<PAGE> 1
A MESSAGE TO SHAREHOLDERS
Fellow Shareholder:
This is our first opportunity to write to you since the initial offering of
Vanguard Selected Value Portfolio took place on February 15, 1996. Whether you
joined the Portfolio on that date, or during the ensuing days through April 30,
1996, we welcome you as a charter shareholder. We want to thank you for your
confidence in Vanguard and in the investment adviser we have selected for the
Portfolio.
This first report to you on the operations of your Portfolio covers
the two and one-half months from its inception on February 15, 1996, through
April 30, the midpoint of its fiscal year. In this brief period, the Portfolio
provided a strong return, comfortably ahead of the return on its benchmark
index, but slightly behind the return on the average mid-capitalization mutual
fund. We stress that these small percentage differences in total return over
such a short period are hardly meaningful, and we present them solely to meet
our responsibility to report to shareholders.
For the record, the table below compares Selected Value's total return
(capital change plus reinvested dividends) with those of the average mid-cap
mutual fund and the unmanaged Russell Midcap Stock Index, the basic standard we
use to measure our relative performance.
<TABLE>
<CAPTION>
- -------------------------------------------------------
TOTAL RETURN
------------------
FEBRUARY 15, 1996,
TO APRIL 30, 1996
- -------------------------------------------------------
<S> <C>
SELECTED VALUE PORTFOLIO +6.3%
- -------------------------------------------------------
AVERAGE MID-CAP FUND +6.9%
RUSSELL MIDCAP STOCK INDEX +4.2
- -------------------------------------------------------
</TABLE>
The Portfolio's total return is based on net asset values of $10.00 per share
on February 15, 1996, and $10.63 on April 30, 1996. There were no
distributions of net income or net realized capital gains during the period.
THE PERIOD IN REVIEW
During the brief period in which the Portfolio was in operation, the stock
market provided positive returns. It had been buoyed by falling interest rates
through mid-January 1996, but surprisingly shrugged off the subsequent sharp
reversal in long-term interest rates. (The yield on the 30-year U.S. Treasury
bond rose from below 6.0% in mid-January, to 6.2% on February 15, when your
Portfolio began operations, to 6.8% by the end of April.) In short, it seemed
that both "good" and "bad" economic news were interpreted as good news for
stocks, suggesting that a speculative spirit is abroad in the land. In any
case, the result was a gain of +4.2% for the Russell Midcap Stock Index for
the two and one-half months. (The gain was +0.8% for the large-capitalization
Standard & Poor's 500 Composite Stock Price Index over the same period.)
Although the Federal Reserve lowered short-term interest rates in
December and January, the bond market fretted over the apparent strength of the
U.S. economy and the possibility of an increase in inflation. Since the end of
January, the performance of the stock and bond markets has "decoupled," as
long-term Treasury bonds lost a total of more than 8%, while stocks continued
to climb higher. It remains to be seen whether the stock market has enough
earnings growth momentum to withstand the competition for investors' dollars
that higher-yielding bonds might provide.
We are pleased to report that Vanguard Selected Value Portfolio is off
to a good start. By April 30, our asset base had grown to $55 million, which is
ample to diversify the Portfolio at minimal cost, and more than adequate to
assure operational efficiency and the low expense ratio that investors have
come to expect of funds in The Vanguard Group.
Over the long term, we believe that Selected Value's emphasis on
investing in undervalued, medium-sized companies with attractive prospects for
growth is a sound investment approach. We remind you that your Portfolio is
subject to the inevitable downturns that are part and parcel of investing in
the stock market, not to mention the incremental risk associated with our
strategy of
1
<PAGE> 2
keeping the Portfolio's holdings concentrated among 30 to 40 stocks. The key to
successful investing, of course, is to be prepared to ride out the stormy seas
that you will encounter, and "stay the course" toward your long-term investment
objective.
We intend to do precisely that in the management of your Portfolio. We
look forward to reporting to you in further detail in our first 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
May 21, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
REPORT FROM THE INVESTMENT ADVISER
On the occasion of our first letter to shareholders, we would like to share a
few of the ideas that are basic to our investing methodology. Our principal
objective is to provide superior long-term returns and reasonable consistency,
both achieved with below-average levels of risk. Achieving these seemingly
contradictory goals has, in the past, depended on our conducting original,
first-hand research in a very specialized universe of low-expectation
stocks--where research coverage is sparse and disappointments are already
believed to be mostly discounted. Some of our companies have business models
which are difficult to understand, others are the only publicly available
stocks in their industry, many have experienced what we believe to be temporary
difficulties or are simply not in vogue at the moment.
All are, we believe, undervalued for reasons we can substantiate. Each
investment must stand on its own in comparison with all available alternatives,
exhibiting below-average levels of valuation and superior normalized levels of
profitability and free cash generation. The timing of the expected recovery,
both fundamentally and in a stock market sense, is usually for each individual
stock the principal uncertainty, and here patience is our ally.
PERFORMANCE
It seems a bit premature to examine results of less than one quarter;
nevertheless, we were encouraged. Not only are we off to a reasonably good
start, but the "return pattern," as historically has been the case, has
differed significantly from that of small-, medium-, and large-capitalization
stocks. Fortunately, we have had several individual stocks "mature," i.e.,
develop positive fundamental momentum, while only one has been a significant
disappointment. In that instance, we have taken the opportunity to increase our
position substantially. We feel that the Portfolio is well situated to continue
to benefit from positive change at the individual company level as well as a
positive economic environment.
THE ECONOMY
We observe surprisingly few excesses; in fact, the economy seems to be in rare
balance. Credit markets, while typically volatile on the long end of the yield
curve, evidence what seems at this stage of the cycle to be a "normal"
positively sloped yield curve, with no particular strains or creditworthiness
difficulties. Likewise, the overall pattern of economic growth is about as far
from "boom-bust" as it can be. Each period of above-potential growth is
followed by a concentric offsetting slowdown--all having the effect of
preventing excess in any of the micro markets. The unusually restrained global
monetary and fiscal environments are probably largely responsible.
Our expectation is that over the next few years we will experience
continued growth, with the risk to the consensus lying on the side of strength.
There is reason to anticipate continued good growth in employment and real
wages, and these, combined with an extension of good gains in productivity
(despite recent revisions to the data), should support growth at least at
current levels. The "wild cards" we believe to be net exports and capital
spending--both inexorably linked to a better global economy, i.e., European and
Japanese recovery superimposed on a reacceleration in the Pacific Rim. Domestic
exports are surprisingly weighted by information-processing equipment and heavy
industrial capital goods and components. All, we believe, will be in high
demand over the balance of the decade and beyond.
Interest rates should continue to rise and the yield curve flatten.
The downside risk to our scenario is clearly found in the emergence of too much
strength, with its potential to produce difficulties in the credit and labor
markets. We have no particular feel as to the probability of such, but do
believe it's a more important risk than economic weakness.
THE MARKET
In general, we expect positive but restrained returns in an environment of
growth and rising interest rates. If for no other reason than the historically
high level of returns we have experienced for nearly a decade-and-a-half, we
should expect some moderation and reversion to the mean. Moreover, our sense is
that the element of surprise is gone regarding the very beneficial effects of
corporate reorganization which have, arguably, been
3
<PAGE> 4
responsible for much of the equity market's outstanding performance over the
last few years.
The good news for Selected Value is that we believe significantly more
value resides in the small- and mid-cap submarkets. By virtually any standard,
valuations here are below average or low in a relative sense. Prices have
lagged those in the major markets since 1994 until recently, all coming off
very depressed levels in 1991. We believe there is a lot of catching up to be
done. Finally, sales for these companies will maintain their historically
superior growth pattern and the relative lack of "foreign exposure" should be a
benefit in the expected strong dollar (at least stable) environment.
Respectfully,
Barrow, Hanley, Mewhinney & Strauss, Inc.
May 20, 1996
4
<PAGE> 5
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
April 30, 1996
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- --------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (88.2%)
- --------------------------------------------------------------------
BASIC MATERIALS (11.3%)
H.B. Fuller Co. 59,700 $ 1,940
* International Specialty
Products, Inc. 187,700 2,346
Quanex Corp. 89,300 1,965
--------
SECTOR TOTAL 6,251
--------
- --------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (27.6%)
Briggs & Stratton Corp. 40,200 1,824
Harnischfeger Industries Inc. 63,400 2,568
Keystone International, Inc. 98,300 2,150
Raychem Corp. 31,400 2,445
Stewart & Stevenson Services, Inc. 71,500 2,101
Thomas & Betts Corp. 55,300 2,177
Trinity Industries, Inc. 58,100 2,026
--------
SECTOR TOTAL 15,291
--------
- --------------------------------------------------------------------
CONSUMER CYCLICAL (21.9%)
Dillard Department Stores Class A 58,100 2,331
* Lear Seating Corp. 54,300 1,792
* Lechters Corp. 272,700 1,909
Snap-On Inc. 40,200 1,930
Sturm, Ruger & Co., Inc. 49,800 2,010
* Valassis Communication 135,300 2,131
--------
SECTOR TOTAL 12,103
--------
- --------------------------------------------------------------------
CONSUMER STAPLES (3.4%)
* Canandaigua Wine Co., Inc. Class A 62,900 1,903
--------
- --------------------------------------------------------------------
TRANSPORTATION (4.0%)
* Kirby Corp. 125,100 2,205
--------
- --------------------------------------------------------------------
FINANCIAL (4.9%)
* First Federal Financial Corp. 85,700 1,382
Life Partners Group, Inc. 64,600 1,349
--------
SECTOR TOTAL 2,731
--------
- --------------------------------------------------------------------
HEALTH CARE (10.0%)
Astra AB ADR 40,200 1,784
* Magellan Health Services Corp. 85,100 1,830
* Novo Nordisk AS ADR 58,200 1,906
--------
SECTOR TOTAL 5,520
--------
- --------------------------------------------------------------------
TECHNOLOGY (5.1%)
* Silicon Valley Group, Inc. 106,900 2,833
--------
- --------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $46,432) 48,837
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- --------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (14.6%)
- --------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.32%, 5/1/96
(Cost $8,105) $8,105 $ 8,105
- --------------------------------------------------------------------
TOTAL INVESTMENTS (102.8%)
(Cost $54,537) 56,942
- --------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.8%)
- --------------------------------------------------------------------
Other Assets--Note C 1,135
Liabilities (2,709)
--------
(1,574)
- --------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------
Applicable to 5,207,184 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $55,368
- --------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.63
====================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
AT APRIL 30, 1996, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------
Amount Per
(000) Share
------- ------
<S> <C> <C>
PAID IN CAPITAL $52,864 $10.15
UNDISTRIBUTED NET
INVESTMENT INCOME 99 .02
ACCUMULATED NET
REALIZED GAINS -- --
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE D 2,405 .46
- --------------------------------------------------------------------
NET ASSETS $55,368 $10.63
- --------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
February 15
to April 30, 1996
(000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fee--Note B . . . . . . . . . . . . . . . . . . . . . . 35
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . . . . . . . . . . . 11
Custodian Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 48
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . 99
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD . . . . . . . . . . . . . . . . --
- -------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION OF INVESTMENT SECURITIES . . . . . . . . . . . . . . . . 2,405
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . . . . . . $2,504
===================================================================================================================
</TABLE>
6
<PAGE> 7
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FEBRUARY 15
TO APRIL 30, 1996
(000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Unrealized Appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,405
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . . . . . . . . 2,504
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . --
- -------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,549
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . . . . --
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (785)
- -------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . . . 52,764
- -------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,268
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note E . . . . . . . . . . . . . . . . . . . . . . . . . 100
- -------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,368
===================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,274
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . . . . . . --
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77)
- -------------------------------------------------------------------------------------------------------------------
5,197
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FEBRUARY 15+
For a Share Outstanding Throughout the Period TO APRIL 30, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $10.00
------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . . .61
------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . .63
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . . --
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . . --
------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . --
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $10.63
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +6.30%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . $55
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . .75%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . . . 1.49%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
Average Commission Rate Paid . . . . . . . . . . . . . . . . . . . . . . . . . . $.0461++
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Commencement of operations.
++Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
8
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS
Vanguard Selected Value Portfolio 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 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 January 31, 1998, the Fund
pays Barrow, Hanley, Mewhinney & Strauss, Inc., an advisory fee calculated at
an annual percentage rate of average net assets. For the period ended April 30,
1996, the advisory fee represented an effective annual rate of .40 of 1% of
average net assets.
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, 1996, the Fund had contributed capital of $4,000 to
Vanguard (included in Other Assets), representing .02% of Vanguard's
capitalization. The Fund's officers and directors are also officers and
directors of Vanguard.
D. During the period ended April 30, 1996, the Fund made purchases of
$46,432,000 of investment securities other than U.S. Government securities and
temporary cash investments.
At April 30, 1996, net unrealized appreciation for financial reporting and
Federal income tax purposes aggregated $2,405,000 of which $3,119,000 related
to appreciated securities and $714,000 related to depreciated securities.
E. The Fund was organized on November 27, 1995, and its operations up to
February 15, 1996, were limited to the sale and issuance of 10,000 shares of
its common stock to an officer of the Fund's investment adviser.
9
<PAGE> 10
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board
Chairman and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The
Vanguard Group.
JOHN J. BRENNAN, President and Chief Executive Officer
President and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The
Vanguard Group.
ROBERT E. CAWTHORN, Chairman of Rhone-Poulenc
Rorer Inc.; Director of Sun Company, Inc.; Director of
Westinghouse Electric Corporation.
BARBARA BARNES HAUPTFUHRER, Director of The Great
Atlantic and Pacific Tea Co., Alco Standard Corp.,
Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BURTON G. MALKIEL, Chemical Bank Chairman's
Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern
New England Communications Co.
ALFRED M. RANKIN, JR., Chairman, President, and
Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co.,
and The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer
of The Nature Conservancy; formerly, Director and
Senior Partner of McKinsey & Co. and President of New
York University; Director of Pacific Gas and Electric Co.
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco
Brands, Inc.; retired Vice Chairman and Director of RJR
Nabisco; Director of TECO Energy, Inc. and Kmart Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive
Officer of Rohm & Haas Co.; Director of Cummins
Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice
President and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The
Vanguard Group, Inc., and of each of the investment
companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The
Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Information Technology Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
10
<PAGE> 11
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 Funds
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 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.
Q9342-4/96
VANGUARD
SELECTED VALUE
PORTFOLIO
SEMI-ANNUAL REPORT
APRIL 30, 1996
<PAGE> 12
