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VANGUARD/
PRIMECAP FUND
Semiannual Report - June 30, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
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OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 7,000 highly motivated
men and women--who form the cornerstone of our operations. We could not survive
long--let alone prosper--without them. That's why we chose this fiscal year's
fund reports to celebrate the spirit, enthusiasm, and achievements of our crew.
(We call those who work at Vanguard crew members, not employees, because they
operate as a team to accomplish our mission of serving you, our clients.)
But while we prize the collective contributions of our crew, we also take
time to recognize the importance of the individual. Each calendar quarter, we
present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving you
in the years ahead.
[PHOTO] [PHOTO]
John C. Bogle John J. Brennan
Senior Chairman Chairman & CEO
CONTENTS
<TABLE>
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS .................... 1
THE MARKETS IN PERSPECTIVE ....................... 4
REPORT FROM THE ADVISER .......................... 6
PORTFOLIO PROFILE ................................ 8
PERFORMANCE SUMMARY .............................. 10
FINANCIAL STATEMENTS ............................. 11
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
The stock market--led by big blue-chip issues--continued its unprecedented climb
during the first half of 1998. Vanguard/PRIMECAP Fund earned +11.9% during the
period, a return that was excellent in an absolute sense but subpar in relation
to its comparative standards--the average growth mutual fund and the Standard &
Poor's 500 Composite Stock Price Index.
PRIMECAP Fund's return is based on an increase in net asset value from
$39.56 per share on December 31, 1997, to $43.99 per share on June 30, 1998,
with the latter figure adjusted for a dividend of $0.01 per share paid from net
investment income and a distribution of $0.28 per share paid from net realized
capital gains.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
JUNE 30, 1998
- ----------------------------------------------------------
<S> <C>
Vanguard/PRIMECAP Fund +11.9%
- ----------------------------------------------------------
Average Growth Fund +15.1%
- ----------------------------------------------------------
S&P 500 Index +17.7%
- ----------------------------------------------------------
</TABLE>
THE PERIOD IN REVIEW
The U.S. economy grew vigorously, inflation was subdued, and interest rates
declined during the first half of 1998. Strong consumer spending, triggered by
high employment and rising wages, was the economy's propellant and was more than
enough to offset the negative effects of Asia's severe economic slump.
Asia's troubles, which cut the prices of many products imported to the
United States, were partly responsible for the nation's benign
inflation--consumer prices rose only 1.1% for the six months and 1.7% for the
twelve months ended June 30. And low inflation soothed the bond market, where
bond prices rose and interest rates declined: the yield on the 30-year U.S.
Treasury bond was 5.63% on June 30, down 29 basis points (0.29 percentage point)
from its yield at the start of the year. The Lehman Brothers Aggregate Bond
Index, a proxy for the taxable bond market, earned +3.9% during the half-year.
Stock prices wobbled at times--the S&P 500 Index dropped -1.9% on April 27
alone--but rose in every month except May. The market's advance was led by a
relatively narrow segment of blue-chip growth stocks. Indeed, more than half of
the S&P 500 Index's remarkable +17.7% return during the period was accounted for
by fewer than 20 very large-capitalization stocks. The growth component of the
S&P 500 Index returned +23.1%, nearly double the +12.1% earned by its value
stocks. The Wilshire 4500 Index, comprising stocks outside the S&P 500, earned
+9.4%, a return that was excellent except in comparison with the large-cap
segment.
As usual, we now turn to the fund's performance during the past six months.
Whether it is favorable or unfavorable, we report on it as a matter of full
disclosure. But, as we have often reminded you, short-term returns represent
little more--or less--than one lap in a very long race. In any event, PRIMECAP
Fund's +11.9% return was 3.2 percentage points behind that earned by the average
growth fund and 5.8 percentage points behind the +17.7% return on the S&P 500
Index. The unusual dominance of the very largest growth stocks was the chief
reason for our underperformance. PRIMECAP Fund's median market cap of about $11
billion is less than one-quarter the $50 billion median market
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cap of the S&P 500 Index, a disparity that worked to our disadvantage in a
period when bigger was definitely better on Wall Street.
In general, the fund benefited from the industry sectors emphasized by our
adviser, PRIMECAP Management Company. While our largest sectors--technology
(27.5% of assets on average during the period), auto & transportation (18.2% of
assets), and health care (12.7% of assets)--were above-average performers, the
fund's holdings within those sectors did not gain as much as the S&P 500's
holdings. For example, we lagged the S&P auto & transportation group because the
performance of airline stocks, which had served the fund so well during 1997,
took a backseat to automakers' stocks during the first half of 1998.
Our performance versus the Index also was hurt somewhat by the defensive
nature of the fund's cash reserve, which amounted to more than 12% of assets at
the end of the period. The Index, of course, exists only on paper and is always
"fully invested." Real-world portfolios, on the other hand, often hold some cash
while awaiting investment opportunities or to meet shareholder redemptions. In a
rapidly rising stock market such as we experienced during the half-year, cash
serves as a drag on performance.
As you know, PRIMECAP Fund's Board closed the fund to new investors as of
April 21, 1998, a step taken to control the growth of the fund's assets so as
not to hinder the implementation of its investment strategy.
IN SUMMARY
We confess to having been surprised--though quite gratified--by the strength of
the stock market's continuing advance during the first half of 1998. We note
that the return over the past twelve months for the S&P 500 Index (+30.2%) was
nearly three times the long-term average annual return from stocks.
Though we claim no predictive powers, we feel safe in saying that such
outsized returns can't continue indefinitely. And we reiterate our long-standing
recommendation that investors hold balanced portfolios--consisting of bond and
money market funds in addition to stock funds--appropriate to their unique
financial situations, goals, and temperament. Such portfolios are time-tested
vehicles for reaping the rewards of financial markets as well as for "staying
the course" toward your long-term objectives.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
July 10, 1998
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Notice to Shareholders
At a special meeting on June 30, 1998, shareholders of Vanguard/PRIMECAP Fund
overwhelmingly approved four proposals. The proposals and voting results were:
1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST. This change will reduce the
amount of state taxes the fund pays annually by approximately $736,000 at
current asset levels. Approved by 97.07% of the shares voted, as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
FOR AGAINST ABSTAIN
----------------------------------------------------
<S> <C> <C>
132,168,882 2,323,232 1,659,458
----------------------------------------------------
</TABLE>
2a. INVESTMENT LIMITATION CHANGES--INTERFUND LENDING PROGRAM. This change
permits PRIMECAP Fund to participate in Vanguard's interfund lending program,
which allows funds to loan money to each other if--and only if--it makes good
financial sense to do so on both sides of the transaction. The interfund lending
program won't be an integral part of your fund's investment program; it is a
contingency arrangement for managing unusual cash flows. Approved by 96.55% of
the shares voted, as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
FOR AGAINST ABSTAIN
----------------------------------------------------
<S> <C> <C>
131,452,576 2,519,834 2,179,163
----------------------------------------------------
</TABLE>
2b. INVESTMENT LIMITATION CHANGES--BORROWING MONEY AND PLEDGING ASSETS. This
change sets standard limits of 15% of net assets on the amount of money Vanguard
funds can borrow from all sources and on the amount of assets that can be
pledged to secure any loans. Approved by 95.64% of the shares voted, as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
FOR AGAINST ABSTAIN
----------------------------------------------------
<S> <C> <C>
130,219,043 3,355,844 2,576,685
----------------------------------------------------
</TABLE>
2c. INVESTMENT LIMITATION CHANGES--INVESTMENTS IN SECURITIES OWNED BY
AFFILIATES. This change eliminates the fund's policy of avoiding investments in
securities that are owned in certain amounts by Directors, officers, and key
advisory personnel. This policy was well-intentioned but wrongly focused and
unnecessary in light of the fund's Code of Ethics and other regulatory
protections against conflicts of interest on the part of fund management.
Approved by 94.51% of the shares voted, as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
FOR AGAINST ABSTAIN
----------------------------------------------------
<S> <C> <C>
128,671,579 4,800,844 2,679,149
----------------------------------------------------
</TABLE>
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THE MARKETS IN PERSPECTIVE
Six Months Ended June 30, 1998
Blue skies predominated for U.S. financial markets during the first six months
of 1998, and even the occasional clouds had silver linings. The bond market
provided solid returns during the half-year, while the stock market's
performance was extraordinarily strong.
After expanding at a 5.4% annual pace during the first quarter, the U.S.
economy kept steaming along through June, fueled by powerful increases in
household spending. Consumers had reason to be upbeat: plentiful jobs
(unemployment fell to 4.3% of the workforce in May); rising wages (personal
income in May was 5.9% higher than in May 1997); and tame inflation (consumer
prices in June were up only 1.7% from a year before).
The economic push provided by consumers more than compensated for the drag
caused by Asia's severe economic problems. Weakening currencies and business
slowdowns in Asia cut into U.S. exports and lowered the cost of Asian imports,
causing the U.S. trade deficit to hit record levels. Ominously, Asia's problems
appear to be more serious and enduring than many economists expected. Yet for
Americans this "Asian contagion" has a bright side: It serves as an escape valve
for the inflationary pressures that ordinarily would be expected to build up
with the U.S. economy humming along at high speed.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998
------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 17.7% 30.2% 23.1%
Russell 2000 Index 4.9 16.5 16.0
MSCI EAFE Index 16.1 6.4 10.3
- --------------------------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 3.9% 10.5% 6.9%
Lehman 10-Year Municipal Bond Index 2.6 8.5 6.6
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.6 5.3 4.9
- --------------------------------------------------------------------------------
OTHER
Consumer Price Index 1.1% 1.7% 2.5%
- --------------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. EQUITY MARKETS
The mixture of robust economic growth and anemic inflation was a tonic for the
U.S. stock market. Although prices generally rose, there were striking
disparities in returns between large-capitalization and small-cap stocks and
between growth and value stocks. The large-cap-dominated S&P 500 earned 17.7%
during the six months, nearly double the 9.4% return on the rest of the market
(as measured by the Wilshire 4500 Index) and more than triple the 4.9% return on
the small-cap Russell 2000 Index. Within the S&P 500 Index, growth stocks were
up 23.1%, while value stocks rose 12.1%.
A decline in interest rates contributed to the stock market's rise, as
falling rates on bonds tend to make equities more attractive and to boost the
price investors will pay for each dollar of a stock's earnings or dividends. Yet
growth in earnings and dividends--the long-term underpinning of stock
prices--was unimpressive during the first half of 1998.
Corporate earnings estimates were reduced in June, the tenth consecutive
month in which securities analysts have cut their earnings estimates, according
to I/B/E/S International, a financial research group. Earnings by the S&P 500
companies were expected to
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rise by only about 2% for the first half of 1998, I/B/E/S reported. With gains
in prices outstripping increases in earnings and dividends, stock valuations are
at or near all-time highs, an indication that investors expect ideal conditions
to continue.
Technology stocks were the best-performing sector during the first half of
1998, generating a 32.7% return. Three other sectors of the stock market--health
care, consumer discretionary stocks such as retailers, and auto &
transportation--each provided returns of about 25% for the six months. Companies
involved in energy, chemicals, or other commodity-based businesses were
generally laggards. Prices of many commodities have declined as Asia's economic
funk cuts demand for energy and other industrial materials in the face of
plentiful supplies.
U.S. FIXED-INCOME MARKETS
Investors in fixed-income securities enjoyed a moderate rise in the market value
of their holdings because of declining interest rates. This price appreciation,
added to coupon interest income, resulted in solid total returns. The 3.9% total
return of the Lehman Aggregate Bond Index during the half-year brought its
return for the 12 months ended June 30 to 10.5%, or a very generous 8.8% after
adjustment for inflation.
Yields on 10-year and 30-year U.S. Treasury bonds declined by 29 basis
points (0.29 percentage point) to 5.45% and 5.63%, respectively, during the
first half of 1998, with most of the drop occurring during the second quarter.
The yield on 3-month Treasury bills declined 36 basis points to 4.99%. Mild
inflation--consumer prices were up 1.1% for the half-year--enabled rates to
decline despite the economy's strong growth.
Yields on corporate and municipal bonds did not decline as far as those on
Treasury securities because of a large increase in the supply of new bonds
issued by companies and municipalities taking advantage of lower rates to
refinance old debt. Similarly, mortgage-backed securities did not match
Treasuries' performance because of expectations that large numbers of homeowners
would pay off old, higher-coupon mortgage loans and refinance with new,
lower-rate loans.
INTERNATIONAL EQUITY MARKETS
Stock markets in Europe soared while those in Asia and most emerging economies
suffered steep declines in U.S.-dollar terms. The 16.1% overall return from
international markets, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East Index, masked the divergence between Europe and
other regions.
Europe's markets were up 27.1% when measured in local currencies and 26.5%
in U.S. dollars, after adjusting for a slight overall rise in the dollar's
value. Stocks benefited from an upswing in most European economies, from signs
that corporate managers are increasingly focused on shareholder value, and from
optimism concerning next year's planned adoption of the euro as a single
European currency.
In the Pacific, which is dominated by Japan's stock market, stocks were
buffeted by several problems: slowing growth in economic activity; continued
instability in currencies; political upheavals; and widespread worries about
corporate and banking insolvencies. On balance, the region's stocks fell 6.0% in
U.S.-dollar terms. Japanese stocks were down 2.5%, but losses were more severe
in the region's smaller markets.
Emerging markets were, on balance, down sharply. Asian stock markets were
hurt by continued weakness in the currency values of several countries, by
Japan's recession, and by a growing conviction that the region's economic
troubles are far from transitory. Venezuela and Mexico, both key oil-producing
nations, were hard hit by falling oil prices.
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<PAGE> 8
REPORT FROM THE ADVISER
During the first half of 1998, Vanguard/PRIMECAP Fund's total return of 11.9%
trailed both the 17.7% recorded by the unmanaged S&P 500 Index and the 15.1%
achieved by the average growth mutual fund.
It was an exceptionally difficult period for the fund, as we were out of
step with most market trends. In the wake of crashing currencies and stock
markets in Southeast Asia, investors focused on large-capitalization stocks that
they perceived as consistent growers, and they were virtually insensitive to
price in their pursuit of these issues. Consequently, performance was
concentrated in the very largest stocks. According to Merrill Lynch data, the
largest 100 stocks in the S&P 500 Index increased an average of 21.3% during the
six months, while the 400 remaining stocks appreciated only 7.4%. As the
performances of the largest stocks and the broader market diverged, valuations
followed suit.
PRIMECAP Fund, which emphasizes growth at a reasonable price, has about 21%
of its assets in the S&P's 100 largest stocks, versus a weighting of about 68%
for these stocks in the Index itself. We see much greater value in smaller
stocks. However, this strategy clearly hampered our performance in the first
half of the year.
The economic landscape during the period evolved about as we had expected.
Business in Southeast Asia essentially disappeared, but even before this year,
the region represented only a small percentage of revenues for the fund's
companies. The European economy improved, and business in Japan deteriorated
somewhat. The major deviation from the scenario we had expected was that many of
our technology companies reported unanticipated shortfalls in their domestic
business, despite a robust economy.
We believe the primary cause of the weak domestic business is a radical
change in technology companies' approach toward holding inventory. The
sensational success of Dell Computer's "build to order" business model has
generated momentum throughout the technology industry to replicate that model.
This drive to reduce inventories has accelerated due to events in Southeast
Asia. Over the past few years, South Korea and Taiwan, in particular, had built
substantial semiconductor production capacity, believing that this capability
was critical to attaining technological competitiveness on a global scale. The
capacity-building peaked around the end of 1997, just as technology companies
began embracing the new "no inventory" approach. This caused prices of
semiconductors to collapse, thus expediting manufacturers' efforts to reduce
inventory.
We believe that the earnings disappointments among technology companies
have largely been an inventory-liquidation phenomenon and that it has nearly run
its course. Slowing sales to end users have also played a role, but the absolute
level of sales remains healthy and should begin to be reflected in earnings
during the second half. Some areas within technology--most notably Internet
stocks--have been immune to the inventory bubble. With momentum investors--those
who strive to profit by buying the "hot" stocks--clamoring to buy Internet
stocks, these companies propelled technology indexes
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<PAGE> 9
and grabbed the media spotlight. Despite the stocks' potential for extraordinary
growth, the valuations afforded them seem unjustifiably high.
Like Internet stocks, many communications stocks were unaffected by the
inventory liquidation. The fund's holdings in Ericsson, Bay Networks, Tellabs,
Nokia, and Lucent posted gains that significantly outpaced the S&P 500. As with
Internet stocks, communications companies enjoy excellent prospects for growth.
Unlike the Internet group, however, communications stocks' valuations seem
reasonable, and the fund has maintained significant exposure to this group.
After technology, our largest sector commitments continue to be auto &
transportation and health care. Although these two sectors accounted for most of
our favorable performance in 1997, they have depressed our results so far this
year. Unlike our technology stocks, our transportation companies have not
experienced earnings disappointments. On the contrary, business, especially
among the airlines, continues to be exceptionally strong despite weak traffic in
Asia. Load factors and yields remain at record levels, leading to record
profits. Plunging fuel prices are only enhancing what is already the most
prosperous period the airlines have experienced since deregulation. Despite this
scenario, valuations of the group relative to historical norms have not improved
at all. Investors refuse to concede that the airline industry's cyclical nature
has diminished. We believe that the next economic downturn will demonstrate the
change in the airline business--earnings will be preserved at higher levels than
analysts expect. When this occurs, we think the group's relative valuation will
improve.
As we look at the fund, we are encouraged by its relatively attractive
valuation. The 50 largest stocks in the S&P 500, which account for more than
half the market value of the Index, carry a collective price/earnings ratio that
is fully one-third higher than the P/E of the fund's top ten holdings (based on
calendar 1997 earnings). To us, PRIMECAP Fund represents relative value,
especially given our expectation that the earnings growth of our holdings will
exceed that of the S&P 500 over the next several years.
<TABLE>
<S> <C>
Howard B. Schow, Portfolio Manager Theo A. Kolokotrones, Portfolio Manager
Joel P. Fried, Assistant Portfolio Manager F. Jack Liebau Jr., Assistant Portfolio Manager
PRIMECAP Management Company
</TABLE>
July 10, 1998
INVESTMENT PHILOSOPHY
The fund reflects a belief that superior long-term investment results can be
achieved by selecting stocks with prices lower than the fundamental value of the
underlying companies, based on the investment adviser's assessment of such
factors as their industry positions, growth potential, and expected
profitability.
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PORTFOLIO PROFILE
PRIMECAP Fund
This Profile provides a snapshot of the fund's characteristics as of June 30,
1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 9.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -------------------------------------------------------------
PRIMECAP S&P 500
- -------------------------------------------------------------
<S> <C> <C>
Number of Stocks 96 500
Median Market Cap $10.8B $50.0B
Price/Earnings Ratio 20.2x 24.8x
Price/Book Ratio 3.5x 4.5x
Yield 0.8% 1.4%
Return on Equity 18.1% 21.6%
Earnings Growth Rate 19.6% 16.4%
Foreign Holdings 8.4% 1.7%
Turnover Rate 11%* --
Expense Ratio 0.50%* --
Cash Reserves 12.8% --
</TABLE>
*Annualized.
INVESTMENT FOCUS
- ----------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------
PRIMECAP S&P 500
- ----------------------------------------------------------
<S> <C> <C>
R-Squared 0.66 1.00
Beta 0.96 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- ----------------------------------------------------------
<S> <C>
AMR Corp. 4.0%
Texas Instruments, Inc. 3.9
Delta Air Lines, Inc. 3.7
Guidant Corp. 3.5
Pharmacia & Upjohn, Inc. 3.4
Intel Corp. 2.9
FDX Corp. 2.8
Bay Networks, Inc. 2.7
LM Ericsson Telephone Co. 2.5
Micron Technology, Inc. 2.1
- ----------------------------------------------------------
Top Ten 31.5%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ----------------------------------------------------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1998
-----------------------------------------------------------
PRIMECAP PRIMECAP S&P 500
-----------------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation 15.6% 16.0% 3.3%
Consumer Discretionary 10.0 10.2 10.2
Consumer Staples 1.6 2.0 10.7
Financial Services 8.6 6.7 18.5
Health Care 12.9 11.9 12.1
Integrated Oils 0.0 0.0 6.5
Other Energy 0.6 2.1 1.0
Materials & Processing 5.9 6.9 5.2
Producer Durables 15.0 8.9 3.5
Technology 28.5 31.2 13.0
Utilities 0.3 0.0 10.3
Other 1.0 4.1 5.7
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate stock
investment.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a portfolio.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FOREIGN HOLDINGS. The percentage of a portfolio's net assets represented by
stocks or American Depositary Receipts of companies based outside the United
States.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: market capitalization (large, medium, or small) and relative
valuation (growth, value, or a blend).
MEDIAN MARKET CAP. An indicator of the size of companies in which a portfolio
invests; the midpoint of market capitalization (market price x shares
outstanding) of a portfolio's stocks, weighted by the proportion of the
portfolio's assets invested in each stock. Stocks representing half of the
portfolio's assets have market capitalizations above the median, and the rest
are below it.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a portfolio
holds, the more diversified it is and the more likely to perform in line with
the overall stock market.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a portfolio, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a portfolio, the weighted average P/E of the
stocks it holds. P/E is an indicator of market expectations about corporate
prospects; the higher the P/E, the greater the expectations for a company's
future growth.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a portfolio, the weighted average return
on equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a portfolio's common stocks that come
from each of the major industry groups that compose the stock market.
TEN LARGEST HOLDINGS. The percentage of net assets that a portfolio has
invested in its ten largest holdings. (The average for stock mutual funds is
about 30%.) As this percentage rises, a portfolio's returns are likely to be
more volatile because they are more dependent on the fortunes of a few
companies.
TURNOVER RATE. An indication of trading activity during the period. Portfolios
with high turnover rates incur higher transaction costs and are more likely to
distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a portfolio's income from interest and dividends. The
yield, expressed as a percentage of the portfolio's net asset value, is based on
income earned over the past 30 days and is annualized, or projected forward for
the coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
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PERFORMANCE SUMMARY
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the fund could
lose money.
<TABLE>
<CAPTION>
PRIMECAP FUND
TOTAL INVESTMENT RETURNS: NOVEMBER 1, 1984-JUNE 30, 1998
- ---------------------------------------------------------
PRIMECAP FUND S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1984 4.9% 0.0% 4.9% 0.6%
1985 35.6 0.2 35.8 31.8
1986 21.8 1.7 23.5 18.7
1987 -3.2 0.9 -2.3 5.3
1988 13.7 1.0 14.7 16.6
1989 20.2 1.4 21.6 31.7
1990 -3.8 1.0 -2.8 -3.1
1991 31.8 1.3 33.1 30.5
1992 8.2 0.8 9.0 7.6
1993 17.6 0.4 18.0 10.1
1994 10.7 0.7 11.4 1.3
1995 34.4 1.1 35.5 37.6
1996 17.5 0.8 18.3 23.0
1997 36.1 0.7 36.8 33.4
1998* 11.9 0.0 11.9 17.7
- ---------------------------------------------------------
</TABLE>
*Six months ended June 30, 1998.
See Financial Highlights table on page 15 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------
10 YEARS
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRIMECAP Fund 11/1/1984 26.47% 24.51% 17.29% 0.91% 18.20%
- ------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 13
FINANCIAL STATEMENTS
June 30, 1998 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, preferred stocks, bonds,
etc.) and by industry sector. Other assets are added to, and liabilities are
subtracted from, the value of Total Investments to calculate the fund's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the fund to
arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the fund's net assets on both a dollar and per-share basis.
Because all income and any realized gains must be distributed to shareholders
each year, the bulk of net assets consists of Paid in Capital (money invested by
shareholders). The amounts shown for Undistributed Net Investment Income and
Accumulated Net Realized Gains usually approximate the sums the fund had
available to distribute to shareholders as income dividends or capital gains as
of the statement date. Any Accumulated Net Realized Losses, and any cumulative
excess of distributions over net income or net realized gains, will appear as
negative balances. Unrealized Appreciation (Depreciation) is the difference
between the market value of the fund's investments and their cost, and reflects
the gains (losses) that would be realized if the fund were to sell all of its
investments at their statement- date values.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
PRIMECAP FUND SHARES (000)
- ----------------------------------------------------------
COMMON STOCKS (87.2%)
- ----------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (14.0%)
- - AMR Corp. 5,100,000 $ 424,575
(1)Airborne Freight Corp. 3,160,000 110,402
Arvin Industries, Inc. 740,000 26,871
Delta Air Lines, Inc. 3,050,000 394,212
- - FDX Corp. 4,690,000 294,297
Fleetwood Enterprises, Inc. 1,200,000 48,000
Southwest Airlines Co. 5,775,000 171,084
----------
1,469,441
----------
CONSUMER DISCRETIONARY (8.8%)
Block Drug Co. Class A 270,000 10,260
- - Consolidated Stores, Inc. 582,500 21,116
- - Costco Cos., Inc. 3,500,000 220,719
Dillard's Inc. 1,200,000 49,725
- - Filene's Basement Corp. 995,000 5,426
- - GC Cos. 200,000 10,375
The Gap, Inc. 255,000 15,714
(1)Harcourt General, Inc. 2,600,000 154,700
Manpower Inc. 2,470,000 70,858
(1)The McClatchy Co. Class A 800,000 27,700
- -(1)Neiman Marcus Group Inc. 3,000,000 130,312
NIKE, Inc. Class B 176,000 8,569
Nordstrom, Inc. 949,000 73,310
- -(1)Plantronics, Inc. 1,608,000 82,812
Time Warner, Inc. 600,000 51,262
----------
932,858
----------
CONSUMER STAPLES (1.7%)
Brown-Forman Corp. Class B 700,000 44,975
The Seagram Co. Ltd. 3,300,000 135,094
----------
180,069
----------
ENERGY (1.8%)
Noble Affiliates, Inc. 1,600,000 60,800
(1)Pogo Producing Co. 2,600,000 65,325
Union Pacific Resources
Group, Inc. 3,700,000 64,981
----------
191,106
----------
FINANCIAL SERVICES (5.8%)
American International
Group, Inc. 836,924 122,191
City National Corp. 621,485 22,956
General Re Corp. 720,000 182,520
HSB Group Inc. 300,000 16,050
Marsh & McLennan Cos., Inc. 450,000 27,197
St. Paul Cos., Inc. 1,000,000 42,063
State Street Corp. 1,000,000 69,500
Torchmark Corp. 1,880,000 86,010
Transatlantic Holdings, Inc. 562,500 43,488
----------
611,975
----------
HEALTH CARE (10.4%)
- - Boston Scientific Corp. 500,000 35,813
Guidant Corp. 5,210,632 371,583
Johnson & Johnson 1,100,000 81,125
Eli Lilly & Co. 1,826,640 120,672
- - Lynx Therapeutics Inc. 72,900 683
Medtronic, Inc. 1,996,888 127,302
Pharmacia & Upjohn, Inc. 7,676,900 354,097
----------
1,091,275
----------
MATERIALS & PROCESSING (6.0%)
Belden, Inc. 383,000 11,729
Engelhard Corp. 4,800,000 97,200
(1)Granite Construction Co. 1,400,000 42,875
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MARKET
VALUE*
PRIMECAP FUND SHARES (000)
- -----------------------------------------------------------
<S> <C> <C>
(1)MacDermid, Inc. 1,701,000 $ 48,053
Monsanto Co. 1,800,000 100,575
- - Mycogen Corp. 1,641,000 39,435
OM Group, Inc. 828,100 34,159
Pioneer Hi-Bred
International, Inc. 1,350,000 55,856
Potash Corp. of
Saskatchewan, Inc. 1,600,000 120,900
Stepan Co. 292,600 8,723
Temple-Inland Inc. 1,300,000 70,038
---------
629,543
---------
PRODUCER DURABLES (7.8%)
Caterpillar, Inc. 1,810,000 95,704
Deere & Co. 1,450,000 76,669
- - Dionex Corp. 1,020,000 26,903
Donaldson Co., Inc. 1,080,000 25,515
Flowserve Corp. 732,552 18,039
Kennametal, Inc. 1,140,000 47,595
- - Lexmark International
Group, Inc. Class A 700,000 42,700
(1)Millipore Corp. 2,820,000 76,845
Molex, Inc. 195,312 4,883
Molex, Inc. Class A 195,312 4,565
Nokia Corp. A ADR 960,000 69,660
Pall Corp. 750,000 15,375
Perkin-Elmer Corp. 1,300,000 80,844
Pitney Bowes, Inc. 2,400,000 115,500
(1)Tektronix, Inc. 3,300,000 116,738
----------
817,535
----------
TECHNOLOGY (27.2%)
COMMUNICATIONS TECHNOLOGY
(5.3%)
LM Ericsson Telephone Co.
ADR Class B 9,200,000 263,350
LM Ericsson Telephone Co.
4.25% Cvt. Pfd. 620 4,728
Lucent Technologies, Inc. 300,000 24,956
Motorola, Inc. 2,880,000 151,380
- - Tellabs, Inc. 1,600,000 114,600
COMPUTER SERVICES, SOFTWARE
& SYSTEM (3.0%)
(1)Adobe Systems, Inc. 5,190,000 220,251
- -(1)The SABRE Group
Holdings, Inc. 2,309,200 87,750
- - Tripos Inc. 95,000 1,330
COMPUTER TECHNOLOGY (6.5%)
- - Bay Networks, Inc. 8,770,000 282,833
Compaq Computer Corp. 6,228,925 176,746
- -(1)Evans & Sutherland
Computer Corp. 840,000 21,158
Hewlett-Packard Co. 3,180,000 190,403
- - Stratus Computer, Inc. 377,000 9,543
ELECTRONICS (1.7%)
Sony Corp. ADR 2,119,000 182,366
ELECTRONICS--SEMICONDUCTORS/
COMPONENTS (9.5%)
Intel Corp. 4,075,000 302,059
- - LSI Logic Corp. 1,488,700 34,333
- - Micron Technology, Inc. 8,900,000 220,831
Texas Instruments, Inc. 7,030,000 409,937
- - Xilinx, Inc. 1,100,000 37,400
ELECTRONICS--TECHNOLOGY
(1.2%)
- -(1)Coherent, Inc. 1,800,000 30,881
Symbol Technologies, Inc. 2,499,750 94,366
----------
2,861,201
----------
OTHER (3.7%)
Novartis AG ADR 1,200,000 99,300
Miscellaneous (2.7%) 288,042
----------
387,342
----------
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $5,538,154) 9,172,345
- -----------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- -----------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS
(12.6%)
- -----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.67%, 7/1/1998 $1,324,785 1,324,785
5.76%, 7/1/1998--Note F 616 616
- -----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $1,325,401) 1,325,401
- -----------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $6,863,555) 10,497,746
- -----------------------------------------------------------
OTHER ASSETS AND LIABILITIES
(0.2%)
- -----------------------------------------------------------
Other Assets--Note C 50,462
Liabilities--Note F (28,032)
----------
22,430
- -----------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------
Applicable to 239,127,078
outstanding $.001 par
value shares of beneficial
interest (unlimited a
uthorization) $10,520,176
===========================================================
NET ASSET VALUE PER SHARE $43.99
===========================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
(1)Considered an affiliated company as the Fund owns more than 5% of the
outstanding voting securities of such company. The total market value of
investments in affiliated companies was $1,215,802,000.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
AT JUNE 30, 1998, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------
AMOUNT PER
(000) SHARE
- -----------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 6,704,223 $28.03
Undistributed Net
Investment Income 41,703 .17
Accumulated Net
Realized Gains 140,059 .59
Unrealized Appreciation--
Note E 3,634,191 15.20
- -----------------------------------------------------------
NET ASSETS $10,520,176 $43.99
===========================================================
</TABLE>
12
<PAGE> 15
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by the fund during the
reporting period, and details the operating expenses charged to the fund. These
expenses directly reduce the amount of investment income available to pay to
shareholders as dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRIMECAP FUND
SIX MONTHS ENDED JUNE 30, 1998
(000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends* $ 28,573
Interest 39,573
---------------
Total Income 68,146
---------------
EXPENSES
Investment Advisory Fees--Note B 10,452
The Vanguard Group--Note C
Management and Administrative 12,434
Marketing and Distribution 1,152
Taxes (other than income taxes) 362
Custodian Fees 21
Auditing Fees 8
Shareholders' Reports 84
Annual Meeting and Proxy Costs 36
Trustees' Fees and Expenses 10
---------------
Total Expenses 24,559
- ---------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 43,587
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN ON INVESTMENT SECURITIES SOLD 140,941
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 857,874
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,042,402
===========================================================================================================================
</TABLE>
*Dividend income from affiliated companies was $3,353,000.
13
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
fund, either by purchasing shares or by reinvesting distributions, as well as
the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PRIMECAP FUND
-------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUN. 30, 1998 DEC. 31, 1997
(000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 43,587 $ 42,005
Realized Net Gain 140,941 289,401
Change in Unrealized Appreciation (Depreciation) 857,874 1,327,647
-----------------------------------
Net Increase in Net Assets Resulting from Operations 1,042,402 1,659,053
-----------------------------------
DISTRIBUTIONS
Net Investment Income (2,328) (39,529)
Realized Capital Gain (65,221) (248,608)
-----------------------------------
Total Distributions (67,549) (288,137)
-----------------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 2,215,095 3,307,320
Issued in Lieu of Cash Distributions 65,922 282,274
Redeemed (921,857) (978,333)
-----------------------------------
Net Increase from Capital Share Transactions 1,359,160 2,611,261
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase 2,334,013 3,982,177
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 8,186,163 4,203,986
-----------------------------------
End of Period $10,520,176 $8,186,163
===========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 52,253 85,932
Issued in Lieu of Cash Distributions 1,528 7,480
Redeemed (21,562) (26,285)
-----------------------------------
Net Increase in Shares Outstanding 32,219 67,127
===========================================================================================================================
</TABLE>
14
<PAGE> 17
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis. It also presents the fund's Total Return and
shows net investment income and expenses as percentages of average net assets.
These data will help you assess: the variability of the fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the fund's total return; how much it costs to operate the fund;
and the extent to which the fund tends to distribute capital gains. The table
also shows the Portfolio Turnover Rate, a measure of trading activity. A
turnover rate of 100% means that the average security is held in the fund for
one year.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PRIMECAP FUND
YEAR ENDED DECEMBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD JUNE 30, 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $39.56 $30.08 $26.23 $19.98 $18.42 $16.19
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .18 .21 .19 .22 .12 .07
Net Realized and Unrealized Gain (Loss)
on Investments 4.54 10.77 4.59 6.84 1.97 2.82
-------------------------------------------------------------------------
Total from Investment Operations 4.72 10.98 4.78 7.06 2.09 2.89
-------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.01) (.20) (.20) (.22) (.12) (.07)
Distributions from Realized Capital Gains (.28) (1.30) (.73) (.59) (.41) (.59)
-------------------------------------------------------------------------
Total Distributions (.29) (1.50) (.93) (.81) (.53) (.66)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $43.99 $39.56 $30.08 $26.23 $19.98 $18.42
=========================================================================================================================
TOTAL RETURN 11.95% 36.79% 18.31% 35.48% 11.41% 18.03%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $10,520 $8,186 $4,204 $3,237 $1,554 $791
Ratio of Total Expenses to
Average Net Assets 0.50%* 0.51% 0.59% 0.58% 0.64% 0.67%
Ratio of Net Investment Income to
Average Net Assets 0.89%* 0.69% 0.69% 0.99% 0.79% 0.44%
Portfolio Turnover Rate 11%* 13% 10% 7% 8% 16%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
15
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
Vanguard/PRIMECAP Fund is registered under the Investment Company Act of 1940 as
a diversified open-end investment company, or mutual fund.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Equity securities are valued at the latest quoted
sales prices as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on the valuation date; such securities not
traded on the valuation date are valued at the mean of the latest quoted bid and
asked prices. Prices are taken from the primary market in which each security
trades. Temporary cash investments are valued at cost, which approximates market
value. Securities for which market quotations are not readily available are
valued by methods deemed by the Board of Trustees to represent fair 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, transfers uninvested cash balances to a Pooled Cash Account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold.
B. PRIMECAP Management provides investment advisory services to the fund for a
fee calculated at an annual percentage rate of average net assets. For the six
months ended June 30, 1998, the advisory fee represented an effective annual
rate of 0.21% of the fund's average net assets.
C. The Vanguard Group 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 Trustees. At June 30, 1998,
the fund had contributed capital of $2,016,000 to Vanguard (included in Other
Assets), representing 2.9% of Vanguard's capitalization. The fund's Trustees and
officers are also Directors and officers of Vanguard.
D. During the six months ended June 30, 1998, the fund purchased $1,530,470,000
of investment securities and sold $480,914,000 of investment securities, other
than temporary cash investments.
E. At June 30, 1998, net unrealized appreciation of investment securities for
financial report- ing and federal income tax purposes was $3,634,191,000,
consisting of unrealized gains of $3,812,839,000 on securities that had risen in
value since their purchase and $178,648,000 in unrealized losses on securities
that had fallen in value since their purchase.
F. The market value of securities on loan to brokers/dealers at June 30, 1998,
was $597,000, for which the fund held cash collateral of $616,000. Cash
collateral received is invested in repurchase agreements.
16
<PAGE> 19
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Senior Chairman of the Board and Director of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc., and
of each of the investment companies in The Vanguard Group.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
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 Co., Procter & Gamble Co., 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., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500,"
and "500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of trademarks and copyrights relating to the Russell
Indexes. "Wilshire 4500" and "Wilshire 5000" are
trademarks of Wilshire Associates.
17
<PAGE> 20
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
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500 Portfolio
Extended Market Portfolio
Growth Portfolio
Mid Capitalization Stock
Portfolio
Small Capitalization Growth
Stock Portfolio
Small Capitalization Stock
Portfolio
Small Capitalization Value
Stock Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
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Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
MONEY MARKET FUNDS
Admiral Funds
U.S. Treasury Money Market
Portfolio
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(CA, NJ, NY, OH, PA)
Treasury Money Market Portfolio
BOND FUNDS
Admiral Funds
Intermediate-Term U.S.
Treasury Portfolio
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Portfolio
Short-Term U.S. Treasury
Portfolio
Bond Index Fund
Intermediate-Term Bond
Portfolio
Long-Term Bond Portfolio
Short-Term Bond Portfolio
Total Bond Market Portfolio
Fixed Income Securities Fund
GNMA Portfolio
High Yield Corporate Portfolio
Intermediate-Term Corporate
Portfolio
Intermediate-Term U.S.
Treasury Portfolio
Long-Term Corporate
Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term Corporate
Portfolio
Short-Term Federal Portfolio
Short-Term U.S. Treasury
Portfolio
Municipal Bond Fund
High-Yield Portfolio
Insured Long-Term Portfolio
Intermediate-Term Portfolio
Limited-Term Portfolio
Long-Term Portfolio
Short-Term Portfolio
Preferred Stock Fund
State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
Q592-6/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
