<PAGE> 1
[VANGUARD HORIZON FUND LOGO]
ANNUAL REPORT 1995
<PAGE> 2
In this Annual Report, I am delighted to formally introduce you to John J.
Brennan, who, on January 31, 1996, will assume my responsibilities as Chief
Executive Officer of Vanguard Horizon Fund and the other Funds in The Vanguard
Group. Mr. Brennan will continue to serve as President of the Funds, and I will
continue to serve as Chairman of the Board.
As a shareholder of the Fund since its inception and as Chairman of
all the Vanguard Funds, I want to tell you that I am enthusiastic and confident
that Jack Brennan is exactly the right person to succeed me as Chief Executive
Officer. To use yet another Vanguard nautical metaphor, he will be the new
captain. He has the qualities of leadership, integrity, intelligence, and
vision that must continue to be Vanguard's hallmark as we move toward, and then
into, the 21st century.
I know that he has these qualities, because Jack Brennan and I have
been working closely together since he joined Vanguard in 1982. He is a
graduate of Dartmouth College and Harvard Business School. He started as
Assistant to the Chairman and, rising like a rocket, became President in 1989.
While, at age 41, he may seem young, he is in fact older than I was when I
became Chief Executive Officer of Vanguard's predecessor organization in 1967,
at the age of 38. Most important of all, Jack is completely dedicated to the
Vanguard character, and believes in our basic mission: serving solely the
shareholder, free of any conflict of interest. He believes in holding our costs
of operation to a minimum, and in retaining our position as the lowest-cost
provider of financial services in the world. He is a true competitor, who
shares Vanguard's dedication to providing highly competitive returns to our
investors relative to the returns provided by other mutual funds with
comparable objectives. He also believes in reporting our results to
shareholders with complete candor. He has the full support of the Board of
Directors and our crew, and is committed to staying the course we have set for
Vanguard. You need have no doubt that the essential elements that drew you to
Vanguard in the first place will remain intact.
[FIGURE 1]
As for me, I expect to fill a useful, if less demanding, role as
Chairman of the Board. I shall keep a watchful eye over the interests of our
shareholders, our crew, and our investment policies. I shall also speak out on
industry affairs, reminding all who will listen of the primacy of the interests
of mutual fund shareholders. I will be readily available to provide Jack
Brennan with whatever wisdom I may have acquired during my lifetime of
experience in this wonderful industry and in my service as captain of Vanguard
since I founded this unique organization more than two decades ago.
In short, I'll still be around. Thank you for all your confidence in
me in the past and, in advance, for your continued confidence in Vanguard under
Jack Brennan's leadership.
/s/ JOHN C. BOGLE
VANGUARD HORIZON FUND CONSISTS OF FOUR PORTFOLIOS, EACH OF WHICH SEEKS TO
PROVIDE ABOVE-AVERAGE RETURNS BY ASSUMING COMMENSURATELY HIGHER RISKS. THE
PORTFOLIOS' AGGRESSIVE PURSUIT OF LONG-TERM GROWTH SUGGESTS THAT FUND INVESTORS
SHOULD EXPECT SUBSTANTIAL SHARE-PRICE FLUCTUATIONS.
<PAGE> 3
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
This is my first opportunity to write directly to you since the initial public
offering of Vanguard Horizon Fund took place on August 14, 1995. So, whether
you joined the Fund on that date, or during the ensuing days through October
31, 1995, I welcome you as a charter shareholder. I also want to thank you for
your confidence in Vanguard and in the investment managers we have selected for
the Fund's Portfolios.
I should note that, since the Fund's first fiscal year ended on
October 31, this is our first Annual Report, albeit for what is usually
described as a "stub" period. So, we present a table at the conclusion of this
letter showing the net asset values (including accrued income) and total return
for each Portfolio since the Fund's inception date. To say that these small
percentage differences in total return are utterly meaningless probably
overstates the case. Nonetheless, there are already some tangible signs of the
distinct investment characteristics of each Portfolio. For example:
- - Our Aggressive Growth Portfolio, as you might expect, has provided returns
similar to the average return of the more aggressive mutual funds searching
for high growth and willing to take commensurately high risks.
- - Our Capital Opportunity Portfolio has been highly volatile, magnified by
the extremely wild ups and downs experienced in the technology stock group
during the period since the Portfolio's inception.
- - Our Global Equity Portfolio has manifested swings in value that generally
paralleled those of the world's stock markets in the aggregate.
- - Our Global Asset Allocation Portfolio has been the least volatile, and best
performing, of the four Portfolios, reflecting the fact that bonds
constituted about two-thirds of its assets during the period.
Overall, it should be clear that Horizon Fund's pursuit of higher
returns means that the Fund is only appropriate for the investor with a truly
long-term time horizon, who understands and accepts the higher risks that go
hand in hand with the pursuit of higher returns. The specific strategies
employed by each Horizon Portfolio, as well as the risks and portfolio
characteristics associated with these strategies, are highlighted on pages 4
through 11 of this report.
BENCHMARK STANDARDS
For the record, here are the comparative returns achieved by each Portfolio
relative to its benchmark during our brief ten-week period of operations:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
TOTAL RETURN
AUGUST 14, 1995, TO
OCTOBER 31, 1995
------------------------------------------------------
VANGUARD BENCHMARK
HORIZON FUND PORTFOLIO BENCHMARK STANDARD
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGRESSIVE +1.7% +1.0% MEDIUM-SMALL
GROWTH CAP INDEX(1)
CAPITAL -3.2 -1.6 CAPITAL
OPPORTUNITY OPPORTUNITY
STOCK INDEX(2)
GLOBAL EQUITY +0.5 +1.9 WORLD INDEX(3)
GLOBAL ASSET +2.4 +2.7 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 Stock Index.
4. MSCI World Stock Index, 60%; Salomon Brothers World Bond Index, 30%; and
U.S. cash reserves, 10%.
These standards represent the best performance measures we have been able to
devise, although all have their own idiosyncrasies, as do our four Horizon
Portfolios. These standards are also the basis for the advisory fees we pay,
which entail a substantial incentive (or penalty) when we outpace (or
underperform) our benchmarks. The precise structure of our advisory fee
agreements is contained in our Vanguard Horizon Fund prospectus.
(continued)
1
<PAGE> 4
This table provides a simple (indeed oversimplified) summary of the
fee rates we have negotiated with our advisers, based on each Portfolio's
current assets:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
INVESTMENT ADVISORY FEES
------------------------------------
MAXIMUM MINIMUM
BASE FEE FEE FEE
- ----------------------------------------------------------------
<S> <C> <C> <C>
AGGRESSIVE GROWTH(1) 0.02% 0.02% 0.02%
CAPITAL OPPORTUNITY(2) 0.40 0.70 0.10
GLOBAL EQUITY(3) 0.45 0.68 0.23
GLOBAL ASSET ALLOCATION(4) 0.40 0.70 0.10
- ----------------------------------------------------------------
</TABLE>
1. Portfolio management services are provided by the Vanguard Core Management
Group on an at-cost basis. Vanguard provides incentives based on the
relative performance of the managers.
2. Base fee is earned when average annual performance over three years is
within plus or minus 2% of benchmark.
3. Base fee is earned when average annual performance over three years
outpaces benchmark by 2% to 3%.
4. Base fee is earned when average annual performance over three years outpaces
benchmark by 1.75% to 2.75%.
Put another way, the use of incentive/penalty fees directly aligns the
interests of our advisers with those of the shareholders of the Portfolios--a
parallelism too rarely found in the mutual fund industry.
THE IMPACT OF EXPENSES
I can state categorically that: (1) the investment advisory fees shown in the
table above are among the lowest--if not the lowest by far--paid to an adviser
by any publicly available equity mutual fund; and (2) our incentive/penalty fee
provisions are among the widest--if not the widest by far--in the entire mutual
fund industry. The net result is that the annual expense ratios (basic advisory
fees and operating costs as a percentage of net assets) of the Vanguard Horizon
Portfolios should average roughly 0.70% or less. The average mutual fund with
an aggressive growth, growth, or global asset allocation strategy incurs an
expense ratio of about 1.6% annually, which provides the Horizon Portfolios
with a "tailwind" equal to about 1% each year. Put another way, other factors
held equal, if we provide returns that are merely average (and we aspire to a
higher standard) before taking expenses into account, we will provide returns
that are 1% or more above average after factoring in expenses.
What is more--and this is a second critical factor in the long-run
performance equation--none of our Horizon Fund Portfolios carries a sales load.
This important advantage is available in less than one-third of the mutual
funds focusing on the aggressive growth, growth, and global sectors (274 out of
879 funds). Our competitors carrying initial (or annual) sales loads may add
another 1% cost (often more, if the shareholder owns the fund for less than
five years) to their initial 1% "headwind" of extra annual expenses. In that
case, our peers would have to outpace us by 2% per year simply to equal our net
returns. That will be no mean challenge for them!
In fairness, I would acknowledge that we impose a redemption fee of 1%
on shares held for less than five years. This fee, I should emphasize, is paid,
not to a sales agent, but directly to the Portfolio and its shareholders. It is
aimed at providing some offset to the portfolio turnover costs that any
short-term "market timers" would cause the Fund to incur. In short, the Fund is
designed for investors with a long-term time horizon, and we intend to protect
the interests of such shareholders to the very best of our ability.
IN SUMMARY
Our Fund--I reiterate, designed specifically for the investor with a truly
long-term time horizon--is off to a fairly good start. By fiscal year end, the
assets of our four Portfolios had quickly reached substantial (and relatively
similar) asset levels, as shown in this table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
TOTAL NET ASSETS (MILLIONS)
HORIZON PORTFOLIO OCTOBER 31, 1995
- -------------------------------------------------------------
<S> <C>
AGGRESSIVE GROWTH $ 62.3
CAPITAL OPPORTUNITY 72.3
GLOBAL EQUITY 36.0
GLOBAL ASSET ALLOCATION 44.7
- -------------------------------------------------------------
TOTAL $215.3
- -------------------------------------------------------------
</TABLE>
2
<PAGE> 5
Portfolio assets at these levels are more than adequate to manage efficiently
and to diversify broadly. So, we're off to a strong start.
That said, today the U.S. stock market is highly valued--that is,
risky--based on such "old fashioned" standards as dividend yield (very low) and
market price-to-book value (very high). What's more, the U.S. bond market has
come a long way in a short time, as falling interest rates have driven bond
prices upward. International financial markets have generally enjoyed modest
gains, although some of the emerging markets have tumbled sharply. Nonetheless,
when (not whether) the dollar strengthens, international stocks and bonds will
both be swimming against the tide.
Please be aware of these risks as you begin what I hope you view as a
continuing voyage with us. But also maintain your confidence in the long-term
opportunities the new Horizon Portfolios present. At Vanguard, we describe this
advice as "stay the course." So, we urge you to do precisely that.
Sincerely,
/s/ JOHN C. BOGLE
- ----------------------
John C. Bogle
Chairman of the Board
November 21, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
<TABLE>
<CAPTION>
Net Asset Value Per Share
-------------------------------
Portfolio Inception* October 31, 1995 Total Return**
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGRESSIVE GROWTH $10.06 $10.23 +1.7%
CAPITAL OPPORTUNITY 10.03 9.71 -3.2
GLOBAL EQUITY 10.03 10.08 +0.5
GLOBAL ASSET ALLOCATION 10.03 10.27 +2.4
- ---------------------------------------------------------------------------------------
</TABLE>
* Inception, August 14, 1995.
** 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.
NOTE: 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.
3
<PAGE> 6
REPORT FROM VANGUARD CORE MANAGEMENT GROUP
The Aggressive Growth Portfolio was launched during one of the strongest legs
on record of any bull market advance. The market continued to advance during
the two and one-half months of the fiscal year that the Portfolio was invested.
During this short period, larger capitalization stocks fared somewhat better
than their smaller capitalization counterparts. Large cap stocks, as
represented by the Standard & Poor's 500 Index, advanced +4.4%, while medium
and small "caps," as measured by the Russell 2800 Index, rose a more modest
+1.0%.
The Portfolio's aggressive nature leads us to concentrate our stock
selections in the medium and small capitalization universe, which has
historically provided more opportunities for large gains, although with greater
risk. Given this bias, the Portfolio's returns during this short period were in
line with those of the medium and small cap marketplace, lagging larger
capitalization benchmarks. Nonetheless, the Portfolio did outperform the medium
and small capitalization benchmark (+1.7% versus +1.0%), against which it
should be measured at the present and in the future.
MARKET ENVIRONMENT
The environment for the stock market was extraordinarily positive during the
twelve months ended October 31, 1995. With the backdrop of controlled economic
growth and a benign inflationary outlook, interest rates declined.
Simultaneously, corporate profits, reflecting several years of cost cutting
measures, increased approximately +30%. The combination of lower interest
rates, which justified the somewhat high price-to-earnings multiple of the
stock market, and strong earnings growth propelled the market to new highs,
providing a total return of +26.4%, as measured by the Standard & Poor's 500.
To be sure, not all signs were positive. The value of the dollar
declined precipitously against the Japanese yen, the German mark, and many
other currencies, as the trade deficit continued to widen. The dollar did
rebound strongly against the yen, but has risen more moderately against the
mark. The Federal budget deficit continues to add uncertainty to the market, as
rumors spread about the government not raising the debt ceiling in time to make
timely payments on its debt. These macroeconomic events were accompanied by
extreme optimism about technology stocks, which created a fair amount of
churning within the market over the final months of the fiscal year.
OUTLOOK
The stock market return over the past year (+26.4%) and, indeed, the annualized
returns over the past five (+17.2%) and ten (+15.4%) years, were very high,
given that the long-term return of the stock market has averaged about +10% per
year. It is difficult to imagine similar returns in the near future. Valuation
levels remain high, making the market susceptible to a negative economic shock.
Future growth in earnings is required to sustain any further advance in the
market.
At any point in time, the prospects of the market are never clear. At
the beginning of 1995, the conventional wisdom held that the market would be
soft during the first half and would rally in the second half, providing a
"net" return for the year in line with the +10% long-term average. As we now
know, the pundits were dead wrong and the biggest risk an investor could have
taken in 1995 was to be out of the market.
The secular trend of investors increasing their exposure to equities,
as well as the aging of the "baby boom" generation into their peak saving
years, has fueled much of the bull market of the past ten years and should
provide continued demand for stocks in the future. Nevertheless, we would not
expect future returns to match those of the past decade. A return to the
long-term average, or even somewhat less, is a more rational expectation.
Respectfully,
George U. Sauter, Principal
Vanguard Core Management Group
November 27, 1995
4
<PAGE> 7
PORTFOLIO CHARACTERISTICS
AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio may invest across all sectors of the U.S. stock
market, but is expected to emphasize the stocks of medium- and
small-capitalization companies. The Portfolio's adviser, the Vanguard Core
Management Group, uses a variety of proprietary computer models to identify
pricing inefficiencies among individual stocks or entire sectors of the stock
market.
Unlike traditional actively managed portfolios, in which managers
become very familiar with a limited number of stocks, the computer models used
by the adviser can, in a matter of seconds, analyze fundamental financial
information on thousands of stocks and rank them from most attractive to least
attractive. Given that the adviser expects to adhere to ongoing
computer-generated recommendations, the annual turnover of the Portfolio is
expected to be quite high. On balance, the Portfolio will likely entail greater
risk and volatility than the typical aggressive growth fund.
This table compares the Portfolio's sector diversification and several
other factors relative to the Wilshire 5000 Index, as of October 31, 1995. (The
Wilshire 5000 Index represents virtually the entire market capitalization of
the U.S. stock market.)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
AGGRESSIVE
GROWTH WILSHIRE
PORTFOLIO 5000
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NUMBER OF HOLDINGS . . . . . . . . . . . . . . . . . . . . 70 6,843
- -----------------------------------------------------------------------------------------------
WEIGHTING IN TOP TEN HOLDINGS . . . . . . . . . . . . . . 19.6% 12.8%
- -----------------------------------------------------------------------------------------------
ASSET BREAKDOWN BY MARKET CAPITALIZATION . . . . . . . . .
LARGE . . . . . . . . . . . . . . . . . . . . . . . . 2.8% 57.4%
MEDIUM . . . . . . . . . . . . . . . . . . . . . . . 67.7 29.4
SMALL . . . . . . . . . . . . . . . . . . . . . . . . 29.5 13.2
- -----------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
- -----------------------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
BASIC MATERIALS . . . . . . . . . . . . . . . . . . . 11.2% 6.0%
CAPITAL GOODS . . . . . . . . . . . . . . . . . . . . 12.0 7.7
CONSUMER CYCLICAL . . . . . . . . . . . . . . . . . . 15.4 14.2
CONSUMER STAPLES . . . . . . . . . . . . . . . . . . 7.1 9.6
ENERGY . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.6
FINANCE . . . . . . . . . . . . . . . . . . . . . . . 18.3 15.9
HEALTH CARE . . . . . . . . . . . . . . . . . . . . . 2.5 10.1
TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . 12.0 14.2
TRANSPORTATION . . . . . . . . . . . . . . . . . . . 2.5 1.9
UTILITIES . . . . . . . . . . . . . . . . . . . . . . 9.5 11.4
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 2.8 2.4
- -----------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
- -----------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
REPORT FROM HUSIC CAPITAL MANAGEMENT
The Capital Opportunity Portfolio commenced operations on August 14, 1995, and
we began investing the Portfolio in line with our current investment themes and
market outlook. Our investment process seeks to identify stocks undergoing
changes that lead to high earnings growth and altered perceptions by other
investors.
Groups of these stocks are linked by a common relationship, or theme,
which identifies the principal driver of expected performance. Our four
investment themes include Corporate Renaissance, for companies that have
restructured their businesses to improve operating margins; The Power Of
Growth, for companies in capacity-constrained industries that are benefiting
from the economic recovery; Riding The Information Superhighway, for companies
providing computer-based technology to transmit voice, video, and data over
communications networks; and Super Secular Growers, for companies in certain
niche areas that offer the prospect of strong secular growth for the balance of
the 1990s.
As of October 31, 1995, our heaviest commitments included: (1)
technology companies, with a focus on computer networking, internet
connectivity, and productivity enhancement and entertainment software; (2)
health-care stocks, with an emphasis on companies controlling costs and
increasing productivity while improving the quality of health-care services;
and (3) financial companies positioned to take advantage of an expected decline
in interest rates and a widening of the spread between short-term and long-term
interest rates.
MARKET OUTLOOK
We believe that 1995 will produce the highest returns of this decade--even
surpassing the 30%-plus return achieved in 1991. We also believe the market
will be up again in 1996 (though not as much as in 1995), since it continues to
benefit from low inflation, stable to declining interest rates, and a
strengthening U.S. dollar. A wildcard for stock prices, and a likely
contributor to market volatility, will be: (1) the ongoing Presidential and
Congressional election campaigns; and (2) the form of any legislation to
balance the budget, cut taxes, and control government spending.
Further support for higher stock prices should come from several
factors. First of all, we are living in a period of secular global wage
disinflation, which is extremely positive for corporate profits and interest
rates. Despite the economic recovery, the process of lowering costs and
restructuring companies continues. Recently, we have the example of AT&T
splitting itself into three parts and announcing they will lay off 20,000
employees. Such restructurings have increased efficiency and profitability
beyond most expectations. We see this trend continuing.
Second, the torrid pace of merger and acquisition activity will
provide important support for the market. In the third quarter, we saw major
moves made by Disney on Capital Cities and by Time Warner on Turner
Broadcasting. International merger activity is also occurring at a rapid clip.
1995 should establish a new record for dollar volume of mergers and
acquisitions.
Third, we expect corporate profits to continue to do well, a result of
corporate restructuring, the level of the U.S. dollar, and the successful
position of American industry at the forefront of a number of high-growth
industries, including technology, health care, media, and financial services.
Looking ahead, we believe that small-cap and mid-cap growth stocks
will outperform large-cap stocks. In a low inflation, slow economic growth
environment, small and mid-size companies are better positioned to achieve
higher rates of earnings growth. Most importantly, their smaller cap stock
valuations remain favorable relative to larger cap stocks. We anticipate
capitalizing on the positive environment we see for the shareholders of the
Capital Opportunity Portfolio.
Respectfully,
Frank J. Husic, Managing Partner
Husic Capital Management
November 15, 1995
6
<PAGE> 9
PORTFOLIO CHARACTERISTICS
CAPITAL OPPORTUNITY PORTFOLIO
The Capital Opportunity Portfolio invests primarily in the stocks of small and
medium-sized companies. The Portfolio's investment adviser, Husic Capital
Management, focuses on companies and industries that it believes will soon
experience changes--either positive or negative--that have not been anticipated
by the general investment community. When positive situations are identified,
the adviser may accumulate a significant weighting in a particular company or
market sector.
The Portfolio will tend to be relatively undiversified, with assets
concentrated in roughly 35 to 40 companies, the top ten of which will generally
comprise some 40% of the total Portfolio. On the other hand, in cases where the
adviser identifies what it regards as a negative change, it may allocate up to
10% of the Portfolio's assets to sell stocks short or use put options. (No
assets are currently invested under this strategy.) On balance, the Portfolio
will likely entail greater risk and volatility than the average capital
appreciation fund.
This table compares the Portfolio's sector diversification and several
other factors relative to the Wilshire 5000 Index, as of October 31, 1995. (The
Wilshire 5000 Index represents virtually the entire market capitalization of
the U.S. stock market.)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CAPITAL
OPPORTUNITY WILSHIRE
PORTFOLIO 5000
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
NUMBER OF HOLDINGS . . . . . . . . . . . . . . . . . . . . 39 6,843
- -----------------------------------------------------------------------------------------------
WEIGHTING IN TOP TEN HOLDINGS . . . . . . . . . . . . . . 38.1% 12.8%
- -----------------------------------------------------------------------------------------------
ASSET BREAKDOWN BY MARKET CAPITALIZATION
LARGE . . . . . . . . . . . . . . . . . . . . . . . . 30.1% 57.4%
MEDIUM . . . . . . . . . . . . . . . . . . . . . . . 44.7 29.4
SMALL . . . . . . . . . . . . . . . . . . . . . . . . 25.2 13.2
- -----------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
- -----------------------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
BASIC MATERIALS . . . . . . . . . . . . . . . . . . . 2.6% 6.0%
CAPITAL GOODS . . . . . . . . . . . . . . . . . . . . 1.3 7.7
CONSUMER CYCLICAL . . . . . . . . . . . . . . . . . . 11.9 14.2
CONSUMER STAPLES . . . . . . . . . . . . . . . . . . 0.0 9.6
ENERGY . . . . . . . . . . . . . . . . . . . . . . . 0.0 6.6
FINANCE . . . . . . . . . . . . . . . . . . . . . . . 12.3 15.9
HEALTH CARE . . . . . . . . . . . . . . . . . . . . . 13.1 10.1
TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . 58.8 14.2
TRANSPORTATION . . . . . . . . . . . . . . . . . . . 0.0 1.9
UTILITIES . . . . . . . . . . . . . . . . . . . . . . 0.0 11.4
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 0.0 2.4
- -----------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
- -----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
REPORT FROM MARATHON ASSET MANAGEMENT LIMITED
It is a great honor to report to shareholders of the Global Equity Portfolio
for the first time. At fiscal year end, the Portfolio has been in existence for
just over ten weeks, and the bulk of the management time has been spent on the
construction of a Portfolio that will benefit shareholders over the next
several years. Rather than focusing on short-term results, we focus on the
Portfolio itself and the prospects for the year ahead.
The current global economic upswing is characterized by a slowdown in
many countries and accompanying declines in interest rates. The fear that this
slowdown might deepen into a recession concerns many investors, and is no doubt
affecting their enthusiasm for various market sectors. Outside of the U.S., the
impact of the slowdown on share prices has been more pronounced, because the
profits recovery has been muted.
The good news is that many countries will be keen to cut interest
rates and loosen monetary policy if they perceive growth to be weakening.
Indeed, the authorities in Japan have done precisely that in the past three
months by engineering a significant decline in the value of the yen. Similar
actions may continue to take place in parts of Europe.
On balance, the economic characteristics associated with the tops of
economic cycles do not appear to be present. Inflationary expectations, high
levels of capacity utilization, and excessive investment spending by
corporations are all conspicuous by their absence in most nations. The
disinterested observer would claim that conditions appear closer to the bottom
than to the top of the economic cycle.
For shareholders in the Global Equity Portfolio, this is an added
positive, since these poorer economic conditions are reflected in the pricing
of corporate assets in the various stock markets. It is possible to generalize
that similar corporate assets are available in international stock markets at
up to half the price of comparable firms in the United States. While there is
no guarantee that this valuation gap will be closed, "regression to the
average" is an important investment principle.
The investment of the Portfolio has been undertaken in line with
Marathon's global model (see table on facing page). The main features of the
Portfolio are a bias toward the softer-currency European economies at the
expense of France, Germany, and the Netherlands, and a relatively modest
exposure to Southeast Asia and other emerging markets.
The basis for the European disposition of assets reflects divergent
monetary policies between member states of the European Union. The lack of
emerging markets representation primarily reflects the valuations of equity
securities in many of these markets relative both to the replacement cost of
assets and to the domestic interest rate structures. With regard to our
Japanese yen exposure, it should be noted that one-quarter is hedged forward
into U.S. dollars. We are enthusiastic about Australia and New Zealand, and are
significantly overweighted in this area.
Many market participants see the harbinger of underperformance or even
recession in current stock market action. Our view is more sanguine: economic
weakness, should it continue, is likely to be counteracted by interest rate
cuts. Such action is likely to be reflationary and should help arrest recent
unfavorable economic trends where they exist.
In the past, economic cycles have been brought to an end by
contraction in monetary growth (to reduce inflation) and overinvestment in the
real economy (which lowers capacity utilization rates). Neither of these
factors is present at the current time. Although there are no shortages of
problems or uncertainties (such as the current U.S. budget discussions), the
odds continue to favor an extended economic cycle. This should be favorable for
financial assets in fiscal year 1996.
Respectfully,
Jeremy Hosking
Marathon Asset Management Limited
November 16, 1995
8
<PAGE> 11
PORTFOLIO CHARACTERISTICS
GLOBAL EQUITY PORTFOLIO
The Global Equity Portfolio may invest in all of the world's equity markets,
from established markets such as the U.S. and Japan to emerging markets such as
Mexico and Thailand. The Portfolio's London-based adviser, Marathon Asset
Management Limited, concentrates its analysis on individual companies and the
industries in which they invest, rather than the macroeconomic trends within
each country.
While the Portfolio will generally be fairly well-diversified among
the global equity markets, the holdings within each country may be concentrated
among relatively few companies. The adviser's primary strategy revolves around
valuing companies on the basis of "return on assets," a good measure of a
firm's ability to generate future earnings growth. On balance, the Portfolio
will likely entail about the same level of risk and volatility as the typical
global equity mutual fund.
This table compares the Portfolio's country diversification relative
to the Morgan Stanley Capital International All-Country Stock Index. (This
Index represents virtually the entire market capitalization of the world's
equity markets.)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
GLOBAL
EQUITY WORLD
COUNTRY PORTFOLIO INDEX
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
AUSTRALIA . . . . . . . . . . . . . . . . . . . . . . . . 4.4% 1.5%
HONG KONG . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.8
JAPAN . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7 16.7
MALAYSIA . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.2
NEW ZEALAND . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.3
SINGAPORE . . . . . . . . . . . . . . . . . . . . . . . . 1.3 0.8
- -----------------------------------------------------------------------------------------------
PACIFIC REGION . . . . . . . . . . . . . . . . . . . 24.9% 22.3%
- -----------------------------------------------------------------------------------------------
FRANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0% 3.7%
GERMANY . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 3.9
NETHERLANDS . . . . . . . . . . . . . . . . . . . . . . . 1.4 2.3
SWEDEN . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 1.2
SWITZERLAND . . . . . . . . . . . . . . . . . . . . . . . 1.5 3.4
UNITED KINGDOM . . . . . . . . . . . . . . . . . . . . . . 12.3 9.5
OTHER (EIGHT COUNTRIES) . . . . . . . . . . . . . . . . . 4.7 4.4
- -----------------------------------------------------------------------------------------------
EUROPEAN REGION . . . . . . . . . . . . . . . . . . . 31.0% 28.4%
- -----------------------------------------------------------------------------------------------
CANADA . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7% 2.2%
UNITED STATES . . . . . . . . . . . . . . . . . . . . . . 30.1 40.7
- -----------------------------------------------------------------------------------------------
NORTH AMERICAN REGION . . . . . . . . . . . . . . . . 31.8% 42.9%
- -----------------------------------------------------------------------------------------------
MEXICO . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0% 0.6%
SOUTH AFRICA . . . . . . . . . . . . . . . . . . . . . . . 2.1 1.2
OTHER (TWENTY COUNTRIES) . . . . . . . . . . . . . . . . . 0.0 4.6
- -----------------------------------------------------------------------------------------------
EMERGING MARKETS . . . . . . . . . . . . . . . . . . 3.1% 6.4%
- -----------------------------------------------------------------------------------------------
CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2% 0.0%
- -----------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
- -----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
REPORT FROM STRATEGIC INVESTMENT MANAGEMENT
Strategic Investment Management began managing the assets of the Global Asset
Allocation Portfolio on August 14, 1995. During the two and one-half months
since the Portfolio's inception, equity returns have continued to rise at an
exceptional pace, well in excess of long-term historical averages. We benefited
from strong financial markets generally, and the U.S. bond market in
particular, but only marginally from the robust U.S. equity market because of
the Portfolio's very low allocation to U.S. stocks.
The Portfolio has been postured defensively. We currently are
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). The Portfolio's defensiveness relative to the benchmark has yet to
be rewarded.
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 (1) those
assets with favorable valuation levels (i.e., which have incorporated high
levels of perceived risk), and (2) economies experiencing plentiful financial
liquidity (i.e., where the expected flow of available credit exceeds the
demands coming from the real economy).
We believe that global stock markets, particularly U.S. stocks, are
unfavorably valued, with lower-than-average risk priced into the markets (e.g.,
price-to-normalized earnings ratios are quite elevated). On the other hand,
fixed-income markets have had about average levels of valuation or risk priced
into them (e.g., yields adjusted for expected inflation are average to above
average). Financial liquidity, as measured by declines in expected inflationary
pressures or short-term interest rate declines, has been somewhat less
accommodative than average in the U.S., but is improving in most non-U.S.
markets.
Our Portfolio has held bonds modestly above the duration of the
benchmark, reflecting our expectation of declines in interest rates. Duration
was kept above the benchmark among the higher yielding markets (Australia,
Canada, United Kingdom, and France), but below the benchmark in the lower
yielding markets (Japan and Germany). Our model and the Portfolio have held a
below-benchmark foreign currency exposure (the benchmark weight being about
15%), primarily by underweighting exposure to the Japanese yen, given the
growing interest rate differential in favor of U.S. dollar denominated assets.
Our investment process is highly disciplined and operates best when
markets fluctuate excessively in relation to the relatively rare changes in the
long-term fundamentals that underpin asset returns over the long term.
Currently, the U.S. equity market rests at much above-average valuation levels.
In our view, this suggests two alternatives: (1) investors are willing to
permanently accept a level of compensation for equity risk that is well below
historical averages, or (2) investors believe that the U.S. corporate sector
has experienced an important and permanent shift to higher profitability
(caused, perhaps, by a quasi-permanent increase in productivity). Our
investment posture currently represents a bet against either proposition.
Respectfully,
Michael A. Duffy, Managing Director
Strategic Investment Management
November 14, 1995
10
<PAGE> 13
PORTFOLIO CHARACTERISTICS
GLOBAL ASSET ALLOCATION PORTFOLIO
The Global Asset Allocation Portfolio may invest in stocks, bonds, and cash
reserves in any of the world's financial markets. The Portfolio's adviser,
Strategic Investment Management, seeks to exploit pricing discrepancies among
the three asset classes and among the world's financial markets themselves. The
adviser's performance will be measured against an unmanaged Global Balanced
Index comprising 60% global stocks, 30% global bonds, and 10% U.S. cash
reserves.
At any given time, the Portfolio may be heavily concentrated in one
asset class or in a small number of countries. What's more, the adviser's
computer-aided allocation strategy may entail frequent movements among the
three asset classes and the various countries, which means that portfolio
turnover will tend to be quite high. On balance, the Portfolio will likely
entail approximately similar levels of risk and volatility compared to the
typical global asset allocation fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
GLOBAL
ASSET GLOBAL
ALLOCATION BALANCED
PORTFOLIO INDEX
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES
AUSTRALIA . . . . . . . . . . . . . . . . . . . . . . 1.5% 1.2%
CANADA . . . . . . . . . . . . . . . . . . . . . . . 1.8 1.7
FRANCE . . . . . . . . . . . . . . . . . . . . . . . 1.2 2.7
GERMANY . . . . . . . . . . . . . . . . . . . . . . . 2.4 2.7
HONG KONG . . . . . . . . . . . . . . . . . . . . . . 0.7 1.4
JAPAN . . . . . . . . . . . . . . . . . . . . . . . . 5.9 11.8
SPAIN . . . . . . . . . . . . . . . . . . . . . . . . 1.0 0.7
UNITED KINGDOM . . . . . . . . . . . . . . . . . . . 3.1 7.3
UNITED STATES . . . . . . . . . . . . . . . . . . . . 15.0 30.5
- -----------------------------------------------------------------------------------------------
TOTAL EQUITIES . . . . . . . . . . . . . . . . . . . 32.6% 60.0%
- -----------------------------------------------------------------------------------------------
BONDS
INTERNATIONAL . . . . . . . . . . . . . . . . . . . . 18.2% 17.6%
UNITED STATES . . . . . . . . . . . . . . . . . . . . 43.3 12.4
- -----------------------------------------------------------------------------------------------
TOTAL BONDS . . . . . . . . . . . . . . . . . . . . . 61.5% 30.0%
- -----------------------------------------------------------------------------------------------
CASH RESERVES . . . . . . . . . . . . . . . . . . . . . . 5.9% 10.0%
- -----------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
- -----------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS
October 31, 1995
<TABLE>
<CAPTION>
Market
AGGRESSIVE GROWTH Value
PORTFOLIO Shares (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.2%)
- ----------------------------------------------------------------------------
BASIC MATERIALS (11.2%)
Champion International Corp. 23,900 $ 1,279
Eastman Chemical 20,100 1,196
IMC Global Inc. 16,900 1,183
* LTV Corp. 57,900 811
Newmont Mining Corp. 30,200 1,140
Stone Container Corp. 33,300 550
Vigoro Corp. 19,300 837
-----------
GROUP TOTAL 6,996
-----------
- ----------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (12.0%)
Belden Inc. 37,200 898
Greenfield Industries, Inc. 35,300 1,041
Harsco Corp. 7,300 385
Johnson Controls, Inc. 17,700 1,031
Kennametal, Inc. 15,600 486
* Owens-Corning Fiberglas Corp. 26,100 1,106
TRW, Inc. 8,100 533
Thiokol Corp. 16,800 582
The Timkin Co. 15,600 628
* Varity Corp. 21,800 790
-----------
GROUP TOTAL 7,480
-----------
- ----------------------------------------------------------------------------
CONSUMER CYCLICAL (15.5%)
Black & Decker Corp. 36,200 1,226
* Boyd Gaming Corp. 73,700 1,004
* Burlington Industries 90,300 1,005
* Circus Circus Enterprises Inc. 21,100 562
Cooper Tire & Rubber Co. 28,600 661
Dow Jones & Co., Inc. 29,000 1,022
* HFS Inc. 17,700 1,084
* Heritage Media Corp. Class A 32,700 907
* Hollywood Casino Corp. 101,300 608
Pier 1 Imports Inc. 95,000 914
Wendy's International, Inc. 32,000 636
-----------
GROUP TOTAL 9,629
-----------
- ----------------------------------------------------------------------------
CONSUMER STAPLES (7.1%)
American Stores Co. 38,600 1,153
Ball Corp. 16,400 453
The Clorox Co. 13,700 983
Goodmark Foods, Inc. 25,300 455
* Safeway, Inc. 29,200 1,380
-----------
GROUP TOTAL 4,424
-----------
- ----------------------------------------------------------------------------
ENERGY (6.7%)
Coastal Corp. 34,600 1,120
Halliburton Co. 29,300 1,216
Kerr-McGee Corp. 20,500 1,130
* Western Atlas Inc. 15,700 689
-----------
GROUP TOTAL 4,155
-----------
- ----------------------------------------------------------------------------
FINANCIAL (18.4%)
AFLAC, Inc. 22,200 905
H.F. Ahmanson & Co. 28,500 713
Amvestors Financial Corp. 75,300 847
Aon Corp. 27,900 1,147
Bank of Boston Corp. 23,400 1,041
Capstead Mortgage Corp. 20,500 671
CoreStates Financial Corp. 33,000 1,200
Queens County Bancorp, Inc. 26,600 1,064
Republic New York Corp. 18,600 1,090
St. Paul Cos., Inc. 19,300 979
Summit Bancorp 25,900 725
Thornburg Mortgage Asset Corp. 71,600 1,065
-----------
GROUP TOTAL 11,447
-----------
- ----------------------------------------------------------------------------
HEALTH CARE (2.5%)
* Fresenius USA, Inc. 42,700 699
* Lincare Holdings Inc. 35,500 883
-----------
GROUP TOTAL 1,582
-----------
- ----------------------------------------------------------------------------
TECHNOLOGY (12.0%)
* Cheyenne Software, Inc. 44,000 919
* Chips & Technologies, Inc. 66,900 577
* Gateway 2000 Inc. 20,100 671
* Komag, Inc. 16,800 956
* Network Equipment Technologies 22,500 734
The Standard Register Co. 44,500 1,001
* Sun Microsystems, Inc. 10,000 780
* Teradyne, Inc. 29,700 991
Varian Associates, Inc. 15,900 817
-----------
GROUP TOTAL 7,446
-----------
- ----------------------------------------------------------------------------
TRANSPORT & SERVICES (2.5%)
Delta Air Lines, Inc. 8,600 564
* UAL Corp. 5,500 967
-----------
GROUP TOTAL 1,531
-----------
- ----------------------------------------------------------------------------
UTILITIES (9.5%)
Boston Edison Co. 43,200 1,183
Central Maine Power Co. 68,600 952
Cincinnati Bell, Inc. 40,200 1,181
Detroit Edison Co. 22,100 746
Pacific Enterprises 32,400 802
Southern New England
Telecommunications Corp. 29,800 1,077
-----------
GROUP TOTAL 5,941
-----------
- ----------------------------------------------------------------------------
MISCELLANEOUS (2.8%)
McKesson Corp. 24,600 1,175
* Seitel, Inc. 22,300 577
-----------
GROUP TOTAL 1,752
-----------
- ----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $62,463) 62,383
- ----------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (.9%)
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 5.89%, 11/1/95
(Cost $562) $562 $ 562
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS (101.1%)
(Cost $63,025) 62,945
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.1%)
- ----------------------------------------------------------------------------
Other Assets--Note C 700
Liabilities (1,378)
-----------
(678)
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 6,086,962 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $62,267
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.23
============================================================================
+See Note A to Financial Statements.
*Non-Income Producing Security.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AT OCTOBER 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $62,096 $10.20
Undistributed Net
Investment Income 260 .04
Accumulated Net
Realized Losses--Note D (9) --
Unrealized Depreciation
of Investments--Note E (80) (.01)
- ----------------------------------------------------------------------------
NET ASSETS $62,267 $10.23
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
CAPITAL OPPORTUNITY Value
PORTFOLIO Shares (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (100.4%)
- ----------------------------------------------------------------------------
BASIC MATERIALS (2.6%)
- ----------------------------------------------------------------------------
Monsanto Co. 18,000 $ 1,886
-----------
- ----------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (1.3%)
- ----------------------------------------------------------------------------
* Patten Corp. 225,000 956
-----------
- ----------------------------------------------------------------------------
CONSUMER CYCLICAL (12.0%)
- ----------------------------------------------------------------------------
Chrysler Corp. 43,400 2,241
* Creative Technology Ltd. 55,000 639
* Edmark Corp. 40,000 1,720
* Electronic Arts 40,000 1,465
* Sierra On-line, Inc. 69,000 2,570
-----------
GROUP TOTAL 8,635
-----------
- ----------------------------------------------------------------------------
FINANCIAL (12.4%)
- ----------------------------------------------------------------------------
Alex Brown, Inc. 30,000 1,466
BankAmerica Corp. 20,000 1,150
Household International, Inc. 40,100 2,256
The Money Store 30,000 1,185
Morgan Stanley Group, Inc. 18,000 1,566
Charles Schwab Corp. 60,000 1,372
-----------
GROUP TOTAL 8,995
-----------
- ----------------------------------------------------------------------------
HEALTH CARE (13.1%)
- ----------------------------------------------------------------------------
* Bio-Vascular, Inc. 147,400 2,064
* Boston Scientific Corp. 35,000 1,474
* Healthsource, Inc. 28,000 1,484
* Heart Technology, Inc. 35,000 989
Medtronic, Inc. 60,000 3,465
-----------
GROUP TOTAL 9,476
-----------
- ----------------------------------------------------------------------------
TECHNOLOGY (59.0%)
- ----------------------------------------------------------------------------
COMMUNICATION EQUIPMENT (3.0%)
* U.S. Robotics Corp. 23,000 2,128
COMPUTER RELATED (6.5%)
* Cisco Systems, Inc. 25,000 1,937
* Sun Microsystems, Inc. 35,600 2,777
COMPUTER SERVICES (3.9%)
* Discreet Logic, Inc. 49,000 2,793
COMPUTER SOFTWARE (22.3%)
* America Online, Inc. 23,000 1,840
* Bay Networks 21,600 1,431
HBO and Co. 30,000 2,115
* McAfee Associates, Inc. 34,000 1,981
* Peoplesoft Inc. 23,700 2,038
Shared Medical Systems Corp. 58,600 2,263
* Symantec Corp. 100,000 2,425
* UUnet Technologies, Inc. 34,000 2,040
</TABLE>
13
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
CAPITAL OPPORTUNITY Value
PORTFOLIO (continued) Shares (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
ELECTRONIC COMPONENTS &
INSTRUMENTS (16.9%)
* Applied Materials, Inc. 29,100 $ 1,459
* LSI Logic Corp. 30,000 1,414
* Macromedia 43,200 1,577
Micron Technology Inc. 20,000 1,412
* Oak Technology, Inc. 30,600 1,675
* Sierra Semiconductor 80,000 1,430
* Stormedia, Inc. 35,000 1,575
* Ultralife Batteries, Inc. 85,000 1,700
TELECOMMUNICATIONS (6.4%)
* Ascend Communications, Inc. 72,000 4,644
-----------
GROUP TOTAL 42,654
-----------
- ----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $69,708) 72,602
- ----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (15.8%)
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
---------
<S> <C> <C>
U.S. TREASURY BILL
5.493%, 11/16/95 $1,518 1,515
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.89%, 11/1/95 9,924 9,924
- ----------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $11,439) 11,439
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS (116.2%)
(Cost $81,147) 84,041
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-16.2%)
Other Assets--Note C 1,851
Payables for Securities Purchased (13,343)
Other Liabilities (248)
-----------
(11,740)
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 7,449,077 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $72,301
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $9.71
============================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AT OCTOBER 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $74,669 $10.03
Undistributed Net
Investment Income 173 .02
Accumulated Net
Realized Losses--Note D (5,435) (.73)
Unrealized Appreciation
of Investments--Note E 2,894 .39
- ----------------------------------------------------------------------------
NET ASSETS $72,301 $ 9.71
- ----------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Market
GLOBAL EQUITY Value
PORTFOLIO Shares (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (90.8%)
- ----------------------------------------------------------------------------
AUSTRALIA (4.4%)
- ----------------------------------------------------------------------------
Australia & New Zealand
Bank Group Ltd. 116,000 $ 485
Gio Australia Holdings Ltd. 62,179 131
North Ltd. 80,095 225
Pasminco Ltd. 140,000 154
QNI Ltd. 80,000 153
Renison Goldfields
Consolidated Ltd. 54,551 229
Santos Ltd. 72,000 194
-----------
GROUP TOTAL 1,571
-----------
- ----------------------------------------------------------------------------
CANADA (1.7%)
- ----------------------------------------------------------------------------
Imperial Oil Ltd. 5,500 201
Noranda Inc. 9,000 180
* Rogers Communications, Inc.
Class B 25,000 244
-----------
GROUP TOTAL 625
-----------
- ----------------------------------------------------------------------------
DENMARK (.3%)
- ----------------------------------------------------------------------------
* Coloplast AS 1,300 105
- ----------------------------------------------------------------------------
FINLAND (1.4%)
- ----------------------------------------------------------------------------
* Nokia AB A 3,000 172
Outokumpu A 10,000 159
* Unitas A 72,000 175
-----------
GROUP TOTAL 506
-----------
- ----------------------------------------------------------------------------
FRANCE (3.0%)
- ----------------------------------------------------------------------------
* AXA 3,500 194
Banque Nationale de Paris 3,500 144
Carrefour 200 117
Clarins 1,500 140
* Moulinex 6,000 120
Pechiney SA Cert D 'Inv Priv 2,000 104
Union Financiere de France
Banque SA 1,200 92
* Usinor Sacilor 12,000 179
-----------
GROUP TOTAL 1,090
-----------
- ----------------------------------------------------------------------------
GERMANY (2.8%)
- ----------------------------------------------------------------------------
BMW 360 193
Buderus 400 172
Deutsche Bank AG 4,400 199
Mannesmann AG 630 207
Veba AG 5,220 214
* Wella AG Warrants Exp. 3/18/96 450 29
-----------
GROUP TOTAL 1,014
-----------
- ----------------------------------------------------------------------------
HONG KONG (.8%)
- ----------------------------------------------------------------------------
Hong Kong Telecommunication Ltd. 70,000 122
Television Broadcast Ltd. 45,000 180
-----------
GROUP TOTAL 302
-----------
- ----------------------------------------------------------------------------
ITALY (1.0%)
- ----------------------------------------------------------------------------
Industrie Natuzzi SPA SP ADR 3,500 140
* Olivetti & Cie. SPA 150,000 113
Stet d Risp. Port Non-Cvt. 50,000 109
-----------
GROUP TOTAL 362
-----------
- ----------------------------------------------------------------------------
JAPAN (16.7%)
- ----------------------------------------------------------------------------
Apic Yamada Corp. 3,000 132
Brother Industries Ltd. 38,000 191
* Dai-Nippon Screen Manufacturing 28,000 250
Daishinku Corp. 4,000 43
Fujitsu Ltd. 36,000 430
* Gakken Co. 42,000 232
Intec 20,000 274
Kanematsu Corp. 40,000 137
Kao Corp. 20,000 243
Konica Corp. 14,000 94
Mitsui & Co., Ltd. 48,000 382
Namco Ltd. 10,000 293
* Nippon Suisan Kaisha 60,000 244
Nippon Telephone and Telegraph 34 279
Sanshin Electronics 16,000 249
Sony Corp. 5,000 225
Sony Music Entertainment 4,000 171
Sumitomo Rubber 12,000 96
Sumitomo Sitix Corp. 24,000 427
Sumitomo Trust & Banking 16,000 185
Tokyo Broadcasting System 15,000 220
Wacoal Corp. 24,000 284
Yamaha Corp. 22,000 351
Yamaha Motor Co. 34,000 266
Yamazaki Baking Co., Ltd. 6,000 106
Yasuda Fire & Marine Insurance Co. 32,000 194
-----------
GROUP TOTAL 5,998
-----------
- ----------------------------------------------------------------------------
MALAYSIA (1.7%)
- ----------------------------------------------------------------------------
Carlsberg Brewery Malaysia 25,000 114
Malaysian Airlines System Bhd. 30,000 82
Resorts World Bhd. 30,000 146
Sime Darby Bhd. 50,000 125
United Engineers Bhd. 20,000 124
-----------
GROUP TOTAL 591
-----------
- ----------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
GLOBAL EQUITY Value
PORTFOLIO (continued) Shares (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
MEXICO (1.0%)
- ----------------------------------------------------------------------------
Grupo Financiero Banamex B 30,000 $ 51
Grupo Televisa SA ADR 7,000 120
Telefonos de Mexico SA ADR 4,000 110
Vitro Sociedad Anonima ADR 10,000 65
-----------
GROUP TOTAL 346
-----------
- ----------------------------------------------------------------------------
NETHERLANDS (1.4%)
- ----------------------------------------------------------------------------
Boskalis Koninklijke Boskalis
Westminster NV 6,500 78
Nedlloyd Group NV 5,600 142
Philips Electronics NV (non-voting) 2,000 77
Polygram NV 3,100 193
-----------
GROUP TOTAL 490
-----------
- ----------------------------------------------------------------------------
NORWAY (.9%)
- ----------------------------------------------------------------------------
Olav Thon Eiendomsselskap 7,000 116
Schibsted AS 19,000 210
-----------
GROUP TOTAL 326
-----------
- ----------------------------------------------------------------------------
SINGAPORE (1.3%)
- ----------------------------------------------------------------------------
Jardine Strategic Holdings Ltd. 60,000 161
Mandarin Oriental 120,000 134
Singapore Land 30,000 168
-----------
GROUP TOTAL 463
-----------
- ----------------------------------------------------------------------------
SOUTH AFRICA (2.1%)
- ----------------------------------------------------------------------------
Barlow Ltd. 12,000 155
De Beers Centenary AG 6,000 166
Free State Consolidated Gold
Mines Ltd. ADR 7,000 65
Safmarine & Rennies Holdings Ltd. 45,000 157
South African Breweries 4,000 131
South African Iron 81,375 83
-----------
GROUP TOTAL 757
-----------
- ----------------------------------------------------------------------------
SPAIN (1.1%)
- ----------------------------------------------------------------------------
Centros Comerciales Pryca SA 5,000 106
Prosegur Compania 3,305 81
Tabacalera SA 3,000 101
Viscofan Envoltura 8,000 100
-----------
GROUP TOTAL 388
-----------
- ----------------------------------------------------------------------------
SWEDEN (5.3%)
- ----------------------------------------------------------------------------
Hennes & Mauritz Series B 3,300 216
Kinnevik AB - B Shares 6,000 166
LM Ericsson Telephone 14,850 315
* Lindex AB 50,000 726
Munksjoe AB 18,000 130
S E Banken Series A 50,000 337
-----------
GROUP TOTAL 1,890
-----------
- ----------------------------------------------------------------------------
SWITZERLAND (1.5%)
- ----------------------------------------------------------------------------
Georg Fischer (Bearer) 100 138
SMH (Registered) 800 107
Societe Generale de Surveillance
Holdings SA (Bearer) 150 283
-----------
GROUP TOTAL 528
-----------
- ----------------------------------------------------------------------------
UNITED KINGDOM (12.3%)
- ----------------------------------------------------------------------------
Airtours PLC 40,000 206
Asda Group PLC 125,000 202
Associated British Ports
Holdings PLC 30,000 144
Barclays PLC 20,000 234
Bersiford PLC 250,000 584
British Aerospace 20,000 224
Chubb Security PLC 25,000 131
First Leisure Corp. PLC 25,000 135
Granada Group PLC 15,000 160
Hanson PLC 60,000 183
Invesco PLC ADR 9,000 344
Invesco PLC 55,000 211
Provident Financial PLC 15,000 182
RTZ Corp. 15,000 207
Racal Electronic PLC 30,000 120
Stagecoach Holdings PLC 35,000 141
Taylor Woodrow PLC 80,000 134
Trafalgar House PLC 330,000 118
Trinity Holdings PLC 30,000 154
Vendome Luxury Group PLC 20,000 177
Vodafone Group PLC 50,000 206
WPP Group 100,000 243
-----------
GROUP TOTAL 4,440
-----------
- ----------------------------------------------------------------------------
UNITED STATES (30.1%)
- ----------------------------------------------------------------------------
BASIC MATERIALS (7.1%)
* Crown Vantage, Inc. 500 10
* FMC Corp. 3,500 251
Freeport-McMoRan, Inc. 8,333 311
Geon Co. 10,000 249
Georgia-Pacific Corp. 4,500 371
James River Corp. 10,000 321
* Magma Copper Co. Class B 14,000 235
Olin Corp. 4,000 256
PPG Industries, Inc. 6,000 255
Stone Container Corp. 18,000 297
-----------
GROUP TOTAL 2,556
-----------
- ----------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (6.3%)
The Boeing Co. 5,000 328
Deere & Co. 4,000 358
Honeywell, Inc. 10,000 420
Lockheed Martin Corp. 5,000 341
Owens-Corning Fiberglas Corp. 7,000 297
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Market
value
Shares (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
TRW, Inc. 4,000 $ 263
United Technologies Corp. 3,000 266
-----------
GROUP TOTAL 2,273
-----------
- ----------------------------------------------------------------------------
CONSUMER CYCLICAL (3.6%)
Chrysler Corp. 5,000 258
Harcourt General, Inc. 6,500 258
Mercantile Stores Co., Inc. 6,000 269
Outboard Marine Corp. 10,000 208
* Price/Costco Inc. 18,000 306
-----------
GROUP TOTAL 1,299
-----------
- ----------------------------------------------------------------------------
CONSUMER STAPLES (.9%)
Philip Morris Cos., Inc. 4,000 338
-----------
- ----------------------------------------------------------------------------
ENERGY (1.3%)
Dresser Industries, Inc. 10,500 218
* Western Atlas Inc. 5,900 259
-----------
GROUP TOTAL 477
-----------
- ----------------------------------------------------------------------------
FINANCIAL (4.5%)
The Bank of New York Co., Inc. 6,000 252
The Equitable Cos. 15,000 319
First Interstate Bancorp. 4,500 581
TIG Holdings, Inc. 8,000 203
Unitrin Inc. 6,000 278
-----------
GROUP TOTAL 1,633
-----------
- ----------------------------------------------------------------------------
HEALTH CARE (.9%)
Baxter International, Inc. 8,000 309
-----------
- ----------------------------------------------------------------------------
TECHNOLOGY (1.5%)
Intel Corp. 3,900 273
Varian Associates, Inc. 5,000 257
-----------
GROUP TOTAL 530
-----------
- ----------------------------------------------------------------------------
TRANSPORT & SERVICES (2.5%)
* AMR Corp. 4,000 264
Conrail, Inc. 3,500 241
Union Pacific Corp. 6,000 392
-----------
GROUP TOTAL 897
-----------
- ----------------------------------------------------------------------------
MISCELLANEOUS (1.5%)
AlliedSignal Inc. 7,000 298
* Litton Industries, Inc. 6,000 238
-----------
GROUP TOTAL 536
-----------
- ----------------------------------------------------------------------------
TOTAL UNITED STATES 10,848
- ----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $32,851) 32,640
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (9.2%)
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.89%, 11/1/95
(Cost $3,318) $3,318 $ 3,318
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $36,169) 35,958
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------
Other Assets--Note C 340
Liabilities (328)
-----------
12
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 3,569,590 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $35,970
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.08
============================================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AT OCTOBER 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $36,039 $10.09
Undistributed Net
Investment Income--Note D 142 .04
Accumulated Net
Realized Gains--Note D 20 .01
Unrealized Depreciation--
Notes E and F:
Investment Securities (211) (.05)
Foreign Currencies and Forward
Currency Contracts (20) (.01)
- ----------------------------------------------------------------------------
NET ASSETS $35,970 $10.08
- ----------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
GLOBAL ASSET ALLOCATION Amount Value
PORTFOLIO (000) (000)+
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BONDS & NOTES (45.5%)(1)
- ----------------------------------------------------------------------------
U.S. Treasury Bond
6.875%, 8/15/25 $ 300 $ 322
U.S. Treasury Notes
5.625%, 10/31/97 6,000 6,002
5.875%, 8/15/98 2,500 2,512
6.125%, 7/31/00 7,800 7,895
6.50%, 8/15/05 3,500 3,624
- ----------------------------------------------------------------------------
TOTAL U.S. TREASURY BONDS & NOTES
(Cost $20,022) 20,355
- ----------------------------------------------------------------------------
FOREIGN BONDS (18.2%)
- ----------------------------------------------------------------------------
AUSTRALIA (1.7%)
Queensland Treasury
Global Note
8.00%, 8/14/01 AUD 1,000 741
-----------
CANADA (1.2%)
Canada Government Bond
6.50%, 6/1/04 CAD 800 556
-----------
FRANCE (7.0%)
France O.A.T.
8.50%, 3/28/00 FRF 1,700 373
8.50%, 10/25/08 FRF 1,100 244
9.50%, 1/25/01 FRF 11,000 2,522
-----------
3,139
-----------
GERMANY (1.7%)
Bundesschatzanweisungen
6.875%, 2/24/99 DEM 1,000 750
-----------
UNITED KINGDOM (6.6%)
U.K. Treasury
9.50%, 10/25/04 GBP 1,700 2,946
-----------
- ----------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $8,000) 8,132
- ----------------------------------------------------------------------------
EQUITY SECURITIES (3.9%)(2)
(Cost $1,806) 1,731
- ----------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (29.5%)(3)
- ----------------------------------------------------------------------------
U.S. TREASURY BILLS
5.42%, 1/11/96 $10,000 $ 9,894
5.493%, 11/16/95 2,000 1,995
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.89%, 11/1/95 1,309 1,309
- ----------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $13,200) 13,198
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (97.1%)
(Cost $43,028) 43,416
- ----------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.9%)(3)
- ----------------------------------------------------------------------------
Other Assets--Note C 1,436
Liabilities (137)
-----------
1,299
- ----------------------------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------------------------
Applicable to 4,352,644 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $44,715
- ----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.27
============================================================================
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
OPEN FUTURES CONTRACTS AT
OCTOBER 31, 1995:
- ----------------------------------------------------------------------------
Market Unrealized
Contracts Value Appreciation
Long Long(Short) (Depreciation)
(Short) (000) (000)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTE FUTURES
CONTRACTS(1) EXPIRING
DECEMBER 1995
- ----------------------------------------------------------------------------
10 Year U.S. Treasury Note (9) $ (1,004) $ (7)
- ----------------------------------------------------------------------------
EQUITY INDEX FUTURES CONTRACTS
EXPIRING DECEMBER 1995
- ----------------------------------------------------------------------------
UNITED STATES
Standard and Poor's 500 23 6,714 68
-----------
AUSTRALIA
All Ordinary Index 17 672 (27)
-----------
CANADA
Toronto 35 7 613 (21)
Toronto 35 (1) (88) 1
-----------
(20)
-----------
FRANCE
CAC 40 7 524 (35)
-----------
GERMANY
DAX 14 2,164 (57)
DAX (7) (1,082) (16)
-----------
(73)
-----------
HONG KONG
Hang Seng 5 317 3
-----------
JAPAN
Nikkei 300 62 1,603 60
-----------
UNITED KINGDOM
FTSE 100 10 1,397 5
-----------
- ----------------------------------------------------------------------------
TOTAL EQUITY INDEX
FUTURES CONTRACTS(2) 12,834 (19)
- ----------------------------------------------------------------------------
TOTAL FUTURES CONTRACTS $11,830 $(26)
- ----------------------------------------------------------------------------
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
(1) The combined market value of U.S. Treasury Bonds and Notes and U.S.
Treasury Note Futures Contracts represents 43.3% of net assets.
(2) The combined market value of equity securities and equity index futures
contracts represents 32.6% of net assets, distributed by country as
follows:
United States 15.0%
Australia 1.5
Canada 1.8
France 1.2
Germany 2.4
Hong Kong 0.7
Japan 5.9
Spain 1.0
United Kingdom 3.1
(3) The effective cash position represents 5.9% 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
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AT OCTOBER 31, 1995, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $43,802 $10.06
Undistributed Net
Investment Income--Note D 486 .11
Accumulated Net
Realized Gains--Note D 53 .01
Unrealized Appreciation
(Depreciation)--Notes E and F:
Investment Securities 388 .09
Futures Contracts (26) --
Foreign Currencies and
Forward Currency Contracts 12 --
- ----------------------------------------------------------------------------
NET ASSETS $44,715 $10.27
- ----------------------------------------------------------------------------
</TABLE>
19
<PAGE> 22
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH CAPITAL OPPORTUNITY
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
June 30, 1995 June 30, 1995
to October 31, 1995 to October 31, 1995
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . $213 $ 56
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 53 186
- --------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . 266 242
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . . . . . . -- 61
The Vanguard Group--Note C . . . . . . . . . . . . . . . . . . . -- --
Taxes (other than income taxes) . . . . . . . . . . . . . . . . 1 1
Custodians' Fees . . . . . . . . . . . . . . . . . . . . . . . . -- --
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . . . . 5 7
- --------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . 6 69
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . 260 173
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . (9) (5,435)
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . -- --
Foreign Currencies and Forward Currency Contracts . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . . . . . (9) (5,435)
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . . . . (80) 2,894
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . -- --
Foreign Currencies and Forward Currency Contracts . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . . (80) 2,894
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . $171 $(2,368)
==========================================================================================================================
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
GLOBAL EQUITY GLOBAL ASSET ALLOCATION
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
June 30, 1995 June 30, 1995
to October 31, 1995 to October 31, 1995
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89 $117
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 93 385
- --------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . 182 502
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B . . . . . . . . . . . . . . . . 35 41
The Vanguard Group--Note C . . . . . . . . . . . . . . . . . . . -- --
Taxes (other than income taxes) . . . . . . . . . . . . . . . . -- 1
Custodians' Fees . . . . . . . . . . . . . . . . . . . . . . . . 2 2
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . . . . 5 5
- --------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . 42 49
- --------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . 140 453
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . 20 62
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . -- 15
Foreign Currencies and Forward Currency Contracts . . . . . . . 2 9
- --------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . . . . . 22 86
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . . . . (211) 388
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . -- (26)
Foreign Currencies and Forward Currency Contracts . . . . . . . (20) 12
- --------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . . (231) 374
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . $ (69) $913
==========================================================================================================================
</TABLE>
(1) Dividends for the Global Equity Portfolio are net of foreign withholding
taxes of $4,000.
21
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH CAPITAL OPPORTUNITY
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1995 JUNE 30, 1995
TO OCTOBER 31, 1995 TO OCTOBER 31, 1995
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . $ 260 $ 173
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . (9) (5,435)
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . (80) 2,894
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . 171 (2,368)
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . -- --
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . . . . . . . 25,340 20,002
--In Lieu of Cash Distributions . . . . . . . . . . . . -- --
--Exchange . . . . . . . . . . . . . . . . . . . . . . . 37,414 55,979
Redeemed --Regular . . . . . . . . . . . . . . . . . . . . . . . (124) (111)
--Exchange . . . . . . . . . . . . . . . . . . . . . . . (634) (1,201)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . . . . . . . . . 61,996 74,669
- --------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . 62,167 72,301
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note G . . . . . . . . . . . . . . . . . . . . 100 --
- --------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . . $62,267 $72,301
==========================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . -- --
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . 6,151 7,586
Issued in Lieu of Cash Distributions . . . . . . . . . . . . -- --
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (74) (137)
- --------------------------------------------------------------------------------------------------------------------------
6,077 7,449
- --------------------------------------------------------------------------------------------------------------------------
(3) Undistributed Net
Investment Income . . . . . . . . . . . . . . . . . . . $ 260 $ 173
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
GLOBAL EQUITY GLOBAL ASSET ALLOCATION
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1995 JUNE 30, 1995
TO OCTOBER 31, 1995 TO OCTOBER 31, 1995
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . $ 140 $ 453
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . . . . . 22 86
Change in Unrealized Appreciation (Depreciation) . . . . . . . . . . (231) 374
- --------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . (69) 913
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . -- --
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . . . . . . . 14,717 24,437
--In Lieu of Cash Distributions . . . . . . . . . . . . -- --
--Exchange . . . . . . . . . . . . . . . . . . . . . . . 21,551 19,525
Redeemed --Regular . . . . . . . . . . . . . . . . . . . . . . . (26) (6)
--Exchange . . . . . . . . . . . . . . . . . . . . . . . (203) (154)
- --------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . . . . . . . . . . . 36,039 43,802
- --------------------------------------------------------------------------------------------------------------------------
Total Increase . . . . . . . . . . . . . . . . . . . . . . . . . 35,970 44,715
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period--Note G . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . . . . . . . . . $35,970 $44,715
==========================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . . . . . . . -- --
Realized Net Gain . . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . 3,592 4,369
Issued in Lieu of Cash Distributions . . . . . . . . . . . . -- --
Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (16)
- --------------------------------------------------------------------------------------------------------------------------
3,570 4,353
- --------------------------------------------------------------------------------------------------------------------------
(3) Undistributed Net
Investment Income--Note D . . . . . . . . . . . . . . . $ 142 $ 486
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH CAPITAL OPPORTUNITY
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1995+ JUNE 30, 1995+
For a Share Outstanding Throughout the Period TO OCTOBER 31, 1995 TO OCTOBER 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . $10.00 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . .04 .02
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . .19 (.31)
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . .23 (.29)
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . -- --
Distributions from Realized Capital Gains . . . . . . . . . . . . . -- --
------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $10.23 $9.71
==========================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +1.69% -3.19%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . $62 $72
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . .06%* .47%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . 2.22%* 1.29%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . 0% 30%
- --------------------------------------------------------------------------------------------------------------------------
</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.
(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.
24
<PAGE> 27
<TABLE>
<CAPTION>
GLOBAL EQUITY GLOBAL ASSET ALLOCATION
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1995+ JUNE 30, 1995+
For a Share Outstanding Throughout the Period TO OCTOBER 31, 1995 TO OCTOBER 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . $10.00 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . .04 .11
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . .04 .16
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . .08 .27
- --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . -- --
Distributions from Realized Capital Gains . . . . . . . . . . . . . -- --
------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . -- --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $10.08 $10.27
==========================================================================================================================
TOTAL RETURN(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +0.50% +2.39%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . $36 $45
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . .57%* .52%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . 2.04%* 5.42%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . 2% 17%
- --------------------------------------------------------------------------------------------------------------------------
</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.
(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.
25
<PAGE> 28
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.
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
26
<PAGE> 29
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 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 of Investment Companies, 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 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 October 31, 1995, the investment advisory fees of the
Capital Opportunity, Global Equity, and Global Asset Allocation Portfolios
represented effective annual rates of .40 of 1%, .45 of 1%, and .40 of 1%,
respectively, of average net assets.
The Vanguard Group, Inc. furnishes investment advisory services to the
Aggressive Growth Portfolio on an at-cost basis. No advisory fees were charged
by Vanguard during the period ended October 31, 1995.
27
<PAGE> 30
NOTICE OF FINANCIAL STATEMENTS (continued)
C. The Vanguard Group, Inc. 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. No Vanguard expenses were allocated to the Fund for the period ended
October 31, 1995. At October 31, 1995, the Fund had contributed capital of
$24,000 to Vanguard (included in Other Assets), representing .1% of Vanguard's
capitalization. The Fund's directors and officers are also directors and
officers of Vanguard.
D. During the period ended October 31, 1995, 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 $62,699 $ 226
CAPITAL OPPORTUNITY 92,174 17,031
GLOBAL EQUITY 33,507 656
GLOBAL ASSET ALLOCATION 13,673 3,931
- -------------------------------------------------------------------------
</TABLE>
The Global Asset Allocation Portfolio made purchases of U.S. Government
securities of $20,019,000.
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 October 31, 1995, the Global Equity and Global Asset
Allocation Portfolios realized net foreign currency gains of $2,000 and
$33,000, respectively, which increased distributable net income for tax
purposes; accordingly such gains have been reclassified from accumulated net
realized gains to undistributed net income.
E. At October 31, 1995, net unrealized appreciation (depreciation) of
investment securities for financial reporting and Federal income tax purposes
was:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(000)
-----------------------------------------------
Net Unrealized
Appreciated Depreciated Appreciation
Portfolio Securities Securities (Depreciation)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGRESSIVE GROWTH $2,642 $(2,722) $ (80)
CAPITAL OPPORTUNITY 5,712 (2,818) 2,894
GLOBAL EQUITY 1,308 (1,519) (211)
GLOBAL ASSET ALLOCATION 481 (93) 388
- ---------------------------------------------------------------------------------
</TABLE>
At October 31, 1995, the market value of U.S. Treasury Bills deposited as
initial margin for open futures contracts held by the Global Asset Allocation
Portfolio was $1,999,000. Total net unrealized depreciation related to open
futures contracts was $26,000, of which unrealized appreciation of $61,000 is
required to be treated as realized gain for tax purposes.
F. Under the terms of open forward currency contracts at October 31, 1995,
the Global Equity Portfolio was obligated to deliver 148,020,000 Japanese yen
in exchange for $1,500,000 on September 19, 1996. Net unrealized depreciation
of $20,000 related to this contract is required to be treated as realized loss
for tax purposes.
28
<PAGE> 31
Under the terms of open forward currency contracts at October 31, 1995, the
Global Asset Allocation Portfolio was obligated to receive and deliver foreign
currencies in exchange for U.S. dollars as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(000)
-------------------------------------------------------
Unrealized
Foreign U.S. Appreciation
Contract Settlement Dates Currency Dollars (Depreciation)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RECEIVE:
- --------
12/20/95--2/21/96 FRF 4,600 $ 935 $ 4
12/20/95 JPY 25,000 258 (11)
12/20/95--1/18/96 GBP 480 752 4
1/18/96 DEM 300 211 2
DELIVER:
- --------
12/20/95--1/18/96 FRF 17,700 3,554 (60)
12/20/95 JPY 120,000 1,248 66
12/20/95--2/21/96 GBP 1,500 2,351 (11)
1/18/96 CAD 300 225 2
2/21/96 DEM 1,000 725 11
- ----------------------------------------------------------------------------------------------
</TABLE>
CAD--Canadian Dollar
DEM--German Deutsche Mark
FRF--French Franc
GBP--British Sterling Pound
JPY--Japanese Yen
Net unrealized appreciation related to open forward currency contracts of
$7,000 is required to be treated as realized gain for tax purposes.
At October 31, 1995, the Global Asset Allocation Portfolio had net unrealized
foreign currency gains of $5,000 resulting from the translation of other assets
and liabilities.
G. 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.
29
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Vanguard Horizon Fund
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Aggressive Growth, Capital Opportunity, Global Equity, and Global Asset
Allocation Portfolios of Vanguard Horizon Fund (the "Fund") at October 31,
1995, and the results of each of their operations, the changes in each of their
net assets and the financial highlights for each of the respective periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities by correspondence with the custodians and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
November 30, 1995
30
<PAGE> 33
SPECIAL TAX INFORMATION
SPECIAL 1995 TAX INFORMATION (UNAUDITED)
FOR VANGUARD HORIZON FUND
Corporate shareholders should note that for the fiscal year ended October 31,
1995, the percentage of investment income (i.e., dividend income plus
short-term capital gains, where applicable) which qualifies for the
intercorporate dividends received deduction is as follows:
<TABLE>
<S> <C>
Aggressive Growth Portfolio . . . . . . . . . . . . . . . . . . . . 80.8%
Capital Opportunity Portfolio . . . . . . . . . . . . . . . . . . . 31.7%
Global Equity Portfolio . . . . . . . . . . . . . . . . . . . . . . 2.6%
Global Asset Allocation Portfolio . . . . . . . . . . . . . . . . . 0.0%
</TABLE>
31
<PAGE> 34
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman of Rhone-Poulenc Rorer Inc.; Director of Sun
Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea Co.,
Alco Standard Corp., Raytheon Co., Knight-Ridder, Inc., and Massachusetts
Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of American
Express Bank Ltd. and The St. Paul Companies, Inc.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl Corp.,
Baker Fentress & Co., The Jeffrey Co., and Southern New England Communications
Co.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Co., and
The Standard Products Co.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Co. and
NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc. and Kmart
Corp.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas Co.;
Director of Cummins Engine Co.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President and Secretary of The
Vanguard Group, Inc.; Secretary of each of the investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO IAN A. MACKINNON
Senior Vice President Senior Vice President
Information Technology Fixed Income Group
JEREMY G. DUFFIELD F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
32
<PAGE> 35
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard Convertible
Securities Fund
BALANCED FUNDS
Vanguard/Wellington Fund
Vanguard/Wellesley Income Fund
Vanguard STAR Portfolio
Vanguard Asset Allocation Fund
Vanguard LIFEStrategy Funds
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
Vanguard Horizon Fund
Global Equity Portfolio
Global Asset Allocation Portfolio
Capital Opportunity Portfolio
Aggressive Growth Portfolio
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
500 Portfolio
Total Stock Market Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
Vanguard Bond Index Fund
Total Bond Market Portfolio
Short-Term Bond Portfolio
Intermediate-Term Bond Portfolio
Long-Term Bond Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
Vanguard Admiral Fund
U.S. Treasury Money Market Portfolio
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 Fixed Income
Securities Fund
Vanguard Admiral Fund
Vanguard Preferred Stock Fund
[THE VANGUARD GROUP LOGO]
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.
Vanguard Financial Center
Valley Forge, Pennsylvania 19482
New Account Information:
1 (800) 662-7447
Shareholder Account Services:
1 (800) 662-2739
Q690-10/95
ON OUR COVER: On the evening of August 1, 1798, Lord Horatio Nelson sailed his
flagship, HMS Vanguard, into Egypt's Aboukir Bay. In a night encounter, the
British fleet annihilated Napoleon Bonaparte's ships of the line in what is
still considered to be the most complete victory ever recorded in naval
history. Our Report's cover illustration is Thomas Luny's 1830 painting, The
Battle Of The Nile, in which the French flagship, L'Orient, is shown as it
exploded at 10:00 p.m. under a gibbous moon.
<PAGE> 36
HORIZON FUND
EDGAR APPENDIX
This appendix describes the components of the printed version of this report
that do not translate into a format acceptable to the EDGAR system.
The cover of the printed version of this report features Thomas Luny's 1830
painting "The Battle Of The Nile"
A photograph of John C. Brennan and John C. Bogle appears on the inside cover
top-center.
A running head featuring a sword, helmet, gloves and battleships in the
background appear at the top of pages one through three.
A running head featuring ships wheel, rope and battleships in the background
appears at the top of pages four through eleven.
A running head featuring open log book, pen and battleships in the background
appears at the top of pages twelve through thirty.
A running head featuring a compass, hour glass and telescope, and battleships
in the background appears at the top of page thirty one.
A running head featuring a sextant, a map, and battleships in the background
appears at the top of page thirty two.
A running head featuring birds flying and ships in the background appears at
the top of the back cover.
