<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
The rapid recovery in the bond market that began in November 1994 continued,
and indeed celerated, during the six months ended July 31, 1995, the first half
of Vanguard Admiral Funds' fiscal year. As it happened, interest rates declined
across the entire spectrum of maturities, providing our longer-term Portfolios
with total returns that more than offset their negative returns of the prior
fiscal year. Declining yields, of course, are an unwelcome occurrence for money
market investors, who generally rely on the current income provided by their
investment.
In this environment, our Money Market Portfolio provided a modest six-month
return of +2.8%, albeit one that was better than all but a few competitive
Treasury money market funds. Our Short-Term Portfolio achieved a generous
total return (capital change plus income) of +6.3%, while our Intermediate-Term
(+10.1%) and Long-Term (+12.8%) Portfolios achieved double-digit results. This
table presents the total return of each Portfolio for the past six months, as
well as its current yield:
<TABLE>
<CAPTION>
-------------------------------------------------------
Six Months Ended
July 31, 1995
------------------
Total SEC
U.S. Treasury Portfolio Return Yield
-------------------------------------------------------
<S> <C> <C>
MONEY MARKET + 2.8% 5.5%
SHORT-TERM + 6.3 5.9
INTERMEDIATE-TERM +10.1 6.3
LONG-TERM +12.8 6.8
-------------------------------------------------------
</TABLE>
The net asset values and dividends per share that are the basis for these
calculations are presented in a table at the end of this letter.
In my view, the presentation of semi-annual returns for bond and money
market funds, however necessary in a report of this nature, leaves something to
be desired, for it accounts for only one-half of the year's interest income.
But the fact is interest income accounts for 100% of the return on a money
market fund, and, over the long term, close to 100% of the return on a bond
fund. So, the table that follows presents the return of each Portfolio for the
past twelve months, divided into its income and capital components:
<TABLE>
<CAPTION>
---------------------------------------------------------
Components of Total Return
------------------------------
Twelve Months Ended
July 31, 1995
------------------------------
U.S. TREASURY PORTFOLIO INCOME CAPITAL TOTAL
---------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET +5.3% 0.0% + 5.3%
SHORT-TERM +6.3 +1.5 + 7.8
INTERMEDIATE-TERM +7.1 +3.7 +10.8
LONG-TERM +7.8 +5.8 +13.6
---------------------------------------------------------
</TABLE>
This table reflects both the relative yield and the relative price volatility
of each Portfolio. For our Money Market Portfolio, price volatility is not a
factor; for our longer-term Portfolios, price volatility is actually
understated in the table. The reason is that the table provides the capital
returns for the entire twelve-month period; thus, it tends to gloss over the
impact of this year's strongly positive capital returns. We therefore remind
you that swings in interest rates have a great impact on the capital returns of
bonds with long maturities, but a much smaller impact on bonds with short
maturities (and no price impact on money market instruments).
THE PERIOD IN REVIEW
The overpowering message of the splendid performance of bonds thus far in 1995
is clear: financial markets change quickly and unpredictably! Bond prices fell
completely apart during 1994, with the yield on the long-term U.S. Treasury
bond rising from a low of 6.3% in January to a high of 8.2% in mid-November.
This rise of 190 basis points engendered a -21% decline in the price of the
bond. Interest rates on the short-term U.S. Treasury bond soared as well,
rising 360 basis points (from 4.2% to 7.8%); however, given its shorter
maturity (3 years versus a 30-year maturity for the long bond), it declined by
but -9% in value. And the rate on the U.S. Treasury bill nearly doubled, from
3.0% to 5.8%.
This year, of course, the story is quite the opposite. The yield on the
long-term U.S. Treasury bond has fallen to 6.8% (not so far from its 1994 low),
the yield on the short-term U.S. Treasury bond has
1
<PAGE> 2
fallen to 6.0%, and the yield on the three-month Treasury bill has fallen to
5.6%. Virtually none of the "experts" expected these declines. Indeed, last
December's Wall Street Journal survey of prominent economists and professional
money managers reflected a consensus yield prediction of 7.9% for the long
Treasury bond on June 30, 1995 (i.e., a small increase in rates). The actual
yield turned out to be 6.6%. So much for predictions!
The surprise rally of the past eight months has been based importantly on
the market's perception that the Federal Reserve Board seems to have completed
its program to drive interest rates upward. After raising the Federal funds
rate (at which banks borrow from one another) fully six times during 1994, the
Fed boosted rates on but one occasion during the first half of 1995. In early
July, however, the short-term interest rate was gently eased by 1/4 of 1%,
bringing this key rate to 5 3/4% versus 3% just one and one-half years ago.
The Fed's most recent action was apparently based on the perception that
the threat of inflation had diminished and that U.S. economic growth was
easing. Bond market participants are saying, in essence, that we are in "the
best of all possible worlds": steady economic growth without significant
inflation. The idea that these two often-warring factors have finally made
peace, however, is not something one should take for granted as the permanent
state of affairs.
SUMMING UP
Following a tough year for all sectors of the bond market--albeit a good year
for the money markets--my Chairman's letter to you in our Annual Report dated
January 31, 1995, expressed guarded optimism about future bond returns and
suggested that "the probabilities favor much better total returns in the coming
year." With half of the fiscal year now history, that optimism is being borne
out. I hope that you agreed with me then that liquidating your bond holdings
would have been unwise, and followed my advice to "stay the course." Certainly
the events of the past six months have justified, once again, the merits of
this long-term strategy.
I look forward to reviewing the Fund's results with you further in our
Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
-----------------------
John C. Bogle
Chairman of the Board
August 15, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
PORTFOLIO RESULTS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share Last Twelve Months Total Returns
------------------------------- ------------------ ------------------ SEC 30-Day
U.S. Treasury Average Average July 31, January 31, July 31, Income Capital Six Twelve Annualized
Portfolio Maturity Quality* 1994 1995 1995 Dividends Gains Months Months Yield
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET 46 DAYS Aaa $1.00 $1.00 $ 1.00 $.052 -- +2.8% + 5.3% 5.53%**
SHORT-TERM 2.3 YEARS Aaa 9.91 9.77 10.06 .595 -- + 6.3 + 7.8 5.89
INTERMEDIATE-TERM 7.6 YEARS Aaa 9.84 9.58 10.20 .656 -- +10.1 +10.8 6.33
LONG-TERM 21.2 YEARS Aaa 9.68 9.40 10.24 .690 -- +12.8 +13.6 6.81
------------------------------------------------------------------------------------------------------------------------------------
</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.
2
<PAGE> 3
REPORT FROM THE INVESTMENT ADVISER
In the first half of Vanguard Admiral Funds' fiscal year ended July 31, 1995,
bond markets staged an impressive rally. Over this six-month time frame, the
market's expectations of future interest rates traveled the full spectrum from
extreme pessimism to outright optimism. As frequently happens, rates fell more
in some sectors than in others, with short-term rates (3 years) falling -1.5%,
and long-term rates (30 years) declining -1.0%.
The fiscal year opened with the specter of future inflation hanging over
the market after a period of robust economic growth in 1994. This pessimism was
fostered by the relatively rapid rise in short-term interest rates engineered
by the Federal Reserve (the "Fed"), with the intention of cooling the surging
economy. The Fed, which attempts to steer the economy on a path of sustainable,
non-inflationary growth by raising and lowering the cost of borrowing for
businesses and consumers, executed their seventh in a series of increases in
short-term interest rates in February 1995. Yet, by this time, government
statistics were giving preliminary hints that economic growth was moderating
and inflation was relatively well behaved. In particular,
interest-rate-sensitive sectors like housing and autos slowed from last year's
torrid pace.
Statistics indicate that for several months during the period there was a
lessening of demand on the economy's productive capacity, while a modest excess
of inventory was liquidated by the nation's factories and retailers. Many
observers of the economy expect growth in economic activity to resume after
this refreshing pause, but have left behind the fears of inflation that were
inspired by such growth last year. The market's adoption of this rosy outlook
for moderate, non-inflationary growth (the elusive "soft landing") and the
attendant bond market rally were probably due as much to the fact that the
market had overreacted to the risks of inflation during 1994 as they were to an
improving estimate of future inflation in 1995.
In July of this year, the Fed fulfilled the market's expectations by easing
reserve policy and lowering short-term rates slightly. Its stated rationale at
the time was that inflationary pressures had relaxed enough to allow an easing.
Market interest rates have actually risen somewhat in the time between the
Fed's action and the close of the fiscal semi-annual period. Given the wide
gyrations in interest rates from low to high and back down again in the past
eighteen months, the market seems to be moderating towards a more balanced
outlook on the likely future course of economic growth and its impact on the
bond market.
Through the various Portfolios, shareholders participated in the bountiful
returns provided by the markets in the past six months depending on the
particular maturity sector of their holdings. In the Money Market Portfolio,
short-term interest rates well in excess of inflation have resulted in positive
inflation-adjusted returns on a pretax basis. The Short-, Intermediate-, and
Long-Term Portfolios have provided solid income as a result of the relatively
high interest rates at the start of the fiscal year. In addition, the declines
in market interest rates for the year to date have contributed significant
capital appreciation to each Portfolio's total return in direct proportion to
its average maturity. Please refer to the Chairman's letter for more details
on the returns of the Portfolios.
In recognition of a probable market overreaction to the threat of
inflation, we started the fiscal year with the three bond Portfolios positioned
with market price sensitivities slightly above the neutral point of their
respective policy ranges. This strategy helped to boost the returns of these
Portfolios relative to their competitors when rates fell as market participants
abandoned their overly pessimistic view of the future. Subsequently, we have
returned the Portfolios to a less market-sensitive stance because our outlook
currently calls for little movement in interest rates either up or down.
As in the past, we are employing several other long-term strategies to add
value to the Portfolios. We continue to invest in securities issued by less
well-known government agencies that benefit explicitly from the full faith and
credit of the U.S. Treasury because such securities consistently offer a yield
advantage over regular Treasury issues. In addition, we use quantitative
techniques to optimize the positioning of the Portfolios' holdings along the
"yield curve," the line plotting the relationship of interest rates for
investments of various maturities
3
<PAGE> 4
from short term to long term. Finally, in the Intermediate- and Long-Term
Portfolios, we are using offsetting long and short positions in the futures
markets to take advantage of anomalous relationships in the relative value of
municipal and Treasury bonds. All of these strategies are designed to wring
incremental value out of the Portfolios without fundamentally altering their
risk/return profiles.
In the period since the December 1992 inception of the Vanguard Admiral
Funds, market interest rates have been quite volatile. In 1993, interest rates
reached lows not seen in more than 20 years only to rebound sharply to
relatively high inflation-adjusted levels in 1994. So far in 1995, rates have
moderated back toward the middle of this range, dissipating some of the shock
waves of prior years. Such volatility reinforces the value of sticking to a
long-term investment plan and harnessing the power of compound returns. In
addition, these wide swings in market rates have laid waste to poorly conceived
and risky strategies (which we at Vanguard have rejected) that relied too
heavily on leverage and exotic derivatives in a vain attempt to bolster
returns. Each of the Admiral Funds' Portfolios, with low expenses and
conservative Treasury investments, have proved to be a good choice for
investors willing to ride out the inevitable ups and downs of the bond market.
Respectfully,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Vice President
John W. Hollyer, Assistant Vice President
Vanguard Fixed Income Group
August 17, 1995
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED JUNE 30, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
-------------------------------------
INCEPTION TOTAL INCOME CAPITAL
U.S. TREASURY PORTFOLIO DATE 1 YEAR RETURN RETURN RETURN
----------------------- --------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
LONG-TERM 12/14/92 +18.79% +10.46% +7.28% +3.18%
INTERMEDIATE-TERM 12/14/92 +13.20 + 7.97 +6.26 +1.71
SHORT-TERM 12/14/92 + 8.57 + 5.69 +5.21 +0.48
MONEY MARKET 12/14/92 + 5.18 + 3.93 +3.93 0.00
</TABLE>
ALL OF 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 MONEY MARKET PORTFOLIO, IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
4
<PAGE> 5
FINANCIAL STATEMENTS
(unaudited)
July 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
U.S. TREASURY Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (106.0%)
------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS
5.413%, 9/7/95 $ 28,467 $ 28,306
5.43%, 9/14/95 157,502 156,452
5.437%, 11/9/95 73,000 71,916
5.445%, 10/12/95 27,594 27,296
5.458%, 10/19/95 210,830 208,319
5.493%, 11/16/95 146,555 144,228
5.50%, 11/2/95 20,000 19,726
5.545%, 8/17/95 10,176 10,151
5.546%, 9/28/95 4,896 4,853
5.547%, 10/26/95 116,950 115,430
5.557%, 10/5/95 81,658 80,848
5.68%, 9/21/95 83,889 83,241
5.697%, 8/10/95 161,338 161,111
5.729%, 8/31/95 86,013 85,610
5.751%, 8/24/95 64,148 63,917
5.824%, 8/3/95 141,319 141,274
U.S. TREASURY NOTES
3.875%, 8/31/95 202,000 201,691
4.625%, 8/15/95 2,650 2,649
8.50%, 8/15/95 109,000 109,113
10.50%, 8/15/95 25,000 25,044
------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $1,741,175) 1,741,175
------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-6.0%)
------------------------------------------------------------------------------------------------
Other Assets--Note B 23,148
Payables for Securities Purchased (118,146)
Other Liabilities (4,312)
---------
(99,310)
------------------------------------------------------------------------------------------------
NET ASSETS (100%)
------------------------------------------------------------------------------------------------
Applicable to 1,641,842,328 outstanding
$.001 par value shares
(authorized 20,000,000,000 shares) $1,641,865
------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
================================================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
------------------------------------------------------------------------------------------------
Amount Per
(000) Share
---------- -------
<S> <C> <C>
Paid in Capital $1,641,842 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net Realized Gains 23 --
Unrealized Appreciation
of Investments -- --
------------------------------------------------------------------------------------------------
NET ASSETS $1,641,865 $1.00
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (96.6%)
------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES
4.375%, 11/15/96 $ 12,000 $ 11,796
4.625%, 2/15/96 2,500 2,485
5.125%, 6/30/98 29,700 28,986
5.25%, 7/31/98 50,000 48,969
5.875%, 5/31/96 72,000 72,068
6.125%, 7/31/96 26,000 26,093
6.75%, 6/30/99 41,000 41,839
6.875%, 8/31/99 6,000 6,150
7.375%, 5/15/96 8,000 8,098
7.50%, 1/31/96 5,000 5,043
7.75%, 11/30/99 24,500 25,936
7.75%, 12/31/99 22,000 23,313
8.50%, 5/15/97 1,000 1,044
8.75%, 10/15/97 2,000 2,114
8.875%, 2/15/96 5,000 5,082
8.875%, 11/15/97 1,000 1,061
BANAMEX EXPORT FUNDING
(U.S. Government Guaranteed)
4.91%, 10/15/98* 4,200 4,101
BANCO NATIONAL DE
COMMERCIO EXTERIOR
(U.S. Government Guaranteed)
4.62%, 10/15/98* 5,676 5,522
5.10%, 4/15/98* 3,600 3,543
5.48%, 10/15/97* 1,517 1,504
6.475%, 5/15/00* 5,889 5,904
8.038%, 1/15/00* 6,287 6,499
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.61%, 9/1/98* 840 820
5.69%, 2/1/98* 600 596
7.75%, 1/1/00* 5,400 5,547
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.743%, 9/15/98* 6,300 6,158
6.61%, 9/15/99* 6,700 6,738
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.77%, 11/1/97* 2,150 2,120
4.86%, 4/1/98* 3,000 2,949
------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $356,417) 362,078
------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
--------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (3.2%)
--------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.86%, 8/1/95
(Cost $12,002) $ 12,002 $ 12,002
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(Cost $368,419) 374,080
--------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.2%)
--------------------------------------------------------------------------------------------
Other Assets--Note B 3,836
Liabilities (3,061)
--------
775
--------------------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------------------
Applicable to 37,267,522 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $374,855
--------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.06
============================================================================================
</TABLE>
+ See Note A to Financial Statements.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- -------
<S> <C> <C>
Paid in Capital $375,991 $10.09
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (6,797) (.18)
Unrealized Appreciation
--------------------------------------------------------------------------------------------
NET ASSETS $374,855 $10.06
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
--------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (91.4%)
--------------------------------------------------------------------------------------------
U.S. TREASURY BONDS
10.375%, 11/15/12 $100,500 $130,493
10.75%, 2/15/03 5,000 6,280
10.75%, 5/15/03 4,800 6,058
11.125%, 8/15/03 6,500 8,383
11.625%, 11/15/02 20,200 26,289
11.625%, 11/15/04 12,600 17,051
11.875%, 11/15/03 5,000 6,715
U.S. TREASURY NOTES
4.75%, 9/30/98 17,000 16,365
5.75%, 8/15/03 2,600 2,489
5.875%, 3/31/99 2,000 1,984
6.375%, 8/15/02 117,500 117,573
6.50%, 4/30/99 6,000 6,072
6.875%, 8/31/99 10,500 10,763
7.50%, 11/15/01 14,750 15,660
8.875%, 2/15/99 6,000 6,524
AGENCY FOR INTERNATIONAL
DEVELOPMENT (ISRAEL)
(U.S. Government Guaranteed)
5.25%, 9/15/00 5,240 4,960
6.00%, 2/15/99 6,075 6,014
EXPORT FUNDING TRUST
(U.S. Government Guaranteed)
8.21%, 12/29/06* 9,692 10,421
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
6.00%, 3/15/05* 8,108 7,877
GUARANTEED EXPORT TRUST
(U.S. Government Guaranteed)
7.46%, 12/15/05* 14,609 15,042
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
7.80%, 8/15/06* 9,583 10,045
8.17%, 1/15/07* 3,833 4,081
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
5.735%, 1/15/02* 6,000 5,779
5.94%, 6/20/06* 5,000 4,808
--------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $434,737) 447,726
--------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.8%)
--------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
5.86%, 8/1/95
(Cost $33,242) 33,242 33,242
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.2%)
(Cost $467,979) 480,968
--------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Market
Value
(000)+
-----------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.8%)
-----------------------------------------------------------------------------------------
Other Assets--Notes B and E $ 134,020
Liabilities--Note E (125,254)
--------
8,766
-----------------------------------------------------------------------------------------
NET ASSETS (100%)
-----------------------------------------------------------------------------------------
Applicable to 48,020,347 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $489,734
-----------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.20
=========================================================================================
</TABLE>
+ See Note A to Financial Statements.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- -------
<S> <C> <C>
Paid in Capital $491,963 $10.24
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (15,493) (.32)
Unrealized Appreciation of
Investments--Note D 13,264 .28
------------------------------------------------------------------------------------------
NET ASSETS $489,734 $10.20
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
LONG-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
-----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (90.7%)
-----------------------------------------------------------------------------------------
U.S. TREASURY BONDS
7.875%, 2/15/21 $ 54,465 $ 60,456
8.875%, 8/15/17 22,070 26,898
8.875%, 2/15/19 20,593 25,181
10.375%, 11/15/12 13,040 16,932
-----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $125,714) 129,467
-----------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (6.5%)
-----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.86%, 8/1/95
(Cost $9,275) 9,275 9,275
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.2%)
(Cost $134,989) 138,742
-----------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.8%)
-----------------------------------------------------------------------------------------
Other Assets--Note B 4,350
Liabilities (371)
--------
3,979
-----------------------------------------------------------------------------------------
NET ASSETS (100%)
-----------------------------------------------------------------------------------------
Applicable to 13,930,803 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $142,721
-----------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.24
=========================================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
AT JULY 31, 1995, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- --------
<S> <C> <C>
Paid in Capital $137,841 $ 9.89
Undistributed Net
Investment Income -- --
Accumulated
Net Realized Gains 1,039 .07
Unrealized Appreciation
of Investments--Note D 3,841 .28
----------------------------------------------------------------------------------------
NET ASSETS $142,721 $10.24
----------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-TERM
MONEY MARKET U.S. TREASURY
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995
(000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . $42,135 $11,653
--------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . 42,135 11,653
--------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . $106 $ 25
Management and Administrative . . . . . . . . . 696 171
Marketing and Distribution . . . . . . . . . . 198 1,000 49 245
---- -----
Custodians' Fees . . . . . . . . . . . . . . . . 21 4
Taxes (other than income taxes) . . . . . . . . . 55 14
Auditing Fees . . . . . . . . . . . . . . . . . 3 3
Shareholders' Reports . . . . . . . . . . . . . . 6 2
Annual Meeting and Proxy Costs . . . . . . . . . 2 1
Directors' Fees and Expenses . . . . . . . . . . 2 --
--------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 1,089 269
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 41,046 11,384
--------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold . . . . . . . . . . . 48 747
Futures Contracts . . . . . . . . . . . . . . . . -- --
--------------------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . 48 747
--------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . -- 9,464
Futures Contracts . . . . . . . . . . . . . . . . -- --
--------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . -- 9,464
--------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . $41,094 $21,595
==========================================================================================================================
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
U.S. TREASURY U.S. TREASURY
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
July 31, 1995 July 31, 1995
(000) (000)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . $15,361 $ 5,134
--------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . 15,361 5,134
--------------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . $ 28 $10
Management and Administrative . . . . . . . . . 223 65
Marketing and Distribution . . . . . . . . . . 54 305 16 91
----- ---
Custodians' Fees . . . . . . . . . . . . . . . . 6 5
Taxes (other than income taxes) . . . . . . . . . 17 7
Auditing Fees . . . . . . . . . . . . . . . . . 2 2
Shareholders' Reports . . . . . . . . . . . . . . 3 1
Annual Meeting and Proxy Costs . . . . . . . . . 1 1
Directors' Fees and Expenses . . . . . . . . . . 1 --
--------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 335 107
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 15,026 5,027
--------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold . . . . . . . . . . . 813 3,210
Futures Contracts . . . . . . . . . . . . . . . . 8 3
--------------------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . 821 3,213
--------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . 26,101 9,915
Futures Contracts . . . . . . . . . . . . . . . . 275 88
--------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . 26,376 10,003
--------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . $42,223 $18,243
==========================================================================================================================
</TABLE>
9
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. TREASURY SHORT-TERM
MONEY MARKET U.S. TREASURY
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JULY 31, 1995 January 31, 1995 JULY 31, 1995 January 31, 1995
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . $ 41,046 $ 47,429 $ 11,384 $ 14,993
Realized Net Gain (Loss) . . . . . . . . . 48 (30) 747 (7,615)
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . -- -- 9,464 (4,464)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . 41,094 47,399 21,595 2,914
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . (41,046) (47,429) (11,384) (14,993)
Realized Net Gain . . . . . . . . . . . . . -- -- -- (540)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . (41,046) (47,429) (11,384) (15,533)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . 472,497 723,457 50,248 129,221
--In Lieu of Cash Distributions . . 38,802 44,646 8,766 11,275
--Exchange . . . . . . . . . . . . 338,378 755,558 86,982 176,215
Redeemed --Regular . . . . . . . . . . . . (385,190) (673,703) (33,720) (76,545)
--Exchange . . . . . . . . . . . . (194,064) (338,994) (80,589) (146,553)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . 270,423 510,964 31,687 93,613
------------------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . 270,471 510,934 41,898 80,994
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . 1,371,394 860,460 332,957 251,963
------------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . $1,641,865 $1,371,394 $374,855 $ 332,957
====================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.028 $.041 $.314 $.518
Realized Net Gain . . . . . . . . . . . -- -- -- $.022
------------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . 810,875 1,479,015 13,807 31,046
Issued in Lieu of Cash Distributions . . 38,802 44,646 878 1,145
Redeemed . . . . . . . . . . . . . . . (579,254) (1,012,697) (11,491) (22,676)
------------------------------------------------------------------------------------------------------------------------------------
270,423 510,964 3,194 9,515
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
INTERMEDIATE-TERM LONG-TERM
U.S. TREASURY U.S. TREASURY
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
JULY 31, 1995 January 31, 1995 JULY 31, 1995 January 31, 1995
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . $ 15,026 $ 19,643 $ 5,027 $ 7,543
Realized Net Gain (Loss) . . . . . . . . . 821 (16,319) 3,213 (2,173)
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . 26,376 (15,504) 10,003 (11,139)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . 42,223 (12,180) 18,243 (5,769)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . (15,026) (19,643) (5,027) (7,543)
Realized Net Gain . . . . . . . . . . . . . -- (156) -- (892)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . (15,026) (19,799) (5,027) (8,435)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . 78,283 114,130 23,359 35,945
--In Lieu of Cash Distributions . . 10,645 15,317 3,623 6,658
--Exchange . . . . . . . . . . . . 102,515 99,514 47,535 76,760
Redeemed --Regular . . . . . . . . . . . . (23,213) (37,237) (23,332) (19,406)
--Exchange . . . . . . . . . . . . (62,827) (134,759) (57,486) (49,164)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . . . . . . 105,403 56,965 (6,301) 50,793
------------------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . 132,600 24,986 6,915 36,589
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . 357,134 332,148 135,806 99,217
------------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . $489,734 $ 357,134 $142,721 $135,806
====================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . $.334 $.598 $.347 $.670
Realized Net Gain . . . . . . . . . . . -- $.005 -- $.095
------------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . 18,204 22,065 7,139 11,890
Issued in Lieu of Cash Distributions . . 1,060 1,577 364 699
Redeemed . . . . . . . . . . . . . . . (8,523) (17,750) (8,023) (7,237)
------------------------------------------------------------------------------------------------------------------------------------
10,741 5,892 (520) 5,352
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 14,
January 31, 1992, to
SIX MONTHS ENDED ---------------------------- January 31,
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .028 .041 .029 .004
Net Realized and Unrealized Gain (Loss) on Investments . -- -- -- --
----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . .028 .041 .029 .004
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.028) (.041) (.029) (.004)
Distributions from Realized Capital Gains . . . . . . . -- -- -- --
----- ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.028) (.041) (.029) (.004)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00
====================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +2.84% +4.19% +2.99% +0.41%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $1,642 $1,371 $860 $149
Ratio of Expenses to Average Net Assets . . . . . . . . . . .15%* .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 5.65%* 4.21% 3.06% 3.12%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
<TABLE>
<CAPTION>
SHORT-TERM U.S. TREASURY PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 14,
January 31, 1992, to
SIX MONTHS ENDED --------------------------- January 31,
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $9.77 $10.26 $10.17 $10.00
----- ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .314 .518 .448 .065
Net Realized and Unrealized Gain (Loss) on Investments . .290 (.468) .101 .170
----- ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . .604 .050 .549 .235
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.314) (.518) (.448) (.065)
Distributions from Realized Capital Gains . . . . . . . -- (.022) (.011) --
----- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.314) (.540) (.459) (.065)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $10.06 $9.77 $10.26 $10.17
====================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +6.25% +0.57% +5.50% +2.35%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $375 $333 $252 $63
Ratio of Expenses to Average Net Assets . . . . . . . . . . .15%* .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 6.35%* 5.30% 4.38% 4.87%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 123%* 129% 90% 7%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
12
<PAGE> 13
<TABLE>
<CAPTION>
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 14,
January 31, 1992, to
SIX MONTHS ENDED -------------------------- January 31,
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $9.58 $10.58 $10.29 $10.00
----- ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .334 .598 .578 .084
Net Realized and Unrealized Gain (Loss) on Investments . .620 (.995) .418 .290
----- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . .954 (.397) .996 .374
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.334) (.598) (.578) (.084)
Distributions from Realized Capital Gains . . . . . . . -- (.005) (.128) --
----- ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.334) (.603) (.706) (.084)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $10.20 $9.58 $10.58 $10.29
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +10.06% -3.67% +9.89% +3.75%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $490 $357 $332 $78
Ratio of Expenses to Average Net Assets . . . . . . . . . . .15%* .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 6.71%* 6.15% 5.46% 6.31%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 62%* 134% 102% 0%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
<TABLE>
<CAPTION>
LONG-TERM U.S. TREASURY PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 14,
January 31, 1992, to
SIX MONTHS ENDED --------------------------- January 31,
For a Share Outstanding Throughout Each Period JULY 31, 1995 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $9.40 $10.90 $10.30 $10.00
----- ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .347 .670 .709 .096
Net Realized and Unrealized Gain (Loss) on Investments . .840 (1.405) .881 .300
----- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . 1.187 (.735) 1.590 .396
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.347) (.670) (.709) (.096)
Distributions from Realized Capital Gains . . . . . . . -- (.095) (.281) --
----- ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.347) (.765) (.990) (.096)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $10.24 $9.40 $10.90 $10.30
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +12.77% -6.60% +15.90% +3.97%
-----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $143 $136 $99 $49
Ratio of Expenses to Average Net Assets . . . . . . . . . . .15%* .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 7.05%* 7.06% 6.58% 7.22%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 233%* 44% 51% 17%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
13
<PAGE> 14
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 each
repurchase agreement. Provisions of each agreement require 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 Municipal Bond Index, U.S.
Treasury Bond, and U.S. Treasury Note futures contracts to a limited
extent, with the objectives of enhancing returns, managing interest rate
risk, maintaining liquidity and minimizing transaction costs. The
Portfolios may purchase futures contracts instead of bonds when futures
contracts are believed to be priced more attractively than bonds. The
Portfolios may also seek to take advantage of price differences among
bond market sectors by simultaneously buying futures (or bonds) of one
market sector and selling futures (or bonds) of another sector. Futures
contracts may also be used to simulate a fully invested position in the
underlying bonds while maintaining a cash balance for liquidity.
The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of bonds held by
the Portfolios 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 values 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.
14
<PAGE> 15
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 July 31, 1995, the Fund had contributed capital of $337,000 to
Vanguard (included in Other Assets), representing 1.7% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
C. During the six months ended July 31, 1995, purchases and sales of U.S.
Government securities other than temporary cash investments were:
<TABLE>
<CAPTION>
----------------------------------------------------------------
(000)
----------------------------
Portfolio Purchases Sales
----------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. TREASURY $251,908 $212,556
INTERMEDIATE-TERM U.S. TREASURY 216,972 126,273
LONG-TERM U.S. TREASURY 157,026 169,760
-----------------------------------------------------------------
</TABLE>
At January 31, 1995, the Fund had available capital losses to offset future net
capital gains through the following fiscal year ends:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Expiration Fiscal
Years Ending Amount
Portfolio January 31 (000)
------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. TREASURY 2003-2004 $ 7,535
INTERMEDIATE-TERM U.S. TREASURY 2003-2004 16,315
LONG-TERM U.S. TREASURY 2003-2004 2,174
------------------------------------------------------------------
</TABLE>
D. At July 31, 1995, 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 $ 6,316 $ (655) $ 5,661
INTERMEDIATE-TERM
U.S. TREASURY 15,499 (2,510) 12,989
LONG-TERM
U.S. TREASURY 3,753 -- 3,753
------------------------------------------------------------------------------------------
</TABLE>
At July 31, 1995, the aggregate settlement value of open futures contracts
expiring in September 1995, and the related unrealized appreciation
(depreciation) were:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
(000)
---------------------------------
Aggregate Unrealized
Settlement Appreciation
Portfolio/Contracts Value (Depreciation)
--------------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE-TERM U.S. TREASURY
LONG MUNICIPAL BOND INDEX $24,155 $(452)
SHORT U.S. TREASURY BOND 23,801 727
LONG-TERM U.S. TREASURY
LONG MUNICIPAL BOND INDEX 6,321 (101)
SHORT U.S. TREASURY BOND 6,228 189
--------------------------------------------------------------------
</TABLE>
The market value of Intermediate- and Long-Term U.S. Treasury Portfolio
securities deposited as initial margin for open futures contracts was
$3,895,000 for each Portfolio.
E. The market value of Intermediate-Term U.S. Treasury Portfolio securities on
loan to broker/dealers at July 31, 1995, was $121,028,000 for which the
Portfolio had received cash collateral of $123,228,000. 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.
15
<PAGE> 16
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
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 Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Lifestrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard Star Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
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
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
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1-(800) 662-7447 1-(800) 662-2739
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.
Q122-7/95
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SEMI-ANNUAL REPORT
JULY 31, 1995
