<PAGE> 1
Vanguard STAR(TM) Fund
[PHOTO]
SEMIANNUAL
June 30, 2000
[THE VANGUARD GROUP LOGO]
<PAGE> 2
HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment. Valuations of market indexes are at or near historic highs. The
strength and duration of the bull market in U.S. stocks have inflated people's
expectations and diminished their recognition of the market's considerable
risks. And the incredible divergence in stock returns--many technology-related
stocks gained 100% or more in 1999, yet prices fell for more than half of all
stocks--has made some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not
the same as wisdom. Indeed, much of the information, opinion, and rumor that
swirl about financial markets each day amounts to "noise" of no lasting
significance. And the fact that rapid-fire trading is easy does not make it
beneficial. Frequent trading is almost always counterproductive because
costs--even at low commission rates--and taxes detract from the returns that the
markets provide. Sadly, many investors jump into a "hot" mutual fund just in
time to see it cool off. Meanwhile, long-term fund investors are hurt by
speculative trading activity because they bear part of the costs involved in
accommodating purchases and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
- Invest for the long term. Pursuing your long-term investment goals
is more like a marathon than a sprint.
- Diversify your investments with holdings in stocks, bonds, and
cash investments. Remember that, at any moment, some part of a diversified
portfolio will lag other parts, and be wary of taking on more risk by "piling
onto" the best-performing part of your holdings. Today's leader could well be
tomorrow's laggard.
- Step back from the daily frenzy of the markets; focus on your
overall asset allocation.
- Capture as much of the market's return as possible by minimizing
costs and taxes.
Costs and taxes diminish long-term returns while doing nothing to reduce the
risks you incur as an investor.
[GRAPHIC]
CONTENTS
REPORT FROM THE CHAIRMAN
1
THE MARKETS IN PERSPECTIVE
5
PERFORMANCE SUMMARY
7
FUND PROFILE
8
FINANCIAL STATEMENTS
10
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"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 5000(R)" and "Wilshire 4500" are trademarks of Wilshire Associates
Incorporated.
<PAGE> 3
[PHOTO]
John J. Brennan
REPORT FROM THE CHAIRMAN
Vanguard STAR Fund earned a 3.7% return during the first half of 2000.
This was a fine result, well in excess of the modest decline posted by the
overall stock market and nearly as great as the return of the overall bond
market.
<TABLE>
<CAPTION>
--------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 2000
--------------------------------------------------------
<S> <C>
Vanguard STAR Fund 3.7%
--------------------------------------------------------
Composite Fund Average* 3.9%
--------------------------------------------------------
STAR Composite Index* 1.0%
--------------------------------------------------------
Wilshire 5000 Index -0.7%
S&P 500 Index -0.4
Lehman Aggregate Bond Index 4.0
Salomon Smith Barney 3-Month
Treasury Index 2.8
--------------------------------------------------------
</TABLE>
* The STAR Composite Index is weighted 62.5% Wilshire 5000 Index, 25% Lehman
Aggregate Bond Index, and 12.5% Salomon Smith Barney 3-Month Treasury Index.
The Composite Fund Average, which is derived from data provided by Lipper
Inc., is similarly weighted using the average general equity fund, average
fixed income fund, and average money market fund, respectively.
The table at right presents the fund's total return (capital change plus
reinvested dividends) for the period. It also shows the returns of our
comparative standards. The first of these standards is a composite average of
returns for mutual funds weighted in accordance with our asset allocation
guidelines. The second is a composite made up of indexes representing the asset
classes in which we invest: for stocks, the Wilshire 5000 Total Market Index, a
proxy for the entire U.S. stock market; for bonds, the Lehman Brothers Aggregate
Bond Index; and for short-term investments, the Salomon Smith Barney 3-Month
U.S. Treasury Bill Index. We also present, for your information, the return for
the large-capitalization-dominated Standard & Poor's 500 Index.
The fund's return is based on a decrease in net asset value from $18.21
per share on December 31, 1999, to $17.61 per share on June 30, 2000, and is
adjusted for a distribution of $0.99 per share paid in March from net realized
capital gains and a dividend of $0.28 per share paid from net investment income.
THE PERIOD IN REVIEW
The first half of 2000 was a tumultuous time in financial markets, which were
buffeted by a complex set of crosscurrents. The domestic economy continued to
grow at a strong pace--the production of goods and services during the second
quarter of 2000 was about 6% higher than in the same period last year, even
after adjusting for inflation. Unemployment remained low, hovering around 4% of
the workforce. Elsewhere in the world, growth was picking up from more subdued
levels.
Robust economic growth is generally good for corporate earnings and,
thus, for stocks. But investors and economic policymakers have worried that the
combination of rapid economic growth and low unemployment would trigger sharply
higher wages and inflation. The Federal Reserve Board, in an effort to slow the
economy's momentum and forestall an inflationary outburst, continued to raise
short-term interest rates during the half-year. The Fed boosted its target for
the federal funds rate three times during the period by a total of 1.0
percentage point (100 basis points). In all, the Fed has raised its target rate
by 175 basis points in the past 12 months.
1
<PAGE> 4
For most of the first quarter of 2000, a continuing boom in technology
stocks kept the market averages rising, despite the threat of higher interest
rates. But during the second quarter, tech stocks in particular cooled off. The
market may have reacted to evidence that the ideal combination of rapid growth
and low inflation was coming to an end. If the Fed succeeds in slowing the
economy, corporate earnings growth might slow, too. And if earnings growth were
to slow, some investors reasoned, technology and telecommunications stocks would
have a tough time maintaining their lofty price/earnings multiples. The split
between the two quarters was evident in the results for the tech-dominated
Nasdaq Composite Index, which rose 12.7% in the first quarter, only to slide
-14.7% in the second. End result? A -3.9% return for the half-year.
The overall stock market, as measured by the Wilshire 5000 Index, posted
a -0.7% return for the six months. The small-cap Russell 2000 Index gained 3.0%,
outpacing the large-cap S&P 500 Index, which posted a negative return of -0.4%.
Leadership within the market during the period switched back and forth between
growth stocks--those whose prices reflect high expectations for future
profitability--and value stocks, whose low prices in relation to earnings, book
value, and dividends reflect lower expectations. Growth stocks were in front
early on, but value stocks performed best in late March and April. Growth issues
bounced back in June, however, and for the full six months, growth generally
outpaced value. For example, the growth stocks within the Russell 1000 Index
(comprising the 1,000 largest U.S. stocks) earned 4.2%, while the value stocks
declined by an equal amount.
The Fed's efforts succeeded in pushing up short-term interest rates: The
yield of 3-month U.S. Treasury bills climbed 52 basis points (from 5.33% to
5.85%) during the half-year. But after rising early in the year, yields for
longer-term Treasuries began to fall after the Treasury announced that it would
use rising federal budget surpluses to buy back billions of dollars' worth of
long-term bonds. A shrinking supply of long-term Treasuries caused their prices
to rise and their yields to fall. By June 30, the 30-year Treasury bond's yield
had fallen 58 basis points, from 6.48% to 5.90%. Yields on high-quality
corporate bonds were flat to slightly higher, while those on mortgage-backed
securities were flat to slightly lower. But for low-quality corporate ("junk")
bonds, prices fell and yields rose as investors worried about increased
defaults.
PERFORMANCE OVERVIEW
The Vanguard funds in which STAR invests had six-month returns ranging from
-0.9% to 5.3%, with two key exceptions. PRIMECAP Fund and Explorer Fund gained
16.3% and 14.6%, respectively. The terrific results for those two holdings
carried your fund to a total return of 3.7%, which was 2.7 percentage points
higher than the composite result for broad market indexes weighted in accordance
with our target mix of 62.5% stocks, 25% bonds, and 12.5% short-term
investments. However, STAR Fund lagged the composite mutual fund return by 0.2
percentage point.
While PRIMECAP and Explorer--powered largely by excellent stock selection
in the technology sector--boosted STAR's performance, the rest of our underlying
stock funds delivered mixed results. The U.S. Growth and Morgan Growth Funds
also did relatively well, posting total returns of 5.3% and 3.2%, respectively.
But the value-oriented Windsor Fund (-0.9%) and Windsor II Fund (-0.6%)
struggled. On a relative basis, STAR's stock funds did well during the period.
Specifically, five of the six (more or less handily) outpaced the -0.7% loss of
the overall stock market.
All of our fixed income holdings posted positive returns: 2.7% for the
Short-Term Corporate Fund, 3.0% for the Long-Term Corporate Fund, and 4.2% for
the GNMA Fund. Both of the corporate bond funds experienced small price
declines, as rising interest
2
<PAGE> 5
rates made outstanding bonds (with lower coupons) a tougher sell in the
marketplace. The GNMA Fund, in contrast, saw a modest upturn in its net asset
value. The mortgage-backed securities that the fund holds typically perform
better than other bonds when interest rates rise modestly because homeowners are
less likely to refinance their mortgage loans--the source of income for
investors in this sector.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
TOTAL RETURNS
PERCENTAGE OF SIX MONTHS ENDED
VANGUARD FUND STAR ASSETS JUNE 30, 2000
-----------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS
Windsor II 27.2% -0.6%
Windsor 15.3 -0.9
U.S. Growth 5.1 5.3
PRIMECAP 5.0 16.3
Morgan Growth 5.0 3.2
Explorer 4.5 14.6
-----------------------------------------------------------------------------
BOND FUNDS
Long-Term Corporate 12.9% 3.0%
GNMA 12.8 4.2
-----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
Short-Term Corporate 12.2% 2.7%
-----------------------------------------------------------------------------
COMBINED 100.0% 3.7%
-----------------------------------------------------------------------------
</TABLE>
STAR's fixed income holdings turned in mixed performances compared with
the 4.0% gain of the overall bond market, which was heavily influenced by strong
results for long-term U.S. Treasury securities. It is worth noting, however,
that each of the underlying bond funds outperformed everyone's favorite asset
class--stocks. The six months ended June 30 remind us that bonds play an
important role in a balanced investment program. They provide current income
with much less principal risk.
IN SUMMARY
During the first half of 2000 we witnessed very sharp day-to-day price
fluctuations, significant swings in investor sentiment, and sudden shifts in
market leadership. All of this volatility, squeezed into a mere six months,
underscored the fact that unpredictability is par for the course in financial
markets. The timing, extent, and duration of such episodes are impossible to
foretell with precision, but investors must be willing to endure them to reap
the long-term rewards of investing.
At Vanguard, we reiterate our long-standing recommendation for navigating
stormy seas toward long-term financial goals. First, create an investment plan
with a balance of stock funds, bond funds, and money market funds suited to your
time horizon, investment objectives, and tolerance for market fluctuations.
Then, once you have such a diversified plan in place--as STAR Fund demonstrates,
it need not be complicated--stick with it. Avoid the impulse to alter it based
on short-term events--whether those be unsettling turbulence in the market or
glittery returns from some particular corner of the market. "Stay the course" is
timeless investment wisdom.
/s/ John J. Brennan
John J. Brennan
Chairman and Chief Executive Officer
July 13, 2000
3
<PAGE> 6
IN MEMORY
It is with great sadness that I report the death of John C. Sawhill, an
independent trustee of the fund and a member of The Vanguard Group's board of
directors since 1991. John, an economist who was president and chief executive
officer of The Nature Conservancy, died on May 18 at age 63. He was a senior
lecturer at the Harvard Business School and had formerly served as president of
New York University and as deputy secretary of the U.S. Department of Energy
under President Jimmy Carter. John was a remarkable man who was full of energy,
vigor, and life. His experience and wisdom added a great deal to Vanguard, and
his death is a blow to everyone who knew and loved him. Though John's work on
behalf of our funds was often carried on behind the scenes, he was a dedicated
advocate for the best interests of our shareholders. He will be missed.
4
<PAGE> 7
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JUNE 30, 2000
The perpetual tug-of-war in the financial markets ended in a near stalemate
during the first half of 2000, despite lots of back-and-forth movement. On
average, neither stock nor bond prices ended the period far from where they
began it. However, bonds, thanks to their superior income, outpaced stocks in
total return.
Economic signals were conflicting. Growth continued at a rapid pace, and
corporate profits rose smartly. On the other hand, stock prices as the year
began already reflected high levels of optimism, and the market administered
severe punishment to companies that failed to live up to earnings expectations.
Also weighing on the market were concerns that the economy's vigor at a time of
low unemployment would inevitably push labor costs and other prices higher.
Indeed, higher costs for oil and natural gas pushed broad gauges of inflation
higher (the Consumer Price Index gained 2.4% for the six months and 3.7% for the
twelve months ended June 30). Yet core inflation, which excludes energy and food
items, registered a moderate 2.4% gain during the 12 months ended June 30.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JUNE 30, 2000
----------------------------
6 MONTHS 1 YEAR 5 YEARS*
------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index -0.4% 7.2% 23.8%
Russell 2000 Index 3.0 14.3 14.3
Wilshire 5000 Index -0.7 10.0 22.6
MSCI EAFE Index -4.0 17.4 11.6
------------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.0% 4.6% 6.3%
Lehman 10 Year Municipal Bond Index 4.0 4.5 6.0
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.8 5.3 5.2
------------------------------------------------------------------------------------
OTHER
Consumer Price Index 2.4% 3.7% 2.5%
------------------------------------------------------------------------------------
*Annualized.
</TABLE>
The Federal Reserve Board raised short-term interest rates by 0.25
percentage point in February and again in March, before adding a half-point
boost in May. These steps, which followed three quarter- percentage-point
increases in 1999, took the Fed's target for short-term rates to 6.5%.
Thereafter, signs of a slowing in economic activity cropped up, although it was
not certain that the Fed was done trying to throttle down the economic engine.
U.S. STOCK MARKETS
Stock prices were quite volatile during the half-year, and large day-to-day
price fluctuations in market averages were commonplace. There also were two
swift shifts in market leadership. The year began with a continuance in the
rapid rise for the "TMT" stocks (technology, media, telecommunications) that
were the market's darlings during 1999. Through mid-March, the surge in these
"new economy" groups left "old economy" stocks far behind. For example, the
Nasdaq Composite Index, which is dominated by tech-related stocks, gained 15.6%
and the Russell 1000 Value Index fell -10.4% during January and February. But in
mid-March, value stocks took charge and TMT stocks slumped. The Russell 1000
Value Index returned 12.1% while the Nasdaq plummeted to a -27.4% return in the
March-May period. But June brought another flip-flop: The value index declined
-4.6%, while the Nasdaq rebounded with a 14.5% return.
5
<PAGE> 8
When the half-year was over, most broad market indexes had modest declines.
The all-market Wilshire 5000 Index returned -0.7%, the large-capitalization S&P
500 Index slipped -0.4%, and the Nasdaq fell -3.9%. Small- and mid-cap stocks
did better: The small-cap Russell 2000 Index gained 3.0% and the Wilshire 4500
Completion Index, comprising virtually all the U.S. stocks outside of the S&P
500, eked out a 0.3% return.
U.S. BOND MARKETS
The Federal Reserve most directly influences interest rates of short-term
securities. The Fed pushed up its target federal funds rate (charged on
overnight loans between banks) by 1 percentage point to 6.5%. But yields of
3-month U.S. Treasury bills rose only half as far (0.52 percentage point, or 52
basis points to 5.85%). And yields actually declined on long-term Treasury
securities, whose prices rose. Big federal budget surpluses are causing a
shrinking supply of Treasury bonds. The 10-year Treasury note's yield fell 41
basis points to 6.03% as of June 30, and the yield of the 30-year Treasury
declined 58 basis points--from 6.48% to 5.90%--during the half-year.
The upshot was an unusual "inversion" in the yield curve. Instead of
sloping upward--with yields increasing along with the maturity of Treasury
securities--the curve descended. The 5.90% yield of 30-year Treasuries on June
30 was 49 basis points below the 6.39% yield on 3-year Treasury notes.
Corporate bonds did not perform as well as Treasuries for two main reasons:
a record level of new offerings and investors' concern that credit quality
might be declining. The rise in yields (and fall in prices) was slight for
higher-quality corporate bonds but more severe for high-yield "junk" bonds.
Investors grew wary of riskier bonds due to an increase in defaults. The Lehman
High Yield Bond Index saw a price decline of -5.7% during the first half of
2000, more than offsetting its six-month income of 4.5%. Tax-exempt municipal
bonds generally outperformed corporates but did not do as well as Treasury
securities. The overall taxable bond market, as measured by the Lehman Aggregate
Bond Index, returned 4.0%, as a price gain of 0.4% augmented a 3.6% income
return.
INTERNATIONAL STOCK MARKETS
International stock markets were generally unprofitable for U.S. investors due
to lack- luster local market performances and a stronger U.S. dollar during the
half-year. Although economic growth in most of Europe appeared to be
strengthening, stocks were hurt by continued economic weakness in Japan and from
expectations of higher interest rates. On the other hand, European stock prices
got some support from an increase in corporate takeovers.
In local currencies, European stocks posted a 1.7% return in the aggregate
and stocks from the Pacific region recorded a modest decline of -2.6%. However,
the dollar's strength diminished those results for U.S. investors, for whom the
Morgan Stanley Capital International (MSCI) Europe Index returned -3.0% and the
MSCI Pacific Free Index returned -5.9%. The MSCI Europe, Australasia, Far East
(EAFE) Index of developed foreign markets registered a -4.0% return for U.S.
investors.
The Select Emerging Markets Free Index fell -9.6% in U.S. dollars, having
declined -3.5% in local currencies. The index was hit by weakness in South
Africa (-15%) and several emerging Asian markets, including Indonesia (-44%),
Thailand (-36%), and the Philippines (-36%). The biggest gains among emerging
markets were in Israel (+27%) and Venezuela (+19%).
6
<PAGE> 9
PERFORMANCE SUMMARY
STAR FUND
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MARCH 29, 1985-JUNE 30, 2000
------------------------------------------------------
STAR FUND COMPOSITE*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
------------------------------------------------------
<S> <C> <C> <C> <C>
1985 14.5% 0.5% 15.0% 15.1%
1986 5.5 8.4 13.9 12.6
1987 -5.5 7.2 1.7 3.1
1988 11.7 7.3 19.0 11.8
1989 11.8 7.0 18.8 18.0
1990 -9.6 6.0 -3.6 -1.6
1991 18.1 6.1 24.2 26.9
1992 6.3 4.2 10.5 8.0
1993 7.1 3.8 10.9 10.6
1994 -4.1 3.9 -0.2 -1.2
1995 23.7 4.9 28.6 23.3
1996 12.0 4.1 16.1 13.6
1997 17.3 3.9 21.2 17.9
1998 9.0 3.4 12.4 11.3
1999 3.7 3.4 7.1 15.8
2000** 2.1 1.6 3.7 3.9
------------------------------------------------------
</TABLE>
*62.5% average general equity fund, 25% average fixed income fund, and
12.5% average money market fund.
**Six months ended June 30, 2000.
See Financial Highlights table on page 14 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------------
10 YEARS
INCEPTION ----------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STAR Fund 3/29/1985 3.07% 14.34% 8.09% 4.57% 12.66%
--------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
FUND PROFILE
STAR FUND
This Profile presents key characteristics of the fund as of June 30, 2000,
including its allocations to various asset classes and to underlying Vanguard
funds. Key elements of this Profile are defined on page 9.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
-----------------------------------------------
<S> <C>
Yield 3.9%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.35%
</TABLE>
*For underlying funds; annualized.
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
-----------------------------------------------
<S> <C>
Short-Term Investments 12%
Bonds 26%
Stocks 62%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
-----------------------------------------------
STAR S&P 500
-----------------------------------------------
<S> <C> <C>
R-Squared 0.89 1.00
Beta 0.60 1.00
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION TO UNDERLYING VANGUARD FUNDS
-----------------------------------------------
<S> <C>
Windsor II Fund 27.2%
Windsor Fund 15.3
U.S. Growth Fund 5.1
PRIMECAP Fund 5.0
Morgan Growth Fund 5.0
Explorer Fund 4.5
Long-Term Corporate Fund 12.9
GNMA Fund 12.8
Short-Term Corporate Fund 12.2
-----------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
FIXED-INCOME INVESTMENT FOCUS
-----------------------------------------------
<S> <C>
AVERAGE MATURITY Medium
CREDIT QUALITY Investment-Grade Corporate
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
-----------------------------------------------
<S> <C>
STYLE Value
MARKET CAP Large
</TABLE>
8
<PAGE> 11
ALLOCATION TO UNDERLYING VANGUARD FUNDS. This table shows the distribution of a
fund's assets in underlying Vanguard funds.
AVERAGE WEIGHTED EXPENSE RATIO. Funds that invest in other Vanguard funds incur
no direct expenses, but do bear proportionate shares 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 fund invested in each underlying fund.
BETA. A measure of the magnitude of a fund'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 fund 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%.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a fund'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 fund'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 fund's fixed
income holdings in terms of two attributes: average maturity (short, medium, or
long) and average credit quality (Treasury/agency, investment-grade corporate,
or below investment-grade).
FUND ASSET ALLOCATION. This chart shows the proportions of a fund's holdings
allocated to different types of assets.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year.
9
<PAGE> 12
FINANCIAL STATEMENTS
JUNE 30, 2000 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund'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 fund's Net Assets.
Finally, Net Assets are divided by the outstanding shares of the fund 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 fund'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 fund 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 fund's investments and their cost, and reflects
the gains (losses) that would be realized if the fund were to sell all of its
investments at their statement-date values.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
STAR FUND SHARES (000)
--------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (100.1%)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS (62.2%)
Vanguard Windsor II Fund 86,082,187 $2,110,735
Vanguard Windsor Fund 79,498,834 1,184,533
Vanguard U.S. Growth Fund 8,530,752 391,135
Vanguard PRIMECAP Fund 5,454,587 388,748
Vanguard Morgan Growth Fund 16,689,705 383,029
Vanguard Explorer Fund 4,463,760 351,119
-----------
4,809,299
-----------
BOND FUNDS (25.7%)
Vanguard Long-Term Corporate Fund 123,248,292 993,381
Vanguard GNMA Fund 99,957,347 991,577
-----------
1,984,958
-----------
SHORT-TERM BOND FUND (12.2%)
Vanguard Short-Term Corporate Fund Investor Shares 89,940,522 940,778
-----------
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $6,263,874) 7,735,035
--------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
--------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.2%)
--------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a Pooled Cash Account
6.71%, 7/3/2000
(COST $14,227) $14,227 14,227
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(COST $6,278,101) 7,749,262
--------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (-0.3%)
--------------------------------------------------------------------------------------------------------------------
Other Assets $ 19,076
Liabilities (38,436)
------------
(19,360)
--------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------------------------------------------
Applicable to 438,936,432 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $7,729,902
====================================================================================================================
NET ASSET VALUE PER SHARE $17.61
====================================================================================================================
*See Note A in Notes to Financial Statements.
--------------------------------------------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------------------------------------------------------------------------------------------------------------------
Paid in Capital $6,020,012 $13.72
Undistributed Net Investment Income 10,047 .02
Accumulated Net Realized Gains 228,682 .52
Unrealized Appreciation--Note D 1,471,161 3.35
--------------------------------------------------------------------------------------------------------------------
NET ASSETS $7,729,902 $17.61
====================================================================================================================
</TABLE>
11
<PAGE> 14
STATEMENT OF OPERATIONS
This Statement shows the fund'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>
--------------------------------------------------------------------------------------------------------
STAR FUND
SIX MONTHS ENDED JUNE 30, 2000
(000)
--------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Income Distributions Received $133,742
Interest 79
--------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME--Note B 133,821
--------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Capital Gain Distributions Received 17,761
Investment Securities Sold 214,000
--------------------------------------------------------------------------------------------------------
REALIZED NET GAIN 231,761
--------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES (91,436)
--------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $274,146
========================================================================================================
</TABLE>
12
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund'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 fund'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
fund, 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>
--------------------------------------------------------------------------------------------------------
STAR FUND
--------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 2000 DEC. 31, 1999
(000) (000)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 133,821 $ 259,639
Realized Net Gain 231,761 584,564
Change in Unrealized Appreciation (Depreciation) (91,436) (286,418)
--------------------------------
Net Increase in Net Assets Resulting from Operations 274,146 557,785
--------------------------------
DISTRIBUTIONS
Net Investment Income (121,387) (263,052)
Realized Capital Gain (414,316) (172,087)
--------------------------------
Total Distributions (535,703) (435,139)
--------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 282,441 716,147
Issued in Lieu of Cash Distributions 521,918 422,889
Redeemed (899,969) (1,257,239)
--------------------------------
Net Decrease from Capital Share Transactions (95,610) (118,203)
--------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (357,167) 4,443
--------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 8,087,069 8,082,626
--------------------------------
End of Period $7,729,902 $8,087,069
========================================================================================================
(1)Shares Issued (Redeemed)
Issued 15,797 38,659
Issued in Lieu of Cash Distributions 29,311 23,452
Redeemed (50,253) (68,056)
--------------------------------
Net Decrease in Shares Outstanding (5,145) (5,945)
========================================================================================================
</TABLE>
13
<PAGE> 16
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis. The table also presents the fund's Total
Return and shows net investment income and expenses as percentages of average
net assets. The expense ratio is zero because the fund pays no direct expenses;
the fund's share of the expenses of the other funds in which it invests reduces
the income received from them. The data in the table will help you assess: the
variability of the fund's net income and total returns from year to year; the
relative contributions of net income and capital gains to the fund's total
return; the extent to which the fund 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 fund for one year.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
STAR FUND
YEAR ENDED DECEMBER 31,
---------------------------------------------
FOR A SHARE OUTSTANDING SIX MONTHS ENDED
THROUGHOUT EACH PERIOD June 30, 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $18.21 $17.96 $17.38 $15.86 $15.03 $12.61
--------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income .31 .60 .58 .60 .58 .590
Capital Gain Distributions Received .04 1.13 .86 1.06 .63 .435
Net Realized and Unrealized Gain (Loss)
on Investments .32 (.47) .70 1.65 1.19 2.550
-------------------------------------------------------
Total from Investment Operations .67 1.26 2.14 3.31 2.40 3.575
-------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.28) (.61) (.58) (.59) (.59) (.590)
Distributions from Realized Capital Gains (.99) (.40) (.98) (1.20) (.98) (.565)
-------------------------------------------------------
Total Distributions (1.27) (1.01) (1.56) (1.79) (1.57) (1.155)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $17.61 $18.21 $17.96 $17.38 $15.86 $15.03
==============================================================================================================
TOTAL RETURN 3.69% 7.13% 12.38% 21.15% 16.11% 28.64%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $7,730 $8,087 $8,083 $7,355 $5,863 $4,842
Ratio of Total Expenses to
Average Net Assets--Note B 0% 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 3.44%* 3.21% 3.18% 3.46% 3.71% 4.12%
Portfolio Turnover Rate 11%* 10% 16% 15% 18% 13%
===========================================================================================================
</TABLE>
*Annualized.
14
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
Vanguard STAR Fund is registered under the Investment Company Act of 1940 as an
open-end investment company, or mutual fund. The fund follows a balanced
investment strategy by investing in selected Vanguard funds. The fund invests
60% to 70% of its net assets in U.S. stock funds (predominantly
large-capitalization value stock funds), 20% to 30% in intermediate- to
long-term bond funds, and 10% to 20% in short-term bond and money market funds.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The fund consistently follows such
policies in preparing its 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: 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. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
4. REPURCHASE AGREEMENTS: The fund, 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 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, 2000, were reimbursed by Vanguard.
The fund's trustees and officers are also directors and officers of Vanguard and
the funds in which the fund invests.
C. During the six months ended June 30, 2000, the fund purchased $442,056,000 of
investment securities and sold $870,849,000 of investment securities other than
money market fund and temporary cash investments.
D. At June 30, 2000, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $1,471,161,000,
consisting of unrealized gains of $1,583,473,000 on securities that had risen in
value since their purchase and $112,312,000 in unrealized losses on securities
that had fallen in value since their purchase.
15
<PAGE> 18
THE VANGUARD(R) FAMILY OF FUNDS
<TABLE>
<CAPTION>
STOCK FUNDS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
500 Index Fund Growth Index Fund* Strategic Equity Fund
Calvert Social Index(TM) Fund* Health Care Fund Tax-Managed Capital
Capital Opportunity Fund Institutional Developed Markets Appreciation Fund*
Convertible Securities Fund Index Fund Tax-Managed Growth and
Developed Markets Index Fund Institutional Index Fund* Income Fund*
Emerging Markets Stock International Growth Fund Tax-Managed International Fund*
Index Fund* International Value Fund Tax-Managed Small-Cap Fund*
Energy Fund Mid-Cap Index Fund* Total International Stock
Equity Income Fund Morgan(TM) Growth Fund Index Fund
European Stock Index Fund* Pacific Stock Index Fund* Total Stock Market Index Fund*
Explorer(TM) Fund PRIMECAP Fund U.S. Growth Fund
Extended Market Index Fund* REIT Index Fund U.S. Value Fund
Global Equity Fund Selected Value Fund Utilities Income Fund
Gold and Precious Metals Fund Small-Cap Growth Index Fund* Value Index Fund*
Growth and Income Fund Small-Cap Index Fund* Windsor(TM) Fund
Growth Equity Fund Small-Cap Value Index Fund* Windsor(TM) II Fund
BALANCED FUNDS
---------------------------------------------------------------------------------------------------------------
Asset Allocation Fund LifeStrategy(R) Growth Fund STAR(TM) Fund
Balanced Index Fund LifeStrategy(R) Income Fund Tax-Managed Balanced Fund
Global Asset Allocation Fund LifeStrategy(R) Moderate Wellesley(R) Income Fund
LifeStrategy(R) Conservative Growth Fund Wellington(TM) Fund
Growth Fund
BOND FUNDS
---------------------------------------------------------------------------------------------------------------
Admiral(TM) Intermediate-Term Intermediate-Term Bond Preferred Stock Fund
Treasury Fund Index Fund Short-Term Bond Index Fund
Admiral(TM) Long-Term Treasury Intermediate-Term Corporate Fund Short-Term Corporate Fund*
Fund Intermediate-Term Tax-Exempt Short-Term Federal Fund
Admiral(TM) Short-Term Treasury Fund Fund Short-Term Tax-Exempt Fund
GNMA Fund Intermediate-Term Treasury Fund Short-Term Treasury Fund
High-Yield Corporate Fund Limited-Term Tax-Exempt Fund State Tax-Exempt Bond Funds
High-Yield Tax-Exempt Fund Long-Term Bond Index Fund (California, Florida,
Inflation-Protected Securities Fund Long-Term Corporate Fund Massachusetts, New Jersey,
Insured Long-Term Tax-Exempt Long-Term Tax-Exempt Fund New York, Ohio, Pennsylvania)
Fund Long-Term Treasury Fund Total Bond Market Index Fund*
MONEY MARKET FUNDS
---------------------------------------------------------------------------------------------------------------
Admiral(TM) Treasury Money State Tax-Exempt Money Market Tax-Exempt Money Market Fund
Market Fund Funds (California, New Jersey, Treasury Money Market Fund
Federal Money Market Fund New York, Ohio, Pennsylvania)
Prime Money Market Fund*
VARIABLE ANNUITY PLAN
---------------------------------------------------------------------------------------------------------------
Balanced Portfolio High-Grade Bond Portfolio Money Market Portfolio
Diversified Value Portfolio High Yield Bond Portfolio REIT Index Portfolio
Equity Income Portfolio International Portfolio Short-Term Corporate Portfolio
Equity Index Portfolio Mid-Cap Index Portfolio Small Company Growth Portfolio
Growth Portfolio
</TABLE>
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group, P.O. Box
2600, Valley Forge, PA 19482-2600.
Read it carefully before you invest or send money.
16
<PAGE> 19
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Six of Vanguard's seven board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new trustees/directors; and electing
Vanguard officers.
The list below provides a brief description of each trustee's professional
affiliations. Noted in parentheses is the year in which the trustee joined the
Vanguard board.
TRUSTEES
JOHN J. BRENNAN * (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JoANN HEFFERNAN HEISEN * (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MacLAURY * (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL * (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. * (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JAMES O. WELCH, JR. * (1971) 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 * (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, 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.
THOMAS J. HIGGINS * Treasurer; Principal of The Vanguard Group, Inc; Treasurer
of each of the investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON * Legal Department.
ROBERT A. DiSTEFANO * Information Technology.
JAMES H. GATELY * Individual Investor Group.
KATHLEEN C. GUBANICH * Human Resources.
IAN A. MacKINNON * Fixed Income Group.
F. WILLIAM McNABB, III * Institutional Investor Group.
MICHAEL S. MILLER * Planning and Development.
GEORGE U. SAUTER * Quantitative Equity Group.
<PAGE> 20
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
0562 08000
(C) 2000 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing
Corporation, Distributor.
<PAGE> 21
VANGUARD LIFESTRATEGY(R) FUNDS
semiannual
June 30, 2000
VANGUARD LIFESTRATEGY
INCOME FUND
VANGUARD LIFESTRATEGY
CONSERVATIVE GROWTH FUND
VANGUARD LIFESTRATEGY
MODERATE GROWTH FUND
VANGUARD LIFESTRATEGY
GROWTH FUND
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 22
HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment. Valuations of market indexes are at or near historic highs. The
strength and duration of the bull market in U.S. stocks have inflated people's
expectations and diminished their recognition of the market's considerable
risks. And the incredible divergence in stock returns--many technology-related
stocks gained 100% or more in 1999, yet prices fell for more than half of all
stocks--has made some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not
the same as wisdom. Indeed, much of the information, opinion, and rumor that
swirl about financial markets each day amounts to "noise" of no lasting
significance. And the fact that rapid-fire trading is easy does not make it
beneficial. Frequent trading is almost always counterpro-ductive because
costs--even at low commission rates--and taxes detract from the returns that the
markets provide. Sadly, many investors jump into a "hot" mutual fund just in
time to see it cool off. Meanwhile, long-term fund investors are hurt by
speculative trading activity because they bear part of the costs involved in
accommodating purchases and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
- Invest for the long term. Pursuing your long-term investment goals is
more like a marathon than a sprint.
- Diversify your investments with holdings in stocks, bonds, and cash
investments. Remember that, at any moment, some part of a diversified portfolio
will lag other parts, and be wary of taking on more risk by "piling onto" the
best-performing part of your holdings. Today's leader could well be tomorrow's
laggard.
- Step back from the daily frenzy of the markets; focus on your overall
asset allocation.
- Capture as much of the market's return as possible by minimizing costs
and taxes. Costs and taxes diminish long-term returns while doing nothing to
reduce the risks you incur as an investor.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
REPORT FROM THE CHAIRMAN..............1
THE MARKETS IN PERSPECTIVE............5
PERFORMANCE SUMMARIES.................7
FUND PROFILES.........................9
FINANCIAL STATEMENTS.................14
</TABLE>
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"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 5000(R)" and "Wilshire 4500" are trademarks of Wilshire Associates
Incorporated.
<PAGE> 23
[PHOTO]
JOHN J. BRENNAN
REPORT FROM THE CHAIRMAN
The stock market struggled but the bond market generally prospered during a
volatile first half of 2000. Amid these conditions, the four Vanguard
LifeStrategy Funds provided positive returns and each outperformed its unmanaged
index benchmark. The Income Fund--the most conservative of the funds, with a
target allocation of 60% in bonds, 20% in stocks, and 20% in short-term
investments--posted a gain of 3.8%. The Growth Fund--the most aggressive
LifeStrategy fund, with about 80% of its assets in stocks--delivered a total
return of 0.7%.
The table at right presents the total return (capital change plus
reinvested dividends) for each fund during the half-year. It also shows the
results for the funds' benchmarks--composites made up of unmanaged indexes that
are weighted to reflect the target asset allocation of each fund. On page 4, in
the table that follows this letter, you'll find detailed per-share figures for
each fund, including its net asset values at the beginning and end of the
semiannual period, the income dividends and capital gains distributions it paid
during the period, and its annualized yield as of June 30.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 2000
-----------------------------------------------------------------
<S> <C>
LIFESTRATEGY INCOME FUND 3.8%
Income Composite Index* 2.9
-----------------------------------------------------------------
LIFESTRATEGY CONSERVATIVE GROWTH FUND 2.6%
Conservative Growth Composite Index* 1.8
-----------------------------------------------------------------
LIFESTRATEGY MODERATE GROWTH FUND 1.8%
Moderate Growth Composite Index* 0.9
-----------------------------------------------------------------
LIFESTRATEGY GROWTH FUND 0.7%
Growth Composite Index* -0.2
-----------------------------------------------------------------
</TABLE>
*Total returns for the composite indexes are derived by applying the fund's
target allocation to the results of the following benchmarks: for U.S. stocks,
the Wilshire 5000 Index; for international stocks, the MSCI EAFE Index; for
bonds, the Lehman Aggregate Bond Index; and for short-term investments, the
Salomon Smith Barney 3-Month U.S. Treasury Bill Index.
THE PERIOD IN REVIEW
The first half of 2000 was a tumultuous time in financial markets, which were
buffeted by a complex set of crosscurrents. The domestic economy continued to
grow at a strong pace--the production of goods and services during the second
quarter of 2000 was about 6% higher than in the same period last year, even
after adjusting for inflation. Unemployment remained low, hovering around 4% of
the workforce. Elsewhere in the world, growth was picking up from more subdued
levels.
Economic growth is generally good for corporate earnings and, thus, for
stocks. But investors and economic policymakers have worried that the
combination of rapid economic growth and low unemployment would trigger sharply
higher wages and inflation. The Federal Reserve Board, in an effort to slow the
economy's momentum and forestall an inflationary outburst, continued to raise
short-term interest rates during the half-year. The Fed boosted its target for
the federal funds rate three times by a total of 1.0 percentage point (100 basis
points). In all, the Fed has raised its target rate by 175 basis points in the
past year.
For most of the first quarter of 2000, a continuing boom in technology
stocks kept the domestic market averages rising, despite the threat of higher
interest rates.
1
<PAGE> 24
But during the second quarter, tech stocks in particular cooled off. The market
may have reacted to evidence that the ideal combination of rapid growth and low
inflation was coming to an end. If the Fed succeeds in slowing the economy,
corporate earnings growth might slow, too. And if earnings growth slowed, some
investors reasoned, technology and telecommunications stocks would have a tough
time maintaining their lofty price/earnings multiples. The split between the two
quarters was evident in the results for the tech-dominated Nasdaq Composite
Index, which rose 12.7% in the first quarter, only to slide -14.7% in the
second. End result? A -3.9% return for the half-year.
The overall U.S. stock market, as measured by the Wilshire 5000 Total
Market Index, posted a -0.7% return for the six months. The small-capitalization
Russell 2000 Index gained 3.0%, outpacing the large-cap Standard & Poor's 500
Index, which posted a return of -0.4%.
Foreign stock markets also slowed during the half-year. The Morgan Stanley
Capital International Europe, Australasia, Far East Index, which measures the
performance of equity markets in 20 developed nations, had a total return of
-4.0%. The Select Emerging Markets Free Index declined -9.6%.
The Fed's efforts succeeded in pushing up short-term interest rates: The
yield of 3-month U.S. Treasury bills climbed 52 basis points (from 5.33% to
5.85%) during the half-year. But after rising early in the year, yields for
longer-term Treasuries began to fall after the Treasury announced that it would
use rising federal budget surpluses to buy back billions of dollars' worth of
long-term bonds. A shrinking supply of long-term Treasuries caused their prices
to rise and their yields to fall. By June 30, the 30-year Treasury bond's yield
had fallen 58 basis points, from 6.48% to 5.90%. Yields on high-quality
corporate bonds were flat to slightly higher. But for low-quality corporate
("junk") bonds, prices fell and yields rose as investors worried about increased
defaults.
Led by Treasuries, the overall bond market rebounded from a difficult 1999.
The Lehman Brothers Aggregate Bond Index, a broad measure of the U.S. bond
market, posted a gain of 4.0% during the six months ended June 30.
PERFORMANCE OVERVIEW
As you know, the LifeStrategy funds are "funds of funds." Each invests in shares
of other Vanguard funds in an effort to provide a blend of current income and
growth of capital. The table below shows each fund's target mix of stocks and
bonds, as well as its actual asset allocation as of June 30. Variations from our
target allocations are due primarily to the funds' holdings of Vanguard Asset
Allocation Fund, which shifts its assets among large-cap U.S. stocks, Treasury
bonds, and cash investments in an effort to provide attractive
TARGET AND ACTUAL ASSET ALLOCATIONS (JUNE 30, 2000)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
STOCKS* BONDS SHORT-TERM INVESTMENTS
------------------ ------------------ -----------------------
LIFESTRATEGY FUND TARGET ACTUAL TARGET ACTUAL TARGET ACTUAL
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income 20% 15% 60% 65% 20% 20%
Conservative Growth 40 35 40 45 20 20
Moderate Growth 60 55 40 45 0 0
Growth 80 75 20 25 0 0
----------------------------------------------------------------------------------------------
</TABLE>
*International stock positions for the Income, Conservative Growth, Moderate
Growth, and Growth Funds equal, respectively, 0%, 5%, 10%, and 15% of assets.
2
<PAGE> 25
returns with less risk than an all-stock portfolio. As of June 30, the Asset
Allocation Fund held 40% of its assets in stocks and 60% in bonds.
Asset Allocation's cautious approach to stocks during 1999 hurt its
performance, along with returns for the LifeStrategy funds, each of which
invests about 25% of its assets in the fund. But conservatism was rewarded
during the first half of 2000, and Asset Allocation had a total return of 5.0%,
helping the LifeStrategy funds' performance. Gains were also delivered by our
fixed income investments. Vanguard Short-Term Corporate Fund had a return of
2.7%, while Vanguard Total Bond Market Index Fund--aided by its holdings in
Treasury bonds--gained 3.9%.
The LifeStrategy funds' equity holdings posted declines during the
half-year. Vanguard Total Stock Market Index Fund had a total return of -0.7%.
As of June 30, this index fund made up 5%, 20%, 35%, and 50%, respectively, of
the Income, Conservative Growth, Moderate Growth, and Growth Funds' assets.
Vanguard Total International Stock Index Fund fared worse, returning -4.2%. The
Conservative Growth, Moderate Growth, and Growth Funds maintained investments of
5%, 10%, and 15% of assets, respectively, in Total International during the
period.
<TABLE>
<CAPTION>
-------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------
VANGUARD MUTUAL FUND
LIFESTRATEGY FUND FUND AVERAGE* DIFFERENCE
-------------------------------------------------------
<S> <C> <C> <C>
Income 3.8% 2.9% +0.9%
Conservative Growth 2.6 3.0 -0.4
Moderate Growth 1.8 2.9 -1.1
Growth 0.7 2.9 -2.2
-------------------------------------------------------
</TABLE>
*Each average is a blended composite that weights the returns of the average
comparable mutual fund for each asset class in proportion with the target
weighting of the appropriate LifeStrategy fund. All average fund figures are
derived from data provided by Lipper Inc.
As the table above illustrates, three of the four LifeStrategy funds
underperformed their mutual fund benchmarks during the semiannual period. This
reflects the relative strength during the half-year of the average stock fund,
which benefited from the strong performance of mid- and small-cap stocks in
beating broad market indexes. The LifeStrategy funds rely heavily on index
funds, which by definition provide returns that do not vary much from those of
their target indexes. Over the long term, index funds have--due to their very
low costs--provided superior returns. We fully expect them to continue to
outpace the majority of actively managed funds. In short, we are committed to
the index-based investment strategy of the LifeStrategy funds.
IN SUMMARY
During the first half of 2000 we witnessed very sharp day-to-day price
fluctuations, significant swings in investor sentiment, and sudden shifts in
market leadership. All of this volatility, squeezed into a mere six months,
underscored the fact that unpredictability is par for the course in financial
markets. The timing, extent, and duration of such episodes are impossible to
foretell with precision, but investors must be willing to endure them to reap
the long-term rewards of investing.
At Vanguard, we reiterate our long-standing recommendation for navigating
stormy seas toward long-term financial goals. First, create an investment plan
with a balance of stock funds, bond funds, and money market funds suited to your
time horizon, investment objectives, and tolerance for market fluctuations. Once
you have such a diversified plan in place--as the LifeStrategy funds
demonstrate, it need not be complicated--
3
<PAGE> 26
stick with it. Avoid the impulse to alter it based on short-term events--whether
those be unsettling turbulence in the market or glittery returns from some
particular corner of the market. "Stay the course" is timeless investment
wisdom.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer
July 14, 2000
IN MEMORY
It is with great sadness that I report the death of John C. Sawhill, an
independent trustee of the funds and a member of The Vanguard Group's board of
directors since 1991. John, an economist who was president and chief executive
officer of The Nature Conservancy, died on May 18 at age 63. He was a senior
lecturer at the Harvard Business School and had formerly served as president of
New York University and as deputy secretary of the U.S. Department of Energy
under President Jimmy Carter. John was a remarkable man who was full of energy,
vigor, and life. His experience and wisdom added a great deal to Vanguard, and
his death is a blow to everyone who knew and loved him. Though John's work on
behalf of our funds was often carried on behind the scenes, he was a dedicated
advocate for the best interests of our shareholders. He will be missed.
FUND STATISTICS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE SIX MONTHS ENDED JUNE 30, 2000
------------------------- -------------------------------
DECEMBER 31, JUNE 30, INCOME CAPITAL GAINS SEC
LIFESTRATEGY FUND 1999 2000 DIVIDENDS DISTRIBUTIONS YIELD*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income $12.82 $12.88 $0.34 $0.08 5.68%
Conservative Growth 15.10 15.09 0.31 0.10 4.60
Moderate Growth 18.18 18.13 0.27 0.11 3.51
Growth 21.41 21.23 0.21 0.13 2.42
-------------------------------------------------------------------------------------------------
</TABLE>
*30-day advertised yield net of expenses at month-end.
4
<PAGE> 27
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED JUNE 30, 2000
The perpetual tug-of-war in the financial markets ended in a near stalemate
during the first half of 2000, despite lots of back-and-forth movement. On
average, neither stock nor bond prices ended the period far from where they
began it. However, bonds, thanks to their superior income, outpaced stocks in
total return.
Economic signals were conflicting. Growth continued at a rapid pace, and
corporate profits rose smartly. On the other hand, stock prices as the year
began already reflected high levels of optimism, and the market administered
severe punishment to companies that failed to live up to earnings expectations.
Also weighing on the market were concerns that the economy's vigor at a time of
low unemployment would inevitably push labor costs and other prices higher.
Indeed, higher costs for oil and natural gas pushed broad gauges of inflation
higher (the Consumer Price Index gained 2.4% for the six months and 3.7% for the
twelve months ended June 30). Yet core inflation, which excludes energy and food
items, registered a moderate 2.4% gain during the 12 months ended June 30.
The Federal Reserve Board raised short-term interest rates by 0.25
percentage point in February and again in March, before adding a half-point
boost in May. These steps, which followed three quarter-percentage-point
increases in 1999, took the Fed's target for short-term rates to 6.5%.
Thereafter, signs of a slowing in economic activity cropped up, although it was
not certain that the Fed was done trying to throttle down the economic engine.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JUNE 30, 2000
---------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
----------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
S&P 500 Index -0.4% 7.2% 23.8%
Russell 2000 Index 3.0 14.3 14.3
Wilshire 5000 Index -0.7 10.0 22.6
MSCI EAFE Index -4.0 17.4 11.6
----------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.0% 4.6% 6.3%
Lehman 10 Year Municipal Bond Index 4.0 4.5 6.0
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.8 5.3 5.2
----------------------------------------------------------------------------
OTHER
Consumer Price Index 2.4% 3.7% 2.5%
----------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. STOCK MARKETS
Stock prices were quite volatile during the half-year, and large day-to-day
price fluctuations in market averages were commonplace. There also were two
swift shifts in market leadership. The year began with a continuance in the
rapid rise for the "TMT" stocks (technology, media, telecommunications) that
were the market's darlings during 1999. Through mid-March, the surge in these
"new economy" groups left "old economy" stocks far behind. For example, the
Nasdaq Composite Index, which is dominated by tech-related stocks, gained 15.6%
and the Russell 1000 Value Index fell -10.4% during January and February. But in
mid-March, value stocks took charge and TMT stocks slumped. The Russell 1000
Value Index returned 12.1% while the Nasdaq plummeted to a -27.4% return in the
March-May period. But June brought another flip-flop: The value index declined
-4.6%, while the Nasdaq rebounded with a 14.5% return.
5
<PAGE> 28
When the half-year was over, most broad market indexes had modest declines.
The all-market Wilshire 5000 Index returned -0.7%, the large-capitalization S&P
500 Index slipped -0.4%, and the Nasdaq fell -3.9%. Small- and mid-cap stocks
did better: The small-cap Russell 2000 Index gained 3.0% and the Wilshire 4500
Completion Index, comprising virtually all the U.S. stocks outside of the S&P
500, eked out a 0.3% return.
U.S. BOND MARKETS
The Federal Reserve most directly influences interest rates of short-term
securities. The Fed pushed up its target federal funds rate (charged on
overnight loans between banks) by 1 percentage point to 6.5%. But yields of
3-month U.S. Treasury bills rose only half as far (0.52 percentage point, or 52
basis points to 5.85%). And yields actually declined on long-term Treasury
securities, whose prices rose. Big federal budget surpluses are causing a
shrinking supply of Treasury bonds. The 10-year Treasury note's yield fell 41
basis points to 6.03% as of June 30, and the yield of the 30-year Treasury
declined 58 basis points--from 6.48% to 5.90%--during the half-year.
The upshot was an unusual "inversion" in the yield curve. Instead of
sloping upward--with yields increasing along with the maturity of Treasury
securities--the curve descended. The 5.90% yield of 30-year Treasuries on June
30 was 49 basis points below the 6.39% yield on 3-year Treasury notes.
Corporate bonds did not perform as well as Treasuries for two main reasons:
a record level of new offerings and investors' concern that credit quality might
be declining. The rise in yields (and fall in prices) was slight for
higher-quality corporate bonds but more severe for high-yield "junk" bonds.
Investors grew wary of riskier bonds due to an increase in defaults. The Lehman
High Yield Bond Index saw a price decline of -5.7% during the first half of
2000, more than offsetting its six-month income of 4.5%. Tax-exempt municipal
bonds generally outperformed corporates but did not do as well as Treasury
securities. The overall taxable bond market, as measured by the Lehman Aggregate
Bond Index, returned 4.0%, as a price gain of 0.4% augmented a 3.6% income
return.
INTERNATIONAL STOCK MARKETS
International stock markets were generally unprofitable for U.S. investors due
to lack-luster local market performances and a stronger U.S. dollar during the
half-year. Although economic growth in most of Europe appeared to be
strengthening, stocks were hurt by continued economic weakness in Japan and from
expectations of higher interest rates. On the other hand, European stock prices
got some support from an increase in corporate takeovers.
In local currencies, European stocks posted a 1.7% return in the aggregate
and stocks from the Pacific region recorded a modest decline of -2.6%. However,
the dollar's strength diminished those results for U.S. investors, for whom the
Morgan Stanley Capital International (MSCI) Europe Index returned -3.0% and the
MSCI Pacific Free Index returned -5.9%. The MSCI Europe, Australasia, Far East
(EAFE) Index of developed foreign markets registered a -4.0% return for U.S.
investors.
The Select Emerging Markets Free Index fell -9.6% in U.S. dollars, having
declined -3.5% in local currencies. The index was hit by weakness in South
Africa (-15%) and several emerging Asian markets, including Indonesia (-44%),
Thailand (-36%), and the Philippines (-36%). The biggest gains among emerging
markets were in Israel (+27%) and Venezuela (+19%).
6
<PAGE> 29
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 funds. Note, too, that both
share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
LIFESTRATEGY INCOME FUND
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 2000
<TABLE>
<CAPTION>
---------------------------------------------
LIFESTRATEGY INCOME FUND INCOME
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
---------------------------------------------
<S> <C> <C> <C> <C>
1994 -1.2% 1.4% 0.2% 0.3%
1995 17.7 5.3 23.0 19.2
1996 1.9 5.7 7.6 7.4
1997 8.5 5.7 14.2 13.0
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
LIFESTRATEGY INCOME FUND INCOME
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
----------------------------------------------
<S> <C> <C> <C> <C>
1998 7.9% 5.3% 13.2% 11.2%
1999 -2.5 5.3 2.8 5.0
2000** 1.1 2.7 3.8 2.9
----------------------------------------------
</TABLE>
*60% Lehman Aggregate Bond Index, 20% Wilshire 5000 Index, and 20% Salomon
Smith Barney 3-Month Treasury Index.
**Six months ended June 30, 2000.
See Financial Highlights table on page 22 for dividend and capital gains
information for the past five years.
LIFESTRATEGY CONSERVATIVE GROWTH FUND
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 2000
<TABLE>
<CAPTION>
----------------------------------------------
LIFESTRATEGY CONSERVATIVE CONSERVATIVE
GROWTH FUND GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
----------------------------------------------
<S> <C> <C> <C> <C>
1994 -1.3% 1.4% 0.1% 0.1%
1995 19.3 5.0 24.3 21.4
1996 5.6 4.8 10.4 10.1
1997 12.0 4.8 16.8 15.8
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
LIFESTRATEGY CONSERVATIVE CONSERVATIVE
GROWTH FUND GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
----------------------------------------------
<S> <C> <C> <C> <C>
1998 11.3% 4.6% 15.9% 14.2%
1999 3.4 4.5 7.9 10.0
2000** 0.6 2.0 2.6 1.8
----------------------------------------------
</TABLE>
*40% Lehman Aggregate Bond Index, 35% Wilshire 5000 Index, 20% Salomon Smith
Barney 3-Month Treasury Index, and 5% MSCI EAFE Index.
**Six months ended June 30, 2000.
See Financial Highlights table on page 23 for dividend and capital gains
information for the past five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
INCEPTION SINCE INCEPTION
-------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LifeStrategy Income Fund 9/30/1994 5.48% 10.02% 5.59% 5.49% 11.08%
LifeStrategy Conservative Growth Fund 9/30/1994 7.04 12.60 8.66 4.72 13.38
------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 30
PERFORMANCE SUMMARIES (continued)
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the funds. Note, too, that both
share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
LIFESTRATEGY MODERATE GROWTH FUND
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------
LIFESTRATEGY MODERATE MODERATE
GROWTH FUND GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
----------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -2.1% 1.4% -0.7% -0.3%
1995 24.1 3.8 27.9 26.5
1996 9.0 3.7 12.7 12.6
1997 15.9 3.9 19.8 19.5
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
LIFESTRATEGY MODERATE MODERATE
GROWTH FUND GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
----------------------------------------------------------
<S> <C> <C> <C> <C>
1998 15.5% 3.5% 19.0% 17.8%
1999 8.6 3.4 12.0 13.9
2000** 0.3 1.5 1.8 0.9
----------------------------------------------------------
</TABLE>
*50% Wilshire 5000 Index, 40% Lehman Aggregate Bond Index, and 10% MSCI EAFE
Index.
**Six months ended June 30, 2000.
See Financial Highlights table on page 23 for dividend and capital gains
information for the past five years.
LIFESTRATEGY GROWTH FUND
TOTAL INVESTMENT RETURNS: SEPTEMBER 30, 1994-JUNE 30, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------
LIFESTRATEGY GROWTH FUND
GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
----------------------------------------------------------
<S> <C> <C> <C> <C>
1994 -1.5% 1.4% -0.1% -0.6%
1995 26.0 3.2 29.2 28.9
1996 12.5 2.9 15.4 15.4
1997 19.4 2.9 22.3 22.3
----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------
LIFESTRATEGY GROWTH FUND
GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
----------------------------------------------------------
<S> <C> <C> <C> <C>
1998 18.8% 2.6% 21.4% 20.5%
1999 14.8 2.5 17.3 19.1
2000** -0.3 1.0 0.7 -0.2
----------------------------------------------------------
</TABLE>
*65% Wilshire 5000 Index, 20% Lehman Aggregate Bond Index, and 15% MSCI EAFE
Index.
**Six months ended June 30, 2000.
See Financial Highlights table on page 24 for dividend and capital gains
information for the past five years.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
INCEPTION SINCE INCEPTION
-------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LifeStrategy Moderate Growth Fund 9/30/1994 8.35% 15.27% 12.13% 3.70% 15.83%
LifeStrategy Growth Fund 9/30/1994 9.74 17.77 15.31 2.88 18.19
------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 31
FUND PROFILE
LIFESTRATEGY INCOME FUND
This Profile provides a snapshot of the fund's characteristics as of June 30,
2000, including its allocations to various asset classes and to underlying
Vanguard funds. Key elements of this Profile are defined on page 10.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
---------------------------------------
<S> <C>
Yield 5.7%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.29%
</TABLE>
*For underlying funds; annualized.
[PIE CHART]
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
---------------------------------------
<S> <C>
BONDS 65%
SHORT-TERM INVESTMENTS 20%
STOCKS 15%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
--------------------------------------------
LIFESTRATEGY LEHMAN
INCOME INDEX*
--------------------------------------------
<S> <C> <C>
R-Squared 0.46 1.00
Beta 0.96 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
ALLOCATION TO UNDERLYING FUNDS
---------------------------------------------
<S> <C>
Vanguard Total Bond Market Index Fund 50.1%
Vanguard Asset Allocation Fund 25.0
Vanguard Short-Term Corporate Fund 19.7
Vanguard Total Stock Market Index Fund 5.2
---------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
-----------------------
<S> <C>
STYLE BLEND
MARKET CAP LARGE
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME INVESTMENT FOCUS
-----------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
9
<PAGE> 32
ALLOCATION TO UNDERLYING FUNDS. This table shows the distribution of a fund's
assets in underlying Vanguard funds.
AVERAGE WEIGHTED EXPENSE RATIO. Funds that invest in other Vanguard funds incur
no direct expenses, but do bear proportionate shares 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 fund invested in each underlying fund.
BETA. A measure of the magnitude of a fund'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 fund 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%.
EQUITY INVESTMENT FOCUS. This grid indicates the focus of a fund'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 fund'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 fund's
fixed-income holdings in terms of two attributes: average maturity (short,
medium, or long) and average credit quality (Treasury/agency, investment-grade
corporate, or below investment-grade).
FUND ASSET ALLOCATION. This chart shows the proportions of a fund's holdings
allocated to different types of assets.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund's returns bore no relationship to the
market's returns, its R-squared would be 0.
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year.
10
<PAGE> 33
FUND PROFILE
LIFESTRATEGY CONSERVATIVE GROWTH FUND
This Profile provides a snapshot of the fund's characteristics as of June 30,
2000, including its allocations to various asset classes and to underlying
Vanguard funds. Key elements of this Profile are defined on page 10.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
---------------------------------------
<S> <C>
Yield 4.6%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.29%
</TABLE>
*For underlying funds; annualized.
[PIE CHART]
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
---------------------------------------
<S> <C>
BONDS 45%
STOCKS 35%
SHORT-TERM INVESTMENTS 20%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------
LIFESTRATEGY
CONSERVATIVE GROWTH S&P 500
---------------------------------------------
<S> <C> <C>
R-Squared 0.90 1.00
Beta 0.39 1.00
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION TO UNDERLYING FUNDS
---------------------------------------------
<S> <C>
Vanguard Total Bond Market Index Fund 30.1%
Vanguard Asset Allocation Fund 24.9
Vanguard Total Stock Market Index Fund 20.1
Vanguard Short-Term Corporate Fund 19.9
Vanguard Total International
Stock Index Fund 5.0
---------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
-----------------------
<S> <C>
STYLE BLEND
MARKET CAP LARGE
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME INVESTMENT FOCUS
-----------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
11
<PAGE> 34
FUND PROFILE
LIFESTRATEGY MODERATE GROWTH FUND
This Profile provides a snapshot of the fund's characteristics as of June 30,
2000, including its allocations to various asset classes and to underlying
Vanguard funds. Key elements of this Profile are defined on page 10.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
--------------------------------------------
<S> <C>
Yield 3.5%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.29%
</TABLE>
*For underlying funds; annualized.
[PIE CHART]
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
---------------------------------------
<S> <C>
STOCKS 55%
BONDS 45%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------
LIFESTRATEGY
MODERATE GROWTH S&P 500
---------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 0.58 1.00
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION TO UNDERLYING FUNDS
---------------------------------------------
<S> <C>
Vanguard Total Stock Market Index Fund 35.1%
Vanguard Total Bond Market Index Fund 30.1
Vanguard Asset Allocation Fund 24.8
Vanguard Total International
Stock Index Fund 10.0
---------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
-----------------------
<S> <C>
STYLE BLEND
MARKET CAP LARGE
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME INVESTMENT FOCUS
-----------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
12
<PAGE> 35
FUND PROFILE
LIFESTRATEGY GROWTH FUND
This Profile provides a snapshot of the fund's characteristics as of June 30,
2000, including its allocations to various asset classes and to underlying
Vanguard funds. Key elements of this Profile are defined on page 10.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
--------------------------------------------
<S> <C>
Yield 2.4%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.29%
</TABLE>
*For underlying funds; annualized.
[PIE CHART]
<TABLE>
<CAPTION>
FUND ASSET ALLOCATION
---------------------------------------
<S> <C>
STOCKS 75%
BONDS 25%
</TABLE>
<TABLE>
<CAPTION>
VOLATILITY MEASURES
---------------------------------------------
LIFESTRATEGY
GROWTH S&P 500
---------------------------------------------
<S> <C> <C>
R-Squared 0.94 1.00
Beta 0.76 1.00
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION TO UNDERLYING FUNDS
---------------------------------------------
<S> <C>
Vanguard Total Stock Market Index Fund 50.0%
Vanguard Asset Allocation Fund 25.1
Vanguard Total International
Stock Index Fund 15.0
Vanguard Total Bond Market Index Fund 9.9
---------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INVESTMENT FOCUS
-----------------------
<S> <C>
STYLE BLEND
MARKET CAP LARGE
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME INVESTMENT FOCUS
-----------------------------
<S> <C>
AVERAGE MATURITY MEDIUM
CREDIT QUALITY TREASURY/AGENCY
</TABLE>
13
<PAGE> 36
FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund'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 fund's Net Assets.
Finally, Net Assets are divided by the outstanding shares of the fund 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 fund'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 fund 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 fund's investments and their cost, and reflects
the gains (losses) that would be realized if the fund were to sell all of its
investments at their statement-date values.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY INCOME FUND SHARES (000)
----------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (100.2%)
----------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUND (5.2%)
Vanguard Total Stock Market Index Fund Investor Shares 864,162 $ 28,327
----------
BALANCED FUND (25.1%)
Vanguard Asset Allocation Fund 5,515,785 135,192
----------
BOND FUNDS (69.9%)
Vanguard Total Bond Market Index Fund Investor Shares 28,139,347 270,419
Vanguard Short-Term Corporate Fund Investor Shares 10,184,970 106,535
----------
376,954
----------
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $519,187) 540,473
----------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
----------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.3%)
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.71%, 7/3/2000
(COST $1,522) $1,522 1,522
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.5%)
(COST $520,709) 541,995
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.5%)
----------------------------------------------------------------------------------------------
Other Assets 3,483
Liabilities (6,260)
----------
(2,777)
----------------------------------------------------------------------------------------------
NET ASSETS (100%)
----------------------------------------------------------------------------------------------
Applicable to 41,873,156 outstanding $.001 par value
shares of beneficial interest.
(unlimited authorization) $539,218
==============================================================================================
NET ASSET VALUE PER SHARE $12.88
==============================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
14
<PAGE> 37
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
----------------------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $517,887 $12.37
Undistributed Net Investment Income 1,143 .03
Accumulated Net Realized Losses (1,098) (.03)
Unrealized Appreciation--Note D 21,286 .51
----------------------------------------------------------------------------------------------
NET ASSETS $539,218 $12.88
==============================================================================================
</TABLE>
15
<PAGE> 38
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY CONSERVATIVE GROWTH FUND SHARES (000)
----------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (99.9%)
----------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS (25.1%)
Vanguard Total Stock Market Index Fund Investor Shares 10,633,302 $348,560
Vanguard Total International Stock Index Fund 6,284,093 85,904
----------
434,464
----------
BALANCED FUND (24.9%)
Vanguard Asset Allocation Fund 17,598,764 431,346
----------
BOND FUNDS (49.9%)
Vanguard Total Bond Market Index Fund Investor Shares 54,144,444 520,328
Vanguard Short-Term Corporate Fund Investor Shares 32,975,834 344,927
----------
865,255
----------
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $1,516,138) 1,731,065
----------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
----------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.71%, 7/3/2000
(COST $2,524) $2,524 2,524
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(COST $1,518,662) 1,733,589
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------
Other Assets 14,582
Liabilities (15,434)
----------
(852)
----------------------------------------------------------------------------------------------
NET ASSETS (100%)
----------------------------------------------------------------------------------------------
Applicable to 114,861,575 outstanding $.001 par value
shares of beneficial interest
(unlimited authorization) $1,732,737
==============================================================================================
NET ASSET VALUE PER SHARE $15.09
==============================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
----------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $1,508,751 $13.14
Undistributed Net Investment Income 3,209 .03
Accumulated Net Realized Gains 5,850 .05
Unrealized Appreciation--Note D 214,927 1.87
----------------------------------------------------------------------------------------------
NET ASSETS $1,732,737 $15.09
==============================================================================================
</TABLE>
16
<PAGE> 39
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY MODERATE GROWTH FUND SHARES (000)
----------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (100.7%)
----------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS (45.4%)
Vanguard Total Stock Market Index Fund Investor Shares 39,934,021 $1,309,037
Vanguard Total International Stock Index Fund 27,162,483 371,311
------------
1,680,348
------------
BALANCED FUND (25.0%)
Vanguard Asset Allocation Fund 37,714,292 924,377
------------
BOND FUND (30.3%)
Vanguard Total Bond Market Index Fund Investor Shares 16,669,511 1,121,194
------------
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $3,118,100) 3,725,919
----------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
----------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.71%, 7/3/2000
(COST $3,802) $3,802 3,802
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.8%)
(COST $3,121,902) 3,729,721
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.8%)
----------------------------------------------------------------------------------------------
Other Assets 87,939
Liabilities (120,362)
------------
(32,423)
----------------------------------------------------------------------------------------------
NET ASSETS (100%)
----------------------------------------------------------------------------------------------
Applicable to 203,924,778 outstanding $.001 par value
shares of beneficial interest
(unlimited authorization) $3,697,298
==============================================================================================
NET ASSET VALUE PER SHARE $18.13
==============================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
----------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $3,083,963 $15.12
Undistributed Net Investment Income 4,693 .02
Accumulated Net Realized Gains 823 .01
Unrealized Appreciation--Note D 607,819 2.98
----------------------------------------------------------------------------------------------
NET ASSETS $3,697,298 $18.13
==============================================================================================
</TABLE>
17
<PAGE> 40
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY GROWTH FUND SHARES (000)
----------------------------------------------------------------------------------------------
INVESTMENT COMPANIES (99.8%)
----------------------------------------------------------------------------------------------
<S> <C> <C>
STOCK FUNDS (64.9%)
Vanguard Total Stock Market Index Fund Investor Shares 54,176,966 $1,775,921
Vanguard Total International Stock Index Fund 38,952,866 532,486
------------
2,308,407
------------
BALANCED FUND (25.0%)
Vanguard Asset Allocation Fund 36,326,246 890,356
------------
BOND FUND (9.9%)
Vanguard Total Bond Market Index Fund Investor Shares 36,787,228 353,525
------------
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $2,816,095) 3,552,288
----------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
----------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 6.71%, 7/3/2000
(COST $3,867) $3,867 3,867
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(COST $2,819,962) 3,556,155
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
----------------------------------------------------------------------------------------------
Other Assets 10,441
Liabilities (7,025)
------------
3,416
----------------------------------------------------------------------------------------------
NET ASSETS (100%)
----------------------------------------------------------------------------------------------
Applicable to 167,646,798 outstanding $.001 par value
shares of beneficial interest.
(unlimited authorization) $3,559,571
==============================================================================================
NET ASSET VALUE PER SHARE $21.23
==============================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
AT JUNE 30, 2000, NET ASSETS CONSISTED OF:
----------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
----------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $2,821,692 $16.83
Undistributed Net Investment Income 748 --
Accumulated Net Realized Gains 938 .01
Unrealized Appreciation--Note D 736,193 4.39
----------------------------------------------------------------------------------------------
NET ASSETS $3,559,571 $21.23
==============================================================================================
</TABLE>
18
<PAGE> 41
STATEMENT OF OPERATIONS
This Statement shows each fund'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>
-----------------------------------------------------------------------------------------
LIFESTRATEGY LIFESTRATEGY
LIFESTRATEGY CONSERVATIVE MODERATE LIFESTRATEGY
INCOME GROWTH GROWTH GROWTH
FUND FUND FUND FUND
-----------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------------------------
(000) (000) (000) (000)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Income Distributions Received $15,111 $38,452 $58,592 $36,051
Interest 28 64 105 156
-----------------------------------------------------------------------------------------
NET INVESTMENT INCOME--NOTE B 15,139 38,516 58,697 36,207
-----------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Capital Gain Distributions Received 47 857 3,255 4,554
Investment Securities Sold (1,194) 4,865 (1,254) (2,676)
-----------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (1,147) 5,722 2,001 1,878
-----------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT
SECURITIES 5,569 587 6,490 (8,175)
-----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $19,561 $44,825 $67,188 $29,910
=========================================================================================
</TABLE>
19
<PAGE> 42
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each fund'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 fund'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
fund, 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>
--------------------------------------------------------------------------------------------------------------------
LIFESTRATEGY LIFESTRATEGY
INCOME FUND CONSERVATIVE GROWTH FUND
------------------------------ -----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUN. 30, 2000 DEC. 31, 1999 JUN. 30, 2000 DEC. 31, 1999
(000) (000) (000) (000)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 15,139 $ 28,810 $ 38,516 $ 69,379
Realized Net Gain (Loss) (1,147) 6,449 5,722 23,939
Change in Unrealized Appreciation (Depreciation) 5,569 (20,810) 587 30,650
-------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations 19,561 14,449 44,825 123,968
-------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (13,948) (28,895) (35,055) (69,029)
Realized Capital Gain (3,248) (2,987) (11,318) (12,422)
-------------------------------------------------------------
Total Distributions (17,196) (31,882) (46,373) (81,451)
-------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 76,765 289,918 237,666 622,417
Issued in Lieu of Cash Distributions 15,062 27,894 44,155 77,054
Redeemed (110,352) (193,898) (295,283) (409,950)
-------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (18,525) 123,914 (13,462) 289,521
--------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (16,160) 106,481 (15,010) 332,038
--------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 555,378 448,897 1,747,747 1,415,709
-------------------------------------------------------------
End of Period $539,218 $555,378 $1,732,737 $1,747,747
====================================================================================================================
(1)Shares Issued (Redeemed)
Issued 5,971 22,022 15,754 41,835
Issued in Lieu of Cash Distributions 1,170 2,169 2,906 5,195
Redeemed (8,589) (14,818) (19,556) (27,487)
-------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding (1,448) 9,373 (896) 19,543
====================================================================================================================
</TABLE>
20
<PAGE> 43
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
LIFESTRATEGY LIFESTRATEGY
MODERATE GROWTH FUND GROWTH FUND
------------------------------ -----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUN. 30, 2000 DEC. 31, 1999 JUN. 30, 2000 DEC. 31, 1999
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 58,697 $ 95,574 $ 36,207 $ 61,436
Realized Net Gain 2,001 44,710 1,878 43,186
Change in Unrealized Appreciation (Depreciation) 6,490 195,611 (8,175) 319,106
---------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations 67,188 335,895 29,910 423,728
DISTRIBUTIONS
Net Investment Income (53,655) (95,504) (34,785) (61,628)
Realized Capital Gain (21,440) (24,016) (20,840) (23,053)
---------------------------------------------------------
Total Distributions (75,095) (119,520) (55,625) (84,681)
---------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 681,715 1,442,247 781,978 1,224,603
Issued in Lieu of Cash Distributions 70,191 110,050 54,839 82,841
Redeemed (487,418) (529,899) (428,562) (393,582)
---------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 264,488 1,022,398 408,255 913,862
------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 256,581 1,238,773 382,540 1,252,909
------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 3,440,717 2,201,944 3,177,031 1,924,122
---------------------------------------------------------
End of Period $3,697,298 $3,440,717 $3,559,571 $3,177,031
============================================================================================================
(1)Shares Issued (Redeemed)
Issued 37,640 82,824 36,858 61,878
Issued in Lieu of Cash Distributions 3,854 6,202 2,551 3,988
Redeemed (26,865) (30,350) (20,134) (19,873)
----------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 14,629 58,676 19,275 45,993
============================================================================================================
</TABLE>
21
<PAGE> 44
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. The table also presents the fund's Total
Return and shows net investment income and expenses as percentages of average
net assets. The expense ratio is zero because the fund pays no direct expenses;
its share of the expenses of the other funds in which it invests reduces the
income received from them. The data in the table will help you assess: the
variability of the fund's net income and total returns from year to year; the
relative contributions of net income and capital gains to the fund's total
return; the extent to which the fund 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 fund for one year.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
LIFESTRATEGY INCOME FUND
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.82 $13.22 $12.43 $11.55 $11.54 $ 9.88
--------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .37 .69 .63 .63 .64 .49
Capital Gain Distributions Received -- .14 .20 .15 .19 .09
Net Realized and Unrealized Gain (Loss)
on Investments .11 (.47) .78 .83 .03 1.66
--------------------------------------------------------
Total from Investment Operations .48 .36 1.61 1.61 .86 2.24
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.34) (.69) (.63) (.63) (.64) (.49)
Distributions from Realized Capital Gains (.08) (.07) (.19) (.10) (.21) (.09)
--------------------------------------------------------
Total Distributions (.42) (.76) (.82) (.73) (.85) (.58)
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.88 $12.82 $13.22 $12.43 $11.55 $11.54
==============================================================================================================
TOTAL RETURN 3.77% 2.82% 13.17% 14.23% 7.65% 22.99%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $539 $555 $449 $244 $151 $121
Ratio of Expenses to
Average Net Assets--Note B 0% 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 5.65%* 5.37% 5.24% 5.54% 5.66% 5.76%
Portfolio Turnover Rate 14%* 11% 3% 6% 22% 4%
==============================================================================================================
</TABLE>
*Annualized.
22
<PAGE> 45
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
LIFESTRATEGY CONSERVATIVE GROWTH FUND
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.10 $14.71 $13.40 $12.14 $11.68 $ 9.89
==============================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .34 .64 .58 .56 .53 .47
Capital Gain Distributions Received .02 .18 .20 .18 .20 .11
Net Realized and Unrealized Gain (Loss)
on Investments .04 .31 1.32 1.27 .46 1.80
--------------------------------------------------------
Total from Investment Operations .40 1.13 2.10 2.01 1.19 2.38
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.31) (.63) (.59) (.56) (.53) (.47)
Distributions from Realized Capital Gains (.10) (.11) (.20) (.19) (.20) (.12)
--------------------------------------------------------
Total Distributions (.41) (.74) (.79) (.75) (.73) (.59)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.09 $15.10 $14.71 $13.40 $12.14 $11.68
==============================================================================================================
TOTAL RETURN 2.65% 7.86% 15.88% 16.81% 10.36% 24.35%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,733 $1,748 $1,416 $803 $462 $219
Ratio of Expenses to
Average Net Assets--Note B 0% 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 4.45%* 4.34% 4.32% 4.61% 4.86% 5.14%
Portfolio Turnover Rate 12%* 5% 3% 1% 2% 1%
==============================================================================================================
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
LIFESTRATEGY MODERATE GROWTH FUND
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.18 $16.86 $14.81 $12.97 $12.11 $ 9.86
==============================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .29 .55 .510 .490 .44 .36
Capital Gain Distributions Received .01 .24 .241 .236 .22 .13
Net Realized and Unrealized Gain (Loss)
on Investments .03 1.21 2.054 1.819 .87 2.25
--------------------------------------------------------
Total from Investment Operations .33 2.00 2.805 2.545 1.53 2.74
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.27) (.55) (.510) (.490) (.44) (.36)
Distributions from Realized Capital Gains (.11) (.13) (.245) (.215) (.23) (.13)
--------------------------------------------------------
Total Distributions (.38) (.68) (.755) (.705) (.67) (.49)
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.13 $18.18 $16.86 $14.81 $12.97 $12.11
==============================================================================================================
TOTAL RETURN 1.82% 12.01% 19.03% 19.77% 12.71% 27.94%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $3,697 $3,441 $2,202 $1,358 $826 $235
Ratio of Expenses to
Average Net Assets--Note B 0% 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 3.29%* 3.47% 3.43% 3.72% 3.98% 4.42%
Portfolio Turnover Rate 9%* 3% 5% 2% 3% 1%
==============================================================================================================
</TABLE>
*Annualized.
23
<PAGE> 46
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
LIFESTRATEGY GROWTH FUND
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 2000 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.41 $18.79 $16.04 $13.68 $12.36 $ 9.93
==============================================================================================================
INVESTMENT OPERATIONS
Net Investment Income .21 .45 .410 .39 .34 .32
Capital Gain Distributions Received .02 .29 .264 .28 .24 .14
Net Realized and Unrealized Gain (Loss)
on Investments (.07) 2.49 2.751 2.36 1.32 2.43
-----------------------------------------------------------
Total from Investment Operations .16 3.23 3.425 3.03 1.90 2.89
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.21) (.45) (.410) (.38) (.35) (.31)
Distributions from Realized Capital Gains (.13) (.16) (.265) (.29) (.23) (.15)
-----------------------------------------------------------
Total Distributions (.34) (.61) (.675) (.67) (.58) (.46)
-----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $21.23 $21.41 $18.79 $16.04 $13.68 $12.36
==============================================================================================================
TOTAL RETURN 0.73% 17.32% 21.40% 22.26% 15.41% 29.24%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $3,560 $3,177 $1,924 $1,184 $629 $217
Ratio of Expenses to
Average Net Assets--Note B 0% 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 2.12%* 2.50% 2.53% 2.84% 3.18% 3.67%
Portfolio Turnover Rate 7%* 1% 2% 1% 0% 1%
==============================================================================================================
</TABLE>
*Annualized.
24
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS
Vanguard LifeStrategy Funds comprise the LifeStrategy Income Fund, LifeStrategy
Conservative Growth Fund, LifeStrategy Moderate Growth Fund, and LifeStrategy
Growth Fund, each of which is registered under the Investment Company Act of
1940 as an open-end investment company, or mutual fund. Each fund 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 funds 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 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. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date. Distri-butions 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 fund, 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 funds.
The special service agreement provides that Vanguard will reimburse the funds'
expenses to the extent of savings in administrative and marketing costs realized
by Vanguard in the operation of the funds. Accordingly, all expenses incurred by
the funds during the six months ended June 30, 2000, were reimbursed by
Vanguard. The funds' trustees and officers are also directors and officers of
Vanguard and the funds in which the funds invest.
C. During the six months ended June 30, 2000, purchases and sales of investment
securities were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
(000)
-----------------------------
LIFESTRATEGY FUND PURCHASES SALES
-----------------------------------------------------------------------
<S> <C> <C>
Income $ 37,368 $ 48,874
Conservative Growth 102,807 118,991
Moderate Growth 446,470 162,266
Growth 508,427 115,060
-----------------------------------------------------------------------
</TABLE>
25
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (continued)
D. At June 30, 2000, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
(000)
----------------------------------------------
NET
APPRECIATED DEPRECIATED UNREALIZED
LIFESTRATEGY FUND SECURITIES SECURITIES APPRECIATION
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Income $ 35,033 $(13,747) $ 21,286
Conservative Growth 242,164 (27,237) 214,927
Moderate Growth 638,467 (30,648) 607,819
Growth 745,242 (9,049) 736,193
--------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 49
THE VANGUARD(R) FAMILY OF FUNDS
STOCK FUNDS
--------------------------------------------------------------------------------
500 Index Fund
Calvert Social Index(TM) Fund*
Capital Opportunity Fund
Convertible Securities Fund
Developed Markets Index Fund
Emerging Markets Stock
Index Fund*
Energy Fund
Equity Income Fund
European Stock Index Fund*
Explorer(TM) Fund
Extended Market Index Fund*
Global Equity Fund
Gold and Precious Metals Fund
Growth and Income Fund
Growth Equity Fund
Growth Index Fund*
Health Care Fund
Institutional Developed Markets
Index Fund
Institutional Index Fund*
International Growth Fund
International Value Fund
Mid-Cap Index Fund*
Morgan(TM) Growth Fund
Pacific Stock Index Fund*
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund*
Small-Cap Index Fund*
Small-Cap Value Index Fund*
Strategic Equity Fund
Tax-Managed Capital
Appreciation Fund*
Tax-Managed Growth and
Income Fund*
Tax-Managed International Fund*
Tax-Managed Small-Cap Fund*
Total International Stock
Index Fund
Total Stock Market Index Fund*
U.S. Growth Fund
U.S. Value Fund
Utilities Income Fund
Value Index Fund*
Windsor(TM) Fund
Windsor(TM) II Fund
BALANCED FUNDS
--------------------------------------------------------------------------------
Asset Allocation Fund
Balanced Index Fund
Global Asset Allocation Fund
LifeStrategy(R) Conservative
Growth Fund
LifeStrategy(R) Growth Fund
LifeStrategy(R) Income Fund
LifeStrategy(R) Moderate
Growth Fund
STAR(TM) Fund
Tax-Managed Balanced Fund
Wellesley(R) Income Fund
Wellington(TM) Fund
BOND FUNDS
--------------------------------------------------------------------------------
Admiral(TM) Intermediate-Term
Treasury Fund
Admiral(TM) Long-Term Treasury
Fund
Admiral(TM) Short-Term Treasury
Fund
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Inflation-Protected Securities Fund
Insured Long-Term Tax-Exempt
Fund
Intermediate-Term Bond
Index Fund
Intermediate-Term Corporate Fund
Intermediate-Term Tax-Exempt
Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Preferred Stock Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund*
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida,
Massachusetts, New Jersey,
New York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
--------------------------------------------------------------------------------
Admiral(TM) Treasury Money
Market Fund
Federal Money Market Fund
Prime Money Market Fund*
State Tax-Exempt Money Market Funds
(California, New Jersey, New York, Ohio,
Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY PLAN
--------------------------------------------------------------------------------
Balanced Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High-Grade Bond Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group, P.O. Box
2600, Valley Forge, PA 19482-2600. Read it carefully before you invest or send
money.
27
<PAGE> 50
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Six of Vanguard's seven board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new trustees/directors; and electing
Vanguard officers.
The list below provides a brief description of each trustee's professional
affiliations. Noted in parentheses is the year in which the trustee joined the
Vanguard board.
TRUSTEES
JOHN J. BRENNAN - (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN - (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
Johnson-Merck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY - (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL - (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. - (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JAMES O. WELCH, JR. - (1971) 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 - (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, 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.
THOMAS J. HIGGINS - Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON - Legal Department.
ROBERT A. DISTEFANO - Information Technology.
JAMES H. GATELY - Individual Investor Group.
KATHLEEN C. GUBANICH - Human Resources.
IAN A. MACKINNON - Fixed Income Group.
F. WILLIAM MCNABB, III - Institutional Investor Group.
MICHAEL S. MILLER - Planning and Development.
RALPH K. PACKARD - Chief Financial Officer.
GEORGE U. SAUTER - Quantitative Equity Group.
<PAGE> 51
[SHIP]
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the funds' shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q882 082000
(C)2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor
