<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. 6
POST-EFFECTIVE AMENDMENT NO. --
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 6
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
May 15, 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
<S> <C> <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
<S> <C> <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
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 MARCH 21, 1995
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[LOGO]
A Member of the Vanguard Group
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PROSPECTUS -- MAY --, 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 offering four distinct
Portfolios.
The AGGRESSIVE GROWTH PORTFOLIO seeks to provide maximum
total return by investing in a broad range of U.S. equity
securities emphasizing medium to small capitalization
companies. The CAPITAL OPPORTUNITY PORTFOLIO seeks to
provide maximum long-term total return by investing
primarily in small and medium capitalization U.S. equity
securities, primarily emphasizing those companies with
rapid earnings growth prospects. The GLOBAL EQUITY
PORTFOLIO seeks to provide maximum long-term total return
by investing primarily in equity securities of U.S. and
foreign based companies that exhibit good prospects for
growth. The GLOBAL ASSET ALLOCATION PORTFOLIO seeks to
provide maximum long-term total return by investing in a
varying mix of both U.S. and foreign stocks and bonds, as
well as U.S. and foreign cash reserves. 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. 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 May --, 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>
<CAPTION>
Page Page Page
<S> <C> <C>
Highlights ........................ -- Implementation of SHAREHOLDER GUIDE
Fund Expenses ..................... -- Policies .......................... -- Opening an Account and
Yield and Total Investment Limitations ............ -- Purchasing Shares ............... --
Return .......................... -- Management of the Fund ............ -- When Your Account Will Be
FUND INFORMATION Investment Adviser ................ -- Credited ........................ --
Investment Objectives ............. -- Dividends, Capital Gains and Selling Your Shares ............... --
Investment Taxes ........................... -- Exchanging Your Shares ............ --
Policies .......................... -- The Share Price of each Important Information About
Investment Risk ................... -- Portfolio ......................... -- Telephone Transactions .......... --
Who Should Invest ................. -- General Information ............... -- Transferring
Registration ...................... --
Other Vanguard Services ........... --
</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
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 four distinct Portfolios.
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INTRODUCTION The Vanguard Horizon Fund is designed for investors with
long-range investment goals. The Fund offers a choice of
four different actively managed Portfolios each seeking
maximum long-term total return. The Portfolios' advisers
have been granted substantial investment flexibility to
invest within broad guidelines and each will take a
different approach to pursuing maximum long-term total
return. Investors in any of the Horizon Portfolios can
expect returns to be less predictable than returns from
Funds that parallel a particular index or are managed
within a narrow range 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.
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OBJECTIVES AND
POLICIES
The AGGRESSIVE GROWTH PORTFOLIO seeks to provide maximum
total return by investing in a broad range of U.S. equity
securities emphasizing medium to small capitalization
companies.
The CAPITAL OPPORTUNITY PORTFOLIO seeks to provide maximum
long-term total return by investing primarily in stocks of
U.S. companies emphasizing medium to small companies with
rapid earnings growth prospects.
The GLOBAL EQUITY PORTFOLIO seeks to provide maximum
long-term total return by investing primarily in equity
securities of U.S. and foreign based companies that
exhibit good prospects for growth.
The GLOBAL ASSET ALLOCATION PORTFOLIO seeks to provide
maximum long-term total return by investing in a varying
mix of U.S. and foreign stocks and bonds, as well as U.S.
and foreign cash reserves
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RISK
CHARACTERISTICS Each of the Portfolios will expose investors to
substantial risk in pursuit of maximum total return. The
following table depicts the principal risks inherent in
the Portfolios of the Fund:
<TABLE>
<CAPTION>
SECURITIES FOREIGN
PORTFOLIO MARKET RISK MARKET RISK MANAGER RISK
---------- ------------ ------------ ------------
<S> <C> <C> <C>
Capital Opportunity High Low High
Global Equity High High High
Aggressive Growth High Low High
Global Asset Allocation High High High
</TABLE>
2
<PAGE> 5
SECURITIES MARKET RISK: Common stock prices have
historically fluctuated substantially over short-term
periods. Bond prices also fluctuate in response to
interest rate change 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 particular, the value of
foreign investments is affected by fluctuations in the
value of foreign currency relative to the U.S. dollar.
MANAGER RISK: The manager, or adviser, of each Portfolio
is responsible for implementation of the Portfolio's
investment policies. Investors should be aware that the
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 may invest a portion of its assets in
futures contracts, options, convertible securities and
swap agreements. PAGE --
(2) Each Portfolio may invest in short-term fixed income
securities. PAGE --
(3) Each Portfolio may lend its securities. PAGE --
(4) Each Portfolio may borrow money. PAGE --
(5) The Aggressive Growth Portfolio may sell stocks short
and/or purchase index put options up to 25% of the
Portfolio's net assets. PAGE --
(6) The Global Asset Allocation Portfolio may invest in
index futures, instead of direct holdings of
securities, for up to 50% of the Portfolio's net
assets. The adviser will not use futures to leverage
the Portfolio's holdings, but only as a more efficient
means to implement their investment
decisions. PAGE --
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THE VANGUARD
GROUP The Fund is a member of The Vanguard Group of Investment
Companies, a group of more than 30 investment companies
with more than 80 distinct investment portfolios and total
assets in excess of $130 billion. The Vanguard Group, Inc.
("Vanguard"), a subsidiary jointly owned by The Vanguard
Funds, provides all corporate, management, administrative,
distribution and shareholder accounting services on an
at-cost basis to the Funds in the Group. PAGE --
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INVESTMENT
ADVISERS The AGGRESSIVE 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 remaining three Portfolios of the Fund receive
investment advisory services as follows:
<TABLE>
<CAPTION>
PORTFOLIO ADVISER
--------- --------
<S> <C>
GLOBAL EQUITY PORTFOLIO Baring Asset Management Limited
CAPITAL OPPORTUNITY PORTFOLIO Husic Capital Management
GLOBAL ASSET ALLOCATION PORTFOLIO Strategic Investment Management
</TABLE>
(Please see "Investment Advisers" for more information.)
3
<PAGE> 6
The advisers discharge their responsibilities subject to
the control of the Officers and Directors of the
Fund. PAGE --
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DIVIDENDS, CAPITAL
GAINS AND TAXES Income is expected to be modest with respect to objectives
of the CAPITAL OPPORTUNITY AND GLOBAL EQUITY PORTFOLIOS;
but 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 of the Fund will
distribute net dividends and capital gains, if any,
annually. A sale of shares of a Portfolio is a taxable
event and may result in a capital gain or loss. Dividend
distributions, capital gains distributions, and capital
gains or losses from redemptions and exchanges may be
subject to federal, state and local taxes. PAGE --
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PURCHASING
SHARES You may purchase shares by mail, wire or exchange from
another Vanguard Fund. The minimum initial investment is
$3,000 ($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. Telephone exchanges from
some Vanguard Funds are permitted. PAGE --
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SELLING SHARES You may redeem shares of each Portfolio in writing or by
telephone. The Portfolios assess a 1% redemption fee on
shares held less than 5 years. The price of each portfolio
is expected to fluctuate, and may at redemption be more or
less than at the time of initial purchase, resulting in a
gain or loss. PAGE --
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EXCHANGING
SHARES You may exchange a Portfolio's shares for those of the
other Portfolio of the Fund or other Vanguard Funds. An
exchange from the Portfolios is considered a redemption
and will be subject to a 1% redemption fee if the shares
were held for less than 5 years. PAGE --
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SERVICES TO
SHAREHOLDERS The Fund offers special services: Fund Express, for
electronic transfers between the Fund and your bank
account; Tele-Account, for 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
gain distributions to a bank account. PAGE --
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FUND
EXPENSES The following table illustrates all expenses and fees you
would incur as a shareholder of each of the Fund's
Portfolios. The expenses and fees set forth below
4
<PAGE> 7
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> CAPITAL GLOBAL
AGGRESSIVE OPPORTUNITY GLOBAL ASSET
SHAREHOLDER TRANSACTION GROWTH GROWTH EQUITY ALLOCATION
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.
** Exchange-Redemptions will be treated as redemptions for
purposes of imposing the redemption fees.
<TABLE>
<CAPTION>
ANNUAL PORTFOLIO CAPITAL GLOBAL
OPERATING EXPENSES (AS A AGGRESSIVE OPPORTUNITY GLOBAL ASSET
PERCENTAGE OF AVERAGE NET GROWTH GROWTH EQUITY ALLOCATION
ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Management & Administrative
Expenses..................... 0.30% -- 0.30%
Investment Advisory Fees....... 0.02 -- 0.35
12b-1 Fees..................... None None 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>
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
Portfolios of the Fund.
1% REDEMPTION FEE The Portfolios of the Fund 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 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.
5
<PAGE> 8
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.
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.
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>
Aggressive Growth................................... $ 15 $24
Capital Opportunity.................................
Global Equity Portfolio............................. $ 18 $37
Global Asset Allocation.............................
</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.
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 four Portfolios of the Fund differ in strategy
and investment policy, they share a common objective:
6
<PAGE> 9
to provide long-term total return for shareholders. The
Portfolios are geared towards investors who have a
long-term investment horizon. To that end, the Portfolios
will assume above-average risk in exchange for the
potential of above-average return, although there is no
assurance that any Portfolio will achieve above-average
returns. Income is expected to be modest to the objectives
of the CAPITAL OPPORTUNITY AND GLOBAL EQUITY PORTFOLIOS;
but it may be more significant from time to time for the
AGGRESSIVE GROWTH AND THE GLOBAL ASSET ALLOCATION
PORTFOLIOS.
Neither an investment in the Fund, nor its Portfolios
should be assumed to represent a total investment program.
Instead, investors are encouraged to consider a prudent
allocation of their investments among other asset classes,
such as equities of established domestic companies; bonds
and cash reserves.
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INVESTMENT
POLICIES The Portfolios of the Fund invest in securities that are
deemed by their advisers to have attractive total return
potential. The Capital Opportunity, Aggressive Growth, and
Global Equity Portfolios invest primarily in common stocks
while the Global Asset Allocation Portfolio invests in
common stocks, bonds, and both U.S. and foreign cash
reserves. The Portfolios of the Fund are managed without
regard to tax ramifications.
AGGRESSIVE GROWTH
PORTFOLIO The Aggressive Growth Portfolio invests primarily in
common stocks that are considered undervalued by the
investment adviser, under normal circumstances the
Portfolio will invest at least 65% of its assets in stocks
that are considered to have the potential for capital
appreciation. 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 (market capitalization of
approximately $2 billion to $14 billion) and small (market
capitalization of approximately $560 million to $2
billion) 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.
Small capitalization stocks may entail more short-term
risk and volatility than larger capitalization stocks.
Such companies may have limited product line, markets or
financial resources, and their securities may trade less
frequently and in more limited volume than the securities
of larger companies. In addition, available information
regarding these smaller companies may be less available
and when available, may be incomplete or inaccurate.
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. There is no assurance that the stocks
identified by Core Management's quantitative analysis will
provide a superior rate of total return relative to funds
that employ other methods of stock analysis.
7
<PAGE> 10
CAPITAL OPPORTUNITY
PORTFOLIO
The Capital Opportunity Portfolio invests primarily in
U.S. equity securities emphasizing those companies with
rapid earnings growth prospects. The Husic Management
Company applies a "classic" fundamental investment
strategy using security analysis to identify the stocks
deemed most attractive to the adviser. When selecting
stocks the investment adviser will (i) focus on early
recognition of change that leads to high expected earnings
growth; (ii) concentrate only in those sectors and
industries that 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.
Additionally, the Portfolio may hold up to 15% of its
assets in foreign securities. The Portfolio will be
expected to be concentrated in as few as 25 to 50 stocks.
In an attempt to reduce downside risk, Husic Management
Company may utilize the following hedging and defensive
techniques:
- selling short stocks considered to have fundamental
problems and purchasing index put options. Combined
exposure to short sales of stocks and purchases of index
put options will not exceed 25% of the Portfolio's net
assets;
- increasing cash reserves, under normal conditions, to
not more than 25% of Portfolio net assets.
(Please refer to the "INVESTMENT RISKS" and
"IMPLEMENTATION OF POLICIES" sections for a discussion of
these techniques.)
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, which 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'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.
8
<PAGE> 11
GLOBAL ASSET
ALLOCATION
PORTFOLIO
The adviser of the Global Asset Allocation Portfolio will
use a variety of quantitative investment models to
identify the country and asset classes deemed to be
attractive. The attractiveness of global markets will be
evaluated using a combination of valuation and liquidity
models. the adviser seeks investment classes and countries
with the highest expected return premium (e.g., stocks in
Japan versus bonds in France). The adviser may concentrate
the Portfolio's investment "bets" in only a few selected
countries and/or asset classes.
The Portfolio is expected to invest in stocks, bonds and
cash reserves selected from among the following major
markets: U.S., Japan, UK, Germany and France. The adviser
may expand the Portfolio's investment universe outside
these major markets at any time, and may include
investments in emerging markets. In implementing
investment decisions, the adviser will seek to outperform
a predetermined benchmark of global financial markets.
(Please refer to the next section for a description of
this benchmark.) The adviser will utilize an indexed
approach to common stock investing. 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 10 years. In addition to investing in U.S. and
foreign stocks and bonds, the Portfolio may also enter
into forward currency exchange contracts in order to
protect against fluctuations in exchange rates. (Please
see "IMPLEMENTATION OF POLICIES" for a description of such
contracts.)
THE GLOBAL ASSET
ALLOCATION PORTFOLIO
WILL BE MANAGED TO
PROVIDE RESULTS
SUPERIOR TO A
PREDETERMINED
BENCHMARK The Portfolio will seek to provide investment results
superior to a theoretical benchmark with the following
parameters:
60% global stock investments
30% global bond investments
10% U.S. cash reserves
The benchmark's global stock component is the Morgan
Stanley Capital International World Index. The index is
adjusted to reduce the exposure to foreign currency
fluctuations by hedging half of the foreign equity
exposure back into the U.S. dollar. The benchmark's global
bond component is the Salomon Global Hedged Government
Index, which is fully hedged back into the U.S. dollar.
The U.S. cash reserves component of the benchmark consists
of the three-month commercial paper return.
THE PORTFOLIO IS NOT AN "INDEX PORTFOLIO" AND WILL NOT BE
MANAGED TO TRACK THE RESULTS OF THIS BENCHMARK. INSTEAD,
THE INVESTMENT ADVISER WILL HAVE SUBSTANTIAL FLEXIBILITY
TO VARY THE PORTFOLIO'S ALLOCATION IN PURSUIT OF MAXIMUM
TOTAL RETURN.
THE FOUR PORTFOLIOS
The Portfolios of the Fund may invest temporarily in
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.
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
9
<PAGE> 12
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.
- --------------------------------------------------------------------------------
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 major portion of total
return is expected to be the result of capital
appreciation; therefore, the Portfolios are more suitable
for investors seeking capital appreciation than those
seeking dividend income. 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 GLOBAL EQUITY and GLOBAL ASSET ALLOCATION PORTFOLIOS
are designed for long-term investors who seek an
actively-managed approach to investing in a diversified
portfolio of U.S. and foreign-based securities. Investors
in these Portfolios 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, 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.
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.
- --------------------------------------------------------------------------------
10
<PAGE> 13
IMPLEMENTATION
OF POLICIES
ALL PORTFOLIOS 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.
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 the assets
of the Capital Opportunity, Aggressive Growth or Global
Equity Portfolios 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 ASSETS IN FUTURES AND
OPTIONS PROVIDED THAT NOT MORE THAN 5% OF THE PORTFOLIO'S
ASSETS IS REQUIRED FOR MARGIN REQUIREMENTS.
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.
THE CAPITAL
OPPORTUNITY PORTFOLIO
MAY SELL STOCKS SHORT
IN AN AMOUNT UP TO
25% OF NET ASSETS
The Capital Opportunity Portfolio may sell stocks short.
Short selling involves selling 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. To control the risk to the
Portfolio, short selling will be limited to no more than
25% of the Portfolio's net
11
<PAGE> 14
assets. (Please see "INVESTMENT RISKS" for an explanation
of the risks involved in selling stocks short.)
ALL PORTFOLIOS MAY
LEND THEIR SECURITIES
All 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.
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 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. Following is
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 75-100%
Global Equity Portfolio 50-100%
Global Asset Allocation 100-150%
</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
12
<PAGE> 15
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
RISKS
Each of the Portfolios expose investors to substantial
risk in pursuit of maximum total return. The following
table depicts the principal risks inherent in the
Portfolios of the Fund:
<TABLE>
<CAPTION>
SECURITIES FOREIGN MANAGER
PORTFOLIO MARKET RISK MARKET RISK RISK
------------------------------- ------------- ------------- ---------
<S> <C> <C> <C>
Aggressive Growth High Low High
Global Equity High High High
Capital Opportunity High Low High
Global Asset Allocation High High High
</TABLE>
- --------------------------------------------------------------------------------
SECURITIES MARKET
RISK
Securities market risk encompasses the risks to investors
due to a Portfolio's investment in the U.S. and foreign
securities markets. Common stock prices have historically
fluctuated substantially over short-term periods. Bond
prices have also exhibited significant volatility in
response to changes in interest rates with prices
declining as interest rates increase. The table below
identifies the specific securities market risks faced by
investors in each Portfolio:
<TABLE>
<CAPTION> GLOBAL
CAPITAL AGGRESSIVE GLOBAL ASSET
OPPORTUNITY GROWTH EQUITY ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- -------- ---------
<S> <C> <C> <C> <C>
SECURITIES MARKET RISK INCLUDE RISKS
ASSOCIATED WITH:
Investing in the U.S. stock market - - - -
Investing in small company stock - -
Holding a concentrated number of
stocks -
Selling stocks short -
Investing in world stock markets - -
Investing in world bond markets -
</TABLE>
- --------------------------------------------------------------------------------
INVESTORS IN EACH
PORTFOLIO 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 Aggressive 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 1994, as measured by
the Standard & Poor's 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1994)
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 +12.2 +10.2 +10.7 +10.7
</TABLE>
As shown, stocks have provided annual total returns
(capital appreciation plus dividend income) averaging
+10.7% for all 10-year periods from 1926 to 1994.
13
<PAGE> 16
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.
SMALL COMPANY STOCKS
MAY EXHIBIT
GREATER VOLATILITY
The Capital Opportunity and Aggressive Growth Portfolios
emphasize 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 companies.
The companies that issue such stocks may have limited
product lines, markets or financial resources, and such
stocks may trade less frequently than the securities of
larger companies. Additionally, information regarding
these companies may not be as readily available, complete
or accurate as information regarding larger companies.
Accordingly, investors should expect the Portfolio's
return to be more volatile than that of equities as a
group.
THE CAPITAL
OPPORTUNITY PORTFOLIO
WILL CONCENTRATE
ITS HOLDINGS IN AS FEW
AS 25-50 SECURITIES
The Capital Opportunity Portfolio will concentrate its
holdings in those industries and securities that, in the
adviser's opinion, offer the best prospects of high
returns. The Portfolio may hold from 25 to 50 securities
and may concentrate a large portion of the Portfolio's
holdings in a specific industry exposing the investor 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 CAPITAL
OPPORTUNITY PORTFOLIO
WILL EXPOSE INVESTORS TO
THE RISKS OF
SHORT SELLING
Additionally, the Capital Opportunity Portfolio exposes
investors to risks associated with the short selling of
stocks. Short selling involves selling 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,
the possible loss is limited to the amount for which the
security was purchased. In a short sale, the potential
loss is unlimited.
To control the risk to the Portfolio, short selling will
be limited to no more than 25% of the Portfolio's net
assets.
14
<PAGE> 17
THE GLOBAL EQUITY
AND GLOBAL ASSET
ALLOCATION PORTFOLIOS
EXPOSE INVESTORS TO
THE RISKS OF WORLD
STOCK MARKETS Securities in 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.
VOLATILITY OF FOREIGN
STOCK MARKET RETURNS To illustrate the volatility of foreign stock market
returns for the U.S. dollar-based investor, the following
table sets forth the extremes for world stock market
returns for the period of 1970 to 1994 as measured by the
Morgan Stanley Capital International (MSCI) World Index:
The following table serves to represent this volatility:
<TABLE>
<CAPTION>
AVERAGE ANNUAL MORGAN STANLEY CAPITAL INTERNATIONAL
WORLD INDEX RETURNS
OVER VARIOUS TIME HORIZONS (1970-1994)
1 YEAR 5 YEAR 10 YEAR 20 YEAR
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best 42.8% 28.0% 19.9% 14.8%
Worst -24.5% -1.3% 6.4% 10.9%
Average 12.7% 12.2% 14.0% 12.8%
</TABLE>
The above table shows average annual returns as an
indicator of the world market risk of the Global Equity
Portfolio. As shown, the MSCI World Stock Index has
provided an average annual total return for the period of
1970 to 1994 of 12.7%. The return in individual years have
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.
PORTFOLIO EXPOSES
INVESTORS TO THE
RISKS ASSOCIATED
WITH EMERGING
MARKET SECURITIES
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 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.
VOLATILITY OF THE
GLOBAL ASSET
ALLOCATION PORTFOLIO'S
BENCHMARK INDEX
15
<PAGE> 18
THE GLOBAL ASSET
ALLOCATION PORTFOLIO
EXPOSES INVESTORS TO
RISKS OF THE WORLD
BOND MARKETS Market risk for the Global Asset Allocation 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.
Bond market risk is the potential for fluctuations in the
market value of bonds. Bond prices vary inversely with
changes in the level of interest rates. When interest
rates rise, the prices of bonds fall; conversely when
interest rates fall, bond prices rise. While bonds
normally fluctuate less in price than stocks, there have
been extended periods of cyclical increases in interest
rates that have caused significant declines in bond
prices. For example, long-term U.S. bond prices fell 48%
from December 1976 to September 1981. The risk of bonds
declining in value, however, may be offset in whole or in
part by the higher level of income that bonds provide.
- --------------------------------------------------------------------------------
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 particular, the value of foreign
investments is effected by fluctuations in foreign
currency exchange. The table below identifies the specific
foreign market risks faced by investors in each Portfolio:
<TABLE>
<CAPTION>
CAPITAL AGGRESSIVE GLOBAL GLOBAL ASSET
OPPORTUNITY GROWTH EQUITY ALLOCATION
------------- ----------- ------- -------------
<S> <C> <C> <C> <C>
FOREIGN MARKET RISK INCLUDES
THE RISKS ASSOCIATED WITH:
Currency fluctuations - - -
Less liquid and/or
efficient securities
markets, less
regulation and
uncertain political
events - - -
</TABLE>
THREE PORTFOLIOS
EXPOSE INVESTORS
TO CURRENCY RISK For U.S. investors, the returns of foreign securities and
cash reserves, such as the non-domestic equity securities
held by the Global Equity and Global Asset Allocation
Portfolios and up to 15% of the Capital Opportunity
Portfolio, are influenced by not only the returns on
foreign securities themselves, but also by currency
risk -- i.e., changes in the value of the 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 on foreign securities will
be enhanced.
OTHER FOREIGN
MARKET RISKS
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
16
<PAGE> 19
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.
- --------------------------------------------------------------------------------
MANAGER RISK All four Portfolios expose investors to manager risk.
MANAGER RISK refers to the possibility that the
Portfolio's investment adviser may fail to execute its
investment strategy effectively. The investment advisers
manage their respective Portfolios "actively" and with
broad flexibility, in an effort to provide long-term
returns that exceed those of comparable unmanaged indexes.
As such, the Portfolios entail substantial manager risk.
The advisers of the AGGRESSIVE GROWTH AND GLOBAL ASSET
ALLOCATION PORTFOLIOS select stocks primarily based on
quantitative models. The advisers for the CAPITAL
OPPORTUNITY PORTFOLIO AND THE GLOBAL EQUITY PORTFOLIOS
select stocks based on economic, financial and market
analysis and investment judgment.
THERE IS NO ASSURANCE THAT THE PORTFOLIOS WILL ACHIEVE
THEIR STATED OBJECTIVES.
THE GLOBAL ASSET
ALLOCATION PORTFOLIO
EXPOSES INVESTORS TO
ADDITIONAL FACETS OF
MANAGER RISK Investors in the Global Asset Allocation Portfolio should
also be aware that the investment results of the Portfolio
depend upon the adviser's ability to anticipate correctly
the relative performance and risk of stocks, bonds and
cash reserves, as well as the relative performance among
the world markets represented in the Portfolio. Historical
evidence indicates that correctly timing portfolio
allocations in this way has been an extremely difficult
strategy to implement successfully. There can be no
assurance that the adviser will correctly anticipate
relative country and/or asset class performance on a
consistent basis.
THE GLOBAL ASSET
ALLOCATION PORTFOLIO
SHOULD NOT BE VIEWED
AS A COMPLETE
INVESTMENT PROGRAM While the Portfolio invests in stocks, bonds and money
market instruments in varying proportions, investors
should not construe the Portfolio as a balanced investment
program offering relatively stable allocations among these
asset classes and the countries in which the securities
are issued. Because the investment strategy of the adviser
may, at certain times, result in a portfolio with a
primary emphasis on common stocks, the Portfolio may from
time to time exhibit a level of volatility which is more
consistent with that of a common stock portfolio than that
of a balanced portfolio.
- --------------------------------------------------------------------------------
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
17
<PAGE> 20
(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.
- --------------------------------------------------------------------------------
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
18
<PAGE> 21
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: 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 13% of the Vanguard Morgan Growth
Fund. As of * Husic had over $15 billion in assets under
management.
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
applying a quarterly rate based on the following annual
percentage rates, to the average month-end net assets of
the Aggressive Growth Portfolio for the quarter:
<TABLE>
<CAPTION>
NET ASSETS RATE
--------------------- ----
<S> <C>
First $25 million .40%
Next $200 million .35%
Next $300 million .25
Next $400 million .20%
Over $1 billion .15%
</TABLE>
Effective with the quarter ending July 31, 1996, the basic
fee paid to Husic, as provided above, may be increased or
decreased by applying an incentive/penalty fee based on
the investment performance of the Capital Opportunity
Portfolio relative to the -- Stock Fund Index. Under the
incentive/penalty fee schedule, the basic fee payable
Husic may be increased or decreased by as much as 75% of
the basic fee depending on the investment performance of
the equity investment managed by Husic.
19
<PAGE> 22
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, 1996, 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.
BARING ASSET
MANAGEMENT SERVE AS
ADVISER TO THE GLOBAL
EQUITY PORTFOLIO The GLOBAL EQUITY PORTFOLIO is managed by BARING
INTERNATIONAL INVESTMENT LIMITED, a wholly-owned
subsidiary of 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 International
Investment is that investing in growing economies and
growing companies at the right valuation leads to superior
long-term results. Baring International Investment
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. He received his MBA from the City University
Business School and holds a CFA designation.
The Global Equity Portfolio pays Baring International
Investment a basic fee at the end of each fiscal quarter,
calculated by applying a quarterly rate, based on the
following annual percentage rates, to the average
month-end assets of the Portfolio for the quarter:
<TABLE>
<CAPTION> ANNUAL
NET ASSETS RATE
--------------------- ------
<S> <C>
First $100 million 0.35%
Next $150 million 0.30%
Next $250 million 0.25%
Over $500 million 0.20%
</TABLE>
The basic advisory fee may be increased or decreased by
applying an adjustment formula based on the investment
performance of the Portfolio relative to the Morgan
Stanley Capital International (MSCI) All Country Index.
The following table sets forth the incentive/penalty
adjustment to the basic advisory fee payable by the
Portfolio to Baring International Investment under the
investment advisory agree-
20
<PAGE> 23
ment. The adjustments to the fee change proportionately
with performance relative to the Index.
<TABLE>
<CAPTION>
CUMULATIVE THREE YEAR PERFORMANCE
DIFFERENTIAL VS. THE MSCI INCENTIVE/
ALL COUNTRY INDEX PENALTY FEE ADJUSTMENT
------------------------------------------------ ------------------------
<S> <C>
Less than 3% 0.50 X Basic Fee
Between 3% and 6% 0.75 to 1.00 X Basic Fee
Between 6% and 9% 1.00 to 1.25 X Basic Fee
Between 9% and 12% 1.25 to 1.50 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
International Investment 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 February 17, 1995 must exceed that
of the Index for Baring International Investment to
receive its full basic fee will begin at 2% for the
quarter ending March 31, 1996 and will increase by 0.5%
for each quarter until the arrangement is fully phased in.
The Portfolio has authorized Baring International
Investment 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.
STRATEGIC INVESTMENT
MANAGEMENT
SERVES AS ADVISER TO
THE GLOBAL ASSET
ALLOCATION PORTFOLIO
The GLOBAL ASSET ALLOCATION PORTFOLIO is managed by
STRATEGIC INVESTMENT MANAGEMENT, 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, Strategic Investment Management (and its
affiliated companies) had over $15 billion in assets under
management.
The Global Asset Allocation Portfolio will pay Strategic
Investment Management as follows:
The Portfolio will be measured against an index with the
following components:
Equity (60%): Capitalization-weighted composite of
MSCI Indexes for the United States, Japan, France,
Germany and the United Kingdom.
Bonds (30%): Market-weighted blend of the five
markets' portions of the Salomon Brothers World
Bond Index.
Cash (10%): SHORT-TERM, HIGH QUALITY U.S. DOLLAR
INDEX.
21
<PAGE> 24
The Portfolio pays Strategic Investment Management a basic
advisory fee calculated by applying varying percentage
rates to the average net assets of the Portfolio. The
maximum rate is 0.400 of 1% for the first $250 million of
net assets. This rate decreases to 0.350 of 1% on the next
$250 million, 0.250 of 1% on the next $500 million and
0.200 on assets in excess of $1 billion. This basic
advisory fee is increased or decreased by applying an
adjustment formula based on the investment performance of
the Portfolio relative to the investment record of a
composite index. The equity component of the index will be
a capitalization-weighted blend of the Morgan Stanley
Capital International Indexes for five markets (United
States, Japan, United Kingdom, France and Germany). The
Portfolio's bond performance will be a market-weighted
blend of the five markets' portion of the Salomon Brothers
World Bond Index. Cash returns will be measured against A
SHORT-TERM, HIGH-QUALITY U.S. DOLLAR INDEX. The formula is
as follows:
<TABLE>
<CAPTION>
ANNUAL NET PERFORMANCE
DIFFERENCE RELATIVE TOTAL FEE 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>
The Portfolio has authorized Strategic Investment
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 DIRECTORS
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.
- --------------------------------------------------------------------------------
22
<PAGE> 25
DIVIDENDS, CAPITAL
GAINS AND TAXES The Fund is expected to pay dividends annually from
ordinary income. Net capital gains distributions, if any,
will be made annually. In addition, to satisfy certain
distribution requirements of the Tax Reform Act of 1986,
the Fund may declare special year-end dividend and capital
gains distributions during the month of December. Such
distributions, if received by shareholders by January 31,
are deemed to have been paid by the Fund and received by
shareholders on December 31 of the prior year.
Dividends and capital gains distributions may be
automatically reinvested or received in cash. See
"Choosing a Distribution Option" for a description of
these options.
The Fund intends to 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.
23
<PAGE> 26
THE GLOBAL EQUITY
AND GLOBAL ASSET
ALLOCATION PORTFOLIOS
MAY "PASS THROUGH"
FOREIGN TAXES The Global Equity and Global Asset Allocation 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.
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 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
24
<PAGE> 27
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.
For purposes of determining the Global Equity Portfolio's
net asset value per share, all assets and liabilities,
initially expressed in foreign currencies, will be
translated into U.S. dollars at the bid prices of such
currencies, against U.S. dollars invested by major banks
as of 4:00 p.m. Central Europe time. If such quotations
are not available as of the close of the Exchange, the
rate of exchange will be determined in accordance with
policies established in good faith by the Board of
Directors.
The Fund's price per share can be found daily in the
mutual fund section of most major newspapers under the
heading of The Vanguard Group.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION Vanguard Horizon Fund, Inc. is a Maryland Corporation.
The authorized capital stock of the Fund consists of
1,000,000,000 shares at the par value of $.001 each. The
Board of Directors has the power to designate one or more
classes ("Portfolios") of shares of common stock and to
classify or reclassify any unissued shares with respect to
such Portfolios. Currently the Fund is offering four
classes of shares.
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held to vote on
the removal of a Director or Directors of the Fund if
requested in writing by the holders of not less than 10%
of the Fund.
The shares of the Funds are fully paid and nonassessable;
have no preferences as to conversion, exchange, dividends,
retirement or other features; and have no preemptive
rights. Such shares have noncumulative voting rights,
meaning that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they so choose.
All securities and cash are held for the Capital
Appreciation Portfolio by Morgan Guaranty Trust Company,
New York, N.Y. For the Global Equity Portfolio all
securities and cash are held by Morgan Stanley Trust
Company, New York, N.Y. 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.
- --------------------------------------------------------------------------------
25
<PAGE> 28
[This page intentionally left blank.]
<PAGE> 29
[This page intentionally left blank.]
<PAGE> 30
<TABLE>
<S> <C> <C>
[LOGO] [LOGO]
---------------------------
THE VANGUARD GROUP
OF INVESTMENT P R O S P E C T U S
COMPANIES
Vanguard Financial Center MAY --, 1995
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON-BOARD)
TELECOMMUNICATIONS SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482 [LOGO]
P069
</TABLE>
<PAGE> 31
PART B
VANGUARD HORIZON FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY --, 1995
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated May --, 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................................................................... 11
Purchase of Shares........................................................................ 11
Redemption of Shares...................................................................... 11
Comparative Indexes....................................................................... 12
</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> 32
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 150%. A
portfolio turnover rate of 100% would occur if all of the Portfolio's
securities, exclusive of U.S. Government securities and other securities whose
maturities at the time of acquisition are one year or less, are replaced in the
period of one year. Turnover rates may vary greatly from year to year as well as
within a particular year and may also be affected by cash requirements for
redemptions of each Portfolio's shares and by requirements which enable the Fund
to receive certain favorable tax treatments. The portfolio turnover rates will,
of course, depend in large part on the level of purchases and redemptions of
shares of each Portfolio. Higher portfolio turnover can result in corresponding
increases in brokerage costs to the Portfolios of the Fund and their
shareholders.
INVESTMENT POLICIES
FUTURES CONTRACTS 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> 33
underlying the futures contracts which they trade, and use futures contracts
with the expectation of realizing profits from fluctuations in the prices of
underlying securities.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bonafide hedging transactions. A Portfolio will
only sell futures contracts to protect securities it owns against price declines
or purchase contracts to protect against an increase in the price of securities
it intends to purchase. As evidence of this hedging interest, the Fund expects
that approximately 75% of its futures contract purchases will be "completed,"
that is, equivalent amounts of related securities will have been purchased or
are being purchased by a Portfolio upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Portfolio's exposure to market fluctuations, the use
of futures contracts may be a more effective means of hedging this exposure.
While a Portfolio will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS A Portfolio will not enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of its total assets. In addition, a Portfolio will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under these contracts would exceed 20% of its total assets.
RISK FACTORS IN FUTURES TRANSACTIONS Positions in futures contracts may be
closed out only on an Exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Portfolio would continue to be required to make daily cash payments
to maintain its required margin. In such situations, if the Portfolio has
insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Portfolio may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the ability to effectively hedge.
Each Portfolio will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Fund are engaged in only for hedging purposes, the Adviser
does not believe that the Portfolios are subject to the risks of loss frequently
associated with futures transactions. A Portfolio would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Utilization of futures transactions by a Portfolio does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that a Portfolio could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by a Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option. Additionally, investments in futures contracts and options
involve the risk that the investment advisers will incorrectly predict stock
market and interest rate trends.
3
<PAGE> 34
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS Except for transactions the
Fund has identified as hedging transactions, each Portfolio is required for
Federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. In most cases, any gain
or loss recognized with respect to a futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss, without
regard to the holding period of the contract. Furthermore, sales of futures
contracts which are intended to hedge against a change in the value of
securities held by a Portfolio may affect the holding period of such securities
and, consequently, the nature of the gain or loss on such securities upon
disposition.
In order for a Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or foreign currencies or other income derived with respect to the
Fund's business of investing in securities. In addition, gains realized on the
sale or other disposition of securities held for less than three months must be
limited to less than 30% of the Portfolio's annual gross income. It is
anticipated that any net gain realized from the closing out of futures contracts
will be considered gain from the sale of securities and therefore be qualifying
income for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the Portfolio may be
required to defer the closing out of futures contracts beyond the time when it
would otherwise be advantageous to do so. It is anticipated that unrealized
gains on futures contracts, which have been open for less than three months as
of the end of the Portfolio's fiscal year and which are recognized for tax
purposes, will not be considered gains on sales of securities held less than
three months for the purpose of the 30% test.
A Portfolio will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the Portfolio's other investments and shareholders will be advised on the nature
of the transactions.
REPURCHASE AGREEMENTS Each Portfolio may invest in repurchase agreements
with commercial banks, brokers or dealers either for defensive purposes due to
market conditions or to generate income from its excess cash balances. A
repurchase agreement is an agreement under which the Fund acquires a money
market instrument (generally a security issued by the U.S Government or an
agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an agreed
upon price and date (normally, the next business day). A repurchase agreement
may be considered a loan collateralized by securities. The resale price reflects
an agreed upon interest rate effective for the period the instrument is held by
the Portfolio and is unrelated to the interest rate on the underlying
instrument. In these transactions, the securities acquired by the Portfolio
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement and are held by the Fund's Custodian Bank
until repurchased. In addition, the Fund's Board of Directors will monitor each
Portfolio's repurchase agreement transactions generally and will establish
guidelines and standards for review by the investment adviser of the
creditworthiness of any bank, broker or dealer party to a repurchase agreement
with any Portfolio of the Fund. No more than an aggregate of 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.
4
<PAGE> 35
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Portfolio may incur a loss upon disposition of the security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Portfolio not within the
control of the Portfolio and therefore the realization by the Portfolio on such
collateral may be automatically stayed. Finally, it is possible that the
Portfolio may not be able to substantiate its interest in the underlying
security and may be deemed an unsecured creditor of the other party to the
agreement. While the Fund's management acknowledges these risks, it is expected
that they can be controlled through careful monitoring procedures.
LENDING OF SECURITIES Each Portfolio may lend its securities on a
short-term basis (less than nine months) to qualified institutional investors
who need to borrow securities in order to complete certain transactions, such as
covering short sales, avoiding failures to deliver securities or completing
arbitrage operations. By lending its securities, the Portfolio will be
attempting to increase its net investment income through the receipt of interest
on the loan. Any gain or loss in the market price of the securities loaned that
might occur during the term of the loan would be for the account of the
Portfolio. Each Portfolio may lend its portfolio securities to qualified
brokers, dealers, banks or other financial institutions, so long as the terms,
the structure and the aggregate amount of such loans are not inconsistent with
the Investment Company Act of 1940, or the Rules and Regulations or
interpretations of the Securities and Exchange Commission (the "Commission")
thereunder, which currently require that (a) the borrower pledge and maintain
with the Fund collateral consisting of cash, an irrevocable letter of credit or
securities issued or guaranteed by the United States Government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Portfolio at any time and (d) the
Portfolio receives reasonable interest on the loan which may include the
Portfolio's investing any cash collateral in interest bearing short-term
investments, any distribution on the loaned securities and any increase in their
market value. A Portfolio will not 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 total assets. Loan arrangements made by a Portfolio will comply with
all other applicable regulatory requirements, including the rules of the New
York Stock Exchange, which rules presently require the borrower, after notice,
to redeliver the securities within the normal settlement time of five business
days. All relevant facts and circumstances, including the credit-worthiness of
the broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Fund's Board of
Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors (Trustees). In addition, voting
rights may pass with the loaned securities, but if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
INVESTMENT LIMITATIONS
The following policies supplement the Fund's investment limitations set
forth in the Prospectus. It is a fundamental policy of each Portfolio not to
engage in any of the following activities or business practices. These
restrictions may not be changed with respect to a particular Portfolio without
the approval of a majority of the outstanding shares (as defined in the
Investment Company Act of 1940) of that Portfolio. A Portfolio may not:
1) Issue senior securities;
2) Borrow money, except from banks (or through reverse repurchase
agreements), for temporary or emergency (not leveraging) purposes,
including the meeting of redemption requests which might otherwise
require the untimely disposition of securities, in an amount not in
excess of 15% of the
5
<PAGE> 36
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;
3) With respect to 75% of the value of its total assets, purchase the
securities of any issuer (except obligations of the United States
government and its instrumentalities) if as a result the Portfolio
would hold more than 10% of the outstanding voting securities of the
issuer, or more than 5% of the value of the Portfolio's total assets
would be invested in the securities of such issuer;
4) Engage in the business of underwriting securities issued by others,
except to the extent that the Portfolio may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities;
5) Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are illiquid
(including the Fund's investment in The Vanguard Group, Inc., as
described on page 7);
6) Make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (5) above) which are either publicly distributed or
customarily purchased by institutional investors, and (ii) by lending
its securities to banks, brokers, dealers and other financial
institutions so long as such loans are not inconsistent with the
Investment Company Act or the Rules and Regulations or interpretations
of the Commission thereunder and the aggregate value of all securities
loaned does not exceed 33 1/3% of the market value of the Portfolio's
total assets;
7) Pledge, mortgage, or hypothecate its assets, except to secure
borrowings permitted by limitation (2) above;
8) Buy any securities or other property on margin (except for such
short-term credits as are necessary for the clearance of transactions),
or engage in short sales (unless by virtue of its ownership of other
securities it has a right to obtain at no added cost securities
equivalent in kind and amount to the securities sold) except as set
forth below in (12);
9) Purchase or sell puts or calls, or combinations thereof; provided
however, that a Portfolio may enter into forward foreign currency
exchange transactions except as set forth below in (12);
10) Purchase or sell real estate or real estate limited partnerships
(although it may purchase securities secured by real estate interests
or interests therein, or issued by companies or investment trusts which
invest in real estate or interests therein);
11) The Fund will not invest in securities of other investment companies,
except as may be acquired as a part of a merger, consolidation or
acquisition of assets approved by the Fund's shareholders or otherwise
to the extent permitted by Section 12 of the Investment Company Act of
1940. The Fund will invest only in investment companies which have
investment objectives and investment policies consistent with those of
the Fund;
12) Purchase or sell commodities or commodity contracts; provided, however,
that a Portfolio may enter into forward foreign currency exchange
transactions and that each Portfolio may invest in futures contracts
and options to the extent that not more than 5% of the Portfolio's
assets are required as deposit to secure obligations under futures
contracts, additionally each Portfolio will invest no more than 15% 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
6
<PAGE> 37
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").
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> 38
<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> 39
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 BARING INTERNATIONAL INVESTMENT
LIMITED. The Global Equity Portfolio is managed by Baring International
Investment Limited, a wholly-owned subsidiary of Baring Asset Management
Limited, 155 Bishopsgate, London. Baring Asset Management was founded in 1762
and provides asset management services to companies, institutions, and
individuals. As of September 30, 1994, Baring Asset Management has over $44
billion in assets under management, and over 100 investment professionals in
offices throughout the world.
The investment philosophy at Baring International Investment is that
investing in growing economies and growing companies at the right valuation
leads to superior long-term results. Baring International Investment utilizes a
regional strategic team approach to portfolio management, where each team
consists of experienced members, who are specialists, that conduct the necessary
research for the team. Philip Bullen, Director, has been designated as portfolio
manager for the assets of the Global Equity Portfolio. He has 17 years of
investment experience and specializes in asset and country allocation.
The Global Equity Portfolio pays Baring International Investment a basic
fee at the end of each fiscal quarter, calculated by applying a quarterly rate,
based on the following annual percentage rates, to the average month-end assets
of the Portfolio for the quarter:
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $100 million.............................................................. 0.35%
Next $150 million............................................................... 0.30%
Next $250 million............................................................... 0.25%
Over $500 million............................................................... 0.20%
</TABLE>
The basic advisory fee may be increased or decreased by applying an
adjustment formula based on the investment performance of the Portfolio relative
to the Morgan Stanley Capital International (MSCI) All Country Index. The
following table sets forth the incentive/penalty adjustment to the basic
advisory fee
9
<PAGE> 40
payable by the Portfolio to Baring International Investment under the investment
advisory agreement. The adjustments to the fee change proportionately with
performance relative to the Index.
<TABLE>
<CAPTION>
CUMULATIVE THREE YEAR PERFORMANCE
DIFFERENTIAL VS. THE MSCI ALL COUNTRY INDEX INCENTIVE/PENALTY FEE ADJUSTMENT
------------------------------------------- --------------------------------
<S> <C>
Less than 3%................................................. 0.50 X Basic Fee
Between 3% and 6%............................................ 0.75 to 1.00 X Basic Fee
Between 6% and 9%............................................ 1.00 to 1.25 X Basic Fee
Between 9% and 12%........................................... 1.25 to 1.50 X Basic Fee
More than 12%................................................ 1.50 X Basic Fee
</TABLE>
Under the rules of the Securities & Exchange Commission, the
incentive/penalty fee for Baring International Investment will not be fully
operable until the quarter ending March 31, 1998. Prior to that date the
incentive/penalty fee will be calculated according to the following transition
rules:
(a) Prior to March 31, 1996. For the quarters ending on or prior to
December 31, 1995, the incentive/penalty fee will not be operable. The
advisory fee payable by the Global Equity Portfolio shall be the basic
fee, calculated as set forth above.
(b) January 1, 1996 through December 31, 1997. Beginning with the quarter
ending March 31, 1996, and until the quarter ending December 31, 1997,
the incentive/penalty fee will be based on a comparison of the
investment performance of the Global Equity Portfolio and the MSCI All
Country Index over the number of months that have elapsed between
January 1, 1995 and the end of the quarter for which the fee is being
computed.
(c) On and After December 31, 1997. For the quarter ending December 31,
1997, and thereafter, the period used to calculate the
incentive/penalty fee shall be the 36 months preceding the end of the
quarter for which the fee is being computed and the number of
percentage points used shall be 3.
For the purpose of determining the incentive/penalty fee, the net assets of
the Global Equity Portfolio will be averaged over the same period as the
investment performance of the portfolio as well as the investment record of the
MSCI All Country Index.
The current agreement will continue until March 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, Baring International Investment may
continue to serve as investment adviser to each Portfolio which approved the
agreement, and to any Portfolio which did not approve the agreement until new
arrangements have been made. The agreement is automatically terminated if
assigned, and may be terminated by any Portfolio without penalty, at any time,
(1) either by vote of the Board of Directors or by vote of the outstanding
voting securities of the Portfolio on sixty (60) days' written notice to Baring
International Investment, or (2) by Baring International Investment upon ninety
(90) days' written notice to the Fund.
DESCRIPTION OF BARING INTERNATIONAL INVESTMENT
SECURITIES TRANSACTIONS
The investment advisory agreement with Baring International Investment
Limited authorizes the investment adviser (with the approval of the Fund's Board
of Directors) to select the brokers or dealers that will execute the purchases
and sales of securities for the Fund's Portfolio(s) and directs the investment
adviser to use its best efforts to obtain the best available price and most
favorable execution with respect to all transactions for the Portfolio(s). Each
investment adviser has undertaken to execute each investment transaction at a
price and commission which provides the most favorable total cost or proceeds
reasonably obtainable under the circumstances.
10
<PAGE> 41
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 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
11
<PAGE> 42
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.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 67 bonds and 33
preferreds. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
LEHMAN CORPORATE (BAA) BOND INDEX -- all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
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.
12
<PAGE> 43
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 35% Standard & Poor's 500 Index and 65% Salomon Brothers High
Grade Bond Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Salomon Brothers High
Grade Bond Index.
RUSSELL 2000 SMALL COMPANY STOCK INDEX -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely-used benchmark for small capitalization common
stocks.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB- or better. The Index has a market value of over
$4 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.3 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX -- is
a market weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $600 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a market
weighted index that contains individually priced U.S. Treasury, agency, and
corporate securities rated BBB- or better with maturities greater than 10 years.
The index has a market value of over $900 billion.
LIPPER BALANCED FUND AVERAGE -- An industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- An industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- An industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Funds that constituted the Group at its inception.)
RUSSELL 3000 INDEX -- consists of 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.
13
<PAGE> 44
PART C
VANGUARD HORIZON FUND, INC.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Statement of Assets and Liabilities*
Report of Independent Accountants*
(b) EXHIBITS
1. Articles of Incorporation*
2. By-Laws of Registrant*
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Not Applicable
7. Reference is made to the section entitled "Management of the Fund" in
the Registrant's Statement of Additional Information
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> 45
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> 46
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 21st day of March 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
March 21, 1995
BY: (Raymond J. Klapinsky)
John J. Brennan*, President and Director
March 21, 1995
BY: (Raymond J. Klapinsky)
Robert C. Cawthorn*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
Bruce K. MacLaury, Jr.*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
Alfred M. Rankin, Jr.*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
March 21, 1995
BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer
March 21, 1995
*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
<PAGE> 47
VANGUARD HORIZON FUND, INC.
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Consent of Independent Accountants................................................... Ex-99.B11
Financial Statements................................................................. Ex-99.B12
</TABLE>
<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 amended Registration Statement on Form N-1A of our
report dated January 27, 1995, relating to the financial statement of the
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
March 20, 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 the
Aggressive Growth Portfolio of Vanguard Horizon Fund, Inc. (the "Fund") at
January 27, 1995, in conformity with generally accepted 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
