<PAGE> 1
VANGUARD
ADMIRAL FUNDS
VANGUARD ADMIRAL TREASURY
MONEY MARKET FUND
VANGUARD ADMIRAL SHORT-TERM
TREASURY FUND
VANGUARD ADMIRAL INTERMEDIATE-TERM
TREASURY FUND
VANGUARD ADMIRAL LONG-TERM
TREASURY FUND
[PHOTO]
ANNUAL
REPORT
January 31, 1999
[THE VANGUARD GROUP LOGO]
<PAGE> 2
AT VANGUARD, WE BELIEVE THAT TRADITION MATTERS
Our 8,000 crew members embrace the traditional values on which our success is
built, including integrity, hard work, thrift, teamwork, and fair dealing on
behalf of our clients.
This year, our report cover pays homage to three anniversaries, each of great
significance to The Vanguard Group:
- - The 200th anniversary of the Battle of the Nile, which commenced on August 1,
1798. HMS Vanguard, the victorious British flagship at the Nile, is our
namesake. And its motto-- "Leading the way"--serves as a guiding principle
for our company.
- - The 100th birthday, on July 23, of Walter L. Morgan, founder of Wellington
Fund, the oldest member of what became The Vanguard Group. Mr. Morgan was
friend and mentor to Vanguard founder John C. Bogle, and helped to shape the
standards and business principles that Mr. Bogle laid down for Vanguard at
its beginning nearly 25 years ago: a stress on balanced, diversified
investments; insistence on fair dealing and candor with clients; and a focus
on long-term investing. To our great regret, Mr. Morgan died on September 2.
- - The 70th anniversary, on December 28, of the incorporation of Vanguard
Wellington Fund. It is the nation's oldest balanced mutual fund, and one of
only a handful of funds created in the 1920s that are still in operation.
Although Vanguard constantly tackles new challenges, adopts new technology, and
develops new services, we treasure the traditions and values that set us apart
in a crowded, competitive industry. And we salute our shareholders, whose
support and trust we strive to earn each and every day.
[PHOTO]
CONTENTS
A MESSAGE TO
OUR SHAREHOLDERS
1
THE MARKETS IN
PERSPECTIVE
6
REPORT FROM
THE ADVISER
8
PERFORMANCE SUMMARIES
11
FUND PROFILES
15
FINANCIAL STATEMENTS
20
REPORT OF
INDEPENDENT ACCOUNTANTS
36
All comparative mutual fund data
are from Lipper or Morningstar,
unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
[PHOTO] [PHOTO]
John J. Brennan John C. Bogle
Chairman & CEO Senior Chairman
Aided by a benign inflation outlook and a wave of purchases by investors who
sought refuge from turmoil in international markets, prices of U.S. Treasury
securities rose during Vanguard Admiral Funds' 1999 fiscal year.
In this environment of higher prices and lower yields, each of our four
Treasury bond funds earned twelve-month returns that surpassed those of similar
mutual funds and closely matched the results for their benchmark indexes.
Returns varied according to each fund's maturity, with our Treasury Money Market
Fund earning +5.1% and our Long-Term Treasury Fund achieving a total return of
+12.1%--nearly half of which came from capital appreciation.
The table at right presents the twelve-month total return (capital change
plus reinvested dividends) for each fund, compared with those of its average
mutual fund competitor and an unmanaged bond market index. The table also shows
the annualized yield for each fund as of January 31, 1999, which ranged from
4.56% for our Treasury Money Market Fund to 5.30% for our Long-Term Treasury
Fund--an uncharacteristically narrow yield spread.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL RETURNS SEC
FISCAL YEAR ENDED ANNUALIZED
JANUARY 31, 1999 YIELD*
- --------------------------------------------------------------------------------
<S> <C> <C>
ADMIRAL TREASURY
MONEY MARKET FUND + 5.1% 4.56%
Average Treasury Money
Market Fund + 4.6
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index + 5.0
- --------------------------------------------------------------------------------
ADMIRAL SHORT-TERM TREASURY FUND + 6.7% 4.73%
Average Short-Term Treasury Fund + 6.1
Lehman Brothers 1-5 Year
U.S. Treasury Bond Index+ 7.0
- --------------------------------------------------------------------------------
ADMIRAL INTERMEDIATE-TERM
TREASURY FUND + 9.4% 4.96%
Average Intermediate-Term
Treasury Fund + 7.6
Lehman Brothers 5-10 Year
U.S. Treasury Bond Index + 10.0
- --------------------------------------------------------------------------------
ADMIRAL LONG-TERM TREASURY FUND + 12.1% 5.30%
Average Long-Term Treasury Fund + 8.5
Lehman Brothers Long
U.S. Treasury Bond Index +12.3
- --------------------------------------------------------------------------------
</TABLE>
*7-day yield for the Money Market Fund; 30-day yield for
other funds.
Prices of our funds, particularly for our Intermediate-Term and Long-Term
Treasury Funds, benefited from the decline in interest rates during the fiscal
year. However, it's important to understand that interest-rate movements also
can lower bond prices. Prices of existing bonds move in the opposite direction
from market interest rates, so the market value of bonds (and bond funds) rises
when interest rates fall and declines when rates move higher. The effect is most
significant for longer-term bonds, which are more sensitive than shorter-term
securities to interest-rate changes. The extent of the interest-rate effect can
be seen in a bond fund's capital return--that is, the change in per-share value,
excluding interest income.
A look back at the six-year life span of our funds shows that negative
capital returns are not uncommon. For example, the Long-Term Treasury Fund
posted capital returns of +5.9% in fiscal 1999 and +9.8% in fiscal 1998. But in
fiscal 1995, when the Federal Reserve Board hiked short-term interest rates six
times, the fund had a capital return
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<PAGE> 4
of -12.9%, and in fiscal 1997 the fund's capital return was -8.1%. This history
provides a valuable lesson about the short-term variability of bond values. As
we have explained in previous reports, our funds have longer average maturities
than most of their competitors and, therefore, are more sensitive to changes in
interest rates. We believe that this policy, which in the short term can work
to our advantage or to our detriment, is in the best long-term interest of our
fund shareholders.
Per-share figures for each fund, including net asset values, income
dividends, and any capital gains distributions, are presented in the table that
follows this letter.
FINANCIAL MARKETS IN REVIEW
During the twelve months ended January 31, 1999, the U.S. economy expanded
impressively, inflation remained very low, and unemployment hovered around a
three-decade low. It was a terrific setting for both stocks and bonds.
However, financial turmoil overseas was felt in the United States during the
summer when investors around the globe were spooked by the continuing economic
and currency troubles in Asia, a debt default in Russia, and concern that the
credit crisis in Brazil would spread through Latin America. Some investors both
at home and abroad scrambled to the relative safety of U.S. Treasury bonds and
shunned securities perceived to be riskier. This so-called flight to quality
resulted in steep price declines for stocks, low-grade bonds, and even
high-quality corporate bonds. Treasuries offer the highest credit-quality
backing available: the full faith and credit of the U.S. government. A slightly
tighter supply of Treasuries--the result of rising federal budget
surpluses--also contributed to higher prices.
The yield of the 30-year Treasury bond, which started the fiscal year at
5.80%, crept up to 6.07% in late April. But yields steadily declined during the
late summer and early fall in response to both good news on inflation and fears
of a global economic slump. The long bond's yield bottomed out at 4.72% on
October 5. The Fed acted to help restore liquidity to the credit markets and to
head off an expected slowdown in U.S. economic growth by trimming short-term
interest rates by a total of 0.75 percentage point from late September through
mid-November. During the final three months of our funds' fiscal year, liquidity
concerns eased, Treasury prices declined, and the yield of the 30-year Treasury
rose, ending the period at 5.09%, 71 basis points below its starting point. The
yield on 10-year Treasuries fell 85 basis points on balance to 4.65%, and the
yield of 3-year Treasuries declined 71 basis points to 4.62%.
The Lehman Aggregate Bond Index, a measure of the entire U.S. bond market,
including Treasuries as well as mortgage-backed securities and high-quality
corporate issues, earned a solid +8.1% for the twelve months. The +12.3% return
of the Lehman Long U.S. Treasury Index was nearly 11 percentage points higher
than the 1.7% inflation rate recorded for the fiscal year.
Meanwhile, large U.S. stocks soared higher during the twelve months, despite
the summer setback, and the Standard & Poor's 500 Composite Stock Price Index
advanced +32.5%. Small stocks, however, earned a scant total return of +0.3%, as
measured by the Russell 2000 Index. The entire U.S. stock market, as measured by
the Wilshire 5000 Equity Index, was up +27.4%.
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<PAGE> 5
FISCAL 1999 PERFORMANCE OVERVIEW
It was an excellent twelve months for the Vanguard Admiral Funds, both on an
absolute basis and relative to similar mutual funds. Each of our funds earned
more than the average comparable mutual fund. In addition, our three bond funds
closely matched their unmanaged benchmark indexes, while our Treasury Money
Market Fund actually eked out a slight advantage over its index. Generally, our
fine relative performance was the result of our funds' longer average maturities
and much lower costs.
Our TREASURY MONEY MARKET FUND maintained its $1-per-share price, as is
expected but is not guaranteed. Its +5.1% return outpaced the +4.6% gain of the
average Treasury money market fund and was a hair ahead of its unmanaged
benchmark index.
The +6.7% return of our SHORT-TERM TREASURY FUND was 0.6 percentage point
higher than that of its average peer but slightly behind the +7.0% return of its
index. Most of the fund's return (5.6 percentage points) came from interest
income, since its short average maturity (a little under three years) means that
its share price doesn't respond as much to interest-rate changes as do the share
prices of our Intermediate-Term and Long-Term Treasury Funds.
OUR INTERMEDIATE-TERM TREASURY FUND, with an average maturity of almost
eight years, earned a return of +9.4% that outpaced its average peer by 1.8
percentage points. The +12.1% return of our LONG-TERM TREASURY FUND, which is
about twice as sensitive to interest-rate changes as our Intermediate-Term fund,
included a 5.9-percentage-point boost from price appreciation. This return
stacked up well with the +8.5% return of the average long-term Treasury fund and
the +12.3% return of the Lehman Long U.S. Treasury Index.
The table at right breaks out each fund's total return into its income and
capital components and shows the change in each fund's yield between January 31,
1998, and January 31, 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TOTAL RETURNS
ANNUALIZED FISCAL YEAR ENDED
YIELDS* ON JANUARY 31, 1999
JANUARY 31, ---------------------------
ADMIRAL --------------- INCOME CAPITAL TOTAL
TREASURY FUND 1998 1999 RETURN RETURN RETURN
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market 5.25% 4.56% +5.1% 0.0% + 5.1%
Short-Term 5.35 4.73 +5.6 +1.1 + 6.7
Intermediate-Term 5.49 4.96 +6.1 +3.3 + 9.4
Long-Term 5.80 5.30 +6.2 +5.9 +12.1
- -----------------------------------------------------------------------------------
</TABLE>
*7-day yield for Money Market Fund; 30-day yield for
other funds.
LIFETIME PERFORMANCE OVERVIEW
Since their inception a little more than six years ago, the Vanguard Admiral
Funds have established a solid performance edge over other Treasury bond funds
with similar maturities. For our shareholders, this edge has translated into
significant extra returns, as shown in the table on page 4. The table summarizes
each fund's returns since inception on December 14, 1992, and compares them with
those of comparable fixed-income mutual funds and relevant unmanaged bond-market
indexes. It also shows how hypothetical $50,000 investments in each fund and in
its comparative standards would have grown over the period.
The Performance Summaries on pages 11 through 14 include charts showing
cumulative returns for the lifetime of each of our funds as well as year-by-year
breakdowns of the income and capital returns earned by each.
3
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------
TOTAL RETURNS
DEC. 14, 1992, TO JAN. 31, 1999
---------------------------------
FINAL VALUE OF
AVERAGE A $50,000
ANNUAL RATE INITIAL INVESTMENT
- --------------------------------------------------------------------
<S> <C> <C>
ADMIRAL TREASURY
MONEY MARKET FUND + 4.7% $66,314
Average Treasury
Money Market Fund + 4.3 64,588
Salomon Smith Barney
3-Month Treasury Index + 4.76 6,431
- --------------------------------------------------------------------
ADMIRAL SHORT-TERM
TREASURY FUND + 6.1% $72,006
Average Short-Term
Treasury Fund + 5.6 69,897
Lehman 1-5 Year
U.S. Treasury Index + 6.4 72,958
- --------------------------------------------------------------------
ADMIRAL INTERMEDIATE-TERM
TREASURY FUND + 8.1% $80,512
Average Intermediate-Term
Treasury Fund + 6.9 75,445
Lehman 5-10 Year
U.S. Treasury Index + 8.3 81,687
- --------------------------------------------------------------------
ADMIRAL LONG-TERM
TREASURY FUND + 10.4% $91,957
Average Long-Term
Treasury Fund + 8.1 80,648
Lehman Long U.S.
Treasury Index + 10.7 93,333
- --------------------------------------------------------------------
</TABLE>
There is no secret to our fine relative performance. It's simply a combination
of excellent investment management by Vanguard Fixed Income Group and our tight
grip on costs. Our expense ratio (annual expenses as a percentage of average net
assets) for the fiscal year amounted to 0.15%--$1.50 per $1,000 invested--a
small fraction of the 1.05% in expenses charged each year by the average
fixed-income mutual fund.
A mutual fund's expenses directly reduce the income and return it
produces. The drag of higher costs is especially evident in bond funds, which
typically derive most of their total return from interest income. Over time,
differences in costs account for virtually all of the difference in total
returns between mutual funds investing in Treasury securities of similar
maturity.
Besides helping us outperform our higher-cost competitors, low costs also
help us closely track our benchmark indexes, which do not incur the operating,
advisory, and securities-transaction costs and operating expenses that
real-world mutual funds must. Since their inception, our funds have provided
annualized returns that are within 0.3 percentage point of their indexes.
When reviewing our longer-term performance, it's important to understand
that the returns shown here are almost certainly higher than those to be
expected in the near future. With Treasury bond yields now clustering around 5%,
it is unrealistic to anticipate future returns as high as those earned during
the lifetime of the Vanguard Admiral Funds. A relatively reliable indicator of
future long-term total returns on bond funds--though it is an imperfect one--is
a fund's current yield. Of course, if inflation remains low, current yields will
still provide a solid real, or after-inflation, income stream.
IN SUMMARY
The events of the past twelve months amply demonstrated the advantages of a
balanced investment approach. Investors who held a mix of stock funds, bond
funds, and money market funds participated in the market's bounty, but were
spared some measure of the anxiety felt during the midyear downturn in stocks.
4
<PAGE> 7
We have always believed that investors are well served by selecting a
balanced mix of assets appropriate to their investment time horizon, goals, and
risk tolerance, and then sticking with their plan. The volatility experienced
by most investors during 1998 and early 1999 has further reinforced our belief.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
February 17, 1999
NOTE: You'll observe that we've made minor changes in the names of the Vanguard
Admiral Funds. We removed "U.S." and replaced the word "portfolio" with "fund"
as part of a broader effort to simplify the names in our fund lineup.
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS
- -------------------------------------------------------------------------------------------
NET ASSET VALUE
PER SHARE TWELVE MONTHS SEC
JANUARY 31, -------------------------------- 30-DAY
---------------- INCOME CAPITAL TOTAL ANNUALIZED
ADMIRAL TREASURY FUND 1998 1999 DIVIDENDS GAINS RETURN YIELD
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market $ 1.00 $ 1.00 $0.050 -- + 5.1% 4.56%*
Short-Term 10.15 10.22 0.548 $0.044 + 6.7 4.73
Intermediate-Term 10.60 10.94 0.624 0.008 + 9.4 4.96
Long-Term 11.12 11.72 0.654 0.053 +12.1 5.30
- -------------------------------------------------------------------------------------------
</TABLE>
*7-day yield.
5
<PAGE> 8
THE MARKETS IN PERSPECTIVE
YEAR ENDED JANUARY 31, 1999
[PHOTO]
The twelve months ended January 31, 1999, were a volatile yet generally
rewarding period for financial markets. Despite a sharp midsummer slump, the
U.S. stock market closed the year with large gains: The overall market, as
measured by the Wilshire 5000 Equity Index, was up 27.4%. Stocks got a boost
from low inflation and generally declining interest rates, which also buoyed
the bond market. Overseas, gains were concentrated in Europe's developed
markets, while stocks fell in Asia and in most emerging markets.
U.S. STOCK MARKETS
The equity rise was concentrated to an unusual degree in large-capitalization
growth stocks. Large-cap stocks, as measured by the S&P 500 Index, gained
+32.5%, while the small-cap Russell 2000 Index eked out only a 0.3% return.
Growth stocks far outpaced value stocks within both large- and small-cap
indexes. The S&P 500's growth stocks earned +45.9%, versus 18.5% for the value
stocks in the index, while the growth component of the Russell 2000 earned
7.2%, versus -6.9% for the value-stock component.
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED RETURNS
PERIODS ENDED JANUARY 31, 1999
-------------------------------------
1 YEAR 3 YEARS 5 YEARS
- ----------------------------------------------------------------------------------
STOCKS
<S> <C> <C> <C>
S&P 500 Index 32.5% 28.6% 24.3%
Russell 2000 Index 0.3 12.1 11.5
Wilshire 5000 Index 27.4 25.7 21.9
MSCI EAFE Index 14.7 9.1 7.7
- ----------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 8.1% 7.3% 7.1%
Lehman 10-Year Municipal Bond Index 7.2 7.0 6.4
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 5.0 5.2 5.1
- ----------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.7% 2.1% 2.4%
- ----------------------------------------------------------------------------------
</TABLE>
In part, this growth-stock bias reflected the market's infatuation with
technology stocks. The technology sector led others by a wide margin, with tech
stocks in the S&P 500 gaining an extraordinary 97%. The sector benefited both
from its rapid growth and from investors' belief that consumers and businesses
will keep spending freely on computer hardware, software, and services. There
was more than a hint of speculation in the air, too, as stocks related to the
burgeoning activity on the Internet skyrocketed.
Other strong sectors included utilities (+49%), particularly
telecommunications stocks, which are seen as big beneficiaries of the Internet
boom and of rising demand for such services as wireless communications. The
strength of consumer spending--Americans spent nearly every dollar of after-tax
income they earned--boosted the stocks of retailers and other companies in the
consumer-discretionary sector (+37%). Good earnings growth and higher product
prices led to gains for pharmaceutical companies and others in the health-care
sector (+35%).
The worst-performing sectors were those directly affected by falling
commodity prices: the "other energy" category (-33%) and materials & processing
firms (-2%), such
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<PAGE> 9
as paper, steel, and chemical makers. Integrated oil companies gained 7% as a
group, largely because merger activity boosted share prices.
The midyear slide in stocks seemed to be part of a global reevaluation of
risk that affected fixed-income securities as well. Investors grew wary about
the impact of Asia's lingering economic troubles, which slowed activity for U.S.
and European manufacturers and dried up capital flows to emerging markets not
only in Asia but in Latin America.
The S&P 500 Index fell by nearly 20% over six weeks in July and August
before making its impressive comeback. Small-cap stocks fell by nearly 40%
before they began to recover. Curiously, the rebound occurred even though the
international economic troubles did not disappear and U.S. corporate earnings
were essentially flat. The rise in stock prices, combined with a lack of
earnings growth, pushed up the price/earnings ratio for the S&P 500 to about 32
by fiscal year-end, a level roughly twice its long-term average.
U.S. BOND MARKETS
Interest rates for most fixed-income securities declined on balance during the
fiscal year, falling most steeply for U.S. Treasury securities. Bond prices move
in the opposite direction from interest rates, so Treasuries enjoyed the biggest
price increases. Bonds gener-ally were helped by low inflation--consumer prices
rose by 1.7% from January 1998 to January 1999.
Treasury securities in particular benefited from the summertime shakeup in
global markets because they are regarded as safe from defaults. Treasury prices
also got a boost from a slight shrinkage in supply due to the federal
government's growing budget surplus. Yields on Treasury securities fell on
balance by approximately 70 to 80 basis points (0.7 to 0.8 percentage point). At
fiscal year-end, Treasury yields ranged from 5.09% for the benchmark 30-year
bond to 4.45% for 3-month T-bills.
Yields did not fall as far for high-quality corporate and municipal bonds.
Yields for lower-quality bonds increased and their prices declined, reflecting
investors' increased aversion to risk. Mortgage-backed bonds generally did not
benefit from falling rates because investors feared that this would lead to
rapid prepayments by homeowners refinancing their home loans.
INTERNATIONAL STOCK MARKETS
European stocks as a group gained 22.8% in U.S.-dollar terms, with about 5.5
percentage points of the gain due to a fall in the dollar's value versus
European currencies during the fiscal year. However, pickings were slim
elsewhere for U.S. investors venturing abroad. Pacific-region stocks, which are
dominated by recession-wracked Japan, fell by more than 7% in local currencies.
This decline was cushioned by the effect of a weaker dollar, so that for U.S.
investors the decline in Pacific-region stocks amounted to 2.1% for the fiscal
year. Overall, the Morgan Stanley Capital International Europe, Australasia, Far
East (EAFE) Index, a gauge of developed international markets, rose 14.7%.
Investors in emerging markets were hit by a double whammy: lower stock
prices and a decline in the value of local currencies in relation to the U.S.
dollar. The result was an average decline of 14.2% for emerging markets, even
though several Asian markets (the Philippines, Indonesia, and Hong Kong) began
to rebound from sharp losses that occurred during 1997 and 1998. Latin American
stocks were the big losers, with declines of 53% for Brazil and 24% for Mexico.
7
<PAGE> 10
REPORT FROM THE ADVISER
[PHOTO]
The fiscal year ended January 31, 1999, was one that fixed-income investors will
remember for risk--unvarnished, unexpected, and unprecedented risk. This is
exactly the environment in which the U.S. Treasury focus of Vanguard Admiral
Funds provides its greatest benefits.
The fiscal year started peaceably enough. During the first half, the yield
on the 30-year Treasury bond fluctuated within a relatively narrow range of
about 5.6% to 6.0%. The main question for the market was whether the impact of
the "Asian flu" would slow a strong U.S. economy enough to prevent a rise in
inflation. Many Asian economies were suffering sharp downturns due to structural
imbalances. In contrast, the U.S. economy during the first two calendar quarters
of 1998 rose at an annual rate of more than 3.5%, as momentum from domestic
demand easily overcame the drag from reduced exports. The American public was a
major source of this strength, with spending propelled by high employment,
rising incomes, and stock market gains.
Normally, such rapid expansion would set off alarm bells at the Federal
Reserve--such growth spurts historically have ignited inflation and prompted the
Fed to raise short-term interest rates to slow the economy. Halfway through
1998, however, we seemed to have attained something like economic nirvana--a
strong economy and benign inflation. The gross domestic product (GDP) price
deflator, the broadest measure of inflation, rose at only a 0.9% annual rate.
And through midyear, the Fed was content to sit on the sidelines.
But this tranquil period was a distant memory by late summer. Even though
Russia's substantial financial problems had previously become evident, financial
markets were still shocked by the Russian government's bond default in August.
The Russian crisis initiated a wave of fear that enveloped markets across the
globe. The situation was exacerbated by upheavals at some prominent hedge funds,
which were forced to sell securities to repay huge sums they had borrowed to
make investments.
As fear triumphed over greed, investors seeking quality and liquidity
flocked to U.S. Treasuries and pushed yields on long-term bonds down to levels
not seen in a generation. The yield on the 30-year Treasury bond fell from 5.71%
on July 31 to 4.72% on October 5, its low for the fiscal year. This was one of
the most turbulent periods in decades. If you had predicted in 1990 that
long-term Treasury yields would, within the decade, fall below 5% at the same
time that the unemployment rate was hovering around 4.5% in a strong economy,
most bond portfolio managers would have thought you were crazy.
Because of the frenzied flight to Treasuries, by late August and early
September the markets in "spread products" (corporate bonds, mortgages, and
asset-backed securities) effectively ceased to function. No new issues were
coming to market and bids were virtually nonexistent. Yields on corporate and
mortgage-backed debt widened dramatically in relation to Treasury yields. The
interest-rate differential that a buyer of an average corporate bond would earn
for taking on the credit risk of a non-Treasury security rose to its highest
level since the 1990-1991 Gulf War.
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<PAGE> 11
August's returns for corporate bonds were the lowest, in relation to
Treasuries, since the leveraged buyout craze of 1986.
The Fed responded to this crisis by orchestrating three 25-basis-point
(0.25 percentage point) declines in the target federal funds rate in September,
October, and November, effectively lowering the rate at which banks lend to
each other overnight. These moves, coupled with less-negative news from
emerging-market economies, reduced interest-rate volatility, and during the
remainder of the fiscal year, the 30-year Treasury bond traded in a range of
just below 5% to 5.4%, closing the fiscal year at 5.09%.
After September, liquidity improved substantially in markets for corporate
and mortgage-backed securities, although not approaching anything like the
situation when the fiscal year began. Yields on these instruments slowly
declined in comparison with Treasury yields during November and December, as
buyers realized that financial Armageddon was not at hand. New bond issuance by
corporations picked up, although yield spreads over Treasury yields were still
much wider than in the first half of 1998. Spreads tightened even more in
January 1999 as an expected burst of new corporate bond issues never
materialized and dealers kept very light inventories of fixed-income
securities.
Despite the turmoil in financial markets, the U.S. economy continued to hum
along. Economic output, adjusted for inflation, advanced during the
October-December calendar quarter at a 6.1% annual rate, bringing growth for
all of 1998 to 4.3%, even faster than the 3.8% pace recorded in 1997. The
economy had actually accelerated since the Asian crisis! Inflation remained
nearly nonexistent: The GDP price deflator rose slightly less than 1.0% for
1998, and employment costs (wages, salaries, and benefits) rose only 3.3%.
FUND REVIEWS
The decline in interest rates during the fiscal year provided a tailwind, in the
form of capital appreciation, to the total returns of all Admiral funds except
the Treasury Money Market Fund, whose yield declined along with short-term
interest rates. As one would expect in such an environment, the Admiral
Intermediate-Term and Long-Term Treasury Funds, whose prices are more sensitive
to changes in interest rates, earned higher returns than our Short-Term Treasury
Fund.
Because Treasury securities benefited from being a safe haven, each of the
non-money market Admiral Funds outperformed funds holding corporate bonds of
comparable maturity. At the peak of the market turmoil in midsummer, we
recognized that U.S. government agency securities were available at
substantially higher yields in comparison with Treasuries, so we invested in
agency securities in the Admiral Short-, Intermediate-, and Long-Term Funds.
While agency securities are not explicitly backed by a "full faith and credit"
guarantee from the U.S. Treasury, their government sponsorship makes them nearly
equivalent in creditworthiness to Treasuries. We focused on those agency
securities whose interest payments are exempt from state and local income taxes,
matching the beneficial tax treatment of Treasury securities. As of January 31,
agency securities accounted for about 10% to 15% of assets in the three bond
funds. The Admiral Money Market Fund remains 100% U.S. Treasury, as prescribed
by its prospectus.
THE RISKS AHEAD
Events of the past 12 months shattered many firmly held beliefs concerning
liquidity, volatility, and relative value within the bond market. While
conditions have improved substantially since the dark days of August and
September, bond investors remain wary
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<PAGE> 12
of a negative surprise out of Latin America or some other emerging market.
Today's low interest rates do not provide much protection in the form of income
if the Fed decides to raise rates to slow down an overheated economy or stock
market--a move that would hurt bond prices. On the other hand, competition from
overseas companies and low commodity prices should continue to help restrain
inflation, which is the ultimate enemy of the fixed-income investor because it
erodes the future purchasing power of a bond's income stream.
We note that, while the high returns of Treasury securities relative to
other bonds during the fiscal year were gratifying to Admiral shareholders, the
higher yields paid on corporate and mortgage-backed bonds will give these
securities a substantial performance tailwind going forward. Whether or not
U.S. economic strength continues to overpower weakness from abroad, it's likely
we won't see a year as turbulent as the past one for quite some time.
The Vanguard Admiral Funds offer investors exceptionally low-cost
investment choices with varying risk/return characteristics along the maturity
spectrum of the U.S. Treasury market. These funds can be used with a fairly
high degree of precision to structure an overall long-term investment approach.
Once such a long-range plan is in place, staying with it is the best technique
for dealing with the uncertainties of the financial markets.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
David R. Glocke, Principal
Vanguard Fixed Income Group
February 12, 1999
INVESTMENT PHILOSOPHY
The funds reflect a belief that investors who want the unparalleled credit
quality of U.S. Treasury securities should be able to select portfolios with
maturities appropriate to their needs.
10
<PAGE> 13
PERFORMANCE SUMMARY
ADMIRAL TREASURY MONEY MARKET FUND
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the fund. Note, too, that
returns can fluctuate widely. An investment in a money market fund is neither
insured nor guaranteed by the U.S. government, and there is no assurance that
the fund will be able to maintain a stable net asset value of $1 per share.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1999
- ------------------------------------------------------------
ADMIRAL TREASURY AVERAGE
MONEY MARKET FUND FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 0.0% 0.4% 0.4% 0.4%
1994 0.0 3.0 3.0 2.6
1995 0.0 4.2 4.2 3.8
1996 0.0 5.7 5.7 5.3
1997 0.0 5.2 5.2 4.7
1998 0.0 5.3 5.3 4.8
1999 0.0 5.1 5.1 4.6
- ------------------------------------------------------------
</TABLE>
*Average Treasury Money Market Fund.
See Financial Highlights table on page 30 for dividend
information for the past five years.
SEC 7-Day Annualized Yield (1/31/1999): 4.56%
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1999
- ----------------------------------------------------------------------------------
ADMIRAL TREASURY AVERAGE TREASURY SALOMON SMITH BARNEY
MONEY MARKET MONEY MARKET FUND 3-MONTH TREASURY BILL INDEX
<S> <C> <C> <C>
1992 12 50000 50000 50000
1993 01 50205 50190 50210
1993 04 50564 50511 50576
1993 07 50937 50836 50961
1993 10 51318 51167 51357
1994 01 51706 51500 52150
1994 04 52104 51839 52189
1994 07 52606 52285 52716
1994 10 53187 52814 53342
1995 01 53874 53447 54471
1995 04 54623 54125 54835
1995 07 55402 54847 55621
1995 10 56161 55550 56404
1996 01 56922 56253 57597
1996 04 57637 56875 57884
1996 07 58377 57535 58619
1996 10 59137 58211 59399
1997 01 59901 58897 60610
1997 04 60652 59548 60917
1997 07 61453 60262 61703
1997 10 62257 60994 62512
1998 01 63083 61736 63798
1998 04 63892 62442 64128
1998 07 64724 63190 64936
1998 10 65549 63921 65750
1999 01 66314 64588 66981
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
--------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Treasury Money Market Fund 5.12% 5.10% 4.71% $66,314
Average Treasury Money Market Fund 4.62 4.63 4.26 64,588
Salomon Smith Barney 3-Month Treasury Index 4.98 5.12 4.74 66,431
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -----------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Admiral Treasury Money Market Fund 12/14/1992 5.18% 5.08% 0.00% 4.71% 4.71%
- -----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
PERFORMANCE SUMMARY
ADMIRAL SHORT-TERM TREASURY FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1999
- ------------------------------------------------------------------
ADMIRAL SHORT-TERM TREASURY FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 1.7% 0.7% 2.4% 2.3%
1994 1.0 4.5 5.5 6.1
1995 -4.6 5.2 0.6 -0.1
1996 4.7 6.7 11.4 12.0
1997 -1.9 6.0 4.1 4.1
1998 1.1 6.1 7.2 7.9
1999 1.1 5.6 6.7 7.0
- ------------------------------------------------------------------
</TABLE>
*Lehman 1-5 Year U.S. Treasury Index.
See Financial Highlights table on page 31 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1999
- -------------------------------------------------------------
ADMIRAL AVERAGE LEHMAN 1-5
SHORT-TERM SHORT-TERM YEAR U.S.
TREASURY FUND TREASURY FUND TREASURY INDEX
<S> <C> <C> <C>
1992 12 50000 50000 50000
1993 01 51176 50958 51165
1993 04 52300 51885 52334
1993 07 52573 52177 52814
1993 10 53405 53144 53753
1994 01 53989 53613 54297
1994 04 52844 52316 52907
1994 07 53519 52923 53623
1994 10 53591 53453 53565
1995 01 54297 53908 54231
1995 04 56002 55089 56024
1995 07 57691 56464 57784
1995 10 58889 58087 59066
1996 01 60494 59601 60750
1996 04 59874 58515 60085
1996 07 60638 59095 60853
1996 10 62212 60991 62516
1997 01 62945 61603 63223
1997 04 63485 61646 63745
1997 07 65143 63220 65648
1997 10 66178 64639 66786
1998 01 67485 65897 68217
1998 04 68046 65788 68742
1998 07 69133 66767 69856
1998 10 71664 69571 72596
1999 01 72006 69897 72958
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Short-Term Treasury Fund 6.70% 5.93% 6.13% $72,006
Average Short-Term Treasury Fund 6.07 5.45 5.62 69,897
Lehman 1-5 Year U.S. Treasury Index 6.95 6.09 6.36 72,958
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -----------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Admiral Short-Term Treasury Fund 12/14/1992 7.51% 6.00% 0.50% 5.66% 6.16%
- -----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
12
<PAGE> 15
PERFORMANCE SUMMARY
ADMIRAL INTERMEDIATE-TERM TREASURY FUND
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely, so an investment in the fund
could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1999
- -------------------------------------------------------------
ADMIRAL INTERMEDIATE-TERM
TREASURY FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 2.9% 0.9% 3.8% 3.8%
1994 4.1 5.8 9.9 10.6
1995 -9.4 5.7 -3.7 -4.5
1996 11.7 7.5 19.2 19.6
1997 -5.0 6.3 1.3 1.3
1998 4.2 6.8 11.0 11.7
1999 3.3 6.1 9.4 10.0
- -------------------------------------------------------------
</TABLE>
*Lehman 5-10 Year U.S. Treasury Index.
See Financial Highlights table on page 31 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1999
- ---------------------------------------------------------------------------------
ADMIRAL AVERAGE LEHMAN
INTERMEDIATE-TERM INTERMEDIATE-TERM 5-10 YEAR
TREASURY FUND TREASURY FUND U.S. TREASURY INDEX
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 51875 51675 51888
1993 04 53828 53317 53815
1993 07 54949 54201 55242
1993 10 56577 55756 57050
1994 01 57008 56321 57404
1994 04 53709 53610 53784
1994 07 54543 54043 54613
1994 10 53626 53526 53547
1995 01 54917 54637 54844
1995 04 57536 56548 57603
1995 07 60442 58151 60566
1995 10 62865 59960 63019
1996 01 65437 62915 65604
1996 04 62545 60631 62626
1996 07 63252 60692 63352
1996 10 65876 62574 66088
1997 01 66285 63940 66476
1997 04 66549 64020 66559
1997 07 69775 66160 70200
1997 10 71277 67211 71865
1998 01 73562 70136 74248
1998 04 73670 70236 74379
1998 07 75360 70745 76090
1998 10 79914 74180 81473
1999 01 80512 75445 81687
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
--------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Intermediate-Term Treasury Fund 9.45% 7.15% 8.08% $80,512
Average Intermediate-Term Treasury Fund 7.57 6.02 6.94 75,445
Lehman 5-10 Year U.S. Treasury Index 10.02 7.31 8.34 81,687
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -----------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Admiral Intermediate-Term Treasury Fund 12/14/1992 10.85% 7.33% 1.71% 6.39% 8.10%
- -----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
13
<PAGE> 16
PERFORMANCE SUMMARY
ADMIRAL LONG-TERM TREASURY FUND
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely, so an investment in the fund
could lose money.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 1999
- -------------------------------------------------------------
ADMIRAL LONG-TERM TREASURY FUND LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 3.0% 1.0% 4.0% 3.8%
1994 8.6 7.3 15.9 16.7
1995 -12.9 6.3 -6.6 -7.5
1996 18.6 8.1 26.7 27.4
1997 -8.1 6.4 -1.7 -1.6
1998 9.8 7.3 17.1 18.3
1999 5.9 6.2 12.1 12.3
- -------------------------------------------------------------
</TABLE>
*Lehman Long U.S. Treasury Index.
See Financial Highlights table on page 32 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 1999
- ------------------------------------------------------------------
ADMIRAL AVERAGE LEHMAN
LONG-TERM LONG-TERM LONG U.S.
TREASURY FUND TREASURY FUND TREASURY INDEX
<S> <C> <C> <C>
1992 12 50000 50000 50000
1993 01 51984 51668 51910
1993 04 54221 53465 54191
1993 07 57330 55847 57583
1993 10 60101 58002 60541
1994 01 60248 58054 60594
1994 04 54897 53999 54890
1994 07 55850 54724 55834
1994 10 53591 53310 53500
1995 01 56273 54832 56056
1995 04 59171 56850 59166
1995 07 63461 59721 63411
1995 10 67907 62969 67870
1996 01 71319 65552 71432
1996 04 65360 61546 65497
1996 07 66431 62175 66556
1996 10 70023 65167 70211
1997 01 70074 65702 70303
1997 04 70055 64925 70173
1997 07 75870 69002 76566
1997 10 78107 71058 79072
1998 01 82024 74309 83140
1998 04 81872 73554 83008
1998 07 84926 75247 86183
1998 10 90430 79429 91969
1999 01 91957 80648 93333
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1999
-----------------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Long-Term Treasury Fund 12.11% 8.82% 10.45% $91,957
Average Long-Term Treasury Fund 8.53 6.80 8.11 80,648
Lehman Long U.S. Treasury Index 12.26 9.02 10.72 93,333
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1998*
- -----------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Admiral Long-Term Treasury Fund 12/14/1992 13.21% 9.11% 3.44% 6.99% 10.43%
- -----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
14
<PAGE> 17
FUND PROFILE
ADMIRAL TREASURY MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999. Key elements of this Profile are defined on page 16.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------
<S> <C>
Yield 4.6%
Average Maturity 73 days
Average Quality Treasury
Expense Ratio 0.15%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
Treasury 100.0%
</TABLE>
15
<PAGE> 18
AVERAGE COUPON. The average interest rate paid on the securities held by a fund.
It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond fund's share price will
fluctuate in response to a change in interest rates. To see how the price could
shift, multiply the fund's duration by the change in rates. If interest rates
rise by one percentage point, the share price of a fund with an average
duration of five years would decline by about 5%. If rates decrease by a
percentage point, the fund's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a fund reach
maturity (or are called) and are repaid. In general, the longer the average
maturity, the more a fund's share price will fluctuate in response to changes in
market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a fund's securities holdings by credit-rating agencies. The
agencies make their judgment after appraising an issuer's ability to meet its
obligations. U.S. Treasury securities are considered to have the highest credit
quality, with U.S. agency bonds almost equally high.
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a fund with a beta
of 1.20 would have seen its share price rise or fall by 12% when the overall
market rose or fell by 10%.
CASH RESERVES. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing instruments. This
figure does not include cash invested in futures contracts to simulate bond
investment.
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a fund's securities by credit
rating can help in gauging the risk that returns could be affected by defaults
or other credit problems.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a fund's share
price will fluctuate in response to changes in interest rates.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
INVESTMENT FOCUS. This grid indicates the focus of a fund in terms of two
attributes: average maturity (short, medium, or long) and average credit
quality (Treasury/agency, investment-grade corporate, or below
investment-grade).
NUMBER OF ISSUES. An indicator of diversification. The more separate issues a
fund holds, the less susceptible it is to a price decline stemming from the
problems of a particular issue.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's interest income. The yield, expressed as a
percentage of the fund's net asset value, is based on income earned over the
past 30 days (7 days for money market funds) and is annualized, or projected
forward for the coming year.
YIELD TO MATURITY. The rate of return an investor would receive if the
securities held by a fund were held to their maturity dates.
16
<PAGE> 19
FUND PROFILE
ADMIRAL SHORT-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on page 16.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
ADMIRAL LEHMAN
SHORT-TERM INDEX*
<S> <C> <C>
Number of Issues 36 7,294
Yield 4.7% 6.5%
Yield to Maturity 4.8% 5.7%
Average Coupon 6.0% 6.9%
Average Maturity 2.8 years 8.6 years
Average Quality Treasury Aaa
Average Duration 2.2 years 4.4 years
Expense Ratio 0.15% --
Cash Reserves 1.8% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- ----------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------
ADMIRAL LEHMAN
SHORT-TERM INDEX*
- -----------------------------------------
<S> <C> <C>
R-Squared 0.83 1.00
Beta 0.46 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Treasury 85.2%
Agency 14.8
- -----------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------
<S> <C>
Under 1 Year 0.5%
1-3 Years 68.3
3-5 Years 28.5
Over 5 Years 2.7
- ------------------------------------------
Total 100.0%
</TABLE>
17
<PAGE> 20
FUND PROFILE
ADMIRAL INTERMEDIATE-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on page 16.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------------------
ADMIRAL LEHMAN
INTERMEDIATE-TERM INDEX*
- --------------------------------------------------------
<S> <C> <C>
Number of Issues 32 7,294
Yield 5.0% 6.5%
Yield to Maturity 5.0% 5.7%
Average Coupon 7.4% 6.9%
Average Maturity 7.6 years 8.6 years
Average Quality Treasury Aaa
Average Duration 5.6 years 4.4 years
Expense Ratio 0.15% --
Cash Reserves 5.5% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- --------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ------------------------------------------------
ADMIRAL LEHMAN
INTERMEDIATE-TERM INDEX*
- ------------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 1.30 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
Treasury 90.8%
Agency 9.2
- --------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- --------------------------------------------------
<S> <C>
Under 1 Year 4.9%
1-5 Years 8.5
5-10 Years 79.4
10-20 Years 7.2
20-30 Years 0.0
Over 30 Years 0.0
- --------------------------------------------------
Total 100.0%
</TABLE>
18
<PAGE> 21
FUND PROFILE
ADMIRAL LONG-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January
31, 1999, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on page 16.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------
ADMIRAL LEHMAN
LONG-TERM INDEX*
- ----------------------------------------------------
<S> <C> <C>
Number of Issues 16 7,294
Yield 5.3% 6.5%
Yield to Maturity 5.3% 5.7%
Average Coupon 7.5% 6.9%
Average Maturity 20.6 years 8.6 years
Average Quality Treasury Aaa
Average Duration 10.8 years 4.4 years
Expense Ratio 0.15% --
Cash Reserves 3.1% --
</TABLE>
*Lehman Aggregate Bond Index.
INVESTMENT FOCUS
- ----------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------------
ADMIRAL LEHMAN
LONG-TERM INDEX*
- -----------------------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 2.13 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ----------------------------------------------------
<S> <C>
Treasury 88.1%
Agency 11.9
- ----------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ----------------------------------------------------
<S> <C>
Under 1 Year 0.6%
1-5 Years 0.0
5-10 Years 11.9
10-20 Years 22.2
20-30 Years 65.3
Over 30 Years 0.0
- ----------------------------------------------------
Total 100.0%
</TABLE>
19
<PAGE> 22
FINANCIAL STATEMENTS
JANUARY 31, 1999
[PHOTO]
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's holdings, including each
security's market value on the last day of the reporting period. Other assets
are added to, and liabilities are subtracted from, the value of Total
Investments to calculate the fund's Net Assets. Finally, Net Assets are divided
by the outstanding shares of the fund to arrive at its share price, or Net Asset
Value (NAV) Per Share.
At the end of the Statement of Net Assets of each fund, you will find a
table displaying the composition of the fund's net assets on both a dollar and
per-share basis. Undistributed Net Investment Income is usually zero because the
fund distributes its net income to shareholders as a dividend each day. Any
realized gains must be distributed annually, so the bulk of net assets consists
of Paid in Capital (money invested by shareholders). The balance shown for
Accumulated Net Realized Gains usually approximates the amount available to
distribute to shareholders as capital gains as of the statement date, but may
differ because certain investments or transactions may be treated differently
for financial statement and tax purposes. Any Accumulated Net Realized Losses,
and any cumulative excess of distributions over net realized gains, will appear
as negative balances. Unrealized Appreciation (Depreciation) is the difference
between the value of the fund's investments and their cost, and reflects the
gains (losses) that would be realized if the fund were to sell all of its
investments at their statement-date values.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
ADMIRAL TREASURY MONEY MARKET FUND YIELD** DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (98.4%)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill 4.36% 4/29/1999 $100,000 $ 98,957
U.S. Treasury Bill 4.38% 3/18/1999 13,611 13,537
U.S. Treasury Bill 4.437%-4.442% 3/11/1999 161,184 160,437
U.S. Treasury Bill 4.493%-4.467% 2/25/1999 593,190 591,437
U.S. Treasury Bill 4.38%-4.597% 2/4/1999 60,225 60,203
U.S. Treasury Bill 4.297%-4.392% 3/4/1999 177,451 176,789
U.S. Treasury Bill 4.301%-4.567% 4/1/1999 228,849 227,163
U.S. Treasury Bill 4.605%-4.639% 6/24/1999 100,000 98,206
U.S. Treasury Note 5.00% 2/15/1999 144,902 144,913
U.S. Treasury Note 5.50% 2/28/1999 143,106 143,189
U.S. Treasury Note 5.875% 2/28/1999 709,698 710,087
U.S. Treasury Note 5.875% 7/31/1999 142,632 143,453
U.S. Treasury Note 6.00% 8/15/1999 310,000 312,264
U.S. Treasury Note 6.00% 6/30/1999 55,000 55,306
U.S. Treasury Note 6.25% 3/31/1999 47,388 47,527
U.S. Treasury Note 6.25% 5/31/1999 318,669 320,416
U.S. Treasury Note 6.375% 4/30/1999 490,949 492,745
U.S. Treasury Note 6.375% 5/15/1999 478,958 481,258
U.S. Treasury Note 6.375% 7/15/1999 20,000 20,155
U.S. Treasury Note 6.50% 4/30/1999 150,000 150,595
U.S. Treasury Note 6.75% 5/31/1999 283,900 285,946
U.S. Treasury Note 6.75% 6/30/1999 54,000 54,469
U.S. Treasury Note 6.875% 7/31/1999 120,000 121,234
U.S. Treasury Note 7.00% 4/15/1999 8,425 8,467
U.S. Treasury Note 8.875% 2/15/1999 57,935 58,022
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $4,976,775) 4,976,775
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (1.6%) $ 80,181
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 5,056,965,940 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $5,056,956
==========================================================================================================================
NET ASSET VALUE PER SHARE $1.00
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in Securities at Value $4,976,775
Receivables for Investment Securities Sold 462,386
Other Assets--Note B 103,817
-----------
Total Assets 5,542,978
-----------
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables for Investment Securities Purchased 461,518
Other Liabilities 24,504
-----------
Total Liabilities 486,022
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,056,956
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $5,056,966 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Loss (10) --
Unrealized Appreciation -- --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,056,956 $1.00
==========================================================================================================================
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
ADMIRAL SHORT-TERM TREASURY FUND COUPON DATE (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (98.3%)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (83.7%)
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 $ 11,386 $ 11,070
U.S. Treasury Inflation-Indexed Note 3.625% 7/15/2002 22,528 22,493
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 23,000 23,201
U.S. Treasury Note 5.50% 3/31/2000 201,500 203,384
U.S. Treasury Note 5.875% 11/30/2001 42,000 43,368
U.S. Treasury Note 6.125% 12/31/2001 36,600 38,059
U.S. Treasury Note 6.25% 10/31/2001 30,000 31,223
U.S. Treasury Note 6.25% 1/31/2002 54,000 56,386
U.S. Treasury Note 6.375% 5/15/2000 118,000 120,472
U.S. Treasury Note 6.50% 8/31/2001 56,200 58,703
U.S. Treasury Note 6.625% 7/31/2001 151,000 158,006
U.S. Treasury Note 6.625% 4/30/2002 27,000 28,575
U.S. Treasury Note 7.50% 11/15/2001 39,800 42,625
U.S. Treasury Note 7.875% 8/15/2001 20,000 21,526
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 6.475% 5/15/2000 (1) 1,767 1,786
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 8.038% 1/15/2000 (1) 1,397 1,424
Bariven, SA Eximbank Guaranteed Export Financing
(U.S. Government Guaranteed) 6.277% 4/15/2000 (1) 4,000 4,053
Eximbank Guaranteed Export Financing
(U.S. Government Guaranteed) 5.73% 4/16/2001 (1)(2) 27,563 27,828
Government Export Trust (U.S. Government Guaranteed) 6.61% 9/15/1999 (1) 1,100 1,104
Government Export Trust (U.S. Government Guaranteed) 7.75% 1/1/2000 (1)(2) 1,200 1,213
Guaranteed Export Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 7,304 7,837
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.104% 7/15/2003 (1) 30,000 30,525
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.10% 6/30/2007 (1) 18,457 18,213
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.696% 2/1/2005 (1) 6,000 6,077
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.735% 1/15/2002 (1) 6,500 6,560
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.926% 6/15/2005 (1) 12,112 12,306
Private Export Funding Corp. (U.S. Government Guaranteed) 8.40% 7/31/2001 6,000 6,465
Private Export Funding Corp. (U.S. Government Guaranteed) 5.73% 1/15/2004 65,950 67,391
-----------
1,051,873
-----------
- ----------------------------------------------------------------------------------------------------------------------------
AGENCY BONDS & NOTES (14.6%)
Federal Farm Credit Bank 4.80% 11/6/2003 8,000 7,885
Federal Home Loan Bank 4.86% 10/15/2001 30,000 29,929
Federal Home Loan Bank 5.37% 1/16/2003 19,000 19,159
Federal Home Loan Bank 5.575% 9/2/2003 30,000 30,534
Federal Home Loan Bank 5.627% 9/2/2003 13,000 13,259
Federal Farm Credit Bank 5.70% 6/18/2003 47,000 48,011
Federal Farm Credit Bank 5.73% 7/28/2003 14,361 14,695
Federal National Mortgage Association 4.875% 1/22/2002 20,000 19,957
-----------
183,429
-----------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,225,135) 1,235,302
- ----------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.8%)
- ----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 4.73% 2/1/1999 2,854 2,854
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 4.75% 2/1/1999 20,350 20,350
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $23,204) 23,204
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(COST $1,248,339) 1,258,506
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
MARKET
VALUE*
(000)
------
<S> <C>
OTHER ASSETS AND LIABILITIES (-0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 40,705
Liabilities--Note G (41,881)
-----------
(1,176)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------------
Applicable to 122,977,126 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,257,330
============================================================================================================================
NET ASSET VALUE PER SHARE $10.22
============================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At January 31,
1999, the aggregate value of these securities was $29,041,000,
representing 2.3% of net assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,245,188 $10.12
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 1,975 .02
Unrealized Appreciation--Note F 10,167 .08
==========================================================================================================================
NET ASSETS $1,257,330 $10.22
==========================================================================================================================
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
ADMIRAL INTERMEDIATE-TERM TREASURY FUND COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (94.2%)
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (85.1%)
U.S. Treasury Bond 4.75% 11/15/2008 $ 1,800 $ 1,813
U.S. Treasury Bond 7.50% 11/15/2016 77,860 97,202
U.S. Treasury Bond 10.375% 11/15/2012 (2) 194,850 268,607
U.S. Treasury Bond 11.625% 11/15/2004 24,000 32,263
U.S. Treasury Note 6.50% 10/15/2006 53,400 59,251
U.S. Treasury Note 6.75% 5/31/1999 8,000 8,054
U.S. Treasury Note 6.875% 5/15/2006 36,800 41,579
U.S. Treasury Note 7.00% 7/15/2006 8,000 9,106
U.S. Treasury Note 7.25% 8/15/2004 5,150 5,791
U.S. Treasury Note 7.50% 2/15/2005 174,700 200,220
U.S. Treasury Note 7.875% 11/15/2004 149,700 173,577
Export Funding Trust (U.S. Government Guaranteed) 8.21% 12/29/2006 (1) 7,622 8,525
Government Export Trust (U.S. Government Guaranteed) 6.00% 3/15/2005 (1) 7,802 7,984
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.69% 10/31/2004 (1) 17,478 18,500
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.39% 6/26/2006 (1) 1,787 1,912
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 9,739 10,450
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.80% 8/15/2006 (1) 6,667 7,238
Guaranteed Trade Trust (U.S. Government Guaranteed) 8.17% 1/15/2007 (1) 2,667 2,949
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.94% 6/20/2006 (1) 3,947 4,046
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.08% 8/15/2004 (1) 19,997 20,337
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.726% 9/15/2010 (1) 9,000 9,648
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.75% 12/15/2008 (1) 13,333 14,165
Private Export Funding Corp. (U.S. Government Guaranteed) 5.25% 5/15/2005 44,900 44,744
Private Export Funding Corp. (U.S. Government Guaranteed) 5.73% 1/15/2004 36,665 37,466
Private Export Funding Corp. (U.S. Government Guaranteed) 5.87% 7/31/2008 49,800 51,331
Private Export Funding Corp. (U.S. Government Guaranteed) 6.49% 7/15/2007 5,500 5,903
Private Export Funding Corp. (U.S. Government Guaranteed) 7.11% 4/15/2007 13,235 14,719
------------
1,157,380
------------
AGENCY BONDS & NOTES (9.1%)
Federal Home Loan Bank 4.925% 10/14/2008 48,580 46,997
Federal Home Loan Bank 5.315% 12/23/2008 21,500 21,394
Federal Home Loan Bank 5.80% 9/2/2008 1,900 1,971
Federal Home Loan Bank 5.945% 7/28/2008 31,500 32,859
Federal National Mortgage Association 6.50% 7/16/2007 18,875 20,404
------------
123,625
------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,225,666) 1,281,005
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 4.73% 2/1/1999 66,003 66,003
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 4.75% 2/1/1999 4,795 4,795
- --------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $70,798) 70,798
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.4%)
(COST $1,296,464) 1,351,803
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B $ 30,847
Liabilities--Note G (22,718)
-----------
8,129
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 124,282,581 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,359,932
==========================================================================================================================
NET ASSET VALUE PER SHARE $10.94
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) Securities with a value of $1,379,000 have been segregated as initial
margin for open futures contracts.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital--Note E $1,299,235 $10.45
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 5,343 .04
Unrealized Appreciation--Note F
Investment Securities 55,339 .45
Futures Contracts 15 --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,359,932 $10.94
==========================================================================================================================
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
ADMIRAL LONG-TERM TREASURY FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.9%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (85.3%)
U.S. Treasury Bond 6.00% 2/15/2026 $ 1,800 $ 1,978
U.S. Treasury Bond 6.375% 8/15/2027 4,665 5,395
U.S. Treasury Bond 6.50% 11/15/2026 27,015 31,612
U.S. Treasury Bond 6.625% 2/15/2027 22,425 26,689
U.S. Treasury Bond 6.75% 8/15/2026 36,610 44,108
U.S. Treasury Bond 6.875% 8/15/2025 2,350 2,864
U.S. Treasury Bond 7.125% 2/15/2023 11,445 14,173
U.S. Treasury Bond 7.50% 11/15/2016 10,530 13,146
U.S. Treasury Bond 7.875% 2/15/2021 61,029 80,707
U.S. Treasury Bond 8.125% 8/15/2019 33,133 44,470
U.S. Treasury Bond 8.875% 8/15/2017 66,995 94,787
U.S. Treasury Bond 8.875% 2/15/2019 45,703 65,377
---------
425,306
---------
AGENCY BONDS & NOTES (11.6%)
Federal Home Loan Bank 5.29% 12/15/2008 10,000 9,947
Federal Home Loan Bank 5.80% 9/2/2008 41,300 42,837
Federal Home Loan Bank 5.865% 9/2/2008 1,950 2,023
Federal Home Loan Bank 6.045% 5/13/2008 3,190 3,348
---------
58,155
---------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $437,211) 483,461
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations
in a Pooled Cash Account
(COST $6,282) 4.73% 2/1/1999 6,282 6,282
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.2%)
(COST $443,493) 489,743
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note B 14,508
Liabilities (5,520)
---------
8,988
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 42,542,291 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $498,731
==========================================================================================================================
NET ASSET VALUE PER SHARE $11.72
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $449,048 $10.55
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains--Note E 3,433 .08
Unrealized Appreciation--Note F
Investment Securities 46,250 1.09
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $498,731 $11.72
==========================================================================================================================
</TABLE>
26
<PAGE> 29
STATEMENT OF OPERATIONS
This Statement shows interest earned by each fund during the reporting period,
and details the operating expenses charged to the fund. These expenses directly
reduce the amount of investment income available to pay to shareholders as
income dividends. This Statement also shows any Net Gain (Loss) realized on the
sale of investments, and the increase or decrease in the Unrealized Appreciation
(Depreciation) on investments during the period. If a fund invested in futures
contracts during the period, the results of these investments are shown
separately.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ADMIRAL ADMIRAL ADMIRAL ADMIRAL
TREASURY SHORT-TERM INTERMEDIATE-TERM LONG-TERM
MONEY MARKET TREASURY TREASURY TREASURY
FUND FUND FUND FUND
------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 1999
------------------------------------------------------------------------
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $ 228,348 $ 52,622 $ 66,393 $ 24,200
Security Lending -- 122 177 61
------------------------------------------------------------------------
Total Income 228,348 52,744 66,570 24,261
------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 536 113 133 49
Management and Administrative 4,630 989 1,179 436
Marketing and Distribution 1,348 280 305 98
Custodian Fees 53 14 14 12
Taxes (other than income taxes) 99 20 23 9
Auditing Fees 9 6 6 6
Shareholders' Reports 49 13 16 8
Annual Meeting and Proxy Costs 1 -- -- --
Trustees' Fees and Expenses 7 1 2 1
------------------------------------------------------------------------
Total Expenses 6,732 1,436 1,678 619
Expenses Paid Indirectly--Note C (49) -- (1) --
------------------------------------------------------------------------
Net Expenses 6,683 1,436 1,677 619
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 221,665 51,308 64,893 23,642
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (284) 6,290 18,000 6,213
Futures Contracts -- -- 2,371 158
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (284) 6,290 20,371 6,371
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities -- 4,134 17,856 17,628
Futures Contracts -- -- 15 --
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) -- 4,134 17,871 17,628
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 221,381 $ 61,732 $ 103,135 $ 47,641
==============================================================================================================================
</TABLE>
27
<PAGE> 30
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund's total net assets changed during the two
most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. Because the fund distributes its income
to shareholders each day, the amounts of Distributions--Net Investment Income
generally equal the net income earned as shown under the Operations section. The
amounts of Distributions--Realized Capital Gain may not match the capital gains
shown in the Operations section, because distributions are determined on a tax
basis and may be made in a period different from the one in which the gains were
realized on the financial statements. The Capital Share Transactions section
shows the amount shareholders invested in the fund, either by purchasing shares
or by reinvesting distributions, and the amounts redeemed. The corresponding
numbers of Shares Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ADMIRAL TREASURY ADMIRAL SHORT-TERM
MONEY MARKET FUND TREASURY FUND
------------------------------ -----------------------------
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 221,665 $ 188,001 $ 51,308 $ 39,594
Realized Net Gain (Loss) (284) 475 6,290 3,514
Change in Unrealized Appreciation (Depreciation) -- -- 4,134 4,739
---------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 221,381 188,476 61,732 47,847
---------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (221,665) (188,001) (51,308) (39,594)
Realized Capital Gain -- -- (4,773) --
---------------------------------------------------------------------
Total Distributions (221,665) (188,001) (56,081) (39,594)
---------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 5,189,503 4,121,503 889,960 520,096
Issued in Lieu of Cash Distributions 206,536 177,963 44,624 30,788
Redeemed (4,219,201) (3,666,153) (463,865) (331,392)
---------------------------------------------------------------------
Net Increase from Capital
Share Transactions 1,176,838 633,313 470,719 219,492
- --------------------------------------------------------------------------------------------------------------------------
Total Increase 1,176,554 633,788 476,370 227,745
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 3,880,402 3,246,614 780,960 553,215
---------------------------------------------------------------------
End of Year $5,056,956 $3,880,402 $1,257,330 $780,960
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 5,189,503 4,121,503 87,237 51,766
Issued in Lieu of Cash Distributions 206,536 177,963 4,376 3,063
Redeemed (4,219,201) (3,666,153) (45,568) (32,998)
---------------------------------------------------------------------
Net Increase in Shares Outstanding 1,176,838 633,313 46,045 21,831
==========================================================================================================================
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ADMIRAL INTERMEDIATE-TERM ADMIRAL LONG-TERM
TREASURY FUND TREASURY FUND
------------------------------ ----------------------------
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 64,893 $ 45,988 $ 23,642 $ 15,440
Realized Net Gain (Loss) 20,371 (1,988) 6,371 588
Change in Unrealized Appreciation
(Depreciation) 17,871 34,386 17,628 24,665
--------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 103,135 78,386 47,641 40,693
--------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (64,893) (45,988) (23,642) (15,440)
Realized Capital Gain (969) -- (2,175) --
--------------------------------------------------------------------
Total Distributions (65,862) (45,988) (25,817) (15,440)
--------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 752,778 476,383 388,444 210,148
Issued in Lieu of Cash Distributions 51,403 33,777 19,302 10,722
Redeemed (386,931) (295,690) (257,933) (110,989)
--------------------------------------------------------------------
Net Increase from Capital
Share Transactions 417,250 214,470 149,813 109,881
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 454,523 246,868 171,637 135,134
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 905,409 658,541 327,094 191,960
--------------------------------------------------------------------
End of Year $1,359,932 $905,409 $498,731 $327,094
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 69,909 46,385 33,961 19,985
Issued in Lieu of Cash Distributions 4,776 3,286 1,685 1,026
Redeemed (35,851) (28,954) (22,520) (10,537)
--------------------------------------------------------------------
Net Increase in Shares Outstanding 38,834 20,717 13,126 10,474
=========================================================================================================================
</TABLE>
29
<PAGE> 32
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund's Total Return and
shows net investment income and expenses as percentages of average net assets.
These data will help you assess: the variability of the fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the fund;
and the extent to which the fund tends to distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
fund for one year. Money market funds are not required to report a Portfolio
Turnover Rate.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ADMIRAL TREASURY MONEY MARKET FUND
YEAR ENDED JANUARY 31,
----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .050 .052 .051 .055 .041
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
----------------------------------------------------------
Total from Investment Operations .050 .052 .051 .055 .041
----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.050) (.052) (.051) (.055) (.041)
Distributions from Realized Capital Gains -- -- -- -- --
----------------------------------------------------------
Total Distributions (.050) (.052) (.051) (.055) (.041)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================================================================================
TOTAL RETURN 5.12% 5.31% 5.24% 5.66% 4.19%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $5,057 $3,880 $3,247 $1,778 $1,371
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 4.97% 5.20% 5.12% 5.50% 4.21%
=========================================================================================================================
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ADMIRAL SHORT-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
-----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.15 $10.04 $10.23 $ 9.77 $10.26
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .548 .592 .587 .626 .518
Net Realized and Unrealized Gain (Loss) on Investments .114 .110 (.190) .460 (.468)
----------------------------------------------------------
Total from Investment Operations .662 .702 .397 1.086 .050
----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.548) (.592) (.587) (.626) (.518)
Distributions from Realized Capital Gains (.044) -- -- -- (.022)
----------------------------------------------------------
Total Distributions (.592) (.592) (.587) (.626) (.540)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.22 $10.15 $10.04 $10.23 $ 9.77
=========================================================================================================================
TOTAL RETURN 6.70% 7.21% 4.05% 11.41% 0.57%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,257 $781 $553 $426 $333
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 5.35% 5.89% 5.85% 6.22% 5.30%
Portfolio Turnover Rate 130% 81% 80% 95% 129%
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ADMIRAL INTERMEDIATE-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
-----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.60 $10.17 $10.70 $ 9.58 $10.58
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .624 .645 .648 .665 .598
Net Realized and Unrealized Gain (Loss) on Investments .348 .430 (.530) 1.120 (.995)
-----------------------------------------------------------
Total from Investment Operations .972 1.075 .118 1.785 (.397)
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.624) (.645) (.648) (.665) (.598)
Distributions from Realized Capital Gains (.008) -- -- -- (.005)
-----------------------------------------------------------
Total Distributions (.632) (.645) (.648) (.665) (.603)
=========================================================================================================================
NET ASSET VALUE, END OF YEAR $10.94 $10.60 $10.17 $10.70 $ 9.58
=========================================================================================================================
TOTAL RETURN 9.45% 10.98% 1.30% 19.16% -3.67%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,360 $905 $659 $585 $357
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 5.80% 6.28% 6.37% 6.49% 6.15%
Portfolio Turnover Rate 63% 34% 52% 64% 134%
=========================================================================================================================
</TABLE>
31
<PAGE> 34
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ADMIRAL LONG-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
-----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.12 $10.13 $11.06 $ 9.40 $10.90
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .654 .669 .681 .691 .670
Net Realized and Unrealized Gain (Loss) on Investments .653 .990 (.900) 1.749 (1.405)
-----------------------------------------------------------
Total from Investment Operations 1.307 1.659 (.219) 2.440 (.735)
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.654) (.669) (.681) (.691) (.670)
Distributions from Realized Capital Gains (.053) -- (.030) (.089) (.095)
-----------------------------------------------------------
Total Distributions (.707) (.669) (.711) (.780) (.765)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.72 $11.12 $10.13 $11.06 $ 9.40
=========================================================================================================================
TOTAL RETURN 12.11% 17.05% -1.75% 26.74% -6.60%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $499 $327 $192 $186 $136
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 5.72% 6.41% 6.72% 6.66% 7.06%
Portfolio Turnover Rate 32% 13% 42% 125% 44%
=========================================================================================================================
</TABLE>
32
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
Vanguard Admiral Funds comprise the Admiral Treasury Money Market Fund, Admiral
Short-Term Treasury Fund, Admiral Intermediate-Term Treasury Fund, and Admiral
Long-Term Treasury Fund, each of which is registered under the Investment
Company Act of 1940 as a diversified open-end investment company, or mutual
fund.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The funds consistently follow such
policies in preparing their financial statements.
1. SECURITY VALUATION: Admiral Treasury Money Market Fund: Investment
securities are valued at amortized cost, which approximates market value. Other
funds: Bonds, and temporary cash investments acquired over 60 days to maturity,
are valued using the latest bid prices or using valuations based on a matrix
system (which considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Other temporary
cash investments are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued by
methods deemed by the Board of Trustees to represent fair value.
2. FEDERAL INCOME TAXES: Each fund intends to continue to qualify as a
regulated investment company and distribute all of its income. Accordingly, no
provision for federal income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: The Admiral Short-Term Treasury,
Intermediate-Term Treasury, and Long-Term Treasury Funds, along with other
members of The Vanguard Group, transfer uninvested cash balances into a Pooled
Cash Account, which is invested in repurchase agreements secured by U.S.
government securities. Securities pledged as collateral for repurchase
agreements are held by a custodian bank until the agreements mature. Each
agreement requires that the market value of the collateral be sufficient to
cover payments of interest and principal; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
4. FUTURES CONTRACTS: Each Admiral fund, except the Treasury Money Market
Fund, may use Municipal Bond Index, U.S. Treasury Bond, and U.S. Treasury Note
futures contracts, with the objectives of enhancing returns, managing
interest-rate risk, maintaining liquidity, and minimizing transaction costs. The
funds may purchase or sell futures contracts instead of bonds to take advantage
of pricing differentials between the futures contracts and the underlying bonds.
The funds may also seek to take advantage of price differences among bond market
sectors by simultaneously buying futures (or bonds) of one market sector and
selling futures (or bonds) of another sector. Futures contracts may also be used
to simulate a fully invested position in the underlying bonds while maintaining
a cash balance for liquidity. The primary risks associated with the use of
futures contracts are imperfect correlation between changes in market values of
bonds held by the funds and the prices of futures contracts, and the possibility
of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement
prices. The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
5. DISTRIBUTIONS: Distributions from net investment income are declared
daily and paid on the first business day of the following month. Annual
distributions from realized capital gains, if any, are recorded on the
ex-dividend date.
6. OTHER: Security transactions are accounted for on the date securities
are bought or sold. Costs used to determine realized gains (losses) on the sale
of investment securities are those of the specific securities sold. Premiums and
discounts on debt securities purchased are amortized and accreted, respectively,
to interest income over the lives of the respective securities.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the funds under
33
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (continued)
methods approved by the Board of Trustees. Each fund has committed to provide up
to 0.40% of its net assets in capital contributions to Vanguard. At January 31,
1999, the funds had contributed capital to Vanguard (included in Other Assets)
of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF FUND OF VANGUARD'S
ADMIRAL FUND (000) NET ASSETS CAPITALIZATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury Money Market $903 0.02% 1.3%
Short-Term Treasury 203 0.02 0.3
Intermediate-Term Treasury 231 0.02 0.3
Long-Term Treasury 84 0.02 0.1
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The fund's Trustees and officers are also Directors and officers of Vanguard.
C. The funds' custodian banks have agreed to reduce their fees when a fund
maintains cash on deposit in the non-interest-bearing custody account. For the
year ended January 31, 1999, custodian fee offset arrangements reduced expenses
by:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
EXPENSE EXPENSE REDUCTION
REDUCTION AS A PERCENTAGE OF
ADMIRAL FUND (000) AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Treasury Money Market $49 --
Intermediate-Term Treasury 1 --
- -----------------------------------------------------------------------------------------
</TABLE>
D. During the year ended January 31, 1999, purchases and sales of U.S.
government securities other than temporary cash investments were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(000)
-----------------------------------
ADMIRAL FUND PURCHASES SALES
- --------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Treasury $1,693,770 $1,228,711
Intermediate-Term Treasury 1,027,614 665,069
Long-Term Treasury 286,617 128,648
- --------------------------------------------------------------------------------------
</TABLE>
E. Capital gain distributions are determined on a tax basis and may differ from
realized capital gains for financial reporting purposes due to differences in
the timing of realization of gains.
During the year ended January 31, 1999, the Admiral Intermediate-Term
Treasury Fund realized $2,279,000 of net capital gains resulting from in-kind
redemptions, in which shareholders exchanged fund shares for securities held by
the fund rather than for cash. Because such gains are not taxable to the fund,
and are not distributed to shareholders, they have been reclassified from
accumulated net realized gains to paid in capital. The fund used a capital loss
carryforward of $9,329,000 to offset capital gains realized during the year
ended January 31, 1999, reducing the amount of capital gains that would
otherwise be available to distribute to shareholders.
The Admiral Long-Term Treasury Fund had realized losses totaling $960,000
through January 31, 1999, which are deferred for tax purposes and reduce the
amount of unrealized appreciation on investment securities for tax purposes (see
Note F). At January 31, 1999, the fund had capital gains of $4,393,000 available
for distribution.
34
<PAGE> 37
F. At January 31, 1999, net unrealized appreciation of investment securities for
federal income tax purposes was:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(000)
------------------------------------------------------------
NET
APPRECIATED DEPRECIATED UNREALIZED
ADMIRAL FUND SECURITIES SECURITIES APPRECIATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $11,525 $(1,358) $10,167
Intermediate-Term Treasury 56,956 (1,617) 55,339
Long-Term Treasury* 45,351 (61) 45,290
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*See Note E.
At January 31, 1999, the aggregate settlement value of open futures
contracts expiring in March 1999 and the related unrealized appreciation were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(000)
----------------------------
NUMBER OF AGGREGATE
ADMIRAL FUND/ LONG SETTLEMENT UNREALIZED
FUTURES CONTRACTS CONTRACTS VALUE APPRECIATION
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate-Term U.S. Treasury/
U.S. Treasury Bond 34 $4,352 $15
- --------------------------------------------------------------------------------------
</TABLE>
Unrealized appreciation on open futures contracts is required to be treated as
realized gain for tax purposes.
G. The market values of securities on loan to broker/dealers at January 31,
1999, and collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(000)
-----------------------------------------------------------
COLLATERAL RECEIVED
--------------------------------
MARKET VALUE MARKET VALUE
OF LOANED OF U.S. TREASURY
ADMIRAL FUND SECURITIES CASH SECURITIES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $19,988 $20,350 --
Intermediate-Term Treasury 4,706 4,795 --
Long-Term Treasury 24,415 -- $24,820
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Cash collateral received is invested in repurchase agreements. Security loans
are required to be secured at all times by collateral at least equal to the
market value of securities loaned; however, in the event of default or
bankruptcy by the other party to the agreement, retention of the collateral may
be subject to legal proceedings.
35
<PAGE> 38
REPORT OF INDEPENDENT
ACCOUNTANTS
[PHOTO]
To the Shareholders and Trustees
of Vanguard Admiral Funds
In our opinion, the accompanying statements of net assets (and the statement of
assets and liabilities for Vanguard Admiral Treasury Money Market Fund) and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard Admiral Treasury Money Market Fund, Vanguard Admiral Short-Term
Treasury Fund, Vanguard Admiral Intermediate-Term Treasury Fund and Vanguard
Admiral Long-Term Treasury Fund (constituting Vanguard Admiral Funds, hereafter
referred to as the "Funds") at January 31, 1999, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at January 31, 1999 by
correspondence with custodians and brokers, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 11, 1999
SPECIAL 1999 TAX INFORMATION (UNAUDITED) FOR VANGUARD ADMIRAL FUNDS
This information for the fiscal year ended January 31, 1999, is included
pursuant to provisions of the Internal Revenue Code.
The Admiral Short-Term Treasury Fund, Admiral Intermediate-Term Treasury
Fund, and Admiral Long-Term Treasury Fund distributed $1,834,000, $969,000, and
$298,000, respectively, as capital gain dividends (from net long-term capital
gains) to shareholders during the fiscal year ended January 31, 1999, all of
which are designated as a 20% rate gain distribution.
36
<PAGE> 39
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Founder, Senior Chairman of the Board, and Director/Trustee of The Vanguard
Group, Inc., and each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman of the Board, Chief Executive Officer, and Director/Trustee of The
Vanguard Group, Inc., and each of the investment companies in The Vanguard
Group.
JOANN HEFFERNAN HEISEN
Vice President, Chief Information Officer, and a member of the Executive
Committee of Johnson & Johnson; Director of Johnson & JohnsonoMerck Consumer
Pharmaceuticals Co., Women First HealthCare, Inc., Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co., The Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co.,
NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the
Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
<PAGE> 40
VANGUARD
MILESTONES
[GRAPHIC]
The Vanguard Group is
named for HMS Vanguard,
Admiral Horatio Nelson's flagship
at the Battle of the Nile on
August 1, 1798. Our founder,
John C. Bogle, chose the name
after reading Nelson's inspiring
tribute to his fleet: "Nothing could
withstand the squadron . . .
with the judgment of the captains,
together with their valour, and that
of the officers and men of every
description, it was absolutely irresistible."
[GRAPHIC]
Walter L. Morgan, founder of
Wellington Fund, the nation's
oldest balanced mutual fund
and forerunner of today's family
of some 100 Vanguard funds,
celebrated his 100th birthday on
July 23, 1998. Mr. Morgan,
a true investment pioneer, died
six weeks later on September 2.
[GRAPHIC]
Wellington Fund,
The Vanguard Group's oldest fund,
was incorporated by Mr. Morgan
70 years ago, on December 28, 1928.
The fund was named after
the Duke of Wellington,
whose forces defeated
Napoleon Bonaparte at the
Battle of Waterloo in 1815.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
Q120-03/23/1999
(C) 1999 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing
Corporation, Distributor.
