UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-3919
Name of Registrant: VANGUARD STAR FUNDS
Address of Registrant: P.O. BOX 2600, VALLEY FORGE, PA 19482
Name and address of agent for service: R. GREGORY BARTON
P.O. BOX 876
VALLEY FORGE, PA 19482
Registrant's telephone number, including area code: (610) 669-1000
Date of fiscal year end: October 31
Date of reporting period: November 1, 2002 - October 31, 2003
ITEM 1: Reports to Shareholders
Vanguard(R) STAR(R) Fund
October 31, 2003
{GRAPHIC}
ANNUAL REPORT
THE VANGUARD GROUP(R)[LOGO]
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, you'll get an understanding of
how the fund invests and how the market environment affected its performance.
The statistical information that follows can help you understand how the fund's
performance and characteristics stack up against those of similar funds and
market benchmarks.
It's important to keep in mind that any opinions expressed here are just that:
informed opinions. They should not be considered promises or advice. These
opinions, like the statistics, cover the period through the date on the cover of
this report. The risks of investing in the fund are spelled out in the
prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com(R).
- --------------------------------------------------------------------------------
CONTENTS
1 LETTER FROM THE CHAIRMAN
6 FUND PROFILE
7 GLOSSARY OF INVESTMENT TERMS
8 PERFORMANCE SUMMARY
9 YOUR FUND'S AFTER-TAX RETURNS
10 ABOUT YOUR FUND'S EXPENSES
11 FINANCIAL STATEMENTS
19 ADVANTAGES OF VANGUARD.COM
- --------------------------------------------------------------------------------
SUMMARY
- - Vanguard STAR Fund earned a 2003 fiscal-year return of 19.0%, outpacing its
comparative measures.
- - Stocks, both in the United States and abroad, surged from mid-March through
the end of the fiscal period, with small-cap stocks leading the charge.
- - Government and mortgage-backed securities posted modest returns, while
riskier corporate debt securities delivered solid gains.
- --------------------------------------------------------------------------------
Want less clutter in your mailbox? Just register with VANGUARD.COM and opt to
get fund reports online.
LETTER FROM THE CHAIRMAN
Fellow Shareholder,
Stocks worldwide staged a remarkable comeback from last year's bear market lows,
while bonds collectively made more modest gains. With a majority of its assets
in stocks, Vanguard STAR Fund returned 19.0% during the 12 months ended October
31, 2003.
{GRAPHICS}
- --------------------------------------------------------------------------------
2003 TOTAL RETURNS FISCAL YEAR ENDED
OCTOBER 31
- --------------------------------------------------------------------------------
VANGUARD STAR FUND 19.0%
STAR Composite Index* 17.3
Composite Fund Average** 18.1
- --------------------------------------------------------------------------------
*The STAR Composite Index is weighted 62.5% Wilshire 5000 Index, 25% Lehman
Aggregate Bond Index, and 12.5% Citigroup 3-Month Treasury Bill Index through
December 31, 2002; and 50% Wilshire 5000 Index, 25% Lehman Aggregate Bond Index,
12.5% Lehman 1-5 Year U.S. Credit Index, and 12.5% MSCI EAFE Index thereafter.
**The Composite Fund Average, which is derived from data provided by Lipper
Inc., is weighted 62.5% average general equity fund, 25% average fixed income
fund, and 12.5% average money market fund through December 31, 2002; and 50%
average general equity fund, 25% average fixed income fund, 12.5% average 1-5
year investment-grade fund, and 12.5% average international fund thereafter.
As the adjacent table shows, your fund's total return (capital change plus
reinvested distributions) was higher than those of its two main benchmarks: a
composite of unmanaged market indexes weighted to reflect STAR's investment
guidelines and a similarly weighted composite of mutual fund peer group
averages. (As we noted in our last semiannual report, to better reflect the
makeup of the STAR Fund, our composite benchmarks have included international
stocks since the beginning of this calendar year, and short-term bonds have
replaced the benchmarks' money market components.)
Your fund's per-share distributions and changes in net asset value during the
period can be found in the table on page 5. If you own the fund in a taxable
account, you may wish to review the fund's after-tax returns on page 9.
STOCKS STAGED A REMARKABLE TURNAROUND
Weak economic data and the prospect of war with Iraq helped depress U.S. stock
prices early in the fiscal year, but the outbreak of fighting in
1
mid-March had a cathartic effect. The U.S. military's quick advance, combined
with rosier reports on the nation's economy and corporate earnings, helped
launch a surprisingly strong and sustained rally.
For the full 12 months, the broad U.S. market, as measured by the Wilshire 5000
Total Market Index, returned 24.4%. Gains were substantially similar overall for
growth and value stocks (i.e., stocks that sport a premium price for their
earnings growth potential versus those with bargain-basement price tags relative
to earnings, book value, or other measures), but there was a wide divide between
stocks of small and large companies. The 43.4% return of the
small-capitalization Russell 2000 Index was nearly double the result of the
large- and mid-cap Russell 1000 Index. The gains were equally impressive
overseas, particularly in emerging markets and the Pacific Rim nations. In the
aggregate, international markets outpaced the U.S. market during the 12 months.
For U.S.-based investors, the results from abroad were boosted by a weakening of
the dollar against most major currencies.
- --------------------------------------------------------------------------------
MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 2003
------------------------------
One Three Five
Year Years Years
- --------------------------------------------------------------------------------
STOCKS
Russell 1000 Index (Large-caps) 22.3% -8.2% 1.1%
Russell 2000 Index (Small-caps) 43.4 3.4 8.3
Wilshire 5000 Index (Entire market) 24.4 -7.1 1.7
MSCI All Country World Index Free
ex USA (International) 30.4 -4.4 1.4
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.9% 8.4% 6.5%
(Broad taxable market)
Lehman Municipal Bond Index 5.1 7.1 5.6
Citigroup 3-Month Treasury Bill Index 1.2 2.6 3.6
================================================================================
CPI
Consumer Price Index 2.0% 2.1% 2.4%
- --------------------------------------------------------------------------------
"JUNK" BOND RETURNS RIVALED THE GAINS OF STOCKS
In the bond market, higher risk correlated with higher returns during the fiscal
year, with below-investment-grade bonds posting results that outpaced those of
the equity market. The Lehman Brothers High Yield Bond Index surged 33.8%.
Meanwhile, U.S. Treasury securities--considered to be risk-free--posted returns
in the low single digits, with interest income offsetting a decline in prices.
As bond prices fell, yields rose. At the fiscal year-end, the yield of the
10-year Treasury note stood at 4.29%, 40 basis points (0.40 percentage point)
higher than at the start of the period.
The pattern was different among debt securities with the shortest maturities,
which are influenced more strongly by the Federal Reserve
2
Board's interest rate moves than by market forces. During the fiscal year, the
Fed slashed its target federal funds rate by 75 basis points to 1.00%, the
lowest level since 1958. The yield of the 3-month Treasury bill, a fair proxy
for money market interest rates, fell by 50 basis points to end the period at
0.95%.
SURGING STOCKS LIFTED YOUR FUND
Vanguard STAR Fund's 19.0% return was about a percentage point higher than that
of its composite peer-group average, and its margin of outperformance against
the composite index was almost double that. The underlying funds' performances,
on both an absolute and a relative basis, and the portfolio's exposure to
small-cap and international stocks helped STAR's result.
- --------------------------------------------------------------------------------
TOTAL RETURNS
VANGUARD FUND PERCENTAGE OF 12 MONTHS ENDED
(INVESTOR SHARES) STAR ASSETS* OCTOBER 31, 2003
- --------------------------------------------------------------------------------
STOCK FUNDS
Windsor II 15.8% 20.7%
Windsor 9.1 30.7
PRIMECAP 7.1 33.9
Morgan Growth 7.1 26.8
U.S. Growth 6.9 16.2
International Value 6.5 31.7
International Growth 6.3 25.1
Explorer 4.4 41.7
- --------------------------------------------------------------------------------
BOND FUNDS
Long-Term Corporate 12.4% 9.8%
GNMA 12.3 2.7
- --------------------------------------------------------------------------------
SHORT-TERM RESERVES
Short-Term Corporate 12.1% 5.2%
- --------------------------------------------------------------------------------
COMBINED 100.0% 19.0%
- --------------------------------------------------------------------------------
*As of October 31, 2003.
As the accompanying table shows, each underlying stock fund posted a
double-digit gain in the period, ranging from 16.2% for VANGUARD(R) U.S. GROWTH
FUND to 41.7% for VANGUARD(R) EXPLORER(TM) FUND--the latter result a reflection
of the outsized advances that small-cap stocks made in the fiscal year. The two
international funds also posted stellar gains as overseas markets generally
outpaced the U.S. market.
Meanwhile, the underlying bond funds reflected the generally staid performance
of government and mortgage-backed securities and the higher returns of corporate
securities during the fiscal year. STAR's bond funds performed well on a
relative basis, which was true for its equity funds as well. Of the 11
underlying funds, 8 outperformed their average mutual fund peers. Of the three
exceptions, one--WINDSOR(TM) II, which accounts for the largest percentage of
STAR's assets--matched the average return of large-cap value funds, the fund's
peer group. The two others--VANGUARD(R) MORGAN(TM) GROWTH FUND and the U.S.
GROWTH FUND--lagged their peer group averages by less than 3 percentage points.
3
THE FUND SHINES OVER LONGER PERIODS AS WELL
Because of short-term fluctuations, one year's performance is really an
inadequate gauge of a fund's results. The accompanying table shows the fund's
annualized return over the past decade and the final result of a hypothetical
$10,000 investment during that time, compared with those of its benchmarks and
the broad U.S. stock market.
- ---------------------------------------------------
TOTAL RETURNS TEN YEARS ENDED
OCTOBER 31, 2003
- ---------------------------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- ---------------------------------------------------
STAR Fund 9.8% $25,582
STAR Composite Index 8.9 23,361
Composite Fund Average 7.6 20,755
Wilshire 5000 Index 10.0 25,853
- ---------------------------------------------------
Again, your fund outperformed its composite index--a noteworthy achievement,
given that indexes have none of the real-world operating and transaction costs
that mutual funds must bear. The performance gap was even wider with the
composite fund average--your fund earned almost $5,000 more. Impressively, your
fund also managed to nearly match the performance of the broad U.S. market,
though with a less-volatile balanced portfolio.
Much of the credit for this fine performance goes to the investment advisors of
the underlying funds and to Vanguard's low costs. Each underlying fund has an
expense ratio that's considerably lower than that of the peer group average.
And, unlike some other "funds of funds," STAR does not charge extra fees on top
of the underlying funds' expense ratios. Over time, seemingly modest differences
in cost can have a big impact on your bottom line.
BALANCING YOUR WAY THROUGH VOLATILE MARKETS
Your fund's long-term record highlights the virtue of a balanced investment
approach. Because of the inherent uncertainty of the financial markets, there is
only one way to combine the opportunity for gain with some protection from loss:
balance and diversification. In other words, you should hold a portfolio of
diversified stock, bond, and money market funds in proportions determined by
your unique goals, circumstances, and risk tolerance. For those who prefer a
moderately aggressive asset allocation, the STAR Fund is a convenient, low-cost,
and hassle-free means to do this with one fund.
The stock market's long-awaited recovery is a vindication of the balanced
approach to investing, not a signal that balance is no longer necessary. The
virtues of diversification have never been a secret,
4
but sticking with such a plan has always been hard because of the temptations
and fears that sharp market fluctuations can engender.
Staying the course is easier if you trust the institution that manages your
money, and this has never been more true than now. In light of the shocking
allegations about market-timing and late trading at some investment management
firms, I feel compelled to close this letter with an assurance that Vanguard has
policies and procedures in place to identify and deter such behavior. In
addition, I have great confidence in the ethics, integrity, and character of the
Vanguard(R) crew--values that receive strong institutional support from our
client-owned corporate structure, which channels all our efforts into the
creation of wealth for our shareholders.
Thank you for entrusting your hard-earned money to us.
Sincerely,
/S/John J. Brennan
JOHN J. BRENNAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NOVEMBER 12, 2003
- --------------------------------------------------------------------------------
YOUR FUND'S PERFORMANCE AT A GLANCE OCTOBER 31, 2002-OCTOBER 31, 2003
DISTRIBUTIONS PER SHARE
--------------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------------
STAR Fund $14.41 $16.67 $0.42 $0.00
- --------------------------------------------------------------------------------
5
AS OF 10/31/2003
- ----------------
FUND PROFILE
This Profile provides a snapshot of the fund's characteristics, along with its
allocations to various asset classes and to underlying Vanguard funds. Key terms
are defined on page 7.
- ---------------------------------------------------
STAR FUND
- ---------------------------------------------------
TOTAL FUND CHARACTERISTICS
Yield 2.4%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.43%
- ---------------------------------------------------
- ---------------------------------------------------
EQUITY INVESTMENT FOCUS
MARKET CAP Large
STYLE Blend
- ---------------------------------------------------
- ---------------------------------------------------
TOTAL FUND VOLATILITY MEASURES
BROAD
FUND INDEX**
- ---------------------------------------------------
R-Squared 0.88 1.00
Beta 0.53 1.00
- ---------------------------------------------------
- ---------------------------------------------------
ALLOCATION TO UNDERLYING VANGUARD FUNDS
STOCK FUNDS
Windsor II 15.8%
Windsor 9.1
PRIMECAP 7.1
Morgan Growth 7.1
U.S. Growth 6.9
International Value 6.5
International Growth 6.3
Explorer 4.4
BOND FUNDS
Long-Term Corporate 12.4%
GNMA 12.3
SHORT-TERM RESERVES
Short-Term Corporate 12.1%
- ---------------------------------------------------
TOTAL 100.0%
- ---------------------------------------------------
- ---------------------------------------------------
FIXED INCOME INVESTMENT FOCUS
Credit Quality Investment-Grade Corporate
Average Maturity Medium
- ---------------------------------------------------
- ---------------------------------------------------
FUND ASSET ALLOCATION
Stocks 63%
Bonds 25%
Short-Term Reserves 12%
- ---------------------------------------------------
*For underlying funds; annualized.
**Wilshire 5000 Index.
Visit our website at Vanguard.com for regularly updated fund information.
6
GLOSSARY OF INVESTMENT TERMS
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 a given market index. The index is assigned a
beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically
would have seen its share price rise or fall by 12% when the index rose or fell
by 10%. A fund's beta should be reviewed in conjunction with its R-squared (see
definition below). The lower the R-squared, the less correlation there is
between the fund and the index, and the less reliable beta is as an indicator of
volatility.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by a given index. If a
fund's total returns were precisely synchronized with an index's returns, its
R-squared would be 1.00. If the fund's returns bore no relationship to the
index'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.
- --------------------------------------------------------------------------------
7
AS OF 10/31/2003
- -------------------
PERFORMANCE SUMMARY
All of the returns in this report 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. The returns
shown do not reflect taxes that a shareholder would pay on fund distributions or
on the redemption of fund shares.
STAR FUND
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE OCTOBER 31, 1993-OCTOBER 31, 2003
MONTH YEAR STAR STAR STAR WILSHIRE
FUND COMPOSITE COMPOSITE 5000
AVERAGE INDEX INDEX
- --------------------------------------------------------------------------------
10 1993 10000 10000 10000 10000
1 1994 10252 10274 10242 10330
4 1994 9791 9806 9757 9734
7 1994 9986 9797 9886 9850
10 1994 10145 10090 10116 10251
1 1995 10192 10009 10180 10225
4 1995 10982 10663 10905 11183
7 1995 11748 11561 11796 12422
10 1995 12191 11801 12200 12890
1 1996 13072 12409 12997 14022
4 1996 13456 12955 13354 14780
7 1996 13290 12597 13125 14246
10 1996 14312 13485 14106 15701
1 1997 15369 14303 15136 17439
4 1997 15397 14016 15160 17387
7 1997 17446 16018 17293 20971
10 1997 17456 16112 17260 20662
1 1998 18049 16442 18028 21851
4 1998 19761 17850 19650 24907
7 1998 19362 17405 19605 24544
10 1998 19068 16824 19478 23718
1 1999 20553 18572 21649 27811
4 1999 21591 19014 22296 29171
7 1999 21377 19290 22188 29048
10 1999 21103 19462 22679 29807
1 2000 21157 20710 23613 31769
4 2000 22392 21664 24195 32617
7 2000 22658 21806 24227 32195
10 2000 23732 22179 24472 32222
1 2001 24651 22000 24117 30665
4 2001 24365 20954 22948 28018
7 2001 24423 20706 22825 27364
10 2001 23007 19200 21318 23994
1 2002 23924 20213 22365 25966
4 2002 24027 20080 22075 25249
7 2002 21683 17835 20056 21326
10 2002 21504 17580 19927 20776
1 2003 21542 17456 19729 20284
4 2003 22667 18291 20779 21819
7 2003 24017 19537 22035 24060
10 2003 25582 20755 23361 25853
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 2003 FINAL VALUE
------------------------------
ONE FIVE TEN OF A $10,000
YEAR YEARS YEARS INVESTMENT
- --------------------------------------------------------------------------------
STAR Fund 18.96% 6.05% 9.85% $25,582
Wilshire 5000 Index 24.44 1.74 9.96 25,853
STAR Composite Index* 17.25 3.70 8.86 23,361
Composite Fund Average** 18.06 4.29 7.58 20,755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) OCTOBER 31, 1993-OCTOBER 31, 2003
- --------------------------------------------------------------------------------
STAR FUND COMPOSITE**
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- --------------------------------------------------------------------------------
1994 -2.0% 3.5% 1.5% 0.9%
1995 15.7 4.5 20.2 17.0
1996 13.1 4.3 17.4 14.3
1997 17.9 4.1 22.0 19.5
1998 5.8 3.4 9.2 4.4
1999 7.3 3.4 10.7 15.7
2000 8.6 3.9 12.5 14.0
2001 -6.4 3.3 -3.1 -13.4
2002 -9.4 2.9 -6.5 -8.4
2003 15.7 3.3 19.0 18.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
- --------------------------------------------------------------------------------
ONE FIVE TEN YEARS
------------------------
INCEPTION DATE YEAR YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
STAR Fund 3/29/1985 18.71% 6.31% 5.92% 3.62% 9.54%
- --------------------------------------------------------------------------------
*The STAR Composite Index is weighted 62.5% Wilshire 5000 Index, 25% Lehman
Aggregate Bond Index, and 12.5% Citigroup 3-Month Treasury Bill Index through
December 31, 2002; and 50% Wilshire 5000 Index, 25% Lehman Aggregate Bond Index,
12.5% Lehman 1-5 Year U.S. Credit Index, and 12.5% MSCI EAFE Index thereafter.
**The Composite Fund Average, which is derived from data provided by Lipper
Inc., is weighted 62.5% average general equity fund, 25% average fixed income
fund, and 12.5% average money market fund through December 31, 2002; and 50%
average general equity fund, 25% average fixed income fund, 12.5% average 1-5
year investment-grade fund, and 12.5% average international fund thereafter.
NOTE: See Financial Highlights table on page 15 for dividend and capital gains
information.
8
YOUR FUND'S AFTER-TAX RETURNS
This table presents returns for your fund both before and after taxes. The
after-tax returns are shown in two ways: (1) assuming that an investor owned the
fund during the entire period and paid taxes on the fund's distributions, and
(2) assuming that an investor paid taxes on the fund's distributions and sold
all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital
gains tax rates in effect at the times of the distributions and the hypothetical
sales. State and local taxes were not considered. After-tax returns reflect the
reduced tax rates on ordinary income and short-term capital gains that became
effective as of January 1, 2003, and on long-term capital gains realized on or
after May 6, 2003. However, they do not reflect the reduced rates on "qualified
dividend income." (In the example, returns after the sale of fund shares may be
higher than those assuming no sale. This occurs when the sale would have
produced a capital loss. The calculation assumes that the investor received a
tax deduction for the loss.)
Please note that your actual after-tax returns will depend on your tax situation
and may differ from those shown. Also note that if you own the fund in a
tax-deferred account, such as an individual retirement account or a 401(k) plan,
this information does not apply to you. Such accounts are not subject to current
taxes.
Finally, keep in mind that a fund's performance--whether before or after
taxes--does not indicate how it will perform in the future.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED OCTOBER 31, 2003
ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------------------------------------
STAR Fund
Returns Before Taxes 18.96% 6.05% 9.85%
Returns After Taxes on Distributions 17.73 3.72 7.23
Returns After Taxes on Distributions
and Sale of Fund Shares 12.17 3.95 7.06
- --------------------------------------------------------------------------------
9
ABOUT YOUR FUND'S EXPENSES
All mutual funds have operating expenses. These expenses include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund's
gross income, directly reduce the investment return of the fund. A fund's
expenses are expressed as a percentage of its net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would incur
over a 12-month period if you invested $10,000 in the fund, using the fund's
actual return and expenses for the fiscal year ended October 31, 2003. Note that
the STAR Fund does not incur direct expenses, but bears its proportionate share
of the expenses of the underlying funds in which it invests. These indirect
expenses make up the fund's average weighted expense ratio. The cost in dollars
is calculated by applying the average weighted expense ratio to the average
balance in the hypothetical account. For comparative purposes, we also list the
average expense ratio for the fund's peer group, which is derived from data
provided by Lipper Inc.
- --------------------------------------------------------------------------------
Cost of $10,000 Fund Average Weighted Peer Group**
Investment in Fund Expense Ratio Expense Ratio* Expense Ratio
- --------------------------------------------------------------------------------
STAR Fund $47 0.00% 0.43% 1.36%
- --------------------------------------------------------------------------------
*For underlying funds; annualized.
**Composite Fund Average, which is weighted 62.5% average general equity fund,
25% average fixed income fund, and 12.5% average money market fund through
December 31, 2002; and 50% average general equity fund, 25% average fixed income
fund, 12.5% average 1-5 year investment-grade fund, and 12.5% average
international fund thereafter.
The fund does not charge transaction fees; these results apply whether or not
you redeemed your investment at the end of the given period. Your actual costs
may have been higher or lower, depending on the amount of your investment and
your holding period. Peer-group ratio captures data through year-end 2002.
For additional information on costs, please refer to the fund's prospectus. The
prospectus presents hypothetical shareholder costs over various time periods
based upon a $10,000 investment and a return of 5% a year. This standardized
example, which appears in all mutual fund prospectuses, may be useful to you in
comparing the costs of investing in different funds.
10
AS OF 10/31/2003
- --------------------
FINANCIAL STATEMENTS
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. 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.
- --------------------------------------------------------------------------------
MARKET
VALUE*
STAR FUND SHARES (000)
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES (99.8%)
- --------------------------------------------------------------------------------
STOCK FUNDS (63.1%)
Vanguard Windsor II Fund Investor Shares 55,982,330 $ 1,377,725
Vanguard Windsor Fund Investor Shares 51,495,995 784,284
Vanguard PRIMECAP Fund Investor Shares 11,984,457 613,844
Vanguard Morgan Growth Fund Investor Shares 42,788,314 613,156
Vanguard U.S. Growth Fund Investor Shares 40,581,066 593,295
Vanguard International Value Fund 22,791,812 559,311
Vanguard International Growth Fund Investor Shares 36,135,031 544,194
Vanguard Explorer Fund Investor Shares 6,102,229 385,478
-----------
$ 5,471,287
-----------
BOND FUNDS (24.6%)
Vanguard Long-Term Corporate Fund Investor Shares 116,435,577 1,070,043
Vanguard GNMA Fund Investor Shares 101,612,023 1,063,878
-----------
2,133,921
-----------
SHORT-TERM BOND FUND (12.1%)
Vanguard Short-Term Corporate Fund Investor Shares 97,135,370 1,048,091
- --------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(Cost $7,370,341) 8,653,299
================================================================================
11
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
STAR FUND (000) (000)
================================================================================
TEMPORARY CASH INVESTMENT (0.2%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
1.07%, 11/3/2003
(Cost $18,167) $18,167 18,167
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $7,388,508) 8,671,466
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Other Assets 17,937
Liabilities (18,080)
----------
(143)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 520,099,300 outstanding $.001 par value
shares of beneficial interest
(unlimited authorization) 8,671,323
================================================================================
NET ASSET VALUE PER SHARE $16.67
================================================================================
*See Note A in Notes to Financial Statements.
- --------------------------------------------------------------------------------
AT OCTOBER 31, 2003, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
Paid-in Capital $7,389,519 $14.20
Undistributed Net Investment Income 55,192 .11
Accumulated Net Realized Losses (56,346) (.11)
Unrealized Appreciation 1,282,958 2.47
- --------------------------------------------------------------------------------
NET ASSETS $8,671,323 $16.67
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
12
STATEMENT OF OPERATIONS
This Statement shows the fund's Income Distributions Received from the other
Vanguard funds in which it invests and any other income earned during the
reporting period. 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) of investments during the period.
- --------------------------------------------------------------------------------
STAR FUND
YEAR ENDED OCTOBER 31, 2003
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Income Distributions Received $ 199,709
Interest 196
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME--Note B 199,905
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Capital Gain Distributions Received* 1,703
Investment Securities Sold (48,395)
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (46,692)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES 1,206,755
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,359,968
================================================================================
*Includes short-term gain distributions of $1,703,000 that are treated as
ordinary income for tax purposes.
13
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.
- --------------------------------------------------------------------------------
STAR FUND
----------------
YEAR ENDED OCTOBER 31,
2003 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Net Investment Income $ 199,905 $ 242,923
Realized Net Gain (Loss) (46,692) (1,024)
Change in Unrealized Appreciation (Depreciation) 1,206,755 (768,331)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,359,968 (526,432)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (210,707) (249,806)
Realized Capital Gain* -- (7,404)
- --------------------------------------------------------------------------------
Total Distributions (210,707) (257,210)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS 1
Issued 815,764 829,839
Issued in Lieu of Cash Distributions 204,236 249,706
Redeemed (722,855) (921,447)
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 297,145 158,098
- --------------------------------------------------------------------------------
Total Increase (Decrease) 1,446,406 (625,544)
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 7,224,917 7,850,461
- --------------------------------------------------------------------------------
End of Period $8,671,323 $7,224,917
================================================================================
1 Shares Issued (Redeemed)
Issued 53,285 52,263
Issues in Lieu of Cash Distributions 13,701 15,698
Redeemed (48,425) (59,546)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding 18,561 8,415
================================================================================
*Includes fiscal 2003 and 2002 short-term gain distributions totaling $0 and
$7,404,000, respectively. Short-term gain distributions are treated as ordinary
income dividends for tax purposes.
14
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis. The table also presents the 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 gain distributions representing the "pass-through" of capital gain
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.
- --------------------------------------------------------------------------------------------------------
STAR FUND
- --------------------------------------------------------------------------------------------------------
YEAR ENDED JAN. 1, TO YEAR ENDED
OCTOBER 31, OCT. 31, DECEMBER 31,
- --------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001* 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.41 $15.92 $17.81 $18.21 $17.96 $17.38
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .40 .480 .41 .65 .60 .58
Capital Gain Distributions Received -- .181 -- 1.07 1.13 .86
Net Realized and Unrealized Gain (Loss)
on Investments 2.28 (1.656) (1.19) .17 (.47) .70
- --------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.68 (.995) (.78) 1.89 1.26 2.14
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.42) (.500) (.26) (.64) (.61) (.58)
Distributions from Realized Capital Gains -- (.015) (.85) (1.65) (.40) (.98)
- --------------------------------------------------------------------------------------------------------
Total Distributions (.42) (.515) (1.11) (2.29) (1.01) (1.56)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.67 $14.41 $15.92 $17.81 $18.21 $17.96
========================================================================================================
Total Return 18.96% -6.53% -4.47% 10.96% 7.13% 12.38%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $8,671 $7,225 $7,850 $8,119 $8,087 $8,083
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 2.60% 3.07% 2.91%t 3.57% 3.21% 3.18%
Portfolio Turnover Rate 15% 12% 6% 17% 10% 16%
========================================================================================================
*The fund's fiscal year-end changed from December 31 to October 31, effective October 31, 2001.
**The average weighted expense ratio of the underlying funds was 0.43%.
t Annualized.
15
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 stock funds (predominantly large-capitalization
value U.S. stock funds), 20% to 30% in intermediate- to long-term bond funds,
and 10% to 20% in a short-term bond fund.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. 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. REPURCHASE AGREEMENTS: The fund, along with other members of The Vanguard
Group, transfers uninvested cash balances into 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.
3. 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.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
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 year ended October 31, 2003, 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. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
For tax purposes, at October 31, 2003, the fund had $56,766,000 of ordinary
income available for distribution. The fund had available realized losses of
$57,920,000 to offset future net capital gains of $9,525,000 through October 31,
2010, and $48,395,000 through October 31, 2011.
16
At October 31, 2003, net unrealized appreciation of investment securities for
tax purposes was $1,282,958,000, consisting of unrealized gains of
$1,359,510,000 on securities that had risen in value since their purchase and
$76,552,000 in unrealized losses on securities that had fallen in value since
their purchase.
D. During the year ended October 31, 2003, the fund purchased $1,441,514,000 of
investment securities and sold $1,161,797,000 of investment securities other
than temporary cash investments. report of independent auditors
17
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of Vanguard STAR Fund:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard STAR Fund (the "Fund") at October 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2003 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 8, 2003
- --------------------------------------------------------------------------------
SPECIAL 2003 TAX INFORMATION
(UNAUDITED) FOR VANGUARD STAR FUND
This information for the fiscal year ended October 31, 2003, is included
pursuant to provisions of the Internal Revenue Code.
For corporate shareholders, 23.5% of investment income (dividend income plus
short-term gains, if any) qualifies for the dividends-received deduction.
The fund intends to distribute the maximum amount of qualified dividend income
allowable. The amount of qualified dividend income distributed by the fund will
be provided to individual shareholders on their 2003 Form 1099-DIV. investing is
fast, easy, and secure on vanguard.com
18
INVESTING IS FAST, EASY, AND SECURE ON VANGUARD.COM
If you're like many Vanguard investors, you believe in planning and taking
control of your own investments. VANGUARD.COM was built for you--and it keeps
getting better.
RESEARCH AND PLAN YOUR INVESTMENTS WITH CONFIDENCE
Use our PLANNING & Advice and RESEARCH FUNDS & STOCKS sections to:
* Determine what asset allocation might best suit your needs--by taking our
Investor Questionnaire.
* Find out how much to save for retirement and your children's college
education-- by using our planning tools.
* Learn how to achieve your goals--by reading our PlainTalk(R) investment
guides.
* Find your next fund--by using the Compare Funds, Compare Costs, and Narrow
Your Fund Choices tools.
* Look up fund price, performance history, and distribution information--in a
snap.
INVEST AND MANAGE ACCOUNTS WITH EASE
Log on to Vanguard.com to:
* See what you own (at Vanguard and elsewhere) and how your investments are
doing.
* Elect to receive online statements, fund reports (like this one),
prospectuses, and tax forms.
* Analyze your portfolio's holdings and performance.
* Open new accounts, buy and sell shares, and exchange money between
funds--securely and easily.
* Sign up to receive electronic newsletters from Vanguard informing you of
news on our funds, products, and services, as well as on investing and the
financial markets.
Find out what Vanguard.com can do for you. Log on today!
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 a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services
to them on an at-cost basis.
A majority of Vanguard's 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.
Our independent board members 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
- ------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee
(1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(112)
- ------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (112) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (112) Chairman (JanuarySeptember 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
- ------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (112) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
- ------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (110) Director of Vanguard Investment Series plc (Irish invest-ment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------
J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (112) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (112) investment companies served by The Vanguard Group.
July 1998
- ------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------
[SHIP]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600
Vanguard, The Vanguard Group, Vanguard.com, Admiral, and the ship logo are
trademarks of The Vanguard Group, Inc.
All other marks are the exclusive property of their respective owners.
ABOUT OUR COVER
The photographs that appear on the cover of this report are copyrighted by
Michael Kahn.
FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
To receive a free copy of the prospectus or the Statement of Additional
Information, or to request additional information about the fund or other
Vanguard funds, please contact us at one of the adjacent telephone numbers or by
e-mail through Vanguard.com(R). Prospectuses may also be viewed online.
You can obtain a free copy of Vanguard's proxy voting guidelines by visiting our
website, www.vanguard.com, and searching for "proxy voting guidelines," or by
calling 1-800-662-2739. The guidelines are also available from the SEC's
website, www.sec.gov.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
DIRECT INVESTOR ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
TEXT TELEPHONE
1-800-952-3335
(C) 2003 THE VANGUARD GROUP, INC.
ALL RIGHTS RESERVED.
VANGUARD MARKETING
CORPORATION, DISTRIBUTOR.
Q560 122003
Vanguard(R) LifeStrategy(R) Funds
October 31, 2003
Annual Report
[Cover Art]
The Vanguard Group(R)
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, you'll get an understanding of
how the fund invests and how the market environment affected its performance.
The statistical information that follows can help you understand how the fund's
performance and characteristics stack up against those of similar funds and
market benchmarks.
It's important to keep in mind that any opinions expressed here are just that:
informed opinions. They should not be considered promises or advice. These
opinions, like the statistics, cover the period through the date on the cover of
this report. The risks of investing in the fund are spelled out in the
prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com(R).
- --------------------------------------------------------------------------------
CONTENTS
1 letter from the chairman
7 fund profiles
11 glossary of investment terms
12 performance summaries
16 your fund's after-tax returns
17 about your fund's expenses
18 financial statements
35 advantages of vanguard.com
- --------------------------------------------------------------------------------
SUMMARY
* Returns for the Vanguard LifeStrategy Funds ranged from 9.9% to 22.1% for
the fiscal year ended October 31, 2003.
* A strong rebound in the stock market that began in March bolstered the
returns of the funds' underlying stock funds.
* Interest rates, which fell for the first eight months of the fiscal year,
rose over the final four months, muting some of the gains of the funds'
underlying bond funds.
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
Fellow Shareholder,
Aided by strong stock market gains resulting from the end of major military
conflict in Iraq and an increasingly optimistic outlook for U.S. economic
growth, the four Vanguard LifeStrategy Funds delivered excellent results for the
2003 fiscal year.
[PHOTOS--John J. Brennan]
Because each of the funds had a larger-than-usual allocation to stocks, their
returns outpaced those of their respective composite indexes (which are weighted
to reflect the target asset allocation of each fund) by margins of more than 1
percentage point. The funds' unusually high allocation to stocks was a result of
the management decisions of Vanguard(R) Asset Allocation Fund, a holding in all
four portfolios. As expected in periods when stocks perform well, the fund with
the largest commitment of assets to stocks (the Growth Fund) recorded the
biggest gain, while the fund with the lowest equity stake (the Income Fund) had
the lowest return.
- -----------------------------------------------------------
2003 Total Returns Fiscal Year Ended
October 31
- -----------------------------------------------------------
VANGUARD LIFESTRATEGY INCOME FUND 9.9%
Income Composite Index* 8.2
- -----------------------------------------------------------
VANGUARD LIFESTRATEGY CONSERVATIVE GROWTH FUND 14.0%
Conservative Growth Composite Index* 12.2
- -----------------------------------------------------------
VANGUARD LIFESTRATEGY MODERATE GROWTH FUND 18.1%
Moderate Growth Composite Index* 16.9
- -----------------------------------------------------------
VANGUARD LIFESTRATEGY GROWTH FUND 22.1%
Growth Composite Index* 20.9
- -----------------------------------------------------------
*Total returns for the composite indexes are derived by applying the funds'
target allocations to the results of the following benchmarks: for U.S. stocks,
the Wilshire 5000 Total Market Index; for international stocks, the Morgan
Stanley Capital International Europe, Australasia, Far East Index; for bonds,
the Lehman Brothers Aggregate Bond Index; and for short-term reserves, the
Lehman 1-3 Year U.S. Index.
The table above presents the total returns (capital change plus reinvested
dividends) for all four funds and their composite indexes. The table on page 6
shows the funds' starting and ending net asset values, dividend distributions,
and 30-day SEC yields as of October 31. If you own a LifeStrategy Fund in a
taxable account, you may wish to review the funds' after-tax returns on page 16.
1
STOCKS STAGED A REMARKABLE TURNAROUND
Weak economic data and the prospect of war with Iraq helped depress U.S. stock
prices early in the fiscal year, but the outbreak of fighting in mid-March had a
cathartic effect. The U.S. military's quick advance, combined with rosier
reports on the nation's economy and corporate earnings, helped launch a
surprisingly strong and sustained rally.
- ----------------------------------------------------------------------
MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 2003
------------------------------
ONE THREE FIVE
YEAR YEARS YEARS
- ----------------------------------------------------------------------
STOCKS
Russell 1000 Index (Large-cap 22.3% -8.2% 1.1%
Russell 2000 Index (Small-caps) 43.4 3.4 8.3
Wilshire 5000 Index (Entire market) 24.4 -7.1 1.7
MSCI All Country World Index Free
ex USA (International) 30.4 -4.4 1.4
- ----------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.9% 8.4% 6.5%
(Broad taxable market)
Lehman Municipal Bond Index 5.1 7.1 5.6
Citigroup 3-Month Treasury Bill Index 1.2 2.6 3.6
======================================================================
CPI
Consumer Price Index 2.0% 2.1% 2.4%
- ----------------------------------------------------------------------
For the full 12 months, the broad U.S. market, as measured by the Wilshire 5000
Total Market Index, returned 24.4%. Gains were sub-stantially similar overall
for growth and value stocks (i.e., stocks that sport a premium price for their
earnings-growth potential versus those with bargain-basement price tags relative
to earnings, book value, or other measures), but there was a wide divide between
stocks of small and large companies. The 43.4% return of the
small-capitalization Russell 2000 Index was nearly double the result of the
large- and mid-cap Russell 1000 Index. The gains were equally impressive
overseas, particularly in emerging markets and the Pacific Rim nations. In the
aggregate, international markets outpaced the U.S. market during the 12 months.
For U.S.-based investors, the results from abroad were boosted by a weakening of
the dollar against most major currencies.
"JUNK" BOND RETURNS RIVALED THE GAINS OF STOCKS
In the bond market, higher risk correlated with higher returns during the fiscal
year, with below-investment-grade bonds posting results that outpaced those of
the equity markets. The Lehman Brothers High Yield Bond Index surged 33.8%.
Meanwhile, U.S. Treasury securities--considered to be risk-free--posted returns
in the low single digits, with interest income offsetting a decline in prices.
2
As bond prices fell, yields rose. At the fiscal year-end, the yield of the
10-year Treasury note stood at 4.29%, 40 basis points (0.40 percentage point)
higher than at the start of the period.
The pattern was different among debt securities with the shortest maturities,
which are influenced more strongly by the Federal Reserve Board's interest rate
moves than by market forces. During the fiscal year, the Fed slashed its target
federal funds rate by 75 basis points to 1.00%, the lowest level since 1958. The
yield of the 3-month Treasury bill, a fair proxy for money market interest
rates, fell by 50 basis points to end the period at 0.95%.
STOCK MARKET GAINS LED THE FUNDS TO SOLID PERFORMANCES
The resurgence of domestic and international stocks benefited the LifeStrategy
Funds to varying degrees. As you know, the LifeStrategy Funds are "funds of
funds" that invest in other Vanguard mutual funds--primarily index funds that
mirror the broad U.S. and international stock markets and the U.S. bond
market--in varying allocations. The LifeStrategy Growth Fund, with the highest
allocation to stocks, provides the least income and greatest potential for
long-term growth of capital, but with higher volatility. At the other end of the
spectrum, the LifeStrategy Income Fund, with the largest allocation to bonds,
provides the greatest level of income and lowest potential for long-term growth
of capital, with lower volatility.
The returns of the LifeStrategy Funds' underlying funds in the fiscal year
ranged from 4.9% for VANGUARD(R) TOTAL BOND MARKET INDEX FUND to 28.9% for
VANGUARD(R) TOTAL INTERNATIONAL STOCK INDEX FUND. All LifeStrategy Funds own
shares of the Total Bond Market Index Fund, with weightings ranging from roughly
50% in the Income Fund to 10%
- --------------------------------------------------------------------------------
TARGET AND ACTUAL ASSET ALLOCATIONS PERCENTAGES AS OF OCTOBER 31, 2003
SHORT-TERM
STOCKS* BONDS RESERVES
LIFESTRATEGY FUND TARGET ACTUAL TARGET ACTUAL TARGET ACTUAL
- --------------------------------------------------------------------------------
Income 20% 28% 60% 52% 20% 20%
Conservative Growth 40 48 40 32 20 20
Moderate Growth 60 68 40 32 0 0
Growth 80 88 20 12 0 0
- --------------------------------------------------------------------------------
*Actual international stock positions for the Income, Conservative Growth,
Moderate Growth, and Growth Funds equaled 0%, 5%, 10%, and 15% of assets,
respectively.
3
in the Growth Fund. Three of the four funds own shares of the Total
International Stock Index Fund; it accounted for roughly 15% of assets in the
Growth Fund and smaller percentages of the Moderate Growth and Conservative
Growth Funds.
- ----------------------------------------------------------------
TOTAL RETURNS FISCAL YEAR ENDED
OCTOBER 31, 2003
- ----------------------------------------------------------------
VANGUARD MUTUAL FUND
LIFESTRATEGY FUND FUND AVERAGE* DIFFERENCE
- ----------------------------------------------------------------
Income 9.9% 10.1% -0.2%
Conservative Growth 14.0 13.5 0.5
Moderate Growth 18.1 18.6 -0.5
Growth 22.1 22.0 0.1
- ----------------------------------------------------------------
*Each average is a blended composite that weights the return of the average
comparable mutual fund for each asset class in proportion with the target
weighting of the appropriate LifeStrategy Fund. All average returns for funds
are derived from data provided by Lipper Inc.
Two of the other underlying funds in the LifeStrategy portfolios--VANGUARD(R)
TOTAL STOCK MARKET INDEX FUND AND VANGUARD ASSET ALLOCATION FUND--offered
excellent results for the period. The Total Stock Market Index Fund, whose
weighting ranges from about 5% in the LifeStrategy Income Fund to about 50% in
the LifeStrategy Growth Fund, returned 24.2%, closely tracking the Wilshire 5000
Index's 24.4% return. The Asset Allocation Fund, which represents about 25% of
assets in all four funds, gained 21% for the year, effectively contributing 5.25
percentage points to the returns of all four funds. This fund can shift its
asset mix among stocks, bonds, or cash investments based upon the advisor's
ongoing assessment of the relative attractiveness of each asset class. The fund
began the fiscal year with 100% of its assets in stocks and--after a few minor
allocation shifts between stocks and bonds during the period--ended at 90% in
stocks and 10% in bonds.
The LifeStrategy Funds' underlying fixed income funds--VANGUARD(R) SHORT-TERM
CORPORATE FUND And the Total Bond Market Index Fund--delivered more modest
returns. For the fiscal year, the Short-Term Corporate Fund returned 5.2% and
the Total Bond Market Index, as noted earlier, returned 4.9%.
Each of the funds delivered a respectable return when compared with that of its
average mutual fund peer. As the table above shows, two funds posted slightly
higher returns for the year relative to their composite peer-group averages,
while two posted slightly lower results.
SINCE THEIR INCEPTION, THE LIFESTRATEGY FUNDS HAVE
BESTED THEIR AVERAGE PEERS
Over the nine-year history of the LifeStrategy Funds, each has outshone its
average mutual fund peer. That superiority has added
4
substantial value to the accounts of our shareholders. For example, as the table
at left shows, a hypothetical $10,000 investment in the LifeStrategy Growth Fund
on its inception date would have grown to $22,842 by October 31, an advantage of
some $2,500 over the composite peer-fund average. The funds have also
outperformed their composite indexes, based in each case on the returns of the
indexes that correspond to the respective fund's target asset allocation.
- ----------------------------------------------------------
TOTAL RETURNS SEPTEMBER 30, 1994,* THROUGH
OCTOBER 31, 2003
----------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- ----------------------------------------------------------
LifeStrategy Income Fund 8.8% $21,497
Income Composite Index 8.1 20,216
Income Composite Average 6.7 17,964
- ----------------------------------------------------------
LifeStrategy Conservative
Growth Fund 9.1% $22,015
Conservative Growth
Composite Index 8.4 20,751
Conservative Growth
Composite Average 7.1 18,649
- ----------------------------------------------------------
LifeStrategy Moderate
Growth Fund 9.4% $22,701
Moderate Growth
Composite Index 9.3 22,427
Moderate Growth
Composite Average 7.9 19,940
- ----------------------------------------------------------
LifeStrategy Growth Fund 9.5% $22,842
Growth Composite Index 9.4 22,587
Growth Composite Average 8.1 20,327
- ----------------------------------------------------------
*The funds' inception date.
Vanguard, a longtime proponent of low-cost index investing and a leader in the
development of "funds of funds," first combined these two investment approaches
in the LifeStrategy Funds. Based on their impressive track records so far, we
are very pleased with the results.
THE DEPTH OF OUR COMMITMENT TO OUR SHAREHOLDERS
As the recent years of tumult in the stock market have shown, the greatest
certainty in investing is uncertainty. Because no one has yet been able to
consistently and accurately predict the future movements of the financial
markets, Vanguard continues to stress the importance of forging a sound
investment plan and sticking to it through good times and bad.
Our use of low-cost underlying funds has enabled the LifeStrategy Funds to
establish themselves as competitive choices for value-conscious, balanced-fund
investors. Any one of these funds can serve as a well-rounded single-fund
portfolio, or can be supplemented with actively managed or index funds
emphasizing different bond or stock market segments as you see fit.
In light of the shocking allegations about market-timing and late trading at
some investment management firms, I feel compelled to close
5
this letter with an assurance that Vanguard has policies and procedures in place
to identify and deter such behavior. In addition, I have great confidence in the
ethics, integrity, and character of the Vanguard crew--values that receive
strong institutional support from our client-owned corporate structure, which
channels all our efforts into the creation of wealth for our shareholders.
Thank you for your continuing confidence in Vanguard.
Sincerely,
/s/ John J. Brennan
JOHN J. BRENNAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NOVEMBER 11, 2003
- --------------------------------------------------------------------------------
YOUR FUND'S PERFORMANCE AT A GLANCE OCTOBER 31, 2002-OCTOBER 31, 2003
DISTRIBUTIONS PER SHARE
-----------------------
STARTING ENDING INCOME CAPITAL SEC
LIFESTRATEGY FUND SHARE PRICE SHARE PRICE DIVIDENDS GAINS YIELD*
- --------------------------------------------------------------------------------
Income $12.28 $13.03 $0.450 $0.00 3.46
Conservative Growth 12.81 14.17 0.400 0.00 2.79
Moderate Growth 13.96 16.06 0.375 0.00 2.31
Growth 14.45 17.32 0.280 0.00 1.65
- --------------------------------------------------------------------------------
*30-day advertised yield net of expenses at month-end.
6
FUND PROFILES
AS OF 10/31/2003
These Profiles provide snapshots of each fund's characteristics, along with the
fund's allocations to various asset classes and to underlying Vanguard funds.
Key terms are defined on page 11.
LIFESTRATEGY INCOME FUND
- ---------------------------------------
FINANCIAL ATTRIBUTES
Yield 3.5%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.27%
- ---------------------------------------
- -----------------------
EQUITY INVESTMENT FOCUS
Market Cap Large
Style Blend
- -----------------------
- ---------------------------------------
VOLATILITY MEASURES
BROAD
FUND INDEX**
- ---------------------------------------
R-Squared 0.04 1.00
Beta 0.20 1.00
- ---------------------------------------
- -------------------------------------------------
ALLOCATION TO UNDERLYING FUNDS
Vanguard Total Bond Market Index Fund 49.8%
Vanguard Asset Allocation Fund 25.3
Vanguard Short-Term Corporate Fund 19.8
Vanguard Total Stock Market Index Fund 5.1
- -------------------------------------------------
Total 100.0%
- -------------------------------------------------
- ---------------------------------------
FIXED INCOME INVESTMENT FOCUS
Credit Quality Treasury-Agency
Average Maturity Medium
- ---------------------------------------
- --------------------------------
FUND ASSET ALLOCATION
Short-Term Reserves 20%
Stocks 28%
Bonds 52%
- --------------------------------
*For underlying funds; annualized.
**Lehman Aggregate Bond Index.
Visit our website at Vanguard.com
for regularly updated fund information.
7
FUND PROFILES (CONTINUED)
LIFESTRATEGY CONSERVATIVE GROWTH FUND
- ---------------------------------------
FINANCIAL ATTRIBUTES
Yield 2.8%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.28%
- ---------------------------------------
- -----------------------
EQUITY INVESTMENT FOCUS
Market Cap Large
Style Blend
- -----------------------
- ---------------------------------------
VOLATILITY MEASURES
BROAD
FUND INDEX**
- ---------------------------------------
R-Squared 0.91 1.00
Beta 0.39 1.00
- ---------------------------------------
- --------------------------------------------------
ALLOCATION TO UNDERLYING FUNDS
Vanguard Total Bond Market Index Fund 29.9%
Vanguard Asset Allocation Fund 25.2
Vanguard Total Stock Market Index Fund 20.1
Vanguard Short-Term Corporate Fund 19.6
Vanguard Total International Stock Index Fund 5.2
- --------------------------------------------------
Total 100.0%
- --------------------------------------------------
- ---------------------------------------
FIXED INCOME INVESTMENT FOCUS
Credit Quality Treasury-Agency
Average Maturity Medium
- ---------------------------------------
- --------------------------------
FUND ASSET ALLOCATION
Short-Term Reserves 20%
Stocks 48%
Bonds 32%
- --------------------------------
*For underlying funds; annualized.
**Wilshire 5000 Index.
8
LIFESTRATEGY MODERATE GROWTH FUND
- ---------------------------------------
FINANCIAL ATTRIBUTES
Yield 2.3%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.28%
- ---------------------------------------
- -----------------------
EQUITY INVESTMENT FOCUS
Market Cap Large
Style Blend
- -----------------------
- ---------------------------------------
VOLATILITY MEASURES
BROAD
FUND INDEX**
- ---------------------------------------
R-Squared 0.96 1.00
Beta 0.60 1.00
- ---------------------------------------
- ----------------------------------------------------
ALLOCATION TO UNDERLYING FUNDS
Vanguard Total Stock Market Index Fund 35.2%
Vanguard Total Bond Market Index Fund 29.8
Vanguard Asset Allocation Fund 25.0
Vanguard Total International Stock Index Fund 10.0
- ----------------------------------------------------
Total 100.0%
- ----------------------------------------------------
- ---------------------------------------
FIXED INCOME INVESTMENT FOCUS
Credit Quality Treasury-Agency
Average Maturity Medium
- ---------------------------------------
- --------------------------------
FUND ASSET ALLOCATION
Stocks 68%
Bonds 32%
- --------------------------------
*For underlying funds; annualized.
**Wilshire 5000 Index.
Visit our website at Vanguard.com
for regularly updated fund information.
9
FUND PROFILES (CONTINUED)
LIFESTRATEGY GROWTH FUND
- ---------------------------------------
FINANCIAL ATTRIBUTES
Yield 1.7%
Expense Ratio 0%
Average Weighted Expense Ratio* 0.28%
- ---------------------------------------
- -----------------------
EQUITY INVESTMENT FOCUS
Market Cap Large
Style Blend
- -----------------------
- ---------------------------------------
VOLATILITY MEASURES
BROAD
FUND INDEX**
- ---------------------------------------
R-Squared 0.98 1.00
Beta 0.80 1.00
- ---------------------------------------
- ---------------------------------------------------
ALLOCATION TO UNDERLYING FUNDS
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%
- ---------------------------------------------------
- ---------------------------------------
FIXED INCOME INVESTMENT FOCUS
Credit Quality Treasury-Agency
Average Maturity Medium
- ---------------------------------------
- --------------------------------
FUND ASSET ALLOCATION
Stocks 88%
Bonds 12%
- --------------------------------
*For underlying funds; annualized.
**Wilshire 5000 Index.
Visit our website at Vanguard.com
for regularly updated fund information.
10
GLOSSERY OF INVESTMENT TERMS
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 a given market index. The index is assigned a
beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically
would have seen its share price rise or fall by 12% when the index rose or fell
by 10%. A fund's beta should be reviewed in conjunction with its R-squared (see
definition below). The lower the R-squared, the less correlation there is
between the fund and the index, and the less reliable beta is as an indicator of
volatility.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by a given index. If a
fund's total returns were precisely synchronized with an index's returns, its
R-squared would be 1.00. If the fund's returns bore no relationship to the
index'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.
- --------------------------------------------------------------------------------
11
AS OF 10/31/2003
PERFORMANCE SUMMARIES
All of the returns in this report 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. The returns
shown do not reflect taxes that a shareholder would pay on fund distributions or
on the redemption of fund shares.
LIFESTRATEGY INCOME FUND
- -----------------------------------------------------------------
CUMULATIVE PERFORMANCE SEPTEMBER 30, 1994-OCTOBER 31, 2003
[Wave Chart]
- -----------------------------------------------------------------
FISCAL QUARTER LIFESTRATEGY INCOME INCOME LEHMAN
END INCOME FUND COMPOSITE COMPOSITE AGGREGATE
AVERAGE INDEX BOND INDEX
- -----------------------------------------------------------------
September 1994 10000 10000 10000 10000
October 1994 1994 10000 10025 10035
January 1995 10223 10086 10206 10236
April 1995 10792 10524 10697 10691
August 1995 11458 11028 11245 11162
October 1995 11894 11287 11599 11554
January 1996 12484 11690 12083 11971
April 1996 12290 11750 12024 11616
August 1996 12377 11742 12073 11780
October 1996 13049 12238 12626 12230
January 1996 13461 12591 13015 12362
April 9970 13578 12568 13092 12439
August 1997 14630 13452 14033 13048
October 1997 14807 13626 14207 13318
January 1998 15373 13920 14644 13687
April 1998 15911 14391 15150 13796
August 1998 16207 14416 15330 14074
October 1998 16608 14352 15628 14561
January 1999 17396 15013 16333 14792
April 1999 17437 15161 16442 14661
August 1999 17203 15142 16312 14425
October 1999 17484 15251 16588 14639
January 2000 17538 15593 16772 14519
April 2000 18003 15953 17141 14846
August 2000 18413 16189 17453 15285
October 2000 18798 16399 17808 15707
January 2001 19437 16764 18256 16526
April 2001 19207 16554 18111 16684
August 2001 19670 16702 18414 17225
October 2001 19709 16515 18467 17994
January 2002 19892 16777 18658 17776
April 2002 19846 16847 18717 17992
August 2002 19343 16231 18453 18523
October 2002 19552 16310 18716 19053
January 2003 19726 16557 18891 19458
April 2003 20471 17081 19435 19875
August 2003 20808 17398 19630 19526
October 2003 21497 17964 20216 19988
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 2003
------------------------------ FINAL VALUE
ONE FIVE SINCE OF A $10,000
YEAR YEARS INCEPTION INVESTMENT
- --------------------------------------------------------------------------
LifeStrategy Income Fund 9.95% 5.30% 8.79% $21,497
Lehman Aggregate Bond Index 4.91 6.54 7.92 19,988
Income Composite Index* 8.17 5.31 8.06 20,216
Income Composite Average** 10.14 4.59 6.66 17,964
- --------------------------------------------------------------------------
- -----------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 30, 1994-OCTOBER 31, 2003
- -----------------------------------------------------------------
LIFESTRATEGY INCOME FUND INCOME
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------
1994 0.0% 0.0% 0.0% 0.4%
1995 13.9 5.0 18.9 15.6
1996 4.2 5.5 9.7 8.9
1997 7.6 5.9 13.5 12.5
1998 6.8 5.4 12.2 10.0
- -----------------------------------------------------------------
- -----------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 30, 1994-OCTOBER 31, 2003
- -----------------------------------------------------------------
LIFESTRATEGY INCOME FUND INCOME
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------
1999 0.1% 5.2% 5.3% 6.1%
2000 1.7 5.8 7.5 7.4
2001 -0.7 5.5 4.8 3.7
2002 -5.3 4.5 -0.8 1.3
2003 6.1 3.8 9.9 8.2
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
Since Inception
One Five -----------------------
Inception Date Year Years Capital Income Total
- -----------------------------------------------------------------------------
LifeStrategy Income Fund 9/30/1994 11.38% 5.44% 3.59% 5.18% 8.77%
- -----------------------------------------------------------------------------
*60% Lehman Aggregate Bond Index, 20% Wilshire 5000 Index, and 20% Lehman 1-3
Year U.S. Credit Index.
**A composite fund average weighted 60% average fixed income fund, 20% average
general equity fund, and 20% average money market fund. Derived from data
provided by Lipper Inc.
Note: See Financial Highlights table on page 28 for dividend and capital gains
information.
12
LIFESTRATEGY CONSERVATIVE GROWTH FUND
- -----------------------------------------------------------------------------
CUMULATIVE PERFORMANCE SEPTEMBER 30, 1994-OCTOBER 31, 2003
[Wave Chart]
- -----------------------------------------------------------------------------
CONSERVATIVE CONSERVATIVE
LIFESTRATEGY LEHMAN GROWTH GROWTH
FISCAL QUARTER CONSERVATIVE AGGERGATE WILSHIRE COMPOSITE COMPOSITE
END GROWTH FUND BOND INDEX 500 INDEX INDEX AVERAGE
- -----------------------------------------------------------------------------
September 1994 10000 10000 10000 10000 10000
October 1994 10060 10057 10078 10163 9991
January 1995 10182 10006 10156 10137 10236
April 1995 10831 10525 10747 11088 10691
August 1995 11566 11171 11398 12316 11162
October 1995 11948 11388 11715 12781 11554
January 1996 12649 11870 12316 13903 11971
April 1996 12671 12146 12462 14654 11616
August 1996 12626 11995 12383 14125 11780
October 1996 13400 12608 13056 15568 12230
January 1997 14019 13129 13640 17290 12362
April 1997 14133 13032 13716 17238 12439
August 1997 15611 14327 15081 20792 13048
October 1997 15599 14399 15100 20486 13318
January 1998 16260 14698 15645 21664 13687
April 1998 17231 15555 16567 24694 13796
August 1998 17436 15429 16672 24335 14074
October 1998 17634 15125 16768 23516 14561
January 1999 18920 16176 17973 27574 14792
April 1999 19201 16463 18311 28923 14661
August 1999 19025 16588 18230 28800 14425
October 1999 19402 16748 18605 29553 14639
January 2000 19748 17494 19083 31498 14519
April 2000 20286 18033 19508 32339 14846
August 2000 20557 18205 19683 31921 15285
October 2000 20816 18391 19916 31947 15707
January 2001 21142 18548 20067 30404 16526
April 2001 20547 18013 19541 27779 16684
August 2001 20719 17934 19580 27131 17225
October 2001 20139 17217 18996 23789 17994
January 2002 20617 17729 19461 25745 17776
April 2002 20513 17776 19463 25034 17992
August 2002 19337 16537 18489 21144 18523
October 2002 19313 16433 18529 20599 19053
January 2003 19309 16502 18533 20111 19458
April 2003 20213 17124 19249 21633 19875
August 2003 21054 17850 19909 23855 19526
October 2003 22015 18649 20751 25633 19988
- -----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 2003
------------------------------ FINAL VALUE
ONE FIVE SINCE OF A $10,000
YEAR YEARS INCEPTION INVESTMENT
- --------------------------------------------------------------------------------
LifeStrategy Conservative Growth Fund 13.99% 4.54% 9.07% $22,015
Lehman Aggregate Bond Index 4.91 6.54 7.92 19,988
Wilshire 5000 Index 24.44 1.74 10.92 25,633
Conservative Growth Composite Index* 12.16 4.38 8.37 20,751
Conservative Growth Composite Average** 13.49 4.28 7.10 18,649
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 30, 1994-OCTOBER 31, 2003
- -----------------------------------------------------------------
LIFESTRATEGY CONSERVATIVE CONSERVATIVE
GROWTH FUND GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------
1994 0.6% 0.0% 0.6% 0.8%
1995 14.4 4.4 18.8 16.2
1996 7.2 4.9 12.1 11.4
1997 11.5 4.9 16.4 15.7
1998 8.5 4.5 13.0 11.0
1999 5.5 4.5 10.0 11.0
2000 2.5 4.8 7.3 7.0
2001 -7.6 4.3 -3.3 -4.6
2002 -7.7 3.6 -4.1 -2.5
2003 10.6 3.4 14.0 12.2
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
Since Inception
One Five -----------------------
Inception Date Year Years Capital Income Total
- -----------------------------------------------------------------------------
LifeStrategy Conservative
Growth Fund 9/30/1994 15.57% 4.73% 4.53% 4.36% 8.89%
- -----------------------------------------------------------------------------
*40% Lehman Aggregate Bond Index, 35% Wilshire 5000 Index, 20% Lehman 1-3 Year
U.S. Credit Index, and 5% MSCI EAFE Index.
**A composite fund average weighted 40% average fixed income fund, 35% average
general equity fund, 20% average money market fund, and 5% average international
fund. Derived from data provided by Lipper Inc.
Note: See Financial Highlights table on page 29 for dividend and capital gains
information.
13
PERFORMANCE SUMMARIES (CONTINUED)
LIFESTRATEGY MODERATE GROWTH FUND
- -----------------------------------------------------------------------------
CUMULATIVE PERFORMANCE SEPTEMBER 30, 1994-OCTOBER 31, 2003
[Wave Chart]
- -----------------------------------------------------------------------------
MODERATE MODERATE
FISCAL QUARTER LIFESTRATEGY WILSHIRE LEHMAN GROWTH GROWTH
END MODERATE 5000 AGGREGATE COMPOSITE COMPOSITE
GROWTH FUND INDEX BOND INDEX AVERGAGE
- -----------------------------------------------------------------------------
September 1994 10000 10000 10000 10000 10000
October 1994 10040 10079 10111 10163 9991
January 1995 10081 9918 10117 10137 10236
April 1995 10857 10568 10871 11088 10691
August 1995 11736 11410 11698 12316 11162
October 1995 12103 11621 12030 12781 11554
January 1996 12946 12238 12818 13903 11971
April 1996 13114 12668 13075 14654 11616
August 1996 12942 12362 12862 14125 11780
October 1996 13868 13161 13736 15568 12230
January 1997 14684 13877 14535 17290 12362
April 1997 14783 13679 14590 17238 12439
August 1997 16803 15538 16566 20792 13048
October 1997 16591 15505 16423 20486 13318
January 1998 17382 15852 17152 21664 13687
April 1998 18841 17161 18571 24694 13796
August 1998 18956 16863 18613 24335 14074
October 1998 18968 16233 18525 23516 14561
January 1999 20850 17784 20378 27574 14792
April 1999 21347 18202 20922 28923 14661
August 1999 21168 18407 20785 28800 14425
October 1999 21671 18605 21299 29553 14639
January 2000 22300 19794 22062 31498 14519
April 2000 22974 20547 22590 32339 14846
August 2000 23101 20654 22649 31921 15285
October 2000 23230 20782 22777 31947 15707
January 2001 23255 20781 22707 30404 16526
April 2001 22104 19790 21676 27779 16684
August 2001 21998 19491 21497 27131 17225
October 2001 20742 18210 20307 23789 17994
January 2002 21486 18976 21019 25745 17776
April 2002 21350 19027 20989 25034 17992
August 2002 19434 17069 19298 21144 18523
October 2002 19228 16814 19191 20599 19053
January 2003 19051 16795 19083 20111 19458
April 2003 20143 17626 20078 21633 19875
August 2003 21387 18769 21173 23855 19526
October 2003 22701 19940 22427 25633 19988
- -----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 2003
------------------------------ FINAL VALUE
ONE FIVE SINCE OF A $10,000
YEAR YEARS INCEPTION INVESTMENT
- --------------------------------------------------------------------------------
LifeStrategy Moderate Growth Fund 18.06% 3.66% 9.44% $22,701
Wilshire 5000 Index 24.44 1.74 10.92 25,633
Lehman Aggregate Bond Index 4.91 6.54 7.92 19,988
Moderate Growth Composite Index* 16.86 3.89 9.30 22,427
Moderate Growth Composite Average** 18.59 4.20 7.89 19,940
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 30, 1994-OCTOBER 31, 2003
- -----------------------------------------------------------------
LIFESTRATEGY MODERATE MODERATE
GROWTH FUND GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------
1994 0.4% 0.0% 0.4% 1.1%
1995 17.5 3.1 20.6 19.0
1996 10.9 3.7 14.6 14.2
1997 15.7 3.9 19.6 19.6
1998 10.8 3.5 14.3 12.8
1999 10.7 3.6 14.3 15.0
2000 3.8 3.4 7.2 6.9
2001 -13.7 3.0 -10.7 -10.9
2002 -10.1 2.8 -7.3 -5.5
2003 15.0 3.1 18.1 16.9
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
Since Inception
One Five -----------------------
Inception Date Year Years Capital Income Total
- -----------------------------------------------------------------------------
LifeStrategy Moderate
Growth Fund 9/30/1994 20.05% 3.95% 5.79% 3.32% 9.11%
- -----------------------------------------------------------------------------
*50% Wilshire 5000 Index, 40% Lehman Aggregate Bond Index, and 10% MSCI EAFE
Index.
**A composite fund average weighted 50% average general equity fund, 40% average
fixed income fund, and 10% average international fund. Derived from data
provided by Lipper Inc.
Note: See Financial Highlights table on page 30 for dividend and capital gains
information. lifestrategy growth fund
14
LIFESTRATEGY GROWTH FUND
- ---------------------------------------------------------------
CUMULATIVE PERFORMANCE SEPTEMBER 30, 1994-OCTOBER 31, 2003
[Wave Chart]
- ---------------------------------------------------------------
WILSHIRE GROWTH GROWTH
FISCAL QAURTER LIFESTRATEGY 5000 COMPOSITE COMPOSITE
END GROWTH FUND INDEX INDEX AVERGAGE
- ---------------------------------------------------------------
September 1994 10000 10000 10000 10000
October 1994 10168 10111 10154 10163
January 1995 10121 9838 10066 10137
April 1995 10976 10567 10919 11088
August 1995 11925 11553 11852 12316
October 1995 12230 11719 12143 12781
January 1996 13182 12419 13057 13903
April 1996 13590 13085 13540 14654
August 1996 13273 12614 13180 14125
October 1996 14316 13541 14188 15568
January 1997 15369 14451 15211 17290
April 1997 15456 14163 15263 17238
August 1997 18001 16515 17768 20792
October 1997 17540 16342 17412 20486
January 1998 18456 16695 18278 21664
April 1998 20467 18492 20246 24694
August 1998 20455 17989 20179 24335
October 1998 20134 17003 19755 23516
January 1999 22671 19037 22277 27574
April 1999 23506 19630 23139 28923
August 1999 23391 20022 23064 28800
October 1999 24032 20284 23712 29553
January 2000 25088 22026 24897 31498
April 2000 25843 23025 25490 32339
August 2000 25756 23020 25319 31921
October 2000 25670 23089 25240 31947
January 2001 25238 22761 24709 30404
April 2001 23516 21281 23112 27779
August 2001 23024 20680 22585 27131
October 2001 20996 18734 20613 23789
January 2002 22069 19779 21624 25745
April 2002 21850 19795 21517 25034
August 2002 19183 17127 19039 21144
October 2002 18704 16665 18678 20599
January 2003 18363 16457 18392 20111
April 2003 19582 17366 19526 21633
August 2003 21273 18918 21077 23855
October 2003 22842 20327 22587 25633
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 2003
------------------------------ FINAL VALUE
ONE FIVE SINCE OF A $10,000
YEAR YEARS INCEPTION INVESTMENT
- --------------------------------------------------------------------------------
LifeStrategy Growth Fund 22.12% 2.56% 9.52% $22,842
Wilshire 5000 Index 24.44 1.74 10.92 25,633
Growth Composite Index* 20.92 2.71 9.38 22,587
Growth Composite Average** 21.97 3.64 8.12 20,327
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) SEPTEMBER 30, 1994-OCTOBER 31, 2003
- -----------------------------------------------------------------
LIFESTRATEGY GROWTH FUND GROWTH
COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -----------------------------------------------------------------
1994 1.7% 0.0% 1.7% 1.5%
1995 17.5 2.8 20.3 19.6
1996 14.2 2.9 17.1 16.8
1997 19.5 3.0 22.5 22.7
1998 12.2 2.6 14.8 13.5
1999 16.6 2.8 19.4 20.0
2000 4.3 2.5 6.8 6.4
2001 -20.1 1.9 -18.2 -18.4
2002 -12.7 1.8 -10.9 -9.4
2003 19.9 2.2 22.1 20.9
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED SEPTEMBER 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
Since Inception
One Five -----------------------
Inception Date Year Years Capital Income Total
- -----------------------------------------------------------------------------
LifeStrategy Growth Fund 9/30/1994 24.18% 2.90% 6.56% 2.46% 9.02%
- ------------------------------------------------------------------------------
*65% Wilshire 5000 Index, 20% Lehman Aggregate Bond Index, and 15% MSCI EAFE
Index.
**A composite fund average weighted 65% average general equity fund, 20% average
fixed income fund, and 15% average international fund. Derived from data
provided by Lipper Inc.
Note: See Financial Highlights table on page 31 for dividend and capital gains
information. your fund's after-tax returns
15
YOUR FUND'S AFTER-TAX RETURNS
This table presents returns for your fund both before and after taxes. The
after-tax returns are shown in two ways: (1) assuming that an investor owned the
fund during the entire period and paid taxes on the fund's distributions, and
(2) assuming that an investor paid taxes on the fund's distributions and sold
all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital
gains tax rates in effect at the times of the distributions and the hypothetical
sales. State and local taxes were not considered. After-tax returns reflect the
reduced tax rates on ordinary income and short-term capital gains that became
effective as of January 1, 2003, and on long-term capital gains realized on or
after May 6, 2003. However, they do not reflect the reduced rates on "qualified
dividend income." (In the example, returns after the sale of fund shares may be
higher than those assuming no sale. This occurs when the sale would have
produced a capital loss. The calculation assumes that the investor received a
tax deduction for the loss.)
Please note that your actual after-tax returns will depend on your tax situation
and may differ from those shown. Also note that if you own the fund in a
tax-deferred account, such as an individual retirement account or a 401(k) plan,
this information does not apply to you. Such accounts are not subject to current
taxes.
Finally, keep in mind that a fund's performance--whether before or after
taxes--does not indicate how it will perform in the future.
- ---------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED OCTOBER 31, 2003
SINCE
ONE YEAR FIVE YEARS INCEPTION*
--------------------------------
LIFESTRATEGY INCOME FUND
Returns Before Taxes 9.95% 5.30% 8.79%
Returns After Taxes on Distributions 8.55 3.17 6.53
Returns After Taxes on Distributions
and Sale of Fund Shares 6.38 3.20 6.20
- ---------------------------------------------------------------------------
LIFESTRATEGY CONSERVATIVE GROWTH FUND
Returns Before Taxes 13.99% 4.54% 9.07%
Returns After Taxes on Distributions 12.76 2.72 7.10
Returns After Taxes on Distributions
and Sale of Fund Shares 8.99 2.76 6.67
- ---------------------------------------------------------------------------
LIFESTRATEGY MODERATE GROWTH FUND
Returns Before Taxes 18.06% 3.66% 9.44%
Returns After Taxes on Distributions 16.94 2.23 7.87
Returns After Taxes on Distributions
and Sale of Fund Shares 11.60 2.26 7.31
- ---------------------------------------------------------------------------
LIFESTRATEGY GROWTH FUND
Returns Before Taxes 22.12% 2.56% 9.52%
Returns After Taxes on Distributions 21.28 1.50 8.27
Returns After Taxes on Distributions
and Sale of Fund Shares 14.26 1.56 7.61
- ---------------------------------------------------------------------------
*September 30, 1994.
16
ABOUT YOUR FUND'S EXPENSES
All mutual funds have operating expenses. These expenses include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund's
gross income, directly reduce the investment return of the fund. A fund's
expenses are expressed as a percentage of its net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would incur
over a 12-month period if you invested $10,000 in your fund, using the fund's
actual return and expenses for the fiscal year ended October 31, 2003. Note that
the LifeStrategy Funds do not incur direct expenses, but each fund bears its
proportionate share of the expenses of the underlying funds in which it invests.
These indirect expenses make up the fund's average weighted expense ratio. The
cost in dollars is calculated by applying the average weighted expense ratio to
the average balance in the hypothetical account. For comparative purposes, we
also list the average expense ratio for each fund's peer group, which is derived
from data provided by Lipper Inc.
- -----------------------------------------------------------------------------
COST OF $10,000 FUND AVERAGE WEIGHTED PEER GROUP
INVESTMENT IN FUND EXPENSE RATIO EXPENSE RATIO* EXPENSE RATIO**
- -----------------------------------------------------------------------------
LIFESTRATEGY FUND
Income Fund $28 0.00% 0.27% 1.05%
Conservative Growth 30 0.00 0.28 1.15
Moderate Growth 31 0.00 0.28 1.26
Growth Fund 31 0.00 0.28 1.37
- -----------------------------------------------------------------------------
*For underlying funds; annualized.
**Peer groups are (from top to bottom) the Income Composite Average, the
Conservative Growth Composite Average, the Moderate Growth Composite Average,
and the Growth Composite Average. Each average is a blended composite that
weights the return of the average comparable mutual fund for each asset class in
proportion with the target weighting of the appropriate LifeStrategy fund.
For additional information on costs, please refer to the funds' prospectus. The
prospectus presents hypothetical shareholder costs over various time periods
based upon a $10,000 investment and a return of 5% a year. This standardized
example, which appears in all mutual fund prospectuses, may be useful to you in
comparing the costs of investing in different funds.
17
AS OF 10/31/2003
FINANCIAL STATEMENTS
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each 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. 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.
- ---------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY INCOME FUND SHARES (000)
- ---------------------------------------------------------------
INVESTMENT COMPANIES (99.8%)
- ---------------------------------------------------------------
STOCK FUND (5.1%)
Vanguard Total Stock Market Index Fund
Investor Shares 2,673,847 $ 65,884
BALANCED FUND (25.2%)
Vanguard Asset Allocation Fund
Investor Shares 15,257,538 329,563
BOND FUND (49.7%)
Vanguard Total Bond Market Index Fund
Investor Shares 63,234,517 649,418
SHORT-TERM BOND FUND (19.8%)
Vanguard Short-Term Corporate Fund
Investor Shares 23,894,326 257,820
-------
- ---------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(COST $1,260,121) 1,302,685
- ---------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- ---------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations
in a Pooled Cash Account
1.07%, 11/3/2003
(COST $1,123) $1,123 1,123
- ---------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(COST $1,261,244) 1,303,808
- ---------------------------------------------------------------
18
MARKET
VALUE
(000)
- ---------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
- ---------------------------------------------------------------
Other Assets $ 6,622
Liabilities (4,966)
-------
1,656
-------
- ---------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------
Applicable to 100,162,375 outstanding $.001 par value shares of
beneficial interest (unlimited authorization) $1,305,464
===============================================================
NET ASSET VALUE PER SHARE $13.03
===============================================================
*See Note A in NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------
AT OCTOBER 31, 2003, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------------
Paid-in Capital $1,261,781 $12.60
Undistributed Net Investment 4,115 .04
Accumulated Net Realized Losses (2,996) (.03)
Unrealized Appreciation 42,564 .42
- ----------------------------------------------------------------
NET ASSETS $1,305,464 $13.03
================================================================
See Note C in Notes to FINANCIAL STATEMENTS for the tax-basis components of net
assets.
19
- ---------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY CONSERVATIVE GROWTH FUND SHARES (000)
- ---------------------------------------------------------------
INVESTMENT COMPANIES (99.6%)
- ---------------------------------------------------------------
STOCK FUNDS (25.3%)
Vanguard Total Stock Market Index Fund
Investor Shares 22,760,300 $ 560,814
Vanguard Total International Stock
Index Fund 14,742,785 145,069
-----------
705,883
BALANCED FUND (25.1%)
Vanguard Asset Allocation Fund
Investor Shares 32,435,476 700,606
-----------
BOND FUND (29.7%)
Vanguard Total Bond Market Index Fund
Investor Shares 80,975,819 831,622
-----------
SHORT-TERM BOND FUND (19.5%)
Vanguard Short-Term Corporate Fund
Investor Shares 50,614,234 546,128
-----------
- ---------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(Cost $2,635,225) 2,784,239
- ---------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.2%)
- ---------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 1.07%, 11/3/2003
(Cost $6,383) $6,383 6,383
- ---------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(Cost $2,641,608) 2,790,622
- ---------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- ---------------------------------------------------------------
Other Assets 12,138
Liabilities (8,057)
-----------
4,081
-----------
- ---------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------
Applicable to 197,180,732 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
$2,794,703
===============================================================
NET ASSET VALUE PER SHARE $14.17
===============================================================
*See Note A in NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------
AT OCTOBER 31, 2003, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------
Amount Per
(000) Share
- ---------------------------------------------------------------
Paid-in Capital $ 2,652,738 $13.45
Undistributed Net Investment Income 5,945 .03
Accumulated Net Realized Losses (12,994) (.07)
Unrealized Appreciation 149,014 .76
- ---------------------------------------------------------------
NET ASSETS $ 2,794,703 $14.17
===============================================================
See Note C in NOTES TO FINANCIAL STATEMENTS for the tax-basis components of net
assets.
20
- ---------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY MODERATE GROWTH FUND SHARES (000)
- ---------------------------------------------------------------
INVESTMENT COMPANIES (99.8%)
- ---------------------------------------------------------------
STOCK FUNDS (45.1%)
Vanguard Total Stock Market Index Fund
Investor Shares 74,726,185 $1,841,253
Vanguard Total International Stock
Index Fund 53,315,955 524,629
-----------
2,365,882
BALANCED FUND (24.9%)
Vanguard Asset Allocation Fund
Investor Shares 60,497,878 1,306,754
-----------
BOND FUND (29.8%)
Vanguard Total Bond Market Index Fund
Investor Shares 152,064,642 1,561,704
-----------
- ---------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(Cost $5,019,455) 5,234,340
- ---------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.1%)
- ---------------------------------------------------------------
Collateralized by U.S. Government Obligations in a
Pooled Cash Account 1.07%, 11/3/2003
(Cost $6,543) $6,543 6,543
- ---------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(Cost $5,025,998) 5,240,883
- ---------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
- ---------------------------------------------------------------
Other Assets 16,179
Liabilities (11,481)
-----------
4,698
-----------
- ---------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------
Applicable to 326,674,873 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $5,245,581
===============================================================
NET ASSET VALUE PER SHARE $16.06
===============================================================
*See Note A in NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------
AT OCTOBER 31, 2003, NET ASSETS CONSISTED OF:
Amount Per
(000) Share
- ---------------------------------------------------------------
Paid-in Capital $5,030,156 $15.40
Undistributed Net Investment Income 27,558 .08
Accumulated Net Realized Losses (27,018) (.08)
Unrealized Appreciation 214,885 .66
- ---------------------------------------------------------------
NET ASSETS $5,245,581 $16.06
===============================================================
See Note C in Notes to FINANCIAL STATEMENTS for the tax-basis components of net
assets.
21
- ---------------------------------------------------------------
MARKET
VALUE*
LIFESTRATEGY GROWTH FUND SHARES (000)
- ---------------------------------------------------------------
INVESTMENT COMPANIES (99.6%)
- ---------------------------------------------------------------
STOCK FUNDS (64.8%)
Vanguard Total Stock Market Index Fund
Investor Shares 89,539,119 $2,206,244
Vanguard Total International Stock
Index Fund 67,011,258 659,391
-----------
2,865,635
-----------
BALANCED FUND (25.0%)
Vanguard Asset Allocation Fund
Investor Shares 51,145,693 1,104,747
-----------
BOND FUND (9.8%)
Vanguard Total Bond Market Index Fund
Investor Shares 42,418,435 435,637
-----------
- ---------------------------------------------------------------
TOTAL INVESTMENT COMPANIES
(Cost $4,306,809) 4,406,019
- ---------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.2%)
- ---------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 1.07%, 11/3/2003
(Cost $7,647) $7,647 7,647
- ---------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(Cost $4,314,456) 4,413,666
- ---------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- ---------------------------------------------------------------
Other Assets 15,702
Liabilities (7,013)
-----------
8,689
- ---------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------
Applicable to 255,277,601 outstanding $.001 par value
shares of beneficial interest (unlimited authorization)
$4,422,355
===============================================================
NET ASSET VALUE PER SHARE $17.32
===============================================================
*See Note A in NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------
AT OCTOBER 31, 2003, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------------
Amount Per
(000) Share
- ---------------------------------------------------------------
Paid-in Capital $4,339,683 $16.99
Undistributed Net Investment Income 14,110 .06
Accumulated Net Realized Losses (30,648) (.12)
Unrealized Appreciation 99,210 .39
- ---------------------------------------------------------------
NET ASSETS $4,422,355 $17.32
===============================================================
See Note C in NOTES TO FINANCIAL STATEMENTS for the tax-basis components of net
assets. statement of operations
22
STATEMENT OF OPERATIONS
This Statement shows each fund's Income Distributions Received from the other
Vanguard funds in which it invests and any other income earned during the
reporting period. 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) of investments during the period.
- --------------------------------------------------------------------------------
LifeStrategy LifeStrategy LifeStrategy
Income Conservative Moderate LifeStrategy
Fund Growth Fund Growth Fund Growth Fund
-------------------------------------------------------
Year Ended October 31, 2003
- --------------------------------------------------------------------------------
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Income Distributions
Received $ 40,135 $ 69,710 $104,026 $ 64,915
Interest 28 52 81 75
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME--Note B 40,163 69,762 104,107 64,990
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Capital Gain Distributions
Received -- -- -- --
Investment Securities Sold (2,167) (4,387) (4,792) (1,871)
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (2,167) (4,387) (4,792) (1,871)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES 70,916 254,047 643,451 694,725
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $108,912 $319,422 $742,766 $757,844
================================================================================
23
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.
- --------------------------------------------------------------------------------
LIFESTRATEGY INCOME FUND
-------------------------
YEAR YEAR
ENDED ENDED
OCT. 31, 2003 OCT. 31, 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 40,163 $ 41,670
Realized Net Gain (Loss) (2,167) 43
Change in Unrealized Appreciation (Depreciation) 70,916 (50,554)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 108,912 (8,841)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (40,183) (41,593)
Realized Capital Gain -- --
- --------------------------------------------------------------------------------
Total Distributions (40,183) (41,593)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS*
Issued 460,974 455,861
Issued in Lieu of Cash Distributions 36,930 37,822
Redeemed (262,079) (232,651)
- --------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 235,825 261,032
- --------------------------------------------------------------------------------
Total Increase (Decrease) 304,554 210,598
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 1,000,910 790,312
- --------------------------------------------------------------------------------
End of Period $1,305,464 $1,000,910
================================================================================
*Shares Issued (Redeemed)
Issued 36,443 36,094
Issued in Lieu of Cash Distribution 2,928 3,019
Redeemed (20,718) (18,520)
- --------------------------------------------------------------------------------
Net Increase (Derease) in Shares Outstanding 18,653 20,593
================================================================================
24
- --------------------------------------------------------------------------------
LIFESTRATEGY CONSERVATIVE
GROWTH FUND
-------------------------
YEAR YEAR
ENDED ENDED
OCT. 31, 2003 OCT. 31, 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 69,762 $ 79,684
Realized Net Gain (Loss) (4,387) (1,411)
Change in Unrealized Appreciation (Depreciation) 254,047 (175,750)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 319,422 (97,477)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (70,910) (79,852)
Realized Capital Gain -- --
- --------------------------------------------------------------------------------
Total Distributions (70,910) (79,852)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 713,305 712,905
Issued in Lieu of Cash Distributions 68,150 76,351
Redeemed (367,862) (433,521)
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 413,593 355,735
- --------------------------------------------------------------------------------
Total Increase (Decrease) 662,105 178,406
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 2,132,598 1,954,192
- --------------------------------------------------------------------------------
End of Period $2,794,703 $2,132,598
================================================================================
*Shares Issued (Redeemed)
Issued 53,308 52,238
Issued in Lieu of Cash Distributions 5,134 5,667
Redeemed (27,731) (32,234)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Shares 30,711 25,671
================================================================================
25
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
LIFESTRATEGY MODERATE
GROWTH FUND
---------------------
YEAR YEAR
ENDED ENDED
OCT. 31, 2003 OCT. 31, 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 104,107 $ 123,915
Realized Net Gain (Loss) (4,792) (8,121)
Change in Unrealized Appreciation (Depreciation) 643,451 (433,639)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 742,766 (317,845)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (108,009) (126,354)
Realized Capital Gain -- --
- --------------------------------------------------------------------------------
Total Distributions (108,009) (126,354)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS*
Issued 1,216,177 1,000,487
Issued in Lieu of Cash Distributions 106,599 124,658
Redeemed (608,489) (861,256)
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 714,287 263,889
- --------------------------------------------------------------------------------
Total Increase (Decrease) 1,349,044 (180,310)
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 3,896,537 4,076,847
- --------------------------------------------------------------------------------
End of Period $5,245,581 $3,896,537
================================================================================
*Shares Issued (Redeemed)
Issued 82,011 65,858
Issued in Lieu of Cash Distributions 7,412 8,064
Redeemed (41,969) (57,402)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding 47,454 16,520
================================================================================
26
- --------------------------------------------------------------------------------
LIFESTRATEGY GROWTH FUND
------------------------
YEAR YEAR
ENDED ENDED
OCT. 31, 2003 OCT. 31, 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 64,990 $ 75,122
Realized Net Gain (Loss) (1,871) (25,204)
Change in Unrealized Appreciation (Depreciation) 694,725 (450,277)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 757,844 (400,359)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (64,443) (75,612)
Realized Capital Gain -- --
- --------------------------------------------------------------------------------
Total Distributions (64,443) (75,612)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS*
Issued 921,438 763,394
Issued in Lieu of Cash Distributions 63,721 74,690
Redeemed (465,081) (664,897)
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 520,078 173,187
- --------------------------------------------------------------------------------
Total Increase (Decrease) 1,213,479 (302,784)
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 3,208,876 3,511,660
- --------------------------------------------------------------------------------
End of Period $4,422,355 $3,208,876
================================================================================
*Shares Issued (Redeemed)
Issued 59,653 46,809
Issued in Lieu of Cash Distributions 4,272 4,449
Redeemed (30,729) (41,252)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding 33,196 10,006
================================================================================
27
FINANCIAL HIGHLIGHTS
This table summarizes each fund's investment results and distributions to
shareholders on a per-share basis. The table also presents the 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 gain distributions representing the "pass-through" of capital gain
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.
- --------------------------------------------------------------------------------------------------------
LIFESTRATEGY INCOME FUND
YEAR ENDED YEAR ENDED
OCTOBER 31, JAN. 1 TO DECEMBER 31,
----------- OCT. 31, -----------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001* 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.28 $12.97 $13.01 $12.82 $13.22 $12.43
- --------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .44 .57 .52 .74 .69 .63
Capital Gain Distributions Received -- -- -- .04 .14 .20
Net Realized and Unrealized Gain (Loss) on Investments .76 (.67) (.09) .23 (.47) .78
- --------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.20 (.10) .43 1.01 .36 1.61
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.45) (.59) (.45) (.74) (.69) (.63)
Distributions from Realized Capital Gains -- -- (.02) (.08) (.07) (.19)
- --------------------------------------------------------------------------------------------------------
Total Distributions (.45) (.59) (.47) (.82) (.76) (.82)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.03 $12.28 $12.97 $13.01 $12.82 $13.22
========================================================================================================
TOTAL RETURN 9.95% -0.79% 3.42% 8.06% 2.82% 13.17%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,305 $1,001 $790 $632 $555 $449
Ratio of Expenses to Average Net Assets--Note B 0%** 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 3.53% 4.64% 4.87%+ 5.84% 5.37% 5.24%
Portfolio Turnover Rate 4% 10% 4% 17% 11% 3%
========================================================================================================
*The fund's fiscal year-end changed from December 31 to October 31, effective
October 31, 2001.
**The average weighted expense ratio of the underlying funds was 0.27%.
+Annualized.
28
- --------------------------------------------------------------------------------------------------------
LIFESTRATEGY CONSERVATIVE GROWTH FUND
YEAR ENDED YEAR ENDED
OCTOBER 31, JAN. 1 TO DECEMBER 31,
----------- OCT. 31, -----------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001* 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.81 $13.88 $14.71 $15.10 $14.71 $13.40
- --------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .39 .51 .45 .70 .64 .58
Capital Gain Distributions Received -- -- -- .06 .18 .20
Net Realized and Unrealized Gain (Loss) on Investments 1.37 (1.06) (.84) (.29) .31 1.32
- --------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.76 (.55) (.39) .47 1.13 2.10
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.40) (.52) (.40) (.70) (.63) (.59)
Distributions from Realized Capital Gains -- -- (.04) (.16) (.11) (.20)
- --------------------------------------------------------------------------------------------------------
Total Distributions (.40) (.52) (.44) (.86) (.74) (.79)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.17 $12.81 $13.88 $14.71 $15.10 $14.71
========================================================================================================
TOTAL RETURN 13.99% -4.11% -2.61% 3.12% 7.86% 15.88%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period $2,795 $2,133 $1,954 $1,897 $1,748 $1,416
Ratio of Expenses to Average Net Assets 0% 0% 0% 0% 0% 0%
Ratio of Net Investment Income to Average Net Assets 2.92% 3.79% 3.78%+ 4.73% 4.34% 4.32%
Portfolio Turnover Rate 5% 12% 14% 9% 5% 3%
========================================================================================================
*The fund's fiscal year-end changed from December 31 to October 31, effective
October 31, 2001.
**The average weighted expense ratio of the underlying funds was 0.28%.
+Annualized.
29
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------------------------------
LIFESTRATEGY MODERATE GROWTH FUND
YEAR ENDED YEAR ENDED
OCTOBER 31, JAN. 1 TO DECEMBER 31,
----------- OCT. 31, -----------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001* 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $13.96 $15.52 $17.25 $18.18 $16.86 $14.81
- --------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .345 .45 .35 .64 .55 .510
Capital Gain Distributions Received -- .01 -- .08 .24 .241
Net Realized and Unrealized Gain (Loss)
on Investments 2.130 (1.55) (1.80) (.87) 1.21 2.054
- --------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.475 (1.09) (1.45) (.15) 2.00 2.805
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.375) (.47) (.22) (.64) (.55) (.510)
Distributions from Realized Capital Gains -- -- (.06) (.14) (.13) (.245)
- --------------------------------------------------------------------------------------------------------
Total Distributions (.375) (.47) (.28) (.78) (.68) (.755)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.06 $13.96 $15.52 $17.25 $18.18 $16.86
========================================================================================================
TOTAL RETURN 18.06% -7.30% -8.48% -0.88% 12.01% 19.03%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $5,246 $3,897 $4,077 $3,911 $3,441 $2,202
Ratio Of Expenses to Average Net Assets - Note B 0%** 0% 0% 0% 0% 0%
Ratio of Net Investments Income to Average Net Assets 2.39% 2.98% 2.69%+ 3.59% 3.47% 3.43%
Portfolio Turnover Rate 5% 15% 16% 12% 3% 5%
========================================================================================================
*The fund's fiscal year-end changed from December 31 to October 31, effective
October 31, 2001.
**The average weighted expense ratio of the underlying funds was 0.28%.
+Annualized.
30
- --------------------------------------------------------------------------------------------------------
LIFESTRATEGY GROWTH FUND
YEAR ENDED YEAR ENDED
OCTOBER 31, JAN. 1 TO DECEMBER 31,
----------- OCT. 31, -----------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001* 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.45 $16.56 $19.59 $21.41 $18.79 $16.04
- --------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .28 .34 .23 .51 .45 .410
Capital Gain Distributions Received -- -- -- .10 .29 .264
Net Realized and Unrealized Gain (Loss) on Investments 2.87 (2.10) (3.04) (1.75) 2.49 2.751
- --------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.15 (1.76) (2.81) (1.14) 3.23 3.425
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.28) (.35) (.16) (.51) (.45) (.410)
Distributions from Realized Capital Gains -- -- (.06) (.17) (.16) (.265)
- --------------------------------------------------------------------------------------------------------
Total Distributions (.28) (.35) (.22) (.68) (.61) (.675)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $17.32 $14.45 $16.56 $19.59 $21.41 $18.79
========================================================================================================
TOTAL RETURN 22.12% -10.91% -14.43% -5.44% 17.32% 21.40%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $4,422 $3,209 $3,512 $3,378 $3,177 $1,924
Ratio of Expenses to Average Net Assets - Note B 0%** 0% 0% 0% 0% 0%
Ratio of Net Investment Income to Average Net Assets 1.79% 2.12% 1.53%+ 2.49% 2.50% 2.53%
Portfolio Turnover Rate 2% 7% 7% 6% 1% 2%
========================================================================================================
*The fund's fiscal year-end changed from December 31 to October 31, effective
October 31, 2001.
**The average weighted expense ratio of the underlying funds was 0.28%.
+Annualized.
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
31
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 U.S. 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. 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.
3. 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.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
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 year ended October 31, 2003, were reimbursed by Vanguard.
The funds' trustees and officers are also directors and officers of Vanguard and
the funds in which the funds invest.
32
C. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
At October 31, 2003, the funds had the following tax-basis amounts
available for distribution, and capital losses available to offset future net
capital gains:
- --------------------------------------------------------------------------------
AMOUNT AVAILABLE
FOR DISTRIBUTION CAPITAL LOSSES
------------------------ -----------------------------
ORDINARY LONG-TERM EXPIRATION: FISCAL
INCOME CAPITAL GAIN AMOUNT YEARS ENDING
LIFESTRATEGY FUND (000) (000) (000) October 31,
- --------------------------------------------------------------------------------
Income $ 4,028 -- $ 2,909 2009-2011
Conservative Growth 6,384 -- 13,433 2009-2011
Moderate Growth 26,152 -- 25,612 2009-2011
Growth 12,900 -- 29,439 2009-2011
- --------------------------------------------------------------------------------
At October 31, 2003, net unrealized appreciation of investment securities for
tax purposes was:
- --------------------------------------------------------------------------------
(000)
------------------------------------------
NET UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION
LIFESTRATEGY FUND SECURITIES SECURITIES (DEPRECIATION)
- --------------------------------------------------------------------------------
Income $ 42,564 $ -- $ 42,564
Conservative Growth 149,014 -- 149,014
Moderate Growth 230,501 (15,616) 214,885
Growth 131,800 (32,590) 99,210
- --------------------------------------------------------------------------------
D. During the year ended October 31, 2003, purchases and sales of investment
securities other than temporary cash investments were:
- --------------------------------------------------------------------------------
(000)
---------------------------
LIFESTRATEGY FUND PURCHASES SALES
- --------------------------------------------------------------------------------
Income $285,518 $ 49,762
Conservative Growth 528,906 121,909
Moderate Growth 908,879 203,763
Growth 580,275 69,931
- --------------------------------------------------------------------------------
33
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of Vanguard LifeStrategy Funds:
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard LifeStrategy Income Fund, Vanguard LifeStrategy Conservative Growth
Fund, Vanguard LifeStrategy Moderate Growth Fund and Vanguard LifeStrategy
Growth Fund (four portfolios comprising the Vanguard LifeStrategy Funds,
hereafter referred to as the "Funds") at October 31, 2003, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2003 by correspondence with the custodian, provide
a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania December 8, 2003
- --------------------------------------------------------------------------------
SPECIAL 2003 TAX INFORMATION
(UNAUDITED) FOR VANGUARD LIFESTRATEGY FUNDS
This information for the fiscal year ended October 31, 2003, is included
pursuant to provisions of the Internal Revenue Code.
For corporate shareholders, the percentage of investment income (dividend income
plus short-term gains, if any) that qualifies for the dividends-received
deduction is as follows:
-------------------------------------------------------
LIFESTRATEGY FUND PERCENTAGE
-------------------------------------------------------
Income 7.5%
Conservative Growth 16.4
Moderate Growth 29.1
Growth 50.9
-------------------------------------------------------
The funds intend to distribute the maximum amount of qualified dividend income
allowable. The amount of qualified dividend income distributed by the fund will
be provided to individual shareholders on their 2003 Form 1099-DIV.
34
INVESTING IS
FAST, EASY, AND SECURE ON VANGUARD.COM
If you're like many Vanguard investors, you believe in planning and taking
control of your own investments. VANGUARD.COM(R) was built for you--and it keeps
getting better.
RESEARCH AND PLAN YOUR INVESTMENTS WITH CONFIDENCE
Use our PLANNING & ADVICE and RESEARCH FUNDS & STOCKS sections to:
* Determine what asset allocation might best suit your needs--by taking our
Investor Questionnaire.
* Find out how much to save for retirement and your children's college
education-- by using our planning tools.
* Learn how to achieve your goals--by reading our PlainTalk(R) investment
guides.
* Find your next fund--by using the COMPARE FUNDS, COMPARE COSTS, and NARROW
YOUR FUND CHOICES tools.
* Look up fund price, performance history, and distribution information--in a
snap.
INVEST AND MANAGE ACCOUNTS WITH EASE
Log on to Vanguard.com to:
* See what you own (at Vanguard and elsewhere) and how your investments are
doing.
* Elect to receive online statements, fund reports (like this one),
prospectuses, and tax forms.
* Analyze your portfolio's holdings and performance.
* Open new accounts, buy and sell shares, and exchange money between
funds--securely and easily.
* Sign up to receive electronic newsletters from Vanguard informing you of
news on our funds, products, and services, as well as on investing and the
financial markets.
Find out what Vanguard.com can do for you. Log on today!
35
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 a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services
to them on an at-cost basis.
A majority of Vanguard's 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.
Our independent board members 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
- ------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee
(1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(112)
- ------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (112) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (112) Chairman (JanuarySeptember 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
- ------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (112) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
- ------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (110) Director of Vanguard Investment Series plc (Irish invest-ment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------
J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (112) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (112) investment companies served by The Vanguard Group.
July 1998
- ------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------
[SHIP]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600
Vanguard, The Vanguard Group, Vanguard.com, Admiral, and the ship logo are
trademarks of The Vanguard Group, Inc.
All other marks are the exclusive property of their respective owners.
ABOUT OUR COVER
The photographs that appear on the cover of this report are copyrighted by
Michael Kahn.
FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
To receive a free copy of the prospectus or the Statement of Additional
Information, or to request additional information about the fund or other
Vanguard funds, please contact us at one of the adjacent telephone numbers or by
e-mail through Vanguard.com(R). Prospectuses may also be viewed online.
You can obtain a free copy of Vanguard's proxy voting guidelines by visiting our
website, www.vanguard.com, and searching for "proxy voting guidelines," or by
calling 1-800-662-2739. The guidelines are also available from the SEC's
website, www.sec.gov.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
DIRECT INVESTOR ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
TEXT TELEPHONE
1-800-952-3335
(C) 2003 THE VANGUARD GROUP, INC.
ALL RIGHTS RESERVED.
VANGUARD MARKETING
CORPORATION, DISTRIBUTOR.
Q880 122003
ITEM 2: Code of Ethics. The Board of Trustees has adopted a code of ethics that
applies to the principal executive officer, principal financial officer,
principal accounting officer or controller of the Registrant and The Vanguard
Group, Inc., and to persons performing similar functions.
ITEM 3: Audit Committee Financial Expert. All of the members of the Audit
Committee have been determined by the Registrant's Board of Trustees to be Audit
Committee Financial Experts. The members of the Audit Committee are: Charles D.
Ellis, Rajiv L. Gupta, JoAnn Heffernan Heisen, Burton G. Malkiel, Alfred M.
Rankin, Jr., and J. Lawrence Wilson. All Audit Committee members are independent
under applicable rules.
ITEM 4: Not applicable.
ITEM 5: Not applicable.
ITEM 6: Reserved.
ITEM 7: Not applicable.
ITEM 8: Reserved.
ITEM 9: CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. The Principal Executive and
Financial Officers concluded that the Registrant's Disclosure Controls and
Procedures are effective based on their evaluation of the Disclosure Controls
and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant
changes in Registrant's internal control over financial reporting or in other
factors that could significantly affect this control subsequent to the date of
the evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 10: EXHIBITS. The following exhibits are attached hereto:
(a) code of ethics
(b) certifications
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD STAR FUNDS
BY:_____________(signature)________________
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: December 12, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
VANGUARD STAR FUNDS
BY:_____________(signature)________________
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: December 12, 2003
VANGUARD STAR FUNDS
BY:_____________(signature)________________
(HEIDI STAM)
THOMAS J. HIGGINS*
TREASURER
Date: December 12, 2003
*By Power of Attorney. See File Number 2-57689, filed on December 26, 2002.
Incorporated by Reference.