<PAGE> 1
VANGUARD
LIFESTRATEGY
PORTFOLIOS
Semiannual Report - June 30, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 7,000 highly
motivated men and women--who form the cornerstone of our operations. We could
not survive long--let alone prosper--without them. That's why we chose this
fiscal year's fund reports to celebrate the spirit, enthusiasm, and achievements
of our crew. (We call those who work at Vanguard crew members, not employees,
because they operate as a team to accomplish our mission of serving you, our
clients.)
But while we prize the collective contributions of our crew, we also
take time to recognize the importance of the individual. Each calendar quarter,
we present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving
you in the years ahead.
[PHOTO] [PHOTO]
John C. Bogle John J. Brennan
Senior Chairman Chairman & CEO
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS......................... 1
THE MARKETS IN PERSPECTIVE ........................... 6
PERFORMANCE SUMMARIES ................................ 8
PORTFOLIO PROFILES ................................... 10
FINANCIAL STATEMENTS ................................. 15
</TABLE>
All comparative mutal fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
Financial markets were generally favorable during the first half of
1998, a fact reflected in the solid returns for the Vanguard LifeStrategy
Portfolios. The half-year returns ranged from +7.0% for the Income Portfolio
(about 80% invested in bonds and cash reserves) to +13.5% for the Growth
Portfolio (about 80% invested in stocks).
The adjacent table presents each portfolio's total return (capital
change plus reinvested dividends) for the six months ended June 30. Also
represented are the composite benchmarks against which we measure those returns.
These composites are constructed from unmanaged indexes in proportions that
match the target asset-class weightings of the respective portfolios. You will
note that each of our portfolios outpaced its benchmark.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 1998
- ---------------------------------------------------------------------
<S> <C>
LIFESTRATEGY INCOME + 7.0%
Income Composite Index* + 5.9
- ---------------------------------------------------------------------
LIFESTRATEGY CONSERVATIVE GROWTH + 9.1%
Conservative Growth Composite Index* + 8.2
- ---------------------------------------------------------------------
LIFESTRATEGY MODERATE GROWTH +11.4%
Moderate Growth Composite Index* +10.9
- ---------------------------------------------------------------------
LIFESTRATEGY GROWTH +13.5%
Growth Composite Index* +13.2
- ---------------------------------------------------------------------
</TABLE>
*Total returns for the composite indexes are derived by applying the portfolio's
target allocation to the results of the following benchmarks: for U.S. stocks,
the Wilshire 5000 Equity Index; for international stocks, the Total
International Composite Index; for bonds, the Lehman Brothers Aggregate Bond
Index; and for cash reserves, the Salomon Brothers Three-Month U.S. Treasury
Bill Index.
The portfolios' net asset values at the beginning and end of the period,
along with their income dividends during the half-year and yields as of June 30,
are presented in the table at the end of this letter.
THE PERIOD IN REVIEW
The U.S. economy grew vigorously, inflation was subdued, and interest rates
declined during the first half of 1998. Strong consumer spending, triggered by
high employment and rising wages, was the economy's propellant and was more than
enough to offset the negative effects of Asia's severe economic slump.
Asia's troubles were partly responsible for the benign behavior of
inflation--consumer prices rose only 1.1% for the six months and 1.7% for the
twelve months ended June 30. And low inflation soothed the bond market, where
bond prices rose and interest rates declined: The yield on the 30-year U.S.
Treasury bond was 5.63% on June 30, down 29 basis points (0.29 percentage point)
from its yield at the start of the year.
Stock prices rose in five of the period's six months, with the market
rebounding strongly in June from a modest setback in May. The stock market's
advance was--once again--led by a relatively narrow segment of blue-chip growth
companies. More than half of the S&P 500 Index's remarkable +17.7% return during
the period was accounted for by fewer than 20 very large-capitalization stocks.
The growth component of the S&P 500 Index returned +23.1%, nearly double the
+12.1% earned by the value stocks within the Index. The Wilshire 5000 Index,
comprising essentially all the stocks traded in the United States, earned
+15.4%.
THE LIFESTRATEGY PORTFOLIOS
As "funds of funds," the LifeStrategy Portfolios consist of shares in other
Vanguard mutual funds that are chosen to represent targeted mixes of stocks,
bonds, and cash reserves. The table on page 2 shows each portfolio's asset
allocation as of June 30.
1
<PAGE> 4
The "reserves" allocation shown in the table reflects the cash
investments held by Vanguard Asset Allocation Fund, in which all of our
portfolios invest 25% of their assets. As of June 30, Asset Allocation Fund held
20% of its assets in cash equivalents. Please note that the "bond" allocation
for our LifeStrategy Income and Conservative Growth Portfolios now includes
their holdings, equal to 20% of assets, in the Short-Term Corporate Portfolio of
Vanguard Fixed Income Securities Fund. In past reports, we included this
allocation in the reserves category, a classification that some investors found
confusing. This change is only in our nomenclature, not in the way your
portfolios are invested.
<TABLE>
<CAPTION>
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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 75 55 35 15
Reserves 5 5 5 5
- ------------------------------------------------------------------------
TOTAL 100% 100% 100% 100%
- ------------------------------------------------------------------------
</TABLE>
Asset Allocation Fund adjusted its asset mix 11 times during the
half-year. Its allocation to stocks ranged from a high of 70% to a low of 50%,
its bond allocation ranged from 40% to 20%, and its allocation to cash ranged
from 20% to zero. These shifts proved on balance to be helpful, and the fund's
14.7% return during the half-year was 1 percentage point higher than the 13.7%
return that would have been earned by a static allocation of 65% to stocks and
35% to long-term U.S. Treasury bonds. The LifeStrategy Portfolios also benefited
from the fact that the stock portion of Asset Allocation Fund is invested in the
S&P 500 Index, whose performance benefited so strongly from the market's bias
toward large-cap stocks.
With their heavier weighting in bonds and lighter allocation to stocks,
the Income Portfolio and the Conservative Growth Portfolio were not able to
generate double-digit returns for the half-year. Nevertheless, both joined the
Moderate Growth Portfolio in outperforming their respective benchmark indexes by
a fair margin. The Growth Portfolio's +13.5% return was also enough to narrowly
defeat the Growth Composite Index.
IN SUMMARY
We confess to having been surprised--though quite gratified--by the strength of
the stock market's continuing advance during the first half of 1998.
Though we claim no predictive powers, we feel safe in saying that such
outsized returns can't continue indefinitely. And we reiterate our long-standing
recommendation that investors hold balanced portfolios--consisting of bond and
money market funds in addition to stock funds--appropriate to their unique
financial situations, goals, and temperaments. Such diversification is, of
course, the very idea of LifeStrategy Portfolios, which, as their names imply,
we believe to be suitable vehicles for helping you steer a steady course toward
your long-term investment goals.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
July 16, 1998
2
<PAGE> 5
<TABLE>
<CAPTION>
PORTFOLIO STATISTICS
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE SIX MONTHS ENDED JUNE 30, 1998
------------------------------- ---------------------------------------------
DECEMBER 31, JUNE 30, INCOME CAPITAL GAINS SEC
LIFESTRATEGY PORTFOLIO 1997 1998 DIVIDENDS DISTRIBUTIONS YIELD*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income $12.43 $13.00 $0.30 -- 5.17%
Conservative Growth 13.40 14.37 0.25 -- 4.17
Moderate Growth 14.81 16.31 0.19 -- 3.23
Growth 16.04 18.09 0.12 -- 2.25
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*30-day advertised yield net of expenses at month-end.
3
<PAGE> 6
Notice to Shareholders
At a special meeting on June 30, 1998, shareholders of Vanguard LifeStrategy
Portfolios overwhelmingly approved five proposals. The proposals and voting
results were:
1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. Vanguard LifeStrategy
Portfolios will not realize a tax savings as a result of the change, but the
fund will benefit from the efficiency of being organized the same way as all
other Vanguard funds. Approved by 96.35%* of the shares voted, as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- -----------------------------------------------------------------------------
<S> <C> <C>
555,282,847 11,339,142 9,715,775
- -----------------------------------------------------------------------------
</TABLE>
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. Permits
LifeStrategy Portfolios to participate in Vanguard's interfund lending program,
which allows funds to loan money to each other if--and only if--it makes good
financial sense to do so on both sides of the transaction. The interfund lending
program won't be an integral part of your portfolios' investment program; it is
a contingency arrangement for managing unusual cash flows. Approved as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN APPROVED BY
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income 12,404,868 310,921 475,920 94.04%
- ---------------------------------------------------------------------------------------
Conservative Growth 47,962,743 959,270 780,172 96.50%
- ---------------------------------------------------------------------------------------
Moderate Growth 61,883,222 854,567 902,222 97.24%
- ---------------------------------------------------------------------------------------
Growth 48,073,060 841,286 1,388,927 95.57%
- ---------------------------------------------------------------------------------------
</TABLE>
2b. INVESTMENT LIMITATION CHANGES--BORROWING MONEY AND PLEDGING ASSETS. This
change sets standard limits of 15% of net assets on the amount of money Vanguard
funds can borrow from all sources and on the amount of assets that can be
pledged to secure any loans. Approved as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN APPROVED BY
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income 12,232,897 393,000 565,813 92.73%
- ---------------------------------------------------------------------------------------
Conservative Growth 46,687,932 2,045,348 968,905 93.94%
- ---------------------------------------------------------------------------------------
Moderate Growth 58,559,419 4,036,848 1,043,744 92.02%
- ---------------------------------------------------------------------------------------
Growth 46,197,218 2,571,197 1,534,858 91.84%
- ---------------------------------------------------------------------------------------
</TABLE>
*The results shown for this proposal represent votes cast on behalf of all of
the portfolios of Vanguard STAR Fund: Vanguard STAR Portfolio, Vanguard
LifeStrategy Portfolios, and Vanguard Total International Portfolio.
4
<PAGE> 7
2c. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN SECURITIES OWNED BY
AFFILIATES. This change eliminates the portfolios' policy of avoiding
investments in securities that are owned in certain amounts by Trustees,
officers, and key advisory personnel. This policy was well intentioned but
wrongly focused and unnecessary in light of the portfolios' Code of Ethics and
other regulatory protections against conflicts of interest on the part of
portfolio management. Approved as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN APPROVED BY
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income 12,239,371 403,898 548,441 92.78%
- --------------------------------------------------------------------------------------
Conservative Growth 47,069,468 1,654,032 978,686 94.70%
- --------------------------------------------------------------------------------------
Moderate Growth 61,016,258 1,444,853 1,178,900 95.88%
- --------------------------------------------------------------------------------------
Growth 47,257,398 1,432,464 1,613,411 93.95%
- --------------------------------------------------------------------------------------
</TABLE>
2d. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN UNSEASONED COMPANIES. This
change eliminates the portfolios' policy of not investing more than 5% of net
assets in securities issued by companies that have fewer than three years of
operating history, taking into account any predecessors. Approved as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN APPROVED BY
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income 12,080,862 546,605 564,241 91.58%
- --------------------------------------------------------------------------------------
Conservative Growth 45,896,409 2,368,884 1,436,892 92.34%
- --------------------------------------------------------------------------------------
Moderate Growth 59,682,481 2,292,871 1,664,659 93.78%
- --------------------------------------------------------------------------------------
Growth 46,340,857 2,281,950 1,680,466 92.12%
- --------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
THE MARKETS IN PERSPECTIVE
Six Months Ended June 30, 1998
Blue skies predominated for U.S. financial markets during the first
six months of 1998, and even the occasional clouds had silver linings. The bond
market provided solid returns during the half-year, while the stock market's
performance was extraordinarily strong.
After expanding at a 5.4% annual pace during the first quarter, the
U.S. economy kept steaming along through June, fueled by powerful increases in
household spending. Consumers had reason to be upbeat: plentiful jobs
(unemployment fell to 4.3% of the workforce in May); rising wages (personal
income in May was 5.9% higher than in May 1997); and tame inflation (consumer
prices in June were up only 1.7% from a year before).
The economic push provided by consumers more than compensated for the
drag caused by Asia's severe economic problems. Weakening currencies and
business slowdowns in Asia cut into U.S. exports and lowered the cost of Asian
imports, causing the U.S. trade deficit to hit record levels. Ominously, Asia's
problems appear to be more serious and enduring than many economists expected.
Yet for Americans this "Asian contagion" has a bright side: It serves as an
escape valve for the inflationary pressures that ordinarily would be expected to
build up with the U.S. economy humming along at high speed.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998
------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 17.7% 30.2% 23.1%
Russell 2000 Index 4.9 16.5 16.0
MSCI EAFE Index 16.1 6.4 10.3
- --------------------------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 3.9% 10.5% 6.9%
Lehman 10-Year Municipal Bond Index 2.6 8.5 6.6
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.6 5.3 4.9
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.1% 1.7% 2.5%
- --------------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. EQUITY MARKETS
The mixture of robust economic growth and anemic inflation was a tonic for the
U.S. stock market. Although prices generally rose, there were striking
disparities in returns between large-capitalization and small-cap stocks and
between growth and value stocks. The large-cap-dominated S&P 500 earned 17.7%
during the six months, nearly double the 9.4% return on the rest of the market
(as measured by the Wilshire 4500 Index) and more than triple the 4.9% return on
the small-cap Russell 2000 Index. Within the S&P 500 Index, growth stocks were
up 23.1%, while value stocks rose 12.1%.
A decline in interest rates contributed to the stock market's rise, as
falling rates on bonds tend to make equities more attractive and to boost the
price investors will pay for each dollar of a stock's earnings or dividends. Yet
growth in earnings and dividends--the long-term underpinning of stock
prices--was unimpressive during the first half of 1998.
Corporate earnings estimates were reduced in June, the tenth consecutive
month in which securities analysts have cut their earnings estimates, according
to I/B/E/S International, a financial research group. Earnings by the S&P 500
companies were expected to
6
<PAGE> 9
rise by only about 2% for the first half of 1998, I/B/E/S reported. With gains
in prices outstripping increases in earnings and dividends, stock valuations are
at or near all-time highs, an indication that investors expect ideal conditions
to continue.
Technology stocks were the best-performing sector during the first half
of 1998, generating a 32.7% return. Three other sectors of the stock
market--health care, consumer discretionary stocks such as retailers, and auto &
transportation--each provided returns of about 25% for the six months. Companies
involved in energy, chemicals, or other commodity-based businesses were
generally laggards. Prices of many commodities have declined as Asia's economic
funk cuts demand for energy and other industrial materials in the face of
plentiful supplies.
U.S. FIXED-INCOME MARKETS
Investors in fixed-income securities enjoyed a moderate rise in the market value
of their holdings because of declining interest rates. This price appreciation,
added to coupon interest income, resulted in solid total returns. The 3.9% total
return of the Lehman Aggregate Bond Index during the half-year brought its
return for the 12 months ended June 30 to 10.5%, or a very generous 8.8% after
adjustment for inflation.
Yields on 10-year and 30-year U.S. Treasury bonds declined by 29 basis
points (0.29 percentage point) to 5.45% and 5.63%, respectively, during the
first half of 1998, with most of the drop occurring during the second quarter.
The yield on 3-month Treasury bills declined 36 basis points to 4.99%. Mild
inflation--consumer prices were up 1.1% for the half-year--enabled rates to
decline despite the economy's strong growth.
Yields on corporate and municipal bonds did not decline as far as those
on Treasury securities because of a large increase in the supply of new bonds
issued by companies and municipalities taking advantage of lower rates to
refinance old debt. Similarly, mortgage-backed securities did not match
Treasuries' performance because of expectations that large numbers of homeowners
would pay off old, higher-coupon mortgage loans and refinance with new,
lower-rate loans.
INTERNATIONAL EQUITY MARKETS
Stock markets in Europe soared while those in Asia and most emerging economies
suffered steep declines in U.S.-dollar terms. The 16.1% overall return from
international markets, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East Index, masked the divergence between Europe and
other regions.
Europe's markets were up 27.1% when measured in local currencies and
26.5% in U.S. dollars, after adjusting for a slight overall rise in the dollar's
value. Stocks benefited from an upswing in most European economies, from signs
that corporate managers are increasingly focused on shareholder value, and from
optimism concerning next year's planned adoption of the euro as a single
European currency.
In the Pacific, which is dominated by Japan's stock market, stocks were
buffeted by several problems: slowing growth in economic activity; continued
instability in currencies; political upheavals; and widespread worries about
corporate and banking insolvencies. On balance, the region's stocks fell 6.0% in
U.S.-dollar terms. Japanese stocks were down 2.5%, but losses were more severe
in the region's smaller markets.
Emerging markets were, on balance, down sharply. Asian stock markets
were hurt by continued weakness in the currency values of several countries, by
Japan's recession, and by a growing conviction that the region's economic
troubles are far from transitory. Venezuela and Mexico, both key oil-producing
nations, were hard hit by falling oil prices.
7
<PAGE> 10
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the portfolios. Note, too, that
both share price and return can fluctuate widely, so an investment in the
portfolios could lose money.
<TABLE>
<CAPTION>
INCOME PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 1998
- ------------------------------------------------------------
INCOME PORTFOLIO MUTUAL FUND
BENCHMARK*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -1.2% 1.4% 0.2% -0.2%
1995 17.7 5.3 23.0 16.0
1996 1.9 5.7 7.6 7.5
1997 8.5 5.7 14.2 11.0
1998** 4.6 2.4 7.0 4.9
- ------------------------------------------------------------
</TABLE>
* A composite fund average weighted 60% average fixed-income fund, 20% average
general equity fund, and 20% average money market fund.
**Six months ended June 30, 1998.
See Financial Highlights table on page 23 for dividend and capital gains
information since the portfolio's inception.
<TABLE>
<CAPTION>
CONSERVATIVE GROWTH PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 1998
- ------------------------------------------------------------
CONSERVATIVE GROWTH PORTFOLIO MUTUAL FUND
BENCHMARK*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -1.3% 1.4% 0.1% -0.5%
1995 19.3 5.0 24.3 18.0
1996 5.6 4.8 10.4 10.0
1997 12.0 4.8 16.8 13.1
1998** 7.2 1.9 9.1 6.7
- ------------------------------------------------------------
</TABLE>
* A composite fund average weighted 40% average fixed-income fund, 35% average
general equity fund, 20% average money market fund, and 5% average
international fund.
**Six months ended June 30, 1998.
See Financial Highlights table on page 24 for dividend and capital gains
information since the portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1998
- -------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Portfolio 9/30/1994 15.13% 8.22% 5.55% 13.77%
Conservative Growth Portfolio 9/30/1994 17.17 11.30 4.82 16.12
- -------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the portfolios. Note, too, that
both share price and return can fluctuate widely, so an investment in the
portfolios could lose money.
<TABLE>
<CAPTION>
MODERATE GROWTH PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 1998
- ------------------------------------------------------------
MODERATE GROWTH PORTFOLIO MUTUAL FUND
BENCHMARK*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -2.1% 1.4% -0.7% -1.1%
1995 24.1 3.8 27.9 22.1
1996 9.0 3.7 12.7 12.5
1997 15.9 3.9 19.8 16.0
1998** 10.1 1.3 11.4 8.8
- ------------------------------------------------------------
</TABLE>
* A composite fund average weighted 50% average general equity fund, 40% average
fixed-income fund, and 10% average international fund.
**Six months ended June 30, 1998.
See Financial Highlights table on page 24 for dividend and capital gains
information since the portfolio's inception.
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 1998
- ------------------------------------------------------------
GROWTH PORTFOLIO MUTUAL FUND
BENCHMARK*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -1.5% 1.4% -0.1% -1.5%
1995 26.0 3.2 29.2 24.1
1996 12.5 2.9 15.4 15.1
1997 19.4 2.9 22.3 18.1
1998** 12.8 0.7 13.5 10.6
- ------------------------------------------------------------
</TABLE>
* A composite fund average weighted 65% average general equity fund, 20% average
fixed-income fund, and 15% average international fund.
**Six months ended June 30, 1998.
See Financial Highlights table on page 25 for dividend and capital gains
information since the portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Moderate Growth Portfolio 9/30/1994 19.86% 15.03% 3.83% 18.86%
Growth Portfolio 9/30/1994 21.88 18.35 3.05 21.40
- ------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 12
PORTFOLIO PROFILE
Income Portfolio
This Profile provides a snapshot of the portfolio's characteristics as of June
30, 1998, including its allocations to various asset classes and to underlying
Vanguard portfolios. Key elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Yield 5.2%
Expense Ratio 0%
Average Weighted Expense Ratio 0.29%*
</TABLE>
*For underlying portfolios; annualized.
<TABLE>
<CAPTION>
PORTFOLIO ASSET ALLOCATION
- ----------------------------------------------------------
<S> <C>
Bonds 75%
Stocks 20%
Cash Reserves 5%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
INCOME LEHMAN
PORTFOLIO INDEX*
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.67 1.00
Beta 0.30 1.00
- ----------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION TO FUNDS
- ----------------------------------------------------------
<S> <C>
Vanguard Asset Allocation Fund 25.1%
Vanguard Bond Index Fund-
Total Bond Market Portfolio 50.0
Vanguard Fixed Income Securities Fund-
Short-Term Corporate Portfolio 19.9
Vanguard Index Trust-Total Stock
Market Portfolio 5.0
- ----------------------------------------------------------
Total 100.0%
</TABLE>
EQUITY INVESTMENT FOCUS
- ----------------------------------
[GRAPH]
FIXED-INCOME INVESTMENT FOCUS
- ----------------------------------
[GRAPH]
10
<PAGE> 13
AVERAGE WEIGHTED EXPENSE RATIO. Portfolios that invest in other Vanguard mutual
funds incur no direct expenses, but do bear their share of the operating,
administrative, and advisory expenses of the underlying funds. The average
weighted expense ratio is the average of these expense ratios, weighted in
proportion to the amount of the portfolio represented by each underlying fund.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing instruments.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a portfolio's equity
holdings in terms of two attributes: market capitalization (large, medium, or
small) and relative valuation (growth, value, or a blend).
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FIXED-INCOME INVESTMENT FOCUS. This grid indicates the focus of a portfolio's
fixed-income holdings in terms of two attributes: average maturity (short,
medium, or long) and average credit quality (high, medium, or low).
PORTFOLIO ASSET ALLOCATION. This chart shows the proportions of a portfolio's
holdings allocated to different types of assets.
PORTFOLIO ALLOCATION TO FUNDS. This table shows the distribution of a
portfolio's investments in underlying Vanguard funds.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
YIELD. A snapshot of a portfolio's income from interest and dividends. The
yield, expressed as a percentage of the portfolio's net asset value, is based on
income earned over the past 30 days and is annualized, or projected forward for
the coming year.
11
<PAGE> 14
PORTFOLIO PROFILE
Conservative Growth Portfolio
This Profile provides a snapshot of the portfolio's characteristics as of June
30, 1998, including its allocations to various asset classes and to underlying
Vanguard portfolios. Key elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Yield 4.2%
Expense Ratio 0%
Average Weighted Expense Ratio 0.28%*
</TABLE>
*For underlying portfolios; annualized.
<TABLE>
<CAPTION>
PORTFOLIO ASSET ALLOCATION
- ----------------------------------------------------------
<S> <C>
Bonds 55%
Stocks 40%
Cash Reserves 5%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------------
CONSERVATIVE
GROWTH PORTFOLIO S&P 500
- --------------------------------------------------------
<S> <C> <C>
R-Squared 0.91 1.00
Beta 0.45 1.00
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION TO FUNDS
- ----------------------------------------------------------
<S> <C>
Vanguard Asset Allocation Fund 24.9%
Vanguard Bond Index Fund-
Total Bond Market Portfolio 30.1
Vanguard Fixed Income Securities Fund-
Short-Term Corporate Portfolio 20.1
Vanguard Index Trust-Total Stock
Market Portfolio 19.9
Vanguard Total International Portfolio 5.0
- ----------------------------------------------------------
Total 100.0%
</TABLE>
EQUITY INVESTMENT FOCUS
- ---------------------------------
[GRAPH]
FIXED-INCOME INVESTMENT FOCUS
- ---------------------------------
[GRAPH]
12
<PAGE> 15
PORTFOLIO PROFILE
Moderate Growth Portfolio
This Profile provides a snapshot of the portfolio's characteristics as of June
30, 1998, including its allocations to various asset classes and to underlying
Vanguard portfolios. Key elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- ----------------------------------------------------------
<S> <C>
Yield 3.2%
Expense Ratio 0%
Average Weighted Expense Ratio 0.25%*
</TABLE>
*For underlying portfolios; annualized.
<TABLE>
<CAPTION>
PORTFOLIO ASSET ALLOCATION
- ----------------------------------------------------------
<S> <C>
Stocks 60%
Bonds 35%
Cash Reserves 5%
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
MODERATE
GROWTH PORTFOLIO S&P 500
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.96 1.00
Beta 0.62 1.00
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION TO FUNDS
- ----------------------------------------------------------
<S> <C>
Vanguard Asset Allocation Fund 24.9%
Vanguard Bond Index Fund-
Total Bond Market Portfolio 30.1
Vanguard Index Trust-Total Stock
Market Portfolio 34.9
Vanguard Total International Portfolio 10.1
- ----------------------------------------------------------
Total 100.0%
</TABLE>
EQUITY INVESTMENT FOCUS
- ------------------------------
[GRAPH]
FIXED-INCOME INVESTMENT FOCUS
- ------------------------------
[GRAPH]
13
<PAGE> 16
PORTFOLIO PROFILE
Growth Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of June
30, 1998, including its allocations to various asset classes and to underlying
Vanguard portfolios. Key elements of this Profile are defined on page 11.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- --------------------------------------------------------
<S> <C>
Yield 2.3%
Expense Ratio 0%
Average Weighted Expense Ratio 0.24%*
</TABLE>
*For underlying portfolios; annualized.
<TABLE>
<CAPTION>
PORTFOLIO ASSET ALLOCATION
- --------------------------------------------------------
<S> <C>
Stocks 80%
Bonds 15%
Cash Reserves 5%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------
GROWTH
PORTFOLIO S&P 500
- -----------------------------------------------------
<S> <C> <C>
R-Squared 0.96 1.00
Beta 0.77 1.00
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION TO FUNDS
- -------------------------------------------------------
<S> <C>
Vanguard Asset Allocation Fund 24.9%
Vanguard Bond Index Fund-
Total Bond Market Portfolio 10.0
Vanguard Index Trust-Total Stock
Market Portfolio 50.0
Vanguard Total International Portfolio 15.1
- -------------------------------------------------------
Total 100.0%
</TABLE>
EQUITY INVESTMENT FOCUS
- ---------------------------------
[GRAPH]
FIXED-INCOME INVESTMENT FOCUS
- ---------------------------------
[GRAPH]
14
<PAGE> 17
FINANCIAL STATEMENTS
June 30, 1998 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the portfolio's investments in shares
of each Vanguard fund, along with the value of each investment on the last day
of the reporting period. Other assets are added to, and liabilities are
subtracted from, the value of Total Investments to calculate the portfolio's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the
portfolio to arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table
displaying the composition of the portfolio's net assets on both a dollar and
per-share basis. Because all income and any realized gains must be distributed
to shareholders each year, the bulk of net assets consists of Paid in Capital
(money invested by shareholders). The amounts shown for Undistributed Net
Investment Income and Accumulated Net Realized Gains usually approximate the
sums the portfolio had available to distribute to shareholders as income
dividends or capital gains as of the statement date. Any Accumulated Net
Realized Losses, and any cumulative excess of distributions over net income or
net realized gains, will appear as negative balances. Unrealized Appreciation
(Depreciation) is the difference between the market value of the portfolio's
investments and their cost, and reflects the gains (losses) that would be
realized if the portfolio were to sell all of its investments at their
statement-date values.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
INCOME PORTFOLIO SHARES (000)
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (99.9%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUND (5.0%)
Vanguard Index Trust-Total Stock Market Portfolio--Investor Shares 670,157 $ 17,391
---------
BALANCED FUND (25.0%)
Vanguard Asset Allocation Fund 3,633,298 87,018
---------
BOND FUNDS (69.9%)
Vanguard Bond Index Fund-Total Bond Market Portfolio--Investor Shares 17,074,062 173,643
Vanguard Fixed Income Securities Fund-Short-Term Corporate Portfolio--Investor Shares 6,400,921 69,258
---------
242,901
---------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $317,769) 347,310
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a Pooled Cash Account
5.67%, 7/1/1998
(COST $948) $948 948
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(COST $318,717) 348,258
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
INCOME PORTFOLIO (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-0.2%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets $ 2,369
Liabilities (3,199)
-----------
(830)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 26,733,218 shares of beneficial interest
(unlimited authorization--no par value) $347,428
==========================================================================================================================
NET ASSET VALUE PER SHARE $13.00
==========================================================================================================================
*See Note A in Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $318,119 $11.90
Overdistributed Net Investment Income (178) (.01)
Overdistributed Net Realized Gains (54) --
Unrealized Appreciation--Note D 29,541 1.11
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $347,428 $13.00
==========================================================================================================================
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
CONSERVATIVE GROWTH PORTFOLIO SHARES (000)
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (99.8%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS (25.0%)
Vanguard Index Trust-Total Stock Market Portfolio--Investor Shares 9,074,958 $ 235,495
Vanguard Total International Portfolio 5,365,654 59,451
------------
294,946
------------
BALANCED FUND (24.8%)
Vanguard Asset Allocation Fund 12,280,542 294,119
------------
BOND FUNDS (50.0%)
Vanguard Bond Index Fund-Total Bond Market Portfolio--Investor Shares 34,968,246 355,627
Vanguard Fixed Income Securities Fund-Short-Term Corporate Portfolio--Investor Shares 21,891,358 236,864
------------
592,491
------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(Cost $1,032,928) 1,181,556
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a Pooled Cash Account
5.67%, 7/1/1998
(COST $1,163) $1,163 1,163
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(COST $1,034,091) 1,182,719
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets 133,236
Liabilities (131,654)
----------
1,582
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 82,437,403 shares of beneficial interest
(unlimited authorization--no par value) $1,184,301
==========================================================================================================================
NET ASSET VALUE PER SHARE $14.37
==========================================================================================================================
*See Note A in Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,035,003 $12.57
Undistributed Net Investment Income 271 --
Undistributed Net Realized Gains 399 --
Unrealized Appreciation--Note D 148,628 1.80
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,184,301 $14.37
==========================================================================================================================
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
MODERATE GROWTH PORTFOLIO SHARES (000)
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (99.8%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS (44.9%)
Vanguard Index Trust-Total Stock Market Portfolio--Investor Shares 24,852,352 $ 644,919
Vanguard Total International Portfolio 16,760,867 185,710
-------------
830,629
-------------
BALANCED FUND (24.8%)
Vanguard Asset Allocation Fund 19,169,755 459,116
-------------
BOND FUND (30.1%)
Vanguard Bond Index Fund-Total Bond Market Portfolio--Investor Shares 54,627,776 555,564
-------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $1,509,925) 1,845,309
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a Pooled Cash Account
6.67%, 7/1/1998
(COST $1,923) $1,923 1,923
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(COST $1,511,848) 1,847,232
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets 15,337
Liabilities (13,057)
-------------
2,280
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 113,401,757 shares of beneficial interest
(unlimited authorization--no par value) $1,849,512
==========================================================================================================================
NET ASSET VALUE PER SHARE $16.31
==========================================================================================================================
*See Note A in Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,512,715 $13.34
Undistributed Net Investment Income 611 .01
Undistributed Net Realized Gains 802 .01
Unrealized Appreciation--Note D 335,384 2.95
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,849,512 $16.31
==========================================================================================================================
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
GROWTH PORTFOLIO SHARES (000)
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (99.7%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS (65.0%)
Vanguard Index Trust-Total Stock Market Portfolio--Investor Shares 31,306,036 $ 812,392
Vanguard Total International Portfolio 22,061,806 244,445
-------------
1,056,837
-------------
BALANCED FUND (24.8%)
Vanguard Asset Allocation Fund 16,854,941 403,676
-------------
BOND FUND (9.9%)
Vanguard Bond Index Fund-Total Bond Market Portfolio--Investor Shares 15,911,361 161,819
-------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $1,270,582) 1,622,332
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a Pooled Cash Account
5.67%, 7/1/1998
(COST $1,159) $1,159 1,159
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $1,271,741) 1,623,491
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets 6,865
Liabilities (3,306)
-------------
3,559
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 89,933,880 shares of beneficial interest
(unlimited authorization--no par value) $1,627,050
==========================================================================================================================
NET ASSET VALUE PER SHARE $18.09
==========================================================================================================================
*See Note A in Notes to Financial Statements.
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,273,570 $14.16
Undistributed Net Investment Income 585 .01
Undistributed Net Realized Gains 1,145 .01
Unrealized Appreciation--Note D 351,750 3.91
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,627,050 $18.09
==========================================================================================================================
</TABLE>
19
<PAGE> 22
STATEMENT OF OPERATIONS
This Statement shows each portfolio's Income Distributions Received from the
other Vanguard funds in which it invests. This Statement also shows any Capital
Gain Distributions Received from the other funds' realized net gains, Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CONSERVATIVE MODERATE
INCOME GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------------------------
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Income Distributions Received $ 7,076 $ 17,555 $ 21,902 $ 11,285
Interest 15 31 45 51
- ------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME--Note B 7,091 17,586 21,947 11,336
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Capital Gain Distributions Received 26 336 1,029 1,265
Investment Securities Sold 36 177 17 --
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN 62 513 1,046 1,265
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES 12,253 62,458 150,095 160,033
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 19,406 $ 80,557 $ 173,088 $ 172,634
========================================================================================================================
</TABLE>
20
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes information
detailed in the Statement of Operations. The amounts shown as Distributions to
shareholders from the portfolio's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
portfolio, either by purchasing shares or by reinvesting distributions, as well
as the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
INCOME CONSERVATIVE GROWTH
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUN. 30, 1998 DEC. 31, 1997 JUN. 30, 1998 DEC. 31, 1997
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 7,091 $ 10,541 $ 17,586 $ 28,957
Realized Net Gain 62 1,876 513 11,135
Change in Unrealized Appreciation
(Depreciation) 12,253 12,899 62,458 56,446
----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 19,406 25,316 80,557 96,538
----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (7,321) (10,467) (17,470) (28,823)
Realized Capital Gain -- (1,902) -- (10,984)
----------------------------------------------------------------------
Total Distributions (7,321) (12,369) (17,470) (39,807)
----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 130,276 130,219 410,011 382,488
Issued in Lieu of Cash Distributions 6,235 10,467 16,413 37,567
Redeemed (45,106) (61,177) (108,159) (136,332)
----------------------------------------------------------------------
Net Increase from
Capital Share Transactions 91,405 79,509 318,265 283,723
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 103,490 92,456 381,352 340,454
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 243,938 151,482 802,949 462,495
----------------------------------------------------------------------
End of Period $ 347,428 $ 243,938 $ 1,184,301 $ 802,949
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 10,146 10,739 29,043 29,511
Issued in Lieu of Cash Distributions 483 859 1,151 2,855
Redeemed (3,517) (5,091) (7,696) (10,535)
----------------------------------------------------------------------
Net Increase in Shares Outstanding 7,112 6,507 22,498 21,831
=========================================================================================================================
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- -------------------------------------------------------------------------------------------------------------------------
MODERATE GROWTH
GROWTH PORTFOLIO PORTFOLIO
----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUN. 30, 1998 DEC. 31, 1997 JUN. 30, 1998 DEC. 31, 1997
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 21,947 $ 40,635 $ 11,336 $ 25,648
Realized Net Gain 1,046 19,065 1,265 20,378
Change in Unrealized Appreciation
(Depreciation) 150,095 133,867 160,033 129,235
----------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 173,088 193,567 172,634 175,261
----------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (21,174) (40,797) (10,688) (25,360)
Realized Capital Gain (3) (18,847) (6) (20,474)
----------------------------------------------------------------------
Total Distributions (21,177) (59,644) (10,694) (45,834)
----------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 472,294 535,843 384,864 516,946
Issued in Lieu of Cash Distributions 19,344 55,672 10,466 45,132
Redeemed (152,046) (193,147) (113,937) (136,459)
----------------------------------------------------------------------
Net Increase from
Capital Share Transactions 339,592 398,368 281,393 425,619
- -------------------------------------------------------------------------------------------------------------------------
Total Increase 491,503 532,291 443,333 555,046
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 1,358,009 825,718 1,183,717 628,671
----------------------------------------------------------------------
End of Period $ 1,849,512 $ 1,358,009 $ 1,627,050 $ 1,183,717
=========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 30,175 37,852 22,116 33,989
Issued in Lieu of Cash Distributions 1,190 3,820 581 2,860
Redeemed (9,671) (13,628) (6,574) (9,004)
----------------------------------------------------------------------
Net Increase in Shares Outstanding 21,694 28,044 16,123 27,845
=========================================================================================================================
</TABLE>
22
<PAGE> 25
FINANCIAL HIGHLIGHTS
This table summarizes each portfolio's investment results and distributions to
shareholders on a per-share basis. The table also presents the portfolio's Total
Return and shows net investment income and expenses as percentages of average
net assets. The expense ratio is zero because the portfolio pays no direct
expenses; its share of the expenses of the other funds in which it invests
indirectly reduces the income received from them. The data in the table will
help you assess: the variability of the portfolio's net income and total returns
from year to year; the relative contributions of net income and capital gains to
the portfolio's total return; the extent to which the portfolio tends to
distribute capital gains; and the portion of capital gains distributions
representing the "pass-through" of capital gains distributions received from
other Vanguard funds. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the portfolio for one year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INCOME PORTFOLIO
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------- SEP. 30* TO
THROUGHOUT EACH PERIOD JUNE 30, 1998 1997 1996 1995 DEC. 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.43 $11.55 $11.54 $ 9.88 $10.00
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .29 .63 .64 .49 .14
Capital Gain Distributions Received .05 .15 .19 .09 --
Net Realized and Unrealized Gain (Loss) on Investments .53 .83 .03 1.66 (.12)
------------------------------------------------------------
Total from Investment Operations .87 1.61 .86 2.24 .02
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.30) (.63) (.64) (.49) (.14)
Distributions from Realized Capital Gains -- (.10) (.21) (.09) --
------------------------------------------------------------
Total Distributions (.30) (.73) (.85) (.58) (.14)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.00 $12.43 $11.55 $11.54 $ 9.88
========================================================================================================================
TOTAL RETURN 7.03% 14.23% 7.65% 22.99% 0.20%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $347 $244 $151 $121 $11
Ratio of Expenses to Average Net Assets--Note B 0% 0% 0% 0% 0%
Ratio of Net Investment Income to Average Net Assets 4.85%** 5.54% 5.66% 5.76% 7.31%**
Portfolio Turnover Rate 3%** 6% 22% 4% 1%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
23
<PAGE> 26
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------------------------------------------------
CONSERVATIVE GROWTH PORTFOLIO
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ------------------------------- SEP. 30* TO
THROUGHOUT EACH PERIOD JUNE 30, 1998 1997 1996 1995 DEC. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.40 $12.14 $11.68 $ 9.89 $10.03
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .25 .56 .53 .47 .14
Capital Gain Distributions Received .12 .18 .20 .11 .01
Net Realized and Unrealized Gain (Loss) on Investments .85 1.27 .46 1.80 (.14)
-----------------------------------------------------------
Total from Investment Operations 1.22 2.01 1.19 2.38 .01
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.25) (.56) (.53) (.47) (.14)
Distributions from Realized Capital Gains -- (.19) (.20) (.12) (.01)
-----------------------------------------------------------
Total Distributions (.25) (.75) (.73) (.59) (.15)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.37 $13.40 $12.14 $11.68 $ 9.89
=======================================================================================================================
TOTAL RETURN 9.13% 16.81% 10.36% 24.35% 0.10%
=======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,184 $803 $462 $219 $41
Ratio of Expenses to Average Net Assets--Note B 0% 0% 0% 0% 0%
Ratio of Net Investment Income to Average Net Assets 3.67%** 4.61% 4.86% 5.14% 7.07%**
Portfolio Turnover Rate 1%** 1% 2% 1% 0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MODERATE GROWTH PORTFOLIO
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED --------------------------------- SEP. 30* TO
THROUGHOUT EACH PERIOD JUNE 30, 1998 1997 1996 1995 DEC. 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.81 $12.97 $12.11 $ 9.86 $10.08
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .20 .490 .44 .36 .14
Capital Gain Distributions Received .22 .236 .22 .13 .01
Net Realized and Unrealized Gain (Loss) on Investments 1.27 1.819 .87 2.25 (.22)
------------------------------------------------------------
Total from Investment Operations 1.69 2.545 1.53 2.74 (.07)
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.19) (.490) (.44) (.36) (.14)
Distributions from Realized Capital Gains -- (.215) (.23) (.13) (.01)
------------------------------------------------------------
Total Distributions (.19) (.705) (.67) (.49) (.15)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.31 $14.81 $12.97 $12.11 $ 9.86
========================================================================================================================
TOTAL RETURN 11.42% 19.77% 12.71% 27.94% -0.70%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,850 $1,358 $826 $235 $35
Ratio of Expenses to Average Net Assets--Note B 0% 0% 0% 0% 0%
Ratio of Net Investment Income to Average Net Assets 2.67%** 3.72% 3.98% 4.42% 7.10%**
Portfolio Turnover Rate 1%** 2% 3% 1% 0%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
24
<PAGE> 27
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------- SEP. 30* TO
THROUGHOUT EACH PERIOD JUNE 30, 1998 1997 1996 1995 DEC. 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.04 $13.68 $12.36 $ 9.93 $10.10
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .13 .39 .34 .32 .13
Capital Gain Distributions Received .30 .28 .24 .14 .02
Net Realized and Unrealized Gain (Loss) on Investments 1.74 2.36 1.32 2.43 (.16)
------------------------------------------------------------
Total from Investment Operations 2.17 3.03 1.90 2.89 (.01)
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.12) (.38) (.35) (.31) (.14)
Distributions from Realized Capital Gains -- (.29) (.23) (.15) (.02)
------------------------------------------------------------
Total Distributions (.12) (.67) (.58) (.46) (.16)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.09 $16.04 $13.68 $12.36 $ 9.93
========================================================================================================================
TOTAL RETURN 13.53% 22.26% 15.41% 29.24% -0.10%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,627 $1,184 $629 $217 $38
Ratio of Expenses to Average Net Assets--Note B 0% 0% 0% 0% 0%
Ratio of Net Investment Income to Average Net Assets 1.60%** 2.84% 3.18% 3.67% 7.06%**
Portfolio Turnover Rate 0% 1% 0% 1% 1%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
25
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
Vanguard LifeStrategy Portfolios comprises the Income, Conservative Growth,
Moderate Growth, and Growth Portfolios of Vanguard STAR Fund. Each portfolio is
registered under the Investment Company Act of 1940 as an open-end investment
company, or mutual fund. Each portfolio follows a balanced investment strategy
by investing in selected Vanguard funds to achieve its targeted allocation of
assets to U.S. stocks, international stocks, bonds, and short-term reserves.
A. The following significant accounting policies conform to generally
accepted accounting principles for mutual funds. The portfolios consistently
follow such policies in preparing their financial statements.
1. VALUATION: Investments are valued at the net asset value of each
Vanguard fund determined as of the close of the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on the valuation date. Temporary cash
investments are valued at cost, which approximates market value.
2. FEDERAL INCOME TAXES: Each portfolio 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. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes.
4. REPURCHASE AGREEMENTS: Each portfolio, along with other members of
The Vanguard Group, transfers uninvested cash balances to a Pooled Cash Account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
5. OTHER: Income and capital gain distributions received are recorded on
the ex-dividend date. Security transactions are accounted for on the date
securities are bought or sold. Costs used to determine realized gains (losses)
on the sale of investment securities are those of the specific securities sold.
B. Under a special service agreement, The Vanguard Group furnishes corporate
management, administrative, marketing, and distribution services to the
portfolios. The special service agreement provides that Vanguard will reimburse
the portfolios' expenses to the extent of savings in administrative and
marketing costs realized by Vanguard in the operation of the portfolios.
Accordingly, all expenses incurred by the portfolios during the six months ended
June 30, 1998, were reimbursed by Vanguard. The portfolios' Trustees and
officers are also Directors and officers of Vanguard and the funds in which the
portfolios invest.
C. During the six months ended June 30, 1998, purchases and sales of
investment securities were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(000)
----------------------------------
PORTFOLIO PURCHASES SALES
- --------------------------------------------------------------------------------
<S> <C> <C>
Income $ 97,491 $4,835
Conservative Growth 324,799 6,559
Moderate Growth 346,069 7,911
Growth 279,483 --
- --------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
D. At June 30, 1998, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(000)
----------------------------------------------------------
NET
APPRECIATED DEPRECIATED UNREALIZED
PORTFOLIO SECURITIES SECURITIES APPRECIATION
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income $ 29,541 -- $ 29,541
Conservative Growth 148,628 -- 148,628
Moderate Growth 335,384 -- 335,384
Growth 351,750 -- 351,750
- ----------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Senior Chairman of the Board and Director of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc., and
of each of the investment companies in The Vanguard Group.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
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 Telecommunications 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., Procter & Gamble 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. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"STANDARD & POOR'S(R)," "S&P(R)," "S&P 500(R)," "STANDARD & POOR'S 500," AND
"500" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. FRANK RUSSELL COMPANY IS
THE OWNER OF TRADEMARKS AND COPYRIGHTS RELATING TO THE RUSSELL INDEXES.
"WILSHIRE 4500" AND "WILSHIRE 5000" ARE TRADEMARKS OF WILSHIRE ASSOCIATES.
<PAGE> 31
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
Global Equity Portfolio
Index Trust
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Mid Capitalization Stock
Portfolio
Small Capitalization Growth
Stock Portfolio
Small Capitalization Stock
Portfolio
Small Capitalization Value
Stock Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
International Growth Portfolio
International Value Portfolio
Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
MONEY MARKET FUNDS
Admiral Funds
U.S. Treasury Money Market
Portfolio
Money Market Reserves
Federal Portfolio
Prime Portfolio
Municipal Bond Fund
Money Market Portfolio
State Tax-Free Funds
(CA, NJ, NY, OH, PA)
Treasury Money Market Portfolio
BOND FUNDS
Admiral Funds
Intermediate-Term U.S.
Treasury Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term U.S. Treasury
Portfolio
Bond Index Fund
Intermediate-Term Bond
Portfolio
Long-Term Bond Portfolio
Short-Term Bond Portfolio
Total Bond Market Portfolio
Fixed Income Securities Fund
GNMA Portfolio
High Yield Corporate Portfolio
Intermediate-Term Corporate
Portfolio
Intermediate-Term U.S.
Treasury Portfolio
Long-Term Corporate
Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term Corporate
Portfolio
Short-Term Federal Portfolio
Short-Term U.S. Treasury
Portfolio
Municipal Bond Fund
High-Yield Portfolio
Insured Long-Term Portfolio
Intermediate-Term Portfolio
Limited-Term Portfolio
Long-Term Portfolio
Short-Term Portfolio
Preferred Stock Fund
State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
Q882-6/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
[THE VANGUARD GROUP LOGO]
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Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
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1-800-523-1036
www.vanguard.com
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All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
