VANGUARD ADMIRAL FUNDS INC, 485BPOS, 1998-05-01

VANGUARD ADMIRAL FUNDS INC
485BPOS, 1998-05-01

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 33-49023) UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 7
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 8

VANGUARD ADMIRAL FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

P.O. BOX 2600,
VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER (610) 669-1000

RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482

IT IS PROPOSED THAT THIS AMENDMENT BECOME EFFECTIVE ON MAY 15, 1998 PURSUANT
TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933.

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER
THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

WE HAVE ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES PURSUANT TO
REGULATION 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. WE FILED OUR RULE
24F-2 NOTICE FOR THE YEAR ENDED JANUARY 31, 1998 ON APRIL 30, 1998.

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<PAGE>

VANGUARD ADMIRAL FUNDS, INC.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <C> <S>
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Highlights; Fund Expenses
Item 3. Condensed Financial Information....... Financial Highlights;
Yield and Total Return
Item 4. General Description of Registrant..... Highlights; Investment
Objectives; Investment
Limitations; Investment
Policies; Investment
Risks; General Information
Item 5. Management of the Fund................ Management of the Fund;
Investment Adviser
Item 5A. Management's Discussion of Fund
Performance........................... Herein incorporated by
reference to Registrant's
Annual Report to
Shareholders dated January
31, 1998 filed with the
Securities & Exchange
Commission's EDGAR system
on March 30, 1998
Item 6. Capital Stock and Other Securities.... Opening an Account and
Purchasing Shares; Selling
Your Shares; The Share
Price of Each Portfolio;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered.. Cover Page; Opening an
Account and Purchasing
Shares
Item 8. Redemption or Repurchase.............. Selling Shares
Item 9. Pending Legal Proceedings............. Not Applicable
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <C> <S>
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Cover Page
Item 12. General Information and History....... Investment Objectives and
Policies
Item 13. Investment Objective and Policies..... Investment Objectives and
Policies; Investment
Limitations
Item 14. Management of the Registrant.......... Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities......................... Management of the Fund
Item 16. Investment Advisory and Other Management of the Fund
Services..............................
Item 17. Brokerage Allocation.................. Portfolio Transactions
Item 18. Capital Stock and Other Securities.... Not Applicable
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Purchase of Shares;
Redemption of Shares
Item 20. Tax Status............................ Not Applicable
Item 21. Underwriters.......................... Not Applicable
Item 22. Calculations of Performance Data...... Calculation of Yield;
Yield and Total Return
Item 23. Financial Statements.................. Financial Statements
</TABLE>
<PAGE>

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[LOGO OF VANGUARD ADMIRAL FUNDS APPEARS HERE] A Member of The Vanguard Group

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PROSPECTUS--MAY 15, 1998
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT--1-800-662-7447 (SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT--1-800-662-2739 (CREW)
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INVESTMENT Vanguard Admiral Funds, Inc. (the "Fund") is an open-end di-
OBJECTIVES AND versified investment company. The Fund consists of four Port-
POLICIES folios, each of which invests in U.S. Treasury securities
within prescribed maturity and quality standards:
. Admiral U.S. Treasury Money Market Portfolio
. Admiral Short-Term U.S. Treasury Portfolio
. Admiral Intermediate-Term U.S. Treasury Portfolio
. Admiral Long-Term U.S. Treasury Portfolio
The objective of each of these four Portfolios is to provide
current income consistent with the preservation of capital
and liquidity. The Admiral U.S. Treasury Money Market Portfo-
lio also seeks to maintain a constant net asset value of
$1.00 per share. AN INVESTMENT IN THE MONEY MARKET PORTFOLIO
IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE. There
can be no assurance that any of the Fund's Portfolios will
achieve its stated objective. Shares of the Fund are neither
insured nor guaranteed by any agency of the U.S. Government,
including the FDIC.
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Please complete and return the Account Registration Form. If
OPENING AN you need assistance in completing this Form, please call the
ACCOUNT Investor Information Department. To open an Individual Re-
tirement Account (IRA), please use a Vanguard IRA Adoption
Agreement. To obtain a copy of this form, call 1-800-662-
7447, Monday through Friday, from 8:00 a.m. to 9:00 p.m., and
Saturday, from 9:00 a.m. to 4:00 p.m. (Eastern time). The
minimum initial investment is $50,000 per Portfolio. The Fund
is offered on a no-load basis (i.e., there are no sales com-
missions or 12b-1 fees). However, the Fund incurs expenses
for investment advisory, management, administrative and dis-
tribution services.
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ABOUT THIS This Prospectus is designed to set forth concisely the infor-
PROSPECTUS mation you should know about the Fund before you invest. It
should be retained for future reference. A "Statement of Addi-
tional Information" containing additional information about
the Fund has been filed with the Securities and
Exchange Commission. This Statement is dated May 15, 1998, and
has been incorporated by reference into this Prospectus. A
copy may be obtained without charge by writing to the Fund,
calling the Investor Information Department at 1-800-662-
7447, or visiting the Securities and Exchange Commission's
website (www.sec.gov).
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Highlights............................................................ 2
Fund Expenses......................................................... 4
Financial Highlights.................................................. 5
Yield and Total Return................................................ 7
FUND INFORMATION
Investment Objectives................................................. 8
Investment Policies................................................... 8
Investment Risks...................................................... 9
Who Should Invest..................................................... 11
Implementation of Policies............................................ 11
Investment Limitations................................................ 15
Management of the Fund................................................ 15
Investment Adviser.................................................... 16
Dividends, Capital Gains and Taxes.................................... 17
The Share Price of Each Portfolio..................................... 19
General Information................................................... 19
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.............................. 21
When Your Account Will Be Credited.................................... 24
Selling Your Shares................................................... 25
Exchanging Your Shares................................................ 28
Important Information About Telephone Transactions.................... 30
Transferring Registration............................................. 31
Other Vanguard Services............................................... 31
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<PAGE>

HIGHLIGHTS

INVESTMENT Vanguard Admiral Funds, Inc. (the "Fund") is an open-end di-
OBJECTIVES AND versified investment company. The Fund consists of four Port-
POLICIES folios, each of which invests primarily in U.S. Treasury se-
curities within prescribed maturity and quality standards.
The objective of each of the Portfolios is to provide current
income consistent with the preservation of capital and li-
quidity. There is no assurance that any of the Fund's Portfo-
lios will achieve its stated objective. PAGE 8
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FOUR SEPARATE Investors may choose from four separate Portfolios of the
PORTFOLIOS Fund, each of which invests primarily in U.S. Treasury secu-
rities.

ADMIRAL U.S. TREASURY MONEY MARKET PORTFOLIO--expects to
maintain a dollar-weighted average maturity of 90 days or
less and seeks to maintain a stable $1.00 share price. An in-
vestment in the Admiral U.S. Treasury Money Market Portfolio
is neither insured nor guaranteed by the U.S. Government, and
there is no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.

ADMIRAL SHORT-TERM U.S. TREASURY PORTFOLIO--expects to main-
tain a dollar-weighted average maturity of 1 to 3 years.

ADMIRAL INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO--expects to
maintain a dollar-weighted average maturity of 5 to 10 years.

ADMIRAL LONG-TERM U.S. TREASURY PORTFOLIOS--expects to main-
tain a dollar-weighted average maturity of 15 to 30
years. PAGE 8
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As mutual funds investing in U.S. Treasury securities, the
RISK four Portfolios of the Fund are subject primarily to interest
CHARACTERISTICS rate risk and income risk. INTEREST RATE RISK is the poten-
tial for a decline in bond prices due to rising market inter-
est rates. The Admiral U.S. Treasury Money Market Portfolio,
which is expected to maintain a stable $1.00 share price,
provides minimal exposure to interest rate risk. In contrast,
share prices for the Admiral Short-Term, Intermediate-Term,
and Long-Term U.S. Treasury Portfolios will fluctuate as in-
terest rates change, with longer-maturity Portfolios gener-
ally exhibiting greater price fluctuations than shorter-matu-
rity Portfolios.

INCOME RISK is the potential for a decline in a Portfolio's
income due to falling market interest rates. In relative
terms, income risk will be higher for the Fund's shorter-term
Portfolios and lower for the Fund's longer-term Portfolios.
The following table summarizes both the income and interest
rate risks to which the four Portfolios are subject:
<TABLE>
<CAPTION>
INTEREST INCOME
ADMIRAL PORTFOLIO RATE RISK RISK
---------------------------------------------------------
<S> <C> <C>
U.S. Treasury Money Market Negligible Very high
Short-Term U.S. Treasury Low to moderate High
Intermediate-Term U.S. Treasury Moderate to high Moderate
Long-Term U.S. Treasury High to very high Low
</TABLE>
PAGE 9
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2
<PAGE>

THE VANGUARD The Fund is a member of The Vanguard Group of Investment Com-
GROUP panies, a group of more than 30 investment companies with
more than 95 distinct investment portfolios and total assets
in excess of $360 billion. The Vanguard Group, Inc. ("Van-
guard"), a subsidiary jointly owned by the Vanguard Funds,
provides all management, administrative, distribution and ac-
counting services on an at-cost basis to the Funds in the
Group.
PAGE 15
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INVESTMENT The Fund receives investment advisory services on an at-cost
ADVISER basis from Vanguard's Fixed Income Group. As a result, the
Fund receives its investment advisory services at a substan-
tially lower cost than would be possible if the Fund paid an
investment advisory fee to an external investment adviser.

PAGE 16
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DIVIDEND Each Portfolio declares a dividend each business day based on
POLICY its ordinary income. Dividends are paid monthly and may be
received in cash or reinvested to buy additional shares.
PAGE 17
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TAXES Dividends paid by the Fund's Portfolios are generally subject
to federal income tax. It is expected that most of the income
from the Fund's Portfolios will be attributable to U.S. Trea-
sury and other "direct" Government obligations. Such income
is exempt from state and local income taxes in most states.
Any capital gains distributions from a Portfolio are subject
to federal income tax, as well as applicable state and local
taxes. A sale of shares, whether by outright redemption,
checkwriting redemption, or an exchange, is a taxable event
and may result in a capital gain or loss.
PAGE 17
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PURCHASING You may purchase shares by mail, wire or exchange from an-
SHARES other Vanguard Fund. The minimum initial investment is
$50,000 per Portfolio; the minimum for subsequent investments
is $100. There are no sales commissions or 12b-1 fees.
PAGE 21
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SELLING SHARES You may redeem shares of each Portfolio by mail, telephone,
wire or check. There is no charge for redemption, except for
wire withdrawals under $5,000, which are subject to a $5
charge. Your bank may also assess a fee for incoming wires.
PAGE 25
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SERVICES TO The Fund offers free checkwriting services (minimum $250 per
SHAREHOLDERS draft) for easy access to your account balance.
PAGE 25

The Fund also offers other special services: Direct Deposit,
for electronic deposit of most Government and private payroll
checks; Fund Express, for electronic transfers between the
Fund and your bank account; and Tele-Account, for 24-hour
telephone access to your Fund account balance and certain
transactions.
PAGE 31
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3
<PAGE>

FUND EXPENSES The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Fund. The expenses
set forth below are based upon those incurred for the 1998
fiscal year.

<TABLE>
<CAPTION>
INTERMEDIATE- U.S. TREASURY
SHORT-TERM TERM LONG-TERM MONEY
SHAREHOLDER TRANSACTION U.S. TREASURY U.S. TREASURY U.S. TREASURY MARKET
EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Load Imposed on
Purchases.............. None None None None
Sales Load Imposed on
Reinvested Dividends... None None None None
Redemption Fees*........ None None None None
Exchange Fees........... None None None None
<CAPTION>
INTERMEDIATE- U.S. TREASURY
SHORT-TERM TERM LONG-TERM MONEY
ANNUAL FUND OPERATING U.S. TREASURY U.S. TREASURY U.S. TREASURY MARKET
EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management &
Administrative
Expenses............... 0.10% 0.10% 0.09% 0.10%
Investment Advisory
Fees................... 0.01 0.01 0.01 0.01
12b-1 Fees.............. None None None None
Other Expenses
Distribution Costs..... 0.03 0.03 0.03 0.03
Miscellaneous Expenses. 0.01 0.01 0.02 0.01
---- ---- ---- ----
Total Other Expenses 0.04% 0.04% 0.05% 0.04%
---- ---- ---- ----
TOTAL OPERATING
EXPENSES............. 0.15% 0.15% 0.15% 0.15%
==== ==== ==== ====
* Wire redemptions under $5,000 are subject to a $5 charge.
</TABLE>

The purpose of this table is to assist you in understanding the
various expenses that you would bear directly or indirectly as an
investor in the Fund.

The following example illustrates the expenses that you would incur
on a $1,000 investment over various periods, assuming (1) a 5%
annual rate of return and (2) redemption at the end of each period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Admiral U.S. Treasury Money Market
Portfolio........................ $2 $5 $8 $19
Admiral Short-Term U.S. Treasury
Portfolio........................ $2 $5 $8 $19
Admiral Intermediate-Term U.S.
Treasury Portfolio............... $2 $5 $8 $19
Admiral Long-Term U.S. Treasury
Portfolio........................ $2 $5 $8 $19
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR
LOWER THAN THOSE SHOWN.
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4
<PAGE>

FINANCIAL The following financial highlights for a share outstanding
HIGHLIGHTS throughout the period have been derived from financial state-
ments which were audited by Price Waterhouse LLP, independent
accountants, whose report on the financial statements which
include this information was unqualified. This information
should be read in conjunction with the Fund's financial
statements and notes thereto, which, together with the re-
maining portions of the Fund's 1998 Annual Report to Share-
holders, are incorporated by reference in the Statement of
Additional Information and this Prospectus, and which appear,
along with the report of Price Waterhouse LLP, in the Fund's
1998 Annual Report to the Shareholders. For a more complete
discussion of the Fund's performance, please see the Fund's
1998 Annual Report to Shareholders which may be obtained
without charge by writing to the Fund or calling our Investor
Information Department at 1-800-662-7447.

<TABLE>
<CAPTION>
--------------------------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
--------------------------------------------------------
YEAR ENDED JANUARY 31,
-------------------------------------- DEC. 14, 1992+
1998 1997 1996 1995 1994 TO JAN. 31, 1993
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<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income.. .052 .051 .055 .041 .029 .004
Net Realized and
Unrealized Gain (Loss)
on Investments........ -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS........... .052 .051 .055 .041 .029 .004
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DISTRIBUTIONS
Dividends from Net
Investment Income..... (.052) (0.51) (.055) (.041) (.029) (.004)
Distributions from
Realized Capital
Gains................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS... (.052) (0.51) (.055) (.041) (.029) (.004)
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NET ASSET VALUE, END OF
PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
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TOTAL RETURN............ 5.31% 5.24% 5.66% 4.19% 2.99% 0.41%
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions)...... $3,880 $3,247 $1,778 $1,371 $ 860 $ 149
Ratio of Total Expenses
to Average Net Assets.. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%*
Ratio of Net Investment
Income to Average Net
Assets................. 5.20% 5.12% 5.50% 4.21% 3.06% 3.12%*
Portfolio Turnover Rate. N/A N/A N/A N/A N/A N/A
</TABLE>
*Annualized.
+Commencement of operations.

5
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------
SHORT-TERM U.S. TREASURY
PORTFOLIO
---------------------------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------- DEC. 14, 1992+
1998 1997 1996 1995 1994 TO JAN. 31, 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.04 $10.23 $ 9.77 $10.26 $10.17 $10.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income.. .592 .587 .626 .518 .448 .065
Net Realized and
Unrealized Gain (Loss)
on Investments........ .110 (.190) .460 (.468) .101 .170
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS........... .702 .397 1.086 .050 .549 .235
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DISTRIBUTIONS
Dividends from Net
Investment Income..... (.592) (.587) (.626) (.518) (.448) (.065)
Distributions from
Realized Capital
Gains................. -- -- -- (.022) (.011) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS... (.592) (.587) (.626) (.540) (.459) (.065)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $10.15 $10.04 $10.23 $ 9.77 $10.26 $10.17
- -----------------------------------------------------------------------------------
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TOTAL RETURN............ 7.21% 4.05% 11.41% 0.57% 5.50% 2.35%
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions)...... $ 781 $ 553 $ 426 $ 333 $ 252 $ 63
Ratio of Total Expenses
to Average Net Assets.. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%*
Ratio of Net Investment
Income to Average Net
Assets................. 5.89% 5.85% 6.22% 5.30% 4.38% 4.87%*
Portfolio Turnover Rate. 81% 80% 95% 129% 90% 7%
*Annualized.
+Commencement of operations.
<CAPTION>
---------------------------------------------------------
INTERMEDIATE-TERM U.S. TREASURY
PORTFOLIO
---------------------------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------- DEC. 14, 1992+
1998 1997 1996 1995 1994 TO JAN. 31, 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.17 $10.70 $ 9.58 $10.58 $10.29 $10.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income.. .645 .648 .665 .598 .578 .084
Net Realized and
Unrealized Gain (Loss)
on Investments........ .430 (.530) 1.120 (.995) .418 .290
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS........... 1.075 .118 1.785 (.397) .996 .374
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DISTRIBUTIONS
Dividends from Net
Investment Income..... (.645) (.648) (.665) (.598) (.578) (.084)
Distributions from
Realized Capital
Gains................. -- -- -- (.005) (.128) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS... (.645) (.648) (.665) (.603) (.706) (.084)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $10.60 $10.17 $10.70 $ 9.58 $10.58 $10.29
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
TOTAL RETURN............ 10.98% 1.30% 19.16% (3.67)% 9.89% 3.75%
- -----------------------------------------------------------------------------------
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions)...... $ 905 $ 659 $ 585 $ 357 $ 332 $ 78
Ratio of Total Expenses
to Average Net Assets.. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment
Income to Average Net
Assets................. 6.28% 6.37% 6.49% 6.15% 5.46% 6.31%
Portfolio Turnover Rate. 34% 52% 64% 134% 102% 0%
</TABLE>
*Annualized.
+Commencement of operations.

6
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------
LONG-TERM U.S. TREASURY
PORTFOLIO
-----------------------------------------------------------
YEAR ENDED JANUARY 31,
----------------------------------------- DEC. 14, 1992+
1998 1997 1996 1995 1994 TO JAN. 31, 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.13 $11.06 $ 9.40 $ 10.90 $10.30 $10.00
------ ------ ------ ------- ------ ------
INVESTMENT OPERATIONS
Net Investment Income.. .669 .681 .691 .670 .709 .096
Net Realized and
Unrealized Gain (Loss)
on Investments........ .990 (.900) 1.749 (1.405) .881 .300
------ ------ ------ ------- ------ ------
TOTAL FROM INVESTMENT
OPERATIONS........... 1.659 (.219) 2.440 (.735) 1.590 .396
- -------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income..... (.669) (.681) (.691) (.670) (.709) (.096)
Distributions from
Realized Capital
Gains................. -- (.030) (.089) (.095) (.281) --
------ ------ ------ ------- ------ ------
TOTAL DISTRIBUTIONS... (.669) (.711) (.780) (.765) (.990) (.096)
- -------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD.......... $11.12 $10.13 $11.06 $ 9.40 $10.90 $10.30
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
TOTAL RETURN............ 17.05% (1.75)% 26.74% (6.60)% 15.90% 3.97%
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions)...... $ 327 $ 192 $ 186 $ 136 $ 99 $ 49
Ratio of Total Expenses
to Average Net Assets.. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%*
Ratio of Net Investment
Income to Average Net
Assets................. 6.41% 6.72% 6.66% 7.06% 6.58% 7.22%*
Portfolio Turnover Rate. 13% 42% 125% 44% 51% 17%
</TABLE>
*Annualized.
+Commencement of operations.
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YIELD AND From time to time a Portfolio of the Fund may advertise its
TOTAL RETURN yield and total return. Both yield and total return figures
are based on historical earnings and are not intended to in-
dicate future performance. The "total return" of a Portfolio
refers to the average annual compounded rates of return over
one-, five- and ten-year periods or over the life of a Port-
folio (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distribu-
tions.

The Admiral U.S. Treasury Money Market Portfolio's "seven-
day" or "current" yield reflects the income earned by a hypo-
thetical account in the Portfolio during a seven-day period,
expressed as an annual percentage rate. The Portfolio's "ef-
fective yield" assumes the income over the seven-day period
is reinvested weekly, resulting in a slightly higher stated
yield through compounding.

In accordance with industry guidelines set forth by the U.S.
Securities and Exchange Commission, the "30-day yield" of the
Admiral Short-Term, Intermediate-Term, and Long-Term U.S.
Treasury Portfolios is calculated by dividing net investment
income per share earned during a 30-day period by the net as-
set value per share on the last day of the period. Net in-
vestment income includes interest and dividend income earned
on a Portfolio's securities; it is net of all expenses and
all recurring and nonrecurring charges that have been applied
to

7
<PAGE>

all shareholder accounts. The yield calculation assumes that
net investment income earned over 30 days is compounded
monthly for six months and then annualized. Methods used to
calculate advertised yields are standardized for all stock
and bond mutual funds. However, these methods differ from the
accounting methods used by a Portfolio to maintain its books
and records, and so the advertised 30-day yield may not fully
reflect the income paid to an investor's account.
- --------------------------------------------------------------------------------
INVESTMENT The Fund is an open-end diversified investment company. The
OBJECTIVES Fund consists of four Portfolios, each of which invests pri-
marily in U.S. Treasury securities within prescribed maturity
THE PORTFOLIOS and quality standards.
SEEK TO
PROVIDECURRENT The objective of each Portfolio is to provide current income
INCOME consistent with the preservation of capital and liquidity.
The Admiral U.S. Treasury Money Market Portfolio also seeks
to maintain, but does not guarantee, a constant net asset
value of $1.00 per share. There is no assurance that any of
the Fund's Portfolios will achieve its stated objective.

The investment objective of each Portfolio is fundamental and
so cannot be changed without the approval of a majority of
the Portfolio's shareholders.
- --------------------------------------------------------------------------------
INVESTMENT The Fund offers a money market Portfolio and three bond Port-
POLICIES folios. All four Portfolios invest primarily in securities
backed by the full faith and credit of the U.S. Government.
THE FOUR Such securities include U.S. Treasury obligations (bills,
PORTFOLIOS notes and bonds), as well as other full faith and credit ob-
INVEST IN U.S. ligations of the U.S. Government. The latter include securi-
TREASURY ties issued by the General Services Administration, Govern-
SECURITIES ment National Mortgage Association, Rural Electrification
Administration, Small Business Administration, Federal Fi-
nancing Bank, and other Governmental agencies. The Fund is
managed without regard to tax ramifications.

THE ADMIRAL U.S. TREASURY MONEY MARKET PORTFOLIO invests 100%
of its assets in securities backed by the full faith and
credit of the U.S. Government. Also, at least 65% of the
Portfolio's assets will be invested in U.S. Treasury bills,
notes and bonds. In seeking to provide a stable share price
of $1.00, the Portfolio is expected to maintain a dollar-
weighted average maturity of 90 days or less, and will pur-
chase securities with an effective maturity of 13 months or
less.

THE ADMIRAL SHORT-TERM, INTERMEDIATE-TERM, AND LONG-TERM U.S.
TREASURY PORTFOLIOS each invest at least 85% of their assets
in securities backed by the full faith and credit of the U.S.
Government. Also, at least 65% of each Portfolio's assets
will be invested in U.S. Treasury bills, notes and bonds. The
three Portfolios differ primarily in terms of average maturi-
ty. The Admiral Short-Term U.S. Treasury Portfolio is ex-
pected to maintain a dollar-weighted average maturity of be-
tween 1 and 3 years; the Admiral Intermediate-Term U.S.
Treasury Portfolio, a dollar-weighted average maturity of be-
tween 5 and 10 years; and the Admiral Long-Term U.S. Treasury
Portfolio, a dollar-weighted average maturity of between 15
and 30 years.

8
<PAGE>

The balance of the assets of Admiral Short-Term, Intermedi-
ate-Term, and Long-Term U.S. Treasury Portfolios may be in-
vested in other U.S. Government agency securities, as well as
repurchase agreements collateralized by such securities. The
three Portfolios may also invest in bond (interest rate)
futures contracts and options to a limited extent, but not
for speculative purposes. See "Implementation of Policies"
for a description of these and other investment practices of
the Fund.

Each Portfolio is responsible for voting the shares of all
securities it holds.

The investment policies of each Portfolio are not fundamental
and so may be changed without shareholder approval by the
Board of Directors. However, shareholders would be notified
of any material change in a Portfolio's policies.
- --------------------------------------------------------------------------------
INVESTMENT As mutual funds investing in fixed-income securities, the
RISKS four Portfolios of the Fund are subject to interest rate
risk, income risk, credit risk and manager risk.
EXCEPT FOR THE
MONEY MARKET INTEREST RATE RISK is the potential for a decline in bond
PORTFOLIO, prices due to rising market interest rates. In general, bond
SHARE PRICES prices vary inversely with interest rates. If interest rates
WILL FLUCTUATE rise, bond prices generally fall; if interest rates fall,
bond prices generally rise. The change in price depends on
several factors, including the bond's maturity date. In gen-
eral, bonds with longer maturities are more sensitive to in-
terest rates than bonds with shorter maturities.

These principles of interest rate risk also apply to U.S.
Treasury and U.S. Government agency securities. As with other
bond investments, U.S. Government securities will rise and
fall in value as interest rates change. A SECURITY BACKED BY
THE U.S. TREASURY OR A U.S. GOVERNMENT AGENCY IS GUARANTEED
ONLY AS TO THE TIMELY PAYMENT OF INTEREST AND PRINCIPAL WHEN
HELD TO MATURITY. THE CURRENT MARKET PRICES FOR SUCH SECURI-
TIES ARE NOT GUARANTEED AND WILL FLUCTUATE.

The Admiral U.S. Treasury Money Market Portfolio, with a dol-
lar-weighted average maturity of less than 90 days, invests
in short-term instruments and seeks to maintain a stable
$1.00 share price. As a result, the Portfolio is expected to
provide minimal exposure to interest rate risk. In relative
terms, share price fluctuations are expected to be low to
moderate for the Admiral Short-Term U.S. Treasury Portfolio,
moderate to high for the Admiral Intermediate-Term U.S. Trea-
sury Portfolio, and high to VERY high for the Admiral Long-
Term U.S. Treasury Portfolio, refecting the differing average
maturity characteristics of the three Portfolios. To illus-
trate the relative risk exposure of the Fund's three bond
Portfolios, the chart on page 10 depicts the effect of an im-
mediate 2% change in interest rates on the principal value of
three bonds of varying maturities:

9
<PAGE>

PERCENT CHANGE IN THE PRICE OF A PAR BOND YIELDING 7.5%

<TABLE>
<CAPTION>
2% INCREASE IN 2% DECREASE IN
STATED MATURITY INTEREST RATES INTEREST RATES
--------------------------- -------------- --------------
<S> <C> <C>
Short-Term (2.5 years) - 4.4% + 4.6%
Intermediate-Term (10
years) -12.7% +15.2%
Long-Term (20 years) -17.8% +24.1%
</TABLE>

Note: By comparison, the Admiral U.S. Treasury Money Market
Portfolio seeks to maintain a stable $1.00 per share price.

This chart is intended to provide you with guidelines for de-
termining the degree of interest rate risk you may be willing to
assume. The yield and price changes shown should not be taken as
representative of a Portfolio's current or future yield or expected
change in a Portfolio's share price.

<TABLE>
<CAPTION>
INTEREST INCOME
ADMIRAL PORTFOLIO RATE RISK RISK
---------------------------------------------------------
<S> <C> <C>
U.S. Treasury Money Market Negligible Very high
Short-Term U.S. Treasury Low to moderate High
Intermediate-Term U.S. Treasury Moderate to high Moderate
Long-Term U.S. Treasury High to very high Low
</TABLE>
CREDIT RISK is the possibility that an issuer of securities held
by a Portfolio will fail to make timely payment of interest or
principal. Because all four Portfolios invest primarily in
securities backed by the full faith and credit of the U.S.
Government, credit risk is expected to be negligible.

Finally, the investment adviser manages the Fund's Portfolios
according to the traditional methods of "active" investment
management, which involve the buying and selling of securities
based upon economic, financial and market analysis and investment
judgement. MANAGER RISK refers to the possibility that a
Portfolio's investment adviser may fail to execute the Portfolio's
investment strategy effectively. As a result, a Portfolio may fail
to achieve its stated objective.
- --------------------------------------------------------------------------------

10
<PAGE>

WHO SHOULD The four Portfolios of the Fund are intended for investors
INVEST who are seeking current income from their investments consis-
tent with the preservation of capital and liquidity. The
INVESTORS Portfolios are also suitable for investors with common stock
SEEKING holdings who are seeking a complementary money market or
CURRENT INCOME fixed-income investment in order to create a more diversified
and balanced investment mix. Because of the risks associated
with bond investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide investors
with a means of speculating on short-term bond market move-
ments. Investors who engage in excessive account activity
generate additional costs which are borne by all of the
Fund's shareholders. In order to minimize such costs, the
Fund has adopted the following policies. The Fund reserves
the right to reject any purchase request (including exchange
purchases from other Vanguard portfolios) that is reasonably
deemed to be disruptive to efficient portfolio management,
either because of the timing of the investment or previous
excessive trading by the investor. Additionally, the Fund has
adopted exchange privilege limitations as described in the
section "Exchange Privilege Limitations." Finally, the Fund
reserves the right to suspend the offering of its shares.

You should base your selection of a Portfolio (or Portfolios)
of the Fund on your own objectives, risk preferences, and
time horizon.

THE ADMIRAL U.S. TREASURY MONEY MARKET PORTFOLIO is designed
for investors who are seeking current income and a stable
share price. The yield of the Portfolio is expected to fluc-
tuate from day to day and be lower on average than yields
from the Fund's other Portfolios. The Portfolio is suitable
as a short-term investment vehicle, emphasizing maximum pro-
tection of principal.

THE ADMIRAL SHORT-TERM AND INTERMEDIATE-TERM U.S. TREASURY
PORTFOLIOS are designed for investors who are willing to ac-
cept moderate to high share price fluctuations in exchange
for potentially higher and more durable yields. The choice
between the two is principally one of current yield and expo-
sure to interest rate risk. The Portfolios are intended for
investors with medium-term time horizons (e.g., three to five
years).

THE ADMIRAL LONG-TERM U.S. TREASURY PORTFOLIO is intended for
investors who are seeking the highest, most durable streams
of income and who can tolerate high to very high fluctuations
in share price in pursuit of their income objectives. Invest-
ors in the Portfolio should have a long-term investment hori-
zon (e.g., more than five years).
- --------------------------------------------------------------------------------
IMPLEMENTATION The Portfolios of the Fund follow a number of additional in-
OF POLICIES vestment practices in pursuit of their objectives.

THREE The Admiral Short-Term, Intermediate-Term, and Long-Term U.S.
PORTFOLIOS MAY Treasury Portfolios may invest in repurchase agreements to
INVEST IN the extent described above in "Investment Policies." A repur-
REPURCHASE chase agreement is a means of investing monies for a short
AGREEMENTS period. In a repurchase agreement, a seller--a U.S. commer-
cial bank or recognized U.S. securities dealer--sells
securities to a Portfolio and

11
<PAGE>

agrees to repurchase the securities at the Portfolio's cost
plus interest within a specified period (normally one day).
In these transactions, the securities purchased by the Port-
folio will have a total value equal to, or in excess of, the
value of the repurchase agreement, and will be held by the
Portfolio's Custodian Bank until repurchased.

The use of repurchase agreements involves certain risks. For
example, if the seller of the agreement defaults on its obli-
gation to repurchase the underlying securities at a time when
the value of these securities has declined, the Portfolio may
incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or re-
organization under the bankruptcy code or other laws, a bank-
ruptcy court may determine that the underlying securities are
collateral not within the control of the Portfolio and there-
fore subject to sale by the trustee in bankruptcy. Finally,
it is possible that the Portfolio may not be able to substan-
tiate its interest in the underlying securities. While the
Fund's management acknowledges these risks, it is expected
that they can be controlled through stringent security selec-
tion and careful monitoring.

DERIVATIVE Derivatives are instruments whose values are linked to or de-
INVESTING rived from an underlying security. The most common and con-
ventional types of derivative securities are futures and op-
tions.

THREE
PORTFOLIOS MAY The Admiral Short-Term, Intermediate-Term, and Long-Term U.S.
INVEST IN Treasury Portfolios may invest in futures contracts and op-
FUTURES tions to a limited extent. Specifically, these three Portfo-
CONTRACTS AND lios may enter into futures contracts provided that not more
OPTIONS than 5% of each Portfolio's assets are required as a futures
contract margin deposit; in addition, each of the three Port-
folios may enter into futures contracts and options transac-
tions only to the extent that obligations under such con-
tracts or transactions represent not more than 20% of a
Portfolio's assets.

Futures contracts and options may be used for several common
fund management strategies: to maintain cash reserves while
simulating full investment, to facilitate trading, to reduce
transaction costs, or to seek higher investment returns when
a specific futures contract is priced more attractively than
other futures contracts or the underlying security or index.
The Portfolios intend to use futures contracts only for bona
fide hedging purposes and will not use futures contracts or
options for speculative purposes.

The Portfolios may use futures contracts for bona fide "hedg-
ing" purposes. In executing a hedge, a manager sells, for ex-
ample, stock index futures to protect against a decline in
the stock market. As such, if the market drops, the value of
the futures position will rise, thereby offsetting the de-
cline in value of the Portfolios' stock holdings.

The Fund may also invest in other conventional derivatives
designed to replicate the risk/return characteristics of a
conventional fixed income note or bond.

12
<PAGE>

Such derivatives would be managed, in both structure and con-
centration, to adhere to the Fund's investment policy re-
strictions as to market and credit risk.

FUTURES The primary risks associated with the use of futures con-
CONTRACTS AND tracts and options are: (i) imperfect correlation between the
OPTIONS POSE change in market value of the bonds held by a Portfolio and
CERTAIN RISKS the prices of futures contracts and options; and (ii) possi-
ble lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures position prior
to its maturity date. The risk of imperfect correlation will
be minimized by investing only in those contracts whose price
fluctuations are expected to resemble those of the Portfo-
lio's underlying securities. The risk that a Portfolio will
be unable to close out a futures position will be minimized
by entering into such transactions on a national exchange
with an active and liquid secondary market.

THREE
PORTFOLIOS MAY The Admiral Short-Term, Intermediate-Term, and Long-Term U.S.
LEND THEIR Treasury Portfolios of the Fund may lend their investment se-
SECURITIES curities to qualified institutional investors for either
short-term or long-term purposes of realizing additional in-
come. Loans of securities by a Portfolio will be collateral-
ized by cash, letters of credit, or securities issued or
guaranteed by the U.S. Government or its agencies. The col-
lateral will equal at least 100% of the current market value
of the loaned securities, and such loans may not exceed 33
1/3% of the value of the Portfolio's total assets.

THREE
PORTFOLIOS MAY The Admiral Short-Term, Intermediate-Term, and Long-Term U.S.
INVEST IN Treasury Portfolios may invest up to 15% of their net assets
RESTRICTED OR in illiquid securities which include certain restricted secu-
ILLIQUID rities. Restricted securities are securities which are not
SECURITIES freely marketable or which are subject to restrictions upon
sale under the Securities Act of 1933. Pursuant to Rule 144A
under the Securities Act of 1933, as amended, if a substan-
tial market among qualified institutional buyers develops for
such securities held by any of these three Portfolios, the
Fund intends to treat such securities as liquid securities,
in accordance with procedures approved by the Fund's Board of
Directors.

THREE The Admiral Short-Term, Intermediate-Term, and Long-Term U.S.
PORTFOLIOS MAY Treasury Portfolios may invest in collateralized mortgage ob-
INVEST IN CMOS ligations (CMOs), bonds that are collateralized by whole loan
mortgages or mortgage pass-through securities. Generally, the
three Portfolios will purchase CMOs which are collateralized
by mortgage securities issued or guaranteed by the U.S. Gov-
ernment or its agencies. The bonds issued under a CMO struc-
ture are divided into groups (or tranches) with varying matu-
rities, and the cash flows generated by the mortgages or
mortgage pass-through securities in the collateral pool are
used to first pay interest and then principal to CMO invest-
ors (such as the Fund's Portfolios).

Under a CMO structure, the repayment of principal among the
different groups is prioritized in accordance with the terms
of the particular CMO issuance. The "fastest-pay" group of
bonds would initially receive all principal payments. When
that group of bonds is retired, the next group or groups, in
the sequence

13
<PAGE>

specified in the prospectus, receive all principal payments
until all of the groups are retired. Many CMO issues also in-
clude minimum reinvestment rate and minimum sinking-fund
guarantees.

Aside from market risk, the primary risk involved in any
mortgage security, such as a CMO, is exposure to prepayment
risk. Prepayment risk is the possibility that, as interest
rates fall, homeowners are more likely to refinance their
home mortgages. When home mortgages are refinanced, the prin-
cipal on CMO bonds held by the Portfolios are "prepaid" ear-
lier than expected. The Portfolios must then reinvest the un-
anticipated principal in new bond issuances, just at a time
when interest rates on new mortgage investments are falling.
To the extent a particular group of bonds is exposed to this
risk, the bondholder is generally compensated in the form of
enhanced yield.

Typically, the Portfolios will invest in CMOs that most ap-
propriately reflect their average maturity characteristics
and market risk profiles. Consequently, the Admiral Short-
Term U.S. Treasury Portfolio invests only in CMOs with short-
term average maturities that are believed to be highly pre-
dictable. Similarly, the Admiral Intermediate- and Long-Term
U.S. Treasury Portfolios will invest in those CMOs that carry
market risks and expected maturities commensurate with inter-
mediate- and long-term bonds.

The Portfolios invest in a relatively conservative class of
collateralized mortgage obligations (CMOs) which feature a
high degree of cash flow predictability and less vulnerabil-
ity to mortgage prepayment risk. To reduce credit risk, Van-
guard purchases these classes of collateralized mortgage ob-
ligations issued only by agencies of the U.S. Government or
privately-issued collateralized mortgage obligations that
carry high-quality investment-grade ratings.

PORTFOLIO Although they generally seek to invest for the long term, the
TURNOVER RATES Admiral Short-Term, Intermediate-Term and Long-Term U.S.
WILL VARY Treasury Portfolios retain the right to sell securities re-
gardless of how long they have been held. It is anticipated
that the annual portfolio turnover rate for the Admiral In-
termediate-Term and Long-Term U.S. Treasury Portfolios will
generally not exceed 200%. A 200% turnover rate would occur,
for example, if all of the securities in a Portfolio were re-
placed two times within one year. For the Admiral Short-Term
U.S. Treasury Portfolio, the portfolio turnover rate will be
higher due to the short-term maturities of the securities
purchased, but is not expected to exceed 300%. A higher Port-
folio turnover rate will cause a Portfolio to incur addi-
tional brokerage costs and may cause a Portfolio to realize a
higher level of capital gains or losses.
- --------------------------------------------------------------------------------

14
<PAGE>

INVESTMENT Each Portfolio has adopted limitations on some of its invest-
LIMITATIONS ment policies. Some of these limitations are that the Portfo-
lio will not:

THE FUND HAS
ADOPTED (a) with respect to 75% of its assets (100% for the Admiral
CERTAIN U.S. Treasury Money Market Portfolio), hold more than 10%
FUNDAMENTAL of the outstanding voting securities of the issuer, or
LIMITATIONS invest more than 5% of the value of its assets in the se-
curities of any single company, excluding obligations of
the United States Government and its agencies and instru-
mentalities.

(b) borrow money except for temporary or emergency purposes
and not in excess of 15% of the value of the Portfolio's
assets taken at the lower of their market value or cost.

A complete list of the Fund's investment limitations can be
found in the Statement of Additional Information. These limi-
tations are fundamental and may be changed only by approval
of a majority of the Fund's shareholders.
- --------------------------------------------------------------------------------

MANAGEMENT OF The Fund is a member of The Vanguard Group of Investment Com-
THE FUND panies, a family of more than 30 investment companies with
more than 95 distinct investment portfolios and total assets
in excess of $370 billion. Through their jointly-owned sub-
sidiary, The Vanguard Group, Inc. ("Vanguard"), the Fund and
the other funds in the Group obtain at cost virtually all of
their corporate management, administrative, shareholder ac-
counting and distribution services. Vanguard also provides
investment advisory services on an at-cost basis to certain
Vanguard funds. As a result of Vanguard's unique corporate
structure, the Vanguard funds have costs substantially lower
than those of most competing mutual funds. In 1997, the aver-
age expense ratio (annual costs including advisory fees di-
vided by total net assets) for the Vanguard funds amounted to
approximately .28% compared to an average of 1.24% for the
mutual fund industry (data provided by Lipper Analytical
Services).

VANGUARD
ADMINISTERS
AND
DISTRIBUTES
THE FUND

The Officers of the Fund manage its day-to-day operations and
are responsible to the Fund's Board of Directors. The Direc-
tors set broad policies for the Fund and choose its Officers.
A list of the Directors and Officers of the Fund and a state-
ment of their present positions and principal occupations
during the past five years can be found in the Statement of
Additional Information.

Vanguard employs a supporting staff of management and admin-
istrative personnel needed to provide the requisite services
to the funds and also furnishes the funds with necessary of-
fice space, furnishings and equipment. Each fund pays its
share of Vanguard's total expenses, which are allocated among
the funds under methods approved by the Board of Directors
(Trustees) of each fund. In addition, each fund bears its own
direct expenses, such as legal, auditing and custodian fees.

15
<PAGE>

Vanguard also provides distribution and marketing services to
the Vanguard funds. The funds are made available to investors
on a no-load basis (i.e., there are no sales commissions or
12b-1 fees). However, each fund bears its share of the
Group's distribution costs.
- --------------------------------------------------------------------------------

INVESTMENT The four Portfolios of the Fund receive all investment advi-
ADVISER sory services on an at-cost basis from Vanguard's Fixed In-
come Group. The Group provides investment advisory services
VANGUARD to more than 40 Vanguard money market and bond portfolios,
MANAGES THE both taxable and tax-exempt. Total assets under management by
FUND'S Vanguard's Fixed Income Group were more than $100 billion as
INVESTMENTS of January 31, 1998. The Fixed Income Group is supervised by
the Officers of the Fund.

Ian A. MacKinnon, Managing Director of Vanguard, has been in
charge of the Fixed Income Group since its inception in 1981.
Mr. MacKinnon is responsible for setting the broad investment
strategies employed by the Fund, and for overseeing the port-
folio managers who implement those strategies on a day-to-day
basis. The portfolio managers are as follows:

. Robert F. Auwaerter, a Principal of Vanguard, serves as
portfolio manager of the Admiral Intermediate-Term and
Long-Term U.S. Treasury Portfolios. Associated with the
Fixed Income Group since 1981, Mr. Auwaerter has managed
these Portfolios since their inception.

. John Hollyer, a Principal of Vanguard, serves as portfolio
manager of the Admiral Short-Term Portfolio. Mr. Hollyer
has been associated with the Fixed Income Group since 1989.
Prior to joining Vanguard, Mr. Hollyer traded U.S. Govern-
ment bonds for an international investment bank.

. David Glocke, a Principal of Vanguard, serves as portfolio
manager of the Admiral Money Market Portfolio. Mr. Glocke
has been associated with the Fixed Income Group since 1997.
Mr. Glocke has worked in investment management since 1991.

The Fixed Income Group manages the investment and reinvest-
ment of the assets of the Fund's Portfolios and continuously
reviews, supervises and administers each Portfolio's invest-
ment program, subject to the maturity and quality standards
specified in this Prospectus and supplemental guidelines ap-
proved by the Fund's Board of Directors. The Fixed Income
Group's selection of investments for the Portfolios is based
on: (a) continuing credit analysis of those instruments held
in the Portfolios and those being considered for inclusion
therein; (b) possible disparities in yield relationships be-
tween different fixed-income securities; and (c) actual or
anticipated movements in the general level of interest rates.

The Fixed Income Group is also responsible for the allocation
of principal business and portfolio brokerage and the negoti-
ation of commissions. The purchase and sale of investment se-
curities by the Fund will ordinarily be principal transac-
tions. Portfolio securities will normally be purchased
directly from the issuer

16
<PAGE>

or from an underwriter or market maker for the securities.
There usually will be no brokerage commissions paid by a
Portfolio for securities purchased from an issuer. Purchases
from underwriters of securities will include a commission or
concession paid by the issuer to the underwriter, and pur-
chases from dealers serving as market makers will include a
dealer's mark-up.

The Fixed Income Group is authorized to choose brokers or
dealers to handle the purchase and sale of the Fund's securi-
ties, and is directed to get the best available price and
most favorable execution from these brokers with respect to
all transactions. At times, the Fixed Income Group may choose
brokers who charge higher commissions in the interests of ob-
taining better execution of a transaction. If more than one
broker can obtain the best available price and favorable exe-
cution of a transaction, then the Fixed Income Group is au-
thorized to choose a broker who, in addition to executing the
transaction, will provide research services to the Fixed In-
come Group or the Fund. However, the Fixed Income Group will
not pay higher commissions specifically for the purpose of
obtaining research services. The Fund may direct the Fixed
Income Group to use a particular broker for certain transac-
tions in exchange for commission rebates or research services
provided to the Fund.

When the Portfolios purchase a newly issued security at a
fixed price, the Fixed Income Group may designate certain
members of the underwriting syndicate to receive compensation
associated with that transaction. Certain dealers have agreed
to rebate a portion of such compensation directly to the
Portfolios to offset their management expenses.
- --------------------------------------------------------------------------------
DIVIDENDS, Dividends consisting of virtually all of the ordinary income
CAPITAL GAINS of each Portfolio are declared daily and are payable to
AND TAXES shareholders of record at the close of the previous business
day. Such dividends are paid on the first business day of
DIVIDENDS ARE each month. Capital gains distributions, if any, will be made
PAID ON THE annually.
FIRST BUSINESS
DAY OF EACH The Fund's dividend and capital gains distributions may be
MONTH reinvested in additional shares or received in cash. See
"Choosing a Distribution Option" for a description of these
distribution methods.

In order to satisfy certain requirements of the Tax Reform
Act of 1986, the Fund may declare year-end dividend and capi-
tal gains distributions during December. Such distributions,
if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on Decem-
ber 31 of the prior year.

DIVIDENDS WILL Each Portfolio of the Fund intends to continue to qualify for
BE SUBJECT TO taxation as a "regulated investment company" under the Inter-
FEDERAL INCOME nal Revenue Code so that each Portfolio will not be subject
TAX to federal income tax to the extent its income is distributed
to shareholders. Dividends paid by each Portfolio from net
investment income and net short-term capital gains, whether
received in cash or reinvested in additional shares, will be
taxable to shareholders as ordinary income. For

17
<PAGE>

corporate investors, dividends paid by the Fund from net in-
vestment income will generally not qualify for the intercor-
porate dividends-received deduction.

Distributions paid by the Fund from net long-term capital
gains, if any, whether received in cash or reinvested in ad-
ditional shares, are taxable as long-term capital gains, re-
gardless of the length of time you have owned shares in the
Fund. Long-term capital gains may be taxed at different rates
depending on how long the Fund held the securities. Distribu-
tions paid by the Fund from net short-term capital gains, if
any, whether received in cash or reinvested in additional
shares, are taxable as ordinary income. Capital gains distri-
butions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. For the Fund,
realized capital gains are not expected to be a significant
or predictable part of investment return.

The Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.

A CAPITAL GAIN A sale of a Portfolio's shares is a taxable event and may re-
OR LOSS MAY BE sult in a capital gain or loss. A capital gain or loss may be
REALIZED UPON realized from an ordinary redemption of shares, a
EXCHANGE OR checkwriting redemption, or an exchange of shares between two
REDEMPTION mutual funds (or two portfolios of a mutual fund). Since the
Admiral U.S. Treasury Money Market Portfolio seeks to main-
tain a constant $1.00 share price for both purchases and re-
demptions, shareholders are not expected to realize a capital
gain or loss upon sale.

Dividend distributions, capital gains distributions, and cap-
ital gains or losses from redemptions and exchanges may be
subject to state and local taxes. The portion of a Portfo-
lio's income derived from "full faith and credit" U.S. Gov-
ernment obligations is exempt from state and local taxes in
most states. The Fund will indicate each year the portion of
a Portfolio's income, if any, that may qualify for this ex-
emption.

The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to share-
holders who have not complied with IRS taxpayer identifica-
tion regulations. You may avoid this withholding requirement
by certifying on your Account Registration Form your proper
Social Security or employer identification number and by cer-
tifying that you are not subject to backup withholding.

The Fund has obtained a Certificate of Authority to do busi-
ness as a foreign corporation in Pennsylvania, and does busi-
ness and maintains an office in that state. In the opinion of
counsel, the shares of the Fund will be exempt from Pennsyl-
vania personal property taxes.

The tax discussion set forth above is included for general
information only. Prospective investors should consult their
own tax advisers concerning the state tax consequences of an
investment in the Fund.
- --------------------------------------------------------------------------------

18
<PAGE>

THE SHARE Each Portfolio's share price or "net asset value' per share
PRICE OF EACH is calculated by dividing the total assets of the Portfolio,
PORTFOLIO less all liabilities, by the total number of shares outstand-
ing. The net asset value is determined as of the close of the
New York Stock Exchange (the "Exchange"), generally 4:00 p.m.
Eastern time, on each day that the Exchange is open for trad-
ing.

Short term instruments (those acquired with remaining maturi-
ties of 60 days or less) may be valued at cost, plus or minus
any amortized discount or premium, which approximates market
value. Bonds and other fixed income securities may be valued
on the basis of prices provided by a pricing service when
such prices are believed to reflect the fair market value of
such securities. The prices provided by a pricing service may
be determined without regard to bid or last sale prices of
each security, but take into account institutional-sized
transactions in similar groups of securities as well as any
developments related to specific securities.

Other assets and securities for which no quotations are read-
ily available or which are restricted as to sale (or resale)
are valued by such methods as the Board of Directors deems in
good faith to reflect fair value.

The share price for the three bond Portfolios can be found
daily in the mutual fund listings of most major newspapers
under the heading of Vanguard Funds. The share price for the
Admiral U.S. Treasury Money Market Portfolio is listed sepa-
rately in most major newspapers under Money Market Mutual
Funds.

- --------------------------------------------------------------------------------
GENERAL The Fund is a Maryland corporation. The Fund's Articles of
INFORMATION Incorporation permit the Directors to issue 21,500,000,000
shares of common stock, with a $.001 par value. The Board of
Directors has the power to designate one or more classes
("Portfolios") of shares of common stock and to classify or
reclassify any unissued shares with respect to such Portfo-
lios. Currently the Fund is offering shares of four Portfo-
lios.

The shares of each Portfolio are fully paid and non-assessa-
ble; have no preference as to conversion, exchange, divi-
dends, retirement or other features; and have no pre-emptive
rights. The shares of each Portfolio have non-cumulative vot-
ing rights, meaning that the holders of more than 50% of the
shares voting for the election of Directors can elect 100% of
the Directors if they choose to do so.

Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other ap-
plicable law. An annual meeting will be held on the removal
of a Director or Directors of the Fund if requested in writ-
ing by holders of not less than 10% of the outstanding shares
of the Fund.

State Street Bank and Trust Company, Boston, MA, has been re-
tained to act as custodian of the assets of the Admiral
Short-Term, Intermediate-Term, and Long-Term U.S. Treasury
Portfolios. CoreStates Bank, N.A., Philadelphia, PA

19
<PAGE>

has been retained as the custodian of the assets of the Admi-
ral U.S. Treasury Money Market Portfolio. CoreStates Bank,
N.A., Philadelphia, PA also holds daily cash balances that
are used by the Funds' Portfolios to invest in repurchase
agreements or securities acquired in these transactions.

The Vanguard Group, Inc., Valley Forge, PA, serves as the
Fund's Transfer and Dividend Disbursing Agent. Price
Waterhouse LLP serves as independent accountant for the Fund
and will audit its financial statements annually. The Fund is
not involved in any litigation.
- --------------------------------------------------------------------------------

20
<PAGE>

SHAREHOLDER GUIDE

OPENING AN To open a new account, either by mail or by wire, simply com-
ACCOUNT AND plete and return an Account Registration Form and any re-
PURCHASING quired legal documentation. Please indicate the Portfolio you
SHARES have chosen and the amount you wish to invest. Your purchase
must be equal to or greater than the $50,000 minimum initial
investment requirement in any Portfolio. (This minimum ini-
tial requirement also applies to Individual Retirement Ac-
counts and Uniform Gifts/Transfers to Minors Act accounts;
$500 minimum for an Education IRA.) If you need assistance
with the Account Registration Form or have any questions
about this Fund, please call our Investor Information Depart-
ment at 1-800-662-7447. NOTE: For other types of account reg-
istrations (e.g., corporations, associations, other organiza-
tions, trusts, or powers of attorney), please call us to
determine which additional forms you may need.

The Fund's shares are purchased at the next-determined net
asset value after your investment has been received in the
form of Federal Funds. See "When Your Account Will Be Credit-
ed." The Fund is offered on a no-load basis (i.e., there are
no sales commissions or 12b-1 fees).

PURCHASE 1) Because of the risks associated with bond investments, the
RESTRICTIONS Fund is intended to be a long-term investment vehicle and
is not designed to provide investors with a means of spec-
ulating on short-term bond market movements. Consequently,
the Fund reserves the right to reject any specific pur-
chase (and exchange purchase) request. The Fund also re-
serves the right to suspend the offering of shares for a
period of time.

2) Vanguard will not accept third-party checks to purchase
shares of the Fund. Please be sure your purchase check is
made payable to The Vanguard Group.

ADDITIONAL Subsequent investments may be made by mail ($100 minimum per
INVESTMENTS Portfolio), wire ($1,000 minimum per Portfolio), exchange
from another Vanguard Fund account ($100 minimum per Portfo-
lio), or Vanguard Fund Express.
--------------------------------------------------------------

21
<PAGE>

ADDITIONAL INVESTMENTS TO
NEW ACCOUNT EXISTING ACCOUNTS

PURCHASING BY Please include the Additional investments
MAIL amount of your initial should include the In-
investment and the vest-by-Mail remit-
Complete and name of the Portfo- tance form attached to
sign the lio(s) you have se- your Fund confirmation
enclosed lected on the regis- statements. Please
Account tration form, make make your check pay-
Registration your check payable to able to The Vanguard
Form The Vanguard Group Group (Portfolio Num-
(Portfolio Number), ber), see below for
see below for the ap- the appropriate num-
propriate number and ber. Write your ac-
mail to: count number on your
check and, using the
return envelope pro-
vided, mail to the ad-
dress indicated on the
Invest-by-Mail Form.

THE VANGUARD GROUP All written requests
P.O. BOX 2600 should be mailed to
VALLEY FORGE, PA 19482-2600 one of the addresses
indicated for new ac-
For express or THE VANGUARD GROUP counts. Do not send
registered mail, 455 DEVON PARK DRIVE registered or express
send to: WAYNE, PA 19087-1815 mail to the post of-
fice box address.

VANGUARD ADMIRAL FUNDS:
Admiral U.S. Treasury Money Market Portfolio--11
Admiral Short-Term U.S. Treasury Portfolio--12
Admiral Intermediate-Term U.S. Treasury Portfolio--19
Admiral Long-Term U.S. Treasury Portfolio--20
--------------------------------------------------------------
CORESTATES BANK, N.A.
PURCHASING BY ABA 031000011
WIRE
Money should be CORESTATES NO. 0144 6936 (for Admiral U.S. Treasury
wired to: Money Market Portfolio)

BEFORE WIRING CORESTATES NO. 0101 9897 (for Admiral Short-Term,
Please contact Intermediate-Term, and Long-Term U.S. Treasury
Client Services Portfolios)

(1-800-662-2739) ATTN: VANGUARD
VANGUARD ADMIRAL FUNDS
NAME OF PORTFOLIO
ACCOUNT NUMBER
ACCOUNT REGISTRATION

To assure proper receipt, please be sure your bank includes
the Portfolio name, the account number Vanguard has assigned
to you and the eight-digit Corestates number. If you are
opening a new account, please complete the Account Registra-
tion Form and mail it to the "New Account" address after com-
pleting your wire arrangement. NOTE: Federal Funds wire pur-
chase orders will be accepted only when the Fund and
Custodian Bank are open for business.
--------------------------------------------------------------

22
<PAGE>

PURCHASING BY You may open an account or purchase additional shares by mak-
EXCHANGE (from ing an exchange from an existing Vanguard Fund account. The
a Vanguard new account will have the same registration as the existing
account) account. Please note: the Fund reserves the right to refuse
any exchange purchase request. If you need additional infor-
mation, please call our Client Services Department at 1-800-
662-2739.
--------------------------------------------------------------
PURCHASING BY The Fund Express Special Purchase option lets you move money
FUND EXPRESS from your bank account to your Vanguard account on an "as
needed" basis. Or if you choose the Automatic Investment op-
tion, money will be moved automatically from your bank ac-
count to your Vanguard account on the schedule (monthly, bi-
Special monthly [every other month], quarterly, semiannually or
Purchase annually) you select. To establish these Fund Express op-
and Automatic tions, please provide the appropriate information on the Ac-
Investment count Registration Form. We will send you a confirmation of
your Fund Express service; please wait two weeks before using
the service.
- --------------------------------------------------------------------------------

CHOOSING A You must select one of four distribution options:
DISTRIBUTION
OPTION
1. AUTOMATIC REINVESTMENT OPTION--Both dividend and capital
gains distributions will be reinvested in additional Fund
shares. This option will be selected for you automatically
unless you specify another option.

2. CASH DIVIDEND OPTION--Your dividends will be paid in cash
and your capital gains will be reinvested in additional
Fund shares.

3. CASH CAPITAL GAIN OPTION--Your capital gains distributions
will be paid in cash and your dividends will reinvested in
additional Fund shares.

4. ALL CASH OPTION--Both dividend and capital gains distri-
butions will be paid in cash.

If a shareholder has chosen to receive dividend and/or capi-
tal gains distributions in cash, and the postal or other de-
livery service is unable to deliver checks to the sharehold-
er's address of record, we will change the distribution
option so that all dividends and other distributions are au-
tomatically reinvested in additional shares. We will not pay
interest on uncashed distribution checks.

In addition, an option to invest your cash dividend and/or
capital gains distributions in another Vanguard Fund account
is available. Please call our Client Services Department (1-
800-662-2739) for information. You may also elect Vanguard
Dividend Express which allows you to transfer your cash divi-
dend and/or capital gains distributions automatically to your
bank account. Please see "Other Vanguard Services" for more
information.
- --------------------------------------------------------------------------------
TAX CAUTION Under Federal tax laws, the Fund is required to distribute
net capital gains and dividend income to Fund shareholders.
INVESTORS These distributions are made to all shareholders who own Fund
SHOULD ASK shares as of the distribution's record date, regardless of
ABOUT THE how long the shares have been owned. Purchasing shares just
TIMING OF prior to the record date could have a significant impact on
CAPITAL GAINS your tax liability for the year. For example, if you purchase
AND DIVIDEND shares immediately prior to the record date of a
DISTRIBUTIONS
BEFORE
INVESTING

23
<PAGE>

sizable capital gains distribution, you will be assessed
taxes on the amount of the capital gains distribution later
paid even though you owned the Fund shares for just a short
period of time. (Taxes are due on the distributions even if
the dividend or capital gain is reinvested in additional Fund
shares.) While the total value of your investment will be the
same after the capital gains distribution--the amount of the
capital gains distribution will offset the drop in the net
asset value of the shares--you should be aware of the tax im-
plications the timing of your purchase may have.

Prospective investors should, therefore, inquire about poten-
tial distributions before investing. The Fund's annual capi-
tal gains distribution normally occurs in December, while in-
come dividends are generally paid on the first business day
of each month. In addition, the Fund may occasionally be re-
quired to make supplemental dividend or capital gains distri-
butions at some other time during the year. For additional
information on distributions and taxes, see the section ti-
tled "Dividends, Capital Gains, and Taxes."
- --------------------------------------------------------------------------------

IMPORTANT The easiest way to establish optional Vanguard services on
INFORMATION your account is to select the options you desire when you
complete your Account Registration Form.

ESTABLISHING If you wish to add shareholder options later, you may need to
OPTIONAL provide Vanguard with additional information and a signature
SERVICES guarantee. Please call our Client Services Department (1-800-
662-2739) for further assistance.

SIGNATURE For our mutual protection, we may require a signature guaran-
GUARANTEES tee on certain written transaction requests. A signature
guarantee verifies the authenticity of your signature, and
may be obtained from banks, brokers and any other guarantor
that Vanguard deems acceptable. A SIGNATURE GUARANTEE CANNOT
BE PROVIDED BY A NOTARY PUBLIC.

CERTIFICATES Share certificates will not be issued for the Fund.

BROKER/DEALER If you purchase shares in Vanguard Funds through a registered
PURCHASES broker/dealer or investment adviser, the broker/dealer or ad-
viser may charge a service fee.

CANCELLING The Fund will not cancel any trade (e.g., a purchase, ex-
TRADES change or redemption) believed to be authentic, once the
trade request has been received in writing or by telephone.

ELECTRONIC You may receive a prospectus for the Fund or any of the Van-
PROSPECTUS guard Funds in an electronic format through Vanguard's
DELIVERY website at www.vanguard.com. For additional information
please see "Other Vanguard Services--Computer Access."
- --------------------------------------------------------------------------------
WHEN YOUR The trade date is the date on which your account is credited.
ACCOUNT WILL It is generally the day on which the Fund receives your in-
BE CREDITED vestment in the form of Federal Funds (monies credited to the
Fund's Custodian Bank by a Federal Reserve Bank). Your trade
date varies according to your method of payment for your
shares.

24
<PAGE>

Purchases of Fund shares by check (except the Money Market
Portfolio) will receive a trade date the day the funds are
received in Good Order by Vanguard. Thus, if your purchase by
check is received by the close of trading on the New York
Stock Exchange (the "Exchange") generally 4:00 p.m. Eastern
time, your trade date is the business day your check is re-
ceived in Good Order. If your purchase is received after the
close of the Exchange your trade date is the business day
following receipt of your check.

For purchases by check for the Money Market Portfolio, the
Fund is ordinarily credited with Federal Funds within one
business day. Thus, if your purchase by check is received by
the close of trading on the Exchange, your trade date is the
business day following receipt of your check. If your pur-
chase is received after the close of the Exchange, your trade
date is the second business day following receipt of your
check.

For purchases by Federal Funds wire or exchange from another
Vanguard Fund, the Fund is credited immediately with Federal
Funds. Thus, if your purchase by Federal Funds wire or ex-
change is received by the close of the Exchange, your trade
date is the day of receipt. If your purchase is received af-
ter the close of the Exchange, your trade date is the busi-
ness day following receipt of your wire or exchange.

Your shares are purchased at the next determined net asset
value after your investment has been received in the form of
Federal Funds. You will begin to earn dividends on the calen-
dar day following the trade date. (For a Friday trade date,
you will begin earning dividends on Saturday.) For a purchase
by Federal Funds wire into Admiral U.S. Treasury Money Market
Portfolio, you may qualify for a dividend on the date of pur-
chase if you have notified the Fund of your intention to make
the purchase by 10:45 a.m. (Eastern time) on the business day
of the wire.

In order to prevent lengthy processing delays caused by the
clearing of foreign checks, Vanguard will only accept a for-
eign check which has been drawn in U.S. dollars and has been
issued by a foreign bank with a U.S. correspondent bank. The
name of the U.S. correspondent bank must be printed on the
face of the foreign check.
- --------------------------------------------------------------------------------

SELLING YOUR You may withdraw any portion of the funds in your account by
SHARES redeeming shares at any time. You generally may initiate a
request by writing or by telephoning. Your redemption pro-
ceeds are normally mailed, credited or wired--depending upon
the method of withdrawal you have previously chosen--within
two business days after the receipt of the request in Good
Order. No interest will accrue on amounts represented by
uncashed redemption checks.

SELLING BY You may withdraw funds from your account by writing a
WRITING A checkwriting draft payable in the amount of $250 or more.
CHECK When a draft is presented for payment to the Fund's agent,
CoreStates Bank, the Fund will redeem sufficient shares in
your account at the net asset value next determined to cover
the amount of the

25
<PAGE>

draft. You cannot write a Vanguard draft to redeem shares
that you purchased by check within the previous ten calendar
days.

In order to establish the checkwriting option on your ac-
count, all registered shareholders must sign a signature
card. After your completed signature card is received by the
Fund, an initial supply of drafts will be mailed within 10
business days. There is no charge for drafts or for their
clearance. CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS
SHOULD CALL OR WRITE VANGUARD'S CLIENT SERVICES DEPARTMENT
(1-800-662-2739) BEFORE SUBMITTING SIGNATURE CARDS, AS ADDI-
TIONAL DOCUMENTS MAY BE REQUIRED TO ESTABLISH THE
CHECKWRITING SERVICE.

Before establishing the checkwriting option, you should be
aware that:

1. Writing a draft check (a redemption of shares) is a tax-
able event.
2. The Fund does not allow an account to be closed through
the checkwriting option.

3. Vanguard cannot guarantee a stop payment on any draft. If
you wish to reverse a stop payment order, you must do so
in writing.
4. The Fund reserves the right to terminate or alter this
service at any time.
- --------------------------------------------------------------------------------

SELLING BY Requests should be mailed to THE VANGUARD GROUP, VANGUARD AD-
MAIL MIRAL FUNDS, P.O. BOX 1120, VALLEY FORGE, PA 19482-1120. (For
express or registered mail, send your request to The Vanguard
Group, Vanguard Admiral Funds, 455 Devon Park Drive, Wayne,
PA 19087-1815.)

The redemption price of shares will be the Portfolio's net
asset value next determined after Vanguard has received all
required documents in Good Order.
--------------------------------------------------------------
DEFINITION GOOD ORDER means that the request includes the following:
OFGOOD ORDER

1. The account number and portfolio name.
2. The amount of the transaction (specified in dollars or
shares).
3. The signatures of all owners EXACTLY as they are regis-
tered on the account.
4. Any required signature guarantees.

5. Other supporting legal documentation that may be required
in the case of estates, corporations, trusts, and certain
other accounts.

IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS TO
YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES DEPARTMENT AT
1-800-662-2739.
--------------------------------------------------------------
SELLING BY To sell shares by telephone you or your pre-authorized repre-
TELEPHONE sentative may call our Client Services Department at 1-800-
662-2739. For telephone redemptions, you may have the pro-
ceeds sent to you by mail or by wire. In addition to the
details below, please see "Important Information About Tele-
phone Transactions."

BY MAIL: Telephone mail redemption is automatically estab-
lished on your account unless you indicate otherwise on your
Account Registration Form. You may redeem any amount by call-
ing Vanguard. The proceeds will be paid to the

26
<PAGE>

registered shareholders and mailed to the address of record.
PLEASE NOTE: As a protection against fraud, your telephone
mail redemption privilege will be suspended for 15 calendar
days following any expedited address change to your account.
An expedited address change is one that is made by telephone
or in writing, without the signatures of all account owners.

BY WIRE: Telephone wire redemption must be specifically
elected for your account. The best time to elect telephone
wire redemption is at the time you complete your Account Reg-
istration Form. If you do not presently have telephone wire
redemption and wish to establish it, please contact our Cli-
ent Services Department.

With the wire redemption option, you may withdraw a minimum
of $1,000 and have the amount wired directly to your bank ac-
count. Wire redemptions less than $5,000 are subject to a $5
charge deducted by Vanguard. There is no Vanguard charge for
wire redemptions of $5,000 or more. However, your bank may
assess a separate fee for incoming wires.

A request to change the bank associated with your wire re-
demption option must be received in writing, signed by each
registered shareholder, and accompanied by a voided check or
preprinted deposit slip. A signature guarantee is required if
your bank registration is not identical to your Vanguard Fund
account registration.
--------------------------------------------------------------
SELLING BY If you select the Fund Express Automatic Withdrawal option,
FUND EXPRESS money will be automatically moved from your Vanguard Fund ac-
count to your bank account according to the schedule you have
Automatic selected. The Special Redemption option lets you move money
Withdrawal & from your Vanguard account to your bank account on an "as
Special needed" basis. To establish these Fund Express options,
Redemption please provide the appropriate information on the Account
Registration Form. We will send you a confirmation of your
Fund Express service; please wait two weeks before using the
service.
--------------------------------------------------------------
SELLING BY You may sell shares of a Portfolio by making an exchange into
EXCHANGE another Vanguard Fund account. Please see "Exchanging Your
Shares" for details.
--------------------------------------------------------------
IMPORTANT Shares purchased by check or Fund Express may be redeemed at
REDEMPTION any time. However, your redemption proceeds will not be paid
INFORMATION until payment for the purchase is collected, which may take
up to ten calendar days.
--------------------------------------------------------------

DELIVERY OF Redemption requests received by telephone prior to the close
REDEMPTION of trading on the Exchange are processed on the day of re-
PROCESS ceipt and the redemption proceeds are normally sent on the
following business day.

Redemption requests received by telephone after the close of
the Exchange are processed on the business day following re-
ceipt and the proceeds are normally sent on the second busi-
ness day following receipt. Redemption proceeds must

27
<PAGE>

be sent to you within seven days of receipt of your request
in Good Order, except as described above in "Important Re-
demption Information."

If you experience difficulty in making a telephone redemption
during periods of drastic economic or market changes, your
redemption request may be made by regular or express mail. It
will be implemented at the net asset value next determined
after your request has been received by Vanguard in Good Or-
der. The Fund reserves the right to revise or terminate the
telephone redemption privilege at any time.

The Fund may suspend the redemption right or postpone payment
at times when the New York Stock Exchange is closed or under
any emergency circumstances as determined by the United
States Securities and Exchange Commission. If the Board of
Directors determines that it would be detrimental to the best
interest of the Fund's remaining shareholders to make payment
in cash, the Fund may pay redemption proceeds in amounts in
excess of $250,000 in whole or in part by a distribution in
kind of readily marketable securities.
--------------------------------------------------------------
VANGUARD'S If you make a redemption from a qualifying account, Vanguard
AVERAGE COST will send you an Average Cost Statement which provides you
STATEMENT with the tax basis of the shares you redeemed. Please see
"Statements and Reports" for additional information.
--------------------------------------------------------------
MINIMUM Due to the relatively high cost of maintaining smaller ac-
ACCOUNT counts, the Fund reserves the right to liquidate any non-re-
BALANCE tirement account that is below the minimum initial investment
REQUIREMENT amount of $50,000. In addition, if at any time the total in-
vestment does not have a value of at least $50,000, you may
be notified that the value of your account is below the
Fund's minimum account balance requirement. You would then be
allowed 60 days to make an additional investment before the
account is liquidated. Proceeds would be promptly paid to the
shareholder.

Vanguard will not liquidate your account if it has fallen be-
low $50,000 solely as a result of declining bond market
prices (i.e., a decline in a Portfolio's net asset value).
- --------------------------------------------------------------------------------
EXCHANGING Should your investment goals change, you may exchange your
YOUR SHARES shares of Vanguard Admiral Funds for those of other available
Vanguard Funds.

EXCHANGING BY When exchanging shares by telephone, please have ready the
TELEPHONE Portfolio name, account number, Social Security number or em-
ployer identification number listed on the account, and exact
Call Client name and address in which the account is registered. Only the
Services at registered shareholder or a pre-authorized representative may
1-800-662-2739 complete such an exchange. Requests for telephone exchanges
received prior to the close of trading on the Exchange are
processed at the close of business that same day.

Requests received after the close of trading on the Exchange
are processed the next business day. TELEPHONE EXCHANGES ARE
NOT ACCEPTED INTO OR FROM NON-RETIREMENT INVESTMENTS IN VAN-
GUARD INDEX TRUST, VANGUARD BALANCED

28
<PAGE>

INDEX FUND, VANGUARD INTERNATIONAL EQUITY INDEX FUND, VAN-
GUARD REIT INDEX PORTFOLIO, VANGUARD TOTAL INTERNATIONAL
PORTFOLIO, OR VANGUARD GROWTH AND INCOME PORTFOLIO (formerly
known as Vanguard Quantitative Portfolios). If you experience
difficulty in making a telephone exchange, your exchange re-
quest may be made by regular or express mail, and it will be
implemented at the closing net asset value on the date re-
ceived by Vanguard provided the request is received in Good
Order.
--------------------------------------------------------------

EXCHANGING BY Please be sure to include on your exchange request the name
MAIL and account number of your current Fund, the name of the Fund
you wish to exchange into, the amount you wish to exchange,
and the signatures of all registered account holders. Send
your request to THE VANGUARD GROUP, VANGUARD ADMIRAL FUNDS,
P.O. BOX 1120, VALLEY FORGE, PA 19482-1120. (For express or
registered mail, send your request to The Vanguard Group,
Vanguard Admiral Funds, 455 Devon Park Drive, Wayne, PA
19087-1815 )
- --------------------------------------------------------------------------------

EXCHANGING You may use your personal computer to exchange shares of most
ONLINE Vanguard funds by accessing our website (www.vanguard.com).
To establish this service for your account, you must first
register through the website. We will then send to you, by
mail, an account access password that will enable you to make
online exchanges.

The Vanguard funds that you cannot purchase or sell through
online exchange are VANGUARD INDEX TRUST, VANGUARD BALANCED
INDEX FUND, VANGUARD INTERNATIONAL EQUITY INDEX FUND, VAN-
GUARD REIT INDEX PORTFOLIO, VANGUARD TOTAL INTERNATIONAL
PORTFOLIO, AND VANGUARD GROWTH and INCOME PORTFOLIO (formerly
known as Vanguard Quantitative Portfolios). These funds do
permit online exchanges within IRA's and other retirement ac-
counts.
--------------------------------------------------------------
IMPORTANT Before you make an exchange, you should consider the follow-
EXCHANGE ing:
INFORMATION
. Please read the Fund's prospectus before making an ex-
change. For a copy and for answers to any questions you may
have, call our Investor Information Department (1-800-662-
7447).

. An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on the
transaction.

. Exchanges by telephone are accepted only if the registra-
tions and taxpayer identification numbers of the two ac-
counts are identical.

. To exchange into an account with a different registration
(including a different name, address, or taxpayer identifi-
cation number), you must provide Vanguard with written in-
structions that include the guaranteed signatures of all
current account owners on your written instructions.

. New accounts are not currently accepted in Vanguard/Windsor
Fund or Vanguard/PRIMECAP Fund.

29
<PAGE>

. The redemption price of shares redeemed by exchange is the
net asset value next determined after Vanguard has received
all required documents in Good Order.

. When opening a new account by exchange, you must meet the
minimum investment requirement of the new Fund.

Every effort will be made to maintain the exchange privilege.
However, the Fund reserves the right to revise or terminate
its provisions, limit the amount of or reject any exchange,
as deemed necessary, at any time.

The exchange privilege is only available in states in which
the shares of the Fund are registered for sale. The Fund's
shares are currently registered for sale in all 50 states and
the Fund intends to maintain such registration.
- --------------------------------------------------------------------------------
EXCHANGE The Fund's exchange privilege is not intended to afford
PRIVILEGE shareholders a way to speculate on short-term movements in
LIMITATIONS the market. Accordingly, in order to prevent excessive use of
the exchange privilege that may potentially disrupt the man-
agement of the Fund and increase transaction costs, the Fund
has established a policy of limiting excessive exchange ac-
tivity.

For the Admiral Short-Term, Intermediate-Term and Long-Term
U.S. Treasury Portfolios, exchange activity will not be
deemed excessive if limited to TWO SUBSTANTIVE EXCHANGE RE-
DEMPTIONS (AT LEAST 30 DAYS APART) from a Portfolio during
any twelve-month period. "Substantive" means either a dollar
amount or a series of movements between Vanguard Funds that
Vanguard determines, in its sole discretion, could have an
adverse impact on the management of the Fund. These limita-
tions do not apply to exchanges from Vanguard's money market
portfolios, including the Admiral U.S. Treasury Money Market
Portfolio. Notwithstanding these limitations, the Fund re-
serves the right to reject any purchase request (including
exchange purchases from other Vanguard portfolios) that is
reasonably deemed to be disruptive to efficient portfolio
management.
- --------------------------------------------------------------------------------

IMPORTANT The ability to initiate redemptions (except wire or Fund Ex-
INFORMATION press redemptions) and exchanges by telephone is automati-
ABOUT cally established on your account unless you request in writ-
TELEPHONE ing that telephone transactions on your account not be
TRANSACTIONS permitted.

To protect your account from losses resulting from unautho-
rized or fraudulent telephone instructions, Vanguard adheres
to the following security procedures:

1.SECURITY CHECK. To request a transaction by telephone, the
caller must know: (i) the name of the Portfolio; (ii) the 10-
digit account number; (iii) the exact name and address used
in the registration; and (iv) the Social Security or employer
identification number listed on the account.

2.PAYMENT POLICY. The proceeds of any telephone redemption by
mail will be made payable to the registered shareowner and
mailed to the address of record only. In the case of a tele-
phone redemption by wire, the wire transfer will be made only
in accordance with the shareowner's prior written instruc-
tions.

30
<PAGE>

Neither the Fund nor Vanguard will be responsible for the au-
thenticity of transaction instructions received by telephone,
provided that these or other reasonable security procedures
have been followed. Vanguard believes that the security pro-
cedures described above are reasonable, and that if such pro-
cedures are followed, you will bear the risk of any losses
resulting from unauthorized or fraudulent telephone transac-
tions on your account.
- --------------------------------------------------------------------------------

TRANSFERRING You may transfer the registration of any of your Fund shares
REGISTRATION to another person by writing: The Vanguard Group, Attention:
Transfer Department, P.O. Box 1110, Valley Forge, PA 19482-
1110. The request must be in Good Order. Before mailing your
request, please call our Client Services Department
(1-800-662-2739) for full instructions.
- --------------------------------------------------------------------------------
STATEMENTS AND Vanguard will send you a confirmation statement each time you
REPORTS initiate a transaction in your account (except for
checkwriting redemptions from Vanguard money market ac-
counts). You will also receive a comprehensive account state-
ment at the end of each calendar quarter. The fourth-quarter
statement will be a year-end statement, listing all transac-
tion activity for the entire calendar year.

Vanguard's Average Cost Statement provides you with the aver-
age cost of shares redeemed from your account during the cal-
endar year, using the average cost single category method.
This service is available for most taxable accounts opened
since January 1, 1986. In general, investors who redeemed
shares from a qualifying Vanguard account may expect to re-
ceive their Average Cost Statement along with their Portfolio
Summary Statement. Please call our Client Services Department
(1-800-662-2739) for information.

A checkwriting statement will be sent monthly to shareholders
using Vanguard's checkwriting option. Our clear, easy-to-use
statement provides images of the front and back of each
checkwriting draft paid in the previous month. This consoli-
dated statement is sent instead of the original canceled
drafts, which will not be returned.

Financial reports on the Fund will be mailed to you
semiannually, according to the Fund's fiscal year-end. To
keep the Fund's costs as low as possible (so that you and
other shareholders can keep more of the Fund's investment
earnings), Vanguard attempts to eliminate duplicate mailings
to the same address. When we find that two or more Fund
shareholders have the same last name and address, we send
just one Fund report to that address--instead of mailing sep-
arate reports to each shareholder. If you want us to send
separate reports, however, you may notify our Investor Infor-
mation Department at 1-800-662-7447.
- --------------------------------------------------------------------------------
OTHER VANGUARD For more information about any of these services, please call
SERVICES our Investor Information Department at 1-800-662-7447.

VANGUARD With Vanguard's Direct Deposit Service, most U.S. Government
DIRECT DEPOSIT checks (including Social Security and military pension
SERVICE checks) and private payroll checks may

31
<PAGE>

be automatically deposited into your Vanguard Fund account.
Separate brochures and forms are available for direct de-
posit of U.S. Government and private payroll checks.

VANGUARD Vanguard's Automatic Exchange Service allows you to move
AUTOMATIC money automatically among your Vanguard Fund accounts. For
EXCHANGE instance, the service can be used to "dollar cost average"
SERVICE from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan. Please
contact our Client Services Department at 1-800-662-2739 for
additional information.

VANGUARD FUND Vanguard's Fund Express allows you to transfer money between
EXPRESS your Fund account and your account at a bank, savings and
loan association, or a credit union that is a member of the
Automated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call our In-
vestor Information Department (1-800-662-7447) for a Fund
Express application.

Special rules govern how your Fund Express purchases or re-
demptions are credited to your account. In addition, some
services of Fund Express cannot be used with specific Van-
guard Funds. For more information, please refer to the Van-
guard Fund Express brochure.

VANGUARD Vanguard's Dividend Express allows you to transfer your div-
DIVIDEND idend and/or capital gains distributions automatically from
EXPRESS your Fund account, one business day after the Fund's payable
date, to your account at a bank, savings and loan associa-
tion, or a credit union that is a member of the Automated
Clearing House (ACH) system. You may elect this service on
the Account Registration Form or call our Investor Informa-
tion Department (1-800-662-7447) for a Vanguard Dividend Ex-
press application.

VANGUARD TELE- Vanguard's Tele-Account is a convenient, automated service
ACCOUNT(R) that provides share price, price change and yield quotations
on Vanguard Funds through any TouchTone (TM) telephone. This
service also lets you obtain information about your account
balance, your last transaction, and your most recent divi-
dend or capital gains payment, as well as request telephone
exchanges and check redemptions. To contact Vanguard's Tele-
Account service, dial 1-800-ON-BOARD (1-800-662-6273). A
brochure offering detailed operating instructions is avail-
able from our Investor Information Department (1-800-662-
7447).

COMPUTER ACCESS Use your personal computer to learn more about Vanguard's
VANGUARD ONLINE funds and services; keep in touch with your Vanguard ac-
WWW.VANGUARD.COM counts; map out a long-term investment strategy; initiate
certain transactions; and ask questions, make suggestions,
and send messages to Vanguard.

Our education-oriented website provides timely news and in-
formation about Vanguard's funds and services; an online
"university" that offers a variety of mutual fund classes;
and easy-to-use, interactive tools to help you create your
own investment and retirement strategies.

- -------------------------------------------------------------------------------

32
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>

[LOGO OF VANGUARD APPEARS HERE]
- ---------------

THE VANGUARD GROUP

P.O. Box 2600
Valley Forge, PA 19482

INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)

CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)

TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON BOARD)

TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738

TRANSFER AGENT:
The Vanguard Group Inc.

P.O. Box 2600
Valley Forge, PA 19482

[LOGO OF VANGUARD APPEARS HERE]

P R O S P E C T U S

MAY 15, 1998

[LOGO OF VANGUARD ADMIRAL FUNDS APPEARS HERE]
P012
<PAGE>

PART B

VANGUARD ADMIRAL FUNDS, INC.

STATEMENT OF ADDITIONAL INFORMATION

MAY 15, 1998

This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated May 15, 1998). To obtain this Prospectus,
please call the Investor Information Department:

1-800-662-7447

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies......................................... B- 1
Purchase of Shares......................................................... B- 5
Redemption of Shares....................................................... B- 5
Shareholder Services....................................................... B- 6
Investment Limitations..................................................... B- 7
Management of the Fund..................................................... B- 9
Portfolio Transactions..................................................... B-12
Calculation of Yield (Admiral U.S. Treasury Money Market Portfolio)........ B-12
Yield and Total Return..................................................... B-13
Performance Measures....................................................... B-14
Tax Advantage of U.S. Treasury Income...................................... B-16
Other Definitions.......................................................... B-17
Financial Statements....................................................... B-17
Appendix--Description of Securities and Ratings............................ B-18
</TABLE>

INVESTMENT OBJECTIVES AND POLICIES

The following policies supplement the investment objectives and policies set
forth in the Fund's Prospectus:

REPURCHASE AGREEMENTS. The Admiral Short-Term, Intermediate-Term, and Long-
Term U.S. Treasury Portfolios may invest in repurchase agreements with commer-
cial banks, brokers or dealers either for defensive purposes due to market
conditions or to generate income from its excess cash balances. A repurchase
agreement is an agreement under which the Portfolio acquires a money market
instrument (generally a security issued by the U.S. Government or an agency
thereof, a banker's acceptance or a certificate of deposit) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed upon
price and date (normally, the next business day). A repurchase agreement may
be considered a loan collateralized by securities. The resale price reflects
an agreed upon interest rate effective for the period the instrument is held
by the Portfolio and is unrelated to the interest rate on the underlying in-
strument. In these transactions, the securities acquired by the Portfolio (in-
cluding accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement and are held by a custodian bank until
repurchased. In addition, the Fund's Board of Directors will monitor a Portfo-
lio's repurchase agreement transactions generally and will establish guide-
lines and standards for review by the investment adviser of the creditworthi-
ness of any bank, broker or dealer party to a repurchase agreement with the
Portfolio. No more than an aggregate of 15% of the Admiral Short-Term, Inter-
mediate-Term, and Long-Term U.S. Treasury

B-1
<PAGE>

Portfolios' net assets, at the time of investment, will be invested in repur-
chase agreements having maturities longer than seven days and securities sub-
ject to legal or contractual restrictions on resale for which there are no
readily available market quotations. From time to time, the Fund's Board of
Directors may determine that certain restricted securities known as Rule 144A
securities are liquid and not subject to the 15% limitation described below.

The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligation to repurchase the un-
derlying security at a time when the value of the security has declined, the
Portfolio may incur a loss upon disposition of the security. If the other
party to the agreement becomes insolvent and subject to liquidation or reorga-
nization under the Bankruptcy Code or other laws, a court may determine that
the underlying security is collateral for a loan by the Portfolio not within
the control of the Portfolio and therefore the realization by the Portfolio on
such collateral may be automatically stayed. Finally, it is possible that the
Portfolio may not be able to substantiate its interest in the underlying secu-
rity and may be deemed an unsecured creditor of the other party to the agree-
ment. While each Portfolio's management acknowledges these risks, it is ex-
pected that they can be controlled through careful monitoring procedures.

LENDING OF SECURITIES. The Admiral Short-Term, Intermediate-Term, and Long-
Term U.S. Treasury Portfolios may lend their investment securities to quali-
fied brokers, dealers, banks or other financial institutions, so long as the
terms and the structure of such loans are not inconsistent with the Investment
Company Act of 1940, as amended, or the Rules and Regulations or interpreta-
tions of the Securities and Exchange Commission thereunder, which currently
require that: (a) the borrower pledge and maintain with the Portfolio collat-
eral consisting of cash, and irrevocable letter of credit or securities issued
or guaranteed by the United States Government having a value at all times not
less than 100 percent of the value of the securities loaned, (b) the borrower
add to such collateral whenever the price of the securities loaned rises
(i.e., the borrower "marks to the market" on a daily basis), (c) the loan be
made subject to termination by the Portfolio at any time, and (d) the Portfo-
lio receive reasonable interest on the loan (which may include the Portfolio's
investing any cash collateral in interest bearing short-term investments), and
distributions on the loaned securities and any increase in their market value.
Each Portfolio will not lend securities if, as a result, the aggregate of such
loans exceeds 33 1/3% of the value of the Portfolio's total assets. Loan ar-
rangements made by the Fund will comply with all other applicable regulatory
requirements, including the rules of the New York Stock Exchange, which rules
presently require the borrower, after notice, to redeliver the securities
within the normal settlement time of three business days.

RESTRICTED AND ILLIQUID SECURITIES. Each Portfolio except Admiral U.S. Trea-
sury Money Market Portfolio may invest in restricted securities (privately
placed debt securities) and other securities which are not readily marketable,
but will not acquire illiquid securities if as a result such illiquid securi-
ties would comprise more than 15% of the value of the Portfolio's net assets.

Restricted securities are securities which are not freely marketable or
which are subject to restrictions upon sale under the Securities Act of 1933.
Restricted securities may be sold only to qualified institutional purchasers
in privately negotiated transactions, or in a public offering with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, a Portfolio may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Portfolio may be permitted
to sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the Portfolio might ob-
tain a less favorable price than prevailed when it decided to sell. Restricted
securities will be priced at fair value as determined in good faith by the
Board of Directors. If through the appreciation of restricted securities or
the depreciation of unrestricted securities, a Portfolio should be in a posi-
tion where more than 15% of the value of its net assets are invested in illiq-
uid assets, including restricted securities, the Portfolio will take appropri-
ate steps to protect liquidity.

B-2
<PAGE>

Pursuant to Rule 144A under the Securities Act of 1933, as amended, if a
substantial market among qualified institutional buyers develops for such re-
stricted securities held by any of these three Portfolios, the Fund intends to
treat such securities as liquid securities, in accordance with procedures ap-
proved by the Fund's Board of Directors.

FUTURES CONTRACTS AND OPTIONS. Each Portfolio except Admiral U.S. Treasury
Money Market Portfolio may enter into futures contracts, options, and options
on futures contracts for several reasons: to simulate full investment in the
underlying securities while retaining a cash balance for Fund management pur-
poses, to facilitate trading, to reduce transaction costs, or to seek higher
investment returns when a futures contract is priced more attractively than
other futures contracts or the underlying security or index. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument or index are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity Ex-
change Act by the Commodity Futures Trading Commission ("CFTC"), a U.S. Gov-
ernment Agency. Assets committed to futures contracts will be segregated at
the Fund's custodian bank to the extent required by law.

Although futures contracts by their terms call for actual delivery or ac-
ceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Clos-
ing out an open futures position is done by taking an opposite position ("buy-
ing" a contract which has previously been "sold," or "selling" a contract pre-
viously purchased) in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.

Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure comple-
tion of the contract (delivery or acceptance of the underlying security) if it
is not terminated prior to the specified delivery date. Minimal initial margin
requirements are established by the futures exchange and may be changed. Bro-
kers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin de-
posits which may range upward from less than 5% of the value of the contract
being traded.

After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the con-
tract value may reduce the required margin, resulting in a repayment of excess
margin to the contract holder. Variation margin payments are made to and from
the futures broker for as long as the contract remains open. The Portfolios
expect to earn interest income on their margin deposits.

Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset unfavor-
able changes in the value of securities otherwise held for investment purposes
or expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of underlying securities. The Portfolios intend to use futures con-
tracts only for bona fide hedging purposes.

Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions except to the
extent that the aggregate initial margins and premiums required to establish
any non-hedging positions do not exceed five percent of the value of the
Fund's portfolio. A Portfolio will only sell futures contracts to protect se-
curities or other futures contracts it owns against price declines or purchase
contracts to protect against an increase in the price of securities or other
futures contracts it intends to purchase.

B-3
<PAGE>

Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolio's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this expo-
sure. While a Portfolio will incur commission expenses in both opening and
closing out futures positions, these costs are lower than transactional costs
incurred in the purchase and sale of the underlying securities.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Admiral Short-Term, Inter-
mediate-Term, and Long-Term U.S. Treasury Portfolios will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of each Portfolio's total assets. In addition these three Admiral Port-
folios will not enter into futures contracts to the extent that their out-
standing obligations to purchase securities under these contracts would exceed
20% of the Portfolio's total assets.

RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market
will exist for any particular futures contract at any specific time. Thus, it
may not be possible to close a futures position. In the event of adverse price
movements, a Portfolio would continue to be required to make daily cash pay-
ments to maintain its required margin. In such situations, if the Portfolio
has insufficient cash, it may have to sell portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In ad-
dition, the Portfolio may be required to make delivery of the instruments un-
derlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the ability to effec-
tively hedge it.

A Portfolio will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.

The risk of loss in trading futures contracts in some strategies can be sub-
stantial, due both to the low margin deposits required, and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and sub-
stantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin,
a subsequent 10% decrease in the value of the futures contract would result in
a total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Portfolios are engaged in only for hedging purposes, the Ad-
viser does not believe that the Portfolios are subject to the risks of loss
frequently associated with futures transactions. The Portfolios would presuma-
bly have sustained comparable losses if, instead of the futures contract, they
had invested in the underlying financial instrument and sold it after the de-
cline.

Use of futures transactions by a Portfolio does involve the risk of imper-
fect or no correlation where the securities underlying futures contracts have
different maturities than the portfolio securities being hedged. It is also
possible that a Portfolio could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option. Additionally, investments in futures and options involve the
risk that the investment adviser will incorrectly predict stock market and in-
terest rate trends.

B-4
<PAGE>

Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades
may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the liquidation of unfa-
vorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of future positions and subjecting some
futures traders to substantial losses.

FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Each Portfolio is required for
Federal income tax purposes to recognize as income for each taxable year its
net unrealized gains and losses on certain futures contracts held as of the
end of the year as well as those actually realized during the year. In most
cases, any gain or loss recognized with respect to a futures contract is con-
sidered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the contract. Further-
more, sales of futures contracts which are intended to hedge against a change
in the value of securities held by the Portfolio may affect the holding period
of such securities and, consequently, the nature of the gain or loss on such
securities upon disposition. A Portfolio may be required to defer the recogni-
tion of losses on futures contracts to the extent of any unrecognized gains on
related positions held by the Portfolio.

In order for a Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of se-
curities or of foreign currencies or other income derived with respect to the
Portfolio's business of investing in securities or currencies. It is antici-
pated that any net gain realized from the closing out of futures contracts
will be considered gain from the sale of securities and therefore be qualify-
ing income for purposes of the 90% requirement.

A Portfolio will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes (including
unrealized gains at the end of the Portfolio's fiscal year) on futures trans-
actions. Such distributions will be combined with distributions of capital
gains realized on the Portfolio's other investments and shareholders will be
advised on the nature of the transactions.

PURCHASE OF SHARES

Each Portfolio reserves the right in its sole discretion: (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum investment for or any other restrictions on ini-
tial and subsequent investments for certain fiduciary accounts such as em-
ployee benefit plans or under circumstances where certain economies can be
achieved in sales of the Portfolio's shares.

REDEMPTION OF SHARES

Each Portfolio may suspend redemption privileges or postpone the date of
payment: (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Securities and Ex-
change Commission (the "Commission"), (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of which it is
not reasonably practicable for a Portfolio to dispose of securities owned by
it, or fairly to determine the value of its assets, and (iii) for such other
periods as the Commission may permit.

B-5
<PAGE>

The Fund has made an election with the Commission to pay in cash all redemp-
tions requested by any shareholder of record limited in amount during any 90-
day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part, in readily marketable investment securities or in
cash, as the Directors may deem advisable; however, payment will be made
wholly in cash unless the Directors believe that economic or market conditions
exist which would make such a practice detrimental to the best interests of
the Fund. If redemptions are paid in investment securities, such securities
will be valued as set forth in the Prospectus under "The Share Price of Each
Portfolio" and a redeeming shareholder would normally incur brokerage expenses
if he converted these securities to cash.

No charge is made by a Portfolio for redemptions. Any redemption may be more
or less than the shareholder's cost depending on the market value of the secu-
rities held by the Portfolio.

SIGNATURE GUARANTEES. To protect your account, the Fund and Vanguard from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Fund to verify the identity of the person who has autho-
rized a redemption from your account. SIGNATURE GUARANTEES ARE REQUIRED IN
CONNECTION WITH: (1) ALL REDEMPTIONS, REGARDLESS OF THE AMOUNT INVOLVED, WHEN
THE PROCEEDS ARE TO BE PAID TO SOMEONE OTHER THAN THE REGISTERED OWNER(S),
AND/OR TO AN ADDRESS OTHER THAN THE ADDRESS OF RECORD; AND (2) SHARE TRANSFER
REQUESTS. These requirements are not applicable to redemptions in Vanguard's
prototype retirement plans, except in connection with: (1) distributions made
when the proceeds are to be paid to someone other than the plan participant;
(2) certain authorizations to effect exchanges by telephone; and (3) when pro-
ceeds are to be wired. These requirements may be waived by the Fund in certain
instances.

A guarantor must be a bank, broker, or any other guarantor that Vanguard
deems acceptable. NOTARIES PUBLIC ARE NOT ACCEPTABLE GUARANTORS.

The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Fund are also
being redeemed, on the letter or stock power.

SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE. Each Portfolio's shares may be exchanged without cost
for shares of any other Portfolio, or for the shares of any open-end Fund cur-
rently offering its shares to new investors in The Vanguard Group ("Van-
guard"). A shareholder of any other Vanguard Fund may likewise exchange his
shares for shares of any of the Fund's Portfolios. Exchange requests may be
made either by mail, telephone or online. For information about online ex-
changes, please refer to "Exchanging Online" in the Shareholder Guide of the
Fund's Prospectus.

Telephone exchanges (referred to as "expedited exchanges") will be accepted
only if the account of the shareholder and the registration of the two ac-
counts are identical. Requests for expedited exchanges received prior to the
close of the New York Stock Exchange (the "Exchange"), generally 4:00 p.m.
Eastern time, will be processed at the next determined net asset value after
such request is received. Requests received after the close of the Exchange
will be processed on the next business day. NO EXPEDITED EXCHANGES WILL BE AC-
CEPTED INTO, OR FROM, VANGUARD INDEX TRUST, VANGUARD REIT INDEX PORTFOLIO,
VANGUARD TOTAL INTERNATIONAL PORTFOLIO, VANGUARD BALANCED INDEX FUND, VANGUARD
INTERNATIONAL EQUITY INDEX FUND, or VANGUARD GROWTH AND INCOME PORTFOLIO (for-
merly known as Vanguard Quantitative Port -

B-6
<PAGE>

folios). Neither the Fund nor Vanguard will be responsible for the authentic-
ity of exchange instructions received by telephone. Expedited exchanges may
also be subject to limitations as to amounts and frequency, and to other re-
strictions established by the Board of Directors to assure that such exchanges
do not disadvantage the Fund and its shareholders. Shareholders may obtain the
terms of these limitations, which may be revised at any time, from Vanguard.

Any such exchange will be based on the respective net asset values of the
shares involved. There are no sales commissions or charges of any kind. Before
making an exchange, a shareholder should consider the investment objectives
and policies of the Portfolio or Fund to be purchased, and other relevant in-
formation (including the minimum initial investment), which can be found in
the prospectus relating to that particular Portfolio or Fund. A prospectus for
any of the Vanguard Funds or Portfolios may be obtained from Vanguard.

For Federal income tax purposes an exchange between Funds or Portfolios is a
taxable event and, accordingly, a capital gain or loss may be realized. In a
revenue ruling relating to circumstances similar to the Fund's, an exchange
between series of a Fund was also deemed to be a taxable event. It is likely,
therefore, that a capital gain or loss would be realized on an exchange be-
tween Portfolios; you may want to consult your tax adviser for further infor-
mation in this regard. The exchange privilege may be modified or terminated at
any time, and any of the Portfolios or Vanguard Funds may limit or discontinue
the offering of its shares without notice to shareholders.

TRANSFER OF SHARES. Fund shares may be transferred to another person by
sending appropriate written instructions to Vanguard. The account must be
clearly identified and include the number of shares or dollar amount to be
transferred and the signatures of all registered owners. The signature on the
letter of instructions or any stock power must be guaranteed. As in the case
of withdrawals, the written request must be received in "Good Order" before
any transfer can be made.

INFORMATION FOR SHAREHOLDERS. Following any purchase or redemption, a share-
holder will receive a statement which reflects all activity during the current
calendar year. Each shareholder will also receive a quarterly statement, which
includes valuation as of the day the statement is prepared.

Shareholders will receive semiannual financial statements audited at least
annually by independent accountants whose selection is ratified by sharehold-
ers.

INVESTMENT LIMITATIONS

The Fund is subject to the following limitations which may not be changed
with respect to a particular Portfolio without the approval of at least a ma-
jority of the outstanding voting securities (as defined in the Investment Com-
pany Act of 1940) of that Portfolio. A Portfolio will not:

(1) Invest in commodities or commodity contracts or purchase or sell real
estate, although it may purchase and sell marketable securities of compa-
nies which deal in real estate or interests therein; except that Admiral
Short-Term, Intermediate-Term, and Long-Term U.S. Treasury Portfolios may
invest in bond futures contracts, bond options and options on bond futures
contracts to the extent that not more than 5% of its assets are required as
deposit margin for futures contracts and not more than 20% of its assets
are invested in such instruments at any time;

(2) Write, purchase or sell warrants, put or call options, or combina-
tions thereof, except as specified above in (1);

(3) invest in interests in oil, gas, or other mineral exploration or de-
velopment programs;

(4) Make loans to other persons (except by (i) the purchase of the debt
obligations in which the Portfolio is authorized to invest in accordance
with its investment policies, and (ii) as provided under "Lending of Secu-
rities" on page B-2);

B-7
<PAGE>

(5) Purchase securities on margin or sell securities short, except as
specified above in (1);

(6) With respect to 75% of the value of its total assets (100% for the
Admiral U.S. Treasury Money Market Portfolio), purchase the securities of
any issuer (except obligations of the United States government and its in-
strumentalities) if as a result the Portfolio would hold more than 10% of
the outstanding voting securities of the issuer, or more than 5% of the
value of the Portfolio's total assets would be invested in the securities
of such issuer;

(7) Borrow money, except for temporary or emergency purposes and not in
excess of 15% of the value of the Portfolio's assets taken at the lower of
their market value or cost;

(8) Pledge, mortgage or hypothecate the Portfolio's assets to an extent
greater than 15% of the value of its total assets;

(9) Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in disposing
of investment securities;

(10) Purchase a security which is subject to legal or contractual re-
strictions on resale or for which there is no readily available market or
engage in a repurchase agreement maturing in more than seven days if, as a
result thereof, more than 15% of the Portfolio's net assets (any of the
Portfolio's net assets in the case of Admiral U.S. Treasury Money Market
Portfolio) (taken at current value) would be invested in such securities;

(11) Invest for the purpose of controlling management of any company;

(12) Invest in securities of other investment companies, except as they
may be acquired as a part of a merger, consolidation or acquisition of as-
sets approved by the Fund's shareholders or otherwise to the extent permit-
ted by Section 12 of the 1940 Act. The Fund will invest only in investment
companies which have investment objectives and investment policies consis-
tent with those of the Fund.

(13) Concentrate its investments in a particular industry, although it
may invest up to 25% of the Portfolio's total assets (taken at value) in
the securities of issuers, all of which conduct their principal business
activities in the same industry, provided that (i) this limitation does not
apply to obligations issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities, and (ii) utility companies will be divided
according to their services; for example, gas, gas transmission, electric
and gas, electric, and telephone will each be considered a separate indus-
try; or

(14) Issue senior securities.

The above-referenced investment limitations are considered at the time that
portfolio securities are purchased. Notwithstanding these limitations, the
Fund may own all or any portion of the securities of, or make loans to, or
contribute to the costs or other financial requirements of any company which
will be wholly owned by the Fund and one or more other investment companies
and is primarily engaged in the business of providing, at cost, management,
administrative or related services to the Fund and other investment companies.
See "MANAGEMENT OF THE FUND."

B-8
<PAGE>

MANAGEMENT OF THE FUND

DIRECTORS AND OFFICERS The Officers of the Fund manage its day-to-day opera-
tions and are responsible to the Fund's Board of Directors. The Directors set
broad policies for the Fund and choose its Officers. The following is a list
of the Directors and Officers of the Fund and a statement of their present po-
sitions and principal occupations during the past five years. The mailing ad-
dress of the Directors and Officers of the Fund is Post Office Box 876, Valley
Forge, PA 19482.

JOHN C. BOGLE, (DOB: 5/8/1929) Se- ALFRED M. RANKIN, JR., (DOB:
nior Chairman and Director* 10/8/1941) Director
Senior Chairman and Director of Chairman, President, and Chief Ex-
the Vanguard Group, Inc., and each ecutive Officer of NACCO Indus-
of the investment companies in The tries; Director of NACCO Indus-
Vanguard Group; Director of the tries, Inc.; Director of The
Mead Corporation, General Accident BFGoodrich Company and The Standard
Insurance and Chris-Craft Indus- Products Company.
tries, Inc.
JOHN C. SAWHILL, (DOB: 6/12/1936)
JOHN J. BRENNAN, (DOB: 7/29/1954) Director
Chairman, Chief Executive Officer President and Chief Executive Offi-
and Director* cer of The Nature Conservancy; for-
Chairman, Chief Executive Officer merly, Director and Senior Partner
and Director of The Vanguard of McKinsey & Co. and President of
Group, Inc. and each of the in- New York University; Director of
vestment companies in The Vanguard Pacific Gas and Electric Company,
Group. Procter & Gamble Company and NACCO
Industries.
ROBERT E. CAWTHORN, (DOB: 9/28/1935)
Director JAMES O. WELCH, JR., (DOB:
Chairman Emeritus and Director of 5/13/1931) Director
Rhone-Poulenc Rorer, Inc.; Manag- Retired Chairman of Nabisco Brands,
ing Director of Global Health Care Inc.; retired Vice Chairman and Di-
Partners/DLJ Merchant Banking rector of RJR Nabisco; Director of
Partners; Director of Sun Company, TECO Energy, Inc. and Kmart Corpo-
Inc., and Westinghouse Electric ration.
Corporation.
J. LAWRENCE WILSON, (DOB: 3/2/1936)
BARBARA BARNES HAUPTFUHRER, (DOB: Director
10/11/1928) Director Chairman and Chief Executive Offi-
Director of The Great Atlantic and cer of Rohm & Haas Company; Direc-
Pacific Tea Company, IKON Office tor of Cummins Engine Company, and
Solutions, Inc., Raytheon Company, The Mead Corporation; and Trustee
Knight-Ridder, Inc., Massachusetts of Vanderbilt University.
Mutual Life Insurance Co., and La-
dies Professional Golf Associa- RAYMOND J. KLAPINSKY, (DOB:
tion; and Trustee Emerita of 12/7/1938) Secretary*
Wellesley College. Managing Director and Secretary of
The Vanguard Group, Inc.; Secretary
BRUCE K. MACLAURY, (DOB: 5/7/1931) of each of the investment companies
Director in The Vanguard Group.
President Emeritus of The
Brookings Institution; Director of RICHARD F. HYLAND, (DOB: 3/22/1937)
American Express Bank, Ltd., The Treasurer*
St. Paul Companies, Inc. and Na- Treasurer of The Vanguard Group,
tional Steel Corporation. Inc. and of each of the investment
companies in The Vanguard Group.
BURTON G. MALKIEL, (DOB: 8/28/1932)
Director KAREN E. WEST, (DOB: 9/13/1946) Con-
Chemical Bank Chairman's Professor troller*
of Economics, Princeton Universi- Principal of The Vanguard Group,
ty; Director of Prudential Insur- Inc.; Controller of each of the in-
ance Co. of America, Amdahl Corpo- vestment companies in The Vanguard
ration, Baker Fentress & Co., The Group.
Jeffrey Co., and Southern New En- --------
gland Telecommunications Company. * Officers of the Fund are "inter-
ested persons" as defined in the
Investment Company Act of 1940.

B-9
<PAGE>

THE VANGUARD GROUP. The Fund is a member of The Vanguard Group of Investment
Companies. Through their jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other Funds in the group obtain at cost virtu-
ally all of their corporate management, administrative and distribution serv-
ices. Vanguard also provides investment advisory services on an at-cost basis
to certain of the Vanguard Funds.

Vanguard employs a supporting staff of management and administrative per-
sonnel needed to provide the requisite services to the Funds and also fur-
nishes the Funds with necessary office space, furnishings and equipment. Each
Fund pays its share of Vanguard's net expenses which are allocated among the
Funds under methods approved by the Board of Directors (Trustees) of each
Fund. In addition, each Fund bears its own direct expenses, such as legal, au-
diting and custodian fees.

The Vanguard Group adheres to a Code of Ethics established pursuant to Rule
17j-1 under the Investment Company Act of 1940. The Code is designed to pre-
vent unlawful practices in connection with the purchase or sale of securities
by persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are per-
mitted to engage in personal securities transactions. However, such transac-
tions are subject to procedures and guidelines substantially similar to those
recommended by the mutual fund industry and approved by the U.S. Securities
and Exchange Commission.

The Vanguard Group was established and operates under a Funds' Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts which each of the Funds has invested are adjusted from time to time in
order to maintain the proportionate relationship between each Fund's relative
net assets and its contribution to Vanguard's capital. At January 31, 1998,
the Fund had contributed capital of $370,000 to Vanguard representing 1.8% of
Vanguard's capitalization. The Funds' Service Agreement provides for the fol-
lowing arrangement: (1) each Vanguard Fund may invest a maximum of 0.40% of
its assets in Vanguard and (2) there is no restriction on the maximum cash in-
vestment that the Vanguard Funds may make in Vanguard.

MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian rela-
tionships; (6) shareholder reporting; and (7) review and evaluation of advi-
sory and other services provided to the Funds by third parties. The Fund's
share of Vanguard's actual net costs of operation relating to management and
administrative services (including transfer agency) for the fiscal year ended
January 31, 1998, totaled approximately $4,959,000.

DISTRIBUTION. Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for shares of the
Funds, in connection with any sales made directly to investors in the states
of Florida, Missouri, New York, Ohio, Texas and such other states as it may be
required.

The principal distribution expenses are for advertising, promotional materi-
als and marketing personnel. Distribution services may also include organizing
and offering to the public, from time to time, one or more new investment com-
panies which will become members of the Group. The Directors and Officers of
Vanguard determine the amount to be spent annually on distribution activities,
the manner and amount to be spent on each Fund, and whether to organize new
investment companies.

One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon their relative net assets. The remain-
ing one half of these expenses is allocated among the Funds based upon each
Fund's sales for the preceding 24 months relative to the total sales of the
Funds as a Group, provided, however, that no Fund's aggregate quarterly rate
of contri-

B-10
<PAGE>

bution for distribution expenses of a marketing and promotional nature shall
exceed 125% of the average distribution expense rate for the Group, and that
no Fund shall incur annual distribution expenses in excess of 20/100 of 1% of
its average month-end net assets. During the fiscal year ended January 31,
1998, the Fund paid approximately $1,628,000 of the Group's distribution and
marketing expenses, which represented an effective annual rate of .03 of 1% of
the Fund's average net assets.

INVESTMENT ADVISORY SERVICES. Vanguard also provides investment advisory
services to the Fund; Vanguard Municipal Bond Fund; Vanguard Money Market Re-
serves; Vanguard Treasury Fund; several Portfolios of Vanguard Fixed Income
Securities Fund; Vanguard Institutional Index Fund; Vanguard Bond Index Fund;
Vanguard California Tax-Free Fund; Vanguard Florida Insured Tax-Free Fund;
Vanguard New Jersey Tax-Free Fund; Vanguard New York Tax-Free Fund; Vanguard
Ohio Tax-Free Fund; Vanguard Pennsylvania Tax-Free Fund; Vanguard Balanced In-
dex Fund; Vanguard Index Trust; Vanguard International Equity Index Fund; Van-
guard Tax-Managed Fund; the Aggressive Growth Portfolio of Vanguard Horizon
Fund; the REIT Index Portfolio of Vanguard Specialized Portfolios; the Total
International Portfolio of Vanguard STAR Fund; several Portfolios of Vanguard
Variable Insurance Fund; a portion of Vanguard/Windsor II; a portion of
Vanguard/Morgan Growth Fund; a portion of Vanguard Explorer Fund; as well as
several indexed separate accounts. These services are provided on an at-cost
basis from a money management staff employed directly by Vanguard. The invest-
ment management staff is supervised by the senior Officers of the Fund who are
directly responsible to the Board of Directors of the Fund. The Board of Di-
rectors, elected annually by shareholders, sets broad policies for the Fund
and chooses its Officers. The compensation and other expenses of this staff
are paid by the Funds utilizing these services.

DIRECTOR/TRUSTEE COMPENSATION

The individuals in the table on page B-12 serve as Directors/Trustees of all
Vanguard Funds, and each Fund pays a proportionate share of the
Directors'/Trustees' compensation. The Funds employ their officers on a shared
basis, as well. However, officers are compensated by The Vanguard Group, Inc.,
not the Funds.

INDEPENDENT DIRECTORS/TRUSTEES. The Funds compensate their independent
Directors/Trustees--that is, the ones who are not also officers of the Fund--
in three ways:

. The independent Directors/Trustees receive an annual fee for their service
to the Funds, which is subject to reduction based on absences from sched-
uled Board meetings.

. The independent Directors/Trustees are reimbursed for the travel and other
expenses that they incur in attending Board meetings.

. Upon retirement, the independent Directors/Trustees receive an aggregate
annual fee of $1,000 for each year served on the Board, up to fifteen years
of service. This annual fee is paid for ten years following retirement, or
until the Directors'/Trustees' death.

"INTERESTED" DIRECTORS/TRUSTEES. The Funds' interested Directors/Trustees--
Messrs. Bogle and Brennan--receive no compensation for their service in that
capacity. However, they are paid in their role as officers of The Vanguard
Group, Inc.

COMPENSATION TABLE. The following table provides compensation details for
each of the Directors. For the Fund, we list the amounts paid as compensation
and accrued as retirement benefits by the Fund for each Director. In addition,
the table shows the total amount of benefits that we expect each
Director/Trustee to receive from all Vanguard Funds upon retirement, and the
total amount of compensation paid to each Director/Trustee by all Vanguard
Funds. All information shown is for the fiscal year ended January 31, 1998:

B-11
<PAGE>

VANGUARD ADMIRAL FUNDS
COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT FROM ALL
AGGREGATE BENEFITS ACCRUED ESTIMATED VANGUARD FUNDS
COMPENSATION AS PART OF ANNUAL BENEFITS PAID TO
NAMES OF DIRECTORS FROM FUND FUND EXPENSES UPON RETIREMENT DIRECTORS(2)
------------------ ------------ ---------------- --------------- ------------------
<S> <C> <C> <C> <C>
John C. Bogle(1)........ None None None None
John J. Brennan(1)...... None None None None
Barbara Barnes
Hauptfuhrer............ $1,087 $157 $15,000 $70,000
Robert E. Cawthorn...... $1,087 $131 $13,000 $70,000
Bruce K. MacLaury....... $1,159 $149 $12,000 $65,000
Burton G. Malkiel....... $1,094 $105 $15,000 $70,000
Alfred M. Rankin, Jr. .. $1,087 $ 83 $15,000 $70,000
John C. Sawhill......... $1,087 $ 98 $15,000 $70,000
James O. Welch, Jr. .... $1,087 $121 $15,000 $70,000
J. Lawrence Wilson...... $1,087 $ 87 $15,000 $70,000
</TABLE>
- --------
(1) As "Interested Directors," Messrs. Bogle and Brennan receive no compensa-
tion for their service.

(2) The amounts reported in this column reflect the total compensation paid to
each Director for their service as Director or Trustee of 35 Vanguard
Funds (34 in the case of Mr. Malkiel; 28 in the case of Mr. MacLaury).

PORTFOLIO TRANSACTIONS

Brokers or dealers who execute transactions for the four Portfolios are se-
lected by Vanguard's investment management staff which is responsible for us-
ing its best efforts to obtain the best available price and most favorable ex-
ecution for each transaction. Principal transactions are made directly with
issuers, underwriters and market makers and usually do not involve brokerage
commissions, although underwriting commissions and dealer markups may be in-
volved. Brokerage transactions are placed with brokers deemed most capable of
providing favorable terms; where more than one broker can offer such terms,
consideration may be given to brokers who provide the staff with research and
statistical information.

Vanguard's investment management staff may occasionally make recommendations
to other Vanguard Funds or clients which result in their purchasing or selling
securities simultaneously with the Portfolios. As a result, the demand for se-
curities being purchased or the supply of securities being sold may increase,
and this could have an adverse effect on the price of those securities. It is
the staff's policy not to favor one client over another in making recommenda-
tions or placing an order. If two or more clients are purchasing a given secu-
rity on the same day from the same broker-dealer, such transactions may be av-
eraged as to price.

The Fund paid no explicit brokerage commissions during the fiscal years ended
January 31, 1996, 1997 and 1998.

CALCULATION OF YIELD (ADMIRAL U.S. TREASURY MONEY MARKET PORTFOLIO)

The current yield of the Admiral U.S. Treasury Money Market Portfolio is
calculated daily on a base period return of a hypothetical account having a
beginning balance of one share for a particular period of time (generally 7
days). The return is determined by dividing the net change (exclusive of any
capital changes) in such account by its average net asset value for the peri-
od, and then multi-

B-12
<PAGE>

plying it by 365/7 to get the annualized current yield. The calculation of net
change reflects the value of additional shares purchased with the dividends by
the Portfolio, including dividends on both the original share and on such ad-
ditional shares. An effective yield, which reflects the effects of compounding
and represents an annualization of the current yield with all dividends rein-
vested, may also be calculated for the Portfolio by dividing the base period
return by 7, adding 1 to the quotient, raising the sum to the 365th power, and
subtracting 1 from the result.

Set forth below is an example, for purposes of illustration only, of the
current and effective yield calculations for the Money Market Portfolio for
the 7-day base period ending January 31, 1998.

<TABLE>
<CAPTION>
ADMIRAL U.S. TREASURY
----------------------
MONEY MARKET PORTFOLIO
----------------------
1/31/98
----------------------
<S> <C>
Value of account at beginning of period.................. $1.00000
Value of same account at end of period*.................. 1.00101
--------
Net Change in account value.............................. $ .00101
Annualized Current Net Yield
(Net Change X 365/7) / average net asset value.......... 5.25%
Effective Yield
[(Net Change) + 1]/3//6//5///7/ - 1..................... 5.38%
Average Weighted Maturity of Investments................. 56 days
</TABLE>
- --------
* Exclusive of any capital changes.

The net asset value of a share of the Admiral U.S. Treasury Money Market
Portfolio is $1.00 and it is not expected to fluctuate. However, the yield of
the Portfolio will fluctuate. The annualization of a week's dividend is not a
representation by the Portfolio as to what an investment in the Portfolio will
actually yield in the future. Actual yields will depend on such variables as
investment quality, average maturity, the type of instruments the Portfolio
invests in, changes in interest rates on instruments, changes in the expenses
of the Fund, and other factors. Yields are one basis investors may use to ana-
lyze the Portfolios of the Fund, and other investment vehicles; however,
yields of other investment vehicles may not be comparable because of the fac-
tors set forth in the preceding sentence, differences in the time periods com-
pared, and differences in the methods used in valuing portfolio instruments,
computing net asset value, and calculating yield.

YIELD AND TOTAL RETURN

The yield of each Portfolio of the Fund for the 30-day period ended January
31, 1998 is set forth below. Yields are calculated daily for each Portfolio.

<TABLE>
<S> <C>
Admiral U.S Treasury Money Market Portfolio............................... 5.25%
Admiral Short-Term U.S. Treasury Portfolio................................ 5.35%
Admiral Intermediate-Term U.S. Treasury Portfolio......................... 5.49%
Admiral Long-Term U.S. Treasury Portfolio................................. 5.80%
</TABLE>

B-13
<PAGE>

The average annual total return of each Portfolio of the Fund for the one-
and five-year periods ended January 31, 1998 and since inception on December
14, 1992 is set forth below:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS
ENDED ENDED SINCE
1/31/98 1/31/98 INCEPTION*
------- ------- ----------
<S> <C> <C> <C>
Admiral U.S. Treasury Money Market Portfolio......... 5.31% 4.67% 4.63%
Admiral Short-Term U.S. Treasury Portfolio........... 7.21% 5.69% 6.02%
Admiral Intermediate-Term U.S. Treasury Portfolio.... 10.98% 7.24% 7.81%
Admiral Long-Term U.S. Treasury Portfolio............ 17.05% 9.55% 10.13%
</TABLE>
- --------
* Since Inception: December 14, 1992.

Total Return is computed by finding the average compounded rates of return
over the periods set forth above that would equate an initial amount invested
at the beginning of the periods to the ending redeemable value of the invest-
ment.

PERFORMANCE MEASURES

Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member funds of The Vanguard Group of Investment Companies.

Each of the investment company members of The Vanguard Group, including each
Portfolio of Vanguard Admiral Funds, Inc., may, from time to time, use one or
more of the following unmanaged indices for comparative performance purposes.

STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX--is a well diversified
list of 500 companies representing the U.S. Stock Market.

STANDARD & POOR'S MIDCAP 400 INDEX--is composed of 400 medium sized domestic
stocks.

STANDARD & POOR'S SMALLCAP 600/BARRA VALUE INDEX--contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.

STANDARD & POOR'S SMALLCAP 600/BARRA GROWTH INDEX--contains stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.

RUSSELL 1000 VALUE INDEX--consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios, comprising 50% of the
market capitalization of the Russell 1000.

WILSHIRE 5000 EQUITY INDEX--consists of more than 7,000 common equity securi-
ties, covering all stocks in the U.S. for which daily pricing is available.

WILSHIRE 4500 EQUITY INDEX--consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.

MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX--is an arithmetic, market val-
ue-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia, Asia and the Far East.

GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX--currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for convert-
ible issues of $100 million or greater in market capitalization. The index is
priced monthly.

B-14
<PAGE>

SALOMON BROTHERS GNMA INDEX--includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mort-
gage Association.

SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years
or greater.

LEHMAN LONG-TERM TREASURY BOND INDEX--is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.

MERRILL LYNCH CORPORATE & GOVERNMENT BOND INDEX--consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.

LEHMAN CORPORATE (BAA) BOND INDEX--all publicly offered fixed-rate, noncon-
vertible domestic corporate bonds rated Baa by Moody's, with a maturity longer
than 1 year and with more than $25 million outstanding. This index includes
over 1,000 issues.

LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX--is a subset of the Lehman Cor-
porate Bond Index covering all corporate, publicly issued, fixed-rate noncon-
vertible U.S. debt issues rated at least Baa, with at least $50 million prin-
cipal outstanding and maturity greater than 10 years.

BOND BUYER MUNICIPAL BOND INDEX--is a yield index on current-coupon high-grade
general-obligation municipal bonds.

STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average
yield for four high-grade, non-callable preferred stock issues.

NASDAQ INDUSTRIAL INDEX--is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.

COMPOSITE INDEX--70% Standard & Poor's 500 Index and 30% NASDAQ Industrial In-
dex.

COMPOSITE INDEX--65% Standard & Poor's 500 Index and 35% Lehman Long-Term Cor-
porate AA or Better Bond Index.

COMPOSITE INDEX--65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's/BARRA Value
Index, 12.5% Standard & Poor's Utilities Index and 12.5% Standard & Poor's
Telephone Index).

LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX--consists of all publicly
issued, fixed-rate, nonconvertible investment grade, dollar-denominated, SEC-
registered corporate debt rated AA or AAA.

LEHMAN BROTHERS AGGREGATE BOND INDEX--is a market-weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-
through securities corporate rated Baa or better. The Index has a market value
of over $4 trillion.

LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX--is a mar-
ket-weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB--or better with maturities be-
tween 1 and 5 years. The Index has a market value of over $1.6 trillion.

LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX--is
a market-weighted index that contains individually priced U.S. Treasury, agen-
cy, and corporate securities

B-15
<PAGE>

rated BBB--or better with maturities between 5 and 10 years. The Index has a
market value of over $700 billion.

LEHMAN BROTHERS LONG (10+) GOVERNMENT/CORPORATE INDEX--is a market-weighted
index that contains individually priced U.S. Treasury, agency, and corporate
securities rated BBB--or better with maturities greater than 10 years. The In-
dex has a market value of over $900 billion.

LIPPER SMALL CAP FUND AVERAGE--the average performance of small company growth
funds as defined by Lipper Analytical Services, Inc. Lipper defines a small
company growth fund as a fund that by prospectus or portfolio practice, limits
its investments to companies on the basis of the size of the company. From
time to time, Vanguard may advertise using the average performance and/or the
average expense ratio of the small company growth funds. (This fund category
was first established in 1982. For years prior to 1982, the results of the
Lipper Small Company Growth category were estimated using the returns of the
Funds that constitute the Group at its inception.)

LIPPER BALANCED FUND AVERAGE--an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper Analyt-
ical Services, Inc.

LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of av-
erage non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.

LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.

LIPPER GENERAL EQUITY FUND AVERAGE--an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.

LIPPER FIXED INCOME FUND AVERAGE--an industry benchmark of average fixed in-
come funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.

TAX ADVANTAGE OF U.S. TREASURY INCOME

<TABLE>
<CAPTION>
NET CURRENT PORTFOLIO YIELD
EFFECTIVE -----------------------------
STATE 3.00% 4.00% 5.00% 6.00% 7.00%
INCOME TAX ----- ----- ----- ----- -----
RATE* TAXABLE EQUIVALENT YIELD
---------- -----------------------------
<S> <C> <C> <C> <C> <C>
3.00%........................................... 3.09% 4.12% 5.15% 6.19% 7.22%
6.00%........................................... 3.19% 4.26% 5.32% 6.38% 7.45%
9.00%........................................... 3.30% 4.40% 5.49% 6.59% 7.69%
</TABLE>
- --------
* Assumes state income tax taken as a deduction on Federal tax return (31% tax
bracket). Yields are not indicative of current or future performance. This
chart is for illustrative purposes only. Prospective investors should con-
sult their own tax advisers concerning the state tax consequences of an in-
vestment in the Fund.

B-16
<PAGE>

OTHER DEFINITIONS

Marketing literature for the Portfolios of Vanguard Admiral Funds, Inc., may
from time to time refer to or discuss a Portfolio's DURATION. Duration is the
weighted average life of a Portfolio's debt instruments measured on a present-
value basis; it is generally superior to dollar-weighted average maturity as a
measure of a Portfolio's potential volatility due to changes in interest
rates.

Unlike a Portfolio's dollar-weighted average maturity, which takes into ac-
count only the stated maturity date of the Portfolio's debt instruments, dura-
tion represents a weighted average of both interest and principal payments,
discounted by the current yield-to-maturity of the securities held. For exam-
ple, a four-year, zero-coupon bond, which pays interest only upon maturity
(along with principal), has both a maturity and duration of 4 years. However,
a four-year bond priced at par with an 8% coupon has a maturity of 4 years but
a duration of 3.6 years (at an 8% yield), reflecting the bond's earlier pay-
ment of interest.

In general, a bond with a longer duration will fluctuate more in price than
a bond with a shorter duration. Also, for small changes in interest rates, du-
ration serves to approximate the resulting change in a bond's price. For exam-
ple, a 1% change in interest rates will cause roughly a 4% move in the price
of a zero-coupon bond with a 4-year duration, while an 8% coupon bond (with a
3.6 year duration) will change by approximately 3.6%.

FINANCIAL STATEMENTS

The Fund's financial statements as of and for the fiscal year ended January
31, 1998, including the financial highlights, appearing in the Fund's Annual
Report to shareholders, and the report thereon of Price Waterhouse LLP, inde-
pendent accountants, also appearing therein, are incorporated by reference in
this Statement of Additional Information.

B-17
<PAGE>

APPENDIX--DESCRIPTION OF SECURITIES AND RATINGS

I. DESCRIPTION OF BOND RATINGS

Excerpts from Moody's Investors Service, Inc., ("Moody's") description of
its four highest bond ratings: AAA--judged to be the best quality. They carry
the smallest degree of investment risk; AA--judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds: A--possess many favorable investment attributes and
are to be considered as "upper medium grade obligations"; BAA--considered as
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be characteris-
tically unreliable over any great length of time. BA--judged to have specula-
tive elements; their future cannot be considered as well assured; B--generally
lack characteristics of the desirable investment; CAA--are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest; CA--speculative in a high degree; often in
default; C--lowest rated class of bonds; regarded as having extremely poor
prospects.

Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and 3 indicates a
ranking toward the lower end of the category.

Excerpts from Standard & Poor's Corporation ("S&P") description of its five
highest bond ratings: AAA--highest grade obligations. Capacity to pay interest
and repay principal is extremely strong; AA--also qualify as high grade obli-
gations. A very strong capacity to pay interest and repay principal and dif-
fers from AAA issues only in small degree; A--regarded as upper medium grade.
They have a strong capacity to pay interest and repay principal although it is
somewhat susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories; BBB--regarded as
having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than in higher
rated categories. This group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC--predominately speculative with respect to capacity
to pay interest and repay principal in accordance with terms of the obliga-
tion; BB indicates the lowest degree of speculation and CC the highest.

S&P applies indicators "+," no character and "-" to its rating categories.
The indicators show relative standing within the major rating categories.

II. U.S. GOVERNMENT SECURITIES

The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the United States Treasury, by various agen-
cies of the United States Government, and by various instrumentalities which
have been established or sponsored by the United States Government. The term
also refers to "repurchase agreements" collateralized by such securities.

U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and U.S.
Government-sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look princi-
pally to the agency or instrumentality issuing or guaranteeing the obligation
for ultimate repayment, and may not be able to assert a claim against the
United States itself in the event the agency or instrumentality does not meet
its commitment.

B-18
<PAGE>

Some of the U.S. Government agencies that issue or guarantee securities in-
clude the Export- Import Bank of the United States. Farmers Home Administra-
tion, Federal Housing Administration, Maritime Administration, Small Business
Administration, and The Tennessee Valley Authority.

An instrumentality of the U.S. Government is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing
or guaranteeing securities include, among others, Federal Home Loan Banks,
Federal Land Banks, Central Bank for Cooperative, Federal Intermediate Credit
Banks, and the Federal National Mortgage Association.

III. ZERO COUPON TREASURY BONDS

Admiral Short- and Intermediate-Term U.S. Treasury Portfolios may invest in
zero coupon Treasury bonds, a term used to describe U.S. Treasury notes and
bonds which have been stripped of their unmatured interest coupons, or the
coupons themselves, and also receipts or certificates representing interest in
such stripped debt obligations and coupons. The timely payment of coupon in-
terest and principal on these instruments remains guaranteed by the "full
faith and credit" of the United States Government.

A zero coupon bond does not pay interest. Instead, it is issued at a sub-
stantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
as income received by zero coupon bondholders each year. The Fund, which ex-
pects to qualify as a regulated investment company, intends to pass along such
interest as a component of a Portfolio's distributions of net investment in-
come.

Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest is
returned to the investor.

IV. COLLATERALIZED MORTGAGE OBLIGATION

The Admiral Short-, Intermediate- and Long-Term U.S. Treasury Portfolios may
invest in collateralized mortgage obligations (CMOs), bonds that are collater-
alized by whole loan mortgages or mortgage pass-through securities. Generally,
the three Portfolios will purchase CMOs which are collateralized by mortgage
securities issued or guaranteed by the U.S. Government or its agencies. The
bonds issued in a CMO deal are divided into groups, and each group of bonds is
referred to as a "tranche". Under the CMO structure, the cash flows generated
by the mortgages or mortgage pass-through securities in the collateral pool
are used to first pay interest and then pay principal to the CMO bondholders.
The bonds issued under a CMO structure are retired sequentially as opposed to
the pro rata return of principal found in traditional pass-through obliga-
tions. Subject to the various provisions of individual CMO issues, the cash
flow generated by the underlying collateral (to the extent it exceeds the
amount required to pay the stated interest) is used to retire the bonds. Under
the CMO structure, the repayment of principal among the different tranches is
prioritized in accordance with the terms of the particular CMO Issuance. The
"fastest-pay" tranches of bonds, as specified in the prospectus for the issu-
ance, would initially receive all principal payments. When that tranche of
bonds is retired, the next tranche, or tranches, in the sequence, as specified
in the prospectus, receive all of the principal payments until they are re-
tired. The sequential retirement of bond groups continues until the last
tranche, or group of bonds, is retired. Accordingly, the CMO structure allows
the issuer to use cash flows of long maturity, monthly-pay collateral to for-
mulate securities with short, intermediate and long final maturities and ex-
pected average lives. Aside from market

B-19
<PAGE>

risk, the primary risk involved in any mortgage security, such as a CMO issu-
ance, is its exposure to prepayment risk. To the extent a particular tranche
is exposed to this risk, the bondholder is generally compensated in the form
of higher yield. In order to provide security, in addition to the underlying
collateral, many CMO issues also include minimum reinvestment rate and minimum
sinking-fund guarantees. Typically, the Portfolios will invest in those CMOs
that most appropriately reflect their average maturities and market risk pro-
files. Consequently, the Short-Term Portfolio invests only in CMOs with short-
term average maturities believed to be highly predictable. Similarly, Admiral
Intermediate- and Long-Term Treasury Portfolios will invest in those CMOs that
carry market risks and expected average maturities consistent with intermedi-
ate- and long-term bonds.

Subject to the applicable limits set forth above, in the Fund's Prospectus
and in the Funds' investment limitations, the Admiral Short-, Intermediate-
and Long-Term U.S. Treasury Portfolios have no specific limitation on the
amount of assets they may invest in CMOs.

B-20
<PAGE>

PART C

VANGUARD ADMIRAL FUNDS, INC.

OTHER INFORMATION

ITEM 24. (A) FINANCIAL STATEMENTS

The Registrant's Financial Statements as of and for the fiscal year ended
January 31, 1998, including Price Waterhouse LLP's report thereon, are incor-
porated by reference, in the Statement of Additional Information, from the
Registrant's 1998 Annual Report to Shareholders which has been filed with the
Commission. The Financial Statements included in the Annual Report are:

1. Statement of Net Assets as of January 31, 1998

2. Statement of Operations for the year ended January 31, 1998

3. Statement of Changes of Net Assets for the respective periods ended Jan-
uary 31, 1997 and 1998

4. Financial Highlights for each of the five periods ended January 31, 1998

5. Notes to Financial Statements
6. Report of Independent Accountants

(B) EXHIBITS

11. Consent of Independent Accountants*
16. Schedule for Computation of Performance Quotations*

27. Financial Data Schedules*

- --------
*Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is not controlled by or under common control with any person. The
officers of the Registrant, the investment companies in The Vanguard Group of
Investment Companies and The Vanguard Group, Inc. are identical. Reference is
made to the caption "Management of the Fund" in the Prospectus constituting
Part A and in the Statement of Additional Information constituting Part B of
this Registration Statement.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

As of January 31, 1998 each Portfolio of the Fund had the following number
of shareholders:

<TABLE>
<S> <C>
Admiral U.S. Treasury Money Market Portfolio.......................... 13,335
Admiral Short-Term U.S. Treasury Portfolio............................ 3,589
Admiral Intermediate-Term U.S. Treasury Portfolio..................... 4,197
Admiral Long-Term U.S. Treasury Portfolio............................. 2,065
</TABLE>

ITEM 27. INDEMNIFICATION

Reference is made to Article IX of Registrant's Articles of Incorporation.

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, Officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, Officer or controlling person

C-1
<PAGE>

of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such Director, Officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Reference is made to the caption "Investment Adviser" in the prospectus con-
stituting Part A of this Registration Statement and "Investment Advisory Serv-
ices" in Part B of this Registration Statement.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) None
(b) Not Applicable

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc., Valley Forge, Pennsylvania 19482; and the Registrant's
Custodians, CoreStates Bank, N.A., Philadelphia, Pa. and State Street Bank and
Trust Company, Boston, MA.

ITEM 31. MANAGEMENT SERVICES

Other than the Amended and Restated Funds' Service Agreement with The Van-
guard Group, Inc. which has previously been filed and is described in Part B
hereof under "Management of the Fund," the Registrant is not a party to any
management-related service contract.

ITEM 32. UNDERTAKINGS

Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 (the "Act") or other applicable law. Registrant
undertakes to comply with the provisions of Section 16(c) of the Act in regard
to shareholders' rights to call a meeting of shareholders for the purpose of
voting on the removal of Directors and to assist in shareholder communications
in such matters, to the extent required by law.

A copy of the Registrant's latest annual report to shareholders will be fur-
nished, upon request and without charge, to each person to whom a copy of the
Funds' Prospectus is delivered.

C-2
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVEST-
MENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL THE RE-
QUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485 (B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS POST-EFFEC-
TIVE AMENDMENT TO THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF VALLEY FORGE AND
THE COMMONWEALTH OF PENNSYLVANIA, ON THE 1ST DAY OF MAY 1998.

Vanguard Admiral Funds, Inc.

By /s/ Raymond J. Klapinsky
-----------------------------------

JOHN J. BRENNAN CHAIRMAN AND CHIEF
EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-EFFEC-
TIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOL-
LOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED:

SIGNATURES TITLE DATE
<S> <C> <C>
Raymond J. Klapinsky
- ------------------------------------- Senior Chairman of May 1, 1998
JOHN C. BOGLE* the Board and
Director

Raymond J. Klapinsky
- ------------------------------------- Chairman, Director May 1, 1998
JOHN J. BRENNAN* and Chief Executive
Officer

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
ROBERT C. CAWTHORN*

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
BARBARA B. HAUPTFUHRER*

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
BURTON G. MALKIEL*

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
BRUCE K. MACLAURY, JR.*

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
ALFRED M. RANKIN, JR.*

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
JOHN C. SAWHILL*

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
JAMES O. WELCH, JR.*

Raymond J. Klapinsky Director
- ------------------------------------- May 1, 1998
J. LAWRENCE WILSON*

Raymond J. Klapinsky Treasurer and
- ------------------------------------- Principal Financial May 1, 1998
RICHARD F. HYLAND* Officer and
Accounting Officer
</TABLE>

* As Attorney-in-Fact, pursuant to Power-of-Attorney. See Form SE filed for
the Windsor Funds, Inc. (File Number 2-14336), as filed with the Commission on
or about January 23, 1990, incorporated by reference.
<PAGE>

VANGUARD ADMIRAL FUNDS, INC.

INDEX TO EXHIBITS

<TABLE>
<S> <C>
Independent Accountants' Consent...................................... EX-99.B11
Schedule for Computation of Performance Quotations.................... EX-99.B16
Financial Data Schedules.............................................. EX-27
</TABLE>

<PAGE>

EX-99.B11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
the Statement of Additional Information constituting parts of this Post-Effec-
tive Amendment No. 7 to the registration statement on Form N-1A (the "Regis-
tration Statement") of our report dated March 6, 1998, relating to the finan-
cial statements and financial highlights appearing in the January 31, 1998
Annual Report to Shareholders of Vanguard Admiral Funds, Inc. (comprised of
U.S. Treasury Money Market, Short-Term U.S. Treasury, Intermediate-Term U.S.
Treasury and Long-Term U.S. Treasury Portfolios), which are also incorporated
by reference into the Registration Statement. We also consent to the refer-
ences to us under the headings "Financial Highlights" and "General Informa-
tion" in the Prospectus and under the heading "Financial Statements" in the
Statement of Additional Information.

Price Waterhouse LLP

Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103

April 30, 1998

<PAGE>

EX-99.B16

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD ADMIRAL FUNDS--U.S. TREASURY MONEY MARKET PORTFOLIO

1.AVERAGE ANNUAL TOTAL RETURN (As of January 31, 1998)

P(1 + T)n = ERV

Where: P =a hypothetical initial payment of $1,000

T =average annual total return

N =number of years

ERV =ending redeemable value at the end of the period

EXAMPLE:
<TABLE>
<CAPTION>
ONE YEAR
--------
<C> <S>
P= $1,000
T= +5.31%
N= 1
ERV= $1,053.11
<CAPTION>
FIVE YEARS
----------
<C> <S>
P= $1,000
T= 4.67%
N= 5
ERV= $1,256.50
</TABLE>
- -------
* Since inception on December 14, 1992
P=$1,000

T=+4.63%
N=*

ERV=$1,261.66
<PAGE>

EX-99.B16

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD ADMIRAL FUNDS--SHORT-TERM U.S. TREASURY PORTFOLIO

1.AVERAGE ANNUAL TOTAL RETURN (As of January 31, 1998)

P(1 + T)n = ERV

Where: P =a hypothetical initial payment of $1,000

T =average annual total return

N =number of years

ERV =ending redeemable value at the end of the period

EXAMPLE:
<TABLE>
<CAPTION>
ONE YEAR
--------
<C> <S>
P= $1,000
T= +7.21%
N= 1
ERV= $1,072.13
<CAPTION>
FIVE YEARS
----------
<C> <S>
P= $1,000
T= 5.69%
N= 5
ERV= $1,318.68
</TABLE>
- -------
* Since inception on December 14, 1992
P=$1,000

T=+6.02%
N=*

ERV=$1,349.70

2.YIELD (30 Days Ended January 31, 1998)

a - b
---
Yield = 2 [(+ 1 )/6/ -1]
c X d

Where: a = dividends and interest paid during the period

b = expense dollars during the period (net of reimbursements)

c = the average daily number of shares outstanding during the
period

d = the maximum offering price per share on the last day of the
period

Example:
a = $3,451,996.4

b = $96,556.01

c = 74,959,493.433

d = $10.15

Yield = 5.35%
<PAGE>

EX-99.B16

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD ADMIRAL FUNDS--INTERMEDIATE-TERM U.S. TREASURY PORTFOLIO

1.AVERAGE ANNUAL TOTAL RETURN (As of January 31, 1998)

P(1 + T)n = ERV

Where: P =a hypothetical initial payment of $1,000

T =average annual total return

N =number of years

ERV =ending redeemable value at the end of the period

EXAMPLE:
<TABLE>
<CAPTION>
ONE YEAR
--------
<C> <S>
P= $1,000
T= +10.98%
N= 1
ERV= $1,109.79
<CAPTION>
FIVE YEARS
----------
<C> <S>
P= $1,000
T= 7.24%
N= 5
ERV= $1,418.05
</TABLE>
- -------
* Since inception on December 14, 1992
P=$1,000

T=+7.81%
N=*

ERV=$1,471.24

2.YIELD (30 Days Ended January 31, 1998)

a - b
---
Yield = 2 [(+ 1 )/6/ -1]
c X d

Where: a = dividends and interest paid during the period

b = expense dollars during the period (net of reimbursements)

c = the average daily number of shares outstanding during the
period

d = the maximum offering price per share on the last day of the
period

Example:
a = $4,144,350.23

b = $109,466.93

c = 84,161,151.907

d = $10.60

Yield = 5.49%
<PAGE>

EX-99.B16

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD ADMIRAL FUNDS--LONG-TERM U.S. TREASURY PORTFOLIO

1.AVERAGE ANNUAL TOTAL RETURN (As of January 31, 1998)

P(1 + T)n = ERV

Where: P =a hypothetical initial payment of $1,000

T =average annual total return

N =number of years

ERV =ending redeemable value at the end of the period

EXAMPLE:
<TABLE>
<CAPTION>
ONE YEAR
--------
<C> <S>
P= $1,000
T= -17.05%
N= 1
ERV= $1,170.53
<CAPTION>
FIVE YEARS
----------
<C> <S>
P= $1,000
T= 9.55%
N= 5
ERV= $1,577.87
</TABLE>
- -------
* Since inception on December 14, 1992
P=$1,000

T=+10.13%
N=*

ERV=$1,640.47

2.YIELD (30 Days Ended January 31, 1998)

a - b
---
Yield = 2 [(+ 1 )/6/ -1]
c X d

Where: a = dividends and interest paid during the period

b = expense dollars during the period (net of reimbursements)

c = the average daily number of shares outstanding during the
period

d = the maximum offering price per share on the last day of the
period

Example:
a = $1,556,744.23

b = $39,004.36

c = 28,566,845.996

d = $11.12

Yield = 5.80%

<PAGE>

<ARTICLE> 6
<CIK> 0000891190
<NAME> VANGUARD ADMIRAL FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> ADMIRAL U.S. TREASURY MONEY MARKET PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,784,583
<INVESTMENTS-AT-VALUE> 3,784,583
<RECEIVABLES> 798,027
<ASSETS-OTHER> 244
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,582,854
<PAYABLE-FOR-SECURITIES> 681,277
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,175
<TOTAL-LIABILITIES> 702,452
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,880,128
<SHARES-COMMON-STOCK> 3,880,128
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<PAGE>

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</TABLE>

<PAGE>

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</TABLE>

<PAGE>

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<NAME> ADMIRAL LONG-TERM U.S. TREASURY PORTFOLIO
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