<PAGE> 1
VANGUARD MONEY
MARKET RESERVES
VANGUARD TREASURY MONEY
MARKET PORTFOLIO
Semiannual Report - May 31, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 7,000 highly motivated
men and women--who form the cornerstone of our operations. We could not survive
long--let alone prosper--without them. That's why we chose this fiscal year's
fund reports to celebrate the spirit, enthusiasm, and achievements of our crew.
(We call those who work at Vanguard crew members, not employees, because they
operate as a team to accomplish our mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving you
in the years ahead.
[PHOTO] [PHOTO]
John C. Bogle John J. Brennan
Senior Chairman Chairman & CEO
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS .............................. 1
THE MARKETS IN PERSPECTIVE ................................. 5
REPORT FROM THE ADVISER .................................... 7
PERFORMANCE SUMMARIES ...................................... 9
PORTFOLIO PROFILES ......................................... 12
FINANCIAL STATEMENTS ....................................... 15
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
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FELLOW SHAREHOLDER,
Cash was kind to short-term investors during the six months ended May 31,
1998, the first half of the fiscal year for Vanguard Money Market Reserves and
Vanguard Treasury Money Market Portfolio. The total return of our Prime
Portfolio-Investor Shares during the period was up +2.7%, bringing its return
over the past twelve months to +5.5%. Considering the remarkably slim rise in
consumer prices (0.8% for the half-year and 1.7% for the year), our "real," or
inflation-adjusted, return was a generous +1.9% for the six months and +3.8% for
the past year.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1998
------------------------------------------------------
TWELVE MONTHS SIX MONTHS
-------------------------- -------------------------
AVERAGE AVERAGE
VANGUARD COMPETING VANGUARD COMPETING
PORTFOLIO FUND PORTFOLIO FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime +5.5% +5.0% +2.7% +2.4%
Federal +5.4 +5.0 +2.7 +2.5
Treasury Money Market +5.2 +4.9 +2.5 +2.4
- -----------------------------------------------------------------------------------------------
Prime-Institutional Shares* +5.7% +5.4% +2.8% +2.7%
- -----------------------------------------------------------------------------------------------
</TABLE>
*Minimum initial investment is $10 million.
The table at right presents the total half-year return for each of our
Portfolios and for the average competing money market fund. Each Portfolio
provided what we call the "Vanguard Advantage," an edge over its average
competitor that results from our disciplined focus on high-quality security
selection at the lowest reasonable cost. Our cost advantage amounts to roughly
0.5 percentage point a year in net yield for Prime Portfolio shareholders. The
share price of each Portfolio held steady at $1 throughout the period, as is
expected but not guaranteed.
THE PERIOD IN REVIEW
The U.S. economy kept growing at a robust pace, inflation remained tame, and
interest rates declined on balance during the six months ended May 31. Consumer
spending, fueled by plentiful jobs and rising wages, was the engine powering the
economy. Stock prices advanced strongly through the first five months of the
period, then retreated a bit during May. Large-capitalization stocks were the
strongest performers, and the large-cap-dominated Standard & Poor's 500
Composite Stock Price Index earned +15.1%, more than double the +6.5% return of
the small-cap Russell 2000 Index.
Bond investors also enjoyed solid returns during the six months. The
Lehman Brothers Aggregate Bond Index, a good measure of the overall taxable bond
market, returned +4.1%. Long-term bonds, which benefited more than other bonds
from declining interest rates, did even better: the Lehman Long Corporate AA or
Better Bond Index returned +5.6%.
Yields on long-term U.S. Treasury bonds declined on balance during the
half-year by approximately 25 to 30 basis points (0.25 to 0.30 percentage
point). The yield on the 30-year Treasury bond ended the period at 5.80%, down
from 6.05% on November 30, 1997, while rates on 3-month T-bills declined by 19
basis points, from 5.20% to 5.01%. The rate decline stemmed from the remarkably
good inflation news and a conviction among market participants that one
consequence of Asia's continuing economic crisis would be to keep a lid on
inflation and interest rates in the United States. The Federal Reserve Board
left the federal funds rate unchanged throughout the period.
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Short-term interest rates fluctuated within a narrow range, with the yield
on 3-month U.S. Treasury bills peaking at 5.47% on December 23, 1997, and
striking a low of 4.97% on April 30. The annualized seven-day yield provided by
each of our Portfolios (see the table at left) was slightly lower at the end of
the half-year than at the start.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNUALIZED 7-DAY YIELD
--------------------------------------------
MAY 31, NOV.30, MAY 31,
PORTFOLIO 1998 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime 5.31% 5.40% 5.34%
Federal 5.24 5.33 5.27
Treasury Money Market 4.95 5.05 5.02
- --------------------------------------------------------------------------------
Prime-Institutional Shares 5.49% 5.57% 5.51%
- --------------------------------------------------------------------------------
</TABLE>
IN SUMMARY
Money market funds have been overshadowed in recent years by the long-term bull
market in stocks and bonds. Yet through this ebullient period, the short-term
end of the investing spectrum has quietly and consistently assisted investors
toward two primary goals: finding superior savings yields over time; and seeking
safety, liquidity, and current income as part of a balanced investment program
that also includes stocks and bonds. Such a balanced portfolio should help
investors to "stay the course" toward their investment objectives, whether the
financial markets provide smooth or stormy sailing.
We look forward to providing you with more details on the Portfolios'
results in our annual report six months from now.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
June 15, 1998
2
<PAGE> 5
Notice to Shareholders
At a special meeting on May 29, 1998, shareholders of Vanguard Money Market
Reserves and Vanguard Treasury Fund (the parent Fund of Vanguard Treasury
Money Market Portfolio) voted on a number of proposals. The proposals and
voting results were:
1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. This change will reduce
the amount of state taxes the Portfolios of Vanguard Money Market Reserves
pay annually by nearly $2.2 million. Approved by 97.03% of the Prime
Portfolio shares voted and by 97.27% of the Federal Portfolio shares voted,
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------
<S> <C> <C> <C>
Prime 16,162,658,262 156,442,099 338,917,755
- -------------------------------------------------------------------------
Federal 2,012,361,597 22,335,546 34,067,400
- -------------------------------------------------------------------------
</TABLE>
(Vanguard Treasury Fund already was organized as a Delaware business trust,
so it did not participate in the reorganization proposal.)
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This change
permits Vanguard Money Market Reserves to participate in Vanguard's
interfund lending program, which allows funds to loan money to each other
if--and only if--it makes good financial sense to do so on both sides of the
transaction. The interfund lending program won't be an integral part of your
Portfolios' investment program; it is a contingency arrangement for managing
unusual cash flows. Approved by 93.66% of the Prime Portfolio shares voted
and by 92.80% of the Federal Portfolio shares voted, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------
<S> <C> <C> <C>
Prime 15,601,733,286 594,885,833 461,398,996
- -------------------------------------------------------------------------
Federal 1,919,806,205 94,955,179 54,003,159
- -------------------------------------------------------------------------
</TABLE>
(Vanguard Treasury Fund already has this capability, so it did not participate
in the interfund lending program proposal.)
2b. INVESTMENT LIMITATION CHANGES--BORROWING MONEY AND PLEDGING ASSETS. This
change sets standard limits of 15% of net assets on the amount of money
Vanguard Money Market Reserves and Vanguard Treasury Fund can borrow from
all sources as well as limits of 15% on the amount of assets that can be
pledged to secure any loans. Approved by 92.34% of the Prime Portfolio
shares voted, 91.22% of the Federal Portfolio shares voted, and 89.51% of
the Treasury Fund shares voted, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
For Against Abstain
--------------------------------------------------------
<S> <C> <C> <C>
Prime 15,382,637,913 743,832,621 531,547,582
- -------------------------------------------------------------------------
Federal 1,887,212,278 113,157,500 68,394,766
- -------------------------------------------------------------------------
Treasury 1,809,619,706 141,267,394 70,801,975
- -------------------------------------------------------------------------
</TABLE>
(continued on next page)
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2c. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN SECURITIES OWNED BY
AFFILIATES. This change, applicable only to Vanguard Money Market Reserves,
eliminates its policy of avoiding investments in securities issued by
companies whose securities are owned in certain amounts by directors,
officers, and key advisory personnel. Approved by 92.17% of the Prime
Portfolio shares voted and by 91.25% of the Federal Portfolio shares voted,
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------
<S> <C> <C> <C>
Prime 15,353,895,326 791,583,694 512,539,095
- -------------------------------------------------------------------------
Federal 1,887,828,848 113,260,275 67,675,421
- -------------------------------------------------------------------------
</TABLE>
2f. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN A SINGLE ISSUER'S
SECURITIES. This change eliminates a policy applicable to both Vanguard
Money Market Reserves and Vanguard Treasury Fund of not holding more than
10% of an issuer's securities. Approved by 92.27% of the Prime Portfolio
shares voted, 91.61% of the Federal Portfolio shares voted, and 90.34% of
the Treasury Fund shares voted, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------
<S> <C> <C> <C>
Prime 15,369,913,054 726,713,523 561,391,537
- -------------------------------------------------------------------------
Federal 1,895,142,305 102,167,597 71,454,642
- -------------------------------------------------------------------------
Treasury 1,826,438,951 116,239,763 79,010,361
- -------------------------------------------------------------------------
</TABLE>
3. SWITCH TO DOLLAR-BASED VOTING RIGHTS. This change, applicable only to
Vanguard Treasury Fund, provides for the same type of voting rights that all
other Vanguard funds have proposed to offer their shareholders after
reorganizing into Delaware business trust form. (Vanguard Treasury Fund already
is a Delaware business trust.) Approved by 92.94% of the shares voted as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------------------
<S> <C> <C> <C>
Treasury 1,879,024,410 75,402,563 67,262,104
- ----------------------------------------------------------------------
</TABLE>
4
<PAGE> 7
THE MARKETS IN PERSPECTIVE
Six Months Ended May 31, 1998
The U.S. financial markets turned in another excellent performance during
the half-year ended May 31. The stock market's gains would have been
good even for a full year, and the bond market chalked up solid returns.
Consumer spending was the economy's locomotive. Americans spent freely on
houses, automobiles, and just about everything else. Their spirits were buoyed
by a very strong job market--the nation's unemployment rate was 4.3% in May,
tying a 28-year low--and by higher wages (average hourly earnings in May were
4.3% higher than a year before). Growth in the consumer sector, which accounts
for two-thirds of all economic activity, was more than enough to offset the
negative effects of Asia's financial and economic crisis. A strong rise in the
value of the U.S. dollar since mid-1997 in relation to most Asian currencies
has cut into U.S. exports to Asia while lowering the cost of Asian goods for
American buyers. The upshot is intensifying competition for U.S. companies,
some of which have blamed the Asian crisis for reduced profits.
The silver lining in the Asian cloud is that, by offsetting some of the
strength elsewhere in the U.S. economy, it has reduced inflationary pressures.
Ordinarily, low unemployment, rising wages, and a rapidly growing economy might
be expected to push up consumer prices. But thanks in part to lower-priced Asian
imports, inflation has been remarkably well behaved--the Consumer Price Index
rose just 0.8% during the six months ended May 31. Benign inflation and a
conviction that the Asian situation will keep the Federal Reserve Board from
raising interest rates anytime soon allowed interest rates to decline.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 1998
-----------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 15.1% 30.7% 22.2%
Russell 2000 Index 6.5 21.2 16.1
MSCI EAFE Index 16.2 11.4 9.8
- ---------------------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 4.1% 10.9% 7.1%
Lehman 10-Year Municipal Bond Index 3.8 9.3 6.9
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.7 5.3 4.9
- ---------------------------------------------------------------------------------------
OTHER
Consumer Price Index 0.8% 1.7% 2.5%
- ---------------------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. EQUITY MARKETS
Stock prices rose in each of the first five months of the period before
declining in May. Gains were largest for large-capitalization stocks. The S&P
500 Index, which is dominated by large-cap stocks, earned a total return of
15.1%, while the rest of the stock market, as measured by the Wilshire 4500
Equity Index, returned 10.4%. The Russell 2000 Index, focusing on small-cap
stocks, gained 6.5%.
Stock prices were supported by declining interest rates and the
surprisingly low inflation rate, which led to an expansion of price/earnings
multiples investors were willing to pay for stocks. The news on corporate
earnings, another key fundamental in stock valuation, was not so positive.
Corporate earnings in the January-March quarter were up by less than 5% from the
previous year, and securities analysts steadily reduced their estimates
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<PAGE> 8
of earnings for the full year. Concern about meager growth in profits--partly
because of increased competition from Asia--was a factor in the stock market's
decline from record highs set in late April.
The consumer spending boom was reflected in the stock market's
performance. The best-performing sector was auto & transportation stocks. This
segment of the S&P 500 Index earned 28.6% for the six months. The consumer
discretionary sector, which makes up 10% of the Index, was up 23.0% for the
half-year, and health-care stocks, which make up nearly 12% of the S&P 500,
gained 22.2%. Lower oil prices were to blame for the two weakest
sectors--integrated oil companies (up 8.2%) and the "other energy" group (down
6.3%).
U.S. FIXED-INCOME MARKETS
The decline in interest rates during the period meant that bond investors saw
modest price increases along with their interest income. The Lehman Brothers
Aggregate Bond Index, a yardstick for the overall taxable bond market, earned
4.1%, bringing its return over the past 12 months to 10.9%, a superb
inflation-adjusted return of 9.2%. Bonds benefited from both an easing of
inflation fears and, reportedly, from a "flight to quality" by Asian investors
who some analysts believe bought U.S. Treasury securities to protect themselves
from further declines in their currencies versus the U.S. dollar.
The rate decline was more pronounced for longer-term bonds. While yields
on 3-month Treasury bills declined 19 basis points (0.19 percentage point)
during the half-year, yields on 10- and 30-year Treasuries fell by 32 and 25
basis points, respectively, to 5.55% and 5.80%. The flattening of the yield
curve during the period signaled that market participants expect interest rates
to remain stable or to decline further. No one knows whether that expectation
will prove correct, but investors certainly are being paid very little to bear
the higher risk of price fluctuations that comes with longer-term bonds. As of
May 31, the yield on 10-year Treasuries was only 2 basis points higher than the
5.53% yield on 3-year Treasuries, even though the price of a 10-year note is
three times more sensitive to changes in interest rates than that of a 3-year
note.
INTERNATIONAL EQUITY MARKETS
Europe's stock markets made Wall Street's bull market look like a mere calf
during the first half of the fiscal year, while Asian markets slumped under the
weight of falling currencies and weakening economic activity. Overall, the
Morgan Stanley Capital International Europe, Australasia, Far East Index rose
16.2% in U.S. dollar terms. Its European component was up a remarkable 29.7% in
U.S. dollar terms and an even-stronger 32.7% in local currencies. A
strengthening in the dollar versus other currencies slightly cut returns for
American investors.
Several factors were credited for Europe's bull market, including a
recovery in economic activity across the continent and an increase in U.S.-style
efforts to boost shareholder value, including share repurchases, corporate
restructurings, and mergers. In addition, investors seemed pleased at the smooth
progress toward the January 1, 1999, adoption by 11 countries of a common
currency, the euro.
In the Pacific, stock markets were, on balance, down 2.7% in
local-currency terms. But a weakening of the Japanese yen and several other
currencies versus the U.S. dollar resulted in a decline of 9.9% in U.S. dollar
terms. Japan, the dominant Pacific Rim economy and stock market, officially
acknowledged that its economy had fallen into a recession. A number of
investors, analysts, and others criticized the Japanese government for being
slow to adopt economic reforms and other measures to spur business activity.
6
<PAGE> 9
REPORT FROM THE ADVISER
In the fiscal half-year that ended May 31, money market interest rates
trended mildly lower. Annualized returns to investors in the Prime and Federal
Portfolios of Vanguard Money Market Reserves and in Vanguard Treasury Money
Market Portfolio were clustered around 5%, with the Prime Portfolio at the high
end and the Federal and Treasury Portfolios slightly lower because of their
focus on government securities. For more information about returns, see the
Message to Shareholders beginning on page 1.
The stability of money market returns at or near these levels since late
1994 is somewhat anomalous. For most of the past 20 years, money market returns
have moved in a wide range--from a high of nearly 20% in the early 1980s to a
low of 3% in the early 1990s. This "income risk"--the variation in yield over
time--is the flip side of the stable principal value that comes from short-term
investments. Money market returns are probably overdue for a major shift,
although it's difficult to predict with any precision the timing of such a move.
Nevertheless, investors should be aware that 5% money market returns will not
prevail forever.
Underneath the seeming calm of short-term markets, there is a delicate
balance of strong and opposing forces. Domestically, the economy is in rare
form. Solid job growth, gains in real wages, and booming volume in housing
markets are some of the more visible signs of this vigor. The most surprising
feature of the economic landscape at this stage of the expansion is the
declining level of inflation. History tells us that this is the time in the
business cycle when resource constraints should be boosting prices for goods and
services. Recent productivity improvements, although notoriously difficult to
quantify in a service economy, are probably partly responsible for the benign
price movements. Another set of countervailing forces is coming from the
financial crisis in Asia. Recent currency devaluations have lowered somewhat the
price of goods imported from the region, and the dramatic collapse of economic
growth there is dampening demand for exports.
The Federal Reserve Board, which exercises great influence over the level
of short-term interest rates in pursuit of price stability, its principal
monetary policy goal, has so far stayed out of the fray. The Fed's apparent
stance--that the Asian debacle will offset late-cycle inflation domestically--is
paying off. Such a balance cannot be maintained indefinitely, however. Sooner or
later, the economy will cool as a result of global pressures or, having reached
the limits of its resources, primarily labor, it will overheat and reignite
inflation. We consider the latter scenario more likely, although we expect that
only a modest tightening will be required from the Fed to keep inflation in
check.
In managing the Portfolios, we have for the most part kept the average
maturity of their holdings within our market-neutral band. While we expect
mildly higher rates, as mentioned above, we do not expect them imminently. In
the Treasury Portfolio, we have kept the average maturity somewhat longer in
recent months. The balancing of the federal budget has, after decades of massive
borrowing, switched the Treasury's focus to managing the reduction of the
national debt. As a result, the Treasury has significantly cut back the issuance
of short-term T-bills,
7
<PAGE> 10
so much so, in fact, that the scarcity of short-term Treasury securities makes
for an exceedingly steep upward slope in the short-term portion of the yield
curve. We have concluded that the future rate increases currently priced into
the T-bill market overestimate the likely magnitude and timing of Fed action
and, therefore, have tilted our risk/reward evaluation in favor of longer-term
securities.
With regard to the creditworthiness of our investments, we remain more
conservative than many of our competitors, not only in credit quality but in
breadth of diversification. In light of the situation in Asia, let us reiterate
that we have no investments in Asian financial institutions and have not for the
last seven years. We look forward to reporting to you on the entire fiscal year
in six months' time.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John Hollyer, Principal
David R. Glocke, Principal
Vanguard Fixed Income Group
June 10, 1998
INVESTMENT PHILOSOPHY
The Portfolios reflect a belief that the highest level of current income
consistent with capital preservation and liquidity can be provided by holding
high-quality money market instruments issued by financial institutions,
nonfinancial corporations, the U.S. government, and federal agencies.
8
<PAGE> 11
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolios. 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 per share.
PRIME PORTFOLIO
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1977-MAY 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRIME PORTFOLIO AVERAGE PRIME PORTFOLIO AVERAGE
FUND* FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1978 0.0% 6.7% 6.7% 6.9% 1989 0.0% 9.4% 9.4% 8.8%
1979 0.0 10.8 10.8 10.5 1990 0.0 8.3 8.3 7.8
1980 0.0 12.8 12.8 12.5 1991 0.0 6.4 6.4 5.9
1981 0.0 17.6 17.6 17.5 1992 0.0 3.9 3.9 3.4
1982 0.0 13.1 13.1 12.8 1993 0.0 3.0 3.0 2.6
1983 0.0 8.9 8.9 8.6 1994 0.0 3.9 3.9 3.5
1984 0.0 10.6 10.6 10.1 1995 0.0 5.8 5.8 5.4
1985 0.0 8.2 8.2 7.9 1996 0.0 5.3 5.3 4.8
1986 0.0 6.8 6.8 6.4 1997 0.0 5.4 5.4 4.9
1987 0.0 6.5 6.5 6.0 1998** 0.0 2.7 2.7 2.4
1988 0.0 7.5 7.5 6.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Average Money Market Fund.
**Six months ended May 31, 1998.
See Financial Highlights table on page 29 for dividend information for the past
five years.
PRIME PORTFOLIO-INSTITUTIONAL SHARES
TOTAL INVESTMENT RETURNS: OCTOBER 3, 1989-MAY 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRIME PORTFOLIO- AVERAGE PRIME PORTFOLIO- AVERAGE
INSTITUTIONAL SHARES FUND** INSTITUTIONAL SHARES FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN* RETURN YEAR RETURN RETURN RETURN* RETURN
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 0.0% 1.4% 1.4% 1.4% 1994 0.0% 4.1% 4.1% 3.8%
1990 0.0 8.5 8.5 8.3 1995 0.0 6.0 6.0 5.7
1991 0.0 6.5 6.5 6.2 1996 0.0 5.5 5.5 5.2
1992 0.0 4.0 4.0 3.8 1997 0.0 5.6 5.6 5.3
1993 0.0 3.2 3.2 2.9 1998+ 0.0 2.8 2.8 2.7
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Prior to 10/28/1995, total returns are for Vanguard Institutional Money Market
Portfolio.
**Average Institutional Money Market Fund.
+Six months ended May 31, 1998.
See Financial Highlights table on page 29 for dividend information.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION ------------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Portfolio 6/4/1975 5.48% 4.84% 0.00% 5.82% 5.82%
Prime Portfolio-Institutional Shares** 10/3/1989 5.66 5.02 0.00+ 5.49+ 5.49+
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return
information through the latest calendar quarter.
**Prior to 10/28/1995, total returns are for Vanguard Institutional Money Market
Portfolio.
+Since inception.
9
<PAGE> 12
PERFORMANCE SUMMARIES (continued)
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 per share.
FEDERAL PORTFOLIO
TOTAL INVESTMENT RETURNS: JULY 13, 1981-MAY 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FEDERAL PORTFOLIO AVERAGE FEDERAL PORTFOLIO AVERAGE
FUND* FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1981 0.0% 5.9% 5.9% 5.7% 1990 0.0% 8.1% 8.1% 7.7%
1982 0.0 11.9 11.9 11.7 1991 0.0 6.2 6.2 5.7
1983 0.0 8.5 8.5 8.3 1992 0.0 3.8 3.8 3.4
1984 0.0 10.2 10.2 9.8 1993 0.0 3.0 3.0 2.6
1985 0.0 8.0 8.0 7.7 1994 0.0 3.8 3.8 3.4
1986 0.0 6.6 6.6 6.3 1995 0.0 5.8 5.8 5.3
1987 0.0 6.3 6.3 5.9 1996 0.0 5.3 5.3 4.8
1988 0.0 7.2 7.2 6.7 1997 0.0 5.4 5.4 4.9
1989 0.0 9.2 9.2 8.6 1998** 0.0 2.7 2.7 2.5
- --------------------------------------------------------------------------------------------------------
</TABLE>
*Average U.S. Government Money Market Fund.
**Six months ended May 31, 1998.
See Financial Highlights table on page 30 for dividend information for the
past five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED March 31, 1998*
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
10 YEARS
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Portfolio 7/13/1981 5.42% 4.79% 0.00% 5.71% 5.71%
- --------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return
information through the latest calendar quarter.
10
<PAGE> 13
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 per share.
TREASURY MONEY MARKET PORTFOLIO
TOTAL INVESTMENT RETURNS: March 9, 1983-May 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET PORTFOLIO* AVERAGE TREASURY MONEY MARKET PORTFOLIO* AVERAGE
FUND** FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN+ RETURN YEAR RETURN RETURN RETURN+ RETURN
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1983 0.0% 6.1% 6.1% 6.2% 1991 0.0% 5.9% 5.9% 5.8%
1984 0.0 9.9 9.9 10.1 1992 0.0 3.7 3.7 3.5
1985 0.0 7.5 7.5 7.9 1993 0.0 2.9 2.9 2.6
1986 0.0 6.2 6.2 6.4 1994 0.0 3.6 3.6 3.4
1987 0.0 6.0 6.0 6.0 1995 0.0 5.5 5.5 5.2
1988 0.0 7.0 7.0 6.9 1996 0.0 5.1 5.1 4.8
1989 0.0 8.9 8.9 8.7 1997 0.0 5.1 5.1 4.8
1990 0.0 8.0 8.0 7.8 1998++ 0.0 2.5 2.5 2.4
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Prior to 12/2/1996, known as the U.S. Treasury Portfolio.
**Average Money Market Fund through 3/31/1989; Average U.S. Treasury Money
Market Fund thereafter.
+Prior to 3/13/1989, total returns are for the Insured Portfolio.
++Six months ended May 31,1998.
See Financial Highlights table on page 30 for dividend information for the past
five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION -----------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Treasury Money Market Portfolio**+ 3/9/1983 5.17% 4.58% 0.00% 5.52% 5.52%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
**Prior to 12/2/1996, known as the U.S. Treasury Portfolio.
+Prior to 3/13/1989, total returns are for the Insured Portfolio.
11
<PAGE> 14
PORTFOLIO PROFILE
Prime Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
May 31, 1998. Key elements of this Profile are defined on page 13.
FINANCIAL ATTRIBUTES
<TABLE>
- ---------------------------------------------------
<S> <C>
Yield--Investor Shares 5.3%
Yield--Institutional Shares 5.5%
Average Maturity 56 days
Average Quality Aa1
Expense Ratio--Investor Shares 0.33%*
Expense Ratio--Institutional Shares 0.15%*
</TABLE>
*Annualized.
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
<TABLE>
- ---------------------------------------------------
<S> <C>
Bank Notes 4.7%
Banker's Acceptances 0.0
Certificates of Deposit 32.4
Commercial Paper 38.0
U.S. Government and Agency 24.9
- ---------------------------------------------------
Total 100.0%
</TABLE>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
<TABLE>
- ----------------------------------------------------
<S> <C>
Treasury/Agency 25.4%
Aaa 9.7
Aa 52.3
A 12.6
Baa 0.0
Ba 0.0
B 0.0
Not Rated 0.0
- ----------------------------------------------------
Total 100.0%
</TABLE>
12
<PAGE> 15
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity (or are called) 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
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. For issuers other than the U.S. government, quality is graded
on a scale, with Aaa or AAA indicating the most creditworthy bond issuers and
A-1 or MIG-1 indicating the most creditworthy issuers of money market
securities. U.S. Treasury securities are considered to have the highest credit
quality.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a portfolio's securities by
credit rating can help in gauging the risk that returns could be affected by
defaults or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a portfolio's holdings by type of issuer
or by type of instrument.
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.
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 over
the past seven days and is annualized, or projected forward for the coming
year.
13
<PAGE> 16
PORTFOLIO PROFILE
Federal Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of May
31, 1998. Key elements of this Profile are defined on page 13.
FINANCIAL ATTRIBUTES
<TABLE>
- --------------------------------------------
<S> <C>
Yield 5.2%
Average Maturity 53 days
Average Quality Agency
Expense Ratio 0.33%*
</TABLE>
*Annualized.
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
<TABLE>
- ---------------------------------------------
<S> <C>
U.S. Government and Agency 100.0%
</TABLE>
PORTFOLIO PROFILE
Treasury Money Market Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of May
31, 1998. Key elements of this Profile are defined on page 13.
FINANCIAL ATTRIBUTES
<TABLE>
- -----------------------------------------------
<S> <C>
Yield 5.0%
Average Maturity 72 days
Average Quality U.S. Treasury
Expense Ratio 0.33%*
</TABLE>
*Annualized.
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
<TABLE>
- -----------------------------------------------
<S> <C>
U.S. Treasury 100.0%
</TABLE>
14
<PAGE> 17
FINANCIAL STATEMENTS
May 31, 1998 (unaudited)
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. 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 (25.3%)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm Credit Bank 5.431% 6/14/1998 (1) $150,000 $ 149,978
Federal Farm Credit Bank 5.448% 6/25/1998 (1) 80,000 79,997
Federal Farm Credit Bank 5.456% 6/5/1998 (1) 20,000 20,000
Federal Home Loan Bank 5.422% 6/7/1998 (1) 135,000 134,987
Federal Home Loan Bank 5.428% 6/26/1998 (1) 195,000 194,989
Federal Home Loan Bank 5.431% 6/17/1998 (1) 270,000 269,936
Federal Home Loan Bank 5.431% 6/30/1998 (1) 245,000 244,928
Federal Home Loan Bank 5.436% 6/6/1998 (1) 286,000 285,922
Federal Home Loan Bank 5.452% 6/10/1998 (1) 300,000 299,996
Federal Home Loan Bank 5.459% 6/4/1998 (1) 485,000 484,571
Federal Home Loan Bank 5.65% 4/9/1999 185,000 184,958
Federal Home Loan Mortgage Corp. 5.436% 6/22/1998 (1) 240,000 239,989
Federal Home Loan Mortgage Corp. 5.448% 6/26/1998 (1) 300,000 299,864
Federal National Mortgage Assn. 5.417% 6/24/1998 (1) 300,000 299,907
Federal National Mortgage Assn. 5.421% 6/15/1998 (1) 450,000 449,884
Federal National Mortgage Assn. 5.426% 6/2/1998 (1) 400,000 399,882
Federal National Mortgage Assn. 5.426% 6/21/1998 (1) 250,000 249,951
Federal National Mortgage Assn. 5.426% 7/14/1998 (1) 200,000 199,940
Federal National Mortgage Assn. 5.446% 6/17/1998 (1) 250,000 249,862
Federal National Mortgage Assn. 5.446% 8/14/1998 (1) 505,000 504,599
Federal National Mortgage Assn. 5.448% 7/5/1998 (1) 300,000 299,915
Federal National Mortgage Assn. 5.45% 4/15/1999 188,200 187,788
Federal National Mortgage Assn. 5.451% 8/28/1998 (1) 310,000 309,729
Federal National Mortgage Assn. 5.466% 6/15/1998 (1) 250,000 249,979
Federal National Mortgage Assn. 5.469% 8/19/1998 (1) 80,000 79,946
Federal National Mortgage Assn. 5.476% 6/15/1998 (1) 970,000 969,943
Federal National Mortgage Assn. 5.61% 10/2/1998 259,000 258,844
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $7,600,284) 7,600,284
- ------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (38.5%)
- ------------------------------------------------------------------------------------------------------------------------------
BANK HOLDING COMPANIES (1.4%)
Banc One Corp. 5.512% 6/4/1998 50,000 49,977
Banc One Corp. 5.533% 6/10/1998 25,000 24,966
Bank of New York Co. Inc. 5.527% 6/9/1998 15,000 14,982
Bank of New York Co. Inc. 5.554% 6/12/1998 20,000 19,967
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CoreStates Capital Corp. 5.578% 6/30/1998 $ 25,000 $ 24,889
First Chicago Financial Corp. 5.581% 6/1/1998 90,000 90,000
J.P. Morgan & Co. 5.804% 6/18/1998 100,000 99,734
NationsBank Corp. 5.58% 8/10/1998 50,000 49,465
SunTrust Banks Inc. 5.556% 6/3/1998 25,000 24,992
SunTrust Banks Inc. 5.566% 8/20/1998 10,000 9,878
SunTrust Banks Inc. 5.579% 8/21/1998 30,000 29,629
------------
438,479
------------
FINANCE--AUTO (4.7%)
Daimler-Benz NA Corp. 5.579% 8/20/1998 171,817 169,717
Ford Motor Credit Co. 5.549% 7/10/1998 118,000 117,300
Ford Motor Credit Co. 5.556% 7/13/1998 50,000 49,679
Ford Motor Credit Co. 5.559% 7/6/1998 100,000 99,467
Ford Motor Credit Co. 5.573% 7/2/1998 230,000 228,907
Ford Motor Credit Co. 5.576% 8/20/1998 50,000 49,389
General Motors Acceptance Corp. 5.529% 6/12/1998 50,056 49,972
General Motors Acceptance Corp. 5.536% 6/8/1998 65,000 64,930
General Motors Acceptance Corp. 5.541% 6/3/1998 230,000 229,930
General Motors Acceptance Corp. 5.544% 6/4/1998 160,000 159,927
General Motors Acceptance Corp. 5.546% 6/5/1998 45,000 44,972
New Center Asset Trust 5.578% 6/11/1998 150,000 149,770
-------------
1,413,960
-------------
FINANCE--OTHER (12.7%)
A.I. Credit Corp. 5.489% 7/24/1998 20,000 19,843
A.I. Credit Corp. 5.545% 6/16/1998 25,000 24,943
A.I. Credit Corp. 5.561% 6/24/1998 20,000 19,930
A.I. Credit Corp. 5.63% 11/12/1998 10,000 9,750
American Express Credit Corp. 5.563% 6/4/1998 100,000 99,954
American Express Credit Corp. 5.565% 6/1/1998 50,000 50,000
American Express Credit Corp. 5.565% 7/29/1998 150,000 148,673
American Express Credit Corp. 5.57% 7/23/1998 100,000 99,204
American Express Credit Corp. 5.575% 6/30/1998 100,000 99,557
Asset Securitization Cooperative Corp. 5.557% 6/11/1998 18,500 18,472
Associates Corp. of North America 5.55% 6/4/1998 50,000 49,977
Associates Corp. of North America 5.569% 6/12/1998 50,000 49,916
Associates Corp. of North America 5.574% 8/21/1998 130,000 128,391
Associates Corp. of North America 5.575% 6/2/1998 50,000 49,992
Associates Corp. of North America 5.575% 8/7/1998 50,000 49,488
Associates Corp. of North America 5.575% 8/11/1998 170,000 168,156
Associates Corp. of North America 5.596% 8/24/1998 50,000 49,356
CIT Group Holdings Inc. 5.527% 6/9/1998 50,000 49,939
CIT Group Holdings Inc. 5.558% 7/9/1998 150,000 149,128
CIT Group Holdings Inc. 5.594% 8/13/1998 100,000 98,881
Caterpillar Financial Services Corp. 5.558% 7/14/1998 59,600 59,208
Centric Capital Corp. 5.591% 6/2/1998 43,000 42,993
Centric Capital Corp. 5.592% 7/6/1998 56,543 56,238
Centric Capital Corp. 5.598% 6/5/1998 8,500 8,495
Centric Capital Corp. 5.598% 6/8/1998 70,000 69,925
Centric Capital Corp. 5.599% 6/12/1998 50,000 49,916
Centric Capital Corp. 5.601% 6/30/1998 20,000 19,911
Ciesco LP 5.551% 6/4/1998 50,000 49,977
Commercial Credit Co. 5.549% 6/4/1998 21,000 20,990
Commercial Credit Co. 5.558% 6/18/1998 50,000 49,871
Commercial Credit Co. 5.575% 6/26/1998 50,000 49,809
Commercial Credit Co. 5.581% 7/1/1998 50,000 49,771
Commercial Credit Co. 5.582% 7/2/1998 50,000 49,763
John Deere Capital Corp. 5.542% 7/2/1998 100,000 99,529
Delaware Funding 5.577% 6/10/1998 24,006 23,973
Delaware Funding 5.580% 6/22/1998 17,000 16,945
Delaware Funding 5.589% 6/19/1998 20,264 20,208
Enterprise Funding Corp. 5.559% 6/1/1998 9,651 9,651
Enterprise Funding Corp. 5.606% 6/15/1998 15,523 15,490
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Electric Capital Corp. 5.422% 7/10/1998 $100,000 $ 99,420
General Electric Capital Corp. 5.565% 7/21/1998 45,000 44,657
General Electric Capital Corp. 5.569% 7/23/1998 100,000 99,211
General Electric Capital Corp. 5.577% 7/13/1998 30,000 29,808
General Electric Capital Corp. 5.592% 8/11/1998 200,000 197,823
General Electric Capital Corp. 5.594% 6/22/1998 50,000 49,840
General Electric Capital Corp. 5.597% 7/29/1998 50,000 49,555
General Electric Capital Corp. 5.60% 8/25/1998 100,000 98,699
General Electric Capital Corp. 5.601% 7/30/1998 100,000 99,102
General Electric Capital Corp. 5.634% 9/23/1998 25,000 24,567
General Electric Capital Corp. 5.642% 11/20/1998 100,000 97,377
General Electric Capital Corp. 5.652% 11/19/1998 150,000 146,086
General Electric Capital Corp. 5.653% 7/2/1998 50,000 49,763
General Electric Capital Corp. 5.654% 10/30/1998 100,000 97,693
International Lease Finance Corp. 5.541% 6/19/1998 100,000 99,726
International Lease Finance Corp. 5.552% 7/6/1998 71,500 71,118
International Lease Finance Corp. 5.576% 8/18/1998 50,000 49,404
Private Export Funding Corp. 5.729% 6/24/1998 72,000 71,745
Riverwoods Funding Corp. 5.586% 6/16/1998 25,400 25,342
Riverwoods Funding Corp. 5.59% 6/18/1998 20,000 19,948
Riverwoods Funding Corp. 5.591% 6/19/1998 51,600 51,458
Riverwoods Funding Corp. 5.594% 6/25/1998 40,000 39,853
----------
3,808,408
----------
INDUSTRIAL (4.5%)
Archer-Daniels-Midland Co. 5.539% 7/13/1998 19,000 18,879
Archer-Daniels-Midland Co. 5.57% 7/28/1998 26,800 26,567
Archer-Daniels-Midland Co. 5.573% 6/2/1998 10,000 9,998
Archer-Daniels-Midland Co. 5.577% 8/5/1998 45,000 44,553
Bayer Corp. 5.569% 8/18/1998 50,000 49,404
Bayer Corp. 5.571% 8/11/1998 15,000 14,837
Campbell Soup Co. 5.555% 7/1/1998 23,100 22,995
Cargill Inc. 5.566% 6/1/1998 25,000 25,000
Cargill Inc. 5.597% 6/8/1998 25,000 24,973
Chevron Transport Co. 5.557% 7/10/1998 20,000 19,881
Chevron Transport Co. 5.799% 6/12/1998 10,000 9,983
Coca-Cola Co. 5.532% 6/9/1998 25,000 24,970
Coca-Cola Co. 5.533% 6/24/1998 18,100 18,037
Coca-Cola Co. 5.577% 8/18/1998 50,000 49,404
Coca-Cola Co. 5.578% 8/19/1998 28,613 28,268
E.I. du Pont de Nemours & Co. 5.522% 6/24/1998 50,000 49,825
E.I. du Pont de Nemours & Co. 5.522% 6/25/1998 50,000 49,818
E.I. du Pont de Nemours & Co. 5.56% 8/25/1998 50,000 49,354
First Data Corp. 5.564% 7/7/1998 10,000 9,945
H.J. Heinz Co. 5.529% 6/24/1998 22,800 22,720
H.J. Heinz Co. 5.54% 6/23/1998 51,000 50,829
International Business Machines Corp. 5.57% 7/16/1998 100,000 99,310
Koch Industries 5.533% 6/5/1998 350,000 349,787
Lucent Technologies 5.524% 6/12/1998 30,000 29,950
Minnesota Mining and Manufacturing Co. 5.596% 7/22/1998 32,000 31,752
Motorola, Inc. 5.539% 6/25/1998 11,000 10,960
Motorola, Inc. 5.54% 6/26/1998 22,000 21,916
Pfizer Inc. 5.522% 6/12/1998 25,000 24,958
Pitney Bowes Credit 5.534% 7/15/1998 40,000 39,733
Texaco Inc. 5.537% 6/5/1998 15,000 14,991
Texaco Inc. 5.573% 6/4/1998 75,000 74,966
Vermont American Corp. 5.532% 6/1/1998 37,000 37,000
----------
1,355,563
----------
INSURANCE (1.3%)
AIG Funding Inc. 5.475% 7/14/1998 10,000 9,936
General RE Corp. 5.54% 6/18/1998 23,486 23,425
General RE Corp. 5.568% 8/10/1998 15,351 15,187
General RE Corp. 5.802% 6/23/1998 45,000 44,845
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MetLife Funding Corp. 5.519% 6/12/1998 $ 40,217 $ 40,150
MetLife Funding Corp. 5.522% 6/15/1998 20,611 20,567
MetLife Funding Corp. 5.524% 6/11/1998 25,113 25,075
MetLife Funding Corp. 5.547% 6/1/1998 10,199 10,199
MetLife Funding Corp. 5.548% 6/2/1998 20,000 19,997
MetLife Funding Corp. 5.548% 6/3/1998 45,533 45,519
MetLife Funding Corp. 5.552% 7/7/1998 39,128 38,912
New York Life Capital Corp. 5.567% 7/14/1998 15,000 14,901
New York Life Capital Corp. 5.568% 6/12/1998 19,000 18,968
New York Life Capital Corp. 5.609% 10/9/1998 16,000 15,683
USAA Capital Corp. 5.512% 6/4/1998 10,000 9,995
USAA Capital Corp. 5.522% 6/10/1998 18,500 18,475
USAA Capital Corp. 5.556% 6/18/1998 10,000 9,974
USAA Capital Corp. 5.579% 7/14/1998 25,926 25,756
---------
407,564
---------
FOREIGN BANKS (7.2%)
ABN-AMRO North America Finance Inc. 5.533% 7/2/1998 50,000 49,765
ABN-AMRO North America Finance Inc. 5.557% 6/16/1998 50,000 49,886
ABN-AMRO North America Finance Inc. 5.652% 6/8/1998 50,000 49,946
Abbey National North America 5.557% 6/10/1998 30,000 29,959
Bank Austria Finance Inc. 5.568% 6/17/1998 100,000 99,756
Commonwealth Bank of Australia 5.546% 7/14/1998 45,000 44,706
Commonwealth Bank of Australia 5.551% 7/7/1998 30,000 29,835
Commonwealth Bank of Australia 5.557% 6/11/1998 75,000 74,886
Commonwealth Bank of Australia 5.557% 6/12/1998 25,000 24,958
Commonwealth Bank of Australia 5.557% 6/16/1998 25,000 24,943
Commonwealth Bank of Australia 5.557% 6/19/1998 25,000 24,932
Commonwealth Bank of Australia 5.561% 7/17/1998 33,000 32,768
Halifax PLC 5.492% 7/8/1998 20,000 19,890
Halifax PLC 5.519% 8/3/1998 100,000 99,060
Halifax PLC 5.531% 7/2/1998 19,300 19,209
Halifax PLC 5.535% 7/6/1998 200,000 198,938
Halifax PLC 5.648% 10/2/1998 99,600 97,756
Lloyds Bank 5.545% 7/16/1998 100,000 99,316
Lloyds Bank 5.549% 10/5/1998 100,000 98,110
Lloyds Bank 5.805% 6/4/1998 50,000 49,977
Lloyds Bank 5.837% 6/10/1998 50,000 49,929
National Australia Funding Inc. 5.558% 6/12/1998 100,000 99,833
National Australia Funding Inc. 5.572% 7/1/1998 100,000 99,540
National Australia Funding Inc. 5.575% 8/3/1998 50,000 49,519
Rabobank Nederlanden 5.424% 7/13/1998 150,000 149,076
Toronto Dominion Holdings USA 5.556% 6/3/1998 200,000 199,939
Toronto Dominion Holdings USA 5.556% 6/11/1998 50,000 49,924
Toronto Dominion Holdings USA 5.563% 6/8/1998 21,500 21,477
Toronto Dominion Holdings USA 5.58% 8/10/1998 50,000 49,465
Westpac Capital Corp. 5.557% 6/19/1998 20,000 19,945
Westpac Capital Corp. 5.568% 6/3/1998 50,000 49,985
Westpac Capital Corp. 5.579% 8/20/1998 100,000 98,778
----------
2,156,006
----------
UTILITIES (0.4%)
Bell South Telecommunications Inc. 5.532% 6/23/1998 24,354 24,272
Bell South Telecommunications Inc. 5.55% 8/13/1998 10,675 10,556
Duke Energy 5.56% 7/22/1998 25,000 24,805
SBC Communications Inc. 5.554% 7/8/1998 50,000 49,717
----------
109,350
----------
CANADIAN GOVERNMENT--NATIONAL & PROVINCIAL (0.6%)
Province of British Columbia 5.51% 7/27/1998 23,500 23,304
Canadian Wheat Board 5.605% 7/8/1998 100,000 99,440
Canadian Wheat Board 5.786% 6/5/1998 50,000 49,969
----------
172,713
----------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER FOREIGN GOVERNMENT (3.3%)
Caisse d'Amortissement de la Dette Sociale 5.562% 8/27/1998 $180,000 $ 177,616
Caisse d'Amortissement de la Dette Sociale 5.773% 6/17/1998 100,000 99,751
Caisse d'Amortissement de la Dette Sociale 5.779% 6/9/1998 25,000 24,969
Caisse d'Amortissement de la Dette Sociale 5.847% 6/8/1998 34,130 34,092
Caisse d'Amortissement de la Dette Sociale 5.847% 6/11/1998 50,000 49,921
Caisse des Depots et Consignations 5.543% 6/19/1998 45,000 44,876
Caisse des Depots et Consignations 5.553% 6/12/1998 100,000 99,833
Caisse des Depots et Consignations 5.557% 7/23/1998 45,000 44,644
Caisse des Depots et Consignations 5.563% 6/3/1998 100,000 99,970
Electricite de France 5.622% 10/20/1998 10,000 9,785
KFW International Finance Inc. 5.532% 6/10/1998 30,000 29,959
KFW International Finance Inc. 5.571% 9/21/1998 11,000 10,815
KFW International Finance Inc. 5.638% 11/6/1998 60,000 58,557
KFW International Finance Inc. 5.763% 6/17/1998 125,000 124,689
Oesterreichische Kontroll Bank 5.58% 8/24/1998 85,225 84,131
----------
993,608
----------
FOREIGN INDUSTRIAL (1.8%)
BP America Inc. 5.546% 6/12/1998 50,000 49,916
BP America Inc. 5.556% 6/16/1998 50,000 49,886
BP America Inc. 5.556% 7/1/1998 100,000 99,543
BP America Inc. 5.561% 8/26/1998 20,000 19,738
Diageo Capital PLC 5.512% 6/4/1998 18,780 18,771
Diageo Capital PLC 5.526% 6/8/1998 37,405 37,365
Diageo Capital PLC 5.557% 6/1/1998 41,000 41,000
Diageo Capital PLC 5.569% 6/2/1998 25,000 24,996
Diageo Capital PLC 5.575% 6/26/1998 48,000 47,817
Glaxo Wellcome PLC 5.536% 7/9/1998 20,000 19,885
Glaxo Wellcome PLC 5.557% 6/16/1998 76,300 76,126
Reed Elsevier 5.533% 7/2/1998 10,000 9,953
Reed Elsevier 5.553% 6/4/1998 18,000 17,992
Siemens Capital Corp. 5.671% 7/10/1998 18,000 17,893
----------
530,881
----------
FOREIGN UTILITIES (0.6%)
France Telecom 5.797% 6/18/1998 85,000 84,774
France Telecom 5.799% 6/24/1998 35,000 34,874
Telstra 5.551% 6/11/1998 15,000 14,977
Telstra 5.574% 7/9/1998 10,000 9,942
Telstra 5.581% 6/2/1998 19,000 18,997
Telstra 5.586% 6/12/1998 10,000 9,983
----------
173,547
----------
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $11,560,079) 11,560,079
- -----------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (19.8%)
- -----------------------------------------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT--CANADIAN BRANCH (0.2%)
Republic Bank of New York 5.54% 6/1/1998 52,000 52,000
----------
CERTIFICATES OF DEPOSIT--U.S. BANKS (3.3%)
Bank of America N.T.S.A. 5.53% 6/1/1998 41,881 41,881
Chase Manhattan Bank 5.54% 7/13/1998 100,000 100,000
Chase Manhattan Bank 5.56% 6/5/1998 300,000 300,000
Morgan Guaranty Trust Co. 5.77% 6/17/1998 100,000 100,000
Morgan Guaranty Trust Co. 5.79% 6/30/1998 100,000 100,000
NationsBank N.A. 5.58% 8/5/1998 200,000 200,000
NationsBank N.A. 5.58% 9/21/1998 50,000 50,000
NationsBank N.A. 5.59% 9/16/1998 100,000 100,000
----------
991,881
----------
YANKEE CERTIFICATES OF DEPOSIT--U.S. BRANCHES
(16.3%)
ABN-AMRO Bank 5.43% 7/13/1998 50,000 50,000
ABN-AMRO Bank 5.65% 7/7/1998 20,000 20,001
ABN-AMRO Bank 5.81% 6/3/1998 25,000 25,000
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank of Montreal 5.56% 7/6/1998 $50,000 $ 50,000
Bank of Montreal 5.56% 7/10/1998 50,000 50,000
Bank of Montreal 5.56% 7/15/1998 50,000 49,999
Bank of Montreal 5.57% 8/25/1998 50,000 50,000
Bank of Montreal 5.57% 8/26/1998 50,000 50,000
Bank of Montreal 5.58% 7/7/1998 75,000 74,999
Bank of Montreal 5.59% 8/17/1998 75,000 75,000
Barclays Bank PLC 5.512% 6/2/1998 (1) 100,000 99,926
Barclays Bank PLC 5.512% 7/1/1998 (1) 200,000 199,862
Barclays Bank PLC 5.80% 4/29/1999 50,000 49,973
Barclays Bank PLC 5.83% 8/25/1998 11,000 10,997
Barclays Bank PLC 5.94% 10/23/1998 24,250 24,265
Bayerische Landesbank Girozentrale 5.518% 6/26/1998 (1) 175,000 174,991
Bayerische Landesbank Girozentrale 5.86% 7/17/1998 13,000 12,999
Bayerische Vereinsbank 5.66% 7/7/1998 100,000 100,008
Canadian Imperial Bank of Commerce 5.56% 7/7/1998 100,000 100,000
Canadian Imperial Bank of Commerce 5.57% 8/25/1998 22,000 22,000
Canadian Imperial Bank of Commerce 5.58% 6/3/1998 78,000 78,000
Canadian Imperial Bank of Commerce 5.58% 8/10/1998 200,000 200,000
Credit Agricole Indosuez 5.52% 6/15/1998 100,000 100,000
Credit Agricole Indosuez 5.52% 8/18/1998 100,000 100,000
Credit Agricole Indosuez 5.56% 7/20/1998 50,000 50,000
Credit Agricole Indosuez 5.56% 9/21/1998 55,000 55,000
Credit Agricole Indosuez 5.81% 6/2/1998 145,000 145,000
Deutsche Bank 5.52% 8/3/1998 25,000 24,996
Deutsche Bank 5.52% 8/5/1998 45,000 45,000
Deutsche Bank 5.54% 7/6/1998 80,000 80,000
Deutsche Bank 5.56% 7/13/1998 50,000 50,000
Deutsche Bank 5.58% 7/9/1998 96,000 95,998
Deutsche Bank 5.59% 7/9/1998 50,000 50,008
Deutsche Bank 5.65% 7/6/1998 150,000 150,012
Deutsche Bank 5.70% 1/7/1999 48,000 47,986
Deutsche Bank 5.95% 6/16/1998 15,000 15,001
Dresdner Bank 5.56% 6/29/1998 150,000 150,000
Dresdner Bank 5.87% 9/15/1998 25,000 24,993
Dresdner Bank 5.95% 10/20/1998 70,000 70,034
Landesbank Hassen-Thueringen 5.93% 6/30/1998 100,000 99,998
National Westminster Bank 5.70% 7/2/1998 150,000 150,000
National Westminster Bank 5.705% 4/16/1999 99,000 98,963
National Westminster Bank 5.73% 4/6/1999 50,000 49,988
National Westminster Bank 5.79% 7/27/1998 45,000 44,998
National Westminster Bank 5.79% 4/30/1999 50,000 49,974
National Westminster Bank 5.80% 6/16/1998 200,000 200,000
National Westminster Bank 5.815% 5/6/1999 50,000 49,973
National Westminster Bank 5.935% 6/26/1998 37,000 37,000
Rabobank Nederlanden 5.53% 8/3/1998 18,000 18,000
Rabobank Nederlanden 5.56% 9/23/1998 100,000 100,000
Rabobank Nederlanden 5.68% 5/28/1999 50,000 49,967
Rabobank Nederlanden 5.71% 4/16/1999 100,000 99,967
Rabobank Nederlanden 5.72% 4/5/1999 200,000 199,919
Rabobank Nederlanden 5.78% 10/5/1998 27,000 27,013
Swiss Bank 5.555% 9/17/1998 150,000 150,000
Swiss Bank 5.56% 9/18/1998 100,000 100,000
Swiss Bank 5.68% 5/28/1999 100,000 99,934
Swiss Bank 5.72% 4/5/1999 200,000 199,919
Swiss Bank 5.75% 4/2/1999 50,000 50,000
Swiss Bank 5.90% 8/28/1998 59,250 59,241
Westdeutsche Landesbank 5.54% 7/6/1998 100,000 100,000
Westdeutsche Landesbank 5.78% 6/22/1998 50,000 50,000
------------
4,906,902
------------
- -----------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $5,950,783) 5,950,783
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (13.1%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Abbey National PLC 5.57% 9/18/1998 $ 50,000 $ 50,000
Abbey National PLC 5.57% 9/21/1998 30,000 30,000
Abbey National PLC 5.63% 10/23/1998 100,000 100,000
Abbey National PLC 5.64% 11/30/1998 20,000 20,001
Abbey National PLC 5.65% 11/16/1998 100,000 100,000
ABN-AMRO Bank 5.69% 10/30/1998 50,000 50,001
ABN-AMRO Bank 5.82% 6/4/1998 50,000 50,000
Barclays Bank PLC 5.45% 6/15/1998 100,000 100,000
Barclays Bank PLC 5.59% 8/3/1998 200,000 200,003
Barclays Bank PLC 5.62% 10/23/1998 44,000 43,989
Barclays Bank PLC 5.70% 4/7/1999 25,000 24,988
Barclays Bank PLC 5.98% 10/23/1998 25,000 25,024
Barclays Bank PLC 6.09% 6/12/1998 10,000 10,000
Bayerische Landesbank Girozentrale 5.58% 7/9/1998 50,000 50,000
Bayerische Landesbank Girozentrale 5.59% 9/21/1998 100,000 100,000
Bayerische Landesbank Girozentrale 5.59% 9/25/1998 137,000 137,000
Bayerische Landesbank Girozentrale 5.625% 10/27/1998 20,000 19,998
Bayerische Landesbank Girozentrale 5.81% 6/3/1998 25,000 25,000
Bayerische Landesbank Girozentrale 5.82% 6/5/1998 100,000 100,000
Bayerische Vereinsbank 5.45% 10/14/1998 50,000 49,963
Bayerische Vereinsbank 5.55% 7/2/1998 25,000 25,001
Bayerische Vereinsbank 5.55% 7/14/1998 37,000 37,000
Bayerische Vereinsbank 5.56% 7/8/1998 100,000 100,000
Bayerische Vereinsbank 5.565% 6/12/1998 43,000 43,000
Bayerische Vereinsbank 5.57% 6/12/1998 40,000 40,001
Bayerische Vereinsbank 5.58% 8/17/1998 100,000 100,004
Bayerische Vereinsbank 5.80% 6/18/1998 20,000 20,003
Bayerische Vereinsbank 5.815% 6/5/1998 50,000 50,000
Bayerische Vereinsbank 5.845% 7/20/1998 35,000 34,998
Deutsche Bank AG 5.80% 6/3/1998 175,000 175,000
Dresdner Bank AG 5.56% 6/15/1998 200,000 200,000
Dresdner Bank AG 5.56% 7/21/1998 50,000 50,000
Dresdner Bank AG 5.58% 8/14/1998 50,000 50,000
Dresdner Bank AG 5.60% 9/10/1998 15,000 15,000
Dresdner Bank AG 5.64% 11/25/1998 50,000 50,000
Dresdner Bank AG 5.91% 10/27/1998 10,000 10,003
Halifax PLC 5.82% 6/15/1998 100,000 100,000
International Nederlanden Bank NV 5.60% 7/2/1998 100,000 100,002
Lloyds Bank 5.56% 6/10/1998 40,000 40,000
Lloyds Bank 5.57% 10/14/1998 100,000 100,003
Lloyds Bank 5.84% 8/24/1998 10,000 10,002
National Australia Bank 5.57% 6/9/1998 45,000 45,000
NationsBank N.A. 5.65% 11/6/1998 196,000 195,993
Rabobank Nederlanden 5.52% 8/24/1998 50,000 50,000
Rabobank Nederlanden 5.64% 8/31/1998 49,000 49,001
Rabobank Nederlanden 5.815% 6/2/1998 30,000 30,000
Rabobank Nederlanden 5.86% 6/8/1998 49,000 49,000
Rabobank Nederlanden 5.86% 10/19/1998 12,000 12,000
Toronto Dominion 5.575% 8/10/1998 78,000 78,000
Toronto Dominion 5.59% 7/30/1998 100,000 100,000
Toronto Dominion 5.62% 11/30/1998 100,000 100,000
Toronto Dominion 5.65% 11/16/1998 50,000 50,000
Union Bank of Switzerland 5.78% 6/19/1998 50,000 50,000
Westdeutsche Landesbank 5.57% 6/18/1998 150,000 150,000
Westdeutsche Landesbank 5.57% 7/6/1998 100,000 100,000
Westdeutsche Landesbank 5.61% 7/8/1998 75,000 75,000
Westdeutsche Landesbank 5.62% 8/14/1998 150,000 150,000
Westdeutsche Landesbank 5.89% 8/11/1998 25,000 24,998
- -----------------------------------------------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(COST $3,944,976) 3,944,976
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME PORTFOLIO YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------
BANKER'S ACCEPTANCES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CoreStates Bank N.A.
(Cost $4,955) 5.597% 7/30/1998 $ 5,000 $ 4,955
- -----------------------------------------------------------------------------------------------------------------
OTHER NOTES (4.8%)
- -----------------------------------------------------------------------------------------------------------------
Abbey National Treasury Services 5.536% 6/15/1998 (1) 250,000 249,897
Abbey National Treasury Services 5.645% 6/1/1999 100,000 99,899
Bank of America N.T.S.A. 5.505% 7/1/1998 (1) 244,000 243,834
First National Bank of Chicago 5.58% 8/17/1998 100,000 100,000
First National Bank of Chicago 5.58% 8/24/1998 85,000 85,002
LaSalle National Bank 5.43% 7/13/1998 50,000 50,000
LaSalle National Bank 5.52% 6/18/1998 50,000 50,000
LaSalle National Bank 5.58% 7/1/1998 50,000 50,000
LaSalle National Bank 5.58% 7/9/1998 25,000 25,000
LaSalle National Bank 5.60% 7/6/1998 50,000 50,000
SMM Trust 1998-B 5.654% 6/5/1998 (1) 100,000 100,000
SMM Trust 1997-A 5.687% 6/23/1998 (1) 200,000 200,000
Wachovia Bank of North Carolina 5.536% 6/2/1998 (1) 135,000 134,956
- -----------------------------------------------------------------------------------------------------------------
TOTAL OTHER NOTES
(COST $1,438,588) 1,438,588
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.5%)
(COST $30,499,665) 30,499,665
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.5%)
- -----------------------------------------------------------------------------------------------------------------
Other Assets--Note B 583,039
Payables for Investment Securities Purchased (904,259)
Other Liabilities (139,570)
-----------
(460,790)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $30,038,875
- -----------------------------------------------------------------------------------------------------------------
</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)Adjustable Rate Note.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1998, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Amount
(000)
- -----------------------------------------------------------------------------------------------------------------
Paid in Capital $30,039,352
Undistributed Net Investment Income --
Accumulated Net Realized Losses (477)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS $30,038,875
=================================================================================================================
Investor Shares--Net Assets applicable to 29,289,142,465 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $29,288,692
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $1.00
=================================================================================================================
Institutional Shares--Net Assets applicable to 750,207,995 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $750,183
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $1.00
=================================================================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FEDERAL PORTFOLIO YIELD** DATE (000) (000)
- ------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (85.1%)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm Credit Bank 5.456% 6/5/1998 (1) $200,000 $ 199,999
Federal Farm Credit Bank 5.65% 7/1/1998 4,073 4,073
Federal Home Loan Bank 5.422% 6/7/1998 (1) 100,000 99,991
Federal Home Loan Bank 5.43% 7/29/1998 177,613 176,099
Federal Home Loan Bank 5.436% 6/2/1998 (1) 11,000 10,997
Federal Home Loan Bank 5.445% 7/28/1998 45,000 44,622
Federal Home Loan Bank 5.56% 3/25/1999 25,000 24,973
Federal Home Loan Bank 5.586% 7/6/1998 1,650 1,641
Federal Home Loan Bank 5.65% 4/9/1999 27,000 26,994
Federal Home Loan Bank 5.659% 7/8/1998 15,000 14,915
Federal Home Loan Bank 5.80% 12/18/1998 33,330 33,356
Federal Home Loan Mortgage Corp. 5.372% 7/17/1998 100,000 99,310
Federal Home Loan Mortgage Corp. 5.436% 6/22/1998 (1) 50,000 49,998
Federal Home Loan Mortgage Corp. 5.448% 6/26/1998 (1) 35,000 34,984
Federal Home Loan Mortgage Corp. 5.457% 7/14/1998 1,007 1,000
Federal Home Loan Mortgage Corp. 5.464% 7/31/1998 100,000 99,100
Federal Home Loan Mortgage Corp. 5.474% 7/9/1998 154,550 153,667
Federal Home Loan Mortgage Corp. 5.475% 8/6/1998 9,675 9,579
Federal Home Loan Mortgage Corp. 5.475% 8/7/1998 7,642 7,565
Federal Home Loan Mortgage Corp. 5.48% 7/10/1998 25,690 25,539
Federal Home Loan Mortgage Corp. 5.497% 6/19/1998 5,710 5,694
Federal Home Loan Mortgage Corp. 5.515% 6/30/1998 300,000 298,690
Federal National Mortgage Assn. 5.36% 2/19/1999 30,000 29,971
Federal National Mortgage Assn. 5.37% 2/26/1999 30,000 29,952
Federal National Mortgage Assn. 5.42% 6/12/1998 117,000 116,808
Federal National Mortgage Assn. 5.426% 7/14/1998 (1) 100,000 99,970
Federal National Mortgage Assn. 5.433% 6/10/1998 (1) 225,000 224,949
Federal National Mortgage Assn. 5.436% 6/15/1998 (1) 11,500 11,499
Federal National Mortgage Assn. 5.438% 8/18/1998 60,355 59,651
Federal National Mortgage Assn. 5.445% 8/20/1998 19,054 18,830
Federal National Mortgage Assn. 5.446% 6/17/1998 (1) 150,000 149,917
Federal National Mortgage Assn. 5.448% 7/5/1998 (1) 76,000 75,978
Federal National Mortgage Assn. 5.448% 1/7/1999 85,515 82,813
Federal National Mortgage Assn. 5.45% 4/15/1999 60,000 59,869
Federal National Mortgage Assn. 5.451% 8/28/1998 (1) 275,000 274,760
Federal National Mortgage Assn. 5.469% 8/19/1998 (1) 35,000 34,976
Federal National Mortgage Assn. 5.476% 6/15/1998 (1) 25,000 24,999
Federal National Mortgage Assn. 5.483% 8/24/1998 45,640 45,064
Federal National Mortgage Assn. 5.487% 8/21/1998 160,800 158,843
Federal National Mortgage Assn. 5.498% 6/23/1998 24,804 24,722
Federal National Mortgage Assn. 5.581% 6/9/1998 10,000 9,988
Federal National Mortgage Assn. 5.645% 6/17/1998 16,290 16,250
Federal National Mortgage Assn. 5.646% 6/30/1998 89,358 88,967
Federal National Mortgage Assn. 5.74% 6/9/1998 50,000 50,002
Federal National Mortgage Assn. 9.40% 8/10/1998 6,000 6,042
Overseas Private Investment Corp. 5.588% 6/30/1998 (1) 2,000 2,000
Overseas Private Investment Corp. 5.606% 7/15/1998 (1) 15,375 15,375
Overseas Private Investment Corp. 5.637% 6/15/1998 (1) 26,250 26,250
Overseas Private Investment Corp. 5.749% 6/2/1998 (1) 12,353 12,353
- ------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $3,173,584) 3,173,584
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FEDERAL PORTFOLIO YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (14.6%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit Suisse First Boston Corp.
(Dated 5/29/1998, Repurchase Value $250,272,000,
Collateralized by Federal Home Loan Mortgage Corp.
7.00%, 1/1/2028) 5.60% 6/5/1998 $250,000 $ 250,000
Merrill Lynch Govt. Securities Inc.
(Dated 5/29/1998, Repurchase Value $4,453,000,
Collateralized by U.S. Treasury Bond 13.875%, 5/15/2011) 5.50% 6/1/1998 4,451 4,451
PaineWebber
(Dated 4/21/1998, Repurchase Value $100,930,000,
Collateralized by Federal National Mortgage Assn.
5.50%-7.00%, 3/1/2009-4/1/2012) 5.49% 6/22/1998 100,000 100,000
PaineWebber
(Dated 4/23/1998, Repurchase Value $151,395,000,
Collateralized by Federal Home Loan Mortgage Corp.
7.00%, 2/1/2028, and Federal National Mortgage Assn.
6.50%-8.00%, 3/1/2018-4/1/2025) 5.49% 6/23/1998 150,000 150,000
Toronto Dominion Bank
(Dated 5/29/1998, Repurchase Value $40,019,000,
Collateralized by U.S. Treasury Bond 12.00%, 8/15/2013) 5.57% 6/1/1998 40,000 40,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $544,451) 544,451
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.7%)
(COST $3,718,035) 3,718,035
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.3%)
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 27,340
Liabilities (14,598)
---------
12,742
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable to 3,730,771,925 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $3,730,777
===================================================================================================================================
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) Adjustable Rate Note.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1998, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,730,807 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (30) --
===================================================================================================================================
NET ASSETS $3,730,777 $1.00
===================================================================================================================================
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
TREASURY MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (99.7%)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill 4.985% 7/2/1998 $138,907 $ 138,321
U.S. Treasury Bill 5.176% 8/20/1998 105,374 104,186
U.S. Treasury Bill 5.289% 6/15/1998 340,000 339,402
U.S. Treasury Note 4.75% 9/30/1998 166,947 166,579
U.S. Treasury Note 5.25% 7/31/1998 260,000 259,948
U.S. Treasury Note 5.50% 11/15/1998 45,000 45,006
U.S. Treasury Note 5.625% 11/30/1998 55,000 55,038
U.S. Treasury Note 5.875% 8/15/1998 579,841 580,401
U.S. Treasury Note 5.875% 10/31/1998 546,185 546,942
U.S. Treasury Note 6.00% 9/30/1998 110,000 110,197
U.S. Treasury Note 6.25% 6/30/1998 370,000 370,272
U.S. Treasury Note 6.25% 7/31/1998 75,000 75,118
U.S. Treasury Note 7.125% 10/15/1998 74,256 74,705
U.S. Treasury Note 8.25% 7/15/1998 275,595 276,514
U.S. Treasury Note 9.25% 8/15/1998 342,733 345,401
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $3,488,030) 3,488,030
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (0.3%) 11,851
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
Applicable to 3,499,852,925 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $3,499,881
===================================================================================================================================
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>
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in Securities, at Value $3,488,030
Receivables for Investment Securities Sold 1,077,120
Other Assets--Note B 75,144
-----------
Total Assets 4,640,294
-----------
LIABILITIES
Payables for Investment Securities Purchased 1,100,728
Other Liabilities 39,685
-----------
Total Liabilities 1,140,413
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $3,499,881
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AT MAY 31, 1998, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,499,872 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 9 --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $3,499,881 $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 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. For money market portfolios,
Realized Net Gain (Loss) should always be minimal and Unrealized Appreciation
(Depreciation) should be zero.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY
PRIME FEDERAL MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------
SIX MONTHS ENDED MAY 31, 1998
-----------------------------------------------------
<S> <C> <C> <C>
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Interest $812,343 $100,677 $92,176
-----------------------------------------------------
Total Income 812,343 100,677 92,176
-----------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 1,850 234 227
Management and Administrative 12,105 1,909 2,135
Shareholder Account Maintenance(1) 25,086 2,854 2,557
Marketing and Distribution1 5,100 646 621
Custodian Fees 481 31 18
Taxes (other than income taxes) 1,066 134 --
Auditing Fees 15 5 5
Shareholders' Reports(1) 393 56 50
Annual Meeting and Proxy Costs(1) 113 15 13
Trustees' Fees and Expenses 29 4 4
-----------------------------------------------------
Total Expenses 46,238 5,888 5,630
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 766,105 94,789 86,546
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (368) 48 50
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $765,737 $ 94,837 $86,596
=================================================================================================================================
(1)Expenses of the Prime Portfolio by Class are:
- ---------------------------------------------------------------------------------------------------------------------------------
(000)
-----------------------------------------------------
INVESTOR INSTITUTIONAL
SHARES SHARES TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
Class-Specific Expenses:
Shareholder Account Maintenance $25,072 $ 14 $25,086
Marketing and Distribution 4,935 165 5,100
Shareholders' Reports 393 -- 393
Annual Meeting and Proxy Costs 113 -- 113
-----------------------------------------------------
Total Class-Specific Expenses 30,513 179 30,692
All Other Portfolio Expenses 15,123 423 15,546
- ---------------------------------------------------------------------------------------------------------------------------------
Total Expenses $45,636 $602 $46,238
=================================================================================================================================
</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 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. Distributions and Capital
Share Transactions are shown separately for each class of shares.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Prime Portfolio
- ---------------------------------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
May 31,1998 Nov. 30, 1997
(000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 766,105 $ 1,358,512
Realized Net Gain (Loss) (368) (92)
Unrealized Appreciation (Depreciation) -- --
------------------------------------
Net Increase in Net Assets Resulting from Operations 765,737 1,358,420
------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares (743,940) (1,306,563)
Institutional Shares (22,165) (51,949)
------------------------------------
Total Dividends (766,105) (1,358,512)
------------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES (AT $1.00)
Issued 19,243,174 31,513,673
Issued in Lieu of Cash Distributions 712,547 1,250,400
Redeemed (17,146,544) (28,501,916)
------------------------------------
Net Increase--Investor Shares 2,809,177 4,262,157
------------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES (AT $1.00)
Issued 421,186 1,397,375
Issued in Lieu of Cash Distributions 20,684 47,111
Redeemed (642,382) (1,404,015)
------------------------------------
Net Increase (Decrease)--Institutional Shares (200,512) 40,471
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase 2,608,297 4,302,536
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 27,430,578 23,128,042
------------------------------------
End of Period $30,038,875 $27,430,578
=================================================================================================================================
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERAL TREASURY MONEY MARKET
PORTFOLIO PORTFOLIO
-------------------------------- ------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAY 31, 1998 NOV. 30, 1997 MAY 31, 1998 NOV. 30, 1997
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 94,789 $ 172,886 $ 86,546 $ 156,386
Realized Net Gain (Loss) 48 14 50 79
Unrealized Appreciation (Depreciation) -- -- -- --
------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 94,837 172,900 86,596 156,465
------------------------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME (94,789) (172,886) (86,546) (156,386)
------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (AT $1.00)
Issued 1,848,610 3,056,215 2,256,745 3,454,680
Issued in Lieu of Cash Distributions 91,142 166,374 82,659 149,759
Redeemed (1,704,317) (2,827,790) (2,076,166) (3,284,455)
------------------------------------------------------------------------
Net Increase from Capital Share Transactions 235,435 394,799 263,238 319,984
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase 235,483 394,813 263,288 320,063
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 3,495,294 3,100,481 3,236,593 2,916,530
------------------------------------------------------------------------
End of Period $3,730,777 $3,495,294 $3,499,881 $3,236,593
=================================================================================================================================
</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 for each class of shares. 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-INVESTOR SHARES
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED --------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .027 .053 .052 .057 .038 .030
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
------------------------------------------------------------------------
Total from Investment Operations .027 .053 .052 .057 .038 .030
------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.027) (.053) (.052) (.057) (.038) (.030)
Distributions from Realized Capital Gains -- -- -- -- -- --
------------------------------------------------------------------------
Total Distributions (.027) (.053) (.052) (.057) (.038) (.030)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================================================================
Total Return 2.70% 5.41% 5.31% 5.82% 3.87% 3.02%
==============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $29,289 $26,480 $22,218 $18,764 $15,109 $12,367
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.32% 0.32% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 5.35%* 5.28% 5.18% 5.64% 3.84% 2.98%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PRIME PORTFOLIO-INSTITUTIONAL SHARES
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------- OCT. 28* TO
THROUGHOUT EACH PERIOD MAY 31, 1998 1997 1996 NOV. 30, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .028 .054 .054 .005
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- --
------------------------------------------------------------
Total from Investment Operations .028 .054 .054 .005
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.028) (.054) (.054) (.005)
Distributions from Realized Capital Gains -- -- -- --
------------------------------------------------------------
Total Distributions (.028) (.054) (.054) (.005)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================================================================
TOTAL RETURN 2.79% 5.59% 5.49% 0.53%
==============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $750 $951 $910 $793
Ratio of Total Expenses to Average Net Assets 0.15%** 0.15% 0.15% 0.15%**
Ratio of Net Investment Income to Average Net Assets 5.53%** 5.44% 5.35% 5.65%**
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Inception.
**Annualized.
29
<PAGE> 32
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FEDERAL PORTFOLIO
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .026 .052 .051 .056 .038 .029
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
----------------------------------------------------------------------
Total from Investment Operations .026 .052 .051 .056 .038 .029
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.026) (.052) (.051) (.056) (.038) (.029)
Distributions from Realized Capital Gains -- -- -- -- -- --
----------------------------------------------------------------------
Total Distributions (.026) (.052) (.051) (.056) (.038) (.029)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================================================================
TOTAL RETURN 2.67% 5.35% 5.26% 5.77% 3.82% 2.98%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 3,731 $ 3,495 $ 3,100 $ 2,637 $ 2,196 $ 1,907
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.32% 0.32% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 5.28%* 5.22% 5.13% 5.61% 3.78% 2.94%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET PORTFOLIO
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED --------------------------------------------------------
THROUGHOUT EACH PERIOD MAY 31, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .025 .050 .050 .053 .036 .028
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
----------------------------------------------------------------------
Total from Investment Operations .025 .050 .050 .053 .036 .028
----------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.025) (.050) (.050) (.053) (.036) (.028)
Distributions from Realized Capital Gains -- -- -- -- -- --
----------------------------------------------------------------------
Total Distributions (.025) (.050) (.050) (.053) (.036) (.028)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================================================================
TOTAL RETURN 2.55% 5.10% 5.11% 5.47% 3.63% 2.86%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 3,500 $ 3,237 $ 2,917 $ 2,527 $ 2,056 $ 1,751
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.32% 0.32% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 5.05%* 4.98% 4.99% 5.33% 3.59% 2.83%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
30
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
Vanguard Money Market Reserves and Vanguard Treasury Money Market Portfolio are
registered under the Investment Company Act of 1940 as diversified open-end
investment companies, or mutual funds. Vanguard Money Market Reserves consists
of the Prime and Federal 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 Treasury Money Market 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 to generally accepted
accounting principles for mutual funds. The Portfolios consistently follow such
policies in preparing their 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. Dividends 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 Portfolios under
methods approved by their Boards of Trustees. At May 31, 1998, the Portfolios
had contributed capital aggregating $2,023,000 to Vanguard (included in Other
Assets), representing 10.1% of Vanguard's capitalization. The Portfolios'
Trustees and officers are also Directors and officers of Vanguard.
C. The Prime Portfolio offers two classes of shares, the Investor Shares and the
Institutional Shares. Institutional shares are designed primarily for
institutional investors that meet certain administrative and servicing criteria
and have a minimum investment of $10 million. Investor 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. For the six months ended May 31, 1998,
class-specific expenses of the Investor Shares and Institutional Shares
represented effective annual rates of 0.22% and 0.04%, respectively, of average
net assets. Income, expenses not attributable to a specific class, and realized
and unrealized gains and losses on investments are allocated to each class of
shares based on its relative net assets.
31
<PAGE> 34
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Senior 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
Chairman, 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.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
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 Telecommunications 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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director 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
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DiSTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MacKINNON
Managing Director, Fixed Income Group.
F. WILLIAM McNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's
500," and "500" are trademarks of The McGraw-Hill Companies, Inc. Frank
Russell Company is the owner of trademarks and copyrights relating
to the Russell Indexes. "Wilshire 4500" and "Wilshire 5000"
are trademarks of Wilshire Associates.
<PAGE> 35
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
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Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
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500 Portfolio
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Growth Portfolio
Mid Capitalization Stock
Portfolio
Small Capitalization Growth
Stock Portfolio
Small Capitalization Stock
Portfolio
Small Capitalization Value
Stock Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
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Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
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Portfolio
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Total International Portfolio
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U.S. Portfolio
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Portfolio
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(CA, NJ, NY, OH, PA)
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Portfolio
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Portfolio
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Portfolio
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(CA, FL, NJ, NY, OH, PA)
BALANCED FUNDS
Asset Allocation Fund
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Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
Q302-5/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
[THE VANGUARD GROUP LOGO]
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be obtained directly from The Vanguard Group.
