<PAGE> 1
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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 HORIZON FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
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.
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<PAGE> 2
VANGUARD HORIZON FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <C>
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
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
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
</TABLE>
<PAGE> 3
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[LOGO]
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PROSPECTUS -- --
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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
OBJECTIVES AND
POLICIES Vanguard Horizon Fund, Inc. (the "Fund") is an open-end
diversified investment company. The
Fund offers two distinct Portfolios.
The CAPITAL GROWTH PORTFOLIO seeks to provide maximum
long-term total return by investing primarily in equity
securities of medium to small capitalization companies. The
GLOBAL EQUITY PORTFOLIO seeks to provide long-term total
return by investing primarily in stocks of U.S. and foreign
based companies that exhibit good prospects for growth. The
Portfolios are geared towards investors with a long-term
investment horizon. Dividend income is expected to be
incidental to the objective of long-term total return. There
is no assurance that the Portfolios will achieve their stated
objectives.
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OPENING AN
ACCOUNT To open a regular (non-retirement) account, please complete
and return the Account Registration Form. If you need
assistance in completing the form, please call the Investor
Information Department at 1-800-662-7447. To open an
Individual Retirement Account (IRA), please use a Vanguard
IRA Adoption Agreement. To obtain a copy of this agreement,
call the Investor Information Department, Monday through
Friday, from 8:00 a.m. to 9:00 p.m. and Saturday, from 9:00
a.m. to 4:00 p.m. (Eastern time). The minimum initial
investment is $3,000 or $500 for Uniform Gifts/Transfers to
Minors Act accounts. 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.
IMPORTANT NOTE:
1% REDEMPTION FEE If shares of the Capital Growth and Global Equity Portfolios
are redeemed or exchanged prior to being held for five
years, they will be subject to a 1% redemption fee. 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 U.S. Securities and
Exchange Commission. This statement is dated -- and
has been incorporated by reference into this Prospectus. A
Copy may be obtained without charge by writing to the Fund or
by calling the Investor Information Department.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page Page
<S> <C> <C>
Highlights ......................... 2 Implementation of SHAREHOLDER GUIDE
Introduction ...................... Policies .......................... 10 Opening an Account and
Fund Expenses ..................... 4 Investment Purchasing Shares ................. 19
Yield and Total Limitations ....................... 12 When Your Account Will Be
Return .......................... 5 Management of the Fund ............ 13 Credited .......................... 22
Investment Adviser ................ 13 Selling Your
FUND INFORMATION Dividends, Capital Gains Shares ............................ 22
Investment Objectives ............. 5 and Taxes ......................... 16 Exchanging Your Shares ............ 24
Investment The Share Price of each Important Information About
Policies .......................... 5 Portfolio ......................... 17 Telephone Transactions ............ 26
Investment Risk ................... 7 General Transferring
Who Should Invest ................. 9 Information ....................... 18 Registration ...................... 26
Other Vanguard
Services .......................... 27
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE> 4
HIGHLIGHTS
OBJECTIVES AND
POLICIES
The Fund is an open-end diversified investment company
designed for long-term investors seeking to maximize
capital appreciation commensurate with a relatively high
level of risk. Shares of the Fund are offered on a
no-load basis, although the Fund incurs certain
distribution expenses. The Fund consists of two distinct
Portfolios.
The CAPITAL GROWTH PORTFOLIO seeks to provide long-term
total return by investing primarily in stocks of
companies with medium to small capitalization.
The GLOBAL EQUITY PORTFOLIO seeks to provide long-term
total return by investing primarily in stocks of
companies located around the globe that exhibit good
prospects for growth. PAGE --
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RISK
CHARACTERISTICS The CAPITAL GROWTH and GLOBAL EQUITY PORTFOLIOS invest
in common stocks and have exposure to stock market risk.
STOCK MARKET RISK is the possibility that stock prices
in general will decline over short or extended periods.
The Global Equity Portfolio also invests in stocks of
foreign based companies, and has exposure to foreign
stock market risk and currency risk. FOREIGN SECURITIES'
RISK is influenced by differences in accounting and
auditing practices, in addition to the lower liquidity
of foreign stock markets. Both Portfolios are actively
managed, and exposed to manager risk. MANAGER RISK
refers to the possibility that a portfolio's investment
adviser may fail to execute its investment strategy
effectively. PAGE --
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THE VANGUARD
GROUP
The Fund is a member of The Vanguard Group of Investment
Companies, a group of more than 30 investment companies
with more than 80 distinct investment portfolios and
total assets in excess of $130 billion. The Vanguard
Group, Inc. ("Vanguard"), a subsidiary jointly owned by
The Vanguard Funds, provides all corporate, management,
administrative, distribution and shareholder accounting
services on an at-cost basis to the Funds in the
Group. PAGE --
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INVESTMENT
ADVISERS The CAPITAL GROWTH PORTFOLIO receives investment
advisory services from Vanguard's Core Management Group.
These advisory services are provided to the Portfolio on
an at-cost basis. As a result, the Portfolio advisory
costs are substantially lower than the fees that would
be charged by an external adviser.
The GLOBAL EQUITY PORTFOLIO receives investment advisory
services from Baring Asset Management Limited, for an
advisory fee that is well below the fees charged by
other advisers to global mutual funds. See "Investment
Advisers" for more information. Baring Asset Management
discharges its responsibilities subject to the control
of the Officers and Directors of the Fund. PAGE --
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2
<PAGE> 5
DIVIDENDS, CAPITAL
GAINS AND TAXES Income is expected to be incidental to the objective of
each Portfolio. However, the Fund will distribute any
investment income in the form of dividends. The CAPITAL
GROWTH and GLOBAL EQUITY PORTFOLIOS will distribute net
dividends and capital gains, if any, annually. A sale of
shares of a Portfolio is a taxable event and may result
in a capital gain or loss. Dividend distributions,
capital gains distributions, and capital gains or losses
from redemptions and exchanges may be subject to
federal, state and local taxes. PAGE --
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PURCHASING
SHARES
You may purchase shares by mail, wire or exchange from
another Vanguard Fund. The minimum initial investment is
$3,000; the minimum for subsequent investments is $100.
There are no sales commissions or 12b-1 fees. Telephone
exchanges from some Vanguard Funds are
permitted. PAGE --
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SELLING SHARES You may redeem shares of each Portfolio in writing or by
telephone. The Capital Growth and Global Equity
Portfolios assess a 1% redemption fee on shares held
less than 5 years. The price of each portfolio is
expected to fluctuate, and may at redemption be more or
less than at the time of initial purchase, resulting in
a gain or loss. PAGE --
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EXCHANGING
SHARES You may exchange a Portfolio's shares for those of the
other Portfolio of the Fund or other Vanguard Funds. An
exchange from the Capital Growth and Global Equity
Portfolios will be subject to a 1% redemption fee on
shares held for less than 5 years. PAGE --
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SERVICES TO
SHAREHOLDERS The Fund offers special services: Fund Express, for
electronic transfers between the Fund and your bank
account; Tele-Account, for 'round-the-clock telephone
access to your Fund account balances and certain
transactions; Direct Deposit, for automatic deposit of
payroll checks; Average Cost Statement, for
determination of the average cost of shares redeemed for
tax purposes; and Dividend Express for automatic
transfer of dividends and/or capital gains to a bank
account. PAGE --
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SPECIAL
CONSIDERATIONS (1) Each Portfolio may invest a portion of its assets in
futures contracts, options, convertible securities
and swap agreements. PAGE --
(2) Each Portfolio may invest in short-term fixed income
securities. PAGE --
(3)Each Portfolio may lend its securities. PAGE --
(4) Each Portfolio may borrow money. PAGE --
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3
<PAGE> 6
FUND
EXPENSES The following table illustrates all expenses and fees
you would incur as a shareholder of the Capital Growth,
and Global Equity 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>
SHAREHOLDER CAPITAL GLOBAL
TRANSACTION GROWTH EQUITY
EXPENSES PORTFOLIO PORTFOLIO
------------------------------------------------- -------- --------
<S> <C> <C>
Sales Load Imposed on Purchases.................. None None
Sales Load Imposed on Reinvested Dividends....... None None
Redemption Fees:
shares held less than 5 years.................. 1% 1%
shares held 5 years or more.................... None None
Exchange Fees.................................... None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PORTFOLIO CAPITAL GLOBAL
OPERATING EXPENSES GROWTH EQUITY
------------------------------------------------- PORTFOLIO PORTFOLIO
-------- --------
<S> <C> <C>
Management & Administrative Expenses............. 0. --% 0. --%
Investment Advisory Fees......................... -- --
12b-1 Fees....................................... None None
Other Expenses
Distribution Costs............................. 0. --% 0. --%
Miscellaneous Expenses......................... 0. -- 0. --
Total Other Expenses............................. 0. -- 0. --
-------- --------
TOTAL
OPERATING
EXPENSES..................................... 0. --% 0. --%
-------- --------
-------- --------
</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
Capital Growth, and Global Equity Portfolios.
1% REDEMPTION FEE The Capital Growth and Global Equity Portfolios are
intended for long-term investors who can withstand
substantial price fluctuation. For this reason, the
Portfolios will assess a 1% redemption fee on shares
that are redeemed or exchanged out before they have been
held for five years. Solely for purposes of calculating
the five year holding period the Portfolios will use the
"first-in, first-out" (FIFO) method. That is, the date
of the redemption or exchange will be compared to the
earliest purchase date. If this holding period is less
than five years, the fee will be assessed. The fee will
be prorated if a portion of the shares being redeemed or
exchanged has been held for more than five years. This
fee will not apply to dividend or capital gain
reinvestment and it is paid directly to the Portfolios.
IN THE EVENT OF AN EARLY REDEMPTION DUE TO A
SHAREHOLDER'S DEATH, ALL REDEMPTION FEES WILL BE WAIVED.
IN ORDER TO SUBSTANTIATE THE DEATH, A CERTIFIED COPY OF
THE DEATH CERTIFICATE MUST BE PROVIDED.
4
<PAGE> 7
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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Growth Portfolio................... $ -- $--
Global Equity Portfolio.................... $ -- $--
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL
EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
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YIELD AND
TOTAL RETURN From time-to-time the Portfolios may advertise their
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 the Portfolios refers to the average annual
compounded rates of return over one-, five-, and
ten-year periods or for the life of the Portfolios (as
stated) 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 gain
distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of a Portfolio is calculated by dividing net
investment income per share earned during the 30-day
period by the net asset value per share on the last day
of the period. Net investment income include interest
and dividend income earned on the 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 the
Portfolios 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 report to shareholders.
Also, the Portfolios may compare their performance to
that of various stock market indices, including, but not
limited to, the Standard & Poor's Composite Stock Price
Index.
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INVESTMENT
OBJECTIVES The Fund is an open-end diversified investment company.
While the two Portfolios of the Fund differ in strategy
and investment policy, they share a common objective: to
provide long-term total return for shareholders. The
Portfolios are geared towards investors who have a
long-term investment horizon. To that end, both
Portfolios will assume above-average risk in exchange
for the potential of above-average return.
Neither an investment in the Fund, nor its Portfolios
should be assumed to represent a total investment
program. Instead, investors are en-
5
<PAGE> 8
couraged to consider a prudent allocation of their
investments among other asset classes, such as equities
of established, domestic companies; bonds and cash
reserves.
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INVESTMENT
POLICIES Both Portfolios invest primarily in common stocks that
are deemed to have attractive relative total return
potential. The Portfolios are managed without regard to
tax ramifications.
CAPITAL GROWTH
PORTFOLIO The Capital Growth Portfolio invests primarily in common
stocks that are considered undervalued by the investment
adviser. Vanguard's Core Management Group utilizes a
quantitative approach to identify, from a large universe
of companies, those common stocks with the best relative
total return potential. The Portfolio will generally be
diversified across a broad range of industries; however,
the investment adviser may either overweight or
underweight certain industries. The Portfolio will be
primarily invested in medium and small capitalization
stocks; however, the emphasis on these size
classifications may vary, depending on Core Management's
determination of their relative attractiveness. Large
capitalization stocks may also be included if they are
deemed to be relatively attractive. Similarly, both
"value" and "growth" stocks will usually be included in
the Portfolio; however, the percentages invested in
either may vary over time as their relative
attractiveness changes. Among the characteristics
emphasized in stock selection are (i) market liquidity;
(ii) low volatility; and (iii) financial strength
relative to other stocks.
GLOBAL EQUITY
PORTFOLIO
The Global Equity Portfolio seeks to diversify its
assets among stocks traded in the U.S. and developed
foreign stock markets, as well as emerging stock
markets. The Portfolio will generally limit the emerging
market holdings to 25%. The Portfolio seeks to diversify
among foreign markets including Japan, the United
Kingdom, Germany, France, Switzerland, the Netherlands,
Sweden, Australia, and Hong Kong, as well as emerging
markets, such as Brazil, India, Indonesia, Korea,
Mexico, the Philippines and Thailand. The Portfolio's
adviser determines country allocations for the Global
Equity Portfolio based on economic trends, valuation
levels, and earnings growth relative to other markets.
The Global Equity Portfolio stock selection is guided by
weighing the (i) growth, (ii) valuation, and (iii)
liquidity of equity securities of U.S. and foreign-based
companies. The Portfolio's adviser believes that both
the allocation of the Portfolio's assets across foreign
stock markets, and the selection of stocks are important
in managing a global equity portfolio.
Besides investing in equity securities, the Global
Equity Portfolio may also enter into forward foreign
currency exchange contracts in order to protect against
fluctuations in exchange rates. See "Implementation of
Policies" for a description of such contracts.
BOTH PORTFOLIOS Each Portfolio is expected to remain substantially fully
invested in equity securities. However, the proportion
of cash reserves held by a
6
<PAGE> 9
Portfolio may increase if the adviser feels that a
conservative investment posture is warranted.
Each Portfolio of the Fund is authorized to invest in
stock index futures, options and swap agreements to a
limited extent. Each Portfolio is permitted to hold
equity securities other than common stock, such as
debentures or preferred stock that is convertible into
common stock. See "Implementation of Policies" for a
description of these and other investment practices of
the Fund.
The investment objectives and 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 in either.
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INVESTMENT RISKS As mutual funds investing primarily in common stocks,
the Portfolios are subject to market risk -- i.e., the
possibility that stock prices in general will decline
over short or even extended periods. Stock markets tend
to be cyclical, with periods when stock prices generally
rise and periods when stock prices generally decline.
INVESTORS ARE EXPOSED
TO THE MARKET RISK
OF STOCKS
To illustrate the volatility of U.S. stock prices as an
indicator of the market risk for the Capital Growth
Portfolio, the following table sets forth the extremes
for the U.S. stock market returns as well as the average
return for the period from 1926 to 1993, as measured by
the Standard & Poor's 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL 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 -43.4 -12.5 - 0.9 + 3.1
Average +12.3 +10.3 +10.6 +10.6
</TABLE>
As shown, stocks have provided an average annual total
return (capital appreciation plus dividend income) for
10 years, of +10.6%. 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 market returns are quite volatile from year to
year. The return in individual years has varied from a
low of -43.4% to a high of +53.9%, reflecting the
short-term volatility of stock prices. The Capital
Growth Portfolio may be expected to involve greater
market risk than the Standard & Poor's 500 Composite
Stock Price Index, and should not be expected to mirror
the return provided by the index.
SMALL COMPANY STOCKS
MAY EXHIBIT GREATER
VOLATILITY
The Capital Growth Portfolio emphasizes stocks of
companies with medium and small market capitalization.
Many such stocks have historically been more volatile in
price than the stock market as a whole. Among the likely
reasons for the greater price volatility of small
company stocks are the less certain growth prospects of
smaller firms, a
7
<PAGE> 10
lower degree of liquidity in the markets for such
stocks, and the small to negligible dividends generally
paid by small companies. Besides exhibiting greater
volatility, small and mid-cap stocks have at times
fluctuated in value independently of the broad stock
market.
Investors should therefore expect that small and mid-cap
stocks (and hence the Portfolio's investments) may be
more volatile than the stocks of more established
companies. Investors should expect the Portfolio's
return to be more volatile than that of equities as a
group.
INTERNATIONAL MARKETS
ARE EXPECTED TO BE
MORE VOLATILE
International Markets may offer potential for
above-average growth. However, commensurate with that
opportunity for a greater return lies greater risk. Risk
factors unique to international investing are the
volatility of a country's financial markets, a country's
political and economic climate, and the value of its
currency.
Investments in foreign stock markets can be as volatile,
if not more volatile, than investments in U.S. markets.
However, a diversified portfolio of U.S. and foreign
stocks may have volatility similar to that of a
diversified U.S. stock portfolio.
To illustrate the volatility of global stock prices as
an indicator of the market risk for the Global Equity
Portfolio, the following table sets forth the extremes
for some world markets from 1970 to 1993, as measured by
the Morgan Stanley Capital International World Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL MORGAN STANLEY CAPITAL INTERNATIONAL
WORLD INDEX RETURNS (1970-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best 42.8% 27.9% 19.9% 13.3%
Worst -24.5% -1.3% 6.4% 10.9%
Average 13.0% 12.6% 13.9% 12.3%
</TABLE>
The chart shows average annual returns, without respect
to the effect of taxes. As shown, global stocks have
provided an average annual total return of 13.9% for 10
years. The returns in individual years has varied from a
low of -24.5% to a high of 42.8%, which reflects the
short-term volatility of stock prices. The figures on
total return and stock market volatility are provided
here only as a guide to potential market risk, and may
not be useful for forecasting future returns in any
particular period.
The Morgan Stanley Capital International (MSCI) World
Index primarily contains return figures for developed
countries; whereas, the Global Equity Portfolio may
invest 25% of its holdings in emerging market
securities. Emerging market countries traditionally
provide greater returns, but with substantially greater
volatility. The Portfolio is likely to differ in terms
of portfolio composition from the MSCI World Index, and
so the performance of the Global Equity Portfolio should
not be expected to mirror the return provided by the
index.
8
<PAGE> 11
FOREIGN SECURITIES'
RISK For U.S. investors, the returns of foreign investments,
such as the non-domestic equity securities held by the
Global Equity Portfolio, are influenced by not only the
returns on foreign common stocks themselves, but also by
currency risk -- i.e., changes in the value of the
currencies in which the stocks are denominated. In a
period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for a
U.S. investor will be diminished. By contrast, in a
period when the U.S. dollar generally declines, the
returns on foreign stocks will be enhanced.
Other risks and considerations of international
investing include the following: differences in
accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio
transactions; smaller trading volumes and generally
lower liquidity of foreign stock markets, which may
result in greater price volatility; foreign withholding
taxes payable on the Portfolio's foreign securities,
which may reduce dividend income payable to
shareholders; the possibility of expropriation or
confiscatory taxation; adverse changes in investment or
exchange control regulations; difficulty in obtaining a
judgment from a foreign court; political instability
which could affect U.S. investment in foreign countries;
and potential restrictions on the flow of international
capital.
THE FUND IS ALSO
SUBJECT TO
MANAGER RISK
The investment advisers manage their respective
Portfolios "actively" in an effort to provide long-term
returns that exceed those of comparable unmanaged
indexes. However, the Portfolios entail the risk that
managers will underperform such indexes. The adviser to
the Capital Growth Portfolio selects stocks primarily
based on quantitative models. The adviser for the Global
Equity Portfolio selects stocks based on economic,
financial and market analysis and investment judgment.
Both Portfolios are exposed to manager risk. MANAGER
RISK refers to the possibility that the Portfolio's
investment adviser may fail to execute its investment
strategy effectively. As a result, the Portfolio may
fail to achieve its stated objective.
- --------------------------------------------------------------------------------
WHO SHOULD INVEST
LONG-TERM
INVESTORS SEEKING
MAXIMUM TOTAL RETURN The Portfolios are designed for investors who have a
long-term (five years or longer) investment horizon. The
CAPITAL GROWTH and GLOBAL EQUITY PORTFOLIOS are designed
for investors with the perspective, patience and
financial resources to assume above-average risk and
volatility for the potential of achieving above average
return. Investors in the Portfolios should be able to
tolerate sudden, sometimes substantial fluctuations in
the value of their investments. The Portfolios' share
price is expected to be volatile.
The GLOBAL EQUITY PORTFOLIO is designed for long-term
investors who seek an actively-managed approach to
investing in a diversified portfolio of common stock of
U.S. and foreign based companies. Investors in the
Global Equity Portfolio should be cognizant of the
unique risks of international investing, including their
exposure to currency fluctuations.
9
<PAGE> 12
Because of the risks associated with common stock
investments, the Capital Growth and Global Equity
Portfolios are intended to be long-term investment
vehicles and are not designed to provide investors with
a means of speculating on short-term market movements.
Investors who engage in excessive account activity
generate additional costs which are borne by all of the
Fund's shareholders. In order to minimize such costs,
the Fund has adopted the following policies. The Fund
reserves the right to reject any purchase request
(including exchange purchases from other Vanguard
portfolios) that is reasonably deemed to be disruptive
to efficient portfolio management, either because of the
timing of the investment or previous excessive trading
by the investor. Additionally, the Fund has adopted
exchange privilege limitations as described in the
section entitled "Exchange Privilege Limitations."
Finally, the Fund reserves the right to suspend the
offering of its shares.
No assurance can be given that the Portfolios of the
Fund will attain their objectives or that shareholders
will be protected from the risk of loss that is inherent
in equity investing. Investors may wish to reduce the
potential risk of investing in the Portfolios by
purchasing shares on a periodic basis (dollar-cost
averaging) rather than making an investment in one lump
sum.
The Fund is not intended as a complete investment
program. Most investors should maintain diversified
holdings of securities with different risk
characteristics -- including common stocks, bonds and
money market instruments. Investors may also wish to
complement an investment in the Fund with other types of
common stock investments.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES
BOTH PORTFOLIOS MAY
INVEST IN SHORT-TERM
FIXED-INCOME
SECURITIES
Each Portfolio will generally remain fully invested in
common stock. The Portfolios of the Fund may invest
temporarily in certain short-term fixed income
securities for defensive purposes. 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.
BOTH PORTFOLIOS MAY
USE FUTURES CONTRACTS,
OPTIONS AND WARRANTS,
CONVERTIBLE SECURITIES
AND SWAP AGREEMENTS Each Portfolio of the Fund may utilize stock futures
contracts, options, including puts and calls, warrants,
convertible securities and swap agreements to a limited
extent. Each Portfolio may use over-the-counter options
when exchange traded options do not exist. Specifically,
each Portfolio may enter into futures contracts and
options provided that not more than 5% of their assets
are required as a margin deposit for futures contracts
or options, and provided that not more than 20% of a
Portfolio's assets are invested in futures and options
at any time. Additionally, both Portfolios' investments
in warrants will not exceed more than 15% of their
assets. Futures contracts, options, warrants,
convertible securities and swap agreements may be used
for several reasons: to simulate full investment while
retaining a cash balance for fund management purposes,
to facilitate the portfolio management
10
<PAGE> 13
process, or to reduce transaction costs. While each of
these instruments can be used as leveraged investments,
the Portfolios may not use them to leverage their net
assets.
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, including
puts and calls, warrants, convertible securities and
swap agreements by the Portfolio 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.
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 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.
BOTH PORTFOLIOS MAY
LEND THEIR SECURITIES
Both Portfolios of the Fund may lend their investment
securities to qualified institutional investors for
either short-term or long-term periods for the purpose
of realizing additional income. Loans or 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.
11
<PAGE> 14
BOTH PORTFOLIOS MAY
OWN RESTRICTED
SECURITIES
Both Portfolios of the Fund may own restricted
securities to a limited extent. Restricted securities
are securities which are subject to restrictions upon
sale under the Securities Act of 1933. Each Portfolio
may invest up to 15% of its net assets in restricted
securities. (Included within this limit are restricted
securities and, other securities for which price
quotations are not readily available.)
THE GLOBAL EQUITY
PORTFOLIO MAY ENTER
INTO FORWARD CURRENCY
CONTRACTS The Global Equity Portfolio may enter into forward
foreign currency exchange contracts. Such Contracts are
used to protect the Portfolio's securities against
uncertainty in the level of future foreign exchange
rates.
A forward foreign currency exchange contract is an
obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at
a price set at the time of the contract. The contracts
may be bought or sold to protect the Portfolios to a
limited extent, against adverse changes in exchange
rates between foreign currencies and the U.S. dollar.
Such contracts, which protect the value of a Portfolio's
investment securities against a decline in the value of
a currency, do not eliminate fluctuations in the
underlying prices of the securities. They simply
establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of
loss due to a decline in the value of a hedged currency,
at the same time they tend to limit any potential gain
that might be realized should the value of such currency
increase.
PORTFOLIO TURNOVER Although both Portfolios seek to invest for the long
term, they retain the right to sell securities
irrespective of how long they have been held. The annual
Portfolio turnover of the CAPITAL GROWTH PORTFOLIO is
anticipated to be between 100% and 150%. The GLOBAL
EQUITY PORTFOLIO'S annual Portfolio turnover is expected
to be between 50% and 100%.
A turnover rate of 100% would occur, for example, if all
the securities of a Portfolio were replaced within one
year. Higher portfolio turnover rates generally result
in increased brokerage commissions and the realization
of higher capital gains, which may make these Portfolios
suitable for the tax-deferred portion of an investment
portfolio rather than the fully taxable portion. Both
Portfolios are managed without regard to tax
ramifications.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL
LIMITATIONS
Each Portfolio has adopted certain limitations designed
to reduce its exposure to specific situations. Some of
these limitations are that a Portfolio will not:
(a) with respect to 75% of the value of its total
assets, invest more than 5% of its assets in the
securities of any single issuer (other than
obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or
instrumentalities);
(b) with respect to 75% of the value of its total
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
12
<PAGE> 15
(d) borrow money except from banks for temporary or
emergency purposes, and in no event in excess of 15%
of the market value of its total assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information are fundamental, and may only be changed
with the approval of a majority of each Portfolio's
shareholders.
- --------------------------------------------------------------------------------
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 more than 30 investment companies
with more than 80 distinct portfolios and total assets
in excess of $130 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 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 chose 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 provides the funds with
necessary office space, furnishings and equipment.
Each Fund pays its share of Vanguard's total expenses,
which are allocated among the funds under methods
approved by the Board of Directors (Trustees) of each
fund. In addition, each fund bears its own direct
expenses, such as legal, auditing and custodial 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 allocated share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISERS
VANGUARD SERVES AS
ADVISER TO THE CAPITAL
GROWTH PORTFOLIO The CAPITAL GROWTH PORTFOLIO receives investment
advisory services 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 Fund, Vanguard Institutional Index Fund, Vanguard
13
<PAGE> 16
Balanced Index Fund, and a portion of Vanguard/Windsor
II and Vanguard/Morgan Growth Fund, as well as to
several indexed separate accounts. Total assets under
management by the Core Management Group were $18.3
billion as of September 30, 1994. The Core Management
Group is supervised by the Officers of the Fund. George
U. Sauter, Vice President of the Core Management Group,
has been in charge of the Group since 1987, and utilizes
a team approach to manage the Portfolio's assets.
Vanguard's Core Management Group will provide advisory
services on an at-cost basis. In placing portfolio
transactions, Vanguard's 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 determinations. In selecting broker-dealers to
execute securities transactions for the Portfolio,
consideration will be given to such factors as: the
price of the security; the rate of the commission; the
size and difficulty of the order; the reliability,
integrity, financial condition, general execution, and
operational capabilities of competing brokers-dealers;
and the brokerage and research services provided to the
Portfolio. 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 Portfolio.
BARING ASSET
MANAGEMENT SERVE AS
ADVISER TO THE GLOBAL
EQUITY PORTFOLIO The GLOBAL EQUITY PORTFOLIO is managed by BARING ASSET
MANAGEMENT LIMITED, 155 Bishopsgate, London. Baring
Asset Management was founded in 1762 and provides asset
management services to companies, institutions, and
individuals. As of September 30, 1994, Baring Asset
Management has more than $44 billion in assets under
management, and more than 100 investment professionals
in offices throughout the world.
The investment philosophy at Baring Asset Management is
that investing in growing economies and growing
companies at the right valuation leads to superior
long-term results. Baring Asset Management utilizes a
regional strategic team approach to portfolio
management, where each team consists of experienced
members, who are specialists, that conduct the necessary
research for the team. Philip Bullen, Director, has been
designated as portfolio manager for the assets of the
Global Equity Portfolio. He has 17 years of investment
experience and specializes in asset and country
allocation.
The Global Equity Portfolio pays Baring Asset Management
a basic fee at the end of each fiscal quarter,
calculated by applying a quarterly rate,
14
<PAGE> 17
based on the following annual percentage rates, to the
average month-end assets of the Portfolio for the
quarter:
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
--------------------- ------
<S> <C>
First $100 million 0.35%
Next $150 million 0.30%
Next $250 million 0.25%
Over $500 million 0.20%
</TABLE>
The basic advisory fee may be increased or decreased by
applying an adjustment formula based on the investment
performance of the Portfolio relative to the Morgan
Stanley Capital International (MSCI) All Country Index.
The following table set forth the incentive/penalty fee
payable by the Portfolio to Baring Asset Management
under the investment advisory agreement:
<TABLE>
<CAPTION>
CUMULATIVE THREE YEAR PERFORMANCE
DIFFERENTIAL VS. THE MSCI ANNUAL/INCENTIVE
ALL COUNTRY INDEX PENALTY FEE ADJUSTMENT
--------------------------------------- ----------------------
<S> <C>
Less than 1% 0.50 X Basic Fee
Between 1% and 2% 0.75 X Basic Fee
Between 2% and 3% Basic Fee
Between 3% and 4% 1.25 X Basic Fee
More than 4% 1.50 X Basic Fee
</TABLE>
Under rules of the Securities and Exchange Commission,
the incentive/ penalty fee structure will not be fully
operable until the quarter ending December 31, 1997, and
until that date, will be calculated according to certain
transition rules. A detailed description of the
incentive/penalty fee schedule for Baring Asset
Management and the applicable transition rules is
contained in the Statement of Additional Information.
The Portfolio has authorized Baring Asset Management to
pay higher commissions in recognition of brokerage
services felt necessary for the achievement of better
execution, provided the investment adviser believes this
to be in the best interest of the Portfolio. Although
the Portfolio does not market its shares through
intermediary brokers or dealers, the Portfolio may place
orders for the Portfolio with qualified broker-dealers
who recommend the Portfolio to clients, if the Officers
of the Fund believe that the quality of the transaction
and the commission are comparable to what they would be
with other qualified brokerage firms.
The Fund's Board of Trustees may, without the approval
of shareholders, provide for: (a) the employment of a
new investment adviser pursuant to the terms of a new
advisory agreement either as a replacement for an
existing adviser or as an additional adviser; (b) a
change in the terms of an advisory agreement; and (c)
the continued employment of an existing adviser on the
same advisory contract terms where a contract has been
assigned because of a change in control of the adviser.
Any such change will only be made upon not less than 30
days prior written notice to
15
<PAGE> 18
shareholders of the Fund which shall include
substantially the information concerning the adviser
that would have normally been included in a proxy
statement.
- --------------------------------------------------------------------------------
DIVIDENDS, CAPITAL
GAINS AND TAXES The Fund is expected to pay dividends annually from
ordinary income. Net capital gains distributions, if
any, will be made annually. In addition, to satisfy
certain distribution requirements of the Tax Reform Act
of 1986, the Fund may declare special year-end dividend
and capital gains distributions during the month of
December. Such distributions, if received by
shareholders by January 31, are deemed to have been paid
by the Fund and received by shareholders on December 31
of the prior year.
Dividends and capital gains distributions may be
automatically reinvested or received in cash. See
"Choosing a Distribution Option" for a description of
these options.
The Fund intends to continue to qualify for taxation as
a "regulated investment company" under the Internal
Revenue Code so that it will not be subject to federal
income tax to the extent its income is distributed to
shareholders. Dividends paid by the Fund from net
investment income, 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
the Fund from domestic (U.S.) sources.
Distributions paid by the Fund from long-term capital
gains, whether received in cash or reinvested in
additional shares, are taxable as long-term capital
gains, regardless of the length of time you have owned
shares in the Fund. Capital gains distributions are made
when the Fund realizes net capital gains on sales of
portfolio securities during the year. The Fund does not
seek to realize any particular amount of capital gains
during a year; rather, realized gains are a byproduct of
portfolio management activities. Consequently, capital
gains distributions may be expected to vary considerably
from year to year; there will be no capital gains
distributions in years when the Fund realizes net
capital losses.
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 the Fund. Also, keep in mind
that if you purchase shares in the Fund 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 its dividend and capital gains distribution.
16
<PAGE> 19
THE GLOBAL EQUITY
PORTFOLIO MAY
"PASS THROUGH"
FOREIGN TAXES
The Global Equity Portfolio may elect to "pass through"
to the Portfolio's shareholders the amount of foreign
income taxes paid by the Portfolio. The Portfolio will
make such an election only if it deems it to be in the
best interests of its shareholders.
If this election is made, shareholders of the Portfolio
will be required to include in their gross income their
pro rata share of foreign taxes paid by the Portfolio.
However, shareholders will be able to treat their pro
rata share of foreign taxes as either an itemized
deduction or a foreign tax credit against U.S. income
taxes (but not both) on their tax return.
A CAPITAL GAIN OR
LOSS MAY BE REALIZED
UPON EXCHANGE OR
REDEMPTION A sale of shares of the Funds 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 a mutual fund).
Dividend distributions, capital gains distributions, and
capital gains or losses from redemptions and exchanges
may be subject to state and local taxes.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with IRS
taxpayer 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 Fund are
exempt from Pennsylvania personal property taxes.
The tax discussion set forth on the previous page 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 Fund is managed without regard to tax
ramifications.
- --------------------------------------------------------------------------------
THE SHARE PRICE
OF EACH PORTFOLIO The Fund's share price or "net asset value" per share is
determined by dividing the total assets of the Fund,
less all liabilities, by the total number of shares
outstanding. The net asset value is calculated at the
close of regular trading (generally 4:00 p.m. Eastern
time) each day the New York Stock Exchange is open for
trading.
Market values for securities listed on an exchange are
based upon the latest quoted sales price as of 4:00 p.m.
Eastern time on the valuation date. Securities not
traded on the valuation date are valued at the mean of
the latest quoted bid and asked price. Securities not
listed on an exchange are valued at the latest quoted
bid price. Temporary cash investments are valued at cost
which approximates market value. All prices of listed
securities are taken from the exchange where the
security is primarily traded. Securities may be valued
on the basis of prices provided by a pricing service
when such prices are believed to reflect the
17
<PAGE> 20
fair market value of such securities. Securities for
which market quotations are not readily available or
which are restricted as to sale and other assets are
valued by such methods as the Board of Directors deems
in good faith to reflect fair value.
All foreign securities are valued at the latest quoted
sales price available before the time when assets are
valued. Securities listed on a foreign exchange, as well
as American Depository Receipts ("ADRs"), which are
traded on U.S. exchanges are valued at the latest quoted
sales price available before the time when assets are
valued. Securities regularly traded in the
over-the-counter market for which market quotations are
readily available will be valued at the latest quoted
bid price.
For purposes of determining the Global Equity
Portfolio's net asset value per share, all assets and
liabilities, initially expressed in foreign currencies,
will be translated into U.S. dollars at the bid prices
of such currencies, against U.S. dollars invested by
major banks as of 4:00 p.m. Central Europe time. If such
quotations are not available as of the close of the
Exchange, the rate of exchange will be determined in
accordance with policies established in good faith by
the Board of Directors.
The Fund's price per share can be found daily in the
mutual fund section of most major newspapers under the
heading of The Vanguard Group.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION Vanguard Horizon Fund, Inc. is a Maryland Corporation.
The authorized capital stock of the Fund consists of
1,000,000,000 shares at the par value of $.001 each. The
Board of Directors has the power to designate one or
more classes ("Portfolios") of shares of common stock
and to classify or reclassify any unissued shares with
respect to such Portfolios. Currently the Fund is
offering four classes of shares.
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 Fund.
The shares of the Funds are fully paid and
nonassessable; have no preferences as to conversion,
exchange, dividends, retirement or other features; and
have no preemptive rights. Such shares have
noncumulative 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.
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 LLP serves as independent accountants for
the Fund and audits its financial statements annually.
The Fund is not involved in any litigation.
- --------------------------------------------------------------------------------
18
<PAGE> 21
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES
You may open a regular (non-retirement) 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 $3,000 minimum
initial investment requirement ($500 for Uniform
Gifts/Transfers to Minors Act accounts). You must open a
new Individual Retirement Account by mail (IRAs may not
be opened by wire) using a Vanguard IRA Adoption
Agreement. Your purchase must be equal to or greater
than the $500 minimum initial investment requirement,
but no more than $2,000 if you are making a regular IRA
contribution. Rollover contributions are generally
limited to the amount withdrawn within the past 60 days
from an IRA or other qualified Retirement Plan. If you
need assistance with the forms or have any questions
about this Fund, please call our Investor Information
Department at 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.
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
stock 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.
The Portfolios' shares are purchased at the
next-determined net asset value after your investment
has been received. The Fund is offered on a no-load
basis (i.e., there are no sales commissions or 12b-1
fees).
IMPORTANT NOTE:
1% REDEMPTION FEE Potential investors should note that a 1% redemption fee
is charged for the Capital Growth and Global Equity
Portfolios. This fee, which is paid directly to the
Portfolios, applies to redemptions from and exchanges
from the Portfolios of shares held for less than 5
years. IN THE EVENT OF AN EARLY REDEMPTION DUE TO A
SHAREHOLDER'S DEATH, ALL REDEMPTION FEES WILL BE WAIVED.
IN ORDER TO SUBSTANTIATE THE DEATH, A CERTIFIED COPY OF
THE DEATH CERTIFICATE MUST BE PROVIDED. 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), exchange
from another Vanguard Fund account, or Vanguard Fund
Express. Subsequent investments to Individual Retirement
Accounts may be made by mail ($100 minimum) or exchange
from another Vanguard Fund Account. In some instances,
contributions may be made by wire or Vanguard Fund
Express. Please call us for more information on these
topics.
- --------------------------------------------------------------------------------
19
<PAGE> 22
<TABLE>
<S> <C> <C>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of ADDITIONAL INVESTMENTS SHOULD
your initial investment on INCLUDE THE INVEST-BY-MAIL
Complete and sign the the registration form, make REMITTANCE FORM ATTACHED TO
enclosed Account your check payable to The YOUR FUND CONFIRMATION
Registration Form Vanguard Group--- and mail STATEMENTS. PLEASE MAKE YOUR
to: CHECK PAYABLE TO The Vanguard
Group---, write your account
VANGUARD FINANCIAL CENTER number on your check and,
P.O. BOX 2600 using the return envelope
VALLEY FORGE, PA 19482 provided, mail to the address
indicated on the Invest-
by-Mail Form.
For express or VANGUARD FINANCIAL CENTER All written requests should
registered mail, 455 DEVON PARK DRIVE be 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.
</TABLE>
------------------------------------------------------------------------------
PURCHASING BY WIRE CORESTATES BANK, N.A.
Money should be AB 0310000011
wired to: CORESTATES NO. --
ATTN. VANGUARD
BEFORE WIRING VANGUARD HORIZON FUND
Please contact ACCOUNT NUMBER
Client Services ACCOUNT REGISTRATION
(1-800-662-2739)
To assure proper receipt, please be sure your bank
includes the name of the Portfolio(s) selected, 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 above after
completing your wire arrangement. NOTE: Federal Funds
wire purchase orders will be accepted only when the Fund
and Custodian Bank are open for business.
------------------------------------------------------------------------------
PURCHASING BY
EXCHANGE (from a
Vanguard Account)
You may open a new account or purchase additional shares
by making an exchange from an existing Vanguard account.
However, the Fund reserves the right to refuse any
exchange purchase request. Call our Client Services
Department (1-800-662-2739) for assistance. The new
account will have the same registration as the existing
account.
------------------------------------------------------------------------------
PURCHASING BY
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 call 1-800-662-7447 for
an application. We will send you a confirmation of your
Fund Express service; please wait three weeks before
using this service.
- --------------------------------------------------------------------------------
20
<PAGE> 23
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 Portfolio 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 Portfolio 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
Portfolio shareholders. These distributions are made to
all shareholders who own Portfolio 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 Portfolio shares for just a short period of
time. (Taxes are due on the distributions even if the
dividend or gain is reinvested in additional Portfolio
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 NAV of the
shares -- you should be aware of the tax implications
that the timing of your purchase may have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Fund's
annual dividend income and capital gains distributions
normally occur in December. For additional information
on distributions and taxes, see the section entitled
"Dividends, Capital Gains and Taxes."
- --------------------------------------------------------------------------------
21
<PAGE> 24
IMPORTANT
ACCOUNT
INFORMATION
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 establish additional shareholder options for your
account at a later date, 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.
CANCELING TRADES
The Fund will not cancel any trade (e.g., purchase,
redemption or exchange) 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 regular
close of 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.
Your shares are purchased at the net asset value
determined on your trade date. Vanguard will not accept
third-party checks to open an account. Please be sure
your purchase check is made payable to the Vanguard
Group.
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. The name of the U.S.
correspondent bank must be printed on the face of the
foreign check.
- --------------------------------------------------------------------------------
SELLING YOUR
SHARES
You may withdraw any portion of the funds in your
account by redeeming shares at any time (see "Important
Redemption Information"). 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: For investors in the Capital Growth and
Global Equity Portfolios, a redemption fee amounting to
1% of the value of the shares redeemed will be deducted
from the redemption proceeds if shares held for less
than 5 years are redeemed. This fee is paid directly to
the Portfolio.
22
<PAGE> 25
SELLING BY MAIL
Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD HORIZON FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your
request to Vanguard Financial Center, Vanguard Horizon
Fund, 455 Devon Park Drive, Wayne, PA 19087.)
The redemption price of shares will be the Fund'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 AT 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 automatically be 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 at 1-800-662-7447 for a Fund
Express application.
------------------------------------------------------------------------------
SELLING BY EXCHANGE
You may sell shares of the Fund by making an exchange
into another Vanguard Fund account. Exchanges to or from
the following funds may only be made by mail: VANGUARD
BALANCED INDEX FUND, VANGUARD INDEX TRUST, VANGUARD
INTERNATIONAL EQUITY INDEX FUND AND VANGUARD
QUANTITATIVE PORTFOLIOS. Please see "Exchange Your
Shares" for details.
------------------------------------------------------------------------------
IMPORTANT
REDEMPTION
INFORMATION
Shares purchased by check or Fund Express Automatic
Investment Plan 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
regular 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.
23
<PAGE> 26
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.
All unpaid dividend and capital gains distributions
credited to your account up to the date of redemption
will be included in the redemption check. 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 to postpone
payments 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 the minimum initial
investment amount of $3,000. In addition, if at any time
the total investment does not have a value of at least
$1,000, you may be notified that the value of your
account is below the Fund's minimum account balance
requirement. You would then be allowed 60 days to make
an additional investment before the account is
liquidated. Proceeds would be promptly paid to the
shareholder. This minimum does not apply to IRAs, other
retirement accounts, and Uniform Gifts/ Transfers to
Minors Act accounts.
- --------------------------------------------------------------------------------
EXCHANGING
YOUR SHARES Should your investment goals change, you may exchange
your shares of Vanguard Horizon Fund for those of other
available Vanguard Funds.
IMPORTANT NOTE: For investors in the Capital Growth and
Global Equity Portfolios, a redemption fee amounting to
1% of the value of the shares exchanged will be deducted
from the exchange proceeds if shares held for less than
5 years are exchanged. This fee is paid directly to the
Portfolio.
24
<PAGE> 27
EXCHANGE BY
TELEPHONE
Call Client Services
(1-800-662-2739)
When exchanging shares by telephone, please have ready
the Fund name, account number, Social Security number or
Employer Identification number listed on the account and
exact name and address in which the account is
registered. Only the registered shareholder may complete
such an exchange. Requests for telephone exchanges
received prior to the close of regular trading on the
New York Stock Exchange (generally 4:00 p.m. Eastern
time) are processed at the close of business that same
day. Requests received after the close of the Exchange
are processed the next business day. TELEPHONE EXCHANGES
ARE NOT ACCEPTED INTO OR FROM VANGUARD BALANCED INDEX
FUND, VANGUARD INDEX TRUST, VANGUARD INTERNATIONAL
EQUITY INDEX FUND AND VANGUARD QUANTITATIVE PORTFOLIOS.
If you experience difficulty in making a telephone
exchange, your exchange request may be made by regular
or express mail, and it will be implemented at the
closing net asset value on the date received by Vanguard
provided the request is received in Good Order.
Neither the Fund nor Vanguard is responsible for the
authenticity of exchange instructions received by
telephone. Investors bear the full risk of any loss
arising from unauthorized telephone exchanges. To
prohibit telephone exchanges on your account, please
notify the Fund in writing. Otherwise, the telephone
exchange privilege will be automatically established for
your account.
------------------------------------------------------------------------------
EXCHANGING BY MAIL Please be sure to include on your exchange request the
name and account number of your current Fund, and 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 HORIZON FUND, P.O.
BOX 1120, VALLEY FORGE, PA 19482. (For express or
registered mail, send your requests to Vanguard
Financial Center, Vanguard Horizon Fund, 455 Devon Park
Drive, Wayne, PA 19087.)
------------------------------------------------------------------------------
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 of the prospectus 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 from one fund
and a purchase into another. 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.
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.
25
<PAGE> 28
The exchange privilege is only available in states in
which the shares of the Fund are registered for sale.
The Fund's shares are currently registered for sale in
all 50 states and the Fund intends to maintain such
registration.
- --------------------------------------------------------------------------------
EXCHANGE
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 the Fund during any twelve
month period. Notwithstanding these limitations, the
Fund reserves the right to reject any purchase request
(including 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 and address used in the registration;
and (iv) the Social Security or Employer
Identification number listed on the account.
2. PAYMENT POLICY. The proceeds of any telephone
redemption made by mail will be 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. The request
26
<PAGE> 29
must be in Good Order. BEFORE MAILING YOUR REQUEST,
PLEASE CALL OUR CLIENT SERVICES DEPARTMENT
(1-800-662-2739) FOR FURTHER INSTRUCTIONS.
- --------------------------------------------------------------------------------
OTHER VANGUARD
SERVICES
STATEMENTS AND
REPORTS
For more information about any of these services, please
call our Investor Information Department at
(1-800-662-7447).
Vanguard will send you a confirmation statement each
time you initiate a transaction in your account (except
for check writing 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.
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.
Financial reports on the Fund will be mailed to you
semi-annually, according to the Fund's fiscal year-end.
------------------------------------------------------------------------------
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 or to contribute to an IRA or other retirement
plan.
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.
27
<PAGE> 30
VANGUARD DIVIDEND
EXPRESS
Vanguard's Dividend Express allows you to transfer your
dividend and/or capital gains distribution 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 Automatic Clearing House (ACH) network. You may
elect this service on the Account Registration Form or
call our 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 Touch
ToneTM telephone. This service also lets you obtain
information on your account balance, last transaction,
and your recent dividend or capital gains payment. To
contact Vanguard's Tele-Account service, dial
1-800-814-6210. A brochure offering detailed operating
instructions is available from the Investor Information
Department (1-800-662-7447).
- --------------------------------------------------------------------------------
28
<PAGE> 31
<TABLE>
[LOGO] [PHOTO]
[LOGO]
<S> <C> <C>
P000 --------------------------- P R O S P E C T U S
THE VANGUARD GROUP
OF INVESTMENT -- , 1994
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)
TELECOMMUNICATIONS SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
[LOGO]
</TABLE>
<PAGE> 32
PART B
VANGUARD HORIZON FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
--, 1994
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated -- , 1994). To obtain the Prospectus
please call the Investor Information Department:
1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies........................................................ 1
Investment Policies....................................................................... 2
Investment Limitations.................................................................... 5
Management of the Fund.................................................................... 7
Investment Advisory Services.............................................................. 9
Securities Transactions................................................................... 10
Purchase of Shares........................................................................ 11
Redemption of Shares...................................................................... 11
Comparative Indexes....................................................................... 12
Yield and Total Return....................................................................
Financial Statements......................................................................
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the Fund's investment objectives and
policies set forth in the Prospectus.
FOREIGN INVESTMENTS As indicated in the Prospectus, each Portfolio may
include foreign securities to a certain extent. Investors should recognize that
investing in foreign companies involves certain special considerations which are
not typically associated with investing in U.S. companies. Since the stocks of
foreign companies are frequently denominated in foreign currencies, and since
the Portfolio may temporarily hold uninvested reserves in bank deposits in
foreign currencies, the Portfolio will be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, and may incur
costs in connection with conversions between various currencies. The investment
policies of each Portfolio permit it to enter into forward foreign currency
exchange contracts in order to hedge the Portfolio's holdings and commitments
against changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S investments in those countries.
Although each Portfolio will endeavor to achieve most favorable execution
costs in its portfolio transactions in foreign securities, fixed commissions on
many foreign stock exchanges are generally higher than negotiated commissions on
U.S. exchanges. In addition, it is expected that the expenses for custodial
1
<PAGE> 33
arrangements of the Portfolio's foreign securities will be somewhat greater than
the expenses for the custodian arrangements for handling U.S. securities of
equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income the Portfolio receives from its foreign investments. However, these
foreign withholding taxes are not expected to have a significant impact on the
Portfolios, since each Portfolio's investment objective is to seek long-term
capital appreciation and any income should be considered incidental.
PORTFOLIO TURNOVER While the rate of Portfolio turnover is not a limiting
factor when management deems changes appropriate, it is anticipated that each
Portfolio's annual portfolio turnover rate will not normally exceed 150%. A
portfolio turnover rate of 100% would occur if all of the Portfolio's
securities, exclusive of U.S. Government securities and other securities whose
maturities at the time of acquisition are one year or less, are replaced in the
period of one year. Turnover rates may vary greatly from year to year as well as
within a particular year and may also be affected by cash requirements for
redemptions of each Portfolio's shares and by requirements which enable the Fund
to receive certain favorable tax treatments. The portfolio turnover rates will,
of course, depend in large part on the level of purchases and redemptions of
shares of each Portfolio. Higher portfolio turnover can result in corresponding
increases in brokerage costs to the Portfolios of the Fund and their
shareholders.
INVESTMENT POLICIES
FUTURES CONTRACTS The Fund may enter into futures contracts, options, and
options on futures contracts for several reasons: to maintain cash reserves
while remaining fully invested, to facilitate trading, to reduce transaction
costs, or to seek higher investment returns when a futures contract is priced
more attractively than the underlying equity security or index. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," 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. The Fund's margin deposits will be placed in a
segregated account maintained by the Fund's custodian bank. 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 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 Fund
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities
2
<PAGE> 34
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.
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 it owns against price declines
or purchase contracts to protect against an increase in the price of securities
it intends to purchase. As evidence of this hedging interest, the Fund expects
that approximately 75% of its futures contract purchases will be "completed,"
that is, equivalent amounts of related securities will have been purchased or
are being purchased by the Portfolio upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a 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 A Portfolio will not enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of its total assets. In addition, a Portfolio will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under these contracts would exceed 20% of its total assets.
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, a
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.
Each 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.
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 Fund are engaged in only for hedging purposes, the Adviser
does not believe that the Portfolios are subject to the risks of loss frequently
associated with futures transactions. A 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 a 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 a 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 a 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 contracts and options
involve the risk that the investment advisers will incorrectly predict stock
market and interest rate trends.
3
<PAGE> 35
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 the
Fund has identified as hedging transactions, each 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 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 a 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 a 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 foreign currencies or other income derived with respect to the
Fund's business of investing in securities. 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 Fund's fiscal year) on futures 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.
REPURCHASE AGREEMENTS Each Portfolio 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 Fund 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
until repurchased. In addition, the Fund's Board of Directors will monitor each
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 any Portfolio of the Fund. No more than an aggregate of 10% of a
Portfolio's 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.
4
<PAGE> 36
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 the Fund's management acknowledges these risks, it is expected
that they can be controlled through careful monitoring procedures.
LENDING OF SECURITIES Each Portfolio may lend its securities on a
short-term basis (less than nine months) to qualified institutional investors
who need to borrow securities in order to complete certain transactions, such as
covering short sales, avoiding failures to deliver securities or completing
arbitrage operations. By lending its securities, the Portfolio will be
attempting to increase its net investment income through the receipt of interest
on the loan. Any gain or loss in the market price of the securities loaned that
might occur during the term of the loan would be for the account of the
Portfolio. Each Portfolio may lend its portfolio securities to qualified
brokers, dealers, banks or other financial institutions, so long as the terms,
the structure and the aggregate amount of such loans are not inconsistent with
the Investment Company Act of 1940, or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "Commission")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Fund collateral consisting of cash, an irrevocable letter of credit or
securities issued or guaranteed by the United States Government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Portfolio at any time and (d) the
Portfolio receives reasonable interest on the loan which may include the
Portfolio's investing any cash collateral in interest bearing short-term
investments, any distribution on the loaned securities and any increase in their
market value. A Portfolio will not lend its portfolio securities, if as a
result, the aggregate value of such loans exceeds 33 1/3% of the value of the
Portfolio's total assets. Loan arrangements made by a Portfolio 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. All relevant facts and circumstances, including the credit-worthiness of
the broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Fund's Board of
Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors (Trustees). In addition, voting
rights may pass with the loaned securities, but if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
INVESTMENT LIMITATIONS
The following policies supplement the Fund's investment limitations set
forth in the Prospectus. It is a fundamental policy of each Portfolio not to
engage in any of the following activities or business practices. These
restrictions may not be changed with respect to a particular Portfolio without
the approval of a majority of the outstanding shares (as defined in the
Investment Company Act of 1940) of that Portfolio. A Portfolio may not:
1) Issue senior securities;
2) Borrow money, except 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 in
excess of 15% of the value of the net assets of the Portfolio
(including the amount borrowed and the value of any outstanding reverse
repurchase agreements) at the time the borrowing is made. Whenever
borrow-
5
<PAGE> 37
ings exceed 5% of the value of the net assets of the Portfolio, the
Portfolio will not make any additional investments;
3) 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;
4) Engage in the business of underwriting securities issued by others,
except to the extent that the Portfolio may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities;
5) 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 on page 7);
6) Make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (5) above) which are either publicly distributed or
customarily purchased by institutional investors, and (ii) by lending
its securities to banks, brokers, dealers and other financial
institutions so long as such loans are not inconsistent with the
Investment Company Act or the Rules and Regulations or interpretations
of the Commission thereunder and the aggregate value of all securities
loaned does not exceed 33 1/3% of the market value of the Portfolio's
total assets;
7) Pledge, mortgage, or hypothecate its assets, except to secure
borrowings permitted by limitation (2) above;
8) Buy any securities or other property on margin (except for such
short-term credits as are necessary for the clearance of transactions),
or engage in short sales (unless by virtue of its ownership of other
securities it has a right to obtain at no added cost securities
equivalent in kind and amount to the securities sold) except as set
forth below in (12);
9) Purchase or sell puts or calls, or combinations thereof; provided
however, that a Portfolio may enter into forward foreign currency
exchange transactions except as set forth below in (12);
10) Purchase or sell real estate or real estate limited partnerships
(although it may purchase securities secured by real estate interests
or interests therein, or issued by companies or investment trusts which
invest in real estate or interests therein);
11) The Fund will not 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;
12) Purchase or sell commodities or commodity contracts; provided, however,
that a Portfolio may enter into forward foreign currency exchange
transactions and that each Portfolio may invest in futures contracts
and options to the extent that not more than 5% of the portfolios
assets are required as deposit to secure obligations under futures
contracts;
13) Invest in companies for the purpose of exercising control of
management; and
14) Invest more than 25% of its assets in any single industry.
Notwithstanding these limitations, the Fund may own all or any portion of
the securities of, 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 services, such as management, administrative, distribution or
other related services to the Fund and other investment companies. (See
"Management of the Fund").
6
<PAGE> 38
In order to permit the sale of shares of the Fund in certain states, the
Fund may make commitments more restrictive than the fundamental or
non-fundamental operating restrictions described above. Should the Fund
determine that any such commitment is no longer in the best interests of the
Fund and its shareholders it will revoke the commitment by terminating sales of
its shares in the state(s) involved.
The above-mentioned investment limitations are considered at the time
investment securities are purchased.
MANAGEMENT OF THE FUND
THE VANGUARD GROUP The Fund is a member of The Vanguard Group of
Investment Companies which consists of more than 30 investment companies.
Through their jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"),
the Vanguard Funds 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 Vanguard Money Market Reserves,
Vanguard Index Trust, Vanguard Admiral Funds, Vanguard International Equity
Index Fund, Vanguard Balanced Index Fund, Vanguard Institutional Index Fund,
Vanguard Bond Index Fund, Vanguard Institutional Money Market Portfolio,
Vanguard Municipal Bond Fund, several Portfolios of Vanguard Fixed Income
Securities Fund, several Portfolios of Vanguard Variable Insurance Fund and
Vanguard's State Tax-Free Funds (California, Florida, New York, New Jersey, Ohio
and Pennsylvania).
Vanguard employs a supporting staff of management 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 procedures
approved by the Directors (Trustees) of each Fund. In addition, each Fund bears
its own direct expenses such as legal, auditing and custodian fees.
The Officers of the Fund and the Vanguard Funds are also Officers and
employees of Vanguard. No Officer or employee is permitted to own any securities
of any external adviser for the Vanguard Funds.
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 Fund's Service
Agreement provides as follows: (a) each Vanguard Fund may invest up to .40% of
its current assets in Vanguard, and (b) there is no other limitation on the
amount that each Vanguard Fund may contribute to Vanguard's capitalization. The
amount contributed to Vanguard by the Fund's Portfolios included the Service
Economy and Technology Portfolios which are no longer in existence.
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.
7
<PAGE> 39
<TABLE>
<S> <C>
JOHN C. BOGLE, Chairman, Chief JOHN C. SAWHILL, Director
Executive Officer and Director* President and Chief Executive Officer, The
Chairman, Chief Executive Officer and Nature Conservancy; formerly, Director and
Director of The Vanguard Group, Inc. and of Senior Partner, McKinsey & Co.; and
each of the investment companies in The President, New York University; Director of
Vanguard Group; Director of The Mead Pacific Gas and Electric Company and NACCO
Corporation and General Accident Insurance. Industries.
JOHN J. BRENNAN, President and Director* JAMES O. WELCH, JR., Director
President and Director of The Vanguard Retired Chairman of Nabisco Brands, Inc.,
Group, Inc. and of each of the investment retired Vice Chairman and Director of RJR
companies in The Vanguard Group. Nabisco; Director of TECO Energy, Inc.
ROBERT E. CAWTHORN, Director J. LAWRENCE WILSON, Director
Chairman and Chief Executive Officer, Chairman of Rohm & Haas Company; Director of
Rhone-Poulenc Rorer, Inc.; Director of Cummins Energy Company, and Trustee of
Immune Response Corp. and Sun Company, Inc.; Vanderbilt University and the Culver
Trustee, Universal Health Realty Income Educational Foundation.
Trust.
RAYMOND J. KLAPINSKY, Secretary*
BARBARA BARNES HAUPTFUHRER, Director Senior Vice President and Secretary of The
Director of The Great Atlantic and Pacific Vanguard Group, Inc.; Secretary of each of the
Tea Company, Alco Standard Corp., Raytheon investment companies in The Vanguard Group.
Company, Knight-Ridder, Inc., Massachusetts
Mutual Life Insurance Co. and Trustee RICHARD F. HYLAND, Treasurer*
Emerita of Wellesley College. Treasurer of The Vanguard Group, Inc. and of
each of the investment companies in The
BRUCE K. MACLAURY, Director Vanguard Group.
President, The Brookings Institution;
Director of American Express Bank, Ltd., The KAREN E. WEST, Controller*
St. Paul Companies, Inc. and Scott Paper Co. Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies
BURTON G. MALKIEL, Director in The Vanguard Group.
Chemical Bank Chairman's Professor of ---------------
Economics, Princeton University; Director of *Officers of the Fund are "interested persons"
Prudential Insurance Co. of America, Amdahl as defined in the Investment Company Act of
Corporation, Baker Fentress & Co., The 1940.
Jeffrey Co. and Southern New England
Communications Company.
ALFRED M. RANKIN, JR., Director
Chairman, President, and Chief Executive
Officer of NACCO Industries, Inc.; Director
of The BFGoodrich Company, The Standard
Products Company and The Reliance Electric
Company.
</TABLE>
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 Vanguard Funds by third parties.
DISTRIBUTION Vanguard also provides all distribution and marketing
services for the Vanguard Funds. 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 Vanguard Funds based upon their relative net assets. The
remaining one half of these expenses is allocated among the Vanguard 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 An experienced investment management staff
employed directly by Vanguard provides investment advisory services to Vanguard
Money Market Reserves, Vanguard Institutional Money Market Portfolio, Vanguard
Municipal Bond Fund, several Portfolios of Vanguard Fixed Income Securities
8
<PAGE> 40
Fund and Vanguard's State Tax-Free Funds (California, New York, New Jersey,
Florida, Ohio and Pennsylvania). The compensation and other expenses of this
staff are paid by the Portfolios and Funds utilizing these services.
REMUNERATION OF DIRECTORS AND OFFICERS The Fund will pay each Director who
is not also an Officer, an annual fee plus travel and other expenses incurred in
attending Board meetings. Directors who are also Officers receive no
remuneration for their services as Directors. 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 an eligible
Officer's compensation during the year, if any, that exceeds the Social Security
Taxable Wage Base then in effect. Under its Thrift Plan, all employees of
Vanguard 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' RETIREMENT FEES A Retirement Plan for Directors has been
implemented to provide a fee to retired Directors equal to $1,000 per year of
service on the Board, up to 15 years of service. This fee will remain in place
subsequent to the Director's retirement for a period of 10 years or until a
retired Director's death.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY AGREEMENT WITH BARING ASSET MANAGEMENT LIMITED. The
Global Equity Portfolio is managed by Baring Asset Management Limited, 155
Bishopsgate, London. Baring Asset Management was founded in 1762 and provides
asset management services to companies, institutions, and individuals. As of
September 30, 1994, Baring Asset Management has over $44 billion in assets under
management, and over 100 investment professionals in offices throughout the
world.
The investment philosophy at Baring Asset Management is that investing in
growing economies and growing companies at the right valuation leads to superior
long-term results. Baring Asset Management utilizes a regional strategic team
approach to portfolio management, where each team consists of experienced
members, who are specialists, that conduct the necessary research for the team.
Philip Bullen, Director, has been designated as portfolio manager for the assets
of the Global Equity Portfolio. He has 17 years of investment experience and
specializes in asset and country allocation.
The Global Equity Portfolio pays Baring Asset Management a basic fee at the
end of each fiscal quarter, calculated by applying a quarterly rate, based on
the following annual percentage rates, to the average month-end assets of the
Portfolio for the quarter:
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
-------------------------------------------------------------------------------- ------
<S> <C>
First $100 million.............................................................. 0.35%
Next $150 million............................................................... 0.30%
Next $250 million............................................................... 0.25%
Over $500 million............................................................... 0.20%
</TABLE>
The basic advisory fee may be increased or decreased by applying an
adjustment formula based on the investment performance of the Portfolio relative
to the Morgan Stanley Capital International (MSCI) All Country Index. The
following table set forth the incentive/penalty fee payable by the Portfolio to
Baring Asset Management under the investment advisory agreement:
<TABLE>
<CAPTION>
CUMULATIVE THREE YEAR PERFORMANCE ANNUAL/INCENTIVE
DIFFERENTIAL VS. THE MSCI ALL COUNTRY INDEX PENALTY FEE ADJUSTMENT
--------------------------------------------------------------------- ----------------------
<S> <C>
Less than 1%......................................................... 0.50 X Basic Fee
Between 1% and 2%.................................................... 0.75 X Basic Fee
Between 2% and 3%.................................................... Basic Fee
Between 3% and 4%.................................................... 1.25 X Basic Fee
More than 4%......................................................... 1.50 X Basic Fee
</TABLE>
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<PAGE> 41
Under the rules of the Securities & Exchange Commission, the
incentive/penalty fee for Baring Asset Management will not be fully operable
until the quarter ending December 31, 1997. Prior to that date the
incentive/penalty fee will be calculated according to the following transition
rules:
(a) Prior to December 31, 1995. For the quarters ending on or prior to
December 31, 1995, the incentive/penalty fee will not be operable. The
advisory fee payable by the Global Equity Portfolio shall be the basic
fee, calculated as set forth above.
(b) January 1, 1996 through December 31, 1997. Beginning with the quarter
ending March 31, 1996, and until the quarter ending December 31, 1997,
the incentive/penalty fee will be based on a comparison of the
investment performance of the Global Equity Portfolio and the MSCI All
Country Index over the number of months that have elapsed between
December --, 1994 and the end of the quarter for which the fee is being
computed. The number of percentage points by which the investment
record of the Value Portfolio must exceed or fall below the investment
record of the MSCI All Country Index for the quarters ending during the
period are as follows:
<TABLE>
<CAPTION>
NUMBER OF
QUARTER ENDING PERCENTAGE POINTS
-------------------------------------------------------------------------- -----------------
<S> <C>
March 31, 1996............................................................ --
June 30, 1996............................................................. --
September 30, 1996........................................................ --
December 31, 1996......................................................... --
March 31, 1997............................................................ --
June 30, 1997............................................................. --
September 30, 1997........................................................ --
December 31, 1997......................................................... --
</TABLE>
(c) On and After December 31, 1997. For the quarter ending December 31,
1997, and thereafter, the period used to calculate the
incentive/penalty fee shall be the 36 months preceding the end of the
quarter for which the fee is being computed and the number of
percentage points used shall be 3.
For the purpose of determining the incentive/penalty fee, the net assets of
the Global Equity Portfolio will be averaged over the same period as the
investment performance of the portfolio as well as the investment record of the
MSCI All Country Index.
The current agreement will continue until December 31, 1997 and will be
renewable thereafter, for successive one year periods, only if each renewal is
specifically approved by a vote of the Fund's Board of Directors, including the
affirmative votes of a majority of the Directors who are not parties to the
agreement or "interested persons" (as defined in the Investment Company Act of
1940) of any such party cast in person at a meeting called for the purpose of
considering such approval. In addition, the question of continuance of the
agreement may be presented to the shareholders of the Fund; in such event
continuance shall be effected only if approved by the affirmative vote of a
majority of the outstanding voting securities of the Fund. If the holders of any
Portfolio fail to approve the agreement, Baring Asset Management may continue to
serve as investment adviser to each Portfolio which approved the agreement, and
to any Portfolio which did not approve the agreement until new arrangements have
been made. The agreement is automatically terminated if assigned, and may be
terminated by any Portfolio without penalty, at any time, (1) either by vote of
the Board of Directors or by vote of the outstanding voting securities of the
Portfolio on sixty (60) days' written notice to Baring Asset Management, or (2)
by Baring Asset Management upon ninety (90) days' written notice to the Fund.
DESCRIPTION OF BARING ASSET MANAGEMENT
SECURITIES TRANSACTIONS
The investment advisory agreement with Baring Asset Management Limited
authorizes the investment adviser (with the approval of the Fund's Board of
Directors) to select the brokers or dealers that will execute the purchases and
sales of securities for the Fund's Portfolio(s) and directs the investment
adviser to use its best efforts to obtain the best available price and most
favorable execution with respect to all transactions
10
<PAGE> 42
for the Portfolio(s). Each investment adviser has undertaken to execute each
investment transaction at a
price and commission which provides the most favorable total cost or proceeds
reasonably obtainable under
the circumstances.
In placing portfolio transactions, each investment adviser will use its
best judgment to choose the broker most capable of providing the brokerage
services necessary to obtain best available price and most favorable execution.
The full range and quality of brokerage services available will be considered in
making these determinations. In those instances where it is reasonably
determined that more than one broker can offer the brokerage services needed to
obtain the best available price and most favorable execution, consideration may
be given to those brokers which supply investment research and statistical
information, and provide other services in addition to execution services to the
Fund and/or the investment adviser. Each investment adviser considers the
investment services it receives useful in the performance of its obligations
under the agreement but is unable to determine the amount by which such services
may reduce its expenses.
The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Fund's Board of Directors, each investment adviser may cause the
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the investment adviser to the Fund and the other Funds in
the Group.
Currently, it is the Fund's policy that each investment adviser may at
times pay higher commissions in recognition of brokerage services felt necessary
for the achievement of better execution of certain securities transactions that
otherwise might not be available. An investment adviser will only pay such
higher commissions if it believes this to be in the best interest of the Fund.
Some brokers or dealers who may receive such higher commissions in recognition
of brokerage services related to execution of securities transactions are also
providers of research information to the investment adviser and/or the Fund.
However, the investment adviser has informed the Fund that it will not pay
higher commission rates specifically for the purpose of obtaining research
services.
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate 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
broker-dealers who recommend the sale of shares of the Fund and may, when a
number of brokers and dealers can provide comparable best price and execution on
a particular transaction, consider the sale of Fund shares by a broker or dealer
in selecting among qualified broker-dealers.
Some securities considered for investment by one Portfolio may also be
appropriate for the other Portfolios and the other Funds and/or clients served
by the investment advisers. If purchase or sale of securities consistent with
the investment policies of a Portfolio, the other Portfolios and/or one or more
of these other Funds or clients are considered at or about the same time,
transactions in such securities will be allocated among the Portfolios and the
several Funds and clients in a manner deemed equitable by the respective
investment adviser. Although there will be no specified formula for allocating
such transactions, the allocation methods used, and the results of such
allocations, will be subject to periodic review by the Fund's Board of
Directors.
PURCHASE OF SHARES
The Fund 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 or any Portfolio,
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 Fund's
shares.
11
<PAGE> 43
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"), (ii) during any period when an emergency exists
as defined by the rules of the Commission as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it, or
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% or 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 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 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.
COMPARATIVE INDEXES
Each of the investment company members of the Vanguard Group, including
Vanguard Specialized Portfolios, 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.
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.
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.
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.
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.
12
<PAGE> 44
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 for 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.
RUSSELL 2000 SMALL COMPANY STOCK INDEX -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.
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.
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.
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.)
RUSSELL 3000 INDEX -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
NASDAQ over-the-counter market, accounting for over 90% of the market value of
publicly traded Stocks in the U.S.
Advertisements which refer to the use of the fund as a potential investment
for Individual Retirement Accounts may quote a total return based upon
compounding of dividends on which it is presumed no Federal income tax applies.
13
<PAGE> 45
In assessing such comparisons of yields, an investor should keep in mind that
the composition of the investments in the reported averages is not
identical to the Fund's Portfolio and that the items included in the
calculations of such averages may not be identical to the formula used by the
Fund to calculate its yield. In addition there can be no assurance that the
Fund will continue its performance as compared to such other averages.
14
<PAGE> 46
PART C
VANGUARD HORIZON FUND, INC.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
Statement of Assets and Liabilities*
Report of Independent Accountants*
(B) EXHIBITS
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**
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
- ---------------
* Filed herewith.
** To be filed by amendment.
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 33 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
None.
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
<PAGE> 47
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.
ITEM 31. MANAGEMENT SERVICES
Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which is filed herewith 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 pre-effective amendment, using financial
statements which reflect its initial capitalization prior to being declared
effective.
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.
Registrant hereby undertakes to provide an Annual Report to Shareholders or
prospective investors, free of charge, upon request.
<PAGE> 48
SIGNATURES
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 14th day of November 1994.
VANGUARD HORIZON 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
November 14, 1994
BY: (Raymond J. Klapinsky)
John J. Brennan*, President and Director
November 14, 1994
BY: (Raymond J. Klapinsky)
Robert C. Cawthorn*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
Bruce K. MacLaury, Jr.*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
Alfred M. Rankin, Jr.*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
November 14, 1994
BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer
November 14, 1994
*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
<PAGE> 49
VANGUARD HORIZON FUND, INC.
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Articles of Incorporation.................................................................... 1
By-Laws...................................................................................... 2
</TABLE>
<PAGE> 1
ARTICLES OF INCORPORATION
OF THE
VANGUARD HORIZON FUND, INC.
FIRST: The undersigned, Paul F. Gallagher, 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 Horizon 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 if the Corporation
in the State of Maryland is:
c/o Mr. James E. Baker, Esquire
CSC
Lawyers Incorporating Service Company
11 East Chase Street
Suite 9E
Baltimore, MD 21202
The name and post office address of the initial resident agent of the
Corporation is:
c/o Mr. James E. Baker, Esquire
CSC
Lawyers Incorporating Service
11 East Chase Street
Baltimore, MD 21202
FIFTH: The total number of shares of stock which the corporation shall
have authority to issue is One Billion (1,000,000,000) 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
One Million dollars ($1,000,000).
Subject to the provisions of these Articles of Incorporation, the Board of
Directors shall have the power to issue shares of Common Stock of the
Corporation from time to time, at prices not less than the net asset value or
par value thereof, whichever is greater, for such consideration as may be fixed
from time to time pursuant to the direction of the Board of Directors.
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 sub-series (classes) thereof, and to
classify or reclassify any unissued shares with respect to such series or
sub-series thereof, and such series and sub-series (subject to any applicable
rule, regulation or order of the Securities and Exchange Commission or other
applicable law or regulation) shall have such preference, 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, unless inconsistent with this Article FIFTH.
1
<PAGE> 2
Subject to such aforesaid power, the Board of Directors has initially
designated four 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:
<TABLE>
<CAPTION>
NAME OF SERIES NUMBER OF
SHARES OF COMMON STOCK INITIALLY
CLASSIFIED AND ALLOCATED
--------------------------------
<S> <C>
Capital Growth Portfolio......................... 500,000,000
Global Equity Portfolio.......................... 500,000,000
</TABLE>
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 shareholders, 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, are
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 thereto, 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
2
<PAGE> 3
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
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 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 given 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 the 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
3
<PAGE> 4
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 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 a national financial emergency, as hereinafter
defined) shall be determined in such manner as may be approved from time to time
by or pursuant to the direction of the Board of Directors.
The net asset value of each share of the Common Stock of the Corporation
shall be determined by dividing the total market value of the property and
assets of the 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 share so determined
shall include a fraction of one cent, such net asset value of each shares shall
be adjusted to the nearest 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
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accompanied by surrender of outstanding certificate or certificates for
such shares in form for transfer, together with such proof of the
authenticity of signatures as may reasonably be required on such shares
(or, on such request in the event no certificate is outstanding) by, or
pursuant to the direction of the Board of Directors of the Corporation, and
accompanied by proper stock transfer stamps. Shares redeemed upon any such
request shall be purchased by the Corporation at the net asset value of
such shares determined in the manner provided in Paragraph (l) of this
Article 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 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
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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 Horizon 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 the penalties of perjury.
Dated this 7th day of October, 1994.
------------------------------
PAUL F. GALLAGHER
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BY-LAWS OF
VANGUARD HORIZON FUND, INC.
SEPTEMBER 22, 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.
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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 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 and
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 Stockholders 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.
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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.
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 an 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 cast.
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
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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 of
Directors, the Directors present thereat may be 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
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notice and filed with the records of the meeting, whether before or after the
holding thereof, 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 the 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)
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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 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 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 TREASURERS. 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 from 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 regulation; 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,
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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 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 those 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 security 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 converted 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
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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.
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 Directors
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 of 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.
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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 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.
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