VANGUARD MORGAN GROWTH FUND INC, 485BPOS, 1994-04-25

VANGUARD MORGAN GROWTH FUND INC
485BPOS, 1994-04-25

Previous: MERRILL LYNCH & CO INC, 424B3, 1994-04-25

Next: NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/, 424B3, 1994-04-25

<PAGE> 1

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 2-29601) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. /X/
POST-EFFECTIVE AMENDMENT NO. 44 /X/
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. -- /X/

VANGUARD/MORGAN GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

P.O. BOX 2600, MALVERN, PA 19355-0741

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER (610) 669-1000

RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482

IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:

It is hereby requested that this amendment become effective on April 27, 1994,

pursuant to paragraph (b) of Rule 485.

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.

REGISTRANT ELECTS TO REGISTER AN INDEFINITE NUMBER OF SHARES PURSUANT TO
REGULATION 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. REGISTRANT FILED ITS
RULE 24F-2 NOTICE FOR THE PERIOD ENDED DECEMBER 31, 1993 ON FEBRUARY 24, 1994.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

VANGUARD/MORGAN INCOME FUND, INC.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM N-1A
TEM NUMBER LOCATION IN PROSPECTUS
<S> <C> <C>
Item 1. Cover Page.................................... Cover Page
Item 2. Synopsis...................................... Highlights
Item 3. Condensed Financial Information............... Financial Highlights
Item 4. General Description of Registrant............. Investment Objective; Investment
Limitations; Investment Policies;
General Information
Item 5. Management of the Fund........................ Directors and Officers; Management of
the Fund; Investment Adviser
Item 6. Capital Stock and Other Securities............ Opening an Account and Purchasing
Shares; Selling Your Shares; The
Fund's Share Price; Dividends,
Capital Gains, and Taxes; General
Information
Item 7. Purchase of Securities Being Offered.......... Cover Page; Opening an Account and
Purchasing Shares
Item 8. Redemption or Repurchase...................... Selling Your Shares
Item 9. Pending Legal Proceedings..................... Not Applicable
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<S> <C> <C>
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Cover Page
Item 12. General Information and History............... Investment Objective and Policies;
General Information
Item 13. Investment Objective and Policies............. Investment Objective and Policies;
Investment Limitations
Item 14. Management of the Fund........................ Management of the Fund; Investment
Management
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund; General
Information
Item 16. Investment Advisory and Other Services........ Management of the Fund; Investment
Management
Item 17. Brokerage Allocation.......................... Not Applicable
Item 18. Capital Stock and Other Securities............ General Information; Financial
Statements
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption of
Shares
Item 20. Tax Status.................................... Appendix
Item 21. Underwriters.................................. Not Applicable
Item 22. Calculations of Yield Quotations of Money
Market Fund................................... Not Applicable
Item 23. Financial Statements.......................... Financial Statements
</TABLE>

<PAGE> 3

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

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

(LOGO) A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROSPECTUS--APRIL 27, 1994

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

NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT--1-800-662-7447 (SHIP)
- --------------------------------------------------------------------------------

SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT--1-800-662-2739 (CREW)
- --------------------------------------------------------------------------------

<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 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.
- -----------------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------------
</TABLE>

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
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 ............... 13 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 ................ 5 The Share Price of the Fund ...... 15 Exchanging Your Shares ........ 21
Who Should Invest ............... 5 General Information .............. 15 Important Information About
Implementation of Policies ...... 6 Telephone Transactions ....... 23
Transferring Registration ..... 23
Other Vanguard Services ....... 23
</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> 4

<TABLE>
<S> <C>
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.
</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> <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%
-----
-----
</TABLE>

<TABLE>
<S> <C>
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.
</TABLE>

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C>
$5 $16 $27 $62
</TABLE>

<TABLE>
<S> <C>
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 our Investor Information Department at
1-800-662-7447.
</TABLE>

2
<PAGE> 5

<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>
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%
</TABLE>

<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
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.

3
<PAGE> 6

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

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

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

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

4
<PAGE> 7

<TABLE>
<S> <C>
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
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.

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:

</TABLE>

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
</TABLE>

<TABLE>
<S> <C>
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
in pursuit of long-term capital growth. Because of the risks associated
INVESTORS SEEKING with common stock investments, the Fund is intended to be a long-term
LONG-TERM GROWTH investment vehicle and is not designed to provide investors with a
means of speculating on short-term stock market movements. Since the
Fund will focus on common stocks that offer below-average levels of
current income, greater-than-average investment risk -- for a common
stock fund -- is likely. The Fund's share price is expected to be
volatile.
</TABLE>

5
<PAGE> 8
<TABLE>
<S> <C>
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 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.
- -------------------------------------------------------------------------------------------------
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 each responsible for approximately
one-sixth of the Fund's equity investments.

The Growth Stock Fund Index (the "Index") represents the composite
common stock portfolio of the 50 largest growth mutual funds, as
calculated by Morningstar, Inc. ("Morningstar"), an independent company
which provides mutual fund statistics. The 50 mutual funds included in
that Index are determined annually (as of December 31) by Morningstar.
For the two quantitative investment managers (FPA and 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
</TABLE>

6
<PAGE> 9
<TABLE>
<S> <C>
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.

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 remaining fully invested, to facilitate
trading, to reduce transaction costs, or to seek higher investment
returns when a futures contract is priced more attractively than the
underlying equity security or index. The Fund may not use futures
contracts or options transactions to leverage its net assets.

THE FUND MAY LEND 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.
</TABLE>

7
<PAGE> 10

<TABLE>
<S> <C>
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.
- -------------------------------------------------------------------------------------------------
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;
(c) invest more than 25% of its assets in any one industry; and
(d) borrow money, except from banks (or through repurchase agreements)
for temporary or emergency (not leveraging) purposes, and then not in
an amount exceeding 10% of the value of the Fund's net assets at
the time the borrowing is made. Whenever borrowing exceeds 5% of
the value of the Fund's net assets, the Fund will not make any
additional investments.

These investment limitations are considered at the time investment
securities are purchased. The limitations described here and in the
Statement of Additional Information may be changed only with the
approval of a majority of the Fund's shareholders.
- -------------------------------------------------------------------------------------------------
MANAGEMENT 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.
</TABLE>

8
<PAGE> 11

Vanguard provides distribution and marketing services to the funds. The
funds are available on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees). However, each fund bears its share of the
Group's distribution costs.
- -------------------------------------------------------------------------------------------------
INVESTMENT The Fund currently employs three investment advisers: Wellington
ADVISERS Management Company ("WMC"), 75 State Street, Boston, MA 02109; Franklin
Portfolio Associates Trust ("FPA"), One Post Office Square, Boston, MA
THE FUND EMPLOYS 02109; and Husic Capital Management ("Husic"), 585 Skippack Pike, Blue
THREE INDEPENDENT Bell, PA 19422. Prior to April 24, 1990, WMC was the sole investment
INVESTMENT ADVISERS 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 two-thirds of the equity
investments of the Fund; FPA and Husic are each responsible for
one-sixth. (The cash portion of the Fund's net assets is managed by The
Vanguard Group, Inc. at no charge to the Fund.)

The Fund has entered into investment advisory agreements with WMC, FPA,
and 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
</TABLE>

9
<PAGE> 12

<TABLE>
<S> <C>
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%
</TABLE>

<TABLE>
<S> <C>
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
</TABLE>

10
<PAGE> 13
<TABLE>
<S> <C>
application of FPA's quantitative techniques to those assets. Mr.
Nagorniak and the other investment principals of FPA are responsible
for the ongoing development and enhancement of FPA's quantitative
investment techniques.

The Fund pays FPA a basic advisory fee calculated by applying varying
percentage rates to the average net assets of the Fund managed by FPA.
The basic fee schedule is as follows:
</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 one-sixth of its
equity investments. Husic is a professional investment advisory firm
which specializes in the management of common stock portfolios through
the use of quantitative investment models. The basic advisory fee may
be increased or decreased by as much as 75% of the basic fee depending
on the investment performance of the equity investments managed by
Husic.

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.
</TABLE>

11
<PAGE> 14
<TABLE>
<S> <C>
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.

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

The Fund has authorized WMC, FPA and Husic 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.
- -------------------------------------------------------------------------------------------------
</TABLE>

12
<PAGE> 15

<TABLE>
<S> <C>
PERFORMANCE The table below provides investment results for the Fund for several
RECORD 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>

<TABLE>
<CAPTION>
FISCAL PERIODS AVERAGE ANNUAL RETURN FOR
ENDED 12/31/93 VANGUARD/MORGAN GROWTH FUND
-------------- -----------------------------------------------------
VANGUARD/MORGAN S&P 500 CONSUMER
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.

THE FUND PAYS Dividend and capital gains distributions may be automatically
DIVIDENDS AND ANY reinvested or received in cash. See "Choosing a Distribution Option"
CAPITAL GAINS ANNUALLY 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
</TABLE>

13
<PAGE> 16
<TABLE>
<S> <C>
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.

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.
</TABLE>

14
<PAGE> 17

<TABLE>
<S> <C>
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.

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> 18

<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.
-----------------------------------------------------------------------
</TABLE>

16
<PAGE> 19

<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.
ABA 031000011
Money should be CORESTATES NO. 0101 9897
wired to: ATTN VANGUARD
VANGUARD/MORGAN GROWTH FUND
BEFORE WIRING ACCOUNT NUMBER
ACCOUNT REGISTRATION
Please contact
Client Services To assure proper receipt, please be sure your bank includes the name of
(1-800-662-2739) 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
</TABLE>

17
<PAGE> 20

<TABLE>
<S> <C>
provide the appropriate information on the Account Registration Form.
We will send you a confirmation of your Fund Express enrollment; please
wait three weeks before using the service.
- -------------------------------------------------------------------------------------------------
CHOOSING A You must select one of three distribution options:
DISTRIBUTION
OPTION 1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and capital gains
distributions will be reinvested in additional Fund shares. This option
will be selected for you automatically unless you specify one of the
other options.

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

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

You may change your option by calling our Client Services Department
(1-800-662-2739).

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
<PAGE> 21
<TABLE>
<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
Registration Form. If you wish to add options later, you may need to
ESTABLISHING OPTIONAL provide Vanguard with additional information and a signature guarantee.
SERVICES 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.
-----------------------------------------------------------------------
</TABLE>

19
<PAGE> 22

<TABLE>
<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).
-----------------------------------------------------------------------
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."
-----------------------------------------------------------------------
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
account according to the schedule you have selected. The Special
Automatic Withdrawal Redemption option lets you move money from your Vanguard account to
& Special Redemption 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.
-----------------------------------------------------------------------
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.
</TABLE>

20
<PAGE> 23

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

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

If the Board of Directors determines that it would be detrimental to
the best interests of the Fund's remaining shareholders to make payment
in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in kind of readily marketable securities.
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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
Number listed on the account, and account address. Requests for
Call Client Services telephone exchanges received prior to the close of trading on the New
(1-800-662-2739) 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.
-----------------------------------------------------------------------
</TABLE>

21
<PAGE> 24
<TABLE>
<S> <C>
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.)
-----------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------------------------
</TABLE>

22
<PAGE> 25
<TABLE>
<S> <C>
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.

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.
</TABLE>

23
<PAGE> 26

<TABLE>
<S> <C>
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.

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).
- -------------------------------------------------------------------------------------------------
</TABLE>

24
<PAGE> 27

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE> 28

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE> 29

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

<TABLE>
[LOGO]
<S> <C> <C>
[LOGO]
--------------------------- P R O S P E C T U S
THE VANGUARD GROUP APRIL 27, 1994
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482

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>

<PAGE> 30

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

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

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 ........... 8 The Share Price of the Fund ...... 14
Investment Objective ............ 4 Management of the Fund ........... 8 General Information .............. 14
Investment Policies ............. 4 Investment Advisers .............. 9 SERVICE GUIDE
Investment Risks ................ 5 Performance Record ............... 13 Participating in Your
Plan ............................ 15
</TABLE>

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

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 31

<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>
<S> <C>
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
</TABLE>

<TABLE>
<S> <C>
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> 32

<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>
- --------------------------------------------------------------------------------------------------------------------------
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%
</TABLE>

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.
- -------------------------------------------------------------------------------------------------
</TABLE>

3
<PAGE> 33

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

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.
- -------------------------------------------------------------------------------------------------
</TABLE>

4
<PAGE> 34

<TABLE>
<S> <C>
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.

<TABLE>
<CAPTION>
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
</TABLE>

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
</TABLE>

5
<PAGE> 35
<TABLE>
<S> <C>
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.

6
<PAGE> 36
<TABLE>
<S> <C>
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.

Futures contracts and options may be used for several reasons: to
maintain cash reserves while remaining fully invested, to facilitate
trading, to reduce transaction costs, or to seek higher investment
returns when a futures contract is priced more attractively than the
underlying equity security or index. The Fund may not use futures
contracts or options transactions to leverage its net assets.

7
<PAGE> 37
<TABLE>
<S> <C>
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:

(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
portfolios and total assets in excess of $120 billion. Through their
VANGUARD ADMINISTERS jointly owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the
AND DISTRIBUTES Fund and the other funds in the Group obtain at cost virtually all of
THE 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).

8
<PAGE> 38

<TABLE>
<S> <C>
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
Portfolio Associates Trust ("FPA"), One Post Office Square, Boston, MA
THE FUND EMPLOYS 02109; and Husic Capital Management ("Husic"), 585 Skippack Pike, Blue
THREE INDEPENDENT Bell, PA 19422. Prior to April 24, 1990, WMC was the sole investment
INVESTMENT ADVISERS 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.

. . . 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.

9
<PAGE> 39

<TABLE>
<S> <C>
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%
</TABLE>

<TABLE>
<S> <C>
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.

. . . 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.

</TABLE>

10
<PAGE> 40
<TABLE>
<S> <C>
the other investment principals of FPA are responsible
for the ongoing development and enhancement of FPA's quantitative
investment techniques.

The Fund pays FPA a basic advisory fee calculated by applying varying
percentage rates to the average net assets of the Fund managed by FPA.
The basic fee schedule is as follows:
</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 one-sixth of its
equity investments. Husic is a professional investment advisory firm
which specializes in the management of common stock portfolios through
the use of quantitative investment models. The basic advisory fee may
be increased or decreased by as much as 75% of the basic fee depending
on the investment performance of the equity investments managed by
Husic.

<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>

11
<PAGE> 41

<TABLE>
<S> <C>
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.

12
<PAGE> 42

<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
*December 31, 1968 to December 31, 1993.
</TABLE>

<TABLE>
<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
reinvested in additional shares. The Fund is managed without regard to
THE FUND PAYS tax ramifications. The Fund intends to continue to qualify for taxation
DIVIDENDS AND ANY as a "regulated investment company" under the Internal Revenue Code so
CAPITAL GAINS that it will not be subject to federal income tax to the extent its
ANNUALLY 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.
- -------------------------------------------------------------------------------------------------
</TABLE>

13
<PAGE> 43

<TABLE>
<S> <C>
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.

14
<PAGE> 44

<TABLE>
<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>

15
<PAGE> 45

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE> 46

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE> 47

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant hereby certifies that it meets all
the requirements for effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933 and, has duly caused this Post-Effective Amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the Town of Valley Forge and the Commonwealth of
Pennsylvania, on the 28th day of February, 1994.

VANGUARD/WELLINGTON FUND, INC.

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

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

BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman of the Board, Director,
and Chief Executive Officer
February 28, 1994

BY: (Raymond J. Klapinsky)
John J. Brennan*, Director and President
February 28, 1994

BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
February 28, 1994

BY: (Raymond J. Klapinsky)
Bruce K. MacLaury*, Director
February 28, 1994

BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
February 28, 1994

BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
February 28, 1994

BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
February 28, 1994

BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer
February 28, 1994

*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
<PAGE> 48

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

<TABLE>
<S> <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
</TABLE>

IO26 (LOGO)
- --------------------------------------------------------------------------------
<PAGE> 49

PART B

VANGUARD/MORGAN INCOME FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

APRIL 27, 1994

This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated April 27, 1994). To obtain the Prospectus
please call the Investor Information Department:

1-800-662-7447

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................................... 1
Investment Limitations..................................................................... 4
Purchase of Shares......................................................................... 5
Redemption of Shares....................................................................... 5
Management of the Fund..................................................................... 7
Investment Advisory Services............................................................... 9
Portfolio Transactions..................................................................... 15
Yield and Total Return..................................................................... 16
Performance Measures....................................................................... 16
Financial Statements....................................................................... 19
</TABLE>

INVESTMENT OBJECTIVE AND POLICIES

PORTFOLIO TURNOVER While the rate of portfolio turnover is not a limiting
factor when management deems changes appropriate, it is anticipated that the
Fund's annual portfolio turnover rate will not normally exceed 100%. A rate of
turnover of 100% could occur, for example, if all of the securities in the
Fund's portfolio are replaced within a period of one year. The Fund's portfolio
turnover rate for each of its last ten fiscal years is set forth under
"Financial Highlights," in the Fund's Prospectus.

REPURCHASE AGREEMENTS The Fund may invest in repurchase agreements with
commercial banks, brokers or dealers either for defensive purposes due to market
conditions or to generate income from its excess cash balances. A repurchase
agreement is an agreement under which the Fund acquires a money market
instrument (generally a security issued by the U.S. Government or an agency
thereof, a banker's acceptance or a certificate of deposit) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed upon price
and date (normally, the next business day). A repurchase agreement may be
considered a loan collateralized by securities. The resale price reflects an
agreed upon interest rate effective for the period the instrument is held by the
Fund and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Fund's custodian bank until
repurchased. In addition, the Fund's Board of Directors will monitor the Fund's
repurchase agreement transactions generally and will establish guidelines and
standards for review by the investment adviser of the creditworthiness of any
bank, broker or dealer party to a repurchase agreement with the Fund. No more
than an aggregate of 15% of the Fund's assets, at the time of investment, will
be invested in repurchase agreements having maturities longer than seven days
and securities subject to legal or contractual restrictions on resale, or for
which there are no readily available market quotations.

The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying instrument at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that the Fund may not be able to
substantiate its

1
<PAGE> 50

interest in the underlying security and may be deemed an unsecured creditor of
the other party to the agreement. While the Fund's management acknowledges these
risks, it is expected that they can be controlled through careful monitoring
procedures.

LENDING OF SECURITIES The Fund may lend its securities on a short-term or
long-term basis to qualified institutional investors who need to borrow
securities in order to complete certain transactions, such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its portfolio securities, the Fund attempts to increase
its net investment income through the receipt of interest on the loan. Any gain
or loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund. The Fund may lend its
portfolio securities to qualified brokers, dealers, banks or other financial
institutions, so long as the terms, the structure and the aggregate amount of
such loans are not inconsistent with the Investment Company Act of 1940, or the
Rules and Regulations or interpretations of the Securities and Exchange
Commission (the "Commission") thereunder, which currently require that (a) the
borrower pledge and maintain with the Fund collateral consisting of cash, an
irrevocable letter of credit issued by a domestic U.S. bank, or securities
issued or guaranteed by the U.S. Government having a value at all times not less
than 100% of the value of the securities loaned, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e. the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the Fund at any time and (d) the Fund receive reasonable interest
on the loan (which may include the Fund's investing any cash collateral in
interest bearing short-term investments), any distribution on the loaned
securities and any increase in their market value. Loan arrangements made by the
Fund will comply with all other applicable regulatory requirements, including
the rules of the New York Stock Exchange, which rules presently require the
borrower, after notice, to redeliver the securities within the normal settlement
time of five business days. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Fund's Board of Directors.

At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's directors. In addition, voting rights may
pass with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.

FUTURES CONTRACTS The Fund may enter into futures contracts, options, and
options on futures contracts for the purpose of remaining fully invested and
reducing transactions costs. Futures contracts provide for the future sale by
one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. Futures contracts
which are standardized as to maturity date and underlying financial instrument
are traded on national futures exchanges. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"), a U.S. Government Agency.

Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.

Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin which
may range upward from less than 5% of the value of the contract being traded.

After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.

2
<PAGE> 51

Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Fund intends to use futures contracts
only for bonafide hedging purposes.

Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bonafide hedging transactions. The Fund will
only sell futures contracts to protect securities it owns against price declines
or purchase contracts to protect against an increase in the price of securities
it intends to purchase. As evidence of this hedging interest, the Fund expects
that approximately 75% of its futures contract purchases will be "completed,"
that is, equivalent amounts of related securities will have been purchased or
are being purchased by the Fund upon sale of open futures contracts.

Although techniques other than the sale and purchase of futures contracts
could be used to control the Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Fund will incur commission expenses in both opening and closing out futures
positions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS The Fund will not enter into
futures contract transactions to the extent that, immediately thereafter, the
sum of its initial margin deposits on open contracts exceeds 5% of the market
value of the Fund's total assets. In addition, the Fund will not enter into
futures contracts to the extent that its outstanding obligations to purchase
securities under these contracts would exceed 20% of the Fund's total assets.

RISK FACTORS IN FUTURES TRANSACTIONS Positions in futures contracts may be
closed out only on an Exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge it.

The Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The principal interest rate futures exchanges in the United States are the Board
of Trade of the City of Chicago and the Chicago Mercantile Exchange.

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 (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. However, because the futures
strategies of the Fund are engaged in only for hedging purposes, the Adviser
does not believe that the Fund is subject to the risks of loss frequently
associated with futures transactions. The Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline.

Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option. Additionally, investments in futures contracts and options involve the
risk that the investment advisers will incorrectly predict stock market and
interest rate trends.

3
<PAGE> 52

Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.

FEDERAL TAX TREATMENT OF FUTURES CONTRACTS Except for transactions the
Fund has identified as hedging transactions, the Fund is required for federal
income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. In most cases, any gain
or loss recognized with respect to a futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss, without
regard to the holding period of the contract. Furthermore, sales of futures
contracts which are intended to hedge against a change in the value of
securities held by the Fund may affect the holding period of such securities
and, consequently, the nature of the gain or loss on such securities upon
disposition.

In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Fund's business of investing in securities. In addition, gains realized on the
sale or other disposition of securities held for less than three months must be
limited to less than 30% of the Fund's annual gross income. It is anticipated
that any net gain realized from the closing out of futures contracts will be
considered gain from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing excessive gains
on securities held less than three months, the Fund may be required to defer the
closing out of futures contracts beyond the time when it would otherwise be
advantageous to do so. It is anticipated that unrealized gains on futures
contracts, which have been open for less than three months as of the end of the
Fund's fiscal year and which are recognized for tax purposes, will not be
considered gains on sales of securities held less than three months for the
purpose of the 30% test.

The Fund will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the Fund's other investments and shareholders will be advised on the nature of
the transactions.

INVESTMENT LIMITATIONS

The following restrictions and fundamental policies (except for item 10
which is not a "fundamental" policy) cannot be changed without approval of the
holders of a majority of the outstanding shares of the Fund (as defined in the
Investment Company Act of 1940). The Fund may not under any circumstances:

1) Borrow money, except from banks (or through reverse repurchase
agreements), for temporary or emergency (not leveraging) purposes, and
then in an amount not exceeding 10% of the value of the Fund's net
assets (including the amount borrowed and the value of any outstanding
reverse repurchase agreements) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the Fund's net assets,
the Fund will not make any additional investments;

2) With respect to 75% of the value of its total assets, purchase the
securities of any issuer (except obligations of the United States
government and its instrumentalities) if as a result the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
or more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer;

3) Invest for the purpose of exercising control of management of any
company;

4
<PAGE> 53

4) The Fund will not invest in securities of other investment companies,
except as may be acquired as a part of a merger, consolidation or
acquisition of assets approved by the Fund's shareholders or otherwise
to the extent permitted by Section 12 of the Investment Company Act of
1940. The Fund will invest only in investment companies which have
investment objectives and investment policies consistent with those of
the Fund.

5) Engage in the business of underwriting securities issued by others,
except to the extent that the Fund may technically be deemed to be an
underwriter under the Securities Act of 1933, as amended, in disposing
of portfolio securities.

6) Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are illiquid
(including the Fund's investment in The Vanguard Group, Inc., as
described on page 8).

7) Invest in commodities (except that the Fund may invest in stock futures
contracts and options to the extent that not more than 5% of the Fund's
assets are required as deposit to secure obligations under futures
contracts and not more than 20% of the Fund's assets are invested in
futures and options at any time) or real estate although the Fund may
purchase and sell securities of companies which deal in real estate, or
interests therein;

8) Purchase securities on margin or sell any securities short (except as
specified in 7) above;

9) Invest more than 5% of the assets of the Fund, at the time of
investment, in the securities of any issuers which have (with
predecessors) a record of less than three years' continuous operation;

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

11) Lend money to any person except (i) by purchasing bonds, debentures or
similar obligations (including repurchase agreements) which are either
publicly distributed or customarily purchased by institutional
investors, and (ii) by lending its portfolio securities as provided
under "Lending of Securities";

12) Pledge, mortgage, or hypothecate any of its assets to an extent greater
than 5% of its total assets; and

13) Invest more than 25% of the value of its total assets in any one
industry.

These investment limitations are considered at the time investment
securities are purchased.

Although not fundamental policies subject to shareholder vote, as long as
the Fund's shares are registered for sale in certain states, it will not (i)
invest in put, call, straddle or spread options, and (ii) invest in interests in
oil, gas or other mineral exploration or development programs.

Notwithstanding these limitations, the Fund may own all or any portion of
the securities of, or make loans to, or contribute to the costs or other
financial requirements of any company which will be wholly owned by the Fund and
one or more other investment companies and is primarily engaged in the business
of providing, at-cost, management, administrative, distribution or related
services to the Fund and other investment companies. See "Management of the
Fund."

PURCHASE OF SHARES

The Fund reserves the right in its sole discretion (i) to suspend the
offerings of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts or under circumstances where certain economies can be
achieved in sales of the Fund's shares.

REDEMPTION OF SHARES

The Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and

5
<PAGE> 54

Exchange Commission (the "Commission"), (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the Commission may permit.

The Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part, in investment securities or in cash, as the Directors
may deem advisable; however, payment will be made wholly in cash unless the
Directors believe that economic or market conditions exist which would make such
a practice detrimental to the best interests of the Fund. If redemptions are
paid in investment securities, such securities will be valued as set forth in
the Prospectus under "The Fund's Share Price" and a redeeming shareholder would
normally incur brokerage expenses if he converted these securities to cash.

No charge is made by the Fund for redemptions. Any redemption may be more
or less than the shareholder's cost depending on the market value of the
securities held by the Fund.

6
<PAGE> 55

MANAGEMENT OF THE FUND

OFFICERS AND DIRECTORS

The Fund's officers, under the supervision of the Board of Directors,
manage the day to day operations of the Fund. The Directors, who are elected
annually by shareholders, set broad policies for the Fund and choose its
officers. A list of the Directors and officers of the Fund and a brief statement
of their present positions and principal occupations during the past 5 years is
set forth below. The mailing address of the Directors and officers of the Fund
is Post Office Box 876, Valley Forge, PA 19487.

<TABLE>
<S> <C>
JOHN C. BOGLE, Chairman, Chief Executive ALFRED M. RANKIN, JR., Director
Officer and Director* President, Chief Executive Officer and
Chairman, Chief Executive Officer, and Director of NACCO Industries, Inc.; Director
Director of The Vanguard Group, Inc., and of The BFGoodrich Company, The Standard
each of the investment companies in The Products Company and The Reliance Electric
Vanguard Group; Director of The Mead Company.
Corporation, and General Accident Insurance.
JOHN C. SAWHILL,
JOHN J. BRENNAN, President & Director* President and Chief Executive Officer, The
President and Director of The Vanguard Nature Conservancy; formerly, Director and
Group, Inc., and of each of the investment Senior Partner, McKinsey & Co.; President,
companies in The Vanguard Group. New York University; Director of Pacific Gas
and Electric Company and NACCO Industries.
ROBERT E. CAWTHORN, Director
Chairman and Chief Executive Officer, JAMES O. WELCH, JR., Director
Rhone-Poulenc Rorer, Inc.; Director of Retired Chairman of Nabisco Brands, Inc.,
Immune Response Corp. and Sun Company, Inc.; retired Vice Chairman and Director of RJR
Trustee, Universal Health Realty Income Nabisco; Director of TECO Energy, Inc.
Trust.
J. LAWRENCE WILSON, Director
BARBARA BARNES HAUPTFUHRER, Director Chairman and Director of Rohm & Haas Company;
Director of The Great Atlantic and Pacific Director of Cummins Engine Company and
Tea Company, ALCO Standard Corp., Raytheon Vanderbilt University; Trustee of the Culver
Company, Knight-Ridder, Inc., and Mas- Educational Foundation.
sachusetts Mutual Life Insurance Co.
RAYMOND J. KLAPINSKY, Secretary*
BRUCE K. MACLAURY, Director Senior Vice President and Secretary of The
President, The Brookings Institution; Vanguard Group, Inc.; Secretary of each of the
Director of Dayton Hudson Corporation, investment companies in The Vanguard Group.
American Express Bank, Ltd., and The St.
Paul Companies, Inc. RICHARD F. HYLAND, Treasurer*
Treasurer of The Vanguard Group, Inc. and of
BURTON G. MALKIEL, Director each of the investment companies in The
Chemical Bank Chairman's Professor of Vanguard Group.
Economics, Princeton University; Director of
Prudential Insurance Co. of America, Amdahl KAREN E. WEST, Controller*
Corporation, Baker Fentress & Co., Jeffrey Vice President of The Vanguard Group, Inc.;
Co., and The Southern New England Telephone Controller of each of the investment companies
Company. in The Vanguard Group.
---------------
*Officers of the Fund are "interested persons"
as defined in the Investment Company Act of
1940.
</TABLE>

7
<PAGE> 56

THE VANGUARD GROUP

Vanguard/Morgan Growth Fund, Inc. is a member of The Vanguard Group of
Investment Companies.

Through their jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other Funds in the Group obtain at cost virtually
all of their corporate management, administrative and distribution services.
Vanguard also provides investment advisory services on an at-cost basis to
certain Vanguard Funds.

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.

The Fund's officers are also officers and employees of Vanguard. No officer
or employee owns, or is permitted to own, any securities of any external adviser
for the Funds.

The Vanguard Group was established and operates under a Funds' Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts which each of the Funds have invested are adjusted from time to time in
order to maintain the proportionate relationship between each Fund's relative
net assets and its contribution to Vanguard's capital. At December 31, 1993, the
Fund had contributed capital of $186,000 to Vanguard, representing .9% of
Vanguard's capitalization. The Fund's Service Agreement provides as follows: (a)
each Vanguard Fund may invest up to .40% of its current assets in Vanguard, and
(b) there is no other limitation on the amount that each Vanguard Fund may
contribute to Vanguard's capitalization.

MANAGEMENT Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended December 31, 1993, the Fund's share of Vanguard's actual net
costs of operation relating to management and administrative services (including
transfer agency) totaled approximately $3,303,000.

DISTRIBUTION Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for the shares of
the Funds in connection with any sales made directly to investors in the states
of Florida, Missouri, New York, Ohio, Texas and such other states as it may be
required.

The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The directors and
officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.

One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon relative net assets. The remaining one
half of those expenses is allocated among the Funds based upon each Fund's sales
for the preceding 24 months relative to the total sales of the Funds as a Group,
provided, however, that no Fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
average distribution expense rate for the Group, and that no Fund shall incur
annual distribution expenses in excess of 20/100 of 1% of its average month-end
net assets. During the fiscal year ended December 31, 1993, the Fund paid
approximately $225,000 of the Group's distribution and marketing expenses.

INVESTMENT ADVISORY SERVICES Vanguard also provides Vanguard Money Market
Reserves, Vanguard Municipal Bond Fund, several Portfolios of Vanguard Fixed
Income Securities Fund, Vanguard's State Tax-Free Funds (California, New York,
New Jersey, Florida, Pennsylvania and Ohio), Vanguard Institutional Portfolios,
Vanguard Admiral Funds, Vanguard Municipal Bond Fund, Vanguard Institutional
Index Fund, Vanguard Bond Index Fund, Vanguard Balanced Index Fund, Vanguard
Index Trust and Vanguard International Equity Index Fund with investment
advisory services. These services are provided on an at-cost basis from a money
management staff employed directly by Vanguard. The compensation and other
expenses of this staff are paid by the Funds utilizing these services.

8
<PAGE> 57

REMUNERATION OF DIRECTORS AND OFFICERS The Fund pays each Director, who is
not also an officer, an annual fee plus travel and other expenses incurred in
attending Board meetings. The Fund's officers and employees are paid by Vanguard
which, in turn, is reimbursed by the Fund and each other Fund in the Group, for
its proportionate share of officers' and employees' salaries and retirement
benefits.

During the fiscal year ended December 31, 1993, the Fund paid approximately
$3,000 in Directors' fees and expenses to its "non-interested" Directors. The
Fund's proportionate share of remuneration paid by Vanguard (and reimbursed by
the Fund) during the fiscal year to all officers of the Fund, as a group, was
approximately $50,455.

Under its retirement plan, Vanguard contributes annually an amount equal to
10% of each officer's annual compensation plus 5.7% of that part of an eligible
officer's compensation during the year, if any, that exceeds the Social Security
Taxable Wage Base then in effect. Under its thrift plan, all employees are
permitted to make pre-tax basic contributions in an amount up to 4% of total
compensation which Vanguard matches on a 100% basis. Directors who are not
Officers are paid an annual fee based on the number of years of service on the
board, up to fifteen years of service, upon retirement. The fee is equal to
$1,000 for each year of service and each investment company member of The
Vanguard Group contributes a proportionate amount to this fee based on its
relative net assets. This fee is paid, subsequent to a Director's retirement,
for a period of ten years or until the death of a retired Director. The Fund's
proportionate share of retirement benefits paid by Vanguard on behalf of all
eligible officers of the Fund, as a group, during the fiscal year ended December
31, 1993 was approximately $5,524.

INVESTMENT ADVISORY SERVICES

The Fund currently employs three separate investment advisers each of whom
manages the investment and reinvestment of a portion of the Fund's assets. Prior
to April 24, 1990 Wellington Management Company served as the Fund's sole
investment adviser.

WELLINGTON MANAGEMENT COMPANY The Fund employs Wellington Management
Company ("WMC") under an investment advisory agreement dated as of April 24,
1990 to manage the investment and reinvestment of approximately two-thirds of
the assets of the Fund and to continuously review, supervise and administer the
Fund's investment program. WMC discharges its responsibilities subject to the
control of the officers and Directors of the Fund.

The Fund pays WMC 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 Fund's average month-end net assets for the quarter:

<TABLE>
<CAPTION>
NET ASSETS RATE
---------- -----
<S> <C>
First $50 million................................... 0.325%
Next $100 billion................................... 0.225%
Over $150 billion................................... 0.150%
</TABLE>

The Basic Fee may be increased or decreased by applying an
incentive/penalty fee based on the investment performance of the assets of the
Fund managed by WMC relative to the investment record of The Growth Fund Stock
Index (the "Index") which is described in detail in the Prospectus.

The following table sets forth the incentive/penalty fee rates payable by
the Fund to WMC under the proposed investment advisory agreement:

<TABLE>
<CAPTION>
THREE YEAR PERFORMANCE ANNUAL INCENTIVE(+)/
DIFFERENTIAL VS. THE PENALTY (-) FEE
INDEX RATE
---------------------- -------------------
<S> <C>
+12% or more above................................. +.075%
+6% but less than +12%............................. +.0375%
Between +6% and -6%................................ --0--
-6% but less than -12%............................. -.0375%
-12% or more below................................. -.075%
</TABLE>

The investment performance or the WMC Portfolio, for any period, expressed
as a percentage of the "WMC Portfolio unit value" at the beginning of such
period, will be the sum of: (i) the change in the WMC Portfolio unit

9
<PAGE> 58

value during such period; (ii) the unit value of the Fund's cash distributions
from the WMC Portfolio net investment income and realized net capital gains
(whether long-term or short-term) having an ex-dividend date occurring within
such period; and (iii) the unit value of capital gains taxes paid or accrued
during such period by the Fund for undistributed realized long-term capital
gains realized from the WMC Portfolio.

The "WMC Portfolio unit value" will be determined by dividing the total net
assets of the WMC Portfolio by a given number of units. On the initial date of
the agreement, the number of units in the WMC Portfolio will equal the total
shares outstanding of the Fund. After such initial date, as assets are added to
or are withdrawn from the WMC Portfolio, the number of units of the WMC
Portfolio will be adjusted based on the unit value of the WMC Portfolio on the
day such changes are executed.

The investment record of the Index will be calculated quarterly by (i)
multiplying the total return for the quarter (change in market price plus
dividends) of each stock included in the Index by its weighting in the Index at
the beginning of the quarter, and (ii) adding the values discussed in (i). For
any period, therefore, the investment record of the Index will be the compounded
quarterly returns of the Index.

For the purposes of determining the incentive/penalty fee, the net assets
of the WMC Portfolio will be averaged over the same period as the investment
performance of the WMC Portfolio and the investment record of the S&P 500 or the
Index are computed.

In April 1972, the Securities and Exchange Commission ("SEC") issued
Release No. 7113 under the Investment Company Act of 1940 to call attention of
directors and investment advisers to certain factors which must be considered in
connection with investment company incentive fee arrangements. One of these
factors is to "avoid basing significant fee adjustments upon random or
insignificant differences" between the investment performance of a fund and that
of the particular index with which it is being compared. The Release provides
that "preliminary studies (of the SEC staff) indicate that as a 'rule of thumb'
the performance difference should be at least 10 percentage points" annually
before the maximum performance adjustment may be made. However, the Release also
states that "because of the preliminary nature of these studies, the Commission
is not recommending, at this time, that any particular performance difference
exist before the maximum fee adjustment may be made." The Release concludes that
the directors of a fund "should satisfy themselves that the maximum performance
adjustment will be made only for performance differences that can reasonably be
considered significant." The Board of Directors of the Fund has fully considered
the SEC Release and believes that the performance adjustments as included in the
proposed agreement are entirely appropriate although not within the 10
percentage points per year range suggested in the Release. Under the Fund's
investment advisory agreement, the maximum performance adjustment is made at a
difference of 12 percentage points from the performance of the index over a
thirty-six month period, which would effectively be the equivalent of
approximately P4 percentage points difference per year. The Fund's investment
advisory agreement provides for no performance adjustment at a difference of
less than 6 percentage points from the performance of the index over a
thirty-six month period, which would be the equivalent of approximately 2
percentage points per year.

Duration and Termination. The new agreement with WMC became effective
April 24, 1990. Since April 23, 1992, the agreement has been renewable for
successive one year periods, only if each renewal is specifically approved by a
vote of the Fund's Board of Directors, including the affirmative votes of a
majority of the Directors who are not parties to the contract or "interested
persons" (as defined in the Investment Company Act of 1940) of any such party,
cast in person at a meeting called for the purpose of considering such approval.
In addition, the question of continuance of the agreement may be presented to
the shareholders of the Fund; in such event, continuance shall be effected only
if approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. The agreement is automatically terminated if assigned,
and may be terminated without penalty at any time (1) either by vote of the
Board of Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Fund on sixty (60) days' written notice to WMC, or (2)
by WMC upon ninety (90) days' written notice to the Fund.

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.

10
<PAGE> 59

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, which shall include the information concerning the
adviser that would have normally been included in a proxy statement.

PORTFOLIO TRANSACTIONS The new investment advisory agreement, as does the
present agreement, authorizes WMC (with the approval of the Fund's Board of
Directors) to select the brokers or dealers that will execute the purchases and
sales of portfolio securities for the Fund and directs WMC to use its best
efforts to obtain the best available price and most favorable execution as to
all transactions for the Fund. WMC has undertaken to execute each investment
transaction at a price and commission which provides the most favorable total
cost or proceeds reasonably obtainable under the circumstances.

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

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

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

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

RELATED INFORMATION CONCERNING WMC WMC is a professional investment
counseling firm which provides investment services to investment companies,
other institutions and individuals. Among the clients of WMC are 12 of the other
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 investment
advisory services to investment companies since 1933 and to investment
counseling clients since 1960. WMC is a Massachusetts general partnership of
which the following persons are managing partners: Messrs. Robert W. Doran,
Duncan M. McFarland and John B. Neff.

11
<PAGE> 60

Prior to April 24, 1990, WMC served as investment adviser with regard to
100% of the Fund's assets and the increase/decrease in the Basic Fee was based
on the Fund's performance relative to the S&P 500 Composite Stock Price Index.
During the last three fiscal years, the Fund paid the following advisory fees to
WMC:

<TABLE>
<CAPTION>
1991 1992 1993
---------- ---------- ----------
<S> <C> <C> <C>
Basic Fee................................... $1,022,000 $1,146,158 $1,198,679
Increase (Decrease) for Performance
Adjustment................................ (169,000) -- (235,201)
---------- ---------- ----------
Total.................................. $ 853,000 $1,146,158 $ 963,478
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

FRANKLIN PORTFOLIO ASSOCIATES TRUST The Fund employs Franklin Portfolio
Associates Trust ("Franklin") under an investment advisory agreement dated as of
April 24, 1990 to manage the investment and reinvestment of approximately
one-sixth of the Fund's assets. Franklin discharges its responsibilities subject
to the control of the Officers and Directors of the Fund.

The Fund pays Franklin Basic Fee by applying various percentage rates to
the average net assets of the Fund managed by Franklin. The fee schedule is as
follows:

<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C>
First $100 million.................................. 0.250%
Next $200 billion................................... 0.200%
Over $300 billion................................... 0.150%
</TABLE>

The Basic Fee may be increased or decreased by applying an
incentive/penalty fee based on the investment performance of the Fund relative
to the investment record of the Index. Such incentive/penalty fee provides for
an increase or decrease in Franklin's basic fee in an amount equal to .100% per
annum (.025% per quarter) of the average month-end net assets of the portion of
the Fund managed by Franklin if the investment performance of that portion of
the Fund for the thirty-six months preceding the end of the quarter is six
percentage points or more above or below, respectively, the investment record of
the Index for the same period.

The following table sets forth the incentive/penalty fee rates payable by
the Fund to Franklin under the investment advisory agreement:

<TABLE>
<CAPTION>
THREE YEAR PERFORMANCE ANNUAL INCENTIVE(+)/
DIFFERENTIAL VS. THE PENALTY (-) FEE
INDEX RATE
---------------------- --------------------
<S> <C>
+6% or more above............................................ +.100%
Between +6% and -6%.......................................... --0--
-6% or more below............................................ -.100%
</TABLE>

The investment performance of the FPA Portfolio, the "FPA Portfolio unit
value" and the "investment record of the Index" will be calculated in the same
manner as set forth under the discussion of the WMC Agreement on page 10.

For the purposes of determining the incentive/penalty fee, the net assets
of the FPA Portfolio will be averaged over the same period as the investment
performance of the FPA Portfolio and the investment record of the Index are
computed.

The formula used to determine the performance adjustments, differs from the
view taken by the staff of the Securities and Exchange Commission. For a more
detailed discussion, see page 10. The Board of Directors of the Fund believes
that the performance adjustments, as included in the proposed agreement with
FPA, are appropriate although less than the 10 percentage points per year range
suggested in SEC Release No. 7113. Under the proposed agreement, the maximum
performance adjustment is made at a difference of approximately 2 percentage
points per year.

The agreement with FPA is dated April 24, 1990 and continued until April
23, 1992. The agreement became renewable thereafter for successive one year
periods, only if each renewal is specifically approved by a vote of the Fund's
Board of Directors, including the affirmative votes of a majority of the
Directors who are not parties to the contract or "interested persons" (as
defined in the Investment Company Act of 1940) of any such party, cast in person
at a meeting called for the purpose of considering such approval. In addition,
the question of continuance of the

12
<PAGE> 61

agreement may be presented to the shareholders of the Fund; in such event, such
continuance shall be effected only if approved by the affirmative vote of a
majority of the outstanding voting securities of the Fund. The agreement is
automatically terminated if assigned, and may be terminated without penalty at
any time (1) either by vote of the Board of Directors of the Fund or by vote of
a majority of the outstanding voting securities of the Fund on 60 days' written
notice to FPA, or (2) by FPA upon 90 days' written notice to the Fund.

During the last three fiscal years, the Fund paid FPA the following
advisory fees:

<TABLE>
<CAPTION>
1991 1992 1993
-------- ------- --------
<S> <C> <C> <C>
Basic Fee......................................... $322,618 $96,012 $470,526
Increase (Decrease) for Performance Adjustment.... 92,051 -- --
-------- ------- --------
Total........................................ $414,669 $96,012 $470,526
-------- ------- --------
-------- ------- --------
</TABLE>

PORTFOLIO TRANSACTIONS The provisions of the agreement with FPA relating
to portfolio transactions are identical to those under the agreement between the
Fund and WMC, as described under "Portfolio Transactions" on page 11.

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.

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.

RELATED INFORMATION CONCERNING FPA FPA is a Massachusetts business trust,
which is a wholly owned subsidiary of Mellon Financial Service Corporation #1,
which is itself a wholly owned subsidiary of Mellon Bank Corporation. FPA is
managed by a Board of Trustees consisting of Messrs. John J. Nagorniak,
Chairman, Donald A. McMullen, Jr. and G. Christian Lantzsch.

FPA is a professional investment counseling firm which specializes in the
management of common stock portfolios through the use of quantitative investment
models. As of December 31, 1993, FPA provided investment advisory services with
respect to approximately $5.12 billion of client assets, including approximately
$529.9 million for Vanguard Quantitative Portfolios, Inc., another mutual fund
member of The Vanguard Group. During the year ended December 31, 1993, Vanguard
Quantitative Portfolios, Inc. paid FPA an annual advisory fee equal to .18 of 1%
of such Fund's average net assets.

HUSIC CAPITAL MANAGEMENT

The Fund also employs Husic Capital Management ("Husic") under an
investment advisory agreement dated as of September 24, 1993 to manage the
investment and reinvestment of approximately one-sixth of the Fund's assets.
Husic discharges its responsibilities subject to the control of the Officers and
Directors of the Fund.

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>
<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>

13
<PAGE> 62

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.

The incentive/penalty fee rates will be determined by measuring the
investment performance of the Husic Portfolio relative to the investment record
of the Index in accordance with the following table:

<TABLE>
<CAPTION>
ANNUAL RATES
AS A PERCENTAGE OF BASIC FEE
--------------------------------------
THREE YEAR PERFORMANCE FIRST ASSETS
DIFFERENTIAL VS. THE $200 MILLION IN EXCESS
GROWTH INDEX OF ASSETS OF $200 MILLION
---------------------- ------------ -----------------
<S> <C> <C>
+12% points or more above.................... 175.0% 150.0%
Between +6% points and +12% points above..... 137.5% 125.0%
Between +6% points and -6% points............ 100.0% 100.0%
Between -6% points and -12% points........... 62.5% 75.0%
-12% points or more below.................... 25.0% 50.0%
</TABLE>

Until the Quarter ending September 30, 1996, the incentive/penalty fee for
Husic will be calculated according to the following transition rules:

(a) Prior to June 30, 1994. For the quarters ending on or prior to June 30,
1994, the incentive/penalty fee adjustment will not be operable. The advisory
fee payable by the Fund shall be the basic fee, calculated as set forth above.

(b) July 1, 1994 through September 30, 1996. Beginning with the quarter
ending September 30, 1994, and until the quarter ending September 30, 1996, the
incentive/penalty fee will be computed based upon a comparison of the investment
performance of the Husic Portfolio and that of the Growth Index over the number
of months that have elapsed between October 1, 1993 and the end of the quarter
for which the fee is computed. The number of percentage points by which the
investment performance of the Husic Portfolio must exceed or fall below the
investment record of the Growth Index for the quarters ending during this period
are as follows:

<TABLE>
<CAPTION>
NUMBER OF
QUARTER ENDING PERCENTAGE POINTS
-------------- ------------------
<S> <C>
September 30, 1994....................... 4
December 31, 1994........................ 5
March 31, 1995........................... 6
June 30, 1995............................ 7
September 30, 1995....................... 8
December 31, 1995........................ 9
March 31, 1996........................... 10
June 30, 1996............................ 11
September 30, 1996....................... 12
</TABLE>

(c) On and After September 30, 1996. For the quarter ending September 30,
1996 and thereafter, the period used to calculate the incentive/penalty fee
shall be the 36 months preceding the end of the quarter for which the fee is
being computed and the number of percentage points used shall be 12.

The "investment performance of the Husic Portfolio," the "Husic Portfolio
unit value" and the "investment record of the Index" will be calculated in the
same manner as set forth under the discussion of the WMC Agreement on page 10.

For the purposes of determining the incentive/penalty fee, the net assets
of the Husic Portfolio will be averaged over the same period as the investment
performance of the Husic Portfolio and the investment record of the Growth Index
are computed.

14
<PAGE> 63

The formula used to determine the performance adjustments differs from the
view taken by the staff of the Securities and Exchange Commission. For a more
detailed discussion, see page 10. The Board of Directors of the Fund believes
that the performance adjustments, as included in the proposed agreement with
Husic are appropriate although not within the P10 percentage point per year
range suggested in SEC Release No. 7113. Under the proposed agreement, the
maximum performance adjustment is made at a difference of approximately 4
percentage points per year.

The new agreement with Husic dated September 24, 1993, will continue until
September 23, 1995. After this date the agreement is renewable for successive
one year periods in the same manner as the WMC agreement, as described under
"Duration and Termination" on page 11.

During the period ended December 31, 1993, Vanguard/Morgan Growth Fund paid
Husic the following advisory fees:

<TABLE>
<CAPTION>
1993
--------
<S> <C>
Basic Fee........................................ $140,254
Increase (Decrease) for Performance Adjustment... --
--------
Total....................................... $140,254
--------
--------
</TABLE>

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 Fund paid R&R an advisory fee of $113,678 after a decrease of
$86,664 based on performance.

PORTFOLIO TRANSACTIONS The provisions of the agreement with Husic relating
to portfolio transactions are identical to those under the agreement between the
Fund and WMC, as described under "Portfolio Transactions."

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.

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.

RELATED INFORMATION CONCERNING HUSIC Husic Capital Management, 555
California Street, Suite 2900, San Francisco, California 94104, a California
limited partnership founded in 1986, provides investment advisory services to
investment companies, other institutions, and individuals. Frank J. Husic,
managing partner, is a controlling person of Husic. Husic's general partner is
Frank J. Husic & Co., a California corporation that is wholly owned by Frank J.
Husic. As of July 1, 1993, Husic provided investment advisory services to
clients having assets with an approximate value of $2.2 billion.

PORTFOLIO TRANSACTIONS

The investment advisory agreements authorize the Advisers (with the
approval of the Fund's Board of Directors) to select the brokers or dealers that
will execute the purchases and sales of portfolio securities for the Fund and
directs the Advisers to use their best efforts to obtain the best available
price and most favorable execution as to all transactions for the Fund. The
Advisers have undertaken to execute each investment transaction at a price and
commission which provides the most favorable total cost or proceeds reasonably
obtainable under the circumstances. During the fiscal years ended December 31,
1991, 1992 and 1993 the Fund paid $1,025,516, $1,402,721 and $1,577,672,
respectively, in brokerage commissions.

In placing portfolio transactions, the Advisers will use their best
judgment to choose the broker most capable of providing the brokerage services
necessary to obtain best available price and most favorable execution. The full
range

15
<PAGE> 64

and quality of brokerage services available will be considered in making these
determinations. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and statistical information and
provide other services in addition to execution services to the Fund and/or the
Advisers. The Advisers consider such information useful in the performance of
their obligations under the agreement but are unable to determine the amount by
which such services may reduce its expenses.

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

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

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

Some securities considered for investment by the Fund may also be
appropriate for other Funds and/or clients served by the Advisers. If purchase
or sale of securities consistent with the investment policies of the Fund and
one or more of these other Funds or clients serviced by the Advisers are
considered at or about the same time, transactions in such securities will be
allocated among the several Funds and clients in a manner deemed equitable by
the Advisers.

YIELD AND TOTAL RETURN

The yield of the Fund for the 30 day period ended December 31, 1993 was
+1.16%.

The average annual total return of the Fund for the one, five and ten year
periods ending December 31, 1993 was +7.32%, +12.93% and +12.03%, respectively.
Total return is computed by finding the average compounded rates of return over
the one, five and ten year periods set forth above that would equate an initial
amount invested at the beginning of the periods to the ending redeemable value
of the investment.

PERFORMANCE MEASURES

There are a number of different ways to measure the performance of a mutual
fund. One of the these methods is to calculate the current yield of a fund or
portfolio. This is done by dividing the total amount of dividends per share paid
by a fund during the past twelve months by a current offering price (including
the sales charge, if any). Under certain circumstances, such as when there has
been a fundamental change in investment or dividend policies, it might be
appropriate to annualize the dividends paid over the period such policies were
in effect, rather than using the dividends paid during the past twelve months.
An alternate method is to calculate a compound yield. This is derived by
computing the total compounded dividends paid by a fund during the past twelve
months on the assumption that all dividends were reinvested in additional shares
(and giving no effect to capital gains distributions or taxes) and dividing

16
<PAGE> 65

this by a current offering price. Another method is to calculate the total
return by dividing the change in value of an investment in shares over a period
of time (generally ten years or more), assuming the reinvestment of all
dividends and capital gains distributions, by the original net asset value of
the shares. Regardless of the method used, past performance is not necessarily
indicative of future results, but are an indication of the return to
shareholders only for the limited historical period used.

From time to time, advertisements, reports and promotional literature
regarding the Fund may compare its yield or total return (as calculated above)
to yields or returns reported by other investments and to various indices and
averages to assist an investor's calculation of how an investment in the Fund
might satisfy his investment objectives.

COMPARATIVE INDEXES

Each of the investment company members of the Vanguard Group, including
Vanguard/Morgan Growth Fund, Inc., may, from time to time, use one or more of
the following unmanaged indices for comparative performance purposes.

VANGUARD GROWTH STOCK INDEX -- The Index is composed of the various common
stocks that are held in the Portfolios of the approximately 250 growth stock
mutual funds monitored by Morningstar, Inc. The percentage weighting of each
stock in each Fund is summed across all Funds within the universe and then
divided by the number of Funds within the universe. To calculate the total
return of the Index, the total return of each stock is multiplied by the stock's
weighting in the Index at the beginning of the period for which total return is
being calculated. This value represents each stock's contribution to the return
of the Index and the total of such contributions is equal to the total return of
the Index. Under an agreement with the Fund, Morningstar, Inc. develops the
composition of the Index and its total return each quarter. Neither Vanguard
Group, Inc. WMC, Franklin, nor Roll & Ross are affiliated with Morningstar in
any way.

STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified
list of 500 companies representing the U.S. Stock Market.

WILSHIRE 5000 EQUITY INDEXES -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.

WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.

MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.

GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 67 bonds and 33
preferreds. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The index
is priced monthly.

SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.

SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.

SHEARSON LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by
the Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.

MERRILL LYNCH CORPORATE & GOVERNMENT BOND -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.

SHEARSON LEHMAN CORPORATE (BAA) BOND INDEX -- all publicly offered fixed rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.

17
<PAGE> 66

BOND BUYER MUNICIPAL INDEX (20 YEAR) BOND -- is a yield index on current coupon
high grade general obligation municipal bonds.

STANDARD & POOR'S PREFERRED INDEX -- is a yield index based upon the average
yield for four high grade, non-callable preferred stock issues.

NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.

COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.

COMPOSITE INDEX -- 35% Standard & Poor's 500 Index and 65% Salomon Brothers High
Grade Bond Index.

COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Salomon Brothers High
Grade Bond Index.

RUSSELL 2000 SMALL COMPANY STOCK INDEX -- consists of the smallest 2,000 stocks
within the Russell 3000; a widely used benchmark for small capitalization common
stocks.

LIPPER BALANCED FUND AVERAGE -- An industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.

LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE -- An industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.

LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE -- An industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.

LIPPER SMALL COMPANY GROWTH FUND AVERAGE -- the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Funds that constituted the Group at its inception.)

LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB- or better. The Index has a market value of over
$4 trillion.

LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.3 trillion.

LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX -- is
a market weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $600 billion.

LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a market
weighted index that contains individually priced U.S. Treasury, agency and
corporate securities rated BBB- or better with maturities greater than 10 years.
The index has a market value of over $900 billion.

RUSSELL 3000 INDEX -- consists of the 3,000 largest stocks of U.S. domiciled
companies commonly traded on the New York and American Stock Exchanges or the
NASDAQ over-the-counter market, accounting for over 90% of the market value of
publicly traded Stocks in the U.S.

Advertisements which refer to the use of the Fund as a potential investment
for Individual Retirement Accounts may quote a total return based upon
compounding of dividends on which it is presumed no federal income tax applies.

In assessing such comparisons of yields, an investor should keep in mind
that the composition of the investments in the reported averages is not
identical to the Fund's Portfolio and that the items included in the
calculations of such averages may not be identical to the formula used by the
Fund to calculate its yield. In addition there can be no assurance that the Fund
will continue its performance as compared to such other averages.

18
<PAGE> 67

FINANCIAL STATEMENTS

The Fund's financial statements for the year ended December 31, 1993,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 1993, appearing in the Vanguard/Morgan Growth Fund
1993 Annual Report to Shareholders, and the report thereon of Price Waterhouse,
independent accountants, also appearing therein, are incorporated by reference
in this Statement of Additional Information. The Fund's 1993 Annual Report to
Shareholders is enclosed with this Statement of Additional Information.

19
<PAGE> 68

PART C
VANGUARD/MORGAN GROWTH FUND, INC.
(FORMERLY W.L. MORGAN GROWTH FUND, INC.)
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS

The Registrant's financial statements for the year ended December 31, 1993,
including Price Waterhouse's report thereon, are incorporated by reference, in
the Statement of Additional Information, from the Registrant's 1993 Annual
Report which has been filed with the Commission. The financial statements
included in the Annual Report are:

1. Statement of Net Assets as of December 31, 1993.

2. Statement of Operations for the year ended December 31, 1993.

3. Statement of Changes in Net Assets for the years ended December 31, 1992
and 1993.

4. Financial Highlights for each of the five years in the period ended
December 31, 1993 (also appearing in the Prospectus along with previous
years).

5. Notes to Financial Statements.
6. Report of Independent Accountants.

<TABLE>
<S> <C>
(B) EXHIBITS
Exhibit Number Description
1............... Articles of Incorporation**
2............... By-Laws of Registrant**
3............... Not Applicable
4............... Not Applicable
5............... Not Applicable
6............... Not Applicable
7............... Reference is made to the section entitled "Management of the Fund" in
the Registrant's Statement of Additional Information
8............... Form of Custody Agreement**
9............... Form of Vanguard Service Agreement**
10............... Opinion of Counsel**
11............... Consent of Independent Accountants*
12............... Financial Statements--reference is made to (a) above
13............... Not Applicable
14............... Not Applicable
15............... Not Applicable
16............... Schedule for Computation of Performance Quotations*
</TABLE>

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

*Filed herewith

**Previously filed

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is not controlled by or under common control with any person.
The officers of the Registrant, the 32 investment companies in The Vanguard
Group of Investment Companies and The Vanguard Group, Inc. are identical.
Reference is made to the caption "Management of the Fund" in the Prospectus
constituting Part A and "Management of the Fund" in the Statement of Additional
Information constituting Part B of this Registration Statement.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

On December 31, 1993 there were 90,654 shareholders.

20
<PAGE> 69

ITEM 27. INDEMNIFICATION

Reference is made to Article XI of Registrant's Articles of Incorporation.

Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a trustee, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Reference is made to the caption "Investment Advisers" in the prospectus
constituting Part "A" of this Registration Statement and "Investment Advisory
Services" in Part "B" of this Registration Statement.

Wellington Management Company, 75 State Street, Boston, Massachusetts,
02109, is a Massachusetts general partnership, of which the following persons
are managing partners: Robert W. Doran, Duncan M. McFarland and John B. Neff. No
partner has any other affiliation with the Registrant.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) None

(b) Not Applicable

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc. c/o The Vanguard Financial Center, Valley Forge,
Pennsylvania 19482; and the Registrant's Custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02105.

ITEM 31. MANAGEMENT SERVICES

Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which was previously filed as Exhibit 9(c) and described in
Part B hereof under "Management of the Fund;" the Registrant is not a party of
any management-related service contract.

ITEM 32. UNDERTAKINGS

Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 ("1940 Act") or other applicable law. Registrant
undertakes to comply with the provisions of Section 16(c) of the 1940 Act in
regard to shareholders' rights to call a meeting of shareholders for the purpose
of voting on the removal of Directors and to assist in shareholder
communications in such matters, to the extent required by law.

Registrant hereby undertakes to provide an Annual Report to Shareholders or
prospective investors, free of charge, upon request.

21
<PAGE> 70

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it meets
the requirements for effectiveness pursuant to Paragraph (b) of Rule 485 and has
duly caused this Post-Effective Amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the Town
of Valley Forge and the Commonwealth of Pennsylvania, on the 25th day of April,
1994.

W.L. MORGAN GROWTH FUND, INC.

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

April 25, 1994

BY: (Raymond J. Klapinsky)
John J. Brennan*, Director

April 25, 1994

BY: (Raymond J. Klapinsky)

Robert E. Cawthorn*, Director

April 25, 1994

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

April 25, 1994

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

April 25, 1994

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

April 25, 1994

BY: (Raymond J. Klapinsky)

Alfred M. Rankin, Jr.*, Director

April 25, 1994

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

April 25, 1994

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

April 25, 1994

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

April 25, 1994

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

April 25, 1994

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

22
<PAGE> 71

INDEX TO EXHIBITS

<TABLE>
<S> <C>
Consent of Independent Accountants.......................................................... 11
Computation of Performance Quotations....................................................... 16
</TABLE>

<PAGE> 1

EXHIBIT 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
the Statement of Additional Information, constituting parts of this amended
Registration Statement on Form N-1A, of our report dated January 24, 1994
relating to the financial statements, including the financial highlights,
appearing in the December 31, 1993 Annual Report to Shareholders of
Vanguard/Morgan Growth Fund, which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "General Information" in the Prospectus and
"Financial Statements" in the Statement of Additional Information.

PRICE WATERHOUSE

Philadelphia, PA

April 22, 1994

<PAGE> 1

EXHIBIT 16

SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD/MORGAN GROWTH FUND, INC.

1. Average Annual Total Return (As of December 31, 1993)
P (1 + T)n = ERV

<TABLE>
<S> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
</TABLE>

<TABLE>
<S> <C>
EXAMPLE:
--------
One Year
--------
P = $1,000
T = 7.32%
N = 1 yr.
ERV = $1,073.22

Five Year
---------
P = $1,000
T = 12.93%
N = 5 yrs.
ERV = $1,836.82

Ten Year
--------
P = $1,000
T = 12.03%
N = 10 yrs.
ERV = $3,114.39
</TABLE>

2. YIELD (30 Days Ended December 31, 1993)

a
Yield = 2[( c X d + 1)(6) - 1] - b X 100

<TABLE>
<S> <C>
Where: a = dividends and interest paid during the period
b = expense ratios during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period

Example a = $1,633,123.19
b = .574
c = 94,380,351.000
d = $12.01
Yield = 1.16%
</TABLE>