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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
FILE NO. 811-4168
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
THIS AMENDMENT IS BEING FILED ONLY UNDER THE INVESTMENT COMPANY ACT OF 1940.
GEMINI II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997
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GEMINI II, INC. ( THE "FUND")
FORM N-1A, PART A:
RESPONSES TO ITEMS 1 THROUGH 3 HAVE BEEN OMITTED PURSUANT TO PARAGRAPH 4 OF
INSTRUCTION F OF THE GENERAL INSTRUCTIONS TO FORM N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
The Fund is an open-end, diversified management investment company and
is registered with the Securities and Exchange Commission ("SEC") under the
Investment Company Act of 1940 ("1940 Act"). The Fund was incorporated in the
State of Maryland on December 6, 1984. It was originally organized as a dual
purpose, closed-end investment company offering two classes of shares: Income
Shares and Capital Shares. As required by the Fund's charter, all of the issued
and outstanding Income Shares were redeemed by the Fund on January 31, 1997.
Thereafter, pursuant to a vote of the holders of Capital Shares, the Fund was
reorganized as an open-end investment company effective March 4, 1997. The Fund
is not currently offering or selling its shares. If approved by shareholders,
the Fund will merge into Vanguard/Windsor Fund in June of 1997.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term capital
appreciation and current and long-term growth of income, primarily through
investment in dividend paying common stocks. This investment objective is
fundamental and so cannot be changed without the approval of a majority of the
Fund's shareholders. There is no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES
Under normal circumstances, the Fund will invest at least 80% of its
total assets in common stocks. The Fund may also invest in other equity
securities, bonds, notes and money market instruments, although it will not
invest more than 20% of its assets in such securities, except for temporary
defensive purposes. The Fund's stocks will be selected principally on the basis
of fundamental investment value and, at the time of purchase, may be deemed by
the investment adviser to be overlooked or undervalued in the marketplace. Key
to the valuation process is the relationship of a company's underlying earning
power and dividend payout to the market price of its stock. The Fund's holdings
will usually be characterized by relatively low price-earnings ratios and
above-average income yields, in each case as compared to the Standard & Poors
500 Composite Price Index (the "S&P 500 Index"). The S&P 500 Index, which is
heavily weighted towards stocks with large market capitalizations, emphasizes
established companies with consistent dividend records and strong balance
sheets. The investment adviser intends to emphasize stocks with similar
financial characteristics, with the emphasis, however, on "value" stocks with
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relatively high current yields and relatively low price-earnings ratios. The
Fund may also invest in stock futures contracts and options, and in foreign
securities to a limited extent.
INVESTMENT LIMITATIONS
The Fund has adopted certain limitations on its investment practices.
Specifically, the Fund will not:
(1) 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;
(2) invest in securities of other investment companies, except as
may be acquired as a part of a merger, consolidation or
acquisition of assets approved by the Fund's shareholders or
otherwise to the extent permitted by Section 12 of the
Investment Company Act of 1940. The Fund will invest only in
investment companies which have investment objectives and
investment policies consistent with those of the Fund;
(3) 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 15% 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;
(4) purchase or otherwise acquire any security if, as a result,
more than 15% of its net assets would be invested in
securities that are illiquid;
(5) purchase securities on margin, nor sell securities short;
(6) invest for the purpose of exercising control over management
of any company;
(7) make loans, except (i) by purchasing bonds, debentures or
similar obligations (including repurchase agreements) which
are either publicly distributed or customarily purchased by
institutional investors, and (ii) lending its securities to
qualified brokers, dealers, banks and other financial
institutions for the purpose of realizing additional income,
as long as the terms, structure and aggregate amount of such
loans are not inconsistent
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with the Investment Company Act of 1940, or the rules and
regulations or interpretations of the Securities and Exchange
Commission;
(8) underwrite the securities of other issuers, except to the
extent that in connection with the disposition of portfolio
securities the Fund may be deemed an underwriter;
(9) purchase real estate commodities or commodity contracts,
although the Fund may purchase or sell securities in companies
which deal in real estate or interests therein;
(10) invest in or write put, call, straddle or spread options;
(11) invest directly in oil, gas or other mineral exploration
development programs; or
(12) invest more than 25% of the value of its total assets in any
one industry.
These investment limitations are considered at the time investment
securities are purchased. The investment limitations described here are
fundamental, and so may be changed only with the approval of a majority of the
Fund's shareholders.
INVESTMENT RISKS
As a mutual fund investing primarily in common stocks, the Fund is subject to
MARKET RISK -- i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market has tended to be cyclical,
with periods when common stock prices generally rise and periods when prices
generally decline.
The investment adviser manages the Fund according to the traditional methods of
"active" investment management, which involve the buying and selling of
securities based upon economic, financial and market analysis and investment
judgment. 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.
IMPLEMENTATION OF POLICIES
SHORT-TERM FIXED INCOME SECURITIES
Although it normally seeks to remain substantially fully invested in equity
securities, the Fund may invest in certain short-term fixed income securities.
Such securities may be used temporarily to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or to take a temporarily
defensive position against a potential stock market decline. No more than 20% of
the Fund's assets will be committed to short-term fixed
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income securities for purposes other than taking a temporary defensive position.
These securities include: obligations of the United States government and its
agencies or instrumentalities; commercial paper, bank certificates of deposit,
and bankers' acceptances; and repurchase agreements collateralized by these
securities. In addition, the Fund may, on occasion, invest a small portion of
its assets in bonds with ratings below investment grade when selected issues are
believed to offer prospective returns competitive with equity securities.
A repurchase agreement is a means of investing monies for a short period. In a
repurchase agreement, a seller -- a U.S. commercial bank or recognized U.S.
securities dealer -- sells securities to the Fund and agrees to repurchase the
securities at the Fund's cost plus interest within a specified period (normally
one day). In these transactions, the securities purchased by the Fund will have
a total value equal to or in excess of the value of the repurchase agreement,
and will be held by the Fund's Custodian Bank until repurchased.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 20% of its assets in foreign securities and may engage
in currency transactions with respect to such investments. Securities of foreign
issuers may trade in U.S. or foreign securities markets. Securities of foreign
issuers may involve investment risks that are different from those of domestic
issuers. Such risks include the effect of foreign economic policies and
conditions, future political and economic developments, and the possible
imposition of exchange controls or other foreign governmental restrictions on
foreign debt issuers. There may also be less publicly available information
about a foreign issuer than a domestic issuer of securities. Foreign issuers are
generally not subject to the uniform accounting, auditing and financial
reporting standards that apply to domestic issuers. Foreign debt markets may be
characterized by lower liquidity, greater price volatility, and higher
transaction costs. Additionally, it may be difficult to obtain or enforce a
legal judgment in a foreign court.
SECURITIES LENDING
The Fund may lend its investment securities to qualified institutional investors
for either short-term or long-term periods for the purpose of realizing
additional income. Loans of securities by the Fund will be collateralized by
cash, letters of credit, or securities 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.
BORROWING
The Fund may borrow money, subject to the restrictions described on page 2 in
Investment Limitations, for temporary or emergency purposes, including the
meeting of redemption requests which might otherwise require the untimely
disposition of securities.
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PORTFOLIO TURNOVER
Although it generally seeks to invest for the long term, the Fund retains the
right to sell securities irrespective of how long they have been held. It is
anticipated that the annual portfolio turnover of the Fund will not exceed 100%.
A turnover rate of 100% would occur, for example, if all of the securities of
the Fund were replaced within one year.
DERIVATIVES (FUTURES AND OPTIONS)
Derivatives are instruments whose values are linked to or derived from an
underlying security or index. The most common and conventional types of
derivative securities are futures and options.
The Fund may invest in futures contracts and options, but only to a limited
extent. Specifically, the Fund may enter into futures contracts provided that
not more than 5% of 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 common fund management
strategies: to maintain cash reserves while simulating full investments, 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 underlying security or index. While futures contracts
and options can be used as leveraged investments, the Fund may not use futures
or options transactions to leverage its net assets.
For example, in order to remain fully invested in stocks while maintaining
liquidity to meet potential shareholder redemptions, the Fund may invest a
portion of its assets in a stock futures contract. Because futures contracts
only require a small initial margin deposit, the Fund would then be able to
maintain a cash reserve for potential redemptions, while at the same time
remaining fully invested. Also, because the transaction costs of futures and
options may be lower than the costs of investing in stocks directly, it is
expected that the use of futures contracts and options may reduce the Fund's
total transaction costs.
The Fund may use futures contracts for bona fide "hedging" purposes. In
executing a hedge, a manager sells, for example, 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.
The primary risks associated with the use of futures contracts and options are
(i) imperfect correlation between the change in market value of the stocks held
by the Fund and the prices of futures contracts and options; and (ii) possible
lack of a liquid secondary
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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 contracts 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 market.
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 leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (or gain) to the investor. When investing in futures contracts, the Fund
will segregate cash or cash equivalents in the amount of the underlying
obligation.
ITEM 5. MANAGEMENT OF THE FUND
A RESPONSE TO ITEM 5(a) HAS BEEN OMITTED PURSUANT TO PARAGRAPH 4 OF INSTRUCTION
F OF THE GENERAL INSTRUCTIONS TO FORM N-1A.
The Fund employs Wellington Management Company, LLP (WMC), 75 State Street,
Boston, MA 02109, as its investment adviser. WMC manages the Fund subject to the
control of the officers and directors of the Fund. WMC is an investment
counseling firm that was founded in 1931; it currently manages more than $130
billion in assets. The manager responsible for WMC's strategy for
Vanguard/Windsor Fund is:
CHARLES T. FREEMAN, Senior Vice President and Partner of WMC; 30 years
investment experience, 28 years with WMC and Vanguard/Windsor Fund; B.S. and
M.B.A. from the University of Pennsylvania.
Mr. Freeman was appointed Fund manager in January 1996, following the retirement
of John C. Neff, who had managed the Fund since 1964.
Pursuant to the Agreement, the Fund pays the Adviser a fee (the "Basic Fee") at
the end of each 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:
Net Assets Rate
---------- ----
First $300 million.............. 0.350%
Over $300 million............... 0.275%
The Basic Fee, as provided above, may be increased or decreased by an amount
equal to 0.10% per annum (0.025%) per quarter of the average month-end net
assets of the Fund if the Fund's investment performance for the thirty-six
months preceding the end of the quarter is twelve percentage points or more
above or below, respectively, the investment record of the S&P 500 Index for the
same period; or by an amount equal to 0.05% per
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annum (0.0125% per quarter) if the Fund's investment performance for such
thirty-six months is six or more but less than twelve percentage points above or
below, respectively, the investment record of the S&P 500 Index.
During the fiscal year ended December 31, 1996, the Fund paid the Adviser a base
advisory fee of approximately $1,356,000 (.33% of 1% of average net assets),
before a decrease of approximately $185,000 (.05% of 1% of average net assets)
based on the Fund's investment performance.
The Adviser is a Massachusetts limited liability partnership of which the
following persons are managing partners; Messrs. Robert W. Duran, Duncan M.
McFarland, and John R. Ryan.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Fund is a Maryland corporation. The Articles of Incorporation permit the
Directors to issue 30,000,000 shares of common stock, with a one dollar par
value.
The shares of the Fund are fully paid and non-assessable; 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.
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 Company if
requested in writing by the holders of not less than 10% of the outstanding
shares of the Company.
All securities and cash are held by State Street Bank and Trust Company, Boston,
MA. The Vanguard Group, Inc. Valley Forge, PA, serves as the Fund's Transfer and
Dividend Disbursing Agent. Price Waterhouse LLP, serves as independent
accountants for the Fund and will audit its financial statements annually.
Shareholder inquiries should be made to The Vanguard Group, Vanguard Financial
Center, Valley Forge, PA 19482-2600; 1-800- 662-2739.
The Fund does not expect to declare or pay any dividends or distributions prior
to its merger into Vanguard/Windsor Fund, however, the Fund will do so to the
extent necessary to qualify for taxation as a "regulated investment company"
under the Internal Revenue Code.
Any dividends paid by the Fund from net investment income, whether received in
cash or reinvested in additional shares, will be taxable to shareholders as
ordinary income. For corporate investors, dividends from net investment income
will generally qualify in part for the corporate dividends received deduction.
However, the portion of the dividends so
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qualified depends on the aggregate taxable qualifying dividend income received
by the Fund from domestic (U.S.) sources.
Any distributions paid by the Fund from long-term capital gains, whether
received in cash or reinvested in additional shares, are taxable as long-term
capital gains, regardless 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 portfolios securities during the year. The Fund does not seek
to realize any particular amount of capital gains during a year; rather,
realized gains are a by-product of portfolio management activities.
Consequently, capital gains distributions 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.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
The Fund is not currently offering or selling its shares.
ITEM 8. REDEMPTION OR REPURCHASE
REDEEMING SHARES
IMPORTANT TAX NOTE: Any sale or exchange of shares in a non-retirement account
could result in a taxable gain or a loss.
The ability to redeem (that is, sell or exchange) Fund shares by telephone is
automatically established for your account unless you tell us in writing that
you do not want this option.
To protect your account from unauthorized or fraudulent telephone instructions,
Vanguard follows specific security procedures. When we receive a call requesting
an account transaction, we require the caller to provide:
- Fund name.
- 10-digit account number.
- Name and address exactly as registered on that account.
- Social Security or Employee Identification number as
registered on that account.
If you call to sell shares, the sale proceeds will be made payable to
you, as the registered shareholder, and mailed to your account's address of
record.
If we follow reasonable security procedures, neither the Fund nor
Vanguard will be responsible for the authenticity of transaction instructions
received by telephone. We believe that these procedures are reasonable and that,
if we follow them, you bear the risk
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of any losses resulting from unauthorized or fraudulent telephone transactions
on your account.
HOW TO SELL SHARES
You may withdraw any part of your account, at any time, by selling shares. Sale
proceeds are normally mailed within two business days after Vanguard receives
your request. The sale price of your shares will be the Fund's next-determined
net asset value after Vanguard receives all required documents in good order.
Good order means that the request includes:
- Fund name and account number.
- Amount of the transaction (in dollars or shares).
- Signatures of all owners exactly as registered on the account.
- Signature guarantees (if required).
- Any supporting legal documentation that may be required.
- Any certificates you are holding for the account.
Sales or exchange requests received after the close of trading on the
New York Stock Exchange (generally 4 p.m. Eastern time) are processed at the
next business day's net asset value.
The Fund reserves the right to close any non-retirement of UGMA/UTMA
account whose balance falls below the minimum initial investment. The Fund will
deduct a $10 annual fee if your non-retirement account balance falls below
$2,500 or if your UGMA/UTMA account balance falls below $500. The fee is waived
if your total Vanguard account assets are $50,000 or more.
Some written requests require a signature guarantee from a bank,
broker, or other acceptable institution. A notary public cannot provide a
signature guarantee.
Investor Information 1-800-662-7447 Client Services 1-800-662-2739
Tele-Account 1-800-662-6273
HOW TO EXCHANGE SHARES
An exchange is the selling of shares of one Vanguard fund to purchase shares of
another.
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Although we make every effort to maintain the exchange privilege, Vanguard
reserves the right to revise or terminate the exchange privilege, limit the
amount of an exchange, or reject any exchange, at any time, without notice.
Because excessive exchanges can potentially disrupt the management of
the Fund and increase transaction costs, Vanguard limits exchange activity to
two substantive exchange redemptions (at least 30 days apart) from the Fund
during any 12-month period. "Substantive" means either a dollar amount large
enough to have a negative impact on the Fund or a series of movements between
Vanguards funds.
Before you exchange into a new Vanguard fund, be sure to read its
prospectus. For a copy and for answers to questions you might have, call
Investor Information.
SELLING OR ACCOUNT TYPE:
EXCHANGING SHARES
ALL TYPES EXCEPT RETIREMENT:
BY TELEPHONE Call Vanguard Tele-Account*
1-800-662-6273 24 hours a day--or Client
Vanguard Tele-Account Services during business
1-800-662-2739 hours--to sell or exchange
Client Services shares. You can exchange
shares from this Fund to
open an account in another
Vanguard fund or to add to
an existing Vanguard fund
account with an identical
registration.
RETIREMENT:
You can exchange--but not
sell--shares by calling
Tele-Account or Client
Services.
*You must obtain a Personal
Identification Number
through Tele-Account at
least seven days before you
request your first
redemption.
BY MAIL ALL TYPES EXCEPT RETIREMENT:
FIRST CLASS MAIL TO: Send a letter of instruction
The Vanguard Group signed by all registered
Vanguard/Windsor Fund account holders. Include the
P.O. Box 1120 fund name and account number
Valley Forge, PA 19482 and (if you are selling) a
EXPRESS OR REGISTERED dollar amount or number of
MAIL TO: shares or (if you are
The Vanguard Group exchanging) the name of the
Vanguard/Windsor Fund fund you want to exchange
455 Devon Park Drive into and a dollar amount or
Wayne, PA 19087 number of shares.
RETIREMENT: For information
on how to request
distributions from. . .
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- IRA's, call Client
Services.
- SEP-IRA's, 403(b)(7)
custodial accounts and
Profit-Sharing and Money
Purchase Pension (Keogh)
Plans, call Individual
Retirement Services at
1-800-662-2003. Depending on
your account registration
type, additional
documentation may be
required.
AUTOMATICALLY ALL TYPES EXCEPT RETIREMENT;
Vanguard offers several ways
to sell or exchange shares
automatically (see "Services
and Account Features"). Call
Investor Information for the
appropriate booklet and
application if you did not
elect a feature when you
opened your account.
Investor Information 1-800-662-7447 Client Services 1-800-662-2739
Tele-Account 1-800-662-6273
REDEEMING SHARES
It is important that you call Vanguard before you redeem a large dollar
amount. We must consider the interests of all Fund shareholders and so reserve
the right to delay your redemption proceeds--up to seven days--if the amount
will disrupt the Fund's operation or performance.
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determine by the United States
Securities and Exchange Commission. If you experience difficulty making a
telephone redemption during periods of drastic economic or market change, you
can send us your request by regular or express mail. Follow the instructions on
selling or exchanging shares by mail in the "Redeeming Shares" section.
ITEM 9. PENDING LEGAL PROCEEDINGS
The Fund is not involved in any litigation.
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FORM N-1A, PART B
GEMINI II, INC. (THE "FUND")
STATEMENT OF ADDITIONAL INFORMATION
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1997.
ITEM 10. COVER PAGE -- NOT APPLICABLE.
ITEM 11. TABLE OF CONTENTS -- NOT APPLICABLE.
ITEM 12. GENERAL INFORMATION -- NOT APPLICABLE.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objectives and policies
set forth in Part A of the Fund's N-1A.
PORTFOLIO TURNOVER. While the rate of portfolio turnover is not a limiting
factor when the investment adviser deems changes appropriate, it is anticipated
that the annual portfolio turnover rate for each series will not normally exceed
100%. A rate of turnover of 100% could occur, for example, if all of the
securities in a series' portfolio are replaced within a period of one year.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements with
domestic banks, brokers or dealers, either for temporary defensive purposes due
to market conditions, or to generate income from its excess cash balances. A
repurchase agreement is an agreement under which the series acquires a money
market instrument (generally a security issued by the U.S. Government or an
agency thereof, a banker's acceptance or a certificate of deposit) from a
domestic bank, broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally the next business day). A repurchase agreement may
be considered a loan collateralized by securities. The resale price reflects an
agreed upon interest rate effective for the period the instrument is held by the
series and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the series (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Fund's custodian bank until
repurchased. In addition, the Board of Directors will monitor the repurchase
agreement transactions for each series generally and will establish guidelines
and standards for review by the investment adviser of the creditworthiness of
any bank, broker or dealer party to a repurchase agreement with the Fund. No
more than an aggregate of 15% of the Fund's assets, at the time of investment,
will be invested in repurchase agreements having maturities longer than seven
days and in securities subject to legal or contractual restrictions on resale
for which there are no readily available market quotations. See "Illiquid
Securities" on page B-2.
The use of repurchase agreements involves certain risks. For example, if
the seller of the securities under an agreement defaults on its obligation to
repurchase the underlying securities at a time when the value of these
securities has declined, the series may incur a loss upon disposition of them.
If the seller becomes insolvent and subject to liquidation or reorganization
under bankruptcy or other laws, a bankruptcy court may determine that the
underlying securities are collateral for a loan by the series not within the
control of the series and therefore subject to sale by the trustee in
bankruptcy. Finally, it is possible that the series may not be able to
substantiate its interest in the underlying securities. While the Fund's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
LENDING OF SECURITIES. The Fund may lend its portfolio securities to
qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities or completing arbitrage operations. By lending its
portfolio securities, The Fund attempts to increase its income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the series. The Fund may lend its portfolio securities to qualified
brokers, dealers, domestic banks or other domestic financial institutions, so
long as the terms, and the structure of such loans are not inconsistent with the
Investment Company Act of 1940, or the Rules and Regulations or interpretations
of the Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge
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and maintain with the Fund collateral consisting of cash, an irrevocable letter
of credit or securities issued or guaranteed by a domestic bank or the United
States Government having a value at all times not less than 100% of the value of
the securities loaned, (b) the borrower add to such collateral whenever the
price of the securities loaned rises (i.e., the borrower "marks to the market"
on a daily basis), (c) the loan be made subject to termination by the Fund at
any time and (d) the Fund receives reasonable interest on the loan (which may
include the Fund's investing any cash collateral in interest bearing short-term
investments), any distributions on the loaned securities and any increase in
their market value. The Fund will not lend portfolio securities if, as a result,
the aggregate of such loans exceeds 33 1/3% of the value of the series' net
assets. Loan arrangements made will comply with all other applicable regulatory
requirements, including the rules of the New York Stock Exchange, which rules
require the borrower, after notice, to redeliver the securities within the
normal settlement time of three business days. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Board of Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors. In addition, voting rights pass
with the loaned securities, but if a material event occurs affecting an
investment on loan, the loan must be called and the securities voted.
FOREIGN INVESTMENTS. As indicated in Part A, Vanguard/Windsor Fund may
include foreign securities to a certain extent. Investors should recognize that
investing in foreign companies involves certain special considerations which are
not typically associated with investing in U.S. companies.
Country Risk As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in companies in those countries.
Although Vanguard/Windsor Fund will endeavor to achieve most favorable
execution costs in its portfolio transactions in foreign securities, fixed
commissions on many foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges. In addition, it is expected that the expenses for
custodial arrangements of the Portfolios foreign securities will be somewhat
greater than the expenses for the custodial arrangement for handling U.S.
securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income Vanguard/Windsor Fund receives from its foreign investments.
Currency Risk Since the stocks of foreign companies are frequently
denominated in foreign currencies, and since Vanguard/Windsor Fund may
temporarily hold uninvested reserves in bank deposits in foreign currencies, the
Fund will be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations, and may incur costs in connection with
conversions between various currencies. The investment policies of
Vanguard/Windsor Fund permit it to enter into forward foreign currency exchange
contracts in order to hedge holdings and commitments against changes in the
level of future currency rates. Such contracts involve an obligation to purchase
or sell a specific currency at a future date at a price set at the time of the
contract.
ILLIQUID SECURITIES. Illiquid securities are securities that may not be
sold or disposed of in the ordinary course of business within seven business
days at approximately the value at which they are being carried on a Fund's
books. An illiquid security includes repurchase agreements which have a maturity
of longer than seven days, securities which are illiquid by virtue of the
absence of a readily available market, and demand
B-2
<PAGE> 15
instruments with a demand notice exceeding seven days. Illiquid securities may
include securities that are not registered under the Securities Act of 1933 (the
"1933 Act"); however, unregistered securities that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act will not
be considered illiquid so long as it is determined by the Fund's advisor that an
adequate trading market exists for the security.
FUTURES CONTRACTS. The Fund may enter into stock futures contracts,
options, and options on futures contracts only for the purpose of remaining
fully invested and reducing transactions costs. Futures contracts provide for
the future sale by one party and purchase by another party of a specified amount
of a specific security at a specified future time and at a specified price.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission ("CFTC"), a U.S. Government agency. Assets committed
to Futures contracts will be segregated at the Fund's custodian bank to the
extent required by law.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," "selling" a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin that
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. Each series
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
interest rates. Each series intends to use futures contracts only for bona fide
hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions. The Fund will
only sell futures contracts to protect securities it owns against price declines
or purchase contracts to protect against an increase in the price of securities
it intends to purchase. As evidence of this hedging interest, each series
expects that approximately 75% of its futures contract purchases will be
"completed;" that is, equivalent amounts of related securities will have been
purchased or are being purchased by the series upon sale of open futures
contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the exposure of the series' income to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While each series will incur commission expenses in both
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of portfolio securities.
B-3
<PAGE> 16
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Fund will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of the series' total assets. In addition, a series will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under these contracts would exceed 20% of the series' total assets.
Assets committed to futures contracts or options will be held in a segregated
account at the Fund's custodian bank.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may
be closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a series would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying interest rate futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the ability to effectively hedge its portfolio.
The Fund will minimize the risk that it will be unable to close out a futures
contract by only entering into futures contracts which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due to the extremely high degree of leverage involved in futures
pricing. As a result, a relatively small price movement in a futures contract
may result in immediate and substantial loss (as well as gain) to the investor.
For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the futures strategies of the series are engaged in only for hedging
purposes, the advisers do not believe that the series are subject to the risks
of loss frequently associated with futures transactions. The series would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying security and sold it after the decline.
Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option. Additionally, investments in futures and options involve the risk that
the investment adviser will incorrectly predict stock market and interest rate
trends.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. The Fund is required for
Federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on futures contracts as of the end of the year as
well as those actually realized during the year. In most cases, any gain or loss
recognized with respect to a futures contract is considered to be 60% long-term
capital gain or loss and 40% short-term capital gain or loss, without regard to
the holding period of the contract. Furthermore, sales of futures
B-4
<PAGE> 17
contracts which are intended to hedge against a change in the value of
securities held by a series may affect the holding period of such securities
and, consequently, the nature of the gain or loss on such securities upon
disposition. The series may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the series.
In order for the Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income derived from the fund's
business of investing in securities or currencies. In addition, gains realized
on the sale or other disposition of securities held for less than three months
must be limited to less than 30% of the series' annual gross income. It is
anticipated that any net gain realized from the closing of futures contracts
will be considered gain from the sale of securities and therefore be qualifying
income for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the series may be
required to defer the closing out of futures contracts beyond the time when it
would otherwise be advantageous to do so. It is anticipated that unrealized
gains on futures contracts, which have been open for less than three months as
of the end of the Fund's fiscal year and which are recognized for tax purposes,
will not be considered gains on securities held less than three months for the
purpose of the 30% test.
The Fund will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes including unrealized
gains at the end of the Fund's fiscal year, on futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the Fund's other investments and shareholders will be advised on the nature of
the payments.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"); (ii) during any period when an emergency exists,
as defined by the rules of the Commission, as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it, or to
determine fairly the value of its assets; and (iii) for such other periods as
the Commission may permit.
No charge is made by the Company for redemptions. Any redemption may be
more or less than the shareholder's cost, depending on the market value of the
series' portfolio securities.
SIGNATURE GUARANTEES. To protect your account, the Fund and Vanguard from
fraud, signature guarantees are required for certain redemptions. A signature
guarantee verifies the authenticity of your signature. Examples of situations in
which signature guarantees are required are: (1) ALL REDEMPTIONS, REGARDLESS OF
THE AMOUNT INVOLVED, WHEN THE PROCEEDS ARE TO BE PAID TO SOMEONE OTHER THAN THE
REGISTERED ACCOUNT OWNER(S) AND/OR TO AN ADDRESS OTHER THAN THE ADDRESS OF
RECORD; AND (2) SHARE TRANSFER REQUESTS. These requirements are not applicable
to redemptions in Vanguard's prototype retirement plans, except in connection
with: (1) distributions made when the proceeds are to be paid to someone other
than the plan participant; (2) certain authorizations to effect exchanges by
telephone; and (3) when proceeds are to be wired. These requirements may be
waived by the Company in certain instances.
Signature guarantees can be obtained from a bank, broker or any other
guarantor that Vanguard deems acceptable. NOTARIES PUBLIC ARE NOT ACCEPTABLE
GUARANTORS.
B-5
<PAGE> 18
ITEM 14. MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Officers of the Fund manage its day-to-day operations and are
responsible to the Funds' Boards of Directors. The Directors set broad policies
for each Fund and choose its Officers. The following is a list of the Directors
and Officers of the Funds and a statement of their present positions and
principal occupations during the past five years. The mailing address of the
Directors and Officers of the Funds is Post Office Box 876, Valley Forge, PA
19482.
<TABLE>
<S> <C>
JOHN C. BOGLE, Chairman and Director* JOHN C. SAWHILL, Director
Chairman and Director of The Vanguard President and Chief Executive Officer, The
Group, Inc., and each of the investment Nature Conservancy; formerly, Director
companies in The Vanguard Group; and Senior Partner, McKinsey & Co. and
Director of The Mead Corporation, President, New York University; Director
General Accident Insurance and of Pacific Gas and Electric Company,
Chris-Craft Industries, Inc. Proctor & Gamble Company and NACCO
JOHN J. BRENNAN, President, Chief Executive Industries.
Officer & Director* JAMES O. WELCH, JR., Director
President, Chief Executive Officer and Retired Chairman of Nabisco Brands, Inc. and
Director of The Vanguard Group, Inc. and retired Vice Chairman and Director of
each of the investment companies in The RJR Nabisco; Director of TECO Energy,
Vanguard Group. Inc. and Kmart Corporation.
BARBARA BARNES HAUPTFUHRER, Director J. LAWRENCE WILSON, Director
Director of The Great Atlantic and Chairman and Chief Executive Officer, Rohm &
Pacific Tea Company, Raytheon Company, Haas Company; Director of Cummins Engine
Knight- Ridder, Inc., Massachusetts Company; and Trustee of Vanderbilt
Mutual Life Insurance Co., and ALCO University.
Standard, Corp.; Trustee Emerita of
Wellesley College. RAYMOND J. KLAPINSKY, Secretary*
Senior Vice President and Secretary of The
ROBERT E. CAWTHORN, Director Vanguard Group, Inc.; Secretary of each
Chairman Emeritus and Director of Rhone- of the investment companies in The
Poulenc Rorer, Inc., Sun Company, Inc. Vanguard Group.
and Westinghouse Electric Corporation. RICHARD F. HYLAND, Treasurer*
BRUCE K. MACLAURY, Director Treasurer of The Vanguard Group, Inc. and of
President Emeritus of The Brookings each of the investment companies in The
Institution; Director of American Vanguard Group.
Express Bank, Ltd., The St. Paul
Companies, Inc. and National Steel KAREN E. WEST, Controller*
Corporation. Principal of The Vanguard Group, Inc.;
Controller of each of the investment
BURTON G. MALKIEL, Director companies in The Vanguard Group.
Chemical Bank Chairman's Professor of ---------------------------------------------
Economics, Princeton University;
Director of Prudential Insurance Co. of *Officers of the Funds are "interested
America, Amdahl Corporation, Baker persons" as defined in the Investment Company
Fentress & Co., The Jeffrey Co., and Act of 1940.
Southern New England Communications
Company.
ALFRED M. RANKIN, JR., Director
Chairman, President and Chief Executive
Officer of NACCO Industries, Inc.;
Director of The BFGoodrich Company, and
The Standard Products Company.
</TABLE>
B-6
<PAGE> 19
THE VANGUARD GROUP
The Fund is a member of The Vanguard Group of Investment Companies. Through
their jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Fund
and the other Funds in the Group obtain at cost virtually all of their corporate
management, administrative and distribution services. Vanguard also provides
investment advisory services on an at-cost basis to certain of the Vanguard
Funds.
Vanguard employs a supporting staff of management and administrative
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 total 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.
The Funds' Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external adviser
for the Funds.
The Vanguard Group adheres to a Code of Ethics established pursuant to Rule
17 j-1 under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.
The Vanguard Group was established and operates under a Funds' Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts which each of the Funds has invested in Vanguard are adjusted from time
to time in order to maintain the proportionate relationship between each Fund's
relative net assets and its contribution to Vanguard's capital. At December 31,
1996, the Fund had contributed capital of $38,000 to Vanguard, representing 0.2%
of Vanguard's capitalization. The Funds' Service Agreement provides for the
following arrangement: (a) each Vanguard Fund may invest up to 0.40% of its
current net assets in Vanguard and (b) there is no other limitation on the
amount that each Vanguard Fund may contribute to Vanguard's capitalization.
MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties.
DISTRIBUTION. Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for shares of the
Funds in connection with any sales made directly to investors in the states of
Florida, Missouri, New York, Ohio, Texas and such other states as may be
required.
The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The Directors and
Officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon their relative net assets. The remaining
one half of these expenses is allocated among the Funds based upon each Fund's
sales for the preceding 24 months relative to the total sales of the Funds as a
Group, provided, however, that no Fund's aggregate quarterly rate of
contribution for distribution expenses of a marketing and promotional nature
shall exceed 125% of the average distribution expense rate for the Group, and no
Fund shall incur annual distribution expenses in excess of .02 of 1% of its
average month-end net assets.
B-7
<PAGE> 20
INVESTMENT ADVISORY SERVICES. Vanguard also provides investment advisory
services to Vanguard Windsor II, Vanguard Money Market Reserves, Vanguard
Municipal Bond Fund, several Portfolios of Vanguard Fixed Income Securities
Fund, Vanguard Pennsylvania Tax-Free Fund, Vanguard California Tax-Free Fund,
Vanguard New York Insured Tax-Free Fund, Vanguard New Jersey Tax-Free Fund,
Vanguard Ohio Tax-Free Fund, Vanguard Florida Insured Tax-Free Fund, Vanguard
REIT Index Portfolio of Vanguard Specialized Portfolios, Vanguard Index Trust,
Vanguard Bond Index Fund, Vanguard International Equity Index Fund, Vanguard
Balanced Index Fund, Vanguard Admiral Funds, the Total International Portfolio
of Vanguard STAR Fund, Vanguard Tax-Managed Fund, Aggressive Growth Portfolio of
Vanguard Horizon Fund, Vanguard Institutional Index Fund, several Portfolios of
Vanguard Variable Insurance Fund, a portion of Vanguard/Morgan Growth Fund as
well as several indexed separate accounts. These services are provided on an
at-cost basis by an investment management staff employed directly by Vanguard.
The compensation and other expenses of this staff are paid by the Funds
utilizing these services.
REMUNERATION OF DIRECTORS AND OFFICERS
The Fund pays each Director who is not also an Officer an annual fee plus
travel and other expenses incurred in attending Board meetings. The Fund's
Officers and employees are paid by Vanguard which, in turn, is reimbursed by the
Fund, and each other Fund in the Group, for its proportionate share of Officers'
and employees' salaries and retirement benefits. For the fiscal year ended
December 31, 1996, the Fund's proportionate share of remuneration for all
Officers as a group was approximately $20,824 and its proportionate share of the
amounts contributed to the retirement plans of all Officers as a group was
approximately $300.
Under its Retirement Plan, Vanguard contributes annually an amount equal to
10% of each Officer's annual compensation plus 5.7% of that part of the
Officer's compensation during the year, if any, that exceeds the Social Security
Taxable Wage Base then in effect. Under the Thrift Plan, all Officers are
permitted to make pre-tax basic contributions in a maximum amount equal to 4% of
total compensation. Vanguard matches the basic contributions on a 100% basis.
Upon retirement, Directors who are not Officers are paid an annual fee based on
the number of years of service on the Board, up to fifteen years of service. The
fee is equal to $1,000 for each year of service and each investment company
member of The Vanguard Group contributes a proportionate amount of this fee
based on its relative net assets. This fee is paid, subsequent to a Director's
retirement, for a period of ten years or until the death of a retired Director.
The following table provides detailed information with respect to the
amounts paid or accrued for the Directors and the Officers of the Company for
whom the Company's proportionate share of remuneration exceeded $60,000, for the
fiscal year ended December 31, 1996 and for all Directors and Officers as a
group:
GEMINI II
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED ESTIMATED TOTAL COMPENSATION
COMPENSATION AS PART OF ANNUAL BENEFITS FROM ALL VANGUARD FUNDS
NAMES OF DIRECTORS FROM THE COMPANY COMPANY EXPENSES UPON RETIREMENT PAID TO DIRECTORS(2)
- --------------------------- ---------------- --------------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1) $ -- $ -- -- --
John J. Brennan(1) $ -- $ -- -- --
Barbara Barnes Hauptfuhrer $ 111 $ 17 $ 15,000 $65,000
Robert E. Cawthorn $ 111 $ 14 $ 13,000 $65,000
Bruce K. MacLaury $ 121 $ 17 $ 12,000 $60,000
Burton G. Malkiel $ 111 $ 12 $ 15,000 $65,000
Alfred M. Rankin, Jr. $ 111 $ 9 $ 15,000 $65,000
John C. Sawhill $ 111 $ 11 $ 15,000 $65,000
James O. Welch, Jr $ 111 $ 13 $ 15,000 $65,000
J. Lawrence Wilson $ 111 $ 10 $ 15,000 $65,000
</TABLE>
(1) As "Interested Directors", Mr. Bogle and Mr. Brennan receive no compensation
for their service as Directors.
(2) The amounts reported in this column reflect the total compensation paid to
each Director for their service as Director or Trustee of 34 Vanguard funds
(33 in the case of Mr. Malkiel; 27 in the case of Mr. MacLaury).
B-8
<PAGE> 21
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES -- NOT APPLICABLE
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
DURATION AND TERMINATION OF INVESTMENT ADVISORY AGREEMENT
The Fund's present agreement with Wellington Management Company ("WMC")
continues in effect until January 31, 1998. The Agreement is renewable for
successive one-year periods if specifically approved by a vote of the Fund's
Board of Directors at a meeting called for the purpose of considering such
approval. The Board's approval must include the affirmative votes of a majority
of the Directors who are neither parties to the contract or "interested persons"
of such parties (as defined in the Investment Company Act of 1940). In addition,
the question of continuing an investment advisory agreement may be presented to
shareholders. In such an event, the agreement would be continued only if
approved by the affirmative vote of a majority of the outstanding shares of the
Fund to which the agreement related.
The investment advisory agreement is automatically terminated if assigned,
and may be terminated without penalty at any time (1) by majority vote of either
the Board of Directors or the Fund's outstanding shares upon 60 days' written
notice to the adviser, or (2) by the adviser upon 90 days' written notice to the
Fund.
During the fiscal years ended December 31, 1994, 1995 and 1996 the Fund
paid $1,161,000 before a performance increase of $319,000, $1,244,000 before a
performance increase of $297,000 and $1,356,000 before a performance decrease of
$185,000 to WMC as advisory fees, respectively.
MORE INFORMATION ON ADVISERS' INCENTIVE/PENALTY FEES
In April 1972, the Securities and Exchange Commission ("SEC") issued
Release No. 7113 under the Investment Company Act of 1940 to call the attention
of directors and investment advisers to certain factors which must be considered
in connection with investment company incentive fee arrangements. One of these
factors is to "avoid basing significant fee adjustments upon random or
insignificant differences" between the investment performance of a fund and that
of the particular index with which it is being compared. The Release provides
that "preliminary studies (of the SEC staff) indicate that as a 'rule of thumb'
the performance difference should be at least P10 percentage points" annually
before the maximum performance adjustment may be made. However, the Release also
states that "because of the preliminary nature of these studies, the Commission
is not recommending, at this time, that any particular performance difference
exist before the maximum fee adjustment may be made." The Release concludes that
the directors of a fund "should satisfy themselves that the maximum performance
adjustment will be made only for performance differences that can reasonably be
considered significant." The Board of Directors has fully considered the SEC
Release and believes that the performance adjustments as included in the
agreement with WMC is entirely appropriate although not within the P10
percentage points per year range suggested in the Release. Under the Funds'
investment advisory agreements, the maximum performance adjustments are made at
a difference of P12 and P9 percentage points from the performance of the
respective index over a thirty-six month period, which would effectively be the
equivalent of approximately P4 and P3 percentage points difference per year.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
WMC is authorized to (with the approval of the Board of Directors) select
the brokers or dealers that will execute the purchases and sales of portfolio
securities for the Fund. The investment advisory agreement directs WMC to use
its best efforts to obtain the best available price and most favorable execution
as to all transactions. WMC has undertaken to execute each investment
transaction at a price and commission which provides the most favorable total
cost or proceeds reasonably obtainable under the circumstances.
In placing portfolio transactions, WMC will use its best judgment to choose
the broker most capable of providing the brokerage services necessary to obtain
best available price and most favorable execution. The full range and quality of
brokerage services available will be considered in making these determinations.
In those instances where it is reasonably determined that more than one broker
can offer the brokerage services
B-9
<PAGE> 22
needed to obtain the best available price and most favorable execution,
consideration may be given to those brokers which supply investment research and
statistical information and provide other services in addition to execution
services to the Fund and/or WMC. WMC considers such information useful in the
performance of its obligations under the agreement, but is unable to determine
the amount by which such services may reduce its expenses.
The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Board of Directors, each investment adviser may cause the series
to pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the adviser to the Fund and the other Funds in the Group.
Currently, it is the Fund's policy that WMC may at times pay higher
commissions in recognition of brokerage services felt necessary for the
achievement of better execution of certain securities transactions that
otherwise might not be available. WMC will only pay such higher commissions if
it believes this to be in the best interest of the Fund. Some brokers or dealers
who may receive such higher commissions in recognition of brokerage services
related to execution of securities transactions are also providers of research
information to an investment adviser and/or the Fund. However, WMC has informed
the Fund that it will not pay higher commission rates specifically for the
purpose of obtaining research services.
During the fiscal years ended December 31, 1994, 1995 and 1996 the Fund
paid $220,122, $603,267 and $175,475 in brokerage commissions, respectively.
Some securities considered for investment by the Fund may also be
appropriate for other Funds and/or clients served by the investment adviser. If
purchase or sale of securities consistent with the investment policies of the
Fund and one or more of these other Funds or clients served by the investment
adviser are considered at or about the same time, transactions in such
securities will be allocated among the several Funds and clients in a manner
deemed equitable by the investment adviser.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES -- NOT APPLICABLE.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
Reference is made to the response to Item 13, captioned "Redemption of
Shares."
ITEM 20. TAX STATUS -- NOT APPLICABLE.
ITEM 21. UNDERWRITERS -- NOT APPLICABLE.
ITEM 22. CALCULATION OF PERFORMANCE DATA -- NOT APPLICABLE.
ITEM 23. FINANCIAL STATEMENTS.
The Funds' Financial Statements for the year ended December 31, 1996,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 1996, appearing in the Gemini II 1996 Annual Report to
Shareholders, and the reports thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, are incorporated by reference in this Part
B. For a more complete discussion of a
Fund's performance, please see the Fund's 1996 Annual Report to Shareholders,
which may be obtained without charge.
B-10
<PAGE> 23
PART C
GEMINI II, INC.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
The Registrant's audited financial statements for the year ended December
31, 1996, including Price Waterhouse LLP's reports thereon, are incorporated by
reference, in the Statement of Additional Information, from the Registrant's
1996 Annual Reports which have been filed with the Commission as Exhibits to
this Registration Statement. The financial statements included in each of the
Annual Reports are:
1. Statement of Net Assets as of December 31, 1996.
2. Statement of Operations for the year ended December 31, 1996.
3. Statement of Changes in Net Assets for the years ended December 31, 1995
and December 31, 1996.
4. Financial Highlights for each of the five years in the period ended
December 31, 1996.
5. Notes to Financial Statements.
6. Report of Independent Accountants.
(B) EXHIBITS
1. Articles of Amendment and Restatement of GEMINI II, Inc. dated March 3,
1997*
2. By-Laws of Registrant
3. Not Applicable
4. Not Applicable
5. Investment Advisory Agreement
6. Not Applicable
7. Reference is made to the section entitled "Management of the Fund" in
the Registrant's Statement of Additional Information
8. Form of Custody Agreement
9. Form of Vanguard Service Agreement
10. Not Applicable
11. Not Applicable
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
- ---------------
* Filed herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any person.
The officers of the Registrant and the other investment companies in The
Vanguard Group of Investment Companies are identical. In addition, the Officers
of the Registrant are also Officers of The Vanguard Group, Inc. Reference is
made to applicable sections of Part A and Part B of this Registration Statement.
C-1
<PAGE> 24
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1996 the number of shareholders of the Fund was as
follows: 1,753
ITEM 27. INDEMNIFICATION
Reference is made to Article XI of Registrant's Articles of Incorporation.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Wellington Management Company, LLP ("Wellington Management") is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). The list required by this Item 28 of officers and
partners of Wellington Management, together with any information as to any
business profession, vocation or employment of a substantial nature engaged in
by such officers and partners during the past two years, is incorporated herein
by reference to Schedules A and D of Form ADV filed by Wellington Management
pursuant to the Advisers Act (SEC File No. 801-159089).
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None
(b) Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other document required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc. c/o The Vanguard Financial Center, Valley Forge,
Pennsylvania 19482; and Registrant's Custodian, State Street Bank & Trust
Company, Boston, Mass.
ITEM 31. MANAGEMENT SERVICES
Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which was previously filed as Exhibit 9(c) and described in
Part B hereof, the Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940 in regard to shareholders' rights to call
a meeting of shareholders for the purpose of voting on the removal of directors
and to assist in shareholder communications in such matters, to the extent
required by law.
Registrant hereby undertakes to provide an Annual Report to Shareholders
free of charge, upon request.
C-2
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Post-Effective Amendment to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Valley Forge and the Commonwealth of Pennsylvania, on
the 5th day of March, 1997.
VANGUARD/WINDSOR FUNDS, INC.
BY: RAYMOND J. KLAPINSKY
(Raymond J. Klapinsky)
John J. Brennan*,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ------------------------- -------------
<C> <S> <C>
BY: RAYMOND J. Chairman of the Board and March 5, 1997
KLAPINSKY Director
(Raymond J. Klapinsky)
John C. Bogle*
BY: RAYMOND J. President, Chief March 5, 1997
KLAPINSKY Executive Officer and
Director
(Raymond J. Klapinsky)
John J. Brennan*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
Robert E. Cawthorn*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
Burton G. Malkiel*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
Alfred M. Rankin, Jr.*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
John C. Sawhill*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
Bruce K. MacLaury*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
James O. Welch, Jr.*
BY: RAYMOND J. Director March 5, 1997
KLAPINSKY
(Raymond J. Klapinsky)
J. Lawrence Wilson*
BY: RAYMOND J. Treasurer and Principal March 5, 1997
KLAPINSKY Financial Officer and
Accounting Officer
(Raymond J. Klapinsky)
Richard F. Hyland*
</TABLE>
* By Power of Attorney. See 1933 Act File No. 2-14336, January 23, 1990.
Incorporated by Reference.
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Articles of Amendment and Restatement................................................ EX-99-B1
</TABLE>
<PAGE> 1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
GEMINI II, INC.
(under Section 2-609 of Corporations and Association Article)
Gemini II, Inc., a Maryland corporation having its principal office in
Baltimore, Maryland and having its resident agent located in Baltimore City,
Maryland (hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation that:
FIRST: The Charter of the Corporation is hereby amended and restated in
full by striking out Articles First through Tenth and inserting in lieu thereof
the following:
"FIRST: The undersigned, Raymond J. Klapinsky, whose post office
address is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355 and being
at least eighteen years of age, does hereby cause to be filed these
Articles of Incorporation for the purpose of forming a Corporation under
the General Corporation Law of the State of Maryland.
SECOND: The name of the Corporation is Gemini II, Inc.
THIRD: The purpose for which the Corporation is formed is to operate
as an open-end investment company and to exercise all of the powers and to
do any and all of the things as fully and to the same extent as any other
Corporation incorporated under the laws of the State of Maryland, now or
hereinafter in force.
FOURTH: The post office address of the principal office of the
Corporation in the State of Maryland is:
c/o Mr. James E. Baker, Esquire
CSC
Lawyers Incorporating Service Company
11 East Chase Street, Suite 9E
Baltimore, MD 21202
The name and post office address of the initial resident agent of
the Corporation is:
c/o Mr. James E. Baker, Esquire
CSC
Lawyers Incorporating Service
11 East Chase Street, Suite 9E
Baltimore, MD 21202
<PAGE> 2
FIFTH: The total number of shares of stock which the Corporation
shall have authority to issue is Thirty Million (30,000,000) shares of
stock, with a par value of one dollar ($1.00) per share, to be known and
designated as Common Stock, such shares of Common Stock having an
aggregate par value of Thirty Million Dollars ($30,000,000).
Subject to the provisions of these Articles of Incorporation, the
Board of Directors shall have the power to issue shares of Common Stock of
the Corporation from time to time, at prices not less than the net asset
value or par value thereof, whichever is greater, for such consideration
as may be fixed from time to time pursuant to the direction of the Board
of Directors.
Each share shall have equal rights with each other share with
respect to the assets of the Corporation. The dividends payable to the
holders of shares (subject to any applicable rule, regulation or order of
the Securities and Exchange Commission or any other applicable law or
regulation) shall be determined by the Board and need not be individually
declared, but may be declared and paid in accordance with a formula
adopted by the Board. Except as otherwise provided herein, all references
in these Articles of Incorporation to Common Stock shall apply without
discrimination to the shares of stock.
The holder of each share of stock of the Corporation shall be
entitled to one vote for each full share, and a fractional vote for each
fractional share. On any matter submitted to a vote of shareholders, all
shares of the Corporation then issued and outstanding and entitled to
vote, shall be voted in the aggregate. Holders of shares of stock of the
Corporation shall not be entitled to cumulative voting in the election of
Directors or on any other matter.
The affirmative vote of the holders of two-thirds of the
Corporation's shares shall be necessary to the adoption of (a) any
amendment of these Articles of Incorporation or of the By-Laws of the
Corporation that would alter or change the rights or preferences of the
Corporation's shares so as to affect such shares adversely, or would
increase or decrease the amount of authorized shares or would increase or
decrease the par value thereof, (b) any proposal for voluntary liquidation
or dissolution of the Corporation, and (c) any proposal for a merger or
consolidation of the Corporation with or into any other corporation. As to
all other matters put to a shareholder vote, the holders of a majority of
the Corporation's outstanding shares shall constitute a quorum of such
shares, and the approval of a majority of the shares so present shall be
required.
The shares of the Corporation shall have the following powers,
preferences and participating, voting, or other special rights and the
qualifications, restrictions, and limitations thereof shall be as follows:
1. The Board of Directors may from time to time declare and
pay dividends or distributions, in stock or in cash; provided, such
dividends or distributions
2
<PAGE> 3
shall be paid only out of earnings, surplus, or other lawfully available
assets of the Corporation.
2. The Board of Directors shall have the power in its
discretion to distribute in any fiscal year as dividends, including
dividends designated in whole or in part as capital gain distributions,
amounts sufficient, in the opinion of the Board of Directors, to enable
the Corporation to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, or any successor or comparable
statute thereto, and regulations promulgated thereunder (collectively, the
"IRC"), and to avoid liability to the Corporation for Federal income tax
in respect of that year and to make other appropriate adjustments in
connection therewith.
3. In the event of the liquidation or dissolution of the
Corporation, the holders of the shares of Common Stock shall be entitled
to receive a distribution of their pro rata share of the Corporation's net
assets after all liabilities have been paid and provided for.
4. The holders of the shares of Common Stock or other
securities of the Corporation shall have no pre-emptive rights to
subscribe to new or additional shares of its Common Stock or other
securities.
SIXTH: The number of Directors of the Corporation shall be such
number as may from time to time be fixed by the By-Laws of the Corporation
or pursuant to authorization contained in such By-Laws; provided,
notwithstanding anything herein to the contrary, the Board of Directors
may not be fixed at a number less than eight. The name of the Directors
who shall act as such until successors are duly chosen and qualify are:
John C. Bogle, John J. Brennan, Robert E. Cawthorn, Barbara B.
Hauptfuhrer, Bruce K. MacLaury. Burton G. Malkiel, Alfred M. Rankin, Jr.,
John C. Sawhill, James O. Welch, Jr. and J. Lawrence Wilson.
SEVENTH: The private property of the shareholders shall not be
subject to the payment of corporate debts to any extent whatever.
EIGHTH: The following provisions pertain to the management of the
Corporation's business and the conduct of its affairs:
1. The Board shall have the power to fix an initial offering
price for the shares which shall yield to the Corporation not less than
the par value thereof, at which price the shares of the Common Stock of
the Corporation shall be offered for sale, and to determine from time
to time thereafter the offering price which shall yield to the
Corporation not less than the par value thereof from sales of the
shares of its Common Stock; provided, however, that no shares of the
Common Stock of the Corporation shall be issued or sold for a
consideration which shall yield to the Corporation less than the net
3
<PAGE> 4
asset value of such shares determined as hereinafter provided, as of the
business day on which such shares are sold, or at such other times set by
the Board of Directors, except in the case of a dividend properly declared
and payable.
The net asset value of the property and assets of the Corporation
shall be determined at such times as the Board of Directors may direct, by
deducting from the total appraised value of all of the property and assets
of the Corporation, determined in the manner hereinafter provided, all
debts, obligations and liabilities of the Corporation (including, but
without limitation, any or all debts, obligations, liabilities or claims
of any and every kind and nature, whether fixed, accrued, or unmatured,
and any reserves or charges, determined in accordance with generally
accepted accounting principles, for any or all thereof, whether for taxes,
including estimated taxes or unrealized book profits, expenses,
contingencies or otherwise).
In determining the total appraised value of all the property and
assets of the Corporation:
(a) Securities owned shall be valued at market
value or, in the absence of readily available market quotations, at
fair value as determined in good faith by or as directed by the
Board of Directors in accordance with applicable statutes and
regulations.
(b) Dividends declared but not yet received, or
rights, in respect of securities which are quoted ex-dividend or
ex-rights, shall be included in the value of such securities as
determined by or pursuant to the direction of the Board of Directors
on the day the particular securities are first quoted ex-dividend or
ex- rights, and on each succeeding day until the said dividends or
rights are received and become part of the assets of the
Corporation.
(c) The value of any other assets of the
Corporation (and any of the assets mentioned in paragraphs (a) or
(b), in the discretion of the Board of Directors in the event of a
national financial emergency, as hereinafter defined) shall be
determined in such manner as may be approved from time to time by or
pursuant to the direction of the Board of Directors.
The net asset value of each share of the Common Stock of the
Corporation shall be determined by dividing the total market value of
the property and assets of the Corporation by the total number of
shares of its Common Stock then issued and outstanding, including any
shares sold by the Corporation up to and including the date as of which
such net asset value is to be determined, whether or not certificates
therefore have actually been issued. In case the net asset value of
each share so determined shall include a fraction of one cent, such net
asset value of each share shall be adjusted to the nearest full cent.
4
<PAGE> 5
For the purpose of these Articles of Incorporation, a "national financial
emergency" is defined as the whole or any part of any period (i) during
which the New York Stock Exchange is closed, other than for customary
weekend and holiday closings, (ii) during which trading on the New York
Stock Exchange is restricted, (iii) during which an emergency exists as a
result of which disposal by the Corporation of securities it owns is not
reasonably practicable, or it is not reasonably practicable for the
Corporation fairly to determine the value of its net assets, or (iv)
during any other period when the Securities and Exchange Commission (or
any succeeding governmental authority) may for the protection of security
holders of the Corporation by order permit suspension of the right of
redemption or postponement of the date of payment on redemption; provided
that applicable rules and regulations of the Securities and Exchange
Commission (or any succeeding governmental authority) shall govern as to
whether the conditions prescribed in (ii), (iii), or (iv) exist. The Board
of Directors may, in its discretion, declare the suspension described in
(iv) above at an end. Other suspensions relating to a national financial
emergency shall terminate, as the case may be, on the first business day
on which said Stock Exchange shall have opened or the period specified in
(ii) or (iii) shall have expired. In the absence of an official ruling by
said Commission or succeeding authority on such a matter, the
determination of the Board of Directors shall be conclusive.
2. To the extent permitted by law, and except in the case of a
national financial emergency, the Corporation shall redeem shares of its
Common Stock from its stockholders upon request of the holder thereof
received by the Corporation or its designated agent during business hours
of any business day, provided that such request must be accompanied by
surrender of outstanding certificate or certificates for such shares in
form for transfer, together with such proof of the authenticity of
signatures as may reasonably be required on such shares (or, on such
request in the event no certificate is outstanding) by, or pursuant to the
direction of the Board of Directors of the Corporation, and accompanied by
proper stock transfer stamps. Shares redeemed upon any such request shall
be purchased by the Corporation at the net asset value of such shares
determined in the manner provided in Paragraph (l) of this Article Eighth,
as of the close of business on the business day during which such request
was received in good order by the Corporation.
Payments for shares of its Common Stock so redeemed by the Corporation
shall be made from assets of the Corporation in cash, except payment
for such shares may, at the option of the Board of Directors, or such
officer or officers as they may duly authorize for the purpose in their
complete discretion, be made from the assets of the Corporation in kind
or partially in cash and partially in kind. In case of any payment in
kind the Board of Directors, or their delegate, shall have absolute
discretion as to what security or securities of the Corporation shall
be distributed in kind and the amount of the same; and the securities
shall be valued for purposes of distribution at the value at which they
were appraised in computing the current net asset value of the Fund's
shares, provided that any
5
<PAGE> 6
stockholder who cannot legally acquire securities so distributed in kind
by reason of the prohibitions of the Investment Company Act of l940 shall
receive cash.
Payment for shares of its Common Stock so redeemed by the Corporation
shall be made by the Corporation as provided above within seven days after
the date which such shares are deposited; provided, however, that if
payment shall be made by delivery of assets of the Corporation, as
provided above, any securities to be delivered as part of such payment
shall be delivered as promptly as any necessary transfers of such
securities on the books of the several corporations whose securities are
to be delivered may be made, but not necessarily within such seven day
period.
The right of any holder of shares of the Common Stock of the Corporation
to receive dividends thereon, and all other rights of such stockholder
with respect to the shares so redeemed by the Corporation, shall cease and
determine from and after the time as of which the purchase price of such
shares shall be fixed as provided above, except that such stockholder
shall be entitled to receive payment for the redeemed shares as provided
for herein.
NINTH: Except as otherwise provided in Article Fifth, the
Corporation expressly reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, and all
rights, contract and otherwise, conferred herein upon the stockholders are
granted subject to such reservation.
TENTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Maryland, the Board of Directors is expressly
authorized to make, alter or repeal the By-Laws of the Corporation, except
where such power is reserved to shareholders.
ELEVENTH: To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation
Law, no director or officer of the Corporation shall have any liability to
the Corporation or its stockholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.
The Corporation shall indemnify and advance expenses of its currently
acting and its former directors to the fullest extent that indemnification
of directors is permitted by the Maryland General Corporation Law. The
Corporation shall indemnify and advance expenses to its officers to the
same extent as its directors and to such further extent as is consistent
with law. The Board of Directors may by By-Law, resolution or agreement
make further provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the Maryland
General Corporation Law.
6
<PAGE> 7
No provision of this Article shall be effective to protect or purport to
protect any director or officer of the Corporation against any liability
to the Corporation or its security holders to which he would otherwise be
subject by reason or willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
References to the Maryland General Corporation Law in this Article are to
the law as from time to time amended. No further amendment to the Articles
of Incorporation of the Corporation shall affect any right of any person
under this Article based on any event, omission or proceeding prior to
such amendment.
TWELFTH: In furtherance, and not in limitation, of the powers
conferred by the laws of the State of Maryland, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved by the By-Laws to the
stockholders, and except as otherwise required by the Investment Company
Act of 1940;"
SECOND: This Amendment and Restatement of the Corporation's Articles of
Incorporation has been advised and approved by a majority of the entire Board of
Directors and has been approved by the stockholders; and
THIRD: The provisions set forth in this Amendment and Restatement of the
Corporation's Articles of Incorporation are all the provisions of the charter
currently in effect.
IN WITNESS WHEREOF, the undersigned incorporator of Gemini II, Inc.
who executed the foregoing Articles of Incorporation hereby acknowledges the
same to be his act and further acknowledges that, to the best of his knowledge,
the matters and facts set forth therein are true in all material respects under
the penalties of perjury.
Dated this ___ day of ______________, 1997 .
Raymond J. Klapinsky
7
