<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
Common stock prices experienced two significant downdrafts--one in late
March, the other in late June--during the six months ended June 30, the first
half of Vanguard Quantitative Portfolios' 1994 fiscal year. Nonetheless,
reasonable strength during the remainder of the six-month period held the net
decline in the total return of all U.S. stocks to -4.5%.
Relative to the return of -3.4% on the unmanaged Standard & Poor's 500
Composite Stock Price Index, dominated by the performance of both growth and
value stocks with large market capitalizations, the Fund's total return
(capital change plus income) of -4.8% lagged by a modest margin. Our return
also trailed the -3.6% return achieved by the average growth and income fund,
which has investment objectives and policies similar to ours. This table
presents the comparisons:
<TABLE>
<CAPTION>
- - --------------------------------------------------------
Total Return
----------------
Six Months Ended
June 30, 1994
- - --------------------------------------------------------
<S> <C>
VANGUARD QUANTITATIVE PORTFOLIOS -4.8%
- - --------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX -3.4%
AVERAGE GROWTH AND INCOME FUND -3.6
- - --------------------------------------------------------
</TABLE>
The Fund's total return is based on net asset values of $16.45 per share on
December 31, 1993, and $15.14 on June 30, 1994, with the latter figure adjusted
to take into account a dividend of $.15 per share from net investment income
and a carry-over distribution of $.40 per share from net capital gains realized
during 1993 and paid in March.
* THE PERIOD IN REVIEW
Following two years of relative tranquility, substantial volatility returned to
the stock market during the past six months, and stocks in the aggregate showed
a net decline. While the decline in stock prices from the February high to the
June low (-8%) was fairly significant, it was a far cry from the market's sharp
dips in 1990 (-20%), 1987 (-34%), 1981 (-18%), and 1973-74 (-48%). (Price
change from high to low, excluding income.)
Although the recent price decline could be described as "moderate" in an
historical sense, it seemed to reflect investor concerns beyond the actual
dimensions of the problems confronting the market, most notably possible future
inflation. Surely the concerns were increased by the sharp six-month decline
(-15%) in the prices of long-term U.S. Treasury bonds, as interest rates leaped
upward--from 6.4% at the start of our fiscal period to 7.6% at its close. By
way of perspective, this yield was 7.4% when 1993 began.
While these inflationary concerns have yet to be reflected in the
Consumer Price Index, the Federal Reserve has acted to "tighten" the money
supply and slow economic growth and potential future inflation, raising the
Federal funds rate (at which banks borrow from one another) four times--in
February, March, April, and again in May--from 3.00% to 4.25%. Theory suggests
that increases in short-term rates should be regarded by market participants as
a restraint on potential inflation, and thus cause long-term rates to fall.
However, this theory seldom holds true in practice, and 1994 has proved to be
no exception.
In the stock market, the six-month period was the reverse of 1993 in at
least two respects: (1) stocks with large market capitalizations outpaced those
with medium and small market capitalizations; and (2) traditional actively
managed funds generally fell short of the unmanaged market indexes.
One equity market factor that persisted during the first half of 1994
was the continued ascendancy of value stocks--those with above-average dividend
yields and below-average price-book value ratios--over growth stocks--those
that provide lower yields but presumably richer prospects for earnings growth.
The disparity in returns thus far in 1994, however, has been far short of last
year's, when the Standard & Poor's/
1
<PAGE> 2
BARRA Growth and Value Indexes provided returns of +1.7% and +18.6%,
respectively. During the past six months, the comparable figures were -4.4% for
the Growth Index and -2.4% for the Value Index. As we have often noted, the
relationship of the two groups is quite cyclical, and the outperformance of
value stocks is unlikely to persist. This cycle of "leadership" and
"followership" for growth and value stocks highlights the advantage of broad
diversification through ownership of the entire Standard & Poor's 500 Index.
As noted in the table at the start of this letter, the Fund's return of
- - -4.8% was about one percentage point below the returns achieved by our two
customary benchmarks, the Standard & Poor's 500 Index and the average growth
and income mutual fund. Our shortfall to both standards was largely the result
of a modest overweighting in utility stocks, whose prices tumbled sharply as
interest rates turned upward. Also contributing to our lagging return were some
disappointing individual stock selections, particularly in the basic materials
and financial sectors.
With this year but half over, it would, I think, be unwise to place any
particular credence in this small shortfall. Since our inception at the end of
1986, the computer-driven investment strategy of our adviser, Franklin
Portfolio Associates, has provided rewarding returns relative to our benchmark
standards. Indeed, our average annual rate of total return for the period from
December 31, 1986, to June 30, 1994, has been +12.2%, compared with an average
of +12.0% for the Standard & Poor's 500 Index and +10.2% for the average growth
and income fund.
* IN SUMMARY
That negative markets should prevail during the first half of 1994 was hardly
unpredictable. Indeed, in my letter to shareholders in the Annual Report just
six months ago, I reminded you that "with stock yields at extremely low levels
on an historical basis, it would be logical to assume that the risks involved
in stocks today are higher than historical norms." That risk surely has been
manifested thus far in 1994, and there may well be more to come. That said,
Vanguard Quantitative Portfolios is designed for the long-term investor, and we
would urge you, once again, to "stay the course."
Sincerely,
/s/ JOHN C. BOGLE
- - -----------------
John C. Bogle
Chairman of the Board
July 18, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND (PERIODS ENDED JUNE 30, 1994) ARE
AS FOLLOWS:
<TABLE>
<S> <C> <C>
1 YEAR: +0.32% 5 YEARS: +10.79% SINCE INCEPTION (12/10/86): +11.60%
</TABLE>
THE AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION INCLUDES A CAPITAL RETURN OF
+8.53% AND AN INCOME RETURN OF +3.07%. ALL OF THE DATA REPRESENT PAST
PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
3
<PAGE> 4
REPORT FROM THE INVESTMENT ADVISER
Evidence of an economic recovery continues to present itself in most areas of
the economy and of the country. A continuing balance-of-trade deficit, which
has caused certain upheavals in the international monetary markets, combined
with the vigilance of the Federal Reserve, has led to an increase in interest
rates. The upward pressure on interest rates has, in our opinion, some ways to
run, and this portends for some drifting in equity prices in the months ahead.
Nonetheless, the engines of economic growth have been started and are running
with a reasonable level of efficiency.
The Clinton health care initiative has always had the potential to have
a major economic impact. Our current reading of the political tea leaves leads
us to believe that any measures emerging from Washington will be less draconian
than the initial indications have led us to believe, and may even have a
stabilizing and salubrious impact on the economy.
It is still quite easy to cite economic and financial benchmarks which
indicate that equity prices are somewhat high. However, the weakness in the
first half of the year has made any indica-tions of overvaluation less extreme,
as has the general clarifying and strengthening of the economic picture. Our
investment program has always been directed toward the long term, and we view
the shorter-term prognosticating of equity prices to be a difficult, if not
impossible, task. We view the long-term prospect for equities as quite
attractive, especially when compared to fixed-income alternatives.
In the domestic equity markets, there were significant differences in
performance among different sectors of the market. Growth companies continued
to be less favored by investors than more value-oriented issues, and smaller
securities (in terms of market capitalization) were significantly weaker than
larger ones. The volatility of individual stocks continues to appear higher
than normal to us, and all investors should be sensitive to what this increased
volatility means in terms of short-term uncertainty and risk. We, in this
regard, emphasize our long-term perspective in terms of investment objectives.
Vanguard Quantitative Portfolios has completed seven and one-half years
of operations. We judge our own performance versus the unmanaged S&P 500 Index,
our investment policy proxy, and versus our competitors. For a competitive
proxy, we use the CADENCE mutual fund universe for growth and income mutual
funds. While we have lagged the Index and our competitors in the first half of
1994, our longer-term performance compares quite favorably to our performance
objectives. We do not always expect to have pleasing short-term results, but we
would be disappointed if our longer-term results lagged objectives. We would
remind our shareholders that our focus is on the longer term, and that we will
inevitably have periods when shorter-term performance will not compare
favorably with competitive benchmarks.
<TABLE>
<CAPTION>
- - ------------------------------------------------------
Vanguard Quantitative Portfolios versus
CADENCE Growth and Income Funds
----------------------------------------
Periods Ended VQP versus
June 30, 1994 Competitor Funds
- - ------------------------------------------------------
<S> <C>
SINCE INCEPTION 17 OUT OF 133
LAST 5 YEARS 36 OUT OF 187
LAST 3 YEARS 106 OUT OF 213
LAST 12 MONTHS 137 OUT OF 220
- - ------------------------------------------------------
</TABLE>
Source: CADENCE.
In our last letter, we wrote about keeping the portfolio in line with the
Standard and Poor's 500 Index and about ensuring a high degree of conformity
with the returns of the Index, while trying to make deviations from this
performance occur on the positive side. We concluded by saying that investors
should regard their investment in the Fund as an equity proxy rather than as a
substitute for their own asset allocation process.
Our strategy in Quantitative Portfolios is to build a margin of
superiority to the alternative ways that you could invest in equities by trying
to achieve many small positive differences in performance rather than a few big
ones. This strategy leads to our
4
<PAGE> 5
being fully invested to the extent practical at all times, which means that the
fund's share value is almost certain to decline in a sustained bear market for
equities. Clearly, our strategy is more compatible with long-term equity
investors than with speculators.
The S&P 500 Index has been a more-than-worthy opponent for managed
growth and income funds over the fund's lifetime. We believe our success in
outperforming this benchmark is illustrative of the effectiveness of the
Franklin game plan . . . seeking to win while avoiding periods of major loss.
Our goal with your assets is to be consistently above average. We believe that
consistency builds strong long-term performance, and will continue to make
Vanguard Quantitative Portfolios an attractive option for equity investors.
Respectfully,
John Nagorniak
Franklin Portfolio Associates
July 5, 1994
5
<PAGE> 6
TOTAL INVESTMENT RETURN
The table below illustrates the returns for VANGUARD QUANTITATIVE PORTFOLIOS
from December 10, 1986, to June 30, 1994, the lifetime of the Fund. During this
period, stock prices fluctuated and were higher at the end than at the
beginning. These results should not be considered a representation of the
dividend income or capital gain or loss that may be realized from an investment
made in the Fund today.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA YEAR-END VALUE TOTAL INVESTMENT RETURN
- - ------------------------------------------------------------------------------------------------------------------------------------
Annual Percentage Change*
-------------------------
Value with Income Vanguard Vanguard
Year Ended Net Asset Income Capital Gains Dividends & Capital Quantitative S&P 500 Quantitative S&P 500
December 31 Value Dividends Distributions Gains Reinvested Portfolios Index Portfolios Index
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/86) $10.00 -- -- $10.00 $10,000 $10,000 -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
1986 9.69 -- -- 9.69 9,690 9,668 - 3.1% - 3.3%
- - ------------------------------------------------------------------------------------------------------------------------------------
1987 9.80 $ .25 $ .06 10.08 10,080 10,169 + 4.0 + 5.2
- - ------------------------------------------------------------------------------------------------------------------------------------
1988 11.08 .35 -- 11.77 11,773 11,847 +16.8 +16.5
- - ------------------------------------------------------------------------------------------------------------------------------------
1989 14.14 .47 -- 15.54 15,540 15,589 +32.0 +31.6
- - ------------------------------------------------------------------------------------------------------------------------------------
1990 13.29 .47 .04 15.16 15,161 15,103 - 2.4 - 3.1
- - ------------------------------------------------------------------------------------------------------------------------------------
1991 16.32 .47 .44 19.75 19,753 19,694 +30.3 +30.4
- - ------------------------------------------------------------------------------------------------------------------------------------
1992 16.30 .44 .71 21.13 21,136 21,193 + 7.0 + 7.6
- - ------------------------------------------------------------------------------------------------------------------------------------
1993 16.45 .39 1.69 24.06 24,061 23,325 +13.8 +10.1
- - ------------------------------------------------------------------------------------------------------------------------------------
1994 (6/30) 15.14 .15 .40 22.91 22,912 22,540 - 4.8 - 3.4
- - ------------------------------------------------------------------------------------------------------------------------------------
LIFETIME $2.99 $3.34 +129.1% +125.4% +11.6% +11.4%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted to include reinvestment of income dividends and any capital gains
distributions both for the Fund and the Index.
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
6
<PAGE> 7
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
June 30, 1994
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - ----------------------------------------------------------------------------------------------
COMMON STOCKS (96.3%)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
General Electric Co. 381,600 $ 17,792
Wal-Mart Stores, Inc. 522,300 12,666
Philip Morris Cos., Inc. 224,900 11,582
Merck & Co., Inc. 369,800 11,002
Exxon Corp. 171,700 9,723
BellSouth Corp. 156,800 9,682
Mobil Corp. 118,400 9,664
GTE Corp. 300,600 9,469
Amoco Corp. 164,200 9,359
Procter & Gamble Co. 170,084 9,078
Ford Motor Co. 152,700 9,009
International Business
Machines Corp. 149,100 8,760
Abbott Laboratories, Inc. 301,000 8,729
Johnson & Johnson 188,500 8,082
The Coca Cola Co. 182,700 7,422
Southwestern Bell Corp. 165,400 7,195
Sprint Corp. 200,900 7,006
Citicorp 175,100 6,982
Unilever NV 66,700 6,720
Texas Instruments, Inc. 80,200 6,376
Bristol-Myers Squibb Co. 114,280 6,128
Chevron Corp. 145,200 6,080
Travelers Inc. 183,600 5,921
Public Service Enterprise
Group Inc. 225,400 5,860
Motorola, Inc. 130,600 5,812
The Chase Manhattan Corp. 151,500 5,795
NationsBank, Inc. 110,900 5,697
Schering-Plough Corp. 89,800 5,500
Echlin, Inc. 175,500 5,287
Sara Lee Corp. 235,500 5,004
Pacificorp 295,000 4,978
Lincoln National Corp. 115,900 4,911
J.C. Penney Co., Inc. 87,100 4,725
Merrill Lynch & Co., Inc. 130,500 4,568
Royal Dutch Petroleum Co. 42,000 4,394
Baltimore Gas & Electric Co. 195,500 4,154
MCI Communications Corp. 184,200 4,075
International Paper Co. 61,000 4,041
E.I. du Pont de Nemours & Co. 66,400 3,876
Ameritech Corp. 99,900 3,821
Pacific Gas & Electric Co. 157,800 3,748
CIGNA Corp. 50,900 3,722
Norwest Corp. 141,400 3,694
Union Pacific Corp. 65,000 3,681
Anheuser-Busch Co., Inc. 72,500 3,679
Union Carbide Corp. 135,200 3,617
Chrysler Corp. 74,300 3,501
The Goodyear Tire & Rubber Co. 94,500 3,402
Dresser Industries, Inc. 163,300 3,348
Monsanto Co. 44,000 3,328
Blockbuster Entertainment Corp. 127,800 3,307
Rockwell International Corp. 88,100 3,293
Coastal Corp. 121,700 3,286
American Greetings Corp. Class A 109,100 3,246
Archer-Daniels-Midland Co. 139,532 3,244
Service Corp. International 125,600 3,234
Deere & Co. 47,800 3,232
PECO Energy Corp. 120,500 3,178
May Department Stores Co. 80,600 3,164
Pacific Enterprises 154,400 3,069
Federal National Mortgage Assn. 36,700 3,064
Clorox Co. 61,100 2,986
Ohio Edison Co. 165,900 2,965
Lockheed Corp. 45,000 2,942
Computer Associates
International, Inc. 73,400 2,936
Capital Cities/ABC, Inc. 40,100 2,852
Whitman Corp. 183,300 2,841
Conagra, Inc. 93,000 2,837
Dow Jones & Co., Inc. 90,900 2,818
Transamerica Corp. 51,100 2,664
Niagara Mohawk Power Corp. 167,500 2,533
*National Semiconductor Corp. 142,600 2,460
Colgate-Palmolive Co. 46,500 2,418
*The Kroger Co. 103,400 2,404
Pennzoil Co. 46,500 2,383
*Cray Research, Inc. 105,100 2,378
Federal Home Loan
Mortgage Corp. 38,900 2,353
*Toys R Us, Inc. 71,300 2,335
*Rowan Cos., Inc. 266,000 2,328
Consolidated Edison Co.
of New York, Inc. 82,300 2,181
Beneficial Corp. 59,200 2,161
UST, Inc. 79,300 2,151
Centex Corp. 83,200 2,142
American Express Co. 78,700 2,027
Bausch & Lomb, Inc. 54,700 2,024
*Cisco Systems, Inc. 86,600 2,003
Caterpillar, Inc. 19,800 1,980
Alcan Aluminium Ltd. 86,500 1,968
Nucor Corp. 28,700 1,966
Commonwealth Edison Co. 86,000 1,957
CBS, Inc. 6,100 1,891
McDonald's Corp. 64,800 1,871
Mattel, Inc. 73,375 1,862
Reebok International Ltd. 61,300 1,831
Pittston Services Group 66,300 1,774
*Federal Express Corp. 23,500 1,754
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
Homestake Mining Co. 93,100 $ 1,746
*Compaq Computer Corp. 54,000 1,742
Ashland Oil, Inc. 51,700 1,738
Premark International, Inc. 23,000 1,731
Pep Boys (Manny, Moe & Jack) 54,300 1,717
Worthington Industries, Inc. 91,800 1,698
Enron Corp. 51,400 1,683
USLIFE Corp. 47,150 1,674
Wendys International, Inc. 105,300 1,645
*Crown Cork & Seal Co., Inc. 43,900 1,635
Mallinckrodt Group, Inc. 50,000 1,625
Norfolk Southern Corp. 25,600 1,613
The Tribune Co. 30,200 1,608
AT & T Corp. 29,300 1,593
Hasbro, Inc. 52,900 1,567
Comcast Corp. Class A 87,400 1,562
Ecolab, Inc. 70,300 1,547
American Barrick Resources 64,000 1,528
General Motors Corp. 30,100 1,513
American Stores Co. 61,300 1,502
Avery Dennison Corp. 50,900 1,476
Browning-Ferris Industries, Inc. 48,200 1,464
Salomon, Inc. 30,400 1,452
Barnett Banks of Florida, Inc. 32,900 1,439
Black & Decker Corp. 79,400 1,370
Fleet Financial Group, Inc. 35,100 1,325
First Chicago Corp. 27,000 1,299
Sun Co., Inc. 48,200 1,295
Handleman Co. 127,900 1,295
The Seagram Co. Ltd. 42,700 1,292
Pall Corp. 85,000 1,275
Tandy Corp. 36,300 1,252
Morton International, Inc. 15,200 1,186
*Varity Corp. 32,300 1,175
Intel Corp. 19,900 1,164
Echo Bay Mines Ltd. 104,700 1,126
Ryder System, Inc. 44,400 1,116
Martin Marietta Corp. 25,200 1,112
Sonat, Inc. 36,000 1,107
PepsiCo, Inc. 36,100 1,106
ITT Corp. 12,700 1,037
Chemical Banking Corp. 26,600 1,024
Fleetwood Enterprises, Inc. 53,000 1,014
*Promus Co. Inc. 34,100 1,010
Adolph Coors Co. Class B 55,900 964
SuperValu, Inc. 30,700 929
Hershey Foods Corp. 21,100 915
Textron, Inc. 16,500 864
Dana Corp. 29,200 832
*Tandem Computers, Inc. 71,000 799
Pioneer Hi Bred International 24,200 793
Suntrust Banks, Inc. 15,200 735
Bank of Boston Corp. 29,800 734
General Dynamics Corp. 17,800 728
Praxair, Inc. 37,000 721
Loral Corp. 20,300 711
Snap-On Inc. 18,700 697
*Advanced Micro Devices, Inc. 27,700 689
First Union Corp. 14,900 687
Dover Corp. 10,900 642
First Interstate Bancorp. 8,300 639
John H. Harland Co. 29,300 637
Maytag Corp. 34,100 631
*National Intergroup, Inc. 34,700 607
NICOR, Inc. 22,300 588
Newell Co. 12,700 587
First Mississippi Corp. 38,100 581
American General Corp. 21,000 580
Meredith Corp. 13,600 578
Continental Corp. 32,800 508
Westvaco Corp. 15,900 489
Briggs & Stratton Corp. 7,200 481
Marriott International 18,000 479
American Electric Power Co., Inc. 16,700 472
Shawmut National Corp. 19,500 429
*Biomet, Inc. 40,800 428
USX-Marathon Group 22,600 378
Genuine Parts Co. 10,000 361
Brunswick Corp. 16,400 361
BankAmerica Corp. 7,100 325
*DSC Communications Corp. 16,200 316
*Hartmarx Corp. 51,400 315
Phillips Petroleum Co. 9,900 309
Eastern Enterprises 12,200 279
*Lehman Brothers Holdings, Inc. 18,120 274
Harris Corp. 5,800 256
Amerada Hess Corp. 5,100 251
CoreStates Financial Corp. 8,800 227
Transco Energy Co. 13,700 223
Pulte Corp. 9,100 209
*Sun Microsystems, Inc. 7,100 145
McDonnell Douglas Corp. 1,100 129
Eaton Corp. 2,300 120
Giant Food, Inc. Class A 4,800 94
*Intergraph Corp. 7,900 74
General Signal Corp. 1,900 63
Noram Energy Corp. 5,800 35
Yellow Corp. 100 2
- - ----------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $512,837) 526,916
- - ----------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (3.0%)
- - ----------------------------------------------------------------------------------------------
U.S. TREASURY BILL--Note E
4.09%, 9/15/94 $ 850 $ 843
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 4.26%, 7/1/94 15,358 15,358
- - ----------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $16,201) 16,201
- - ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.3%)
(Cost $529,038) 543,117
- - ----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.7%)
- - ----------------------------------------------------------------------------------------------
Other Assets--Note C 12,554
Liabilities (8,563)
-------
3,991
- - ----------------------------------------------------------------------------------------------
NET ASSETS (100%)
- - ----------------------------------------------------------------------------------------------
Applicable to 36,146,063 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $547,108
- - ----------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $15.14
==============================================================================================
+See Note A to Financial Statements.
*Non-Income Producing Security.
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
AT JUNE 30, 1994, NET ASSETS CONSISTED OF:
- - ----------------------------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital $528,770 $14.63
Undistributed Net
Investment Income 3,881 .11
Accumulated Net Realized Gains 1,160 .03
Unrealized Appreciation
of Investments--Note E 13,297 .37
- - ----------------------------------------------------------------------------------------------
NET ASSETS $547,108 $15.14
- - ----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994
(000)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,912
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
- - -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . 8,271
- - -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fees . . . . . . . . . . . . . . . . . . . . . . . . . . $552
Performance Adjustments . . . . . . . . . . . . . . . . . . . -- 552
----
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . . . . . 707
Marketing and Distribution . . . . . . . . . . . . . . . . . 53 760
----
Taxes (other than income taxes)--Note A . . . . . . . . . . . . 22
Custodian's Fees . . . . . . . . . . . . . . . . . . . . . . 3
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . 5
Shareholders' Reports . . . . . . . . . . . . . . . . . . . . . 41
Annual Meeting and Proxy Costs . . . . . . . . . . . . . . . . 4
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . 2
- - -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . 1,389
- - -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . 6,882
- - -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . 1,365
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . (204)
Realized Net Gain . . . . . . . . . . . . . . . . . 1,161
- - -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . . . . (34,521)
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . (838)
- - -------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation) . . (35,359)
- - -------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations $(27,316)
===================================================================================================================
</TABLE>
10
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
JUNE 30, 1994 December 31, 1993
(000) (000)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,882 $ 10,298
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,161 61,441
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . . . . . (35,359) (12,404)
- - -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . (27,316) 59,335
- - -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,384) (10,830)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,667) (48,656)
- - -----------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . (19,051) (59,486)
- - -----------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION CREDITS--Note A . . . . . . . . . . . . . . . . . . . . . . . . 480 877
- - -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,590 111,687
-- In Lieu of Cash Distributions . . . . . . . . . . . . . . . . . 18,117 57,229
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,642 29,204
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,068) (56,419)
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,022) (27,219)
- - -----------------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . . . . . 62,259 114,482
- - -----------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,372 115,208
- - -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,736 415,528
- - -----------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $547,108 $530,736
=============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . $ .15 $ .39
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .40 $ 1.69
- - -----------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,302 8,164
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . 1,146 3,501
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,562) (4,892)
- - -----------------------------------------------------------------------------------------------------------------------------
3,886 6,773
- - -----------------------------------------------------------------------------------------------------------------------------
(3) Undistributed Net Investment Income . . . . . . . . . . . . . . . . . . $ 3,881 $ 1,903
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
For a Share Outstanding SIX MONTHS ENDED -----------------------------------------------------
Throughout Each Period JUNE 30, 1994 1993 1992 1991 1990 1989
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $16.45 $16.30 $16.32 $13.29 $14.14 $11.08
------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . .20 .40 .44 .47 .49 .43
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . (.96) 1.83 .69 3.47 (.83) 3.10
------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS . . . . . . . . . . . . . . . . . (.76) 2.23 1.13 3.94 (.34) 3.53
- - ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . (.15) (.39) (.44) (.47) (.47) (.47)
Distributions from Realized Capital Gains . . . . . . . (.40) (1.69) (.71) (.44) (.04) --
------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . (.55) (2.08) (1.15) (.91) (.51) (.47)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $15.14 $16.45 $16.30 $16.32 $13.29 $14.14
====================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . -4.77% +13.83% +7.01% +30.29% -2.44% +32.00%
- - ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . $547 $531 $416 $335 $211 $175
Ratio of Expenses to Average Net Assets . . . . . . . . . .51%* .50% .40% .43% .48% .53%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . 2.50%* 2.22% 2.67% 2.95% 3.34% 3.35%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 65%* 85% 51% 61% 81% 78%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
Vanguard Quantitative Portfolios is registered under the Investment Company Act
of 1940 as a diversified open-end investment company.
* A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Securities listed on an exchange are valued at the
latest quoted sales prices as of 4:00 PM on the valuation date; securities
not traded are valued at the mean of the latest quoted bid and asked prices.
Securities not listed are valued at the latest quoted bid prices. Temporary
cash investments are valued at amortized cost which approximates market value.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes is required in the financial statements.
3. EQUALIZATION: The Fund follows the accounting practice known as
"equalization," under which a portion of the price of capital shares issued
and redeemed, equivalent to undistributed net investment income per share on
the date of the transaction, is credited or charged to undistributed income.
As a result, undistributed income per share is unaffected by Fund share sales
or redemptions.
4. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard
Group of Investment Companies, transfers uninvested cash balances into a Pooled
Cash Account, the daily aggregate of which is invested in repurchase
agreements secured by U.S. Government obligations. Securities pledged as
collateral for repurchase agreements are held by the Fund's custodian bank
until maturity of each repurchase agreement. Provisions of each agreement
ensure that the market value of this collateral is sufficient in the event of
default; however, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
5. FUTURES: The Fund utilizes futures contracts to a limited extent. The
primary risks associated with the use of futures contracts are imperfect
correlation between the change in market value of the securities held by the
Fund and the prices of futures contracts, and the possibility of an illiquid
market. Futures contracts are valued based upon their quoted daily settlement
prices. Fluctuations in the value of futures contracts are recorded as
unrealized appreciation (depreciation) until terminated, at which time
realized gains (losses) are recognized. Unrealized appreciation (depreciation)
related to open futures contracts is required to be treated as realized gain
(loss) for Federal income tax purposes.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
* B. Under the terms of a contract which expires September 30, 1994, the Fund
pays Franklin Portfolio Associates a basic advisory fee calculated at an annual
percentage rate of average net assets. The basic fee thus computed is subject
to quarterly adjustments based on performance relative to the Standard & Poor's
500 Stock Index. For the six months ended June 30, 1994, the advisory fee
represented an effective annual rate of .20% of 1% of average net assets. No
adjustments were required based on performance.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (continued)
* C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing and distribution services. The costs of such services
are allocated to the Fund under methods approved by the Board of Directors. At
June 30, 1994, the Fund had contributed capital of $89,000 to Vanguard
(included in Other Assets), representing .4% of Vanguard's capitalization. The
Fund's directors and officers are also directors and officers of Vanguard.
* D. During the six months ended June 30, 1994, the Fund made purchases of
$208,111,000 and sales of $172,209,000 of investment securities other than U.S.
Government securities and temporary cash investments.
* E. At June 30, 1994, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes aggregated $14,079,000, of
which $41,060,000 related to appreciated securities and $26,981,000 related to
depreciated securities.
At June 30, 1994, the aggregate settlement value of open Standard & Poor's 500
Index futures contracts expiring in September 1994, the related unrealized
depreciation, and the market value of securities deposited as initial margin
for those contracts were $17,802,000, $782,000, and $843,000, respectively.
14
<PAGE> 15
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc Rorer
Inc.; Director of Sun Company, Inc. and Immune Response Corporation; Trustee of
the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of Dayton
Hudson Corporation, American Express Bank Ltd., The St. Paul Companies, Inc.,
and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., and The Southern New England Telephone
Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas
Company; Director of Cummins Engine Company; Trustee of Vanderbilt University
and the Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
15
<PAGE> 16
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q932-06/94
VANGUARD
QUANTITATIVE PORTFOLIOS
[FLAG PHOTO - SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
JUNE 30, 1994
<PAGE> 17
EDGAR APPENDIX
The back cover of the printed version of this report features the flags
of the United States of America and Vanguard flying from a halyard.
