<PAGE> 1
A MESSAGE TO SHAREHOLDERS
FELLOW SHAREHOLDER:
A generally positive investing environment prevailed for Vanguard Horizon Fund
during the six months ended April 30, the first half of the Fund's 1996 fiscal
year. Stock prices continued to climb in the U.S. and most foreign markets,
although bond prices moved marginally lower.
In this environment, each of our four Portfolios provided positive
returns, ranging from robust to very strong. In general, the returns reflect the
different strategies the Portfolios employ in pursuit of their common goal of
maximum long-term total return. The close of a period of such positive returns
is a good time to repeat a cautionary note about Horizon Fund: namely, that the
Fund's goal of high total return makes it appropriate only for investors with
long-term time horizons, who understand and accept the higher risks that
accompany the pursuit of this goal.
INVESTMENT PERFORMANCE
The table below shows the total return (capital change plus reinvested
dividends) of each Portfolio relative to the benchmark (usually an unmanaged
market index) that we have established as appropriate for that Portfolio:
<TABLE>
<CAPTION>
- ------------------------------------------------------
TOTAL RETURN
--------------------------------------
SIX MONTHS ENDED APRIL 30, 1996
--------------------------------------
VANGUARD BENCHMARK
HORIZON FUND PORTFOLIO BENCHMARK STANDARD
- ------------------------------------------------------
<S> <C> <C> <C>
AGGRESSIVE +17.9% +16.0% MEDIUM-SMALL
GROWTH CAP INDEX(1)
CAPITAL + 9.1 +15.7 CAPITAL
OPPORTUNITY OPPORTUNITY
STOCK INDEX(2)
GLOBAL EQUITY +15.5 +13.5 WORLD INDEX(3)
GLOBAL ASSET + 6.6 + 9.6 GLOBAL BALANCED
ALLOCATION INDEX(4)
- ------------------------------------------------------
</TABLE>
(1) Russell 2800 Index (excludes 200 largest U.S. stocks).
(2) Average of largest aggressive growth mutual funds.
(3) Morgan Stanley Capital International All-Country World Index.
(4) Global Stock Index, 60%; Global Bond Index, 30%; and U.S. cash
reserves, 10%.
By way of reference, the total return of the Standard & Poor's 500 Composite
Stock Price Index during the six months was +13.8%; the return of the Lehman
Brothers Aggregate Bond Index was +0.5%.
Detailed per-share figures for each Portfolio, including net asset
values, income dividends, and any capital gains distributions, are presented in
a table on page 3 of this Report.
THE PERIOD IN REVIEW
The U.S. stock market produced double-digit returns in the period, with returns
generally stronger for smaller-capitalization stocks than for large-cap issues.
Stock prices initially seemed to get a lift from falling interest rates from
November through mid-January. And yet, surprisingly, the stock market shrugged
off the subsequent sharp reversal in long-term interest rates. The yield on the
30-year U.S. Treasury bond rose from below 6.0% in mid-January to 6.8% by the
end of April, moderately above the 6.2% level of October 31. It was a period
during which both "good" and "bad" economic news were interpreted as good news
for stocks, suggesting that a speculative spirit is abroad in the land.
Although the Federal Reserve lowered short-term interest rates in
December and January, the bond market fretted over the apparent strength of the
U.S. economy and the possibility of higher inflation. Since the end of January,
the performance of the stock and bond markets has "decoupled," as the price of
long-term Treasury bonds declined more than 9%, while stocks continued to
climb. It remains to be seen whether stocks have enough earnings growth
momentum to withstand the competition for investors' dollars that
higher-yielding bonds might provide.
In the international equity markets, returns were also generally
strong during the half-year, especially in local currency terms. However, a
general rise in the value of the U.S. dollar versus key currencies such as the
Japanese yen and the German mark diminished the returns to U.S. investors.
THE PORTFOLIOS IN REVIEW
Our Aggressive Growth Portfolio's +17.9% return in the half-year beat the
+16.0% return on its unmanaged benchmark, the Russell 2800 Stock
1
<PAGE> 2
Index, while handily outpacing the +13.1% return of the average growth mutual
fund. It benefited from excellent overall stock selection, particularly in the
health-care and energy sectors.
Horizon's Capital Opportunity Portfolio produced a return of +9.1% for
the six months, a respectable absolute return but considerably behind the
+15.7% return on both the benchmark Aggressive Growth Stock Fund Index and the
average capital appreciation mutual fund. The Portfolio was hurt by its heavy
concentration in technology companies (49% of its assets versus 11% for the
broad stock market), a sector that trailed the overall stock market.
The total return of +15.5% on our Global Equity Portfolio surpassed
the returns of +13.5% on its benchmark MSCI All-Country World Index and +13.7%
on the average global equity mutual fund. The Portfolio's emphasis on value
stocks--those with relatively low prices in comparison to estimated replacement
cost--led it to significant holdings in cyclical industrial sectors, such as
basic material producers and automakers, and in retailing companies, all of
which did well during the period.
Horizon's Global Asset Allocation Portfolio produced a +6.6% return,
which trailed both the return on its benchmark index, the Global Balanced Index
(+9.6%), and on the average global flexible allocation mutual fund (+9.3%). Its
shortfall was attributable mainly to the Portfolio's underweighting of
equities, especially in the U.S. market.
Whether a mutual fund (like two of our Portfolios) outperforms its
peers or (like the other two Portfolios) trails its peers, a six-month period
is too short to make reasoned judgments about any fund--especially a
relatively new one. Long-term investors generally are well-served by selecting
a balanced portfolio of funds appropriate to their investment objectives and
then "staying the course." We intend to do precisely that in managing the four
Portfolios of Vanguard Horizon Fund. We look forward to reporting to you in
detail in our Annual Report six months hence.
Sincerely,
/s/ JOHN C. BOGLE
John C. Bogle
Chairman of the Board
/s/ JOHN J. BRENNAN
John J. Brennan
President May 28, 1996
Note: Mutual fund data from Lipper Analytical Services, Inc.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED MARCH 31, 1996) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
SINCE INCEPTION
----------------------------------------------
INCEPTION TOTAL CAPITAL INCOME
PORTFOLIO DATE RETURN RETURN RETURN
- ----------------------- --------- ------- ------- ------
<S> <C> <C> <C> <C>
AGGRESSIVE GROWTH 8/14/95 +14.97% +14.12% +0.85%
CAPITAL OPPORTUNITY 8/14/95 + 0.61 + 0.30 +0.31
GLOBAL EQUITY 8/14/95 +12.31 +11.57 +0.74
GLOBAL ASSET ALLOCATION 8/14/95 + 8.41 + 6.39 +2.02
</TABLE>
ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
- --------------------------------------------------------------------------------
2
<PAGE> 3
REPORT FROM VANGUARD CORE MANAGEMENT GROUP
During the first half of Aggressive Growth Portfolio's fiscal year, the stock
market completely ignored my caution in last year's Annual Report that future
returns would not be as robust as they had been over the past ten years.
Instead, the stock market charged ahead, led by medium and smaller
capitalization stocks which advanced +16.0%, as measured by the Russell 2800
Index. Large capitalization stocks also provided excellent returns (+13.8%).
The Aggressive Growth Portfolio is designed to invest primarily in the
medium- and small-cap portion of the market, and, consequently, had a strong
tail wind at its back. During the semi-annual period, the Portfolio's total
return was +17.9%, beating its benchmark by almost 2 percentage points. These
results were achieved by classic "bottom up" stock selection, although the
analysis is computer generated. Generally, various financial models that we
have developed to determine relative attractiveness of stocks were very
effective during the period.
MARKET ENVIRONMENT
The macro and micro-economic fundamentals were somewhat mixed in the first half
of the current fiscal year. The momentum of the market seemed to feed upon
itself, carrying stocks higher. After the economy weakened slightly in the
fourth calendar quarter of 1995, it regained strength in the first quarter of
1996. Although some economic indicators were less than robust, others, most
notably the employment rate, rebounded much greater than expectations. As a
result, interest rates increased sharply from around 6% to almost 7% on the
long-term U.S. Treasury bond.
Ironically, as the economy has picked up, corporate earnings have
waned. Year over year, estimates of operating earnings for the period ended
March 1996 were relatively flat. To date, the stock market has shrugged off
both sagging earnings and rising interest rates and has pushed to new highs,
rationalized by record setting cash inflow into equity mutual funds.
OUTLOOK
Historically, the stock and bond markets are linked by a stock's price/earnings
(P/E) ratio--the amount investors are willing to pay for a stock per dollar of
corporate earnings--which fluctuates inversely with interest rates. As interest
rates increase, the P/E multiple declines. A decoupling of this relationship
typically does not persist for long and ultimately must be resolved by either a
decline in interest rates, an acceleration of earnings, or a decline in the
stock market. Unfortunately, it is never easy, if even possible, to predict
which event, or events, will occur.
Nevertheless, as chronicled in last year's Annual Report, rational
expectations for stock market returns should be much less than those that we
have experienced over the past ten years. A return to longer-term norms of 10%,
or less, is probably more likely than a repeat of the past decade. Having
gotten off to a good start with the Aggressive Growth Portfolio, we shall
attempt to provide the same relative returns in the future.
Respectfully,
George U. Sauter, Principal
Vanguard Core Management Group May 17, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended April 30, 1996
-------------------------------------------
Net Asset Value Per Share Distributions from Dividends
--------------------------------------------- Net Realized from Net
Portfolio October 31, 1995 April 30, 1996 Capital Gains Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AGGRESSIVE GROWTH $10.23 $11.97 -- $.08
CAPITAL OPPORTUNITY 9.71 10.56 -- .03
GLOBAL EQUITY 10.08 11.56 -- .07
GLOBAL ASSET ALLOCATION 10.27 10.71 $.03 .20
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
REPORT FROM HUSIC CAPITAL MANAGEMENT
Although the Capital Opportunity Portfolio has yet to meet our
expectations for superior performance, its returns have improved markedly
during the past three months. Many of our favorite holdings have rebounded
strongly.
MARKET OUTLOOK
Entering 1996, we saw the pace of U.S. economic activity as an important risk
to the equity market. If economic growth were to slow dramatically, corporate
profits could prove to be disappointing despite lower interest rates. Based on
recent data, however, we now believe that this risk is minimized. The U.S.
economy has begun a period of moderate liftoff, and the stock market has
started to discount the prospect of better economic growth by rotating away
from steady growers to companies that are driven more by cyclical factors. A
stronger economy suggests that corporate profits will be better than generally
expected. The U.S. dollar should also continue to appreciate against foreign
currencies.
A main driver of U.S. economic growth is the strong recovery underway
in the Pacific Coast region. There are three important reasons why California,
in particular, has done poorly in the past few years: (1) the downsizing of the
defense industry; (2) real estate troubles; and (3) the collapse of Japan's
economy and associated reduction in trade. Each of these problems is now
improving. The defense business has consolidated, real estate is coming back,
and trade with Japan is recovering. With the added strength in technology,
entertainment and tourism, and emerging industries like multimedia, we believe
a picture is being painted for faster income growth and improved profitability
in companies focused on the West Coast. We have developed a sub-theme for this
area and are increasing these positions in the Portfolio.
The prospects for increased economic growth also have negative
implications. The trading range of interest rates will be higher. This will
adversely impact companies that depend on lower interest rates and the
valuations of some growth stocks. A strong dollar will reduce earnings of
multi-national companies. We see heightened investor concern over inflation
with the CRB Commodity Index near a multi-year high and growing unrest on the
labor front with demands for higher wages. We believe that in the end this
inflationary concern will prove to be unfounded, but in the short term, it will
"rattle" markets. Because of these factors, we see an interim correction in the
U.S. equity market this year. However, we continue to believe that the U.S.
market will produce attractive returns for all of 1996, with smaller
capitalization stocks doing especially well.
It is important to note that these short-term considerations for
stronger economic growth do not impact our long-term outlook of low inflation,
generally low interest rates, slower growth in consumer incomes, the shift
toward savings, and the secular uptrend in corporate profitability. However,
even though these long-term trends remain in place, short-term events can have
powerful influences on the pattern of stock market returns. Simultaneous growth
in the major economies of the world by the end of 1996 will create an important
change for investing over the next twelve months with new leadership in the
marketplace. Technology-related companies are once again in the forefront of
stock market leadership, and we expect their leadership position to continue.
The Portfolio is particularly well-positioned in this high-growth area.
Lastly, after a period of 18 to 24 months of underperformance,
small-cap and mid-cap companies are again outperforming larger capitalization
companies. The relative success of large-cap stocks was largely related to the
phenomenon of restructuring and downsizing. As the world focuses anew on growth
and expansion, small and medium-sized companies will experience the strongest
growth, and their stocks should perform well. With our focus on smaller-cap
stocks, we are optimistic about Capital Opportunity Portfolio's prospects for
1996 and beyond.
Respectfully,
Frank J. Husic, Managing Partner
Husic Capital Management
May 17, 1996
4
<PAGE> 5
REPORT FROM MARATHON ASSET MANAGEMENT LIMITED
In the six months ended April 30, 1996, the Global Equity Portfolio gained
+15.5%, compared with a +13.5% increase in the MSCI All-Country World Index.
What looks like steady progress was actually a turbulent ride with relative
underperformance at the end of 1995 offset by a very strong recovery in 1996.
Stock markets in general have continued to make good progress building on last
year's bull market. The general perception is that last year's decline in
interest rates will prevent the economic slowdown from degenerating into a
recession, and that most world economies will experience an acceleration in
economic activity as 1996 progresses. Essentially, monetary authorities around
the world appear to have pulled off the impossible, namely a mid-cycle soft
landing. Not surprisingly, more cyclical shares performed well in this
environment, shrugging off the effect of higher long-term interest rates in the
United States. The Global Equity Portfolio, with its disproportionate exposure
to more industrial companies, benefited from this latest rotation in the world
stock markets.
Although events in the United States have been dominated by increasing
long-term interest rates, the environment overseas remains rather benign. In
the first quarter of the calendar year, the British authorities cut interest
rates twice and the Germans cut the discount rate to 2 1/2% in April. In Japan,
interest rates remain at extraordinarily low levels as the authorities struggle
to engineer an economic recovery. At present, most American commentators are
once again concerned with "overheating," while most economies outside the
United States are characterized by weakness rather than strength. International
markets therefore score on two counts versus the U.S.: valuations (discussed in
our last Annual Report) and likely interest rate levels. The Global Equity
Portfolio remains underweighted in the U.S. and further reductions may be made
as the year progresses.
The beginning of the year has seen a flood of recommendations in favor
of emerging markets. The Global Equity Portfolio has significantly increased
its investment in Mexico, but otherwise remains skeptical about the prospects
for this glamorous asset class. This view is highly contrarian and is based
primarily on valuations (shares in many cases are expensive relative to the
replacement cost of assets) and on the quality of businesses that are available
in many of these markets. In Marathon's view, the higher returns from equity
investment in these economies will be enjoyed by corporate investors rather
than by investors who buy shares of companies listed on emerging market stock
exchanges. When corporations invest in emerging markets, they bring management,
technology, and markets in addition to capital. Accordingly, they should enjoy
higher returns than stock market investors. Interestingly, the year has seen
substantial capital raising by companies in emerging markets, coupled with
insider selling. This suggests that Global Equity Portfolio's caution in this
area is warranted at the very least. However, we will purchase high-quality
businesses in this area if they have strong franchises and are available at
reasonable prices. Current research suggests that such opportunities will be
rare.
In the more mature stock markets, however, the outlook is encouraging.
Monetary policies worldwide appear highly supportive of stock markets.
Profitability (at least outside the U.S.) is poor and capable of significant
improvement. Takeover activity is lending further support to the stock market
values. Valuations (again, outside the U.S.) appear modest in the majority of
cases. Marathon is bullish on Japan, where economic activity is depressed and
corporate profitability (whether as a percent of sales or capital employed) is
at low levels. Exposure to this market may be raised further during the second
half of the fiscal year. All these factors more than justify the significant
pro-cyclical bet and value bias contained within the Portfolio. If economic
activity reaccelerates, the Portfolio should perform well, even against the
backdrop of a more difficult interest rate environment.
Respectfully,
Jeremy Hosking
Marathon Asset Management Limited May 14, 1996
5
<PAGE> 6
REPORT FROM STRATEGIC INVESTMENT MANAGEMENT
In the first half of Horizon Fund's fiscal year, global equities have risen at
an exceptional pace, first set by the U.S. equity market over the course of
1995 and followed by the non-U.S. equity market. Bonds, however, have produced
relatively poor returns over this period and have recently fallen in price as
long-term interest rates rise. The Global Asset Allocation Portfolio returned
+6.6% during this period, benefiting from robust equity markets. However, the
Portfolio has been postured defensively, overweighted in fixed-income
securities--both bonds and cash--and underweighted in stocks, particularly U.S.
stocks, relative to our globally diversified balanced benchmark of 60% stocks
and 40% fixed-income securities (30% bonds, 10% cash). Over the six-month
period, the Portfolio's performance has lagged its benchmark, by three
percentage points, as the Portfolio's defensiveness continued to produce
opportunity costs.
Our investment process dynamically allocates the assets of the
Portfolio across global markets in order to improve on the performance of the
benchmark portfolio. We use a computer model, driven by a fundamental and
economically motivated view of market returns, which overweights those assets
with favorable valuation levels (i.e., which have priced in high levels of
perceived risk) in economies experiencing plentiful financial liquidity (i.e.,
where the expected flow of available credit exceeds the demands coming from the
real economy).
<TABLE>
<CAPTION>
- ------------------------------------------------------
ALLOCATION OF ASSETS
AS OF APRIL 30, 1996
----------------------------------
GLOBAL ASSET GLOBAL
ALLOCATION PORTFOLIO BENCHMARK
- ------------------------------------------------------
<S> <C> <C>
EQUITY 32.4% 60%
BONDS 47.5 30
CASH RESERVES 20.1 10
- ------------------------------------------------------
</TABLE>
Throughout this period, stock markets, particularly in the U.S., have been
unfavorably valued (e.g., price-to-normalized earnings ratios have been quite
elevated), while fixed-income markets have had about average levels of
valuation (e.g., fixed-income yields adjusted for expected inflation have been
about average and have recently climbed to quite elevated levels). After
improving for much of last year, macroeconomic or financial liquidity, as
measured by a lessening of inflationary pressures, has deteriorated this
quarter with rising inflation expectations, particularly in the U.S.
In this environment, we increased the Portfolio's equity exposure as
interest rates fell last year and then decreased our equity exposure in favor
of bonds as interest rates rose in the first quarter of this year. Fixed-income
duration has been maintained above the benchmark among the higher-yielding
markets (Australia, Canada, United States, United Kingdom, and France), but
below the benchmark in lower-yielding markets (Japan and Germany). The
Portfolio, consistent with the model results, has held a below-benchmark major
foreign currency exposure (the benchmark weight being about 15%), primarily by
underweighting exposure to the Japanese yen, which continues to be priced at
overvalued levels in an environment characterized by a growing interest
differential in favor of U.S. dollar-denominated assets.
U.S. and, more recently, non-U.S. equities have risen on the continued
robustness of U.S. corporate profitability, in the case of U.S. equities, and
on the expectation of a profit expansion, in the case of non-U.S. equities. In
addition, markets have been buoyed until recently by favorable macroeconomic
liquidity and, in the case of the U.S., by extraordinary demand for equity
ownership coming in the form of mutual fund inflows. The implication of our
research and current portfolio allocation is that, at current yields, some
change in these or other factors will create a less favorable climate for
holding equities relative to fixed-income securities than has been the case in
the past six months.
Respectfully,
Michael A. Duffy, Managing Director
Strategic Investment Management
May 16, 1996
6
<PAGE> 7
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
April 30, 1996
<TABLE>
<CAPTION>
Market
AGGRESSIVE GROWTH Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.1%)
- ------------------------------------------------------------------
BASIC MATERIALS (10.1%)
AK Steel Holding Corp. 27,200 $ 1,040
Champion International Corp. 35,900 1,732
Eastman Chemical 24,100 1,621
IMC Global Inc. 43,300 1,597
Newmont Mining Corp. 28,000 1,621
Phelps Dodge Corp. 19,900 1,463
Union Carbide Corp. 31,500 1,433
-----------
SECTOR TOTAL 10,507
-----------
- ------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (10.1%)
Belden Inc. 15,500 461
Greenfield Industries, Inc. 38,400 1,450
Harsco Corp. 13,700 944
Johnson Controls, Inc. 19,100 1,366
Kennametal, Inc. 15,600 591
* Owens-Corning 47,300 1,904
TRW, Inc. 19,400 1,821
The Timkin Co. 25,100 995
* Varity Corp. 21,800 929
-----------
SECTOR TOTAL 10,461
-----------
- ------------------------------------------------------------------
CONSUMER CYCLICAL (13.9%)
A. H. Belo Corp. Class A 13,000 484
Black & Decker Corp. 25,400 1,022
* Boyd Gaming Corp. 117,900 1,651
* Burlington Industries Inc. 103,300 1,201
Cooper Tire & Rubber Co. 6,600 162
Dana Corp. 44,500 1,480
Dow Jones & Co., Inc. 18,900 706
* Ethan Allen Interiors Inc. 27,700 720
HFS Inc. 35,400 1,819
* Hollywood Casino Corp. 111,300 598
* Mirage Resorts, Inc. 9,100 477
New York Times Co. Class A 24,300 790
Pier 1 Imports Inc. 95,000 1,271
Polaris Industries, Inc. 15,200 530
Wendy's International, Inc. 80,400 1,538
-----------
SECTOR TOTAL 14,449
-----------
- ------------------------------------------------------------------
CONSUMER STAPLES (6.9%)
American Stores Co. 61,900 2,066
Ball Corp. 16,400 510
The Clorox Co. 8,800 727
Goodmark Foods, Inc. 25,300 405
Safeway, Inc. 67,900 2,292
SuperValu Inc. 38,200 1,222
-----------
SECTOR TOTAL 7,222
-----------
- ------------------------------------------------------------------
ENERGY (5.0%)
Halliburton Co. 38,000 2,180
Kerr-McGee Corp. 28,800 1,840
* Western Atlas Inc. 19,700 1,182
-----------
SECTOR TOTAL 5,202
-----------
- ------------------------------------------------------------------
FINANCIAL (18.4%)
Amvestors Financial Corp. 83,300 1,239
Bank of Boston Corp. 23,400 1,132
Capstead Mortgage Corp. 72,900 1,750
Compass Bancshares Inc. 38,000 1,254
CoreStates Financial Corp. 25,400 991
First Colony Corp. 68,000 1,751
* Highlands Insurance Group 3,330 63
North American Mortgage Co. 87,000 1,468
Queens County Bancorp, Inc. 33,500 1,466
Republic New York Corp. 28,200 1,674
SAFECO Corp. 51,300 1,686
State Street Boston Corp. 16,400 818
Thornburg Mortgage Asset Corp. 101,900 1,618
Transamerica Corp. 18,400 1,398
U.S. Bancorp 28,000 899
-----------
SECTOR TOTAL 19,207
-----------
- ------------------------------------------------------------------
HEALTH CARE (4.6%)
* Fresenius USA, Inc. 70,500 1,410
* Lincare Holdings Inc. 40,400 1,555
United States Surgical Corp. 50,300 1,861
-----------
SECTOR TOTAL 4,826
-----------
- ------------------------------------------------------------------
TECHNOLOGY (17.8%)
* Cheyenne Software, Inc. 41,500 944
* Chips & Technologies, Inc. 161,800 1,780
* Gateway 2000 Inc. 64,700 2,240
* KEMET Corp. 55,400 1,316
* Komag, Inc. 53,900 1,806
* LTX Corp. 139,300 1,341
* Network Equipment Technologies 39,000 994
The Standard Register Co. 69,300 1,732
* Sun Microsystems, Inc. 24,800 1,342
* Teradyne, Inc. 58,400 1,197
Varian Associates, Inc. 36,300 2,074
Wallace Computer Services, Inc. 30,400 1,797
-----------
SECTOR TOTAL 18,563
-----------
- ------------------------------------------------------------------
TRANSPORT & SERVICES (1.8%)
Delta Air Lines, Inc. 8,600 691
* UAL Corp. 5,500 1,180
-----------
SECTOR TOTAL 1,871
-----------
- ------------------------------------------------------------------
UTILITIES (10.2%)
Baltimore Gas & Electric Co. 59,700 1,574
Boston Edison Co. 62,700 1,528
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
AGGRESSIVE GROWTH Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
Central Maine Power Co. 121,100 $ 1,726
Cincinnati Bell, Inc. 41,200 2,029
DTE Energy Co. 33,100 1,026
Pacific Enterprises 61,600 1,586
Southern New England
Telecommunications Corp. 25,400 1,130
-----------
SECTOR TOTAL 10,599
-----------
- ------------------------------------------------------------------
MISCELLANEOUS (1.3%)
McKesson Corp. 28,600 1,362
-----------
- ------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $93,335) 104,269
- ------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (.6%)
- ------------------------------------------------------------------
Face
Amount
(000)
------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.32%, 5/1/96
(Cost $575) $575 575
- ------------------------------------------------------------------
TOTAL INVESTMENTS (100.7%)
(Cost $93,910) 104,844
- ------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.7%)
- ------------------------------------------------------------------
Other Assets--Note C 1,003
Liabilities (1,701)
-----------
(698)
- ------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------
Applicable to 8,702,758 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $104,146
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.97
==================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
AT APRIL 30, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------- ------
<S> <C> <C>
PAID IN CAPITAL $ 90,935 $10.44
UNDISTRIBUTED NET
INVESTMENT INCOME 406 .05
ACCUMULATED NET
REALIZED GAINS 1,871 .22
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE E 10,934 1.26
- ------------------------------------------------------------------
NET ASSETS $104,146 $11.97
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
CAPITAL OPPORTUNITY Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.5%)
- ------------------------------------------------------------------
BASIC MATERIALS (6.5%)
- ------------------------------------------------------------------
Monsanto Co. 33,100 $ 5,015
* Tremont Corp. 42,800 1,579
-----------
SECTOR TOTAL 6,594
-----------
- ------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (6.3%)
- ------------------------------------------------------------------
The Boeing Co. 23,500 1,930
* Fore Systems, Inc. 27,000 2,123
* Republic Industries, Inc. 69,800 2,277
-----------
SECTOR TOTAL 6,330
-----------
- ------------------------------------------------------------------
CONSUMER CYCLICALS (7.9%)
- ------------------------------------------------------------------
* Edmark Corp. 40,000 1,170
* Extended Stay America, Inc. 40,000 1,040
* Gartner Group, Inc. Class A 130,000 4,452
* Penske Motorsports, Inc. 45,000 1,339
-----------
SECTOR TOTAL 8,001
-----------
- ------------------------------------------------------------------
ENERGY (3.4%)
- ------------------------------------------------------------------
* Falcon Drilling Co., Inc. 126,700 3,405
-----------
- ------------------------------------------------------------------
FINANCIAL (11.2%)
- ------------------------------------------------------------------
Alex Brown, Inc. 39,000 2,111
* Amerin Corp. 60,000 1,350
Household International, Inc. 40,100 2,772
Charles Schwab Corp. 60,000 1,470
Student Loan Marketing Assn. 49,000 3,589
-----------
SECTOR TOTAL 11,292
-----------
- ------------------------------------------------------------------
HEALTH CARE (5.7%)
- ------------------------------------------------------------------
* Dura Pharmaceuticals, Inc. 40,000 2,150
* Health Management Associates
Class A 55,000 1,760
* Healthsource, Inc. 56,000 1,911
-----------
SECTOR TOTAL 5,821
-----------
- ------------------------------------------------------------------
TECHNOLOGY (49.1%)
- ------------------------------------------------------------------
COMMUNICATION EQUIPMENT (3.6%)
* U.S. Robotics Corp. 23,000 3,594
COMPUTER RELATED (2.2%)
* Cisco Systems, Inc. 42,800 2,220
COMPUTER SERVICES (4.3%)
* Electronics for Imaging, Inc. 70,900 4,325
COMPUTER SOFTWARE (17.7%)
* America Online, Inc. 46,000 2,938
* Borland International, Inc. 85,800 1,394
HBO and Co. 36,300 4,311
* HNC Software, Inc. 86,000 3,182
* McAfee Associates, Inc. 51,000 3,124
* Peoplesoft Inc. 47,400 2,986
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
ELECTRONIC COMPONENTS & INSTRUMENTS (3.7%)
* Checkpoint Systems, Inc. 68,000 $ 2,031
* Microcom Corp. 70,000 1,706
TELECOMMUNICATIONS (17.6%)
* Ascend Communications, Inc. 144,000 8,802
* Cascade Communications Corp. 33,700 3,378
* PanAmSat Corp. 80,000 2,621
* Westell Technologies, Inc. 42,000 2,982
-----------
SECTOR TOTAL 49,594
-----------
- ------------------------------------------------------------------
TRANSPORT & SERVICES (5.4%)
- ------------------------------------------------------------------
Pittston Brink's Group 97,000 2,704
* Trans World Airlines 155,000 2,770
-----------
SECTOR TOTAL 5,474
-----------
- ------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $74,850) 96,511
- ------------------------------------------------------------------
</TABLE>
TEMPORARY CASH INVESTMENT (4.0%)
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Face
Amount
(000)
------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.32%, 5/1/96
(Cost $4,049) $4,049 4,049
- ------------------------------------------------------------------
TOTAL INVESTMENTS (99.5%)
(Cost $78,899) 100,560
- ------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.5%)
- ------------------------------------------------------------------
Other Assets--Note C 2,516
Liabilities (2,031)
-----------
485
- ------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------
Applicable to 9,570,735 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $101,045
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.56
==================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
AT APRIL 30, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
AMOUNT PER
(000) SHARE
---------- -------
<S> <C> <C>
PAID IN CAPITAL $ 94,741 $ 9.90
OVERDISTRIBUTED NET
INVESTMENT INCOME (83) (.01)
ACCUMULATED NET
REALIZED LOSSES (15,274) (1.60)
UNREALIZED APPRECIATION OF
INVESTMENTS--NOTE E 21,661 2.27
- ------------------------------------------------------------------
NET ASSETS $101,045 $10.56
- ------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GLOBAL EQUITY Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (89.2%)
- ------------------------------------------------------------------
AUSTRALIA (4.5%)
- ------------------------------------------------------------------
Australia & New Zealand Bank
Group Ltd. 99,330 $ 475
Australia National Industries Ltd. 100,000 91
Boral Ltd. 60,000 157
Broken Hill Proprietary Ltd. 28,000 431
Gio Australia Holdings Ltd. 93,222 216
North Ltd. 7,543 23
ONI Ltd. 80,000 198
Pasminco Ltd. 220,000 322
Renison Goldfields Consolidated Ltd. 54,551 289
Santos Ltd. 72,000 257
Wesfarmers Ltd. 40,890 258
-----------
COUNTRY TOTAL 2,717
-----------
- ------------------------------------------------------------------
CANADA (3.0%)
- ------------------------------------------------------------------
Canadian Pacific Ltd. 25,500 519
Imperial Oil Ltd. 11,500 468
Noranda Inc. 18,000 403
* Rogers Communications, Inc. Class B 34,000 340
* San Andreas Resources Corp. 70,000 85
-----------
COUNTRY TOTAL 1,815
-----------
- ------------------------------------------------------------------
DENMARK (.5%)
- ------------------------------------------------------------------
Bang & Olufsen Holding AS B 5,000 159
Coloplast AS 1,300 124
-----------
COUNTRY TOTAL 283
-----------
- ------------------------------------------------------------------
FINLAND (1.6%)
- ------------------------------------------------------------------
Kymmene Oy 7,500 201
* Merita Ltd. A 107,000 229
Nokia AB A 6,700 239
Outokumpu Oy A 17,000 296
-----------
COUNTRY TOTAL 965
-----------
- ------------------------------------------------------------------
FRANCE (3.2%)
- ------------------------------------------------------------------
AXA SA 4,000 238
Banque Nationale de Paris 6,500 271
Carrefour SA 200 156
Clarins 1,500 205
* Moulinex 13,000 216
* Pechiney SA A 9,105 428
Union Financiere de France
Banque SA 1,200 123
* Usinor Sacilor 20,000 309
-----------
COUNTRY TOTAL 1,946
-----------
- ------------------------------------------------------------------
GERMANY (2.2%)
- ------------------------------------------------------------------
Bayerische Motoren Werke AG 360 194
Buderus AG 400 146
Hoechst AG 400 134
Mannesmann AG 630 215
Veba AG 5,220 259
Wella AG Pfd. 850 371
-----------
COUNTRY TOTAL 1,319
-----------
- ------------------------------------------------------------------
HONG KONG (1.0%)
- ------------------------------------------------------------------
Hong Kong & China Gas Co., Ltd. 142,800 234
* Hong Kong & China Gas Co., Ltd.
Warrants Exp. 9/30/97 11,900 1
Hong Kong Telecommunication Ltd. 61,597 117
Television Broadcast Ltd. 60,000 240
-----------
COUNTRY TOTAL 592
-----------
- ------------------------------------------------------------------
INDONESIA (.5%)
- ------------------------------------------------------------------
PT Citra Marga Nusphala
Persada (Foreign) 140,000 206
PT Gudang Garam (Local) 11,900 86
-----------
COUNTRY TOTAL 292
-----------
- ------------------------------------------------------------------
ITALY (.9%)
- ------------------------------------------------------------------
Industrie Natuzzi SPA ADR 3,500 182
Olivetti & Cie. SPA 375,000 240
Stet D Risp. Port SPA Non-Cvt. 50,000 131
-----------
COUNTRY TOTAL 553
-----------
- ------------------------------------------------------------------
JAPAN (19.7%)
- ------------------------------------------------------------------
Apic Yamada Corp. 3,300 103
Brother Industries Ltd. 56,000 363
Fujikura Cable 36,000 281
Fuji Oil 36,000 308
Furukawa Electric Co. 50,000 303
Futaba Corp. 5,000 248
Gakken Co. 42,000 303
Intec 20,000 353
Ishikawajima-Harima Heavy
Industries 90,000 447
Isuzu Motors Ltd. 40,000 229
* Japan Air Lines Co., Ltd. 54,000 431
Kanematsu Corp. 84,000 405
Kao Corp. 20,000 267
Kubota Ltd. 56,000 390
Mitsubishi Corp. 20,000 284
Mitsui & Co., Ltd. 60,000 571
Namco Ltd. 10,000 330
* Nippon Suisan Kaisha 60,000 267
Nomura Securities Co., Ltd. 26,000 566
Sanshin Electronics 8,000 137
Shiseido Co., Ltd. 28,000 353
Showa Shell Sekiyu 20,000 214
Sintokogio 20,000 181
Sony Corp. 5,000 325
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
GLOBAL EQUITY Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
Sony Music Entertainment 4,000 $ 217
Stanley Electric Co. 30,000 221
Sumitomo Metal Industries 200,000 642
Sumitomo Realty and Development 50,000 402
Sumitomo Rubber Industries 36,000 327
Sumitomo Sitix Corp. 14,000 326
Sumitomo Trust & Banking 24,000 350
Tokyo Broadcasting System 15,000 250
Toyoda Automatic Loom Works 10,000 207
Wacoal Corp. 23,000 312
Yamaha Corp. 8,000 144
Yamaha Motor Co. 34,000 370
Yamazaki Baking Co., Ltd. 6,000 123
Yasuda Fire & Marine Insurance Co. 32,000 252
-----------
COUNTRY TOTAL 11,802
-----------
- ------------------------------------------------------------------
MALAYSIA (1.1%)
- ------------------------------------------------------------------
Carlsberg Brewery Malaysia Bhd. 25,000 173
Resorts World Bhd. 40,000 242
Sime Darby Bhd. 50,000 138
United Engineers Bhd. 12,000 82
-----------
COUNTRY TOTAL 635
-----------
- ------------------------------------------------------------------
MEXICO (1.6%)
- ------------------------------------------------------------------
Grupo Financiero Banamex B 100,000 231
Grupo Financiero Banamex L 3,000 6
Grupo Televisa SA ADR 12,000 372
Telefonos de Mexico SA ADR 6,000 204
Vitro SA ADR 20,000 140
-----------
COUNTRY TOTAL 953
-----------
- ------------------------------------------------------------------
NETHERLANDS (1.0%)
- ------------------------------------------------------------------
Boskalis Koninklijke Boskalis
Westminster NV 6,500 96
Nedlloyd Group NV 10,600 232
Philips Electronics NV (non-voting) 2,000 71
Polygram NV 3,100 184
-----------
COUNTRY TOTAL 583
-----------
- ------------------------------------------------------------------
NORWAY (.7%)
- ------------------------------------------------------------------
Olav Thon Eiendomsselskap AS 7,000 130
Schibsted AS 19,000 277
-----------
COUNTRY TOTAL 407
-----------
- ------------------------------------------------------------------
SINGAPORE (1.3%)
- ------------------------------------------------------------------
Jardine Strategic Holdings Ltd. 100,000 328
Mandarin Oriental 151,771 216
Singapore Land Ltd. 30,000 213
-----------
COUNTRY TOTAL 757
-----------
- ------------------------------------------------------------------
SOUTH AFRICA (1.7%)
- ------------------------------------------------------------------
Barlow Ltd. 12,000 138
De Beers Centenary AG 10,000 319
Free State Consolidated Gold Mines
Ltd. ADR 12,000 131
Safmarine & Rennies Holdings Ltd. 45,000 138
South African Breweries Ltd. 4,020 117
South African Iron & Steel
Industrial Corp., Ltd. 203,932 186
-----------
COUNTRY TOTAL 1,029
-----------
- ------------------------------------------------------------------
SPAIN (1.3%)
- ------------------------------------------------------------------
Centros Comerciales Pryca SA 10,000 230
Prosegur Compania SA 3,305 120
Tabacalera SA 6,000 273
Viscofan Envolturas Celulosi SA 8,000 124
-----------
COUNTRY TOTAL 747
-----------
- ------------------------------------------------------------------
SWEDEN (3.1%)
- ------------------------------------------------------------------
Avesta Sheffield AB 18,000 185
LM Ericsson Telephone Series B 9,850 199
Hennes & Mauritz AB Series B 3,300 227
Hoganas AB B 5,000 166
Kinnevik AB Series B 9,000 349
Munksjoe AB 18,000 142
Om Gruppen AB 10,000 204
Skandinaviska Enskilda Banken AB
Series B 25,000 188
Trelleborg AB Series B 17,000 229
-----------
COUNTRY TOTAL 1,889
-----------
- ------------------------------------------------------------------
SWITZERLAND (1.2%)
- ------------------------------------------------------------------
Georg Fischer AG (Bearer) 100 119
Phoenix Mecano AG 200 112
SGS Societe Generale de Surveillance
Holdings SA (Bearer) 150 337
SMH Societe Suisse Pour la
Microelectronique et L'Horlogerie
(Registered) 800 119
Sarna Kunsstoff Holding AG 50 53
-----------
COUNTRY TOTAL 740
-----------
- ------------------------------------------------------------------
UNITED KINGDOM (10.3%)
- ------------------------------------------------------------------
Airtours PLC 40,000 314
Asda Group PLC 125,000 213
Associated British Ports
Holdings PLC 55,000 248
Barclays PLC 35,000 387
Berisford PLC 100,000 318
British Aerospace PLC 20,000 261
Chubb Security PLC 50,000 284
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GLOBAL EQUITY Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
Cowie Group PLC 45,000 $ 259
Devro International PLC 35,000 122
E D & F Man Group 45,000 113
First Leisure Corp. PLC 50,000 298
Granada Group PLC 25,000 308
Hanson PLC 60,000 178
Hyder PLC 15,000 165
Invesco ADR 9,000 333
Invesco PLC 95,000 361
Provident Financial PLC 15,000 215
RTZ Corp. PLC 15,000 235
Racal Electronics PLC 55,000 286
Stagecoach Holdings PLC 35,000 237
Taylor Woodrow PLC 80,000 210
Trinity Holdings PLC 30,000 177
Vendome Luxury Group PLC-Units 20,000 176
Vodafone Group PLC 50,000 199
WPP Group PLC 100,000 304
-----------
COUNTRY TOTAL 6,201
-----------
- ------------------------------------------------------------------
UNITED STATES (28.8%)
- ------------------------------------------------------------------
BASIC MATERIALS (5.5%)
* FMC Corp. 4,800 333
Freeport-McMoRan, Inc. 10,833 395
Geon Co. 15,000 398
Georgia-Pacific Corp. 6,800 529
James River Corp. 17,000 455
Olin Corp. 4,000 354
PPG Industries, Inc. 9,000 456
Phelps Dodge Corp. 5,500 404
-----------
SECTOR TOTAL 3,324
-----------
- ------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (2.5%)
The Boeing Co. 5,000 411
TRW, Inc. 5,400 507
United Technologies Corp. 5,200 575
-----------
SECTOR TOTAL 1,493
-----------
- ------------------------------------------------------------------
CONSUMER CYCLICAL (6.7%)
* AnnTaylor Stores Corp. 15,650 268
Chrysler Corp. 7,500 471
Ford Motor Co. 12,000 431
Harcourt General, Inc. 9,500 418
The Limited, Inc. 19,778 410
Mercantile Stores Co., Inc. 8,500 530
Outboard Marine Corp. 15,000 296
Phillips-Van Heusen Corp. 23,800 315
Times Mirror Co. Class A 9,000 384
* Woolworth Corp. 25,000 478
-----------
SECTOR TOTAL 4,001
-----------
- ------------------------------------------------------------------
CONSUMER STAPLES (1.7%)
Philip Morris Cos., Inc. 6,500 586
Tambrands, Inc. 9,000 431
-----------
SECTOR TOTAL 1,017
-----------
- ------------------------------------------------------------------
ENERGY (1.7%)
Dresser Industries, Inc. 16,500 526
* Western Atlas Inc. 8,400 504
-----------
SECTOR TOTAL 1,030
-----------
- ------------------------------------------------------------------
FINANCIAL (4.4%)
The Bank of New York Co., Inc. 13,200 640
The Equitable Cos. 15,000 354
Fleet Financial Group, Inc. 8,000 344
TIG Holdings, Inc. 12,000 365
Unitrin Inc. 9,800 453
Wells Fargo & Co. 1,933 469
-----------
SECTOR TOTAL 2,625
-----------
- ------------------------------------------------------------------
HEALTH CARE (.8%)
Baxter International, Inc. 11,500 509
-----------
- ------------------------------------------------------------------
TECHNOLOGY (2.3%)
Intel Corp. 6,800 461
International Business Machines Corp. 4,800 516
* Microsoft Corp. 3,700 419
-----------
SECTOR TOTAL 1,396
-----------
- ------------------------------------------------------------------
TRANSPORT & SERVICES (3.2%)
* AMR Corp. 5,500 491
Burlington Northern Santa Fe Corp. 4,000 350
Conrail, Inc. 7,500 523
Union Pacific Corp. 8,000 545
-----------
SECTOR TOTAL 1,909
-----------
- ------------------------------------------------------------------
TOTAL UNITED STATES 17,304
- ------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $48,122) 53,529
- ------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (9.9%)
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.32%, 5/1/96
(Cost $5,928) $5,928 5,928
- ------------------------------------------------------------------
TOTAL INVESTMENTS (99.1%)
(Cost $54,050) 59,457
- ------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Market
Value
(000)+
- ------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.9%)
- ------------------------------------------------------------------
<S> <C>
Other Assets--Notes C and G $ 1,354
Liabilities--Note G (820)
-----------
534
- ------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------
Applicable to 5,189,175 outstanding
$.001 par value shares
(authorized 250,000,000) $59,991
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.56
==================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt.
- ------------------------------------------------------------------
AT APRIL 30, 1996, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
AMOUNT PER
(000) SHARE
------- ------
<S> <C> <C>
PAID IN CAPITAL $53,505 $10.31
UNDISTRIBUTED NET
INVESTMENT INCOME--NOTE D 213 .04
ACCUMULATED NET
REALIZED GAINS--NOTE D 808 .16
UNREALIZED APPRECIATION--
NOTES E AND F:
INVESTMENT SECURITIES 5,407 1.04
FOREIGN CURRENCIES AND
FORWARD CURRENCY CONTRACTS 58 .01
- ------------------------------------------------------------------
NET ASSETS $59,991 $11.56
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
GLOBAL ASSET ALLOCATION Value
PORTFOLIO Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (47.5%)
- ------------------------------------------------------------------
AUSTRALIA (2.3%)
Queensland Treasury
Global Note
8 .00%, 8/14/01 AUD 1,800 $ 1,397
-----------
CANADA (.6%)
Canada Government Bond
6.50%, 6/1/04 CAD 570 382
-----------
FRANCE (2.2%)
Bons du Tresor a Taux Fixe
et a Interet Annuel
4.50%, 5/12/96 FRF 2,170 419
France O.A.T.
5.50%, 4/25/04 FRF 4,990 922
-----------
1,341
-----------
GERMANY (.3%)
Bundesschatzanweisungen
6.875%, 2/24/99 DEM 300 209
-----------
UNITED KINGDOM (6.8%)
U.K. Treasury
9.75%, 8/27/02 GBP 2,550 4,205
-----------
UNITED STATES (35.3%)
U.S. Treasury Bonds
6.875%, 8/15/25 USD 5,500 5,431
7.625%, 2/15/25 USD 500 537
U.S. Treasury Notes
5.625%, 2/28/01 USD 7,000 6,775
5.625%, 2/15/06 USD 2,800 2,596
5.875%, 8/15/98 USD 5,500 5,472
6.125%, 7/31/00 USD 1,000 990
-----------
21,801
-----------
- ------------------------------------------------------------------
TOTAL BONDS (Cost $29,930) 29,335
- ------------------------------------------------------------------
<CAPTION>
EQUITY SECURITIES (6.5%)(1)
- ------------------------------------------------------------------
Shares
-------
<S> <C> <C>
JAPAN (1.9%)
* Nikkei 300 Investment Trust Units 400,000 1,203
-----------
MISCELLANEOUS (4.6%) 2,856
-----------
- ------------------------------------------------------------------
TOTAL EQUITY SECURITIES
(Cost $3,653) 4,059
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (43.9%)(2)
- ------------------------------------------------------------------
Face Amount
(000)
-----------
<S> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.32%, 5/1/96 $10,125 10,125
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
Market
GLOBAL ASSET ALLOCATION Value
PORTFOLIO (continued) Shares (000)+
- ------------------------------------------------------------------
<S> <C> <C>
Salomon Brothers
5.15%, 5/2/96
(Collateralized by U.S.
Treasury Note 6.125%, 5/15/98) $15,000 $ 15,000
U.S. TREASURY BILL--Note E
5.20%, 6/13/96 2,000 1,988
- ------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $27,113) 27,113
- ------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (97.9%)
(Cost $60,696) 60,507
- ------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.1%)(2)
- ------------------------------------------------------------------
Other Assets--Notes C and G 16,345
Liabilities--Note G (15,075)
-----------
1,270
- ------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------
Applicable to 5,768,572 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $ 61,777
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.71
==================================================================
</TABLE>
OPEN FUTURES CONTRACTS AT APRIL 30, 1996:
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value Unrealized
Contracts Long Appreciation
Long (000) (000)
- ------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY INDEX FUTURES CONTRACTS(1)
- ------------------------------------------------------------------
AUSTRALIA
All Ordinary Index (exp. 6/96) 13 $ 596 $ 15
-----------
CANADA
Toronto 35 (exp. 6/96) 3 292 11
-----------
FRANCE
CAC 40 (exp. 5/96-6/96) 11 906 36
-----------
GERMANY
DAX (exp. 6/96) 15 2,436 68
-----------
HONG KONG
Hang Seng (exp. 5/96) 3 212 1
-----------
JAPAN
Nikkei 300 (exp. 6/96) 72 2,168 171
-----------
SPAIN
IBX 35 (exp. 5/96) 100 321 6
-----------
UNITED KINGDOM
FTSE 100 (exp. 6/96) 24 3,440 73
-----------
UNITED STATES
Standard & Poor's 500
(exp. 6/96-12/96) 17 5,600 239
-----------
- ------------------------------------------------------------------
TOTAL EQUITY INDEX
FUTURES CONTRACTS $15,971 $620
- ------------------------------------------------------------------
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
(1) The combined market value of equity securities and equity index futures
contracts represents 32.4% of net assets, distributed by country as
follows:
<TABLE>
<S> <C>
Australia 0.9%
Canada 1.0
China 0.9
France 1.5
Germany 3.9
Hong Kong 0.3
Japan 5.5
Korea 1.0
Latin America 0.3
Portugal 0.4
Spain 1.5
Taiwan 0.5
United Kingdom 5.6
United States 9.1
</TABLE>
(2) The effective cash position represents 20.1% of net assets. Cash
reserves above this level are invested in equity and bond markets
through the use of futures contracts.
AUD--Australian Dollar.
CAD--Canadian Dollar.
DEM--German Deutsche Mark.
FRF--French Franc.
GBP--British Sterling Pound.
USD--United States Dollar.
- ------------------------------------------------------------------
AT APRIL 30, 1996, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PER
(000) SHARE
------- ------
<S> <C> <C>
PAID IN CAPITAL $58,781 $10.18
UNDISTRIBUTED NET
INVESTMENT INCOME--NOTE D 772 .13
ACCUMULATED NET
REALIZED GAINS--NOTE D 1,749 .31
UNREALIZED APPRECIATION
(DEPRECIATION)--NOTES E AND F:
INVESTMENT SECURITIES (189) (.03)
FUTURES CONTRACTS 620 .11
FOREIGN CURRENCIES AND
FORWARD CURRENCY CONTRACTS 44 .01
- ------------------------------------------------------------------
NET ASSETS $61,777 $10.71
- ------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH CAPITAL OPPORTUNITY
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
April 30, 1996 April 30, 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . $ 824 $ 175
Interest . . . . . . . . . . . . . . . . . . . . . . . 16 142
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 840 317
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . 42 177
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . $80 $123
Marketing and Distribution . . . . . . . . . . . . . 8 88 7 130
--- ----
Taxes (other than income taxes) . . . . . . . . . . . . 3 3
Custodian Fees . . . . . . . . . . . . . . . . . . . . 6 4
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 4 4
Shareholders' Reports . . . . . . . . . . . . . . . . . 9 8
Annual Meeting and Proxy Costs . . . . . . . . . . . . 2 2
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 154 328
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) . . . . . . . . 686 (11)
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . 1,880 (9,839)
Futures Contracts . . . . . . . . . . . . . . . . . . . -- --
Foreign Currencies and Forward Currency Contracts . . . -- --
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . 1,880 (9,839)
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . 11,014 18,767
Futures Contracts . . . . . . . . . . . . . . . . . . . -- --
Foreign Currencies and Forward Currency Contracts . . . -- --
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . 11,014 18,767
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . $13,580 $ 8,917
===================================================================================================================
</TABLE>
15
<PAGE> 16
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY GLOBAL ASSET ALLOCATION
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
April 30, 1996 April 30, 1996
(000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
INCOME
Dividends(1) . . . . . . . . . . . . . . . . . . . . . $ 433 $ 29
Interest . . . . . . . . . . . . . . . . . . . . . . . 120 1,513
- -------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . 553 1,542
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . 110 112
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . . . $54 $98
Marketing and Distribution . . . . . . . . . . . . . 4 58 6 104
--- ---
Taxes (other than income taxes) . . . . . . . . . . . . 2 2
Custodian Fees . . . . . . . . . . . . . . . . . . . . 24 8
Auditing Fees . . . . . . . . . . . . . . . . . . . . . 5 4
Shareholders' Reports . . . . . . . . . . . . . . . . . 5 4
Annual Meeting and Proxy Costs . . . . . . . . . . . . 1 1
- -------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . 205 235
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) . . . . . . . . 348 1,307
- -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . 788 123
Futures Contracts . . . . . . . . . . . . . . . . . . . -- 1,501
Foreign Currencies and Forward Currency Contracts . . . (3) 126
- -------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . 785 1,750
- -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . 5,618 (577)
Futures Contracts . . . . . . . . . . . . . . . . . . . -- 646
Foreign Currencies and Forward Currency Contracts . . . 78 32
- -------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . 5,696 101
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations . . . . . . . . $6,829 $3,158
===================================================================================================================
</TABLE>
(1)Dividends for the Global Equity Portfolio are net of foreign withholding
taxes of $38,000.
16
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH CAPITAL OPPORTUNITY
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED June 30, 1995 to ENDED June 30, 1995 to
APRIL 30, 1996 October 31, 1995 APRIL 30, 1996 October 31, 1995
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income (Loss) . . . . . . $ 686 $ 260 $ (11) $ 173
Realized Net Gain (Loss) . . . . . . . . 1,880 (9) (9,839) (5,435)
Change in Unrealized
Appreciation (Depreciation) . . . . . 11,014 (80) 18,767 2,894
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting
from Operations . . . . . . . 13,580 171 8,917 (2,368)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . (540) -- (245) --
Realized Net Gain . . . . . . . . . . . -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . (540) -- (245) --
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . 31,528 62,754 29,618 75,981
Issued in Lieu of Cash Distributions . . 527 -- 236 --
Redeemed . . . . . . . . . . . . . . (3,216) (758) (9,782) (1,312)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . 28,839 61,996 20,072 74,669
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . 41,879 62,167 28,744 72,301
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note H . . . . . . 62,267 100 72,301 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . $104,146 $62,267 $101,045 $72,301
====================================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 2,861 6,151 3,123 7,586
Issued in Lieu of Cash Distributions 49 -- 25 --
Redeemed . . . . . . . . . . . . . (294) (74) (1,026) (137)
- ------------------------------------------------------------------------------------------------------------------------------------
2,616 6,077 2,122 7,449
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GLOBAL EQUITY GLOBAL ASSET ALLOCATION
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
ENDED June 30, 1995 to ENDED June 30, 1995 to
APRIL 30, 1996 October 31, 1995 APRIL 30, 1996 October 31, 1995
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income (Loss) . . . . . . $ 348 $ 140 $ 1,307 $ 453
Realized Net Gain (Loss) . . . . . . . . 785 22 1,750 86
Change in Unrealized
Appreciation (Depreciation) . . . . . 5,696 (231) 101 374
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Net Assets Resulting
from Operations . . . . . . . 6,829 (69) 3,158 913
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income . . . . . . . . . (274) -- (935) --
Realized Net Gain . . . . . . . . . . . -- -- (140) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . (274) -- (1,075) --
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (1)
Issued . . . . . . . . . . . . . . 18,946 36,268 16,481 43,962
Issued in Lieu of Cash Distributions . . 267 -- 770 --
Redeemed . . . . . . . . . . . . . . (1,747) (229) (2,272) (160)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . 17,466 36,039 14,979 43,802
- ------------------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . 24,021 35,970 17,062 44,715
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note H . . . . . . 35,970 -- 44,715 --
- ------------------------------------------------------------------------------------------------------------------------------------
End of Period . . . . . . . . . . . . . $59,991 $35,970 $61,777 $44,715
====================================================================================================================================
(1) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 1,757 3,592 1,559 4,369
Issued in Lieu of Cash Distributions 25 -- 73 --
Redeemed . . . . . . . . . . . . . (163) (22) (216) (16)
- ------------------------------------------------------------------------------------------------------------------------------------
1,619 3,570 1,416 4,353
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH CAPITAL OPPORTUNITY
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED June 30, 1995+ to SIX MONTHS ENDED June 30, 1995+ to
For a Share Outstanding Throughout Each Period APRIL 30, 1996 October 31, 1995 APRIL 30, 1996 October 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.23 $10.00 $ 9.71 $10.00
--------- ------- --------- --------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .09 .04 -- .02
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . 1.73 .19 .88 (.31)
--------- ------- --------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . 1.82 .23 .88 (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.08) -- (.03) --
Distributions from Realized Capital Gains . . -- -- -- --
--------- ------- --------- --------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.08) -- (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $11.97 $10.23 $10.56 $ 9.71
====================================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . +17.88% +1.69% +9.09% -3.19%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $104 $62 $101 $72
Ratio of Expenses to Average Net Assets . . . . . .38%* .06%* .76%* .47%*
Ratio of Net Investment Income (Loss)
to Average Net Assets . . . . . . . . . . . . 1.67%* 2.22%* (.03)%* 1.29%*
Portfolio Turnover Rate . . . . . . . . . . . . . 45%* 0% 163%* 30%
Average Commission Rate Paid . . . . . . . . . . $.0291++ N/A $.0523++ N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Subscription period for each Portfolio was June 30, 1995, to August 13,
1995, during which time all assets were held in money market
instruments. Performance measurement begins August 14, 1995.
++ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
(1) Total returns do not reflect the 1% fee that is assessed on redemptions
of shares that are held in the Portfolio for less than five years.
19
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GLOBAL EQUITY GLOBAL ASSET ALLOCATION
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED June 30, 1995+ to SIX MONTHS ENDED June 30, 1995+ to
For a Share Outstanding Throughout Each Period APRIL 30, 1996 October 31, 1995 APRIL 30, 1996 October 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $10.08 $10.00 $10.27 $10.00
--------- -------- ------- -------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .07 .04 .21 .11
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . 1.48 .04 .46 .16
--------- -------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS . . . 1.55 .08 .67 .27
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.07) -- (.20) --
Distributions from Realized Capital Gains . . -- -- (.03) --
--------- -------- ------- -------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.07) -- (.23) --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $11.56 $10.08 $10.71 $10.27
===================================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . +15.45% +0.50% +6.57% +2.39%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $60 $36 $62 $45
Ratio of Expenses to Average Net Assets . . . . . .87%* .57%* .85%* .52%*
Ratio of Net Investment Income (Loss)
to Average Net Assets . . . . . . . . . . . . 1.47%* 2.04%* 4.80%* 5.42%*
Portfolio Turnover Rate . . . . . . . . . . . . . 42%* 2% 285%* 17%
Average Commission Rate Paid . . . . . . . . . . $.0276++ N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Subscription period for each Portfolio was June 30, 1995, to August 13,
1995, during which time all assets were held in money market
instruments. Performance measurement begins August 14, 1995.
++ Represents total commissions paid on portfolio securities divided by
the total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
(1) Total returns do not reflect the 1% fee that is assessed on redemptions
of shares that are held in the Portfolio for less than five years.
NOTES TO FINANCIAL STATEMENTS
Vanguard Horizon Fund is registered under the Investment Company Act of 1940 as
a diversified open-end investment company and consists of the Aggressive
Growth, Capital Opportunity, Global Equity, and Global Asset Allocation
Portfolios. The Global Equity and Global Asset Allocation Portfolios invest in
securities of foreign issuers which may subject them to investment risks not
normally associated with investing in securities of United States corporations.
The Global Asset Allocation Portfolio also invests in debt instruments of
foreign governments; the issuers' abilities to meet these obligations may be
affected by economic and political developments in their respective countries.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
20
<PAGE> 21
1. SECURITY VALUATION: Securities listed on an exchange are valued at the
latest quoted sales prices as of the close of the New York Stock Exchange
(generally 4:00 PM) on the valuation date; securities not traded on the
valuation date are valued at the mean of the latest quoted bid and asked
prices. Securities listed on foreign exchanges are valued at the latest
quoted sales prices. Securities not listed are valued at the latest
quoted bid prices. Bonds, and temporary cash investments acquired over
sixty days to maturity, are valued at the latest quoted bid prices and on
the basis of a matrix system (which considers such factors as security
prices, yields, maturities, and ratings), both as furnished by
independent pricing services. Other temporary cash investments are valued
at amortized cost which approximates market value.
2. FOREIGN CURRENCY: Securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollars at the bid prices
of those currencies against U.S. dollars last quoted by major banks as of
5:00 PM Geneva time on the valuation date.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on securities from the
portion arising from changes in market prices of securities. Such
fluctuations are included in realized net gains (losses) and unrealized
appreciation (depreciation) on investment securities. Changes in the
value of other assets and liabilities resulting from changes in foreign
exchange rates are recorded as unrealized foreign currency gains (losses)
until settled in cash, at which time realized foreign currency gains
(losses) are recognized.
3. FUTURES AND FORWARD CURRENCY CONTRACTS: The Global Asset Allocation
Portfolio may invest up to 50% of its net assets in U.S. and foreign
equity index futures contracts. The Portfolio may invest in futures
contracts instead of the underlying stocks to achieve exposure to the
entire index of stocks in a selected country while minimizing
transaction costs. The primary risks associated with the use of futures
contracts are imperfect correlation between changes in market values of
stocks contained in the indexes and the prices of futures contracts, and
the possibility of an illiquid market.
The Global Equity and Global Asset Allocation Portfolios enter into
forward currency contracts to protect the value of securities and
related receivables and payables against changes in future foreign
exchange rates. Risks associated with these contracts include movement in
the value of the foreign currency relative to the U.S. dollar and the
ability of the counterparties to fulfill their obligations under the
contracts.
Futures and forward currency contracts are valued based upon their quoted
daily settlement prices. The aggregate principal amounts of such
contracts are not recorded in the financial statements. Fluctuations in
the value of the contracts are recorded in the Statement of Net Assets as
an asset (liability) and in the Statement of Operations as unrealized
appreciation (depreciation) until terminated, at which time realized
gains (losses) are recognized. Unrealized appreciation (depreciation) on
certain open futures and forward contracts is required to be treated as
realized gain (loss) for Federal income tax purposes.
4. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
5. REPURCHASE AGREEMENTS: Each Portfolio of the Fund, along with other
members of The Vanguard Group, transfers uninvested cash balances into a
Pooled Cash Account, the daily aggregate of which is invested in
repurchase agreements secured by U.S. Government obligations. Securities
pledged as
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
collateral for repurchase agreements are held by a custodian bank until
maturity of the repurchase agreements. Provisions of each agreement
require that the market value of this collateral is sufficient in the
event of default; however in the event of default or bankruptcy by the
other party to the agreement, realization and/or retention of the
collateral may be subject to legal proceedings.
6. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and
losses on the sale of investments are those of specific securities sold.
Discounts on debt securities purchased are amortized to interest income
over the lives of the respective securities. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
B. Under the terms of advisory contracts, investment advisory fee payments
are calculated at an annual percentage rate of average net assets of the
following Portfolios:
<TABLE>
<CAPTION>
- --------------------------------------------------------
Contract
Portfolio Investment Adviser Exp. Date
- --------------------------------------------------------
<S> <C> <C>
CAPITAL OPPORTUNITY HUSIC CAPITAL MAY 22, 1997
MANAGEMENT
GLOBAL EQUITY MARATHON ASSET JUNE 29, 1997
MANAGEMENT LIMITED
GLOBAL ASSET STRATEGIC INVESTMENT AUGUST 13, 1997
ALLOCATION MANAGEMENT
- --------------------------------------------------------
</TABLE>
For the period ended April 30, 1996, the investment advisory fees of the
Capital Opportunity, Global Equity, and Global Asset Allocation Portfolios
represented effective annual rates of .41 of 1%, .47 of 1%, and .41 of 1%,
respectively, of average net assets.
The Vanguard Group furnishes investment advisory services to the Aggressive
Growth Portfolio on an at-cost basis.
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the Fund under methods approved by the Board of Directors. At April 30,
1996, the Fund had contributed capital of $32,000 to Vanguard (included in
Other Assets), representing .2% of Vanguard's capitalization. The Fund's
directors and officers are also directors and officers of Vanguard.
D. During the period ended April 30, 1996, purchases and sales of investment
securities, other than U.S. Government securities and temporary cash
investments, were:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(000)
-----------------------
Portfolio Purchases Sales
- -------------------------------------------------------
<S> <C> <C>
AGGRESSIVE GROWTH $47,651 $18,659
CAPITAL OPPORTUNITY 83,036 68,055
GLOBAL EQUITY 23,635 9,083
GLOBAL ASSET ALLOCATION 11,086 10,033
- -------------------------------------------------------
</TABLE>
The Global Asset Allocation Portfolio made purchases and sales of U.S.
Government securities of $31,398,000 and $29,257,000, respectively.
At October 31, 1995, the Aggressive Growth and Capital Opportunity Portfolios
had available capital loss carryforwards of $9,000 and $5,435,000,
respectively, to offset future net capital gains through October 31, 2003.
During the period ended April 30, 1996, the Global Equity and Global Asset
Allocation Portfolios realized net foreign currency gains (losses) of ($3,000)
and $86,000, respectively, which increased (decreased) distributable net income
for tax purposes; accordingly, such gains (losses) have been reclassified from
accumulated net realized gains to undistributed net income.
E. At April 30, 1996, net unrealized appreciation (depreciation) of investment
securities for financial reporting and Federal income tax purposes was:
22
<PAGE> 23
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(000)
---------------------------------------------
Net Unrealized
Appreciated Depreciated Appreciation
Portfolio Securities Securities (Depreciation)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
AGGRESSIVE GROWTH $13,310 $(2,376) $10,934
CAPITAL OPPORTUNITY 23,194 (1,533) 21,661
GLOBAL EQUITY 6,298 (891) 5,407
GLOBAL ASSET ALLOCATION 493 (682) (189)
- ---------------------------------------------------------------------
</TABLE>
At April 30, 1996, the market value of U.S. Treasury bills deposited as initial
margin for open futures contracts held by the Global Asset Allocation Portfolio
was $1,988,000.
F. Under the terms of open forward currency contracts at April 30, 1996, the
Global Equity and Global Asset Allocation Portfolios were obligated to receive
and deliver foreign currencies in exchange for U.S. dollars as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(000)
------------------------------------------
Unrealized
Portfolio/ Foreign U.S. Appreciation
Contract Settlement Dates Currency Dollars (Depreciation)
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
GLOBAL EQUITY
DELIVER:
- --------
9/19/96 JPY 148,020 $1,500 $ 60
GLOBAL ASSET ALLOCATION
RECEIVE:
- --------
6/20/96-8/22/96 DEM 1,600 1,092 $(44)
6/20/96-8/22/96 FRF 10,000 1,972 (33)
6/20/96-8/22/96 JPY 185,000 1,765 22
7/17/96-8/22/96 GBP 880 1,329 (11)
DELIVER:
- --------
5/22/96-8/22/96 JPY 273,000 2,601 (33)
6/20/96 AUD 600 448 (22)
6/20/96 DEM 1,000 688 34
6/20/96-7/17/96 GBP 1,550 2,387 64
7/17/96-8/22/96 FRF 16,600 3,287 68
8/22/96 CAD 300 221 1
- --------------------------------------------------------------------
</TABLE>
AUD--Australian Dollar.
CAD--Canadian Dollar.
DEM--German Deutsche Mark.
FRF--French Franc.
GBP--British Sterling Pound.
JPY--Japanese Yen.
At April 30, 1996, the Global Equity and Global Asset Allocation Portfolios
each had net unrealized foreign currency losses of $2,000 resulting from the
translation of other assets and liabilities.
G. The market values of securities on loan to broker/dealers at April 30,
1996, and cash collateral received with respect to such loans, were:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(000)
--------------------------
Market Value Cash
of Loaned Collateral
Portfolio Securities Received
- --------------------------------------------------------
<S> <C> <C>
GLOBAL EQUITY $ 407 $ 441
GLOBAL ASSET ALLOCATION 14,399 14,914
- --------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
H. The Fund was organized on November 9, 1994, and its operations up to June
30, 1995, were limited to the sale and issuance of 10,000 shares of common
stock of the Aggressive Growth Portfolio to a director and officer of the Fund.
23
<PAGE> 24
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1 (800) 662-7447 1 (800) 662-2739
This Report has been prepared for shareholders and may be distributed
to others only if preceded or accompanied by a current prospectus.
All Funds in the Vanguard Family are offered by prospectus only.
Q692-4/96
VANGUARD
HORIZON FUND
SEMI-ANNUAL REPORT
APRIL 30, 1996
