<PAGE> 1
VANGUARD
PRIMECAP FUND
ANNUAL REPORT 1993
[PHOTO]
<PAGE> 2
A BRAVE NEW WORLD FOR INVESTING
With the clarity of hindsight, we can now see that the past two decades
composed one of the great cycles in the history of the financial markets, as
reflected in the chart below.
* During the 1973-1982 decade, the nominal total returns (capital change
plus income) of stocks and bonds averaged only about +6% per year; cash
reserves averaged more than +8% annually. However, high inflation rates,
averaging 8.7% annually, devastated these nominal results. Real returns
(nominal returns less the inflation rate) for each of these three major
asset classes were actually negative.
* During the 1983-1992 decade, quite the opposite situation prevailed.
Nominal returns for stocks and bonds were close to their highest levels
in history and forged well into double-digit territory. To make a good
investment environment even better, inflation was tame (averaging 3.8%
annually), and real returns were solidly positive.
[A TALE OF TWO DECADES CHART -- SEE EDGAR APPENDIX]
This sharp contrast provides us with perspective for the decade that will end
in the year 2002. Some investors will fear a recurrence of the returns of the
first decade, while others will hope for a recurrence of the second; most will
likely anticipate something in between. Whatever the case, there are two
essential elements involved in considering your investment program in the light
of today's circumstances.
First, the yield of each investment class at the start of a decade has
had an important relationship to its future return. Yields were low when 1973
began, high when 1983 began, and are again low today. In fact, current income
yields are remarkably close to the levels of 20 years ago, as shown in the
following table.
<TABLE>
<CAPTION>
INCOME YIELDS (January 1)
-----------------------------------------------------
1973 1983 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS 2.7% 4.9% 2.7%
BONDS 5.8 10.7 6.0
RESERVES 3.8 10.5 3.1
- -------------------------------------------------------------------------------------
</TABLE>
But there is a second important element to consider: inflation. It got
progressively worse during most of the first decade, but got progressively
better in the second.
<TABLE>
<CAPTION>
-----------------------------------------------------
1973 1981 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFLATION 3.4% 12.4% 2.7%
- -------------------------------------------------------------------------------------
</TABLE>
Today's low yield levels suggest that more modest nominal returns are in
prospect for the coming decade than in the 1980s; indeed, returns could
gravitate
(Please turn to inside back cover)
VANGUARD/PRIMECAP FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL BY
INVESTING IN COMMON STOCKS SELECTED ON THE BASIS OF GREATER-THAN-AVERAGE
EARNINGS GROWTH POTENTIAL, CONSISTENCY OF EARNINGS GROWTH, AND QUALITY OF
MANAGEMENT.
<PAGE> 3
CHAIRMAN'S LETTER
[PHOTO]
FELLOW SHAREHOLDER:
Vanguard/PRIMECAP Fund earned a total return of +18.0% during 1993, our ninth
full year of operations. This performance was excellent in an absolute sense.
Achieved as it was in a year in which stock returns were good, but not nearly
as good as the Fund's, our return was excellent in a relative sense as well.
The following table presents our customary comparison of the total
returns (capital change plus income) of PRIMECAP Fund and the two benchmarks
that we have chosen as our tracking standards: the unmanaged Standard & Poor's
500 Composite Stock Price Index and the average growth mutual fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------
Total Return
-----------------
Year Ended
December 31, 1993
- --------------------------------------------------------
<S> <C>
VANGUARD/PRIMECAP FUND +18.0%
- ---------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX +10.1%
AVERAGE GROWTH MUTUAL FUND +10.6
- ---------------------------------------------------------
</TABLE>
The Fund's total return is based on net asset values of $16.19 per share on
December 31, 1992, and $18.42 on December 31, 1993, with the latter figure
adjusted to take into account the reinvestment of our annual dividend of $.07
per share from net investment income, and two distributions totaling $.59 per
share from net capital gains realized largely during 1993.
THE STOCK MARKET IN 1993
On an historical basis, 1993 was a pretty good year for stocks. Indeed, the
+10.1% total return of the Standard & Poor's 500 Index was virtually identical
to its long-term (since 1926) average annual total return of +10.3%.
During the year, the market's returns accumulated gradually and with
relative consistency, inch-by-inch, step-by-step, month-by-month. There were
neither explosive rises nor plummeting declines. It is probably fair to say
that such a steady course is the exception rather than the rule in market
history. It remains a virtual certainty that most years will witness the kind
of spasmodic market action--and hence the higher volatility and risk--that has
been typical of the stock market in the past.
The precipitating factor in the market's advance almost certainly was the
decline in long-term interest rates. The yield on the long-term U.S. Treasury
bond, which opened the year at 7.4%, fell to 6.4% by year-end, engendering a
price gain of about +14%. This sharp rate decline seemed to be driven largely
by two factors: (1) a stubbornly weak economic recovery that encouraged the
Federal Reserve to make ample credit available; and (2) continuing evidence
that inflation remained under control. The U.S. Consumer Price Index (CPI)
increased 2.7% during 1993, down from 2.9% during 1992. As a result, despite
the decline in interest rates, "real" yields (nominal yields less the inflation
rate) on long- term bonds remain at healthy levels.
(continued)
1
<PAGE> 4
[CUMULATIVE PERFORMANCE 1989-1993 GRAPH -- SEE EDGAR APPENDIX]
Since one factor that investors consider in setting their asset
allocations is the relative yield of stocks versus bonds, falling bond yields
provided impetus to stock prices. During 1993, the dividend yield on stocks (as
measured by the Standard & Poor's 500 Index) declined from 2.8% to 2.7%,
enough, in and of itself, to add some +5% to the price of the stocks in the
Index. This upward revaluation, when added to a dividend yield that is
extremely low by historical standards, accounted for the lion's share of the
+10.1% total return achieved by the Standard & Poor's 500 Index.
What was most interesting about 1993 was the striking bias that the stock
market exhibited toward "value" stocks--usually defined as those with
above-average dividend yields and below-average price-earnings ratios--over
large "growth" stocks--those that provide lower yields but presumably richer
prospects for sustainable earnings growth. (The Standard & Poor's 500 Index is
divided so that one-half of its total market capitalization is included in each
category.) The disparity between the two groups' returns during 1993 was little
short of astonishing: value stocks provided a return of +18.6%, while growth
stocks provided a return of but +1.7%.
I should note that, based on the historical record, such dichotomies are
unlikely to persist. As shown in the chart to the left--which contrasts the
returns of the Standard & Poor's/BARRA Growth Index and Value Index over the
past five years--growth stocks were favored during the first three years, only
to lag value stocks during the final two years. You can see that, despite the
leadership of the Value Index in 1992 and 1993, the Growth Index (+102.0%)
remains ahead of its Value counterpart (+88.7%) for the full period.
PRIMECAP FUND IN 1993
Achieving a total return almost double that of the Standard & Poor's 500 Index
is a noteworthy accomplishment. Even more satisfying was our remarkable
advantage over the Standard & Poor's Growth Index, which returned just +1.7% in
1993.
Given the magnitude of our outperformance relative to the Standard &
Poor's 500 Index, we thought you might be interested in the "behind the scenes"
reasons for PRIMECAP's success. Three factors predominated:
* We maintained heavy relative weightings in technology stocks (49% of
equities versus 9% for the Index) and transportation and services stocks
(24% versus 2%). Not only were both of these groups outstanding
performers during the year, but the particular stocks selected by our
investment adviser provided even better returns.
* We held a below-average representation in consumer staples stocks (9% of
equities versus 21% for the Index), which provided many of the year's
greatest disappointments as the prices of drug stocks and many "name
brand" stocks fell sharply.
* We held a substantial commitment in the stocks of companies with small
and medium-sized market capitalizations. For the third straight year,
smaller stocks outpaced their larger capitalization cousins, as evidenced
by the +18.9% return for the unmanaged Russell 2000 Index- -a good proxy
for the small cap market.
2
<PAGE> 5
Our other customary performance standard is, of course, the average
growth mutual fund. Here we were almost equally as successful as we were
against the Standard & Poor's 500 Index, with our average competitor providing
a total return of +10.6%. Typically, these competitors maintained a smaller
weighting in the technology stocks and the transportation and services stocks.
The competitive funds also had less of a small cap bias than our Fund. Indeed,
the growth fund competitors as a group maintained portfolios with an average
market capitalization nearly twice as high as the Fund's portfolio ($5.1
billion for the competitors versus $2.9 billion for the Fund).
In all, the year's record is quite a tribute to our investment adviser,
PRIMECAP Management Company. Further details on the Fund's investment results
may be found in the customary investment adviser's report on pages 6 and 7.
A LIFETIME PERSPECTIVE
The chart below presents PRIMECAP's record since its inception on November 1,
1984, compared to three relevant standards: the average growth mutual fund, the
Standard & Poor's 500 Index, and the Standard & Poor's Growth Index. This table
summarizes the results:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Total Return
------------------------
November 1, 1984, to
December 31, 1993
------------------------
Cumulative Annual Rate
- ---------------------------------------------------------
<S> <C> <C>
VANGUARD/PRIMECAP FUND +299% +16.3%
- ---------------------------------------------------------
AVERAGE GROWTH FUND +218% +13.6%
- ---------------------------------------------------------
STANDARD & POOR'S 500 INDEX +279% +15.6%
- ---------------------------------------------------------
STANDARD & POOR'S GROWTH INDEX +271% +15.4%
- ---------------------------------------------------------
</TABLE>
You will note that, during this period, the Fund achieved an annual rate of
return of +16.3%, nearly three percentage points more than our peer group. Our
advantage over the Standard & Poor's 500 Index and the narrowly focused Growth
Index was more modest--in each case, an annual premium of less than one
percentage point. These market indexes, of course, exist only in a "paper
world," and need not bear the "real world" frictional costs of
[CUMULATIVE PERFORMANCE NOVEMBER 1, 1984, TO DECEMBER 31, 1993 -- SEE EDGAR
APPENDIX]
3
<PAGE> 6
investing--largely operating expenses and portfolio transaction costs--that
must be incurred by all mutual funds, including PRIMECAP. So, our margin over
both of these tough competitive standards is especially satisfying.
Of course, the total returns provided by the stock market during this
period were well above long-term norms. (As noted at the outset, since 1926 the
average annual return of the Standard & Poor's 500 Index was just +10.3%.)
Future results for the Fund, the average growth mutual fund, and the two
unmanaged Indexes are unpredictable, but it certainly would be unwise to take
for granted annual returns in the +15% to +16% range.
I should note that the comparisons give the average growth mutual fund
the benefit of a very large doubt. The performance figures compare fund net
asset values plus any dividends and capital gains, and therefore completely
ignore the sales "loads" charged by many growth mutual funds on purchases or
redemptions. Investors incur these loads in the ownership of some 189 of the
488 growth funds in existence. On average, these sales charges would currently
reduce the returns of such funds by about 4.5% for the one-year investor. For
the investor who purchased one of these load funds ten years ago--when sales
charges approximated 8%--the reduction would have been about 1% annually.
You may recall from last year's Annual Report my comment that "our
ability to 'close the gap' on the Growth Index, then, will depend importantly
on whether or not small stocks are able to sustain their recent performance
superiority over large stocks." As you know, small stocks did continue their
strong performance during 1993, and the Fund has moved from an average annual
shortfall of -1.1% relative to the Growth Index to an average annual advantage
of +0.9%. This dramatic shift in relative performance, in the space of but one
year, serves as a clear illustration of the short-term swings in investor
sentiment that occur among different segments of the overall stock market. It
is a useful reminder that it is only the long-term that truly matters.
In the light of these market vagaries, you should keep in mind that the
allocation of PRIMECAP's portfolio is quite different from the composition of
the Standard & Poor's 500 Index, with about two-thirds of our equity assets
represented by just two market sectors (technology, and transportation and
services). We also maintain a fairly consistent bias toward small
capitalization stocks, which sometimes favors the Fund relative to our
benchmarks, as it did from 1991 through 1993, and sometimes hampers our
relative performance, as it did from 1987 through 1990. For investors willing
to accept these risks--and hence some variability in our relative annual
returns--PRIMECAP aims to provide long-term returns that will surpass those of
the two unmanaged Indexes and the average growth mutual fund.
LOOKING AHEAD
The 1993 rise in the stock market is its eleventh in the past twelve years. The
equity markets have come a long way since the end of 1981. Stock yields are
near all-time historical lows, and interest rates are at their lowest levels in
two decades. So, it would be imprudent not to offer a word of caution about the
stock market, which is surely due for its share of difficult bumps along the
way during the next few years.
What should an investor do in this environment? If you have a long-term
investment horizon, and are willing to accept with equanimity the inevitable
peaks and valleys of the stock market, equities should remain a major component
of your portfolio. Funds emphasizing growth stocks-- typically a bit more
volatile than the market as a whole--may serve well as a major component of
your equity holdings. However, an appropriate position should be maintained
among bond funds and short-term reserves, and additions to your equity
investments should probably be made gradually over time, rather than "at one
fell swoop."
4
<PAGE> 7
Whatever course you choose, we would recommend that you focus not on
annual fluctuations in absolute and relative performance, but on the long term.
Timing the markets is an inevitably fallible endeavor; therefore we believe
that, provided your overall account is soundly balanced, "stay the course" is
virtually always the best advice.
Sincerely,
/S/JOHN C. BOGLE
John C. Bogle
Chairman of the Board
January 18, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE FUND
(PERIODS ENDED DECEMBER 31, 1993) ARE AS FOLLOWS:
1 Year: +18.03% 5 Years: +15.15% Since Inception (11/1/84): +16.30%
THE FUND'S AVERAGE ANNUAL TOTAL RETURN SINCE INCEPTION INCLUDES A CAPITAL
RETURN OF +15.33% AND AN INCOME RETURN OF +0.97%. ALL OF THE DATA REPRESENT
PAST PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
5
<PAGE> 8
REPORT FROM THE INVESTMENT ADVISER
During 1993, PRIMECAP Fund's total return of +18.0% exceeded the +10.1% return
of the unmanaged Standard & Poor's 500 Index, marking the fourth consecutive
year that the Fund has outperformed this tough standard. Our heavy
concentration in technology and transportation and services stocks and our
underweighting in consumer staples stocks were the primary contributors to
1993's results.
The robust fundamentals reported by many of the technology companies that
we own have validated our thesis that technology stocks are growth stocks. As
corporations increasingly automate their business practices and consumers
embrace the latest electronic appliances, the proliferation of technology
throughout the global economy is evident. The percentage of capital
expenditures devoted to technology continues to increase. In particular,
components are capturing a growing share of all electronics products. These
trends motivated our five-fold overweighting in technology stocks (49% of net
assets for the Fund versus 9% for the Index).
The Fund's technology stocks appreciated +33.8% in 1993, and were
concentrated in three areas: semiconductors, telecommunications, and computers.
Semiconductor demand was propelled by explosive growth in personal computers.
These new personal computers require more powerful microprocessors and consume
considerably more memory. Consequently, our substantial holdings in stocks such
as Intel, Texas Instruments, LSI Logic, and Linear Technology provided
excellent returns.
Our emphasis on telecommunications stocks such as Motorola, Ericsson,
Tellabs, Vodafone, and Octel proved similarly rewarding in 1993. These
companies are benefiting from two global imperatives: (1) the move toward
wireless communications and (2) increased demand for network infrastructure to
create the "global information superhighway."
Unfortunately, our investments in computer companies fared poorly, and
slightly offset an otherwise bright story for our technology selections.
Although Hewlett-Packard outperformed the Standard & Poor's Index, Digital
Equipment, Tandem, and Stratus all underperformed. These companies continue to
struggle as they adjust to the realities of a dramatically changed computer
industry. We are encouraged, however, by some evidence of price stabilization.
We believe that the substantial restructuring and cost reduction activities
pursued by these companies will ultimately pay off as product pricing firms.
In addition to technology stocks, PRIMECAP made a significant commitment
to transportation and services stocks (24% versus 2% for the Index). Led by
Southwest Airlines, Airborne Freight, American President, and Federal Express,
our collection of transportation and services stocks returned +28.6% in 1993.
Despite the continuing turmoil in the airline industry created by the onslaught
of low-cost "no frills" carriers, as well as the reemergence of carriers from
bankruptcy, we remain convinced that companies such as AMR Corporation and
Delta Airlines will provide attractive long-term returns. Capacity is coming
out of the system, cost structures are being reduced, and there are signs of
improving yields.
PRIMECAP consciously underweighted consumer staples and financial stocks
during 1993. Our 9% weighting in consumer staples versus 21% for the Index
added appreciably to our performance, as this sector returned -5.8% for the
year. The pricing power commanded by the food and beverage and tobacco
companies in the 1980s has evaporated in the 1990s. We believe these companies
have damaged their franchises and invited competition by consistently raising
prices in excess of inflation.
The one area of consumer staples in which the Fund has exposure is drugs.
We had decreased our commitment to this area in light of the emergence of large
purchasing groups that have demanded price concessions from drug manufacturers,
as well as the probable fallout from any health-care plan introduced by the
Administration. However, we continue to believe
6
<PAGE> 9
that some representation in this area is warranted given the omnipresent
opportunities for new blockbuster drugs that can eliminate surgical procedures
and shorten hospital stays. Additionally, any health-care plan endorsed by the
Administration is likely to include universal coverage which will spark unit
growth of pharmaceuticals.
The Fund invested only 6% of its assets in financial stocks versus a S&P
500 weighting of 11%. We believe that interest rates have seen their lows, and
the spreads earned by financial intermediaries have peaked. Consequently, it is
unlikely that the Fund will be increasing its exposure in this area.
In retrospect, it seems clear that the change in market leadership that
we had been anticipating actually occurred early in 1992, enabling the Fund to
outperform the broad market and those funds that have remained committed to the
consumer sector. The dramatic outperformance of some groups certainly exposes
us to the possibility of a period of consolidation. However, we remain
convinced that we are merely at the inception of a long-term trend that will
benefit the Fund for some years to come.
Signs are present that the economies around the world are on the mend and
that inflation and interest rates will remain low. NAFTA and GATT foreshadow a
global marketplace that will tear down the barriers to free trade. We believe
that many of the companies owned in the Fund are world class, and can only
benefit from these trends. These companies have demonstrated improving
fundamentals despite a lackluster economic environment. We believe a stronger
economy will only accelerate their progress.
Respectfully,
Howard B. Schow
Portfolio Manager
Theo A. Kolokotrones
Assistant Portfolio Manager
PRIMECAP Management Company
January 13, 1994
7
<PAGE> 10
TOTAL INVESTMENT RETURN
The table below illustrates the returns for VANGUARD/PRIMECAP FUND from
November 1, 1984, to December 31, 1993, the lifetime of the Fund. During this
period, stock prices fluctuated and were higher at the end than at the
beginning. These results should not be considered as a representation of the
dividend income or capital gain or loss which may be realized from an
investment made in the Fund today.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT
PERIOD PER SHARE DATA* YEAR-END VALUE RETURN
- ------------------------------------------------------------------------------------------------------------------
Annual Percentage Change**
Value with Income Vanguard/ --------------------------
Year Ended Net Asset Income Capital Gains Dividends & Capital PRIMECAP S&P 500 Vanguard/ S&P 500
December 31 Value Dividends Distributions Gains Reinvested Fund Index PRIMECAP Fund Index
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL (11/84) $ 6.25 -- -- $ 6.25 $10,000 $10,000 -- --
- -----------------------------------------------------------------------------------------------------------------
1984 6.56 -- -- 6.56 10,488 10,061 + 4.9% + 0.6%
- ------------------------------------------------------------------------------------------------------------------
1985 8.89 $.01 -- 8.90 14,239 13,244 +35.8 +31.6
- -----------------------------------------------------------------------------------------------------------------
1986 10.64 .14 $ .18 10.99 17,591 15,710 +23.5 +18.6
- -----------------------------------------------------------------------------------------------------------------
1987 10.06 .10 .23 10.74 17,188 16,524 - 2.3 + 5.2
- -----------------------------------------------------------------------------------------------------------------
1988 11.18 .09 .25 12.32 19,707 19,251 +14.7 +16.5
- -----------------------------------------------------------------------------------------------------------------
1989 12.82 .16 .61 14.98 23,966 25,332 +21.6 +31.6
- -----------------------------------------------------------------------------------------------------------------
1990 12.21 .13 .12 14.56 23,297 24,542 - 2.8 - 3.1
- -----------------------------------------------------------------------------------------------------------------
1991 15.36 .15 .68 19.39 31,018 31,988 +33.1 +30.4
- -----------------------------------------------------------------------------------------------------------------
1992 16.19 .12 .41 21.13 33,808 34,436 + 9.0 + 7.6
- -----------------------------------------------------------------------------------------------------------------
1993 18.42 .07 .59 24.94 39,902 37,901 +18.0 +10.1
- -----------------------------------------------------------------------------------------------------------------
LIFETIME $.97 $3.07 +299.0% +279.0% +16.3% +15.6%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* All per share data have been adjusted for the 4-for-1 stock split in
February 1990.
** Adjusted to include reinvestment of income dividends and any capital gains
distributions both for the Fund and the Index. No adjustment has been made
for income taxes payable by shareholders on reinvested income dividends
and capital gains distributions.
8
<PAGE> 11
STATEMENT OF NET ASSETS FINANCIAL STATEMENTS
December 31, 1993
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.7%)
- -------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS (4.1%)
Associated Natural Gas Corp. 300,000 $ 9,487
Donaldson Co., Inc. 270,000 11,948
(1) MacDermid, Inc. 189,000 4,867
Quaker Chemical Corp. 140,000 2,240
Stepan Co. 150,000 4,219
----------
GROUP TOTAL 32,761
- ---------------------------------------------------------------------------------------------------------==========
COMPUTER & COMPUTER RELATED (10.2%)
Adobe Systems, Inc. 1,000,000 22,000
* Digital Equipment Corp. 313,000 10,720
*(1)Evans & Sutherland Computer Corp. 420,000 7,665
Hewlett-Packard Co. 64,000 5,056
* Stratus Computer, Inc. 285,000 8,942
* Symbol Technologies, Inc. 880,000 15,950
* Tandem Computers, Inc. 941,000 10,233
----------
GROUP TOTAL 80,566
- ---------------------------------------------------------------------------------------------------------==========
CONSUMER GOODS (3.1%)
Arvin Industries, Inc. 300,000 9,600
Polaroid Corp. 440,000 14,850
----------
GROUP TOTAL 24,450
- ---------------------------------------------------------------------------------------------------------==========
DRUGS (2.7%)
Block Drug Co. Class A 142,054 5,256
Johnson & Johnson 100,000 4,475
Eli Lilly & Co. 120,500 7,155
Upjohn Co. 163,000 4,747
----------
GROUP TOTAL 21,633
- ---------------------------------------------------------------------------------------------------------==========
ELECTRONIC COMPONENTS & INSTRUMENTS (16.4%)
AMP, Inc. 170,000 10,731
* Burr-Brown Corp. 240,000 1,560
* Dionex Corp. 255,000 7,969
Intel Corp. 572,000 35,464
* LSI Logic Corp. 700,000 11,200
Linear Technology Inc. 480,000 18,600
Molex, Inc. 75,000 2,662
Molex, Inc. Class A 75,000 2,531
Sony Corp. ADR 104,000 5,187
Tektronix, Inc. 140,000 3,290
Texas Instruments, Inc. 280,000 17,780
Xerox Corp. 140,000 12,513
----------
GROUP TOTAL 129,487
- ---------------------------------------------------------------------------------------------------------==========
FINANCIAL (6.2%)
(1) Avemco Corp. 650,000 12,269
City National Corp. 621,485 4,661
General Re Corp. 163,000 17,441
Reuters Holdings PLC ADR 191,000 15,065
----------
GROUP TOTAL 49,436
- ---------------------------------------------------------------------------------------------------------==========
MEDICAL TECHNOLOGY (7.2%)
*(1)Coherent, Inc. 500,000 $ 6,375
* Cordis Corp. 180,000 8,865
Medtronic, Inc. 204,000 16,753
Perkin-Elmer Corp. 485,000 18,673
Puritan-Bennett Corp. 400,000 6,300
----------
GROUP TOTAL 56,966
- ---------------------------------------------------------------------------------------------------------==========
SERVICES (7.0%)
Granite Construction Co. 320,000 7,920
* Harcourt General, Inc. 500,000 18,125
* Manpower Inc. 940,000 16,568
(1) McClatchy Newspapers, Inc. 300,000 7,087
Schlumberger Ltd. 100,000 5,913
----------
GROUP TOTAL 55,613
- ---------------------------------------------------------------------------------------------------------==========
TELECOMMUNICATIONS (17.4%)
Capital Cities/ABC, Inc. 20,000 12,390
Comsat Corp. 260,000 7,735
L.M. Ericsson Telephone Co. ADR 620,000 24,878
L.M. Ericsson Telephone Co. Cvt. 4.25% 620,000 949
Motorola, Inc. 256,000 23,648
* Octel Communications Corp. 400,000 11,000
Telephone & Data Systems, Inc. 270,000 14,074
Tellabs, Inc. 570,000 26,648
Vodafone Group PLC ADR 180,000 16,065
----------
GROUP TOTAL 137,387
- ---------------------------------------------------------------------------------------------------------==========
TRANSPORTATION (17.0%)
Airborne Freight Corp. 220,000 7,727
* AMR Corp. 390,000 26,130
* Alaska Air Group, Inc. 250,000 3,531
American President Cos., Ltd. 174,000 9,962
Delta Air Lines, Inc. 329,500 17,999
* Federal Express Corp. 640,000 45,360
Southwest Airlines Co. 630,000 23,625
----------
GROUP TOTAL 134,334
- ---------------------------------------------------------------------------------------------------------==========
MISCELLANEOUS (4.4%) 34,419
- ---------------------------------------------------------------------------------------------------------==========
TOTAL COMMON STOCKS
(Cost $518,095) 757,052
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (7.1%)
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 3.26%, 1/3/94 (Cost $55,936) $55,936 $ 55,936
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.8%)
Cost ($574,031) 812,988
- -------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.8%)
- -------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 9,347
Liabilities (31,438)
---------
(22,091)
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------
Applicable to 42,930,066 outstanding $.001 par value shares
(authorized 100,000,000 shares) $790,897
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $18.42
===================================================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
(1) Considered an affiliated company as the Fund owns more than 5% of the
outstanding voting securities of the company.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1993, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------
Amount Per
(000) Share
----- -----
<S> <C> <C>
Paid in Capital $549,028 $12.78
Undistributed Net Investment Income 67 --
Accumulated Net Realized Gains 2,845 .07
Unrealized Appreciation of Investments 238,957 5.57
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $790,897 $18.42
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1993
(000)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . $ 6,487
Interest . . . . . . . . . . . . . . . . . . . . . 1,651
- ------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . 8,138
- ------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fee--Note B . . . . . . . . . 2,854
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . $1,758
Marketing and Distribution . . . . . . . . . . 165 1,923
---
Taxes (other than income taxes)--Note A . . . . . . 58
Custodian's Fees . . . . . . . . . . . . . . . . . 13
Auditing Fees . . . . . . . . . . . . . . . . . . . 9
Shareholders' Reports . . . . . . . . . . . . . . . 46
Annual Meeting and Proxy Costs . . . . . . . . . . 8
Directors' Fees and Expenses . . . . . . . . . . . 2
- ------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . 4,913
- ------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . 3,225
- ------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT
SECURITIES SOLD--Note D . . . . . . . . . . . . . . . 25,536
- ------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENT SECURITIES--Note D . . . 93,538
- ------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . $122,299
==========================================================================================
</TABLE>
11
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED Year Ended
DECEMBER 31, 1993 December 31, 1992
(000) (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . $ 3,225 $ 4,656
Realized Net Gain--Note D . . . . . . . . . . . . . . 25,536 13,731
Change in Unrealized Appreciation (Depreciation)--Note D 93,538 34,542
- ----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations . . . . . . . . . . . . . . 122,299 52,929
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . (3,028) (4,691)
Realized Net Gain . . . . . . . . . . . . . . . . . . (25,364) (15,894)
- ----------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (28,392) (20,585)
- ----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued -- Regular . . . . . . . . . . . . . . . 154,453 160,022
-- In Lieu of Cash Distributions . . . . 27,861 20,009
-- Exchange . . . . . . . . . . . . . . . 103,697 74,274
Redeemed -- Regular . . . . . . . . . . . . . . . (95,669) (56,784)
-- Exchange . . . . . . . . . . . . . . . (139,445) (69,795)
- ----------------------------------------------------------------------------------------------
Net Increase from Capital Share Transactions . 50,897 127,726
- ----------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . 144,804 160,070
- ----------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year . . . . . . . . . . . . . . . . . . 646,093 486,023
- ----------------------------------------------------------------------------------------------
End of Year (3) . . . . . . . . . . . . . . . . . . . $ 790,897 $ 646,093
==============================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . $ .07 $ .12
Realized Net Gain . . . . . . . . . . . . . . . . . $ .59 $ .41
- ----------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . 14,702 15,284
Issued in Lieu of Cash Distributions . . . . . . . . 1,571 1,277
Redeemed . . . . . . . . . . . . . . . . . . . . . . (13,251) (8,288)
- ----------------------------------------------------------------------------------------------
3,022 8,273
- ----------------------------------------------------------------------------------------------
(3) Undistributed (Overdistributed) Net Investment Income $ 67 $ (130)
- ----------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
For a Share Outstanding Throughout Each Year(1) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . $16.19 $15.36 $12.21 $12.82 $11.18
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . .07 .12 .15 .12 .17
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . 2.82 1.24 3.83 (.48) 2.24
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 2.89 1.36 3.98 (.36) 2.41
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . (.07) (.12) (.15) (.13) (.16)
Distributions from Realized Capital Gains . . . . (.59) (.41) (.68) (.12) (.61)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.66) (.53) (.83) (.25) (.77)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . $18.42 $16.19 $15.36 $12.21 $12.82
===================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . +18.03% +8.99% +33.14% -2.79% +21.61%
- -------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year (Millions) . . . . . . . . . . $791 $646 $486 $305 $279
Ratio of Expenses to Average Net Assets . . . . . . . . .67% .68% .68% .75% .74%
Ratio of Net Investment Income to Average Net Assets . .44% .84% 1.09% 1.06% 1.35%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . 16% 7% 24% 11% 15%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to reflect a 4-for-1 stock split as of February 23, 1990.
13
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Vanguard/PRIMECAP Fund is registered under the Investment Company Act of 1940
as a diversified open-end investment company.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of
financial statements.
1. SECURITY VALUATION: Securities listed on an exchange are valued at the
latest quoted sales prices as of 4:00 PM on the valuation date;
securities not traded are valued at the mean of the latest quoted bid
and asked prices. Securities not listed are valued at the latest quoted
bid prices. Temporary cash investments are valued at cost which
approximates market value.
2. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for Federal income taxes is required in the
financial statements.
3. REPURCHASE AGREEMENTS: The Fund, along with other members of The
Vanguard Group of Investment Companies, transfers uninvested cash
balances into a Pooled Cash Account, the daily aggregate of which is
invested in repurchase agreements secured by U.S. Government
obligations. Securities pledged as collateral for repurchase agreements
are held by the Fund's custodian bank until maturity of each repurchase
agreement. Provisions of the agreement ensure that the market value of
this collateral is sufficient in the event of default; however, in the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings.
4. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized
gains and losses on the sale of investment securities are those of
specific securities sold. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
B. Under the terms of a contract which expires April 30, 1995, the Fund pays
PRIMECAP Management Company an advisory fee calculated at an annual
percentage rate of average net assets. For the year ended December 31,
1993, the advisory fee represented an effective annual rate of .39% of
average net assets.
C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing and distribution services. The costs of such
services are allocated to the Fund under methods approved by the Board of
Directors. At December 31, 1993, the Fund had contributed capital of
$129,000 to Vanguard (included in Other Assets), representing .6% of
Vanguard's capitalization. The Fund's officers and directors are also
officers and directors of Vanguard.
D. During the year ended December 31, 1993, the Fund made purchases of
$130,081,000 and sales of $108,115,000 of investment securities other than
U.S. Government securities and temporary cash investments.
At December 31, 1993, unrealized appreciation for financial reporting and
Federal income tax purposes aggregated $238,957,000 of which $259,137,000
related to appreciated securities and $20,180,000 related to depreciated
securities.
14
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard/PRIMECAP Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Vanguard/PRIMECAP Fund (the "Fund") at December 31, 1993, the results of its
operations, the changes in its net assets and the financial highlights for each
of the respective periods presented, in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards
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 by correspondence with the custodian and brokers and
the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 31, 1994
SPECIAL 1993 TAX INFORMATION (UNAUDITED)
FOR VANGUARD/PRIMECAP FUND, INC.
Corporate shareholders should note that for the fiscal year ended December 31,
1993, 100% of the Fund's investment income (i.e., dividend income plus
short-term capital gains, if any) qualifies for the intercorporate dividends
received deduction.
15
<PAGE> 18
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc Rorer
Inc.; Director of Sun Company, Inc. and Immune Response Corporation; Trustee of
the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of Dayton
Hudson Corporation, American Express Bank Ltd., The St. Paul Companies, Inc.,
and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., and The Southern New England Telephone
Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Director of Rohm & Haas Company; Director of
Cummins Engine Company; Trustee of Vanderbilt University and the Culver
Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
16
<PAGE> 19
(Continued from inside front cover)
toward those of the 1970s. However, the current level of inflation suggests
that future real returns may prove to be satisfactory. Looking forward, the
main risks to the investor are two: (1) that yields on financial assets will
rise sharply, reducing the prices of stocks and bonds alike; and (2) that
inflation, presently at moderate levels, will accelerate.
SOME COURSES OF ACTION
What, if any, present action should be taken by investors to deal with these
two major risks? Should your allocation of assets among stock funds, bond
funds, and money market funds be adjusted? Here are some reasonable courses of
action to consider:
* For long-term investors who have built a substantial balanced portfolio of
stock, bond, and money market funds, stay the course. Even if withdrawing
from the stock market proves to be justified, the next decision--when to
return--will one day be required. "Being right twice" is no mean challenge.
* For long-term investors gradually accumulating assets for, say, retirement,
stay your present course. Continue to invest regularly. By doing so, you buy
more shares of a mutual fund when its price falls, and fewer shares when its
price rises, virtually assuring a reasonable average cost.
* For risk-averse investors who are highly confident that stock prices are
"too high," make only marginal--not "all or nothing"--changes in your
portfolio balance. Given the perils of predicting the future, any changes
should be limited to, say, 15 percentage points. That is, if your normal
portfolio allocation is 60% in stock funds, it might be reduced to 45%; if
85%, to 70%.
* For investors who simply must have more income, never lose sight of the
added principal risk involved in shifting from money market funds to bond
funds. Long-term bond funds provide a generous and durable income stream,
but their prices are highly volatile. Short-term and intermediate-term bond
funds offer a "middle way" of increasing income with more modest risk to
principal.
* For investors who are tempted to find an "easy way" to higher returns, never
forget that risk and reward go hand in hand. Precipitously replacing
certificates of deposit with broad-based common stock funds verges on the
irrational. Funds investing in other securities markets- -emerging nations,
international stocks and bonds, and small U.S. companies--carry their own
special risks. Generally, limit such alternative investments to, say, 20% of
your total portfolio.
For all investors, be prepared for sharp interim swings in stock and bond
prices. The central tenet of investing is "prices fluctuate," and sensible
long-term investors simply must take such fluctuations in their stride.
Successful investing is as much a function of your own discipline and
equanimity as it is of the returns available in the securities markets.
THREE ESSENTIAL PRINCIPLES
As we confront the brave new world of investing that may well lie ahead in the
coming decade--and it is important to think in decade-length terms--we would
underscore three caveats:
1. Have "rational expectations" for future returns. At prices prevailing
today, it seems highly unlikely that the returns enjoyed by investors in
the past decade will be repeated in the coming decade.
2. Maintain a balanced portfolio consisting of stock, bond, and money market
funds. Each asset class has its own risk and reward characteristics. By
allocating your resources among the three asset classes according to your
own requirements, you can build a portfolio providing appropriate elements
of capital appreciation, capital conservation, and current income.
3. In balancing risk against reward, be sure to consider cost. Many mutual
funds carry hefty sales charges or high expense ratios, or both. Other
factors held equal, expenses reduce returns, dollar for dollar. Put another
way, high-cost funds must select investments with higher prospective gross
returns--which entail higher risks--to match the net returns earned by
low-cost funds.
This brief Annual Report essay can provide only an elementary look at the
challenges investors face today. History can give us perspective, but it cannot
give us performance. Famed British economist Lord Keynes had it right when he
said, "the inevitable never happens. It is the unexpected always."
<PAGE> 20
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Long-Term Portfolios
(CA, FL, NJ, NY, OH,PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
EQUITY FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Small Capitalization Stock Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center * Valley Forge, Pennsylvania 19482
New Account Information 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders
and may be distributed to others only if preceded or
accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q590-12/93
<PAGE> 21
EDGAR Appendix
This appendix describes components of the printed version of this report
that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features the flags of The
United States of America and Vanguard flying from a halyard.
A bar chart called "A Tale of Two Decades" appears on the inside front
cover. This chart illustrates Average Annual Total Return, in nominal and real
terms, of Stocks, Bonds and Reserves (U.S. Treasury bills) for the two decades
since 1973.
A running head featuring the Vanguard flag logo appears at the top of
pages one through 16.
A photograph of John C. Bogle appears at the upper-right of page one.
A line chart illustrating cumulative performance of Standard & Poor's 500
Growth Index compared to Standard & Poor's Value Index for the fiscal years 1989
through 1993 appear on page 2.
A line chart illustrating cumulative performance of the Vanguard PRIMECAP
Fund compared to the Standard & Poor's 500 Index and the Standard & Poor's
Growth for the fiscal years 1984 through 1993 appear on page three.
