<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
After a remarkably robust rise in 1995, the bond market suffered a sharp
setback during the six months ended July 31, 1996, the first half of the fiscal
year for Vanguard Admiral Funds. Interest rates rose substantially for all but
the very shortest maturities, and fixed-income securities gave back some of the
price gains they enjoyed over the previous 13 months or so.
Not surprisingly, our tightly constructed Portfolios achieved total
returns (capital change plus reinvested dividends) very much in line with the
sectors of the bond market that they represent. Our Short-Term Portfolio eked
out a small positive return during the six months, while our Intermediate-Term
and Long-Term Portfolios were off -3.3% and -6.9%, respectively. True to form,
our Money Market Portfolio provided a solid half-year return of +2.6%. This
table presents the return of each Portfolio for the half year, as well as its
current yield:
<TABLE>
<CAPTION>
- -----------------------------------------------------
SIX MONTHS ENDED
JULY 31, 1996
------------------------
U.S. TREASURY TOTAL CURRENT
PORTFOLIO RETURN YIELD*
- -----------------------------------------------------
<S> <C> <C>
LONG-TERM -6.9% 7.1%
INTERMEDIATE-TERM -3.3 6.8
SHORT-TERM +0.2 6.3
MONEY MARKET +2.6 5.1
- -----------------------------------------------------
</TABLE>
*Yield for the Money Market Portfolio is a 7-day yield. All others are
30-day yields.
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 3 of this Report.
As we noted a year ago, in a very different environment for the bond
market, we believe that a presentation of semi-annual returns for bond mutual
funds, while necessary in a report of this nature, is incomplete, to say the
least. Only half of the year's interest income is accounted for in these
returns, while the capital change in a bond fund--up or down--occurs
immediately in response to changes in market interest rates. Yet over the long
run, interest income has accounted for virtually 100% of the total return on
bond funds. The following table 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, 1996
-------------------------------
U.S. TREASURY INCOME CAPITAL TOTAL
PORTFOLIO RETURN RETURN RETURN
- -------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM +6.7% -2.0% +4.7%
INTERMEDIATE-TERM +6.4 -1.8 +4.6
SHORT-TERM +6.1 -1.0 +5.1
MONEY MARKET +5.4 0.0 +5.4
- -------------------------------------------------------
</TABLE>
This table provides a sense of the relative price volatility of each Portfolio.
However, the table does not present a full picture of price volatility, since
the rise in interest rates over the twelve months ended July 31, 1996, was not
uniform across all maturity levels. The yield on three-year and ten-year U.S.
Treasury securities, for example, rose by about 40 basis points (0.4 percentage
points), while the yield on the benchmark 30-year Treasury bond rose by less
than 20 basis points. We remind you that an equal change--up or down--in
interest rates has a much greater impact on the capital returns of bonds with
long maturities than on the capital returns of bonds with short maturities.
THE PERIOD IN REVIEW
After a stupendous showing by the bond market in the fiscal year ended January
31, 1996, with double-digit returns across the maturity spectrum, perhaps it
was only natural for the bond market to retrace some of its gains in the first
half of this fiscal year.
While the rate on 90-day Treasury bills rose by about one-quarter of a
percentage point (from 5.0% to 5.3%), the increase in interest rates was much
sharper for bonds during the past six months. The biggest change, curiously,
was in short-term Treasury bonds (three-year maturities), whose average yield
rose from 5.0% to 6.3%. Yields on intermediate-term
1
<PAGE> 2
Treasury bonds rose from 5.6% to 6.8%, while the yield on the benchmark
long-term Treasury bond rose from 6.0% to 7.0%.
While the yield increases in the three maturity ranges were similar
(+1.3% to +1.0%) over the past six months, the price changes were not. As we
have emphasized in past reports, the impact of changing yields on bond prices
is magnified as a bond's maturity lengthens. For example, in the face of a 1%
increase (or decrease) in yield, the price of a long (30-year) bond will move
down (or up) by about 10%, while the price of a short-term bond will move down
(or up) by roughly 2%. This relationship reflects the immutable mathematics of
the bond market. As unsettling as the -12% price decline in long-term bonds was
during the six months ended July 31, we would note that it was roughly half the
price increase that holders of 30-year Treasury bonds enjoyed in the previous
year.
Interest-rate changes are easier to quantify than to explain, of
course. Most analysts, however, have attributed the recent increase to
surprisingly strong growth in the U.S. economy, which raised anxiety among bond
investors that inflation would rise from the fairly benign levels of recent
years. Bond investors are hypersensitive to the possibility of higher
inflation, which could threaten the purchasing power of a bond's future
fixed-rate payments. Should inflation rise from today's level, it is
possible--even probable--that the Federal Reserve Board would act to raise
short-term interest rates. It remains to be seen what the Fed--or the
economy--will do. However, the current structure and level of interest rates
seem to anticipate some reasonable pickup in inflation, and bond investors may
well have already adjusted to such a scenario.
We would note that the prevailing consensus of the bond market--as
with any financial market--is subject to rapid and unpredictable changes in
direction. Only six months ago, the "experts" were in general agreement that
economic growth was proceeding at a deliberate and safe pace so that inflation
would remain subdued, and that interest rates should remain steady. However,
the consensus--so often wrong--proved wrong again as rates moved higher.
IN SUMMARY
Six months ago in Vanguard Admiral Funds' Annual Report, we noted that the
unusually high total returns on bonds last year--and, indeed, over the previous
decade--were by themselves a sufficient reason to be cautious about the outlook
for future returns. Yet we expressed confidence that investors who use our
Portfolios as part of a balanced asset allocation strategy would earn long-term
returns in keeping with the bond market segments on which the Portfolios focus,
and that exceed the averages for competitive funds. We also believe that the
higher yields available today have increased the relative attractiveness of
bonds. We assure you that we will continue to professionally manage our
Portfolios under the carefully structured, high-quality, low-cost philosophy
for which Vanguard is known.
We look forward to reporting to you on the Fund's full year results in
our Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
John J. Brennan
President
August 9, 1996
2
<PAGE> 3
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
PER SHARE TWELVE MONTHS TOTAL RETURNS
--------------------- ------------------------ ------------------- SEC 30-DAY
U.S. TREASURY AVERAGE AVERAGE JANUARY 31, JULY 31, INCOME CAPITAL GAINS SIX TWELVE ANNUALIZED
PORTFOLIO MATURITY QUALITY* 1996 1996 DIVIDENDS DISTRIBUTIONS MONTHS MONTHS YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM 21.8 YEARS Aaa $11.06 $ 9.93 $.684 $.119 -6.9% +4.7% 7.11%
INTERMEDIATE-TERM 7.5 YEARS Aaa 10.70 10.02 .653 -- -3.3 +4.6 6.81
SHORT-TERM 2.5 YEARS Aaa 10.23 9.96 .604 -- +0.2 +5.1 6.34
MONEY MARKET 48 DAYS Aaa 1.00 1.00 .052 -- +2.6 +5.4 5.13**
- ------------------------------------------------------------------------------------------------------------------------------------
</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
3
<PAGE> 4
REPORT FROM THE INVESTMENT ADVISER
During the first six months of the current fiscal year, bond markets were
unpleasantly reminiscent (though to a somewhat lesser degree) of 1994. Treasury
bond yields rose by between 1.0% and 1.3%, with securities maturing in two to
five years experiencing the greatest increases, while Treasury bill rates were
up 0.25% to 0.5%. Bond prices respond to changes in interest rates in direct
proportion to their maturity, and 30-year Treasury bonds fell approximately
- -13% in price over this period. Please refer to the Message To Shareholders for
a complete discussion of the returns of the various Portfolios of Vanguard
Admiral Funds.
Most of the damage in this year's bond market sell-off was done in the
first three months of the fiscal year, as the market tumbled from a fairly
lofty perch. The temporary shutdowns of the Federal government, the January
blizzard in the eastern states, and continuing production slowdowns fostered a
progressively more downbeat interpretation of the economic indicators, despite
the fact that these one-time shocks would have little or no long-term impact on
the economy. Having received small monetary policy easings (fine tuning really)
from the Federal Reserve in December '95 and January '96, the market expected
more largesse from the Central Bank.
Unfortunately, these expectations collided with a new
reality--reaccelerating economic growth. Within a month the rout began. A
stream of strong economic statistics ensued which caused the market to postpone
and eventually reverse expectations of easier monetary policy. Labor market
indicators were especially prominent, with the unemployment rate falling to a
level that many economists feel is unsustainable without increased wage
inflation.
Toward the close of the fiscal period, interest rates retraced some of
their rise, causing bonds to recoup a portion of their losses. Despite
predictions of rising inflation based on the rapid pace of economic growth and
job creation, the actual increase in the overall level of prices and wages has
held to the subdued trend of the past few years. The rapid pace of
technological advancement in the workplace has caused some observers to assert
that the economy can grow substantially faster than the conventional "speed
limit" of 2.0% to 2.5% without endangering our low inflation rate. Because
major changes in inflation and productivity trends occur over long periods of
time, it is too soon to tell whether the confluence of high real growth and low
inflation witnessed this year is a temporary phenomenon due to the normal
interaction of economic cycles or a sign of fundamental, sustainable change in
the functioning of our economy.
During the past two and one-half years, the bond market has given
investors a roller coaster ride; the grinding ascent of interest rates of
1994's bear market, followed by a breathtaking rally in 1995 and another jolt
back down in 1996. Such volatility is often times unpredictable. Our
philosophy, as in the past, is to be sure that each Portfolio of Vanguard
Admiral Funds produces returns that mirror those of its respective Treasury
market sectors. Our goal is to add value at the margin through moderate and
disciplined adjustments to market exposure based on our fundamental outlook. In
addition, we use quantitative research in an attempt to optimize the securities
selected and add incremental yield through investment in less well known
entities whose securities benefit from the full faith and credit guaranty of
the U.S. Treasury. (The Money Market Portfolio, however, invests only in U.S.
Treasury securities.)
The Admiral Funds' emphasis on Treasury securities offers potential
state and local tax savings, and its extremely low expenses ensure that our
shareholders receive the lion's share of the market's return. We appreciate the
confidence you have placed in us by investing with Vanguard and look forward
to reporting to you on the full fiscal year six months hence.
Respectfully,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
Vanguard Fixed Income Group August 5, 1996
4
<PAGE> 5
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
July 31, 1996
<TABLE>
<CAPTION>
Face Market
U.S. TREASURY Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (98.9%)
- -----------------------------------------------------------------------------------------------
U.S. TREASURY BILLS
4.835%, 9/16/96 $ 19,210 $ 19,076
5.11%, 9/5/96 279,440 278,058
5.177%, 10/10/96 7,980 7,901
5.218%, 10/3/96 418,566 414,822
5.218%, 10/17/96 26,392 26,101
5.244%, 10/24/96 187,000 184,740
5.275%, 11/7/96 8,906 8,780
5.283%, 10/17/96 200,071 197,852
U.S. TREASURY NOTES
4.375%, 8/15/96 507,528 507,351
6.25%, 8/31/96 195,399 195,506
6.875%, 10/31/96 132,317 132,758
7.25%, 8/31/96 50,000 50,069
7.25%, 11/15/96 135,000 135,636
8.00%, 10/15/96 419,101 421,272
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $2,579,922) 2,579,922
- -----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- -----------------------------------------------------------------------------------------------
Other Assets--Note B 37,964
Liabilities (9,084)
-----------
28,880
- -----------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------
Applicable to 2,608,896,372 outstanding
$.001 par value shares
(authorized 20,000,000,000 shares) $2,608,802
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
===============================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- -------
<S> <C> <C>
PAID IN CAPITAL $2,608,896 $1.00
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (94) --
UNREALIZED APPRECIATION
OF INVESTMENTS -- --
- -----------------------------------------------------------------------------------------------
NET ASSETS $2,608,802 $1.00
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
SHORT-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- -----------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (97.7%)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES
5.625%, 10/31/97 $110,000 $109,450
5.625%, 11/30/00 5,000 4,830
5.875%, 3/31/99 6,500 6,426
6.25%, 8/31/00 8,200 8,121
6.50%, 4/30/99 3,000 3,011
6.75%, 6/30/99 52,500 52,984
6.875%, 8/31/99 37,700 38,154
7.125%, 9/30/99 39,500 40,265
7.75%, 11/30/99 33,500 34,777
7.75%, 12/31/99 92,300 95,905
7.75%, 1/31/00 10,000 10,389
7.875%, 4/15/98 10,500 10,787
BANCO NACIONAL DE
COMERCIO EXTERIOR
(U.S. Government Guaranteed)
4.62%, 10/15/98* 4,054 3,980
4.91%, 10/15/98* 3,000 2,946
5.10%, 4/15/98* 2,400 2,378
5.48%, 10/15/97* 910 907
6.475%, 5/15/00* 4,711 4,704
8.038%, 1/15/00* 4,890 5,026
BARIVEN, SA EXIMBANK GUARANTEED
EXPORT FINANCING
(U.S. Government Guaranteed)
6.277%, 4/15/01*(1) 8,000 7,932
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
4.61%, 9/1/98* 600 590
5.69%, 2/1/98* 400 398
7.75%, 1/1/00* 4,200 4,290
GUARANTEED EXPORT CERTIFICATES
(U.S. Government Guaranteed)
4.743%, 9/15/98* 4,500 4,428
6.61%, 9/15/99* 5,100 5,114
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
4.77%, 11/1/97* 2,790 2,763
4.86%, 4/1/98* 2,000 1,979
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $465,189) 462,534
- -----------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -----------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.4%)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.62%, 8/1/96
(Cost $16,225) $16,225 $ 16,225
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.1%)
(Cost $481,414) 478,759
- -----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
- -----------------------------------------------------------------------------------------------
Other Assets--Note B 7,710
Liabilities (13,006)
------------
(5,296)
- -----------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------
Applicable to 47,539,607 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $473,463
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.96
===============================================================================================
</TABLE>
+ See Note A to Financial Statements.
* The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(1)Restricted security representing 1.7% of net assets at July 31, 1996.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- -------
<S> <C> <C>
PAID IN CAPITAL $479,178 $10.08
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (3,060) (.06)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE D (2,655) (.06)
- ------------------------------------------------------------------------------------------------
NET ASSETS $473,463 $ 9.96
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
INTERMEDIATE-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (95.3%)
- -----------------------------------------------------------------------------------------------
U.S. TREASURY BONDS
10.375%, 11/15/12 $112,450 $141,915
10.75%, 2/15/03 5,000 6,066
10.75%, 5/15/03 13,900 16,941
11.125%, 8/15/03 6,500 8,088
11.625%, 11/15/02 27,200 34,072
11.625%, 11/15/04 12,600 16,433
11.875%, 11/15/03 5,000 6,463
U.S. TREASURY NOTES
5.75%, 8/15/03 29,100 27,586
6.125%, 9/30/00 6,900 6,801
6.25%, 8/31/00 5,000 4,952
6.25%, 2/15/03 14,400 14,085
6.75%, 4/30/00 6,000 6,048
7.25%, 5/15/04 87,779 90,508
7.25%, 8/15/04 23,200 23,914
7.50%, 2/15/05 34,500 36,133
7.75%, 12/31/99 19,500 20,262
7.75%, 1/31/00 6,000 6,233
7.875%, 11/15/04 40,500 43,335
EXPORT FUNDING TRUST
(U.S. Government Guaranteed)
8.21%, 2/27/02* 9,159 9,606
GOVERNMENT EXPORT TRUST
(U.S. Government Guaranteed)
6.00%, 3/15/05* 10,922 10,508
7.46%, 12/15/05* 13,217 13,468
GUARANTEED TRADE TRUST
(U.S. Government Guaranteed)
7.39%, 6/26/06* 2,383 2,422
7.80%, 8/15/06* 8,750 9,027
8.17%, 1/15/07* 3,500 3,673
OVERSEAS PRIVATE INVESTMENT CORP.
(U.S. Government Guaranteed)
5.735%, 1/15/02* 5,500 5,358
5.94%, 6/20/06* 5,000 4,759
6.08%, 8/15/04* 22,500 21,632
- -----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $596,141) 590,288
- -----------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (3.1%)
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
5.62%, 8/1/96
(Cost $19,181) $ 19,181 $ 19,181
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.4%)
(Cost $615,322) 609,469
- ------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.6%)
- ------------------------------------------------------------------------------------------------
Other Assets--Notes B and E 16,661
Liabilities--Note E (6,530)
---------
10,131
- ------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------
Applicable to 61,816,327 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $619,600
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.02
================================================================================================
</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, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- ------
<S> <C> <C>
PAID IN CAPITAL $635,359 $10.28
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED NET
REALIZED LOSSES (9,906) (.16)
UNREALIZED DEPRECIATION OF
INVESTMENTS--NOTE D (5,853) (.10)
- ------------------------------------------------------------------------------------------------
NET ASSETS $619,600 $10.02
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
LONG-TERM Amount Value
U.S. TREASURY PORTFOLIO (000) (000)+
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (95.9%)
- ------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS
7.50%, 11/15/24 $ 2,400 $ 2,527
7.625%, 2/15/25 5,950 6,370
7.875%, 2/15/21 47,904 52,164
8.125%, 8/15/19 22,933 25,552
8.875%, 8/15/17 30,420 36,291
8.875%, 2/15/19 27,003 32,344
9.875%, 11/15/15 1,950 2,523
10.375%, 11/15/12 13,590 17,151
- ------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $175,276) 174,922
- ------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.1%)
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
5.62%, 8/1/96
(Cost $1,982) 1,982 1,982
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.0%)
(Cost $177,258) 176,904
- ------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (3.0%)
- ------------------------------------------------------------------------------------------------
Other Assets--Notes B and E 7,942
Liabilities--Note E (2,401)
---------
5,541
- ------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------
Applicable to 18,381,643 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $182,445
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.93
================================================================================================
</TABLE>
+See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AT JULY 31, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
-------- -------
<S> <C> <C>
PAID IN CAPITAL $183,857 $10.00
UNDISTRIBUTED NET
INVESTMENT INCOME -- --
ACCUMULATED
NET REALIZED LOSSES (1,058) (.05)
UNREALIZED DEPRECIATION
OF INVESTMENTS--NOTE D (354) (.02)
- ------------------------------------------------------------------------------------------------
NET ASSETS $182,445 $ 9.93
- ------------------------------------------------------------------------------------------------
</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, 1996 July 31, 1996
(000) (000)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . .
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . $57,033 $ 13,007
- ------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 57,033 13,007
- ------------------------------------------------------------------------------------------------------------
EXPENSES . . . . . . . . . . . . . . . . . . . . . . .
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . . . . 128 30
Management and Administrative . . . . . . . . . . . 1,090 202
Marketing and Distribution . . . . . . . . . . . . 289 64
Custodian Fees . . . . . . . . . . . . . . . . . . . . 23 4
Taxes (other than income taxes) . . . . . . . . . . . . 79 16
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 3 3
Shareholders' Reports . . . . . . . . . . . . . . . . . 13 5
Annual Meeting and Proxy Costs . . . . . . . . . . . . 1 --
Directors' Fees and Expenses . . . . . . . . . . . . . 3 1
- ------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 1,629 325
- ------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 55,404 12,682
- ------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . (142) 2,755
Futures Contracts . . . . . . . . . . . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . (142) 2,755
- ------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . -- (14,314)
Futures Contracts . . . . . . . . . . . . . . . . . . -- --
- ------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . -- (14,314)
- ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . $55,262 $ 1,123
============================================================================================================
</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, 1996 July 31, 1996
(000) (000)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . .
INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 19,578 $ 6,131
- -----------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . 19,578 6,131
- -----------------------------------------------------------------------------------------------------------
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . .
The Vanguard Group--Note B . . . . . . . . . . . . . .
Investment Advisory Services . . . . . . . . . . . 41 13
Management and Administrative . . . . . . . . . . . 289 78
Marketing and Distribution . . . . . . . . . . . . 81 26
Custodian Fees . . . . . . . . . . . . . . . . . . . . 74
Taxes (other than income taxes) . . . . . . . . . . . . 22 7
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 33
Shareholders' Reports . . . . . . . . . . . . . . . . . 62
Annual Meeting and Proxy Costs . . . . . . . . . . . . -- --
Directors' Fees and Expenses . . . . . . . . . . . . . 1 --
- -----------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 450 133
- -----------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . 19,128 5,998
- -----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) . . . . . . . . . . . . . . . . . . .
Investment Securities Sold . . . . . . . . . . . . . . . . 320 (1,056)
Futures Contracts . . . . . . . . . . . . . . . . . . . . 47 --
- -----------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . 367 (1,056)
- -----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) . . . . . . . . . . . . . . . . . . . . .
Investment Securities . . . . . . . . . . . . . . . . . . (39,453) (17,980)
Futures Contracts . . . . . . . . . . . . . . . . . . . . -- --
- -----------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . (39,453) (17,980)
- -----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . $(19,958) $ (13,038)
===========================================================================================================
</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, 1996 January 31, 1996 JULY 31, 1996 January 31, 1996
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS . . . . . . . . . . . . . . . . . . . . .
Net Investment Income . . . . . . . . . . . . . . $ 55,404 $ 87,829 $ 12,682 $ 23,904
Realized Net Gain (Loss) . . . . . . . . . . . . . (142) 73 2,755 1,729
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . -- -- (14,314) 15,462
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . 55,262 87,902 1,123 41,095
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . .
Net Investment Income . . . . . . . . . . . . . . (55,404) (87,829) (12,682) (23,904)
Realized Net Gain . . . . . . . . . . . . . . . . -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (55,404) (87,829) (12,682) (23,904)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1) . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . 1,647,721 1,644,118 151,572 264,098
Issued in Lieu of Cash Distributions . . . . . . . 52,417 82,822 9,366 18,618
Redeemed . . . . . . . . . . . . . . . . . . . . . (869,538) (1,320,063) (101,941) (206,839)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . . . . 830,600 406,877 58,997 75,877
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . 830,458 406,950 47,438 93,068
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . 1,778,344 1,371,394 426,025 332,957
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . $2,608,802 $ 1,778,344 $ 473,463 $ 426,025
====================================================================================================================================
(1)Shares Issued and Redeemed . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . 1,647,721 1,644,118 15,144 26,346
Issued in Lieu of Cash Distributions . . . . . 52,417 82,822 936 1,849
Redeemed . . . . . . . . . . . . . . . . . . . (869,538) (1,320,063) (10,183) (20,626)
- ------------------------------------------------------------------------------------------------------------------------------------
830,600 406,877 5,897 7,569
- ------------------------------------------------------------------------------------------------------------------------------------
</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, 1996 January 31, 1996 JULY 31, 1996 January 31, 1996
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS . . . . . . . . . . . . . . . . . . . . .
Net Investment Income . . . . . . . . . . . . . . $ 19,128 $ 32,104 $ 5,998 $ 10,585
Realized Net Gain (Loss) . . . . . . . . . . . . . 367 6,041 (1,056) 4,194
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . (39,453) 46,712 (17,980) 23,788
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . (19,958) 84,857 (13,038) 38,567
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . .
Net Investment Income . . . . . . . . . . . . . . (19,128) (32,104) (5,998) (10,585)
Realized Net Gain . . . . . . . . . . . . . . . . -- -- (527) (1,495)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (19,128) (32,104) (6,525) (12,080)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1) . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . 190,565 320,851 88,851 145,811
Issued in Lieu of Cash Distributions . . . . . . . 13,492 23,082 4,531 8,307
Redeemed . . . . . . . . . . . . . . . . . . . . . (130,056) (169,135) (77,252) (130,533)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . . . 74,001 174,798 16,130 23,585
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . 34,915 227,551 (3,433) 50,072
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . .
Beginning of Period . . . . . . . . . . . . . . . 584,685 357,134 185,878 135,806
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . $619,600 $584,685 $182,445 $185,878
====================================================================================================================================
(1)Shares Issued and Redeemed . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . 18,655 31,613 8,755 14,158
Issued in Lieu of Cash Distributions . . . . . 1,334 2,244 451 794
Redeemed . . . . . . . . . . . . . . . . . . . (12,840) (16,469) (7,628) (12,599)
- ------------------------------------------------------------------------------------------------------------------------------------
7,149 17,388 1,578 2,353
- ------------------------------------------------------------------------------------------------------------------------------------
</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, 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $ 1.00 $1.00 $1.00 $1.00 $1.00
------- ------ ------- ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .025 .055 .041 .029 .004
Net Realized and Unrealized Gain (Loss) on Investments . -- -- -- -- --
------- ------ ------- ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . .025 .055 .041 .029 .004
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.025) (.055) (.041) (.029) (.004)
Distributions from Realized Capital Gains . . . . . . . . -- -- -- -- --
------- ------ ------- ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . (.025) (.055) (.041) (.029) (.004)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +2.56% +5.66% +4.19% +2.99% +0.41%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $2,609 $1,778 $1,371 $860 $149
Ratio of Total Expenses to Average Net Assets . . . . . . . .15%* .15% .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 5.08%* 5.50% 4.21% 3.06% 3.12%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
*Annualized.
- -----------------------------------------------------------------------------------------------------------------------------------
<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, 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $ 10.23 $ 9.77 $ 10.26 $10.17 $10.00
------- ------- ------- ------- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .292 .626 .518 .448 .065
Net Realized and Unrealized Gain (Loss) on Investments . (.270) .460 (.468) .101 .170
------- ------- ------- ------- ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . .022 1.086 .050 .549 .235
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.292) (.626) (.518) (.448) (.065)
Distributions from Realized Capital Gains . . . . . . . . -- -- (.022) (.011) --
------- ------- ------- ------- ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . (.292) (.626) (.540) (.459) (.065)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $ 9.96 $ 10.23 $ 9.77 $10.26 $10.17
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +0.24% +11.41% +0.57% +5.50% +2.35%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $473 $426 $333 $252 $63
Ratio of Total Expenses to Average Net Assets . . . . . . . .15%* .15% .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 5.84%* 6.22% 5.30% 4.38% 4.87%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 95%* 95% 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, 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $10.70 $ 9.58 $10.58 $10.29 $10.00
------ ------- ------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .322 .665 .598 .578 .084
Net Realized and Unrealized Gain (Loss) on Investments . (.680) 1.120 (.995) .418 .290
------ ------- ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . (.358) 1.785 (.397) .996 .374
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . (.322) (.665) (.598) (.578) (.084)
Distributions from Realized Capital Gains . . . . . . . . -- -- (.005) (.128) --
------ ------- ------ ------ -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . (.322) (.665) (.603) (.706) (.084)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $10.02 $10.70 $ 9.58 $10.58 $10.29
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . -3.34% +19.16% -3.67% +9.89% +3.75%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $620 $585 $357 $332 $78
Ratio of Total Expenses to Average Net Assets . . . . . . . .15%* .15% .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 6.35%* 6.49% 6.15% 5.46% 6.31%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 65%* 64% 134% 102% 0%
- -----------------------------------------------------------------------------------------------------------------------------------
*Annualized.
<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, 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $11.06 $ 9.40 $10.90 $10.30 $10.00
------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .341 .691 .670 .709 .096
Net Realized and Unrealized Gain (Loss) on Investments . (1.100) 1.749 (1.405) .881 .300
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . (.759) 2.440 (.735) 1.590 .396
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION
Dividends from Net Investment Income . . . . . . . . . . (.341) (.691) (.670) (.709) (.096)
Distributions from Realized Capital Gains . . . . . . . . (.030) (.089) (.095) (.281) --
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.371) (.780) (.765) (.990) (.096)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $ 9.93 $11.06 $ 9.40 $10.90 $10.30
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . -6.85% +26.74% -6.60% +15.90% +3.97%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . $182 $186 $136 $99 $49
Ratio of Total Expenses to Average Net Assets . . . . . . . .15%* .15% .15% .15% .15%*
Ratio of Net Investment Income to Average Net Assets . . . 6.76%* 6.66% 7.06% 6.58% 7.22%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 65%* 125% 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, 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 a custodian bank 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 and U.S. Treasury Bond 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.
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
14
<PAGE> 15
declared on a daily basis payable on the first business day of the
following month. Annual distributions from realized gains, if any, are
recorded on the ex-dividend date.
B. The Vanguard Group 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, 1996, the Fund had contributed capital of $377,000 to
Vanguard (included in Other Assets), representing 1.9% 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, 1996, 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 $310,311 $196,096
INTERMEDIATE-TERM U.S. TREASURY 256,410 189,773
LONG-TERM U.S. TREASURY 77,416 56,339
- ---------------------------------------------------------------
</TABLE>
At January 31, 1996, capital loss carryforwards available to offset future net
capital gains were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Expiration Fiscal
Year(s) Ending Amount
Portfolio January 31 (000)
- ---------------------------------------------------------------
<S> <C> <C>
SHORT-TERM U.S. TREASURY 2003-2004 $ 5,805
INTERMEDIATE-TERM U.S. TREASURY 2003 10,274
- ---------------------------------------------------------------
</TABLE>
D. At July 31, 1996, net unrealized depreciation of investment
securities for financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(000)
---------------------------------------------
Net
Appreciated Depreciated Unrealized
Portfolio Securities Securities Depreciation
- -----------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM
U.S. TREASURY $ 543 $ (3,198) $(2,655)
INTERMEDIATE-TERM
U.S. TREASURY 7,001 (12,854) (5,853)
LONG-TERM
U.S. TREASURY 1,573 (1,927) (354)
- -----------------------------------------------------------------------
</TABLE>
E. The market value of securities on loan to broker/dealers at July 31,
1996, 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 $32,185 $4,347 $28,407
LONG-TERM U.S. TREASURY 1,972 1,995 --
- ------------------------------------------------------------------------
</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.
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 Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
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 Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
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
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
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.
Q122-7/96
VANGUARD
ADMIRAL FUNDS
SEMI-ANNUAL REPORT
JULY 31, 1996
