VANGUARD MORGAN GROWTH FUND INC, N-14/A, 1994-03-15

VANGUARD MORGAN GROWTH FUND INC
N-14/A, 1994-03-15

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No.
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.
VANGUARD/MORGAN GROWTH FUND, INC.
(Exact Name of registrant as Specified in Charter)

100 Vanguard Blvd., (P.O. Box 876)
Valley Forge, PA 19482
(Address of Principal Executive Offices)
Registrant's Telephone Number: (610) 669-6000

Raymond J. Klapinsky, Secretary
Vanguard/Morgan Growth Fund, Inc.
(Name and Address of Agent for Service)

100 Vanguard Blvd., (P.O. Box 876)
Valley Forge, PA 19482

No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940.

It is proposed that this filing become effective on April 14, 1994,
pursuant to rule 488(a) under the securities Act of 1933.

The Registrant has registered an indefinite number of shares under the
Securities Act of 1933
pursuant to rule 24f-2 under the Investment Company Act of 1940. The
Registrant's most recent 24f-2 Notice for its fiscal year December 31, 1993
was filed with the Commission on February 24, 1994.

<PAGE>
VANGUARD/MORGAN GROWTH FUND, INC.
CROSS-REFERENCE SHEET
Pursuant to Rule 488 (a) under the Securities Act of 1933

N-14 ITEM NO. CAPTION IN PROSPECTUS

Item 1. Beginning of Registration Cover Page of Registration
Statement Statement; Front Cover
Statement and Outside Front Prospectus
Cover
Page of Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of
Prospectus
Item 3. Synopsis Information and Risk Summary
Factors
Item 4. Information About the Summary; The Proposed
Transaction Reorganization; Additional
Information About the Proposed
Reorganization
Item 5. Information About the Prospectus Cover Page; Summary; The
Registrant Proposed
Reorganization; Additional
Information on the Fund
Explorer Fund; Condensed Financial
Information;
Performance Summary; Information
Filed with the
Securities and Exchange Commission
Item 6. Information About the Company Summary; The Proposed
Being Acquired Reorganization; Additional
Information on the Fund and Explorer
Fund; Performance
Summary; Condensed Financial
Information; Information
Filed with the Securities and
Exchange Commission.
Item 7. Voting Information Notice of Special Meeting of
Shareholders; Summary;
Proposed Reorganization; Additional
Information About
Proposed Reorganization; Vote
Required
Item 8. Interest of Certain Persons Additional Information About the
and Experts Proposed Reorganization
Item 9. Additional Information Not Applicable
Required for Reoffering
by Persons Deemed to be
Underwriters

<PAGE>
VANGUARD SPECIALIZED PORTFOLIOS, INC.
SERVICE ECONOMY PORTFOLIO
Fellow Shareholder:
The accompanying Combined Proxy Statement and Prospectus presents an
important proposal for your consideration as a shareholder of Vanguard
Specialized Portfolios-Service Economy Portfolio (the "Service Economy
Portfolio"). In substance, your Board of Directors has proposed that the
Service Economy Portfolio be merged with Vanguard/Morgan Growth Fund, Inc.
("Morgan Growth Fund"), by having all of its assets acquired, in a tax-free
reorganization, in exchange for shares of Morgan Growth Fund on June 3, 1994
(the "Closing Date"). If this proposal is approved by shareholders, your
Service Economy Portfolio shares will be exchanged for an equal dollar-amount
of Morgan Growth Fund shares on the Closing Date.
BACKGROUND
The Service Economy Portfolio began operations in 1984 with the objective
of providing investors with long-term capital appreciation by investing in
common stocks of companies in the service sector of the economy. Over the
period since its inception the performance of the Service Economy Portfolio
has lagged that of the overall stock market. Additionally, the level of
investor interest in the Portfolio has been modest. Accordingly, the Directors
of the Service Economy Portfolio have determined that it would be in the best
interests of the Portfolio's shareholders to merge the Portfolio into the
larger and more broadly diversified Morgan Growth Fund.

Morgan Growth Fund is considered to be the most appropriate Vanguard Fund
to acquire the shares of the Service Economy Portfolio because Morgan Growth
Fund has the most similar sector weightings and most similar market
capitalization (company size) to the Service Economy Portfolio's of all the
Vanguard Equity Funds. Wellington Management Company ("WMC") serves as
investment adviser to the Service Economy Portfolio and also serves as
investment adviser with respect to approximately 40% of Morgan Growth Fund's
assets. The remainder of Morgan Growth Fund's assets are managed by Franklin
Portfolio Associates (33%), Husic Capital Management (13%) and Vanguard's Core
Management Group (9%), with approximately 5% of the Fund's net assets held in
cash.

SHAREHOLDERS OF THE SERVICE ECONOMY PORTFOLIO WILL NOT BE ASSESSED THE
PORTFOLIO'S 1% REDEMPTION FEE ON THE EXCHANGE OF PORTFOLIO SHARES FOR MORGAN
GROWTH FUND SHARES.

The Officers and Directors of the Service Economy Portfolio have carefully
evaluated the Service Economy Portfolio's performance record since inception,
giving careful consideration to the risks and opportunities of making changes.
The Officers and Directors have concluded that shareholders would be best
served by "merging" the Portfolio through the acquisition of its assets by
Morgan Growth Fund. The proposed reorganization of the Service Economy
Portfolio must be approved by the owners of a majority of the outstanding
shares of the Service Economy Portfolio.

We hope this Proxy statement and the Morgan Growth Fund prospectus will
answer all of your questions, but if you have further questions at any time,
please do not hesitate to call Vanguard's Investor Information department at
1-800-*** ****

Sincerely,
John C. Bogle
Chairman of the Board

<PAGE>
VANGUARD SPECIALIZED PORTFOLIOS-SERVICE ECONOMY PORTFOLIO
VANGUARD/MORGAN GROWTH FUND

COMBINED PROXY STATEMENT AND PROSPECTUS
DATED APRIL 14, 1994

This combined Proxy Statement and Prospectus includes this cover page, a
Notice of Special Meeting of Shareholders for Vanguard Specialized Portfolios-
Service Economy Portfolio (the "Service Economy Portfolio"), a Proxy
Statement, a form of proxy and the current prospectus for Vanguard/Morgan
Growth Fund, Inc. ("Morgan Growth Fund").

Morgan Growth Fund is an open-end divesified investment company. The
investment objective of Morgan Growth Fund is to provide long-term capital
growth by investing in the equity securities of small companies.

The principal executive offices of the Service Economy Portfolio and
Morgan Growth Fund are located at Vanguard Financial Center, One Hundred
Vanguard Boulevard, Malvern, PA 19355 (Telephone No.: 1-800-662-7447).

This Combined Proxy Statement and Prospectus sets forth concisely the
information that a shareholder of the Service Economy Portfolio should know
before voting on the proposed reorganization. It should be read and retained
for future reference.

A Prospectus, Statement of Additional information, and the 1993 Annual
Report to Shareholders of Morgan Growth Fund, including financial statements,
and the 1994 Annual Report of the Service Economy Portfolio, including
financial statements, are on file with the Securities and Exchange Commission
(the "Commission"). Morgan Growth Fund's prospectus and statement of
additional information (dated January *, 1994) and Morgan Growth Fund's 1993
Annual Report to Shareholders are incorporated by reference into this Combined
Proxy Statement and Prospectus. The Morgan Growth Fund Prospectus is included
with this document as Exhibit II. The Morgan Growth Fund Statement of
Additional Information and the Service Economy Portfolio's 1994 Annual Report
to Shareholders are available, without charge, by writing to Vanguard
Financial Center, P.O. Box 876, Valley Forge, PA 19482 or by calling the toll-
free telephone number listed above.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>
VANGUARD SPECIALIZED PORTFOLIOS- SERVICE ECONOMY PORTFOLIO

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO THE SHAREHOLDERS OF VANGUARD SPECIALIZED PORTFOLIOS-SERVICE ECONOMY
PORTFOLIO:

Notice is hereby given that a special meeting of shareholders of Vanguard
Specialized Portfolios-Service Economy Portfolio (the "Service Economy
Portfolio") will be held in the ******* Room, Vanguard Financial Center, 100
Vanguard Boulevard, Malvern, PA 19355, on June 1, 1994, at 9:30 A.M., E.T. for
the following purposes:

1. To approve or disapprove a proposal providing for the acquisition of
all of the Service Economy Portfolio's assets by Vanguard/Morgan Growth
Fund ("Morgan Growth Fund").

2. To consider and act upon any other matters which may properly come
before this meeting.

By Order of the Board of Directors
Raymond J. Klapinsky, Secretary

April 14, 1994

- ------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE
AND SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR
YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER
TO AVOID THE ADDITIONAL EXPENSE TO THE FUND OF FURTHER SOLICITATION, WE ASK
YOU TO COOPERATE IN MAILING YOUR PROXY PROMPTLY.
- ------------------------------------------------------------------------------

<PAGE>
VANGUARD SPECIALIZED PORTFOLIOS-SERVICE ECONOMY PORTFOLIO

SPECIAL MEETING OF SHAREHOLDERS
APRIL 14, 1994
PROXY STATEMENT

The enclosed proxy is solicited by and on behalf of the management of
Vanguard Specialized Portfolios- Service Economy Portfolio (the "Service
Economy Portfolio"). In addition to the solicitation of proxies by mail,
officers and employees of the Service Economy Portfolio may solicit in person
or by telephone. Persons holding stock as nominees will, upon request, be
reimbursed for their reasonable expenses in sending soliciting materials to
their principals.

Holders of record as of the close of business on March 23, 1994 are
entitled to vote at the meeting or any adjourned session. As of the record
date there were issued and outstanding approximately *********** shares of
common stock of the Service Economy Portfolio.

Shares represented by a properly executed proxy will be voted in
accordance with the instructions thereon, or if no specification is made, the
persons named as proxies will vote in favor of the proposals set forth in the
Notice of Meeting and in this Proxy Statement. Proxies may be revoked at any
time before they are exercised by the subsequent execution and submission of a
revised proxy, by written notice of revocation to the Secretary of the Service
Economy Portfolio, or by voting in person at the meeting. The business address
of the Fund is c/o Vanguard Financial Center, 100 Vanguard Boulevard (P.O. Box
876), Valley Forge, PA 19482.

A copy of the Service Economy Portfolio's Annual Report for the fiscal
year ended January 31, 1994, including financial statements, has been mailed
to each shareholder of the Service Economy Portfolio as of the record date.
This Combined Prospectus and Proxy Statement was mailed to shareholders on or
about April 14, 1994.

APPROVAL OR DISAPPROVAL OF THE PROPOSED REORGANIZATION

SUMMARY

The following is a summary of the proposed reorganization and the parties
thereto contained elsewhere in this Combined Proxy Statement and Prospectus
(including documents incorporated by reference herein).

COMPARISON OF THE SERVICE ECONOMY PORTFOLIO AND MORGAN GROWTH FUND

1. Investment Objectives and Policies

The investment objective of the Service Economy Portfolio is to provide
long-term capital appreciation by investing in the stocks of companies in the
service economy industry. Morgan Growth Fund seeks to provide long-term
capital appreciation by investing primarily in the equity securities of growth
companies.

2. Advisory Fees

The investment adviser to the Service Economy Portfolio is Wellington
Management Company ("WMC"). WMC also serves as investment adviser with respect
to approximately 40% of Morgan Growth Fund's assets. The remainder of Morgan
Growth Fund's assets are managed by Franklin Portfolio Associates (33%), Husic
Capital Management (13%) and Vanguard's Core Management Group (9%), with
approximately 5% of the Fund's assets held in cash.

The Service Economy Portfolio, along with the other portfolios of Vanguard
Specialized Portfolios ("VSP"), for which WMC serves as adviser (Health Care,
Technology, Energy and Utilities Income) pays an aggregate investment advisory
fee, at the end of each fiscal quarter, calculated by applying the following
annual percentage rates to the average month end net assets for the quarter of
the five portfolios, as follows:

<PAGE>

NET ASSETS RATE
------ ---
First $100 million....................................... 0.300%
Next $150 million........................................ 0.200%
Next $250 million........................................ 0.150%
Next $500 million........................................ 0.125%
Over $1 billion.......................................... 0.100%

The advisory fee is based on the net assets for the five Portfolios of VSP
for which WMC serves as adviser and is allocated to each Portfolio based on
the net assets of each Portfolio. For the fiscal year ended January 31, 1994,
the investment advisory fee represented an effective annual rate of .** of 1%
of average net assets for each Portfolio. Matthew E. Megargel, Vice President
of WMC serves as portfolio manager of the Service Economy Portfolio.

Morgan Growth Fund pays WMC a basic advisory fee calculated by applying
varying percentage rates to the average net assets of the fund managed by WMC
as follows:

NET ASSETS RATE
------ ---
First $50 million........................................ 0.325%
Next $100 million........................................ 0.225%
Over $150 million........................................ 0.150%

This basic advisory fee may be increased or decreased by applying an
adjustment formula ("incentive/penalty fee") based on WMC's investment
performance relative to the investment record of the Growth Fund Stock Index.
Robert D. Rands, Senior Vice President of WMC serves as portfolio manager of
the assets of Morgan Growth Fund assigned to WMC.

Morgan Growth Fund pays Franklin Portfolio Associates ("FPA") a basic
advisory fee calculated by applying varying percentage rates to the average
net assets of the Fund managed by FPA as follows:

NET ASSETS RATE
------ ---
First $100 million....................................... 0.250%
Next $200 million........................................ 0.200%
Over $300 million........................................ 0.150%

The basic advisory fee may be increased or decreased by applying an
adjustment formula ("incentive/penalty fee") based on FPA's investment
performance relative to the Growth Fund Stock Index. John J. Nagorniak,
President of FPA, serves as portfolio manager of the assets of Morgan Growth
Fund assigned to FPA.

Morgan Growth Fund pays Husic Capital Management ("Husic") a basic
advisory fee at the end of each fiscal quarter, calculated by applying a
quarterly rate, based on the following annual percentage rates, to the average
month-end assets of the Morgan Growth managed by Husic for the quarter:

NET ASSETS RATE
------ ---
First $25 million......................................... 0.40%
Next $125 million......................................... 0.35%
Next $350 million......................................... 0.25%
Next $500 million......................................... 0.20%
Over $1 billion........................................... 0.15%

The basic fee paid to Husic, as provided above, may be increased or
decreased by as much as 75% by applying an incentive/penalty fee based on the
investment performance of the assets managed by Husic relative to the return
of the Growth Fund Stock Index. Frank Husic, president of Husic, serves as
portfolio manager for the assets of Morgan Growth Fund managed by Husic.

The remaining assets of Morgan Growth Fund are managed on an at-cost basis
by Vanguard's Core Management Group under the direction of George U. Sauter,
Vice President of Vanguard.

<PAGE>

Morgan Growth Fund employs a multi-manager approach with WMC and Franklin
Portfolio Associates ("FPA") managing approximately 40% of the Fund's assets
each. Husic Capital Management serves as investment adviser with respect to
approximately 13% of the Fund's assets and Vanguard's Core Management Group is
responsible for the investment of approximately 9% of the Funds assets, and
approximately 5% of the Fund's assets are held in cash.

For the fiscal year ended December 31, 1993, the aggregate investment
advisory fee paid by Morgan Growth Fund represented an effective annual base
rate of .18 of 1% of the Fund's net assets before a decrease of .03 of 1%
based on performance.

3. Management, Administrative and Distribution Services

The Service Economy Portfolio and Morgan Growth Fund are members of The
Vanguard Group of Investment Companies. Through their jointly-owned
subsidiary, The Vanguard Group, Inc. ("Vanguard"), the member funds of the
Vanguard Group obtain at-cost virtually all of their corporate management,
administrative, and distribution services. Each Fund pays its share of
Vanguard's total expenses relating to these services, which are allocated
among the Funds under methods approved by the Board of Directors of each Fund.

4. Asset Size and Expense Ratios

On March 1, 1994 the Service Economy Portfolio had total net assets of
approximately $34 million. On the same date, Morgan Growth Fund had total net
assets of approximately $1.1 billion. For the fiscal year ended January 31,
1994, the Service Economy Portfolio had an expense ratio of ** of 1% of its
average net assets. The expense ratio for Morgan Growth Fund for its 1993
fiscal year was .49 of 1% of its average net assets. Although the expense
ratio of the Service Economy Portfolio is significantly lower than that of
Morgan Growth Fund, redemptions from Morgan Growth Fund are not assessed the
1% redemption fee that is incurred by shareholders of the Service Economy
Portfolio upon redemption.

5. Purchase, Redemption and Exchange Procedures

Purchase procedures for the Service Economy Portfolio and Morgan Growth
Fund are virtually identical, and are described on page ** of the Morgan
Growth Fund prospectus. Under normal circumstances redemptions from the
Service Economy Portfolio are assessed a 1% redemption fee. However, if the
proposed reorganization is approved by shareholders, no fee will be charged
for the exchange of Service Economy Portfolio shares for Morgan Growth Fund
shares. Morgan Growth Fund does not charge a fee for redemptions. In addition,
shareholders of both the Service Economy Portfolio and Morgan Growth Fund may
exchange shares for shares of other Vanguard Funds as described on page ** of
the Morgan Growth Fund Prospectus.

6. Income Dividends and Capital Gains Distributions

Both the Service Economy Portfolio and Morgan Growth Fund pay income
dividends and distribute capital gains on an annual basis. Shareholders may
elect to accept such dividends in additional shares or take them in cash.

7. Performance

The following chart illustrates the cumulative total return of each Fund
for the one, five and ten year periods ended December 31, 1993.
ONE YEAR FIVE YEARS TEN YEARS
----- ------ ------

Morgan Growth Fund................. * * *
Service Economy Portfolio.......... * * *

THE PROPOSED REORGANIZATION

1. The Agreement and Plan of Reorganization

The terms and conditions under which the proposed reorganization may be
consummated are set forth in the Agreement and Plan of Reorganization, dated
as of March 1, 1994, between the Service Economy Portfolio
<PAGE>
and Morgan Growth Fund (the "Agreement"). The Agreement is attached as Exhibit
I to this Combined Proxy Statement and Prospectus. Significant provisions of
the agreement are summarized elsewhere in this Combined Proxy Statement and
Prospectus.

2. The Closing Date

The Agreement provides that Morgan Growth Fund will acquire substantially
all of the assets of the Service Economy Portfolio in exchange solely for
shares of Morgan Growth Fund to be issued to shareholders of the Service
Economy Portfolio on June 3, 1994, or such later date as may be agreed upon by
the parties (the "Closing Date"). The number of shares of Morgan Growth Fund
to be issued to shareholders of the Service Economy Portfolio will be
determined on the basis of the relative net assets per share of the two funds
computed as of the close of the New York Stock Exchange on the Closing Date.
Immediately following the Closing Date, the Service Economy Portfolio will
dissolve and distribute pro rata to its shareholders of record, as of the
close of business on the Closing Date, the shares of Morgan Growth Fund
received by the Service Economy Portfolio.

3. Federal Income Tax Consequences

Consummation of the reorganization is subject to the condition that the
Service Economy Portfolio and Morgan Growth Fund receive an opinion of counsel
to the effect that the reorganization will not result in a recognition of gain
or loss for federal income tax purposes for either the Service Economy
Portfolio or Morgan Growth Fund, or their respective shareholders.

4. Vote Required for Shareholder Approval of the Reorganization

Approval of the Plan of Reorganization will require the affirmative vote
of a majority of the shares of common stock outstanding and entitled to vote
at this special meeting of shareholders.

RISK FACTORS

Both the Service Economy Portfolio and Morgan Growth Fund invest
principally in common stocks with the objective of long-term capital
appreciation. The Service Economy Portfolio concentrates its investments in
the service economy industry, while Morgan Growth Fund is more broadly
diversified across several industries. The Service Economy Portfolio held 61
securities on January 31, 1994, while Morgan Growth Fund held approximately
325 securities on the same date.

ADDITIONAL INFORMATION ABOUT THE PROPOSED REORGANIZATION

REASONS FOR THE PROPOSED REORGANIZATION

The Service Economy Portfolio was formed as a member of The Vanguard Group
of Investment Companies in 1984, with the objective of providing long-term
capital appreciation by concentrating its investments in the service sector of
the economy. Over the period since its inception, the performance of the
Service Economy Portfolio has lagged that of competitive standards, as well as
that of the overall stock market. Additionally, investor interest in the
Portfolio has been modest, limiting the growth of the Portfolio. Consequently,
the Fund's Board of Directors has determined that the expenses involved in
maintaining a separate Portfolio for this purpose are no longer warranted.

The Service Economy Portfolio and approximately 40% of the assets of
Morgan Growth Fund are managed by WMC. Morgan Growth Fund does not concentrate
its investments in any single industry and, therefore, is more broadly
diversified. Morgan Growth Fund invests a substantial portion of its assets in
the service sector of the economy. In addition, the Morgan Growth Fund invests
in companies covering a wide range of market capitalizations, on average the
market capitalization of the two portfolios are similar. Both Portfolios
emphasize growth stocks. The respective investment returns of each Fund are as
shown on page 14 under "Performance Summary".

Given this background, the Officers and Directors of the Service Economy
Portfolio have carefully evaluated the Service Economy Portfolio's performance
record since inception, giving careful consideration to the risks
<PAGE>
and opportunities of making changes. The Officers and Directors have concluded
that it would be in the best interest of Portfolio and its shareholders that
the assets of the Portfolio be acquired by Morgan Growth Fund.

THE PLAN OF REORGANIZATION

The Agreement provides that Morgan Growth Fund will acquire substantially
all of the assets of the Service Economy Portfolio in exchange solely for
shares of common stock ($.001 par value) of Morgan Growth Fund on the Closing
Date, June 3, 1994 or such later date as may be agreed upon by the parties.
The number of shares of Morgan Growth Fund to be issued to shareholders of the
Service Economy Portfolio will be determined on the basis of relative net
asset values per share of the two Funds computed as of the close of the New
York Stock Exchange on the Closing Date. The net asset value per share for
each Fund will be determined by dividing the total value of each Fund's
investments and other assets, less any liabilities, by the total of its
outstanding shares using the valuation procedures set forth under "The Fund's
Share Price" on page * of the accompanying Morgan Growth Fund Prospectus.

As of the close of business on March 1, 1994, each share of the Service
Economy Portfolio would have been valued at $23.42 and each share of Morgan
Growth Fund would have been valued at $12.09 for purposes of computing the
exchange ratio. Using this value, a total of approximately 2,841,682 shares of
Morgan Growth Fund would have been issuable to the Service Economy Portfolio
pursuant to the Agreement, representing an exchange ratio of 1.93 shares of
Morgan Growth Fund for each share of the Service Economy Portfolio then
outstanding. The computation of this exchange ratio, had the transaction taken
place on March 1, 1994, is set forth as Appendix A to the Agreement.

Immediately following the Closing Date, the Service Economy Portfolio will
dissolve and distribute pro rata to its shareholders of record as of the close
of business on the Closing Date, the shares of Morgan Growth Fund received by
the Service Economy Portfolio. Such liquidation and distribution will be
accomplished by the establishment of open accounts on the share records of
Morgan Growth Fund in the names of such Service Economy Portfolio shareholders
and representing the respective pro rata number of shares of Morgan Growth
Fund due such shareholders. Fractional shares of Morgan Growth Fund will be
carried to the third decimal place. As promptly as practicable after the
Closing Date, each holder of any outstanding certificate or certificates
representing shares of the Service Economy Portfolio may surrender the same to
The Vanguard Group, Inc., as transfer agent for Morgan Growth Fund, and
request in exchange therefore a certificate representing the number of whole
shares of Morgan Growth Fund into which shares of the Service Economy
Portfolio theretofore represented by the certificate or certificates so
surrendered shall have been converted. However, no fractional share
certificates will be issued. Morgan Growth Fund will issue new certificates
only upon written request. Until so surrendered, each outstanding certificate,
which, prior to the Closing Date, represented shares of the Service Economy
Portfolio shall be deemed for all purposes to evidence ownership of the number
of shares of Morgan Growth Fund into which the former shares of the Service
Economy Portfolio have been converted.

The consummation of the Agreement is further subject to the customary
conditions applicable to corporate reorganizations of this type as set forth
in Section 8 of the Agreement. Moreover, the Agreement may be terminated and
the reorganization abandoned at any time, before or after consent of the two
parties, or by either party if any condition set forth in Section 8 has not
been fulfilled by the other party or waived by the party entitled to its
benefits.

EXPENSES OF THE REORGANIZATION

The Service Economy Portfolio and Morgan Growth Fund will each bear such
expenses of entering into and carrying out the provisions of the Agreement as
will be separately incurred by it. The expenses of Morgan Growth Fund will
include legal and accounting fees estimated at $****. The Service Economy
Portfolio expenses will include: the costs of the special meeting; proxy costs
(including all costs of solicitation, printing and mailing of this Proxy
Statement); the expenses of its proposed liquidation and dissolution; and
legal and accounting fees. It is estimated that these expenses will not exceed
$****.

<PAGE>

TAX CONSEQUENCES

Consummation of the proposed reorganization is conditioned upon receipt of
an opinion of Stradley, Ronon, Stevens and Young, counsel to the Service
Economy Portfolio and Morgan Growth Fund, that the acquisition will qualify as
a reorganization within the meaning of Section 368(a)(1)(c) of the Internal
Revenue Code of 1986, as amended, and that the proposed reorganization will
not result in the recognition of gain or loss for Federal income tax purposes
for either the Service Economy Portfolio, Morgan Growth Fund or their
respective shareholders. See Section 8(f) of the Agreement.

SHAREHOLDERS' RIGHTS

There are no material differences between the rights of the Service
Economy Portfolio's shareholders and the rights of Morgan Growth Fund's
shareholders. Morgan Growth Fund and the Service Economy Portfolio are each
Maryland corporations. Shares of both Funds are fully paid and nonassessable.
Holders thereof have noncumulative voting rights and equal rights with respect
to dividends, assets and liquidations, but no preemptive rights. Shareholders
of the Service Economy Portfolio will not be entitled to any "dissenters
rights" under Maryland law since the reorganization is between two open-end
investment companies registered under the Investment Company Act of 1940.

However, shareholders who find that the proposed reorganization does not
meet their particular investment needs and objectives, may consider two
additional options: (1) exchanging their holdings without sales commissions
into another mutual fund in The Vanguard Group, currently offering its shares
to new investors, which is better suited to their goals; or (2) redeeming
shares for cash. These options are available to a Service Economy Portfolio
shareholder both before and, as a Morgan Growth Fund shareholder, after the
reorganization. Shareholders who exercise either of these options prior to
June 3, 1994 will be subject to the 1% redemption fee. Exchanges and
redemptions are both taxable events so either action will result in the
realization of a capital gain or capital loss to the shareholder, depending
upon the original cost basis of the shareholder's investment.

CAPITALIZATION

The following table shows the capitalization of the Service Economy
Portfolio and Morgan Growth Fund as of March 1, 1994, and on a pro forma basis
as of that date giving effect to the proposed acquisition of assets at net
asset value.
SERVICE MORGAN
ECONOMY GROWTH PRO FORMA
PORTFOLIO FUND COMBINED
------- ----- ------

Net Assets (000)................ $34,483 $1,131,549 $1,166,032
Net Assets Per Share............ $ 23.42 $ 12.09 $ 12.09
Shares Outstanding (000)........ 1,472 93,593 96,435

The relative net asset values do not include the respective expenses to
each Fund connected with the reorganization; however, such expenses would not
be expected to cause the net asset value to change by more than $.01 per share
for either Fund.

ADDITIONAL INFORMATION ON THE SERVICE ECONOMY PORTFOLIO
AND MORGAN GROWTH FUND

THE SERVICE ECONOMY PORTFOLIO

1. Background

The Service Economy Portfolio was established in 1984. The objective in
forming the Service Economy Portfolio was to provide investors with a means to
concentrate their investments in the service economy industry.

<PAGE>

2. Investment Objective and Policies

The objective of the Service Economy Portfolio is to provide long-term
growth of capital for its shareholders by investing primarily in common stocks
concentrated in the service economy industry.

3. Investment Adviser

The Service Economy Portfolio employs Wellington Management Company
("WMC") to manage the investment and reinvestment of the assets of the
Portfolio and to continuously review, supervise and administer the Portfolio's
investment program. WMC discharges its responsibilities subject to the control
of the officers and Directors of the Service Economy Portfolio. Mr. Matthew E.
Megargel serves as portfolio manager of the Fund.

The Service Economy Portfolio pays WMC a Basic Fee at the end of each
fiscal quarter, calculated by applying a quarterly rate, based on the annual
percentage rates set forth on page 5.

The advisory fee is based on the total assets for the five Portfolios of
Vanguard Specialized Portfolios and is allocated to each Portfolio based on
the net assets of each. For the fiscal year ended January 31, 1994, the
investment advisory fee represented an effective annual rate of * of 1% of
average net assets for each Portfolio.

During the fiscal years ended January 31, 1992, 1993 and 1994, the Service
Economy Portfolio paid the advisory fees of $ * , $ * , and $ * .

MORGAN GROWTH FUND

1. Background

Morgan Growth Fund was organized in 1968 as an open-end diversified
management investment company.

2. Investment Objective and Policies

Morgan Growth Fund seeks to provide long-term capital appreciation by
investing primarily in the equity securities of growth companies. See
"Investment Objective" and "Investment Policies" on page 4 of the Morgan
Growth Fund Prospectus.

3. Investment Adviser

Morgan Growth Fund employs a multi-manager approach with WMC managing
approximately 40% of the Fund's assets each. FPA is responsible for the
investment of approximately 33% of the Fund's assets, Husic Capital Management
serves as investment adviser with respect to approximately 13% of the Fund's
assets, Vanguard's Core Management Group is responsible for the investment of
approximately 9% of the Funds assets, and approximately 5% of the Fund's
assets are held in cash.

Morgan Growth Fund pays WMC a Basic Fee at the end of each fiscal quarter,
calculated by applying a quarterly rate, based on the annual percentage rates
set forth on page **, to WMC's portion of Morgan Growth Fund's average month-
end net assets for the quarter.

The Fund pays FPA a basic advisory fee calculated by applying varying
percentage rates to the average net assets of the Fund managed by FPA as set
forth on page **.

The Fund pays Husic a basic advisory fee calculated by applying various
percentage rates to the average net assets of the Fund managed by Husic as set
forth on page **.

The basic advisory fees payable to WMC, FPA and Husic may be increased or
decreased by applying an adjustment formula ("incentive/penalty fee") based on
the respective adviser's performance relative to that of the Growth Fund Stock
Index.

The investment performance of Morgan Growth Fund for any period, expressed
as a percentage of Morgan Growth Fund's net asset value per share at the
beginning of such period, is the sum of: (i) the change in Morgan Growth
Fund's net asset value per share during such period; (ii) the value of Morgan
Growth Fund's cash distributions per share having an ex-dividend date
occurring within such period; and (iii) the per share
<PAGE>
amount of capital gains taxes paid or accrued during such period by Morgan
Growth Fund for undistributed realized long-term capital gains. The investment
record of the Growth Stock Fund Index for any period, expressed as a
percentage of the Growth Fund Stock Index level at the beginning of such
period, is the sum of (i) the change in the level of the Growth Fund Stock
Index, during such period and (ii) the value, computed consistently with the
Growth Fund Stock Index, of cash distributions having an ex-dividend date
occurring within such period made by companies whose securities comprise the
Growth Fund Stock Index all subject to and in accordnace with any then
applicable rules of the Securities and Exchange Commission.

For the purpose of determining the fee adjustment for investment
performance, the net assets of Morgan Growth Fund are averaged over the same
period as the investment performance of Morgan Growth Fund and the investment
record of the Growth Fund Stock Index are computed.

During the three fiscal years ended December 31, 1993, Morgan Growth Fund
paid WMC the following advisory fees:

1991 1992 1993
-------- ------ ------
Basic Fee............................$1,022,000 $305,239 *
Increase for Performance Adjustment.. (169,000) -- *
-------- ------ ------
Total..............................$ 950,000 $305,239 *
-------- ------ ------
-------- ------ ------

During the three fiscal years ended December 31, 1993, Morgan Growth Fund
paid FPA the following advisory fees:

1991 1992 1993
------ ------ ------
Basic Fee............................. $322,618 $96,012 *
Increase for Performance Adjustment... 92,051 -- *
------ ------ ------
Total............................... $414,669 $96,012 *
------ ------ ------
------ ------ ------

For the period June 28, 1993 to December 31, 1993, the Fund paid Husic an
advisory fee of $***.

The present agreements with WMC and FPA continue until April 23, 1994 and
the present agreement with Husic continues until September 30, 1995. The
agreements are renewable thereafter for successive one year periods, only if
each renewal is specifically approved by a vote of the Board of Directors,
including the affirmative votes of a majority of the Directors who are not
parties to the contract or "interested persons" (as defined in the Investment
Company Act of 1940) of any such party, cast in person at a meeting called for
the purpose of considering such approval. The agreements are automatically
terminated if assigned, and may be terminated without penalty at any time (1)
either by vote of the Board of Directors of the Fund to WMC, FPA and Husic, or
(2) by WMC, FPA and Husic upon 90 days written notice to Morgan Growth Fund.

INVESTMENT LIMITATIONS

The investment limitations for Morgan Growth Fund summarized on page * of
the Prospectus are substantially identical to those applicable to the Service
Economy Portfolio. These investment limitations may not be changed without
shareholder approval.

PORTFOLIO BROKERAGE

The portfolio brokerage policies of the Service Economy Portfolio and
Morgan Growth Fund are identical. In this respect the investment advisory
agreements for each Fund authorize the investment advisers, with the approval
of such Fund's Board of Directors, to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund and
directs the investment advisers to use their best efforts to obtain the best
available price and most favorable execution with respect to all transactions
for the Fund. The investment advisers have undertaken to execute each
investment transaction at a price and commission which provides the most
favorable total cost or proceeds obtainable under the circumstances.

<PAGE>

In placing portfolio transactions, the investment advisers use their best
judgment to choose the broker most capable of providing the brokerage services
necessary to obtain best available price and most favorable execution. The
full range and quality of brokerage serrvices available are considered in
making these determinations. In those instances where it is reasonably
determined that more than one broker can offer the brokerage services needed
to obtain the best available price and most favorable execution, consideration
may be given to those brokers which supply investment research and statistical
information and provide other services in addition to execution services to
the Fund and/or the investment advisers. Each investment adviser considers the
investment services it received useful in the performance of its obligations
under the agreement, but is unable to determine the amount by which such
services may reduce its expenses.

Each investment advisory agreement also incorporates the concepts of
Section 28(e) of the Securities Exchange Act of 1934 by providing that,
subject to the approval of the Fund's Board of Directors, the investment
adviser may cause the Fund to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction; provided that such
commission is deemed reasonable in terms of either that particular transaction
or the overall responsibilities of the investment adviser to the Fund and the
other Funds in the Group.

Currently, it is Morgan Growth Fund's policy that the investment advisers
may at times pay higher commissions in recognition of brokerage services felt
necessary for the achievement of better execution of certain securities
transactions that otherwise might not be available. Each investment adviser
will pay such higher commissions only if it believes this to be in the best
interest of the Fund. Some brokers or dealers who may receive such higher
commissions in recognition of brokerage services related to execution of
securities transactions are also providers of research information to the
investment adviser and/or the Fund. However, each investment adviser has
informed the Fund that it will not pay higher commission rates specifically
for the purpose of obtaining research services.

Since each Fund does not market its shares through intermediary brokers or
dealers, it is not Morgan Growth Fund's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be through
such firms. However, each Fund may place portfolio orders with qualified
brokers or dealers who recommend the Fund to clients, or who act as agent in
the purchase of shares of Morgan Growth Fund for their clients, and may, when
a number of brokers and dealers can provide comparable best price and
execution on a particular transaction, consider the sale of Fund shares by a
broker or dealer in selecting among qualified brokers or dealers.

During the fiscal year ended January 31, 1994, the Service Economy
Portfolio paid approximately * in brokerage commissions and had a portfolio
turnover rate of *%. During the fiscal year ended December 31, 1993, Morgan
Growth Fund paid approximately * in brokerage commissions, and had a portfolio
turnover rate of *%.

THE VANGUARD GROUP

LITIGATION

Neither the Service Economy Portfolio nor Morgan Growth Fund is involved
in any litigation.

PERFORMANCE SUMMARY

The following table shows the investment results of the Service Economy
Portfolio and Morgan Growth Fund as compared to changes in the Growth Fund
Stock Index (the Growth Fund Stock Index is an unmanaged market indicator of
small capitalization common stock, weighted by market value). This comparison
is designed to provide a historical basis for evaluation of the proposed
reorganization by covering the relative investment
<PAGE>
performance of the Service Economy Portfolio, Morgan Growth Fund and the
Growth Fund Stock Index over the last five years. The results shown represent
"total return" investment performance which assumes the reinvestment of all
capital gains and income dividends for the indicated periods. The investment
performance should be considered in light of each Fund's investment objectives
and policies, the characteristics and quality of each Fund's investments, and
the period selected. Future investment results cannot be predicted.
MORGAN SERVICE
GROWTH ECONOMY GROWTH FUND
YEAR ENDED DECEMBER 31 FUND FUND STOCK INDEX
- -------------- ------ -------- -------
1989............................. 14.6% 9.4% *%
1990............................. -6.5 -6.8 *
1991............................. 47.3 55.9 *
1992............................. 13.5 13.0 *
1993............................. 11.3 15.4 *
----- ----- -----
Cumulative....................... * * *
----- ----- -----
Average Annual Total Return...... * * *
----- ----- -----

<PAGE>
MORGAN GROWTH FUND FINANCIAL HIGHLIGHTS

The following financial highlights for a share outstanding throughout each
period, insofar as it relates to each of the five years in the period ended
December 31, 1993, has been audited by Price Waterhouse, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the Fund's financial statements and notes thereto,
which are incorporated by reference in the Statement of Additional Information
and in this Prospectus, and which appear, along with the report of Price
Waterhouse, in the Fund's 1993 Annual Report to the Shareholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR......... $12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82 $11.45
---- ---- ----- ---- ----- ----- ---- ---- -----
INVESTMENT OPERATIONS
Net Investment Income..... .18 .18 .29 .32 .28 .25 .23 .21 .23
Net Realized and
Unrealized
Gain (Loss) on
Investments............. .71 .97 2.66 (.50) 2.04 1.85 .31 .78 2.99
---- ---- ----- ---- ----- ----- ---- ---- -----
TOTAL FROM
INVESTMENT
OPERATIONS.......... .89 1.15 2.95 (.18) 2.32 2.10 .54 .99 3.22
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income....... (.18) (.18) (.29) (.34) (.28) (.24) (.20) (.43) (.25)
Distributions from
Realized
Capital Gains........... (1.35) (.52) (.86) (.80) (.59) (.98) (2.45) (2.88) (.60)
---- ---- ----- ---- ----- ----- ---- ---- -----
TOTAL DISTRIBUTIONS... (1.53) (.70) (1.15) (1.14) (.87) (1.22) (2.65) (3.31) (.85)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF YEAR............... $12.01 $12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82
================================================================================================================================
TOTAL RETURN................ +7.32% +9.54% +29.33% -1.51% +22.66% +22.34% +5.02% +7.83% +30.29%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)................ $1,135 $1,116 $957 $697 $733 $622 $538 $594 $665
Ratios of Expenses to
Average Net Assets.......... .49% .48% .46% .55% .51% .55% .46% .54% .60%
Ratio of Net Investment
Income to Average Net
Assets.................... 1.36% 1.51% 2.36% 2.77% 2.38% 2.20% 1.52% 1.49% 1.96%
Portfolio Turnover Rate..... 72% 64% 52% 73% 27% 32% 43% 31% 42%

-----------
1984
- ---------------------------------------
<S> <C>
NET ASSET VALUE,
BEGINNING OF YEAR......... $13.84
----
INVESTMENT OPERATIONS
Net Investment Income..... .25
Net Realized and
Unrealized
Gain (Loss) on
Investments............. (.94)
----
TOTAL FROM
INVESTMENT
OPERATIONS.......... (.69)
- ---------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income....... (.31)
Distributions from
Realized
Capital Gains........... (1.39)
----
TOTAL DISTRIBUTIONS... (1.70)
- ---------------------------------------
NET ASSET VALUE,
END OF YEAR............... $11.45
=======================================
TOTAL RETURN................ -6.06%
=======================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)................ $468
Ratios of Expenses to
Average Net Assets.......... .68%
Ratio of Net Investment
Income to Average Net
Assets.................... 2.51%
Portfolio Turnover Rate..... 38%

</TABLE>

<PAGE>
SERVICE ECONOMY PORTFOLIO FINANCIAL HIGHLIGHTS

The following financial highlights for a share outstanding throughout each
period, insofar as it relates to each of the five years in the period ended
January 31, 1994, has been audited by Price Waterhouse, independent
accountants, whose report thereon was unqualified. This information should be
read in conjunction with the Fund's financial statements and notes thereto,
which are incorporated by reference in the Statement of Additional Information
and in this Prospectus, and which appear, along with the report of Price
Waterhouse, in the Fund's 1994 Annual Report to the Shareholders.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987

- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.......... $22.36 $19.89 $15.77 $16.87 $16.05 $13.63 $19.45 $16.88
---- ---- ---- ---- ---- ---- ---- ----
INVESTMENT OPERATIONS
Net Investment Income........ .22 .17 .28 .34 .41 .26 .51 .38
Net Realized and
Unrealized Gain Loss)
on Investments............. 2.51 2.47 4.16 (.78) 1.66 2.41 (3.40) 3.05
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FROM INVESTMENT
OPERATIONS............. 2.73 2.64 4.44 (.44) 2.07 2.67 (2.89) 3.43

- -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income.......... (.22) (.17) (.28) (.39) (.41) (.25) (.88) (.16)
Distributions from
Realized Capital Gain...... (.93) -- (.04) (.27) (.84) -- (2.05) (.70)
---- ---- ---- ---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS...... (1.15) (.17) (.32) (.66) (1.25) (.25) (2.93) (.86)

- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD................ $23.94 $22.36 $19.89 $15.77 $16.87 $16.05 $13.63 $19.45

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

- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN*.................. +12.45% +13.30% +28.31% -2.54% +12.33% +19.73% -16.40% +20.77%

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

- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)................... $35 $30 $22 $17 $21 $22 $24 $49
Ratio of Expenses to
Average Net Assets........... .41% .56% .48% .59% .43% .86% .44% .48%
Ratio of Net Investment Income
to Average Net Assets........ .96% .93% 1.47% 1.99% 2.10% 1.57% 2.08% 1.61%
Portfolio Turnover Rate........ 29% 36% 43% 34% 53% 33% 49% 96%

<CAPTION>
MAY 23, 1984,
TO JAN. 31,
1986 1985

- --------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....... $12.69 $10.00
---- ----
INVESTMENT OPERATIONS
Net Investment Income..... .20 .12
Net Realized and
Unrealized Gain Loss)
on Investments.......... 4.20 2.57
---- ----
TOTAL FROM INVESTMENT
OPERATIONS.......... 4.40 2.69

- ----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income....... (.09) --
Distributions from
Realized Capital Gain... (.12) --
---- ----
TOTAL DISTRIBUTIONS... (.21) --

- ----------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD............. $16.88 $12.69

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

- ----------------------------------------------------------
TOTAL RETURN*............... +35.16% +26.90%

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

- ----------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)................ $34 $3
Ratio of Expenses to
Average Net Assets........ .57% .58%**
Ratio of Net Investment Inco
to Average Net Assets..... 2.24% 2.92%**
Portfolio Turnover Rate..... 54% 125%**

<FN>
*Total return figures do not reflect the redemption fee equaling 1% of the
value of shares redeemed, which is withheld from the redemption proceeds and
paid directly to the Portfolio.
**Annualized.
</TABLE>

FINANCIAL STATEMENTS AND EXPERTS

The financial statements of the Service Economy Portfolio and Morgan
Growth Fund have been audited by Price Waterhouse, independent accountants,
for the periods indicated in said firm's reports thereon which are included in
the respective 1993 and 1994 Annual Reports to Shareholders. Such financial
statements have been referred to herein in reliance on the reports of Price
Waterhouse given on the authority of said firm as experts in auditing and
accounting.

INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION

The Service Economy Portfolio and Morgan Growth Fund are subject to the
informational requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, and in accordance therewith file reports,
proxy material and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy material and other
information can be inspected and copied at the Public
<PAGE>
Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission.,
Washington, D.C. 20549.

VOTE REQUIRED

Approval of the Agreement and Plan of Reorganization, including the
dissolution of the Service Economy Portfolio, will require the favorable vote
of a majority of the shares of common stock of the Portfolio outstanding and
entitled to vote at this Special Meeting of Shareholders. THE DIRECTORS
RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION.

The Board of Directors of the Service Economy Portfolio has not determined
what action it will take in the event shareholders fail to approve the
Reorganization or for any reason the transaction with Morgan Growth Fund is
not consummated. However, if the Reorganization is not approved by the
shareholders of the Service Economy Portfolio, the Board of Directors will
consider alternative dispositions of the Fund's net assets, including the sale
of assets to, or merger with, another investment company.

OTHER MATTERS

On March 1, 1994, the following shareholders held more than 5% of the
outstanding shares of the Service Economy Portfolio:

The Board of Directors knows of no other business to be brought before the
meeting. However, if any other matters come before the meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.

Further information about Morgan Growth Fund is contained in the
accompanying Morgan Growth Fund Prospectus (Exhibit II). Shareholders of the
Service Economy Portfolio are urged to read this Proxy Statement and the
Prospectus carefully prior to executing and returning their proxies and to
retain the Prospectus for future reference.

<PAGE>

VANGUARD SPECIALIZED PORTFOLIOS -- SERVICE ECONOMY PORTFOLIO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

THE UNDERSIGNED HEREBY APPOINTS JOHN C. BOGLE, BURTON G. MALKIEL AND RAYMOND
J. KLAPINSKY AS PROXIES, EACH WITH POWER TO APPOINT HIS SUBSTITUTE, AND HEREBY
AUTHORIZES THEM TO REPRESENT AND TO VOTE AS DESIGNATED BELOW, ALL THE SHARES
OF VANGUARD SPECIALIZED PORTFOLIOS -- SERVICE ECONOMY PORTFOLIO (THE "SERVICE
ECONOMY PORTFOLIO") HELD ON RECORD BY THE UNDERSIGNED ON MARCH 23, 1994, AT
THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 1, 1994, OR AT ANY
ADJOURNMENT THEREOF.

SUMMARY OF PROPOSALS

TO VOTE MARK AN X IN THE APPROPRIATE BOX ON THE PROXY CARD BELOW

A. Proposal to approve a plan of reorganization providing for: (1) the
acquisition of substantially all the assets of the Service Economy Portfolio
in exchange for shares of Vanguard/Morgan Growth Fund, Inc.; (2) The pro rata
distribution of such Morgan Growth Fund shares to shareholders of the Service
Economy Portfolio; and (3) the dissolution and deregistration of the Service
Economy Portfolio as an investment company.

By signing and dating the lower portion of this card, you authorize the
proxies to vote each proposal as marked, or, if not marked to vote "FOR" the
proposal and to use their discretion to vote any other matter as may properly
come before the meeting. If you do not intend to personally attend the
meeting, please complete, detach and mail the lower portion of this card at
once in the enclosed envelope.

VANGUARD SPECIALIZED PORTFOLIOS -- SERVICE ECONOMY PORTFOLIO

(DETACH HERE AND RETURN THIS PORTION ONLY)

THIS PROXY MUST BE SIGNED AND DATED ON REVERSE SIDE

<PAGE>
EXHIBIT I

AGREEMENT AND PLAN OF REORGANIZATION

AGREEMENT AND PLAN OF REORGANIZATION, made as of this 1st day of March,
1994, by and between Vanguard Specialized Portfolios, Inc. (hereinafter called
the "VSP"), a Maryland corporation, with its principal place of business at
100 Vanguard Boulevard, Malvern Pennsylvania 19355 and Vanguard/Morgan Growth
Fund, Inc. (hereinafter called "Vanguard/Morgan Growth"), a Maryland
corporation, with its principal place of business at 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.

PLAN OF REORGANIZATION

The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by Vanguard/Morgan Growth
Fund of substantially all of the property, assets and goodwill of the class of
shares of VSP known as the Service Economy Portfolio (the "Service Economy
Portfolio") in exchange solely for shares of common stock, $.001 par value per
share, of Vanguard/Morgan Growth Fund, (ii) the distribution of such shares of
Vanguard/Morgan Growth Fund common stock to the stockholders of the Service
Economy Portfolio according to their respective interests, and (iii) the
dissolution of the Service Economy Portfolio as soon as practicable after the
closing provided for in Section 3, all upon and subject to the terms and
conditions of the Agreement hereinafter set forth.

AGREEMENT

In order to consummate the Plan of Reorganization and in consideration of
the premises and of the covenants and agreements hereinafter set forth, the
parties hereto covenant and agree as follows:

1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF THE SERVICE
ECONOMY PORTFOLIO

a. The Service Economy Portfolio agrees that it will convey, transfer and
deliver to Vanguard/Morgan Growth Fund at the closing provided for in Section
3 (hereinafter called the "Closing") all of its then existing assets free and
clear of all liens, encumbrances and claims whatsoever, except for cash or
bank deposits in an amount necessary to pay: (1) its costs and expenses of
carrying out this Agreement (including but not limited to fees of counsel and
accountants, its income dividend payable prior to the Closing Date, and
expenses of its liquidation and dissolution contemplated hereunder); (2) to
discharge its unpaid liabilities on its books at the Closing Date; and (3) to
pay such contingent liabilities as the directors shall reasonably deem to
exist against the Service Economy Portfolio, if any, at the Closing Date, for
which contingent and other appropriate liability reserves shall be established
on the Service Economy Portfolio's books. Any unspent portion of such funds
retained shall be delivered to Vanguard/Morgan Growth Fund upon dissolution of
the Service Economy Portfolio.

b. Subject to the terms and conditions of this Agreement and in reliance
on the representations and warranties of the Service Economy Portfolio herein
contained, and in consideration of such sale, conveyance, transfer and
delivery, Vanguard/Morgan Growth Fund agrees at the Closing to deliver to the
Service Economy Portfolio the number of shares of common stock of the
Vanguard/Morgan Growth Fund ($.10 par value) determined as set forth in
Section 2 hereof.

c. Immediately following the Closing Date, the Service Economy Portfolio
will liquidate and distribute pro rata to its stockholders of record as of the
close of business on the Closing Date, the shares of Vanguard/Morgan Growth
Fund common stock received by the Service Economy Portfolio pursuant to this
Section 1. Such liquidation and distribution will be accompanied by the
establishment of open accounts on the stock records of Vanguard/Morgan Growth
Fund in the names of such stockholders of the Service Economy Portfolio
representing the respective pro rata number of Vanguard/Morgan Growth Fund
shares due such stockholders. Fractional shares of Vanguard/Morgan Growth's
common stock will be carried to the third decimal place. As promptly as
practicable after the Closing Date, each holder of any outstanding certificate
or certificates theretofore representing shares of common stock of the Service
Economy Portfolio may surrender the same to a
<PAGE>
Transfer Agent designated by Vanguard/Morgan Growth Fund and request in
exchange therefore a certificate or certificates representing the number of
whole and fractional shares of common stock of Vanguard/Morgan Growth into
which the shares of common stock of the Service Economy Portfolio theretofore
represented by the certificate or certificates so surrendered shall have been
converted. Certificates for fractional shares of Vanguard/Morgan Growth will
not be issued, however, but shall continue to be carried for the open account
of such stockholder. Until so surrendered, each outstanding certificate which,
prior to the Closing Date, represented common stock of the Service Economy
Portfolio shall be deemed for all corporate purposes to evidence ownership of
the number of shares of common stock of Vanguard/Morgan Growth into which the
common stock of the Service Economy Portfolio (which, prior to the Closing
Date, were represented thereby) have been so converted.

d. As promptly as practicable after the liquidation of the Service Economy
Portfolio as aforesaid, the Service Economy Portfolio shall be dissolved
pursuant to the provisions of the General Laws of the State of Maryland and
its legal existence shall be terminated as provided therein.

2. EXCHANGE RATIO

a. The value of the Service Economy Portfolio's assets to be acquired by
Vanguard/Morgan Growth Fund hereunder shall be the net asset value computed as
of the close of business (close of the New York Stock Exchange) on the Closing
Date, using the valuation procedures set forth in Vanguard/Morgan Growth
Fund's registration statement under the Securities Act of 1933.

b. The total net assets of the Service Economy Portfolio determined under
(a) shall be divided by the number of shares of its outstanding common stock,
excluding treasury shares, to determine the Service Economy Portfolio's net
asset value per share as of the close of business on the Closing Date.

c. The net asset value of an Vanguard/Morgan Growth share of common stock
shall be determined to the nearest full cent as of the close of business on
the Closing Date, using the valuation as set forth in Vanguard/Morgan Growth
Fund's registration statement under the Securities Act of 1933.

d. The net asset value per share for the Service Economy Portfolio as
determined in (b) shall then be divided by the Vanguard/Morgan Growth net
asset value per share as determined in (c) to determine the exchange ratio.
See Appendix A to this Agreement for an example of how to determine the
exchange ratio.

3. CLOSING AND CLOSING DATE

The Closing shall be June 3, 1994, or such later date as the parties may
mutually agree. The Closing shall take place at the principal office of
Vanguard/Morgan Growth Fund, 100 Vanguard Boulevard, Malvern Pennsylvania
19355, at 4:30 P.M., E.S.T. The Service Economy Portfolio shall have provided
for delivery at the Closing of its assets to State Street Bank and Trust
Company, Boston, Massachusetts, as Custodian for Vanguard/Morgan Growth Fund.
The Service Economy Portfolio shall deliver at the Closing a list of names and
addresses of the stockholders of the Service Economy Portfolio and the number
of shares owned by each such stockholder, indicating thereon which such shares
are represented by outstanding certificates and which by open accounts, all as
of the close of business on the Closing Date, certified by its Transfer Agent.
Vanguard/Morgan Growth Fund shall issue and deliver a certificate or
certificates evidencing the shares of Vanguard/Morgan Growth's common stock to
be delivered at the Closing to said Transfer Agent registered in such manner
as the Service Economy Portfolio may request, or provide evidence satisfactory
to the Service Economy Portfolio that such shares of Vanguard/Morgan Growth's
common stock have been registered in an open account on the books of Vanguard/
Morgan Growth Fund in such manner as the Service Economy Portfolio may
request. Simultaneous with the Closing, the parties shall cause the filing of
Articles of Transfer with respect to the sale and transfer of assets
contemplated hereunder with the Department of Assessments and Taxation of the
State of Maryland.

<PAGE>

4. REPRESENTATIONS AND WARRANTIES BY THE SERVICE ECONOMY PORTFOLIO

The Service Economy Portfolio represents and warrants that:

a. The Service Economy Portfolio is a series of shares of a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland and has all corporate power and authority to conduct its
business as such business is now being conducted.

b. The Service Economy Portfolio has a duly authorized capital consisting
of 120,000,000 shares of common stock ($.001 par value) of which approximately
* shares were issued and outstanding on the date hereof. All of its
presently outstanding shares are validly issued, fully paid and non-assessable
by it.

c. The Service Economy Portfolio is duly registered as a diversified,
open-end management company under the Investment Company Act of 1940.

d. There has been mailed to each stockholder of record of the Service
Economy Portfolio entitled to vote at the meeting of stockholders, at which
action on this Agreement is to be considered, a Combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of the federal securities laws and the rules and regulations
thereunder.

e. The financial statements appearing in the Service Economy Portfolio's
annual report for the year ended January 31, 1994, audited by Price
Waterhouse, a copy of which has been delivered to Vanguard/Morgan Growth Fund,
and similar unaudited financial statements and other financial data as of May
*, 1994, and for the period then ended, which will be delivered to Vanguard/
Morgan Growth Fund by the principal financial officer of the Service Economy
Portfolio prior to Closing, fairly present the financial position of the
Service Economy Portfolio as of the respective dates indicated and the results
of its operations and changes in net assets for the respective periods
indicated, in conformity with generally accepted accounting principles applied
on a consistent basis.

5. REPRESENTATIONS AND WARRANTIES BY VANGUARD/MORGAN GROWTH FUND

Vanguard/Morgan Growth Fund represents and warrants that:

a. Vanguard/Morgan Growth Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and has
all corporate power and authority to conduct its business as such business is
presently being conducted.

b. Vanguard/Morgan Growth Fund has a duly authorized capital consisting of
150,000,000 shares of common stock ($.10 par value). On the date of this
Agreement Vanguard/Morgan Growth had issued and outstanding approximately
93,593,796 shares of common stock. All of its presently outstanding shares are
validly issued, fully paid and non-assessable by it.

c. Vanguard/Morgan Growth Fund is duly registered as a diversified, open-
end investment company under the Investment Company Act of 1940 and is
authorized to offer and sell shares of common stock of its two series.

d. Vanguard/Morgan Growth Fund will file with the United States Securities
and Exchange Commission a Registration Statement on Form N-14 under the
Securities Act of 1933 relating to the shares of Vanguard/Morgan Growth common
stock issuable hereunder. Appropriate portions of such Registration Statement
after effectiveness will be delivered to stockholders of the Service Economy
Portfolio as proxy materials in connection with the solicitation of proxies
approving the proposed transaction, and other portions will be available upon
request by stockholders. The Registration Statement will note, on its facing
page, that the securities proposed to be distributed thereunder have
previously been registered in accordance with Rule 24f-2 under the Investment
Company Act of 1940. At the time such Registration Statement becomes
effective, it (i) will comply in all material respects with the provisions of
the Securities Act of 1933 and the rules and regulations promulgated
thereunder, and (ii) will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated herein or necessary to
make the statements therein not misleading; and at the time the Registration
Statement becomes effective, at the time of the Service Economy Portfolio's
stockholders' meeting
<PAGE>
and at the Closing Date, the prospectus included therein will not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

e. The common stock of Vanguard/Morgan Growth is duly qualified for
offering to the public in all states of the United States, and there are a
sufficient number or value of shares of such stock so qualified and a
sufficient number of shares registered under the Securities Act of 1933
pursuant to the Investment Company Act of 1940 Rule 24f-2 to permit the
transfers contemplated by this Agreement to be consummated.

f. The financial statements appearing in the Vanguard/Morgan Growth Fund
Annual Report for the year ended October 31, 1993, audited by Price
Waterhouse, copies of which have been delivered to the Service Economy
Portfolio, and similar unaudited financial statements and other financial data
as of April 30, 1994, and for the period then ended, which will be delivered
to the Service Economy Portfolio prior to the Closing by the principal
financial officer of Vanguard/Morgan Growth Fund, fairly present the financial
position of Vanguard/Morgan Growth Fund, as of the respective dates indicated
and the results of its operations and changes in its net assets for the
respective periods indicated, in conformity with generally accepted accounting
principles applied on a consistent basis.

6. REPRESENTATIONS AND WARRANTIES BY SERVICE ECONOMY PORTFOLIO AND VANGUARD/
MORGAN GROWTH FUND

The Service Economy Portfolio and Vanguard/Morgan Growth Fund each
represents and warrants to the other that:

a. The statement of assets and liabilities to be furnished by it as of the
close of business on the Closing Date for the purpose of determining the
number of shares of Vanguard/Morgan Growth common stock to be issued pursuant
to Section 1 of this Agreement will accurately reflect its net assets and
outstanding shares of common stock as of such date in conformity with
generally accepted accounting principles applied on a consistent basis.

b. On the Closing Date it will have good and marketable title to all of
the securities and other assets shown on the statement of assets and
liabilities referred to in (a) above free and clear of all liens or
encumbrances of any nature whatever except such imperfections of title or
encumbrances as do not materially detract from the value or use of the assets
subject thereto, or materially affect title thereto.

c. There is no material suit, action or legal or administrative proceeding
pending or threatened against it, other than as disclosed in the Combined
Proxy Statement and Prospectus prepared in connection with the meeting at
which action on this Agreement will be taken.

d. By Closing Date, all of its Federal and other tax returns and reports
required by law to be filed shall have been filed, and all Federal and other
taxes shown due on said returns shall have been paid.

e. The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of each corporation and this Agreement constitutes the
valid and binding obligation of each corporation enforceable in accordance
with its terms.

7. COVENANTS OF THE SERVICE ECONOMY PORTFOLIO AND VANGUARD/MORGAN GROWTH FUND

a. The Service Economy Portfolio and Vanguard/Morgan Growth Fund each
covenant to operate its business in the ordinary course between the date
hereof and the Closing Date.

b. The Service Economy Portfolio undertakes that it will not acquire the
Vanguard/Morgan Growth Fund shares for the purpose of making any distribution
thereof other than to its own stockholders.

c. The Service Economy Portfolio undertakes that it will at its own
expense prepare and file with the Securities and Exchange Commission a Report
on Form N-SAR pursuant to the requirements of the Investment Company Act of
1940 for the period January 31, 1994 through the Closing Date.

<PAGE>

8. CONDITIONS PRECEDENT TO BE FULFILLED BY SERVICE ECONOMY PORTFOLIO AND
VANGUARD/MORGAN GROWTH FUND

The obligations of each of the parties to effectuate the Plan of
Reorganization hereunder shall be subject to the following conditions:

a. The representations and warranties of each Party contained herein shall
be true as of and at the Closing Date with the same effect as though made at
such date; each Party shall have performed all obligations required by this
Agreement to be performed by it prior to the Closing Date; and each Party
shall have delivered to it a certificate dated the Closing Date signed by its
Chairman of the Board or President and by its Secretary or Assistant Secretary
to the foregoing effect.

b. Each Party shall have delivered a certified copy of the resolution
approving this Agreement adopted by at least a majority vote of its directors,
including a majority of its directors who are not "interested persons" as
defined in the Investment Company Act of 1940.

c. The Securities and Exchange Commission shall not have issued an
unfavorable advisory report under Section 25(b) of the Investment Company Act
of 1940 nor instituted any proceeding seeking to enjoin consummation of the
reorganization under Section 25(c) of the Investment Company Act of 1940.

d. The holders of at least a majority of the outstanding shares of common
stock of the Service Economy Portfolio shall have voted in favor of the
adoption of this Agreement and the reorganization contemplated hereby at an
annual or special meeting.

e. The Service Economy Portfolio shall have declared a distribution or
distributions prior to the Closing Date which, together with all previous
distributions, shall have the effect of distributing to its stockholders all
of its net investment income since the close of its last fiscal year.

f. That there shall be delivered to the Fund an opinion from Messrs.
Stradley, Ronon, Stevens & Young, counsel to the Fund, to the effect that
provided the acquisition contemplated hereby is carried out in accordance with
this Plan:

(1) Provided the acquisition is carried out in accordance with the
applicable laws of Maryland, the acquisition by Vanguard/Morgan Growth
Fund of substantially all of the assets of the Service Economy Portfolio
as provided for herein in exchange for Vanguard/Morgan Growth Fund shares
will qualify as a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and Vanguard/Morgan Growth Fund will each be a
party to the respective reorganization within the meaning of Section
368(b) of the Code; for purposes of this opinion, "substantially all"
means at least 70% of the fair market of the gross assets and at least 90%
of the fair market value of the net assets;

(2) No gain or loss will be recognized by Service Economy Portfolio
upon the transfer of substantially all of its assets to Vanguard/Morgan
Growth Fund in exchange solely for voting shares of Vanguard/Morgan Growth
Fund (Code Section 361(a));

(3) No gain or loss will be recognized by Vanguard/Morgan Growth Fund
upon the receipt of substantially all of the assets of Growth Fund in
exchange solely for voting shares of Vanguard/Morgan Growth Fund (Code
Section 1032(a));

(4) The basis of the assets of Service Economy Portfolio received by
Vanguard/Morgan Growth Fund will be the same as the basis of such assets
to Growth Fund immediately prior to the exchange (Code Section 362(b));

(5) The holding period of the assets of Service Economy Portfolio
received by Vanguard/Morgan Growth Fund will include the period during
which such assets were held by the Service Economy Portfolio (Code Section
1223(2));

(6) No gain or loss will be recognized to the shareholders of Service
Economy Portfolio upon the exchange of their shares in Service Economy
Portfolio for voting shares of Vanguard/Morgan Growth Fund (including
fractional shares to which they may be entitled) (Code Section 354(a)(1));

<PAGE>

(7) The basis of Vanguard/Morgan Growth Fund voting shares received by
Service Economy Portfolio shareholders (including fractional shares to
which they may be entitled) will be the same as the basis of the shares of
Service Economy Portfolio surrendered in exchange therefor (Code Section
358(a)(1));

(8) The holding period of Vanguard/Morgan Growth Fund voting shares
received by Service Economy Portfolio shareholders (including fractional
shares to which they may be entitled) will include the holding period of
Service Economy Portfolio shares surrendered in exchange therefor,
provided that Service Economy Portfolio shares were held as a capital
asset on the date of the exchange (Code Section 1223(1)); and

(9) Pursuant to Section 381(a) of the Code and Treasury Regulation
Section 1.381-1(a), Vanguard/Morgan Growth Fund will succeed to and take
into account as of the date of the proposed transfer (as defined in
Treasury Regulation (S) 1.381 (b)-1(b)) the items of Service Economy
Portfolio described in Section 381(c) of the Code, including any "pro-
change capital loss" of Service Economy Portfolio within the meaning of
Treasury Regulation (S) 1.383-1(c)(2), subject to the conditions and
limitations specified in Sections 381(b) and (c), 382, 383 and 384 of the
Code.

(10) Where a dissenting shareholder of Service Economy Portfolio
receives cash solely in exchange for his or her stock, such cash will be
treated as having been received by the shareholder as a distribution in
redemption of his or her stock subject to the provisions and limitations
of Section 302 of the Code.

9. BROKERAGE FEES AND EXPENSES

a. The Service Economy Portfolio and Vanguard/Morgan Growth Fund each
represent and warrant to the other that there are no brokers or finders fees
payable in connection with the transactions provided for herein.

The Service Economy Portfolio and Vanguard/Morgan Growth Fund shall each
bear such expenses of entering into and carrying out the provisions of this
Agreement as have been separately incurred by it. No Party shall pay any
expenses, if any, of its stockholders arising out of the reorganization.

10. TERMINATION; WAIVER; ORDER

a. Anything contained in this Agreement to the contrary notwithstanding,
this Agreement may be terminated and the reorganization abandoned at any time
whether before or after adoption hereof by the stockholders of the Service
Economy Portfolio prior to the Closing Date.

(1) by mutual consent of the Parties;

(2) by either of the Parties if any condition set forth in Section 8
hereof has not been fulfilled or waived by it;

b. An election by a Party to terminate this Agreement and abandon the
reorganization shall be exercised by its Board of Directors.

c. In the event of termination of this Agreement pursuant to the
provisions hereof the same shall become void and have no effect without any
liability on the part of either of the Parties or persons who are its
directors, officers or stockholders in respect of this Agreement, provided
that this provision shall not protect any director or officer of either of the
Parties against any liability to such Party or its stockholders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

d. At any time prior to the filing of the Articles of Transfer with the
State of Maryland any of the terms or conditions of this Agreement may be
waived by the Party entitled to the benefit thereof by action taken by its
Board of Directors, or its Chairman of the Board, if, in the judgment of the
Board of Directors or Chairman of the Board taking such action, such waiver
will not have material adverse effect on the benefits intended under this
Agreement to the stockholders of the Party on behalf of which such action is
taken.

<PAGE>

e. The respective representations and warranties of the Parties contained
in Sections 4 through 7 hereof shall expire with, and be terminated by, the
reorganization contemplated by this Agreement, and neither the respective
Parties nor any of their directors shall be under any liability with respect
to any such representations or warranties after the Closing Date. This
provision shall not protect any director or officer of a corporation against
any liability to such corporation or to its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

f. If any order or orders of the Securities and Exchange Commission with
respect to this Agreement shall impose any terms or conditions which are
acceptable to both the Service Economy Portfolio and Vanguard/Morgan Growth
Fund, such terms and conditions shall be binding as if a part of this
Agreement without further vote or approval of the stockholders of the Service
Economy Portfolio, unless such terms and conditions shall result in a change
in the method of computing the number of shares of Vanguard/Morgan Growth to
be issued to the Service Economy Portfolio, in which event, unless such terms
and conditions shall have been included in the Combined Proxy Statement and
Prospectus solicitation material furnished to the stockholders of the Service
Economy Portfolio prior to the meeting at which the transactions contemplated
by this Agreement shall have been approved, this Agreement shall not be
consummated and shall terminate unless the Service Economy Portfolio shall
promptly call a special meeting of stockholders at which conditions so imposed
shall be submitted for approval.

11. ENTIRE AGREEMENT AND AMENDMENTS

This Agreement embodies the entire agreement between the parties and there
are no agreements, understandings, restrictions or warranties among the
parties other than those set forth herein or herein provided for.

12. COUNTERPARTS

This Agreement may be executed in any number of counterparts each of which
shall be deemed to be an original but all such counterparts together shall
constitute but one instrument.

13. NOTICES

Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage postpaid, addressed to the Service
Economy Portfolio or Vanguard/Morgan Growth, as the case may be, at 100
Vanguard Boulevard, Malvern, Pennsylvania 19355.

IN WITNESS WHEREOF, each of the Parties has caused this Agreement and Plan
of Reorganization to be executed on its behalf by its President or a Vice
President and its corporate seal to be affixed hereto and attested by its
Secretary or Assistant Secretary, all as of the day and year first above
written.

Attest: VANGUARD SPECIALIZED PORTFOLIOS, INC.

/s/ RAYMOND J. KLAPINSKY By: /s/ JOHN J. BRENNAN
- ------------------------------------ -------------------------------------
Secretary President

(Corporate Seal)

Attest: VANGUARD/MORGAN GROWTH FUND, INC.

/s/ RAYMOND J. KLAPINSKY By: /s/ JOHN J. BRENNAN
- ------------------------------------ -------------------------------------
Secretary President

<PAGE>
APPENDIX A

SERVICE ECONOMY PORTFOLIO AND VANGUARD/MORGAN GROWTH FUND
PRO FORMA COMPUTATION OF EXCHANGE RATIO

AS OF MARCH 1, 1994
<TABLE>
<CAPTION>

VANGUARD/
MORGAN GROWTH SERVICE ECONOMY
FUND PORTFOLIO PRO FORMA
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net assets................................................... $1,131,549,000 $34,483,000 $1,166,032,000
================== ================== ===================
Percent of combined assets................................... 97% 3% 100%
================== ================== ===================
Issued and outstanding shares................................ 93,593,796 1,472,374 96,435,478
================== ================== ===================
Net asset value per share.................................... $12.09 $23.42 $12.09
================== ================== ===================
Vanguard/Morgan Growth Fund shares to be issued
for each Service Economy Portfolio share
($23.42 / $12.09).......................................... 1.93
==================
</TABLE>

<PAGE>
==============================================================================
EXHIBIT II
A Member of The Vanguard Group
==============================================================================
PROSPECTUS -- APRIL 30, 1993
- ------------------------------------------------------------------------------
NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT -- 1-800-662-7447
(SHIP)
- ------------------------------------------------------------------------------
SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT -- 1-800-662-2739
(CREW)
- ------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE
AND POLICIES
Vanguard/Morgan Growth Fund, Inc. (the "Fund") is an open-end
diversified investment company that seeks to provide long-
term growth of capital. The Fund invests primarily in common
stocks. Dividend income is incidental to this objective.
There is no assurance that the Fund will achieve its stated
objective.
- ------------------------------------------------------------------------------
OPENING AN
ACCOUNT
Please complete and return the Account Registration Form. If
you need assistance in completing this Form, please call our
Investor Information Department. The minimum initial
investment is $3,000 ($500 for Individual Retirement Accounts
and Uniform Gifts to Minors Act accounts). The Fund is
offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees). However, the Fund incurs expenses
for investment advisory, management, administrative, and
distribution services.
- ------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS
This Prospectus is designed to set forth concisely the
information you should know about the Fund before you invest.
It should be retained for future reference. A "Statement of
Additional Information" containing additional information
about the Fund has been filed with the Securities and
Exchange Commission. This Statement is dated April 30, 1993
and has been incorporated by reference into this Prospectus.
A copy may be obtained without charge by writing to the Fund
or by calling the Investor Information Department.
- ------------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page Page Page
<S> <C> <C>
Fund Expenses....................... 2 Implementation of Policies.......... 6 SHAREHOLDER GUIDE
Selected Per Share Data and Ratios.. 2 Investment Limitations.............. 7 Opening an Account and
Yield and Total Return.............. 3 Management of the Fund.............. 7 Purchasing Shares................. 15
FUND INFORMATION Investment Advisers................. 8 When Your Account Will Be
Investment Objective................ 4 Performance Record.................. 11 Credited.......................... 17
Investment Policies................. 4 Dividends, Capital Gains and Taxes.. 12 Selling Your Shares................. 17
Investment Risks.................... 4 The Fund's Share Price.............. 13 Exchanging Your Shares.............. 19
Who Should Invest................... 5 General Information................. 14 Transferring Registration........... 20
Other Vanguard Services............. 20
- --------------------------------------------------------------------------------------------------------------------------------

</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- ------------------------------------------------------------------------------
<PAGE>

FUND EXPENSES
The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Fund. The expenses
and fees set forth in the table are for the 1992 fiscal year.

SHAREHOLDER TRANSACTION EXPENSES
------------------------------------------------------
Sales Load Imposed on Purchases................ None
Sales Load Imposed on Reinvested Dividends..... None
Redemption Fees................................ None
Exchange Fees.................................. None

ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------
Management Expenses............................ 0.08%
Investment Advisory Fees....................... 0.19
12b-1 Fees..................................... None
Other Expenses
Distribution Costs.................... 0.02%
Shareholder Accounting Costs.......... 0.17
Miscellaneous Expenses................ 0.02
----
Total Other Expenses........................... 0.21
----
TOTAL OPERATING EXPENSES............... 0.48%
----
----

The purpose of this table is to assist you in understanding
the various costs and expenses that you would bear directly
or indirectly as an investor in the Fund.

The following example illustrates the expenses that you would
incur on a $1,000 investment over various periods, assuming
(1) a 5% annual rate of return and (2) redemption at the end
of each period. As noted in the table above, the Fund charges
no redemption fees of any kind.

1 Year 3 Years 5 Years 10 Years
----- ----- ----- ------
$5 $15 $27 $61

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY
BE HIGHER OR LOWER THAN THOSE SHOWN.
- ------------------------------------------------------------------------------
SELECTED PER SHARE DATA
AND RATIOS
The following information on selected per share data and
ratios, for a share outstanding throughout each period,
insofar as it relates to each of the five years in the period
ended December 31, 1992, has been audited by Price
Waterhouse, independent accountants, whose report thereon was
unqualified. This information should be read in conjunction
with the Fund's financial statements and notes thereto which
are incorporated by reference in the Statement of Additional
Information and in this Prospectus, and which appear, along
with the report of Price Waterhouse, in the Fund's 1992
Annual Report to the Shareholders.

- -----------------------------------
<S>
Net Asset Value, Beginning
of Year........................

INVESTMENT ACTIVITIES
Income.........................
Expenses.......................

Net Investment Income..........
Net Realized and
Unrealized Gain
(Loss) on Investments........

Total from Investment
Activities...............
- -----------------------------------
DISTRIBUTIONS
Net Investment Income..........
Realized Net Gain..............

Total Distributions........

NET ASSET VALUE, End of Year.....
===================================
Ratio of Expenses to Average
Net Assets.....................
Ratio of Net Investment
Income to Average Net
Assets.........................
Portfolio Turnover Rate..........
Number of Shares
Outstanding,
End of Year (thousands)........

YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986 1985 1984 1983
- ---------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

$12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82 $11.45 $13.84 $12.01
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

.24 .35 .38 .34 .31 .30 .29 .30 .32 .42
(.06) (.O6) (.06) (.06) (.06) (.07) (.08) (.07) (.07) (.11)
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
.18 .29 .32 .28 .25 .23 .21 .23 .25 .31

.97 2.66 (.50) 2.04 1.85 .31 .78 2.99 (.94) 2.81
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----

1.15 2.95 (.18) 2.32 2.10 .54 .99 3.22 (.69) 3.12
- ---------------------------------------------------------------------------------------------------------------

(.18) (.29) (.34) (.28) (.24) (.20) (.43) (.25) (.31) (.25)
(.52) (.86) (.80) (.59) (.98) (2.45) (2.88) (.60) (1.39) (1.04)
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(.70) (1.15) (1.14) (.87) (1.22) (2.65) (3.31) (.85) (1.70) (1.29)
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82 $11.45 $13.84
===============================================================================================================

.48% .46% .55% .51% .55% .46% .54% .60% .68% .85%

1.51% 2.36% 2.77% 2.38% 2.20% 1.52% 1.49% 1.96% 2.51% 2.33%
64% 52% 73% 27% 32% 43% 31% 42% 38% 31%

88,243 78,410 67,008 62,524 60,563 57,296 51,682 48,121 40,859 29,022

</TABLE>
- ------------------------------------------------------------------------------
YIELD AND
TOTAL RETURN
From time-to-time the Fund may advertise its yield and total
return. Both yield and total return figures are based on
historical earnings and are not intended to indicate future
performance. The "total return" of the Fund refers to the
average annual compounded rates of return over one-, five-
and ten-year periods or for the life of the Fund (as stated
in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment
of all dividend and capital gains distributions.

The "30-day yield" of the Fund is calculated by dividing net
investment income per share earned during a 30-day period by
the net asset value per share on the last day of the period.
Net investment income includes interest and dividend income
earned on the Fund's securities; it is net of all expenses
and all recurring and nonrecurring charges that have been
applied to all shareholder accounts. The yield calculation
assumes that net investment income earned over 30 days is
compounded monthly for six months and then annualized.
Methods used to calculate advertised yields are standardized
for all stock and bond mutual funds. However, these methods
differ from the accounting methods used by the Fund to
maintain its books and records, and so the advertised 30-day
yield may not fully reflect the income paid to your own
account or the yield reported in the Fund's reports to
shareholders.
- ------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE
The Fund is an open-end diversified investment company. The
objective of the Fund is to provide long-term growth of
capital by investing primarily in common
<PAGE>
stocks. Dividend income is incidental to this objective.
There is no assurance that the Fund will achieve its stated
objective.
- ------------------------------------------------------------------------------
INVESTMENT
POLICIES:

THE FUND INVESTS
PRIMARILY IN
"GROWTH STOCKS"
The Fund invests primarily in the equity securities of growth
companies. Under normal circumstances, at least 65% of the
Fund's assets will be invested in such securities. The Fund
is managed without regard to tax ramifications. The Fund will
generally invest in a diversified portfolio of common stocks
but may also, from time-to-time, hold securities that are
convertible into common stocks.

The Fund is expected to invest a majority of its assets in
"established growth companies"--i.e., larger capitalization
firms that have generally exhibited above-average rates of
growth in sales and earnings over an extended period. The
Fund may also invest in "emerging growth
companies"--expanding firms with generally smaller stock
market capitalizations. Finally, the Fund may hold
investments in "cyclical growth and other companies." These
are firms which, while they may not have a history of stable
long-term growth, are nonetheless expected to represent
attractive investments.

The Fund employs three investment advisers, each of which
independently chooses common stock investments for the Fund.
Wellington Management Company, which is currently responsible
for approximately two-thirds of the Fund's equity
investments, utilizes traditional methods of security
selection, including fundamental company research and
relative valuation techniques, in selecting growth stocks for
the Fund. In contrast, Franklin Portfolio Associates Trust
and Roll and Ross Asset Management Corporation, which are
each responsible for approximately one-sixth of the Fund's
equity investments, are "quantitative" investment managers.
They utilize computerized techniques designed to track--and,
if possible, outperform--the returns of a specific standard,
the Growth Fund Stock Index. The Growth Fund Stock Index, a
benchmark calculated by Morningstar, Inc., is a measure of
the composite performance of the common stock holdings of the
50 largest growth mutual funds.

In addition to investing in common stocks, the Fund is also
authorized to invest in certain short-term fixed income
securities as cash reserves and to use stock index futures
and options to a limited extent. See "Implementation of
Policies" for a description of these and other investment
practices of the Fund.

The investment objective and policies of the Fund are not
fundamental and so may be changed by the Board of Directors
without shareholder approval. However, shareholders would be
notified prior to a material change in either.
- ------------------------------------------------------------------------------
INVESTMENT
RISKS:
THE FUND IS SUBJECT
TO STOCK MARKET RISK
As a mutual fund investing primarily in common stocks, the
Fund is subject to market risk--i.e., the possibility that
common stock prices will decline over short or even extended
periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when
prices generally decline.

To illustrate the volatility of stock prices, the following
table sets forth the extremes for stock market returns as
well as the average return for the period from 1926 to 1992,
as measured by the Standard & Poor's 500 Composite Stock
Price Index:

<PAGE>
<TABLE>
<CAPTION>
U.S. STOCK MARKET RETURNS (1926-1992)
OVER VARIOUS TIME HORIZONS

1 YEAR 5 YEARS 10 YEARS 20 YEARS
----- ----- ------ ------
<S> <C> <C> <C> <C>
Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.2 +10.1 +10.4 +10.4
</TABLE>

As shown, from 1926 to 1992, common stocks have provided an
average annual total return (capital appreciation plus
dividend income) of +12.2%. While this average return can be
used as a guide for setting reasonable expectations for
future stock market returns, it may not be useful for
forecasting future returns in any particular period, as stock
returns are quite volatile from year-to-year.

The chart above should not be viewed as a representation of
future investment performance of the stock market or the
Fund. The illustrated returns represent historical investment
performance, which may be a poor guide to future returns.
Also, stock market indexes are based on unmanaged portfolios
of securities before transaction costs and other expenses.
Such costs reduce the relative performance of the Fund and
other "real world" portfolios. Finally, given its emphasis on
"growth stock" investments, the Fund is likely to differ
significantly in terms of portfolio composition and
investment performance from broad market averages like the
S&P 500.
- ------------------------------------------------------------------------------
WHO SHOULD INVEST:
INVESTORS SEEKING LONG-TERM GROWTH
The Fund is designed for investors who have the perspective,
patience and financial ability to assume above-average
interim investment risk in pursuit of long-term capital
growth. Because of the risks associated with common stock
investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide investors
with a means of speculating on short-term stock market
movements. Since the Fund will focus on common stocks that
offer below-average levels of current income, greater-than-
average investment risk--for a common stock fund--is likely.
The Fund's share price is expected to be volatile.

No assurance can be given that the Fund will attain its
objective or that shareholders will be protected from the
risk of loss that is inherent in equity investing. Investors
may wish to reduce the potential risk of investing in the
Fund by purchasing shares on a periodic basis (dollar-cost
averaging) rather than making an investment in one lump sum.

Investors should not consider the Fund a complete investment
program, but should also maintain holdings in investments
with different risk characteristics, such as bonds and money
market instruments. Investors may also wish to complement an
investment in the Fund with other types of common stock
investments.
- ------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES:
The Fund follows a number of distinctive investment practices
in an effort to achieve its investment objective.
A PORTION OF THE FUND'S ASSETS ARE MANAGED USING QUANTITATIVE TECHNIQUES
Two of the Fund's investment advisers, Franklin Portfolio
Associates Trust ("FPA") and Roll and Ross Asset Management
Corporation ("R&R"), use quantitative investment techniques
in managing their respective portions of the Fund's common
stock investments. For the portfolio of securities they
manage, FPA and R&R
<PAGE>
independently seek to track and, if possible, outperform the
investment returns of the Growth Fund Stock Index. Currently,
FPA and R&R are each responsible for approximately one-sixth
of the Fund's equity investments.

The Growth Stock Fund Index (the "Index") represents the
composite common stock portfolio of the 50 largest growth
mutual funds, as calculated by Morningstar, Inc.
("Morningstar"), an independent company which provides mutual
fund statistics. The 50 mutual funds included in that Index
are determined annually (as of December 31) by Morningstar.
For the two quantitative investment managers (FPA and R&R),
the Index is an essential tool in developing portfolios that
will be designed to track and, hopefully, outperform the
Index. For Wellington Management Company, the composition of
the Index serves as a guideline for setting portfolio policy.
For all three investment advisers, the Index is utilized as a
benchmark for determining incentive/penalty investment
advisory fees. See "Investment Advisers" and the Statement of
Additional Information for further information on the Index
and its use as a benchmark for incentive/penalty fees.
THE FUND MAY INVEST IN SHORT-TERM FIXED INCOME SECURITIES
Although it normally seeks to remain substantially fully
invested in equity securities, the Fund may invest
temporarily in certain short-term fixed income securities.
Such securities may be used to invest uncommitted cash
balances, to maintain liquidity to meet shareholder
redemptions, or to take a temporarily defensive position
against potential stock market declines. These securities
include: obligations of the United States Government and its
agencies or instrumentalities; commercial paper, bank
certificates of deposit, and bankers' acceptances; and
repurchase agreements collateralized by these securities.
Approximately 5% of the Fund's net assets are expected to be
held as cash reserves, which will be managed by The Vanguard
Group, Inc. at no charge to the Fund.
THE FUND MAY USE FUTURES CONTRACTS AND OPTIONS
The Fund may utilize stock futures contracts and options to a
limited extent. Specifically, the Fund may enter into futures
contracts provided that not more than 5% of its assets are
required as a futures contract deposit. In addition, the Fund
may enter into futures contracts and options transactions
only to the extent that obligations under such contracts or
transactions represent not more than 20% of the Fund's
assets.

Futures contracts and options may be used for several
reasons: to maintain cash reserves while remaining fully
invested, to facilitate trading, to reduce transaction costs,
or to seek higher investment returns when a futures contract
is priced more attractively than the underlying equity
security or index. The Fund may not use futures contracts or
options transactions to leverage its net assets.
THE FUND MAY LEND ITS SECURITIES
The Fund may lend its investment securities on a short-term
basis (less than nine months) to qualified institutional
investors for the purpose of realizing additional income.
Loans of securities by the Fund will be collateralized by
cash, letters of credit, or securities issued or guaranteed
by the U.S. Government or its agencies. The collateral will
equal at least 100% of the current market value of the loaned
securities.
BORROWING
The Fund may borrow money, subject to the limits set forth on
page 7, for temporary or emergency purposes, including the
meeting of redemption requests which might otherwise require
the untimely disposition of securities.
PORTFOLIO TURNOVER IS NOT EXPECTED TO EXCEED 100%
Although it generally seeks to invest for the long term, the
Fund retains the right to sell securities irrespective of how
long they have been held. It is anticipated that the annual
portfolio turnover of the Fund will not exceed 100%. A
turnover rate of
<PAGE>
100% would occur, for example, if all of the securities of
the Fund were replaced within one year.
- ------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS:
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL
LIMITATIONS
The Fund has adopted certain limitations on its investment
practices. Specifically, the Fund will not:
(a) with respect to 75% of the value of its total assets,
invest more than 5% of its assets in the securities of
any single company;
(b) with respect to 75% of the value of its total assets,
purchase more than 10% of the voting securities of any
issuer;
(c) invest more than 25% of its assets in any one industry;
and
(d) borrow money, except from banks (or through repurchase
agreements) for temporary or emergency (not leveraging)
purposes, and then not in an amount exceeding 10% of the
value of the Fund's net assets at the time the borrowing
is made. Whenever borrowing exceeds 5% of the value of
the Fund's net assets, the Fund will not make any
additional investments.

These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional Information
may be changed only with the approval of a majority of the
Fund's shareholders.
- ------------------------------------------------------------------------------
MANAGEMENT
OF THE FUND:
VANGUARD ADMINISTERS AND DISTRIBUTES THE FUND
The Fund is a member of The Vanguard Group of Investment
Companies, a family of 33 investment companies with 71
distinct mutual fund portfolios and total assets in excess of
$100 billion. Through their jointly owned subsidiary, The
Vanguard Group, Inc. ("Vanguard"), the Fund and the other
Funds in the Group obtain at cost virtually all of their
corporate management, administrative and distribution
services. Vanguard also provides investment advisory services
on an at-cost basis to certain Vanguard Funds. As a result of
Vanguard's unique corporate structure, the Vanguard Funds
have costs substantially lower than those of most competing
mutual funds. In 1992, the average expense ratio (annual
costs including advisory fees divided by total net assets)
for the Vanguard Funds amounted to .31% compared to an
average of 1.03% for the mutual fund industry (data provided
by Lipper Analytical Services).

The Officers of the Fund manage its day-to-day operations and
are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.

Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the Funds and also furnishes the Funds with
necessary office space, furnishings and equipment. Each Fund
pays its share of Vanguard's net expenses, which are
allocated among the Funds under methods approved by the Board
of Directors (Trustees) of each Fund. In addition, each Fund
bears its own direct expenses, such as legal, auditing and
custodian fees.

Vanguard provides distribution and marketing services to the
Funds. The Funds are available on a no-load basis (i.e.,
there are no sales commissions or 12b-1 fees). However, each
Fund bears its share of the Group's distribution costs.
- ------------------------------------------------------------------------------
INVESTMENT
ADVISERS:

THE FUND EMPLOYS THREE INDEPENDENT INVESTMENT ADVISERS
The Fund currently employs three investment advisers:
Wellington Management Company ("WMC"), 75 State Street,
Boston, MA 02109; Franklin Portfolio Associates Trust
("FPA"), One Post Office Square, Boston, MA 02109; and Roll
and Ross
<PAGE>
Asset Management Corporation ("R&R"), 585 Skippack Pike, Blue
Bell, PA 19422. Prior to April 24, 1990, WMC was the sole
investment adviser to the Fund (then known as W.L. Morgan
Growth Fund). FPA and R&R were added as advisers to the Fund
on that date.

The proportion of the net assets of the Fund managed by each
adviser was established by the Board of Directors, and may be
changed in the future by the Board of Directors as
circumstances warrant. Presently WMC is responsible for
approximately two-thirds of the equity investments of the
Fund; FPA and R&R are each responsible for one-sixth. (The
cash portion of the Fund's net assets is managed by The
Vanguard Group, Inc. at no charge to the Fund.)

The Fund has entered into investment advisory agreements with
WMC, FPA, and R&R which provide that the advisers manage the
investment and reinvestment of the Fund's assets and
continuously review, supervise and administer the Fund's
investment program. The advisers discharge their
responsibilities subject to the control of the Officers and
Directors of the Fund.
. . . WELLINGTON MANAGEMENT COMPANY (WMC)
WMC is a professional investment advisory firm which
globally provides services to investment companies,
institutions, and individuals. Among the clients of WMC are
12 of the 33 investment companies of The Vanguard Group. As
of December 31, 1992, WMC held discretionary management
authority with respect to approximately $67.4 billion of
assets. WMC and its predecessor organizations have provided
advisory services to investment companies since 1933 and to
investment counseling clients since 1960.

Frank V. Wisneski and Nancy T. August, Senior Vice Presidents
of WMC, serve as portfolio managers of the assets of the Fund
assigned to WMC. Each separately oversees one-half of the
assets assigned to WMC. Mr. Wisneski, who has been employed
at WMC for 21 years, served as the sole portfolio manager of
the Fund from September 1979 to December 1989. At that time,
the responsibility for approximately one-half of the Fund's
assets was transferred to Ms. August. In addition to her work
for the Fund, Ms. August, who has also been employed at WMC
for 21 years, oversees various investment portfolios with
objectives and policies similar to those of the Fund. In
managing the assets assigned to WMC, Mr. Wisneski and Ms.
August are supported by research and other investment
services provided by the professional staff of WMC.

The Fund pays WMC a basic advisory fee calculated by applying
varying percentage rates to the average net assets of the
Fund managed by WMC. The basic fee schedule is as follows:

NET ASSETS RATE
----------- -------
First $50 million..................... 0.325%
Next $100 million..................... 0.225%
Over $150 million..................... 0.150%

This basic advisory fee may be increased or decreased by
applying an adjustment formula ("incentive/penalty fee")
based on WMC's investment performance relative to the
investment record of Growth Fund Stock Index. Under the
incentive/penalty fee schedule, the basic fee payable to WMC
may be increased or decreased by as much as .075% depending
on the investment performance of the equity investments
managed by WMC.

Prior to April 24, 1990 WMC served as sole investment adviser
to the Fund. At that time the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500")
<PAGE>
was used as the benchmark for determining any incentive/
penalty fee paid to WMC. However, while the S&P 500 does
serve as a broad gauge of stock market performance, it does
not directly measure the investment performance of "growth
stocks," the primary investments of the Fund. To assess the
performance of its advisers relative to comparable "growth
stock" investments, the Fund has adopted as a benchmark for
incentive/penalty fees the Growth Fund Stock Index, an index
of the equity holdings of the 50 largest growth stock mutual
funds.

Under rules of the Securities and Exchange Commission, the
incentive/penalty fee will not be fully operable until the
quarter ending June 30, 1993, and, until that date, will be
calculated according to certain transition rules. See the
Statement of Additional Information for a detailed
description of the incentive/penalty fee schedule for WMC and
the applicable transition rules.
. . . FRANKLIN PORTFOLIO ASSOCIATES (FPA)
FPA is a professional investment advisory firm which
specializes in the management of common stock portfolios
through the use of quantitative investment models. Founded in
1982, FPA, a Massachusetts business trust, is a wholly owned
subsidiary of Mellon Financial Services Corporation #1, which
itself is a wholly owned subsidiary of Mellon Bank
Corporation. As of December 31, 1992, FPA provided investment
advisory services to 28 clients and managed assets with an
approximate value of $4.98 billion, including $407.9 million
in assets for Vanguard Quantitative Portfolios, Inc., another
mutual fund member of The Vanguard Group.

FPA employs proprietary computer models in selecting
individual equity securities and in structuring investment
portfolios for its clients, including the Fund. John J.
Nagorniak, President of FPA, has been designated as the
portfolio manager of the assets of the Fund assigned to FPA;
he is responsible for overseeing the application of FPA's
quantitative techniques to those assets. Mr. Nagorniak and
the other investment principals of FPA are responsible for
the ongoing development and enhancement of FPA's quantitative
investment techniques.

The Fund pays FPA a basic advisory fee calculated by applying
varying percentage rates to the average net assets of the
Fund managed by FPA. The basic fee schedule is as follows:

NET ASSETS RATE
----------- -------
First $100 million.................... 0.250%
Next $200 million..................... 0.200%
Over $300 million..................... 0.150%

This basic advisory fee may be increased or decreased by
applying an incentive/penalty fee based on FPA's investment
performance relative to the investment record of the Growth
Fund Stock Index. Under the incentive/penalty fee schedule,
the basic fee payable to FPA may be increased or decreased by
as much as .10% depending on the investment performance of
the equity investments managed by FPA.

Under rules of the Securities and Exchange Commission, the
incentive/penalty fee structure will not be fully operable
until the quarter ending June 30,1993, and, until that date,
will be calculated according to certain transition rules. See
the Statement of Additional Information for a detailed
description of the incentive/penalty fee schedule for FPA and
the applicable transition rules.
. . . AND ROLL AND ROSS ASSET MANAGEMENT CORPORATION (R&R)
R&R, a Pennsylvania corporation founded in 1986, is a
professional investment advisory firm which specializes in
the management of common stock portfolios
<PAGE>
through the use of quantitative investment models. Messrs.
Stephen A. Ross, Co-Chairman, Richard W. Roll, Co-Chairman,
and Alan T. Yuhas, President, are the controlling persons and
sole stockholders of R&R. As of December 31, 1992, R&R
provided investment advisory services to 49 clients and
managed assets with an approximate value of $5.1 billion.

R&R employs proprietary computer models in selecting
individual equity securities and in structuring investment
portfolios for its clients, including the Fund. Richard W.
Roll, Co-Chairman of R&R, has been designated as the
portfolio manager of the assets of the Fund assigned to R&R;
he is responsible for overseeing the application of R&R's
quantitative techniques to those assets. Mr. Roll and the
other investment principals of R&R are responsible for the
ongoing development enhancement of R&R's quantitative
investment techniques.

The Fund pays R&R a basic advisory fee calculated by applying
varying percentage rates to the average net assets of the
Fund managed by R&R. The basic fee schedule is as follows:

NET ASSETS RATE
----------- -------
First $150 million.................... 0.400%
Next $100 million..................... 0.200%
Over $250 million..................... 0.100%

This basic advisory fee may be increased or decreased by
applying an incentive/penalty fee based on R&R's investment
performance relative to the investment record of the Growth
Fund Stock Index. Under the incentive/penalty fee schedule,
the basic fee payable to R&R may be increased or decreased by
as much as .05% to .20%, depending on the dollar amount and
the relative performance of the equity investments managed by
R&R. Moreover, the incentive/penalty fee schedule is
structured in such a way that, in order to earn the basic
fee, the investment performance of R&R's equity assets must
exceed that of the Index by at least 6% over the preceding 36
month period.

For the fiscal year ended December 31, 1992, the aggregate
investment advisory fees paid by Vanguard/Morgan Growth Fund
to WMC, FPA and R&R represented an effective annual rate of
.21 of 1% of average net assets, before a net decrease of .02
of 1% based on performance. The investment advisory fees paid
by the Fund for this period to WMC, FPA and R&R represented
an effective annual rate of .17%, .23% and .22% of 1%,
respectively, of the average net assets managed by WMC, FPA
and R&R.

The investment advisory agreements with WMC, FPA and R&R
authorize the advisers to select brokers or dealers to
execute the purchase and sale of the Fund's portfolio
securities, and direct the advisers to use their best efforts
to obtain the best available price and most favorable
execution with respect to all transactions. The full range
and quality of brokerage services available are considered in
making their determinations.

The Fund has authorized WMC, FPA and R&R to pay higher
commissions in recognition of brokerage services felt
necessary for the achievement of better
<PAGE>
execution, provided the advisers believe this to be in the
best interests of the Fund. Although the Fund does not
market its shares through intermediary brokers or dealers,
the Fund's advisers may place orders with qualified broker-
dealers who recommend the Fund to clients if the Officers of
the Fund believe that the quality of the transaction and the
commission are comparable to what they would be with other
qualified brokerage firms.
- ------------------------------------------------------------------------------
PERFORMANCE
RECORD
The table below provides investment results for the Fund for
several periods throughout the Fund's lifetime. The results
shown represent "total return" investment performance, which
assumes the reinvestment of all capital gains and income
dividends for the indicated periods. Also included is
comparative information with respect to the unmanaged
Standard & Poor's 500 Composite Stock Price Index, a widely-
used barometer of stock market activity, and the Consumer
Price Index, a statistical measure of changes in the prices
of goods and services. The tables do not make any allowance
for federal, state or local income taxes, which shareholders
must pay on a current basis.

The results should not be considered a representation of the
total return from an investment made in the Fund today. This
information is provided to help investors better understand
the Fund and may not provide a basis for comparison with
other investments or mutual funds which use a different
method to calculate performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN FOR
VANGUARD/MORGAN GROWTH FUND
-------------------------------------------------------------
FISCAL PERIODS VANGUARD/MORGAN S&P 500 CONSUMER
ENDED 12/31/92 GROWTH FUND INDEX PRICE INDEX
-------------------- ----------------------- ----------- --------------
<S> <C> <C> <C>
1 Year + 9.5% + 7.6% +2.9%
5 Years +15.9 +15.8 +4.2
10 Years +14.1 +16.1 +3.8
Lifetime* +11.4 +10.5 +5.9
<FN>
*December 31, 1968 to December 31, 1992

</TABLE>
- ------------------------------------------------------------------------------
DIVIDENDS,
CAPITAL GAINS
AND TAXES:
THE FUND PAYS DIVIDENDS AND ANY CAPITAL GAINS
ANNUALLY
The Fund expects to pay dividends annually from ordinary
income. Net capital gains distributions, if any, will also be
made annually.

Dividend and capital gains distributions may be automatically
reinvested or received in cash. See "Choosing a Distribution
Option" (page 15) for a description of these distribution
methods.

In order to satisfy certain requirements of the Tax Reform
Act of 1986, the Fund may declare special year-end dividend
and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are
deemed to have been paid by the Fund and received by
shareholders on December 31 of the prior year.

The Fund intends to qualify for taxation as a "regulated
investment company" under the Internal Revenue Code so that
it will not be subject to federal income tax to the extent
its income is distributed to shareholders. Dividends paid by
the Fund from net investment income, whether received in cash
or reinvested in additional
<PAGE>
shares, will be taxable to shareholders as ordinary income.
For corporate investors, dividends from net investment income
will generally qualify in part for the intercorporate
dividends-received deduction. However, the portion of the
dividends so qualified depends on the aggregate taxable
qualifying dividend income received by the Fund from domestic
(U.S.) sources.

Distributions paid by the Fund from long-term capital gains,
whether received in cash or reinvested in additional shares,
are taxable as long-term capital gains, regardless of the
length of time you have owned shares in the Fund. Capital
gains distributions are made when the Fund realizes net
capital gains on sales of portfolio securities during the
year. The Fund does not seek to realize any particular amount
of capital gains during a year; rather, realized gains are a
byproduct of portfolio management activities. Consequently,
capital gains distributions may be expected to vary
considerably from year-to-year. There will be no capital
gains distributions in years when the Fund realizes net
capital losses.

Note that if you accept capital gains distributions in cash,
instead of reinvesting them in additional shares, you are in
effect reducing the capital at work for you in the Fund.
Also, keep in mind that if you purchase shares in the Fund
shortly before the record date for a dividend or capital
gains distribution, a portion of your investment will be
returned to you as a taxable distribution, regardless of
whether you are reinvesting your distributions or receiving
them in cash.

The Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.
A CAPITAL GAIN OR LOSS MAY BE REALIZED UPON EXCHANGE OR REDEMPTION
A sale of shares of the Fund is a taxable event, and may
result in a capital gain or loss. A capital gain or loss may
be realized from an ordinary redemption of shares or an
exchange of shares between two mutual funds (or two
portfolios of a mutual fund).

Dividend distributions, capital gains distributions, and
capital gains or losses from redemptions and exchanges may be
subject to state and local taxes.

The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to
shareholders who have not complied with IRS taxpayer
identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form
your proper Social Security or Taxpayer Identification Number
and by certifying that you are not subject to backup
withholding.

The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania and does
business and maintains an office in that state. In the
opinion of counsel, the shares of the Fund are exempt from
Pennsylvania personal property taxes.

The tax discussion set forth above is included for general
information only. Prospective investors should consult their
own tax advisers concerning the tax consequences of an
investment in the Fund.
- ------------------------------------------------------------------------------
THE FUND'S
SHARE PRICE
The Fund's share price or "net asset value" per share is
determined by dividing the total market value of the Fund's
investments and other assets, less any liabilities, by the
number of outstanding shares of the Fund. Net asset value per
share is determined once daily at the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m.
Eastern time) on each day that the Exchange is open for
business. Portfolio securities that are listed on a
securities exchange are valued
<PAGE>
at the last quoted sales price on the day the valuation is
made. Price information on listed securities is taken from
the exchange where the security is primarily traded.
Securities which are listed on an exchange and which are not
traded on the valuation date are valued at the mean between
the bid and ask prices. Unlisted securities for which market
quotations are readily available are valued at the latest
quoted bid price. Other assets and securities for which no
quotations are readily available are valued at fair value as
determined in good faith by the Directors. Securities may be
valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market
value of such securities.

The Fund's share price can be found daily in the mutual fund
listings of most major newspapers under the heading of The
Vanguard Group.
- ------------------------------------------------------------------------------
GENERAL INFORMATION
The Fund is a Maryland corporation. The name of the Fund was
changed from W.L. Morgan Growth Fund, Inc. to Vanguard/Morgan
Growth Fund, Inc. as of April 24, 1990. The Articles of
Incorporation permit the Directors to issue 150 million
shares of common stock, with a $.10 par value. The Board of
Directors has the power to designate one or more classes
("series") of shares of common stock and to classify or
reclassify any unissued shares with respect to such series.
Currently the Fund is offering one class of shares.

The shares of the Fund are fully paid and non-assessable;
have no preference as to conversion, exchange, dividends,
retirement or other features; and have no pre-emptive rights.
Such shares have non-cumulative voting rights, meaning that
the holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if they
so choose.

Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held to vote on the
removal of a Director or Directors of the Fund if requested
in writing by the holders of not less than 10% of the
outstanding shares of the Fund.

All securities and cash are held by State Street Bank and
Trust Company, Boston, MA. The Vanguard Group, Inc., Valley
Forge, PA, serves as the Fund's Transfer and Dividend
Disbursing Agent. Price Waterhouse serves as independent
accountants for the Fund and will audit its financial
statements annually. The Fund is not involved in any
litigation.
- ------------------------------------------------------------------------------

<PAGE>
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND PURCHASING SHARES
To open a new account, either by mail or by wire, simply
complete and return an Account Registration Form and any
required legal documentation. Please indicate the amount you
wish to invest. Your purchase must be equal to or greater
than the $3,000 minimum initial investment requirement ($500
for Individual Retirement Accounts and Uniform Gifts to
Minors Act accounts). If you need assistance with the Account
Registration Form or have any questions about the Fund,
please call our Investor Information Department (1-800-662-
7447). NOTE: For other types of account registrations (e.g.,
corporations, associations, other organizations, trusts or
powers of attorney), please call us to determine which
additional forms you may need.

The Fund's shares are purchased at the next-determined net
asset value after your investment has been received. The Fund
is offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees).
ADDITIONAL
INVESTMENTS
Subsequent investments may be made by mail ($100 minimum),
wire ($1,000 minimum), exchange from another Vanguard Fund
account ($100 minimum), or Vanguard Fund Express. However,
the Fund reserves the right to reject any specific purchase
request, whether it be made by check, wire, exchange from
another Vanguard Fund account, or Vanguard Fund Express.
-----------------------------------------------------------
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS

PURCHASING BY MAIL:Please include the amount Additional investments
Complete and sign of your initial should include the Invest-
the enclosed investment on the by-Mail remittance form
Account registration form, make attached to your Fund
Registration Form your check payable to The confirmation statements.
Vanguard Group--26 and Please make your check
mail to: payable to The Vanguard
VANGUARD FINANCIAL CENTER Group--26, write your
P.O. BOX 2600 account number on your
VALLEY FORGE, PA 19482 check, and, using the
return envelope provided,
mail to the address
indicated on the Invest-
by-Mail Form.

For express or VANGUARD FINANCIAL CENTER All written requests
registered mail, 1200 MORRIS DRIVE should be mailed to one of
send to: WAYNE, PA 19087 the addresses indicated
for new accounts.
-----------------------------------------------------------
PURCHASING BY WIRE:
Money should be
wired to:
CORESTATES BANK, N.A.
ABA 031000011
CORESTATES NO 0101 9897
ATTN VANGUARD
BEFORE WIRING:
Please contact
Client Services
(1-800-662-2739)
VANGUARD/MORGAN GROWTH FUND
ACCOUNT NUMBER
ACCOUNT REGISTRATION

To assure proper receipt, please be sure your bank includes
the name of the Fund and the account number Vanguard has
assigned to you. If you are opening a new account, please
complete the Account Registration Form and mail it to the
"New Account" address above after completing your wire
arrangement. NOTE: Federal Funds wire purchase orders will be
accepted only when the Fund and Custodian Bank are open for
business.
-------------------------------------------------------------

<PAGE>
PURCHASING BY EXCHANGE (from a Vanguard account)
You may open an account or purchase additional shares by
making an exchange from another Vanguard Fund account.
However, the Fund reserves the right to refuse any exchange
purchase request. Call Vanguard's Client Services Department
(1-800-662-2739) for assistance. The new account will have
the same registration as the existing account.
-------------------------------------------------------------
PURCHASING BY
FUND EXPRESS:
Special Purchase and Automatic Investment
The Fund Express Special Purchase option lets you move money
from your bank account to your Vanguard account at your
request. Or if you choose the Automatic Investment option,
money moves from your bank account to your Vanguard account
on the schedule--monthly, bimonthly (every other month),
quarterly or yearly--you select. To establish these Fund
Express options, please provide the appropriate information
on the Account Registration Form. We will send you a
confirmation of your Fund Express enrollment; please wait
three weeks before using the service.
- ------------------------------------------------------------------------------
CHOOSING A DISTRIBUTION OPTION
You must select one of three distribution options:

1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and
capital gains distributions will be reinvested in
additional Fund shares. This option will be selected for
you automatically unless you specify one of the other
options.

2. CASH DIVIDEND OPTION -- Your dividends will be paid in
cash and your capital gains will be reinvested in
additional Fund shares.

3. ALL CASH OPTION -- Both dividend and capital gains
distributions will be paid in cash.

You may change your option by calling our Client Services
Department (1-800-662-2739). An option to invest your
dividend and/or capital gains distributions automatically in
another Vanguard Fund account is also available. Please call
our Client Services Department (1-800-662-2739) for
information on establishing this option.
IMPORTANT TAX NOTE
If you purchase shares shortly before a distribution of
dividends or capital gains, a portion of your investment will
be classified as a taxable distribution (regardless of
whether you are reinvesting your distributions or taking them
in cash).
- ------------------------------------------------------------------------------
IMPORTANT
INFORMATION
ESTABLISHING OPTIONAL SERVICES
The easiest way to establish optional Vanguard services on
your account is to select the options you desire when you
complete your Account Registration Form. IF YOU WISH TO ADD
OPTIONS LATER, YOU MAY NEED TO PROVIDE VANGUARD WITH
ADDITIONAL INFORMATION AND A SIGNATURE GUARANTEE. PLEASE CALL
OUR CLIENT SERVICES DEPARTMENT (1-800-662-2739) FOR FURTHER
ASSISTANCE.
SIGNATURE GUARANTEES
For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A SIGNATURE
GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES
Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace it.
BROKER-DEALER PURCHASES
If you purchase shares in Vanguard Funds through a registered
broker-dealer or investment adviser, the broker-dealer or
adviser may charge a service fee.

<PAGE>
CANCELLING TRADES
The Fund will not cancel any trade (e.g., a purchase,
exchange or redemption) believed to be authentic, received in
writing or by telephone, once the trade has been received.
- ------------------------------------------------------------------------------
WHEN YOUR ACCOUNT WILL
BE CREDITED
Your trade date is the date on which your account is
credited. If your purchase is made by check, Federal Funds
wire or exchange, and is received by the close of the New
York Stock Exchange (generally 4:00 p.m. Eastern time), your
trade date is the day of receipt. If your purchase is
received after the close of the Exchange, your trade date is
the next business day. Your shares are purchased at the net
asset value determined on your trade date.

In order to prevent lengthy processing delays caused by the
clearing of foreign checks, Vanguard will only accept a
foreign check which has been drawn in U.S. dollars and has
been issued by a foreign bank with a U.S. correspondent bank.

Because of the risks associated with common stock
investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide investors
with a means of speculating on short-term stock market
movements. Consequently the Fund reserves the right to reject
any specific purchase (and exchange purchase) request. The
Fund also reserves the right to suspend the offering of
shares for a period of time.
- ------------------------------------------------------------------------------
SELLING YOUR SHARES
You may withdraw any portion of the funds in your account by
redeeming shares at any time. You may initiate a request by
writing or by telephoning. Your redemption proceeds are
normally mailed within two business days after the receipt of
the request in Good Order.
SELLING BY MAIL
Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD/MORGAN GROWTH FUND, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request to
Vanguard Financial Center, Vanguard/Morgan Growth Fund, 1200
Morris Drive, Wayne, PA 19087.)

The redemption price of shares will be the Fund's net asset
value next determined after Vanguard has received all
required documents in Good Order.
DEFINITION OF
GOOD ORDER
GOOD ORDER means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or
shares).
3. The signatures of all owners EXACTLY as they are
registered on the account.
4. Any required signature guarantees (if applicable).
5. Other supporting legal documentation that might be
required in the case of estates, corporations, trusts, and
certain other accounts.
6. Any certificates that you are holding for the account.

IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS TO
YOUR ACCOUNT, PLEASE CALL OUR CLIENT SERVICES DEPARTMENT (1-
800-662-2739).
-------------------------------------------------------------
SELLING BY
TELEPHONE
To sell shares by telephone, you or your pre-authorized
representative may call our Client Services Department at 1-
800-662-2739. For telephone redemptions, you may have the
proceeds sent to you by mail.
-------------------------------------------------------------
SELLING BY FUND EXPRESS:
Automatic Withdrawal & Special Redemption
If you select the Fund Express Automatic Withdrawal option,
money will be automatically moved from your Vanguard Fund
account to your bank account according to the schedule you
have selected. The Special Redemption option lets you move
money from your Vanguard account to your bank account on your
request. You
<PAGE>
may elect Fund Express on the Account Registration Form or
call our Investor Information Department (1-800-662-7447) for
a Fund Express application.
-------------------------------------------------------------
SELLING BY
EXCHANGE
You may sell shares by making an exchange into another
Vanguard Fund. Call our Client Services Department (1-800-
662-2739). For more information on exchanges, see page 18.
-------------------------------------------------------------
IMPORTANT REDEMPTION INFORMATION
Shares purchased by check may not be redeemed until payment
for the purchase is collected, which may take up to ten
calendar days. Your money is invested during the holding
period.
DELIVERY OF REDEMPTION
PROCEEDS
Redemption requests received by telephone prior to the close
of the New York Stock Exchange (generally 4:00 p.m. Eastern
time) are processed on the day of receipt and the redemption
proceeds are normally sent on the following business day.

Redemption requests received by telephone after the close of
the Exchange are processed on the business day following
receipt and the proceeds are normally sent on the second
business day following receipt.

Redemption proceeds must be sent to you within seven days of
receipt of your request in Good Order.

If you experience difficulty in making a telephone redemption
during periods of drastic economic or market changes, your
redemption request may be made by regular or express mail. It
will be implemented at the net asset value next determined
after your request has been received by Vanguard in Good
Order. The Fund reserves the right to revise or terminate the
telephone redemption privilege at any time.

The Fund may suspend the redemption right or postpone payment
at times when the New York Stock Exchange is closed or under
any emergency circumstances as determined by the United
States Securities and Exchange Commission.

If the Board of Directors determines that it would be
detrimental to the best interests of the Fund's remaining
shareholders to make payment in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution in
kind of readily marketable securities.
MINIMUM ACCOUNT BALANCE
REQUIREMENT
Due to the relatively high cost of maintaining smaller
accounts, the Fund reserves the right to redeem shares in any
account that is below the minimum initial investment amount
of $3,000. In addition, if at any time the total investment
does not have a value of at least $1,000, you may be notified
that the value of your account is below the Fund's minimum
account balance requirement. You would then be allowed 60
days to make an additional investment before the account is
liquidated. Proceeds would be promptly paid to the
shareholder. This minimum does not apply to IRAs, other
retirement accounts, and Uniform Gifts to Minors Act
accounts.
- ------------------------------------------------------------------------------
EXCHANGING YOUR SHARES
Should your investment goals change, you may exchange your
shares of Vanguard/Morgan Growth Fund for those of other
available Vanguard Funds.
EXCHANGING BY TELEPHONE:
Call Client Services
(1-800-662-2739)
When exchanging shares by telephone, please have ready the
Fund name, account number, Social Security Number or Tax I.D.
Number, and account address. Requests for telephone exchanges
received prior to the close of the New York Stock Exchange
(generally 4:00 p.m. Eastern time) are processed at the close
of business that same day. Requests received after the close
of the Exchange are processed the next business day.
TELEPHONE EXCHANGES ARE NOT ACCEPTED INTO OR FROM VANGUARD
BALANCED INDEX FUND, VANGUARD EXPLORER FUND, VANGUARD INDEX
TRUST--500,
<PAGE>
EXTENDED MARKET, TOTAL STOCK MARKET, VALUE AND GROWTH
PORTFOLIOS, VANGUARD INTERNATIONAL EQUITY INDEX
FUND--EUROPEAN AND PACIFIC PORTFOLIOS, VANGUARD SMALL
CAPITALIZATION STOCK FUND, AND VANGUARD QUANTITATIVE
PORTFOLIOS. If you experience difficulty in making a
telephone exchange, your exchange request may be made by
regular or express mail, and it will be implemented at the
closing net asset value on the date received by Vanguard,
provided the request is received in Good Order.
-------------------------------------------------------------
EXCHANGING BY MAIL
Please be sure to include on your exchange request the name
and account number of your current Fund, the name of the Fund
you wish to exchange into, the amount you wish to exchange,
and the signatures of all registered account holders. Send
your request to VANGUARD FINANCIAL CENTER, VANGUARD/MORGAN
GROWTH FUND, P.O. BOX 1120, VALLEY FORGE, PA 19482. (For
express or registered mail, send your request to Vanguard
Financial Center, Vanguard/Morgan Growth Fund, 1200 Morris
Drive, Wayne, PA 19087.)
-------------------------------------------------------------
IMPORTANT EXCHANGE INFORMATION
Before you make an exchange, you should consider the
following:

* Please read the Fund's prospectus before making an
exchange. For a copy and for answers to any questions you
may have, call our Investor Information Department
(1-800-662-7447).

* An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on the
transaction.

* Exchanges are accepted only if the registrations and the
tax identification numbers of the two accounts are
identical.

* The shares to be exchanged must be on deposit and not held
in certificate form.

* New accounts are not currently accepted in Windsor Fund.

* The redemption price of shares redeemed by exchange is the
net asset value next determined after Vanguard has received
all required documents in Good Order.

* When opening a new account by exchange, you must meet the
minimum investment requirement of the new Fund.

Neither the Fund nor Vanguard is responsible for the
authenticity of exchange instructions received by telephone.
Investors bear the full risk of loss arising from
unauthorized telephone exchanges. To prohibit telephone
exchanges on your account, please notify the Fund in writing.
Otherwise, the telephone exchange privilege will be
automatically established on your account.

Every effort will be made to maintain the exchange privilege.
However, the Fund reserves the right to revise or terminate
its provisions, limit the amount of or reject any exchange,
as deemed necessary, at any time.
- ------------------------------------------------------------------------------
EXCHANGE PRIVILEGE LIMITATIONS
The Fund's exchange privilege is not intended to afford
shareholders a way to speculate on short-term movements in
the market. Accordingly, in order to prevent excessive use of
the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the
Fund has established a policy of limiting excessive exchange
activity.

Exchange activity will not be deemed excessive if limited to
TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT LEAST 30 DAYS APART)
from the Fund during any
<PAGE>
calendar year. These limitations do not apply to exchanges
from Vanguard's money market portfolios.
- ------------------------------------------------------------------------------
TRANSFERRING
REGISTRATION
You may transfer the registration of any of your Fund shares
to another person by completing a transfer form and mailing
it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110, VALLEY
FORGE, PA 19482, ATTENTION: TRANSFER DEPARTMENT. The request
must be in Good Order (see page 16). To obtain a transfer
form and complete instructions, please call our Client
Services Department (1-800-662-2739).
- ------------------------------------------------------------------------------
OTHER VANGUARD SERVICES:
For more information about any of these services, please call
our Investor Information Department at 1-800-662-7447.
STATEMENTS AND REPORTS
Vanguard will send you a confirmation statement each time you
initiate a transaction in your account (except for
checkwriting redemptions from Vanguard money market
accounts). You will also receive a comprehensive account
statement at the end of each calendar quarter. The fourth-
quarter statement will be a year-end statement, listing all
transaction activity for the entire calendar year.

Financial reports on the Fund will be mailed to you semi-
annually, according to the Fund's fiscal year-end.
-------------------------------------------------------------
VANGUARD DIRECT DEPOSIT SERVICE
With Vanguard's Direct Deposit Service, most U.S. Government
checks (including Social Security and military pension
checks) and private payroll checks may be automatically
deposited into your Vanguard Fund account. Separate brochures
and forms are available for direct deposit of U.S. Government
and private payroll checks.
-------------------------------------------------------------
VANGUARD AUTOMATIC EXCHANGE SERVICE
Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or to
contribute to an IRA or other retirement plan.
-------------------------------------------------------------
VANGUARD FUND EXPRESS
Vanguard Fund Express allows you to transfer money between
your Fund account and your account at a bank, savings and
loan association, or a credit union that is a member of the
Automated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call the Investor
Information Department (1-800-662-7447) for a Fund Express
application.

Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition, some
services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
-------------------------------------------------------------
VANGUARD
TELE-ACCOUNT
Vanguard Tele-Account is a convenient, automated service that
provides share price, price change and yield quotations on
Vanguard Funds through any TouchTone(TM) telephone. This free
service also lets you obtain information about your account
balance, your last transaction, and your most recent dividend
or capital gains payment. To contact Vanguard's Tele-Account
service, dial 1-800-ON-BOARD (1-800-662-6273). A free
brochure offering detailed operating instructions is
available from the Investor Information Department (1-800-
662-7447).
- ------------------------------------------------------------------------------

<PAGE>
VANGUARD/MORGAN GROWTH FUND, INC.
PROSPECTUS SUPPLEMENT

MARCH 11, 1994

On February 25, 1994, Vanguard/Morgan Growth Fund announced a change in
the proportion of the net assets of the Fund managed by each of the Fund's
investment advisers, to be completed by March 31, 1994. The portion of the
Fund's assets managed by Wellington Management Company ("Wellington
Management") will be reduced from 51% to approximately 40% of net assets. The
share of net assets managed by Franklin Portfolio Associates will be increased
from 22% to approximately 33%. The shares managed by the Fund's other two
advisers will remain unchanged: Husic Capital Management (13%) and Vanguard
Core Management (9%). Approximately 5% of the Fund's net assets is held in
cash.

In addition, the Fund announced the following portfolio manager change to
be completed prior to March 31, 1994. Robert D. Rands, 51, Senior Vice
President of Wellington Management, will assume responsibility for Wellington
Management's portion of the Fund's net assets. Mr. Rands has been associated
with Wellington Management for 16 years.

The investment objectives and policies of the Fund will remain unchanged.

<PAGE>
VANGUARD/MORGAN GROWTH FUND, INC.
PROSPECTUS SUPPLEMENT

JUNE 28, 1993

On June 18, 1993, the Board of Directors of Vanguard/Morgan Growth Fund,
Inc. (the "Fund") approved the appointment of Husic Capital Management of San
Francisco, California ("Husic") as an additional investment adviser to manage
approximately 15% of the Fund's assets. The proportion of the net assets of
the Fund managed by each of the Fund's investment advisers (see page 8) may be
changed by the Board of Directors as circumstances warrant.

An Information Statement providing detailed information concerning this
new investment advisory relationship will be mailed to shareholders of the
Fund at least 30 days before the effective date of the new investment advisory
agreement. It is expected that the effective date of the agreement will be on
or about September 15, 1993. Under the terms of the agreement, the Fund will
pay Husic a basic advisory fee at the end of each fiscal quarter, calculated
by applying a quarterly rate, based on the following annual percentage rates,
to the average month-end assets of the Fund managed by Husic for the quarter:

Net Assets Annual Rate
----------- ---------------
First $25 million 0.40%
Next $125 million 0.35%
Next $350 million 0.25%
Next $500 million 0.20%
Over $1 billion 0.15%

Effective with the quarter ending September 30, 1994, the basic fee paid
to Husic, as provided above, may be increased or decreased by as much as 75%
by applying an incentive/penalty fee based on the investment performance of
the assets managed by Husic relative to the return of the Growth Fund Stock
Index (described on page 9).

<PAGE>
VANGUARD/MORGAN GROWTH FUND, INC.
PROSPECTUS SUPPLEMENT

JUNE 1, 1993

As of May 4, 1993, Roll and Ross Asset Management Corporation ("Roll and
Ross") no longer serves investment advisory services to VANGUARD/MORGAN GROWTH
FUND, INC. (THE "FUND"). The assets previously allocated to Roll and Ross
(approximately 15% of the Fund's assets) will be managed on an at-cost basis
by Vanguard's Core Management Department until a replacement investment
adviser is selected in accordance with the Investment Company Act of 1940. The
Fund's Board of Directors may, without the approval of shareholders, provide
for the employment of a new adviser pursuant to the terms of a new advisory
agreement. Any such change will only be made upon not less than 30 days' prior
written notice to shareholders, which shall include detailed information
concerning the new adviser.

<PAGE>
VANGUARD SPECIALIZED PORTFOLIOS--SERVICE ECONOMY PORTFOLIO
VANGUARD/MORGAN GROWTH FUND

COMBINED PROXY STATEMENT AND PROSPECTUS

TABLE OF CONTENTS

PAGE
---

Cover Page..........................................................
Notice of Special Meeting of Shareholders...........................
Approval or Disapproval of the Proposed Reorganization..............
Summary.............................................................
Comparison of the Service Economy Portfolio and Morgan Growth
Fund................................................................
The Proposed Reorganization.....................................
Additional Information about the Proposed Reorganization............
Reasons for the Proposed Reorganization.........................
The Plan of Reorganization......................................
Expenses of the Reorganization..................................
Tax Consequences................................................
Shareholders' Rights............................................
Capitalization......................................................
Additional Information on the Service Economy Portfolio and Morgan
Growth Fund.........................................................
The Service Economy Portfolio...................................
Morgan Growth Fund..............................................
The Vanguard Group..............................................
Litigation......................................................
Special Information Concerning Morgan Growth Fund...................
Financial Highlights................................................
Financial Statements and Experts....................................
Information filed with the Securities and Exchange Commission.......
Vote Required.......................................................
Other Matters.......................................................
Agreement and Plan of Reorganization................................Exhibit I
Morgan Growth Fund Prospectus.......................................Exhibit II

<PAGE>

VANGUARD/MORGAN GROWTH FUND, INC.

REGISTRATION STATEMENT ON FORM N-14

PART B
STATEMENT OF ADDITIONAL INFORMATION

APRIL 14, 1994

This statement is not a prospectus, but should be read in conjunction with
the Combined Proxy Statement and Prospectus of Vanguard/Morgan Growth Fund,
Inc. and Vanguard Specialized Portfolios, Inc.--Service Economy Portfolio
("Service Economy Portfolio") dated April 14, 1994. Morgan Fund's Prospectus
(dated April 30, 1993) and Statement of Additional Information (dated April
30, 1993) and the 1993 Annual Report to Shareholders of Morgan Fund and the
1994 Annual Report to Shareholders of the Service Economy Portfolio are on
file with the Securities and Exchange Commission and are hereby incorporated
by reference. Each of the aforementioned documents may be obtained without
charge by writing to Vanguard Financial Center, 100 Vanguard Boulevard, (P.O.
Box 876), Valley Forge, Pa. 19482 or by calling 1-800-662-7447.

<PAGE>
VANGUARD/MORGAN GROWTH FUND, INC.
REGISTRATION STATEMENT ON FORM N-14
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION

Article TENTH of the Registrant's Amended and Restated Articles of
Incorporation provides as follows:

"TENTH: (a) The corporation shall indemnify its directors and officers to
the fullest extent allowed, and in the manner provided, by Maryland law,
including the advancing of expenses incurred in connection therewith. Such
indemnification shall be in addition to any other right or claim to which any
director or officer may otherwise be entitled. The corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or who, while a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether
or not the corporation would have had the power to indemnify such liability.

(b) Nothing in this Article protects or purports to protect, or may be
interpreted or construed to protect, any director or officer against any
liability to the corporation or its security holders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office.

(c) Each section or portion thereof of this Article shall be deemed
severable from the remainder, and the invalidity of any such section or
portion shall not affect the validity of the remainder of this Article."

ITEM 16. EXHIBITS

(1) Amended and Restated Articles of Incorporation of Registrant.*
(2) Amended and Restated By-Laws of Registrant.*
(3) Not applicable.
(4) Agreement and Plan of Reorganization dated March 1, 1994, filed as
part of the Combined Proxy Statement and Prospectus.**
(5) Specimen stock certificate of Registrant.*
(6) Investment Advisory Agreement.*
(7) Not applicable.
(8) Not applicable.
(9) Copy of Custodian Agreement with State Street Bank & Trust Company.*
(10) Not applicable.
(11) Not applicable.
(12) Opinion of Stradley, Ronon, Stevens & Young relating to Federal tax
matters.**
(13) Not applicable.
(14) Consent of Price Waterhouse.**
(15) Not applicable.
(16) Not applicable.
(17) Not applicable.
- -------
*Previously Filed.
**Filed Herewith.

ITEM 17. UNDERTAKINGS

(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of this Rule 145(c) of the Securities Act the
reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.

(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.

<PAGE>

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant hereby has duly caused this Post-Effective
Amendment to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Valley Forge and the
Commonwealth of Pennsylvania, on the 15th day of March, 1994.

VANGUARD/MORGAN GROWTH FUND, INC.

BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated:

BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman of the Board, Director and Chief Executive
Officer
March 15, 1994

BY: (Raymond J. Klapinsky)
John J. Brennan*, Director and President
March 15, 1994

BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
March 15, 1994

BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
March 15, 1994

BY: (Raymond J. Klapinsky)
Bruce K. MacLaury*, Director
March 15, 1994

BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director
March 15, 1994

BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
March 15, 1994

BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
March 15, 1994

BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal Financial Officer and
Accounting Officer
March 15, 1994

BY: Raymond J. Klapinsky
Raymond J. Klapinsky*, Secretary
March 15, 1994

*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.

<PAGE>

EXHIBIT 12

March 15, 1994

Board of Directors
Vanguard Specialized Portfolios, Inc.
100 Vanguard Boulevard
Malvern, PA 19355

Board of Directors
Vanguard/Morgan Growth Fund, Inc.
100 Vanguard Boulevard
Malvern, PA 19355

Re: Combination of Service Economy Portfolio of
Vanguard Specialized Portfolios, Inc. and
Vanguard/Morgan Growth Fund, Inc.

Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization ("Reorganization") of Service Economy
Portfolio ("Service Economy Portfolio"), a series of Vanguard Specialized
Portfolios, Inc. ("VSP"), whereby Service Economy Portfolio will transfer
substantially all of its assets to Vanguard/Morgan Growth Fund, Inc.
("Vanguard/Morgan Growth") in exchange solely for voting shares of Vanguard/
Morgan Growth, followed by the distribution of such shares to the stockholders
of Service Economy Portfolio, in liquidation, in exchange for their shares in
Service Economy Portfolio and the subsequent dissolution of Service Economy
Portfolio.
In rendering our opinion, we have reviewed and relied upon (a) the
Agreement and Plan of Reorganization entered into by VSP and Vanguard/Morgan
Growth, dated March 1, 1994 (the "Agreement and Plan of Reorganization"), (b)
the Notice of the Special Meeting, the Proxy Statement and the form of proxy
for the Special Meeting of Stockholders of Service Economy Portfolio called
for June 1, 1994, (c) the Prospectuses of Vanguard/Morgan Growth and Service
Economy Portfolio, (d) certain representations concerning the Reorganization
made to us by VSP and Vanguard/Morgan Growth in a letter dated March 14, 1994,
(the "Representation Letter"), (e) all other documents, financial and other
reports and corporate minutes which we deemed relevant or appropriate, and (f)
such statutes, regulations, rulings and decisions as we deemed material to the
rendition of this opinion. All terms used herein, unless otherwise defined,
are used as defined in the Agreement and Plan of Reorganization.
For purposes of this opinion, we have assumed that each of Vanguard/Morgan
Growth and Service Economy Portfolio satisfies and, following the
Reorganization, Vanguard/Morgan Growth will continue to satisfy the
requirements of subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and any prior or successor provision thereto for qualification
as a regulated investment company.
Under regulations to be prescribed by the Secretary of Treasury under
Section 1276(d) of the Code, certain transfers of market discount bonds will
be excepted from the requirement that accrued market discount be recognized on
disposition of a market discount bond under Section 1276(a) of the Code. Such
regulations are to provide, in part, that accrued market discount will not be
included in income if no gain is recognized under Section 361(a) of the Code
where a bond is transferred in an exchange qualifying as a tax-free
reorganization. As of the date hereof, the Secretary has not issued any
regulations under Section 1276 of the Code.
Based on the foregoing and provided the Reorganization is carried out in
accordance with the applicable laws of the State of Maryland, the Agreement
and Plan of Reorganization, and the Representation Letter, it is our opinion
that:

1. The acquisition by Vanguard/Morgan Growth of substantially all the
assets of the Service Economy Portfolio in exchange solely for Vanguard/
Morgan Growth shares, as provided in the Reorganization, will qualify as a
reorganization within the meaning of Section 368(a)(1)(C) of the Code, and
the Service Economy Portfolio and the Vanguard/Morgan Growth will each be
party to the Reorganization within the meaning of Section 368(b) of the
Code; for purposes of this opinion, "substantially all" means at least 70%
of the fair market value of the gross assets and at least 90% of the fair
market value of the net assets;

2. No gain or loss will be recognized by Service Economy Portfolio
upon the transfer of substantially all of its assets to Vanguard/Morgan
Growth in exchange solely for voting shares of Vanguard/Morgan Growth
(Code Section 361(a));

3. No gain or loss will be recognized by Vanguard/Morgan Growth upon
receipt of substantially all of the assets of Service Economy Portfolio in
exchange solely for voting shares of Vanguard/Morgan Growth (Code Section
1032(a));

4. The basis of the assets of Service Economy Portfolio received by
Vanguard/Morgan Growth will be the same as the basis of such assets to
Service Economy Portfolio immediately prior to the exchange (Code Section
362(b));

5. The holding period of the assets of Service Economy Portfolio
received by Vanguard/Morgan Growth will include the period during which
such assets were held by Service Economy Portfolio (Code Section 1223(2));

6. No gain or loss will be recognized to the shareholders of Service
Economy Portfolio upon the exchange of their shares in Service Economy
Portfolio for voting shares of Vanguard/Morgan Growth (including
fractional shares to which they may be entitled) (Code Section 354(a)(1));

7. The basis of Vanguard/Morgan Growth voting shares received by
Service Economy Portfolio shareholders (including fractional shares to
which they may be entitled) will be the same as the basis of the shares of
Service Economy Portfolio surrendered in exchange therefor (Code Section
358(a)(1));

8. The holding period of Vanguard/Morgan Growth voting shares received
by Service Economy Portfolio shareholders (including fractional shares to
which they may be entitled) will include the holding period of Service
Economy Portfolio shares surrendered in exchange therefor, provided that
Service Economy Portfolio shares were held as a capital asset in the hands
of Service Economy Portfolio shareholders on the date of the exchange
(Code Section 1223(1));

9. Pursuant to Section 381(a) of the Code and Treasury Regulation
Section 1.381-1(a), Vanguard/Morgan Growth will succeed to and take into
account as of the date of the proposed transfer (as defined in Treasury
Regulation (S) 1.381(b)-(1)(b)) the items of Service Economy Portfolio
described in Section 381(c) of the Code, including any "pre-change capital
loss" of Service Economy Portfolio within the meaning of Treasury
Regulation (S) 1.383-1(c)(2), all subject to the conditions and
limitations specified in Section 381(b) and (c), 382, 383, and 384 of the
Code.

10. Where a dissenting shareholder of Service Economy Portfolio
receives cash solely in exchange for his or her stock, such cash will be
trated as having been received by the shareholder as a distribution in
redemption of his or her stock subject to the provisions and limitations
of Section 302 of the Code.

Our opinion is based upon the Code, the applicable Treasury Regulations
promulgated thereunder, the present position of the Internal Revenue Service
as set forth in published revenue rulings and revenue procedures, present
administrative positions of the Internal Revenue Service, and existing
judicial decisions, all of which are subject to change either prospectively or
retroactively.

Our opinion is conditioned upon the performance by Service Economy
Portfolio and Vanguard/Morgan Growth of their undertakings in the
Representation Letter.

This opinion is being rendered to VSP and Vanguard/Morgan Growth and may
be relied upon only by Service Economy Portfolio and Vanguard/Morgan Growth
and the stockholders of each. We consent to the use of this opinion as an
exhibit to Vanguard/Morgan Growth's registration statement on Form N-14 filed
with the Securities and Exchange Commission in connection with the
Reorganization and to the reference to our firm name in such registration
statement.

Very truly yours,

STRADLEY, RONON, STEVENS & YOUNG

By: ------------------------------
a Partner

<PAGE>

EXHIBIT 14

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Combined Proxy
Statement and Prospectus and Statement of Additional Information, constituting
parts of this Registration Statement on Form N-14, of our report dated January
24, 1994, relating to the financial statements, including the financial
highlights, appearing in the December 31, 1993 Annual Report of Vanguard/
Morgan Growth Fund and of our report dated February 28, 1994, relating to the
financial statements, including the financial highlights, appearing in the
January 31, 1994 Annual Report of Vanguard Specialized Portfolios (comprised
of the Health Care, Service Economy, Technology, Energy, Gold & Precious
Metals and Utilities Income Portfolios). We also consent to the references to
us under the headings "Morgan Growth Fund Financial Highlights," "Service
Economy Portfolio Financial Highlights" and "Financial Statements and Experts"
in the Combined Proxy Statement and Prospectus.

PRICE WATERHOUSE

Philadelphia, PA
March 15, 1994