<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
The bull market in common stocks continued during the six months ended June 30,
the first half of the 1996 fiscal year for Vanguard Quantitative Portfolios.
Common stocks provided positive returns in each of the six months during the
period, despite a sharp rise in interest rates.
In this healthy environment for equities, our Fund posted a total return
(capital change plus reinvested dividends) of +9.6%, marginally behind the
+10.1% return on the unmanaged Standard & Poor's 500 Composite Stock Price
Index, but marginally ahead of the +9.3% return on the average value (growth
and income) mutual fund, our competitive fund standard. The total returns are
summarized in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
TOTAL RETURN
----------------
SIX MONTHS ENDED
JUNE 30, 1996
- ---------------------------------------------------------
<S> <C>
VANGUARD QUANTITATIVE PORTFOLIOS + 9.6%
- ---------------------------------------------------------
AVERAGE VALUE MUTUAL FUND + 9.3%
STANDARD & POOR'S 500 STOCK INDEX +10.1
- ---------------------------------------------------------
</TABLE>
The Fund's total return is based on net asset values of $19.95 per share on
December 31, 1995, and $21.33 on June 30, 1996, with the latter figure adjusted
to take into account distributions of $.37 per share from net realized capital
gains and $.15 per share from net investment income.
THE PERIOD IN REVIEW
The U.S. stock market continued to surge upward during the first half of our
Fund's fiscal year, albeit below the near-record pace that prevailed in 1995.
Even so, the advance was impressive, occurring in the face of a sharp rise in
long-term interest rates.
While the stock market, as measured by the Standard & Poor's 500 Index,
chalked up a +10.1% return from January through June, the bond market slumped.
Short-term interest rates rose only modestly, with the rate on 90-day Treasury
bills rising from 5.0% to 5.2% during the first half of the year. The rate
increase was steeper for long-term bonds, with the yield on the benchmark
30-year U.S. Treasury bond rising from 6.0% at the beginning of the year to
7.0% at the end of June. The price of the long-term Treasury bond fell -12%
during the half year. The Lehman Aggregate Bond Index, a good measure of the
overall bond market, provided a negative total return of -1.2% in the half
year, earning income of 3.3% combined with a price decline of -4.5%.
The primary reason for the divergence in the returns of stocks and bonds
appears to be differing responses by equity and bond investors to the
surprising strength of the overall economy. The faster-than-expected economic
growth during the first half of the year led stock investors to anticipate
accelerated growth in corporate earnings, even as bond investors worried about
higher inflation. It remains to be seen whether the bull market in stocks can
continue in the face of higher interest rates, which may provide heightened
competition for investors' dollars at a time when common stocks offer
historically low dividend yields.
As we mentioned at the outset, during the past six months Vanguard
Quantitative Portfolios outpaced the average value fund by +0.3%. While we
would underscore that small differences in return, over a brief six-month time
frame, are hardly meaningful, our lifetime record is much more significant.
Indeed, our average annual return since inception in 1986 remains well ahead of
the average value fund (+14.2% versus +12.0%).
IN SUMMARY
Six months ago in our Annual Report, following an extraordinarily bountiful
1995, we cautioned that financial markets are not a "one-way street," and that
investors should prepare for the occasional rough patch by maintaining a
balanced portfolio of stock funds, bond funds, and money market funds. Although
the stock market continued on a relatively smooth, upward path during the first
half of the Fund's fiscal year, we believe a cautious stance remains valid. So,
too, does our comment about the major long- term risks of investing: (1)
failing to hold
1
<PAGE> 2
stocks at all; and (2) following an erratic and ever-changing course.
Come what may, of course, you can be certain that Vanguard Quantitative
Portfolios will hold to its course, seeking to provide long-term returns that
exceed those of other comparable mutual funds and the Standard & Poor's 500
Index, while maintaining risk and overall portfolio characteristics similar to
those of the Standard & Poor's 500 Index. We look forward to reporting to you
in further detail in our 1996 Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- -------------------------------
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
- -------------------------------
John J. Brennan
President
July 8, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
REPORT FROM THE INVESTMENT ADVISER
The economy continued on a slow, upward path during the first half of 1996.
Long Treasuries rose in yield by one full percentage point, with the
twelve-month low for the price of the 30-year U.S. Treasury bond occurring in
early June. (Subsequent lows have been seen in early July.) The Standard &
Poor's 500 Composite Stock Price Index rose during the six-month period, but
was almost flat in June. The domestic political scene appeared to become more
cloudy, and uncertainty over the Russian election increased as the period
closed. A major factor contributing to economic uncertainty at the end of the
half year was doubt as to the future course of interest rates. Fear of rate
increases continually dampened market expectations.
Day-to-day volatility in the marketplace seemed to increase during the
first half of our fiscal year. Some fundamental weaknesses surfaced in the
technology sector, and uncertainty over future earnings increased.
We think that the new political equilibrium, with a focus on keeping the
government's share of the economy at lower levels, continues to hold. The
cacophony surrounding the campaigns for November's elections is increasing to
an unpleasant level.
The dollar was strong against major currencies in the first half of the
year. The rest of the world continues to be in the economic doldrums. The U.S.
economy may indeed be the force needed to rekindle world growth.
In the U.S. equity market, particular strength in the first half was shown
by energy-related issues, retailers, automotive issues, and leisure stocks.
Weakness was shown in metals, telephone and electric utilities, and chemical
issues. Smaller stocks performed in line with larger stocks in the first half.
The Russell 2000, a benchmark for small-capitalization stocks, outperformed the
Russell 1000, a benchmark for large stocks, in the second quarter after lagging
it in the first quarter.
We continue to view equities as being slightly on the "rich" side in
valuations. We offer the caveat that market timing is not, in our view, an
ingredient of most successful investment strategies. "Staying the course" with
a well-chosen investment mix suits most investors' needs and temperaments.
We have managed Vanguard Quantitative Portfolios for more than nine years.
We judge our own performance versus the Standard & Poor's 500 Index, our
investment policy proxy, and versus our competitors. For a competitive
benchmark, we use growth and income funds from the Morningstar Mutual Fund
database.
We underperformed the Standard & Poor's 500 Index during the first six
months of the year. Early indications suggest that the index was a strong
opponent in the performance race during the period. Both our near-term and our
longer-term performances compare quite favorably to our competitive fund
universe. The period of the past nine-plus years was a difficult one for active
equity managers. Our ranking in the universe was modestly better than the
ranking of Vanguard Index Trust-500 Portfolio (13th versus 14th in a universe
of 124 funds over the period from December 31, 1986, through June 30, 1996).
This is a state of affairs that we constantly strive to improve upon. On the
other hand, while we do, of course, strive to be first, we would view 13th out
of 124 as a passing grade for a long-term period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
VANGUARD QUANTITATIVE PORTFOLIOS VERSUS
GROWTH AND INCOME FUNDS
-----------------------------------------
THROUGH JUNE 30, 1996
- ---------------------------------------------------------------------
<S> <C>
YEAR TO DATE 206TH OUT OF 502
ONE YEAR 166TH OUT OF 473
THREE YEARS 101ST OUT OF 291
FIVE YEARS 44TH OUT OF 199
SINCE INCEPTION 13TH OUT OF 124
- ---------------------------------------------------------------------
</TABLE>
Source: Morningstar, Inc.
We do not always expect to have pleasing short-term results, but we would be
disappointed if our longer-term results lagged available investment
alternatives. We would like to remind our shareholders that our focus is on the
long term. We will inevitably have periods when shorter-term performance does
not compare favorably with competitive benchmarks.
Our outlook is positive. We have demonstrated an ability to outperform most
active managers of mutual funds in a difficult period for active
3
<PAGE> 4
management. In periods when active management outperforms indexing, we believe
that we will outperform both our peers and indexing alternatives to a
meaningful degree.
We believe our past success 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 9, 1996
4
<PAGE> 5
TOTAL INVESTMENT RETURN TABLE
The following table illustrates the results of a single-share investment in
VANGUARD QUANTITATIVE PORTFOLIOS since inception through June 30, 1996. During
the period illustrated, stock prices fluctuated widely; 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 TOTAL INVESTMENT RETURN*
- ------------------------------------------------------------------------------------------------------------------------------------
Quantitative Portfolios S&P 500
Value with Income ----------------------------- -------
Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total
December 31 Value Distributions Dividends Gains Reinvested Return Return Return Return
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INITIAL (12/86) $10.00 -- -- $10.00 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1986 9.69 -- -- 9.69 - 3.1% 0.0% - 3.1% - 3.3%
- ------------------------------------------------------------------------------------------------------------------------------------
1987 9.80 $ .06 $.25 10.08 + 1.8 +2.2 + 4.0 + 5.3
- ------------------------------------------------------------------------------------------------------------------------------------
1988 11.08 -- .35 11.77 +13.1 +3.7 + 16.8 + 16.6
- ------------------------------------------------------------------------------------------------------------------------------------
1989 14.14 -- .47 15.54 +27.6 +4.4 + 32.0 + 31.7
- ------------------------------------------------------------------------------------------------------------------------------------
1990 13.29 .04 .47 15.16 - 5.7 +3.3 - 2.4 - 3.1
- ------------------------------------------------------------------------------------------------------------------------------------
1991 16.32 .44 .47 19.75 +26.4 +3.9 + 30.3 + 30.5
- ------------------------------------------------------------------------------------------------------------------------------------
1992 16.30 .71 .44 21.14 + 4.2 +2.8 + 7.0 + 7.6
- ------------------------------------------------------------------------------------------------------------------------------------
1993 16.45 1.69 .39 24.06 +11.4 +2.4 + 13.8 + 10.1
- ------------------------------------------------------------------------------------------------------------------------------------
1994 15.56 .40 .39 23.91 - 3.1 +2.5 - 0.6 + 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
1995 19.95 .74 .42 32.50 +33.1 +2.8 + 35.9 + 37.6
- ------------------------------------------------------------------------------------------------------------------------------------
1996 (6/30) 21.33 .37 .15 35.61 + 8.8 +0.8 + 9.6 + 10.1
- ------------------------------------------------------------------------------------------------------------------------------------
LIFETIME +256.1% +259.2%
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN + 14.2% + 14.3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes reinvestment of income dividends and any capital gains distributions
for both 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.
5
<PAGE> 6
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
June 30, 1996
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.7%)
- ----------------------------------------------------------------------
BASIC MATERIALS (4.6%)
Aluminum Co. of America 53,800 $ 3,087
Avery Dennison Corp. 141,700 7,776
Barrick Gold Corp. 169,800 4,606
Dow Chemical Co. 170,900 12,988
Engelhard Corp. 130,800 3,008
International Paper Co. 139,900 5,159
Norsk Hydro AS ADR 146,600 7,165
Temple-Inland Inc. 21,200 991
Union Camp Corp. 51,100 2,491
Westvaco Corp. 74,000 2,211
Weyerhaeuser Co. 60,200 2,559
------------
SECTOR TOTAL 52,041
------------
- ----------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (8.3%)
The Boeing Co. 14,700 1,281
Centex Corp. 59,100 1,839
Deere & Co. 8,900 356
Dover Corp. 220,600 10,175
EG & G, Inc. 72,000 1,539
General Electric Co. 439,300 37,999
Harnischfeger Industries Inc. 47,500 1,579
Ingersoll-Rand Co. 143,400 6,274
* International Rectifier Corp. 328,100 5,291
Laidlaw Inc. Class B 370,500 3,751
Lockheed Martin Corp. 84,700 7,115
McDonnell Douglas Corp. 157,400 7,634
Millipore Corp. 78,800 3,300
Raychem Corp. 29,300 2,106
Rockwell International Corp. 48,100 2,754
Teledyne Inc. Pfd. 'E' 664 10
Tyco International Ltd. 29,200 1,190
------------
SECTOR TOTAL 94,193
------------
- ----------------------------------------------------------------------
CONSUMER CYCLICAL (12.4%)
Black & Decker Corp. 332,100 12,827
Chrysler Corp. 235,800 14,620
Dillard Department Stores Class A 7,200 263
The Walt Disney Co. 131,700 8,281
Eastman Kodak Co. 3,200 249
* Federated Department Stores 224,900 7,675
Fleetwood Enterprises, Inc. 152,400 4,724
Home Depot, Inc. 80,500 4,347
* King World Productions, Inc. 350,500 12,749
Liz Claiborne, Inc. 78,700 2,725
Longs Drug Stores, Inc. 21,200 946
Luby's Cafeterias, Inc. 59,700 1,403
McDonald's Corp. 90,200 4,217
Mercantile Stores Co., Inc. 193,600 11,350
New York Times Co. Class A 237,900 7,761
Polaroid Corp. 52,400 2,391
* Price/Costco Inc. 125,400 2,680
Rite Aid Corp. 36,600 1,089
* Ryan's Family Steak Houses, Inc. 30,000 278
Sears, Roebuck & Co. 87,600 4,259
Snap-On Inc. 82,000 3,885
Springs Industries Inc. Class A 4,500 227
* Staples, Inc. 703,650 13,633
* Viacom International Class B 132,600 5,155
Wal-Mart Stores, Inc. 259,700 6,590
Wendy's International, Inc. 298,800 5,565
------------
SECTOR TOTAL 139,889
------------
- ----------------------------------------------------------------------
CONSUMER STAPLES (10.8%)
Archer-Daniels-Midland Co. 881,696 16,862
The Coca-Cola Co. 407,800 19,931
ConAgra, Inc. 178,400 8,095
Adolph Coors Co. Class B 75,600 1,351
Gillette Co. 164,500 10,261
Great Atlantic & Pacific Tea Co., Inc. 15,600 513
H.J. Heinz Co. 78,200 2,375
* The Kroger Co. 55,100 2,176
PepsiCo, Inc. 305,800 10,818
Philip Morris Cos., Inc. 209,300 21,767
Procter & Gamble Co. 159,284 14,435
SuperValu Inc. 269,700 8,496
Unilever NV ADR 34,500 5,007
------------
SECTOR TOTAL 122,087
------------
- ----------------------------------------------------------------------
ENERGY (9.0%)
Amoco Corp. 48,300 3,496
Baker Hughes, Inc. 52,200 1,716
Burlington Resources, Inc. 44,400 1,909
Coastal Corp. 91,500 3,820
Eastern Enterprises 86,800 2,886
Exxon Corp. 379,600 32,978
Halliburton Co. 108,000 5,994
Helmerich & Payne, Inc. 149,000 5,457
Imperial Oil Ltd. 237,200 9,992
Mobil Corp. 100,100 11,224
PanEnergy Corp. 196,100 6,447
Royal Dutch Petroleum Co. ADR 83,300 12,807
* Santa Fe Energy Resources, Inc. 176,200 2,092
USX-Marathon Group 32,700 658
Unocal Corp. 15,500 523
------------
SECTOR TOTAL 101,999
------------
- ----------------------------------------------------------------------
FINANCIAL (15.2%)
AFLAC, Inc. 43,500 1,300
Allstate Corp. 97,852 4,465
American International Group, Inc. 156,550 15,440
BankAmerica Corp. 262,100 19,854
Barnett Banks, Inc. 130,900 7,985
Beneficial Corp. 2,900 163
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ----------------------------------------------------------------------
<S> <C> <C>
CIGNA Corp. 2,200 $ 259
Chase Manhattan Corp. 113,600 8,023
Equifax, Inc. 85,100 2,234
Federal National Mortgage Assn. 152,000 5,092
First Bank System, Inc. 49,100 2,848
First Chicago NBD Corp. 282,950 11,070
First Union Corp. 65,200 3,969
Great Western Financial Corp. 187,100 4,467
MBNA Corp. 26,150 745
Merrill Lynch & Co., Inc. 50,200 3,269
J.P. Morgan & Co., Inc. 27,300 2,310
Morgan Stanley Group, Inc. 337,500 16,580
NationsBank Corp. 165,200 13,650
PNC Bank Corp. 247,900 7,375
SAFECO Corp. 84,100 2,975
Salomon, Inc. 218,800 9,627
Transamerica Corp. 100,000 8,100
Travelers Group Inc. 430,650 19,648
------------
SECTOR TOTAL 171,448
------------
- ----------------------------------------------------------------------
HEALTH CARE (11.7%)
Abbott Laboratories 307,840 13,391
Bristol-Myers Squibb Co. 10,900 981
Cardinal Health, Inc. 219,300 15,817
Columbia/HCA Healthcare Corp. 48,175 2,571
Johnson & Johnson 627,400 31,056
Medtronic, Inc. 244,900 13,714
Merck & Co., Inc. 443,400 28,655
Pharmacia & Upjohn, Inc. 39,500 1,753
Pfizer, Inc. 296,900 21,191
Schering-Plough Corp. 53,300 3,345
------------
SECTOR TOTAL 132,474
------------
- ----------------------------------------------------------------------
TECHNOLOGY (9.6%)
* Analog Devices, Inc. 221,400 5,646
* Applied Materials, Inc. 465,900 14,152
Avnet, Inc. 296,400 12,486
* Cisco Systems, Inc. 39,200 2,220
* COMPAQ Computer Corp. 135,300 6,664
Computer Associates
International, Inc. 4,200 299
* Data General Corp. 164,800 2,142
* Digital Equipment Corp. 78,900 3,551
Hewlett-Packard Co. 112,800 11,238
* Intergraph Corp. 314,100 3,808
International Business
Machines Corp. 218,800 21,661
* Microsoft Corp. 98,100 11,772
Moore Corp. Ltd. 199,400 3,764
* Sun Microsystems, Inc. 93,700 5,505
* 360 Communications Co. 137,966 3,311
------------
SECTOR TOTAL 108,219
------------
- ----------------------------------------------------------------------
TRANSPORT & SERVICES (.7%)
* AMR Corp. 69,000 6,279
Caliber System Inc. 62,400 2,122
------------
SECTOR TOTAL 8,401
------------
- ----------------------------------------------------------------------
UTILITIES (12.2%)
AT&T Corp. 60,600 3,757
Bell Atlantic Corp. 224,000 14,280
BellSouth Corp. 364,400 15,441
Central & South West Corp. 90,600 2,627
CINergy Corp. 55,100 1,763
Edison International 634,700 11,187
Entergy Corp. 184,300 5,230
GTE Corp. 387,400 17,336
MCI Communications Corp. 302,800 7,721
NorAm Energy Corp. 208,600 2,269
ONEOK, Inc. 110,800 2,770
PECO Energy Corp. 46,900 1,219
Pacific Gas & Electric Co. 379,300 8,819
Peoples Energy Corp. 24,400 817
Public Service Enterprise Group Inc. 86,100 2,357
SBC Communications Inc. 43,200 2,128
Sprint Corp. 487,300 20,467
Unicom Corp. 457,100 12,742
Williams Cos., Inc. 95,300 4,717
------------
SECTOR TOTAL 137,647
------------
- ----------------------------------------------------------------------
MISCELLANEOUS (2.2%)
Loews Corp. 84,300 6,649
Service Corp. International 132,500 7,619
Textron, Inc. 134,000 10,703
------------
SECTOR TOTAL 24,971
------------
- ----------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $877,638) 1,093,369
======================================================================
TEMPORARY CASH INVESTMENTS (2.9%)
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
--------
<S> <C> <C>
U.S. TREASURY BILL--NOTE E
4.835%, 9/19/96 $ 1,250 1,236
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 5.35%, 7/1/96 31,999 31,999
- ----------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $33,235) 33,235
======================================================================
TOTAL INVESTMENTS (99.6%)
(Cost $910,873) 1,126,604
======================================================================
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
(000)+
- ---------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (.4%)
=====================================================================
Other Assets--Note C $ 14,198
Liabilities (9,727)
------------
4,471
- ---------------------------------------------------------------------
NET ASSETS (100%)
=====================================================================
Applicable to 53,038,928 outstanding
$.001 par value shares
(authorized 1,000,000,000 shares) $1,131,075
- ---------------------------------------------------------------------
NET ASSET VALUE PER SHARE $21.33
=====================================================================
</TABLE>
*See Note A to Financial Statements.
*Non-Income Producing Security.
ADR= American Depository Receipt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AT JUNE 30, 1996, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- --------
<S> <C> <C>
PAID IN CAPITAL $ 857,994 $16.18
UNDISTRIBUTED NET
INVESTMENT INCOME 6,030 .11
ACCUMULATED NET
REALIZED GAINS 50,890 .96
UNREALIZED APPRECIATION--
NOTE E:
INVESTMENT SECURITIES 215,731 4.07
FUTURES CONTRACTS 430 .01
- ---------------------------------------------------------------------
NET ASSETS $1,131,075 $21.33
- ---------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
(000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,926
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,198
- -------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,124
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fee--Note B
Basic Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 788
Performance Adjustment . . . . . . . . . . . . . . . . . . . . . . (100) 688
-------
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . . . . . . . . 1,164
Marketing and Distribution . . . . . . . . . . . . . . . . . . . . 117 1,281
Taxes (other than income taxes) . . . . . . . . . . . . . . . . . . . ------- 38
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shareholders' Reports . . . . . . . . . . . . . . . . . . . . . . . . 27
Annual Meeting and Proxy Costs . . . . . . . . . . . . . . . . . . . . 8
Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . 2
- -------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . 2,053
Expenses Paid Indirectly--Note C . . . . . . . . . . . . . . (31)
- -------------------------------------------------------------------------------------------------------------------------
Net Expenses . . . . . . . . . . . . . . . . . . . . . . . . 2,022
- -------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . 10,102
- -------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . 49,436
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 1,349
- -------------------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . . . . . . . . . 50,785
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . 29,746
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 704
- -------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation) . . . . 30,450
- -------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . . . $91,337
=========================================================================================================================
</TABLE>
9
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
JUNE 30, 1996 December 31, 1995
(000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . $ 10,102 $ 16,680
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . 50,785 54,270
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . 30,450 150,960
- -------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations. . . . . . . . . . . . . . . . . . 91,337 221,910
- -------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . (7,907) (17,520)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . (17,946) (31,764)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . (25,853) (49,284)
- -------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION CREDITS--NOTE A . . . . . . . . . . . . . . . . . . . 1,110 1,046
- -------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,652 204,633
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . 24,817 47,452
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76,435) (112,359)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . 155,034 139,726
- -------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . 221,628 313,398
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . 909,447 596,049
- -------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,131,075 $909,447
=========================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,949 11,067
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . 1,187 2,450
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,691) (6,226)
- -------------------------------------------------------------------------------------------------------------------------
7,445 7,291
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
SIX MONTHS ENDED -------------------------------------------------------
For a Share Outstanding Throughout Each Period JUNE 30, 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $19.95 $15.56 $16.45 $16.30 $16.32 $13.29
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .20 .41 .40 .40 .44 .47
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . 1.70 5.14 (.50) 1.83 .69 3.47
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . 1.90 5.55 (.10) 2.23 1.13 3.94
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . (.15) (.42) (.39) (.39) (.44) (.47)
Distributions from Realized Capital Gains . . . . (.37) (.74) (.40) (1.69) (.71) (.44)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.52) (1.16) (.79) (2.08) (1.15) (.91)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $21.33 $19.95 $15.56 $16.45 $16.30 $16.32
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +9.57% +35.93% -0.61% +13.83% +7.01% +30.29%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . $1,131 $909 $596 $531 $416 $335
Ratio of Total Expenses to Average Net Assets . . . . .40%* .47% .48% .50% .40% .43%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . 1.96%* 2.25% 2.50% 2.22% 2.67% 2.95%
Portfolio Turnover Rate . . . . . . . . . . . . . . . 63%* 59% 71% 85% 51% 61%
Average Commission Rate Paid . . . . . . . . . . . . $.0313+ N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
This disclosure is required by the SEC beginning in 1996.
11
<PAGE> 12
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 the close of the New York Stock Exchange
(generally 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 acquired over sixty days to maturity are valued utilizing the
latest quoted bid prices and on the basis of a matrix system (which
considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Other
temporary cash investments are valued at amortized cost which
approximates market value.
2. FEDERAL INCOME TAXES: 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 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 a custodian bank until maturity of each
repurchase agreement. Provisions of each agreement require 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 Standard & Poor's 500 Index futures contracts
to a limited extent, with the objectives of maintaining full exposure to
the stock market, maintaining liquidity, and minimizing transaction
costs. The Fund may purchase futures contracts to immediately position
incoming cash in the market, thereby simulating a fully invested position
in the underlying index while maintaining a cash balance for liquidity.
In the event of redemptions, the Fund may pay redeeming shareholders from
its cash balance and reduce its futures position accordingly.
The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of stocks 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 values 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.
12
<PAGE> 13
B. Under the terms of a contract which expires April 1, 1998, 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, 1996, the advisory fee
represented an effective annual rate of .15 of 1% of average net assets before
a decrease of $100,000 (an annual rate of .02 of 1%) based on performance. The
base fee reflects a fee waiver of $31,000 (an annual rate of .01 of 1%) for the
period January 1, 1996, to March 31, 1996.
C. The Vanguard Group 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, 1996, the Fund had contributed capital of $115,000 to
Vanguard (included in Other Assets), representing .6% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
Vanguard has requested the Fund's investment adviser to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate or credit to the Fund a portion of the commissions
generated. Such rebates or credits are used solely to reduce the Fund's
administrative expenses. For the six months ended June 30, 1996, directed
brokerage arrangements reduced the Fund's expenses by $31,000 (an annual rate
of .01 of 1% of average net assets).
D. During the six months ended June 30, 1996, the Fund made purchases of
$456,909,000 and sales of $311,451,000 of investment securities other than U.S.
Government securities and temporary cash investments.
E. At June 30, 1996, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes aggregated $215,731,000, of
which $230,834,000 related to appreciated securities and $15,103,000 related to
depreciated securities.
At June 30, 1996, the aggregate settlement value of open Standard & Poor's 500
Index futures contracts expiring in September 1996, the related unrealized
appreciation, and the market value of U.S. Treasury bills deposited as initial
margin for those contracts were $32,148,000, $430,000, and $1,236,000,
respectively.
13
<PAGE> 14
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President and Chief Executive Officer
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus of Rhone-Poulenc Rorer Inc.; Director of
Sun Company, Inc.; Director of Westinghouse Electric Corporation.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BRUCE K. MACLAURY, President Emeritus of The Brookings Institution; Director of
American Express Bank Ltd., The St. Paul Companies, Inc., and National Steel
Corporation.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern New England Communications
Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and
The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Co. and
NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and Kmart
Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
14
<PAGE> 15
OTHER FUND OFFICERS
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.
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and 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
ROBERT A. DISTEFANO F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Information Technology Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
15
<PAGE> 16
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ ,NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Portfolios
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1 (800) 662-7447 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.
Q932-6/96
VANGUARD
QUANTITATIVE
PORTFOLIOS
SEMI-ANNUAL REPORT
JUNE 30, 1996
