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VANGUARD
ADMIRAL FUNDS
Annual Report - January 31, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 6,000 highly motivated
men and women--who form the cornerstone of our operations. As with any
cornerstone, we could not survive long--let alone prosper--without it. That's
why we chose this fiscal year's annual report to celebrate the spirit,
enthusiasm, and achievements of our crew. (We call those who work at Vanguard
crew members, not employees, because they operate as a team to accomplish our
mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving you
in the years ahead.
[PHOTO]
John C. Bogle John J. Brennan
Senior Chairman Chairman & CEO
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CONTENTS
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A MESSAGE TO OUR SHAREHOLDERS...............................1
THE MARKETS IN PERSPECTIVE .................................5
REPORT FROM THE ADVISER.....................................7
PERFORMANCE SUMMARIES.......................................9
PORTFOLIO PROFILES ........................................13
FINANCIAL STATEMENTS ......................................18
REPORT OF INDEPENDENT ACCOUNTANTS .........................32
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All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
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FELLOW SHAREHOLDER,
The four Portfolios of Vanguard Admiral Funds earned returns ranging from +17.1%
to +5.3% during the fiscal year ended January 31, 1998. In a near-perfect
environment for fixed-income investments, each Portfolio not only provided a
fine absolute return but also performed well relative to competing funds.
Returns from our Portfolios, of course, varied considerably according to
their maturities. The U.S. Treasury Money Market Portfolio, which has the
shortest maturity of the four, provided the lowest return, while the Long-Term
U.S. Treasury Portfolio provided the highest return--just as you would expect in
a year when long-term interest rates declined and prices of existing issues
rose.
The table below presents the total return (capital change plus reinvested
dividends) for each Portfolio during the fiscal year. Each is compared with its
key benchmarks--a peer group of mutual funds and an appropriate unmanaged market
index.
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TOTAL RETURNS
FISCAL YEAR ENDED
JANUARY 31, 1998
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<S> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO + 5.3%
Average Treasury
Money Market Fund + 4.8
Salomon Brothers Three-Month
U.S. Treasury Bill Index + 5.3
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SHORT-TERM U.S. TREASURY PORTFOLIO + 7.2%
Average Short-Term Treasury Fund + 7.0
Lehman Brothers 1-5 Year
U.S. Treasury Bond Index + 7.9
- --------------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO +11.0%
Average Intermediate-Term
Treasury Fund + 9.7
Lehman Brothers 5-10 Year
U.S. Treasury Bond Index +11.7
- --------------------------------------------------------------------------------
LONG-TERM U.S. TREASURY PORTFOLIO +17.1%
Average Long-Term Treasury Fund +13.1
Lehman Brothers Long U.S. Treasury Index +18.3
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</TABLE>
It's important to note the stark contrast between the returns on
longer-term bonds this year versus last year. In our 1997 annual report, we told
you about the damage that rising interest rates inflicted on long-term bonds.
Our Long-Term U.S. Treasury Portfolio, which returned +17.1% in fiscal 1998, had
a negative return of -1.7% during fiscal 1997--a powerful reminder of the
short-term variability of bond returns. These returns include net interest
income earned by the Portfolio; excluding income, the capital return of +9.8% in
the past year compared to -8.1% a year earlier. As we have explained in previous
reports, our bond Portfolios have longer average maturities than most of their
competitors and, therefore, are more sensitive to changes in interest rates.
This distinction clearly favored our Portfolios during this fiscal year, just as
it hinders our relative performance when interest rates are rising. We believe
our strategy is in the best interest of our long-term shareholders.
Per-share figures for each Portfolio, including net asset values and
income dividends, are presented in the table that follows this letter. Yields as
of the fiscal year-end also are listed. Our Portfolios made no capital gain
distributions during the fiscal year.
THE FINANCIAL MARKETS IN BRIEF
The rare mixture of solid economic growth, low unemployment, and decelerating
inflation was a tonic for U.S. financial markets during the fiscal year. While
this environment was especially kind to stock investors, bond investors also
earned solid returns thanks to the general decline in interest rates.
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As the fiscal year began, long-term interest rates were rising because
many investors expected that the economy's robust growth would cause inflation
to accelerate. But the rate rise was short-lived. The yield on the benchmark
30-year U.S. Treasury bond peaked at 7.17% in mid-April, then headed lower as
the news on inflation got better rather than worse. Turmoil in Asia also gave a
boost to the U.S. bond market late in 1997 as investors--both foreign and
domestic--sought the relative safety of bonds. On January 31, the 30-year bond's
yield stood at 5.80%, nearly 100 basis points below the 6.79% level at which it
began the fiscal year. When all was said and done, the price of the long bond
was up about 9% for the twelve months.
For very short-term securities, interest rates rose slightly on balance.
The yield on three-month U.S. Treasury bills was 5.18% on January 31, 1998, up a
tiny bit from 5.15% a year earlier. The spread between yields on three-month
T-bills and 30-year Treasury bonds narrowed from 1.64 percentage points when the
fiscal year began to a slim 0.62 percentage point at fiscal year-end. Such a
"flattening" of the yield curve has more often than not been a precursor of a
slowing economy.
Overall, the U.S. bond market provided a return of +10.7% for the fiscal
year (as measured by the Lehman Aggregate Bond Index), a sturdy performance that
was significantly higher than the fiscal 1997 return of +3.3%, but well shy of
the +17.0% gain in fiscal 1996. The Lehman Index includes both government and
high-grade corporate bonds, with maturities ranging from short to long.
While the fiscal year was wonderful for the bond market, it was even more
wonderful for the stock market. U.S. stocks, as measured by the Wilshire 5000
Equity Index, provided a total return of +25.2% for the twelve months ended
January 31, bringing the Index's three-year cumulative return to a remarkable
+113.8%.
FISCAL 1998 PERFORMANCE OVERVIEW
Each of the four Portfolios of Vanguard Admiral Funds turned in an excellent
performance during the twelve months, both on an absolute and relative basis.
Our relative superiority was based largely on two factors: our policy of holding
somewhat longer maturities than our peers in a favorable environment, and our
substantial cost advantage, which enables us to deliver more of our gross
returns to our shareholders.
The following table shows the change in each Portfolio's yield between
January 31, 1997, and January 31, 1998, and breaks out each Portfolio's total
return into its income and capital components.
Our U.S. Treasury Money Market Portfolio maintained its $1 share price, as
is expected but not guaranteed. Its +5.3% return topped that of its average peer
by 0.5 percentage point and matched that of its benchmark index.
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TOTAL RETURNS
ANNUALIZED FISCAL YEAR ENDED
YIELDS* ON JANUARY 31, 1998
JANUARY 31, ----------------------------------
U.S. TREASURY ----------------------- INCOME CAPITAL TOTAL
PORTFOLIO 1997 1998 RETURN RETURN RETURN
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<S> <C> <C> <C> <C> <C>
Money Market 5.06% 5.25% +5.3% 0.0% + 5.3%
Short-Term 5.99 5.35 +6.1 +1.1 + 7.2
Intermediate-Term 6.51 5.49 +6.8 +4.2 +11.0
Long-Term 6.81 5.80 +7.3 +9.8 +17.1
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*Seven-day yield for Money Market Portfolio; 30-day yield for other Portfolios.
The +7.2% return of our Short-Term U.S. Treasury Portfolio came mostly
from interest income, given its average maturity of a little more than two
years. Our Intermediate-Term U.S. Treasury Portfolio, which is more than twice
as sensitive to interest-rate changes, earned a total return of +11.0%,
consisting of a share-price increase of +4.2% and an income return of +6.8%.
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Finally, our Long-Term U.S. Treasury Portfolio received the biggest boost
from the interest-rate decline, earning a capital return of +9.8% that helped
bring the Portfolio's total return to +17.1%.
LIFETIME PERFORMANCE OVERVIEW
In the five years since their inceptions, the Portfolios of Vanguard Admiral
Funds have established a solid performance edge over mutual funds holding
Treasury bonds with similar maturities. This advantage has added up nicely for
our shareholders.
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TOTAL RETURNS
DEC. 14, 1992, TO JAN. 31, 1998
-------------------------------------
FINAL VALUE OF
AVERAGE A $50,000
ANNUAL RATE INITIAL INVESTMENT
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<S> <C> <C>
U.S. TREASURY
MONEY MARKET PORTFOLIO + 4.6% $63,083
Average Treasury
Money Market Fund + 4.2 61,736
Salomon Three-Month
Treasury Index + 4.9 63,798
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SHORT-TERM U.S. TREASURY
PORTFOLIO + 6.0% $67,485
Average Short-Term
Treasury Fund + 5.5 65,897
Lehman 1-5 Year
U.S. Treasury Index + 6.2 68,217
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INTERMEDIATE-TERM
U.S. TREASURY PORTFOLIO + 7.8% $73,562
Average Intermediate-Term
Treasury Fund + 6.8 70,136
Lehman 5-10 Year
U.S. Treasury Index + 8.0 74,248
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LONG-TERM U.S. TREASURY
PORTFOLIO +10.1% $82,024
Average Long-Term
Treasury Fund + 8.0 74,309
Lehman Long U.S.
Treasury Index +10.4 83,140
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</TABLE>
The Performance Summaries on pages 9 through 12 include charts showing
cumulative returns for the lifetime of each of our Portfolios as well as
year-by-year breakdowns of the income and capital returns earned by each. The
adjacent table summarizes the total returns of each Portfolio since its
inception relative to those of comparable fixed-income mutual funds and relevant
indexes. It also shows how hypothetical $50,000 investments in each fund and in
its comparative standards would have grown over the period.
Our low costs are largely responsible for the consistent and commanding
edge we hold over our peers and help us closely track our benchmark indexes. Our
expense ratio (annual expenses as a percentage of average net assets) for the
fiscal year amounted to 0.15%--$1.50 per $1,000 invested--a small fraction of
the 1.04% in expenses charged each year by the average fixed-income mutual fund.
While costs are a critical element in the long-term performance of mutual funds
in general, they matter especially for bond funds. Because a fixed-income fund's
operating costs come directly out of the income that would otherwise flow to
shareholders, differences in cost account for much of the long-term difference
in returns between mutual funds holding bonds of comparable credit quality and
maturity. While bond fund returns will fluctuate unpredictably year to year as
interest rates change, costs are a relatively predictable influence on net
return. The simple message of our comparative advantage is: Costs matter.
Though our Portfolios failed to keep up with their Indexes for the
five-year period, low costs helped to hold our shortfalls to a minimum. The
Indexes are notoriously tough standards for actively managed bond funds because
such benchmarks exist only on paper and are not burdened by the operating,
advisory, and securities-transaction costs that all mutual funds must incur.
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Two other keys to our fine absolute and relative performance are the skill
of our outstanding investment adviser, Vanguard Fixed Income Group, and our
policy of maintaining the maturities of our Portfolios within well-defined
limits.
We point out that future returns of the Portfolios of Vanguard Admiral
Funds may be higher or lower than those shown above. The period since the
inceptions of the Portfolios has been a generally good one for longer-term bonds
(with the notable exception of 1994), as interest rates have declined on
balance. With long-term bond yields now below 6%, it is unrealistic to expect
future returns to be as high as those earned so far during the lifetime of
Vanguard Admiral Funds.
IN SUMMARY
The stock market is now in the 16th year of a truly remarkable bull run. An
unfortunate side effect of this amazing performance is that some investors may
have become convinced that bonds serve only to dilute the returns from their
stocks. This is a dangerous notion. Bonds provide higher current income than
stocks. And the performance leadership among the asset classes shifts from time
to time, often unpredictably. We believe that constructing a balanced portfolio
that includes not just stock funds but also bond funds and money market funds is
a prudent course for long-term investors, no matter how powerful the allure of
the "hottest" asset class.
For the bond portion of your investment program, Vanguard Admiral Funds
will continue to provide skillfully managed, clearly defined U.S. Treasury
Portfolios at the lowest costs in the industry. We will stay the course with our
proven strategy, and we suggest you do the same with a diversified, balanced
investment program.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
February 19, 1998
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PORTFOLIO STATISTICS
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NET ASSET VALUE
PER SHARE TWELVE MONTHS SEC
------------------- ------------------------------------------- 30-DAY
JANUARY 31, INCOME CAPITAL TOTAL ANNUALIZED
U.S. TREASURY PORTFOLIO 1998 1997 DIVIDENDS GAINS RETURN YIELD
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Money Market $ 1.00 $ 1.00 $0.052 $0.00 + 5.3% 5.25%*
Short-Term 10.15 10.04 0.592 0.00 + 7.2 5.35
Intermediate-Term 10.60 10.17 0.645 0.00 +11.0 5.49
Long-Term 11.12 10.13 0.669 0.00 +17.1 5.80
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*Seven-day yield.
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THE MARKETS IN PERSPECTIVE
Year Ended January 31, 1998
U.S. EQUITY MARKETS
Overall, the fiscal year that ended in January again provided U.S. equity
investors with exceptional returns, as illustrated by the 26.9% advance of the
S&P 500 Index. Investors' mettle was tested several times, however, and most
severely by the upheavals that devastated a number of Asian markets toward the
end of 1997. The region's turmoil created a high degree of uncertainty about
which countries and companies would be most affected. At a deeper level,
investors also were concerned about how local and global economic growth might
ultimately be affected by the Asian currency devaluations. As a result,
beginning in late October, the U.S. market grew increasingly volatile.
While the dust continued to settle, many investors sought the traditional
havens for periods of high uncertainty: large-capitalization issues and
particularly the "defensive" sectors of the stock market, such as utilities and
health care. The last four months of the fiscal year saw a broad advance in
these "safe" sectors, with utilities gaining 23.2% and health care 17.1%. By
contrast, concern regarding slowing economic activity in Asia had a pronounced
effect on oil prices and on the stocks of oil and oil-service companies. From
early October through mid-January, oil prices fell from nearly $23 a barrel to
less than $16, but ultimately recovered to $17.21. During this period,
integrated-oils stocks declined 8.8% and those of oil-service firms dropped
12.5%. The troubles in Asia also affected small-company stocks generally: After
posting strong results during the summer, these stocks fell 4.9% from September
through January.
Despite the recent changes in the investment environment, the fiscal year
that ended January 31 remained a stellar one for U.S. stock investors. The
best-performing sector, to the surprise of many analysts, was utilities, which
rose 38.6%. Utilities benefited from a number of factors, including the strength
of the economy, falling interest rates, and merger activity--plus, as noted, a
boost from investors hoping to avoid anything connected with Asia. In contrast,
the commodity-oriented materials & processing sector posted a gain of 9.1%.
Despite the late-year rockiness, small-cap stocks also fared well overall, as
illustrated by the 18.1% increase of the Russell 2000 Index. Small-company
technology issues were a glaring exception, falling 2.3%.
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AVERAGE ANNUALIZED RETURNS
PERIODS ENDED JANUARY 31, 1998
------------------------------------
1 YEAR 3 YEARS 5 YEARS
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<S> <C> <C> <C>
EQUITY
S&P 500 Index 26.9% 30.5% 20.3%
Russell 2000 Index 18.1 22.2 15.3
MSCI EAFE Index 10.6 9.6 12.7
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FIXED INCOME
Lehman Aggregate Bond Index 10.7% 10.2% 7.3%
Lehman 10-Year Municipal Bond Index 10.0 9.7 7.4
Salomon Brothers Three-Month
U.S. Treasury Bill Index 5.3 5.4 4.7
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OTHER
Consumer Price Index 1.6% 2.4% 2.5%
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U.S. FIXED-INCOME MARKETS
In a fiscal year characterized by exceptionally low inflation, interest rates
fell, providing investors with very attractive total returns. The Lehman
Aggregate Bond Index, for
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example, posted a total return of 10.7% for the period, comprising 7.2% in
income return and 3.5% in capital appreciation. The decline in rates can be
attributed largely to better-than-expected reports about the inflation rate.
Early in the year, economists were projecting a 2.9% increase in the Consumer
Price Index (CPI) during 1997. In March, the Federal Reserve grew sufficiently
concerned to boost interest rates by 0.25% in an effort to temper economic
growth and thereby ward off inflation. The worries seemed to have been
unnecessary, as the actual CPI increase for calendar 1997 was a mere 1.7%.
The bond market gradually gathered strength during the year as investors
grew more confident that four seemingly strange bedfellows--strong economic
growth, reasonable inflation, low unemployment, and stable wage growth--would
continue to coexist peace-fully. The market also was bolstered, in the final
months of 1997, by the drop in oil prices and by the "flight to quality" among
investors concerned about Asia's problems. Overall, the longest-maturity issues
benefited most from the decline in interest rates. The yield on the 30-year U.S.
Treasury bond closed the fiscal year at 5.80%, compared with 6.79% on January
31, 1997. Falling rates flattened the yield curve considerably: Only 0.62%
separated the yield on Treasury bills from that on the 30-year issue, down from
a spread of 1.64% one year ago. This "tighter spread" reflects expectations that
inflation will remain modest.
The best-performing sector in 1997 was long-term Treasuries, as
illustrated by the exceptional 15.1% return of the Lehman Long U.S. Treasury
Index. Investors in lower-quality securities also fared well, with the Lehman
High Yield Bond Index generating a 12.8% gain. The strength of the economy,
together with the lack of inflationary pressure, created an ideal environment
for junk bonds.
INTERNATIONAL EQUITY MARKETS
Arguably, investors' greatest disappointments were in international
markets--especially, of course, those in Asia. Despite improved returns during
January 1998, the Morgan Stanley Capital International (MSCI) Pacific Index
declined by 14.7% in U.S. dollar terms over the fiscal year. Among individual
markets, the 12-month period saw sharp declines (in U.S. dollar terms) in
Singapore, down 43.8%, and Malaysia, down 72.3%. Many Asian markets continued to
reel from the problems that began in midsummer with currency devaluations by a
number of countries. The key issue in the region's markets is whether price
levels now fairly, excessively, or insufficiently reflect the challenges these
economies face.
By contrast, the European markets continued to provide U.S. investors with
solid returns, although they, too, stumbled in late October and subsequently
recovered. The MSCI Europe Index posted a gain of 28.6% for the 12 months ended
January 31. The robust character of the European markets reflected strong
corporate earnings and optimism that the European Monetary Union would provide a
solid framework for future fiscal responsibility and economic growth.
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REPORT FROM THE ADVISER
The fiscal year ended January 31, 1998, was remarkable from a number of
perspectives. It was a period of continued buoyancy in our capital markets, as
both stock and bond prices neared or surpassed record highs. It was a period of
dramatic growth in the domestic economy and of dramatic improvements in consumer
price inflation. It was a time when millions of new investors adopted mutual
funds as their savings and investment vehicles of choice, placing billions of
dollars into funds of all varieties. Last, it was a time of global economic
upheaval, particularly in Asia.
What made the last 12 months so fascinating was the way in which these
forces and events interacted, at times harmonizing to intensify their relative
effects, at other times opposing so as to nullify each other's impact. Just as
the East and West Coasts were beset by storms spawned by "El Nino," the capital
markets were buffeted by winds blowing both domestically and from abroad. For
the most part the winds were at our backs. The Portfolios of Vanguard Admiral
Funds not only weathered the economic turbulence but prospered from these
powerful tailwinds.
PORTFOLIO REVIEWS
The seventh year of domestic economic expansion is behind us, making this period
of prosperity the third-longest since World War II. While the strong economy has
been a blessing to corporate bonds in particular, all bond funds benefited from
two unrelated but powerful factors. The first was a welcome, if somewhat
perplexing, improvement in consumer price inflation that occurred in fiscal 1998
despite robust strength in the economy and steadily rising employment and
employment costs. Unemployment reached a 24-year low and (for calendar-year
1997) consumer prices rose a mere 1.7%. Such a rare combination of good economic
and inflation news is to be savored.
Given the rapid unwinding of both inflation and inflationary expectations
over the last nine months of the fiscal year, it may be difficult to remember
that the year began on a much less sanguine note. In the winter of 1996-1997,
people were expecting the Federal Reserve Board to tighten monetary policy to
slow economic growth and avert inflationary excesses. In March the Fed did raise
the federal funds rate (at which banks lend to each other) from 5.25% to 5.50%.
Over the subsequent four weeks, investors sold bond securities in quantities
sufficient to raise long- and intermediate-term interest rates by about 0.4
percentage point. The "garden variety" long-term Treasury bond, which began the
year sporting a yield to maturity of 6.8%, rose to about 7.2% by mid-April. No
one could know at the time, but April would prove to be the bond market's
cruelest month. Thereafter, the market experienced one pleasant surprise after
another. During spring and summer, the markets were blessed by continued (albeit
moderate) growth in the economy and good inflation news. The 30-year Treasury
bond's yield descended from the mid-April peak, hovering around 6.5% from June
to October. In late October, Fed policymakers again began to voice concern that
the sustained rapid growth in employment might cause labor costs to escalate.
The market's reaction, not surprisingly, produced an irregular decline in
bond prices and a rise in interest
INVESTMENT PHILOSOPHY
The Funds reflect a belief that investors who want the unparalleled credit
quality of U.S. Treasury securities should be able to select portfolios with
maturities appropriate to their needs.
7
<PAGE> 10
rates. However, this development was halted abruptly by an astonishing, intense,
and rapid deterioration in the Pacific Rim economies.
NOTES (MOSTLY SOUR) FROM ABROAD
From October through January, financial markets were treated to a seemingly
unending stream of news reports detailing the "meltdown" of many Asian
economies. The apparently isolated popping in the summer of a real estate bubble
in Thailand had, by autumn, infected the economies and affected the currencies
of Malaysia, Indonesia, Hong Kong, South Korea, the Philippines, and even (to a
lesser degree) Japan. The world economic picture had changed strikingly.
Uncharacteristically, the U.S. bond market turned its attention away from our
own economy and focused on events across the Pacific.
The Short-, Intermediate-, and Long-Term U.S. Treasury Portfolios of
Vanguard Admiral Funds were major beneficiaries of this shift in focus. First,
the turmoil abroad prompted an almost knee-jerk "flight to quality," as
investors dumped risky securities and bought Treasury bonds. As the bad news
unfolded, long-term interest rates descended progressively from 6.4% to 5.8%. At
present, they appear to have stabilized within a 5.7%-6.0% trading range.
The flight to quality would have been transitory were it not for some
sobering implications of the Asian crisis. Bond market participants understood
that the Fed would have to modulate its formerly militant monetary stance in
light of the weakness in Asian economies. The "Asian contagion," they realized,
would affect the U.S. economy by depressing exports, stimulating consumption of
imported goods, and further shrinking the already-small inflation rate. Those
prospects buoyed bond prices and thus also the net asset values of your
Portfolios' shares (other than the Money Market Portfolio, which maintained a
constant $1 net asset value). In short, it was yet another good year to be a
bondholder. Unfortunately, that makes it that much harder for the next year to
be so rewarding.
RISKS AHEAD
The markets now reflect very optimistic investor expectations. Inflation during
the fiscal year was 1.6%. Interest rates are at their lowest levels in decades.
Can things get better than this?
It's possible. The "real" rate of interest (interest rates minus the
inflation rate), at 4% or so, remains high by historic comparisons. Bonds could
gain if either the real rate shrinks while inflation is stable or if inflation
is reduced even further. That said, it's difficult to envision a market
environment that will produce bond returns near or above 10% in 1998, if only
because the interest income component of returns is now below 6%. To replicate
the returns of recent years, bond prices would have to rise more than 4%, an
outcome that is less likely, particularly with the economy and employment still
so strong.
In conclusion, we recommend caution and prudence. The Portfolios of
Admiral Funds, with their policy of investing only in U.S. Treasuries, offer
investors low-cost investment choices of varying risk/return characteristics
that can be used to exercise the appropriate level of caution. The future is
unknowable. Sticking to one's long-range plan is the best technique for
confronting its uncertainties.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
David R. Glocke, Principal
Vanguard Fixed Income Group February 12, 1998
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PERFORMANCE SUMMARY
U.S. Treasury Money Market Portfolio
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note that annual
returns can fluctuate widely. An investment in a money market fund is neither
insured nor guaranteed by the U.S. government, and there is no assurance that
the fund will be able to maintain a stable net asset value of $1 per share.
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. TREASURY AVERAGE
MONEY MARKET PORTFOLIO FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------
<S> <C> <C> <C> <C>
1993 0.0% 0.4% 0.4% 0.4%
1994 0.0 3.0 3.0 2.6
1995 0.0 4.2 4.2 3.8
1996 0.0 5.7 5.7 5.3
1997 0.0 5.2 5.2 4.7
1998 0.0 5.3 5.3 4.8
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</TABLE>
*Average Treasury Money Market Fund.
See Financial Highlights table on page 27 for dividend information for the past
five years.
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1998
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<TABLE>
<CAPTION>
U.S. Treasury Average Treasury Salomon Three-Month
Money Market Portfolio Money Market Fund Treasury Index
---------------------- ----------------- --------------
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 50205 50190 50210
1993 04 50564 50511 50576
1993 07 50937 50836 50961
1993 10 51318 51167 51357
1994 01 51706 51500 52150
1994 04 52104 51839 52189
1994 07 52606 52285 52716
1994 10 53187 52814 53342
1995 01 53874 53447 54471
1995 04 54623 54125 54835
1995 07 55402 54847 55621
1995 10 56161 55550 56404
1996 01 56922 56253 57597
1996 04 57637 56875 57884
1996 07 58377 57535 58619
1996 10 59137 58211 59399
1997 01 59901 58897 60610
1997 04 60652 59548 60917
1997 07 61453 60262 61703
1997 10 62257 60994 62512
1998 01 63083 61736 63798
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1998
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio 5.31% 4.67% 4.63% $63,083
Average Treasury Money Market Fund 4.82 4.23 4.19 61,736
Salomon Three-Month Treasury Index 5.26 4.75 4.86 63,798
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio 12/14/1992 5.29% 4.63% 0.00% 4.62% 4.62%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
9
<PAGE> 12
PERFORMANCE SUMMARY
Short-Term U.S. Treasury Portfolio
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
both share price and return can fluctuate, so an investment in the Portfolio
could lose money.
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------
SHORT-TERM U.S. TREASURY PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------
<S> <C> <C> <C> <C>
1993 1.7% 0.7% 2.4% 2.3%
1994 1.0 4.5 5.5 6.1
1995 -4.6 5.2 0.6 -0.1
1996 4.7 6.7 11.4 12.0
1997 -1.9 6.0 4.1 4.1
1998 1.1 6.1 7.2 7.9
- --------------------------------------------------
</TABLE>
*Lehman 1-5 Year U.S. Treasury Index.
See Financial Highlights table on page 27 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Short-Term U.S. Average Short-Term Lehman 1-5 Year U.S.
Treasury Portfolio Treasury Fund Treasury Index
------------------ ------------- --------------
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 51176 50958 51165
1993 04 52300 51885 52334
1993 07 52573 52177 52814
1993 10 53405 53144 53753
1994 01 53989 53613 54297
1994 04 52844 52316 52907
1994 07 53519 52923 53623
1994 10 53591 53453 53565
1995 01 54297 53908 54231
1995 04 56002 55089 56024
1995 07 57691 56464 57784
1995 10 58889 58087 59066
1996 01 60494 59601 60750
1996 04 59874 58515 60085
1996 07 60638 59095 60853
1996 10 62212 60991 62516
1997 01 62945 61603 63223
1997 04 63485 61646 63745
1997 07 65143 63220 65648
1997 10 66178 64639 66786
1998 01 67485 65897 68217
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1998
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term U.S. Treasury Portfolio 7.21% 5.69% 6.02% $67,485
Average Short-Term Treasury Fund 6.97 5.28 5.53 65,897
Lehman 1-5 Year U.S. Treasury Index 7.90 5.92 6.24 68,217
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term U.S. Treasury Portfolio 12/14/1992 6.49% 5.80% 0.24% 5.66% 5.90%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
10
<PAGE> 13
PERFORMANCE SUMMARY
Intermediate-Term U.S. Treasury Portfolio
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
both share price and return can fluctuate widely, so an investment in the
Portfolio could lose money.
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------
INTERMEDIATE-TERM
U.S. TREASURY PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------
<S> <C> <C> <C> <C>
1993 2.9% 0.9% 3.8% 3.8%
1994 4.1 5.8 9.9 10.6
1995 -9.4 5.7 -3.7 -4.5
1996 11.7 7.5 19.2 19.6
1997 -5.0 6.3 1.3 1.3
1998 4.2 6.8 11.0 11.7
- -------------------------------------------------
</TABLE>
*Lehman 5-10 Year U.S. Treasury Index.
See Financial Highlights table on page 28 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Intermediate-Term U.S. Average Intermediate- Lehman 5-10 Year U.S.
Treasury Portfolio Term Treasury Fund Treasury Index
------------------ ------------------ --------------
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 51875 51675 51888
1993 04 53828 53317 53815
1993 07 54949 54201 55242
1993 10 56577 55756 57050
1994 01 57008 56321 57404
1994 04 53709 53610 53784
1994 07 54543 54043 54613
1994 10 53626 53526 53547
1995 01 54917 54637 54844
1995 04 57536 56548 57603
1995 07 60442 58151 60566
1995 10 62865 59960 63019
1996 01 65437 62915 65604
1996 04 62545 60631 62626
1996 07 63252 60692 63352
1996 10 65876 62574 66088
1997 01 66285 63940 66476
1997 04 66549 64020 66559
1997 07 69775 66160 70200
1997 10 71277 67211 71865
1998 01 73562 70136 74248
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1998
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate-Term U.S. Treasury Portfolio 10.98% 7.24% 7.81% $73,562
Average Intermediate-Term Treasury Fund 9.69 6.30 6.82 70,136
Lehman 5-10 Year U.S. Treasury Index 11.69 7.43 8.01 74,248
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Intermediate-Term U.S. Treasury Portfolio 12/14/1992 9.02% 7.42% 1.15% 6.41% 7.56%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
PERFORMANCE SUMMARY
Long-Term U.S. Treasury Portfolio
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolio. Note, too, that
both share price and return can fluctuate widely, so an investment in the
Portfolio could lose money.
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------
LONG-TERM U.S. TREASURY PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------
<S> <C> <C> <C> <C>
1993 3.0% 1.0% 4.0% 3.8%
1994 8.6 7.3 15.9 16.7
1995 -12.9 6.3 -6.6 -7.5
1996 18.6 8.1 26.7 27.4
1997 -8.1 6.4 -1.7 -1.6
1998 9.8 7.3 17.1 18.3
- -------------------------------------------------
</TABLE>
*Lehman Long U.S. Treasury Index.
See Financial Highlights table on page 28 for dividend and capital gains
information for the past five years.
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Long-Term U.S. Average Long-Term Lehman Long U.S.
Treasury Portfolio Treasury Fund Treasury Index
------------------ ------------- --------------
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 51984 51668 51910
1993 04 54221 53465 54191
1993 07 57330 55847 57583
1993 10 60101 58002 60541
1994 01 60248 58054 60594
1994 04 54897 53999 54890
1994 07 55850 54724 55834
1994 10 53591 53310 53500
1995 01 56273 54832 56056
1995 04 59171 56850 59166
1995 07 63461 59721 63411
1995 10 67907 62969 67870
1996 01 71319 65552 71432
1996 04 65360 61546 65497
1996 07 66431 62175 66556
1996 10 70023 65167 70211
1997 01 70074 65702 70303
1997 04 70055 64925 70173
1997 07 75870 69002 76566
1997 10 78107 71058 79072
1998 01 82024 74309 83140
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1998
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term U.S. Treasury Portfolio 17.05% 9.55% 10.13% $82,024
Average Long-Term Treasury Fund 13.10 7.54 8.03 74,309
Lehman Long U.S. Treasury Index 18.26 9.88 10.42 83,140
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1997*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-Term U.S. Treasury Portfolio 12/14/1992 13.98% 9.77% 2.78% 7.10% 9.88%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
12
<PAGE> 15
PORTFOLIO PROFILE
U.S. Treasury Money Market Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
January 31, 1998. Key elements of this Profile are defined on page 14.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------------
<S> <C>
Yield 5.3%
Average Maturity 56 days
Average Quality U.S. Treasury
Expense Ratio 0.15%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------
<S> <C>
U.S. Treasury 100.0%
</TABLE>
13
<PAGE> 16
AVERAGE COUPON. The average interest rate paid on the securities held by a
portfolio. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond portfolio's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the portfolio's duration by the change in rates. If interest
rates rise by one percentage point, the share price of a portfolio with an
average duration of five years would decline by about 5%. If rates decrease by a
percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity (or are called) and are repaid. In general, the longer the
average maturity, the more a portfolio's share price will fluctuate in response
to changes in market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a portfolio's securities holdings by credit-rating agencies.
The agencies make their judgment after appraising an issuer's ability to meet
its obligations. U.S. Treasury securities are considered to have the highest
credit quality.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing instruments. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. An indicator of the risk of default or other
credit problems on securities held by a portfolio.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: average maturity (short, medium, or long) and average credit quality
(high, medium, or low).
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's interest income. The yield, expressed as a
percentage of the portfolio's net asset value, is based on income earned over
the past 30 days (7 days for money market funds) and is annualized, or projected
forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a portfolio were held to their maturity dates.
14
<PAGE> 17
PORTFOLIO PROFILE
Short-Term U.S. Treasury Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
January 31, 1998, compared where appropriate to an unmanaged index. Key elements
of this Profile are defined on page 14.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------------
<S> <C>
Number of Issues 29
Yield 5.4%
Yield to Maturity 5.3%
Average Coupon 6.6%
Average Maturity 2.4 years
Average Quality U.S. Treasury
Average Duration 2.2 years
Expense Ratio 0.15%
Cash Reserves 2.1%
</TABLE>
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------
SHORT-TERM LEHMAN
U.S. TREASURY INDEX*
- --------------------------------------------------
<S> <C> <C>
R-Squared 0.93 1.00
Beta 0.46 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
U.S. Treasury 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
Under 1 Year 1.7%
1-3 Years 61.8
3-5 Years 27.3
Over 5 Years 9.2
- --------------------------------------------------
Total 100.0%
</TABLE>
15
<PAGE> 18
PORTFOLIO PROFILE
Intermediate-Term U.S. Treasury Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
January 31, 1998, compared where appropriate to an unmanaged index. Key elements
of this Profile are defined on page 14.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------------
<S> <C>
Number of Issues 26
Yield 5.5%
Yield to Maturity 5.5%
Average Coupon 8.1%
Average Maturity 7.1 years
Average Quality U.S. Treasury
Average Duration 5.3 years
Expense Ratio 0.15%
Cash Reserves 2.5%
</TABLE>
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------
INTERMEDIATE-TERM LEHMAN
U.S. TREASURY INDEX*
- --------------------------------------------------
<S> <C> <C>
R-Squared 0.99 1.00
Beta 1.22 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
U.S. Treasury 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
Under 1 Year 0.7%
1-5 Years 2.0
5-10 Years 74.0
10-20 Years 23.3
20-30 Years --
Over 30 Years --
- --------------------------------------------------
Total 100.0%
</TABLE>
16
<PAGE> 19
PORTFOLIO PROFILE
Long-Term U.S. Treasury Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of
January 31, 1998, compared where appropriate to an unmanaged index. Key elements
of this Profile are defined on page 14.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------------
<S> <C>
Number of Issues 12
Yield 5.8%
Yield to Maturity 5.8%
Average Coupon 8.0%
Average Maturity 20.4 years
Average Quality U.S. Treasury
Average Duration 10.3 years
Expense Ratio 0.15%
Cash Reserves 7.4%
</TABLE>
INVESTMENT FOCUS
- --------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------
LONG-TERM LEHMAN
U.S. TREASURY INDEX*
- --------------------------------------------------
<S> <C> <C>
R-Squared 0.96 1.00
Beta 2.06 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
U.S. Treasury 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
Under 1 Year 4.8%
1-5 Years --
5-10 Years 0.6
10-20 Years 29.4
20-30 Years 65.2
Over 30 Years --
- --------------------------------------------------
Total 100.0%
</TABLE>
17
<PAGE> 20
FINANCIAL STATEMENTS
January 31, 1998
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's holdings of U.S.
Treasury issues and other U.S. government-guaranteed securities, including each
security's market value on the last day of the reporting period. Other assets
are added to, and liabilities are subtracted from, the value of Total
Investments to calculate the Portfolio's Net Assets. Finally, Net Assets are
divided by the outstanding shares of the Portfolio to arrive at its share price,
or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets of each Portfolio, you will find
a table displaying the composition of the Portfolio's net assets on both a
dollar and per-share basis. Undistributed Net Investment Income is usually zero
because the Portfolio distributes its net income to shareholders as a dividend
each day. Any realized gains must be distributed annually, so the bulk of net
assets consists of Paid in Capital (money invested by shareholders). The balance
shown for Accumulated Net Realized Gains usually approximates the amount
available to distribute to shareholders as capital gains as of the statement
date, but may differ because certain investments or transactions may be treated
differently for financial statement and tax purposes. Any Accumulated Net
Realized Losses, and any cumulative excess of distributions over net realized
gains, will appear as negative balances. Unrealized Appreciation (Depreciation)
is the difference between the value of the Portfolio's investments and their
cost, and reflects the gains (losses) that would be realized if the Portfolio
were to sell all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
U.S. TREASURY MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (97.5%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bill 5.171% 2/5/1998 $ 42,117 $ 42,097
U.S. Treasury Bill 5.176% 8/20/1998 55,000 53,465
U.S. Treasury Bill 5.186% 2/26/1998 8,573 8,541
U.S. Treasury Bill 5.19% 3/5/1998 2,153 2,143
U.S. Treasury Bill 5.268% 4/2/1998 5,735 5,685
U.S. Treasury Note 5.125% 2/28/1998 802,153 801,901
U.S. Treasury Note 5.125% 4/30/1998 15,000 14,982
U.S. Treasury Note 5.875% 4/30/1998 610,337 611,032
U.S. Treasury Note 5.875% 8/15/1998 80,000 80,214
U.S. Treasury Note 6.00% 5/31/1998 95,000 95,186
U.S. Treasury Note 6.125% 3/31/1998 360,000 360,374
U.S. Treasury Note 6.125% 5/15/1998 228,197 228,626
U.S. Treasury Note 6.25% 7/31/1998 75,000 75,341
U.S. Treasury Note 7.25% 2/15/1998 735,016 735,453
U.S. Treasury Note 7.875% 4/15/1998 165,000 165,771
U.S. Treasury Note 8.125% 2/15/1998 285,346 285,601
U.S. Treasury Note 8.25% 7/15/1998 155,000 156,838
U.S. Treasury Note 9.25% 8/15/1998 60,109 61,333
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $3,784,583) 3,784,583
- ---------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (2.5%) 95,819
- ---------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------------------------
Applicable to 3,880,128,064 outstanding $.001 par value shares
(authorized 20,000,000,000 shares) $3,880,402
=========================================================================================================
NET ASSET VALUE PER SHARE $1.00
=========================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
18
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- --------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in Securities, at Value $ 3,784,583
Receivables for Investment Securities Sold 680,236
Other Assets--Note B 118,035
------------
Total Assets 4,582,854
------------
LIABILITIES
Payable for Investment Securities Purchased 681,277
Other Liabilities 21,175
------------
Total Liabilities 702,452
- --------------------------------------------------------------------------------------------------------
NET ASSETS $3,880,402
========================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,880,128 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 274 --
Unrealized Appreciation -- --
- --------------------------------------------------------------------------------------------------------
NET ASSETS $3,880,402 $1.00
========================================================================================================
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM U.S. TREASURY PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (97.9%)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Inflation-Indexed Note 3.625% 7/15/2002 $ 13,311 $ 13,257
U.S. Treasury Note 4.75% 8/31/1998 1,500 1,495
U.S. Treasury Note 5.625% 2/28/2001 50,196 50,565
U.S. Treasury Note 5.75% 10/31/2002 51,500 52,194
U.S. Treasury Note 5.875% 8/31/1999 27,715 27,948
U.S. Treasury Note 5.875% 11/30/2001 25,000 25,398
U.S. Treasury Note 6.125% 12/31/2001 9,600 9,838
U.S. Treasury Note 6.375% 4/30/1999 115,500 116,983
U.S. Treasury Note 6.50% 8/31/2001 15,200 15,736
U.S. Treasury Note 6.75% 6/30/1999 85,400 87,064
U.S. Treasury Note 6.875% 8/31/1999 122,600 125,457
U.S. Treasury Note 7.50% 11/15/2001 31,000 33,192
U.S. Treasury Note 7.75% 11/30/1999 71,900 74,869
U.S. Treasury Note 7.75% 12/31/1999 32,400 33,798
U.S. Treasury Note 7.875% 8/15/2001 4,000 4,314
U.S. Treasury Note 7.875% 11/15/2004 28,800 32,622
Banco Nacional de Comercio Exterior (U.S. Government Guaranteed) 4.62% 10/15/1998 (1)(3) 1,622 1,618
Banco Nacional de Comercio Exterior (U.S. Government Guaranteed) 5.10% 4/15/1998 (1)(3) 600 599
Banco Nacional de Comercio Exterior (U.S. Government Guaranteed) 6.475% 5/15/2000 (1) 2,945 2,970
Banco Nacional de Comercio Exterior (U.S. Government Guaranteed) 8.038% 1/15/2000 (1) 2,794 2,871
Bariven, SA Eximbank Guaranteed Export Financing
(U.S. Government Guaranteed) 6.277% 4/15/2001 (1)(2) 5,600 5,653
Government Export Trust (U.S. Government Guaranteed) 4.61% 9/1/1998 (1) 240 239
Government Export Trust (U.S. Government Guaranteed) 5.69% 2/1/1998 (1) 100 100
Government Export Trust (U.S. Government Guaranteed) 6.61% 9/15/1999 (1) 2,700 2,718
Government Export Trust (U.S. Government Guaranteed) 7.75% 1/1/2000 (1)(3) 2,400 2,444
Guaranteed Export Certificates (U.S. Government Guaranteed) 4.743% 9/15/1998 (1) 1,800 1,795
Guaranteed Trade Trust (U.S. Government Guaranteed) 4.86% 4/1/1998 (1) 500 499
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.104% 7/15/2003 (1) 32,083 32,385
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.696% 2/15/2005 (1) 6,000 5,963
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $758,552) 764,584
- ---------------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (9.0%)
- ---------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.60% 2/2/1998 6,651 6,651
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note E 5.60% 2/2/1998 63,623 63,623
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $70,274) 70,274
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (106.9%)
(COST $828,826) 834,858
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-6.9%)
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 12,938
Security Loan Collateral Payable to Brokers--Note E (63,623)
Other Liabilities (3,213)
---------
(53,898)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------------------------------------------------------------------
Applicable to 76,932,151 outstanding $.001 par value shares
(authorized 500,000,000 shares) $780,960
=================================================================================================================================
NET ASSET VALUE PER SHARE $10.15
=================================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Restricted security representing 0.7% of net assets at January 31, 1998.
(3) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At January 31, 1998, the
aggregate value of these securities was $4,661,000, representing 0.6% of net
assets.
20
<PAGE> 23
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1998, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $774,470 $10.06
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note C 458 .01
Unrealized Appreciation--Note D 6,032 .08
- ----------------------------------------------------------------------------------------------------------
NET ASSETS $780,960 $10.15
==========================================================================================================
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (97.5%)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond 10.375% 11/15/2012 $135,950 $182,967
U.S. Treasury Bond 10.75% 5/15/2003 42,900 53,192
U.S. Treasury Bond 11.125% 8/15/2003 10,500 13,306
U.S. Treasury Bond 11.625% 11/15/2004 12,600 16,899
U.S. Treasury Bond 11.875% 11/15/2003 5,000 6,566
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 13,252 12,966
U.S. Treasury Inflation-Indexed Note 3.625% 7/15/2002 7,059 7,030
U.S. Treasury Note 5.75% 8/15/2003 3,500 3,551
U.S. Treasury Note 6.25% 4/30/2001 6,500 6,668
U.S. Treasury Note 6.625% 5/15/2007 23,900 25,720
U.S. Treasury Note 6.875% 5/15/2006 14,500 15,752
U.S. Treasury Note 7.25% 5/15/2004 102,349 111,940
U.S. Treasury Note 7.25% 8/15/2004 59,150 64,811
U.S. Treasury Note 7.50% 2/15/2005 137,800 153,517
U.S. Treasury Note 7.875% 11/15/2004 96,300 109,080
Export Funding Trust (U.S. Government Guaranteed) 8.21% 12/29/2006 (1) 8,274 9,149
Government Export Trust (U.S. Government Guaranteed) 6.00% 3/15/2005 (1) 9,050 9,129
Guaranteed Export Certificates (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 11,130 11,777
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.39% 6/26/2006 (1) 2,026 2,138
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.80% 8/15/2006 (1) 7,500 8,112
Guaranteed Trade Trust (U.S. Government Guaranteed) 8.17% 1/15/2007 (1) 3,000 3,309
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.735% 1/15/2002 (1) 4,000 4,004
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.94% 6/20/2006 (1) 4,474 4,494
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.08% 8/15/2004 (1) 22,050 22,286
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.726% 9/15/2010 (1) 9,000 9,394
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.75% 12/15/2008 (1) 14,667 15,236
- -----------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $845,510) 882,993
- -----------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.3%)
- -----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.60% 2/2/1998 6,048 6,048
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note E 5.60% 2/2/1998 14,332 14,332
- ------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS (COST $20,380) 20,380
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $865,890) 903,373
- -----------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- -----------------------------------------------------------------------------------------------------------
Other Assets--Note B 18,158
Liabilities--Note E (16,122)
---------
2,036
- -----------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------------------------
Applicable to 85,448,588 outstanding $.001 par value shares
(authorized 500,000,000 shares) $905,409
===========================================================================================================
NET ASSET VALUE PER SHARE $10.60
===========================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1998, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $879,706 $10.30
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note C (11,780) (.14)
Unrealized Appreciation--Note D 37,483 .44
- ----------------------------------------------------------------------------------------------------------
NET ASSETS $905,409 $10.60
==========================================================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
LONG-TERM U.S. TREASURY PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (92.6%)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond 6.00% 2/15/2026 $ 1,875 $ 1,906
U.S. Treasury Bond 6.375% 8/15/2027 8,530 9,159
U.S. Treasury Bond 6.625% 2/15/2027 19,025 21,026
U.S. Treasury Bond 6.75% 8/15/2026 4,910 5,502
U.S. Treasury Bond 7.125% 2/15/2023 10,750 12,469
U.S. Treasury Bond 7.875% 2/15/2021 52,479 65,455
U.S. Treasury Bond 8.125% 8/15/2019 31,283 39,762
U.S. Treasury Bond 8.875% 8/15/2017 43,120 58,103
U.S. Treasury Bond 8.875% 2/15/2019 38,103 51,777
U.S. Treasury Bond 9.875% 11/15/2015 11,300 16,324
U.S. Treasury Bond 10.375% 11/15/2012 14,365 19,333
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 2,039 1,995
- --------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $274,189) 302,811
- --------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (6.4%)
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.60% 2/2/1998 15,787 15,787
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note E 5.60% 2/2/1998 5,040 5,040
- --------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $20,827) 20,827
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.0%)
(COST $295,016) 323,638
- --------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.0%)
- --------------------------------------------------------------------------------------------------------
Other Assets--Note B 9,157
Liabilities--Note E (5,701)
--------
3,456
- --------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------
Applicable to 29,415,993 outstanding $.001 par value shares
(authorized 500,000,000 shares) $327,094
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.12
========================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $299,235 $10.17
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note C (763) (.02)
Unrealized Appreciation--Note D 28,622 .97
- --------------------------------------------------------------------------------------------------------
NET ASSETS $327,094 $11.12
========================================================================================================
</TABLE>
23
<PAGE> 26
STATEMENT OF OPERATIONS
This Statement shows interest earned by each Portfolio during the reporting
period, and details the operating expenses charged to the Portfolio. These
expenses directly reduce the amount of investment income available to pay to
shareholders as income dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period. If a
Portfolio invested in futures contracts during the period, the results of these
investments are shown separately.
<TABLE>
- ------------------------------------------------------------------------------------------------------------
U.S. TREASURY SHORT-TERM INTERMEDIATE-TERM LONG-TERM
MONEY MARKET U.S. TREASURY U.S. TREASURY U.S. TREASURY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------
YEAR ENDED JANUARY 31, 1998
----------------------------------------------------------------
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $193,426 $40,602 $47,085 $15,801
----------------------------------------------------------------
Total Income 193,426 40,602 47,085 15,801
----------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 531 97 105 33
Management and Administrative 3,410 626 696 227
Marketing and Distribution 1,144 208 213 63
Custodian Fees 28 12 12 10
Taxes (other than income taxes) 267 50 54 18
Auditing Fees 9 6 6 6
Shareholders' Reports 26 7 9 4
Annual Meeting and Proxy Costs 3 1 1 --
Directors' Fees and Expenses 7 1 1 --
----------------------------------------------------------------
Total Expenses 5,425 1,008 1,097 361
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 188,001 39,594 45,988 15,440
- ------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 475 3,473 464 1,403
Futures Contracts -- 41 (2,452) (815)
- ------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 475 3,514 (1,988) 588
- ------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities -- 4,739 34,386 24,665
Futures Contracts -- -- -- --
- ------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) -- 4,739 34,386 24,665
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $188,476 $47,847 $78,386 $40,693
============================================================================================================
</TABLE>
24
<PAGE> 27
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the Portfolio distributes its
income to shareholders each day, the amounts of Distributions--Net Investment
Income generally equal the net income earned as shown under the Operations
section. The amounts of Distributions--Realized Capital Gain may not match the
capital gains shown in the Operations section, because distributions are
determined on a tax basis and may be made in a period different from the one in
which the gains were realized on the financial statements. The Capital Share
Transactions section shows the amount shareholders invested in the Portfolio,
either by purchasing shares or by reinvesting distributions, and the amounts
redeemed. The corresponding numbers of Shares Issued and Redeemed are shown at
the end of the Statement.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SHORT-TERM
MONEY MARKET U.S. TREASURY
PORTFOLIO PORTFOLIO
------------------------------------------------------------
YEAR ENDED JANUARY 31,
------------------------------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $188,001 $132,096 $39,594 $27,680
Realized Net Gain (Loss) 475 (249) 3,514 2,759
Change in Unrealized Appreciation
(Depreciation) -- -- 4,739 (10,366)
------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 188,476 131,847 47,847 20,073
------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (188,001) (132,096) (39,594) (27,680)
Realized Capital Gain -- -- -- --
------------------------------------------------------------
Total Distributions (188,001) (132,096) (39,594) (27,680)
------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 4,121,503 3,443,596 520,096 335,675
Issued in Lieu of Cash Distributions 177,963 125,454 30,788 20,447
Redeemed (3,666,153) (2,100,531) (331,392) (221,325)
------------------------------------------------------------
Net Increase from Capital
Share Transactions 633,313 1,468,519 219,492 134,797
- ---------------------------------------------------------------------------------------------------------------------
Total Increase 633,788 1,468,270 227,745 127,190
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 3,246,614 1,778,344 553,215 426,025
------------------------------------------------------------
End of Year $3,880,402 $3,246,614 $780,960 $553,215
=====================================================================================================================
(1)Shares Issued (Redeemed)
Issued 4,121,503 3,443,596 51,766 33,493
Issued in Lieu of Cash Distributions 177,963 125,454 3,063 2,041
Redeemed (3,666,153) (2,100,531) (32,998) (22,075)
------------------------------------------------------------
Net Increase in Shares Outstanding 633,313 1,468,519 21,831 13,459
=====================================================================================================================
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- ---------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM LONG-TERM
U.S. TREASURY U.S. TREASURY
PORTFOLIO PORTFOLIO
------------------------------------------------------------
YEAR ENDED JANUARY 31,
------------------------------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $45,988 $39,631 $15,440 $12,323
Realized Net Gain (Loss) (1,988) 481 588 (1,349)
Change in Unrealized Appreciation
(Depreciation) 34,386 (30,503) 24,665 (13,669)
------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 78,386 9,609 40,693 (2,695)
------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (45,988) (39,631) (15,440) (12,323)
Realized Capital Gain -- -- -- (527)
------------------------------------------------------------
Total Distributions (45,988) (39,631) (15,440) (12,850)
------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 476,383 330,265 210,148 138,400
Issued in Lieu of Cash Distributions 33,777 28,181 10,722 9,008
Redeemed (295,690) (254,568) (110,989) (125,781)
------------------------------------------------------------
Net Increase from Capital
Share Transactions 214,470 103,878 109,881 21,627
- ---------------------------------------------------------------------------------------------------------------------
Total Increase 246,868 73,856 135,134 6,082
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 658,541 584,685 191,960 185,878
------------------------------------------------------------
End of Year $905,409 $658,541 $327,094 $191,960
=====================================================================================================================
(1)Shares Issued (Redeemed)
Issued 46,385 32,362 19,985 13,651
Issued in Lieu of Cash Distributions 3,286 2,777 1,026 892
Redeemed (28,954) (25,076) (10,537) (12,404)
------------------------------------------------------------
Net Increase in Shares Outstanding 20,717 10,063 10,474 2,139
=====================================================================================================================
</TABLE>
26
<PAGE> 29
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total Return
and shows net investment income and expenses as percentages of average net
assets. These data will help you assess: the variability of the Portfolio's net
income and total returns from year to year; the relative contributions of net
income and capital gains to the Portfolio's total return; how much it costs to
operate the Portfolio; and the extent to which the Portfolio tends to distribute
capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
Portfolio for one year. Money market portfolios are not required to report a
Portfolio Turnover Rate.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .052 .051 .055 .041 .029
Net Realized and Unrealized Gain (Loss) on
Investments -- -- -- -- --
---------------------------------------------------------------
Total from Investment Operations .052 .051 .055 .041 .029
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.052) (.051) (.055) (.041) (.029)
Distributions from Realized Capital Gains -- -- -- -- --
---------------------------------------------------------------
Total Distributions (.052) (.051) (.055) (.041) (.029)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
========================================================================================================================
TOTAL RETURN 5.31% 5.24% 5.66% 4.19% 2.99%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $3,880 $3,247 $1,778 $1,371 $860
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 5.20% 5.12% 5.50% 4.21% 3.06%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. TREASURY PORTFOLIO
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.04 $10.23 $9.77 $10.26 $10.17
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .592 .587 .626 .518 .448
Net Realized and Unrealized Gain (Loss)
on Investments .110 (.190) .460 (.468) .101
---------------------------------------------------------------
Total from Investment Operations .702 .397 1.086 .050 .549
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.592) (.587) (.626) (.518) (.448)
Distributions from Realized Capital Gains -- -- -- (.022) (.011)
---------------------------------------------------------------
Total Distributions (.592) (.587) (.626) (.540) (.459)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.15 $10.04 $10.23 $9.77 $10.26
========================================================================================================================
TOTAL RETURN 7.21% 4.05% 11.41% 0.57% 5.50%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $781 $553 $426 $333 $252
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 5.89% 5.85% 6.22% 5.30% 4.38%
Portfolio Turnover Rate 81% 80% 95% 129% 90%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- ------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.17 $10.70 $9.58 $10.58 $10.29
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .645 .648 .665 .598 .578
Net Realized and Unrealized Gain (Loss)
on Investments .430 (.530) 1.120 (.995) .418
---------------------------------------------------------------
Total from Investment Operations 1.075 .118 1.785 (.397) .996
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.645) (.648) (.665) (.598) (.578)
Distributions from Realized Capital Gains -- -- -- (.005) (.128)
---------------------------------------------------------------
Total Distributions (.645) (.648) (.665) (.603) (.706)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.60 $10.17 $10.70 $9.58 $10.58
========================================================================================================================
TOTAL RETURN 10.98% 1.30% 19.16% -3.67% 9.89%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $905 $659 $585 $357 $332
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 6.28% 6.37% 6.49% 6.15% 5.46%
Portfolio Turnover Rate 34% 52% 64% 134% 102%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM U.S. TREASURY PORTFOLIO
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.13 $11.06 $9.40 $10.90 $10.30
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .669 .681 .691 .670 .709
Net Realized and Unrealized Gain (Loss)
on Investments .990 (.900) 1.749 (1.405) .881
---------------------------------------------------------------
Total from Investment Operations 1.659 (.219) 2.440 (.735) 1.590
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.669) (.681) (.691) (.670) (.709)
Distributions from Realized Capital Gains -- (.030) (.089) (.095) (.281)
---------------------------------------------------------------
Total Distributions (.669) (.711) (.780) (.765) (.990)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.12 $10.13 $11.06 $9.40 $10.90
========================================================================================================================
TOTAL RETURN 17.05% -1.75% 26.74% -6.60% 15.90%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $327 $192 $186 $136 $99
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 6.41% 6.72% 6.66% 7.06% 6.58%
Portfolio Turnover Rate 13% 42% 125% 44% 51%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
Vanguard Admiral Funds is registered under the Investment Company Act of 1940 as
a diversified open-end investment company, or mutual fund, and comprises 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 conform to generally
accepted accounting principles for mutual funds. The Fund consistently follows
such policies in preparing its financial statements.
1. SECURITY VALUATION: U.S. Treasury Money Market Portfolio: Investment
securities are valued at amortized cost, which approximates market value. Other
Portfolios: Bonds, and temporary cash investments acquired over 60 days to
maturity, are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and ratings), both as furnished by independent pricing services.
Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as
a regulated investment company and distribute all of its 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, along with other members
of The Vanguard Group, transfer uninvested cash balances into a Pooled Cash
Account, which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
4. FUTURES CONTRACTS: Each Portfolio, except the U.S. Treasury Money
Market Portfolio, may use Municipal Bond Index, U.S. Treasury Bond, and U.S.
Treasury Note futures contracts, with the objectives of enhancing returns,
managing interest-rate risk, maintaining liquidity, and minimizing transaction
costs. The Portfolios may purchase or sell futures contracts instead of bonds to
take advantage of pricing differentials between the futures contracts and the
underlying 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. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
5. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
6. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
original issue discounts are amortized and accreted, respectively, to interest
income over the lives of the respective securities.
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 January 31, 1998, the Fund had contributed capital aggregating
$370,000 to Vanguard (included in Other Assets), representing 1.8% of Vanguard's
capitalization. The Fund's Directors and officers are also Directors and
officers of Vanguard.
29
<PAGE> 32
C. During the year ended January 31, 1998, 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 $746,499 $528,421
Intermediate-Term U.S. Treasury 454,489 243,198
Long-Term U.S. Treasury 127,318 29,162
-----------------------------------------------------------------------------------------------
</TABLE>
Capital gains distributions are determined on a tax basis and may differ
from realized capital gains for financial reporting purposes due to differences
in the timing of realization of gains. For federal income tax purposes, the
Portfolios had the following capital gains available for distribution at January
31, 1998, or capital losses available to offset future net capital gains:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
CAPITAL LOSS
---------------------------------------
CAPITAL GAINS EXPIRATION
AVAILABLE FOR FISCAL YEAR(S)
DISTRIBUTION AMOUNT ENDING
PORTFOLIO (000) (000) JANUARY 31
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term U.S. Treasury $467 -- --
Intermediate-Term U.S. Treasury -- $9,329 2003
Long-Term U.S. Treasury 180 -- --
-----------------------------------------------------------------------------------------------
</TABLE>
The Short-Term U.S. Treasury and Long-Term U.S. Treasury Portfolios used
capital loss carryforwards of $3,042,000 and $1,180,000, respectively, to offset
taxable capital gains realized during the year ended January 31, 1998, reducing
the amount of capital gains that would otherwise be available to distribute to
shareholders.
D. At January 31, 1998, net 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 $ 6,216 $(184) $ 6,032
Intermediate-Term U.S. Treasury 37,532 (49) 37,483
Long-Term U.S. Treasury 28,633 (11) 28,622
-----------------------------------------------------------------------------------------------
</TABLE>
E. The market values of securities on loan to brokers/dealers at January 31,
1998, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
(000)
------------------------------------------------------------
COLLATERAL RECEIVED
---------------------------------------
MARKET VALUE MARKET VALUE
OF LOANED OF U.S. TREASURY
PORTFOLIO SECURITIES CASH SECURITIES
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term U.S. Treasury $62,514 $63,623 --
Intermediate-Term U.S. Treasury 78,583 14,332 $66,350
Long-Term U.S. Treasury 26,418 5,040 22,139
-----------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
Cash collateral received is invested in repurchase agreements. 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, retention of the collateral may
be subject to legal proceedings.
31
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Vanguard Admiral Funds
In our opinion, the accompanying statements of net assets (and statement of
assets and liabilities for U.S. Treasury Money Market Portfolio) and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
U.S. Treasury Money Market Portfolio, Short-Term U.S. Treasury Portfolio,
Intermediate-Term U.S. Treasury Portfolio, and Long-Term U.S. Treasury Portfolio
(constituting Vanguard Admiral Funds, hereafter referred to as the "Fund") at
January 31, 1998, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at January
31, 1998 by correspondence with the custodian and the application of alternative
auditing procedures where securities purchased had not been settled, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 6, 1998
SPECIAL 1998 TAX INFORMATION (UNAUDITED) FOR VANGUARD ADMIRAL FUNDS
This information for the fiscal year ended January 31, 1998, is included
pursuant to provisions of the Internal Revenue Code.
The Short-Term U.S. Treasury and Long-Term U.S. Treasury Portfolios
designate $467,000 and $127,000, respectively, as capital gain dividends (from
net long-term capital gains), all of which represents a 20% rate gain
distribution. These capital gains will be distributed in March 1998.
32
<PAGE> 35
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
JOHN C. BOGLE
Senior Chairman of the Board and Director of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc., and
of each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN
Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co., and
NACCO Industries.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
- --------------------------------------------------------------------------------
OTHER FUND OFFICERS
- --------------------------------------------------------------------------------
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
- --------------------------------------------------------------------------------
OTHER VANGUARD OFFICERS
- --------------------------------------------------------------------------------
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's 500," "S&P 500(R)," "Standard &
Poor's(R)," "S&P(R)," and "500" are trademarks of The
McGraw-Hill Companies, Inc. Frank Russell Company is the
owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
<PAGE> 36
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
Global Equity Portfolio
Index Trust
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Small Capitalization Stock
Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
International Growth Portfolio
International Value Portfolio
Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
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Portfolio
Growth Portfolio
Income Portfolio
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STAR Portfolio
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Treasury Portfolio
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Portfolio
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Portfolio
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Portfolio
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Portfolio
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Treasury Portfolio
Long-Term Corporate
Portfolio
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Portfolio
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(CA, FL, NJ, NY, OH, PA)
MONEY MARKET FUNDS
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Portfolio
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Money Market Portfolio
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State Tax-Free Funds
(CA, NJ, NY, OH, PA)
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FUND INFORMATION
1-800-662-7447
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All Vanguard funds are offered by prospectus only. Prospectuses
contain more complete information on advisory fees, distribution charges,
and other expenses and should be read carefully before you invest or send
money. Prospectuses can be obtained directly from The Vanguard Group.
Q120-1/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor
