-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ORd1w5CCa5WlBh/3ofArRnH6teVYPzTyrrBhL1lUebQGOZMz+wM46rwdvyHYkz+l nYFWuRfO//2AHF/BA3ZmQQ== 0000893220-96-001449.txt : 19960820 0000893220-96-001449.hdr.sgml : 19960820 ACCESSION NUMBER: 0000893220-96-001449 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960819 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD/PRIMECAP FUND INC CENTRAL INDEX KEY: 0000752177 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 232311358 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04098 FILM NUMBER: 96617572 BUSINESS ADDRESS: STREET 1: PO BOX 2600 VM #V34 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106696289 FORMER COMPANY: FORMER CONFORMED NAME: PRIMECAP FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 VANGUARD PRIMECAP FUND SEMI ANNUAL REPORT 1 A MESSAGE TO SHAREHOLDERS FELLOW SHAREHOLDER: Building on the generous return we earned in 1995, Vanguard/PRIMECAP Fund continued to provide a positive return as the bull market in stocks marched on during the first half of 1996. The Fund turned in a solid half-year return of +8.6%, albeit below the results of its two primary benchmarks. The table that follows compares the total return (capital change plus reinvested dividends) of PRIMECAP Fund during the semi-annual period with those of the two benchmarks we use to gauge our performance: the unmanaged Standard & Poor's 500 Composite Stock Price Index and the average growth mutual fund. During this brief period, we lagged by a modest margin the results of these tough competitive standards.
- ------------------------------------------------------ TOTAL RETURN ----------------- SIX MONTHS ENDED JUNE 30, 1996 - ------------------------------------------------------ PRIMECAP FUND + 8.6% - ------------------------------------------------------ AVERAGE GROWTH MUTUAL FUND +10.1% STANDARD & POOR'S 500 INDEX +10.1 - ------------------------------------------------------
The Fund's total return is based on net asset values of $26.23 per share on December 31, 1995, and $28.35 on June 30, 1996, adjusted to take into account the reinvestment of a carry-over distribution of $.13 per share from net capital gains realized during 1995 and paid in March 1996. THE PERIOD IN REVIEW The U.S. stock market continued to surge upward during the first half of 1996, albeit below the near-record pace that prevailed in 1995. Even so, the advance was impressive, occurring as it did in the face of a sharp rise in long-term interest rates. While the stock market, as measured by the Standard & Poor's 500 Composite Stock Price Index, chalked up a +10.1% return from January through June, the bond market slumped. Short-term interest rates rose only modestly, with the rate on 90-day Treasury bills rising from 5.0% to 5.2% during the first half of the year. The rate increase was steeper for long-term bonds, with the yield on the benchmark long-term U.S. Treasury bond rising from 6.0% at the beginning of the year to 7.0% at the end of June. The price of the 30-year Treasury bond fell -12% during the period. The Lehman Aggregate Bond Index, a benchmark for the overall bond market, provided a negative total return of - -1.2% in the half year, earning income of +3.3% combined with a price decline of -4.5%. The primary reason for the divergence in the returns of stocks and bonds appears to be differing responses by equity and bond investors to the surprising strength of the U.S. economy. Faster-than-expected economic growth during the first half of 1996 led stock investors to anticipate accelerated growth in corporate earnings, even as bond investors worried about higher inflation. It remains to be seen whether the bull market in stocks can continue in the face of higher interest rates, which may provide heightened competition for investors' dollars at a time when common stocks offer historically low dividend yields. In this generous environment for common stocks, the +8.6% return of PRIMECAP Fund fell one and one-half percentage points behind the +10.1% return of the Standard & Poor's 500 Index. The Fund maintained a very substantial overweighting in the market-leading technology sector (35% of net assets for the Fund versus 11% for the Index), but that advantage was more than offset by sub-par individual stock selections. Also contributing to our relative shortfall was our 8% position in cash reserves, which represented a "drag" on our performance in a rising stock market. That said, our avoidance of utility stocks (0% of net assets for the Fund versus 12% for the Index)--the market's worst- performing sector--provided an offsetting boost to our relative performance. We lagged the performance of the average growth mutual fund by the same 1.5-percentage-point margin, but for slightly different reasons. First, while many of our competitors maintained cash reserves during the six-month period, few held as much cash as PRIMECAP. Second, our competitors 1 2 held roughly 20% of their assets in two of the best-performing market sectors--consumer staples and capital goods--compared to a 5% weighting for our Fund. IN SUMMARY Six months ago in our Annual Report--following an extraordinarily bountiful 1995--we cautioned PRIMECAP Fund shareholders that "the financial markets are never a 'one-way street.'" Despite the continued strength of the stock market thus far in 1996, investors should be prepared for the inevitable rough patches that surely lie ahead. Investors who understand that the long-term rewards of investing in stocks go hand-in-hand with above-average interim volatility are much more apt to "stay the course"-- come what may--with their long-term investment program. We recommend that you do the same. We look forward to reporting to you on the Fund's full year results in our Annual Report six months hence. Sincerely, /s/ JOHN C. BOGLE - ------------------------------- John C. Bogle Chairman of the Board /s/ JOHN J. BRENNAN - ------------------------------- John J. Brennan President July 25, 1996 Note: Mutual fund data from Lipper Analytical Services, Inc. 2 3 REPORT FROM THE INVESTMENT ADVISER In the first half of 1996, PRIMECAP Fund produced a total return of +8.6% compared to +10.1% for the unmanaged Standard & Poor's 500 Index. Once again, equities provided an attractive return for the first six months. The performance of our technology stocks and the Fund's minimal exposure to consumer staples were the primary factors causing the Fund's results to trail the S&P 500 Index. As you may recall, the Fund performed poorly in the fourth quarter of 1995. Pervasive concerns of a slowing economy caused our substantial holdings in economically sensitive stocks to post losses in the fourth quarter. Fears of deceleration in the personal computer and cellular businesses and increasing capacity in the semiconductor business resulted in particularly poor performance among our technology holdings during the period. Market leadership rapidly shifted to perceived safe stocks such as consumer staples and health care. Some of the concerns that emerged in last year's fourth quarter proved to be well-founded. A number of our technology holdings reported earnings shortfalls in the fourth quarter of 1995 and the first quarter of 1996. Business remains softer than we would have expected nine months ago. Although final demand for key technology products moderated somewhat from unsustainably high rates last year, particularly in Western Europe, the primary culprit was a 70% collapse in the price of memory (a critical component in personal computers), and a coincident inventory liquidation on a massive scale. Industrywide, a campaign has been forged to reduce inventories. Believing that components can be procured more inexpensively tomorrow than today, no company wants to be caught holding any inventory. This has rippled through the entire supply chain from manufacturers of components to distributors of computers. Few companies with ties to the personal computer industry have gone unscathed. In our evaluation, the industry is in the latter stages of this inventory adjustment, and we expect to see improving fundamentals by year-end. Ultimately, the decline in memory prices that has clouded current business prospects will prove stimulative for electronic end-markets. The market has punished many of the Fund's technology stocks for short-term earnings disruptions. Valuations seem to reflect a significantly diminished long-term growth outlook for these companies. We disagree with this analysis. In our judgment, investors' preoccupation with consistent results causes them to forsake businesses we regard as possessing greater long-term opportunity if their quarterly pattern of earnings is deemed less predictable. Technology companies serve particularly dynamic markets. This usually translates into more volatile interim results regardless of the long-term results. As an illustration, led by technology stocks, the Fund's holdings have grown earnings per share in excess of 19% annualized for the last five years. This exceeds the 13% recorded by the S&P 500 by approximately 45%. However, this growth premium was not achieved every quarter, or necessarily every year, but only averaged over the entire period. Looking out three to five years, we believe the Fund's holdings will continue to have superior relative earnings growth, potentially double the 7% growth rate expected for the S&P 500. Yet, from a valuation perspective, the price/earnings multiple of the our holdings represent only a modest premium to the S&P 500. During the first half of 1996, consumer staples continued to attract investors. The sector led the market, increasing 15.5%. The Fund currently has minimal representation in consumer staple stocks. Consequently, the outperformance of this large sector hampered our results. We were surprised by the strength in this sector. Unlike the latter part of 1995, when economic concerns were prevalent, the economy exhibited reasonable strength in the first half. Earnings disappointments were fairly widespread in the sector, yet the stocks largely resisted bad news. For example, when the leading vendors of cereal slashed prices by as much as 25%, the stocks barely declined. We do not consider consumption of cereal as highly elastic, and are skeptical that these price cuts will be offset by volume gains. In our opinion, the appeal of this sector emanates from investors' obsession with consistent and predictable results, and the perception that consumer staple stocks embody these qualities. As we have communicated in prior 3 4 reports, our assessment of long-term growth prospects within this sector are modest, and valuations are rich. We intend to maintain our low exposure to these stocks. The Fund's transportation issues provided the greatest positive influence on the first-half results. For some time, the Fund has committed substantial assets to the sector (currently 16%). Year-to-date, the stocks have appreciated 16%. Developments in the airline industry look especially promising. Traffic and load factors are increasing concurrent with flat-to-declining capacity and cost reductions at many of the major carriers. The ValuJet tragedy will focus the FAA's attention on safety issues. This encompasses pilot training in addition to aircraft maintenance. Increased scrutiny by the FAA will hinder the start-up of new low-cost airlines, and dampen the growth of existing low-cost carriers. This should benefit the quality carriers via improved yields and better traffic. After appreciating a remarkable 91% in 1995, the Fund's health-care selections continued their ascent--up 11% to date. The Fund's pharmaceutical and device companies are capitalizing on a confluence of favorable developments. Their product pipelines are healthy. Their cost structures are improving. Perhaps most important, the FDA appears more responsive to new drug and device applications. We concluded our comments in the 1995 Annual Report cautiously looking to 1996. This perspective has not changed. This bull market has been one of record duration. Signs of speculation are not difficult to find. Consequently, we could see a meaningful correction, or at least a spotty market. Such an environment portends a stockpicker's market. We believe this plays to our strength. Our efforts are concentrated on discovering compelling long-term opportunities and staying the course during turbulent times when we conclude such circumstances are short term. This strategy has worked effectively for us in the past, and we believe will continue to do so in the future. Respectfully, Howard B. Schow Portfolio Manager Theo A. Kolokotrones Portfolio Manager Joel P. Fried Assistant Portfolio Manager PRIMECAP Management Company July 10, 1996 4 5 TOTAL INVESTMENT RETURN TABLE The following table illustrates the results of a single-share investment in Vanguard/PRIMECAP Fund since inception through June 30, 1996. During the period illustrated, stock prices fluctuated widely; these results should not be considered a representation of the dividend income or capital gain or loss that may be realized from an investment made in the Fund today.
- ------------------------------------------------------------------------------------------------------------------------------------ PERIOD PER SHARE DATA* TOTAL INVESTMENT RETURN** - ------------------------------------------------------------------------------------------------------------------------------------ PRIMECAP Fund S&P 500 Value with Income ------------------------------ -------- Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Total December 31 Value Distributions Dividends Gains Reinvested Return Return Return Return - ------------------------------------------------------------------------------------------------------------------------------------ INITIAL (11/84) $ 6.25 -- -- $ 6.25 -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ 1984 6.56 -- -- 6.56 + 4.9% 0.0% + 4.9% + 0.6% - ------------------------------------------------------------------------------------------------------------------------------------ 1985 8.89 -- $.01 8.90 +35.6 +0.2 +35.8 +31.8 - ------------------------------------------------------------------------------------------------------------------------------------ 1986 10.64 $.18 .14 10.99 +21.8 +1.7 + 3.5 +18.7 - ------------------------------------------------------------------------------------------------------------------------------------ 1987 10.06 .24 .10 10.74 - 3.2 +0.9 -23.3 + 5.3 - ------------------------------------------------------------------------------------------------------------------------------------ 1988 11.18 .25 .10 12.32 +13.7 +1.0 +14.7 +16.6 - ------------------------------------------------------------------------------------------------------------------------------------ 1989 12.82 .61 .16 14.98 +20.2 +1.4 +21.6 +31.7 - ------------------------------------------------------------------------------------------------------------------------------------ 1990 12.21 .12 .13 14.56 - 3.8 +1.0 - 2.8 - 3.1 - ------------------------------------------------------------------------------------------------------------------------------------ 1991 15.36 .68 .15 19.39 +31.8 +1.3 +33.1 +30.5 - ------------------------------------------------------------------------------------------------------------------------------------ 1992 16.19 .41 .12 21.13 + 8.2 +0.8 + 9.0 + 7.6 - ------------------------------------------------------------------------------------------------------------------------------------ 1993 18.42 .59 .07 24.94 +17.6 +0.4 +18.0 +10.1 - ------------------------------------------------------------------------------------------------------------------------------------ 1994 19.98 .41 .12 27.79 +10.7 +0.7 +11.4 + 1.3 - ------------------------------------------------------------------------------------------------------------------------------------ 1995 26.23 .59 .22 37.64 +34.4 +1.1 +35.5 +37.6 - ------------------------------------------------------------------------------------------------------------------------------------ 1996 (6/30) 28.35 .13 -- 40.88 + 8.6 0.0 + 8.6 +10.1 - ------------------------------------------------------------------------------------------------------------------------------------ LIFETIME +554.1% +484.5% - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURN +17.5% +16.3% - ------------------------------------------------------------------------------------------------------------------------------------
* Adjusted for the 4-for-1 stock split, February 23, 1990. ** Includes reinvestment of income dividends and any capital gains distributions for both the Fund and the Index. Note: No adjustment has been made for income taxes payable by shareholders on reinvested income dividends and capital gains distributions. 5 6 STATEMENT OF NET ASSETS FINANCIAL STATEMENTS (unaudited) June 30, 1996
Market Value Shares (000)+ - -------------------------------------------------------------------------------------- COMMON STOCKS (92.1%) - -------------------------------------------------------------------------------------- BASIC MATERIALS (3.9%) - -------------------------------------------------------------------------------------- Engelhard Corp. 2,040,000 $ 46,920 (1)MacDermid, Inc. 189,000 13,136 Monsanto Co. 625,000 20,313 Quaker Chemical Corp. 140,000 1,715 Stepan Co. 300,000 5,438 Temple-Inland Inc. 1,300,000 60,775 ---------- SECTOR TOTAL 148,297 ---------- - ------------------------------------------------------------------------------------- CAPITAL GOODS & CONSTRUCTION (3.7%) - ------------------------------------------------------------------------------------- Caterpillar, Inc. 755,000 51,151 Belden Inc. 349,000 10,470 Donaldson Co., Inc. 540,000 13,905 (1)Granite Construction Co. 1,260,000 28,980 Kennametal, Inc. 1,124,000 38,216 ---------- SECTOR TOTAL 142,722 ---------- - ------------------------------------------------------------------------------------- CONSUMER CYCLICALS (6.7%) - ------------------------------------------------------------------------------------- Arvin Industries, Inc. 660,000 14,685 * BET Holdings Inc. Class A 380,000 10,023 * Coherent, Inc. 500,000 26,000 * Electronic Arts Inc. 1,000,000 26,500 Fleetwood Enterprises, Inc. 300,000 9,300 * Filene's Basement Corp. 995,000 4,851 * GC Cos. 200,000 7,450 Harcourt General, Inc. 540,000 27,000 Knight-Ridder, Inc. 100,000 7,250 McClatchy Newspapers, Inc. 390,000 10,774 Polaroid Corp. 720,000 32,850 * Price/Costco Inc. 3,400,000 72,675 Turner Broadcasting Class B 350,000 9,625 ---------- SECTOR TOTAL 258,983 ---------- - ------------------------------------------------------------------------------------- CONSUMER STAPLES (1.6%) - ------------------------------------------------------------------------------------- Pioneer Hi Bred International 580,000 30,667 The Seagram Co. Ltd. 900,000 30,262 ---------- SECTOR TOTAL 60,929 ---------- - ------------------------------------------------------------------------------------- ENERGY (.2%) - ------------------------------------------------------------------------------------- Schlumberger Ltd. 75,000 6,319 ---------- - ------------------------------------------------------------------------------------- FINANCIAL (9.4%) - ------------------------------------------------------------------------------------- American International Group, Inc. 944,616 93,163 (1)Avemco Corp. 650,000 8,775 City National Corp. 621,485 9,788 General Re Corp. 570,000 86,783 Marsh & McLennan Cos., Inc. 220,000 21,230 National Re Holdings Corp. 350,000 13,213 NationsBank Corp. 100,000 8,263 State Street Boston Corp. 720,000 36,720 Torchmark Corp. 460,000 20,125 Transatlantic Holdings 375,000 26,297 Zurich Reinsurance Centre Holdings, Inc. 1,089,000 34,303 ---------- SECTOR TOTAL 358,660 ---------- - ------------------------------------------------------------------------------------- HEALTH CARE (10.7%) - ------------------------------------------------------------------------------------- American Home Products Corp. 180,000 10,823 Block Drug Co. Class A 150,704 6,179 * Boston Scientific Corp. 205,000 9,225 Guidant Corp. 2,605,316 128,312 Johnson & Johnson 1,515,420 75,013 Eli Lilly & Co. 822,340 53,452 * Lynx Therapeutic 72,900 364 Medtronic, Inc. 988,444 55,353 * Mycogen Corp. 800,000 11,900 Pharmacia & Upjohn, Inc. 1,260,000 55,913 *(1)Tripos Inc. 250,000 2,188 ---------- SECTOR TOTAL 408,722 ---------- - ------------------------------------------------------------------------------------- TECHNOLOGY (35.3%) - ------------------------------------------------------------------------------------- COMPUTER & COMPUTER RELATED (8.8%) Adobe Systems, Inc. 2,200,000 78,100 * Digital Equipment Corp. 1,148,000 51,660 Hewlett-Packard Co. 660,000 65,753 Reuters Holdings PLC ADR 740,000 53,557 * Stratus Computer, Inc. 377,000 10,933 *(1)Tandem Computers, Inc. 6,000,000 74,250 ELECTRONIC COMPONENTS & INSTRUMENTS (19.8%) AMP, Inc. 1,180,000 47,347 * Dionex Corp. 510,000 16,447 *(1)Evans & Sutherland Computer Corp. 840,000 17,640 Intel Corp. 2,002,000 146,897 * LSI Logic Corp. 818,700 21,286 Measurex Corp. 540,000 15,794 Molex, Inc. 125,000 3,969 Molex, Inc. Class A 125,000 3,672 Motorola, Inc. 1,305,000 82,052 * Octel Communications Corp. 2,250,000 43,874 Perkin-Elmer Corp. 940,000 45,354 Sony Corp. ADR 1,000,000 66,124 * Symbol Technologies, Inc. 1,111,000 49,440 Tektronix, Inc. 1,385,000 61,979 Texas Instruments, Inc. 2,740,000 136,658 OFFICE EQUIPMENT (.8%) Xerox Corp. 600,000 32,100 TELECOMMUNICATIONS (5.9%) L.M. Ericsson Telephone Co. ADR Class B 4,600,000 98,325 L.M. Ericsson Telephone Co. Cvt. Pfd. 4.25% 620,000 1,802
6 7
Market Value Shares (000)+ - ------------------------------------------------------------------------------------- *(1)Plantronics, Inc. 804,000 $ 29,547 * Tellabs, Inc. 1,000,000 66,750 Vodafone Group PLC ADR 832,500 30,698 ----------- SECTOR TOTAL 1,352,008 ----------- - ------------------------------------------------------------------------------------- TRANSPORT & SERVICES (15.7%) - ------------------------------------------------------------------------------------- * AMR Corp. 1,775,000 161,525 * APL Ltd. 698,950 18,260 (1)Airborne Freight Corp. 1,190,000 30,940 *(1)Alaska Air Group, Inc. 700,000 19,163 Delta Air Lines, Inc. 1,905,000 158,115 * Federal Express Corp. 2,100,000 172,200 Southwest Airlines Co. 1,350,000 39,319 ----------- SECTOR TOTAL 599,522 ----------- - ------------------------------------------------------------------------------------- MISCELLANEOUS (4.9%) - ------------------------------------------------------------------------------------- Manpower Inc. 1,140,000 44,745 Other (3.8%) 144,612 ----------- SECTOR TOTAL 189,357 ----------- - ------------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $2,337,386) 3,525,519 - ------------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENT (7.9%) - ------------------------------------------------------------------------------------- Face Amount (000) -------- REPURCHASE AGREEMENT Collateralized by U.S. Government Obligations in a Pooled Cash Account 5.35%, 7/1/96 (Cost $300,590) $300,590 300,590 - -------------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.0%) (Cost $2,637,976) 3,826,109 - -------------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES - -------------------------------------------------------------------------------------- Other Assets--Notes C and E 41,621 Liabilities--Note E (41,135) ---------- 486 - -------------------------------------------------------------------------------------- NET ASSETS (100%) - -------------------------------------------------------------------------------------- Applicable to 134,999,219 outstanding $.001 par value shares (authorized 400,000,000 shares) $3,826,595 - -------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE $28.35 ======================================================================================
+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.
- ------------------------------------------------------------------------------------- AT JUNE 30, 1996, NET ASSETS CONSISTED OF: - ------------------------------------------------------------------------------------- AMOUNT PER (000) SHARE ---------- ------ PAID IN CAPITAL $2,591,264 $19.20 UNDISTRIBUTED NET INCOME 13,454 .10 ACCUMULATED NET REALIZED GAINS 33,744 .25 UNREALIZED APPRECIATION OF INVESTMENTS--NOTE D 1,188,133 8.80 - ------------------------------------------------------------------------------------- NET ASSETS $3,826,595 $28.35 - -------------------------------------------------------------------------------------
7 8 STATEMENT OF OEPRAITONS
Six Months Ended June 30, 1996 (000) - --------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,238 Interest . . . . . . . . . . . . . . . . . . . . . . . . . 10,426 - --------------------------------------------------------------------------------------------------------- Total Income . . . . . . . . . . . . . . . . . . 24,664 - --------------------------------------------------------------------------------------------------------- EXPENSES Investment Advisory Fee--Note B5,040 The Vanguard Group--Note C Management and Administrative . . . . . . . . . . . . . . $5,144 Marketing and Distribution . . . . . . . . . . . . . . . 407 5,551 ------ Taxes (other than income taxes) . . . . . . . . . . . . . 136 Custodian Fees . . . . . . . . . . . . . . . . . . . . . . 6 Auditing Fees . . . . . . . . . . . . . . . . . . . . . . 6 Shareholders' Reports . . . . . . . . . . . . . . . . . . 69 Annual Meeting and Proxy Costs . . . . . . . . . . . . . . 28 Directors' Fees and Expenses . . . . . . . . . . . . . . . 6 - --------------------------------------------------------------------------------------------------------- Total Expenses . . . . . . . . . . . . . . . . . . 10,842 - --------------------------------------------------------------------------------------------------------- Net Investment Income . . . . . . . . . . . . . 13,822 - --------------------------------------------------------------------------------------------------------- REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD . . . . . . . 34,586 - --------------------------------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES . . . . . . . . . . . . . . . . . 245,327 - --------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations $293,735 =========================================================================================================
8 9 STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED Year Ended JUNE 30, 1996 December 31, 1995 (000) (000) - ------------------------------------------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net Investment Income . . . . . . . . . . . . . . . . . . . $ 13,822 $ 25,713 Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . 34,586 78,807 Change in Unrealized Appreciation (Depreciation) . . . . . . 245,327 625,885 - ------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations . . 293,735 730,405 - ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income . . . . . . . . . . . . . . . . . . . -- (26,218) Realized Net Gain . . . . . . . . . . . . . . . . . . . . . (16,886) (68,839) - -------------------------------------------------------------------------------------------------------------- Total Distributions . . . . . . . . . . . . . . . . . . (16,886) (95,057) - -------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS (1) Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . 567,222 1,373,945 Issued in Lieu of Cash Distributions . . . . . . . . . . . . 16,706 93,789 Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (271,024) (419,953) - -------------------------------------------------------------------------------------------------------------- Net Increase from Capital Share Transactions . . . . . . 312,904 1,047,781 - ------------------------------------------------------------------------------------------------------------- Total Increase . . . . . . . . . . . . . . . . . . . . . 589,753 1,683,129 - ------------------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Period . . . . . . . . . . . . . . . . . . . . 3,236,842 1,553,713 - ------------------------------------------------------------------------------------------------------------- End of Period . . . . . . . . . . . . . . . . . . . . . . . $3,826,595 $3,236,842 ============================================================================================================= (1)Shares Issued and Redeemed Issued . . . . . . . . . . . . . . . . . . . . . . . . . . 21,004 58,906 Issued in Lieu of Cash Distributions . . . . . . . . . . 622 3,685 Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . (10,023) (16,973) - ------------------------------------------------------------------------------------------------------------- 11,603 45,618 - -------------------------------------------------------------------------------------------------------------
9 10 FINANCIAL HIGHLIGHTS
Year Ended December 31, SIX MONTHS ENDED ------------------------------------------------------ For a Share Outstanding Throughout Each Period JUNE 30, 1996 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . $26.23 $19.98 $18.42 $16.19 $15.36 $12.21 ------- ------- ------- ------- ------- ------- INVESTMENT OPERATIONS Net Investment Income . . . . . . . . . . . . . . . . . .10 .22 .12 .07 .12 .15 Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . . . . . . . . . 2.15 6.84 1.97 2.82 1.24 3.83 ------- ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . 2.25 7.06 2.09 2.89 1.36 3.98 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS Dividends from Net Investment Income . . . . . . . . . -- (.22) (.12) (.07) (.12) (.15) Distributions from Realized Capital Gains . . . . . . . (.13) (.59) (.41) (.59) (.41) (.68) ------- ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . (.13) (.81) (.53) (.66) (.53) (.83) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . $28.35 $26.23 $19.98 $18.42 $16.19 $15.36 ==================================================================================================================================== TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . +8.61% +35.48% +11.41% +18.03% +8.99% +33.14% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL data - ------------------------ Net Assets, End of Period (Millions) . . . . . . . . . . . $3,827 $3,237 $1,554 $791 $646 $486 Ratio of Total Expenses to Average Net Assets . . . . . . . .61%* .58% .64% .67% .68% .68% Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . . . . . . .77%* .99% .79% .44% .84%1 .09% Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . 6%* 7% 8% 16% 7% 24% Average Commission Rate Paid . . . . . . . . . . . . . . . $.0645+ N/A N/A N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------
* Annualized. + Represents total commissions paid on portfolio securities divided by the total number of shares purchased or sold on which commissions were charged. This disclosure is required by the SEC beginning in 1996. 10 11 NOTES TO FINANCIAL STATEMENTS Vanguard/PRIMECAP 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 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 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, transfers uninvested cash balances into a Pooled Cash Account, the daily aggregate of which is invested in repurchase agreements secured by U.S. Government obligations. Securities pledged as collateral for repurchase agreements are held by a custodian bank until maturity of each repurchase agreement. Provisions of the agreement require that the market value of this collateral is sufficient in the event of default; however, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. 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 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.Under the terms of a contract which expires April 30, 1997, the Fund pays PRIMECAP Management Company an advisory fee calculated at an annual percentage rate of average net assets. For the six months ended June 30, 1996, the advisory fee represented an effective annual rate of .28 of 1% of average net assets. C.The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the Fund under methods approved by the Board of Directors. At June 30, 1996, the Fund had contributed capital of $396,000 to Vanguard (included in Other Assets), representing 2.0% of Vanguard's capitalization. The Fund's officers and directors are also officers and directors of Vanguard. D.During the six months ended June 30, 1996, the Fund made purchases of $437,550,000 and sales of $95,154,000 of investment securities other than U.S. Government securities and temporary cash investments. At June 30, 1996, net unrealized appreciation for financial reporting and Federal income tax purposes aggregated $1,188,133,000 of which $1,216,571,000 related to appreciated securities and $28,438,000 related to depreciated securities. E.The market value of securities on loan to broker/dealers at June 30, 1996, was $23,949,000 for which the Fund had received cash collateral of $24,551,000. 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 Selected Value Portfolio Vanguard/Trustees' Equity Fund U.S. Portfolio Vanguard/Windsor Fund Vanguard/Windsor II BALANCED FUNDS Vanguard Asset Allocation Fund Vanguard LifeStrategy Portfolios Income Portfolio Conservative Growth Portfolio Moderate Growth Portfolio Growth Portfolio Vanguard STAR Portfolio Vanguard/Wellesley Income Fund Vanguard/Wellington Fund GROWTH FUNDS Vanguard/Morgan Growth Fund Vanguard/PRIMECAP Fund Vanguard U.S. Growth Portfolio AGGRESSIVE GROWTH FUNDS Vanguard Explorer Fund Vanguard Horizon Fund Global Equity Portfolio Global Asset Allocation Portfolio Capital Opportunity Portfolio Aggressive Growth Portfolio Vanguard Specialized Portfolios INTERNATIONAL FUNDS Vanguard International Growth Portfolio Vanguard/Trustees' Equity Fund International Portfolio INDEX FUNDS Vanguard Index Trust Total Stock Market Portfolio 500 Portfolio Extended Market Portfolio Growth Portfolio Value Portfolio Small Capitalization Stock Portfolio Vanguard International Equity Index Fund European Portfolio Pacific Portfolio Emerging Markets Portfolio Vanguard Bond Index Fund Vanguard Tax-Managed Fund Vanguard Balanced Index Fund [THE VANGUARD GROUP LOGO] Vanguard Financial Center Valley Forge, Pennsylvania 19482 New Account Information: Shareholder Account Services: 1 (800) 662-7447 1 (800) 662-2739 This Report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus. All Funds in the Vanguard Family are offered by prospectus only. Q592-6/96 VANGUARD PRIMCAP FUND SEMI-ANNUAL REPORT JUNE 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----