<PAGE> 1
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
Short-term interest rates turned sharply upward during the six months ended May
31, the first half of the 1994 fiscal year for Vanguard Institutional Money
Market Portfolio. The yield of our Portfolio rose significantly over the
period.
This table presents the yield of our Portfolio on May 31, 1994,
compared with that of six months and one year ago:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Seven-Day Annualized Yield
-------------------------------------------------------------------------
May 31, 1994 November 30, 1993 May 31, 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIMMP 3.95% 3.16% 3.05%
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
Yields on short-term reserves are rising in part because of higher demands for
credit in the marketplace. But the primary cause of these interest rate
increases is that the Federal Reserve, fearful of the potential for future
inflation, has forced interest rates upward. The Fed has raised the Federal
funds rate from 3.00% to 4.25% during the period. The financial markets seem a
bit "spooked" by this increase, since higher rates drive down prices of
long-term bonds. However, proving that "it is an ill wind that blows no good,"
the sole impact on our Portfolio has been to raise the income it provides.
So far, our Portfolio's yield has not risen to the same extent as
"market" interest rates. Because the Portfolio (as do virtually all money
market funds) holds securities with an average maturity in the 40- to 60-day
range, there is a "lag" from the upturn in interest rates until they are fully
manifested in our yield. By way of comparison, while the yield on the 90-day
U.S. Treasury bill has risen by nearly 35% (from 3.2% to 4.3%) since November
30, 1993, the annualized yield of our Portfolio has risen by about 25% over the
same period. So, further increases in the dividend yield may be expected from
our Portfolio for at least the next few months.
Our yield has not only risen in an absolute sense. It also remains
well above the yields achieved by most of our competitors, as shown in the
table that follows.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Seven-Day Annualized Yield (May 31, 1994)
- - ------------------------------------------------------------------------------------------------------------
Vanguard Average Competitor Vanguard Advantage
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.95% 3.82% +.13%
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
Our gross yield (the yield the Portfolio receives on its holdings) is
quite similar to that of our competitors. Our net yield (after deducting all
operating expenses) is higher for the simple reason that our operating expense
ratios are so much lower. Indeed, our Portfolio's expense ratio is but 0.15%
of average net assets; competitive funds maintain expense ratios averaging
about 0.44%, nearly 200% higher than ours.
I am also pleased to report that our competitive returns are achieved
while maintaining the highest standards of credit quality and a conservative
investment posture. A surprising revelation of the past quarter has been the
news that a number of money market fund sponsors have reimbursed their funds to
compensate for losses on derivative investments. We believe such "exotica" have
no place in a money market fund and, accordingly, eschew them in our Portfolio.
In our Semi-Annual Report one year ago, I noted that "it is hard to
imagine that the steady trend over the past four years towards ever-lower
short-term interest rates can go much further." At that time, the Treasury bill
yield was 3.2%, and that was about as low as it was to go. While I do not
presume any forecasting ability whatsoever, it is clear that the end of the
rate decline and the subsequent resurgence have enabled Vanguard Institutional
Money Market Portfolio to provide you with the highest monthly dividends since
June 1992. I look forward to reporting on our results for the full 1994 fiscal
year six months hence.
Sincerely,
/s/ JOHN C. BOGLE
- - -----------------
John C. Bogle
Chairman of the Board June 17, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
1
<PAGE> 2
AVERAGE ANNUAL TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURNS--THE CURRENT YIELDS PROVIDED IN THE CHAIRMAN'S
LETTER ARE CALCULATED IN ACCORDANCE WITH THE SEC GUIDELINES. THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE PORTFOLIO (PERIODS ENDED MARCH 31, 1994) ARE AS FOLLOWS:
1 YEAR: +3.17% SINCE INCEPTION (10/3/89): +5.49%
THESE DATA REPRESENT PAST PERFORMANCE; FUTURE RETURNS WILL FLUCTUATE. PLEASE
NOTE THAT AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
2
<PAGE> 3
REPORT FROM THE INVESTMENT ADVISER
During the six months ended May 31, the first half of the 1994 fiscal year for
Vanguard Institutional Money Market Portfolio, money market interest rates rose
substantially. The Federal Reserve has increased the Federal funds rate (at
which banks borrow and lend among themselves) from 3.00% to 4.25%. In addition,
the discount rate (at which banks may borrow from the Fed) was moved from 3.00%
to 3.50%. It is through its control of these two key interest rates that the
Fed affects changes in its monetary policy.
Currently, the Fed's monetary policy goal is to remove the stimulative
effects of the low short-term interest rates that have prevailed since 1991,
and implement a "neutral" policy that allows the economy to grow at a
non-inflationary pace. Recent statistics indicate that the economy is doing
very well on its own. The housing and auto sectors are strong, employment
growth has gained momentum, and consumer confidence and business borrowings are
on the rise. Of particular importance is the increasing utilization of spare
economic capacity. In recent years, excess capacity has prevented businesses
from raising prices. As more economic resources are put to use, firms may find
that they can pass on price increases to their customers, which fuels
inflation.
In past economic cycles, inflation has typically become a problem
after the Fed has allowed the economy to grow unchecked for too long.
Thereafter, the Fed has had to overcompensate by pursuing aggressively
restrictive monetary policy. If the current policy is successful, the Fed can
avoid larger rate increases in the future by acting prudently now.
To the benefit of money market investors, rising short-term rates have
increased the nominal yields of money market funds. The Fed's move to a
neutral stance also carries with it the likelihood of positive real (after
inflation) returns. Given the low expenses on the Vanguard Institutional Money
Market Portfolio and the current level of short-term interest rates,
shareholders should be experiencing positive real returns before income taxes.
In order to take advantage of the higher interest rate environment, we
have shortened the average maturity of the Portfolio from 60 days to
approximately 40 days. This strategy increases the responsiveness of the
Portfolio's yield to changes in interest rates because the Portfolio's holdings
turn over more frequently. The shorter average weighted maturity also makes the
market value of the Portfolio's investments less sensitive to the negative
effects of rising interest rates. This dovetails well with our conservative
management philosophy.
In recent months, the financial press has been filled with stories of
investment managers who sustained unexpectedly large losses in the volatile
markets that have prevailed since year end. In some cases, these losses were
due to investments in "derivative" securities and the use of leverage to
increase investment exposure above that initially contributed by investors. The
most disturbing of these cases involve money managers who used these tactics to
go outside the investment objectives that were used in marketing their funds.
Make no mistake, money market funds operate in a highly regulated
environment intended to insure that net asset values remain stable. The U.S.
Securities and Exchange Commission prohibits money market funds from investing
in volatile derivative securities or borrowing to increase investment exposure.
At Vanguard, our investment policies are actually more stringent than SEC rules
because, in our judgment, the incremental return gained by going to the legal
limits is not worth the added risk. By virtue of our low expense ratios, we can
manage the Fund well within the spirit and the letter of the law and still
provide highly competitive returns to our shareholders.
Sincerely,
Ian A. MacKinnon, Senior Vice President
Robert F. Auwaerter, Vice President
John Hollyer, Assistant Vice President
Vanguard Fixed Income Group June 16, 1994
3
<PAGE> 4
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
May 31, 1994
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT
& AGENCY OBLIGATIONS (9.8%)
- - ----------------------------------------------------------------------
Federal National Mortgage Assn.
3.265%-4.871%,
6/13/94-11/30/94 $47,500 $46,950
U.S. Treasury Note
12.625%, 8/15/94 2,000 2,037
- - ----------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $48,987) 48,987
- - ----------------------------------------------------------------------
COMMERCIAL PAPER (63.2%)
- - ----------------------------------------------------------------------
BANK HOLDING COMPANIES (6.4%)
Bankers Trust New York Corp.
3.704%, 6/3/94 10,000 9,998
J.P. Morgan & Co., Inc.
3.874%-3.989%,
6/3/94-7/5/94 10,000 9,980
NationsBank
4.05%-4.10%,
7/1/94-7/5/94 10,000 9,964
Norwest Corp.
4.273%, 6/22/94 2,000 1,995
----------
GROUP TOTAL 31,937
----------
- - ----------------------------------------------------------------------
FINANCE--AUTO (2.2%)
Ford Credit Receivables Funding Corp.
3.92%-4.016%, 6/7/94-7/7/94 11,000 10,977
----------
- - ----------------------------------------------------------------------
FINANCE--SECURITIES DEALERS (5.6%)
Bear Stearns Co.
4.28%, 6/20/94 5,000 4,989
Goldman Sachs & Co.
3.754%-4.372%,
6/1/94-7/8/94 7,000 6,978
Merrill Lynch & Co.
3.794%-4.016%,
6/15/94-6/24/94 11,000 10,980
Morgan Stanley Group Inc.
4.131%, 7/7/94 5,000 4,979
----------
GROUP TOTAL 27,926
----------
- - ----------------------------------------------------------------------
FINANCE--OTHER (16.0%)
Asset Securitization Cooperative Corp.
3.774%-4.296%,
6/2/94-8/2/94 8,000 7,971
Associates Corp.
3.779%-3.996%,
6/14/94-6/22/94 12,000 11,980
Barclays U.S. Funding Corp.
3.977%, 6/28/94 7,000 6,979
CIT Group
3.804%-4.433%,
6/17/94-8/1/94 11,000 10,951
Ciesco L.P.
3.99%-4.337%,
6/16/94-7/6/94 12,000 11,962
Commercial Credit
3.899%, 6/6/94 5,000 4,997
Corporate Asset Funding
3.883%, 7/1/94 4,000 3,987
General Electric Capital Corp.
3.785%-3.976%,
6/6/94-7/13/94 10,000 9,970
MCA Funding Corp.
3.957%-4.297%,
7/13/94-7/18/94 6,900 6,865
Prudential Home Mortgage Co.
4.433%, 7/25/94 4,000 3,974
----------
GROUP TOTAL 79,636
----------
- - ----------------------------------------------------------------------
INDUSTRIAL (6.4%)
Daimler-Benz N.A. Co.
4.312%-4.315%,
6/3/94-6/16/94 8,000 7,990
Dun & Bradstreet Corp.
3.954%-4.136%,
7/6/94-7/19/94 10,600 10,552
Gannett Co.
3.974%, 6/20/94 4,200 4,191
Hewlett Packard
4.314%, 6/10/94 4,000 3,996
Intel Corp.
4.028%, 7/1/94 5,000 4,984
----------
GROUP TOTAL 31,713
----------
- - ----------------------------------------------------------------------
INSURANCE (5.6%)
MetLife Funding Corp.
3.773%-4.214%,
6/17/94-8/2/94 5,000 4,975
Safeco Credit Corp.
3.805%-3.918%,
6/13/94-7/13/94 13,000 12,956
St. Paul Co.
4.256%, 6/28/94 5,000 4,984
UNUM Corp.
4.335%, 6/15/94 5,000 4,992
----------
GROUP TOTAL 27,907
----------
- - ----------------------------------------------------------------------
UTILITIES (1.0%)
BellSouth Telecommunications Inc.
4.122%, 7/18/94 5,000 4,973
----------
- - ----------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
FOREIGN BANKS (1.2%)
International Nederlanden
U.S. Funding Corp.
4.318%-4.449%,
6/21/94-8/4/94 $ 6,000 $ 5,959
----------
- - ----------------------------------------------------------------------
CANADIAN GOVERNMENT (10.1%)
Province of British Columbia
3.825%-4.886%,
6/7/94-11/15/94 17,000 16,864
Canada Bills
4.619%-4.865%,
9/22/94-11/15/94 14,000 13,723
Canadian Wheat Board
3.885%-4.935%,
7/8/94-11/22/94 10,000 9,864
Province of Ontario
3.31%,6/21/94 5,000 4,991
Ontario Hydro
3.796%, 6/9/94 5,000 4,996
----------
GROUP TOTAL 50,438
----------
- - ----------------------------------------------------------------------
OTHER FOREIGN GOVERNMENT (5.4%)
Caisse des Depots et Consignations
4.02%, 7/5/94 5,000 4,981
New South Wales Treasury Corp.
4.335%, 6/10/94 4,000 3,996
Kingdom of Sweden
3.886%, 7/11/94 10,000 9,957
Western Australia Treasury Corp.
3.887%-4.535%,
6/21/94-7/18/94 8,000 7,956
----------
GROUP TOTAL 26,890
----------
- - ----------------------------------------------------------------------
FOREIGN INDUSTRIAL (3.3%)
BASF Corp.
3.836%, 6/27/94 3,000 2,992
British Gas
4.29%, 6/6/94 2,000 1,999
Ciba Geigy Corp.
3.882%, 6/7/94 1,600 1,599
Siemens Corp.
4.01%-4.254%, 6/24/94-7/5/94 10,000 9,967
----------
GROUP TOTAL 16,557
----------
- - ----------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $314,913) 314,913
----------
- - ----------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (14.5%)
- - ----------------------------------------------------------------------
YANKEE CERTIFICATE OF DEPOSIT--
CANADIAN BRANCH (1.2%)
ABN AMRO
3.817%-3.908%,
6/16/94-7/11/94 6,000 5,980
----------
- - ----------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--
U.S. BRANCHES (13.3%)
Bank of Nova Scotia
4.27%, 6/24/94 5,000 5,000
Caisse National de Credit Agricole
4.05%, 7/1/94 3,000 2,999
Canadian Imperial Bank of Commerce
3.78%-4.12%,
6/7/94-7/12/94 8,000 8,000
Commerzbank
3.84%-4.36%,
6/1/94-6/10/94 12,000 12,000
Credit Suisse
3.88%, 7/12/94 10,000 10,000
National Westminster Bank
4.15%, 8/1/94 5,000 4,998
Societe Generale
3.60%-3.80%,
6/1/94-6/8/94 8,000 8,000
Swiss Bank
3.80%, 6/14/94 8,000 8,000
Westdeutsche Landesbank
3.23%-4.10%,
6/10/94-7/20/94 7,000 7,000
----------
GROUP TOTAL 65,997
----------
- - ----------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $71,977) 71,977
- - ----------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (6.2%)
- - ----------------------------------------------------------------------
Bayerische Hypo Bank
4.34%, 6/13/94 5,000 5,000
Bayerische Vereinsbank
4.34%, 8/8/94 10,000 9,999
Dresdner Bank
3.37%, 6/15/94 2,000 2,000
Toronto Dominion Bank
4.80%, 11/9/94 10,000 9,995
Union Bank of Switzerland
4.38%, 6/13/94 4,000 4,000
- - ----------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF
DEPOSIT (Cost $30,994) 30,994
- - ----------------------------------------------------------------------
BANK NOTE (1.0%)
- - ----------------------------------------------------------------------
Bank One (Texas)
4.43%, 6/2/94(1) (Cost $5,000) 5,000 5,000
- - ----------------------------------------------------------------------
BANKERS ACCEPTANCE (.4%)
- - ----------------------------------------------------------------------
Republic Bank of New York
3.894%, 7/15/94 (Cost $1,991) 2,000 1,991
- - ----------------------------------------------------------------------
5
</TABLE>
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - ----------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS (5.5%)
- - ----------------------------------------------------------------------
Cantor Fitzgerald & Co.
4.25%, 6/1/94
(Collateralized by U.S. Treasury
Note 5.125%, 3/31/96) $ 22,402 $ 22,402
Kidder Peabody & Co.
3.80%, 6/6/94*
(Collateralized by Federal
National Mortgage Assn.
5.30%-6.30%, 12/10/97-3/11/98) 5,000 5,000
- - ----------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $27,402) 27,402
- - ----------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%)
(Cost $501,264) 501,264
- - ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.6%)
- - ----------------------------------------------------------------------
Other Assets--Note B 7,394
Liabilities (10,364)
----------
(2,970)
- - ----------------------------------------------------------------------
NET ASSETS (100%)
- - ----------------------------------------------------------------------
Applicable to 498,298,666 outstanding
$.001 par value shares
(authorized 20,000,000,000 shares) $498,294
- - ----------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
======================================================================
+ See Note A to Financial Statements.
* Put Option Obligation.
(1) Floating Rate Note.
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
AT MAY 31, 1994, NET ASSETS CONSISTED OF:
- - ----------------------------------------------------------------------
Amount Per
(000) Share
-------- -----
<S> <C> <C>
Paid in Capital $498,299 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net
Realized Losses (5) --
Unrealized Appreciation
of Investments -- --
- - ----------------------------------------------------------------------
NET ASSETS $498,294 $1.00
- - ----------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
May 31, 1994
(000)
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Interest . . . . . . . . . . . . . . . . . $6,954
- - ------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . 6,954
- - ------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services . . . . . . . . $ 18
Management and Administrative . . . . . . . 187
Marketing and Distribution . . . . . . . . . 46 251
-----
Custodian's Fees . . . . . . . . . . . . . . . 12
Taxes (other than income taxes)--Note A . . . 14
Shareholders' Reports . . . . . . . . . . . . 11
Auditing Fees . . . . . . . . . . . . . . . . 4
Directors' Fees and Expenses . . . . . . . . . 1
- - ------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 293
- - ------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . 6,661
- - ------------------------------------------------------------------------------------------
REALIZED NET LOSS ON INVESTMENT
SECURITIES SOLD . . . . . . . . . . . . . . . . . (4)
- - ------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES . . . . . --
- - ------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . . . $6,657
==========================================================================================
</TABLE>
7
<PAGE> 8
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
MAY 31, 1994 November 30, 1993
(000) (000)
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . $ 6,661 $ 9,060
Realized Net Loss . . . . . . . . . . . . . . . . (4) --
Unrealized Appreciation (Depreciation) . . . . . . -- --
- - ------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . . . 6,657 9,060
- - ------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . (6,661) (9,060)
- - ------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (at $1.00 per share)
Issued -- Regular . . . . . . . . . . . . . . 230,259 177,159
-- In Lieu of Cash Distributions . . . 6,277 8,876
-- Exchange . . . . . . . . . . . . . 30,916 19,911
Redeemed -- Regular . . . . . . . . . . . . . . (64,944) (157,034)
-- Exchange . . . . . . . . . . . . . (9,761) (12,327)
- - ------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions 192,747 36,585
- - ------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . 192,743 36,585
- - ------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . 305,551 268,966
- - ------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . $498,294 $305,551
==========================================================================================
(1) Income Dividends Per Share . . . . . . . . . $.017 $.031
- - ------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended November 30,
For a Share Outstanding SIX MONTHS ENDED ---------------------------------- October 3, 1989-
Throughout Each Period MAY 31, 1994 1993 1992 1991 1990 November 30, 1989
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD . . . . . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .017 .031 .040 .063 .082 .014
Net Realized and Unrealized Gain on Investments . -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . . .017 .031 .040 .063 .082 .014
- - ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income . . . . . . . . . . . . . . (.017) (.031) (.040) (.063) (.082) (.014)
Distributions from Realized Capital Gains . . . . -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.017) (.031) (.040) (.063) (.082) (.014)
- - ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . +1.69% +3.19% +4.02% +6.52% +8.49% +1.40%
- - ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . . $498 $306 $269 $218 $91 $69
Ratio of Expenses to Average Net Assets . . . . . . . .15%* .15% .15% .15% .15% .15%*
Ratio of Net Investment Income
to Average Net Assets . . . . . . . . . . . . . . 3.41%* 3.14% 3.93% 6.14% 8.24% 8.90%*
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
9
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
Vanguard Institutional Money Market Portfolio is a Portfolio of Vanguard
Institutional Portfolios, which is registered under the Investment Company Act
of 1940 as a diversified open-end investment company. The Fund invests in
short-term debt instruments of companies primarily operating in specific
industries; the issuers' abilities to meet these obligations may be affected by
economic developments in such industries.
* 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 are stated 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. 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. Discounts and premiums are accreted and amortized, respectively, to
interest income over the lives of the respective securities. Distributions
from net investment income are declared on a daily basis payable on the
first business day of the following month.
4. REPURCHASE AGREEMENTS: 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 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.
* B. The Vanguard Group, Inc. furnishes at cost investment advisory,
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 May 31, 1994, the Fund had contributed capital of
$80,000 to Vanguard (included in Other Assets), representing .4% of Vanguard's
capitalization. The directors and officers of the Fund are also directors and
officers of Vanguard.
10
<PAGE> 11
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
11
<PAGE> 12
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.
Q662-05/94
(VANGUARD INSTITUTIONAL MONEY MARKET PORTFOLIO LOGO)
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
MAY 31, 1994
<PAGE> 13
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.
