VANGUARD MORGAN GROWTH FUND INC, 485APOS, 1996-06-24

VANGUARD MORGAN GROWTH FUND INC
485APOS, 1996-06-24

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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. 49 /X/
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 51 /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 June 28, 1996,

pursuant to paragraph (a) 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, 1995 ON FEBRUARY 29, 1996.

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<PAGE> 2

VANGUARD/MORGAN INCOME FUND, INC.

CROSS REFERENCE SHEET
<TABLE>
<CAPTION>

FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <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........................ Management of the Fund; Investment
Adviser
Item 6. Capital Stock and Other Securities............ Opening an Account and Purchasing
Shares; Selling Your Shares; The
Share Price of the Fund; 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

FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Cover Page
Item 12. General Information and History............... Investment Objective and Policies
Item 13. Investment Objective and Policies............. Investment Objective and Policies;
Investment Limitations
Item 14. Management of the Fund........................ Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund
Item 16. Investment Advisory and Other Services........ Management of the Fund; Investment
Advisory Services
Item 17. Brokerage Allocation.......................... Not Applicable
Item 18. Capital Stock and Other Securities............ 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

VANGUARD/
MORGAN GROWTH
FUND

Prospectus
June 28, 1996

This prospectus contains financial data for the Fund through the fiscal year
ended December 31, 1995.

[THE VANGUARD GROUP LOGO]
<PAGE> 4
VANGUARD/MORGAN GROWTH FUND A Growth Stock Mutual Fund

CONTENTS

Fund Expenses 2

Financial Highlights 3

A Word About Risk 4

The Fund's Objective 4

Who Should Invest 4

Investment Strategies 5

Investment Policies 7

Investment Limitations 8

Investment
Performance 8

Share Price 9

Dividends, Capital
Gains, and Taxes 10

The Fund and
Vanguard 10

Investment Advisers 11

General Information 12

Investing
with Vanguard 13

Services and
Account Features 14

Types of Accounts 14

Distribution Options 15

Buying Shares 16

Redeeming Shares 17

Fund and Account
Updates 19

Glossary Inside Back Cover

INVESTMENT OBJECTIVE AND POLICIES

Vanguard/Morgan Growth Fund, Inc. (the "Fund") is an open-end diversified
investment management company, or mutual fund.

The Fund seeks to provide long-term capital growth by investing mainly in
equity securities of large, established companies that have strong sales and
earnings records or have performed well during certain market cycles. The Fund
also invests in stocks of smaller companies that offer good expansion prospects.

It is important to note that the Fund's shares are not guaranteed or insured
by the FDIC or any other agency of the U.S. Government. As with any investment
in common stocks, which are subject to wide fluctuations in market value, you
could lose money by investing in the Fund.

FEES AND EXPENSES

The Fund is offered on a no-load basis, which means that you pay no sales
commissions or 12b-1 marketing fees. You will, however, incur expenses for
investment advisory, management, administrative, and distribution services,
which are included in the expense ratio.

ADDITIONAL INFORMATION ABOUT THE FUND

A Statement of Additional Information containing more information about the Fund
is, by reference, part of this prospectus and may be obtained without charge by
writing to Vanguard or by calling our Investor Information Department at
1-800-662-7447.

WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of Vanguard/Morgan
Growth Fund. To highlight terms and concepts important to mutual fund investors,
we have provided "Plain Talk" explanations along the way. Reading the prospectus
will help you to decide whether the Fund is the right investment for you. We
suggest that you keep it for future reference.

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> 5

FUND PROFILE Vanguard/Morgan Growth Fund

WHO SHOULD INVEST (page 4)

- - Investors seeking a growth stock mutual fund as part of a balanced and
diversified investment program.

- - Investors seeking growth of their capital over the long term -- at least
five years.

WHO SHOULD NOT INVEST

- - Investors seeking current dividend income.

- - Investors unwilling to accept significant fluctuations in share price.

RISKS OF THE FUND (pages 4 - 7)

This Fund's total return will fluctuate within a wide range, so an investor
could lose money over short or even extended periods. The Fund is subject to
manager risk (the chance that poor security selection will cause it to lag the
stock market as a whole) and, as a growth stock fund, to objective risk (the
chance that returns from growth stocks will trail returns from the overall stock
market).

DIVIDENDS AND CAPITAL GAINS (page 10)
Paid annually in December.

INVESTMENT ADVISERS (page 11)

The Fund employs a multi-adviser approach:

- - Wellington Management Company, Boston, MA.
- - Franklin Portfolio Associates Inc., Boston, MA.
- - Husic Capital Management, San Francisco, CA.
- - Vanguard Core Management Group, Valley Forge, PA.

INCEPTION DATE: December 31, 1968

NET ASSETS AS OF 12/31/95: $1.47 billion

FUND'S EXPENSE RATIO FOR THE YEAR ENDED 12/31/95: 0.49%

LOADS, 12b-1 MARKETING FEES: None

SUITABLE FOR IRAS: Yes

MINIMUM INITIAL INVESTMENT: $3,000; $1,000 for IRAs and accounts for minors

NEWSPAPER ABBREVIATION: Morg

VANGUARD FUND NUMBER: 026

ACCOUNT FEATURES (page 14)

- - Telephone Redemption
- - Vanguard Direct Deposit Service(sm)
- - Vanguard Automatic Exchange Service(sm)
- - Vanguard Fund Express(R)
- - Vanguard Dividend Express(sm)

AVERAGE ANNUAL TOTAL RETURN -- PERIODS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------
<S> <C> <C> <C>
Morgan Growth Fund +36.0% +15.3% +13.0%
S&P 500 Index +37.6 +16.6 +14.9
</TABLE>

QUARTERLY RETURNS (%) 1986 - 1995 (intended to show volatility of returns)

<TABLE>
Morgan Growth Fund
<CAPTION>
Year 1stQ 2ndQ 3rdQ 4thQ
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1986 11.3 3.2 -9.7 4.0
1987 25.2 3.3 7.00 -24.1
1988 12.9 9.1 -0.7 0.1
1989 5.3 6.0 7.9 1.8
1990 -1.6 7.2 -16.1 11.3
1991 16.4 -1.2 4.4 7.7
1992 -1.1 -1.9 4.1 8.5
1993 2.2 0.3 2.9 1.8
1994 -4.1 -3.2 6.7 -0.8
1995 8.2 11.8 10.3 2.0
</TABLE>

<TABLE>
S&P 500 Index
<CAPTION>
Year 1stQ 2ndQ 3rdQ 4thQ
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1986 14.0% 5.9% -6.9% 5.6%
1987 21.3 5.0 6.6 -22.5
1988 5.7 6.6 0.3 3.0
1989 7.1 8.8 10.7 2.0
1990 -3.0 6.3 -13.7 8.9
1991 14.5 -0.2 5.3 8.4
1992 -2.5 1.9 3.2 5.0
1993 4.4 0.5 2.6 2.3
1994 -3.8 0.4 4.9 0.0
1995 9.7 9.5 7.9 6.0
</TABLE>

In evaluating past performance, remember that it is not indicative of future
performance and that returns from stocks before adjusting for inflation were
relatively high during the periods shown. Performance figures include the
reinvestment of any dividends and capital gains distributions. The returns shown
are net of expenses, but they do not reflect income taxes an investor would have
incurred. Note, too, that both the return and principal value of an investment
will fluctuate so that investors' shares, when redeemed, may be worth more or
less than their original cost.

1
<PAGE> 6

PLAIN TALK ABOUT
THE COSTS OF INVESTING

Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with buying, selling, or exchanging shares. These costs can
erode a substantial portion of the gross income or capital appreciation a fund
achieves. Even seemingly small differences in fund expenses can, over time, have
a dramatic impact on a fund's performance.

PLAIN TALK ABOUT
FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard/Morgan Growth Fund's expense ratio in fiscal year 1995 was
0.49%, or $4.90 per $1,000 of average net assets. The average growth equity
mutual fund had expenses in 1995 of 1.36%, or $13.60 per $1,000 of average net
assets, according to Lipper Analytical Services, Inc., which reports on the
mutual fund industry.

FUND EXPENSES

The examples below are designed to help you understand the various costs you
would bear, directly or indirectly, as an investor in the Fund.

As noted in this table, you do not pay fees of any kind when you buy, sell,
or exchange shares of the Fund:

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

The next table illustrates the operating expenses that you would incur as a
shareholder of the Fund. These expenses are deducted from the Fund's income
before it is paid to you. Expenses include investment advisory fees as well as
the costs of maintaining accounts, administering the Fund, providing shareholder
services, and other activities. The expenses shown in the table are for the
fiscal year ended December 31, 1995.

<TABLE>
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
Management and Administrative Expenses: 0.31%
Investment Advisory Expenses: 0.14%
12b-1 Marketing Fees: None
Other Expenses
Marketing and Distribution Costs: 0.02%
Miscellaneous Expenses (e.g., Taxes, Auditing): 0.02%
----
TOTAL OTHER EXPENSES: 0.04%
----
TOTAL OPERATING EXPENSES (EXPENSE RATIO): 0.49%
====
</TABLE>

The following example illustrates the hypothetical expenses that you would
incur on a $1,000 investment over various periods. The example assumes (1) that
the Fund provides a return of 5% a year and (2) that you redeem your investment
at the end of each period.

-------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$5 $16 $27 $62
-------------------------------------------------------

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.

2
<PAGE> 7
FINANCIAL HIGHLIGHTS

The following financial highlights table shows the results for a share
outstanding for each of the last ten years ended December 31, 1995. The
financial highlights were audited by Price Waterhouse LLP, independent
accountants. You should read this information in conjunction with the Fund's
financial statements and accompanying notes, which appear, along with the audit
report from Price Waterhouse, in the Fund's most recent Annual Report to
shareholders. The Annual Report is incorporated by reference in the Statement of
Additional Information and in this prospectus, and contains a more complete
discussion of the Fund's performance. You may have the Report sent to you
without charge by writing to Vanguard or by calling our Investor Information
Department.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 11.36 $ 12.01 $ 12.65 $ 12.20 $ 10.40
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net Investment Income .15 .14 .18 .18 .29
Net Realized and
Unrealized Gain (Loss)
on Investments 3.89 (.34) .71 .97 2.66
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 4.04 (.20) .89 1.15 2.95
- ----------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.15) (.14) (.18) (.18) (.29)
Distributions from
Realized Capital Gains (1.16) (.31) (1.35) (.52) (.86)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (1.31) (.45) (1.53) (.70) (1.15)
- ----------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 14.09 $ 11.36 $ 12.01 $ 12.65 $ 12.20
==================================================================================
TOTAL RETURN 35.98% (1.67)% 7.32% 9.54% 29.33%
==================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $ 1,471 $ 1,075 $ 1,135 $ 1,116 $ 957
Ratio of Expenses to
Average Net Assets .49%* .50% .49% .48% .46%
Ratio of Net Investment
Income to Average
Net Assets 1.10% 1.15% 1.36% 1.51% 2.36%
Portfolio Turnover Rate 76% 84% 72% 64% 52%
- ----------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------
1990 1989 1988 1987 1986
- ----------------------------------------------------------------------------------
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period $ 11.72 $ 10.27 $ 9.39 $ 11.50 $ 13.82
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net Investment Income .32 .28 .25 .23 .21
Net Realized and
Unrealized Gain (Loss)
on Investments (.50) 2.04 1.85 .31 .78
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS (.18) 2.32 2.10 .54 .99
- ----------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.34) (.28) (.24) (.20) (.43)
Distributions from
Realized Capital Gains (.80) (.59) (.98) (2.45) (2.88)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (1.14) (.87) (1.22) (2.65) (3.31)
- ----------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 10.40 $ 11.72 $ 10.27 $ 9.39 $ 11.50
==================================================================================
TOTAL RETURN (1.51)% 22.66% 22.34% 5.02% 7.83%
==================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $ 697 $ 733 $ 622 $ 538 $ 594
Ratio of Expenses to
Average Net Assets .55% .51% .55% .46% .54%
Ratio of Net Investment
Income to Average
Net Assets 2.77% 2.38% 2.20% 1.52% 1.49%
Portfolio Turnover Rate 73% 27% 32% 43% 31%
- ----------------------------------------------------------------------------------
</TABLE>

*Beginning in fiscal year 1995, this figure does not include expense reductions
from directed brokerage arrangements. The Ratio of Net Expenses to Average Net
Assets was 0.48%.
- --------------------------------------------------------------------------------

From time to time, the Vanguard Funds advertise yield and total return
figures. Yield is an historical measure of dividend income, and total return is
a measure of past dividend income (assuming that it has been reinvested) plus
capital appreciation. Neither yield nor total return should be used to predict
the future performance of a fund.

PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began fiscal 1995 with a net asset value (price) of $11.36 per share.
During the year, the Fund earned $0.15 per share from investment income
(interest and dividends) and $3.89 per share from investments that had
appreciated in value or that were sold for higher prices than the Fund paid for
them. Of those total earnings of $4.04 per share, $1.31 was returned to
shareholders in the form of distributions ($0.15 in dividends, $1.16 in capital
gains). The earnings ($4.04 per share) less distributions ($1.31 per share)
resulted in a share price of $14.09 at the end of the year, an increase of $2.73
per share (from $11.36 at the beginning of the period to $14.09 at the end of
the period). Assuming that the shareholder had reinvested the distribution in
the purchase of more shares, total return from the Fund was 35.98% for the year.

As of December 31, 1995, the Fund had $1.47 billion in net assets; an expense
ratio of 0.49% ($4.90 per $1,000 of net assets); and net investment income
amounting to 1.10% of its average net assets. It sold and replaced securities
valued at 76% of its total net assets.

3
<PAGE> 8
PLAIN TALK ABOUT
GROWTH FUNDS AND VALUE FUNDS

Growth investing and value investing are two styles employed by stock fund
managers. Growth funds generally focus on companies that, due to their strong
earnings and revenue potential, offer above-average prospects for capital
growth, with less emphasis on dividend income. Value funds generally emphasize
companies that, considering their assets and earnings history, are attractively
priced; these companies often pay regular dividend income to shareholders.
Growth and value stocks have, in the past, produced similar long-term returns,
though each has periods when it outperforms the other. In general, growth funds
appeal to investors who will accept more volatility in hope of a greater
increase in share price, while value funds are appropriate for investors who
want some dividend income and the potential for capital gains but are less
tolerant of share-price fluctuations.

PLAIN TALK ABOUT
INVESTING FOR THE LONG TERM

Vanguard/Morgan Growth 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
fluctuations in the stock market.

================================================================================
A WORD ABOUT RISK

This prospectus describes the risks you will face as an investor in
Vanguard/Morgan Growth Fund. It is important to keep in mind one of the main
axioms of investing: the higher the risk of losing money, the higher the
potential reward. The reverse, also, is generally true: the lower the risk, the
lower the potential reward. However, as you consider an investment in
Vanguard/Morgan Growth Fund, you should also take into account your personal
tolerance for the daily fluctuations of the stock market.

Look for this "warning flag" symbol [FLAG] throughout the prospectus. It is
used to mark detailed information about each type of risk that you, as a
shareholder of the Fund, will confront.
================================================================================

THE FUND'S OBJECTIVE

Vanguard/Morgan Growth Fund seeks to provide long-term growth of capital. This
objective is fundamental, which means that it cannot be changed unless a
majority of shareholders vote to do so.

[FLAG]BECAUSE OF THE SEVERAL TYPES OF RISK DESCRIBED ON THE FOLLOWING PAGES,
YOUR INVESTMENT IN THE FUND, AS WITH ANY INVESTMENT IN COMMON STOCKS,
COULD LOSE MONEY.

WHO SHOULD INVEST

The Fund may be a suitable investment for you if:

- - You wish to add a growth stock fund to your existing holdings, which could
include other stock -- as well as bond, money market, and tax-exempt --
investments.

- - You are seeking growth of capital over the long term -- at least five years.

- - You are seeking a fund that invests in growth companies representing a wide
variety of industries.

- - You are not looking for current income.

This Fund is not an appropriate investment if you are a market-timer.
Investors who engage in excessive in-and-out trading activity generate
additional costs that are borne by all of the Fund's shareholders. To minimize
such costs, which reduce the ultimate returns achieved by you and other
shareholders, the Fund has adopted the following policies:

- - The Fund reserves the right to reject any purchase request -- including
exchanges from other Vanguard Funds -- that it regards as disruptive to the
efficient management of the Fund. This could be because of the timing of the
investment or because of a history of excessive trading by the investor.

4
<PAGE> 9
- - There is a limit on the number of times you can exchange into or out of the
Fund (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).

- - The Fund reserves the right to stop offering shares at any time.

INVESTMENT STRATEGIES

This section explains how Vanguard/Morgan Growth Fund's investment advisers
pursue the objective of long-term capital growth. It also explains several
important risks -- market risk, objective risk, manager risk, and country risk
- -- faced by investors in the Fund. Unlike the Fund's investment objective, the
advisers' investment strategies are not fundamental and can be changed by the
Fund's Board of Directors without shareholder approval. However, before making
any important change in its policies, the Fund will give shareholders 30-days
notice, in writing.

MARKET EXPOSURE

The Fund is a growth fund that invests mainly in large-capitalization common
stocks. The Fund also includes stocks of smaller companies that -- even though
they may not have a long history of growth -- one of the Fund's advisers finds
attractive. All stocks are chosen for their above-average earnings growth
potential. At times, the Fund may also invest in securities that are convertible
into common stocks.

[FLAG]THE PORTFOLIO IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT
STOCK PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN EXTENDED PERIODS.
STOCK MARKETS TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING STOCK PRICES
AND PERIODS OF FALLING STOCK PRICES.

To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns (dividend income plus change in market
value) for the U.S. stock market over various periods as measured by the
Standard & Poor's 500 Composite Stock Price Index, a widely used barometer of
stock market activity. Note that the returns shown do not include the costs of
buying and selling stocks or other expenses that a real-world investment
portfolio would incur. Note, also, how the gap between best and worst tends to
narrow over the long term.

<TABLE>
<CAPTION>
- -------------------------------------------------
U.S. STOCK MARKET RETURNS (1926 - 1995)
- -------------------------------------------------
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 +12.5 +10.3 +10.7 +10.7
- -------------------------------------------------
</TABLE>
PLAIN TALK ABOUT
COSTS AND MARKET TIMING

Some investors try to profit from "market timing" -- switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.

PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS

Stocks of publicly traded companies -- and mutual funds that hold these stocks
- -- can be classified by the companies' market value, or capitalization. Vanguard
defines large-capitalization, or large-cap, funds as those holding stocks of
companies with an average total market value exceeding $5 billion. Mid-cap funds
hold stocks of companies with an average market value between $750 million and
$5 billion. Small-cap funds hold stocks of companies with an average market
value of less than $750 million.

5
<PAGE> 10
PLAIN TALK ABOUT
PORTFOLIO DIVERSIFICATION

In general, the more diversified a fund's portfolio of stocks, the less likely
that a specific stock's poor performance will hurt the fund. One measure of a
fund's diversification is the percentage of total net assets represented by its
ten largest holdings. The average U.S. equity mutual fund has about 25% of its
assets invested in its ten largest holdings, while some less-diversified mutual
funds have more than 50% of their assets invested in the stocks of just ten
companies.

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1995. For example, while the average return on stocks for all of the
5-year periods was +10.3%, returns for these 5-year periods ranged from a -12.5%
average (from 1928 through 1932), to +23.9% (from 1951 through 1955). These
average returns reflect past performance and should not be regarded as an
indication of future returns from either the stock market as a whole or this
Fund in particular.

Finally, because Morgan Growth Fund does not hold the same securities held in
the Standard & Poor's 500 Index or any other market index, the performance of
the Fund will not mirror the returns of any particular index.

[FLAG]THE FUND IS SUBJECT TO OBJECTIVE RISK, WHICH IS THE POSSIBILITY THAT
RETURNS FROM GROWTH STOCKS WILL TRAIL RETURNS FROM THE OVERALL STOCK
MARKET. AS A GROUP, GROWTH STOCKS TEND TO GO THROUGH CYCLES OF
RELATIVE UNDERPERFORMANCE AND OUTPERFORMANCE IN COMPARISON TO COMMON
STOCKS IN GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS
LONG AS SEVERAL YEARS.

SECURITY SELECTION

In an attempt to ensure broad diversification, Morgan Growth Fund employs four
investment advisers, each of whom independently chooses and maintains a
portfolio of common stocks for the Fund.

The four investment advisers employ active investment management methods,
which means securities are bought and sold according to the advisers' judgments
about companies and their financial prospects, and about the stock markets and
the economy in general.

Each adviser is responsible for investing a specific percentage of the Fund's
assets. Before the Fund makes a significant change in an adviser's percentage,
shareholders will receive 30-days notice, in writing.

Wellington Management Company (WMC), which is responsible for about 40% of
the Fund's assets, uses traditional methods of stock selection -- company
research and analysis -- to identify companies that it feels have above-average
growth prospects, particularly those in industries undergoing change.

Husic Capital Management (Husic), which manages about 14% of the Fund's
assets, also employs traditional stock selection methods, but with a difference.
Husic evaluates stocks based on several key factors, such as how well a
company's stock performs as a result of changes within the company or its
industry, or how actual company performance (as reflected in, for example, sales
growth and new product introduction) compares to Husic's own forecast for the
company.

The remaining two advisers, Franklin Portfolio Associates Trust (FPA) and
Vanguard Core Management Group, employ a "quantitative" investment approach. In
other words, they use computer techniques to track -- and, if possible,
outperform -- a specific market standard. For Morgan Growth Fund, this market
standard is the Growth Fund Stock Index, which is made up of the nation's 50
largest growth funds. FPA manages about 35% and the Core Management Group
handles about 11% of the Fund's assets.

6
<PAGE> 11
Any Fund assets held in cash reserves are managed, at no cost to the Fund, by
The Vanguard Group, Inc.

The Fund's top ten holdings (which amounted to about 10% of the Fund's total
net assets) as of December 31, 1995, follow.
1. Hewlett-Packard Co.
2. PepsiCo, Inc.
3. General Electric Co.
4. Pfizer, Inc.
5. Cisco Systems, Inc.
6. Air Products & Chemicals, Inc.
7. Ascend Communications, Inc.
8. Viacom International
9. Morton International, Inc.
10. McDonald's Corp.

Keep in mind that, because the makeup of the Fund changes daily, this listing
is only a "snapshot" at one point in time.

[FLAG]THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY THAT ONE OR
MORE OF THE FUND'S INVESTMENT ADVISERS MAY DO A POOR JOB OF SELECTING
STOCKS.

PORTFOLIO TURNOVER

Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long they have been held. The Fund's
average turnover rate for the past ten years has been about 50%. (A turnover
rate of 100% would occur, for example, if the Fund sold and replaced securities
valued at 100% of its total net assets within a one-year period.)

INVESTMENT POLICIES

Besides investing in common stocks of growth companies, the Fund may follow a
number of investment policies to achieve its objective.

The Fund may invest in securities of companies based outside the United
States. These securities may be traded in U.S. or foreign markets.

[FLAG]THE FUND IS SUBJECT TO COUNTRY RISK, WHICH IS THE POSSIBILITY THAT
POLITICAL EVENTS (SUCH AS A WAR), FINANCIAL PROBLEMS (SUCH AS GOVERNMENT
DEFAULT), OR NATURAL DISASTERS (SUCH AS AN EARTHQUAKE) WILL WEAKEN A
COUNTRY'S ECONOMY AND CAUSE INVESTMENTS IN THAT COUNTRY TO LOSE MONEY.

The Fund may also invest in derivatives.

[FLAG]ALTHOUGH IT HAS NOT DONE SO IN THE PAST, THE FUND RESERVES THE RIGHT TO
INVEST, TO A LIMITED EXTENT, IN STOCK FUTURES AND OPTIONS CONTRACTS, WHICH
ARE TRADITIONAL TYPES OF DERIVATIVES.

PLAIN TALK ABOUT
PORTFOLIO TURNOVER

Before investing in a mutual fund, you should review its portfolio turnover rate
for an indication of the potential effect of transaction costs on the fund's
future returns. In general, the greater the volume of buying and selling by the
fund, the greater the impact that brokerage commissions and other transaction
costs will have on its return. Also, funds with high portfolio turnover rates
may be more likely than low-turnover funds to generate capital gains that must
be distributed to shareholders as taxable income. The average turnover rate for
actively managed fund investing in common stocks is 75%.

PLAIN TALK ABOUT
THE RISKS OF INTERNATIONAL INVESTING

Because foreign stock markets operate differently from the U.S. market,
Americans investing abroad will encounter risks not typically associated with
U.S. companies. For instance, foreign countries are not subject to the same
accounting, auditing, and financial reporting standards and practices as U.S.
companies, and may not be as liquid as similar U.S. companies. In addition,
foreign stock exchanges, brokers, and companies generally have less government
supervision and regulation than in the U.S. These factors, among others, could
negatively impact the returns Americans receive from a foreign investment. For
more information about foreign investment risk, see the Statement of Additional
Information.

7
<PAGE> 12
PLAIN TALK ABOUT
DERIVATIVES

A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new, exotic types of derivatives -- some of which
can carry considerable risks.

Losses (or gains) involving futures can sometimes be substantial -- in part
because a relatively small price movement in a futures contract may result in an
immediate and substantial loss (or gain) for a portfolio. This Fund will not use
futures and options for speculative purposes or as leveraged investments that
magnify the gains or losses of an investment. Rather, the Fund will keep
separate cash reserves or short-term cash-equivalent securities in the amount of
the obligation underlying the futures or options contract. Only a limited
percentage of the Fund's assets -- no more than 20% of total assets -- may be
committed to such contracts.

The reasons for which the Fund may use futures and options are:

- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.

- - To make it easier to trade.

- - To reduce costs by buying futures instead of actual stocks when futures are
cheaper.

The Portfolio will usually hold only a small percentage of its assets in cash
reserves, although if the investment advisers believe that market conditions
warrant a temporary defensive measure, the Portfolio may hold cash reserves
without limit.

INVESTMENT LIMITATIONS

To reduce risk and maintain diversification, the Fund has adopted limits on some
of its investment policies. Specifically, the Fund will not:

- - Invest more than 25% of its assets in any one industry.

- - Borrow money, except for the purpose of meeting shareholder requests to
redeem shares.

With respect to 75% of its assets, this Fund will not:

- - Invest more than 5% in the securities of any one company.

- - Buy more than 10% of the outstanding voting securities of any company.

The limitations listed in this prospectus and in the Statement of Additional
Information are fundamental and may be changed only by approval of a majority of
the Fund's shareholders.

INVESTMENT PERFORMANCE

Vanguard/Morgan Growth Fund invests primarily in common stocks, so its
performance is closely correlated to the performance of the overall stock
market. Historically, performance of the stock markets, both foreign and
domestic, has been characterized by sharp up-and-down swings in the short term
and by more stable growth over the long term.

8
<PAGE> 13
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 12/31/95
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Vanguard/Morgan Growth Fund S&P 500 Index
<C> <C> <C>
1 Year 36.0% 37.6%
3 Years 12.8 15.3
5 Years 15.3 16.6
10 Years 13.0 14.9
20 Years 14.8 14.6
25 Years 12.6 12.2
- -------------------------------------------------------------------------------
</TABLE>

The results shown above represent the Fund's "average annual total
return" performance, which assumes that any distributions of capital gains and
dividends were reinvested for the indicated periods. Also included is
comparative information on the unmanaged Standard & Poor's 500 Index. The chart
does not make any allowance for Federal, state, or local income taxes that
shareholders must pay on a current basis.

In weighing these performance figures, note that it has been in
operation since December 31, 1968, and that until April 24, 1990, Wellington
Management Company was the Fund's only investment adviser (Franklin Portfolio
Associates was added as an adviser in 1990; Husic Capital Management and
Vanguard Core Management Group were added in 1993).

SHARE PRICE

The Fund's share price, called its net asset value, is calculated each business
day after the close of regular trading (generally 4:00 p.m. Eastern time) of the
New York Stock Exchange. Net asset value per share is computed by adding up the
total value of the Fund's investments and other assets, subtracting any of its
liabilities, or debts, and then dividing by the number of Fund shares
outstanding:

TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = --------------------------------
NUMBER OF SHARES OUTSTANDING

Daily net asset value, or NAV, is useful to you as a shareholder
because the NAV, multiplied by the number of Fund shares you own, gives you the
dollar amount you would have received had you sold all of your shares back to
the Fund that day.

The Fund's share price can be found daily in the mutual fund listings
of most major newspapers under the heading Vanguard Group. Different newspapers
use different abbreviations of the Fund's name, but the most common is MORG.

PLAIN TALK ABOUT
PAST PERFORMANCE

Whenever you see information on a fund's performance, do not consider the
figures to be an indication of the performance you could expect by making an
investment in the fund today. The past is an imperfect guide to the future;
history does not repeat itself in neat, predictable patterns.

9
<PAGE> 14
PLAIN TALK ABOUT
DISTRIBUTIONS

As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or capital gains distribution. Income
dividends come from the dividends that the fund earns from its holdings as well
as interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. The capital gains are either short-term or long-term depending on
whether the fund held the securities for less than or more than one year.

PLAIN TALK ABOUT
"BUYING A DIVIDEND"

Unless you are investing in a tax-deferred retirement account (such as an IRA),
it is not to your advantage to buy shares of a fund shortly before it makes a
distribution, because part of your investment will come back to you as a taxable
distribution. This is known as "buying a dividend." For example: on December 15,
you invest $5,000, buying 250 shares for $20 each. If the fund pays a
distribution of $1 per share on December 16, its share price would drop to $19
(not counting market change). You would still have only $5,000 (250 shares x $19
= $4,750 in share value, plus 250 shares x $1 = $250 in distributions), but you
would owe tax on the $250 distribution you received, even if you had reinvested
the dividends in more shares. To avoid "buying a dividend," check a fund's
distribution schedule before you invest.

DIVIDENDS, CAPITAL GAINS, AND TAXES

Each December, the Fund distributes to shareholders virtually all of its income
from interest and dividends, as well as any capital gains realized from the sale
of securities. You can receive distributions of income or capital gains in cash,
or you may have them automatically reinvested in more shares of the Fund. In
either case, distributions of dividends and capital gains that are declared in
December -- even if paid to you in January -- are taxed as if they had been paid
to you in December. Vanguard will process your dividend distribution and send
you a statement each year showing the tax status of all your distributions.

- - The dividends and short-term capital gains that you receive are taxable
to you as ordinary dividend income. Any distributions of net long-term
capital gains by the Fund are taxable to you as long-term capital
gains, no matter how long you've owned shares in the Fund. Both
dividends and capital gains distributions are taxable to you whether
received in cash or reinvested in additional shares. Although the Fund
does not seek to realize any particular amount of capital gains during
a year, such gains are realized from time to time as byproducts of the
ordinary investment activities of the Fund. Consequently, distributions
may vary considerably from year to year.

- - If you sell or exchange shares of the Fund, any gain or loss you have
is a taxable event, which means that you may have a capital gain to
report as income, or a capital loss to report as a deduction, when you
complete your Federal income tax return.

- - Distributions of dividends or capital gains, and capital gains or
losses from your sale or exchange of Fund shares, may be subject to
state and local income taxes as well.

The tax information in this prospectus is provided as general
information and will not apply to you if you are investing in a tax-deferred
account such as an IRA. You should consult your own tax adviser about the tax
consequences of an investment in the Fund.

THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group, a family of more than 30 investment
companies with more than 90 distinct investment portfolios and total net assets
of more than $190 billion. All of the Vanguard Funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.

Vanguard also provides marketing services to the Funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each Fund
pays its allocated share of The Vanguard Group's costs.

A list of the Fund's Directors and Officers, and their present
positions and principal occupations during the past five years, can be found in
the Statement of Additional Information.

10
<PAGE> 15
INVESTMENT ADVISERS

The Fund employs four investment advisers. Each manages its percentage of the
Fund's assets subject to the control of the Officers and Directors of the Fund.

Wellington Management Company (WMC), 75 State Street, Boston, MA 02109,
was founded in 1933. The investment advisory firm currently manages more than
$100 billion in stock and bond portfolios, including 13 Vanguard Funds. As of
December 31, 1995, WMC managed 39% of Morgan Growth Fund's assets.

WMC's advisory fee is based on average net assets managed:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ASSETS MANAGED FEE
- -------------------------------------------------------------------------------
<S> <C>
First $500 million 0.175%
Next $500 million 0.100
Assets over $1 billion 0.075
- -------------------------------------------------------------------------------
</TABLE>

WMC's advisory fee may be adjusted based on its 36-month cumulative
total return performance as compared to that of the Growth Fund Stock Index.
Under the fee schedule, WMC's basic fee may be increased or decreased by as much
as 0.5%.

Franklin Portfolio Associates (FPA), One Post Office Square 3660,
Boston, MA 02109, is a professional advisory firm founded in 1982. FPA currently
manages approximately $x.x billion in assets, including Vanguard Quantitative
Portfolios. As of December 31, 1995, FPA managed 33% of Morgan Growth Fund's
assets.

FPA's advisory fee is paid quarterly, based on average month-end net
assets managed during the quarter:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ASSETS MANAGED FEE
- -------------------------------------------------------------------------------
<S> <C>
First $100 million 0.25%
Next $200 million 0.20
Next $200 million 0.15
Assets over $500 million 0.10
- -------------------------------------------------------------------------------
</TABLE>

FPA's advisory fee may be adjusted based on its total return
performance as compared to that of the Growth Fund Stock Index. Under the fee
schedule, FPA's basic fee may be increased or decreased by as much as 0.10%.

Husic Capital Management (Husic), 555 California Street, Suite 2900,
San Francisco, CA 94104, was founded in 1986 and manages about $x.x billion in
assets. Husic managed 13% of Morgan Growth Fund's assets as of December 31,
1995.

Husic's advisory fee is paid quarterly, based on average month-end
assets managed during the quarter:

PLAIN TALK ABOUT
VANGUARD'S UNIQUE
CORPORATE STRUCTURE

The Vanguard Group, Inc. is the only MUTUAL mutual fund company. It is owned
jointly by the Funds it oversees and by the shareholders in those Funds. Other
mutual funds are operated by for-profit management companies that may be owned
by one person, a group of individuals, or by investors who bought the management
company's publicly traded stock. Because of its structure, Vanguard operates its
Funds at cost. Instead of distributing profits from operations to a separate
management company, Vanguard returns profits to Fund shareholders in the form of
lower operating expenses.

11
<PAGE> 16
PLAIN TALK ABOUT
THE FUND'S ADVISERS

Since February 1994, the manager responsible for WMC's portion of Morgan Growth
Fund has been ROBERT D. RANDS, CFA, Senior Vice President of WMC; 30 years
investment experience, 18 years with WMC; B.A. from Yale University, M.B.A. from
the University of Pennsylvania.

JOHN J. NAGORNIAK, CFA, President of FPA (26 years investment
experience, formerly chief investment officer with State Street Bank and Trust
Company; B.A. from Princeton University, M.S. from The Sloan School of
Management, Massachusetts Institute of Technology), has managed FPA's percentage
of the Fund's assets since 1990.

The person responsible for Husic's portion of Morgan Growth Fund since
1993 has been FRANK J. HUSIC, CFA, Managing Partner; 23 years investment
experience; formerly Senior Vice President and Director at Alliance Capital
Management; B.S. and M.S. from Carnegie Mellon University, M.S. PhD from the
University of Pennsylvania.

GEORGE U. SAUTER, a Principal of Vanguard (11 years investment
experience, 9 years primary responsibility for Vanguard Core Management Group;
A.B. from Dartmouth College, M.B.A. from the University of Chicago), has
overseen Vanguard Core Management Group's portion of the Fund's assets since
1993.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ASSETS MANAGED FEE
- -------------------------------------------------------------------------------
<S> <C>
First $25 million 0.40%
Next $125 million 0.35
Next $350 million 0.25
Next $500 million 0.20
Assets over $1 billion 0.15
</TABLE>

Husic's advisory fee may be adjusted based on its total return
performance as compared to that of the Growth Fund Stock Index. Under the fee
schedule, Husic's basic fee may be increased or decreased by as much as 75%.
This performance fee adjustment will not be fully operable until the quarter
ending September 30, 1996.

Vanguard Core Management Group, P.O. Box 2600, Valley Forge, PA 19482,
was responsible for 10% of Morgan Growth Fund's assets as of December 31, 1995.
The Group provides investment advisory services to several Vanguard Funds,
managing more than $33 billion in total assets as of year end 1995. Vanguard
Core Management Group provides advisory services to the Fund on an at-cost
basis.

Any Fund assets held in cash (which, as of December 31, 1995, equaled
5% of the Fund's assets) are managed, at no cost to the Fund, by The Vanguard
Group, Inc.

For the year ended December 31, 1995, the total fee paid by
Vanguard/Morgan Growth Fund to its advisers was $1.77 million, which included a
base fee of $2.39 million and a decrease, based on adviser performance, of
$621,000.

The fee agreement with each adviser authorizes them to choose brokers
or dealers to handle the purchase and sale of the Fund's securities, and directs
them to get the best available price and most favorable execution from these
brokers with respect to all transactions.

The Board of Directors may, without prior approval from shareholders,
change the terms of the advisory agreement or hire a new investment adviser,
either as a replacement for one of the existing advisers or as an additional
adviser. However, no such change would be made before giving shareholders
30-days notice, in writing.

GENERAL INFORMATION

Vanguard/Morgan Growth Fund is organized under the laws of the State of
Maryland. Shareholders of the Fund have rights and privileges similar to those
enjoyed by other corporate shareholders. For example, shareholders will not be
responsible for any liabilities of the corporation. If any matters are to be
voted on by shareholders (such as a change in a fundamental investment objective
or the election of directors), each share outstanding at that point would be
entitled to one vote. Although the Fund does not usually hold an annual meeting,
shareholders may request one under certain circumstances, which are described in
the Statement of Additional Information.

12
<PAGE> 17
INVESTING WITH VANGUARD

Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to Fund information? Establish an account for a
minor child or for your retirement savings?

Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.

The following sections of the prospectus briefly explain the many services we
offer you as a Vanguard/Morgan Growth Fund shareholder. Booklets providing
detailed information are available on the services marked with a [BOOK]. Please
call us to request copies.

SERVICES AND ACCOUNT FEATURES

We offer a variety of options designed to fit your financial planning needs,
including . . .

- - Automatic methods for depositing your paycheck or government check, and
moving money between Vanguard Fund accounts or between your Vanguard Fund
account and your bank account.

- - A cost-effective way to complement your Vanguard mutual fund shares with
individual stocks, bonds, and options.

TYPES OF ACCOUNTS

You can establish an account for yourself (or yourself and another party), a
minor child, a trust, or an organization, or as a third-party trustee retirement
investment. We also offer retirement accounts for individuals, self-employed
people, small businesses, partnerships, corporations, and tax-exempt
institutions.

DISTRIBUTION OPTIONS

You can receive your dividends and capital gains in cash, or reinvest them in
additional Fund shares.

BUYING SHARES

It's easy to open an account or add money to an existing account.

REDEEMING SHARES

You can withdraw money you have invested in the Fund by selling or exchanging
shares.

FUND AND ACCOUNT UPDATES

- - Our clear, concise Portfolio Summaries and tax statements help you keep track
of your Vanguard investments throughout the year as well as when you are
preparing your income tax returns.

- - Twice each year, you will receive comprehensive fund reports about
Vanguard/Morgan Growth Fund. These reports include an assessment of the
Fund's performance (and a comparison to its benchmark index) as well as a
complete listing of its holdings.

- - Vanguard Tele-Account(R) offers toll-free Fund and account information 24
hours a day from any TouchTone(TM) telephone.

- - You can use your personal computer to obtain share price, yield, and total
return -- as well as general investment information -- through Vanguard
Online(sm) and the World Wide Web.

13
<PAGE> 18
SERVICES AND ACCOUNT FEATURES

Vanguard offers many services that make it convenient to purchase, sell, or
exchange shares.

TELEPHONE REDEMPTIONS Automatically set up for this Fund unless you
(SALES AND EXCHANGES) notify us otherwise.

VANGUARD DIRECT DEPOSIT Automatic method for depositing your paycheck
SERVICE or U.S. Government payment (including Social
[BOOK] Security and Government pension checks) into
your account.

VANGUARD AUTOMATIC EXCHANGE Automatic method for moving a fixed amount of
SERVICE money from one Vanguard Fund account to
[BOOK] another.*

VANGUARD FUND EXPRESS Electronic method for purchasing or selling
[BOOK] shares: transferring money between your
Vanguard Fund account and an account at your
bank, savings and loan, or credit union --
on a systematic schedule or whenever you wish.*

VANGUARD DIVIDEND EXPRESS Electronic method for transferring dividends
[BOOK] and/or capital gains distributions directly
from your Vanguard Fund account to your bank,
savings and loan, or credit union account or to
another Vanguard Fund account.

VANGUARD BROKERAGE SERVICES A way to trade stocks, bonds, and options on
(VBS) major exchanges, Nasdaq, and other domestic
[BOOK] over-the-counter markets at reduced rates, and
to buy and sell shares of non-Vanguard mutual
funds. Call VBS (1-800-992-8327) for additional
information and the appropriate forms.

*Can be used to "dollar-cost average" [BOOK] or to contribute to an IRA or other
retirement plan.

TYPES OF ACCOUNTS

INDIVIDUAL OR OTHER ENTITY

Vanguard's account registration form can be used to establish a variety of
account types.

FOR ONE OR MORE PEOPLE To open an account in the name of one
(individual) or more (joint tenants) people.
$3,000 minimum initial investment.

FOR A MINOR CHILD To open an account as an UGMA/UTMA (Uniform
[BOOK] Gifts/Transfers to Minors Act). Age of majority
and other transfer requirements are set by
state law. $1,000 minimum initial investment.

FOR HOLDING TRUST ASSETS To register assets held in an existing trust.
[BOOK] $3,000 minimum initial investment.

Investor Information 1-800-662-7447 - Client Services 1-800-662-2739 -
Tele-Account 1-800-662-6273

14
<PAGE> 19
Types of Accounts (continued)

FOR THIRD-PARTY TRUSTEE To open an account as a retirement trust or
RETIREMENT INVESTMENTS plan based on an existing corporate or
(Vanguard is not the custodian institutional plan. These accounts are
or trustee) established by the custodian or trustee of the
existing plan.

FOR AN ORGANIZATION To open an account as a corporation,
partnership, or other entity. These accounts
may require a corporate resolution or other
documents to name the individuals authorized to
act. $3,000 minimum initial investment.

RETIREMENT

These accounts must be established with a Vanguard adoption agreement -- not a
Vanguard account registration form -- and may require additional documentation.
To request the appropriate adoption agreement and forms or to receive answers to
your questions about investing for retirement, call Investor Information.

FOR AN INDIVIDUAL RETIREMENT To open a retirement account in the name of an
ACCOUNT (IRA) individual. IRAs can be established through a
(Vanguard Fiduciary Trust regular contribution, a direct rollover from an
Company is the custodian) employer's plan such as a 401(k), or through an
asset transfer or rollover from another
financial institution such as a bank or mutual
fund company. $1,000 minimum initial
investment.

FOR A SIMPLIFIED EMPLOYEE To open a retirement account in the name of an
PENSION PLAN ACCOUNT (SEP-IRA) employee. SEPs allow employers to make
(Vanguard Fiduciary Trust deductible contributions directly to IRAs
Company is the custodian) established by their employees. A SEP can be
established by self-employed individuals, small
businesses, partnerships, or corporations.

FOR A QUALIFIED RETIREMENT To open a retirement account that allows small
PROGRAM ACCOUNT business owners or self-employed individuals to
(Vanguard Fiduciary Trust make tax-deductible retirement contributions
Company is the custodian) for themselves and their employees into Profit-
Sharing and Money Purchase Pension (Keogh)
plans.

FOR A 403(b)(7) CUSTODIAL To open a retirement account that allows
ACCOUNT employees of tax-exempt institutions (for
(Vanguard Fiduciary Trust example, to make Company is the custodian)
schools or hospitals) pre-tax retirement contributions.

DISTRIBUTION OPTIONS

You can receive distributions of dividends and/or capital gains in a number of
ways:

REINVESTMENT Dividends and capital gains are reinvested in
additional shares of the Fund.

DIVIDENDS IN CASH Dividends are paid by check and mailed
to your account's address of record, and
capital gains are reinvested in additional
shares of the Fund.

Investor Information 1-800-662-7447 - Client Services 1-800-662-2739 -
Tele-Account 1-800-662-6273

15
<PAGE> 20
DISTRIBUTION OPTIONS (continued)

DIVIDENDS AND CAPITAL GAINS Both dividends and capital gains are paid by
IN CASH check and mailed to your account's address of
record.

To electronically transfer cash dividends and/or capital gains to your bank,
savings and loan, or credit union account, or to another Vanguard Fund
account, see Vanguard Dividend Express under "Services and Account Features."

BUYING SHARES

The price you pay for your shares is the Fund's next-determined net asset value
after Vanguard receives your request, provided we receive your request before
4:00 p.m. Eastern time (the close of trading on the New York Stock Exchange).
The Fund is offered on a no-load basis, meaning that you do not pay sales
commissions or 12b-1 marketing fees.

<TABLE>
<CAPTION>
<S> <C> <C>
OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT
MININUM INVESTMENT $3,000 (regular account); $1,000 $100 by mail or exchange;
(IRAs and accounts for minors). $1,000 by wire.

BY MAIL Complete and sign the applica- Mail your check with an Invest-
[ENVELOPE] tion form. By-Mail form detached from
FIRST-CLASS mail to: your confirmation statement to
The Vanguard Group the address listed on the form.
P.O. Box 2600
Valley Forge, PA 19482 Make your check payable to: Make your check payable to:
The Vanguard Group-26. The Vanguard Group-26.
EXPRESS or REGISTERED mail to:
The Vanguard Group All purchases must be made in All purchases must be made in
455 Devon Park Drive U.S. dollars, and checks must be U.S. dollars, and checks must be
Wayne, PA 19087 drawn on U.S. banks. drawn on U.S. banks.
</TABLE>

IMPORTANT NOTE: To prevent check fraud, Vanguard will no accept checks made
payable to third parties.

<TABLE>
<S> <C> <C>
BY TELEPHONE Call Vanguard Tele-Account*24 Call Vanguard Tele-Account*24
[TELEPHONE] hours a day--or Client Services hours a day--or Client Services
1-800-662-6273 during business hours--to ex- during business hours--to ex-
Vanguard Tele-Account change from another Vanguard change from another Vanguard
1-800-662-2739 Fund account with the same reg- Fund account with the same reg-
Client Services istration (name, address, and tax- istration (name, address, and tax-
payer I.D. number). payer I.D. number).

Use Vanguard Fund Express (see
"Services and Account Features")
to transfer assets from your bank
account. Call Client Services be-
fore your first use to verify that
this option is in place.
</TABLE>

*You must obtain a Personal Identification Number through Tele-Account
at least seven days before you request your first exchange.

IMPORTANT NOTES: Once a telephone transaction has been approved by you and a
confirmation number assigned, it cannot be revoked. We reserve the right to
refuse any purchase.

Investor Information 1-800-662-7447 - Client Services 1-800-662-2739 -
Tele-Account 1-800-662-6273

16
<PAGE> 21
BUYING SHARES (continued)
<TABLE>
<S> <C> <C>
OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT

BY WIRE Call Client Services to arrange Call Client Services to arrange
[WIRE GRAPHIC] your wire transaction. your wire transaction.

Wire to: Wire transactions are not avail- Wire transactions are not avail-
CoreStates Bank, N.A. able for retirement accounts. able for retirement accounts.
ABA031000011
CoreStates No 01019897
[Termporary Account Number]
Vanguard/Morgan Growth Fund
[Account Registration]
Attn Vanguard

AUTOMOTICALLY -- Vanguard offers a variety of ways
that you can add to your account
automatically. See "Services and
Account Features."
</TABLE>

Shares purchased by check or Vanguard Fund Express can be redeemed at any
time. However, while your redemption request will be processed as soon as it
is received, your redemption proceeds will not be available until payment for
your purchase is collected, which may take up to ten days.

It is important that you call Vanguard before you invest a large dollar
amount by wire or check. Vanguard must consider the interests of all Fund
shareholders and so reserves the right to delay or refuse any purchase that may
disrupt the Fund's operation or performance.

REDEEMING SHARES

IMPORTANT TAX NOTE: Any sale or exchange of shares in a non-retirement account
could result in a taxable gain or a loss.

The ability to redeem (that is, sell or exchange) Fund shares by telephone is
automatically established for your account unless you tell us in writing that
you do not want this option.

To protect your account from unauthorized or fraudulent telephone
instructions, Vanguard follows specific security procedures. When we receive a
call requesting an account transaction, we require the caller to provide:

/X/ Fund name.
/X/ 10-digit account number.
/X/ Name and address exactly as registered on that account.
/X/ Social Security or Employer Identification number as registered on that
account.

If you call to sell shares, the sale proceeds will be made payable to you, as
the registered shareholder, and mailed to your account's address of record.

If we follow reasonable security procedures, neither the Fund nor Vanguard
will be responsible for the authenticity of transaction instructions received by
telephone. We believe that these procedures are reasonable and that, if we
follow them, you bear the risk of any losses resulting from unauthorized or
fraudulent telephone transactions on your account. However, if we do not follow
these or other reasonable procedures, Vanguard may be liable for any losses
resulting from unauthorized or fraudulent transactions.

INVESTOR INFORMATION 1-800-662-7447 - CLIENT SERVICES 1-800-662-2739
TELE-ACCOUNT 1-800-662-6273

17
<PAGE> 22
REDEEMING SHARES (continued)

HOW TO SELL SHARES

You may withdraw any part of your account, at any time, by selling shares;
however, the Fund reserves the right to close any non-retirement or UGMA/UTMA
account whose balance falls below the minimum initial investment. The Fund will
deduct a $10 annual fee if your non- retirement account balance falls below
$2,500 or if your UGMA/UTMA account balance falls below $500. The fee is waived
if your total Vanguard Fund account assets are $50,000 or more.

Sale proceeds are normally mailed within two business days after Vanguard
receives your request. The sale price of your shares will be the Fund's
next-determined net asset value after Vanguard receives all required documents
in good order.

Good order means that the request includes:

/X/ Fund name and account number.
/X/ Amount of the transaction (in dollars or shares).
/X/ Signatures of all owners exactly as registered on the account.
/X/ Signature guarantees (if required).
/X/ Any supporting legal documentation that may be required.
/X/ Any certificates you are holding for the account.

Sales or exchange requests received after the close of trading on the New
York Stock Exchange (generally 4:00 p.m. Eastern time) are processed at the next
business day's net asset value.

Some written requests require a signature guarantee from a bank, broker, or
other acceptable institution. A notary public cannot provide a signature
guarantee.

HOW TO EXCHANGE SHARES

An exchange is the selling of shares of one Vanguard Fund to purchase shares of
another.

Although every effort will be made to maintain the exchange privilege,
Vanguard reserves the right to revise or terminate the exchange privilege, limit
the amount of an exchange, or reject any exchange, at any time, without notice.

Because excessive exchanges can potentially disrupt the management of the
Fund and increase transaction costs, Vanguard has established a policy of
limiting exchange activity to two SUBSTANTIVE EXCHANGE REDEMPTIONS (at least 30
days apart) from the Fund during any 12-month period. "Substantive" means either
a dollar amount large enough to have a negative impact on the Fund or a series
of movements between Vanguard Funds.

Before you exchange into a new Vanguard Fund, please read its prospectus. For
a copy and for answers to questions you might have, please call Investor
Information.

SELLING OR EXCHANGING SHARES ACCOUNT TYPE

BY TELEPHONE ALL TYPES EXCEPT RETIREMENT:

[TELEPHONE] Call Vanguard Tele-Account* 24 hours a day --
1-800-662-6273 or Client Services during business hours -- to
Vanguard Tele-Account request a sale or exchange of shares. You can
1-800-662-2739 exchange shares from this Fund to open an
Client Services account in another Vanguard Fund or to add to
an existing Vanguard Fund account with an
identical registration.

RETIREMENT:

You can exchange -- but not sell -- shares by
calling Tele- Account or Client Services.

*You must obtain a Personal Identification
Number through Tele-Account at least seven days
before you request your first redemption.

INVESTOR INFORMATION 1-800-662-7447 - CLIENT SERVICES 1-800-662-2739
TELE-ACCOUNT 1-800-662-6273

18
<PAGE> 23
REDEEMING SHARES (continued)

SELLING OR EXCHANGING SHARES ACCOUNT TYPE

BY MAIL ALL TYPES EXCEPT RETIREMENT:
[ENVELOPE] Send a letter of instruction signed by all
FIRST-CLASS mail to: registered account holders. Include the Fund
The Vanguard Group name and account number and (if you are
Vanguard/Morgan Growth Fund selling) a dollar amount or number of shares OR
P.O. Box 1120 (if you are exchanging) the name of the Fund
Valley Forge, PA 19482 you want to exchange into and a dollar amount
or number of shares.

EXPRESS or REGISTERED mail to: RETIREMENT:

The Vanguard Group Call Client Services (for IRAs) or Individual
Vanguard/Morgan Growth Fund Retirement Services (for SEP-IRAs, 403(b)(7)
455 Devon Park Drive custodial accounts, Profit- Sharing and Money
Wayne, PA 19087 Purchase Pension [Keogh] plans: 1-800-662-2003)
for information on how to request a
distribution. Depending on your account
registration type, additional documentation may
be required.

AUTOMATICALLY ALL TYPES EXCEPT RETIREMENT:

Vanguard offers several ways to sell or
exchange shares automatically (see "Services
and Account Features"). Call Investor
Information for the appropriate booklet and
application if you did not elect a feature when
you opened your account.

It is important that you call Vanguard before you redeem a large dollar
amount. In protecting the interests of all Fund shareholders, Vanguard may not
be able to deliver your redemption proceeds immediately if the amount is
considered to be disruptive to the Fund's operation or performance. Vanguard
reserves the right to take up to seven days to deliver your redemption proceeds.

A NOTE ON UNUSUAL CIRCUMSTANCES

Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares 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 you experience difficulty making a
telephone redemption during periods of drastic economic or market change, you
can send us your request by regular or express mail. Follow the instructions
on selling or exchanging shares by mail in the "Redeeming Shares" section.

FUND AND ACCOUNT UPDATES

STATEMENTS AND REPORTS

We will send you a variety of statements to help you monitor your account
activity and to help you complete your tax returns. You will also receive annual
and semi-annual financial reports on the Fund's operation and performance.

CONFIRMATION STATEMENT Sent each time you purchase, exchange, or
redeem shares; confirms the date and the
amount of the transaction.

INVESTOR INFORMATION 1-800-662-7447 - CLIENT SERVICES 1-800-662-2739
TELE-ACCOUNT 1-800-662-6273

19
<PAGE> 24
FUND AND ACCOUNT UPDATES (CONTINUED)

PORTFOLIO SUMMARY Mailed quarterly; shows the market value of
your account as of the close of the statement
period, as well as distributions, purchases,
exchanges, and redemptions for the current
calendar year.

FUND FINANCIAL REPORTS Mailed in February and August for this Fund.

TAX STATEMENTS Generally mailed in January; report previous
year's dividend and capital gains
distributions, proceeds from the sale of
shares, and distributions from IRAs or other
retirement accounts.

AVERAGE COST STATEMENT Issued quarterly for taxable accounts
[BOOK] (accompanies your Portfolio Summary); shows the
average cost of shares that you redeemed during
the previous quarter, using the average cost
single category method.

AUTOMATED TELEPHONE ACCESS

VANGUARD TELE-ACCOUNT Toll-free access to total return, share price,
1-800-662-6273 price change, and yield quotations through any
Any time, seven days a week, TouchTone telephone. Also provides your account
from anywhere in the balance (in dollars and shares), last
continental United States transaction, redemptions by check during the
and Canada last three months, and the latest dividend or
[BOOK] capital gains distribution. Permits exchanges
and sales of Fund shares.

COMPUTER ACCESS

VANGUARD ONLINE Information via your personal computer on Fund
KEYWORD: vanguard share price, yield, and total return; offered
through America Online (AOL). To establish an
AOL account, call 1-800-238-6336.

VANGUARD ON THE An education-oriented website offering news and
WORLD WIDE WEB information about Vanguard Funds and services,
http://www.vanguard.com as well as interactive, easy-to-use investment
planning tools.

SHARES OF THE FUND MAY ONLY BE SOLD IN THOSE STATES IN WHICH THEY ARE
REGISTERED. THE FUND'S SHARES ARE CURRENTLY REGISTERED FOR SALE IN ALL 50
STATES, AND THE FUND INTENDS TO MAINTAIN SUCH REGISTRATION.

INVESTOR INFORMATION 1-800-662-7447 - CLIENT SERVICES 1-800-662-2739
TELE-ACCOUNT 1-800-662-6273

20
<PAGE> 25
GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION

Payment to mutual fund shareholders of gains realized during the year on
securities that the fund has sold at a profit, minus any realized losses.

CASH RESERVES

Cash deposits as well as short-term bank deposits, money market instruments,
investment contracts, and U.S. Treasury bills.

COMMON STOCK

A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.

COUNTRY RISK

The possibility that events such as political or financial troubles or natural
disasters will weaken a country's economy.

DIVIDEND INCOME

Payment to shareholders of income from interest or dividends generated by the
fund's investments.

EXPENSE RATIO

The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
marketing fees.

FIXED-INCOME SECURITIES

Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.

GROWTH STOCK FUND

A mutual fund that emphasizes stocks of companies whose strong earnings and
revenue potential indicate above-average prospects for capital growth.

INVESTMENT ADVISER

An organization that makes the day-to-day decisions regarding a portfolio's
investments.

MUTUAL FUND

An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

NET ASSET VALUE (NAV)

The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.

PORTFOLIO DIVERSIFICATION

Holding a variety of securities so that a portfolio's return is not hurt by the
poor performance of a single security or industry.

PRICE/EARNINGS (P/E) RATIO

The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.

PRINCIPAL

The amount of your own money you put into an investment.

SECURITIES

Stocks, bonds, and other investment vehicles.

TOTAL RETURN

A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.

VALUE STOCK FUND

A mutual fund that focuses on stocks of companies that, considering their
earnings and dividends, are attractively priced.

VOLATILITY

The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.

YIELD

Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE> 26
[VANGUARD GROUP LOGO]

Post Office Box 2600
Valley Forge, PA 19482

INVESTOR INFORMATION DEPARTMENT
1-800-662-7447(SHIP)
TEXT TELEPHONE:
1-800-952-3355

For information on our Funds, Fund services, and retirement accounts; request
for literature

CLIENT SERVICES DEPARTMENT
1-800-662-2739(CREW)
TEXT TELEPHONE:
1-800-662-2738

For information on your account, account transactions, account statements

VANGUARD BROKERAGE SERVICES
1-800-992-8327

For information on trading stocks, bonds, and options at reduced commissions

VANGUARD TELE-ACCOUNT(R)
1-800-662-6273(ON BOARD)

For 24-hour automated access to price and yield, information on your account,
certain transactions

ELECTRONIC ACCESS TO THE VANGUARD MUTUAL FUND EDUCATION AND INFORMATION CENTER

On America Online(R)
Keyword: vanguard

On the World Wide Web
http://www.vanguard.com

To send e-mail to Vanguard
[email protected]

<PAGE> 27
VANGUARD/
MORGAN GROWTH
FUND

Institutional Prospectus
June 28, 1996

This prospectus contains
financial data for the Fund
through the fiscal year ended
December 31, 1995.

[VANGUARD GROUP LOGO]

<PAGE> 28
VANGUARD/MORGAN GROWTH FUND A Growth Stock Mutual Fund

CONTENTS

Fund Expenses 2

Financial Highlights 3

A Word About Risk 4

The Fund's Objective 4

Who Should Invest 4

Investment Strategies 5

Investment Policies 7

Investment Limitations 8

Investment
Performance 8

Share Price 9

Dividends, Capital
Gains, and Taxes 10

The Fund and
Vanguard 10

Investment Advisers 10

General Information 12

Investing
with Vanguard

- - For Plan Participants 13

- - For Other
Institutional Investors 13

Accessing Fund
Information
by Computer 14

Prospectus Postscript 15

Glossary Inside Back Cover

INVESTMENT OBJECTIVE AND POLICIES

Vanguard/Morgan Growth Fund, Inc. (the "Fund") is an open-end diversified
investment management company, or mutual fund.

It is important to note that the Fund's shares are not guaranteed or
insured by the FDIC or any other agency of the U.S. Government. As with any
investment in common stocks, which are subject to wide fluctuations in market
value, you could lose money by investing in the Fund.

FEES AND EXPENSES

IMPORTANT NOTE

This prospectus is intended for institutional clients and for participants in
employer-sponsored retirement or savings plans. Another version -- for investors
who would like to open a personal investment account --can be obtained by
calling Vanguard at 1-800-662-7447.

ADDITIONAL INFORMATION ABOUT THE FUND

A Statement of Additional Information containing more information about the Fund
is, by reference, part of this prospectus and may be obtained without charge by
contacting Vanguard (see back cover).

WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of Vanguard/Morgan
Growth Fund. To highlight terms and concepts important to mutual fund investors,
we have provided "Plain Talk" explanations along the way. Reading the prospectus
will help you to decide whether the Fund is the right investment for your needs.
We suggest that you keep it for future reference.

<PAGE> 29
FUND PROFILE Vanguard/Morgan Growth Fund

WHO SHOULD INVEST (page 4)

- - Investors seeking a growth stock mutual fund as part of a balanced and
diversified investment program.

- - Investors seeking growth of their capital over the long term -- at least
five years.

WHO SHOULD NOT INVEST

- - Investors unwilling to accept significant fluctuations in share price.

- - Investors seeking dividend income.

RISKS OF THE FUND (pages 4 - 7)

DIVIDENDS AND CAPITAL GAINS (page 10)

Paid annually in December. In participant accounts, all distributions are
automatically reinvested.

INVESTMENT ADVISERS (page 10)

The Fund employs a multi-adviser approach:

- - Wellington Management Company, Boston.

- - Franklin Portfolio Associates Trust, Boston.

- - Husic Capital Management, San Francisco.

- - Vanguard Core Management Group.

INCEPTION DATE: December 31, 1968

NET ASSETS AS OF 12/31/95: $1.47 billion

FUND'S EXPENSE RATIO FOR THE
YEAR ENDED 12/31/95: 0.49%

NEWSPAPER ABBREVIATION: Morg

VANGUARD FUND NUMBER: 026

AVERAGE ANNUAL TOTAL RETURN --
PERIODS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS

<S> <C> <C> <C>
Morgan Growth Fund +36.0% +15.3% +13.0%

S&P 500 Index +37.6 +16.6 +14.9
</TABLE>

QUARTERLY RETURNS (%) 1986 - 1995 (intended to show volatility of returns)

[BAR GRAPH]

1
<PAGE> 30
PLAIN TALK ABOUT

THE COSTS OF INVESTING

PLAIN TALK ABOUT

FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard/Morgan Growth Fund's expense ratio in fiscal year 1995 was
0.49%, or $4.90 per $1,000 of average net assets. The average growth equity
mutual fund had expenses in 1995 of 1.36%, or $13.60 per $1,000 of average net
assets, according to Upper Analytical Services, Inc., which reports on the
mutual fund industry.

FUND EXPENSES

The examples below are designed to help you understand the various costs you
would bear, directly or indirectly, as an investor in the Fund.

As noted in this table, you do not pay fees of any kind when you buy, sell,
or exchange shares of the Fund:

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
</TABLE>
The next table illustrates the operating expenses that you would incur as a
shareholder of the Fund. These expenses are deducted from the Fund's income
before it is paid to you. Expenses include investment advisory fees as well as
the costs of maintaining accounts, administering the Fund, providing shareholder
services, and other activities. The expenses shown in the table are for the
fiscal year ended December 31, 1995.

ANNUAL FUND OPERATING EXPENSES

<TABLE>
<S> <C>
Management and Administrative Expenses: 0.31%
Investment Advisory Expenses: 0.14%
12b-1 Marketing Fees: None
Other Expenses
Marketing and Distribution Costs: 0.02%
Miscellaneous Expenses (e.g., Taxes, Auditing): 0.02%
Total Other Expenses: 0.04%
TOTAL OPERATING EXPENSES (EXPENSE RATIO): 0.49%
</TABLE>

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

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.

2
<PAGE> 31
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.36 $12.01 $12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50 $13.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

INVESTMENT OPERATIONS
Net Investment Income .15 .14 .18 .18 .29 .32 .25 .25 .23 .21
Net Realized and
Unrealized Gain (Loss)
on Investments 3.88 (.34) .71 .97 2.66 (.50) 2.04 1.85 .31 .70
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 4.04 (.20) .89 1.15 2.95 (.18) 2.32 2.10 .54 .99
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.15) (.14) (.18) (.18) (.28) (.34) (.28) (.24) (.20) (.43)
Distributions from
Realized Capital Gains (1.16) (.31) (1.36) (.52) (.88) (.80) (.59) (.98) (2.45) (2.88)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

TOTAL DISTRIBUTIONS (1.31) (.45) (1.53) (.70) (1.15) (1.14) (.87) (1.22) (2.65) (2.21)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $14.00 $11.38 $12.01 $12.65 $12.20 $10.40 $11.72 $10.27 $ 9.39 $11.50
===================================================================================================================================
TOTAL RETURN 35.98% (1.67)% 7.32% 9.54% 29.33% (1.51)% 22.66% 22.34% 5.02% 7.83%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $1,471 $1,075 $1,135 $1,110 $ 857 $ 687 $ 733 $ 622 $ 530 $ 594
Ratio of Expenses to
Average Net Assets .49%* .50% .49% .48% .46% .55% .51% .55% .46% .54%
Ratio of Net Investment
Income to Average
Net Assets 1.10% 1.15% 1.38% 1.51% 2.96% 2.77% 2.30% 2.20% 1.52% 1.49%
Portfolio Turnover Rate 76% 84% 72% 64% 52% 73% 27% 32% 43% 31%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*Beginning in fiscal year 1995, this figure does not include expense reductions
from directed brokerage arrangements. The Ratio of Net Expenses to Average Net
Assets was 0.48%.

PLAIN TALK ABOUT

HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began fiscal 1995 with a net asset value (price) of $11.36 per
share. During the year, the Fund earned $0.15 per share from investment income
(interest and dividends) and $3.89 per share from investments that had
appreciated in value or that were sold for higher prices than the Fund paid for
them. Of those total earnings of $4.04 per share, $1.31 was returned to
shareholders in the form of distributions ($0.15 in dividends, $1.16 in capital
gains). The earnings ($4.04 per share) less distributions ($1.31 per share)
resulted in a share price of $14.09 at the end of the year, an increase of $2.73
per share (from $11.36 at the beginning of the period to $14.09 at the end of
the period). Assuming that the shareholder had reinvested the distribution in
the purchase of more shares, total return from the Fund was 35.98% for the year.

As of December 31, 1995, the Fund had $1.47 billion in net assets; an
expense ratio of 0.49% ($4.90 per $1,000 of net assets); and net investment
income amounting to 1.10% of its average net assets. It sold and replaced
securities valued at 76% of its total net assets.

3
<PAGE> 32
PLAIN TALK ABOUT

GROWTH FUNDS
AND VALUE FUNDS

PLAIN TALK ABOUT

INVESTING FOR THE LONG TERM

Vanguard/Morgan Growth 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
fluctuations in the stock market.

A WORD ABOUT RISK

Look for this "warning flag" symbol ["warning flag" symbol] throughout the
prospectus. It is used to mark detailed information about each type of risk that
you, as a shareholder of the Fund, will confront.

THE FUND'S OBJECTIVE

Vanguard/Morgan Growth Fund seeks to provide long-term growth of capital. This
objective is fundamental, which means that it cannot be changed unless a
majority of shareholders vote to do so.

["warning flag" symbol] BECAUSE OF THE SEVERAL TYPES OF RISK DESCRIBED ON THE
FOLLOWING PAGES, YOUR INVESTMENT IN THE FUND, AS WITH
ANY INVESTMENT IN COMMON STOCKS, COULD LOSE MONEY.

WHO SHOULD INVEST

The Fund may be a suitable investment for you if:

- - You wish to add a growth stock fund to your existing holdings, which could
include other stock -- as well as bond and money market -- investments.

- - You are seeking growth of capital over the long term -- at least five
years.

- - You are seeking a fund that invests in growth companies representing a wide
variety of industries.

- - You are not looking for income.

- - The Fund reserves the right to reject any purchase request -- including
exchanges from other Vanguard Funds -- that it regards as disruptive to the
efficient management of the Fund. This could be because of the timing of
the investment or because of a history of excessive trading by the
investor. If you own shares of the

4
<PAGE> 33
Fund as an investment option in an employer-sponsored retirement or savings
plan, your plan dictates the rules governing exchanges. Contact your plan
administrator for details.

- - There is a limit on the number of times you can exchange into or out of the
Fund.

- - The Fund reserves the right to stop offering shares at any time.

INVESTMENT STRATEGIES

MARKET EXPOSURE

["warning flag" symbol] THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE
POSSIBILITY THAT STOCK PRICES OVERALL WILL DECLINE
OVER SHORT OR EVEN EXTENDED PERIODS. STOCK MARKETS
TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING STOCK
PRICES AND PERIODS OF FALLING STOCK PRICES.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
U.S. Stock Market Returns (1926 - 1995)
---------------------------------------
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 +12.5% +10.3% +10.7% +10.7%
- --------------------------------------------------------------------------------
</TABLE>

PLAIN TALK ABOUT

COSTS AND MARKET TIMING

Some investors try to profit from "market timing" -- switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund tries to discourage short-term trading by closely monitoring
daily transactions.

PLAIN TALK ABOUT

LARGE-CAP, MID-CAP,
AND SMALL-CAP STOCKS

5
<PAGE> 34
PLAIN TALK ABOUT

PORTFOLIO DIVERSIFICATION

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1995. For example, while the average return on stocks for all of the
5-year periods was +10.3%, returns for these 5-year periods ranged from a -
12.5% average (from 1928 through 1932), to +23.9% (from 1951 through 1955).
These average returns reflect past performance and should not be regarded as an
indication of future returns from either the stock market as a whole or this
Fund in particular.

Finally, because Morgan Growth Fund does not hold the same securities held
in the Standard & Poor's 500 Index or any other market index, the performance of
the Fund will not mirror the returns of any particular index.

["warning flag" symbol] THE FUND IS SUBJECT TO OBJECTIVE RISK, WHICH IS THE
POSSIBILITY THAT RETURNS FROM GROWTH STOCKS WILL TRAIL
RETURNS FROM THE OVERALL STOCK MARKET. AS A GROUP,
GROWTH STOCKS TEND TO GO THROUGH CYCLES OF RELATIVE
UNDERPERFORMANCE AND OUTPERFORMANCE IN COMPARISON TO
COMMON STOCKS IN GENERAL. THESE PERIODS HAVE, IN THE
PAST, LASTED FOR AS LONG AS SEVERAL YEARS.

SECURITY SELECTION

In an attempt to ensure broad diversification, Morgan Growth Fund employs four
investment advisers, each of whom independently chooses and maintains a
portfolio of common stocks for the Fund.

Each adviser is responsible for investing a specific percentage of the
Fund's assets. Before the Fund makes a significant change in an adviser's
percentage, shareholders will receive 30-days notice, in writing.

The remaining two advisers, Franklin Portfolio Associates Trust (FPA) and
Vanguard Core Management Group, employ a "quantitative" investment approach. In
other words, they use computer techniques to track --and, if possible,
outperform -- a specific market standard. For Morgan Growth Fund, this market
standard is the Growth Fund Stock Index, which is made up of the nation's 50
largest growth funds. FPA manages about 35% and the Core Management Group
handles about 11% of the Fund's assets.

6
<PAGE> 35
Any Fund assets held in cash reserves are managed, at no cost to the Fund,
by The Vanguard Group, Inc.

The Fund's top ten holdings (which amounted to about 10% of the Fund's
total net assets) as of December 31, 1995, follow.

1. Hewlett-Packard Co.

2. PepsiCo, Inc.

3. General Electric Co.

4. Pfizer, Inc.

5. Cisco Systems, Inc.

6. Air Products & Chemicals, Inc.

7. Ascend Communications, Inc.

8. Viacom International

9. Morton International, Inc.

10. McDonald's Corp.

Keep in mind that, because the makeup of the Fund changes daily, this
listing is only a "snapshot" at one point in time.

["warning flag" symbol] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE
POSSIBILITY THAT ONE OR MORE OF THE FUND'S INVESTMENT
ADVISERS MAY DO A POOR JOB OF SELECTING STOCKS.

PORTFOLIO TURNOVER

INVESTMENT POLICIES

Besides investing in common stocks of growth companies, the Fund may follow a
number of investment policies to achieve its objective.

The Fund may invest in securities of companies based outside the United
States. These securities may be traded in U.S. or foreign markets.

["warning flag" symbol] THE FUND IS SUBJECT TO COUNTRY RISK, WHICH IS THE
POSSIBILITY THAT POLITICAL EVENTS (SUCH AS A WAR),
FINANCIAL PROBLEMS (SUCH AS GOVERNMENT DEFAULT), OR
NATURAL DISASTERS (SUCH AS AN EARTHQUAKE) WILL WEAKEN
A COUNTRY'S ECONOMY AND CAUSE INVESTMENTS IN THAT
COUNTRY TO LOSE MONEY.

The Fund may also invest in derivatives.

["warning flag" symbol] ALTHOUGH IT HAS NOT DONE SO IN THE PAST, THE FUND
RESERVES THE RIGHT TO INVEST, TO A LIMITED EXTENT, IN
STOCK FUTURES AND OPTIONS CONTRACTS, WHICH ARE
TRADITIONAL TYPES OF DERIVATIVES.

PLAIN TALK ABOUT

PORTFOLIO TURNOVER

Before investing in a mutual fund, you should review its portfolio turnover rate
for an indication of the potential effect of transaction costs on the fund's
future returns. In general, the greater the volume of buying and selling by the
fund, the greater the impact that brokerage commissions and other transaction
costs will have on its return. The average turnover rate for actively managed
fund investing in common stocks is 75%.

PLAIN TALK ABOUT

THE RISKS OF

INTERNATIONAL INVESTING

7
<PAGE> 36
PLAIN TALK ABOUT

DERIVATIVES

The reasons for which the Fund may use futures and options are:

- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.

- - To make it easier to trade.

- - To reduce costs by buying futures instead of actual stocks when futures are
cheaper.

The Portfolio will usually hold only a small percentage of its assets in
cash reserves, although if the investment advisers believe that market
conditions warrant a temporary defensive measure, the Portfolio may hold cash
reserves without limit.

INVESTMENT LIMITATIONS

To reduce risk and maintain diversification, the Fund has adopted limits on some
of its investment policies. Specifically, the Fund will not:

- - Invest more than 25% of its assets in any one industry.

- - Borrow money, except for the purpose of meeting shareholder requests to
redeem shares. With respect to 75% of its assets, this Fund will not:

- - Invest more than 5% in the securities of any one company.

- - Buy more than 10% of the outstanding voting securities of any company.

The limitations listed in this prospectus and in the Statement of
Additional Information are fundamental and may be changed only by approval of a
majority of the Fund's shareholders.

INVESTMENT PERFORMANCE

8
<PAGE> 37
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 12/31/95

<TABLE>
<CAPTION>
VANGUARD/MORGAN
GROWTH FUND S&P 500 INDEX
--------------- -------------
<S> <C> <C>
1 YEAR 30.0% 33.8%
3 YEARS 12.5% 15.3%
5 YEARS 16.3% 18.8%
10 YEARS 13.0% 14.8%
20 YEARS 16.3% 14.8%
25 YEARS 12.8% 12.2%
</TABLE>

The results shown above represent the Fund's "average annual total return"
performance, which assumes that any distributions of capital gains and dividends
were reinvested for the indicated periods. Also included is comparative
information on the unmanaged Standard & Poor's 500 Index. The chart does not
make any allowance for Federal, state, or local income taxes that shareholders
must pay on a current basis.

In weighing these performance figures, note that the Fund has been in
operation since December 31, 1968, and that until April 24, 1990, Wellington
Management Company was the Fund's only investment adviser (Franklin Portfolio
Associates was added as an adviser in 1990; Husic Capital Management and
Vanguard Core Management Group were added in 1993).

SHARE PRICE

Total Assets - Liabilities
Net Asset Value = ----------------------------
Number of Shares Outstanding

Daily net asset value, or NAV, is useful to you as a shareholder because
the NAV, multiplied by the number of Fund shares you own, gives you the dollar
amount you would have received had you sold all of your shares back to the Fund
that day.

The Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading Vanguard Group. Different newspapers use
different abbreviations of the Fund's name, but the most common is Morg.

PLAIN TALK ABOUT

PAST PERFORMANCE

9
<PAGE> 38
PLAIN TALK ABOUT

DISTRIBUTIONS

PLAIN TALK ABOUT

VANGUARD'S UNIQUE CORPORATE STRUCTURE

The Vanguard Group, Inc. is the only mutual mutual fund company. It is owned
jointly by the Funds it oversees and by the shareholders in those Funds. Other
mutual funds are operated by for-profit management companies that may be owned
by one person, a group of individuals, or by investors who bought the management
company's publicly traded stock. Because of its structure, Vanguard operates its
Funds at cost. Instead of distributing profits from operations to a separate
management company, Vanguard returns profits to Fund shareholders in the form of
lower operating expenses.

DIVIDENDS, CAPITAL GAINS, AND TAXES

Each December, the Fund distributes to shareholders virtually all of its income
from interest and dividends, as well as any capital gains realized from the sale
of securities.

If you own shares of the Fund as an investment option in an
employer-sponsored retirement or savings plan, these dividend and capital gains
distributions will be reinvested in additional Fund shares and accumulate on a
tax-deferred basis. You will not owe taxes on these distributions until you
begin withdrawals. You should consult your plan administrator, your plan's
Summary Plan Document, or your own tax adviser about the tax consequences of an
investment in the Fund and of any plan withdrawals.

If your Vanguard/Morgan Growth Fund investment is not part of an
employer-sponsored plan, you can receive distributions of income or capital
gains in cash, or you may have them automatically reinvested in more shares of
the Fund. Both dividend and capital gains distributions -- whether received in
cash or reinvested in additional shares -- are subject to Federal (and possibly
state and local) income taxes, no matter how long you have held the shares in
the Fund. You should consult your own tax adviser about other tax consequences
of an investment in the Fund.

THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group, a family of more than 30
investment companies with more than 90 distinct investment portfolios and total
net assets of more than $200 billion. All of the Vanguard Funds share in the
expenses associated with business operations, such as personnel, office space,
equipment, and advertising.

Vanguard also provides marketing services to the Funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each Fund
pays its allocated share of The Vanguard Group's costs.

A list of the Fund's Directors and Officers, and their present positions
and principal occupations during the past five years, can be found in the
Statement of Additional Information.

INVESTMENT ADVISERS

The Fund employs four investment advisers. Each manages its percentage of the
Fund's assets subject to the control of the Officers and Directors of the Fund.

Wellington Management Company (WMC), 75 State Street, Boston, MA 02109, was
founded in 1933. The investment advisory firm currently manages more than $100
billion in stock and bond portfolios, including 13 Vanguard Funds. As of
December 31, 1995, WMC managed 39% of Morgan Growth Fund's assets.

10
<PAGE> 39
WMC's advisory fee is based on average net assets managed:

<TABLE>
<CAPTION>
--------------------------------------------
ASSETS MANAGED FEE
--------------------------------------------
<S> <C>
First $500 million 0.175%

Next $500 million 0.100

Assets over $1 billion 0.075
--------------------------------------------
</TABLE>

WMC's advisory fee may be adjusted based on its 36-month cumulative total
return performance as compared to that of the Growth Fund Stock Index. Under the
fee schedule, WMC's basic fee may be increased or decreased by as much as 0.5%.

Franklin Portfolio Associates Trust (FPA), One Post Office Square 3660,
Boston, MA 02109, is a professional advisory firm founded in 1982. FPA currently
manages approximately $8.3 billion in assets, including Vanguard Quantitative
Portfolios. As of December 31, 1995, FPA managed 33% of Morgan Growth Fund's
assets.

FPA's advisory fee is paid quarterly, based on average month-end net assets
managed during the quarter:

<TABLE>
<CAPTION>
--------------------------------------------
ASSETS MANAGED FEE
--------------------------------------------
<S> <C>
First $100 million 0.25%

Next $200 million 0.20

Next $200 million 0.15

Assets over $500 million 0.10
--------------------------------------------
</TABLE>

FPA's advisory fee may be adjusted based on its total return performance as
compared to that of the Growth Fund Stock Index. Under the fee schedule, FPA's
basic fee may be increased or decreased by as much as 0.10%.

Husic Capital Management (Husic), 555 California Street, Suite 2900, San
Francisco, CA 94104, was founded in 1986 and manages about $3.3 billion in
assets. Husic managed 13% of Morgan Growth Fund's assets as of December 31,
1995.

Husic's advisory fee is paid quarterly, based on average month-end assets
managed during the quarter:

<TABLE>
<CAPTION>
--------------------------------------------
ASSETS MANAGED FEE
--------------------------------------------
<S> <C>
First $25 million 0.40%

Next $125 million 0.35

Next $350 million 0.25

Next $500 million 0.20

Assets over $1 billion 0.15
--------------------------------------------
</TABLE>

Husic's advisory fee may be adjusted based on its total return performance
as compared to that of the Growth Fund Stock Index. Under the fee schedule,
Husic's basic fee may be increased or decreased by as much as 75%. This
performance fee adjustment will not be fully operable until the quarter ending
September 30, 1996.

Vanguard Core Management Group, P.O. Box 2600, Valley Forge, PA 19482, was
responsible for 10% of Morgan Growth Fund's assets as of December 31, 1995. The
Group provides investment advisory

PLAIN TALK ABOUT

THE FUND'S ADVISERS

JOHN J. NAGORNIAK, CFA, President of FPA (26 years investment experience,
formerly chief investment officer with State Street Bank and Trust Company; B.A.
from Princeton University, M.S. from The Sloan School of Management,
Massachusetts Institute of Technology), has managed FPA's percentage of the
Fund's assets since 1990.

The person responsible for Husic's portion of Morgan Growth Fund since 1993
has been FRANK J. HUSIC, CFA, Managing Partner; 23 years investment experience;
formerly Senior Vice President and Director at Alliance Capital Management; B.S.
and M.S. from Carnegie Mellon University, M.S. PhD from the University of
Pennsylvania.

GEORGE U. SAUTER, a Principal of Vanguard (11 years investment experience,
9 years primary responsibility for Vanguard Core Management Group; A.B. from
Dartmouth College, M.B.A. from the University of Chicago), has overseen Vanguard
Core Management Group's portion of the Fund's assets since 1993.

11
<PAGE> 40
services to several Vanguard Funds, managing more than $33 billion in total
assets as of year end 1995. Vanguard Core Management Group provides advisory
services to the Fund on an at-cost basis.

Any Fund assets held in cash (which, as of December 31, 1995, equaled 5% of
the Fund's assets) are managed, at no cost to the Fund, by The Vanguard Group,
Inc.

For the year ended December 31, 1995, the total fee paid by Vanguard/Morgan
Growth Fund to its advisers was $1.77 million, which included a base fee of
$2.39 million and a decrease, based on adviser performance, of $621,000.

The fee agreement with each adviser authorizes them to choose brokers or
dealers to handle the purchase and sale of the Fund's securities, and directs
them to get the best available price and most favorable execution from these
brokers with respect to all transactions.

GENERAL INFORMATION

12
<PAGE> 41
INVESTING WITH VANGUARD

FOR PLAN PARTICIPANTS

Vanguard/Morgan Growth Fund is an investment option in your retirement or
savings plan. Your plan administrator 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 or Vanguard, including the Fund's
investment objective, strategies, or risks, contact Vanguard's Participant
Services Department, toll-free, at 1-800-523-1188.

- - If you have questions about your account, contact your plan administrator
or the organization that provides recordkeeping services for your plan.

INVESTMENT OPTIONS AND ALLOCATIONS

Your plan's specific provisions may allow you to change your investment
selections, the amount of your contributions, or how your contributions are
allocated among the investment choices available to you. Contact your plan
administrator or employee benefits office for more details.

TRANSACTIONS

Contributions, exchanges, or redemptions of the Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your contribution, exchange, or
redemption, and that Vanguard has received the appropriate assets.

EXCHANGES

The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. However,
because excessive exchanges can potentially disrupt the management of the Fund
and increase its transaction costs, Vanguard reserves the right to refuse any
exchange request. In addition, certain investment options, particularly funds
made up of company stock or investment contracts, may be subject to unique
restrictions. Contact your plan administrator for details on the exchange
policies that apply to your plan.

Before making an exchange, you should consider the following:

- - Before you exchange to another Vanguard Fund available in your plan, you
should read that Fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.

- - Vanguard can accept exchanges only as permitted by your plan. Your plan
administrator can explain how frequently exchanges are allowed.

FOR OTHER INSTITUTIONAL INVESTORS

If you have questions about Vanguard/Morgan Growth Fund, including how to
establish an account, call Vanguard, toll-free, at 1-800-523-1036.

If you have questions about an existing account, contact your Vanguard
account administrator.

13
<PAGE> 42
INVESTING WITH VANGUARD (continued)

TRANSACTIONS

Purchases, exchanges, or redemptions of the Fund's shares are processed as soon
as they have been received by Vanguard in good order. Good order means that your
request includes complete information on your purchase, exchange, or redemption,
and that Vanguard has received the appropriate assets. The price of shares
bought, exchanged, or sold will be the Fund's next-determined net asset value
after Vanguard has processed your request, provided your request has been
received before 4:00 p.m. Eastern time.

Vanguard must consider the interests of all Fund shareholders and so
reserves the right to . . .

- - Delay or reject any purchase or exchange request that may disrupt the
Fund's operation or performance.

- - Revise or terminate the exchange privilege or limit the amount of an
exchange, at any time, without notice.

- - Take up to seven days to deliver your redemption proceeds.

- - Pay redemption proceeds -- in whole or in part -- through a distribution in
kind of readily marketable securities.

ACCESSING FUND INFORMATION BY COMPUTER

VANGUARD ONLINE(sm) Information via your personal computer on Fund
Keyword: vanguard share price, yield, and total return; offered
through America Online(R) (AOL). To establish
an AOL account, call 1-800-238-6336.

VANGUARD ON THE An education-oriented website offering news
WORLD WIDE WEB and information about Vanguard Funds and
http://www.vanguard.com services, as well as interactive, easy-to-use
investment planning tools.

14
<PAGE> 43
PROSPECTUS POSTSCRIPT

This prospectus is designed to provide you with pertinent information about
Vanguard/Morgan Growth Fund, including its investment objective, risks,
strategy, and expenses.

It is important that you understand these facts so that you can decide
whether an investment in this Fund is right for you. The following questions
offer a quick review of some of the subjects covered by this prospectus.

IN READING THE PROSPECTUS, DID YOU LEARN . . .

/ / The Fund's objective? (page 4)

/ / The Fund's investment strategies? (page 5)

/ / Who should invest in the Fund? (page 4)

/ / The risks associated with the Fund? (pages 4 - 7)

/ / Whether the Fund is Federally insured?
(inside front cover)

/ / The Fund's expenses? (page 2)

/ / The background of the Fund's investment managers?
(page 11)

PLAIN TALK ABOUT

KEEPING YOUR PROSPECTUS

Reading the prospectus will help you to decide whether Vanguard/Morgan Growth
Fund is suitable for your investment goals. If you decide to invest, don't throw
the prospectus out; you will no doubt need it for future reference.

15
<PAGE> 44
GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION

Payment to mutual fund shareholders of gains realized during the year on
securities that the fund has sold at a profit, minus any realized losses.

CASH RESERVES

Cash deposits as well as short-term bank deposits, money market instruments,
investment contracts, and U.S. Treasury bills.

COMMON STOCK

A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.

COUNTRY RISK

The possibility that events such as political or financial troubles or natural
disasters will weaken a country's economy.

DIVIDEND INCOME

Payment to shareholders of income from interest or dividends generated by the
fund's investments.

EXPENSE RATIO

The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
marketing fees.

FIXED-INCOME SECURITIES

Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.

GROWTH STOCK FUND

A mutual fund that emphasizes stocks of companies whose strong earnings and
revenue potential indicate above-average prospects for capital growth.

INVESTMENT ADVISER

An organization that makes the day-to-day decisions regarding a portfolio's
investments.

MUTUAL FUND

An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

NET ASSET VALUE (NAV)

The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.

PORTFOLIO DIVERSIFICATION

Holding a variety of securities so that a portfolio's return is not hurt by the
poor performance of a single security or industry.

PRICE/EARNINGS (P/E) RATIO

The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.

PRINCIPAL

The amount of your own money you put into an investment.

SECURITIES

Stocks, bonds, and other investment vehicles.

TOTAL RETURN

VALUE STOCK FUND

A mutual fund that focuses on stocks of companies that, considering their
earnings and dividends, are attractively priced.

VOLATILITY

The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.

YIELD

Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.

<PAGE> 45
[VANGUARD GROUP LOGO]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482

FOR PARTICIPANTS IN
EMPLOYER-SPONSORED PLANS

PARTICIPANT SERVICES DEPARTMENT
1-800-523-1188
TEXT TELEPHONE:
1-800-523-8004

For information on the
Vanguard Funds in your plan,
Monday through Friday
8:30 a.m. to 7:00 p.m.,
Eastern time

FOR OTHER INSTITUTIONAL INVESTORS
1-800-523-1036
For information on Vanguard
Funds and services

ELECTRONIC ACCESS TO THE
VANGUARD MUTUAL FUND
EDUCATION AND INFORMATION
CENTER
On America Online(R)
Keyword: vanguard

On the World Wide Web
http://www.vanguard.com

To send e-mail to Vanguard
[email protected]

I026N

<PAGE> 46

PART B

VANGUARD/MORGAN GROWTH FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

APRIL 26, 1996; REVISED JUNE 28, 1996

This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated June 28, 1996). 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.................................................................... 5
Purchase of Shares........................................................................ 6
Redemption of Shares...................................................................... 7
Management of the Fund.................................................................... 8
Investment Advisory Services.............................................................. 11
Portfolio Transactions.................................................................... 17
Yield and Total Return.................................................................... 18
Performance Measures...................................................................... 18
Financial Statements...................................................................... 21
Appendix -- Description of Securities..................................................... 21
</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 a 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 for which there are no
readily available market quotations. From time to time, the Fund's Board of
Directors may determine that certain restricted securities known as Rule 144A
securities are liquid and not subject to the 15% limitation described above. See
"Illiquid Securities" on page 3.

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

1
<PAGE> 47

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 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 three 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 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.

FOREIGN INVESTMENTS As indicated in the Prospectus, the Fund may include
foreign securities to a certain extent. Investors should recognize that
investing in foreign companies involves certain special considerations which are
not typically associated with investing in U.S. companies.

Country Risk As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.

Although the Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of the Fund's foreign securities will be somewhat greater than the
expenses for the custodial arrangement for handling U.S. securities of equal
value.

2
<PAGE> 48

Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income the Fund receives from its foreign investments.

Currency Risk Since the stocks of foreign companies are frequently
denominated in foreign currencies, and since the Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Fund will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions between
various currencies. The investment policies of the Fund permit it to enter into
forward foreign currency exchange contracts in order to hedge holdings and
commitments against changes in the level of future currency rates. Such
contracts involve an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract.

ILLIQUID SECURITIES Illiquid securities are securities that may not be
sold or disposed of in the ordinary course of business within seven business
days at approximately the value at which they are being carried on a Fund's
books. An illiquid security includes repurchase agreements which have a maturity
of longer than seven days, securities which are illiquid by virtue of the
absence of a readily available market, and demand instruments with a demand
notice exceeding seven days. Illiquid securities may include securities that are
not registered under the Securities Act of 1933 (the "1933 Act"); however,
unregistered securities that can be sold to "qualified institutional buyers" in
accordance with Rule 144A under the 1933 Act will not be considered illiquid so
long as it is determined by the Fund's advisor that an adequate trading market
exists for the security.

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. Assets committed to futures
contracts will be segregated at the Fund's custodian bank to the extent required
by law.

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.

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

3
<PAGE> 49

profits from fluctuations in the prices of underlying securities. The Fund
intends to use futures contracts only for bona fide hedging purposes.

Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide 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 stock index 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 to the low margin deposits required. 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. The Fund is not subject to
extreme losses from futures because 100% of the contract obligation is held
separately in cash or cash equivalents. 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.

4
<PAGE> 50

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 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. A Fund may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Fund.

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 distributions.

INVESTMENT LIMITATIONS

The following restrictions and fundamental policies 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;

5
<PAGE> 51

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

4) 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) 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";

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

12) 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.

Each Portfolio may not purchase or retain securities of an issuer if an
officer or director of such issuer is an officer or Director of the Fund or its
investment adviser and one or more of such officers or Directors of the Fund or
its investment adviser owns beneficially more than 1/2% of the shares or
securities of such issuer and all such directors and officers owning more than
1/2% of such shares or securities together own more than 5% of such shares or
securities.

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 investment for or any other restrictions on initial
and subsequent

6
<PAGE> 52

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 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.

7
<PAGE> 53

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

8
<PAGE> 54

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 adheres to a Code of Ethics established pursuant to Rule
17j-1 under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.

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 has 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, 1995, the
Fund had contributed capital of $172,000 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, 1995, the Fund's share of Vanguard's actual net
costs of operation relating to management and administrative services (including
transfer agency) totaled approximately $3,929,000.

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, 1995, the Fund paid
approximately $203,000 of the Group's distribution and marketing expenses.

9
<PAGE> 55

INVESTMENT ADVISORY SERVICES Vanguard also provides the Fund, Vanguard
Money Market Reserves, Vanguard Municipal Bond Fund, several Portfolios of
Vanguard Fixed Income Securities Fund, Vanguard California Tax-Free Fund,
Vanguard Florida Insured Tax-Free Fund, Vanguard New Jersey Tax-Free Fund,
Vanguard New York Insured Tax-Free Fund, Vanguard Ohio Tax-Free Fund, Vanguard
Pennsylvania Tax-Free Fund, Vanguard Admiral Funds, Vanguard Institutional Index
Fund, Vanguard Bond Index Fund, Vanguard Balanced Index Fund, Vanguard Index
Trust, Vanguard International Equity Index Fund, Vanguard Tax-Managed Fund, the
Aggressive Growth Portfolio of Vanguard Horizon Fund, several Portfolios of
Vanguard Variable Insurance Fund, a portion of Vanguard/Windsor II as well as
several indexed separate accounts 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.

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, 1995, the Fund paid approximately
$5,000 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 $48,299.

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, 1995 was approximately $1,350.

The following table provides detailed information with respect to the
amounts paid or accrued for the Directors for the fiscal year ended December 31,
1995.

VANGUARD/MORGAN GROWTH FUND
COMPENSATION TABLE

<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM ALL VANGUARD FUNDS
NAMES OF DIRECTORS FROM FUND PART OF FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS(3)
- --------------------------- ------------ --------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1)(2) -- -- -- --
John J. Brennan(2) -- -- -- --
Barbara Barnes Hauptfuhrer $573 $98 $15,000 $59,000
Robert E. Cawthorn $573 $82 $13,000 $59,000
Bruce K. MacLaury $631 $97 $12,000 $55,000
Burton G. Malkiel $582 $65 $15,000 $60,000
Alfred M. Rankin, Jr. $582 $52 $15,000 $60,000
John C. Sawhill $582 $61 $15,000 $60,000
James O. Welch, Jr. $573 $75 $15,000 $59,000
J. Lawrence Wilson $582 $54 $15,000 $60,000
</TABLE>

(1)For the period reported in this table, Mr. Bogle was the Company's Chief
Executive Officer, and therefore an "Interested Director."
(2)As "Interested Directors," Messrs. Bogle and Brennan receive no compensation
for their service as Directors.
(3)The amounts reported in this column reflect the total compensation paid to
each Director for their service as Director or Trustee of 34 Vanguard Funds
(27 in the case of Mr. MacLaury).

10
<PAGE> 56

INVESTMENT ADVISORY SERVICES

The Fund currently employs four 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 1,
1996, to manage the investment and reinvestment of approximately 40% 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 $500 million................................. 0.175%
Next $500 million.................................. 0.100%
Over $1 billion.................................... 0.075%
</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 investment advisory agreement:

<TABLE>
<CAPTION>
CUMULATIVE 36-MONTH
PERFORMANCE VERSUS THE PERFORMANCE FEE
GROWTH FUND STOCK INDEX ADJUSTMENT*
-------------------------------------------------- -----------------
<S> <C>
Less than -12%.................................... -0.50 x Basic Fee
Between -12% and -6%.............................. -0.25 x Basic Fee
Between -6% and 6%................................ 0.00 x Basic Fee
Between 6% and 12%................................ +0.25 x Basic Fee
More than 12%..................................... +0.50 x Basic Fee
</TABLE>

- ------------
*For purposes of this calculation, the basic fee is calculated by applying the
quarterly rate against average assets over the 36-month period.

Under the rules of the Securities and Exchange Commission, the new
incentive/penalty fee will not be fully operable until the quarter ending March
31, 1999. Until that date, a "blended" fee rate consisting of varying
percentages of (i) the performance adjustment based on the schedule set forth
above (the "new rate"), and (ii) the performance adjustment based on the
schedule set forth in the Fund's previous investment advisory agreement with the
Adviser(1) (the "previous rate") shall be used as follows:

1. QUARTER ENDING JUNE 30, 1996. The incentive/penalty fee shall be
calculated as the sum of 8.3% (e.g., one of 12 quarters) of the fee payable
under the new rate plus 91.7% (e.g., 11 of 12 quarters) of the fee payable under
the previous rate.

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

(1) The previous incentive/penalty fee structure provided that the Basic Fee be
increased or decreased by an amount equal to .0375% per annum (.009375 of
1% per quarter) of the average month-end assets if the Fund's investment
performance for the 36 months preceding the end of the quarter was between
6 and 12 percentage points above or below, respectively, the investment
record of the Growth Fund Stock Index and .075% per annum (0.1875 of 1% per)
of the average month-end assets of the Fund if the Fund's investment
performance for the 36 months preceding the end of the quarter was twelve
percentage points or more above or below, respectively, the investment
record of the Growth Fund Stock Index.

11
<PAGE> 57

2. QUARTER ENDING SEPTEMBER 30, 1996. The incentive/penalty fee shall be
calculated as the sum of 16% of the fee payable under the new rate plus 83.4% of
the fee payable under the previous rate.

3. QUARTER ENDING DECEMBER 31, 1996. The incentive/penalty fee shall be
calculated as the sum of 25% of the fee payable under the new rate plus 75% of
the fee payable under the previous rate.

4. QUARTER ENDING MARCH 31, 1997. The incentive/penalty fee shall be
calculated as the sum of 33% of the fee payable under the new rate plus 67% of
the fee payable under the previous rate.

5. QUARTER ENDING JUNE 30, 1997. The incentive/penalty fee shall be
calculated as the sum of 41.6% of the fee payable under the new rate plus 58.4%
of the fee payable under the previous rate.

6. QUARTER ENDING SEPTEMBER 30, 1997. The incentive/penalty fee shall be
calculated as the sum of 50% of the fee payable under the new rate plus 50% of
the fee payable under the previous rate.

7. QUARTER ENDING DECEMBER 31, 1997. The incentive/penalty fee shall be
calculated as the sum of 58.4% of the fee payable under the new rate plus 41.6%
of the fee payable under the previous rate.

8. QUARTER ENDING MARCH 31, 1998. The incentive/penalty fee shall be
calculated as the sum of 67% of the fee payable under the new rate plus 33% of
the fee payable under the previous rate.

9. QUARTER ENDING JUNE 30, 1998. The incentive/penalty fee shall be
calculated as the sum of 75% of the fee payable under the new rate and 25% of
the fee payable under the previous rate.

10. QUARTER ENDING SEPTEMBER 30, 1998. The incentive/penalty fee shall be
calculated as the sum of 83.4% of the fee payable under the new rate plus 16.6%
of the fee payable under the previous rate.

11. QUARTER ENDING DECEMBER 31, 1998. The incentive/penalty fee shall be
calculated as the sum of the fee payable under the new rate plus 8.3% of the fee
payable under the previous rate.

12. QUARTER ENDING MARCH 31, 1999. New rate fully operable.

For the purpose of determining the fee adjustment for investment
performance, as described above, the net assets of the WMC Portfolio shall be
averaged over the same period as the investment performance of the WMC Portfolio
and the investment record of the Growth Fund Stock Index are computed. The
investment performance of the WMC Portfolio for such period, expressed as a
percentage of the WMC Portfolio's net asset value per share at the beginning of
such period, shall be the sum of: (i) the change in the WMC Portfolio's net
asset value per share during such period; (ii) the value of the WMC Portfolio's
cash distributions per share having an ex-dividend date occurring within such
period; and (iii) the per share amount of capital gains taxes paid or accrued
during such period by the WMC Portfolio for undistributed realized long-term
capital gains.

The investment record of the Growth Fund Stock Index for any period,
expressed as a percentage of the Growth Fund Stock Index level at the beginning
of such period, shall be the sum of (i) the change in the level of the Growth
Fund Stock Index during such period and (ii) the value, computed consistently
with the Growth Fund Stock Index, of cash distributions having an ex-dividend
date occurring within such period made by companies whose securities comprise
the Growth Fund Stock Index. The foregoing notwithstanding, any computation of
the investment performance of the WMC Portfolio and the investment record of the
Growth Fund Stock Index shall be in accordance with any then applicable rules of
the Securities and Exchange Commission.

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 plus or minus 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

12
<PAGE> 58

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
agreement are entirely appropriate although not within the plus or minus 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 plus or minus 12 percentage points from the performance
of the index over a thirty-six month period, which would effectively be
the equivalent of approximately plus or minus 4 percentage points difference
per year. The Fund's investment advisory agreement provides for no performance
adjustment at a difference of less than plus or minus 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 1, 1996. This agreement shall continue in effect until March 31, 1998, and
thereafter, only so long as such continuance is approved at least annually 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 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.

PORTFOLIO TRANSACTIONS The investment advisory 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, and 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.

13
<PAGE> 59

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 WELLINGTON MANAGEMENT COMPANY ("WMC"), 75
State Street, Boston, MA 02109, is a professional investment counseling firm
which provides investment services to investment companies, other institutions
and individuals. Among the clients of WMC are more than 10 of the investment
companies of The Vanguard Group. As of December 31, 1995, WMC held discretionary
management authority with respect to more than $108 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 R.
Ryan.

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

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ---------
<S> <C> <C> <C>
Basic Fee................................. $1,198,679 $ 861,873 $ 892,794
Increase (Decrease) for Performance
Adjustment.............................. (235,201) (351,876) (321,731)
---------- ---------- ---------
Total................................ $ 963,478 $ 509,997 $ 571,063
========== ========== =========
</TABLE>

FRANKLIN PORTFOLIO ASSOCIATES TRUST The Fund employs Franklin Portfolio
Associates Trust ("Franklin") under an investment advisory agreement dated as of
April 1, 1996 to manage the investment and reinvestment of approximately
one-third 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.................................. 0.25%
Next $200 million................................... 0.20%
Next $200 million................................... 0.15%
Over $500 million................................... 0.10%
</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 .10% 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........................................... +.10%
Between +6% and -6%......................................... --0--
-6% or more below........................................... -.10%
</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.

14
<PAGE> 60

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 11. 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 plus or minus 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 plus or minus 2 percentage points per year.

The agreement with FPA is dated April 1, 1996 and continues until March 31,
1998, and thereafter, only so long as such continuance is 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, 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 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>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Basic Fee..................................... $470,526 $708,874 $848,530
Increase (Decrease) for Performance
Adjustment.................................. -- -- 74,545
-------- -------- --------
Total.................................... $470,526 $708,874 $923,075
========= ========= =========
</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.

RELATED INFORMATION CONCERNING FRANKLIN PORTFOLIO ASSOCIATES ("FPA"), One
Post Office Square 3660, Boston, MA 02109, 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, 1995, FPA provided investment advisory services with
respect to approximately $8.34 billion of client assets, including approximately
$909 million for Vanguard Quantitative Portfolios, Inc., another mutual fund
member of The Vanguard Group. During the year ended December 31, 1995, Vanguard
Quantitative Portfolios, Inc. paid FPA an annual advisory fee equal to .17 of 1%
before an increase of .01 of 1% based on performance.

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 13% of the Fund's assets. Husic
discharges its responsibilities subject to the control of the Officers and
Directors of the Fund.

15
<PAGE> 61

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>

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) 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>

(b) 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.

16
<PAGE> 62

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.

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 11. 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 plus or minus 10 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 plus or minus 4 percentage points per year.

The new agreement with Husic dated September 24, 1993, will continue until
September 23, 1996. 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."

During the period ended December 31, 1993 and for the fiscal years ended
December 31, 1994 and December 31, 1995, Vanguard/Morgan Growth Fund paid Husic
the following advisory fees:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Basic Fee..................................... $140,254 $495,619 $ 550,247
Increase (Decrease) for Performance
Adjustment.................................. -- (181,969) (373,636)
-------- -------- ---------
Total.................................... $140,254 $313,650 $ 176,611
========= ========= =========
</TABLE>

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."

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 December 31, 1995, Husic provided investment advisory services to
clients having assets with an approximate value of $3.2 billion.

With respect to each adviser, 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.

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 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

17
<PAGE> 63

obtainable under the circumstances. During the fiscal years ended December 31,
1993, 1994 and 1995 the Fund paid $1,577,672, $1,931,684 and $1,492,129
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 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, 1995 was
+1.10%.

The average annual total return of the Fund for the one-, five- and
ten-year periods ending December 31, 1995 was +35.98%, +15.25% and +13.03%,
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

18
<PAGE> 64

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 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

Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member funds of The Vanguard Group of Investment Companies.

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.

GROWTH FUND STOCK INDEX -- The Index is composed of the various common stocks
that are held in the 50 largest growth stock mutual funds, using year-end net
assets, monitored by Morningstar, Inc. 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 Husic 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 INDEX -- consists of more than 6,000 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 71 bonds and 29
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.

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.

19
<PAGE> 65

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.

LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX -- is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.

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 -- 65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.

COMPOSITE INDEX -- 65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's/BARRA Value
Index and 25% Standard & Poor's Utilities Index).

LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX -- consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.

RUSSELL 2000 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.

20
<PAGE> 66

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.

LIPPER GENERAL EQUITY FUND AVERAGE -- an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.

LIPPER FIXED INCOME FUND AVERAGE -- an industry benchmark of average fixed
income funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.

RUSSELL 3000 INDEX -- consists of approximately 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.

CAPITAL OPPORTUNITIES FUND STOCK INDEX -- The Index is composed of the various
common stocks that are held in the 50 largest aggressive growth stock mutual
funds, using year-end net assets, monitored by Morningstar, Inc.

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.

FINANCIAL STATEMENTS

The Fund's financial statements for the year ended December 31, 1995,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 1995, appearing in the Vanguard/Morgan Growth Fund
1995 Annual Report to Shareholders, and the report thereon of Price Waterhouse
LLP, independent accountants, also appearing therein, are incorporated by
reference in this Statement of Additional Information. The Fund's 1995 Annual
Report to Shareholders is enclosed with this Statement of Additional
Information.

APPENDIX -- DESCRIPTION OF SECURITIES

I. DESCRIPTION OF FOREIGN INVESTMENTS

The Fund may invest in the securities (payable in U.S. dollars) of foreign
issues and in the securities of foreign branches of U.S. banks such as
negotiable certificates of deposit (Eurodollars). Because the Fund invests in
such securities, investment in the Fund involves investment risks that are
different in some respects from an investment in a fund which invests only in
debt obligations of U.S. issuers. Such risks may include future political and
economic developments, the possible imposition of withholding taxes on interest
income payable on the securities held, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls or the
adoption of other restrictions by foreign governments which may adversely affect
the payment of principal and interest on securities held by the Fund, difficulty
in obtaining and enforcing court judgments abroad, the possibility of
restrictions on investments in other jurisdictions, reduced levels of government
regulation of securities markets in foreign countries, and difficulties in
effecting the repatriation of capital invested abroad. A Fund will not purchase
any such foreign security if, as a result, more than 20% of the value of the
Fund's total assets would be invested in such securities.

21
<PAGE> 67

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, 1995,
including Price Waterhouse LLP's report thereon, are incorporated by reference,
in the Statement of Additional Information, from the Registrant's 1995 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, 1995.
2. Statement of Operations for the year ended December 31, 1995.
3. Statement of Changes in Net Assets for the years ended December 31, 1994
and 1995.
4. Financial Highlights for each of the five years in the period ended
December 31, 1995.
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*
27............... Financial Data Schedule*
</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 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, 1995 there were 95,153 shareholders.

22
<PAGE> 68

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.

23
<PAGE> 69

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 19th day of April,
1996.

W.L. MORGAN GROWTH FUND, INC.

BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman of the Board and Director
April 19, 1996

BY: (Raymond J. Klapinsky)
John J. Brennan*, President, Director and Chief Executive Officer
April 19, 1996

BY: (Raymond J. Klapinsky)
Robert E. Cawthorn*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
Bruce K. MacLaury*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
Alfred M. Rankin, Jr.*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
April 19, 1996

BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer
April 19, 1996

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

24
<PAGE> 70

INDEX TO EXHIBITS

<TABLE>
<S> <C>
Consent of Independent Accountants.................................................. EX-99.B11
Computation of Performance Quotations............................................... EX-99.B16
Financial Data Schedule............................................................. EX-27
</TABLE>

<PAGE> 1

EX-99.B11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses and
the Statement of Additional Information, constituting parts of this amended
Registration Statement on Form N-1A, of our report dated January 31, 1996
relating to the financial statements and financial highlights appearing in the
December 31, 1995 Annual Report to Shareholders of Vanguard/Morgan Growth Fund.
We also consent to the references to us under the headings "Financial
Highlights" and "General Information" in the Prospectuses and "Financial
Statements" in the Statement of Additional Information.

PRICE WATERHOUSE LLP

Philadelphia, PA
April 18, 1996

<PAGE> 1

EX-99.B16

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

1. Average Annual Total Return (As of December 31, 1995)
P (1 + T)n = ERV

<TABLE>
<S> <C> <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
EXAMPLE:
One Year
P = $1,000
T = +35.98%
N = 1 yr.
ERV = $1,359.83
Five Year
P = $1,000
T = +15.25%
N = 5 yrs.
ERV = $2,033.20
Ten Year
P = $1,000
T = +13.03%
N = 10 yrs.
ERV = $3,402.69
</TABLE>

2. YIELD (30 Days Ended December 31, 1995)

<TABLE>
<C> <S> <C>
a - b
Yield = 2[( c X d + 1)(6) - 1]
Where: a = dividends and interest paid during the period
b = expense dollars 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 = $1,875,489.74
b = $574,881.54
c = $98,533,409.382
d = $14.09
Yield = 1.10%
</TABLE>

<ARTICLE> 6
<RESTATED>
<CIK> 0000068138
<NAME> VANGUARD/MORGAN GROWTH FUND, INC.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1020156
<INVESTMENTS-AT-VALUE> 1345533
<RECEIVABLES> 47587
<ASSETS-OTHER> 172
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1528802
<PAYABLE-FOR-SECURITIES> 12813
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44891
<TOTAL-LIABILITIES> 57704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1107080
<SHARES-COMMON-STOCK> 104424
<SHARES-COMMON-PRIOR> 94608
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 431
<ACCUMULATED-NET-GAINS> 39083
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 325366
<NET-ASSETS> 1471098
<DIVIDEND-INCOME> 14208
<INTEREST-INCOME> 5771
<OTHER-INCOME> 0
<EXPENSES-NET> 6045
<NET-INVESTMENT-INCOME> 13934
<REALIZED-GAINS-CURRENT> 142881
<APPREC-INCREASE-CURRENT> 220579
<NET-CHANGE-FROM-OPS> 377394
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14339
<DISTRIBUTIONS-OF-GAINS> 110668
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16895
<NUMBER-OF-SHARES-REDEEMED> 15754
<SHARES-REINVESTED> 8675
<NET-CHANGE-IN-ASSETS> 396295
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6870
<OVERDISTRIB-NII-PRIOR> 26
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6225
<AVERAGE-NET-ASSETS> 1264061
<PER-SHARE-NAV-BEGIN> 11.36
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 3.89
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 1.16
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.09
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>