SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT (NO. 33-8553) UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [x]
Post-Effective Amendment No. 10 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11 [x]
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)
P.O. Box 2600, Valley Forge, PA 19482
(Address of Principal Executive Office)
Registrant's Telephone Number (610) 669-1000
Raymond J. Klapinsky, Esquire
P.O. Box 876
Valley Forge, PA 19482
It is proposed that this filing become effective:
April 23, 1996, pursuant to paragraph (b) of Rule 485.
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
Registrant elects to register an indefinite number of shares pursuant to
Regulation 24f-2 under the Investment Company Act of 1940. Registrant filed
its Rule 24f-2 Notice for the year ended December 31, 1995 on
February 28, 1996.
<PAGE>
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
CROSS REFERENCE SHEET
Form N-1A
Item Number Location in Prospectus
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Item 1. Cover Page................................. Cover Page
Item 2. Synopsis................................... Highlights
Item 3. Condensed Financial Information............ Financial Highlights
Item 4. General Description of Registrant.......... Investment Objective;
Investment Limitations;
Investment Policies;
General Information
Item 5. Management of the Fund..................... Management of the Fund;
General Information
Item 6. Capital Stock and Other Securities......... Opening an Account and
Purchasing Shares;
Selling Your Shares; The
Share Price of the Fund;
Dividends, Capital Gains
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered....... Cover Page; Opening an
Account and Purchasing
Shares
Item 8. Redemption or Repurchase................... Selling Your Shares
Item 9. Pending Legal Proceedings.................. Not Applicable
Form N-1A Location in Statement of
Item Number Additional Information
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Item 10. Cover Page................................. Cover Page
Item 11. Table of Contents.......................... Cover Page
Item 12. General Information and History............ Investment Policies;
General Information
Item 13. Investment Objective and Policies.......... Investment Policies;
Investment Limitations
Item 14. Management of the Fund..................... Management of the Fund;
Investment Advisory
Services
Item 15. Control Persons and Principal Holders
of Securities.............................. Management of the Fund;
General Information
Item 16. Investment Advisory and Other Services..... Management of the Fund;
Investment Advisory
Services
Item 17. Brokerage Allocation....................... Not Applicable
Item 18. Capital Stock and Other Securities......... General Information;
Financial Statements
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered................... Purchase of Shares;
Redemption of Shares
Item 20. Tax Status................................. Appendix
Item 21. Underwriters............................... Not Applicable
Item 22. Calculations of Yield Quotations of Money
Market Fund................................ Not Applicable
Item 23. Financial Statements....................... Financial Statements
<PAGE>
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
<PAGE>
P R O S P E C T U S
============================================================================
A Member of The Vanguard Group
============================================================================
PROSPECTUS--April 23, 1996
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NEW ACCOUNT INFORMATION: Investor Information Department--
1-800-662-7447 (SHIP)
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SHAREHOLDER ACCOUNT SERVICES: Client Services Department--
1-800-662-2739 (CREW)
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INVESTMENT OBJECTIVE AND POLICIES
Vanguard Quantitative Portfolios, Inc. (the "Fund") is an open-end
diversified investment company that seeks to realize a total
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"). 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. Shares of the Fund are
neither insured nor guaranteed by any agency of the U.S.
Government, including the FDIC.
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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 9:00 p.m. and Saturday, from 9:00 a.m. to 4:00 p.m. (Eastern
time). The minimum initial investment is $3,000, or $1,000
for Uniform Gifts/Transfers to Minors Act accounts. The Fund is
offered on a no-load basis (i.e. there are no sales commissions or
12b-1 fees). However, the Fund incurs expenses for investment
advisory, management, administrative and distribution services.
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ABOUT THIS PROSPECTUS
This Prospectus is designed to set forth concisely the information
you should know about the Fund before you invest. It should be
retained for future reference. A "Statement of Additional
Information" containing additional information about the Fund has
been filed with the Securities and Exchange Commission. This
Statement is dated April 23, 1996 and has been incorporated
by reference into this Prospectus. A copy may be obtained without
charge by writing to the Fund or by calling the Investor
Information Department.
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TABLE OF CONTENTS
Page
Fund Expenses............................................... 2
Financial Highlights........................................ 2
Yield and Total Return...................................... 3
FUND INFORMATION
Investment Objective........................................ 4
Investment Policies......................................... 4
Investment Risks............................................ 5
Who Should Invest........................................... 5
Implementation of Policies.................................. 6
Investment Limitations...................................... 8
Management of the Fund...................................... 8
Investment Adviser.......................................... 9
Performance Record.......................................... 10
Dividends, Capital Gains and Taxes.......................... 11
The Share Price of the Fund................................. 12
General Information......................................... 13
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.................... 14
When Your Account Will Be Credited.......................... 17
Selling Your Shares......................................... 17
Exchanging Your Shares...................................... 19
Important Information about Telephone Transactions.......... 21
Transferring Registration................................... 21
Other Vanguard Services..................................... 22
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<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 1995 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
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Management & Administrative Expenses.............. 0.24%
Investment Advisory Fees.......................... 0.18
12b-1 Fees........................................ None
Other Expenses
Distribution Costs.............................. 0.02%
Miscellaneous Expenses.......................... 0.03
-----
Total Other Expenses.............................. 0.05
-----
Total Operating Expenses.......................... 0.47%
=====
The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or
indirectly as an investor in the Fund.
The following example illustrates the expenses that you would
incur on a $1,000 investment over various periods, assuming (1) a
5% annual rate of return and (2) redemption at the end of each
period. As noted in the table above, the Fund charges no
redemption fees of any kind.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$5 $15 $26 $59
This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be higher or
lower than those shown.
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FINANCIAL 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, 1995, have been
audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. This information should be read in
conjunction with the Fund's financial statements and notes
thereto, which, together with the remaining portions of the
Fund's 1995 Annual Report to Shareholders, are incorporated by
reference in the Statement of Additional Information and in this
Prospectus, and which appear, along with the report of Price
Waterhouse LLP, in the Fund's 1995 Annual Report to
Shareholders. The Fund's 1995 Annual Report to
Shareholders 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+
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 to Dec. 31, 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............... $15.56 $16.45 $16.30 $16.32 $13.29 $14.14 $11.08 $ 9.80 $9.69 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Investment Operations
Net Investment Income.... .41 .40 .40 .44 .47 .49 .43 .36 .33 .03
Net Realized and
Unrealized Gain (Loss)
on Investments......... 5.14 (.50) 1.83 .69 3.47 (.83) 3.10 1 .27 .09 (.34)
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Total from Investment
Operations........... 5.55 (.10) 2.23 1.13 3.94 (.34) 3.53 1.63 .42 (.31)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from Net
Investment Income...... (.42) (.39) (.39) (.44) (.47) (.47) (.47) (.35) (.25) --
Distributions from
Realized Capital Gains.. (.74) (.40) (1.69) (.71) (.44) (.04) -- -- (.06) --
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Total Distributions.... (1.16) (.79) (2.08) (1.15) (.91) (.51) (.47) (.35) (.31) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period............ $19.95 $15.56 $16.45 $16.30 $16.32 $13.29 $14.14 $11.08 $9.80 $ 9.69
===================================================================================================================================
Total Return............... 35.93% (0.61)% 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)........ $909 $596 $531 $416 $335 $211 $175 $144 $149 $7
Ratio of Expenses to
Average Net Assets....... .47% .48% .50% .40% .43% .48% .53% .64% .64% .0%
Ratio of Net Investment
Income to Average Net
Assets................... 2.25% 2.50% 2.22% 2.67% 2.95% 3.34% 3.35% 3.38% 2.79% 5.15%*
Portfolio Turnover Rate.... 59% 71% 85% 51% 61% 81% 78% 50% 73% 0%
*Annualized.
+Commencement of operations.
</TABLE>
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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.
In accordance with industry guidelines set forth by the U.S.
Securities and Exchange Commission, 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 an investor's account or the yield
reported in the Fund's Annual Report to Shareholders.
<PAGE>
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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.
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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 resem-bles 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 Fund is responsible for voting the shares of all securities
it holds.
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>
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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 1995, as measured
by the Standard & Poor's 500 Composite Stock Price Index:
Average Annual U.S. Stock Market Returns (1926-1995)
Over Various Time Horizons
1 Year 5 Years 10 Years 20 Years
------ ------- -------- --------
Best +53.9% +23.9% +20.1% +16.9%
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.5 +10.3 +10.7 +10.7
As shown, common stocks have provided annual total returns (capital
appreciation plus dividend income) averaging +10.7% for all 10-year
periods from 1926 to 1995. 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.
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
<PAGE>
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.
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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 dividend 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 approximately 70% 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 44% of the Index.
As of December 31, 1995, the five largest companies in the
Index were: General Electric (2.6%), American Telephone and
Telegraph (2.2%), Exxon Corporation (2.2%), Coca Cola
(2.0%), and Merck & Co. (1.8%). The largest industry
categories were: telephone companies (8.5%), banks
(6.5%), pharmaceutical companies (6.4%), international oil
companies (6.0%), and medical supplies (4.2%).
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 paper, bank certificates of deposit, and bankers'
acceptances; and repurchase agreements collateralized by these
securities.
<PAGE>
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 on
page 8, 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.
Derivative Investing
Derivatives are instruments whose values are linked to or derived
from an underlying security or index. The most common and
conventional types of derivative securities are futures and
options.
The Fund may invest in derivative securities
The Fund may invest in futures contracts and options, but only 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 common fund
management strategies: to maintain cash reserves while simulating
full investment, to facilitate trading, to reduce transaction
costs, or to seek higher investment returns when a specific futures
contract is priced more attractively than other futures contracts
or the underlying security or index.
The Fund may use futures contracts for bona fide "hedging"
purposes. In executing a hedge, a manager sells, for example, stock
index futures to protect against a decline in the stock market. As
such, if the market drops, the value of the futures position will
rise, thereby offsetting the decline in value of the Fund's stock
holdings.
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 in those
contracts whose price fluctuations are expected to resemble those
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.
<PAGE>
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.
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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; and
(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.
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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 more than 30 investment companies with more than
90 distinct investment portfolios and total assets in excess
of $190 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, administra-tive 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 1995, the average
expense ratio (annual costs including advisory fees divided by
total net assets) for the Vanguard funds amounted to approximately
.31% compared to an average of 1.11% for the mutual
fund industry (data provided by Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Directors. The Directors set
broad policies for the Fund and choose its Officers. A list of the
Directors and Officers of the Fund and a statement of
<PAGE>
their present positions and principal occupations during the past
five years can be found in the Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite services
to the funds and also furnishes the funds with necessary office
space, furnishings and equipment. Each fund pays its share of
Vanguard's net expenses, which are allocated among the funds under
methods approved by the Board of Directors (Trustees) of each fund.
In addition, each fund bears its own direct expenses, such as
legal, auditing and custodian fees.
Vanguard provides distribution and marketing services to the funds.
The funds are available on a no-load basis (i.e., there are no
sales commissions or 12b-1 fees). However, each fund bears its
share of the Group's distribution costs.
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INVESTMENT ADVISER
Franklin Portfolio Associates manages the Fund's investments
The Fund employs Franklin Portfolio Associates Trust ("Franklin"),
One Post Office Square 3660, Boston, MA 02109, as its investment
adviser. Under an investment advisory agreement with the Fund dated
April 1, 1996, 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 invest-ment models. Founded in 1982,
Franklin, a Massachusetts business trust, is a wholly-owned
subsidiary of MBC Investments Corporation. As of December 31,
1995, Franklin provided investment advisory services with
respect to approximately $8.34 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%
Next $650 million .15%
Over $750 million .10%
<PAGE>
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, 1995, the Fund paid Franklin a basic fee
equal to .17 of 1% of its average net assets before an
increase of $82,000 (.01 of 1%) based on performance.
This fee was paid under a previous fee schedule that provided
for a higher rate of fees.
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, 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 informa-tion
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 informa-
tion 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.
<PAGE>
Average Annual Return for
Vanguard Quantitative Portfolios
-----------------------------------------
Vanguard Consumer
Fiscal Periods Quantitative S&P 500 Price
Ended 12/31/95 Portfolios Index Index
------------------- ------------ ------- ---------
1 Year +35.9% +37.6% +2.6%
3 Years +15.4 +15.3 +2.6
5 Years +16.5 +16.6 +2.8
Lifetime* +13.9 +13.9 NA
*December 10, 1986 to December 31, 1995.
- -----------------------------------------------------------------------------
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 and net short-term capital gains,
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 by-product 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.
<PAGE>
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.
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 require-ment by certifying on your Account
Registration Form your proper Social Security or Employer
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
determined as of the regular close of the New York
Stock Exchange (generally 4:00 p.m. Eastern time) on each day that
the Exchange is open for trading.
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. 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
<PAGE>
such securities. 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.
The Fund's share price can be found daily in the mutual fund
listings of most major newspapers under the heading of
Vanguard.
- -----------------------------------------------------------------------------
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
LLP, serves as independent ac-countants for the Fund and will audit
its financial statements annually. The Fund is not involved in any
litigation.
- -----------------------------------------------------------------------------
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 documen-tation, indicating the amount you wish
to invest. Your purchase must be equal to or greater than the
$3,000 minimum initial investment requirement ($1,000 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 $1,000 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.
The Fund's shares generally 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).
Purchase Restrictions
1) 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. Conse-quently, 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.
2) Vanguard will not accept third-party checks to purchase shares
of the Fund. Please be sure your purchase check is made payable
to the Vanguard Group.
Additional Investments
Subsequent investments to regular accounts may be made by mail
($100 mini-mum), wire ($1,000 minimum), written exchange from
another Vanguard Fund account ($100 minimum), or Vanguard Fund
Express. Subsequent investments to IRAs may be made by mail ($100
minimum) or written 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>
- -----------------------------------------------------------------------------
NEW ACCOUNT
Purchasing By Mail Complete and sign the enclosed Account Registration Form
Please include the amount of your initial investment on the
registra-tion form, make your check payable to The Vanguard
Group-93, and mail to:
Vanguard Financial Center
P.O. BOX 2600
Valley Forge, PA 19482
For express or registered mail, send to:
Vanguard Financial Center
455 Devon Park Drive
Wayne, PA 19087
ADDITIONAL INVESTMENTS
TO EXISTING ACCOUNTS
Additional investments should in-clude the Invest-by-Mail
remittance form attached to your Fund confir-mation statements.
Please make your check payable to The Vanguard Group-93, write your
account num-ber on your check and, using the return envelope
provided, mail to the address indicated on the Invest-by-Mail Form.
All written requests should be mailed to one of the addresses indi-
cated for new accounts. Do not send registered or express mail to
the post office box address.
Purchasing By Wire
CORESTATES BANK, N.A.
ABA 031000011
Money should be wired to:
CORESTATES ACCT NO 0101 9897
ATTN VANGUARD
Before Wiring Please contact Client Services (1-800-662-2739)
VANGUARD QUANTITATIVE PORTFOLIOS
ACCOUNT NUMBER
ACCOUNT REGISTRATION
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 Registra-tion 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. 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 on an "as needed" basis.
Or if you choose the Automatic Investment option, money will be
moved automatically 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
<PAGE>
options, please provide the appropriate information on the Account
Registration Form. We will send you a confirmation of your Fund
Express enrollment; please wait three weeks before using the
service.
- -----------------------------------------------------------------------------
CHOOSING A DISTRIBUTION OPTION
You must select one of three distribution options:
1. Automatic Reinvestment Option -- Both dividends and capital
gains distribu-tions 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 distribu-tions 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 net asset
value of the shares -- you should be aware of the tax implications
the timing of your purchase may have.
Prospective investors should, therefore, inquire about potential
distributions before investing. The Fund's annual capital gains
distribution normally occurs in Decem-ber, while income dividends
are generally paid semi-annually in June and Decem-ber. 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 Depart-ment
(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 request has been received.
Electronic Prospectus Delivery
If you would prefer to receive a prospectus for the Fund or any of
the Vanguard Funds in an electronic format, please call 1-800-231-
7870 for additional informa-tion. If you elect to do so, you may
also receive a paper copy of the prospectus, by calling 1-800-662-
7447.
- -----------------------------------------------------------------------------
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. The name of the U.S.
correspondent bank must be printed on the face of the foreign
check.
- -----------------------------------------------------------------------------
SELLING YOUR SHARES
You may withdraw any portion of the funds in your account by
redeeming shares at any time. You generally 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.)
<PAGE>
The redemption price of shares will be the Fund's net asset value
next determined after Vanguard has received all required documents
in Good Order.
-------------------------------------------------------------------
Definition of Good Order
Good Order means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. The signatures of all owners exactly as they are registered on
the account.
4. Any required signature guarantees.
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 Note:
As a protection against fraud, your telephone mail redemption
privilege will be suspended for 10 calendar days following any
expedited address change to your account. An expedited address
change is one that is made by telephone, by Vanguard Online or, in
writing, without the signatures of all account owners. 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 an "as needed" basis. To establish
these Fund Express options, please provide the appropriate
information on the Account Registration Form. We will send you a
confirmation of your Fund Express service; please wait three weeks
before using the service.
-------------------------------------------------------------------
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 be redeemed at any
time. However, your redemption proceeds will not be paid until
payment for the purchase is collected, which may take up to ten
calendar days.
-------------------------------------------------------------------
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.
<PAGE>
Redemption proceeds must be sent to you within seven days of
receipt of your request in Good Order, except as described on
page 18 in "Important Redemption Information."
If you experience difficulty in making a telephone redemption
during periods of drastic economic or market changes, your
redemption request may be made by regular or express mail. It will
be implemented at the net asset value next determined after your
request has been received by Vanguard in Good Order. The Fund
reserves the right to revise or terminate the telephone redemption
privilege at any time.
The Fund may suspend the redemption right or postpone payment at
times when the New York Stock Exchange is closed or under any
emergency circumstances as determined by the United States
Securities and Exchange Commission.
If the Board of Directors determines that it would be detrimental
to the best interests of the Fund's remaining shareholders to make
payment in cash, the Fund may pay redemption proceeds in whole or
in part by a distribution in kind of readily marketable securities.
-------------------------------------------------------------------
Vanguard's Average 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 "Statements and
Reports" for additional information.
-------------------------------------------------------------------
Low Balance fee and Minimum Account Balance Requirement
Due to the relatively high cost of maintaining smaller accounts,
the Fund will automatically deduct a $10 annual fee from non-
retirement accounts with balances falling below $2,500 ($1,000 for
Uniform Gifts/Transfers to Minors Act accounts). This fee deduction
will occur mid-year, beginning in 1996. The fee generally will be
waived for investors whose aggregate Vanguard assets exceed
$50,000.
In addition, the Fund reserves the right to liquidate any
non-retirement account that is below the minimum initial investment
amount of $3,000. If at any time your total investment does not
have a value of at least $3,000, you may be notified that 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 registered shareholder.
Vanguard will not liquidate your account if it has fallen below
$3,000 solely as a result of declining markets (i.e., a decline in
a Fund's net asset value).
- -----------------------------------------------------------------------------
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
<PAGE>
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 Depart-ment (1-800-662-7447).
* An exchange is treated as a redemption and a purchase. Therefore,
you could realize a taxable gain or loss on the transaction.
* Exchanges are accepted only if the registrations and the Taxpayer
Identification numbers of the two accounts are identical.
* The shares to be exchanged must be on deposit and not held in
certificate form.
* New accounts are not currently accepted in Vanguard/Windsor Fund
or Vanguard/PRIMECAP 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.
The exchange privilege is only available in states in which the
shares of the Fund are registered for sale. The Fund's shares are
currently registered for sale in all 50 states and the Fund intends
to maintain such registration.
- -----------------------------------------------------------------------------
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 manage-ment 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 substan-tive 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.
<PAGE>
- -----------------------------------------------------------------------------
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 and address used in
the registration; and (iv) the Social Security or Employer
Identification number listed on the account.
2. Payment Policy. The proceeds of any telephone redemption by mail
will be made payable to the registered shareowner and mailed to
the address of record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by telephone,
provided that reasonable security procedures have been followed.
Vanguard believes that the security procedures described above
are reasonable, and that if such procedures are followed,
you will bear the risk of any losses resulting from unauthorized or
fraudulent telephone transactions on your account. If Vanguard
fails to follow reasonable security procedures, it may be liable
for any losses resulting from unauthorized or fraudulent telephone
transactions on your account.
- -----------------------------------------------------------------------------
TRANSFERRING 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).
- -----------------------------------------------------------------------------
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 along with their Fund
Summary Statement. Please call our Client Services Department
(1-800-662-2739) for information.
Financial reports on the Fund will be mailed to you
semiannually, according to the Fund's fiscal year-end.
<PAGE>
- -----------------------------------------------------------------------------
OTHER VANGUARD SERVICES
For more information about any of these services, please call our
Investor Information Department at 1-800-662-7447.
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. Please contact our Client Services
Department at 1-800-662-2739 for additional information.
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.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition, some
services of Fund Express cannot be used with specific Vanguard
Funds. For more information, please refer to the Vanguard Fund
Express brochure.
Vanguard Dividend 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) system. 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(TradeMark) telephone. This service
also lets you obtain information about your account balance, your
last transaction, and your most recent dividend or capital gains
payment. To contact Vanguard's Tele-Account service, dial 1-800-ON-
BOARD (1-800-662-6273). A brochure offering detailed operating
instructions is available from our Investor Information Department
(1-800-662-7447).
<PAGE>
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<PAGE>
PART B
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
April 23, 1996
This Statement is not a prospectus but should be read in conjunction
with the Fund's Prospectus dated April 23, 1996. To obtain the
Prospectus please call:
Investor Information Department
1-800-662-7447
TABLE OF CONTENTS
Page
----
Investment Policies......................................... B-1
Investment Limitations...................................... B-4
Yield and Total Return...................................... B-6
Purchase of Shares.......................................... B-6
Redemption of Shares........................................ B-6
Management of the Fund...................................... B-7
Investment Advisory Services................................ B-10
Portfolio Transactions...................................... B-11
Financial Statements........................................ B-12
Performance Measures........................................ B-12
General Information......................................... B-13
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.
Assets committed to futures contracts will be segregated at the Fund's
custodian bank to the extent required by law.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery. Closing out an open futures position is done by taking an opposite
position ("buying" a contract which has previously been "sold," or "selling"
a contract previously purchased) in an identical contract to terminate the
position. Brokerage commissions are incurred when a futures contract is
bought or sold.
Futures traders are required to make a good faith margin deposit in cash
or government securities with a broker or custodian to initiate and maintain
open positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying
security) if it is not terminated prior to the specified delivery date.
Minimal initial margin requirements are established by the futures exchange
and may be changed. Brokers may establish deposit requirements which are
higher than the exchange minimums. Futures contracts are customarily
purchased and sold with margin deposits 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,
<PAGE>
payment of additional "variation" margin will be required. Conversely, a
change in the contract value may reduce the required margin, resulting in a
repayment of excess margin to the contract holder. Variation margin payments
are made to and from the futures broker for as long as the contract remains
open. The Fund expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to
offset unfavorable changes in the value of securities otherwise held for
investment purposes or expected to be acquired by them. Speculators are less
inclined to own the securities underlying the futures contracts which they
trade, and use futures contracts with the expectation of realizing profits
from fluctuations in the prices of underlying securities. The Fund intends to
use futures contracts only for bona fide hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions. The Fund will
only sell futures contracts to protect securities it owns against price
declines or purchase contracts to protect against an increase in the price of
securities it intends to purchase. As evidence of this hedging interest, the
Fund expects that approximately 75% of its futures contract purchases will be
"completed," that is, equivalent amounts of related securities will have been
purchased or are being purchased by the Fund upon sale of open futures
contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While the Fund will incur commission expenses in both
opening and closing out futures positions, these costs are lower than
transaction costs incurred in the purchase and sale of the underlying
securities.
Restrictions on the Use of Futures Contracts. The Fund will not
enter into futures contract transactions to the extent that, immediately
thereafter, the sum of its initial margin deposits on open contracts exceeds
5% of the market value of the Fund's total assets. In addition, the Fund will
not enter into futures contracts to the extent that its outstanding
obligations to purchase securities under these contracts would exceed 20% of
the Fund's total assets.
Risk Factors in Futures Transactions. Positions in futures
contracts may be closed out only on an Exchange which provides a secondary
market for such futures. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any
specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the Fund would continue to be required
to make daily cash payments to maintain its required margin. In such
situations, if the Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge it.
The Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary
market.
The 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 Adviser 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
<PAGE>
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, 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. 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. The Fund may be required to defer the
recognition of losses on futures contracts to the extent of any unrecognized
gains on related positions held by the Fund.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies, or other income derived with respect to
the Fund's business of investing in securities. In addition, gains realized
on the sale or other disposition of securities held for less than three
months must be limited to less than 30% of the Fund's annual gross income.
Any net gain realized from the closing out of futures contracts will be
considered gain from the sale of securities and therefore be qualifying
income for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the Fund may be
required to defer the closing out of futures contracts beyond the time when
it would otherwise be advantageous to do so. It is anticipated that
unrealized gains on futures contracts, which have been open for less than
three months as of the end of the Fund's fiscal year and which are recognized
for tax purposes, will not be considered gains on sales of securities held
less than three months for the purpose of the 30% test.
The Fund will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including
unrealized gains at the end of the Fund's fiscal year) on futures
transactions. Such distributions will be combined with distributions of
capital gains realized on the Fund's other investments and shareholders will
be advised on the nature of the distributions.
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
collateralized by securities. The resale price reflects an agreed upon
interest rate effective for the period the instrument is held by the Fund and
is unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by the Fund (including accrued interest
earned thereon) must have a
<PAGE>
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 securities subject to legal or contractual restrictions on resale
for which there are no readily available market quotations. From time
to time, the Fund's Board of Directors may determine that certain restricted
securities known as Rule 144A securities are liquid and not subject to the
15% limitation described above.
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 (the
"1940 Act"), 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 three
business days. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review
by the Fund's Board of Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors. In addition, voting rights
pass with the loaned securities, but if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
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
<PAGE>
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 1940 Act. The Fund will invest only
in investment companies which have investment objectives and
investment policies consistent with those of the Fund;
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,
directors 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 1940 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;
13) Invest more than 25% of the value of its total assets in any one
industry; and
14) Purchase or sell options or warrants or engage in arbitrage
operations except as described above in (7).
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.
<PAGE>
YIELD AND TOTAL RETURN
The yield of the Fund for the 30-day period ended December 31,
1995 was +2.18%.
The average annual total return of the Fund for the 1-, and 5-
year periods ended December 31, 1995 and, since its inception on
December 10, 1986 was +35.93%, +16.48% and +13.90%, 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 (iii)
to reduce or waive the minimum investment for or any other restrictions
on initial and subsequent investments for certain fiduciary accounts or
under circumstances where certain economies can be achieved in sales of the
Fund's shares.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Securities and
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.
<PAGE>
MANAGEMENT OF THE FUND
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
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 and Director
Chairman 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, Chief Executive Officer & Director*
President, Chief Executive Officer and Director of The Vanguard
Group, Inc. and of each of the investment companies in The Vanguard
Group.
ROBERT E. CAWTHORN, Director
Chairman of Rhone-Poulenc Rorer, Inc.; Director of Sun Company, Inc.
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. and Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY, Director
President, The Brookings Institution; Director of American Express Bank,
Ltd., The St. Paul Companies, Inc., and Scott Paper Company.
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., The Jeffrey Co., and Southern New England
Communications Company.
ALFRED M. RANKIN, JR., Director
Chairman, President and Chief Executive Officer of NACCO Industries,
Inc.; Director of The BFGoodrich Company and The Standard Products
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. and Director
of Kmart Corporation.
J. LAWRENCE WILSON, Director
Chairman and Chief Executive Officer of Rohm & Haas Company; Director of
Cummins Engine Company and Trustee of Vanderbilt University.
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 Portfolio are "interested persons" as defined in the
Investment Company Act of 1940.
<PAGE>
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 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 adheres to a Code of Ethics established pursuant to
Rule 17j-1 under the Investment Company Act of 1940. The Code is designed to
prevent unlawful practices in connection with the purchase or sale of
securities by persons associated with Vanguard. Under Vanguard's Code of
Ethics certain officers and employees of Vanguard who are considered access
persons are permitted to engage in personal securities transactions. However,
such transactions are subject to procedures and guidelines substantially
similar to those recommended by the mutual fund industry and approved by the
U.S. Securities and Exchange Commission.
The Vanguard Group was established and operates under a Fund's Service
Agreement which was approved by the shareholders of each of the Funds. The
amounts of which each of the Funds has invested are adjusted from time
to time in order to maintain the proportionate relationship between each
Fund's relative net assets and its contribution to Vanguard's capital. At
December 31, 1995, the Fund had contributed capital of $103,000
to Vanguard, representing .5% of Vanguard's capitalization. The Fund's
Service Agreement provides for the following arrangement: (a) each Vanguard
Fund may invest up to .40% of its current assets in Vanguard, and (b) there
is no other limitation on the amount that each Vanguard Fund may contribute
to Vanguard's capitalization.
Management. Corporate management and administrative services
include: (1) executive staff; (2) accounting and financial; (3) legal and
regulatory; (4) shareholder account maintenance; (5) monitoring and control
of custodian relationships; (6) shareholder reporting; and (7) review and
evaluation of advisory and other services provided to the Funds by third
parties. During the fiscal year ended December 31, 1995, the Fund's
share of Vanguard's actual net costs of operation relating to management and
administrative services (including transfer agency) totaled approximately
$1,775,000.
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,
1995 the Fund paid approximately $154,000 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.
<PAGE>
Investment Advisory Services. Vanguard provides investment
advisory services to Vanguard Money Market Reserves, Vanguard Admiral
Funds, Vanguard Municipal Bond Fund, several Portfolios of Vanguard Fixed
Income Securities Fund, Vanguard Institutional Index Fund, Vanguard Bond
Index Fund, several Portfolios of Vanguard Variable Insurance Fund, Vanguard
California Tax-Free Fund, Vanguard Florida Insured Tax-Free Fund, Vanguard
New Jersey Tax-Free Fund, Vanguard New York Insured Tax-Free Fund, Vanguard
Ohio Tax-Free Fund, Vanguard Pennsylvania Tax-Free Fund, Vanguard Balanced
Index Fund, Vanguard Index Trust, Vanguard International Equity Index Fund,
Vanguard Tax-Managed Fund, the Aggressive Growth Portfolio of Vanguard
Horizon Fund, a portion of Vanguard/Windsor II, a portion of
Vanguard/Morgan Growth Fund, as well as several indexed separate accounts.
These services are provided on an at-cost basis from a money management staff
employed directly by Vanguard. The compensation and other expenses of this
staff are paid by the Funds utilizing these services.
Remuneration of Directors (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, 1995, the Fund paid approximately $3,000 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, 1995 the Fund's proportionate share of remuneration, paid by
Vanguard (and reimbursed by the Fund) was approximately $28,273 .
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. Upon retirement, Directors who are not
Officers are paid an annual fee. The fee is equal to $1,000 for each year of
service on the board up to fifteen years 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 1995
fiscal year was approximately $750 .
The following table provides detailed information with respect to the
amounts paid or accrued for the Directors for the fiscal year ended December
31, 1995.
<TABLE>
<CAPTION>
VANGUARD QUANTITATIVE PORTFOLIOS
COMPENSATION TABLE
Aggregate Pension or Retirement Estimated Total Compensation
Compensation Benefits Accrued As Annual Benefits From All Vanguard Funds
Names of Directors From Fund Part of Fund Expenses Upon Retirement Paid to Directors(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Bogle(1),(2) -- -- -- --
John J. Brennan(2) -- -- -- --
Barbara Barnes Hauptfuhrer $315 $54 $15,000 $59,000
Robert E. Cawthorn $315 $45 $13,000 $59,000
Bruce K. MacLaury $347 $53 $12,000 $55,000
Burton G. Malkiel $320 $36 $15,000 $60,000
Alfred M. Rankin, Jr. $320 $28 $15,000 $60,000
John C. Sawhill $320 $34 $15,000 $60,000
James O. Welch, Jr. $315 $41 $15,000 $59,000
J. Lawrence Wilson $320 $30 $15,000 $60,000
(1) For the period reported in this table, Mr. Bogle was the Fund's Chief Executive Officer, and therefore an "Interested
Director."
(2) As "Interested Directors," Messrs. Bogle and Brennan receive no compensation for their service as Directors.
(3) The amounts reported in this column reflect the total compensation paid to each Director for their service as Director or
Trustee of 34 Vanguard Funds (27 in the case of Mr. MacLaury).
</TABLE>
<PAGE>
INVESTMENT ADVISORY SERVICES
The Fund employs Franklin Portfolio Associates Trust ("Franklin") under
an advisory agreement dated April 1, 1996 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%
Next $650 million 0.15%
Over $750 million 0.10%
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 500 Composite Stock Price
Index (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 (.0124% 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 March 31, 1998. 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
1940 Act) 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:
(i) 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;
(ii) A change in the terms of an advisory agreement; and
(iii) The continued employment of an existing adviser on the same
advisory contract terms where a contract has been assigned
because of a change in control of the adviser.
Any such change will only be made upon not less than 30 days' prior
written notice to shareholders, which shall include the information
concerning the adviser that would have normally been included in a proxy
statement.
<PAGE>
During the years ended December 31, 1993, 1994 and 1995, the Fund
paid investment advisory fees of approximately $852,000, $1,017,000 and
$1,280,000, respectively. For the fiscal year ended December 31,
1995 the Fund also paid $82,000 for performance adjustments.
These fees were paid pursuant to the terms of a previous investment
advisory agreement, which called for a higher rate of fees.
Description of Franklin. Franklin is a Delaware corporation and
is a wholly-owned subsidiary of MBC Investments Corporation.
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, 1993, 1994 and 1995 the Fund paid
$511,942, $569,059 and $527,912 in brokerage commissions,
respectively.
<PAGE>
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended December 31,
1995, including the financial highlights for each of the five fiscal
years in the period ended December 31, 1995, appearing in the Vanguard
Quantitative Portfolios 1995 Annual Report to Shareholders, and the
report thereon of Price Waterhouse LLP, independent accountants, also
appearing therein, are incorporated by reference in this Statement of
Additional Information. The Fund's 1995 Annual Report to Shareholders
is enclosed with this Statement of Additional Information.
PERFORMANCE MEASURES
Vanguard may use reprinted material discussing The Vanguard Group,
Inc. or any of the member funds of The Vanguard Group of Investment
Companies.
Each of the investment company members of the Vanguard Group,
Inc. 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 Index -- consists of more than 6,000 common
equity securities, covering all stocks in the U.S. for which daily
pricing is available.
Wilshire 4500 Equity Index -- consists of all stocks in the Wilshire 5000
except for the 500 stocks in the Standard and Poor's 500 Index.
Morgan Stanley Capital International EAFE Index -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed
on the stock exchanges of countries in Europe, Australia and the Far
East.
Goldman Sachs 100 Convertible Bond Index -- currently includes 71
bonds and 29 preferreds. The original list of names was generated
by screening for convertible issues of $100 million or greater in
market capitalization. The index is priced monthly.
Salomon Brothers GNMA Index -- includes pools of mortgages originated by
private lenders and guaranteed by the mortgage pools of the Government
National Mortgage Association.
Salomon Brothers High-Grade Corporate Bond Index -- consists of publicly-
issued, non-convertible corporate bonds rated Aa or Aaa. It
is a value-weighted, total return index, including approximately 800
issues with maturities of 12 years or greater.
Lehman Long-Term Treasury Bond -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years
or greater.
Merrill Lynch Corporate & Government Bond -- consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.
Lehman Corporate (Baa) Bond Index -- all publicly-offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a
maturity longer than 1 year and with more than $25 million outstanding.
This index includes over 1,000 issues.
Bond Buyer Municipal Index (20 year) Bond -- is a yield index on current-
coupon high grade general-obligation municipal bonds.
Standard & Poor's Preferred Index -- is a yield index based upon the average
yield for four high grade, non-callable preferred stock issues.
NASDAQ Industrial Index -- is composed of more than 3,000 industrial issues.
It is a value-weighted index calculated on price change only and does
not include income.
Composite Index -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
Composite Index -- 65% Standard & Poor's 500 Index and 35% Lehman Long-
Term Corporate AA or Better Bond Index.
<PAGE>
Composite Index -- 65% Lehman Long-Term Corporate AA or Better Bond Index
and a 35% weighting in a blended equity composite (75% Standard &
Poor's/BARRA Value Index and 25% Standard & Poor's Utilities Index).
Lehman Long-Term Corporate AA or Better Bond Index--consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.
Lehman Brothers Aggregate Bond Index -- is a market-weighted index
that contains individually priced U.S. Treasury, agency, corporate, and
mortgage pass-through securities corporate rated BBB- or better. The
Index has a market value of over $4 trillion.
Lehman Brothers Mutual Fund Short (1-5) Government/Corporate Index -- is a
market-weighted index that contains individually priced U.S.
Treasury, agency, and corporate investment grade bonds rated BBB- or
better with maturities between 1 and 5 years. The index has a market
value of over $1.3 trillion.
Lehman Brothers Mutual Fund Intermediate (5-10) Government/Corporate Index --
is a market-weighted index that contains individually priced U.S.
Treasury, agency, and corporate securities rated BBB- or better with
maturities between 5 and 10 years. The index has a market value of over
$600 billion.
Lehman Brothers Mutual Fund Long (10+) Government/Corporate Index -- is a
market-weighted index that contains individually priced U.S.
Treasury, agency and corporate securities rated BBB- or better with
maturities greater than 10 years. The index has a market value of over
$900 billion.
GENERAL INFORMATION
Description of Shares and Voting Rights. The Fund is a
diversified open-end investment company established under Maryland law. Under
Amended and Restated Articles of Incorporation dated September 2, 1986, the
Directors of the Fund are permitted 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 Fund's shares 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 share 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 by 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.
