<PAGE> 1
CHAIRMAN'S LETTER
Fellow Shareholder:
After posting positive "double-digit" returns in the three previous fiscal
years, Vanguard Asset Allocation Fund turned in a marginally negative total
return during the six months ended March 31, the first half of the Fund's 1994
fiscal year.
On balance during this period, the financial markets were rather weak,
with the prices of both bonds and stocks declining. The following table
presents the total return (capital change plus income) of the Fund, compared
with the returns on the three asset classes that we may use in the composition
of our portfolio: for stocks, the unmanaged Standard & Poor's 500 Composite
Stock Price Index; for bonds, the long-term U.S. Treasury bond; and for cash
reserves, the 90-day U.S. Treasury bill.
<TABLE>
<CAPTION>
- - --------------------------------------------------------
Total Return
----------------
Six Months Ended
March 31, 1994
- - --------------------------------------------------------
<S> <C>
VANGUARD ASSET ALLOCATION FUND -3.4%
- - --------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX -1.6%
LONG-TERM U.S. TREASURY BONDS -7.6
90-DAY U.S. TREASURY BILLS +1.6
- - --------------------------------------------------------
</TABLE>
The Fund's total return is based on net asset values of $15.08 per share on
September 30, 1993, and $13.79 on March 31, 1994, with the latter figure
adjusted to take into account the reinvestment of our semi-annual dividend
totaling $.28 per share from net investment income, and a year-end distribution
of $.53 per share from net capital gains realized during calendar 1993 and paid
at year-end.
* THE EBB AND FLOW OF THE MARKETS
During the past six months, we experienced the kind of financial market
volatility that is normal, albeit considerably higher than in recent years.
Stock prices continued their 1993 advance from October through calendar
year-end, accelerating during January 1994. Then, prices eased lower in
February, only to tumble rather sharply thereafter. The bond market, on the
other hand, was relatively steady through January, with the yield on the
long-term U.S. Treasury bond holding in the 5.9% to 6.4% range. Then, as the
yield jumped to 7.1% by March 31, bond prices tumbled. (An increase of +1% in
the yield of the long-term Treasury bond has the effect of reducing its price
by about 12%).
The recent decline in the bond market seemed to be precipitated largely by
the Federal Reserve's decision in early February to raise the short-term
interest rate (Federal funds rate) by 1/4% --from 3% to 31/4%. A second
increase in the same amount was implemented one month later. The Federal
Reserve was motivated by an apparent desire to "nip inflation in the bud," and
its moves could well be viewed as a positive factor in the longer run. However,
interest rates on long-term bonds rose by an even larger amount, seemingly
reflecting the attitude that further rate increases lay ahead. Stocks, with
their yield levels already very low by historical standards, were affected
negatively as well, although their price decline was less than that of bonds.
Despite the weak performance of bonds, Vanguard Asset Allocation Fund held
up reasonably well during the period. The Fund's 1993 fiscal year end
allocation was 70% stocks/30% bonds, and while our allocation changed in
October, it shortly returned to 70/30 where it remained on balance through the
close of March 1994. With stocks performing distinctly better than bonds for
the six months, this posture clearly helped the Fund's relative performance.
That said, at present relative yield levels, some advantage in value has
shifted toward bonds, and (as suggested in the report from our Investment
Adviser, Mellon Capital Management) an increase in our bond allocation is
hardly out of the question at this time.
(continued)
1
<PAGE> 2
* SUMMING UP
When I wrote to you in our Annual Report last October, I noted that "with
interest rates at their lowest levels in two decades and stock yields near
historical lows, there are certain to be some difficult bumps" before us.
Surely the volatility of the financial markets during the first half of fiscal
1994 was testimony to the accuracy of that note of caution. Nonetheless, we
expect that for our shareholders who have joined Vanguard Asset Allocation Fund
for the long haul, our conservative allocation of your assets will continue to
provide fully competitive investment results.
Sincerely,
/s/JOHN C. BOGLE
- - ---------------------
John C. Bogle
Chairman of the Board
April 8, 1994
2
<PAGE> 3
REPORT FROM THE INVESTMENT ADVISER
Vanguard Asset Allocation Fund's total return (price change plus reinvested
income) was -4.6% for the second quarter ended March 31, 1994. Over the same
period, the unmanaged Standard & Poor's 500 Stock Index had a negative total
return of -3.8%, and the Lehman Long-Term Treasury Index's return was -6.1%.
For the first half of the 1994 fiscal year, the Fund's return was -3.4% versus
- - -1.6% for the S&P 500 Index and -7.6% for the Lehman Index.
The two capital markets combined to form a particularly inhospitable
investment environment after the turn of the calendar year. The S&P 500, down
- - -3.8% for the quarter, has actually fallen -7.0% from its recent 1994 high.
Long-term U.S. Treasuries fared even worse, with a decline of -8.3% over
roughly the same period (-6.1% for the full three months).
The bond market has, in fact, been weakening since the middle of last
October, when long U.S. Treasury bond yields bottomed at 5.9%. The slide
steepened when the Federal Reserve Board took steps to raise short-term
interest rates in a small way on February 4th. In March, the Fed repeated its
earlier move, and several large commercial banks promptly followed with an
increase in the prime lending rate. Meanwhile, preliminary reports were
released indicating a surprisingly robust economy, with an estimated GDP growth
rate of 7.5% (later revised to 7.0%) in the fourth quarter of last year. All of
these factors served to heighten inflationary fears and led investors to push
the yield on long Treasuries to 7.1% by the end of the fiscal period, some 75
basis points (0.75%) higher than just three months ago.
Rising interest rates had a clear and adverse effect on the stock market.
In addition, stocks were hardly helped by the assassination of the leading
presidential candidate in Mexico and the bellicose stance assumed by North
Korea. Furthermore, the growing American-Japanese trade imbroglio raised
concerns over a possible U.S. retreat towards protectionism and the longer-term
implications such a move could have for the domestic economy. With these
concerns in mind, equity investors have not been in the mood recently to put
much, if any, weight on the mounting evidence of a continuing improvement in
U.S. economic conditions.
At the beginning of this fiscal year, the Fund had an asset mix of 70%
stocks and 30% bonds, and our asset allocation model had just begun
recommending a ten-percentage-point reduction in the fixed-income exposure.
This recommendation held for the required length of time and, in October, the
Fund's asset mix was changed to 80% stocks and 20% bonds. Early in November,
the model's recommendation reverted to a 70/30 ratio of stocks to bonds. Again,
after the necessary passage of time, the revised recommendation was put into
effect last December, and the Fund's assets were returned to an allocation of
70% stocks and 30% bonds for the balance of the quarter. As bonds
underperformed stocks by a considerable margin through February and into March,
our asset allocation model began signaling for an increased allocation to bonds
with a concomitant reduction in the equity position. This signal, however, has
not been consistent, and owing to that lack of consistency, the quarter closed
with the Vanguard Asset Allocation Fund's actual asset mix unchanged at 70%
stocks and 30% bonds.
Sincerely,
William L. Fouse, Chairman
Mellon Capital Management Corporation
The Mellon Capital Management asset allocation model is forward-looking, and it
takes as inputs: the expected returns for stocks, bonds, and cash; the risks of
each asset class; and the correlations among the asset class returns. Given the
trade-off between risk and return, the model selects that mix of stocks, bonds,
and cash that best integrates total fund risk and return with the risk aversion
of the average investor. As the model's inputs change over time, and as stock
and bond prices fluctuate, so will the model's recommended optimal solution. It
is to this allocation that the Fund's assets are periodically rebalanced.
3
<PAGE> 4
TOTAL INVESTMENT RETURN
This table illustrates the results of an investment in Vanguard Asset
Allocation Fund during the period from November 3, 1988, to March 31, 1994, the
lifetime of the Fund. This was a period in which stock and bond prices
fluctuated widely. The results shown should not be considered as 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>
- - ----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS IN CASH:
ALL INCOME DIVIDENDS AND CAPITAL GAINS ALL DIVIDENDS AND CAPITAL
CAPITAL GAINS DISTRIBUTIONS IN CASH DISTRIBUTIONS REINVESTED GAINS DISTRIBUTIONS REINVESTED
- - ----------------------------------------------------------------------------------------------------------------------------------
Capital
Year Ended Net Income Gains Net Income Net Capital Income Total
September 30 Asset Value Dividends Distributions Asset Value Dividends Asset Value Return Return Return
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (11/88) $10.00 -- -- $10.00 -- $10.00 -- -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
1989 12.11 $0.25 -- 12.11 $0.25 12.39 +21.1% +2.8% +23.9%
- - ----------------------------------------------------------------------------------------------------------------------------------
1990 10.93 0.51 $0.15 11.07 0.51 11.83 - 8.6 +4.0 - 4.6
- - ----------------------------------------------------------------------------------------------------------------------------------
1991 13.06 0.62 0.13 13.38 0.63 15.06 +20.9 +6.4 +27.3
- - ----------------------------------------------------------------------------------------------------------------------------------
1992 13.79 0.59 0.19 14.34 0.60 16.89 + 7.2 +5.0 +12.2
- - ----------------------------------------------------------------------------------------------------------------------------------
1993 15.08 0.59 0.17 15.88 0.61 19.49 +10.7 +4.7 +15.4
- - ----------------------------------------------------------------------------------------------------------------------------------
1994 (3/31) 13.79 0.28 0.53 15.05 0.29 18.83 - 5.2 +1.8 - 3.4
- - ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $2.84 $1.17 $2.89
- - ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURN + 7.9% +4.5% +12.4%
- - ----------------------------------------------------------------------------------------------------------------------------------
Note: No adjustment has been made for income taxes payable by shareholders on reinvested income dividends and capital gains
distributions.
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND
(PERIODS ENDED MARCH 31, 1994) ARE AS FOLLOWS:
<TABLE>
<S> <C> <C> <C> <C> <C>
1 YEAR: +2.52% 5 YEARS: +11.92% SINCE INCEPTION (11/3/88): +12.42%
</TABLE>
THE AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION INCLUDES A CAPITAL RETURN OF
+7.86% AND AN INCOME RETURN OF +4.56%. ALL OF THESE DATA REPRESENT PAST
PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
4
<PAGE> 5
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
March 31, 1994
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (70.3%)
- - --------------------------------------------------------------
* AMR Corp. 19,500 $ 1,111
Abbott Laboratories, Inc. 216,700 5,770
* Advanced Micro Devices, Inc. 24,000 741
Aetna Life & Casualty Co. 29,600 1,572
H.F. Ahmanson & Co. 30,300 511
Air Products & Chemicals, Inc. 29,200 1,303
Alberto-Culver Co. Class B 7,900 164
Albertson's, Inc. 66,700 1,918
Alcan Aluminium Ltd. 59,850 1,317
Alco Standard Corp. 13,600 712
Alexander & Alexander Services,
Inc. 10,800 190
Allergan, Inc. 17,300 352
Allied-Signal, Inc. 72,800 2,666
Aluminum Co. of America 23,000 1,647
* ALZA Corp. 21,100 480
Amerada Hess Corp. 23,700 1,060
Amdahl Corp. 28,700 186
American Barrick Resources 74,800 1,898
American Brands, Inc. 53,100 1,606
American Cyanamid Co. 22,900 1,065
American Electric Power Co., Inc. 48,600 1,494
American Express Co. 128,570 3,552
American General Corp. 56,500 1,561
American Greetings Corp. Class A 19,900 525
American Home Products Corp. 80,900 4,692
American International Group, Inc. 82,837 6,969
American Stores Co. 19,000 974
American Telephone & Telegraph
Co. 353,284 18,106
Ameritech Corp. 141,800 5,406
* Amgen, Inc. 34,500 1,311
AMP, Inc. 27,800 1,675
Amoco Corp. 130,400 6,927
* Andrew Corp. 6,600 209
Anheuser-Busch Co., Inc. 70,607 3,742
Apple Computer, Inc. 29,900 987
Archer-Daniels-Midland Co. 87,718 2,105
Arkla, Inc. 28,800 194
* Armco, Inc. 27,500 131
Armstrong World Industries Inc. 9,700 524
Asarco, Inc. 10,900 244
Ashland Oil, Inc. 15,400 627
Atlantic Richfield Co. 41,700 3,961
Autodesk, Inc. 6,200 358
Automatic Data Processing, Inc. 37,100 1,901
Avery Dennison Corp. 14,500 404
Avon Products, Inc. 18,500 1,045
Baker Hughes, Inc. 37,200 660
Ball Corp. 7,200 184
* Bally Manufacturing Corp. 12,500 86
Baltimore Gas & Electric Co. 37,250 861
Banc One Corp. 97,784 3,227
Bank of Boston Corp. 26,951 640
BankAmerica Corp. 92,751 3,652
Bankers Trust New York Corp. 20,900 1,481
C.R. Bard, Inc. 13,900 337
Barnett Banks of Florida, Inc. 24,900 1,099
Bassett Furniture Industries, Inc. 3,325 92
Bausch & Lomb, Inc. 15,800 743
Baxter International, Inc. 71,900 1,627
Becton, Dickinson & Co. 20,200 757
Bell Atlantic Corp. 113,700 5,884
BellSouth Corp. 129,200 7,461
Bemis Co., Inc. 13,400 293
Beneficial Corp. 13,500 494
* Bethlehem Steel Corp. 27,900 558
* Beverly Enterprises Inc. 21,700 285
* Biomet, Inc. 30,500 313
Black & Decker Corp. 20,700 424
H & R Block, Inc. 27,700 1,191
Blockbuster Entertainment Corp. 59,700 1,507
Boatmen's Bancshares, Inc. 26,700 791
The Boeing Co. 88,525 3,972
Boise Cascade Corp. 10,000 227
Borden, Inc. 36,900 493
Briggs & Stratton Corp. 3,700 311
Bristol-Myers Squibb Co. 135,840 7,013
Brown-Forman Corp. Class B 6,800 582
Brown Group, Inc. 4,900 179
Browning-Ferris Industries, Inc. 46,200 1,167
Bruno's Inc. 20,400 158
Brunswick Corp. 25,100 530
Burlington Northern, Inc. 22,900 1,363
Burlington Resources, Inc. 33,800 1,437
CBS, Inc. 4,406 1,348
CIGNA Corp. 18,500 1,098
CPC International, Inc. 38,900 1,843
CSX Corp. 27,600 2,263
Campbell Soup Co. 65,500 2,612
Capital Cities/ABC, Inc. 4,000 2,736
Capital Holding Corp. 26,000 822
Carolina Power & Light Co. 43,000 1,118
Caterpillar, Inc. 26,400 2,967
Centex Corp. 8,300 256
Central & South West Corp. 48,300 1,195
* Ceridian Corp. 11,600 270
Champion International Corp. 24,800 719
Charming Shoppes, Inc. 26,800 318
The Chase Manhattan Corp. 48,177 1,560
Chemical Banking Corp. 65,093 2,368
Chevron Corp. 85,400 7,195
Chrysler Corp. 91,800 4,739
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------
<S> <C> <C>
The Chubb Corp. 22,800 $ 1,667
Cincinnati Milacron, Inc. 8,800 206
Circuit City Stores, Inc. 25,300 503
* Cisco Systems, Inc. 64,800 2,203
* Citicorp 97,904 3,671
* Clark Equipment Co. 4,500 267
Clorox Co. 13,900 697
Coastal Corp. 27,650 843
The Coca-Cola Co. 339,800 13,804
Colgate-Palmolive Co. 40,800 2,361
* Columbia Gas Systems, Inc. 14,200 371
Columbia/HCA Healthcare Corp. 87,097 3,506
Comcast Corp. Class A Special 56,100 989
Commonwealth Edison Co. 55,700 1,399
Community Psychiatric Centers 10,300 165
* Compaq Computer Corp. 21,200 2,072
Computer Associates International,
Inc. 44,000 1,359
* Computer Sciences Corp. 13,200 482
Conagra, Inc. 65,400 1,749
Conrail, Inc. 20,500 1,184
Consolidated Edison Co. of
New York, Inc. 61,000 1,777
* Consolidated Freightways, Inc. 9,600 252
Consolidated Natural Gas Co. 24,400 976
Continental Corp. 13,900 314
Cooper Industries, Inc. 30,000 1,110
Cooper Tire & Rubber Co. 21,700 553
Adolph Coors Co. Class B 10,300 187
CoreStates Financial Corp. 30,957 805
Corning, Inc. 52,500 1,700
Crane Co. 7,450 186
* Cray Research, Inc. 7,200 200
* Crown Cork & Seal Co., Inc. 22,900 896
Cummins Engine Co., Inc. 9,500 468
Cyprus Amax 23,811 688
* DSC Communications Corp. 14,300 719
Dana Corp. 12,700 727
* Data General Corp. 9,400 75
Dayton-Hudson Corp. 19,303 1,409
Dean Witter Discover and Co. 43,620 1,423
Deere & Co. 21,800 1,831
Delta Air Lines, Inc. 13,500 611
Deluxe Corp. 22,100 682
Detroit Edison Co. 39,500 1,047
The Dial Corp. 12,300 514
* Digital Equipment Corp. 35,000 1,033
Dillard Department Stores Class A 29,000 972
The Walt Disney Co. 139,500 5,842
Dominion Resources, Inc. 44,450 1,778
R.R. Donnelley & Sons Co. 41,500 1,167
Dover Corp. 14,900 892
Dow Chemical Co. 71,550 4,302
Dow Jones & Co., Inc. 25,600 973
Dresser Industries, Inc. 47,000 999
E.I. du Pont de Nemours & Co. 177,400 9,402
Duke Power Co. 54,000 1,951
The Dun & Bradstreet Corp. 47,100 2,767
EG & G, Inc. 15,300 251
E-Systems, Inc. 8,400 368
Eastern Enterprises 6,300 169
Eastman Chemical 21,150 851
Eastman Kodak Co. 86,000 3,816
Eaton Corp. 17,900 1,036
Echlin, Inc. 15,500 457
Echo Bay Mines Ltd. 29,100 386
Ecolab, Inc. 15,800 324
Emerson Electric Co. 58,900 3,497
Englehard Corp. 24,200 672
Enron Corp. 62,300 1,900
ENSERCH Corp. 17,400 231
Entergy Corp. 60,900 1,934
Exxon Corp. 324,900 20,428
* FMC Corp. 9,500 451
FPL Group, Inc. 49,700 1,646
* Fedders Corp. 6,600 51
* Federal Express Corp. 14,100 943
Federal Home Loan Mortgage Corp. 47,300 2,400
Federal National Mortgage Assn. 71,300 5,544
Federal Paper Board Co., Inc. 11,000 248
First Chicago Corp. 21,346 1,025
First Fidelity Bancorp. 20,631 916
First Interstate Bancorp. 21,000 1,538
First Mississippi Corp. 4,400 64
First Union Corp. 44,918 1,870
Fleet Financial Group, Inc. 35,405 1,244
Fleetwood Enterprises, Inc. 11,000 224
Fleming Cos., Inc. 9,900 244
Fluor Corp. 21,100 1,055
Ford Motor Co. 130,400 7,661
Foster Wheeler Corp. 9,400 376
GTE Corp. 247,300 7,666
Gannett Co., Inc. 38,800 2,042
The Gap, Inc. 38,300 1,700
General Dynamics Corp. 7,900 671
General Electric Co. 223,400 22,256
General Mills, Inc. 41,700 2,320
General Motors Corp. 186,100 10,049
General Re Corp. 22,300 2,394
General Signal Corp. 11,800 389
* Genesco, Inc. 7,500 31
Genuine Parts Co. 33,700 1,180
Georgia-Pacific Corp. 23,000 1,472
Gerber Products Co. 18,400 564
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------
<S> <C> <C>
Giant Food, Inc. Class A 15,700 $ 353
Giddings & Lewis, Inc. 9,000 225
Gillette Co. 57,700 3,650
Golden West Financial Corp. 16,400 629
The BF Goodrich Co. 7,500 319
The Goodyear Tire & Rubber Co. 39,700 1,608
W.R. Grace & Co. 23,800 982
W.W. Grainger, Inc. 13,100 832
Great Atlantic & Pacific Tea Co.,
Inc. 9,300 228
Great Lakes Chemical Corp. 18,300 1,290
Great Western Financial Corp. 33,600 538
Grumman Corp. 8,500 549
Halliburton Co. 29,200 850
Handleman Co. 9,050 100
Harcourt General, Inc. 20,463 678
John H. Harland Co. 7,300 163
Harnischfeger Industries Inc. 6,300 132
Harris Corp. 10,400 490
* Hartmarx Corp. 7,700 49
Hasbro, Inc. 23,400 813
H.J. Heinz Co. 66,600 2,231
Helmerich & Payne, Inc. 6,500 169
Hercules, Inc. 11,000 1,262
Hershey Foods Corp. 23,000 1,064
Hewlett-Packard Co. 66,500 5,461
Hilton Hotels Corp. 12,500 713
Home Depot, Inc. 116,700 4,756
Homestake Mining Co. 35,900 808
Honeywell, Inc. 35,200 1,184
Household International, Inc. 25,000 741
Houston Industries, Inc. 33,200 1,179
ITT Corp. 31,200 2,675
Illinois Tool Works, Inc. 30,600 1,239
Inco Ltd. 30,100 745
Ingersoll-Rand Co. 26,900 1,002
* Inland Steel Industries, Inc. 10,600 319
Intel Corp. 109,100 7,337
* Intergraph Corp. 12,400 112
International Business Machines
Corp. 151,700 8,268
International Flavors &
Fragrances, Inc. 29,100 1,062
International Paper Co. 32,600 2,221
Interpublic Group of Cos., Inc. 19,300 574
James River Corp. 20,500 372
Jefferson-Pilot Corp. 13,000 613
Johnson & Johnson 171,300 6,467
Johnson Controls, Inc. 10,400 572
Jostens Inc. 11,100 189
Kmart Corp. 107,400 1,947
Kaufman & Broad Home Corp. 9,400 186
Kellogg Co. 60,200 3,070
Kerr-McGee Corp. 13,900 577
Keycorp 62,100 1,863
Kimberly-Clark Corp. 41,300 2,184
* King World Productions, Inc. 9,400 349
Knight-Ridder, Inc. 14,300 820
* The Kroger Co. 27,400 654
Eli Lilly & Co. 76,300 3,796
The Limited, Inc. 95,500 1,994
Lincoln National Corp. 24,000 966
Liz Claiborne, Inc. 20,400 482
Lockheed Corp. 16,000 1,028
Longs Drug Stores, Inc. 5,700 190
Loral Corp. 21,500 806
* Lotus Development Corp. 11,400 804
Louisiana Land & Exploration Co. 8,400 303
Louisiana-Pacific Corp. 29,500 1,066
Lowes Cos., Inc. 19,500 1,258
Luby's Cafeterias, Inc. 6,500 150
* M/A-Com, Inc. 4,800 28
MBNA Corp. 38,400 811
MCI Communications Corp. 139,600 3,263
Mallinckrodt Group, Inc. 20,500 656
Manor Care Inc. 15,100 411
Marsh & McLennan, Inc. 18,800 1,565
Marriott International 30,700 863
Martin Marietta Corp. 24,300 1,069
Masco Corp. 39,000 1,229
Mattel, Inc. 43,052 1,082
* Maxus Energy Corp. 32,000 140
May Department Stores Co. 64,700 2,693
Maytag Corp. 28,200 529
* McCaw Cellular Communications,
Inc. 53,800 2,650
McDermott International, Inc. 13,600 275
McDonald's Corp. 92,100 5,238
McDonnell Douglas Corp. 10,200 1,098
McGraw-Hill, Inc. 12,800 837
McKesson Corp. 10,400 619
The Mead Corp. 14,900 611
Medtronic, Inc. 15,500 1,240
Melville Corp. 26,800 1,022
Mercantile Stores Co., Inc. 9,300 356
Merck & Co., Inc. 335,500 9,981
Meredith Corp. 3,500 148
Merrill Lynch & Co., Inc. 55,300 2,060
Millipore Corp. 6,900 311
Minnesota Mining & Manufacturing
Co. 56,400 5,591
Mobil Corp. 104,900 7,802
Monsanto Co. 30,800 2,395
Moore Corp. Ltd. 26,200 488
J.P. Morgan & Co., Inc. 50,305 3,150
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------
<S> <C> <C>
Morrison-Knudsen Co., Inc. 7,800 $ 212
Morton International, Inc. 13,000 1,298
Motorola, Inc. 70,800 7,169
NBD Bancorp, Inc. 43,100 1,218
NACCO Industries, Inc. Class A 2,400 121
Nalco Chemical, Inc. 17,700 604
* National Education Corp. 6,600 40
* National Intergroup, Inc. 3,500 56
National Medical Enterprises, Inc. 42,300 682
* National Semiconductor Corp. 28,400 596
National Service Industries, Inc. 13,900 351
NationsBank, Inc. 71,220 3,258
* Navistar International Corp. 18,180 405
New York Times Co. Class A 28,100 769
Newell Co. 20,500 805
Newmont Mining Corp. 17,600 1,010
Niagara Mohawk Power Corp. 37,600 672
NICOR, Inc. 15,200 388
Nike, Inc. Class B 19,400 1,028
Nordstrom, Inc. 21,800 867
Norfolk Southern Corp. 36,700 2,372
Northern States Power Co. of
Minnesota 17,700 723
Northern Telecom Ltd. 66,100 1,851
Northrop Corp. 12,600 502
Norwest Corp. 80,400 1,920
* Novell, Inc. 82,800 1,490
Nucor Corp. 22,600 1,370
NYNEX Corp. 107,600 3,712
Occidental Petroleum Corp. 80,800 1,303
Ogden Corp. 10,400 231
Ohio Edison Co. 39,500 751
Oneok, Inc. 5,800 99
* Oracle Systems Corp. 73,500 2,352
Oryx Energy Co. 24,000 387
Oshkosh B Gosh, Inc. Class A 2,900 43
Outboard Marine Corp. 5,200 100
* Owens-Corning Fiberglas Corp. 11,200 392
Peco Energy Corp. 57,700 1,601
PNC Bank Corp. 62,100 1,653
PPG Industries, Inc. 27,500 2,045
PSI Resources, Inc. 14,300 334
Paccar, Inc. 10,070 506
Pacific Enterprises 22,200 450
Pacific Gas & Electric Co. 112,800 3,285
Pacific Telesis Group 108,300 5,699
Pacificorp 71,000 1,251
Pall Corp. 30,466 506
Panhandle Eastern Corp. 31,245 656
Parker Hannifin Corp. 12,700 449
J.C. Penney Co., Inc. 61,600 3,257
Pennzoil Co. 11,800 590
Peoples Energy Corp. 9,500 260
Pep Boys (Manny, Moe & Jack) 15,200 429
PepsiCo, Inc. 207,800 7,611
Perkin-Elmer Corp. 11,000 367
Pet, Inc. 26,600 479
Pfizer, Inc. 82,800 4,471
Phelps Dodge Corp. 18,000 941
Philip Morris Cos., Inc. 229,600 11,652
Phillips Petroleum Co. 67,500 1,797
Pioneer Hi Bred International 23,200 760
Pitney Bowes, Inc. 41,900 1,702
Pittston Services Group 9,900 220
Placer Dome Group, Inc. 62,800 1,546
Polaroid Corp. 11,562 369
Potlatch Corp. 7,300 306
Praxair, Inc. 34,400 598
Premark International, Inc. 8,200 590
* Price/Costco Inc. 55,356 996
Procter & Gamble Co. 178,722 9,584
* Promus Co. Inc. 26,300 1,036
Public Service Enterprise Group
Inc. 63,000 1,756
Pulte Corp. 6,700 194
Quaker Oats Co. 17,600 1,102
Ralston-Ralston Purina Group 26,600 1,210
Raychem Corp. 11,300 422
Raytheon Co. 35,800 2,314
Reebok International Ltd. 22,000 754
Reynolds Metals Co. 15,900 729
Rite Aid Corp. 23,000 437
Roadway Services, Inc. 10,400 699
Rockwell International Corp. 58,100 2,309
Rohm & Haas Co. 17,400 950
Rollins Environmental Services,
Inc. 16,300 75
* Rowan Cos., Inc. 21,900 153
Royal Dutch Petroleum Co. 140,500 13,962
Rubbermaid, Inc. 41,200 1,123
Russell Corp. 10,800 306
* Ryan's Family Steak Houses, Inc. 11,200 84
Ryder System, Inc. 19,800 490
SCE Corp. 115,500 1,906
SPX Corp. 2,600 42
Safeco Corp. 16,200 853
Safety-Kleen Corp. 14,000 196
St. Jude Medical, Inc. 12,000 327
St. Paul Cos., Inc. 11,100 863
Salomon, Inc. 28,300 1,369
Santa Fe Energy Resources Inc. 21,571 183
Santa Fe Pacific Corp. 48,962 1,114
Sara Lee Corp. 128,500 2,795
Schering-Plough Corp. 50,400 2,835
Schlumberger Ltd. 63,500 3,358
Scientific-Atlanta, Inc. 9,750 268
</TABLE>
8
<PAGE> 9
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - --------------------------------------------------------------
<S> <C> <C>
Scott Paper Co. 19,300 $ 808
The Seagram Co. Ltd. 98,700 2,739
Sears, Roebuck & Co. 91,500 3,935
Service Corp. International 21,650 547
Shared Medical Systems Corp. 6,300 165
Shawmut National Corp. 24,400 494
Sherwin-Williams Co. 23,700 755
* Shoney's Inc. 9,700 205
Skyline Corp. 3,000 58
Snap-On Tools Corp. 10,700 428
Sonat, Inc. 22,300 619
Southern Co. 166,300 3,180
Southwestern Bell Corp. 157,200 6,347
Springs Industries Inc. Class A 4,200 145
Sprint Corp. 89,600 3,069
The Stanley Works 11,200 441
* Stone Container Corp. 26,810 355
Stride Rite Corp. 13,600 201
Sun Co., Inc. 27,600 894
* Sun Microsystems, Inc. 24,600 661
Suntrust Banks, Inc. 31,900 1,424
SuperValu, Inc. 18,500 641
Syntex Corp. 57,100 792
Sysco Corp. 47,100 1,207
TJX Cos., Inc. 19,100 504
TRW, Inc. 17,300 1,185
* Tandem Computers, Inc. 29,600 418
Tandy Corp. 16,932 614
Tektronix, Inc. 8,300 253
* Tele-Communications, Inc. Class A 119,000 2,454
Teledyne Inc. 14,500 250
Temple-Inland Inc. 14,800 677
Tenneco, Inc. 44,300 2,337
Texaco, Inc. 67,500 4,253
Texas Instruments, Inc. 23,200 1,792
Texas Utilities Co. 59,733 2,233
Textron, Inc. 22,600 1,220
Thomas & Betts Corp. 4,800 298
Time Warner, Inc. 98,047 3,799
The Times Mirror Co. Class A 33,700 1,049
The Timkin Co. 7,500 247
Torchmark Corp. 19,200 773
* Toys R Us, Inc. 77,400 2,690
Transamerica Corp. 20,000 1,010
Transco Energy Co. 10,600 156
Travelers Inc. 84,148 2,956
The Tribune Co. 17,200 1,023
Trinova Corp. 7,500 260
Tyco International Ltd. 11,900 594
* UAL Corp. 6,400 816
UNUM Corp. 19,500 1,029
USF&G Corp. 22,500 295
UST, Inc. 55,000 1,361
USX-Marathon Group 76,500 1,262
USX-U.S. Steel Group 19,140 711
Unilever NV 41,900 4,389
Union Camp Corp. 18,000 797
Union Carbide Corp. 39,200 882
Union Electric Corp. 26,300 927
Union Pacific Corp. 53,000 3,008
* Unisys Corp. 42,100 626
U.S. Bancorp 26,550 670
* USAir Group, Inc. 15,000 122
United States Surgical Corp. 14,600 263
U.S. West Corp. 117,130 4,773
United Technologies Corp. 32,400 2,013
Unocal Corp. 63,600 1,606
Upjohn Co. 46,500 1,261
USLIFE Corp. 5,650 218
V F Corp. 16,814 841
* Varity Corp. 11,380 477
WMX Technologies Inc. 126,500 3,004
Wachovia Corp. 45,200 1,435
Wal-Mart Stores, Inc. 601,000 15,551
Walgreen Co. 33,400 1,340
Warner-Lambert Co. 35,000 2,166
Wells Fargo & Co. 14,300 1,993
Wendys International, Inc. 24,500 420
* Western Atlas Inc. 12,000 495
Westinghouse Electric Corp. 93,500 1,122
Westvaco Corp. 17,200 548
Weyerhaeuser Co. 53,500 2,314
Whirlpool Corp. 18,000 1,094
Whitman Corp. 26,800 405
Williams Cos., Inc. 27,400 658
Winn Dixie Stores, Inc. 19,100 1,048
Woolworth Corp. 34,600 523
Worthington Industries, Inc. 22,350 436
Wm. Wrigley, Jr. Co. 31,200 1,583
Xerox Corp. 26,716 2,551
Yellow Corp. 7,700 184
* Zenith Electronics Corp. 9,600 94
Zurn Industries, Inc. 3,300 78
- - -------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $815,297) 828,061
- - -------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ---------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (29.0%)
- - ---------------------------------------------------
U.S. TREASURY BONDS
11.625%, 11/15/04 $ 5,085 $ 6,879
10.375%, 11/15/12 5,250 6,709
11.25%, 2/15/15 2,700 3,861
9.25%, 2/15/16 4,729 5,753
7.5%, 11/15/16 9,400 9,636
8.75%, 5/15/17 15,613 18,170
8.875%, 8/15/17 18,112 21,347
9.125%, 5/15/18 6,698 8,096
8.875%, 2/15/19 26,815 31,688
8.125%, 8/15/19 29,060 31,857
8.5%, 2/15/20 18,637 21,255
8.75%, 8/15/20 32,475 38,056
8.125%, 5/15/21 33,560 36,932
8.125%, 8/15/21 28,455 31,331
8.0%, 11/15/21 23,100 25,161
7.625%, 11/15/22 22,145 23,193
7.125%, 2/15/23 22,545 22,277
- - ---------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $354,179) 342,201
- - ---------------------------------------------------
TEMPORARY CASH INVESTMENT (.1%)
- - ---------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S.
Government Obligations
in a Pooled Cash
Account 3.49%, 4/4/94
(Cost $1,510) 1,510 1,510
- - ---------------------------------------------------
TOTAL INVESTMENTS (99.4%)
(Cost $1,170,986) 1,171,772
- - ---------------------------------------------------
OTHER ASSETS AND LIABILITIES (.6%)
- - ---------------------------------------------------
Other Assets--Notes C and E 15,348
Liabilities--Note E (8,660)
-------
6,688
- - ---------------------------------------------------
NET ASSETS (100%)
- - ---------------------------------------------------
Applicable to 85,444,120 outstanding
$.001 par value shares
(authorized 1,000,000,000
shares) $ 1,178,460
- - ---------------------------------------------------
NET ASSET VALUE PER SHARE $13.79
===================================================
+ See Note A to Financial Statements.
* Non-Income Producing Security.
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------
AT MARCH 31, 1994, NET ASSETS CONSISTED OF:
- - ---------------------------------------------------
Amount Per
(000) Share
----- -----
<S> <C> <C>
Paid in Capital $1,157,832 $13.55
Undistributed Net
Investment Income 9,830 .11
Accumulated Net
Realized Gains 10,012 .12
Unrealized Appreciation
of Investments--Note D 786 .01
- - ---------------------------------------------------
NET ASSETS $1,178,460 $13.79
- - ---------------------------------------------------
</TABLE>
10
<PAGE> 11
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1994
(000)
- - -----------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . $11,104
Interest . . . . . . . . . . . . . . . 10,319
- - -----------------------------------------------------------------
Total Income . . . . . . . . . 21,423
- - -----------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fees . . . . . . . . . . . . . $ 894
Performance Adjustments . . . . . . -- 894
------
The Vanguard Group--Note C
Management and Administrative . . . 1,627
Marketing and Distribution . . . . 117 1,744
------
Taxes (other than income
taxes)--Note A . . . . . . . . . . . 45
Custodian's Fees . . . . . . . . . . . 52
Auditing Fees . . . . . . . . . . . . . 9
Shareholders' Reports . . . . . . . . . 42
Annual Meeting and Proxy Costs . . . . 8
Directors' Fees and Expenses . . . . . 3
- - -----------------------------------------------------------------
Total Expenses . . . . . . . . 2,797
- - -----------------------------------------------------------------
Net Investment Income . . . . 18,626
- - ----------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT
SECURITIES SOLD . . . . . . . . . . . . 20,375
- - -----------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT
SECURITIES . . . . . . . . . . . . . . . (84,613)
- - -----------------------------------------------------------------
Net Decrease in Net Assets
Resulting from
Operations . . . . . . . . ($45,612)
=================================================================
</TABLE>
11
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
MARCH 31, 1994 September 30, 1993
(000) (000)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . $ 18,626 $ 29,750
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . 20,375 28,347
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . (84,613) 47,284
- - -----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . . . (45,612) 105,381
- - -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . (20,340) (27,401)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . (38,500) (6,895)
- - -----------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . (58,840) (34,296)
- - -----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . 201,473 333,431
-- In Lieu of Cash Distributions . . . . . . . . . . . . . . 56,583 32,231
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . 185,123 205,392
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . . . . . . (73,149) (49,779)
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . . (90,470) (91,424)
- - -----------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . 279,560 429,851
- - -----------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . 175,108 500,936
- - -----------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . 1,003,352 502,416
- - -----------------------------------------------------------------------------------------------------------------
End of Period (3) $ 1,178,460 $ 1,003,352
=================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . $ .28 $ .59
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . $ .53 $ .17
- - -----------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,228 37,613
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . 3,946 2,318
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,261) (9,834)
- - -----------------------------------------------------------------------------------------------------------------
18,913 30,097
- - -----------------------------------------------------------------------------------------------------------------
(3) Undistributed Net Investment Income . . . . . . . . . . . . . . . . $ 9,830 $ 11,544
=================================================================================================================
</TABLE>
12
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended September 30,
For a Share Outstanding SIX MONTHS ENDED ------------------------------------------------ Nov. 3, 1988+ to
Throughout Each Period MARCH 31, 1994 1993 1992 1991 1990 Sept. 30, 1989
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD . . . . . . . . . . . . . $15.08 $13.79 $13.06 $10.93 $12.11 $10.00
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . .24 .54 .61 .60 .60 .46
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . (.72) 1.51 .90 2.28 (1.12) 1.90
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS . . . . . . . . . . (.48) 2.05 1.51 2.88 (.52) 2.36
- - -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment
Income . . . . . . . . . . . . . (.28) (.59) (.59) (.62) (.51) (.25)
Distributions from Realized
Capital Gains . . . . . . . . . . (.53) (.17) (.19) (.13) (.15) --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . (.81) (.76) (.78) (.75) (.66) (.25)
- - -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . $13.79 $15.08 $13.79 $13.06 $10.93 $12.11
===================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . -3.39% +15.41% +12.16% +27.32% -4.57% +23.93%
- - -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . $1,178 $1,003 $502 $265 $160 $107
Ratio of Expenses to Average
Net Assets . . . . . . . . . . . . .50%* .49% .52% .44% .50% .49%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . 3.30%* 4.07% 4.95% 5.28% 5.53% 5.53%*
Portfolio Turnover Rate . . . . . . . 35%* 31% 18% 44% 12% 52%
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+Commencement of Operations.
*Annualized.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Vanguard Asset Allocation Fund 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: Common stocks listed on an exchange are valued at the
latest quoted sales prices as of 4:00 PM on the valuation date; such
securities not traded are valued at the mean of the latest quoted bid and
asked prices; those securities not listed are valued at the latest quoted
bid prices. Bonds 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. Temporary cash investments are valued at 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. 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 the agreement
ensure that the market value of the 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.
4. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses
on sales of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Discounts and premiums on debt securities purchased are
amortized to interest income over the lives of the respective securities.
* B. Under the terms of a contract which expires July 31, 1994, the Fund pays
Mellon Capital Management Corporation an 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 March 31, 1994, the advisory fee
represented an effective annual rate of .16 of 1% of average net assets. No
performance adjustments were required during the period.
* 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
March 31, 1994, the Fund had contributed capital of $194,000 to Vanguard
(included in Other Assets), representing 1.0% of Vanguard's capitalization. The
Fund's officers and directors are also officers and directors of Vanguard.
14
<PAGE> 15
* D. During the six months ended March 31, 1994, the Fund made purchases of
$260,344,000 and sales of $99,272,000 of investment securities other than U.S.
Government securities and temporary cash investments. Purchases and sales of
U.S. Government securities were $195,663,000 and $97,527,000, respectively.
At March 31, 1994, unrealized appreciation for financial reporting and Federal
income tax purposes aggregated $786,000 of which $55,343,000 related to
appreciated securities and $54,557,000 related to depreciated securities.
* E. The market value of securities on loan to broker/dealers at March 31,
1994, was $24,598,000 for which the Fund has received as collateral cash of
$270,000 and U.S. Treasury securities with a market value of $25,950,000.
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.
Q782-03/94
VANGUARD
ASSET ALLOCATION FUND
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
MARCH 31, 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.
