<PAGE> 1
CHAIRMAN'S LETTER
DEAR SHAREHOLDER:
Common stock prices experienced two significant downdrafts--one in late
March, the other in late June--during the six months ended June 30, the first
half of Vanguard Institutional Index Fund's 1994 fiscal year. Nonetheless,
reasonable strength during the remainder of the six-month period held the net
decline in the Standard & Poor's 500 Composite Stock Price Index to -3.4% for
the full period.
The total return of our portfolio continued to track the Standard &
Poor's 500 Index with remarkable precision. The only difference between the
two results was attributable to the Fund's minuscule operating expenses (now
running at an annualized rate of 0.07%).
<TABLE>
<CAPTION>
- - ---------------------------------------------------------
Total Return
----------------
Six Months Ended
June 30, 1994
- - ---------------------------------------------------------
<S> <C>
VANGUARD INSTITUTIONAL INDEX FUND -3.41%
- - ---------------------------------------------------------
STANDARD & POOR'S 500 INDEX -3.38%
- - ---------------------------------------------------------
</TABLE>
The Fund's total return reflects a change in net asset value from $44.20 per
share on December 31, 1993, to $42.20 per share on June 30, 1994, with the
latter figure adjusted to take into account our two quarterly dividends
totaling $.44 per share from net investment income, and a distribution of $.07
per share from net capital gains realized during 1993 and paid in March.
* THE PERIOD IN REVIEW
Following two years of relative tranquility, substantial volatility returned
to the stock market during the past six months, and stocks in the aggregate
showed a net decline. While the decline in stock prices from the February high
to the June low (-8%) was fairly significant, it was a far cry from the
market's sharp dips in 1990 (-20%), 1987 (-34%), 1981 (-18%), and 1973-74 (-
48%). (Price change from high to low, excluding income.)
Although the recent price decline could be described as "moderate" in an
historical sense, it seemed to reflect investor concerns beyond the actual
dimensions of the problems confronting the market, most notably possible
future inflation. Surely, investor concerns were increased by the sharp six-
month decline in the prices of long-term U.S. Treasury bonds (-15%), as rates
leaped upward--from 6.4% at the start of our fiscal period to 7.6% at its
close. By way of perspective, this yield was 7.4% when 1993 began.
While these inflationary concerns have yet to be reflected in the
Consumer Price Index, the Federal Reserve has acted to "tighten" the money
supply and slow economic growth and potential future inflation, raising the
Federal funds rate (at which banks borrow from one another) four times--in
February, March, April, and again in May--from 3.00% to 4.25%. Theory suggests
that such increases should be regarded by market participants as a restraint
on potential inflation, and thus cause long-term rates to fall. However, this
theory seldom holds true in practice, and 1994 has proved to be no exception.
One of the most noteworthy features of this year's market (so far) is
that its pattern is quite the reverse of last year's. In 1993, the small- and
medium-capitalization stocks led the market, while the large-cap stocks were
laggards. This year, the largest stocks were, in general, the best place to
be, as small-capitalization stocks have lagged (the Russell 2000 Index posted
a -6.4% return).
Again in contrast to 1993, during the first half of 1994 index mutual
funds generally outpaced traditionally managed equity funds. The average
general equity mutual fund provided a return of -5.8% over the past six
months, well short of the Index return of -3.4%. Last year the Standard &
Poor's 500 Index, with its large-cap bias, outpaced "only" 40% of the managed
funds for the year. So far in 1994, the 500 Index has taken a large step
upward, outpacing fully 70% of all general purpose equity funds for the
period.
The first half of 1994, then, has been: (1) a negative period for
equities, albeit really but a "blip"
1
<PAGE> 2
in a long-term perspective; and (2) a period in which Vanguard Institutional
Index Fund produced fine results in tracking its target index, and even better
results relative to most mutual funds. We look forward to reporting to you
again six months from now.
Sincerely,
/s/ JOHN C. BOGLE
- - -----------------
John C. Bogle
Chairman of the Board
July 25, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND (PERIODS ENDED JUNE 30, 1994)
ARE AS FOLLOWS:
1 YEAR: +1.36% SINCE INCEPTION (7/31/90): +9.06%
THE FUND'S AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION INCLUDES A CAPITAL
RETURN OF +5.95% AND AN INCOME RETURN OF +3.11%. ALL OF THE DATA REPRESENT
PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
3
<PAGE> 4
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited)
June 30, 1994
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
- - -----------------------------------------------------------------------------
General Electric Co. 1,523,496 $ 71,033
AT&T Corp. 1,209,302 65,756
Exxon Corp. 1,106,095 62,633
Royal Dutch Petroleum Co. 477,473 49,956
Wal-Mart Stores, Inc. 2,047,315 49,647
The Coca Cola Co. 1,151,979 46,799
Philip Morris Cos., Inc. 781,204 40,232
E.I. du Pont de Nemours & Co. 604,528 35,289
General Motors Corp. 663,352 33,333
Merck & Co., Inc. 1,116,901 33,228
Procter & Gamble Co. 609,194 32,516
International Business Machines Corp. 517,823 30,422
Mobil Corp. 354,738 28,955
BellSouth Corp. 441,930 27,289
GTE Corp. 852,125 26,842
* Microsoft Corp. 513,000 26,419
Ford Motor Co. 446,048 26,317
Amoco Corp. 442,196 25,205
Johnson & Johnson 572,756 24,557
American International Group, Inc. 282,906 24,507
Bristol-Myers Squibb Co. 455,273 24,414
Chevron Corp. 580,470 24,307
Southwestern Bell Corp. 534,597 23,255
Motorola, Inc. 496,262 22,084
Intel Corp. 372,508 21,792
PepsiCo, Inc. 711,491 21,789
Bell Atlantic Corp. 388,387 21,750
Abbott Laboratories, Inc. 730,242 21,177
Federal National Mortgage Assn. 243,392 20,323
The Walt Disney Co. 478,268 19,908
Minnesota Mining & Manufacturing Co. 377,265 18,675
Ameritech Corp. 486,920 18,625
McDonald's Corp. 630,368 18,202
Pfizer, Inc. 285,860 18,045
Hewlett-Packard Co. 225,234 16,977
U.S. West Corp. 403,652 16,903
Home Depot, Inc. 399,150 16,814
Dow Chemical Co. 245,207 16,030
American Home Products Corp. 276,379 15,684
Sears, Roebuck & Co. 312,866 15,017
Chrysler Corp. 315,407 14,863
Eli Lilly & Co. 260,756 14,830
Atlantic Richfield Co. 142,498 14,553
Unilever NV 142,593 14,366
BankAmerica Corp. 311,757 14,263
Eastman Kodak Co. 294,455 14,171
The Boeing Co. 303,245 14,025
NYNEX Corp. 369,555 13,997
Texaco, Inc. 230,703 13,929
Citicorp 344,229 13,726
Schlumberger Ltd. 217,324 12,849
Gillette Co. 196,847 12,820
NationsBank, Inc. 240,018 12,331
Anheuser-Busch Co., Inc. 236,718 12,013
Time Warner, Inc. 336,977 11,836
Banc One Corp. 339,258 11,619
Pacific Telesis Group 375,502 11,594
WMX Technologies Inc. 430,622 11,411
J.C. Penney Co., Inc. 210,285 11,408
Emerson Electric Co. 199,877 11,368
American Express Co. 440,578 11,345
Columbia/HCA Healthcare Corp. 301,118 11,292
Kellogg Co. 200,409 10,897
Southern Co. 577,454 10,827
MCI Communications Corp. 483,517 10,698
Sprint Corp. 305,855 10,667
J.P. Morgan & Co., Inc. 172,248 10,658
Schering-Plough Corp. 171,995 10,535
* Airtouch Communications 438,765 10,366
Union Pacific Corp. 182,728 10,347
The Seagram Co. Ltd. 331,920 10,040
Capital Cities/ABC, Inc. 136,650 9,719
Federal Home Loan Mortgage Corp. 160,615 9,717
* Oracle Systems Corp. 258,326 9,655
* McCaw Cellular Communications, Inc. 185,733 9,588
Travelers Inc. 287,551 9,273
Caterpillar, Inc. 90,697 9,070
Xerox Corp. 92,756 9,067
Sara Lee Corp. 426,135 9,055
Pacific Gas & Electric Co. 380,532 9,038
Allied-Signal, Inc. 253,398 8,774
May Department Stores Co. 221,163 8,681
Chemical Banking Corp. 224,828 8,656
ITT Corp. 104,691 8,545
* Toys R Us, Inc. 258,677 8,472
The Dun & Bradstreet Corp. 151,470 8,406
* Tele-Communications, Inc. Class A 400,655 8,163
General Re Corp. 74,834 8,157
Monsanto Co. 105,672 7,991
Warner-Lambert Co. 119,083 7,859
Raytheon Co. 120,446 7,799
Norfolk Southern Corp. 123,356 7,771
General Mills, Inc. 141,279 7,717
Campbell Soup Co. 223,497 7,683
Kimberly-Clark Corp. 143,435 7,584
Norwest Corp. 282,958 7,392
Wells Fargo & Co. 48,979 7,365
Rockwell International Corp. 196,511 7,345
Weyerhaeuser Co. 183,122 7,325
International Paper Co. 110,338 7,310
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
Phillips Petroleum Co. 232,860 $ 7,277
Enron Corp. 221,252 7,246
United Technologies Corp. 112,760 7,245
* Compaq Computer Corp. 224,432 7,238
H.J. Heinz Co. 224,199 7,146
PPG Industries, Inc. 189,292 7,098
CSX Corp. 93,251 7,040
First Union Corp. 151,216 6,975
Tenneco, Inc. 150,110 6,961
Keycorp 214,372 6,833
Colgate-Palmolive Co. 131,230 6,824
Archer-Daniels-Midland Co. 290,189 6,747
Conagra, Inc. 220,973 6,740
Automatic Data Processing, Inc. 126,355 6,713
Duke Power Co. 181,833 6,501
Texas Instruments, Inc. 81,518 6,481
Gannett Co., Inc. 130,593 6,464
AMP, Inc. 93,095 6,447
Baxter International, Inc. 245,355 6,441
CPC International, Inc. 132,956 6,415
Merrill Lynch & Co., Inc. 181,041 6,336
Texas Utilities Co. 200,364 6,286
The Chase Manhattan Corp. 163,768 6,264
Albertson's, Inc. 224,904 6,185
Northern Telecom Ltd. 222,939 6,159
Unocal Corp. 214,151 6,130
American Barrick Resources 254,520 6,077
Corning, Inc. 185,394 6,048
PNC Bank Corp. 208,260 6,014
The Chubb Corp. 77,827 5,964
Computer Associates International, Inc. 145,797 5,832
Aluminum Co. of America 78,449 5,737
Blockbuster Entertainment Corp. 220,996 5,718
United Healthcare Corp. 124,300 5,702
Dean Witter Discover and Co. 151,358 5,676
First Interstate Bancorp. 73,546 5,663
American Brands, Inc. 179,026 5,662
Public Service Enterprise Group Inc. 217,407 5,653
Kmart Corp. 362,628 5,621
Aetna Life & Casualty Co. 99,775 5,575
The Limited, Inc. 322,180 5,558
Consolidated Edison Co. of New York, Inc. 207,996 5,512
The Gap, Inc. 128,860 5,509
Marsh & McLennan, Inc. 65,641 5,473
* Novell, Inc. 327,152 5,439
Dominion Resources, Inc. 149,192 5,427
Pitney Bowes, Inc. 140,392 5,370
U.S. Healthcare, Inc. 143,468 5,308
Nucor Corp. 77,302 5,295
Suntrust Banks, Inc. 108,681 5,257
* Cisco Systems, Inc. 227,166 5,253
American General Corp. 190,044 5,250
Browning-Ferris Industries, Inc. 171,202 5,200
PECO Energy Corp. 196,588 5,185
Deere & Co. 76,168 5,151
Dayton-Hudson Corp. 63,422 5,137
Occidental Petroleum Corp. 271,662 5,128
SCE Corp. 397,364 5,116
Entergy Corp. 204,358 5,058
* Amgen, Inc. 117,998 5,044
FPL Group, Inc. 168,634 5,038
Wachovia Corp. 152,029 5,036
UST, Inc. 181,729 4,929
Wm. Wrigley, Jr. Co. 103,294 4,906
The Goodyear Tire & Rubber Co. 134,073 4,827
Georgia-Pacific Corp. 80,135 4,798
Burlington Resources, Inc. 115,107 4,763
Bankers Trust New York Corp. 70,695 4,710
Salomon, Inc. 98,128 4,686
CIGNA Corp. 63,888 4,672
American Electric Power Co., Inc. 163,772 4,627
Lowes Cos., Inc. 134,278 4,599
Fleet Financial Group, Inc. 121,780 4,597
Placer Dome Group, Inc. 211,193 4,541
Alcan Aluminium Ltd. 198,970 4,527
NBD Bancorp, Inc. 142,415 4,504
Upjohn Co. 153,552 4,472
American Cyanamid Co. 79,689 4,463
Commonwealth Edison Co. 189,708 4,316
Air Products & Chemicals, Inc. 101,441 4,299
CBS, Inc. 13,751 4,263
USX-Marathon Group 254,286 4,259
Pacificorp 250,343 4,225
Burlington Northern, Inc. 78,954 4,214
Quaker Oats Co. 59,371 4,149
Textron, Inc. 78,438 4,108
Medtronic, Inc. 51,063 4,091
McDonnell Douglas Corp. 34,863 4,079
Amerada Hess Corp. 82,760 4,076
* AMR Corp. 67,292 3,995
Genuine Parts Co. 110,492 3,992
Walgreen Co. 109,193 3,986
Nike, Inc. Class B 65,692 3,925
Illinois Tool Works, Inc. 100,428 3,917
R.R. Donnelley & Sons Co. 140,734 3,905
International Flavors & Fragrances, Inc. 99,389 3,889
Hercules, Inc. 36,207 3,874
Conrail, Inc. 70,645 3,868
Masco Corp. 139,033 3,823
Houston Industries, Inc. 115,993 3,784
Barnett Banks of Florida, Inc. 86,465 3,783
</TABLE>
5
<PAGE> 6
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
Mattel, Inc. 148,702 $ 3,773
Avon Products, Inc. 63,942 3,765
Rohm & Haas Co. 60,039 3,737
Rubbermaid, Inc. 142,332 3,736
Martin Marietta Corp. 84,538 3,730
Fluor Corp. 72,953 3,711
Cooper Industries, Inc. 102,875 3,704
Sysco Corp. 163,490 3,699
* Federal Express Corp. 49,542 3,697
H & R Block, Inc. 94,185 3,697
TRW, Inc. 57,297 3,696
First Chicago Corp. 76,622 3,687
Lockheed Corp. 55,901 3,655
Westinghouse Electric Corp. 313,757 3,647
Melville Corp. 93,503 3,623
Honeywell, Inc. 116,001 3,596
Union Carbide Corp. 133,974 3,584
Phelps Dodge Corp. 62,837 3,582
Central & South West Corp. 167,612 3,562
Lincoln National Corp. 83,605 3,543
Eaton Corp. 67,459 3,508
Eastman Chemical 73,315 3,501
Whirlpool Corp. 65,897 3,460
* Santa Fe Pacific Corp. 165,041 3,445
Scott Paper Co. 65,704 3,433
Great Lakes Chemical Corp. 63,227 3,422
Halliburton Co. 101,332 3,420
The Times Mirror Co. Class A 112,955 3,403
Morton International, Inc. 43,361 3,382
Hershey Foods Corp. 77,780 3,374
W.R. Grace & Co. 83,303 3,322
Carolina Power & Light Co. 142,616 3,298
First Fidelity Bancorp. 70,949 3,290
CoreStates Financial Corp. 127,635 3,287
Ingersoll-Rand Co. 93,560 3,286
Transamerica Corp. 62,556 3,261
Newell Co. 70,129 3,243
Detroit Edison Co. 130,443 3,228
Dresser Industries, Inc. 155,554 3,189
The Tribune Co. 59,713 3,180
Mellon Bank Corp. 56,297 3,167
Consolidated Natural Gas Co. 82,764 3,124
American Stores Co. 126,832 3,107
Nordstrom, Inc. 73,082 3,106
Dillard Department Stores Class A 100,526 3,104
Safeco Corp. 55,831 3,099
Ralston-Purina Group 89,360 3,094
Newmont Mining Corp. 75,751 3,049
UNUM Corp. 67,426 3,017
St. Paul Cos., Inc. 75,148 3,015
Marriott International 112,902 3,006
Dover Corp. 50,786 2,990
Louisiana-Pacific Corp. 97,687 2,979
MBNA Corp. 131,735 2,964
* Crown Cork & Seal Co., Inc. 78,937 2,940
McGraw-Hill, Inc. 43,950 2,923
Union Electric Corp. 90,957 2,888
Boatmen's Bancshares, Inc. 92,362 2,886
W.W. Grainger, Inc. 45,125 2,882
* Price/Costco Inc. 193,634 2,880
Household International, Inc. 83,799 2,849
Winn Dixie Stores, Inc. 66,023 2,839
Union Camp Corp. 62,137 2,819
Apple Computer, Inc. 104,390 2,753
Baltimore Gas & Electric Co. 129,555 2,753
* UAL Corp. 21,799 2,752
Dow Jones & Co., Inc. 88,584 2,746
V F Corp. 57,426 2,728
Champion International Corp. 82,815 2,723
Alco Standard Corp. 47,593 2,719
Providian Corp. 89,201 2,698
* Promus Co. Inc. 90,833 2,691
Williams Cos., Inc. 92,400 2,645
Becton, Dickinson & Co. 64,489 2,636
Pioneer Hi Bred International 79,586 2,606
McKesson Corp. 35,976 2,595
Loral Corp. 73,982 2,589
Reynolds Metals Co. 53,709 2,578
Baker Hughes, Inc. 125,052 2,564
Sun Co., Inc. 94,769 2,547
Inco Ltd. 103,692 2,528
Torchmark Corp. 64,650 2,521
Coastal Corp. 93,040 2,512
Dana Corp. 87,450 2,492
Knight-Ridder, Inc. 48,181 2,463
Cyprus Amax 82,252 2,447
Northern States Power Co. of Minnesota 59,385 2,442
Harcourt General, Inc. 69,291 2,434
Sherwin-Williams Co. 77,173 2,431
Ohio Edison Co. 135,382 2,420
Sonat, Inc. 77,497 2,383
* Digital Equipment Corp. 122,750 2,378
Clorox Co. 48,199 2,356
Temple-Inland Inc. 49,211 2,344
Praxair, Inc. 119,165 2,324
The Mead Corp. 52,638 2,323
Hasbro, Inc. 78,096 2,314
Bank of Boston Corp. 93,892 2,312
National Medical Enterprises, Inc. 147,675 2,307
Shawmut National Corp. 104,533 2,300
General Dynamics Corp. 56,150 2,295
U.S. Bancorp 88,572 2,292
Homestake Mining Co. 122,145 2,290
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
USX-U.S. Steel Group 67,181 $ 2,276
New York Times Co. Class A 94,954 2,267
Hilton Hotels Corp. 42,617 2,259
* The Kroger Co. 96,294 2,239
Comcast Corp. Class A 124,726 2,229
Mallinckrodt Group, Inc. 68,137 2,214
Reebok International Ltd. 73,395 2,193
Golden West Financial Corp. 56,696 2,190
Kerr-McGee Corp. 46,110 2,173
Roadway Services, Inc. 34,676 2,167
Great Western Financial Corp. 117,721 2,163
Englehard Corp. 85,111 2,149
Jefferson-Pilot Corp. 43,909 2,141
Premark International, Inc. 28,229 2,124
Panhandle Eastern Corp. 106,499 2,103
Pennzoil Co. 40,791 2,091
Interpublic Group of Cos., Inc. 66,838 2,072
* Advanced Micro Devices, Inc. 82,290 2,047
Delta Air Lines, Inc. 44,652 2,021
* Western Atlas Inc. 41,757 1,989
American Greetings Corp. Class A 66,209 1,970
H.F. Ahmanson & Co. 103,765 1,959
Nalco Chemical, Inc. 61,179 1,950
Bausch & Lomb, Inc. 52,572 1,945
Service Corp. International 75,521 1,945
Tandy Corp. 56,291 1,942
* DSC Communications Corp. 99,490 1,940
SuperValu, Inc. 63,829 1,931
Deluxe Corp. 73,199 1,931
Niagara Mohawk Power Corp. 126,952 1,920
Tyco International Ltd. 41,350 1,892
Woolworth Corp. 117,869 1,871
Brunswick Corp. 84,708 1,864
* Computer Sciences Corp. 44,724 1,862
* National Semiconductor Corp. 107,061 1,847
Parker Hannifin Corp. 43,194 1,841
Westvaco Corp. 59,457 1,828
Ashland Oil, Inc. 53,484 1,798
* Bethlehem Steel Corp. 94,964 1,769
Circuit City Stores, Inc. 85,821 1,759
Maytag Corp. 94,688 1,752
The Dial Corp. 40,872 1,747
* FMC Corp. 32,169 1,741
Johnson Controls, Inc. 35,966 1,740
Brown-Forman Corp. Class B 61,264 1,731
Cooper Tire & Rubber Co. 74,656 1,726
Ryder System, Inc. 68,590 1,723
Pep Boys (Manny, Moe & Jack) 54,162 1,713
Pet, Inc. 91,559 1,705
* ALZA Corp. 72,427 1,702
* Sun Microsystems, Inc. 83,457 1,700
Beneficial Corp. 46,224 1,687
Northrop Grumman Corp. 43,578 1,618
The Stanley Works 40,115 1,615
Paccar, Inc. 34,734 1,589
Cummins Engine Co., Inc. 36,740 1,589
Rite Aid Corp. 78,235 1,584
Echlin, Inc. 52,423 1,579
Borden, Inc. 126,007 1,559
Harris Corp. 35,285 1,557
Armstrong World Industries Inc. 33,201 1,548
Pall Corp. 102,705 1,541
Moore Corp. Ltd. 88,896 1,500
Pacific Enterprises 74,966 1,490
Worthington Industries, Inc. 80,354 1,487
* Lotus Development Corp. 40,377 1,474
Comcast Corp. Class A Special 82,097 1,467
Whitman Corp. 93,515 1,449
Avery Dennison Corp. 49,895 1,447
Wendys International, Inc. 91,305 1,427
* Varity Corp. 39,186 1,425
TJX Cos., Inc. 65,145 1,425
Snap-On Inc. 37,801 1,408
* Unisys Corp. 151,398 1,400
Liz Claiborne, Inc. 69,949 1,399
General Signal Corp. 42,254 1,394
Manor Care Inc. 55,446 1,393
Raychem Corp. 37,935 1,366
Millipore Corp. 25,230 1,331
* King World Productions, Inc. 33,370 1,331
Polaroid Corp. 41,552 1,324
St. Jude Medical, Inc. 41,220 1,319
Oryx Energy Co. 86,271 1,294
Black & Decker Corp. 74,613 1,287
* Inland Steel Industries, Inc. 36,408 1,270
Louisiana Land & Exploration Co. 29,419 1,250
NICOR, Inc. 46,913 1,237
Ecolab, Inc. 55,964 1,231
James River Corp. 72,413 1,231
Allergan, Inc. 56,711 1,226
* Columbia Gas Systems, Inc. 45,024 1,216
* Owens-Corning Fiberglas Corp. 38,729 1,205
McDermott International, Inc. 47,280 1,182
* Stone Container Corp. 80,562 1,178
Scientific-Atlanta, Inc. 33,557 1,154
Foster Wheeler Corp. 31,683 1,152
* Tandem Computers, Inc. 101,931 1,147
National Service Industries, Inc. 43,992 1,144
Perkin-Elmer Corp. 38,957 1,139
E-Systems, Inc. 30,485 1,139
United States Surgical Corp. 50,054 1,114
C.R. Bard, Inc. 46,061 1,100
PSI Resources, Inc. 51,361 1,085
Russell Corp. 36,941 1,076
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
* Biomet, Inc. 102,264 $ 1,074
Echo Bay Mines Ltd. 99,350 1,068
Mercantile Stores Co., Inc. 32,654 1,049
Autodesk, Inc. 21,226 1,045
Asarco, Inc. 36,996 1,041
Giant Food, Inc. Class A 52,955 1,039
Thomas & Betts Corp. 16,725 1,029
Bemis Co., Inc. 45,468 1,012
Potlatch Corp. 25,959 999
The BF Goodrich Co. 22,730 989
Pittston Services Group 36,893 987
* Ceridian Corp. 39,270 967
USF&G Corp. 75,677 927
* Clark Equipment Co. 15,445 923
Fleming Cos., Inc. 32,976 915
The Timkin Co. 27,405 898
* Navistar International Corp. 66,950 895
* Beverly Enterprises Inc. 73,800 895
Trinova Corp. 25,173 872
Safety-Kleen Corp. 51,182 870
Federal Paper Board Co., Inc. 37,913 867
Ogden Corp. 39,214 863
ENSERCH Corp. 59,967 862
Briggs & Stratton Corp. 12,797 856
Charming Shoppes, Inc. 91,119 831
* Andrew Corp. 22,638 815
Teledyne Inc. 49,186 787
Fleetwood Enterprises, Inc. 40,726 779
Continental Corp. 49,826 772
Tektronix, Inc. 26,953 761
Santa Fe Energy Resources Inc. 81,101 760
* Consolidated Freightways, Inc. 31,948 759
Boise Cascade Corp. 34,289 759
EG & G, Inc. 49,513 743
Peoples Energy Corp. 31,442 735
Centex Corp. 28,458 733
Great Atlantic & Pacific Tea Co., Inc. 33,904 729
USLIFE Corp. 20,436 725
Crane Co. 26,505 699
Ball Corp. 26,728 695
Noram Energy Corp. 110,575 663
* Rowan Cos., Inc. 75,746 663
Jostens Inc. 41,025 662
Longs Drug Stores, Inc. 18,430 659
Alexander & Alexander Services, Inc. 39,122 636
Cincinnati Milacron, Inc. 30,290 632
Morrison-Knudsen Co., Inc. 28,588 615
* Maxus Energy Corp. 120,930 605
Brown Group, Inc. 15,763 593
Adolph Coors Co. Class B 34,349 593
Transco Energy Co. 36,454 592
Helmerich & Payne, Inc. 22,301 591
Stride Rite Corp. 45,365 590
John H. Harland Co. 27,009 587
Pulte Corp. 24,899 573
Amdahl Corp. 103,066 567
* Shoney's Inc. 36,720 560
Meredith Corp. 13,028 554
* Armco, Inc. 93,740 527
Alberto-Culver Co. Class B 24,242 524
* Cray Research, Inc. 23,088 522
Luby's Cafeterias, Inc. 22,931 516
Bruno's Inc. 70,548 494
Shared Medical Systems Corp. 20,404 490
Springs Industries Inc. Class A 15,855 474
Giddings & Lewis, Inc. 30,724 461
Community Psychiatric Centers 38,802 461
Harnischfeger Industries Inc. 22,952 448
Yellow Corp. 25,393 435
Eastern Enterprises 18,879 432
NACCO Industries, Inc. Class A 7,909 425
Oneok, Inc. 24,049 412
Kaufman & Broad Home Corp. 29,473 394
* Intergraph Corp. 40,244 377
Outboard Marine Corp. 18,100 362
Bassett Furniture Industries, Inc. 12,864 360
* Ryan's Family Steak Houses, Inc. 49,205 344
* USAir Group, Inc. 53,275 340
* Zenith Electronics Corp. 35,895 319
Handleman Co. 29,687 301
* Bally Entertainment Corp 43,380 282
First Mississippi Corp. 18,100 276
Rollins Environmental Services, Inc. 55,442 263
* Data General Corp. 32,026 248
Zurn Industries, Inc. 11,508 233
* National Intergroup, Inc. 11,704 205
SPX Corp. 12,880 200
Skyline Corp. 10,230 189
Oshkosh B Gosh, Inc. Class A 13,323 183
* M/A-Com, Inc. 22,651 181
* Hartmarx Corp. 28,859 177
* National Education Corp. 26,506 149
* Genesco, Inc. 22,220 72
- - -----------------------------------------------------------------------------
TOTAL COMMON STOCKS (97.7%)(1)
(Cost $2,700,569) 2,852,825
- - -----------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- - -----------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (2.2%)
- - -----------------------------------------------------------------------------
COMMERCIAL PAPER
Koch Inc.
4.38%, 7/1/94 $59,836 $ 59,836
U.S. TREASURY BILL--Note D
4.26%, 9/22/94 5,000 4,951
- - -----------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $64,787) 64,787
- - -----------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(Cost $2,765,356) 2,917,612
- - -----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.1%)
- - -----------------------------------------------------------------------------
Other Assets--Notes B and E 23,897
----------
Liabilities--Note E (20,610)
3,287
- - -----------------------------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------------------------
Applicable to 69,212,538 outstanding
shares of beneficial interest
(Unlimited authorization) $2,920,899
- - -----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $42.20
=============================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
(1) The combined market value of common stocks and Standard & Poor's
500 Index futures contracts represents 100.0% of net assets.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
AT JUNE 30, 1994, NET ASSETS CONSISTED OF:
- - -----------------------------------------------------------------------------
Amount Per
(000) Share
---------- ------
<S> <C> <C>
Paid in Capital--Note C $2,758,892 $39.86
Undistributed Net Investment Income 12,032 .17
Accumulated Net Realized Gains--Note C 182 --
Unrealized Appreciation of Investments--Note C 149,793 2.17
- - -----------------------------------------------------------------------------
NET ASSETS $2,920,899 $42.20
- - -----------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994
(000)
- - -----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 43,040
Interest . . . . . . . . . . . . . . . . . . . . . . . . 51
- - -----------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . 43,091
- - -----------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B . . . . . . . . . . . . . . . . 1,001
- - -----------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . 1,001
- - -----------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . 42,090
- - -----------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold . . . . . . . . . . . . . . . . 41,809
Futures Contracts . . . . . . . . . . . . . . . . . . . . 1,341
- - -----------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . . . . 43,150
- - -----------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . (184,667)
Futures Contracts . . . . . . . . . . . . . . . . . . . . (2,501)
- - -----------------------------------------------------------------------------
Change in Unrealized Appreciation (Depreciation) (187,168)
- - -----------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations . . . . . . . . . . . . . . . $(101,928)
=============================================================================
</TABLE>
10
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
JUNE 30, 1994 December 31, 1993
(000) (000)
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . $ 42,090 $ 59,053
Realized Net Gain . . . . . . . . . . . . . . . . . 43,150 18,257
Change in Unrealized Appreciation (Depreciation) . . (187,168) 127,110
- - --------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations . . . . . . . . . . . . . . . (101,928) 204,420
- - --------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . (30,196) (67,177)
Realized Net Gain . . . . . . . . . . . . . . . . . (4,757) (9,977)
- - --------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (34,953) (77,154)
- - --------------------------------------------------------------------------------------------
NET EQUALIZATION CREDITS (CHARGES)--Note A . . . . . . (361) 8,645
- - --------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . 465,336 1,403,485
-- In Lieu of Cash Distributions . . . . 31,044 69,579
-- Exchange . . . . . . . . . . . . . . . 13,088 218,828
Redeemed -- Regular . . . . . . . . . . . . . . . (517,444) (234,210)
-- Exchange . . . . . . . . . . . . . . . (36,819) (15,328)
- - --------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions . . . . . . . . . . . . . . . . . (44,795) 1,442,354
- - --------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . (182,037) 1,578,265
- - --------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . 3,102,936 1,524,671
- - --------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . $2,920,899 $3,102,936
============================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . $ .44 $ 1.19
Realized Net Gain . . . . . . . . . . . . . . . $ .07 $ .18
- - --------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . 10,960 37,606
Issued in Lieu of Cash Distributions . . . . . . 711 1,590
Redeemed . . . . . . . . . . . . . . . . . . . (12,659) (5,776)
- - --------------------------------------------------------------------------------------------
(988) 33,420
- - --------------------------------------------------------------------------------------------
(3) Undistributed Net Investment Income . . . . . . $ 12,032 $ 499
- - --------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31, July 31 to
SIX MONTHS ENDED ------------------------- December 31,
For a Share Outstanding Throughout Each Period JUNE 30, 1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . $44.20 $41.45 $39.91 $31.62 $34.10
------ -------- ------ ------- ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .60 1.20 1.17 1.16 .52
Net Realized and Unrealized Gain (Loss) on
Investments . . . . . . . . . . . . . . . . . (2.09) 2.92 1.79 8.35 (2.48)
------ -------- ------ ------- ------
TOTAL FROM INVESTMENT OPERATIONS . . (1.49) 4.12 2.96 9.51 (1.96)
- - -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . (.44) (1.19) (1.17) (1.16) (.52)
Distributions from Realized Capital Gains . . . . (.07) (.18) (.25) (.06) --
------ -------- ------ ------- ------
TOTAL DISTRIBUTIONS . . . . . . . . (.51) (1.37) (1.42) (1.22) (.52)
- - -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . $42.20 $44.20 $41.45 $39.91 $31.62
=================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . -3.41% +10.02% +7.54% +30.34% -5.74%
- - -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) . . . . . . . $2,921 $3,103 $1,525 $1,069 $512
Ratio of Expenses to Average Net Assets . . . . . . .07%* .07% .07% .08% .09%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . 2.78%* 2.72% 2.94% 3.15% 3.98%*
Portfolio Turnover Rate . . . . . . . . . . . . . . 23%* 4%+ 9%+ 4% 2%
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Portfolio turnover rates excluding in-kind redemptions were 3% and 6%,
respectively.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
Vanguard Institutional Index 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: Securities listed on an exchange are valued at the
latest quoted sales prices as of 4:00 PM on the valuation date; securities not
traded are valued at the mean of the latest quoted bid and asked prices;
securities not listed are valued at the latest quoted bid prices. Temporary
cash investments are valued at amortized cost which approximates market value.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
3. EQUALIZATION: The Fund follows the accounting practice known as
"equalization," under which a portion of the price of capital shares issued
and redeemed, equivalent to undistributed net investment income per share on
the date of the transaction, is credited or charged to undistributed income.
As a result, undistributed income per share is unaffected by Fund share sales
or redemptions.
4. FUTURES: The Fund may utilize futures contracts to a limited extent. The
primary risks associated with the use of futures contracts are imperfect
correlation between the change in market value of the securities held by the
Fund and the prices of futures contracts, and the possibility of an illiquid
market. Futures contracts are valued based upon their quoted daily settlement
prices. Fluctuations in the value of futures contracts are recorded as
unrealized appreciation (depreciation) until terminated, at which time
realized gains (losses) are recognized. Unrealized appreciation (depreciation)
related to open futures contracts is required to be treated as realized gain
(loss) for Federal income tax purposes.
5. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses on
the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the ex-
dividend date.
* B. The Vanguard Group, Inc. provides investment advisory, corporate
management, administrative, marketing and distribution services and pays for
all other operating expenses, except for taxes, in return for a fee calculated
at an annual percentage rate of the average net assets of the Fund. For the
six months ended June 30, 1994, the fee for such services represented an
effective annual rate of .07 of 1% of average net assets. The Fund's trustees
and officers are also directors and officers of Vanguard.
* C. During the six months ended June 30, 1994, purchases and sales of
investment securities other than U.S. Government securities and temporary cash
investments were $332,762,000 and $443,968,000, respectively. During the six
months ended June 30, 1994, the Fund realized approximately $42,706,000 of net
capital gains resulting from in-kind redemptions. Such gains are not taxable
to the Fund and therefore will not be distributed to shareholders;
accordingly, such gains have been reclassified from accumulated net realized
gains to paid in capital.
At June 30, 1994, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes was $152,256,000, of which
$284,031,000 related to appreciated securities and $131,775,000 related to
depreciated securities.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (continued)
* D. At June 30, 1994, the aggregate settlement value of open Standard &
Poor's 500 Index futures contracts expiring in September 1994, the related
unrealized depreciation, and the market value of securities deposited as
initial margin for those contracts were $68,093,000, $2,463,000, and
$4,951,000, respectively.
* E. The market value of securities on loan to broker/dealers at June 30,
1994, was $1,117,000, for which the Fund had received cash collateral of
$1,225,000.
14
<PAGE> 15
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc
Rorer Inc.; Director of Sun Company, Inc. and Immune Response Corporation;
Trustee of the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of Dayton
Hudson Corporation, American Express Bank Ltd., The St. Paul Companies, Inc.,
and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., and The Southern New England Telephone
Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and
The Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas
Company; Director of Cummins Engine Company; Trustee of Vanderbilt University
and the Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
15
<PAGE> 16
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and
may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q942-06/94
(VANGUARD INSTITUTIONAL INDEX FUND LOGO)
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
JUNE 30, 1994
16
<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.
