- ------------------------------------------------------------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
P R O S P E C T U S
MARCH 31, 1994
===============================================================================
A Member of The Vanguard Group
===============================================================================
PROSPECTUS -- MARCH 31, 1994
- -------------------------------------------------------------------------------
NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT--1-800-662-7447 (SHIP)
- -------------------------------------------------------------------------------
SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT--1-800-662-2739 (CREW)
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
Vanguard Quantitative Portfolios, Inc. (the "Fund") is an
open-end diversified investment company that seeks to realize
a total return (income plus capital change) greater than the
return of the aggregate U.S. stock market, as measured by the
Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"). The Fund will hold a broadly diversified
portfolio of common stocks that in aggregate exhibit
investment characteristics similar to those of the S&P 500
Index. There is no assurance that the Fund will achieve its
stated objective.
- ------------------------------------------------------------------------------
OPENING AN ACCOUNT
To open a regular (non-retirement) account, please complete
and return the Account Registration Form. If you need
assistance in completing this Form, please call our Investor
Information Department. To open an Individual Retirement
Account (IRA), please use a Vanguard IRA Adoption Agreement.
To obtain a copy of this form, call 1-800-662-7447, Monday
through Friday, from 8:00 a.m. to 8:00 p.m. (Eastern time).
The minimum initial investment is $3,000 ($500 for Individual
Retirement Accounts and Uniform Gifts/Transfers to Minors Act
accounts). The Fund is offered on a no-load basis (i.e. there
are no sales commissions or 12b-1 fees). However, the Fund
incurs expenses for investment advisory, management,
administrative and distribution services.
- ------------------------------------------------------------------------------
ABOUT THIS PROSPECTUS
This Prospectus is designed to set forth concisely the
information you should know about the Fund before you invest.
It should be retained for future reference. A "Statement of
Additional Information" containing additional information
about the Fund has been filed with the Securities and
Exchange Commission. This Statement is dated March 31, 1994
and has been incorporated by reference into this Prospectus.
A copy may be obtained without charge by writing to the Fund
or by calling the Investor Information Department.
- ------------------------------------------------------------------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page Page Page
<S> <C> <C>
Fund Expenses....................... 2 Investment Limitations.............. 8 SHAREHOLDER GUIDE
Financial Highlights................ 2 Management of the Fund.............. 8 Opening an Account and
Yield and Total Return.............. 3 Investment Adviser.................. 9 Purchasing Shares................. 15
FUND INFORMATION Performance Record.................. 10 When Your Account Will Be
Investment Objective................ 4 Dividends, Capital Gains and Taxes.. 11 Credited.......................... 18
Investment Policies................. 4 The Share Price of the Fund......... 12 Selling Your Shares................. 18
Investment Risks.................... 5 General Information................. 13 Exchanging Your Shares.............. 20
Who Should Invest................... 5 Directors and Officers.............. 14 Important Information About
Implementation of Policies.......... 6 Telephone Transactions............ 21
Transferring Registration........... 22
Other Vanguard Services............. 22
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- ------------------------------------------------------------------------------
<PAGE>
FUND EXPENSES
The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Fund. The expenses
and fees set forth in the table are for the 1993 fiscal year.
SHAREHOLDER TRANSACTION EXPENSES
-----------------------------------------------------------
Sales Load Imposed on Purchases..................... None
Sales Load Imposed on Reinvested Dividends.......... None
Redemption Fees..................................... None
Exchange Fees....................................... None
ANNUAL FUND OPERATING EXPENSES
-----------------------------------------------------------
Management & Administrative Expenses................ 0.22%
Investment Advisory Fees............................ 0.23
12b-1 Fees.......................................... None
Other Expenses
Distribution Costs......................... 0.02%
Miscellaneous Expenses..................... 0.03
----
Total Other Expenses................................ 0.05
----
TOTAL OPERATING EXPENSES...................... 0.50%
====
The purpose of this table is to assist you in understanding
the various costs and expenses that you would bear directly
or indirectly as an investor in the Fund.
The following example illustrates the expenses that you would
incur on a $1,000 investment over various periods, assuming
(1) a 5% annual rate of return and (2) redemption at the end
of each period. As noted in the table above, the Fund charges
no redemption fees of any kind.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$5 $16 $28 $63
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY
BE HIGHER OR LOWER THAN THOSE SHOWN.
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights for a share outstanding
throughout each period, insofar as they relate to each of the
five years in the period ended December 31, 1993, have been
audited by Price Waterhouse, independent accountants, whose
report thereon was unqualified. This information should be
read in conjunction with the Fund's financial statements and
notes thereto, which are incorporated by reference in the
Statement of Additional Information and in this Prospectus,
and which appear, along with the report of Price Waterhouse,
in the Fund's 1993 Annual Report to the Shareholders. For a
more complete discussion of the Fund's performance, please
see the Fund's 1993 Annual Report to Shareholders which may
be obtained without charge by writing to the Fund or by
calling our Investor Information Department at
1-800-662-7447.
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------- DEC. 10, 1986+
1993 1992 1991 1990 1989 1988 1987 TO DEC. 31, 1986
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $16.30 $16.32 $13.29 $14.14 $11.08 $ 9.80 $ 9.69 $10.00
------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income................ .40 .44 .47 .49 .43 .36 .33 .03
Net Realized and Unrealized Gain
(Loss) on Investments.............. 1.83 .69 3.47 (.83) 3.10 1.27 .09 (.34)
------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS..................... 2.23 1.13 3.94 (.34) 3.53 1.63 .42 (.31)
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment
Income............................. (.39) (.44) (.47) (.47) (.47) (.35) (.25) --
Distributions from Realized
Capital Gains...................... (1.69) (.71) (.44) (.04) -- -- (.06) --
------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS.............. (2.08) (1.15) (.91) (.51) (.47) (.35) (.31) --
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......... $16.45 $16.30 $16.32 $13.29 $14.14 $11.08 $ 9.80 $ 9.69
==================================================================================================================================
TOTAL RETURN........................... 13.83% 7.01% 30.29% (2.44%) 32.00% 16.80% 4.02% (3.10%)
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions)... $531 $416 $335 $211 $175 $144 $149 $7
Ratio of Expenses to Average Net Assets .50% .40% .43% .48% .53% .64% .64% .0%
Ratio of Net Investment Income to
Average Net Assets................... 2.22% 2.67% 2.95% 3.34% 3.35% 3.38% 2.79% 5.15%*
Portfolio Turnover Rate................ 85% 51% 61% 81% 78% 50% 73% 0%
<FN>
*Annualized.
+Commencement of operations.
</TABLE>
- ------------------------------------------------------------------------------
YIELD AND TOTAL RETURN
From time to time the Fund may advertise its yield and total
return. Both yield and total return figures are based on
historical earnings and are not intended to indicate future
performance. The "total return" of the Fund refers to the
average annual compounded rates of return over one-, five-
and ten-year periods or for the life of the Fund (as stated
in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment
of all dividend and capital gains distributions.
The "30-day yield" of the Fund is calculated by dividing the
net investment income per share earned during a 30-day period
by the net asset value per share on the last day of the
period. Net investment income includes interest and dividend
income earned on the Fund's securities; it is net of all
expenses and all recurring and nonrecurring charges that have
been applied to all shareholder accounts. The yield
calculation assumes that net investment income earned over 30
days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are
standardized for all stock and bond mutual funds. However,
these methods differ from the accounting methods used by the
Fund to maintain its books and records, and so the advertised
30-day yield may not fully reflect the income paid to your
own account or the yield reported in the Fund's Annual Report
to Shareholders.
- ------------------------------------------------------------------------------
<PAGE>
INVESTMENT OBJECTIVE
The Fund is an open-end diversified investment company. The
objective of the Fund is to realize a total investment return
(dividend income plus capital change) greater than the return
of the aggregate U.S. stock market, as measured by the
Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index"). There is no assurance that the Fund will achieve
its stated objective.
- ------------------------------------------------------------------------------
INVESTMENT POLICIES
THE FUND USES QUANTITATIVE TECHNIQUES TO SELECT COMMON STOCKS
The Fund will invest in a broadly diversified portfolio of
common stocks. At least 65% of the Fund's assets will be
invested in securities which are included in the S&P 500
Index, while the balance of the Fund's assets may be invested
in common stocks not represented in the Index. The Fund is
managed without regard to tax ramifications.
Stocks are selected for the Fund so that, in the aggregate,
the investment characteristics of the Fund are similar to
those of the S&P 500 Index. These characteristics include
such measures as dividend yield (before expenses), price-to-
earnings ratio, "beta" (relative volatility), return on
equity, and market price-to-book value ratio. However, while
maintaining aggregate investment characteristics similar to
those of the S&P 500 Index, the Fund seeks to invest in
individual common stocks -- including stocks which are not
part of the Index -- which will in the aggregate provide a
higher total return than the Index. Of course, there can be
no assurance that the Fund's investment performance will
match or exceed that of the S&P 500 Index.
To select stocks for the Fund, the Fund's investment adviser
first ranks a broad universe of common stocks using several
quantitative investment models. These models are based upon
such factors as measures of changes in earnings and of
relative value based on present and historical price-to-
earnings ratios and yields, as well as dividend discount
calculations based on corporate cash flow. Once the ranking
of common stocks is completed, the adviser, using a technique
known as "portfolio optimization," then constructs a
portfolio that in the aggregate resembles the S&P 500 Index,
but is weighted towards the most attractive stocks in the
universe of stocks monitored, as determined by the
quantitative models.
The Fund seeks to remain fully invested in common stocks.
However, the Fund is also authorized to invest in certain
short-term fixed income securities and in stock index futures
contracts and options to a limited extent. See
"Implementation of Policies" for a description of these and
other investment practices of the Fund.
The investment objective and policies of the Fund are not
fundamental and so may be changed by the Board of Directors
without shareholder approval. However, shareholders would be
notified prior to a material change in either.
- ------------------------------------------------------------------------------
<PAGE>
INVESTMENT RISKS
THE FUND IS SUBJECT TO MARKET RISK
As a mutual fund investing primarily in common stocks, the
Fund is subject to market risk -- i.e., the possibility that
common stock prices will decline over short or even extended
periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when
prices generally decline.
To illustrate the volatility of stock prices, the following
table sets forth the extremes for stock market returns as
well as the average return for the period from 1926 to 1993,
as measured by the Standard & Poor's 500 Composite Stock
Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1993)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
----- ----- ------ ------
<S> <C> <C> <C> <C>
Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.3 +10.3 +10.6 +10.6
</TABLE>
As shown, from 1926 to 1993, common stocks have provided an
annual total return (capital appreciation plus dividend
income), on average, of +12.3%. While this average return can
be used as a guide for setting reasonable expectations for
future stock market returns, it may not be useful for
forecasting future returns in any particular period, as stock
returns are quite volatile from year to year.
This table of U.S. stock market returns should not be viewed
as a representation of future returns from the Fund or the
U.S. stock market. The illustrated returns represent the
historical investment performance, which may be a poor guide
to future returns. Also, stock market indexes such as the S&P
500 are based upon unmanaged portfolios of securities, before
transaction costs and other expenses. Such costs will reduce
the relative investment performance of the Fund and other
"real world" portfolios.
- ------------------------------------------------------------------------------
WHO SHOULD INVEST
INVESTORS SEEKING A "MARGIN OF SUPERIORITY" OVER THE S&P 500 INDEX
The Fund is designed for investors whose objective is to
achieve a total return marginally superior to the return from
the S&P 500 Index with reasonable consistency over time,
while minimizing the risk of substantial underperformance
during any individual year. Because of the risks associated
with common stock investments, the Fund is intended to be a
long-term investment vehicle and is not designed to provide
investors with a means of speculating on short-term market
movements. Investors who engage in excessive account activity
generate additional costs which are borne by all of the
Fund's shareholders. In order to minimize such costs the Fund
has adopted the following policies. The Fund reserves the
right to reject any purchase request (including exchange
purchases from other Vanguard portfolios) that is reasonably
deemed to be disruptive to efficient portfolio management
either because of the timing of the investment or previous
excessive trading by the investor. Additionally, the Fund has
adopted exchange privilege limitations as described in the
section "Exchange Privilege Limitations." Finally, the Fund
reserves the right to suspend the offering of its shares.
<PAGE>
No assurance can be given that the Fund will attain its
objective or that shareholders will be protected from the
risk of loss that is inherent in equity investing. All equity
portfolios are influenced by price movements in the broad
equity market. Investors may wish to reduce the potential
risk of investing in the Fund by purchasing shares on a
regular, periodic basis (dollar-cost averaging) rather than
making an investment in one lump sum.
Investors should not consider the Fund a complete investment
program, but should also maintain holdings in investments
with different risk characteristics, such as bonds and money
market instruments. Investors may also wish to complement an
investment in the Fund with other types of common stock
investments.
- ------------------------------------------------------------------------------
IMPLEMENTATION OF POLICIES
The Fund utilizes a variety of investment practices in its
effort to surpass the total return of the S&P 500 Index.
THE FUND INVESTS PRIMARILY IN S&P 500 STOCKS
The Fund will invest at least 65% of its assets in securities
that are included in the S&P 500 Index (the "Index"), and it
is expected that the aggregate investment characteristics of
the Fund will be similar to those of the Index. The S&P 500
Index measures the total investment return (capital change
plus income) provided by a universe of 500 common stocks,
weighted by their market value. These 500 securities, most of
which trade on the New York Stock Exchange, represent over
75% of the market value of all U.S. common stocks. Because of
the market-value weighting, the 50 largest companies in the
Index currently account for approximately 50% of the Index.
As of December 31, 1993, the five largest companies in the
Index were: General Electric (2.7%), Exxon Corporation
(2.4%), American Telephone and Telegraph (2.2%), Wal-Mart
Stores (1.8%), and Coca Cola (1.7%). The largest industry
categories were: international oil companies (7.2%),
telephone companies (6.0%), electric power (4.8%), electrical
equipment (3.8%), and diversified health care companies
(3.6%).
The S&P 500 Index is an unmanaged, statistical measure of
stock market performance. As such, it does not reflect the
actual, "real world" costs of investing in common stocks. By
contrast, the Fund is actively managed and therefore incurs
the normal costs of a mutual fund, including brokerage and
execution costs, advisory fees, costs of distribution and
administration, and custodial fees.
Standard & Poor's Corporation chooses the common stocks to be
included in the S&P 500 Index solely on a statistical basis.
Inclusion of a security in the Index in no way implies an
opinion by Standard & Poor's Corporation as to its
attractiveness or appropriateness as an investment. Standard
& Poor's Corporation is neither a sponsor of nor in any way
affiliated with the Fund.
THE FUND MAY INVEST IN SHORT-TERM FIXED INCOME SECURITIES
Although it normally seeks to remain substantially fully
invested in common stocks, the Fund may invest temporarily in
certain short-term fixed income securities. Such securities
may be used to invest uncommitted cash balances or to
maintain liquidity to meet shareholder redemptions. These
securities include: obligations of the United States
Government and its agencies or instrumentalities; commercial
<PAGE>
paper, bank certificates of deposit, and bankers'
acceptances; and repurchase agreements collateralized by
these securities.
THE FUND MAY USE FUTURES CONTRACTS AND OPTIONS
The Fund may utilize stock futures contracts and options to a
limited extent. Specifically, the Fund may enter into futures
contracts provided that not more than 5% of its assets are
required as a futures contract deposit. In addition, the Fund
may enter into futures contracts and options transactions
only to the extent that obligations under such contracts or
transactions represent not more than 20% of the Fund's
assets.
Futures contracts and options may be used for several
reasons: to maintain cash reserves while remaining fully
invested, to facilitate trading, to reduce transaction costs,
or to seek higher investment returns when a futures contract
is priced more attractively than the underlying equity
security or index. The Fund may not use futures contracts or
options to leverage its net assets.
FUTURES CONTRACTS AND OPTIONS POSE CERTAIN RISKS
The primary risks associated with the use of futures
contracts and options are: (i) imperfect correlation between
the change in market value of the stocks held by the Fund and
the prices of futures contracts and options; and (ii)
possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures
position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those
contracts whose behavior is expected to resemble that of the
Fund's underlying securities. The risk that the Fund will be
unable to close out a futures position will be minimized by
entering into such transactions on a national exchange with
an active and liquid secondary market.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, relatively small
price movement in a futures contract may result in immediate
and substantial loss (or gain) to the investor. When
investing in futures contracts, the Fund will segregate cash
or cash equivalents in the amount of the underlying
obligation.
THE FUND MAY LEND ITS SECURITIES
The Fund may lend its investment securities to qualified
institutional investors for either short-term or long-term
purposes of realizing additional income. Loans of securities
by the Fund will be collateralized by cash, letters of
credit, or securities issued or guaranteed by the U.S.
Government or its agencies. The collateral will equal at
least 100% of the current market value of the loaned
securities.
The Fund may borrow money, subject to the limits set forth
below, for temporary or emergency purposes, including the
meeting of redemption requests which might otherwise require
the untimely disposition of securities.
PORTFOLIO TURNOVER IS NOT EXPECTED TO EXCEED 100%
Although it generally seeks to invest for the long term, the
Fund retains the right to sell securities irrespective of how
long they have been held. It is anticipated that the annual
portfolio turnover of the Fund will not exceed 100%. A
turnover rate of 100% would occur, for example, if all of the
securities of the Fund were replaced within one year.
- ------------------------------------------------------------------------------
<PAGE>
INVESTMENT LIMITATIONS
THE FUND HAS ADOPTED CERTAIN FUNDAMENTAL LIMITATIONS
The Fund has adopted certain limitations on its investment
practices. Specifically, the Fund will not:
(a) with respect to 75% of the value of its total assets,
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;
(b) borrow money, except that the Fund may borrow from banks
(or through reverse repurchase agreements), for temporary
or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise
require the untimely disposition of securities, 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;
(c) pledge, mortgage or hypothecate any of its assets to an
extent greater than 5% of its total assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional Information
may be changed only with the approval of a majority of the
Fund's shareholders.
- ------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
VANGUARD ADMINISTERS AND DISTRIBUTES THE FUND
The Fund is a member of The Vanguard Group of Investment
Companies, a family of 32 investment companies with 78
distinct investment portfolios and total assets in excess of
$120 billion. Through their jointly owned subsidiary, The
Vanguard Group, Inc. ("Vanguard"), the Fund and the other
funds in the Group obtain at cost virtually all of their
corporate management, administrative and distribution
services. Vanguard also provides investment advisory services
on an at-cost basis to certain Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most competing
mutual funds. In 1993, the average expense ratio (annual
costs including advisory fees divided by total net assets)
for the Vanguard funds amounted to approximately .30%
compared to an average of 1.02% for the mutual fund industry
(data provided by Lipper Analytical Services).
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each fund
pays its share of Vanguard's net expenses, which are
allocated among the funds under methods approved by the Board
of Directors (Trustees) of each fund. In addition, each fund
bears its own direct expenses, such as legal, auditing and
custodian fees.
Vanguard provides distribution and marketing services to the
funds. The funds are available on a no-load basis (i.e.,
there are no sales commissions or 12b-1 fees). However, each
fund bears its share of the Group's distribution costs.
- ------------------------------------------------------------------------------
<PAGE>
INVESTMENT ADVISER
FRANKLIN PORTFOLIO ASSOCIATES MANAGES THE FUND'S INVESTMENTS
The Fund employs Franklin Portfolio Associates Trust
("Franklin"), One Post Office Square, Boston, MA 02109, as
its investment adviser. Under an investment advisory
agreement with the Fund dated October 1, 1987, Franklin
manages the investment and reinvestment of the Fund's assets
and continuously reviews, supervises, and directs the Fund's
investment program. Franklin discharges its responsibilities
subject to the control of the Officers and Directors of the
Fund.
Franklin is a professional investment counseling firm
which specializes in the management of common stock
portfolios through the use of quantitative investment models.
Founded in 1982, Franklin, a Massachusetts business trust, is
a wholly-owned subsidiary of MBC Investments Corporation. As
of December 31, 1993, Franklin provided investment advisory
services with respect to approximately $5.12 billion of
client assets. Franklin also serves as adviser to
approximately one-third of the equity investments of
Vanguard/Morgan Growth Fund, another mutual fund member of
The Vanguard Group.
Franklin employs proprietary computer models in selecting
individual equity securities and in structuring investment
portfolios for its clients, including the Fund. John J.
Nagorniak, President of Franklin, has been designated as the
portfolio manager of the Fund, a position he has held since
the Fund's inception in December 1986; he is responsible for
overseeing the application of Franklin's quantitative
techniques to the Fund's assets. Mr. Nagorniak and the other
investment principals of Franklin are responsible for the
ongoing development and enhancement of Franklin's
quantitative investment techniques.
The Fund pays Franklin an advisory 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:
NET ASSETS RATE
----------- ---
First $100 million .30%
Over $100 million .15%
This fee may be increased or reduced by applying an
adjustment formula based on the investment performance of the
Fund relative to the S&P 500 Index. For the year ended
December 31, 1993, the Fund paid Franklin a basic fee equal
to .18 of 1% of its average net assets before an increase of
$223,000 (.05 of 1%) based on performance.
The investment advisory agreement authorizes Franklin to
select brokers and dealers to execute purchases and sales of
the Fund's portfolio securities, and directs Franklin to use
its best efforts to obtain the best available price and most
favorable execution with respect to all transactions. The
full range and quality of brokerage services are considered
in making these determinations.
The Fund has authorized Franklin to pay higher commissions in
recognition of brokerage services felt necessary for the
achievement of better execution, provided Franklin believes
this to be in the best interest of the Fund. Although the
Fund does not market its shares through intermediary brokers,
<PAGE>
the Fund may place orders with qualified broker-dealers who
recommend the Fund to clients if the Officers of the Fund
believe that the quality of the transaction and the
commission are comparable to what they would be with other
qualified brokerage firms.
The Fund's Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser or
as an additional adviser; (b) a change in the terms of an
advisory agreement; and (c) the continued employment of an
existing adviser on the same advisory contract terms where a
contract has been assigned because of a change in control of
the adviser. Any such change will only be made upon not less
than 30 days prior written notice to shareholders of the Fund
which shall include substantially the information concerning
the adviser that would have normally been included in a proxy
statement.
- ------------------------------------------------------------------------------
PERFORMANCE RECORD
The table in this section provides investment results for the
Fund for several periods throughout the Fund's lifetime. The
results shown represent "total return" investment
performance, which assumes the reinvestment of all capital
gains and income dividends for the indicated periods. Also
included is comparative information with respect to the
unmanaged Standard & Poor's 500 Composite Stock Price Index,
a widely-used barometer of stock market activity, and the
Consumer Price Index, a statistical measure of changes in the
prices of goods and services. The tables do not make any
allowance for federal, state or local income taxes, which
shareholders must pay on a current basis.
The results shown should not be considered a representation
of the total return from an investment made in the Fund
today. This information is provided to help investors better
understand the Fund and may not provide a basis for
comparison with other investments or mutual funds which use a
different method to calculate performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL RETURN FOR
VANGUARD QUANTITATIVE PORTFOLIOS
-------------------------------------------------------
VANGUARD
FISCAL PERIODS QUANTITATIVE S&P 500 CONSUMER
ENDED 12/31/93 PORTFOLIOS INDEX PRICE INDEX
----------- ------- ------ ---------------
<S> <C> <C> <C>
1 Year +13.8% +10.1% +2.7%
3 Years +16.6 +15.6 +2.9
5 Years +15.4 +14.5 +3.9
Lifetime* +13.2 +12.7 NA
<FN>
*December 10, 1986 to December 31, 1993.
</TABLE>
- ------------------------------------------------------------------------------
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
THE FUND PAYS SEMI-ANNUAL DIVIDENDS AND ANY CAPITAL GAINS ANNUALLY
The Fund expects to pay dividends consisting of ordinary
income on a semi-annual basis. Capital gains distributions,
if any, will be made annually. The Fund is managed without
regard to tax ramifications.
Dividend and capital gains distributions may be automatically
reinvested or received in cash. See "Choosing a Distribution
Option" for a description of these distribution methods.
In addition, in order to satisfy certain distribution
requirements of the Tax Reform Act of 1986, the Fund may
declare special year-end dividend and capital gains
distributions during December. Such distributions, if
received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on
December 31 of the prior year.
The Fund intends to continue to qualify for taxation as a
"regulated investment company" under the Internal Revenue
Code so that it will not be subject to federal income tax to
the extent its income is distributed to shareholders.
Dividends paid by the Fund from net investment income,
whether received in cash or reinvested in additional shares,
will be taxable to shareholders as ordinary income. For
corporate investors, dividends from net investment income
will generally qualify in part for the intercorporate
dividends-received deduction. However, the portion of the
dividends so qualified depends on the aggregate taxable
qualifying dividend income received by the Fund from domestic
(U.S.) sources.
Distributions paid by the Fund from long-term capital gains,
whether received in cash or reinvested in additional shares,
are taxable as long-term capital gains, regardless of the
length of time you have owned shares in the Fund. Capital
gains distributions are made when the Fund realizes net
capital gains on sales of portfolio securities during the
year. The Fund does not seek to realize any particular amount
of capital gains during a year; rather, realized gains are a
byproduct of portfolio management activities. Consequently,
capital gains distributions may be expected to vary
considerably from year to year; there will be no capital
gains distributions in years when the Fund realizes net
capital losses.
Note that if you elect to receive capital gains distributions
in cash, instead of reinvesting them in additional shares,
you are in effect reducing the capital at work
for you in the Fund. Also, keep in mind that if you purchase
shares in the Fund shortly before the record date for a
dividend or capital gains distribution, a portion of your
investment will be paid to you as a taxable distribution,
regardless of whether you are reinvesting your distributions
or receiving them in cash.
The Fund will notify you annually as to the tax status of
dividend and capital gains distributions paid by the Fund.
<PAGE>
A CAPITAL GAIN OR LOSS MAY BE REALIZED UPON EXCHANGE OR REDEMPTION
A sale of shares of the Fund is a taxable event and may
result in a capital gain or loss. A capital gain or loss may
be realized from an ordinary redemption of shares or an
exchange of shares between two mutual funds (or two
portfolios of a mutual fund).
Dividend distributions, capital gains distributions, and
capital gains or losses from redemptions and exchanges may be
subject to state and local taxes.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to
shareholders who have not complied with IRS taxpayer
identification regulations. You may avoid this withholding
requirement by certifying on your Account Registration Form
your proper Social Security or Taxpayer Identification Number
and by certifying that you are not subject to backup
withholding.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania and does
business and maintains an office in that state. In the
opinion of counsel, the shares of the Fund are exempt from
Pennsylvania personal property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult their
own tax advisers concerning the tax consequences of an
investment in the Fund.
- ------------------------------------------------------------------------------
THE SHARE PRICE OF THE FUND
The Fund's share price or "net asset value" per share is
determined by dividing the total market value of the Fund's
investments and other assets, less any liabilities, by the
number of outstanding shares of the Fund. The net asset value
per share is calculated as of the close of regular trading on
the New York Stock Exchange (generally 4:00 p.m. Eastern
time) on each day that the Exchange is open for business.
Portfolio securities that are listed on a securities exchange
are valued at the last quoted sales price on the day the
valuation is made. Price information on listed securities is
taken from the exchange where the security is primarily
traded. Securities which are listed on an exchange but which
are not traded on the valuation date are valued at the mean
of the bid and asked prices. Unlisted securities for which
market quotations are readily available are valued at the
latest quoted bid price. Other assets and securities for
which no quotations are readily available are valued at fair
value as determined in good faith by the Board of Directors.
Securities may be valued on the basis of prices provided by a
pricing service when such prices are believed to reflect the
fair market value of such securities.
The Fund's share price can be found daily in the mutual fund
listings of most major newspapers under the heading of The
Vanguard Group.
- ------------------------------------------------------------------------------
<PAGE>
GENERAL INFORMATION
The Fund is a Maryland corporation. The Articles of
Incorporation permit the Directors to issue 1,000,000,000
shares of common stock, with a $.001 par value. The Board of
Directors has the power to designate one or more classes
("series") of shares of common stock and to classify or
reclassify any unissued shares with respect to such series.
Currently the Fund is offering shares of one series.
The shares of the Fund are fully paid and non-assessable;
have no preference as to conversion, exchange, dividends,
retirement or other features; and have no pre-emptive rights.
Such shares have non-cumulative voting rights, meaning that
the holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if they
so choose.
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other
applicable law. An annual meeting will be held to vote on the
removal of a Director or Directors of the Fund if requested
in writing by the holders of not less than 10% of the
outstanding shares of the Fund.
All securities and cash are held by CoreStates Bank,
Philadelphia, PA. The Vanguard Group, Inc., Valley Forge, PA,
serves as the Fund's Transfer and Dividend Disbursing Agent.
Price Waterhouse serves as independent accountants for the
Fund and will audit its financial statements annually. The
Fund is not involved in any litigation.
- ------------------------------------------------------------------------------
<PAGE>
DIRECTORS AND OFFICERS
The Officers of the Fund manage its day to day operations and
are responsible to the Fund's Board of Directors. The
Directors set broad policies for each Fund and choose its
Officers. The following is a list of the Directors and
Officers of the Fund and a statement of their present
positions and principal occupations during the past five
years. The mailing address of the Directors and Officers of
the Fund is Post Office Box 876, Valley Forge, PA 19482.
JOHN C. BOGLE, Chairman, Chief
Executive Officer and Director *
Chairman, Chief Executive
Officer, and Director of The
Vanguard Group, Inc., and of each
of the investment companies in
The Vanguard Group; Director of
The Mead Corporation and General
Accident Insurance.
JOHN J. BRENNAN, President &
Director *
President and Director of The
Vanguard Group, Inc. and of each
of the investment companies in
The Vanguard Group.
ROBERT E. CAWTHORN, Director
Chairman and Chief Executive
Officer, Rhone-Poulenc Rorer,
Inc.; Director of Immune Response
Corp. and Sun Company, Inc.;
Trustee, Universal Health Realty
Income Trust.
BARBARA BARNES HAUPTFUHRER,
Director
Director of The Great Atlantic
and Pacific Tea Company, Alco
Standard Corp., Raytheon Company,
Knight-Ridder, Inc., and
Massachusetts Mutual Life
Insurance Co.
BRUCE K. MACLAURY, Director
President, The Brookings
Institution; Director of Dayton
Hudson Corporation, American
Express Bank, Ltd. and The St.
Paul Companies, Inc.
BURTON G. MALKIEL, Director
Chemical Bank Chairman's
Professor of Economics, Princeton
University; Director of
Prudential Insurance Co. of
America, Amdahl Corporation,
Baker Fentress & Co., Jeffrey
Co., and The Southern New England
Telephone Company.
ALFRED M. RANKIN, Director
President, Chief Executive
Officer and Director of NACCO
Industries, Inc.; Director of The
BFGoodrich Company, The Standard
Products Company and The Reliance
Electric Company.
JOHN C. SAWHILL, Director
President and Chief Executive
Officer, The Nature Conservancy;
formerly, Director and Senior
Partner, McKinsey & Co.; and
President, New York University;
Director of Pacific Gas and
Electric Company and NACCO
Industries.
JAMES O. WELCH, JR., Director
Retired Chairman of Nabisco
Brands, Inc., retired Vice
Chairman and Director of RJR
Nabisco; Director of TECO Energy,
Inc.
J. LAWRENCE WILSON, Director
Chairman and Director of Rohm &
Haas Company; Director of Cummins
Engine Company, Vanderbilt
University; and Trustee of The
Culver Educational Foundation.
RAYMOND J. KLAPINSKY, Secretary *
Senior Vice President and
Secretary of The Vanguard Group,
Inc.; Secretary of each of the
investment companies in The
Vanguard Group.
RICHARD F. HYLAND, Treasurer *
Treasurer of The Vanguard Group,
Inc. and of each of the
investment companies in The
Vanguard Group.
KAREN E. WEST, Controller *
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.
- ------------------------------------------------------------------------------
<PAGE>
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND PURCHASING SHARES
You may open a regular (non-retirement) account, either by
mail or wire. Simply complete and return an Account
Registration Form and any required legal documentation,
indicating the amount you wish to invest. Your purchase must
be equal to or greater than the $3,000 minimum initial
investment requirement ($500 for Uniform Gifts/Transfers to
Minors Act accounts). You must open a new Individual
Retirement Account by mail (IRAs may not be opened by wire)
using a Vanguard IRA Adoption Agreement. Your purchase must
be equal to or greater than the $500 minimum initial
investment requirement, but no more than $2,000 if you are
making a regular IRA contribution. Rollover contributions are
generally limited to the amount withdrawn within the past 60
days from an IRA or other qualified Retirement Plan. If you
need assistance with the forms or have any questions about
the Fund, please call our Investor Information Department (1-
800-662-7447). NOTE: For other types of account registrations
(e.g., corporations, associations, other organizations,
trusts or powers of attorney), please call us to determine
which additional forms you may need.
Because of the risks associated with common stock
investments, the Fund is intended to be a long-term
investment vehicle and is not designed to provide investors
with a means of speculating on short-term market movements.
Consequently, the Fund reserves the right to reject any
specific purchase (and exchange purchase) request. The Fund
also reserves the right to suspend the offering of shares for
a period of time.
The Fund's shares are purchased at the next-determined net
asset value after your investment has been received. The Fund
is offered on a no-load basis (i.e., there are no sales
commissions or 12b-1 fees).
ADDITIONAL INVESTMENTS
Subsequent investments to regular accounts may be made by
mail ($100 minimum), wire ($1,000 minimum), exchange from
another Vanguard Fund account ($100 minimum), or Vanguard
Fund Express. Subsequent investments to Individual Retirement
Accounts may be made by mail ($100 minimum) or exchange from
another Vanguard Fund account. In some instances,
contributions may be made by wire or Vanguard Fund Express.
Please call us for more information on these options.
-------------------------------------------------------------
<PAGE>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount Additional investments
Complete and sign of your initial should include the Invest-
the enclosed investment on the by-Mail remittance form
Account registration form, make attached to your Fund
Registration Form your check payable to The confirmation statements.
Vanguard Group--93, and Please make your check
mail to: payable to The Vanguard
VANGUARD FINANCIAL CENTER Group--93, write your
P.O. BOX 2600 account number on your
VALLEY FORGE, PA 19482 check and, using the
return envelope provided,
mail to the address
indicated on the Invest-
by-Mail Form.
For express or VANGUARD FINANCIAL CENTER All written requests
registered mail, 455 DEVON PARK DRIVE should be mailed to one of
send to: WAYNE, PA 19087 the addresses indicated
for new accounts. Do not
send registered or express
mail to the post office
box address.
-----------------------------------------------------------
PURCHASING BY WIRE CORESTATES BANK, N.A.
Money should be ABA 031000011
wired to: CORESTATES ACCT NO 0101 9897
ATTN VANGUARD
BEFORE WIRING VANGUARD QUANTATIVE PORTFOLIOS
Please contact ACCOUNT NUMBER
Client Services ACCOUNT REGISTRATION
(1-800-662-2739)
To assure proper receipt, please be sure your bank includes
the Fund name, the account number Vanguard has assigned to
you and the eight digit CoreStates number. If you are opening
a new account, please complete the Account Registration Form
and mail it to the "New Account" address above after
completing your wire arrangement. NOTE: Federal funds wire
purchase orders will be accepted only when the Fund and
Custodian Bank are open for business.
-------------------------------------------------------------
PURCHASING BY EXCHANGE (from a Vanguard account)
Telephone exchanges are not permitted to or from Vanguard
Quantitative Portfolios. You may, however, purchase shares of
the Fund by exchange from another Vanguard Fund account by
providing the appropriate information on your Account
Registration Form. However, the Fund reserves the right to
refuse any exchange purchase request.
-------------------------------------------------------------
PURCHASING BY FUND EXPRESS
Special Purchase and Automatic Investment
The Fund Express Special Purchase option lets you move money
from your bank account to your Vanguard account at your
request. Or if you choose the Automatic Investment option,
money will be moved from your bank account to your Vanguard
account on the schedule (monthly, bimonthly (every other
month), quarterly or yearly) you select. To establish these
Fund Express options, please provide the appropriate
information on the Account Registration Form. We will send
<PAGE>
you a confirmation of your Fund Express enrollment; please
wait three weeks before using the service.
- ------------------------------------------------------------------------------
CHOOSING A DISTRIBUTION OPTION
You must select one of three distribution options:
1. AUTOMATIC REINVESTMENT OPTION--Both dividends and capital
gains distributions will be reinvested in additional Fund
shares. This option will be selected for you automatically
unless you specify one of the other options.
2. CASH DIVIDEND OPTION--Your dividends will be paid in cash
and your capital gains will be reinvested in additional
Fund shares.
3. ALL CASH OPTION--Both dividend and capital gains
distributions will be paid in cash.
You may change your option by calling our Client Services
Department (1-800-662-2739).
In addition, an option to invest your cash dividend and/or
capital gains distributions in another Vanguard Fund account
is available. Please call our Client Services Department (1-
800-662-2739) for information. You may also elect Vanguard
Dividend Express which allows you to transfer your cash
dividends and/or capital gains distributions automatically to
your bank account. Please see "Other Vanguard Services" for
more information.
- ------------------------------------------------------------------------------
TAX CAUTION
INVESTORS SHOULD ASK ABOUT THE TIMING OF CAPITAL GAINS AND DIVIDEND
DISTRIBUTIONS BEFORE INVESTING
Under Federal tax laws, the Fund is required to distribute
net capital gains and dividend income to Fund shareholders.
These distributions are made to all shareholders who own Fund
shares as of the distribution's record date, regardless of
how long the shares have been owned. Purchasing shares just
prior to the record date could have a significant impact on
your tax liability for the year. For example, if you purchase
shares immediately prior to the record date of a sizable
capital gain or income dividend distribution, you will be
assessed taxes on the amount of the capital gain and/or
dividend distribution later paid even though you owned the
Fund shares for just a short period of time. (Taxes are due
on the distributions even if the dividend or gain is
reinvested in additional Fund shares.) While the total value
of your investment will be the same after the
distribution--the amount of the distribution will offset the
drop in the NAV of the shares--you should be aware of the tax
implications the timing of your purchase may have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Fund's annual
capital gains distribution normally occurs in December, while
income dividends are generally paid semi-annually in June and
December. For additional information on distributions and
taxes, see the section titled "Dividends, Capital Gains, and
Taxes."
- ------------------------------------------------------------------------------
<PAGE>
IMPORTANT INFORMATION
ESTABLISHING OPTIONAL SERVICES
The easiest way to establish optional Vanguard services on
your account is to select the options you desire when you
complete your Account Registration Form. IF YOU WISH TO ADD
OPTIONS LATER, YOU MAY NEED TO PROVIDE VANGUARD WITH
ADDITIONAL INFORMATION AND A SIGNATURE GUARANTEE. PLEASE CALL
OUR CLIENT SERVICES DEPARTMENT (1-800-662-2739) FOR FURTHER
ASSISTANCE.
SIGNATURE GUARANTEES
For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A SIGNATURE
GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES
Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace it.
BROKER-DEALER PURCHASES
If you purchase shares in Vanguard Funds through a registered
broker-dealer or investment adviser, the broker-dealer or
adviser may charge a service fee.
CANCELLING TRADES
The Fund will not cancel any trade (e.g., a purchase,
exchange or redemption) believed to be authentic, received in
writing or by telephone, once the trade has been received.
- ------------------------------------------------------------------------------
WHEN YOUR ACCOUNT WILL BE CREDITED
Your trade date is the date on which your account is
credited. If your purchase is made by check, Federal Funds
wire or exchange and is received by the close of the New York
Stock Exchange (generally 4:00 p.m. Eastern time), your trade
date is the day of receipt. If your purchase is received
after the close of the Exchange your trade date is the next
business day. Your shares are purchased at the net asset
value determined on your trade date.
In order to prevent lengthy processing delays caused by the
clearing of foreign checks, Vanguard will only accept a
foreign check which has been drawn in U.S. dollars and has
been issued by a foreign bank with a U.S. correspondent bank.
- ------------------------------------------------------------------------------
SELLING YOUR SHARES
You may withdraw any portion of the funds in your account by
redeeming shares at any time. You may initiate a request by
writing or by telephoning. Your redemption proceeds are
normally mailed within two business days after the receipt of
the request in Good Order.
-------------------------------------------------------------
SELLING BY MAIL
Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD QUANTITATIVE PORTFOLIOS, P.O. BOX 1120, VALLEY
FORGE, PA 19482. (For express or registered mail, send your
request to Vanguard Financial Center, Vanguard Quantitative
Portfolios, 455 Devon Park Drive, Wayne, PA 19087.)
The redemption price of shares will be the Fund's net asset
value next determined after Vanguard has received all
required documents in Good Order.
-------------------------------------------------------------
<PAGE>
DEFINITION OF
GOOD ORDER
GOOD ORDER means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or
shares).
3. The signatures of all owners EXACTLY as they are
registered on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required in the case of estates, corporations, trusts and
certain other accounts.
6. Any certificates that you are holding for the account.
IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS TO
YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES DEPARTMENT (1-
800-662-2739).
-------------------------------------------------------------
SELLING BY TELEPHONE
To sell shares by telephone, you or your pre-authorized
representative may call our Client Services Department at 1-
800-662-2739. The proceeds will be sent to you by mail.
Please see "Important Information About Telephone
Transactions".
-------------------------------------------------------------
SELLING BY FUND EXPRESS
Automatic Withdrawal & Special Redemption
If you select the Fund Express Automatic Withdrawal option,
money will be automatically moved from your Vanguard Fund
account to your bank account according to the schedule you
have selected. The Special Redemption option lets you move
money from your Vanguard account to your bank account on your
request. You may elect Fund Express on the Account
Registration Form or call our Investor Information Department
(1-800-662-7447) for a Fund Express application.
-------------------------------------------------------------
SELLING BY EXCHANGE
You may sell shares by making an exchange into another
Vanguard Fund account. Exchanges may be made only by mail;
telephone exchanges are not accepted for the Fund.
-------------------------------------------------------------
IMPORTANT REDEMPTION INFORMATION
Shares purchased by check or Fund Express may not be redeemed
until payment for the purchase is collected, which may take
up to ten calendar days. Your money is invested during the
holding period.
-------------------------------------------------------------
DELIVERY OF REDEMPTION PROCEEDS
Redemption requests received by telephone prior to the close
of the New York Stock Exchange (generally 4:00 p.m. Eastern
time) are processed on the day of receipt and the redemption
proceeds are normally sent on the following business day.
Redemption requests received by telephone after the close of
the Exchange are processed on the business day following
receipt and the proceeds are normally sent on the second
business day following receipt.
Redemption proceeds must be sent to you within seven days of
receipt of your request in Good Order.
If you experience difficulty in making a telephone redemption
during periods of drastic economic or market changes, your
redemption request may be made by regular or express mail. It
will be implemented at the net asset value next determined
after your request has been received by Vanguard in Good
Order. The Fund reserves the right to revise or terminate the
telephone redemption privilege at any time.
<PAGE>
The Fund may suspend the redemption right or postpone payment
at times when the New York Stock Exchange is closed or under
any emergency circumstances as determined by the United
States Securities and Exchange Commission.
If the Board of Directors determines that it would be
detrimental to the best interests of the Fund's remaining
shareholders to make payment in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution
in kind of readily marketable securities.
-------------------------------------------------------------
VANGUARD'S AVERAGE COST STATEMENT
If you make a redemption from a qualifying account, Vanguard
will send you an Average Cost Statement which provides you
with the tax basis of the shares you redeemed. Please see
"Other Vanguard Services" for additional information.
-------------------------------------------------------------
MINIMUM ACCOUNT BALANCE REQUIREMENT
Due to the relatively high cost of maintaining smaller
accounts, the Fund reserves the right to redeem shares in any
account that is below the minimum initial investment amount
of $3,000. In addition, if at any time your total investment
does not have a value of at least $1,000, you may be notified
that the value of your account is below the Fund's minimum
account balance requirement. You would then be allowed 60
days to make an additional investment before the account is
liquidated. Proceeds would be promptly paid to the
shareholder. This requirement does not apply to IRAs, other
retirement accounts, and Uniform Gifts/Transfers to Minors
Act accounts.
- ------------------------------------------------------------------------------
EXCHANGING YOUR SHARES
Should your investment goals change, you may exchange your
shares of Vanguard Quantitative Portfolios for those of other
available Vanguard Funds. Exchanges to or from Vanguard
Quantitative Portfolios may be made only by mail. TELEPHONE
EXCHANGES ARE NOT ACCEPTED FOR THE FUND.
EXCHANGING BY MAIL
Please be sure to include on your exchange request the name
and account number of your current Fund, the name of the Fund
you wish to exchange into, the amount you wish to exchange,
and the signatures of all registered account holders. Send
your request to VANGUARD FINANCIAL CENTER, VANGUARD
QUANTITATIVE PORTFOLIOS, P.O. BOX 1120, VALLEY FORGE, PA
19482. (For express or registered mail, send your request to
Vanguard Financial Center, Vanguard Quantitative Portfolios,
455 Devon Park Drive, Wayne, PA 19087.)
-------------------------------------------------------------
IMPORTANT EXCHANGE INFORMATION
Before you make an exchange, you should consider the
following:
* Please read the Fund's prospectus before making an
exchange. For a copy and for answers to any questions you
may have, call our Investor Information Department
(1-800-662-7447).
* An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on the
transaction.
* Exchanges are accepted only if the registrations and the
Taxpayer Identification numbers of the two accounts are
identical.
* The shares to be exchanged must be on deposit and not held
in certificate form.
<PAGE>
* New accounts are not currently accepted in Vanguard/Windsor
Fund.
* The redemption price of shares redeemed by exchange is the
net asset value next determined after Vanguard has received
all required documentation in Good Order.
* When opening a new account by exchange, you must meet the
minimum investment requirement of the new Fund.
Every effort will be made to maintain the exchange privilege.
However, the Fund reserves the right to revise or terminate
its provisions, limit the amount of or reject any exchange,
as deemed necessary, at any time.
- ------------------------------------------------------------------------------
EXCHANGE PRIVILEGE LIMITATIONS
The Fund's exchange privilege is not intended to afford
shareholders a way to speculate on short-term movements in
the market. Accordingly, in order to prevent excessive use of
the exchange privilege that may potentially disrupt the
management of the Fund and increase transaction costs, the
Fund has established a policy of limiting excessive exchange
activity.
Exchange activity generally will not be deemed excessive if
limited to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT LEAST 30
DAYS APART) from the Fund during any twelve month period.
Notwithstanding these limitations, the Fund reserves the
right to reject any purchase request (including exchange
purchases from other Vanguard portfolios) that is reasonably
deemed to be disruptive to efficient portfolio management.
- ------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT TELEPHONE TRANSACTIONS
The ability to initiate redemptions (except wire redemptions)
by telephone is automatically established on your account
unless you request in writing that telephone transactions on
your account not be permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions, Vanguard
adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone, the
caller must know (i) the name of the Portfolio; (ii) the
10-digit account number; (iii) the exact name in which the
account is registered; and (iv) the Social Security or
Taxpayer Identification number listed on the account.
2. PAYMENT POLICY. The proceeds of any telephone redemption
by mail will be made payable to the registered shareowner
and mailed to the address of record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by
telephone, provided that reasonable security procedures have
been followed. Vanguard believes that the security procedures
described above are reasonable and that if such procedures
are followed, you will bear the risk of any losses resulting
from unauthorized or fraudulent telephone transactions on
your account. If Vanguard fails to follow reasonable security
procedures, it may be liable for any losses resulting from
unauthorized or fraudulent telephone transactions on your
account.
- ------------------------------------------------------------------------------
<PAGE>
TRANSFERRING REGISTRATION
You may transfer the registration of any of your Fund shares
to another person by completing a transfer form and sending
it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110, VALLEY
FORGE, PA 19482, ATTENTION: TRANSFER DEPARTMENT. The request
must be in Good Order. To obtain a transfer form and complete
instructions, please call our Client Services Department (1-
800-662-2739).
- ------------------------------------------------------------------------------
OTHER VANGUARD SERVICES
For more information about any of these services, please call
our Investor Information Department at 1-800-662-7447.
STATEMENTS AND REPORTS
Vanguard will send you a confirmation statement each time you
initiate a transaction in your account except for
checkwriting redemptions from Vanguard money market accounts.
You will also receive a comprehensive account statement at
the end of each calendar quarter. The fourth-quarter
statement will be a year-end statement, listing all
transaction activity for the entire calendar year.
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using the
average cost single category method. This service is
available for most taxable accounts opened since January 1,
1986. In general, investors who redeemed shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement in February of the following year.
Please call our Client Services Department (1-800-662-2739)
for information.
Financial reports on the Fund will be mailed to you semi-
annually, according to the Fund's fiscal year-end.
VANGUARD DIRECT DEPOSIT SERVICE
With Vanguard's Direct Deposit Service, most U.S. Government
checks (including Social Security and military pension
checks) and private payroll checks may be automatically
deposited into your Vanguard Fund account. Separate brochures
and forms are available for direct deposit of U.S. Government
and private payroll checks.
VANGUARD AUTOMATIC EXCHANGE SERVICE
Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or to
contribute to an IRA or other retirement plan.
VANGUARD FUND EXPRESS
Vanguard's Fund Express allows you to transfer money between
your Fund account and your account at a bank, savings and
loan association, or a credit union that is a member of the
Automated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call our Investor
Information Department (1-800-662-7447) for a Fund Express
application.
The minimum amount that can be transferred by telephone is
$100. However, if you have established one of the automatic
options, the minimum amount is $50. The maximum amount that
can be transferred using any of the options is $100,000.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition, some
services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
<PAGE>
VANGUARD DIVIDEND EXPRESS
Vanguard's Dividend Express allows you to transfer your
dividends and/or capital gains distributions automatically
from your Fund account, one business day after the Fund's
payable date, to your account at a bank, savings and loan
association, or a credit union that is a member of the
Automated Clearing House (ACH) network. You may elect this
service on the Account Registration Form or call our Investor
Information Department (1-800-662-7447) for a Vanguard
Dividend Express application.
VANGUARD TELE-ACCOUNT
Vanguard's Tele-Account is a convenient, automated service
that provides share price, price change and yield quotations
on Vanguard Funds through any TouchTone(TM) telephone. This
free service also lets you obtain information about your
account balance, your last transaction, and your most recent
dividend or capital gains payment. To contact Vanguard's
Tele-Account service, dial 1-800-ON-BOARD (1-800-662-6273). A
free brochure offering detailed operating instructions is
available from our Investor Information Department
(1-800-662-7447).
- ------------------------------------------------------------------------------
<PAGE>
PART B
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 1994
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus (dated March 31, 1994). To obtain the Prospectus
please call:
Investor Information Department
1-800-662-7447
TABLE OF CONTENTS PAGE
Investment Policies............................................. 1
Investment Limitations.......................................... 4
Yield and Total Return.......................................... 5
Purchase of Shares.............................................. 5
Redemption of Shares............................................ 6
Shareholder Services............................................ 6
Management of the Fund.......................................... 6
Investment Advisory Services.................................... 8
Portfolio Transactions.......................................... 9
Financial Statements............................................ 10
Performance Measures............................................ 10
General Information............................................. 11
INVESTMENT POLICIES
FUTURES CONTRACTS
The Fund may enter into futures contracts, options, and options on futures
contracts for the purpose of simulating full investment and reducing
transactions costs. Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a specific security at
a specified future time and at a specified price. Futures contracts which are
standardized as to maturity date and underlying financial instrument are
traded on national futures exchanges. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"), a U.S. Government Agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold," or "selling" a
contract previously purchased) in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is bought
or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be
changed. Brokers may establish deposit requirements which are higher than the
exchange minimums. Futures contracts are customarily purchased and sold 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.
<PAGE>
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations
in the prices of underlying securities. The Fund intends to use futures
contracts only for bonafide hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bonafide hedging transactions. The Fund will
only sell futures contracts to protect securities it owns against price
declines or purchase contracts to protect against an increase in the price of
securities it intends to purchase. As evidence of this hedging interest, the
Fund expects that approximately 75% of its futures contract purchases will be
"completed," that is, equivalent amounts of related securities will have been
purchased or are being purchased by the Fund upon sale of open futures
contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Fund's exposure to market fluctuations, the use
of futures contracts may be a more effective means of hedging this exposure.
While the Fund will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Fund will not enter into futures contract transactions to the extent
that, immediately thereafter, the sum of its initial margin deposits on open
contracts exceeds 5% of the market value of the Fund's total assets. In
addition, the Fund will not enter into futures contracts to the extent that
its outstanding obligations to purchase securities under these contracts would
exceed 20% of the Fund's total assets.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments to maintain its required margin. In
such situations, if the Fund has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may
be disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge it.
The Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. Additionally, the
Fund bears the risk that the Advisor will incorrectly predict future market
trends. However, because the futures strategies of the Fund are engaged in
only for hedging purposes, the Adviser does not believe that the Fund is
subject to the risks of loss frequently associated with futures transactions.
The Fund would presumably have sustained comparable losses if, instead of the
futures contract, it had invested in the underlying security 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
are different 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,
<PAGE>
investments in futures contracts and options involve the risk that the
investment adviser will incorrectly predict stock market trends.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades
may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of future positions and subjecting some
futures traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS
Except for transactions the Fund has identified as hedging transactions, the
Fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on certain futures
contracts as of the end of the year as well as those actually realized during
the year. In most cases, any gain or loss recognized with respect to a futures
contract is considered to be 60% long-term capital gain or loss and 40% short-
term capital gain or loss, without regard to the holding period of the
contract. Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by the Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
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. 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 Portfolio 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 Portfolio'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 Portfolio's fiscal year) on futures
transactions. Such distributions will be combined with distributions of
capital gains realized of the Portfolio's other investments and shareholders
will be advised of the nature of the distributions.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements with commercial banks, brokers
or dealers to generate net investment 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
Federal Reserve member bank with minimum assets of at least $2 billion or a
registered securities 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 collaterized by securities. The resale price reflects
an agreed upon interest rate effective for the period the instrument is held
by the Fund and is unrelated to the interest rate on the underlying
instrument. In these transactions, the securities acquired by the Fund
(including accrued interest earned thereon) must have a total value in excess
of the value of the repurchase agreement and are held by the Fund's custodian
bank until repurchased. The Fund's Board of Directors will monitor the Fund's
repurchase agreement transactions and will establish guidelines and standards
for review 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 net assets, at the time of investment, will be invested in repurchase
agreements having maturities longer than seven days and
<PAGE>
securities subject to legal or contractual restrictions on resale, or for
which there are no readily available market quotations.
The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the
control of the Fund and therefore the 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 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, a letter of credit issued by a domestic U.S.
bank, or securities issued or guaranteed by the United States Government
having at all times not less than 100% of the value of the securities loaned,
(b) the borrower add to such collateral whenever the price of the securities
loaned rises (i.e. the borrower "marks to the market" on a daily basis), (c)
the loan be made subject to termination by the Fund at any time and (d) the
Fund receive reasonable interest on the loan (which may include the Fund's
investing any cash collateral in interest bearing short-term investments), any
distribution on the loaned securities and any increase in their market value.
Loan arrangements made by the Fund will comply with all other applicable
regulatory requirements, including the rules of the New York Stock Exchange,
which rules presently require the borrower, after notice, to redeliver the
securities within the normal settlement time of five business days. All
relevant facts and circumstances, including the creditworthiness of the
broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Fund's Board of
Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors. In addition, voting rights may
pass with the loaned securities, but if a material event will occur affecting
an investment on loan, the loan must be called and the securities voted.
INVESTMENT LIMITATIONS
The following restrictions are fundamental policies and cannot be changed
without approval of the holders of a majority of the outstanding shares of the
Fund or, if less, 67% of the shares represented at a meeting of shareholders
at which the holders of 50% or more of the shares are represented. The Fund
may not under any circumstances:
1) Invest for the purpose of exercising control of management of any
company;
2) With respect to 75% of the value of its total assets, purchase the
securities of any issuer (except obligations of the United States
government and its instrumentalities) if as a result the Fund would hold
more than 10% of the outstanding voting securities of the issuer, or
more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer;
3) Invest in securities of other investment companies, except as may be
acquired as 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;
<PAGE>
4) Engage in the business of underwriting securities issued by other
persons, 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 investment securities;
5) 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.);
6) Borrow money, except that the Fund may borrow from banks (or through
reverse repurchase agreements), for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests which
might otherwise require the untimely disposition of securities, 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;
7) Invest in commodities or real estate although the Fund may use stock
futures contracts or options for hedging purposes only, and provided
that not more than 5% of the Funds assets are required as futures
contract deposit and not more than 20% of the Fund's assets are
committed to futures contracts and options transactions, and, 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 that
the Fund may invest in futures contracts and options transactions as set
forth above;
9) Purchase or retain any security if (i) one or more officers, trustees or
partners of the Fund or its investment adviser individually own or would
own, directly or beneficially, more than 1/2 of 1 per cent of the
securities of such issuer, and (ii) in the aggregate such persons own or
would own more than 5% of such securities;
10) Make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitation
described in (5) above) which are publicly distributed, and (ii) by
lending its securities to banks, brokers, dealers and other financial
institutions so long as such loans are not inconsistent with the
Investment Company Act or the Rules and Regulations or interpretations
of the Securities and Exchange Commission thereunder.
11) Pledge, mortgage, or hypothecate any of its assets to an extent greater
than 5% of its total assets;
12) Invest directly in interests in oil, gas or other mineral exploration or
development programs; and
13) Invest more than 25% of the value of its total assets in any one
industry.
14) Purchase or sell options or warrants or engage in arbitrage operations.
The above-mentioned investment limitations are considered at the time the
investment securities are purchased. 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 "The Vanguard Group." As a non-fundamental policy,
the Fund will not invest more than 5% of its total assets in the securities of
companies that, together with their predecessors, have been in continuous
operation for less than three years.
YIELD AND TOTAL RETURN
The yield of the Fund for the 30 day period ended December 31, 1993 was
2.23%.
The average annual total return of the Fund for the 1, 3, and 5 year periods
ended December 31, 1993 and, since its inception on December 10, 1986 was
+13.83%, +16.64%, +15.37% and +13.25% respectively. Total return is computed
by finding the average compounded rates of return over the one year and since
inception 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.
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 judgement
of management such rejection is in the best interest of the Fund, and
<PAGE>
(iii) to reduce or waive the minimum for initial and subsequent investments
for certain fiduciary accounts or under circumstances where certain economies
can be achieved in sales of the Fund's shares.
REDEMPTION OF SHARES
The Fund may suspend redemption priviledges 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.
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.
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.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged without cost for shares of any open-end
Fund in The Vanguard Group offering its shares to new investors. A shareholder
of any other open-end Fund in The Vanguard Group may likewise exchange his
shares for shares of the Fund. Exchange requests may be made by writing to
Vanguard.
Any such exchange will be based on the respective net asset values of the
shares involved. Before making an exchange, a shareholder should consider the
investment objectives and policies of the Fund to be purchased, and other
relevant information (including the minimum initial investment), which can be
found in that Fund's prospectus. A prospectus for any of the Vanguard Funds
may be obtained from Vanguard.
For Federal income tax purposes, an exchange between Funds is a taxable
event and, accordingly, a capital gain or loss may be realized. The exchange
priviledge may be modified or terminated at any time, and any of the Vanguard
Funds may limit or discontinue the offering of its shares without notice to
shareholders.
INFORMATION FOR SHAREHOLDERS
Following any purchase or redemption, a shareholder will receive a statement
which reflects all activity during the current calendar year. Each shareholder
will also receive a monthly statement, which includes a valuation as of the
day the statement is prepared.
Semi-annual reports and annual audited reports, which include the list of
investments held by the Fund, will be sent to shareholders.
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors, manage
the day to day operations of the Fund. The Directors, who are elected annually
by shareholders, set broad policies for the Fund and choose its officers. A
list of the Directors and officers of the Fund and a brief statement of their
present positions and principal occupations during the past 5 years is set
forth in the Prospectus.
THE VANGUARD GROUP
Vanguard Quantitative Portfolios, 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
<PAGE>
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 several of the Vanguard Funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Funds and also
furnishes the Funds with necessary office space, furnishings and equipment.
Each Fund pays its share of Vanguard's net expenses which are allocated among
the Funds under methods approved by the Board of Directors (Trustees) of each
Fund. In addition, each Fund bears its own direct expenses such as legal,
auditing and custodian fees.
The Fund's officers are also officers and employees of Vanguard. No officer
or employee owns, or is permitted to own, any securities of any external
adviser for the Funds.
The Vanguard Group was established and operates under a Fund's Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts of which each of the Funds have invested are adjusted from time to
time in order to maintain the proportionate relationship between each Fund's
relative net assets and its contribution to Vanguard's capital. At December
31, 1993, the Fund had contributed capital of $85,000 to Vanguard,
representing .4% of Vanguard's capitalization. The Fund's Service Agreement
was amended on May 10, 1993 to provide as follows: (a) each Vanguard Fund may
invest up to .40% of its current assets in Vanguard, and (b) there is no other
limitation on the amount that each Vanguard Fund may contribute to Vanguard's
capitalization.
MANAGEMENT. Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended December 31, 1993, the Fund's share of Vanguard's actual net
costs of operation relating to management and administrative services
(including transfer agency) totaled approximately $1,039,000.
DISTRIBUTION. Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of Vanguard, 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 year ended December 31, 1993 the
Fund paid approximately $109,000 of the Group's distribution and marketing
expenses which represented an effective annual rate of .02 of 1% of the Fund's
average net assets.
REMUNERATION OF DIRECTORS (TRUSTEES) AND OFFICERS. The Fund pays each
Director (Trustee), who is not also an officer, an annual fee plus travel and
other expenses incurred in attending Board meetings. For the year ended
December 31, 1993, the Fund paid approximately $1,000 in directors' fees and
expenses. 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 year ended December 31, 1993 the Fund's proportionate
share of remuneration, paid by Vanguard (and reimbursed by the Fund) was
approximately $20,506.
Directors who are not officers receive no retirement benefits. 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 the 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 eligible officers are
permitted to make pre-tax contributions in an amount equal to 4% of total
compensation which are matched by Vanguard on a 100% basis. The fee is equal
<PAGE>
to $1,000 for each year 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 of this fee based on its relative net assets. The 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
contributions made by Vanguard under its retirement and thrift plans on behalf
of all eligible officers of the Fund, as a group, during the 1993 fiscal year
was approximately $2,455.
INVESTMENT ADVISORY SERVICES
The Fund employs Franklin Portfolio Associates Trust ("Franklin") under an
advisory agreement dated October 1, 1987 to manage the investment and
reinvestment of the Fund's assets and to continuously review, supervise and
administer the Fund's investment program. Franklin discharges its
responsibilities subject to control of the officers and Directors of the Fund.
The Fund pays Franklin a 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:
NET ASSETS RATE
------- ----
First $100 million........................................... 0.30%
Over $100 million............................................ 0.15%
The Basic Fee paid to Franklin may be increased or decreased by applying an
adjustment formula based on the Fund's investment performance. Such formula
provides for an increase or decrease in the Basic Fee in an amount equal to
.20% per annum (.05% per quarter) of the first $100 million of average month
end net assets of the Fund, and .10% per annum (.025% per quarter) of average
month-end net assets over $100 million, if the Fund's investment performance
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
Standard & Poor's Daily Stock Price Index of 500 Common Stocks (the "S&P
Index") for the same period; or by an amount equal to .10% per annum (.025%
per quarter) of the first $100 million of average month-end net assets and
.05% per annum (.0125% per quarter) of average month-end net assets over $100
million if the Fund's investment performance for such thirty-six months is
three or more but less than six percentage points above or below,
respectively, the investment record of the S&P Index for the same period.
For example, if the average net assets of the Fund were $100 million or
less, and its investment performance for the preceding three year period was
more than six percentage points above the S&P Index, the total fee would be
0.50% of average net assets, consisting of the Basic fee of 0.30%, and an
incentive fee of 0.20%. Conversely, if performance were six percentage points
below the S&P, the total fee would be 0.10% of net assets -- the Basic Fee of
0.30%, adjusted for a penalty of 0.20%. Above assets levels of $100 million,
both the Basic Fee and the Incentive Fee are reduced, as described above.
The present agreement continues until September 30, 1994. The agreement is
renewable thereafter, for successive one year periods, only if each renewal is
specifically approved by a vote of the Fund's Board of Directors, including
the affirmative votes of a majority of the Directors who are not parties to
the contract of "interested persons" (as defined in the Investment Company Act
of 1940) of any such party, cast in person at a meeting called for the purpose
of considering such approval. In addition, the question of continuance of the
agreement may be presented to the shareholders of the Fund; in such event
continuance shall be effected only if approved by the affirmative vote of a
majority of the outstanding voting securities of the Fund. The agreement is
automatically terminated if assigned, and may be terminated without penalty at
any time (1) either by vote of the Board of Directors of the Fund or by vote
of the Fund's outstanding voting securities on 60 days' written notice to
Franklin, or (2) by Franklin upon 90 days' written notice to the Fund.
The Fund's Board of Directors may, without the approval of shareholders,
provide for:
A. The employment of a new investment adviser pursuant to the terms of a new
advisory agreement, either as a replacement for an existing adviser or as an
additional adviser.
B. A change in the terms of an advisory agreement.
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.
<PAGE>
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.
During the years ended December 31, 1991, 1992 and 1993, the Fund paid
investment advisory fees of approximately $578,000, $706,000, and $852,000.
For the fiscal year ended December 31, 1993 the Fund paid $223,000 for
performance adjustments.
DESCRIPTION OF FRANKLIN. Franklin is a Delaware corporation and is a wholly-
owned subsidiary of Mellon Financial Services Corporation #1.
PORTFOLIO TRANSACTIONS
The investment advisory agreement authorizes the Adviser (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 Adviser to use its best efforts to obtain the best available price
and most favorable execution as to all transactions for the Fund. The Adviser
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, the Adviser will use its best judgement
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 Adviser. The Adviser 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, the Adviser may cause the Fund to
pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the Adviser to the Fund.
Currently, it is the Fund's policy that the Adviser 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 Adviser 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 the Adviser and/or the Fund. However, the
Adviser has informed the Fund that it will not pay higher commission rates
specifically for the purpose of obtaining research services.
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be 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 the 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 clients served by the Adviser. If purchase or sale of
securities consistent with the investment policies of the Fund and one or more
of these other clients services by the Adviser are considered at or about the
same time, transactions in such securities will be allocated among the Fund
and such other clients in a manner deemed equitable by the Adviser. During the
years ended December 31, 1991, 1992 and 1993 the Fund paid $264,080, $478,691,
and $511,942 in brokerage commissions, respectively.
<PAGE>
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended December 31, 1993,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 1993, appearing in the Vanguard Quantitative
Portfolios 1993 Annual Report to Shareholders, and the report thereon of Price
Waterhouse, independent accountants, also appearing therein, are incorporated
by reference in this Statement of Additional Information. The Fund's 1993
Annual Report to Shareholders is enclosed with this Statement of Additional
Information.
PERFORMANCE MEASURES
Each of the investment company members of the Vanguard Group, including
Vanguard Quantitative Portfolios, Inc., may from time to time, use one or more
of the following unmanaged indexes for comparative performance purposes.
STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified
list of 500 companies representing the U.S. Stock Market.
WILSHIRE 5000 EQUITY INDEXES -- consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000
except for the 500 stocks in the Standard and Poor's 500 Index.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 67 bonds and 33
preferreds. The original list of names was generated by screening for
convertible issues of 100 million or greater in market capitalization. The
index is priced monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government
National Mortgage Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly
issued, non-convertible corporate bonds rated AA or AAA. It is a value-
weighted, total return index, including approximately 800 issues with
maturities of 12 years or greater.
SHEARSON LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by
the Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
MERRILL LYNCH CORPORATE & GOVERNMENT BOND --
SHEARSON LEHMAN CORPORATE (BAA) BOND INDEX --
BOND BUYER MUNICIPAL INDEX (20 YEAR) BOND --
STANDARD & POOR'S PREFERRED INDEX --
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues.
It is a value-weighted index calculated on price change only and does not
include income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 35% Standard & Poor's 500 Index and 65% Salomon Brothers
High Grade Bond Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index, 35% Salomon Brothers High
Grade Bond Index.
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.
<PAGE>
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.3 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX --
is a market weighted index that contains individually priced U.S. Treasury,
agency, and corporate securities rated BBB- or better with maturities between
5 and 10 years. The index has a market value of over $600 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a
market weighted index that contains individually priced U.S. Treasury, agency
and corporate securities rated BBB- or better with maturities greater than 10
years. The index has a market value of over $900 billion.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund is a diversified open-ended investment company established under
Maryland law under Amended and Restated Articles of Incorporation dated
September 2, 1986 which permit the Directors to issue 1,000,000,000 shares of
common stock, with a $.001 par value. The Board of Directors has the power to
designate one or more classes ("portfolios") of shares of common stock and to
classify or reclassify any unissued shares with respect to such Portfolios.
Currently the Fund is offering shares of one Portfolio.
The shares of each Portfolio are fully paid and non-assessable, and have no
preference as to conversion, exchange, dividends, retirement or other
features. The shares have no pre-emptive rights. The shares have non-
cumulative voting rights, which means that the holders of more than 50% of the
shares voting for the election of Directors can elect 100% of the Directors if
they choose to do so. A shareholder is entitled to one vote for each full
shares held (and a fractional vote for each fractional share held), then
standing in his name on the books of the Fund. On any matter submitted to a
vote of shareholders, all shares of the Fund then issued and outstanding and
entitled to vote, irrespective of the class, shall be voted in the aggregate
and not be class except (i) when required by the Investment Company Act of
1940, shares shall be voted by individual class, and (ii) when the matter does
not affect any interest of a particular class, then only shareholders of the
affected class or classes shall be entitled to vote thereon.
