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Fund Profile Prospectus
for
VANGUARD
ASSET
ALLOCATION
FUND
August 9, 1996
[VANGUARD LOGO]
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1 OBJECTIVE
Vanguard Asset Allocation Fund seeks to provide capital growth and income. The
Fund may not meet these objectives.
2 INVESTMENT STRATEGIES
The Fund's assets are allocated among stocks of large companies, long-term U.S.
Treasury bonds, and money market instruments in a mix that, the Fund's adviser
estimates, will take advantage of the current market conditions. There are no
limits on the amount of assets that can be invested in each class.
3 RISKS
The Fund's total return will fluctuate, so an investor could lose money over
short or extended periods. More specifically, investors in the Fund are exposed
to . . .
o A HIGH degree of stock market risk (the possibility that stock prices
in general will decline over short or extended periods) because of the
Fund's stock holdings.
o A HIGH degree of interest rate risk (the possibility that bond prices
will fall as interest rates rise--and vice versa) because of the
Fund's bond holdings. For instance, a 2% increase in interest rates
would cause a 20-year bond to drop approximately 20% in value, while a
2% decrease in rates would cause the same bond to rise about 22% in
value.
o A HIGH degree of manager risk (the possibility that the Fund's adviser
may do a poor job of allocating assets among the classes).
4 APPROPRIATENESS
This Fund may be suitable for investors who . . .
o Want a balanced investment program that includes the three major asset
classes (stocks, bonds, and money market instruments).
o Plan to invest for at least five years.
o Want a fund that offers less investment risk and share-price
fluctuation than a fund made up entirely of stocks.
The Fund is not suitable for investors who . . .
o Cannot tolerate fluctuating share prices.
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5 FEES AND EXPENSES
Vanguard Asset Allocation Fund--like all Vanguard Funds--is offered on a pure
no-load basis (that is, the Fund has no 12b-1 fees or charges to buy or sell
shares).
The Fund's operating expenses are deducted from its total assets before daily
share prices and income distributions are calculated. The Fund's expense ratio
for fiscal year 1995 was 0.49% of assets.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
---------------------------------------------------------------------
<S> <C>
Investment Advisory Fees . . . . . . . . . . . . . . . . . . . 0.14%
Distribution Costs . . . . . . . . . . . . . . . . . . . . . . 0.02
Other Expenses . . . . . . . . . . . . . . . . . . . . . . 0.33
----
Total Operating Expenses . . . . . . . . . . . . . . . . . . . 0.49%
====
</TABLE>
The following example illustrates the expenses that you would incur on a $1,000
investment over various periods, assuming (1) a 5% annual rate of return and
(2) redemption at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------
<S> <C> <C> <C>
$5 $16 $27 $62
</TABLE>
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown.
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6. PAST PERFORMANCE
[PERFORMANCE GRAPH]
[ ] Vanguard Asset Allocation Fund
[ ] S&P 500 Index*
PERFORMANCE SUMMARY
(Periods ended June 30, 1996)
<TABLE>
<CAPTION>
Average Annual Total Return
Asset Allocation Fund S&P 500*
<S> <C> <C>
1 Year +19.7% +26.0%
5 Years +14.4% +15.7%
Since Inception** +14.1% +15.6%
</TABLE>
Note: In evaluating past performance, it is important to consider that returns
from stocks and bonds were close to their highest levels in history during the
past ten years. Past performance is not indicative of future performance.
Performance figures include the reinvestment of all dividends and any capital
gains distributions. All returns are net of expenses. The performance data
quoted represent past performance. The investment return and principal value of
an investment will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost.
*The Standard & Poor's 500 Composite Stock Price Index is a diversified group
of 500 securities used to measure U.S. stock market performance. An index is
unmanaged; you cannot invest in an index.
**Since Fund's inception, November 3, 1988.
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7 INVESTMENT ADVISER
The Fund is managed by Mellon Capital Management Corporation, which manages
total assets of more than $43 billion.
William Fouse, Chairman of Mellon Capital Management, has been responsible for
overseeing his firm's strategy for the Fund since the Fund's inception in 1988.
8 PURCHASES
You may purchase shares by mail, wire, or exchange from another Vanguard Fund.
The minimum initial investment is $3,000 ($1,000 for IRAs and custodial
accounts for minors).
9 REDEMPTIONS
You may redeem shares by sending a letter to or calling Vanguard. The Fund's
share price is expected to fluctuate and, at redemption, may be higher or lower
than at the time of initial purchase, resulting in a gain or loss.
10 DISTRIBUTIONS
The Fund expects to pay dividends semi-annually. Capital gains distributions,
if any, are paid annually. Dividend and capital gains distributions can be
automatically reinvested or received in cash. All distributions are taxable to
you whether reinvested in additional shares or received in cash.
11 OTHER SERVICES
o Vanguard Fund Express(R)--electronic transfers between your bank
account and the Fund.
o Vanguard Tele-Account(R)--around-the-clock access to Vanguard Fund
information, account balances, and some transactions by calling 1-
800-662-6273 (ON-BOARD).
o Investor Information--toll-free access to Vanguard Associates by
calling 1-800-662-7447 (SHIP).
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This Fund Profile contains key information about the Fund.
If you would like more information before you invest, please
consult the Fund's prospectus. For details about the Fund's
holdings or recent investment strategies, please review the Fund's
most recent annual or semi-annual report. The prospectus and
reports may be obtained at no cost by calling 1-800-662-7447.
[VANGUARD LOGO]
0896-9S (C)1996 Vanguard Marketing Corporation, Distributor FP78
