<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
The six months ended June 30, the first half of Vanguard STAR Portfolio's 1995
fiscal year, was a highly favorable period for stocks and bonds. The stock
market, led by the large blue-chip stocks, leaped upward to post one of the
strongest six-month rallies on record. And long-term bonds, rebounding from a
tough 1994, performed in like fashion.
The following table compares STAR Portfolio's total return (capital
change plus income) for the past six months with those of the benchmarks
representing the three asset classes in which we invest: for stocks, the
unmanaged Standard & Poor's 500 Composite Stock Price Index; for bonds, the
unmanaged Lehman Aggregate Bond Index; and for cash reserves, the average money
market mutual fund. The table also shows the return of a composite mutual fund
portfolio, allocated according to STAR's investment policies.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Total Return
----------------
Six Months Ended
June 30, 1995
- ----------------------------------------------------------------
<S> <C>
VANGUARD STAR PORTFOLIO +15.6%
- ----------------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX +20.2%
LEHMAN AGGREGATE BOND INDEX +11.4
AVERAGE MONEY MARKET FUND + 2.7
- ----------------------------------------------------------------
MUTUAL FUND COMPOSITE* +13.0%
- ----------------------------------------------------------------
</TABLE>
* Weighted 62.5% in the average general equity fund, 25% in the average
fixed-income fund, and 12.5% in the average money market fund.
The total return of STAR Portfolio is based on net asset values of $12.61 per
share on December 31, 1994, and $14.32 per share on June 30, 1995, with the
latter figure adjusted to take into account the reinvestment of a semi-annual
dividend of $.25 per share from net investment income and a distribution of
$.005 per share from net capital gains realized during the prior year.
THE PERIOD IN REVIEW
After a moderately disappointing 1994, the stock market sprung to life as 1995
began. During the past six months, the market moved upward, week after week, in
virtually straight-line fashion, delighting the bulls and astonishing the
bears. On balance, the Dow Jones Industrial Average rose from 3834 as the year
began to 4556 on June 30.
As usual, there were many opinions as to the source of the market's
surprising strength. In my view, it resulted from a combination of: (1) the
sharp decline in interest rates (the yield on the long-term U.S. Treasury bond
fell from 7.8% to 6.6% during the period, a dip of 120 basis points); (2) the
diminishing threat of additional increases in short-term interest rates by the
Federal Reserve Board; (3) a slight softening in U.S. economic growth,
resulting in continued optimism about the outlook for inflation; (4)
record-breaking corporate profits; and (5) a hint of speculative fever in the
marketplace.
Whatever the reason, the stock market, as measured by the S&P 500
Index, provided an outstanding six-month return of +20.2%. The breadth of the
market's strength was particularly striking, with every major market sector
exhibiting double-digit gains. This breadth was largely reflected in the
different "styles" of investing, although growth stocks provided returns
marginally higher than value stocks, and large capitalization stocks outpaced
smaller stocks.
The Vanguard Funds held by STAR achieved returns that were broadly in
line with the respective markets in which they invest. Our growth-oriented
funds provided a solid contribution to the Portfolio's return, as U.S. Growth,
Morgan Growth, and PRIMECAP each outpaced the Standard & Poor's 500 Index.
(This Index was an unusually tough standard to beat during the past six months
and less than 20% of general equity mutual funds were able to do so.) The
return for Explorer fell short of the Index, primarily a reflection of the
Fund's smallcap emphasis.
Although value stocks trailed their growth stock counterparts, Windsor
Fund managed to eke out an advantage over the Index, while Windsor II lagged by
but a modest margin. On the bond side, the Long-Term Corporate Portfolio, given
its extended average maturity, benefited the most from the sharp decline in
interest rates; the GNMA Portfolio, with an average maturity less than one-half
that of Long-Term Corporate, achieved a more modest absolute return,
<PAGE> 2
but one that was better than its average competitor. Finally, as it has done on
a consistent basis, the Prime Portfolio outpaced the average money market fund.
This table shows the performance of the Vanguard Funds held by STAR over the
past six months:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Total Return
----------------
% of Six Months Ended
Vanguard Fund STAR Assets June 30, 1995
- ----------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS
WINDSOR II 41% +18.8%
WINDSOR FUND 7 +20.8
U.S. GROWTH PORTFOLIO 6 +20.7
MORGAN GROWTH FUND 3 +21.0
PRIMECAP FUND 3 +25.3
EXPLORER FUND 3 +12.5
- ----------------------------------------------------------------
BOND FUNDS
GNMA PORTFOLIO 13% +10.6%
LONG-TERM CORPORATE
PORTFOLIO 12 +15.4
- ----------------------------------------------------------------
MONEY MARKET FUND
PRIME PORTFOLIO 12% + 2.9%
- ----------------------------------------------------------------
TOTAL 100% +15.6%
- ----------------------------------------------------------------
</TABLE>
In the aggregate, the performance of our Vanguard stock and bond funds resulted
in a total return of +15.6%, a margin of 2.6 percentage points over the +13.0%
return that would have been earned by a mutual fund composite portfolio,
weighted in the same manner as STAR's stated investment policies. Since this
package of mutual funds would seem to be a reasonable benchmark against which
to measure our performance, we are pleased with our advantage thus far in 1995.
We also achieved, despite STAR's relatively higher weighting in lower-yielding
cash reserves, a nice edge over the average balanced fund, which registered a
six-month return of +13.7%.
IN SUMMARY
Our advice in the conclusion to STAR's 1994 Annual Report, coming after a tough
year for stocks and a downright negative year for bonds, was to "stay the
course" with STAR's balanced investment program. So far in fiscal 1995 it has
proved to be good advice, with the Portfolio earning the highest absolute total
return for any comparable period in its now ten-year history, along with a nice
edge over its average competitor.
That said, stocks and bonds have increased so much, in such a short time,
it seems appropriate to sound a note of caution and urge our shareholders not
to count on more of the same during the second half of the year. We look
forward to reporting to you on the full year's results, six months from now in
our 1995 Annual Report.
Sincerely,
/s/ JOHN C. BOGLE
- -----------------------------
John C. Bogle
Chairman of the Board
July 28, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
<PAGE> 3
TOTAL INVESTMENT RETURN TABLE
The following table illustrates the results of a single-share investment in
Vanguard STAR Portfolio since inception through June 30, 1995. During the
period illustrated, stock and bond 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 Portfolio
today.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA TOTAL INVESTMENT RETURN*
- ------------------------------------------------------------------------------------------------------------------------------------
STAR Portfolio
Value with Income ----------------------------------- Composite**
Year Ended Net Asset Capital Gains Income Dividends & Capital Capital Income Total Fund Average
December 31 Value Distributions Dividends Gains Reinvested Return Return Return Total Return
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (3/85) $10.00 -- -- $10.00 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1985 11.45 -- $.05 11.50 +14.5% +0.5% +15.0% +15.1%
- ------------------------------------------------------------------------------------------------------------------------------------
1986 11.34 $.71 .86 13.11 + 5.5 +8.4 +13.9 +12.3
- ------------------------------------------------------------------------------------------------------------------------------------
1987 9.98 .75 .85 13.33 - 5.5 +7.2 + 1.7 + 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
1988 11.12 .03 .69 15.86 +11.7 +7.3 +19.0 +11.9
- ------------------------------------------------------------------------------------------------------------------------------------
1989 12.05 .38 .77 18.84 +11.8 +7.0 +18.8 +18.5
- ------------------------------------------------------------------------------------------------------------------------------------
1990 10.73 .16 .73 18.16 - 9.6 +6.0 - 3.6 - 1.9
- ------------------------------------------------------------------------------------------------------------------------------------
1991 12.30 .37 .62 22.55 +18.1 +6.1 +24.2 +27.5
- ------------------------------------------------------------------------------------------------------------------------------------
1992 12.89 .18 .51 24.92 + 6.3 +4.2 +10.5 + 7.9
- ------------------------------------------------------------------------------------------------------------------------------------
1993 13.41 .40 .47 27.63 + 7.1 +3.8 +10.9 +10.6
- ------------------------------------------------------------------------------------------------------------------------------------
1994 12.61 .25 .52 27.57 - 4.1 +3.9 - 0.2 - 1.4
- ------------------------------------------------------------------------------------------------------------------------------------
1995 (6/30) 14.32 .01 .25 31.87 +13.6 +2.0 +15.6 +13.0
- ------------------------------------------------------------------------------------------------------------------------------------
LIFETIME +218.7% +189.4%
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURN +12.0% +10.9%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes reinvestment of income dividends and any capital gains
distributions for both the Portfolio and the Composite Fund Average.
** Composite Fund Average shown for comparative purposes comprises the Lipper
General Equity Fund Average (62.5%), the Lipper Fixed Income Fund Average
(25%), and the Lipper Money Market Fund Average (12.5%).
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIO (PERIODS ENDED JUNE 30, 1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
10 YEARS
----------------------------------
INCEPTION TOTAL CAPITAL INCOME
DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
--------- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
VANGUARD STAR PORTFOLIO 3/29/85 +17.73% +11.01% +11.68% +5.99% +5.69%
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
<PAGE> 4
FINANCIAL STATEMENTS
(unaudited)
June 30, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS (100.1%)
- ----------------------------------------------------------------------------------------------------------------------
Vanguard/Windsor II . . . . . . . . . . . . . . . . . . . . . . . . . . 93,978,255 $1,747,056
Vanguard/Windsor Fund . . . . . . . . . . . . . . . . . . . . . . . . . 21,089,581 316,555
Vanguard U.S. Growth Portfolio . . . . . . . . . . . . . . . . . . . . 13,193,129 244,205
Vanguard/Morgan Growth Fund . . . . . . . . . . . . . . . . . . . . . . 9,395,147 128,244
Vanguard/PRIMECAP Fund . . . . . . . . . . . . . . . . . . . . . . . . 5,713,404 142,549
Vanguard Explorer Fund . . . . . . . . . . . . . . . . . . . . . . . . 2,325,186 112,120
Vanguard Fixed Income Securities Fund-
GNMA Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,210,053 543,275
Long-Term Corporate Portfolio . . . . . . . . . . . . . . . . . . . . . 60,441,902 541,559
Vanguard Money Market Reserves-
Prime Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 519,737,036 519,737
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $3,746,851) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,295,300
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.1%)
- ----------------------------------------------------------------------------------------------------------------------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,808
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,659)
--------
(2,851)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------
Applicable to 299,787,053 shares of beneficial
interest (unlimited authorization--no par value) . . . . . . . . . . $4,292,449
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE . . . . . . . . . . . . . . . . . . . . . . . $14.32
======================================================================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
----------- ------
<S> <C> <C>
Paid in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,742,702 $12.49
Undistributed Net Investment Income . . . . . . . . . . . . . . . . . . 444 --
Accumulated Net Realized Gains . . . . . . . . . . . . . . . . . . . . 854 --
Unrealized Appreciation of Investments--Note C . . . . . . . . . . . . 548,449 1.83
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,292,449 $14.32
======================================================================================================================
</TABLE>
<PAGE> 5
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
JUNE 30, 1995 December 31, 1994
(000) (000)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . $ 74,591 $ 150,639
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955 72,622
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . 507,171 (230,387)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . . 583,717 (7,126)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . (74,115) (148,756)
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . (1,480) (71,831)
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . (75,595) (220,587)
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . . . . . . . . . . 212,547 609,354
-- In Lieu of Cash Distributions . . . . . . . . . . . . . 73,939 216,115
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . 44,456 143,518
Redeemed -- Regular . . . . . . . . . . . . . . . . . . . . . . . . (171,515) (277,280)
-- Exchange . . . . . . . . . . . . . . . . . . . . . . . . (141,325) (325,980)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . . . . . . . . . . 18,102 365,727
- ----------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . 526,224 138,014
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . 3,766,225 3,628,211
- ----------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . . . $4,292,449 $3,766,225
======================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . . . $.250 $.520
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . $.005 $.250
- ----------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,937 56,799
Issued in Lieu of Cash Distributions . . . . . . . . . . . . . 5,152 16,956
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,077) (45,491)
- ----------------------------------------------------------------------------------------------------------------------
1,012 28,264
- ----------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed) Net Investment Income . . . . $ 444 $ (32)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
(000)
- -------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income Distributions Received . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,591
- -------------------------------------------------------------------------------------------------------------
Net Investment Income--Note B . . . . . . . . . . . . . . . . . . . . . . 74,591
- -------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Capital Gain Distributions Received . . . . . . . . . . . . . . . . . . . . . . 1,163
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . . . . . 792
- -------------------------------------------------------------------------------------------------------------
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955
- -------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
OF INVESTMENT SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 507,171
- -------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations . . . . . . . . . . . $583,717
=============================================================================================================
</TABLE>
<PAGE> 7
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
SIX MONTHS ENDED --------------------------------------------------------
For a Share Outstanding Throughout Each Period JUNE 30, 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $12.61 $13.41 $12.89 $12.30 $10.73 $12.05
------- ------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Income Distributions Received . . . . . . . . . . .250 .53 .47 .51 .62 .73
Capital Gain Distributions Received . . . . . . . .005 .26 .36 .18 .35 .18
------- ------- ------- ------- ------- -------
Total Distributions Received . . . . . . . . . . .255 .79 .83 .69 .97 .91
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . . . 1.710 (.82) .56 .59 1.59 (1.34)
------- ------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . . . 1.965 (.03) 1.39 1.28 2.56 (.43)
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.250) (.52) (.47) (.51) (.62) (.73)
Distributions from Realized Capital Gains . . . . (.005) (.25) (.40) (.18) (.37) (.16)
------- ------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.255) (.77) (.87) (.69) (.99) (.89)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $14.32 $12.61 $13.41 $12.89 $12.30 $10.73
==================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +15.58% -0.21% +10.88% +10.51% +24.18% -3.62%
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . $4,292 $3,766 $3,628 $2,489 $1,574 $1,038
Ratio of Expenses to Average
Net Assets--Note B . . . . . . . . . . . . . . . . 0% 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 3.70%* 4.01% 3.67% 4.36% 5.48% 6.65%
Portfolio Turnover Rate . . . . . . . . . . . . . . . 8%* 9% 3% 3% 11% 12%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
Vanguard STAR Portfolio (the "Fund") is a Portfolio of Vanguard STAR Fund,
which is comprised of five independent portfolios, each of which is registered
under the Investment Company Act of 1940 as an 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. VALUATION: Investments are valued at the price of each Vanguard Fund
determined as of the close of the New York Stock Exchange (generally 4:00
PM) on the valuation date.
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. 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. Income and capital gain distributions received and distributions to
shareholders are recorded on the ex-dividend date.
B. Under a special service agreement, The Vanguard Group, Inc. furnishes
corporate management, administrative, marketing, and distribution services to
the Fund. The special service agreement provides that Vanguard will reimburse
the Fund's expenses to the extent of savings in administrative and marketing
costs realized by Vanguard in the operation of the Fund. Accordingly, all
expenses incurred by the Fund during the six months ended June 30, 1995, were
reimbursed by Vanguard. The Fund's officers and trustees are also officers and
directors of Vanguard.
C. During the six months ended June 30, 1995, the Fund made purchases of
$149,104,000 and sales of $183,368,000 of investment securities. At June 30,
1995, unrealized appreciation for financial reporting and Federal income tax
purposes aggregated $548,449,000, which was entirely related to appreciated
securities.
<PAGE> 9
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR 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 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 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.
Q562-6/95
[VANGUARD STAR PORTFOLIO LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 1995
<PAGE> 10
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
The first six months of 1995 was a remarkably favorable period for U.S.
financial assets, with both the stock and the bond markets rising steadily and
sharply. As a result, shareholders in the four Portfolios of Vanguard
LIFEStrategy Funds enjoyed handsome returns ranging from +13.3% to +15.5%,
pretty much in line with their respective levels of risk.
The table below shows the total return (capital change plus income) of
each Portfolio over the six months ended June 30, 1995. In each case, we
compare the Portfolio to an unmanaged composite index with a balance of stocks,
bonds, and reserves that parallels the construction of the Portfolio. (The
table at the top of page 2 illustrates each Portfolio's target allocation.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Total Return
----------------
Six Months Ended
LIFEStrategy Portfolio June 30, 1995
- ----------------------------------------------------------
<S> <C>
INCOME PORTFOLIO +13.3%
COMPOSITE INDEX +11.2
- ----------------------------------------------------------
CONSERVATIVE GROWTH PORTFOLIO +13.6%
COMPOSITE INDEX +11.9
- ----------------------------------------------------------
MODERATE GROWTH PORTFOLIO +15.2%
COMPOSITE INDEX +14.4
- ----------------------------------------------------------
GROWTH PORTFOLIO +15.5%
COMPOSITE INDEX +15.1
- ----------------------------------------------------------
</TABLE>
Total returns for each composite index reflect the results of the following
indexes: for U.S. stocks, the Wilshire 5000 Index; for International stocks,
the Morgan Stanley Capital International Europe, Australia, and Far East
("EAFE") Index; for bonds, the Lehman Aggregate Bond Index; and for reserves,
the 90-day U.S. Treasury bill.
The net asset values at the beginning and the end of the period, as well as
income dividends for each Portfolio, are shown in the table at the bottom of
page 2.
FINANCIAL MARKETS REVIEW
Following a dismal 1994 (appalling for bonds, merely poor for stocks) the U.S.
stock and bond markets rebounded dramatically during the first six months of
1995. Common stocks rose in "straight-line" fashion to post one of the best
half-year periods ever. The Wilshire 5000 Index, a measure of the total U.S.
equity market, provided a return of +19.2%. An auspicious set of conditions
boosted stock prices, including very strong gains in corporate profits, a sharp
drop in long-term interest rates, and an apparently diminishing threat of
additional hikes in short-term rates by the Federal Reserve Board.
The bond market was almost as buoyant as the stock market. For bonds,
of course, the driving factor in their strong performance was the sharp decline
in yields. The yield on the long-term U.S. Treasury bond fell from 7.8% on
December 31, 1994, to 6.6% on June 30, 1995, engendering a price rise of +16%.
This yield decline represents a retracing of much, but not all, of 1994's rate
rise, and can be attributed to a growing sense that inflation remains under
control at a relatively modest level (approximately 3.0%). Including income,
the long-term Treasury bond had a total return of +18.0%. Shorter-term bonds
also rose, albeit to a lesser degree; the two-year Treasury note posted a
return of +7.9%.
Compared to the stock and bond markets, the nation's money markets were
relatively calm, as the Federal Reserve held short-term rates in the area of 6%
during the past six months. The yield available on three-month Treasury bills
was 5.6% on June 30.
Foreign stocks were a mixed bag. The Morgan Stanley Capital
International Europe, Australia, and Far East Index provided a return of only
+2.8%. European markets provided reasonably strong results to U.S. investors
(+13.1% for the European Index); however, this result was attributable more to
a weak U.S. dollar than increases in local stock markets. In contrast, the
Pacific region provided poor results (-5.5% for the Pacific Index). This Index,
of course, is dominated by Japan, where the local market's precipitous fall
(-21.9%) was only partly offset for U.S. investors by a soaring yen (+17.5%).
THE LIFESTRATEGY PORTFOLIOS
As you know, each LIFEStrategy Portfolio is a diversified "fund of funds"
consisting of Vanguard Portfolios selected to represent the mix of stocks,
1
<PAGE> 11
bonds, and reserves targeted for that Portfolio. The table on the next page
provides a reminder of the "target" asset allocation for each Portfolio.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Conservative Moderate
Income Growth Growth Growth
Asset Class Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. STOCKS 20% 35% 50% 65%
INTERNATIONAL STOCKS -- 5 10 15
BONDS 60 40 40 20
RESERVES 20 20 -- --
---- ---- ---- ----
TOTAL 100% 100% 100% 100%
- -------------------------------------------------------------------
</TABLE>
Each Portfolio's return during the past six months reflects its asset
allocation policy. Given the superior returns achieved by U.S. equities during
the past six months, the higher the percentage of U.S. stocks held by a
Portfolio, the higher its return during the period (and, of course, the higher
the level of short-term risk it assumed). The more aggressive Portfolios
(Growth, Moderate Growth, and Conservative Growth) would have performed even
better on a relative basis had their international stock positions (15%, 10%,
and 5%) not dampened their returns. This effect is the price one pays for
diversification; in other periods, the Portfolios' international exposure may
enhance returns.
What is perhaps surprising is that the returns of the four Portfolios
ended the period in such a close range --from +13.3% to +15.5%--in spite of
their disparate asset allocation and risk levels. There were two reasons for
this convergence: (1) bond returns were very close to stock returns, aiding the
results of our Income and Conservative Growth Portfolios; and (2) each
Portfolio maintains a 30% weighting in Vanguard Asset Allocation Fund as a
means of making tactical reallocations among asset classes at the margin. This
Fund had a very successful first half, providing a return of +19.3%, slightly
exceeding the return of the Wilshire 5000 Stock Index, and contributing
importantly to each Portfolio's positive results.
In future periods, we would expect returns to be more divergent, since
stock and bond market returns are rarely so synchronized. We would also caution
shareholders not to soon expect a repeat of the returns enjoyed during the
first half of 1995. With bond yields now at much lower levels and stock prices
at historically high levels, further advances will be harder to come by.
Remember, our LIFEStrategy Portfolios are built for your long-term investment
needs. Enjoy the results of the past six months, but be prepared for
potentially rougher seas ahead.
Sincerely,
/s/ JOHN C. BOGLE
- -----------------
John C. Bogle
Chairman of the Board
July 10, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share
-------------------------------------- Income Capital Gains SEC
LIFEStrategy Portfolio December 31, 1994 June 30, 1995 Dividends Distributions Yield
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME $9.88 $10.95 $.24 - 5.53%
CONSERVATIVE GROWTH 9.89 11.03 .20 - 4.66
MODERATE GROWTH 9.86 11.23 .13 - 3.62
GROWTH 9.93 11.36 .11 - 2.88
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 12
AVERAGE ANNUAL TOTAL RETURNS
THE AVERAGE ANNUAL TOTAL RETURNS FOR THE PORTFOLIOS (PERIODS ENDED JUNE 30,
1995) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
------------------------------------
INCEPTION TOTAL CAPITAL INCOME
PORTFOLIO DATE RETURN RETURN RETURN
- --------------------- --------- ------ ------- ------
<S> <C> <C> <C> <C>
INCOME 9/30/94 +13.54% + 9.50% +4.04%
CONSERVATIVE GROWTH 9/30/94 +13.71 +10.08 +3.63
MODERATE GROWTH 9/30/94 +14.41 +11.52 +2.89
GROWTH 9/30/94 +15.39 +12.70 +2.69
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
3
<PAGE> 13
FINANCIAL STATEMENTS
(unaudited)
June 30, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Market
Value
INCOME PORTFOLIO Shares (000)+
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENTS (101.0%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Asset Allocation Fund............................................. 606,664 $ 9,682
Vanguard Fixed Income Securities Fund-
Short-Term Corporate Portfolio............................................ 943,013 10,137
Intermediate-Term Corporate Portfolio..................................... 373,308 3,655
Long-Term Corporate Portfolio............................................. 407,271 3,649
GNMA Portfolio............................................................ 358,432 3,660
Vanguard Index Trust-
Total Stock Market Portfolio.............................................. 120,547 1,619
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $30,406)............................................................. 32,402
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.0%)
- ----------------------------------------------------------------------------------------------------------------------
Other Assets............................................................... 390
Liabilities................................................................ (706)
--------
(316)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------
Applicable to 2,929,923 shares of beneficial
interest (unlimited authorization--no par value).......................... $32,086
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ................................................... $10.95
======================================================================================================================
+See Note A to Financial Statements.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
------- ------
<S> <C> <C>
Paid in Capital............................................................ $30,108 $10.28
Overdistributed Net Investment Income...................................... (18) (.01)
Accumulated Net Realized Gains............................................. -- --
Unrealized Appreciation of Investments--Note D............................. 1,996 .68
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................................ $32,086 $10.95
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 14
<TABLE>
<CAPTION>
Market
Value
CONSERVATIVE GROWTH PORTFOLIO Shares (000)+
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENTS (99.6%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Asset Allocation Fund............................................. 2,298,036 $ 36,677
Vanguard Fixed Income Securities Fund-
Short-Term Corporate Portfolio............................................ 3,086,937 33,185
Intermediate-Term Corporate Portfolio..................................... 881,037 8,625
Long-Term Corporate Portfolio............................................. 961,884 8,618
GNMA Portfolio............................................................ 845,927 8,637
Vanguard Index Trust-
Total Stock Market Portfolio.............................................. 1,554,630 20,879
Vanguard International Equity Index Fund-
European Portfolio........................................................ 241,783 3,240
Pacific Portfolio......................................................... 275,795 2,937
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $114,646)............................................................ 122,798
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.4%)
- ----------------------------------------------------------------------------------------------------------------------
Other Assets............................................................... 1,350
Liabilities................................................................ (870)
-------
480
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------
Applicable to 11,172,146 shares of beneficial
interest (unlimited authorization--no par value).......................... $123,278
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ................................................... $11.03
======================================================================================================================
+See Note A to Financial Statements.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- -------
<S> <C> <C>
Paid in Capital............................................................ $115,201 $10.31
Overdistributed Net Investment Income...................................... (58) (.01)
Overdistributed Net Realized Gains......................................... (17) --
Unrealized Appreciation of Investments--Note D............................. 8,152 .73
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................................ $123,278 $11.03
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 15
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
MODERATE GROWTH PORTFOLIO Shares (000)+
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENTS (99.2%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Asset Allocation Fund............................................. 1,980,826 $ 31,614
Vanguard Fixed Income Securities Fund-
Short-Term Corporate Portfolio............................................ 615,811 6,620
Intermediate-Term Corporate Portfolio..................................... 676,252 6,621
Long-Term Corporate Portfolio............................................. 737,944 6,612
GNMA Portfolio............................................................ 649,240 6,629
Vanguard Index Trust-
Total Stock Market Portfolio.............................................. 2,755,761 37,010
Vanguard International Equity Index Fund-
European Portfolio........................................................ 378,541 5,072
Pacific Portfolio......................................................... 518,658 5,524
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $97,401)............................................................. 105,702
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.8%)
- ----------------------------------------------------------------------------------------------------------------------
Other Assets............................................................... 1,369
Liabilities................................................................ (508)
-------
861
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------
Applicable to 9,488,502 shares of beneficial
interest (unlimited authorization--no par value).......................... $106,563
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ................................................... $11.23
======================================================================================================================
+See Note A to Financial Statements.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ------
<S> <C> <C>
Paid in Capital............................................................ $ 98,198 $10.35
Undistributed Net Investment Income........................................ 50 .01
Accumulated Net Realized Gains............................................. 14 --
Unrealized Appreciation of Investments--Note D.............................. 8,301 .87
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................................ $106,563 $11.23
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 16
<TABLE>
<CAPTION>
Market
Value
GROWTH PORTFOLIO Shares (000)+
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENTS (98.9%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Asset Allocation Fund............................................. 2,192,707 $ 34,996
Vanguard Fixed Income Securities Fund-
Short-Term Corporate Portfolio............................................ 272,645 2,931
Intermediate-Term Corporate Portfolio..................................... 300,167 2,939
Long-Term Corporate Portfolio............................................. 327,938 2,938
GNMA Portfolio............................................................ 287,958 2,940
Vanguard Index Trust-
Total Stock Market Portfolio.............................................. 3,921,786 52,669
Vanguard International Equity Index Fund-
European Portfolio........................................................ 627,801 8,413
Pacific Portfolio......................................................... 858,764 9,146
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $107,487)............................................................ 116,972
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.1%)
- ----------------------------------------------------------------------------------------------------------------------
Other Assets............................................................... 1,656
Liabilities................................................................ (373)
---------
1,283
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------------------------------------------------
Applicable to 10,410,186 shares of beneficial
interest (unlimited authorization--no par value)........................... $118,255
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ................................................... $11.36
======================================================================================================================
+See Note A to Financial Statements.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
-------- ------
<S> <C> <C>
Paid in Capital............................................................ $108,815 $10.45
Overdistributed Net Investment Income...................................... (41) --
Overdistributed Net Realized Gains......................................... (4) --
Unrealized Appreciation of Investments--Note D............................. 9,485 .91
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS ................................................................ $118,255 $11.36
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 17
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
CONSERVATIVE
INCOME GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1995
(000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income Distributions Received ................................... $ 594 $ 1,889
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income--Note B ............................. 594 1,889
- -----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Capital Gain Distributions Received ............................. -- --
Investment Securities Sold ...................................... (1) (4)
- -----------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss)................................... (1) (4)
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES ......................... 2,062 8,579
- -----------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .............................. $ 2,655 $ 10,464
=======================================================================================================================
</TABLE>
8
<PAGE> 18
<TABLE>
<CAPTION>
MODERATE
GROWTH GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1995
(000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income Distributions Received ................................... $1,262 $ 1,076
- -----------------------------------------------------------------------------------------------------------------------
Net Investment Income--Note B ............................. 1,262 1,076
- -----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Capital Gain Distributions Received ............................. -- --
Investment Securities Sold ...................................... 2 4
- -----------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss)................................... 2 4
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES ......................... 8,725 10,072
- -----------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .............................. $9,989 $ 11,152
=======================================================================================================================
</TABLE>
9
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CONSERVATIVE
INCOME GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED September 30+ to SIX MONTHS ENDED September 30+ to
JUNE 30, 1995 December 31, 1994 JUNE 30, 1995 December 31, 1994
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income.......................... $ 594 $ 153 $ 1,889 $ 552
Realized Net Gain (Loss)....................... (1) 1 (4) 27
Change in Unrealized
Appreciation (Depreciation)................. 2,062 (66) 8,579 (427)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations............. 2,655 88 10,464 152
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income.......................... (609) (156) (1,942) (557)
Realized Net Gain.............................. -- -- -- (40)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions...................... (609) (156) (1,942) (597)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular............................ 9,937 3,442 39,167 7,959
--In Lieu of Cash Distributions...... 436 108 1,738 532
--Exchange........................... 12,147 8,416 38,563 34,397
Redeemed --Regular............................ (1,073) (48) (1,478) (190)
--Exchange........................... (2,901) (356) (4,507) (980)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions.................... 18,546 11,562 73,483 41,718
- -----------------------------------------------------------------------------------------------------------------------
Total Increase........................... 20,592 11,494 82,005 41,273
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period............................ 11,494 -- 41,273 --
- -----------------------------------------------------------------------------------------------------------------------
End of Period (3).............................. $ 32,086 $ 11,494 $ 123,278 $ 41,273
=======================================================================================================================
(1) Distributions Per Share
Net Investment Income.................... $.24 $ .14 $.20 $ .14
Realized Net Gain........................ -- -- -- $ .01
- -----------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued .................................. 2,102 1,193 7,403 4,237
Issued in Lieu of Cash Distributions..... 40 11 159 54
Redeemed................................. (375) (41) (563) (118)
- -----------------------------------------------------------------------------------------------------------------------
1,767 1,163 6,999 4,173
- -----------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed)
Net Investment Income.................... $ (18) $ (3) $ (58) $ (5)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
+Commencement of Operations.
10
<PAGE> 20
<TABLE>
<CAPTION>
MODERATE
GROWTH GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED September 30+ to SIX MONTHS ENDED September 30+ to
JUNE 30, 1995 December 31, 1994 JUNE 30, 1995 December 31, 1994
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income.......................... $ 1,262 $ 439 $ 1,076 $ 469
Realized Net Gain (Loss)....................... 2 45 4 62
Change in Unrealized
Appreciation (Depreciation)................. 8,725 (424) 10,072 (587)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations............. 9,989 60 11,152 (56)
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income.......................... (1,190) (461) (1,093) (493)
Realized Net Gain.............................. -- (33) -- (70)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions...................... (1,190) (494) (1,093) (563)
- -----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular............................ 37,025 8,619 42,788 10,707
--In Lieu of Cash Distributions...... 1,133 472 1,075 551
--Exchange........................... 31,566 27,317 32,229 28,250
Redeemed --Regular............................ (1,331) (78) (1,206) (123)
--Exchange........................... (5,433) (1,092) (4,447) (1,009)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase from Capital
Share Transactions.................... 62,960 35,238 70,439 38,376
- -----------------------------------------------------------------------------------------------------------------------
Total Increase........................... 71,759 34,804 80,498 37,757
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period............................ 34,804 -- 37,757 --
- -----------------------------------------------------------------------------------------------------------------------
End of Period (3).............................. $ 106,563 $ 34,804 $ 118,255 $ 37,757
=======================================================================================================================
(1) Distributions Per Share
Net Investment Income.................... $.13 $.14 $.11 $ .14
Realized Net Gain........................ -- $.01 -- $ .02
- -----------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued .................................. 6,494 3,600 7,043 3,860
Issued in Lieu of Cash Distributions..... 101 48 95 55
Redeemed................................. (637) (118) (529) (114)
- -----------------------------------------------------------------------------------------------------------------------
5,958 3,530 6,609 3,801
- -----------------------------------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed)
Net Investment Income.................... $ 50 $ (22) $ (41) $ (24)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
+Commencement of Operations.
11
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CONSERVATIVE
INCOME GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED September 30+ to SIX MONTHS ENDED September 30+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1995 December 31, 1994 JUNE 30, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............ $9.88 $10.00 $9.89 $10.03
----- ------ ----- ------
INVESTMENT OPERATIONS
Income Distributions Received ................ .24 .14 .20 .14
Capital Gain Distributions Received........... -- -- -- .01
----- ------ ----- ------
Total Distributions Received ................. .24 .14 .20 .15
Net Realized and Unrealized Gain (Loss)
on Investments............................. 1.07 (.12) 1.14 (.14)
----- ------ ----- ------
TOTAL FROM INVESTMENT
OPERATIONS ......................... 1.31 .02 1.34 .01
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income.......................... (.24) (.14) (.20) (.14)
Distributions from Realized
Capital Gains.............................. -- -- -- (.01)
----- ------ ----- ------
TOTAL DISTRIBUTIONS .................... (.24) (.14) (.20) (.15)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .................. $10.95 $9.88 $11.03 $9.89
=======================================================================================================================
TOTAL RETURN .................................... +13.32% +0.20% +13.59% +0.10%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------
Net Assets, End of Period (Millions)............. $32 $11 $123 $41
Ratio of Expenses to Average
Net Assets--Note B............................. 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets............................ 5.54%* 7.31%* 4.62%* 7.07%*
Portfolio Turnover Rate.......................... 11%* 1% 1%* 0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
+Commencement of Operations.
12
<PAGE> 22
<TABLE>
<CAPTION>
MODERATE
GROWTH GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED September 30+ to SIX MONTHS ENDED September 30+ to
For a Share Outstanding Throughout Each Period JUNE 30, 1995 December 31, 1994 JUNE 30, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............ $9.86 $10.08 $9.93 $10.10
----- ------ ----- ------
INVESTMENT OPERATIONS
Income Distributions Received ................ .14 .14 .11 .13
Capital Gain Distributions Received........... -- .01 -- .02
----- ------ ----- ------
Total Distributions Received ................. .14 .15 .11 .15
Net Realized and Unrealized Gain (Loss)
on Investments............................. 1.36 (.22) 1.43 (.16)
----- ------ ----- ------
TOTAL FROM INVESTMENT
OPERATIONS ......................... 1.50 (.07) 1.54 (.01)
- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income.......................... (.13) (.14) (.11) (.14)
Distributions from Realized
----- ------ ----- ------
Capital Gains.............................. -- (.01) -- (.02)
----- ------ ----- ------
TOTAL DISTRIBUTIONS .................... (.13) (.15) (.11) (.16)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD .................. $11.23 $9.86 $11.36 $9.93
=======================================================================================================================
TOTAL RETURN .................................... +15.21% -0.70% +15.51% -0.10%
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions)............. $107 $35 $118 $38
Ratio of Expenses to Average
Net Assets--Note B............................. 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets............................ 3.62%* 7.10%* 2.80%* 7.06%*
Portfolio Turnover Rate.......................... 4%* 0% 3%* 1%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
+Commencement of Operations.
13
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
Vanguard LIFEStrategy Funds (the "Fund") consists of the Income, Conservative
Growth, Moderate Growth, and Growth Portfolios of Vanguard STAR Fund. Each
Portfolio of Vanguard STAR Fund is registered under the Investment Company Act
of 1940 as an 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. VALUATION: Investments are valued at the price of each Vanguard Fund
determined as of the close of the New York Stock Exchange (generally 4:00 PM)
on the valuation date.
2. FEDERAL INCOME TAXES: Each Portfolio of 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. 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. Income
and capital gain distributions received and distributions to shareholders are
recorded on the ex-dividend date.
B. Under a special service agreement, The Vanguard Group, Inc. furnishes
corporate management, administrative, marketing, and distribution services to
the Fund. The special service agreement provides that Vanguard will reimburse
the Fund's expenses to the extent of savings in administrative and marketing
costs realized by Vanguard in the operation of the Fund. Accordingly, all
expenses incurred by the Fund during the six months ended June 30, 1995, were
reimbursed by Vanguard. The Fund's officers and trustees are also officers and
directors of Vanguard.
C. During the six months ended June 30, 1995, purchases and sales of investment
securities were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(000)
--------------------------
Portfolio Purchases Sales
- ---------------------------------------------------------
<S> <C> <C>
INCOME $20,082 $1,118
CONSERVATIVE GROWTH 73,808 230
MODERATE GROWTH 64,589 1,339
GROWTH 71,262 1,000
- ---------------------------------------------------------
</TABLE>
D. At June 30, 1995, unrealized appreciation of investment securities for
financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(000)
---------------------------------------
Appreciated Depreciated Net Unrealized
Portfolio Securities Securities Appreciation
- ------------------------------------------------------------
<S> <C> <C> <C>
INCOME $1,996 -- $1,996
CONSERVATIVE GROWTH 8,355 $(203) 8,152
MODERATE GROWTH 8,607 (306) 8,301
GROWTH 9,985 (500) 9,485
- ------------------------------------------------------------
</TABLE>
14
<PAGE> 24
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer Chairman and Director of The
Vanguard Group, Inc., and of each of the investment companies in The Vanguard
Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman of Rhone-Poulenc Rorer, Inc.; Director of Sun
Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of American
Express Bank Ltd., The St. Paul Companies, Inc., and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corporation,
Baker Fentress & Co., The Jeffrey Co., nd Southern New England Communications
Company.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and Kmart
Corporation.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Company;
Director of Cummins Engine Company; Trustee of Vanderbilt University and the
Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of each
of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO IAN A. MACKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
15
<PAGE> 25
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR 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 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
[VANGUARD GROUP LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739
</TABLE>
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.
Q882-6/95
VANGUARD LIFESTRATEGY FUNDS LOGO
SEMI-ANNUAL REPORT
JUNE 30, 1995
