FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarter ended: September 30, 1994

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File number: 0-16785

VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND

(Exact name of Registrant as specified in its charter)

Massachusetts 23-6861048
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

Vanguard Financial Center
Malvern, PA 19355
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number (610) 669-1000

Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities and Exchange
act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

Yes __X__ No _____

11,019,978 shares of beneficial interest outstanding as of October 31,
1994.

INDEX

Page
ITEM No. No.

Cover Page. . . . . . . . . . . . . . . . . . . . . . . . .-
Index . . . . . . . . . . . . . . . . . . . . . . . . . . .1

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

Balance Sheets. . . . . . . . . . . . . . . . . . . . . . .2
Statements of Operations. . . . . . . . . . . . . . . . .3-4
Statements of Cash Flows. . . . . . . . . . . . . . . . .5-6
Statement of Changes in Shareholders' Equity. . . . . . . .7
Notes to Financial Statements . . . . . . . . . . . . . . .8

ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . 9-13

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . 14
ITEM 2. Changes in Securities . . . . . . . . . . . . . 14
ITEM 3. Defaults Upon Senior Securities . . . . . . . . 14
ITEM 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . 14
ITEM 5. Other Information . . . . . . . . . . . . . . . 14
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . 14

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 15

BALANCE SHEETS
(Unaudited)

September 30, 1994 December 31, 1993
ASSETS (000) (000)
_____________ _____________
Investments in Real Estate:
Direct Ownership Investments:
Land $15,020 $12,790
Buildings and Improvements 37,213 31,432
_____________ _____________
52,233 44,222
Less--Accumulated Depreciation 4,456 4,789
_____________ _____________
47,777 39,433
Mortgage Loan Receivable 10,646 10,646
In-Substance Foreclosed Asset -- 17,192
_____________ _____________
58,423 67,271
Less: Allowance for Possible Losses -- 2,410
_____________ _____________
Net Investment Portfolio 58,423 64,861
Marketable Securities--REMICs 2,108 1,684
Short-Term Investments:
Vanguard Money Market Reserves-
Prime Portfolio
(2,566,931 and 2,482,738 shares,
respectively) 2,567 2,483
Temporary Cash Investments 11,991 6,000
Other Assets 1,324 1,897
_____________ _____________
TOTAL ASSETS $76,413 $76,925
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage Loans (including current
portion of $101 and $93, respectively) $ 2,407 $ 2,477
Due to Affiliates 262 149
Dividend Payable 1,653 --
Other Liabilities 501 558
_____________ _____________
TOTAL LIABILITIES 4,823 3,184
_____________ _____________

Shares of Beneficial Interest, without
par value, unlimited shares authorized 80,608 80,608
Accumulated Distributions in Excess
of Net Income (9,018) (6,867)
_____________ _____________
TOTAL SHAREHOLDERS' EQUITY 71,590 73,741
_____________ _____________

TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $76,413 $76,925
============= =============

The accompanying notes are an integral part of these statements.

STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended September 30,
1994 1993
REAL ESTATE INCOME (000) (000)
_____________ _____________
Rental Income $2,032 $1,877
Mortgage Interest Income 285 384
Net Income from In-Substance
Foreclosed Assets -- 526
_____________ _____________
2,317 2,787
_____________ _____________
REAL ESTATE EXPENSES
Mortgage Interest Expense 60 257
Real Estate Taxes 202 206
Property Operating Expenses 584 275
Depreciation and Amortization 308 396
Provision for Possible Losses -- 1,372
_____________ _____________
1,154 2,506
_____________ _____________

INCOME FROM REAL ESTATE 1,163 281
INVESTMENT INCOME FROM SHORT-TERM
INVESTMENTS 127 74
_____________ _____________
1,290 355
_____________ _____________
ADMINISTRATIVE EXPENSES
Investment Advisory Fee 84 105
Administrative Fee 70 94
Other Administrative Expenses 80 75
_____________ _____________
234 274
_____________ _____________

INCOME BEFORE NET LOSS ON SALE
OF INVESTMENT 1,056 81
Net Loss on Sale of Investment (67) --
_____________ _____________
NET INCOME $ 989 $1,881
============= =============

Weighted Average Number of Shares
Outstanding 11,019,978 11,033,329
============= =============
Net Income Per Share:
Income Before Net Loss on
Sale of Investment $ .10 $ .01
Net Loss on Sale of Investment (.01) --
_____________ _____________

Net Income Per Share $ .09 $ .01
============= =============

The accompanying notes are an integral part of these statements.

STATEMENTS OF OPERATIONS
(Unaudited)

Nine Months Ended September 30,
1994 1993
REAL ESTATE INCOME (000) (000)
_____________ _____________

Rental Income $5,670 $5,961
Mortgage Interest Income 805 958
Net Income from In-Substance
Foreclosed Assets 341 2,098
_____________ _____________
6,816 9,017
_____________ _____________
REAL ESTATE EXPENSES
Mortgage Interest Expense 183 968
Real Estate Taxes 570 663
Property Operating Expenses 1,069 809
Depreciation and Amortization 904 1,239
Provision for Possible Losses 780 3,035
_____________ _____________
3,506 6,714
_____________ _____________

INCOME FROM REAL ESTATE 3,310 2,303
INVESTMENT INCOME FROM SHORT-TERM
INVESTMENTS 284 212
_____________ _____________
3,594 2,515
_____________ _____________
ADMINISTRATIVE EXPENSES
Investment Advisory Fee 257 336
Administrative Fee 219 289
Other Administrative Expenses 243 265
_____________ _____________
719 890
_____________ _____________

INCOME BEFORE NET LOSS ON SALE
OF INVESTMENT 2,875 1,625
Net Loss on Sale of Investment (67) --
_____________ _____________
NET INCOME $2,808 $1,625
============= =============

Weighted Average Number of Shares
Outstanding 11,019,978 11,046,199
============= =============

Net Income Per Share:
Income Before Net Loss on Sale
of Investment $ .26 $ .15
Net Loss on Sale of Investment (.01) --
_____________ _____________

Net Income Per Share $ .25 $ .15
============= =============

The accompanying notes are an integral part of these statements.

STATEMENTS OF CASH FLOWS
(Unaudited)

Three Months Ended September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES (000) (000)
_____________ _____________

Net Income $ 989 $7,981
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Provision for Possible Losses -- 1,372
Depreciation and Amortization 308 396
Net Loss on Sale of Investment 67 --
Valuation Allowance on Marketable
Securities 23 --
Changes in Other Assets and
Liabilities (25) (215)
_____________ _____________
Net Cash Provided by Operating
Activities 1,362 1,634
_____________ _____________

CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Real Estate:
Building Improvements (14) (103)
Payoff of In-Substance Foreclosed Asset -- 13,500
Sale of Investment--Deluxe Check 5,342 --
Marketable Securities Acquired -- (10,974)
Principal Repayments on Marketable
Securities 67 278
_____________ _____________

Net Cash Provided by Investing
Activities 5,395 2,701
_____________ _____________

CASH FLOWS FROM FINANCING ACTIVITIES
Mortgage Principal Payments (24) (21)
Dividends Paid (1,653) (1,656)
Shares Repurchased -- (200)
_____________ _____________

Net Cash Used In Financing
Activities (1,677) (1,877)
_____________ _____________

NET INCREASE IN CASH AND CASH
EQUIVALENTS 5,080 2,458
CASH AND CASH EQUIVALENTS--
Beginning of Period 9,478 5,465
_____________ _____________

CASH AND CASH EQUIVALENTS--
End of Period $14,558 $7,923
============= =============

The accompanying notes are an integral part of these statements.

STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES (000) (000)
_____________ _____________

Net Income $ 2,808 $1,625
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Provision for Possible Losses 780 3,035
Depreciation and Amortization 904 1,239
Net Loss on Sale of Investment 67 --
Valuation Allowance on Marketable
Securities 83 --
Changes in Other Assets and
Liabilities (8) 184
_____________ _____________
Net Cash Provided by Operating
Activities 4,634 6,083
_____________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Real Estate:
Building Improvements (14) (334)
Payoff of In-Substance Foreclosed
Asset -- 13,500
Sale of Investment--Deluxe Check 5,342 --
Marketable Securities Acquired (715) (16,009)
Principal Repayments on Marketable
Securities 204 278
_____________ _____________
Net Cash Provided by (Used In)
Investing Activities 4,817 (2,565)
_____________ _____________

CASH FLOWS FROM FINANCING ACTIVITIES
Mortgage Principal Payments (70) (62)
Dividends Paid (3,306) (3,312)
Shares Repurchased -- (587)
_____________ _____________
Net Cash Used In Financing
Activities (3,376) (3,961)
_____________ _____________
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,075 (443)
CASH AND CASH EQUIVALENTS--
Beginning of Period 8,483 8,366
_____________ _____________
CASH AND CASH EQUIVALENTS--
End of Period $14,558 $7,923
============= =============

The accompanying notes are an integral part of these statements.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

Accumulated
Shares of Distributions
Beneficial Interest In Excess of Total Shareholders'
Number Amount Net Income Equity
(000) (000) (000)

Balance: January 1, 1994 11,019,978 $80,608 $(6,867) $73,741
Net Income for the Period 2,808 2,808
Distributions (4,959) (4,959)
---------- --------- ---------- ---------
Balance: September 30, 1994 11,019,978 $80,608 $(9,018) $71,590
========== ========= ========== =========

The accompanying notes are an integral part of these statements.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Fund's Annual
Report to Shareholders for the year ended December 31, 1993. The results of
operations for the three months and nine months ended September 30, 1994
are not necessarily indicative of the results for the entire year ending
December 31, 1994.

2. On April 13, 1994, the Fund obtained title to the Sheffield Forest
Apartment complex in Silver Spring, Maryland via a transfer of all of the
partnership interests of the borrower in full satisfaction of the mortgage
loan outstanding. This investment, formerly classified as an In-Substance
Foreclosed Asset, has been written down to its estimated fair value and
reclassified as a direct ownership investment. No additional loss was
required to be recorded at the date of the transfer since the allowance for
possible losses previously recorded sufficiently reduced the carrying value
of the Sheffield investment to its net realizable value.

3. Activity relating to the allowance for possible losses on real estate
investments for the nine months ended September 30, 1994, is as follows:

September 30, 1994
(In thousands)

Balance--January 1, 1994 $2,410)
Write-off--Reclassification of
In-Substance Foreclosed Asset (2,120)

Amounts Charged Off (290)
__________
Balance--September 30, 1994 $ 0
==========

During the quarter ended June 30, 1994, $1,070,000 was charged to the
provision for possible losses to write-down the carrying value of the
Fund's Minnesota direct ownership investment to its
estimated net realizable value.

4. On August 17, 1994, the Fund sold the Deluxe Check, or Arden Hills,
building in its Minnesota Portfolio for $5,550,000. Arden Hills, purchased
in February 1988, was the largest of the three buildings in the Minnesota
Portfolio. In connection with the sale, and in accordance with the terms of
the Fund's advisory agreement, the Fund incurred a disposition fee of
$108,000, representing 2% of the net proceeds of the transaction, payable
to its Adviser. The Fund realized a loss of $1,137,000 on the sale of the
building, $1,070,000 of which was recognized via a write-down of the
investment's carrying value in the second quarter of 1994.

5. On October 3, 1994, the Fund sold the Seattle Industrial Portfolio
("Seattle") for $31,850,000. In connection with the sale, the Fund paid a
sales incentive fee of $520,000 to the Seattle property manager, and in
accordance with the terms of the Fund's advisory agreement, incurred a
disposition fee, representing 2% of the net proceeds of the transaction, of
approximately $614,000 payable to the Fund's Adviser. The Seattle property
manager is a wholly-owned subsidiary of the purchaser.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Vanguard Real Estate I, a Sales-Commission-Free Income Properties Fund (the
"Fund"), is a Massachusetts business trust that intends to continue to
qualify as a real estate investment trust under the Internal Revenue Code.
The Fund's investments include both direct ownership properties and a shared
appreciation mortgage and consist of four income-producing commercial
properties (composed of one industrial park, one office building and two
shopping centers), and one income-producing residential apartment complex.
Geographically, the Fund's investments are located in each of the North
Central, Pacific Northwest, Pacific Southwest and Mideast regions. In
accordance with the Fund's Declaration of Trust, net proceeds from sale or
repayment may not be reinvested in real estate investments after December
1993. The Fund presently intends to liquidate all investments between 1994
and 1999.

RESULTS OF OPERATIONS

NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1994 VS. NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1993

The Fund had net income of $2,808,000, or $.25 per share, for the nine-
months ended September 30, 1994, as compared to net income of $1,625,000,
or $.15 per share, for the same period of 1993. As more fully described
below, this increase in net income reflects (i) a provision for possible
losses of $780,000 for the nine-months ended September 30, 1994 as compared
to $3,500,000 for the comparable period in 1993; (ii) an increase in net
rental income; (iii) a decrease in administrative expenses; and (iv)
decreases in net income from in-substance foreclosed assets and mortgage
interest income, in each case as compared to such items in the nine-months
ended September 30, 1993 and excluding results from the Fund's Citadel II
investment, to which title was transferred on September 1, 1993.

For comparison purposes, results from Citadel II have been excluded since
the Fund did not realize net income, or recognize a loss, related to
Citadel II in 1993. In January 1993, the Fund defaulted on the mortgage
loan obligation secured by its Citadel II office building investment in
Orlando, Florida. In September 1993, the Fund ceded title to Citadel II to
the lender in full satisfaction of amounts due under the non-recourse
mortgage loan. This investment had been written down to the remaining
principal balance of the loan as of December 31, 1992. In addition, during
the period of default, the net cash flow generated from the property's
operations was remitted to the lender. Accordingly, the Fund did not
realize any income related to Citadel II in 1993. The excess of the
Citadel II property expenses over its income for the nine-months ended
September 30, 1993 of $465,000 was charged to the Fund's provision for
possible losses, resulting in net income of $0 related to Citadel II in the
first nine months of 1993.

On August 17, 1994, the Fund sold the Deluxe Check, or Arden Hills,
building in its Minnesota Portfolio for $5,550,000. Arden Hills, purchased
in February 1988, was the largest of the three buildings in the Minnesota
Portfolio. The terms of the sale are more fully described in Note 4 of the
accompanying financial statements.

The provision for possible losses, which is based on management's regular
evaluation of the recoverability of each investment in the portfolio, for
the nine-months ended September 30, 1994 was $780,000 ($1,070,000, net of
charge-offs of $290,000). During the second quarter of 1994, $1,070,000
was charged to the provision for possible losses to write-down the carrying
value of the Fund's Minnesota investment, based on a shorter estimated
remaining holding period for the Arden Hills building, to its estimated net
realizable value. The Fund realized a loss of $1,137,000 on the sale of
Arden Hills, $1,070,000 of which was recognized via the second quarter 1994
write-down. The remaining $67,000 was recorded in the third quarter of
1994.

Net rental income (rental income less real estate taxes and property
operating expenses) increased by $205,000, or 5%, from $3,826,000
(exclusive of $663,000 of net rental income related to Citadel II) for the
nine-month period ended September 30, 1993 to $4,031,000 for the nine-month
period ended September 30, 1994. This increase was primarily due to the
Fund obtaining title on April 13, 1994 to the Sheffield Forest Apartment
complex in Silver Spring, Maryland, as described in Note 2 of the
accompanying financial statements. This investment, which had been
classified as an in-substance foreclosed asset during all of 1993, provided
net rental income of $253,000 from April 13 through September 30, 1994.
This increase was partially offset by a $36,000 decrease in net rental
income from the Minnesota Portfolio resulting from the August 1994 sale of
the Arden Hills building.

At each of September 30, 1994 and September 30, 1993, the overall occupancy
rate of the Fund's remaining three direct real estate investments,
excluding Sheffield Forest Apartments, was 98%. The occupancy rate of
Sheffield Forest was 95% and 93% at September 30, 1994 and September 30,
1993, respectively. The overall occupancy rate of Plaza Del Amo, the
property underlying the Fund's mortgage loan investment, was 99% at
September 30, 1994, as compared to 94% at September 30, 1993. Leases for
1% of the rentable space of the properties directly owned by the Fund,
excluding Sheffield Forest, and for 2% of the rentable space at the
property underlying the Fund's Plaza Del Amo mortgage investment expire
over the remainder of 1994, respectively. Leases for units at Sheffield
Forest are generally for one-year terms as is customary for apartment
leases. The Fund's Adviser is currently working to renew leases and to
identify new tenants for space covered by leases that have expired or are
expiring. However, there is no assurance that the Fund will be able to
maintain its current occupancy and level of rental income.

Net income from in-substance foreclosed assets decreased by $1,757,000, or
84%, from $2,098,000 for the nine-months ended September 30, 1993 to
$341,000 for the comparable period of 1994. This decrease was a result of:
(i) the discounted payoff in late July 1993 of the Carmel mortgage loan
investment, which had been classified as an in-substance foreclosed asset
since 1991 and which contributed $915,000 in net income for the nine-months
ended September 30, 1993, and (ii) the default by the borrower on the
Sheffield Forest Apartments investment in January 1994, which had been
classified as an in-substance foreclosed asset since 1992. This default
was cured in April 1994, as described in Note 2 of the accompanying
financial statements. With respect to a mortgage loan treated for
accounting purposes as an in-substance foreclosed asset, revenue is
recognized only to extent of cash receipts. During the period of default,
the borrower remitted the net cash flow generated by the Sheffield property
to the Fund, resulting in a decrease of $842,000 in net income from in-
substance foreclosed assets from Sheffield for the nine-months ended
September 30, 1994 as compared to the same period in 1993.

Mortgage interest income decreased by $153,000, from $958,000 for the
nine-months ended September 30, 1993 to $805,000 for the comparable period
of 1994. This decrease was primarily attributable to (i) a decrease of
$44,000 in interest income earned from the Fund's investments in RTC-issued
mortgage-backed securities; and (ii) valuation adjustments of $83,000
recorded in the 1994 period to reduce the carrying value of such mortgage-
backed securities. Interest income earned from mortgage-backed securities
decreased as a result of a lower average investment balance in such
securities for the nine-months ended 1994 as compared to 1993. Valuation
adjustments to reduce the carrying value of such securities have been
recorded to reflect reductions in the market value of these investments
resulting from increases in prevailing interest rates. These investments
were acquired as an additional temporary investment vehicle for excess
working capital reserve balances.

Administrative expenses decreased by $171,000, from $890,000 for the nine-
months ended September 30, 1993 to $719,000 for the comparable period of
1994. This decrease was primarily due to lower advisory and administrative
fees, payable in the 1994 period, which fees are based on invested real
estate assets. The Fund's assets invested in real estate during the 1994
period decreased due to the payoff of the Carmel investment and subsequent
distribution of the proceeds to shareholders in 1993 and the sale of the
Arden Hills building in August 1994.

Investment income from short-term investments increased by $72,000, or 34%,
from $212,000 for the nine-months ended September 30, 1993 to $284,000 for
the same period of 1994. This increase is primarily due to income from the
investment of proceeds made available from the Arden Hills sale in August
1994 and an increase in prevailing short-term interest rates in 1994
compared with 1993.

Exclusive of the amounts related to Citadel II, depreciation and
amortization expense increased $61,000, and mortgage interest expense
decreased $7,000, respectively, for the nine-months ended September 30,
1994 compared to the same period of 1993.

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1994 VS. THREE-MONTH PERIOD ENDED
SEPTEMBER 30, 1993

The Fund had net income of $989,000, or $.09 per share, for the three-
months ended September 30, 1994, as compared to net income of $81,000, or
$.01 per share, for the same period of 1993. The Fund's results of
operations for the three-months ended September 30, 1993 includes a
provision for possible losses in the amount of $1,500,000, before charge-
offs related to Citadel II, to reduce the carrying value of Sheffield
Forest. Excluding this provision for possible losses for Sheffield, net
income decreased by $592,000 for the three-month period ended September
30, 1994 as compared to the same period in 1993. This decrease reflects:
(i) an increase in net rental income; (ii) a decrease in administrative
expenses; (iii) an increase in short-term investment income; and (iv)
decreases in net income from foreclosed assets and mortgage interest income,
in each case as compared to such items in the three-months ended
September 30, 1993 and exclusive of amounts for the Fund's former Citadel II
investment, if applicable.

Net rental income increased by $1,000, from $1,245,000 (exclusive of
$151,000 of net rental income from Citadel II) for the three-month period
ended September 30, 1993 to $1,246,000 for the three-month period ended
September 30, 1994. This increase was primarily due to the net rental
income of $45,000 attributable to Sheffield in the third quarter of 1994
and an increase in net rental income of $65,000 from the Fund's direct
investment in Seattle Industrial Parks. These increases were principally
offset by an $84,000 decrease in net rental income

from the Minnesota Portfolio. Seattle's net rental income increase, from
$751,000 in the three-months ended September 30, 1993 to $816,000 for the
same period in 1994, was primarily due to lower property operating expenses
in the third quarter of 1994 as compared to the same period of 1993. The
Minnesota decrease resulted from the sale of the Arden Hills building in
August 1994.

Net income from in-substance foreclosed assets decreased from $526,000 for
the three-months ended September 30, 1993 to $0 for the comparable period
of 1994, as a result of the discounted payoff in late July 1993 of the
Carmel mortgage loan investment in July of 1993 and the default by the
borrower on the Sheffield mortgage loan investment.

Mortgage interest income decreased by $99,000, from $384,000 for the three-
months ended September 30, 1993 to $285,000 for the comparable period of
1994. This decrease was attributable to (i) a $76,000 decrease in interest
income as a result of a lower average investment balance in RTC-
issued mortgage-backed securities during the third quarter of 1994 as
compared to the third quarter of 1993; and (ii) a valuation adjustment of
$23,000 recorded in the quarter ended September 30, 1994 to reduce the
carrying value of such investments to their market value at September 30,
1994.

Administrative expenses decreased by $40,000, from $274,000 for the three-
months ended September 30, 1993 to $234,000 for the comparable period of
1994. This decrease was primarily due to lower advisory and administrative
fees, payable in the 1994 period, which fees are based on invested real
estate assets. The Fund's assets invested in real estate during the 1994
period decreased due to the payoff of the Carmel investment and subsequent
distribution of the proceeds to shareholders in 1993 and the sale of Arden
Hills building in August 1994.

Short-term investment income increased by $53,000, or 72%, from $74,000 for
the three-months ended September 30, 1993 to $127,000 for the comparable
period of 1994. This increase was primarily due to income from the
investment of the proceeds received from the Minnesota sale in August of
1994, and an increase in prevailing short-term interest rates in 1994
compared to 1993.

The excess of the Citadel II property expenses over its net income for the
three-months ended September 30, 1993 of $128,000 was charged to the Fund's
allowance for possible losses, resulting in net income of $0 related to
Citadel II in the third quarter of 1993. Exclusive of the amounts related
to Citadel II, depreciation and amortization expense increased $29,000 and
mortgage interest expense decreased $3,000, respectively, for the three-
months ended September 30, 1994.

On September 22, 1994 the Fund declared a third quarter distribution of
$.15 per share, payable on October 28, 1994 to shareholders of record as of
September 30, 1994.

LIQUIDITY AND CAPITAL RESOURCES

During the nine-months ended September 30, 1994, the Fund generated funds
from operations (defined as net income, plus depreciation and amortization
and the provision for possible losses) in the amount of $4,559,000, or $.41
per share, compared to $5,899,000, or $.53 per share in the comparable 1993
period. For the nine-months ended September 30, 1994, distributions to
shareholders in the amount of $4,959,000 exceeded funds from operations
for that same period by $400,000. Funds from operations are generated from
the ongoing operations of the Fund's direct real estate investments and
interest income on short-term investments and its

mortgage loan. Accordingly, unfavorable economic conditions, vacancies,
environmental requirements, reductions in prevailing short-term interest
rates or increases in major expenses such as energy, insurance, and real
estate taxes could have an adverse impact upon the Fund's future funds from
operations and the Fund s ability to make distributions to shareholders.

As a matter of policy, the Fund seeks to maintain working capital reserves
in an amount not less than $2,300,000, which amount constitutes 2% of the
gross proceeds of the Fund's initial offering. Working capital reserves is
defined as cash and cash equivalents and other working assets expected to
be realized over the next year, less liabilities expected to be paid over
the next year. Working capital reserves at September 30, 1994 aggregated
approximately $15.1 million, representing 13.2% of the initial public
offering proceeds, compared to working capital reserves of $8.5 million at
December 31, 1993, which represented 7.4% of the Fund's initial offering
proceeds. The increase in working capital primarily reflects the net
proceeds received on the sale of Arden Hills in August 1994.

On October 3, 1994, the Fund sold the Seattle Industrial Portfolio for
$31,850,000. Net proceeds from the sale were $30,100,000, which reflects a
contract price of 35% above the Fund's cost ($22,300,000) when purchased in
January 1988. Of the Fund's $.69 per share and $.41 per share of funds
from operations generated by the Fund in the year ended December 31, 1993
and in the nine-months ended September 30, 1994, respectively, $.27 per
share and $.20 per share was attributable to the Seattle Portfolio. The
Fund's Adviser will continue to evaluate investment disposition
opportunities that are consistent with the Fund's liquidation objectives
and policies. The Fund presently intends, in accordance with its
Declaration of Trust, to sell all of its remaining real estate investments
and terminate the Fund between 1994 and 1999. Net proceeds from sale or
repayment will not be reinvested in real estate investments. Fund
management expects to pay out the net proceeds from the sales of Arden
Hills and Seattle, and any other sale that may occur in the remainder of
1994, to shareholders along with the Fund's normal year-end distributions.

During the fourth quarter of 1990, the Fund instituted a share repurchase
program. Under the program, the Fund is authorized to repurchase in the
open market from time to time up to 500,000 of the Fund's outstanding
shares. As of October 31, 1994, 413,725 shares have been repurchased at an
aggregate cost of $3,134,000. No shares were repurchased during the nine-
month period ended September 30, 1994.

It is the Fund's present intention to make aggregate distributions during
1994 of approximately $.60 per share, plus a return of capital distribution
principally representing the net proceeds from property sales. Such a
return of capital will reduce the book value of the Fund's shares, and also
the amount of future income the Fund may be expected to generate. The
Fund's continued ability to make quarterly distributions in the amount of
$.15 per share ($.60 annually) is dependent upon the Fund's financial
condition, its earnings and cash flow and other factors. As a result of the
Fund's recent property sales, and management's present intention to
distribute the net proceeds from such sales, the Fund's Board of Trustees
will evaluate the Fund's future distribution policy at its December 1994
Board meeting. Accordingly, there can be no assurance that the Fund will
be able to continue to make quarterly distributions to shareholders in the
amount of $.15 per share.

The Fund intends to continue to qualify as a real estate investment trust
under the Internal Revenue Code and distribute all of its taxable income.
The fund considers its liquidity, as well as its ability to generate cash,
as adequate to meet its presently foreseeable operating and shareholder
distribution requirements and to fund both its share repurchase program and
capital improvements on its direct real estate investments. However, if
additional funds are required, the Fund may borrow to meet its distribution
requirements, subject to the availability of financing in the marketplace.
At September 30, 1994, the Fund's debt to equity ratio was .04 to 1.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 2. Changes in Securities.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

Not Applicable

Item 5. Other Information.

None

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

27. Financial Data Schedule
A Financial Data Schedule for the nine months ended
September 30, 1994, was submitted in electronic format only.

(b) Reports on Form 8-K

During the third quarter ended September 30, 1994, the Fund
filed a Report on Form 8-K, dated August 17, 1994,
reporting, in Item 2, the sale of its Arden Hills (Deluxe
Check) investment. Item 7 financial statements included in
such filing were pro forma statements of operations for the
year ended December 31, 1993 and six-months ended June 30,
1994, respectively, and a pro forma balance sheet at June
30, 1994.

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Vanguard Real Estate Fund I,
A Sales-Commission-Free Income Properties Fund

DATE: November 14, 1994 John J. Brennan
President

DATE: November 14, 1994 Ralph K. Packard
Vice President & Controller