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VANGUARD
ADMIRAL FUNDS(R)
[PHOTO]
Annual Report
January 31, 2000
VANGUARD ADMIRAL
TREASURY MONEY
MARKET FUND
VANGUARD ADMIRAL
SHORT-TERM
TREASURY FUND
VANGUARD ADMIRAL
INTERMEDIATE-TERM
TREASURY FUND
VANGUARD ADMIRAL
LONG-TERM
TREASURY FUND
[THE VANGUARD GROUP LOGO]
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FELLOW SHAREHOLDERS:
[PHOTO]
John J. Bogle
Two roads diverged in a wood, and I--I took the one less traveled by, and that
has made all the difference.
I can think of no better words than those of Robert Frost to begin this special
letter to our shareholders, who have placed such extraordinary trust in me and
in Vanguard over the past quarter century. When the firm was founded 25 years
ago, we deliberately took a new road to managing a mutual fund enterprise.
Instead of having the funds controlled by an outside management company with its
own financial interests, the Vanguard funds--there were only 11 of them
then--would be controlled by their own shareholders and operate solely in their
financial interests. The outcome of our unprecedented decision was by no means
certain. We described it then as "The Vanguard Experiment."
Well, I guess it's fair to say it's an experiment no more. During the past
25 years, the assets we hold in stewardship for investors have grown from $1
billion to more than $500 billion, and I believe that our reputation for
integrity, fair-dealing, and sound investment principles is second to none in
this industry. Our staggering growth--which I never sought--has come in
important part as a result of the simple investment ideas and basichuman values
that are the foundation of my personal philosophy. I have every confidence that
they will long endure at Vanguard, for they are the right ideas and right
values, unshakable and eternal.
While Emerson believed that "an institution is the lengthened shadow of one
man," Vanguard today is far greater than any individual. The Vanguard crew has
splendidly implemented and enthusiastically supported our founding ideas and
values, and deserves the credit for a vital role in forging our success over the
years. It is a dedicated crew of fine human beings, working together in an
organization that is well prepared to press on regardless long after I am gone.
Creating and leading this enterprise has been an exhilarating run. Through it
all, I've taken the kudos and the blows alike, enjoying every moment to the
fullest, and even getting a second chance at life with a heart transplant four
years ago. What more could a man ask?
While I shall no longer be serving on the Vanguard Board, I want to assure
you that I will remain vigorous and active in a newly created Vanguard unit,
researching the financial markets, writing, and speaking. I'll continue to focus
whatever intellectual power and ethical strength I possess on my mission to
assure that mutual fund investors everywhere receive a fair shake. In the spirit
of Robert Frost:
But I have promises to keep, and miles to go before I sleep, and miles to go
before I sleep.
You have given me your loyalty and friendship over these long years, and I
deeply appreciate your thousands of letters of support. For my part, I will
continue to keep an eagle eye on your interests, for you deserve no less. May
God bless you all, always.
/S/ JOHN C BOGLE
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CONTENTS
REPORT FROM THE CHAIRMAN .............................................. 1
THE MARKETS IN PERSPECTIVE ............................................ 6
REPORT FROM THE ADVISER ............................................... 8
PERFORMANCE SUMMARIES ................................................. 10
FUND PROFILES ......................................................... 14
FINANCIAL STATEMENTS .................................................. 19
REPORT OF INDEPENDENT ACCOUNTANTS ..................................... 35
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REPORT FROM THE CHAIRMAN
[PHOTO]
JOHN J. BRENNAN
Interest rates rose sharply and the prices of U.S. Treasury bonds fell during
the 12 months ended January 31, 2000, as surprisingly strong economic growth
sparked fears of higher inflation. In this difficult environment--the worst for
bonds since fiscal 1995--two of the four Vanguard Admiral Funds posted negative
total returns.
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TOTAL RETURNS SEC
FISCAL YEAR ENDED ANNUALIZED
JANUARY 31, 2000 YIELD*
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<S> <C> <C>
ADMIRAL TREASURY
MONEY MARKET FUND 4.8% 5.16%
Average U.S. Treasury Money
Market Fund** 4.3
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.8
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ADMIRAL SHORT-TERM TREASURY FUND 1.4% 6.50%
Average Short U.S. Treasury Fund** 1.4
Lehman Brothers 1-5 Year
U.S. Treasury Bond Index 1.3
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ADMIRAL INTERMEDIATE-TERM
TREASURY FUND -4.3% 6.84%
Average Intermediate
U.S. Treasury Fund** -3.0
Lehman Brothers 5-10 Year
U.S. Treasury Bond Index -5.0
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ADMIRAL LONG-TERM TREASURY FUND -8.3% 6.71%
Average General
U.S. Treasury Fund** -6.2
Lehman Brothers Long
U.S. Treasury Bond Index -8.3
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</TABLE>
*7-day yield for the Money Market Fund; 30-day yield for other funds.
**Derived from data provided by Lipper Inc.
Not surprisingly, bonds with shorter maturities, whose prices are less
sensitive to changing interest rates than those with longer maturities, did
better during fiscal 2000. Our Treasury Money Market Fund earned 4.8% for the
year, the highest return of the four funds. Our Short-Term Treasury Fund posted
a modest return of 1.4%. But a decline of nearly 14% in the market value of
bonds held by our Long-Term Treasury Fund resulted in a net total return of
- -8.3%. Our Intermediate-Term Treasury Fund returned -4.3%.
As we noted in our report a year ago, fluctuating interest rates will
cause significant swings in the total returns (capital change plus reinvested
dividends) of bond funds, especially for our Intermediate- and Long-Term
Treasury Funds, whose holdings have, on average, longer maturities than those of
most peer funds. This year's negative capital return (or price change) for our
Long-Term Treasury Fund was preceded by positive capital returns of 5.9% in
fiscal 1999 and 9.8% in fiscal 1998. Over long periods, the ups and downs of
capital returns tend to cancel each other out, leaving the interest income
earned by your funds as the dominant factor in their returns. Indeed, for
long-term investors in bond funds, an increase in interest rates is good news.
The table above presents the 12-month total return 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. The positive side of the past year's surge in interest rates is that
our funds' yields were up considerably from a year before--by 0.60 percentage
point (60 basis points) for the Treasury Money Market Fund; 1.77 percentage
points for the Short-Term Treasury Fund; 1.88 for the Intermediate-Term Treasury
Fund; and 1.41 for the Long-Term Treasury Fund. The important point about higher
yields is that reinvested income is more productive. Per-share figures for each
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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 12 months ended January 31, the economy continued its stupendous
growth unabated. The unemployment rate reached a 30-year low, and consumer
confidence was at an all-time high. However, good economic news is often bad
news for bonds. Bond investors viewed the continued economic expansion with fear
because higher growth rates can ignite higher inflation, the enemy of bonds.
(Rising prices diminish the purchasing power of a bond's interest payments,
making bonds less attractive.) Indeed, the Consumer Price Index did record an
increase in the inflation rate--to 2.7% during the year ended January 31, from a
1.7% rate during the previous 12 months. However, much of the increase stemmed
from a spike in oil prices, which many analysts regard as a one-time event.
The yield of the 30-year Treasury bond rose 1.4 percentage points to
6.49% during the period, and the yield of the 10-year Treasury jumped more than
2 percentage points to 6.67%--to almost 0.20 percentage point above the 30-year
bond's yield. Investors were thus being paid more for taking less risk--a
striking illustration of stress in the bond market. The yield of 3-month T-bills
rose to 5.69% from 4.45% a year ago. The Lehman Aggregate Bond Index--which
measures the entire taxable U.S. bond market and has an intermediate-term
average maturity--returned -1.9%. The Lehman Long Treasury Index returned -8.3%.
The Federal Reserve Board, seeking to slow the economy and preempt any
acceleration in inflation, increased short-term interest rates three times, by a
total of 75 basis points, during the fiscal year. Surprisingly, higher interest
rates did not stop the U.S. stock market's ascent, despite some sharp interim
setbacks.
The Wilshire 5000 Total Market Index, which tracks the entire U.S. stock
market, gained 14.4% during the fiscal year. Small- and mid-capitalization
stocks managed to outpace large-cap stocks for the first time in several years:
The large-cap-dominated Standard & Poor's 500 Index gained 10.3%, less than
one-third of the remarkable 31.7% gain of the Wilshire 4500 Completion Index
(measuring the total U.S. market except for the S&P 500 stocks). Growth stocks,
particularly technology-related issues, drove most of the gains.
FISCAL 2000 PERFORMANCE OVERVIEW
Among the Vanguard Admiral Funds, only the Treasury Money Market Fund exceeded
the average return for its peer group. Our Short-Term Treasury Fund matched its
peer group average, but the longer average maturities of our Intermediate-Term
and Long-Term Funds caused them to trail their average competitors for the first
time since fiscal 1997.
Our TREASURY MONEY MARKET FUND maintained its $1 share price, as is
expected but not guaranteed. Its 4.8% return outpaced the 4.3% gain of the
average Treasury money market fund and matched the return of its unmanaged
benchmark index.
The 1.4% return of our SHORT-TERM TREASURY FUND matched that of its
average peer and was slightly ahead of that of its index. Though the market
value of the fund's holdings declined -3.9%, its interest income more than
offset the drop.
However, interest income wasn't enough to compensate for the drop in
value in the remaining two funds. Our INTERMEDIATE-TERM TREASURY FUND, with an
average maturity of almost 8 years, or about 3 years longer than its peers, had
a return of -4.3%, coming in 1.3 percentage points behind its average
competitor, but a bit ahead of its index. The -8.3% return of our LONG-TERM
TREASURY FUND, which is about twice as sensitive to
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interest-rate changes as our Intermediate-Term fund, matched the return of its
benchmark index but was 2.1 percentage points behind that of its average peer,
which had an average maturity about four years shorter than our fund.
The table at right breaks each fund's total return into its income and
capital components and shows each fund's yield on January 31, 1999, and January
31, 2000.
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TOTAL RETURNS
ANNUALIZED FISCAL YEAR ENDED
YIELDS* ON JANUARY 31, 2000
JANUARY 31, ---------------------------
ADMIRAL ----------- INCOME CAPITAL TOTAL
TREASURY FUND 1999 2000 RETURN RETURN RETURN
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<S> <C> <C> <C> <C> <C>
Money Market 4.56% 5.16% 4.8% 0.0% 4.8%
Short-Term 4.73 6.50 5.3 -3.9 1.4
Intermediate-Term 4.96 6.84 5.6 -9.9 -4.3
Long-Term 5.30 6.71 5.4 -13.7 -8.3
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</TABLE>
*7-day yield for the Treasury Money Market Fund; 30-day yield for other funds.
LIFETIME PERFORMANCE OVERVIEW
Over a longer period, the Vanguard Admiral Funds have provided excellent
results, as each has earned returns superior to its peer-group average. In the
case of the Long-Term Treasury Fund, our return since inception has exceeded
that of the competitive group by an average of 1.6 percentage points a year--a
substantial margin. The table below summarizes each fund's return since
inception on December 14, 1992, and compares it with those of comparable
fixed-income mutual funds and a relevant market index. The table also shows how
hypothetical $50,000 investments in our funds, their average competitors, and
their indexes would have grown over the period.
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TOTAL RETURNS
DECEMBER 14, 1992, TO JANUARY 31, 2000
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AVERAGE FINAL VALUE OF
ANNUAL A $50,000
RETURN INITIAL INVESTMENT
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ADMIRAL TREASURY
MONEY MARKET FUND 4.7% $69,491
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Average Treasury
Money Market Fund 4.3 67,352
Salomon Smith Barney
3-Month Treasury Index 4.8 69,626
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ADMIRAL SHORT-TERM
TREASURY FUND 5.5% $73,020
Average Short Treasury Fund 5.0 70,848
Lehman 1-5 Year
Treasury Index 5.6 73,892
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ADMIRAL INTERMEDIATE-TERM
TREASURY FUND 6.2% $77,022
Average Intermediate
Treasury Fund 5.5 73,174
Lehman 5-10 Year
Treasury Index 6.4 77,611
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ADMIRAL LONG-TERM
TREASURY FUND 7.6% $84,325
Average General
Treasury Fund 6.0 75,688
Lehman Long
Treasury Index 7.8 85,615
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</TABLE>
The Performance Summaries on pages 10 through 13 include graphs 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.
Our fine longer-term performance stems from skilled investment management
by the managers in Vanguard's Fixed Income Group and from our low costs, which
give us a distinct advantage over our peers. 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 in net assets), far lower than the 0.59% to 0.96% ($5.90 to
$9.60 per $1,000 in assets) charged by our average competitors.
A bond fund's expenses directly reduce the income it provides to
shareholders.
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The drag of higher costs is especially evident in Treasury bond funds, which
must compete while investing in the same pools of securities. Over time, cost
differences account for virtually all of the variation in total returns among
funds investing in Treasuries with similar maturities.
Low costs keep our returns from straying too far from those of our
benchmark indexes, which exist only on paper and don't incur the operating and
transaction costs that real-world mutual funds must bear. Since their
inceptions, our funds have provided annualized returns within 0.2 percentage
point of the returns of their indexes.
In past reports, when falling interest rates augmented the returns on our
funds, we cautioned against expecting interest rates to move only in one
direction. Similarly, we now caution against undue pessimism after a year of
disappointing returns. Fluctuations in interest rates are to be expected,
although their timing and magnitude are unpredictable. For long-term investors,
such fluctuations do nothing to negate the important attributes of bond funds:
an ongoing stream of income along with diversification to balance out some of
the risk of stock holdings.
IN SUMMARY
The recent difficulties in the bond market may prompt investors to question the
value of diversification. But abandoning laggards and chasing winners is a risky
strategy. As the last month of the fiscal year showed, the stock market can be
volatile, and consistently stellar returns are by no means guaranteed.
The huge disparity between stock and bond returns has not shaken our
belief that investors are best served by selecting and sticking with a mix of
stock, bond, and money market funds appropriate to their investment time
horizon, goals, and risk tolerance. A well-balanced portfolio provides some
exposure to the market's upside while limiting some of the downside. Investors
should keep their eyes on the far horizon and not let turbulence sway them from
their course.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer
February 15, 2000
A NOTE OF THANKS TO OUR FOUNDER
As you may have read on the inside cover of our report, our founder, John C.
Bogle, retired on December 31, 1999, as Senior Chairman of our Board after
nearly 25 years of devoted service to Vanguard and our shareholders. Vanguard
investors have Jack to thank for creating a truly mutual mutual fund company
that operates solely in the interest of its fund shareholders. And mutual fund
investors everywhere have benefited from his energetic efforts to improve this
industry. Finally, on a personal note, I am forever grateful to Jack for giving
me the opportunity to join this great company in 1982.
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PORTFOLIO STATISTICS
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NET ASSET VALUE
PER SHARE 12 MONTHS SEC
JANUARY 31, ----------------------- 30-DAY
---------------- INCOME CAPITAL ANNUALIZED
ADMIRAL FUND 1999 2000 DIVIDENDS GAINS* YIELD
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<S> <C> <C> <C> <C> <C>
Treasury Money Market $ 1.00 $ 1.00 $0.047 -- 5.16%**
Short-Term Treasury 10.22 9.81 0.532 $0.017 6.50
Intermediate-Term Treasury 10.94 9.82 0.610 0.042 6.84
Long-Term Treasury 11.72 10.02 0.636 0.103 6.71
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</TABLE>
*Includes long-term and short-term capital gains distributions.
**7-day yield.
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THE MARKETS IN PERSPECTIVE
YEAR ENDED JANUARY 31, 2000
The surprising strength of global economic growth was something of a tonic for
stocks but seemed toxic for bonds during the fiscal year ended January 31, 2000.
Interest rates soared--causing bond prices to fall--as investors and
central banks worried that the rapid expansion in economic activity would cause
inflation to worsen. Financial markets were anything but boring, as day-to-day
price fluctuations for bonds and stocks were pronounced during the period.
U.S. STOCK MARKETS
The U.S. economy's performance was superlative during the fiscal year. Economic
output grew at an inflation-adjusted rate of about 4%, a very rapid pace for a
huge economy that has been expanding without pause for a record 107
months--nearly nine years. Growth also picked up in Asia and Europe. U.S.
unemployment fell to 4.0% of the workforce, the lowest rate in 30 years.
Inflation accelerated a bit--largely due to a 125% increase in oil prices--but
the 2.7% increase in the Consumer Price Index (CPI) was hardly extreme.
Corporate profits rose at a double-digit rate, providing some support for stock
prices, which ordinarily are hurt by rising interest rates. Even so, some of the
biggest gains were in stocks of companies with no profits at all.
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AVERAGE ANNUAL RETURNS
---------------------------------
PERIODS ENDED JANUARY 31, 2000
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1 YEAR 3 YEARS 5 YEARS
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STOCKS
S&P 500 Index 10.3% 22.9% 26.6%
Russell 2000 Index 17.7 11.7 16.6
Wilshire 5000 Index 14.4 22.2 25.5
MSCI EAFE Index 19.6 14.9 12.6
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BONDS
Lehman Aggregate Bond Index -1.9% 5.5% 7.2%
Lehman 10 Year Municipal Bond Index -3.1 4.5 6.5
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.8 5.0 5.2
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OTHER
Consumer Price Index 2.7% 2.0% 2.3%
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</TABLE>
The overall market, as measured by the Wilshire 5000 Total Market Index,
recorded a 14.4% return, despite a -4.1% decline in the final month of the
fiscal year. Small- and mid-capitalization stocks, which had lagged large-cap
stocks for most of the previous five years, were the star performers. The 10.3%
return of the large-cap S&P 500 Index, which represents more than 75% of the
total market's value, badly trailed the 31.7% return of the rest of the market,
as measured by the Wilshire 4500 Completion Index.
The rise in the market averages obscured extremely wide variations in
returns for various sectors. The small "other energy" category, home to oil
exploration and services companies that benefited from pricier oil, soared 56%.
But the consumer-staples group, which includes a number of big beverage, food,
and tobacco companies, posted a horrid -19% return. Technology companies, which
have become the market's largest sector, returned 38%. So did the
producer-durables group, which includes several fast-growing makers of
high-technology and telecommunications equipment. Higher fuel prices were a
factor in the -13% decline for the auto & transportation group.
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In general, the market rewarded rapid growth and even the prospect of
rapid growth while punishing sectors where actual or expected growth was subpar.
This wide disparity based on expectations is reflected in the price/earnings
(P/E) ratios for various sectors. For example, as of January 31, technology
stocks in the S&P 500 Index had a market-cap weighted average P/E ratio of 56,
more than five times the average P/E of 10 for auto & transportation stocks.
U.S. BOND MARKETS
Bond prices, which move in the opposite direction from interest rates, dropped
almost continuously throughout the fiscal year. In part, the rise in rates
reflected more borrowing by corporations and individuals. But a major factor was
the anticipation that the U.S. economy's strong expansion would either rekindle
inflation or force the Federal Reserve Board to keep boosting rates to counter
that threat.
Official inflation gauges sent ambiguous signals. The CPI rose 2.7%
during the 12 months ended January 31, versus 1.7% during the previous 12
months. However, the CPI's "core rate," which excludes energy and food prices,
gained a relatively modest 1.9%.
The Fed, trying to cool the economy, raised its target for short-term
interest rates on June 30 by one-quarter percentage point. It did so by a
quarter-point again in August and November and, just after the end of our fiscal
year, on February 2--a total increase of 1 full point in just over seven months.
For the year, the Lehman Aggregate Bond Index, which has an
intermediate-term average maturity and is a proxy for the entire taxable bond
market, posted a -1.9% decline. On balance, yields rose by about 2 percentage
points for intermediate-term U.S. Treasury securities. The 10-year Treasury's
yield was 6.67% on January 31, 202 basis points above its 4.65% yield a year
earlier. The rate increase was less pronounced--140 basis points--for 30-year
Treasury bonds, which benefited because the federal government's growing budget
surplus is reducing the supply of long-term securities.
This led late in the fiscal year to an unusual "inversion" of the yield
curve--instead of the usual upward-sloping curve, with yields rising steadily
along with the maturity of Treasury bonds, the highest yields were for
shorter-term bonds. As of January 31, for example, the yield of 3-year Treasury
notes was 6.69%, while 30-year bonds yielded 6.49%. Short-term rates, which are
most influenced by the Fed's moves, increased about 125 basis points; the yield
on 3-month Treasury bills rose to 5.69% on January 31, 124 basis points above
the level when the fiscal year began.
INTERNATIONAL STOCK MARKETS
Expanding economic activity and increased merger and acquisition activity were
foundations of a strong year in international stock markets, which generally
outperformed Wall Street. The biggest returns were from Pacific-region and
emerging markets that bounced back from severe slumps in the previous two years.
The overall return for U.S. investors from developed markets was 19.6%,
as measured by the Morgan Stanley Capital International Europe, Australia, Far
East Index. The MSCI Pacific Free Index was up 48.0% in U.S.-dollar terms, as
returns of 38.5% in local currencies were boosted nearly 10 percentage points
due to a rise in the value of the Japanese yen versus the dollar. In Europe,
currency fluctuations had the opposite effect: A 20.8% local return was reduced
to 8.3% for U.S. investors because the value of European currencies generally
slumped versus the dollar.
Emerging stock markets enjoyed a remarkable rebound. The Select Emerging
Markets Free Index returned 57.8%, making up almost all the ground lost in the
two previous years.
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REPORT FROM THE ADVISER
The fiscal year ended January 31, 2000, was an ugly period for bond investors.
Interest rates moved steadily higher in response to a strong economy that
prompted the Federal Reserve Board to tighten monetary policy by raising rates.
For shareholders of the Admiral Short-Term, Intermediate-Term, and Long-Term
Treasury Funds, increasing market interest rates eroded net asset values. For
the Admiral Treasury Money Market Fund, which seeks to maintain a stable net
asset value of $1 per share, the rise in rates translated into higher returns.
As the fiscal year began, the bond market was recovering from a chaotic
period following Russia's default on its debts in August 1998. The Russian
crisis initiated a wave of fear that engulfed global markets. As fear triumphed
over greed, investors seeking quality and liquidity flocked to U.S. Treasury
securities. Their buying pushed yields down to levels not seen in a generation.
On October 5, 1998, the benchmark 30-year Treasury bond yielded 4.72%. The
markets in other fixed-income securities (corporate bonds, mortgages, and
asset-backed securities) were near gridlock, so the Fed reduced short-term
interest rates three times to improve liquidity.
The Fed's rate reductions had the desired effect: Liquidity improved for
other segments of the bond market, with spreads between bid and offering prices
returning to near-normal levels that had prevailed in the first half of 1998. By
early 1999, as the specter of financial Armageddon receded in investors' minds,
the market began to see a reversal of the flight to quality that had sent buyers
flocking to Treasuries. Investors began to focus on economic news to determine
price levels. What they saw was an American economy that was growing very
rapidly, propelled by strong consumer spending and capital investment. Real
(inflation-adjusted) gross domestic product grew at a rate of about 4% for all
of 1999, and in the second half of the year growth accelerated to an annualized
rate of nearly 6%. The demand for workers by U.S. companies caused the
unemployment rate to fall to a 30-year low. Although inflation remained subdued,
the bond market was plagued by concern that the Fed would raise interest rates
to forestall a future rise in prices. The Fed, indeed, raised its target for
short-term rates three times in increments of 25 basis points, (four times, if
we count the increase on February 2, after our year-end). Investors had
anticipated those increases by selling bonds, which caused the steady rise in
rates that we saw during the fiscal year. The 30-year Treasury bond closed the
period with a yield of 6.49%, up 1.4 percentage points from its opening level.
Yields increased even more for many other segments of the Treasury bond
market. In January 2000, the Treasury announced that current and projected
federal budget surpluses would enable it to cut back the issuance of 30-year
bonds and that it would begin buying back outstanding long-term bonds. The
prospect of a shrinking supply of bonds with maturities of 15 years or more
resulted in greater demand for these bonds, so their yields rose more slowly
than yields on shorter-term instruments. Yields on Treasuries with maturities
between 2 and 10 years, for example, rose a bit more than 2 percentage points
during the fiscal year.
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Although corporate and mortgage-backed securities also were hurt by the
rise in market rates, they generally suffered less than Treasuries. Investors
who shunned these sectors a year ago were eager purchasers during fiscal 2000,
causing a narrowing in the gap between yields of these bonds and those of
Treasuries.
A REVIEW OF OUR FUNDS
The rise in interest rates and the resulting fall in bond prices caused negative
capital returns for our three bond funds, offsetting much or all of the income
they generated. (A breakdown of capital and income returns is presented in the
Chairman's report on page 3.)
During fiscal 2000, our Short-Term, Intermediate-Term, and Long-Term
Treasury Funds maintained average durations below those of their index
benchmarks. We thus were able to mitigate some of the damage done to net asset
values by rising interest rates (a longer duration implies increased sensitivity
to rate changes). However, our Intermediate- and Long-Term Funds typically have
higher average duration than their mutual fund peers, a characteristic that
hurts when interest rates are rising, as during the past year. We adjusted the
average maturity of the Admiral Treasury Money Market Fund's holdings--sometimes
raising it and sometimes lowering it--at various points during the year based on
our diagnosis of supply/demand conditions in the short-term Treasury market and
our anticipation of Fed policy changes.
THE RISKS AHEAD
At this point, the market appears to have "priced in" additional Fed tightening
of monetary policy. The consensus view is that the Fed will raise its target
federal funds rate an additional 0.50% by mid-2000. Whether such steps will slow
the economy enough to suit the Fed is debatable. However, the rise in yields
since autumn 1998 has significantly boosted income from bonds, something that
will help counter the blow to prices if the Fed does raise rates further than
expected. Corporate bonds provide attractive yield premiums if we are correct in
our view that the economy will continue growing at a healthy pace.
The Vanguard Admiral Funds provide a full range of Treasury maturity
options so that investors can select the fund whose characteristics best suit
their needs. We remain committed to providing disciplined portfolio management
at the lowest possible cost.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
John W. Hollyer, Principal
David R. Glocke, Principal
Vanguard Fixed Income Group
February 15, 2000
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.
9
<PAGE> 12
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 that returns can
fluctuate. An investment in a money market fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the fund.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 2000
- ------------------------------------------------------------
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
2000 0.0 4.8 4.8 4.3
- -----------------------------------------------------------
</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 (1/31/2000): 5.16%
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 2000
- ------------------------------------------------------------------------------------
Money Market Average Treasury Salomon S. Barney
Admiral Treasury Money Market Fund 3-Month Treasury Index
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 50205 50190 50210
1993 04 50564 50511 50573
1993 07 50937 50836 50958
1993 10 51318 51167 51351
1994 01 51706 51500 51748
1994 04 52104 51839 52173
1994 07 52606 52285 52713
1994 10 53187 52814 53321
1995 01 53874 53447 54039
1995 04 54623 54125 54804
1995 07 55402 54847 55597
1995 10 56161 55550 56368
1996 01 56922 56253 57133
1996 04 57637 56875 57844
1996 07 58377 57535 58587
1996 10 59137 58211 59358
1997 01 59901 58897 60121
1997 04 60652 59548 60882
1997 07 61453 60262 61671
1997 10 62257 60994 62470
1998 01 63083 61736 63279
1998 04 63892 62442 64080
1998 07 64724 63190 64891
1998 10 65549 63921 65699
1999 01 66314 64588 66431
1999 04 67047 65208 67159
1999 07 67809 65876 67927
1999 10 68615 66587 68747
2000 01 69491 67352 69626
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
------------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Treasury Money Market Fund 4.79% 5.22% 4.72% $69,491
Average Treasury Money Market Fund* 4.28 4.73 4.27 67,352
Salomon Smith Barney 3-Month Treasury Index 4.81 5.20 4.75 69,626
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- ------------------------------------------------------------------------------------------------------------------
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 4.74% 5.23% 0.00% 4.72% 4.72%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
10
<PAGE> 13
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. An investor's shares, when redeemed, could
be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 2000
- ------------------------------------------------------------
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 -2.0
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
2000 -3.9 5.3 1.4 1.3
- -----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Treasury Index.
See Financial Highlights table on page 30 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: DECEMBER 14, 1992-JANUARY 31, 2000
- ------------------------------------------------------------------
Admiral Short-Term Average Short Lehman 1-5 Year
Treasury Treasury Fund Treasury Index
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 51176 50958 51165
1993 04 52300 51885 52334
1993 07 52573 52177 52814
1993 10 53405 53144 53753
1994 01 53989 53613 54297
1994 04 52844 52316 52907
1994 07 53519 52923 53623
1994 10 53591 53453 53565
1995 01 54297 53908 54231
1995 04 56002 55089 56024
1995 07 57691 56464 57784
1995 10 58889 58087 59066
1996 01 60494 59601 60750
1996 04 59874 58515 60085
1996 07 60638 59095 60853
1996 10 62212 60991 62516
1997 01 62945 61603 63223
1997 04 63485 61646 63745
1997 07 65143 63220 65648
1997 10 66178 64639 66786
1998 01 67485 65897 68217
1998 04 68046 65788 68742
1998 07 69133 66767 69856
1998 10 71664 69571 72596
1999 01 72006 69897 72958
1999 04 72157 69341 73011
1999 07 72114 69397 73139
1999 10 73022 70718 73990
2000 01 73020 70848 73892
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Short-Term Treasury Fund 1.41% 6.10% 5.45% $73,020
Average Short Treasury Fund* 1.36 5.62 5.01 70,848
Lehman 1-5 Year Treasury Index 1.28 6.38 5.63 73,892
- ------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- --------------------------------------------------------------------------------------------------------------
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 1.86% 6.46% -0.05% 5.59% 5.54%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 2000
- -----------------------------------------------------------------
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
2000 -9.9 5.6 -4.3 -5.0
- -----------------------------------------------------------------
</TABLE>
*Lehman 5-10 Year 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, 2000
- --------------------------------------------------------------------------------
Admiral Intermediate Average Intermediate Lehman 5-10 Year
Term Treasury Treasury Fund Treasury Index
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 51875 51675 51888
1993 04 53828 53317 53815
1993 07 54949 54201 55242
1993 10 56577 55756 57050
1994 01 57008 56321 57404
1994 04 53709 53610 53784
1994 07 54543 54043 54613
1994 10 53626 53526 53547
1995 01 54917 54637 54844
1995 04 57536 56548 57603
1995 07 60442 58151 60566
1995 10 62865 59960 63019
1996 01 65437 62915 65604
1996 04 62545 60631 62626
1996 07 63252 60692 63352
1996 10 65876 62574 66088
1997 01 66285 63940 66476
1997 04 66549 64020 66559
1997 07 69775 66160 70200
1997 10 71277 67211 71865
1998 01 73562 70136 74248
1998 04 73670 70236 74379
1998 07 75360 70745 76090
1998 10 79914 74180 81473
1999 01 80512 75445 81687
1999 04 78822 74373 79779
1999 07 77196 72507 78190
1999 10 78062 73068 78931
2000 01 77022 73174 77611
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Intermediate-Term Treasury Fund -4.33% 7.00% 6.25% $77,022
Average Intermediate Treasury Fund* -3.01 6.02 5.49 73,174
Lehman 5-10 Year Treasury Index -4.99 7.19 6.36 77,611
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- -----------------------------------------------------------------------------------------------------------------------
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 -3.43% 7.50% 0.12% 6.26% 6.38%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
12
<PAGE> 15
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: DECEMBER 14, 1992-JANUARY 31, 2000
- --------------------------------------------------------------
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
2000 -13.7 5.4 -8.3 -8.3
- --------------------------------------------------------------
</TABLE>
*Lehman Long 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, 2000
- -----------------------------------------------------------------------
Admiral Long-term Average General Lehman Long-term
Treasury Fund Treasury Fund Treasury Index
<S> <C> <C> <C>
12/14/92 50000 50000 50000
1993 01 51984 51668 51910
1993 04 54221 53465 54191
1993 07 57330 55847 57583
1993 10 60101 58002 60541
1994 01 60248 58054 60594
1994 04 54897 53999 54890
1994 07 55850 54724 55834
1994 10 53591 53310 53500
1995 01 56273 54832 56056
1995 04 59171 56850 59166
1995 07 63461 59721 63411
1995 10 67907 62969 67870
1996 01 71319 65552 71432
1996 04 65360 61546 65497
1996 07 66431 62175 66556
1996 10 70023 65167 70211
1997 01 70074 65702 70303
1997 04 70055 64925 70173
1997 07 75870 69002 76566
1997 10 78107 71058 79072
1998 01 82024 74309 83140
1998 04 81872 73554 83008
1998 07 84926 75247 86183
1998 10 90430 79429 91969
1999 01 91957 80648 93333
1999 04 87478 77261 88653
1999 07 84657 75352 85907
1999 10 85150 76236 86267
2000 01 84325 75688 85615
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 2000
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $50,000 INVESTMENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Admiral Long-Term Treasury Fund -8.30% 8.43% 7.60% $84,325
Average General Treasury Fund* -6.15 6.66 5.99 75,688
Lehman Long Treasury Index -8.27 8.84 7.83 85,615
- -------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED DECEMBER 31, 1999*
- -----------------------------------------------------------------------------------------------------------
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 -8.54% 8.71% 0.79% 6.72% 7.51%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
13
<PAGE> 16
FUND PROFILE
ADMIRAL TREASURY MONEY MARKET FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000. Key elements of this Profile are defined on page 15.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ------------------------------------------
<S> <C>
Yield 5.2%
Average Maturity 64 days
Average Quality Treasury
Expense Ratio 0.15%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY
(% OF PORTFOLIO)
- ------------------------------------------
<S> <C>
Treasury 100.0%
</TABLE>
14
<PAGE> 17
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 securities. 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).
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.
15
<PAGE> 18
FUND PROFILE
ADMIRAL SHORT-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 15.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ------------------------------------------------------------
ADMIRAL LEHMAN
SHORT-TERM INDEX*
- ------------------------------------------------------------
<S> <C> <C>
Number of Issues 33 5,567
Yield 6.5% 7.0%
Yield to Maturity 6.8% 7.4%
Average Coupon 6.0% 6.8%
Average Maturity 2.8 years 8.8 years
Average Quality Treasury Aaa
Average Duration 2.1 years 4.9 years
Expense Ratio 0.15% --
Cash Reserves 2.9% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- -----------------------------------
<S> <C>
AVERAGE MATURITY Short
CREDIT QUALITY Treasury/Agency
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ------------------------------------------------------------
ADMIRAL LEHMAN
SHORT-TERM INDEX*
- ------------------------------------------------------------
<S> <C> <C>
R-Squared 0.81 1.00
Beta 0.49 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------------
<S> <C>
Treasury 88.4%
Agency 11.6
- ------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------------
<S> <C>
Under 1 Year 2.3%
1-3 Years 54.0
3-5 Years 38.4
Over 5 Years 5.3
- ------------------------------------------------------------
Total 100.0%
</TABLE>
16
<PAGE> 19
FUND PROFILE
ADMIRAL INTERMEDIATE-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 15.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------------------------------------
ADMIRAL LEHMAN
INTERMEDIATE-TERM INDEX*
- -----------------------------------------------------------------
<S> <C> <C>
Number of Issues 29 5,567
Yield 6.8% 7.0%
Yield to Maturity 6.9% 7.4%
Average Coupon 7.2% 6.8%
Average Maturity 7.7 years 8.8 years
Average Quality Treasury Aaa
Average Duration 5.2 years 4.9 years
Expense Ratio 0.15% --
Cash Reserves 3.2% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- -----------------------------------
<S> <C>
AVERAGE MATURITY Medium
CREDIT QUALITY Treasury/Agency
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------------------
ADMIRAL LEHMAN
INTERMEDIATE-TERM INDEX*
- -----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.93 1.00
Beta 1.34 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------------------------
<S> <C>
Treasury 87.5%
Agency 12.5
- -----------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -----------------------------------------------------------------
<S> <C>
Under 1 Year 1.9%
1-5 Years 5.0
5-10 Years 88.7
10-20 Years 3.2
20-30 Years 1.2
Over 30 Years 0.0
- -----------------------------------------------------------------
Total 100.0%
</TABLE>
17
<PAGE> 20
FUND PROFILE
ADMIRAL LONG-TERM TREASURY FUND
This Profile provides a snapshot of the fund's characteristics as of January 31,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 15.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ------------------------------------------------------------------
ADMIRAL LEHMAN
LONG-TERM INDEX*
- ------------------------------------------------------------------
<S> <C> <C>
Number of Issues 21 5,567
Yield 6.7% 7.0%
Yield to Maturity 6.7% 7.4%
Average Coupon 7.2% 6.8%
Average Maturity 19.9 years 8.8 years
Average Quality Treasury Aaa
Average Duration 9.7 years 4.9 years
Expense Ratio 0.15% --
Cash Reserves 4.7% --
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
INVESTMENT FOCUS
- -----------------------------------
<S> <C>
AVERAGE MATURITY Long
CREDIT QUALITY Treasury/Agency
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ------------------------------------------------------------------
ADMIRAL LEHMAN
LONG-TERM INDEX*
- ------------------------------------------------------------------
<S> <C> <C>
R-Squared 0.88 1.00
Beta 2.02 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Treasury 88.6%
Agency 11.4
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- ------------------------------------------------------------------
<S> <C>
Under 1 Year 2.7%
1-5 Years 0.0
5-10 Years 14.8
10-20 Years 23.8
20-30 Years 58.7
Over 30 Years 0.0
- ------------------------------------------------------------------
Total 100.0%
</TABLE>
18
<PAGE> 21
FINANCIAL STATEMENTS
JANUARY 31, 2000
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)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES (101.6%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bill 5.101%-5.166% 2/3/2000 $ 228,295 $ 228,230
U.S. Treasury Bill 5.13%-5.256% 3/2/2000 481,560 479,501
U.S. Treasury Bill 5.05%-5.258% 2/10/2000 570,240 569,527
U.S. Treasury Bill 5.166%-5.281% 3/9/2000 604,638 601,415
U.S. Treasury Bill 5.285%-5.351% 3/16/2000 122,246 121,466
U.S. Treasury Bill 5.192%-5.373% 2/17/2000 150,000 149,655
U.S. Treasury Bill 5.337%-5.464% 3/23/2000 216,000 214,370
U.S. Treasury Bill 5.561% 6/1/2000 6,932 6,805
U.S. Treasury Bill 5.611% 6/15/2000 734 719
U.S. Treasury Bill 5.859% 8/3/2000 165,000 160,254
U.S. Treasury Note 4.50% 9/30/2000 48,438 47,941
U.S. Treasury Note 5.125% 8/31/2000 150,000 149,277
U.S. Treasury Note 5.375% 7/31/2000 110,000 109,707
U.S. Treasury Note 5.50% 2/29/2000 495,000 495,085
U.S. Treasury Note 5.625% 4/30/2000 7,351 7,354
U.S. Treasury Note 5.875% 2/15/2000 313,142 313,233
U.S. Treasury Note 6.00% 8/15/2000 255,000 255,086
U.S. Treasury Note 6.375% 5/15/2000 809,720 811,852
U.S. Treasury Note 6.75% 4/30/2000 382,000 383,256
U.S. Treasury Note 6.875% 3/31/2000 465,000 466,174
U.S. Treasury Note 7.125% 2/29/2000 135,000 135,199
U.S. Treasury Note 8.50% 2/15/2000 30,699 30,734
- -------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $5,736,840) 5,736,840
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
MARKET AT
VALUE*
(000)
ADMIRAL TREASURY MONEY MARKET FUND
- ----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.6%)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note B $ 191,760
Payables for Investment Securities Purchased (250,005)
Other Liabilities (30,799)
-----------
(89,044)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------------
Applicable to 5,647,769,510 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $5,647,796
============================================================================================================================
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>
- -----------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $5,647,769 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 27 --
Unrealized Appreciation -- --
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,647,796 $1.00
=============================================================================================================================
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
ADMIRAL SHORT-TERM TREASURY FUND COUPON** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (97.1%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (85.6%)
U.S. Treasury Inflation-Indexed Note 3.375% 1/15/2007 $ 32,398 $ 30,596
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 10,262 9,925
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 15,605 15,536
U.S. Treasury Note 5.00% 2/28/2001 23,000 22,660
U.S. Treasury Note 5.625% 5/15/2001 22,000 21,757
U.S. Treasury Note 5.75% 4/30/2003 145,600 141,704
U.S. Treasury Note 6.125% 12/31/2001 20,600 20,416
U.S. Treasury Note 6.25% 4/30/2001 73,500 73,282
U.S. Treasury Note 6.25% 1/31/2002 93,000 92,364
U.S. Treasury Note 6.375% 1/31/2002 5,000 4,979
U.S. Treasury Note 6.50% 5/31/2001 3,000 2,999
U.S. Treasury Note 6.50% 8/31/2001 95,900 95,768
U.S. Treasury Note 6.625% 7/31/2001 127,000 127,103
U.S. Treasury Note 7.50% 11/15/2001 39,800 40,366
U.S. Treasury Note 7.875% 8/15/2001 20,000 20,370
Banco Nacional de Comercio Exterior
(U.S. Government Guaranteed) 6.475% 5/15/2000 (1) 589 589
Bariven, SA Eximbank Guaranteed Export Financing
(U.S. Government Guaranteed) 6.277% 4/15/2001 (1)(3) 2,400 2,395
Eximbank Guaranteed Export Financing
(U.S. Government Guaranteed) 5.73% 1/15/2003 (1)(2) 25,712 25,284
Guaranteed Export Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 6,261 6,284
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.104% 7/15/2003 (1) 23,333 22,834
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.10% 6/30/2007 (1) 16,285 14,997
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.696% 2/1/2005 (1) 5,500 5,297
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.735% 1/15/2002 (1) 4,333 4,325
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.76% 6/15/2006 (1) 20,000 19,184
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.926% 6/15/2005 (1) 10,335 9,945
Private Export Funding Corp. (U.S. Government Guaranteed) 5.73% 1/15/2004 65,950 62,534
Private Export Funding Corp. (U.S. Government Guaranteed) 6.31% 9/30/2004 10,000 9,627
Private Export Funding Corp. (U.S. Government Guaranteed) 6.45% 9/30/2004 40,000 38,605
-------
941,725
AGENCY BONDS & NOTES (6.0%) -------
Federal Farm Credit Bank 5.73% 7/28/2003 9,361 8,951
Federal Home Loan Mortgage Corp. 6.30% 6/1/2004 30,000 28,820
Federal National Mortgage Assn. 6.13% 6/3/2004 30,000 28,657
-----------
66,428
MORGAGE-BACKED SECURITIES (5.5%)
Federal Home Loan Mortgage Corp. 6.00% 8/1/2006 (1) 39,191 37,238
Federal National Mortgage Assn. 6.00% 8/1/2006 (1) 24,114 22,897
-----------
60,135
-----------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,091,431) 1,068,288
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.73% 2/1/2000 27,695 27,695
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 5.73% 2/1/2000 20,861 20,861
- --------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $48,556) 48,556
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.5%)
(COST $1,139,987) 1,116,844
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
ADMIRAL SHORT-TERM TREASURY FUND
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.5%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets---Note B $ 13,502
Liabilities--Note G (30,550)
-----------
(17,048)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 112,117,198 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,099,796
==========================================================================================================================
NET ASSET VALUE PER SHARE $9.81
==========================================================================================================================
</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. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At January 31, 2000, the
aggregate value of this security was $25,284,000 representing 2.3% of net
assets.
(3) Restricted security representing 0.2% of net assets at January 31, 2000.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,137,776 $10.15
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (14,837) (.13)
Unrealized Depreciation--Note F (23,143) (.21)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,099,796 $ 9.81
==========================================================================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
ADMIRAL INTERMEDIATE-TERM TREASURY FUND COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (96.8%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (84.4%)
U.S. Treasury Bond 7.50% 11/15/2016 $ $37,765 $ $40,651
U.S. Treasury Bond 10.375% 11/15/2012 (3) 180,850 218,174
U.S. Treasury Inflation-Indexed Note 3.875% 4/15/2029 15,982 14,953
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 39,262 39,090
U.S. Treasury Note 6.000% 8/15/2009 47,900 45,666
U.S. Treasury Note 6.125% 8/15/2007 146,300 141,055
U.S. Treasury Note 6.50% 8/15/2005 12,000 11,865
U.S. Treasury Note 6.50% 10/15/2006 45,100 44,470
U.S. Treasury Note 6.875% 5/15/2006 33,100 33,297
U.S. Treasury Note 7.00% 7/15/2006 142,200 143,933
U.S. Treasury Note 7.50% 2/15/2005 133,600 137,720
Export Funding Trust (U.S. Government Guaranteed) 8.21% 12/29/2006 (1) 6,915 7,091
Government Export Trust (U.S. Government Guaranteed) 6.00% 3/15/2005 (1) 6,553 6,380
Guaranteed Trade Trust (U.S. Government Guaranteed) 6.69% 1/15/2009 (1)(2) 16,201 15,670
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.39% 6/26/2006 (1) 1,549 1,543
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.46% 12/15/2005 (1) 8,348 8,378
Guaranteed Trade Trust (U.S. Government Guaranteed) 7.80% 8/15/2006 (1) 5,833 5,881
Guaranteed Trade Trust (U.S. Government Guaranteed) 8.17% 1/15/2007 (1) 2,333 2,392
Overseas Private Investment Corp. (U.S. Government Guaranteed) 5.94% 6/20/2006 (1) 3,421 3,281
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.08% 8/15/2004 (1) 17,184 16,662
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.726% 9/15/2010 (1) 8,609 8,308
Overseas Private Investment Corp. (U.S. Government Guaranteed) 6.75% 12/15/2008 (1) 12,000 11,725
Overseas Private Investment Corp. (U.S. Government Guaranteed) 7.05% 11/15/2013 (1) 37,500 36,450
Private Export Funding Corp. (U.S. Government Guaranteed) 5.25% 5/15/2005 29,100 26,507
Private Export Funding Corp. (U.S. Government Guaranteed) 5.87% 7/31/2008 49,800 44,893
Private Export Funding Corp. (U.S. Government Guaranteed) 6.49% 7/15/2007 5,500 5,242
Private Export Funding Corp. (U.S. Government Guaranteed) 7.11% 4/15/2007 13,235 13,081
-----------
1,084,358
-----------
AGENCY BONDS & NOTES (12.4%)
Federal National Mortgage Assn. 6.625% 9/15/2009 31,250 29,686
Federal National Mortgage Assn. 7.25% 1/15/2010 131,270 130,455
-----------
160,141
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $1,296,132) 1,244,499
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (18.9%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.73% 2/1/2000 23,933 23,933
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 5.73% 2/1/2000 218,663 218,663
- --------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $242,596) 242,596
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (115.7%)
(COST $1,538,728) 1,487,095
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
ADMIRAL INTERMEDIATE-TERM TREASURY FUND
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-15.7%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note B $ 22,275
Security Lending Collateral Payable to Brokers--Note G (218,663)
Other Liabilities (5,504)
-----------
(201,892)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 130,930,030 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $1,285,203
==========================================================================================================================
NET ASSET VALUE PER SHARE 9.82
==========================================================================================================================
</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. This security may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At January 31, 2000, the value
of this security was $15,670,000, representing 1.2% of net assets.
(3) Securities with a value of $1,206,000 have been segregated as initial margin
for open futures contracts.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,370,830 $10.47
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (33,804) (.26)
Unrealized Depreciation--Note F
Investment Securities (51,633) (.39)
Futures Contracts (190) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,285,203 $ 9.82
==========================================================================================================================
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
ADMIRAL LONG-TERM TREASURY FUND COUPON** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (95.3%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (84.0%)
U.S. Treasury Bond 6.00% 2/15/2026 $ 100 $ 92
U.S. Treasury Bond 6.125% 11/15/2027 1,450 1,365
U.S. Treasury Bond 6.375% 8/15/2027 16,265 15,804
U.S. Treasury Bond 6.50% 11/15/2026 26,590 26,237
U.S. Treasury Bond 6.625% 2/15/2027 19,450 19,496
U.S. Treasury Bond 6.75% 8/15/2026 (1) 37,960 38,592
U.S. Treasury Bond 6.875% 8/15/2025 2,350 2,422
U.S. Treasury Bond 7.500% 11/15/2016 13,505 14,537
U.S. Treasury Bond 7.875% 2/15/2021 56,079 63,467
U.S. Treasury Bond 8.125% 8/15/2019 29,058 33,453
U.S. Treasury Bond 8.125% 5/15/2021 68,125 79,043
U.S. Treasury Bond 8.875% 2/15/2019 46,003 56,521
U.S. Treasury Inflation-Indexed Note 3.875% 1/15/2009 4,782 4,625
U.S. Treasury Inflation-Indexed Note 3.875% 4/15/2029 9,171 8,580
U.S. Treasury Inflation-Indexed Note 4.25% 1/15/2010 4,501 4,482
U.S. Treasury Note 6.00% 8/15/2009 7,100 6,769
Private Export Funding Corp. (U.S. Government Guaranteed) 6.67% 9/15/2009 4,000 3,802
-----------
379,287
-----------
- --------------------------------------------------------------------------------------------------------------------------
AGENCY BONDS & NOTES (11.3%)
Federal Home Loan Bank 5.800% 9/2/2008 20,850 18,826
Federal Home Loan Mortgage Corp. 6.750% 9/15/2029 4,900 4,551
Federal National Mortgage Assn. 6.625% 9/15/2009 6,050 5,747
Federal National Mortgage Assn. 7.250% 1/15/2010 21,795 21,660
-----------
50,784
-----------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $444,338) 430,071
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.73% 2/1/2000 12,156 12,156
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 5.73% 2/1/2000 7,118 7,118
- --------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $19,274) 19,274
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.5%)
(COST $463,612) 449,345
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- --------------------------------------------------------------------------------------------------------------------------
ADMIRAL LONG-TERM TREASURY FUND
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note B $ 11,839
Liabilities--Note G (9,723)
----------
2,116
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 45,041,090 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $451,461
==========================================================================================================================
NET ASSET VALUE PER SHARE $10.02
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) Securities with a value of $5,083,000 have been segregated as initial margin
for open futures contracts.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT JANUARY 31, 2000, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $475,542 $10.56
Undistributed Net Investment Income -- --
Accumulated Net Realized Loss--Note E (9,799) (.22)
Unrealized Depreciation--Note F
Investment Securities (14,267) (.32)
Futures Contracts (15) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $451,461 $10.02
==========================================================================================================================
</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, 2000
----------------------------------------------------------------------
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $268,280 $66,991 $ 82,231 $ 29,179
Security Lending -- 180 209 35
---------------------------------------------------------------------
Total Income 268,280 67,171 82,440 29,214
---------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 693 158 172 61
Management and Administrative 6,332 1,381 1,526 522
Marketing and Distribution 1,150 263 275 91
Custodian Fees 52 10 15 11
Auditing Fees 9 7 7 6
Shareholders' Reports 89 21 27 15
Trustees' Fees and Expenses 6 1 2 1
---------------------------------------------------------------------
Total Expenses 8,331 1,841 2,024 707
Expenses Paid Indirectly--Note C (13) -- -- --
---------------------------------------------------------------------
Net Expenses 8,318 1,841 2,024 707
- --------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 259,962 65,330 80,416 28,507
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 37 (14,724) (33,603) (8,790)
Futures Contracts -- -- (113) --
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 37 (14,724) (33,716) (8,790)
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities -- (33,310) (106,972) (60,517)
Futures Contracts -- -- (205) (15)
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) -- (33,310) (107,177) (60,532)
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $259,999 $17,296 $(60,477) $ (40,815)
==========================================================================================================================
</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 ADMIRAL SHORT-TERM
MONEY MARKET FUND TREASURY FUND
--------------------------------------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 259,962 $ 221,665 $ 65,330 $ 51,308
Realized Net Gain (Loss) 37 (284) (14,724) 6,290
Change in Unrealized Appreciation (Depreciation) -- -- (33,310) 4,134
--------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 259,999 221,381 17,296 61,732
--------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (259,962) (221,665) (65,330) (51,308)
Realized Capital Gain -- -- (2,088) (4,773)
--------------------------------------------------------------------
Total Distributions (259,962) (221,665) (67,418) (56,081)
--------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 5,808,863 5,189,503 565,512 889,960
Issued in Lieu of Cash Distributions 244,537 206,536 51,770 44,624
Redeemed (5,462,597) (4,219,201) (724,694) (463,865)
--------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 590,803 1,176,838 (107,412) 470,719
- --------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 590,840 1,176,554 (157,534) 476,370
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 5,056,956 3,880,402 1,257,330 780,960
--------------------------------------------------------------------
End of Year $ 5,647,796 $5,056,956 $1,099,796 $1,257,330
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 5,808,863 5,189,503 56,468 87,237
Issued in Lieu of Cash Distributions 244,537 206,536 5,185 4,376
Redeemed (5,462,597) (4,219,201) (72,513) (45,568)
--------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 590,803 1,176,838 (10,860) 46,045
==========================================================================================================================
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ADMIRAL INTERMEDIATE-TERM ADMIRAL LONG-TERM
TREASURY FUND TREASURY FUND
--------------------------------------------------------------------
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------
2000 1999 2000 1999
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 80,416 $ 64,893 $ 28,507 $ 23,642
Realized Net Gain (Loss) (33,716) 20,371 (8,790) 6,371
Change in Unrealized Appreciation (Depreciation) (107,177) 17,871 (60,532) 17,628
--------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (60,477) 103,135 (40,815) 47,641
--------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (80,416) (64,893) (28,507) (23,642)
Realized Capital Gain (5,431) (969) (4,442) (2,175)
--------------------------------------------------------------------
Total Distributions (85,847) (65,862) (32,949) (25,817)
--------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 593,029 752,778 307,237 388,444
Issued in Lieu of Cash Distributions 66,698 51,403 25,103 19,302
Redeemed (588,132) (386,931) (305,846) (257,933)
--------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 71,595 417,250 26,494 149,813
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (74,729) 454,523 (47,270) 171,637
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year 1,359,932 905,409 498,731 327,094
--------------------------------------------------------------------
End of Year $1,285,203 $1,359,932 $451,461 $498,731
===========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 57,596 69,909 29,162 33,961
Issued in Lieu of Cash Distributions 6,530 4,776 2,390 1,685
Redeemed (57,479) (35,851) (29,053) (22,520)
--------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 6,647 38,834 2,499 13,126
===========================================================================================================================
</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 Portfolio Turnover Rate.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ADMIRAL TREASURY MONEY MARKET FUND
YEAR ENDED JANUARY 31,
----------------------
- ---------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<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 .047 .050 .052 .051 .055
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
----------------------------------------------------------------
Total from Investment Operations .047 .050 .052 .051 .055
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.047) (.050) (.052) (.051) (.055)
Distributions from Realized Capital Gains -- -- -- -- --
----------------------------------------------------------------
Total Distributions (.047) (.050) (.052) (.051) (.055)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
===========================================================================================================================
TOTAL RETURN 4.79% 5.12% 5.31% 5.24% 5.66%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $5,648 $5,057 $3,880 $3,247 $1,778
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 4.69% 4.97% 5.20% 5.12% 5.50%
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ADMIRAL SHORT-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.22 $10.15 $10.04 $10.23 $ 9.77
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .532 .548 .592 .587 .626
Net Realized and Unrealized Gain (Loss) on Investments (.393) .114 .110 (.190) .460
----------------------------------------------------------------
Total from Investment Operations .139 .662 .702 .397 1.086
----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.532) (.548) (.592) (.587) (.626)
Distributions from Realized Capital Gains (.017) (.044) -- -- --
----------------------------------------------------------------
Total Distributions (.549) (.592) (.592) (.587) (.626)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.81 $10.22 $10.15 $10.04 $10.23
===========================================================================================================================
TOTAL RETURN 1.41% 6.70% 7.21% 4.05% 11.41%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,100 $1,257 $781 $553 $426
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 5.32% 5.35% 5.89% 5.85% 6.22%
Portfolio Turnover Rate 120% 130% 81% 80% 95%
===========================================================================================================================
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ADMIRAL INTERMEDIATE-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
-----------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.94 $10.60 $10.17 $10.70 $ 9.58
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .610 .624 .645 .648 .665
Net Realized and Unrealized Gain (Loss) on Investments (1.078) .348 .430 (.530) 1.120
-------------------------------------------------------------
Total from Investment Operations (.468) .972 1.075 .118 1.785
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.610) (.624) (.645) (.648) (.665)
Distributions from Realized Capital Gains (.042) (.008) -- -- --
-------------------------------------------------------------
Total Distributions (.652) (.632) (.645) (.648) (.665)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.82 $10.94 $10.60 $10.17 $10.70
===========================================================================================================================
TOTAL RETURN -4.33% 9.45% 10.98% 1.30% 19.16%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,285 $1,360 $905 $659 $585
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 5.96% 5.80% 6.28% 6.37% 6.49%
Portfolio Turnover Rate 72% 63% 34% 52% 64%
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ADMIRAL LONG-TERM TREASURY FUND
YEAR ENDED JANUARY 31,
-------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.72 $11.12 $10.13 $11.06 $ 9.40
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .636 .654 .669 .681 .691
Net Realized and Unrealized Gain (Loss) on Investments (1.597) .653 .990 (.900) 1.749
-------------------------------------------------------------
Total from Investment Operations (.961) 1.307 1.659 (.219) 2.440
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.636) (.654) (.669) (.681) (.691)
Distributions from Realized Capital Gains (.103) (.053) -- (.030) (.089)
-------------------------------------------------------------
Total Distributions (.739) (.707) (.669) (.711) (.780)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.02 $11.72 $11.12 $10.13 $11.06
===========================================================================================================================
TOTAL RETURN -8.30% 12.11% 17.05% -1.75% 26.74%
===========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $451 $499 $327 $192 $186
Ratio of Total Expenses to Average Net Assets 0.15% 0.15% 0.15% 0.15% 0.15%
Ratio of Net Investment Income to Average Net Assets 6.05% 5.72% 6.41% 6.72% 6.66%
Portfolio Turnover Rate 55% 32% 13% 42% 125%
===========================================================================================================================
</TABLE>
31
<PAGE> 34
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.
32
<PAGE> 35
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 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, 2000, 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 $1,208 0.02% 1.2%
Short-Term Treasury 223 0.02 0.2
Intermediate-Term Treasury 264 0.02 0.3
Long-Term Treasury 90 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 the funds
maintain cash on deposit in their non-interest-bearing custody accounts. For the
year ended January 31, 2000, custodian fee offset arrangements reduced expenses
of the Admiral Treasury Money Market Fund by $13,000.
D. During the year ended January 31, 2000, 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 $1,445,015 $1,557,641
Intermediate-Term Treasury 1,062,084 941,824
Long-Term Treasury 267,627 250,584
- ------------------------------------------------------------------------------------------------
</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. The Admiral Long-Term Treasury Fund had
realized losses totaling $406,000 through January 31, 2000, 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, 2000, the funds had the following capital losses available
to offset future net capital gains:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
EXPIRATION
FISCAL YEARS ENDING AMOUNT
ADMIRAL FUND JANUARY 31, (000)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Treasury 2008-2009 $13,925
Intermediate-Term Treasury 2008-2009 33,921
Long-Term Treasury 2008-2009 9,360
- -------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (continued)
F. At January 31, 2000, net unrealized depreciation of investment securities for
federal income tax purposes was:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(000)
--------------------------------------------------------------
NET
APPRECIATED DEPRECIATED UNREALIZED
ADMIRAL FUND SECURITIES SECURITIES DEPRECIATION
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Treasury $ 66 $(23,209) $(23,143)
Intermediate-Term Treasury 513 (52,146) (51,633)
Long-Term Treasury* 2,468 (17,141) (14,673)
- ------------------------------------------------------------------------------------------------
</TABLE>
*See Note E.
At January 31, 2000, the aggregate settlement value of open futures
contracts expiring in March 2000 and the related unrealized appreciation
(depreciation) were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(000)
-----------------------------------
NUMBER OF AGGREGATE UNREALIZED
LONG (SHORT) SETTLEMENT APPRECIATION
ADMIRAL FUND/FUTURES CONTRACTS CONTRACTS VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate-Term Treasury/
U.S. Treasury Bond (102) $ 9,406 $(293)
U.S. Treasury Note 176 16,682 103
Long-Term Treasury/
U.S. Treasury Bond (36) 3,320 (68)
U.S. Treasury Note 62 5,876 53
- ------------------------------------------------------------------------------------------------
</TABLE>
Net unrealized depreciation on open futures contracts is required to be treated
as realized loss for tax purposes.
G. The market values of securities on loan to broker/dealers at January 31,
2000, 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 $ 49,623 $ 20,861 $ 30,298
Intermediate-Term Treasury 330,261 218,663 118,673
Long-Term Treasury 27,907 7,118 21,544
- ------------------------------------------------------------------------------------------------
</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.
34
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Vanguard Admiral Funds
In our opinion, the accompanying statements of net assets 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, 2000, 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 accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 2000 by correspondence with the custodians and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 6, 2000
35
<PAGE> 38
- -----------------------------------------------------------------------------
SPECIAL 2000 TAX INFORMATION (UNAUDITED) FOR
VANGUARD ADMIRAL FUNDS
This information for the fiscal year ended January 31, 2000, 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 $1,351,000, $3,104,000,
and $4,053,000, respectively, as capital gain dividends (from net long-term
capital gains) to shareholders during the fiscal year ended January 31, 2000,
all of which are designated as 20% rate gain distributions.
- -----------------------------------------------------------------------------
36
<PAGE> 39
- -----------------------------------------------------------------------------
THE PEOPLE WHO GOVERN YOUR FUND
The Trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund Trustees also serve on the Board of Directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Seven of Vanguard's eight board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new Trustees/Directors; and electing
Vanguard officers.
The list below provides a brief description of each Trustee's professional
affiliations. Noted in parentheses is the year in which the Trustee joined the
Vanguard Board.
TRUSTEES
JOHN J. BRENNAN - (1987) 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 - (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY - (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL - (1977) 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 Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. - (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JOHN C. SAWHILL - (1991) 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. - (1971) 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 - (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, 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.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON - Legal Department.
ROBERT A. DISTEFANO - Information Technology.
JAMES H. GATELY - Individual Investor Group.
KATHLEEN C. GUBANICH - Human Resources.
IAN A. MACKINNON - Fixed Income Group.
F. WILLIAM MCNABB, III - Institutional Investor Group.
MICHAEL S. MILLER - Planning and Development.
RALPH K. PACKARD - Chief Financial Officer.
GEORGE U. SAUTER - Core Management Group.
<PAGE> 40
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"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.
[PHOTO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q120-03/20/2000
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
