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VANGUARD
HORIZON FUND
Semiannual Report
April 30,1997
[PHOTO]
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THE VANGUARD GROUP:
LINKING TRADITION
AND INNOVATION
At Vanguard, we treasure our rich nautical heritage--even as we steer our course
toward the twenty-first century. Our Report cover reflects that blending of
tradition and innovation, of past, present, and future. The montage includes a
bronze medallion with a likeness of our namesake, HMS Vanguard (Lord Nelson's
flagship at The Battle of the Nile); a clock built circa 1816 in Scotland,
featuring a portrait of Nelson; and several views of our recently completed
campus, which is steeped in nautical imagery--from our buildings named after
Nelson's warships (Victory, Majestic, and Goliath are three shown), to our
artwork and ornamental compass rose.
CONTENTS
A Message To
Our Shareholders
1
The Markets
In Perspective
4
Reports From
The Advisers
6
Performance
Summaries
10
Financial
Statements
12
Directors And
Officers
INSIDE BACK COVER
All comparative mutual fund data are from Lipper Analytical Services, Inc.
or Morningstar unless otherwise noted.
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[PHOTO]
FELLOW SHAREHOLDER,
During the first half of Vanguard Horizon Fund's 1997 fiscal year, the
rollicking bull market for large-capitalization U.S. stocks continued, but
small-cap stocks were left far behind. Returns in the international markets,
dampened by the strong U.S. dollar, varied sharply by region.
These divergences of market segments and regions resulted in a wide range
of performance for our four Portfolios during the half-year, from a return of
+8.7% for the Aggressive Growth Portfolio to one of -9.7% for the Capital
Opportunity Portfolio. Clearly, it was not a banner six months for the Fund.
The following table compares the six-month total return (capital change
plus reinvested dividends) of each Portfolio with those of its average
competitor and an unmanaged index. During this brief period, our Aggressive
Growth Portfolio was the only one that surpassed the returns of its benchmarks.
<TABLE>
<CAPTION>
- --------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
APRIL 30, 1997
- --------------------------------------------
<S> <C>
HORIZON AGGRESSIVE GROWTH +8.7%
Average Growth Fund +7.2
Russell 2800 Index +5.4
- --------------------------------------------
HORIZON CAPITAL OPPORTUNITY -9.7%
Average Capital Appreciation Fund +1.3
Aggressive Growth Fund Stock Index* -3.1
- --------------------------------------------
HORIZON GLOBAL EQUITY +4.6%
Average Global Fund +6.8
MSCI All-Country World Index +8.3
- --------------------------------------------
HORIZON GLOBAL ASSET ALLOCATION +4.3%
Average Global Flexible Fund +6.0
Russell Global Balanced Index** +7.8
- --------------------------------------------
</TABLE>
* Based on stocks held by the 25 largest aggressive growth mutual funds.
**Global Stock Index, 60%; Global Bond Index, 30%; and U.S. cash reserves, 10%.
For your reference, the total return during the period of the Standard &
Poor's 500 Composite Stock Price Index, which is dominated by large, blue chip
stocks, was +14.7%; the return of the Lehman Brothers Aggregate Bond Index was
+1.7%. Detailed per-share figures for each Portfolio, including net asset
values, income dividends, and any capital gains distributions, are presented in
a table that follows this letter.
THE PERIOD IN REVIEW
A nearly ideal climate for common stocks--strong economic growth, rising
corporate profits, and relatively low inflation--prevailed during the six
months. Yet the stock market's robust overall advance was bumpy and not all
sectors went along for the ride. The S&P 500 Index's return was nearly 14
percentage points higher than the scant +1.0% return on the rest of the U.S.
stock market.
Volatility was particularly manifest in the S&P 500 Index's decline of
almost -10% during the seven weeks that followed its record high on February 18.
To the surprise of many observers, however, the drop then ceased, and nearly all
of the lost ground was retraced during the final three weeks of the period.
Jitters about interest rates and inflation were the apparent causes of the
U.S. stock market's brief slide. The Federal Reserve Board's decision to raise
its target for short-term interest rates by a quarter-point to 5.50% on March 25
unsettled the market briefly. However, it rebounded late in the period based on
a combination of factors, including strong earnings reports by many key
companies, a lessening of inflation fears, and an
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easing in interest rates. Whatever their causes, the price fluctuations served
as a clear reminder of the volatility that is very much a part of investing in
stocks.
In the international markets, the U.S. dollar's strength diminished fine
returns from stocks of European companies, and exacerbated the generally
negative returns from stocks in the Pacific region. In general, lower interest
rates pushed foreign bond prices higher.
The AGGRESSIVE GROWTH PORTFOLIO provided the highest return by far of our
four Horizon Portfolios, largely on the absolute and relative strength of the
U.S. stock market during the period. While its return of +8.7% sharply lagged
the return of the S&P 500 Index, the Portfolio succeeded in outpacing both the
+7.2% average return of its growth fund competitors and the +5.4% return of the
Russell 2800 Index, which consists of small- and mid-cap stocks. The Portfolio's
stock selection was excellent, particularly among value-oriented issues such as
those in the financial-services sector.
The CAPITAL OPPORTUNITY PORTFOLIO suffered from its emphasis on technology
issues, one of the worst-performing sectors in what was a weak period generally
for small-cap growth stocks. It turned in a disappointing return of -9.7%,
lagging the +1.3% return of the average capital appreciation mutual fund and the
- -3.1% return of its benchmark index.
The +4.6% return of our GLOBAL EQUITY PORTFOLIO also lagged its standards,
falling well behind the +6.8% return of the average global equity mutual fund
and the +8.3% return of its benchmark Morgan Stanley Capital International
All-Country World Index. This subpar performance was attributable mainly to
underweighting--and poor stock selection--in the U.S. market.
The GLOBAL ASSET ALLOCATION PORTFOLIO also lagged. Its +4.3% return trailed
those of the average global flexible allocation mutual fund (+6.0%) and the
Russell Global Balanced Index (+7.8%), primarily due to the Portfolio's
relatively low weighting in stocks, again, especially in the United States.
As we have said repeatedly since the introduction of Vanguard Horizon Fund
a little less than two years ago, the aggressive posture of our Portfolios will,
at times, test the resolve of our shareholders. Though three of our four
Portfolios turned in a disappointing half-year, the reporting period is far too
short to form the basis of a judgment on any mutual fund, especially one with
the truly long-term orientation of a Vanguard Horizon Portfolio. Each Portfolio
is appropriate only for long-term investors who understand that the pursuit of
higher returns must come at the price of higher risks.
IN SUMMARY
The sizable, sudden fluctuations in the stock market during the first half of
our fiscal year reinforced the two key messages that we stress to mutual fund
investors.
The first message, of course, concerns the importance of holding a balanced
portfolio of stock funds, bond funds, and money market funds in proportions
appropriate to your financial situation, tolerance for risk, and investment
objectives. By making it easier to ride out episodes of market volatility, a
balanced portfolio, in turn, helps investors to adhere to our second message:
Always "stay the course" toward your long-term investment goals.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Chairman of the Board President
May 27, 1997
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PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 1997
--------------------------------------------
NET ASSET VALUE PER SHARE PER-SHARE PER-SHARE
---------------------------- DISTRIBUTIONS FROM NET DIVIDENDS FROM NET
PORTFOLIO OCT. 31, 1996 APR. 30, 1997 REALIZED CAPITAL GAINS INVESTMENT INCOME
- ----------------------- ------------- -------------------------------------- ------------------
<S> <C> <C> <C> <C>
Aggressive Growth $12.53 $12.72 $0.71 $0.18
Capital Opportunity 10.81 9.75 -- 0.007
Global Equity 11.72 11.93 0.19 0.14
Global Asset Allocation 11.29 10.83 0.34 0.58
- ----------------------------------------------------------------------------------------------------
</TABLE>
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[PHOTO]
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED APRIL 30, 1997
U.S. EQUITY MARKETS
The U.S. stock market continued to perform solidly over the six months,
reflecting a confidence based on moderate economic growth, quiescent inflation,
and solid increases in corporate profits. While concern grew among some
investors that continued economic expansion could lead to higher inflation, as
of the period's end there was no confirmed sign that inflation had increased.
The inflation fears nonetheless led to an erratic upward drift in interest rates
amid the ongoing strong returns from domestic equities.
Those strong returns have, however, been concentrated in the shares of
large companies. The Standard & Poor's 500 Composite Stock Price Index, for
example, gained 14.7% over the six-month period, compared to a meager 1.6% gain
for the Russell 2000 Index. In April alone, the S&P 500 Index beat the Russell
2000 Index by 5.7% (6.0% versus 0.3%). Larger companies have outperformed their
smaller-capitalization counterparts fairly consistently since the end of 1993.
There are a variety of theories as to why, including better earnings growth,
greater productivity, and fewer negative earnings surprises.
The recent gap in performance between large and small is particularly
noticeable in two sectors: technology and health care. Over the past six months,
technology issues in the S&P 500 Index have gained 26.3% while those in the
Russell 2000 Index have dropped -11.9%. In health care, the S&P's holdings
gained 17.6%, compared with a decline of -6.8% in the Russell 2000 Index. Within
these sectors, the larger companies' dominant products and the predictable
earnings they generate appear to be the primary difference.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED APRIL 30, 1997
- -------------------------------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- -------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 14.7% 25.1% 17.1%
Russell 2000 Index 1.6 0.1 13.7
MSCI-EAFE Index 1.7 -0.6 10.9
- -------------------------------------------------------------
FIXED-INCOME
Lehman Aggregate Bond Index 1.7% 7.1% 7.4%
Lehman 10-Year Municipal
Bond Index 2.3 6.4 7.5
Salomon 90-Day U.S.
Treasury Bills 2.6 5.2 4.5
- -------------------------------------------------------------
OTHER
Consumer Price Index 1.2% 2.5% 2.8%
- -------------------------------------------------------------
</TABLE>
*Average annual.
Financial-services firms, by contrast, have generally fared well regardless
of size, with gains of 16.9% in the S&P 500 Index and 12.2% in the Russell 2000
Index since October. The strength of the economy, which helps to keep bad-debt
levels at a minimum, and the overall growth of consumer credit have helped these
stocks greatly.
U.S. FIXED-INCOME MARKETS
The erratic rise in interest rates during the past six months reflected rising
and falling expectations regarding economic growth and inflation. During
November, investors seemed to expect a slowing of growth, and the 10-year U.S.
Treasury's yield declined from 6.38%
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to 6.04%. The same note's yield then rose to 6.67% in late January, riding a
perception that growth was markedly stronger than analysts had expected. Then
the pattern repeated itself, with the 10-year's rate falling to 6.26% in
mid-February and rising to 6.90% at the end of March. In April, the consensus
seemed to be shifting again, with the 10-year Treasury yield falling to 6.72%.
There is a simple explanation for this interest rate seesaw. Many investors
consider it a paradox that the economy has continued to expand at a robust pace
accompanied by strong job growth and low unemployment--but no increase in
inflation. Bond investors have therefore been particularly sensitive to economic
reports that might reveal inflation to be creeping up at last. The data have
been variable, tilting the consensus back and forth between expectations of
higher or continued stable inflation rates. The most recent releases depict an
exceptionally strong economy. For example, the U.S. economy expanded at a 5.6%
rate in the first quarter with no inflationary pressures (e.g., declining
producer prices and an increase of only 2.5% in employment costs).
The net result for bond investors has been mediocre returns. The 1.7%
generated by the Lehman Brothers Aggregate Bond Index over the past six months,
for example, consists of an income return of 3.4% and a capital decline of
- -1.7%, reflecting the modest increase in interest rates. During this period,
investors who favored shorter-maturity and lower-quality issues achieved
somewhat better returns. Mortgage-backed securities performed well on a relative
basis, as higher rates led to fewer mortgage refinancings. Municipal issues also
tended to perform better than their taxable counterparts.
INTERNATIONAL EQUITY MARKETS
With the dollar strengthening by 10% to 16% against most major currencies, U.S.
investors who held foreign equities faced a headwind during the past six months.
(The major exception was the pound sterling, which was effectively unchanged
against the dollar.) The Morgan Stanley Capital International-Europe,
Australasia, Far East Index gained 1.7% in dollar terms, while in local terms
the return was 11.2%. Those who favored Europe over the Pacific region did not
feel the pain as much, due to the strong (23.1%) return generated by the local
markets. For U.S. investors, European markets provided 11.9%. The strength of
the European markets can be attributed to several factors, including (1) ongoing
efforts to lower government deficits consistent with the Maastricht Treaty
guidelines, (2) improving economic growth, and (3) a greater commitment by
corporate executives to increasing "shareholder value."
Investors with a focus in the Pacific markets were less fortunate, as
illustrated by the weak Japanese market, which fell -3.2% (a -13.2% drop for
dollar-based investors). Despite positive news, including reports of growth in
exports, lower inventories, and higher industrial production, the focus in the
Japanese market has been the poor quality of many banks' balance sheets and the
likely effects of an increase in the consumption tax. However, according to some
observers, the level of economic activity seems to be improving now in Japan.
5
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REPORT FROM VANGUARD CORE MANAGEMENT GROUP
AGGRESSIVE GROWTH PORTFOLIO
The strong leg of the bull market that began at the end of 1994 continued
into 1997. During the first half of its fiscal year, the Aggressive Growth
Portfolio provided an 8.7% total return, exceeding the 5.4% return of the
Russell 2800 Index, which consists of mid- and small-capitalization stocks and
is a good performance benchmark for the Aggressive Growth Portfolio.
LARGE VERSUS SMALL
Continuing a trend that has dominated the stock market since 1994, large-cap
stocks significantly outperformed other issues. The Standard & Poor's 500
Composite Stock Price Index, which consists mostly of large-cap stocks, advanced
14.7% during the past six months, outpacing the Russell 2800 Index by nearly 10
percentage points. The Portfolio's focus on mid- and small-cap stocks made it
very difficult, if not impossible, to outperform the S&P 500 Index in such an
environment.
There is a great deal of speculation about the relative performance of
large and small stocks. In our view, the large-caps have simply earned their
outperformance with earnings growth. Over the last five years, the earnings of
stocks in the S&P 500 Index grew at an 11.8% annual rate, while those of the
Russell 2800 Index increased earnings at a 9.4% rate. However, the large-cap
advantage is not permanent; smaller stocks will someday enjoy faster growth, as
they have over certain periods in the past.
Rather than trying to rotate the Portfolio from large-caps to small-caps,
or from one industry to another in search of the next hot market segment, we
analyze each stock based on the fundamentals of the company. With this classic
"stock-picking" approach, we maintain a broadly diversified Portfolio across all
industry segments.
All of the Portfolio's performance edge over the Russell 2800 Index was
earned in the first fiscal quarter. Our best-performing stocks in the Portfolio
tended to have relatively low price/earnings ratios and high dividend yields.
Our more growth-oriented holdings have tended to underperform this year. In
particular, the investments in technology, drugs and medicine, and business
services accounted for most of our margin over the Index. Within those
industries, Dell Computer, Guidant Corp., and Standard Register were all
reasonably priced within their industries and provided returns of 105%, 49%, and
28%, respectively.
POSITIONING
We continue to maintain a well-diversified Portfolio that is fully invested at
all times. As in the past, the Portfolio emphasizes stocks with discounted
valuations that we deem to have good growth prospects. This approach has helped
the Portfolio outperform its benchmark by 10 percentage points since its
inception in August 1995. We believe it will add value in the future.
George U. Sauter, Principal
May 13, 1997
INVESTMENT PHILOSOPHY
The adviser believes that superior long-term investment results can be achieved
by using quantitative models to identify mid- and small- capitalization stocks
that offer the best investment opportunities. Among the characteristics the
adviser believes will distinguish such opportunities are relative value,
earnings potential, and share-price momentum.
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REPORT FROM HUSIC CAPITAL MANAGEMENT
CAPITAL OPPORTUNITY PORTFOLIO
The Capital Opportunity Portfolio trailed its Index benchmark for the six
months ended April 30, 1997. (See the Message To Shareholders, beginning on page
1, for a detailed review of performance.) While we are disappointed with our
return of -9.7%, we recognize that it was a very difficult period for
small-capitalization growth stocks, as evidenced by the -7.3% return for the
Russell 2000 Growth Index. This contrasted with a 14.7% return for the
large-cap-dominated Standard & Poor's 500 Composite Stock Price Index.
Our performance was affected by the market correction, which hit small-cap
stocks particularly hard as investors became concerned about higher interest
rates and their impact on the valuations and future earnings of small-cap
stocks. Prior to April, the Portfolio's performance benefited from our first use
of short selling, a technique that results in profits when stock prices are
falling. However, our short positions hurt our results in late April when many
of these stocks advanced. We plan to continue to use short sales to dampen
downside risk and to capitalize on negative situations.
Looking ahead, we believe U.S. equity market returns for all of fiscal 1997
will range from 8% to 12% for both large- and smaller-cap stocks. This forecast
implies little or no appreciation for large-cap stocks for the rest of the year.
It also implies that small-cap stocks should achieve positive returns over the
same period, once investors perceive that interest rates have stabilized. We
foresee a "stock picker's market" that will present opportunities for investors
to beat overall market returns if they have a clear understanding of future
earnings and valuations.
We are focusing our holdings in companies that we are confident can
maintain earnings growth and valuations in this uncertain environment. We also
are rotating into somewhat larger, more liquid stocks when they meet our
earnings-growth profile. Current areas of interest include semiconductor
producers and semiconductor equipment makers. Most of these companies continue
to show strong earnings growth and improving profit margins as demand for their
products remains strong. We also like energy companies that are showing strong
earnings growth. These stocks may be further bolstered by imbalances in supply
and demand for energy. We remain positive about many financial stocks, believing
that they will maintain earnings growth above the consensus estimates of
analysts due to their newly diversified revenue streams and improved margins.
We believe that our investment strategy, combined with our continued focus
on smaller-cap stocks, will produce attractive absolute and relative rates of
return for shareholders of the Capital Opportunity Portfolio during the
remainder of 1997 and beyond.
Frank J. Husic, Managing Partner
May 28, 1997
INVESTMENT PHILOSOPHY
The adviser believes that superior long-term investment results can be achieved
by concentrating assets in small- and mid-capitalization stocks of companies and
industry groups with fundamentals that will lead to above-average growth in
earnings and, eventually, in share prices.
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REPORT FROM MARATHON ASSET MANAGEMENT LIMITED
GLOBAL EQUITY PORTFOLIO
During the six months ended April 30, 1997, the Global Equity Portfolio
provided a return of 4.6%, compared with a gain of 8.3% in the Morgan Stanley
Capital International All-Country World Index, our unmanaged benchmark. This
disappointing performance relative to the Index can be attributed primarily to
the underweighting accorded the United States in the Portfolio and to our stock
selection within the U.S. market. Another factor was stock selection within
Europe, since the best-performing European shares (large-capitalization blue
chips sensitive to the dollar's movements versus other currencies) were
underrepresented in the Portfolio during the period. Our performance was better
in the Far East, where both our country selection and our stock-picking helped
us exceed the Index returns for those countries.
The six-month period was dominated by a 15% advance in the U.S. stock
market and a 12% increase (in dollar terms) in European markets. The Far Eastern
markets were much less rewarding: All of the major markets declined except
Australia; the drop was especially significant in Japan. Different trends were
apparent in the various markets. The United States was and remains characterized
by investors' continuing enthusiasm for large, blue chip companies with
demonstrated ability to increase earnings. Often such companies sell at 30 times
earnings, which seems high even for those that increase revenues at close to 10%
annually. Such firms are underrepresented in the Portfolio, as we take a more
"value-oriented" approach to stock selection. This should reduce risk in the
long run.
During the six-month period there was widespread concern that the Federal
Reserve Board would raise interest rates, which it did in March. Markets took
this relatively well--and especially so in Europe, where U.S. rate increases
that contribute to the strength of the dollar can be seen as bullish for
corporate earnings. The darker side of the interest-rate hike was seen in Asia,
where currencies are often pegged to the U.S. dollar and where the corporate
profit cycle is relatively mature.
The outlook for the balance of the year remains reasonably positive,
despite the March 25 increase in U.S. interest rates. First, monetary policy
outside the United States remains accommodative and is likely to foster recovery
in economic activity and corporate profits. Second, stock-market valuations
appear to be considerably lower internationally than within the United States.
Third, although stock markets generally are at high levels, the Portfolio
retains a bias toward less-fashionable (and therefore more reasonably priced)
shares in most markets. These stocks have the scope to catch up with overall
market valuations or to offer the Portfolio defensive characteristics if global
equity markets experience a sharp correction.
Jeremy Hosking
May 13, 1997
INVESTMENT PHILOSOPHY
The adviser believes that superior long-term investment results can be achieved
by investing in a widely diversified group of stocks chosen on the basis of
industry analysis as well as an assessment of each company's strategies for new
investment and for dealing with competition within its industry.
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REPORT FROM STRATEGIC INVESTMENT MANAGEMENT
GLOBAL ASSET ALLOCATION PORTFOLIO
During the first half of fiscal 1997, the Global Asset Allocation Portfolio
returned 4.3%. The result was in line--given current inflation rates--with
expectations of long-term financial-asset returns, but it trailed our
competitive standards, the Global Balanced Index, which advanced 7.8%, and the
average global flexible fund, which advanced 6.0%. We fell short of our
benchmarks because of our defensive posture: We were overweighted in
fixed-income securities relative to equities during a period of robust equity
returns. This has been the case since the Portfolio's inception in August 1995.
However, our defensive stance and global diversification have produced an
exceptionally stable return with price volatility well below the Portfolio's
benchmark index, average competitor, and even most fixed-income benchmarks.
Our investment process, which uses a quantitative discipline to dynamically
allocate assets across global markets, aims to exceed the performance of the
Global Balanced Index over several market cycles. In the past, this approach has
resulted in episodes of added value relative to benchmarks, particularly during
periods when fundamentals reverted toward historic norms. This has not occurred
recently. Fortunately for most market participants, but unfortunately for our
relative performance, the U.S. equity market has experienced "Murphy's law" in
reverse: Whatever can go right, will. Most conspicuously, corporate
profitability, rather than reverting to historic norms over the past three
years, has risen quarter after quarter and now stands, as measured by return on
inflation-adjusted shareholders' capital, at the highest level for any period we
can measure.
Alas, valuations in the equity market are the highest, by most measures,
since 1929. Our investment discipline requires us to lower our exposure to an
asset which is too richly priced relative to long-term fundamentals, since such
overvaluations are likely to lead to disappointing returns unless the
fundamentals behave unusually well--a condition that will not persist
indefinitely. Thus, we have underweighted the Portfolio in most major equity
markets--especially in the United States--as the markets have exceeded our
measures of sustainable long-term fundamentals. Fixed-income securities,
particularly U.S. bonds, have been our asset of choice because bonds are
somewhat cheap in relation to expected inflation.
A shift to a less-favorable environment for corporate profits is likely to
precipitate a less-hospitable environment for U.S. equities. Such a shift
ultimately will be produced by some combination of rising production costs
(through rising wages, higher interest rates, or capacity constraints), and
lower pricing power (through the U.S. dollar's rise versus other currencies or
competition from new low-cost producers, such as those in emerging economies).
We believe these concerns were reflected in the stock market's declines in July
1996 and March 1997. However, positive earnings surprises have continued,
postponing evidence of any corporate distress and sustaining current market
valuations.
Michael A. Duffy, Managing Director May 9, 1997
INVESTMENT PHILOSOPHY
The adviser believes that superior long-term investment results can be obtained
by using quantitative models to take advantage of mispricings in the stock,
bond, and cash markets of major industrialized countries by investing in the
asset classes that offer the highest returns relative to risk. The Portfolio may
invest in stocks, bonds, or money market securities in the markets of several
nations, including the United States, Japan, Germany, France, the United
Kingdom, and Australia.
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PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolios. Note, too, that
both share price and return can fluctuate widely so that an investment in the
Portfolios could lose money.
AGGRESSIVE GROWTH PORTFOLIO
TOTAL INVESTMENT RETURNS: AUGUST 14, 1995-APRIL 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO
RUSSELL*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------
<C> <C> <C> <C> <C>
1995 1.7% 0.0% 1.7% 1.4%
1996 22.5 0.9 23.4 18.8
1997** 7.3% 1.4% 8.7% 5.4%
- ------------------------------------------------
</TABLE>
*Russell 2800 Index.
**Six months ended April 30, 1997.
See Financial Highlights table on page 26 for dividend and capital gains
information since the Portfolio's inception.
CAPITAL OPPORTUNITY PORTFOLIO
TOTAL INVESTMENT RETURNS: AUGUST 14, 1995-APRIL 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------
CAPITAL OPPORTUNITY PORTFOLIO AGGRESSIVE
GROWTH*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------
<S> <C> <C> <C> <C>
1995 -3.2% 0.0% -3.2% -1.6%
1996 11.3 0.4 11.7 12.5
1997** -9.8 0.1 -9.7 -3.1
- -------------------------------------------------
</TABLE>
*Aggressive Growth Fund Stock Index.
**Six months ended April 30, 1997.
See Financial Highlights table on page 27 for dividend and capital gains
information since the Portfolio's inception.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1997*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION --------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggressive Growth Portfolio 8/14/95 16.25% 17.98% 1.53% 19.51%
Capital Opportunity Portfolio 8/14/95 0.76 0.61 0.23 0.84
- -------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
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All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Portfolios. Note, too, that
both share price and return can fluctuate widely so that an investment in the
Portfolios could lose money.
GLOBAL EQUITY PORTFOLIO
TOTAL INVESTMENT RETURNS: AUGUST 14, 1995-APRIL 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------
GLOBAL EQUITY PORTFOLIO MSCI*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------
<S> <C> <C> <C> <C>
1995 0.5% 0.0% 0.5% 1.9%
1996 16.3 0.7 17.0 15.6
1997** 3.4 1.2 4.6 8.3
- -------------------------------------------
</TABLE>
*MSCI All-Country World Index.
**Six months ended April 30, 1997.
See Financial Highlights table on page 27 for dividend and capital gains
information since the Portfolio's inception.
GLOBAL ASSET ALLOCATION PORTFOLIO
TOTAL INVESTMENT RETURNS: AUGUST 14, 1995-APRIL 30, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
GLOBAL ASSET ALLOCATION PORTFOLIO RUSSELL*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ------------------------------------------------------
<S> <C> <C> <C> <C>
1995 2.4% 0.0% 2.4% 2.8%
1996 10.2 2.1 12.3 15.6
1997** -1.0% 5.3% 4.3% 7.8%
- ------------------------------------------------------
</TABLE>
*Russell Global Balanced Index.
**Six months ended April 30, 1997.
See Financial Highlights table on page 28 for dividend and capital gains
information since the Portfolio's inception.
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1997*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Equity Portfolio 8/14/95 8.96% 11.94% 1.27% 13.21%
Global Asset Allocation Portfolio 8/14/95 8.63 5.86 4.71 10.57
- ------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
11
<PAGE> 14
[PHOTO]
FINANCIAL STATEMENTS
APRIL 30, 1997 (UNAUDITED)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's holdings, including
each security's market value on the last day of the reporting period. The Global
Asset Allocation Portfolio also holds significant investments in futures
contracts, which are listed in a table at the end of the Statement. Securities
are grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector or, for international securities, by country. Other assets are
added to, and liabilities are subtracted from, the value of Total Investments to
calculate the Portfolio's Net Assets. Finally, Net Assets are divided by the
outstanding shares of the Portfolio to arrive at its share price, or Net Asset
Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the Portfolio's net assets on both a dollar and per-share
basis. Because all income and any realized gains must be distributed to
shareholders each year, the bulk of net assets consists of Paid in Capital
(money invested by shareholders). The amounts shown for Undistributed Net
Investment Income and Accumulated Net Realized Gains usually approximate the
sums the Portfolio had available to distribute to shareholders as income
dividends or capital gains as of the statement date, but may differ because
certain investments or transactions may be treated differently for financial
statement and tax purposes. Any Accumulated Net Realized Losses, and any
cumulative excess of distributions over net income or net realized gains, will
appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the Portfolio's investments and their
cost, and reflects the gains (losses) that would be realized if the Portfolio
were to sell all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
MARKET
AGGRESSIVE VALUE*
GROWTH PORTFOLIO SHARES (000)
- ---------------------------------------------------------------------------------
COMMON STOCKS (97.7%)
- ---------------------------------------------------------------------------------
AUTO & TRANSPORTATION (4.0%)
<S> <C> <C>
Arvin Industries, Inc. 58,000 $ 1,508
Breed Technological Inc. 30,500 553
CNF Transportation Inc. 53,800 1,601
Dana Corp. 44,800 1,428
Delta Air Lines, Inc. 32,800 3,022
Harley-Davidson, Inc. 17,000 671
Westinghouse Air Brake Co. 108,500 1,560
--------
10,343
--------
CONSUMER DISCRETIONARY (13.8%)
- - Amerco Inc. 40,700 977
- - Blyth Industries, Inc. 28,900 1,142
- - Borders Group, Inc. 75,800 1,611
- - CKS Group, Inc. 19,400 403
- - Carmike Cinemas, Inc. Class A 42,700 1,324
- - Coastcast Corp. 28,300 276
- - Costco Cos., Inc. 9,800 283
Ethan Allen Interiors Inc. 45,400 2,009
- - Friedman's Inc. Class A 49,200 824
Hasbro, Inc. 62,850 1,571
Leggett & Platt, Inc. 18,200 632
- - MGM Grand Inc. 79,200 2,673
New York Times Co. Class A 109,500 4,736
- - OfficeMax Inc. 46,800 579
- - Proffitt's, Inc. 20,500 766
Reader's Digest Assn., Inc. Class A 31,000 713
Russell Corp. 50,200 1,393
St. John Knits, Inc. 22,400 860
Shopko Stores, Inc. 45,500 910
TJX Cos., Inc. 14,500 685
- - 3Do Co. 656,200 2,256
- - Vans, Inc. 189,550 1,801
Wallace Computer Services, Inc. 86,000 2,300
- - Woolworth Corp. 231,300 4,973
--------
35,697
--------
CONSUMER STAPLES (5.1%)
American Stores Co. 63,100 2,871
Dean Foods Corp. 93,500 3,448
Dial Corp. 145,900 2,261
- - Morningstar Group, Inc. 66,469 1,595
SuperValu Inc. 96,600 2,958
Universal Corp. 6,900 193
--------
13,326
--------
ENERGY (5.6%)
- - Falcon Drilling Co., Inc. 35,700 1,366
- - Flores & Rucks, Inc. 106,600 4,650
- - Global Marine, Inc. 150,100 3,021
Halliburton Co. 51,100 3,609
- - Noble Drilling Corp. 108,000 1,876
-------
14,522
-------
FINANCIAL SERVICES (20.1%)
H.F. Ahmanson & Co. 40,400 1,540
Alfa Corp. 41,200 494
Allmerica Financial Corp. 96,600 3,478
American Financial Group, Inc. 84,400 2,943
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------------------
<S> <C> <C>
BanPonce Corp. 100,500 $ 3,404
Bear Stearns Co., Inc. 179,020 5,460
Community First Bankshares 152,550 4,843
- - ContiFinancial Corp. 15,900 457
Criimi Mae, Inc. REIT 184,400 2,881
Donaldson, Lufkin & Jenrette, Inc. 101,400 4,373
- - FIRSTPLUS Financial Group 124,100 2,746
Green Point Financial Corp. 60,400 3,345
Green Tree Financial Corp. 14,000 415
ITT Hartford Group, Inc. 53,100 3,956
MGIC Investment Corp. 34,100 2,771
Provident Bancorp Inc. 24,300 929
Security Capital Corp. 24,900 2,197
Simon DeBartolo Group, Inc. REIT 68,900 1,972
State Street Corp. 22,700 1,788
TransAmerica Corp. 16,200 1,373
Wilmington Trust Corp. 15,800 679
-------
52,044
-------
HEALTH CARE (7.2%)
- - Bio-Rad Laboratories, Inc. Class A 26,300 628
Guidant Corp. 60,800 4,150
HBo & Co. 14,900 795
- - Hologic, Inc. 83,700 1,716
- - Lincare Holdings Inc. 82,100 3,181
- - MedPartners Inc. 215,800 3,938
- - Nellcor Puritan Bennett, Inc. 20,400 342
Olsten Corp. 85,600 1,509
- - Safeskin Corp. 27,800 622
U.S. Surgical Corp. 50,300 1,723
-------
18,604
-------
MATERIALS & PROCESSING (14.4%)
- - American Standard Cos., Inc. 98,600 4,129
BMC Industries, Inc. 21,400 621
Belden Inc. 45,200 1,390
- - Buckeye Cellulose Corp. 21,400 645
Cleveland-Cliffs Iron Co. 28,200 1,195
Ethyl Corp. 172,700 1,576
Fluor Corp. 34,300 1,886
- - Fort Howard Corp. 112,100 3,839
Harsc- Corp. 19,800 730
Lubrizol Corp. 73,600 2,410
Newmont Mining Corp. 28,000 970
Owens-Corning 59,100 2,394
- - Owens-Illinois, Inc. 72,900 1,968
Phelps Dodge Corp. 24,000 1,842
- - RMI Titanium Co. 51,700 1,105
- - Shorewood Packaging 65,500 1,212
The Standard Register Co. 89,400 2,939
Terra Industries, Inc. 28,300 329
The Timken Co. 41,900 2,435
USX-U.S. Steel Group 34,300 1,003
Union Carbide Corp. 57,300 2,858
-------
37,476
-------
PRODUCER DURABLES (1.5%)
Scotsman Industries, Inc. 73,800 1,882
Wheelabrator Technologies, Inc. 167,100 2,110
-------
3,992
-------
TECHNOLOGY (13.7%)
- - Atmel Corp. 101,800 2,507
- - Cabletron Systems, Inc. 23,700 818
- - Chips & Technologies, Inc. 351,900 2,815
- - Dell Computer Corp. 79,500 6,648
- - Electronics for Imaging, Inc. 89,357 3,485
- - FTP Software, Inc. 208,000 936
- - Gateway 2000 Inc. 77,900 4,265
- - Hadco Corp. 27,800 1,175
- - McAfee Associates, Inc. 93,800 5,218
- - Seagate Technology 23,100 1,060
- - SMART Modular
Technologies, Inc. 45,100 1,500
- - Western Digital Corp. 81,600 5,029
-------
35,456
-------
UTILITIES (10.4%)
Atmos Energy Corp. 62,600 1,416
Baltimore Gas & Electric Co. 101,300 2,583
Boston Edison Co. 107,700 2,746
Century Telephone
Enterprises, Inc. 15,000 448
Cincinnati Bell, Inc. 41,200 2,307
Columbia Gas Systems, Inc. 87,900 5,439
DTE Energy Co. 114,200 3,055
Florida Progress Corp. 65,500 2,014
GPU Inc. 87,200 2,812
Houston Industries, Inc. 49,400 988
Public Service Enterprise
Group Inc. 91,600 2,210
Southern New England
Telecommunications Corp. 27,400 1,000
-------
27,018
-------
OTHER (1.9%)
Carlisle Co., Inc. 1,400 39
GenCorp, Inc. 161,300 3,024
Johnson Controls, Inc. 48,800 1,873
-------
4,936
-------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $238,122) 253,414
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.8%)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY BILL
(1)5.21%, 7/24/97 $ 400 395
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.31%, 5/1/97 6,928 6,928
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $7,323) 7,323
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.5%)
(COST $245,445) 260,737
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
AGGRESSIVE VALUE*
GROWTH PORTFOLIO (000)
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.5%)
- --------------------------------------------------------------------------------
<S> <C>
Other Assets--Notes C and F 9,649
Liabilities--Note F (10,871)
----------
(1,222)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 20,409,946 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $ 259,515
================================================================================
NET ASSET VALUE PER SHARE $ 12.72
================================================================================
</TABLE>
* See Note A in Notes to Financial Statements
- - Non-Income Producing Security.
(1)Security segregated as initial margin for open futures contracts.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT APRIL 30, 1997, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $242,063 $ 11.86
Undistributed Net
Investment Income 851 .04
Accumulated Net Realized Gains 952 .05
Unrealized Appreciation--Note E
Investment Securities 15,292 .75
Futures Contracts 357 .02
- --------------------------------------------------------------------------------
NET ASSETS $259,515 $ 12.72
================================================================================
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
CAPITAL OPPORTUNITY VALUE*
PORTFOLIO SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (87.9%)
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (17.0%)
<S> <C> <C>
- - America Online, Inc. 84,000 $ 3,791
- - Extended Stay America, Inc. 233,600 3,504
- - Florida Panthers Holdings, Inc. 85,000 1,859
Liz Claiborne, Inc. 38,500 1,742
(1)Sunbeam Corp. 110,000 3,492
-------
14,388
-------
ENERGY (9.7%)
- - Falcon Drilling Co., Inc. 126,700 4,846
- - Seitel, Inc. 100,000 3,350
-------
8,196
-------
FINANCIAL SERVICES (25.1%)
BANKS-NEW YORK CITY (2.2%)
Bankers Trust New York Corp. 23,000 1,872
DIVERSIFIED FINANCIAL SERVICES (6.3%)
Household International, Inc. 60,500 5,324
FINANCE COMPANIES (2.3%)
- - Bank Plus Corp. 195,000 1,926
SAVINGS & LOAN (7.8%)
(1)Washington Mutual, Inc. 135,700 6,666
SECURITIES BROKERS & SERVICES (6.5%)
Alex Brown, Inc. 85,500 5,504
-------
21,292
-------
HEALTH CARE (2.7%)
- - Dura Pharmaceuticals, Inc. 80,000 2,320
-------
MATERIALS & PROCESSING (3.7%)
- - RMI Titanium Co. 148,900 3,183
-------
PRODUCER DURABLES (7.6%)
- - Republic Industries, Inc. 260,000 6,435
-------
TECHNOLOGY (22.1%)
- -(1)Advanced Micro Devices, Inc. 99,500 4,229
- - C/NET, Inc. 159,000 3,101
- - Electronics for Imaging, Inc. 45,700 1,782
- - LSI Logic Corp. 55,900 2,138
- - McAfee Associates, Inc. 25,750 1,432
Micron Technology, Inc. 51,000 1,798
- - National Semiconductor Corp. 92,000 2,300
- - PeopleSoft Inc. 46,900 1,952
-------
18,732
-------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $68,723) 74,546
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT (12.7%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.31%, 5/1/97
(COST $10,755) $ 10,755 10,755
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%)
(COST $79,478) 85,301
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.6%)
- --------------------------------------------------------------------------------
Deposits with Brokers for Securities
Sold Short 4,491
Other Assets--Notes C and F 6,829
Securities Sold Short, at Value (5,048)
Other Liabilities--Note F (6,769)
--------
(497)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
Applicable to 8,698,650 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $84,804
================================================================================
NET ASSET VALUE PER SHARE $9.75
================================================================================
<CAPTION>
SHARES
- --------------------------------------------------------------------------------
SECURITIES SOLD SHORT (6.0%)
- --------------------------------------------------------------------------------
COMMON STOCKS
<S> <C> <C>
Bay Networks, Inc. 52,500 932
FORE Systems, Inc. 74,000 1,138
Netscape Communications Corp. 65,000 1,763
U.S. Robotics Corp. 24,000 1,215
- --------------------------------------------------------------------------------
TOTAL SECURITIES SOLD SHORT
(Proceeds $4,491) 5,048
- --------------------------------------------------------------------------------
* See Note A in Notes to Financial Statements.
- - Non-Income Producing Security.
(1)Securities with an aggregate value of $4,648,000 have been segregated in
connection with open short sales.
<CAPTION>
- --------------------------------------------------------------------------------
AT APRIL 30, 1997, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 85,282 $ 9.80
Overdistributed Net
Investment Income (38) --
Accumulated Net Realized Losses (5,706) (0.66)
Unrealized Appreciation
(Depreciation)
Investment Securities--Note E 5,823 0.67
Securities Sold Short (557) (0.06)
- --------------------------------------------------------------------------------
NET ASSETS $ 84,804 $ 9.75
================================================================================
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
VALUE*
GLOBAL EQUITY PORTFOLIO SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (93.0%)
- --------------------------------------------------------------------------------
<S> <C> <C>
AUSTRALIA (3.0%)
Australia & New Zealand Bank
Group Ltd. 125,765 $ 805
Australia National Industries Ltd. 100,000 113
Boral Ltd. 103,407 306
Gio Australia Holdings Ltd. 96,440 286
National Mutual Holdings Ltd. 2,402 4
Pasminco Ltd. 320,000 610
QNI Ltd. 180,000 335
Renison Goldfields
Consolidated Ltd. 55,992 204
Santos Ltd. 112,000 438
Santos Ltd. Rights Exp. 5/17/97 14,000 11
Wesfarmers Ltd. 41,963 346
---------
3,458
---------
CANADA (3.9%)
Canadian Pacific, Ltd. 43,100 1,056
Hudson Bay Co. 43,000 874
Imperial Oil Ltd. 17,700 811
Noranda, Inc. 26,700 564
- - Rogers Communications, Inc.
Class B 114,000 600
- - San Andreas Resources Corp. 70,000 30
- - Stelco, Inc. Class A 100,000 587
---------
4,522
---------
CHINA (0.6%)
- - The Guangshen Railway Co., Ltd. 1,488,500 711
---------
DENMARK (0.4%)
Bang & Olufsen Holding A/S
B Shares 5,000 288
Coloplast A/S B Shares 1,950 141
---------
429
---------
FINLAND (1.6%)
Nokia AB Oy A Shares 6,700 418
Outokumpu Oy A Shares 26,000 495
Valmet Oy 28,000 473
UPM-Kymmene Oy 19,000 435
---------
1,821
---------
FRANCE (3.9%)
AXA-UAP SA 6,296 387
Banque Nationale de Paris SA 8,128 347
Canal Plus SA 2,300 415
Carrefour SA 499 312
Clarins SA 1,687 210
Compagnie Generale des Eaux SA 2,600 362
Pechiney SA A Shares 18,759 701
Scor SA 10,000 391
Schneider SA 10,000 564
Union Financiere de France
Banque SA 1,200 135
Usinor Sacilor SA 43,500 657
---------
4,481
---------
GERMANY (2.9%)
Adidas AG 4,500 469
Bayerische Motor Werke AG 560 459
Buderus AG 700 328
- - Fresenius Medical Care AG ADR 17,344 509
Hoechst AG 13,100 514
Mannesmann AG 630 248
Porsche AG Pfd. 300 390
Praktiker Bau-und
Heimwerkemaerkte AG 10,500 169
Veba AG 5,220 269
---------
3,355
---------
HONG KONG (1.0%)
Cathay Pacific Airways Ltd. 197,000 306
Hong Kong & China Gas Co., Ltd. 188,496 299
Hong Kong Electric Holdings Ltd. 80,000 283
Television Broadcasts Ltd. 60,000 246
---------
1,134
---------
INDONESIA (0.6%)
PT Citra Marga Nusphala
Persada (Foreign) 440,000 385
PT Gudang Garam (Foreign) 70,000 294
---------
679
---------
IRELAND (0.3%)
Independent Newspapers PLC 35,000 181
Waterford Wedgewood PLC 170,000 222
---------
403
---------
ITALY (1.7%)
Ente Nazionale Idrocarburi SPA 85,000 431
Fila Holdings SPA ADR 6,000 259
Gewiss SPA 5,000 67
Industrie Natuzzi SPA ADR 7,000 156
Luxottica Group SPA ADR 6,000 362
- - Olivetti SPA 1,125,000 329
- - Seat SPA Risp 105,000 21
STET-Societa Finanziaria
Telefonica SPA 105,000 389
---------
2,014
---------
JAPAN (13.1%)
Apic Yamada Corp. 3,000 34
Brother Industries Ltd. 88,000 332
DDI Corp. 30 199
Fuji Oil Co. 36,000 214
Fujikura Ltd. 40,000 299
Furukawa Electric Co. 120,000 576
Futaba Corp. 7,000 287
Gakken Co. 42,000 190
Heiwa Corp. 10,000 132
Hitachi Ltd. 80,000 725
Ikegami Tsushinki Co., Ltd. 20,000 102
Intec Inc. 20,000 206
Ishikawajima-Harima Heavy
Industries Co. 140,000 522
Isuzu Motors Ltd. 40,000 150
- - Japan Air Lines Co., Ltd. 54,000 214
Jeol Ltd. 15,000 91
Kao Corp. 52,000 606
Kirin Beverage Corp. 30,000 409
Kubota Corp. 82,000 379
Mitsubishi Corp. 34,000 319
Mitsui & Co., Ltd. 100,000 764
Namco Ltd. 20,000 586
Nippon Oil Co., Ltd. 40,000 188
- - Nippon Suisan Kaisha Ltd. 60,000 144
Nomura Securities Co., Ltd. 34,000 380
Sankyo Seiko Co. 30,000 105
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
Shiseido Co., Ltd. 44,000 631
Showa Shell Sekiyu K.K. 35,000 259
Sintokogio Ltd. 20,000 128
Sony Corp. 15,000 1,092
Stanley Electric Co. 80,000 364
Sumisho Computer Systems Corp. 16,000 208
Sumitomo Corp. 20,000 135
Sumitomo Electric Industries Ltd. 28,000 379
Sumitomo Metal Industries Ltd. 280,000 697
Sumitomo Realty &
Development Co. 72,000 511
Sumitomo Rubber Industries Ltd. 54,000 353
Sumitomo Sitix Corp. 14,000 264
Sumitomo Trust & Banking Co. 66,000 546
Tokyo Broadcasting System, Inc. 15,000 234
Toyo Engineering Corp. 50,000 200
- - Tsuzuki Denki Co., Ltd. 36,000 239
Yamaha Motor Co., Ltd. 34,000 303
Yasuda Fire & Marine
Insurance Co. 76,000 352
-------
15,048
-------
MALAYSIA (1.0%)
Carlsberg Brewery Malaysia Bhd 45,000 393
Kumpulan Guthrie Bhd 87,000 134
Resorts World Bhd 50,000 184
Rothmans of Pall Mall
Malaysia Bhd 25,000 231
Sime Darby Bhd 69,000 213
-------
1,155
-------
MEXICo (1.0%)
- - Grupo Financiero Banamex
Accival SA de CV Series B 100,000 215
- - Grupo Financiero Banamex
Accival SA de CV Series L 3,000 6
- - Grupo Televisa SA GDR 12,000 277
Telefonos de Mexico SA
Class L ADR 11,000 454
Vitro SA ADR 20,000 162
-------
1,114
-------
NETHERLANDS (1.3%)
Boskalis Westminster NV 6,616 134
Nedlloyd Groep NV 16,600 381
Philips Electronics NV 9,200 480
Polygram NV 10,100 495
-------
1,490
-------
NEW ZEALAND (0.1%)
Wrightson Ltd. 150,000 88
-------
NORWAY (1.2%)
Den Norske Bank ASA 100,000 361
Olav Thon Eiendomsselskap ASA 7,000 157
Schibsted ASA 24,000 415
- - Storebrand ASA 70,000 431
-------
1,364
-------
SINGAPORE (0.9%)
Jardine Strategic Holdings Ltd. 200,000 680
Mandarin Oriental
International Ltd. 158,427 184
Singapore Land Ltd. 30,000 140
-------
1,004
-------
SOUTH AFRICA (2.1%)
De Beers Centenary AG 20,000 720
Free State Consolidated Gold
Mines Ltd. ADR 67,000 448
Plessey Corp., Ltd. 62,000 120
Safmarine & Rennies Holdings Ltd. 45,000 124
South African Breweries Ltd. 19,084 562
South African Iron & Steel
Industrial Corp., Ltd. 669,442 464
-------
2,438
-------
SPAIN (1.8%)
Acerinox SA 2,700 395
Banco Santander SA 3,000 226
Centros Comerciales Pryca SA 23,400 407
Prosegur Cia de Seguridad SA
(Registered) 16,525 179
Tabacalera SA 13,000 653
Viscofan Industria Navarra de
Envolturas Celulosicas SA 8,000 154
-------
2,014
-------
SWEDEN (2.6%)
Avesta Sheffield AB 31,500 313
- - Diligentia AB 10,000 106
LM Ericsson Telephone AB
B Shares 19,350 612
Hennes & Mauritz AB B Shares 3,300 477
Hoganas AB B Shares 8,500 255
Kinnevik AB B Shares 15,000 389
Munksjoe AB 18,000 166
Om Gruppen AB 10,000 291
Skandinaviska Enskilda
Banken AB 15,000 153
Trelleborg AB B Shares 16,000 250
-------
3,012
-------
SWITZERLAND (2.0%)
ABB AG (Bearer) 200 242
Novartis AG (Registered) 266 351
Phoenix Mecano AG 200 92
Sarna Kunsstoff Holding AG
(Registered) 100 97
SGS Societe Generale de
Surveillance Holding SA (Bearer) 350 725
SMH AG (Registered) 5,800 768
-------
2,275
-------
THAILAND (0.2%)
Post Publishing PLC (Foreign) 130,000 192
-------
UNITED KINGDOM (13.1%)
Airtours PLC 40,000 595
Amvesco PLC 169,000 913
Amvesco PLC ADR 15,000 823
Associated British Ports
Holdings PLC 100,000 428
Barclays PLC 38,900 724
Berisford PLC 100,000 204
British Aerospace PLC 20,000 425
Chubb Security PLC 90,000 653
Cowie Group PLC 93,333 559
Devro PLC 115,000 584
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
VALUE*
GLOBAL EQUITY PORTFOLIO SHARES (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
E D & F Man Group PLC 45,000 $ 130
EMI Group PLC 30,000 596
- - Energy Group PLC 35,000 278
First Leisure Corp. PLC 80,000 435
Granada Group PLC 35,000 506
Grand Metropolitan PLC 67,000 560
Hanson PLC 108,750 529
Hyder PLC 40,000 556
- - Imperial Tobacco Group PLC 16,000 105
Ladbroke Group PLC 100,000 373
London Clubs International PLC 50,000 312
- - LucasVarity PLC 105,000 319
Provident Financial PLC 65,000 605
Racal Electronics PLC 95,000 368
RTZ Corp. PLC 25,000 398
Stagecoach Holdings PLC 75,833 732
T & N PLC 125,000 276
Taylor Woodrow PLC 145,000 451
Thorn PLC 15,000 41
Trinity Holdings PLC 30,000 145
Vendome Luxury Group PLC 50,000 415
Vodafone Group PLC 100,000 448
WPP Group PLC 120,000 489
-------
14,975
-------
UNITED STATES (32.7%)
AUTO & TRANSPORTATION (6.5%)
- - AMR Corp. 11,000 1,024
Burlington Northern Santa Fe Corp. 14,000 1,103
CSX Corp. 21,300 993
Ford Motor Co. 34,000 1,182
General Motors Corp. 12,400 718
Outboard Marine Corp. 48,600 632
TRW, Inc. 18,000 938
Union Pacific Corp. 13,800 880
CONSUMER DISCRETIONARY (3.5%)
Browning-Ferris Industries, Inc. 30,000 851
Harcourt General, Inc. 22,500 1,041
The Limited, Inc. 44,778 812
Phillips-Van Heusen Corp. 37,800 496
- - Woolworth Corp. 36,000 774
CONSUMER STAPLES (1.5%)
Philip Morris Cos., Inc. 42,300 1,666
ENERGY (0.8%)
Union Pacific Resources
Group, Inc. 6,775 184
- - Western Atlas, Inc. 11,900 738
FINANCIAL SERVICES (6.1%)
The Bank of New York Co., Inc. 44,400 1,754
The Chubb Corp. 13,500 780
- - First Alliance Corp. 15,000 308
Fleet Financial Group, Inc. 14,500 885
TIG Holdings, Inc. 22,500 624
TransAmerica Corp. 10,000 848
Unitrin, Inc. 17,300 871
Wells Fargo & Co. 3,433 916
HEALTH CARE (1.2%)
Allegiance Corp. 3,400 75
Baxter International, Inc. 22,500 1,077
- - Trigon Healthcare, Inc. 12,600 239
MATERIALS & PROCESSING (6.3%)
Freeport-McMoRan, Inc. 29,533 864
Geon Co. 39,000 853
Georgia-Pacific Corp. 11,400 889
James River Corp. 30,500 911
LTV Corp. 69,000 906
Olin Corp. 21,400 880
PPG Industries, Inc. 16,500 897
Phelps Dodge Corp. 13,000 998
Primex Technologies, Inc. 1,440 28
PRODUCER DURABLES (1.9%)
The Boeing Co. 11,100 1,095
United Technologies Corp. 14,000 1,059
TECHNOLOGY (2.7%)
Intel Corp. 8,800 1,346
International Business
Machines Corp. 11,300 1,816
UTILITIES (0.5%)
- - Tele-Communications, Inc. Class A 45,000 619
OTHER (1.7%)
Dresser Industries, Inc. 36,000 1,075
- - FMC Corp. 12,400 832
------
37,477
------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $98,285) 106,653
<CAPTION>
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BOND (0.1%)
- --------------------------------------------------------------------------------
JAPAN
Sumitomo Wiring Systems Cvt
0.90%, 9/30/08
(COST $137) JPY 16,000 119
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (8.1%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.31%, 5/1/97
(COST $9,305) $ 9,305 9,305
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.2%)
(COST $107,727) 116,077
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.2%)
- --------------------------------------------------------------------------------
Other Assets--Notes C and F 1,523
Liabilities--Note F (2,928)
---------
(1,405)
- --------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- --------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------
<S> <C>
Applicable to 9,610,446 outstanding
$.001 par value shares
(authorized 250,000,000) $114,672
================================================================================
NET ASSET VALUE PER SHARE $11.93
================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income Producing Security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
JPY--Japanese yen.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AT APRIL 30, 1997, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $104,980 $ 10.92
Undistributed Net
Investment Income--Note D 358 .04
Accumulated Net
Realized Gains--Note D 751 .08
Unrealized Appreciation--Note E
Investment Securities 8,350 .87
Foreign Currencies and Forward
Currency Contracts 233 .02
- --------------------------------------------------------------------------------
NET ASSETS $114,672 $ 11.93
================================================================================
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
GLOBAL ASSET ALLOCATION PORTFOLIo COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------
BONDS (65.1%)
- -----------------------------------------------------------------------------------------
AUSTRALIA (1.8%)
<S> <C> <C> <C> <C>
Queensland Treasury Global Note 8.00% 8/14/01 AUD 1,800 $ 1,448
--------
CANADA (0.7%)
Canada Government Bond 7.00% 12/1/06 CAD 800 587
--------
FRANCE (1.6%)
France O.A.T. 5.50% 4/25/04 FRF 7,490 1,298
--------
GERMANY (1.2%)
Treuhandanstalt 6.625% 7/9/03 DEM 1,500 931
--------
UNITED KINGDOM (9.7%)
U.K. Treasury 8.50% 7 /16/07 GBP 2,000 3,478
U.K. Treasury 9.75% 8/27/02 GBP 2,400 4,314
--------
7,792
--------
UNITED STATES (50.1%)
U.S. Treasury Bond 6.875% 8/15/25 $ 3,200 3,144
U.S. Treasury Bond 7.125% 2/15/23 6,300 6,356
U.S. Treasury Bond 8.75% 8/15/20 2,200 2,623
U.S. Treasury Note 5.875% 11/15/99 6,000 5,928
U.S. Treasury Note 5.875% 2/15/00 10,000 9,866
U.S. Treasury Note 6.25% 1/31/02 7,000 6,907
U.S. Treasury Note 6.50% 10/15/06 3,700 3,639
U.S. Treasury Note 7.00% 7/15/06 1,850 1,881
--------
40,344
--------
- -----------------------------------------------------------------------------------------
TOTAL BONDS
(Cost $52,572) 52,400
<CAPTION>
- -----------------------------------------------------------------------------------------
SHARES
- -----------------------------------------------------------------------------------------
EQUITY SECURITIES (4.0%)(1)
- -----------------------------------------------------------------------------------------
CANADA (0.3%)
<S> <C> <C>
Canadian General Investments 24,932 244
--------
CHINA (0.3%)
China Investment Trust 150,000 233
--------
JAPAN (0.3%)
- - Nikkei 300 Investment Trust Units 100,000 219
--------
KOREA (0.6%)
Korea Asia Fund Ltd. 24 189
Other (0.3%) 278
--------
467
--------
LATIN AMERICA (0.3%)
Templeton Latin America Investment Trust PLC 150,000 233
--------
MISCELLANEOUS (2.2%) 1,815
- -----------------------------------------------------------------------------------------
TOTAL EQUITY SECURITIES
(COST $3,165) 3,211
- -----------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPORARY CASH INVESTMENTS (28.4%)(2)
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (16.1%)
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.31% 5/1/97 $12,976 $12,976
-------
U.S. GOVERNMENT OBLIGATION (6.1%)
U.S. Treasury Bill 5.32% 8/21/97 5,000 4,919
-------
OTHER (6.2%)
SMM Trust Notes 1996-U 5.738% 6/20/97 5,000 5,000
- -----------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $22,893) 22,895
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (97.5%)
(COST $78,630) 78,506
- -----------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (2.5%)(2)
- -----------------------------------------------------------------------------------------
Other Assets--Notes C and F 15,965
Liabilities--Note F (13,987)
---------
1,978
- -----------------------------------------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------------------------------------
Applicable to 7,434,227 outstanding $.001 par value shares
(authorized 250,000,000 shares) $80,484
=========================================================================================
NET ASSET VALUE PER SHARE $10.83
=========================================================================================
<CAPTION>
OPEN FUTURES CONTRACTS AT APRIL 30, 1997:
- -----------------------------------------------------------------------------------------
MARKET
VALUE UNREALIZED
CONTRACTS LONG APPRECIATION
LONG (000) (000)
- -----------------------------------------------------------------------------------------
EQUITY INDEX FUTURES CONTRACTS(1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIA
All Ordinary Index (exp. 6/97) 8 $ 390 $ 15
------
FRANCE
CAC 40 (exp. 5/97-6/97) 14 1,251 38
------
GERMANY
DAX 30 (exp. 6/97-9/97) 18 3,599 187
------
JAPAN
Nikkei 300 (exp. 6/97) 208 4,622 383
------
SPAIN
IBX 35 (exp. 5/97) 31 1,257 63
------
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
MARKET
VALUE UNREALIZED
CONTRACTS LONG APPRECIATION
GLOBAL ASSET ALLOCATION PORTFOLIo LONG (000) (000)
- --------------------------------------------------------------------------------------------
UNITED KINGDOM
<S> <C> <C> <C>
FTSE 100 (exp. 6/97-9/97) 12 $ 2,172 $140
---------
UNITED STATES
S&P 500 (exp. 6/97) 5 2,007 93
---------
- --------------------------------------------------------------------------------------------
TOTAL EQUITY INDEX FUTURES CONTRACTS $15,298 $919
- --------------------------------------------------------------------------------------------
</TABLE>
* See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
- - Non-Income Producing Security.
(1)The combined market value of equity securities and equity index futures
contracts represents 23.0% of net assets, distributed by country as follows:
Australia 0.5%
Canada 0.3
China 0.3
France 1.5
Germany 5.6
Japan 6.0
Korea 0.6
Latin America 0.3
Spain 1.6
United Kingdom 2.7
United States 2.5
Other 1.1
(2)The effective cash position represents 11.9% of net assets. Cash reserves
above this level are invested in equity markets through the use of futures
contracts.
(3)Securities with an aggregate value of $1,968,000 have been segregated as
initial margin for open futures contracts.
(4)Floating Rate Note.
AUD--Australian dollar.
CAD--Canadian dollar.
DEM--German Deutsche mark.
FRF--French franc.
GBP--British pound sterling.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
AT APRIL 30, 1997, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $76,728 $10.32
Undistributed Net Investment Income--Note D 1,359 .18
Accumulated Net Realized Gains--Note D 1,515 .21
Unrealized Appreciation (Depreciation)--Note E
Investment Securities (124) (.02)
Futures Contracts 919 .13
Foreign Currencies and Forward Currency Contracts 87 .01
===========================================================================================
NET ASSETS $80,484 $10.83
===========================================================================================
</TABLE>
22
<PAGE> 25
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by each Portfolio
during the reporting period, and details the operating expenses charged to the
Portfolio. These expenses directly reduce the amount of investment income
available to pay to shareholders as dividends. This Statement also shows any Net
Gain (Loss) realized on the sale of investments, and the increase or decrease in
the Unrealized Appreciation (Depreciation) on investments during the
period--these amounts include the effect of foreign currency movements on the
value of a Portfolio's securities. Currency gains (losses) on the translation of
other assets and liabilities, combined with the results of any investments in
forward currency contracts during the period, are shown separately. If a
Portfolio invested in futures contracts during the period, the results of these
investments are also shown separately.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
AGGRESSIVE CAPITAL GLOBAL ASSET
GROWTH OPPORTUNITY GLOBAL EQUITY ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 1997
------------------------------------------------------
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C> <C> <C> <C>
Dividends* $1,528 $ 176 $ 914 $ 45
Interest 218 226 243 2,260
--------------------------------------------------
Total Income 1,746 402 1,157 2,305
--------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 88 209 246 157
Performance Adjustment -- (76) (70) (98)
The Vanguard Group--Note C
Management and Administrative 243 235 189 126
Marketing and Distribution 22 13 17 13
Taxes (other than income taxes) 7 4 4 3
Custodian Fees 6 3 28 15
Auditing Fees 4 4 4 4
Shareholders' Reports 9 7 4 4
Annual Meeting and Proxy Costs 1 1 -- --
--------------------------------------------------
Total Expenses 380 400 422 224
- -------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,366 2 735 2,081
- -------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 607 10,450 803 829
Futures Contracts 462 -- -- 1,509
Foreign Currencies and Forward
Currency Contracts -- -- (4) (214)
Securities Sold Short -- (163) -- --
- -------------------------------------------------------------------------------------------
REALIZED NET GAIN 1,069 10,287 799 2,124
- -------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 5,669 (18,697) 2,937 (1,380)
Futures Contracts 312 -- -- 168
Foreign Currencies and Forward
Currency Contracts -- -- 178 217
Securities Sold Short -- (557) -- --
- -------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 5,981 (19,254) 3,115 (995)
===========================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $8,416 $ (8,965) $4,649 $3,210
===========================================================================================
</TABLE>
*Dividends for the Global Equity Portfolio are net of foreign withholding taxes
of $80,000.
23
<PAGE> 26
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes information
that is detailed in the Statement of Operations. The amounts shown as
Distributions to shareholders from the Portfolio's net income and capital gains
may not match the amounts shown in the Operations section, because distributions
are determined on a tax basis and may be made in a period different from the one
in which the income was earned or the gains were realized on the financial
statements. The Capital Share Transactions section shows the amount shareholders
invested in the Portfolio, either by purchasing shares or by reinvesting
distributions, as well as the amounts redeemed. The corresponding numbers of
Shares Issued and Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH CAPITAL OPPORTUNITY
PORTFOLIo PORTFOLIO
-------------------------------- -------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APR. 30, 1997 OCT. 31, 1996 APR. 30, 1997 OCT. 31, 1996
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income $ 1,366 $ 1,773 $ 2 $ 106
Realized Net Gain (Loss) 1,069 7,809 10,287 (10,558)
Change in Unrealized Appreciation
(Depreciation) 5,981 9,748 (19,254) 21,626
--------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 8,416 19,330 (8,965) 11,174
--------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (2,007) (541) (74) (245)
Realized Capital Gain (7,917) -- -- --
--------------------------------------------------------------
Total Distributions (9,924) (541) (74) (245)
--------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 128,591 60,673 16,958 53,746
Issued in Lieu of Cash Distributions 9,593 527 70 236
Redeemed (10,581) (8,836) (37,982) (22,415)
--------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 127,603 52,364 (20,954) 31,567
- ------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 126,095 71,153 (29,993) 42,496
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 133,420 62,267 114,797 72,301
--------------------------------------------------------------
End of Period $259,515 $133,420 $84,804 $114,797
============================================================================================================
(1)Shares Issued (Redeemed)
Issued 9,830 5,280 1,539 5,411
Issued in Lieu of Cash Distributions 766 49 6 24
Redeemed (830) (772) (3,464) (2,266)
--------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 9,766 4,557 (1,919) 3,169
============================================================================================================
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY GLOBAL ASSET ALLOCATION
PORTFOLIo PORTFOLIO
------------------------------ ------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
APR. 30, 1997 OCT. 31, 1996 APR. 30, 1997 OCT. 31, 1996
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income $ 735 $ 983 $ 2,081 $ 3,237
Realized Net Gain (Loss) 799 1,588 2,124 2,203
Change in Unrealized Appreciation
(Depreciation) 3,115 5,699 (995) 1,503
------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 4,649 8,270 3,210 6,943
------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (1,224) (273) (3,930) (936)
Realized Capital Gain (1,661) -- (2,304) (140)
------------------------------------------------------------------
Total Distributions (2,885) (273) (6,234) (1,076)
------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 15,621 59,380 7,946 30,192
Issued in Lieu of Cash Distributions 2,404 267 5,064 769
Redeemed (4,540) (4,191) (5,155) (5,890)
------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 13,485 55,456 7,855 25,071
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 15,249 63,453 4,831 30,938
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 99,423 35,970 75,653 44,715
------------------------------------------------------------------
End of Period $114,672 $99,423 $80,484 $75,653
===================================================================================================================
(1)Shares Issued (Redeemed)
Issued 1,308 5,268 734 2,829
Issued in Lieu of Cash Distributions 204 25 480 73
Redeemed (385) (379) (482) (553)
------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 1,127 4,914 732 2,349
===================================================================================================================
</TABLE>
25
<PAGE> 28
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total Return
and shows net investment income and expenses as percentages of average net
assets. These data will help you assess: the variability of the Portfolio's net
income and total returns from year to year; the relative contributions of net
income and capital gains to the Portfolio's total return; how much it costs to
operate the Portfolio; and the extent to which the Portfolio tends to distribute
capital gains. The table also shows the Portfolio Turnover Rate, a measure of
trading activity. A turnover rate of 100% means that the average security is
held in the Portfolio for one year. Finally, the table lists the Portfolio's
Average Commission Rate Paid, a disclosure required by the SEC beginning in
1996. This rate is calculated by dividing total commissions paid on portfolio
securities by the total number of shares purchased and sold on which commissions
were charged.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO
SIX MONTHS ENDED YEAR ENDED JUN. 30* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD APR. 30, 1997 OCT. 31, 1996 OCT. 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.53 $10.23 $10.00
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .08 .18 .04
Net Realized and Unrealized Gain (Loss) on Investments 1.00 2.20 .19
----------------------------------------------------
Total from Investment Operations 1.08 2.38 .23
----------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.18) (.08) --
Distributions from Realized Capital Gains (.71) -- --
----------------------------------------------------
Total Distributions (.89) (.08) --
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.72 $12.53 $10.23
==================================================================================================================
TOTAL RETURN** 8.73% 23.40% 1.69%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $260 $133 $62
Ratio of Total Expenses to Average Net Assets 0.39%+ 0.38% 0.06%+
Ratio of Net Investment Income to Average Net Assets 1.39%+ 1.78% 2.22%+
Portfolio Turnover Rate 66%+ 106% 0%
Average Commission Rate Paid $.0257 $.0267 N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*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.
**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.
+Annualized.
26
<PAGE> 29
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
CAPITAL OPPORTUNITY PORTFOLIO
SIX MONTHS ENDED YEAR ENDED JUN. 30* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD APR. 30, 1997 OCT. 31, 1996 OCT. 31, 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.81 $ 9.71 $10.00
- -------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .000 .01 .02
Net Realized and Unrealized Gain (Loss) on Investments (1.053) 1.12 (.31)
----------------------------------------------
Total from Investment Operations (1.053) 1.13 (.29)
----------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.007) (.03) --
Distributions from Realized Capital Gains -- -- --
----------------------------------------------
Total Distributions (.007) (.03) --
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.75 $10.81 $ 9.71
=============================================================================================================
TOTAL RETURN** -9.75% 11.67% -3.19%
=============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $85 $115 $72
Ratio of Total Expenses to Average Net Assets 0.75%+ 0.50% 0.47%+
Ratio of Net Investment Income to Average Net Assets 0.00%+ 0.11% 1.29%+
Portfolio Turnover Rate 156%+ 128% 30%
Average Commission Rate Paid $.0569 $.0541 N/A
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*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.
**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.
+Annualized.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
SIX MONTHS ENDED YEAR ENDED JUN. 30* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD APR. 30, 1997 OCT. 31, 1996 OCT. 31, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.72 $10.08 $10.00
- -------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .08 .13 .04
Net Realized and Unrealized Gain (Loss) on Investments .46 1.58 .04
---------------------------------------
Total from Investment Operations .54 1.71 .08
---------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.14) (.07) --
Distributions from Realized Capital Gains (.19) -- --
---------------------------------------
Total Distributions (.33) (.07) --
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.93 $11.72 $10.08
=======================================================================================================
TOTAL RETURN** 4.65% 17.05% 0.50%
=======================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $115 $99 $36
Ratio of Total Expenses to Average Net Assets 0.77%+ 0.85% 0.57%+
Ratio of Net Investment Income to Average Net Assets 1.35%+ 1.53% 2.04%+
Portfolio Turnover Rate 14%+ 29% 2%
Average Commission Rate Paid $.0128 $.0078 N/A
- -------------------------------------------------------------------------------------------------------
</TABLE>
*Subscription period for each Portfolio was June 30, 1995, to August 13, 1995,
during which time all assets were held in moneymarket instruments.
Performance measurement begins 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.
+Annualized.
27
<PAGE> 30
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
GLOBAL ASSET ALLOCATION PORTFOLIO
SIX MONTHS ENDED YEAR ENDED JUN. 30* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD APR. 30, 1997 OCT. 31, 1996 OCT. 31, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.29 $10.27 $10.00
- -------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .29 .50 .11
Net Realized and Unrealized Gain (Loss) on Investments .17 .75 .16
----------------------------------------
Total from Investment Operations .46 1.25 .27
----------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.58) (.20) --
Distributions from Realized Capital Gains (.34) (.03) --
----------------------------------------
Total Distributions (.92) (.23) --
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.83 $11.29 $10.27
=======================================================================================================
TOTAL RETURN** 4.30% 12.34% 2.39%
=======================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $80 $76 $45
Ratio of Total Expenses to Average Net Assets 0.57%+ 0.79% 0.52%+
Ratio of Net Investment Income to Average Net Assets 5.33%+ 5.18% 5.42%+
Portfolio Turnover Rate 189%+ 191% 17%
Average Commission Rate Paid N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
</TABLE>
*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.
**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.
+Annualized.
28
<PAGE> 31
NOTES To FINANCIAL STATEMENTS
Vanguard Horizon Fund is registered under the Investment Company Act of 1940 as
a diversified open-end investment company and comprises 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 conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Securities listed on U.S. exchanges are valued at
the latest quoted sales prices as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. Eastern time) on the valuation date; such
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 on an exchange are
valued at the latest quoted bid prices, except that such securities sold short
are valued at asked prices. Bonds, and temporary cash investments acquired over
60 days to maturity, are valued using the latest bid prices or using valuations
based on 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 p.m. Geneva time on the valuation date.
Realized gains (losses) and unrealized appreciation (depreciation) on
investment securities include the effects of changes in exchange rates since the
securities were purchased, combined with the effects of changes in security
prices. Fluctuations in the value of other assets and liabilities resulting from
changes in exchange rates are recorded as unrealized foreign currency gains
(losses) until the asset or liability is settled in cash, when they are recorded
as realized foreign currency gains (losses).
3. FUTURES AND FORWARD CURRENCY CONTRACTS: The Aggressive Growth Portfolio
uses S&P 500 Index and S&P Midcap 400 Index futures contracts to a limited
extent, with the objective of maintaining full exposure to the stock market
while maintaining liquidity. The Portfolio may purchase or sell futures
contracts to achieve a desired level of investment, whether to accommodate
portfolio turnover or cash flows from capital share transactions. 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 foreign exchange rates. The Portfolios' risks in
using these contracts include movement in the values of the foreign currencies
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 at their quoted daily
settlement prices. The aggregate principal amounts of the 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)
29
<PAGE> 32
and in the Statement of Operations as unrealized appreciation (depreciation)
until the contracts are closed, when they are recorded as realized gains
(losses) on futures or forward currency contracts.
4. SHORT SALES: The Capital Opportunity Portfolio engages in short sales to
a limited extent. In a short sale, the Portfolio borrows from a broker and sells
shares of a security it does not own, with the expectation that the security's
price will fall. While the short position is open, the broker holds the proceeds
as collateral, and securities are segregated to cover additional margin
requirements. The Portfolio records the value of shares sold short as a
liability which is marked to market daily, and bears the risk of any increase in
their value. Fluctuations in the value of shares sold short are recorded as
unrealized appreciation (depreciation) until the Portfolio purchases securities
to close the short position, when the difference between the short sale proceeds
and the purchase cost is recorded as a realized gain (loss).
5. FEDERAL INCOME TAXES: Each Portfolio intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
6. REPURCHASE AGREEMENTS: Each Portfolio, along with other members of The
Vanguard Group, transfers uninvested cash balances to a Pooled Cash Account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
7. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes.
8. OTHER: Security transactions are accounted for on the date the
securities are bought or sold. Costs used to determine realized gains (losses)
on the sale of investment securities are those of the specific securities sold.
Discounts on debt securities purchased are accreted to interest income over the
lives of the respective securities. Dividend income is recorded on the
ex-dividend date.
B. The Vanguard Group furnishes investment advisory services to the Aggressive
Growth Portfolio on an at-cost basis.
Husic Capital Management provides investment advisory services to the
Capital Opportunity Portfolio for a fee calculated at an annual percentage rate
of average net assets. The basic fee is subject to quarterly adjustments based
on performance relative to an index of the equity holdings of the largest
aggressive growth stock mutual funds. For the six months ended April 30, 1997,
the investment advisory fee represented an effective annual basic rate of 0.39%
of the Portfolio's average net assets before a decrease of $76,000 (an annual
rate of 0.14%) based on performance.
Marathon Asset Management provides investment advisory services to the
Global Equity Portfolio for a fee calculated at an annual percentage rate of
average net assets. The basic fee is subject to quarterly adjustments based on
performance relative to the Morgan Stanley Capital International (MSCI)
All-Country World Index. For the six months ended April 30, 1997, the investment
advisory fee represented an effective annual basic rate of 0.45% of the
Portfolio's average net assets before a decrease of $70,000 (an annual rate of
0.13%) based on performance.
Strategic Investment Management provides investment advisory services to
the Global Asset Allocation Portfolio for a fee calculated at an annual
percentage rate of average net assets. The basic fee is subject to quarterly
adjustments based on performance relative to a combined theoretical index
composed of global stock market indices, the Salomon Brothers World Government
Bond Index, and an average U.S. commercial paper yield. For the six months ended
April 30, 1997, the investment advisory fee represented an effective annual
basic rate of 0.40% of the Portfolio's average net assets before a decrease of
$98,000 (an annual rate of 0.25%) based on performance.
30
<PAGE> 33
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the Fund under methods approved by the board of directors. At April 30, 1997,
the Fund had contributed capital aggregating $44,000 to Vanguard (included in
Other Assets), representing 0.2% of Vanguard's capitalization. The Fund's
directors and officers are also directors and officers of Vanguard.
D. During the six months ended April 30, 1997, purchases and sales of investment
securities other than temporary cash investments were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES OTHER INVESTMENT SECURITIES
(000) (000)
-------------------------------------------------------------
PORTFOLIO PURCHASES SALES PURCHASES SALES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth -- -- $186,821 $ 62,740
Capital Opportunity -- -- 78,459 114,269
Global Equity -- -- 19,343 6,963
Global Asset Allocation $39,019 $26,603 20,955 19,766
- --------------------------------------------------------------------------------------------
</TABLE>
At October 31, 1996, the Capital Opportunity Portfolio had available a
capital loss carryforward of $15,993,000 to offset future net capital gains of
$5,435,000 through October 31, 2003, and $10,558,000 through October 31, 2004.
During the six months ended April 30, 1997, the Global Equity and Global
Asset Allocation Portfolios realized net foreign currency gains (losses) of
$(4,000) and $206,000, respectively, which increased (decreased) distributable
net income for tax purposes; accordingly, such gains (losses) have been
reclassified from accumulated net realized gains to undistributed net income.
The amount reclassified by the Global Asset Allocation Portfolio includes
$211,000 of realized gains on the sale of foreign bonds which are treated as
foreign currency gains for tax purposes.
Certain of the Portfolios' investments are in securities considered to be
"passive foreign investment companies," for which any unrealized appreciation
and/or realized gains are required to be included in distributable net
investment income for tax purposes. The Global Equity and Global Asset
Allocation Portfolios' distributions to shareholders from passive foreign
investment company income during the six months ended April 30, 1997, were
$48,000 and $217,000, respectively; the cumulative totals of distributions
related to passive foreign investment company holdings at April 30, 1997, were
$63,000 and $118,000, respectively.
During the six months ended April 30, 1997, the Global Asset Allocation
Portfolio realized gains on the sale of passive foreign investment companies of
$234,000, which were included in prior years' distributable net income or will
be included in the current year's distributable net income for tax purposes;
accordingly, such gains have been reclassified from accumulated net realized
gains to undistributed net investment income.
E. At April 30, 1997, net unrealized appreciation (depreciation) of investment
securities for federal income tax purposes was:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(000)
--------------------------------------------
NET
UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION
PORTFOLIO SECURITIES SECURITIES (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth $26,396 $(11,104) $15,292
Capital Opportunity 11,534 (5,711) 5,823
Global Equity 14,770 (6,483) 8,287
Global Asset Allocation 496 (738) (242)
- --------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
At April 30, 1997, the aggregate settlement value of open S&P 500 Index
futures contracts expiring in June 1997 held by the Aggressive Growth Portfolio,
and the unrealized appreciation on those contracts, were $6,824,000 and
$357,000, respectively.
At April 30, 1997, the Portfolios had open forward currency contracts to
receive and deliver foreign currency in exchange for U.S. dollars as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(000)
--------------------------------------------------
CONTRACT AMOUNT
----------------- UNREALIZED
PORTFOLIO/CONTRACT FOREIGN U.S. MARKET VALUE IN APPRECIATION
SETTLEMENT DATE CURRENCY DOLLARS U.S. DOLLARS (DEPRECIATION)
- ---------------------------------------------------------------------------------------------
GLOBAL EQUITY
Deliver:
<S> <C> <C> <C> <C> <C> <C>
9/19/97 JPY 157,125 $1,500 $1,263 $237
-----
GLOBAL ASSET ALLOCATION
Receive:
5/22/97-6/24/97 DEM 2,400 1,449 1,389 (60)
5/22/97 JPY 124,500 1,047 983 (64)
6/24/97 ESP 175,000 1,210 1,199 (11)
7/17/97 GBP 900 1,465 1,459 (6)
Deliver:
5/22/97 AUD 950 739 742 (3)
5/22/97-6/25/97 CAD 1,300 967 932 35
5/22/97-7/17/97 DEM 2,000 1,193 1,159 34
5/22/97 ESP 80,000 591 548 43
5/22/97-6/24/97 FRF 6,600 1,192 1,133 59
5/22/97-6/24/97 GBP 3,850 6,307 6,244 63
-----
Portfolio Total 90
- ---------------------------------------------------------------------------------------------
</TABLE>
AUD--Australian dollar. FRF--French franc.
CAD--Canadian dollar. GBP--British pound sterling.
DEM--German Deutsche mark. JPY--Japanese yen.
ESP--Spanish peseta.
The Global Equity and Global Asset Allocation Portfolios had net unrealized
foreign currency losses of $4,000 and $3,000, respectively, resulting from the
translation of other assets and liabilities at April 30, 1997.
F. The market value of securities on loan to broker/dealers at April 30, 1997,
and collateral received with respect to such loans were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(000)
-------------------------------
MARKET VALUE CASH
OF LOANED COLLATERAL
PORTFOLIO SECURITIES RECEIVED
- --------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth $ 8,021 $ 8,367
Capital Opportunity 6,480 6,699
Global Equity 896 901
Global Asset Allocation 13,632 13,884
- --------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 35
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman of the Board and Director
of The Vanguard Group, Inc. and
of each of the investment companies in
The Vanguard Group.
JOHN J. BRENNAN, President, Chief Executive Officer,
and Director of The Vanguard Group,
Inc. and of each of the investment
companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman Emeritus and
Director of Rhone-Poulenc Rorer,
Inc.; Managing Director of Global
Health Care Partners/DLJ Merchant
Banking Partners; Director of Sun
Company, Inc. and Westinghouse
Electric Corp.
BARBARA BARNES HAUPTFUHRER, Director of The Great
Atlantic and Pacific Tea Co., Ikon
Business Solutions, Inc., Raytheon
Co., Knight-Ridder, Inc., and Massa-
chusetts Mutual Life Insurance Co.;
Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY, President Emeritus of The
Brookings Institution; Director of
American Express Bank Ltd., The St.
Paul Companies, Inc., and National
Steel Corp.
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., Procter & Gamble
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; Principal of The
Vanguard Group, Inc.; Treasurer of
each of the investment companies in
The Vanguard Group.
KAREN E. WEST, Controller; Principal of The
Vanguard Group, Inc.; Controller of
each of the investment companies in
The Vanguard Group.
OTHER VANGUARD OFFICERS
ROBERT A. DISTEFANO, Senior Vice President,
Information Technology.
JAMES H. GATELY, Senior Vice President,
Individual Investor Group.
IAN A. MACKINNON, Senior Vice President,
Fixed Income Group.
F. WILLIAM MCNABB III, Senior Vice President,
Institutional.
RALPH K. PACKARD, Senior Vice President and
Chief Financial Officer.
[VANGUARD GROUP LOGO]
Please send your comments to us at:
Post Office Box 2600, Valley Forge, Pennsylvania 19482
Fund Information: 1-800-662-7447
Individual Account Services: 1-800-662-2739
Institutional Investor Services: 1-800-523-1036
http://www.vanguard.com [email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before investing or sending money. Prospectuses may
be obtained directly from The Vanguard Group.
(C) 1997 Vanguard Marketing Corporation, Distributor
<PAGE> 36
THE VANGUARD FAMILY OF FUNDS
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard/Windsor Fund
Vanguard/Windsor II
Vanguard Equity Income Fund
Vanguard Growth and Income Portfolio
Vanguard Selected Value Portfolio
Vanguard/Trustees' Equity-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 Portfolios
GROWTH FUNDS
Vanguard/Morgan Growth Fund
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Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
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INTERNATIONAL FUNDS
Vanguard International Growth Portfolio
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INDEX FUNDS
Vanguard Index Trust
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FIXED-INCOME FUNDS
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Vanguard Money Market Reserves
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INCOME FUNDS
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TAX-EXEMPT MONEY MARKET FUNDS
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(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
Q692-4/97
