-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, M9WyrRfhGfON0LvD48Lfx/vz2MLwjO+fWCMoFYkSWkfn8i+vWQ7TgyPwv7OE4s81 dVsZCYeKjLVkNWK2nYzZsQ== 0000893220-95-000418.txt : 19950622 0000893220-95-000418.hdr.sgml : 19950622 ACCESSION NUMBER: 0000893220-95-000418 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950620 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD/WINDSOR FUNDS INC CENTRAL INDEX KEY: 0000107606 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510082711 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00834 FILM NUMBER: 95548144 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BLD STREET 2: P O BOX 2600 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106696289 MAIL ADDRESS: ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUNDS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUNDS DATE OF NAME CHANGE: 19851031 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUND INC DATE OF NAME CHANGE: 19850424 N-30D 1 VANGUARD WINDSOR FUNDS SEMI ANNUAL REPORTS 1 CHAIRMAN'S LETTER FELLOW SHAREHOLDER: During the first half of Windsor Fund's 1995 fiscal year, which ended on April 30, the stock market surged. In this period your Fund provided a solid return, albeit one that fell well short of the market's return. The table below compares Windsor's total return (capital change plus income) with that of the unmanaged Standard & Poor's 500 Composite Stock Price Index, the basic standard we use to measure our relative performance, and a good measure of the returns achieved by blue-chip corporations with very large market capitalizations.
- ------------------------------------------------------------------------ Total Return ---------------- Six Months Ended April 30, 1995 - ------------------------------------------------------------------------ Windsor Fund + 5.9% - ------------------------------------------------------------------------ Standard & Poor's 500 Stock Index +10.5% - ------------------------------------------------------------------------
The Fund's return is based on net asset values of $14.55 per share on October 31, 1994, and $14.17 on April 30, 1995, with the latter figure adjusted to take into account the reinvestment of a semi-annual dividend totaling $.24 per share from net investment income and a distribution of $.86 per share from net realized capital gains. Both payments were the result of our operations during 1994 and were made at the end of December. THE PERIOD IN REVIEW During the first three months of the semi-annual period, the stock market, on balance, went nowhere. It then sprung to life during the second quarter, engendering a solid gain for the full period, as reflected in the table above. As usual, there were many opinions as to the source of the market's strength. From my view, it resulted from a combination of: (1) the sharp decline in interest rates (the yield on the long-term U.S. Treasury bond fell from 8.1% to 7.3%, or 80 basis points); (2) the apparently diminishing threat of additional increases in short-term interest rates by the Federal Reserve Board; (3) a slight softening in U.S. economic growth, resulting in continued optimism about the outlook for inflation; (4) record-breaking corporate profits; and (5) a hint of speculative fever in the equity market. Whatever the case, the strong equity market resulted in a solid gain of +10.5% for the Standard & Poor's 500 Index. Windsor's gain of +5.9% may seem disappointing on a relative basis, but it should be viewed in the context of the Fund's solid, superior, and consistently better-than-Index returns during the three prior fiscal years. During the past six months, the Index has performed splendidly, as the market's gain was led by large blue-chip stocks. Most equity funds--which own substantial positions in smaller and less well-known stocks--were left in the proverbial dust. Windsor's shortfall to the Index is explained in part by our concentration in bank stocks (20% of the Fund's net assets compared to 6% for the Index), where our stock selections, on balance, fell short of the bank stocks in the Index. In addition, some of our consumer, cyclical, and energy holdings lagged both their industry groups and the market as a whole. It was this same series of factors that caused most of our modest shortfall to the average equity mutual fund, which turned in a gain of +6.5%, well short of the Index gain, as the Standard & Poor's 500 Index outpaced fully 91% of the general equity funds during the period. Veteran Windsor shareholders, I am confident, realize that, by reason of the Fund's industry and individual stock concentrations (41% of our assets are invested in our 10 largest holdings), our returns will often diverge sharply from both the market indexes and competitive norms. When our performance is evaluated over longer periods (say, three to five years), the Fund's historical returns have been outstanding. "Anything can happen" to our relative returns during short periods when we like what the stock market doesn t like, but it should be long-term results that count for the long-term investor. (continued) 1 2 Our motto is "stay the course." The Fund follows that maxim, and our traditional emphasis is on equities that your portfolio manager believes represent fundamental values. Shareholders, too, should follow that maxim, taking market risk, as well as the risk of a concentrated policy, in stride. I look forward to reporting to you in our Annual Report six months hence. Sincerely, /s/ JOHN C. BOGLE - ----------------- John C. Bogle Chairman of the Board May 15, 1995 Note: Mutual fund data from Lipper Analytical Services, Inc. AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND (PERIODS ENDED MARCH 31, 1995) ARE AS FOLLOWS:
10 YEARS ----------------------------- INCEPTION TOTAL CAPITAL INCOME DATE 1 YEAR 5 YEARS RETURN RETURN RETURN ---------- ------ ------- ------ ------- ------ VANGUARD/WINDSOR FUND 10/23/58 +10.32% +11.01% +13.39% +8.10% +5.29%
ALL OF THESE 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. 2 3 REPORT FROM THE INVESTMENT ADVISOR Our performance in the first six months of the fiscal year lagged the market significantly, some 4.6 percentage points worse than the S&P 500. The autos, banks, cyclicals, and energy were our laggard groups in the period, while airlines, insurance, S&Ls, technology, and utilities were positive contributors. The S&P was up a surprising 10.5% for the six months, led by the consumer nondurables (e.g., pharmaceuticals, food and beverage, tobacco, healthcare, and household products). These make up 20% of the market and we own nothing in the area, so this absence hurt our relative performance. Our fundamental case against these stocks includes: (1) high P/E ratios, (2) low domestic unit growth rates of around 1%, (3) a lot of deep pocket players that start periodic market share wars, (4) an increasingly value-conscious consumer, and (5) first quarter earnings help from the weak dollar that will reverse as the dollar strengthens off its depressed base. Relative performance for the six months was particularly weak in our first fiscal quarter, when high interest rates impacted both our financial service and our cyclical concentrations, judged by the market to be "interest sensitive." In the second fiscal quarter, though, long rates moved down 40 basis points, and our financial service holdings generally benefited. Our financials have continued to act well so far in May, and the market rightly has started smiling a bit on the autos and commodity cyclicals as well. As a result, at this writing, we have picked up about two points versus the S&P. The consumer seemed to go into a bit of a shell in April, especially as far as buying cars, but we think that this will prove somewhat aberrational, and we are still of the view that we will have another good three years of moderate but steady economic growth. At the margin, this outlook makes the cyclical area of the market the most attractive to us, and we built our commodity cyclicals--aluminum, chemicals, and steel--up to 10.8% of the portfolio during the period. This included a large addition to the steels, a number of which are selling at only 4-- 5 times this year's reported earnings. The U.S. steel industry has significantly improved its competitiveness by taking costs out and also, of course, the decline in the dollar has helped. The downward move in the long government bond yield to 6.85% presently more than fulfills our expectation of a correction to 7%--7 1/4%. As of this writing, we are virtually out of the 6% intermediate-term government position we had in this latest trip, having enjoyed a 5% gain plus the 8% carry, for a worthwhile total return over the less than one year holding period. With our equity ratio now down to a little over 85%, this leaves us with some 14% in cash, but we have the market somewhat ahead of itself at this time, and we look to put this cash to work at a more opportunity-laden juncture. Respectfully, John B. Neff, Managing Partner Portfolio Manager Charles T. Freeman, Senior Vice President Assistant Portfolio Manager Wellington Management Company May 19, 1995 3 4 TOTAL INVESTMENT RETURN TABLE The following table illustrates the results of a single-share investment in VANGUARD/WINDSOR FUND for the 25-year period ended April 30, 1995. During the period illustrated, stock prices fluctuated widely; these results should not be considered a representation of the dividend income or capital gain or loss that may be realized from an investment made in the Fund today.
- ------------------------------------------------------------------------------------------------------------------------------------ PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN* - ------------------------------------------------------------------------------------------------------------------------------------ Value with Income Windsor Fund ------------------------------ Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total S&P 500 Index December 31 Value Distributions Dividends Gains Reinvested Return Return Return Total Return - ------------------------------------------------------------------------------------------------------------------------------------ 1971 $ 9.34 $ .50 $.29 $ 10.19 + 4.3% +3.2% + 7.5% +14.2% - ------------------------------------------------------------------------------------------------------------------------------------ 1972 9.39 .57 .29 11.23 + 6.9 +3.3 +10.2 +19.0 - ------------------------------------------------------------------------------------------------------------------------------------ 1973 6.64 .14 .32 8.42 -28.0 +3.0 -25.0 -14.7 - ------------------------------------------------------------------------------------------------------------------------------------ 1974 5.25 -- .31 7.00 -20.9 +4.1 -16.8 -26.3 - ------------------------------------------------------------------------------------------------------------------------------------ 1975 7.77 -- .32 10.82 +48.0 +6.5 +54.5 +37.1 - ------------------------------------------------------------------------------------------------------------------------------------ 1976 10.68 .22 .38 15.84 +40.7 +5.7 +46.4 +23.8 - ------------------------------------------------------------------------------------------------------------------------------------ 1977 9.77 .56 .40 16.00 - 3.0 +4.0 + 1.0 - 7.2 - ------------------------------------------------------------------------------------------------------------------------------------ 1978 9.12 1.01 .48 17.40 + 3.8 +5.0 + 8.8 + 6.5 - ------------------------------------------------------------------------------------------------------------------------------------ 1979 9.72 .85 .53 21.33 +16.4 +6.2 +22.6 +18.4 - ------------------------------------------------------------------------------------------------------------------------------------ 1980 10.42 .79 .59 26.15 +15.7 +6.9 +22.6 +32.4 - ------------------------------------------------------------------------------------------------------------------------------------ 1981 9.92 1.49 .69 30.53 + 9.9 +6.9 +16.8 - 4.9 - ------------------------------------------------------------------------------------------------------------------------------------ 1982 10.36 .99 .62 37.16 +14.8 +6.9 +21.7 +21.5 - ------------------------------------------------------------------------------------------------------------------------------------ 1983 11.69 1.03 .70 48.34 +23.0 +7.1 +30.1 +22.5 - ------------------------------------------------------------------------------------------------------------------------------------ 1984 12.64 .48 .76 57.75 +12.4 +7.1 +19.5 + 6.2 - ------------------------------------------------------------------------------------------------------------------------------------ 1985 14.50 .74 .79 73.93 +21.1 +6.9 +28.0 +31.6 - ------------------------------------------------------------------------------------------------------------------------------------ 1986 13.95 2.59 .85 88.92 +14.3 +6.0 +20.3 +18.6 - ------------------------------------------------------------------------------------------------------------------------------------ 1987 11.11 2.21 .87 90.01 - 4.7 +5.9 + 1.2 + 5.2 - ------------------------------------------------------------------------------------------------------------------------------------ 1988 13.07 .55 .63 115.85 +22.6 +6.1 +28.7 +16.5 - ------------------------------------------------------------------------------------------------------------------------------------ 1989 13.41 .85 .75 133.25 + 9.2 +5.8 +15.0 +31.6 - ------------------------------------------------------------------------------------------------------------------------------------ 1990 10.30 .32 .74 112.60 -20.8 +5.3 -15.5 - 3.1 - ------------------------------------------------------------------------------------------------------------------------------------ 1991 11.72 .84 .57 144.74 +22.7 +5.9 +28.6 +30.4 - ------------------------------------------------------------------------------------------------------------------------------------ 1992 12.74 .38 .49 168.62 +12.0 +4.5 +16.5 + 7.6 - ------------------------------------------------------------------------------------------------------------------------------------ 1993 13.91 .89 .37 201.29 +16.3 +3.1 +19.4 +10.1 - ------------------------------------------------------------------------------------------------------------------------------------ 1994 12.59 .86 .44 200.98 - 3.3 +3.2 - 0.1 + 1.3 - ------------------------------------------------------------------------------------------------------------------------------------ 1995 (4/30) 14.17 -- -- 226.19 +12.5 0.0 +12.5 +13.0 - ------------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE TOTAL +2,286.0% +1,358.3% - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL RATE OF RETURN +13.9% +11.6% - ------------------------------------------------------------------------------------------------------------------------------------
*Includes reinvestment of income dividends and any capital gains distributions both for the Fund and the Index. Note: The net asset value was $9.48 on December 31, 1970, the beginning of the period illustrated. No adjustment has been made for income taxes payable by shareholders on reinvested income dividends and capital gains distributions. 4 5 FINANCIAL STATEMENTS (unaudited) April 30, 1995 STATEMENT OF NET ASSETS
Market Value Shares (000)+ - ----------------------------------------------------------------------------- COMMON STOCKS (87.1%) - ----------------------------------------------------------------------------- BASIC MATERIALS (10.8%) - ----------------------------------------------------------------------------- CHEMICALS (1.6%) Bayer AG ADR 790,000 $ 19,355 (1) Freeport McMoRan Resource Partners LP 5,798,300 94,947 Lyondell Petrochemical Co. 3,170,000 78,854 METALS & MINING (5.0%) (2) Aluminum Co. of America 6,839,400 306,918 (1) Reynolds Metals Co. 5,441,500 274,116 STEEL (4.2%) * (1) AK Steel Holding Corp. 1,900,000 51,063 * (1) Bethlehem Steel Corp. 10,640,600 150,298 * Geneva Steel Class A 1,525,200 16,587 (1) Inland Steel Industries, Inc. 2,633,000 66,812 * (1) LTV Corp. 7,800,000 111,150 * (1) National Steel Corp. Class B 2,094,500 26,705 Rouge Steel Co. Class A 1,470,500 32,902 * (1) WHX Corp. 1,601,200 17,213 * (1) Weirton Steel 3,063,600 22,594 --------- GROUP TOTAL 1,269,514 --------- - ----------------------------------------------------------------------------- CAPITAL GOODS & CONSTRUCTION (2.3%) - ----------------------------------------------------------------------------- * Beazer Homes USA, Inc. 190,000 2,708 (1) Continental Homes Holding Corp. 688,500 7,918 MDC Holdings, Inc. 498,600 2,618 * National Gypsum Co. 110,900 5,406 * (1) Owens-Corning Fiberglas Corp. 4,373,100 160,165 (1) Pulte Corp. 1,800,000 38,925 (1) Ryland Group, Inc. 935,200 13,677 (1) Standard Pacific Corp. 1,750,000 10,281 * (1) Toll Brothers, Inc. 2,200,000 26,125 * USG Corp. 255,000 6,024 --------- GROUP TOTAL 273,847 --------- - ----------------------------------------------------------------------------- CONSUMER CYCLICAL (14.1%) - ----------------------------------------------------------------------------- APPAREL & TEXTILES (.8%) * (1) Burlington Industries 6,700,000 73,700 * (1) Cone Mills Corp. 1,900,000 21,612 AUTO & TRUCK MANUFACTURING (10.7%) (2) Chrysler Corp. 14,785,200 637,612 (2) Ford Motor Co. 22,754,700 614,377 RETAIL (2.6%) * Burlington Coat Factory Warehouse Corp. 1,403,000 15,082 (1) Circuit City Stores, Inc. 5,010,100 129,636 * Federated Department Stores 539,715 11,401 * Federated Department Stores Warrants Exp. 12/19/99 359,501 1,618 * Federated Department Stores Warrants Exp. 12/1/01 359,501 1,798 Kmart Corp. 6,376,800 88,478 Sears, Roebuck & Co. 1,039,000 56,366 --------- GROUP TOTAL 1,651,680 --------- - ----------------------------------------------------------------------------- ENERGY (16.9%) - ----------------------------------------------------------------------------- Amerada Hess Corp. 600,000 30,375 (2) Atlantic Richfield Co. 4,919,000 563,226 (1)(2) Burlington Resources, Inc. 9,841,900 385,064 (1) Cabot Oil & Gas Corp. 1,325,000 20,537 (1) ENSERCH Corp. 6,603,300 113,907 * (1) Oryx Energy Co. 6,533,000 89,829 (1) Pennzoil Co. 3,490,100 170,579 Phillips Petroleum Co. 266,700 9,335 Plains Petroleum Co. 51,000 1,192 (1)(2) USX-Marathon Group 24,027,200 450,510 Ultramar Corp. 1,753,200 45,802 (1) Valero Energy Corp. 4,255,500 92,025 --------- GROUP TOTAL 1,972,381 --------- - ----------------------------------------------------------------------------- FINANCIAL (34.8%) - ----------------------------------------------------------------------------- BANKS (19.6%) Bancorp Hawaii, Inc. 123,200 3,465 BankAmerica Corp. 5,183,853 256,601 (1) Bankers Trust New York Corp. 4,701,219 255,041 Chemical Banking Corp. 6,009,900 250,913 (2) Citicorp 15,971,200 740,664 First Tennessee National Corp. 70,800 2,974 (2) First Union Corp. 8,448,800 382,308 KeyCorp 6,272,923 167,801 NationsBank, Inc. 4,837,900 241,895 INSURANCE COMPANIES (8.1%) (1)(2) Aetna Life & Casualty Co. 5,890,486 335,758 Allstate Corp. 6,230,800 189,261 (1)(2) CIGNA Corp. 5,835,500 423,803 SAVINGS & LOANS (7.1%) (1) H.F. Ahmanson & Co. 10,859,145 228,042 Bay View Capital Corp. 134,900 3,271 * (1) Coast Savings Financial, Inc. 1,131,600 23,481 (1) Golden West Financial Corp. 6,222,400 284,675 (1) Great Western Financial Corp. 13,428,496 283,677 (1) SFFED Corp. 401,500 7,277 --------- GROUP TOTAL 4,080,907 --------- - ----------------------------------------------------------------------------- TECHNOLOGY (3.1%) - ----------------------------------------------------------------------------- COMPUTER RELATED (1.6%) * Conner Peripherals, Inc. 1,000,000 10,625 * (1) Seagate Technology 5,530,800 176,294
5 6
Market Value Shares (000)+ - ----------------------------------------------------------------------------- ELECTRONICS (1.5%) Advanced Micro Devices, Inc. 2,710,400 $ 97,575 * (1) Western Digital Corp. 4,658,000 74,528 --------- GROUP TOTAL 359,022 --------- - ----------------------------------------------------------------------------- TRANSPORT & SERVICES (2.5%) - ----------------------------------------------------------------------------- AIRLINES (2.4%) * AMR Corp. 464,200 31,275 Delta Air Lines, Inc. 2,502,400 163,594 * (1) UAL Corp. 625,100 75,012 TRUCKING & SHIPPING (.1%) (1) Maritrans Inc. 954,000 6,082 Sea Containers Ltd. Class A 738,600 11,264 --------- GROUP TOTAL 287,227 --------- - ----------------------------------------------------------------------------- UTILITIES (2.6%) - ----------------------------------------------------------------------------- * (1) El Paso Electric Co. 2,271,900 3,124 Telefonica de Espana ADR 164,900 6,060 (1) Unicom Corp. 11,221,499 294,564 --------- GROUP TOTAL 303,748 --------- - ----------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $8,964,114) 10,198,326 - ----------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK - ----------------------------------------------------------------------------- Bethlehem Steel Corp. $5.00 (Cost $6,414) 123,900 6,257 - ----------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS (6.8%) - -----------------------------------------------------------------------------
Face Amount (000) -------- U.S. TREASURY BONDS (5.0%) 10.375%, 11/15/12 (first call 11/15/07) $240,000 298,949 12.00%, 8/15/13 (first call 8/15/08) 205,000 285,110 --------- GROUP TOTAL 584,059 --------- - ----------------------------------------------------------------------------- U.S. TREASURY NOTE (1.8%) 7.25%, 11/15/96 204,500 206,737 --------- - ----------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $778,630) 790,796 - ----------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (5.0%) - ----------------------------------------------------------------------------- COMMERCIAL PAPER (2.7%) Abbott Laboratories 5.95%, 5/22/95 10,000 9,965 Chevron Oil Finance Corp. 5.92%, 5/10/95 50,000 49,926 5.93%, 5/16/95 50,000 49,860
Face Market Amount Value (000) (000)+ - ----------------------------------------------------------------------------- Emerson Electric Co. 5.92%, 5/11/95 $ 50,000 $ 49,918 General Electric Capital Corp. 5.95%, 5/30/95 50,000 49,760 McDonald's Corp. 5.93%, 5/11/95 32,500 32,446 Prudential Funding Corp. 5.95%, 5/25/95 50,000 49,802 5.95%, 5/31/95 25,000 24,876 --------- GROUP TOTAL 316,553 --------- - ----------------------------------------------------------------------------- REPURCHASE AGREEMENT (2.3%) Collateralized by U.S. Government Obligations in a Pooled Cash Account 5.93%, 5/1/95 268,849 268,849 - ----------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $585,402) 585,402 - ----------------------------------------------------------------------------- TOTAL INVESTMENTS (98.9%) (Cost $10,334,560) 11,580,781 - ----------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (1.1%) - ----------------------------------------------------------------------------- Other Assets--Notes C and E 212,891 Liabilities--Note E (79,890) --------- 133,001 - ----------------------------------------------------------------------------- NET ASSETS (100%) - ----------------------------------------------------------------------------- Applicable to 826,507,358 outstanding $.01 par value shares (authorized 1,000,000,000 shares) $11,713,782 - ----------------------------------------------------------------------------- NET ASSET VALUE PER SHARE $14.17 =============================================================================
+ See Note A to Financial Statements. * Non-Income Producing Security. (1) Considered an affiliated company as the Fund owns more than 5% of the outstanding voting securities of such company. (2) Ten largest common stock investments representing 41.3% of net assets.
- ----------------------------------------------------------------------------- AT APRIL 30, 1995, NET ASSETS CONSISTED OF: - ----------------------------------------------------------------------------- Amount Per (000) Share ----------- ----- Paid in Capital $10,143,477 $12.27 Undistributed Net Investment Income 110,533 .13 Accumulated Net Realized Gains 213,551 .26 Unrealized Appreciation of Investments--Note D 1,246,221 1.51 - ----------------------------------------------------------------------------- NET ASSETS $11,713,782 $14.17 - -----------------------------------------------------------------------------
6 7 STATEMENT OF OPERATIONS
Six Months Ended April 30, 1995 (000) - -------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,324 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,187 - -------------------------------------------------------------------------------------------------------------------- Total Income . . . . . . . . . . . . . . . . . . . . . . . . 204,511 - -------------------------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fee--Note B Basic Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,804 Performance Adjustment . . . . . . . . . . . . . . . . . . . . . . 3,727 12,531 -------- The Vanguard Group--Note C Management and Administrative . . . . . . . . . . . . . . . . . . 10,046 Marketing and Distribution . . . . . . . . . . . . . . . . . . . . 862 10,908 -------- Taxes (other than income taxes) . . . . . . . . . . . . . . . . . . . 439 Custodian's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Auditing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Shareholders Reports . . . . . . . . . . . . . . . . . . . . . . . . 153 Annual Meeting and Proxy Costs . . . . . . . . . . . . . . . . . . . . 52 Directors Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 19 - -------------------------------------------------------------------------------------------------------------------- Total Expenses . . . . . . . . . . . . . . . . . . . . . . . 24,119 - -------------------------------------------------------------------------------------------------------------------- Net Investment Income . . . . . . . . . . . . . . . . . 180,392 - -------------------------------------------------------------------------------------------------------------------- REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,454 - -------------------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES . . . . . . . . . . . . . . . . . 255,298 - -------------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations. . . $647,144 ====================================================================================================================
7 8 STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED Year Ended APRIL 30, 1995 October 31, 1994 (000) (000) - -------------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . $ 180,392 $ 340,128 Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . 211,454 676,522 Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . . 255,298 (338,197) - -------------------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations . . . . . 647,144 678,453 - -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS (1) Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . (187,934) (274,533) Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . (673,431) (629,907) - -------------------------------------------------------------------------------------------------------------------------- Total Distributions . . . . . . . . . . . . . . . . . . . . . . (861,365) (904,440) - -------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (2) Issued --Regular . . . . . . . . . . . . . . . . . . . . . 514,616 1,036,121 --In Lieu of Cash Distributions . . . . . . . . . . 821,538 859,055 --Exchange . . . . . . . . . . . . . . . . . . . . 103,971 319,619 Redeemed --Regular . . . . . . . . . . . . . . . . . . . . . (706,536) (896,047) --Exchange . . . . . . . . . . . . . . . . . . . . (211,891) (223,720) - -------------------------------------------------------------------------------------------------------------------------- Net Increase from Capital Share Transactions . . . . . . . . . 521,698 1,095,028 - -------------------------------------------------------------------------------------------------------------------------- Total Increase . . . . . . . . . . . . . . . . . . . . . . . . 307,477 869,041 - -------------------------------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . 11,406,305 10,537,264 - -------------------------------------------------------------------------------------------------------------------------- End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . . $11,713,782 $11,406,305 ========================================================================================================================== (1) Distributions Per Share Net Investment Income . . . . . . . . . . . . . . . . . . . . $.24 $.37 Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . $.86 $.89 - -------------------------------------------------------------------------------------------------------------------------- (2) Shares Issued and Redeemed Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,313 95,222 Issued in Lieu of Cash Distributions . . . . . . . . . . . . . 65,566 62,430 Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . (69,108) (78,940) - -------------------------------------------------------------------------------------------------------------------------- 42,771 78,712 - -------------------------------------------------------------------------------------------------------------------------- (3) Undistributed Net Investment Income . . . . . . . . . . . . . $ 110,533 $ 118,075 - --------------------------------------------------------------------------------------------------------------------------
8 9 FINANCIAL HIGHLIGHTS
Year Ended October 31, SIX MONTHS ENDED ------------------------------------------------------- For a Share Outstanding Throughout Each Period APRIL 30, 1995 1994 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $14.55 $14.95 $12.37 $12.79 $ 9.72 $15.17 ------- ------- ------- ------- ------- ------- INVESTMENT OPERATIONS Net Investment Income . . . . . . . . . . . . . . . . .22 .44 .37 .49 .58 .74 Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . . . . .50 .42 2.98 .50 3.55 (4.59) ------- ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS . . . . . . . .72 .86 3.35 .99 4.13 (3.85) - -------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income . . . . . . . . (.24) (.37) (.39) (.57) (.74) (.75) Distributions from Realized Capital Gains . . . . . . (.86) (.89) (.38) (.84) (.32) (.85) ------- ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS . . . . . . . . . . . . . (1.10) (1.26) (.77) (1.41) (1.06) (1.60) - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $14.17 $14.55 $14.95 $12.37 $12.79 $9.72 ================================================================================================================================ TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . +5.94% +6.35% +28.29% +9.30% +44.69% -27.93% - -------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------ Net Assets, End of Period (Millions) . . . . . . . . . . $11,714 $11,406 $10,537 $8,250 $7,859 $5,841 Ratio of Expenses to Average Net Assets . . . . . . . . . .43%* .45% .40% .26% .30% .37% Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . . . . . 3.24%* 3.11% 2.68% 3.89% 4.84% 5.82% Portfolio Turnover Rate . . . . . . . . . . . . . . . . . 21%* 34% 25% 32% 36% 21% - -------------------------------------------------------------------------------------------------------------------------------- *Annualized.
9 10 NOTES TO FINANCIAL STATEMENTS Vanguard/Windsor Fund is a Portfolio of the Vanguard/Windsor Funds, which are comprised of two independent Portfolios, each of which 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 the close of the New York Stock Exchange (generally 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 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. 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 May 31, 1996, the Fund pays Wellington Management Company a basic advisory fee calculated at an annual percentage rate of average net assets. The basic fee thus computed is subject to quarterly adjustments based on performance relative to the Standard & Poor s 500 Stock Index. For the six months ended April 30, 1995, the investment advisory fee represented an effective annual rate of .16 of 1% of Fund average net assets before an increase of $3,727,000 (.07 of 1%) based on performance. 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 April 30, 1995, the Fund had contributed capital of $1,628,000 to Vanguard (included in Other Assets), representing 8.1% of Vanguard s capitalization. The Fund's directors and officers are also directors and officers of Vanguard. Vanguard has requested the Fund's investment adviser to direct certain portfolio trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate or credit to the Fund a portion of the commissions generated. Such rebates or credits are 10 11 used solely to reduce the Fund's administrative expenses. For the six months ended April 30, 1995, directed brokerage arrangements reduced the Fund s expenses by $831,000 (an annual rate of .02 of 1% of average net assets). D. During the six months ended April 30, 1995, the Fund made purchases of $1,107,968,000 and sales of $1,408,156,978 of investment securities other than U.S. Government securities and temporary cash investments. Purchases and sales of U.S. Government securities were $58,375,000 and $522,780,000, respectively. At April 30, 1995, unrealized appreciation for financial reporting and Federal income tax purposes aggregated $1,246,221,000, of which $1,696,850,000 related to appreciated securities and $450,629,000 related to depreciated securities. E. The market value of securities on loan to broker/dealers at April 30, 1995, was $5,769,000, for which the Fund had received cash collateral of $6,182,000. 11 12 THE VANGUARD FAMILY OF FUNDS FIXED INCOME FUNDS MONEY MARKET FUNDS Vanguard Admiral Funds U.S. Treasury Money Market Portfolio Vanguard Money Market Reserves TAX-EXEMPT MONEY MARKET FUNDS Vanguard Municipal Bond Fund Money Market Portfolio Vanguard State Tax-Free Funds Money Market Portfolios (CA, NJ, OH, PA) TAX-EXEMPT INCOME FUNDS Vanguard Municipal Bond Fund Vanguard State Tax-Free Funds Insured Longer-Term Portfolios (CA, FL, NJ, NY, OH, PA) INCOME FUNDS Vanguard Admiral Funds Vanguard Fixed Income Securities Fund Vanguard Preferred Stock Fund EQUITY AND BALANCED FUNDS GROWTH AND INCOME FUNDS Vanguard Convertible Securities Fund Vanguard Equity Income Fund Vanguard Quantitative Portfolios Vanguard/Trustees' Equity Fund U.S. Portfolio Vanguard/Windsor Fund Vanguard/Windsor II BALANCED FUNDS Vanguard Asset Allocation Fund Vanguard LifeStrategy Funds Income Portfolio Conservative Growth Portfolio Moderate Growth Portfolio Growth Portfolio Vanguard STAR Fund Vanguard/Wellesley Income Fund Vanguard/Wellington Fund GROWTH FUNDS Vanguard/Morgan Growth Fund Vanguard/PRIMECAP Fund Vanguard U.S. Growth Portfolio AGGRESSIVE GROWTH FUNDS Vanguard Explorer Fund Vanguard Specialized Portfolios INTERNATIONAL FUNDS Vanguard International Growth Portfolio Vanguard/Trustees' Equity Fund International Portfolio INDEX FUNDS Vanguard Index Trust Total Stock Market Portfolio 500 Portfolio Extended Market Portfolio Growth Portfolio Value Portfolio Small Capitalization Stock Portfolio Vanguard International Equity Index Fund European Portfolio Pacific Portfolio Emerging Markets Portfolio Vanguard Bond Index Fund Vanguard Tax-Managed Fund Vanguard Balanced Index Fund [THE VANGUARD GROUP LOGO] Vanguard Financial Center Valley Forge, Pennsylvania 19482 New Account Information: 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. Q732-4/95 [VANGUARD WINDSOR FUND LOGO] SEMI-ANNUAL REPORT APRIL 30, 1995 13 CHAIRMAN'S LETTER FELLOW SHAREHOLDER: During the first half of Windsor II's 1995 fiscal year, which ended on April 30, the stock market surged. In this period your Fund provided a good return, albeit one that fell slightly short of the market's return. The table below compares Windsor II's total return (capital change plus income) with that of the unmanaged Standard & Poor's 500 Composite Stock Price Index, the basic standard we use to measure our relative performance, and a good measure of the returns achieved by blue-chip corporations with very large market capitalizations.
- ------------------------------------------------------- Total Return ---------------- Six Months Ended April 30, 1995 - ------------------------------------------------------- Windsor II + 9.1% - ------------------------------------------------------- Standard & Poor's 500 Stock Index +10.5% - -------------------------------------------------------
The Fund's return is based on net asset values of $17.33 per share on October 31, 1994, and $17.98 on April 30, 1995, with the latter figure adjusted to take into account the reinvestment of a semi-annual dividend totaling $.35 per share from net investment income and a distribution of $.47 per share from net realized capital gains. Both payments were the result of our operations during 1994 and were made at the end of December. THE PERIOD IN REVIEW During the first three months of the semi-annual period, the stock market, on balance, went nowhere. It then sprung to life during the second quarter, engendering a solid gain for the full period, as reflected in the table above. As usual, there were many opinions as to the source of the market's strength. From my view, it resulted from a combination of: (1) the sharp decline in interest rates (the yield on the long-term U.S. Treasury bond fell from 8.1% to 7.3%, or 80 basis points); (2) the apparently diminishing threat of additional increases in short-term interest rates by the Federal Reserve Board; (3) a slight softening in U.S. economic growth, resulting in continued optimism about the outlook for inflation; (4) record-breaking corporate profits; and (5) a hint of speculative fever in the equity market. Whatever the case, the strong equity market resulted in a solid gain of +10.5% for the Standard & Poor's 500 Index. Windsor II's gain of +9.1%, a bit short of the gain in the Index, should be viewed in the context of the Fund's better-than-Index returns over the past three years. During the past six months, the Index has performed splendidly, as the market's gain was led by large blue-chip stocks. In fact, the Index outpaced fully 91% of the general equity mutual funds during the period, as the large blue-chip stocks it comprises achieved greatly superior returns relative to the smaller and often riskier stocks that find their way into the portfolios of many mutual funds. Our slight shortfall to the Index is explained largely by our modest exposure to the technology group (2% of the Fund's net assets versus a 10% Index weight). This sector continued to lead the market, with a gain of +22.7% versus +9.3% for the remaining stocks in the Index during the six-month period. Our policy bias toward stocks with higher yields basically limits our exposure to these low-yielding stocks. The remainder of our performance differential is explained by small shortfalls of individual stocks in several other industry groups. Relative to other equity mutual funds, our choice of industry sectors and individual stocks was superior, and proved sufficient to earn us a nice margin of +2.6 percentage points of excess return. The average equity fund turned in a gain of +6.5% for the period. I hardly need remind you that, for better (relative to our peers) or for worse (relative to the Index), six months is a grossly inadequate period in which to evaluate the returns of any mutual fund. Windsor II will complete its first decade of operations on June 24, 1995, and we are perfectly prepared to have you base your judgment on our lifetime record. (continued) 1 14 Our motto is "stay the course." The Fund follows that maxim, with our traditional emphasis on equities that our portfolio managers believe represent fundamental values. Shareholders, too, should follow that maxim, accepting both market risk and the risk that a strategy based on fundamental value rather than growth may from time to time fail to fully measure up. I look forward to reporting to you in our Annual Report six months hence. Sincerely, /s/ JOHN C. BOGLE - ------------------------ John C. Bogle Chairman of the Board May 15, 1995 Note: Mutual fund data from Lipper Analytical Services, Inc. AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND (PERIODS ENDED MARCH 31, 1995) ARE AS FOLLOWS:
SINCE INCEPTION ------------------------------- INCEPTION TOTAL CAPITAL INCOME DATE 1 YEAR 5 YEARS RETURN RETURN RETURN --------- ------ ------- ------ ------- ------ VANGUARD/WINDSOR II 6/24/85 +13.65% +10.86% +13.24% +8.90% +4.34%
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. 2 15 REPORT FROM BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. The first half of fiscal year 1995 was favorable in the absolute for Windsor II, but relative to the S&P 500 Index we lagged, as did most value funds. Technology and consumer staples were market leading sectors, but we were underweighted in these areas since many such stocks do not have the characteristics we seek in our portfolio holdings. The underperformance of the energy sector for the first four months of the period did not help. We see things changing so that our Fund should catch up in the second half of the fiscal year. MARKET PERSPECTIVE It is said that bull markets climb a wall of worry . . . this is the wall! Indeed, 1995 began with most "market pundits" bearish. For more than a year, the Federal Reserve had been restrictive. Interest rates were high and yet had no effect on a too-strong economy. The goal of the Fed was a "soft landing," something which seldom, if ever, has been engineered by any central bank. Could inflationary pressures be released without the usual pain of a credit and economic cycle? Add to this concern the growing crisis in Mexico, with a currency depressed 40% and an untested political leadership. To the north, Canada's currency has been under pressure because of fears of a separatist movement. The U.S. dollar seemed fairly valued when, due to a basic oversupply and serious economic problems in Japan, it fell as if it were a third world currency. In this environment, the U.S. equity market has achieved new heights! Even though none of the concerns of the past six months are any closer to resolution, many of those same market pundits are now bullish. As interest rates have fallen and the economy has slowed, earnings have been above expectations, and price--earnings multiples are low. The equity market has gone through several rotations: from cyclicals to non-cyclicals, out of and into financials, into and out of oils. All of this movement has made it difficult to best the averages. Funds which had significant cash reserves have been penalized because of the magnitude of the market's advance. As the year goes on, we may well see how this new monetary management affects inflation and economics. We will see whether the new low value of the dollar will slow the trade deficit with Japan, and we will see how stock returns fare in the second half of the fiscal year. PORTFOLIO COMMENTS The Fund has cash reserves only slightly above what is deemed necessary for liquidity. We have a balanced exposure with some special emphasis on bank, insurance, petroleum, retail, and drug stocks. The utility area is relatively light, as we are concerned about prices holding up as deregulation occurs. As the economy slows, we believe the earnings momentum in low P/E stocks will allow these issues to perform well when the equity market slows down. Respectfully, Barrow, Hanley, Mewhinney & Strauss, Inc. May 16, 1995 3 16 TOTAL INVESTMENT RETURN TABLE The following table illustrates the results of a single-share investment in VANGUARD/WINDSOR II since inception through April 30, 1995. During the period illustrated, stock prices fluctuated widely; these results should not be considered a representation of the dividend income or capital gain or loss that may be realized from an investment made in the Fund today.
- -------------------------------------------------------------------------------------------------------------------------- PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN* - -------------------------------------------------------------------------------------------------------------------------- Windsor II Value with Income ------------------------------- S&P 500 Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Index Total December 31 Value Distributions Dividends Gains Reinvested Return Return Return Return - -------------------------------------------------------------------------------------------------------------------------- INITIAL (6/85) $10.00 -- -- $10.00 -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- 1985 10.99 -- $.11 11.11 + 9.9% +1.2% +11.1% +14.1% - -------------------------------------------------------------------------------------------------------------------------- 1986 12.39 $.52 .43 13.49 +17.4 +4.0 +21.4 +18.6 - -------------------------------------------------------------------------------------------------------------------------- 1987 10.75 .80 .61 13.20 - 6.8 +4.7 -2.1 + 5.2 - -------------------------------------------------------------------------------------------------------------------------- 1988 12.81 -- .57 16.47 +19.2 +5.5 +24.7 +16.5 - -------------------------------------------------------------------------------------------------------------------------- 1989 14.96 .61 .74 21.05 +21.7 +6.1 +27.8 +31.6 - -------------------------------------------------------------------------------------------------------------------------- 1990 12.46 .28 .73 18.95 -14.8 +4.8 -10.0 - 3.1 - -------------------------------------------------------------------------------------------------------------------------- 1991 14.89 .44 .61 24.38 +23.4 +5.3 +28.7 +30.4 - -------------------------------------------------------------------------------------------------------------------------- 1992 15.91 .22 .52 27.31 + 8.3 +3.7 +12.0 + 7.6 - -------------------------------------------------------------------------------------------------------------------------- 1993 17.04 .50 .51 31.02 +10.3 +3.3 +13.6 +10.1 - -------------------------------------------------------------------------------------------------------------------------- 1994 15.82 .47 .55 30.66 - 4.4 +3.2 - 1.2 + 1.3 - -------------------------------------------------------------------------------------------------------------------------- 1995 (4/30) 17.98 -- -- 34.85 +13.7 0.0 +13.7 +13.0 - -------------------------------------------------------------------------------------------------------------------------- LIFETIME +248.5% +273.5% - -------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL RATE OF RETURN +13.5% +14.3% - --------------------------------------------------------------------------------------------------------------------------
* Includes reinvestment of income dividends and any capital gains distributions both for the Fund and the Index. Note: No adjustment has been made for income taxes payable by shareholders on reinvested income dividends and capital gains distributions. 4 17 FINANCIAL STATEMENTS (unaudited) April 30, 1995 STATEMENT OF NET ASSETS
Market Value Shares (000)+ - ----------------------------------------------------------------------- COMMON STOCKS (91.6%) - ----------------------------------------------------------------------- BASIC MATERIALS (4.4%) Bowater, Inc. 55,900 $ 2,138 Champion International Corp. 47,100 2,072 Cyprus Amax 111,100 3,097 * Cytec Industries, Inc. 10,714 390 Dow Chemical Co. 546,300 37,968 E.I. du Pont de Nemours & Co. 151,500 9,980 Eastman Chemical 2,811,500 159,552 * FMC Corp. 53,400 3,277 Georgia Gulf Corp. 80,600 2,630 Georgia-Pacific Corp. 27,600 2,191 The BF Goodrich Co. 757,200 35,304 W.R. Grace & Co. 870,000 46,654 M.A. Hanna Co. 43,300 1,077 International Paper Co. 456,300 35,135 * LTV Corp. 167,500 2,387 * Magma Copper Co. Class B 155,800 2,610 Phelps Dodge Corp. 53,900 3,052 Union Carbide Corp. 37,900 1,213 Weyerhaeuser Co. 70,200 2,948 Witco Chemical Corp. 1,523,100 43,599 ----------- GROUP TOTAL 397,274 ----------- - ----------------------------------------------------------------------- CAPITAL GOODS & CONSTRUCTION (5.6%) Cooper Industries, Inc. 64,700 2,523 Deere & Co. 53,600 4,395 GATX Corp. 37,400 1,683 General Electric Co. 1,187,600 66,506 Honeywell, Inc. 2,338,100 90,309 Johnson Controls, Inc. 36,200 1,964 Lockheed Martin Corp. 24,300 1,403 McDonnell Douglas Corp. 78,900 4,892 Parker Hannifin Corp. 58,800 3,058 Raytheon Co. 2,552,900 185,723 The Timkin Co. 28,400 1,147 Tyco International Ltd. 50,000 2,625 Westinghouse Electric Corp. 8,824,400 132,366 ----------- GROUP TOTAL 498,594 ----------- - ----------------------------------------------------------------------- CONSUMER CYCLICAL (14.6%) Brunswick Corp. 3,839,200 82,063 CBS, Inc. 544,595 34,922 Capital Cities/ABC, Inc. 1,063,400 89,857 Chrysler Corp. 31,000 1,337 Dayton-Hudson Corp. 57,200 3,840 Dow Jones & Co., Inc. 164,800 5,768 The Dun & Bradstreet Corp. 553,800 28,867 Eastman Kodak Co. 3,073,600 176,732 Fleetwood Enterprises, Inc. 12,300 283 Ford Motor Co. 7,204,600 194,524 Gannett Co., Inc. 1,329,300 69,954 General Motors Corp. 1,892,800 85,413 Kmart Corp. 9,891,600 137,246 May Department Stores Co. 329,700 11,952 * Maytag Corp. 178,200 3,074 National Service Industries, Inc. 95,900 2,709 J.C. Penney Co., Inc. 3,294,700 144,143 (1)Sears, Roebuck & Co. 4,222,500 229,071 Whirlpool Corp. 22,600 1,237 ----------- GROUP TOTAL 1,302,992 ----------- - ----------------------------------------------------------------------- CONSUMER STAPLES (10.1%) American Brands, Inc. 26,700 1,081 American Stores Co. 200,800 5,145 (1)Anheuser-Busch Co., Inc. 5,496,500 319,484 Archer-Daniels-Midland Co. 245,900 4,488 Ball Corp. 100,800 3,452 Brown-Forman Corp. Class B 49,200 1,624 H.J. Heinz Co. 1,706,500 71,673 Hormel Foods Corp. 45,500 1,246 IBP, Inc. 42,200 1,561 Kellogg Co. 364,700 23,158 PepsiCo, Inc. 2,905,200 120,929 (1)Philip Morris Cos., Inc. 3,018,000 204,470 RJR Nabisco Holdings Corp. 4,697,820 128,603 Riverwood International Corp. 4,600 106 Sara Lee Corp. 514,700 14,347 ----------- GROUP TOTAL 901,367 ----------- - ----------------------------------------------------------------------- ENERGY (16.2%) Amoco Corp. 3,033,600 199,080 Ashland Inc. 79,600 2,945 Atlantic Richfield Co. 78,600 9,000 Baker Hughes, Inc. 10,700 241 Chevron Corp. 650,000 30,794 Coastal Corp. 64,100 1,907 (1)Exxon Corp. 3,041,500 211,764 Halliburton Co. 3,177,400 121,933 Kerr-McGee Corp. 75,000 3,891 Mobil Corp. 596,700 56,612 Occidental Petroleum Corp. 269,000 6,187 Panhandle Eastern Corp. 5,681,118 136,347 Phillips Petroleum Co. 5,313,400 185,969 Royal Dutch Petroleum Co. ADR 275,400 34,149 Schlumberger Ltd. 2,966,900 186,544 Texaco, Inc. 2,678,000 183,108 USX-Marathon Group 4,408,900 82,667 ----------- GROUP TOTAL 1,453,138 ----------- - ----------------------------------------------------------------------- FINANCIAL (21.5%) AT&T Capital Corp. 32,500 869 (1)Aetna Life & Casualty Co. 3,528,900 201,147 American Express Co. 5,444,608 189,200
5 18 STATEMENT OF NET ASSETS (CONTINUED)
Market Value Shares (000)+ - ----------------------------------------------------------------------- American General Corp. 66,100 $ 2,181 American International Group, Inc. 670,750 71,603 Aon Corp. 156,550 5,773 Bank of Boston Corp. 215,200 7,209 The Bank of New York Co., Inc. 140,200 4,609 BankAmerica Corp. 3,914,183 193,752 Bankers Trust New York Corp. 510,500 27,695 BayBanks, Inc. 19,400 1,208 (1)The Chase Manhattan Corp. 5,378,911 235,327 (1)Chemical Banking Corp. 5,297,716 221,180 The Chubb Corp. 43,300 3,464 CIGNA Corp. 17,800 1,293 * Citicorp 184,100 8,538 CoreStates Financial Corp. 56,685 1,849 Dean Witter Discover & Co. 65,900 2,793 A.G. Edwards & Sons, Inc. 64,400 1,473 Equity Residential Properties Trust 34,800 931 Exel Ltd. 2,001,100 91,050 Federal National Mortgage Assn. 1,081,900 95,478 First Bank System, Inc. 57,600 2,333 First Chicago Corp. 3,501,789 193,474 First Commerce Corp. 4,200 114 First Tennessee National Corp. 90,300 3,793 First Union Corp. 230,300 10,421 Fleet Financial Group, Inc. 156,300 5,119 GEICO Corp. 1,253,900 63,165 Health and Retirement Properties Trust 72,900 1,093 Hibernia Corp. Class A 220,400 1,763 Household International, Inc. 31,700 1,486 Jefferson-Pilot Corp. 34,800 1,975 Kimco Realty Corp. 28,100 1,061 Leucadia National Corp. 18,800 841 Meditrust 34,000 1,037 Merrill Lynch & Co., Inc. 16,000 728 Midlantic Corp. 88,000 3,201 J.P. Morgan & Co., Inc. 300,000 19,688 Morgan Stanley Group, Inc. 19,100 1,327 NationsBank, Inc. 104,200 5,210 New Plan Realty Trust 52,000 1,079 Old Republic International Corp. 34,200 881 PaineWebber Group, Inc. 496,950 8,510 St. Paul Cos., Inc. 61,300 2,950 Star Banc Corp. 29,000 1,211 Student Loan Marketing Assn. 3,700 150 Transamerica Corp. 29,900 1,693 (1)Travelers Group Inc. 5,136,637 212,528 USF&G Corp. 194,200 2,864 Union Bank of San Francisco 23,100 895 ----------- GROUP TOTAL 1,919,212 ----------- - ----------------------------------------------------------------------- HEALTH CARE (8.7%) Allergan, Inc. 2,287,450 $ 62,047 (1)American Home Products Corp. 2,779,700 214,384 Becton, Dickinson & Co. 67,300 3,752 (1)Bristol-Myers Squibb Co. 3,727,300 242,741 Johnson & Johnson 556,800 36,192 Eli Lilly & Co. 2,428,200 181,508 Warner-Lambert Co. 413,000 32,937 ----------- GROUP TOTAL 773,561 ----------- - ----------------------------------------------------------------------- TECHNOLOGY (2.3%) Advanced Micro Devices, Inc. 23,000 828 Apple Computer, Inc. 27,600 1,052 Harris Corp. 67,000 3,149 Intel Corp. 391,200 40,049 International Business Machines Corp. 196,400 18,609 * Seagate Technology 179,000 5,706 Tektronix, Inc. 27,500 1,251 Xerox Corp. 1,129,007 139,009 ----------- GROUP TOTAL 209,653 ----------- - ----------------------------------------------------------------------- TRANSPORT & SERVICES (.5%) * AMR Corp. 48,600 3,274 Burlington Northern, Inc. 20,800 1,238 CSX Corp. 428,600 34,127 Delta Air Lines, Inc. 12,500 817 Norfolk Southern Corp. 21,900 1,476 * Northwest Airlines Corp. Class A 144,100 4,287 Ryder System, Inc. 51,600 1,206 Union Pacific Corp. 32,200 1,767 ----------- GROUP TOTAL 48,192 ----------- - ----------------------------------------------------------------------- UTILITIES (7.2%) American Water Works Co., Inc. 49,700 1,435 Ameritech Corp. 169,100 7,610 Bell Atlantic Corp. 56,400 3,095 CMS Energy Corp. 133,200 3,113 Centerior Energy Corp. 132,900 1,179 Cincinnati Bell, Inc. 58,900 1,414 CINergy Corp. 65,700 1,651 * Columbia Gas Systems, Inc. 108,800 3,210 Consolidated Edison Co. of New York, Inc. 73,900 2,051 Detroit Edison Co. 59,400 1,678 Entergy Corp. 6,847,400 148,931 FPL Group, Inc. 10,500 386 Frontier Corp. 193,000 3,884 General Public Utilities Corp. 873,300 24,889 Hawaiian Electric Industries Inc. 28,200 976 Long Island Lighting Co. 81,700 1,215 MCI Communications Corp. 1,410,000 30,491
6 19
Market Value Shares (000)+ - ----------------------------------------------------------------------- MCN Corp. 142,100 $ 2,735 Midwest Resources Inc. 92,200 1,314 Montana Power Co. 26,500 613 New York State Electric & Gas Corp. 63,500 1,389 Niagara Mohawk Power Corp. 92,400 1,282 Northeast Utilities 49,500 1,083 Northern States Power Co. of Minnesota 32,400 1,434 NYNEX Corp. 44,300 1,811 Ohio Edison Co. 2,621,800 52,764 Oklahoma Gas & Electric Co. 131,700 4,527 Pacific Gas & Electric Co. 54,600 1,467 Pacific Telesis Group 5,645,000 174,289 Portland General Electric Co. 161,600 3,353 Potomac Electric Power Co. 54,300 1,059 Public Service Enterprise Group Inc. 76,500 2,104 Southern New England Telecom Corp. 133,400 4,419 SBC Communications, Inc. 165,000 7,281 Unicom Corp. 4,162,300 109,260 U.S. West Corp. 874,000 36,162 Utilicorp United, Inc. 32,900 921 ----------- GROUP TOTAL 646,475 ----------- - ----------------------------------------------------------------------- MISCELLANEOUS (.5%) Loews Corp. 26,500 2,700 Ogden Corp. 116,300 2,369 Tenneco, Inc. 774,000 35,507 Textron, Inc. 66,400 3,785 ----------- GROUP TOTAL 44,361 ----------- - ----------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $6,785,282 ) 8,194,819 - ----------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK (.1%) - ----------------------------------------------------------------------- RJR Nabisco Holdings Corp. Class C $.6012 (Cost $11,376) 1,770,700 10,403 ----------- - -----------------------------------------------------------------------
Market Value Shares (000)+ - ----------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (7.4%) - ----------------------------------------------------------------------- U.S. TREASURY BILL--Note E 5.77%, 6/22/95 $ 600 $ 595 REPURCHASE AGREEMENT Collateralized by U.S. Government Obligations in a Pooled Cash Account 5.93%, 5/1/95 662,172 662,172 - ----------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $662,767) 662,767 - ----------------------------------------------------------------------- TOTAL INVESTMENTS (99.1%) (Cost $7,459,425) 8,867,989 - ----------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (.9%) Other Assets--Notes C and F 103,613 Liabilities--Note F (28,015) ---------- 75,598 - ----------------------------------------------------------------------- NET ASSETS (100%) - ----------------------------------------------------------------------- Applicable to 497,465,399 outstanding $.01 par value shares (authorized 600,000,000 shares) $8,943,587 - ----------------------------------------------------------------------- NET ASSET VALUE PER SHARE $17.98 =======================================================================
+ See Note A to Financial Statements. * Non-Income Producing Security. (1) Ten largest common stock investments representing 25.6% of net assets.
- ----------------------------------------------------------------------- AT APRIL 30, 1995, NET ASSETS CONSISTED OF: - ----------------------------------------------------------------------- Amount Per (000) Share ---------- -------- Paid in Capital $7,415,095 $14.91 Undistributed Net Investment Income 84,763 .17 Accumulated Net Realized Gains 35,043 .07 Unrealized Appreciation of Investments--Note E 1,408,686 2.83 - ----------------------------------------------------------------------- NET ASSETS $8,943,587 $17.98 - -----------------------------------------------------------------------
7 20 STATEMENT OF OPERATIONS
Six Months Ended April 30, 1995 (000) - ---------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,141 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,677 - ---------------------------------------------------------------------------------------------------- Total Income . . . . . . . . . . . . . . . . . . . . . . 157,818 - ---------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees--Note B Basic Fees . . . . . . . . . . . . . . . . . . . . . . . . . . $5,764 Performance Adjustments . . . . . . . . . . . . . . . . . . . (77) 5,687 ------ The Vanguard Group--Note C Management and Administrative . . . . . . . . . . . . . . . . 10,501 Marketing and Distribution . . . . . . . . . . . . . . . . . . 762 11,263 ------ Taxes (other than income taxes) . . . . . . . . . . . . . . . . . 343 Custodian's Fees . . . . . . . . . . . . . . . . . . . . . . . . 33 Auditing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Shareholders' Reports . . . . . . . . . . . . . . . . . . . . . . 172 Annual Meeting and Proxy Costs . . . . . . . . . . . . . . . . . 30 Directors' Fees and Expenses . . . . . . . . . . . . . . . . . . 15 - ---------------------------------------------------------------------------------------------------- Total Expenses . . . . . . . . . . . . . . . . . . . . . 17,549 - ---------------------------------------------------------------------------------------------------- Net Investment Income . . . . . . . . . . . . . . . . 140,269 - ---------------------------------------------------------------------------------------------------- REALIZED NET GAIN Investment Securities Sold . . . . . . . . . . . . . . . . . . . 37,001 Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . 284 - ---------------------------------------------------------------------------------------------------- Realized Net Gain . . . . . . . . . . . . . . . . . . 37,285 - ---------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities . . . . . . . . . . . . . . . . . . . . . . 570,889 Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . (233) - ---------------------------------------------------------------------------------------------------- Change in Unrealized Appreciation (Depreciation) . . 570,656 - ---------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations . . . . . . . . . . . . . $748,210 ====================================================================================================
8 21 STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED Year Ended APRIL 30, 1995 October 31, 1994 (000) (000) - ------------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net Investment Income . . . . . . . . . . . . . . . . . . . . . . $ 140,269 $ 256,027 Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . 37,285 226,060 Change in Unrealized Appreciation (Depreciation) . . . . . . . . . 570,656 (296,749) - ------------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations . . 748,210 185,338 - ------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS (1) Net Investment Income . . . . . . . . . . . . . . . . . . . . . . (168,091) (225,292) Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . (225,723) (212,053) - ------------------------------------------------------------------------------------------------------------------- Total Distributions . . . . . . . . . . . . . . . . . . . (393,814) (437,345) - ------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (2) Issued --Regular . . . . . . . . . . . . . . . . . . . . . . . 452,770 1,268,276 --In Lieu of Cash Distributions . . . . . . . . . . . . 381,264 423,624 --Exchange . . . . . . . . . . . . . . . . . . . . . . 239,753 620,011 Redeemed --Regular . . . . . . . . . . . . . . . . . . . . . . . (345,408) (604,566) --Exchange . . . . . . . . . . . . . . . . . . . . . . (385,337) (694,803) - ------------------------------------------------------------------------------------------------------------------- Net Increase from Capital Share Transactions . . . . . . 343,042 1,012,542 - ------------------------------------------------------------------------------------------------------------------- Total Increase . . . . . . . . . . . . . . . . . . . . . 697,438 760,535 - ------------------------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . 8,246,149 7,485,614 - ------------------------------------------------------------------------------------------------------------------- End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . $8,943,587 $8,246,149 =================================================================================================================== (1) Distributions Per Share Net Investment Income . . . . . . . . . . . . . . . . . . . $.35 $.51 Realized Net Gain . . . . . . . . . . . . . . . . . . . . . $.47 $.50 - ------------------------------------------------------------------------------------------------------------------- (2) Shares Issued and Redeemed Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,198 110,672 Issued in Lieu of Cash Distributions . . . . . . . . . . . . 24,192 25,156 Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (43,645) (76,350) - ------------------------------------------------------------------------------------------------------------------- 21,745 59,478 - ------------------------------------------------------------------------------------------------------------------- (3) Undistributed Net Investment Income. . . . . . . . . . . . . $ 84,763 $ 112,585 - -------------------------------------------------------------------------------------------------------------------
9 22 FINANCIAL HIGHLIGHTS
Year Ended October 31, SIX MONTHS ENDED ------------------------------------------------------- For a Share Outstanding Throughout Each Period APRIL 30, 1995 1994 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD . . . . . $17.33 $17.98 $15.75 $15.07 $11.91 $15.81 -------- -------- -------- -------- -------- --------- INVESTMENT OPERATIONS Net Investment Income . . . . . . . . . . . .28 .55 .50 .56 .62 .67 Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . 1.19 (.19) 2.47 1.17 3.55 (3.22) TOTAL FROM INVESTMENT OPERATIONS . . 1.47 .36 2.97 1.73 4.17 (2.55) - -------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income . . . . (.35) (.51) (.52) (.61) (.73) (.74) Distributions from Realized Capital Gains . (.47) (.50) (.22) (.44) (.28) (.61) TOTAL DISTRIBUTIONS . . . . . . . . . (.82) (1.01) (.74) (1.05) (1.01) (1.35) - -------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD . . . . . . . . $17.98 $17.33 $17.98 $15.75 $15.07 $11.91 ========================================================================================================================== TOTAL RETURN . . . . . . . . . . . . . . . . . +9.15% +2.22% +19.51% +12.50% +36.61% -17.48% - -------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------ Net Assets, End of Period (Millions) . . . . . $8,944 $8,246 $7,486 $4,878 $3,298 $2,087 Ratio of Expenses to Average Net Assets . . . . .42%* .39% .39% .41% .48% .52% Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . 3.36%* 3.26% 3.11% 3.72% 4.51% 4.93% Portfolio Turnover Rate . . . . . . . . . . . . 25%* 24% 26% 23% 41% 20% - --------------------------------------------------------------------------------------------------------------------------
*Annualized. NOTES TO FINANCIAL STATEMENTS Vanguard/Windsor II is a Portfolio of the Vanguard/Windsor Funds, which are comprised of two independent Portfolios, each of which is registered under the Investment Company Act of 1940 as a diversified open-end investment company. A. The following significant accounting policies are in conformity with generally accepted accounting principles for investment companies. Such policies are consistently followed by the Fund in the preparation of financial statements. 1. SECURITY VALUATION: Securities listed on an exchange are valued at the latest quoted sales prices as of the close of the New York Stock Exchange (generally 4:00 PM) on the valuation date; securities not traded are valued at the mean of the latest quoted bid and asked prices. Securities not listed are valued at the latest quoted bid prices. Temporary cash investments 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. REPURCHASE AGREEMENTS: The Fund, along with other members of The Vanguard Group of Investment Companies, transfers uninvested cash balances into a Pooled Cash Account, the daily aggregate of which is invested in repurchase agreements secured by U.S. Government obligations. Securities pledged as collateral for repurchase agreements are held by the Fund's custodian bank until maturity of each repurchase agreement. Provisions of each agreement ensure that the market value of 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. 10 23 4. FUTURES: The Fund utilizes Standard & Poor's 500 Index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, maintaining liquidity and minimizing transaction costs. The Fund may purchase futures contracts to immediately position incoming cash in the market, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. In the event of redemptions, the Fund may pay departing shareholders from its cash balance and reduce its futures position accordingly. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market value of stocks held by the Fund and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. Fluctuations in the values of futures contracts are recorded as unrealized appreciation (depreciation) until terminated, at which time realized gains (losses) are recognized. Unrealized appreciation (depreciation) related to open futures contracts is required to be treated as realized gain (loss) for Federal income tax purposes. 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 sales of investment securities are those of specific securities sold. Dividend income and distributions to shareholders are recorded on the ex-dividend date. B. Under the terms of investment advisory contracts, the Fund pays Barrow, Hanley, Mewhinney & Strauss, Inc., Equinox Capital Management, Inc., and Tukman Capital Management, Inc. investment advisory fees calculated at an annual percentage rate of average net assets of the Fund. The basic fees thus computed for Barrow, Hanley, Mewhinney & Strauss, Inc. are subject to quarterly adjustments based on performance relative to the Standard & Poor's/BARRA Value Index; such fees for Equinox Capital Management, Inc. and Tukman Capital Management, Inc. are subject to quarterly adjustments based on performance relative to the Standard & Poor's 500 Stock Index. For the period ended April 30, 1995, the aggregate investment advisory fee represented an effective annual rate of .14 of 1% of average net assets before a decrease of $77,000 based on performance. The Vanguard Group, Inc. provides investment advisory services to a portion of the Fund on an at-cost basis. 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 April 30, 1995, the Fund had contributed capital of $1,245,000 to Vanguard (included in Other Assets), representing 6.2% of Vanguard's capitalization. The Fund's directors and officers are also directors and officers of Vanguard. Vanguard has requested the Fund's investment advisers to direct certain portfolio trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate or credit to the Fund a portion of the commissions generated. Such rebates or credits are used solely to reduce the Fund's administrative expenses. For the six months ended April 30, 1995, directed brokerage arrangements reduced the Fund's expenses by $314,000 (an annual rate of .01 of 1% of average net assets). D. During the six months ended April 30, 1995, the Fund made purchases of $954,051,000 and sales of $1,025,171,000 of investment securities other than U.S. Government securities and temporary cash investments. E. At April 30, 1995, unrealized appreciation of investment securities for financial reporting and Federal income tax purposes aggregated $1,408,564,000 of which $1,540,720,000 related to appreciated securities and $132,156,000 related to depreciated securities. At April 30, 1995, the aggregate settlement value of open Standard & Poor's 500 index futures contracts expiring in June 1995, the related unrealized appreciation, and the market value of securities deposited as initial margin for those contracts were $4,651,000, $122,000, and $595,000, respectively. F. The market value of securities on loan to broker/dealers at April 30, 1995, was $6,432,000 for which the Fund had received cash collateral of $6,637,000. 11 24 THE VANGUARD FAMILY OF FUNDS FIXED INCOME FUNDS MONEY MARKET FUNDS Vanguard Admiral Funds U.S. Treasury Money Market Portfolio Vanguard Money Market Reserves TAX-EXEMPT MONEY MARKET FUNDS Vanguard Municipal Bond Fund Money Market Portfolio Vanguard State Tax-Free Funds Money Market Portfolios (CA, NJ, OH, PA) TAX-EXEMPT INCOME FUNDS Vanguard Municipal Bond Fund Vanguard State Tax-Free Funds Insured Longer-Term Portfolios (CA, FL, NJ, NY, OH, PA) INCOME FUNDS Vanguard Admiral Funds Vanguard Fixed Income Securities Fund Vanguard Preferred Stock Fund EQUITY AND BALANCED FUNDS GROWTH AND INCOME FUNDS Vanguard Convertible Securities Fund Vanguard Equity Income Fund Vanguard Quantitative Portfolios Vanguard/Trustees' Equity Fund U.S. Portfolio Vanguard/Windsor Fund Vanguard/Windsor II BALANCED FUNDS Vanguard Asset Allocation Fund Vanguard LifeStrategy Funds Income Portfolio Conservative Growth Portfolio Moderate Growth Portfolio Growth Portfolio Vanguard STAR Fund Vanguard/Wellesley Income Fund Vanguard/Wellington Fund GROWTH FUNDS Vanguard/Morgan Growth Fund Vanguard/PRIMECAP Fund Vanguard U.S. Growth Portfolio AGGRESSIVE GROWTH FUNDS Vanguard Explorer Fund Vanguard Specialized Portfolios INTERNATIONAL FUNDS Vanguard International Growth Portfolio Vanguard/Trustees' Equity Fund International Portfolio INDEX FUNDS Vanguard Index Trust Total Stock Market Portfolio 500 Portfolio Extended Market Portfolio Growth Portfolio Value Portfolio Small Capitalization Stock Portfolio Vanguard International Equity Index Fund European Portfolio Pacific Portfolio Emerging Markets Portfolio Vanguard Bond Index Fund Vanguard Tax-Managed Fund Vanguard Balanced Index Fund [THE VANGUARD GROUP LOGO] Vanguard Financial Center Valley Forge, Pennsylvania 19482 New Account Information: 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. Q732-4/95 [VANGUARD WINDSOR II FUND LOGO] SEMI-ANNUAL REPORT APRIL 30, 1995 -----END PRIVACY-ENHANCED MESSAGE-----