<PAGE> 1
VANGUARD
ADMIRAL FUNDS
ANNUAL REPORT 1994
[PHOTO -- SEE EDGAR APPENDIX]
<PAGE> 2
A BRAVE NEW WORLD FOR INVESTING
With the clarity of hindsight, we can now see that the past two decades
composed one of the great cycles in the history of the financial markets,
as reflected in the chart below.
* During the 1973-1982 decade, the nominal total returns (capital change
plus income) of stocks and bonds averaged only about +6% per year;
cash reserves averaged more than +8% annually. However, high inflation
rates, averaging 8.7% annually, devastated these nominal results. Real
returns (nominal returns less the inflation rate) for each of these
three major asset classes were actually negative.
* During the 1983-1992 decade, quite the opposite situation prevailed.
Nominal returns for stocks and bondswere close to their highest levels
in history and forged well into double-digit territory. To make a good
investment environment even better, inflation was tame (averaging 3.8%
annually), and real returnswere solidly positive.
[TALE OF TWO DECADES CHART -- SEE EDGAR APPENDIX]
This sharp contrast provides us with perspective for the decade that will
end in the year 2002. Some investors will fear a recurrence of the returns
of the first decade, while others will hope for a recurrence of the second;
most will likely anticipate something in between. Whatever the case, there
are two essential elements involved in considering your investment program
in the light of today's circumstances.
First, the yield of each investment class at the start of a decade has had
an important relationship to its future return. Yields were low when 1973
began, high when 1983 began, and are again low today. In fact, current
income yields are remarkably close to the levels of 20 years ago, as shown
in the following table.
<TABLE>
<CAPTION>
INCOME YIELDS (January 1)
----------------------------------
1973 1983 1994
-----------------------------------------------------
<S> <C> <C> <C>
STOCKS 2.7% 4.9% 2.7%
BONDS 5.8 10.7 6.0
RESERVES 3.8 10.5 3.1
-----------------------------------------------------
</TABLE>
But there is a second important element to consider: inflation. It got
progressively worse during most of the first decade, but got progressively
better in the second.
<TABLE>
<CAPTION>
----------------------------------
1973 1981 1993
-----------------------------------------------------
<S> <C> <C> <C>
INFLATION 3.4% 12.4% 2.7%
-----------------------------------------------------
</TABLE>
Today's low yield levels suggest that more modest nominal returns are in
prospect for the coming decade than in the 1980s; indeed, returns could
gravitate
(Please turn to inside back cover)
VANGUARD ADMIRAL FUNDS CONSISTS OF FOUR PORTFOLIOS--U.S. TREASURY MONEY
MARKET PORTFOLIO, SHORT-TERM U.S. TREASURY PORTFOLIO, INTERMEDIATE-TERM
U.S. TREASURY PORTFOLIO, AND LONG-TERM U.S. TREASURY PORTFOLIO--EACH OF
WHICH INVESTS PRIMARILY IN U.S. TREASURY SECURITIES. THE OBJECTIVE OF THE
PORTFOLIOS IS TO PROVIDE THE HIGHEST LEVEL OF CURRENT INCOME CONSISTENT
WITH CAPITAL PRESERVATION. THE MONEY MARKET PORTFOLIO ALSO SEEKS TO
MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 3
CHAIRMAN'S LETTER
[PHOTO OF JOHN C. BOGLE -- SEE EDGAR APPENDIX]
FELLOW SHAREHOLDER:
In our first full fiscal year ended January 31, 1994, interest rates
declined on balance to levels not witnessed for more than two decades. So,
it was generally a period of relatively low returns for money market
investors and strong returns for bond investors. The four Portfolios of
Vanguard Admiral Funds, spanning the complete maturity spectrum of the U.S.
Treasury securities market, provided returns in line with their target
market segments, and fully competitive relative to mutual funds with
comparable objectives.
The total return for each of our Portfoliosis shown in the table
below. We have also shown both components of total return: income
return--normally highly variable for money market portfolios and reasonably
predictable for longer-term bond portfolios; and capital return--normally
zero for a money market portfolio, but highly variable for longer-term
portfolios, and may be positive or negative depending upon whether interest
rates fall or rise. The table also provides the annualized dividend yields
at fiscal year-end. Here are the figures:
<TABLE>
<CAPTION>
------------------------------------------------------
Fiscal Year Ended
January 31, 1994
---------------------------------
Components of
Return 30-Day
Total --------------- SEC
Treasury Portfolio Return Income Capital Yield
------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM +15.9% +7.3% +8.6% 6.2%
------------------------------------------------------
INTERMEDIATE-TERM + 9.9% +5.8% +4.1% 5.3%
------------------------------------------------------
SHORT-TERM + 5.5% +4.5% +1.0% 4.2%
------------------------------------------------------
MONEY MARKET + 3.0% +3.0% +0.0% 3.0%
------------------------------------------------------
</TABLE>
The detailed per share figures for each Portfolio, including net asset
values, income dividends, and any distributions from net realized capital
gains are shown in the table on page 5 of this Report. Our three
longer-term Portfolios each distributed capital gains in 1993. I would note
that capital gains distributions are a by-product and not an objective of
our portfolio management activities.
* THE FIXED-INCOME MARKETS IN REVIEW
The twelve months just ended was a period of sustained low money market
interest rates. Three-month U.S. Treasury bills began the period, on
January 31, 1993, at 2.9%. One year later, the Treasury bill yield was
3.0%. In the intervening months, the bill yield fluctuated in a remarkably
narrow range, from 2.9% to 3.2%.
The bond market proved to be not only more exciting, but more
rewarding as well. Short-term bonds provided solid returns, and
intermediate-term and long-term bonds provided outstanding returns. Across
all sectors of the market, yields declined, moving bond prices generally
higher. The yield on the short-term (3-year) U.S. Treasury bond fell from
4.6% at the year's outset to 4.4% at its conclusion, a drop of 0.20% (20
"basis points"). At the other maturity extreme, the yield on the long-term
(30-year) U.S. Treasury bond fell even further, from 7.2% to 6.3%, or 90
basis points.
A combination of relatively slow economic growth, restrained
inflation, and accommodative Federal Reserve monetary policy provided the
economic backdrop for this period of declining
1
<PAGE> 4
[MONTH-END YIELDS 1988-1994 CHART -- SEE EDGAR APPENDIX]
interest rates. The economy, as measured by Gross Domestic Product
(GDP), has grown at an inflation-adjusted rate of 2.8% over the past twelve
months. The first half of the year was particularly sluggish; more recently,
economic growth has picked up. Perhaps the best news on the economic front
has been the continued low level of inflation, with the Consumer Price Index
(CPI) rising only 2.5% during the past twelve months, compared with 3.3% in
fiscal 1993.
To sketch the tone of the fixed-income markets during fiscal 1994 and
the six years prior, the chart above reviews the yields on Treasury bills,
short-term bonds, and long-term bonds. We usually present this yield
comparison over a five-year period, but we have extended it to seven years
in order to show a period that includes the sharp yield increase of fiscal
1988. Our purpose in doing so is to avoid any implication that interest
rates decline constantly, as has been pretty much the case since the autumn
of 1988.
As you can see, the decline in long-term rates over the past year was
quite steady until October. At that point, the long-term Treasury bond
reached a nadir of 5.9%. Since then, interest rates have "backed up"
somewhat (to 6.3% on January 31, 1994) in response to concerns about a
strengthening economy and, more recently, the Federal Reserve Board's move
to lift short-term rates a notch or two. The chart provides a reminder that
rates can anddo rise--sometimes sharply--engendering commensurate declines
in bond prices. Short-term, intermediate-term, and long-term bonds,
respectively, carry an ascending level of price volatility.
* THE PORTFOLIOS IN FISCAL 1994
As you know, each of the four Portfolios of Vanguard Admiral Funds
invests primarily in U.S. Treasury obligations and maintains its average
maturity within a tightly defined range. During fiscal 1994, each of our
Portfolios performed in line with the sector of the Treasury market that it
emulates. And, as this table shows, our results were more than competitive
with other mutual funds investing in Treasury obligations withcomparable
maturities:
<TABLE>
<CAPTION>
-----------------------------------------------------------
Total Return
------------------------------------
Twelve Months Ended January 31, 1994
------------------------------------
Competitive
Vanguard Fund Admiral
U.S. Treasury Portfolio Admiral Average Advantage
-----------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM +15.9% +12.4% +3.5%
-----------------------------------------------------------
INTERMEDIATE-TERM + 9.9% + 9.0% +0.9%
-----------------------------------------------------------
SHORT-TERM + 5.5% + 5.2% +0.3%
-----------------------------------------------------------
MONEY MARKET + 3.0% + 2.6% +0.4%
-----------------------------------------------------------
</TABLE>
We are pleased, of course, that each of the Admiral Portfolios outpaced its
average comparable fund over the past year. A review of our differentiating
factors helps to highlight the key facets ofthe Portfolios.
First, each of our Portfolios is managed under specific and
stringent quality guidelines. Our quality is maximized by restricting our
investments to obligations guaranteed by the U.S. government. The vast
majority of our assets are invested in direct U.S. Treasury obligations
(100% for the Money Market
2
<PAGE> 5
Portfolio and 80% to 95% for each of the longer-term Portfolios). Only a
few of our competitors hew to such high quality restrictions.
Second, we also limit maturity flexibility in our Portfolios so that
shareholders may know what level of price variability to expect from
interest rate changes. These defined standards for our Short-Term,
Intermediate-Term, and Long-Term Portfolios may be somewhat
different--either shorter or longer--than competitive funds, and so may
result in positive or negative performance variations from time to time.
For example, in fiscal 1994 our Long-Term Portfolio benefited from having a
longer average maturity than most competitive funds. While this emphasis
proved auspicious in a period of generally declining interest rates, the
Portfolio would be expected to decline more in a period of rising interest
rates.
Third, and perhaps most dramatic, the Vanguard Admiral Portfolios
are differentiated by their cost structure. Other factors held equal, lower
mutual fund costs mean higher returns to investors. Each Admiral Portfolio
leads its average competitor with a remarkable cost advantage. Our expense
ratio of 0.15% is by far the lowest sustainable cost structure of any fund
family in the fixed-income field ("sustainable" because our advantage is
not achieved by temporary fee waivers, but through Vanguard's unique
"at-cost" structure and the economies created by the Portfolios'
highminimum account balance). This table showshow our expenses compare to
the average competitive fund:
<TABLE>
<CAPTION>
--------------------------------------------------------
1993 Expense Ratios
------------------------------
Competitive
Vanguard Fund Admiral
U.S. Treasury Portfolio Admiral Average Advantage
--------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM 0.15% 0.80% 0.65%
--------------------------------------------------------
INTERMEDIATE-TERM 0.15% 0.64% 0.49%
--------------------------------------------------------
SHORT-TERM 0.15% 0.59% 0.44%
--------------------------------------------------------
MONEY MARKET 0.15% 0.57% 0.42%
--------------------------------------------------------
</TABLE>
(continued)
[U.S. TREASURY YIELDS AND INFLATION 1965-1994
CHART -- SEE EDGAR APPENDIX)
3
<PAGE> 6
It goes (almost) without saying that in an era of low interest
rates, investors simply must pay attention to investment costs to maximize
their returns. After all, with money market funds now yielding 2.7% on
average, our competitors' expense ratios consume 21% of the available
income, compared to just 5% for the Admiral Money Market Portfolio; for
long-term Treasury-bond funds, yielding 5.7% on average, the percentages
are 14% for the competitors and 3% for Admiral. In our view, then, the
beauty of the Admiral Portfolios is that their lower expenses enable
investors to maintain, or indeed enhance, their yield without compromising
credit quality.
Finally, taxable investors will be pleased to know that a high
percentage of each Portfolio's 1993 income was exempt from state income
taxes (even, I am pleased to note, in Pennsylvania, which modified its tax
code in 1993). For investors in states with high tax rates, the benefit
gained from state tax exemption can make the Admiral Portfolios even more
attractive compared to funds emphasizing corporate issues.
* LOOKING AHEAD
The chart on page 2 displayed the remarkable decline in interest rates over
the past seven years. For a longer-term perspective, the chart on the
bottom of page 3 illustrates the yields of Treasury bills and long-term
Treasury bonds over the past thirty years, compared to the rate of
inflation. Clearly, the pattern of interest rates has been anything but a
one-way street. The chart also shows that inflation trends have been the
major driver of interest rates over the years, with investors demanding
higher yields as inflation accelerated and lower yields as inflation ebbed.
Based on the 1993 statistics, inflation today seems quiescent. Yet,
recognizing stronger growth in the economy in the latter part of 1993, the
Federal Reserve Board has taken preliminary steps, after the close of our
fiscal year, to raise short-term interest rates in an effort to prevent any
acceleration of inflation.
No one has the ability to accurately predict future changes in the
level of interest rates. Indeed, the remarkable decline in rates that has
occurred since early 1990 surprised even the experts. Thus, our advice to
shareholders is to face the unpredictable future by holding the Vanguard
Admiral Portfolio (or the combination of Portfolios) that best meets your
needs: the Money Market Portfolio if your primary objective is capital
stability; the Short-Term Portfolio if you want to minimize capital risk
and achieve a somewhat higher level of income and some durability of
income; and the Long-Term and Intermediate-Term Portfolios if you require a
higher yield with greater income durability, and are prepared to accept
with equanimity significant fluctuations in the value of your capital.
To recognize, biblically put, that "the financial markets giveth and
the financial markets taketh away" is the beginning of investment wisdom.
In our view, as we look to the years ahead, investors who decide carefully
on the allocation of their investments among money market funds, bond
funds, and common stock funds, will enjoy solid returns, provided only that
they do not let themselves get intimidated by the inevitable fluctuations
in the financial markets. For the long-term investor, "stay the course" is
virtually always the best advice.
Sincerely,
/S/ JOHN C. BOGLE
---------------------
John C. Bogle
Chairman of the Board
February 23, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
4
<PAGE> 7
PORTFOLIO RESULTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share Last Twelve Months
------------------------- ------------------------- 30-Day SEC
U.S. Treasury Average Average January 31, January 31, Income Capital Total Annualized
Portfolio Maturity Quality* 1993 1994 Dividends Gains Return Yield
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM 21.0 YEARS Aaa $10.30 $10.90 $.709 $.281 + 15.9% 6.18%
INTERMEDIATE-TERM 6.8 YEARS Aaa 10.29 10.58 .578 .128 + 9.9 5.28
SHORT-TERM 2.6 YEARS Aaa 10.17 10.26 .448 .011 + 5.5 4.21
MONEY MARKET 57 DAYS Aaa 1.00 1.00 .029 -- + 3.0 3.01**
------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ratings provided by Moody's Investors Services. Securities receiving a
Aaa rating are judged to be of the best quality, carrying the smallest
degree of credit risk. U.S. Government and agency securities are
considered to have Aaa ratings.
**7-day yield.
5
<PAGE> 8
AVERAGE ANNUAL TOTAL RETURNS
AVERAGE ANNUAL TOTAL RETURNS--THE CURRENT YIELDS NOTED IN THE CHAIRMAN'S
LETTER ARE CALCULATED IN ACCORDANCE WITH SEC GUIDELINES. THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED DECEMBER 31, 1993) ARE AS
FOLLOWS:
<TABLE>
<CAPTION>
U.S. TREASURY PORTFOLIO 1 YEAR SINCE INCEPTION*
----------------------- ------ ----------------
<S> <C> <C>
LONG-TERM +16.67% +16.92%
INTERMEDIATE-TERM +11.32 +11.85
SHORT-TERM + 6.49 + 6.94
MONEY MARKET + 2.99 + 3.01
</TABLE>
THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PLEASE NOTE THAT AN INVESTMENT IN A MONEY MARKET FUND, SUCH AS THE ADMIRAL
U.S. TREASURY MONEYMARKET PORTFOLIO, IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
*INCEPTION, DECEMBER 14, 1992.
6
<PAGE> 9
CUMULATIVE PERFORMANCE
[LONG-TERM U.S. TREASURY PORTFOLIO
DECEMBER 31, 1992, TO JANUARY 31, 1994
GRAPH -- SEE EDGAR APPENDIX]
[INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO
DECEMBER 31, 1992, TO JANUARY 31, 1994
GRAPH -- SEE EDGAR APPENDIX]
7
<PAGE> 10
CUMULATIVE PERFORMANCE (continued)
[SHORT-TERM U.S. TREASURY PORTFOLIO
DECEMBER 31, 1992, TO JANUARY 31, 1994
GRAPH -- SEE EDGAR APPENDIX]
8
<PAGE> 11
REPORT FROM THE INVESTMENT ADVISER
During the fiscal year ended January 31, 1994, the fixed-income markets
provided disparate results. Money market returns were about even with
inflation on an after-tax basis. Short-term bonds offered somewhat better
returns due to their higher yields coupled with modest capital appreciation
caused by a slight decline in interest rates. Intermediate- and long-term
bond investments enjoyed handsome total returns through a combination of
higher yields and substantial capital appreciation, provided when
longer-term interest rates fell to levels not seen in more than 20 years.
* MARKET REVIEW
This past year displayed fairly typical bond market behavior. Short-term
interest rates were controlled by the Federal Reserve while long-term
interest rates were controlled by the market and its perception of the risk
of inflation. Regarding the former, the Fed deemphasized its role as
stimulator of economic activity and held short-term rates steady, content
to watch economic statistics for signs that the prior years' rate cuts were
in fact fostering economic growth. A qualified "yes" isthe answer at this
point.
The housing and auto sectors have benefited from low borrowing rates
and high affordability. The job market has been slower to respond, but has
finally developed a distinct uptrend in hiring. Of special importance is
recent growth in higher-paying manufacturing jobs. Consumer confidence,
sapped by the "anemia" of the recent recovery, has only recently begun to
improve, and will be crucial to sustaining economic expansion.
As for inflation, the market's concerns diminished considerably this
year. Government inflation statistics indicate that inflation has fallen
below 3% and industrial materials prices have remained practically
unchanged. Companies have been making sizable investments in productivity
by enhancing technology, which helps to contain the demand for labor and
control wage growth. In addition, deficit-reducing tax increases and
spending cuts (essentially in the defense sector) have tempered the
economic stimulus of the Federal government's fiscal policy. Thus, the
premium (in the form of high long-term interest rates) previously demanded
by the market to compensate for inflation has eroded. As a result,
long-term interest rates fell this year to levels not seen since 1971,
spawning a healthy price rally. Indeed, long-term Treasury bond prices rose
approximately +12% during the year.
Since the fiscal year-end, the Fed has shifted into its other major
role, that of inflation fighter. In the face of statistics showing stronger
economic growth but still modest inflation, the central bank has taken a
preemptive step against inflation by raising short-term interest rates
0.25% (25 "basis points"). The first objective is to moderate the pace of
the economy by raising the cost of borrowing to businesses and consumers.
More importantly, however, the Fed wants to demonstrate its resolve to keep
inflation low. If the Fed can control the market's expectations of
inflation, this period of low interest rates can be prolonged with the
attendant benefits to the economy and investors.
Successful or not, the Fed's action should serve as a reminder to
bond fund shareholders that interest rates have fallen to historically low
levels. To continue to provide the generous capital appreciation of prior
years, interest rates would have to approach zero. The far more likely
outcome is that interest rates will be stable or rise to some degree as the
expanding economy fosters greater demand for credit. In such an
environment, bond fund total returns will be largely made up of interest
income, and the possibility of declining bond prices must not be
underestimated.
(continued)
9
<PAGE> 12
* IN SUMMARY
Currently, the various Admiral Portfolios have neutral maturities (a proxy
for the Portfolios' sensitivity to changes in interest rates), which puts
them roughly in the middle of the ranges specified in the Funds'
prospectus. We are balancing the possibility of interest rate increases
against the relatively large amount of additional yield available from
bonds with longer maturities. As always, the exceptionally low costs of
Vanguard Admiral Funds means that shareholders should continue to benefit
from a fair exchange of risk, return, and cost.
Sincerely,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Vice President
John W. Hollyer, Assistant Vice President
Vanguard Fixed Income Group
February 14, 1994
10
<PAGE> 13
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS
January 31, 1994
<TABLE>
<CAPTION>
Face Market
U.S. TREASURY Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
---------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (106.1%)
---------------------------------------------------------------------
U.S. TREASURY BILLS
2.94%-3.28%, 2/3/94-5/12/94 $742,410 $738,790
U.S. TREASURY NOTES
5.375%, 2/28/94-4/30/94 82,280 82,536
6.875%, 2/15/94 33,500 33,546
7.0%, 4/15/94-5/15/94 22,000 22,221
8.875%, 2/15/94 28,500 28,561
9.0%, 2/15/94 7,000 7,015
---------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $912,669) 912,669
---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-6.1%)
---------------------------------------------------------------------
Other Assets--Note B 8,972
Accounts Payable for Securities
Purchased (58,556)
Other Liabilities (2,625)
-------
(52,209)
---------------------------------------------------------------------
NET ASSETS (100%)
---------------------------------------------------------------------
Applicable to 860,454,539 outstanding
$.001 par value shares
(authorized 20,000,000,000 shares) $860,460
---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
=====================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
---------------------------------------------------------------------
Amount Per
(000) Share
----- -----
<S> <C> <C>
Paid in Capital $860,455 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net Realized Gains 5 --
Unrealized Appreciation
of Investments -- --
---------------------------------------------------------------------
NET ASSETS $860,460 $1.00
---------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS(continued)
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
-------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (97.1%)
-------------------------------------------------------
U.S. TREASURY NOTES
3.875%, 8/31/95 $ 15,300 $ 15,288
4.125%, 5/31/95 8,000 8,038
4.625%, 2/15/96 4,500 4,541
5.125%, 3/31/98 6,000 6,066
5.75%, 10/31/97 5,000 5,180
5.875%, 5/15/95 11,900 12,214
6.0%, 11/30/97 1,400 1,462
7.25%, 11/15/96 2,000 2,147
7.375%, 5/15/96 4,000 4,269
7.5%, 2/29/96 18,300 19,498
7.625%, 4/30/96 6,000 6,433
7.75%, 2/15/95-3/31/96 26,000 27,364
7.875%, 2/15/96-4/15/98 29,050 31,252
8.0%, 10/15/96-1/15/97 3,300 3,612
8.25%, 7/15/98 27,286 30,901
8.5%, 4/15/97-7/15/97 7,000 7,830
8.625%, 8/15/97 7,250 8,180
8.75%, 10/15/97 8,000 9,088
8.875%, 2/15/96-11/15/97 6,000 6,601
BANAMEX EXPORT FUNDING
(U.S. Government Guaranteed)
4.91%, 7/15/96 6,000 6,018
BANCO NATIONAL DE
COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
4.62%, 10/15/98 6,108 6,086
5.1%, 1/14/96 5,400 5,438
5.48%, 7/15/95 2,427 2,467
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.61%, 6/1/96 1,200 1,200
4.743%, 6/14/96 9,000 9,020
4.86%, 1/1/96 4,500 4,517
-------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $243,968) 244,710
-------------------------------------------------------
TEMPORARY CASH INVESTMENT (5.1%)
-------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 3.17%, 2/1/94
(Cost $12,803) 12,803 12,803
-------------------------------------------------------
TOTAL INVESTMENTS (102.2%)
(Cost $256,771) 257,513
-------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.2%)
-------------------------------------------------------
Other Assets--Note B $ 5,228
Liabilities (10,778)
-------
(5,550)
-------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------
Applicable to 24,558,596 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $ 251,963
-------------------------------------------------------
NET ASSET VALUE PER SHARE $10.26
=======================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
-------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
-------------------------------------------------------
Amount Per
(000) Share
----- -----
<S> <C> <C>
Paid in Capital $250,691 $10.21
Undistributed Net
Investment Income -- --
Accumulated Net Realized Gains 611 .02
Unrealized Appreciation
of Investments 661 .03
-------------------------------------------------------
NET ASSETS $251,963 $10.26
-------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
-----------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (97.4%)
-----------------------------------------------------------------
U.S. TREASURY BONDS
10.0%, 5/15/10 $ 6,200 $ 8,310
10.75%, 5/15/03 1,800 2,459
11.125%, 8/15/03 1,500 2,100
11.625%, 11/15/02-11/15/04 11,000 15,958
11.75%, 2/15/10 13,050 19,267
11.875%, 11/15/03 5,000 7,304
U.S. TREASURY NOTES
5.75%, 8/15/03 2,000 2,014
6.0%, 10/15/99 9,800 10,204
6.25%, 2/15/03 2,000 2,089
6.375%, 7/15/99-8/15/02 38,100 40,388
7.0%, 4/15/99 43,500 47,293
7.125%, 10/15/98 1,000 1,090
7.875%, 11/15/99-8/15/01 45,500 52,223
8.0%, 5/15/01 2,500 2,890
8.5%, 2/15/00-11/15/00 22,250 26,248
8.75%, 8/15/00 7,450 8,877
8.875%, 11/15/98-5/15/00 46,315 54,257
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
6.0%, 3/15/05 9,355 9,487
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
5.375%, 1/15/02 6,000 6,028
5.94%, 6/20/06 5,000 4,980
-----------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $321,042) 323,466
-----------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.2%)
-----------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 3.17%, 2/1/94
(Cost $3,982) 3,982 3,982
-----------------------------------------------------------------
TOTAL INVESTMENTS (98.6%)
(Cost $325,024) 327,448
-----------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.4%)
-----------------------------------------------------------------
Other Assets--Notes B and E 7,573
Liabilities--Note E (2,873)
--------
4,700
-----------------------------------------------------------------
NET ASSETS (100%)
-----------------------------------------------------------------
Applicable to 31,386,835 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $332,148
----------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.58
================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
----------------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
----------------------------------------------------------------
Amount Per
(000) Share
----- ------
<S> <C> <C>
Paid in Capital $329,595 $10.50
Undistributed Net
Investment Income -- --
Accumulated Net Realized Gains 161 --
Unrealized Appreciation
of Investments 2,392 .08
----------------------------------------------------------------
NET ASSETS $332,148 $10.58
----------------------------------------------------------------
</TABLE>
13
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
LONG-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
-------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (95.1%)
-------------------------------------------------------
U.S. TREASURY BONDS
7.875%, 2/15/21 $10,000 $11,875
8.125%, 8/15/19 2,500 3,036
8.875%, 8/15/17-2/15/19 25,150 32,758
9.25%, 2/15/16 16,300 21,870
9.875%, 11/15/15 1,750 2,475
10.375%, 11/15/12 6,000 8,428
11.25%, 2/15/15 1,500 2,359
11.75%, 2/15/10 7,800 11,516
-------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $89,342) 94,317
-------------------------------------------------------
TEMPORARY CASH INVESTMENT (2.9%)
-------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 3.17%, 2/1/94
(Cost $2,876) 2,876 2,876
-------------------------------------------------------
TOTAL INVESTMENTS (98.0%)
(Cost $92,218) 97,193
-------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.0%)
-------------------------------------------------------
Other Assets--Note B 4,141
Liabilities (2,117)
-------
2,024
-------------------------------------------------------
NET ASSETS (100%)
-------------------------------------------------------
Applicable to 9,098,504 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $99,217
-------------------------------------------------------
NET ASSET VALUE PER SHARE $10.90
=======================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
-------------------------------------------------------
AT JANUARY 31, 1994,
NET ASSETS CONSISTED OF:
-------------------------------------------------------
Amount Per
(000) Share
----- -----
<S> <C> <C>
Paid in Capital $93,349 $10.26
Undistributed Net
Investment Income -- --
Accumulated Net Realized Gains 891 .10
Unrealized Appreciation
of Investments 4,977 .54
-------------------------------------------------------
NET ASSETS $99,217 $10.90
-------------------------------------------------------
</TABLE>
14
<PAGE> 17
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-TERM
MONEY MARKET U.S. TREASURY
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
January 31, 1994 January 31, 1994
(000) (000)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest. . . . . . . . . . . . . . . . . . . . . . . . . $19,213 $7,361
--------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 19,213 7,361
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . . . $ 45 $ 11
Management and Administrative . . . . . . . . . . . 690 167
Marketing and Distribution . . . . . . . . . . . . 93 828 28 206
----- -----
Custodians' Fees . . . . . . . . . . . . . . . . . . . 22 13
Taxes (other than income taxes)--Note A . . . . . . . 43 12
Auditing Fees . . . . . . . . . . . . . . . . . . . . 6 6
Shareholders' Reports . . . . . . . . . . . . . . . . 14 8
Annual Meeting and Proxy Costs . . . . . . . . . . . . 1 --
Directors' Fees and Expenses . . . . . . . . . . . . . 3 1
--------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . 917 246
--------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . 18,296 7,115
--------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note C
Investment Securities Sold . . . . . . . . . . . . . . 3 1,197
Futures Contracts . . . . . . . . . . . . . . . . . . -- (324)
--------------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . . . . 3 873
--------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Notes C and D
Investment Securities . . . . . . . . . . . . . . . . -- 164
Futures Contracts . . . . . . . . . . . . . . . . . . -- (81)
--------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . -- 83
--------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . . . $18,299 $8,071
====================================================================================================================
</TABLE>
15
<PAGE> 18
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
U.S. TREASURY U.S. TREASURY
PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
January 31, 1994 January 31, 1994
(000) (000)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . $12,223 $ 5,737
Total Income . . . . . . . . . . . . . . . 12,223 5,737
-------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . . . $ 15 $ 7
Management and Administrative . . . . . . . . . . 241 87
Marketing and Distribution . . . . . . . . . . . . 39 295 14 108
---- ----
Custodians' Fees . . . . . . . . . . . . . . . . . . 4 2
Taxes (other than income taxes)--Note A . . . . . . . 16 6
Auditing Fees . . . . . . . . . . . . . . . . . . . 6 6
Shareholders' Reports . . . . . . . . . . . . . . . . 8 7
Annual Meeting and Proxy Costs . . . . . . . . . . . 1 --
Directors' Fees and Expenses . . . . . . . . . . . . 1 1
-------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . 331 130
-------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . 11,892 5,607
-------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)--Note C
Investment Securities Sold . . . . . . . . . . . . . 4,493 3,320
Futures Contracts . . . . . . . . . . . . . . . . . . (503) (218)
-------------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . 3,990 3,102
-------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)--Notes C and D
Investment Securities . . . . . . . . . . . . . . 937 3,796
Futures Contracts . . . . . . . . . . . . . . . . (32) 2
-------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . 905 3,798
-------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . $16,787 $12,507
===================================================================================================================
</TABLE>
16
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-TERM
MONEY MARKET U.S. TREASURY
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED December 14, 1992, YEAR ENDED December 14, 1992,
JANUARY 31, 1994 to January 31, 1993 JANUARY 31, 1994 to January 31, 1993
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . $ 18,296 $ 345 $ 7,115 $ 210
Realized Net Gain--Note C . . . . . . . . . . . 3 2 873 15
Change in Unrealized Appreciation
(Depreciation)--Notes C and D . . . . . . . -- -- 83 578
--------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . 18,299 347 8,071 803
--------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . (18,296) (345) (7,115) (210)
Realized Net Gain . . . . . . . . . . . . . . . -- -- (277) --
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . (18,296) (345) (7,392) (210)
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . 427,499 32,775 154,592 5,753
-- In Lieu of Cash Distributions . . . 17,612 335 6,000 183
-- Exchange . . . . . . . . . . . . . 723,022 132,419 168,608 59,632
Redeemed -- Regular . . . . . . . . . . . . . . (229,101) (3,162 (67,535) (688)
-- Exchange . . . . . . . . . . . . . (227,837) (13,207) (73,429) (2,425)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions . . . . . . . . . . . . . 711,195 149,160 188,236 62,455
--------------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . 711,198 149,162 188,915 63,048
--------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note F . . . . . . . . . . 149,262 100 63,048 --
--------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . $ 860,460 $149,262 $ 251,963 $ 63,048
================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . $ .029 $ .004 $ .448 $ .065
Realized Net Gain . . . . . . . . . . . . -- -- $ .011 --
--------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed . . . . . . .
Issued . . . . . . . . . . . . . . . . . 1,150,521 165,194 31,521 6,492
Issued in Lieu of Cash Distributions . . 17,612 335 585 18
Redeemed . . . . . . . . . . . . . . . . (456,938) (16,369 (13,749) (309)
--------------------------------------------------------------------------------------------------------------------------------
711,195 149,160 18,357 6,201
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
U.S. TREASURY U.S. TREASURY
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED December 14, 1992, YEAR ENDED December 14, 1992,
JANUARY 31, 1994 to January 31, 1993 JANUARY 31, 1994 to January 31, 1993
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . $ 11,892 $ 373 $ 5,607 $ 370
Realized Net Gain--Note C . . . . . . . . . 3,990 -- 3,102 101
Change in Unrealized Appreciation
(Depreciation)--Notes C and D . . . . . . 905 1,487 3,798 1,179
--------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . 16,787 1,860 12,507 1,650
--------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . (11,892) (373) (5,607) (370)
Realized Net Gain . . . . . . . . . . . . . (3,829) -- (2,312) --
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . (15,721) (373) (7,919) (370)
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . 176,466 17,314 36,314 3,116
-- In Lieu of Cash Distributions . 12,855 343 6,912 312
-- Exchange . . . . . . . . . . . 183,101 59,335 72,371 54,369
Redeemed -- Regular . . . . . . . . . . . . (28,582) (63) (15,652) (53)
-- Exchange . . . . . . . . . . . (90,786) (388) (54,735) (9,605)
--------------------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions . . . . . . . . . . . 253,054 76,541 45,210 48,139
--------------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . 254,120 78,028 49,798 49,419
--------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note F . . . . . . . . 78,028 -- 49,419 --
--------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . $ 332,148 $ 78,028 $ 99,217 $ 49,419
================================================================================================================================
(1) Distributions Per Share . . . . . . . . .
Net Investment Income . . . . . . . . . . $ .578 $ .084 $ .709 $ .096
Realized Net Gain . . . . . . . . . . . . $ .128 -- $ .281 --
--------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed . . . . . . .
Issued . . . . . . . . . . . . . . . . . 33,808 7,595 10,090 5,721
Issued in Lieu of Cash Distributions . . 1,215 34 637 30
Redeemed . . . . . . . . . . . . . . . . (11,220) (45) (6,428) (952)
--------------------------------------------------------------------------------------------------------------------------------
. . . . . . . . . . . . . . . . . 23,803 7,584 4,299 4,799
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-TERM
MONEY MARKET U.S. TREASURY
PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------
For a Share Outstanding YEAR ENDED December 14, 1992, YEAR ENDED December 14, 1992,
Throughout Each Period JANUARY 31, 1994 to January 31, 1993 JANUARY 31, 1994 to January 31, 1993
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . $1.00 $1.00 $10.17 $10.00
------ ------ ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . .029 .004 .448 .065
Net Realized and Unrealized Gain
on Investments . . . . . . . . . . . -- -- .101 .170
------ ------ ------- -------
TOTAL FROM INVESTMENT OPERATIONS .029 .004 .549 .235
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . (.029) (.004) (.448) (.065)
Distributions from Realized Capital Gains -- -- (.011) --
------ ------ ------- -------
TOTAL DISTRIBUTIONS . . . . . . . (.029) (.004) (.459) (.065)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . $1.00 $1.00 $10.26 $10.17
=============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . +2.99% +0.41% +5.50% +2.35%
-----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . $860 $149 $252 $63
Ratio of Expenses to Average Net Assets . . .15% .15%* .15% .15%*
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . . . . . . . . 3.06% 3.12%* 4.38% 4.87%*
Portfolio Turnover Rate . . . . . . . . . . N/A N/A 90% 7%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
19
<PAGE> 22
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
U.S. TREASURY U.S. TREASURY
PORTFOLIO PORTFOLIO
For a Share Outstanding YEAR ENDED December 14, 1992, YEAR ENDED December 14, 1992,
Throughout Each Period JANUARY 31, 1994 to January 31, 1993 JANUARY 31, 1994 to January 31, 1993
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.29 $10.00 $10.30 $10.00
------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .578 .084 .709 .096
Net Realized and Unrealized Gain
on Investments . . . . . . . . . . . . . . . .418 .290 .881 .300
------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . .996 .3741 .590 .396
---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.578) (.084) (.709) (.096)
Distributions from Realized Capital Gains . . (.128) -- (.281) --
------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.706) (.084) (.990) (.096)
---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $10.58 $10.29 $10.90 $10.30
===========================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +9.89% +3.75% +15.90% +3.97%
---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . $332 $78 $99 $49
Ratio of Expenses to Average
Net Assets . . . . . . . . . . . . . . . . . . . .15% .15%* .15% .15%*
Ratio of Net Investment Income to Average
Net Assets . . . . . . . . . . . . . . . . 5.46% 6.31%* 6.58% 7.22%*
Portfolio Turnover Rate . . . . . . . . . . . . . . 102% 0% 51% 17%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
20
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
Vanguard Admiral Funds is registered under the Investment Company Act of
1940 as a diversified open-end investment company and consists of the U.S.
Treasury Money Market, Short-Term U.S. Treasury, Intermediate-Term U.S.
Treasury and Long-Term U.S. Treasury Portfolios.
* A.The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of
financial statements.
1. SECURITY VALUATION: U.S. Treasury Money Market Portfolio: Securities
are stated at amortized cost which approximates market value. Other
Portfolios: Securities are valued utilizing the latest bid prices and
on the basis of a matrix system (which considers such factors as
security prices, yields, maturities and ratings), both as furnished
by independent pricing services. Temporary cash investments are
valued at amortized cost which approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio of the 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. REPURCHASE AGREEMENTS: The Short-Term U.S. Treasury,
Intermediate-Term U.S. Treasury and Long-Term U.S. Treasury
Portfolios of the Fund, along with other members of The Vanguard
Group of Investment Companies, transfer uninvested cash balances into
a Pooled Cash Account, the daily aggregate of which is invested in
repurchase agreements secured by U.S. Government obligations.
Securities pledged as collateral for repurchase agreements are held
by the Fund's custodian banks until maturity of the repurchase
agreements. Provisions of each agreement ensure that the market value
of the collateral is sufficient in the event of default; however, in
the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
4. FUTURES: The Short-Term U.S. Treasury, Intermediate-Term U.S.
Treasury and Long-Term U.S. Treasury Portfolios utilize futures
contracts to a limited extent. The primary risks associated with the
use of futures contracts are imperfect correlation between the change
in market value of the bonds held by a Portfolio and the prices of
futures contracts, and the possibility of an illiquid market. Futures
contracts are valued based upon their quoted daily settlement prices.
Fluctuations in the value of futures contracts are recorded as
unrealized appreciation (depreciation) until terminated at which time
realized gains (losses) are recognized. Unrealized appreciation
(depreciation) related to open futures contracts is required to be
treated as realized gain (loss) for Federal income tax purposes.
5. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized
gains and losses on sales of investment securities are those of
specific securities sold. Discounts and premiums on securities
purchased are amortized to interest income over the lives of the
respective securities. Dividends from net investment income are
declared on a daily basis payable on the first business day of the
following month.
* B. The Vanguard Group, Inc. furnishes at cost investment advisory,
corporate management, administrative, marketing and distribution services.
The costs of such services are allocated to the Fund under methods approved
by the Board of Directors. At January 31, 1994, the Fund had contributed
capital of $242,000 to Vanguard (included inOther Assets), representing
1.2% of Vanguard's capitalization. The Fund's directors and officersare
also directors and officers of Vanguard.
21
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (continued)
* C. During the year ended January 31, 1994, purchases and sales of U.S.
Government securities were:
<TABLE>
<CAPTION>
-------------------------------------------------------------
(000)
--------------------------
Portfolio Purchases Sales
------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. TREASURY $326,427 $139,797
INTERMEDIATE-TERM U.S. TREASURY 461,150 215,085
LONG-TERM U.S. TREASURY 81,705 41,961
------------------------------------------------------------
</TABLE>
At January 31, 1994, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(000)
--------------------------------------------------
Net
Appreciated Depreciated Unrealized
Portfolio Securities Securities Appreciation
------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM
U.S. TREASURY $ 801 $ (59) $ 742
INTERMEDIATE-TERM
U.S. TREASURY 3,894 (1,470) 2,424
LONG-TERM
U.S. TREASURY 5,123 (148) 4,975
------------------------------------------------------------------------------
</TABLE>
* D. At January 31, 1994, the aggregate settlement value and unrealized
appreciation (depreciation) of long positions in Municipal Bond Index
futures contracts and short positions in U.S. Treasury Bond and U.S.
Treasury Note futures contracts expiring in March, 1994, were:
<TABLE>
<CAPTION>
(000)
------------------------
Aggregate Unrealized
Settlement Appreciation
Portfolio Value (Depreciation)
---------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. TREASURY
LONG POSITIONS $17,588 $392
SHORT POSITIONS 25,550 (473)
INTERMEDIATE-TERM U.S. TREASURY
LONG POSITIONS 22,194 565
SHORT POSITIONS 32,260 (597)
LONG-TERM U.S. TREASURY
LONG POSITIONS 6,909 162
SHORT POSITIONS 9,599 (160)
---------------------------------------------------------
</TABLE>
The market values of securities deposited as initial margin for open
futures contracts by the Short-Term U.S. Treasury, Intermediate-Term U.S.
Treasury, and the Long-Term U.S. Treasury Portfolios were $1,073,000,
$1,169,000, and $1,342,000, respectively.
* E. The market values of securities on loan to broker/dealers at January
31, 1994, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
(000)
-------------------------------------------------
Collateral Received
Market -----------------------------
Value of Market Value of
Loaned U.S. Treasury
Portfolio Securities Cash Securities
-------------------------------------------------------------------------
<S> <C> <C> <C>
INTERMEDIATE-TERM
U.S. TREASURY $41,630 -- $43,867
-------------------------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at
least equal to the market value of securities loaned; however, in the event
of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings.
*F. The Fund was organized on August 14, 1992, and its operations up to
December 14, 1992, were limited to the issuance of 100,000 shares of common
stock of the U.S. Treasury Money Market Portfolio to a director and officer
of the Fund.
22
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard Admiral Funds
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of the U.S. Treasury Money Market, Short-Term U.S. Treasury,
Intermediate-Term U.S. Treasury and Long-Term U.S. Treasury Portfolios of
Vanguard Admiral Funds (the "Fund") at January 31, 1994, the results of
each of their operations, the changes in each of their net assets and the
financial highlights for each of the respective periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at January 31, 1994, by correspondence
with the custodians and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 24, 1994
23
<PAGE> 26
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc
Rorer Inc.; Director of Sun Company, Inc. and Immune Response Corporation;
Trustee of the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of
Dayton Hudson Corporation, American Express Bank Ltd., The St. Paul
Companies, Inc., and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America,
Amdahl Corporation, Baker Fentress & Co., and The Southern New England
Telephone Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and
The Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric
Company and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Director of Rohm & Haas Company; Director
of Cummins Engine Company; Trustee of Vanderbilt University and the Culver
Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, CONTROLLER; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
24
<PAGE> 27
(Continued from inside front cover)
toward those of the 1970s. However, the current level of inflation suggests
that future real returns may prove to be satisfactory. Looking forward,
the main risks to the investor are two: (1) that yields on financial assets
will rise sharply, reducing the prices of stocks and bonds alike; and (2)
that inflation, presently at moderate levels, will accelerate.
SOME COURSES OF ACTION
What, if any, present action should be taken by investors to deal with
these two major risks? Should your allocation of assets among stock funds,
bond funds, and money market funds be adjusted? Here are some reasonable
courses of action to consider:
* For long-term investors who have built a substantial balanced portfolio
of stock, bond, and money market funds, stay the course. Even if
withdrawing from the stock market proves to be justified, the next
decision--when to return--will one day be required. "Being right
twice" is no mean challenge.
* For long-term investors gradually accumulating assets for, say,
retirement, stay your present course. Continue to invest regularly. By
doing so, you buy more shares of a mutual fund when its price falls,
and fewer shares when its price rises, virtually assuring a reasonable
average cost.
* For risk-averse investors who are highly confident that stock prices are
"too high," make only marginal--not "all or nothing"--changes in your
portfolio balance. Given the perils of predicting the future, any
changes should be limited to, say, 15 percentage points. That is, if
your normal portfolio allocation is 60% in stock funds, it might be
reduced to 45%; if 85%, to 70%.
* For investors who simply must have more income, never lose sight of the
added principal risk involved in shifting from money market funds to
bond funds. Long-term bond funds provide a generous and durable income
stream, but their prices are highly volatile. Short-term and
intermediate-term bond funds offer a "middle way" of increasing income
with more modest risk to principal.
* For investors who are tempted to find an "easy way" to higher returns,
never forget that risk and reward go hand in hand. Precipitously
replacing certificates of deposit with broad-based common stock funds
verges on the irrational. Funds investing in other securities
markets--emerging nations, international stocks and bonds, and small
U.S. companies--carry their own special risks. Generally, limit such
alternative investments to, say, 20% of your total portfolio.
For all investors, be prepared for sharp interim swings in stock and bond
prices. The central tenet of investing is "prices fluctuate," and sensible
long-term investors simply must take such fluctuations in their stride.
Successful investing is as much a function of your own discipline and
equanimity as it is of the returns available in the securities markets.
THREE ESSENTIAL PRINCIPLES
As we confront the brave new world of investing that may well lie ahead in
the coming decade--and it is important to think in decade-length terms--we
would underscore three caveats:
1. Have "rational expectations" for future returns. At prices prevailing
today, it seems highly unlikely that the returns enjoyed by investors
in the past decade will be repeated in the coming decade.
2. Maintain a balanced portfolio consisting of stock, bond, and money
market funds. Each asset class has its own risk and reward
characteristics. By allocating your resources among the three asset
classes according to your own requirements, you can build a portfolio
providing appropriate elements of capital appreciation, capital
conservation, and current income.
3. In balancing risk against reward, be sure to consider cost. Many mutual
funds carry hefty sales charges or high expense ratios, or both. Other
factors held equal, expenses reduce returns, dollar for dollar. Put
another way, high-cost funds must select investments with higher
prospective gross returns--which entail higher risks--to match the net
returns earned by low-cost funds.
This brief Annual Report essay can provide only an elementary look at the
challenges investors face today. History can give us perspective, but it
cannot give us performance. Famed British economist Lord Keynes had it
right when he said, "the inevitable never happens. It is the unexpected
always."
<PAGE> 28
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Long-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
Aggressive Growth Funds
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center * Valley Forge, Pennsylvania 19482
<TABLE>
<S> <C>
New Account Information 1-(800) 662-7447 Shareholder Account Services: 1-(800) 662-2739
</TABLE>
This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q120-01/94
<PAGE> 29
EDGAR Appendix
This appendix describes components of the printed version of this
report that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features the flags of
The United States of America and Vanguard flying from a halyard.
A bar chart called "A Tale of Two Decades" appears on the inside front
cover. This chart illustrates Average Annual Total Return, in nominal and real
terms, of Stocks, Bonds and Reserves (U.S. Treasury bills) for the two decades
since 1973.
A running head featuring the Vanguard flag logo appears at the top of
pages one through 24.
A photograph of John C. Bogle appears at the upper-right of page one.
Line chart illustrating month-end yields from 1988-1994 (fiscal years),
comparing 30-year U.S. Treasury Bond, 90-Day U.S. Treasury Bill and 3-year U.S.
Treasury note on top left of page 2. Bar chart illustrating U.S. Treasury
Yields and inflation comparing 30-year U.S. Treasury Bonds, 90-Day U.S.
Treasury Bills and inflation are indicated for Fiscal years 1960's through
1990's at the bottom of page 3.
Line chart illustrating cumulative performance of Long-Term U.S.
Treasury Portfolio to Average Long-Term Treasury Fund and Lehman Long-Term
Treasury Index, for fiscal periods of 12/31/92 to 1/31/94 at the top of page 7.
Line chart illustrating cumulative performance of Intermediate-Term
U.S. Treasury Portfolio to Average Intermediate Term Treasury Fund and Lehman
Intermediate-Term Treasury Index for fiscal periods of 12/31/92 to 1/31/94 at
the bottom of page 7.
Line chart illustrating cumulative performance of Short-Term U.S.
Treasury Portfolio to Average Short-Term Treasury Fund and Lehman Short-Term
Treasury Index for fiscal periods of 12/31/92 to 1/31/94 at the top of page 8.
