<PAGE>
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[LOGO OF VANGUARD PRIMECAP FUND APPEARS HERE]
A Member of The Vanguard Group
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PROSPECTUS--APRIL 23, 1996; REVISED OCTOBER 31, 1996
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT--1-800-662-7447
(SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT--1-800-662-2739
(CREW)
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INVESTMENT Vanguard/PRIMECAP Fund, Inc. (the "Fund") is an open-end
OBJECTIVE AND diversified investment company that seeks to provide long-
POLICIES term growth of capital by investing principally in common
stocks. Dividend income is incidental to this objective.
The Fund selects stocks primarily on the basis of above-
average earnings growth potential and quality of manage-
ment. There is no assurance that the Fund will achieve its
stated objective. Shares of the Fund are neither insured
nor guaranteed by any agency of the U.S. Government, in-
cluding the FDIC.
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OPENING AN To open a regular (non-retirement) account, please com-
ACCOUNT plete and return the Account Registration Form. If you
need assistance in completing this Form, please call the
Investor Information Department. To open an Individual Re-
tirement Account (IRA), please use a Vanguard IRA Adoption
Agreement. To obtain a copy of this form, call 1-800-662-
7447, Monday through Friday, from 8:00 a.m. to 8:00 p.m.
(Eastern time). The minimum initial investment is $3,000
($1,000 for Individual Retirement Accounts and Uniform
Gifts/Transfers to Minors Act accounts). The Fund is of-
fered on a no-load basis (i.e., there are no sales commis-
sions or 12b-1 fees). However, the Fund incurs expenses
for investment advisory, management, administrative, and
distribution services.
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ABOUT THIS This Prospectus is designed to set forth concisely the
PROSPECTUS information you should know about the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Fund has been filed with
the Securities and Exchange Commission. This Statement is
dated April 23, 1996 and has been incorporated by
reference into this Prospectus. It may be obtained,
without charge, by writing to the Fund or by calling the
Investor Information Department.
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<TABLE>
<CAPTION>
TABLE OF
CONTENTS
Page
<S> <C>
Fund Expenses........................................................ 2
Financial Highlights................................................. 2
Yield and Total Return............................................... 3
FUND INFORMATION
Investment Objective................................................. 4
Investment Policies.................................................. 4
Investment Risks..................................................... 5
Who Should Invest.................................................... 6
Implementation of
Policies............................................................ 6
Investment Limitations............................................... 8
Page
<S> <C>
Management of the
Fund................................................................ 8
Investment Adviser................................................... 9
Performance Record................................................... 10
Dividends, Capital
Gains and Taxes..................................................... 11
The Share Price of the
Fund................................................................ 12
General Information.................................................. 13
SHAREHOLDER GUIDE
Opening an Account and
Purchasing Shares................................................... 14
Page
<S> <C>
When Your Account Will Be Credited.................................... 17
Selling Your Shares................................................... 17
Exchanging Your Shares................................................ 20
Important Information About Telephone Transactions.................... 21
Transferring Registration............................................. 22
Other Vanguard Services............................................... 22
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE>
FUND The following table illustrates ALL expenses and fees that
EXPENSES you would incur as a shareholder of the Fund. The expenses
set forth below are for the 1995 fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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<S> <C>
Sales Load Imposed on Purchases......................... None
Sales Load Imposed on Reinvested Dividends.............. None
Redemption Fees......................................... None
Exchange Fees........................................... None
ANNUAL FUND OPERATING EXPENSES
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<S> <C>
Management & Administrative Expenses.................... 0.25%
Investment Advisory Fees................................ 0.30
12b-1 Fees.............................................. None
Other Expenses
Distribution Costs................................ 0.02%
Miscellaneous Expenses............................ 0.01
----
Total Other Expenses.................................... 0.03
----
TOTAL OPERATING EXPENSES.............................. 0.58%
====
</TABLE>
The purpose of this table is to assist you in understand-
ing the various costs and expenses that you would bear di-
rectly or indirectly as an investor in the Fund.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above,
the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$6 $19 $32 $73
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
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FINANCIAL The following financial highlights for a share outstanding
HIGHLIGHTS throughout each period, insofar as they relate to each of
the five years in the period ended December 31, 1995, have
been audited by Price Waterhouse LLP, independent accoun-
tants, whose report thereon was unqualified. This informa-
tion should be read in conjunction with the Fund's finan-
cial statements and notes thereto, which, together with
the remaining portions of the Fund's 1995 Annual Report to
Shareholders, are incorporated by reference in the State-
ment of Additional Information and in this Prospectus, and
which appear, along with the report of Price Waterhouse
LLP, in the Fund's 1995 Annual Report to Shareholders. The
Fund's 1995 Annual Report to Shareholders may be obtained
without charge by writing to the Fund or by calling our
Investor Information Department at 1-800-662-7447.
2
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $19.98 $18.42 $16.19 $15.36 $12.21 $12.82 $11.18 $10.06 $10.64 $ 8.89
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income.. .22 .12 .07 .12 .15 .12 .17 .09 .11 .08
Net Realized and
Unrealized Gain (Loss)
on Investments........ 6.84 1.97 2.82 1.24 3.83 (.48) 2.24 1.37 (.36) 1.99
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS........... 7.06 2.09 2.89 1.36 3.98 (.36) 2.41 1.46 (.25) 2.07
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DISTRIBUTIONS
Dividends from Net
Investment Income..... (.22) (.12) (.07) (.12) (.15) (.13) (.16) (.09) (.10) (.14)
Distributions from
Realized Capital
Gains................. (.59) (.41) (.59) (.41) (.68) (.12) (.61) (.25) (.23) (.18)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS... (.81) (.53) (.66) (.53) (.83) (.25) (.77) (.34) (.33) (.32)
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NET ASSET VALUE, END OF
YEAR................... $26.23 $19.98 $18.42 $16.19 $15.36 $12.21 $12.82 $11.18 $10.06 $10.64
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TOTAL RETURN............ 35.48% 11.41% 18.03% 8.99% 33.14% (2.79)% 21.61% 14.66% (2.29)% 23.54%
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)............. $3,237 $1,554 $ 791 $ 646 $ 486 $ 305 $ 279 $ 186 $ 165 $ 133
Ratio of Expenses to
Average Net Assets..... .58% .64% .67% .68% .68% .75% .74% .83% .83% .82%
Ratio of Net Investment
Income to Average Net
Assets................. .99% .79% .44% .84% 1.09% 1.06% 1.35% .83% .91% 1.00%
Portfolio Turnover Rate. 7% 8% 16% 7% 24% 11% 15% 26% 21% 15%
</TABLE>
Note: Adjusted to reflect a 4-for-1 stock split as of February 23, 1990.
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YIELD AND TOTAL From time to time the Fund may advertise its yield and to-
RETURN tal return. Both yield and total return figures are based
on historical earnings and are not intended to indicate
future performance. The "total return" of the Fund refers
to the average annual compounded rates of return over one-
, five- and ten-year periods or the life of the Fund (as
stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the
ending redeemable value of the investment, assuming the
reinvestment of all dividend and capital gains distribu-
tions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of the Fund is calculated by dividing the net in-
vestment income per share earned during a 30-day period by
the net asset value per share on the last day of the peri-
od. Net investment income includes interest and dividend
income earned on the Fund's securities; it is net of all
expenses and all recurring and nonrecurring charges that
have been applied to all shareholder accounts. The yield
calculation assumes that the net investment income earned
over 30 days is compounded monthly for six months and then
3
<PAGE>
annualized. Methods used to calculate advertised yields
are standardized for all stock and bond mutual funds. How-
ever, these methods differ from the accounting methods
used by the Fund to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the in-
come paid to an investor's account.
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INVESTMENT The Fund is an open-end diversified investment company.
OBJECTIVE The objective of the Fund is to provide long-term growth
of capital for its shareholders. Dividend income is inci-
THE FUND SEEKS dental to this objective. There is no assurance that the
TO PROVIDE LONG- Fund will achieve its stated objective.
TERM CAPITAL
GROWTH The investment objective of the Fund is fundamental and so
cannot be changed without the approval of a majority of
the Fund's shareholders.
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INVESTMENT The Fund will invest primarily in common stocks which of-
POLICIES fer favorable prospects for capital growth but little cur-
rent income. The Fund is managed without regard to tax
THE FUND INVESTS ramifications. Under normal circumstances, common stocks
IN COMMON STOCKS will represent at least 80% of the Fund's assets.
Common stocks are selected for the Fund on the basis of
several fundamental factors, including above-average
growth in corporate earnings, an above-average level of
current earnings, consistency of earnings growth, and
earnings quality. These factors for a particular security
are evaluated in relationship to stocks in general (as
measured, for example, by the Standard & Poor's 500 Com-
posite Stock Price Index) and to the individual stock's
current market price. Companies with cyclically depressed
earnings may also be considered as investments for the
Fund if, in the opinion of the Fund's Adviser, such secu-
rities are likely to provide above-average growth in earn-
ings in the future.
Investments of the Fund will generally be listed on a na-
tional securities exchange. The Fund may also invest in
unlisted securities, but generally such securities will
trade in an established over-the-counter market.
Although the Fund seeks to invest principally in common
stocks, the Fund is also authorized to invest in securi-
ties convertible into common stocks (including corporate
notes, bonds and preferred stocks) when, in the opinion of
the Adviser, such convertible securities may be purchased
at favorable prices relative to the common stock itself.
The Fund may also invest in stock index futures and op-
tions to a limited extent and in certain short-term fixed
income securities. See "Implementation of Policies" for a
description of these and other investment practices of the
Fund.
The Fund is responsible for voting the shares of all secu-
rities it holds.
These policies are not fundamental and so may be changed
by the Board of Directors without shareholder approval.
However, shareholders would be notified before any mate-
rial change is made in the Fund's policies.
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4
<PAGE>
INVESTMENT RISKS As a mutual fund investing primarily in common stocks, the
Fund is subject to MARKET RISK--i.e., the possibility that
INVESTORS ARE stock prices in general will decline over short or even
EXPOSED TO THE extended periods. The stock market tends to be cyclical,
MARKET RISK OF with periods when stock prices generally rise and periods
COMMON STOCKS when stock prices generally decline.
To illustrate the volatility of stock prices, the follow-
ing table sets forth the extremes for U.S. stock market
returns as well as the average return for the period from
1926 to 1995, as measured by the Standard & Poor's 500
Composite Stock Price Index:
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1995)
OVER VARIOUS TIME PERIODS
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.5 +10.3 +10.7 +10.7
</TABLE>
As shown, common stocks have provided annual total returns
(capital appreciation plus dividend income) averaging
10.7% for all 10-year periods from 1926 to 1995. The re-
turn in individual years has varied from a low of -43.3%
to a high of +53.9%, reflecting the short-term volatility
of stock prices. While the average return can be used as a
guide for setting expectations for future stock market re-
turns, it may not be useful for forecasting future returns
in any particular period, as stock returns are quite vola-
tile from year to year.
GROWTH STOCKS Growth stocks, which are the Fund's primary investments,
MAY EXHIBIT are likely to be even more volatile in price than the
GREATER stock market as a whole. Among the reasons for the greater
VOLATILITY price volatility of growth stocks are the small or negli-
gible dividends paid by such companies and the greater
business uncertainty associated with rapidly growing
firms. Besides exhibiting greater volatility, growth
stocks may, to a degree, fluctuate independently of the
broad stock market. As a result, investors should expect
that the Fund may exhibit potentially greater volatility
than stocks in general and may vary in price independently
of the broad stock market.
The chart above should not be viewed as a representation
of future investment performance of the stock market or
the Fund. The illustrated returns represent historical in-
vestment performance, which may be a poor guide to future
returns. Also, stock market indexes such as the S&P 500
are based on unmanaged portfolios of securities before
transaction costs and other expenses. Such costs will re-
duce the relative investment performance of the Fund and
other "real world" portfolios. Finally, the Fund is likely
to differ in portfolio composition from broad stock market
averages, and so the Fund's performance should not be ex-
pected to mirror the returns provided by a specific index.
5
<PAGE>
THE FUND IS The investment adviser manages the Fund according to the
SUBJECT TO traditional methods of "active" investment management,
MANAGER RISK which involve the buying and selling of securities based
upon economic, financial and market analysis and invest-
ment judgement. MANAGER RISK refers to the possibility
that the Fund's investment adviser may fail to execute the
Fund's investment strategy effectively. As a result, the
Fund may fail to achieve its stated objective.
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WHO SHOULD The Fund is intended for investors who have the perspec-
INVEST tive, patience and financial ability to assume short-term,
INVESTORS often substantial investment risk in pursuit of long-term
SEEKING LONG- capital growth. The Fund is intended to be a long-term in-
TERM CAPITAL vestment vehicle and is not designed to provide investors
GROWTH with a means of speculating on short-term market move-
ments. Investors who engage in excessive account activity
generate additional costs which are borne by all of the
Fund's shareholders. In order to minimize such costs, the
Fund has adopted the following policies. The Fund reserves
the right to reject any purchase request (including ex-
change purchases from other Vanguard portfolios) that is
reasonably deemed to be disruptive to efficient portfolio
management, either because of the timing of the investment
or previous excessive trading by the investor. Addition-
ally, the Fund has adopted exchange privilege limitations
as described in the section "Exchange Privilege Limita-
tions." Finally, the Fund reserves the right to suspend
the offering of its shares. The Fund's share price is ex-
pected to be volatile. Investors may wish to reduce the
potential risk of investing in the Fund by purchasing
shares on a regular, periodic basis (dollar-cost averag-
ing), rather than investing in one lump sum.
No assurance can be given that shareholders will be pro-
tected from the risk of loss that is inherent in equity
investing. Investors should not consider the Fund a com-
plete investment program. Most investors should maintain
diversified holdings of securities with different risk
characteristics--including common stocks, bonds and money
market instruments. Investors may also wish to complement
an investment in the Fund with other types of common stock
investments.
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IMPLEMENTATION In addition to investing primarily in common stocks, the
OF POLICIES Fund follows a number of other investment practices to
achieve its objective.
THE FUND MAY Although it normally seeks to remain fully invested in eq-
INVEST IN SHORT- uity securities, the Fund may invest in certain short-term
TERM FIXED fixed income securities. Such securities may be used to
INCOME invest uncommitted cash balances, to maintain liquidity to
SECURITIES meet shareholder redemptions, or to take a temporary de-
fensive position against potential stock market declines.
These securities include: obligations of the United States
Government and its agencies or instrumentalities; commer-
cial paper, bank certificates of deposit, and bankers' ac-
ceptances; and repurchase agreements collateralized by
these securities.
THE FUND MAY The Fund may lend its investment securities to qualified
LEND ITS institutional investors for either short-term or long-term
SECURITIES purposes of realizing additional income. Loans of securi-
ties by the Fund will be collateralized by cash, letters
of credit, or secu-
6
<PAGE>
rities issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the
current market value of the loaned securities.
PORTFOLIO Although it seeks to invest for the long term, the Fund
TURNOVER IS NOT retains the right to sell securities irrespective of how
EXPECTED TO long they have been held. It is anticipated that the an-
EXCEED 75% nual portfolio turnover rate of the Fund will not exceed
75%. A turnover rate of 75% would occur, for example, if
three-quarters of the Fund's securities were replaced
within one year.
DERIVATIVE Derivatives are instruments whose values are linked to or
INVESTING derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
THE FUND MAY The Fund may invest in futures contracts and options, but
INVEST IN only to a limited extent. Specifically, the Fund may enter
DERIVATIVE into futures contracts provided that not more than 5% of
SECURITIES its assets are required as a futures contract deposit; in
addition, the Fund may enter into futures contracts and
options transactions only to the extent that obligations
under such contracts or transactions represent not more
than 20% of the Fund's assets.
Futures contracts and options may be used for several com-
mon fund management strategies: to maintain cash reserves
while simulating full investment, to facilitate trading,
to reduce transaction costs, or to seek higher investment
returns when a specific futures contract is priced more
attractively than other futures contracts or the under-
lying security or index.
The Fund may use futures contracts for bona fide "hedging"
purposes. In executing a hedge, a manager sells, for exam-
ple, stock index futures to protect against a decline in
the stock market. As such, if the market drops, the value
of the futures position will rise, thereby offsetting the
decline in value of the Fund's stock holdings.
FUTURES The primary risks associated with the use of futures con-
CONTRACTS AND tracts and options are: (i) imperfect correlation between
OPTIONS POSE the change in market value of the stocks held by the Fund
CERTAIN RISKS and the prices of futures contracts and options; and (ii)
possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures
position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing in those con-
tracts whose price fluctuations are expected to resemble
those of the Fund's underlying securities. The risk that
the Fund will be unable to close out a futures position
will be minimized by entering into such transactions on a
national exchange with an active and liquid secondary mar-
ket.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of lever-
age involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in
immediate and substantial loss
7
<PAGE>
(or gain) to the investor. When investing in futures con-
tracts, the Fund will segregate cash or cash equivalents
in the amount of the underlying obligation.
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INVESTMENT The Fund has adopted certain limitations in an attempt to
LIMITATIONS reduce its exposure to specific situations. Some of these
limitations are that the Fund will not:
THE FUND HAS (a) invest more than 25% of its assets in any one industry;
ADOPTED CERTAIN
LIMITATIONS (b) with respect to 75% of the value of its total assets,
purchase the securities of any issuer (except
obligations of the United States Government and its
instrumentalities) if as a result the Fund would hold
more than 10% of the outstanding voting securities of
the issuer, or more than 5% of the value of the Fund's
total assets would be invested in the securities of such
issuer;
(c) borrow money, except that the Fund may borrow from
banks (or through reverse repurchase agreements), for
temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might
otherwise require the untimely disposition of
securities, in an amount not exceeding 10% of the value
of the Fund's net assets (including the amount borrowed
and the value of any outstanding reverse repurchase
agreements) at the time the borrowing is made. Whenever
borrowings exceed 5% of the value of the Fund's net
assets, the Fund will not make any additional
investments;
(d) pledge, mortgage or hypothecate any of its assets to an
extent greater than 5% of its total assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations de-
scribed here and in the Statement of Additional Informa-
tion may be changed only with the approval of a majority
of the Fund's shareholders.
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MANAGEMENT OF The Fund is a member of The Vanguard Group of Investment
THE FUND Companies, a family of more than 30 investment companies
with more than 90 distinct investment portfolios and total
VANGUARD assets in excess of $190 billion. Through their jointly-
ADMINISTERS AND owned subsidiary, The Vanguard Group, Inc. ("Vanguard"),
DISTRIBUTES THE the Fund and the other funds in the Group obtain at cost
FUND virtually all of their corporate management, administra-
tive, shareholder accounting and distribution services.
Vanguard also provides investment advisory services on an
at-cost basis to certain Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most compet-
ing mutual funds. In 1995, the average expense ratio (an-
nual costs including advisory fees divided by total net
assets) for the Vanguard funds amounted to approximately
.31% compared to an average of 1.11% for the mutual fund
industry (data provided by Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund
8
<PAGE>
and choose its Officers. A list of the Directors and Offi-
cers of the Fund and a statement of their present posi-
tions and principal occupations during the past five years
can be found in the Statement of Additional Information.
Vanguard employs a supporting staff of management and ad-
ministrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's net expenses, which are
allocated among the funds under methods approved by the
Board of Directors (Trustees) of each fund. In addition,
each fund bears its own direct expenses, such as legal,
auditing and custodian fees.
Vanguard also provides distribution and marketing services
to the Vanguard funds. However, each fund bears its share
of the Group's distribution costs. The funds are available
on a no-load basis (i.e., there are no sales commissions
or 12b-1 fees).
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INVESTMENT The Fund employs PRIMECAP Management Company (the "Advis-
ADVISER er"), 225 South Lake Street, Pasadena, CA 91101, under an
investment advisory agreement dated September 1, 1984, to
PRIMECAP MANAGES manage the investment and reinvestment of the assets of
THE FUND'S the Fund and to review, supervise and administer continu-
INVESTMENTS ously the Fund's investment program. The Adviser dis-
charges its responsibilities subject to the control of the
Officers and Directors of the Fund.
The Adviser is a professional investment advisory firm
which provides services to employee benefit plans, endow-
ment funds, foundations and other institutions, as well as
the Fund. As of December 31, 1995, the Adviser held dis-
cretionary management authority with respect to over $3.2
billion of assets. Howard B. Schow, Chairman of the Advis-
er, serves as portfolio manager of the Fund, a position he
has held since the Fund's inception in 1984. In managing
the Fund's investments, Mr. Schow is assisted by Theo A.
Kolokotrones, Executive Vice President of the Adviser and
assistant portfolio manager of the Fund.
The Fund pays the Adviser an advisory fee at the end of
each fiscal quarter, calculated by applying a quarterly
rate, based on the following annual percentage rates, to
the Fund's average month-end net assets for the quarter:
<TABLE>
<CAPTION>
NET ASSETS RATE
----------------- -----
<S> <C>
First $25 million .750%
Next $225 million .500%
Next $250 million .375%
Over $500 million .250%
</TABLE>
For the year ended December 31, 1995, the investment advi-
sory fee paid by the Fund represented an effective annual
rate of .30% of 1% of average net assets.
9
<PAGE>
The investment advisory agreement authorizes the Adviser
to select brokers or dealers to execute purchases and
sales of the Fund's portfolio securities, and directs the
Adviser to use its best efforts to obtain the best avail-
able price and the most favorable execution with respect
to all transactions. The full range and quality of broker-
age services available are considered in making these de-
terminations.
The Fund has authorized the Adviser to pay higher commis-
sions in recognition of brokerage services felt necessary
for the achievement of better execution, provided the Ad-
viser believes this to be in the best interest of the
Fund. Although the Fund does not market its shares through
intermediary brokers or dealers, the Fund may place orders
with qualified broker-dealers who recommend the Fund to
clients if the Officers of the Fund believe that the qual-
ity of the transaction and the commission are comparable
to what they would be with other qualified brokerage
firms.
The Fund's Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new in-
vestment adviser pursuant to the terms of a new advisory
agreement, either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days' prior written notice to share-
holders of the Fund which shall include substantially the
information concerning the adviser that would have nor-
mally been included in a proxy statement.
- -------------------------------------------------------------------------------
PERFORMANCE The table on page 11 provides investment results for the
RECORD Fund for several periods throughout the Fund's lifetime.
The results shown represent "total return" investment per-
formance, which assumes the reinvestment of all capital
gains and income dividends for the indicated periods. Also
included is comparative information with respect to the
unmanaged Standard & Poor's 500 Composite Stock Price In-
dex, a widely-used barometer of stock market activity, and
the Consumer Price Index, a statistical measure of changes
in the prices of goods and services. The table does not
make any allowance for federal, state or local income tax-
es, which shareholders must pay on a current basis.
The results shown should not be considered a representa-
tion of the total return from an investment made in the
Fund today. The period shown was a generally favorable one
for common stock investments. This information is provided
to help investors better understand the Fund and may not
provide a basis for comparison with other investments or
mutual funds which use a different method to calculate
performance.
10
<PAGE>
AVERAGE ANNUAL RETURN FOR VANGUARD/PRIMECAP FUND
<TABLE>
<CAPTION>
FISCAL PERIODS VANGUARD/PRIMECAP S&P 500 CONSUMER
ENDED 12/31/95 FUND INDEX PRICE INDEX
-------------- ----------------- ------- -----------
<S> <C> <C> <C>
1 Year +35.5% +37.6% +2.6%
5 Years +20.9 +16.6 +2.8
10 Years +15.5 +14.9 +3.5
Lifetime* +17.4 +16.1 +3.4
</TABLE>
*November 1, 1984 to December 31, 1995.
- -------------------------------------------------------------------------------
DIVIDENDS, The Fund expects to pay annual dividends from ordinary in-
CAPITAL GAINS come. Capital gains distributions, if any, will also be
AND TAXES made annually. The Fund is managed without regard to tax
ramifications.
THE FUND WILL In addition, in order to satisfy certain distribution re-
PAY DIVIDENDS quirements of the Tax Reform Act of 1986, the Fund may de-
AND ANY CAPITAL clare special year-end dividend and capital gains distri-
GAINS ANNUALLY butions during December. Such distributions, if received
by shareholders by January 31, are deemed to have been
paid by the Fund and received by shareholders on December
31 of the prior year.
Dividend and capital gains distributions may be automati-
cally reinvested or received in cash. See "Choosing a Dis-
tribution Option" for a description of these distribution
methods.
The Fund intends to continue to qualify for taxation as a
"regulated investment company" under the Internal Revenue
Code so that it will not be subject to federal income tax
to the extent its income is distributed to shareholders.
Dividends paid by the Fund from net investment income and
net short-term capital gains, whether received in cash or
reinvested in additional shares, will be taxable to share-
holders as ordinary income. For corporate investors, divi-
dends from net investment income will generally qualify in
part for the intercorporate dividends-received deduction.
However, the portion of the dividends so qualified depends
on the aggregate taxable qualifying dividend income re-
ceived by the Fund from domestic (U.S.) sources.
Distributions paid by the Fund from long-term capital
gains, whether received in cash or reinvested in addi-
tional shares, are taxable as long-term capital gains, re-
gardless of the length of time you have owned shares in
the Fund. Capital gains distributions are made when the
Fund realizes net capital gains on sales of portfolio se-
curities during the year. The Fund does not seek to real-
ize any particular amount of capital gains during a year;
rather, realized gains are a by-product of portfolio man-
agement activities. Consequently, capital gains distribu-
tions may be expected to vary considerably from year to
year; there will be no capital gains distributions in
years when the Fund realizes net capital losses.
Note that if you accept capital gains distributions in
cash, instead of reinvesting them in additional shares,
you are in effect reducing the capital at work for you in
the Fund. Also, keep in mind that if you purchase shares
in the Fund shortly
11
<PAGE>
before the record date for a dividend or capital gains
distribution, a portion of your investment will be re-
turned to you as a taxable distribution, regardless of
whether you are reinvesting your distributions or receiv-
ing them in cash.
The Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.
A CAPITAL GAIN A sale of shares of the Fund is a taxable event and may
OR LOSS MAY BE result in a capital gain or loss. A capital gain or loss
REALIZED UPON may be realized from an ordinary redemption of shares or
EXCHANGE OR an exchange of shares between two mutual funds (or two
REDEMPTION portfolios of a mutual fund).
Dividend distributions, capital gains distributions, and
capital gains or losses from redemptions and exchanges may
be subject to state and local taxes.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to
shareholders who have not complied with IRS taxpayer iden-
tification regulations. You may avoid this withholding re-
quirement by certifying on your Account Registration Form
your proper Social Security or Employer Identification
number and by certifying that you are not subject to
backup withholding.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania and does
business and maintains an office in that state. In the
opinion of counsel, the shares of the Fund are exempt from
Pennsylvania personal property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of
an investment in the Fund.
- -------------------------------------------------------------------------------
THE SHARE PRICE The Fund's share price or "net asset value" per share is
OF THE FUND determined by dividing the total assets of the Fund, less
all liabilities, by the total number of shares outstand-
ing. The net asset value is determined as of the close of
the New York Stock Exchange (generally 4:00 p.m. Eastern
time) on each day that the Exchange is open for trading.
Market values for securities listed on an exchange are
based upon the latest quoted sales prices for such securi-
ties. Securities which are listed on an exchange but which
are not traded on the valuation date are valued at the
mean of the latest quoted bid and asked prices. Unlisted
securities are valued at the latest quoted bid price. All
prices of listed securities are taken from the exchange
where the security is primarily traded. Securities may be
valued on the basis of prices provided by a pricing serv-
ice when such prices are believed to reflect the fair mar-
ket value of such securities. Short-term instruments (with
remaining maturities of 60 days or less) are valued at
cost, which approximates market value. Securities for
which market quotations are not readily available or which
are restricted as to sale (or resale) and other assets are
valued by such methods as the Board of Directors deems in
good faith to reflect fair value.
12
<PAGE>
The Fund's share price can be found daily in the mutual
fund section of most major newspapers under the heading of
Vanguard.
- -------------------------------------------------------------------------------
GENERAL The Fund is a Maryland corporation. The Fund's Articles of
INFORMATION Incorporation permit the Directors to issue 150,000,000
shares of common stock, with a $.001 par value. The Board
of Directors has the power to designate one or more clas-
ses ("Portfolios") of shares of common stock and to clas-
sify or reclassify any unissued shares with respect to
such Portfolios. Currently the Fund is offering one class
of shares.
The shares of the Fund are fully paid and nonassessable;
have no preference as to conversion, exchange, dividends,
retirement or other features; and have no pre-emptive
rights. Such shares have non-cumulative voting rights,
meaning that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they so choose. A shareholder is entitled to
one vote for each full share held (and a fractional vote
for each fractional share held).
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held to vote on
the removal of a Director or Directors of the Fund if re-
quested in writing by the holders of not less than 10% of
the outstanding shares of the Fund.
All securities and cash are held by State Street Bank and
Trust Company, Boston, MA. CoreStates Bank, N.A., holds
daily cash balances that are used by the Fund to invest in
repurchase agreements or securities acquired in these
transactions. The Vanguard Group, Inc., Valley Forge, PA,
serves as the Fund's Transfer and Dividend Disbursing
Agent. Price Waterhouse LLP serves as independent accoun-
tants for the Fund and will audit its financial statements
annually. The Fund is not involved in any litigation.
- -------------------------------------------------------------------------------
13
<PAGE>
SHAREHOLDER GUIDE
OPENING AN You may open a regular (non-retirement) account, either by
ACCOUNT AND mail or wire. Simply complete and return an Account Regis-
PURCHASING tration Form and any required legal documentation, indi-
SHARES cating the amount you wish to invest. Your purchase must
be equal to or greater than the $3,000 minimum initial in-
vestment requirement ($1,000 for Uniform Gifts/Transfers
to Minors Act accounts). You must open a new Individual
Retirement Account by mail (IRAs may not be opened by
wire) using a Vanguard IRA Adoption Agreement. Your pur-
chase must be equal to or greater than the $1,000 minimum
initial investment requirement, but no more than $2,000 if
you are making a regular IRA contribution. Rollover con-
tributions are generally limited to the amount withdrawn
within the past 60 days from an IRA or other qualified Re-
tirement Plan. If you need assistance with the forms or
have any questions about this Fund, please call our In-
vestor Information Department at 1-800-662-7447. Note: For
other types of account registrations (e.g., corporations,
associations, other organizations, trusts or powers of at-
torney), please call us to determine which additional
forms you may need.
The Fund's shares generally are purchased at the next-de-
termined net asset value after your investment has been
received. The Fund is offered on a no-load basis (i.e.,
there are no sales commissions or 12b-1 fees).
PURCHASE 1) Because of the risks associated with common stock in-
RESTRICTIONS vestments, the Fund is intended to be a long-term in-
vestment vehicle and is not designed to provide invest-
ors with a means of speculating on short-term market
movements. Consequently, the Fund reserves the right to
reject any specific purchase (and exchange purchase)
request. The Fund also reserves the right to suspend
the offering of shares for a period of time.
2) Vanguard will not accept third-party checks to purchase
shares of the Fund. Please be sure your purchase check
is made payable to the Vanguard Group.
ADDITIONAL Subsequent investments to regular accounts may be made by
INVESTMENTS mail ($100 minimum), wire ($1,000 minimum), exchange from
another Vanguard Fund account ($100 minimum), or Vanguard
Fund Express. Subsequent investments to Individual Retire-
ment Accounts may be made by mail ($100 minimum) or ex-
change from another Vanguard Fund account. In some in-
stances, contributions to IRAs may be made by wire or Van-
guard Fund Express. Please call us for more information on
these options.
-----------------------------------------------------------
14
<PAGE>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY Please indicate the Additional investments
MAIL Complete amount of your initial should include the Invest-
and sign the investment on the reg- by-Mail remittance form
enclose Account istration form, make attached to your Fund con-
Registration your check payable to firmation statements.
Form The Vanguard Group--59, Please make your check
and mail to: payable to The Vanguard
VANGUARD FINANCIAL Group--59, write your ac-
CENTER count number on your check
P.O. BOX 2600 and, using the return en-
VALLEY FORGE, PA 19482 velope provided, mail to
the address indicated on
the Invest-by-Mail Form.
For express or VANGUARD FINANCIAL All written requests
registered mail, CENTER should be mailed to one of
send to: 455 DEVON PARK DRIVE the addresses indicated
WAYNE, PA 19087 for new accounts. Do not
send registered or express
mail to the post office
box address.
------------------------------------------------------------
PURCHASING BY CORESTATES BANK, N.A.
WIRE Money ABA 031000011
should be wired CORESTATES NO 0101 9897
to: ATTN VANGUARD
BEFORE WIRING VANGUARD/PRIMECAP FUND
Please contact ACCOUNT NUMBER
Client Services ACCOUNT REGISTRATION
(1-800-662-2739)
To assure proper receipt, please be sure your bank includes
the Fund name, the account number Vanguard has assigned to
you and the eight-digit CoreStates number. NOTE: Federal
Funds wire purchase orders will be accepted only when the
Fund and Custodian Bank are open for business.
------------------------------------------------------------
PURCHASING BY You may open a new account or purchase additional shares by
EXCHANGE (from a making an exchange from an existing Vanguard account. How-
Vanguard ever, the Fund reserves the right to refuse any exchange
account) purchase request. Call our Client Services Department (1-
800-662-2739) for assistance. The new account will have the
same registration as the existing account.
------------------------------------------------------------
PURCHASING BY The Fund Express Special Purchase option lets you move
FUND EXPRESS money from your bank account to your Vanguard account on an
"as needed" basis. Or if you choose the Automatic Invest-
Special Purchase ment option, money will be moved automatically from your
and Automatic bank account to your Vanguard account on the schedule
Investment (monthly, bimonthly [every other month], quarterly or year-
ly) you select. To establish these Fund Express options,
please call 1-800-662-7447 for a Fund Express
15
<PAGE>
application. We will send you a confirmation of your Fund
Express enrollment after you complete and return this
form; please wait three weeks before using the service.
- -------------------------------------------------------------------------------
CHOOSING A You must select one of three distribution options:
DISTRIBUTION
OPTION
1. AUTOMATIC REINVESTMENT OPTION--Both dividends and capi-
tal gains distributions will be reinvested in addi-
tional Fund shares. This option will be selected for
you automatically unless you specify one of the other
options.
2. CASH DIVIDEND OPTION--Your dividends will be paid in
cash and your capital gains will be reinvested in addi-
tional Fund shares.
3. ALL CASH OPTION--Both dividend and capital gains dis-
tributions will be paid in cash.
You may change your option by calling our Client Services
Department (1-800-662-2739).
In addition, an option to invest your cash dividends
and/or capital gains distributions in another Vanguard
Fund account is available. Please call our Client Services
Department (1-800-662-2739) for information. You may also
elect Vanguard Dividend Express which allows you to trans-
fer your cash dividends and/or capital gains distributions
automatically to your bank account. Please see "Other Van-
guard Services" for more information.
- -------------------------------------------------------------------------------
TAX CAUTION Under federal tax laws, the Fund is required to distribute
net capital gains and dividend income to Fund sharehold-
INVESTORS SHOULD ers. These distributions are made to all shareholders who
ASK ABOUT THE own Fund shares as of the distribution's record date, re-
TIMING OF gardless of how long the shares have been owned. Purchas-
CAPITAL GAINS ing shares just prior to the record date could have a sig-
AND DIVIDEND nificant impact on your tax liability for the year. For
DISTRIBUTIONS example, if you purchase shares immediately prior to the
BEFORE INVESTING record date of a sizable capital gain or income dividend
distribution, you will be assessed taxes on the amount of
the capital gain and/or dividend distribution later paid
even though you owned the Fund shares for just a short pe-
riod of time. (Taxes are due on the distributions even if
the dividend or gain is reinvested in additional Fund
shares.) While the total value of your investment will be
the same after the distribution--the amount of the distri-
bution will offset the drop in the net asset value of the
shares--you should be aware of the tax implications the
timing of your purchase may have.
Prospective investors should, therefore, inquire about po-
tential distributions before investing. The Fund's annual
dividend and capital gains distributions normally occur in
December. For additional information on distributions and
taxes, see the section titled "Dividends, Capital Gains
and Taxes."
- -------------------------------------------------------------------------------
16
<PAGE>
IMPORTANT The easiest way to establish optional Vanguard services on
INFORMATION your account is to select the options you desire when you
complete your Account Registration Form. IF YOU WISH TO
ESTABLISHING ADD SHAREHOLDER OPTIONS LATER, YOU MAY NEED TO PROVIDE
OPTIONAL VANGUARD WITH ADDITIONAL INFORMATION AND A SIGNATURE GUAR-
SERVICES ANTEE. PLEASE CALL OUR CLIENT SERVICES DEPARTMENT (1-800-
662-2739) FOR FURTHER ASSISTANCE.
SIGNATURE For our mutual protection, we may require a signature
GUARANTEES guarantee on certain written transaction requests. A sig-
nature guarantee verifies the authenticity of your signa-
ture, and may be obtained from banks, brokers, and any
other guarantor that Vanguard deems acceptable. A SIGNA-
TURE GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES Share certificates will be issued upon request. If a cer-
tificate is lost, you may incur an expense to replace it.
BROKER-DEALER If you purchase shares in Vanguard Funds through a regis-
PURCHASES tered broker-dealer or investment adviser the broker-
dealer or adviser may charge a service fee.
CANCELLING The Fund will not cancel any trade (e.g., a purchase, ex-
TRADES change or redemption) believed to be authentic, received
in writing or by telephone, once the trade request has
been received.
ELECTRONIC If you would prefer to receive a prospectus for the Fund
PROSPECTUS or any of the Vanguard Funds in an electronic format,
DELIVERY please call 1-800-231-7870 for additional information. If
you elect to do so, you may also receive a paper copy of
the prospectus, by calling 1-800-662-7447.
- -------------------------------------------------------------------------------
WHEN YOUR Your trade date is the date on which your account is cred-
ACCOUNT WILL BE ited. If your purchase is made by check, Federal Funds
CREDITED wire or exchange and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00
p.m. Eastern time) your trade date is the day of receipt.
If your purchase is received after the close of the Ex-
change, your trade date is the next business day. Your
shares are purchased at the net asset value determined on
your trade date.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, Vanguard will only accept
a foreign check which has been drawn in U.S. dollars and
has been issued by a foreign bank with a U.S. correspon-
dent bank. The name of the U.S. correspondent bank must be
printed on the face of the foreign check.
- -------------------------------------------------------------------------------
SELLING YOUR You may withdraw any portion of the funds in your account
SHARES by redeeming shares at any time. You generally may initi-
ate a request by writing or by telephoning. Your redemp-
tion proceeds are normally mailed within two business days
after the receipt of the request in Good Order.
SELLING BY MAIL
Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD/ PRIMECAP FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard/PRIMECAP Fund, 455
Devon Park Drive, Wayne, PA 19087.)
17
<PAGE>
The redemption price of shares will be the Fund's net as-
set value next determined after Vanguard has received all
required documents in Good Order.
-----------------------------------------------------------
DEFINITION OF GOOD ORDER means that the request includes the following:
GOOD ORDER
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or
shares).
3. The signatures of all owners EXACTLY as they are regis-
tered on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be re-
quired, in the case of estates, corporations, trusts,
and certain other accounts.
6. Any certificates you are holding for the account.
IF YOU HAVE ANY QUESTIONS ABOUT THIS DEFINITION AS IT PER-
TAINS TO YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES DE-
PARTMENT AT 1-800-662-2739.
-----------------------------------------------------------
SELLING BY To sell shares by telephone, you or your pre-authorized
TELEPHONE representative may call our Client Services Department at
1-800-662-2739. The proceeds will be sent to you by mail.
PLEASE NOTE: As a protection against fraud, your telephone
mail redemption privilege will be suspended for 15 calen-
dar days following any expedited address change to your
account. An expedited address change is one that is made
by telephone, by Vanguard Online or, in writing, without
the signatures of all account owners. Please see "Impor-
tant Information About Telephone Transactions."
-----------------------------------------------------------
SELLING BY FUND If you select the Fund Express Automatic Withdrawal op-
EXPRESS tion, money will be automatically moved from your Vanguard
Fund account to your bank account according to the sched-
Automatic ule you have selected. The Special Redemption option lets
Withdrawal & you move money from your Vanguard account to your bank ac-
Special count on an "as needed" basis. To establish these Fund Ex-
Redemption press options, please call 1-800-662-7447 for a Fund Ex-
press application. We will send you a confirmation of your
Fund Express enrollment after you complete and return this
form; please wait three weeks before using the service.
-----------------------------------------------------------
SELLING BY You may sell shares of the Fund by making an exchange into
EXCHANGE another Vanguard Fund account. Please see "Exchanging Your
Shares" for details.
-----------------------------------------------------------
IMPORTANT Shares purchased by check or Fund Express may be redeemed
REDEMPTION at any time. However, your redemption proceeds will not be
INFORMATION paid until payment for the purchase is collected, which
may take up to ten calendar days.
-----------------------------------------------------------
DELIVERY OF Redemption requests received by telephone prior to the
REDEMPTION close of regular trading on the New York Stock Exchange
PROCEEDS (generally 4:00 p.m. Eastern time) are processed on the
day of receipt and the redemption proceeds are normally
sent on the following business day.
18
<PAGE>
Redemption requests received by telephone after the close
of the Exchange are processed on the business day follow-
ing receipt and the proceeds are normally sent on the sec-
ond business day following receipt.
Redemption proceeds must be sent to you within seven days
of receipt of your request in Good Order, except as de-
scribed above in "Important Redemption Information."
If you experience difficulty in making a telephone redemp-
tion during periods of drastic economic or market changes,
your redemption request may be made by regular or express
mail. It will be implemented at the net asset value next
determined after your request has been received by Van-
guard in Good Order. The Fund reserves the right to revise
or terminate the telephone redemption privilege at any
time.
The Fund may suspend the redemption right or postpone pay-
ment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the
United States Securities and Exchange Commission.
If the Board of Directors determines that it would be det-
rimental to the best interests of the Fund's remaining
shareholders to make payment in cash, the Fund may at re-
demption proceeds in whole or in part by a distribution in
kind of readily marketable securities.
-----------------------------------------------------------
VANGUARD'S If you make a redemption from a qualifying account, Van-
AVERAGE COST guard will send you an Average Cost Statement which pro-
STATEMENT vides you with the tax basis of the shares you redeemed.
Please see "Statements and Reports" for additional infor-
mation.
-----------------------------------------------------------
LOW BALANCE FEE Due to the relatively high cost of maintaining smaller ac-
AND MINIMUM counts, the Fund will automatically deduct a $10 annual
ACCOUNT BALANCE fee from non-retirement accounts with balances falling be-
REQUIREMENT low $2,500 ($500 for Uniform Gifts/Transfers to Minor Act
accounts). This fee deduction will occur mid-year, begin-
ning in 1996. The fee generally will be waived for invest-
ors whose aggregate Vanguard assets exceed $50,000.
In addition, the Fund reserves the right to liquidate any
non-retirement account that is below the minimum initial
investment amount of $3,000. If at any time your total in-
vestment does not have a value of at least $3,000, you may
be notified that your account is below the Fund's minimum
account balance requirement. You would then be allowed 60
days to make an additional investment before the account
is liquidated. Proceeds would be promptly paid to the reg-
istered shareholder.
Vanguard will not liquidate your account if it has fallen
below $3,000 solely as a result of declining markets
(i.e., a decline in a Fund's net asset value).
- -------------------------------------------------------------------------------
19
<PAGE>
EXCHANGING YOUR Should your investment goals change, you may exchange your
SHARES shares of Vanguard/PRIMECAP Fund for those of other avail-
able Vanguard Funds.
EXCHANGING BY When exchanging shares by telephone, please have ready the
TELEPHONE Fund name, account number, Social Security Number or Em-
ployer Identification number listed on the account and ex-
Call Client act name and address in which the account is registered.
Services (1-800- Only the registered shareholder, or his or her pre-autho-
662-2739) rized representative, may complete such an exchange. Re-
quests for telephone exchanges received prior to the close
of trading on the New York Stock Exchange (generally 4:00
p.m. Eastern time) are processed at the close of business
that same day. Requests received after the close of the
Exchange are processed the next business day. TELEPHONE
EXCHANGES ARE NOT ACCEPTED INTO OR FROM VANGUARD BALANCED
INDEX FUND, VANGUARD INDEX TRUST, VANGUARD INTERNATIONAL
EQUITY INDEX FUND AND VANGUARD QUANTITATIVE PORTFOLIOS. If
you experience difficulty in making a telephone exchange,
your exchange request may be made by regular or express
mail, and it will be implemented at the closing net asset
value on the date received by Vanguard provided the re-
quest is received in Good Order.
-----------------------------------------------------------
EXCHANGING BY Please be sure to include on your exchange request the
MAIL name and account number of your current Fund, the name of
the Fund you wish to exchange into, the amount you wish to
exchange, and the signatures of all registered account
holders. Send your request to VANGUARD FINANCIAL CENTER,
VANGUARD/PRIMECAP FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard/PRIMECAP Fund, 455
Devon Park Drive, Wayne, PA 19087.)
-----------------------------------------------------------
IMPORTANT Before you make an exchange, you should consider the fol-
EXCHANGE lowing:
INFORMATION
. Please read the Fund's prospectus before making an ex-
change. For a copy and for answers to any questions you
may have, call our Investor Information Department (1-
800-662-7447).
. An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on
the transaction.
. Exchanges are accepted only if the registrations and the
Taxpayer Identification numbers of the two accounts are
identical.
. The shares to be exchanged must be on deposit and not
held in certificate form.
. New accounts are not currently accepted in the
Vanguard/Windsor Fund.
. The redemption price of shares redeemed by exchange is
the net asset value next determined after Vanguard has
received the required documentation in Good Order.
. When opening a new account by exchange, you must meet
the minimum investment requirement of the new Fund.
20
<PAGE>
Every effort will be made to maintain the exchange privi-
lege. However, the Fund reserves the right to revise or
terminate its provisions, limit the amount of or reject
any exchange, as deemed necessary, at any time.
The exchange privilege is only available in states in
which the shares of the Fund are registered for sale. The
Fund's shares are currently registered for sale in all 50
states and the Fund intends to maintain such registration.
- -------------------------------------------------------------------------------
EXCHANGE The Fund's exchange privilege is not intended to afford
PRIVILEGE shareholders a way to speculate on short-term movements in
LIMITATIONS the market. Accordingly, in order to prevent excessive use
of the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the
Fund has established a policy of limiting excessive ex-
change activity.
Exchange activity generally will not be deemed excessive
if limited to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT
LEAST 30 DAYS APART) from the Fund during any twelve-month
period. Notwithstanding these limitations, the Fund re-
serves the right to reject any purchase request (including
exchange purchases from other Vanguard portfolios) that is
reasonably deemed to be disruptive to efficient portfolio
management.
- -------------------------------------------------------------------------------
IMPORTANT The ability to initiate redemptions (except wire redemp-
INFORMATION tions) and exchanges by telephone is automatically estab-
ABOUT TELEPHONE lished on your account unless you request in writing that
TRANSACTIONS telephone transactions on your account not be permitted.
To protect your account from losses resulting from unau-
thorized or fraudulent telephone instructions, Vanguard
adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio; (ii)
the 10-digit account number; (iii) the exact name and
address used in the registration; and (iv) the Social
Security or Employer Identification number listed on the
account.
2. PAYMENT POLICY. The proceeds of any telephone
redemption by mail will be made payable to the registered
shareowner and mailed to the address of record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by tele-
phone, provided that reasonable security procedures have
been followed. Vanguard believes that the security proce-
dures described above are reasonable, and that if such
procedures are followed, you will bear the risk of any
losses resulting from unauthorized or fraudulent telephone
transactions on your account. If Vanguard fails to follow
reasonable security procedures, it may be liable for any
losses resulting from unauthorized or fraudulent telephone
transactions on your account.
- -------------------------------------------------------------------------------
21
<PAGE>
TRANSFERRING You may transfer the registration of any of your Fund
REGISTRATION shares to another person by completing a transfer form and
sending it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110,
VALLEY FORGE, PA 19482, ATTENTION: TRANSFER DEPARTMENT.
The request must be in Good Order. Before mailing your re-
quest, please call our Client Services Department (1-800-
662-2739) for full instructions.
- -------------------------------------------------------------------------------
STATEMENTS AND Vanguard will send you a confirmation statement each time
REPORTS you initiate a transaction in your account except for
checkwriting redemptions from Vanguard money market ac-
counts. You will also receive a comprehensive account
statement at the end of each calendar quarter. The fourth-
quarter statement will be a year-end statement, listing
all transaction activity for the entire calendar year.
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using
the average cost single category method. This service is
available for most taxable accounts opened since January
1, 1986. In general, investors who redeemed shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement along with their Fund Summary
Statement. Please call our Client Services Department (1-
800-662-2739) for information.
Financial reports on the Fund will be mailed to you
semiannually, according to the Fund's fiscal year-end.
- -------------------------------------------------------------------------------
OTHER VANGUARD For more information about any of these services, please
SERVICES call our Investor Information Department at 1-800-662-
7447.
VANGUARD DIRECT With Vanguard's Direct Deposit Service, most U.S. Govern-
DEPOSIT SERVICE ment checks (including Social Security and military pen-
sion checks) and private payroll checks may be automati-
cally deposited into your Vanguard Fund account. Separate
brochures and forms are available for direct deposit of
U.S. Government and private payroll checks.
VANGUARD Vanguard's Automatic Exchange Service allows you to move
AUTOMATIC money automatically among your Vanguard Fund accounts. For
EXCHANGE SERVICE instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan. Please
contact our Client Services Department at 1-800-662-2739
for additional information.
VANGUARD FUND Vanguard's Fund Express allows you to transfer money be-
EXPRESS tween your Fund account and your account at a bank, sav-
ings and loan association, or a credit union that is a
member of the Automated Clearing House (ACH) system. You
may elect this service on the Account Registration Form or
call our Investor Information Department (1-800-662-7447)
for a Fund Express application.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition,
some services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
22
<PAGE>
VANGUARD Vanguard's Dividend Express allows you to transfer your
DIVIDEND EXPRESS dividends and/or capital gains distributions automatically
from your Fund account, one business day after the Fund's
payable date, to your account at a bank, savings and loan
association, or a credit union that is a member of the Au-
tomated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call our In-
vestor Information Department (1-800-662-7447) for a Van-
guard Dividend Express application.
VANGUARD Vanguard's Tele-Account is a convenient, automated service
TELE-ACCOUNT that provides share price, price change and yield quota-
tions on Vanguard Funds through any TouchToneTM telephone.
This service also lets you obtain information about your
account balance, your last transaction, and your most re-
cent dividend or capital gains payment. To contact Van-
guard's Tele-Account service, dial 1-800-ON-BOARD (1-800-
662-6273). A brochure offering detailed operating instruc-
tions is available from our Investor Information Depart-
ment (1-800-662-7447).
- -------------------------------------------------------------------------------
23
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<PAGE>
[LOGO OF VANGUARD PRIMECAP FUND APPEARS HERE]
- ---------------
THE VANGUARD GROUP
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR 24-HOUR ACCESS:
1-800-662-6273 (ON-BOARD)
TELECOMMUNICATIONS SERVICE FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
[LOGO OF VANGUARD PRIMECAP FUND APPEARS HERE]
P R O S P E C T U S
APRIL 23, 1996; REVISED OCTOBER 31, 1996
[LOGO OF A MEMBER OF THE VANGUARD GROUP APPEARS HERE]
PO59
