<PAGE> 1
VANGUARD(R)
MONEY MARKET FUNDS
May 31, 2000
semiannual
VANGUARD PRIME
MONEY MARKET FUND
VANGUARD FEDERAL
MONEY MARKET FUND
VANGUARD TREASURY
MONEY MARKET FUND
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 2
HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment. Valuations of market indexes are at or near historic highs. The
strength and duration of the bull market in U.S. stocks have inflated people's
expectations and diminished their recognition of the market's considerable
risks. And the incredible divergence in stock returns--many technology-related
stocks gained 100% or more in 1999, yet prices fell for more than half of all
stocks--has made some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not
the same as wisdom. Indeed, much of the information, opinion, and rumor that
swirl about financial markets each day amounts to "noise" of no lasting
significance. And the fact that rapid-fire trading is easy does not make it
beneficial. Frequent trading is almost always counterpro-ductive because
costs--even at low commission rates--and taxes detract from the returns that the
markets provide. Sadly, many investors jump into a "hot" mutual fund just in
time to see it cool off. Meanwhile, long-term fund investors are hurt by
speculative trading activity because they bear part of the costs involved in
accommodating purchases and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
- Invest for the long term. Pursuing your long-term investment goals is
more like a marathon than a sprint.
- Diversify your investments with holdings in stocks, bonds, and cash
investments. Remember that, at any moment, some part of a diversified portfolio
will lag other parts, and be wary of taking on more risk by "piling onto" the
best-performing part of your holdings. Today's leader could well be tomorrow's
laggard.
- Step back from the daily frenzy of the markets; focus on your overall
asset allocation.
- Capture as much of the market's return as possible by minimizing costs
and taxes.
Costs and taxes diminish long-term returns while doing nothing to reduce the
risks you incur as an investor.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
REPORT FROM THE CHAIRMAN ................................. 1
THE MARKETS IN PERSPECTIVE ............................... 4
REPORT FROM THE ADVISER .................................. 6
PERFORMANCE SUMMARIES .................................... 8
FUND PROFILES ............................................ 12
FINANCIAL STATEMENTS ..................................... 14
</TABLE>
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"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.
<PAGE> 3
[PHOTO]
John J. Brennan
REPORT FROM THE CHAIRMAN
Money market funds provided refuge from the turbulence of the stock and bond
markets during the six months ended May 31, 2000, the first half of the fiscal
year for the Vanguard Money Market Funds. Short-term interest rates rose during
the half-year, and the interest income paid by our funds rose along with them.
The Prime Money Market Fund earned 2.9% during the period (slightly ahead of the
stock market's return), bringing its return over the twelve months ended May 31
to 5.5%. Adjusting for inflation (as measured by the Consumer Price Index) of
1.8% for the six-month period and 3.1% for the year, the Prime Money Market
Fund's real total return was 1.1% for the six months and 2.4% for the year.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 2000
-------------------------------------------------------
TWELVE MONTHS SIX MONTHS
-------------------------------------------------------
AVERAGE AVERAGE
VANGUARD COMPETING VANGUARD COMPETING
MONEY MARKET FUND FUND FUND* FUND FUND*
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime 5.5% 4.9% 2.9% 2.6%
(SEC 7-Day Annualized
Yield: 6.23%)
Federal 5.4 4.9 2.8 2.6
(SEC 7-Day Annualized
Yield: 6.19%)
Treasury 5.0 4.6 2.6 2.5
(SEC 7-Day Annualized
Yield: 5.73%)
--------------------------------------------------------------------------------------------------
Prime Institutional Shares** 5.7% 5.4% 3.0% 2.8%
(SEC 7-Day Annualized
Yield: 6.41%)
--------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
**Minimum initial investment is $10 million.
The table above presents the total returns for our funds and their peers
for the half-year and for the past twelve months. The share price of each fund
held steady at $1 throughout the period, as is expected but not guaranteed. We
also present the annualized yields for our funds as of May 31.
During the six- and twelve-month periods ended May 31, each fund provided
what we call the "Vanguard advantage"--superior returns compared with those of
money market funds with comparable quality standards. This advantage stems from
our low operating costs: Each fund has an annual expense ratio (expenses as a
percentage of average net assets) less than half the expense ratio charged by
the average competing fund. (The Prime Institutional Shares have an expense
ratio of 0.15%; the other Vanguard money market funds have a ratio of 0.33%.)
THE PERIOD IN REVIEW
The U.S. economy, now well into its tenth consecutive year without a recession,
continued to display impressive strength. The economy grew at an annual rate of
5.4% during the
1
<PAGE> 4
first quarter of 2000, a strong follow-up to the previous quarter's astounding
7.3% rate. However, the economy's strength also triggered fears of inflation and
higher interest rates. Late in the period there were signs that the torrid pace
of economic growth was abating. The apparent slowdown was attributed in part to
the Federal Reserve Board's interest rate hikes over the past year, including
increases totaling 100 basis points (1.00 percentage point) in the federal funds
rate during the half-year, raising it to 6.50%.
Rising short-term interest rates, which benefited money market funds,
were bad news for bond investors because the prices of existing bonds move in
the opposite direction from interest rates. An exception to the downtrend in
bond prices was long-term U.S. Treasury bonds. The government began buying back
some of its long-term debt, and expectations of a diminishing supply drove up
demand and prices. The 30-year Treasury bond's yield fell from 6.29% to 6.01%
during the half-year. At the other end of the maturity spectrum, the 3-month
Treasury bill's yield rose 32 basis points to 5.62%. The yield of the 10-year
Treasury note rose from 6.19% to 6.27%. The overall taxable bond market, as
measured by the Lehman Brothers Aggregate Bond Index, recorded a 1.4% total
return.
The overall U.S. stock market, as measured by the Wilshire 5000 Total
Market Index, rose 2.4% for the half-year. Stock prices were extremely volatile,
particularly for small-capitalization and technology issues. For example, the
tech-heavy Nasdaq Composite Index returned an astounding 41.1% for the first
three months of the period, only to plunge -27.4% from March to May.
The Fed-engineered rise in short-term interest rates pushed up the yields
for our money market funds. As the table below shows, the 7-day annualized
yields of our funds were considerably higher as of May 31 than they were six
months or one year ago. Money market funds respond to changes in market interest
rates with a brief lag, as the proceeds from maturing investments are reinvested
in new holdings.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
7-DAY ANNUALIZED YIELDS
--------------------------------
MAY 31, NOV. 30, MAY 31,
MONEY MARKET FUND 2000 1999 1999
-----------------------------------------------------------------------
<S> <C> <C> <C>
Prime 6.23% 5.36% 4.62%
Federal 6.19 5.21 4.60
Treasury 5.73 4.77 4.28
-----------------------------------------------------------------------
Prime Institutional Shares 6.41% 5.54% 4.80%
-----------------------------------------------------------------------
</TABLE>
Forecasting trends in interest rates is devilishly difficult, and it is
far from certain whether the Fed is through raising interest rates in an effort
to cool off the economy. We can say with confidence that future yields and
returns on our funds will reflect overall trends in short-term interest rates.
We also are confident that our cost advantage over competitors--a crucial edge
in money market funds--will persist.
IN SUMMARY
The attributes of money market funds--current income, liquidity, and
preservation of capital--tend to be appreciated most during volatile periods in
the stock and bond markets, such as those experienced in recent months. But
these same attributes make money market funds a valuable part of a balanced
portfolio in any market environment.
We believe that a diversified portfolio of stock, bond, and money market
funds-- apportioned in accordance with your goals, investment time horizon, and
risk tolerance--
2
<PAGE> 5
can help investors to ride out market turbulence while they stay on course
toward long-term goals. Once you've put such an investment plan in place, we
recommend sticking with it for the long haul.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer
June 16, 2000
IN MEMORY
It is with great sadness that I report the death of John C. Sawhill, an
independent trustee of the fund and a member of The Vanguard Group's board of
directors since 1991. John, an economist who was president and chief executive
officer of The Nature Conservancy, died on May 18 at age 63. He was a senior
lecturer at the Harvard Business School and had formerly served as president of
New York University and as deputy secretary of the U.S. Department of Energy
under President Jimmy Carter. John was a remarkable man who was full of energy,
vigor, and life. His experience and wisdom added a great deal to Vanguard, and
his death is a blow to everyone who knew and loved him. Though John's work on
behalf of our funds was often carried on behind the scenes, he was a dedicated
advocate for the best interests of our shareholders. He will be missed.
3
<PAGE> 6
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED MAY 31, 2000
Strong crosscurrents pushed and tugged at financial markets during the six
months ended May 31, 2000. Positive influences included very strong economic
growth and rising corporate profits. Negative factors included tighter monetary
policy, higher inflation, and concerns about stock valuations.
Interest rates rose in most segments of the bond market, and bond prices
slipped. Stock prices rose slightly, on balance, although wide day-to-day price
swings were frequent.
Uncertainty in both the bond and stock markets centered on the surprising
performance of the U.S. economy, which grew at a torrid 7.3% pace in the final
three months of 1999 and at a still-robust 5.4% during the first quarter of
2000. With U.S. unemployment at around 4.0% of the workforce, the Federal
Reserve Board continued to be concerned that inflation would worsen unless the
economic expansion slowed. The Fed raised short-term interest rates by 0.25
percentage point in February and again in March, before boosting rates by 0.50
percentage point in mid-May. These boosts, following three
quarter-percentage-point increases in 1999, took the Fed's target for short-term
rates to 6.5%. By the end of May, some signs of slowing had emerged in the
economy, although it was not certain that the Fed had finished applying the
brakes.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MAY 31, 2000
----------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index 2.9% 10.5% 23.8%
Russell 2000 Index 5.5 9.9 13.5
Wilshire 5000 Index 2.4 10.7 22.3
MSCI EAFE Index 0.7 17.4 10.4
-----------------------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 1.4% 2.1% 6.0%
Lehman 10 Year Municipal Bond Index 0.7 -0.2 5.3
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.7 5.2 5.2
-----------------------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.8% 3.1% 2.4%
-----------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
Evidence on inflation was ambiguous. The Consumer Price Index increased
1.8% and 3.1%, respectively, for the six- and twelve-month periods ended May 31,
but much of the increase was due to higher energy and food prices. Core
inflation, which excludes those sectors, was up a less-scary 2.4% during the
twelve months ended May 31.
U.S. STOCK MARKETS
Optimism about long-term prospects for technology, media, and telecommunications
companies dominated the equity markets through the first three months of the
period. But sentiment shifted suddenly in mid-March, sending the tech and
telecom groups sharply lower. The tech-heavy Nasdaq Composite Index, for
example, registered a 41.1% return from November 30 through February 29, only to
give back most of the gains over the next three months. End result: a 2.4%
return for the six months ended May 31.
The overall stock market, as measured by the Wilshire 5000 Index, also
returned 2.4%. Value stocks, those characterized by above-average dividend
yields and below-average price/earnings and price/book value ratios, enjoyed a
resurgence beginning in mid-March.
4
<PAGE> 7
For the full six months, the value components of both the large-capitalization
S&P 500 Index and the small-cap Russell 2000 Index outperformed the indexes'
growth components.
Within the S&P 500, the half-year's best return was the 48% gain recorded
by "other energy" stocks, including oil-drilling and services companies that
benefited from a continuing rise in oil prices. The producer-durables sector
gained 18%, largely because of big gains for a number of manufacturers of
telecommunications gear and semiconductor testing and fabrication equipment.
Technology stocks, which now account for about one-quarter of the total stock
market's value, gained about 12% for the six months.
Poor performers included the utilities sector (-14% return), which was
hurt by downturns in several large telephone stocks, and many consumer staples
(-9%) and consumer-discretionary (-6%) companies. Prices fell steeply for a
number of high-profile retailers, beverage and food makers, tobacco companies,
and entertainment enterprises.
U.S. BOND MARKETS
The Federal Reserve's influence on interest rates is strongest for short-term
securities. Over the six months, the Fed pushed up the rate charged on overnight
loans between banks by 1 percentage point to 6.5%. Yields of 3-month U.S.
Treasury bills rose only one-third as far (0.32 percentage point, or 32 basis
points), to 5.62%. And long-term Treasury yields moved even less. The 10-year
Treasury note rose just 8 basis points to 6.27% as of May 31, and yields fell
for very long-term Treasury bonds due to a cutback in issuance of new bonds. As
a result of the shrinking supply of long-term bonds, the yield of the 30-year
Treasury bond declined 28 basis points--from 6.29% to 6.01%--during the
half-year.
Because short-term rates moved higher while long-term rates declined,
there was an unusual "inversion" in the yield curve. Instead of sloping
upward--with yields increasing along with the maturity of Treasury
securities--the curve sloped down. The 6.01% yield of 30-year Treasuries on May
31 was 70 basis points below the 6.71% yield on 3-year Treasury notes.
Corporate and municipal bonds did not perform as well as Treasury
securities, and the yield curve for these sectors remained positive--yields of
long-term bonds remained higher than those of short-term securities. The Lehman
Aggregate Bond Index, a proxy for the overall taxable bond market, returned
1.4%, as a price decline of 2% offset most of the 3.4% income provided by bonds
during the half-year.
INTERNATIONAL STOCK MARKETS
A stronger U.S. dollar and weak Asian markets made the half-year a lackluster
one for U.S. investors in foreign stocks. Improving economic growth in most of
the world helped a number of markets in Europe, Asia, and Latin America to
produce good gains in their local currencies. However, the U.S. dollar increased
in value versus most currencies, significantly reducing the returns received by
dollar-based investors. (Conversely, when the dollar falls in value, returns
from abroad are enhanced for U.S. investors.)
The overall return in dollars from developed foreign markets was a scant
0.7%, as measured by the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index. However, in local currencies, the EAFE Index
return for the six months was a very respectable 7.8%.
In Europe, where stocks benefited from a continuance of corporate
acquisitions, an average 12.8% gain in local-currency terms was reduced to 4.7%
for U.S. investors because of the dollar's strength. Stocks in the Pacific
region, which is dominated by Japan, returned -7.0% in dollars, as a -2.0%
return in local-currency terms was further diminished by the dollar's gains. The
Select Emerging Markets Free Index returned -2.8% in U.S. dollars.
5
<PAGE> 8
REPORT FROM THE ADVISER
In the semiannual period ended May 31, 2000, money market funds were an island
of serenity in a sea of bond and stock market chaos. Rising interest rates, the
enemy of stock and bond investors, boosted the returns for money market
investors. Vanguard Prime, Federal, and Treasury Money Market Funds produced
six-month returns of 2.9%, 2.8%, and 2.6%, respectively. (The Report From The
Chairman starting on page 1 provides a more complete account of the funds'
performance during the half-year.) The funds' returns were roughly in line with
the 2.9% gain of the S&P 500 Index of stocks and more than 1 percentage point
ahead of the 1.4% overall return for the bond market, as measured by the Lehman
Aggregate Bond Index.
Much of the activity in money markets was driven by the Federal Reserve
Board's pursuit of a more restrictive monetary policy. Fed officials have been
concerned that growth in demand in the U.S. economy is exceeding growth in
supply by a dangerous margin, despite the technology-led advances in
productivity that have occurred in recent years. American consumers, feeling
wealthier because of rising home values and the gains in their stock portfolios,
have been spending freely. This stimulus in turn has encouraged firms to expand,
thus bringing the unemployment rate to a 30-year low and putting upward pressure
on wages. Seeking to avoid an inflationary spiral that could interrupt the
current extraordinary economic expansion, the Fed has raised short-term interest
rates by 1 full percentage point (100 basis points) since February. As the Fed's
primary policy tool, changes in short-term interest rates are a blunt
instrument, at best. They affect the economy with long and uncertain time lags.
By acting before inflation becomes a problem, the Fed is seeking to avoid an
inflationary pileup by applying the monetary policy brakes more lightly, rather
than stomping on them later.
Money market interest rates rose in response to the Fed's actions and at
present reflect expectations of additional tightening moves. To take advantage
of today's higher rates, we have lengthened the funds' average maturities
somewhat. There is a good possibility that the Fed will pause in its
market-moving behavior for a while to assess the economy's response. Indeed, the
most recent employment and sales data indicate that the economy's growth rate is
moderating, just as called for in the Fed's script. One big unanswered question
is the impact of recent stock market corrections on consumer spending. It will
be some time before the effectiveness of the central bank's actions to date can
be judged. We would not be surprised to see the Fed raise rates again later this
year.
On another front, in recent months the market has developed a new
appreciation of the potential magnitude of federal budget surpluses and their
impact on reducing U.S. Treasury debt. The Treasury has cut back on issuance of
new securities, particularly in longer maturities. In March, the Treasury
started buying back outstanding long-term bonds with a goal of repurchasing $30
billion worth this year. Private analysts are projecting a surplus of more than
$200 billion this year, and federal officials will soon revise their own
forecasts upward.
In this climate, the relative value of Treasury securities versus other
fixed income investments is
6
<PAGE> 9
changing in what amounts to a tectonic shift for the markets. Some analysts
predict that Treasury debt held by the public will be paid off by the end of the
decade. Treasury investors should follow this situation and evaluate the
widening differentials between the yields available on Treasuries and the higher
yields on government agency and corporate instruments. At some point, Treasury
investors may find that the added income on other debt securities justifies a
move down the credit-quality ladder.
In Vanguard Prime, Federal, and Treasury Money Market Funds, investors
can choose the combination of credit quality and yield that fits their needs
best. To all three funds, we bring our long-standing commitment to conservative
investment policies and low cost. We believe this makes each a consistently
high-value proposition. We look forward to reporting on the entire fiscal year
six months hence.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John Hollyer, Principal
David R. Glocke, Principal
Vanguard Fixed Income Group
June 9, 2000
INVESTMENT PHILOSOPHY
The funds 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.
7
<PAGE> 10
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 fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
TOTAL INVESTMENT RETURNS: NOVEMBER 30, 1979-MAY 31, 2000
---------------------------------------------------------------------
PRIME MONEY MARKET FUND AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1980 0.0% 12.8% 12.8% 12.5%
1981 0.0 17.6 17.6 17.5
1982 0.0 13.1 13.1 12.8
1983 0.0 8.9 8.9 8.6
1984 0.0 10.6 10.6 10.1
1985 0.0 8.2 8.2 7.9
1986 0.0 6.8 6.8 6.4
1987 0.0 6.5 6.5 6.0
1988 0.0 7.5 7.5 6.9
1989 0.0 9.4 9.4 8.8
1990 0.0 8.3 8.3 7.8
1991 0.0 6.4 6.4 5.9
1992 0.0 3.9 3.9 3.4
1993 0.0 3.0 3.0 2.6
1994 0.0 3.9 3.9 3.5
1995 0.0 5.8 5.8 5.4
1996 0.0 5.3 5.3 4.8
1997 0.0 5.4 5.4 4.9
1998 0.0 5.4 5.4 4.9
1999 0.0 5.0 5.0 4.4
2000** 0.0 2.9 2.9 2.6
---------------------------------------------------------------------
SEC 7-Day Annualized Yield (5/31/2000): 6.23%
---------------------------------------------------------------------
</TABLE>
*Average Money Market Fund; derived from data provided by Lipper Inc.
**Six months ended May 31, 2000.
See Financial Highlights table on page 28 for dividend information for the past
five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 2000*
------------------------------------------------------------------------------------------------------------------------
INCEPTION 10 Years
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market Fund 6/4/1975 5.25% 5.38% 0.00% 5.15% 5.15%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
8
<PAGE> 11
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND INSTITUTIONAL SHARES
TOTAL INVESTMENT RETURNS: OCTOBER 3, 1989-MAY 31, 2000
--------------------------------------------------------------------
PRIME MONEY MARKET FUND AVERAGE
INSTITUTIONAL SHARES FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN* RETURN
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1989 0.0% 1.4% 1.4% 1.4%
1990 0.0 8.5 8.5 8.3
1991 0.0 6.5 6.5 6.2
1992 0.0 4.0 4.0 3.8
1993 0.0 3.2 3.2 2.9
1994 0.0 4.1 4.1 3.8
1995 0.0 6.0 6.0 5.7
1996 0.0 5.5 5.5 5.2
1997 0.0 5.6 5.6 5.3
1998 0.0 5.6 5.6 5.3
1999 0.0 5.1 5.1 4.9
2000+ 0.0 3.0 3.0 2.8
--------------------------------------------------------------------
SEC 7-Day Annualized Yield (5/31/2000): 6.41%
--------------------------------------------------------------------
</TABLE>
*Prior to 10/28/1995, total returns are for Vanguard Institutional Money Market
Portfolio.
**Average Institutional Money Market Fund; derived from data provided by Lipper
Inc.
+Six months ended May 31, 2000.
See Financial Highlights table on page 28 for dividend information.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 2000*
---------------------------------------------------------------------------------------------------------------------
INCEPTION 10 YEARS
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Money Market Fund
Institutional Shares** 10/3/1989 5.43% 5.56% 0.00% 5.32% 5.32%
---------------------------------------------------------------------------------------------------------------------
</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.
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 fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
FEDERAL MONEY MARKET FUND
TOTAL INVESTMENT RETURNS: JULY 13, 1981-MAY 31, 2000
---------------------------------------------------------------------
FEDERAL MONEY MARKET FUND AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1981 0.0% 5.9% 5.9% 5.7%
1982 0.0 11.9 11.9 11.7
1983 0.0 8.5 8.5 8.3
1984 0.0 10.2 10.2 9.8
1985 0.0 8.0 8.0 7.7
1986 0.0 6.6 6.6 6.3
1987 0.0 6.3 6.3 5.9
1988 0.0 7.2 7.2 6.7
1989 0.0 9.2 9.2 8.6
1990 0.0 8.1 8.1 7.7
1991 0.0 6.2 6.2 5.7
1992 0.0 3.8 3.8 3.4
1993 0.0 3.0 3.0 2.6
1994 0.0 3.8 3.8 3.4
1995 0.0 5.8 5.8 5.3
1996 0.0 5.3 5.3 4.8
1997 0.0 5.4 5.4 4.9
1998 0.0 5.4 5.4 4.9
1999 0.0 4.9 4.9 4.4
2000** 0.0 2.8 2.8 2.6
---------------------------------------------------------------------
SEC 7-Day Annualized Yield (5/31/2000): 6.19%
---------------------------------------------------------------------
</TABLE>
*Average Government Money Market Fund; derived from data provided by Lipper
Inc.
**Six months ended May 31, 2000.
See Financial Highlights table on page 29 for dividend information for the past
five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 2000*
------------------------------------------------------------------------------------------------------------------
INCEPTION 10 Years
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Money Market Fund 7/13/1981 5.15% 5.32% 0.00% 5.07% 5.07%
------------------------------------------------------------------------------------------------------------------
</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 fund. Note that returns can
fluctuate widely. An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
TREASURY MONEY MARKET FUND
TOTAL INVESTMENT RETURNS: MARCH 9, 1983-MAY 31, 2000
--------------------------------------------------------------------
TREASURY MONEY MARKET FUND* AVERAGE
FUND**
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1983 0.0% 6.1% 6.1% 6.2%
1984 0.0 9.9 9.9 10.1
1985 0.0 7.5 7.5 7.9
1986 0.0 6.2 6.2 6.4
1987 0.0 6.0 6.0 6.0
1988 0.0 7.0 7.0 6.9
1989 0.0 8.9 8.9 8.7
1990 0.0 8.0 8.0 7.8
1991 0.0 5.9 5.9 5.8
1992 0.0 3.7 3.7 3.5
1993 0.0 2.9 2.9 2.6
1994 0.0 3.6 3.6 3.4
1995 0.0 5.5 5.5 5.2
1996 0.0 5.1 5.1 4.8
1997 0.0 5.1 5.1 4.8
1998 0.0 5.1 5.1 4.8
1999 0.0 4.5 4.5 4.2
2000+ 0.0 2.6 2.6 2.5
--------------------------------------------------------------------
SEC 7-Day Annualized Yield (5/31/2000): 5.73%
--------------------------------------------------------------------
</TABLE>
*Prior to 12/2/1996, known as the U.S. Treasury Portfolio; prior to 3/13/1989,
total returns are for the Insured Portfolio.
**Average Money Market Fund through 3/31/1989; Average Treasury Money Market
Fund thereafter; derived from data provided by Lipper Inc.
+Six months ended May 31, 2000.
See Financial Highlights table on page 29 for dividend information for the past
five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 2000*
--------------------------------------------------------------------------------------------------------------------
INCEPTION 10 Years
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Treasury Money Market Fund** 3/9/1983 4.77% 5.04% 0.00% 4.84% 4.84%
--------------------------------------------------------------------------------------------------------------------
</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.
11
<PAGE> 14
FUND PROFILE
PRIME MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
2000. Key elements of this Profile are defined below.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
----------------------------------------------------------------------
<S> <C>
Yield 6.2%
Yield--Institutional Shares 6.4%
Average Maturity 64 days
Average Quality Aa1
Expense Ratio 0.33%*
Expense Ratio--Institutional Shares 0.15%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER
(% OF PORTFOLIO)
--------------------------------------------------------------------
<S> <C>
Certificates of Deposit 29.6%
Commercial Paper 46.2
Treasury/Agency 15.7
Other 8.5
--------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
--------------------------------------------------------------------
<S> <C>
Treasury/Agency 15.7%
Aaa 15.3
Aa 40.5
A 28.5
Baa 0.0
Ba 0.0
B 0.0
Not Rated 0.0
--------------------------------------------------------------------
Total 100.0%
</TABLE>
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund'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 fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. 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 fund'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 fund's holdings by type of issuer or
type of instrument.
EXPENSE RATIO. The percentage of a fund'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 fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past seven days and is annualized, or projected forward for the coming year.
12
<PAGE> 15
FUND PROFILE
FEDERAL MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
2000. Key elements of this Profile are defined on page 12.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
----------------------------------------------------------------------
<S> <C>
Yield 6.2%
Average Maturity 59 days
Average Quality Agency
Expense Ratio 0.33%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
----------------------------------------------------------------------
<S> <C>
Agency 100.0%
</TABLE>
FUND PROFILE
TREASURY MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of May 31,
2000. Key elements of this Profile are defined on page 12.
<TABLE>
FINANCIAL ATTRIBUTES
----------------------------------------------------------------------
<S> <C>
Yield 5.7%
Average Maturity 74 days
Average Quality Treasury
Expense Ratio 0.33%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
----------------------------------------------------------------------
<S> <C>
Treasury 100.0%
</TABLE>
13
<PAGE> 16
FINANCIAL STATEMENTS
MAY 31, 2000 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund'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 fund's Net Assets. Finally, Net Assets are divided by the
outstanding shares of the fund to arrive at its share price, or Net Asset Value
(NAV) Per Share. Each fund's objective is to maintain a constant NAV of $1.00
per share.
At the end of the Statement of Net Assets of each fund, you will find a
table displaying the composition of the fund'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
fund distributes its net income to shareholders as a dividend each day, and
Accumulated Realized Gains (Losses) are very small because the fund seldom
realizes any significant gains or losses on sales of securities.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (15.8%)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank 6.28% 6/9/2000 (1) $300,000 $ 299,971
Federal Home Loan Bank 6.325% 6/12/2000 (1) 500,000 499,971
Federal Home Loan Bank 6.431% 6/28/2000 (1) 183,000 182,980
Federal Home Loan Bank 6.58% 2/9/2001 250,000 250,000
Federal Home Loan Mortgage Corp. 6.439% 6/22/2000 (1) 300,000 299,992
Federal National Mortgage Assn. 6.015% 6/2/2000 (1) 500,000 499,943
Federal National Mortgage Assn. 6.172% 6/4/2000 (1) 500,000 499,937
Federal National Mortgage Assn. 6.25% 6/7/2000 (1) 200,000 199,988
Federal National Mortgage Assn. 6.338% 6/14/2000 (1) 715,000 714,945
Federal National Mortgage Assn. 6.426% 6/21/2000 (1) 980,000 979,910
Federal National Mortgage Assn. 6.428% 6/26/2000 (1) 930,000 929,906
Federal National Mortgage Assn. 6.435% 6/7/2000 (1) 500,000 499,585
Federal National Mortgage Assn. 6.435% 6/23/2000 (1) 710,000 709,974
Federal National Mortgage Assn. 6.436% 6/28/2000 (1) 500,000 499,978
-----------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $7,067,080) 7,067,080
-----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (46.4%)
-----------------------------------------------------------------------------------------------------------------------------
BANK HOLDING COMPANIES (3.3%)
Bank One Corp. 6.235% 7/11/2000 50,000 49,659
Bank One Corp. 6.298% 7/25/2000 100,000 99,070
Bank One Corp. 6.336% 8/1/2000 150,000 148,417
Bank One Corp. 6.424% 7/6/2000 50,000 49,691
Bank One Corp. 6.772% 8/21/2000 50,000 49,251
Bank One Corp. 6.774% 8/22/2000 50,000 49,242
Citigroup 6.387% 6/6/2000 100,000 99,912
Citigroup 6.388% 6/7/2000 100,000 99,894
Citigroup 6.478% 6/12/2000 100,000 99,803
First Union Corp. 6.432% 6/8/2000 150,000 149,813
Wells Fargo & Co. 6.419% 6/5/2000 200,000 199,858
Wells Fargo & Co. 6.436% 6/13/2000 100,000 99,787
Wells Fargo & Co. 6.513% 6/6/2000 100,000 99,910
Wells Fargo & Co. 6.535% 6/14/2000 50,000 49,883
Wells Fargo & Co. 6.535% 6/15/2000 150,000 149,621
------------
1,493,811
------------
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE--AUTO (9.5%)
BMW US Capital Corp. 6.383% 6/7/2000 $ 30,000 $ 29,968
BMW US Capital Corp. 6.448% 6/19/2000 50,000 49,840
BMW US Capital Corp. 6.533% 6/14/2000 90,000 89,789
BMW US Capital Corp. 6.534% 6/15/2000 80,670 80,466
Daimler-Chrysler NA Holding Corp. 6.184% 6/20/2000 100,000 99,679
Daimler-Chrysler NA Holding Corp. 6.337% 6/6/2000 100,000 99,913
Daimler-Chrysler NA Holding Corp. 6.358% 6/7/2000 400,000 399,577
Daimler-Chrysler NA Holding Corp. 6.434% 6/8/2000 150,000 149,813
Daimler-Chrysler NA Holding Corp. 6.438% 6/12/2000 250,000 249,511
Daimler-Chrysler NA Holding Corp. 6.447% 6/13/2000 150,000 149,680
Daimler-Chrysler NA Holding Corp. 6.479% 7/11/2000 100,000 99,289
Daimler-Chrysler NA Holding Corp. 6.763% 8/21/2000 100,000 98,504
Daimler-Chrysler NA Holding Corp. 6.772% 8/28/2000 100,000 98,372
Ford Motor Credit Co. 6.393% 6/7/2000 350,000 349,629
Ford Motor Credit Co. 6.395% 6/8/2000 400,000 399,505
Ford Motor Credit Co. 6.428% 6/12/2000 650,000 648,731
General Motors Acceptance Corp. 6.158% 6/5/2000 200,000 199,865
General Motors Acceptance Corp. 6.266% 7/19/2000 200,000 198,267
General Motors Acceptance Corp. 6.589% 7/18/2000 50,000 49,576
General Motors Acceptance Corp. 6.662% 7/25/2000 100,000 99,015
General Motors Acceptance Corp. 6.662% 7/26/2000 200,000 197,993
General Motors Acceptance Corp. 6.687% 7/31/2000 100,000 98,902
General Motors Acceptance Corp. 6.749% 8/15/2000 100,000 98,617
General Motors Acceptance Corp. 6.754% 8/22/2000 150,000 147,731
New Center Asset Trust 6.18% 6/5/2000 50,000 49,966
Toyota Motor Credit Corp. 6.191% 6/16/2000 25,000 24,936
------------
4,257,134
------------
FINANCE--OTHER (17.4%)
American Express Credit Corp. 6.384% 6/8/2000 200,000 199,753
American Express Credit Corp. 6.505% 6/14/2000 200,000 199,533
Asset Securitization Cooperative Corp. 6.043% 6/5/2000 168,000 167,888
Asset Securitization Cooperative Corp. 6.044% 6/6/2000 31,000 30,974
Asset Securitization Cooperative Corp. 6.31% 6/13/2000 75,000 74,844
Asset Securitization Cooperative Corp. 6.412% 6/19/2000 58,000 57,816
Associates Corp. of North America 6.358% 6/7/2000 50,000 49,947
Associates Corp. of North America 6.393% 6/8/2000 100,000 99,876
Associates Corp. of North America 6.444% 7/6/2000 100,000 99,381
Associates Corp. of North America 6.540% 6/19/2000 100,000 99,675
Associates Corp. of North America 6.541% 6/20/2000 100,000 99,657
Caterpillar Financial Services Corp. 6.555% 7/11/2000 25,300 25,118
Centric Capital Corp. 6.193% 6/13/2000 26,955 26,900
Centric Capital Corp. 6.244% 6/26/2000 76,580 76,251
Centric Capital Corp. 6.481% 6/30/2000 33,300 33,128
Centric Capital Corp. 6.567% 7/6/2000 16,600 16,495
CIT Group Holdings Inc. 6.019% 6/1/2000 50,000 50,000
CIT Group Holdings Inc. 6.194% 6/20/2000 100,000 99,678
CIT Group Holdings Inc. 6.432% 6/19/2000 100,000 99,681
CIT Group Holdings Inc. 6.474% 7/6/2000 50,000 49,689
CIT Group Holdings Inc. 6.478% 7/10/2000 100,000 99,307
CIT Group Holdings Inc. 6.503% 7/5/2000 200,000 198,785
Delaware Funding 6.182% 6/22/2000 141,683 141,169
Delaware Funding 6.188% 6/12/2000 25,364 25,317
Delaware Funding 6.199% 6/20/2000 76,047 75,800
Delaware Funding 6.204% 6/27/2000 25,431 25,319
Delaware Funding 6.536% 6/15/2000 148,172 147,797
Enterprise Funding Corp. 6.199% 6/20/2000 22,375 22,303
Enterprise Funding Corp. 6.288% 6/5/2000 63,094 63,050
Enterprise Funding Corp. 6.452% 6/8/2000 35,980 35,935
Enterprise Funding Corp. 6.536% 6/15/2000 157,085 156,688
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Enterprise Funding Corp. 6.759% 8/14/2000 $ 40,332 $ 39,781
General Electric Capital Corp. 6.159% 6/5/2000 500,000 499,662
General Electric Capital Corp. 6.159% 6/6/2000 200,000 199,831
General Electric Capital Corp. 6.272% 8/30/2000 222,874 219,497
General Electric Capital Corp. 6.35% 6/16/2000 250,000 249,344
General Electric Capital Corp. 6.353% 6/19/2000 250,000 249,213
General Electric Capital Corp. 6.393% 6/7/2000 200,000 199,788
General Electric Capital Corp. 6.762% 8/28/2000 50,000 49,187
General Electric Capital International Funding Co. 6.424% 6/8/2000 150,000 149,814
Household Finance Corp. 6.393% 6/7/2000 150,000 149,841
International Business Machines Credit 6.436% 6/12/2000 379,525 378,783
Intrepid Funding 6.064% 6/8/2000 40,768 40,721
Intrepid Funding 6.453% 7/5/2000 27,113 26,950
Norwest Financial 6.184% 6/20/2000 100,000 99,679
Park Avenue Receivable Corp. 6.171% 6/12/2000 104,567 104,373
Park Avenue Receivable Corp. 6.283% 6/1/2000 72,342 72,342
Preferred Receivables Funding Co. 6.275% 6/9/2000 89,525 89,401
Preferred Receivables Funding Co. 6.309% 6/12/2000 89,669 89,497
Preferred Receivables Funding Co. 6.317% 6/13/2000 47,362 47,263
Preferred Receivables Funding Co. 6.408% 6/16/2000 115,024 114,719
Preferred Receivables Funding Co. 6.412% 6/19/2000 146,550 146,084
Preferred Receivables Funding Co. 6.432% 6/6/2000 75,000 74,933
Preferred Receivables Funding Co. 6.543% 6/21/2000 30,590 30,480
Preferred Receivables Funding Co. 6.546% 6/15/2000 200,000 199,494
Private Export Funding Corp. 5.988% 6/1/2000 50,000 50,000
Private Export Funding Corp. 5.992% 6/5/2000 17,500 17,489
Private Export Funding Corp. 6.149% 6/9/2000 10,100 10,086
Riverwoods Funding Corp. 6.195% 6/19/2000 274,965 274,126
Riverwoods Funding Corp. 6.443% 6/7/2000 13,000 12,986
Riverwoods Funding Corp. 6.553% 6/12/2000 148,385 148,089
Three Rivers Funding 6.282% 6/1/2000 12,596 12,596
Triple A One Funding Corp. 6.211% 6/14/2000 24,212 24,158
Triple A One Funding Corp. 6.288% 6/5/2000 139,338 139,239
Triple A One Funding Corp. 6.31% 6/8/2000 95,188 95,071
Triple A One Funding Corp. 6.521% 6/1/2000 166,497 166,497
Triple A One Funding Corp. 6.565% 6/15/2000 61,788 61,631
Variable Funding Capital Corp. 6.178% 6/5/2000 125,000 124,913
Variable Funding Capital Corp. 6.393% 7/5/2000 50,000 49,702
Variable Funding Capital Corp. 6.424% 6/7/2000 125,000 124,867
Variable Funding Capital Corp. 6.456% 6/12/2000 250,000 249,510
Variable Funding Capital Corp. 6.565% 6/15/2000 95,000 94,759
------------
7,824,150
------------
INDUSTRIAL (2.7%)
Bayer Corp. 6.489% 7/7/2000 150,000 149,037
Chevron Transport Co. 6.753% 8/17/2000 20,000 19,716
Chevron U.K. Investment PLC 6.451% 6/8/2000 25,000 24,969
E.I. du Pont de Nemours & Co. 6.447% 6/20/2000 10,000 9,966
E.I. du Pont de Nemours & Co. 6.457% 6/27/2000 50,000 49,769
E.I. du Pont de Nemours & Co. 6.458% 6/28/2000 25,000 24,880
Emerson Electric Co. 6.381% 6/20/2000 39,500 39,368
Equilon Enterprises LLC 6.160% 6/5/2000 22,588 22,573
Glaxo Wellcome PLC 6.398% 6/12/2000 110,400 110,185
Glaxo Wellcome PLC 6.515% 6/21/2000 50,000 49,820
Glaxo Wellcome PLC 6.74% 8/15/2000 50,000 49,309
International Business Machines Corp. 6.435% 6/12/2000 50,000 49,902
Lucent Technologies 6.479% 6/1/2000 34,816 34,816
Motorola Credit 6.144% 6/2/2000 3,960 3,959
Motorola Credit 6.74% 8/23/2000 78,888 77,682
Motorola Inc. 6.175% 6/19/2000 28,635 28,547
Motorola Inc. 6.735% 8/15/2000 20,000 19,724
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pfizer Inc. 6.503% 6/14/2000 $ 96,006 $ 95,782
Procter & Gamble 6.141% 6/1/2000 25,000 25,000
Procter & Gamble 6.142% 6/5/2000 170,000 169,884
Procter & Gamble 6.421% 6/8/2000 25,000 24,969
Procter & Gamble 6.541% 6/20/2000 25,000 24,914
Wal Mart Stores Inc. 6.502% 6/13/2000 102,000 101,780
------------
1,206,551
------------
INSURANCE (3.1%)
Aegon Funding Corp. 6.206% 8/14/2000 50,000 49,381
Aegon Funding Corp. 6.243% 6/1/2000 112,500 112,500
Aegon Funding Corp. 6.375% 9/18/2000 135,000 132,474
Aegon Funding Corp. 6.384% 9/15/2000 96,388 94,631
Aegon Funding Corp. 6.413% 6/7/2000 21,500 21,477
Aegon Funding Corp. 6.424% 7/7/2000 23,400 23,251
Aegon Funding Corp. 6.515% 6/14/2000 50,000 49,883
Aegon Funding Corp. 6.524% 6/6/2000 18,000 17,984
Aegon Funding Corp. 6.535% 6/15/2000 67,000 66,831
Aegon Funding Corp. 6.731% 8/16/2000 203,000 200,163
Aegon Funding Corp. 6.741% 8/17/2000 50,000 49,291
Aegon Funding Corp. 6.761% 8/22/2000 28,000 27,576
Marsh USA Inc. 6.49% 7/18/2000 14,220 14,101
Marsh USA Inc. 6.491% 7/19/2000 21,000 20,821
Metlife Funding Inc. 6.392% 6/6/2000 40,208 40,172
Metlife Funding Inc. 6.727% 8/10/2000 25,377 25,050
Prudential Funding 6.304% 7/24/2000 150,000 148,631
Prudential Funding 6.304% 7/25/2000 150,000 148,605
Teacher Insurance & Annuity Assoc. of America 6.382% 6/6/2000 40,000 39,965
Teacher Insurance & Annuity Assoc. of America 6.527% 6/8/2000 19,808 19,783
USAA Capital Corp. 6.741% 8/15/2000 52,900 52,169
USAA Capital Corp. 6.745% 8/18/2000 16,000 15,770
------------
1,370,509
------------
UTILITIES (2.2%)
Bell Atlantic Financial Services 6.503% 7/7/2000 25,000 24,839
Bell Atlantic Financial Services 6.506% 7/10/2000 16,000 15,889
Bell Atlantic Financial Services 6.515% 7/3/2000 48,500 48,222
Bell Atlantic Financial Services 6.517% 7/5/2000 50,000 49,695
Bell Atlantic Financial Services 6.518% 7/6/2000 49,500 49,190
Bell Atlantic Financial Services 6.524% 7/11/2000 50,000 49,642
Bell Atlantic Financial Services 6.526% 7/12/2000 40,000 39,706
Bell Atlantic Financial Services 6.679% 7/26/2000 14,000 13,859
BellSouth Capital Funding Corp. 6.419% 6/6/2000 100,000 99,911
National Rural Utilities 6.744% 8/22/2000 92,000 90,609
SBC Communications Inc. 6.146% 6/6/2000 25,000 24,979
SBC Communications Inc. 6.345% 6/12/2000 22,860 22,816
SBC Communications Inc. 6.346% 6/13/2000 2,850 2,844
SBC Communications Inc. 6.361% 6/26/2000 100,000 99,563
SBC Communications Inc. 6.393% 7/6/2000 150,000 149,078
SBC Communications Inc. 6.428% 7/10/2000 90,775 90,151
SBC Communications Inc. 6.429% 7/11/2000 50,000 49,647
SBC Communications Inc. 6.463% 6/27/2000 10,635 10,586
SBC Communications Inc. 6.736% 8/16/2000 50,000 49,300
------------
980,526
------------
FOREIGN BANKS (2.8%)
Abbey National North America 6.253% 8/15/2000 110,000 108,614
ABN-AMRO North America Finance Inc. 6.123% 7/13/2000 100,000 99,307
Bayerische Landesbank Girozentrale 6.365% 6/29/2000 190,700 189,766
CBA (Delaware) Finance Inc. 6.746% 8/21/2000 150,000 147,762
CBA (Delaware) Finance Inc. 6.754% 8/23/2000 65,000 64,005
Halifax PLC 6.206% 8/9/2000 100,000 98,846
Halifax PLC 6.316% 6/5/2000 100,000 99,930
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Halifax PLC 6.505% 6/7/2000 $250,000 $ 249,730
Westpac Trust 6.746% 8/21/2000 200,000 197,017
------------
1,254,977
------------
CANADIAN GOVERNMENT--NATIONAL & PROVINCIAL
Province of British Columbia 6.183% 6/16/2000 31,000 30,921
------------
OTHER FOREIGN GOVERNMENT (1.8%)
Caisse Damortissement de la Dette Sociale 6.078% 7/7/2000 100,000 99,410
Caisse des Depots et Consignations 6.391% 6/5/2000 100,000 99,929
Caisse des Depots et Consignations 6.531% 6/12/2000 80,709 80,549
Caisse des Depots et Consignations 6.729% 8/23/2000 300,000 295,428
Electricite de France 6.509% 6/16/2000 20,000 19,946
Electricite de France 6.515% 6/21/2000 50,000 49,820
KFW International Finance Inc. 6.41% 6/6/2000 50,000 49,956
KFW International Finance Inc. 6.414% 6/8/2000 20,000 19,975
Oesterreichische Kontrollbank 6.397% 6/16/2000 32,375 32,289
Oesterreichische Kontrollbank 6.471% 7/5/2000 47,800 47,511
------------
794,813
------------
FOREIGN UTILITIES (3.6%)
British Telecommunications PLC 6.152% 6/9/2000 50,000 49,933
British Telecommunications PLC 6.233% 8/8/2000 50,000 49,429
British Telecommunications PLC 6.236% 7/12/2000 189,310 187,986
British Telecommunications PLC 6.238% 8/2/2000 47,500 47,005
British Telecommunications PLC 6.239% 8/3/2000 100,000 98,940
British Telecommunications PLC 6.239% 8/14/2000 50,000 49,378
British Telecommunications PLC 6.240% 8/7/2000 50,000 49,437
British Telecommunications PLC 6.381% 6/19/2000 100,000 99,684
British Telecommunications PLC 6.389% 6/13/2000 100,000 99,788
British Telecommunications PLC 6.427% 7/10/2000 194,400 193,063
British Telecommunications PLC 6.469% 10/30/2000 75,000 73,059
British Telecommunications PLC 6.472% 10/10/2000 100,000 97,718
British Telecommunications PLC 6.476% 10/12/2000 136,250 133,087
France Telecom 6.157% 6/2/2000 21,542 21,538
France Telecom 6.163% 6/8/2000 32,553 32,515
France Telecom 6.174% 6/19/2000 100,000 99,696
France Telecom 6.176% 6/20/2000 100,000 99,679
France Telecom 6.307% 6/5/2000 23,705 23,688
France Telecom 6.753% 8/23/2000 32,504 32,006
Telstra Corp. 6.240% 7/6/2000 30,000 29,821
Telstra Corp. 6.245% 7/11/2000 58,996 58,593
------------
1,626,043
------------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $20,839,435) 20,839,435
-----------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (25.3%)
-----------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--U.S. BANKS (1.7%)
State Street Bank & Trust 6.35% 6/6/2000 150,000 150,000
State Street Bank & Trust 6.42% 6/12/2000 100,000 100,000
State Street Bank & Trust 6.75% 8/30/2000 50,000 50,000
State Street Bank & Trust 6.75% 8/29/2000 100,000 100,000
U.S. Bank N.A. 6.64% 6/2/2000 (1) 385,000 385,000
------------
785,000
------------
YANKEE CERTIFICATES OF DEPOSIT--U.S. BRANCHES (23.6%)
ABN-AMRO Bank 6.47% 1/18/2001 50,000 49,985
ABN-AMRO Bank 6.51% 1/22/2001 100,000 99,969
ABN-AMRO Bank 6.69% 2/7/2001 200,000 199,935
ABN-AMRO Bank 6.695% 6/2/2000 200,000 199,984
ABN-AMRO Bank 7.375% 5/30/2001 250,000 249,918
Bank of Montreal 6.15% 6/19/2000 300,000 300,000
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank of Montreal 6.19% 6/26/2000 $200,000 $ 200,000
Bank of Montreal 6.30% 6/1/2000 150,000 150,000
Bank of Montreal 6.43% 6/12/2000 200,000 200,000
Bank of Montreal 6.51% 6/15/2000 150,000 150,000
Bank of Nova Scotia 6.75% 8/23/2000 100,000 100,000
Barclays Bank PLC 6.65% 6/2/2000 (1) 200,000 199,997
Barclays Bank PLC 6.67% 2/8/2001 100,000 99,967
Barclays Bank PLC 6.68% 2/12/2001 200,000 199,933
Barclays Bank PLC 6.69% 2/12/2001 200,000 199,947
Bayerische Hypo und Vereinsbank AG 6.50% 7/5/2000 200,000 200,000
Bayerische Hypo und Vereinsbank AG 6.75% 8/17/2000 100,000 100,000
Canadian Imperial Bank of Commerce 6.19% 6/19/2000 250,000 250,000
Canadian Imperial Bank of Commerce 6.32% 7/26/2000 50,000 50,000
Canadian Imperial Bank of Commerce 6.63% 8/8/2000 53,000 52,988
Canadian Imperial Bank of Commerce 6.75% 8/24/2000 200,000 200,000
Credit Agricole Indosuez 6.20% 6/26/2000 200,000 200,000
Credit Agricole Indosuez 6.75% 8/24/2000 200,000 200,000
Credit Communal de Belgique SA 6.39% 6/8/2000 200,000 200,000
Deutsche Bank 6.40% 6/8/2000 700,000 700,000
Deutsche Bank 6.45% 6/19/2000 300,000 300,000
Deutsche Bank 6.75% 8/21/2000 130,000 130,000
Deutsche Bank 6.75% 8/22/2000 70,000 70,000
Dexia Bank 6.75% 8/24/2000 200,000 200,000
Dexia Bank 6.75% 8/28/2000 100,000 100,000
Dresdner Bank 6.21% 6/26/2000 100,000 100,000
Dresdner Bank 6.36% 6/6/2000 500,000 500,000
Dresdner Bank 6.43% 6/12/2000 100,000 100,000
Dresdner Bank 6.50% 6/15/2000 300,000 300,000
Landesbank Baden-Wurttemberg 6.75% 8/21/2000 500,000 500,000
Lloyds Bank 6.56% 7/11/2000 150,000 150,000
Lloyds Bank 6.67% 2/8/2001 190,000 189,938
Lloyds Bank 6.87% 4/2/2001 95,000 94,977
Lloyds Bank 7.29% 5/16/2001 95,000 94,991
Lloyds Bank 7.38% 5/30/2001 250,000 249,930
Rabobank Nederlanden 6.47% 1/18/2001 300,000 299,910
Rabobank Nederlanden 6.53% 1/18/2001 100,000 99,968
Rabobank Nederlanden 6.66% 2/5/2001 200,000 199,935
Rabobank Nederlanden 6.675% 2/14/2001 100,000 99,966
Rabobank Nederlanden 6.69% 2/7/2001 100,000 99,967
Rabobank Nederlanden 7.05% 5/2/2001 100,000 99,974
Rabobank Nederlanden 7.08% 5/3/2001 299,500 299,422
Rabobank Nederlanden 7.29% 5/16/2001 100,000 99,991
UBS AG 6.53% 1/18/2001 400,000 399,874
UBS AG 6.85% 3/28/2001 200,000 199,938
UBS AG 6.88% 3/29/2001 200,000 199,937
UBS AG 6.88% 4/30/2001 300,000 299,948
UBS AG 6.95% 5/1/2001 75,000 74,935
Westdeutsche Landesbank 6.17% 6/21/2000 200,000 200,000
Westdeutsche Landesbank 6.19% 6/19/2000 100,000 100,000
------------
10,606,224
------------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $11,391,224) 11,391,224
-----------------------------------------------------------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (4.4%)
-----------------------------------------------------------------------------------------------------------------------------
Abbey National PLC 7.42% 5/21/2001 57,000 57,008
Barclays Bank PLC 6.10% 6/7/2000 67,000 67,000
Barclays Bank PLC 6.46% 10/16/2000 200,000 200,000
Bayerische Hypo und Vereinsbank AG 6.48% 7/5/2000 300,000 300,000
Bayerische Landesbank Girozentrale 6.33% 9/18/2000 51,000 51,000
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
PRIME MONEY MARKET FUND YIELD** DATE (000) (000)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bayerische Landesbank Girozentrale 6.34% 7/31/2000 $150,000 $ 150,000
Bayerische Landesbank Girozentrale 6.76% 8/23/2000 50,000 50,001
Halifax PLC 6.44% 10/16/2000 100,000 100,004
Halifax PLC 6.75% 8/21/2000 90,000 90,000
Halifax PLC 6.75% 8/25/2000 200,000 200,000
Halifax PLC 6.78% 9/1/2000 100,000 100,000
Landesbank Baden-Wurttemberg 6.77% 8/22/2000 50,000 50,002
Landesbank Baden-Wurttemberg 6.77% 8/24/2000 42,000 41,999
Landesbank Hessen-Thueringen 6.75% 8/21/2000 500,000 500,000
-----------------------------------------------------------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(COST $1,957,014) 1,957,014
-----------------------------------------------------------------------------------------------------------------------------
OTHER NOTES (8.7%)
-----------------------------------------------------------------------------------------------------------------------------
Abbey National Treasury Services 6.48% 1/18/2001 97,000 96,971
Abbey National Treasury Services 6.52% 1/22/2001 100,000 99,969
Abbey National Treasury Services 6.67% 2/5/2001 100,000 99,968
Abbey National Treasury Services 6.69% 2/7/2001 200,000 199,935
Associates Corp. of North America 6.54% 6/29/2000 (1) 500,000 499,977
Bank of America N.T.S.A 6.30% 10/10/2000 95,000 94,953
Bank of America National Association 6.71% 2/8/2001 350,000 350,000
Bank of America National Association 6.72% 2/5/2001 100,000 100,000
Bank of America National Association 6.75% 8/15/2000 200,000 200,000
Bank of America National Association 7.32% 5/16/2001 200,000 200,000
Bank of America National Association 7.40% 5/25/2001 100,000 100,000
Bank One N.A. 6.17% 6/21/2000 200,000 200,000
Bank One N.A. 6.75% 8/15/2000 100,000 100,000
Bank One N.A. 6.75% 8/16/2000 200,000 200,000
Bank One N.A. 6.75% 8/17/2000 100,000 100,000
Dakota Certificate (Citibank Credit Card Master Trust) 6.237% 6/19/2000 65,000 64,799
Dakota Certificate (Citibank Credit Card Master Trust) 6.288% 6/5/2000 75,000 74,948
Dakota Certificate (Citibank Credit Card Master Trust) 6.304% 6/2/2000 100,000 99,983
Dakota Certificate (Citibank Credit Card Master Trust) 6.316% 6/5/2000 50,000 49,965
Dakota Certificate (Citibank Credit Card Master Trust) 6.317% 6/5/2000 100,000 99,930
Dakota Certificate (Citibank Credit Card Master Trust) 6.326% 7/14/2000 50,000 49,627
Dakota Certificate (Citibank Credit Card Master Trust) 6.356% 6/6/2000 50,000 49,956
Dakota Certificate (Citibank Credit Card Master Trust) 6.358% 6/6/2000 65,100 65,043
Dakota Certificate (Citibank Credit Card Master Trust) 6.44% 6/12/2000 92,000 91,820
Dakota Certificate (Citibank Credit Card Master Trust) 6.544% 6/13/2000 25,000 24,946
Dakota Certificate (Citibank Credit Card Master Trust) 6.57% 6/19/2000 75,000 74,755
Fifth Third Bank 6.54% 6/19/2000 500,000 500,000
-----------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER NOTES
(COST $3,887,545) 3,887,545
-----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%)
(COST $45,142,298) 45,142,298
-----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.6%)
-----------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 556,311
Liabilities (817,147)
-----------
(260,836)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $44,881,462
-----------------------------------------------------------------------------------------------------------------------------
</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.
20
<PAGE> 23
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
AMOUNT
(000)
-------------------------------------------------------------------------------------------------------------------
AT MAY 31, 2000, NET ASSETS CONSISTED OF:
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Paid in Capital $44,882,050
Undistributed Net Investment Income --
Accumulated Net Realized Losses (588)
-------------------------------------------------------------------------------------------------------------------
NET ASSETS $44,881,462
===================================================================================================================
Investor Shares--Net Assets applicable to 43,051,221,720 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $43,050,666
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $1.00
===================================================================================================================
Institutional Shares--Net Assets applicable to 1,830,824,684 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $1,830,796
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INSTITUTIONAL SHARES $1.00
===================================================================================================================
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
FEDERAL MONEY MARKET FUND YIELD** DATE (000) (000)
----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (85.6%)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm Credit Bank 6.346% 1/11/2001 $ 25,000 $ 24,070
Federal Home Loan Bank 6.049% 6/9/2000 81,495 81,387
Federal Home Loan Bank 6.05% 11/3/2000 250,000 249,943
Federal Home Loan Bank 6.065%-6.392% 6/14/2000 171,071 170,687
Federal Home Loan Bank 6.071% 6/21/2000 100,000 99,668
Federal Home Loan Bank 6.325% 1/12/2001 152,265 146,603
Federal Home Loan Bank 6.386% 6/28/2000 125,000 124,404
Federal Home Loan Bank 6.62% 6/2/2000(1) 175,000 174,970
Federal Home Loan Bank 6.63% 6/2/2000(1) 15,000 14,996
Federal Home Loan Mortgage Corp. 5.00% 2/15/2001 60,000 59,423
Federal Home Loan Mortgage Corp. 5.731% 8/1/2000 30,000 29,724
Federal Home Loan Mortgage Corp. 6.192% 7/20/2000 200,000 198,339
Federal Home Loan Mortgage Corp. 6.347% 6/27/2000 14,575 14,509
Federal Home Loan Mortgage Corp. 6.399% 6/20/2000(1) 250,000 249,828
Federal Home Loan Mortgage Corp. 6.401% 6/20/2000 200,000 199,328
Federal Home Loan Mortgage Corp. 6.442%-6.443% 6/13/2000 350,000 349,252
Federal Home Loan Mortgage Corp. 6.443%-6.456% 7/5/2000 486,000 483,070
Federal Home Loan Mortgage Corp. 6.505%-6.51% 7/11/2000 360,000 357,423
Federal National Mortgage Assn. 6.25% 6/7/2000(1) 100,000 99,994
Federal National Mortgage Assn. 6.338% 6/14/2000(1) 135,000 134,990
Federal National Mortgage Assn. 6.345% 2/2/2001 150,000 149,892
Federal National Mortgage Assn. 6.464%-6.47% 8/3/2000 350,000 346,103
Federal National Mortgage Assn. 6.611% 8/11/2000 140,000 138,205
Federal National Mortgage Assn. 6.63% 6/7/2000(1) 490,000 489,594
Federal National Mortgage Assn. 7.26% 5/24/2001 200,000 200,000
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.10% 6/15/2000(1) 21,146 21,146
-----------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $4,607,548) 4,607,548
-----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (23.1%)
-----------------------------------------------------------------------------------------------------------------------------
Bank of America N.A.
(Dated 5/31/2000, Repurchase Value $500,091,000
Collateralized by Federal National Mortgage Assn.
6.00%, 10/1/2013) 6.52% 6/1/2000 500,000 500,000
Bear Stearns & Co.
(Dated 5/12/2000, Repurchase Value $252,009,000
Collateralized by Federal National Mortgage Assn.
5.50%-8.00%, 12/1/2018-12/1/2029) 6.43% 6/26/2000 250,000 250,000
Bear Stearns & Co.
(Dated 5/17/2000, Repurchase Value $90,644,000
Collateralized by Federal Home Loan Mortgage Corp.
6.50%, 2/1/2029; Federal National Mortgage Assn.
5.50%-6.50%, 11/1/2013-5/1/2028) 6.44% 6/26/2000 90,000 90,000
Bear Stearns & Co.
(Dated 5/16/2000, Repurchase Value $100,611,000
Collateralized by Federal National Mortgage Assn.
6.0%, 9/1/2029) 6.47% 6/19/2000 100,000 100,000
Bear Stearns & Co.
(Dated 5/15/2000, Repurchase Value $100,810,000
Collateralized by Federal Home Loan Mortgage Corp.
6.50%, 2/1/2029; Federal National Mortgage Assn.
6.50%, 5/1/2028) 6.48% 6/29/2000 100,000 100,000
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goldman Sachs & Co.
(Dated 5/17/2000, Repurchase Value $201,439,000
Collateralized by Federal National Mortgage Assn.
6.00%, 2/1/2029-6/1/2029) 6.475% 6/26/2000 $ 200,000 $ 200,000
PaineWebber
(Dated 5/31/2000, Repurchase Value $6,143,000
Collateralized by U.S. Treasury Note
14.25%, 2/15/2002) 6.33% 6/1/2000 6,142 6,142
----------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $1,246,142) 1,246,142
----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (108.7%)
(COST $5,853,690) 5,853,690
----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-8.7%)
----------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 43,321
Payables for Investment Securities Purchased (489,594)
Other Liabilities (22,569)
-----------
(468,842)
----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
----------------------------------------------------------------------------------------------------------------------------
Applicable to 5,384,909,384 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $5,384,848
============================================================================================================================
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, 2000, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) Share
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $5,384,939 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (91) --
----------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,384,848 $1.00
============================================================================================================================
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
Treasury Money Market Fund YIELD** DATE (000) (000)
---------------------------------------------------------------------------------------------------
U.S.GOVERNMENT OBLIGATIONS (108.2%)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bill 4.50%-5.757% 6/1/2000 $ 371,679 $ 371,678
U.S. Treasury Bill 5.595%-5.799% 6/8/2000 411,732 411,276
U.S. Treasury Bill 5.608%-5.692% 8/3/2000 41,551 41,142
U.S. Treasury Bill 5.622%-6.103% 8/10/2000 294,367 290,985
U.S. Treasury Bill 5.665%-5.777% 7/6/2000 52,027 51,739
U.S. Treasury Bill 5.752%-5.922% 8/24/2000 322,592 318,224
U.S. Treasury Bill 5.783%-5.799% 7/13/2000 204,395 203,036
U.S. Treasury Bill 5.819%-5.845% 8/31/2000 385,000 379,405
U.S. Treasury Bill 6.03%-6.175% 8/17/2000 611,912 603,958
U.S. Treasury Bill 6.039% 9/7/2000 4,421 4,350
U.S. Treasury Note 4.00% 10/31/2000 80,000 79,196
U.S. Treasury Note 4.50% 9/30/2000 428,000 425,417
U.S. Treasury Note 5.125% 8/31/2000 350,000 349,056
U.S. Treasury Note 5.375% 7/31/2000 183,910 183,732
U.S. Treasury Note 6.00% 8/15/2000 290,164 290,152
U.S. Treasury Note 6.125% 9/30/2000 190,000 189,727
U.S. Treasury Note 6.25% 8/31/2000 290,000 289,950
---------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $4,483,023) 4,483,023
---------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-8.2%)
---------------------------------------------------------------------------------------------------
Other Assets--Note B 60,770
Payables for Investment Securities Purchased (379,405)
Other Liabilities (21,316)
------------
(339,951)
---------------------------------------------------------------------------------------------------
NET ASSETS (100%)
---------------------------------------------------------------------------------------------------
Applicable to 4,142,843,690 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $4,143,072
===================================================================================================
NET ASSET VALUE PER SHARE $1.00
===================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
AT MAY 31, 2000, NET ASSETS CONSISTED OF:
---------------------------------------------------------------------------------------------------
AMOUNT PER
(000) Share
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $4,142,863 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 209 --
---------------------------------------------------------------------------------------------------
NET ASSETS $4,143,072 $1.00
===================================================================================================
</TABLE>
24
<PAGE> 27
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund 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 funds, Realized Net Gain (Loss)
should always be minimal and Unrealized Appreciation (Depreciation) should be
zero.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
PRIME FEDERAL TREASURY
MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND
----------------------------------------------------
SIX MONTHS ENDED MAY 31, 2000
----------------------------------------------------
(000) (000) (000)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $1,313,766 $158,179 $123,444
---------------------------------------------------
Total Income 1,313,766 158,179 123,444
---------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 2,511 313 272
Management and Administrative--Investor Shares 61,285 7,827 6,515
Management and Administrative--Institutional Shares* 1,100 -- --
Marketing and Distribution--Investor Shares 4,125 539 474
Marketing and Distribution--Institutional Shares* 173 -- --
Custodian Fees 350 44 40
Auditing Fees 14 5 5
Shareholders' Reports--Investor Shares 510 70 60
Shareholders' Reports--Institutional Shares* 2 -- --
Trustees' Fees and Expenses 26 3 3
---------------------------------------------------
Total Expenses 70,096 8,801 7,369
Expenses Paid Indirectly--Note C -- (1) (1)
---------------------------------------------------
Net Expenses 70,096 8,800 7,368
------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,243,670 149,379 116,076
------------------------------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT SECURITIES SOLD (527) (180) (159)
------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES -- -- --
------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,243,143 $149,199 $115,917
==================================================================================================================
</TABLE>
*The Federal and Treasury Money Market Funds do not offer Institutional Shares.
25
<PAGE> 28
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund'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 fund 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
fund, either by purchasing shares or by reinvesting distributions, and the
amounts redeemed. Dividends and Capital Share Transactions are shown separately
for each class of shares.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND
---------------------------
SIX MONTHS YEAR
ENDED ENDED
MAY 31, 2000 NOV. 30, 1999
(000) (000)
-------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,243,670 $ 1,865,313
Realized Net Gain (Loss) (527) 462
Unrealized Appreciation (Depreciation) -- --
-------------------------------
Net Increase in Net Assets Resulting from Operations 1,243,143 1,865,775
-------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME
Investor Shares (1,188,829) (1,797,001)
Institutional Shares (54,841) (68,312)
--------------------------------
Total Dividends (1,243,670) (1,865,313)
--------------------------------
CAPITAL SHARE TRANSACTIONS--INVESTOR SHARES (AT $1.00)
Issued 35,018,433 50,885,818
Issued in Lieu of Cash Distributions 1,143,919 1,727,975
Redeemed (32,541,575) (46,916,245)
--------------------------------
Net Increase--Investor Shares 3,620,777 5,697,548
--------------------------------
CAPITAL SHARE TRANSACTIONS--INSTITUTIONAL SHARES (AT $1.00)
Issued 2,258,339 3,264,695
Issued in Lieu of Cash Distributions 43,954 62,112
Redeemed (2,247,265) (2,693,960)
--------------------------------
Net Increase--Institutional Shares 55,028 632,847
--------------------------------------------------------------------------------------------
Total Increase 3,675,278 6,330,857
--------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 41,206,184 34,875,327
--------------------------------
End of Period $44,881,462 $41,206,184
============================================================================================
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
FEDERAL MONEY MARKET FUND TREASURY MONEY MARKET FUND
----------------------------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAY 31, 2000 NOV. 30, 1999 MAY 31, 2000 NOV. 30, 1999
(000) (000) (000) (000)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 149,379 $ 228,431 $ 116,076 $ 191,010
Realized Net Gain (Loss) (180) 159 (159) 292
Unrealized Appreciation (Depreciation) -- -- -- --
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 149,199 228,590 115,917 191,302
-----------------------------------------------------------
DIVIDENDS FROM NET INVESTMENT INCOME (149,379) (228,431) (116,076) (191,010)
-----------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (AT $1.00)
Issued 2,894,387 4,831,291 2,767,955 4,821,379
Issued in Lieu of Cash Distributions 144,324 220,153 110,939 183,629
Redeemed (2,896,877) (4,071,311) (3,328,277) (4,354,937)
-----------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 141,834 980,133 (449,383) 650,071
----------------------------------------------------------------------------------------------------
Total Increase (Decrease) 141,654 980,292 (449,542) 650,363
----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 5,243,194 4,262,902 4,592,614 3,942,251
-----------------------------------------------------------
End of Period $5,384,848 $ 5,243,194 $4,143,072 $4,592,614
====================================================================================================
</TABLE>
27
<PAGE> 30
FINANCIAL HIGHLIGHTS
Each fund'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 fund'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 fund 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 fund.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND INVESTOR SHARES
YEAR ENDED NOVEMBER 30,
----------------------------------------------
FOR A SHARE OUTSTANDING SIX MONTHS ENDED
THROUGHOUT EACH PERIOD MAY 31, 2000 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------
<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 .029 .049 .053 .053 .052 .057
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
--------------------------------------------------------
Total from Investment Operations .029 .049 .053 .053 .052 .057
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.029) (.049) (.053) (.053) (.052) (.057)
Distributions from Realized Capital Gains -- -- -- -- -- --
--------------------------------------------------------
Total Distributions (.029) (.049) (.053) (.053) (.052) (.057)
--------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========================================================================================================
TOTAL RETURN 2.89% 4.97% 5.42% 5.41% 5.31% 5.82%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $43,051 $39,430 $33,732 $26,480 $22,218 $18,764
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.33% 0.33% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 5.70%* 4.85% 5.28% 5.28% 5.18% 5.64%
========================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
PRIME MONEY MARKET FUND INSTITUTIONAL SHARES
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------
FOR A SHARE OUTSTANDING SIX MONTHS ENDED OCT. 28* TO
THROUGHOUT EACH PERIOD MAY 31, 2000 1999 1998 1997 1996 NOV. 30, 1995
-------------------------------------------------------------------------------------------------------------------------
<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 .029 .050 .055 .054 .054 .005
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
----------------------------------------------------------------
Total from Investment Operations .029 .050 .055 .054 .054 .005
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.029) (.050) (.055) (.054) (.054) (.005)
Distributions from Realized Capital Gains -- -- -- -- -- --
----------------------------------------------------------------
Total Distributions (.029) (.050) (.055) (.054) (.054) (.005)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 2.98% 5.15% 5.61% 5.59% 5.49% 0.53%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,831 $1,776 $1,143 $951 $910 $793
Ratio of Total Expenses to
Average Net Assets 0.15%** 0.15% 0.15% 0.15% 0.15% 0.15%**
Ratio of Net Investment Income to
Average Net Assets 5.88%** 5.04% 5.46% 5.44% 5.35% 5.65%**
=========================================================================================================================
</TABLE>
*Inception.
**Annualized.
28
<PAGE> 31
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
FEDERAL MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
------------------------------------------
FOR A SHARE OUTSTANDING SIX MONTHS ENDED
THROUGHOUT EACH PERIOD MAY 31, 2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<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 .028 .048 .052 .052 .051 .056
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
---------------------------------------------------------
Total from Investment Operations .028 .048 .052 .052 .051 .056
---------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.028) (.048) (.052) (.052) (.051) (.056)
Distributions from Realized Capital Gains -- -- -- -- -- --
---------------------------------------------------------
Total Distributions (.028) (.048) (.052) (.052) (.051) (.056)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================================
TOTAL RETURN 2.84% 4.89% 5.35% 5.35% 5.26% 5.77%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $5,385 $5,243 $4,263 $3,495 $3,100 $2,637
Ratio of Total Expenses to
Average Net Assets 0.33%* 0.33% 0.33% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 5.59%* 4.79% 5.21% 5.22% 5.13% 5.61%
=================================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
YEAR ENDED NOVEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED
THROUGHOUT EACH PERIOD MAY 31, 2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
<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 .044 .050 .050 .050 .053
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
---------------------------------------------------------
Total from Investment Operations .026 .044 .050 .050 .050 .053
---------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.026) (.044) (.050) (.050) (.050) (.053)
Distributions from Realized Capital Gains -- -- -- -- -- --
---------------------------------------------------------
Total Distributions (.026) (.044) (.050) (.050) (.050) (.053)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================================
TOTAL RETURN 2.64% 4.51% 5.06% 5.10% 5.11% 5.47%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $4,143 $4,593 $3,942 $3,237 $2,917 $2,527
Average Net Assets 0.33%* 0.33% 0.33% 0.32% 0.32% 0.32%
Ratio of Net Investment Income to
Average Net Assets 5.19%* 4.41% 4.94% 4.98% 4.99% 5.33%
=================================================================================================================
</TABLE>
*Annualized.
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
Vanguard Money Market Funds comprise the Prime Money Market Fund, Federal Money
Market Fund, and Treasury Money Market Fund, each of which is registered under
the Investment Company Act of 1940 as a diversified open-end investment company,
or mutual fund. The Prime Money Market Fund 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 Money Market Fund invests in
short-term debt instruments issued by the U.S. government or its agencies and
instrumentalities. The Treasury Money Market Fund 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 funds 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 fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used 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 each fund under methods
approved by the board of trustees. Each fund has committed to provide up to
0.40% of its assets in capital contributions to Vanguard. At May 31, 2000, the
funds had contributed capital to Vanguard (included in Other Assets) of:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF PORTFOLIO OF VANGUARD'S
MONEY MARKET FUND (000) NET ASSETS CAPITALIZATION
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Prime $8,236 0.02% 8.2%
Federal 1,031 0.02 1.0
Treasury 802 0.02 0.8
-----------------------------------------------------------------------------
</TABLE>
The funds' trustees and officers are also directors and officers of Vanguard.
30
<PAGE> 33
C. The funds' custodian bank has agreed to reduce its fees when the funds
maintain cash on deposit in their non-interest-bearing custody accounts. For the
six months ended May 31, 2000, custodian fee offset arrangements reduced
expenses by:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
EXPENSE REDUCTION
MONEY MARKET FUND (000)
-----------------------------------------------------------------------------
<S> <C>
Federal $1
Treasury 1
-----------------------------------------------------------------------------
</TABLE>
D. The Prime Money Market Fund 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 maintenance of shareholder accounts (included in Management and
Administrative expense), marketing and distribution, and shareholder reporting.
For the six months ended May 31, 2000, class-specific expenses of the Investor
Shares and Institutional Shares represented effective annual rates of 0.22% and
0.04%, respectively, of their average net assets. Income, expenses not
attributable to a specific class, and gains and losses on investments are
allocated to each class of shares based on its relative net assets.
31
<PAGE> 34
THE VANGUARD(R) FAMILY OF FUNDS
<TABLE>
<CAPTION>
STOCK FUNDS
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
500 Index Fund Growth Equity Fund Small-Cap Value Index Fund*
Aggressive Growth Fund Growth Index Fund* Tax-Managed Capital
Calvert Social Index(TM) Fund Health Care Fund Appreciation Fund*
Capital Opportunity Fund Institutional Developed Markets Tax-Managed Growth and
Convertible Securities Fund Index Fund Income Fund*
Developed Markets Index Fund Institutional Index Fund* Tax-Managed International Fund*
Emerging Markets Stock International Growth Fund Tax-Managed Small-Cap Fund*
Index Fund* International Value Fund Total International Stock
Energy Fund Mid-Cap Index Fund* Index Fund
Equity Income Fund Morgan(TM) Growth Fund Total Stock Market Index Fund*
European Stock Index Fund* Pacific Stock Index Fund* U.S. Growth Fund
Explorer(TM) Fund PRIMECAP Fund U.S. Value Fund
Extended Market Index Fund* REIT Index Fund Utilities Income Fund
Global Equity Fund Selected Value Fund Value Index Fund*
Gold and Precious Metals Fund Small-Cap Growth Index Fund* Windsor(TM) Fund
Growth and Income Fund Small-Cap Index Fund* Windsor(TM) II Fund
BALANCED FUNDS
-------------------------------------------------------------------------------------------------------------
Asset Allocation Fund LifeStrategy(R) Growth Fund STAR(TM) Fund
Balanced Index Fund LifeStrategy(R) Income Fund Tax-Managed Balanced Fund
Global Asset Allocation Fund LifeStrategy(R) Moderate Wellesley(R) Income Fund
LifeStrategy(R) Conservative Growth Fund Wellington(TM) Fund
Growth Fund
BOND FUNDS
-------------------------------------------------------------------------------------------------------------
Admiral(TM) Intermediate-Term Intermediate-Term Bond Preferred Stock Fund
Treasury Fund Index Fund Short-Term Bond Index Fund
Admiral(TM) Long-Term Treasury Intermediate-Term Corporate Fund Short-Term Corporate Fund*
Fund Intermediate-Term Tax-Exempt Short-Term Federal Fund
Admiral(TM) Short-Term Treasury Fund Short-Term Tax-Exempt Fund
Fund Intermediate-Term Treasury Fund Short-Term Treasury Fund
GNMA Fund Limited-Term Tax-Exempt Fund State Tax-Exempt Bond Funds
High-Yield Corporate Fund Long-Term Bond Index Fund (California, Florida,
High-Yield Tax-Exempt Fund Long-Term Corporate Fund Massachusetts, New Jersey,
Inflation-Protected Securities Fund Long-Term Tax-Exempt Fund New York, Ohio, Pennsylvania)
Insured Long-Term Tax-Exempt Long-Term Treasury Fund Total Bond Market Index Fund*
Fund
MONEY MARKET FUNDS
-------------------------------------------------------------------------------------------------------------
Admiral(TM) Treasury Money State Tax-Exempt Money Market Tax-Exempt Money Market Fund
Market Fund Funds (California, New Jersey, Treasury Money Market Fund
Federal Money Market Fund New York, Ohio, Pennsylvania)
Prime Money Market Fund*
VARIABLE ANNUITY PLAN
-------------------------------------------------------------------------------------------------------------
Balanced Portfolio High-Grade Bond Portfolio Money Market Portfolio
Diversified Value Portfolio High Yield Bond Portfolio REIT Index Portfolio
Equity Income Portfolio International Portfolio Short-Term Corporate Portfolio
Equity Index Portfolio Mid-Cap Index Portfolio Small Company Growth Portfolio
Growth Portfolio
</TABLE>
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group, P.O. Box
2600, Valley Forge, PA 19482-2600.
Read it carefully before you invest or send money.
32
<PAGE> 35
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Six of Vanguard's seven board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new trustees/directors; and electing
Vanguard officers.
The list below provides a brief description of each trustee's professional
affiliations. Noted in parentheses is the year in which the trustee joined the
Vanguard board.
TRUSTEES
JOHN J. BRENNAN - (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JoANN HEFFERNAN HEISEN - (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
Johnson Merck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MacLAURY - (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL - (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. - (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JAMES O. WELCH, JR. - (1971) 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 - (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, 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.
THOMAS J. HIGGINS - Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON - Legal Department.
ROBERT A. DiSTEFANO - Information Technology.
JAMES H. GATELY - Individual Investor Group.
KATHLEEN C. GUBANICH - Human Resources.
IAN A. MacKINNON - Fixed Income Group.
F. WILLIAM McNABB, III - Institutional Investor Group.
MICHAEL S. MILLER - Planning and Development.
RALPH K. PACKARD - Chief Financial Officer.
GEORGE U. SAUTER - Quantitative Equity Group.
<PAGE> 36
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q302 072000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
