=============================================================================
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. 11 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 13 [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 30, 1997, pursuant to paragraph (a) of Rule 485.
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
We have elected to register an indefinite number of shares pursuant to
Regulation 24f-2 under the Investment Company Act of 1940. We filed our Rule
24f-2 Notice for the year ended December 31, 1996 on February 26, 1997.
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<PAGE>
<TABLE>
<CAPTION>
VANGUARD GROWTH AND INCOME PORTFOLIO
CROSS REFERENCE SHEET
Form N-1A
Item Number Location in Prospectus
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<S> <C> <C>
Item 1. Cover Page .......................... Cover Page
Item 2. Synopsis ............................ Highlights
Item 3. Condensed Financial Information ..... Financial Highlights
Item 4. General Description of Registrant ... Investment Objective; Investment Limitations;
Investment Policies; General Information
Item 5. Management of the Fund .............. 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
Item Number of Additional Information
- ----------------------------------------------------------------------------------------------------
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
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</TABLE>
<PAGE>
Vanguard
GROWTH AND INCOME PORTFOLIO
A Portfolio of Vanguard Quantitative Portfolios
P R O S P E C T U S
April 30,1997
The Vanguard Group
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>
Vanguard Growth and Income Portfolio
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A Member of The Vanguard Group
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PROSPECTUS--April 30, 1997
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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)
- -----------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
Vanguard Growth and Income Portfolio (the "Portfolio"), a
portfolio of 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"). (Prior to April 30, 1997, this
Portfolio was known as Vanguard Quantitative Portfolios). The
Portfolio 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 Portfolio will achieve its stated
objective. Shares of the Portfolio 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 Portfolio is
offered on a no-load basis (i.e. there are no sales commissions or
12b-1 fees). However, the Portfolio 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 Portfolio before you invest. It
should be retained for future reference. A "Statement of Additional
Information" containing additional information about the
Portfolio has been filed with the Securities and Exchange
Commission. This Statement is dated April 30, 1997 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
Portfolio Expenses ............................................ 2
Financial Highlights .......................................... 2
Yield and Total Return ........................................ 3
PORTFOLIO INFORMATION
Investment Objective .......................................... 4
Investment Policies ........................................... 4
Investment Risks .............................................. 5
Who Should Invest ............................................. 5
Implementation of Policies .................................... 6
Investment Limitations ........................................ 8
Management of the Portfolio ................................... 8
Investment Adviser ............................................ 9
Performance Record ............................................ 10
Dividends, Capital Gains and Taxes ............................ 11
The Share Price of the Portfolio .............................. 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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1
<PAGE>
PORTFOLIO EXPENSES
The following table illustrates all expenses and fees that you
would incur as a shareholder of the Portfolio. The expenses
and fees set forth in the table are for the 1996 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 Portfolio> Operating Expenses
-------------------------------------------------------------------
Management & Administrative Expenses...................... 0.24%
Investment Advisory Fees.................................. 0.11
12b-1 Fees ............................................... None
Other Expenses
Distribution Costs ............................ 0.02%
Miscellaneous Expenses ........................ 0.01
-----
Total Other Expenses ..................................... 0.03
-----
Total Operating Expenses ................................. 0.38%
=====
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 Portfolio.
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 Portfolio charges no
redemption fees of any kind.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$4 $12 $21 $48
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, 1996, have been
audited by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. (Please note, Vanguard Growth
and Income Portfolio was previously known as Vanguard
Quantitative Portfolios.) 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
1996 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 1996 Annual Report to
Shareholders. The Fund's 1996 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.
2
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............ $19.95 $15.56 $16.45 $16.30 $16.32 $13.29 $14.14 $11.08 $ 9.80 $9.69
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Investment Operations ...........................
Net Investment Income ......................... .41 .41 .40 .40 .44 .47 .49 .43 .36 .33
Net Realized and Unrealized Gain ..............
(Loss) on Investments ........................ 4.09 5.14 (.50) 1.83 .69 3.47 (.83) 3.10 1.27 .09
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from Investment Operations ............. 4.50 5.55 (.10) 2.23 1.13 3.94 (.34) 3.53 1.63 .42
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions
Dividends from Net Investment Income .......... (.40) (.42) (.39) (.39) (.44) (.47) (.47) (.47) (.35) (.25)
Distributions from Realized Capital Gains ..... (1.82) (.74) (.40) (1.69) (.71) (.44) (.04) -- -- (.06)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total Distributions ......................... (2.22) (1.16) (.79) (2.08) (1.15) (.91) (.51) (.47) (.35) (.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period................... $22.23 $19.95 $15.56 $16.45 $16.30 $16.32 $13.29 $14.14 $11.08 $9.80
====================================================================================================================================
Total Return .................................... 23.06% 35.93% (0.61)% 13.83% 7.01% 30.29% (2.44)% 32.00% 16.80% 4.02%
====================================================================================================================================
Ratios/Supplemental Data
Net Assets, End of Period (Millions) ............ $1,285 $909 $596 $531 $416 $ 335 $211 $175 $144 $149
Ratio of Expenses to Average Net Assets ......... 0.38% 0.47% 0.48% 0.50% 0.40% 0.43% 0.48% 0.53% 0.64% 0.64%
Ratio of Net Investment Income to Average
Net Assets ..................................... 1.97% 2.25% 2.50% 2.22% 2.67% 2.95% 3.34% 3.35% 3.38% 2.79%
Portfolio Turnover Rate ......................... 75% 59% 71% 85% 51% 61% 81% 78% 50% 73%
Average Commission Rate Paid .................... $.0333 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
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YIELD AND TOTAL RETURN
From time to time the Portfolio 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 Portfolio refers to
the average annual compounded rates of return over one-, five- and
ten-year periods or for the life of the Portfolio (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
Portfolio 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
Portfolio'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 Portfolio 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.
- -----------------------------------------------------------------------------
3
<PAGE>
INVESTMENT OBJECTIVE
The Portfolio is an open-end diversified investment company.
The objective of the Portfolio 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 Portfolio will
achieve its stated objective.
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INVESTMENT POLICIES
The Portfolio uses quantitative techniques to select common stocks
The Portfolio will invest in a broadly diversified portfolio
of common stocks. At least 65% of the Portfolio's assets
will be invested in securities which are included in the S&P 500
Index, while the balance of the Portfolio's assets may be
invested in common stocks not represented in the Index. The
Portfolio is managed without regard to tax ramifications.
Stocks are selected for the Portfolio so that, in the
aggregate, the investment characteristics of the Portfolio
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 Portfolio 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
Portfolio's investment performance will match or exceed that
of the S&P 500 Index.
To select stocks for the Portfolio, the Portfolio'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 Portfolio seeks to remain fully invested in common
stocks. However, the Portfolio 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 Portfolio.
The Portfolio is responsible for voting the shares of all
securities it holds.
The investment objective and policies of the Portfolio 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.
- -----------------------------------------------------------------------------
4
<PAGE>
INVESTMENT RISKS
The Portfolio is subject to market risk
As a mutual fund investing primarily in common stocks, the
Portfolio 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 1996, as measured
by the Standard & Poor's 500 Composite Stock Price Index:
Average Annual U.S. Stock Market Returns (1926-1996) 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 +12.7 +10.4 +10.8 +10.8
As shown, common stocks have provided annual total returns (capital
appreciation plus dividend income) averaging +10.8% for all
10-year periods from 1926 to 1996. 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 Portfolio 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 Portfolio and other "real world"
portfolios.
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WHO SHOULD INVEST
Investors seeking a "margin of superiority" over the S&P 500 Index
The Portfolio 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 Portfolio 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 Portfolio's shareholders. In
order to minimize such costs the Portfolio has adopted the
following policies. The Portfolio 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 Portfolio has adopted exchange
privilege limitations as described in the section "Exchange
Privilege Limitations." Finally, the Portfolio reserves the
right to suspend the offering of its shares.
No assurance can be given that the Portfolio will attain
its objective or that shareholders will be protected from the
risk of loss that is inherent in equity
5
<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 Portfolio 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 Portfolio 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 Portfolio with other types of common stock
investments.
- -----------------------------------------------------------------------------
IMPLEMENTATION OF POLICIES
The Portfolio invests primarily in S&P 500 stocks
The Portfolio utilizes a variety of investment practices in
its effort to surpass the total return of the S&P 500 Index.
The Portfolio 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 Portfolio 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 47% of the Index.
As of December 31, 1996, the five largest companies in the
Index were: General Electric Company (2.9%), Coca-Cola Company
(2.3%), Exxon Corporation (2.2%), Intel Corporation (1.9%), and
Microsoft Corporation (1.7%). The largest industry categories
were: banks (7.7%), telephone companies (6.6%), pharmaceutical
companies (6.4%), international oil companies (5.8%) and computer
companies (4.6%).
The S&P 500 Index is an unmanaged, statistical measure of stock
market performance. As such, it does not reflect the actual, "real
world" costs of investing in common stocks. By contrast, the
Portfolio 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
Portfolio.
The Fund may invest in short-term fixed income securities
Although it normally seeks to remain substantially fully invested
in common stocks, the Portfolio 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:
6
<PAGE>
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.
The Portfolio may lend its securities
The Portfolio 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 Portfolio 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 Portfolio 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
Portfolio retains the right to sell securities irrespective
of how long they have been held. It is anticipated that the annual
portfolio turnover of the Portfolio will not exceed 100%. A
turnover rate of 100% would occur, for example, if all of the
securities of the Portfolio 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 Portfolio may invest in derivative securities
The Portfolio may invest in futures contracts and options,
but only to a limited extent. Specifically, the Portfolio
may enter into futures contracts provided that not more than 5% of
its assets are required as a futures contract deposit; in addition,
the Portfolio 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
Portfolio'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 Portfolio 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 Portfolio'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 Portfolio 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
7
<PAGE>
minimized by investing in those contracts whose price fluctuations
are expected to resemble those of the Portfolio's underlying
securities. The risk that the Portfolio will be unable to
close out a futures position will be minimized by entering into
such transactions on a national exchange with an active and liquid
secondary market.
The risk of loss in trading futures contracts in some strategies
can be substantial, due both to the low margin deposits required
and the extremely high degree of leverage involved in futures
pricing. As a result, relatively small price movement in a futures
contract may result in immediate and substantial loss (or gain) to
the investor. When investing in futures contracts, the
Portfolio will segregate cash or cash equivalents in the
amount of the underlying obligation.
- -----------------------------------------------------------------------------
INVESTMENT LIMITATIONS
The Portfolio has adopted certain fundamental limitations
The Portfolio has adopted certain limitations on its
investment practices. Specifically, the Portfolio 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 Portfolio would hold more than 10% of the
outstanding voting securities of the issuer, or more than 5%
of the value of the Portfolio's total assets would be
invested in the securities of such issuer;
(b) borrow money, except that the Portfolio 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 the amount
of any such borrowing may not exceeding 10% of the value
of the Portfolio'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 Portfolio's
net assets, the Portfolio 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 Portfolio's shareholders.
- -----------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIO
Vanguard administers and distributes the Fund
The Portfolio 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 $250 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
8
<PAGE>
corporate structure, the Vanguard funds have costs substantially
lower than those of most competing mutual funds. In 1996,
the average expense ratio (annual costs including advisory fees
divided by total net assets) for the Vanguard funds amounted to
approximately .29% compared to an average of 1.22%
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 Portfolio and choose the
Fund's Officers. A list of the Directors and Officers of the
Fund and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite services
to the funds and also furnishes the funds with necessary office
space, furnishings and equipment. Each fund pays its share of
Vanguard's net expenses, which are allocated among the funds under
methods approved by the Board of Directors (Trustees) of each fund.
In addition, each fund bears its own direct expenses, such as
legal, auditing and custodian fees.
Vanguard provides distribution and marketing services to the funds.
The funds are available on a no-load basis (i.e., there are no
sales commissions or 12b-1 fees). However, each fund bears its
share of the Group's distribution costs.
- -----------------------------------------------------------------------------
INVESTMENT ADVISER
Franklin Portfolio Associates manages the Portfolio's investments
The Fund employs Franklin Portfolio Associates
LLC ("Franklin"), Two International Place, Boston, MA
02110, as the Portfolio's investment adviser. Under an
investment advisory agreement with the Fund dated April 1,
1996, Franklin manages the investment and reinvestment of the
Portfolio's assets and continuously reviews, supervises, and
directs the Portfolio'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 Limited Liability company, is a
wholly-owned indirect subsidiary of Mellon Bank
Corporation. As of December 31, 1996, Franklin provided
investment advisory services with respect to approximately
$10.7 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 Portfolio. 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
Portfolio'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.
9
<PAGE>
The Portfolio 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 Portfolio's
average month-end net assets for the quarter:
Net Assets Rate
------------------ ------
First $100 million .30%
Next $650 million .15%
Over $750 million .10%
This fee may be increased or reduced by applying an adjustment
formula based on the investment performance of the Portfolio
relative to the S&P 500 Index. For the year ended December 31,
1996, the Portfolio paid Franklin a basic fee equal to
0.15% of 1% of its average net assets before an
decrease of $429,000 (0.04%) based on performance.
The basic fee reflects a fee waiver of $31,000 for the period
January 1, 1996 to March 31, 1996.
The investment advisory agreement authorizes Franklin to select
brokers and dealers to execute purchases and sales of the
Portfolio's 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 Portfolio 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 Portfolio. If more
than one broker can obtain the best available price and favorable
execution of a transaction, then Franklin is authorized to choose
a broker who, in addition to executing the transaction, will provide
research services to Franklin or the Portfolio. However, Franklin
will not pay higher commissions specifically for the purpose of
obtaining research services. The Portfolio may direct Franklin to
use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the
Portfolio.
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 Portfolio which shall include substantially the
information concerning the adviser that would have normally been
included in a proxy statement.
- -----------------------------------------------------------------------------
PERFORMANCE RECORD
The table in this section provides investment results for the
Portfolio for several periods throughout the Fund's
lifetime. (Please note, Vanguard Growth and Income
Portfolio was previously known simply as Vanguard
Quantitative Portfolios.) The
10
<PAGE>
results shown represent "total return" investment performance,
which assumes the reinvestment of all capital gains and income
dividends for the indicated periods.
Also included is comparative information with respect to the
unmanaged Standard & Poor's 500 Composite Stock Price Index, a
widely-used barometer of stock market activity, and the Consumer
Price Index, a statistical measure of changes in the prices of
goods and services. The tables do not make any allowance for
federal, state or local income taxes, which shareholders must pay
on a current basis.
The results shown should not be considered a representation of the
total return from an investment made in the Portfolio today.
This information is provided to help investors better understand
the Portfolio and may not provide a basis for comparison
with other investments or mutual funds which use a different method
to calculate performance.
Average Annual Return for
Vanguard Growth and Income Portfolio
-------------------------------------------
Vanguard Consumer
Fiscal Periods Growth and S&P 500 Price
Ended 12/31/96 Income Portfolio Index Index
-------------- ---------------- --------- -----------
1 Year +23.1% +23.0% +3.3%
3 Years +18.5 +19.7 +2.8
5 Years +15.2 +15.2 +2.8
10 Years +15.2 +15.3 +3.7
- -----------------------------------------------------------------------------
DIVIDENDS, CAPITAL GAINS AND TAXES
The Portfolio pays semi-annual dividends and
any capital gains annually
The Portfolio expects to pay dividends consisting of
ordinary income on a semi-annual basis. Capital gains
distributions, if any, will be made annually. The Portfolio
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 Portfolio 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 Portfolio 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
Portfolio 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 Portfolio from long-term capital
gains, whether received in cash or reinvested in additional shares,
are taxable as long-term capital gains,
11
<PAGE>
regardless of the length of time you have owned shares in the Fund.
Capital gains distributions are made when the Portfolio
realizes net capital gains on sales of portfolio securities during
the year. The Portfolio 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 Portfolio realizes net
capital losses.
Note that if you elect to receive capital gains distributions in
cash, instead of reinvesting them in additional shares, you are in
effect reducing the capital at work for you in the Portfolio.
Also, keep in mind that if you purchase shares in the
Portfolio 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 Portfolio will notify you annually as to the tax status
of dividend and capital gains distributions paid by the
Portfolio.
A capital gain or loss may be realized upon exchange or redemption
A sale of shares of the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
- -----------------------------------------------------------------------------
THE SHARE PRICE OF THE PORTFOLIO
The Portfolio's share price or "net asset value" per share
is calculated by dividing the total assets of the
Portfolio, less all liabilities, by the total
number of shares outstanding. The net asset value per share
is determined as of the close of the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on each day that the Exchange is
open for trading.
12
<PAGE>
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 ask 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 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 Portfolio'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 preemptive
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 accountants for the
Fund and will audit its financial statements annually.
The Fund is not involved in any litigation.
- -----------------------------------------------------------------------------
13
<PAGE>
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND PURCHASING SHARES
You may open a regular (non-retirement) account, either by mail or
wire. Simply complete and return an Account Registration Form and
any required legal 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 Portfolio's shares generally are purchased at the next-
determined net asset value after your investment has been received.
The Portfolio 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 Portfolio 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
Portfolio reserves the right to reject any specific
purchase (and exchange purchase) request. The Portfolio
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 Portfolio. 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.
- -----------------------------------------------------------------------------
14
<PAGE>
NEW ACCOUNT
Purchasing By Mail
Complete and sign the enclosed Account Registration Form
Please include the amount of your initial investment on the
registration form, make your check payable to The Vanguard Group-
93, and mail to:
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482-2600
For express or registered mail, send to:
Vanguard Financial Center
455 Devon Park Drive
Wayne, PA 19087-1815
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
indicated for new accounts. Do not send registered or express mail
to the post office box address.
-------------------------------------------------------------------
Purchasing By Wire
Money should bewired to:
Before Wiring Please contact Client Services (1-800-662-2739)
CORESTATES BANK, N.A.
ABA 031000011
CORESTATES ACCT NO 0101 9897
ATTN VANGUARD VANGUARD GROWTH AND INCOME PORTFOLIO
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 non-retirement
accounts in Vanguard Growth and Income Portfolio. (The
Fund will accept telephone exchange requests for retirement
accounts only.) You may, however, purchase shares of the
Portfolio by exchange from another Vanguard Fund account by
providing the appropriate information on your Account Registration
Form. The Portfolio 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,
semiannually or annually) you select. To establish these
15
<PAGE>
Fund Express options, please provide the appropriate information on
the Account Registration Form. We will send you a confirmation of
your Fund Express enrollment; please wait two 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 Portfolio is required to
distribute net capital gains and dividend income to
Portfolio shareholders. These distributions are made to all
shareholders who own Portfolio 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
Portfolio shares for just a short period of time. (Taxes are
due on the distributions even if the dividend or gain is reinvested
in additional Portfolio 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 Portfolio's annual
capital gains distribution normally occurs in December, while
income dividends are generally paid semi-annually in June and
December. In addition, the Portfolio may occassionally be
required to make supplemental dividend or capital gains
distributions at some other time during the year (usually in
March). For additional information on distributions and taxes,
see the section titled "Dividends, Capital Gains and Taxes."
- -----------------------------------------------------------------------------
16
<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 Portfolio 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
Growth and Income Portfolio, P.O. Box 1120, Valley Forge, PA
19482. (For express or registered mail, send your request to
Vanguard Financial Center, Vanguard Growth and Income
Portfolio, 455 Devon Park Drive, Wayne, PA 19087.)
17
<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 15 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 two
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 between non-retirement accounts are not accepted
for the Portfolio.
-------------------------------------------------------------------
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.
18
<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
Portfolio 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.
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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). The fee generally
will be waived for investors whose aggregate Vanguard assets exceed
$50,000.
In addition, the Portfolio 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 Portfolio'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 Portfolio's net asset value).
- -----------------------------------------------------------------------------
EXCHANGING YOUR SHARES
Should your investment goals change, you may exchange your shares
of Vanguard Growth and Income Portfolio for those of other
available Vanguard Funds. Exchanges to or from Vanguard Growth
and Income Portfolio may be made only by mail. Telephone
exchanges between non-retirement accounts are not accepted
for the Portfolio.
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
19
<PAGE>
you wish to exchange, and the signatures of all registered account
holders. Send your request to Vanguard Financial Center,
Vanguard Growth and Income Portfolio, P.O. Box 1120, Valley
Forge, PA 19482. (For express or registered mail, send your request
to Vanguard Financial Center, Vanguard Growth and Income
Portfolio, 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.
* 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 Portfolio reserves the right to revise or
terminate its provisions, limit the amount of or reject any
exchange, as deemed necessary, at any time.
- -----------------------------------------------------------------------------
EXCHANGE PRIVILEGE LIMITATIONS
The Portfolio'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 Portfolio and increase transaction costs, the
Portfolio 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 Portfolio during any twelve month period.
Notwithstanding these limitations, the Portfolio 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.
- -----------------------------------------------------------------------------
20
<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.
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TRANSFERRING REGISTRATION
You may transfer the registration of any of your Portfolio
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).
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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 during the calendar
year, 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.
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21
<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
Portfolio 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
Portfolio account, one business day after the
Portfolio'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[TM] telephone. This service also lets
you obtain information about your account balance, your last
transaction, and your most recent dividend or capital gains
payment, as well as request telephone exchanges and check
redemptions. To contact Vanguard's Tele-Account service, dial
1-800-ON-BOARD (1-800-662-6273). A brochure offering detailed
operating instructions is available from our Investor Information
Department (1-800-662-7447).
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22
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23
<PAGE>
PART B
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
(the "Fund")
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1997
This Statement is not a prospectus but should be read in conjunction
with the Fund's Prospectus for Vanguard Growth and Income Portfolio (the
"Portfolio") dated April 30, 1997. Prior to April 30, 1997,
the Portfolio was known as Vanguard Quantitative Portfolios 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 Portfolio 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 segregrated 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,
B-1
<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 Portfolio 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
Portfolio intends to use futures contracts only for bona fide hedging
purposes.
Regulations of the CFTC applicable to the Portfolio require that
all of its futures transactions constitute bona fide hedging transactions.
The Portfolio 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 Portfolio 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 Portfolio upon sale of open futures contracts.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Portfolio's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While the Portfolio 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 Portfolio 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 Portfolio's total assets. In addition,
the Portfolio will not enter into futures contracts to the extent that
its outstanding obligations to purchase securities under these contracts
would exceed 20% of the Portfolio'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 Portfolio would continue to be required
to make daily cash payments to maintain its required margin. In such
situations, if the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio bears the risk that the Adviser will
incorrectly predict future market trends. However, because the futures
strategies of the Portfolio are engaged in only for hedging purposes,
the Adviser does not believe that the Portfolio is subject to the
risks of loss frequently associated with futures transactions. The
B-2
<PAGE>
Portfolio 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.
Use of futures transactions by the Portfolio 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 Portfolio 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 Portfolio of margin
deposits in the event of bankruptcy of a broker with whom the
Portfolio 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 Portfolio 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 Portfolio may affect the
holding period of such securities and, consequently, the nature of the gain
or loss on such securities upon disposition. The Portfolio 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
Portfolio.
In order for the Portfolio 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 Portfolio'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
Portfolio's annual gross income. Any net gain realized from the
closing out of futures contracts will be considered gain from the sale of
securities and therefore be qualifying income for purposes of the 90%
requirement. In order to avoid realizing excessive gains on securities held
less than three months, the Portfolio may be required to defer the
closing out of futures contracts beyond the time when it would otherwise be
advantageous to do so. It is anticipated that unrealized gains on futures
contracts, which have been open for less than three months as of the end of
the Portfolio's fiscal year and which are recognized for tax purposes,
will not be considered gains on sales of securities held less than three
months for the purpose of the 30% test.
The Portfolio will distribute to shareholders annually any net
capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end of the Portfolio's fiscal year)
on futures transactions. Such distributions will be combined with
distributions of capital gains realized on the Portfolio's other
investments and shareholders will be advised on the nature of the
distributions.
Repurchase Agreements. The Portfolio 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 Portfolio 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 Portfolio and is
unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by the Portfolio (including
accrued interest
B-3
<PAGE>
earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Portfolio's custodian bank
until repurchased. The Fund's Board of Directors will monitor the
Portfolio'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 Portfolio.
No more than an aggregate of 15% of the Portfolio'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, 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 Portfolio 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
Portfolio not within the control of the Portfolio and therefore
the Portfolio 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 Portfolio's management acknowledges
these risks, it is expected that they can be controlled through careful
monitoring procedures.
Lending of Securities. The Portfolio 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 Portfolio 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 Portfolio. The
Portfolio 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 Portfolio 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 Portfolio at any time and (d) the
Portfolio receive reasonable interest on the loan (which may include
the Portfolio'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
Portfolio 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 Portfolio's Board of
Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Directors. In addition, voting rights
may pass with the loaned securities, but if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
INVESTMENT LIMITATIONS
The following restrictions are fundamental policies and cannot be
changed without approval of the holders of a majority of the outstanding
shares of the Portfolio 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 Portfolio may not under any circumstances:
1) Invest for the purpose of exercising control of management of any
company;
B-4
<PAGE>
2) With respect to 75% of the value of its total assets, purchase the
securities of any issuer (except obligations of the United States
government and its instrumentalities) if as a result the Fund would
hold more than 10% of the outstanding voting securities of the
issuer, or more than 5% of the value of the Fund's total assets
would be invested in the securities of such issuer;
3) Invest in securities of other investment companies, except as may be
acquired as part of a merger, consolidation or acquisition of assets
approved by the Portfolio's shareholders or otherwise to the
extent permitted by Section 12 of the 1940 Act. The Portfolio
will invest only in investment companies which have investment
objectives and investment policies consistent with those of the
Portfolio;
4) Engage in the business of underwriting securities issued by other
persons, except to the extent that the Portfolio 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 Portfolio's investment in The
Vanguard Group, Inc.);
6) Borrow money, except that the Portfolio 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 Portfolio'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 Portfolio's net assets, the
Portfolio will not make any additional investments;
7) Invest in commodities or real estate although the Portfolio
may use stock futures contracts or options for hedging purposes
only, and provided that not more than 5% of the Portfolio's
assets are required as futures contract deposit and not more than
20% of the Portfolio'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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio and one or more
other investment companies and is primarily engaged in the business
B-5
<PAGE>
of providing, at-cost, management, administrative, distribution or related
services to the Portfolio and other investment companies. See "The
Vanguard Group." As a non-fundamental policy, the Portfolio will not
invest more than 5% of its total assets in the securities of companies that,
together with their predecessors, have been in continuous operation for less
than three years.
YIELD AND TOTAL RETURN
The yield of the Portfolio for the 30-day period ended December
31, 1996 was +1.90%.
The average annual total return of the Portfolio for the 1-,
5- and 10-year periods ended December 31, 1996 was +23.06%,
+15.16% and +15.23%, 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. Note: Prior to April 30, 1997, the Portfolio was known as
Vanguard Quantitative Portfolios.
PURCHASE OF SHARES
The Portfolio 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
Portfolio, 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 Portfolio's shares.
REDEMPTION OF SHARES
The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
The Portfolio 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 Portfolio 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 Portfolio. If redemptions are paid in investment
securities, such securities will be valued as set forth in the Prospectus
under "The Portfolio's Share Price" and a redeeming shareholder would
normally incur brokerage expenses if he converted these securities to cash.
B-6
<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, General Accident Insurance and Chris-Craft
Industries, Inc.
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 Emeritus and Director of Rhone-Poulenc Rorer, Inc.;
Director of Sun Company, Inc.; Director of Westinghouse Electric
Corporation.
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, Emeritus of The Brookings Institution; Director of
American Express Bank, Ltd., The St. Paul Companies, Inc., and
National Steel Corporation.
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,
Procter & Gamble 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*
Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
- -----------------
*Officers of the Fund are "interested persons" as defined in the
Investment Company Act of 1940.
B-7
<PAGE>
The Vanguard Group. Vanguard Growth and Income Portfolio is a
portfolio of the Vanguard Quantitative Portfolios, Inc., 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 have invested are adjusted from time to
time in order to maintain the proportionate relationship between each Fund's
relative net assets and its contribution to Vanguard's capital. At December
31, 1996, the Fund had contributed capital of $116,000 to
Vanguard, representing 0.6% 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, 1996, the Portfolio's share
of Vanguard's actual net costs of operation relating to management and
administrative services (including transfer agency) totaled approximately
$2,549,000.
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,
1996 the Fund paid approximately $246,000 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.
B-8
<PAGE>
Investment Advisory Services. Vanguard provides investment advisory
services to Vanguard Money Market Reserves, Vanguard Treasury Fund,
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, the REIT Index Portfolio of Vanguard Specialized
Portfolios, the Total International Portfolio of Vanguard STAR 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 using 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, 1996, the Fund paid approximately $3,000 in
Directors' fees and expenses. The Portfolio'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, 1996 the Fund's proportionate share of remuneration, paid by Vanguard
(and reimbursed by the Fund) was approximately $33,697.
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
Portfolio'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 1996 fiscal year was
approximately $900.
The following table provides detailed information with respect to the
amounts paid or accrued for the Directors for the fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
VANGUARD GROWTH AND INCOME PORTFOLIO
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(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John C. Bogle(1) -- -- -- --
John J. Brennan(1) -- -- -- --
Barbara Barnes Hauptfuhrer $372 $58 $15,000 $65,000
Robert E. Cawthorn $372 $48 $13,000 $65,000
Bruce K. MacLaury $403 $57 $12,000 $60,000
Burton G. Malkiel $372 $39 $15,000 $65,000
Alfred M. Rankin, Jr. $372 $30 $15,000 $65,000
John C. Sawhill $372 $36 $15,000 $65,000
James O. Welch, Jr. $372 $44 $15,000 $65,000
J. Lawrence Wilson $372 $32 $15,000 $65,000
<FN>
(1) As "Interested Directors," Messrs. Bogle and Brennan receive no compensation for their service as
Directors.
(2) 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 (33 in the case of Mr. Malkiel; 27 in the case of Mr.
MacLaury).
</TABLE>
B-9
<PAGE>
INVESTMENT ADVISORY SERVICES
The Fund employs Franklin Portfolio Associates LLC
("Franklin") under an advisory agreement dated April 1, 1996, to manage the
investment and reinvestment of the Portfolio's assets and to
continuously review, supervise and administer the Portfolio's
investment program. Franklin discharges its responsibilities subject to
control of the Officers and Directors of the Fund.
The Portfolio 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 Portfolio'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 Portfolio'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 Portfolio, and .10% per annum
(.025% per quarter) of average month-end net assets over $100 million, if the
Portfolio'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 Portfolio'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 Portfolio 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 Portfolio; in
such event, continuance shall be effected only if approved by the affirmative
vote of a majority of the outstanding voting securities of the
Portfolio. 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 Portfolio's outstanding
voting securities on 60 days' written notice to Franklin, or (2) by Franklin
upon 90 days' written notice to the Portfolio.
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.
B-10
<PAGE>
During the years ended December 31, 1994, 1995 and 1996, the
Portfolio paid investment advisory fees of approximately
$1,017,000, 1,280,000 and $1,646,000, respectively.
Description of Franklin. Franklin is a Delaware corporation and is a
wholly-owned indirect subsidiary of Mellon Bank 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
Portfolio 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 Portfolio. 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 Portfolio 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 Portfolio'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 Portfolio'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
Portfolio. 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 Portfolio. However, the Adviser has informed the
Portfolio that it will not pay higher commission rates specifically
for the purpose of obtaining research services.
Since the Portfolio does not market its shares through
intermediary brokers or dealers, it is not the Portfolio's practice to
allocate brokerage or principal business on the basis of sales of its shares
which may be through such firms. However, the Portfolio may place
portfolio orders with qualified broker-dealers who recommend the
Portfolio to other clients, or who act as agent in the purchase of the
Portfolio'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 Portfolio shares by a
broker or dealer in selecting among qualified broker-dealers.
Some securities considered for investment by the Portfolio 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, 1994, 1995 and
1996 the Fund paid $569,059, $527,912 and $1,563,135 in
brokerage commissions, respectively.
B-11
<PAGE>
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended December 31,
1996, including the financial highlights for each of the five fiscal
years in the period ended December 31, 1996, appearing in the Vanguard
Quantitative Portfolios 1996 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 1996 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, including
Vanguard Quantitative Portfolios, 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 7,000 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.
B-12
<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, 12.5% Standard & Poor's Utilities Index
and 12.5% Standard and Poor's Telephone 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
$1.6 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
$700 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.
B-13
<PAGE>
PART C
VANGUARD QUANTITATIVE PORTFOLIO, INC.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The Registrant's financial statements for the year ended December 31,
1996, including Price Waterhouse LLP's report thereon, are
incorporated by reference, in the Statement of Additional Information, from
the Registrant's 1996 Annual Report which has been filed with the
Commission. The financial statements included in the Annual Report are:
1. Statement of Net Assets as of December 31, 1996.
2. Statement of Operations for the year ended December 31, 1996.
3. Statement of Changes in Net Assets for the years ended December 31,
1995 and 1996.
4. Financial Highlights for each of the five years in the period ended
December 31, 1996.
5. Notes to Financial Statements.
6. Report of Independent Accountants.
(b) Exhibits
1. Articles of Incorporation**
2. By-Laws of Registrant**
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Not Applicable
7. Reference is made to the section entitled "Management of the Fund"
in the Registrant's Statement of Additional Information
8. Form of Custody Agreement**
9. Form of Funds' Service Agreement**
10. Opinion of Counsel**
11. Consent of Independent Accountants*
12. Financial Statements -- reference is made to (a) above
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Schedule for Computation of Performance Quotations*
27. Financial Data Schedule*
- ------------------
* Filed herewith.
** Previously filed.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by or under common control with any person.
The officers of the Registrant, the investment companies in The Vanguard
Group of Investment Companies and The Vanguard Group, Inc. are identical.
Reference is made to the caption "Management of the Fund" in the Prospectus
constituting Part A and "Management of the Fund" in the Statement of
Additional Information constituting Part B of this Registration Statement.
Item 26. Number of Holders of Securities
As of December 31, 1996 there were 52,071 shareholders.
C-1
<PAGE>
Item 27. Indemnification
Reference is made to Article XI of Registrant's Articles of
Incorporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser
Franklin Portfolio Associates LLC ("Franklin"), Two
International Place, Boston, Massachusetts 02109, is the Investment
Adviser. Franklin is a wholly-owned subsidiary of MBC Investments
Corporation. Neither Franklin nor MBC has any other affiliation with the
registrant.
Item 29. Principal Underwriters
(a) None
(b) Not Applicable
Item 30. Location of Accounts and Records
The books, accounts and other documents required by Section 31(a) under
the Investment Company Act and the rules promulgated thereunder will be
maintained in the physical possession of Registrant; Registrant's Transfer
Agent, The Vanguard Group, Inc. c/o The Vanguard Financial Center, Valley
Forge, Pennsylvania 19482; and the Registrant's Custodian, CoreStates Bank,
Philadelphia, Pa.
Item 31. Management Services
Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which was previously filed as Exhibit 9(c) and described
in Part B hereof under "Management of the Fund;" the Registrant is not a
party to any management-related service contract.
Item 32. Undertakings
Annual meetings of shareholders will not be held except as required by
the Investment Company Act of 1940 ("1940 Act") or other applicable law.
Registrant undertakes to comply with the provisions of Section 16(c) of the
1940 Act in regard to shareholders' rights to call a meeting of shareholders
for the purpose of voting on the removal of Directors and to assist in
shareholder communications in such matters, to the extent required by law.
Registrant hereby undertakes to provide an Annual Report to Shareholders
or prospective investors, free of charge upon request.
C-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Valley
Forge and the Commonwealth of Pennsylvania, on the 18th day of April,
1997.
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
BY: (Raymond J. Klapinsky)
John J. Brennan*, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
BY: (Raymond J. Klapinsky)
John C. Bogle*, Chairman of the Board and Director
April 21, 1997
BY: (Raymond J. Klapinsky)
John J. Brennan*, President, Chief Executive Officer and Director
April 21, 1997
BY: (Raymond J. Klapinsky)
Robert E. Cawthorn*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
Barbara B. Hauptfuhrer*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
Burton G. Malkiel*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
Bruce K. MacLaury*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
Alfred M. Rankin*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
John C. Sawhill*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
James O. Welch, Jr.*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
J. Lawrence Wilson*, Director
April 21, 1997
BY: (Raymond J. Klapinsky)
Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer
April 21, 1997
*By Power of Attorney. See File Number 2-14336, January 23, 1990.
Incorporated by Reference.
INDEX TO EXHIBITS
Consent of Independent Accountants ............................. EX-99.B11
Schedule for Computation of Performance Quotations ............. EX-99.B16
Financial Data Schedule ........................................ EX-27
C-3
<PAGE>
EX-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
and Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 11 to the registration statement on Form
N-1A (the "Registration Statement") of our report dated January 31,
1997, relating to the financial statements and financial highlights
appearing in the December 31, 1996 Annual Report to Shareholders of
Vanguard Quantitative Portfolios, which are also incorporated by reference
into the Registration Statement. We also consent to the references to us
under the headings "Financial Highlights" and "General Information" in the
Prospectus and "Financial Statements" in the Statement of Additional
Information.
PRICE WATERHOUSE, LLP
Philadelphia, PA
April 17, 1997
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<PAGE>
EX-99.B16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD GROWTH AND INCOME PORTFOLIO OF VANGUARD QUANTITATIVE PORTFOLIOS
1. Average Annual Total Return (As of December 31, 1996)
n
P (1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
One Year
P = $1,000
T = +23.06
N = 1
ERV = $1,230.61
Five Year
P = $1,000
T = +15.16
N = 5
ERV = $2,025.03
Ten Year
P = $1,000
T = +15.23
N = 10
ERV = $4,127.78
2. YIELD (30 Days Ended December 31, 1996)
a - b 6
Yield = 2[(----- +1) -1]
c x d
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of
the period
Example: a = $2,323,645.17
b = $344,499.19
c = 55,415,328.417
d = $22.63
Yield = 1.90%
C-5
<PAGE>
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