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(LOGO) A Member of The Vanguard Group
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PROSPECTUS--APRIL 27, 1994
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT--1-800-662-7447 (SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT--1-800-662-2739 (CREW)
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INVESTMENT Vanguard/Morgan Growth Fund, Inc. (the "Fund") is an open-end diversified
OBJECTIVE investment company that seeks to provide long-term growth of capital. The Fund
AND POLICIES invests primarily in common stocks. Dividend income is incidental to this
objective. There is no assurance that the Fund will achieve its stated
objective.
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OPENING AN To open a regular (non-retirement) account, please complete and return the
ACCOUNT Account Registration Form. If you need assistance in completing this Form,
please call our Investor Information Department. To open an Individual
Retirement Account (IRA), please use a Vanguard IRA Adoption Agreement. To
obtain a copy of this form, call 1-800-662-7447, Monday through Friday, from
8:00 a.m. to 8:00 p.m. (Eastern time). The minimum initial investment is $3,000
($500 for Individual Retirement Accounts and Uniform Gifts/Transfers 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.
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ABOUT THIS This Prospectus is designed to set forth concisely the information you should
PROSPECTUS 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 27, 1994 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.
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TABLE OF CONTENTS
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Page Page Page
Fund Expenses ................... 2 Investment Limitations ........... 8 SHAREHOLDER GUIDE
Financial Highlights ............ 2 Management of the Fund ........... 8 Opening an Account and
Yield and Total Return .......... 3 Investment Advisers .............. 9 Purchasing Shares ............... 16
FUND INFORMATION Performance Record ............... 12 When Your Account Will
Investment Objective ............ 4 Dividends, Capital Gains Be Credited ..................... 19
Investment Policies ............. 4 and Taxes ........................ 13 Selling Your Shares ............. 19
Investment Risks ................ 4 The Share Price of the Fund ...... 14 Exchanging Your Shares .......... 21
Who Should Invest ............... 5 General Information .............. 15 Important Information About
Implementation of Policies ...... 6 Telephone Transactions ......... 22
Transferring Registration ....... 23
Other Vanguard Services ......... 23
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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.
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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 1993 fiscal year.
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SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases............................... None
Sales Load Imposed on Reinvested Dividends.................... None
Redemption Fees............................................... None
Exchange Fees................................................. None
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ANNUAL FUND OPERATING EXPENSES
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Management & Administrative Expenses.......................... 0.29%
Investment Advisory Fees...................................... 0.15
12b-1 Fees.................................................... None
Other Expenses
Distribution Costs................................. 0.02%
Miscellaneous Expenses............................. 0.03
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Total Other Expenses.......................................... 0.05
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TOTAL OPERATING EXPENSES............................. 0.49%
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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.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$5 $16 $27 $62
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.
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FINANCIAL The following financial highlights for a share outstanding throughout
HIGHLIGHTS each period, insofar as they relate to each of the five years in the
period ended December 31, 1993, have 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. For a more complete discussion of
the Fund's performance, please see the Fund's 1993 Annual Report to
Shareholders which may be obtained without charge by writing to the
Fund or by calling our Investor Information Department at
1-800-662-7447.
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YEAR ENDED DECEMBER 31,
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1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
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NET ASSET VALUE,
BEGINNING OF YEAR..... $12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82 $11.45 $13.84
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment
Income.............. .18 .18 .29 .32 .28 .25 .23 .21 .23 .25
Net Realized and
Unrealized
Gain (Loss) on
Investments......... .71 .97 2.66 (.50) 2.04 1.85 .31 .78 2.99 (.94)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM
INVESTMENT
OPERATIONS........ .89 1.15 2.95 (.18) 2.32 2.10 .54 .99 3.22 (.69)
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DISTRIBUTIONS
Dividends from Net
Investment Income... (.18) (.18) (.29) (.34) (.28) (.24) (.20) (.43) (.25) (.31)
Distributions from
Realized Capital
Gains............... (1.35) (.52) (.86) (.80) (.59) (.98) (2.45) (2.88) (.60) (1.39)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
DISTRIBUTIONS..... (1.53) (.70) (1.15) (1.14) (.87) (1.22) (2.65) (3.31) (.85) (1.70)
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NET ASSET VALUE, END OF YEAR... $12.01 $12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82 $11.45
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TOTAL RETURN............ 7.32% 9.54% 29.33% (1.51)% 22.66% 22.34% 5.02% 7.83% 30.29% (6.06)%
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)............ $1,135 $1,116 $957 $697 $733 $622 $538 $594 $665 $468
Ratio of Expenses to
Average
Net Assets............ .49% .48% .46% .55% .51% .55% .46% .54% .60% .68%
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% 2.51%
Portfolio Turnover
Rate.................. 72% 64% 52% 73% 27% 32% 43% 31% 42% 38%
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YIELD AND From time-to-time the Fund may advertise its yield and total return.
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.
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INVESTMENT The Fund is an open-end diversified investment company. The objective
OBJECTIVE of the Fund is to provide long-term growth of capital by investing
primarily in common stocks. Dividend income is incidental to this
objective. There is no assurance that the Fund will achieve its stated
objective.
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INVESTMENT The Fund invests primarily in the equity securities of growth
POLICIES companies. Under normal circumstances, at least 65% of the Fund's
THE FUND INVESTS assets will be invested in such securities. The Fund is managed without
PRIMARILY IN regard to tax ramifications. The Fund will generally invest in a
"GROWTH STOCKS" 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 independent investment advisers, each of which
independently chooses common stock investments for the Fund. Wellington
Management Company, which is currently responsible for approximately
40% of the Fund's 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 Husic Capital
Management, which are responsible for approximately 33% and 13%,
respectively, of the Fund's 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.
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INVESTMENT As a mutual fund investing primarily in common stocks, the Fund is
RISKS subject to market risk -- i.e., the possibility that common stock
prices will decline over short or even extended periods. The U.S. stock
THE FUND IS SUBJECT market tends to be cyclical, with periods when stock prices generally
TO STOCK MARKET RISK rise and periods when prices generally decline.
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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 1993, as measured by the Standard &
Poor's 500 Composite Stock Price Index:
U.S. STOCK MARKET RETURNS (1926-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
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Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.3 +10.3 +10.6 +10.6
As shown, from 1926 to 1993, common stocks have provided an annual
total return (capital appreciation plus dividend income), on average,
of +12.3%. 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.
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WHO SHOULD The Fund is designed for investors who have the perspective, patience
INVEST and financial ability to assume above-average interim investment risk
INVESTORS SEEKING in pursuit of long-term capital growth. Since the Fund will focus on
LONG-TERM GROWTH 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.
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
market movements. Investors who engage in excessive account activity
generate additional costs which are borne by all of the Fund's
shareholders. In order to minimize such costs the Fund has adopted the
following policies. The Fund reserves the right to reject any purchase
request (including exchange purchases from other Vanguard portfolios)
that is reasonably deemed to be disruptive to efficient portfolio
management, either because of the timing of the investment or previous
excessive
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trading by the investor. Additionally, the Fund has adopted exchange
privilege limitations as described in the section "Exchange Privilege
Limitations." Finally, the Fund reserves the right to suspend the
offering of its shares.
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.
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IMPLEMENTATION The Fund follows a number of distinctive investment practices in an
OF POLICIES effort to achieve its investment objective.
A PORTION OF THE Two of the Fund's investment advisers, Franklin Portfolio Associates
FUND'S ASSETS ARE Trust ("FPA") and Husic Capital Management ("Husic"), use quantitative
MANAGED USING investment techniques in managing their respective portions of the
QUANTITATIVE Fund's common stock investments. For the portfolio of securities they
TECHNIQUES manage, FPA and Husic independently seek to track and, if possible,
outperform the investment returns of the Growth Fund Stock Index.
Currently, FPA and Husic are responsible for approximately 33% and 13%,
respectively, of the Fund's 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 Husic), 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 Although it normally seeks to remain substantially fully invested in
IN SHORT-TERM FIXED equity securities, the Fund may invest temporarily in certain
INCOME SECURITIES 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 The Fund may utilize stock futures contracts and options to a limited
FUTURES CONTRACTS extent. Specifically, the Fund may enter into futures contracts
AND OPTIONS provided that not more than 5% of its assets are required as a futures
contract deposit. In addition, the
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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 The primary risks associated with the use of futures contracts and
OPTIONS POSE CERTAIN options are: (i) imperfect correlation between the change in market
RISKS value of the stocks held by the Fund and the prices of futures
contracts and options; and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts
whose behavior is expected to resemble that of the Fund's underlying
securities. The risk that the Fund will be unable to close out a
futures position will be minimized by entering into such transactions
on a national exchange with an active and liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the
extremely high degree of leverage involved in futures pricing. As a
result, a relatively small price movement in a futures contract may
result in immediate and substantial loss (or gain) to the investor.
When investing in futures contracts, the Fund will segregate cash or
cash equivalents in the amount of the underlying obligation.
Futures contracts and options may be used for several reasons: to
maintain cash reserves while simulating full investment, 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. While futures contracts and
options can be used as leveraged investments, the Fund may not use
futures contracts or options transactions to leverage its net assets.
THE FUND MAY LEND The Fund may lend its investment securities on a short-term or
ITS SECURITIES long-term basis 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 in the
section "Investment Limitations," for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise
require the untimely disposition of securities.
PORTFOLIO TURNOVER IS Although it generally seeks to invest for the long term, the Fund
NOT EXPECTED TO retains the right to sell securities irrespective of how long they have
EXCEED 100% been held. It is anticipated that the annual portfolio turnover of the
Fund will not exceed 100%. A turnover rate of 100% would occur, for
example, if all of the securities of the Fund were replaced within one
year.
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INVESTMENT The Fund has adopted certain limitations on its investment practices.
LIMITATIONS Specifically, the Fund will not:
THE FUND HAS ADOPTED
CERTAIN FUNDAMENTAL (a) with respect to 75% of the value of its total assets, invest more
LIMITATIONS 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.
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MANAGEMENT The Fund is a member of The Vanguard Group of Investment Companies, a
OF THE FUND family of 32 investment companies with 78 distinct mutual fund
portfolios and total assets in excess of $120 billion. Through their
VANGUARD ADMINISTERS jointly owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the
AND DISTRIBUTES THE Fund and the other funds in the Group obtain at cost virtually all of
FUND 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 1993, the average expense ratio
(annual costs including advisory fees divided by total net assets) for
the Vanguard funds amounted to approximately .30% compared to an
average of 1.02% 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.
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INVESTMENT The Fund currently employs three investment advisers: Wellington
ADVISERS Management Company ("WMC"), 75 State Street, Boston, MA 02109; Franklin
THE FUND EMPLOYS Portfolio Associates Trust ("FPA"), One Post Office Square, Boston, MA
THREE INDEPENDENT 02109; and Husic Capital Management ("Husic"), 585 Skippack Pike, Blue
INVESTMENT ADVISERS 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
Husic 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 40% of the Fund's investments; FPA
and Husic are responsible for 33% and 13%, respectively. (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 Husic 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 WMC is a professional investment advisory firm which globally provides
MANAGEMENT services to investment companies, institutions, and individuals. Among
COMPANY (WMC) the clients of WMC are 12 of the 32 investment companies of The
Vanguard Group. As of December 31, 1993, WMC held discretionary
management authority with respect to approximately $82.8 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 22 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 22 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:
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NET ASSETS RATE
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First $50 million 0.325%
Next $100 million 0.225%
Over $150 million 0.150%
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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") 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.
. . .FRANKLIN PORTFOLIO FPA is a professional investment advisory firm which specializes in the
ASSOCIATES (FPA) 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, 1993, FPA provided investment
advisory services with respect to approximately $5.12 billion of client
assets, including $529.9 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 develop-
ment 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:
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS RATE
------------------ -------
<S> <C>
First $100 million 0.250%
Next $200 million 0.200%
Over $300 million 0.150%
</TABLE>
<TABLE>
<S> <C>
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.
</TABLE>
10
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<S> <C>
. . .AND HUSIC CAPITAL Vanguard/Morgan Growth Fund also employs Husic Capital Management
MANAGEMENT (HUSIC) ("Husic"), 555 California Street, Suite 2900, San Francisco, California
94104 as an investment adviser for approximately 13% of its
investments. Husic is a professional investment advisory firm which
specializes in the management of common stock portfolios through the
use of quantitative investment models.
For the services provided by Husic under the investment advisory
agreement the Fund will pay Husic a basic 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 net assets
of the Husic Portfolio for the quarter:
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS RATE
------------------ ------
<S> <C>
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%
</TABLE>
<TABLE>
<S> <C>
Effective with the quarter ending September 30, 1994, the basic fee
paid to Husic, as provided above, may be increased or decreased by
applying an incentive/penalty fee based on the investment performance
of the Husic Portfolio relative to the investment record of the Growth
Fund Stock Index ("Growth Index"). Under the incentive/penalty fee
schedule, the basic fee payable to Husic may be increased or decreased
by as much as 75% of the basic fee depending on the investment
performance of the equity investment managed by Husic.
Under rules of the Securities and Exchange Commission, the
incentive/penalty fee structure will not be fully operable until the
quarter ending September 30, 1996, and, until that date, will be
calculated according to certain transition rules. See the Statement of
Additional Information for a detailed description of the incen-
tive/penalty fee schedule for Husic and the applicable transition
rules.
For the fiscal year ended December 31, 1993, the aggregate investment
advisory fees paid by Vanguard/Morgan Growth Fund represented an
effective annual rate of .18 of 1% of average net assets, before a net
decrease of .03 of 1% based on performance. The investment advisory
fees paid by the Fund for this period to WMC, FPA and Husic represented
an effective annual rate of .17, .23 and .37 of 1%, respectively, of
the average net assets managed by WMC, FPA and Husic. The Fund also
paid an investment advisory fee to Roll and Ross Asset Management
Corporation ("R&R"), 585 Skippack Pike, Blue Bell, Pa 19422, for the
period January 1, 1993 to June 30, 1993 when R&R resigned as investment
adviser to the Fund. The investment advisory fees paid to R&R
represented an effective annual rate of .39 of 1% of the average assets
managed by R&R for this period.
VANGUARD MANAGES Vanguard's Core Management Group provides investment advisory services
A PORTION OF THE on an at-cost basis with respect to a portion of the Fund's assets
FUND'S ASSETS ON (currently approximately 9%). The Core Management Group also provides
AN AT-COST BASIS investment advisory services to several Vanguard Funds and to several
indexed separate accounts. Total assets under management by the Core
Management Group were approxi-
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
mately $16.4 billion as of December 31, 1993. The portion of the Fund
allocated to the Core Management Group is managed using computerized,
quantitative techniques based on a value index constructed to
approximate the aggregate fundamental characteristics of a typical
broadly diversified growth fund such as Vanguard/Morgan Growth Fund.
For further information concerning the index, please refer to the
Statement of Additional Information. The Core Management Group is
supervised by the Officers of the Fund.
WMC, FPA, Husic and Vanguard's Core Management Group are authorized 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, Husic and Vanguard's Core Management
Group to pay higher commissions in recognition of brokerage services
felt necessary for the achievement of better 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.
The Fund's Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new investment
adviser pursuant to the terms of a new advisory agreement either as a
replacement for an existing adviser or as an additional adviser; (b) a
change in the terms of an advisory agreement; and (c) the continued
employment of an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in control of
the adviser. Any such change will only be made upon not less than 30
days prior written notice to shareholders of the Fund which shall
include substantially the information concerning the adviser that would
have normally been included in a proxy statement.
- -------------------------------------------------------------------------------------------------
PERFORMANCE The table on page 13 provides investment results for the Fund for
RECORD 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 table does 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
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
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>
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN FOR
VANGUARD/MORGAN GROWTH FUND
-------------------------------------------
FISCAL PERIODS VANGUARD/MORGAN S&P 500 CONSUMER
ENDED 12/31/93 GROWTH FUND INDEX PRICE INDEX
-------------- --------------- ------- -----------
<S> <C> <C> <C>
1 Year + 7.3% +10.1% +2.7%
5 Years +12.9 +14.5 +3.9
10 Years +12.0 +14.9 +3.7
Lifetime* +11.2 +10.5 +5.8
*December 31, 1968 to December 31, 1993.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C>
DIVIDENDS, The Fund expects to pay dividends annually from ordinary income. Net
CAPITAL GAINS capital gains distributions, if any, will also be made annually. The
AND TAXES Fund is managed without regard to tax ramifications.
THE FUND PAYS
DIVIDENDS AND ANY Dividend and capital gains distributions may be automatically
CAPITAL GAINS ANNUALLY reinvested or received in cash. See "Choosing a Distribution Option"
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 continue 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
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 distri-
butions 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.
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
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 A sale of shares of the Fund is a taxable event, and may result in a
LOSS MAY BE REALIZED capital gain or loss. A capital gain or loss may be realized from an
UPON EXCHANGE OR ordinary redemption of shares or an exchange of shares between two
REDEMPTION 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 SHARE PRICE The Fund's share price or "net asset value" per share is determined by
OF THE FUND 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 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 latest quoted 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.
</TABLE>
14
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<TABLE>
<S> <C>
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 The Fund is a Maryland corporation. The Articles of Incorporation
INFORMATION permit the Directors to issue 150,000,000 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.
- -------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
SHAREHOLDER GUIDE
OPENING AN You may open a regular (non-retirement) account, either by mail or
ACCOUNT AND wire. Simply complete and return an Account Registration Form and any
PURCHASING required legal documentation, indicating the amount you wish to invest.
SHARES Your purchase must be equal to or greater than the $3,000 minimum
initial investment requirement ($500 for Uniform Gifts/Transfers to
Minors Act accounts). You must open a new Individual Retirement Account
by mail (IRAs may not be opened by wire) using a Vanguard IRA Adoption
Agreement. Your purchase must be equal to or greater than the $500
minimum initial investment requirement, but no more than $2,000 if you
are making a regular IRA contribution. Rollover contributions are
generally limited to the amount withdrawn within the past 60 days from
an IRA or other qualified Retirement Plan. If you need assistance with
the forms 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.
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 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.
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 Subsequent investments to regular accounts may be made by mail ($100
INVESTMENTS minimum), wire ($1,000 minimum), exchange from another Vanguard Fund
account ($100 minimum), or Vanguard Fund Express. Subsequent
investments to Individual Retirement Accounts may be made by mail ($100
minimum) or exchange from another Vanguard Fund account. In some
instances, contributions may be made by wire or Vanguard Fund Express.
Please call us for more information on these options.
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</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of Additional investments should
Complete and sign the your initial investment on the include the Invest-by-Mail
enclosed Account registration form, make your remittance form attached to
Registration Form check payable to The Vanguard your Fund confirmation
Group-26, and mail to: statements. Please make your
check payable to The Vanguard
VANGUARD FINANCIAL CENTER Group-26, write your account
P.O. BOX 2600 number on your check, and,
VALLEY FORGE, PA 19482 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 should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the addresses
send to: WAYNE, PA 19087 indicated for new accounts. Do
not send registered or express
mail to the post office box
address.
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
PURCHASING BY WIRE CORESTATES BANK, N.A.
Money should be ABA 031000011
wired to: CORESTATES NO. 0101 9897
ATTN VANGUARD
BEFORE WIRING VANGUARD/MORGAN GROWTH FUND
Please contact ACCOUNT NUMBER
Client Services ACCOUNT REGISTRATION
(1-800-662-2739)
</TABLE>
<TABLE>
<S> <C>
To assure proper receipt, please be sure your bank includes the name of
the Fund, the account number Vanguard has assigned to you and the eight
digit CoreStates number. 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.
-----------------------------------------------------------------------
PURCHASING BY You may open an account or purchase additional shares by making an
EXCHANGE (from a exchange from another Vanguard Fund account. However, the Fund reserves
Vanguard account) the right to refuse any exchange purchase request. Call our Client
Services Department (1-800-662-2739) for assistance. The new account
will have the same registration as the existing account.
-----------------------------------------------------------------------
PURCHASING BY The Fund Express Special Purchase option lets you move money from your
FUND EXPRESS bank account to your Vanguard account at your request. Or if you choose
the Automatic Investment option, money will be moved from your bank
Special Purchase and account to your Vanguard account on the schedule (monthly, bimonthly
Automatic Investment [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
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
send you a confirmation of your Fund Express enrollment; please wait
three weeks before using the service.
- -------------------------------------------------------------------------------------------------
CHOOSING A You must select one of three distribution options:
DISTRIBUTION 1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and capital gains
OPTION 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).
In addition, an option to invest your cash dividends and/or capital
gains distributions in another Vanguard Fund account is available.
Please call our Client Services Department (1-800-662-2739) for
information. You may also elect Vanguard Dividend Express which allows
you to transfer your cash dividends and/or capital gains distributions
automatically to your bank account. Please see "Other Vanguard
Services" for more information.
- -------------------------------------------------------------------------------------------------
TAX CAUTION Under Federal tax laws, the Fund is required to distribute net capital
gains and dividend income to Fund shareholders. These distributions are
INVESTORS SHOULD ASK made to all shareholders who own Fund shares as of the distribution's
ABOUT THE TIMING record date, regardless of how long the shares have been owned.
OF CAPITAL GAINS AND Purchasing shares just prior to the record date could have a
DIVIDEND DISTRIBUTIONS significant impact on your tax liability for the year. For example, if
BEFORE INVESTING you purchase shares immediately prior to the record date of a sizable
capital gain or income dividend distribution, you will be assessed
taxes on the amount of the capital gain and/or dividend distribution
later paid even though you owned the Fund shares for just a short
period of time. (Taxes are due on the distributions even if the
dividend or gain is reinvested in additional Fund shares.) While the
total value of your investment will be the same after the
distribution -- the amount of the distribution will offset the drop in
the net asset value of the shares -- you should be aware of the tax
implications the timing of your purchase may have.
Prospective investors should, therefore, inquire about potential
distributions before investing. The Fund's annual dividend and capital
gains distributions normally occur in December. For additional
information on distributions and taxes, see the section titled
"Dividends, Capital Gains, and Taxes."
- -------------------------------------------------------------------------------------------------
</TABLE>
18
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<S> <C>
IMPORTANT The easiest way to establish optional Vanguard services on your account
INFORMATION is to select the options you desire when you complete your Account
ESTABLISHING OPTIONAL Registration Form. If you wish to add options later, you may need to
SERVICES 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 If you purchase shares in Vanguard Funds through a registered
PURCHASES broker-dealer or investment adviser, the broker-dealer or adviser may
charge a service fee.
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 Your trade date is the date on which your account is credited. If your
ACCOUNT WILL purchase is made by check, Federal Funds wire or exchange, and is
BE CREDITED 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. The name of the U.S. correspondent bank must
be printed on the face of the check.
- -------------------------------------------------------------------------------------------------
SELLING YOUR You may withdraw any portion of the funds in your account by redeeming
SHARES 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, 455 Devon Park 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.
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</TABLE>
19
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<S> <C>
DEFINITION OF GOOD ORDER means that the request includes the following:
GOOD ORDER
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.
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).
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SELLING BY To sell shares by telephone, you or your pre-authorized representative
TELEPHONE may call our Client Services Department at 1-800-662-2739. The proceeds
will be sent to you by mail. Please see "Important Information About
Telephone Transactions."
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SELLING BY FUND If you select the Fund Express Automatic Withdrawal option, money will
EXPRESS be automatically moved from your Vanguard Fund account to your bank
Automatic Withdrawal account according to the schedule you have selected. The Special
& Special Redemption Redemption option lets you move money from your Vanguard account to
your bank account on your request. You may elect Fund Express on the
Account Registration Form or call our Investor Information Department
(1-800-662-7447) for a Fund Express application.
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SELLING BY You may sell shares by making an exchange into another Vanguard Fund
EXCHANGE account. Please see "Exchanging Your Shares" for details.
-----------------------------------------------------------------------
IMPORTANT REDEMPTION Shares purchased by check may not be redeemed until payment for the
INFORMATION purchase is collected, which may take up to ten calendar days. Your
money is invested during the holding period.
-----------------------------------------------------------------------
DELIVERY OF Redemption requests received by telephone prior to the close of the New
REDEMPTION York Stock Exchange (generally 4:00 p.m. Eastern time) are processed on
PROCEEDS 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.
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20
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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.
-----------------------------------------------------------------------
VANGUARD'S AVERAGE If you make a redemption from a qualifying account, Vanguard will send
COST STATEMENT you an Average Cost Statement which provides you with the tax basis of
the shares you redeemed. Please see "Other Vanguard Services" for
additional information.
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MINIMUM ACCOUNT Due to the relatively high cost of maintaining smaller accounts, the
BALANCE Fund reserves the right to redeem shares in any account that is below
REQUIREMENT 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/Transfers to Minors Act accounts.
- -------------------------------------------------------------------------------------------------
EXCHANGING YOUR Should your investment goals change, you may exchange your shares of
SHARES Vanguard/Morgan Growth Fund for those of other available Vanguard
Funds.
EXCHANGING BY When exchanging shares by telephone, please have ready the Fund name,
TELEPHONE account number, Social Security Number or Taxpayer Identification
Call Client Services Number listed on the account, and account address. Requests for
(1-800-662-2739) telephone exchanges received prior to the close of trading on 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, 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, 455 Devon Park Drive,
Wayne, PA 19087.)
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</TABLE>
21
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<TABLE>
<S> <C>
IMPORTANT EXCHANGE Before you make an exchange, you should consider the following:
INFORMATION
- 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 Taxpayer
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 Vanguard/Windsor Fund.
- The redemption price of shares redeemed by exchange is the net asset
value next determined after Vanguard has received all required
documentation in Good Order.
- When opening a new account by exchange, you must meet the minimum
investment requirement of the new Fund.
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 The Fund's exchange privilege is not intended to afford shareholders a
PRIVILEGE way to speculate on short-term movements in the market. Accordingly, in
LIMITATIONS 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 generally will not be deemed excessive if limited to
TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT LEAST 30 DAYS APART) from the
Fund during any twelve month period. Notwithstanding these limitations,
the Fund reserves the right to reject any purchase request (including
exchange purchases from other Vanguard portfolios) that is reasonably
deemed to be disruptive to efficient portfolio management.
- -------------------------------------------------------------------------------------------------
IMPORTANT The ability to initiate redemptions (except wire redemptions) and
INFORMATION exchanges by telephone is automatically established on your account
ABOUT TELEPHONE unless you request in writing that telephone transactions on your
TRANSACTIONS account not be permitted.
To protect your account from losses resulting from unauthorized or
fraudulent telephone instructions, Vanguard adheres to the following
security procedures:
1. SECURITY CHECK. To request a transaction by telephone, the caller
must know (i) the name of the Portfolio; (ii) the 10-digit account
number; (iii) the exact name in which the account is registered; and
(iv) the Social Security or Taxpayer Identification number listed on
the account.
</TABLE>
22
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<TABLE>
<S> <C>
2. PAYMENT POLICY. The proceeds of any telephone redemption by mail
will be made payable to the registered shareowner and mailed to the
address of record, only.
Neither the Fund nor Vanguard will be responsible for the authenticity
of transaction instructions received by telephone, provided that
reasonable security procedures have been followed. Vanguard believes
that the security procedures described above are reasonable and that if
such procedures are followed, you will bear the risk of any losses
resulting from unauthorized or fraudulent telephone transactions on
your account. If Vanguard fails to follow reasonable security
procedures, it may be liable for any losses resulting from unauthorized
or fraudulent telephone transactions on your account.
- -------------------------------------------------------------------------------------------------
TRANSFERRING You may transfer the registration of any of your Fund shares to another
REGISTRATION person by completing a transfer form and sending it to: VANGUARD
FINANCIAL CENTER, P.O. BOX 1110, VALLEY FORGE, PA 19482, ATTENTION:
TRANSFER DEPARTMENT. The request must be in Good Order. To obtain a
transfer form and complete instructions, please call our Client
Services Department (1-800-662-2739).
- -------------------------------------------------------------------------------------------------
OTHER VANGUARD For more information about any of these services, please call our
SERVICES Investor Information Department at 1-800-662-7447.
STATEMENTS AND Vanguard will send you a confirmation statement each time you initiate
REPORTS 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.
Vanguard's Average Cost Statement provides you with the average cost of
shares redeemed from your account using the average cost single
category method. This service is available for most taxable accounts
opened since January 1, 1986. In general, investors who redeemed shares
from a qualifying Vanguard account may expect to receive their Average
Cost Statement in February of the following year. Please call our
Client Services Department (1-800-662-2739) for information.
Financial reports on the Fund will be mailed to you semi-annually,
according to the Fund's fiscal year-end.
VANGUARD DIRECT With Vanguard's Direct Deposit Service, most U.S. Government checks
DEPOSIT SERVICE (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 Vanguard's Automatic Exchange Service allows you to move money
EXCHANGE SERVICE 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.
</TABLE>
23
<PAGE> 24
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<S> <C>
VANGUARD FUND Vanguard's Fund Express allows you to transfer money between your Fund
EXPRESS 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 our Investor Information Department (1-800-662-7447) for a Fund
Express application.
The minimum amount that can be transferred by telephone is $100.
However, if you have established one of the automatic options, the
minimum amount is $50. The maximum amount that can be transferred using
any of the options is $100,000.
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 DIVIDEND Vanguard's Dividend Express allows you to transfer your dividends
EXPRESS and/or capital gains distributions automatically from your Fund
account, one business day after the Fund's payable date, to your
account at a bank, savings and loan association, or a credit union that
is a member of the Automated Clearing House (ACH) network. You may
elect this service on the Account Registration Form or call our
Investor Information Department (1-800-662-7447) for a Vanguard
Dividend Express application.
VANGUARD Vanguard's Tele-Account is a convenient, automated service that
TELE-ACCOUNT provides share price, price change and yield quotations on Vanguard
Funds through any TouchToneTM telephone. This 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 brochure offering detailed
operating instructions is available from our Investor Information
Department (1-800-662-7447).
- -------------------------------------------------------------------------------------------------
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24
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<PAGE> 27
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(LOGO) (LOGO)
---------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600 P R O S P E C T U S
Valley Forge, PA 19482 APRIL 27, 1994
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON-BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
PO26 (LOGO)
</TABLE>
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<PAGE> 28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(LOGO) A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS--APRIL 27, 1994
- --------------------------------------------------------------------------------
FUND INFORMATION: PARTICIPANT SERVICES--1-800-523-1188
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT Vanguard/Morgan Growth Fund, Inc. (the "Fund") is an open-end diversified
OBJECTIVE investment company that seeks to provide long-term growth of capital. The
AND POLICIES 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.
- ------------------------------------------------------------------------------------------------------
IMPORTANT NOTE This Prospectus is intended exclusively for participants in
employer-sponsored retirement or savings plans, such as tax-qualified
pension and profit-sharing plans and 401(k) thrift plans, as well as 403(b)
custodial accounts for non-profit educational and charitable organizations.
Another version of this Prospectus, containing information on how to open a
personal investment account with the Fund, is available for individual
investors. To obtain a copy of that version of the Prospectus, please call
1-800-662-7447.
- ------------------------------------------------------------------------------------------------------
OPENING AN The Fund is an investment option under a retirement or savings program
ACCOUNT sponsored by your employer. The administrator of your retirement plan or
your employee benefits office can provide you with detailed information on
how to participate in your plan and how to elect the Fund as an investment
option.
If you have any questions about the Fund, please contact Participant
Services at 1-800-523-1188. If you have any questions about your plan
account, contact your plan administrator or the organization that provides
recordkeeping services for your plan.
- ------------------------------------------------------------------------------------------------------
ABOUT THIS This Prospectus is designed to set forth concisely the information you
PROSPECTUS 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 27, 1994 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
<TABLE>
<S> <C> <C>
Page Page Page
Fund Expenses ................... 2 Who Should Invest .............. 5 Dividends, Capital Gains
Financial Highlights ............ 2 Implementation of Policies ..... 6 and Taxes ....................... 13
Yield and Total Return .......... 3 Investment Limitations ......... 7 The Share Price of the Fund ...... 13
Investment Objective ............ 3 Management of the Fund ......... 8 General Information .............. 14
Investment Policies ............. 4 Investment Advisers ............ 8 SERVICE GUIDE
Investment Risks ................ 4 Performance Record ............. 12 Participating in Your Plan ....... 15
</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> 29
<TABLE>
<S> <C>
FUND EXPENSES The following table illustrates all expenses and fees that as a
shareholder of the Fund would incur. The expenses and fees set forth in
the table are for the 1993 fiscal year.
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
----------------------------------------------------------------------
Sales Load Imposed on Purchases............................... None
Sales Load Imposed on Reinvested Dividends.................... None
Redemption Fees............................................... None
Exchange Fees................................................. None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
<S> <C>
----------------------------------------------------------------------
Management & Administrative Expenses.......................... 0.29%
Investment Advisory Fees...................................... 0.15
12b-1 Fees.................................................... None
Other Expenses
Distribution Costs................................. 0.02%
Miscellaneous Expenses............................. 0.03
-----
Total Other Expenses.......................................... 0.05
-----
TOTAL OPERATING EXPENSES............................. 0.49%
-----
-----
The purpose of this table is to assist you in understanding the various
costs and expenses that an investor would bear directly or indirectly
as a shareholder 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.
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C>
$5 $16 $27 $62
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.
- -------------------------------------------------------------------------------------------------
FINANCIAL The following financial highlights, for a share outstanding throughout
HIGHLIGHTS each period, insofar as they relate to each of the five years in the
period ended December 31, 1993, have 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. For a more complete discussion of
the Fund's performance, please see the Fund's 1993 Annual Report to
Shareholders which may be obtained without charge by writing to the
Fund or by calling Participant Services at 1-800-523-1188.
</TABLE>
2
<PAGE> 30
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
<S> <C> <C> <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 $13.84
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment
Income.............. .18 .18 .29 .32 .28 .25 .23 .21 .23 .25
Net Realized and
Unrealized
Gain (Loss) on
Investments......... .71 .97 2.66 (.50) 2.04 1.85 .31 .78 2.99 (.94)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM
INVESTMENT
OPERATIONS........ .89 1.15 2.95 (.18) 2.32 2.10 .54 .99 3.22 (.69)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income... (.18) (.18) (.29) (.34) (.28) (.24) (.20) (.43) (.25) (.31)
Distributions from
Realized Capital
Gains............... (1.35) (.52) (.86) (.80) (.59) (.98) (2.45) (2.88) (.60) (1.39)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
DISTRIBUTIONS..... (1.53) (.70) (1.15) (1.14) (.87) (1.22) (2.65) (3.31) (.85) (1.70)
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR.................. $12.01 $12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82 $11.45
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............ 7.32% 9.54% 29.33% (1.51)% 22.66% 22.34% 5.02% 7.83% 30.29% (6.06)%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(Millions)............ $1,135 $1,116 $957 $697 $733 $622 $538 $594 $665 $468
Ratio of Expenses to
Average
Net Assets............ .49% .48% .46% .55% .51% .55% .46% .54% .60% .68%
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% 2.51%
Portfolio Turnover
Rate.................. 72% 64% 52% 73% 27% 32% 43% 31% 42% 38%
- -------------------------------------------------------------------------------------------------
YIELD AND From time-to-time the Fund may advertise its yield and total return.
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 The Fund is an open-end diversified investment company. The objective
OBJECTIVE of the Fund is to provide long-term growth of capital by investing
primarily in common stocks. Dividend income is incidental to this
objective. There is no assurance that the Fund will achieve its stated
objective.
- -------------------------------------------------------------------------------------------------
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3
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<S> <C>
INVESTMENT The Fund invests primarily in the equity securities of growth
POLICIES companies. Under normal circumstances, at least 65% of the Fund's
THE FUND INVESTS assets will be invested in such securities. The Fund is managed without
PRIMARILY IN regard to tax ramifications. The Fund will generally invest in a
"GROWTH STOCKS" 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 independent investment advisers, each of which
independently chooses common stock investments for the Fund. Wellington
Management Company, which is currently responsible for approximately
40% of the Fund's 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 Husic Capital
Management, which are responsible for approximately 33% and 13%,
respectively, of the Fund's 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 As a mutual fund investing primarily in common stocks, the Fund is
RISKS subject to market risk -- i.e., the possibility that common stock
THE FUND IS SUBJECT prices will decline over short or even extended periods. The U.S. stock
TO STOCK MARKET RISK 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
</TABLE>
4
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<TABLE>
<S> <C>
1926 to 1993, as measured by the Standard & Poor's 500 Composite Stock
Price Index:
</TABLE>
<TABLE>
<CAPTION>
U.S. STOCK MARKET RETURNS (1926-1993)
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 +12.3 +10.3 +10.6 +10.6
As shown, from 1926 to 1993, common stocks have provided an annual
total return (capital appreciation plus dividend income), on average,
of +12.3%. 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 The Fund is designed for investors who have the perspective, patience
INVEST and financial ability to assume above-average interim investment risk
INVESTORS SEEKING in pursuit of long-term capital growth. Because of the risks associated
LONG-TERM GROWTH 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. Investors
who engage in excessive account activity generate additional costs
which are borne by all of the Fund's shareholders. In order to minimize
such costs the Fund has adopted the following policies. The Fund
reserves the right to reject any purchase request (including exchange
purchases from other Vanguard portfolios) that is reasonably deemed to
be disruptive to efficient portfolio management, either because of the
timing of the investment or previous excessive trading by the investor.
Additionally, the Fund reserves the right to suspend the offering of
its shares. 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.
</TABLE>
5
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<TABLE>
<S> <C>
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 The Fund follows a number of distinctive investment practices in an
OF POLICIES effort to achieve its investment objective.
A PORTION OF THE Two of the Fund's investment advisers, Franklin Portfolio Associates
FUND'S ASSETS ARE Trust ("FPA") and Husic Capital Management ("Husic"), use quantitative
MANAGED USING investment techniques in managing their respective portions of the
QUANTITATIVE Fund's common stock investments. For the portfolio of securities they
TECHNIQUES manage, FPA and Husic independently seek to track and, if possible,
outperform the investment returns of the Growth Fund Stock Index.
Currently, FPA and Husic are responsible for approximately 33% and 13%,
respectively, of the Fund's 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 Husic), 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 Although it normally seeks to remain substantially fully invested in
IN SHORT-TERM FIXED equity securities, the Fund may invest temporarily in certain
INCOME SECURITIES 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 The Fund may utilize stock futures contracts and options to a limited
FUTURES CONTRACTS extent. Specifically, the Fund may enter into futures contracts
AND OPTIONS 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.
</TABLE>
6
<PAGE> 34
<TABLE>
<S> <C>
FUTURES CONTRACTS AND The primary risks associated with the use of futures contracts and
OPTIONS POSE CERTAIN options are: (i) imperfect correlation between the change in market
RISKS value of the stocks held by the Fund and the prices of futures
contracts and options; and (ii) possible lack of a liquid secondary
market for a futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those contracts
whose behavior is expected to resemble that of the Fund's underlying
securities. The risk that the Fund will be unable to close out a
futures position will be minimized by entering into such transactions
on a national exchange with an active and liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and the
extremely high degree of leverage involved in futures pricing. As a
result, a relatively small price movement in a futures contract may
result in immediate and substantial loss (or gain) to the investor.
When investing in futures contracts, the Fund will segregate cash or
cash equivalents in the amount of the underlying obligation.
Futures contracts and options may be used for several reasons: to
maintain cash reserves while simulating full investment, 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. While futures contracts and
options can be used as leveraged investments, the Fund may not use
futures contracts or options transactions to leverage its net assets.
THE FUND MAY LEND The Fund may lend its investment securities on a short-term or
ITS SECURITIES long-term basis 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 in the
section "Investment Limitations," for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise
require the untimely disposition of securities.
PORTFOLIO TURNOVER Although it generally seeks to invest for the long term, the Fund
IS NOT EXPECTED TO retains the right to sell securities irrespective of how long they have
EXCEED 100% been held. It is anticipated that the annual portfolio turnover of the
Fund will not exceed 100%. A turnover rate of 100% would occur, for
example, if all of the securities of the Fund were replaced within one
year.
- -------------------------------------------------------------------------------------------------
INVESTMENT The Fund has adopted certain limitations on its investment practices.
LIMITATIONS Specifically, the Fund will not:
THE FUND HAS ADOPTED (a) with respect to 75% of the value of its total assets, invest more
CERTAIN FUNDAMENTAL than 5% of its assets in the securities of any single company;
LIMITATIONS (b) with respect to 75% of the value of its total assets, purchase more
than 10% of the voting securities of any issuer;
</TABLE>
7
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<TABLE>
<S> <C>
(c) invest more than 25% of its assets in any one industry; and
(d) borrow money, except from banks (or through reverse 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 The Fund is a member of The Vanguard Group of Investment Companies, a
OF THE FUND family of 32 investment companies with 78 distinct mutual fund
VANGUARD ADMINISTERS portfolios and total assets in excess of $120 billion. Through their
AND DISTRIBUTES jointly owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the
THE FUND 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 1993, the average expense ratio
(annual costs including advisory fees divided by total net assets) for
the Vanguard funds amounted to approximately .30% compared to an
average of 1.02% 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).
- -------------------------------------------------------------------------------------------------
INVESTMENT The Fund currently employs three investment advisers: Wellington
ADVISERS Management Company ("WMC"), 75 State Street, Boston, MA 02109; Franklin
THE FUND EMPLOYS Portfolio Associates Trust ("FPA"), One Post Office Square, Boston, MA
THREE INDEPENDENT 02109; and Husic Capital Management ("Husic"), 585 Skippack Pike, Blue
INVESTMENT ADVISERS 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
Husic were added as advisers to the Fund on that date.
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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 40% of the Fund's investments; FPA
and Husic are responsible for 33% and 13%, respectively. (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 Husic 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 WMC is a professional investment advisory firm which globally provides
MANAGEMENT services to investment companies, institutions, and individuals. Among
COMPANY (WMC) the clients of WMC are 12 of the 32 investment companies of The
Vanguard Group. As of December 31, 1993, WMC held discretionary
management authority with respect to approximately $82.8 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 22 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 22 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:
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS RATE
------------------ -------
<S> <C>
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.
</TABLE>
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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") 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.
. . . FRANKLIN FPA is a professional investment advisory firm which specializes in the
PORTFOLIO management of common stock portfolios through the use of quantitative
ASSOCIATES (FPA) 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, 1993, FPA provided investment
advisory services with respect to approximately $5.12 billion of client
assets, including $529.9 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 develop-
ment 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:
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS RATE
------------------ -------
<S> <C>
First $100 million 0.250%
Next $200 million 0.200%
Over $300 million 0.150%
</TABLE>
<TABLE>
<S> <C>
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.
. . . AND HUSIC CAPITAL Vanguard/Morgan Growth Fund also employs Husic Capital Management
MANAGEMENT (HUSIC) ("Husic"), 555 California Street, Suite 2900, San Francisco, California
94104 as an investment adviser for approximately 13% of its
investments. Husic is a professional investment advisory firm which
specializes in the management of common stock portfolios through the
use of quantitative investment models.
For the services provided by Husic under the investment advisory
agreement the Fund will pay Husic a basic fee at the end of each fiscal
quarter, calculated by
</TABLE>
10
<PAGE> 38
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<S> <C>
applying a quarterly rate, based on the following annual percentage
rates, to the average month-end net assets of the Husic Portfolio for
the quarter:
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS RATE
------------------ ------
<S> <C>
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%
</TABLE>
<TABLE>
<S> <C>
Effective with the quarter ending September 30, 1994, the basic fee
paid to Husic, as provided above, may be increased or decreased by
applying an incentive/penalty fee based on the investment performance
of the Husic Portfolio relative to the investment record of the Growth
Fund Stock Index ("Growth Index"). Under the incentive/penalty fee
schedule, the basic fee payable to Husic may be increased or decreased
by as much as 75% of the basic fee depending on the investment
performance of the equity investment managed by Husic.
Under rules of the Securities and Exchange Commission, the
incentive/penalty fee structure will not be fully operable until the
quarter ending September 30, 1996, 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 Husic and the applicable transition rules.
For the fiscal year ended December 31, 1993, the aggregate investment
advisory fees paid by Vanguard/Morgan Growth Fund represented an
effective annual rate of .18 of 1% of average net assets, before a net
decrease of .03 of 1% based on performance. The investment advisory
fees paid by the Fund for this period to WMC, FPA and Husic represented
an effective annual rate of .17%, .23% and .37% of 1%, respectively, of
the average net assets managed by WMC, FPA and Husic. The Fund also
paid an investment advisory fee to Roll and Ross Asset Management
Corporation ("R&R"), 585 Skippack Pike, Blue Bell, Pa 19422, for the
period January 1, 1993 to June 30, 1993 when R&R resigned as investment
adviser to the Fund. The investment advisory fees paid to R&R
represented an effective annual rate of .39 of 1% of the average assets
managed by R&R for this period.
VANGUARD MANAGES Vanguard's Core Management Group provides investment advisory services
A PORTION OF THE on an at-cost basis with respect to a portion of the Fund's assets
FUND'S ASSETS ON (currently approximately 9%). The Core Management Group also provides
AN AT-COST BASIS investment advisory services to several Vanguard Funds and to several
indexed separate accounts. Total assets under management by the Core
Management Group were approximately $16.4 billion as of December 31,
1993. The portion of the Fund allocated to the Core Management Group is
managed using computerized, quantitative techniques based on a value
index constructed to approximate the aggregate fundamental
characteristics of a typical broadly diversified growth fund such as
Vanguard/Morgan Growth Fund. For further information concerning the
index, please refer to the Statement of Additional Information. The
Core Management Group is supervised by the Officers of the Fund.
</TABLE>
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<S> <C>
WMC, FPA, Husic and Vanguard's Core Management Group are authorized 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, Husic and Vanguard's Core Management
Group to pay higher commissions in recognition of brokerage services
felt necessary for the achievement of better 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.
The Fund's Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new investment
adviser pursuant to the terms of a new advisory agreement either as a
replacement for an existing adviser or as an additional adviser; (b) a
change in the terms of an advisory agreement; and (c) the continued
employment of an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in control of
the adviser. Any such change will only be made upon not less than 30
days prior written notice to shareholders of the Fund which shall
include substantially the information concerning the adviser that would
have normally been included in a proxy statement.
- -------------------------------------------------------------------------------------------------
PERFORMANCE The table on page 13 provides investment results for the Fund for
RECORD 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 table does 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>
12
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<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN FOR
VANGUARD/MORGAN GROWTH FUND
FISCAL PERIODS -------------------------------------------
ENDED VANGUARD/MORGAN S&P 500 CONSUMER
12/31/93 GROWTH FUND INDEX PRICE INDEX
-------------- --------------- ------- -----------
<S> <C> <C> <C>
1 Year + 7.3% +10.1% +2.7%
5 Years +12.9 +14.5 +3.9
10 Years +12.0 +14.9 +3.7
Lifetime* +11.2 +10.5 +5.8
</TABLE>
*December 31, 1968 to December 31, 1993.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C>
DIVIDENDS, The Fund expects to pay dividends annually from ordinary income. Net
CAPITAL GAINS capital gains distributions, if any, will also be made annually.
AND TAXES Dividend and capital gains distributions may be automatically
THE FUND PAYS reinvested in additional shares. The Fund is managed without regard to
DIVIDENDS AND ANY tax ramifications. The Fund intends to continue to qualify for taxation
CAPITAL GAINS as a "regulated investment company" under the Internal Revenue Code so
ANNUALLY that it will not be subject to federal income tax to the extent its
income is distributed to shareholders.
If you utilize the Fund as an investment option in an
employer-sponsored retirement savings plan, dividend and capital gains
distributions from the Fund ordinarily will not be subject to current
taxation, but will accumulate on a tax-deferred basis. In general,
employer-sponsored retirement and savings plans are governed by complex
tax rules. If you participate in such a plan, consult your plan
administrator, your plan's Summary Plan Description, or a professional
tax adviser regarding the tax consequences of your participation in the
plan and of any plan contributions or withdrawals.
- -------------------------------------------------------------------------------------------------
THE SHARE PRICE The Fund's share price or "net asset value" per share is determined by
OF THE FUND 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 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 latest quoted 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.
- -------------------------------------------------------------------------------------------------
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13
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<TABLE>
<S> <C>
GENERAL The Fund is a Maryland corporation. The Articles of Incorporation
INFORMATION permit the Directors to issue 150,000,000 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.
- -------------------------------------------------------------------------------------------------
</TABLE>
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<S> <C>
SERVICE GUIDE
PARTICIPATING IN The Fund is available as an investment option in your retirement or
YOUR PLAN savings plan. The administrator of your plan or your employee benefits
office can provide you with detailed information on how to participate
in your plan and how to elect the Fund as an investment option.
If you have any questions about the Fund, including the Fund's
investment objective, policies, risk characteristics or historical
performance, please contact Participant Services (1-800-523-1188).
If you have questions about your account, contact your plan
administrator or the organization which provides recordkeeping services
for your plan.
-----------------------------------------------------------------------
INVESTMENT OPTIONS You may be permitted to elect different investment options, alter the
AND ALLOCATIONS amounts contributed to your plan, or change how contributions are
allocated among your investment options in accordance with your plan's
specific provisions. See your plan administrator or employee benefits
office for more details.
-----------------------------------------------------------------------
TRANSACTIONS IN Contributions, exchanges or redemptions of the Fund's shares are
FUND SHARES effective when received in "good order" by Vanguard. "Good order" means
that complete information on the contribution, exchange or redemption
and the appropriate monies have been received by Vanguard.
-----------------------------------------------------------------------
MAKING EXCHANGES Your plan may allow you to exchange monies from one investment option
to another. However, the Fund reserves the right to refuse any exchange
purchase request. Check with your plan administrator for details on the
rules governing exchanges in your plan. Certain investment options,
particularly company stock or investment contracts, may be subject to
unique restrictions.
Before making an exchange, you should consider the following:
- If you are making an exchange to another Vanguard Fund option, please
read the Fund's prospectus. Contact Participant Services
(1-800-523-1188) for a copy.
- Exchanges are accepted by Vanguard only as permitted by your plan.
Your plan administrator can explain how frequently exchanges are
allowed.
- -------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(LOGO) (LOGO)
----------------------------- I N S T I T U T I O N A L
THE VANGUARD GROUP P R O S P E C T U S
OF INVESTMENT
COMPANIES APRIL 27, 1994
Vanguard Financial Center
P.O. Box 2900
Valley Forge, PA 19482
INSTITUTIONAL PARTICIPANT
SERVICES DEPARTMENT:
1-800-523-1188
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
(LOGO)
</TABLE>
IO26
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