Vanguard Convertible Securities Fund, et al. – ‘PRES14A’ for 5/29/98

As of:  Friday, 3/27/98   ·   For:  5/29/98   ·   Accession #:  893220-98-604   ·   File #s:  811-01027, 811-01530, 811-01685, 811-03916, 811-03919, 811-04098, 811-04627, 811-05962, 811-07175, 811-07239, 811-07443, 811-02968-99

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Preliminary Proxy Solicitation Material — Special Meeting   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRES14A     Vanguard Phase Iii Combined Proxy Statement           36    125K 

PRES14A
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IMPORTANT NEWS                                                                  
FOR VANGUARD                                                                    
SHAREHOLDERS                                                                    

VANGUARD CONVERTIBLE SECURITIES FUND                                            
VANGUARD EXPLORER FUND                                                          
VANGUARD HORIZON FUND                                                           
VANGUARD/MORGAN GROWTH FUND                                                     
VANGUARD/PRIMECAP FUND                                                          
VANGUARD SELECTED VALUE PORTFOLIO                                               
VANGUARD SPECIALIZED PORTFOLIOS                                                 
VANGUARD STAR FUND/LIFESTRATEGY                                                 
AND TOTAL INTERNATIONAL PORTFOLIOS                                            
VANGUARD TAX-MANAGED FUND                                                       
VANGUARD/TRUSTEES EQUITY FUND                                                   
VANGUARD VARIABLE INSURANCE FUND                                                
VANGUARD WORLD FUND                                                             

Please Vote Immediately!                                                        

You can vote by mail, telephone, or our website . . .                           
details can be found on the enclosed proxy insert.                  

      YOUR VANGUARD FUND WILL HOST A SPECIAL MEETING OF SHAREHOLDERS ON JUNE 30,
1998, AT OUR HEADQUARTERS IN MALVERN, PENNSYLVANIA. THE PURPOSE IS TO VOTE ON   
SOME IMPORTANT PROPOSALS AFFECTING THE FUND.                                    

  THE FIRST FEW PAGES OF THIS BOOKLET SUMMARIZE VANGUARD'S PROPOSALS AND
EXPLAIN THE PROXY PROCESS-INCLUDING HOW TO CAST YOUR VOTES. BEFORE YOU VOTE,    
PLEASE READ THE FULL TEXT OF THE PROXY STATEMENT FOR A COMPLETE UNDERSTANDING OF
OUR PROPOSALS.                                                                  

PROPOSAL 1:     REORGANIZATION INTO A DELAWARE BUSINESS TRUST                   

We want to reorganize your Fund into a Delaware business trust. Currently, your 
Fund is organized as either a Maryland Corporation or a Pennsylvania business   
trust.                                                                          

WHY? We expect this administrative change to save most Funds (and, ultimately,  
their shareholders) a substantial amount of money in state taxes each           
year-$13,000 for Convertible Securities Fund, $172,000 for Explorer Fund,       
$44,000 for Horizon Fund, $184,000 for Morgan Growth Fund, $471,000 for PRIMECAP
Fund, $525,000 for Specialized Portfolios, $94,000 for Tax-Managed Fund and     
$931,000 for World Fund, at current asset levels. The savings realized would    
reduce these Fund's expenses. STAR Fund/LifeStrategy and Total International    
Portfolios, Trustees' Equity Fund, and Variable Insurance Fund would not realize
tax savings as a result of the change, but they would benefit from the          
efficiency of being organized the same way as all other Vanguard Funds.         

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KEY POINTS: The reorganization would not change your Fund's investment objective
or policies (except for any changes approved by shareholders under Proposal 2). 
Your Fund also would keep the same Directors, officers, investment advisers, and
auditors.                                                                       

PROPOSAL 2: SIX CHANGES TO INVESTMENT LIMITATIONS                               

We want to make a number of minor changes to the Vanguard Funds' fundamental    
investment limitations. Not all of these changes relate to your Fund; you will  
have the opportunity to vote separately on each change that does apply. Proposal
2a is the most important of these. It concerns an interfund lending program that
we would like to establish for all Funds. This program would permit your Fund to
borrow money from other Vanguard Funds as needed to make redemptions while      
awaiting payment for securities that it has sold. In addition, your Fund could  
lend its cash reserves to other Vanguard Funds to meet their temporary borrowing
needs.                                                                          

WHY: Normally, your Fund has sufficient cash on hand to meet redemption         
requests. If not, however, the Fund can either delay paying shareholders for up 
to seven days-not an acceptable alternative-or pay them immediately by taking   
out a temporary loan. A temporary loan through the interfund lending program    
could be cheaper and easier for your Fund than borrowing from a bank. By lending
money to other Funds through this program, your Fund could earn a better rate of
interest on its cash reserves than it might receive from a bank.                

KEY POINTS: The interfund lending program would feature a number of safeguards  
to make sure it is fair and beneficial to all Vanguard Funds. One especially    
important safeguard is this: No Fund could borrow or lend money in the program  
unless it would get a more favorable interest rate than a typical bank would    
offer.                                                                          

PROPOSAL 3:  SWITCH TO DOLLAR-BASED VOTING RIGHTS                               

We want to amend the Treasury Fund's Declaration of Trust to switch from        
share-based voting rights to dollar-based voting rights. This is the type of    
voting rights that all other Vanguard Funds propose to offer their shareholders 
after reorganizing into Delaware business trust form. (See the description of   
Proposal 1.)                                                                    

WHY: When funds offer multiple portfolios-something that your Fund doesn't do   
now, but may do in the future-the share prices of the different portfolios      
typically diverge over time. If voting is share-based, owners of lower-priced   
shares end up with a disproportionate amount of clout on issues voted at the    
fund level. Dollar-based voting keeps shareholders' voting rights in proportion 
with their relative financial interests.                                        

KEY POINTS: The change to dollar-based voting rights will have no immediate     
impact on your Fund, since it offers only one portfolio at this time.           

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- Q&A-

Q.       I'm a small investor. Why should I bother to vote?                     

A. Your vote makes a difference. If numerous shareholders just like you fail to 
vote their proxies, your Fund may not receive enough votes to go forward with   
its meeting. If this happens, we'll need to mail proxies again-a costly         
proposition for your Fund!                                                      

Q.       I've owned shares of Vanguard Funds for several years. Why is this the 
first notice I've received about a shareholder meeting?       

A. Unlike publicly traded companies, most mutual funds do not hold shareholder  
meetings every year. Instead, they undertake this expensive process only when   
significant issues requiring shareholder approval come up-such as your Fund's   
plan to save on taxes by changing its form of organization. The last time all   
Vanguard Funds held shareholder meetings was in 1993.                           

Q.       Who gets to vote?                                                      

A.    Any person who owned shares of your Fund on the "record date," which was  
March 16, 1998, gets to vote-even if the investor later sold the shares.        
Shareholders are entitled to cast one vote for each Fund share owned on the     
record date.                                                                    

Q.       How can I vote?                                                        

A.       You can vote in any one of four ways:                                  

    -        Through the Internet at www.proxyvote.com (or by going to
     www.vanguard.com and clicking on "Proxy Voting").

      -        By telephone, with a toll-free call to the number listed on
your proxy card.                            

-        By mail, with the enclosed ballot.                   

-        In person at the meeting.                            

We encourage you to vote by Internet or telephone, using the 12-digit "control" 
number that appears on your proxy card. These voting methods will save your Fund
a good deal of money (no return-mail postage!). Whichever method you choose,    
please take the time to read the full text of our proxy statement before you    
vote.                                                                           

Q.       Is it hard to vote by Internet?                                        

A. Not at all! If you have not yet visited Vanguard's website-at                
www.vanguard.com-this is a great opportunity to check it out. Scan our website  
and, when you're ready, click on the "Proxy Voting" link on our homepage to     
access www.proxyvote.com (the voting location). Problems? Please call us at     
1-800-891-5345.                                                                 

Q.    I plan to vote by mail. How should I sign my proxy card?                  

A. If you are an individual account owner, please sign exactly as your name     
appears on the proxy card. Either owner of a joint account may sign the proxy   
card, but the signer's name must exactly match one that appears on the card. You
should sign proxy cards for other types of accounts in a way that indicates your
authority (for instance, "John Brown, Custodian").                              

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VANGUARD CONVERTIBLE SECURITIES FUND
VANGUARD EXPLORER FUND
VANGUARD HORIZON FUND 
VANGUARD/MORGAN GROWTH FUND 
VANGUARD/PRIMECAP FUND
VANGUARD SELECTED VALUE PORTFOLIO 
VANGUARD SPECIALIZED PORTFOLIOS 
VANGUARD STAR FUND/LIFESTRATEGY 
AND TOTAL INTERNATIONAL PORTFOLIOS
VANGUARD TAX-MANAGED FUND 
VANGUARD/TRUSTEES EQUITY FUND 
VANGUARD VARIABLE INSURANCE FUND
VANGUARD WORLD FUND 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 

    Your Vanguard Fund will host a Special Meeting of Shareholders on TUESDAY,
JUNE 30, 1998, AT 9:30 A.M., EASTERN TIME. This will be a joint meeting for all 
the Vanguard Funds listed above. It will be held at Vanguard's Malvern,         
Pennsylvania headquarters, at 100 Vanguard Boulevard, in the Majestic Building. 
At the meeting, we'll ask shareholders to vote on:                              

1. A proposal to reorganize your Fund into a Delaware business trust. 

   2. Six proposed changes to your Fund's fundamental investment limitations
     (none of which would alter your Fund's current investment objective).

3. Any other business properly brought before the meeting.            

                           By Order of the Board of Directors/Trustees
               Raymond J. Klapinsky, Secretary
      100 Vanguard Boulevard
 Malvern, PA 19355

April 13, 1998                                                                  

YOUR VOTE IS IMPORTANT! 
YOU CAN VOTE EASILY AND QUICKLY BY TOLL-FREE TELEPHONE CALL, AT OUR WEBSITE, OR 
BY MAIL. JUST FOLLOW THE SIMPLE INSTRUCTIONS THAT APPEAR ON YOUR ENCLOSED PROXY 
CARD. PLEASE HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW UP MAILING BY VOTING  
TODAY!                                                                          

VANGUARD VARIABLE ANNUITY PLAN CONTRACT OWNERS

Please turn the page for important information about your voting rights.

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VANGUARD VARIABLE ANNUITY PLAN CONTRACT OWNERS

You have the right to instruct your annuity provider--either Providian Life &   
Health Insurance Company, First Providian Life & Health Insurance Company or    
Ameritas Life Insurance Company--on how to vote the Vanguard Variable Insurance 
Fund shares held under your plan contract. You can issue voting instructions for
these shares by toll-free telephone call, at our website, or by mail. Just      
follow the simple instructions that appear on your enclosed proxy card. Note    
that your annuity provider will "shadow vote" any Fund shares for which contract
owners fail to provide voting instructions. This means that the uninstructed    
shares will be voted in proportionately the same manner--either "For,"          
"Against," or "Abstain"--as the instructed shares.                              

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VANGUARD CONVERTIBLE SECURITIES FUND
VANGUARD EXPLORER FUND
VANGUARD HORIZON FUND 
VANGUARD/MORGAN GROWTH FUND 
VANGUARD/PRIMECAP FUND
VANGUARD SELECTED VALUE PORTFOLIO 
VANGUARD SPECIALIZED PORTFOLIOS 
VANGUARD STAR FUND/LIFESTRATEGY 
AND TOTAL INTERNATIONAL PORTFOLIOS
VANGUARD TAX-MANAGED FUND 
VANGUARD/TRUSTEES EQUITY FUND 
VANGUARD VARIABLE INSURANCE FUND
VANGUARD WORLD FUND 

SPECIAL MEETING OF SHAREHOLDERS 
JUNE 30, 1998 

PROXY STATEMENT 

INTRODUCTION
------------
    This is a combined proxy statement for the twelve Vanguard Funds listed at
the top of this page. We've divided the proxy statement into five parts:        

                                                                [Download Table]
                                                       
Part 1-- An Overview begins on page 2.                 
Part 2-- Your Fund's Proposals--the longest part--also 
         begins on page 2.                             
Part 3-- More on Proxy Voting and Shareholder Meetings 
         begins on page *.                             
Part 4-- Fund Information begins on page *.            
Part 5-- Director/Trustee Information begins on page *.

     Please be sure to read the entire proxy statement before casting your vote.
Questions? Call us at 1-800-891-5345 (individual investors) or 1-800-523-1188   
(participants in company-sponsored retirement plans administered by Vanguard).  
This proxy statement was first mailed to shareholders the week of April 13,     
1998.                                                                           

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PART 1--AN OVERVIEW                                                             

  The Board of Directors/Trustees has sent you this proxy statement to ask
for your vote on several proposals affecting your Fund. This table summarizes   
the proposals and how they apply to the twelve Vanguard Funds that have         
scheduled a shareholder meeting for June 30, 1998.                              

                                                                [Download Table]

                PROPOSAL                             FUNDS AFFECTED        
                --------                             --------------        
                                                                           
1.  Reorganization into a Delaware                                         
      Business Trust                         All Funds                     
2.  Investment Limitation Changes                                          
    a. Interfund lending program             All Funds                     
    b. Standard limits on borrowing money                                  
          pledging assets                    Convertible Securities Fund,  
                                               Explorer Fund, PRIMECAP     
                                               Fund, Morgan Growth Fund,   
                                               STAR Fund/LifeStrategy and  
                                               Total International         
                                               Portfolios, Variable        
                                               Insurance Fund, World Fund  
    c. Investments in securities owned by                                  
          affiliates                         Convertible Securities Fund,  
                                               PRIMECAP Fund, Specialized  
                                               Portfolios, STAR Fund/      
                                               LifeStrategy and Total      
                                               International Portfolios    
    d. Investments in unseasoned                                           
          companies                          Convertible Securities Fund,  
                                               Morgan Growth Fund,         
                                               Convertible Securities Fund,
                                               STAR Fund/LifeStrategy and  
                                               Total International         
                                               Portfolios, Trustees' Equity
                                               Fund, World Fund            
    e. Investments in cash reserves          STAR Portfolio only           
    f. Standard limits on investments in                                   
          futures and options                Tax-Managed Fund              

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

PART 2--YOUR FUND'S PROPOSALS                                                   

PROPOSAL 1. REORGANIZATION INTO A DELAWARE BUSINESS TRUST (ALL FUNDS)           

     The Board of Directors/Trustees has approved a plan to reorganize your Fund
into a Delaware business trust. THE PURPOSE OF THE REORGANIZATION IS TO REDUCE  
THE AMOUNT OF STATE TAXES THAT THE VANGUARD FUNDS PAYS ANNUALLY. To proceed with
the reorganization plan, we need shareholder approval. The next                 

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few pages of this proxy statement discuss important details of the              
reorganization plan, including the following:                                   

- Why we want to reorganize your Fund.                                
- How we plan to accomplish the reorganization.                       
- How the reorganization will affect your Fund.                       
- How a Delaware business trust compares to your Fund's current legal 
structure.                                                        
- How many shareholder votes we need to approve the reorganization.   

A.  WHY WE WANT TO REORGANIZE YOUR FUND                                         

MOST FUNDS WILL PAY LESS TAXES AS BUSINESS TRUSTS.  This is true of   
Convertible Securities Fund, Explorer Fund, Horizon Fund, Morgan Growth Fund,   
PRIMECAP Fund, Selected Value Portfolio, Specialized Portfolios, Tax-Managed    
Fund and World Fund. Each of these Funds currently pays foreign franchise taxes 
to the Commonwealth of Pennsylvania. This tax applies to these Funds because    
they are headquartered in Pennsylvania and are "foreign" corporations--that is, 
organized as corporations under the laws of a different state, Maryland. If     
these Funds were instead organized in the form of a business trust (as many     
mutual funds are), they would be exempt from the Pennsylvania foreign franchise 
tax. As business trusts, these Funds would be subject to a different tax, the   
Pennsylvania county personal property tax. However, Pennsylvania counties       
generally have stopped assessing personal property taxes. This is because the   
Pennsylvania Supreme Court is expected to declare the personal property tax     
unconstitutional. (The U.S. Supreme Court declared a similar North Carolina tax 
unconstitutional in 1996.) We believe it unlikely that the Vanguard Funds, as   
reorganized, would become subject to the personal property tax in the           
foreseeable future. If the personal property tax were reinstated, or any similar
state tax were imposed, we would re-evaluate the Funds' options at that time.   

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    The following table shows (i) the amount of Pennsylvania foreign franchise
taxes paid by your Fund for its last fiscal year; and (ii) the amount of        
Pennsylvania personal property taxes that your Fund would have paid if it had   
been organized as a business trust for the last fiscal year.                    

                                                                [Download Table]

                                     LAST YEAR'S         SAME BILL AS A
             FUND               PENNSYLVANIA TAX BILL    BUSINESS TRUST
             ----               ---------------------    --------------
                                                                       
Convertible Securities Fund           $ 13,000                 $0      
Explorer Fund                         $172,000                 $0      
Horizon Fund                          $ 44,000                 $0      
Morgan Growth Fund                    $184,000                 $0      
PRIMECAP Fund                         $471,000                 $0      
Selected Value Portfolio              $ 10,000                 $0      
Specialized Portfolios                $525,000                 $0      
STAR Fund/LifeStrategy and                                             
  Total International                                                  
  Portfolios                          $      0                 $0      
Tax-Managed Fund                      $ 94,000                 $0      
Trustees' Equity Fund                 $      0                 $0      
Variable Insurance Fund               $      0                 $0      
World Fund                            $931,000                 $0      

"Last Year's Pennsylvania Tax Bill" is the approximate amount that we 
expect to save your Fund ANNUALLY by reorganizing it into a Delaware business   
trust. These anticipated savings are based on the size of your Fund during its  
last fiscal year. If your Fund grows, so will the amount of its tax savings as a
business trust. Of course, the ONE-TIME costs of reorganizing will offset your  
Fund's tax savings to a limited extent. These costs, which mostly relate to the 
printing, mailing and tabulation of proxies, are estimated at $8,000 for        
Convertible Securities Fund, $142,00 for Explorer Fund, $55,000 for Horizon     
Fund, $105,000 for Morgan Growth Fund, $310,000 for PRIMECAP Fund, $385,000 for 
Specialized Portfolios, $420,000 for STAR Fund/Lifestrategy and Total           
International Portfolios, $21,000 for Tax-Managed Fund, $39,000 for Trustees'   
Equity Fund, $78,000 for Variable Insurance Fund, $11,000 for Selected Value    
Portfolio, and $646,000 for World Fund.                                         

    SOME FUNDS ARE ALREADY ORGANIZED AS BUSINESS TRUSTS.  This is true of STAR
Fund/LifeStrategy and Total International Portfolios, Trustees' Equity Fund, and
Variable Insurance Fund. Each of these Funds is currently organized as a        
PENNSYLVANIA business trust, and therefore pays no Pennsylvania foreign         
franchise taxes. We propose to reorganize these Funds into DELAWARE business    
trusts to take advantage of that state's more favorable mutual fund climate, and
to gain the administrative convenience of having it organized the same way as   
all other Vanguard Funds. The change will not increase or decrease these Funds' 
tax liability.                                                                  

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    DELAWARE LAW IS FAVORABLE TO MUTUAL FUNDS.  We have proposed to reorganize
your Fund as a DELAWARE business trust because that state's business trust law  
contains provisions that are well-suited to mutual funds. The "move" to Delaware
will be largely on paper; your Fund will continue to operate out of             
Pennsylvania, just as it does now.                                              

B.  HOW WE PLAN TO ACCOMPLISH THE REORGANIZATION                                

    AGREEMENT AND PLAN OF REORGANIZATION.  The Board of Directors has approved
a written Agreement and Plan of Reorganization for your Fund. This document     
spells out the terms and conditions that will apply to your Fund's              
reorganization into a Delaware business trust.                                  

     THREE STEPS TO REORGANIZE.  In essence, the reorganization will be a three-
step process. The first step is already taken: We have established a Delaware   
business trust especially for your Fund. Prior to the reorganization, this trust
will issue a single share--to your Fund. Second, if this proposal is approved,  
your Fund will transfer all of its assets and liabilities to the trust. As part 
of this second step, the trust will open an account for each Fund shareholder.  
The trust will then credit these accounts with the exact number of full and     
fractional shares that each shareholder owned in the Fund on the reorganization 
date. And third, we will dissolve your Fund's Maryland corporate entity.        

EFFECTIVE AS SOON AS PRACTICABLE.  If approved by shareholders, the   
reorganization will take place as soon as feasible after your Fund receives the 
necessary regulatory approvals and legal opinions. We think this could be       
accomplished by October of 1998. However, at any time prior to the              
reorganization, the Board of Directors may decide that it is in the best        
interest of your Fund and its shareholders not to go forward with this project. 
If that happens, your Fund will continue to operate as it is currently          
organized.                                                                      

C.  HOW THE REORGANIZATION WILL AFFECT YOUR FUND                                

    YOUR FUND'S INVESTMENT OBJECTIVE, POLICIES, INVESTMENT ADVISERS AND FISCAL
YEAR WILL STAY THE SAME.  The reorganization will not change any of these.      
However, we are asking shareholders to waive temporarily any existing investment
restrictions that would otherwise prohibit the reorganization. (For instance,   
many mutual funds are prohibited from acquiring control of any company. As part 
of the reorganization, however, your Fund would be acquiring control of the     
newly-formed trust.) Your vote in favor of the reorganization will operate as a 
temporary waiver of any such restrictions.                                      

    THE REORGANIZATION WILL HAVE NO IMPACT ON YOUR FUND'S SHARE PRICE.  On the
day of the reorganization, the newly-formed trust's share price will be the same
as that of your Fund. The reorganization will not cause your Fund's share price 
to go up or down, and you will own the same number of shares. Any declared but  

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undistributed dividends or capital gains for your Fund will carry over in the   
reorganization.                                                                 

YOUR FUND'S EXISTING DIRECTORS/TRUSTEES WILL BE REELECTED.  Federal   
securities laws require that at least one-half of your Fund's Directors/Trustees
be elected by shareholders. While your Fund more than meets this standard now,  
that technically will not be true once it reorganizes as a trust. Rather than   
call another shareholder meeting to vote on Trustees after the reorganization,  
we will treat shareholder approval of this proposal as authorization to elect   
your Fund's current Board members to the same positions with the trust. This    
approach will avoid the considerable expense of printing, mailing and tabulating
more proxies after the reorganization. (Please refer to Part 5 of this proxy    
statement for detailed information concerning your Directors/Trustees.)         

    YOUR FUND'S EXISTING INDEPENDENT AUDITORS WILL BE RATIFIED.  We will treat
shareholder approval of the reorganization as ratification of your Fund's       
existing independent auditors, Price Waterhouse, LLP.                           

     Price Waterhouse is the independent auditor for all Vanguard Funds. In this
role, Price Waterhouse audits and certifies the Funds' financial statements.    
Price Waterhouse also reviews the Funds' Annual Reports to Shareholders and     
their filings with the U.S. Securities and Exchange Commission. Neither Price   
Waterhouse nor any of its partners has any direct or material indirect financial
interest in the Vanguard Funds. If you wish to request the attendance of a Price
Waterhouse representative at the shareholder meeting, you should contact the    
Fund's Secretary at 100 Vanguard Boulevard, Malvern, PA 19355.                  

THE REORGANIZATION IS CONDITIONED ON TAX FREE TREATMENT AT THE FEDERAL
LEVEL. We fully expect that the reorganization will have no federal income tax  
consequences for you or your Fund. We will not proceed with the reorganization  
until this point is confirmed by an IRS ruling or opinion of counsel. Following 
the reorganization, from a tax standpoint, the adjusted basis of your Fund      
shares will be the same as before. We do not expect shareholders to incur any   
personal state or local taxes as a result of the reorganization, but you should 
consult your own tax adviser to be sure.                                        

     VOTING RIGHTS WILL BE BASED ON THE DOLLAR AMOUNT OF YOUR INVESTMENT.  After
the reorganization, your voting rights will become "dollar-based"--which is a   
different voting rights system than your Fund uses now. Currently, all Vanguard 
Funds provide shareholders with one vote for each share that they own. This     
share-based system treats shareholders equitably so long as all shares of a     
particular Fund have the same share price. However, fairness tends to erode when
a Fund offers more than one series of shares (we often refer to these as        
"portfolios"), or more than one class of shares. The share prices of a Fund's   
different portfolios inevitably diverge over time due to their different        
investment programs. Similarly, the share prices of a Fund's different share    
classes will deviate over time because of their different expense structures. As
a result, when                                                                  

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issues are voted at the Fund level, the owners of lower-priced shares have      
relatively greater voting clout than the owners of higher-priced shares. The    
change to dollar-based voting will ensure that shareholders' voting rights      
remain proportionate to their financial interests. Many Vanguard Funds currently
offer only one portfolio or class of shares, however, dollar-based voting rights
would apply to any additional portfolios or share classes that these Funds might
offer in the future.                                                            

YOUR FUND WILL STOP ISSUING SHARE CERTIFICATES AND WILL CONVERT ANY   
OUTSTANDING SHARE CERTIFICATES TO RECORD ENTRY FORM.  In today's financial      
world, very few investors hold share certificates as physical evidence of their 
mutual fund investments. Instead, investors' mutual fund holdings are maintained
and accounted for as "record entries" on the fund's computer system. The main   
problems with share certificates are that:                                      

     - They present opportunities for theft, loss and fraud--and therefore offer
less protection to shareholders, rather than more.                

     - They're especially inconvenient--you must return your certificates to the
fund before your shares can be redeemed or exchanged.             

    In light of these downsides and the minimal demand for share certificates,
your Fund will stop issuing them after the reorganization. In addition, your    
Fund will convert any outstanding share certificates to record entry form. This 
will not happen automatically; we will arrange conversion details separately    
with the Fund's certificate holders. (This change will have no effect on        
Variable Insurance Fund, which doesn't currently issuer share certificates.)    

D.  HOW A DELAWARE BUSINESS TRUST COMPARES TO YOUR FUND'S CURRENT LEGAL         
STRUCTURE                                                               

  Federal securities laws have much to say about the way that mutual funds
operate, but they do not cover every aspect of a fund's existence. State law and
each fund's governing documents fill in most of the gaps. The following         
discussion compares the state law and documents currently governing your Fund   
with the state law and documents that will apply if it reorganizes as a Delaware
business trust. This discussion is not a comprehensive review of all technical  
distinctions between the different legal structures. (You or your attorney would
need to review the laws and Fund documents first-hand for that sort of          
analysis.) We simply want you to know how a Delaware business trust compares in 
certain key areas to a Maryland corporation or Pennsylvania business trust--your
Fund's present legal structure.                                                 

SHAREHOLDER LIABILITY.  Shareholders of a Fund organized as a Maryland
corporation generally have no personal liability for the Fund's obligations. By 
contrast, shareholders of a Fund organized as a Pennsylvania business trust     
theoretically could have this type of liability if the Fund had no remaining    
assets                                                                          

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to pay its obligations. A Delaware business trust offers shareholders           
essentially the same amount of protection from personal liability as a Maryland 
corporation.                                                                    

DIRECTOR/TRUSTEE LIABILITY AND INDEMNIFICATION.  With a Maryland      
corporation, Directors cannot be held liable for their activities in that role  
so long as they perform their duties in good faith, prudently and in the Fund's 
best interests. The same is generally true for the Trustees of a Pennsylvania or
Delaware business trust, if so provided in the Fund's governing documents. Under
each legal structure, the Fund can indemnify its Directors/Trustees from claims 
and expenses arising out of their service to the Fund--unless, that is, a       
Director/ Trustee has acted improperly in a particular matter.                  

SHAREHOLDER VOTING RIGHTS AND MEETINGS.  Under a Fund organized as a  
Maryland corporation or a Pennsylvania business trust, shareholders' voting     
rights currently are based on the number of shares that they own. As we         
explained on page *, as a Delaware business trust, your Fund would shift to a   
dollar-based voting rights system. As a Maryland corporation, a Fund generally  
must call a shareholder meeting if one is requested in writing by investors     
entitled to cast 25% or more of the Fund's votes. For a Pennsylvania business   
trust, 20% is the required percentage. As Delaware business trusts, the funds   
will adopt a 25% standard.                                                      

 SHARE CERTIFICATES.  Funds organized as Maryland corporations generally
issue share certificates to their investors upon request. Funds organized as    
Pennsylvania or Delaware business trusts are not required to issue share        
certificates. As explained on page *, following the reorganization, your Fund   
will stop issuing share certificates and will convert any outstanding           
certificates to record entry form.                                              

E.  HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE REORGANIZATION            

To go forward with the reorganization, a majority of your Fund's      
outstanding shares on April 13, 1998 must vote in favor of this proposal. YOUR  
FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU APPROVE THE              
REORGANIZATION.                                                                 

PROPOSAL 2. SIX CHANGES TO FUNDAMENTAL INVESTMENT LIMITATIONS                   

2a.  INTERFUND LENDING PROGRAM (ALL FUNDS)                            

   We want to establish an interfund lending program for all Vanguard Funds,
including the ones that are not covered in this proxy statement. The program    
will allow the Vanguard Funds to loan money to each other if--and only if--it   
makes good financial sense to do so on both sides of the transaction. THE FUNDS 
WILL NOT USE THIS PROGRAM TO LEVERAGE THEIR INVESTMENTS. The U.S. Securities and
Exchange Commission has granted permission for the Vanguard Funds to partici-   

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pate in this program, subject to several conditions. We need shareholder        
approval, as well. In the following paragraphs we explain these important       
points:                                                                         

- Why your Fund would want to borrow money.                           
- Why your Fund would want to lend money.                             
- How the interfund lending program will work.                        
   - What safeguards will ensure fair and beneficial treatment of your Fund.
- What your Fund's new investment limitation will say.                
- How many shareholder votes we need to approve the interfund lending 
program.                                                          

     YOUR FUND WOULD BORROW MONEY TO MEET REDEMPTION REQUESTS WHILE AWAITING THE
PROCEEDS OF SECURITIES SALES.  Normally, your Fund has sufficient cash on hand  
to satisfy all redemption requests. However, at times your Fund could be short  
on cash while awaiting settlement of its securities trades (typically a three   
business day process). While the law permits your Fund to defer redemption      
payments for up to seven days, we know that shareholders prefer to be paid      
immediately. This is the sole circumstance--and an unusual one, at that--under  
which your Fund would want to borrow money.                                     

     YOUR FUND ROUTINELY LENDS MONEY TO BANKS--THROUGH REPURCHASE AGREEMENTS--TO
GENERATE INCOME ON ITS CASH RESERVES.  All Funds--including your own--maintain  
cash reserves to satisfy day-to-day redemption requests. Funds put their cash   
reserves to work by entering into repurchase agreements with banks (and other   
institutions, as well). In essence, these transactions are loans from the Fund  
to a bank. The Fund acquires a short-term, high quality security from the bank, 
who, in turn, agrees to buy that same security back from the Fund the next      
day--at a higher price. The difference between the purchase and resale prices   
represents the Fund's "interest" on the loan.                                   

    THE NEW PROGRAM WILL LET VANGUARD MATCH THE BORROWING AND LENDING NEEDS OF
DIFFERENT FUNDS--TO EVERYONE'S BENEFIT.  On a given day, some Vanguard Funds may
wish to meet redemptions by borrowing money from banks, and other Vanguard Funds
may wish to generate additional income by lending money to banks. Under the     
interfund lending program, Vanguard could match borrowing Funds with lending    
Funds. Vanguard would then arrange loans between the matched Funds, in keeping  
with a master loan agreement and the SEC's conditions for this program. By      
dealing with each other instead of banks, the Funds will be able to borrow money
more cheaply and loan money more profitably. This is because (i) there will be  
no bank fees for these transactions, and (ii) we will have eliminated the banks'
spread--that is, the difference between the rates that they typically charge    
borrowers and pay lenders. In addition, the interfund lending program will allow
the Funds to forego the otherwise prudent--but expensive--step of maintaining a 
committed line of credit with a bank to cover any emergency borrowing needs. (We
estimate that, altogether, the Vanguard Funds will save more than $800,000      
annually by eliminating the need for a committed line of credit.)               
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    INTERFUND LOANS WILL PRESENT VERY LITTLE CREDIT RISK.  When it lends money
to another Fund, your Fund would be subject to credit risk--the possibility that
the other Fund might fail to repay the loan. But your Fund faces this same type 
of risk when it lends money to a bank, through a repurchase agreement. And we   
believe that the risk is extremely small in both cases. Below we describe       
various safeguards designed to minimize the credit risk of interfund loans.     

  THESE SAFEGUARDS ARE IN PLACE TO ENSURE FAIR AND BENEFICIAL TREATMENT OF
ALL VANGUARD FUNDS.  No Vanguard Fund will be permitted to borrow or lend       
through the program unless it gets a more favorable interest rate than is       
available from a typical bank. Other important protections for your Fund include
these points:                                                                   

    (i)   Interfund loan rates will be determined by a pre-established formula
based on quotations from independent banks.               

  (ii)  Funds that borrow money must fully secure their interfund loans OR
        have total assets at least 10 times greater than the amount of the
loan.                                                     

  (iii)  Equity Funds will be permitted to loan no more than 5% of their net
         assets through the interfund lending program; bond Funds could lend
       no more than 7.5%; and money market Funds could lend no more than
10%.                                                      

(iv)  All interfund loans will be very short-term. They must be repaid
      within the time it takes for securities trades to settle, not to
exceed seven days.                                        

 (v)   No Fund can use the interfund lending program to borrow an amount
          larger than 125% of its total net cash redemptions for the preceding
seven calendar days.                                      

    (vi)  A lending Fund may call in its loans on one business day's notice to
the borrowing Fund.                                       

  (vii)  Each Fund will continue to maintain non-committed loan arrangements
         with banks to provide for situations where an interfund loan is not
possible or beneficial.                                   

 (viii) Each Fund's Board of Directors/Trustees will monitor the interfund
       lending program to make sure that the interfund loan rate formula
and the Fund's participation in the program continue to be
appropriate.                                              

YOUR FUND WILL ADOPT A NEW INVESTMENT POLICY TO PROVIDE FOR INTERFUND 
LOANS. Your Fund's existing investment policies on borrowing and lending do not 
allow for interfund loans. If shareholders approve this proposal, we'll adopt a 
new investment policy which states that your Fund can borrow and lend money     
through the interfund loan program so long as it complies with SEC conditions.  

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We'll designate this new policy as "fundamental," meaning that your Fund will   
not be able to change it in the future without shareholder approval.            

HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE INTERFUND               
LENDING.  Shareholders of each Fund's separate portfolios (if any) will vote    
separately on this proposal. Each Fund or portfolio's participation in the      
interfund lending program must be approved by the lesser of (i) a majority of   
the Fund or portfolio's outstanding shares on April 13, 1998, or (ii) 67% of the
shares voted, so long as more than 50% of the shares actually vote. YOUR FUND'S 
BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU APPROVE THE INTERFUND LENDING   
PROGRAM.                                                                        

2b.  BORROWING MONEY AND PLEDGING ASSETS (CONVERTIBLE SECURITIES FUND, EXPLORER 
  FUND, MORGAN GROWTH FUND, PRIMECAP FUND, TRUSTEES' EQUITY FUND, VARIABLE
INSURANCE FUND, WORLD FUND)                                           

    We want to establish standard limits on (i) the total amount of money that
each Vanguard Fund can borrow from all sources and (ii) the assets that each    
Fund can pledge to secure any loans. This proposal ties in with proposal 2a.,   
concerning the interfund lending program. BY STANDARDIZING THE FUNDS' BORROWING 
AND PLEDGE LIMITS, WE EXPECT TO SIMPLIFY VANGUARD'S ADMINISTRATION OF THE       
INTERFUND LENDING PROGRAM. As you can see from the following table, currently   
there is a good deal of variation in the Funds' stated borrowing and pledge     
limitations:                                                                    

                                                                [Download Table]

             FUND                 BORROWING LIMIT        PLEDGE LIMIT  
             ----                 ---------------        ------------  
                                                                       
Convertible Securities Fund      10% of total       5% of total assets 
                                   assets                              
Explorer Fund                    15% of net assets  10% of total assets
Morgan Growth Fund               10% of net assets  5% of total assets 
PRIMECAP Fund                    10% of net assets  5% of total assets 
STAR Fund/LifeStrategy and       5% of assets,      5% of assets at    
  Total International              taken at the       market value     
  Portfolios                       lower of market                     
                                   value or cost                       
Trustees' Equity Fund            10% of net assets  No stated limit    
Variable Insurance Fund          15% of net assets  5% of total assets 
World Fund                       10% of total       15% of total assets
                                   assets                              

     The Funds' different investment objectives do not explain the variations in
their borrowing and pledge limits. Rather, these variations arise from the fact 
that many different attorneys and regulators have worked with the Funds over the
years. We would like to realign these Funds' limits with the other Vanguard     
Funds by establishing a uniform 15% OF NET ASSETS limitation on any money       
borrowed or assets pledged. Any future changes to this policy would require     
shareholder approval. Keep in mind that borrowing money and pledging assets     
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are not integral parts of your Fund's investment program. As we explained in the
interfund lending discussion, your Fund would borrow money only to meet         
redemptions while awaiting the proceeds of securities sales.                    

    HOW MANY SHAREHOLDER VOTES WE NEED TO APPROVE THE 15% BORROWING AND PLEDGE
LIMIT.  Shareholders of each Fund's separate portfolios (if any) will vote      
separately on this proposal. Each Fund's or portfolio's adoption of the 15%     
borrowing and pledge limit must be approved by the lesser of (i) a majority of  
the Fund's or portfolio's outstanding shares on April 13, 1998, or (ii) 67% of  
the shares voted, so long as more than 50% of the shares actually vote. YOUR    
FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU APPROVE THE STANDARD     
BORROWING AND PLEDGE LIMITS.                                                    

    2c.  INVESTMENTS IN SECURITIES OWNED BY AFFILIATES (CONVERTIBLE SECURITIES
       FUND, PRIMECAP FUND, SPECIALIZED PORTFOLIOS, STAR FUND/LIFESTRATEGY
AND TOTAL INTERNATIONAL PORTFOLIOS, WORLD FUND)             

We want to eliminate your Fund's policy of avoiding investments in    
securities issued by companies whose securities are owned in certain amounts by 
Directors, officers, and key advisory personnel. THIS POLICY IS                 
WELL-INTENTIONED, BUT WRONGLY FOCUSED AND UNNECESSARY FOR YOUR FUND. Having     
originated many years ago with now obsolete state securities laws, which were   
intended to prevent conflicts of interest in the management of mutual funds, the
policy substantially states that your Fund will not:                            

Purchase or retain any security if (i) one or more officers,    
directors or partners of the Fund or its investment adviser     
individually owns or would own, directly or beneficially, more  
than 1/2 of 1 percent of the securities of such issuer, and (ii)
in the aggregate such persons own or would own or would own more
than 5% of such securities.                                     

Confused? You're not alone. Preventing conflicts of interest in fund  
management is, of course, a critically important objective. However, we believe 
that your Fund's Code of Ethics is the best way to accomplish this objective.   
The Code of Ethics, which has been adopted in accordance with SEC rules,        
restricts the private investment activities of Directors, officers, key advisory
personnel and a wide range of Vanguard employees. Our Code of Ethics supplements
management's separate fiduciary obligation to act with the Fund's best interests
at heart. It places the burden of avoiding potential conflicts squarely on those
who would stand to gain by inappropriately influencing or benefiting from your  
Fund's investment program. The current policy takes the opposite approach--it   
potentially restricts your Fund's investments. In other words, the current      
policy subordinates your Fund's investment interests to those of its Directors, 
officers and key advisory personnel. We believe that this is wrong.             
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HOW MANY SHAREHOLDER VOTES WE NEED TO ELIMINATE THE POLICY CONCERNING 
INVESTMENTS IN SECURITIES OWNED BY AFFILIATES.  Shareholders of each Fund's     
separate portfolios (if any) will vote separately on this proposal. Each Fund's 
or portfolio's elimination of this policy will require approval by the lesser of
(i) a majority of the Fund's or portfolio's outstanding shares on April 13,     
1998, or (ii) 67% of the shares voted, so long as more than 50% of the shares   
actually vote. YOUR FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU VOTE 
TO ELIMINATE THIS POLICY.                                                       

2d.  INVESTMENTS IN UNSEASONED COMPANIES (CONVERTIBLE SECURITIES FUND,
      MORGAN GROWTH FUND, STAR FUND/LIFESTRATEGY AND TOTAL INTERNATIONAL
PORTFOLIOS, TRUSTEES' EQUITY FUND, WORLD FUND)              

   We want to eliminate your Fund's policy for not investing more than 5% of
its assets in securities issued by companies that have fewer than three years   
operating history, taking into account any predecessors. Like the investment    
policy discussed in proposal 2c above, this "unseasoned companies" policy       
originated many years ago with now obsolete state securities laws.              

     FOR MOST FUNDS, THE UNSEASONED COMPANIES POLICY IS UNDULY RESTRICTIVE. Each
Fund adheres to a carefully crafted investment strategy, under which its        
investment advisers analyze many factors in determining whether to purchase or  
sell a company's securities. Age would normally be one of these factors, in that
less seasoned companies may involve greater than average investment risks.      
However, we believe that it is preferable to manage your Fund's investment risks
based on an overall assessment of the financial prospectus of particular        
companies. By contrast, the current policy requires your Fund to use issuer age 
as a sort of "litmus test" in the investment process.                           

FOR STAR FUND/LIFESTRATEGY AND TOTAL INTERNATIONAL PORTFOLIOS, THE    
UNSEASONED COMPANIES POLICY IS SIMPLY IRRELEVANT.  These portfolios operate as  
"funds of funds," meaning that they invest solely in other Vanguard Funds.      
Because the portfolios do not invest in companies (other than mutual funds), the
question of whether a company has greater or fewer than three years operating   
history is moot.                                                                

HOW MANY SHAREHOLDER VOTES WE NEED TO ELIMINATE THE POLICY CONCERNING 
INVESTMENTS IN UNSEASONED COMPANIES.  Shareholders of each Fund's separate      
portfolios will vote separately on this proposal. Each Fund's or portfolio's    
elimination of the policy will require approval by the lesser of (i) a majority 
of the Fund's or portfolio's outstanding shares on April 13, 1998, or (ii) 67%  
of the shares voted, so long as more than 50% of the shares actually vote. YOUR 
FUND'S BOARD OF DIRECTORS/TRUSTEES RECOMMENDS THAT YOU VOTE TO ELIMINATE THIS   
POLICY.                                                                         

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2e.  INVESTMENTS IN CASH RESERVES (STAR PORTFOLIO ONLY)               

    HOW MANY SHAREHOLDER VOTES WE NEED TO CHANGE THE PORTFOLIO'S CASH RESERVES
POLICY.  The change will require approval by the lesser of (i) a majority of the
Portfolio's outstanding shares on April 13, 1998, or (ii) 67% of the shares     
voted, so long as more than 50% of the shares actually vote. YOUR FUND'S BOARD  
OF TRUSTEES RECOMMENDS THAT YOU VOTE TO APPROVE THE NEW CASH RESERVES POLICY.   

2f.  INVESTMENTS IN FUTURES AND OPTIONS (TAX-MANAGED FUND)            

We want to amend your Fund's current policy concerning investments in 
futures and options. Your Fund already has the ability to invest in futures and 
options, however, it's subject to stricter percentage limits on these activities
than other Vanguard Funds. WHILE THERE ARE NO PLANS TO INCREASE YOUR FUND'S     
INVESTMENTS IN FUTURES AND OPTIONS, WE'D LIKE TO MAKE ITS POLICY ON THESE       
INVESTMENTS CONSISTENT WITH OTHER VANGUARD FUNDS. In the following paragraphs we
explain these important points:                                                 

- How futures and options work.                                       
- How your Fund uses bond futures and options.                        
- What special risks are involved with futures and options.           
     - What your Fund's revised futures and options policy would say as compared
to the current policy.                                            
 - How many shareholder votes we need to approve the revised futures and
options policy.                                                   

     Throughout this discussion, we'll use the simple term "futures and options"
to describe (i) stock and bond futures contracts, (ii) stock and bond options,  
and (iii) options on stock and bond futures contracts.                          

FUTURES AND OPTIONS ARE WAYS TO LOCK IN A STOCK OR BOND PRICE, OR     
PARTICIPATE IN THE PRICE MOVEMENT OF A STOCK OR BOND.  These instruments are    
really contracts. With a futures contract, you agree to buy or sell a specified 
stock or bond at a specified price on a specified date. Option contracts are    
similar, but more flexible. They give you a right--but not the obligation--to   
buy or sell a specified stock or bond at a specified price during a specified   
period of time. In both cases, any earnings are measured by the amount of any   
increase in the value of the underlying securities over the life of the         
contract. On the other hand, potential losses are measured differently under the
two strategies. With futures, your losses will match any negative price swings  
in the underlying securities. By contrast, with options, potential losses are   
limited to the amount that you've paid for the contract.                        

 LIKE OTHER VANGUARD FUNDS, YOUR FUND USES FUTURES AND OPTIONS FOR THREE
PRINCIPAL REASONS, NONE OF WHICH INVOLVES SPECULATION.  Cash management is the  
first--and most important--reason your Fund uses futures and options. By        
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purchasing futures or options, the Fund can participate in the earnings of an   
underlying stock or bond--without actually putting up the cash to acquire these 
securities. This strategy helps the Fund maintain sufficient cash on hand to    
meet daily redemption requests. In addition, during periods of particular       
uncertainty in the marketplace, it buys the Fund time in deciding how to commit 
its cash. Hedging is the second reason your Fund uses futures and options. That 
is, the Fund can protect itself against price declines in securities that it    
already owns, or intends to purchase, by locking in prices with futures or      
options. More favorable pricing is the third reason your Fund uses futures and  
options. Sometimes, it's possible to acquire futures or options at better       
prices, or for lower transaction costs, than the underlying securities. In these
cases, the Fund might choose to buy futures or options instead of the underlying
securities.                                                                     

 FUTURES INVOLVE SPECIAL RISKS--CONTROLLABLE ONES, IN OUR VIEW.  Futures
raise four particular concerns for investors. These concerns (which do not apply
to options) revolve around liquidity, leverage, price correlation, and risk of  
loss. Permit us to explain:                                                     

 - LIQUIDITY.  When buying a futures contract, there's no guarantee that
       you'll be able to close it out prior to the specified settlement date. To
    minimize the risk of being stuck holding an unwanted futures contract,
your Fund buys futures only if (i) they are traded on a national  
  securities exchange, and (ii) they appear to have a liquid secondary
market.                                                           

- LEVERAGE.  Relatively small fluctuations in the price of underlying 
     securities can generate substantial losses for futures traders. This is
    because futures trading is so leveraged; you typically can buy futures
contracts with a margin deposit of 5%, or even less. YOUR FUND    
    COUNTERACTS THE LEVERAGE INHERENT IN FUTURES TRADING BY ALWAYS SETTING
ASIDE CASH OR OTHER LIQUID ASSETS IN THE AMOUNT OF ITS NET FUTURES
OBLIGATIONS.                                                      

   - PRICE CORRELATION.  The whole point of hedging with futures is to mimic
     the investment returns of securities that the investor either holds, or
     intends to buy. Sometimes, however, futures prices do not rise and fall
   in sync with the targeted securities. If this happens, the investor's
hedging strategy may fall through, to an extent.                  

 - RISK OF LOSS.  Losses from trading futures are potentially unlimited.
       Gains and losses on trading futures (and options) depend on the portfolio
     managers ability to predict the direction of stock and bond markets and
other economic factors.                                           

     YOUR FUND WILL INCREASE ITS PERCENTAGE LIMITS ON INVESTMENTS IN FUTURES AND
OPTIONS TO MATCH OTHER VANGUARD FUNDS.  Other Vanguard Funds are permitted to   
invest in futures and options so long as: (i) the sum of its initial margin     
deposits on open futures contracts does not exceed 5% of a Fund's total assets; 
and (ii) the sum of its outstanding futures and options obligations does not    
exceed 20% of a Fund's total assets. However, for your Fund, the applicable     
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limits are 3% of total assets and 5% of total assets, respectively. If          
shareholders approve this proposal, we'll amend your Fund's futures and options 
limits to match other Vanguard Funds. This change will permit--but certainly not
require--the Fund to invest a greater amount of its assets in futures and       
options. We do not expect to increase the Fund's futures and options investments
at any time in the foreseeable future--this really is just a matter of          
conforming your Fund to a Vanguard standard. Also, the three reasons that your  
Fund uses futures and options--cash management, hedging, and more favorable     
pricing--will remain the same. The revised policy will be designated as         
"fundamental," meaning that your Fund will not be able to change it in the      
future without shareholder approval.                                            

   HOW MANY SHAREHOLDER VOTES WE NEED TO ADOPT STANDARD LIMITS ON THE FUND'S
INVESTMENTS IN FUTURES AND OPTIONS.  Shareholders of the Fund's separate        
portfolios will vote separately on this proposal. Each portfolio's approval of  
the revised policy will require approval by the lesser of (i) a majority of the 
portfolio's outstanding shares on April 13, 1998, or (ii) 67% of the shares     
voted, so long as more than 50% of the shares actually vote. YOUR FUND'S BOARD  
OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE THE NEW POLICY.                

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

PART 3--MORE ON PROXY VOTING AND SHAREHOLDER MEETINGS                           

   This section provides information on a number of topics relating to proxy
voting and shareholder meetings.                                                

    PROXY SOLICITATION METHODS.  Your Fund will solicit shareholder proxies in
a variety of ways. All shareholders who are entitled to vote will receive these 
proxy materials by mail. In addition, Vanguard employees and officers may       
solicit shareholder proxies in person, by telephone or through the Internet. We 
may also arrange for an outside firm, Shareholder Communications Corporation, to
solicit shareholder votes by telephone on the Fund's behalf. This procedure,    
which is expected to cost the Fund approximately $4 per shareholder vote, will  
be employed only after all more cost-effective means of soliciting shareholder  
votes have been exhausted.                                                      

PROXY SOLICITATION COSTS.  Your Fund will pay all costs of soliciting 
proxies from its own shareholders, including costs relating to the printing,    
mailing and tabulation of proxies. By voting immediately, you can help your Fund
avoid the considerable expense of a second solicitation.                        

  QUORUM.  In order for the shareholder meeting to forward, your Fund must
achieve a quorum. This means that a majority of your Fund's shares must be      
represented at the meeting--either in person or by proxy. All returned proxies  
count towards a quorum, regardless of how they are voted ("For," "Against" or   

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"Abstain"). Your Fund will count broker non-votes towards a quorum, but not     
towards the approval of any proposals. (Broker non-votes are shares for which   
(i) the underlying owner has not voted and (ii) the broker holding the shares   
does not have discretionary authority to vote on the particular matter.)        

     REVOKING YOUR PROXY.  You may revoke your proxy at any time up until voting
results are announced at the shareholder meeting. You can do this by writing to 
your Fund's Secretary, Raymond J. Klapinsky, at 100 Vanguard Boulevard, Malvern,
PA 19355 or by voting in person at the meeting. In addition, you can revoke a   
prior proxy simply by voting again--using your original proxy card, by toll-free
telephone call, or at our website.                                              

 SHAREHOLDER PROPOSALS.  Any shareholder proposals to be included in the
proxy statement for your Fund's next annual or special meeting must be received 
by the Fund within a reasonable period of time prior to that meeting. Your Fund 
has no current plans to hold an annual or special meeting in 1999.              

     NOMINEE ACCOUNTS.  Upon request, the Vanguard Funds will reimburse nominees
for their reasonable expenses in forwarding proxy materials to beneficial owners
of the Funds' shares. Please submit invoices for our review to Vanguard         
Financial Center, P.O. Box 2600, Valley Forge, PA 19482.                        

     ANNUAL/SEMI ANNUAL REPORTS.  Your Fund's most recent annual and semi annual
reports to shareholders are available at no cost. To request a report, please   
call us toll-free at 1-800-662-2739 or write us at Vanguard Financial Center,   
P.O. Box 2600, Valley Forge, PA 19482.                                          

LITIGATION.  Your Fund is not involved in any litigation.             

   OTHER MATTERS.  At this point, we know of no other business to be brought
before the shareholder meeting. However, if any other matters do come up, we    
will use our best judgment to vote on your behalf. If you object to our voting  
other matters on your behalf, please tell us so in writing before the meeting.  

THE VANGUARD GROUP, INC.  Your Fund is a member of The Vanguard Group,
Inc., the only mutual mutual fund company. Vanguard is owned jointly by the     
Funds it oversees (and therefore by the shareholders of those Funds). Vanguard  
provides the Funds--more than 95 distinct investment portfolios--with their     
corporate management, administrative and distribution services on an at-cost    
basis.                                                                          

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

PART 4--FUND INFORMATION                                                        

This section contains background information about your Fund and its  
investment adviser(s).                                                          

A.  YOUR FUND (AS OF MARCH   , 1998)                                            

                                                                [Download Table]

                            FUND       NET ASSETS    OUTSTANDING       5%   
      FUND NAME          INCEPTION       ($000)         SHARES       OWNERS*
      ---------          ---------     ----------    -----------     -------
                                                                            
CONVERTIBLE SECURITIES                                                      
  FUND                      1986                                            
EXPLORER FUND               1967                                            
HORIZON FUND                                                                
Aggressive Growth           1995                                            
Asset Allocation            1995                                            
Capital Opportunity         1995                                            
Global Equity               1995                                            
MORGAN GROWTH FUND          1968                                            
PRIMECAP FUND               1984                                            
SPECIALIZED PORTFOLIOS                                                      
Energy                      1984                                            
Gold and Precious                                                           
  Metals                    1984                                            
Health Care                 1984                                            
Utilities Income            1992                                            
SELECTED VALUE                                                              
  PORTFOLIO                 1996                                            
STAR FUND                                                                   
STAR                        1985                                            
LifeStrategy Income         1994                                            
LifeStrategy                                                                
  Conservative Growth       1994                                            
LifeStrategy Moderate                                                       
  Growth                    1994                                            
LifeStrategy Growth         1994                                            
Total International         1996                                            
TAX-MANAGED FUND                                                            
Balanced                    1994                                            
Growth and Income           1994                                            
Capital Appreciation        1994                                            
TRUSTEES' EQUITY FUND                                                       
International               1983                                            
U.S.                        1980                                            

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                                                                [Download Table]

                            FUND       NET ASSETS    OUTSTANDING       5%   
      FUND NAME          INCEPTION       ($000)         SHARES       OWNERS*
      ---------          ---------     ----------    -----------     -------
                                                                            
VARIABLE INSURANCE                                                          
  FUND                                                                      
Money Market                1991                                            
High-Grade Bond             1991                                            
High Yield Bond             1996                                            
Balanced                    1991                                            
Equity Income               1993                                            
Equity Index                1991                                            
Growth                      1993                                            
Small Company Growth        1996                                            
International               1994                                            
WORLD FUND                                                                  
International Growth        1981                                            
U.S. Growth                 1959                                            

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

*SEC rules require each Fund to tell you name and address of any person known to
be the beneficial owner of more than 5% of the Fund's (or a portfolio's)        
outstanding shares. The Fund must also tell you how many shares such persons own
and what percentage of the Fund (or portfolio) these shares represent.          

B.  YOUR FUND'S INVESTMENT ADVISER(S)                                           

                                                                [Download Table]

         FUND NAME                    ADVISER NAME AND ADDRESS    
         ---------                    ------------------------    
                                                                  
CONVERTIBLE SECURITIES FUND   Oaktree Capital Management          
                                550 South Hope Street, 22nd Floor 
                                Los Angeles. CA 90071             
EXPLORER FUND                 Granahan Investment Management, Inc.
  (3 ADVISERS)                  275 Wyman Street                  
                                Waltham, MA 02154                 
                              Wellington Management Company, LLP  
                                75 State Street                   
                                Boston, MA 02109                  
                              The Vanguard Group, Inc.            
                                100 Vanguard Boulevard            
                                Malvern, PA 19355                 

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                                                                [Download Table]

         FUND NAME                    ADVISER NAME AND ADDRESS      
         ---------                    ------------------------      
                                                                    
HORIZON FUND                                                        
Aggressive Growth             The Vanguard Group, Inc.              
Global Asset Allocation       Strategic Investment Management       
                                1001 19th Street North, 16th Floor  
                                Arlington, VA 22209                 
Capital Opportunity           PRIMECAP Management Company           
                                225 South Lake Avenue               
                                Pasadena, CA 91101                  
Global Equity                 Marathon Asset Management Limited     
                                115 Shaftesbury Avenue, London      
MORGAN GROWTH FUND            Wellington Management Company, LLP    
  (3 ADVISERS)                  Franklin Portfolio Associates, LLC  
                                Two International Place             
                                Boston, MA 02109                    
                              The Vanguard Group, Inc.              
PRIMECAP FUND                 PRIMECAP Management Company           
SPECIALIZED PORTFOLIOS                                              
Energy                        Wellington Management Company, LLP    
Health Care                   Same                                  
Utilities Income              Same                                  
Gold and Precious Metals      M&G Investment Management Limited     
                                3 Minister Court, Great Tower Street
                                London, England EC3R 7XH            
REIT Index                    The Vanguard Group, Inc.              
SELECTED VALUE PORTFOLIO      Barrow, Hanley, Mewhinney & Strauss   
                                One McKinney Plaza                  
                                3232 McKinney Avenue, 15th Floor    
                                Dallas, TX 75204                    
STAR FUND                                                           
STAR                          The Vanguard Group, Inc. (see above)  
LifeStrategy Income           Same                                  
LifeStrategy Conservative     Same                                  
  Growth                                                            
LifeStrategy Moderate Growth  Same                                  
LifeStrategy Growth           Same                                  

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                                                                [Download Table]

         FUND NAME                    ADVISER NAME AND ADDRESS      
         ---------                    ------------------------      
                                                                    
TAX-MANAGED FUND                                                    
Balanced                      Same                                  
Growth and Income             Same                                  
Capital Appreciation          Same                                  
TRUSTEES' EQUITY FUND                                               
International Value           UBS International Investment London   
                                Limited                             
                                Triton Court, 14 Finsbury Square    
                                London, England EC2A 1PD            
U.S. Portfolio                Geewax Terker & Company               
                                99 Starr Street                     
                                Phoenixville, PA 19460              
VARIABLE INSURANCE FUND                                             
Money Market                  The Vanguard Group, Inc.              
High-Grade Bond               Same                                  
High Yield Bond               Wellington Management Company, LLP    
Balanced                      Same                                  
Equity Income                 Newell Associates                     
                                525 University Avenue               
                                Palo Alto, CA 94301                 
Equity Index                  The Vanguard Group, Inc.              
Growth                        Lincoln Capital Management Company    
                                200 South Wacker Drive              
                                Chicago, IL 60606                   
Small Company Growth          Granahan Investment Management Company
International                 Schroder Capital Management           
                                International, Inc.                 
                                33 Gutter Lane                      
                                London, England EC2V 8AS            
WORLD FUND                                                          
International Growth          Same                                  
U.S. Growth                   Lincoln Capital Management Company    

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

PART 5--DIRECTOR/TRUSTEE INFORMATION                                            

     Your "yes" vote on the reorganization proposal (see page 2) will be treated
as a vote to elect each of your Fund's current Directors/Trustees to the        
position of Trustee with the newly-organized Delaware business trust. Following 
the                                                                             

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reorganization, the Trustees will serve until the next election or until their  
terms are for some reason terminated.                                           

This section provides detailed information about the individual       
Directors/Trustees. The information presented includes:                         

- The backgrounds and qualifications of the Directors/Trustees.       
- The identity of your Fund's principal executive officers.           
- How many Fund shares are owned by management.                       
- How often the Board and its committees meet.                        
- How Directors/Trustees are compensated.                             

A.  THE BACKGROUNDS AND QUALIFICATIONS OF DIRECTORS/TRUSTEES                    

    Except as otherwise noted, the individuals listed below currently serve as
Directors/Trustees of The Vanguard Group, Inc. and all Vanguard Funds. The      
mailing of address of the Directors/Trustees is P.O. Box 876, Valley Forge, PA  
19482.                                                                          

                                                                [Download Table]

                                       PRINCIPAL OCCUPATION DURING THE    
           NAME              AGE    LAST 5 YEARS AND OTHER DIRECTORSHIPS  
           ----              ---    ------------------------------------  
                                                                          
John C. Bogle(1)             68    Senior Chairman of the Board and       
                                     Director of The Vanguard Group, Inc.,
                                     and all Vanguard Funds; Director of  
                                     The Mead Corporation, General        
                                     Accident Insurance Company, and      
                                     Chris-Craft Industries, Inc.         
John J. Brennan(1)           43    Chairman of the Board, Director,       
                                     President and Chief Executive Officer
                                     of The Vanguard Group, Inc., and all 
                                     Vanguard Funds                       
Robert E. Cawthorn           62    Chairman Emeritus and Director of      
                                     Rhone-Poulenc Rorer, Inc.; Managing  
                                     Director of Global Health Care       
                                     Partners/DLJ Merchant Banking        
                                     Partners; Director of Sun Company,   
                                     Inc., and Westinghouse Electric Corp.
Barbara Barnes Hauptfuhrer   69    Director of The Great Atlantic and     
                                     Pacific Tea Co., IKON Office         
                                     Solutions, Inc., Raytheon Co.,       
                                     Knight-Ridder, Inc., Massachusetts   
                                     Mutual Life Insurance Co., and Ladies
                                     Professional Golf Association;       
                                     Trustee Emerita of Wellesley College 
Bruce K. MacLaury(3)         66    President Emeritus of The Brookings    
                                     Institution; Director of American    
                                     Express Bank Ltd., The St. Paul      
                                     Companies, Inc., and National Steel  
                                     Corp.                                

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                                                                [Download Table]

                                       PRINCIPAL OCCUPATION DURING THE    
           NAME              AGE    LAST 5 YEARS AND OTHER DIRECTORSHIPS  
           ----              ---    ------------------------------------  
                                                                          
Burton G. Malkiel(2)         65    Chemical Bank Chairman's Professor of  
                                     Economics, Princeton University;     
                                     Director of Prudential Insurance Co. 
                                     of America, Amdahl Corp., Baker      
                                     Fentress & Co., The Jeffrey Co., and 
                                     Southern New England                 
                                     Telecommunications Co.               
Alfred M. Rankin, Jr.        56    Chairman, President, and Chief         
                                     Executive Officer of NACCO           
                                     Industries, Inc.; Director of NACCO  
                                     Industries, The BFGoodrich Co., and  
                                     the Standard Products Co.            
John C. Sawhill              61    President and Chief Executive Officer  
                                     of The Nature Conservancy; formerly, 
                                     Director and Senior Partner of       
                                     McKinsey & Co. and President of New  
                                     York University; Director of Pacific 
                                     Gas and Electric Co., Procter &      
                                     Gamble Co., and NACCO Industries     
James O. Welch, Jr.          66    Retired Chairman of Nabisco Brands,    
                                     Inc.; retired Vice Chairman and      
                                     Director of RJR Nabisco; Director of 
                                     TECO Energy, Inc., and Kmart Corp.   
J. Lawrence Wilson           61    Chairman and Chief Executive Officer of
                                     Rohm & Haas Co.; Director of Cummins 
                                     Engine Co., and The Mead Corporation;
                                     Trustee of Vanderbilt University     

---------------                                                                 
(1) Messrs. Bogle and Brennan are considered "interested persons" because they  
serve as Fund officers, as well as Directors/Trustees.                  
(2) Mr. Malkiel does not serve as a Director of Vanguard Equity Income Fund.    
(3) Mr. MacLaury does not serve as a Director/Trustee of Vanguard Municipal Bond
Fund or the Vanguard State Tax-Free Funds.                              

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B.  PRINCIPAL EXECUTIVE OFFICERS                                                

The following individuals are the principal executive officers of The 
Vanguard Group, Inc., and all Vanguard Funds. Each principal executive officer  
has held substantially the same position with the Funds for the last five years 
or more (except that Mr. Brennan succeeded Mr. Bogle as Chairman of the Board on
January 31, 1998). Their mailing address is P.O. Box 876, Valley Forge, PA      
19482.                                                                          

                                                                [Download Table]

        NAME           AGE                    OFFICE              
        ----           ---                    ------              
                                                                  
John C. Bogle          68     Senior Chairman of the Board        
John J. Brennan        43     Chairman of the Board, President and
                                Chief Executive Officer           
Raymond J. Klapinsky   59     Secretary                           
Richard F. Hyland      60     Treasurer                           
Karen E. West          51     Controller                          

C.  FUND SHARES OWNED BY DIRECTORS/TRUSTEES                                     

 Messrs. Bogle and Brennan each have invested substantially all of their
assets in the Vanguard Funds. The independent Directors/Trustees are also       
committed to investing a significant portion of their assets in the Funds. All  
Directors/Trustees allocate their investments among more than 95 Vanguard Funds 
based on their own investment needs. Their aggregate Vanguard investments       
totaled over $79.5 million as of December 31, 1997. The total amount of Fund    
shares beneficially owned by each Director/Trustee as of that date, along with  
the year in which each individual became a Director/Trustee of the Vanguard     
Funds appears below. As of December 31, 1997, the Directors/Trustees and        
officers owned less than 1% of each Fund's total outstanding shares.            

JOHN C. BOGLE (1966)                                                            
Explorer Fund--22,837 shares; Horizon Fund-Global Asset Allocation    
Portfolio--2,543 shares; Morgan Growth Fund--1,269 shares [7,924 shares];       
PRIMECAP Fund--[24,106 shares]; Specialized Portfolios-Gold and Precious Metals 
Portfolio--3,335 shares; Tax Managed Fund (TMF)-Balanced Portfolio--116,566     
shares [78,812 shares]; TMF-Capital Appreciation Portfolio--20,667 shares       
[76,960 shares]; Trustees Equity Fund-U.S. Growth Portfolio--16,541 shares      
[16,541 shares]; World Fund (WF)-International Growth Portfolio--7,080 shares;  
WF-U.S. Growth Portfolio--7,666 shares [15,623 shares]; all Vanguard            
Funds--1,655,037 shares [701,163 shares] NOTE: The bracketed amounts represent  
shares held by charitable and related trusts created by Mr. Bogle, in which he  
disclaims ownership, control or voting power.                                   

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JOHN J. BRENNAN (1987)                                                          
Explorer Fund--5,170 shares; Horizon Fund-Capital Opportunity         
Portfolio--1,862 shares; Morgan Growth Fund--7,071 shares; PRIMECAP Fund--3,588 
shares; STAR Fund-Total International Portfolio--10,676 shares; Tax Managed     
Fund-Growth and Income Portfolio--16,773 shares; Trustees Equity                
Fund-International Value Portfolio--374 shares; Variable Insurance Fund Balanced
Portfolio--908 shares; World Fund (WF)-International Growth Portfolio--6,445    
shares; WF-U.S. Growth Portfolio--2,911 shares; all Vanguard Funds--684,779     
shares.                                                                         

ROBERT E. CAWTHORN (1992)                                                       
    Specialized Portfolios-REIT Index Portfolio--16,835 shares; STAR Fund-STAR
Portfolio--38,208 shares; Trustees Equity Fund-International Value              
Portfolio--4,894 shares; all Vanguard Funds--8,369,629 shares.                  

BARBARA B. HAUPTFUHRER (1972)                                                   
    Convertible Securities Fund--756 shares; Explorer Fund--695 shares; Morgan
Growth Fund--3,445 shares; PRIMECAP Fund--2,724 shares; Specialized             
Portfolios-Gold and Precious Metals Portfolio--525 shares; STAR Fund-STAR       
Portfolio--19,797 shares; STAR Fund-Total International Portfolio--902 shares;  
Trustees Equity Fund-International Value Portfolio--3,592 shares; World Fund-   
International Growth Portfolio--717 shares; all Vanguard Funds--1,910,269       
shares.                                                                         

BRUCE K. MACLAURY (1989)                                                        
All Vanguard Funds--20,373 shares.                                    

BURTON G. MALKIEL (1977)                                                        
Trustees Equity Fund-International Value Portfolio--1,804 shares; all 
Vanguard Funds--520,104 shares.                                                 

ALFRED M. RANKIN, JR. (1992)                                                    
Explorer Fund--3,788 shares; PRIMECAP Fund--3,615 shares; World       
Fund-International Growth Portfolio--3,220 shares; all Vanguard Funds--436,834  
shares.                                                                         

JOHN C. SAWHILL (1991)                                                          
  Horizon Fund (HF)-Aggressive Growth Portfolio--11,785 shares; HF-Capital
Opportunity Portfolio--1,005 shares; HF-Global Asset Allocation Portfolio--5,710
shares; HF-Global Equity Portfolio--5,849 shares; Tax Managed Fund-Capital      
Appreciation Portfolio--15,969 shares; all Vanguard Funds--790,828 shares.      

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JAMES O. WELCH, JR. (1971)                                                      
 Explorer Fund--1,275 shares; Morgan Growth Fund--1,362 shares; PRIMECAP
Fund--39,897 shares; World Fund (WF)-International Growth Portfolio--3,087      
shares; WF-U.S. Growth Portfolio--3,376 shares; all Vanguard Funds--144,797     
shares.                                                                         

J. LAWRENCE WILSON (1985)                                                       
Horizon Fund-Global Equity Portfolio--10,902 shares; Specialized      
Portfolios-REIT Index Portfolio--36,250 shares; STAR Fund-STAR Portfolio--      
10,487 shares; Tax Managed Fund-Capital Appreciation Portfolio--8,891 shares;   
all Vanguard Funds--311,590 shares.                                             

D.  BOARD AND COMMITTEE MEETINGS                                                

During 1997, your Fund's Board of Directors/Trustees held 11 meetings.

 Your Board has a standing Compensation, Nomination and Audit Committee,
which consists of all Directors/Trustees who are not "interested persons" of the
Fund (that is, all but Messrs. Bogle and Brennan). During 1997, the Committee   
held 2 meetings. The Committee's role is to:                                    

1. Evaluate the performance of your Fund's officers and employees.    

2. Develop and approve the compensation arrangements for your Fund's  
officers and employees.                                         

3. Interview, evaluate and recommend to shareholders candidates for   
     election your Fund's Board of Directors/Trustees. (The Committee will
      consider shareholder nominations for Director/Trustee; please write to
Mr. Wilson, Chairman of the Committee.)                         

4. Select your Fund's independent accountants and review their fees.  

5. Oversee your Fund's internal controls.                             

 Following the reorganization, your Fund's Board of Trustees will form a
similar committee.                                                              

E.  DIRECTOR/TRUSTEE COMPENSATION                                               

     The same individuals serve as Directors/Trustees of all Vanguard Funds, and
each Fund pays a proportionate share of the Directors'/Trustees' compensation.  
The Funds employ their officers on a shared basis, as well. However, officers   
are compensated by The Vanguard Group, Inc., not the Funds. The reorganization  
(Proposal 1) will not change the compensation arrangements described in this    
section.                                                                        

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 INDEPENDENT DIRECTORS/TRUSTEES.  The Funds compensate their independent
Directors/Trustees--that is, the ones who are not also officers of the Fund--in 
three ways:                                                                     

- The independent Directors/Trustees receive an annual fee for their  
   service to the Funds, which is subject to reduction based on absences
from scheduled Board meetings.                                    

- The independent Directors/Trustees are reimbursed for the travel and
other expenses that they incur in attending Board meetings.       

    - Upon retirement, the independent Directors/Trustees receive an aggregate
   annual fee of $1,000 for each year served on the Board, up to fifteen
years of service. This annual fee is paid for ten years following 
retirement, or until the Director's/Trustee's death.              

"INTERESTED" DIRECTORS/TRUSTEES.  The Funds' interested Directors/    
Trustees--Messrs. Bogle and Brennan--receive no compensation for their service  
in that capacity. However, they are paid by The Vanguard Group, Inc. for        
services that include their role as officers of the Funds.                      

     COMPENSATION TABLES.  The following tables provide compensation details for
each of the Directors/Trustees. For each Fund covered in this proxy statement,  
we list the amounts paid as compensation and accrued as retirement benefits by  
that Fund for each Director/Trustee. In addition, the last table shows the total
amount of benefits that we expect each Director/Trustee to receive from all     
Vanguard Funds upon retirement, and the total amount of compensation paid to    
each Director/Trustee by all Vanguard Funds. All information shown in this      
section relates to each Fund's most recent fiscal year.                         

                                                        [Enlarge/Download Table]

                       CONVERTIBLE SECURITIES                                          
                                FUND                           EXPLORER FUND           
     DIRECTORS/   AGGREGATE      ACCRUED PENSION/     AGGREGATE      ACCRUED PENSION/  
      TRUSTEES   COMPENSATION   RETIREMENT BENEFITS  COMPENSATION   RETIREMENT BENEFITS
      --------   ------------   -------------------  ------------   -------------------
                                                                                       
Bogle              None            None                None            None            
Brennan            None            None                None            None            
Cawthorn           $53              $6                 $796            $ 96            
Hauptfuhrer        $53              $8                 $796            $115            
MacLaury           $58              $8                 $846            $109            
Malkiel            $53              $5                 $801            $ 77            
Rankin             $53              $4                 $796            $ 60            
Sawhill            $53              $5                 $796            $ 72            
Welch              $53              $6                 $796            $ 88            
Wilson             $53              $4                 $796            $ 64            

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                                                        [Enlarge/Download Table]

                            HORIZON FUND                     MORGAN GROWTH FUND        
     DIRECTORS/   AGGREGATE      ACCRUED PENSION/     AGGREGATE      ACCRUED PENSION/  
      TRUSTEES   COMPENSATION   RETIREMENT BENEFITS  COMPENSATION   RETIREMENT BENEFITS
      --------   ------------   -------------------  ------------   -------------------
                                                                                       
Bogle              None            None                None             None           
Brennan            None            None                None             None           
Cawthorn           $190             $23                                                
Hauptfuhrer        $190             $27                                                
MacLaury           $200             $27                                                
Malkiel            $191             $18                                                
Rankin             $190             $14                                                
Sawhill            $190             $17                                                
Welch              $190             $21                                                
Wilson             $190             $15                                                

                                                        [Enlarge/Download Table]

                           PRIMECAP FUND                   SPECIALIZED PORTFOLIOS      
     DIRECTORS/   AGGREGATE      ACCRUED PENSION/     AGGREGATE      ACCRUED PENSION/  
      TRUSTEES   COMPENSATION   RETIREMENT BENEFITS  COMPENSATION   RETIREMENT BENEFITS
      --------   ------------   -------------------  ------------   -------------------
                                                                                       
Bogle                 None         None                None             None           
Brennan               None         None                None             None           
Cawthorn            $1,562          188$                                               
Hauptfuhrer         $1,562          225$                                               
MacLaury            $1,659          215$                                               
Malkiel             $1,572          151$                                               
Rankin              $1,576          119$                                               
Sawhill             $1,562          141$                                               
Welch               $1,562          173$                                               
Wilson              $1,562          125$                                               

                                                        [Enlarge/Download Table]

                             STAR FUND                        TAX-MANAGED FUND         
     DIRECTORS/   AGGREGATE      ACCRUED PENSION/     AGGREGATE      ACCRUED PENSION/  
      TRUSTEES   COMPENSATION   RETIREMENT BENEFITS  COMPENSATION   RETIREMENT BENEFITS
      --------   ------------   -------------------  ------------   -------------------
                                                                                       
Bogle              None            None                None                 None       
Brennan            None            None                None                 None       
Cawthorn                                                                               
Hauptfuhrer                                                                            
MacLaury                                                                               
Malkiel                                                                                
Rankin                                                                                 
Sawhill                                                                                
Welch                                                                                  
Wilson                                                                                 

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                                                        [Enlarge/Download Table]

                       TRUSTEES' EQUITY FUND              VARIABLE INSURANCE FUND      
     DIRECTORS/   AGGREGATE      ACCRUED PENSION/     AGGREGATE      ACCRUED PENSION/  
      TRUSTEES   COMPENSATION   RETIREMENT BENEFITS  COMPENSATION   RETIREMENT BENEFITS
      --------   ------------   -------------------  ------------   -------------------
                                                                                       
Bogle                None          None                None            None            
Brennan              None          None                None            None            
Cawthorn                                               $648             $78            
Hauptfuhrer                                            $648             $94            
MacLaury                                               $692             $89            
Malkiel                                                $653             $63            
Rankin                                                 $648             $49            
Sawhill                                                $648             $58            
Welch                                                  $648             $72            
Wilson                                                 $648             $52            

                                                        [Enlarge/Download Table]

                      SELECTED VALUE PORTFOLIO                   WORLD FUND            
     DIRECTORS/   AGGREGATE      ACCRUED PENSION/     AGGREGATE      ACCRUED PENSION/  
      TRUSTEES   COMPENSATION   RETIREMENT BENEFITS  COMPENSATION   RETIREMENT BENEFITS
      --------   ------------   -------------------  ------------   -------------------
                                                                                       
Bogle              None            None                None            None            
Brennan            None            None                None            None            
Cawthorn           $40              $5                $3,670           $441            
Hauptfuhrer        $40              $6                $3,670           $530            
MacLaury           $45              $5                $3,909           $506            
Malkiel            $41              $4                $3,696           $356            
Rankin             $40              $3                $3,670           $279            
Sawhill            $40              $4                $3,670           $331            
Welch              $40              $5                $3,670           $407            
Wilson             $40              $3                $3,670           $294            

                                                                [Download Table]

                             ALL VANGUARD FUNDS(1)                            
     DIRECTORS/         AGGREGATE      ACCRUED PENSION/                       
      TRUSTEES         COMPENSATION   RETIREMENT BENEFITS                     
      --------         ------------   -------------------                     
                                                                              
Bogle                       None          None                                
Brennan                     None          None                                
Cawthorn                 $13,000         $70,000                              
Hauptfuhrer              $15,000         $70,000                              
MacLaury                 $12,000         $65,000                              
Malkiel                  $15,000         $70,000                              
Rankin                   $15,000         $70,000                              
Sawhill                  $15,000         $70,000                              
Welch                    $15,000         $70,000                              
Wilson                   $15,000         $70,000                              

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

(1) All Directors/Trustees serve as such for 35 Vanguard Funds, except for      
   Messrs. Malkiel and MacLaury, who serve on the Boards of 34 and 28 Vanguard
Funds, respectively.                                                    

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VOTE BY TOUCH-TONE PHONE OR THE INTERNET                                        
---- -- ----- ---- ----- -- --- --------                                        
                                                             [SHIP LOGO]
                                                          The VANGUARD Group (R)
CALL TOLL-FREE: 1-800-690-6903 OR VISIT OUR WEBSITE                             
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM                                           

12-DIGIT CONTROL NUMBER:                                                        

(See enclosed insert for further instructions to vote by phone/internet)        

Please detach at perforation before mailing                                     

("FUND")                          
PROXY SOLICITED BY THE BOARD OF DIRECTORS                                       

By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and        
Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled 
to vote at the Special Meeting of Shareholders to be held in the Majestic       
Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard,         
Malvern, PA on June 30, 1998 at 9:30 A.M., E.T. and at any adjournments of the  
meeting. Any one or more of Messrs. Brennan, Wilson and Klapinsky may vote my   
shares, and they may appoint substitutes to vote my shares on their behalf. I   
instruct Messrs. Brennan, Wilson and Klapinsky to vote this proxy as specified  
on the reverse side, and I revoke any previous proxies that I have executed. I  
acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and 
proxy statement.                                                                

                                           PLEASE SIGN, DATE AND RETURN PROMPTLY
                                           IN ENCLOSED ENVELOPE IF YOU ARE NOT
                                           VOTING BY PHONE OR INTERNET

                                    Date -------------------------
                                       NOTE: Please sign exactly as your
                                      name appears on this proxy. When
                                           signing in a fiduciary capacity, such
                                          as executor, administrator, trustee,
                                         attorney, guardian, etc., please so
                                         indicate. Corporate and partnership
                                    proxies should be signed by an
                                      authorized person indicating the
                     person's title.
                                           -------------------------------------

                                           -------------------------------------
                                       Signature(s)(and Title(s), if applicable)
CONTINUED ON REVERSE SIDE 
                                                                         VAN-PH3

PRES14A
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Please refer to the Proxy Statement discussion of these proposals.              
THE PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.      
---                             
Your appointed attorneys will vote any other matters that arise at the meeting  
in accordance with their best judgment.                                         
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:    
                       ---

Please detach at perforation before mailing.

Please vote by checking the appropriate box(es) below.

                                                        [Enlarge/Download Table]


                                                                                                   FOR   AGAINST  ABSTAIN  
                                                                                                                           
1. To reorganize the Fund into a Delaware business trust. (All Funds)                              [  ]    [  ]    [  ] 1. 

2. To change the Fund's fundamental investment limitations with regards to:                                                

   (a) The interfund lending program. (All Funds)                                                  [  ]    [  ]    [  ] 2a.

   (b) Borrowing money and pledging assets. (Convertible Securities Fund, Explorer Fund,           [  ]    [  ]    [  ] 2b.
       PRIMECAP Fund, Morgan Growth Fund, STAR Fund/LifeStrategy and Total International                                   
       Portfolios, Variable Insurance Fund, World Fund)                                                                    

   (c) Investments in securities owned by affiliates. (Convertible Securities Fund, PRIMECAP Fund, [  ]    [  ]    [  ] 2c.
       Specialized Portfolios, STAR Fund/LifeStrategy and Total International Portfolios)                                  

   (d) Investments in unseasoned companies. (Convertible Securities Fund, Morgan Growth Fund,      [  ]    [  ]    [  ] 2d.
       STAR Fund/LifeStrategy and Total International Portfolios, Trustees' Equity Fund, World                             
       Fund)                                                                                                               

   (e) Investments in cash reserves. (STAR Portfolio, only)                                        [  ]    [  ]    [  ] 2e.

   (f) Investments in futures and options. (Tax-Managed Fund, only)                                [  ]    [  ]    [  ] 2f.

                         PLEASE SIGN ON REVERSE SIDE                                                                VAN-PH3

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PRES14A’ Filing		Date		First		Last			Other Filings
		6/30/98		1		35			485BPOS,  DEFS14A,  N-30D,  NSAR-A
For Period End:		5/29/98
		4/13/98		4		21			497
Filed on:		3/27/98
		3/16/98		3
		1/31/98		29					24F-2NT,  N-30D,  NSAR-B
		12/31/97		29					24F-2NT,  N-30D,  NSAR-B,  NSAR-B/A
									List all Filings