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VANGUARD LIFESTRATEGY FUNDS
PROSPECTUS SUPPLEMENT
JANUARY 9, 1996
The investment policies of Vanguard LIFEStrategy Funds have been revised by
adjusting the investment allocation of each LIFEStrategy Portfolio's assets
among the underlying Vanguard Funds. The allocation to the Vanguard Asset
Allocation Fund is being reduced from 30% of the Portfolios' assets to 25%.
Accordingly, the investment in other underlying Funds will be increased. This
minor adjustment will not change the target asset class allocations of the
Portfolios nor, therefore, their investment objectives. The targets will remain
as they currently are: Income Portfolio--20% stocks, 60% bonds, 20% reserves;
Conservative Growth Portfolio--40% stocks, 40% bonds, 20% reserves; Moderate
Growth Portfolio--60% stocks, 40% bonds; and the Growth Portfolio--80% stocks,
20% bonds.
The new Fund investment allocations for each Portfolio are listed in the
following table:
<TABLE>
<CAPTION>
Conservative Moderate
Investment Income Growth Growth Growth
Category Underlying Vanguard Funds Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCKS
U.S. VIT-Total Stock Market Portfolio 5% 20% 35% 50%
Int'l VIEIF-European and Pacific
Portfolios (1) 0 5 10 15
BONDS
VFISF-Short-Term Corporate,
Intermediate-Term Corporate,
Long-Term Corporate, and GNMA
Portfolios (2) 50 30 30 10
RESERVES
VFISF-Short-Term Corporate
Portfolio 20 20 0 0
ASSET ALLOCATION
COMPONENT
Vanguard Asset Allocation Fund 25 25 25 25
---------------------------------------------------------------------
100% 100% 100% 100%
</TABLE>
(1) The Portfolios will invest in the European and Pacific Portfolios so
that the combined weights parallel the Morgan Stanley Capital
International Europe, Australia and Far East (EAFE) Index.
(2) The Portfolios will divide their investments equally (i.e. 25% each)
between these four Vanguard Fixed Income Securities Fund Portfolios.
NOTE: Because of the fluctuating stock/bond ratio within Vanguard Asset
Allocation Fund, the allocation of stocks, bonds, and reserves in each Vanguard
LIFEStrategy Portfolio will fluctuate, but is expected to remain close to its
respective target allocations over time.
Vanguard STAR Fund (the "Fund") has recently received an order of the
Securities and Exchange Commission permitting the Fund to acquire up to 100% of
the voting shares of any of the Vanguard Funds in which it invests. The recent
order supersedes a prior order that permitted STAR Fund to operate as a "fund
of funds" (purchasing shares of other mutual funds) subject to the limitation
that it could not acquire more than 10% of the outstanding voting shares of any
Vanguard Fund it acquired. The recent order also permits the Board of
Directors/Trustees of the Vanguard Funds to modify the Funds' Service Agreement
to provide that STAR Fund may become a member of The Vanguard Group of
Investment Companies without bearing duplicative capital contribution or
expense allocation costs.
ALL VANGUARD FUNDS
The Vanguard Funds have adopted the following new administrative policies:
1. NEW MINIMUM INITIAL INVESTMENT AMOUNTS. Effective January 1,
1996, all Vanguard Funds will increase their minimum initial investments for
individual retirement accounts (IRAs) and Uniform Gifts/Transfers to Minors Act
accounts from $500 to $1,000. All Vanguard Funds will retain their current
minimum initial investments for other types of accounts, except for Vanguard
STAR Portfolio and Vanguard/Trustees' Equity Fund. Vanguard STAR Portfolio will
increase its minimum initial investment for other types of accounts from $500
to $1,000. Vanguard/Trustees' Equity Fund will decrease its minimum initial
investment for other types of accounts from $10,000 to $3,000.
(over, please)
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2. NEW LOW BALANCE FEE. Beginning in 1996, all Vanguard Funds will
automatically deduct a $10 annual fee from non-retirement accounts with
balances falling below a minimum level. This fee deduction will occur mid-year
and is designed to offset the disproportionately high costs of servicing
accounts with low balances. The low balance fee will apply to Uniform
Gifts/Transfers to Minors Act accounts and Vanguard STAR Portfolio accounts
with balances falling below $500. For all other Vanguard Fund accounts, the fee
will apply to balances falling below $2,500. The fee will be waived for
investors whose aggregate Vanguard Fund assets total $50,000 or more, and will
not apply to IRAs and other Vanguard retirement plan accounts. (Please note,
however, that a separate custodial fee applies to IRAs and other Vanguard
retirement plan accounts.)
PSCS
