<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO. 033-56443) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 7
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 16
VANGUARD HORIZON FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
P.O. BOX 2600
VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
R. GREGORY BARTON, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
IT IS PROPOSED THAT THE EFFECTIVE DATE OF THIS FILING BE EFFECTIVE
February 26, 1999 pursuant to paragraph (b) of Rule 485.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.
WE HAVE ELECTED TO REGISTER AN INDEFINITE NUMBER OF SECURITIES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 OF THE INVESTMENT COMPANY ACT OF
1940. WE FILED ITS RULE 24f-2 NOTICE FOR ITS FISCAL YEAR ENDED OCTOBER 31, 1998,
WITH THE COMMISSION ON JANUARY 26, 1999.
- --------------------------------------------------------------------------------
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<PAGE> 2
VANGUARD HORIZON FUNDS
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <C>
Item 1. Front and Back Cover Pages...................... Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments, Risks, and
Performance..................................... Fund Profile
Item 3. Risk/Return Summary: Fee Table.................. Fee Table
Item 4. Investment Objectives, Principal Investment
Strategies, and Related Risks................... A Word About Risk; Who Should Invest;
Primary Investment Strategies
Item 5. Management's Discussion of Fund Performance..... Herein incorporated by reference to
Registrant's Annual Report to
Shareholders dated October 31, 1998
filed with Securities & Exchange
Commission's EDGAR system on December
30, 1998.
Item 6. Management, Organization, and Capital
Structure....................................... The Fund and Vanguard; Investment
Adviser
Item 7. Shareholder Information......................... Share Price; Dividends, Capital
Gains, and Taxes; Investing with
Vanguard
Item 8. Distribution Arrangements....................... Not Applicable
Item 9. Financial Highlights Information................ Financial Highlights
</TABLE>
<TABLE>
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
Item 10. Cover Page and Table of Contents................ Cover Page; Table of Contents
Item 11. Fund History.................................... Description of the Trust
Item 12. Description of the Fund and its Investments and
Risks........................................... Investment Policies; Description of
the Trust; Fundamental Investment
Limitations
Item 13. Management of the Fund.......................... Management of the Trust
Item 14. Control Persons and Principal Holders of
Securities...................................... Management of the Trust
Item 15. Investment Advisory and Other Services.......... Investment Advisory Services
Item 16. Brokerage Allocation and Other Practices........ Portfolio Transactions
Item 17. Capital Stock and Other Securities.............. Description of the Trust
Item 18. Purchase, Redemption, and Pricing of Shares..... Purchase of Shares; Redemption of
Shares; Share Price
Item 19. Taxation of the Fund............................ Description of the Trust
Item 20. Underwriters.................................... Not Applicable
Item 21. Calculations of Performance Data................ Yield and Total Return
Item 22. Financial Statements............................ Financial Statements
</TABLE>
<PAGE> 3
VANGUARD HORIZON FUNDS
Prospectus
February 26, 1999
A Group of Aggressive Growth Stock Mutual Funds
CONTENTS
<TABLE>
<S> <C>
1 FUND PROFILES
1 Vanguard Aggressive Growth Fund
4 Vanguard Capital Opportunity Fund
7 Vanguard Global Asset Allocation Fund
10 Vanguard Global Equity Fund
12 MORE ON THE FUNDS
12 Investment Strategies and Policies
12 Market Exposure
16 Security Selection
18 Other Investment Policies
18 Turnover Rates
18 Costs and Market-Timing
19 THE FUNDS AND VANGUARD
19 INVESTMENT ADVISERS
21 YEAR 2000 CHALLENGE
21 DIVIDENDS, CAPITAL GAINS, AND TAXES
22 SHARE PRICE
23 FINANCIAL HIGHLIGHTS
26 INVESTING WITH VANGUARD
26 SERVICES AND ACCOUNT FEATURES
27 TYPES OF ACCOUNTS
27 BUYING SHARES
29 REDEEMING SHARES
32 TRANSFERRING REGISTRATION
33 FUND AND ACCOUNT UPDATES
</TABLE>
GLOSSARY (inside back cover)
- --------------------------------------------------------------------------------
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of each of the
Vanguard Horizon Funds. To highlight terms and concepts important to mutual
fund investors, we have provided "Plain Talk(R)" explanations along the way.
Reading the prospectus will help you to decide which Fund, if any, is the
right investment for you. We suggest that you keep it for future reference.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 4
1
This prospectus provides information about the four Vanguard Horizon Funds.
While each of these Funds seeks to provide investors with maximum long-term
total return, their investment strategies differ. Below you'll find profiles
that summarize the key features of each Fund. Following the profiles, there is
important additional information common to all of the Funds.
FUND PROFILE -- VANGUARD AGGRESSIVE GROWTH FUND
INVESTMENT OBJECTIVE
The Fund is a stock fund that seeks to provide maximum long-term total return.
INVESTMENT STRATEGIES
The Fund invests in U.S. stocks, with an emphasis on stocks of small- and
mid-capitalization companies. The Fund's investment adviser uses quantitative,
or computer-driven, stock valuation models to manage the Fund. Generally, stocks
are categorized based on two dimensions: market capitalization (i.e., small,
medium, large), and growth versus value. The models then apply fundamental
criteria -- such as (i) valuation measures, (ii) financial strength relative to
other stocks, and (iii) recognition by the market -- to identify the most
attractive stocks within each category. The portion of the Fund's assets
invested in any one of the categories will vary over time based on the adviser's
expectation for each category's total return potential. For more information
about the Fund's strategies, see "Investment Strategies and Policies" under MORE
ON THE FUNDS.
PRIMARY RISKS
THE FUND ASSUMES ABOVE-AVERAGE RISKS IN SEEKING POTENTIALLY ABOVE-AVERAGE
RETURNS. THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE
WITHIN A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. The Fund is also subject to:
- - Investment style risk, which is the chance that returns from small- and
mid-capitalization stocks -- which are the types of stocks emphasized by
the Fund -- will trail returns from other asset classes or the overall
stock market. Small- and mid-capitalization stocks have historically been
more volatile in price than the S&P 500 Index, and have at times
fluctuated independently of the broad stock market.
- - Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of a broad-based securities
market index. Keep in mind that the Fund's past performance does not indicate
how it will perform in the future.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
25.03% 26.22% 0.61%
- --------------------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the highest return for a calendar
quarter was 21.40% (quarter ended December 31, 1998) and the lowest return for a
quarter was - 20.66% (quarter ended September 30, 1998).
<PAGE> 5
2
FUND PROFILE -- VANGUARD AGGRESSIVE GROWTH FUND (continued)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
-------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Aggressive Growth Fund 0.61% 17.22%
Russell 2800 Index** 6.67 17.35
-------------------------------------------------------------------------------
</TABLE>
* August 14, 1995.
** Consists of the Russell 3000 Equity Index of stocks minus its 200
largest companies.
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended October 31, 1998.
<TABLE>
<S> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: 1%*
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.38%
12b-1 Distribution Fees: None
Other Expenses: 0.05%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.43%
</TABLE>
* The 1% fee applies to shares redeemed (either by selling or exchanging
to another fund) within five years of purchase. The fee is withheld
from redemption proceeds and retained by the Fund. Shares held for five
years or more are not subject to the 1% fee.
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, that operating expenses remain the same, and that you redeem all your
shares at the end of the given period.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$149 $252 $241 $542
- --------------------------------------------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares (the
difference being that the Fund's 1% redemption fee would not apply to the
one-and three-year periods below, as it would to those shown above):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$44 $138 $241 $542
- --------------------------------------------------------------------------------
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
<PAGE> 6
3
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Paid annually in December
INVESTMENT ADVISER
Vanguard Core Management Group, Valley Forge, Pa., since inception
INCEPTION DATE
August 14, 1995
NET ASSETS AS OF OCTOBER 31, 1998
$479 million
SUITABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
$3,000; $1,000 for IRAs and custodial accounts for minors
NEWSPAPER ABBREVIATION
AggGr
VANGUARD FUND NUMBER
114
CUSIP NUMBER
922038104
TICKER SYMBOL
VHAGX
<PAGE> 7
4
FUND PROFILE -- VANGUARD CAPITAL OPPORTUNITY FUND
INVESTMENT OBJECTIVE
The Fund is a stock fund that seeks to provide maximum long-term total return.
INVESTMENT STRATEGIES
The Fund invests primarily in U.S. stocks, with an emphasis on small- and
mid-capitalization companies that have rapid earnings growth prospects. The
Fund's investment adviser uses intense, fundamental research to identify stocks
that are expected to outperform the market over a three-to-five year time
horizon and that are available at attractive prices relative to their
fundamental values. The Fund may invest up to 15% of its assets in foreign
stocks, and has the flexibility to engage in certain hedging and defensive
techniques, such as "short selling" stocks, purchasing "put options," and
temporarily increasing cash reserves. The Fund is expected to invest in as few
as 40-50 stocks. For more information, see "Investment Strategies and Policies"
under MORE ON THE FUNDS.
PRIMARY RISKS
THE FUND ASSUMES ABOVE-AVERAGE RISKS IN SEEKING POTENTIALLY ABOVE-AVERAGE
RETURNS. THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE
WITHIN A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Because the Fund invests a higher percentage of assets in its ten
largest holdings than the average stock fund does, the Fund is subject to the
risk that its performance may be hurt disproportionately by the poor performance
of relatively few stocks. The Fund is also subject to:
- - Investment style risk, which is the chance that returns from small- and
mid-capitalization stocks --which are the types of stocks emphasized by the
Fund -- will trail returns from other asset classes or the overall stock
market. Small- and mid-capitalization stocks have historically been more
volatile in price than the S&P 500 Index, and have at times fluctuated
independently of the broad stock market.
- - Manager risk, which is the chance that poor security selection will cause the
Fund to underperform other funds with similar investment objectives.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of a broad-based securities
market index. Keep in mind that the Fund's past performance does not indicate
how it will perform in the future.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Total Returns
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
13.41% -7.93% 31.98%
- --------------------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the highest return for a calendar
quarter was 29.82% (quarter ended December 31, 1998) and the lowest return for a
quarter was - 13.09% (quarter ended December 31, 1997).
<PAGE> 8
5
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
----------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Capital Opportunity Fund 31.98% 9.37%
S&P Mid-Cap 400/BARRA Growth Index 34.86 23.86
----------------------------------------------------------------------------------
*August 14, 1995.
----------------------------------------------------------------------------------
</TABLE>
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended October 31, 1998.
<TABLE>
<S> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: 1%*
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.88%
12b-1 Distribution Fees: None
Other Expenses: 0.06%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.94%
</TABLE>
* The 1% fee applies to shares redeemed (either by selling or
exchanging to another fund) within five years of purchase. The fee
is withheld from redemption proceeds and retained by the Fund.
Shares held for five years or more are not subject to the 1% fee.
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, that operating expenses remain the same, and that you redeem all your
shares at the end of the given period.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------
<S> <C> <C> <C>
$200 $412 $520 $1,155
-----------------------------------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares (the
difference being that the Fund's 1% redemption fee would not apply to the one-
and three-year periods below, as it would to those shown above):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------------------------
<S> <C> <C> <C>
$96 $300 $520 $1,155
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
<PAGE> 9
6
Fund Profile -- Vanguard Capital Opportunity Fund (continued)
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Paid annually in December
INVESTMENT ADVISER
PRIMECAP Management Company, Inc., Pasadena, Ca., since February 1, 1998
INCEPTION DATE
August 14, 1995
NET ASSETS AS OF OCTOBER 31, 1998
$156 million
SUITABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
$3,000; $1,000 for IRAs and custodial accounts for minors
NEWSPAPER ABBREVIATION
CapOp
VANGUARD FUND NUMBER
111
CUSIP NUMBER
922038302
TICKER SYMBOL
VHCOX
<PAGE> 10
7
FUND PROFILE -- VANGUARD GLOBAL ASSET ALLOCATION FUND
INVESTMENT OBJECTIVE
The Fund is an asset allocation fund that seeks to provide maximum long-term
total return.
INVESTMENT STRATEGIES
The Fund invests in an adjustable mix of stocks, government bonds and cash
reserves selected primarily from nine major markets: Australia, Canada, France,
Germany, Hong Kong, Japan, Spain, the United Kingdom, and the United States. The
adviser uses quantitative, or computer-driven, investment models in seeking to
identify the asset classes and countries (for instance, French bonds or Japanese
stocks) that offer the best relative return prospects, adjusted for risk. The
Fund may simulate common stock performance by investing in stock index futures
contracts. Although the Fund's total futures exposure may reach 50% of assets,
these investments will not be used to leverage the Fund's performance. For more
information, see "Investment Strategies and Policies" under MORE ON THE FUNDS.
PRIMARY RISKS
THE FUND ASSUMES ABOVE-AVERAGE RISKS IN SEEKING POTENTIALLY ABOVE-AVERAGE
RETURNS. THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE
WITHIN A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. The Fund is also subject to:
- - Interest rate risk, which is the chance that bond prices overall will decline
over short or even long periods due to rising interest rates. Interest rate
risk is generally high for long-term bonds and low for short-term bonds.
- - Country risk, which is the chance that unfavorable developments in a
particular country -- for example, political troubles, financial problems or
natural disasters -- will harm the Fund's performance.
- - Currency risk, which is the chance that returns will be hurt by a rise in the
value of the U.S. dollar versus foreign currencies.
- - Manager risk, which is the chance that poor security selections, asset class
selections or country selections will cause the Fund to underperform other
funds with similar investment objectives.
- - Credit risk, which is the chance that a bond issuer will fail to repay
interest and principal in a timely manner. Credit risk, which has the
potential to hurt the Fund's performance, should be very low for the Fund.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of a broad-based securities
market index. Keep in mind that the Fund's past performance does not indicate
how it will perform in the future.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Annual Total Returns
--------------------------------------------------------------------------
1996 1997 1998
--------------------------------------------------------------------------
<S> <C> <C>
9.97% 9.25% 15.13%
--------------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the highest return for a calendar
quarter was 9.38% (quarter ended December 31, 1998) and the lowest return for a
quarter was - 2.87% (quarter ended September 30, 1998).
<PAGE> 11
8
FUND PROFILE -- VANGUARD GLOBAL ASSET ALLOCATION FUND (continued)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
----------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Global Asset Allocation Fund 15.13% 12.20%
MSCI All Country World Index 21.72 17.11
Russell Global Balanced Index** 18.07 16.91
----------------------------------------------------------------------------------
</TABLE>
* August 14, 1995.
** Weighted 60% stock investments, 30% bond investments, and 10% U.S. cash
reserves; the stock and bond components are calculated using
established local market indexes in each country.
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended October 31, 1998.
<TABLE>
<S> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: 1%*
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.47%
12b-1 Distribution Fees: None
Other Expenses: 0.07%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.54%
</TABLE>
* The 1% fee applies to shares redeemed (either by selling or
exchanging to another fund) within five years of purchase. The fee
is withheld from redemption proceeds and retained by the Fund.
Shares held for five years or more are not subject to the 1% fee.
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, that operating expenses remain the same, and that you redeem all your
shares at the end of the given period.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------
<S> <C> <C> <C>
$160 $287 $302 $677
-----------------------------------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares (the
difference being that the Fund's 1%redemption fee would not apply to the one-and
three-year periods below, as it would to those shown above):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------
<S> <C> <C> <C>
$55 $173 $302 $677
-----------------------------------------------------------------------
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
<PAGE> 12
9
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Paid annually in December
INVESTMENT ADVISER
Strategic Investment Management, Arlington, Va., since inception
INCEPTION DATE
August 14, 1995
NET ASSETS AS OF OCTOBER 31, 1998
$86 million
SUITABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
$3,000; $1,000 for IRAs and custodial accounts for minors
NEWSPAPER ABBREVIATION
GlbAA
VANGUARD FUND NUMBER
115
CUSIP NUMBER
922038401
TICKER SYMBOL
VHAAX
<PAGE> 13
10
FUND PROFILE -- VANGUARD GLOBAL EQUITY FUND
INVESTMENT OBJECTIVE
The Fund is a stock fund that seeks to provide maximum long-term total return.
INVESTMENT STRATEGIES
The Fund invests primarily in U.S. and foreign stocks. The Fund's adviser
selects stocks mainly on the basis of industry and company analysis, and not on
the basis of regional or country allocation decisions. The Fund typically
invests across a wide range of industries and its holdings are expected to
represent a mix of value and growth stocks, as well as a mix of established and
emerging stock markets. For more information, see "Investment Strategies and
Policies" under MORE ON THE FUNDS.
PRIMARY RISKS
THE FUND ASSUMES ABOVE-AVERAGE RISKS IN SEEKING POTENTIALLY ABOVE-AVERAGE
RETURNS. THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE
WITHIN A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. IN ADDITION TO FACING THE SAME RISKS AS U.S. STOCK FUNDS, THE FUND IS
SUBJECT TO THE RISKS ASSOCIATED WITH FOREIGN INVESTING. The Fund's additional
risks include:
- - Country risk, which is the chance that unfavorable developments in a
particular country -- for example, political troubles, financial problems or
natural disasters -- will harm the Fund's performance.
- - Currency risk, which is the chance that returns will be hurt by a rise in the
value of the U.S. dollar versus foreign currencies.
- - Manager risk, which is the chance that poor security selection will cause the
Fund to underperform other funds with similar investment objectives.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of a broad-based securities
market index. Keep in mind that the Fund's past performance does not indicate
how it will perform in the future.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
ANNUAL TOTAL RETURNS
-----------------------------------------------------------------------
<S> <C> <C>
1996 1997 1998
-----------------------------------------------------------------------
15.59% 6.91% 9.39%
-----------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the highest return for a calendar
quarter was 17.74% (quarter ended December 31, 1998) and the lowest return for a
quarter was - 15.62% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
----------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Global Equity Fund 9.39% 11.13%
MSCI All Country World Index 21.72 17.11
----------------------------------------------------------------------------------
* August 14, 1995.
</TABLE>
<PAGE> 14
11
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended October 31, 1998.
<TABLE>
<S> <C>
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: 1%*
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.56%
12b-1 Distribution Fees: None
Other Expenses: 0.12%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.68%
</TABLE>
* The 1% fee applies to shares redeemed (either by selling or
exchanging to another fund) within five years of purchase. The fee
is withheld from redemption proceeds and retained by the Fund.
Shares held for five years or more are not subject to the 1% fee.
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, that operating expenses remain the same, and that you redeem all your
shares at the end of the given period.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------
<S> <C> <C> <C>
$174 $331 $379 $847
-----------------------------------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares (the
difference being that the Fund's 1% redemption fee would not apply to the
one-and three-year periods below, as it would to those shown above):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------
<S> <C> <C> <C>
$69 $218 $379 $847
-----------------------------------------------------------------------
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Paid annually in December
INVESTMENT ADVISER
Marathon Asset Management Limited, London, since inception
INCEPTION DATE
August 14, 1995
NET ASSETS AS OF OCTOBER 31, 1998
$121 million
SUITABLE FOR IRAs
Yes
MINIMUM INITIAL INVESTMENT
$3,000; $1,000 for IRAs and custodial accounts for minors
NEWSPAPER ABBREVIATION
GlbEq
VANGUARD FUND NUMBER
129
CUSIP NUMBER
922038203
TICKER SYMBOL
VHGEX
<PAGE> 15
12
MORE ON THE FUNDS
The following sections discuss other important features of Vanguard Horizon
Funds, including investment strategies and policies, other investment policies,
turnover rates, and costs and market-timing. You will also find information
about the risks of investing in each Fund throughout these sections.
INVESTMENT STRATEGIES AND POLICIES
Each Fund follows a distinct set of investment strategies and policies, which
are used by the investment advisers in pursuit of each Fund's objective. This
section explains these strategies and policies, as well as how the advisers
implement them. The Fund's Board of Trustees oversees the management of the
Funds, and may change investment strategies in the interest of shareholders.
MARKET EXPOSURE
The grid below shows, at a glance, the types of financial instruments purchased
by each Fund as either a primary or secondary investment strategy. Primary
investment strategies are expected to play the most important role in achieving
a Fund's investment objective. Secondary investment strategies will play a
lesser role, but are still expected to have a meaningful impact on a Fund's
risks and returns. Explanations of each type of financial instrument follow the
grid.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
CAPITAL GLOBAL ASSET
AGGRESSIVE OPPORTUNITY ALLOCATION GLOBAL
GROWTH FUND FUND FUND EQUITY FUND
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Invests in U.S. stocks [X] [X] [ ] [X]
Emphasizes smaller company stocks [X] [X] [ ]
Invests in foreign stocks [ ] [X] [X]
Invests in U.S. and foreign
government bonds [X]
Invests in U.S. and foreign
cash reserves [ ]
Invests in forward foreign currency
exchange contracts [ ] [ ]
Invests in futures contracts and options [ ] [ ] [X] [ ]
[X] Primary Focus [ ] Secondary Focus
</TABLE>
U.S. Stocks. Each of the Funds invests in U.S. stocks. This is a primary
investment strategy for the Aggressive Growth, Capital Opportunity, and Global
Equity Funds, and a secondary investment strategy for the Global Asset
Allocation Fund.
[FLAG]EACH FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT STOCK
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS. STOCK MARKETS
TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING STOCK PRICES AND PERIODS OF
FALLING STOCK PRICES.
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Composite Stock Price Index, a
widely used barometer of market activity. (Total returns consist of dividend
income plus change in market price.) Note that the returns shown do not include
the costs of buying and selling stocks or other expenses that a real-world
investment portfolio would incur. Note, also, that the gap between best and
worst tends to narrow over the long term.
<PAGE> 16
13
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
GROWTH FUNDS AND VALUE FUNDS
Growth investing and value investing are two styles employed by stock fund
managers. Growth funds generally focus on companies believed to have
above-average potential for growth in revenue and earnings. Reflecting the
market's high expectations for superior growth, the prices of such stocks are
typically above-average in relation to such measures as revenue, earnings, book
value, and dividends. Value funds generally emphasize stocks of companies from
which the market does not expect strong growth. The prices of value stocks
typically are below-average in comparison to such factors as earnings and book
value, and these stocks typically pay above-average dividend yields. Growth and
value stocks have, in the past, produced similar long-term returns, though each
category has periods when it outperforms the other. In general, growth funds
appeal to investors who will accept more volatility in hopes of a greater
increase in share price. Growth funds also may appeal to investors with taxable
accounts who want a higher proportion of returns to come as capital gains (which
may be taxed at lower rates than dividend income). Value funds, by contrast, are
appropriate for investors who want some dividend income and the potential for
capital gains, but are less tolerant of share price fluctuations.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
U.S. STOCK MARKET RETURNS (1926 - 1998)
-------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Best 54.2% 24.1% 19.9% 17.7%
Worst -43.1 -12.4 -0.8 3.1
Average 13.1 10.7 11.0 11.0
-------------------------------------------------------------------------------
</TABLE>
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1998. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 10.7%, returns for individual 5-year periods
ranged from a - 12.4% average (from 1928 through 1932) to 24.1% (from 1994
through 1998). These average returns reflect past performance on common stocks;
you should not regard them as an indication of future returns from either the
stock market as a whole or these Funds in particular.
Keep in mind that the S&P 500 Index tracks mainly large-cap stocks.
Historically, mid- and small-cap stocks have been more volatile than -- and at
times have performed quite differently from -- the large-cap stocks of the S&P
500 Index. This is due to several factors, including less-certain growth and
dividend prospects for smaller companies.
Smaller company stocks. The Aggressive Growth and Capital Opportunity Funds
invest in small- and mid-capitalization stocks as a primary investment strategy.
For the Global Equity Fund, smaller company stocks are a secondary investment
strategy.
[FLAG]THESE FUNDS ARE SUBJECT, IN VARYING DEGREES, TO INVESTMENT STYLE RISK,
WHICH IS THE POSSIBILITY THAT RETURNS FROM A SPECIFIC TYPE OF STOCK (FOR
INSTANCE, SMALL- OR MEDIUM-CAP) OR FUND WILL TRAIL RETURNS FROM OTHER
ASSET CLASSES OR THE OVERALL STOCK MARKET. EACH TYPE OF STOCK OR FUND
TENDS TO GO THROUGH CYCLES OF DOING BETTER -- OR WORSE -- THAN COMMON
STOCKS IN GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS
SEVERAL YEARS.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS
Stocks of publicly traded companies -- and mutual funds that hold these stocks
- -- can be classified by the companies' market value, or capitalization.
Generally, Vanguard defines large-capitalization (large-cap) funds as those
holding stocks of companies whose outstanding shares have a market value
exceeding $10 billion. Mid-cap funds hold stocks of companies with a market
value between $1 billion and $10 billion. Small-cap funds typically hold stocks
of companies with a market value of less than $1 billion.
- --------------------------------------------------------------------------------
<PAGE> 17
14
Foreign stocks. The Global Asset Allocation and Global Equity Funds invest in
foreign stocks as a primary investment strategy. For the Capital Opportunity
Fund, foreign stocks are a secondary investment strategy.
[FLAG]INVESTMENTS IN FOREIGN STOCK MARKETS CAN BE AS RISKY, IF NOT MORE RISKY,
THAN U.S. STOCK INVESTMENTS. THE PRICES OF INTERNATIONAL STOCKS AND THE
PRICES OF U.S. STOCKS HAVE OFTEN MOVED IN OPPOSITE DIRECTIONS. THESE
PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL YEARS.
To illustrate the volatility of international stock prices, the following
table shows the best, worst, and average total returns for foreign stock markets
over various periods as measured by the Morgan Stanley Capital International
Europe, Australia, Far East (MSCI EAFE) Index, a widely used barometer of
international market activity. (Total returns consist of dividend income plus
change in market price.) Note, also, that the gap between best and worst tends
to narrow over the long term.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
INTERNATIONAL STOCK MARKET RETURNS (1969 - 1998)
-------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Best 69.9% 36.5% 22.8% 16.3%
Worst -23.2 1.5 5.9 12.0
Average 14.7 13.6 14.9 14.7
-------------------------------------------------------------------------------
</TABLE>
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1969
through 1998. Keep in mind that this was a particularly favorable period for
foreign markets. For instance, over 10-year periods, foreign stocks provided an
average return of 14.9%, compared to 11.0% for U.S. stocks (as measured by the
Standard & Poor's 500 Composite Stock Index) during the same time frame. These
average returns reflect past performance on international stocks; you should not
regard them as an indication of future returns from either foreign markets as a
whole or these Funds in particular.
Keep in mind, too, that because the Funds' holdings are not identical to the
MSCI EAFE Index or any other market index, the Funds' performance will not
mirror the returns of any particular index.
[FLAG]BECAUSE OF THEIR FOREIGN INVESTMENTS, THE CAPITAL OPPORTUNITY, GLOBAL
ASSET ALLOCATION, AND GLOBAL EQUITY FUNDS ARE SUBJECT TO COUNTRY RISK AND
CURRENCY RISK. COUNTRY RISK IS THE CHANCE THAT POLITICAL EVENTS (SUCH AS A
WAR), FINANCIAL PROBLEMS (SUCH AS GOVERNMENT DEFAULT), OR NATURAL
DISASTERS (SUCH AS AN EARTHQUAKE) WILL WEAKEN A COUNTRY'S ECONOMY AND
CAUSE INVESTMENTS IN THAT COUNTRY TO LOSE MONEY. CURRENCY RISK IS THE
CHANCE THAT A "STRONGER" U.S. DOLLAR WILL REDUCE RETURNS FOR AMERICANS
INVESTING OVERSEAS. GENERALLY, WHEN THE DOLLAR RISES IN VALUE AGAINST A
FOREIGN CURRENCY, YOUR INVESTMENT IN THAT COUNTRY LOSES VALUE BECAUSE ITS
CURRENCY IS WORTH FEWER U.S. DOLLARS.
The transition to a common European currency -- the "euro" -- which began on
January 1, 1999 for 11 countries, is one form of country risk that the Funds
face. Although the euro conversion should have no immediate impact on
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE RISKS OF INTERNATIONAL INVESTING
Because foreign stock and bond markets operate differently from the U.S. market,
Americans investing abroad will encounter risks not typically associated with
U.S. companies. For instance, foreign companies are not subject to the same
accounting, auditing, and financial reporting standards and practices as U.S.
companies; and their stocks may not be as liquid as the stocks of similar U.S.
companies. In addition, foreign stock exchanges, brokers, and companies
generally have less government supervision and regulation than their
counterparts in the United States. These factors, among others, could negatively
impact the returns Americans receive from a foreign investment.
- --------------------------------------------------------------------------------
<PAGE> 18
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT 15
BONDS AND INTEREST RATES
As a rule, when interest rates rise, bond prices fall. The opposite is also
true: Bond prices go up when interest rates fall. Why do bond prices and
interest rates move in opposite directions? Let's assume that you hold a bond
offering a 5% yield. A year later, interest rates are on the rise and bonds are
offered with a 6% yield. With higher-yielding bonds available, you would have
trouble selling your 5% bond for the price you paid -- causing you to lower your
asking price. On the other hand, if interest rates were falling and 4% bonds
were being offered, you should be able to sell your 5% bond for more than you
paid.
- --------------------------------------------------------------------------------
the Funds' share prices, it may cause uncertainty in European financial markets.
If there are difficulties with the euro conversion, the Funds' European holdings
could be adversely affected.
U.S. and foreign government bonds and cash reserves. The Global
Asset Allocation Fund invests in U.S. and foreign government bonds as a primary
investment strategy; U.S. and foreign cash reserves are a secondary investment
strategy. Bonds held by the Fund may be short- or long-term, ranging in maturity
from one to 30 years. In addition, it is expected that all bonds held by the
Fund will be of investment grade quality.
[FLAG]DUE TO ITS BOND INVESTMENTS, THE GLOBAL ASSET ALLOCATION FUND IS SUBJECT
TO INTEREST RATE RISK, WHICH IS THE CHANCE THAT BOND PRICES OVERALL WILL
DECLINE OVER SHORT OR EVEN LONG PERIODS DUE TO RISING INTEREST RATES; AND
CREDIT RISK, WHICH IS THE CHANCE THAT A BOND ISSUER WILL FAIL TO PAY
INTEREST AND PRINCIPAL IN A TIMELY MANNER.
Forward Foreign Currency Exchange Contracts. As a secondary investment
strategy, the Global Asset Allocation and Global Equity Funds may purchase
forward currency exchange contracts to help protect their holdings against
unfavorable short-term changes in exchange rates. A forward currency exchange
contract is an agreement to buy or sell a country's currency at a specific price
on a specific date, usually 30, 60, or 90 days in the future. In other words,
the contract guarantees an exchange rate on a given date. Managers of
international funds use these contracts to guard against sudden, unfavorable
changes in U.S. dollar/foreign currency exchange rates. These contracts will not
prevent the Funds' securities from falling in value during foreign market
downswings. The advisers will use forward currency exchange contracts to
eliminate some of the uncertainty of foreign exchange rates.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
BOND MATURITIES
A bond is issued with a specific maturity date -- the date when the bond's
issuer, or seller, must pay back the bond's initial value (known as its "face
value"). Bond maturities generally range from less than one year (short-term) to
30 years (long-term). The longer a bond's maturity, the more risk you, as a bond
investor , face as interest rates rise -- but also the more interest you could
receive. Long-term bonds are more suitable for investors willing to take greater
risks in hope of higher yields; short-term bond investors should be willing to
accept lower yields in return for less fluctuation in the value of their
investment.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
CREDIT QUALITY
A bond's credit quality depends on the issuer's ability to pay interest on the
bond and, ultimately, to repay the debt. Bonds issued or backed by the U.S.
government offer maximum credit protection; bonds issued or backed by foreign
governments -- especially in emerging markets -- can carry considerably more
risk. Bonds issued by corporations and foreign governments are usually rated by
independent bond rating agencies. The lower the rating by one of these rating
agencies (for example, Moody's or Standard & Poor's), the greater the chance (in
the rating agency's opinion) that the bond issuer will default, or fail to meet
its payment obligations. All things being equal, the lower a bond's credit
rating, the higher its yield should be to compensate investors for assuming
additional risk. Bonds rated in one of the four highest rating categories are
considered "investment grade."
- --------------------------------------------------------------------------------
<PAGE> 19
16
Under normal circumstances, the Global Equity Fund will not commit more than
20% of its assets to forward currency exchange contracts. The Global Asset
Allocation Fund uses these contracts in conjunction with its other portfolio
holdings to actively manage its forward currency exposure relative to the Global
Balanced Index, a benchmark index discussed on page 18. There is no specific
limit on this Fund's exposure to forward currency exchange contracts; however,
the Global Balanced Index has approximately 15% exposure to foreign currency.
Futures, Options, and Other Derivatives. Each of the Funds may invest in
stock futures contracts, options (including puts and calls), warrants,
convertible securities, and swap agreements, which are all types of derivatives.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DERIVATIVES
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
- --------------------------------------------------------------------------------
[FLAG]LOSSES (OR GAINS) INVOLVING FUTURES CONTRACTS CAN SOMETIMES BE SUBSTANTIAL
-- IN PART BECAUSE A RELATIVELY SMALL PRICE MOVEMENT IN A FUTURES CONTRACT
MAY RESULT IN AN IMMEDIATE AND SUBSTANTIAL LOSS (OR GAIN) FOR A FUND.
Similar risks exist for warrants (securities that permit their owners to
purchase a specific number of shares of stock at a predetermined price),
convertible securities (securities that may be exchanged for a different asset),
and swap agreements (contracts between two parties in which each agrees to make
payments to the other based on the return of a specified index or asset). For
this reason, the Funds will not use futures, options, warrants, convertible
securities, or swap agreements for speculative purposes or as leveraged
investments that magnify the gains or losses of an investment.
The Aggressive Growth, Capital Opportunity, and Global Equity Funds each may
invest in futures contracts and options so long as the total value of these
investments does not exceed 20% of the Fund's assets. The Global Asset
Allocation Fund may invest up to 50% of its net assets in futures contracts and
options, provided that no more than 20% of the Fund's assets are invested in
options.
The reasons for which a Fund will invest in futures and options are:
- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
- - To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
- - In addition, the Global Asset Allocation Fund may use futures contracts in
conjunction with forward currency exchange contracts to achieve index-like
exposure to foreign markets.
SECURITY SELECTION
The grid below shows, at a glance, the types of investment techniques that each
Fund's adviser employs to select securities. Explanations of each Fund's
security selection methods follow the grid.
<TABLE>
<CAPTION>
CAPITAL GLOBAL ASSET
AGGRESSIVE OPPORTUNITY ALLOCATION GLOBAL
GROWTH FUND FUND FUND EQUITY FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Holds a small number of stocks [X}
----------------------------------------------------------------------------------------------------------
Uses quantitative
(computer) models [X] [X]
----------------------------------------------------------------------------------------------------------
Uses fundamental analysis [X] [X]
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
17
[FLAG]EACH FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY THAT THE
ADVISER MAY DO A POOR JOB OF SELECTING THE SECURITIES, ASSET CLASSES OR
COUNTRIES IN WHICH THE FUND INVESTS.
AGGRESSIVE GROWTH FUND. The Fund's investment adviser uses quantitative, or
computer-driven, stock valuation models to manage the Fund. Generally, stocks
are categorized based on two dimensions: market capitalization and growth versus
value. The models then apply fundamental criteria -- such as (i) valuation
measures, (ii) financial strength relative to other stocks, and (iii)
recognition by the market -- to identify the most attractive stocks within each
category. The portion of the Fund's assets invested in any one of the categories
will vary over time based on the adviser's judgments about that category's total
return potential.
CAPITAL OPPORTUNITY FUND. The Fund's investment adviser uses intense,
fundamental research to identify stocks that are expected to outperform the
market over a three-to-five year time horizon and that are available at
attractive prices relative to their fundamental values. The adviser may invest
in as few as 40 to 50 securities and may invest a relatively large portion of
the Fund's holdings in specific industries. The adviser has the flexibility to
engage in the following hedging and defensive techniques:
- - Sell stock "short" if the stock's issuer is considered to have fundamental
problems (up to 10% of the Fund's net assets). A short sale occurs when an
investor (such as the Fund) sells stock that it does not own, with the
expectation of acquiring the stock at a lower price in time for delivery to
the purchaser. Potential losses from a short sale are unlimited if the price
of the stock rises instead of falls.
- - The Fund may purchase put options -- that is, the right to sell stock at a
particular price within a specified period of time (up to 10% of the Fund's
net assets). The Fund would use this technique to hedge (or protect)
investments in the stock of companies considered to have fundamental
difficulties.
- - Routinely, the Fund may increase its cash reserves up to 15% of net assets
for temporary defensive purposes. Altogether, the Fund may commit no more
than 25% of its assets to these special investment strategies at any time.
Because the Fund invests a higher percentage of assets in its ten largest
holdings than the average stock fund does, the Fund is subject to the risk that
its performance may be hurt disproportionately by the poor performance of
relatively few stocks.
[FLAG]BECAUSE THE FUND INVESTS A HIGHER PERCENTAGE OF ASSETS IN ITS TEN LARGEST
HOLDINGS THAN THE AVERAGE STOCK FUND DOES, THE FUND IS SUBJECT TO THE RISK
THAT ITS PERFORMANCE MAY BE HURT DISPROPORTIONATELY BY THE PERFORMANCE OF
RELATIVELY FEW STOCKS.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
FUND DIVERSIFICATION
In general, the more diversified a fund's stock or bond holdings, the less
likely it is that a specific security's poor performance will hurt the fund. One
measure of a fund's diversification is the percentage of its assets represented
by its ten largest holdings. The average U.S. equity mutual fund has about 30%
of its assets invested in its ten largest holdings, while some less-diversified
mutual funds have more than 50% of their assets invested in the stocks of just
ten companies.
- --------------------------------------------------------------------------------
GLOBAL ASSET ALLOCATION FUND. The Fund's investment adviser invests in an
adjustable mix of stocks, government bonds and cash reserves selected primarily
from nine major markets: Australia, Canada, France, Germany, Hong Kong, Japan,
Spain, the United Kingdom, and the United States. In managing the Fund, the
adviser seeks to outperform a benchmark index of the investment returns in these
markets (see the "Plain Talk" on the Global Balanced Index). However, the
adviser may expand into other markets, including emerging markets, at any time.
The adviser uses quantitative, or computer-driven, investment models in
seeking to identify the asset classes and countries (for instance, French bonds
or Japanese stocks) that offer the best relative return prospects, adjusted for
risk. The adviser may concentrate the Fund's assets in a few countries and/or
asset classes, but no more than 50% of the Fund's assets will be invested in a
single asset class from a single country (for instance, French bonds).
Rather than looking at the stocks of individual companies, the adviser takes
an indexed approach to common stock investing within particular countries. As a
substitute for common stock investments, the adviser will
<PAGE> 21
18
invest up to 50% of the Fund's assets in stock index futures for the target
country or market. While this indexed approach will be the norm, the adviser may
occasionally execute modest "tilts" in favor of stocks with particular
characteristics (for instance, lower than average market capitalization) or hold
an overweighted position in a security intended to represent an entire market
(for instance, a closed-end, single-country fund).
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE GLOBAL BALANCED INDEX
The Global Balanced Index is a measure of the overall investment performance of
nine major markets -- Australia, Canada, France, Germany, Hong Kong, Japan,
Spain, the United Kingdom, and the United States -- in the three principal asset
categories: stocks, bonds and cash reserves. The Index is composed of: 60%
global stock investments, 30% global bond investments, and 10% U.S. cash
reserves. Frank Russell Company administers the Index on behalf of the Global
Asset Allocation Fund. Countries may be added to or deleted from the Index in
the future, to keep pace with the Fund's ongoing investment program.
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND. The Fund's investment adviser selects stocks principally
on the basis of industry and company analysis, and not on the basis of regional
or country bets. For this reason, the Fund's regional weightings -- that is, its
relative investment exposure in different geographic areas -- are expected to
range from 50% to 150% or more of the weightings found in an unmanaged global
equity index, such as the Morgan Stanley Capital International All Country World
Index. The Fund's relative weightings in individual sectors and stocks are also
expected to differ markedly from the index weightings.
The adviser typically invests across a wide range of industries and the
Fund's holdings are expected to represent a mix of value and growth stocks, as
well as a mix of established and emerging stock markets. Generally, the Fund
will limit its emerging markets holding to no more than 20% of its assets.
The Funds are generally managed without regard to tax ramifications.
OTHER INVESTMENT POLICIES
Each Fund may, from time to time, take temporary defensive measures -- such as
holding cash reserves without limit -- that are inconsistent with the Fund's
primary investment strategies, in response to adverse market, economic,
political, or other conditions. In taking such measures, the Fund may not
achieve its investment objective.
TURNOVER RATES
Although the Funds seek to invest for the long term, each retains the right to
sell securities regardless of how long the securities have been held. The Funds'
expected annual turnover rates are as follows: 100% - 150% for Aggressive Growth
Fund, 75% - 125% for Capital Opportunity Fund, 100% - 200% for Global Asset
Allocation Fund, and 10% - 50% for Global Equity Fund. (A turnover rate of 100%
would occur, for example, if a Fund sold and replaced securities valued at 100%
of its net assets within a one-year period.)
COSTS AND MARKET-TIMING
Some investors try to profit from a strategy called "market-timing" -- switching
money into investments when they expect prices to rise, and taking money out
when they expect prices to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
TURNOVER RATE
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. The average turnover rate for all aggressive growth stock
funds is approximately 122%, according to Morningstar, Inc.
- --------------------------------------------------------------------------------
<PAGE> 22
19
investors who do not generate the costs. Therefore, the Horizon Funds have
adopted the following policies, among others, designed to discourage short-term
trading:
- - Each Fund reserves the right to reject any purchase request into any of the
Funds -- including exchanges from other Vanguard funds -- that it regards as
disruptive to the efficient management of the Funds. This could be because of
the timing of the investment or because of a history of excessive trading by
the investor.
- - There is a limit on the number of times you can exchange into and out of a
Fund (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).
- - Each Fund imposes a 1% redemption fee on shares that are redeemed by any
method within five years of purchase.
- - Each Fund reserves the right to stop offering shares at any time.
THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THESE FUNDS
IF YOU ARE A MARKET-TIMER.
THE FUNDS AND VANGUARD
Vanguard Horizon Funds are members of The Vanguard Group, a family of more than
35 investment companies with more than 100 distinct investment portfolios
holding assets worth more than $440 billion. All of the Vanguard funds share in
the expenses associated with business operations, such as personnel, office
space, equipment, and advertising.
Vanguard also provides marketing services to the funds. Although shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund pays its
allocated share of The Vanguard Group's marketing costs.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUNDS' REDEMPTION FEE
Vanguard Horizon Funds charge a 1% fee on shares that are redeemed (including
those redeemed by exchanging to another Vanguard fund) before they have been
held for five years. The Funds are intended for long-term investors, and this
redemption fee ensures that the costs associated with short-term trading are
borne by the investors making the transactions -- and not by those shareholders
investing in the Funds for the long term.
At Vanguard, all fees are paid directly to the fund itself (unlike a sales
charge or load, which -- for many fund companies -- ends up in the pocket of the
sponsor, adviser, or sales representative).
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE COSTS OF INVESTING
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
- --------------------------------------------------------------------------------
INVESTMENT ADVISERS
Each of the Horizon Funds is managed by a different investment adviser, subject
to the control of the Funds' Trustees and officers.
The AGGRESSIVE GROWTH FUND obtains advisory services on an at-cost basis from
Vanguard Core Management Group (the "Group"), P.O. Box 2600, Valley Forge, PA
19482. The Group provides investment advisory services to many Vanguard funds;
as of December 31, 1998, the Group managed more than $146.7 billion in assets.
For the fiscal year ended October 31, 1998, the investment advisory expenses for
the Aggressive Growth Fund represented an effective annual rate of 0.06% of the
Fund's average net assets for the year.
The other three Funds -- the CAPITAL OPPORTUNITY FUND, the GLOBAL ASSET
ALLOCATION FUND, and the GLOBAL EQUITY FUND -- each employs an "external"
investment adviser. The external advisers are each paid a quarterly fee
calculated by applying certain annual percentage rates to the average month-end
assets of their respective Funds for the quarter.
PRIMECAP Management Company (PMC), 225 South Lake Avenue, Pasadena, CA 91101,
has provided advisory services to the CAPITAL OPPORTUNITY FUND since February 1,
1998. Before that, Husic Capital Management (Husic)
<PAGE> 23
20
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE
The Vanguard Group is truly a MUTUAL mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.
- --------------------------------------------------------------------------------
served as the Fund's investment adviser. PMC provides investment advisory
services to companies, endowment funds, employee benefit plans, and foundations;
as of December 31, 1998, PMC managed over $15.1 billion in assets. For the
fiscal year ended October 31, 1998, the Fund paid PMC advisory fees which
represented an effective annual rate of 0.42% of the Fund's average net assets
for the year. For Husic, the effective annual rate was 0%, due to performance
adjustments.
Strategic Investment Management (SIM), 1001 19th Street North, 16th Floor,
Arlington, VA 22209, provides advisory services to the GLOBAL ASSET ALLOCATION
Fund. SIM provides asset management services to companies, institutions, trusts,
and individuals; as of December 31, 1998, SIM and its affiliated companies
managed over $4.9 billion in assets. SIM's advisory fee is increased or
decreased based on the Fund's investment performance relative to that of the
theoretical Global Balanced Index. For the fiscal year ended October 31, 1998,
the Fund paid SIM advisory fees which represented an effective annual rate of
0.14% of the Fund's average net assets for the year.
Marathon Asset Management Limited (Marathon-London), Orion House, 5 Upper St.
Martin's Lane, London, provides advisory services to the Global Equity Fund.
Marathon-London provides asset management services to companies,
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUNDS' ADVISERS
- - The individual primarily responsible for overseeing the Aggressive Growth
Fund's investments is:
GEORGE U. SAUTER, Managing Director of Vanguard; has worked in investment
management since 1985; has managed index funds for Vanguard since 1987; A.B,
Dartmouth College; M.B.A., University of Chicago.
- - The individuals who oversee the Capital Opportunity Fund's investments, along
with the percentage of Fund assets for which each is primarily responsible,
are:
THEO A. KOLOKOTRONES (35%), President of PRIMECAP; has worked in investment
management since 1970; has managed assets since 1983; with PRIMECAP since 1983;
B.A., University of Chicago; M.B.A., Harvard Business School.
HOWARD B. SCHOW (35%), Chairman of PRIMECAP; has worked in investment
management since 1956; has managed assets since 1967; with PRIMECAP since 1983;
B.A., Williams College; M.B.A., Harvard Business School.
JOEL P. FRIED (20%), Executive Vice President of PRIMECAP; has worked in
investment management since 1985; has managed assets since 1986; with PRIMECAP
since 1986; B.S., University of California, Los Angeles; M.B.A., Anderson
Graduate School of Business, University of California, Los Angeles.
F. JACK LIEBAU, JR. (10%), Senior Vice President of PRIMECAP; has worked in
investment management since 1984; has managed assets since 1986; with PRIMECAP
since 1986; B.A., Stanford University.
Each of these four individuals manages his portion of the fund autonomously;
there is no decision-making by committee.
- - The individuals primarily responsible for overseeing the Global Asset
Allocation Fund's investments are:
MICHAEL A. DUFFY, Managing Director of SIM; has worked in finance since 1982;
has managed assets for SIM since 1987; B.A., University of Michigan; M.A.,
Ph.D., University of Chicago.
ERIC BENDICKSON, Portfolio Manager of SIM; has worked in investment
management since 1986; has managed assets since 1995; with SIM since 1989; B.A.,
The Colorado College; M.B.A., George Washington School of Government and
Business Administration.
- - The individual primarily responsible for overseeing the Global Equity Fund's
investments is:
JEREMY J. HOSKING, Director of Marathon-London; has worked in investment
management since 1979; has managed assets since 1979; with Marathon-London since
1986; M.A., Cambridge University.
- --------------------------------------------------------------------------------
<PAGE> 24
21
institutions, and individuals; as of December 31, 1998, Marathon-London managed
more than $9.2 billion in assets. As with SIM, Marathon-London's advisory fee is
increased or decreased based on the Fund's investment performance relative to
that of the Morgan Stanley Capital International (MSCI) All Country Index. For
the fiscal year ended October 31, 1998, the Fund paid Marathon-London advisory
fees which represented an effective annual rate of 0.26% of the Fund's average
net assets for the year.
The Funds have authorized the advisers to choose brokers or dealers to handle
the purchase and sale of securities for the Funds, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions. Also, the Funds may direct the advisers to use a particular broker
for certain transactions in exchange for commission rebates or research services
provided to the Funds.
YEAR 2000 CHALLENGE
The common practice in computer programming of using just two digits to identify
a year has resulted in the Year 2000 challenge throughout the information
technology industry. If unchanged, many computer applications and systems could
misinterpret dates occurring after December 31, 1999, leading to errors or
failure. Such failure could adversely affect a fund's operations, including
pricing, securities trading, and the servicing of shareholder accounts.
The Vanguard Group is dedicated to providing uninterrupted, high-quality
performance from our computer systems before, during, and after 2000. In July
1998, we completed the renovation and initial testing of our internal systems.
Vanguard is diligently working with external partners, suppliers, and vendors,
including fund managers and other service providers, to assure that the systems
with which we interact remain operational at all times.
In addition to taking every reasonable step to secure our internal systems
and external relationships, Vanguard is further developing contingency plans
intended to assure that unexpected systems failures will not adversely affect
the Funds' operations. Vanguard intends to monitor these processes through the
rollover of 1999 into 2000 and to quickly implement alternate solutions if
necessary.
However, despite Vanguard's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on a Fund's business,
operations, or financial condition. Additionally, a Fund's performance could be
hurt if a computer-system failure at a company or governmental unit affects the
price of securities the Fund owns.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DISTRIBUTIONS
As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from both the dividends that the fund earns from its holdings and
the interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. The capital gains are either short-term or long-term depending on
whether the fund held the securities for less than or more than one year.
- --------------------------------------------------------------------------------
DIVIDENDS, CAPITAL GAINS, AND TAXES
The Funds distribute to shareholders virtually all of their net income (interest
and dividends less expenses), as well as any capital gains realized from the
sale of their holdings. Distributions generally occur in December.
You can receive distributions of income or capital gains in cash, or you can
have them automatically invested in more shares of a Fund. In either case, these
distributions are taxable to you. It is important to note that distributions of
dividends and capital gains that are declared in December -- if paid to you by
the end of January -- are taxed as if they had been paid to you in December.
Vanguard will send you a statement each year showing the tax status of all
your distributions. If you have chosen to receive dividend and/or capital gains
distributions in cash, and the postal or other delivery service is unable to
deliver checks to your address of record, we will change the distribution option
so that all dividends and other distributions are automatically invested in
additional shares. We will not pay interest on uncashed distribution checks.
- - The dividends and short-term capital gains that you receive are considered
ordinary income for tax purposes.
<PAGE> 25
22
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
"BUYING A DIVIDEND"
Unless you are investing through a tax-deferred retirement account (such as an
IRA), it is not to your advantage to buy shares of a fund shortly before it
makes a distribution, because doing so can cost you money in taxes. This is
known as "buying a dividend." For example: On December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share
on December 16, its share price would drop to $19 (not counting market change).
You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250
shares x $1 = $250 in distributions), but you owe tax on the $250 distribution
you received -- even if you reinvest it in more shares. To avoid "buying a
dividend," check a fund's distribution schedule before you invest.
- --------------------------------------------------------------------------------
- - Any distributions of net long-term capital gains by a Fund are taxable to you
as long-term capital gains, no matter how long you've owned shares in the
Fund. Long-term capital gains may be taxed at different rates depending on
how long the Fund held the securities.
- - Although the Funds do not seek to realize any particular amount of capital
gains during a year, such gains are realized from time to time as by-products
of its ordinary investment activities. Consequently, distributions may vary
considerably from year to year.
- - If you sell or exchange shares, any gain or loss you have is a taxable event.
This means that you may have a capital gain to report as income, or a capital
loss to report as a deduction, when you complete your federal income tax
return.
- - Distributions of dividends or capital gains, and capital gains or losses from
your sale or exchange of Fund shares, may be subject to state and local
income taxes as well.
- - Foreign governments may withhold taxes on dividends and interest paid, while
imposing taxes on other payments or gains, with respect to foreign
securities. If you meet certain holding period requirements, an offsetting
tax credit or deduction may be available. If you do not meet these
requirements, you may still be entitled to a deduction for certain foreign
taxes.
The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be
subject to U.S. withholding and estate tax.) You should consult your tax adviser
about the tax consequences of an investment in any of the Funds.
IMPORTANT NOTE: By law, each Fund must withhold 31% of your taxable
distributions and any redemption proceeds if you do not provide your correct
taxpayer identification number, or certify that it is correct, or if the IRS
instructs the Fund to do so.
SHARE PRICE
Each Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of trading on the New York Stock Exchange (the NAV
is not calculated on holidays or other days the Exchange is closed). Net asset
value per share is computed by adding up the total value of the Fund's
investments and other assets, subtracting any of its liabilities (debts), and
then dividing by the number of Fund shares outstanding:
Total Assets - Liabilities
Net Asset Value = -----------------------------------------
Number of Shares Outstanding
Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A NOTE ON PRICING: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Funds' Board of Trustees. The
Funds also may use fair value pricing if the value of a security held by a Fund
is materially affected by events occurring after the close of the primary
markets or exchanges on which such security is traded. In these situations,
prices used by the Fund to calculate its net asset value may differ from quoted
or published prices for the underlying securities.
<PAGE> 26
23
The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations for each Fund, but the most common are AggGr, CapOp,
GlbAA, AND GlbEq.
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
This explanation uses the Aggressive Growth Fund as an example. The Fund began
fiscal 1998 with a net asset value (price) of $15.89 per share. During the year,
the Fund earned $.13 per share from investment income (interest and dividends).
There was a decline of $1.69 per share from investments that had depreciated in
value or that were sold for lower prices than the Fund paid for them.
Shareholders received $1.22 per share in the form of dividend and capital
gains distributions. A portion of each year's distributions may come from the
prior year's income or capital gains.
Investment losses ($1.56 per share) plus the distributions ($1.22 per share)
resulted in a share price of $13.11 at the end of the year. This was a decrease
of $2.78 per share (from $15.89 at the beginning of the year to $13.11 at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was -10.41% for the
year.
As of October 31, 1998, the Fund had $479 million in net assets. For the
year, its expense ratio was 0.43% ($4.30 per $1,000 of net assets); and its net
investment income amounted to 0.93% of its average net assets. It sold and
replaced securities valued at 71% of its net assets.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights tables are intended to help you understand
each Fund's financial performance since inception, and certain information
reflects financial results for a single Fund share in each case. The total
returns in each table represent the rate that an investor would have earned or
lost each year on an investment in the Fund (assuming reinvestment of all
dividends and distributions, and complete redemption at the end of the year).
The information has been derived from the financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, whose report -- along with
each Fund's financial statements -- is included in the Funds' most recent annual
report to shareholders. You may have the annual report sent to you without
charge by contacting Vanguard.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
VANGUARD AGGRESSIVE GROWTH FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------- JUN. 30* TO
1998 1997 1996 OCT. 31, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.89 $ 12.53 $ 10.23 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .13 .15 .18 .04
Net Realized and Unrealized Gain (Loss)
on Investments (1.69) 4.10 2.20 .19
--------------------------------------------------------------
Total from Investment Operations (1.56) 4.25 2.38 .23
--------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.14) (.18) (.08) --
Distributions from Realized Capital Gains (1.08) (.71) -- --
--------------------------------------------------------------
Total Distributions (1.22) (.89) (.08) --
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.11 $ 15.89 $ 12.53 $ 10.23
====================================================================================================================
TOTAL RETURN** -10.41 35.83% 23.40% 1.69%
====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 479 $ 444 $ 133 $ 62
Ratio of Total Expenses to
Average Net Assets 0.43% 0.40% 0.38% 0.06%+
Ratio of Net Investment Income to
Average Net Assets 0.93% 1.28% 1.78% 2.22%+
Turnover Rate 71% 85% 106% 0%
====================================================================================================================
</TABLE>
* Subscription period for each fund 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 fund for less than five years.
+ Annualized.
From time to time, the Vanguard funds advertise yield and total return
figures. Yield is a measure of past dividend income. Total return includes both
past dividend income (assuming that it has been reinvested) plus realized and
unrealized capital appreciation (or depreciation). Neither yield nor total
return should be used to predict the future performance of a fund.
<PAGE> 27
24
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
VANGUARD CAPITAL OPPORTUNITY FUND
YEAR ENDED OCTOBER 31,
- ---------------------------------------------------------------------------------------------------------------- JUN. 30* TO
1998 1997 1996 OCT. 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.48 $ 10.81 $ 9.71 $ 10.00
-------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .021 .037 .01 .02
Net Realized and Unrealized Gain (Loss) on Investments 1.014 (.360) 1.12 (.31)
-------------------------------------------------------------
Total from Investment Operations 1.035 (.323) 1.13 (.29)
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.045) (.007) (.03) --
Distributions from Realized Capital Gains -- -- -- --
-------------------------------------------------------------
Total Distributions (.045) (.007) (.03) --
=============================================================================================================================
NET ASSET VALUE, END OF PERIOD $ 11.47 $ 10.48 $ 10.81 $ 9.71
=============================================================================================================================
TOTAL RETURN** 9.95% -2.99% 11.67% -3.19%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 156 $ 69 $ 115 $ 72
Ratio of Total Expenses to Average Net Assets 0.94% 0.49% 0.50% 0.47%+
Ratio of Net Investment Income to Average Net Assets 0.18% 0.27% 0.11% 1.29%+
Turnover Rate 103% 195% 128% 30%
=============================================================================================================================
</TABLE>
*Subscription period for each fund 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 fund for less than five years.
+Annualized.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
VANGUARD GLOBAL ASSET ALLOCATION FUND
YEAR ENDED OCTOBER 31,
- --------------------------------------------------------------------------------------------------------------- JUN. 30* TO
1998 1997 1996 OCT. 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.39 $ 11.29 $ 10.27 $ 10.00
----------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .58 .62 .50 .11
Net Realized and Unrealized Gain (Loss) on Investments .61 .40 .75 .16
----------------------------------------------------------
Total from Investment Operations 1.19 1.02 1.25 .27
----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.75) (.58) (.20) --
Distributions from Realized Capital Gains (.54) (.34) (.03) --
----------------------------------------------------------
Total Distributions (1.29) (.92) (.23) --
----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.29 $ 11.39 $ 11.29 $ 10.27
==============================================================================================================================
TOTAL RETURN** 11.56% 9.69% 12.34% 2.39%
==============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 86 $ 81 $ 76 $ 45
Ratio of Total Expenses to Average Net Assets 0.54% 0.54% 0.79% 0.52%+
Ratio of Net Investment Income to Average Net Assets 5.12% 5.46% 5.18% 5.42%+
Turnover Rate 182% 162% 191% 17%
==============================================================================================================================
</TABLE>
*Subscription period for each fund 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 fund for less than five years.
+Annualized.
<PAGE> 28
25
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
VANGUARD GLOBAL EQUITY FUND
YEAR ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------------------------------- JUN. 30* TO
1998 1997 1996 OCT. 31, 1995
---------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.79 $ 11.72 $ 10.08 $ 10.00
---------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .19 .19 .13 .04
Net Realized and Unrealized Gain (Loss) on Investments (.20) 1.21 1.58 .04
---------------------------------------------------------
Total from Investment Operations (.01) 1.40 1.71 .08
---------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.23) (.14) (.07) --
Distributions from Realized Capital Gains (.44) (.19) -- --
---------------------------------------------------------
Total Distributions (.67) (.33) (.07) --
---------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.11 $ 12.79 $ 11.72 $ 10.08
=========================================================================================================================
TOTAL RETURN** 0.04% 12.19% 17.05% 0.50%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 121 $ 128 $ 99 $ 36
Ratio of Total Expenses to Average Net Assets 0.68% 0.71% 0.85% 0.57%+
Ratio of Net Investment Income to Average Net Assets 1.47% 1.67% 1.53% 2.04%+
Turnover Rate 34% 24% 29% 2%
=========================================================================================================================
</TABLE>
*Subscription period for each fund 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 fund for less than five years.
+Annualized.
<PAGE> 29
26
INVESTING WITH VANGUARD
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services we
offer. Booklets providing detailed information are available on the services
marked with a [BOOK GRAPHIC]. Please call us to request copies.
SERVICES AND ACCOUNT FEATURES
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS (SALES AND EXCHANGES)
Automatically set up for these Funds unless you notify us otherwise.
- --------------------------------------------------------------------------------
VANGUARD DIRECT DEPOSIT SERVICE(TM) [BOOK GRAPHIC]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
VANGUARD AUTOMATIC EXCHANGE SERVICE(TM)[BOOK GRAPHIC]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
VANGUARD FUND EXPRESS(R)[BOOK GRAPHIC]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
VANGUARD DIVIDEND EXPRESS(TM)[BOOK GRAPHIC]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
VANGUARD TELE-ACCOUNT(R) 1-800-662-6273 (ON-BOARD)[BOOK GRAPHIC]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange fund shares.
- --------------------------------------------------------------------------------
ACCESS VANGUARD(TM) www.vanguard.com [COMPUTER GRAPHIC]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through the website. We will then send to you, by mail, an account
access password that allows you to process the following financial and
administrative transactions online:
- - Open a new account.*
- - Buy, sell, or exchange shares of most funds.
- - Change your name/address.
- - Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
INVESTOR INFORMATION DEPARTMENT: 1-800-662-7447(SHIP) TEXT TELEPHONE:
1-800-952-3335 Call Vanguard for information on our funds, fund services, and
retirement accounts, and to request literature.
- --------------------------------------------------------------------------------
CLIENT SERVICES DEPARTMENT: 1-800-662-2739(CREW) TEXT TELEPHONE: 1-800-662-2738
Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
SERVICES FOR CLIENTS OF VANGUARD'S INSTITUTIONAL DIVISION: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
<PAGE> 30
27
TYPES OF ACCOUNTS
Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
FOR ONE OR MORE PEOPLE
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
FOR HOLDING PERSONAL TRUST ASSETS [BOOK GRAPHIC]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOK GRAPHIC]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447(SHIP).
- --------------------------------------------------------------------------------
FOR AN ORGANIZATION [BOOK GRAPHIC]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
FOR THIRD-PARTY TRUSTEE RETIREMENT INVESTMENTS
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
VANGUARD PROTOTYPE PLANS
Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------
A NOTE ON INVESTING WITH VANGUARD THROUGH OTHER FIRMS
You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees, or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------
BUYING SHARES
You buy your shares at a Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT TO . . .
open a new account
$3,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).
add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
A NOTE ON LOW BALANCES
Each Fund reserves the right to close any nonretirement account whose balance
falls below the minimum initial investment. The Fund will deduct a $10 annual
fee in June if your nonretirement account balance falls below $2,500. The fee is
waived if your total Vanguard account assets are $50,000 or more.
- --------------------------------------------------------------------------------
BY MAIL TO . . . [ENVELOPE GRAPHIC]
open a new account
Complete and sign the application form and enclose your check.
add to an existing account
Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form.
- --------------------------------------------------------------------------------
<PAGE> 31
28
Buying Shares (continued)
Make your check payable to: The Vanguard Group-(insert appropriate Fund number;
see below)
Vanguard Aggressive Growth Fund-114
Vanguard Capital Opportunity Fund-111
Vanguard Global Asset Allocation Fund-115
Vanguard Global Equity Fund-129
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2600 455 Devon Park Drive
Valley Forge, PA 19482-2600 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division . . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
BY TELEPHONE TO . . . [TELEPHONE GRAPHIC]
open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type).
add to an existing account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). Use Vanguard
Fund Express (see "Services and Account Features") to transfer assets from your
bank account. Call Client Services before your first use to verify that this
option is in place.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.
- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you've requested a telephone transaction and a confirmation
number has been assigned, the transaction cannot be revoked. We reserve the
right to refuse any purchase request.
- --------------------------------------------------------------------------------
BY WIRE TO OPEN A NEW ACCOUNT OR ADD TO AN EXISTING ACCOUNT [WIRE GRAPHIC]
Call Client Services to arrange your wire transaction. Wire transactions are not
available for retirement accounts, except for asset transfers and direct
rollovers.
Wire to:
FRB ABA 021001088
Marine Midland Bank, New York
For credit to:
Account: 000112046
Vanguard Incoming Wire Account
<PAGE> 32
29
In favor of:
Vanguard Aggressive Growth Fund-114
Vanguard Capital Opportunity Fund-111
Vanguard Global Asset Allocation Fund-115
Vanguard Global Equity Fund-129
[Account number, or temporary number for a new account]
[Registered account owner/s]
[Registered address]
- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or
Vanguard Fund Express at any time. However, while your redemption request will
be processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
Keep in mind that if you buy or sell Fund shares through a registered
broker/dealer or investment adviser, the broker/dealer or adviser may charge you
a service fee.
- --------------------------------------------------------------------------------
A NOTE ON LARGE PURCHASES
It is important that you call Vanguard before you invest a large dollar amount.
We must consider the interests of all Fund shareholders and so reserve the right
to refuse any purchase that will disrupt the Fund's operation or performance.
- --------------------------------------------------------------------------------
REDEEMING SHARES
This section describes how you can redeem--that is, sell or exchange--a Fund's
shares.
When Selling Shares:
- - Vanguard sends the redemption proceeds to you or a designated third party.*
- - You can sell all or part of your Fund shares at any time.
*Proceeds sent to third parties require a signature guarantee; see footnote on
page 31.
When Exchanging Shares:
- - The redemption proceeds are used to purchase shares of a different Vanguard
fund.
- - You must meet the receiving fund's minimum investment requirements.
- - Vanguard reserves the right to revise or terminate the exchange privilege,
limit the amount of an exchange, or reject an exchange at any time, without
notice.
In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus.
- --------------------------------------------------------------------------------
A NOTE ON REDEMPTION FEES
Each Fund imposes a 1% redemption fee on shares that are redeemed by any method
within five years of purchase. Currently, redemption fees do not apply to Fund
shares held through Vanguard's separate recordkeeping system for employee
benefit plan accounts, due to certain economies associated with these
accounts. However, the Funds reserve the right to impose redemption fees on
their shares at any time if warranted by the Funds' future costs of processing
redemptions from these accounts.
- --------------------------------------------------------------------------------
NOTE: Once a redemption is processed and a confirmation number given, the
transaction CANNOT be canceled.
- --------------------------------------------------------------------------------
HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.
- --------------------------------------------------------------------------------
<PAGE> 33
30
REDEEMING SHARES (CONTINUED)
- --------------------------------------------------------------------------------
ONLINE REQUESTS [COMPUTER GRAPHIC]
ACCESS VANGUARD at www.vanguard.com
You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through the website. We will then send you, by mail, an account access password
that will enable you to sell or exchange shares online (as well as perform other
transactions).
NOTE: The Vanguard funds whose shares you cannot exchange online or by
telephone are VANGUARD U.S. STOCK INDEX FUNDS, VANGUARD BALANCED INDEX FUND,
VANGUARD INTERNATIONAL STOCK INDEX FUNDS, VANGUARD REIT INDEX FUND, VANGUARD
TOTAL INTERNATIONAL STOCK INDEX FUND, and VANGUARD GROWTH AND INCOME FUND. These
funds do, however, permit online and telephone exchanges within IRAs and other
retirement accounts. If you sell shares of these funds online, you will receive
a redemption check at your address of record.
- --------------------------------------------------------------------------------
TELEPHONE REQUESTS (TELEPHONE GRAPHIC)
All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours--to sell or exchange shares. You can exchange shares from these Funds to
open an account in another Vanguard fund or to add to an existing Vanguard fund
account with an identical registration.
Retirement Accounts:
You can exchange--but not sell--shares by calling Tele-Account or Client
Services.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
- --------------------------------------------------------------------------------
SPECIAL INFORMATION: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable
to provide:
[X] The ten-digit account number.
[X] The name and address exactly as registered on the account.
[X] The primary Social Security or employer identification number as
registered on the account.
[X] The Personal Identification Number, if applicable.
Please note that Vanguard will not be responsible for any account losses due to
telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
MAIL REQUESTS [ENVELOPE GRAPHIC]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.
- --------------------------------------------------------------------------------
<PAGE> 34
31
Vanguard Retirement Accounts:
For information on how to request distributions from:
- - Traditional IRAs and Roth IRAs--call Client Services.
- - SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and
Money Purchase Pension (Keogh) Plans--call Individual Retirement Plans at
1-800-662-2003.
Depending on your account registration type, additional documentation may be
required.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1120 455 Devon Park Drive
Valley Forge, PA 19482-1120 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division...
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
A NOTE ON LARGE REDEMPTIONS
It is important that you call Vanguard before you redeem a large dollar amount.
We must consider the interests of all fund shareholders and so reserve the right
to delay delivery of your redemption proceeds--up to seven days--if the amount
will disrupt a Fund's operation or performance. If you redeem more than $250,000
worth of Fund shares within any 90-day period, the Fund reserves the right to
pay part or all of the redemption proceeds above $250,000 in kind, i.e., in
securities, rather than in cash. If payment is made in kind, you may incur
brokerage commissions if you elect to sell the securities for cash.
- --------------------------------------------------------------------------------
OPTIONS FOR REDEMPTION PROCEEDS
to another Vanguard fund.
- --------------------------------------------------------------------------------
CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
EXCHANGE REDEMPTIONS
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------
FOR OUR MUTUAL PROTECTION
For your best interests and ours, Vanguard applies these additional requirements
to redemptions:
REQUEST IN "GOOD ORDER"
All redemption requests must be received by Vanguard in "good order." This means
that your request must include:
[X] The Fund name and account number.
[X] The amount of the transaction (in dollars or shares).
[X] Signatures of all owners exactly as registered on the account (for mail
requests).
[X] Signature guarantees (if required).*
[X] Any supporting legal documentation that may be required.
[X] Any outstanding certificates representing shares to be redeemed.
*For instance, a signature guarantee must be provided by all registered account
shareholders when redemption proceeds are to be sent to a different person or
address. A signature guarantee can be obtained from most banks, credit unions,
and licensed brokers.
TRANSACTIONS ARE PROCESSED AT THE NEXT-DETERMINED SHARE PRICE AFTER VANGUARD HAS
RECEIVED ALL REQUIRED INFORMATION.
- --------------------------------------------------------------------------------
<PAGE> 35
32
REDEEMING SHARES (CONTINUED)
LIMITS ON ACCOUNT ACTIVITY
Because excessive account transactions can disrupt management of a Fund and
increase the Fund's costs for all shareholders, Vanguard limits account activity
as follows:
- - You may make no more than TWO SUBSTANTIVE "ROUND TRIPS" THROUGH THE FUND
during any 12-month period.
- - Your round trips through the Fund must be at least 30 days apart.
- - The Fund may refuse a share purchase at any time, for any reason.
- - Vanguard may revoke an investor's telephone exchange privilege at any time,
for any reason.
A "round trip" is a redemption from the Fund followed by a purchase back into
the Fund. Also, "round trip" covers transactions accomplished by any combination
of methods, including transactions conducted by check, wire, or exchange to/from
another Vanguard fund. "Substantive" means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.
- --------------------------------------------------------------------------------
RETURN YOUR SHARE CERTIFICATES
Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
ALL TRADES FINAL
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been received
and a confirmation number assigned.
- --------------------------------------------------------------------------------
TRANSFERRING REGISTRATION
You can transfer the registration of your Fund shares to another owner by
completing a transfer form and sending it to Vanguard.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division . . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
<PAGE> 36
33
FUND AND ACCOUNT UPDATES
STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.
In addition, you will receive financial reports about the Fund twice a year.
These comprehensive reports include an assessment of the Fund's performance (and
a comparison to its industry benchmark), an overview of the markets, a report
from the advisers, and the Fund's financial statements which include a listing
of the Fund's holdings.
To keep each Fund's costs as low as possible (so that you and other
shareholders can keep more of the Fund's investment earnings), Vanguard attempts
to eliminate duplicate mailings to the same address. When we find that two or
more Fund shareholders have the same last name and address, we send just one
Fund report to that address--instead of mailing separate reports to each
shareholder. If you want us to send separate reports, however, you may notify
our Investor Information Department at 1-800-662-7447.
- --------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY [BOOK GRAPHIC]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
FUND FINANCIAL REPORTS
Mailed in December and June for these Funds.
- --------------------------------------------------------------------------------
TAX STATEMENTS
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
AVERAGE COST REVIEW STATEMENT [BOOK GRAPHIC]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using the average cost single category method.
- --------------------------------------------------------------------------------
<PAGE> 37
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<PAGE> 38
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<PAGE> 39
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<PAGE> 40
GLOSSARY OF INVESTMENT TERMS
CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.
CASH RESERVES
Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.
COMMON STOCK
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
COUNTRY RISK
The possibility that events such as political or financial troubles or natural
disasters will weaken a country's economy.
CURRENCY RISK
The possibility that an American's foreign investment will lose money because of
unfavorable currency exchange rates.
DIVIDEND INCOME
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.
FUND DIVERSIFICATION
Holding a variety of securities so that a fund's return is not badly hurt by the
poor performance of a single security, industry, or country.
GROWTH STOCK FUND
A mutual fund that emphasizes stocks of companies believed to have above-average
prospects for growth. Reflecting market expectations for superior growth, the
ratio of growth stock prices to various financial measures (e.g., revenues,
earnings, book value) can be relatively high.
INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a fund's
investments.
MUTUAL FUND
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
PRICE/EARNINGS (P/E) RATIO
The current share price of a stock, divided by its per-share earnings (profits).
A stock selling for $20, with earnings of $2 per share, has a price/earnings
ratio of 10.
PRINCIPAL
The amount of your own money you put into an investment.
SECURITIES
Stocks, bonds, and other investment vehicles.
TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
VALUE STOCK FUND
A mutual fund that emphasizes stocks of companies whose growth prospects are
generally regarded as subpar by the market. Reflecting these market
expectations, the ratio of value stock prices to various financial measures
(e.g., revenues, earnings, book value) can be relatively low.
VOLATILITY
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
YIELD
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE> 41
[SHIP LOGO]
THE VANGUARD GROUP(R)
POST OFFICE BOX 2600
VALLEY FORGE, PA 19482-2600
FOR MORE INFORMATION
If you'd like more information about Vanguard Horizon Funds, the following
documents are available free upon request:
ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders. In these reports, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during the most recent fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI provides more detailed
information about the Funds.
The current annual and semiannual reports and the SAI are incorporated by
reference into (and are thus legally a part of) this prospectus.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Funds or other Vanguard funds,
please contact us as follows:
THE VANGUARD GROUP
INVESTOR INFORMATION DEPARTMENT
P.O. BOX 2600
VALLEY FORGE, PA 19482-2600
TELEPHONE:
1-800-662-7447(SHIP)
TEXT TELEPHONE:
1-800-952-3335
WORLD WIDE WEB:
www.vanguard.com
If you are a current Fund shareholder and would like information about your
account, account transactions, and/or account statements, please call:
CLIENT SERVICES DEPARTMENT TELEPHONE:
1-800-662-2739(CREW)
TEXT TELEPHONE:
1-800-662-2738
INFORMATION PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION (SEC)
You can review and copy information about the Funds (including the SAI) at the
SEC's Public Reference Room in Washington, D.C. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Funds are also available on the SEC's website (www.sec.gov), or you
can receive copies of this information, for a fee, by writing the Public
Reference Section, Securities and Exchange Commission, Washington, DC
20549-6009.
Funds' Investment Company Act
file number: 811-07239
(C) 1999 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
P069N-02/26/1999
<PAGE> 42
PART B
VANGUARD HORIZON FUNDS
(THE "TRUST")
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 26, 1999
This Statement is not a prospectus but should be read in conjunction with
the Trust's current Prospectus, (dated February 26, 1999). To obtain the
Prospectus or an additional Annual Report to Shareholders, which contains the
Funds' Financial Statements as hereby incorporated by reference, please call:
Investor Information Department: 1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Description of the Trust.................................... B-1
Investment Policies......................................... B-3
Fundamental Investment Limitations.......................... B-8
Management of the Trust..................................... B-10
Investment Advisory Services................................ B-13
Portfolio Transactions...................................... B-16
Yield and Total Return...................................... B-17
Share Price................................................. B-18
Purchase of Shares.......................................... B-19
Redemption of Shares........................................ B-19
Comparative Indexes......................................... B-19
Financial Statements........................................ B-23
</TABLE>
DESCRIPTION OF THE TRUST
ORGANIZATION
The Trust was organized as a Maryland corporation in 1994, and was
reorganized as a Delaware business trust in June, 1998. Prior to its
reorganization as a Delaware business trust, the Trust was known as Vanguard
Horizon Funds, Inc. The Trust is registered with the United States Securities
and Exchange Commission under the Investment Company Act of 1940 (the "1940
Act") as an open-end, diversified management investment company. It currently
offers the following funds, each of which has outstanding one class of shares:
Vanguard Aggressive Growth Fund
Vanguard Capital Opportunity Fund
Vanguard Global Asset Allocation Fund
Vanguard Global Equity Fund
(individually, the "Fund"; collectively, the "Funds")
The Trust has the ability to offer additional Funds which may offer one or
more classes of shares. There is no limit on the number of full and fractional
shares that each Fund may issue.
SERVICE PROVIDERS
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 serves as custodian for the Capital Opportunity and
Aggressive Growth Funds. Chase Manhattan Bank, N.A., 4 Chase MetroTech Center,
Brooklyn, New York 11245 serves as custodian for the Global Asset Allocation and
Global Equity Funds. The custodian is responsible for maintaining each Fund's
assets and keeping all necessary accounts and records.
B-1
<PAGE> 43
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Trust's independent accountants.
The accountants audit the Trust's financial statements and provide other related
services.
TRANSFER AND DIVIDEND-PAYING AGENT. The Fund's transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.
CHARACTERISTICS OF THE TRUST'S SHARES
RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions
on the right of shareholders to retain or dispose of each Fund's shares, other
than the possible future termination of the Trust or any of its funds. The Trust
or any of its funds may be terminated by reorganization into another mutual fund
or by liquidation and distribution of the assets of the affected fund. Unless
terminated by reorganization or liquidation, the Trust and its funds will
continue indefinitely.
SHAREHOLDER LIABILITY. The Trust is organized under Delaware law, which
provides that shareholders of a business trust are entitled to the same
limitations of personal liability as shareholders of a corporation organized
under Delaware law. Effectively, this means that a Fund shareholder will not be
personally liable for payment of the Fund's debts except by reason of his or her
own conduct or acts. In addition, a shareholder could incur a financial loss on
account of a Fund obligation only if the Fund itself had no remaining assets
with which to meet such obligation. We believe that the possibility of such a
situation arising is extremely remote.
DIVIDEND RIGHTS. The shareholders of a fund are entitled to receive any
dividends or other distributions declared for such fund. No shares have priority
or preference over any other shares of the same fund with respect to
distributions. Distributions will be made from the assets of a fund, and will be
paid ratably to all Fund shareholders according to the number of shares held by
shareholders on the record date.
VOTING RIGHTS. Shareholders of a Fund are entitled to vote on a matter if:
(i) a shareholder vote is required under the 1940 Act; (ii) the matter concerns
an amendment to the Declaration of Trust that would adversely affect to a
material degree the rights and preferences of the Fund's shares; or (iii) the
Trustees determine that it is necessary or desirable to obtain a shareholder
vote. The 1940 Act requires a shareholder vote under various circumstances,
including to elect or remove Trustees upon the written request of shareholders
representing 10% or more of the Trust's net assets, and to change any
fundamental policy of the Trust. Shareholders of a fund receive one vote for
each dollar of net asset value owned on the record date, and a fractional vote
for each fractional dollar of net asset value owned on the record date. However,
only the shares of the fund affected by a particular matter are entitled to vote
on that matter. Voting rights are non-cumulative and cannot be modified without
a majority vote.
LIQUIDATION RIGHTS. In the event of liquidation, shareholders of a Fund
will be entitled to receive a pro rata share of the Fund's net assets.
PREEMPTIVE RIGHTS. There are no preemptive rights associated with shares
of the Funds.
CONVERSION RIGHTS. There are no conversion rights associated with shares
of the Trust.
REDEMPTION PROVISIONS. The redemption provisions of each Fund are
described in its current prospectus and elsewhere in this Statement of
Additional Information.
SINKING FUND PROVISIONS. The Funds have no sinking fund provisions.
CALLS OR ASSESSMENT. Each Fund's shares, when issued, are fully paid and
non-assessable.
TAX STATUS OF THE TRUST
Each Fund qualifies as a "regulated investment company" under Subchapter M
of the Internal Revenue Code. This special tax status means that a fund will not
be liable for federal tax on income and capital gains distributed to
shareholders. In order to preserve its tax status, each fund must comply with
certain requirements. If a fund fails to meet these requirements in any taxable
year, it will be subject to tax on its taxable
B-2
<PAGE> 44
income at corporate rates, and all distributions from earnings and profits,
including any distributions of net tax-exempt income and net long-term capital
gains, will be taxable to shareholders as ordinary income. In addition, the fund
could be required to recognize unrealized gains, pay substantial taxes and
interest, and make substantial distributions before regaining its tax status as
a regulated investment company.
INVESTMENT POLICIES
The following policies supplement the Trust's investment objectives and
policies set forth in the Prospectus for each of the Trust's Funds.
FOREIGN INVESTMENTS
As indicated in the Prospectus, the Global Equity, Global Asset Allocation
and Capital Opportunity Funds may invest in foreign securities. The Aggressive
Growth Fund's investment in foreign securities will be minimal. Investors should
recognize that investing in foreign companies involves certain special
considerations which are not typically associated with investing in U.S.
companies.
Foreign Tax Credit. Foreign governments may withhold taxes on dividends
and interest paid with respect to foreign securities. Foreign governments may
also impose taxes on other payments or gains with respect to foreign securities.
If, at the close of its fiscal year, more than 50% of a fund's total assets are
invested in securities of foreign issuers, the fund may elect to pass through
foreign taxes paid, and thereby allow shareholders to take a tax credit or
deduction on their tax returns. If shareholders meet certain holding period
requirements with respect to fund shares, an offsetting tax credit may be
available. If shareholders do not meet the holding period requirements, they may
still be entitled to a deduction for certain foreign taxes. In either case, a
shareholder's tax statement will show more taxable income or capital gains than
were actually distributed by the fund, but will also show the amount of the
available offsetting credit or deduction. A shareholder that is a nonresident
alien for U.S. tax purposes may be subject to adverse U.S. tax consequences. For
example, dividends and short-term capital gains paid by the fund will generally
be subject to U.S. federal withholding tax at a rate of 30% (or lower treaty
rate if applicable). Foreign investors are urged to consult their tax advisers
regarding the U.S. tax treatment of ownership of shares in the fund.
Currency Risk. Since the stocks of foreign companies are frequently
denominated in foreign currencies, and since the Funds may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Funds will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of Vanguard Horizon Funds permit it
to enter into forward foreign currency exchange contracts in order to hedge the
Fund's holdings and commitments against changes in the level of future currency
rates. Such contracts involve an obligation to purchase or sell a specific
currency at a future date at a price set at the time of the contract. Under
normal circumstances, the Global Equity Fund will not commit more than 20% of
its assets to such contracts. However, although the Fund does not intend to do
so, under unusual circumstances it is possible that 100% of the assets of the
Global Asset Allocation Fund would be committed to forward foreign currency
exchange contracts.
Federal Tax Treatment of Non-U.S. Transactions. Special rules govern the
Federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument if such instrument is not marked to market. The disposition
of a currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules if they are or would be treated as
sold for their fair market value at year-end under the marking-to-market rules
applicable to other futures contracts unless an election is made to have such
currency rules apply. With respect to transactions covered by the special
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rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. A taxpayer may elect to treat as capital gain or loss foreign currency
gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. The Treasury Department issued regulations
under which certain transactions subject to the special currency rules that are
part of a "section 988 hedging transaction" (as defined in the Internal Revenue
Code of 1986, as amended, and the Treasury regulations) will be integrated and
treated as a single transaction or otherwise treated consistently for purposes
of the Code. Any gain or loss attributable to the foreign currency component of
a transaction engaged in by a Fund which is not subject to the special currency
rules (such as foreign equity investments other than certain preferred stocks)
will be treated as capital gain or loss and will not be segregated from the gain
or loss on the underlying transaction. It is anticipated that some of the
non-U.S. dollar-denominated investments and foreign currency contracts Vanguard
Horizon Funds may make or enter into will be subject to the special currency
rules described above.
Country Risk. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Although the Funds will endeavor to achieve most favorable execution costs
in their portfolio transactions, fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges. In
addition, it is expected that the expenses for custodian arrangements of the
Funds' foreign securities will be somewhat greater than the expenses for the
custodian arrangements for handling U.S. securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from foreign companies held by the Funds. However, these
foreign withholding taxes are not expected to have a significant impact on the
Funds, since each Fund seeks long-term capital appreciation and any income
should be considered incidental.
TURNOVER RATE. While the turnover rate is not a limiting factor when
management deems changes appropriate, it is anticipated that each Fund's annual
turnover rate will not normally exceed 200%. A turnover rate of 100% would occur
if all of the Fund's securities, exclusive of U.S. Government securities and
other securities whose maturities at the time of acquisition are one year or
less, are replaced in the period of one year. Turnover rates may vary greatly
from year to year as well as within a particular year and may also be affected
by cash requirements for redemptions of each Fund's shares and by requirements
which enable the Trust to receive certain favorable tax treatments. The turnover
rates will, of course, depend in large part on the level of purchases and
redemptions of shares of each Fund. A higher turnover rate can result in
corresponding increases in brokerage costs to the Funds of the Trust and their
shareholders.
FUTURES CONTRACTS. Each Fund may enter into futures contracts, options,
and options on futures contracts for several reasons: to maintain cash reserves
while remaining fully invested, to facilitate trading, to reduce transaction
costs, or to seek higher investment returns when a futures contract is priced
more attractively than the underlying equity security or index. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government Agency.
Assets committed to futures contracts will be segregated to the extent required
by law.
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Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin which
may range upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on their margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities.
Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
a Fund will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. A Fund will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% (15% with
respect to the Global Asset Allocation Fund) of the market value of its total
assets. In addition, a Fund will not enter into futures contracts to the extent
that its outstanding obligations to purchase securities under these contracts,
in combination with any investments in options, would exceed 20% of its total
assets (50% with respect to the Global Asset Allocation Fund).
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may
be closed out only on an Exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, a Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out.
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A 15% decrease would result in a loss equal to 150% of the original margin
deposit if the contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the contract.
Because the futures strategies of the Funds are not engaged in for speculative
purposes, the Advisers do not believe that the Funds are subject to the risks of
loss frequently associated with futures transactions. A Fund would presumably
have sustained comparable losses if, instead of the futures contract, it had
invested in the underlying financial instrument and sold it after the decline.
Futures and options are derivative instruments, in that their value is derived
from the value of another security. Equity futures contracts and index put
options may be used by the Fund advisers of the Global Asset Allocation Fund and
the Capital Opportunity Fund, respectively. By doing so, the Funds' advisers
will expose investors to risks inherent in these commonly used strategies.
Utilization of futures transactions by a Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the Fund securities being hedged. It is also
possible that a Fund could both lose money on futures contracts and also
experience a decline in value of its Fund securities. There is also the risk of
loss by a Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Additionally, investments in futures contracts and options involve the risk that
the investment advisers will incorrectly predict stock market and interest rate
trends.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. Except for transactions the
Funds have identified as hedging transactions, a Fund is required for Federal
income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. In most cases, any gain
or loss recognized with respect to a futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss, without
regard to the holding period of the contract. Furthermore, sales of futures
contracts which are intended to hedge against a change in the value of
securities held by a Fund may affect the holding period of such securities and,
consequently, the nature of the gain or loss on such securities upon
disposition.
In order for a Fund to continue to qualify for Federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income; i.e., dividends, interest,
income derived from loans of securities, gains from the sale of securities or
foreign currencies or other income derived with respect to the Trust's business
of investing in securities. It is anticipated that any net gain realized from
the closing out of futures contracts will be considered qualifying income for
purposes of the 90% requirement.
A Fund will distribute to shareholders annually any net capital gains which
have been recognized for Federal income tax purposes (including unrealized gains
at the end of the Fund's fiscal year) on futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the Fund's other investments and shareholders will be advised on the nature of
the transactions.
REPURCHASE AGREEMENTS. A Fund may invest in repurchase agreements with
commercial banks, brokers or dealers either for defensive purposes due to market
conditions or to generate income from its excess cash balances. A repurchase
agreement is an agreement under which the Fund acquires a fixed-income security
(generally a security issued by the U.S. Government or an agency thereof, a
banker's acceptance or a certificate of deposit) from a commercial bank, broker
or dealer, subject to resale to the seller at an agreed upon price and date
(normally, the next business day). A repurchase agreement may be considered a
loan
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collateralized by securities. The resale price reflects an agreed upon interest
rate effective for the period the instrument is held by the Fund and is
unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by the Fund (including accrued interest
earned thereon) must have a total value in excess of the value of the repurchase
agreement and are held by a custodian bank until repurchased. In addition, the
Trust's Board of Trustees will monitor each Fund's repurchase agreement
transactions generally and will establish guidelines and standards for review by
the investment adviser of the creditworthiness of any bank, broker or dealer
party to a repurchase agreement with any Fund of the Trust.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Trust's
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
ILLIQUID SECURITIES. A Fund may invest up to 15% of its net assets in
illiquid securities. Illiquid securities are securities that may not be sold or
disposed of in the ordinary course of business within seven business days at
approximately the value at which they are being carried on the Fund's books.
A Fund may invest in restricted, privately placed securities that, under
SEC rules, may be sold only to qualified institutional buyers. Because these
securities can be resold only to qualified institutional buyers, they may be
considered illiquid securities -- meaning that they could be difficult for the
Fund to convert to cash if needed.
If a substantial market develops for a restricted security held by the
Fund, it will be treated as a liquid security, in accordance with procedures and
guidelines approved by the Fund's Board of Trustees. This generally includes
securities that are unregistered that can be sold to qualified institutional
buyers in accordance with Rule 144A under the 1933 Act. While the Fund's
investment adviser determines the liquidity of restricted securities on a daily
basis, the Board oversees and retains ultimate responsibility for the adviser's
decisions. Several factors the Board considers in monitoring these decisions
include the valuation of a security, the availability of qualified institutional
buyers, and the availability of information about the security's issuer.
LENDING OF SECURITIES. A Fund may lend its securities on a short-term or
long-term basis to qualified institutional investors (typically brokers,
dealers, banks or other financial institutions) who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its securities, a Fund attempts to increase its net investment income through
the receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. The terms and the structure and the aggregate amount of
such loans must be consistent with the Investment Company Act of 1940, and the
Rules and Regulations or interpretations of the Securities and Exchange
Commission (the "Commission") thereunder. These provisions limit the amount of
securities a fund may lend to 33 1/3% of the Fund's total assets, and require
that (a) the borrower pledge and maintain with the Fund collateral consisting of
cash, an irrevocable letter of credit or securities issued or guaranteed by the
United States Government having a value at all times not less than 100% of the
value of the securities loaned, (b) the borrower add to such collateral whenever
the price of the securities loaned rises (i.e., the borrower "marks to the
market" on a daily basis), (c) the loan be made subject to termination by the
Fund at any time and (d) the Fund receives reasonable interest on the loan which
may include the Fund's investing any cash collateral in interest bearing
short-term investments, any distribution on the loaned securities and any
increase in their market value. Loan arrangements made by a Fund will comply
with all other applicable regulatory requirements, including the rules of the
New York Stock Exchange, which rules presently require the borrower, after
notice, to redeliver the securities within the normal settlement time of three
business days. All relevant facts and circumstances,
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including the credit-worthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Trust's Board of Trustees.
VANGUARD INTERFUND LENDING PROGRAM. The SEC has issued an exemptive order
permitting the Funds to participate in Vanguard's interfund lending program.
This program allows the Vanguard funds to borrow money from and loan money to
each other for temporary or emergency purposes. The program is subject to a
number of conditions, including the requirement that no fund may borrow or lend
money through the program unless it receives a more favorable interest rate than
is available from a typical bank for a comparable transaction. In addition, a
fund may participate in the program only if and to the extent that such
participation is consistent with the fund's investment objective and other
investment policies. The Boards of Trustees of the Vanguard funds are
responsible for ensuring that the interfund lending program operates in
compliance with all conditions of the SEC's exemptive order.
TEMPORARY INVESTMENTS. The Funds may take temporary defensive measures
that are inconsistent with the Funds' normal fundamental or non-fundamental
investment policies and strategies in response to adverse market, economic,
political, or other conditions. Such measures could include investments in (a)
highly liquid short-term fixed income securities issued by or on behalf of
municipal or corporate issuers, obligations of the U.S. Government and its
agencies, commercial paper, and bank certificates of deposit; (b) shares of
other investment companies which have investment objectives consistent with
those of the Fund; (c) repurchase agreements involving any such securities; and
(d) other money market instruments. There is no limit on the extent to which the
Funds may take temporary defensive measures. In taking such measures, the Funds
may fail to achieve their investment objectives.
FUNDAMENTAL INVESTMENT LIMITATIONS
Each Fund of the Trust is subject to the following fundamental investment
limitations, which cannot be changed in any material way without the approval of
the holders of a majority of the affected Fund's shares. For these purposes, a
"majority" of shares means shares representing the lesser of: (i) 67% or more of
the votes cast to approve a change, so long as shares representing more than 50%
of the Fund's net value are present or represented by proxy; or (ii) more than
50% of the Fund's net asset value.
BORROWING. The Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 15% of the Fund's net assets. The
Fund may borrow money through banks, reverse repurchase agreements, or
Vanguard's interfund lending program only, and must comply with all applicable
regulatory conditions. The Fund may not make any additional investments whenever
its outstanding borrowings exceed 5% of net assets.
COMMODITIES. The Fund may not invest in commodities, except that it may
invest in forward foreign currency exchange transactions, futures contracts,
options and options on futures contracts. No more than 5% (15% for Global Asset
Allocation Fund) of the Fund's total assets may be used as initial margin
deposit for futures contracts, and no more than 20% (50% for Global Asset
Allocation Fund) of the Fund's total assets may be invested in swap agreements.
DIVERSIFICATION. With respect to 75% of its total assets, the Fund may
not: (i) purchase more than 10% of the outstanding voting securities of any one
issuer; or (ii) purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets would be invested in that issuer's securities. This
limitation does not apply to obligations of the United States Government, its
agencies, or instrumentalities.
ILLIQUID OR RESTRICTED SECURITIES. The Fund may not acquire any security
if, as a result, more than 15% of its net assets would be invested in securities
that are illiquid.
INDUSTRY CONCENTRATION. The Fund may not invest more than 25% of its total
assets in any one industry.
INVESTING FOR CONTROL. The Fund may not invest in a company for purposes
of controlling its management.
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INVESTMENT COMPANIES. The Fund may not invest in any other investment
company, except through a merger, consolidation or acquisition of assets, or to
the extent permitted by Section 12 of the 1940 Act. Investment companies whose
shares the Fund acquires pursuant to Section 12 must have investment objectives
and investment policies consistent with those of the Fund.
LOANS. The Fund may not lend money to any person except by purchasing
fixed income securities or by entering into repurchase agreements, by lending
its portfolio securities, or through Vanguard's interfund lending program.
MARGIN. The Fund may not purchase securities on margin or (with the
exception of Capital Opportunity Fund) sell securities short, except as
permitted by the Fund's investment policies relating to commodities.
PLEDGING ASSETS. The Fund may not pledge, mortgage or hypothecate more
than 15% of its net assets.
REAL ESTATE. The Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate and bonds secured
by real estate.
SENIOR SECURITIES. The Fund may not issue senior securities, except in
compliance with the 1940 Act, and provided that Capital Opportunity Fund may
sell securities short.
UNDERWRITING. The Fund may not engage in the business of underwriting
securities issued by other persons. The Fund will not be considered an
underwriter when disposing of its investment securities.
PUTS AND CALLS. The Fund may not purchase put options or call options
except as set forth in "Commodities" above and as provided in the prospectus.
None of these limitations prevents the Trust from participating in The
Vanguard Group ("Vanguard"). Because the Trust is a member of the Group, the
Fund may own securities issued by Vanguard, make loans to Vanguard, and
contribute to Vanguard's costs or other financial requirement. See "Management
of the Trust" for more information. Unless otherwise stated, each of the above
percentage limitations applies at the time of investment.
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MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Officers of the Trust manage its day-to-day operations and are
responsible to the Trust's Board of Trustees. The Trustees set broad policies
for the Funds and choose its Officers. The following is a list of the Trustees
and Officers of the Trust and a statement of their present positions and
principal occupations during the past five years. As a group, the Trust's
Trustees and Officers own less than 1% of the outstanding shares of each Fund of
the Trust. Each Trustee also serves as a Director of The Vanguard Group, Inc.,
and as a Trustee of each of the 36 investment companies administered by Vanguard
(35 in the case of Mr. Malkiel and 28 in the case of Mr. MacLaury). The mailing
address of the Trustees and Officers of the Trust is Post Office Box 876, Valley
Forge, PA 19482.
JOHN C. BOGLE, (DOB: 5/8/1929) Senior Chairman and Trustee*
Senior Chairman and Director of The Vanguard Group, Inc., and Trustee of each of
the investment companies in The Vanguard Group; Director of The Mead Corp.
(Paper Products), General Accident Insurance, and Chris-Craft Industries, Inc.
(Broadcasting & Plastics Manufacturer).
JOHN J. BRENNAN, (DOB: 7/29/1954) Chairman, Chief Executive Officer & Trustee*
Chairman, Chief Executive Officer and Director of The Vanguard Group, Inc., and
Trustee of each of the investment companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) Trustee
Vice President, Chief Information Officer, and member of the Executive Committee
of Johnson and Johnson (Pharmaceuticals/Consumer Products), Director of Johnson
& Johnson*MERCK Consumer Pharmaceuticals Co., Women First HealthCare, Inc.
(Research and Education Institution), Recording for the Blind and Dyslexic, The
Medical Center at Princeton, and Women's Research and Education Institute.
BRUCE K. MACLAURY, (DOB: 5/7/1931) Trustee
President Emeritus of The Brookings Institution (Independent Non-Partisan
Research Organization); Director of American Express Bank, Ltd., The St. Paul
Companies, Inc. (Insurance and Financial Services), and National Steel Corp.
BURTON G. MALKIEL, (DOB: 8/28/1932) Trustee
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co. (Investment Management), The Jeffrey Co. (Holding Company), and Southern New
England Telecommunications Co.
ALFRED M. RANKIN, JR., (DOB: 10/8/1941) Trustee
Chairman, President, Chief Executive Officer, and Director of NACCO Industries
(Machinery/Coal/Appliances); Director of The BFGoodrich Co. (Aircraft
Systems/Manufacturing/Chemicals), and The Standard Products Co. (Rubber Products
Company).
JOHN C. SAWHILL, (DOB: 6/12/1936) Trustee
President and Chief Executive Officer of The Nature Conservancy (Non-Profit
Conservation Group); Director of Pacific Gas and Electric Co., Procter & Gamble
Co., NACCO Industries (Machinery/Coal/Appliances), and Newfield Exploration Co.
(Energy); formerly, Director and Senior Partner of McKinsey & Co., and President
of New York University.
JAMES O. WELCH, JR., (DOB: 5/13/1931) Trustee
Retired Chairman of Nabisco Brands, Inc. (Food Products); retired Vice Chairman
and Director of RJR Nabisco (Food and Tobacco Products); Director of TECO
Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON, (DOB: 3/2/1936) Trustee
Chairman and Chief Executive Officer of Rohm & Haas Co. (Chemicals); Director of
Cummins Engine Co. (Diesel Engine Company), and The Mead Corp. (Paper Products);
and Trustee of Vanderbilt University.
RAYMOND J. KLAPINSKY, (DOB: 12/7/1938) Secretary*
Managing Director of The Vanguard Group, Inc.; Secretary of The Vanguard Group,
Inc. and of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS, (DOB: 5/21/1957) Treasurer*
Principal of The Vanguard Group, Inc.; Treasurer of each of the investment
companies in The Vanguard Group.
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ROBERT D. SNOWDEN, (DOB: 9/4/1961) Controller*
Principal of The Vanguard Group, Inc.; Controller of each of the investment
companies in The Vanguard Group.
- ---------------
*Officers of the Trust are "interested persons" as defined in the Investment
Company Act of 1940.
THE VANGUARD GROUP
The Trust is a member of The Vanguard Group of Investment Companies which
consists of more than 30 investment companies (the "Trusts"). Through their
jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Trust and
the other Trusts in The Vanguard Group obtain at-cost virtually all of their
corporate management, administrative and distribution services. Vanguard also
provides investment advisory services on an at-cost basis to several of the
Vanguard Trusts.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services, furnishings and equipment.
Each Trust pays its share of Vanguard's total expenses which are allocated among
the funds under methods approved by the Board of Trustees of each Trust. In
addition, each Trust bears its own direct expenses such as legal, auditing and
custodian fees. In order to generate additional revenues for Vanguard and
thereby reduce the Trusts' expenses, Vanguard also provides certain
administrative services to other organizations.
The Trust's Officers are also officers and employees of Vanguard. No
officer or employee owns, or is permitted to own, any securities of any external
adviser for the Trusts.
Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-l
under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines similar to, and in many
cases more restrictive than, those recommended by a blue ribbon panel of mutual
fund industry executives.
Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the Trusts.
The amounts which each of the Trusts have invested are adjusted from time to
time in order to maintain the proportionate relationship between each Fund's
relative net assets and its contribution to Vanguard's capital. At October 31,
1998, the Trust had contributed capital of $154,000 to Vanguard, representing
0.02% of each Fund's net assets and .22% of Vanguard's capitalization. The
Amended and Restated Funds' Service Agreement provides as follows: (a) each
Vanguard Trust may be called upon to invest up to .40% of its current assets in
Vanguard, and (b) there is no other limitation on the dollar amount each
Vanguard Fund may contribute to Vanguard's capitalization.
MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Vanguard Trusts by third parties.
DISTRIBUTION. Vanguard Marketing Corporation, a wholly-owned subsidiary of
The Vanguard Group, Inc. provides all distribution and marketing activities for
the Trusts in The Group. One half of the distribution expenses of a marketing
and promotional nature are allocated among the Vanguard Trusts based upon their
relative net assets. The remaining one half of these expenses is allocated among
the Vanguard Trusts based upon each Trust's sales for the preceding 24 months
relative to the total sales of the Trusts as a Group. Provided, however, that no
Trust's aggregate quarterly rate of contribution for distribution expenses of a
marketing and promotional nature shall exceed 125% of the average distribution
expense rate for The Vanguard Group, and that no Trust shall incur annual
distribution expenses in excess of .02 of 1% of its average month-end net
assets.
One-half of the distribution expenses of a marketing and promotional nature
is allocated among the Trusts based upon relative net assets. The remaining
one-half of those expenses is allocated among the Trusts based upon each Trust's
sales for the preceding 24 months relative to the total sales of the Trusts as a
Group,
B-11
<PAGE> 53
provided, however, that no Trust's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
average distribution expense rate for The Vanguard Group, and that no Trust
shall incur annual distribution expenses in excess of 20/100 of 1% of its
average month-end net assets.
During the fiscal years ended October 31, 1996, 1997, and 1998, the Funds
incurred the following approximate amounts of The Vanguard Group's management
(including transfer agency), distribution and marketing expenses.
<TABLE>
<CAPTION>
FUND 1996 1997 1998
- ---- -------- -------- ----------
<S> <C> <C> <C>
Aggressive Growth Fund...................................... $250,000 $863,000 $1,789,000
Capital Opportunity Fund.................................... 52,000 277,000 476,000
Global Equity Fund.......................................... 206,000 391,000 425,000
Global Asset Allocation Fund................................ 239,000 260,000 295,000
</TABLE>
INVESTMENT ADVISORY SERVICES. An experienced investment management staff
employed directly by Vanguard also provides investment advisory services to the
Trust. The compensation and other expenses of this staff are paid by the funds
and Trusts utilizing these services. During the fiscal years ended October 31,
1996, 1997, and 1998, the Aggressive Growth Fund incurred approximately $78,000,
$190,000, and $287,000, respectfully, of Vanguard's expenses relating to
investment advisory services.
TRUSTEE COMPENSATION
The individuals in the following table serve as Trustees of all Vanguard
Trusts, and each Trust pays a proportionate share of the Trustees' compensation.
The Trusts employ their officers on a shared basis, as well. However, officers
are compensated by The Vanguard Group, Inc., not the Trusts.
INDEPENDENT TRUSTEES. The Trusts compensate their independent Trustees -- that
is, the ones who are not also officers of the Trust -- in three ways:
- The independent Trustees receive an annual fee for their service to the
Trusts, which is subject to reduction based on absences from scheduled
Board meetings.
- The independent Trustees are reimbursed for the travel and other expenses
that they incur in attending Board meetings.
- Upon retirement, the independent Trustees receive an aggregate annual fee
of $1,000 for each year served on the Board, up to fifteen years of
service. This annual fee is paid for ten years following retirement, or
until each Trustee's death.
"INTERESTED" TRUSTEES. The Trusts' interested Trustees -- Messrs. Bogle and
Brennan -- receive no compensation for their service in that capacity. However,
they are paid in their role as officers of The Vanguard Group, Inc.
COMPENSATION TABLE. The following table provides compensation details for each
of the Trustees. For the Trust, we list the amounts paid as compensation and
accrued as retirement benefits by the Trust for each Trustee. In addition, the
table shows the total amount of benefits that we expect each Trustee to receive
from all Vanguard Trusts upon retirement, and the total amount of compensation
paid to each Trustee by all Vanguard Trusts. All information shown is for the
fiscal year ended October 31, 1998.
B-12
<PAGE> 54
VANGUARD HORIZON FUNDS
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED ESTIMATED TOTAL COMPENSATION
COMPENSATION AS PART OF ANNUAL BENEFITS FROM ALL VANGUARD TRUSTS
NAMES OF TRUSTEES FROM TRUST TRUST EXPENSES UPON RETIREMENT PAID TO TRUSTEES(1)
- ----------------- ---------------- --------------------- ---------------- ------------------------
<S> <C> <C> <C> <C>
John C. Bogle -- -- -- --
John J. Brennan -- -- -- --
Barbara Barnes
Hauptfuhrer(2) $239 $32 $15,000 $75,000
JoAnn Heffernan Heisen $ 80 $14 $15,000 $25,000
Robert E. Cawthorn(2) $140 $22 $ 6,000 $43,750
Bruce K. MacLaury $250 $24 $12,000 $70,000
Burton G. Malkiel $241 $23 $15,000 $75,000
Alfred M. Rankin, Jr. $239 $17 $15,000 $75,000
John C. Sawhill $239 $22 $15,000 $75,000
James O. Welch, Jr. $239 $25 $15,000 $75,000
J. Lawrence Wilson $239 $18 $15,000 $75,000
</TABLE>
- ---------------
(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 36 Vanguard Trusts (35 in
the case of Mr. Malkiel; 28 in the case of Mr. MacLaury).
(2) Mr. Cawthorn and Mrs. Hauptfuhrer have retired from the Trust's Board,
effective May 31, 1998 and December 31, 1998, respectively.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY AGREEMENT WITH MARATHON ASSET MANAGEMENT. The Global
Equity Fund is managed by Marathon Asset Management ("Marathon-London"), Orion
House, 5 Upper St. Martin's Lane, London under the terms of an advisory
agreement.
The investment philosophy of Marathon-London is that the best investment
returns for equity portfolios are primarily the result of careful, thoughtful
industry and company evaluation rather than "top down" country allocation
decisions. Marathon-London's portfolios therefore tend to exhibit country
weightings quite similar to broad market benchmarks, such as the unmanaged
Morgan Stanley Capital International (MSCI) All Country Index. Sector and stock
weightings will, however, differ markedly from such standards. The firm uses a
team approach with each of the firm's three partners having the primary
responsibility for a specific region, e.g. Europe.
The Global Equity Fund pays Marathon-London a basic fee at the end of each
fiscal quarter, calculated by applying a quarterly rate, based on the following
annual percentage rates, to the average month-end assets of the Fund for the
quarter:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
First $100 million.................................. 0.45%
Next $150 million................................... 0.40%
Next $250 million................................... 0.25%
</TABLE>
During the fiscal years ended October 31, 1996, 1997, and 1998, the Fund
paid advisory fees of $301,000 before a decrease of $36,000 based on
performance, $530,000 before a decrease of $172,000 based on performance, and
$569,000 before a decrease of $229,000 based on performance, respectively.
The basic advisory fee may be increased or decreased by applying an
adjustment formula based on the investment performance of the Fund relative to
that of the Morgan Stanley Capital International (MSCI) All Country Index over
the 36 months preceding the end of the quarter for which the fee is being
computed. The following table sets forth the incentive/penalty adjustment to the
basic advisory fee payable by the Fund to
B-13
<PAGE> 55
Marathon-London under the investment advisory agreement. The adjustments to the
fee change proportionately with performance relative to the Index.
<TABLE>
<CAPTION>
CUMULATIVE 36-MONTH NET PERFORMANCE PERFORMANCE FEE
VS. THE MSCI ALL COUNTRY WORLD INDEX ADJUSTMENT*
- ------------------------------------ ------------------
<S> <C>
Less than 3%..................................... -0.50 X Basic Fee
Between 3% and 6%................................ -0.25 X Basic Fee
Between 6% and 9%................................ 0 X Basic Fee
Between 9% and 12%............................... +0.25 X Basic Fee
More than 12%.................................... +0.50 X Basic Fee
</TABLE>
- ---------------
*For purposes of this calculation, the Basic Fee is determined using the Fund's
average assets over the same time period for which performance is measured.
RELATED INFORMATION CONCERNING MARATHON. Marathon Asset Management is
wholly owned by M.A.M. Investments Limited. Each of the following Directors owns
1/3 of M.A.M. Investments Ltd.: William J. Arah, Jeremy J. Hosking, and Neil M.
Ostrer. Marathon-London, a Limited Company, provides investment advisory
services to individuals, employee benefit plans, investment companies and other
institutions. As of December 31, 1998, Marathon managed more than $9.2 billion
in assets.
INVESTMENT ADVISORY AGREEMENT WITH PRIMECAP. PRIMECAP Management Company
("PRIMECAP") serves as investment adviser to the Capital Opportunity Fund under
an investment advisory agreement to manage the investment and reinvestment of
the assets of the Fund and to continuously review, supervise and administer the
Fund's investment program. PRIMECAP discharges its responsibilities subject to
the control of the officers and Trustees of the Trust.
The Fund pays PRIMECAP an advisory fee at the end of each fiscal quarter,
calculated by applying a quarterly rate, based on the following annual
percentage rates, to the Fund's average month-end net assets for the quarter.
<TABLE>
<CAPTION>
NET ASSETS RATE
- ---------- ----
<S> <C>
First $50 million........................................ .500%
Next $200 million........................................ .450%
Next $250 million........................................ .375%
Next $1,750 million...................................... .250%
Next $2,750 million...................................... .200%
Next $5,000 million...................................... .175%
Over $10,000 million..................................... .150%
</TABLE>
The agreement will be renewable for successive one-year periods, only if
each renewal is specifically approved by a vote of the Fund's Board of Trustees,
including the affirmative votes of a majority of the Trustees who are not
parties to the contract or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of
considering such approval. The agreement is automatically terminated if
assigned, and may be terminated without penalty at any time (1) either by vote
of the Board of Trustees of the Trust on 60 days' written notice to the Adviser,
or (2) by the Adviser upon 90 days' written notice to the Trust.
PRIMECAP is a California corporation whose outstanding shares are owned by
its directors and officers. The directors of the corporation and the offices
they currently hold are: Howard Bernard Schow, Chairman; Mitchell John Milias,
Vice Chairman; and Theofanis Anastasios Kolokotrones, President and Secretary.
As of December 31, 1998, PRIMECAP managed more than $15.1 billion in assets.
During the fiscal years ended October 31, 1996 and 1997, the Fund paid
Husic (the Fund's previous adviser) advisory fees of $395,000, and $371,000
before a decrease of $223,000 based on performance, respectively. During the
fiscal year ended October 31, 1998, the Fund paid no advisory fees, due to
performance adjustments.
B-14
<PAGE> 56
INVESTMENT ADVISORY AGREEMENT WITH STRATEGIC INVESTMENT
MANAGEMENT. Strategic Investment Management ("SIM") serves as investment
adviser to the Global Asset Allocation Fund under an Investment Advisory
Agreement. For the services provided by SIM under the agreement, the Fund will
pay SIM an advisory fee at the end of each fiscal quarter, by applying a
quarterly rate based on the following annual percentage rates, to the average
month-end assets of the Fund for the quarter:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
First $250 million.................................. 0.40%
Next $250 million................................... 0.35%
Next $500 million................................... 0.25%
Over $1 billion..................................... 0.20%
</TABLE>
During the fiscal years ended October 31, 1996, 1997 and 1998, the Fund
paid advisory fees of $256,000 before a decrease of $46,000 based on
performance, $322,000 before a decrease of $201,000 based on performance, and
$336,000 before a decrease of $220,000 based on performance, respectively.
The quarterly payment to SIM may be increased or decreased by applying an
adjustment formula based on the investment performance of the Global Asset
Allocation Fund relative to that of the theoretical Global Balanced Index over
the 36 months preceding the end of the quarter for which the fee is being
computed.
The monthly return of the Global Balanced Index will be calculated as 60%
of the Global Stock Index monthly return plus 30% of the Global Bond Index
monthly return, plus 10% of the U.S. Cash Index monthly return. The Global Stock
Index return is an adjusted capitalization weighted average of the established
local stock market index returns in each country, adjusted to include the impact
of hedging one half of the non-U.S. currency exposure. The Global Bond Index
return is a capitalization weighted average (using Salomon Brothers published
weights) of the currency-hedged country government bond index returns. The U.S.
Index return is the bond equivalent yield of the Federal Reserve's published
average offering rate on 30-day commercial paper. The countries included in this
index will be the U.S., Canada, the United Kingdom, France, Germany, Spain,
Japan, Australia and Hong Kong (there will be no bond investments in Hong Kong).
The Global Balanced Index will be reviewed semi-annually and with approval of
the Trust's Officers may be changed to reflect additions or deletions of
countries from the adviser's mandate going forward.
The following table sets forth the incentive/penalty adjustment to the
basic advisory fee payable by the Fund to Strategic Investment Management.
<TABLE>
<CAPTION>
CUMULATIVE 36-MONTH PERFORMANCE PERFORMANCE FEE
VS. THE GLOBAL BALANCED INDEX ADJUSTMENT
- ------------------------------- -----------------
<S> <C>
Less than -0.75%................................. -0.75 X Base Fee
Between -0.75% to +2.25%......................... -0.50 X Base Fee
Between +2.25% and +5.25%........................ -0.25 X Base Fee
Between +5.25% and +8.25%........................ 0 X Base Fee
Between +8.25% and +11.25%....................... +0.25 X Base Fee
Between +11.25% and +14.25%...................... +0.50 X Base Fee
Over +14.25%..................................... +0.75 X Base Fee
</TABLE>
- ---------------
*For purposes of this calculation, the Base Fee is determined using the Fund's
average assets over the same time period for which performance is measured.
RELATED INFORMATION CONCERNING SIM. SIM, 1001 19th Street North, 16th
Floor, Arlington, VA 22209, provides asset management services to companies,
institutions, trusts and individuals. SIM is a partnership organized under the
laws of Virginia, and is owned by the following individuals: Hilda Margarita
Ochoa-Brillembourg, President and Director; Antoine W. van Agtmael, Vice
President and Director; Michael Anthony Duffy, Secretary, Treasurer, and
Director; George M. Alvarez-Correa, Managing Director; Mary Claire Choksi,
Managing Director; and Carol Ann Grefenstette, Managing Director. As of December
31, 1998, SIM (and its affiliated companies) provided asset management services
for over $4.9 billion in assets.
B-15
<PAGE> 57
The agreement with each adviser is renewable for successive one-year
periods, only if each renewal is specifically approved by a vote of the Fund's
Board of Trustees, including the affirmative votes of a majority of the Trustees
who are not parties to the agreement or "interested persons" (as defined in the
Investment Company Act of 1940) of any such party cast in person at a meeting
called for the purpose of considering such approval. The agreement is
automatically terminated if assigned, and may be terminated by the Fund without
penalty, at any time, (1) either by vote of the Board of Trustees on sixty (60)
days' written notice to adviser, or (2) by adviser upon ninety (90) days'
written notice to the Trust.
PORTFOLIO TRANSACTIONS
The investment advisory agreements with Marathon-London, PRIMECAP, and SIM
authorize each investment adviser (with the approval of the Trust's Board of
Trustees) to select the brokers or dealers that will execute the purchases and
sales of securities for the Fund of the Trust that it manages and directs each
investment adviser to use its best efforts to obtain the best available price
and most favorable execution with respect to all transactions for the Fund. Each
investment adviser has undertaken to execute each investment transaction at a
price and commission which provides the most favorable total cost or proceeds
reasonably obtainable under the circumstances.
In placing portfolio transactions, each of the Fund's investment advisers
will use its best judgment to choose the broker most capable of providing the
brokerage services necessary to obtain best available price and most favorable
execution. The full range and quality of brokerage services available will be
considered in making these determinations. In those instances where it is
reasonably determined that more than one broker can offer the brokerage services
needed to obtain the best available price and most favorable execution,
consideration may be given to those brokers which supply investment research and
statistical information, and provide other services in addition to execution
services to the Fund and/or the investment adviser. Each investment adviser
considers the investment services it receives useful in the performance of its
obligations under the agreement but is unable to determine the amount by which
such services may reduce its expenses.
The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Trust's Board of Trustees, each investment adviser may cause a
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the investment adviser to the Fund and the other Trusts in
the Group.
Currently, it is each Fund's policy that its investment adviser may at
times pay higher commissions in recognition of brokerage services felt necessary
for the achievement of better execution of certain securities transactions that
otherwise might not be available. An investment adviser will only pay such
higher commissions if it believes this to be in the best interest of the Fund.
Some brokers or dealers who may receive such higher commissions in recognition
of brokerage services related to execution of securities transactions are also
providers of research information to the investment adviser and/or the Trust.
However, the investment advisers have informed the Funds that they generally
will not pay higher commission rates specifically for the purpose of obtaining
research services.
During the fiscal years ended October 31, 1996, 1997, and 1998, the Funds
paid the following amounts in brokerage commissions.
<TABLE>
<CAPTION>
FUND 1996 1997 1998
- ---- -------- -------- --------
<S> <C> <C> <C>
Aggressive Growth Fund....................... $187,873 $435,065 $680,562
Capital Opportunity Fund..................... 145,906 207,745 194,411
Global Equity Fund........................... 206,216 175,989 923
Global Asset Allocation Fund................. 178,947 160,070 27,359
</TABLE>
Some securities considered for investment by one Fund may also be
appropriate for the other funds and the other Trusts and/or clients served by
the investment advisers. If purchase or sale of securities consistent
B-16
<PAGE> 58
with the investment policies of a Fund, the other funds and/or one or more of
these other Trusts or clients are considered at or about the same time,
transactions in such securities will be allocated among the Funds and the
several Trusts and clients in a manner deemed equitable by the respective
investment adviser. Although there will be no specified formula for allocating
such transactions, the allocation methods used, and the results of such
allocations, will be subject to periodic review by the Trust's Board of
Trustees.
YIELD AND TOTAL RETURN
The yield of each Fund for the 30-day period ended October 31, 1998 is set
forth below. Yields are calculated daily for each Fund.
<TABLE>
<S> <C>
Vanguard Aggressive Growth Fund............................. 1.23%
Vanguard Capital Opportunity Fund........................... 0.30%
Vanguard Global Asset Allocation Fund....................... N/A
Vanguard Global Equity Fund................................. N/A
</TABLE>
The average annual total return of each Fund for the one year period ended
October 31, 1998 and since inception are set forth below:
<TABLE>
<CAPTION>
1 YEAR
ENDED SINCE
10/31/1998 INCEPTION*
---------- ----------
<S> <C> <C>
Vanguard Aggressive Growth Fund........................... -10.41% 14.08%
Vanguard Capital Opportunity Fund......................... 9.95% 4.53%
Vanguard Global Asset Allocation Fund..................... 11.56% 11.23%
Vanguard Global Equity Fund............................... 0.04% 9.03%
</TABLE>
- ---------------
* Performance measurement begins with commencement of investment operations on
August 14, 1995.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is the average annual compounded rate of return
for the periods of one year, five years, ten years or the life of the Fund, all
ended on the last day of a recent month. Average annual total return quotations
will reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by finding
the average annual compounded rates of return of a hypothetical investment over
such periods according to the following formula (average annual total return is
then expressed as a percentage):
T = (ERV/P)(1/)n-1
<TABLE>
<S> <C> <C>
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
</TABLE>
CUMULATIVE TOTAL RETURN
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the cumulative
rates of a return of a hypothetical investment
B-17
<PAGE> 59
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P)-1
<TABLE>
<S> <C> <C>
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made
at the beginning of the applicable period.
</TABLE>
SEC YIELDS
Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[((a-b)/cd+1)(6)-1]
<TABLE>
<S> <C> <C>
Where
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
</TABLE>
SHARE PRICE
Each Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of each Fund, less all liabilities, by the total
number of shares outstanding. The net asset value is determined as of the close
of the New York Stock Exchange (the "Exchange") generally 4:00 p.m. Eastern time
on each day that the exchange is open for trading.
Portfolio securities for which market quotations are readily available
(includes those securities listed on national securities exchanges, as well as
those quoted on the NASDAQ Stock Market) will be valued at the last quoted sales
price on the day the valuation is made. Such securities which are not traded on
the valuation date are valued at the mean of the bid and ask prices. Price
information on exchange-listed securities is taken from the exchange where the
security is primarily traded. Securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities.
Short term instruments (those acquired with remaining maturities of 60 days
or less) may be valued at cost, plus or minus any amortized discount or premium,
which approximates market value.
Bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service may be determined without regard to bid or last sale prices of each
security, but take into account institutional-size transactions in similar
groups of securities as well as any developments related to specific securities.
Foreign securities are valued at the last quoted sales price, according to
the broadest and most representative market, available at the time each Fund is
valued. If events which materially affect the value of each Fund's investments
occur after the close of the securities markets on which such securities are
primarily traded, those investments may be valued by such methods as the Board
of Trustees deems in good faith to reflect fair value.
In determining each Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars using the officially quoted daily exchange rates used by
B-18
<PAGE> 60
Morgan Stanley Capital International in calculating various benchmarking
indices. This officially quoted exchange rate may be determined prior to or
after the close of a particular securities market. If such quotations are not
available, the rate of exchange will be determined in accordance with policies
established in good faith by the Board of Trustees.
Other assets and securities for which no quotations are readily available
or which are restricted as to sale (or resale) are valued by such methods as the
Board of Trustees deems in good faith to reflect fair value.
The share price for each Fund can be found in the mutual fund listings of
most major newspapers under the heading of Vanguard Funds.
PURCHASE OF SHARES
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Trust or any Fund, and
(iii) to reduce or waive the minimum investment for or any other restrictions on
initial and subsequent investments as well as redemption fees for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Fund's shares.
TRADING SHARES THROUGH CHARLES SCHWAB
You may purchase or redeem shares of Vanguard funds through Charles Schwab
& Co., Inc. ("Schwab"). The Vanguard funds have authorized Schwab to accept
purchase and redemption orders on the funds' behalf. If you place your order
through Schwab and it is accepted by an authorized Schwab broker or a broker's
designee prior to 3:00 p.m., Eastern time, your order will be priced at the
Fund's net asset value when next computed that day. Any order received after
that time will be priced at the Fund's net asset value as determined on the
following business day.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"), (ii) during any period when an emergency exists
as defined by the rules of the Commission as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
As described in their prospectus, the Funds assess fees on shares redeemed
under certain circumstances. Currently, redemption fees do not apply to shares
held through Vanguard's separate recordkeeping system for employee benefit plan
accounts, due to certain economies associated with these accounts. However, the
Funds reserve the right to impose redemption fees at any time on shares held in
these accounts, if warranted by the costs of processing redemptions.
COMPARATIVE INDEXES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member trusts of The Vanguard Group of Investment Companies.
Each of the investment company members of The Vanguard Group, including
Vanguard Horizon Funds, may, from time to time, use one or more of the following
unmanaged indices for comparative performance purposes.
STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- includes stocks selected
by Standard & Poor's Index Committee to include leading companies in leading
industries and to reflect the U.S. stock market.
STANDARD & POOR'S MIDCAP 400 INDEX -- is composed of 400 medium sized domestic
stocks.
B-19
<PAGE> 61
STANDARD & POOR'S MIDCAP 400/BARRA GROWTH INDEX -- contains stocks of the S&P
MidCap 400 Index which have a higher than average price-to-book ratio.
STANDARD & POOR'S SMALL CAP 600/BARRA VALUE INDEX -- contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.
STANDARD & POOR'S SMALL CAP 600/BARRA GROWTH INDEX -- contains stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.
RUSSELL 1000 VALUE INDEX -- consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios, comprising 50% of the
market capitalization of the Russell 1000.
WILSHIRE 5000 EQUITY INDEXES -- consists of approximately 7,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia, Asia and the Far East.
MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY INDEX -- is an arithmetic,
market value-weighted average of the performance of over 2,427 securities listed
on the stock exchanges of countries included in the EAFE Index, United States,
Canada, and Emerging Markets.
GLOBAL BALANCED INDEX -- a fixed weighted index of global stocks, bonds and U.S.
cash reserves, the component parts of which are derived from the adjusted
capitalization weighted averages of individual currency adjusted local country
indices.
MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX -- an arithmetic, market value
weighted average of the performance of over 1,460 securities listed on the stock
exchanges of 23 countries.
SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX -- a market capitalization weighted
index consisting of government bond markets of 14 countries.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
LEHMAN LONG-TERM TREASURY BOND INDEX -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND INDEX -- consists of over 4,500 U.S.
Treasury, agency and investment grade corporate bonds.
LEHMAN CORPORATE (BAA) BOND INDEX -- all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX -- is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.
B-20
<PAGE> 62
BOND BUYER MUNICIPAL BOND INDEX -- is a yield index on current coupon high-grade
general obligation municipal bonds.
STANDARD & POOR'S PREFERRED INDEX -- is a yield index based upon the average
yield for four high-grade, non-callable preferred stock issues.
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
COMPOSITE INDEX -- 65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's/BARRA Value
Index, 12.5% Standard & Poor's Utilities Index and 12.5% Standard & Poor's
Telephone Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX -- consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.
RUSSELL 2000 SMALL COMPANY STOCK INDEX -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely-used benchmark for small capitalization common
stocks.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB- or better. The Index has a market value of over
$4 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.6 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX -- is
a market weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $700 billion.
LEHMAN BROTHERS LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a market weighted
index that contains individually priced U.S. Treasury, agency, and corporate
securities rated BBB- or better with maturities greater than 10 years. The index
has a market value of over $900 billion.
LIPPER BALANCED FUND AVERAGE -- an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.
LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.
LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- an industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.
LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a trust that by prospectus or fund
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Trusts that constituted the Group at its inception.)
LIPPER GENERAL EQUITY FUND AVERAGE -- an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
B-21
<PAGE> 63
LIPPER FIXED INCOME FUND AVERAGE -- an industry benchmark of average fixed
income funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.
RUSSELL 3000 INDEX -- consists of approximately the 3,000 largest stocks of U.S.
domiciled companies commonly traded on the New York and American Stock Exchanges
or the NASDAQ over-the-counter market, accounting for over 90% of the market
value of publicly traded stocks in the U.S.
RUSSELL 2800 INDEX -- consists of the Russell 3000 Index (the 3,000 largest U.S.
stocks), minus the 200 largest stocks.
RUSSELL 2000(R) VALUE INDEX -- composed of the 2,000 smallest securities in the
Russell 3000 Index, representing approximately 7% of the Russell 3000 total
market capitalization.
RUSSELL MIDCAP(TM) INDEX -- composed of all medium and medium/small companies in
the Russell 1000 Index.
Advertisements which refer to the use of the trust as a potential
investment for Individual Retirement Accounts may quote a total return based
upon compounding of dividends on which it is presumed no Federal income tax
applies.
In assessing such comparisons of yields, an investor should keep in mind
that the composition of the investments in the reported averages is not
identical to the Fund's portfolio and that the items included in the
calculations of such averages may not be identical to the formula used by the
Fund to calculate its yield. In addition there can be no assurance that the Fund
will continue its performance as compared to such other averages.
B-22
<PAGE> 64
FINANCIAL STATEMENTS
The Trust's Financial Statements for the year ended October 31, 1998,
including the financial highlights for the periods through October 31, 1998,
appearing in the Horizon Funds' 1998 Annual Report to Shareholders, and the
report thereon by PricewaterhouseCoopers LLP, independent accountants, also
appearing therein, are incorporated by reference in this Statement of Additional
Information. For a more complete discussion of the performance, please see the
Trust's Annual Report to Shareholders, which may be obtained without charge.
B-23
<PAGE> 65
PART C
VANGUARD HORIZON FUNDS
OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<C> <S>
(a) Declaration of Trust*
(b) By-Laws*
(c) Reference is made to Articles III and V of the Registrant's
Declaration of Trust
(d) Investment Advisory Contracts*
(e) Not Applicable
(f) Reference is made to the section entitled "Management of the
Trust" in the Registrant's Statement of Additional
Information
(g) Custodian Agreement*
(h) Amended and Restated Funds' Service Agreement*
(i) Legal Opinion*
(j) Consent of Independent Accountants+
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Financial Data Schedules+
(o) Not Applicable
</TABLE>
- ---------------
* Filed Previously
+ Filed Herewith
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any person.
ITEM 25. INDEMNIFICATION
The Registrant's organizational documents contain provisions indemnifying
Trustees and Officers against liability incurred in their official capacity.
Article VII, Section 2 of the Declaration of Trust provides that the Registrant
may indemnify and hold harmless each and every Trustee and Officer from and
against any and all claims, demands, costs, losses, expenses, and damages
whatsoever arising out of or related to the performance of his or her duties as
a Trustee or Officer. However, this provision does not cover any liability to
which a Trustee or Officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Article VI of the By-Laws
generally provides that the Registrant shall indemnify its Trustees and Officers
from any liability arising out of their past or present service in that
capacity. Among other things, this provision excludes any liability arising by
reason of willful misfeasance, bad faith, gross negligence, or the reckless
disregard of the duties involved in the conduct of the Trustee's or Officer's
office with the Registrant.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Investment advisory services are provided to one of the portfolios of the
Registrant on an at cost basis by The Vanguard Group, Inc., a jointly-owned
subsidiary of the Registrant and the other Funds in the Group. See the
information concerning The Vanguard Group set forth in Parts A and B.
PRIMECAP Management Company ("PRIMECAP"), is an investment adviser
registered under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"). The list required by this item 26 of officers and directors of PRIMECAP,
together with any information as to any business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated
C-1
<PAGE> 66
herein by reference from Schedules B and D of Form ADV filed by PRIMECAP
pursuant to the Advisers Act (SEC File No. 801-19765).
Strategic Investment Management (SIM), is an investment adviser registered
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
list required by this item 26 of officers and directors of Strategic Investment
Management, together with any information as to any business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated herein by reference from
Schedules B and D of Form ADV filed by Strategic Investment Management pursuant
to the Advisers Act (SEC File No. 801-31849).
Marathon Asset Management Limited (Marathon-London), is an investment
adviser registered under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). The list required by this item 26 of officers and directors of
Marathon Asset Management Limited, together with any information as to any
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated herein
by reference from Schedules B and D of Form ADV filed by Marathon Asset
Management Limited pursuant to the Advisers Act (SEC File No. 801-36717).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act of 1940 and the rules promulgated thereunder will be
maintained in the physical possession of Registrant; Registrant's Transfer
Agent, The Vanguard Group, Inc., Valley Forge, Pennsylvania 19482; and the
Registrant's Custodians, State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, and Chase Manhattan Bank, N.A., 4 Chase
MetroTech Center, Brooklyn, New York 11245.
ITEM 29. MANAGEMENT SERVICES
Other than as set forth under the description of The Vanguard Group in Part
B of this Registration Statement, Registrant is not a party to any
management-related service contract.
ITEM 30. UNDERTAKINGS
Not Applicable
C-2
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Valley Forge and the
Commonwealth of Pennsylvania, on the 22nd day of February, 1999.
VANGUARD HORIZON FUNDS
BY: (SIGNATURE)
---------------------------------------
(Heidi Stam)
John J. Brennan*,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
BY: (SIGNATURE) Senior Chairman of the Board February 22, 1999
- ----------------------------------------------------- and Trustee
(Heidi Stam)
John C. Bogle*
BY: (SIGNATURE) Chairman, Chief Executive February 22, 1999
- ----------------------------------------------------- Officer and Trustee
(Heidi Stam)
John J. Brennan*
BY: (SIGNATURE) Trustee February 22, 1999
- -----------------------------------------------------
(Heidi Stam)
JoAnn Heffernan Heisen*
BY: (SIGNATURE) Trustee February 22, 1999
- -----------------------------------------------------
(Heidi Stam)
Burton G. Malkiel*
BY: (SIGNATURE) Trustee February 22, 1999
- -----------------------------------------------------
(Heidi Stam)
Bruce K. MacLaury*
BY: (SIGNATURE) Trustee February 22, 1999
- -----------------------------------------------------
(Heidi Stam)
Alfred M. Rankin, Jr.*
BY: (SIGNATURE) Trustee February 22, 1999
- -----------------------------------------------------
(Heidi Stam)
John C. Sawhill*
BY: (SIGNATURE) Trustee February 22, 1999
- -----------------------------------------------------
(Heidi Stam)
James O. Welch, Jr.*
BY: (SIGNATURE) Trustee February 22, 1999
- -----------------------------------------------------
(Heidi Stam)
J. Lawrence Wilson*
BY: (SIGNATURE) Treasurer and Principal February 22, 1999
- ----------------------------------------------------- Financial Officer and
(Heidi Stam) Accounting Officer
Thomas J. Higgins*
</TABLE>
* By Power of Attorney. See File Number 33-4424, filed on January 25, 1999.
Incorporated by Reference.
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<S> <C>
Consent of Independent Accountants.......................... EX-99.BJ
Financial Data Schedules.................................... EX-99.BN
</TABLE>
<PAGE> 1
EXHIBIT 99.BJ
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 7 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated November 30, 1998, relating to the financial
statements and financial highlights appearing in the October 31, 1998 Annual
Report to Shareholders of Vanguard Horizon Funds, which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
headings "Financial Statements" and "Service Providers -- Independent
Accountants" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Philadelphia, PA
February 18, 1999
<PAGE> 1
[ARTICLE] 6
[RESTATED]
[CIK] 0000932471
[NAME] VANGUARD HORIZON FUNDS
[SERIES]
[NUMBER] 01
[NAME] AGGRESSIVE GROWTH FUND
[MULTIPLIER] 1000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 516677
[INVESTMENTS-AT-VALUE] 501705
[RECEIVABLES] 1066
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 91
[TOTAL-ASSETS] 502862
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 24221
[TOTAL-LIABILITIES] 24221
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 493001
[SHARES-COMMON-STOCK] 36523
[SHARES-COMMON-PRIOR] 27909
[ACCUMULATED-NII-CURRENT] 3639
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (3869)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (14130)
[NET-ASSETS] 478641
[DIVIDEND-INCOME] 5923
[INTEREST-INCOME] 461
[OTHER-INCOME] 534
[EXPENSES-NET] 2205
[NET-INVESTMENT-INCOME] 4713
[REALIZED-GAINS-CURRENT] (3726)
[APPREC-INCREASE-CURRENT] (62522)
[NET-CHANGE-FROM-OPS] (61535)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 4172
[DISTRIBUTIONS-OF-GAINS] 32183
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 15845
[NUMBER-OF-SHARES-REDEEMED] 9674
[SHARES-REINVESTED] 2443
[NET-CHANGE-IN-ASSETS] 35094
[ACCUMULATED-NII-PRIOR] 3098
[ACCUMULATED-GAINS-PRIOR] 32040
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 287
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2205
[AVERAGE-NET-ASSETS] 508256
[PER-SHARE-NAV-BEGIN] 15.89
[PER-SHARE-NII] 0.13
[PER-SHARE-GAIN-APPREC] (1.69)
[PER-SHARE-DIVIDEND] 0.14
[PER-SHARE-DISTRIBUTIONS] 1.08
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.11
[EXPENSE-RATIO] 0.43
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[RESTATED]
[CIK] 0000932471
[NAME] VANGUARD HORIZON FUNDS
[SERIES]
[NUMBER] 02
[NAME] CAPITAL OPPORTUNITY FUND
[MULTIPLIER] 1000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 159974
[INVESTMENTS-AT-VALUE] 160269
[RECEIVABLES] 684
[ASSETS-OTHER] 28
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 160981
[PAYABLE-FOR-SECURITIES] 530
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 4334
[TOTAL-LIABILITIES] 4864
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 142734
[SHARES-COMMON-STOCK] 13607
[SHARES-COMMON-PRIOR] 6599
[ACCUMULATED-NII-CURRENT] 117
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 12971
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 295
[NET-ASSETS] 156117
[DIVIDEND-INCOME] 366
[INTEREST-INCOME] 673
[OTHER-INCOME] 58
[EXPENSES-NET] 919
[NET-INVESTMENT-INCOME] 178
[REALIZED-GAINS-CURRENT] 13640
[APPREC-INCREASE-CURRENT] (7135)
[NET-CHANGE-FROM-OPS] 6683
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 279
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 9941
[NUMBER-OF-SHARES-REDEEMED] 2959
[SHARES-REINVESTED] 27
[NET-CHANGE-IN-ASSETS] 86983
[ACCUMULATED-NII-PRIOR] 218
[ACCUMULATED-GAINS-PRIOR] (669)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 405
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 919
[AVERAGE-NET-ASSETS] 97990
[PER-SHARE-NAV-BEGIN] 10.48
[PER-SHARE-NII] 0.021
[PER-SHARE-GAIN-APPREC] 1.014
[PER-SHARE-DIVIDEND] 0.045
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.47
[EXPENSE-RATIO] 0.94
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[RESTATED]
[CIK] 0000932471
[NAME] VANGUARD HORIZON FUNDS
[SERIES]
[NUMBER] 03
[NAME] GLOBAL ASSET ALLOCATION FUND
[MULTIPLIER] 1000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 83324
[INVESTMENTS-AT-VALUE] 83607
[RECEIVABLES] 2649
[ASSETS-OTHER] 14
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 86270
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 482
[TOTAL-LIABILITIES] 482
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 77969
[SHARES-COMMON-STOCK] 7597
[SHARES-COMMON-PRIOR] 7118
[ACCUMULATED-NII-CURRENT] 3808
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 3002
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1009
[NET-ASSETS] 85788
[DIVIDEND-INCOME] 78
[INTEREST-INCOME] 4660
[OTHER-INCOME] 18
[EXPENSES-NET] 456
[NET-INVESTMENT-INCOME] 4300
[REALIZED-GAINS-CURRENT] 3232
[APPREC-INCREASE-CURRENT] 1498
[NET-CHANGE-FROM-OPS] 9030
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 5283
[DISTRIBUTIONS-OF-GAINS] 3803
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1206
[NUMBER-OF-SHARES-REDEEMED] 1470
[SHARES-REINVESTED] 743
[NET-CHANGE-IN-ASSETS] 4704
[ACCUMULATED-NII-PRIOR] 4144
[ACCUMULATED-GAINS-PRIOR] 4220
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 116
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 456
[AVERAGE-NET-ASSETS] 83905
[PER-SHARE-NAV-BEGIN] 11.39
[PER-SHARE-NII] 0.58
[PER-SHARE-GAIN-APPREC] 0.61
[PER-SHARE-DIVIDEND] 0.75
[PER-SHARE-DISTRIBUTIONS] 0.54
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.29
[EXPENSE-RATIO] 0.54
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[RESTATED]
[CIK] 0000932471
[NAME] VANGUARD HORIZON FUNDS
[SERIES]
[NUMBER] 04
[NAME] GLOBAL EQUITY FUND
[MULTIPLIER] 1000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 126289
[INVESTMENTS-AT-VALUE] 127978
[RECEIVABLES] 731
[ASSETS-OTHER] 21
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 128730
[PAYABLE-FOR-SECURITIES] 596
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7199
[TOTAL-LIABILITIES] 7795
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 110258
[SHARES-COMMON-STOCK] 9986
[SHARES-COMMON-PRIOR] 10039
[ACCUMULATED-NII-CURRENT] 1528
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 7694
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1455
[NET-ASSETS] 120935
[DIVIDEND-INCOME] 2396
[INTEREST-INCOME] 297
[OTHER-INCOME] 89
[EXPENSES-NET] 881
[NET-INVESTMENT-INCOME] 1901
[REALIZED-GAINS-CURRENT] 8081
[APPREC-INCREASE-CURRENT] (10411)
[NET-CHANGE-FROM-OPS] (429)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2315
[DISTRIBUTIONS-OF-GAINS] 4429
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1137
[NUMBER-OF-SHARES-REDEEMED] 1681
[SHARES-REINVESTED] 491
[NET-CHANGE-IN-ASSETS] (7505)
[ACCUMULATED-NII-PRIOR] 1561
[ACCUMULATED-GAINS-PRIOR] 4423
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 340
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 881
[AVERAGE-NET-ASSETS] 129676
[PER-SHARE-NAV-BEGIN] 12.79
[PER-SHARE-NII] 0.19
[PER-SHARE-GAIN-APPREC] (0.20)
[PER-SHARE-DIVIDEND] 0.23
[PER-SHARE-DISTRIBUTIONS] 0.44
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.11
[EXPENSE-RATIO] 0.68
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
