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As filed with the Securities and Exchange Commission on May 27, 1998
Securities Act File No. 33-8553
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /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 Offices) (Zip Code)
(610) 669-1000
(Registrant's Area Code and Telephone Number)
P.O. Box 2600
Valley Forge, PA 19482
(Name and Address of Agent for Service)
With copies to:
Jack W. Murphy, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
Title of Securities Being Registered: Shares of beneficial interest of the
registrant's Vanguard Growth and Income Portfolio. No filing fee is due because
of reliance on Section 24(f ) of the Investment Company Act of 1940.
Pursuant to Rule 488(a) under the Securities Act of 1933, this registration
statement will become effective on the thirtieth day after the date upon which
it is filed.
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information
for Shareholders
of Vanguard/
Trustees'
Equity Fund-
U.S. Portfolio
Vanguard/Trustees' Equity Fund-U.S. Portfolio will host a Special Meeting of
Shareholders on July 31, 1998, at Vanguard's headquarters in Malvern,
Pennsylvania. The purpose is to vote on a proposal to reorganize the U.S.
Portfolio into Vanguard Growth and Income Portfolio on a tax-free basis.
The first few pages of this booklet highlight key points about the proposed
reorganization and explain the proxy process--including how to cast your votes.
Before you vote, please read the full text of the combined proxy statement and
prospectus for a complete understanding of our proposal.
KEY POINTS ABOUT THE PROPOSED REORGANIZATION
Purpose of the Reorganization
The purpose of this proposal is to make your Portfolio a part of Growth and
Income Portfolio, a larger Vanguard fund that has very similar investment
objectives and policies. After 18 years of operation, U.S. Portfolio has
attracted only a modest level of investor interest, and its investment
characteristics have come to mirror those of Growth and Income Portfolio. Your
Board of Trustees believes that it is in shareholders' best interests simply to
combine the two Portfolios.
Lower Costs for Shareholders
Due to its larger size and more favorable advisory contract, Growth and Income
Portfolio enjoys greater operating efficiencies--and lower operating
expenses--than your Portfolio. U.S. Portfolio's total expense ratio for 1997 was
0.53%--an annual cost to shareholders of $5.30 for each $1,000 invested. By
contrast, Growth and Income Portfolio's total expense ratio for 1997 was
0.36%--an annual cost to shareholders of $3.60 for each $1,000 invested.
(continued on inside front cover)
THE VANGUARD GROUP LOGO
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How the Reorganization Will Affect Your Account
If shareholders approve this proposal, we'll exchange all of your U.S. Portfolio
shares, on a tax-free basis, for an equivalent dollar amount of Growth and
Income Portfolio shares. Your account registration and account options will
remain the same. (There is one notable exception: Growth and Income Portfolio
doesn't permit telephone exchanges for nonretirement accounts.) In addition,
your aggregate cost basis in the account will remain the same, although your
nominal per share cost will change as a result of the two Portfolios' different
share prices.
Tax Notes
The reorganization will be accomplished on a tax-free basis, meaning that you
won't realize any capital gains when your U.S. Portfolio shares are exchanged
for shares of Growth and Income Portfolio. However, you should pay close
attention to these points:
o U.S. Portfolio's final distribution. At the time of the reorganization,
U.S. Portfolio will make a final distribution of its accumulated dividends and
realized capital gains. If you are a taxable investor, purchasing additional
shares of U.S. Portfolio may be unwise at this point. This is because a portion
of any additional investments will probably come back to you in the form of a
taxable distribution.
o Growth and Income Portfolio's year-end distribution. Following the
reorganization, shareholders of the former U.S. Portfolio will participate fully
in Growth and Income Portfolio's year-end distribution. If made today, this
distribution would amount to approximately 2.2% of the current value of each
shareholder's investment in Growth and Income Portfolio.
Interim Change in Investment Adviser for the U.S. Portfolio
In anticipation of the reorganization, Franklin Portfolio Associates (FPA) has
replaced Geewax, Terker & Company as investment adviser to the U.S. Portfolio.
FPA is the investment advisory firm that has managed the Growth and Income
Portfolio since its inception in 1986. During this interim period, the U.S.
Portfolio will pay FPA annualized advisory fees amounting to 0.08% of average
Portfolio assets. Geewax, on the other hand, received 1997 advisory fees from
the U.S. Portfolio amounting to 0.22% of average Portfolio assets.
-- Q&A --
Q. I'm a small investor. Why should I bother to vote?
A. Your vote makes a difference. If numerous shareholders just like you fail to
vote their proxies, U.S. Portfolio may not receive enough votes to go forward
with its meeting. If this happens, we'll need to mail proxies again--a costly
proposition for your Portfolio!
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Q. Didn't I just vote a proxy for U.S. Portfolio a few months ago?
A. If you owned shares of U.S. Portfolio on April 13, 1998, this is the second
proxy that you've received for this year. Unfortunately, the U.S. Securities and
Exchange Commission's special requirements for this type of proposal made it
impractical to include in our earlier proxy. Please bear with us, read yet
another proxy statement, and vote again!
Q. Who gets to vote?
A. Any person who owned shares of U.S. Portfolio on the "record date," which was
June 18, 1998, gets to vote--even if the investor later sold the shares.
Shareholders are entitled to cast one vote for each dollar invested in U.S.
Portfolio on the record date.
Q. How can I vote?
A. You can vote in any one of four ways:
o Through the Internet at www.proxyweb.com (or by going to www.vanguard.com
and clicking on "Proxy Voting").
o By telephone, with a toll-free call to the number listed on your proxy
card.
o By mail, with the enclosed ballot.
o In person at the meeting.
We encourage you to vote by Internet or telephone, using the 14-digit "control"
number that appears on your proxy card. These voting methods will save your
Portfolio a good deal of money (no return-mail postage!). Whichever method you
choose, please take the time to read the full text of our proxy statement before
you vote.
Q. Is it hard to vote by Internet?
A. Not at all! If you have not yet visited Vanguard's website--at
www.vanguard.com--this is a great opportunity to check it out. Scan our website
and, when you're ready, click on the "Proxy Voting" link on our homepage to
access www.proxyweb.com (the voting location).
Problems? Please call us at 1-800-891-5345.
Q. I plan to vote by mail. How should I sign my proxy card?
A. If you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the proxy
card, but the signer's name must exactly match one that appears on the card. You
should sign proxy cards for other types of accounts in a way that indicates your
authority (for instance, "John Brown, Custodian").
<PAGE>
Vanguard/Trustees' Equity Fund--U.S. Portfolio
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Your Vanguard fund will host a Special Meeting of Shareholders on Friday,
July 31, 1998, at 9:30 a.m., Eastern time. The meeting will be held at
Vanguard's Malvern, Pennsylvania, headquarters, at 100 Vanguard Boulevard, in
the Majestic Building. At the meeting, we'll ask shareholders to vote on:
1. A proposal to reorganize U.S. Portfolio into Vanguard Growth and Income
Portfolio.
2. Any other business properly brought before the meeting.
By Order of the Board of Trustees
Raymond J. Klapinsky, Secretary
June 24, 1998
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YOUR VOTE IS IMPORTANT!
You can vote easily and quickly by toll-free telephone call, at our
website, or by mail. Just follow the simple instructions that appear on
your enclosed proxy card. Please help your fund avoid the expense of a
follow-up mailing by voting today!
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Vanguard/Trustees' Equity Fund--U.S. Portfolio
Special Meeting of Shareholders
July 31, 1998
COMBINED PROXY STATEMENT/PROSPECTUS
Introduction
Proposal summary. This proxy statement describes a proposal to make your fund
a part of Vanguard Growth and Income Portfolio, a larger Vanguard fund that has
very similar investment objectives and investment policies. The reorganization
involves a few basic steps. First, your fund will transfer all of its assets
and liabilities to Growth and Income Portfolio in exchange for shares of Growth
and Income Portfolio. Your fund will then liquidate, and you will receive
Growth and Income Portfolio shares that are equivalent in value to your U.S.
Portfolio investment at the time of the reorganization.
Read and keep these documents. Please read the entire proxy statement, along
with the enclosed Vanguard Growth and Income Portfolio prospectus dated April
17, 1998, before casting your vote. (The prospectus is, by reference,
considered part of this proxy statement.) These documents contain information
that is important to your proxy decision, and you should keep them for future
reference.
Additional information is available. Growth and Income Portfolio's Statement
of Additional Information (dated April 17, 1998) and its 1997 Annual Report to
Shareholders each contain important information about the Portfolio. These
documents have been filed with the U.S. Securities and Exchange Commission and
are considered part of this proxy statement by reference. You can obtain copies
of these documents, without charge, by contacting Vanguard (1-800-662-7447) or
visiting the SEC's website (www.sec.gov). Copies of U.S. Portfolio's prospectus
and Statement of Additional Information (both dated April 30, 1998), along with
its most recent annual report to shareholders, are also available without
charge from Vanguard or at the SEC's website.
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These securities have not been approved or disapproved by the Securities
and Exchange Commission, nor has the Securities and Exchange Commission
passed upon the accuracy of this combined proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
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OVERVIEW
This section summarizes key information concerning your fund's proposal.
Keep in mind that more detailed information appears throughout the proxy
statement and the accompanying prospectus. Please be sure to read everything.
The Proposed Reorganization. At their meeting on May 15, 1998, your fund's
Board of Trustees approved a plan to reorganize U.S. Portfolio into Vanguard
Growth and Income Portfolio. The plan calls for U.S. Portfolio to transfer all
of its assets and liabilities to Growth and Income Portfolio in exchange for
shares of that fund. Shareholders of U.S. Portfolio would receive Growth and
Income Portfolio shares that are equivalent in value to their investments at
the time of the reorganization, and U.S. Portfolio then would be terminated.
All of this would happen on a single day, which is currently expected to be
August 15, 1998, assuming that a majority of your fund's outstanding shares
approve this proposal.
We believe that the proposed reorganization is in the best interests of
U.S. Portfolio and its shareholders (we'll explain further into the proxy
statement). Also, the reorganization will not dilute the interests of U.S.
Portfolio shareholders. If we don't win shareholder approval of the
reorganization, U.S. Portfolio will continue in existence and the Board of
Trustees will consider whether further action is appropriate.
Investment Objectives and Policies of Each Fund. Growth and Income
Portfolio and U.S. Portfolio have investment objectives and policies that are
similar. The primary investment objective of Growth and Income 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 investment objective of U.S.
Portfolio is to provide long-term capital growth and a modest amount of income
by investing in equity securities of U.S. companies.
Growth and Income Portfolio seeks to achieve its investment objective by
investing primarily in securities that are included in the S&P 500 Index, and
we expect the aggregate investment characteristics of the Portfolio to resemble
those of the Index. U.S. Portfolio seeks to achieve its investment objective by
investing between 50% and 70% of its assets in common stocks of U.S. companies
that display value investment characteristics and the remaining portion of its
assets in growth-oriented common stocks of U.S. companies.
The investment objectives and policies of the Portfolios are discussed in
more detail in "Investment Practices and Risk Considerations" on page 5. For
complete descriptions of the investment objectives and policies of the
Portfolios, please read each Portfolio's prospectus and Statement of Additional
Information.
Investment Advisers. The investment adviser for both Growth and Income
Portfolio and, as of May 18, 1998, U.S. Portfolio is Franklin Portfolio
Associates
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LLC (FPA), Two International Place, Boston, MA 02110. Under separate investment
advisory agreements with each Portfolio, FPA manages the investment and
reinvestment of the Portfolios' respective assets and continuously reviews,
supervises, and directs the Portfolios' respective investment programs.
FPA's agreement with Growth and Income Portfolio is dated April 1, 1996;
its agreement with U.S. Portfolio is dated May 21, 1998. FPA is a professional
investment counseling firm that specializes in the management of common stock
portfolios through the use of quantitative investment models. Founded in 1982,
FPA, a Massachusetts limited liability company, is a wholly-owned indirect
subsidiary of Mellon Bank Corporation. As of December 31, 1997, FPA provided
investment advisory services to approximately $10.7 billion of client assets.
FPA 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.
Prior to May 21, 1998, Geewax, Terker & Company, 99 Starr Street,
Phoenixville, PA 19460, was the investment adviser to U.S. Portfolio. Geewax,
Terker, an investment advisory firm founded in 1982, currently manages
approximately $3 billion in assets for institutional endowment and pension
funds. On May 15, 1998, your fund's Board voted to replace Geewax, Terker with
FPA pursuant to Rule 15a-4 under the 1940 Act, which permits the Board to
appoint a new investment adviser for an interim 120-day period. The Board
decided to take this action in anticipation of the reorganization. This step is
believed to be in the best interests of shareholders because following the
reorganization, assuming approval by shareholders, the combined assets of the
two funds will be managed by FPA.
Fees and Expenses. Growth and Income Portfolio pays FPA 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%
Next $1.25 billion .10%
Next $3 billion .08%
Over $5 billion .06%
This fee may be increased or reduced by applying an adjustment formula
based on the investment performance of Growth and Income Portfolio relative to
the S&P 500 Index.
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Three Year Performance
Differential vs. S&P 500 Index Fee Adjustment
- -------------------------------- ------------------
+6% or more +60% of Basic Fee
+3% to +6% +30% of Basic Fee
- -3% to +3% - 0 -
- -3% to -6% -30% of Basic Fee
Less than -6% -60% of Basic Fee
Accordingly, given the fund's current asset level, the maximum possible
fee payable to FPA by Growth and Income Portfolio under the agreement would be
0.13% of net assets, and the minimum possible fee payable would be 0.07% of net
assets.
U.S. Portfolio pays FPA a flat fee amounting to 0.08% of its average net
assets (annualized).
Prior to May 21, 1998, Geewax, Terker & Company was the investment adviser
to U.S. Portfolio. Geewax, Terker was paid an advisory fee at the end of each
fiscal quarter based on U.S. Portfolio's average month-end net assets during
the quarter, multiplied by an annual percentage rate of 0.40%.
The basic advisory fee paid to Geewax, Terker & Company was increased or
decreased by applying an incentive/penalty fee adjustment based on the
investment performance of U.S. Portfolio relative to the investment performance
of S&P 500 Index over the preceding 36-month period as follows:
Cumulative Three-Year Performance
Differential vs. S&P 500 Index Fee Adjustment*
- ------------------------------------------ --------------------
+4.5% points or more 0.50% of Basic Fee
+2.25% points but less than +4.5% points - 0 -
Less than +2.25% points -0.50% of Basic Fee
*For purposes of this calculation, the basic fee was calculated by applying the
quarterly rate against average assets over the 36-month period.
Accordingly, the maximum possible fee payable to Geewax, Terker by U.S.
Portfolio under the agreement would have been .60% of net assets and the
minimum possible fee would have been .20% of net assets.
For more information about fees and expenses, see "Fees and Expenses" on page
7.
Purchase, Redemption, and Exchange Information. The purchase, redemption,
and exchange procedures and privileges for U.S. Portfolio and Growth and Income
Portfolio are basically the same. Purchase procedures for the Portfolios are
virtually identical and are described beginning on page 15 of the Growth and
Income Portfolio Prospectus. In addition, shareholders of both Portfolios may
exchange shares for shares of other Vanguard Funds by following the procedures
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described beginning on page 21 of the Growth and Income Portfolio prospectus.
One important exception here is that, unlike U.S. Portfolio, Growth and Income
Portfolio does not accept telephone exchanges for nonretirement accounts.
Federal Income Tax Consequences of the Reorganization. It is expected that
the reorganization will constitute a tax-free reorganization within the meaning
of section 368(a)(1) of the Internal Revenue Code of 1986, as amended. We will
not proceed with the reorganization until legal counsel provides us with an
opinion to the effect that the reorganization will be tax-free and will not
cause U.S. Portfolio or its shareholders to recognize gains or losses. See
"Information About The Reorganization--Tax Considerations" on page 8.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The investment objectives, policies, and restrictions of Growth and Income
Portfolio and U.S. Portfolio are similar, although the Portfolios differ to
some extent with respect to particular investment techniques, as described
below. Because the Portfolios share similar investment objectives and policies,
we believe that the risks of investing in Growth and Income Portfolio are
substantially similar to the risks of investing in U.S. Portfolio. The
investment objectives, policies, and restrictions of the Portfolios, and
certain differences between them, are discussed below. For a more detailed
description, please see the prospectus and Statement of Additional Information
describing each Portfolio. We cannot guarantee that either Portfolio will
achieve its stated objective(s).
Comparison of Objectives
The investment objective of Growth and Income 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 S&P 500 Index.
The investment objective of U.S. Portfolio is to seek to provide long-term
capital growth and a modest amount of income. U.S. Portfolio seeks to achieve
this objective by investing primarily in common stocks of U.S. companies.
Between 50% and 70% of U.S. Portfolio's assets are invested in common stocks
that display value investment characteristics; the remaining portion of U.S.
Portfolio's assets are invested in growth-oriented common stocks.
Comparison of Primary Investments
Growth and Income Portfolio invests in a broadly diversified portfolio of
common stocks. At least 65% of Growth and Income Portfolio's assets are
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. Historically, the types of securities that Growth and
Income Portfolio invests in have provided capital appreciation and dividend
income. Stocks are selected for
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Growth and Income 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,
Growth and Income 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.
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 S&P 500 Index currently account for approximately 47% of the Index.
U.S. Portfolio invests in large-, mid-, and small-capitalization stocks.
Mid- and small-cap stocks have historically been more volatile than--and at
times have performed quite differently from--the large-cap stocks found in the
S&P 500 Index. For this reason and because U.S. Portfolio does not hold the
same securities held in the S&P 500 Index or any other market index, the
performance of the Portfolio does not mirror the returns of any particular
index.
Although it normally seeks to remain substantially fully invested in
common stocks, Growth and Income 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: obligations of the U.S. Government and
its agencies or instrumentalities; commercial paper, bank certificates of
deposit, and banker's acceptances; and repurchase agreements collateralized by
these securities.
Similarly, the U.S. Portfolio usually holds only a small percentage of its
assets in cash reserves, although if the investment adviser believes that
market conditions warrant a temporary defensive measure, U.S. Portfolio may
hold cash reserves without limit.
Fundamental Policies. The investment objectives and investment policies
described above for Growth and Income Portfolio are not "fundamental," which
means that they can be changed without a shareholder vote. U.S. Portfolio's
investment objectives are fundamental and so may be changed only with the
approval of shareholders; its investment policies described above, however, are
not fundamental.
Investment Restrictions. Each Portfolio has adopted fundamental investment
restrictions that may be changed only with shareholder approval. These
investment restrictions are the same for the Portfolios.
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Comparison of Risk Factors
U.S. Portfolio and Growth and Income Portfolio each invest principally in
common stocks of U.S. companies in seeking the objectives of long-term capital
appreciation and a modest amount of income and a total investment return
(dividend income plus capital change) greater than the S&P 500 Index,
respectively. Growth and Income Portfolio concentrates its investments in
companies included in the S&P 500 Index, while U.S. Portfolio is not
necessarily so concentrated. U.S. Portfolio held 339 securities on March 31,
1998, while Growth and Income Portfolio held approximately 123 securities on
the same date. While the securities and investment techniques used by the
Portfolios are similar, there are some differences. As with any security, an
investment in a Portfolio's shares involves certain risks, including the
potential for loss of principal. The Portfolios are subject to varying degrees
of financial, market, interest, and credit risks. For a further discussion of
the securities and investment techniques used by the Growth and Income
Portfolio, and the associated risks, see page 4 of the fund's prospectus.
FEES AND EXPENSES
Growth and Income Portfolio employs FPA to manage the investment and
reinvestment of the assets of the Portfolio and to continuously review,
supervise, and administer the Portfolio's investment program. FPA discharges
its responsibilities subject to the control of the officers and Trustees of
Growth and Income Portfolio. Mr. John J. Nagorniak, President of FPA, serves as
portfolio manager.
Growth and Income Portfolio pays FPA a basic advisory fee at the end of
each fiscal quarter, calculated by applying a quarterly rate, based on the
annual percentage rates set forth on page 3.
For the year ended December 31, 1997, the advisory fee represented an
effective annual basic rate of 0.13% of the Growth and Income Portfolio's
average net assets before a decrease of $244,000 (an annual rate of 0.01%)
based on performance.
During the fiscal years ended December 31, 1995, 1996, and 1997, Growth
and Income Portfolio paid FPA advisory fees of $1,280,000, $1,646,000, and
$2,231,000, respectively.
Effective May 21, 1998, U.S. Portfolio employs FPA to manage the
investment and reinvestment of the assets of the Portfolio and to continuously
review, supervise, and administer the Portfolio's investment program. FPA
discharges its responsibilities subject to the control of the officers and
Trustees of the U.S. Portfolio. Mr. John J. Nagorniak serves as portfolio
manager. U.S. Portfolio pays FPA a basic advisory fee at the end of each fiscal
quarter, calculated by applying a quarterly rate, which annualized amounts to
0.08% of the Portfolio's average net assets.
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Prior to May 21, 1998, Geewax, Terker served as investment adviser to U.S.
Portfolio. For the year ended December 31, 1997, the advisory fee paid to
Geewax, Terker represented an effective annual basic rate of 0.40% of U.S.
Portfolio's average net assets before a decrease of $274,000 (an annual rate of
0.18%) based on performance.
During the fiscal years ended December 31, 1995, 1996, and 1997, U.S.
Portfolio paid Geewax, Terker advisory fees of $383,000, $319,000, and
$341,000, respectively.
INFORMATION ABOUT THE REORGANIZATION
Agreement and Plan of Reorganization. Your fund has entered into an
Agreement and Plan of Reorganization with Growth and Income Portfolio. Under
this agreement, U.S. Portfolio will transfer all of its assets and liabilities
to Growth and Income Portfolio in exchange for shares of that fund.
Shareholders of U.S. Portfolio would receive Growth and Income Portfolio shares
that are equivalent in value to their investments at the time of the
reorganization, and U.S. Portfolio then would be terminated. All of this would
happen on a single day, which is currently expected to be August 15, 1998,
assuming that a majority of your fund's outstanding shares approve this
proposal. The agreement spells out the terms and conditions of the
reorganization (assuming that shareholders approve this proposal). For a
complete description of these terms and conditions, please see the agreement,
which appears as an appendix to this proxy statement.
Until the reorganization date, shareholders of the U.S. Portfolio will
continue to be able to redeem their shares. Redemption requests received after
the reorganization date will be treated as requests for the redemption of
Growth and Income Portfolio shares received by the shareholder in the
reorganization.
The obligations of U.S. Portfolio and Growth and Income Portfolio under
the agreement are subject to various conditions. Among other things, the
reorganization requires that all filings be made with, and all authority be
received from, the SEC and state securities commissions as may be necessary, in
the opinion of counsel, to permit the parties to carry out the transactions
contemplated by the agreement. The Portfolios are in the process of making the
necessary filings. The Agreement and Plan of Reorganization may be terminated
at any time by action of the Portfolios' Trustees. The Portfolios, after
consultation with counsel and by consent of the Trustees or an officer
authorized by the Trustees, may at any time waive compliance with any condition
contained in the agreement. For a complete description of the terms and
conditions of the reorganization, see the agreement at Appendix A.
Tax Considerations. Your fund's reorganization is intended to qualify for
federal income tax purposes as a tax-free reorganization under Section 368(a)
of the
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Internal Revenue Code. This means that none of the parties involved--U.S.
Portfolio, Growth and Income Portfolio, and their respective shareholders--will
recognize a gain or loss directly from the reorganization. It also means that
your aggregate cost basis will remain the same following the reorganization
(although your nominal per-share cost will change as a result of the two funds'
different share prices).
o U.S. Portfolio's final distribution. At the time of the reorganization,
U.S. Portfolio will make a final distribution of its accumulated
dividends and realized capital gains. If you are a taxable investor,
purchasing additional shares of the U.S. Portfolio may be unwise at this
point. This is because a portion of the investment will probably come
back to you in the form of a taxable distribution.
o Growth and Income Portfolio's year-end distribution. Following the
reorganization, shareholders of the former U.S. Portfolio will
participate fully in Growth and Income Portfolio's year-end distribution.
If made today, this distribution would amount to approximately 2.2% of
the current value of each shareholder's investment in Growth and Income
Portfolio.
Expenses of the Reorganization. U.S. Portfolio and Growth and Income
Portfolio will each bear their own expenses incurred in the reorganization. The
expenses of Growth and Income Portfolio, which mainly consist of legal and
accounting fees, are expected to be minimal. We expect U.S. Portfolio's
expenses for reorganization to total approximately $40,000. These expenses will
include: the cost of the special meeting; proxy costs (including all costs of
solicitation, printing, and mailing of this proxy statement); the expenses of
its proposed liquidation and dissolution; and legal and accounting fees.
U.S. Portfolio was formed as a series of Vanguard/Trustees' Equity Fund in
1980, with the objective of providing a portfolio with a "mid-cap" orientation
that would represent a blend of growth and value disciplines, with the
portfolio rotating toward the more attractive segment of the market. Over the
period since its inception, however, U.S. Portfolio has evolved so that it is
now almost indistinguishable from Growth and Income Portfolio. Additionally,
investor interest in U.S. Portfolio has been modest, limiting the growth of the
Portfolio. Consequently, your fund's Board of Trustees has determined that the
expenses involved in maintaining a separate, redundant Portfolio are no longer
warranted and that it would be more efficient and less costly to combine the
U.S. Portfolio into the much larger and more established Growth and Income
Portfolio.
RECOMMENDED VOTE
YOUR FUND'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE TO APPROVE THE
PROPOSED REORGANIZATION.
9
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUNDS
Form of Organization. The Growth and Income Portfolio is a diversified
series of Vanguard Quantitative Funds, an open-end management investment
company organized as a Maryland corporation in 1986, and reorganized as a
Delaware business trust on May 29, 1998. It is registered under the Investment
Company Act of 1940, and does not offer any other series of shares at this
time. The U.S. Portfolio is a diversified series of Vanguard/Trustees' Equity
Fund, an open-end management investment company organized as a Pennsylvania
common law trust in 1984, and reorganized as a Delaware business trust on June
30, 1998. It is also registered under the 1940 Act. Trustees' offers one other
series of shares, which is not involved in the reorganization.
Each fund is governed by a separate but comparable Declaration of Trust.
The business and affairs of each fund are managed under the direction of a
Board of Trustees. The respective Boards of Trustees of the funds have the same
members.
Voting Rights. Shares of Vanguard Quantitative Funds entitle their holders
to one vote per dollar of investment value. Holders of Vanguard/Trustees'
Equity Fund shares presently are entitled to one vote per share, and, separate
votes will be taken by each series on matters affecting an individual series.
Shares have noncumulative voting rights and no preemptive or subscription
rights. The funds are not required to hold shareholder meetings annually,
although shareholder meetings may be called for purposes such as electing or
removing Trustees, changing fundamental policies, or approving an investment
advisory agreement.
Asset Size and Expense Ratios. On March 31, 1998, U.S. Portfolio had total
net assets of approximately $196 million. On the same date, Growth and Income
Portfolio had total net assets of approximately $3.3 billion. For the fiscal
year ended December 31, 1997, U.S. Portfolio had an expense ratio of 0.53 of 1%
of its average net assets. The expense ratio for Growth and Income Portfolio
for the fiscal year ended December 31, 1997, was 0.36 of 1% of its average net
assets.
To the extent that dividends paid to shareholders by U.S. Portfolio are
derived from taxable interest or from capital gains, such dividends will be
subject to federal income tax. Any gain realized on a redemption of shares will
be taxable gain, subject to any applicable tax and exemption for which an
investor may qualify.
Portfolio Brokerage. The portfolio brokerage policies of U.S. Portfolio
and Growth and Income Portfolio are substantially similar. In this respect, the
investment advisory agreements for each Portfolio authorize the investment
adviser, subject to oversight by the Board of Trustees, to select the brokers
or dealers that will execute the purchases and sales of securities for the
Portfolio and direct the investment adviser to use its best efforts to obtain
the best available price and most favorable execution with respect to all
transactions for the Portfolio. The investment advisers have undertaken to
execute each investment transaction at a price and commission which provides
the most favorable total cost or proceeds obtainable under the circumstances.
10
<PAGE>
In placing portfolio transactions, the investment adviser uses its best
judgment to choose the broker most capable of providing the brokerage services
necessary to obtain the best available price and most favorable execution. The
full range and quality of brokerage services available are 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 who supply investment research and statistical information and
provide other services in addition to execution services to the Portfolio
and/or the investment adviser. The investment adviser considers the investment
services it receives 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 oversight of the Portfolio's Board of Trustees, the investment adviser
may cause the Portfolio to pay a broker-dealer which furnishes brokerage and
research services at 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 investment adviser to the Portfolio and
the other Portfolios in the Group.
Each Portfolio's investment 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. An investment adviser will pay such higher commissions only 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 investment adviser and/or the Portfolio. However,
the investment adviser has informed the Portfolio that it will not pay higher
commission rates specifically for the purpose of obtaining research services.
During the fiscal year ended December 31, 1997, U.S. Portfolio paid
approximately $2,431,609 in brokerage commissions and had a portfolio turnover
rate of 139%. During the fiscal year ended December 31, 1997, the Growth and
Income Portfolio paid approximately $2,018,001 in brokerage commissions, and
had a portfolio turnover rate of 66%.
Capitalization. The following table shows, on an unaudited basis, the
actual capitalization of the U.S. Portfolio and the Growth and Income Portfolio
as of March 31, 1998, and the capitalization on a pro forma basis as of that
date giving effect to the reorganization:
11
<PAGE>
<TABLE>
<CAPTION>
Net Asset Value
Net Assets Per Share Shares Outstanding
----------------- --------------- -------------------
<S> <C> <C> <C>
Growth and Income Portfolio $3,286,227,000 $ 29.24 112,388,000
U.S. Portfolio $ 196,021,000 $ 40.50 4,840,000
Pro Forma $3,482,248,000 $ 29.24 119,092,000
</TABLE>
GENERAL INFORMATION
This section provides information on a number of topics relating to proxy
voting and shareholder meetings.
Proxy solicitation methods. Your fund will solicit shareholder proxies in
a variety of ways. All shareholders who are entitled to vote will receive these
proxy materials by mail. In addition, Vanguard employees and officers may
solicit shareholder proxies in person, by telephone, or through the Internet.
We may also arrange for an outside firm, Shareholder Communications
Corporation, to solicit shareholder votes by telephone on the fund's behalf.
This procedure, which is expected to cost the fund approximately $4 per
shareholder vote, will be employed only after all more cost-effective means of
soliciting shareholder votes have been exhausted.
Proxy solicitation costs. Your fund will pay all costs of soliciting
proxies from its own shareholders, including costs relating to the printing,
mailing, and tabulation of proxies. By voting immediately, you can help your
fund avoid the considerable expense of a second solicitation.
Quorum. In order for the shareholder meeting to go forward, your fund must
achieve a quorum. This means that a majority of your fund's shares must be
represented at the meeting--either in person or by proxy. All returned proxies
count toward a quorum, regardless of how they are voted ("For," "Against," or
"Abstain"). Your fund will count broker non-votes toward a quorum, but not
toward the approval of any proposals. (Broker non-votes are shares for which
(i) the underlying owner has not voted and (ii) the broker holding the shares
does not have discretionary authority to vote on the particular matter.)
Revoking your proxy. You may revoke your proxy at any time up until voting
results are announced at the shareholder meeting. You can do this by writing to
your Fund's Secretary, Raymond J. Klapinsky, at 100 Vanguard Boulevard, Mal-
vern, PA 19355, or by voting in person at the meeting. In addition, you can
revoke a prior proxy simply by voting again--using your original proxy card, by
toll-free telephone call, or at our website.
Shareholder proposals. Any shareholder proposals to be included in the
proxy statement for your fund's next annual or special meeting must be received
by the fund within a reasonable period of time prior to that meeting. Your fund
has no current plans to hold an annual or special meeting in 1999.
12
<PAGE>
Nominee accounts. Upon request, the fund will reimburse nominees for their
reasonable expenses in forwarding proxy materials to beneficial owners of the
fund's shares. Please submit invoices for our review to Vanguard Legal
Department, P.O. Box 2600, Valley Forge, PA 19482.
Annual/semiannual reports. Your fund's most recent annual and semi annual
reports to shareholders are available at no cost. To request a report, please
call us toll-free 1-800-891-5345 or write us at P.O. Box 2600, Valley Forge, PA
19482-2600.
Litigation. Your Fund is not involved in any litigation.
Other matters. At this point, we know of no other business to be brought
before the shareholder meeting. However, if any other matters do come up, we
will use our best judgment to vote on your behalf. If you object to our voting
other matters on your behalf, please tell us so in writing before the meeting.
The Vanguard Group, Inc. Your fund is a member of The Vanguard Group,
Inc., the only mutual mutual fund company. Vanguard is owned jointly by the
funds it oversees (and therefore by the shareholders of those funds). Vanguard
provides the funds--more than 95 distinct investment portfolios--with their
corporate management, administrative, and distribution services on an at-cost
basis.
13
<PAGE>
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 23rd day of June, 1998, by and between Vanguard Quantitative Funds (the
"VQF Trust"), a Delaware business trust with its principal place of business at
100 Vanguard Boulevard, Malvern, Pennsylvania 19355, on behalf of its Vanguard
Growth and Income Portfolio (the "Acquiring Fund") and Vanguard/Trustees'
Equity Fund, (the "VTEF Trust"), a Pennsylvania common law trust1 with its
principal place of business at 100 Vanguard Boulevard, Malvern, Pennsylvania
19355, on behalf of its Vanguard/Trustees' Equity Fund--U.S. Portfolio (the
"Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund in
exchange solely for shares of beneficial interest, ($0.01 par value per share),
of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the
Acquiring Fund of the liabilities of the Acquired Fund, and the distribution of
the Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the VTEF Trust and the VQF Trust, are both open-end, registered
investment companies of the management type and the Acquired Fund owns
securities which generally are assets of the character in which the Acquiring
Fund is permitted to invest;
WHEREAS, the Board of Trustees of the VQF Trust has determined that the
exchange of all or substantially all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of the liabilities of the Acquired
Fund by the Acquiring Fund is in the best interest of the Acquiring Fund and
its Shareholders and that the interest of the existing shareholders of the
Acquiring Fund would not be diluted as a result of this transaction;
WHEREAS, the Board of Trustees of the VTEF Trust has determined that the
exchange of all or substantially all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of the liabilities of the Acquired
Fund by the Acquiring Fund is in the best interest of the Acquired Fund and its
shareholders and that the interests of the existing shareholders of the
Acquired Fund would not be diluted as a result of this transaction;
WHEREAS, the purpose of the Reorganization is to combine the assets of the
Acquiring Fund with those of the Acquired Fund in an attempt to achieve greater
operating economies and reduce expenses;
14
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF THE ACQUIRED FUND
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representatives and warranties contained herein, the Acquired Fund
agrees to transfer all of the Acquired Fund's assets as set forth in paragraph
1.2 to the Acquiring Fund and the Acquiring Fund agrees in exchange therefor
(i) to deliver to the Acquired Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by dividing the value of
the Acquired Fund's net assets computed in the manner and as of the time and
date set forth in paragraph 2.1 by the net asset value of one Acquiring Fund
Share computed in the manner and as of the time and date set forth in paragraph
2.2; and (ii) to assume the liabilities of the Acquired Fund, as set forth in
paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all property, including without limitation, all cash,
securities, commodities and futures interests and dividends or interest
receivable which are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing
date provided in paragraph 3.1 (the "Closing Date").
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
assume all liabilities, expenses, costs, charges and reserves (expected to
include expenses incurred in the ordinary course of the Acquired Fund's
operations, such as accounts payable relating to custodian and transfer agency
fees, legal and audit fees, and expenses of state securities registration of
the Acquired Fund's shares).
1.4. Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Fund will distribute pro rata to the Acquired Fund's
shareholders of record, determined as of immediately after the close of
business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring
Fund Shares received by the Acquired Fund pursuant to paragraph 1.1 and will
completely liquidate. Such distribution and liquidation will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the
- -----------------
1 It is anticipated that VTEF Trust will have reorganized as a Delaware
business trust, assuming shareholder approval is obtained, pursuant to the
terms of a separate agreement and plan of reorganization prior to the
completion of the transaction contemplated by this Agreement.
15
<PAGE>
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the names of the Acquired Fund Shareholders. The aggregate net asset value of
Acquiring Fund Shares to be so credited to Acquired Fund Shareholders shall be
equal to the aggregate net asset value of the Acquired Fund shares owned by
such shareholders as of immediately after the close of business on the Closing
Date. The outstanding shares of the Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund, although share certificates
representing interests in the Acquired Fund will represent a number of
Acquiring Fund Shares after the Closing Date as determined in accordance with
paragraph 2.3. The Acquiring Fund will not issue certificates representing the
Acquiring Fund Shares in connection with such exchange except upon request by a
shareholder of the Acquired Fund.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.6. Any reporting responsibility of the Acquired Fund including (but not
limited to) the responsibility for any periods ending on or before the Closing
Date for filing of regulatory reports, tax returns, or other documents with the
Securities and Exchange Commission, any state securities or any other relevant
regulatory authority, is and shall remain the responsibility of the Acquired
Fund.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
normal close of business of the New York Stock Exchange on the Closing Date
(such time and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the VQF Trust's Declaration of Trust and
then-current prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund Share shall be the net asset
value per share computed as of immediately after the close of business of the
New York Stock Exchange on the Valuation Date, using the valuation procedures
set forth in the VQF Trust's Declaration of Trust and then-current prospectus
or statement of additional information.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's assets shall be
determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1 by
the net asset value of an Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4. All computations of value with respect to the Acquiring Fund shall be
made by The Vanguard Group, Inc.
16
<PAGE>
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be August 15, 1998, or such other date as the
parties may agree in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m. Eastern Standard
time. The Closing shall be held at the offices of the VQF Trust, 100 Vanguard
Boulevard, Malvern, Pennsylvania 19355, or at such other place and time as the
parties shall mutually agree.
3.2. CoreStates Bank, N.A., as custodian for the Acquired Fund (the
"Custodian"), shall deliver at the Closing a certificate of an authorized
officer stating that: (a) the Acquired Fund's portfolio securities, cash, and
any other assets shall have been delivered in proper form to the Acquiring
Fund; and (b) all necessary taxes including without limitation all applicable
federal and state stock transfer stamps, if any, shall have been paid, or
provision for payment shall have been made, in conjunction with the delivery of
portfolio securities.
3.3. Vanguard Group, Inc. (the "Transfer Agent") on behalf of the Acquired
Fund shall deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding shares
owned by each such shareholder immediately prior to the Closing. The Acquiring
Fund shall deliver a certificate evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Acquired Fund or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund. At
the Closing each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1. The VTEF Trust on behalf of the Acquired Fund represents and warrants
to the VQF Trust that for each taxable year of operation since inception
(including the taxable year ending on the Closing Date) the Acquired Fund has
met the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such. The VTEF
Trust on behalf of the Acquired Fund represents and warrants to the VQF Trust
that on or before the Closing Date, the Acquired Fund will have distributed to
its shareholders all of its current and accumulated investment company taxable
income and net realized capital gain, including any such income or gain
accruing through the Closing Date.
4.2. The VQF Trust on behalf of the Acquiring Fund represents and warrants
to the Acquired Fund that for each taxable year of its operation since
inception (including the taxable year ending on the Closing Date), the
Acquiring Fund has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has elected to be treated
as such and intends to so qualify and elect each taxable year following the
Reorganization.
17
<PAGE>
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distributions that may be advisable.
5.2. The VTEF Trust, on behalf of the Acquired Fund, will call a meeting
of the Acquired Fund Shareholders to consider and act upon this Agreement and
to take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3. The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.4. The Acquired Fund will distribute to its shareholders on or before
the Closing Date all of its current or accumulated investment company taxable
income and net realized capital gain, including any such income or gain
accruing through the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED
FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
6.1. The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the VTEF Trust's
Declaration of Trust and Bylaws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund;
6.2. On the Closing Date, no action, suit or other proceeding shall be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
6.3. All consents of other parties and all other consents, orders and
permits of Federal, state, and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
18
<PAGE>
6.4. The Acquiring Fund's registration statement relating to the shares to
be issued in connection with the transactions contemplated by this Agreement
shall have become effective under the 1933 Act and no stop orders suspending
the effectiveness thereof shall have been issued and, to the best knowledge of
the parties hereto, no investigation or proceeding for that purpose shall have
been instituted or be pending, threatened or contemplated under the 1933 Act;
and
6.5. The VTEF Trust shall have received on the Closing Date the opinion of
Dechert Price & Rhoads in a form reasonably satisfactory to the VTEF Trust, and
dated as of the Closing Date, to the effect that: (a) the VQF Trust has been
duly formed and is validly existing and in good standing under the laws of the
State of Delaware; and (b) the Agreement has been duly authorized, executed and
delivered by the VQF Trust on behalf of the Acquiring Fund and constitutes a
valid and legally binding obligation of the VQF Trust enforceable against the
VQF Trust in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
6.6. The VQF Trust shall have received on the Closing Date the opinion of
Dechert Price & Rhoads in a form reasonably satisfactory to the VQF Trust,
dated as of the Closing Date, to the effect that: (a) VTEF Trust has been duly
formed and is in good standing under the laws of the State of Delaware; (b) the
Agreement has been duly authorized, executed and delivered by the VTEF Trust on
behalf of the Acquired Fund constitutes a valid and legally binding obligation
of the VTEF Trust; and (c) the Agreement is enforceable against the VTEF Trust
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
6.7. The parties shall have received the opinion of Dechert Price & Rhoads
addressed to the VQF Trust and the VTEF Trust substantially to the effect that
the transactions contemplated by this Agreement will be treated for Federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code. The VTEF Trust on behalf of the Acquired Fund and the VQF Trust on
behalf of the Acquiring Fund each agree to make and provide representations
which are reasonably necessary to enable Dechert Price & Rhoads to deliver the
opinion referred to in this section. Notwithstanding anything herein to the
contrary, neither the VQF Trust nor the VTEF Trust may waive the condition set
forth in this paragraph 6.7.
7. BROKERAGE FEES AND EXPENSES
7.1. The Acquiring Fund and the Acquired Fund each represents and warrants
to the other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
7.2. Each party to this Agreement shall bear its own expenses in
connection with carrying out the terms of this Agreement.
19
<PAGE>
8. TERMINATION
This Agreement may be terminated by the mutual agreement of the VQF Trust
and the VTEF Trust. In addition, this Agreement may be terminated as follows at
or prior to the Closing Date:
(a) the VTEF Trust may terminate this Agreement by resolution of the Board
of Trustees of the VTEF Trust if, in the good faith opinion of such Board,
proceeding with the Agreement is not in the best interests of the Acquired Fund
or the shareholders of the Acquired Fund; or
(b) the VQF Trust may terminate this Agreement by resolution of the Board
of Trustees of the VQF Trust if, in the good faith opinion of such Board,
proceeding with the Agreement is not in the best interests of the VQF Trust or
the shareholders of the Acquiring Fund.
9. GOVERNING LAW
This Agreement and the transactions contemplated hereby shall be governed
and construed and enforced in accordance with the laws of the State of
Delaware.
10. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the VTEF
Trust and the VQF Trust; provided, however, that following the meeting of the
Acquired Fund Shareholders called by the VTEF Trust pursuant to paragraph 4.2
of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of the Acquiring Fund shares to be issued
to the Acquired Fund Shareholders under this Agreement to the detriment of such
shareholders without their further approval.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: VANGUARD QUANTITATIVE
FUNDS on behalf of
VANGUARD GROWTH AND
INCOME PORTFOLIO
Raymond J. Klapinsky By: John J. Brennan
- ------------------------------------- -------------------------------------
Secretary President and Chief Executive Officer
Attest: VANGUARD/TRUSTEES'
EQUITY FUND on behalf of
VANGUARD/TRUSTEES'
EQUITY FUND--U.S.
PORTFOLIO
Raymond J. Klapinsky By: John J. Brennan
- ------------------------------------- -------------------------------------
Secretary President and Chief Executive Officer
21
<PAGE>
Combined Proxy Statement/Prospectus
TABLE OF CONTENTS
INTRODUCTION................................................. 1
OVERVIEW..................................................... 2
The Proposed Reorganization............................... 2
Investment Objectives and Policies........................ 2
Investment Advisers....................................... 2
Fees and Expenses......................................... 3
Purchase, Redemption, and Exchange Information............ 4
Federal Income Tax Consequences of the Reoganization...... 5
INVESTMENT PRACTICES AND RISK CONSIDERTIONS.................. 5
Comparison of Objectives and Primary Investments.......... 5
Comparison of Risk Factors................................ 7
FEES AND EXPENSES............................................ 7
INFORMATION ABOUT THE REORGANIZTION.......................... 8
ADDITIONAL INFORMATION ABOUT THE FUNDS....................... 10
GENERAL INFORMATION.......................................... 12
Proxy Solicitation Methods................................ 12
Proxy Solicitation Costs.................................. 12
Quorum.................................................... 12
Revoking Your Proxy....................................... 12
Shareholder Proposals..................................... 12
Nominee Accounts.......................................... 13
Annual/Semiannual Report.................................. 13
Litigation................................................ 13
Other Matters............................................. 13
The Vanguard Group, Inc................................... 13
APPENDIX A .................................................. 14
Agreement and Plan of Reoganization....................... 14
APPENDIX B................................................... Enclosed
Growth and Income Portfolio Prospectus
THE VANGUARD GROUP LOGO (C) 1998 Vanguard Marketing
Corporation, Distributor.
Post Office Box 2600 All rights reserved.
Valley Forge, PA 19482
PROX5 o 06/1998-10P
<PAGE>
Appendix B
Growth and Income Portfolio Prospectus
(enclosed)
<PAGE>
TABLE OF CONTENTS
INTRODUCTION...................................................... 5
OVERVIEW ......................................................... 6
The Proposed Reorganization ................................... 6
Investment Objectives and Policies ............................ 6
Investment Advisers ........................................... 6
Fees and Expenses ............................................. 7
Purchase, Redemption, and Exchange Information ................ 8
Federal Income Tax Consequences of the Reorganization ......... 8
INVESTMENT PRACTICES AND RISK CONSIDERATIONS ..................... 9
Comparison of Objectives and Primary Investments .............. 9
Comparison of Risk Factors .................................... 9
FEES AND EXPENSES ................................................ 11
INFORMATION ABOUT THE REORGANIZATION ............................. 11
ADDITIONAL INFORMATION ABOUT THE FUNDS ........................... 13
GENERAL INFORMATION .............................................. 15
Proxy Solicitation Methods .................................... 15
Proxy Solicitation Costs....................................... 15
Quorom ........................................................ 15
Revoking your Proxy............................................ 15
Shareholder Proposals ......................................... 15
Nominee Accounts .............................................. 15
Litigation..................................................... 15
Other Matters.................................................. 15
The Vanguard Group, Inc. ...................................... 15
APPENDIX A
Agreement and Plan of Reorganization ..........................
APPENDIX B
Growth and Income Portfolio Prospectus ........................ Enclosed
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
VOTE BY TOUCH-TONE PHONE OR THE INTERNET
- ----------------------------------------
CALL TOLL-FREE: 1-800-690-6903 OR VISIT OUR WEBSITE
WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM [THE VANGUARD GROUP(R) LOGO]
12-DIGIT CONTROL NUMBER: (unavailable *Please detach at perforation before mailing*
(See enclosed insert for further instructions to vote by phone/internet)
VANGUARD TRUSTEES' EQUITY FUND - U.S. PORTFOLIO ("FUND")
PROXY SOLICITED BY THE BOARD OF TRUSTEES
By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys
to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the
Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on July 31, 1998
at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more Messers. Brennan, Wilson and
Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct
Messers. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any
previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of
Shareholders and proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN ENCLOSED ENVELOPE IF YOU ARE
NOT VOTING BY PHONE OR INTERNET
Date:
----------------------------------------------
NOTE: Please sign exactly as your name appears on
this proxy. When signing in a fiduciary capacity,
such as executor, administrator, trustee,
attorney, guardian, etc., please so indicate.
Corporate and partnership proxies should be signed
by an authorized person indicating the person's
title.
---------------------------------------------------
Signature(s) (and Title(s), if applicable) VAN PH3
</TABLE>
CONTINUED ON REVERSE SIDE
<PAGE>
Please refer to the Proxy Statement discussion of these proposals.
THIS PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE.
---
Your appointed attorneys will vote any other matters that arise at the meeting
in accordance with their best judgment.
THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR THIS PROPOSAL.
---
Please detach at perforation before mailing.
Please vote by checking the appropriate box(es) below.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. The proposal to reorganize your Fund as part of Vanguard/Growth and Income Portfolio. [ ] [ ] [ ] 1.
PLEASE SIGN ON REVERSE SIDE VAN-PH3
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- April 17, 1998
- --------------------------------------------------------------------------------
NEW ACCOUNT INFORMATION: Investor Information Department -- 1-800-662-7447
(SHIP)
- --------------------------------------------------------------------------------
SHAREHOLDER ACCOUNT SERVICES: Client Services Department -- 1-800-662-2739
(CREW)
- --------------------------------------------------------------------------------
INVESTMENT Vanguard Growth and Income Portfolio (the "Portfolio"), a
OBJECTIVE AND portfolio of Vanguard Quantitative Portfolios, Inc. (the
POLICIES "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
the 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.
- --------------------------------------------------------------------------------
OPENING AN To open a regular (non-retirement) account, please complete
ACCOUNT 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.
- --------------------------------------------------------------------------------
ABOUT THIS This Prospectus is designed to set forth concisely the
PROSPECTUS 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 17, 1998 and has been
incorporated by reference into this Prospectus. A copy may
be obtained without charge by writing to the Fund, by
calling the Investor Information Department at
1-800-662-7447 or visiting the Securities and Exchange
Commission's website (www.sec.gov).
- --------------------------------------------------------------------------------
<PAGE>
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
Page
Investment Limitations ............... 8
Management of the Portfolio .......... 9
Investment Adviser ................... 9
Performance Record ................... 11
Dividends, Capital Gains and
Taxes ............................. 11
The Share Price of the Portfolio ..... 13
General Information .................. 13
Page
SHAREHOLDER GUIDE
Opening an Account and
Purchasing Shares ................. 15
When Your Account Will Be
Credited .......................... 18
Selling Your Shares .................. 19
Exchanging Your Shares ............... 21
Important Information About
Telephone Transactions ............ 22
Transferring Registration ............ 23
Other Vanguard Services .............. 23
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
PORTFOLIO The following table illustrates all expenses and fees that
EXPENSES you would incur as a shareholder of the Portfolio. The
expenses and fees set forth in the table are for the 1997
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 ......... 0.21%
Investment Advisory Fees ..................... 0.12
12b-1 Fees ................................... None
Other Expenses
Distribution Costs ......................... 0.02%
Miscellaneous Expenses ..................... 0.01
-----
Total Other Expenses ......................... 0.03
-----
Total Operating Expenses ................. 0.36%
=====
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 $20 $46
This example should not be considered a representation of
past or future expenses or performance. Actual expenses may
be higher or lower than those shown.
- --------------------------------------------------------------------------------
FINANCIAL The following financial highlights for a share outstanding
HIGHLIGHTS throughout each period, insofar as they relate to each of
the five years in the period ended December 31, 1997, have
been derived from financial statements which were 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 1997 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 1997 Annual Report to
Shareholders. The Fund's 1997 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,
--------------------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year .................................. $ 22.23 $ 19.95 $ 15.56 $ 16.45
-------- -------- -------- --------
Investment Operations
Net Investment Income ................. .41 .41 .41 .40
Net Realized and Unrealized Gain
(Loss) on Investments ................ 7.15 4.09 5.14 (.50)
-------- -------- -------- --------
Total from Investment
Operations ........................... 7.56 4.50 5.55 (.10)
- ----------------------------------------- -------- -------- -------- --------
Distributions
Dividends from Net Investment
Income ............................... (.42) (.40) (.42) (.39)
Distributions from Realized Capital
Gains ................................ (3.18) (1.82) (.74) (.40)
-------- -------- -------- --------
Total Distributions .................. (3.60) (2.22) (1.16) (.79)
- ----------------------------------------- -------- -------- -------- --------
Net Asset Value, End of Year ........... $ 26.19 $ 22.23 $ 19.95 $ 15.56
========================================= ======== ======== ======== ========
Total Return ........................... 35.59% 23.06% 35.93% (0.61)%
========================================= ======== ======== ======== ========
Ratios/Supplemental Data
Net Assets, End of Year (Millions) ..... $ 2,142 $ 1,285 $ 909 $ 596
Ratio of Expenses to Average Net
Assets ................................ 0.36% 0.38% 0.47% 0.48%
Ratio of Net Investment Income to
Average Net Assets .................... 1.74% 1.97% 2.25% 2.50%
Portfolio Turnover Rate ................ 66% 75% 59% 71%
Average Commission Rate Paid ........... $ .0388 $ .0333 N/A N/A
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year .................................. $ 16.30 $ 16.32 $ 13.29 $ 14.14 $ 11.08 $ 9.80
------- ------- ------- -------- ------- -------
Investment Operations
Net Investment Income ................. .40 .44 .47 .49 .43 .36
Net Realized and Unrealized Gain
(Loss) on Investments ................ 1.83 .69 3.47 (.83) 3.10 1.27
------- ------- ------- -------- ------- -------
Total from Investment
Operations ........................... 2.23 1.13 3.94 (.34) 3.53 1.63
- ----------------------------------------- ------- ------- ------- -------- ------- -------
Distributions
Dividends from Net Investment
Income ............................... (.39) (.44) (.47) (.47) (.47) (.35)
Distributions from Realized Capital
Gains ................................ (1.69) (.71) (.44) (.04) -- --
------- ------- ------- -------- ------- -------
Total Distributions .................. ( 2.08) (1.15) (.91) (.51) (.47) (.35)
- ----------------------------------------- ------- ------- ------- -------- ------- -------
Net Asset Value, End of Year ........... $ 16.45 $ 16.30 $ 16.32 $ 13.29 $ 14.14 $ 11.08
========================================= ======= ======= ======= ======== ======== =======
Total Return ........................... 13.83% 7.01% 30.29% (2.44)% 32.00% 16.80%
========================================= ======= ======= ======= ======== ======== =======
Ratios/Supplemental Data
Net Assets, End of Year (Millions) ..... $ 531 $ 416 $ 335 $ 211 $ 175 $ 144
Ratio of Total Expenses to Average Net
Assets ................................ 0.50% 0.40% 0.43% 0.48% 0.53% 0.64%
Ratio of Net Investment Income to
Average Net Assets .................... 2.22% 2.67% 2.95% 3.34% 3.35% 3.38%
Portfolio Turnover Rate ................ 85% 51% 61% 81% 78% 50%
Average Commission Rate Paid ........... N/A N/A N/A N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
YIELD AND From time to time the Portfolio may advertise its yield and
TOTAL RETURN total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
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 The Portfolio is an open-end diversified investment
OBJECTIVE 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.
- --------------------------------------------------------------------------------
INVESTMENT The Portfolio will invest in a broadly diversified
POLICIES portfolio of common stocks. At least 65% of the
The Portfolio uses Portfolio's assets will be invested in securities which
quantitative are included in the S&P 500 Index, while the balance of
techniques to the Portfolio's assets may be invested in common stocks
select common not represented in the Index. Historically, the types
stocks of securities that the Portfolio invests in have provided
capital appreciation and dividend income. 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 resembles the S&P 500 Index, but is weighted
towards the most attractive stocks in the universe of
stocks monitored, as determined by the quantitative models.
The 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 As a mutual fund investing primarily in common stocks, the
Portfolio is subject to market risk -- i.e., the
The Portfolio is possibility that common stock prices will decline over
subject to market short or even extended periods. The U.S. stock market tends
risk 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
1997, as measured by the Standard & Poor's 500 Composite
Stock Price Index:
Average Annual U.S. Stock Market Returns (1926-1997)
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 +13.0 +10.5 +10.9 +10.9
As shown, common stocks have provided annual total returns
(capital appreciation plus dividend income) averaging
+10.9% for all 10-year periods from 1926 to 1997. 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.
- --------------------------------------------------------------------------------
WHO SHOULD The Portfolio is designed for investors whose objective is
INVEST to achieve a total return marginally superior to the
return from the S&P 500 Index with reasonable consistency
Investors seeking over time, while minimizing the risk of substantial
a "margin of underperformance during any individual year. Because
superiority" over of the risks associated the with common stock investments,
S&P 500 Index 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
5
<PAGE>
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 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 The Portfolio utilizes a variety of investment practices in
OF POLICIES its effort to surpass the total return of the S&P 500 Index.
The Portfolio The Portfolio will invest at least 65% of its assets in
invests primarily securities that are included in the S&P 500 Index (the
in S&P 500 "Index"), and it is expected thatthe aggregate investment
stocks 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 50% of the Index.
As of December 31, 1997, the five largest companies in the
Index were: General Electric Company (3.2%), Coca-Cola
Company (2.2%), Microsoft Corporation (2.1%), Exxon
Corporation (2.0%), and Merck & Co., Inc. (1.7%) . The
largest industry categories were: pharmaceutical companies
(9.3%), banks (8.5%), telephone companies (7.1%),
multi-sector companies (5.4%), and computer companies
(4.7%).
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
6
<PAGE>
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 Although it normally seeks to remain substantially fully
in short-term fixed invested in common stocks, the Portfolio may invest
income securities temporarily in certain short-term fixed income
securities. Such securities may be used to invest
uncommitted cash balances or to maintain liquidity to meet
shareholder redemptions. These securities include:
obligations of the United States Government and its
agencies or instrumentalities; commercial paper, bank
certificates of deposit, and bankers' acceptances; and
repurchase agreements collateralized by these securities.
The Portfolio may The Portfolio may lend its investment securities to
lend its securities 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 The Portfolio may borrow money, subject to the limits set
borrow money 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 Although it generally seeks to invest for the long term,
is not expected to the Portfolio retains the right to sell securities
exceed 100% 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 Derivatives are instruments whose values are linked to or
Investing derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
The Portfolio may The Portfolio may invest in futures contracts and options,
invest in but only to a limited extent. Specifically, the Portfolio
derivative may enter into futures contracts provided that not more
securities 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
7
<PAGE>
the futures position will rise, thereby offsetting the
decline in value of the Portfolio's stock holdings.
Futures contracts The primary risks associated with the use of futures
and options pose contracts and options are: (i) imperfect correlation
certain risks 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 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 other liquid portfolio securities in the
amount of the underlying obligation.
- --------------------------------------------------------------------------------
INVESTMENT The Portfolio has adopted limitations on some of its
LIMITATIONS investment policies. Some of these limitations are that the
Portfolio will not:
The Portfolio has (a) with respect to 75% of the value of its total assets,
adopted certain purchase the securities of any issuer (except
fundamental obligations of the United States Government and its
limitations 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, 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; and
(c) pledge, mortgage or hypothecate any of its assets to
an extent greater than 5% of its total assets.
A complete list of the Portfolio's investment limitations
can be found in the Statement of Additional Information.
These limitations are fundamental and may be changed only
by approval of a majority of the Portfolio's shareholders.
- --------------------------------------------------------------------------------
8
<PAGE>
MANAGEMENT OF The Portfolio is a member of The Vanguard Group of
THE PORTFOLIO Investment Companies, a family of more than 30 investment
companies with more than 95 distinct investment portfolios
Vanguard and total assets in excess of $360 billion. Through their
administers and jointly-owned subsidiary, The Vanguard Group, Inc.
distributes the ("Vanguard"), the Fund and the other funds in the Group
Fund obtain at cost virtually all of their corporate
management, administrative and distribution services.
Vanguard also provides investment advisory services on an
at-cost basis to certain Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most
competing mutual funds. In 1997, the average expense ratio
(annual costs including advisory fees divided by total net
assets) for the Vanguard funds amounted to approximately
0.28% compared to an average of 1.24% 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 The Fund employs Franklin Portfolio Associates LLC
ADVISER ("Associates"), Two International Place, Boston, MA
02110, as the Portfolio's investment adviser. Under an
Franklin Portfolio investment advisory agreement with the Fund dated April 1,
Associates manages 1996, Associates manages the investment and reinvestment
the Portfolio's of the Portfolio's assets and continuously reviews,
investments supervises, and directs the Portfolio's investment
program. Associates discharges its responsibilities
subject to the control of the Officers and Directors of
the Fund.
Associates is a professional investment counseling firm
which specializes in the management of common stock
portfolios through the use of quantitative investment
models. Founded in 1982, Associates, a Massachusetts
limited liability company, is a wholly-owned indirect
subsidiary of Mellon Bank Corporation that has no
affiliation to The Franklin/Templeton Group of Funds or
Franklin Resources, Inc. As of December 31, 1997,
Associates provided investment advisory services
9
<PAGE>
with respect to approximately $13.8 billion of client
assets. Associates 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.
Associates 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 Associates, 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 Associates'
quantitative techniques to the Portfolio's assets. Mr.
Nagorniak and the other investment principals of Associates
are responsible for the ongoing development and enhancement
of Associates' quantitative investment techniques.
The Portfolio pays Associates 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, 1997, the advisory fee represented an
effective annual basis rate of 0.13% of the Portfolio's
average net assets before a decrease of 0.01% based on
performance.
The investment advisory agreement authorizes Associates to
select brokers and dealers to execute purchases and sales
of the Portfolio's securities, and directs Associates 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 Associates to pay higher
commissions in recognition of brokerage services felt
necessary for the achievement of better execution, provided
Associates 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 Associates is authorized to choose a broker who, in
addition to executing the transaction, will provide
research services to Associates or the Portfolio. However,
Associates will not pay higher commissions specifically for
the purpose of obtaining research services. The Portfolio
may direct Associates 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)
10
<PAGE>
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 The table in this section provides investment results for
RECORD 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 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 Years Growth and S&P 500 Price
Ended 12/31/97 Income Portfolio Index Index
-------------- ---------------- ------- --------
1 Year +35.6% +33.4% +1.7%
3 Years +31.4 +31.2 +2.5
5 Years +20.7 +20.3 +2.6
10 Years +18.3 +18.1 +3.4
- --------------------------------------------------------------------------------
DIVIDENDS, CAPITAL The Portfolio expects to pay dividends consisting of
GAINS AND TAXES ordinary income on a semi-annual basis. Capital gains
distributions, if any, will be made annually. The
The Portfolio pays Portfolio is managed without regard to tax ramifications.
semi-annual
dividends and any Dividend and capital gains distributions may be
capital gains automatically reinvested or received in cash. See
annually "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.
11
<PAGE>
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, regardless
of the length of time you have owned shares in the Fund.
Long-term capital gains may be taxed at different rates
depending on how long the Fund held the securities. 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 A sale of shares of the Portfolio is a taxable event and
or loss may be may result in a capital gain or loss. A capital gain or
realized upon loss may be realized from an ordinary redemption of shares
exchange or or an exchange of shares between two mutual funds (or two
redemption 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 requirement 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.
12
<PAGE>
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 thatstate. 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 The Portfolio's share price, or "net asset value" per
OF THE PORTFOLIO share, is calculated by divid ing the total assets of the
Portfolio, less all liabilities, by the total number of
shares outstanding. The net asset value is determined as
of the close of the New York Stock Exchange (generally
4:00 p.m. Eastern time) on each day the exchange is open
for trading.
Portfolio securities for which market quotations are
readily available (includes those securities listed on
national securities exchanges, as well as those quoted on
the NASDAQ Stock Market) will be valued at the last quoted
sales price on the day the valuation is made. Such
securities which are not traded on the valuation date are
valued at the mean of the bid and ask prices. Price
information on exchange-listed securities is taken from the
exchange where the security is primarily traded. 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.
Short-term instruments (those acquired with remaining
maturities of 60 days or less) may be valued at cost, plus
or minus any amortized discount or premium, which
approximates market value.
Bonds and other fixed income securities may be valued on
the basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of
such securities. The prices provided by a pricing service
may be determined without regard to bid or last sale prices
of each security, but take into account institutional-size
transactions in similiar groups of securities as well as
any developments related to specific securities.
Other assets and securities for which no quotations are
readily available or which are restricted as to sale (or
resale) are valued by such methods as the Board of
Directors deems in good faith to reflect fair value.
The share price for the Portfolio can be found daily in the
mutual fund listings of most major newspapers under the
heading of Vanguard Funds.
- --------------------------------------------------------------------------------
GENERAL The Fund is a Maryland corporation. The Articles of
INFORMATION 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
13
<PAGE>
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.
- --------------------------------------------------------------------------------
14
<PAGE>
SHAREHOLDER GUIDE
OPENING AN You may open a regular (non-retirement) account, either by
ACCOUNT AND mail or wire. Simply complete and return an Account
PURCHASING Registration Form and any required legal documentation,
SHARES 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, $500 minimum for
an Education IRA). 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 1) Because of the risks associated with common stock
Restrictions 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. Consequently, 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 Subsequent investments to regular accounts may be made by
Investments mail ($100 minimum), 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.
------------------------------------------------------------
15
<PAGE>
ADDITIONAL INVESTMENTS TO
NEW ACCOUNT EXISTING ACCOUNTS
Purchasing By Mail Please include the amount
Complete and sign the of your initial Additional investments
enclosed Account investment on the should include the
Registration Form registration form, make Invest-by-Mail remittance
your check payable to The form attached to your
Vanguard Group-93 and Fund confirmation
mail to: statements. Please
make your check payable
The Vanguard Group to The Vanguard Group-93,
P.O. Box 2600 write your account number
Valley Forge, PA 19482-2600 on your check and, using
the return envelope
provided, mail to the
address indicated on the
Invest-by-Mail Form.
For express or The Vanguard Group All written requests
registered mail, 455 Devon Park Drive should be mailed to one
send to: Wayne, PA 19087-1815 of the addresses
indicated for new
accounts. Do not send
registered or express
mail to the post office
box address.
------------------------------------------------------------
Purchasing By Wire CORESTATES BANK, N.A.
Money should be ABA 031000011
wired to: CORESTATES NO. 0101 9897
ATTN: VANGUARD
Before Wiring VANGUARD GROWTH AND INCOME PORTFOLIO
Please contact ACCOUNT NUMBER
Client Services ACCOUNT REGISTRATION
(1-800-662-2739)
To assure proper receipt, please be sure your bank includes
the Fund name, the account number Vanguard has assigned to
you and the eight-digit CoreStates number. If you are
opening a new account, please complete the Account
Registration Form and mail it to the "New Account" address
above after completing your wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when the
Fund and Custodian Bank are open for business.
------------------------------------------------------------
Purchasing By Telephone exchanges are not permitted to or from
Exchange (from a non-retirement accounts in Vanguard Growth and
Vanguard account) 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 The Fund Express Special Purchase option lets you move money
Express from your bank account to your Vanguard account on an "as
needed" basis. Or if you choose the Automatic Investment
Special Purchase option, money will be moved automatically from your bank
and Automatic account to your Vanguard account on the schedule (monthly,
Investment bimonthly
16
<PAGE>
[every other month], quarterly, semiannually or annually)
you select. 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 enrollment; please wait two weeks before using
the service.
- --------------------------------------------------------------------------------
CHOOSING A You must select one of four distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option -- Both dividend and
capital gains distributions will be reinvested in
additional Fund shares. This option will be selected for
you automatically unless you specify one of the other
options.
2. Cash Dividend Option -- Your dividends will be paid in
cash and your capital gains will be reinvested in
additional Fund shares.
3. Cash Capital Gain Option -- Your capital gains
distributions will be paid in cash and your dividends
will be reinvested in additional Fund shares.
4. 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).
If a shareholder has chosen to receive dividend and/or
capital gains distributions in cash, and the postal or
other delivery service is unable to deliver checks to the
shareholder's address of record, we will change the
distribution option so that all dividends and other
distributions are automatically reinvested in additional
shares. We will not pay interest on uncashed distribution
checks.
In addition, an option to invest your cash dividend and/or
capital gains distributions in another Vanguard Fund
account is available. Please call our Client Services
Department (1-800-662-2739) for information. You may also
elect Vanguard Dividend Express which allows you to
transfer your cash dividend and/or capital gains
distributions automatically to your bank account. Please
see "Other Vanguard Services" for more information.
- --------------------------------------------------------------------------------
TAX CAUTION Under Federal tax laws, the Portfolio is required to
distribute net capital gains and dividend income to
Investors should Portfolio shareholders. These distributions are made to all
ask about the shareholders who own Portfolio shares as of the
timing of capital distribution's record date, regardless of how long the
gains and dividend shares have been owned. Purchasing shares just prior to the
distributions record date could have a significant impact on your tax
before investing 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 capital 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
17
<PAGE>
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 be required to make supplemental dividend or
capital gains distributions at some other time during the
year. For additional information on distributions and
taxes, see the section titled "Dividends, Capital Gains and
Taxes."
- --------------------------------------------------------------------------------
IMPORTANT The easiest way to establish optional Vanguard services on
INFORMATION your account is to select the options you desire when you
complete your Account Registration Form.
Establishing If you wish to add options later, you may need to provide
Optional Vanguard with additional information and a signature
Services guarantee. Please call our Client Services Department
(1-800-662-2739) for further assistance.
Signature For our mutual protection, we may require a signature
Guarantees guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A signature
guarantee cannot be provided by a notary public.
Certificates Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace
it.
Broker/Dealer If you purchase shares in Vanguard Funds through a
Purchases 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 once the
trade request has been received in writing or by telephone.
Electronic You may receive a prospectus for the Fund or any of the
Prospectus Vanguard Funds in an electronic format through Vanguard's
Delivery website at www.vanguard.com. For additional information
please see "Other Vanguard Services -- Computer Access."
- --------------------------------------------------------------------------------
WHEN YOUR Your trade date is the date on which your account is
ACCOUNT WILL BE credited. If your purchase is made by check, Federal Funds
CREDITED wire or exchange and is received by the close of trading on
the New York Stock Exchange (the "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.
- --------------------------------------------------------------------------------
18
<PAGE>
SELLING YOUR You may withdraw any portion of the funds in your account by
SHARES redeeming shares at any time. (Please see "Important
Redemption Information.") 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. No interest will
accrue on amounts represented by uncashed redemption checks.
Selling By Mail Requests should be mailed to The Vanguard Group, Vanguard
Growth and Income Portfolio, P.O. Box 1120, Valley Forge, PA
19482-1120. (For express or registered mail, send your
request to The Vanguard Group, Vanguard Growth and Income
Portfolio, 455 Devon Park Drive, Wayne, PA 19087-1815.)
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 Good Order means that the request includes the following:
Order
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or
shares).
3. The signatures of all owners exactly as they are
registered on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that may 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 To sell shares by telephone, you or your pre-authorized
Telephone 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 or in writing, without the signatures of all
account owners. Please see "Important Information About
Telephone Transactions".
------------------------------------------------------------
Selling By Fund If you select the Fund Express Automatic Withdrawal option,
Express money will be automatically moved from your Vanguard Fund
account to your bank account according to the schedule you
Automatic have selected. The Special Redemption option lets you move
Withdrawal money from your Vanguard account to your bank account on
& Special an "as needed" basis. To establish these Fund Express
Redemption 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.
------------------------------------------------------------
19
<PAGE>
Selling by You may sell shares by making an exchange into another
Exchange Vanguard Fund account. Exchanges may be made only by mail;
telephone exchanges between non-retirement accounts are not
accepted for the Portfolio.
------------------------------------------------------------
Important Shares purchased by check or Fund Express may be redeemed at
Redemption any time. However, your redemption proceeds will
Information not be paid until payment for the purchase is collected,
which may take up to ten calendar days.
------------------------------------------------------------
Delivery of Redemption requests received by telephone prior to the close
Redemption of trading on the Exchange are processed on the day of
Proceeds receipt and the redemption proceeds are normally sent on the
following business day.
Redemption requests received by telephone after the close
of the Exchange are processed on the business day following
receipt and the proceeds are normally sent on the second
business day following receipt.
Redemption proceeds must be sent to you within seven days
of receipt of your request in Good Order, except as
described above 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.
------------------------------------------------------------
Vanguard's Average If you make a redemption from a qualifying account, Vanguard
Cost Statement 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 Due to the relatively high cost of maintaining smaller
and Minimum accounts, the Fund will automatically deduct a $10 annual
Account Balance fee in either June or December from non-retirement accounts
Requirement with balances falling below $2,500 ($500 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
20
<PAGE>
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 Should your investment goals change, you may exchange your
SHARES 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 you wish to
exchange, and the signatures of all registered account
holders. Send your request to The Vanguard Group, Vanguard
Growth and Income Portfolio, P.O. Box 1120, Valley Forge,
PA 19482-1120. (For express or registered mail, send your
request to The Vanguard Group, Vanguard Growth and Income
Portfolio, 455 Devon Park Drive, Wayne, PA 19087-1815.)
------------------------------------------------------------
Exchanging Online You may use your personal computer to exchange shares of
most Vanguard funds by accessing our website
(www.vanguard.com). To establish this service for your
account, you must first register through the website. We
will then send to you, by mail, an account access password
that will enable you to make online exchanges.
The Vanguard funds that you cannot purchase or sell through
online exchange are Vanguard Index Trust, Vanguard Balanced
Index Fund, Vanguard International Equity Index Fund,
Vanguard REIT Index Portfolio, Vanguard Total International
Portfolio, and Vanguard Growth and Income Portfolio
(formerly known as Vanguard Quantitative Portfolios). These
funds do permit online exchanges within IRAs and other
retirement accounts.
------------------------------------------------------------
Important Exchange Before you make an exchange, you should consider the
Information following:
o Please read the Fund's prospectus before making an
exchange. For a copy and for answers to any questions you
may have, call our Investor Information Department
(1-800-662-7447).
o An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on the
transaction.
o Exchanges by telephone are accepted only if the
registrations and the taxpayer identification numbers of
the two accounts are identical.
o To exchange into an account with a different registration
(including a different name, address, or taxpayer
identification number), you must provide Vanguard with
written instructions that include the guaranteed
signatures of all current account owners.
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o The shares to be exchanged must be on deposit and not held
in certificate form.
o New accounts are not currently accepted in
Vanguard/Windsor Fund.
o 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.
o 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 The Portfolio's exchange privilege is not intended to afford
PRIVILEGE shareholders a way to speculate on short-term movements in
LIMITATIONS the market. Accordingly, in order to prevent excessive use
of the exchange privilege that may potentially disrupt the
management 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 substantive exchange redemptions (at least 30
days apart) from the Portfolio during any twelve month
period. "Substantive" means either a dollar amount or a
series of movements between Vanguard funds that Vanguard
determines, in its sole discretion, could have an adverse
impact on the management of the Portfolio. 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.
- --------------------------------------------------------------------------------
IMPORTANT The ability to initiate redemptions (except wire or Fund
INFORMATION Express redemptions) by telephone is automatically
ABOUT TELEPHONE established on your account unless you request in writing
TRANSACTIONS 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.
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<PAGE>
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.
- --------------------------------------------------------------------------------
TRANSFERRING You may transfer the registration of any of your Portfolio
REGISTRATION shares to another person by completing a transfer form and
sending it to: The Vanguard Group, Attention: Transfer
Department, P.O. Box 1110, Valley Forge, PA 19482-1110. The
request must be in Good Order. To obtain a transfer form and
complete instructions, please call our Client Services
Department (1-800-662-2739).
- --------------------------------------------------------------------------------
STATEMENTS AND Vanguard will send you a confirmation statement each time
REPORTS 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 Portfolio 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. To
keep the Fund's cost as low as possible (so that you and
other shareholders can keep more of the Fund's investment
earnings), Vanguard attempts to eliminate duplicate
mailings to the same address. When we find that two or more
Fund shareholders have the same last name and address, we
send just one Fund report to that address--instead of
mailing separate reports to each shareholder. If you want
us to send separate reports, however, you may notify our
Investor Information Department at 1-800-662-7447.
- --------------------------------------------------------------------------------
OTHER VANGUARD For more information about any of these services, please
SERVICES call our Investor Information Department at 1-800-662-7447.
Vanguard Direct With Vanguard's Direct Deposit Service, most U.S.
Deposit Service 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 Vanguard's Automatic Exchange Service allows you to move
Exchange Service money automatically among your Vanguard Fund accounts. For
instance, the service can be used
23
<PAGE>
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 Vanguard's Fund Express allows you to transfer money
Exchange Service 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 Vanguard's Dividend Express allows you to transfer your
Express dividend 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 Vanguard's Tele-Account is a convenient, automated service
Tele-Account(R) 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. In addition, you may
perform investment exchanges of Vanguard Fund shares and
redemptions by check using Tele-Account. 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).
Vanguard Online Use your personal computer to learn more about Vanguard's
www.vanguard.com funds and services; keep in touch with your Vanguard
accounts; map out a long-term investment strategy; initiate
certain transactions; and ask questions, make suggestions,
and send messages to Vanguard.
Our education-oriented website provides timely news and
information about Vanguard's funds and services; an online
"university" that offers a variety of mutual fund classes;
and easy-to-use, interactive tools to help you create your
own investment and retirement strategies.
- --------------------------------------------------------------------------------
24
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[GRAPHIC OMITTED] [GRAPHIC OMITTED]
-----------------
The Vanguard Group P R O S P E C T U S
P.O. Box 2600
Valley Forge, PA 19482
Investor Information APRIL 17, 1998
Department:
1-800-662-7447 (SHIP) FORMERLY KNOWN AS
VANGUARD
Client Services QUANTITATIVE
Department: PORTFOLIOS
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.
P.O. Box 2600
Valley Forge, PA 19482
P093
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
June ______, 1998
This statement is not a prospectus, but should be read in conjunction
with the Combined Proxy Statement/Prospectus of Vanguard Quantitative Portfolios
- -- Growth and Income Portfolio (the "Growth and Income Portfolio") and
Vanguard/Trustee's Equity Fund -- U.S. Portfolio (the "U.S. Portfolio") dated
______, 1998. Growth and Income Portfolio's Prospectus (dated April 17, 1998)
and Statement of Additional Information (dated April 17, 1998) and the 1997
Annual Report to Shareholders of the Growth and Income Portfolio and the 1997
Annual Report to Shareholders of the U.S. Portfolio are on file with the U.S.
Securities and Exchange Commission and are hereby incorporated by reference.
Each of the aforementioned documents may be obtained without charge by writing
to Vanguard Financial Center, 100 Vanguard Boulevard, (P.O. Box 876), Valley
Forge, Pa. 19482 or by calling 1-800-662-7447.
