Exhibit 17(d)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS
DATED MARCH 15, 2002 VANGUARD(R) MID-CAP GROWTH FUND
INVESTOR SHARES * *, 2002
This prospectus contains financial data for the Fund through the fiscal year
ended October 31, 2001.
PROSPECTUS STOCK
[GRAPHIC]
Information contained in this prospectus is subject to completion or amendment.
A registration statement for Vanguard Mid-Cap Growth Fund has been filed with
the U.S. Securities and Exchange Commission but has not yet become effective.
This new fund is being formed in connection with the proposed reorganization of
an existing fund, known as Provident Mid Cap Growth Fund A. Shareholders of
Provident Mid Cap Growth Fund A may or may not approve the reorganization
proposal. If the proposal is not approved by those shareholders, the
registration statement previously filed for Vanguard Mid-Cap Growth Fund will be
withdrawn.
Shares of Vanguard Mid-Cap Growth Fund may not be sold, nor may offers to
buy be accepted, prior to the time the registration statement becomes effective.
This communication shall not constitute an offer to sell, nor shall there be any
sale of these securities in any state in which such offer, solicitation, or sale
would be unlawful prior to registration or qualification under the securities
laws of any such state.
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.
THE VANGUARD GROUP(R)
VANGUARD MID-CAP GROWTH FUND
Prospectus
*, 2002
A GROWTH STOCK MUTUAL FUND
CONTENTS
* FUND PROFILE
* ADDITIONAL INFORMATION
* MORE ON THE FUND
* THE FUND AND VANGUARD
* INVESTMENT ADVISER
* DIVIDENDS, CAPITAL GAINS, AND TAXES
* SHARE PRICE
* FINANCIAL HIGHLIGHTS
* INVESTING WITH VANGUARD
* Buying Shares
* Converting Shares
* Redeeming Shares
* Exchanging Shares
* Other Rules You Should Know
* Fund and Account Updates
* 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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1
FUND PROFILE
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Fund invests at least 80% of its net assets primarily in the common stock of
medium size companies whose market capitalizations fall within the
capitalization range of the companies included in the Russell MidCap Growth
Index (currently approximately $1-$14 billion). In selecting investments, the
adviser invests in those medium-capitalization companies which, based on its
analysis, it believes have the best prospects for future growth.
PRIMARY RISKS
An investment in the Fund could lose money over short or even long periods. You
should expect the Fund's share price and total return to fluctuate within a wide
range like the overall stock market. The Fund's performance could be hurt by:
- - INVESTMENT STYLE RISK, which is the chance that returns from
mid-capitalization stocks will trail returns from the overall stock market.
Historically, these stocks have been more volatile in price than the
large-cap stocks that dominate the overall stock market, and they often
perform quite differently.
- - MANAGER RISK, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.
PERFORMANCE/RISK INFORMATION
The following bar chart and table are intended to help you understand the risks
of investing in the Fund. The bar chart shows how the Fund's performance
(including operating expenses but excluding shareholder fees) has varied from
one calendar year to another for the past five years. The table shows how the
Fund's average annual total returns (including operating expenses and any
applicable shareholder fees) 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.*
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ANNUAL TOTAL RETURNS
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- --------------------------------------------------------------------------------
The Fund's year-to-date return as of the most recent calendar quarter, which
ended March 31, 2002, was *%.
- --------------------------------------------------------------------------------
- ----------
* Prior to *, 2002, Vanguard Mid-Cap Growth Fund was organized as Provident
Investment Counsel Mid Cap Fund A and was sponsored by Provident Investment
Counsel, its investment adviser. The reorganization brought the Fund into
The Vanguard Group, while maintaining the same adviser and substantially
similar investment objective and strategies.
2
During the period shown in the bar chart, the highest return for a calendar
quarter was *% (quarter ended *), and the lowest return for a quarter was *%
(quarter ended *).
The table shows how the Fund's average annual total returns (including
operating expenses and any applicable shareholder fees) compare with those of a
relevent market index. The table also presents the impact of taxes on the Fund's
returns. To calculate these figures, we assumed that, at the time of each
distribution of income or capital gains, the shareholder was in the highest
federal tax bracket. We did not take into consideration state or local income
taxes.
In certain cases the figure representing "Return After Taxes on
Distributions and Sale of Fund Shares" may be HIGHER than the other return
figures for the same period. A higher after-tax return results when a capital
loss occurs upon redemption and translates into an assumed tax deduction that
benefits the shareholder. Please note that your after-tax returns depend on your
tax situation and may differ from those shown.
Also note that if you own the Fund in a tax-deferred account, such as an
individual retirement account or a 401(k) plan, this information does not apply
to your investment, because such accounts are subject to taxes only upon
distribution.
Finally, keep in mind that the Fund's performance--whether before taxes or
after taxes--does not indicate how it will perform in the future.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 2001
1 YEAR SINCE INCEPTION*
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VANGUARD MID-CAP GROWTH FUND
Return Before Taxes *% *%
Return After Taxes on Distributions * *
Return After Taxes on Distributions
and Sale of Fund Shares * *
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RUSSELL MIDCAP GROWTH INDEX (reflects no
deduction for fees, expenses, or taxes) *% *%
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* December 31, 1997.
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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 amounts now in effect.*
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: None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
Management Expenses: *%
12b-1 Distribution Fee: None
Other Expenses: *%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.65%
- ----------
* The information in the table has been restated to reflect current expenses
rather than last year's expenses because these amounts changed when the
Fund became a member of The Vanguard Group on *, 2002.
3
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. The example assumes that the Fund provides a
return of 5% a year, that operating expenses match our estimates, and that you
redeem your shares at the end of the given period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$* $* $* $*
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 Mid-Cap Growth Fund's estimated expense ratio for its first
full year of operation as a Vanguard fund is 0.65%, or $6.50 per $1,000 of
average net assets. The average midcap growth mutual fund had expenses in 2001
of *%, or $* 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.
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS
Distributed annually in December
INVESTMENT ADVISER
Provident Investment Counsel, Pasadena, Calif., since inception
INCEPTION DATE
December 31, 1997
NET ASSETS AS OF OCTOBER 31, 2001
$* million
SUITABLE FOR IRAS
Yes
MINIMUM INITIAL INVESTMENT
$10,000; $1,000 for IRAs and custodial accounts for minors
NEWSPAPER ABBREVIATION
*
VANGUARD FUND NUMBER
*
CUSIP NUMBER
*
TICKER SYMBOL
*
4
MORE ON THE FUND
This prospectus describes the primary 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 the more significant risks 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 shareholders without a shareholder vote, unless
those strategies or policies are designated as fundamental. Note that the
investment objective of the Fund is not fundamental and may be changed without a
shareholder vote.
Finally, you'll find information on other important features of the Fund.
MARKET EXPOSURE
The Fund's primary strategy is to invest at least 80% of its net assets in the
common stocks of mid-cap companies that offer strong growth potential. However,
the Fund has flexibility to invest the balance in other market capitalizations
and security types. Investing in medium capitalization stocks may involve
greater risk than investing in large capitalization stocks, since they can be
subject to more abrupt or erratic movements in value. However, they tend to
involve less risk than stocks of small companies.
PLAIN TALK ABOUT
GROWTH FUNDS AND VALUE FUNDS
Growth investing and value investing are two styles employed by stock fund
managers. GROWTH FUNDS generally focus on companies believed to have
above-average potential for growth in revenue and earnings. Reflecting the
market's high expectations for superior growth, such stocks typically have low
dividend yields and above-average prices in relation to such measures as
revenue, earnings, and book value. VALUE FUNDS generally emphasize stocks of
companies from which the market does not expect strong growth. The prices of
value stocks typically are below-average in comparison with such measures 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 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.
5
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Index, a widely used barometer
of market activity. (Total returns consist of dividend income plus change in
market price.) Note that the returns shown do not include the costs of buying
and selling stocks or other expenses that a real-world investment portfolio
would incur. Note, also, that the gap between best and worst tends to narrow
over the long term.
U.S. STOCK MARKET RETURNS (1926-2001)
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
Best 54.2% 28.6% 19.9% 17.8%
Worst -43.1 -12.4 -0.8 3.1
Average 12.6 11.1 11.2 11.4
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 2001. You can see, for example, that while the average return on common
stocks for ALL of the 5-year periods was 11.1%, average returns for INDIVIDUAL
5-year periods ranged from -12.4% (from 1928 through 1932) to 28.6% (from 1995
through 1999). These average returns reflect PAST performance on common stocks;
you should not regard them as an indication of FUTURE returns from either the
stock market as a whole or this Fund in particular.
[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE CHANCE THAT
RETURNS FROM THE TYPES OF STOCKS IN WHICH IT INVESTS WILL TRAIL
RETURNS FROM THE OVERALL MARKET. AS A GROUP, MID-CAP STOCKS TEND TO GO
THROUGH CYCLES OF DOING BETTER--OR WORSE--THAN THE STOCK MARKET IN
GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS
SEVERAL YEARS.
SECURITY SELECTION
The investment adviser focuses on individual companies rather than trying to
identify the best market sectors going forward. This is often referred to as a
"bottom-up" approach to investing. The adviser seeks companies that have
displayed exceptional profitability, market share, return on equity,
reinvestment rates and sales and dividend growth. Companies with significant
management goals, plans and controls, and leading proprietary positions in given
market niches are especially attractive. Finally, the valuation of each company
is assessed relative to its industry, earnings growth and the market in general.
In determining whether to sell a security, the adviser considers various
factors such as fundamental changes within a particular company or its industry.
These considerations are based on the adviser's research, including analytical
procedures, market research or discussions with company management.
The Fund is generally managed without regard to tax ramifications.
[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.
OTHER INVESTMENT POLICIES AND RISKS
The Fund may also invest in stock index futures and options contracts, which are
types of derivative. 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.
6
[FLAG] THE FUND MAY INVEST, TO A LIMITED EXTENT, IN DERIVATIVES. DERIVATIVES
MAY INVOLVE RISKS DIFFERENT FROM, AND POSSIBLY GREATER THAN, THOSE OF
TRADITIONAL INVESTMENTS.
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.
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. Nonstandardized derivatives (such as swap agreements), 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 allocating substantial assets to cash investments--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 or to compensate the funds for the costs associated with it.
Specifically:
7
- - 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.
- - Certain Vanguard funds charge purchase and/or redemption fees on
transactions.
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
The Fund retains the right to sell securities regardless of how long the
securities have been held. Historically, due to its investment strategy, the
Fund has had a HIGH turnover rate. The Fund's average turnover rate since
inception has been about *%. (A turnover rate of 100% would occur, for example,
if the Fund sold and replaced securities valued at 100% of its net assets within
a one-year period.
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, 2001, the average turnover rate for all mid-cap growth
funds was approximately *%, 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 in excess of $500 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.
8
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.
INVESTMENT ADVISER
Provident Investment Counsel (Provident), 300 North Lake Avenue, Pasadena, CA
91101, adviser to the Fund, traces its origins to an investment advisory
partnership formed in 1951. It is now an indirect, wholly owned subsidiary of
Old Mutual plc, a United Kingdom based financial services group with substantial
asset management, insurance and banking businesses. As of October 31, 2001,
Provident managed about $* million 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. In addition, the quarterly fee
is increased or decreased based upon Provident's performance in comparison to
its benchmark index. For these purposes, Provident's cumulative investment
performance over a trailing 36-month period is compared to the cumulative total
return of the Russell Midcap Growth Index. Please consult the Fund's STATEMENT
OF ADDITIONAL INFORMATION for a complete explanation of how advisory fees are
calculated.
For the fiscal year ended October 31, 2001, the investment advisory fees
paid to Provident represented an effective annual rate of *% of the Fund's
average net assets. (Please note that these fees were calculated under a prior
advisory agreement. Had the current fee schedule been in place for fiscal 2001,
the investment advisory fee would have represented an effective annual rate of
*% of the Fund's average net assets.)
The adviser is authorized to choose broker-dealers to handle the purchase
and sale of the Fund's portfolio 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.
9
PLAIN TALK ABOUT
THE FUND'S ADVISER
Provident Investment Counsel employs a team-oriented approach, with a group of
investment professionals responsible for the day-to-day management of the Fund.
DIVIDENDS, CAPITAL GAINS, AND TAXES
FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. You can receive
distributions of income or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.
PLAIN TALK ABOUT
DISTRIBUTIONS
As a shareholder, you are entitled to your portion of a fund's income from
interest and dividends as well as gains from the sale of investments. You
receive such earnings as either an INCOME or a CAPITAL GAINS DISTRIBUTION.
INCOME consists of 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 for 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.
- - Any conversion between classes of shares of the SAME fund is a nontaxable
event. By contrast, an exchange between classes of shares of DIFFERENT
funds IS a taxable event.
10
PLAIN TALK ABOUT
"BUYING A DIVIDEND"
Unless you are investing through a tax-deferred retirement account (such as an
IRA), you should consider avoiding a purchase of fund shares of a fund shortly
before the fund 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 will 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.
GENERAL INFORMATION
BACKUP WITHHOLDING. By law, Vanguard must withhold 30% of any taxable
distributions or redemptions from your account if you do not:
- - Provide us with your correct taxpayer identification number;
- - Certify that the taxpayer identification number is correct; and
- - Confirm that you are not subject to backup withholding.
Similarly, Vanguard must withhold taxes from your account if the IRS instructs
us to do so. FOREIGN INVESTORS. Vanguard funds generally are not sold outside
the United States, except to certain qualifying investors. If you reside outside
the United States, please consult our website at VANGUARD.COM and review
"Non-U.S. Investors." 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.
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,
generally 4 p.m., Eastern time. Net asset value per share is computed by
dividing the net assets of the Fund by the number of Fund shares outstanding. On
holidays or other days when the Exchange is closed, the NAV is not calculated,
and the Fund does not transact purchase or redemption requests. However, on
those days the value of the Fund's assets may be affected to the extent that the
Fund holds foreign securities that trade on foreign markets that are open.
Stocks held by a Vanguard fund are valued at their MARKET VALUE when
reliable market quotations are readily available. Certain short-term debt
instruments used to manage a fund's cash are valued on the basis of amortized
cost. The values of any foreign securities held by a fund are converted into
U.S. dollars using an exchange rate obtained from an independent third party.
When reliable market quotations are not readily available, securities are
priced at their FAIR VALUE, calculated according to procedures adopted by the
board of trustees. A fund also may use fair-value pricing if the value of a
security it holds is materially affected by events occurring after the close of
11
the primary markets or exchanges on which the security is traded. This most
commonly occurs with foreign securities, but may occur in other cases as well.
When fair-value pricing is employed, the prices of securities used by a fund to
calculate its net asset value may differ from quoted or published prices for the
same securities.
Vanguard fund share prices can be found daily in the mutual fund listings
of most major newspapers under various "Vanguard" headings.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Fund's financial performance for the periods shown, 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 period
on an investment in the Fund (assuming reinvestment of all dividend and capital
gains distributions). The information for the two years in the period ended
October 31, 2000, has been derived from the financial statements audited by
Price-waterhouseCoopers LLP, independent accountants, whose report--along with
the Fund's financial statements--is included in the Fund's most recent annual
report to shareholders. For the prior period, the Fund employed other auditors.
You may have the annual report sent to you without charge by contacting
Vanguard.
- -----------------------------------------------------------------------------------------------
VANGUARD MID-CAP GROWTH FUND
PERIODS ENDED OCTOBER 31,*
-------------------------------------------
2001 2000 1999 1997**
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ * $ 15.87 $ 10.53 $ 10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss * (0.22) (0.11) (0.03)
Net Realized and Unrealized Gain on Investments * 15.13 5.45 0.56
- -----------------------------------------------------------------------------------------------
Total from Investment Operations * 14.91 5.34 0.53
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
From Net Realized Gains * (0.94) 0.00 0.00
Total Distributions * (0.94) 0.00 0.00
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ * $ 29.84 $ 15.87 $ 10.53
===============================================================================================
TOTAL RETURN *% 97.09% 50.71% 5.30%***
===============================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ * $ 36.0 $ 11.9 $ 5.7
RATIOS TO AVERAGE NET ASSETS+
Expenses *% 1.39% 1.39% 1.04%++
Net investment loss *% -1.03% -1.03% -0.43%++
Portfolio Turnover Rate+++ *% 185.88% 144.64% 166.89%
===============================================================================================
- ----------
* The Fund was organized as Provident Investment Counsel Mid Cap Fund A, and
was not a member of The Vanguard Group. On o, 2002, the Fund acquired all
assets and liabilities of Provident Investment Counsel Mid Cap Fund A in a
tax-free reorganization. The Fund had no operations prior to the
reorganization.
** For the period ended December 31, 1997 (Commencement of Operations) through
October 31, 1998.
*** Not annualized.
+ Includes the Fund's share of expenses, net of fees waived and expenses
absorbed, allocated from the related Portfolio. The combined fees waived
and expenses absorbed were 0.80%, 2.60%, and 4.11%, respectively.
++ Annualized.
+++ Portfolio turnover rate of Provident Mid Cap Portfolio, in which all of the
Fund's assets are invested.
12
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
The Fund began fiscal year 2001 with a net asset value (price) of $* per share.
During the year, the Fund earned $* from investment income (interest and
dividends). There was a decline of $* per share in the value of investments held
or sold by the Fund, resulting in a net decline of $* per share from investment
operations.
Shareholders received $* per share in the form of dividend distributions. A
portion of each year's distributions may come from the prior year's dividends or
capital gains.
The share price at the end of the year was $*, reflecting losses of $* per share
and distributions of $* per share. This was a decrease of $* per share (from $*
at the beginning of the year to $* at the end of the year). For a shareholder
who reinvested the distributions in the purchase of more shares, the total
return was *% for the year.
As of October 31, 2001, the Fund had $* million in net assets. For the year, the
expense ratio was *% ($* per $* of net assets), and the net investment income
amounted to *% of average net assets. The Fund sold and replaced securities
valued at *% of its net assets.
13
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
EXCHANGING SHARES
OTHER RULES YOU SHOULD KNOW
FUND AND ACCOUNT UPDATES
CONTACTING VANGUARD
BUYING SHARES
ACCOUNT MINIMUMS FOR INVESTOR SHARES
TO OPEN AND MAINTAIN AN ACCOUNT: $10,000 for regular accounts; $1,000 for IRAs,
and custodial accounts for minors. (Shareholders who invested in the Fund prior
to * 2002, will continue to be subject to a minimum account balance of $1,000
for regular accounts; $500 for retirement accounts.) TO ADD TO AN EXISTING
ACCOUNT: $100 by mail or exchange; $1,000 by wire.
Vanguard reserves the right to increase or decrease the minimum amount
required to open and maintain an account, or to add to an existing account,
without prior notice.
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. Make your check payable to: THE
VANGUARD GROUP-- *. For a list of addresses, see CONTACTING VANGUARD.
BY EXCHANGE PURCHASE: You can purchase shares with the proceeds of a redemption
from another Vanguard fund under our exchange privilege. SEE EXCHANGING SHARES.
BY WIRE: Call Vanguard to purchase shares by wire. See CONTACTING VANGUARD.
YOUR PURCHASE PRICE
You buy shares at a fund's next-determined NAV after Vanguard receives 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.
14
PURCHASE RULES YOU SHOULD KNOW
[CHECKMARK] THIRD PARTY CHECKS. To protect the funds from check fraud,
Vanguard will not accept checks made payable to third parties.
[CHECKMARK] U.S. CHECKS ONLY. All purchase checks must be written in U.S.
dollars and drawn on a U.S. bank.
[CHECKMARK] 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.
[CHECKMARK] 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).
[CHECKMARK] 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, at anytime, for any reason.
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 receives 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
[CHECKMARK] CHECK REDEMPTIONS: Unless instructed otherwise, Vanguard will
mail you a check, normally within two business days of your trade
date.
[CHECKMARK] EXCHANGE REDEMPTIONS: You may instruct Vanguard to apply the
proceeds of your redemption to purchase shares of another
Vanguard fund under our exchange privilege. SEE EXCHANGING
SHARES.
[CHECKMARK] WIRE REDEMPTIONS: When redeeming from a money market fund or a
bond fund, you may instruct Vanguard to wire your redemption
proceeds to a previously designated bank account. Wire
redemptions are not available for
15
Vanguard's other funds. The wire redemption option is NOT
AUTOMATIC; you must establish it by completing a special form or
the appropriate section of your account registration. Also, wire
redemptions must be requested in writing or by telephone, NOT
online. For these funds, a $5 fee applies to wire redemptions
under $5,000.
MONEY MARKET FUNDS: For telephone requests received 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 received before 4 p.m., Eastern time, the redemption
proceeds will arrive at your bank by the close of business on the
following business day.
BOND FUNDS: For requests received 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
[CHECKMARK] SPECIAL ACCOUNTS. Special documentation may be required to redeem
from certain types of accounts, such as trust, corporate,
nonprofit, or retirement accounts. Please call us BEFORE
attempting to redeem from these types of accounts.
[CHECKMARK] 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.
[CHECKMARK] 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).
[CHECKMARK] SHARE CERTIFICATES. If share certificates have been issued for
your account, those shares cannot be redeemed until youU return
the certificates (unsigned) to Vanguard by registered mail. For
the correct address, see CONTACTING VANGUARD.
[CHECKMARK] 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.
[CHECKMARK] 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).
16
[CHECKMARK] 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.
EXCHANGING SHARES
All Vanguard funds accept exchange requests by Web, telephone or mail. However,
because excessive exchanges can disrupt management of a fund and increase the
fund's costs for all shareholders, Vanguard places certain limits on the
exchange privilege. For the U.S. STOCK INDEX FUNDS, INTERNATIONAL STOCK INDEX
FUNDS, REIT INDEX FUND, BALANCED INDEX FUND, CALVERT SOCIAL INDEX FUND,
INTERNATIONAL GROWTH FUND, INTERNATIONAL VALUE FUND, INTERNATIONAL EXPLORER FUND
AND GROWTH AND INCOME FUND these limits generally are as follows:
- - No telephone or Web exchanges between 2:30 p.m. and 4 p.m., Eastern time on
business days. ANY EXCHANGE REQUEST PLACED DURING THESE HOURS WILL BE
REJECTED. On days when the New York Stock Exchange is scheduled to close
early, this end-of-day restriction will be adjusted to 1.5 hours prior to
the scheduled close. (For example, if the NYSE is scheduled to close at 1
p.m., Eastern time, the cut-off for phone and Web exchanges will be 11:30
a.m. Eastern time.)
- - No more than two exchanges OUT of a fund may be requested by telephone or
Web within any 12-month period.
- - Each fund reserves the right to reject exchanges considered excessive.
For ALL OTHER VANGUARD FUNDS, the following limits generally apply:
- - No more than two substantive "round trips" through a non-money-market fund
during any 12-month period.
- - A "round trip" is a redemption OUT of a fund (by any means) followed by a
purchase back INTO the same fund (by any means).
- - Round trips must be at least 30 days apart.
17
- - "Substantive" means a dollar amount that Vanguard determines, in its sole
discretion, could adversely affect management of the fund.
- - Each fund reserves the right to reject exchanges considered excessive.
Please note that Vanguard reserves the right to revise or terminate the exchange
privilege, limit the amount of any exchange, or reject an exchange, at any time,
for any reason.
ALSO, IN THE EVENT OF A CONFLICT BETWEEN THE EXCHANGE PRIVILEGES OF TWO FUNDS,
THE STRICTER POLICY WILL APPLY TO THE TRANSACTION.
OTHER RULES YOU SHOULD KNOW
TELEPHONE TRANSACTIONS
[CHECKMARK] 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.
[CHECKMARK] TELE-ACCOUNT(R). 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.
[CHECKMARK] 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:
- Ten-digit account number.
- Complete owner name and address.
- Primary Social Security or employer identification number.
- Personal Identification Number (PIN), if applicable.
[CHECKMARK] SUBJECT TO REVISION. We reserve the right to revise or terminate
Vanguard's telephone transaction service at any time, without
notice.
[CHECKMARK] SOME VANGUARD FUNDS DO NOT PERMIT TELEPHONE EXCHANGES BETWEEN
2:30 P.M. AND 4 P.M. To discourage market-timing, the following
Vanguard funds generally do not permit telephone exchanges
between 2:30 p.m. and 4 p.m. on business days: the U.S. Stock
Index Funds, the International Stock Index Funds, REIT Index
Fund, Balanced Index Fund, Cal-vert Social Index Fund,
International Growth Fund, International Value Fund,
International Explorer Fund, and Growth and Income Fund. Funds
may be added to or deleted from this list at any time without
prior notice to shareholders.
VANGUARD.COM
[CHECKMARK] 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.
18
[CHECKMARK] SOME VANGUARD FUNDS DO NOT PERMIT ONLINE EXCHANGES BETWEEN 2:30
P.M. AND 4 P.M. To discourage market-timing, the following
Vanguard funds generally do not permit online exchanges between
2:30 p.m. and 4 p.m. on business days: the U.S. Stock Index
Funds, the International Stock Index Funds, REIT Index Fund,
Balanced Index Fund, Calvert Social Index Fund, International
Growth Fund, International Value Fund, International Explorer
Fund and Growth and Income Fund. Funds may be added to or deleted
from this list at any time without prior notice to shareholders.
WRITTEN INSTRUCTIONS
[CHECKMARK] "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.*
- Any supporting legal documentation that may be required.
- ----------
* 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. Call uVanguard for specific signature guarantee
requirements.
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.
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 Investor 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.
19
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. If a fund has a redemption fee, that fee will
apply to shares that are redeemed upon closure of the account.
Vanguard deducts a $10 fee in June from each nonretire-ment 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, which is one of the methods established by the IRS.
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.
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.
ANNUAL AND SEMIANNUAL REPORTS
Financial reports about Vanguard Mid-Cap Growth Fund will be mailed twice a
year, in June and December. These comprehensive reports include overviews of the
financial markets and specific information concerning the Fund:
- - Performance assessments with comparisons to industry benchmarks.
- - Reports from the adviser.
- - Financial statements with detailed listings of the Fund's holdings.
20
To keep the Fund's costs as low as possible (so that you and other
shareholders can keep more of its 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 copy of the
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) - For automated fund and account information
1-800-662-6273 - For redemptions by check, exchange (subject
(ON-BOARD) to certain limitations), or wire
- Toll-free, 24 hours per day, 7 days per week
INVESTOR INFORMATION - For fund and service information
1-800-662-7447 (SHIP) - For literature requests
(TEXT TELEPHONE AT - Business hours only
1-800-952-3335)
CLIENT SERVICES - For account information
1-800-662-2739 (CREW) - For most account transactions
(TEXT TELEPHONE AT - Business hours only
1-800-749-7273)
INSTITUTIONAL DIVISION - For information and services for large
1-888-809-8102 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
21
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 Please use the specific fund number when
contacting us about Vanguard Mid-Cap Growth
Fund--*.
22
(THIS PAGE INTENTIONALLY LEFT BLANK.)
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 INVESTMENTS
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 in revenue and earnings. Reflecting market expectations for
superior growth, these stocks typically have low dividend yields and
above-average prices in relation to such measures 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 also 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 measures 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 in its returns.
YIELD
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
[SHIP]
THE VANGUARD GROUP(R)
Post Office Box 2600
Valley Forge, PA 19482-2600
FOR MORE INFORMATION
If you'd like more information about Vanguard Mid-Cap Growth Fund, the following
documents are available free upon request:
ANNUAL/SEMIANNUAL REPORTS TO SHAREHOLDERS
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last 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: publicinfo@sec.gov, or by
writing the Public Reference Section, Securities and Exchange Commission,
Washington, DC 20549-0102.
Fund's Investment Company Act file number: 811-07443
(C)2002 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
P* *2002