VANGUARD HORIZON FUND INC, N-1A EL/A, 1995-04-28

VANGUARD HORIZON FUND INC
N-1A EL/A, 1995-04-28

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT (NO. 033-56443) UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO. 8

POST-EFFECTIVE AMENDMENT NO. --
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

AMENDMENT NO. 8

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:

It is hereby requested that this registration statement be declared effective on
June 30, 1995, or as soon thereafter as the Commission may determine.

REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A) MAY
DETERMINE.

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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............... N/A
Item 4. General Description of Registrant............. Investment Objectives; Investment
Limitations; Investment Policies;
General Information
Item 5. Management of the Fund........................ Directors 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
Statement
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 Statement
</TABLE>
<PAGE> 3

VANGUARD HORIZON FUND, INC.
PROSPECTUS SUPPLEMENT

JUNE 30, 1995

SUBSCRIPTION PERIOD

There will be a six-week subscription period for the Aggressive Growth,
Capital Opportunity, Global Asset Allocation and Global Equity Portfolios of
Vanguard Horizon Fund, Inc. beginning June 30, 1995 and ending August --, 1995.
During the subscription period, the following changes to the Portfolios'
policies and procedures will be in effect:

- - Investment policies (pages -- - -- of the Prospectus). All of the Portfolios
of the Fund will invest in money market instruments until August --, 1995. On
that date, Portfolios of the Fund will begin the investment programs
described in the Investment Policies section of the Prospectus. The aim of
the subscription period is to allow the Portfolios to accumulate a large pool
of cash to invest on a single day, thereby minimizing transaction costs.
PLEASE NOTE THAT BECAUSE OF THESE POLICIES, INVESTORS IN THE AGGRESSIVE
GROWTH, CAPITAL OPPORTUNITY AND GLOBAL EQUITY PORTFOLIOS WILL NOT HAVE STOCK
MARKET EXPOSURE PRIOR TO AUGUST --, 1995. INVESTORS IN THE GLOBAL ASSET
ALLOCATION PORTFOLIO WILL NOT HAVE EXPOSURE TO STOCKS, BONDS OR FOREIGN CASH
RESERVES PRIOR TO AUGUST --, 1995.

- - Exchanges (page -- of the Prospectus). Exchange requests received from any
Vanguard Fund will be held during the subscription period and processed on
August --, 1995. The purpose of holding the exchange requests is to minimize
the length of time the investments are invested in money market instruments.
Shareholders who wish to cancel their exchange purchase from another Vanguard
Portfolio during the subscription period can do so by writing to Vanguard.

PLEASE NOTE THAT AN EXCHANGE FROM ANY VANGUARD FUND INTO THE NEW FUND IS A
TAXABLE EVENT AND INVESTORS MAY INCUR A CAPITAL GAIN OR LOSS. Also, investors
will be required to complete a special application form which was enclosed with
the prospectus in order to open an account in the Portfolio during the
subscription period. Finally, all exchanges from existing Vanguard fund accounts
must be initiated in writing. The Exchange Authorization Form that was included
with the Prospectus can be used to initiate exchanges. No telephone exchanges
will be accepted.

PS----
<PAGE> 4

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BEEN EFFECTIVE.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS COMMUNICATION
SHALL CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY, NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

PRELIMINARY PROSPECTUS DATED APRIL 28, 1995

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[VANGUARD HORIZON
FUND LOGO] A Member of the Vanguard Group
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PROSPECTUS -- JUNE 30,1995

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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 four
distinct Portfolios each of which seeks to provide maximum
long-term total return. Each Portfolio will pursue this
objective using very different strategies and investment
policies; thus, each Portfolio will expose shareholders to
an array of different risks.

The AGGRESSIVE GROWTH PORTFOLIO invests in U.S. equity
securities, emphasizing medium- and small-capitalization
companies. The CAPITAL OPPORTUNITY PORTFOLIO primarily
invests in U.S. equity securities, emphasizing those
companies with rapid earnings growth prospects. The GLOBAL
ASSET ALLOCATION PORTFOLIO invests in a varying mix of
U.S. and foreign stocks, bonds and cash reserves. The
GLOBAL EQUITY PORTFOLIO invests in U.S. and foreign equity
securities that, in the adviser's view, offer attractive
total return prospects.

There is no assurance that the Portfolios will achieve
their stated objectives. Shares of the Fund are neither
insured nor guaranteed by any agency of the U.S.
Government, including the FDIC.
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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 ($500 for Individual
Retirement Accounts and 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 Portfolios are redeemed or exchanged
prior to being held for five years, they will be subject
to a 1% redemption fee which is paid directly to the
Portfolios. 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 June 30, 1995 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>
<S> <C> <C>
Page Page Page
Highlights ....................... 2 Who Should Invest ................ 18 SHAREHOLDER GUIDE
Fund Expenses .................... 6 Supplemental Investment Opening an Account and
Yield and Total Return ........... 7 Policies ....................... 19 Purchasing Shares .............. 31
FUND INFORMATION Investment Limitations ........... 21 When Your Account Will Be
Portfolio Summaries: Investment Management of The Fund ........... 22 Credited ....................... 34
Objective, Risks & Policies Investment Advisers .............. 23 Selling Your Shares .............. 35
- - Aggressive Growth Portfolio .... 9 Dividends, Capital Gains Exchanging Your Shares ........... 37
- - Capital Opportunity and Taxes ...................... 27 Important Information About
Portfolio .................... 11 The Share Price of Each Telephone Transactions ......... 38
- - Global Asset Allocation Portfolio ...................... 29 Transferring
Portfolio .................... 13 General Information .............. 30 Registration .................... 39
- - Global Equity Other Vanguard Services .......... 39
Portfolio .................... 16
</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> 5

HIGHLIGHTS

OVERVIEW AND
OBJECTIVES The Vanguard Horizon Fund is an open-end diversified
investment company designed for investors with long-range
investment goals. The Fund offers a choice of four
distinct actively-managed Portfolios, each seeking maximum
long-term total return. The Portfolios' advisers have been
granted substantial investment flexibility and each will
take a different investment approach to pursuing maximum
long-term total return, although there is no assurance
that such returns can be achieved. Investors in any of the
Portfolios can expect returns to be less predictable than
returns from Funds that parallel a particular index or
follow a strict set of investment guidelines. Therefore,
an investment in the Fund is appropriate only for those
investors who have the perspective, patience, and
financial resources necessary to assume above-average risk
and volatility in exchange for the potential of achieving
above-average returns.

The Fund may be appropriate for investors who already have
a well-balanced core portfolio -- one including stocks,
bonds, and money market instruments -- and want to add an
extra dimension of aggressive investing. Shares of the
Fund are offered on a no-load basis, although the Fund
incurs certain distribution expenses.
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THE FOUR
PORTFOLIOS The AGGRESSIVE GROWTH PORTFOLIO invests in U.S. equity
securities, emphasizing medium- and small-capitalization
companies.

The CAPITAL OPPORTUNITY PORTFOLIO primarily invests in
U.S. equity securities, emphasizing those companies with
rapid earnings growth prospects.

The GLOBAL ASSET ALLOCATION PORTFOLIO invests in a varying
mix of both U.S. and foreign stocks, bonds, and cash
reserves.

The GLOBAL EQUITY PORTFOLIO invests in U.S. and foreign
equity securities that, in the adviser's view, offer
attractive total return prospects.

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2
<PAGE> 6

INVESTMENT
POLICIES
While each of the Portfolios seek the same investment
objective -- maximum long-term total return -- each
Portfolio pursues the objective using different investment
policies. The grid below shows, at-a-glance, some of the
financial instruments, investment techniques and analytic
methods employed by each Portfolio in pursuit of maximum
long-term total return.

<TABLE>
<CAPTION>
GLOBAL
AGGRESSIVE CAPITAL ASSET GLOBAL
-- --PRIMARY EMPHASIS GROWTH OPPORTUNITY ALLOCATION EQUITY
- --SECONDARY EMPHASIS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS
----------------------------------------------------------------------------------------
Invests in U.S. stocks -- -- -- --
----------------------------------------------------------------------------------------
Emphasizes smaller company stocks -- --
----------------------------------------------------------------------------------------
Invests in foreign stocks - -- --
----------------------------------------------------------------------------------------
Invests in foreign bonds --
----------------------------------------------------------------------------------------
Invests in foreign cash reserves -
----------------------------------------------------------------------------------------
Invests in futures contracts - - -- -
----------------------------------------------------------------------------------------
Invests in forward currency
contracts - -
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Invests in put options -
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INVESTMENT TECHNIQUES
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Holds a small number of stocks -
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Sells stocks short -
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ANALYTIC METHODS
----------------------------------------------------------------------------------------
Uses quantitative computer models -- --
----------------------------------------------------------------------------------------
Uses fundamental analysis -- --
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</TABLE>

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RISK
CHARACTERISTICS Each of the Portfolios will expose investors to
substantial risk in pursuit of maximum long-term total
return. The following table depicts the principal risks
inherent in the Portfolios of the Fund:

<TABLE>
<CAPTION>
PORTFOLIO SECURITIES FOREIGN MANAGER RISK
--------- MARKET RISK MARKET RISK ------------
------------ ------------
<S> <C> <C> <C>
Aggressive Growth........... High Low High
Capital Opportunity......... High Low High
Global Asset Allocation..... High High High
Global Equity............... High High High
</TABLE>

SECURITIES MARKET RISK: Common stock prices have
historically fluctuated substantially over short-term
periods. Bond prices also fluctuate in response to
interest rate changes with prices declining as interest
rates increase.

FOREIGN MARKET RISK: Investments in foreign securities may
have greater risks than similar U.S. investments. These
risks involve many facets of foreign investing, including:
less liquid and/or efficient markets, less regulation, and
uncertain political events. In addition, the value of
foreign investments is affected by fluctuations in foreign
currency values.

3
<PAGE> 7

MANAGER RISK: The manager, or adviser, of each Portfolio
is responsible for implementation of the Portfolio's
investment policies. Manager risk encompasses the
potential for the Portfolio to fail to achieve its
objective due to investment decisions made by the
investment adviser. Portfolios whose advisers have the
greatest flexibility therefore have the most manager risk.
Investors should be aware that each adviser may fail to
achieve the Portfolio's objective and the investment
results may fall short of comparable benchmarks. PAGE --

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SPECIAL
CONSIDERATIONS (1) Each Portfolio of the Fund may invest a portion of its
assets in futures contracts, options, convertible
securities and swap agreements. Investors in the
GLOBAL ASSET ALLOCATION PORTFOLIO should be aware that
the Portfolio may invest up to 50% of its net assets
in futures contracts instead of directly holding
securities. The advisers will not use futures to
leverage the Portfolios' holdings, but only as a more
efficient means to implement their investment
decisions. 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 --

(5) The CAPITAL OPPORTUNITY PORTFOLIO may utilize the
hedging and defensive techniques of selling stocks
short, purchasing index put options, and increasing
cash reserves. As a guideline, these three strategies
in combination will not exceed 25% of the Portfolio's
net assets. PAGE --

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THE VANGUARD
GROUP The Fund is a member of The Vanguard Group of Investment
Companies, a group of over 30 investment companies with
over 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 Portfolios of the Fund receive investment advisory
services as follows:

<TABLE>
<CAPTION>
PORTFOLIO ADVISER
--------- --------
<S> <C>
Aggressive Growth Portfolio Vanguard's Core Management Group
Capital Opportunity Portfolio Husic Capital Management
Global Asset Allocation Portfolio Strategic Investment Management
Global Equity Portfolio Marathon-London
</TABLE>

The advisers discharge their responsibilities subject to
the control of the Officers and Directors of the
Fund. PAGE --
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4
<PAGE> 8

DIVIDENDS, CAPITAL
GAINS AND TAXES Income is expected to be modest in the CAPITAL OPPORTUNITY
and GLOBAL EQUITY PORTFOLIOS; however, it may be more
significant, from time to time, for the AGGRESSIVE GROWTH
and the GLOBAL ASSET ALLOCATION PORTFOLIOS.

The Fund will distribute any net investment income in the
form of dividends. The Portfolios will distribute
dividends, if any, annually. Net capital gains
distributions, if any, will be made 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 ($500 for Individual Retirement Accounts and
Uniform Gifts/Transfers to Minors Act accounts); the
minimum for subsequent investments is $100. There are no
sales commissions or 12b-1 fees (see below for information
on redemption fees). PAGE --

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SELLING SHARES You may redeem shares of each Portfolio in writing or by
telephone. Shares of the Portfolios that are redeemed or
exchanged prior to being held for five years will be
subject to a 1% redemption fee paid directly to the
Portfolios. 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 another
Portfolio of the Fund or other Vanguard Funds. An exchange
from one of the Portfolios is considered a redemption and
will be subject to a 1% redemption fee if the shares were
held for less than 5 years. The redemption fee is paid
directly to the Portfolios. 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 24-hour 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; Dividend
Express, for automatic transfer of dividends and/or
capital gains to a bank account. PAGE --
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5
<PAGE> 9

FUND
EXPENSES The following table illustrates ALL of the expenses and
fees you would incur as a shareholder of the Fund. The
expenses and fees set forth below are estimates for the
Portfolios' first full year of operations, since the Fund
had not commenced operations as of the date of this
prospectus.

<TABLE>
<CAPTION>
GLOBAL
AGGRESSIVE CAPITAL ASSET GLOBAL
GROWTH OPPORTUNITY ALLOCATION EQUITY
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Sales Load Imposed on
Purchases...................... None None None None
Sales Load Imposed on Reinvested
Dividends...................... None None None None
Redemption (and Exchange
Redemption) Fees*:
shares held less than 5
years........................ 1% 1% 1% 1%
shares held 5 years or more.... None None None None
Exchange Fees**.................. None None None None
</TABLE>

* The fees withheld from redemption proceeds are paid to
the Portfolios.
** Exchanges will be treated as redemptions for purposes
of imposing the redemption fees.

<TABLE>
<CAPTION>
GLOBAL
ANNUAL PORTFOLIO AGGRESSIVE CAPITAL ASSET GLOBAL
OPERATING EXPENSES (AS A GROWTH OPPORTUNITY ALLOCATION EQUITY
PERCENTAGE OF NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Management & Administrative
Expenses....................... .28% .28% .28% .28%
Investment Advisory Fees......... .02 .40 .35 .45
12b-1 Fees....................... None None None None
Other Expenses
Distribution Costs............. .02% .02% .02% .02%
Miscellaneous Expenses......... .06 .06 .15 .15
------- -------- ------- -------
Total Other Expenses............. .08 .08 .17 .17
TOTAL OPERATING EXPENSES..... .38% .76% .80% .90%
------- -------- ------- -------
------- -------- ------- -------
</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
Fund.

1% REDEMPTION FEE The Portfolios of the Fund are intended for long-term
investors who can withstand substantial price
fluctuations. For this reason, the Portfolios will assess
a 1% redemption fee on shares that are redeemed, or
redeemed by exchange, before they have been held for five
years. For purposes of calculating the five-year holding
period the Portfolio 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
five years or more. This fee will not apply to shares
purchased through dividend or capital gain reinvestment.
In the event of an early redemption due to a shareholder's
death, all redemption fees will be waived. A certified
copy of the death certificate must be provided to
substantiate the death.

6
<PAGE> 10

The fee is paid directly to the Portfolios to offset the
cost of short-term trading and other transaction costs. As
such, the fee is considered a benefit to long-term
investors. It is not a contingent deferred sales charge.

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. A 1% redemption fee is included
in the expenses because the time periods illustrated are
less than five years.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Aggressive Growth Portfolio......................... $ 14 $24
Capital Opportunity Portfolio....................... $ 18 $36
Global Asset Allocation Portfolio................... $ 19 $38
Global Equity Portfolio............................. $ 20 $40
</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
gains 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 includes 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 their books and records, and so the advertised
30-day yield may not fully reflect the income paid to your
own account.

Also, the Portfolios may compare their performance to that
of various stock market indices, including, but not
limited to, the Standard & Poor's 500 Composite Stock
Price Index.

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OVERVIEW OF
PORTFOLIOS The Fund is an open-end diversified investment company
offering four distinct Portfolios. The Portfolios invest
in securities that are deemed by their advisers to have
attractive total return potential. The Aggressive Growth,
Capital Opportunity, and Global Equity Portfolios invest
primarily in common stocks while the Global

7
<PAGE> 11

Asset Allocation Portfolio invests in common stocks,
bonds, and cash reserves. The Portfolios of the Fund are
managed without regard to tax ramifications.

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 to common stock. See
"SUPPLEMENTAL INVESTMENT 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.

Pages -- to -- of this prospectus contain a summary of
each Portfolio's investment objective, policies and risks.
- --------------------------------------------------------------------------------

8
<PAGE> 12

AGGRESSIVE GROWTH PORTFOLIO

INVESTMENT
OBJECTIVE The Aggressive Growth Portfolio seeks to provide maximum
long-term total return and is therefore intended for
investors who have a long-term investment horizon. To that
end, the Portfolio will assume above-average risk in
seeking potentially above-average returns, although there
is no assurance that the Portfolio will achieve
above-average returns. Income provided by the Portfolio
may fluctuate significantly.

- --------------------------------------------------------------------------------

INVESTMENT
POLICIES
The Aggressive Growth Portfolio invests in U.S. equity
securities and emphasizes medium- and small-capitalization
companies. The Portfolio's exposure to foreign securities
is expected to be minimal. The Portfolio will generally be
diversified across a wide range of industries; however,
the investment adviser may either overweight or
underweight certain industries.

The Portfolio's adviser, Vanguard's Core Management Group,
utilizes a proprietary quantitative valuation methodology
to identify, from a large universe of companies, those
common stocks with the best total return potential. Stocks
are generally categorized based on two dimensions: (i)
market capitalization (i.e., small, medium and large) and
(ii) growth versus value. The portion of the Portfolio's
assets invested in any one these categories will vary over
time depending upon Core Management's expectation for each
segment's total return potential. The Portfolio, however,
is more likely to be invested in small- and
medium-capitalization stocks than large-capitalization
stocks. Among the characteristics used in stock selection
are (i) market liquidity; (ii) valuation measures; and
(iii) financial strength relative to other stocks.

The Portfolio is expected to remain fully invested in
equity securities. However, the proportion of cash
reserves held by the Portfolio may increase if the adviser
feels a conservative investment approach is warranted.
- --------------------------------------------------------------------------------

INVESTMENT
RISKS
SECURITIES MARKET
RISK
The Portfolio exposes investors to the market risks
associated with U.S. equity investments. The Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index"),
which can be used as a proxy for the U.S. stock market,
has provided annual total returns (capital appreciation
plus dividend income) averaging +12.2% for the period from
1926 to 1994. 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 -43.3% to a
high of +53.9%, reflecting the short-term volatility of
stock prices.

Furthermore, the Portfolio emphasizes medium- and
small-capitalization stocks which have historically been
more volatile in price than the S&P 500 Index. Among the
likely reasons for the greater price volatility of small
company stocks are less than certain growth prospects of
smaller firms, a 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-capitalization stocks
have at times fluctuated independently of the broad stock
market. Investors should therefore expect that small- and
mid-capitalization stocks

9
<PAGE> 13

(and hence the Aggressive Growth Portfolio) may be more
volatile than the S&P 500 Index.

MANAGER RISK The Portfolio exposes investors to substantial manager
risk which encompasses the potential for the Portfolio to
fail to achieve its objective due to activities of the
investment adviser. Vanguard's Core Management Group, the
Portfolio's investment adviser, selects stocks based
primarily on quantitative models. There is no assurance
that the quantitative methodology applied by the adviser
will enable the Portfolio to meet its stated objective.
- --------------------------------------------------------------------------------

10
<PAGE> 14

CAPITAL OPPORTUNITY PORTFOLIO

INVESTMENT
OBJECTIVE The Capital Opportunity Portfolio seeks to provide maximum
long-term total return and is therefore intended for
investors who have a long-term investment horizon. To that
end, the Portfolio will assume above-average risk in
seeking potentially above-average returns, although there
is no assurance that the Portfolio will achieve
above-average returns. Income generated by the Portfolio
is expected to be minimal.

- --------------------------------------------------------------------------------

INVESTMENT
POLICIES
The Capital Opportunity Portfolio invests primarily in
medium- and small-capitalization U.S. equity securities
emphasizing companies with rapid earnings growth
prospects. The Portfolio may hold up to 15% of its assets
in foreign securities. The Portfolio is expected to be
concentrated in as few as 25 to 50 stocks.

The Portfolio's adviser, Husic Capital Management, applies
a "classic" fundamental investment strategy using security
analysis to identify the stocks deemed most attractive.
When selecting stocks, the investment adviser will: (i)
focus on early recognition of change that leads to high
expected earnings growth; (ii) concentrate in those
sectors and industries deemed to offer the possibility of
high returns; and (iii) maintain a flexible attitude
towards identifying growth opportunities. The adviser will
emphasize emerging and established growth companies, but
will also select cyclical and non-traditional growth
companies when appropriate. Opportunistically, the adviser
may also select convertible and high yield securities for
the Portfolio. In each of these categories, exposure will
be limited to 10% of the Portfolio's net assets.

In an attempt to reduce downside risk, Husic Management
Company may utilize the following hedging and defensive
techniques:

- sell short stocks considered to have fundamental
problems; limited to 10% of the Portfolio's net assets.

- purchase put options; limited to 10% of the Portfolio's
net assets.

- increase cash reserves up to 15% of the Portfolio's net
assets.

As a guideline, these three strategies in combination will
not exceed 25% of the Portfolio's net assets.

- --------------------------------------------------------------------------------

INVESTMENT
RISKS
SECURITIES MARKET
RISKS
The Portfolio exposes investors to the market risks
associated with U.S. equity investments. The Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index")
which can be used as a proxy for the U.S. stock market,
has provided annual total returns (capital appreciation
plus dividend income) averaging +12.2% for the period from
1926 to 1994. 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 -43.3% to a
high of +53.9%, reflecting the short-term volatility of
stock prices.

11
<PAGE> 15

companies. Besides exhibiting greater volatility, small-
and mid-capitalization stocks have at times fluctuated
independently of the broad stock market. Investors should
therefore expect small- and mid-capitalization stocks (and
hence the Capital Opportunity Portfolio) may be more
volatile than the S&P 500 Index.

The Portfolio exposes investors to industry specific
risk -- i.e., the possibility that a particular group of
related stocks will decline in price due to industry
specific developments. The Portfolio will focus its
holdings in those industries and securities that, in the
adviser's opinion, offer the best prospects of high
returns. The Portfolio is expected to hold from 25 to 50
securities and may invest a large portion of the
Portfolio's holdings in a specific industry.

The Portfolio will also expose investors to the risks
associated with the short selling of stocks. Short selling
involves selling shares of stock which the Portfolio does
not own, with the expectation that the stock's price will
fall. The principal purpose of making a short sale is to
enable the Portfolio to benefit from an expected decline
in a stock's price. The risk of loss associated with a
short sale is greater than that associated with a regular
purchase. In a regular purchase, possible loss is limited
to the amount for which the security was purchased. In a
short sale, the potential loss is unlimited. Short sales
of stocks will not exceed 10% of the Portfolio's net
assets.

The Portfolio will also expose investors, on a limited
basis, to the risks of convertible securities and low
quality bonds. Investments in such issues will be made
when the adviser believes that the potential gains
significantly outweigh the risks. Exposure to each of
these categories: convertible securities and low-quality
bonds, will not exceed 10% of the Portfolio's net assets.

The Portfolio exposes investors to the risks associated
with investments in put options. The risk of loss
associated with a put option is limited to the price paid
for the option. Put options will not exceed 10% of the
Portfolio's net assets.

FOREIGN
SECURITIES RISK
The Portfolio may invest up to 15% of its net assets in
foreign equity securities and therefore exposes investors
to foreign securities risk. For U.S. investors, the
returns of foreign securities are influenced by not only
the returns on foreign securities themselves, but also by
currency risk -- i.e., changes in the value of currencies
in which the securities are denominated. In a period when
the U.S. dollar rises in value against foreign currencies,
the returns on foreign stocks for a U.S. investor will be
diminished. By contrast, the returns of foreign securities
will be enhanced in a period when the U.S. dollar
declines. (Please see "SUPPLEMENTAL INVESTMENT POLICIES"
for additional risks associated with investments in
foreign securities.)

MANAGER RISK The Portfolio exposes investors to substantial manager
risk which encompasses the potential for the Portfolio to
fail to achieve its objective due to activities of the
investment adviser. Husic Capital Management, the
Portfolio's investment adviser, manages the Portfolio with
broad flexibility, in an effort to provide maximum long-
term total return. The investment adviser selects stocks
based on economic, financial, as well as market analysis
and investment judgment. There is no assurance that the
Portfolio will achieve its stated objective.
- --------------------------------------------------------------------------------

12
<PAGE> 16

GLOBAL ASSET ALLOCATION PORTFOLIO

INVESTMENT
OBJECTIVE The Global Asset Allocation Portfolio seeks to provide
maximum long-term total return and is therefore intended
for investors who have a long-term investment horizon. To
that end, the Portfolio will assume above-average risk in
seeking potentially above-average returns, although there
is no assurance that the Portfolio will achieve
above-average returns. Income provided by the Portfolio is
expected to fluctuate significantly.

- --------------------------------------------------------------------------------

INVESTMENT
POLICIES
The Global Asset Allocation Portfolio invests in a varying
mix of stocks, bonds, and cash reserves selected primarily
from the following nine major markets: U.S., Japan, the
United Kingdom, Germany, France, Spain, Canada, Australia,
and Hong Kong. The adviser may expand the Portfolio's
investment universe outside these major markets at any
time, and may include investments in emerging markets.
Under normal circumstances, at least 65% of the
Portfolio's assets will be invested in securities
representing at least three different countries. In order
to execute its strategy in an efficient manner, the
Portfolio's adviser expects to invest the portion of the
Portfolio's assets that it has determined should be
allocated to stocks, primarily in equity index futures
contracts. Such futures contracts provide exposure to a
whole index of stocks without buying each security
individually. Thus, the use of index futures contracts
provides a cost efficient means of achieving exposure to
the stock market of a particular country. UNDER NO
CIRCUMSTANCES WILL INVESTMENTS IN FUTURES CONTRACTS EXCEED
50% OF THE PORTFOLIO'S NET ASSETS. The adviser will not
use futures to leverage the Portfolio's holdings.

The Portfolio's adviser, Strategic Investment Management,
will use a variety of quantitative investment models to
identify the country and asset classes deemed to be
attractive. The adviser seeks asset classes and countries
with the highest expected relative return premium,
adjusted for risk (e.g., stocks in Japan versus bonds in
France). Valuation and liquidity measures are the primary
drivers of the model used to determine the relative
expected return premium for each country and asset class.
The adviser may concentrate the Portfolio's investment
"bets" in only a few selected countries and/or asset
classes; however, no more than 50% of the Portfolio's net
assets will be invested in an asset class from a single
country (e.g., French bonds). There is no limitation on
the Portfolio's U.S. assets.

The Portfolio will seek to provide investment results
superior to a theoretical benchmark, the "Global Balanced
Index", with the following parameters:

60% global stock investments
30% global bond investments
10% U.S. cash reserve investments

13
<PAGE> 17

currency fluctuations by hedging back into U.S. dollars
one half of the foreign currency exposure resulting from
equity holdings and all of the foreign currency exposure
resulting from the bond holdings. The countries included
in this index will be the U.S., Canada, the United
Kingdom, France, Germany, Spain, Japan, Australia and Hong
Kong (there will be no bond investments in Hong Kong). The
Global Balanced Index will be reviewed semi-annually and
with approval of the Fund's Officers may be changed to
reflect additions or deletions of countries from the
adviser's mandate going forward.

The adviser will predominately utilize an indexed approach
to common stock investing but, from time to time, may
execute modest "tilts" among common stock holdings (e.g.,
lower than average market capitalization or valuation
levels) or hold an overweighted position in a security
intended to serve as a proxy for an entire market (e.g., a
closed-end country fund).

Investments will also include direct investments in
short-term or long-term government bonds, and U.S. and
foreign cash reserves. Bonds in the Portfolio are expected
to range in maturity from one to 30 years. The Portfolio
may also enter into forward currency exchange contracts in
order to protect its securities from fluctuations in
exchange rates. (Please see "SUPPLEMENTAL INVESTMENT
POLICIES" for a description of such contracts.)

- --------------------------------------------------------------------------------

INVESTMENT
RISKS
SECURITIES MARKET
RISK
Market risk for the Portfolio will depend both on the
adviser's allocation to stocks, bonds, and money market
instruments and the percentage of assets invested in each
of the markets available to the adviser. Investments in
foreign markets can be as volatile, if not more volatile,
than investments in U.S. securities markets. However, a
Portfolio that combines both U.S. and foreign securities
may benefit from diversification and may have volatility
less than that of a portfolio made up solely of foreign
securities.

To illustrate the volatility of world securities markets
for the U.S. investor, a hypothetical index consisting 60%
of the Morgan Stanley Capital International (MSCI) World
Index, 30% of the Salomon Brothers World Bond Index, and
10% of cash reserves can be used as a proxy for the Global
Balanced Index, the Portfolio's benchmark index.

This hypothetical index has provided annual total returns
(capital appreciation plus dividend income) averaging
11.9% for the period 1978 to 1994. The return in
individual years has varied from a low of -9.5% to a high
of 26.9%, which reflects the short-term volatility of
securities prices. The historical total return data is
provided here only as a guide to potential market risk,
and may not be useful for forecasting future returns in
any particular period.

The hypothetical index used as a proxy for the Portfolio's
benchmark index primarily contains return figures for
developed countries; however, the Global Asset Allocation
Portfolio may invest up to 25% of its holdings in emerging
market securities or currencies. Emerging market countries
have periodically provided greater returns than developed
markets, but with substantially greater volatility.

14
<PAGE> 18

The Portfolio is likely to differ in terms of portfolio
composition from the hypothetical index, and so the
performance of the Global Asset Allocation Portfolio
should not be expected to mirror the return provided by
this hypothetical index.

FOREIGN MARKET RISK For U.S. investors, the returns of foreign securities are
influenced by not only the returns on foreign securities
themselves, but also by currency risk -- i.e., changes in
the value of currencies in which the securities 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 of foreign securities will be
enhanced.

(Please see "SUPPLEMENTAL INVESTMENT POLICIES" for
additional risks associated with investments in foreign
securities.)

MANAGER RISK The Portfolio exposes investors to substantial manager
risk which encompasses the potential for the Portfolio to
fail to achieve its objective due to activities of the
investment adviser. Strategic Investment Management, the
Portfolio's investment adviser, selects stocks based
primarily on quantitative models in an effort to provide
long-term returns that exceed those of comparable
unmanaged indexes. There is no assurance that the stocks
identified by the adviser's quantitative analysis will
enable the Portfolio to meet its stated objective.
- --------------------------------------------------------------------------------

15
<PAGE> 19

GLOBAL EQUITY PORTFOLIO

INVESTMENT
OBJECTIVE The Global Equity Portfolio seeks to provide maximum
long-term total return and is therefore intended for
investors who have a long-term investment horizon. To that
end, the Portfolio will assume above-average risk in
seeking potentially above-average returns, although there
is no assurance that the Portfolio will achieve
above-average returns. Income provided by the Portfolio is
expected to be minimal.

- --------------------------------------------------------------------------------

INVESTMENT
POLICIES
The Global Equity Portfolio invests in U.S. and foreign
equity securities that the adviser deems attractive. The
Portfolio seeks to diversify its assets among stocks
traded in the major stock markets, as well as emerging
stock markets. The Portfolio seeks to diversify among
foreign markets including Japan, the United Kingdom,
Germany, France, Switzerland, the Netherlands, Sweden,
Australia, and Hong Kong. The Portfolio may also invest in
emerging markets such as Brazil, Indonesia, Korea, Mexico,
the Philippines, Thailand and South Africa. Emerging
markets may be more volatile and less liquid than more
established foreign markets. Under normal market
conditions, the Portfolio will invest at least 65% of its
assets in at least three different countries. The
Portfolio will generally limit emerging market holdings to
20%.

The Portfolio's adviser, Marathon-London, builds
portfolios based primarily upon industry and company
analysis rather than "top down" country allocation
decisions. With this approach, the Portfolio's regional
weightings are expected to range from 50% to 150% of the
allocations exhibited by an unmanaged index such as the
Morgan Stanley Capital International (MSCI) All Country
Index. The relative weightings of individual sectors and
stocks may be expected to differ markedly from index
weightings.

A key element of Marathon-London's analysis is a focus on
competition and industry prospects. This approach permits
the adviser to identify opportunities across a wide range
of industries. As such, the Portfolio will tend to own a
mix of both "value" and "growth" stocks.

Besides investing in equity securities, the Portfolio may
also enter into forward foreign currency exchange
contracts in order to protect its securities from
fluctuations in exchange rates. (See "SUPPLEMENTAL
INVESTMENT POLICIES" for a description of such contracts.)

- --------------------------------------------------------------------------------

INVESTMENT RISKS
SECURITIES MARKET
RISK
The Portfolio exposes investors to the market risks
associated with world stock markets. International stock
and bond markets have periodically offered above-average
returns relative to U.S. investments. However,
commensurate with that opportunity for 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
fluctuations in 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 Portfolio that combines both U.S. and foreign
stocks may benefit from diversification and may have
volatility less than that of a pure foreign stock
portfolio.

16
<PAGE> 20

The average annual returns of the Morgan Stanley Capital
International (MSCI) World Index can be used as an
indicator of the world market risk of the Global Equity
Portfolio. The world stock index returns have provided
annual total returns (capital appreciation plus dividend
income) averaging 12.7% for the period 1970-1994. The
return 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 historical total return
data is provided here only as a guide to potential market
risk, and may not be useful for forecasting future returns
in any particular period.

The MSCI World Index primarily contains return figures for
developed countries; whereas, the Portfolio may invest 20%
of its holdings in emerging market securities. Emerging
market countries have periodically provided greater
returns than developed markets, 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.

FOREIGN MARKET RISK The Portfolio also exposes investors to foreign market
risk. For U.S. investors, the returns on foreign
securities are influenced by not only the returns on
foreign securities themselves, but also by currency
risk -- i.e., changes in the value of currencies in which
the securities 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 of foreign securities will
be enhanced.

Please see "SUPPLEMENTAL INVESTMENT POLICIES" for
additional risks associated with investments in foreign
securities.

MANAGER RISK The Portfolio exposes investors to substantial manager
risk which encompasses the potential for the Portfolio to
fail to achieve its objective due to activities of the
investment adviser, Marathon-London. The Portfolio's
investment adviser selects stocks based on investment
judgment and analysis of corporate strategies,
competition, and capital flows. There is no assurance that
the Portfolio will meet its stated objective.

- --------------------------------------------------------------------------------

17
<PAGE> 21

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, and
seek long-term total return. The 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. Each Portfolio's share price
is expected to be volatile.

The AGGRESSIVE GROWTH PORTFOLIO is appropriate for
investors who seek to invest in a quantitatively managed
portfolio of diversified U.S. equity securities.

The CAPITAL OPPORTUNITY PORTFOLIO is appropriate for
investors who seek to invest in an actively managed
portfolio of U.S. equity securities and are willing to
accept the risks associated with short selling stocks and
index put options.

The GLOBAL ASSET ALLOCATION PORTFOLIO is appropriate for
investors who seek to invest in an actively managed
portfolio of U.S. and foreign stocks, bonds and cash
reserves and are willing to accept the risks associated
with a high level (up to 50% of the Portfolio's net
assets) of investments in futures contracts.

The GLOBAL EQUITY PORTFOLIO is appropriate for investors
who seek to invest in an actively managed Portfolio of
U.S. and foreign equity securities.

Because of the risks associated with common stock
investments, all four 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.

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.
- --------------------------------------------------------------------------------

18
<PAGE> 22

SUPPLEMENTAL
INVESTMENT
POLICIES
EACH PORTFOLIO MAY
INVEST IN SHORT-TERM
FIXED-INCOME
SECURITIES
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. Although it is not expected to do
so, the Fund may invest up to 100% of its assets in such
securities. 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.
Additionally, the Capital Opportunity Portfolio may invest
up to 15% of its net assets in cash reserves after major
up movements in the prices of the Portfolio's stocks when
the investment adviser is not satisfied with investment
alternatives.

EACH PORTFOLIO MAY
INVEST IN SUCH
DERIVATIVE SECURITIES
AS: 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,
the Capital Opportunity, Aggressive Growth and Global
Equity Portfolios 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 each
Portfolio's assets are invested in futures and options at
any time. Investors in the Global Asset Allocation
Portfolio should be aware the Portfolio's adviser may
invest up to 50% of the Portfolio's net assets in futures
contracts provided that not more than 15% of its net
assets are required for margin requirements. The Global
Asset Allocation Portfolio may purchase options provided
that not more than 5% of its assets are required as a
margin deposit, and provided that not more than 20% of its
net assets are invested in options at any time. In
combination futures and options will not exceed 50% of the
Portfolio's net assets with not more than 15% of the
Portfolio's net assets required for margin requirements at
any time.

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: (1) 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; (ii)
the risk that the investment advisers will incorrectly
predict stock market and interest rate trends; and (iii)
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

19
<PAGE> 23

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.

Additionally, each Portfolio's 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 process, or to reduce transaction costs. The
Portfolios may not use futures and options to leverage
their net assets.

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. Swap agreements are
considered illiquid, and are therefore subject to the 15%
limitation on illiquid securities described in the
Statement of Additional Information.

ALL PORTFOLIOS MAY
LEND THEIR SECURITIES
All Portfolios of the Fund may lend securities to
qualified institutional investors for either short-term or
long-term periods for the purpose of realizing additional
income. Loans of securities by a Portfolio will be
collateralized by cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its
agencies. The collateral will equal at least 100% of the
current market value of the loaned securities, and such
loans may not exceed 33 1/3% of the value of the
Portfolio's net assets.

ALL PORTFOLIOS MAY
OWN RESTRICTED
SECURITIES
All 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, as well as OTC options and swap agreements.)
The Fund's Board of Directors may from time to time
determine certain restricted securities known as Rule 144A
securities to be liquid. Such securities will not be
subject to the 15% limitation described above.

THREE OF THE FUND'S
PORTFOLIOS EXPOSE
INVESTORS TO FOREIGN
MARKET RISK The Capital Opportunity, Global Asset Allocation, and
Global Equity Portfolios expose investors to foreign
market risk. Some 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

20
<PAGE> 24

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 GLOBAL EQUITY AND
GLOBAL ASSET
ALLOCATION PORTFOLIOS
MAY ENTER INTO
FORWARD CURRENCY
CONTRACTS The Global Equity and Global Asset Allocation Portfolios
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 all Portfolios of the Fund 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 expected for each Portfolio is provided
in the table below.

<TABLE>
<CAPTION>
PORTFOLIO ESTIMATED ANNUAL TURNOVER
---------- -------------------------
<S> <C>
Aggressive Growth Portfolio 100-150%
Capital Opportunity Portfolio 75-125%
Global Asset Allocation 100-200%
Global Equity Portfolio 10-50%
</TABLE>

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 more
attractive for the tax-deferred portion of an investment
portfolio. Each Portfolio is 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);

21
<PAGE> 25

(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
(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 a 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
1.05% 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.
- --------------------------------------------------------------------------------

22
<PAGE> 26

INVESTMENT
ADVISERS
VANGUARD SERVES
AS ADVISER TO THE
AGGRESSIVE GROWTH
PORTFOLIO The AGGRESSIVE 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 Index Fund, Vanguard Institutional Index Fund,
Vanguard Balanced Index Fund, the Equity Index Portfolio
of the Vanguard Variable Insurance Fund, the Growth and
Income and Capital Appreciation Portfolios and the equity
portion of the Balanced Portfolio of Vanguard Tax-Managed
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 billion as of December 31,
1994. The Core Management Group is supervised by the
Officers of the Fund. George U. Sauter, Vice President of
the Core Management Group and the Portfolio Manager of
each of the Funds managed by the Core Management Group,
has served in this capacity for each of the Vanguard Funds
advised by 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.

HUSIC CAPITAL
MANAGEMENT SERVES
AS ADVISER TO THE
CAPITAL OPPORTUNITY
PORTFOLIO
The CAPITAL OPPORTUNITY PORTFOLIO is managed by HUSIC
CAPITAL MANAGEMENT ("Husic"), 555 California Street, Suite
2900, San Francisco, California 94104. Husic provides
asset management services to companies, institutions, and
individuals as well as approximately 13% of the Vanguard
Morgan Growth Fund. As of December 31, 1994 Husic had over
$2.3 billion in assets under management.

Frank J. Husic, Managing Partner of Husic Capital
Management, serves as portfolio manager for the Capital
Opportunity Portfolio. Mr. Husic has been the managing
partner of Husic since its founding in June 1986.
Previously, he was Senior Vice President and Director of
Alliance Capital Management as well as President and
Portfolio Manager of the Alliance Technology and Alliance
International Technology Funds.

For the services provided by Husic under the investment
advisory agreement the Portfolio will pay Husic a basic
fee at the end of each fiscal quarter, calculated by

23
<PAGE> 27

applying a quarterly rate based on the following annual
percentage rates, to the average month-end net assets of
the Capital Opportunity Portfolio for the quarter:

<TABLE>
<CAPTION>
NET ASSETS RATE
--------------------- ----
<S> <C>
First $100 million .40%
Next $200 million .35%
Next $300 million .25%
Next $400 million .20%
Over $1 billion .15%
</TABLE>

Effective with the quarter ending September 30, 1996, the
basic advisory fee may be increased or decreased by
applying an adjustment formula based on the investment
performance of the Capital Opportunity Portfolio relative
to the Aggressive Growth Stock Fund Index, an index of the
equity holdings of the 50 largest aggressive growth stock
mutual funds. The following table sets forth the
incentive/penalty adjustment to the basic advisory fee
payable by the Portfolio to Husic.

<TABLE>
<CAPTION>
ANNUAL NET
PERFORMANCE
DIFFERENCE RELATIVE TOTAL FEE AS A PERCENTAGE OF
TO BENCHMARK BASE FEE
-------------------- ----------------------------
<S> <C>
Less than -12% 25.0%
-12% to -6% 50.0%
-6% to +6% 100.0%
+6% to +12% 150.0%
More than +12% 175.0%
</TABLE>

Under the rules of the Security and Exchange Commission,
the incentive/penalty fee structure will not be fully
operable until the quarter ending July 31, 1998, and,
until that date, will be calculated according to certain
transition rules. See the Statement of Additional
Information for a detailed description of the
incentive/penalty fee schedule for Husic and the
applicable transition rules.

STRATEGIC INVESTMENT
MANAGEMENT
SERVES AS ADVISER TO
THE GLOBAL ASSET
ALLOCATION PORTFOLIO
The GLOBAL ASSET ALLOCATION PORTFOLIO is managed by
STRATEGIC INVESTMENT MANAGEMENT ("SIM"), 1001 19th Street
North, 16th Floor, Arlington, Virginia 22209. Strategic
Investment Management provides asset management services
to companies, institutions, and individuals. As of January
17, 1995, SIM (and its affiliated companies) had over $15
billion in assets under management.

Michael J. Duffy, Managing Director of Strategic
Investment Management, serves as portfolio manager for the
Global Asset Allocation Portfolio. Mr. Duffy has been a
Managing Director of SIM since 1987. Previously, he was a
Senior Pension Investment Officer for the World Bank as
well as an Economist for the Board of Governors of the
Federal Reserve System.

For the services provided by Strategic Investment
Management under the investment advisory agreement the
Portfolio will pay Strategic Investment Management a basic
fee at the end of each fiscal quarter, calculated by
applying a quarterly rate

24
<PAGE> 28

based on the following annual percentage rates, to the
average month-end net assets of the Global Asset
Allocation Portfolio for the quarter:

<TABLE>
<CAPTION>
NET ASSETS RATE
--------------------- ----
<S> <C>
First $250 million .40%
Next $250 million .35%
Next $500 million .25%
Over $1 billion .20%
</TABLE>

Effective with the quarter ending July 31, 1996, the basic
advisory fee may be increased or decreased by applying an
adjustment formula based on the investment performance of
the Global Asset Allocation Portfolio relative to the
theoretical Global Balanced Index which is calculated as
follows:

<TABLE>
<S> <C>
60% global stock investments
30% global bond investments
10% U.S. cash reserve investments
</TABLE>

The 60% global stock component is an adjusted
capitalization-weighted average of the established local
stock market index in each country. The 30% global bond
component is a capitalization-weighted average of the
country indices of the Salomon Brothers World Government
Bond Index. The U.S. cash reserve component is the bond
equivalent yield of the Federal Reserve's published
average offering rate on 30-day commercial paper. The
index is adjusted to reduce the exposure of foreign
currency fluctuations by hedging back into U.S. dollars
one half of the foreign currency exposure resulting from
equity holdings and all of the foreign currency exposure
resulting from the bond holdings. The countries included
in this index will be the U.S., Canada, the United
Kingdom, France, Germany, Spain, Japan, Australia and Hong
Kong (there will be no bond investments in Hong Kong). The
Global Balanced Index will be reviewed semiannually and
with approval of the Fund's Officers may be changed to
reflect additions or deletions of countries from the
advisors mandate going forward.

The following table sets forth the incentive/penalty
adjustment to the basic advisory fee payable by the
Portfolio to Strategic Investment Management.

<TABLE>
<CAPTION>
ANNUAL NET
PERFORMANCE
DIFFERENCE RELATIVE TOTAL FEE AS A PERCENTAGE OF
TO BENCHMARK BASE FEE
-------------------- ----------------------------
<S> <C>
Less than -0.25% 25%
-0.25% to +0.75% 50%
+0.75% to +1.75% 75%
+1.75% to +2.75% 100%
+2.75% to +3.75% 125%
+3.75% to +4.75% 150%
Over +4.75% 175%
</TABLE>

25
<PAGE> 29

MARATHON-LONDON
SERVES AS ADVISER
TO THE GLOBAL
EQUITY PORTFOLIO The GLOBAL EQUITY PORTFOLIO is managed by Marathon Asset
Management Limited ("Marathon-London"), 115 Shaftesbury
Avenue, London. Marathon-London was founded in 1986 and
provides asset management services to companies,
institutions, and individuals. As of February 3, 1995,
Marathon-London had more than $2.3 billion in assets under
management.

The investment philosophy of Marathon-London is that the
best investment returns for equity portfolios are
primarily the result of careful, thoughtful industry and
company evaluation rather than "top down" country
allocation decisions. Marathon-London's portfolios
therefore tend to exhibit regional weightings within a
range of 50% to 150% of the allocation exhibited in broad
market benchmarks, such as the unmanaged All Country
Index. Sector and stock weightings may be expected to
differ markedly from index weightings. The firm uses a
team approach with each of the firm's three partners
having the primary responsibility for a specific region,
e.g. Europe.

Jeremy J. Hosking, Director of Marathon-London, serves as
portfolio manager for the Global Equity Portfolio. Mr.
Hosking has been a Director of Marathon-London since its
founding in 1986. Previously, he was Director of G.T.
Capital Management, Inc., San Francisco with
responsibility for U.S. portfolio management and
international ERISA asset allocation. From 1981 to 1984
Mr. Hosking managed the GT ASEAN Fund and from 1979 to
1984 he co-managed the GT Far East General Fund.

The Global Equity Portfolio pays Marathon-London 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>
NET ASSETS ANNUAL
--------------------- RATE
------
<S> <C>
First $100 million 0.45%
Next $150 million 0.40%
Next $250 million 0.25%
</TABLE>

Effective with the quarter ending July 31, 1996, 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 as adjusted. The
following table sets forth the incentive/penalty
adjustment to the basic advisory fee payable by the
Portfolio to

26
<PAGE> 30

Marathon-London under the investment advisory agreement.
The adjustments to the fee change proportionately with
performance relative to the Index.

<TABLE>
<CAPTION>
CUMULATIVE NET 36-MONTH PERFORMANCE TOTAL FEE AS A
DIFFERENTIAL VS. THE MSCI PENALTY OF
ALL COUNTRY INDEX BASIC FEE
------------------------------------------------ ------------------------
<S> <C>
Less than 3% 50%
Between 3% and 6% 75%
Between 6% and 9% 100%
Between 9% and 12% 125%
More than 12% 150%
</TABLE>

Under rules of the Securities and Exchange Commission, the
incentive/penalty fee adjustment will not be fully
operable until the quarter ending July 31, 1998, and until
that date, will be calculated according to certain
transition rules. A detailed description of the
incentive/penalty fee adjustment schedule for
Marathon-London and the applicable transition rules is
contained in the Statement of Additional Information.

The Fund has authorized Husic Capital Management,
Strategic Investment Management, and Marathon-London 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 Directors 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
shareholders of the Fund which shall include substantially
the information concerning the adviser that would have
normally been included in a proxy statement. In the event
that such notice is given, the 1% redemption fee will be
waived for a period of 90 days.
- --------------------------------------------------------------------------------

DIVIDENDS, CAPITAL
GAINS AND TAXES The Portfolios of the Fund are 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,

27
<PAGE> 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 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 by-product of portfolio
management activities. Consequently, capital gains
distributions may be expected to vary considerably from
year to year; there will be no capital gains distributions
in years when the Fund realizes net capital losses.

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.

THE GLOBAL ASSET
ALLOCATION AND
GLOBAL EQUITY
PORTFOLIOS MAY
"PASS THROUGH"
FOREIGN TAXES The Global Asset Allocation and Global Equity Portfolios
may elect to "pass through" to the Portfolios'
shareholders the amount of foreign income taxes paid by
the Portfolio(s). The Portfolio(s) 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(s)
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.

28
<PAGE> 32

A CAPITAL GAIN OR
LOSS MAY BE REALIZED
UPON EXCHANGE OR
REDEMPTION A sale of shares of the Fund 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 Employer
Identification number and by certifying that you are not
subject to backup withholding.

The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania and does
business and maintains an office in that state. In the
opinion of counsel, the shares of the Fund are exempt from
Pennsylvania personal property taxes.

The tax discussion set forth 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 ask price. Securities not listed on an
exchange are valued at the latest quoted bid price.
Temporary cash investments are valued at cost, plus or
minus any amortized discount or premium, 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 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

29
<PAGE> 33

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 Portfolios' 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.
London time. If such quotations are not available 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 for the Aggressive Growth
and Capital Opportunity Portfolios by --. For the Global
Asset Allocation and Global Equity Portfolios 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.

- --------------------------------------------------------------------------------

30
<PAGE> 34

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 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.

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.
- --------------------------------------------------------------------------------

31
<PAGE> 35

<TABLE>
<S> <C> <C>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS

PURCHASING BY MAIL Please include the amount of your ADDITIONAL INVESTMENTS SHOULD IN-
initial investment on the CLUDE THE INVEST-BY-MAIL
Complete and sign the registration form, make your check REMITTANCE FORM ATTACHED TO YOUR
enclosed Account payable to The Vanguard FUND CONFIRMATION STATEMENTS.
Registration Form Group -- (Portfolio Number) (see PLEASE MAKE YOUR CHECK PAYABLE TO
below for the appropriate The Vanguard Group -- (Portfolio
Portfolio number), and mail to: Number) (see below for the
appropriate Portfolio number),
VANGUARD FINANCIAL CENTER write your account number on your
P.O. BOX 2600 check and, using the return envel-
VALLEY FORGE, PA 19482 ope provided, mail to the address
indicated on the Invest-by-Mail
Form.
For express or VANGUARD FINANCIAL CENTER All written requests should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the addresses
send to: WAYNE, PA 19087 indicated for new accounts. Do not
send registered or express mail to
the post office box address.
</TABLE>

VANGUARD HORIZON FUND PORTFOLIO NUMBERS
Aggressive Growth Portfolio -- 114
Capital Opportunity Portfolio -- 111
Global Asset Allocation Portfolio -- 115
Global Equity Portfolio -- 129

----------------------------------------------------------

PURCHASING BY WIRE CORESTATES BANK, N.A.
AB 031000011
Money should be CORESTATES NO. 01019897
wired to: ATTN. VANGUARD

BEFORE WIRING VANGUARD HORIZON FUND
ACCOUNT NUMBER
Please contact ACCOUNT REGISTRATION
Client Services
(1-800-662-2739)
You should notify our Client Services Department of your
intended wire purchase, including the federal wire number
to be used, by 12:00 noon (Eastern Time).

To assure proper receipt, please be sure your bank
includes the name(s) 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
Depart-

32
<PAGE> 36

ment (1-800-662-2739) for assistance. The new account
will have the same registration as the existing account.
----------------------------------------------------------

PURCHASING BY
FUND EXPRESS
Special Purchase and
Automatic Investment The Fund Express Special Purchase option lets you move
money from your bank account to your Vanguard account on
an "as needed" basis. Or if you choose the Automatic
Investment option, money will be moved automatically from
your bank account to your Vanguard account on the schedule
(monthly, bimonthly [every other month], quarterly or
yearly) you select. To establish these Fund Express
options, please provide the appropriate information on the
Account Registration Form. We will send you a confirmation
of your Fund Express service; please wait three weeks
before using the service.
- --------------------------------------------------------------------------------

CHOOSING A
DISTRIBUTION
OPTION
You must select one of three distribution options:

1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and
capital gains distributions will be reinvested in
additional 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 net asset value of the shares -- you
should be aware of the tax implications that the timing of
your purchase may have.

33
<PAGE> 37

Prospective investors should, therefore, inquire about
potential distributions before investing. The Fund's
annual capital gains distribution normally occurs in
December, while dividends are generally paid annually in
December for the Aggressive Growth, Capital Opportunity,
Global Asset Allocation and Global Equity Portfolios. For
additional information on distributions and taxes, see the
section entitled "Dividends, Capital Gains and Taxes."

- --------------------------------------------------------------------------------

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 not be available for the Fund.

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 request has
been received.
----------------------------------------------------------

ELECTRONIC
PROSPECTUS
DELIVERY
If you would prefer to receive a prospectus for the Fund
or any of the Vanguard Funds in an electronic format,
please call 1-800-231-7870 for additional information. If
you elect to do so, you may also receive a paper copy of
the prospectus, by calling 1-800-662-7447.
- --------------------------------------------------------------------------------

WHEN YOUR
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.

34
<PAGE> 38

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 Fund, a redemption
fee equaling 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.

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.

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
& Special Redemption If you select the Fund Express Automatic Withdrawal
option, money will be automatically moved from your
Vanguard Fund account to your bank account according to
the schedule you have selected. The Special Redemption
option lets you move money from your Vanguard account to
your bank account on an "as needed" basis. To establish
these Fund Express options, please provide the
appropriate information on the Account Registration Form.
We will send you a confirmation of your Fund Express
service; please wait three weeks before using the
service. The redemption fee described on pages 20 and 23
applies to redemption by Fund Express.
----------------------------------------------------------

35
<PAGE> 39

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 "Exchanging Your Shares" for
details. The redemption fee described on pages 20 and 23
applies to exchange redemptions.
----------------------------------------------------------

IMPORTANT
REDEMPTION
INFORMATION
Shares purchased by check or Fund Express may be redeemed
at any time. However, your redemption proceeds will be
held at Vanguard until payment for the purchase is
collected, which may take up to ten calendar days.

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.

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. If at any time your total investment
does not have a value of at least $3,000, you may be
notified that your account is below the Fund's minimum
account balance requirement. You would then be allowed 60
days to make an additional investment before the account
is liquidated. Proceeds would be

36
<PAGE> 40

promptly paid to the registered shareholder. (This minimum
does not apply to IRAs, other retirement accounts, and
Uniform Gifts/Transfers to Minors Act accounts.)

The Fund's minimum account balance requirement will not
apply if your account falls below $3,000 solely as a
result of declining markets (i.e., a decline in a
Portfolio's net asset value).
- --------------------------------------------------------------------------------

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 Fund, 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.

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 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.
----------------------------------------------------------

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.

37
<PAGE> 41

- New accounts are not currently accepted in
Vanguard/Windsor Fund or Vanguard/PRIMECAP Fund.
- The shares to be exchanged must be on deposit and not
held in certificate form.
- The redemption fee described on pages 20 and 23 applies
to exchange redemptions.

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.

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.
- --------------------------------------------------------------------------------

38
<PAGE> 42

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 must be in Good Order.
BEFORE MAILING YOUR REQUEST, PLEASE CALL OUR CLIENT
SERVICES DEPARTMENT (1-800-662-2739) FOR FURTHER
INSTRUCTIONS.
- --------------------------------------------------------------------------------

STATEMENTS AND
REPORTS Vanguard will send you a confirmation statement each time
you initiate a transaction in your account (except for
checkwriting redemptions from Vanguard money market
accounts). You will also receive a comprehensive account
statement at the end of each calendar quarter. The
fourth-quarter statement will be a year-end statement,
listing all transaction activity for the entire calendar
year.

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.
- --------------------------------------------------------------------------------

OTHER VANGUARD
SERVICES For more information about any of these services, please
call our Investor Information Department at
(1-800-662-7447).

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. Please
contact our Client Services Department at 1-800-662-2739
for additional information.

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

39
<PAGE> 43

specific Vanguard Funds. For more information please refer
to the Vanguard Fund Express brochure.

VANGUARD DIVIDEND
EXPRESS
Vanguard's Dividend Express allows you to transfer your
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) system. 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 Tone(TM)
telephone. This service also lets you obtain information
on your account balance, last transaction, and your most
recent dividend or capital gains payment. To contact
Vanguard's Tele-Account service, dial 1-800-ON-BOARD
(1-800-662-6273). A brochure offering detailed operating
instructions is available from the Investor Information
Department (1-800-662-7447).
- --------------------------------------------------------------------------------

40
<PAGE> 44

[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 45

[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 46

[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 47

<TABLE>
<S> <C> <C>
[VANGUARD HORIZON FUND LOGO] [VANGUARD HORIZON FUND LOGO]

--------------------------- P R O S P E C T U S
THE VANGUARD GROUP
OF INVESTMENT JUNE 30, 1995
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

[VANGUARD GROUP LOGO]

P069
</TABLE>

<PAGE> 48

PART B

VANGUARD HORIZON FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

JUNE 30, 1995

This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated June 30, 1995). 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................................................................... 14
Purchase of Shares........................................................................ 14
Redemption of Shares...................................................................... 15
Comparative Indexes....................................................................... 15
</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, The Global Equity and
Global Asset Allocation Portfolios will include foreign securities. 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 Portfolios 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 the Portfolios will endeavor to achieve most favorable execution
costs in their 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> 49

arrangements of the Portfolios' 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 200%. 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 Each Portfolio 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> 50

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.

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% (15% with
respect to the Global Asset Allocation Portfolio) 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 (50% with respect to the Global
Asset Allocation Portfolio).

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.

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

3
<PAGE> 51

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 15% 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.

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.

4
<PAGE> 52

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 be required to pay any service, placement or
other fee in connection with such loans, and will retain voting rights to the
loaned securities. 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 net 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
borrowings exceed 5% of the value of the net assets of the Portfolio,
the Portfolio will not make any additional investments;

5
<PAGE> 53

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, with the exception of the Capital Opportunity Portfolio, 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% (15% with respect to
the Global Asset Allocation Portfolio) of the Portfolio's assets are
required as deposit to secure obligations under futures contracts,
additionally each Portfolio will invest no more than 20% of its assets
in swap agreements;

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> 54

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 certain of the Vanguard Funds.

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 adheres to a Code of Ethics established pursuant to Rule
17j-l under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures, restrictions and guidelines
substantially similar to those recommended by the mutual fund industry and
approved by the U.S. Securities and Exchange Commission.

The Vanguard Group was established and operates under a Funds' Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts which each of the Funds 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> 55

<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 of Rhone-Poulenc Rorer, Inc.; Chairman and Chief Executive Officer of Rohm &
Director of Sun Company, Inc. Haas Company; Director of Cummins Energy
Company, and Trustee of Vanderbilt
BARBARA BARNES HAUPTFUHRER, Director University and the Culver Educational
Director of The Great Atlantic and Pacific Foundation.
Tea Company, ALCO Standard Corp., Raytheon
Company, Knight-Ridder, Inc., Massachusetts RAYMOND J. KLAPINSKY, Secretary*
Mutual Life Insurance Co. and Trustee Senior Vice President and Secretary of The
Emerita of Wellesley College. Vanguard Group, Inc.; Secretary of each of the
investment companies in The Vanguard Group.
BRUCE K. MACLAURY, Director
President, The Brookings Institution; RICHARD F. HYLAND, Treasurer*
Director of American Express Bank, Ltd., The Treasurer of The Vanguard Group, Inc. and of
St. Paul Companies, Inc. and Scott Paper Co. each of the investment companies in The
Vanguard Group.
BURTON G. MALKIEL, Director
Chemical Bank Chairman's Professor of KAREN E. WEST, Controller*
Economics, Princeton University; Director of Vice President of The Vanguard Group, Inc.;
Prudential Insurance Co. of America, Amdahl Controller of each of the investment companies
Corporation, Baker Fentress & Co., The in The Vanguard Group.
Jeffrey Co. and Southern New England
Communications Company. ---------------
*Officers of the Fund are "interested persons"
ALFRED M. RANKIN, JR., Director as defined in the Investment Company Act of
Chairman, President, and Chief Executive 1940.
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 also provides investment advisory services to the
Fund, Vanguard Money Market Reserves, Vanguard Institutional Money Market
Portfolio, Vanguard Municipal Bond Fund, several Portfolios of Vanguard Fixed
Income Securities Fund, Vanguard California Tax-Free Fund, Vanguard Florida
Insured Tax-Free Fund, Vanguard New Jersey Tax-Free Fund, Vanguard New York
Insured Tax-Free Fund, Vanguard Ohio Tax-Free Fund, Vanguard

8
<PAGE> 56

Pennsylvania Tax-Free Fund, Vanguard Admiral Funds, Vanguard Bond Index Fund,
Vanguard Balanced Index Fund, Vanguard Index Trust, Vanguard International
Equity Index Fund, Vanguard Tax-Managed Fund, Vanguard Institutional Index Fund,
several Portfolios of Vanguard Variable Insurance Fund, a portion of
Vanguard/Windsor II, a portion of Vanguard/Morgan Growth Fund as well as several
indexed separate accounts. 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 MARATHON ASSET MANAGEMENT. The Global
Equity Portfolio is managed by Marathon Asset Management ("Marathon-London"),
115 Shaftesbury Avenue, London. Marathon-London was founded in 1986 and provides
asset management services to companies, institutions, and individuals. As of
December 31, 1994, Marathon-London had over $2 billion in assets under
management.

The investment philosophy of Marathon-London is that the best investment
returns for equity portfolios are primarily the result of careful, thoughtful
industry and company evaluation rather than "top down" country allocation
decisions. Marathon-London's portfolios therefore tend to exhibit country
weightings quite similar to broad market benchmarks, such as the unmanaged All
Country Index. Sector and stock weightings will, however, differ markedly from
such standards. The firm uses a team approach with each of the firm's three
partners having the primary responsibility for a specific region, e.g. Europe.
Jerome J. Hosking, Director, has been designated as portfolio manager for the
assets of the Global Equity Portfolio. He has 16 years of investment experience.

The Global Equity Portfolio pays Marathon-London 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.............................................................. 0.45%
Next $150 million............................................................... 0.40%
Over $250 million............................................................... 0.25%
</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 sets forth the incentive/penalty adjustment to the basic
advisory fee

9
<PAGE> 57

payable by the Portfolio to Marathon-London under the investment advisory
agreement. The adjustments to the fee change proportionately with performance
relative to the Index.

<TABLE>
<CAPTION>
CUMULATIVE THREE YEAR PERFORMANCE PERFORMANCE FEE AS
DIFFERENTIAL VS. THE MSCI ALL COUNTRY INDEX A PERCENTAGE OF BASIC FEE
------------------------------------------------------------------- -------------------------
<S> <C>
Less than 3%....................................................... 50%
Between 3% and 6%.................................................. 75%
Between 6% and 9%.................................................. 100%
Between 9% and 12%................................................. 125%
More than 12%...................................................... 150%
</TABLE>

Under the rules of the Securities & Exchange Commission, the
incentive/penalty fee for Marathon-London will not be fully operable until the
quarter ending June 30, 1998. Prior to that date the incentive/penalty fee will
be calculated according to the following transition rules:

(a) Prior to June 30, 1996. For the quarters ending on or prior to June
30, 1996, 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) July 1, 1996 through June 30, 1997. Beginning with the quarter ending
September 30, 1996, and until the quarter ending June 30, 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 January 1,
1995 and the end of the quarter for which the fee is being computed.

(c) On and After June 30, 1997. For the quarter ending September 30, 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 as adjusted.

RELATED INFORMATION CONCERNING MARATHON. Marathon Asset Management
Limited, 115 Shaftesbury Avenue, London, England, is an independent,
owner-managed investment management firm founded in 1986 which provides
investment advisory services to individuals, employee benefit plans, investment
companies and other institutions. As of February 3, 1995, Marathon provided
investment advisory services to clients having assets with an approximate value
of $2.3 billion.

The current agreement will continue until June 1, 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, Marathon-London 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 Marathon-London, or (2) by
Marathon-London upon ninety (90) days' written notice to the Fund.

INVESTMENT ADVISORY AGREEMENT WITH HUSIC CAPITAL MANAGEMENT. Husic Capital
Management ("Husic") serves as investment adviser to the Capital Opportunity
Portfolio under an Investment Advisory Agreement dated -- , 1995. For the
services provided by Husic under the agreement, the Portfolio will pay

10
<PAGE> 58

Husic an investment advisory fee at the end of each fiscal quarter, 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>
NET ASSETS RATE
-------------------------------------------------------------------------------- ------
<S> <C>
First $100 million.............................................................. 0.40%
Next $200 million............................................................... 0.35%
Next $300 million............................................................... 0.25%
Next $400 million............................................................... 0.20%
Over $1 billion................................................................. 0.15%
</TABLE>

Effective with the quarter ending September 30, 1996, the basic advisory
fee may be increased or decreased by applying an adjustment formula based on the
investment performance of the Capital Opportunity Portfolio relative to the
Aggressive Growth Stock Fund Index. The following table sets forth the
incentive/penalty adjustment to the basic advisory fee payable by the Portfolio
to Husic.

<TABLE>
<CAPTION>
ANNUAL NET
PERFORMANCE TOTAL FEE
DIFFERENCE RELATIVE AS A PERCENTAGE
TO BENCHMARK OF BASE FEE
--------------------------------------------------------------------------- ---------------
<S> <C>
Less than -12%............................................................. 25%
-12% to -6%................................................................ 50%
-6% to +6%................................................................. 100%
Between +6% to +12%........................................................ 150%
More than +12%............................................................. 175%
</TABLE>

Under the rules of the Security and Exchange Commission, the
incentive/penalty fee structure will not be fully operable until the quarter
ending September 30, 1998, and, until that date, will be calculated according to
the following transition rules.

(a) Prior to June 30, 1996. For the quarters ending on or prior to June
30, 1996, the incentive/penalty fee will not be operable. The advisory
fee payable by the Capital Opportunity Portfolio shall be the basic
fee, calculated as set forth above.

(b) July 1, 1996 through June 30, 1997. Beginning with the quarter ending
September 30, 1996, and until the quarter ending June 30, 1997, the
incentive/penalty fee will be based on a comparison of the investment
performance of the Capital Opportunity Portfolio and the MSCI All
Country Index over the number of months that have elapsed between
January 1, 1995 and the end of the quarter for which the fee is being
computed.

(c) On and After June 30, 1997. For the quarter ending September 30, 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.

RELATED INFORMATION CONCERNING HUSIC. Husic Capital Management, 555
California Street, Suite 2900, San Francisco, California 94104, a California
limited partnership founded in 1986, provides investment advisory services to
investment companies, other institutions, and individuals. Frank J. Husic,
managing partner, is a controlling person of Husic. Husic's general partner is
Frank J. Husic & Co., a California corporation that is wholly owned by Frank J.
Husic. As of July 1, 1993, Husic provided investment advisory services to
clients having assets with an approximate value of $2.3 billion.

INVESTMENT ADVISORY AGREEMENT WITH STRATEGIC INVESTMENT
MANAGEMENT. Strategic Investment Management ("SIM") serves as investment
adviser to the Global Asset Allocation Portfolio under an Investment Advisory
Agreement dated -- , 1995. For the services provided by SIM under the
agreement, the

11
<PAGE> 59

Portfolio will pay SIM an advisory fee at the end of each fiscal quarter, 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>
NET ASSETS RATE
-------------------------------------------------------------------------------- ------
<S> <C>
First $250 million.............................................................. 0.40%
Next $250 million............................................................... 0.35%
Next $500 million............................................................... 0.25%
Over $1 billion................................................................. 0.20%
</TABLE>

Effective with the quarter ending July 31, 1996, the basic advisory fee may
be increased or decreased by applying an adjustment formula based on the
investment performance of the Global Asset Allocation Portfolio relative to the
theoretical Global Balanced Index which is calculated as follows:

60% global stock investments

30% global bond investments

10% U.S. cash reserve investments

The 60% global stock component is an adjusted capitalization-weighted
average of the established local stock market index in each country. The 30%
global bond component is a capitalization-weighted average of the country
indices of the Salomon Brothers World Government Bond Index. The U.S. cash
reserve component is the bond equivalent yield of the Federal Reserve's
published average offering rate on 30-day commercial paper. The index is
adjusted to reduce the exposure of foreign currency fluctuations by hedging back
into U.S. dollars one half of the foreign currency exposure resulting from
equity holdings and all of the foreign currency exposure resulting from the bond
holdings. The countries included in this index will be the U.S., Canada, the
United Kingdom, France, Germany, Spain, Japan, Australia and Hong Kong (there
will be no bond investments in Hong Kong). The Global Balanced Index will be
reviewed semi-annually and with approval of the Fund's Officers may be changed
to reflect additions or deletions of countries from the advisor's mandate going
forward.

The following table sets forth the incentive/penalty adjustment to the
basic advisory fee payable by the Portfolio to Strategic Investment Management.

<TABLE>
<CAPTION>
ANNUAL NET
PERFORMANCE TOTAL FEE
DIFFERENCE RELATIVE AS A PERCENTAGE
TO BENCHMARK OF BASE FEE
--------------------------------------------------------------------------- ---------------
<S> <C>
Less than -0.25%........................................................... 25%
-0.25% to +0.75%........................................................... 50%
+0.75% to +1.75%........................................................... 75%
+1.75% to +2.75%........................................................... 100%
+2.75% to +3.75%........................................................... 125%
+3.75% to +4.75%........................................................... 150%
Over +4.75%................................................................ 175%
</TABLE>

(a) Prior to June 30, 1996. For the quarters ending on or prior to June
30, 1996, the incentive/penalty fee will not be operable. The advisory
fee payable by the Global Asset Allocation Portfolio shall be the basic
fee, calculated as set forth above.

(b) July 1, 1996 through June 30, 1997. Beginning with the quarter ending
September 30, 1996, and until the quarter ending June 30, 1997, the
incentive/penalty fee will be based on a comparison of the investment
performance of the Global Asset Allocation Portfolio and the MSCI All
Country Index over the number of months that have elapsed between
January 1, 1995 and the end of the quarter for which the fee is being
computed.

12
<PAGE> 60

RELATED INFORMATION CONCERNING SIM. SIM, 1001 19th Street North, 16th
Floor, Arlington, VA provides asset management services to companies,
institutions and individuals. SIM (and its affiliated companies) provides over
$15 billion in assets under management. Michael J. Duffy, Managing Director of
SIM serves as portfolio manager for the Global Asset Allocation Portfolio.

13
<PAGE> 61

SECURITIES TRANSACTIONS

The investment advisory agreements with Marathon-London, Husic, and
Strategic Investment Management authorize each 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 Portfolio of the Fund
that it manages and directs each investment adviser to use its best efforts to
obtain the best available price and most favorable execution with respect to all
transactions for such Portfolios. 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 agreement also incorporates 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
as well as

14
<PAGE> 62

redemption fees 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.

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 Horizon Fund, Inc., may, from time to time, use one or more of the
following unmanaged indices for comparative performance purposes.

STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified
list of 500 companies representing the U.S. Stock Market.

WILSHIRE 5000 EQUITY INDEXES -- consists of approximately 6,000 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.

MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY INDEX --

AGGRESSIVE GROWTH STOCK FUND INDEX --

GLOBAL BALANCED INDEX --

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.

15
<PAGE> 63

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.

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.)

16
<PAGE> 64

RUSSELL 3000 INDEX -- consists of approximately 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.

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.

17
<PAGE> 65

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. Investment Advisory Agreement**

6. Not Applicable
7. Reference is made to the section entitled "Management of the Fund" in
the Registrant's Statement of Additional Information
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
- ---------------
* Previously filed.
** Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is not controlled by or under common control with any person.
The officers of the Registrant, the 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> 66

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.

Registrant undertakes to file a post-effective amendment containing
financial statements, which need not be audited, within 4-6 months from
effectiveness.
<PAGE> 67

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 28th day of April 1995.

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

April 28, 1995

BY: (Raymond J. Klapinsky)
John J. Brennan*, President and Director

April 28, 1995

BY: (Raymond J. Klapinsky)
Robert C. Cawthorn*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
Bruce K. MacLaury, Jr.*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
Alfred M. Rankin, Jr.*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director

April 28, 1995

BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer

April 28, 1995

*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
<PAGE> 68

VANGUARD HORIZON FUND, INC.
INDEX TO EXHIBITS

<TABLE>
<S> <C>
Investment Advisory Agreement........................................................ EX-99.B5
Consent of Independent Accountants................................................... Ex-99.B11
Financial Statements................................................................. Ex-99.B12
</TABLE>

<PAGE> 1

EX-99.B5

INVESTMENT ADVISORY AGREEMENT

Agreement, made as of this day of April , 1995, among VANGUARD
HORIZON FUND, INC., a Maryland corporation (the "Fund"), and MARATHON ASSET
MANAGEMENT LIMITED, a United Kingdom corporation ("Marathon-London").

WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and

WHEREAS, the Fund desires to retain Marathon-London to render to the Fund
investment advisory services to the Fund's Global Equity Portfolio, and
Marathon-London is willing to render such services;

NOW THEREFORE, this Agreement

WITNESSETH:

that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:

1. Appointment of Marathon-London. The Fund hereby employs Marathon-London
as investment adviser to the Fund's Global Equity Portfolio (the "Portfolio"),
on the terms and conditions set forth herein. Marathon-London accepts such
employment and agrees to render the services herein set forth, for the
compensation herein provided.

2. Duties of Marathon-London. The Fund employs Marathon-London to manage
the investment and reinvestment of the Portfolio's assets, to continuously
review, supervise and administer the investment program for the Portfolio, to
determine in its discretion the securities to be purchased or sold and the
portion of such assets to be held uninvested, to provide the Fund with records
concerning the activities of Marathon-London which the Fund is required to
maintain, and to render regular reports to the Fund's officers and Board of
Directors concerning the discharge of the foregoing responsibilities.
Marathon-London shall discharge the foregoing responsibilities subject to the
control of the officers and the Board of Directors of the Fund, and in
compliance with the objectives, policies and limitations set forth in the Fund's
prospectus and applicable laws and regulations. Marathon-London agrees to
provide, at its own expense, the office space, furnishings and equipment and the
personnel required by it to perform the services on the terms and for the
compensation provided herein.

3. Securities Transactions. Marathon-London is authorized to select the
brokers or dealers that will execute the purchases and sales of securities for
the Portfolio, and is directed to use its best efforts to obtain the best
available price and most favorable execution, except as prescribed therein.
Subject to policies established by the Board of Directors of the Fund,
Marathon-London may also be authorized to effect individual securities
transactions at commission rates in excess of the minimum commission rates
available, if Marathon-London determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage or research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or overall responsibilities of Marathon-London with
respect to the Fund. The execution of such transactions shall not be deemed to
represent an unlawful act or breach of any duty created by this Agreement or
otherwise. Marathon-London will promptly communicate to the officers and
Directors of the Fund such information relating to portfolio transactions as
they may reasonably request.

4. Compensation of Marathon-London. For the services to be rendered by
Marathon-London as provided in this Agreement, the Fund shall pay to
Marathon-London a base advisory fee at the end of each quarter,

1
<PAGE> 2

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.............................................................. 0.45%
Next $150 million............................................................... 0.40%
Next $250 million............................................................... 0.25%
Over $500 million............................................................... ????%
</TABLE>

Effective with the quarter ending July 31, 1996, the quarterly payment to
Marathon-London, may be increased or decreased by applying an incentive/penalty
adjustment reflecting the investment performance of the Portfolio relative to
the return of the Morgan Stanley Capital International-All Country Index
("MSCI-All Country Index") and based on average assets for the same period, as
described below.

The following table sets forth the adjustment factors to the base advisory
fee payable by the Fund to Marathon-London under this investment advisory
agreement. The performance adjustment factor shall change proportionately with
performance relative to the MSCI-All Country Index.

<TABLE>
<CAPTION>
CUMULATIVE THREE YEAR PERFORMANCE PERFORMANCE FEE
DIFFERENTIAL VS. THE MSCI-ALL COUNTRY INDEX ADJUSTMENT FACTOR
------------------------------------------------------------------------ ------------------
<S> <C>
Less than 3%............................................................ 0.50 X Basic Fee
Between 3% and 6%....................................................... 0.75 X Basic Fee
Between 6% and 9%....................................................... 1.00 X Basic Fee
Between 9% and 12%...................................................... 1.25 X Basic Fee
More than 12%........................................................... 1.50 X Basic Fee
</TABLE>

Until the quarter ending July 31, 1998, the performance adjustment for
Marathon-London will be calculated according to the following transition rules:

(a) Prior to May 1, 1995. For the quarters ending on or prior to May 1,
1995, the performance adjustment will not be operable. The advisory fee payable
by the Fund shall be the base fee, calculated as set forth above.

(b) May 1, 1995 through July 31, 1998. Beginning with the quarter ending
July 31, 1996, and until the quarter ending July 31, 1998, the Performance
adjustment will be computed based upon a comparison of the investment
performance of the Portfolio and that of the MSCI-All Country Index over the
number of months that have elapsed between July 31, 1995 and the end of the
quarter for which the fee is computed. The number of percentage points by which
the investment performance of the Portfolio must exceed the investment record of
the MSCI-All Country Index shall increase proportionately from four, three, two,
and one, respectively, for the twelve months ending July 31, 1996, to twelve,
nine, six, and three, for the thirty-six months ending July 31, 1998.

(c) On and After July 31, 1998. For the quarter ending July 31, 1998 and
thereafter, the period used to calculate the incentive/penalty adjustment 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 twelve, nine, six,
and three. Upon request, the Fund will provide Marathon-London access to the
documents substantiating the calculation of the performance adjustment. An
example illustrating the methodology for calculating the total fee, base plus
performance adjustment, is attached hereto as Appendix A.

The investment performance of the Portfolio for such period, expressed as a
percentage of the net asset value per share of the Portfolio at the beginning of
such period, shall be the sum of: (i) the change in the net asset value per
share of the Portfolio during such period; (ii) the value of the cash
distributions per share of the Portfolio accumulated to the end of such period;
and (iii) the value of capital gains taxes per share paid or payable by the
Portfolio on undistributed realized long-term capital gains accumulated to the
end of such period. For this purpose, the value of distributions per share of
realized capital gains, of dividends per share paid from investment income and
of capital gains taxes per share paid or payable or undistributed realized
long-term capital gains shall be treated as reinvested in shares of the
Portfolio at the net asset value per share in effect at the close of business on
the record date for the payment of such distributions and dividends and

2
<PAGE> 3

the date on which provision is made for such taxes, after giving effect to such
distributions, dividends and taxes.

The investment record of the MSCI-All Country Index for any period,
expressed as a percentage of the MSCI-All Country Index level at the beginning
of such period, shall be the sum of (i) the change in the level of the MSCI-All
Country Index during such period and (ii) the value, computed consistently with
the MSCI-All Country Index, of cash distributions made by companies whose
securities comprise the MSCI-All Country Index accumulated to the end of such
period. For this purpose cash distributions on the securities which comprise the
MSCI-All Country Index shall be treated as reinvested in the MSCI-All Country
Index at least as frequently as the end of each calendar quarter following the
payment of the dividend. The foregoing notwithstanding, any computation of the
investment performance of the Portfolio and the investment record of the
MSCI-All Country Index shall be in accordance with any then applicable rules of
the Securities and Exchange Commission.

In the event of termination of this Agreement, the fee provided in this
Section shall be computed on the basis of the period ending on the last business
day on which this Agreement is in effect subject to a pro rata adjustment based
on the number of days elapsed in the current fiscal quarter as a percentage of
the total number of days in such quarter.

5. Reports. The Fund and Marathon-London agree to furnish to each other
current prospectuses, proxy statements, reports to shareholders, certified
copies of their financial statements, and such other information with regard to
their affairs as each may reasonable request.

6. Status of Marathon-London. The services of Marathon-London to the Fund
are not to be deemed exclusive, and Marathon-London shall be free to render
similar services to others so long as its services to the Fund are not impaired
thereby. Marathon-London shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.

7. Liability of Marathon-London. Except for negligence or malfeasance, or
violation of applicable law, Marathon-London shall not be liable to the Fund or
its shareholders with respect to any liabilities arising from its services
rendered hereunder. However, no provision of this Agreement shall be deemed to
protect Marathon-London against any liability to the Fund or its shareholders to
which it might otherwise be subject by reasons of any willful misfeasance, bad
faith or gross negligence in the performance of its duties or the reckless
disregard of its obligations under this Agreement. Federal and state securities
laws impose liabilities under certain circumstances on persons who act in good
faith, and therefore nothing herein shall in any way constitute a waiver or
limitation on any rights which the Fund may have under any such laws.

8. Duration and Termination. This Agreement shall become effective on
April , 1995, and shall continue in effect until April , 1997. The Agreement
shall continue after April , 1997, only so long as such continuance is
approved at least annually by votes of the Fund's Board of Directors, including
the votes of a majority of the Directors who are not parties to such Agreement
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting such approval. In addition, the question of continuance of
the Agreement may be presented to the shareholders of the Fund; in such event,
such continuance shall be effected only if approved by the affirmative vote of a
majority of the outstanding voting securities of the Fund.

Provided, however, that (i) this Agreement may at any time be terminated
without payment of any penalty either by vote of the Board of Directors of the
Fund or by vote of a majority of the outstanding voting securities of the Fund,
on sixty days' written notice to Marathon-London, (ii) this Agreement shall
automatically terminate in the event of its assignment, and (iii) this Agreement
may be terminated by Marathon-London on ninety days' written notice to the Fund.
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the other party at any office of such party.

As used in this Section 8, the terms "assignment", "interested persons",
and a "vote of a majority of the outstanding voting securities" shall have the
respective meaning set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act.

3
<PAGE> 4

9. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this day of , 1995.

ATTEST: VANGUARD HORIZON FUND, INC.

By
- ------------------------------------- ------------------------------------
Secretary President

ATTEST: MARATHON ASSET MANAGEMENT LIMITED

By
- ------------------------------------- ------------------------------------

<PAGE> 1

EX-99.B11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-1A of our report
dated January 27, 1995, relating to the Pre-effective Statement of Assets and
Liabilities of Aggressive Growth Portfolio of Vanguard Horizon Fund, Inc., which
appears in such Statement of Additional Information. We also consent to the
reference to us under the heading "General Information" in the Prospectus.

PRICE WATERHOUSE LLP

Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103

April 27, 1995

<PAGE> 1

EX-99.B12

VANGUARD HORIZON FUND, INC.

AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 27, 1995

<TABLE>
<S> <C>
Assets
Cash............................................................. $100,000
=========
Liabilities........................................................ None
Net Assets......................................................... $100,000
=========
Net Asset Value and Offering Price Per Share: One Billion Shares of
common stock authorized with $.001 par value, 10,000 shares
issued and outstanding........................................... $10.00
</TABLE>

The Vanguard Horizon Fund, Inc. (the "Fund") is an open-end, diversified
management investment company registered under the Investment Company Act of
1940, as amended (the "Act"). The Fund was organized as a Maryland Corporation
on November 9, 1994. The Fund had no operations other than the sale of shares of
common stock of the Fund, at an aggregate cost of $100,000, to an officer of the
Fund, representing the initial capital of the Fund. Costs incurred in connection
with the organization and registration of the Fund have been borne by The
Vanguard Group, Inc. ("Vanguard"), a jointly-owned subsidiary of The Vanguard
Group of Investment Companies.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors
Vanguard Horizon Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Aggressive
Growth Portfolio of Vanguard Horizon Fund, Inc. (the "Fund") at January 27, 1995
in conformity with generally accepted accounting principles. This financial
statement is the responsibility of the Fund's management; our responsibility is
to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.

Price Waterhouse LLP

Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 27, 1995