<PAGE> 1
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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. 2
POST-EFFECTIVE AMENDMENT NO. --
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 1
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
February 10, 1995.
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............... Financial Highlights
Item 4. General Description of Registrant............. Investment Objectives; Investment
Limitations; Investment Policies;
General Information
Item 5. Management of the Fund........................ Trustees and Officers; Management of
the Fund; The Vanguard Group
Item 6. Capital Stock and Other Securities............ Opening an Account and Purchasing
Shares; Selling Your Shares; The
Share Price of Each Portfolio;
Dividends, Capital Gains, and Taxes;
General Information
Item 7. Purchase of Securities Being Offered.......... Cover Page; Opening an Account and
Purchasing Shares
Item 8. Redemption or Repurchase...................... Selling Your Shares
Item 9. Pending Legal Proceedings..................... Not Applicable
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Cover Page
Item 12. General Information and History............... Investment Objectives and Policies;
General Information
Item 13. Investment Objective and Policies............. Investment Objectives and Policies;
Investment Limitations
Item 14. Management of the Fund........................ Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund; General
Information
Item 16. Investment Advisory and Other Services........ Management of the Fund
Item 17. Brokerage Allocation.......................... Not Applicable
Item 18. Capital Stock and Other Securities............ General Information; Financial
Statements
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption of
Shares
Item 20. Tax Status.................................... Appendix
Item 21. Underwriters.................................. Not Applicable
Item 22. Calculations of Yield Quotations of Money
Market Fund................................... Not Applicable
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE> 3
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 NOT 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 JANUARY 24, 1995
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[LOGO]
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PROSPECTUS -- FEBRUARY 10, 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 two
distinct Portfolios.
The CAPITAL GROWTH PORTFOLIO seeks to provide maximum
long-term total return by investing primarily in equity
securities of medium to small capitalization companies.
The GLOBAL EQUITY PORTFOLIO seeks to provide long-term
total return by investing primarily in stocks of U.S. and
foreign-based companies that exhibit good prospects for
growth. The Portfolios are geared towards investors with a
long-term investment horizon. Dividend income is expected
to be incidental to the objective of long-term total
return. There is no assurance that the Portfolios will
achieve their stated objectives. 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 or $500 for Uniform
Gifts/Transfers to Minors Act accounts. The Fund is
offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees). However, the Fund incurs
expenses for investment advisory, management,
administrative and distribution services.
IMPORTANT NOTE:
1% REDEMPTION FEE
If shares of the Capital Growth and Global Equity
Portfolios are redeemed or exchanged prior to being held
for five years, they will be subject to a 1% redemption
fee. See "Fund Expenses."
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ABOUT THIS
PROSPECTUS This prospectus is designed to set forth concisely the
information you should know about the Fund before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Fund has been filed with
the U.S. Securities and Exchange Commission. This
statement is dated February 10, 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 Implementation of SHAREHOLDER GUIDE
Fund Expenses .................... 4 Policies ........................ 10 Opening an Account and
Yield and Total Return ........... 5 Investment Limitations ............ 12 Purchasing Shares ............... 19
FUND INFORMATION Management of the Fund ............ 12 When Your Account Will Be
Investment Objectives ............ 5 Investment Adviser ................ 13 Credited ........................ 22
Investment Policies .............. 6 Dividends, Capital Gains and Selling Your Shares ............... 22
Investment Risk .................. 7 Taxes ........................... 15 Exchanging Your Shares ............ 24
Who Should Invest ................ 9 The Share Price of each Important Information About
Portfolio ....................... 17 Telephone Transactions .......... 26
General Information ............... 18 Transferring Registration ......... 26
Other Vanguard Services ........... 26
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE> 4
HIGHLIGHTS
OBJECTIVES AND
POLICIES
The Fund is an open-end diversified investment company
designed for long-term investors seeking to maximize
capital appreciation commensurate with a relatively high
level of risk. Shares of the Fund are offered on a
no-load basis, although the Fund incurs certain
distribution expenses. The Fund consists of two distinct
Portfolios.
The CAPITAL GROWTH PORTFOLIO seeks to provide long-term
total return by investing primarily in stocks of
companies with medium to small capitalization.
The GLOBAL EQUITY PORTFOLIO seeks to provide long-term
total return by investing primarily in stocks of companies
located around the globe that exhibit good prospects for
growth. PAGE 5
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RISK
CHARACTERISTICS The CAPITAL GROWTH and GLOBAL EQUITY PORTFOLIOS invest in
common stocks and have exposure to stock market risk.
STOCK MARKET RISK is the possibility that stock prices in
general will decline over short or extended periods. The
Global Equity Portfolio also invests in stocks of
foreign-based companies, and has exposure to foreign stock
market risk and currency risk. FOREIGN SECURITIES' RISK is
influenced by differences in accounting and auditing
practices, in addition to the lower liquidity of foreign
stock markets. The Capital Growth Portfolio may invest a
significant portion of its assets in small capitalization
stocks, which may exhibit greater market volatility in the
short-term than larger capitalization stocks. Both
Portfolios are actively managed, and exposed to manager
risk. MANAGER RISK refers to the possibility that a
portfolio's investment adviser may fail to execute its
investment strategy effectively. PAGE 7
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THE VANGUARD
GROUP The Fund is a member of The Vanguard Group of Investment
Companies, a group of more than 30 investment companies
with more than 80 distinct investment portfolios and total
assets in excess of $130 billion. The Vanguard Group, Inc.
("Vanguard"), a subsidiary jointly owned by The Vanguard
Funds, provides all corporate, management, administrative,
distribution and shareholder accounting services on an
at-cost basis to the Funds in the Group. PAGE 12
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INVESTMENT
ADVISERS The CAPITAL GROWTH PORTFOLIO receives investment advisory
services from Vanguard's Core Management Group. These
advisory services are provided to the Portfolio on an
at-cost basis. As a result, the Portfolio advisory costs
are substantially lower than the fees that would be
charged by an external adviser.
The GLOBAL EQUITY PORTFOLIO receives investment advisory
services from Baring Asset Management Limited. See
"Investment Advisers" for more information. Baring Asset
Management discharges its responsibilities subject to the
control of the Officers and Directors of the
Fund. PAGE 13
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2
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DIVIDENDS, CAPITAL
GAINS AND TAXES Income is expected to be incidental to the objective of
each Portfolio. However, the Fund will distribute any
investment income in the form of dividends. The CAPITAL
GROWTH and GLOBAL EQUITY PORTFOLIOS will distribute net
dividends and capital gains, if any, annually. A sale of
shares of a Portfolio is a taxable event and may result in
a capital gain or loss. Dividend distributions, capital
gains distributions, and capital gains or losses from
redemptions and exchanges may be subject to federal, state
and local taxes. PAGE 15
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PURCHASING
SHARES You may purchase shares by mail, wire or exchange from
another Vanguard Fund. The minimum initial investment is
$3,000; the minimum for subsequent investments is $100.
There are no sales commissions or 12b-1 fees. Telephone
exchanges from some Vanguard Funds are permitted. PAGE 20
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SELLING SHARES You may redeem shares of each Portfolio in writing or by
telephone. The Capital Growth and Global Equity Portfolios
assess a 1% redemption fee on shares held less than 5
years. The price of each portfolio is expected to
fluctuate, and may at redemption be more or less than at
the time of initial purchase, resulting in a gain or
loss. PAGE 22
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EXCHANGING
SHARES You may exchange a Portfolio's shares for those of the
other Portfolio of the Fund or other Vanguard Funds. An
exchange from the Capital Growth and Global Equity
Portfolios will be subject to a 1% redemption fee on
shares held for less than 5 years. PAGE 24
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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; and Dividend
Express for automatic transfer of dividends and/or capital
gains to a bank account. PAGE 27
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SPECIAL
CONSIDERATIONS (1) Each Portfolio may invest a portion of its assets in
futures contracts, options, convertible securities and
swap agreements. PAGE 10
(2) Each Portfolio may invest in short-term fixed income
securities. PAGE 10
(3)Each Portfolio may lend its securities. PAGE 11
(4) Each Portfolio may borrow money. PAGE 12
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3
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FUND
EXPENSES The following table illustrates all expenses and fees you
would incur as a shareholder of the Capital Growth and
Global Equity Portfolios. The expenses and fees set forth
below are estimates for the Portfolios' first full year of
operations, since the Fund had not commenced operations as
of the date of this Prospectus.
<TABLE>
<CAPTION>
SHAREHOLDER CAPITAL GLOBAL
TRANSACTION GROWTH EQUITY
EXPENSES PORTFOLIO PORTFOLIO
------------------------------------------------------------ -------- --------
<S> <C> <C>
Sales Load Imposed on Purchases............................. None None
Sales Load Imposed on Reinvested Dividends.................. None None
Redemption Fees:
shares held less than 5 years............................. 1% 1%
shares held 5 years or more............................... None None
Exchange Fees............................................... None* None*
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PORTFOLIO CAPITAL GLOBAL
OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) GROWTH EQUITY
------------------------------------------------------------ PORTFOLIO PORTFOLIO
-------- --------
<S> <C> <C>
Management & Administrative Expenses........................ 0.30% 0.30%
Investment Advisory Fees.................................... 0.02 0.35
12b-1 Fees.................................................. None None
Other Expenses
Distribution Costs........................................ 0.02% 0.02%
Miscellaneous Expenses.................................... 0.06 0.12
Total Other Expenses........................................ 0.08 0.14
-------- --------
TOTAL
OPERATING
EXPENSES................................................ 0.40% 0.79%
-------- --------
-------- --------
</TABLE>
* An exchange of shares held less than five years is
subject to a 1% redemption fee.
The purpose of this table is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in the
Capital Growth and Global Equity Portfolios.
1% REDEMPTION FEE The Capital Growth and Global Equity Portfolios are
intended for long-term investors who can withstand
substantial price fluctuation. For this reason, the
Portfolios will assess a 1% redemption fee on shares that
are redeemed or exchanged out before they have been held
for five years. Solely for purposes of calculating the
five-year holding period the Portfolios will use the
"first-in, first-out" (FIFO) method. That is, the date of
the redemption or exchange will be compared to the
earliest purchase date. If this holding period is less
than five years, the fee will be assessed. The fee will be
prorated if a portion of the shares being redeemed or
exchanged has been held for more than five years. This fee
will not apply to dividend or capital gain reinvestment
and it is paid directly to the Portfolios. IN THE EVENT OF
AN EARLY REDEMPTION DUE TO A SHAREHOLDER'S DEATH, ALL
REDEMPTION FEES WILL BE WAIVED. IN ORDER TO SUBSTANTIATE
THE DEATH, A CERTIFIED COPY OF THE DEATH CERTIFICATE MUST
BE PROVIDED.
4
<PAGE> 7
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Growth Portfolio............................ $ 15 $24
Global Equity Portfolio............................. $ 18 $37
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
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YIELD AND
TOTAL RETURN From time to time the Portfolios may advertise their yield
and total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Portfolios refers to the average annual compounded rates
of return over one-, five-, and ten-year periods or for
the life of the Portfolios (as stated) that would equate
an initial amount invested at the beginning of a stated
period to the ending redeemable value of the investment,
assuming the reinvestment of all dividend and capital gain
distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of a Portfolio is calculated by dividing net
investment income per share earned during the 30-day
period by the net asset value per share on the last day of
the period. Net investment income 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 its books and records, and so the advertised
30-day yield may not fully reflect the income paid to your
own account or the yield reported in a Portfolio's report
to shareholders.
Also, the Portfolios may compare their performance to
that of various stock market indices, including, but not
limited to, the Standard & Poor's Composite Stock Price
Index.
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INVESTMENT
OBJECTIVES The Fund is an open-end diversified investment company.
While the two Portfolios of the Fund differ in strategy
and investment policy, they share a common objective: to
provide long-term total return for shareholders. The
Portfolios are geared towards investors who have a
long-term investment horizon. To that end, both Portfolios
will assume above-average risk in exchange for the
potential of above-average return, although there is no
assurance that either Portfolio will achieve above-average
returns.
Neither an investment in the Fund, nor its Portfolios
should be assumed to represent a total investment program.
Instead, investors are encouraged to consider
5
<PAGE> 8
a prudent allocation of their investments among other
asset classes, such as equities of established domestic
companies; bonds and cash reserves.
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INVESTMENT
POLICIES Both Portfolios invest primarily in common stocks that are
deemed to have attractive relative total return potential.
The Portfolios are managed without regard to tax
ramifications.
CAPITAL GROWTH
PORTFOLIO The Capital Growth Portfolio invests primarily in common
stocks that are considered undervalued by the investment
adviser. Vanguard's Core Management Group utilizes a
quantitative approach to identify, from a large universe
of companies, those common stocks with the best relative
total return potential. The Portfolio will generally be
diversified across a broad range of industries; however,
the investment adviser may either overweight or
underweight certain industries. The Portfolio will be
primarily invested in medium and small capitalization
stocks; however, the emphasis on these size
classifications may vary, depending on Core Management's
determination of their relative attractiveness. Large
capitalization stocks may also be included if they are
deemed to be relatively attractive. Similarly, both
"value" and "growth" stocks will usually be included in
the Portfolio; however, the percentages invested in either
may vary over time as their relative attractiveness
changes. Among the characteristics emphasized in stock
selection are (i) market liquidity; (ii) low volatility;
and (iii) financial strength relative to other stocks.
GLOBAL EQUITY
PORTFOLIO
The Global Equity Portfolio seeks to diversify its assets
among stocks traded in the U.S. and developed foreign
stock markets, as well as emerging stock markets. The
Portfolio will generally limit the emerging market
holdings to 25%. The Portfolio seeks to diversify among
foreign markets including Japan, the United Kingdom,
Germany, France, Switzerland, the Netherlands, Sweden,
Australia, and Hong Kong, as well as emerging markets,
such as Brazil, India, Indonesia, Korea, Mexico, the
Philippines and Thailand. Under normal market conditions,
the Portfolio will invest at least 65% of its assets in at
least three different countries. The Portfolio's adviser
determines country allocations for the Global Equity
Portfolio based on economic trends, valuation levels, and
earnings growth relative to other markets.
The Global Equity Portfolio stock selection is guided by
weighing the (i) growth, (ii) valuation, and (iii)
liquidity of equity securities of U.S. and foreign-based
companies. The Portfolio's adviser believes that both the
allocation of the Portfolio's assets across foreign stock
markets, and the selection of stocks are important in
managing a global equity portfolio.
Besides investing in equity securities, the Global Equity
Portfolio may also enter into forward foreign currency
exchange contracts in order to protect against
fluctuations in exchange rates. See "Implementation of
Policies" for a description of such contracts.
BOTH PORTFOLIOS Each Portfolio is expected to remain substantially fully
invested in equity securities. However, the proportion of
cash reserves held by a Portfolio may increase if the
adviser feels that a conservative investment posture is
warranted.
6
<PAGE> 9
Each Portfolio of the Fund is authorized to invest in
stock index futures, options and swap agreements to a
limited extent. Each Portfolio is permitted to hold equity
securities other than common stock, such as debentures or
preferred stock that is convertible into common stock. See
"Implementation of Policies" for a description of these
and other investment practices of the Fund.
The investment objectives and policies of the Fund are not
fundamental and so may be changed by the Board of
Directors without shareholder approval. However,
shareholders would be notified prior to a material change
in either.
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INVESTMENT RISKS As mutual funds investing primarily in common stocks, the
Portfolios are subject to market risk -- i.e., the
possibility that stock prices in general will decline over
short or even extended periods. Stock markets tend to be
cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
INVESTORS ARE EXPOSED
TO THE MARKET RISK
OF STOCKS
To illustrate the volatility of U.S. stock prices as an
indicator of the market risk for the Capital Growth
Portfolio, the following table sets forth the extremes for
the U.S. stock market returns as well as the average
return for the period from 1926 to 1993, as measured by
the Standard & Poor's 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +53.9 % +23.9% +20.1% +16.9%
Worst -43.4 -12.5 - 0.9 + 3.1
Average +12.3 +10.3 +10.6 +10.6
</TABLE>
As shown, stocks have provided annual total returns
(capital appreciation plus dividend income) averaging
+10.6% for all 10-year periods from 1926 to 1993. While
this average return can be used as a guide for setting
reasonable expectations for future stock market returns,
it may not be useful for forecasting future returns in any
particular period, as stock market returns are quite
volatile from year to year. The return in individual years
has varied from a low of -43.4% to a high of +53.9%,
reflecting the short-term volatility of stock prices. The
Capital Growth Portfolio may be expected to involve
greater market risk than the Standard & Poor's 500
Composite Stock Price Index, and should not be expected to
mirror the return provided by the index.
SMALL COMPANY STOCKS
MAY EXHIBIT GREATER
VOLATILITY
The Capital Growth Portfolio emphasizes stocks of
companies with medium and small market capitalization.
Many such stocks have historically been more volatile in
price than the stock market as a whole. Among the likely
reasons for the greater price volatility of small company
stocks are the less certain growth prospects of smaller
firms, a lower degree of liquidity in the markets for such
stocks, and the small to negligible dividends generally
paid by small companies. Besides exhibiting greater
volatility, small- and mid-cap stocks have at times
fluctuated in value independently of the broad stock
market.
Investors should therefore expect that small- and mid-cap
stocks (and hence the Portfolio's investments) may be more
volatile than the stocks of more established
7
<PAGE> 10
companies. Investors should expect the Portfolio's return
to be more volatile than that of equities as a group.
INTERNATIONAL MARKETS
ARE EXPECTED TO BE
MORE VOLATILE
International Markets may offer potential for
above-average growth. However, commensurate with that
opportunity for a greater return lies greater risk. Risk
factors unique to international investing are the
volatility of a country's financial markets, a country's
political and economic climate, and the value of its
currency.
Investments in foreign stock markets can be as volatile,
if not more volatile, than investments in U.S. markets.
However, a diversified portfolio of U.S. and foreign
stocks may have volatility similar to that of a
diversified U.S. stock portfolio.
To illustrate the volatility of global stock prices as an
indicator of the market risk for the Global Equity
Portfolio, the following table sets forth the extremes for
some world markets from 1970 to 1993, as measured by the
Morgan Stanley Capital International World Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL MORGAN STANLEY CAPITAL INTERNATIONAL
WORLD INDEX RETURNS (1970-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best 42.8% 27.9% 19.9% 13.3%
Worst -24.5% -1.3% 6.4% 10.9%
Average 13.0% 12.6% 13.9% 12.3%
</TABLE>
The chart shows average annual returns, without respect
to the effect of taxes. As shown, global stocks have
provided an average annual total return of 13.9% for 10
years. The returns in individual years has varied from a
low of -24.5% to a high of 42.8%, which reflects the
short-term volatility of stock prices. The figures on
total return and stock market volatility are provided
here only as a guide to potential market risk, and may
not be useful for forecasting future returns in any
particular period.
The Morgan Stanley Capital International (MSCI) World
Index primarily contains return figures for developed
countries; whereas, the Global Equity Portfolio may invest
25% of its holdings in emerging market securities.
Emerging market countries traditionally provide greater
returns, but with substantially greater volatility. The
Portfolio is likely to differ in terms of portfolio
composition from the MSCI World Index, and so the
performance of the Global Equity Portfolio should not be
expected to mirror the return provided by the index.
FOREIGN SECURITIES'
RISK For U.S. investors, the returns of foreign investments,
such as the non-domestic equity securities held by the
Global Equity Portfolio, are influenced by not only the
returns on foreign common stocks themselves, but also by
currency risk -- i.e., changes in the value of the
currencies in which the stocks are denominated. In a
period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for a
U.S. investor will be diminished. By contrast, in a period
when the U.S. dollar generally declines, the returns on
foreign stocks will be enhanced.
8
<PAGE> 11
Other risks and considerations of international investing
include the following: differences in accounting, auditing
and financial reporting standards; generally higher
commission rates on foreign portfolio transactions;
smaller trading volumes and generally lower liquidity of
foreign stock markets, which may result in greater price
volatility; foreign withholding taxes payable on the
Portfolio's foreign securities, which may reduce dividend
income payable to shareholders; the possibility of
expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations; difficulty in
obtaining a judgment from a foreign court; political
instability which could affect U.S. investment in foreign
countries; and potential restrictions on the flow of
international capital.
THE FUND IS ALSO
SUBJECT TO
MANAGER RISK The investment advisers manage their respective Portfolios
"actively" in an effort to provide long-term returns that
exceed those of comparable unmanaged indexes. However, the
Portfolios entail the risk that managers will underperform
such indexes. The adviser to the Capital Growth Portfolio
selects stocks primarily based on quantitative models. The
adviser for the Global Equity Portfolio selects stocks
based on economic, financial and market analysis and
investment judgment. Both Portfolios are exposed to
manager risk. MANAGER RISK refers to the possibility that
the Portfolio's investment adviser may fail to execute its
investment strategy effectively. As a result, the
Portfolio may fail to achieve its stated objective.
- --------------------------------------------------------------------------------
WHO SHOULD INVEST
LONG-TERM
INVESTORS SEEKING
MAXIMUM TOTAL RETURN The Portfolios are designed for investors who have a
long-term (five years or longer) investment horizon. The
CAPITAL GROWTH and GLOBAL EQUITY PORTFOLIOS are designed
for investors with the perspective, patience and financial
resources to assume above-average risk and volatility for
the potential of achieving above-average return. Investors
in the Portfolios should be able to tolerate sudden,
sometimes substantial fluctuations in the value of their
investments. Each Portfolio's share price is expected to
be volatile.
The GLOBAL EQUITY PORTFOLIO is designed for long-term
investors who seek an actively-managed approach to
investing in a diversified portfolio of common stock of
U.S. and foreign-based companies. Investors in the Global
Equity Portfolio should be cognizant of the unique risks
of international investing, including their exposure to
currency fluctuations.
Because of the risks associated with common stock
investments, the Capital Growth and Global Equity
Portfolios are intended to be long-term investment
vehicles and are not designed to provide investors with a
means of speculating on short-term market movements.
Investors who engage in excessive account activity
generate additional costs which are borne by all of the
Fund's shareholders. In order to minimize such costs, the
Fund has adopted the following policies. The Fund reserves
the right to reject any purchase request (including
exchange purchases from other Vanguard portfolios) that is
reasonably deemed to be disruptive to efficient portfolio
management, either because of the timing of the investment
or previous excessive trading by the investor.
Additionally, the Fund has adopted exchange privilege
limitations as described in the section entitled "Exchange
9
<PAGE> 12
Privilege Limitations." Finally, the Fund reserves the
right to suspend the offering of its shares.
No assurance can be given that the Portfolios of the Fund
will attain their objectives or that shareholders will be
protected from the risk of loss that is inherent in equity
investing. Investors may wish to reduce the potential risk
of investing in the Portfolios by purchasing shares on a
periodic basis (dollar-cost averaging) rather than making
an investment in one lump sum.
The Fund is not intended as a complete investment program.
Most investors should maintain diversified holdings of
securities with different risk characteristics --
including common stocks, bonds and money market
instruments. Investors may also wish to complement an
investment in the Fund with other types of common stock
investments.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES
BOTH PORTFOLIOS MAY
INVEST IN SHORT-TERM
FIXED-INCOME
SECURITIES
Each Portfolio will generally remain fully invested in
common stock. The Portfolios of the Fund may invest
temporarily in certain short-term fixed income securities
for defensive purposes. Such securities may be used to
invest uncommitted cash balances or to maintain liquidity
to meet shareholder redemptions. 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.
BOTH PORTFOLIOS MAY
USE FUTURES CONTRACTS,
OPTIONS AND WARRANTS,
CONVERTIBLE SECURITIES
AND SWAP AGREEMENTS Each Portfolio of the Fund may utilize stock futures
contracts, options, including puts and calls, warrants,
convertible securities and swap agreements to a limited
extent. Each Portfolio may use over-the-counter options
when exchange traded options do not exist. Specifically,
each Portfolio may enter into futures contracts and
options provided that not more than 5% of their assets are
required as a margin deposit for futures contracts or
options, and provided that not more than 20% of a
Portfolio's assets are invested in futures and options at
any time. Additionally, both Portfolios' investments in
warrants will not exceed more than 15% of their assets.
Futures contracts, options, warrants, convertible
securities and swap agreements may be used for several
reasons: to simulate full investment while retaining a
cash balance for fund management purposes, to facilitate
the portfolio management process, or to reduce transaction
costs. While each of these instruments can be used as
leveraged investments, the Portfolios will not use them to
leverage their net assets.
FUTURES CONTRACTS,
OPTIONS, WARRANTS,
CONVERTIBLE SECURITIES
AND SWAP AGREEMENTS
POSE CERTAIN RISKS The risk of loss associated with futures contracts in some
strategies can be substantial due both to the low margin
deposits required and the extremely high degree of
leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may
result in an immediate and substantial loss or gain.
However, the Portfolios will not use futures contracts,
options, warrants, convertible securities and swap
agreements for speculative purposes or to leverage their
net assets. Accordingly the primary risks associated with
the use of futures contracts, options, including puts and
calls, warrants, convertible securities and swap
agreements by the Portfolio are: (i) imperfect correlation
between the change
10
<PAGE> 13
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 entering into such transactions on an
exchange with an active and liquid secondary market.
However, options, warrants, convertible securities and
swap agreements purchased or sold over-the-counter may be
less liquid than exchange traded securities. Illiquid
securities, in general, may not represent more than 15% of
the net assets of a Portfolio of the Fund.
Swap agreements are contracts between parties in which one
party agrees to make payments to the other party based on
the change in market value of a specified index or asset.
In return, the other party agrees to make payments to the
first party based on the return of a different specified
index or asset. Although swap agreements entail the risk
that a party will default on its payment obligations the
Portfolios will minimize this risk by entering into
agreements that mark to market no less frequently than
quarterly. Swap agreements also bear the risk that the
Portfolios will not be able to meet their obligations to
the counterparty. This risk will be mitigated by having
the Portfolios invest in the specific asset for which they
are obligated to pay a return. Swap agreements are
considered illiquid, and are therefore subject to the 15%
limitation on illiquid securities described in the
Statement of Additional Information.
BOTH PORTFOLIOS MAY
LEND THEIR SECURITIES
Both Portfolios of the Fund may lend their investment
securities to qualified institutional investors for either
short-term or long-term periods for the purpose of
realizing additional income. Loans or securities by a
Portfolio will be collateralized by cash, letters of
credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at
least 100% of the current market value of the loaned
securities, and such loans may not exceed 33 1/3% of the
value of the Portfolio's net assets.
BOTH PORTFOLIOS MAY
OWN RESTRICTED
SECURITIES
Both Portfolios of the Fund may own restricted securities
to a limited extent. Restricted securities are securities
which are subject to restrictions upon sale under the
Securities Act of 1933. Each Portfolio may invest up to
15% of its net assets in restricted securities. (Included
within this limit are restricted securities and, other
securities for which price quotations are not readily
available.)
THE GLOBAL EQUITY
PORTFOLIO MAY ENTER
INTO FORWARD CURRENCY
CONTRACTS The Global Equity Portfolio may enter into forward foreign
currency exchange contracts. Such contracts are used to
protect the Portfolio's securities against uncertainty in
the level of future foreign exchange rates.
A forward foreign currency exchange contract is an
obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a
price set at the time of the
11
<PAGE> 14
contract. The contracts may be bought or sold to protect
the Portfolio to a limited extent, against adverse changes
in exchange rates between foreign currencies and the U.S.
dollar. Such contracts, which protect the value of a
Portfolio's investment securities against a decline in the
value of a currency, do not eliminate fluctuations in the
underlying prices of the securities. They simply establish
an exchange rate at a future date. Also, although such
contracts tend to minimize the risk of loss due to a
decline in the value of a hedged currency, at the same
time they tend to limit any potential gain that might be
realized should the value of such currency increase.
PORTFOLIO TURNOVER Although both Portfolios seek to invest for the long term,
they retain the right to sell securities irrespective of
how long they have been held. The annual Portfolio
turnover of the CAPITAL GROWTH PORTFOLIO is anticipated to
be between 100% and 150%. The GLOBAL EQUITY PORTFOLIO'S
annual Portfolio turnover is expected to be between 50%
and 100%.
A turnover rate of 100% would occur, for example, if all
the securities of a Portfolio were replaced within one
year. Higher portfolio turnover rates generally result in
increased brokerage commissions and the realization of
higher capital gains, which may make these Portfolios
suitable for the tax-deferred portion of an investment
portfolio rather than the fully taxable portion. Both
Portfolios are managed without regard to tax
ramifications.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL
LIMITATIONS
Each Portfolio has adopted certain limitations designed to
reduce its exposure to specific situations. Some of these
limitations are that a Portfolio will not:
(a) with respect to 75% of the value of its total assets,
invest more than 5% of its assets in the securities of
any single issuer (other than obligations issued or
guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities);
(b) with respect to 75% of the value of its total assets,
purchase more than 10% of the voting securities of any
issuer;
(c) invest more than 25% of its assets in any one
industry; and
(d) borrow money except from banks for temporary or
emergency purposes, and in no event in excess of 15%
of the market value of its total assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information are fundamental, and may only be changed with
the approval of a majority of each Portfolio's
shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT
OF THE FUND
VANGUARD
ADMINISTERS
AND DISTRIBUTES
THE FUND The Fund is a member of The Vanguard Group of Investment
Companies, a family of more than 30 investment companies
with more than 80 distinct portfolios and total assets in
excess of $130 billion. Through their jointly-owned
subsidiary, The Vanguard Group, Inc. ("Vanguard"), the
Fund and the other funds in the Group obtain at cost
virtually all of their corporate management,
administrative and distribution services. Vanguard also
provides investment advisory services on an at-cost basis
to certain funds. As a result of Vanguard's unique
corporate structure,
12
<PAGE> 15
the Vanguard funds have costs substantially lower than
those of most competing mutual funds. In 1993, the average
expense ratio (annual costs including advisory fees
divided by total net assets) for the Vanguard funds
amounted to approximately .30% compared to an average of
1.02% for the mutual fund industry (data provided by
Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and chose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and provides the funds with
necessary office space, furnishings and equipment.
Each Fund pays its share of Vanguard's total expenses,
which are allocated among the funds under methods approved
by the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing and custodial fees.
Vanguard provides distribution and marketing services to
the funds. The funds are available on a no-load basis,
(i.e., there are no sales commissions or 12b-1 fees).
However, each fund bears its allocated share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISERS
VANGUARD SERVES AS
ADVISER TO THE CAPITAL
GROWTH PORTFOLIO The CAPITAL GROWTH PORTFOLIO receives investment advisory
services from VANGUARD'S CORE MANAGEMENT GROUP. The Core
Management Group also provides investment advisory
services to several other Vanguard Funds, including
Vanguard Index Trust, Vanguard International Equity 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 $18.3 billion as of September 30, 1994. The Core
Management Group is supervised by the Officers of the
Fund. George U. Sauter, Vice President of the Core
Management Group 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:
13
<PAGE> 16
the price of the security; the rate of the commission; the
size and difficulty of the order; the reliability,
integrity, financial condition, general execution, and
operational capabilities of competing brokers-dealers; and
the brokerage and research services provided to the
Portfolio. In those instances where it is reasonably
determined that more than one broker can offer the
services needed to obtain the best available price and
most favorable execution, consideration may be given to
those brokers which supply statistical information and
provide other services in addition to execution services
to the Portfolio.
BARING ASSET
MANAGEMENT SERVE AS
ADVISER TO THE GLOBAL
EQUITY PORTFOLIO The GLOBAL EQUITY PORTFOLIO is managed by BARING ASSET
MANAGEMENT LIMITED, 155 Bishopsgate, London. Baring Asset
Management was founded in 1762 and provides asset
management services to companies, institutions, and
individuals. As of September 30, 1994, Baring Asset
Management has more than $44 billion in assets under
management, and more than 100 investment professionals in
offices throughout the world.
The investment philosophy at Baring Asset Management is
that investing in growing economies and growing companies
at the right valuation leads to superior long-term
results. Baring Asset Management utilizes a regional
strategic team approach to portfolio management, where
each team consists of experienced members, who are
specialists, that conduct the necessary research for the
team. Philip Bullen, Director, has been designated as
portfolio manager for the assets of the Global Equity
Portfolio. He has 17 years of investment experience and
specializes in asset and country allocation. Mr. Bullen
joined Baring in 1977 as a U.S. Specialist. In July 1994,
he moved to Boston, further strengthening Baring's team
committed to North American clients. He received his MBA
from the City University Business School and holds a CFA
designation.
The Global Equity Portfolio pays Baring Asset Management
a basic fee at the end of each fiscal quarter, calculated
by applying a quarterly rate, based on the following
annual percentage rates, to the average month-end assets
of the Portfolio for the quarter:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL
--------------------- RATE
------
<S> <C>
First $100 million 0.35%
Next $150 million 0.30%
Next $250 million 0.25%
Over $500 million 0.20%
</TABLE>
The basic advisory fee may be increased or decreased by
applying an adjustment formula based on the investment
performance of the Portfolio relative to the Morgan
Stanley Capital International (MSCI) All Country Index.
The following table
14
<PAGE> 17
sets forth the incentive/penalty adjustment to the basic
advisory fee payable by the Portfolio to Baring Asset
Management under the investment advisory agreement:
<TABLE>
<CAPTION>
CUMULATIVE THREE YEAR PERFORMANCE INCENTIVE/
DIFFERENTIAL VS. THE MSCI PENALTY FEE ADJUSTMENT
ALL COUNTRY INDEX ----------------------
-------------------------------------------------
<S> <C>
Less than 3% 0.50 X Basic Fee
Between 3% and 6% 0.75 X Basic Fee
Between 6% and 9% Basic Fee
Between 9% and 12% 1.25 X Basic Fee
More than 12% 1.50 X Basic Fee
</TABLE>
Under rules of the Securities and Exchange Commission, the
incentive/penalty fee adjustment will not be fully
operable until the quarter ending March 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 Baring Asset
Management and the applicable transition rules is
contained in the Statement of Additional Information.
Prior to December 31, 1995, the incentive/penalty fee will
not be in effect. Thereafter, the number of percentage
points by which the Portfolio's performance record from
January 1, 1995 must exceed or fall below that of the
Index will begin at --% for the quarter ending March 31,
1996 and will increase by --% for each quarter until the
arrangement is fully phased in.
The Portfolio has authorized Baring Asset Management to
pay higher commissions in recognition of brokerage
services felt necessary for the achievement of better
execution, provided the investment adviser believes this
to be in the best interest of the Portfolio. Although the
Portfolio does not market its shares through intermediary
brokers or dealers, the Portfolio may place orders for the
Portfolio with qualified broker-dealers who recommend the
Portfolio to clients, if the Officers of the Fund believe
that the quality of the transaction and the commission are
comparable to what they would be with other qualified
brokerage firms.
The Fund's Board of Trustees may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days' prior written notice to
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 Fund is expected to pay dividends annually from
ordinary income. Net capital gains distributions, if any,
will be made annually. In addition, to satisfy certain
distribution requirements of the Tax Reform Act of 1986,
the Fund may declare special year-end dividend and capital
gains distributions during the month of
15
<PAGE> 18
December. Such distributions, if received by shareholders
by January 31, are deemed to have been paid by the Fund
and received by shareholders on December 31 of the prior
year.
Dividends and capital gains distributions may be
automatically reinvested or received in cash. See
"Choosing a Distribution Option" for a description of
these options.
The Fund intends to continue to qualify for taxation as a
"regulated investment company" under the Internal Revenue
Code so that it will not be subject to federal income tax
to the extent its income is distributed to shareholders.
Dividends paid by the Fund from net investment income,
whether received in cash or reinvested in additional
shares, will be taxable to shareholders as ordinary
income.
For corporate investors, dividends from net investment
income will generally qualify in part for the
intercorporate dividends-received deduction. However, the
portion of the dividends so qualified depends on the
aggregate taxable qualifying dividend income received by
the Fund from domestic (U.S.) sources.
Distributions paid by the Fund from long-term capital
gains, whether received in cash or reinvested in
additional shares, are taxable as long-term capital gains,
regardless of the length of time you have owned shares in
the Fund. Capital gains distributions are made when the
Fund realizes net capital gains on sales of portfolio
securities during the year. The Fund does not seek to
realize any particular amount of capital gains during a
year; rather, realized gains are a 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 EQUITY
PORTFOLIO MAY
"PASS THROUGH"
FOREIGN TAXES The Global Equity Portfolio may elect to "pass through"
to the Portfolio's shareholders the amount of foreign
income taxes paid by the Portfolio. The Portfolio will
make such an election only if it deems it to be in the
best interests of its shareholders.
If this election is made, shareholders of the Portfolio
will be required to include in their gross income their
pro rata share of foreign taxes paid by the Portfolio.
However, shareholders will be able to treat their pro rata
share of foreign taxes as either an itemized deduction or
a foreign tax credit against U.S. income taxes (but not
both) on their tax return.
16
<PAGE> 19
A CAPITAL GAIN OR
LOSS MAY BE REALIZED
UPON EXCHANGE OR
REDEMPTION A sale of shares of the Funds is a taxable event and may
result in a capital gain or loss. A capital gain or loss
may be realized from an ordinary redemption of shares or
an exchange of shares between two mutual funds (or two
portfolios of a mutual fund).
Dividend distributions, capital gains distributions, and
capital gains or losses from redemptions and exchanges may
be subject to state and local taxes.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with IRS
taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Account
Registration Form your proper Social Security or 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 asked price. Securities not listed on an
exchange are valued at the latest quoted bid price.
Temporary cash investments are valued at cost which
approximates market value. All prices of listed securities
are taken from the exchange where the security is
primarily traded. Securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such
securities. Securities for which market quotations are not
readily available or which are restricted as to sale and
other assets are valued by such methods as the Board of
Directors deems in good faith to reflect fair value.
All foreign securities are valued at the latest quoted
sales price available before the time when assets are
valued. Securities listed on a foreign exchange, as well
as American Depository Receipts ("ADRs"), which are traded
on U.S. exchanges are valued at the latest quoted sales
price available before the time when assets are valued.
Securities regularly traded in the over-the-counter market
for which market quotations are readily available will be
valued at the latest quoted bid price.
17
<PAGE> 20
For purposes of determining the Global Equity Portfolio's
net asset value per share, all assets and liabilities,
initially expressed in foreign currencies, will be
translated into U.S. dollars at the bid prices of such
currencies, against U.S. dollars invested by major banks
as of 4:00 p.m. Central Europe time. If such quotations
are not available as of the close of the Exchange, the
rate of exchange will be determined in accordance with
policies established in good faith by the Board of
Directors.
The Fund's price per share can be found daily in the
mutual fund section of most major newspapers under the
heading of The Vanguard Group.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION Vanguard Horizon Fund, Inc. is a Maryland Corporation.
The authorized capital stock of the Fund consists of
1,000,000,000 shares at the par value of $.001 each. The
Board of Directors has the power to designate one or more
classes ("Portfolios") of shares of common stock and to
classify or reclassify any unissued shares with respect to
such Portfolios. Currently the Fund is offering two
classes of shares.
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held to vote on
the removal of a Director or Directors of the Fund if
requested in writing by the holders of not less than 10%
of the Fund.
The shares of the Funds are fully paid and nonassessable;
have no preferences as to conversion, exchange, dividends,
retirement or other features; and have no preemptive
rights. Such shares have noncumulative voting rights,
meaning that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they so choose.
All securities and cash are held by -- . The Vanguard
Group, Inc., Valley Forge, PA, serves as the Fund's
Transfer and Dividend Disbursing Agent. Price Waterhouse
LLP serves as independent accountants for the Fund and
audits its financial statements annually. The Fund is not
involved in any litigation.
- --------------------------------------------------------------------------------
18
<PAGE> 21
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES You may open a regular (non-retirement) account, either by
mail or wire. Simply complete and return an Account
Registration Form and any required legal documentation,
indicating the amount you wish to invest. Your purchase
must be equal to or greater than the $3,000 minimum
initial investment requirement ($500 for Uniform
Gifts/Transfers to Minors Act accounts). You must open a
new Individual Retirement Account by mail (IRAs may not be
opened by wire) using a Vanguard IRA Adoption Agreement.
Your purchase must be equal to or greater than the $500
minimum initial investment requirement, but no more than
$2,000 if you are making a regular IRA contribution.
Rollover contributions are generally limited to the amount
withdrawn within the past 60 days from an IRA or other
qualified Retirement Plan. If you need assistance with the
forms or have any questions about this Fund, please call
our Investor Information Department at 1-800-662-7447.
NOTE: For other types of account registrations (e.g.,
corporations, associations, other organizations, trusts or
powers of attorney), please call us to determine which
additional forms you may need.
Because of the risks associated with common stock
investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide
investors with a means of speculating on short-term stock
market movements. Consequently the Fund reserves the right
to reject any specific purchase (and exchange purchase)
request. The Fund also reserves the right to suspend the
offering of shares for a period of time.
The Portfolios' shares are purchased at the
next-determined net asset value after your investment has
been received. The Fund is offered on a no-load basis
(i.e., there are no sales commissions or 12b-1 fees).
IMPORTANT NOTE:
1% REDEMPTION FEE Potential investors should note that a 1% redemption fee
is charged for the Capital Growth and Global Equity
Portfolios. This fee, which is paid directly to the
Portfolios, applies to redemptions from and exchanges from
the Portfolios of shares held for less than 5 years. IN
THE EVENT OF AN EARLY REDEMPTION DUE TO A SHAREHOLDER'S
DEATH, ALL REDEMPTION FEES WILL BE WAIVED. IN ORDER TO
SUBSTANTIATE THE DEATH, A CERTIFIED COPY OF THE DEATH
CERTIFICATE MUST BE PROVIDED. Please see "Fund Expenses"
for more information.
ADDITIONAL
INVESTMENTS Subsequent investments to regular accounts may be made by
mail ($100 minimum), wire ($1,000 minimum), exchange from
another Vanguard Fund account, or Vanguard Fund Express.
Subsequent investments to Individual Retirement Accounts
may be made by mail ($100 minimum) or exchange from
another Vanguard Fund Account. In some instances,
contributions may be made by wire or Vanguard Fund
Express. Please call us for more information on these
topics.
- --------------------------------------------------------------------------------
19
<PAGE> 22
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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
Capital Growth Portfolio --
Global Equity Portfolio --
- --------------------------------------------------------------------------------
PURCHASING BY WIRE
Money should be
wired to:
BEFORE WIRING
Please contact
Client Services
(1-800-662-2739) CORESTATES BANK, N.A.
AB 031000011
CORESTATES NO. 01019897
ATTN. VANGUARD
VANGUARD HORIZON FUND
ACCOUNT NUMBER
ACCOUNT REGISTRATION
You should notify our Client Services Department of your
intended wire purchase, including the federal wire number
to be used, by 12:00 noon (Eastern Time).
To assure proper receipt, please be sure your bank
includes the 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
Department (1-800-662-2739) for assistance. The new
account will have the same registration as the existing
account.
- --------------------------------------------------------------------------------
20
<PAGE> 23
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 NAV of the shares -- you should be aware
of the tax implications that the timing of your purchase
may have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Fund's
annual dividend income and capital gains distributions
21
<PAGE> 24
normally occur in December. 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.
- --------------------------------------------------------------------------------
WHEN YOUR
ACCOUNT WILL
BE CREDITED Your Trade Date is the date on which your account is
credited. If your purchase is made by check, Federal Funds
wire, or exchange, and is received by the regular close of
the New York Stock Exchange (generally 4:00 p.m. Eastern
time), your trade date is the day of receipt. If your
purchase is received after the close of the Exchange, your
trade date is the next business day. Your shares are
purchased at the net asset value determined on your trade
date. Vanguard will not accept third-party checks to open
an account. Please be sure your purchase check is made
payable to the Vanguard Group.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, Vanguard will only accept
a foreign check which has been drawn in U.S. dollars and
has been issued by a foreign bank with a U.S.
correspondent bank. The name of the U.S. correspondent
bank must be printed on the face of the foreign check.
- --------------------------------------------------------------------------------
SELLING YOUR
SHARES You may withdraw any portion of the funds in your account
by redeeming shares at any time (see "Important Redemption
Information"). You may initiate a request by writing or by
telephoning. Your redemption proceeds are normally mailed
within two business days after the receipt of the request
in Good Order.
IMPORTANT NOTE: For investors in the Capital Growth and
Global Equity Portfolios, a redemption fee equalling 1% of
the value of the shares redeemed will be deducted from the
redemption proceeds if shares held for less than 5 years
are redeemed. This fee is paid directly to the Portfolio.
22
<PAGE> 25
SELLING BY MAIL
Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD HORIZON FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard Horizon Fund, 455
Devon Park Drive, Wayne, PA 19087.)
The redemption price of shares will be the Fund's net
asset value next determined after Vanguard has received
all required documents in Good Order.
- --------------------------------------------------------------------------------
DEFINITION OF
GOOD ORDER
GOOD ORDER means that the request includes the following:
1. The account number and Portfolio name.
2. The amount of the transaction (specified in dollars or
shares).
3. Signatures of all owners EXACTLY as they are registered
on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required in the case of estates, corporations, trusts,
and certain other accounts.
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 19 and 22
applies to redemption by Fund Express.
- --------------------------------------------------------------------------------
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 19 and 22
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.
23
<PAGE> 26
Redemption requests received by telephone after the close
of the Exchange are processed on the business day
following receipt and the proceeds are normally sent on
the second business day following receipt.
All unpaid dividend and capital gains distributions
credited to your account up to the date of redemption will
be included in the redemption check. Redemption proceeds
must be sent to you within seven days of receipt of your
request in Good Order.
If you experience difficulty in making a telephone
redemption during periods of drastic economic or market
changes, your redemption request may be made by regular or
express mail. It will be implemented at the net asset
value next determined after your request has been received
by Vanguard in Good Order. The Fund reserves the right to
revise or terminate the telephone redemption privilege at
any time.
The Fund may suspend the redemption right to postpone
payments at times when the New York Stock Exchange is
closed, or under any emergency circumstances as determined
by the United States Securities and Exchange Commission.
If the Board of Directors determines that it would be
detrimental to the best interests of the Fund's remaining
shareholders to make payment in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution
in kind of readily marketable securities.
- --------------------------------------------------------------------------------
VANGUARD'S AVERAGE
COST STATEMENT If you make a redemption from a qualifying account,
Vanguard will send you an Average Cost Statement which
provides you with the tax basis of the shares you
redeemed. Please see "Other Vanguard Services" for
additional information.
- --------------------------------------------------------------------------------
MINIMUM ACCOUNT
BALANCE REQUIREMENT Due to the relatively high cost of maintaining smaller
accounts, the Fund reserves the right to redeem shares in
any account that is below the minimum initial investment
amount of $3,000. In addition, if at any time the total
investment does not have a value of at least $1,000, you
may be notified that the value of your account is below
the Fund's minimum account balance requirement. You would
then be allowed 60 days to make an additional investment
before the account is liquidated. Proceeds would be
promptly paid to the shareholder. This minimum does not
apply to IRAs, other retirement accounts, and Uniform
Gifts/Transfers to Minors Act accounts.
- --------------------------------------------------------------------------------
EXCHANGING
YOUR SHARES Should your investment goals change, you may exchange your
shares of Vanguard Horizon Fund for those of other
available Vanguard Funds.
IMPORTANT NOTE: For investors in the Capital Growth and
Global Equity Portfolios, a redemption fee amounting to 1%
of the value of the shares exchanged will be deducted from
the exchange proceeds if shares held for less than 5 years
are exchanged. This fee is paid directly to the Portfolio.
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
24
<PAGE> 27
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.
- The shares to be exchanged must be on deposit and not
held in certificate form.
- The redemption fee described on pages 19 and 22 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
25
<PAGE> 28
Vanguard portfolios) that is reasonably deemed to be
disruptive to efficient portfolio management.
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION
ABOUT TELEPHONE
TRANSACTIONS The ability to initiate redemptions (except wire
redemptions) and exchanges by telephone is automatically
established on your account unless you request in writing
that telephone transactions on your account not be
permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions,
Vanguard adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio;
(ii) the 10-digit account number; (iii) the exact name
and address used in the registration; and (iv) the
Social Security or Employer Identification number
listed on the account.
2. PAYMENT POLICY. The proceeds of any telephone
redemption made by mail will be payable to the
registered shareowner and mailed to the address of
record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by
telephone, provided that reasonable security procedures
have been followed. Vanguard believes that the security
procedures described above are reasonable and that if such
procedures are followed, you will bear the risk of any
losses resulting from unauthorized or fraudulent telephone
transactions on your account. If Vanguard fails to follow
reasonable security procedures, it may be liable for any
losses resulting from unauthorized or fraudulent telephone
transactions on your account.
- --------------------------------------------------------------------------------
TRANSFERRING
REGISTRATION You may transfer the registration of any of your Fund
shares to another person by completing a transfer form and
sending it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110,
VALLEY FORGE, PA 19482. The request must be in Good Order.
BEFORE MAILING YOUR REQUEST, PLEASE CALL OUR CLIENT
SERVICES DEPARTMENT (1-800-662-2739) FOR FURTHER
INSTRUCTIONS.
- --------------------------------------------------------------------------------
OTHER VANGUARD
SERVICES
STATEMENTS AND
REPORTS
For more information about any of these services, please
call our Investor Information Department at
(1-800-662-7447).
Vanguard will send you a confirmation statement each time
you initiate a transaction in your account (except for
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.
26
<PAGE> 29
Financial reports on the Fund will be mailed to you
semi-annually, according to the Fund's fiscal year-end.
- --------------------------------------------------------------------------------
VANGUARD DIRECT
DEPOSIT SERVICE
With Vanguard's Direct Deposit Service, most U.S.
Government checks (including Social Security and military
pension checks) and private payroll checks may be
automatically deposited into your Vanguard Fund account.
Separate brochures and forms are available for direct
deposit of U.S. Government and private payroll checks.
VANGUARD AUTOMATIC
EXCHANGE SERVICE Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan. 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 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) network. You may elect this
service on the Account Registration Form or call our
Investor Information Department (1-800-662-7447) for a
Vanguard Dividend Express application.
VANGUARD
TELE-ACCOUNT Vanguard's Tele-Account is a convenient, automated service
that provides share price, price change and yield
quotations on Vanguard Funds through any Touch ToneTM
telephone. This service also lets you obtain information
on your account balance, last transaction, and your 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).
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27
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[LOGO]
[LOGO]
[LOGO]
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---------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES P R O S P E C T U S
Vanguard Financial Center
P.O. Box 2600 FEBRUARY 10, 1995
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 [LOGO]
Valley Forge, PA 19482
</TABLE>
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