<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT (NO. 33-8553) UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [X]
Post-Effective Amendment No. 14 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16 [X]
VANGUARD QUANTITATIVE FUNDS
(Exact Name of Registrant as Specified in Declaration of Trust)
P.O. Box 2600,
Valley Forge, PA 19482
(Address of Principal Executive Office)
Registrant's Telephone Number (610) 669-1000
R. Gregory Barton, Esquire
P.O. Box 876
Valley Forge, PA 19482
It is proposed that this filing become effective: April 9, 1999, pursuant to
paragraph (a) of Rule 485.
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
We have elected to register an indefinite number of shares pursuant to Regu-
lation 24f-2 under the Investment Company Act of 1940. We filed our Rule 24f-2
Notice for the year ended December 31, 1998 on ., 1999.
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<PAGE>
VANGUARD QUANTITATIVE FUNDS
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-1A
Item Number Location in Prospectus
<C> <C> <S>
Item 1. Front and Back Cover Pages............ Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments,
Risks and Performance................. Fund Profile
Item 3. Risk/Return Summary: Fee Table........ Fee Table
Item 4. Investment Objectives, Principal
Investment Strategies, and Related
Risks................................. A Word About Risk; Who
Should Invest; Primary
Investment Strategies
Item 5. Management's Discussion of Fund
Performance........................... Herein incorporated by
reference to Registrant's
Annual Report to
Shareholders dated December
31, 1998 filed with the
Securities & Exchange
Commission's EDGAR system
on February . , 1999
Item 6. Management, Organization, and Capital
Structure............................. The Fund and Vanguard;
Investment Adviser
Item 7. Shareholder Information............... Share Price; Dividends,
Capital Gains, and Taxes;
Investing with Vanguard
Item 8. Distribution Arrangements............. Not Applicable
Item 9. Financial Highlights Information...... Financial Highlights
<CAPTION>
Form N-1A Location in Statement
Item Number of Additional Information
<C> <C> <S>
Item 10. Cover Page and Table of Contents...... Cover Page; Table of
Contents
Item 11. Fund History.......................... Description of the Trust
Item 12. Description of the Fund and its
Investments and Risks................. Investment Policies;
Fundamental Investment
Limitations; Description of
the Trust
Item 13. Management of the Fund................ Management of the Trust
Item 14. Control Persons and Principal Holders
of Securities......................... Management of the Trust
Item 15. Investment Advisory and Other
Services.............................. Investment Advisory
Services
Item 16. Brokerage Allocation and Other
Practices............................. Portfolio Transactions
Item 17. Capital Stock and Other Securities.... Description of the Trust
Item 18. Purchase, Redemption, and Pricing of
Shares................................ Purchase of Shares;
Redemption of Shares; Share
Price
Item 19. Taxation of the Fund.................. Description of the Trust
Item 20. Underwriters.......................... Not Applicable
Item 21. Calculation of Performance Data....... Yield and Total Return
Item 22. Financial Statements.................. Financial Statements
</TABLE>
<PAGE>
Vanguard Growth and Income Fund
Prospectus
April 9, 1999
A Growth and Income Stock Mutual Fund
Contents
1 Fund Profile
3 Additional Information
3 A Word About Risk
3 Who Should Invest
4 Primary Investment Strategies
7 The Fund and Vanguard
7 Investment Adviser
8 Year 2000 Challenge
8 Dividends, Capital Gains, and Taxes
9 Share Price
10 Financial Highlights
11 Investing with Vanguard
11 Services and Account Features
12 Types of Accounts
12 Buying Shares
14 Redeeming Shares
17 Transferring Registration
17 Fund and Account Updates
Glossary (inside back cover)
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Why Reading This Prospectus Is Important
This prospectus explains the objective, risks, and strategies of Vanguard Growth
and Income Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk(R)" explanations along the way.
Reading the prospectus will help you to decide whether the Fund is the right
investment for you. We suggest that you keep it for future reference.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
1
Fund Profile
The following profile summarizes key features of Vanguard Growth and Income
Fund.
INVESTMENT OBJECTIVE
The Fund is a stock fund that seeks to provide a total return (capital
appreciation plus dividend income) greater than the return of the Standard &
Poor's 500 Composite Stock Price Index.
INVESTMENT STRATEGIES
To achieve its objective, the Fund's adviser uses computer models to select a
broadly diversified group of stocks that, as a whole, has investment
characteristics similar to the S&P 500 Index, with an emphasis on stocks that
are undervalued. At least 65% of the Fund's assets will be invested in stocks
that are included in the Index, while the balance may be invested in stocks not
included in the Index.
PRIMARY RISKS
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:
. Investment style risk, which is the chance that returns from large-
capitalization stocks--which comprise most of the Fund's holdings--will trail
returns from other asset classes or the overall stock market.
. Manager risk, which is the chance that poor security selection will cause the
Fund to underperform other funds with similar investment objectives.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year over
a ten-year period. The table shows how the Fund's average annual returns for
one, five, and ten calendar years compare with those of a broad-based securities
market index. Keep in mind that the Fund's past performance does not indicate
how it will perform in the future.
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Annual Total Returns
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During the period shown in the bar chart, the highest return for a calendar
quarter was *% (quarter ended ________) and the lowest return for a quarter was
- -*% (quarter ended_________).
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Average Annual Total Returns for Years Ended December 31, 1998
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1 Year 5 Years 10 Years
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Vanguard Growth and Income Fund * % * % * %
S&P 500 Index * * *
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<PAGE>
2
PLAIN TALK ABOUT
The Costs of Investing
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
PLAIN TALK ABOUT
Fund Expenses
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Growth and Income Fund's expense ratio in fiscal year 1998
was * %, or $* per $1,000 of average net assets. The average growth and income
mutual fund had expenses in 1998 of *%, or $ * per $1,000 of average net
assets, according to Lipper, Inc., which reports on the mutual fund industry.
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended December 31, 1998.
Shareholder Fees (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
Annual Fund Operating Expenses (expenses deducted from the Fund's assets)
Management Expenses: * %
12b-1 Distribution Fees: None
Other Expenses: * %
Total Annual Operating Expenses: * %
The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain the same. The results apply whether
or not you redeem your investment at the end of each period.
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1 Year 3 Years 5 Years 10 Years
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$ * $ * $ * $ *
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This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>
3
Additional Information
Dividends and Capital Gains
Dividends are paid semiannually in June and December; capital gains, if any, are
paid annually in December
Investment Adviser
Franklin Portfolio Associates LLC, Boston, Mass., since inception
Inception Date
December 10, 1986
Net Assets as of December 31, 1998
$ * billion
Suitable for IRAs
Yes
Minimum Initial Investment
$3,000; $1,000 for IRAs and custodial accounts for minors
Newspaper Abbreviation
GroInc
Vanguard Fund Number
093
Cusip Number
921913109
Ticker Symbol
VQNPX
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A Word About Risk
This prospectus describes the risks you would face as an investor in Vanguard
Growth and Income Fund. It is important to keep in mind one of the main axioms
of investing: The higher the risk of losing money, the higher the potential
reward. The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in Vanguard Growth and Income
Fund, you should also take into account your personal tolerance for the daily
fluctuations of the stock market.
Look for this [GRAPHIC OF FLAG APPEARS HERE] symbol throughout the
prospectus. It is used to mark detailed information about each type of risk that
you would confront as a shareholder of the Fund.
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Who Should Invest
The Fund may be a suitable investment for you if:
. You wish to add a growth and income stock fund to your existing holdings,
which could include other stock investments as well as bond, money market, and
tax-exempt investments.
. You are looking to achieve a total return greater than that of the S&P 500
Index.
. You are seeking growth of capital over the long term--at least five years--and
are able to tolerate wide fluctuations in the value of your investment.
. You are looking for some dividend income.
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PLAIN TALK ABOUT
Costs and Market-Timing
Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.
- --------------------------------------------------------------------------------
The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.
<PAGE>
4
PLAIN TALK ABOUT
Large-Cap, Mid-Cap, and Small-Cap Stocks
Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization.
Generally, Vanguard defines large-capitalization (large-cap) funds as those
holding stocks of companies whose outstanding shares have a median market value
exceeding $10 billion. Mid-cap funds hold stocks of companies with a median
market value between $1 billion and $10 billion. Small-cap funds typically hold
stocks of companies with a median market value of less than $1 billion.
The Fund has adopted the following policies, among others, to discourage
short-term trading:
. The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. This could be because of the timing of the
investment or because of a history of excessive trading by the investor.
. There is a limit on the number of times you can exchange into and out of the
Fund (see "Redeeming Shares" in the Investing with Vanguard section).
. The Fund reserves the right to stop offering shares at any time.
Primary Investment Strategies
This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objective--a total return greater than that of the S&P 500
Composite Stock Price Index. It also explains how the adviser implements these
strategies. The Fund's Board of Trustees oversees the management of the Fund,
and may change the investment strategies in the interest of shareholders. In
addition, this section discusses several important risks--market risk,
investment style risk, and manager risk-faced by investors in the Fund.
Market Exposure
The Fund invests in a broadly diversified group of common stocks. The Fund's
primary strategy is to invest at least 65% of its assets in selected stocks that
are part of the S&P 500 Index and that the adviser believes will, in the
aggregate, outperform the Index. The stocks that comprise the S&P 500 Index are
mostly large-capitalization stocks that collectively represent about 70% of the
market value of all U.S. common stocks. The balance of the Fund's assets may be
invested in stocks not included in the Index but that have similar investment
characteristics.
[GRAPHIC OF FLAG The Fund is subject to market risk, which is the possibility
APPEARS HERE] that stock prices overall will decline over short or even
long periods. Stock markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the S&P 500 Index, a widely used barometer of market
activity. (Total returns consist of dividend income plus change in market
price.) Note that the returns shown do not include the costs of buying and
selling stocks or other expenses that a real-world investment portfolio would
incur. Note, also, that the gap between best and worst tends to narrow over the
long term.
-----------------------------------------------------------------
U.S. Stock Market Returns (1926-1998)
-----------------------------------------------------------------
1 Year 5 Years 10 Years 20 Years
-----------------------------------------------------------------
Best . . . .
Worst . . . .
Average . . . .
-----------------------------------------------------------------
<PAGE>
5
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1998. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 10.7%, returns for individual 5-year periods
ranged from a -12.4% average (from 1928 through 1932) to 24.1% (from 1994
through 1998). These average returns reflect past performance on common stocks;
you should not regard them as an indication of future returns from either the
stock market as a whole or this Fund in particular.
Because Vanguard Growth and Income Fund's holdings are not identical to the
S&P 500 Index or any other market index, the performance of the Fund will not
mirror the returns of any particular index. However, because the Fund's
investment characteristics will be similar to those of the S&P 500 Index, the
Fund's performance is expected, in any given year, to be within a few percentage
points of the Index. Such relative performance, of course, cannot be
assured.
[GRAPHIC OF FLAG The Fund is subject to investment style risk, which is the
APPEARS HERE] possibility that returns from large-capitalization stocks--
which comprise most of the Fund's holdings--will trail returns
from other asset classes of the overall stock market. As a
group, large-capitalization stocks tend to go through cycles
of doing better--or worse--than common stocks in general.
These periods have, in the past, lasted for as long as several
years.
Security Selection
Franklin Portfolio Associates LLC, adviser to the Fund, selects a diversified
group of common stocks in order to pursue the Fund's objective of achieving a
total return greater than that of the S&P 500 Index.
Generally, the stocks selected provide capital appreciation as well as
dividend income. Stocks are chosen by the adviser so that, in the aggregate, the
investment characteristics of the Fund are similar to those of the Index. These
characteristics include such measures as dividend yield, price/earnings ratio,
"beta" (relative volatility), return on equity, and price/book ratio. However,
while assuring that the Fund's investment characteristics are similar to those
of the Index, the adviser looks to invest in individual stocks--including stocks
not a part of the Index--that will in the aggregate provide a higher total
return than that of the Index. Of course, there is no assurance that the Fund's
performance will match or exceed the performance of the S&P 500 Index.
In order to select stocks for the Fund, the adviser employs a "quantitative
model" approach that combines both active and passive management techniques.
First, the adviser ranks a universe of approximately 3,500 stocks using several
computer investment models. These models compare the potential returns of the
stocks based on current and projected earnings, price/earnings ratios, yields,
and other information. A separate program then selects the stocks for the Fund
from among the stocks rated highly by the investment models. The Fund's holdings
are not derived strictly from the highest ranked stocks. Instead, stocks are
selected so that the Fund's aggregate characteristics resemble those of the S&P
500 Index. To help the Fund pursue performance above the Index, stocks are sold
as their attractiveness decreases relative to the universe of stocks under
consideration.
The Fund is generally managed without regard to tax ramifications.
[GRAPHIC OF FLAG The Fund is subject to manager risk, which is the possibility
APPEARS HERE] that the adviser may do a poor job of selecting stocks.
<PAGE>
6
PLAIN TALK ABOUT
Turnover Rate
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. The average turnover rate for all domestic stock funds is
approximately 85%, according to Morningstar, Inc.
PLAIN TALK ABOUT
Derivatives
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
Turnover Rate
Although the Fund generally seeks to invest for the long term, it may sell
securities regardless of how long the securities have been held. The Fund's
average turnover rate for the past five years has been about . %. (A turnover
rate of 100% would occur, for example, if the Fund sold and replaced securities
valued at 100% of its net assets within a one-year period.)
Other Investment Policies and Risks
The Fund may invest, to a limited extent, in foreign securities.
The Fund may also invest, to a limited extent, in stock futures and
options contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small price movement in a futures contract may result in an immediate and
substantial loss (or gain) for a fund. This Fund will not use futures for
speculative purposes or as leveraged investments that magnify the gains or
losses of an investment. The value of all futures and options contracts in which
the Fund acquires an interest cannot exceed 20% of its total assets.
The reasons for which the Fund will invest in futures and options are:
. To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
. To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
The Fund may, from time to time, take temporary defensive measures--such as
holding cash reserves without limit--that are inconsistent with the Fund's
primary investment strategies, in response to adverse market, economic,
political, or other conditions. In taking such measures, the Fund may not
achieve its investment objective.
<PAGE>
7
PLAIN TALK ABOUT
Vanguard's Unique Corporate Structure
The Vanguard Group is truly a mutual mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.
The Fund and Vanguard
The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 distinct investment portfolios holding assets worth
more than $440 billion. All of the Vanguard funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.
Vanguard also provides marketing services to the funds. Although shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund pays its
allocated share of The Vanguard Group's marketing costs.
Investment Adviser
The Fund employs Franklin Portfolio Associates LLC ("FPA"), Two International
Place, Boston, MA 02110, as its investment adviser. FPA manages the Fund subject
to the control of the Trustees and officers of the Fund.
FPA's advisory fee is paid quarterly. This fee is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter. In addition, FPA's advisory fee is increased or decreased based on the
Fund's cumulative investment performance over a trailing 36-month period as
compared with the cumulative total return of the S&P 500 Index over the same
period.
The incentive/penalty fee structure will not be in full operation until April
30, 2001. Until then, FPA's fee will be calculated using certain transition
rules.
For the year ended December 31, 1998, the investment advisory fee paid to FPA
was $ . million, after a [increase/decrease] of $. based on performance. This
fee represented an effective annual rate of .% of the Fund's average net assets.
The Fund has authorized FPA to choose brokers or dealers to handle the
purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions.
In the interest of obtaining better execution of a transaction, FPA may
choose brokers who charge higher commissions. If more than one broker can obtain
the best available price and favorable execution of a transaction, then FPA is
authorized to choose a broker who, in addition to executing the transaction,
will provide research services to FPA or the Fund. Also, the Fund may direct FPA
to use a particular broker for certain transactions in exchange for commission
rebates or research services provided to the Fund.
PLAIN TALK ABOUT
The Fund's Adviser
Franklin Portfolio Associates LLC ("FPA") is an investment advisory firm founded
in 1982. The firm specializes in the management of stock portfolios through the
use of quantitative investment models. As of December 31, 1998, FPA managed more
than $ . billion in assets. The manager responsible for overseeing the
implementation of FPA's strategy for Vanguard Growth and Income Fund is:
John J. Nagorniak, President of FPA; has worked in investment management
since 1970; with FPA since 1982; has managed the Fund since its inception; B.A.,
Princeton University; M.S, the Sloan School of Management, Massachusetts
Institute of Technology.
<PAGE>
8
The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement between the Fund and FPA, or hire a new
investment adviser, either as a replacement for FPA or as an additional adviser.
Any such change will be communicated to shareholders in writing.
Year 2000 Challenge
The common practice in computer programming of using just two digits to identify
a year has resulted in the Year 2000 challenge throughout the information
technology industry. If unchanged, many computer applications and systems could
misinterpret dates occurring after December 31, 1999, leading to errors or
failure. Such failure could adversely affect a fund's operations, including
pricing, securities trading, and the servicing of shareholder accounts.
The Vanguard Group is dedicated to providing uninterrupted, high-quality
performance from our computer systems before, during, and after 2000. In July
1998, we completed the renovation and initial testing of our internal systems.
Vanguard is diligently working with external partners, suppliers, and vendors,
including fund managers and other service providers, to assure that the systems
with which we interact remain operational at all times.
In addition to taking every reasonable step to secure our internal systems
and external relationships, Vanguard is further developing contingency plans
intended to assure that unexpected systems failures will not adversely affect
the Fund's operations. Vanguard intends to monitor these processes through the
rollover of 1999 into 2000 and to quickly implement alternate solutions if
necessary.
However, despite Vanguard's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Fund's business,
operations, or financial condition. Additionally, the Fund's performance could
be hurt if a computer-system failure at a company or governmental unit affects
the price of securities the Fund owns.
PLAIN TALK ABOUT
Distributions
As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from both the dividends that the fund earns from its holdings and
the interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. The capital gains are either short-term or long-term depending on
whether the fund held the securities for less than or more than one year.
Dividends, Capital Gains, and Taxes
The Fund distributes to shareholders virtually all of its net income (interest
and dividends less expenses) as well as any capital gains realized from the sale
of its holdings. Income distributions generally occur in June and December;
capital gains distributions generally occur in December. In addition, the Fund
may occasionally be required to make supplemental income or capital gains
distributions at some other time during the year. You can receive distributions
of income or capital gains in cash, or you can have them automatically invested
in more shares of the Fund. In either case, these distributions are taxable to
you. It is important to note that distributions of dividends and capital gains
that are declared in December--if paid to you by the end of January--are taxed
as if they had been paid to you in December.
Vanguard will send you a statement each year showing the tax status of all
your distributions. If you have chosen to receive dividend and/or capital gains
distributions in cash, and the postal or other delivery service is unable to
deliver checks to your address of record, we will change the distribution option
so that all dividends and other distributions are automatically invested in
additional shares. We will not pay interest on uncashed distribution checks.
. The dividends and short-term capital gains that you receive are considered
ordinary income for tax purposes.
<PAGE>
9
. Any distributions of net long-term capital gains by the Fund are taxable to
you as long-term capital gains, no matter how long you've owned shares in the
Fund.
. Although the Fund does not seek to realize any particular amount of capital
gains during a year, such gains are realized from time to time as by-products
of its ordinary investment activities. Consequently, distributions may vary
considerably from year to year.
. If you sell or exchange shares, any gain or loss you have is a taxable event.
This means that you may have a capital gain to report as income, or a capital
loss to report as a deduction, when you complete your federal income tax
return.
. Distributions of dividends or capital gains, and capital gains or losses from
your sale or exchange of Fund shares, may be subject to state and local income
taxes as well.
The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be
subject to U.S. withholding and estate tax.) You should consult your tax adviser
about the tax consequences of an investment in the Fund.
Important Note: By law, the Fund must withhold 31% of your taxable
distributions and any redemption proceeds if you do not provide your correct
taxpayer identification number, or certify that it is correct, or if the IRS
instructs the Fund to do so.
PLAIN TALK ABOUT
"Buying a Dividend"
Unless you are investing through a tax-deferred retirement account (such as an
IRA), it is not to your advantage to buy shares of a fund shortly before it
makes a distribution, because doing so can cost you money in taxes. This is
known as "buying a dividend." For example: On December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share
on December 16, its share price would drop to $19 (not counting market change).
You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250
shares x $1 = $250 in distributions), but you owe tax on the $250 distribution
you received--even if you reinvest it in more shares. To avoid "buying a
dividend," check a fund's distribution schedule before you invest.
Share Price
The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of trading on the New York Stock Exchange (the NAV
is not calculated on holidays or other days the Exchange is closed). Net asset
value per share is computed by adding up the total value of the Fund's
investments and other assets, subtracting any of its liabilities (debts), and
then dividing by the number of Fund shares outstanding:
Total Assets - Liabilities
Net Asset Value = ----------------------------
Number of Shares Outstanding
Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A Note on Pricing: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Fund's Board of Trustees.
The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations of the Fund's name, but the most common is GroInc.
<PAGE>
10
PLAIN TALK ABOUT
How to Read the Financial Highlights Table
The Fund began fiscal 1998 with a net asset value (price) of $26.19 per share.
During the year, the Fund earned $ . per share from investment income (interest
and dividends) and $ . per share from investments that had appreciated in value
or that were sold for higher prices than the Fund paid for them.
Shareholders received $ . per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.
The earnings ($ . per share) minus the distributions ($ . per share) resulted in
a share price of $ . at the end of the year. This was an increase of $ . per
share (from $26.19 at the beginning of the year to $ . at the end of the year).
For a shareholder who reinvested the distributions in the purchase of more
shares, the total return from the Fund was . % for the year.
As of December 31, 1998, the Fund had $ . billion in net assets. For the year,
its expense ratio was . % ($ . per $1,000 of net assets); and its net investment
income amounted to . % of its average net assets. It sold and replaced
securities valued at . % of its net assets.
Financial Highlights
The following financial highlights table is intended to help you understand the
Fund's financial performance for the past five years, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each year on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the financial statements
audited by PricewaterhouseCoopers LLP, independent accountants, whose
report--along with the Fund's financial statements--is included in the Fund's
most recent annual report to shareholders. You may have the annual report sent
to you without charge by contacting Vanguard.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Vanguard Growth and Income Fund
Year Ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $26.19 $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 Period (Millions) $. $2,142 $1,285 $ 909 $ 596
Ratio of Total 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%
Turnover Rate .% 66% 75% 59% 71%
================================================================================================
</TABLE>
From time to time, the Vanguard funds advertise yield and total return figures.
Yield is a measure of past dividend income. Total return includes both past
dividend income (assuming that it has been reinvested) plus realized and
unrealized capital appreciation (or depreciation). Neither yield nor total
return should be used to predict the future performance of a fund.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc.
<PAGE>
11
Investing with Vanguard
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services we
offer. Booklets providing detailed information are available on the services
marked with a [GRAPHIC OF BOOK APPEARS HERE]. Please call us to request copies.
Services and Account Features
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
Telephone Redemptions (Sales and Exchanges)
Automatically set up for this Fund unless you notify us otherwise.
- --------------------------------------------------------------------------------
Vanguard Direct Deposit Service(TM) [GRAPHIC OF BOOK APPEARS HERE]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
Vanguard Automatic Exchange Service(TM) [GRAPHIC OF BOOK APPEARS HERE]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
Vanguard Fund Express(R) [GRAPHIC OF BOOK APPEARS HERE]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
Vanguard Dividend Express(TM) [GRAPHIC OF BOOK APPEARS HERE]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
Vanguard Tele-Account(R) 1-800-662-6273 (ON-BOARD) [GRAPHIC OF BOOK APPEARS
HERE]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange fund shares.
- --------------------------------------------------------------------------------
Access Vanguard(TM) www.vanguard.com [GRAPHIC OF COMPUTER APPEARS HERE]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through the website. We will then send to you, by mail, an account
access password that allows you to process the following financial and
administrative transactions online:
. Open a new account.*
. Buy, sell or exchange shares of most funds.
. Change your name/address.
. Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
Investor Information Department: 1-800-662-7447 (SHIP) Text Telephone:
1-800-952-3335
Call Vanguard for information on our funds, fund services, and retirement
accounts, and to request literature.
- --------------------------------------------------------------------------------
Client Services Department: 1-800-662-2739 (CREW) Text Telephone: 1-800-662-2738
Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
Services for Clients of Vanguard's Institutional Division: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
<PAGE>
12
Types of Accounts
Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
For One or More People
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
For Holding Personal Trust Assets [GRAPHIC OF BOOK APPEARS HERE]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
For Individual Retirement Accounts [GRAPHIC OF BOOK APPEARS HERE]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
For an Organization [GRAPHIC OF BOOK APPEARS HERE]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
For Third-Party Trustee Retirement Investments
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
Vanguard Prototype Plans
Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A Note on Investing with Vanguard Through Other Firms
You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------
Buying Shares
You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
Minimum Investment to . . .
open a new account
$3,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).
add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
A Note on Low Balances
The Fund reserves the right to close any nonretirement account whose balance
falls below the minimum initial investment. The Fund will deduct a $10 annual
fee in June if your nonretirement account balance falls below $2,500.
The fee is waived if your total Vanguard account assets are $50,000 or more.
- --------------------------------------------------------------------------------
By Mail to . . . [GRAPHIC OF ENVELOPE APPEARS HERE]
open a new account
Complete and sign the application form and enclose your check.
add to an existing account
Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form.
<PAGE>
13
Make your check payable to: The Vanguard Group-93
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2600 455 Devon Park Drive
Valley Forge, PA 19482-2600 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division . . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
By Telephone to . . . [GRAPHIC OF TELEPHONE APPEARS HERE]
open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type).
add to an existing account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). Use Vanguard
Fund Express (see "Services and Account Features") to transfer assets from your
bank account. Call Client Services before your first use to verify that this
option is in place.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
* You must obtain a Personal Identification Number through Tele-Account at
least seven days before you request your first exchange.
- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you've requested a telephone transaction and a confirmation
number has been assigned, the transaction cannot be revoked. We reserve the
right to refuse any purchase request.
- --------------------------------------------------------------------------------
By Wire to Open a New Account or Add to an Existing Account [GRAPHIC OF WIRE
APPEARS HERE]
Call Client Services to arrange your wire transaction. Wire transactions are not
available for retirement accounts, except for asset transfers and direct
rollovers.
Wire to:
FRB ABA 021001088
Marine Midland Bank, New York
For credit to:
Account: 000112046
Vanguard Incoming Wire Account
In favor of:
Vanguard Growth and Income Fund-93
[Account number, or temporary number for a new account]
[Registered account owner/s]
[Registered address]
- --------------------------------------------------------------------------------
<PAGE>
14
Buying Shares (continued)
You can redeem (that is, sell or exchange) shares purchased by check or
Vanguard Fund Express at any time. However, while your redemption request will
be processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A Note on Large Purchases
It is important that you call Vanguard before you invest a large dollar amount.
We must consider the interests of all Fund shareholders and so reserve the right
to refuse any purchase that will disrupt the Fund's operation or performance.
- --------------------------------------------------------------------------------
Redeeming Shares
This section describes how you can redeem--that is, sell or exchange--the Fund's
shares.
When Selling Shares:
. Vanguard sends the redemption proceeds to you or a designated third party.*
. You can sell all or part of your Fund shares at any time.
*Proceeds sent to third parties require a signature guarantee; see footnote on
page 16.
When Exchanging Shares:
. The redemption proceeds are used to purchase shares of a different Vanguard
fund.
. You must meet the receiving fund's minimum investment requirements.
. Vanguard reserves the right to revise or terminate the exchange privilege,
limit the amount of an exchange, or reject an exchange at any time, without
notice.
In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus.
- --------------------------------------------------------------------------------
Note: Once a redemption is processed and a confirmation number given, the
transaction cannot be canceled.
- --------------------------------------------------------------------------------
HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.
- --------------------------------------------------------------------------------
Online Requests [GRAPHIC OF COMPUTER APPEARS HERE]
Access Vanguard at www.vanguard.com
You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through the website. We will then send you, by mail, an account access password
that will enable you to sell or exchange shares online (as well as perform other
transactions).
Note: The Vanguard funds whose shares you cannot exchange online or by
telephone are Vanguard U.S. Stock Index Funds, Vanguard Balanced Index Fund,
Vanguard International Stock Index Funds, Vanguard REIT Index Fund, Vanguard
Total International Stock Index Fund, and Vanguard Growth and Income Fund. These
funds do, however, permit online and telephone exchanges within IRAs and other
retirement accounts. If you sell shares of these funds online, you will receive
a redemption check at your address of record.
- --------------------------------------------------------------------------------
Telephone Requests [GRAPHIC OF TELEPHONE APPEARS HERE]
All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours--to sell shares.
<PAGE>
15
Retirement Accounts:
You can exchange--but not sell--shares by calling Tele-Account or Client
Services.
Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
- --------------------------------------------------------------------------------
SPECIAL INFORMATION: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable to
provide:
[X] The ten-digit account number.
[X] The name and address exactly as registered on the account.
[X] The primary Social Security or employer identification number as
registered on the account.
[X] The Personal Identification Number, if applicable.
Please note that Vanguard will not be responsible for any account losses due
to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A Note on Unusual Circumstances
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
Mail Requests [GRAPHIC OF ENVELOPE APPEARS HERE]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.
Vanguard Retirement Accounts:
For information on how to request distributions from:
. Traditional IRAs and Roth IRAs--call Client Services.
. SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and
Money Purchase Pension (Keogh) Plans--call Individual Retirement Plans at
1-800-662-2003.
Depending on your account registration type, additional documentation may be
required.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1120 455 Devon Park Drive
Valley Forge, PA 19482-1120 Wayne, PA 19087-1815
<PAGE>
16
Redeeming Shares (continued)
For clients of Vanguard's Institutional Division ...
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
A Note on Large Redemptions
It is important that you call Vanguard before you redeem a large dollar amount.
We must consider the interests of all fund shareholders and so reserve the right
to delay delivery of your redemption proceeds--up to seven days--if the amount
will disrupt the Fund's operation or performance.
If you redeem more than $250,000 worth of Fund shares within any 90-day
period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in kind, i.e., in securities, rather than in cash. If
payment is made in kind, you may incur brokerage commissions if you elect to
sell the securities for cash.
- --------------------------------------------------------------------------------
OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of two ways: check, or exchange
to another Vanguard fund.
- --------------------------------------------------------------------------------
Check Redemptions
Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
Exchange Redemptions
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------
FOR OUR MUTUAL PROTECTION
For your best interests and ours, Vanguard applies these additional requirements
to redemptions:
Request in "Good Order"
All redemption requests must be received by Vanguard in "good order." This means
that your request must include:
[X] The Fund name and account number.
[X] The amount of the transaction (in dollars or shares).
[X] Signatures of all owners exactly as registered on the account (for mail
requests).
[X] Signature guarantees (if required).*
[X] Any supporting legal documentation that may be required.
[X] Any outstanding certificates representing shares to be redeemed.
* For instance, a signature guarantee must be provided by all registered
account shareholders when redemption proceeds are to be sent to a different
person or address. A signature guarantee can be obtained from most banks,
credit unions, and licensed brokers.
Transactions are processed at the next-determined share price after Vanguard has
received all required information.
- --------------------------------------------------------------------------------
Limits on Account Activity
Because excessive account transactions can disrupt management of the Fund and
increase the Fund's costs for all shareholders, Vanguard limits account activity
as follows:
. You may make no more than two substantive "round trips" through the Fund
during any 12-month period.
. Your round trips through the Fund must be at least 30 days apart.
. The Fund may refuse a share purchase at any time, for any reason.
. Vanguard may revoke an investor's telephone exchange privilege at any time,
for any reason.
A "round trip" is a redemption from the Fund followed by a purchase back into
the Fund. Also, "round trip" covers transactions accomplished by any combination
of methods, including transactions conducted by check, wire, or exchange to/from
another Vanguard fund. "Substantive" means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.
- --------------------------------------------------------------------------------
<PAGE>
17
- --------------------------------------------------------------------------------
Return Your Share Certificates
Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
All Trades Final
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been received
and a confirmation number assigned.
- --------------------------------------------------------------------------------
Transferring Registration
You can transfer the registration of your Fund shares to another owner by
completing a transfer form and sending it to Vanguard.
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815
For clients of Vanguard's Institutional Division . . .
First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
Fund and Account Updates
STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.
In addition, you will receive financial reports about the Fund twice a year.
These comprehensive reports include an assessment of the Fund's performance (and
a comparison to its industry benchmark), an overview of the markets, a report
from the advisers, and the Fund's financial statements which include a listing
of the Fund's holdings.
To keep the Fund's costs 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.
- --------------------------------------------------------------------------------
Confirmation Statement
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
Portfolio Summary [GRAPHIC OF BOOK APPEARS HERE]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
<PAGE>
18
Fund and Account Updates (continued)
- --------------------------------------------------------------------------------
Fund Financial Reports
Mailed in February and August for this Fund.
- --------------------------------------------------------------------------------
Tax Statements
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
Average Cost Review Statement [GRAPHIC OF BOOK APPEARS HERE]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using the average cost single category method.
- --------------------------------------------------------------------------------
<PAGE>
19
(This page intentionally left blank.)
<PAGE>
20
(This page intentionally left blank.)
<PAGE>
Glossary of Investment Terms
Capital Gains Distribution
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.
Cash Reserves
Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.
Common Stock
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
Dividend Income
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
Expense Ratio
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any
12b-1distribution fees.
Fund Diversification
Holding a variety of securities so that a fund's return is not badly hurt by the
poor performance of a single security or industry.
Growth and Income Stock Fund
A mutual fund that invests in the stocks of companies that seek moderate growth
and some dividend income.
Investment Adviser
An organization that makes the day-to-day decisions regarding a fund's
investments.
Mutual Fund
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
Net Asset Value (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
Price/Earnings (P/E) Ratio
The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.
Principal
The amount of your own money you put into an investment.
Securities
Stocks, bonds, and other investment vehicles.
Total Return
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
Volatility
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
Yield
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE>
[LOGO OF THE VANGUARD GROUP(R) APPEARS HERE]
For More Information
If you'd like more information about Vanguard Growth and Income Fund, the
following documents are available free upon request:
Annual/Semiannual Report to Shareholders
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In these reports, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the most recent fiscal year.
Statement of Additional Information (SAI)
The SAI provides more detailed information about the Fund.
The current annual and semiannual reports and the SAI are incorporated by
reference into (and are thus legally a part of) this prospectus.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Fund or other Vanguard funds, please
contact us as follows:
The Vanguard Group
Investor Information
Department
P.O. Box 2600
Valley Forge, PA 19482-2600
Telephone:
1-800-662-7447 (SHIP)
Text Telephone:
1-800-952-3335
World Wide Web:
www.vanguard.com
E-mail:
[email protected]
Post Office Box 2600
Valley Forge, PA 19482-2600
If you are a current Fund shareholder and would like information about your
account, account transactions, and/or account statements, please call:
Client Services Department
Telephone:
1-800-662-2739 (CREW)
Text Telephone:
1-800-662-2738
Information provided by the Securities and Exchange Commission (SEC)
You can review and copy information about the Fund (including the SAI) at the
SEC's Public Reference Room in Washington, D.C. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are also available on the SEC's website (www.sec.gov), or you can
receive copies of this information, for a fee, by writing the Public Reference
Section, Securities and Exchange Commission, Washington, DC 20549-6009.
Fund's Investment Company Act
file number: 811-4526
(C) 1999 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
P093N-04/09/1999
<PAGE>
Vanguard Growth and Income Fund
Participant Prospectus
April 9, 1999
A Growth and Income Stock Mutual Fund
Contents
1 Fund Profile
3 Additional Information
3 A Word About Risk
3 Who Should Invest
4 Primary Investment Strategies
7 The Fund and Vanguard
7 Investment Adviser
8 Year 2000 Challenge
8 Dividends, Capital Gains, and Taxes
9 Share Price
10 Financial Highlights
11 Investing with Vanguard
11 Accessing Fund Information by Computer
Glossary (inside back cover)
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Why Reading This Prospectus Is Important
This prospectus explains the objective, risks, and strategies of Vanguard Growth
and Income Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk(R)" explanations along the way.
Reading the prospectus will help you to decide whether the Fund is the right
investment for you. We suggest that you keep it for future reference.
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Important Note
This prospectus is intended for participants in employer-sponsored retirement or
savings plans. Another version--for investors who would like to open a personal
investment account--can be obtained by calling Vanguard at 1-800-662-7447.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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1
Fund Profile
The following profile summarizes key features of Vanguard Growth and Income
Fund.
INVESTMENT OBJECTIVE
The Fund is a stock fund that seeks to provide a total return (capital
appreciation plus dividend income) greater than the return of the Standard &
Poor's 500 Composite Stock Price Index.
INVESTMENT STRATEGIES
To achieve its objective, the Fund's adviser uses computer models to select a
broadly diversified group of stocks that, as a whole, has investment
characteristics similar to the S&P 500 Index, with an emphasis on stocks that
are undervalued. At least 65% of the Fund's assets will be invested in stocks
that are included in the Index, while the balance may be invested in stocks not
included in the Index.
PRIMARY RISKS
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:
[_] Investment style risk, which is the chance that returns from large-
capitalization stocks--which comprise most of the Fund's holdings--will
trail returns from other asset classes or the overall stock market.
[_] Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.
PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year over
a ten-year period. The table shows how the Fund's average annual returns for
one, five, and ten calendar years compare with those of a broad-based securities
market index. Keep in mind that the Fund's past performance does not indicate
how it will perform in the future.
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Annual Total Returns
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During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended _____) and the lowest return for a quarter was -.%
(quarter ended ______).
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Average Annual Total Returns for Years Ended December 31, 1998
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1 Year 5 Years 10 Years
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Vanguard Growth and Income Fund . % . % . %
S&P 500 Index . . .
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<PAGE>
2
PLAIN TALK ABOUT
The Costs of Investing
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
PLAIN TALK ABOUT
Fund Expenses
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Growth and Income Fund's expense ratio in fiscal year 1998
was . %, or $ . per $1,000 of average net assets. The average growth and income
mutual fund had expenses in 1998 of . %, or $ . per $1,000 of average net
assets, according to Lipper, Inc., which reports on the mutual fund industry.
FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended December 31, 1998.
Shareholder Fees (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
Annual Fund Operating Expenses (expenses deducted from the Fund's assets)
Management Expenses: . %
12b-1 Distribution Fees: None
Other Expenses: . %
Total Annual Operating Expenses: . %
The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain the same. The results apply whether
or not you redeem your investment at the end of each period.
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1 Year 3 Years 5 Years 10 Years
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$ . $ . $ . $ .
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This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
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3
Additional Information
Dividends and Capital Gains
Dividends are paid semiannually in June and December; capital gains, if any, are
paid annually in December
Investment Adviser
Franklin Portfolio Associates LLC, Boston, Mass., since inception
Inception Date
December 10, 1986
Net Assets as of December 31, 1998
$ . billion
Newspaper Abbreviation
GroInc
Vanguard Fund Number
093
Cusip Number
921913109
Ticker Symbol
VQNPX
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A Word About Risk
This prospectus describes the risks you would face as an investor in Vanguard
Growth and Income Fund. It is important to keep in mind one of the main axioms
of investing: The higher the risk of losing money, the higher the potential
reward. The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in Vanguard Growth and Income
Fund, you should also take into account your personal tolerance for the daily
fluctuations of the stock market.
Look for this [GRAPHIC OF FLAG APPEARS HERE] symbol throughout the
prospectus. It is used to mark detailed information about each type of risk that
you would confront as a shareholder of the Fund.
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Who Should Invest
The Fund may be a suitable investment for you if:
[_] You wish to add a growth and income stock fund to your existing holdings,
which could include other stock investments as well as bond, money market,
and tax-exempt investments.
[_] You are looking to achieve a total return greater than that of the S&P 500
Index.
[_] You are seeking growth of capital over the long term--at least five
years--and are able to tolerate wide fluctuations in the value of your
investment.
[_] You are looking for some dividend income.
PLAIN TALK ABOUT
Costs and Market-Timing
Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.
The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.
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4
PLAIN TALK ABOUT
Large-Cap, Mid-Cap, and Small-Cap Stocks
Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization.
Generally, Vanguard defines large-capitalization (large-cap) funds as those
holding stocks of companies whose outstanding shares have a median market value
exceeding $10 billion. Mid-cap funds hold stocks of companies with a median
market value between $1 billion and $10 billion. Small-cap funds typically hold
stocks of companies with a median market value of less than $1 billion.
The Fund has adopted the following policies, among others, to discourage
short-term trading:
[_] The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. This could be because of the timing of
the investment or because of a history of excessive trading by the
investor.
[_] There is a limit on the number of times you can exchange into and out of
the Fund (see "Exchanges" in the Investing with Vanguard section).
[_] The Fund reserves the right to stop offering shares at any time.
Primary Investment Strategies
This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objective--a total return greater than that of the S&P 500
Composite Stock Price Index. It also explains how the adviser implements these
strategies. The Fund's Board of Trustees oversees the management of the Fund,
and may change the investment strategies in the interest of shareholders. In
addition, this section discusses several important risks--market risk,
investment style risk, and manager risk-faced by investors in the Fund.
Market Exposure
The Fund invests in a broadly diversified group of common stocks. The Fund's
primary strategy is to invest at least 65% of its assets in selected stocks that
are part of the S&P 500 Index and that the adviser believes will, in the
aggregate, outperform the Index. The stocks that comprise the S&P 500 Index are
mostly large-capitalization stocks that collectively represent about 70% of the
market value of all U.S. common stocks. The balance of the Fund's assets may be
invested in stocks not included in the Index but that have similar investment
characteristics.
[GRAPHIC OF FLAG The Fund is subject to market risk, which is the possibility
APPEARS HERE] that stock prices overall will decline over short or even long
periods. Stock markets tend to move in cycles, with periods of
rising prices and periods of falling prices.
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the S&P 500 Index, a widely used barometer of market
activity. (Total returns consist of dividend income plus change in market
price.) Note that the returns shown do not include the costs of buying and
selling stocks or other expenses that a real-world investment portfolio would
incur. Note, also, that the gap between best and worst tends to narrow over the
long term.
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U.S. Stock Market Returns (1926-1998)
------------------------------------------------------
1 Year 5 Years 10 Years 20 Years
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Best . . . .
Worst . . . .
Average . . . .
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5
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1998. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 10.7%, returns for individual 5-year periods
ranged from a -12.4% average (from 1928 through 1932) to 24.1% (from 1994
through 1998). These average returns reflect past performance on common stocks;
you should not regard them as an indication of future returns from either the
stock market as a whole or this Fund in particular.
Because Vanguard Growth and Income Fund's holdings are not identical to the
S&P 500 Index or any other market index, the performance of the Fund will not
mirror the returns of any particular index. However, because the Fund's
investment characteristics will be similar to those of the S&P 500 Index, the
Fund's performance is expected, in any given year, to be within a few percentage
points of the Index. Such relative performance, of course, cannot be
assured.
[GRAPHIC OF FLAG The Fund is subject to investment style risk, which is the
APPEARS HERE] possibility that returns from large-capitalization stocks--
which comprise most of the Fund's holdings--will trail returns
from other asset classes of the overall stock market. As a
group, large-capitalization stocks tend to go through cycles
of doing better--or worse--than common stocks in general.
These periods have, in the past, lasted for as long as several
years.
Security Selection
Franklin Portfolio Associates LLC, adviser to the Fund, selects a diversified
group of common stocks in order to pursue the Fund's objective of achieving a
total return greater than that of the S&P 500 Index.
Generally, the stocks selected provide capital appreciation as well as
dividend income. Stocks are chosen by the adviser so that, in the aggregate, the
investment characteristics of the Fund are similar to those of the Index. These
characteristics include such measures as dividend yield, price/earnings ratio,
"beta" (relative volatility), return on equity, and price/book ratio. However,
while assuring that the Fund's investment characteristics are similar to those
of the Index, the adviser looks to invest in individual stocks--including stocks
not a part of the Index--that will in the aggregate provide a higher total
return than that of the Index. Of course, there is no assurance that the Fund's
performance will match or exceed the performance of the S&P 500 Index.
In order to select stocks for the Fund, the adviser employs a "quantitative
model" approach that combines both active and passive management techniques.
First, the adviser ranks a universe of approximately 3,500 stocks using several
computer investment models. These models compare the potential returns of the
stocks based on current and projected earnings, price/earnings ratios, yields,
and other information. A separate program then selects the stocks for the Fund
from among the stocks rated highly by the investment models. The Fund's holdings
are not derived strictly from the highest ranked stocks. Instead, stocks are
selected so that the Fund's aggregate characteristics resemble those of the S&P
500 Index. To help the Fund pursue performance above the Index, stocks are sold
as their attractiveness decreases relative to the universe of stocks under
consideration.
The Fund is generally managed without regard to tax ramifications.
[GRAPHIC OF FLAG The Fund is subject to manager risk, which is the possibility
APPEARS HERE] that the adviser may do a poor job of selecting stocks.
<PAGE>
6
PLAIN TALK ABOUT
Turnover Rate
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. The average turnover rate for all domestic stock funds is
approximately 85%, according to Morningstar, Inc.
PLAIN TALK ABOUT
Derivatives
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
Turnover Rate
Although the Fund generally seeks to invest for the long term, it may sell
securities regardless of how long the securities have been held. The Fund's
average turnover rate for the past five years has been about . %. (A turnover
rate of 100% would occur, for example, if the Fund sold and replaced securities
valued at 100% of its net assets within a one-year period.)
Other Investment Policies and Risks
The Fund may invest, to a limited extent, in foreign securities.
The Fund may also invest, to a limited extent, in stock futures and options
contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small price movement in a futures contract may result in an immediate and
substantial loss (or gain) for a fund. This Fund will not use futures for
speculative purposes or as leveraged investments that magnify the gains or
losses of an investment. The value of all futures and options contracts in which
the Fund acquires an interest cannot exceed 20% of its total assets.
The reasons for which the Fund will invest in futures and options are:
[_] To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
[_] To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
The Fund may, from time to time, take temporary defensive measures--such as
holding cash reserves without limit--that are inconsistent with the Fund's
primary investment strategies, in response to adverse market, economic,
political, or other conditions. In taking such measures, the Fund may not
achieve its investment objective.
<PAGE>
7
PLAIN TALK ABOUT
Vanguard's Unique Corporate Structure
The Vanguard Group is truly a mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.
The Fund and Vanguard
The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 distinct investment portfolios holding assets worth
more than $440 billion. All of the Vanguard funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.
Vanguard also provides marketing services to the funds. Although shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund pays its
allocated share of The Vanguard Group's marketing costs.
Investment Adviser
The Fund employs Franklin Portfolio Associates LLC ("FPA"), Two International
Place, Boston, MA 02110, as its investment adviser. FPA manages the Fund subject
to the control of the Trustees and officers of the Fund.
FPA's advisory fee is paid quarterly. This fee is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter. In addition, FPA's advisory fee is increased or decreased based on the
Fund's cumulative investment performance over a trailing 36-month period as
compared with the cumulative total return of the S&P 500 Index over the same
period.
The incentive/penalty fee structure will not be in full operation until April
30, 2001. Until then, FPA's fee will be calculated using certain transition
rules.
For the year ended December 31, 1998, the investment advisory fee paid to FPA
was $ * million, after a [increase/decrease] of $* based on performance. This
fee represented an effective annual rate of *% of the Fund's average net assets.
The Fund has authorized FPA to choose brokers or dealers to handle the
purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions.
In the interest of obtaining better execution of a transaction, FPA may
choose brokers who charge higher commissions. If more than one broker can obtain
the best available price and favorable execution of a transaction, then FPA is
authorized to choose a broker who, in addition to executing the transaction,
will provide research services to FPA or the Fund. Also, the Fund may direct FPA
to use a particular broker for certain transactions in exchange for commission
rebates or research services provided to the Fund.
PLAIN TALK ABOUT
The Fund's Adviser
Franklin Portfolio Associates LLC ("FPA") is an investment advisory firm founded
in 1982. The firm specializes in the management of stock portfolios through the
use of quantitative investment models. As of December 31, 1998, FPA managed more
than $ * billion in assets. The manager responsible for overseeing the
implementation of FPA's strategy for Vanguard Growth and Income Fund is:
John J. Nagorniak, President of FPA; has worked in investment management
since 1970; with FPA since 1982; has managed the Fund since its inception; B.A.,
Princeton University; M.S, the Sloan School of Management, Massachusetts
Institute of Technology.
<PAGE>
8
The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement between the Fund and FPA, or hire a new
investment adviser, either as a replacement for FPA or as an additional adviser.
Any such change will be communicated to shareholders in writing.
Year 2000 Challenge
The common practice in computer programming of using just two digits to identify
a year has resulted in the Year 2000 challenge throughout the information
technology industry. If unchanged, many computer applications and systems could
misinterpret dates occurring after December 31, 1999, leading to errors or
failure. Such failure could adversely affect a fund's operations, including
pricing, securities trading, and the servicing of shareholder accounts.
The Vanguard Group is dedicated to providing uninterrupted, high-quality
performance from our computer systems before, during, and after 2000. In July
1998, we completed the renovation and initial testing of our internal systems.
Vanguard is diligently working with external partners, suppliers, and vendors,
including fund managers and other service providers, to assure that the systems
with which we interact remain operational at all times.
In addition to taking every reasonable step to secure our internal systems
and external relationships, Vanguard is further developing contingency plans
intended to assure that unexpected systems failures will not adversely affect
the Fund's operations. Vanguard intends to monitor these processes through the
rollover of 1999 into 2000 and to quickly implement alternate solutions if
necessary.
However, despite Vanguard's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Fund's business,
operations, or financial condition. Additionally, the Fund's performance could
be hurt if a computer-system failure at a company or governmental unit affects
the price of securities the Fund owns.
Dividends, Capital Gains, and Taxes
The Fund distributes to shareholders virtually all of its net income (interest
and dividends less expenses) as well as any capital gains realized from the sale
of its holdings. Income distributions generally occur in June and December;
capital gains distributions generally occur in December. In addition, the Fund
may occasionally be required to make supplemental income or capital gains
distributions at some other time during the year.
Dividend and capital gains distributions of Fund shares that are held as an
investment option in an employer-sponsored retirement or savings plan will be
reinvested in additional Fund shares and accumulate on a tax-deferred basis. You
will not owe taxes on these distributions until you begin withdrawals. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of an investment in the Fund and of
any plan withdrawals.
PLAIN TALK ABOUT
Distributions
As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from both the dividends that the fund earns from its holdings and
the interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. The capital gains are either short-term or long-term depending on
whether the fund held the securities for less than or more than one year.
<PAGE>
9
Share Price
The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of trading on the New York Stock Exchange (the NAV
is not calculated on holidays or other days the Exchange is closed). Net asset
value per share is computed by adding up the total value of the Fund's
investments and other assets, subtracting any of its liabilities (debts), and
then dividing by the number of Fund shares outstanding:
Total Assets - Liabilities
Net Asset Value = ------------------------------
Number of Shares Outstanding
Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A Note on Pricing: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Fund's Board of Trustees.
The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations of the Fund's name, but the most common is GroInc.
<PAGE>
10
PLAIN TALK ABOUT
How to Read the Financial Highlights Table
The Fund began fiscal 1998 with a net asset value (price) of $26.19 per share.
During the year, the Fund earned $ . per share from investment income (interest
and dividends) and $ . per share from investments that had appreciated in value
or that were sold for higher prices than the Fund paid for them.
Shareholders received $ . per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.
The earnings ($ . per share) minus the distributions ($ . per share) resulted
in a share price of $ . at the end of the year. This was an increase of $ . per
share (from $26.19 at the beginning of the year to $ . at the end of the year).
For a shareholder who reinvested the distributions in the purchase of more
shares, the total return from the Fund was . % for the year.
As of December 31, 1998, the Fund had $ . billion in net assets. For the
year, its expense ratio was . % ($ . per $1,000 of net assets); and its net
investment income amounted to . % of its average net assets. It sold and
replaced securities valued at . % of its net assets.
Financial Highlights
The following financial highlights table is intended to help you understand the
Fund's financial performance for the past five years, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each year on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the financial statements
audited by PricewaterhouseCoopers LLP, independent accountants, whose
report--along with the Fund's financial statements--is included in the Fund's
most recent annual report to shareholders. You may have the annual report sent
to you without charge by contacting Vanguard.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Vanguard Growth and Income Fund
Year Ended December 31,
------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $26.19 $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 Period (Millions) $. $2,142 $1,285 $ 909 $ 596
Ratio of Total 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%
Turnover Rate .% 66% 75% 59% 71%
=================================================================================================
</TABLE>
From time to time, the Vanguard funds advertise yield and total return
figures. Yield is a measure of past dividend income. Total return includes both
past dividend income (assuming that it has been reinvested) plus realized and
unrealized capital appreciation (or depreciation). Neither yield nor total
return should be used to predict the future performance of a fund.
"Standard & Poor's((R))," "S&P((R))," "S&P 500((R))," "Standard & Poor's 500,"
and "500" are trademarks of The McGraw-Hill Companies, Inc.
<PAGE>
11
Investing with Vanguard
The Fund is an investment option in your retirement or savings plan. Your plan
administrator or your employee benefits office can provide you with detailed
information on how to participate in your plan and how to elect the Fund as an
investment option.
[_]If you have any questions about the Fund or Vanguard, including the Fund's
investment objective, strategies, or risks, contact Vanguard's Participant
Services Center, toll-free, at 1-800-523-1188.
[_]If you have questions about your account, contact your plan administrator or
the organization that provides record-keeping services for your plan.
Investment Options and Allocations
Your plan's specific provisions may allow you to change your investment
selections, the amount of your contributions, or how your contributions are
allocated among the investment choices available to you. Contact your plan
administrator or employee benefits office for more details.
Transactions
Contributions, exchanges, or redemptions of the Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your contribution, exchange, or
redemption, and that Vanguard has received the appropriate assets.
Exchanges
The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. Although we
make every effort to maintain the exchange privilege, Vanguard reserves the
right to revise or terminate this privilege, limit the amount of an exchange or
reject any exchange, at any time, without notice. Because excessive exchanges
can potentially disrupt the management of the Fund and increase its transaction
costs, Vanguard limits participant exchange activity to no more than four
substantive "round trips" through the Fund (at least 90 days apart) during any
12-month period. A "round trip" is a redemption from the Fund followed by a
purchase back into the Fund. "Substantive" means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.
Before making an exchange to or from another fund available in your plan,
consider the following:
[_]Certain investment options, particularly funds made up of company stock or
investment contracts, may be subject to unique restrictions.
[_]Make sure to read that fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.
[_]Vanguard can accept exchanges only as permitted by your plan. Contact your
plan administrator for details on the exchange policies that apply to your
plan.
Accessing Fund Information by Computer
- --------------------------------------------------------------------------------
Vanguard on the World Wide Web www.vanguard.com
Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard 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.
- --------------------------------------------------------------------------------
<PAGE>
12
(This page intentionally left blank.)
<PAGE>
Glossary of Investment Terms
Capital Gains Distribution
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.
Cash Reserves
Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.
Common Stock
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
Dividend Income
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
Expense Ratio
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any
12b-1 distribution fees.
Fund Diversification
Holding a variety of securities so that a fund's return is not badly hurt by the
poor performance of a single security or industry.
Growth and Income Stock Fund
A mutual fund that invests in the stocks of companies that seek moderate growth
and some dividend income.
Investment Adviser
An organization that makes the day-to-day decisions regarding a fund's
investments.
Mutual Fund
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
Net Asset Value (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
Price/Earnings (P/E) Ratio
The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.
Principal
The amount of your own money you put into an investment.
Securities
Stocks, bonds, and other investment vehicles.
Total Return
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
Volatility
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
Yield
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE>
[LOGO OF THE VANGUARD GROUP(R) APPEARS HERE]
For More Information
If you'd like more information about Vanguard Growth and Income Fund, the
following documents are available free upon request:
Annual/Semiannual Report to Shareholders
Additional information about the Fund's investments is available in the Fund's
annual and semiannual reports to shareholders. In these reports, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during the most recent fiscal year.
Statement of Additional Information (SAI)
The SAI provides more detailed information about the Fund.
The current annual and semiannual reports and the SAI are incorporated by
reference into (and are thus legally a part of) this prospectus.
To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Fund or other Vanguard funds, please
contact us as follows:
The Vanguard Group
Participant Services Center
P.O. Box 2900
Valley Forge, PA 19482-2900
Telephone:
1-800-523-1188
Text Telephone:
1-800-523-8004
World Wide Web:
www.vanguard.com
E-mail:
[email protected]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482-2900
Information provided by the Securities and Exchange Commission (SEC)
You can review and copy information about the Fund (including the SAI) at the
SEC's Public Reference Room in Washington, D.C. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are also available on the SEC's website (www.sec.gov), or you can
receive copies of this information, for a fee, by writing the Public Reference
Section, Securities and Exchange Commission, Washington, DC 20549-6009.
Fund's Investment Company Act
file number: 811-4526
(C) 1999 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
I093N-04/09/1999
<PAGE>
PART B
VANGUARD QUANTITATIVE FUNDS
(the "Trust")
STATEMENT OF ADDITIONAL INFORMATION
April 9, 1999
This Statement is not a prospectus but should be read in conjunction with
the Trust's current Prospectus dated April 9, 1999. To obtain the Prospectus
and the Annual Report to Shareholders, containing Vanguard Growth and Income
Fund's Financial Statements, which are hereby incorporated by reference,
please call:
Investor Information Department
1-800-662-7447 (SHIP)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of the Trust................................................... B-1
Investment Policies........................................................ B-3
Fundamental Investment Limitations......................................... B-9
Yield and Total Return..................................................... B-10
Share Price................................................................ B-11
Purchase of Shares......................................................... B-12
Redemption of Shares....................................................... B-12
Management of the Trust.................................................... B-13
Investment Advisory Services............................................... B-16
Portfolio Transactions..................................................... B-18
Financial Statements....................................................... B-20
Performance Measures....................................................... B-21
</TABLE>
DESCRIPTION OF THE TRUST
Organization
The Trust was organized as a Maryland corporation in 1986, and was reorga-
nized as a Delaware business trust in May, 1998. Prior to its reorganization
as a Delaware business trust, the Trust was known as Vanguard Quantitative
Portfolios, Inc. The Trust is registered with the United States Securities and
Exchange Commission under the Investment Company Act of 1940 (the "1940 Act")
as an open-end diversified management investment company. It currently offers
the following fund which has one class of shares:
Vanguard Growth and Income Fund (the "Fund")
The Trust has the ability to offer additional funds or classes of shares.
There is no limit on the number of full and fractional shares that the Trust
may issue for a single fund or class of shares.
Service Providers
Custodian. First Union National Bank, PA4943, 530 Walnut Street, Philadel-
phia, Pennsylvania 19106, serves as the Fund's custodian. The custodian is re-
sponsible for maintaining the Fund's assets and keeping all necessary accounts
and records.
B-1
<PAGE>
Independent Accountants. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Fund's independent accoun-
tants. The accountants audit the Fund's financial statements and provide other
related services.
Transfer and Dividend-Paying Agent. The Fund's transfer and dividend-paying
agent is The Vanguard Group, Inc., 100 Vanguard Boulevard, Malvern, Pennsylva-
nia 19355.
Characteristics of the Trust's Shares
Restrictions on Holding or Disposing of Shares. There are no restrictions on
the right of shareholders to retain or dispose of the Trust's shares, other
than the possible future termination of the Trust or any of its funds. The
Trust or any of its funds may be terminated by reorganization into another mu-
tual fund or by liquidation and distribution of the assets of the affected
fund. Unless terminated by reorganization or liquidation, the Trust and its
funds will continue indefinitely.
Shareholder Liability. The Trust is organized under Delaware law, which pro-
vides that shareholders of a business trust are entitled to the same limita-
tions of personal liability as shareholders of a corporation organized under
Delaware law. Effectively, this means that a shareholder of the Trust will not
be personally liable for payment of the Trust's debts except by reason of his
or her own conduct or acts. In addition, a shareholder could incur a financial
loss on account of a Trust obligation only if the Trust itself had no remain-
ing assets with which to meet such obligation. We believe that the possibility
of such a situation arising is extremely remote.
Dividend Rights. The shareholders of a fund are entitled to receive any div-
idends of other distributions declared for such fund. No shares have priority
or preference over any other shares of the same fund with respect to distribu-
tions. Distributions will be made from the assets of a fund, and will be paid
ratably to all shareholders of the fund (or class) according to the number of
shares of such fund (or class) held by shareholders on the record date. The
amount of income dividends per share may vary between separate share classes
of the same fund based upon differences in the way that expenses are allocated
between share classes pursuant to a multiple class plan.
Voting Rights. Shareholders are entitled to vote on a matter if: (i) a
shareholder vote is required under the 1940 act; (ii) the matter concerns an
amendment to the Declaration of Trust that would adversely affect to a mate-
rial degree the rights and preferences of the shares of any class or fund; or
(iii) the Trustees determine that it is necessary or desirable to obtain a
shareholder vote. The 1940 Act requires a shareholder vote under various cir-
cumstances, including to elect or remove Trustees upon the written request of
shareholders representing 10% or more of the Trust's net assets, and to change
any fundamental policy of the Trust. Shareholders of the Trust receive one
vote for each dollar of net asset value owned on the record date, and a frac-
tional vote for each fractional dollar of net asset value owned on the record
date. However, only the shares of the fund affected by a particular matter are
entitled to vote on that matter. Voting rights are non-cumulative and cannot
be modified without a majority vote of shareholders.
Liquidation Rights. In the event of liquidation, shareholders will be enti-
tled to receive a pro rata share of the net assets of applicable funds of the
Trust.
Preemptive Rights. There are no preemptive rights associated with the Trust.
Conversion Rights. There are no conversion rights associated with the Trust.
Redemption Provisions. The Trust's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional Informa-
tion.
Sinking Fund Provisions. The Trust has no sinking fund provisions.
B-2
<PAGE>
Calls or Assessment. The Trust's shares are fully paid and non-assessable.
Tax Status of the Trust
The Fund qualifies as a "regulated investment company" under Subchapter M of
the Internal Revenue Code. This special tax status means that a Fund will not
be liable for federal tax on income and capital gains distributed to share-
holders. In order to preserve its tax status, the Fund must comply with cer-
tain requirements. If a Fund fails to meet these requirements in any taxable
year, it will be subject to tax on its taxable income at corporate rates, and
all distributions from earnings and profits, including any distributions of
net tax-exempt income and net long-term capital gains, will be taxable to
shareholders as ordinary income. In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and make sub-
stantial distributions before regaining its tax status as a regulated invest-
ment company.
INVESTMENT POLICIES
The following policies supplement the Trust's investment policies set forth
in the Prospectus.
Futures Contracts
The Fund may enter into futures contracts, options, and options on futures
contracts for several reasons: to maintain cash reserves while simulating full
investment, to facilitate trading, to reduce transaction costs, or to seek
higher investment returns when a futures contract is priced more attractively
than the underlying equity security or index. Futures contracts provide for
the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. Futures contracts which are standardized as to maturity date and under-
lying financial instrument are traded on national futures exchanges. Futures
exchanges and trading are regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC"), a U.S. Government agency. As-
sets committed to futures contracts will be segregated to the extent required
by law.
Although futures contracts by their terms call for actual delivery or ac-
ceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Clos-
ing out an open futures position is done by taking an opposite position ("buy-
ing" a contract which has previously been "sold," or "selling" a contract pre-
viously purchased) in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure comple-
tion of the contract (delivery or acceptance of the underlying security) if it
is not terminated prior to the specified delivery date. Minimal initial margin
requirements are established by the futures exchange and may be changed. Bro-
kers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold with margin de-
posits which may range upward from less than 5% of the value of the contract
being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, a change in the
contract value may reduce the required margin, resulting in a repayment of ex-
cess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund ex-
pects to earn interest income on its margin deposits.
B-3
<PAGE>
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset unfavor-
able changes in the value of securities otherwise held for investment purposes
or expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of underlying securities. The Fund intends to use futures contracts
only for bona fide hedging purposes.
Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions except to the
extent that the aggregate initial margins and premiums required to establish
any non-hedging positions do not exceed five percent of the value of the
Fund's portfolio. The Fund will only sell futures contracts to protect securi-
ties it owns against price declines or purchase contracts to protect against
an increase in the price of securities it intends to purchase. As evidence of
this hedging interest, the Fund expects that approximately 75% of its futures
contract purchases will be "completed," that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Fund upon
sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Fund's exposure to market fluctuations, the use
of futures contracts may be a more effective means of hedging this exposure.
While the Fund will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.
Restrictions on the Use of Futures Contracts
The Fund will not enter into futures contract transactions to the extent
that, immediately thereafter, the sum of its initial margin deposits on open
contracts exceeds 5% of the market value of the Fund's total assets. In addi-
tion, the Fund will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts would ex-
ceed 20% of the Fund's total assets.
Risk Factors in Futures Transactions
Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assur-
ance that a liquid secondary market will exist for any particular futures con-
tract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments to maintain its required margin. In
such situations, if the Fund has insufficient cash, it may have to sell port-
folio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make deliv-
ery of the instruments underlying futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on the
ability of the Fund to hedge its portfolio effectively.
The Fund will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be sub-
stantial, due both to the low margin deposits required, and the extremely high
degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and sub-
stantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin,
a subsequent 10% decrease in the value of the futures contract would result in
a total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result
B-4
<PAGE>
in losses in excess of the amount invested in the contract. However, because
the futures strategies of the Fund are engaged in only for hedging purposes,
the Fund will not be subject to the risks of loss frequently associated with
futures transactions. The Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
security and sold it after the decline.
Utilization of futures transactions by the Fund does involve the risk of im-
perfect or no correlation where the securities underlying futures contracts
are different than the portfolio securities being hedged. It is also possible
that the Fund could both lose money on futures contracts and also experience a
decline in value of its portfolio securities. There is also the risk of loss
by the Fund of margin deposits in the event of bankruptcy of a broker with
whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades
may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the liquidation of unfa-
vorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of future positions and subjecting some
futures traders to substantial losses.
Federal Tax Treatment of Futures Contracts
The Fund is required for Federal income tax purposes to recognize as income
for each taxable year its net unrealized gains and losses on certain futures
contracts as of the end of the year as well as those actually realized during
the year. In most cases, any gain or loss recognized with respect to a futures
contract is considered to be 60% long-term capital gain or loss and 40% short-
term capital gain or loss, without regard to the holding period of the con-
tract. Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by the Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition. The Fund may be required to defer
the recognition of losses on futures contracts to the extent of any unrecog-
nized gains on related positions held by the Fund.
In order for the Fund to continue to qualify for Federal income tax treat-
ment as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income; i.e., dividends, inter-
est, income derived from loans of securities, gains from the sale of securi-
ties or of foreign currencies, or other income derived with respect to the
Fund's business of investing in securities. It is anticipated that any net
gain realized from the closing out of futures contracts will be considered
qualifying income for purposes of the 90% requirement.
The Fund will distribute to shareholders annually any net capital gains
which have been recognized for Federal income tax purposes (including
unrealized gains at the end of the Fund's fiscal year) on futures transac-
tions. Such distributions will be combined with distributions of capital gains
realized on the Fund's other investments and shareholders will be advised on
the nature of the distributions.
Foreign Investments
Vanguard Growth and Income Fund may invest up to 20% of its assets in for-
eign securities and may engage in currency transactions with respect to such
investments. Investors should recognize that investing in foreign companies
involves certain special considerations which are not typically associated
with investing in U.S. companies.
B-5
<PAGE>
Currency Risk. Since the stocks of foreign companies are frequently denomi-
nated in foreign currencies, and since the Fund may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Trust will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions be-
tween various currencies. The investment policies of the Fund permit it to en-
ter into forward foreign currency exchange contracts in order to hedge hold-
ings and commitments against changes in the level of future currency rates.
Such contracts involve an obligation to purchase or sell a specific currency
at a future date at a price set at the time of the contract.
Federal Tax Treatment of Non-U.S. Transactions. Special rules govern the
Federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing
of certain trade receivables and payables; and (iii) the entering into or ac-
quisition of any forward contract, futures contract, option and similar finan-
cial instrument if such instrument is not marked to market. The disposition of
a currency other than the U.S. dollar by a U.S. taxpayer is also treated as a
transaction subject to the special currency rules. However, foreign currency-
related regulated futures contracts and nonequity options are generally not
subject to the special currency rules if they are or would be treated as sold
for their fair market value at year-end under the marking-to-market rules ap-
plicable to other futures contracts unless an election is made to have such
currency rules apply. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. A taxpayer may elect to treat as capital gain or loss foreign currency
gain or loss arising from certain identified forward contracts, futures con-
tracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. The Treasury Department issued regulations
under which certain transactions subject to the special currency rules that
are part of a "section 988 hedging transaction" (as defined in the Internal
Revenue Code of 1986, as amended, and the Treasury regulations) will be inte-
grated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. Any gain or loss attributable to the foreign cur-
rency component of a transaction engaged in by a Fund which is not subject to
the special currency rules (such as foreign equity investments other than cer-
tain preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction. It is antici-
pated that some of the non-U.S. dollar-denominated investments and foreign
currency contracts Vanguard Growth and Income Fund may make or enter into will
be subject to the special currency rules described above.
Country Risk. As foreign companies are not generally subject to uniform ac-
counting, auditing, and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly avail-
able information about certain foreign companies than about domestic compa-
nies. Securities of some foreign companies are generally less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government supervision and regulation of stock exchanges, brokers, and
listed companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Although the Fund will endeavor to achieve most favorable execution costs in
its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on
U.S. exchanges. In addition, it is expected that the expenses for custodial
arrangements of the Fund's foreign securities will be somewhat greater than
the expenses for the custodial arrangements for handling U.S. securities of
equal value.
B-6
<PAGE>
Certain foreign governments levy withholding taxes against dividend and in-
terest income. Although in some countries a portion of these taxes is recover-
able, the non-recovered portion of foreign withholding taxes will reduce the
income the Fund receives from its foreign investments.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities. Il-
liquid securities are securities that may not be sold or disposed of in the
ordinary course of business within seven business days at approximately the
value at which they are being carried on the Fund's book.
The Fund may invest in restricted, privately placed securities that, under
SEC rules, may be sold only to qualified institutional buyers. Because these
securities can be resold only to qualified institutional buyers, they may be
considered illiquid securities--meaning that they could be difficult for the
Fund to convert to cash if needed.
If a substantial market develops for a restricted security held by the Fund,
it will be treated as a liquid security, in accordance with procedures and
guidelines approved by the Trust's Board of Trustees. This generally includes
securities that are unregistered that can be sold to qualified institutional
buyers in accordance with Rule 144A under the 1933 Act. While the Fund's in-
vestment adviser determines the liquidity of restricted securities on a daily
basis, the Board oversees and retains ultimate responsibility for the advis-
er's decisions. Several factors the Board considers in monitoring these deci-
sions include the valuation of a security, the availability of qualified in-
stitutional buyers, and the availability of information about the security's
issuer.
Repurchase Agreements
The Fund may invest in repurchase agreements with commercial banks, brokers
or dealers for defensive purposes due to market conditions or to generate in-
come from its excess cash balances. A repurchase agreement is an agreement un-
der which the Fund acquires a money market instrument (generally a security
issued by the U.S. Government or an agency thereof, a banker's acceptance or a
certificate of deposit) from a commercial bank, broker or dealer, subject to
resale to the seller at an agreed upon price and date (normally, the next
business day). A repurchase agreement may be considered a loan collateralized
by securities. The resale price reflects an agreed upon interest rate effec-
tive for the period the instrument is held by the Fund and is unrelated to the
interest rate on the underlying instrument. In these transactions, the securi-
ties acquired by the Fund (including accrued interest earned thereon) must
have a total value in excess of the value of the repurchase agreement and are
held by the Fund's custodian bank until repurchased. The Trust's Board of
Trustees will monitor the Fund's repurchase agreement transactions and will
establish guidelines and standards for review of the creditworthiness of any
bank, broker or dealer party to a repurchase agreement with the Fund.
The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligation to repurchase the un-
derlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the under-
lying security is collateral for a loan by the Fund not within the control of
the Fund and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Fund's man-
agement acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
Lending of Securities
The Fund may lend its investment securities to qualified institutional in-
vestors (typically brokers, dealers, banks or other financial institutions)
who need to borrow securities in order to complete certain
B-7
<PAGE>
transactions, such as covering short sales, avoiding failures to deliver secu-
rities or completing arbitrage operations. By lending its portfolio securi-
ties, the Fund attempts to increase its net investment income through the re-
ceipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for
the account of the Fund. The terms, the structure and the aggregate amount of
such loans must be consistent with the Investment Company Act of 1940 (the
"1940 Act"), and the Rules and Regulations or interpretations of the Securi-
ties and Exchange Commission (the "Commission") thereunder. These provisions
limit the amount of securities a Fund may lend to 33 1/3% of the Fund's total
assets, and require that (a) the borrower pledge and maintain with the Fund
collateral consisting of cash, a letter of credit issued by a domestic U.S.
bank, or securities issued or guaranteed by the United States Government hav-
ing at all times not less than 100% of the value of the securities loaned, (b)
the borrower add to such collateral whenever the price of the securities
loaned rises (i.e., the borrower "marks to the market" on a daily basis), (c)
the loan be made subject to termination by the Fund at any time, and (d) the
Fund receive reasonable interest on the loan (which may include the Fund's in-
vesting any cash collateral in interest bearing short-term investments), any
distribution on the loaned securities and any increase in their market value.
Loan arrangements made by the Fund will comply with all other applicable regu-
latory requirements, including the rules of the New York Stock Exchange, which
rules presently require the borrower, after notice, to redeliver the securi-
ties within the normal settlement time of three business days. All relevant
facts and circumstances, including the creditworthiness of the broker, dealer
or institution, will be considered in making decisions with respect to the
lending of securities, subject to review by the Trust's Board of Trustees.
At the present time, the Staff of the Commission does not object if an in-
vestment company pays reasonable negotiated fees in connection with loaned se-
curities, so long as such fees are set forth in a written contract and ap-
proved by the investment company's Trustees. In addition, voting rights pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
Vanguard Interfund Lending Program
The SEC has issued an exemptive order permitting the Fund to participate in
Vanguard's interfund lending program. This program allows the Vanguard funds
to borrow money from and loan money to each other for temporary or emergency
purposes. The program is subject to a number of conditions, including the re-
quirement that no fund may borrow or lend money through the program unless it
receives a more favorable interest rate than is available from a typical bank
for a comparable transaction. In addition, a fund may participate in the pro-
gram only if and to the extent that such participation is consistent with the
fund's investment objective and other investment policies. The Board of Trust-
ees of the Vanguard funds are responsible for ensuring that the interfund
lending program operates in compliance with all conditions of the SEC's
exemptive order.
Temporary Investments
The Fund may take temporary defensive measures that are inconsistent with
the Fund's normal investment strategies in response to adverse market, econom-
ic, political or other conditions. Such measures could include investments in
(a) highly liquid short-term fixed income securities issued by or on behalf of
municipal or corporate issuers, obligations of the U.S. Government and its
agencies, commercial paper, and bank certificates of deposit; (b) shares of
other investment companies which have investment objectives consistent with
those of the Fund; (c) repurchase agreements involving any such securities;
and (d) other money market instruments. There is no limit on the extent to
which the Fund may take temporary defensive measures. In taking such measures,
the Fund may fail to achieve its investment objective.
B-8
<PAGE>
FUNDAMENTAL INVESTMENT LIMITATIONS
The Fund is subject to the following fundamental investment limitations,
which cannot be changed in any material way without the approval of the hold-
ers of a majority of the shares. For these purposes, a "majority" of shares
means shares representing the lesser of: (i) 67% or more of the votes cast to
approve a change, so long as shares representing more than 50% of the net as-
set value are present or represented by proxy; or (ii) more than 50% of the
net asset value.
Arbitrage. The Fund may not engage in arbitrage operations except as permit-
ted by its investment policies relating to commodities.
Beneficial Ownership. The Fund may not purchase or retain any security if
(i) one or more Officers, Trustees or Partners of the Fund or its investment
adviser individually own or would own, directly or beneficially, more than 1/2
of 1% of the securities of such issuer, and (ii) in the aggregate such persons
own or would own more than 5% of such securities.
Borrowing. The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 15% of the Fund's net assets. The Fund may
borrow money through banks, or Vanguard's interfund lending program only, and
must comply with all applicable regulatory conditions. The Fund may not make
any additional investments whenever its outstanding borrowings exceed 5% of
net assets.
Commodities. The Fund may not invest in commodities, except that it may in-
vest in stock futures contracts, stock options, and options on stock futures
contracts. No more that 5% of its total assets may be used as initial margin
deposit for futures contracts, and no more than 20% of its total assets may be
invested in futures contracts or options at any time.
Diversification. With respect to 75% of its total assets, the Fund may not:
(i) purchase more than 10% of the outstanding voting securities of any one is-
suer, or (ii) purchase securities of any issuer if, as a result, more than 5%
of the its total assets would be invested in that issuer's securities. This
limitation does not apply to obligations of the United States Government, its
agencies, or instrumentalities.
Illiquid Securities. The Fund may not acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are il-
liquid.
Industry Concentration. The Fund may not invest more than 25% of its total
assets in any one industry.
Investing for Control. The Fund may not invest in a company for the purpose
of controlling its management.
Investment Companies. The Fund may not invest in any other investment compa-
ny, except through a merger, consolidation or acquisition of assets, or to the
extent permitted by Section 12 of the 1940 Act. Investment companies whose
shares the Fund acquires pursuant to Section 12 must have investment objec-
tives and investment policies consistent with those of the Fund.
Loans. The Fund may not lend money to any person except by purchasing fixed
income securities that are publicly distributed or by entering into repurchase
agreements, by lending its portfolio securities, or through Vanguard's
interfund lending program.
Margin. The Fund may not purchase securities on margin or sell securities
short, except as permitted by its investment policies relating to commodities.
Oil, gas, minerals. The Fund may not invest directly in interests in oil,
gas or other mineral exploration or development programs.
B-9
<PAGE>
Pledging assets. The Fund may not pledge, mortgage or hypothecate more that
15% of its net assets.
Real Estate. The Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate and bonds se-
cured by real estate.
Senior securities. The Fund may not issue senior securities, except in com-
pliance with the 1940 Act.
Underwriting. The Fund may not engage in the business of underwriting secu-
rities issued by other persons. The Fund will not be considered an underwriter
when disposing of its investment securities.
The investment limitations set forth above are considered at the time in-
vestment securities are purchased. If a percentage restriction is adhered to
at the time the investment is made, a later increase in percentage resulting
from a change in the market value of assets will not constitute a violation of
such restriction.
None of these limitations prevents the Fund from participating in The Van-
guard Group, Inc. ("Vanguard"). As a member of The Vanguard Group of Invest-
ment Companies, the Fund may own securities issued by Vanguard, make loans to
Vanguard, and contribute to Vanguard's costs or other financial requirements.
See "Management of the Trust" for more information.
YIELD AND TOTAL RETURN
The yield of the Fund for the 30-day period ended December 31, 1998 was %.
The average annual total return of the Fund for the 1-, 5- and 10-year peri-
ods ended December 31, 1998 was %, %, and %, respectively. Total return
is computed by determining the average compounded rates of return over the
one-, five- and ten-year periods set forth above that would equate an initial
amount invested at the beginning of the periods to the ending redeemable value
of the investment.
Average Annual Total Return
Average annual total return is the average annual compounded rate of return
for the periods of one year, five years, ten years or the life of the Fund,
all ended on the last day of a recent month. Average annual total return quo-
tations will reflect changes in the price of the Fund's shares and assume that
all dividends and capital gains distributions during the respective periods
were reinvested in Fund shares. Average annual total return is calculated by
finding the average annual compounded rates of return of a hypothetical in-
vestment over such periods according to the following formula (average annual
total return is then expressed as a percentage):
T = (ERV/P)/1//n-1
Where:
<TABLE>
<C> <C> <S>
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period
</TABLE>
B-10
<PAGE>
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that
all dividends and capital gains distributions during the period were rein-
vested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of a return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed
as a percentage):
C = (ERV/P)-1
Where:
<TABLE>
<C> <C> <S>
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period
</TABLE>
SEC Yield
Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield is calculated by di-
viding the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula:
YIELD = 2[((a-b/cd+1)/6/-1]
Where:
<TABLE>
<C> <C> <S>
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
</TABLE>
SHARE PRICE
The Fund's share price, or "net asset value" per share, is calculated by di-
viding the total assets of the Fund, 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 (the "Exchange", generally 4:00 p.m. Eastern time)
on each day that the Exchange is open for trading.
Portfolio securities for which market quotations are readily available (in-
cludes 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 re-
flect the fair market value of such securities.
Short term instruments (those 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 secu-
B-11
<PAGE>
rity, but take into account institutional-size transactions in similar groups
of securities as well as any developments related to specific securities.
Foreign securities are valued at the last quoted sales price, according to
the broadest and most representative market, available at the time the Fund is
valued. If events which materially affect the value of a Fund's investments
occur after the close of the securities markets on which such securities are
primarily traded, those investments may be valued by such methods as the Board
of Trustees deems in good faith to reflect fair value.
In determining the Fund's net asset value per share, all assets and liabili-
ties initially expressed in foreign currencies will be converted into U.S.
dollars using the officially quoted daily exchange rates used by Morgan Stan-
ley Capital International in calculating various benchmarking indices. This
officially quoted exchange rate may be determined prior to or after the close
of a particular securities market. If such quotations are not available, the
rate of exchange will be determined in accordance with policies established in
good faith by the Board of Trustees.
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 Trustees deems in good faith to reflect fair value.
The share price for the Fund can be found daily in the mutual fund listings
of most major newspapers under the heading of Vanguard Funds.
PURCHASE OF SHARES
The Trust reserves the right in its sole discretion: (i) to suspend the of-
ferings of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Trust, and (iii) to
reduce or waive the minimum investment for or any other restrictions on ini-
tial and subsequent investments for certain fiduciary accounts or under cir-
cumstances where certain economies can be achieved in sales of the Trust's
shares.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of payment:
(i) during any period that the New York Stock Exchange is closed, or trading
on the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"), (ii) during any period when an emergency exists
as defined by the rules of the Commission as a result of which it is not rea-
sonably practicable for the Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods
as the Commission may permit.
The Fund has authorized Charles Schwab & Co., Inc. ("Schwab") to accept on
its behalf purchase and redemption orders under certain terms and conditions.
Schwab is also authorized to designate other intermediaries to accept purchase
and redemption orders on the Fund's behalf subject to those terms and condi-
tions. Under this arrangement, the Fund will be deemed to have received a pur-
chase or redemption order when Schwab or, if applicable, Schwab's authorized
designee, accepts the order in accordance with the Fund's instructions. Cus-
tomer orders that are properly transmitted to the Fund by Schwab, or if appli-
cable, Schwab's authorized designee, will be priced as follows:
Orders received by Schwab before 3 p.m. Eastern time on any business day,
will be sent to Vanguard that day and your share price will be based on the
Fund's net asset value calculated at the close of trading that day. Orders
received by Schwab after 3 p.m. Eastern time, will be sent to Vanguard on
the following business day and your share price will be based on the Fund's
net asset value calculated at the close of trading that day.
B-12
<PAGE>
MANAGEMENT OF THE TRUST
Officers and Trustees
The Officers of the Trust manage its day-to-day operations and are responsi-
ble to the Trust's Board of Trustees. The Trustees set broad policies for the
Trust and choose its Officers. The following is a list of the Trustees and Of-
ficers of the Trust and a statement of their present positions and principal
occupations during the past five years. As a group, the Trust's Trustees and
Officers own less than 1% of the outstanding shares of the Trust. Each Trustee
also serves as a Director of the Vanguard Group, Inc., and as a Trustee of
each of the 36 investment companies administered by Vanguard (35 in the case
of Mr. Malkiel and 28 in the case of Mr. MacLaury). The mailing address of the
Trustees and Officers of the Trust is Post Office Box 876, Valley Forge, Penn-
sylvania 19482.
JOHN C. BOGLE, (DOB: 5/8/1929) Senior Chairman and Trustee*
Senior Chairman and Director of The Vanguard Group, Inc., and Trustee of each
of the investment companies in The Vanguard Group; Director of The Mead Corp.
(Paper Products), General Accident Insurance, and Chris-Craft Industries, Inc.
(Broadcasting & Plastics Manufacturer).
JOHN J. BRENNAN, (DOB: 7/29/1954) Chairman, Chief Executive Officer & Trustee*
Chairman, Chief Executive Officer and Director of The Vanguard Group, Inc.,
and Trustee of each of the investment companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) Trustee
Vice President, Chief Information Officer, and member of the Executive Commit-
tee of Johnson and Johnson (Pharmaceuticals/Consumer Products), Director of
Johnson & Johnson*MERCK Consumer Pharmaceuticals Co., Women First HealthCare,
Inc. (Research and Education Institution), Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.
BRUCE K. MACLAURY, (DOB: 5/7/1931) Trustee
President Emeritus of The Brookings Institution (Independent Non-Partisan Re-
search Organization); Director of American Express Bank, Ltd., The St. Paul
Companies, Inc. (Insurance and Financial Services), and National Steel Corp.
BURTON G. MALKIEL, (DOB: 8/28/1932) Trustee
Chemical Bank Chairman's Professor of Economics, Princeton University; Direc-
tor of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker
Fentress & Co. (Investment Management), The Jeffrey Co. (Holding Company), and
Southern New England Telecommunications Co.
ALFRED M. RANKIN, Jr., (DOB: 10/8/1941) Trustee
Chairman, President, Chief Executive Officer, and Director of NACCO Industries
(Machinery/Coal/ Appliances); Director of The BFGoodrich Co. (Aircraft
Systems/Manufacturing/Chemicals), and The Standard Products Co. (Rubber Prod-
ucts Company).
JOHN C. SAWHILL, (DOB: 6/12/1936) Trustee
President and Chief Executive Officer of The Nature Conservancy (Non-Profit
Conservation Group); Director of Pacific Gas and Electric Co., Procter & Gam-
ble Co., NACCO Industries (Machinery/Coal/Appliances), and Newfield Explora-
tion Co. (Energy); formerly, Director and Senior Partner of McKinsey & Co.,
and President of New York University.
JAMES O. WELCH, Jr., (DOB: 5/13/1931) Trustee
Retired Chairman of Nabisco Brands, Inc. (Food Products); retired Vice Chair-
man and Director of RJR Nabisco (Food and Tobacco Products); Director of TECO
Energy, Inc., and Kmart Corp.
B-13
<PAGE>
J. LAWRENCE WILSON, (DOB: 3/2/1936) Trustee
Chairman and Chief Executive Officer of Rohm & Haas Co. (Chemicals); Director
of Cummins Engine Co. (Diesel Engine Company), and The Mead Corp. (Paper Prod-
ucts); and Trustee of Vanderbilt University.
RAYMOND J. KLAPINSKY, (DOB: 12/7/38) Secretary*
Managing Director of the Vanguard Group, Inc.; Secretary of The Vanguard
Group, Inc. and of each of the investment companies in The Vanguard Group.
THOMAS J. HIGGINS, (DOB: 5/21/1957) Treasurer*
Principal of The Vanguard Group, Inc.; Treasurer of each of the investment
companies in The Vanguard Group.
ROBERT D. SNOWDEN, (DOB: 9/4/1961) Controller*
Principal of The Vanguard Group, Inc.; Controller of each of the investment
companies in The Vanguard Group.
- --------
*Officers of the Trust are "interested persons" as defined in the Investment
Company Act of 1940.
The Vanguard Group
The Trust is a member of The Vanguard Group of Investment Companies which
consists of more than 35 investment companies (the "Trusts"). Through their
jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Trust and
the other Trusts in The Vanguard Group obtain at cost virtually all of their
corporate management, administrative and distribution services. Vanguard also
provides investment advisory services on an at-cost basis to several of the
Vanguard Trusts.
Vanguard employs a supporting staff of management and administrative person-
nel needed to provide the requisite services to the Trusts and also furnishes
the Trusts with necessary office space, furnishings and equipment. Each Trust
pays its share of Vanguard's total expenses which are allocated among the
Trusts under methods approved by the Board of Trustees of each Trust. In addi-
tion, each Trust bears its own direct expenses such as legal, auditing and
custodian fees.
The Trust's Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external ad-
viser for the Trusts.
Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1 un-
der the Investment Company Act of 1940. The Code is designed to prevent unlaw-
ful practices in connection with the purchase or sale of securities by persons
associated with Vanguard. Under Vanguard's Code of Ethics certain Officers and
employees of Vanguard who are considered access persons are permitted to en-
gage in personal securities transactions. However, such transactions are sub-
ject to procedures and guidelines similar to, and in many cases more restric-
tive than, those recommended by a blue ribbon panel or mutual fund industry
executives.
Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the
Trusts. The amounts which each of the Trusts have invested are adjusted from
time to time in order to maintain the proportionate relationship between each
Trust's relative net assets and its contribution to Vanguard's capital. At De-
cember 31, 1998, the Trust had contributed capital of $ . to Vanguard, repre-
senting . % of the Fund's net assets and . % of Vanguard's capitalization.
The Amended and Restated Funds' Service Agreement provides for the following
arrangement: (a) each Vanguard Trust may be called upon to invest up to .40%
of its current assets in Vanguard, and (b) there is no other limitation on the
dollar amount that each Vanguard Trust may contribute to Vanguard's
capitalization.
B-14
<PAGE>
Management
Corporate management and administrative services include: (1) executive
staff; (2) accounting and financial; (3) legal and regulatory; (4) shareholder
account maintenance; (5) monitoring and control of custodian relationships;
(6) shareholder reporting; and (7) review and evaluation of advisory and other
services provided to the Trusts by third parties. During the fiscal year ended
December 31, 1998, the Trust's share of Vanguard's actual net costs of opera-
tion relating to management and administrative services (including transfer
agency) totaled approximately $ . .
Distribution
Vanguard Marketing Corporation, a wholly-owned subsidiary of The Vanguard
Group, Inc., provides all distribution and marketing activities for the Trusts
in the Group. The principal distribution expenses are for advertising, promo-
tional materials and marketing personnel. Distribution services may also in-
clude organizing and offering to the public, from time to time, one or more
new investment companies which will become members of The Vanguard Group. The
Trustees and Officers of Vanguard determine the amount to be spent annually on
distribution activities, the manner and amount to be spent on each Trust, and
whether to organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Trusts based upon relative net assets. The remaining
one half of those expenses is allocated among the Trusts based upon each
Trust's sales for the preceding 24 months relative to the total sales of the
Trusts as a Group. Provided, however, that no Trust's aggregate quarterly rate
of contribution for distribution expenses of a marketing and promotional na-
ture shall exceed 125% of average distribution expense rate for The Vanguard
Group, and that no Trust shall incur annual distribution expenses in excess of
20/100 of 1% of its average month-end net assets. During the year ended Decem-
ber 31, 1998, the Trust incurred approximately $ . of The Vanguard Group's
distribution and marketing expenses which represented an effective annual rate
of . of 1% of the Trust's average month-end net assets.
Investment Advisory Services
Vanguard also provides investment advisory services to several Vanguard
Trusts. These services are provided on an at-cost basis from a money manage-
ment staff employed directly by Vanguard. The compensation and other expenses
of this staff are paid by the Trusts using these services.
Trustee Compensation
The individuals in the following table serve as Trustees of all Vanguard
Trusts, and each Trust pays a proportionate share of the Trustees' compensa-
tion. The Trusts employ their Officers on a shared basis, as well. However,
Officers are compensated by The Vanguard Group, Inc., not the Trusts.
Independent Trustees. The Trusts compensate their independent Trustees--that
is, the ones who are not also officers of the Trust--in three ways:
. The independent Trustees receive an annual fee for their service to the
Trusts, which is subject to reduction based on absences from scheduled
Board meetings.
. The independent Trustees are reimbursed for the travel and other
expenses that they incur in attending Board meetings.
. Upon retirement, the independent Trustees receive an aggregate annual
fee of $1,000 for each year served on the Board, up to fifteen years of
service. This annual fee is paid for ten years following retirement, or
until each Trustee's death.
"Interested" Trustees. The Trusts' interested Trustees--Messrs. Bogle and
Brennan--receive no compensation for their service in that capacity. However,
they are paid in their role as Officers of The Vanguard Group, Inc.
B-15
<PAGE>
Compensation Table. The following table provides compensation details for
each of the Trustees. For the Trust, we list the amounts paid as compensation
and accrued as retirement benefits by the Trust for each Trustee. In addition,
the table shows the total amount of benefits that we expect each Trustee to
receive from all Vanguard Trusts upon retirement, and the total amount of com-
pensation paid to each Trustee by all Vanguard Trusts. All information shown
is for the fiscal year ended December 31, 1998.
VANGUARD QUANTITATIVE FUNDS
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Benefits Annual From All
Aggregate Accrued As Benefits Vanguard
Compensation Part of Trust Upon Trusts Paid to
Names of Trustees From Trust Expenses Retirement Trustees(1)
- ----------------- ------------ ------------- ---------- --------------
<S> <C> <C> <C> <C>
John C. Bogle............. None None None None
John J. Brennan........... None None None None
Barbara Barnes
Hauptfuhrer(2)........... $ 0 $ 0 $ 0 $ 0
Robert E. Cawthorn(2)..... $ 0 $ 0 $ 0 $ 0
Joann Heffernan Heisen.... $ 0 $ 0 $ 0 $ 0
Bruce K. MacLaury......... $ 0 $ 0 $ 0 $ 0
Burton G. Malkiel......... $ 0 $ 0 $ 0 $ 0
Alfred M. Rankin, Jr. .... $ 0 $ 0 $ 0 $ 0
John C. Sawhill........... $ 0 $ 0 $ 0 $ 0
James O. Welch, Jr. ...... $ 0 $ 0 $ 0 $ 0
J. Lawrence Wilson........ $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------
(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 36 Vanguard Trusts (35
in the case of Mr. Malkiel; 28 in the case of Mr. MacLaury).
(2) Mr. Cawthorn and Mrs. Hauptfuhrer have retired from the Trust's Board,
effective May 31, 1998 and December 31, 1998, respectively.
INVESTMENT ADVISORY SERVICES
The Trust employs Franklin Portfolio Associates LLC ("FPA") under an advi-
sory agreement, to manage the investment and reinvestment of Vanguard Growth
and Income Fund's assets and to continuously review, supervise and administer
the Fund's investment program. FPA discharges its responsibilities subject to
control of the Officers and Trustees of the Trust.
The Fund pays FPA a basic fee at the end of each fiscal quarter, calculated
by applying a quarterly rate, based on the following annual percentage rates,
to the Fund's average month-end net assets for the quarter:
<TABLE>
<CAPTION>
Net Assets Rate
---------- -----
<S> <C>
First $100 million..................................................... 0.30%
Next $650 million...................................................... 0.15%
Next $1.25 billion..................................................... 0.10%
Next $3 billion........................................................ 0.08%
Over $5 billion........................................................ 0.06%
</TABLE>
B-16
<PAGE>
The basic fee paid to FPA may be increased or decreased by applying an ad-
justment formula based on the Fund's investment performance relative to that
of the S&P 500 Composite Stock Price Index as follows:
<TABLE>
<CAPTION>
Thirty-six Month
Performance
Differential vs.
the S&P 500 Incentive (+)/
Composite Stock Penalty (-) Fee
Price Index Rate
---------------- -----------------
<S> <C>
+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
</TABLE>
Under the rules of the Securities and Exchange Commission, the new
incentive/penalty fee will not be fully operable until April 30, 2001. Until
that date, a transition schedule consisting of varying percentages of (i) the
performance adjustment based on the schedule set forth above (the "New Rate"),
and (ii) the performance adjustment based on the schedule set forth in the
Fund's previous investment advisory agreement with the adviser/1/ (the "Previ-
ous Rate") shall be used. For each fiscal quarter included in the 36 months
beginning May 1, 1998, the incentive/penalty fee will be calculated as the sum
of a and b whereby:
a = # of months elapsed since 5/1/1998 X the New Rate fee adjustment
----------------------------------
36 months
b = # of months remaining until 4/30/2001 X the Previous Rate fee adjustment
------------------------------------
36 months
The present agreement is renewable for successive one-year periods, only if
each renewal is specifically approved by a vote of the Trust's Board of Trust-
ees, including the affirmative votes of a majority of the Trustees who are not
parties to the contract or "interested persons" (as defined in the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of con-
sidering such approval. The agreement is automatically terminated if assigned,
and may be terminated without penalty at any time (1) either by vote of the
Board of Trustees of the Trust on 60 days' written notice to FPA, or (2) by
FPA upon 90 days' written notice to the Trust.
The Fund's Board of Trustees may, without the approval of shareholders, pro-
vide for:
(i) The employment of a new investment adviser pursuant to the terms of a
new advisory agreement, either as a replacement for FPA or as an additional
adviser;
(ii) A change in the terms of an advisory agreement; and
(iii) The continued employment of an existing adviser on the same advi-
sory contract terms where a contract has been assigned because of a change
in control of the adviser.
- --------
(1) The previous incentive/penalty fee structure provided that the basic fee
be increased or decreased by an amount equal to .20% per annum (.05% per
quarter) of the first $100 million of average month-end net assets of the
Fund, and .10% per annum (.025% per quarter) of average month-end net
assets over $100 million, if the Fund's investment performance for the
thirty-six months preceding the end of the quarter is six percentage
points or more above or below, respectively, the investment record of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index") for
the same period; or by an amount equal to .10% per annum (.025% per
quarter) of the first $100 million of average month-end net assets and
.05% per annum (.0125% per quarter) of average month-end net assets over
$100 million, if the Fund's investment performance for such thirty-six
months is three or more but less than six percentage points above or
below, respectively, the investment record of the S&P Index for the same
period.
B-17
<PAGE>
Any such change will be communicated to shareholders in writing.
During the years ended December 31, 1996, 1997 and 1998, the Fund incurred
investment advisory fees of approximately $1,646,000, $2,231,000 before a de-
crease of $244,000 based on performance, and $ . , respectively.
Description of FPA
FPA is a Delaware corporation and 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.
PORTFOLIO TRANSACTIONS
The investment advisory agreement authorizes the Adviser (with the approval
of the Trust's Board of Trustees) to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund and di-
rects the Adviser to use its best efforts to obtain the best available price
and most favorable execution as to all transactions for the Fund. The Adviser
has undertaken to execute each investment transaction at a price and commis-
sion which provides the most favorable total cost or proceeds reasonably ob-
tainable under the circumstances. During the years ended December 31, 1996,
1997 and 1998 the Fund paid $1,563,135, $2,018,001, and $ . in brokerage com-
missions, respectively.
In placing portfolio transactions, the Adviser will use its best judgment to
choose the broker most capable of providing the brokerage services necessary
to obtain best available price and most favorable execution. The full range
and quality of brokerage services available will be considered in making these
determinations. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and statistical information and
provide other services in addition to execution services to the Fund and/or
the investment adviser. The investment adviser considers such information use-
ful in the performance of its obligations under the agreement, but is unable
to determine the amount by which such services may reduce its expenses.
The investment advisory agreement also incorporates the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Trust's Board of Trustees, the adviser may cause the Fund 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 re-
sponsibilities of the Adviser to the Fund.
Currently, it is the Fund's policy that the 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. The adviser will only pay such higher com-
missions if it believes this to be in the best interest of the Fund. Some bro-
kers or dealers who may receive such higher commissions in recognition of bro-
kerage services related to execution of securities transactions are also
providers of research information to the adviser and/or the Fund. However, the
investment adviser has informed the Trust that it generally will not pay
higher commission rates specifically for the purpose of obtaining reasearch
services.
Some securities considered for investment by the Fund may also be appropri-
ate for other Vanguard Funds and/or other clients served by the investment ad-
viser. If purchase or sale of securities consistent with the investment poli-
cies of the Fund, the other Vanguard Funds and/or one or more of these other
B-18
<PAGE>
clients are considered at or about the same time, transactions in such securi-
ties will be allocated among the Vanguard Funds and such other clients in a
manner deemed equitable by the adviser. Although there will be no specified
formula for allocating such transactions, the allocation methods used, and the
results of such allocations, will be subject to periodic review by the Trust's
Board of Trustees.
B-19
<PAGE>
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended December 31, 1998, in-
cluding the financial highlights for each of the five years in the period
ended December 31, 1998, appearing in the Fund's 1998 Annual Report to Share-
holders, and the report thereon of PricewaterhouseCoopers LLP, independent ac-
countants, also appearing therein, are incorporated by reference in this
Statement of Additional Information. For a more complete discussion of the
performance, please see the Fund's Annual Report to Shareholders, which may be
obtained without charge.
B-20
<PAGE>
PERFORMANCE MEASURES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member Trusts of The Vanguard Group of Investment Companies.
Each of the investment company members of The Vanguard Group, including Van-
guard Growth and Income Fund, may from time to time, use one or more of the
following unmanaged indexes for comparative performance purposes.
Standard and Poor's 500 Composite Stock Price Index--contains the stocks of
500 of the largest domestic companies.
Standard & Poor's MidCap 400 Index--is composed of 400 medium sized domestic
stocks.
Standard & Poor's SmallCap 600/BARRA Value Index--contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.
Standard & Poor's SmallCap 600/BARRA Growth Index--contains stocks of the
S&P SmallCap 600 Index which have a higher than average price-to-book ratio.
Russell 1000 Value Index--consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios, comprising 50% of the
market capitalization of the Russell 1000.
Wilshire 5000 Equity Index--consists of more than 7,000 common equity secu-
rities, covering all stocks in the U.S. for which daily pricing is available.
Wilshire 4500 Equity Index--consists of all stocks in the Wilshire 5000 ex-
cept for the 500 stocks in the Standard and Poor's 500 Index.
Morgan Stanley Capital International EAFE Index--is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australasia, Asia, and the Far East.
Goldman Sachs 100 Convertible Bond Index--currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for convert-
ible issues of $100 million or greater in market capitalization. The index is
priced monthly.
Salomon Brothers GNMA Index--includes pools of mortgages originated by pri-
vate lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.
Salomon Brothers High-Grade Corporate Bond Index--consists of publicly-is-
sued, non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.
Lehman Long-Term Treasury Bond Index--is composed of all bonds covered by
the Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
Merrill Lynch Corporate & Government Bond Index--consists of over 4,500 U.S.
Treasury, agency and investment grade corporate bonds.
Lehman Corporate (Baa) Bond Index--all publicly-offered fixed-rate, noncon-
vertible domestic corporate bonds rated Baa by Moody's, with a maturity longer
than 1 year and with more than $25 million outstanding. This index includes
over 1,000 issues.
B-21
<PAGE>
Bond Buyer Municipal Bond Index--is a yield index on current coupon high
grade general obligation municipal bonds.
Standard & Poor's Preferred Index--is a yield index based upon the average
yield for four high grade, non-callable preferred stock issues.
NASDAQ Industrial Index--is composed of more than 3,000 industrial issues.
It is a value-weighted index calculated on price change only and does not in-
clude income.
Composite Index--70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
Composite Index--65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
Composite Index--65% Lehman Long-Term Corporate AA or Better Bond Index and
a 35% weighting in a blended equity composite (75% Standard & Poor's/BARRA
Value Index, 12.5% Standard & Poor's Utilities Index and 12.5% Standard and
Poor's Telephone Index).
Lehman Long-Term Corporate AA or Better Bond Index--consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated, SEC-
registered corporate debt rated AA or AAA.
Lehman Brothers Aggregate Bond Index--is a market-weighted index that con-
tains individually priced U.S. Treasury, agency, corporate, and mortgage pass-
through securities corporate rated BBB- or better. The Index has a market
value of over $4 trillion.
Lehman Brothers Mutual Fund Short (1-5) Government/Corporate Index--is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities be-
tween 1 and 5 years. The index has a market value of over $1.6 trillion.
Lehman Brothers Mutual Fund Intermediate (5-10) Government/Corporate Index--
is a market-weighted index that contains individually priced U.S. Treasury,
agency, and corporate securities rated BBB- or better with maturities between
5 and 10 years. The index has a market value of over $700 billion.
Lehman Brothers Long (10+) Government/Corporate Index--is a market-weighted
index that contains individually priced U.S. Treasury, agency and corporate
securities rated BBB- or better with maturities greater than 10 years. The in-
dex has a market value of over $900 billion.
B-22
<PAGE>
PART C
VANGUARD QUANTITATIVE FUNDS
OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
(a) Declaration of Trust*
(b) By-Laws*
(c) Not Applicable
(d) Investment Advisory Contract Addendum+
(e) Not Applicable
(f) Reference is made to the section entitled "Management of the Trust" in
the Registrant's Statement of Additional Information
(g) Custodian Agreement*
(h) Amended and Restated Funds' Service Agreement*
(i) Legal Opinion*
(j) Consent of Independent Accountants**
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Financial Data Schedule+
(o) Not Applicable
</TABLE>
- --------
* Filed previously
** To be filed by Amendment
+ Filed herewith
Item 24. Persons Controlled by or under Common Control with the Fund
Registrant is not controlled by or under common control with any person.
Item 25. Indemnification
The Registrant's organizational documents contain provisions indemnifying
Trustees and Officers against liability incurred in their official capacity.
Article VII, Section 2 of the Declaration of Trust provides that the Regis-
trant may indemnify and hold harmless each and every Trustee and Officer from
and against any and all claims, demands, costs, losses, expenses, and damages
whatsoever arising out of or related to the performance of his or her duties
as a Trustee or Officer. However, this provision does not cover any liability
to which a Trustee or Officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Article VI of the By-Laws gener-
ally provides that the Registrant shall indemnify its Trustees and Officers
from any liability arising out of their past or present service in that capac-
ity. Among other things, this provision excludes any liability arising by rea-
son of willful misfeasance, bad faith, gross negligence, or the reckless dis-
regard of the duties involved in the conduct of the Trustee's or Officer's
office with the Registrant.
Item 26. Business and Other Connections of the Investment Adviser
Franklin Portfolio Associates LLC ("FPA"), Two International Place, Boston,
Massachusetts 02109, is the Investment Adviser. FPA is a wholly-owned subsidi-
ary of MBC Investments Corporation which is a wholly owned subsidiary of
Mellon Bank that has no affiliation to The Franklin/Templeton Group of Funds
or Franklin Resources, Inc. Neither FPA nor MBC has any other affiliation with
the registrant.
C-1
<PAGE>
FPA is an investment adviser registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"). The list required by this Item 26 of
officers and trustees of FPA, together with any information as to any business
profession, vocation or employment of a substantial nature engaged in by such
officers and trustees during the past two years, is incorporated herein by
reference from Schedules B and D of Form ADV filed by FPA pursuant to the Ad-
visers Act (SEC File No. 801-17057).
Item 27. Principal Underwriters
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
Item 28. Location of Accounts and Records
The books, accounts and other documents required by Section 31(a) under the
Act and the Rules thereunder will be maintained at the offices of Registrant;
and Registrant's Transfer Agent, The Vanguard Group, Inc., Valley Forge, Penn-
sylvania 19482; and the Registrant's Custodian, First Union National Bank,
Philadelphia, Pennsylvania 19106.
Item 29. Management Services
Other than as set forth under the description of The Vanguard Group in Part
B of this Registration Statement, Registrant is not a party to any management-
related service contract.
Item 30. Undertakings
Not Applicable
C-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Invest-
ment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly autho-
rized, in the Town of Valley Forge and the Commonwealth of Pennsylvania, on
the 8th day of February, 1999.
Vanguard Quantitative Funds
Heidi Stam
By: _________________________________
John J. Brennan*
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effec-
tive Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
(Heidi Stam) Senior Chairman of the February 8, 1999
______________________________________ Board and Trustee
John C. Bogle*
(Heidi Stam) Chairman, Chief Executive February 8, 1999
______________________________________ Officer and Trustee
John J. Brennan*
(Heidi Stam) Trustee February 8, 1999
______________________________________
JoAnn Heffernan Heisen*
(Heidi Stam) Trustee February 8, 1999
______________________________________
Burton G. Malkiel*
(Heidi Stam) Trustee February 8, 1999
______________________________________
Bruce K. MacLaury*
(Heidi Stam) Trustee February 8, 1999
______________________________________
Alfred M. Rankin, Jr.*
(Heidi Stam) Trustee February 8, 1999
______________________________________
John C. Sawhill*
(Heidi Stam) Trustee February 8, 1999
______________________________________
James O. Welch, Jr.*
(Heidi Stam) Trustee February 8, 1999
______________________________________
J. Lawrence Wilson*
(Heidi Stam) Treasurer and Principal February 8, 1999
______________________________________ Financial Officer and
Thomas J. Higgins* Accounting Officer
*By: _________________________________
</TABLE>
*By Power of Attorney. See File Number 33-4424, filed on January 25, 1999. In-
corporated by Reference.
<PAGE>
Exhibit Index
<TABLE>
<S> <C>
Investment Advisory Contract Addendum.................................. EX-99.BD
Financial Data Schedule................................................ EX-99.BN
</TABLE>
<PAGE>
EX-99.BD
VANGUARD QUANTITATIVE PORTFOLIOS, INC.
INVESTMENT ADVISORY AGREEMENT ADDENDUM
--------------------------------------
Effective May 1, 1998
This Addendum amends Section 4 of the Investment Advisory Agreement dated
April 1, 1996 between Vanguard QUANTITATIVE PORTFOLIOS, Inc. (the "Fund") and
Franklin Portfolio Associates ("FPA").
1. New Fee Schedules. The Fund will compensate FPA according to the
following fee schedules:
BASIC FEE
---------
Assets Managed Annual Rate
-------------- -----------
First $100 million 0.30%
Next $650 million 0.15%
Next $1.25 billion 0.10%
Next $3 billion 0.08%
Over $5 billion 0.06%
INCENTIVE /PENALTY FEE vs. S&P 500 COMPOSITE STOCK PRICE INDEX*
---------------------------------------------------------------
Performance 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
*Incentive/penalty fees will be calculated based on performance of the Fund
relative to the performance of the S&P 500 Composite Stock Price Index for the
thirty-six months preceding the end of the fiscal quarter for which advisory
fees are due.
2. Transition Schedule for Incentive/Penalty Fees. The new
incentive/penalty fee schedule will not be fully operable until April 30, 2001.
Until that date, a transition schedule consisting of varying percentages of the
old and new incentive/penalty fees will be used. For each fiscal quarter
included in the 36 months beginning May 1, 1998, the incentive/penalty fee will
be calculated as the sum of a and b, whereby:
<TABLE>
<S> <C>
a = # of months elapsed since 5/1/1998 X the fee adjustment calculated under the new schedule
--------------------------------------
36 months
b = # of months remaining until 4/30/2001 X the fee adjustment calculated under the old schedule
-----------------------------------------
36 months
</TABLE>
<PAGE>
3. No Effect on Other Provisions. Except with respect to these fee
schedules, all other provisions of the Investment Advisory Agreement dated April
1, 1996 remain in full force and effect.
ATTEST: VANGUARD QUANTITATIVE PORTFOLIOS, INC.
- -------------------------- -----------------------------------------------------
Secretary President, Chief Executive Officer Date
& Chairman of the Board
ATTEST: FRANKLIN PORTFOLIO ASSOCIATES
- -------------------------- -----------------------------------------------------
President Date
<PAGE>
[ARTICLE] 6
[CIK] 0000799127
[NAME] VANGUARD QUANTITATIVE FUNDS
[SERIES]
[NUMBER] 01
[NAME] VANGUARD GROWTH AND INCOME FUND
[MULTIPLIER] 1,000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] JUN-30-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 3,201,503
[INVESTMENTS-AT-VALUE] 4,032,804
[RECEIVABLES] 70,648
[ASSETS-OTHER] 728
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 4,104,180
[PAYABLE-FOR-SECURITIES] 36,381
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7,786
[TOTAL-LIABILITIES] 44,167
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 3,113,973
[SHARES-COMMON-STOCK] 134,402
[SHARES-COMMON-PRIOR] 81,788
[ACCUMULATED-NII-CURRENT] 148
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 112,508
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 833,384
[NET-ASSETS] 4,060,013
[DIVIDEND-INCOME] 22,971
[INTEREST-INCOME] 3,695
[OTHER-INCOME] 0
[EXPENSES-NET] 5,823
[NET-INVESTMENT-INCOME] 20,843
[REALIZED-GAINS-CURRENT] 114,050
[APPREC-INCREASE-CURRENT] 336,314
[NET-CHANGE-FROM-OPS] 471,207
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 20,782
[DISTRIBUTIONS-OF-GAINS] 52,786
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 60,378
[NUMBER-OF-SHARES-REDEEMED] 10,148
[SHARES-REINVESTED] 2,384
[NET-CHANGE-IN-ASSETS] 1,918,204
[ACCUMULATED-NII-PRIOR] 87
[ACCUMULATED-GAINS-PRIOR] 51,244
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,811
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 5,960
[AVERAGE-NET-ASSETS] 3,084,895
[PER-SHARE-NAV-BEGIN] 26.19
[PER-SHARE-NII] 0.16
[PER-SHARE-GAIN-APPREC] 4.56
[PER-SHARE-DIVIDEND] 0.16
[PER-SHARE-DISTRIBUTIONS] 0.54
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 30.21
[EXPENSE-RATIO] 0.39
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
