SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT (NO. *) UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. *
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.
VANGUARD TAX-MANAGED FUND
(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
It is proposed that this amendment become effective on *, 1994, pursuant
to paragraph (a) of Rule 485.
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
Registrant elects to register an indefinite number of shares pursuant to
Regulation 24f-2 under the Investment Company Act of 1940. Registrant filed
its Rule 24f-2 Notice for the year ended December 31, 1993 on February 23,
1994.
<PAGE>
VANGUARD TAX-MANAGED FUND
CROSS REFERENCE SHEET
FORM N-1A ITEM NUMBER LOCATION IN PROSPECTUS
Item 1. Cover Page -- Cover Page
Item 2. Synopsis -- Highlights
Item 3. Condensed Financial Information -- Financial Highlights
Item 4. General Description of Registrant -- Investment Objectives;
Investment Limitations; Investment Policies; General Information
Item 5. Management of the Fund -- Trustees and Officers; Management of the
Fund; The Vanguard Group
Item 6. Capital Stock and Other Securities -- Opening an Account and
Purchasing Shares; Selling Your Shares; The Share Price of Each Portfolio;
Dividends, Capital Gains and Taxes; General Information
Item 7. Purchase of Securities Being Offered -- Cover Page; Opening an
Account and Purchasing Shares
Item 8. Redemption or Repurchase -- Selling Your Shares
Item 9. Pending Legal Proceedings -- Not Applicable
FORM N-1A ITEM NUMBER LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page -- Cover Page
Item 11. Table of Contents -- Cover Page
Item 12. General Information and History -- Investment Objectives and
Policies; General Information
Item 13. Investment Objective and Policies -- Investment Objectives and
Policies; Investment Limitations
Item 14. Management of the Fund -- Management of the Fund
Item 15. Control Persons and Principal Holders of Securities -- Management of
the Fund; General Information
Item 16. Investment Advisory and Other Services -- Management of the Fund
Item 17. Brokerage Allocation -- Not Applicable
Item 18. Capital Stock and Other Securities -- General Information; Financial
Statements
Item 19. Purchase, Redemption and Pricing of Securities Being Offered --
Purchase of Shares; Redemption of Shares
Item 20. Tax Status -- Appendix
Item 21. Underwriters -- Not Applicable
Item 22. Calculations of Yield Quotations of Money Market Fund -- Not
Applicable
Item 23. Financial Statements -- Financial Statements
<PAGE>
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THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT
FOR 24-HOUR ACCESS:
1-800-662-6273 (ON BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
P R O S P E C T U S
* , 1994
<PAGE>
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A Member of The Vanguard Group
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PROSPECTUS-- * , 1994
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT--1-800-662-7447
(SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT--1-800-662-2739
(CREW)
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INVESTMENT
OBJECTIVE AND
POLICIES
Vanguard Tax-Managed Fund (the "Fund") is an open-end
diversified investment company designed for long-term
investors seeking to minimize the impact of taxes on their
investment returns. The Fund uses an index-oriented approach
to equity management. The Fund consists of three Portfolios:
The GROWTH AND INCOME PORTFOLIO seeks to provide growth of
capital and moderate current income from investments in
equity securities. Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500 Index") is the Portfolio's
benchmark index.
The CAPITAL APPRECIATION PORTFOLIO seeks to provide growth of
capital with nominal current income from investments in
equity securities. The Russell 1000 Index is the Portfolio's
benchmark index.
The BALANCED PORTFOLIO seeks to provide a balance between
capital growth and income exempt from federal income taxes.
The Portfolio invests 50-55% of its net assets in municipal
securities and 45-50% of its net assets in common stocks. The
Russell 1000 is the benchmark index for equity portion of the
Portfolio. There is no assurance that the Fund will achieve
its stated objective.
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OPENING AN ACCOUNT
To open an account, please complete and return the
Account Registration Form. If you need assistance in
completing this Form, please call the Investor Information
Department, 1-800-662-7447, Monday through Friday, from 8:00
a.m. to 9:00 p.m. (Eastern time) and Saturday, from 9:00 a.m.
to 4:00 p.m. (Eastern time). This Fund is designed for
taxable investors and is not appropriate for Individual
Retirement Accounts (IRAs) and other tax-deferred retirement
plans. The minimum initial investment is $10,000. The Fund is
offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees). However, the Fund incurs expenses
for investment advisory, management, administrative, and
distribution services. SHAREHOLDERS WILL BE CHARGED A 2%
REDEMPTION FEE ON SHARES REDEEMED AFTER BEING HELD FOR LESS
THAN ONE YEAR AND A 1% REDEMPTION FEE ON SHARES REDEEMED
AFTER BEING HELD AT LEAST ONE YEAR BUT LESS THAN FIVE YEARS.
THE REDEMPTION FEES ARE PAYABLE TO THE PORTFOLIO. SEE "FUND
EXPENSES."
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ABOUT THIS PROSPECTUS
This Prospectus is designed to set forth concisely the
information you should know about the Fund before you invest.
It should be retained for future reference. A "Statement of
Additional Information" containing additional information
about the Fund has been filed with the Securities and
Exchange Commission. This Statement is dated , 1994
and has been incorporated by reference into this Prospectus.
It may be obtained, without charge, by writing to the Fund or
by calling the Investor Information Department.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page Page Page
<S> <C> <C>
Introduction........................ 2 Implementation of Policies.......... 9 SHAREHOLDER GUIDE
Fund Expenses....................... 3 Investment Limitations.............. 12 Opening an Account and
Yield and Total Return.............. 4 Management of the Fund.............. 13 Purchasing Shares................. 19
FUND INFORMATION Investment Adviser.................. 13 When Your Account Will Be
Investment Objectives............... 4 Dividends, Capital Gains and Taxes.. 14 Credited.......................... 22
Investment Policies................. 5 The Share Price of Each Portfolio... 16 Selling Your Shares................. 22
Investment Risks.................... 6 General Information................. 17 Exchanging Your Shares.............. 24
Who Should Invest................... 8 Important Information About
Telephone Transactions............ 25
Transferring Registration........... 26
Other Vanguard Services............. 26
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE>
AN INTRODUCTION TO VANGUARD TAX-MANAGED FUND
Vanguard Tax-Managed Fund consists of three Portfolios each
of which seeks to achieve a stated investment objective while
minimizing the impact of taxes on shareholders' returns.
Today, dividends and short-term capital gains distributed by
mutual funds are taxed at federal income tax rates as high as
39.6%. Mutual fund distributions of long-term capital gains
are taxed at federal tax rates of up to 28%. State taxes on
mutual fund distributions also reduce after-tax returns.
THE FUND IS DESIGNED FOR LONG-TERM INVESTORS
THE FUND SEEKS TO MINIMIZE THE IMPACT OF TAXES
Yet, most stock and balanced mutual funds are managed to
maximize PRE-TAX total return, without regard to the tax
consequences of portfolio activity that may result in taxable
distributions. Vanguard Tax-Managed Fund has been designed
for investors who seek to participate in broadly diversified
funds for the long-term (five years or longer) and to
minimize the impact of taxes on their return. The Fund offers
three Portfolios: two equity Portfolios -- the Growth and
Income Portfolio and the Capital Appreciation Portfolio --
and a Portfolio combining stocks and municipal bonds, the
Balanced Portfolio. Each Portfolio has been designed to
minimize the impact of taxes on investors' returns.
The Fund employs various techniques to minimize the impact of
taxes:
* First, each Portfolio employs an index-oriented approach to
equity management designed to provide low portfolio
turnover. By seeking to reduce turnover, the Portfolio
endeavors to defer the realization of capital gains and
minimize the distributions of capital gains.
* Second, each Portfolio is designed ONLY for long-term
investors who expect to own the Portfolio for five years or
longer. A redemption fee of 2% of assets will be assessed
on shares redeemed after being held for less than one year,
and a redemption fee of 1% will be assessed on shares
redeemed after being held for at least one year but less
than five years. These fees are designed to discourage
short-term trading activity. By being paid
directly to the Portfolios, the fees benefit long-term
investors by helping to cover the costs of portfolio
transactions and taxes on realized gains.
* Third, each Portfolio when making sales of securities will
select the share of the security on which it has the
highest cost basis in order to minimize capital gains
distributions.
* Finally, the Capital Appreciation and the Balanced
Portfolios seek to minimize taxable dividend income by
emphasizing stocks with low dividend yields. The Balanced
Portfolio also invests at least 50% of its assets in tax-
exempt municipal bonds to provide tax-free income.
While the Fund seeks to minimize taxable distributions, the
Portfolios may nevertheless realize taxable gains from time
to time. Of course, shareholders may also be required to pay
taxes on capital gains realized, if any, upon redemption of
shares of the Fund.
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<PAGE>
FUND
EXPENSES
The following table illustrates ALL expenses and fees you
would incur as a shareholder of the Growth and Income,
Capital Appreciation, and Balanced Portfolios. The expenses
and fees set forth below are estimates, since the Fund had
not commenced operations as of the date of this Prospectus.
<TABLE>
<CAPTION>
GROWTH AND CAPITAL
INCOME APPRECIATION BALANCED
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Load Imposed on Purchases............... None None None
Sales Load Imposed on Reinvested
Dividends................................... None None None
Redemption Fees*:
shares held less than 1 year................ 2% 2% 2%
shares held at least 1 but
less than 5 years......................... 1% 1% 1%
shares held 5 years or more................. None None None
Exchange Fees................................. None None None
<FN>
*The fee withheld from redemption proceeds is paid to the Portfolio.
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND CAPITAL
ANNUAL PORTFOLIO INCOME APPRECIATION BALANCED
OPERATING EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management & Administrative
Expenses........................... *% *% *%
Investment Advisory Fees............. None None None
12b-1 Fees........................... None None None
Other Expenses
Distribution Costs................. *% *% *%
Miscellaneous Expenses............. * * *
---- ---- ----
Total Other Expenses................. * * *
---- ---- ----
TOTAL OPERATING EXPENSES............. 0.25% 0.25% 0.25%
==== ==== ====
</TABLE>
The purpose of this table is to assist you in understanding
the various costs and expenses that you would bear directly
or indirectly as an investor in the Growth and Income,
Capital Appreciation, and Balanced Portfolios.
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REDEMPTION FEE
Each Portfolio of the Vanguard Tax-Managed Fund is intended
for long-term investors who expect to own shares for at least
five years. A redemption fee of 2% of assets will be assessed
on shares redeemed after being held less than one year and a
redemption fee of 1% of assets will be applied to shares
redeemed after being held at least one but less than five
years. These fees are designed to discourage excessive short-
term trading activity. By being paid directly to the
Portfolios, the fees benefit long-term investors by helping
to cover the costs of portfolio transactions and taxes on
realized gains.
Only the "first-in, first-out" (FIFO) method will be used for
the purpose of calculating the holding period of shares.
Under this method, the date of a redemption or exchange will
be compared to the earliest purchase date of shares in the
account. If this holding period is less than one-year, a 2%
fee will be assessed. If this holding period is at least one
<PAGE>
year but less than five years, a 1% fee will be assessed. The
fee will be prorated if the shares redeemed or exchanged have
been held for time periods subject to differing fees. The fee
will not apply to shares purchased through reinvestment of
dividends or capital gains.
ILLUSTRATION OF EXPENSES
The following example illustrates the expenses that you would
incur on a $1,000 investment over various periods, assuming
(1) a 5% annual rate of return and (2) redemption at the end
of each period.
1 YEAR 3 YEARS
----- -----
$* $*
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY
BE HIGHER OR LOWER THAN THOSE SHOWN.
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YIELD AND
TOTAL RETURN
From time-to-time a Portfolio of the Fund may advertise its
yield and total return. Both yield and total return figures
are based on historical earnings and are not intended to
indicate future performance. The "total return" of a
Portfolio refers to the average annual compounded rates of
return over one-, five- and ten-year periods or for the life
of the Portfolio (as stated in the advertisement) that would
equate an initial amount invested at the beginning of a
stated period to the ending redeemable value of the
investment, assuming the reinvestment of all dividend and
capital gains distributions.
The "30-day yield" of a portfolio is calculated by dividing
the net investment income per share earned during a 30-day
period by the net asset value per share on the last day of
the period. Net investment income includes interest and
dividend income earned on a Portfolio's securities; it is net
of all expenses and all recurring and nonrecurring charges
that have been applied to all shareholder accounts. The yield
calculation assumes that net investment income earned over 30
days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are
standardized for all stock and bond mutual funds. However,
these methods differ from the accounting methods used by a
Portfolio to maintain its books and records, and so the
advertised 30-day yield may not fully reflect the income paid
to your own account or the yield reported in a Portfolio's
reports to shareholders.
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INVESTMENT
OBJECTIVES
The Fund is an open-end diversified investment company
offering three Portfolios which seek to minimize the impact
of taxes on investors' returns.
* The GROWTH AND INCOME PORTFOLIO seeks to minimize capital
gains distributions while providing long-term capital
growth and a moderate level of taxable current income. The
Portfolio invests in common stocks using an index-oriented
investment approach to minimize portfolio turnover and the
realization of capital gains within the Portfolio. Its
benchmark index is the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index") which emphasizes large
capitalization companies. Large capitalization stocks, on
average, have moderate dividend yields (the distribution
yield of the S&P 500 Index was * on * ).
<PAGE>
* The CAPITAL APPRECIATION PORTFOLIO seeks to minimize
capital gains and dividend distributions while providing
long-term growth of capital. The Portfolio may be expected
to provide a nominal level of taxable income. The Portfolio
invests in common stocks using an index-oriented strategy
in an effort to minimize portfolio turnover and the
realization of capital gains within the Portfolio. The
Portfolio's benchmark index is the Russell 1000 Index, an
Index of large and medium capitalization stocks. The
Portfolio emphasizes low yielding stocks; therefore, its
return will vary from the return of the Russell 1000 Index.
* The BALANCED PORTFOLIO seeks to minimize capital gains and
taxable dividend distributions while providing a
combination of reasonable current income (nominal taxable
income and moderate tax-exempt income) and long-term growth
of capital. The Portfolio invests 50-55% of its assets in
intermediate-term municipal securities which provide income
that is exempt from federal income taxes. The dollar
weighted average maturity of the municipal securities is
targeted to be between 7 and 12 years. The Portfolio
invests the remaining 45-50% of its assets in common stocks
using an index-oriented strategy in an effort to minimize
portfolio turnover and the realization of capital gains
within the Portfolio. The benchmark index for the equity
portion of the Portfolio is the Russell 1000 Index;
however, the Portfolio emphasizes low yielding stocks,
therefore, the return of the equity component will vary
from the return of the Russell 1000 Index.
There is no assurance that the Portfolios will achieve their
stated objectives.
These investment objectives are not fundamental and so may be
changed by the Board of Directors without shareholder
approval. However, shareholders would be notified prior to a
material change in a Portfolio's objective.
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INVESTMENT
POLICIES
The three Portfolios of the Fund are managed in order to
minimize the impact of taxes on investor's returns. Each
Portfolio employs an index-oriented approach to equity
management by attempting to approximate the performance
of a benchmark index.
The GROWTH AND INCOME PORTFOLIO invests in substantially all
500 stocks in the S&P 500 Index, an index which emphasizes
large capitalization companies. Management techniques used to
minimize the realization of capital gains might from time to
time cause the proportion of the Portfolio's assets invested
in each stock to differ from the proportion found in the S&P
500 Index. As a result, the Portfolio's return will vary more
from the S&P 500 Index than the returns of a Portfolio that
uses a pure index-management approach.
The CAPITAL APPRECIATION PORTFOLIO invests in a statistical
sample of the stocks included in the Russell 1000 Index.
Stocks are selected for inclusion in the Portfolio based on
their contribution to the Portfolio's market capitalization,
industry weightings and other fundamental characteristics
such as price earnings ratios, dividend yields, price-to-book
ratios and financial leverage. To minimize taxable dividend
distributions, the Portfolio emphasizes stocks with low
dividend yields. As a result of the low dividend emphasis and
management techniques used to minimize capital gains, the
returns of the Portfolio will deviate from the returns of the
Russell 1000 Index.
<PAGE>
The BALANCED PORTFOLIO invests 50-55% of its assets in
intermediate-term municipal securities which provide interest
income exempt from federal income taxes. The municipal
securities will be of investment grade quality--i.e., those
rated at least Baa by Moody's Investors Services, Inc. or BBB
by Standard & Poor's Corporation. The securities will target
a dollar weighted average maturity of 7-12 years. The
municipal bond portion of the Balanced Portfolio is managed
according to a traditional "active" management style which
involves the buying and selling of securities based upon
economic, financial and market analysis and investment
judgment. In managing the municipal bond component of the
Balanced Portfolio, portfolio turnover will be kept low in
order to minimize the realization of capital gains. The
Portfolio invests the remaining 45-50% of its assets in a
statistical sample of the stocks included in the Russell 1000
Index. The equity portion of the Portfolio will follow the
same investment policies as the Capital Appreciation
Portfolio. (See above).
The investment policies of the Fund are not fundamental and
so may be changed by the Board of Directors without
shareholder approval. However, shareholders would be notified
prior to a material change.
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INVESTMENT
RISKS
Like any investment program, the Fund entails certain risks.
Because the Growth and Income and Capital Appreciation
Portfolios both invest 100% of their assets in stocks and the
Balanced Portfolio invests 45-50% of its assets in stocks,
all three Portfolios are subject to stock market risk--i.e.,
the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market tends
to be cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
To illustrate the volatility of stock prices, the following
table sets forth the extremes for stock market returns as
well as the average return for the period from 1926 to 1993,
as measured by the S&P 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
U.S. STOCK MARKET RETURNS (1926-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
----- ----- ------ ------
<S> <C> <C> <C> <C>
Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.3 +10.3 +10.6 +10.6
</TABLE>
As shown, from 1926 to 1993, common stocks, as measured by
the S&P 500 Index, have provided an annual total return
(capital appreciation plus dividend income), on average, of
+12.3%. While this average return can be used as a guide for
setting reasonable expectations for future stock market
returns, it may not be useful for forecasting future returns
in any particular period, as stock returns are quite volatile
from year-to-year.
<PAGE>
Historically, medium capitalization stocks, such as *% of
those found in the Russell 1000 Index on March 31, 1994, have
been more volatile in price than the larger-capitalization
stocks included in the S&P 500 Index. Besides exhibiting
greater price volatility, the price of medium company stocks
may, to a degree, fluctuate independently of larger company
stocks. Medium company stocks constitute approximately *% of
the investments of the Capital Appreciation Portfolio and
approximately *% of the equity portion of the Balanced
Portfolio.
Additionally, the Capital Appreciation Portfolio and the
equity portion of the Balanced Portfolio emphasize low
yielding stocks which may give these Portfolio's "growth"
characteristics. Stocks that emphasize particular investment
characteristics, such as "growth," may fluctuate divergently
from the broad stock market as represented by a given market
benchmark. Further, these stocks may also demonstrate greater
volatility than the broad market index over short or extended
periods of time.
The Balanced Portfolio invests a larger portion of its assets
in intermediate-term municipal securities (50-55% of assets)
than in stocks. Therefore, the Balanced Portfolio will be
subject to interest rate risk--i.e., fluctuations in the
market value of bonds due to changing interest rates. Bond
prices are influenced primarily by changes in the level of
interest rates. When interest rates rise, the prices of bonds
generally fall; conversely, when interest rates fall, bond
prices generally rise. While bonds normally fluctuate less in
price than stocks, there have been extended periods of
cyclical increases in interest rates that have caused
significant declines in bond prices. For example, bond prices
fell 48% from December 1976 to September 1981. However, a
decline in the market value of bonds may be offset in whole
or in part by the high level of income that bonds provide.
The Balanced Portfolio is also subject to credit risk--i.e.,
the likelihood that a bond issuer will fail to make timely
payments of interest and principal. Such credit risk is
expected to be low, however, due to the credit quality and
diversification of the Portfolio's bond investments.
From time to time, the stock and bond markets may fluctuate
independently of one another. In other words, a decline in
the stock market may in certain instances be offset by a rise
in the bond market, or vice versa. As a result, the Balanced
Portfolio, with its balance of common stock and bond
investments, is expected to entail less investment risk (and
a potentially lower return) than mutual funds investing
exclusively in common stocks.
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<PAGE>
WHO SHOULD
INVEST
LONG-TERM TAXABLE INVESTORS SEEKING TO MINIMIZE TAXABLE DISTRIBUTIONS
The Fund is designed for long-term taxable investors who seek
to minimize receipt of taxable distributions. The Fund is not
suitable for Individual Retirement Accounts (IRAs) or other
tax-deferred retirement plans such as Keoghs, 401-k, 403-b,
or money purchase plans.
The three Portfolios of the Fund are designed for investors
seeking low taxable distributions, low costs, and high
relative predictability of return through an index-oriented
management approach.
The GROWTH AND INCOME PORTFOLIO is designed for investors
seeking long-term capital growth and moderate current income
from a diversified portfolio of common stocks.
The CAPITAL APPRECIATION PORTFOLIO is designed for investors
seeking long-term growth of capital with nominal current
income from common stocks.
The BALANCED PORTFOLIO is designed for investors seeking a
balance between long-term capital growth, moderate tax-exempt
income from municipal bonds, and nominal taxable income from
common stocks.
The share prices of the Growth and Income Portfolio and the
Capital Appreciation Portfolio are expected to be volatile,
and investors should be able to tolerate sudden, sometimes
substantial fluctuations in the value of their investments.
The Balanced Portfolio is expected to be less volatile than
the Growth and Income Portfolio and the Capital Appreciation
Portfolio. However, investors in the Balanced Portfolio
should also be able to tolerate sudden fluctuations in the
value of their investment. No assurance can be given that the
Portfolios will achieve their stated objectives or that
shareholders will be protected from the risks inherent in the
markets in which they invest. Investors may wish to purchase
shares on a regular, periodic basis (dollar-cost averaging)
rather than investing in one lump sum in order to reduce the
risk of investing at a particularly unfavorable time.
THE FUND IS DESIGNED ONLY FOR LONG-TERM INVESTORS WHO EXPECT
TO OWN SHARES OF THE FUND FOR FIVE YEARS OR MORE. The Fund is
not intended to provide investors with a means of speculating
on short-term market movements. Investors who engage in
excessive account activity generate additional costs and may
cause a Portfolio to recognize capital gains which are borne
by the Portfolio's remaining shareholders.
In order to discourage short-term trading activity the Fund
has adopted the following policies: the Fund will charge a
2% redemption fee on redemptions of shares held less than one
year and will charge a 1% redemption fee on redemptions of
shares held at least one year but less than five years. The
Fund reserves the right to reject any purchase request
(including exchange purchases from other Vanguard funds) that
is reasonably deemed to be disruptive to efficient portfolio
management, either because of the timing of the investment or
previous excessive trading by the investor. Additionally,
the Fund has adopted exchange privilege limitations as
described in the section "Exchange Privilege Limitations."
Finally, the Fund reserves the right to suspend the offering
of its shares.
<PAGE>
Investors should not consider the Fund a complete investment
program, but should maintain holdings of securities with
different risk characteristics--including common stocks,
bonds and money market instruments. Investors may also wish
to complement an investment in the Fund with other types of
common stock investments.
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IMPLEMENTATION
OF POLICIES
The GROWTH AND INCOME PORTFOLIO holds substantially all the
stocks included in the S&P 500 Index in approximately the
same proportions as they are represented in the Index.
The S&P 500 Index is composed of 500 common stocks, which are
chosen by Standard & Poor's Corporation on a statistical
basis to be included in the Index. The inclusion of a stock
in the S&P 500 Index in no way implies that Standard & Poor's
Corporation believes the stock to be an attractive
investment. The 500 securities, most of which trade on the
New York Stock Exchange, represented, as of March 31, 1994,
approximately *% of the market value of all U.S. common
stocks. Each stock in the S&P 500 Index is weighted by its
market value.
Because of the market-value weighting, the 50 largest
companies in the S&P 500 Index currently account for
approximately 50% of the capitalization of the Index.
Typically, companies included in the S&P 500 Index are the
largest and most dominant firms in their respective
industries. As of March 31, 1994, the five largest companies
in the Index were: General Electric (2.7%), Exxon Corporation
(2.5%), AT&T (2.2%), Wal-Mart Stores (1.9%) and Royal Dutch
Petroleum (1.7%). The largest industry categories were
international oil companies (*%), telephone companies (*%),
electric power (*%), electrical equipment (*%) and
diversified health care companies (*%).
The GROWTH AND INCOME PORTFOLIO is not sponsored, endorsed,
sold or promoted by Standard & Poor's Corporation ("S&P").
S&P makes no representations or warranty, implied or
expressed, to the purchasers of the Portfolio or any member
of the public regarding the advisability of investing in
index funds or the ability of the S&P 500, to track general
stock market performance or to track the general performance
of value and growth stocks. S&P does not guarantee the
accuracy and/or the completeness of the S&P 500, or any data
included herein.
S&P's only relationship to the Portfolio is the licensing of
the S&P marks, and the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Growth
and Income Portfolio.
The CAPITAL APPRECIATION PORTFOLIO holds a statistical sample
of the stocks included in the Russell 1000 Index. The
sampling technique emphasizes stocks with low dividend
yields. Because of this low dividend bias and management
techniques used to minimize the realization of capital gains,
returns from the Portfolio will differ from the Russell 1000
Index.
<PAGE>
The Russell 1000 Index is composed of stocks from the largest
1000 U.S. companies. As of March 31, 1994, the largest
company in the index had a market value of approximately $67
billion; the smallest company's market capitalization was
approximately $250 million. The 1000 securities represented,
as of March 31, 1994, approximately *% of the market value of
all U.S. common stocks.
The BALANCED PORTFOLIO will invest 45-50% of its assets in a
statistical sample of the 1000 stocks included in the Russell
1000 Index. This equity portion of the Balanced Portfolio
will implement investment policies in the same manner as the
Capital Appreciation Portfolio. (See above).
The CAPITAL APPRECIATION and the BALANCED PORTFOLIOS are
neither sponsored by nor affiliated with the Frank Russell
Company. Frank Russell's only relationship to the Portfolio's
is the licensing of the use of the Russell 1000 Index. Frank
Russell Company is the owner of the trademarks and copyrights
relating to the Russell Indexes.
The BALANCED PORTFOLIO invests the remaining 50-55% of its
assets in intermediate-term tax-exempt municipal securities
issued by state and local governments and regional government
authorities. Municipal securities include both municipal
bonds (those securities with maturities of five years or
more) and municipal notes (those securities with maturities
of less than five years).
Municipal bonds are issued for a wide variety of reasons: to
construct public facilities, such as airports, highways,
bridges, schools, hospitals, housing, mass transportation,
streets, water and sewer works; to obtain funds for operating
expenses; to refund outstanding municipal obligations; and to
loan funds to various public institutions and facilities.
Certain industrial development bonds are also considered
municipal bonds if their interest is exempt from federal
income tax. Industrial development bonds are issued on behalf
of public authorities to obtain funds for various privately-
operated manufacturing facilities, housing, sports arenas,
convention centers, airports, mass transportation systems and
water, gas or sewage works.
General obligation municipal bonds are secured by the
issuer's pledge of full faith, credit and taxing power.
Revenue or special tax bonds are payable from the revenues
derived from a particular facility or, in some cases, from a
special excise or other tax, but not from general tax
revenue. Industrial development bonds are ordinarily
dependent on the credit quality of a private user, not the
public issuer.
Municipal notes are issued to meet the short-term funding
requirements of local, regional and state governments.
Municipal notes include tax anticipation notes, bond
anticipation notes, revenue anticipation notes, tax and
revenue anticipation notes, construction loan notes, short-
term discount notes, tax-exempt commercial paper, demand
notes, and similar instruments. Demand notes permit an
investor (such as the Fund) to demand from the issuer payment
of principal plus accrued interest upon a specified number of
days' notice.
<PAGE>
EACH PORTFOLIO MAY INVEST IN SHORT-TERM FIXED INCOME SECURITIES
The Growth and Income and Capital Appreciation Portfolios
attempt to remain fully invested in common stocks. The
Balanced Portfolio attempts to remain fully invested in
common stocks and municipal securities. The three Portfolios
of the Fund may invest temporarily in certain short-term
fixed income securities. Such securities may be used to
invest uncommitted cash balances or to maintain liquidity to
meet shareholder redemptions. 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.
EACH PORTFOLIO MAY USE FUTURES CONTRACTS, OPTIONS AND WARRANTS, CONVERTIBLE
SECURITIES AND SWAP AGREEMENTS
Each Portfolio of the Fund may utilize stock futures
contracts, options, warrants, convertible securities and swap
agreements to a limited extent. Specifically, each Portfolio
may enter into futures contracts and options provided that
not more than 3% of its assets are required as a margin
deposit for futures contracts or options and provided that
not more than 5% of a Portfolio's assets are invested in
futures and options at any time. Additionally, each
Portfolio's investment in warrants will not exceed more than
5% of its assets (2% with respect to warrants not listed on
the New York or American Stock Exchanges). Futures contracts,
options, warrants, convertible securites and swap agreements
may be used for several reasons: to simulate full investment
in the benchmark index while retaining a cash balance for
fund management purposes, to facilitate the Portfolio
management process, or to reduce transaction costs. While
each of these securities can be used as leveraged
investments, the Portfolios may not use them to leverage its
net assets. Since the Fund seeks to minimize taxable
distributions, futures will only be incorporated into the
Portfolio to a very limited extent.
FUTURES CONTRACTS, OPTIONS, WARRANTS, CONVERTIBLE SECURITIES AND SWAP
AGREEMENTS POSE CERTAIN RISKS
The risk of loss associated with 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 an
immediate and substantial loss or gain. However, the
Portfolios will not use futures contracts, options, warrants,
convertible securities and swap agreements for speculative
purposes or to leverage their net assets. Accordingly, the
primary risks associated with the use of futures contracts,
options, warrants, convertible securities and swap agreements
by the Portfolios are: (i) imperfect correlation between the
change in market value of the stocks held by a Portfolio and
the prices of futures contracts, options, warrants,
convertible securities and swap agreements; and (ii) possible
lack of a liquid secondary market for a futures contract and
the resulting inability to close a futures position prior to
its maturity date. The risk of imperfect correlation will be
minimized by investing only in those contracts whose behavior
is expected to resemble that of a Portfolio's underlying
securities. The risk that a Portfolio will be unable to close
out a futures position will be minimized by entering into
such transactions on an exchange with an active and liquid
secondary market. However options, warrants, convertible
securities and swap agreements purchased or sold over-the-
counter may be less liquid than exchange traded securities.
Illiquid securities, in general, may not represent more than
15% of the net assets of a Portfolio of the Fund.
<PAGE>
Swap agreements are contracts between parties in which one
party agrees to make payments to the other party based on the
change in market value of a specified index or asset. In
return, the other party agrees to make payments to the first
party based on the return of a different specified index or
asset. Although swap agreements entail the risk that a party
will default on its payment obligations thereunder, the
Portfolios will minimize this risk by entering into
agreements that mark to market no less frequently than
quarterly. Swap agreements also bear the risk that the
Portfolios will not be able to meet their obligations to the
counterparty. This risk will be mitigated by having the
Portfolios invest in the specific asset for which they are
obligated to pay a return.
EACH PORTFOLIO MAY LEND ITS SECURITIES
Each Portfolio of the Fund may lend its investment securities
to qualified institutional investors for either short-term or
long-term purposes of realizing additional income. Loans of
securities by a Portfolio 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, and such loans may not exceed 33 1/3% of the
value of the Portfolio's net assets.
PORTFOLIO TURNOVER IS EXPECTED TO BE LOW
Although each Portfolio generally seeks to invest for the
long term, the three Portfolios of the Fund retain the right
to sell securities irrespective of how long they have been
held. However, because of the index-oriented investment
management approach of the Fund and because of the management
techniques employed to reduce the realization of capital
gains, the manager initiated portfolio turnover rate for each
Portfolio is expected to be less than 10% annually.
- ------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL
LIMITATIONS
The Fund has adopted certain limitations on its investment
practices. Specifically, each Portfolio of the Fund will not:
(a) with respect to 75% of its assets, purchase securities of
any issuer (except obligations of the U.S. Government and
its instrumentalities) if, as a result, more than 5% of
the value of the Portfolio's assets would be invested in
the securities of such issuer;
(b) with respect to 75% of its assets, purchase more than 10%
of the voting securities of any issuer;
(c) invest more than 25% of its assets in any one industry;
and
(d) borrow money, except that a Portfolio 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
Portfolio'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 a Portfolio's net
assets, the Portfolio will not make any additional
investments.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional Information
may be changed only with the approval of a majority of a
Portfolio's shareholders.
- ------------------------------------------------------------------------------
<PAGE>
MANAGEMENT
OF THE FUND
VANGUARD ADMINISTERS AND DISTRIBUTES THE FUND
The Fund is a member of The Vanguard Group of Investment
Companies, a family of ** investment companies with **
distinct portfolios and total assets in excess of $***
billion. 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 Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most competing
mutual funds. In 1993, the average expense ratio (annual
costs including advisory fees divided by total net assets)
for the Vanguard funds amounted to approximately .30%
compared to an average of 1.02% for the mutual fund industry
(data provided by Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations and
are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
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 of each fund. In addition, each fund bears its
own direct expenses, such as legal, auditing and custodian
fees.
Vanguard provides distribution and marketing services to the
funds. The funds are available on a no-load basis (i.e.,
there are no sales commissions or 12b-1 fees). However, each
fund bears its share of the Group's distribution costs.
- ------------------------------------------------------------------------------
INVESTMENT
ADVISER
VANGUARD MANAGES
THE FUND ON AN
AT-COST BASIS
The Growth and Income and Capital Appreciation Portfolios and
the equity portion of the Balanced Portfolio receive all
investment advisory services on an at-cost basis from
VANGUARD'S CORE MANAGEMENT GROUP. The Core Management Group
also provides investment advisory services to several other
Vanguard Funds, including Vanguard Index Trust, Vanguard
International Equity Index Fund, Vanguard Institutional Index
Fund, Vanguard Balanced Index Fund, Vanguard Variable
Insurance Fund--Equity Index Portfolio, and a portion of
Vanguard/Windsor II, as well as to several indexed separate
accounts. Total assets under management by the Core
Management Group were $ * billion as of March 31, 1994. The
Core Management Group is supervised by the Officers of the
Fund.
In placing portfolio transactions, the Core Management Group
uses its best judgment to choose the broker most capable of
providing the brokerage services necessary to obtain the best
available price and most favorable execution at the lowest
commission rate. The full range and quality of brokerage
services available are considered in making these
<PAGE>
determinations. In those instances where it is reasonably
determined that more than one broker can offer the services
needed to obtain the best available price and most favorable
execution, consideration may be given to those brokers which
supply statistical information and provide other services in
addition to execution services to the Fund.
The municipal securities portion of the Balanced Portfolio
receives all investment advisory services on an at-cost basis
from VANGUARD'S FIXED INCOME GROUP. The Group also provides
investment advisory services to * other Vanguard money market
and bond portfolios, both taxable and tax-exempt. Total
assets under management by Vanguard's Fixed Income Group were
$* billion as of March 31, 1994. The Fixed Income Group is
supervised by the Officers of the Fund.
Ian A. MacKinnon, Senior Vice President of Vanguard, has been
in charge of the Group since its inception in 1981. Mr
MacKinnon is responsible for setting the broad investment
strategies employed by the Fund, and for overseeing the
Portfolio managers who implement those strategies on a day-
to-day basis.
Jerome J. Jacobs, Vice President, serves as portfolio manager
of the municipal securities portion of the Balanced
Portfolio. Associated with the Fixed Income Group since 1984,
Mr. Jacobs currently manages the Long-Term and High-Yield
Portfolios of Vanguard Municipal Bond Fund. Previously he
managed the Short-Term, Limited-Term and Intermediate-Term
Portfolios of Vanguard Municipal Bond Fund.
The Fixed Income Group manages the investment and
reinvestment of its portion of the assets of the Balanced
Portfolio and continuously reviews, supervises and
administers its investment program, subject to the maturity
and quality standards specified in this Prospectus and
supplemental guidelines approved by the Fund's Board of
Directors. The Fixed Income Group's selection of investments
for the Portfolio is based on: (a) continuing credit analysis
of those instruments held in the Portfolio and those being
considered for inclusion therein; (b) possible disparities in
yield relationships between different fixed income
securities; and (c) actual or anticipated movements in the
general level of interest rates.
Vanguard's investment management staff places all orders for
purchases and sales of portfolio securities. Purchase of
portfolio securities are made either directly from the issuer
or from municipal securities dealers. The investment
management staff may sell portfolio securities prior to their
maturity if circumstances and considerations warrant and if
it believes such dispositions advisable. The staff seeks to
obtain the best available net price and most favorable
execution for the portfolio transactions. The full range and
quality of brokerage services are considered in making these
determinations.
- ------------------------------------------------------------------------------
DIVIDENDS,
CAPITAL GAINS
AND TAXES
While the Fund seeks to minimize taxable distributions, each
Portfolio of the Fund will inevitably earn taxable income and
realize capital gains. The Fund distributes substantially all
of its net investment income in the form of dividends. The
three Portfolios expect to pay dividends quarterly from
ordinary income and distribute net capital gains, if any,
annually.
<PAGE>
A Portfolio's dividend and capital gains distributions may be
reinvested in additional shares or received in cash. See
"Choosing a Distribution Option" for a description of these
distribution methods.
In order to satisfy certain distribution requirements of the
Tax Reform Act of 1986, the Portfolio may declare special
year-end dividend and capital gains distributions during
December. Such distributions, if received by shareholders by
January 31, are deemed to have been paid by the Portfolio and
received by shareholders on December 31 of the prior year.
Each Portfolio of the Fund intends to continue to qualify for
taxation as a "regulated investment company" under the
Internal Revenue Code so that each Portfolio will not be
subject to federal income tax to the extent its income is
distributed to shareholders. Dividends paid by the Growth and
Income and the Capital Appreciation Portfolios 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
intercorporate dividends-received deduction. However, the
portion of the dividends so qualified depends on the
aggregate taxable qualifying dividend income received by a
Portfolio from domestic (U.S.) sources.
In addition, the Balanced Portfolio intends to invest a
sufficient portion of its assets in municipal bonds and notes
so that it will qualify to pay "exempt-interest dividends" to
shareholders. Such exempt-interest dividends distributed to
shareholders are excluded from a shareholder's gross income
for federal tax purposes. The Revenue Reconciliation Act
enacted during 1993 provides that market discount
on tax-exempt bonds, purchased after April 30, 1993 must be
taxed as ordinary income. Accordingly, to the extent that the
Fund purchases such discounted securities taxable income may
result. Taxable income will also result from the Portfolio's
equity investments.
In addition, any capital loss realized from municipal
securities held for six months or less is disallowed to the
extent of tax-exempt dividend income received. In other
words, if you held shares in a Portfolio for six months or
less, and sold those shares (or a portion of those shares) at
a loss, the capital loss you report is reduced by the tax-
exempt dividends paid by these shares.
Tax-exempt dividends from a Portfolio, capital gains
disributions from a Portfolio, and any capital gains or
losses realized from the sale or exchange of shares may be
subject to state and local taxes. However, some states allow
shareholders to exclude from state income tax that portion of
a Portfolio's tax-exempt income that is attributable to
municipal securities issued within the shareholder's own
state. To assist shareholders of these states, the Fund will
provide a breakdown of each Portfolio's tax-exempt interest
income on a state-by-state basis at year-end.
Up to 50% of an individual's Social Security benefits may be
subject to federal income tax. Along with other factors,
total tax-exempt income, including any tax-exempt dividend
income from the Balanced Portfolio, is used to calculate the
portion of Social Security benefits that is taxed.
<PAGE>
Distributions paid by a Portfolio 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 Portfolio.
Capital gains distributions are made when a Portfolio
realizes net capital gains on sales of portfolio securities
during the year. Each Portfolio is managed in order to
minimize the amount of capital gains realized during a
particular year. However, the realization of capital gains
is not entirely within the Fund's control and is dependent on
shareholder purchase and redemption activity. Capital gains
distributions may vary considerably from year-to-year; there
will be no capital gains distributions in years when a
Portfolio realizes net capital losses.
Note that if you elect to receive capital gains distributions
in cash, instead of reinvesting them in additional shares,
you are in effect reducing the capital at work for you in a
Portfolio. Also, keep in mind that if you purchase shares in
a Portfolio shortly before the record date for a dividend or
capital gains distribution, a portion of your investment will
be returned to you as a taxable distribution, regardless of
whether you are reinvesting your distributions or receiving
them in cash.
The Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by each
Portfolio.
A CAPITAL GAIN
OR LOSS MAY BE
REALIZED UPON EXCHANGE OR REDEMPTION
A sale of shares of a Portfolio is a taxable event, and may
result in a capital gain or loss. A capital gain or loss may
be realized from an ordinary redemption of shares or an
exchange of shares between two mutual funds (or two
portfolios of the same fund).
Dividend distributions, capital gain distributions, and
capital gains or losses from redemptions and exchanges may be
subject to state and local taxes.
Each Portfolio of the Fund is required to withhold 31% of
taxable dividends, capital gains distributions, and
redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Account
Registration Form your proper Social Security or Taxpayer
Identification Number and by certifying that you are not
subject to backup withholding.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania and does
business and maintains an office in that state. In the
opinion of counsel, the shares of the Portfolios are exempt
from Pennsylvania personal property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult their
own tax advisers concerning the tax consequences of an
investment in the Fund.
- ------------------------------------------------------------------------------
THE SHARE
PRICE OF
EACH PORTFOLIO
The share price or "net asset value" per share of each
Portfolio is determined by dividing the total market value of
the Portfolio's investments and other assets, less any
liabilities, by the number of outstanding shares of the
Portfolio. Net asset value per share is determined once daily
at the close of regular trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time).
<PAGE>
Portfolio securities that are listed on a securities exchange
are valued at the last quoted sales price on the day the
valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily
traded by the Portfolio. Securities which are listed on an
exchange and which are not traded on the valuation date are
valued at the mean of the bid and ask prices. For the Growth
and Income Portfolio, unlisted securities for which market
quotations are not readily available are valued at the latest
quoted bid price. For the Capital Appreciation Portfolio and
the equity portion of the Balanced Portfolio, unlisted
securities for which market quotations are not readily
available are valued at the mean of the bid and ask prices.
Temporary cash investments are valued at amortized cost which
approximates market value. Equity securities for which no
current quotations are readily available are valued at fair
market value as determined in good faith by the Board of
Directors. Equity securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
When approved by the Board of Directors, bonds and other
fixed income securities of the Balanced Portfolio may be
valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market
value of such securities. (Since the majority of municipal
bond issues do not trade each day, current prices are
generally not available for many securities. In estimating a
security's price, a pricing service takes into account
institutional-size trading in similar groups of securities
and any developments related to specific securities.) The
methods used by the pricing service and the valuations so
established are reviewed by the officers of the Fund under
policies determined by the Directors. There are a number of
pricing services available and the Directors, as part of an
on-going evaluation of these services, may authorize the use
of other pricing services or discontinue the use of any
service in whole or in part.
Securities not priced in this manner are priced at the most
recent quoted bid price provided by investment dealers.
Short-term instruments maturing within 60 days of the
valuation date may be valued at cost, plus or minus any
amortized discount or premium. Other assets and securities
for which no quotations are readily available will be valued
in good faith at their fair value using methods determined by
the Directors.
Each Portfolio's share price can be found daily in the mutual
fund listings of most major newspapers under the heading of
The Vanguard Group.
- ------------------------------------------------------------------------------
GENERAL
INFORMATION
The Fund is organized as a Maryland corporation. The Articles
of Incorporation permit the Directors to issue 750,000,000
shares of common stock with a $.001 par value. The Board of
Directors has the power to designate one or more classes
("series") of shares of common stock and to classify or
reclassify any unissued shares with respect to such series.
Currently the Fund is offering shares of three series.
<PAGE>
The shares of each series 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 Fund if
requested in writing by the holders of not less than 10% of
the outstanding shares of the Fund.
All securities and cash are held by * . The Vanguard
Group, Inc., Valley Forge, PA, serves as the Fund's Transfer
and Dividend Disbursing Agent. Price Waterhouse serves as
independent accountant for the Fund and will audit its
financial statements annually. The Fund is not involved in
any litigation.
- ------------------------------------------------------------------------------
<PAGE>
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND PURCHASING SHARES
You may open an account, either by mail or wire. Simply
complete and return an Account Registration Form and any
required legal documentation, indicating the amount you wish
to invest. Your purchase must be equal to or greater than the
$10,000 minimum initial investment requirement for each
Portfolio. If you need assistance with the forms or have any
questions about the Fund, please call our Investor
Information Department (1-800-662-7447). NOTE: For other
types of account registrations (e.g., corporations,
associations, other organizations, trusts or powers of
attorney), please call us to determine which additional forms
you may need. The Fund is not appropriate for Individual
Retirement Accounts (IRAs) and other types of tax-deferred
retirement plans.
Because of the risks associated with common stock
investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide investors
with a means of speculating on short-term market movements.
Consequently, the Fund reserves the right to reject any
specific purchase (and exchange purchase) request. The Fund
also reserves the right to suspend the offering of shares for
a period of time.
IMPORTANT NOTE ON EXPENSES
Shares of each Portfolio are purchased at the next-determined
net asset value per share after your investment has been
received. Potential investors should note that a 2% fee is
charged on redemptions and exchanges out of all Portfolios of
shares held for less than one year and a 1% fee is charged on
redemptions and exchanges of shares held at least one but
less than five years. Please see "Fund Expenses" for more
information. The Fund is offered on a no-load basis (i.e.,
there are no sales commissions or 12b-1 fees).
ADDITIONAL
INVESTMENTS
Subsequent investments to regular accounts may be made by
mail ($100 minimum), wire ($1,000 minimum), written exchange
from another Vanguard Fund account ($100 minimum), or
Vanguard Fund Express. However, the Fund reserves the right
to reject any specific purchase request, whether it be made
by check, wire, exchange from another Vanguard Fund account,
or Vanguard Fund Express.
-------------------------------------------------------------
<PAGE>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount Additional investments
Complete and sign of your initial should include the Invest-
the enclosed investment and indicate by-Mail remittance form
Account the Portfolio(s) you have attached to your Fund
Registration Form selected on the confirmation statements.
registration form, make Please make your check
your check payable to The payable to The Vanguard
Vanguard Group Group--(Portfolio Number),
--(Portfolio Number), see see below for the
below for the appropriate appropriate portfolio
portfolio number, and number, write your account
mail to: number on your check and,
VANGUARD FINANCIAL CENTER using the return envelope
P.O. BOX 2600 provided, mail to the
VALLEY FORGE, PA 19482 address indicated on the
Invest-by-Mail Form.
For express or VANGUARD FINANCIAL CENTER All requests should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the
send to: WAYNE, PA 19087 addresses indicated for
new accounts. Do not send
registered or express mail
to the post office box
address.
VANGUARD TAX-MANAGED FUND:
Growth and Income Portfolio--*
Capital Appreciation Portfolio--*
Balanced Portfolio--*
-----------------------------------------------------------
PURCHASING BY WIRE
Money should be
wired to:
*
*
*
ATTN VANGUARD
BEFORE WIRING
Please contact our
Client Services Department
(1-800-662-2739)
VANGUARD TAX-MANAGED FUND
NAME OF PORTFOLIO
ACCOUNT NUMBER
ACCOUNT REGISTRATION
You should notify our Client Services Department of your
intended wire purchase, including the federal wire number to
be used, by 12:00 noon (Eastern time). To assure proper
receipt, please be sure your bank includes the Portfolio
name, the account number Vanguard has assigned to you and the
eight digit CoreStates number. If you are opening a new
account, please complete the Account Registration Form and
mail it to the "New Account" address after completing your
wire arrangement. NOTE: Federal Funds wire purchase orders
will be accepted only when the Fund and Custodian Banks are
open for business.
-------------------------------------------------------------
PURCHASING BY EXCHANGE (from a Vanguard account)
Telephone exchanges are not accepted for Vanguard Tax-Managed
Fund. You may, however, open an account by exchange by
providing the appropriate information on the Account
Registration Form. The new account will have the same
registration as the existing account. However, the Fund
reserves the right to refuse any exchange purchase request.
-------------------------------------------------------------
<PAGE>
PURCHASING BY
FUND EXPRESS
Automatic Investment
The Fund Express Automatic Investment option lets you move
money from your bank account to your Vanguard account on the
schedule (monthly, bimonthly (every other month), quarterly
or yearly) you select. To establish this Fund Express option,
please provide the appropriate information on the Account
Registration Form. We will send you a confirmation of your
Fund Express enrollment; please wait three weeks before using
the service.
- ------------------------------------------------------------------------------
CHOOSING A DISTRIBUTION OPTION
You must select one of three distribution options:
1. AUTOMATIC REINVESTMENT OPTION--Both dividends and capital
gains distributions will be reinvested in additional
shares. This option will be selected for you automatically
unless you specify one of the other options.
2. CASH DIVIDEND OPTION--Your dividends will be paid in cash
and your capital gains will be reinvested in additional
shares.
3. ALL CASH OPTION--Both dividend and capital gains
distributions will be paid in cash.
You may change your option by calling our Client Services
Department (1-800-662-2739).
In addition, an option to invest your cash dividends and/or
capital gains distributions in another Vanguard Fund account
is available. Please call our Client Services Department
(1-800-662-2739) for information. You may also elect Vanguard
Dividend Express which allows you to transfer your cash
dividends and/or capital gains distributions automatically to
your bank account. Please see "Other Vanguard Services" for
more information.
- ------------------------------------------------------------------------------
TAX CAUTION
INVESTORS SHOULD ASK ABOUT THE TIMING OF CAPITAL GAINS AND DIVIDEND
DISTRIBUTIONS BEFORE INVESTING
Under Federal tax laws, the Fund is required to distribute
net capital gains and dividend income to Fund shareholders.
These distributions are made to all shareholders who own Fund
shares as of the distribution's record date, regardless of
how long the shares have been owned. Purchasing shares just
prior to the record date could have a significant impact on
your tax liability for the year. For example, if you purchase
shares immediately prior to the record date of a sizable
capital gain or income dividend distribution, you will be
assessed taxes on the amount of the capital gain and/or
dividend distribution later paid even though you owned the
Fund shares for just a short period of time. (Taxes are due
on the distributions even if the dividend or gain is
reinvested in additional Fund shares.) While the total value
of your investment will be the same after the
distribution--the amount of the distribution will offset the
drop in the net asset value of the shares--you should be
aware of the tax implications the timing of your purchase may
have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Growth and
Income, Capital Appreciation, and Balanced Portfolios' annual
capital gains are normally distributed in December. Each
<PAGE>
Portfolio's income dividends are generally paid quarterly in
March, June, September and December. For additional
information on distributions and taxes, see the section
titled "Dividends, Capital Gains and Taxes."
IMPORTANT INFORMATION
ESTABLISHING OPTIONAL SERVICES
The easiest way to establish optional Vanguard services on
your account is to select the options you desire when you
complete your Account Registration Form. IF YOU WISH TO ADD
OPTIONS LATER, YOU MAY NEED TO PROVIDE VANGUARD WITH
ADDITIONAL INFORMATION AND A SIGNATURE GUARANTEE. PLEASE CALL
OUR CLIENT SERVICES DEPARTMENT (1-800-662-2739) FOR FURTHER
ASSISTANCE.
SIGNATURE GUARANTEES
For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A SIGNATURE
GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES
Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace it.
BROKER-DEALER PURCHASES
If you purchase shares in Vanguard Funds through a registered
broker-dealer or investment adviser, the broker-dealer or
adviser may charge a service fee.
CANCELLING TRADES
The Fund will not cancel any trade (e.g., purchase, exchange
or redemption) believed to be authentic, received in writing
or by telephone, once the trade has been received.
- ------------------------------------------------------------------------------
WHEN YOUR ACCOUNT WILL BE CREDITED
Your trade date is the date on which your account is
credited. If your purchase is made by check, Federal Funds
wire or exchange, and is received by the close of regular
trading the New York Stock Exchange (generally 4:00 p.m.
Eastern time), your trade date is the day of receipt. If your
purchase is received after the close of the Exchange, your
trade date is the next business day. Shares of the Growth and
Income, Capital Appreciation, and Balanced Portfolios are
purchased at the net asset value determined on your trade
date.
In order to prevent lengthy processing delays caused by the
clearing of foreign checks, Vanguard will only accept a
foreign check which has been drawn in U.S. dollars and has
been issued by a foreign bank with a U.S. correspondent bank.
- ------------------------------------------------------------------------------
SELLING YOUR SHARES
You may withdraw any portion of the funds in your account by
redeeming shares at any time. You may initiate a request by
writing or by telephoning. Your redemption proceeds are
normally mailed within two business days after the receipt of
the request in Good Order.
-------------------------------------------------------------
IMPORTANT NOTE
A redemption fee of 2% of the value of shares redeemed will
be deducted from the redemption proceeds if shares held for
less than one year are redeemed. A redemption fee of 1% of
the value of shares redeemed will be deducted from the
redemption proceeds if shares held for at least one year but
less than five years are redeemed. These fees are paid
directly to the Portfolio. Please see "Fund Expenses" for
more information.
-------------------------------------------------------------
<PAGE>
SELLING BY MAIL
Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD TAX-MANAGED FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request to
Vanguard Financial Center, Vanguard Tax-Managed Fund, 455
Devon Park Drive, Wayne, PA 19087.)
The redemption price of shares will be the Portfolio's net
asset value next determined after Vanguard has received all
required documents in Good Order.
-------------------------------------------------------------
DEFINITION OF
GOOD ORDER
GOOD ORDER means that the request includes the following:
1. The account number and Portfolio name.
2. The amount of the transaction (specified in dollars or
shares).
3. Signatures of all owners EXACTLY as they are registered on
the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required, in the case of estates, corporations, trusts and
certain other accounts.
6. Any certificates that you hold for the account.
IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS TO
YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES DEPARTMENT (1-
800-662-2739).
-------------------------------------------------------------
SELLING BY
TELEPHONE
To sell shares by telephone, you or your pre-authorized
representative may call our Client Services Department at 1-
800-662-2739. The proceeds will be sent to you by mail.
Please see "Important Information About Telephone
Transactions."
-------------------------------------------------------------
SELLING BY FUND EXPRESS
Automatic Withdrawal
With the Fund Express Automatic Withdrawal option, money will
be automatically moved from your Vanguard Fund account to
your bank account according to the schedule you have
selected. You may elect Fund Express on the Account
Registration Form or call our Investor Information Department
(1-800-662-7447) for a Fund Express application.
-------------------------------------------------------------
SELLING BY EXCHANGE
You may sell shares by making an exchange to another Vanguard
Fund account. Exchanges to or from Vanguard Tax-Managed Fund
may be made only by mail. Send your exchange request to
VANGUARD FINANCIAL CENTER, VANGUARD TAX-MANAGED FUND, P.O.
BOX 1120, VALLEY FORGE, PA 19482.
-------------------------------------------------------------
IMPORTANT REDEMPTION INFORMATION
Shares purchased by check or Fund Express may not be redeemed
until payment for the purchase is collected, which may take
up to ten calendar days. Your money is invested during the
holding period.
-------------------------------------------------------------
DELIVERY OF REDEMPTION
PROCEEDS
Redemption requests received by telephone prior to the close
of the New York Stock Exchange (generally 4:00 p.m. Eastern
time) are processed on the day of receipt and the redemption
proceeds are normally sent on the following business day.
Redemption requests received by telephone after the close of
the Exchange are processed on the business day following
receipt and the proceeds are normally sent on the second
business day following receipt.
<PAGE>
Redemption proceeds must be sent to you within seven days of
receipt of your request in Good Order.
If you experience difficulty in making a telephone redemption
during periods of drastic economic or market changes, your
redemption request may be made by regular or express mail. It
will be implemented at the net asset value next determined
after your request has been received by Vanguard in Good
Order. The Fund reserves the right to revise or terminate the
telephone redemption privilege at any time.
The Fund may suspend the redemption right or postpone payment
at times when the New York Stock Exchange is closed or under
any emergency circumstances as determined by the United
States Securities and Exchange Commission.
If the Board of Directors determines that it would be
detrimental to the best interests of the Fund's remaining
shareholders to make payment in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution in
kind of readily marketable securities.
-------------------------------------------------------------
VANGUARD'S AVERAGE COST STATEMENT
If you make a redemption from a qualifying account, Vanguard
will send you an Average Cost Statement which provides you
with the tax basis of the shares you redeemed. Please see
"Other Vanguard Services" for additional information.
-------------------------------------------------------------
MINIMUM ACCOUNT BALANCE
REQUIREMENT
Due to the relatively high cost of maintaining smaller
accounts, the Fund reserves the right to redeem shares in any
account that is below $10,000 It is the Fund's current policy
that, at any time your total investment in the Growth and
Income, Capital Appreciation, or Balanced Portfolios falls
below $10,000 you may be notified that the value of your
account is below the Portfolio's minimum account balance
requirement. You would then be allowed 60 days to make an
additional investment before the account is liquidated.
Proceeds would be promptly paid to the shareholder.
- ------------------------------------------------------------------------------
EXCHANGING YOUR SHARES
Should your investment goals change, you may exchange your
shares of Vanguard Tax-Managed Fund for those of other
available Vanguard Funds. Exchanges to or from Vanguard Tax-
Managed Fund may be made only by mail. TELEPHONE EXCHANGES
ARE NOT ACCEPTED FOR THE FUND.
-------------------------------------------------------------
IMPORTANT NOTE
A redemption fee of 2% of the value of shares exchanged out
will be deducted from the exchange proceeds if shares held
for less than one year are exchanged. A redemption fee of 1%
of the value of shares exchanged out will be deducted from
exchange proceeds if shares held at least one year but less
than five years are exchanged. These fees are paid directly
to the Portfolio.
-------------------------------------------------------------
EXCHANGING BY MAIL
Please be sure to include on your exchange request the name
and account number of your current Portfolio, the name of the
Fund you wish to exchange into, the amount you wish to
exchange, and the signatures of all registered account
holders. Send your request to VANGUARD FINANCIAL CENTER,
VANGUARD TAX-MANAGED FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request to
Vanguard Financial Center, Vanguard Tax-Managed Fund, 455
Devon Park Drive, Wayne, PA 19087.)
-------------------------------------------------------------
<PAGE>
IMPORTANT EXCHANGE INFORMATION
Before you make an exchange, you should consider the
following:
* Please read the Fund's prospectus before making an
exchange. For a copy and for answers to any questions you
may have, call our Investor Information Department
(1-800-662-7447).
* An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on the
transaction.
* Exchanges are accepted only if the registrations and the
Taxpayer Identification numbers of the two accounts are
identical.
* The shares to be exchanged must be on deposit and not held
in certificate form.
* New accounts are not currently accepted in the Vanguard/
Windsor Fund.
* The redemption price of shares redeemed by exchange is the
net asset value next determined after Vanguard has received
all required documentation in Good Order.
* When opening a new account by exchange, you must meet the
minimum investment requirement of the new Fund.
Every effort will be made to maintain the exchange privilege.
However, the Fund reserves the right to revise or terminate
its provisions, limit the amount of or reject any exchange,
as deemed necessary, at any time.
EXCHANGE PRIVILEGE LIMITATIONS
The Fund's exchange privilege is not intended to afford
shareholders a way to speculate on short-term movements in
the market. Accordingly, in order to prevent excessive use of
the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the
Fund has established a policy of limiting excessive exchange
activity.
Exchange activity generally will not be deemed excessive if
limited to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT LEAST 30
DAYS APART) from a Portfolio of the Fund during any twelve
month period. Notwithstanding these limitations, the Fund
reserves the right to reject any purchase request (including
exchange purchases from other Vanguard portfolios) that is
reasonably deemed to be disruptive to efficient portfolio
management.
- ------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT TELEPHONE TRANSACTIONS
The ability to initiate redemptions (except wire redemptions)
and exchanges by telephone is automatically established on
your account unless you request in writing that telephone
transactions on your account not be permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions, Vanguard
adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone, the
caller must know (i) the name of the Portfolio; (ii) the
10-digit account number; (iii) the exact name in which the
account is registered; and (iv) the Social Security or
Taxpayer Identification number listed on the account.
<PAGE>
2. PAYMENT POLICY. The proceeds of any telephone redemption
by mail will be made payable to the registered shareowner
and mailed to the address of record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by
telephone, provided that reasonable security procedures have
been followed. Vanguard believes that the security procedures
described above are reasonable and that if such procedures
are followed, you will bear the risk of any losses resulting
from unauthorized or fraudulent telephone transactions on
your account. If Vanguard fails to follow reasonable security
procedures, it may be liable for any losses resulting from
unauthorized or fraudulent telephone transactions on your
account.
- ------------------------------------------------------------------------------
TRANSFERRING
REGISTRATION
You may transfer the registration of any of your Fund shares
to another person by completing a transfer form and sending
it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110, VALLEY
FORGE, PA 19482 ATTENTION: TRANSFER DEPARTMENT. The request
must be in Good Order. To obtain a transfer form and full
instructions, please call our Client Services Department (1-
800-662-2739).
- ------------------------------------------------------------------------------
OTHER VANGUARD SERVICES
For more information about any of these services, please call
our Investor Information Department at 1-800-662-7447.
STATEMENTS AND REPORTS
Vanguard will send you a confirmation statement each time you
initiate a transaction in your account except for
checkwriting redemptions from Vanguard money market accounts.
You will also receive a comprehensive account statement at
the end of each calendar quarter. The fourth-quarter
statement will be a year-end statement, listing all
transaction activity for the entire calendar year.
Financial reports on the Fund will be mailed to you semi-
annually, according to the Fund's fiscal year-end.
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using the
average cost single category method. This service is
available for most taxable accounts opened since January 1,
1986. In general, investors who redeemed shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement in February of the following year.
Please call our Client Services Department (1-800-662-2739)
for information.
VANGUARD DIRECT DEPOSIT SERVICE
With Vanguard's Direct Deposit Service, most U.S. Government
checks (including Social Security and military pension
checks) and private payroll checks may be automatically
deposited into your Vanguard Fund account. Separate brochures
and forms are available for direct deposit of U.S. Government
and private payroll checks.
VANGUARD AUTOMATIC EXCHANGE SERVICE
Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund.
<PAGE>
VANGUARD FUND EXPRESS
Vanguard's Fund Express allows you to transfer money between
your Fund account and your account at a bank, savings and
loan association, or a credit union that is a member of the
Automated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call our Investor
Information Department (1-800-662-7447) for a Fund Express
application.
The minimum amount that can be transferred by telephone is
$100. However, if you have established one of the automatic
options, the minimum amount is $50. The maximum amount that
can be transferred using any of the options is $100,000.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition, some
services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
VANGUARD DIVIDEND EXPRESS
Vanguard's Dividend Express allows you to transfer your
dividends and/or capital gains distributions automatically
from your Fund account, one business day after the Fund's
payable date, to your account at a bank, savings and loan
association, or a credit union that is a member of the
Automated Clearing House (ACH) network. You may elect this
service on the Account Registration Form or call the Investor
Information Department (1-800-662-7447) for a Vanguard
Dividend Express application.
VANGUARD
TELE-ACCOUNT
Vanguard's Tele-Account is a convenient, automated service
that provides share price, price change and yield quotations
on Vanguard Funds through any TouchTone(TM) telephone. This
free service also lets you obtain information about your
account balance, your last transaction, and your most recent
dividend or capital gains payment. To contact Vanguard's
Tele-Account service, dial 1-800-ON-BOARD (1-800-662-6273). A
free brochure offering detailed operating instructions is
available from our Investor Information Department
(1-800-662-7447).
- ------------------------------------------------------------------------------
<PAGE>
PART B
VANGUARD TAX-MANAGED FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
JULY , 1994
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated July , 1994). To obtain this
Prospectus, please call the Investor Information Department:
1-800-662-7447
TABLE OF CONTENTS PAGE
---------------- ---
Investment Objective and Policies...................................... 1
Purchase of Shares..................................................... 5
Redemption of Shares................................................... 5
Investment Limitations................................................. 6
Management of the Fund................................................. 8
Portfolio Transactions................................................. 9
Performance Measures................................................... 10
Appendix -- Description of Securities and Ratings...................... 11
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the investment objective and policies set
forth in the Fund's Prospectus:
REPURCHASE AGREEMENTS
Each Portfolio of the Fund may invest in repurchase agreements with
commercial banks, brokers or dealers either for defensive purposes due to
market conditions or to generate income from its excess cash balances. A
repurchase agreement is an agreement under which the Portfolio 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
commercial 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 Portfolio and is unrelated to the interest rate on
the underlying instrument. In these transactions, the securities acquired by
the Portfolio (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(s) until repurchased. In addition, the Fund's Board of
Directors will monitor a Portfolio's repurchase agreement transactions
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 Portfolio. No more than an aggregate of 15%
of a Portfolios' net assets, at the time of investment, will be invested in
repurchase agreements having maturities longer than seven days and securities
subject to legal or contractual restrictions on resale, or for which there are
no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Portfolio may incur a loss upon disposition of the security. If the other
party to the agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a court may determine
that the underlying security is collateral for a loan by the Portfolio not
within the control of the Portfolio and therefore the realization by the
Portfolio on such collateral may be automatically stayed. Finally, it is
possible that the Portfolio may not be able to substantiate its interest in
the underlying security and may be deemed an unsecured creditor of the other
party to the agreement. While each Portfolio's management acknowledges these
risks, it is expected that they can be controlled through careful monitoring
procedures.
<PAGE>
LENDING OF SECURITIES
Each Portfolio of the Fund may lend its investment securities to qualified
brokers, dealers, banks or other financial institutions, so long as the terms
and the structure of such loans are not inconsistent with the Investment
Company Act of 1940, as amended, or the Rules and Regulations or
interpretations of the Securities and Exchange Commission thereunder, which
currently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, and irrevocable letter of credit or securities
issued or guaranteed by the United States Government having a value at all
times not less than 100 percent 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 Portfolio at any time and (d) the
Portfolio receive reasonable interest on the loan (which may include the
Portfolio's investing any cash collateral in interest bearing short-term
investments), and distributions on the loaned securities and any increase in
their market value. Each Portfolio of the Fund will not lend securities if, as
a result, the aggregate of such loans exceeds 33 1/3% of the value of the
Portfolio's total assets. Loan arrangements made by the Fund will comply with
all other applicable regulatory requirements, including the rules of the New
York Stock Exchange, which rules presently require the borrower, after notice,
to redeliver the securities within the normal settlement time of five business
days.
RESTRICTED SECURITIES
Each Portfolio of the Fund may invest in restricted securities (privately
placed debt securities) and other securities which are not readily marketable,
but will not acquire such securities if as a result they, together with the
aggregate of other securities for which no quotations are readily available,
would comprise more than 15% of the value of the Portfolio's net assets.
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933. Where registration is required, a
Portfolio may be obligated to pay all or part of the registration expenses and
a considerable period may elapse between the time of the decision to sell and
the time the Portfolio may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, the Portfolio might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at
fair value as determined in good faith by the Board of Directors. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities, a Portfolio should be in a position where more than 10% of the
value of its net assets are invested in illiquid assets, including restricted
securities, the Portfolio will take appropriate steps to protect liquidity.
Restricted securities are securities which are not freely marketable or
which are subject to restrictions upon sale under the Securities Act of 1933.
The Portfolios may invest up to 15% of their assets in restricted securities.
(Included within this limit are restricted securities and other securities for
which price quotations are not readily available). Pursuant to Rule 144A under
the Securities Act of 1933, as amended, if a substantial market among
qualified institutional buyers develops for such securities held by any of
these three Portfolios, the Fund intends to treat such securities as liquid
securities, in accordance with procedures approved by the Fund's Board of
Directors.
FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS, WARRANTS, CONVERTIBLE
SECURITIES AND SWAP AGREEMENTS
Each Portfolio of the Fund may enter into futures contracts, options, and
options on futures contracts, warrants, convertible securities and swap
agreements for several reasons: to simulate full investment in the benchmark
securities while retaining a cash balance for Fund management purposes, to
facilitate the portfolio management process or to reduce transaction 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 or index 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.
Bond 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. Equity
futures contracts settle in cash and do not call for actual delivery or
acceptance of the underlying securities. Closing out an open futures position
is done by taking an opposite position ("buying" a contract
<PAGE>
which has previously been "sold," or "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 deposits which 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, 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. The
Portfolios expect 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 the prices of underlying securities. The Portfolios intend to use futures
contracts only for bonafide hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bonafide hedging transactions. A Portfolio
will only sell futures contracts to protect securities or other futures
contracts it owns against price declines or purchase contracts to protect
against an increase in the price of securities or other futures contracts it
intends to purchase. As evidence of this hedging interest, the Portfolios
expect 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 a Portfolio upon sale of open futures
contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolio's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this
exposure. While a Portfolio 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 the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
Each Portfolio of 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 3% of the market value of each Portfolio's
total assets. In addition the Portfolios will not enter into futures contracts
to the extent that its outstanding obligations to purchase securities under
these contracts would exceed 5% of the Portfolio's total assets. The Fund will
maintain 100% of the amount of any obligations under any futures transactions
in cash or cash equivalent in a segregated account at its 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 Portfolio would continue
to be required to make daily cash payments to maintain its required margin. In
such situations, if the Portfolio 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 Portfolio may be required to
make delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge it.
A Portfolio will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
<PAGE>
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 (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 Portfolio are engaged in only for hedging purposes,
the Adviser does not believe that the Portfolio is subject to the risks of
loss frequently associated with futures transactions. The portfolio will
maintain a cash pool equivalent to the value of the futures contract, so the
futures will not be leveraged. The Portfolio would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.
Utilization of futures transactions by the Portfolio 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 Portfolio 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 Portfolio of margin deposits
in the event of bankruptcy of a broker with whom the Portfolio 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
Except for transactions a Portfolio has identified as hedging transactions,
the Portfolio is required for Federal income tax purposes to recognize as
income for each taxable year its net unrealized gains and losses on certain
futures contracts held 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 contracts which are
intended to hedge against a change in the value of securities held by the
Portfolio may affect the holding period of such securities and, consequently,
the nature of the gain or loss on such securities upon disposition.
In order for the Portfolio 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, gains from the sale of
securities or of foreign currencies or other income derived with respect to
the Portfolio'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 Portfolio's
annual gross income. It is anticipated that any net gain realized from the
closing out 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 Portfolio 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 Portfolio's
fiscal year and which are recognized for tax purposes, will not be considered
gains on sales of securities held less than three months for the purpose of
the 30% test.
A Portfolio 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 Portfolio's fiscal year) on futures
<PAGE>
transactions. Such distributions will be combined with distributions of
capital gains realized on the Portfolio's other investments and shareholders
will be advised on the nature of the transactions.
PURCHASE OF SHARES
Each Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Portfolio's shares.
REDEMPTION OF SHARES
Each Portfolio 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 a Portfolio to dispose of
securities owned by it, or fairly to determine the value of its assets, and
(iii) for such other periods as the Commission may permit.
The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net assets of the
Fund at the beginning of such period. Such commitment is irrevocable without
the prior approval of the Commission. Redemptions in excess of the above
limits may be paid in whole or in part, in readily marketable investment
securities or in cash, as the Directors may deem advisable; however, payment
will be made wholly in cash unless the Directors believe that economic or
market conditions exist which would make such a practice detrimental to the
best interests of the Fund. If redemptions are paid in investment securities,
such securities will be valued as set forth in the Prospectus under "The Share
Price of Each Portfolio" and a redeeming shareholder would normally incur
brokerage expenses if he converted these securities to cash.
A redemption fee of 2% of the value of a portfolio shares redeemed will be
deducted from the redemption proceeds if shares held for less than one year
are redeemed. A redemption fee of 1% of the value of shares redeemed will be
deducted from the redemption proceeds if shares held for at least one year but
less than five years are redeemed. These fees are paid directly to the Fund.
Any redemption may be more or less than the shareholder's cost depending on
the market value of the securities held by the Portfolio.
To protect your account, the Fund and Vanguard from fraud, signature
guarantees are required for certain redemptions. Signature guarantees enable
the Fund to verify the identity of the person who has authorized a redemption
from your account. SIGNATURE GUARANTEES ARE REQUIRED IN CONNECTION WITH: (1)
REDEMPTIONS INVOLVING MORE THAN $25,000 ON THE DATE OF RECEIPT BY VANGUARD OF
ALL NECESSARY DOCUMENTS; (2) ALL REDEMPTIONS, REGARDLESS OF THE AMOUNT
INVOLVED, WHEN THE PROCEEDS ARE TO BE PAID TO SOMEONE OTHER THAN THE
REGISTERED OWNER(S), AND/OR TO AN ADDRESS OTHER THAN THE ADDRESS OF RECORD;
AND (3) 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 Fund in certain instances.
A guarantor must be a bank, broker, or any other guarantor that Vanguard
deems acceptable. NOTARIES PUBLIC ARE NOT ACCEPTABLE GUARANTORS.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Fund are also
being redeemed, on the letter or stock power.
<PAGE>
INVESTMENT LIMITATIONS
The Fund is subject to the following limitations which may not be changed
with respect to a particular Portfolio without the approval of at least a
majority of the outstanding voting securities (as defined in the Investment
Company Act of 1940) of that Portfolio. A Portfolio will not:
(1) Invest in commodities or commodity contracts or purchase or sell real
estate, although it may purchase and sell marketable securities of
companies which deal in real estate or interests therein; except that
it may invest in stock and bond futures contracts, options and options
on futures contracts to the extent that not more than 3% of its assets
are required as deposit margin for futures contracts and not more than
5% of its assets are invested in such instruments at any time;
(2) Lend money to any person 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) by lending its portfolio securities as provided
under "Lending of Securities";
(3) Purchase securities on margin or sell securities short, except as
specified above in (1);
(4) 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 Portfolio
would hold more than 10% of the outstanding voting securities of the
issuer, or more than 5% of the value of the Portfolio's total assets
would be invested in the securities of such issuer;
(5) Borrow money, except from banks (or through reverse repurchase
agreements), for temporary or emergency (not leveraging) purposes, and
then in an amount not exceeding 15% of the value of the Portfolio'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 Portfolio's net
assets, the Portfolio will not make any additional investments;
(6) Pledge, mortgage or hypothecate the Portfolio's assets to an extent
greater than 15% of the value of its total assets;
(7) Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed
to be an undewriter under the Securities Act of 1933, as amended, in
disposing of Portfolio securities;
(8) 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
(including the Fund's investment in The Vanguard Group, Inc., as
described in the section entitled "Management of the Fund";
(9) Invest for the purpose of controlling management of any company;
(10) 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;
and
(11) Concentrate its investments in a particular industry, although it may
invest up to 25% of the Portfolio's total assets (taken at value) in
the securities of issuers, all of which conduct their principal
business activities in the same industry, provided that (i) this
limitation does not apply to obligations issued or guaranteed by the
U.S. Government, or its agencies or instrumentalities, and (ii) utility
companies will be divided according to their services; for example,
gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.
Although not fundamental policies subject to shareholder vote, as long as
the Fund's shares are registered for sale in certain states, it will not
invest in interests in oil, gas or other mineral exploration or development
programs.
The above-referenced investment limitations are considered at the time that
portfolio securities are purchased. Notwithstanding these limitations, the
Fund may own all or any portion of the securities of, or make loans to, or
contribute to the costs or other financial requirements of any company which
will be wholly-owned by the Fund and one or more other investment companies
and is primarily engaged in the business of providing, at cost, management,
administrative or related services to the Fund and other investment companies.
See "MANAGEMENT OF THE FUND."
<PAGE>
As an operational policy of the Fund, the Fund will, not in the aggregate,
enter into repurchase agreements maturing in more than seven days, purchase
restricted securities or invest in any other illiquid securities if, as a
result thereof, more than 15% of the net assets of the Fund would be invested
in such assets.
Each Portfolio may not purchase or retain securities of an issuer if an
officer or director of such issuer is an officer or Director of the Fund or
its investment adviser and one or more of such officers or Directors of the
Fund or its investment adviser owns beneficially more than 1/2% of the shares
or securities of such issuer and all such directors and officers owning more
than 1/2% of such shares or securities together own more than 5% of such
shares or securities. Each Portfolio of the Fund may not invest more than 5%
of its total assets in securities of companies which have (with predecessors)
a record of less than three years of continuous operation.
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Officers of the Fund manage its day to day operations and are
responsible to the Fund's Board of Directors. The Directors set broad policies
for 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 Fund is Post Office Box 876, Valley Forge,
PA 19482.
<TABLE>
<C> <C>
JOHN C. BOGLE, Chairman, Chief Executive ALFRED M. RANKIN, JR., Director
Officer and Director* President, Chief Executive Officer and Director of NACCO
Chairman, Chief Executive Officer, and Director of The Industries; Director of The BFGoodrich Company, The
Vanguard Group, Inc., and each of the investment companies Standard Products Company and The Reliance Electric
in The Vanguard Group; Director of the Mead Corporation Company.
and General Accident Insurance. JOHN C. SAWHILL, Director
JOHN J. BRENNAN, President & Director* President and Chief Executive Officer, The Nature
President of the Fund, The Vanguard Group, Inc. and each Conservancy; formerly, Director and Senior Partner,
of the other investment companies in The Vanguard Group. McKinsey & Co.; Director of Pacific Gas and Electric
ROBERT E. CAWTHORN, Director Company and NACCO Industries.
Chairman and Chief Executive Officer, Rhone-Poulenc Rorer, JAMES O. WELCH, JR., Director
Inc.; Director of Immune Response Corp. and Sun Company, Retired Chairman of Nabisco Brands, Inc. and retired Vice
Inc.; Trustee, Universal Health Realty Income Trust. Chairman and Director of RJR Nabisco; Director of TECO
BARBARA BARNES HAUPTFUHRER, Director Energy, Inc.
Director of The Great Atlantic and Pacific Tea Company, J. LAWRENCE WILSON, Director
Raytheon Company, Knight-Ridder, Inc., Massachusetts Chairman and Director of Rohm & Haas Company, Director of
Mutual Life Insurance Co., and ALCO Standard, Corp. Cummins Engine Company, Vanderbilt University and Trustee
BRUCE K. MACLAURY, Director of the Culver Educational Foundation.
President, The Brookings Institution; Director of Dayton RAYMOND J. KLAPINSKY, Secretary*
Hudson Corporation, American Express Bank, Ltd. and The Senior Vice President and Secretary of The Vanguard Group,
St. Paul Companies, Inc. Inc.; Secretary of each of the investment companies in The
BURTON G. MALKIEL, Director Vanguard Group.
Chemical Bank Chairmen's Professor of Economics, Princeton RICHARD F. HYLAND, Treasurer*
University; Director of Prudential Insurance Co. of Treasurer of The Vanguard Group, Inc. and of each of the
America, Amdahl Corporation, Baker Fentress & Co., Jeffrey investment companies in The Vanguard Group.
Co., and The Southern New England Telephone Company; KAREN E. WEST, Controller*
Governor, American Stock Exchange, Inc. Vice President of The Vanguard Group, Inc.; Controller of
each of the Investment companies in The Vanguard Group.
<FN>
- ---------
*Officers of the Fund are "interested persons" as defined in
the Investment Company Act of 1940.
</TABLE>
THE VANGUARD GROUP
Vanguard Tax-Managed 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 including Vanguard Tax-Managed Fund.
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 net expenses which are allocated among
the Funds under methods approved by the Board of Directors (Trustees) of each
Fund. In addition, each Fund bears its own direct expenses, such as legal,
auditing and custodian fees.
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 have invested 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. The
Funds' Service Agreement provides for the following arrangement: (1) each
Vanguard Fund may invest a maximum of 0.40% of its assets in Vanguard and (2)
there is no restriction on the maximum cash investment that the Vanguard Funds
may make in Vanguard.
<PAGE>
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 it 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 that no Fund shall incur annual distribution expenses in excess of
20/100 of 1% of its average month-end net assets.
INVESTMENT ADVISORY SERVICES. Vanguard's Core Management Group provides
investment advisory services to the Fund and also to the following Funds:
Vanguard Index Trust, Vanguard Balanced Index Fund, Vanguard Institutional
Index Fund, Vanguard International Equity Index Fund, a portion of the assets
of Vanguard/Windsor II, and several indexed separate accounts.
Vanguard's Fixed Income Group provides investment advisory services to
Balanced Portfolio of the Fund and also provides investment advisory services
to the following Funds: Vanguard Municipal Bond Fund; Vanguard Money Market
Reserves; several Portfolios of Vanguard Fixed Income Securities Fund;
Vanguard California Tax-Free Fund; Vanguard Ohio Tax-Free Fund; Vanguard New
York Insured Tax-Free Fund; Vanguard New Jersey Tax-Free Fund; Vanguard
Pennsylvania Tax-Free Fund; Vanguard Florida Insured Tax-Free Fund; Vanguard
Balanced Index Fund; Vanguard Bond Index Fund; Vanguard Admiral Funds; and
Vanguard Institutional Money Market Portfolio. These services are provided on
an at-cost basis by Vanguard's Core Management Group and Vanguard's Fixed
Income Group. 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.
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 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. 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, upon
retirement. 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 to 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.
PORTFOLIO TRANSACTIONS
In placing portfolio transactions, Vanguard uses 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 are considered in making these
determinations. In those instances where it is reasonably determined that
more than one broker can offer the brokerage services needed to obtain the
best available price and most favorable execution, consideration will be
given to those brokers which supply statistical information and provide other
services in addition to execution services to the Fund.
<PAGE>
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to alllocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Fund may place portfolio orders with qualified brokers or
dealers who recommend the shares of the Fund to their clients and may, when a
number of brokers and dealers can provide comparable best price and execution
on a particular transaction, consider the sale of shares by a broker or dealer
in selecting among qualified brokers or dealers.
PERFORMANCE MEASURES
Each of the investment company members of the Vanguard Group, including each
Portfolio of Vanguard Tax-Managed Fund, Inc., may, from time to time, use one
or more of the following unmanaged indices for comparative performance
purposes.
STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified
list of 500 companies representing the U.S. Stock Market.
STANDARD & POOR'S/BARRA VALUE INDEX--contains common stocks of the S&P 500
Index which have lower than average price-to-book ratios.
STANDARD & POOR'S/BARRA GROWTH INDEX--contains common stocks of the S&P 500
Index which have higher than average price-to-book ratios.
WILSHIRE 5000 EQUITY INDEXES -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000
except for the 500 stocks in the Standard and Poor's 500 Index.
RUSSELL 1000 INDEX--consists of approximately 1,000 large and medium
capitalization stocks.
RUSSELL 2000 INDEX--is composed of approximately 2,000 small capitalization
stocks.
RUSSELL 3000 INDEX--consists of approximately 3,000 large, medium and small
capitalization stocks.
MORGAN STANLEY CAPITAL INTERNATIONAL--SELECT EMERGING MARKETS INDEX--is an
unpublished index which includes common stocks of companies located in the
countries 12 emerging markets.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 67 bonds and 33
preferreds. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government
National Mortgage Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-
weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
SALOMON BROTHERS BROAD INVESTMENT-GRADE BOND -- is a market-weighted index
that contains approximately 4700 individually priced investment-grade
corporate bonds rated BBB or better, U.S. Treasury/agency issues and mortgage
passthrough securities.
SHEARSON LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by
the Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
<PAGE>
SHEARSON LEHMAN CORPORATE (BAA) BOND INDEX -- all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
BOND BUYER MUNICIPAL INDEX (20 YEAR) BOND -- is a yield index on current-
coupon high grade general-obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX -- is a yield index based upon the average
yield of four high grade, non-callable preferred stock issues.
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues.
It is a value-weighted index calculated on price change only and does not
include income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 35% Standard & Poor's 500 Index and 65% Salomon Brothers
High Grade Bond Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Salomon Brothers
High Grade Bond Index.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market weighted index that
contains individually priced U.S. Treasury, agency, corporate, and mortgage
pass-through securities corporate rated BBB- or better. The Index has a market
value of over $4 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The Index has a market value of over $1.3 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX --
is a market weighted index that contains individually priced U.S. Treasury,
agency, and corporate securities rated BBB- or better with maturities between
5 and 10 years. The Index has a market value of over $600 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities greater than 10
years. The Index has a market value of over $900 billion.
LEHMAN BROTHERS MUNICIPAL BOND INDEX--is a total return performance benchmark
for the long-term, investment-grade tax-exempt bond market.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average
performance and/or the average expense ratio of the small company growth
funds. (This fund category was first established in 1982. For years prior to
1982, the results of the Lipper Small Company Growth category were estimated
using the returns of the Funds that constituted the Group at its inception.)
LIPPER BALANCED FUND AVERAGE -- An industry benchmark of average balanced
funds with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- An industry benchmark of
average non-government money market funds with similar investment objectives
and policies, as measured by Lipper Analytical Services, Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- An industry benchmark of
average government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
APPENDIX -- DESCRIPTION OF SECURITIES AND RATINGS
I. DESCRIPTION OF BOND RATINGS
Excerpts from Moody's Investors Service, Inc., ("Moody's") description of
its four highest bond ratings: AAA -- judged to be the best quality. They
carry the smallest degree of investment risk; AA -- judged to be of
<PAGE>
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds; A -- possess many favorable
investment attributes and are to be considered as "upper medium grade
obligations"; BAA -- considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. BA judged to have speculative elements; their future cannot be
considered as well assured; B -- generally lack characteristics of the
desirable investment; CAA -- are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest; CA -- speculative in a high degree; often in default; C -- lowest
rated class of bonds; regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and 3 indicates a
ranking toward the lower end of the category.
Excerpts from Standard & Poor's Corporation ("S&P") description of its five
highest bond ratings: AAA -- highest grade obligations. Capacity to pay
interest and repay principal is extremely strong; AA -- also qualify as high
grade obligations. A very strong capacity to pay interest and repay principal
and differs from AAA issues only in small degree; A -- regarded as upper
medium grade. They have a strong capacity to pay interest and repay principal
although it is somewhat susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories;
BBB -- regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. This group is the lowest which
qualifies for commercial bank investment. BB, B, CCC, CC -- predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with terms of the obligation; BB indicates the lowest degree of
speculation and CC the highest.
S&P applies indicators "+," no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
II. U.S. GOVERNMENT SECURITIES
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the United States Treasury, by various
agencies of the United States Government, and by various instrumentalities
which have been established or sponsored by the United States Government. The
term also refers to "repurchase agreements" collateralized by such securities.
U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and U.S.
Government sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim
against the United States itself in the event the agency or instrumentality
does not meet its commitment.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing
or guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperative, Federal Intermediate Credit
Banks, and the Federal National Mortgage Association.
III. ZERO COUPON TREASURY BONDS
Admiral Short- and Intermediate-Term U.S. Treasury Portfolios may invest in
zero coupon Treasury bonds, a term used to describe U.S. Treasury notes and
bonds which have been stripped of their unmatured interest coupons, or the
coupons themselves, and also receipts or certificates representing interest in
such stripped debt obligations and coupons. The timely payment of coupon
interest and principal on these instruments remains guaranteed by the "full
faith and credit" of the United States Government.
A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value" -- what it will be worth at maturity.
The difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a
<PAGE>
portion of this imputed interest is deemed as income received by zero coupon
bondholders each year. The Fund, which expects to qualify as a regulated
investment company, intends to pass along such interest as a component of a
Portfolio's distributions of net investment income.
Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest is
returned to the investor.
The Fund has no present intention to invest 5% or more of its assets in zero
coupon bonds.
IV. COLLATERALIZED MORTGAGE OBLIGATION
The Admiral Short-, Intermediate- and Long-Term U.S. Treasury Portfolios may
invest in collateralized mortgage obligations (CMOs), bonds that are
collateralized by whole loan mortgages or mortgage pass-through securities.
Generally, the three Portfolios will purchase CMOs which are collateralized by
mortgage securities issued or guaranteed by the U.S. Government or its
agencies. The bonds issued in a CMO deal are divided into groups, and each
group of bonds is referred to as a "tranche". Under the CMO structure, the
cash flows generated by the mortgages or mortgage pass-through securities in
the collateral pool are used to first pay interest and then pay principal to
the CMO bondholders. The bonds issued under a CMO structure are retired
sequentially as opposed to the pro rata return of principal found in
traditional pass-through obligations. Subject to the various provisions of
individual CMO issues, the cash flow generated by the underlying collateral
(to the extent it exceeds the amount required to pay the stated interest) is
used to retire the bonds. Under the CMO structure, the repayment of principal
among the different tranches is prioritized in accordance with the terms of
the particular CMO issuance. The "fastest-pay" tranches of bonds, as specified
in the prospectus for the issuance, would initially receive all principal
payments. When that tranche of bonds is retired, the next tranche, or
tranches, in the sequence, as specified in the prospectus, receive all of the
principal payments until they are retired. The sequential retirement of bond
groups continues until the last tranche, or group of bonds, is retired.
Accordingly, the CMO structure allows the issuer to use cash flows of long
maturity, monthly-pay collateral to formulate securities with short,
intermediate and long final maturities and expected average lives. Aside from
market risk, the primary risk involved in any mortgage security, such as a CMO
issuance, is its exposure to prepayment risk. To the extent a particular
tranche is exposed to this risk, the bondholder is generally compensated in
the form of higher yield. In order to provide security, in addition to the
underlying collateral, many CMO issues also include minimum reinvestment rate
and minimum sinking-fund guarantees. Typically, the Portfolios will invest in
those CMOs that most appropriately reflect their average maturities and market
risk profiles. Consequently, the Short-Term Portfolios invest only in CMOs
with short-term average maturities believed to be highly predictable.
Similarly, Admiral Intermediate- and Long-Term Treasury Portfolios will invest
in those CMOs that carry market risks and expected average maturities
consistent with intermediate- and long-term bonds.
Subject to the applicable limits set forth above, in the Funds' Prospectus
and in the Funds' investment limitations, the Admiral Short-, Intermediate-
and Long-Term U.S. Treasury Portfolios have no specific limitation on the
amount of assets they may invest in CMOs.
<PAGE>
PART C
VANGUARD TAX-MANAGED FUND, INC.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Statement of Assets and Liabilities*
Report of Independent Accountants*
(b) Exhibits
Exhibit Number Description
---------- --------
1................... Articles of Incorporation
2................... By-Laws of Registrant
3................... Not Applicable
4................... Not Applicable
5................... Not Applicable
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................... Opinion of Counsel
11................... Consent of Independent Accountants*
12................... Financial Statements -- reference is made to (a)
above
13................... Not Applicable
14................... Not Applicable
15................... Not Applicable
16................... Not Applicable
- ---------
*To be filed by amendment.
<PAGE>
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, the 32 investment companies in The Vanguard
Group of Investment Companies and The Vanguard Group, Inc. are identical.
Reference is made to the caption "Management of the Fund" in the Prospectus
constituting Part A and in the Statement of Additional Information
constituting Part B of this Registration Statement.
Item 26. Number of Holders of Securities
As of May , 1994 each Portfolio of the Fund had the following number of
shareholders:
Growth and Income Portfolio.........................................
Capital Appreciation Portfolio......................................
Balanced Portfolio..................................................
Item 27. Indemnification
Reference is made to Article IX of Registrant's Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the caption "Investment Advisers" in the prospectus
constituting Part "A" of this Registration Statement and "Investment Advisory
Services" in Part "B" of this Registration Statement.
Item 29. Principal Underwriters
(a) None
(b) Not Applicable
Item 30. Location of Accounts and Records
The books, accounts and other documents 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 the Registrant's Custodians.
<PAGE>
Item 31. Management Services
Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which is filed as Exhibit 9 and described in Part B
hereof under "Management of the Fund"; the Registrant is not a party of any
management-related service contract.
Item 32. Undertakings
Registrant undertakes to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of this Registration Statement.
Registrant also undertakes to hold a First Annual Meeting of Shareholders
by the end of the Registrant's first sixteen months of operation for the
purpose of electing directors, approving the Investment Advisory and Service
Agreements and appointing auditors. Thereafter, annual meetings will not be
held except as required by the Investment Company Act of 1940 ("1940 Act") or
other applicable law. Registrant undertakes to comply with the provisions of
Section 16(c) of the 1940 Act 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.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused 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 17th day of May 1994.
VANGUARD TAX-MANAGED FUND, INC.
BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated:
BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman of the Board, Director and Chief Executive
Officer
May 17, 1994
BY: (Raymond J. Klapinsky)
John J. Brennan*, President and Director
May 17, 1994
BY: (Raymond J. Klapinsky)
Robert C. Cawthorn*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
Bruce K. MacLaury, Jr.*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
Alfred M. Rankin, Jr.*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
May 17, 1994
BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal Financial Officer and
Accounting Officer
May 17, 1994
*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
VANGUARD TAX-MANAGED FUND, INC.
INDEX TO EXHIBITS
Articles of Incorporation.................................................. 1
By-Laws.................................................................... 2
Amended and Restated Funds' Service Agreement.............................. 9
Opinion of Counsel......................................................... 10
EXHIBIT 1
ARTICLES OF INCORPORATION
OF THE
VANGUARD TAX-MANAGED FUND, INC.
FIRST: The undersigned, Curtis R. Hilliard, 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 Vanguard Tax-Managed Fund, Inc.
THIRD: The purpose for which the Corporation is formed is to operate as an
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 Stret
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
Baltimore, MD 21202
FIFTH: The total number of shares of stock which the Corporation shall have
authority to issue is Seven Hundred and Fifty Million (750,000,000) shares of
stock, with a par value of one-tenth of one cent ($.001) per share, to be
known and designated as Common Stock, such shares of Common Stock having an
aggregate par value of Seven Hundred and Fifty Thousand dollars ($750,000).
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.
Pursuant to Section 2-105 of the Maryland General Corporation Law, the Board
of Directors of the Corporation shall have the power to designate one or more
series of shares of Common Stock and to classify or reclassify any unissued
shares with respect of such series and such series (subject to any applicable
rule, regulation or order of the Securities and Exchange Commission or other
applicable law or regulation) shall have such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption and other characteristics
as the Board may determine in the absence of contrary determination set forth
herein. Subject to such aforesaid power, the Board of Directors has initially
designated three series of shares of Common Stock of the Corporation. The name
of the series and the number of shares of Common Stock initially classified
and allocated to them are as follows:
NUMBER OF SHARES
OF COMMON STOCK
INITIALLY
CLASSIFIED
NUMBER OF SERIES AND ALLOCATED
--------- -----------
Growth and Income Portfolio............................... 250,000,000
Capital Appreciation Portfolio............................ 250,000,000
Balanced Portfolio........................................ 250,000,000
<PAGE>
At any time when there are no shares outstanding or subscribed for a
particular series previously established and designated herein by the Board of
Directors, the series may be liquidated by similar means. Each share of a
series shall have equal rights with each other share of that series with
respect to the assets of the Corporation pertaining to that series. The
dividends payable to the holders of any series (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 or series of
stock shall apply without discrimination to the shares of each series 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
of stock, irrespective of the series then standing in his or her name in the
books of the Corporation. On any matter submitted to a vote of stockholders,
all shares of the Corporation then issued and outstanding and entitled to
vote, irrespective of the series, shall be voted in the aggregate and not by
series except (1) when otherwise expressly provided by the Maryland General
Corporation Law, or (2) when required by the Investment Company Act of 1940,
as amended, shares shall be voted by individual series; and (3) when the
matter does not affect any interest of a particular series, then only
shareholders of affected series shall be entitled to vote thereon. 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.
Each series of stock 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. All consideration received by the Corporation for the issue or sale of
stock of each series, together with all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall irrevocably belong to
the series of shares of stock with respect to which such assets, payments or
funds were received by the Corporation for all purposes, subject only to the
rights of creditors, and shall be so handled upon the books of account of the
Corporation. Such assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof
and any assets derived from any reinvestment of such proceeds, in whatever
form the same may be, and herein referred to as "assets belonging to" such
series.
2. The Board of Directors may from time to time declare and pay dividends of
distributions, in stock or in cash, on any or all series of stock; provided,
such dividends or distributions on shares of any series of stock shall be paid
only out of earnings, surplus, or other lawfully available assets belonging to
such series.
3. 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 1954, as
amended, or any successor or comparable statute thereof, and regulations
promulgated thereunder (collectively, the "IRC"), and to avoid liability for
the Corporation for Federal income tax in respect of that year and to make
other appropriate adjustments in connection therewith. In furtherance, and not
in limitation of the foregoing, to the extent deemed necessary or appropriate
by the Board of Directors to comply with the provisions of the IRC, in the
event that a series of shares has a net capital loss for a fiscal year, and to
the extent that the net capital loss offsets net capital gains from another
series, the amounts to be deemed available for distribution to the series with
the net capital gain shall be reduced by the amount of offset. The
shareholders of the series with the net capital gain shall be entitled to a
full distribution of the net income to the extent earned and to recognition in
the net asset value of such series of the amount of the realized net capital
loss of a series exceeds the net capital gain from another series, the excess
loss shall not reduce the net investment income available for distribution to
the series with the loss, but shall be carried forward.
4. In the event of the liquidation or dissolution of the Corporation,
shareholders of each series shall be entitled to receive, as a series, out of
the assets of the Corporation available for distribution to shareholders, but
other than general assets belonging to such series, and the assets so
distributable to the shareholders of any series shall be distributed among
such shareholders in proportion to the number of shares of such series held by
them and recorded on the books of the Corporation. In the event that there are
any general assets not belonging to any particular series of stock and
available for distribution, such distribution shall be made
<PAGE>
to the holders of stock of all series in proportion to the net asset value of
the respective series determined as hereinafter provided.
5. The assets belonging to any series of stock shall be charged with the
liabilities in respect to such series, and shall also be charged with its
share of the general liabilities of the Corporation, in proportion to the net
asset value of the respective series determined as hereinafter provided. The
determination of the Board of Directors shall be conclusive as to the amount
of liabilities, including accrued expenses and reserves, as to the allocation
of the same as to a give series, and as to whether the same or general assets
of the Corporation are allocable to one or more series.
The Board of Directors may provide for a holder of any series of stock of
the Corporation, who surrenders his certificate in good form for transfer to
the Corporation or, if the shares in question are not represented by
certificates, who delivers to the Corporation a written request in good order
signed by the shareholder, to convert the shares in question on such basis as
the Board may provide, into shares of stock of any other series of the
Corporation.
The Board of Directors shall have power to fix an initial offering price for
the shares of any class 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 the sales of shares of its Common Stock
provided, however, that no shares of Common Stock of the Corporation shall be
issued or sold for a consideration which shall yield to the Corporation less
than the net asset value of such class determined as hereinafter provided, as
of the business day on which such shares were sold, or at times set by the
Board of Directors, except in the case of a dividend properly declared and
payable.
The net asset value per share of a series of the Corporation's Common Stock
shall be determined in accordance with the Investment Company Act of 1940, as
amended, and with generally accepted accounting principles, by adding the
market or appraised value of all securities, cash and other assets of the
Corporation pertaining to that series, subtracting the liabilities determined
by the Board of Directors to be applicable to that series, allocating any
general assets and general liabilities to that series, and dividing the net
result by the number of shares of that series outstanding. Securities and
other investments and assets will be valued at the current market value, and
in the absence of a readily available market value, will be valued at fair
value as determined in good faith by the Board of Directors.
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 shall initially consist of
eight Directors until such time as the number of Directors is fixed as stated
above. 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. McLaury, Burton G. Malkiel, Alfred
M. Rankin, Jr., John C. Sawhill, James O. Welch, Jr. and J. Lawrence Wilson.
SEVENTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation:
1. The Board shall have power to fix an initial offering price for the
shares of any series 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 asset value of such series 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 any series 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 of the generality of any of the foregoing, any or all debts,
obligations, liabilities or claims of any and every kind and nature, whether
fixed, accrued, or
<PAGE>
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 or belonging to any series thereof:
(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 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 discretion of the Board of Directors.
The net asset value of each shares of the Common Stock of the Corporation
shall be determined by dividing the total market value of the property and
assets of the relevant series of the Corporation by the total number of shares
of its Common Stock then issued and outstanding for such series, 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 therefor have
actually been issued. In case the net asset value of each shares so determined
shall include a fraction of one cent, such net asset value of each shares
shall be adjusted to the nearer full cent.
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 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 owned by such series is not
reasonably practicable or it is not reasonably practicable for the Corporation
fairly to determine the value of the net assets of such series, 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, and such
other suspension relating to a natural 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 as to
which in the absence of an official ruling by said Commission or succeeding
authority, 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 (1) of
this Article Seventh, 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 applicable series 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 that series 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 such series shall be distributed in kind and the
amount of the same; and the securities shall be valued for purposes
<PAGE>
of distribution at the value at which they were appraised in computing the
current net asset value of the series of the Fund's shares, provided that any
stockholder who cannot legally acquire securities so distributed in kind by
reason of the prohibitions of the Investment Company Act of 1940 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 the right of such stockholder to receive
payment for such shares as provided for herein.
3. The Board of Directors, may from time to time, without the vote or
consent of stockholders, establish uniform standards with respect to the
minimum net asset value of a stockholder account or minimum net asset value of
a stockholder account or minimum investment which may be made by a
stockholder. The Board of Directors may authorize the closing of those
stockholder accounts not meeting the specified minimum standards of net asset
value by redeeming all of the shares in such accounts, provided there is
mailed to each affected stockholder account, at least thirty (30) days prior
to the planned redemption date, a notice setting forth the minimum account
size requirement and the date on which the account will be closed if the
minimum size requirement is not met prior to said closing date.
EIGHTH: 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.
NINTH: (a) 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.
(b) 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.
(c) 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.
(d) 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.
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 by the By-Laws to the stockholders, and except as otherwise
required by the Investment Company Act of 1940.
IN WITNESS WHEREOF, the undersigned incorporator of Vanguard Tax Managed
Fund, Inc. who executed the foregoing Articles of Incorporation hereby
acknowledged the same to be his act and further acknowledge that, to the best
of his knowledge the matters and facts set forth therein are true in all
material respects under penalties of perjury.
Dated the 5th day of May, 1994.
------------------------------------
Curtis R. Hilliard
EXHIBIT 2
BY-LAWS OF
VANGUARD TAX-MANAGED FUND, INC.
MAY 5, 1994
ARTICLE I
FISCAL YEAR AND OFFICES
SECTION 1. Fiscal Year. Unless otherwise provided by resolution of the
Board of Directors, the fiscal year of the Corporation shall begin on January
1 and end on the last day of December.
SECTION 2. Registered Office. The registered office of the Corporation in
Maryland shall be located at 11 East Chase Street, Suite 9E, Baltimore,
Maryland 21202, and the name and address of its Resident Agent is James S.
Baker, Esquire, c/o CSC, Lawyers Incorporating Service, 11 East Chase Street,
Baltimore, Maryland 21202.
SECTION 3. Other Offices. The Corporation shall also have a place of
business in Valley Forge, Pennsylvania, and the Corporation shall have the
power to open additional offices for the conduct of its business, either
within or outside the States of Maryland and Pennsylvania, at such places as
the Board of Directors may from time to time designate.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meeting. Meetings of the Stockholders for the election
of Directors shall be held in such place as the Board of Directors may by
resolution establish. In the absence of any specific resolution, Annual
Meetings of Stockholders shall be held at the Corporation's principal office
in Valley Forge, Pennsylvania. Meetings of Stockholders for any other purpose
may be held at such place and time as shall be fixed by resolution of the
Board of Directors and stated in the notice of the Meeting, or in a duly
executed waiver of notice thereof.
SECTION 2. Annual Meetings. Annual Meetings of Stockholders shall be held
in years in which action by Stockholders on any one or more of the following
is required by the Investment Company Act of 1940:
A) Election of Directors;
B) Approval of the Investment Advisory Agreement;
C) Ratification of the Selection of Independent Public Accountants; or
D) Approval of a Distribution Agreement.
In any year in which Stockholder action on none of the above is required by
the Investment Company Act of 1940, no Annual Meeting shall be held unless
called by the Board of Directors of the Corporation. The Annual Meeting, if
held, shall be held at such time and no such date during the first six months
of each fiscal year of the Corporation as may be fixed by the Board of
Directors by resolution in each year.
SECTION 3. Special Meetings. Special Meetings of the Stockholders may be
called at any time by the Chairman of the Board or the President, or by a
majority of the Board of Directors, and shall be called by the Chairman of the
Board, President or Secretary upon written request of the holders of shares
entitled to cast not less than twenty-five percent of all the votes entitled
to be cast at such meeting (the total shares of all of the Corporation's
classes of shares ("Portfolios") will be considered as a single class)
provided that (a) such request shall state the purposes of such meeting and
the matters proposed to be acted on, and (b) the Stockholders requesting such
meeting shall have paid to the Corporation the reasonably estimated cost of
preparing and mailing the notice thereof, which the Secretary shall determine
and specify to such Stockholders. No Special Meeting need be called to
consider any matter which is substantially the same as a matter voted on at
any meeting of the Stockholders held during the preceding twelve months.
SECTION 4. Notice. Not less than ten days before the date of every Annual
or Special Stockholders' Meeting, the Secretary shall cause to be mailed to
each Stockholder entitled to vote at such meeting at his (her) address (as it
appears on the records of the Corporation at the time of mailing) written
notice stating the time and place of the meeting and, in the case of a Special
Meeting of Stockholders shall be limited to the purposes
<PAGE>
stated in the notice. Notice of any Stockholders' meeting need not be given to
any Stockholder who shall sign a written waiver of such notice whether before
or after the time of such meeting, or to any Stockholder who shall attend such
meeting in person or by proxy. Notice of adjournment of a Stockholders'
meeting to another time or place need not be given, if such time and place are
announced at the meeting.
SECTION 5. Record Date for Meetings. The Board of Directors may fix in
advance a date not more than sixty days, nor less than ten days, prior to the
date of any Annual or Special Meeting of the Stockholders as a record date for
the determination of the Stockholders entitled to receive notice of, and to
vote at any meeting and any adjournment thereof; and in such case such
Stockholders and only such Stockholders as shall be Stockholders of record on
the date so fixed shall be entitled to receive notice of and to vote at such
meeting and any adjournment thereof as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record
date fixed as aforesaid.
SECTION 6. Quorum. At any meeting of Stockholders, the presence in person
or by proxy of the holders of a majority of the aggregate number of Shares of
the Corporation's Portfolios at the time outstanding shall constitute a quorum
for the transaction of business at the meeting, except that where any
provision of law or the Articles of Incorporation require that the holders of
any Portfolio shall vote as a class, then a majority of the aggregate number
of shares of that Portfolio at the time outstanding shall be necessary to
constitute a quorum for the transaction of such business. If, however, such
quorum shall not be present or represented at any meeting of the Stockholders,
any officer entitled to preside at, or act as Secretary of, such meeting,
shall have the power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be presented or
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
SECTION 7. Voting. Each Stockholder shall have one vote for each full share
and a fractional vote for each fractional share of stock having voting power
held by such Stockholder on the record date set pursuant to Section 5 on each
matter submitted to a vote at a meeting of Stockholders. Such vote may be made
in person or by proxy. If no record date has been fixed for the determination
of Stockholders, the record date for the determination of Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall be (a) at
the close of business (i) on the day ten days before the day on which notice
of the meeting is mailed or (ii) on the day 60 days before the meeting,
whichever is the closer date to the meeting; or (b) if notice is waived by all
Stockholders entitled to notice of or to vote at the meeting, at the close of
business on the tenth day next preceding the day on which the meeting is held.
At all meetings of the Stockholders, a quorum being present, all matters shall
be decided by majority vote of the shares of stock entitled to vote held by
Stockholders present in person or by proxy, unless the question is one which
by express provision of the laws of the State of Maryland, the Investment
Company Act of 1940, as from time to time amended, or the Articles of
Incorporation, a different vote is required, in which case such express
provision shall control the decision of such question. At all meetings of
Stockholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the Chairman of the
meeting.
SECTION 8. Voting -- Proxies. The right to vote by proxy shall exist only
if the instrument authorizing such proxy to act shall have been executed in
writing by the Stockholder himself or by his attorney thereunto duly
authorized in writing. No proxy shall be voted on after eleven months from its
date unless it provides for a longer period. Each proxy shall be in writing
subscribed by the Stockholder or his duly authorized attorney and shall be
dated, but need not be sealed, witnessed or acknowledged. Proxies shall be
delivered to the Secretary of the Corporation or person acting as Secretary of
the meeting before being voted. A proxy with respect to stock held in the name
of two or more persons shall be valid if executed by one of them unless at or
prior to exercise of such proxy the Corporation receives a specific written
notice to the contrary from any one of them. A proxy purporting to be executed
by or on behalf of a Stockholder shall be deemed valid unless challenged at or
prior to its exercise.
SECTION 9. Inspectors. At any election of Directors, the Board of Directors
prior thereto may, or, if they have not so acted, the Chairman of the meeting
may appoint one or more inspectors of election who shall first subscribe an
oath of affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote
taken. No candidate for the office of Director shall be appointed such
inspector.
<PAGE>
SECTION 10. Stock Ledger and List of Stockholders. It shall be the duty of
the Secretary or Assistant Secretary of the Corporation to cause an original
or duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for
visual inspection. Any one or more persons, each of them has been a
Stockholder of record of the Corporation for more than six months next
preceding such request, who owns or own in the aggregate 5% or more of the
outstanding capital stock of the Corporation, (shares of all of the
Corporation's Portfolios considered as a single class) may submit a written
request to any officer of the Corporation or its resident agent in Maryland
for a list of the Stockholders of the Corporation. Within 20 days after such a
request, there shall be prepared and filed at the Corporation's principal
office a list containing the names and addresses of all Stockholders of the
Corporation and the number of shares of each class held by each Stockholder,
certified as correct by an officer of the Corporation, by its stock transfer
agent, or by its registrar.
SECTION 11. Action Without Meeting. Any action to be taken by Stockholders
may be taken without a meeting if all Stockholders entitled to vote on the
matter consent to the action in writing, and the written consents are filed
with the records of the meetings of Stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
DIRECTORS
SECTION 1. General Powers. The business of the Corporation shall be under
the direction of its Board of Directors, which may exercise all powers of the
Corporation, except such as are by statue, or the Articles of Incorporation,
or by these By-Laws conferred upon or reserved to the Stockholders. All acts
done by any meeting of the Directors or by any person acting as a Director, so
long as his successor shall not have been duly elected or appointed, shall,
notwithstanding that it be afterwards discovered that there was some defect in
the election of the Directors or of such person acting as aforesaid or that
they or any of them were disqualified, be as valid as if the Directors or such
other person, as the case may be, had been duly elected and were or was
qualified to be Directors or a Director of the Corporation.
SECTION 2. Number and Term of Office. The number of Directors which shall
constitute the whole Board shall be determined from time to time by the Board
of Directors, but shall not be fewer than three, nor more than sixteen. Each
Director elected shall hold office until his successor is elected and
qualified. Directors need not be Stockholders.
SECTION 3. Election. Initially the Directors shall be those persons named
as such in the Articles of Incorporation. The Directors shall be elected
annually by the vote of a majority of the shares present in person or by proxy
at the Annual Meeting of the Stockholders, except that any vacancy in the
Board of Directors may be filled by a majority vote of the Board of Directors,
although less than a quorum, except that a newly-created directorship may be
filled only by a vote of the entire Board of Directors. However, if at any
time after the filling of any vacancy, less than a majority of the Directors
then holding office were elected by Stockholders, a Stockholders Meeting shall
be called as soon as possible, and in any event within sixty days, for the
purpose of electing an entire new Board of Directors.
SECTION 4. Removal of Directors. At any Stockholders Meeting, provided a
quorum is present, any Director may be removed (either with or without cause)
by the vote of the holders of a majority of the shares present or represented
at the meeting, and at the same meeting a duly qualified person may be elected
in his stead by a majority of the votes validly case.
SECTION 5. Place of Meeting. Meetings of the Board of Directors, regular or
special, may be held at any place in or out of the State of Maryland as the
Board may from time to time determine.
SECTION 6. Quorum. At all meetings of the Board of Directors a majority of
the entire Board of Directors shall constitute a quorum for the transaction of
business and the action of a majority of the Directors present at any meeting
at which a quorum is present shall be the action of the Board of Directors
unless the concurrence of a greater proportion is required for such action by
the laws of Maryland, the Investment Company Act of 1940, these By-Laws or the
Articles of Incorporation. If a quorum shall not be present at any meeting
<PAGE>
of Directors, the Directors present thereat may by a majority vote adjourn the
meeting from time to time without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the Board of Directors provided that notice of any change in the
time or place of such meetings shall be sent promptly to each Director not
present at the meeting at which such change was made in the manner provided
for notice of special meetings. Members of the Board of Directors or any
committee designated thereby may participate in a meeting of such Board or
committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time, and participation by such means shall constitute
presence in person at a meeting.
SECTION 8. Special Meetings. Special Meetings of the Board of Directors may
be called by the Chairman of the Board or the President on one day's notice to
each Director; Special Meetings shall be called by the Chairman of the Board,
President or Secretary in like manner and on like notice on the written
request of two Directors.
SECTION 9. Informal Actions. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if a written consent to such action is signed in one
or more counterparts by all members of the Board or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board or committee.
SECTION 10. Committees. The Board of Directors may by resolution passed by
a majority of the entire Board appoint from among its members an Executive
Committee and other committees composed of two or more Directors, and may
delegate to such committees, in the intervals between meetings of the Board of
Directors, any or all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, except the powers
to declare dividends, to issue stock or to recommend to Stockholders any
action requiring Stockholder approval.
SECTION 11. Action of Committees. In the absence of an appropriate
resolution of the Board of Directors each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
Directors. The committees shall keep minutes of their proceedings and shall
report the same to the Board of Directors at the meeting next succeeding, and
any action by the committee shall be subject to revision and alteration by the
Board of Directors, provided that no rights of their persons shall be affected
by any such revision or alteration. In the absence of any member of such
committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
SECTION 12. Compensation. Any Director, whether or not he is a salaried
officer or employee of the Corporation, may be compensated for his services as
Director or as a member of a committee of Directors, or as Chairman of the
Board or chairman of a committee by fixed periodic payments or by fees for
attendance at meetings or by both, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the Board
of Directors may from time to time determine.
ARTICLE IV
NOTICES
SECTION 1. Form. Notices to Stockholders shall be in writing and delivered
personally or mailed to the Stockholders at their addresses appearing on the
books of the Corporation. Notices to Directors shall be oral or by telephone
or telegram or in writing delivered personally or mailed to the Directors at
their addresses appearing on the books of the Corporation. Notice by mail
shall be deemed to be given at the time when the same shall be mailed. Notice
to Directors need not state the purpose of a Regular or Special Meeting.
SECTION 2. Waiver. Whenever any notice of the time, place or purpose of any
meeting of Stockholders, Directors or a committee is required to be given
under the provisions of Maryland law or under the provisions of the Articles
of Incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof,
<PAGE>
or actual attendance at the meeting of Stockholders in person or by proxy, or
at the meeting of Directors of committee in person, shall be deemed equivalent
to the giving of such notice to such persons.
ARTICLE V
OFFICERS
SECTION 1. Executive Officers. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a President, who shall be a
Director, a Secretary and a Treasurer. The Board of Directors, at its
discretion, may also appoint a Director as Chairman of the Board who shall
perform and execute such executive and administrative duties and powers as the
Board of Directors shall from time to time prescribe. The same person may hold
two or more offices, except that no person shall be both President and
Secretary and no officer shall execute, acknowledge or verify any instrument
in more than one capacity, if such instrument is required by law, the Articles
of Incorporation or these By-Laws to be executed, acknowledged or verified by
two or more officers.
SECTION 2. Election. The Board of Directors shall choose a President, a
Secretary and a Treasurer at its first meeting and thereafter at the next
meeting following a Stockholders' Meeting at which Directors were elected.
SECTION 3. Other Officers. The Board of Directors from time to time may
appoint such other officers and agents as it shall deem advisable, who shall
hold their offices for such terms and shall exercise powers and perform such
duties as shall be determined from time to time by the Board. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe
their respective rights, terms of office, authorities and duties.
SECTION 4. Compensation. The salaries or other compensation of all officers
and agents of the Corporation shall be fixed by the Board of Directors, except
that the Board of Directors may delegate to any person or group of persons the
power to fix the salary or other compensation of any subordinate officers or
agents appointed pursuant to Section 3 of this Article V.
SECTION 5. Tenure. The officers of the Corporation shall serve for one year
and until their successors are chosen and qualify. Any officer or agent may be
removed by the affirmative vote of a majority of the Board of Directors
whenever, in its judgment, the best interests of the Corporation will be
served thereby. In addition, any officer or agent appointed pursuant to
Section 3 may be removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the Board of
Directors. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors,
unless pursuant to Section 3 the power of appointment has been conferred by
the Board of Directors on any other officer.
SECTION 6. President. The President, unless the Chairman has been so
designated, shall be the Chief Executive Officer of the Corporation; he (she)
shall preside at all meetings of the Stockholders and Directors, and shall see
that all orders and resolutions of the Board are carried into effect. The
President, unless the Chairman has been so designated, shall also be the chief
administrative officer of the Corporation and shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
SECTION 7. Chairman of the Board. The Chairman of the Board, if one shall
be chosen, shall preside at all meetings of the Board of Directors and
Stockholders, and shall perform and execute such executive duties and
administrative powers as the Board of Directors shall from time to time
prescribe.
SECTION 8. Vice-Presidents. The Vice-Presidents, in order of their
seniority, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President and shall perform such other
duties as the Board of Directors or the Chief Executive Officer may from time
to time prescribe.
SECTION 9. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the Stockholders and record all the
proceedings thereof and shall perform like duties for any Committee when
required. He (she) shall give, or cause to be given, notice of meetings of the
Stockholders and of the Board of Directors, shall have charge of the records
of the Corporation, including the stock books, and shall perform such other
duties as may be prescribed by the Board of Directors or Chief Executive
Officer, under whose supervision he (she) shall be. He (she) shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, shall affix and attest the same to any instrument requiring it. The
Board
<PAGE>
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his (her) signature.
SECTION 10. Assistant Secretaries. The Assistant Secretaries, in order of
their seniority, shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such
other duties as the Board of Directors shall prescribe.
SECTION 11. Treasurer. The Treasurer, unless another officer has been so
designated, shall be the Chief Financial Officer of the Corporation. He (she)
shall have general charge of the finances and books of account of the
Corporation. Except as otherwise provided by the Board of Directors, he (she)
shall have general supervision of the funds and property of the Corporation
and of the funds and property of the Corporation and of the performance by the
custodian of its duties with respect thereto. He (she) shall render to the
Board of Directors, whenever directed by the Board, an account of the
financial condition of the Corporation and of all his (her) transactions as
Treasurer; and as soon as possible after the close of each financial year he
(she) shall make and submit to the Board of Directors a like report for such
financial year. He (she) shall perform all the acts incidental to the office
of Treasurer, subject to the control of the Board of Directors.
SECTION 12. Controller. The Controller shall be under the direct
supervision of the Chief Financial Officer of the Corporation. He (she) shall
maintain adequate records of all assets, liabilities and transactions of the
Corporation, and establish and maintain internal accounting controls. He (she)
shall have such further powers and duties as may be conferred upon him (her)
from time to time by the President or the Board of Directors.
SECTION 13. Assistant Treasurer. The Assistant Treasurers, in the order of
their seniority, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such
other duties as the Board of Directors may form time to time prescribe.
SECTION 14. Surety Bonds. The Board of Directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the federal Investment Company Act of 1940, as amended, and
the rules and regulations of the Securities and Exchange Commission) to the
Corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his
(her) duties to the Corporation, including responsibility for negligence and
for the accounting of any of the Corporation's property, funds or securities
that may come into his (her) hands.
ARTICLE VI
OTHER RESTRICTIONS
SECTION 1. Trading in Securities. Neither the investment adviser or any
officer or director thereof, nor any officer or director of the Corporation
shall take a long or short position in the securities issued by the
Corporation, except as permitted by applicable laws and regulations; provided,
that the foregoing shall not prevent the purchase from the Corporation of
shares issued by it by the officers or directors of the Corporation or of the
investment adviser or by the investment adviser at the price available to the
public at the moment of such purchase.
In any case where an officer or director of the Corporation or of the
investment adviser or a member of an advisory or portfolio committee of the
Corporation is also an officer or director of another corporation and the
purchase or sale of shares issued by that other corporation is under
consideration, the officer or director or committee member concerned will
abstain from participating in any decision made on behalf of the Corporation
to purchase or sell any securities issued by the other corporation.
SECTION 2. Loans to Affiliates. The Corporation shall not lend assets of
the Corporation to any officer or director of the Corporation, or to any
partner, officer, director or stockholder of, or person who has a material,
financial interest in, the investment adviser of the Corporation, or the
distributor of the Corporation, or to the investment adviser of the
Corporation or to the distributor of the Corporation.
SECTION 3. Conflict of Interest Transactions. The Corporation shall not
permit any officer or director, or any officer or director of the investment
adviser or distributor of the Corporation to deal for or on behalf of the
Corporation with himself as principal or agent, or with any partnership,
association or corporation in which he has a material, financial interest;
provided that the foregoing provisions shall not prevent (a) officers or
directors of the Corporation from buying, holding or selling shares in the
Corporation, or from being partners, officers or directors of or otherwise
financially interested in the investment adviser, sponsor, manager or
distributor of the Corporation; (b) purchases or sales of securities or other
property by the Corporation
<PAGE>
from or to an affiliated person or to the investment adviser or distributor of
the Corporation if such transaction is exempt from the applicable provisions
of the Investment Company Act of 1940; (c) purchases of investments owned by
the Corporation through a security dealer who is, or one or more of whose
partners, stockholders, officers or director is, an officer or director of the
Corporation, if such transactions are handled in the capacity of brokers only
and commissions charged do not exceed customary brokerage charges for such
services; (d) employment of legal counsel, registrar, transfer agent, dividend
disbursing agent or custodian who is, or has a partner, stockholder, officer
or director, who is an officer or director of the Corporation, if only
customary fees are charged for services to the Corporation; (e) sharing
statistical, research, legal and management expenses with a firm of which an
officer or director of the Corporation is an officer or director or otherwise
financially interested; (f) purchase for the portfolio of the Corporation of
securities issued by an issuer having an officer, director or securities
holder who is an officer or director of the Corporation or of any investment
adviser of the Corporation, unless the retention of such securities in the
portfolio of the Corporation would be a violation of these By-Laws or the
Articles of Incorporation of the Corporation.
ARTICLE VII
STOCK
SECTION 1. Stock certificates shall not be issued by the Corporation. The
recording and transfer of ownership of shares of the Corporation's stock shall
be provided for by electronic or other means of certificates as approved by
the Board of Directors.
SECTION 2. Transfer of Capital Stock. Transfers of shares of the stock of
the Corporation shall be made on the books of the Corporation by the holder of
record thereof (in person or by his attorney thereunto duly authorized by a
power of attorney duly executed in writings and filed with the Secretary of
the Corporation).
SECTION 3. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such shares or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise
provided by the General Laws of the State of Maryland.
SECTION 4. Transfer Agents and Registrars. The Board of Directors may, from
time to time, appoint or remove transfer agents and or registrars of transfer
of shares of stock of the Corporation, and it may appoint the same person as
both transfer agent and registrar. Upon any such appointment being made all
certificates representing shares of stock thereafter issued shall be
countersigned by one of such transfer agents or by one of such registrars of
transfers or by both and shall not be valid unless so countersigned. If the
same person shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
SECTION 5. Stock Ledger. The Corporation shall maintain an original stock
ledger containing the names and addresses of all Stockholders and the number
and class of shares held by each Stockholder. Such stock ledger may be in
written form or any other form capable of being coverted into written form
within a reasonable time for visual inspection.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. Rights in Securities. The Board of Directors, on behalf of the
Corporation, shall have the authority to exercise all of the rights of the
Corporation as owner of any securities which might be exercised by an
individual owning such securities in his own right; including, but not limited
to, the rights to vote by proxy for any and all purposes, to consent to the
reorganization, merger or consolidation of any issuer or to consent to the
sale, lease or mortgage of all or substantially all of the property and assets
of any issuer; and to exchange any of the shares of stock of any issuer for
the shares of stock issued therefor upon any reorganization, merger,
consolidation, sale, lease or mortgage. The Board of Directors shall have the
right to authorize any officer of the investment adviser to execute proxies
and the right to delegate the authority granted by this Section 1 to any
officer of the Corporation.
<PAGE>
SECTION 2. Custodianship.
(a) The Corporation shall place and at all times maintain in the custody of
a custodian (including any sub-custodian for the custodian) all funds,
securities and similar investments owned by the Corporation. Subject to the
approval of the Board of Directors the custodian may enter into arrangements
with securities depositories, as long as such arrangements comply with the
provisions of the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder. The custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided
profits and shall be appointed from time to time by the Board of Directors,
which shall fix its remuneration.
(b) Upon termination of a custodian agreement or inability of the custodian
to continue to serve, the Board of Directors shall promptly appoint a
successor custodian. But in the event that no successor custodian can be found
who has the required qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a Special Meeting of the
Stockholders to determine whether the Corporation shall function without a
custodian or shall be liquidated. If so directed to vote of the holders of a
majority of the outstanding shares of stock of the Corporation, the custodian
shall deliver and pay over all property of the Corporation held by it as
specified in such vote.
(c) The following provisions shall apply to the employment of a custodian
and to any contract entered into with the custodian so employed:
The Board of Directors shall cause to be delivered to the custodian all
securities owned by the Corporation or to which it may become entitled,
and shall order the same to be delivered by the custodian only in
completion of a sale, exchange, transfer, pledge, or other disposition
thereof, all as the Board of Directors may generally or from time to time
require or approve or to a successor custodian; and the Board of Director
shall cause all funds owned by the Corporation or to which it may become
entitled to be paid to the custodian, and shall order the same disbursed
only for investment against delivery of the securities acquired, or in
payment of expenses, including management compensation, and liabilities of
the Corporation, including distributions to shareholders or proper
payments to borrowers of securities representing partial return of
collateral, or to a successor custodian.
SECTION 3. Reports. Not less often than semi-annually, the Corporation
shall transmit to the Stockholders a report of the operations of the
Corporation, based at least annually upon an audit by independent public
accountants, which report shall clearly set forth, in addition to the
information customarily furnished in a balance sheet and profit and loss
statement, a statement of all amounts paid to security dealers, legal counsel,
transfer agent, disbursing agent, registrar or custodian or trustee, where
such payments are made to a firm, corporation, bank or trust company, having a
partner, officer or director who is also an officer or director of the
Corporation. A copy, or copies, of all reports submitted to the Stockholders
of the Corporation shall also be sent, as required, to the regulatory agencies
of the United States and of the states in which the securities of the
Corporation are registered and sold.
SECTION 4. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year or its organization and the words "Corporate
Seal, Maryland". The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
SECTION 5. Execution of Instruments. All deeds, documents, transfers,
contracts, agreements and other instruments requiring execution by the
Corporation shall be signed by the Chairman or the President or a Vice-
President and by the Treasurer or Secretary or an Assistant Treasurer or an
Assistant Secretary, or as the Board of Directors may otherwise, from time to
time, authorize. Any such authorization may be general or confined to specific
instances. Except as otherwise authorized by the Board of Directors, all
requisitions or orders for the assignment of securities standing in the name
of the custodian or its nominee, or for the execution of powers to transfer
the same, shall be signed in the name of the Corporation by the Chairman or
the President or a Vice-President and by the Secretary, Treasurer or an
Assistant Treasurer.
ARTICLE IX
AMENDMENTS
The By-Laws of the Corporation may be altered, amended or repealed either by
the affirmative vote of a majority of the stock issued and outstanding and
entitled to vote in respect thereof and represented in person or by proxy at
any annual or special meeting of the Stockholders, or by the Board of
Directors at any regular
<PAGE>
or special meeting of the Board of Directors; provided, that the Board of
Directors may not alter, amend or repeal Article VI, and that the vote of
Stockholders required for alteration, amendment or repeal of any of such
provisions shall be subject to all applicable requirements of federal or state
laws or of the Articles of Incorporation.
EXHIBIT 9
SECOND AMENDED AND RESTATED FUNDS' SERVICE AGREEMENT
This Second Amended and Restated Funds' Service Agreement, made as of the
10th day of May, 1993 (the "Agreement"), between and among the 32 investment
companies registered under the Investment Company Act of 1940 ("1940 Act"),
whose names are set forth on the signature page of this Agreement, which
together with any additional investment companies which may become a party to
this Agreement pursuant to Section 5.4 are collectively called the "Funds";
and The Vanuard Group, Inc., a Pennsylvania corporation ("Service Company").
Whereas, each of the Funds has heretofore determined (as evidenced by, among
many documents, prior versions* of this Agreement (the "Prior Agreements"),
and by prospectuses and proxy statements of the Funds related thereto): (i) to
manage and perform the corporate management, administrative and share
distribution functions required for its continued operation, (ii) to create a
structure which enhances the independence of the Funds from the providers of
external services, (iii) to share, on an equitable and fair basis, with all of
the other Funds the expenses of establishing the means to accomplish these
objectives at the lowest reasonable cost; and
Whereas, each of the Funds: (i) has heretofore determined that these
objectives can best be accomplished by establishing a company: (a) to be
wholly-owned by the Funds; (b) to provide corporate management,
administrative, and distribution services, and upon the reasonable request of
any Fund to provide other service to such Fund at cost; (c) to employ the
executive, managerial, administrative, secretarial and clerical personnel
necessary or appropriate to perform such services; and (d) to acquire such
assets and to obtain such facilities and equipment as are necessary or
appropriate to carry out such services, and to make those assets available to
the Funds; and (ii) since May 1, 1975 (or the commencement of its operations
after that date) has utilized Service Company, pursuant to the provisions of
the Prior Agreements; and
Whereas, each of the Funds recognizes that it may, from time to time, be in
the best interests of the Funds (i) for Service Company to provide similar
services to investment companies other than the Funds, (ii) for the Funds to
organize, from time to time, new investment companies which are intended to
become parties to this Agreement; and, (iii) for Service Company to engage in
business activities (directly or through subsidiaries), supportive of the
Funds' operations as investment companies; and
Whereas, each of the Funds desires to enter into a completely integrated
Seconded Amended and Restated Funds' Service Agreement with the other Funds to
set forth the current terms and provisions of the relationships which the
Funds have determined to establish;
Now, Therefore, each Fund agrees with each and all of the other Funds, and
with Service Company, as follows:
I. CAPITALIZATION AND ASSETS OF SERVICE COMPANY
1.1 Capital and Assets. To provide the Service Company with the cash and
with the office space, facilities and equipment necessary for it to discharge
its responsibilities hereunder, each Fund agrees:
A. To make cash investments in the Service Company as provided in Sections
1.2, 1.3 and 1.4.
B. To assign and transfer to Service Company on and after May 1, 1975 any
and all right, title and interest which the Funds may have in any office
facilities and equipment necessary for it to discharge its responsibilities
and in any other assets which Service Company may develop or acquire,
subject only to the rights reserved in Section 1.6 (concerning certain major
assets), Section 5.2 (concerning rights upon withdrawal) and Section 5.3
(concerning rights upon termination) of the Agreement.
1.2 Cash Investments in Service Company. To provide Service Company with
such cash as may be necessary or appropriate from time to time to accomplish
the purposes of the Funds and to discharge its responsibilities hereunder,
each Fund agrees to purchase, for cash, shares of common stock of Service
Company ("Shares") or such other securities of Service Company (hereafter
referred to as "other securities") upon the
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*Funds' Service Agreement dated May 1, 1975; and, an Amended and Restated
Funds' Service Agreement dated October 1, 1977, as thereafter amended.
<PAGE>
favorable vote of the holders of a majority of the Shares adopting a
resolution setting forth the terms and provisions of the purchase. Provided,
however, that:
A. Without the consent of all of the Funds, the date for the purchase of
Shares or other securities shall not be less than 15 days following the date
on which the resolution is approved by shareholders.
B. The cash purchase price to be paid by any Fund for the Shares or other
securities, expressed as a percentage of the total purchase price for the
additional securities to be paid by all of the Funds shall not exceed the
percentage which the then current net assets of the Fund bears to the
aggregate current net assets of all of the Funds as of the most recent
month-end preceding the purchase date.
1.3 Periodic Adjustments of Cash Investments. To maintain and re-establish
periodically a fair and proportionate ratio of cash investments by each Fund
in the Service Company as compared to its then current net assets, each Fund
agrees to purchase from one or more of the other Funds, or to sell one or more
of the Funds, sufficient Shares or other securities to re-establish the ratio.
A. Such purchases and sales shall be made (1) as of the last business day
of any month upon the addition or withdrawal of any Fund as a party to this
Agreement, provided that if the addition or withdrawal of a Fund creates no
material disparity in the ratios (as determined by the Service Company's
Board of Directors), and no Fund requests that an adjustment be made, the
adjustment may be deferred until the close of the Service Company's fiscal
year; (2) in connection with additional investments pursuant to Section 1.2;
and (3) annually as of the close of the Service Company's fiscal year, on a
date fixed by Service Company's Board of Directors within 90 days after the
close of the fiscal year unless there is no material disparity in the ratios
(as determined by the Service Company's Board of Directors) and no Fund
requests that an adjustment be made.
B. The cash purchases and sale price of the Share or other securities
shall be for each Fund (1) in the case of Shares, the fair market value of
Shares determined in accord with generally accepted accounting principles
and procedures established by the Board of Directors of Service Company; and
(2) in the case of debt securities, the face value thereof.
C. Unless specifically required by applicable law, the issuance and
transfer of Shares or other securities of Service Company, and the cash
investments of the Funds in Service Company, may be evidended by proper
records of Service Company; and, no certificates need be issued.
1.4 Limitation Upon Funds' Obligations To Make Cash Investments or
Purchases. Notwithstanding the provisions of Sections 1.1, 1.2 and 1.3,
above, no Fund shall be obligated to purchase Shares or other securities of
Service Company if, as a result of such purchase the Fund would thereby have
invested in cash a total of more than 0.40% of its then current net assets in
Shares or other securities of Service Company.
1.5 Restrictions on Transfer of Shares or Other Securities. Each Fund
agrees that it will not, without the written consent of all other parties to
this Agreement, transfer or dispose of or encumber any of its Shares or other
securities of Service Company except as provided in this Agreement, and that,
if issued, each certificate for Shares or other securities of Service Company
will be stamped with a legend referring to this restriction.
1.6 Assets of Service Company. The Funds agree that Service Company may
acquire, by purchase or lease, office space, furniture, equipment, supplies,
files, records, computer hardware and software, and other assets necessary or
appropriate for the discharge of the Service Company's responsibilities
hereunder. Each of the Funds hereby assigns and transfers to Service Company
any and all right, title and interest that it may have or hereafter acquire in
any such assets, subject to the rights of each Fund (A) to receive the then
fair value of such assets upon the purchase or sale of Shares pursuant to this
Agreement, (B) to the continued use of such assets in the administration of
the business affairs of a Fund so long as the Fund remains a party to this
Agreement.
1.7 Borrowing by Service Company. The Funds agree that Service Company may
borrow money, and may issue a note or other security in connection with such
borrowing, as long as such borrowing, is in connection with the discharge of
Service Company's responsibilities hereunder and is undertaken in accord with
procedures approved by the Service Company's Board of Directors.
II. SERVICES TO BE OBTAINED INDEPENDENTLY BY EACH FUND
2.1 Services and Expenses. Each Fund shall, at its own expense, obtain from
Service Company or an outside vendor (as that Fund's Board of Directors shall
determine):
<PAGE>
A. Services of an independent public accountant.
B. Services of outside legal counsel.
C. Transfer agency services, including "shareholder services."
D. Custodian, registrar and dividend disbursing services.
E. Brokerage fees, commissions and transfer taxes in connection with the
purchase and sale of securities for its investment portfolio.
F. Investment advisory services.
G. Taxes and other fees applicable to its operations.
H. Costs incident to its annual or special meetings of shareholders,
including but not limited to legal and accounting fees, and the preparation,
printing and mailing of proxy materials.
I. Directors' fees.
J. Costs incurred in the continued maintenance of its corporate existence,
including reports to shareholders and government agencies, and the expenses,
if any, attributable to the registration of the Fund's shares with Federal
and state regulatory authorities.
K. And, in general and except as provided in Section 3.2(B), any other
costs directly attributable to and identified with a particular Fund or
Funds rather than all Funds which are parties to this Agreement.
2.2 Disbursement of Payment for These Services. Notwithstanding the
provisions of Section 2.1 above, Service Company may, as agent for any Fund,
disburse to third parties payments for any of the foregoing services or
expenses. Each Fund shall reimburse Service Company promptly for such
disbursements made on behalf of the Fund.
III. SERVICES PROVIDED BY AND EXPENSES OF SERVICE COMPANY
3.1 Services to be Provided to Funds. Service Company shall with respect to
each Fund, subject to the direction and control of the Board of Directors and
officers of the Fund:
A. Manage, administer and/or conduct the general business activities of
the Fund.
B. Provide the personnel and obtain the office space, facilities and
equipment necessary to perform such general business activities under the
direction of the Funds' executive officers (who may also be officers of
Service Company) who will have the full responsibility for the general
management of these functions.
C. Establish wholly-owned subsidiaries, and supervise the management and
operations of such subsidiaries, as are necessary or appropriate to carry on
or support the business activities of the Fund; and authorize such
subsidiaries to perform such other functions for the Funds, including
organizing new investment companies which are intended to become parties to
this Agreement pursuant to Section 5.4, as Service Company's Board of
Directors shall determine.
No provisions hereof shall prohibit the Service Company from performing such
additional services to the Fund as the Fund's Board of Directors may
appropriately request and which two-thirds of the shareholders of the Service
Company and the holders of two-thirds of the Shares of the Service Company
shall approve.
3.2 Expenses of Operation of Service Company. Each of the Funds agrees to
pay to the Service Company, within 10 days after the last business day of each
month or at such other time as agreed to by the Fund and the Service Company,
the Fund's portion of the actual cost of operation (determined in accord with
generally accepted accounting principles) of Service Company for each monthly
period, or for such other period as is agreed upon, during which the Fund is a
party to this Agreement.
A. Corporate Management and Administrative Expenses. A Fund's portion of
the cost of operation of Service Company shall mean its share of the direct
and indirect expenses of Service Company's providing corporate management
and administrative services, including distribution services of an
administrative nature, as allocated among the Funds with allocation of
indirect costs based on one or more of the following methods of allocation:
(1) Net Assets: The proportionate allocation of expenses based upon the
value of each Fund's net assets, computed as a percentage of the value of
total net assets of all Funds receiving services from Service Company,
determined at the end of the last preceding monthly period.
<PAGE>
(2) Personnel Time: The proportionate allocation of expenses based upon
a summary by each Fund of the time spent by each employee who works
directly on the affairs of one or more of the Funds, computed as a
percentage of the total time spent by such employee on the affairs of all
of the Funds.
(3) Shareholder Accounts: The proportionate allocation of expenses based
upon the number of each Fund's shareholder accounts and transaction
activity in those accounts, measured over a period of time, relative to
the total number of shareholder accounts and transaction activity in those
accounts for all Funds receiving number of portfolio transactions for all
Funds receiving services from the Service Company during such period.
(4) Such other methods of allocation as may be approved by the Board of
Directors of the Service Company based upon it determination that the
allocation method is fair to each Fund in view of (i) the nature, amount
and purpose of the expenditure, (ii) the benefits, if any, to be derived
directly by each Fund relative to the benefits derived by other Funds,
(iii) the need or desirability for the Funds as a group to provide
competitive investment programs and services at competitive prices for the
group to survive and grow, (iv) the benefits which each Fund derives by
being a member of a strong Fund group, and (v) such other factors as the
Board considers relevant to the specific expenditure and allocation.
B. Distribution Expenses. Each of the Funds expressly agrees to pay to
Service Company, as requested, the Fund's portion of the actual cost of
distributing shares of the Funds, which shall mean its share of all of the
direct and indirect expenses of a marketing and promotional nature
including, but not limited to, advertising, sales literature and sales
personnel, as well as expenditures on behalf of any newly organized
registered investment company which is to become a party of this Agreement
pursuant to Section 5.4. The cost of distributing shares of the Funds shall
not include distribution-related expenses of an administrative nature, which
shall be allocated among the Funds pursuant to Section 3.2(A). Distribution
expenses of a marketing and promotional nature shall be allocated among the
Funds in the manner approved by the Securities and Exchange Commission in
Investment Company Act Release No. 11645 (Feb. 25, 1981):
(1) 50% of these expenses will be allocated based upon each Fund's
average month-end assets during the preceding quarter relative to the
average month-end assets during preceding quarter of the Funds as a group.
(2) 50% of these expenses will be allocated initially among the Funds
based upon each Fund's sales for the 24 months ended with the last day of
the preceding quarter relative to the sales of the Funds as a group for
the same period. (Shares issued pursuant to a reorganization shall be
excluded from the sales of a Fund and the Funds as a group.)
(3) Provided, however, that no Fund's aggregate quarterly contribution
for distribution expenses, expressed as a percentage of its assets, shall
exceed 125% of the average expenses for the Funds as a Group, expressed as
a percentage of the total assets of the Funds. Expenses not charged to a
particular Fund(s) because of this 125% limitation shall be re-allocated
to other Funds on iterative basis; and that no Fund's annual expenses for
distribution shall exceed 0.2% of its average month-end net assets.
IV. CONCERNING THE SERVICE COMPANY
4.1 Name. Each Fund acknowledges and agrees:
A. That the name "The Vanguard Group, Inc.", and any variants thereof used
to identify (1) the Funds as a group, (2) any Fund as a member of a group
being served by Service Company, or (3) any other person as being served or
related to Service Company (whether now in existence or hereafter created),
shall be the sole and exclusive property of Service Company, its affiliates
and its successors.
B. That Service Company shall have the sole and exclusive right to permit
the use of said name or variants thereof so long as this Agreement or any
amendments thereto are effective.
C. That upon its withdrawal from this Agreement and upon the written
request of Service Company, the Fund shall cease to use, or in any way to
refer to itself as related to, "The Vanguard Group, Inc." or any variant
thereof.
The foregoing agreements on the part of each Fund are hereby made binding
upon it, its directors, officers, shareholders and creditors and all other
persons claiming under or through it.
4.2 Services to Others. The Service Company may render services to any
person other than the Funds so long as:
<PAGE>
A. The services to be rendered to the Funds hereunder are not impaired
thereby.
B. The terms and provisions upon which the services are to be rendered
have been approved by the holders of a majority of the Shares.
C. The services rendered for compensation and, to the extent achievable,
for the purpose of gaining a profit thereon.
D. Any income earned and fees received by Service Company shall be used to
reduce the total costs and expenses of Service Company.
4.3 Books, Records and Audits of Service Company. The Service Company, and
any subsidiary established pursuant to Section 3.1(C), shall maintain
complete, accurate and current books, records and financial statements
concerning its activities. To the extent appropriate it will preserve said
records in the manner and for the periods prescribed by law. Financial records
and statements shall be kept in accord with generally accepted accounting
principles and shall be audited at least annually by independent public
accountants (who may also be accountants for any of the Funds). Within 120
days after the close of Service Company's fiscal year it shall deliver to each
Fund a copy of its audited financial statements for that year and the
accountants report thereon. Service Company, on behalf of itself and any
subsidiary, acknowledges that all of the records they shall prepare and
maintain pursuant to this Agreement shall be the property of the Funds and
that upon a request of any Fund they shall make the Fund's records available
to it, along with such other information and data as are reasonably requested
by the Fund, for inspection, audit or copying, or turn said records over to
the Fund.
4.4 Indemnification.
A. Each Fund (herein the "Indemnitor") agrees to indemnify, hold harmless
and reimburse (herein "indemnify") every other Fund, Service Company and/or
any subsidiary of Service Company (herein the "Indemnitee"):
(1) which Indemnitee (a) was or is a party to, or is threatened to be
made a party to, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(herein a "suit"), or (b) incurs an actual economic loss or expense
(herein a "loss").
(2) if: (a) such suit or loss arises from an action or failure to act,
event, occurrence, transaction or other analogous happening (herein an
"event") under circumstances in which the Indemnitee is involved in a suit
or incurs a loss.
(i) as a result substantially of, or attributable primarily to, its
being a party to this Agreement, or to its indirect participation in
transactions contemplated by this Agreement; and
(ii) where the suit or loss arises primarily and substantially from an
event related primarily and substantially to the business and/or
operations of the Indemnitor; and
(b) an independent third party, who may but need not be legal counsel
for the Funds, advises the Funds in writing (i) that the condition set
forth in "(1)" and "(2)(a)" have occurred and (ii) that the Indemnitee is
without significant fault or responsibility for the suit or loss as
measured by the comparative conduct of the Indemnitor and Indemnitee and
by the purposes sought to be accomplished by this Agreement.
B. The financial obligations of the Indemnitor under this Section shall be
limited to:
(1) In the case of a suit, to expenses (including attorneys' fees),
actually incurred by the Indemnitee. The termination of any suit by
judgment, order, settlement, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Indemnitee
is not entitled to be indemnified hereunder.
(2) In the case of an event, to losses and/or expenses (including
attorneys' fees) actually incurred by the Indemnitee.
The Indemnitee shall not be liable financially hereunder for lost profits
in the case of either a suit or loss.
C. Expenses incurred in defending a suit or resolving an event may be paid
by the prospective Indemnitor in advance of the final disposition of such
suit or event if authorized by the Board of Directors of the prospective
Indemnitor in the specific case upon receipt of an undertaking by or on
behalf of the prospective Indemnitee to repay such amount unless it shall
ultimately be determined that the Indemnitee is entitled to be indemnified
by the Indemnitor as provided in this Section.
<PAGE>
D. The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which the Indemnitee may be entitled under
any agreement or otherwise.
V. TERM OF AGREEMENT
5.1 Effective Period. This Agreement shall become effective on the date
first written above, and shall continue in full force and effect as to all
parties hereto until terminated or amended by mutual agreement of all parties
hereto. The withdrawal pursuant to Section 5.2(A) or 5.2(B) of one or more of
the Funds from this Agreement shall not affect the continuance of this
Agreement except as to the parties withdrawing.
5.2 Withdrawal from Agreement.
A. Any Fund may elect to withdraw from this Agreement effective at the end
of any monthly period by giving at least 90 days' prior written notice to
each of the parties to this Agreement. Upon the written demand of all other
Funds which are parties to this Agreement a Fund shall withdraw, and in the
event of its failure to do so shall be deemed to have withdrawn, from this
Agreement; such demand shall specify the date of withdrawal which shall be
at the end of any monthly period at least 90 days from the time of service
of such demand.
B. In the event of the withdrawal of any Fund from this Agreement, all its
rights and obligations, except for lease commitments, under this Agreement
(except such rights or obligations as have accrued prior to the date of
withdrawal) shall terminate as of the date of the withdrawal. The
withdrawing Fund shall surrender its Shares to Service Company, and (1)
shall be entitled to receive from Service Company an amount equal to the
excess of the fair value of (i) its Shares of other securities Service
Company as of the date of its withdrawal less (ii) its proportionate
interest in any liabilities of Service Company, including when appropriate
any commitments of Service Company and unexpired leases at the date of
withdrawal; (2) shall be obligated to pay to Service Company an amount equal
to the excess of (ii) over (i). Such amount to be received from or paid to
Service Company shall be determined by the favorable vote of the holders of
a majority of the Shares whose determination shall be conclusive upon the
Funds. Any amount found payable by Service Company to the withdrawing Fund
shall be recoverable by Service Company from the Funds remaining under this
Agreement in accordance with the provisions of Sections 1.2, 1.3 and 1.4
hereof.
5.3 Termination by Mutual Consent. In the event that all Funds withdraw
from this Agreement without entering into a comparable successor agreement,
each Fund shall surrender its Shares to Service Company and after payment by
Service Company of all its liabilities, including the settlement of unexpired
lease obligations, shall:
A. Receive from Service Company in cash an amount equal to its
proportionate share of the actual value of all assets of the Service Company
which can be reduced readily to cash.
B. Negotiate in good faith with the other Funds provision for the
equitable use and/or disposition of assets of the Service Company which are
not readily reducible to cash.
5.4 Additional Parties to Agreement. Upon the favorable vote of two-thirds
of the shareholders and of the holders of two-thirds of the Shares of the
Service Company, any investment company registered under the Investment
Company Act of 1940 may become a party to this Agreement and share as a Fund
in all of the rights, duties and liabilities hereunder by adopting, executing
and delivering to the Service Company and the Funds a signed copy of this
Agreement which shall evidence that investment company's agreement to assume
the duties and obligations of a Fund hereunder. Upon the delivery of a signed
copy of this Agreement, the new Fund shall be subject to all the provisions of
this Agreement and become a holder of Shares by adjustment in cash investments
among the Funds pursuant to Section 1.3. No person shall become a holder of
Shares without becoming a party to this Agreement.
VI. GENERAL
6.1 Definition of Certain Terms. As used in this Agreement, the terms set
forth below shall mean:
A. "Fair Value of Shares" shall mean the proportionate interest, as
represented by the ratio of the number of Shares owned by a Fund to the
number of Shares issued and outstanding, in all assets of the Service
Company less all liabilities of the Service Company on the date fair value
is to be determined. Assets shall be valued at fair market value. In case of
any dispute as to the proportionate interest of any
<PAGE>
Fund or as to the fair value of the Shares, the issue shall be determined by
the favorable vote of the holders of a majority of the Shares, whose
determination shall be conclusive upon the Fund.
B. "Person" shall mean a natural person, a corporation, a partnership, an
association, a joint-stock company, a trust, a fund or any organized group
of persons whether incorporated or not.
6.2 Assignment. This Agreement shall bind and inure to the benefit of the
parties thereto, their respective successors and assigns.
6.3 Captions. The captions in this Agreement are included for convenience
of reference only and in no way define any of the provisions hereof or
otherwise affect their construction or effect.
6.4 Amendment. Unless prohibited by applicable laws, regulations or orders
of regulatory authorities and except as set forth below, this Agreement may be
amended at any time and in one or more respects upon the favorable vote of the
holders of a majority of the Shares (except that the vote required in Sections
3.1 and 5.4 may be amended only by the favorable votes of the number of
holders or Shares specified therein) and without the further approval or vote
of shareholders of any of the Funds; provided, however, that Section 1.4
(limiting cash investments by the Funds in Service Company) may not be amended
unless an exemptive order permitting such amendment is obtained from the U.S.
Securities and Exchange Commission.
6.5 Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
In Witness Whereof, each of the parties hereto has caused the Agreement to
be signed and its corporate seal to be hereto affixed by its proper officers
thereunto duly authorized, all as of the date and year first above written.
Attest: The Vanguard Group, Inc.
/s/ Raymond J. Klapinsky By
- ------------------------------------ /s/ John C. Bogle
SECRETARY -------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Vanguard Group of Investment Companies:
Vanguard Money Market Reserves, Inc. Vanguard Equity Income Fund, Inc.
Vanguard Institutional Portfolios, Vanguard Index Trust
Inc. Vanguard International Equity Index
Vanguard Municipal Bond Fund, Inc. Fund, Inc.
Vanguard California Tax-Free Fund Vanguard Quantitative Portfolios, Inc.
Vanguard New Jersey Tax-Free Fund Vanguard/Windsor Funds, Inc.
Vanguard New York Insured Tax-Free (formerly The Windsor Funds, Inc.)
Fund Gemini II, Inc.
Vanguard Ohio Tax-Free Fund Vanguard/Primecap Fund, Inc.
Vanguard Pennsylvania Tax-Free Fund (formerly PRIMECAP Fund, Inc.)
Vanguard Bond Index Fund, Inc. Vanguard World Fund, Inc.
(formerly Vanguard Bond Market Fund, Vanguard/Morgan Growth Fund, Inc.
Inc.) Vanguard Explorer Fund, Inc.
Vanguard Fixed Income Securities Vanguard Small Capitalization Stock
Fund, Inc. Fund, Inc.
Vanguard/Wellesley Income Fund, Inc. Vanguard Specialized Portfolios
(formerly Wellesley Income Fund, Vanguard Variable Insurance Fund
Inc.) Vanguard Admiral Funds, Inc.
Vanguard Preferred Stock Fund Vanguard Balanced Index Fund, Inc.
Vanguard Asset Allocation Fund, Inc. Vanguard Florida Tax-Free Fund
Vanguard Convertible Securities Fund,
Inc.
Vanguard/Wellington Fund, Inc.
(formerly Wellington Fund, Inc.)
Vanguard/Trustees' Equity Fund
(formerly Trustees' Commingled Fund)
Attest:
/s/ Raymond J. Klapinsky By /s/ John C. Bogle
- ---------------------------------- ------------------------------------------
SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
EXHIBIT 10
Vanguard Tax-Managed Fund, Inc.
P.O. Box 2600
Valley Forge, PA 19482
Gentlemen:
Vanguard Tax-Managed Fund, Inc. (the "Fund") was organized under the laws of
the State of Maryland on May 9, 1994. I am acting as counsel to the Fund in
connection with the Fund's initial registration as an open-end management
investment company under the Investment Company Act of 1940 ("1940 Act"), as
amended. It is in my capacity as counsel to the Fund that I am furnishing you
this opinion.
I have examined the Fund's: (1) Articles of Incorporation; (2) by-laws; (3)
minutes of the meetings of the Board of Directors; (4) Notification of
Registration on Form N-8A under the 1940 Act; (5) Registration Statement on
Form N-1A under the Securities Act of 1933 ("1933 Act") and 1940 Act and all
amendments thereto; (6) registration statements, applications and other
documents filed with various state securities authorities; and (7) all other
relevant documents and records, as well as the procedures and requirements
relative to the issuance and sale of the Fund's shares.
Based upon the foregoing information and my examination, it is my opinion
that:
1. The Fund is valid and existing corporation of the State of Maryland
authorized to issue seven hundred and fifty million shares of common stock
interest, $.001 par value. The Board of Directors has the power to designate
one or more classes ("Portfolios") of shares of common stock and to classify
and reclassify any unissued shares with respect to such Portfolios. Currently,
the Fund is offering three Portfolios.
2. The Fund has filed a Registration Statement with the U.S. Securities
and Exchange Commission on Form N-1A to register as an open-end management
company under the 1940 Act and to register an indefinite number of its
securities under the 1933 Act.
3. The Fund has filed registration statements, applications and/or other
documents required to register its securities under various State securities
laws.
4. The Fund will be authorized to offer and sell its shares when all
necessary Federal and State regulatory authorizations, which are prerequisite
to the issuance of the Fund's shares, have been obtained, subject to the
Fund's continuing to maintain the effectiveness of the requisite Registration
Statement under the 1933 Act and certain of the State securities laws.
5. Such shares, when issued for consideration deemed by the Board of
Directors to be consistent with the Fund's Articles of Incorporation, will be
legally authorized, fully paid and non-assessable.
6. The holders of the Fund's shares will have all the rights provided with
respect to such holdings by the Articles of Incorporation and the laws of the
State of Maryland.
I hereby consent to use of this opinion as an Exhibit to the Fund's
Registration Statement on Form N-1A filed under the 1933 and 1940 Acts, and to
the applications and registration statements, and amendments thereto, filed in
accordance with the securities laws of the states in which shares of the Fund
are offered. I further consent to reference in the Prospectus of the Fund to
the fact that this opinion concerning the legality of the issue has been
rendered by me.
Very truly yours,
BY: (Raymond J. Klapinsky)
