VANGUARD HORIZON FUND INC, 485APOS, 2001-01-08

VANGUARD HORIZON FUND INC
485APOS, 2001-01-08

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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. 10

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 19

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 FEBRUARY 27, 2001, PURSUANT TO PARAGRAPH (A) OF RULE 485.

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

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<PAGE>

VANGUARD(R)
CAPITAL
OPPORTUNITY FUND

Prospectus
February 27, 2001

This prospectus contains
financial data for the
Fund through the
fiscal year ended
October 31, 2000.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

VANGUARD CAPITAL OPPORTUNITY FUND
Prospectus
February 27, 2001

An Aggressive Growth Stock Mutual Fund

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CONTENTS
1 FUND PROFILE 12 FINANCIAL HIGHLIGHTS

3 ADDITIONAL INFORMATION 14 INVESTING WITH VANGUARD

3 MORE ON THE FUND 14 BUYING SHARES

8 THE FUND AND VANGUARD 15 REDEEMING SHARES

9 INVESTMENT ADVISER 16 OTHER RULES YOU SHOULD KNOW

10 DIVIDENDS, CAPITAL GAINS, AND TAXES 18 FUND AND ACCOUNT UPDATES

12 SHARE PRICE 18 CONTACTING VANGUARD

GLOSSARY (inside back cover)
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WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the investment objective, policies, strategies, and
risks associated with the 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 decide whether the Fund is the right
investment for you. We suggest that you keep this prospectus for future
reference.
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<PAGE>

FUND PROFILE

INVESTMENT OBJECTIVE
The Fund seeks to provide maximum long-term total return.

INVESTMENT STRATEGIES
The Fund invests mainly in U.S. stocks, with an emphasis on small- and
mid-capitalization companies that have rapid earnings growth prospects. The
Fund's investment adviser uses intense, fundamental research to identify stocks
that are expected to outperform the market over a three-to-five-year time
horizon and that are available at attractive prices relative to their
fundamental values. The Fund may invest up to 15% of its assets in foreign
stocks and has the flexibility to engage in certain hedging and defensive
techniques, such as "short selling" stocks, purchasing "put options," and
temporarily increasing cash reserves. For more information, see "Investment
Strategies and Policies" under MORE ON THE FUND.

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 for the past five years. In addition, there is a table that
shows how the Fund's average annual total returns compare with those of a
relevent 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.

----------------------------------------------------
ANNUAL TOTAL RETURNS

CHART GOES HERE

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

During the period shown in the bar chart, the highest return for a calendar
quarter was X.XX% (quarter ended month, dd, yyyy), and the lowest return for a
quarter was X.XX% (quarter ended month, dd, yyyy).

<PAGE>

----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 2000
----------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
----------------------------------------------------------------------
Vanguard Capital Opportunity Fund XX.XX% XX.XX%
Standard & Poor's Mid-Cap 400/BARRA XX.XX XX.XX
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*August 14, 1995.
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FEES AND EXPENSES
The following table describes the fees and expenses you may 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, 2000.

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: X.XX%
12b-1 Distribution Fee: None
Other Expenses: X.XX%
TOTAL ANNUAL FUND OPERATING EXPENSES: X.XX%

*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's shares. This example assumes that the Fund provides a
return of 5% a year and that operating expenses remain the same. The results
apply whether or not you redeem your investment at the end of the given period.

--------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------
$XX $XX $XX $XX
--------------------------------------------------

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):

THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

<PAGE>

3
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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 Capital Opportunity Fund's expense ratio in fiscal year 2000
was 0.XX%, or $X.X0 per $1,000 of average net assets. The average multi-cap
growth mutual fund had expenses in 2000 of 0.XX%, or $$X.X0 per $1,000 of
average net assets (derived from data provided by Lipper Inc., which reports on
the mutual fund industry). Management expenses, which are 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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PLAIN TALK ABOUT
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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INVESTMENT ADVISER NEWSPAPER ABBREVIATION
PRIMECAP Management Company, Pasadena, CapOp
Ca., since February 1, 1998
VANGUARD FUND NUMBER
INCEPTION DATE 111
August 14, 1995
CUSIP NUMBER
NET ASSETS AS OF OCTOBER 31, 2000 922038302
$X.XX billion
TICKER SYMBOL
SUITABLE FOR IRAS VHCOX
Yes
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MORE ON THE FUND

This prospectus describes risks you would face as a Fund shareholder. 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 take into account your
personal tolerance for daily fluctuations in the 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 Fund's management, may change investment strategies
or policies in the interest of

<PAGE>

shareholders without a shareholder vote unless those strategies or policies are
designated as fundamental.
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. The Fund will invest in
companies with strong industry positions, increasing sales, superior return on
equity, and talented management teams. In valuing stocks, the adviser seeks to
quantify a firm's "fundamental value." Stock selection is primarily based on the
ratio of a company's fundamental value to its market price, relative to a
universe of comparable stocks. Companies with a high fundamental value relative
to current stock price are generally sought. The Fund may not be broadly
diversified.

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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 to such factors as
earnings and book value, and these stocks typically pay above-average dividend
yields. Growth and value stocks have, in the past, produced similar long-term
returns, though each category has periods when it outperforms the other. In
general, growth funds appeal to investors who will accept more volatility in
hopes of a greater increase in share price. Growth funds also may appeal to
investors with taxable accounts who want a higher proportion of returns to come
as capital gains (which may be taxed at lower rates than dividend income). Value
funds, by contrast, are appropriate for investors who want some dividend income
and the potential for capital gains, but are less tolerant of share-price
fluctuations.
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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 S&P 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.

<PAGE>

----------------------------------------------------------
U.S. STOCK MARKET RETURNS (1926-2000)
----------------------------------------------------------
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
----------------------------------------------------------

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 2000. You can see, for example, that while the average return on common
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 XX.X% (from
1995 through 2000). 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.

[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, (FOR INSTANCE, SMALL-CAP STOCKS, VALUE
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 investment adviser uses intense, fundamental research to identify stocks
that are expected to outperform the market over a three-to-five year time
horizon, and that are available at attractive prices relative to their
fundamental values. The adviser may invest a relatively large portion of the
Fund's holdings in specific industry sectors. The adviser has the flexibility to
engage in the following hedging and defensive techniques:
- Sell stock "short" if the stock's issuer is considered to have fundamental
problems (up to 10% of the Fund's net assets). A short sale occurs when an
investor (such as the Fund) sells stock that it does not own, with the
expectation of acquiring the stock at a lower price in time for delivery to
the purchaser. Potential losses from a short sale are unlimited if the
price of the stock rises instead of falls.
- The Fund may purchase put options--that is, the right to sell stock at a
particular price within a specified period of time (up to 10% of the Fund's
net assets). The Fund would
<PAGE>

use this technique to hedge (or protect) investments in the stocks of
companies considered to have fundamental difficulties.
- Routinely, the Fund may increase its cash reserves up to 15% of net assets
for temporary defensive purposes.
Altogether, the Fund may commit no more than 25% of its assets to these
special investment strategies at any time.

[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE CHANCE THAT THE ADVISER
WILL DO A POOR JOB OF SELECTING THE SECURITIES OR COUNTRIES IN WHICH THE
FUND INVESTS.

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PLAIN TALK ABOUT
FUND DIVERSIFICATION
In general, the more diversified a fund's stock or bond holdings, the less
likely that a specific security's poor performance will hurt the fund. One
measure of a fund's diversification is the percentage of its assets represented
by its ten largest holdings. The average U.S. equity mutual fund has about 35%
of its assets invested in its ten largest holdings, while some less-diversified
mutual funds have more than 50% of assets invested in their top ten.
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[FLAG] BECAUSE THE FUND INVESTS A HIGHER PERCENTAGE OF ASSETS IN ITS TEN LARGEST
HOLDINGS THAN THE AVERAGE STOCK FUND DOES, THE FUND IS SUBJECT TO THE RISK
THAT ITS PERFORMANCE MAY BE HURT DISPROPOR-TIONATELY BY THE POOR
PERFORMANCE OF RELATIVELY FEW STOCKS.

The Fund is generally managed without regard to tax ramifications.

OTHER INVESTMENT POLICIES AND RISKS
The Fund may also invest in stock futures and options contracts, warrants,
convertible securities, and swap agreements, which are 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 the 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).
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.

<PAGE>

7
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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. Non-standardized derivatives, on the other hand, tend to be more
specialized or complex, and may be harder to value. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
--------------------------------------------------------------------------------

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.
Although the Fund typically does not make significant investments in
foreign securities, it reserves the right to invest up to 20% of its assets this
way. Foreign securities may be traded in U.S. or foreign markets. To the extent
that it owns foreign securities, the Fund is subject to (1) country risk, which
is the chance that domestic events--such as political upheaval, financial
troubles, or a natural disaster--will weaken a country's securities markets; and
(2) currency risk, which is the chance that a foreign investment will decrease
in value because of unfavorable changes in currency exchange rates.
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 before they have
been held for five years. This fee also applies when shares are redeemed by
exchange to another Vanguard fund. Unlike a sales charge or load paid to a
broker or fund management company, the redemption fee is paid directly to the
Fund to offset the costs of buying and selling securities. The fee, which is
intended to discourage short-term trading, ensures that short-term investors pay
their share of the Fund's transaction costs and that long-term investors do not
subsidize the activities of short-term traders.

<PAGE>

management. A purchase request could be rejected 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 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 other
retirement accounts are not subject to this rule.)
- Certain Vanguard funds, including the Capital Opportunity Fund, charge
transaction fees on share redemptions. Other Vanguard funds charge
transaction fees on share purchases.
See the INVESTING WITH VANGUARD section of this prospectus for further details
on Vanguard's transaction policies.

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 taxable
income. As of October 31, 2000, the average turnover rate for all mid-cap growth
funds was approximately XX%, 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 $5x0 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.

<PAGE>

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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
PRIMECAP Management Company (PRIMECAP), 225 South Lake Avenue, Pasadena, CA
91101, adviser to the Fund, is an investment advisory firm founded in 1983.
PRIMECAP also provides investment advisory services to endowment funds, employee
benefit plans, and foundations unrelated to Vanguard. As of October 31, 2000,
PRIMECAP managed about $XX billion in assets. The firm manages the Fund subject
to the control of the trustees and officers of the Fund. Its advisory fee is
paid quarterly, and is based on certain annual percentage rates applied to the
Fund's average month-end assets for each quarter. Please consult the Funds
Statement of Additional Information for a complete explanation of how advisory
fees are calculated.
The adviser is authorized to choose broker-dealers to handle the purchase
and sale of the Fund's securities, and to obtain the best available price and
most favorable execution for all transactions. Also, the Fund may direct the
adviser to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.
In the interest of obtaining better execution of a transaction, the adviser
may at times choose brokers who charge higher commissions. If more than one
broker can obtain the best available price and most favorable execution, then
the adviser is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to the adviser or 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. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.
For the fiscal year ended October 31, 2000, the advisory fee represented an
effective annual rate of 0.XX% of the Fund's average net assets.

<PAGE>

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PLAIN TALK ABOUT
THE FUND'S ADVISER

The managers primarily responsible for overseeing the Fund's investments, along
with the percentage of Fund assets for which each is responsible, are:

THEO A. KOLOKOTRONES (40%), President of PRIMECAP Management Company. He has
worked in investment management since 1970; has managed assets for PRIMECAP
since 1983; and has managed the Fund since 1998. Education: B.A. University of
Chicago; M.B.A., Harvard Business School.

HOWARD B. SCHOW (25%), Chairman of PRIMECAP Management Company. He has worked in
investment management since 1956; has managed assets since 1967; has been with
PRIMECAP since 1983; and has managed the Fund since 1998. Education: B.A.,
Williams College; M.B.A., Harvard Business School.

JOEL P. FRIED (25%), Executive Vice President of PRIMECAP Management Company. He
has worked in investment management since 1985; has managed assets for PRIMECAP
since 1986; and has managed the Fund since 1998. Education: B.S. and M.B.A.,
University of California, Los Angeles.

Each of these three individuals manages his portion of the Fund autonomously;
there is no decision-making by committee. The remaining 10% of the Fund is
managed by individuals in PRIMECAP's research department.
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DIVIDENDS, CAPITAL GAINS, AND TAXES
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 portion 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 any stock
holdings and the interest it receives from any 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.
--------------------------------------------------------------------------------

<PAGE>

- 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.
- Dividend and capital gains distributions that you receive, as well as your
gains or losses from any sale or exchange of Fund shares, may be subject to
state and local income taxes.

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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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GENERAL INFORMATION
BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not: n provide us with
your correct taxpayer identification number; n certify that the taxpayer
identification number is correct; and n confirm that you are not subject to
backup withholding. 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.
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.

<PAGE>

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 dividing the net assets of the
Fund by the number of Fund 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 may also 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 the security is traded. In these situations,
prices used by the Fund to calculate its net asset value may differ from quoted
or published prices for the underlying securities.
The Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading "Vanguard Funds."

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 rate that an investor would have earned or lost each five years 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.
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
VANGUARD CAPITAL OPPORTUNITY FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $19.34 $11.47 $10.48 $10.81 $9.71
------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .029 .021 .037 .01
Net Realized and Unrealized Gain (Loss) on
Investments 8.751 1.014 (.360) 1.12
-----------------------------------------------------------------
Total from Investment Operations 8.780 1.035 (.323) 1.13
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.015) (.045) (.007) (.03)
Distributions from Realized Capital Gains (.895) -- -- --
-----------------------------------------------------------------
Total Distributions (.910) (.045) (.007) (.03)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $19.34 $11.47 $10.48 $10.81
============================================================================================================
TOTAL RETURN* 81.74% 9.95% S2.99% 11.67%
============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,289 $156 $69 $115
Ratio of Total Expenses to Average Net Assets 0.75% 0.94% 0.49% 0.50%
Ratio of Net Investment Income to
Average Net Assets 0.31% 0.18% 0.27% 0.11%
Turnover Rate 22% 103% 195% 128%
============================================================================================================
</TABLE>

*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.

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

The Fund began fiscal 2000 with a net asset value (price) of $11.47 per share.
During the year, the Fund earned $0.XX per share from investment income
(interest and dividends) and $0.XX 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.XX per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.

The earnings ($X.XX per share) minus the distributions ($0.XX per share)
resulted in a share price of $XX.XX at the end of the year. This was an increase
of $0.XX per share (from $11.47 at the beginning of the year to $XX.XX at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was XX.XX%% for the
year.

As of October 31, 2000, the Fund had $XX billion in net assets. For the year,
its expense ratio was 0.XX% ($X.X0 per $1,000 of net assets); and its net
investment income amounted to 0.XX% of its average net assets. It sold and
replaced securities valued at XX% of its net assets.
--------------------------------------------------------------------------------

<PAGE>

14
--------------------------------------------------------------------------------
INVESTING WITH VANGUARD
This section of the prospectus explains the basics of doing business with
Vanguard. A special booklet, The Vanguard Service Directory, provides details of
our many shareholder services for individual investors. A separate booklet, The
Compass, does the same for institutional investors. You can request either
booklet by calling or writing Vanguard, using the Contacting Vanguard
instructions found at the end of this section.

BUYING SHARES
REDEEMING SHARES
OTHER RULES YOU SHOULD KNOW
FUND AND ACCOUNT UPDATES
CONTACTING VANGUARD
--------------------------------------------------------------------------------

BUYING SHARES

ACCOUNT MINIMUMS
TO OPEN AND MAINTAIN AN ACCOUNT: $25,000 for regular accounts; $1,000 for IRA
and custodial accounts for minors.
TO ADD TO AN EXISTING ACCOUNT: $100 by mail or exchange; $1,000 by wire.

HOW TO BUY SHARES
BY CHECK: Mail your check and a completed account registration form to Vanguard.
When adding to an existing account, send your check with an Invest-By-Mail form
detached from your last account statement. For addresses, see Contacting
Vanguard.
BY EXCHANGE PURCHASE: You can purchase shares with the proceeds of a redemption
from another Vanguard fund. All open Vanguard funds permit exchange purchases
requested in writing. MOST VANGUARD FUNDS--OTHER THAN THE STOCK AND BALANCED
INDEX-ORIENTED FUNDS--ALSO ACCEPT EXCHANGE PURCHASES REQUESTED ONLINE OR BY
TELEPHONE. See Other Rules You Should Know for specifics.
BY WIRE: Call Vanguard to purchase shares by wire. See Contacting Vanguard.

YOUR PURCHASE CHECK
When investing by check, make the check payable to: The Vanguard Group-111.

YOUR PURCHASE PRICE
You buy shares at a fund's next-determined NAV after Vanguard accepts your
purchase request. As long as your request is received before the close of
regular trading on the New York Stock Exchange (generally 4 p.m., Eastern time),
you will buy your shares at that day's NAV. This is known as your TRADE DATE.

PURCHASE RULES YOU SHOULD KNOW
^ THIRD PARTY CHECKS. To protect the funds from check fraud, Vanguard will
not accept checks made payable to third parties.
<PAGE>

^ U.S.CHECKS ONLY. All purchase checks must be written in U.S. dollars and
drawn on a U.S. bank.
^ LARGE PURCHASES. Vanguard reserves the right to reject any purchase request
that may disrupt a fund's operation or performance. Please call us before
attempting to invest a large dollar amount.
^ NO CANCELLATIONS. Place your transaction requests carefully. Vanguard will
NOT cancel any transaction once it has been initiated and a confirmation
number has been assigned (if applicable).
^ FUTURE PURCHASES. All Vanguard funds reserve the right to stop selling
shares at any time, or to reject specific purchase requests, including
purchases by exchange from another Vanguard fund.

REDEEMING SHARES

HOW TO REDEEM SHARES
Be sure to check Other Rules You Should Know before initiating your request.
ONLINE: Request a redemption through our website at Vanguard.com.
BY TELEPHONE: Contact Vanguard by telephone to request a redemption. For
telephone numbers, see Contacting Vanguard.
BY MAIL: Send your written redemption instructions to Vanguard. For addresses,
see Contacting Vanguard.

YOUR REDEMPTION PRICE
You redeem shares at a fund's next-determined NAV after Vanguard accepts your
redemption request, including any special documentation required under the
circumstances. As long as your request is received before the close of regular
trading on the New York Stock Exchange (generally 4 p.m., Eastern time), your
shares are redeemed at that day's NAV. This is known as your TRADE DATE.

TYPES OF REDEMPTIONS
^ CHECK REDEMPTIONS: Unless instructed otherwise, Vanguard will mail you a
check, normally within two business days of your trade date.
^ EXCHANGE REDEMPTIONS: You may instruct Vanguard to apply the proceeds of
your redemption to purchase shares of another Vanguard fund. All open
Vanguard funds accept exchange redemptions requested in writing. Most
Vanguard funds--other than the index-oriented funds--also accept exchange
redemptions requested online or by telephone. See Other Rules You Should
Know for specifics.
^ WIRE REDEMPTIONS: When redeeming from a money market fund, bond fund, or
the Preferred Stock Fund, you may instruct Vanguard to wire your redemption
proceeds to a previously designated bank account. Wire redemptions are not
available for Vanguard's other funds, except by exchanging into a bond or
money market fund first. The wire redemption option is not automatic; you
must establish it by completing a special form or the appropri-
<PAGE>

16
ate section of your account registration. Also, wire redemptions must be
requested in writing or by telephone, not online. A $5 fee applies to wire
redemptions under $5,000.
Money Market Funds: For telephone requests accepted at Vanguard by 10:45 a.m.,
Eastern time, the redemption proceeds will arrive at your bank by the close of
business that same day. For other requests accepted before 4 p.m., the
redemption proceeds will arrive at your bank by the close of business on the
following business day.
Bond Funds: For requests accepted at Vanguard by 4 p.m., Eastern time, the
redemption proceeds will arrive at your bank by the close of business on the
following business day.

REDEMPTION RULES YOU SHOULD KNOW
^ SPECIAL ACCOUNTS. Special documentation may be required to redeem from
certain types of accounts, such as trust, corporate, non-profit, or
retirement accounts. Please call us before attempting to redeem from these
types of accounts.
^ POTENTIALLY DISRUPTIVE REDEMPTIONS. Vanguard reserves the right to pay all
or part of your redemption in-kind--that is, in the form of securities--if
we believe that a cash redemption would disrupt the fund's operation or
performance. Under these circumstances, Vanguard also reserves the right to
delay payment of your redemption proceeds for up to seven days. By calling
us before you attempt to redeem a large dollar amount, you are more likely
to avoid in-kind or delayed payment of your redemption.
^ RECENTLY PURCHASED SHARES. While you can redeem shares at any time,
proceeds will not be made available to you until the Fund collects payment
for your purchase. This may take up to ten calendar days for shares
purchased by check or Vanguard Fund Express(R).
^ PAYMENT TO A DIFFERENT PERSON OR ADDRESS. We can make your redemption check
payable to a different person or send it to a different address. However,
this requires the written consent of all registered account owners, which
must be provided under signature guarantees. You can obtain a signature
guarantee from most commercial and savings banks, credit unions, trust
companies, or member firms of a U.S. stock exchange.
^ NO CANCELLATIONS. Place your transaction requests carefully. Vanguard will
NOT cancel any transaction once it has been initiated and a confirmation
number has been assigned (if applicable).
^ EMERGENCY CIRCUMSTANCES. Vanguard funds can postpone payment of redemption
proceeds for up to seven calendar days at any time. In addition, Vanguard
funds can suspend redemptions and/or postpone payments of redemption
proceeds at times when the New York Stock Exchange is closed or during
emergency circumstances, as determined by the U.S. Securities and Exchange
Commission.

OTHER RULES YOU SHOULD KNOW

TELEPHONE TRANSACTIONS
^ AUTOMATIC. In setting up your account, we'll automatically enable you to do
business with us by regular telephone, unless you instruct us otherwise in
writing.
^ TELE-ACCOUNT(TM). To conduct account transactions through Vanguard's
automated telephone service, you must first obtain a personal
identification number (PIN). Call Tele-Account to obtain a PIN, and allow
seven days before using this service.
^ PROOF OF A CALLER'S AUTHORITY. We reserve the right to refuse a telephone
request if the caller is unable to provide the following information
exactly as registered on the account:

<PAGE>

- Ten-digit account number.
- Complete owner name and address.
- Primary Social Security or employer identification number.
- Personal Identification Number (PIN), if applicable.
^ SUBJECT TO REVISION. We reserve the right to revise or terminate Vanguard's
telephone transaction service at any time, without notice.
^ SOME VANGUARD FUNDS DO NOT PERMIT TELEPHONE EXCHANGES. To discourage
market-timing, Vanguard's Stock Index Funds, Growth and Income Fund, and
Balanced Index Fund generally do not permit telephone exchanges (in or
out), except for IRAs and certain other retirement accounts.

VANGUARD.COM

^ REGISTRATION. You can use your personal computer to review your account
holdings, to sell or exchange shares of most Vanguard funds, and to perform
other transactions. To establish this service, you can register online.
^ SOME VANGUARD FUNDS DO NOT PERMIT ONLINE EXCHANGES. To discourage
market-timing, Vanguard's Stock Index Funds, Growth and Income Fund, and
Balanced Index Fund do not permit online exchanges (in or out), except for
IRAs and certain other retirement accounts.

WRITTEN INSTRUCTIONS
^ "GOOD ORDER" REQUIRED. We reserve the right to reject any written
transaction instructions that are not in "good order." This means that your
instructions must include:
- The fund name and account number.
- The amount of the transaction (in dollars or shares).
- Signatures of all owners exactly as registered on the account.
- Signature guarantees, if required for the type of transaction.*
* For instance, signature guarantees must be provided by all registered
account shareholders when redemption proceeds are to be sent to a different
person or address.

RESPONSIBILITY FOR FRAUD
Vanguard will not be responsible for any account losses due to fraud, so long as
we reasonably believe that the person transacting on an account is authorized to
do so. Please take precautions to protect yourself from fraud. Keep your account
information private and immediately review any account statements that we send
to you. Contact Vanguard immediately about any transactions you believe to be
unauthorized.

UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.

LIMITS ON ACCOUNT ACTIVITY
Because excessive account transactions can disrupt management of a fund and
increase the fund's costs for all shareholders, Vanguard limits account activity
as follows:
- You may make no more than TWO SUBSTANTIVE "ROUND TRIPS" THROUGH A NON-MONEY
MARKET FUND during any 12-month period.
- Your round trips through a non-money market fund must be at least 30 days
apart.
- All funds may refuse share purchases at any time, for any reason.
<PAGE>

- Vanguard reserves the right to revise or terminate the exchange privilege,
limit the amount of an exchange, or reject an exchange, at any time, for
any reason.
A "round trip" is a redemption from a fund followed by a purchase back into the
same 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.

UNUSUAL CIRCUMSTANCES
If you experience difficulty contacting Vanguard online, by telephone, or by
Tele-Account, you can send us your transaction request by regular or express
mail. See Contacting Vanguard for addresses.

INVESTING WITH VANGUARD THROUGH OTHER FIRMS
You may purchase or sell shares of most Vanguard funds 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.

LOW BALANCE ACCOUNTS
All Vanguard funds reserve the right to close any investment-only
retirement-plan account or any nonretirement account whose balance falls below
the minimum initial investment.
Vanguard deducts a $10 fee in June from each nonretirement account whose
balance at that time is below $2,500 ($500 for Vanguard STAR(TM) Fund). The fee
is waived if your total Vanguard account assets are $50,000 or more.

FUND AND ACCOUNT UPDATES

PORTFOLIO SUMMARIES
We will send you quarterly portfolio summaries to help you keep track of your
accounts throughout the year. Each summary shows the market value of your
account at the close of the statement period, as well as all distributions,
purchases, sales, and exchanges for the current calendar year.

AVERAGE COST REVIEW STATEMENTS
For most taxable accounts, average cost review statements will accompany the
quarterly portfolio summaries. These statements show the average cost of shares
that you redeemed during the current calendar year, using the average cost
single category method.

CONFIRMATION STATEMENTS
Each time you buy, sell, or exchange shares, we will send you a statement
confirming the trade date and amount of your transaction.

<PAGE>

TAX STATEMENTS
We will send you annual tax statements to assist in preparing your income tax
returns. These statements, which are generally mailed in January, will report
the previous year's dividend and capital gains distributions, proceeds from the
sale of shares, and distributions from IRAs or other retirement plans.

REPORTS
You will receive financial reports about your funds twice a year--in June and
December. 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 funds' costs as low as possible (so that you and other
shareholders can keep more of the funds' investment earnings), Vanguard attempts
to eliminate duplicate mailings to the same address. When we find that two or
more shareholders have the same last name and address, we send just one fund
report to that address--instead of mailing separate reports to each shareholder.
If you want us to send separate reports, however, you may notify our Client
Services Department.

CONTACTING VANGUARD

ONLINE
VANGUARD.COM

- Your best source of Vanguard news n For fund, account, and service information
- For most account transactions
- For literature requests n 24 hours per day, 7 days per week

VANGUARD TELE-ACCOUNT(R)
1-800-662-6273
(ON-BOARD)
- For automated fund and account information
- For redemptions by check, exchange, or wire
- Toll-free, 24 hours per day, 7 days per week

INVESTOR INFORMATION
1-800-662-7447 (SHIP)
(Text telephone at
1-800-952-3335)
- For fund and service information
- For literature requests
- Business hours only

CLIENT SERVICES
1-800-662-2739 (CREW)
(Text telephone at
1-800-749-7273)
<PAGE>

- For account information
- For most account transactions
- Business hours only

INSTITUTIONAL DIVISION
1-888-809-8102
- For information and services for large institutional investors
- Business hours only

VANGUARD ADDRESSES

REGULAR MAIL (INDIVIDUALS--CURRENT CLIENTS):
The Vanguard Group
P.O. Box 1110
Valley Forge, PA 19482-1110

REGULAR MAIL (INSTITUTIONS):
The Vanguard Group
P.O. Box 2900
Valley Forge, PA 19482-2900

REGULAR MAIL (GENERAL INQUIRIES):
The Vanguard Group
P.O. Box 2600
Valley Forge, PA 19482-2600

REGISTERED OR EXPRESS MAIL:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815

FUND NUMBER
Always use this fund number when contacting us about
Vanguard Capital Opportunity Fund-111.

<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.

COUNTRY RISK
The chance that domestic events--such as political upheaval, financial troubles,
or a natural disaster--will weaken a country's securities markets.

CURRENCY RISK
The chance that a foreign investment will decrease in value because of
unfavorable changes in currency exchange rates.

DIVIDEND INCOME
Payment to shareholders of income from interest or dividends generated by a
fund's investments.

EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.

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, these
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).
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 pay 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>

[SHIP]
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600

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

ANNUAL/SEMIANNUAL REPORT TO
SHAREHOLDERS
Additional information about the
Fund's investments is available in
the Fund's annual and semiannual
reports to shareholders. In these
reports, you will find a discussion of
the market conditions and
investment strategies that
significantly affected the Fund's
performance during the most recent
fiscal year.

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 Internet site
at http://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

P111N-022001

<PAGE>

VANGUARD(R)
GLOBAL ASSET
ALLOCATION FUND

Prospectus
February 27, 2001

This prospectus contains
financial data for the
Fund through the
fiscal year ended
October 31, 2000.

[A MEMBER OF
THE VANGUARD GROUP LOGO]

<PAGE>

VANGUARD GLOBAL ASSET ALLOCATION FUND
Prospectus
February 27, 2001

A Balanced Mutual Fund

--------------------------------------------------------------------------------
CONTENTS
1 FUND PROFILE 17 INVESTING WITH VANGUARD

4 ADDITIONAL INFORMATION 17 Buying Shares

4 MORE ON THE FUND 18 Redeeming Shares

11 THE FUND AND VANGUARD 19 Other Rules You Should Know

11 INVESTMENT ADVISER 21 Fund and Account Updates

12 DIVIDENDS, CAPITAL GAINS, AND TAXES 21 Contacting Vanguard

14 SHARE PRICE GLOSSARY (inside back cover)

15 FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<PAGE>

1
FUND PROFILE

INVESTMENT OBJECTIVE
The Fund seeks to provide maximum long-term total return.

INVESTMENT STRATEGIES
The Fund invests in an adjustable mix of stocks, government bonds, and cash
reserves selected primarily from nine major markets: Australia, Canada, France,
Germany, Hong Kong, Japan, Spain, the United Kingdom, and the United States. The
adviser uses quantitative, or computer-driven, investment valuation models in
seeking to identify the asset classes and countries (for instance, French bonds
or Japanese stocks) that offer the best relative return prospects, adjusted for
risk. The Fund may simulate common stock performance by investing in stock index
futures contracts. Although the Fund's total futures exposure may reach 50% of
assets, these investments will not be used to leverage the Fund's performance.
For more information, see "Investment Strategies and Policies" under MORE ON THE
FUND.

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:
- Interest rate risk, which is the chance that bond prices overall will
decline over short or even long periods because of rising interest rates.
Interest rate risk will range from low to high for the Fund, depending on
the amount of Fund assets invested in bonds.
- Country risk, which is the chance that domestic events--such as political
upheaval, financial troubles, or a natural disaster--will weaken a
country's securities markets.
- Currency risk, which is the chance that investments in a particular country
will decrease in value if the U.S. dollar rises in value against that
country's currency.
- Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.
- Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner. Credit risk should be low for
the Fund, since it invests only a portion of it's assets in bonds, most of
which are considered high quality.

PERFORMANCE/RISK INFORMATION
The following bar chart is intended to help you understand the risks 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
relevent 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.

<PAGE>

2
----------------------------------------------------
ANNUAL TOTAL RETURNS

CHART GOES HERE

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

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 2000
-------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION*
-------------------------------------------------------------------------
Vanguard Global Asset Allocation Fund XX.XX% XX.XX% XX.XX%
Global Balanced Index XX.XX XX.XX XX.XX
Global Balanced Index** XX.XX XX.XX XX.XX
-------------------------------------------------------------------------
*August 14, 1995.
**Weighted 60% stock investments, 30% bond investments, and 10% U.S.
cash reserves; the stock and bond components are calculated using
established local market indexes in each country.
-------------------------------------------------------------------------

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: X.XX%
12b-1 Distribution Fee: None
Other Expenses: X.XX%
TOTAL ANNUAL FUND OPERATING EXPENSES: X.XX%

*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.

3
remain the same. The results apply whether or not you redeem your investment at
the end of the given period.

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):

THIS EXAMPLE 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.

--------------------------------------------------------------------------------
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 Global Asset Allocation Fund's expense ratio in fiscal year
2000 was 0.XX%, or $X.X0 per $1,000 of average net assets. The average global
flexible mutual fund had expenses in 2000 of 0.XX%, or $$X.X0 per $1,000 of
average net assets (derived from data provided by Lipper Inc., which reports on
the mutual fund industry). Management expenses, which are 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.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
PLAIN TALK ABOUT
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.
--------------------------------------------------------------------------------

<PAGE>

4
--------------------------------------------------------------------------------
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
Strategic Investment Management, NEWSPAPER ABBREVIATION
Arlington, Va., since inception GlbAA

INCEPTION DATE VANGUARD FUND NUMBER
August 14, 1995 115

NET ASSETS AS OF OCTOBER 31, 2000 CUSIP NUMBER
$XX 922038401

SUITABLE FOR IRAS TICKER SYMBOL
Yes VHAAX
--------------------------------------------------------------------------------

MORE ON THE FUND

<PAGE>

shareholders without a shareholder vote unless those strategies or policies are
designated as fundamental.
Finally, you'll find information on other important features of the Fund.

MARKET EXPOSURE
The Fund invests in stocks from the United States and other countries, selecting
securities that appear undervalued based on analyses of industry sectors and
individual companies. Each company is evaluated on the basis of its management's
strategies for new investment and for dealing with competition. The Fund is
widely diversified across companies, industry sectors, and countries. The Fund
holds growth stocks (characterized by relatively high prices in relation to such
fundamental measures as current earnings, dividends, and book value) and value
stocks (characterized by relatively low prices in relation to earnings,
dividends, and book value).

U.S. STOCKS
The Fund invests in U.S. stocks as a primary investment strategy, and small- and
mid-cap stocks as a secondary investment strategy.
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 S&P 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.

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 2000. You can see, for example, that while the average return on common
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 XXX% (from 1995
through 2000). 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.

<PAGE>

5
--------------------------------------------------------------------------------
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 to such factors as
earnings and book value, and these stocks typically pay above-average dividend
yields. Growth and value stocks have, in the past, produced similar long-term
returns, though each category has periods when it outperforms the other. In
general, growth funds appeal to investors who will accept more volatility in
hopes of a greater increase in share price. Growth funds also may appeal to
investors with taxable accounts who want a higher proportion of returns to come
as capital gains (which may be taxed at lower rates than dividend income). Value
funds, by contrast, are appropriate for investors who want some dividend income
and the potential for capital gains, but are less tolerant of share-price
fluctuations.
--------------------------------------------------------------------------------

[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, VALUE 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.

<PAGE>

[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.
IN ADDITION, INVESTMENTS IN FOREIGN STOCK MARKETS CAN BE RISKIER THAN
U.S. STOCK INVESTMENTS. THE PRICES OF INTERNATIONAL STOCKS AND THE PRICES
OF U.S. STOCKS HAVE OFTEN MOVED IN OPPOSITE DIRECTIONS. THESE PERIODS HAVE,
IN THE PAST, LASTED FOR AS LONG AS SEVERAL YEARS.

FOREIGN STOCKS

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1969
through 2000. Keep in mind that this was a particularly favorable period for all
stock markets. These average returns reflect past performance on international
stocks; you should not regard them as an indication of future returns from
either foreign markets as a whole or this Fund in particular.
Note that the preceding chart does not take into account returns measured
by the Select Emerging Markets Free Index, a widely used barometer of less
developed stock markets. Emerging markets can be substantially more volatile
than more developed foreign markets. In addition, because the MSCI EAFE Index
tracks the European and Pacific markets collectively, the above returns do not
reflect the variability of returns from year to year for these markets
individually, or the variability across these and other geographic regions or
market sectors. To illustrate this variability, the following table shows
returns for different international markets--as well as the U.S. market for
comparison--from 1990-2000, as measured by their respective indexes. 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.

<PAGE>

7
--------------------------------------------------------------------------------
STOCK MARKET RETURNS FOR DIFFERENT INTERNATIONAL MARKETS*
--------------------------------------------------------------------------------
EUROPEAN PACIFIC EMERGING U.S.
MARKET MARKET MARKETS MARKETS
--------------------------------------------------------------------------------
1990 -2.00% -34.43% -10.55% -3.10%
1991 14.12 11.51 59.91 30.47
1992 -3.92 -18.51 11.40 7.62
1993 29.25 36.15 74.84 10.08
1994 2.82 12.82 -7.31 1.32
1995 22.08 2.89 0.01** 37.58
1996 21.42 -8.23 15.19 22.96
1997 23.75 -25.74 -16.37 33.36
1998 28.68 2.64 -18.39 28.58
1999 15.77 56.38 60.86 21.04
--------------------------------------------------------------------------------
* European market returns are measured by the MSCI Europe Index; Pacific
market returns are measured by the MSCI Pacific Free Index; emerging
markets returns are measured by the Select Emerging Markets Free Index; and
U.S. market returns are measured by the Standard & Poor's 500 Index.
** The inception date of the Select Emerging Markets Free Index was May 4,
1994; returns shown for 1990 to 1994 are measured by the MSCI Emerging
Markets Free Index.
--------------------------------------------------------------------------------

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As a secondary investment strategy, the Fund may purchase forward foreign
currency exchange contracts to help protect its holdings against unfavorable
short-term exchange rates. A forward currency contract is an agreement to buy or
sell a country's currency at a

<PAGE>

specific price on a specific date, usually 30, 60, or 90 days in the future. In
other words, the contract guarantees an exchange rate on a given date. These
contracts will not, however, prevent the Fund's securities from falling in value
during foreign market downswings. Note that the Fund will not enter into such
contracts for speculative purposes.
Under normal circumstances, the Fund will not commit more than 20% of its
assets to forward currency exchange contracts.

SECURITY SELECTION

The Fund's investment adviser selects stocks principally on the basis of
industry and company analysis, and not on the basis of regional or country bets.
For this reason, the Fund's regional weightings--that is, its relative
investment exposure in different geographic areas--will usually range from 50%
to 150% or more of the weightings found in an unmanaged global equity index,
such as the Morgan Stanley Capital International (MSCI) All Country World Index.
The Fund's relative weightings in individual sectors and stocks are also
expected to differ markedly from the index weightings.
The adviser typically invests across a wide range of industries, and the
Fund's holdings are expected to represent a mix of value and growth stocks as
well as a mix of established and emerging stock markets. Generally, the Fund
will limit its emerging markets holding to no more than 20% of its assets.

[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE CHANCE THAT THE ADVISER
WILL DO A POOR JOB OF SELECTING THE SECURITIES OR COUNTRIES IN WHICH THE
FUND INVESTS.

The Fund is generally managed without regard to tax ramifications.

--------------------------------------------------------------------------------
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. Non-standardized derivatives, on the other hand, tend to be more
specialized or complex, and may be harder to value. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
--------------------------------------------------------------------------------

<PAGE>

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.
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.

COSTS AND MARKET-TIMING
Some investors try to profit from a strategy called market-timing--switching
money into mutual funds 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 management. A purchase request could be
rejected 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 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 other
retirement accounts are not subject to this rule.)
- Certain Vanguard funds, including the Global Equity Fund, charge
transaction fees on share redemptions. Other Vanguard funds charge
transaction fees on share purchases.

See the INVESTING WITH VANGUARD section of this prospectus for further details
on Vanguard's transaction policies.

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

--------------------------------------------------------------------------------
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 taxable
income. As of October 31, 2000, the average turnover rate for all global stock
funds was approximately XX%, according to Morningstar, Inc.
--------------------------------------------------------------------------------

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 $5x0 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.

INVESTMENT ADVISER

Marathon Asset Management Limited (Marathon), Orion House, 5 Upper St. Martin's
Lane, London, adviser to the Fund, is an investment advisory firm founded in
1986. Marathon provides asset management services to companies and institutions.
As of October 31, 2000, Marathon managed about $10 billion in assets. The firm
manages the Fund subject to the control of the trustees and officers of the
Fund.

<PAGE>

Marathon's advisory fee is paid quarterly, and is based on certain annual
percentage rates applied to the Fund's average month-end net assets for each
quarter. In addition, Marathon's advisory fee may be increased or decreased,
based on the cumulative total return of the Fund over a trailing 36-month period
as compared with the cumulative total return of the MSCI All Country World Index
over the same period. Please consult the Fund's Statement of Additional
Information for a complete explanation of how advisory fees are calculated.
The adviser is authorized to choose broker-dealers to handle the purchase
and sale of the Fund's securities, and to obtain the best available price and
most favorable execution for all transactions. Also, the Fund may direct the
adviser to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.
In the interest of obtaining better execution of a transaction, the adviser
may at times choose brokers who charge higher commissions. If more than one
broker can obtain the best available price and most favorable execution, then
the adviser is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to the adviser or 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. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.
For the fiscal year ended October 31, 2000, the advisory fee represented an
effective annual rate of 0.XX% of the Fund's average net assets PERFORMANCE
INCREASE/DECREASE.

--------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUND'S ADVISER

The manager primarily responsible for overseeing the Fund's investments is:

JEREMY J. HOSKING, Director of Marathon Asset Management Limited. He has worked
in investment management and has managed assets since 1979; has been with
Marathon-London since 1986; and has managed the Fund since 1995. Education:
M.A., Cambridge University.
--------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

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.

<PAGE>

12
--------------------------------------------------------------------------------
PLAIN TALK ABOUT
DISTRIBUTIONS
As a shareholder, you are entitled to your portion 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 any stock
holdings and the interest it receives from any 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.
--------------------------------------------------------------------------------

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 for federal income tax purposes 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 for federal income tax purposes 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.
- Dividend and capital gains distributions that you receive, as well as your
gains or losses from any sale or exchange of Fund shares, may be subject to
state and local income taxes.
- The Fund may be subject to foreign taxes or foreign tax withholding on
dividends, interest and some capital gains that it receives on foreign
securities. You may qualify for an offsetting credit or deduction under
U.S. tax laws for your portion of the Fund's foreign tax obligations,
provided that you meet certain requirements. See your tax adviser or IRS
Publications for more information.

<PAGE>

GENERAL INFORMATION

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.
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.

<PAGE>

the Fund to calculate its net asset value may differ from quoted or published
prices for the underlying securities.
The Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading "Vanguard Funds."

FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Fund's financial performance for the past five years, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each five
years 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.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
VANGUARD GLOBAL EQUITY FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.11 $12.79 $11.72 $10.08
-----------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .20 .19 .19 .13
Net Realized and
Unrealized Gain (Loss) on Investments 2.80 (.20) 1.21 1.58
-------------------------------------------------------------
Total from Investment Operations 3.00 (.01) 1.40 1.71
-------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.26) (.23) (.14) (.07)
Distributions from Realized Capital Gains (.75) (.44) (.19) --
-------------------------------------------------------------
Total Distributions (1.01) (.67) (.33) (.07)
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $14.10 $12.11 $12.79 $11.72
===========================================================================================================
TOTAL RETURN* 26.52% 0.04% 12.19% 17.05%
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA

Net Assets, End of Year (Millions) $125 $121 $128 $99
Ratio of Total Expenses to Average Net Assets 0.71% 0.68% 0.71% 0.85%
Ratio of Net Investment Income to Average Net Assets 1.39% 1.47% 1.67% 1.53%
Turnover Rate 36% 34% 24% 29%
===========================================================================================================
</TABLE>

* 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.

<PAGE>

15
--------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began fiscal 2000 with a net asset value (price) of $14.10 per share.
During the year, the Fund earned $0.XX per share from investment income
(interest and dividends) and $0.XX 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.XX per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.

The earnings ($0.XX per share) minus the distributions ($0.XX per share)
resulted in a share price of $XX.XX at the end of the year. This was an increase
of $0.XX per share (from $14.10 at the beginning of the year to $XX.XX at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was XX.XX%% for the
year.

<PAGE>

--------------------------------------------------------------------------------
INVESTING WITH VANGUARD
This section of the prospectus explains the basics of doing business with
Vanguard. A special booklet, The Vanguard Service Directory, provides details of
our many shareholder services for individual investors. A separate booklet, The
Compass, does the same for institutional investors. You can request either
booklet by calling or writing Vanguard, using the Contacting Vanguard
instructions found at the end of this section.

BUYING SHARES
REDEEMING SHARES
OTHER RULES YOU SHOULD KNOW
FUND AND ACCOUNT UPDATES
CONTACTING VANGUARD
--------------------------------------------------------------------------------

BUYING SHARES

YOUR PURCHASE CHECK
When investing by check, make the check payable to: The Vanguard Group-129.

PURCHASE RULES YOU SHOULD KNOW
^ THIRD PARTY CHECKS. To protect the funds from check fraud, Vanguard will
not accept checks made payable to third parties.
<PAGE>

^ U.S. CHECKS ONLY. All purchase checks must be written in U.S. dollars and
drawn on a U.S. bank.
^ LARGE PURCHASES. Vanguard reserves the right to reject any purchase request
that may disrupt a fund's operation or performance. Please call us before
attempting to invest a large dollar amount.
^ NO CANCELLATIONS. Place your transaction requests carefully. Vanguard will
NOT cancel any transaction once it has been initiated and a confirmation
number has been assigned (if applicable).
^ FUTURE PURCHASES. All Vanguard funds reserve the right to stop selling
shares at any time, or to reject specific purchase requests, including
purchases by exchange from another Vanguard fund.

REDEEMING SHARES

<PAGE>

Money Market Funds: For telephone requests accepted at Vanguard by 10:45 a.m.,
Eastern time, the redemption proceeds will arrive at your bank by the close of
business that same day. For other requests accepted before 4 p.m., the
redemption proceeds will arrive at your bank by the close of business on the
following business day.
Bond Funds: For requests accepted at Vanguard by 4 p.m., Eastern time, the
redemption proceeds will arrive at your bank by the close of business on the
following business day.

REDEMPTION RULES YOU SHOULD KNOW
^ SPECIAL ACCOUNTS. Special documentation may be required to redeem from
certain types of accounts, such as trust, corporate, non-profit, or
retirement accounts. Please call us before attempting to redeem from these
types of accounts.
^ POTENTIALLY DISRUPTIVE REDEMPTIONS. Vanguard reserves the right to pay all
or part of your redemption in-kind--that is, in the form of securities--if
we believe that a cash redemption would disrupt the Fund's operation or
performance. Under these circumstances, Vanguard also reserves the right to
delay payment of your redemption proceeds for up to seven days. By calling
us before you attempt to redeem a large dollar amount, you are more likely
to avoid in-kind or delayed payment of your redemption.
^ RECENTLY PURCHASED SHARES. While you can redeem shares at any time,
proceeds will not be made available to you until the Fund collects payment
for your purchase. This may take up to ten calendar days for shares
purchased by check or Vanguard Fund Express(R).
^ PAYMENT TO A DIFFERENT PERSON OR ADDRESS. We can make your redemption check
payable to a different person or send it to a different address. However,
this requires the written consent of all registered account owners, which
must be provided under signature guarantees. You can obtain a signature
guarantee from most commercial and savings banks, credit unions, trust
companies, or member firms of a U.S. stock exchange.
^ NO CANCELLATIONS. Place your transaction requests carefully. Vanguard will
NOT cancel any transaction once it has been initiated and a confirmation
number has been assigned (if applicable).
^ EMERGENCY CIRCUMSTANCES. Vanguard funds can postpone payment of redemption
proceeds for up to seven calendar days at any time. In addition, Vanguard
funds can suspend redemptions and/or postpone payments of redemption
proceeds at times when the New York Stock Exchange is closed or during
emergency circumstances, as determined by the U.S. Securities and Exchange
Commission.

OTHER RULES YOU SHOULD KNOW

- Primary Social Security or employer identification number.
- Personal Identification Number (PIN), if applicable.
^ SUBJECT TO REVISION. We reserve the right to revise or terminate Vanguard's
telephone transaction service at any time, without notice. ^SOME VANGUARD
FUNDS DO NOT PERMIT TELEPHONE EXCHANGES. To discourage market-timing,
Vanguard's Stock Index Funds, Growth and Income Fund, and Balanced Index
Fund generally do not permit telephone exchanges (in or out), except for
IRAs and certain other retirement accounts.

VANGUARD.COM

^ REGISTRATION. You can use your personal computer to review your account
holdings, to sell or exchange shares of most Vanguard funds, and to perform
other transactions. To establish this service, you can register online.
^SOME VANGUARD FUNDS DO NOT PERMIT ONLINE EXCHANGES. To discourage
market-timing, Vanguard's Stock Index Funds, Growth and Income Fund, and
Balanced Index Fund do not permit online exchanges (in or out), except for
IRAs and certain other retirement accounts.

UNCASHED CHECKS
Please cash your distribution or redemption checks promptly.
Vanguard will not pay interest on uncashed checks.

FUND AND ACCOUNT UPDATES

CONFIRMATION STATEMENTS
Each time you buy, sell, or exchange shares, we will send you a statement
confirming the trade date and amount of your transaction.

<PAGE>

21
REPORTS
You will receive financial reports about your fund twice a year--in June and
December. 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 adviser, and the fund's financial
statements, which include a listing of the fund's holdings.
To keep the funds' costs as low as possible (so that you and other
shareholders can keep more of the funds' investment earnings), Vanguard attempts
to eliminate duplicate mailings to the same address. When we find that two or
more shareholders have the same last name and address, we send just one fund
report to that address--instead of mailing separate reports to each shareholder.
If you want us to send separate reports, however, you may notify our Client
Services Department.

CONTACTING VANGUARD

ONLINE
VANGUARD.COM

- Your best source of Vanguard news
- For fund, account, and service information
- For most account transactions
- For literature requests
- 24 hours per day, 7 days per week

VANGUARD TELE-ACCOUNT(R)
1-800-662-6273
(ON-BOARD)
- For automated fund and account information
- For redemptions by check, exchange, or wire
- Toll-free, 24 hours per day, 7 days per week

INVESTOR INFORMATION
1-800-662-7447 (SHIP)
(Text telephone at
1-800-952-3335)
- For fund and service information
- For literature requests
- Business hours only

CLIENT SERVICES
1-800-662-2739 (CREW)
(Text telephone at
1-800-749-7273)
- For account information
- For most account transactions
- Business hours only

INSTITUTIONAL DIVISION
1-888-809-8102
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- For information and services for large institutional investors
- Business hours only

VANGUARD ADDRESSES

REGULAR MAIL (INDIVIDUALS--CURRENT CLIENTS):
The Vanguard Group
P.O. Box 1110
Valley Forge, PA 19482-1110

REGULAR MAIL (INSTITUTIONS):
The Vanguard Group
P.O. Box 2900
Valley Forge, PA 19482-2900

REGULAR MAIL (GENERAL INQUIRIES):
The Vanguard Group
P.O. Box 2600
Valley Forge, PA 19482-2600

REGISTERED OR EXPRESS MAIL:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815

FUND NUMBER
Always use this fund number when contacting us about:
Vanguard Global Equity Fund-129.