VANGUARD HORIZON FUND INC, 497, 2000-08-01

VANGUARD HORIZON FUND INC
497, 2000-08-01

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 33-56443) UNDER THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 9
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 18

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 THIS AMENDMENT BECOME EFFECTIVE:
ON AUGUST 1, 2000, PURSUANT TO PARAGRAPH (B) OF RULE 485.

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

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The Vanguard Capital Opportunity, Global Asset Allocation, and Global Equity
Funds' prospectuses from the prior filing are incorporated by reference.

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VANGUARD(R)
STRATEGIC
EQUITY FUND

Prospectus
August 1, 2000

This prospectus contains
financial data for the Fund
through the period ended
April 30, 2000.

[A MEMBER OF
THE VANGUARD GROUP LOGO]

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VANGUARD STRATEGIC EQUITY FUND
Prospectus
August 1, 2000

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CONTENTS
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1 FUND PROFILE 13 INVESTING WITH VANGUARD
3 ADDITIONAL INFORMATION 13 SERVICES AND ACCOUNT FEATURES
3 MORE ON THE FUND 14 TYPES OF ACCOUNTS
8 THE FUND AND VANGUARD 15 BUYING SHARES
8 INVESTMENT ADVISER 17 REDEEMING SHARES
9 DIVIDENDS, CAPITAL GAINS, AND TAXES 21 TRANSFERRING REGISTRATION
10 SHARE PRICE 21 FUND AND ACCOUNT UPDATES
11 FINANCIAL HIGHLIGHTS GLOSSARY (inside back cover)
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WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of Vanguard
Strategic Equity Fund. 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 whether the Fund is the right investment
for you. We suggest that you keep it for future reference.
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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.

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FUND PROFILE

The following profile summarizes key features of Vanguard Strategic Equity Fund.
(Prior to August 1, 2000, this Fund was known as Vanguard Aggressive Growth
Fund.)

INVESTMENT OBJECTIVE
The Fund 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,
mid, large), and growth versus value. The models then apply fundamental
criteria--such as valuation measures, financial strength relative to other
stocks, and 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.

PRIMARY RISKS
An investment in the Fund could lose money over short or even long periods. You
should expect the Fund's share price and total return to fluctuate within a wide
range, like the overall stock market. The Fund's performance could be hurt by:
- Investment style risk, which is the chance that returns from small- and
mid-capitalization stocks--which comprise most of the Fund's holdings--will
trail returns from the overall stock market. Historically, these stocks
have been more volatile in price than large-cap stocks that dominate the
overall stock market, and they often perform quite differently.
- 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 following bar chart is intended to help you understand the risk of investing
in the Fund. It shows how the Fund's performance has varied from one calendar
year to another since inception. In addition, there is a table that shows how
the Fund's average annual total returns compare with those of a relevant market
index over set periods of time. Keep in mind that the Fund's past performance
does not indicate how it will perform in the future.

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ANNUAL TOTAL RETURNS
----------------------------------------------------
1996 25.03%
1997 26.22%
1998 0.61%
1999 19.25%
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The Fund's year-to-date return as of the most recent
calendar quarter ended June 30, 2000, was 2.21%.

----------------------------------------------------

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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).

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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
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1 YEAR SINCE INCEPTION*
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Vanguard Strategic
Equity Fund 19.25% 17.68%
Russell 2800 Index** 18.98 17.72
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*August 14, 1995.
**Consists of the Russell 3000 Equity Index of stocks minus its 200
largest companies.
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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 on those incurred in the fiscal year ended October 31, 1999.

SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fee: 1%*

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.42%
12b-1 Distribution Fee: None
Other Expenses: 0.04%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.46%

*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 your shares
at the end of the given period.

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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$152 $262 $258 $579
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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):

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$47 $148 $258 $579
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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.

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PLAIN TALK ABOUT
FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Strategic Equity Fund's expense ratio in fiscal year 1999 was
0.46%, or $4.60 per $1,000 of average net assets. The average mid-cap core
mutual fund had expenses of 1.43%, or $14.30 per $1,000 of average net assets
(derived from data provided as of December 31, 1999 by Lipper Inc., which
reports on the mutual fund industry). Management expenses, which comprise one
part of operating expenses, include investment advisory fees as well as other
costs of managing a fund--such as account maintenance, reporting, accounting,
legal, and other administrative expenses.

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ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Distributed annually in December $3,000; $1,000 for IRAs and custodial
accounts for minors
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, NEWSPAPER ABBREVIATION
Pa., since inception StratgcEq

INCEPTION DATE VANGUARD FUND NUMBER
August 14, 1995 114

NET ASSETS AS OF APRIL 30, 2000 CUSIP NUMBER
$685 million 922038104

SUITABLE FOR IRAS TICKER SYMBOL
Yes VSEQX
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MORE ON THE FUND

This prospectus describes risks you would face as a Fund investor. It is
important to keep in mind one of the main axioms of investing: The higher the
risk of losing money, the higher the potential reward. The reverse, also, is
generally true: The lower the risk, the lower the potential reward. As you
consider an investment in any mutual fund, you should also take into account
your personal tolerance for daily fluctuations in securities markets. Look for
this [FLAG] symbol throughout the prospectus. It is used to mark detailed
information about each type of risk that you would confront as a Fund
shareholder.
The following sections explain the primary investment strategies and
policies that the Fund uses in pursuit of its objective. The Fund's Board of
Trustees, which oversees the management of the Fund, may change the Fund's
investment objective or strategies in the interest of shareholders, without a
shareholder vote.
Finally, you'll find information on other important features of the Fund.

MARKET EXPOSURE
The Fund's primary strategy is to invest chiefly in the stocks of mid- and
small-cap companies that offer strong growth potential. These companies
typically provide little or no dividend income.

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[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK, WHICH IS THE CHANCE THAT STOCK
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS. STOCK MARKETS
TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING PRICES AND PERIODS OF
FALLING PRICES.

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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, such stocks typically have low
dividend yields and above-average prices in relation to such measures as
revenue, earnings, and book value. 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 with such factors as
earnings and book value, and these stocks typically have 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.
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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 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.

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U.S. STOCK MARKET RETURNS (1926-1999)
---------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
---------------------------------------------------------
Best 54.2% 28.6% 19.9% 17.9%
Worst -43.1 -12.4 -0.9 3.1
Average 13.2 11.0 11.1 11.1
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The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 11.0%, returns for individual 5-year periods
ranged from a -12.4% average (from 1928 through 1932) to 28.6% (from 1995
through 1999). 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 this Fund 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

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differently from--the large-cap stocks found in the S&P 500 Index. This is due
to several factors, including less-certain growth and dividend prospects for
smaller companies.

[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE CHANCE THAT
RETURNS FROM THE MARKET SECTOR IN WHICH IT INVESTS WILL TRAIL RETURNS FROM
OTHER MARKET SECTORS. AS A GROUP, SPECIFIC TYPES OF STOCKS (FOR INSTANCE,
SMALL-CAP STOCKS, GROWTH STOCKS, OR HEALTH-CARE STOCKS) TEND 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.

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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.
Market capitalization changes over time, and there is no "official" definition
of the boundaries of large-, mid-, and small-cap stocks. Vanguard generally
defines large-capitalization (large-cap) funds as those holding stocks of
companies whose outstanding shares have, on average, a market value exceeding
$13 billion; mid-cap funds as those holding stocks of companies with a market
value between $1.5 billion and $13 billion; and small-cap funds as those
typically holding stocks of companies with a market value of less than $1.5
billion. Vanguard periodically reassesses these classifications.

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SECURITY SELECTION
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 valuation measures, financial strength
relative to other stocks, and 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.

[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE CHANCE THAT THE ADVISER
WILL DO A POOR JOB OF SELECTING STOCKS.

The Fund is generally managed without regard to tax ramifications.

OTHER INVESTMENT POLICIES AND RISKS
The Fund may invest in futures contracts, options (including puts and calls),
warrants, convertible securities, and swap agreements, which are all types of
derivatives. Losses (or gains) involving futures 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 stock shares at a predetermined price),
convertible securities (securities that may be exchanged for another asset), and
swap agreements (contracts between parties in which each agrees to make payments
to the other based on the return of a specified index or asset).

<PAGE>

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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). Some forms
of derivatives, such as exchange-traded futures and options on securities,
commodities, or indexes, have been trading on regulated exchanges for more than
two decades. These types of 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
other types of derivatives that may be more specialized or complex. If used for
speculation or as leveraged investments, derivatives can carry considerable
risks.
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The Fund will not use derivatives for speculative purposes or as leveraged
investments that magnify gains or losses. In addition, the Fund's obligation
under futures contracts will not exceed 20% of its total assets.
The reasons for which the 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.

TEMPORARY INVESTMENT MEASURES
The Fund may temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

THE FUND'S REDEMPTION FEE
The Fund charges a redemption fee on shares that are redeemed (including those
redeemed by exchanging to another Vanguard fund) before they have been held for
five years. Because the Fund is intended for long-term investors, the redemption
fee ensures that the costs associated with short-term trading are borne by the
investors making the transactions--and not by the long-term shareholders who do
not generate the costs.
At Vanguard, all fees are paid directly to the fund itself (unlike a sales
charge or load, which--in the case of many fund companies--is imposed for the
sole benefit of the sponsor, adviser, or sales representative).

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 investors who do not generate the costs.
This is why all Vanguard funds have adopted special policies to discourage
short-term trading. Specifically:
- Each Vanguard fund reserves the right to reject any purchase
request--including exchanges from other Vanguard funds--that it regards as
disruptive to efficient portfolio

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management. A fund may reject a purchase request because of the timing of
the investment or because of a history of excessive trading by the
investor.
- Each Vanguard fund (except the money market funds) limits the number of
times that an investor can exchange into and out of the fund.
- Each Vanguard fund reserves the right to stop offering shares at any time.
- Vanguard's U.S. Stock Index Funds, International Stock Index Funds, REIT
Index Fund, Balanced Index Fund, and Growth and Income Fund generally do
NOT accept exchanges by telephone or fax, or online. (IRAs and some other
retirement accounts are not subject to this rule.)
- Certain Vanguard funds, including the Strategic Equity Fund, charge
transaction fees on share redemptions. Other Vanguard funds charge
transaction fees on share purchases.

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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.
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THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST WITH VANGUARD
IF YOU ARE A MARKET-TIMER.

TURNOVER RATE
Although the Fund normally seeks to invest for the long term, it may sell
securities regardless of how long they have been held. The "Financial
Highlights" section of this prospectus shows historic turnover rates for the
Fund. A turnover rate of 100%, for example, would mean that the Fund had sold
and replaced securities valued at 100% of its net assets within a one-year
period.

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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 mid-cap blend funds in 1999
was approximately 86%, according to Morningstar, Inc.
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THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 funds holding assets worth more than $550 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.

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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.
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INVESTMENT ADVISER

The Vanguard Group (Vanguard), P.O. Box 2600, Valley Forge, PA 19482, founded in
1974, serves as the Fund's adviser through its Quantitative Equity Group. As of
October 31, 1999, Vanguard served as adviser for about $346 billion in assets.
Vanguard manages the Fund on an at-cost basis, subject to the control of the
Trustees and officers of the Fund. For the fiscal year ended October 31, 1999,
the investment advisory expenses for the Fund represented an effective annual
rate of 0.10% of the Fund's average net assets for the year.
The Fund has authorized the adviser to choose brokers or dealers to handle
the purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions. Also, the Fund may direct the advisers to use a particular broker
for certain transactions in exchange for commission rebates or research services
provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing.

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PLAIN TALK ABOUT
THE FUND'S ADVISER

The individual primarily responsible for overseeing the Strategic Equity Fund's
investments is:

GEORGE U. SAUTER, Managing Director of Vanguard, and head of Vanguard's
Quantitative Equity Group; has worked in investment management since 1985;
primary responsibility for Vanguard's stock indexing policy and strategy since
joining the firm in 1987; A.B., Dartmouth College; M.B.A., University of
Chicago.
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<PAGE>

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. You can receive
distributions of income dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.

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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. These capital gains are either short-term or long-term depending
on whether the fund held the securities for one year or less, or more than one
year.
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BASIC TAX POINTS
Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:
- Distributions are taxable to you whether or not you reinvest these amounts
in additional Fund shares.
- Distributions declared in December--if paid to you by the end of
January--are taxable as if received in December.
- Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.
- Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.
- Capital gains distributions may vary considerably from year to year as a
result of the Fund's normal investment activities and cash flows.
- A sale or exchange of Fund shares 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.
- State and local income taxes may apply to any dividend or capital gains
distributions that you receive, as well as to your gains or losses from any
sale or exchange of Fund shares.

GENERAL INFORMATION
BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not provide us with
your correct taxpayer identification number and certify that it is correct.
Similarly, Vanguard must withhold from your account if the IRS instructs us to
do so.
FOREIGN INVESTORS. The Vanguard funds generally do not offer their shares for
sale outside of the United States. Foreign investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.

<PAGE>

INVALID ADDRESSES. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
TAX CONSEQUENCES. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.

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PLAIN TALK ABOUT
"BUYING A DIVIDEND"

Unless you are investing through a tax-deferred retirement account (such as an
IRA), you should avoid buying 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.
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SHARE PRICE

The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of regular trading on the New York Stock Exchange
(the NAV is not calculated on holidays or other days when 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 Fund's Board of Trustees. The
Fund also may use fair value pricing if the value of a security held by the 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 securities.

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 the Fund, but the most common is STRATGCEQ.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights table is intended to help you understand the
Fund's financial performance since inception, and certain information reflects
financial results for a single Fund share. The total returns in the table
represent the percentage that an investor would have earned or lost each period
on an investment in the Fund (assuming reinvestment of all dividend and capital
gains distributions). This information has been derived from the financial
statements audited by PricewaterhouseCoopers LLP, independent accountants, whose
report--along with the Fund's financial statements--is included in the Fund's
most recent annual report to shareholders. You may have the annual report sent
to you without charge by contacting Vanguard.

----------------------------------------------------------------------------------------------------
VANGUARD STRATEGIC EQUITY FUND***
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED ------------------------------------------------------------
APRIL 30, 2000* 1999 1998 1997 1996 1995**
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $15.73 $13.11 $15.89 $12.53 $10.23 $10.00
----------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .10 .15 .13 .15 .18 .04
Net Realized and
Unrealized Gain (Loss)
on Investments 2.11 2.62 (1.69) 4.10 2.20 .19
----------------------------------------------------------------------------
Total from Investment
Operations 2.21 2.77 (1.56) 4.25 2.38 .23
----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.16) (.15) (.14) (.18) (.08) --
Distributions from
Realized Capital Gains (.37) -- (1.08) (.71) -- --
----------------------------------------------------------------------------
Total Distributions (.53) (.15) (1.22) (.89) (.08) --
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD $17.41 $15.73 $13.11 $15.89 $12.53 $10.23
====================================================================================================

TOTAL RETURN+ 14.42% 21.30% -10.41% 35.83% 23.40% 1.69%
====================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $685 $561 $479 $444 $133 $62
Ratio of Total
Expenses to Average
Net Assets 0.45%++ 0.46% 0.43% 0.40% 0.38% 0.06%++
Ratio of Net
Investment Income to
Average Net Assets 1.29%++ 1.00% 0.93% 1.28% 1.78% 2.22%++
Turnover Rate 82%++ 51% 71% 85% 106% 0%
====================================================================================================
* Unaudited.
** Subscription period for the 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 return figures 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.
*** Prior to August 1, 2000, this Fund was known as Vanguard Aggressive Growth Fund.

</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS (continued)

--------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began the six month period ended April 30, 2000 with a net asset value
(price) of $15.73 per share. During the period, the Fund earned $0.10 per share
from investment income (interest and dividends) and $2.11 per share from
investments that had appreciated in value or that were sold for higher prices
than the Fund paid for them.

Shareholders received $0.16 per share in the form of dividend distributions and
$0.37 per share in the form of capital gains distributions. A portion of each
year's distributions may come from the prior year's income or capital gains.

The earnings ($2.21 per share) minus the distributions ($0.53 per share)
resulted in a share price of $17.41 at the end of the period. This was an
increase of $1.68 per share (from $15.73 at the beginning of the period to
$17.41 at the end of the period). For a shareholder who reinvested the
distributions in the purchase of more shares, the annualized total return from
the Fund was 14.42% for the period.

As of April 30, 2000, the Fund had $685 million in net assets. For the period,
its annualized expense ratio was 0.45% ($4.50 per $1,000 of net assets); and its
annualized net investment income amounted to 1.29% of its average net assets. It
sold and replaced securities valued at 82% of its net assets.

--------------------------------------------------------------------------------

<PAGE>

--------------------------------------------------------------------------------
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 ICON]. 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 this Fund unless you notify us otherwise.
--------------------------------------------------------------------------------
VANGUARD(R) DIRECT DEPOSIT SERVICE [BOOK ICON]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
--------------------------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOK ICON]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
--------------------------------------------------------------------------------
VANGUARD FUND EXPRESS(R) [BOOK ICON]
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(R) [BOOK ICON]

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 ICON]
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 shares to and from most
Vanguard funds.
--------------------------------------------------------------------------------

ONLINE TRANSACTIONS www.vanguard.com [COMPUTER ICON]

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 our website. We will then mail you 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.

<PAGE>

- Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
(Some restrictions may apply.) Please call our Client Services Department
for assistance.

*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: 1-800-749-7273
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.
--------------------------------------------------------------------------------

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 ICON]
Invest assets held in an existing personal trust.
--------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOK ICON]
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 ICON]
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.
--------------------------------------------------------------------------------

<PAGE>

BUYING SHARES

You buy your shares at the 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
The Fund reserves the right to close any nonretirement fund account whose
balance falls below the minimum initial investment. The Fund will deduct a $10
annual fee in June if your nonretirement account balance at that time is below
$2,500. The low balance fee is waived for investors who have aggregate Vanguard
account assets of $50,000 or more.
--------------------------------------------------------------------------------
BY MAIL TO . . . [ENVELOPE ICON]
open a new account
Complete and sign the account registration 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. Please do not alter Invest-By-Mail
forms, since they are fund- and account-specific.

Make your check payable to: The Vanguard Group-114
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 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
--------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
--------------------------------------------------------------------------------
BY TELEPHONE TO . . . [TELEPHONE ICON]
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). (Note that
some restrictions apply to index fund accounts.)

<PAGE>

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). (Note that
some restrictions apply to index fund accounts.) 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 available.

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739

*You must obtain a Personal Identification Number (PIN) through Tele-Account at
least seven days before you request your first exchange.
--------------------------------------------------------------------------------
IMPORTANT NOTE: Once you have initiated 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 ICON]
Call Client Services to arrange your wire transaction. Wire transactions to
retirement accounts are only available for asset transfers and rollovers from
other financial institutions. Individual IRA contributions will not be accepted
by wire.

Wire to:
FRB ABA 021001088
HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard Strategic Equity Fund-114
[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.
--------------------------------------------------------------------------------
A NOTE ON LARGE PURCHASES
It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.
--------------------------------------------------------------------------------

<PAGE>

REDEEMING SHARES

This section describes how you can redeem--that is, sell or exchange--the 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.

*May require a signature guarantee; see footnote on page 20.

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 order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification number),
you must include the guaranteed signatures of all current account owners on
your written instructions.

In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in the "Redeeming Shares"
section of this prospectus.

--------------------------------------------------------------------------------
A NOTE ON REDEMPTION FEES
The 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 Fund reserves the right to impose redemption fees on its shares at
any time if warranted by the Fund's future costs of processing redemptions from
these accounts.
--------------------------------------------------------------------------------
NOTE: Once a redemption is initiated 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.
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, and VANGUARD GROWTH
AND INCOME FUND. These funds do, however, permit online and telephone exchanges
within IRAs and some other retirement accounts. If you sell shares of these
funds online, you will receive a redemption check at your address of record.
--------------------------------------------------------------------------------
ONLINE REQUESTS www.vanguard.com [COMPUTER ICON]
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 our website. We will then mail you an account access password that will
enable you to sell or exchange shares online (as well as perform other
transactions).
--------------------------------------------------------------------------------

<PAGE>

TELEPHONE REQUESTS [TELEPHONE ICON]
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 this Fund 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:
- The ten-digit account number.
- The name and address exactly as registered on the account.
- The primary Social Security or employer identification number as registered
on the account.
- The Personal Identification Number (PIN), if applicable (for instance,
Tele-Account).

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 ICON]
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>

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 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
--------------------------------------------------------------------------------
A NOTE ON LARGE REDEMPTIONS
It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may disrupt the 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
You may receive your redemption proceeds in one of three ways: check, exchange
to another Vanguard fund, or Fund Express redemption.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
FUND EXPRESS REDEMPTIONS
Vanguard will electronically transfer funds to your pre-linked checking or
savings account.
--------------------------------------------------------------------------------

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:
- The Fund name and account number.
- The amount of the transaction (in dollars or shares).

<PAGE>

- Signatures of all owners exactly as registered on the account (for mail
requests).
- Signature guarantees (if required).*
- Any supporting legal documentation that may be required.
- 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 may be obtained from most commercial and savings
banks, credit unions, trust companies, or member firms of a U.S. stock
exchange.

TRANSACTIONS ARE PROCESSED AT THE NEXT-DETERMINED SHARE PRICE AFTER VANGUARD HAS
RECEIVED ALL REQUIRED INFORMATION.
--------------------------------------------------------------------------------
LIMITS ON ACCOUNT ACTIVITY
Because excessive account transactions can disrupt the management of the 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 a "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 ARE FINAL
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.
--------------------------------------------------------------------------------
UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
--------------------------------------------------------------------------------

<PAGE>

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 . . .

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
financial markets, a report from the advisers, and the Fund's financial
statements which include a listing of the Fund's holdings.
To keep the 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 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, notify our Client Services Department at
1-800-662-2739.
--------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
--------------------------------------------------------------------------------
PORTFOLIO SUMMARY [BOOK ICON]
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 this Fund.
--------------------------------------------------------------------------------
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 ICON]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using only the average cost single category method.
--------------------------------------------------------------------------------

<PAGE>

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<PAGE>

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<PAGE>

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<PAGE>

GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized on securities that a fund
has sold at a profit, minus any realized losses.

CASH RESERVES
Cash deposits, short-term bank deposits, and money market instruments that
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.

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.

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, growth
stocks typically have low dividend yields and above-average prices in relation
to such factors as revenue, earnings, and book value.

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)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.

PRINCIPAL
The amount of money you put into an investment.

SECURITIES
Stocks, bonds, money market instruments, and other investment vehicles.

TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, assuming 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 prices of value stocks typically are below-average in
comparison with such factors as earnings and book value, and these stocks
typically have above-average dividend yields.

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>

[LOGO]
[THE VANGUARD GROUP(R) LOGO]

Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION
If you'd like more information about
Vanguard Strategic Equity Fund,
the following documents are
available free upon request:

ANNUAL/SEMIANNUAL REPORTS TO
SHAREHOLDERS
Additional information about the
Fund's investments is available in
the Fund's annual and semiannual
reports to shareholders.

STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI provides more detailed
information about the Fund.

The current annual and semiannual
reports and the SAI are
incorporated by reference into
(and are thus legally a part of)
this prospectus.

All market indexes referenced in
this prospectus are the exclusive
property of their respective owners.

To receive a free copy of the latest
annual or semiannual report or the
SAI, or to request additional
information about the Fund 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:
1-800-749-7273

INFORMATION PROVIDED BY THE
SECURITIES AND EXCHANGE
COMMISSION (SEC)
You can review and copy
information about the Fund
(including the SAI) at the SEC's
Public Reference Room in
Washington, DC. To find out more
about this public service, call the
SEC at 1-202-942-8090. Reports and
other information about the Fund are
also available on the SEC's website
(www.sec.gov), or you can receive
copies of this information, for a fee,
by electronic request at the
following e-mail address:
[email protected], or by writing
the Public Reference Section,
Securities and Exchange
Commission, Washington, DC
20549-0102.

Fund's Investment Company Act
file number: 811-07239

P114N 082000

<PAGE>

PART B

VANGUARD HORIZON FUNDS(R)
(THE TRUST)

STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 18, 2000

UPDATED AUGUST 1, 2000

This Statement is not a prospectus but should be read in conjunction with the
Trust's current Prospectuses, (dated February 18, 2000 for all prospectuses
except for Strategic Equity Fund's which is dated August 1, 2000). To obtain a
Prospectus or the most recent 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
PAGE
----
DESCRIPTION OF THE FUNDS.....................................................B-1
INVESTMENT POLICIES..........................................................B-3
FUNDAMENTAL INVESTMENT LIMITATIONS...........................................B-8
MANAGEMENT OF THE FUNDS......................................................B-9
INVESTMENT ADVISORY SERVICES................................................B-12
PORTFOLIO TRANSACTIONS......................................................B-15
YIELD AND TOTAL RETURN......................................................B-16
SHARE PRICE.................................................................B-18
PURCHASE OF SHARES..........................................................B-18
REDEMPTION OF SHARES........................................................B-19
COMPARATIVE INDEXES.........................................................B-19
FINANCIAL STATEMENTS........................................................B-21

DESCRIPTION OF THE FUNDS

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
(the 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 Strategic Equity 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.

B-1
<PAGE>

SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 serves as custodian for the Capital Opportunity and
Strategic Equity Funds. Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109 serves as custodian for the Global Asset Allocation and
Global Equity Funds. The custodian is responsible for maintaining the Funds'
assets and keeping all necessary accounts and records of Fund assets.

INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 2001 Market Street,
Suite 1700, Philadelphia, Pennsylvania 19103, serves as the Funds' independent
accountants. The accountants audit the Funds' financial statements and provide
other related services.

TRANSFER AND DIVIDEND-PAYING AGENT. The Funds' transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.

CHARACTERISTICS OF THE FUNDS' 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 Funds. The 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 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 each 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 fund's net assets, and to change any fundamental
policy of the fund. 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 Funds.

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.

B-2
<PAGE>

TAX STATUS OF THE FUNDS

Each Fund intends to qualify 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 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 investment objectives and policies set
forth in each Fund's prospectus.

FOREIGN INVESTMENTS. As indicated in the Prospectuses, the Global Equity,
Global Asset Allocation, and Capital Opportunity Funds may invest in foreign
securities. The Strategic Equity 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
each Fund 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, or similar
financial instrument if such instrument is not marked to market. The disposition
of a currency other than the U.S. dollar by a taxpayer whose functional currency
is the U.S. dollar 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

B-3
<PAGE>

contracts unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary income 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 stock) 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 the 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 Funds 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 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.

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.

B-4
<PAGE>

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. 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

B-5
<PAGE>

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. Each 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 these 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. Gains and losses on
certain other futures contracts (primarily non-U.S. futures contracts) are not
recognized until the contracts are closed and are treated as long-term or
short-term depending on the holding period of the contract. 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. A Fund may be required to defer the recognition of losses on
futures contracts to the extend of any unrecognized gains on related positions
held by the Fund.

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 Funds' business
of investing in securities or currencies. It is anticipated that any net gain
recognized on 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 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 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 Funds' Board of Trustees will monitor each Fund's repurchase
agreement transactions generally and will

B-6
<PAGE>

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.

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 Funds'
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
the Commission's 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 Securities Act of 1933 (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 that 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 1940 Act, and the Rules and Regulations
or interpretations of 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, 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 Funds' Board of Trustees.

VANGUARD INTERFUND LENDING PROGRAM. The Commission 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

B-7
<PAGE>

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 Commission'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 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 asset value are present or represented by proxy; or (ii) more than
50% of the Fund's net asset value.

BORROWING. Each Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 15% of the Fund's net assets. A
Fund may borrow money through banks, reverse repurchase agreements, or
Vanguard's interfund lending program only, and must comply with all applicable
regulatory conditions. A Fund may not make any additional investments whenever
its outstanding borrowings exceed 5% of net assets.

COMMODITIES. Each Fund may not invest in commodities, except that each 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 futures contracts
or options at any one time.

DIVERSIFICATION. With respect to 75% of its total assets, each 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 SECURITIES. Each 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. Each Fund may not invest more than 25% of its total
assets in any one industry.

INVESTING FOR CONTROL. Each Fund may not invest in a company for purposes
of controlling its management.

INVESTMENT COMPANIES. Each 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. Each 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. Each 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. Each Fund may not pledge, mortgage or hypothecate more
than 15% of its net assets.

B-8
<PAGE>

REAL ESTATE. Each 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. Each Fund may not issue senior securities, except in
compliance with the 1940 Act, and provided that Capital Opportunity Fund may
sell securities short.

UNDERWRITING. Each Fund may not engage in the business of underwriting
securities issued by other persons. A Fund will not be considered an underwriter
when disposing of its investment securities.

PUTS AND CALLS. Each Fund may not purchase put options or call options
except as set forth in "Commodities" above and as provided in each Fund's
prospectus.

None of these limitations prevents a Fund from participating in The
Vanguard Group (Vanguard). Because the Funds are members of the Group, each 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 Funds"
for more information.

Unless otherwise stated, each of the above percentage limitations applies
at the time of investment. If a percentage restriction is adhered to at the time
the investment is made, a later increase in percentage resulting from a change
in the market value of assets will not constitute a violation of such
restriction.

MANAGEMENT OF THE FUNDS

TRUSTEES AND OFFICERS

The officers of the Funds manage their day-to-day operations and are responsible
to the Funds' 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 Funds and a statement of their present positions and principal occupations
during the past five years. As a group, the Funds' Trustees and officers own
less than 1% of the outstanding shares of each Fund. Each Trustee also serves as
a Director of The Vanguard Group, Inc., and as a Trustee of each of the funds
administered by Vanguard. The mailing address of the Trustees and officers of
the Funds is Post Office Box 876, Valley Forge, PA 19482.

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 & Johnson (Pharmaceuticals/Consumer Products), Director of Johnson &
Johnson*MERCK Consumer Pharmaceuticals Co., 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 Select
Sector SPDR Trust (Exchange-traded Mutual Fund).

ALFRED M. RANKIN, JR., (DOB: 10/8/1941) Trustee
Chairman, President, Chief Executive Officer, and Director of NACCO Industries,
Inc. (Machinery/Coal/Appliances); and Director of The BFGoodrich Co. (Aircraft
Systems/Manufacturing/Chemicals).

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.

B-9
<PAGE>

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
Retired Chairman 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.

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 Funds are "interested persons" as defined in the 1940 Act.

THE VANGUARD GROUP

Each Fund is a member of The Vanguard Group of Investment Companies which
consists of more than 100 funds. Through their jointly-owned subsidiary, The
Vanguard Group, Inc. (Vanguard), the Funds and the other funds 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 funds.

Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services, furnishings and equipment.
Each fund pays its share of Vanguard's total expenses which are allocated among
the funds under methods approved by the Board of Trustees of each fund. In
addition, each fund bears its own direct expenses such as legal, auditing and
custodian fees. In order to generate additional revenues for Vanguard and
thereby reduce the funds' expenses, Vanguard also provides certain
administrative services to other organizations.

The funds' 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 funds.

Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the 1940 Act. 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 funds.
The amounts which each of the funds have invested are adjusted from time to time
in order to maintain the proportionate relationship between each fund's relative
net assets and its contribution to Vanguard's capital. At October 31, 1999, the
Funds had contributed capital to Vanguard representing 0.02% of each Fund's net
assets. The total amount contributed by the Funds was $400,000, which
represented 0.37% of Vanguard's capitalization. The Amended and Restated Funds'
Service Agreement provides as follows: (a) each Vanguard fund may be called upon
to invest up to 0.40% 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 funds by third parties.

B-10
<PAGE>

DISTRIBUTION. Vanguard Marketing Corporation, a wholly-owned subsidiary of
Vanguard, provides all distribution and marketing activities for the funds in
The Group. The principal distribution expenses are for advertising, promotional
materials, and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of The Vanguard Group. The
Trustees and officers of Vanguard determine the amount to be spent annually on
distribution activities, the manner and amount to be spent on each fund, and
whether to organize new investment companies.

One half of the distribution expenses of a marketing and promotional nature
are allocated among the Vanguard funds based upon their relative net assets. The
remaining one half of these expenses is allocated among the Vanguard funds based
upon each fund's sales for the preceding 24 months relative to the total sales
of the funds as a Group. Provided, however, that no fund's aggregate quarterly
rate of contribution for distribution expenses of a marketing and promotional
nature shall exceed 125% of the average distribution expense rate for The
Vanguard Group, and that no Fund shall incur annual distribution expenses in
excess of 0.02 of 1% of its average month-end net assets.

During the fiscal years ended October 31, 1997, 1998, and 1999, the Funds
incurred the following approximate amounts of The Vanguard Group's management
(including transfer agency), distribution, and marketing expenses.

FUND 1997 1998 1999
---- ---- ---- ----
Strategic Equity Fund ......... $863,000 $1,789,000 $1,787,000
Capital Opportunity Fund ...... 277,000 476,000 1,829,000
Global Equity Fund ............ 391,000 425,000 558,000
Global Asset Allocation Fund .. 260,000 295,000 374,000

INVESTMENT ADVISORY SERVICES. Vanguard also provides investment advisory
services to several Vanguard funds including Vanguard Strategic Equity Fund.
These services are provided on an at-cost basis from a money management staff
employed directly by Vanguard. The compensation and other expenses of this staff
are paid by the funds utilizing these services.

TRUSTEE COMPENSATION

The same individuals serve as Trustees of all Vanguard funds (with two
exceptions, which are noted in the table appearing on page B-12), and each fund
pays a proportionate share of the Trustees' compensation. The funds employ their
officers on a shared basis, as well. However, officers are compensated by The
Vanguard Group, Inc., not the funds.

INDEPENDENT TRUSTEES. The funds compensate their independent Trustees--that
is, the ones who are not also officers of the fund--in three ways:

- The independent Trustees receive an annual fee for their service to the
funds, 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" TRUSTEE. Mr. Brennan serves as a Trustee, but is not paid in
this capacity. He is, however, paid in his role as officer of The Vanguard
Group, Inc.

COMPENSATION TABLE. The following table provides compensation details for
each of the Trustees. We list the amounts paid as compensation and accrued as
retirement benefits by the Funds for each Trustee. In addition, the table shows
the total amount of benefits that we expect each Trustee to receive from all
Vanguard funds upon retirement, and the total amount of compensation paid to
each Trustee by all Vanguard funds.

B-11
<PAGE>

VANGUARD HORIZON FUNDS COMPENSATION TABLE

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PENSION OR TOTAL
AGGREGATE RETIREMENT COMPENSATION
COMPENSATION BENEFITS ACCRUED ESTIMATED ANNUAL FROM ALL VANGUARD
FROM THESE AS PART OF THESE BENEFITS UPON FUNDS PAID TO
NAMES OF TRUSTEES FUNDS(1) FUNDS' EXPENSES(1) RETIREMENT TRUSTEES(2)

John C. Bogle(3) None None None None
John J. Brennan None None None None
Barbara Barnes
Hauptfuhrer(3) $47 $6 $15,000 $0
JoAnn Heffernan Heisen $281 $15 $15,000 $80,000
Bruce K. MacLaury $290 $26 $12,000 $75,000
Burton G. Malkiel $283 $26 $15,000 $80,000
Alfred M. Rankin, Jr. $281 $19 $15,000 $80,000
John C. Sawhill(4) $281 $24 $15,000 $80,000
James O. Welch, Jr. $281 $27 $15,000 $80,000
J. Lawrence Wilson $281 $20 $15,000 $80,000
</TABLE>
---------
(1) The amounts shown in this column are based on the Funds' fiscal year ended
October 31, 1999.
(2) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 103 Vanguard funds (102
in the case of Mr. Malkiel; 93 in the case of Mr. MacLaury) for the 1999
calendar year.
(3) Mr. Bogle and Mrs. Hauptfuhrer have retired from the funds' Board,
effective December 31, 1999 and December 31, 1998, respectively.
(4) Mr. Sawhill died in May, 2000.

INVESTMENT ADVISORY SERVICES

INVESTMENT ADVISORY AGREEMENT WITH MARATHON ASSET MANAGEMENT LIMITED. The
Global Equity Fund is managed by Marathon Asset Management Limited (Marathon),
Orion House, 5 Upper St. Martin's Lane, London under the terms of an advisory
agreement.

The Global Equity Fund pays Marathon a basic advisory 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:

NET ASSETS RATE
---------- ----
First $100 million ........................ 0.45%
Next $150 million ......................... 0.40%
Over $250 million ......................... 0.25%

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 World 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 Marathon under the investment advisory
agreement. The adjustments to the fee change proportionately with performance
relative to the Index.

B-12
<PAGE>

CUMULATIVE 36-MONTH NET PERFORMANCE PERFORMANCE FEE
VS. THE MSCI ALL COUNTRY WORLD INDEX ADJUSTMENT*
------------------------------------ -----------
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
---------
* For purposes of this calculation, the Basic Fee is determined using the
Fund's average net assets over the same time period for which performance
is measured.

During the fiscal years ended October 31, 1997, 1998, and 1999, the Fund
paid advisory fees of $530,000 before a decrease of $172,000 based on
performance, $569,000 before a decrease of $229,000 based on performance, and
$602,000 before a decrease of $268,000 based on performance, respectively.

Related Information Concerning Marathon. Marathon is wholly owned by M.A.M.
Investments Limited. Each of the following Directors owns 1/3 of M.A.M.
Investments Limited: William J. Arah, Jeremy J. Hosking, and Neil M. Ostrer.
Marathon, a Limited Company, provides investment advisory services to employee
benefit plans, investment companies, and other institutions.

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 Fund.

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:

NET ASSETS RATE
---------- ----
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%

During the fiscal years ended October 31, 1997, the Fund paid Husic (the
Fund's previous adviser) advisory fees of $371,000 before a decrease of $223,000
based on performance. During the fiscal year ended October 31, 1998, the Fund
paid no advisory fees, due to performance adjustments. During the fiscal year
ended October 31, 1999, the Fund paid PRIMECAP advisory fees of $2,062,000.

Related Information Concerning PRIMECAP. 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.

INVESTMENT ADVISORY AGREEMENT WITH STRATEGIC INVESTMENT MANAGEMENT.
Strategic Investment Management (Strategic) serves as investment adviser to the
Global Asset Allocation Fund under an Investment Advisory Agreement. For the
services provided by Strategic under the agreement, the Fund will pay Strategic
a basic 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:

B-13
<PAGE>

NET ASSETS RATE
---------- ----
First $250 million ......................... 0.40%
Next $250 million .......................... 0.35%
Next $500 million .......................... 0.25%
Over $1 billion ............................ 0.20%

The quarterly payment to Strategic 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 Fund'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.

CUMULATIVE 36-MONTH NET PERFORMANCE PERFORMANCE FEE
VS. THE GLOBAL BALANCED INDEX ADJUSTMENT*
----------------------------- -----------
Less than -0.75% .................... -0.75 X Basic Fee
Between -0.75% and +2.25% ........... -0.50 X Basic Fee
Between +2.25% and +5.25% ........... -0.25 X Basic Fee
Between +5.25% and +8.25% ........... 0 X Basic Fee
Between +8.25% and +11.25% .......... +0.25 X Basic Fee
Between +11.25% and +14.25% ......... +0.50 X Basic Fee
More than +14.25% ................... +0.75 X Basic Fee
---------
* For purposes of this calculation, the Basic Fee is determined using the
Fund's average net assets over the same time period for which performance
is measured.

During the fiscal years ended October 31, 1997, 1998, and 1999, the Fund
paid advisory fees of $322,000 before a decrease of $201,000 based on
performance, $336,000 before a decrease of $220,000 based on performance, and
$356,000 before a decrease of $245,000 based on performance, respectively.

Related Information Concerning Strategic. Strategic, 1001 19th Street
North, 16th Floor, Arlington, VA 22209, provides asset management services to
companies, institutions, trusts, funds, and individuals. Strategic 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 October 31, 1999, Strategic (and its affiliated companies) provided asset
management services for over $x.x billion in assets.

INVESTMENT ADVISORY SERVICES PROVIDED BY THE VANGUARD GROUP. An experienced
investment management staff employed directly by Vanguard provides investment
advisory services to Vanguard Strategic Equity Fund on an at-cost basis. During
the fiscal years ended October 31, 1997, 1998, and 1999, the Fund incurred
expenses for investment advisory services of approximately $190,000, $287,000,
and $511,000, respectively.

B-14
<PAGE>

DURATION AND TERMINATION OF INVESTMENT ADVISORY AGREEMENTS. The Funds'
current agreement with each adviser is renewable for successive one-year
periods, only if each renewal is specifically approved by a vote of the Funds'
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
1940 Act) of any such party cast in person at a meeting called for the purpose
of considering such approval. An 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
the adviser, or (2) by the adviser upon ninety (90) days' written notice to the
Fund.

PORTFOLIO TRANSACTIONS

The investment advisory agreements with Marathon, PRIMECAP, Strategic, and
Vanguard authorize each investment adviser (with the approval of the Funds'
Board of Trustees) to select the brokers or dealers that will execute the
purchases and sales of securities for the Fund 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 adviser will use its best judgment
to choose the broker most capable of providing the brokerage services necessary
to obtain the best available price and most favorable execution. 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 Funds' 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 funds 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 Fund.
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, 1997, 1998, and 1999, the Funds
paid the following amounts in brokerage commissions.

FUND 1997 1998 1999
---- ---- ---- ----
Strategic Equity Fund ......... $435,000 $615,000 $475,000
Capital Opportunity Fund ...... 208,000 185,000 997,000
Global Equity Fund ............ 176,000 192,000 232,000
Global Aset Allocation Fund ... 160,000 5,000 11,000

Some securities considered for investment by the Funds may also be
appropriate for other clients served by the investment advisers. If purchase or
sale of securities consistent with the investment policies of a Fund and

B-15
<PAGE>

one or more of these other clients served by the adviser are considered at or
about the same time, transactions in such securities will be allocated among the
Fund and such other clients in a manner deemed equitable by the adviser.
Although there may 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 Funds' Board of Trustees.

YIELD AND TOTAL RETURN

The yield of each Fund for the 30-day period ended October 31, 1999 is set forth
below. Yields are calculated daily.

Vanguard Strategic Equity Fund .............. 1.06%
Vanguard Capital Opportunity Fund ........... 0.65%
Vanguard Global Asset Allocation Fund ....... N/A
Vanguard Global Equity Fund ................. N/A

The average annual total return of each Fund for the one year period ended
October 31, 1999 and since inception are set forth below:

1 YEAR ENDED SINCE
10/31/1999 INCEPTION*
------------ ----------
Vanguard Strategic Equity Fund ....... 21.3% 15.8%
Vanguard Capital Opportunity Fund .... 81.7% 19.2%
Vanguard Global Asset Allocation Fund. 13.4% 11.7%
Vanguard Global Equity Fund .......... 26.5% 12.9%
---------
* 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

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.

AVERAGE ANNUAL AFTER-TAX TOTAL RETURN QUOTATION

We calculate the Fund's average annual after-tax total return by finding the
average annual compounded rate of return over the 1-, 5-, and 10-year periods
(or for periods of the Fund's operations) that would equate the initial amount
invested to the after-tax value, according to the following formulas:

P (1+T)/N/ = ATV

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Where:

P =a hypothetical initial payment of $1,000
T =average annual after-tax total return
n =number of years
ATV =after-tax value at the end of the 1-, 5-, or 10-year
periods of a hypothetical $1,000 payment made at the
beginning of the time period, assuming no liquidation
of the investment at the end of the measurement
periods.

Instructions:

1. Assume all distributions by the Fund are reinvested--less the taxes due on
such distributions--at the price on the reinvestment dates during the
period. Adjustments may be made for subsequent re-characterizations of
distributions.

2. Calculate the taxes due on distributions by the Fund by applying the
highest federal marginal tax rates to each component of the distributions
on the reinvestment date (e.g., ordinary income, short-term capital gain,
long-term capital gain, etc.). For periods after December 31, 1997, the
federal marginal tax rates used for the calculations are 39.6% for ordinary
income and short-term capital gains and 20% for long-term capital gains.
Note that the applicable tax rates may vary over the measurement period.
Assume no taxes are due on the portions of any distributions classified as
exempt interest or non-taxable (i.e., return of capital). Ignore any
potential tax liabilities other than federal tax liabilities (e.g., state
and local taxes).

3. Include all recurring fees that are charged to all shareholder accounts.
For any account fees that vary with the size of the account, assume an
account size equal to the Fund's mean (or median) account size. Assume that
no additional taxes or tax credits result from any redemption of shares
required to pay such fees.

4. State the total return quotation to the nearest hundredth of one percent.

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 over such periods, according to
the following formula (cumulative total return is then expressed as a
percentage):

C = (ERV/P) - 1

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.

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]

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.

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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
regular 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 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, or the most
recently determined closing price calculated according to local market
convention, available at the time each Fund is valued. Prices are obtained from
the broadest and most representative market on which the securities trade. 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 Morgan
Stanley Capital International in calculating various benchmarking indexes. 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 Funds, 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.

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<PAGE>

REDEMPTION OF SHARES

Each Fund may suspend redemption privileges or postpone the date of payment (i)
during any period that the Exchange is closed, or trading on the Exchange is
restricted as determined by 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.

Each Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period.

As described in their prospectuses, 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

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 indexes 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.

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 TOTAL MARKET INDEX--consists of approximately 7,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.

WILSHIRE 4500 COMPLETION 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 WORLD 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.

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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 BROTHERS LONG-TERM TREASURY BOND INDEX--is a market weighted index that
contains individually priced U.S. Treasury securities 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 BROTHERS 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 $100 million outstanding. This index
includes over 1,500 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 $100 million
principal outstanding and maturity greater than 10 years.

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 BROTHERS 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
$5 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
one and five 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 five and
ten years. The index has a market value of over $800 billion.

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<PAGE>

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 ten years. The
index has a market value of over $1.1 trillion.

LIPPER BALANCED FUND AVERAGE--an industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper 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 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 Inc.

LIPPER SMALL COMPANY GROWTH FUND AVERAGE--the average performance of small
company growth funds as defined by Lipper 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 funds 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 Inc.

LIPPER FIXED INCOME FUND AVERAGE--an industry benchmark of average fixed income
funds with similar investment objectives and policies, as measured by Lipper
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.

FINANCIAL STATEMENTS

Each Fund's Financial Statements for the year ended October 31, 1999, including
the financial highlights for the periods through October 31, 1999, appearing in
each Fund's 1999 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 each Fund's Annual
Report to Shareholders, which may be obtained without charge.

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SAI069 082000