance among sectors. Energy stocks led the Russell
2000 Index with a 77.0% gain for the year. Here, rising prices, limited
exposure to the cyclical refining business, and a reduced number of competitors
created a favorable environment for the stocks. At the other end of the
spectrum were health-care stocks, which showed a loss of -0.4%.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED NOVEMBER 30, 1996
---------------------------------
1 YEAR 3 YEARS 5 YEARS
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Equity
S&P 500 Index 27.9% 21.0% 18.2%
Russell 2000 Index 16.5 14.0 16.8
MSCI-EAFE Index 12.1 11.7 9.9
- ----------------------------------------------------------------------
Fixed-Income
Lehman Aggregate Bond Index 6.1% 6.5% 7.9%
Lehman 10-Year Municipal
Bond Index 5.7 6.2 8.0
Salomon 90-Day U.S. Treasury Bills 5.3 5.0 4.4
- ----------------------------------------------------------------------
Other
Consumer Price Index 3.2% 2.8% 2.9%
- ----------------------------------------------------------------------
</TABLE>
U.S. FIXED-INCOME MARKETS
As the fiscal year ended, the 30-year U.S. Treasury yield of 6.4% was modestly
higher than its 6.1% level on November 30, 1995. The relatively small
difference in these figures belies the turmoil endured by the fixed-income
markets over the past 12 months.
When the fiscal year began, "Steady as she goes" was the common wisdom.
Modest economic growth and benign inflation were expected to continue, giving
the Federal Re-
4
<PAGE> 7
serve no reason to move interest rates higher. That complacency was shattered
by an exceptionally strong February jobs report, the first of what turned out
to be a succession of signs that in fact the economy was growing at a much
faster--and potentially inflation-inducing--pace. The bond market reacted
swiftly to compensate for the perceived risk: The 30-year Treasury yield jumped
from just below 6.0% in late December to 6.7% in late March. The next several
months saw a consistent pattern in which bond yields rose on the Friday of the
jobs-report release only to fall back by the middle of the month. In reality,
there was little bite to the bark. Inflation, as measured by the Consumer Price
Index, remained near an annualized rate of 3.2%. And, as the fiscal year
entered its final quarter, evidence once again pointed to more "acceptable"
levels of growth. That--plus the market's satisfaction with the national
election results and prospects for budget action--helped bonds finish the
fiscal year with a strong rally.
The rally enabled the longer-maturity sectors of the market to overcome
performance deficits and finish the year with positive returns. Although the
specter of the Federal Reserve Board loomed large during the year, in fact the
Board acted only twice, lowering the federal funds rate by a total of 0.5%.
Corporate bonds, mortgage-backed issues, and municipals were three
relatively bright spots over the past year. The strength in earnings that
benefited stock prices extended to the corporate bond sector as well. These
bonds, especially those of lower credit quality, performed well relative to
Treasuries as there appeared to be little risk of skipped interest payments or
bankruptcy against the good earnings backdrop. The stable-to-rising
interest-rate environment throughout most of the year benefited another large
segment of the bond market--mortgages--as the threat of refinancings receded.
Finally, municipal bonds outpaced their U.S. Treasury counterparts. The sector
was shielded to a certain extent from the inflation wars of the Treasury
market, and demand outstripped supply for much of the year.
INTERNATIONAL EQUITY MARKETS
Concern about U.S. Federal Reserve Board policy appeared to drive global
markets as much as it did those in the United States. In aggregate, the markets
rose 17.0%, as measured by the Morgan Stanley Capital International-Europe,
Australasia, Far East Index. A stronger dollar reduced this return to 12.1% for
U.S.-based investors.
Regionally, Europe's 22.9% return overshadowed the 1.4% generated by the
Pacific Basin. Europe's major markets continued to work toward the economic
targets that must be attained by 1999 under the Maastricht Treaty. This
ongoing, albeit bumpy, effort kept the continent's economic growth modest and
gave investors confidence. The Pacific region, of course, was dominated by the
influence of the Japanese market. Despite evidence of a strengthening economy
early in the year, Japan's market was shadowed by lingering problems in the
banking and real estate sectors and by tepid interest on the part of Japanese
investors. The dollar's appreciation against the yen had a significant impact
on returns, turning the year's 7.1% gain in yen into a -4.5% loss in dollars.
In contrast, the returns for a number of other countries in the region were
quite strong: for example, Hong Kong, 38.2%, and Malaysia, 31.8% (in U.S.
dollars).
5
<PAGE> 8
REPORT FROM THE ADVISER
[PHOTO]
"THE YEAR OF LIVING CHANGELESSLY . . ."
In the fiscal year ended November 30, 1996, the three Portfolios of Vanguard
Money Market Reserves performed just as one would expect given their short
average maturities and their high average credit quality. With their compelling
advantage in the form of lower expenses, they outperformed comparable money
market mutual funds by margins ranging from 0.35% to 0.48%.
The Portfolios also performed quite well relative to inflation, producing
returns about 2% in excess of the Consumer Price Index (CPI). Historically,
this "real rate" (i.e., inflation-adjusted rate) has been decidedly less
generous. Hence, Portfolio shareholders enjoyed a rewarding year on an absolute
basis as well as compared to competitive funds and the CPI.
The bond market was quite volatile last year, but much of that volatility
was experienced by securities with terms to maturity well beyond those
contained in the three Portfolios. In the region of the yield curve that
consists of securities with maturities of less than one year, the markets were
relatively tranquil.
After two minor easings of monetary policy early in the fiscal year (which
resulted in the federal funds rate moving a total of 0.5% lower to 5.25% in
response to a favorable inflation outlook), the Federal Reserve has held
short-term interest rates steady. In public-policy discussions, Fed Chairman
Alan Greenspan has cited the absence of economic imbalances (such as excessive
inflation, surplus inventory, too much borrowing) that in past cycles have
derailed the economy from a path of sustainable, long-term growth.
Consequently, short-term securities markets, heavily influenced by the Fed's
actions, have traded in a narrow band, with three-month U.S. Treasury bills
yielding between 4.9% and 5.5%.
YOUR VANGUARD MONEY MARKET RESERVES PORTFOLIOS
In overseeing the Prime, Federal, and U.S. Treasury Portfolios of Vanguard
Money Market Reserves, we have steered clear (as usual) of interest-rate
speculation. In the environment outlined above, there is little to be gained
from "swinging for the fences" with big changes in the average maturity of our
Portfolios. While staying within the range of maturity lengths we consider
neutral, we have leaned toward the upper end so as to garner some benefit from
the upward slope of the yield curve while maintaining healthy liquidity. On
several occasions, we have temporarily extended the U.S. Treasury Portfolio to
take advantage of particularly appealing yields on securities with only
slightly longer terms to maturity. Also--no surprise to our longer-term Prime
Portfolio shareholders--we have stuck to our conservative credit-quality
policies. As in other sectors of the bond market, interest-rate differentials
between money market securities of high-credit-quality and low-credit-quality
issuers are exceptionally narrow by historic standards. In such a climate,
there is almost no cost, in terms of foregone yield, to maintaining a very
INVESTMENT PHILOSOPHY
The Fund reflects a belief that its Portfolios can provide the highest level of
current income consistent with capital preservation and liquidity by holding
high-quality money market instruments issued by financial institutions,
non-financial corporations, the U.S. government, and federal agencies.
6
<PAGE> 9
high-quality portfolio. Add to this equation the low expenses charged to our
shareholders, and the result is consistently competitive returns.
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Principal
John Hollyer, Principal
Vanguard Fixed Income Group
December 10, 1996
7
<PAGE> 10
PORTFOLIO PROFILE: PRIME PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics. Key
elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
INDIVIDUAL CLASS--FINANCIAL ATTRIBUTES
- ---------------------------------------
<S> <C>
Number of Issues 334
Yield 5.2%
Average Maturity 53 days
Average Quality A-1/P-1
Expense Ratio 0.32%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Aaa 44.5%
Aa 46.9
A 8.6
Baa --
Ba --
B --
Not Rated --
- -----------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS--FINANCIAL ATTRIBUTES
- -----------------------------------------
<C> <C>
Number of Issues 334
Yield 5.3%
Average Maturity 53 days
Average Quality A-1/P-1
Expense Ratio 0.15%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF TOTAL NET ASSETS)
- ----------------------------------------------
<S> <C>
U.S. Government & Agency 35.8%
Commercial Paper 31.3
Certificates of Deposit 28.3
Bankers Acceptances 0.6
Other 4.0
- --------------------------------------- -------
Total 100.0%
</TABLE>
8
<PAGE> 11
[PHOTO]
AVERAGE MATURITY. The average length of time until bonds held by the portfolio
reach maturity and are repaid. In general, the longer the average maturity, the
more a portfolio's share price will fluctuate in response to changes in market
interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
credit ratings assigned to the portfolio's securities holdings by credit-rating
agencies. Agencies assign credit ratings after an appraisal of an issuer's
ability to meet its obligations.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or other
credit problems on securities held by the portfolio.
DISTRIBUTION BY ISSUER. A breakdown of a portfolio's holdings by type of issuer
or type of instrument. Corporations issue commercial paper, while banks issue
certificates of deposit and banker's acceptances.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
portfolio holds, the less susceptible it is to a price decline stemming from
the problems of a particular issue.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of the portfolio's net asset value, is based on income earned by the
portfolio over the previous seven days and is annualized, or projected forward
for the coming year.
9
<PAGE> 12
PORTFOLIO PROFILE: FEDERAL PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics. Key
elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------
<S> <C>
Number of Issues 61
Yield 5.1%
Average Maturity 52 days
Average Quality Agency
Expense Ratio 0.32%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Agency 100.0%
</TABLE>
PORTFOLIO PROFILE: U.S. TREASURY PORTFOLIO
NOVEMBER 30, 1996
This Profile provides a snapshot of the Portfolio's characteristics. Key
elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ---------------------------------------
<S> <C>
Number of Issues 10
Yield 5.0%
Average Maturity 53 days
Average Quality U.S. Treasury
Expense Ratio 0.32%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
U.S. Treasury 100.0%
</TABLE>
10
<PAGE> 13
PERFORMANCE SUMMARY: PRIME PORTFOLIO-INDIVIDUAL CLASS
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note that
annual returns can fluctuate widely. An investment in a money market fund is
neither insured nor guaranteed by the U.S. government, and there is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 11/30/76-11/30/96
- ----------------------------------------------------------
PRIME PORTFOLIO-INDIVIDUAL CLASS AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
1977 0.0% 4.4% 4.4% 4.8%
1978 0.0 6.7 6.7 6.9
1979 0.0 10.8 10.8 10.5
1980 0.0 12.8 12.8 12.5
1981 0.0 17.6 17.6 17.5
1982 0.0 13.1 13.1 12.8
1983 0.0 8.9 8.9 8.6
1984 0.0 10.6 10.6 10.1
1985 0.0 8.2 8.2 7.9
1986 0.0 6.8 6.8 6.4
1987 0.0 6.5 6.5 6.0
1988 0.0 7.5 7.5 6.9
1989 0.0 9.4 9.4 8.8
1990 0.0 8.3 8.3 7.8
1991 0.0 6.4 6.4 5.9
1992 0.0 3.9 3.9 3.4
1993 0.0 3.0 3.0 2.6
1994 0.0 3.9 3.9 3.5
1995 0.0 5.8 5.8 5.4
1996 0.0 5.3 5.3 4.8
- ----------------------------------------------------------
</TABLE>
*Average Money Market Fund.
See Financial Highlights table on page 29 for dividend information for the
past five years.
<TABLE>
<CAPTION>
- -----------------------------------------
CUMULATIVE PERFORMANCE: 11/30/86-11/30/96
<S> <C> <C> <C> <C>
10000 10000 10000 1986 11
10139 10133 10139 1987 02
10291 10278 10280 1987 05
10462 10434 10435 1987 08
1987 10649 10601 10592 1987 11
10837 10779 10744 1988 02
11016 10941 10901 1988 05
11219 11128 11083 1988 08
1988 11446 11331 11287 1988 11
11694 11571 11521 1989 02
11979 11835 11778 1989 05
12258 12094 12022 1989 08
1989 12522 12333 12261 1989 11
12777 12579 12501 1990 02
13039 12819 12753 1990 05
13303 13065 13002 1990 08
1990 13565 13299 13239 1990 11
13816 13537 13462 1991 02
14036 13733 13662 1991 05
14242 13920 13854 1991 08
1991 14433 14085 14031 1991 11
14598 14240 14180 1992 02
14744 14362 14320 1992 05
14878 14475 14444 1992 08
1992 14995 14569 14552 1992 11
15112 14676 14671 1993 02
15224 14765 14779 1993 05
15336 14857 14890 1993 08
1993 15449 14951 15001 1993 11
15564 15058 15124 1994 02
15696 15167 15261 1994 05
15859 15303 15422 1994 08
1994 16047 15467 15606 1994 11
16270 15675 15829 1995 02
16512 15887 16061 1995 05
16750 16088 16287 1995 08
1995 16981 16294 16505 1995 11
17209 16508 16732 1996 02
17428 16696 16942 1996 05
17655 16883 17159 1996 08
1996 17884 17081 17376 1996 11
- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
-------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIME PORTFOLIO-INDIVIDUAL CLASS 5.31% 4.38% 5.99% $17,884
AVERAGE MONEY MARKET FUND 4.83 3.93 5.50 17,081
SALOMON 90-DAY
U.S. TREASURY BILLS 5.28 4.37 5.68 17,376
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- ------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Portfolio-Individual Class 6/4/75 5.37% 4.38% 0.00% 5.99% 5.99%
- -------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
11
<PAGE> 14
PERFORMANCE SUMMARY: PRIME PORTFOLIO-INSTITUTIONAL CLASS
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note that
annual returns can fluctuate widely. An investment in a money market fund is
neither insured nor guaranteed by the U.S. government, and there is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 10/3/89-11/30/96
- ------------------------------------------------------------
PRIME PORTFOLIO-INSTITUTIONAL CLASS AVERAGE
FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN* RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1989 0.0% 1.4% 1.4% 1.4%
1990 0.0 8.5 8.5 8.3
1991 0.0 6.5 6.5 6.2
1992 0.0 4.0 4.0 3.8
1993 0.0 3.2 3.2 2.9
1994 0.0 4.1 4.1 3.8
1995 0.0 6.0 6.0 5.7
1996 0.0 5.5 5.5 5.2
- ------------------------------------------------------------
</TABLE>
*Prior to 10/28/95, total returns are for Vanguard Institutional Money Market
Portfolio.
**Average Institutional Money Market Fund.
See Financial Highlights table on page 29 for dividend information.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: 10/3/89-11/30/96
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
10000000 10000000 10000000 1989 10
1989 10140000 10137000 10134000 1989 11
10351000 10343000 10329000 1990 02
10567000 10555000 10538000 1990 05
10786000 10767000 10744000 1990 08
1990 11002000 10977000 10939000 1990 11
11208000 11173000 11124000 1991 02
11390000 11348000 11289000 1991 05
11561000 11511000 11447000 1991 08
1991 11719000 11661000 11594000 1991 11
11857000 11774000 11717000 1992 02
11979000 11908000 11832000 1992 05
12092000 12011000 11935000 1992 08
1992 12191000 12099000 12024000 1992 11
12292000 12174000 12122000 1993 02
12388000 12282000 12212000 1993 05
12484000 12370000 12304000 1993 08
1993 12581000 12455000 12395000 1993 11
12680000 12528000 12497000 1994 02
12793000 12655000 12610000 1994 05
12933000 12783000 12743000 1994 08
1994 13091000 12927000 12895000 1994 11
13280000 13085000 13079000 1995 02
13483000 13298000 13271000 1995 05
13683000 13486000 13458000 1995 08
1995 13877000 13668000 13638000 1995 11
14069000 13831000 13826000 1996 02
14255000 14027000 13999000 1996 05
14446000 14205000 14178000 1996 08
1996 14639000 14378000 14358000 1996 11
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIME PORTFOLIO- INSTITUTIONAL CLASS* 5.49% 4.55% 5.47% $14,639,000
AVERAGE INSTITUTIONAL
MONEY MARKET FUND 5.21 4.28 5.20 14,378,000
SALOMON 90-DAY
U.S. TREASURY BILLS 5.28 4.37 5.18 14,358,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Prior to 10/28/95, total returns are for Vanguard Institutional Money Market
Portfolio.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- --------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Portfolio-
Institutional Class** 10/3/89 5.55% 4.55% 0.00% 5.47% 5.47%
- --------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
**Prior to 10/28/95, total returns are for Vanguard Institutional Money Market
Portfolio.
12
<PAGE> 15
PERFORMANCE SUMMARY: FEDERAL PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note that
annual returns can fluctuate widely. An investment in a money market fund is
neither insured nor guaranteed by the U.S. government, and there is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 7/13/81-11/30/96
- -------------------------------------------------
FEDERAL PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------
<S> <C> <C> <C> <C>
1981 0.0% 5.9% 5.9% 5.7%
1982 0.0 11.9 11.9 11.7
1983 0.0 8.5 8.5 8.3
1984 0.0 10.2 10.2 9.8
1985 0.0 8.0 8.0 7.7
1986 0.0 6.6 6.6 6.3
1987 0.0 6.3 6.3 5.9
1988 0.0 7.2 7.2 6.7
1989 0.0 9.2 9.2 8.6
1990 0.0 8.1 8.1 7.7
1991 0.0 6.2 6.2 5.7
1992 0.0 3.8 3.8 3.4
1993 0.0 3.0 3.0 2.6
1994 0.0 3.8 3.8 3.4
1995 0.0 5.8 5.8 5.3
1996 0.0 5.3 5.3 4.8
- -------------------------------------------------
</TABLE>
*Average U.S. Government Money Market Fund.
See Financial Highlights table on page 30 for dividend information for the past
five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: 11/30/86-11/30/96
- ------------------------------------------
<S> <C> <C> <C> <C>
10000 10000 10000 1986 11
10137 10134 10139 1987 02
10284 10281 10280 1987 05
10448 10432 10435 1987 08
1987 10626 10589 10592 1987 11
10804 10761 10744 1988 02
10978 10923 10901 1988 05
11173 11107 11083 1988 08
1988 11392 11293 11287 1988 11
11631 11532 11521 1989 02
11907 11791 11778 1989 05
12178 12043 12022 1989 08
1989 12435 12264 12261 1989 11
12683 12515 12501 1990 02
12938 12752 12753 1990 05
13195 12994 13002 1990 08
1990 13448 13210 13239 1990 11
13683 13444 13462 1991 02
13895 13636 13662 1991 05
14094 13823 13854 1991 08
1991 14280 13968 14031 1991 11
14439 14130 14180 1992 02
14581 14256 14320 1992 05
14713 14372 14444 1992 08
1992 14827 14445 14552 1992 11
14938 14561 14671 1993 02
15048 14652 14779 1993 05
15159 14749 14890 1993 08
1993 15269 14816 15001 1993 11
15381 14932 15124 1994 02
15511 15042 15261 1994 05
15670 15182 15422 1994 08
1994 15853 15317 15606 1994 11
16070 15531 15829 1995 02
16308 15740 16061 1995 05
16541 15946 16287 1995 08
1995 16767 16124 16505 1995 11
16990 16342 16732 1996 02
17205 16531 16942 1996 05
17427 16726 17159 1996 08
1996 17650 16894 17376 1996 11
- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
----------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERAL PORTFOLIO 5.26% 4.33% 5.85% $17,650
AVERAGE U.S. GOVERNMENT
MONEY MARKET FUND 4.78 3.88 5.38 16,894
SALOMON 90-DAY
U.S. TREASURY BILLS 5.28 4.37 5.68 17,376
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- --------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -----------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Portfolio 7/13/81 5.32% 4.33% 0.00% 5.85% 5.85%
- --------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
13
<PAGE> 16
PERFORMANCE SUMMARY: U.S. TREASURY PORTFOLIO
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note that
annual returns can fluctuate widely. An investment in a money market fund is
neither insured nor guaranteed by the U.S. government, and there is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share. In 1989, the Insured Portfolio was reorganized as the U.S.
Treasury Portfolio.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: 3/9/83-11/30/96
- ---------------------------------------------
U.S. TREASURY PORTFOLIO AVERAGE
FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN* RETURN
- ---------------------------------------------
<S> <C> <C> <C> <C>
1983 0.0% 6.1% 6.1% 6.2%
1984 0.0 9.9 9.9 10.1
1985 0.0 7.5 7.5 7.9
1986 0.0 6.2 6.2 6.4
1987 0.0 6.0 6.0 6.0
1988 0.0 7.0 7.0 6.9
1989 0.0 8.9 8.9 8.7
1990 0.0 8.0 8.0 7.7
1991 0.0 5.9 5.9 5.8
1992 0.0 3.7 3.7 3.5
1993 0.0 2.9 2.9 2.6
1994 0.0 3.6 3.6 3.4
1995 0.0 5.5 5.5 5.2
1996 0.0 5.1 5.1 4.8
- ---------------------------------------------
</TABLE>
*Prior to 3/13/89, total returns are for the Insured Portfolio.
**Average Money Market Fund through 3/31/89; Average U.S. Treasury Money Market
Fund thereafter.
See Financial Highlights table on page 30 for dividend information for the past
five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: 11/30/86-11/30/96
- -----------------------------------------
<S> <C> <C> <C> <C>
10000 10000 10000 1986 11
10130 10133 10139 1987 02
10270 10273 10280 1987 05
10426 10429 10435 1987 08
1987 10600 10596 10592 1987 11
10770 10767 10744 1988 02
10938 10932 10901 1988 05
11131 11119 11083 1988 08
1988 11345 11327 11287 1988 11
11582 11558 11521 1989 02
11847 11816 11778 1989 05
12107 12067 12022 1989 08
1989 12354 12309 12261 1989 11
12596 12541 12501 1990 02
12847 12780 12753 1990 05
13099 13024 13002 1990 08
1990 13346 13262 13239 1990 11
13568 13478 13462 1991 02
13771 13675 13662 1991 05
13961 13861 13854 1991 08
1991 14140 14033 14031 1991 11
14291 14176 14180 1992 02
14427 14303 14320 1992 05
14554 14419 14444 1992 08
1992 14660 14519 14552 1992 11
14765 14615 14671 1993 02
14869 14710 14779 1993 05
14975 14805 14890 1993 08
1993 15080 14900 15001 1993 11
15186 14995 15124 1994 02
15307 15106 15261 1994 05
15456 15244 15422 1994 08
1994 15627 15404 15606 1994 11
15828 15592 15829 1995 02
16050 15801 16061 1995 05
16269 16008 16287 1995 08
1995 16482 16209 16505 1995 11
16693 16404 16732 1996 02
16899 16594 16942 1996 05
17111 16787 17159 1996 08
1996 17324 16984 17376 1996 11
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1996
------------------------------- FINAL VALUE OF A
1 YEAR 5 YEARS 10 YEARS $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY PORTFOLIO* 5.11% 4.15% 5.65% $17,324
AVERAGE U.S. TREASURY
MONEY MARKET FUND** 4.76 3.89 5.44 16,984
SALOMON 90-DAY
U.S. TREASURY BILLS 5.28 4.37 5.68 17,376
- ----------------------------------------------------------------------------------------
</TABLE>
*Prior to 3/13/89, total returns are for the Insured Portfolio.
**Average Money Market Fund through 3/31/89; Average U.S. Treasury Money Market
Fund thereafter.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED 9/30/96*
- ---------------------------------------------------------------------------------------
10 YEARS
INCEPTION -----------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Portfolio** 3/9/83 5.15% 4.15% 0.00% 5.65% 5.65%
- ---------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter as well as for the Portfolio's fiscal year
end.
**Prior to 3/13/89, total returns are for the Insured Portfolio.
14
<PAGE> 17
FINANCIAL STATEMENTS
NOVEMBER 30, 1996
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's holdings on the
last day of the reporting period, including each security's maturity date,
coupon rate or yield to maturity at the time of purchase, and statement-date
market value. Securities are grouped and subtotaled by type of instrument (U.S.
government obligations, commercial paper, certificates of deposit, etc.) Other
assets are added to, and liabilities are subtracted from, the value of Total
Investments to calculate the Portfolio's Net Assets. Finally, Net Assets are
divided by the outstanding shares of the Portfolio to arrive at its share
price, or Net Asset Value (NAV) Per Share. Each Portfolio's objective is to
maintain a constant NAV of $1.00 per share.
At the end of the Statement of Net Assets of each Portfolio, you will find
a table displaying the composition of the Portfolio's net assets on both a
dollar and per-share basis. Virtually the entire amount of net assets consists
of Paid in Capital (money invested by shareholders). Undistributed Net
Investment Income is usually zero because the Portfolio distributes its net
income to shareholders as a dividend each day, and Accumulated Realized Gains
(Losses) are very small because the Portfolio seldom realizes any significant
gains or losses on sales of securities.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (35.8%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank 5.195% 12/19/96 (1) $ 250,000 $ 249,852
Federal Home Loan Bank 5.205% 12/23/96 (1) 300,000 299,811
Federal Home Loan Bank 5.205% 12/24/96 (1) 100,000 99,929
Federal Home Loan Bank 5.215% 12/4/96 (1) 183,000 182,944
Federal Home Loan Bank 5.215% 12/27/96 (1) 230,000 229,932
Federal Home Loan Bank 5.30% 2/20/97 (1) 300,000 299,864
Federal Home Loan Bank 5.39% 2/4/97 58,015 57,465
Federal Home Loan Bank 5.44% 12/11/96 (1) 100,000 99,998
Federal Home Loan Bank 5.452% 12/6/96 (1) 395,000 394,996
Federal Home Loan Bank 5.456% 12/26/96 (1) 50,000 49,966
Federal Home Loan Bank 5.84% 6/27/97 37,000 36,974
Federal Home Loan Bank 5.87% 6/27/97 100,000 99,932
Federal Home Loan Mortgage Corp. 5.175% 12/15/96 (1) 250,000 249,820
Federal Home Loan Mortgage Corp. 5.242% 12/19/96 299,990 299,206
Federal Home Loan Mortgage Corp. 5.292% 2/10/97 70,960 70,229
Federal Home Loan Mortgage Corp. 5.294% 2/11/97 80,000 79,164
Federal Home Loan Mortgage Corp. 5.295% 2/12/97 44,000 43,534
Federal Home Loan Mortgage Corp. 5.389% 2/3/97 18,928 18,751
Federal Home Loan Mortgage Corp. 5.403% 12/2/96 94,533 94,518
Federal Home Loan Mortgage Corp. 5.485% 12/4/96 55,180 55,155
Federal Home Loan Mortgage Corp. 5.728% 6/6/97 23,290 23,260
Federal National Mortgage Assn. 5.195% 12/4/96 (1) 400,000 399,676
Federal National Mortgage Assn. 5.205% 12/12/96 (1) 90,000 89,943
Federal National Mortgage Assn. 5.215% 12/29/96 (1) 100,000 99,958
Federal National Mortgage Assn. 5.23% 12/15/96 (1) 445,000 444,778
Federal National Mortgage Assn. 5.235% 12/17/96 (1) 150,000 149,956
Federal National Mortgage Assn. 5.292% 2/10/97 245,000 242,478
Federal National Mortgage Assn. 5.30% 12/26/96 15,000 14,998
Federal National Mortgage Assn. 5.32% 2/6/97 (1) 200,000 199,894
Federal National Mortgage Assn. 5.32% 2/7/97 (1) 200,000 199,894
Federal National Mortgage Assn. 5.32% 2/14/97 (1) 1,050,000 1,049,470
Federal National Mortgage Assn. 5.32% 2/17/97 (1) 330,000 329,751
Federal National Mortgage Assn. 5.32% 2/21/97 (1) 300,000 299,961
Federal National Mortgage Assn. 5.32% 2/25/97 (1) 465,000 464,644
Federal National Mortgage Assn. 5.331% 1/14/97 (1) 200,000 199,922
Federal National Mortgage Assn. 5.351% 1/16/97 (1) 150,000 149,898
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Assn. 5.389% 2/3/97 $ 40,465 $ 40,087
Federal National Mortgage Assn. 5.39% 12/4/96 35,000 35,000
Federal National Mortgage Assn. 5.392% 2/6/97 25,000 24,756
Federal National Mortgage Assn. 5.445% 12/13/96 (1) 200,000 199,959
Federal National Mortgage Assn. 5.476% 12/9/96 (1) 350,000 349,778
Federal National Mortgage Assn. 5.485% 12/5/96 200,000 199,880
Federal National Mortgage Assn. 5.71% 5/20/97 50,000 49,943
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $8,269,924) 8,269,924
- ---------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (31.3%)
- ---------------------------------------------------------------------------------------------------------
BANK HOLDING COMPANIES (2.0%)
Banc One Corp. 5.367% 2/13/97 50,000 49,456
Bank of New York Co. Inc. 5.351% 1/16/97 40,000 39,729
BankAmerica Corp. 5.372% 2/7/97 100,000 98,999
J.P. Morgan & Co. 5.622% 12/30/96 50,000 49,780
NationsBank Corp. 5.372% 2/7/97 100,000 98,999
Norwest Corp. 5.383% 1/16/97 100,000 99,321
SunTrust Banks, Inc. 5.383% 1/28/97 20,000 19,829
------------
456,113
------------
FINANCE--AUTO (1.9%)
Ford Motor Credit Corp. 5.276% 12/13/96 50,000 49,912
Ford Motor Credit Corp. 5.395% 1/13/97 100,000 99,365
Ford Motor Credit Corp. 5.416% 1/7/97 200,000 198,902
Toyota Motor Credit Corp. 5.298% 12/9/96 50,000 49,944
Toyota Motor Credit Corp. 5.42% 2/10/97 20,000 19,790
Toyota Motor Credit Corp. 5.432% 2/3/97 29,604 29,323
------------
447,236
------------
FINANCE--OTHER (13.1%)
A.I. Credit Corp. 5.345% 2/10/97 30,000 29,688
A.I. Credit Corp. 5.363% 2/5/97 20,000 19,806
A.I. Credit Corp. 5.383% 1/30/97 25,000 24,779
American Express Credit Corp. 5.271% 12/20/96 50,000 49,861
American Express Credit Corp. 5.383% 1/16/97 100,000 99,322
American Express Credit Corp. 5.391% 1/27/97 23,000 22,806
American Express Credit Corp. 5.394% 1/29/97 50,000 49,564
Ameritech Capital Funding Corp. 5.354% 2/10/97 50,000 49,479
Ameritech Capital Funding Corp. 5.378% 1/22/97 25,000 24,808
Ameritech Capital Funding Corp. 5.498% 1/24/97 19,000 18,846
Asset Securitization Cooperative Corp. 5.318% 12/12/96 25,000 24,960
Asset Securitization Cooperative Corp. 5.373% 1/23/97 25,000 24,805
Asset Securitization Cooperative Corp. 5.381% 1/29/97 20,000 19,826
Asset Securitization Cooperative Corp. 5.381% 2/3/97 25,000 24,764
Asset Securitization Cooperative Corp. 5.383% 1/22/97 30,000 29,770
Asset Securitization Cooperative Corp. 5.385% 2/4/97 28,000 27,732
Asset Securitization Cooperative Corp. 5.393% 1/28/97 150,000 148,718
Associates Corp. 5.383% 1/22/97 50,000 49,617
Associates Corp. 5.392% 1/16/97 50,000 49,660
Associates Corp. 5.393% 1/10/97 50,000 49,704
Associates Corp. 5.416% 2/26/97 50,000 49,357
Associates First Capital Corp. 5.404% 1/10/97 50,000 49,704
Associates First Capital Corp. 5.404% 1/17/97 50,000 49,652
Ciesco L.P. 5.277% 12/11/96 100,000 99,854
Ciesco L.P. 5.293% 12/2/96 22,992 22,989
Ciesco L.P. 5.356% 1/17/97 55,000 54,619
Ciesco L.P. 5.36% 2/3/97 30,000 29,718
Ciesco L.P. 5.368% 2/14/97 80,000 79,119
CIT Group Holdings Inc. 5.313% 12/18/96 200,000 199,500
CIT Group Holdings Inc. 5.379% 1/24/97 50,000 49,602
CIT Group Holdings Inc. 5.381% 1/29/97 56,577 56,085
Commercial Credit Co. 5.294% 12/20/96 25,000 24,930
Corporate Asset Funding Corp. 5.301% 12/12/96 50,000 49,920
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Asset Funding Corp. 5.366% 1/30/97 $ 50,000 $ 49,558
Corporate Asset Funding Corp. 5.404% 12/2/96 86,595 86,582
Delaware Funding 5.317% 12/10/96 25,288 25,254
Delaware Funding 5.321% 12/12/96 19,520 19,488
Delaware Funding 5.321% 12/16/96 94,751 94,542
Delaware Funding 5.323% 12/20/96 49,000 48,863
Delaware Funding 5.373% 1/10/97 14,205 14,121
Delaware Funding 5.374% 1/16/97 80,000 79,456
Delaware Funding 5.393% 1/21/97 25,000 24,812
Eiger Capital Corp. 5.294% 12/20/96 110,000 109,694
Eiger Capital Corp. 5.322% 12/18/96 9,000 8,977
General Electric Capital Corp. 5.393% 1/17/97 50,000 49,653
General Electric Capital Corp. 5.416% 2/25/97 100,000 98,729
General Electric Capital Corp. 5.416% 2/26/97 100,000 98,714
General Electric Capital Corp. 5.492% 1/6/97 50,000 49,732
General Electric Capital Corp. 5.53% 1/24/97 325,000 322,353
General Electric Capital Corp. 5.559% 12/2/96 50,000 49,992
General Electric Capital Corp. 5.741% 3/10/97 50,000 49,233
Norwest Corp. 5.468% 1/7/97 50,000 49,723
Panasonic Finance 5.401% 1/13/97 57,000 56,637
------------
3,039,677
------------
INDUSTRIAL (4.1%)
Bayer Corp. 5.373% 1/23/97 55,000 54,571
Campbell Soup Co. 5.372% 1/15/97 100,000 99,338
Cargill Inc. 5.296% 12/6/96 36,000 35,974
Cargill Inc. 5.304% 12/3/96 13,560 13,556
Cargill Inc. 5.367% 1/24/97 10,850 10,764
Chevron Transport Co. 5.383% 2/5/97 23,000 22,776
Chevron Transport Co. 5.404% 1/17/97 17,000 16,882
Chevron Transport Co. 5.406% 1/14/97 10,000 9,935
Chevron U.K. 5.364% 2/11/97 20,000 19,788
Chevron U.K. 5.402% 1/28/97 15,000 14,871
Chevron U.K. 5.428% 12/3/96 13,000 12,996
The Coca-Cola Co. 5.274% 12/10/96 31,000 30,959
The Coca-Cola Co. 5.276% 12/27/96 50,000 49,810
E.I. du Pont de Nemours & Co. 5.276% 12/10/96 28,000 27,963
Exxon Capital U.S. Inc. 5.283% 12/19/96 40,000 39,895
Exxon Imperial U.S. Inc. 5.28% 12/16/96 15,000 14,967
Exxon Imperial U.S. Inc. 5.293% 12/2/96 16,000 15,998
H.J. Heinz Co. 5.295% 12/4/96 23,351 23,341
H.J. Heinz Co. 5.325% 12/18/96 34,000 33,915
Kellogg Co. 5.292% 12/19/96 15,556 15,515
Koch Industries 5.27% 12/19/96 100,000 99,738
Koch Industries 5.434% 12/2/96 70,000 69,989
Eli Lilly & Co. 5.349% 2/3/97 25,000 24,765
Lucent Technologies 5.27% 12/17/96 18,500 18,457
Mobil Australia Finance 5.28% 12/16/96 28,417 28,355
Mobil Australia Finance 5.283% 12/20/96 10,378 10,349
Mobil Australia Finance 5.381% 1/31/97 63,735 63,159
Norfolk Southern Corp. 5.383% 1/10/97 50,000 49,705
Norfolk Southern Corp. 5.414% 2/3/97 10,000 9,905
PepsiCo Inc. 5.321% 12/13/96 25,000 24,956
------------
963,192
------------
INSURANCE (1.6%)
AIG Funding Inc. 5.275% 12/10/96 50,000 49,934
John Hancock Capital Corp. 5.387% 1/17/97 19,325 19,191
MetLife Funding Corp. 5.362% 1/31/97 5,000 4,955
MetLife Funding Corp. 5.364% 2/7/97 37,599 37,223
Pacific Mutual Life Corp. 5.285% 12/10/96 18,000 17,976
SAFECO Credit Co. Inc. 5.362% 2/5/97 10,000 9,903
SAFECO Credit Co. Inc. 5.369% 1/17/97 20,000 19,862
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SAFECO Credit Co. Inc. 5.39% 1/13/97 21,000 20,867
SAFECO Credit Co. Inc. 5.393% 1/29/97 15,000 14,869
USAA Capital Corp. 5.352% 2/6/97 18,900 18,714
USAA Capital Corp. 5.353% 2/7/97 10,000 9,900
USAA Capital Corp. 5.368% 2/28/97 24,500 24,180
USAA Capital Corp. 5.381% 1/13/97 20,000 19,873
USAA Capital Corp. 5.387% 1/14/97 30,000 29,806
USAA Capital Corp. 5.388% 2/20/97 18,000 17,786
USAA Capital Corp. 5.448% 3/6/97 25,000 24,648
USAA Capital Corp. 5.556% 2/3/97 27,300 27,036
------------
366,723
------------
UTILITIES (0.2%)
Ameritech Corp. 5.386% 3/6/97 23,000 22,679
AT&T Corp. 5.381% 1/22/97 5,000 4,962
BellSouth Telecommunications 5.482% 1/10/97 10,000 9,940
------------
37,581
------------
FOREIGN BANKS (4.1%)
Abbey National 5.278% 12/3/96 10,000 9,997
Abbey National 5.592% 3/26/97 90,000 88,436
Abbey National 5.604% 4/2/97 100,000 98,153
Abbey National 5.756% 3/10/97 43,000 42,347
ABN AMRO 5.406% 1/15/97 45,000 44,700
ABN AMRO 5.576% 2/28/97 10,000 9,869
Bank of Austria Finance Inc. 5.266% 12/12/96 50,000 49,920
Bank of Montreal 5.285% 12/6/96 50,000 49,963
Commonwealth Bank of Australia 5.368% 2/7/97 30,000 29,700
Commonwealth Bank of Australia 5.39% 1/22/97 18,000 17,862
Commonwealth Bank of Australia 5.392% 1/24/97 35,000 34,721
Commonwealth Bank of Australia 5.395% 1/28/97 17,000 16,854
Commonwealth Bank of Australia 5.395% 2/19/97 12,760 12,609
Commonwealth Bank of Australia 5.478% 1/6/97 25,000 24,865
Commonwealth Bank of Australia 5.507% 1/3/97 22,000 21,891
Halifax Building Society 5.488% 1/29/97 25,000 24,779
Halifax Building Society 5.608% 3/13/97 20,000 19,690
National Australia Funding 5.406% 1/7/97 100,000 99,452
National Australia Funding 5.422% 1/6/97 25,000 24,866
SBC Finance Delaware 5.60% 12/27/96 100,000 99,607
Westpac Capital Corp. 5.393% 1/9/97 50,000 49,712
Westpac Capital Corp. 5.467% 1/6/97 25,000 24,865
Westpac Capital Corp. 5.497% 1/3/97 50,000 49,752
------------
944,610
------------
CANADIAN GOVERNMENT--NATIONAL AND
PROVINCIAL (0.6%)
Province of Alberta 5.642% 3/13/97 17,000 16,735
Province of Alberta 5.663% 12/11/96 25,000 24,962
Province of British Columbia 5.497% 2/6/97 10,000 9,900
Province of British Columbia 5.586% 12/23/96 24,409 24,328
Canada Bills 5.709% 3/18/97 13,157 12,940
Ontario Hydro 5.28% 12/30/96 40,000 39,831
------------
128,696
------------
OTHER FOREIGN GOVERNMENT (3.0%)
Caisse D'Amortissement de la Dette 5.373% 1/9/97 29,824 29,652
Caisse D'Amortissement de la Dette 5.377% 1/27/97 40,000 39,663
Caisse D'Amortissement de la Dette 5.383% 1/21/97 50,000 49,624
Caisse D'Amortissement de la Dette 5.56% 3/5/97 40,000 39,433
Caisse D'Amortissement de la Dette 5.578% 2/24/97 10,000 9,871
Caisse D'Amortissement de la Dette 5.708% 3/17/97 33,000 32,461
Caisse D'Amortissement de la Dette 5.741% 2/28/97 24,950 24,605
Caisse des Depots et Consignations 5.261% 12/6/96 100,000 99,927
Caisse des Depots et Consignations 5.287% 12/13/96 50,000 49,912
Caisse des Depots et Consignations 5.364% 2/7/97 50,000 49,500
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Caisse des Depots et Consignations 5.37% 1/29/97 $ 40,000 $ 39,651
Caisse des Depots et Consignations 5.372% 2/19/97 35,000 34,588
Caisse des Depots et Consignations 5.55% 1/16/97 25,000 24,826
KFW International Finance Inc. 5.327% 12/20/96 23,000 22,936
KFW International Finance Inc. 5.36% 1/30/97 40,000 39,646
KFW International Finance Inc. 5.361% 1/31/97 50,000 49,550
Wool International 5.416% 2/5/97 10,000 9,902
Wool International 5.502% 1/22/97 40,000 39,688
------------
685,435
------------
FOREIGN INDUSTRIAL (0.7%)
Glaxo Wellcome 5.363% 1/13/97 9,000 8,943
Glaxo Wellcome 5.388% 1/9/97 14,600 14,516
Glaxo Wellcome 5.39% 1/31/97 7,000 6,937
Glaxo Wellcome 5.392% 1/23/97 17,300 17,164
Glaxo Wellcome 5.393% 1/10/97 17,000 16,900
Glaxo Wellcome 5.393% 1/15/97 16,500 16,390
Glaxo Wellcome 5.403% 1/28/97 16,000 15,863
Glaxo Wellcome 5.49% 1/3/97 25,000 24,876
Unilever Capital 5.287% 12/13/96 50,000 49,912
------------
171,501
------------
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $7,240,764) 7,240,764
- ---------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (17.9%)
- ---------------------------------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--
CANADIAN BRANCHES (0.3%)
ABN AMRO 5.40% 1/13/97 20,000 19,873
ABN AMRO 5.403% 1/7/97 23,000 22,874
ABN AMRO 5.509% 1/6/97 30,000 29,837
------------
72,584
------------
YANKEE CERTIFICATES OF DEPOSIT--
U.S. BRANCHES (17.6%)
ABN AMRO 5.50% 4/16/97 50,000 50,002
ABN AMRO 5.61% 3/26/97 25,000 25,005
ABN AMRO 5.76% 3/17/97 20,000 20,007
Bank of Montreal 5.29% 12/6/96 50,000 50,000
Bank of Montreal 5.39% 1/6/97 50,000 50,000
Bank of Montreal 5.50% 1/2/97 10,100 10,101
Bank of Montreal 5.51% 1/2/97 97,000 97,001
Bank of Nova Scotia 5.36% 2/6/97 50,000 50,000
Bank of Nova Scotia 5.37% 2/7/97 100,000 100,000
Bank of Nova Scotia 5.40% 1/9/97 200,000 200,000
Barclays Bank 5.37% 2/5/97 50,000 50,000
Barclays Bank 5.54% 1/27/97 50,000 50,000
Bayerische Landesbank 5.40% 1/17/97 48,000 48,002
Bayerische Vereinsbank 5.53% 1/23/97 50,000 50,000
Bayerische Vereinsbank 5.53% 1/24/97 50,000 50,000
Caisse Nationale de Credit Agricole 5.36% 1/10/97 200,000 200,000
Caisse Nationale de Credit Agricole 5.54% 2/6/97 70,000 69,999
Caisse Nationale de Credit Agricole 5.70% 2/13/97 50,000 50,000
Canadian Imperial Bank of Commerce 5.313% 12/5/96 50,000 50,000
Canadian Imperial Bank of Commerce 5.40% 1/24/97 75,000 75,000
Canadian Imperial Bank of Commerce 5.41% 1/8/97 100,000 100,000
Canadian Imperial Bank of Commerce 5.415% 1/8/97 50,000 50,001
Chase Manhattan 5.37% 2/24/97 100,000 100,000
Chase Manhattan 5.39% 1/14/97 97,000 97,000
Credit Suisse 5.37% 2/25/97 145,000 145,000
Credit Suisse 5.59% 12/20/96 95,000 95,001
Deutsche Bank 5.30% 12/23/96 125,000 125,000
Deutsche Bank 5.48% 12/31/96 15,000 14,999
Deutsche Bank 5.55% 12/31/96 10,000 10,000
Deutsche Bank 5.78% 3/4/97 150,000 150,000
Dresdner Bank 5.51% 12/3/96 48,000 48,000
Landesbank Hessen-Thueringen 6.03% 6/13/97 50,000 49,996
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Landesbank Hessen-Thueringen 6.05% 6/13/97 $ 50,000 $ 49,992
Landesbank Hessen-Thueringen 6.07% 6/11/97 50,000 49,997
Morgan Guaranty 5.37% 2/6/97 48,000 48,000
Morgan Guaranty 5.50% 2/10/97 50,000 50,000
Morgan Guaranty 5.91% 9/18/97 125,000 124,896
Morgan Guaranty 5.93% 6/6/97 50,000 49,995
National Westminster Bank 5.41% 1/21/97 90,000 90,002
National Westminster Bank 5.42% 2/24/97 75,000 75,008
National Westminster Bank 5.51% 1/30/97 50,000 50,000
National Westminster Bank 5.52% 1/6/97 25,000 25,000
Rabobank Nederlanden 5.53% 2/14/97 25,000 24,999
Rabobank Nederlanden 5.56% 1/14/97 47,000 47,000
Rabobank Nederlanden 5.56% 2/18/97 25,000 25,002
Rabobank Nederlanden 5.56% 4/4/97 30,000 30,002
Rabobank Nederlanden 5.61% 12/20/96 50,000 50,001
Rabobank Nederlanden 5.62% 12/31/96 25,000 25,000
Societe Generale 5.32% 12/2/96 75,000 75,000
Societe Generale 5.37% 1/22/97 100,000 100,000
Societe Generale 5.40% 1/7/97 100,000 100,000
Swiss Bank 5.43% 2/10/97 200,000 200,000
Swiss Bank 5.96% 6/3/97 200,000 200,010
Westdeutsche Landesbank 5.28% 12/31/96 150,000 150,000
Westdeutsche Landesbank 5.76% 1/15/97 100,000 100,029
------------
4,070,047
------------
- ---------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $4,142,631) 4,142,631
- ---------------------------------------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (10.4%)
- ---------------------------------------------------------------------------------------------------------
Abbey National 5.40% 1/21/97 100,000 100,001
Abbey National 5.82% 1/13/97 25,000 25,008
ABN AMRO 5.38% 2/6/97 50,000 50,002
ABN AMRO 5.73% 1/2/97 25,000 25,004
ABN AMRO 5.82% 1/10/97 19,000 19,006
Barclays Bank 4.94% 2/10/97 8,000 7,987
Barclays Bank 5.63% 1/21/97 10,000 10,003
Bayerische Landesbank 5.37% 2/28/97 36,000 36,000
Bayerische Landesbank 5.49% 1/7/97 50,000 50,001
Bayerische Landesbank 5.54% 2/7/97 18,000 18,001
Bayerische Landesbank 5.63% 12/16/96 13,000 13,001
Bayerische Landesbank 5.64% 12/31/96 29,000 29,004
Bayerische Landesbank 5.65% 1/2/97 25,000 25,002
Bayerische Landesbank 5.72% 1/29/97 10,000 10,003
Bayerische Landesbank 5.73% 1/29/97 25,000 25,009
Bayerische Vereinsbank 5.52% 1/3/97 140,000 140,001
Bayerische Vereinsbank 5.56% 2/10/97 64,000 63,994
Bayerische Vereinsbank 5.65% 3/17/97 60,000 59,985
Bayerische Vereinsbank 5.67% 1/9/97 20,000 20,001
Bayerische Vereinsbank 5.70% 2/18/97 50,000 50,010
Canadian Imperial Bank of Commerce 5.40% 1/8/97 21,000 21,000
Deutsche Bank 5.51% 12/4/96 50,000 50,000
Deutsche Bank 5.52% 1/27/97 150,000 150,000
Deutsche Bank 5.56% 1/21/97 97,000 97,001
Dresdner Bank 5.40% 2/14/97 50,000 50,002
Landesbank Hessen-Thueringen 5.38% 2/5/97 50,000 50,002
Landesbank Hessen-Thueringen 5.38% 2/6/97 50,000 50,002
Landesbank Hessen-Thueringen 5.40% 2/3/97 48,000 48,001
Landesbank Hessen-Thueringen 5.46% 12/9/96 50,000 50,000
Landesbank Hessen-Thueringen 5.47% 12/9/96 48,000 48,000
Lloyds Bank 5.37% 1/23/97 30,000 29,999
Morgan Guaranty 5.40% 1/8/97 100,000 100,000
National Westminster Bank 5.52% 12/4/96 18,000 18,000
National Westminster Bank 5.52% 1/3/97 50,000 50,000
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National Westminster Bank 5.53% 1/6/97 48,000 48,001
National Westminster Bank 5.68% 12/17/96 50,000 50,001
Rabobank Nederlanden 5.38% 2/7/97 60,000 60,002
Rabobank Nederlanden 5.51% 1/3/97 25,000 25,000
Rabobank Nederlanden 5.51% 1/7/97 97,000 97,001
Rabobank Nederlanden 5.535% 12/4/96 25,000 25,000
Rabobank Nederlanden 5.555% 1/21/97 18,000 18,001
Rabobank Nederlanden 5.60% 12/5/96 25,000 25,000
Republic Bank of New York 5.42% 1/10/97 15,000 15,000
Toronto Dominion 5.37% 1/27/97 100,000 100,000
Toronto Dominion 5.37% 2/7/97 97,000 97,000
Toronto Dominion 5.50% 1/3/97 100,000 100,000
Westdeutsche Landesbank 5.40% 2/3/97 100,000 100,000
Westdeutsche Landesbank 6.075% 6/11/97 50,000 50,004
- ---------------------------------------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(COST $2,399,040) 2,399,040
- ---------------------------------------------------------------------------------------------------------
BANKERS ACCEPTANCES (0.6%)
- ---------------------------------------------------------------------------------------------------------
U.S. BANKS
SunTrust Bank 5.362% 2/5/97 36,728 36,372
SunTrust Bank 5.383% 1/16/97 40,732 40,456
SunTrust Bank 5.392% 1/10/97 15,215 15,126
Wachovia Bank of Georgia 5.37% 1/27/97 50,000 49,580
- ---------------------------------------------------------------------------------------------------------
TOTAL BANKERS ACCEPTANCES
(COST $141,534) 141,534
- ---------------------------------------------------------------------------------------------------------
OTHER NOTES (2.4%)
- ---------------------------------------------------------------------------------------------------------
Amtrak Trust 5.476% 12/9/96 (1) 76,786 76,786
Bank of America 4.90% 2/12/97 20,000 19,973
Bank of America, Illinois 5.39% 1/15/97 100,000 100,000
Morgan Guaranty 5.95% 6/6/97 50,000 49,988
Morgan SMM 5.425% 12/20/96 (1) 30,000 30,000
SMM Trust 5.375% 12/15/96 (1) 40,000 40,000
Wachovia Bank 5.235% 12/20/96 (1) 200,000 199,870
Wachovia Bank 5.27% 12/13/96 50,000 50,000
- ---------------------------------------------------------------------------------------------------------
TOTAL OTHER NOTES
(COST $566,617) 566,617
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.1%)
- ---------------------------------------------------------------------------------------------------------
Chase Securities
(Collateralized by Federal Home Loan
Mortgage Corp. 7.00%, 8/1/26)
(COST $251,430) 5.32% 12/10/96 251,430 251,430
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.5%)
(COST $23,011,940) 23,011,940
- ---------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.5%)
- ---------------------------------------------------------------------------------------------------------
Other Assets--Note B 211,165
Liabilities (95,063)
------------
116,102
- ---------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $23,128,042
- ---------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AMOUNT
PRIME PORTFOLIO (000)
- ---------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Paid in Capital $23,128,059
Undistributed Net Investment Income --
Accumulated Net Realized Losses (17)
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $23,128,042
=========================================================================================================
Individual Class--Net Assets applicable to 22,217,807,021
outstanding $.001 par value shares (authorized 25,000,000,000 shares) $22,217,803
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INDIVIDUAL CLASS $1.00
=========================================================================================================
Institutional Class--Net Assets applicable to 910,249,634
outstanding $.001 par value shares (authorized 2,000,000,000 shares) $910,239
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL CLASS $1.00
=========================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
(1)Floating Rate Note.
22
<PAGE> 25
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FEDERAL PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (94.9%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank 5.205% 12/24/96 (1) $ 50,000 $ 49,964
Federal Home Loan Bank 5.215% 12/4/96 (1) 50,000 49,985
Federal Home Loan Bank 5.289% 1/30/97 25,000 24,783
Federal Home Loan Bank 5.296% 1/2/97 13,000 12,940
Federal Home Loan Bank 5.30% 2/20/97 (1) 50,000 49,977
Federal Home Loan Bank 5.352% 1/22/97 4,030 3,999
Federal Home Loan Bank 5.404% 12/3/96 15,000 14,996
Federal Home Loan Bank 5.595% 4/16/97 25,000 24,973
Federal Home Loan Bank 5.87% 6/27/97 25,000 24,983
Federal Home Loan Mortgage Corp. 5.238% 12/23/96 69,000 68,780
Federal Home Loan Mortgage Corp. 5.242% 12/19/96 67,248 67,072
Federal Home Loan Mortgage Corp. 5.289% 1/9/97 2,034 2,022
Federal Home Loan Mortgage Corp. 5.289% 2/7/97 25,000 24,754
Federal Home Loan Mortgage Corp. 5.289% 2/28/97 23,961 23,652
Federal Home Loan Mortgage Corp. 5.292% 2/10/97 82,000 81,155
Federal Home Loan Mortgage Corp. 5.294% 2/4/97 25,000 24,764
Federal Home Loan Mortgage Corp. 5.294% 2/11/97 123,560 122,270
Federal Home Loan Mortgage Corp. 5.30% 1/7/97 26,000 25,860
Federal Home Loan Mortgage Corp. 5.301% 1/16/97 49,000 48,673
Federal Home Loan Mortgage Corp. 5.302% 1/6/97 35,747 35,560
Federal Home Loan Mortgage Corp. 5.331% 1/3/97 7,161 7,126
Federal Home Loan Mortgage Corp. 5.341% 1/2/97 25,000 24,883
Federal Home Loan Mortgage Corp. 5.403% 12/2/96 17,136 17,133
Federal Home Loan Mortgage Corp. 5.485% 12/4/96 50,000 49,977
Federal Home Loan Mortgage Corp. 5.728% 6/6/97 50,000 49,949
Federal Home Loan Mortgage Corp. 5.89% 6/20/97 25,000 24,992
Federal National Mortgage Assn. 5.195% 12/4/96 (1) 100,000 99,919
Federal National Mortgage Assn. 5.215% 12/29/96 (1) 113,000 112,953
Federal National Mortgage Assn. 5.23% 12/15/96 (1) 50,000 49,975
Federal National Mortgage Assn. 5.234% 12/24/96 71,000 70,764
Federal National Mortgage Assn. 5.253% 12/20/96 80,000 79,779
Federal National Mortgage Assn. 5.257% 1/27/97 48,900 48,497
Federal National Mortgage Assn. 5.289% 2/12/97 2,850 2,820
Federal National Mortgage Assn. 5.29% 2/7/97 25,000 24,754
Federal National Mortgage Assn. 5.292% 2/10/97 100,685 99,648
Federal National Mortgage Assn. 5.294% 1/23/97 100,000 99,232
Federal National Mortgage Assn. 5.301% 1/29/97 50,000 49,571
Federal National Mortgage Assn. 5.303% 1/28/97 112,850 111,901
Federal National Mortgage Assn. 5.304% 1/22/97 110,000 109,169
Federal National Mortgage Assn. 5.308% 2/18/97 77,100 76,216
Federal National Mortgage Assn. 5.315% 1/16/97 86,130 85,553
Federal National Mortgage Assn. 5.32% 2/6/97 (1) 50,000 49,973
Federal National Mortgage Assn. 5.32% 2/14/97 (1) 100,000 99,926
Federal National Mortgage Assn. 5.32% 2/25/97 (1) 25,000 24,981
Federal National Mortgage Assn. 5.334% 1/3/97 85,000 84,590
Federal National Mortgage Assn. 5.344% 1/6/97 50,000 49,737
Federal National Mortgage Assn. 5.345% 1/7/97 81,385 80,944
Federal National Mortgage Assn. 5.351% 1/16/97 (1) 100,000 99,932
Federal National Mortgage Assn. 5.352% 1/13/97 50,000 49,686
Federal National Mortgage Assn. 5.358% 1/30/97 50,000 49,562
Federal National Mortgage Assn. 5.445% 12/13/96 (1) 50,000 49,990
Federal National Mortgage Assn. 5.476% 12/9/96 (1) 50,000 49,968
Federal National Mortgage Assn. 5.656% 3/24/97 40,000 39,309
Federal National Mortgage Assn. 5.765% 6/20/97 49,400 49,336
Overseas Private Investment Corp. 5.481% 1/15/97 (1) 20,500 20,500
Overseas Private Investment Corp. 5.54% 12/31/96 (1) 5,000 5,000
Overseas Private Investment Corp. 5.56% 12/31/96 (1) 1,000 1,000
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FEDERAL PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas Private Investment Corp. 5.575% 12/18/96 (1) $ 30,625 $ 30,625
Overseas Private Investment Corp. 5.64% 12/3/96 (1) 15,000 15,000
Overseas Private Investment Corp. 5.71% 12/3/96 (1) 17,300 17,300
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $2,943,332) 2,943,332
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (4.9%)
- ---------------------------------------------------------------------------------------------------------
Greenwich Capital
(Collateralized by U.S. Treasury Bonds
10.625%-13.875%, 5/15/11-8/15/15)
(COST $150,000) 5.72% 12/2/96 150,000 150,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $3,093,332) 3,093,332
- ---------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- ---------------------------------------------------------------------------------------------------------
Other Assets--Note B 19,967
Liabilities (12,818)
------------
7,149
- ---------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------------------------
Applicable to 3,100,543,260 outstanding $.001 par value shares
(authorized 5,000,000,000 shares) $3,100,481
=========================================================================================================
NET ASSET VALUE PER SHARE $1.00
=========================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
(1)Floating Rate Note.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,100,573 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (92) --
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $3,100,481 $1.00
=========================================================================================================
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
U.S. TREASURY PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (95.2%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bill 5.104% 1/16/97 $ 3,931 $ 3,906
U.S. Treasury Bill 5.11% 2/6/97 260,819 258,348
U.S. Treasury Bill 5.17% 1/9/97 1,633 1,624
U.S. Treasury Bill 5.26% 12/19/96 804,288 802,216
U.S. Treasury Note 4.75% 2/15/97 314,229 313,725
U.S. Treasury Note 6.50% 4/30/97 35,000 35,191
U.S. Treasury Note 6.875% 2/28/97 772,396 775,296
U.S. Treasury Note 7.50% 12/31/96 167,201 167,486
U.S. Treasury Note 7.50% 1/31/97 234,179 234,951
U.S. Treasury Note 8.00% 1/15/97 182,000 182,543
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $2,775,286) 2,775,286
- ---------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (4.8%)
- ---------------------------------------------------------------------------------------------------------
Receivables for Securities Sold 313,426
Other Assets--Note B 57,163
Payables for Securities Purchased (216,431)
Other Liabilities (12,914)
------------
141,244
- ---------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------------------------
Applicable to 2,916,630,072 outstanding $.001 par value shares
(authorized 5,000,000,000 shares) $2,916,530
=========================================================================================================
NET ASSET VALUE PER SHARE $1.00
=========================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AT NOVEMBER 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $2,916,650 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (120) --
- ---------------------------------------------------------------------------------------------------------
NET ASSETS $2,916,530 $1.00
=========================================================================================================
</TABLE>
25
<PAGE> 28
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. The Prime
Portfolio also reports the breakdown of expenses charged to each class of its
shares. Expenses directly reduce the amount of investment income available to
pay to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and any Unrealized Appreciation
(Depreciation) on investments during the period. Realized Net Gain (Loss)
should always be minimal, and Unrealized Appreciation (Depreciation) should be
zero, for money market portfolios.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1996
----------------------------------------------
PRIME FEDERAL U.S. TREASURY
PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $1,155,617 $154,009 $148,220
----------------------------------------------
Total Income 1,155,617 154,009 148,220
----------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 2,557 343 338
Management and Administrative 21,196 3,717 4,181
Shareholder Account Maintenance(1) 32,783 3,724 3,198
Marketing and Distribution(1) 6,128 823 819
Custodian Fees 643 73 63
Taxes (other than income taxes) 1,400 185 189
Auditing Fees 23 9 9
Shareholders' Reports(1) 625 112 91
Annual Meeting and Proxy Costs(1) 291 40 36
Directors' Fees and Expenses 66 9 9
----------------------------------------------
Total Expenses 65,712 9,035 8,933
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,089,905 144,974 139,287
- --------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT SECURITIES SOLD (105) (164) (340)
- --------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES -- -- --
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,089,800 $144,810 $138,947
========================================================================================================
</TABLE>
(1)Expenses of the Prime Portfolio by Class are:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(000)
----------------------------------------------
INDIVIDUAL INSTITUTIONAL
CLASS CLASS TOTAL
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class-Specific Expenses:
Shareholder Account Maintenance $32,757 $ 26 $32,783
Marketing and Distribution 5,919 209 6,128
Shareholders' Reports 625 -- 625
Annual Meeting and Proxy Costs 291 -- 291
----------------------------------------------
Total Class-Specific Expenses 39,592 235 39,827
All Other Portfolio Expenses 24,798 1,087 25,885
- --------------------------------------------------------------------------------------------------------
Total Expenses $64,390 $1,322 $65,712
========================================================================================================
</TABLE>
See Note C in Notes to Financial Statements.
26
<PAGE> 29
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes
information that is detailed in the Statement of Operations. Because the
Portfolio distributes its income to shareholders each day, the amounts of
Dividends from Net Investment Income generally equal the net income earned as
shown under the Operations section. The Capital Share Transactions section
shows the amount shareholders invested in the Portfolio, either by purchasing
shares or by reinvesting distributions, and the amounts redeemed. The Prime
Portfolio-Individual and -Institutional shares' Distributions and Capital Share
Transactions are shown separately.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRIME PORTFOLIO
--------------------------------
YEAR ENDED NOVEMBER 30,
--------------------------------
1996 1995
(000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,089,905 $ 968,085
Realized Net Gain (Loss) (105) (95)
Unrealized Appreciation (Depreciation) -- --
----------------------------------
Net Increase in Net Assets Resulting from Operations 1,089,800 967,990
----------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Individual Class (1,042,723) (963,945)
Institutional Class (47,182) (4,140)
----------------------------------
Total Dividends (1,089,905) (968,085)
----------------------------------
CAPITAL SHARE TRANSACTIONS--INDIVIDUAL CLASS (AT $1.00)
Issued 25,059,503 20,415,125
Issued in Lieu of Cash Distributions 995,998 920,077
Redeemed (22,601,499) (17,679,924)
----------------------------------
Net Increase--Individual Class 3,454,002 3,655,278
----------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL CLASS (AT $1.00)
Issued 549,247 78,717
Issued in Lieu of Cash Distributions 43,406 6,578
Issued in Exchange for Net Assets of Vanguard
Institutional Money Market Portfolio--Note D -- 734,329
----------------------------------
Redeemed (475,358) (26,674)
Net Increase--Institutional Class 117,295 792,950
- ------------------------------------------------------------------------------------------------------------------
Total Increase 3,571,192 4,448,133
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 19,556,850 15,108,717
----------------------------------
End of Year $23,128,042 $19,556,850
==================================================================================================================
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- -------------------------------------------------------------------------------------------------------------------------
FEDERAL PORTFOLIO U.S. TREASURY PORTFOLIO
----------------------------- ------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
1996 1995 1996 1995
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 144,974 $ 134,601 $ 139,287 $ 122,920
Realized Net Gain (Loss) (164) (5) (340) 47
Unrealized Appreciation (Depreciation) -- -- -- --
---------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 144,810 134,596 138,947 122,967
---------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME (144,974) (134,601) (139,287) (122,920)
---------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (AT $1.00)
Issued 2,485,267 2,174,887 3,440,062 2,714,966
Issued in Lieu of Cash Distributions 139,177 128,608 132,823 117,383
Redeemed (2,160,404) (1,863,309) (3,183,441) (2,361,027)
---------------------------------------------------------------
Net Increase from Capital Share Transactions 464,040 440,186 389,444 471,322
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 463,876 440,181 389,104 471,369
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 2,636,605 2,196,424 2,527,426 2,056,057
---------------------------------------------------------------
End of Year $3,100,481 $2,636,605 $2,916,530 $2,527,426
=========================================================================================================================
</TABLE>
28
<PAGE> 31
FINANCIAL HIGHLIGHTS
Each Portfolio's objective is to maintain a constant NAV of $1.00 per share by
distributing all of its income and avoiding capital gains or losses. The
financial highlights table summarizes each Portfolio's investment results and
distributions to shareholders on a per-share basis; the Prime
Portfolio-Individual and -Institutional shares' results are shown separately.
The table also presents the Total Return and shows net investment income and
expenses as percentages of average net assets for each Portfolio or class of
shares. These data will help you assess the variability of net income returns
from year to year and how much it costs to operate the Portfolio.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRIME PORTFOLIO-INDIVIDUAL CLASS
YEAR ENDED NOVEMBER 30,
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .052 .057 .038 .030 .038
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
------------------------------------------------
Total from Investment Operations .052 .057 .038 .030 .038
------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.052) (.057) (.038) (.030) (.038)
Distributions from Realized Capital Gains -- -- -- -- --
------------------------------------------------
Total Distributions (.052) (.057) (.038) (.030) (.038)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
==========================================================================================================================
TOTAL RETURN 5.31% 5.82% 3.87% 3.02% 3.89%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $22,218 $18,764 $15,109 $12,367 $12,638
Ratio of Total Expenses to Average Net Assets 0.32% 0.32% 0.32% 0.32% 0.30%
Ratio of Net Investment Income to Average Net Assets 5.18% 5.64% 3.84% 2.98% 3.82%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRIME PORTFOLIO-INSTITUTIONAL CLASS
YEAR ENDED OCT. 28* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD NOV. 30, 1996 NOV. 30, 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .054 .005
Net Realized and Unrealized Gain (Loss)
on Investments -- --
-------------------------------
Total from Investment Operations .054 .005
-------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.054) (.005)
Distributions from Realized Capital Gains -- --
-------------------------------
Total Distributions (.054) (.005)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 5.49% 0.53%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $910 $793
Ratio of Total Expenses to Average Net Assets 0.15% 0.15%**
Ratio of Net Investment Income to
Average Net Assets 5.35% 5.65%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*See Note D in Notes to Financial Statements.
**Annualized.
29
<PAGE> 32
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FEDERAL PORTFOLIO
YEAR ENDED NOVEMBER 30,
-----------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .051 .056 .038 .029 .038
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-----------------------------------------------
Total from Investment Operations .051 .056 .038 .029 .038
-----------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.051) (.056) (.038) (.029) (.038)
Distributions from Realized Capital Gains -- -- -- -- --
-----------------------------------------------
Total Distributions (.051) (.056) (.038) (.029) (.038)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 5.26% 5.77% 3.82% 2.98% 3.83%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $3,100 $2,637 $2,196 $1,907 $1,986
Ratio of Total Expenses to Average Net Assets 0.32% 0.32% 0.32% 0.32% 0.30%
Ratio of Net Investment Income to Average Net Assets 5.13% 5.61% 3.78% 2.94% 3.76%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY PORTFOLIO
YEAR ENDED NOVEMBER 30,
-----------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .050 .053 .036 .028 .036
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-----------------------------------------------
Total from Investment Operations .050 .053 .036 .028 .036
-----------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.050) (.053) (.036) (.028) (.036)
Distributions from Realized Capital Gains -- -- -- -- --
-----------------------------------------------
Total Distributions (.050) (.053) (.036) (.028) (.036)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 5.11% 5.47% 3.63% 2.86% 3.68%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $2,917 $2,527 $2,056 $1,751 $2,321
Ratio of Total Expenses to Average Net Assets 0.32% 0.32% 0.32% 0.32% 0.30%
Ratio of Net Investment Income to Average Net Assets 4.99% 5.33% 3.59% 2.83% 3.60%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
Vanguard Money Market Reserves is registered under the Investment Company Act
of 1940 as a diversified open-end investment company, or mutual fund, and
comprises the Prime, Federal, and U.S. Treasury Portfolios. The Prime Portfolio
invests in short-term debt instruments of companies primarily operating in
specific industries; the issuers' abilities to meet their obligations may be
affected by economic developments in such industries. The Federal Portfolio
invests in short-term debt instruments issued by the U.S. government or its
agencies and instrumentalities. The U.S. Treasury Portfolio invests in
short-term debt instruments backed by the full faith and credit of the U.S.
government.
A. The following significant accounting policies conform with generally
accepted accounting principles for mutual funds. The Fund consistently follows
such policies in preparing its financial statements.
1. SECURITY VALUATION: Securities are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold. Discounts and premiums are accreted and amortized,
respectively, to interest income over the lives of the respective securities.
Distributions from net investment income are declared daily and paid on the
first business day of the following month.
4. REPURCHASE AGREEMENTS: Securities pledged as collateral for repurchase
agreements are held by a custodian bank until the agreements mature. Each
agreement requires that the market value of the collateral be sufficient to
cover payments of interest and principal; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, shareholder accounting, marketing, and distribution
services. The costs of such services are allocated to the Fund under methods
approved by the Board of Directors. At November 30, 1996, the Fund had
contributed capital of $2,656,000 to Vanguard (included in Other Assets),
representing 13.3% of Vanguard's capitalization. The Fund's directors and
officers are also directors and officers of Vanguard.
C. The Prime Portfolio offers two classes of shares, the Individual Class and
the Institutional Class. Institutional shares are designed primarily for
institutional investors that meet certain administrative and servicing criteria
and have a minimum investment of $10 million. Individual shares are offered to
all other investors. Both classes of shares have equal rights as to assets and
earnings, except that each class bears certain class-specific expenses related
to its shareholder activity.
D. In accordance with the terms of an agreement approved by the shareholders
of Vanguard Institutional Money Market Portfolio (the "Portfolio"), on October
27, 1995, the Prime Portfolio issued 734,329,000 of its Institutional Class
shares in exchange for the net assets of the Portfolio of $734,329,000;
combined net assets were $19,180,185,000 as of the merger date. Shareholders of
the Portfolio received 1.000 Prime Portfolio-Institutional Class share for each
share of the Portfolio. This tax-free exchange was accounted for by combining
the assets and liabilities of the Prime Portfolio and the Portfolio at their
values on the date of the merger. The identified cost of investments were
similarly combined.
E. On November 19, 1996, shareholders of the U.S. Treasury Portfolio voted to
approve its reorganization into the Treasury Money Market Portfolio of Vanguard
Treasury Fund, a newly created Delaware business trust, effective December 2,
1996.
31
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Vanguard Money Market Reserves
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Prime Portfolio, Federal Portfolio, and U.S. Treasury Portfolio
(constituting Vanguard Money Market Reserves, hereafter referred to as the
"Fund") at November 30, 1996, and the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 1996 by correspondence with the
custodian and the application of alternative auditing procedures, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
December 31, 1996
All comparative mutual fund data are from Lipper Analytical Services, Inc. or
Morningstar unless otherwise noted.
32
<PAGE> 35
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer, and Director of
The Vanguard Group, Inc. and of each of the investment companies in
The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and Director of Rhone-Poulenc Rorer Inc.;
Director of Sun Company, Inc. and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and
Massa-chusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corp., Baker Fentress & Co., The Jeffrey Co., and Southern New
England Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co.,
and The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co.
and President of New York University; Director of Pacific Gas and
Electric Co., Procter & Gamble Co., and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
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; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Principal of The Vanguard Group, Inc.; Controller of
each of the investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President,
Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President,
Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[THE VANGUARD GROUP LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
[email protected] http://www.vanguard.com
All Vanguard Funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses may
be obtained directly from The Vanguard Group.
(C) 1996 Vanguard Marketing Corporation, Distributor
<PAGE> 36
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees- Equity-U.S. Portfolio
Vanguard Convertible Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
Vanguard/Trustees- Equity-International
Portfolio
INDEX FUNDS
Vanguard Index Trust
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Vanguard International Equity Index Fund
Vanguard Total International Portfolio
FIXED-INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Funds
INCOME FUNDS
Vanguard Fixed Income Securities Fund
Vanguard Admiral Funds
Vanguard Preferred Stock Fund
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q300-11/96
