-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IscuY+eNNHzj71NILNUI2iUhxiUiVP12wJSdcAC/0MVz8LX0HlwS52xyIsMAHz3S pX+dX3CWrhwr0ZwJfk9XFw== 0000950116-98-001240.txt : 19990913 0000950116-98-001240.hdr.sgml : 19990913 ACCESSION NUMBER: 0000950116-98-001240 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980527 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD QUANTITATIVE PORTFOLIOS INC CENTRAL INDEX KEY: 0000799127 STANDARD INDUSTRIAL CLASSIFICATION: FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14 SEC ACT: SEC FILE NUMBER: 333-08900 FILM NUMBER: 98632465 BUSINESS ADDRESS: STREET 1: 100 VANGUARD BLVD STREET 2: P O BOX 2600 CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106696289 MAIL ADDRESS: ZIP: 19482 N-14AE/A 1 As filed with the Securities and Exchange Commission on May 27, 1998 Securities Act File No. 33-8553 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ VANGUARD QUANTITATIVE PORTFOLIOS, INC. (Exact Name of Registrant as Specified in Charter) P.O. Box 2600 Valley Forge, PA 19482 (Address of Principal Executive Offices) (Zip Code) (610) 669-1000 (Registrant's Area Code and Telephone Number) P.O. Box 2600 Valley Forge, PA 19482 (Name and Address of Agent for Service) With copies to: Jack W. Murphy, Esq. Dechert Price & Rhoads 1775 Eye Street, N.W. Washington, D.C. 20006 ------------------------ Approximate Date of Proposed Public Offering: As soon as practicable after this Registration Statement becomes effective. Title of Securities Being Registered: Shares of beneficial interest of the registrant's Vanguard Growth and Income Portfolio. No filing fee is due because of reliance on Section 24(f ) of the Investment Company Act of 1940. Pursuant to Rule 488(a) under the Securities Act of 1933, this registration statement will become effective on the thirtieth day after the date upon which it is filed. =============================================================================== CROSS REFERENCE SHEET Pursuant to Rule 481(a) Under the Securities Act of 1933
Item of Form N-14 Location in the Prospectus PART A 1. Beginning of Registration Statement and Outside Front Cover Page of Prospectus ................ Cross Reference Sheet; Notice of Special Meeting of Shareholders; Introduction 2. Beginning and Outside Back Cover Page of Prospectus ................................. Table of Contents 3. Fee Table, Synopsis Information, and Risk Factors .................................. Overview; Investment Practices and Risk Considerations 4. Information About the Transactions ............ Overview; Information About the Reorganization 5. Information About the Registrant .............. Introduction; Overview; Special Considerations and Risk Factors; Fees and Expenses; Additional Information about the Funds; Appendix B 6. Information About the Company Being Acquired ...................................... Introduction; Overview; Special Considerations and Risk Factors; Fees and Expenses; Additional Information about the Funds; Incorporation by reference of prospectus for Vanguard/Trustees' Equity Fund - U.S. Portfolio. 7. Voting Information ............................ Notice of Special Meeting of Shareholders; Introduction; General Information 8. Interest of Certain Persons and Experts ....... General Information 9. Additional Information Required for Reoffering by Persons Deemed to be Underwriters .......... (Not Applicable) PART B 10. Cover Page .................................... Cover Page 11. Table of Contents ............................. Cover Page 12. Additional Information about the Registrant ... Incorporation of Documents by Reference in Statement of Additional Information 13. Additional Information about the Company Being Acquired ................................ Not Applicable 14. Financial Statements .......................... Incorporation of Documents by Reference in Statement of Additional Information PART C 15 - 17 .......................................... Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of this Registration Statement.
Important News for Shareholders of Vanguard/Trustees' Equity Fund--U.S. Portfolio Please Vote Immediately! You can vote by mail, telephone, or our website . . . details can be found on the enclosed proxy insert. Proxy Information Vanguard/Trustees' Equity Fund--U.S. Portfolio The U.S. Portfolio will host a Special Meeting of Shareholders on July 31, 1998, at Vanguard's headquarters in Malvern, Pennsylvania. The purpose is to vote on a proposal to reorganize the U.S. Portfolio into Vanguard Growth and Income Portfolio on a tax-free basis. The first two pages of this booklet highlight key points about the proposed reorganization and explain the proxy process--including how to cast your votes. Before you vote, please read the full text of the combined proxy statement and prospectus for a complete understanding of our proposal. KEY POINTS ABOUT THE PROPOSED REORGANIZATION Purpose of the Reorganization The purpose of the merger is to make your fund a part of Growth and Income Portfolio, a larger Vanguard fund that has a very similar investment objective and investment policies. After 18 years of operation, the U.S. Portfolio has attracted only a modest level of investor interest, and its investment characteristics have come to mirror those of Growth and Income Portfolio. Your Board of Trustees believes that it is in shareholders' best interests to simply merge the two funds. Lower Costs for Shareholders: Due to its larger size and more favorable advisory contract, Growth and Income Portfolio enjoys greater operating efficiencies--and lower operating expenses--than your fund. U.S. Portfolio's total expense ratio for 1997 was 0.49%--an annual cost to shareholders of $4.90 for each $1,000 invested. By contrast, Growth and Income Portfolio's total expense ratio for 1997 was 0.36%--an annual cost to shareholders of $3.60 for each $1,000 invested. How the Reorganization Will Affect Your Account If shareholders approve the merger, we'll exchange all of your U.S. Portfolio shares, on a tax-free basis, for an equivalent dollar amount of Growth and Income Portfolio shares. Your account registration and account options will remain the same. (There is one notable exception here: Growth and Income Portfolio doesn't permit telephone exchanges for non-retirement accounts.) In addition, your aggregate cost basis in the account will remain the same, although your nominal per share cost will change as a result of the two funds' different share prices. Tax Notes The reorganization will be accomplished on a tax-free basis, meaning that you won't realize any capital gains when your U.S. Portfolio shares are exchanged for shares of Growth and Income Portfolio. However, you should pay close attention to these points: 1 o U.S. Portfolio's final distribution. At the time of the reorganization, U.S. Portfolio will make a final distribution of its accumulated dividends and realized capital gains. If you are a taxable investor, think twice before purchasing additional shares of the U.S. Portfolio. A portion of your investment would likely come back to you in the form of a taxable distribution. o Growth and Income Portfolio's year end distribution. Following the reorganization, shareholders of the former U.S. Portfolio will participate fully in Growth and Income Portfolio's year-end distribution. If made today, this distribution would amount to approximately 2.2% of each shareholder's investment in Growth and Income Portfolio. Interim Change in Investment Adviser for U.S. Portfolio In anticipation of the reorganization, Franklin Portfolio Associates--which we call FPA--has replaced Geewax, Terker as investment adviser to U.S. Portfolio. FPA is the investment advisory firm that has managed Growth and Income Portfolio since its inception in 1986. During this interim period, U.S. Portfolio will pay FPA annualized advisory fees amounting to 0.08% of average fund assets. Geewax, on the other hand, received 1997 advisory fees from U.S. Portfolio amounting to 0.22% of average fund assets. - Q&A - Q. I'm a small investor. Why should I bother to vote? A. Your vote makes a difference. If numerous shareholders just like you fail to vote their proxies, U.S. Portfolio may not receive enough votes to go forward with its meeting. If this happens, we'll need to mail proxies again--a costly proposition for your fund! Q. Didn't I just vote a proxy for U.S. Portfolio a few months ago? A. If you owned shares of U.S. Portfolio on April 13, 1998, this is the second proxy that you've received for this account this year. Unfortunately, the SEC's special requirements for merger proposals made it impractical to include this matter in our earlier proxy. Please bear with us, read yet another proxy statement, and vote again! Q. Who gets to vote? A. Any person who owned shares of U.S. Portfolio on the "record date," which was June 18, 1998, gets to vote--even if the investor later sold the shares. Shareholders are entitled to cast one vote for each dollar invested in U.S. Portfolio on the record date. Q. How can I vote? A. You can vote in any one of four ways: o Through the Internet at www.proxyvote.com (or by going to www.vanguard.com and clicking on "Proxy Voting"). o By telephone, with a toll-free call to the number listed on your proxy card. o By mail, with the enclosed ballot. o In person at the meeting. 2 We encourage you to vote by Internet or telephone, using the 12-digit "control" number that appears on your proxy card. These voting methods will save your fund a good deal of money (no return-mail postage!). Whichever method you choose, please take the time to read the full text of our proxy statement before you vote. Q. Is it hard to vote by Internet? A. Not at all! If you have not yet visited Vanguard's website--at www.vanguard.com--this is a great opportunity to check it out. Scan our website and, when you're ready, click on the "Proxy Voting" link on our homepage to access www.proxyvote.com (the voting location). Problems? Please call us at 1-800-891-5345. Q. I plan to vote by mail. How should I sign my proxy card? A. If you are an individual account owner, please sign exactly as your name appears on the proxy card. Either owner of a joint account may sign the proxy card, but the signer's name must exactly match one that appears on the card. You should sign proxy cards for other types of accounts in a way that indicates your authority (for instance, "John Brown, Custodian"). 3 Vanguard Trustees' Equity Fund--U.S. Portfolio NOTICE OF SPECIAL MEETING OF SHAREHOLDERS Your Vanguard fund will host a Special Meeting of Shareholders on Friday, July 31, 1998, at 9:30 a.m., Eastern time. The meeting will be held at Vanguard's Malvern, Pennsylvania headquarters, at 100 Vanguard Boulevard, in the Majestic Building. At the meeting, we'll ask shareholders to vote on: 1. A proposal to reorganize U.S. Portfolio into Vanguard Growth and Income Portfolio. 2. Any other business properly brought before the meeting. By Order of the Board of Trustees Raymond J. Klapinsky, Secretary June *, 1998 - - ------------------------------------------------------------------------------- YOUR VOTE IS IMPORTANT! You can vote easily and quickly by toll-free telephone call, at our website, or by mail. Just follow the simple instructions that appear on your enclosed proxy card. Please help your fund avoid the expense of a follow-up mailing by voting today! - - -------------------------------------------------------------------------------- 4 Vanguard/Trustees' Equity Fund--U.S. Portfolio Special Meeting of Shareholders July 31, 1998 COMBINED PROXY STATEMENT/PROSPECTUS Introduction Proposal summary. This proxy statement describes a proposal to make your fund a part of Vanguard Growth and Income Portfolio, a larger Vanguard fund that has a very similar investment objective and investment policies. The reorganization involves two basic steps. First, your fund will transfer all of its assets and liabilities to Growth and Income Portfolio. Simultaneously, Growth and Income Portfolio will credit your Vanguard account with shares that are equivalent in value to your U.S. Portfolio investment at the time of the reorganiztion. Read and keep these documents. Please read the entire proxy statement, along with the enclosed Vanguard/Growth and Income Portfolio prospectus dated May *, 1998, before casting your vote. (The prospectus is, by reference, considered part of this proxy statement.) These documents contain information that is important to your proxy decision, and you should keep them for future reference. Additional information is available. Growth and Income Portfolio's Statement of Additional Information (dated May *, 1998) and its 1997 Annual Report to Shareholders each contain important information about the Portfolio. These documents have been filed with the U.S. Securities and Exchange Commission and are considered part of this proxy statement by reference. You can obtain copies of these documents without charge by contacting Vanguard (1-800-xxx-xxxx) or visiting the SEC's website (www.sec.gov). Copies of the U.S. Portfolio's prospectus and Statement of Additional Information (both dated May *, 1998), along with its most recent annual report for shareholders, are also available without charge from Vanguard or at the SEC's website. - - ------------------------------------------------------------------------------- These securities have not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the accuracy of this combined proxy statement/prospectus. Any representation to the contrary is a criminal offense. - - ------------------------------------------------------------------------------- 5 OVERVIEW This section summarizes key information concerning your fund's proposal. Keep in mind that more detailed information appears throughout the proxy statement and the accompanying prospectus. Please be sure to read everything. The Proposed Reorganization. At their meeting on May 15, 1998, your fund's Board of Trustees approved a plan to reorganize U.S. Portfolio into Vanguard Growth and Income Portfolio. The plan calls for U.S. Portfolio to transfer all of its assets and liabilities to Growth and Income Portfolio in exchange for shares of that fund. Shareholders of U.S. Portfolio would receive Growth and Income Portfolio shares that are equivalent in value to their investments at the time of the reorganization, and U.S. Portfolio then would be terminated. All of this would happen on a single day, which is currently expected to be August 15, 1998, assuming that a majority of your fund's outstanding shares approve this proposal. We believe that the proposed reorganization is in the best interests of U.S. Portfolio and its shareholders (more on this further into the proxy statement). Also, the reorganization will not dilute the interests of U.S. Portfolio shareholders. If we don't win shareholder approval of the reorganization, U.S. Portfolio will continue in existence and the Board of Trustees consider whether further action is appropriate. Investment Objectives and Policies of Each Fund. Growth and Income Portfolio and U.S. Portfolio have investment objectives and policies that are similar. The primary investment objective of Growth and Income Portfolio is to realize a total investment return (dividend income plus capital change) greater than the return of the aggregate U.S. stock market, as measured by the Standard & Poor's 500 Composite Stock Price Index. The investment objective of U.S. Portfolio is to provide long-term capital growth and a modest amount of income by investing in equity securities of U.S. companies. Growth and Income Portfolio seeks its investment objective by investing primarily in securities that are included in the S&P 500 Index, and it is expected that the aggregate investment characteristics of the Portfolio will be similar to those of the Index. U.S. Portfolio seeks its investment objective by investing between 50% and 70% of its assets in common stocks of U.S. companies that display value investment characteristics and the remaining portion of its assets in growth-oriented common stocks of U.S. companies. The investment objectives and policies of the Portfolios are discussed in more detail in "Investment Practices and Risk Considerations" below. For complete descriptions of the investment objectives and policies of the Portfolios, please read each Portfolio's prospectus and statement of additional information. Investment Advisers. The investment adviser for both Growth and Income Portfolio and, as of May 18, 1998, U.S. Portfolio is Franklin Portfolio Associates LLC (whom we call FPA), Two International Place, Boston, MA 02110. Under separate investment advisory agreements with each Portfolio, FPA manages the investment and reinvestment of the Portfolios' assets and continuously reviews, supervises, and directs the Portfolios' investment programs. FPA's agreement with Growth and Income Portfolio is dated April 1, 1996; its agreement with U.S. Portfolio is dated May 21, 1998, FPA is a professional investment counseling firm which specializes in the management of common stock portfolios through the use of quantitative investment models. Founded in 1982, Franklin, a Massachusetts limited liability company, is a wholly-owned indirect subsidiary of Mellon Bank Corporation. As of December 31, 1997, Franklin provided investment advisory services with respect to approximately $10.7 billion of client assets. Franklin also serves as adviser to approximately one-third of the equity investments of Vanguard/Morgan Growth Fund, another mutual fund member of The Vanguard Group. 6 Prior to May 21, 1998, Geewax, Terker & Company, 99 Starr Street, Phoenixville, PA 19460, was the investment adviser to U.S. Portfolio. Geewax, Terker, an investment advisory firm founded in 1982, currently manages approximately ______ billion in assets for institutional endowment and pension funds. On May 15, 1998, your fund's Board voted to replace Geewax, Terker with FPA pursuant to Rule 15a-4 under the 1940 Act which permits the Board to appoint a new investment adviser for an interim 120-day period. Geewax, Terker was notified of its replacement on May 18, 1998. The Board decided to take this action in anticipation of the reorganization. The Board believed this step to be in the best interests of shareholders because following the reorganization, assuming approval by shareholders, the combined assets would be managed by FPA. Fees and Expenses. Growth and Income Portfolio pays FPA an advisory fee at the end of each fiscal quarter, calculated by applying a quarterly rate, based on the following annual percentage rates, to the Portfolio's average month-end net assets for the quarter: Net Assets Rate ---------- ---- First $100 million ..................... .30% Next $650 million ...................... .15% Over $750 million ...................... .10% This fee may be increased or reduced by applying an adjustment formula based on the investment performance of Growth and Income Portfolio relative to the S&P 500 Index.
Three Year Performance Annual Incentive (+) Differential vs. The S&P 500 Index /Penalty (-) Fee Rate ---------------------------------- --------------------- +6% or more above ..................... +.20% of first $100 million +.10% of amounts in excess of $100 million +3% but less than +6% ................. +.10% of first $100 million +.05% of amounts in excess of $100 million between +3% and -3% ................... - 0 - between -3% but less than -6% ......... -.10% of first $100 million -.05% of amounts in excess of $100 million -6% or more below ..................... -.20% of first $100 million -.10% of amounts in excess of $100 million
Accordingly, given the current asset level of Growth and Income Portfolio, the maximum possible fee payable to FPA by Growth and Income Portfolio under the agreement would be ___ of net assets and the minimum possible fee payable thereunder would be ___ of net assets. U.S. Portfolio pays FPA a flat fee amounting to 0.08% of its average net assets (annualized). Prior to May 21, 1998, Geewax, Terker & Company was the investment adviser of U.S. Portfolio. Geewax, Terker was paid an advisory fee at the end of each fiscal quarter based on U.S. Portfolio's average month-end net assets during the quarter, multiplied by an annual percentage rate of 0.40%. 7 The basic advisory fee paid to Geewax, Terker & Company, as provided above, could have been increased or decreased by applying an incentive/penalty fee adjustment based on the investment performance of the Portfolio relative to the investment performance of S&P 500 Index over the preceding 36-month period as follows: Cumulative Three-Year Performance Performance Fee Differential vs. S&P 500 Index Adjustment* --------------------------------- ---------------- +4.5% points or more ............................. 0.50% +2.25% points but less than +4.5% points ......... 0 Less than +2.25% points .......................... -0.50% *For purposes of this calculation, the basic advisory fee is calculated by applying the quarterly rate against average assets over the 36-month period. Accordingly, the maximum possible fee payable to Geewax, Terker by U.S. Portfolio under the agreement would have been ____% of net assets and the minimum possible fee would have been ____% of net assets. For more information about fees and expenses, see "Fees and Expenses." Purchase, Redemption, and Exchange Information. The purchase, redemption and exchange procedures and privileges for U.S. Portfolio and Growth and Income Portfolio are substantially the same. Purchase procedures for the Portfolios are virtually identical and are described on page ___ of the Growth and Income Portfolio Prospectus. In addition, shareholders of both Portfolios may exchange shares for shares of other Vanguard Funds by following the procedures described on page ___ of the Growth and Income Prospectus. One important exception here is that, unlike U.S. Portfolio, Growth and Income Portfolio does not accept telephone exchanges for non-retirement accounts. Federal Income Tax Consequences of the Reorganization. It is expected that the Reorganization will constitute a tax-free reorganization within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). We will not proceed with the reorganization until legal counsel provides us with an opinion to the effect that the reorganization will be tax-free and will not cause U.S. Portfolio or its shareholders to recognize gains or losses. See "Information About The Reorganization -- Tax Considerations." 8 INVESTMENT PRACTICES AND RISK CONSIDERATIONS The investment objectives, policies and restrictions of Growth and Income Portfolio and U.S. Portfolio are similar, although the Portfolios differ to some extent with respect to particular investment techniques, as described below. Because the Portfolios share similar investment objectives and policies, we believe that the risks of investing in Growth and Income Portfolio are substantially similar to the risks of investing in U.S. Portfolio. The investment objectives, policies and restrictions of the Portfolios, and certain differences between them, are discussed below. For a more detailed description, please see the prospectus and statement of additional information describing each Portfolio. We can't guarantee that either Portfolio will achieve its stated objective(s). Comparison of Objectives and Primary Investments The investment objective of Growth and Income Portfolio is to realize a total investment return (dividend income plus capital change) greater than the return of the aggregate U.S. stock market, as measured by the S&P 500 Index. The investment objective of U.S. Portfolio is to seek to provide long-term capital growth and a modest amount of income. U.S. Portfolio seeks to achieve this objective by investing primarily in common stocks of U.S. companies. Between 50% and 70% of U.S. Portfolio's assets are invested in common stocks that display value investment characteristics; the remaining portion of U.S. Portfolio's assets are invested in growth-oriented common stocks. Growth and Income Portfolio invests in a broadly diversified portfolio of common stocks. At least 65% of Growth and Income Portfolio's assets are invested in securities which are included in the S&P 500 Index, while the balance of the Portfolio's assets may be invested in common stocks not represented in the Index. Historically, the types of securities that Growth and Income Portfolio invests in have provided capital appreciation and dividend income. Stocks are selected for Growth and Income Portfolio so that, in the aggregate, the investment characteristics of the Portfolio are similar to those of the S&P 500 Index. These characteristics include such measures as dividend yield (before expenses), price-to-earnings ratio, "beta" (relative volatility), return on equity, and market price-to-book value ratio. However, while maintaining aggregate investment characteristics similar to those of the S&P 500 Index, Growth and Income Portfolio seeks to invest in individual common stocks -- including stocks which are not part of the Index -- which will in the aggregate provide a higher total return than the Index. The S&P 500 Index measures the total investment return (capital change plus dividend income) provided by a universe of 500 common stocks, weighted by their market value. These 500 securities, most of which trade on the New York Stock Exchange, represent approximately 70% of the market value of all U.S. common stocks. Because of the market-value weighting, the 50 largest companies in the S&P 500 Index currently account for approximately 47% of the Index. U.S. Portfolio invests in large-, mid-, and small-capitalization stocks. Mid- and small-cap stocks have historically been more volatile than -- and at times have performed quite differently from -- the large-cap stocks found in the S&P 500 Index. For this reason and because U.S. Portfolio does not hold the same securities held in the S&P 500 Index or any other market index, the performance of the Portfolio does not mirror the returns of any particular index. 9 Although it normally seeks to remain substantially fully invested in common stocks, Growth and Income Portfolio may invest temporarily in certain short-term fixed income securities. Such securities may be used to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions. These securities include: obligations of the United States Government and its agencies or instrumentalities; commercial paper, bank certificates of deposit, and bankers' acceptances; and repurchase agreements collateralized by these securities. Similarly, the U.S. Portfolio usually holds only a small percentage of its assets in cash reserves, although if the investment adviser believes that market conditions warrant a temporary defensive measure, U.S. Portfolio may hold cash reserves without limit. Fundamental Policies. The investment objectives and investment policies described above for Growth and Income Portfolio and U.S. Portfolio are fundamental and may be changed only with the approval of a majority of the shareholders of each Portfolio. Investment Restrictions. Each Portfolio has also adopted "fundamental" investment restrictions that may be changed only with shareholder approval. These investment restrictions are the same for the Portfolios. Comparison of Risk Factors U.S. Portfolio and Growth and Income Portfolio each invest principally in common stocks of U.S. companies in seeking, respectively, the objectives of long-term capital appreciation and a modest amount of income and a total investment return (dividend income plus capital change) greater than the S&P 500 Index, respectively. Growth and Income Portfolio concentrates its investments in companies included in the S&P 500 Index, while U.S. Portfolio is not necessarily so concentrated. U.S. Portfolio held _________ securities on ___________, 1998, while Growth and Income Portfolio held approximately _____ securities on the same date. While the securities and investment techniques used by the Portfolios are similar, there are some differences. As with any security, an investment in a Portfolio's shares involves certain risks, including the potential for loss of principal. The Portfolios are subject to varying degrees of financial, market, interest and credit risks. For a further discussion of the securities and investment techniques used by the Growth and Income Portfolio, and the associated risks, see page __ of the fund's prospectus. 10 FEES AND EXPENSES Growth and Income Portfolio employs FPA to manage the investment and reinvestment of the assets of the Portfolio and to continuously review, supervise and administer the Portfolio's investment program. FPA discharges its responsibilities subject to the control of the officers and Trustees of Growth and Income Portfolio. Mr. John J. Nagorniak, President of Franklin, serves as portfolio manager of the Portfolio. Growth and Income Portfolio pays FPA a basic advisory fee at the end of each fiscal quarter, calculated by applying a quarterly rate, based on the annual percentage rates set forth on page ___. For the year ended December 31, 1997, the advisory fee represented an effective annual basic rate of 0.13% of the Growth and Income Portfolio's average net assets before a decrease of $244,000 (an annual rate of 0.01%) based on performance. During the fiscal years ended December 31, 1995, 1996 and 1997, Growth and Income Portfolio paid FPA advisory fees of $_______, $_______, $________, respectively. Effective May 21, 1998, U.S. Portfolio employs FPA to manage the investment and reinvestment of the assets of the Portfolio and to continuously review, supervise and administer the Portfolio's investment program. FPA discharges its responsibilities subject to the control of the officers and Trustees of the U.S. Portfolio. Mr. John J. Nagorniak serves as portfolio manager of U.S. Portfolio. U.S. Portfolio pays FPA a basic advisory fee at the end of each fiscal quarter, calculated by applying a quarterly rate, based on the annual percentage rates set forth on page __. Prior to May 21, 1998, Geewax, Terker served as investment adviser to U.S. Portfolio. For the year ended December 31, 1997, the advisory fee paid to Geewax, Terker represented an effective annual basic rate of 0.40% of U.S. Portfolio's average net assets before a decrease of $274,000 (an annual rate of 0.18%) based on performance. During the fiscal years ended December 31, 1995, 1996, and 1997, U.S. Portfolio paid Geewax, Terker advisory fees of $_______, $_______, $________ , respectively. INFORMATION ABOUT THE REORGANIZATION Agreement and Plan of Reorganization. Your fund has entered into an Agreement and Plan of Reorganization with Growth and Income Portfolio. Under the agreement U.S. Portfolio will transfer all of its assets and liabilities to Growth and Income Portfolio in exchange for shares of that fund. Shareholders of U.S. Portfolio would receive Growth and Income Portfolio shares that are equivalent in value to their investments at the time of the reorganization, and U.S. Portfolio then would be terminated. All of this would happen on a single day, which is currently expected to be August 15, 1998, assuming that a majority of your fund's outstanding shares approve this proposal. The agreement spells out the terms and conditions of the reorganization (assuming that shareholders approve this proposal). For a complete description of these terms and conditions, please see the agreement, which appears as an appendix to this proxy statement. Until the Closing Date, shareholders of the U.S. Portfolio will continue to be able to redeem their shares. Redemption requests received after the Closing Date will be treated as requests received by VQP for the redemption of Growth and Income Portfolio shares received by the shareholder in the Reorganization. The obligations of VTEF and VQP under the Reorganization Agreement are subject to various conditions, as stated therein. Among other things, the Reorganization requires that all filings be made with, and all authority be received from, the SEC and state securities commissions as may be necessary in the opinion of counsel to permit the parties to carry out the transactions contemplated by the Reorganization Agreement. 11 VTEF and VQP are in the process of making the necessary filings. The Reorganization Agreement may be terminated at any time by action of the Trustees of VTEF and the Trustees of VQP. VTEF or VQP, after consultation with counsel and by consent of its Trustees or an officer authorized by its Trustees, may at any time waive compliance with any condition contained in the Reorganization Agreement. For a complete description of the terms and conditions of the Reorganization, see the Reorganization Agreement at Appendix A. If the transaction is not completed by __________, 1998, the Reorganization Agreement will automatically terminate on that date unless a later date is agreed upon by the Portfolios. Tax Considerations. Your fund's reorganization is intended to qualify for federal income tax purposes as a tax-free reorganization under Section 368(a) of the Internal Revenue Code. This means that none of the parties involved -- U.S. Portfolio, Growth and Income Portfolio, and their respective shareholders -- will recognize a gain or loss directly from the reorganization. It also means that your aggregate cost basis will remain the same following the reorganization (although your nominal per share cost will change as a result of the two funds' different share prices). o U.S. Portfolio's final distribution. At the time of the merger, U.S. Portfolio will make a final distribution of its accumulated dividends and realized capital gains. If you are a taxable investor, think twice before purchasing additional shares of the U.S. Portfolio prior to the reorganization. A portion of your investment would likely come back to you in the form of a taxable distribution. o Growth and Income Portfolio's year end distribution. Following the merger, shareholders of the former U.S. Portfolio will participate fully in Growth and Income Portfolio's year-end distribution. If made today, this distribution would amount to approximately 2.2% of each shareholder's investment in Growth and Income Portfolio. Expenses of the Reorganization. U.S. Portfolio and Growth and Income Portfolio will each bear their own expenses incurred in the reorganization. The expenses of Growth and Income Portfolio, which mainly consist of legal and accounting fees, are expected to be minimal. We expect U.S. Portfolio's expenses for reorganization to total approximately $____, These expenses will include: the cost of the special meeting; proxy costs (including all costs of solicitation, printing and mailing of this Proxy Statement); the expenses of its proposed liquidation and dissolution; and legal and accounting fees. U.S. Portfolio was formed as a series of Vanguard Trustees' Equity Fund in 1980, with the objective of providing a portfolio with a "mid-cap" orientation that would represent a blend of growth and value disciplines, with the portfolio rotating towards the more attractive segment of the market. Over the period since its inception, however U.S. Portfolio has evolved so that it is now almost indistinguishable from Growth and Income Portfolio. Additionally, investor interest in U.S. Portfolio has been modest, limiting the growth of the Portfolio. Consequently, your fund's Board of Trustees has determined that the expenses involved in maintaining a separate redundant Portfolio are no longer warranted and that it would be more efficient and less costly to combine the U.S. Portfolio into the much larger and more established Growth and Income Portfolio. RECOMMENDED VOTE YOUR FUND'S BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE TO APPROVE THE PROPOSED REORGANIZATION. 12 ADDITIONAL INFORMATION ABOUT THE FUNDS Form of Organization. The Growth and Income Portfolio is a diversified series of Vanguard Quantitative Funds, an open-end management investment company organized as a Maryland corporation on _______________, and reorganized as a Delaware business trust on May 29, 1998. It is registered under the Investment Company Act of 1940 (the "1940 Act"), and does not offer any other series of shares at this time. The U.S. Portfolio is a diversified series of Vanguard/ Trustees Equity Fund, an open-end management investment company organized as a Pennsylvania Common Law Trust on _____________, and reorganized as a Delaware business trust on ___________ and registered under the 1940 Act. VTEF offers one other series of shares, which is not involved in the Reorganization. Each fund is governed by a separate but comparable Declaration of Trust. The business and affairs of each fund are managed under the direction of a Board of Trustees. The respective Boards of Trustees of the Funds have the same members. Voting Rights. Shares of VQP and VTEF entitle their holders to one vote per share; however, separate votes will be taken by each series on matters affecting an individual series. Shares have noncumulative voting rights and no preemptive or subscription rights. VQP and VTEF are not required to hold shareholder meetings annually, although shareholder meetings may be called for purposes such as electing or removing Trustees, changing fundamental policies or approving an investment advisory agreement. Asset Size and Expense Ratios. On ________, the U.S. Portfolio had total net assets of approximately $___ million. On the same date, the Growth and Income Portfolio had total net assets of approximately $____ billion. For the fiscal year ended December 31, 1997, the U.S. Portfolio had an expense ratio of 0.53 of 1% of its average net assets. The expense ratio for the Growth and Income Portfolio for the fiscal year ended December 31, 1997, was 0.36 of 1% of its average net assets. To the extent that dividends paid to shareholders by the U.S. Portfolio are derived from taxable interest or from capital gains, such dividends will be subject to federal income tax. Any gain realized on a redemption of shares will be taxable gain, subject to any applicable tax and exemption for which an investor may qualify. Portfolio Brokerage. The portfolio brokerage policies of the U.S. Portfolio and the Growth and Income Portfolio are substantially similar. In this respect the investment advisory agreements for each Portfolio authorize the investment adviser, with the approval of such Portfolio's Board of Trustees, to select the brokers or dealers that will execute the purchases and sales of portfolio securities for the Portfolio and directs the investment adviser to use its best efforts to obtain the best available price and most favorable execution with respect to all transactions for the Portfolio. The investment advisers have undertaken to execute each investment transaction at a price and commission which provides the most favorable total cost or proceeds obtainable under the circumstances. In placing portfolio transactions, the investment adviser uses its best judgment to choose the broker most capable of providing the brokerage services necessary to obtain the best available price and most favorable execution. The full range and quality of brokerage services available are considered in making these determinations. In those instances where it is reasonably determined that more than one broker can offer the brokerage services needed to obtain the best available price and most favorable execution, consideration may be given to those brokers who supply investment research and statistical information and provide other services 13 in addition to execution services to the Portfolio and/or the investment adviser. Each investment adviser considers the investment services it receives useful in the performance of its obligations under the agreement, but is unable to determine the amount by which such services may reduce its expenses. The investment advisory agreement also incorporates the concepts of Section 28(e) of the Securities Exchange Act of 1934 by providing that, subject to the approval of the Portfolio's Board of Trustees, the investment adviser may cause the Portfolio to pay a broker/dealer which furnishes brokerage and research services at a higher commission than that which might be charged by another broker/dealer for effecting the same transaction; provided that such commission is deemed reasonable in terms of either that particular transaction or the overall responsibilities of the investment adviser to the Portfolio and the other Portfolios in the Group. Currently, it is the Growth and Income Portfolio'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 investment adviser will pay such higher commissions only if it believes this to be in the best interest of the Portfolio. Some brokers or dealers who may receive such higher commissions in recognition of brokerage services related to execution of securities transactions are also providers of research information to the investment adviser and/or the Portfolio. However, the investment adviser has informed the Portfolio that it will not pay higher commission rates specifically for the purpose of obtaining research services. Since each Portfolio does not market its shares through intermediary brokers or dealers, it is not the Growth and Income Portfolio's practice to allocate brokerage or principal business on the basis of sales of its shares which may be through such firms. However, each Fund may place portfolio orders with qualified brokers or dealers who recommend the Fund to clients, or who act as agent in the purchase of shares of the Growth and Income Portfolio for their clients, and may, when a number of brokers and dealers can provide comparable best price and execution on a particular transaction, consider the sale of Fund shares by a broker or dealer in selecting among qualified brokers or dealers. During the fiscal year ended December 31, 1997, the U.S. Portfolio paid approximately $________ in brokerage commissions and had a portfolio turnover rate of 139%. During the fiscal year ended December 31, 1997, the Growth and Income Portfolio paid approximately $________ in brokerage commissions, and had a portfolio turnover rate of 66%. Capitalization. The following table shows, on an unaudited basis, the actual capitalization of the U.S. Portfolio and the Growth and Income Portfolio as of _____, 1998, and the capitalization on a pro forma basis as of that date giving effect to the Reorganization:
Net Asset Value Net Assets Per Share Shares Outstanding ------------ ---------------- ------------------- Growth and Income Portfolio U.S. Portfolio Pro Forma
14 GENERAL INFORMATION This section provides information on a numbr of topics relating to proxy voting and shareholder meetings. Proxy solicitation methods. Your fund will solicit shareholder proxies in a variety of ways. All shareholders who are entitled to vote will receive these proxy materials by mail. In addition, Vanguard employees and officers may solicit shareholder proxies in person, by telephone, or through the Internet. We may also arrange for an outside firm, Shareholder Communications Corporation, to solicit shareholder votes by telephone on the fund's behalf. This procedure, which is expected to cost the fund approximately $4 per shareholder vote, will be employed only after all more cost-effective means of soliciting shareholder votes have been exhausted. Proxy solicitation costs. Your fund will pay all costs of soliciting proxies from its own shareholders, including costs relating to the printing, mailing, and tabulation of proxies. By voting immediately, you can help your fund avoid the considerable expense of a second solicitation. Quorum. In order for the shareholder meeting to go forward, your fund must achieve a quorum. This means that a majority of your fund's shares must be represented at the meeting -- either in person or by proxy. All returned proxies count towards a quorum, regardless of how they are voted ("For," "Against," or "Abstain"). Your fund will count broker non-votes toward a quorum, but not toward the approval of any proposals. (Broker non-votes are shares for which (i) the underlying owner has not voted and (ii) the broker holding the shares does not have discretionary authority to vote on the particular matter.) Revoking your proxy. You may revoke your proxy at any time up until voting results are announced at the shareholder meeting. You can do this by writing to your Fund's Secretary, Raymond J. Klapinsky, at 100 Vanguard Boulevard, Malvern, PA 19355, or by voting in person at the meeting. In addition, you can revoke a prior proxy simply by voting again -- using your original proxy card, by toll-free telephone call, or at our website. Shareholder proposals. Any shareholder proposals to be included in the proxy statement for your fund's next annual or special meeting must be received by the fund within a reasonable period of time prior to that meeting. Your fund has no current plans to hold an annual or special meeting in 1999. Nominee accounts. Upon request, the fund will reimburse nominees for their reasonable expenses in forwarding proxy materials to beneficial owners of the fund's shares. Please submit invoices for our view to Vanguard Legal Department, P.O. Box 2600, Valley Forge, PA 19482. Annual/semiannual reports. Your fund's most recent annual and semi annual reports to shareholders are available at no cost. To request a report, please call us toll-free 1-800-891-5345 or write us at P.O. Box 2600, Valley Forge, PA 19482-2600. Litigation. Your Fund is not involved in any litigation. Other matters. At this point, we know of no other business to be brought before the shareholder meeting. However, if any other matters do come up, we will use our best judgment to vote on your behalf. If you object to our voting other matters on your behalf, please tell us so in writing before the meeting. The Vanguard Group, Inc. Your Fund is a member of The Vanguard Group, Inc., the only mutual mutual fund company. Vanguard is owned jointly by the Funds it oversees (and therefore by the shareholders of those Funds). Vanguard provides the Funds -- more than 95 distinct investment portfolios -- with their corporate management, administrative, and distribution services on an at-cost basis. 15 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this ---- day of ------ , 1998, by and between Vanguard Quantitative Funds (the "VQF Trust"), a Delaware business trust with its principal place of business at 100 Vanguard Boulevard, Malvern, Pennsylvania 19355 on behalf of its Vanguard Growth and Income Portfolio (the "Acquiring Fund") and Vanguard/Trustees' Equity Fund, (the "VTEF Trust"), a Pennsylvania common law trust1 with its principal place of business at 100 Vanguard Boulevard, Malvern, Pennsylvania 19355, on behalf of its Vanguard/Trustees' Equity Fund--U.S. Portfolio (the "Acquired Fund"). This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the "Reorganization") will consist of the transfer of all or substantially all of the assets of the Acquired Fund to the Acquiring Fund in exchange solely for shares of beneficial interest, ($0.01 par value per share), of the Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring Fund of the liabilities of the Acquired Fund, and the distribution of the Acquiring Fund Shares to the shareholders of the Acquired Fund in complete liquidation of the Acquired Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the VTEF Trust and the VQF Trust, are both open-end, registered investment companies of the management type and the Acquired Fund owns securities which generally are assets of the character in which the Acquiring Fund is permitted to invest; WHEREAS, the Board of Trustees of the VQF Trust has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares and the assumption of the liabilities of the Acquired Fund by the Acquiring Fund is in the best interest of the Acquiring Fund and its Shareholders and that the interest of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; WHEREAS, the Board of Trustees of the VTEF Trust has determined that the exchange of all or substantially all of the assets of the Acquired Fund for Acquiring Fund Shares and the assumption of the liabilities of the Acquired Fund by the Acquiring Fund is in the best interest of the Acquired Fund and its shareholders and that the interests of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; WHEREAS, the purpose of the Reorganization is to combine the assets of the Acquiring Fund with those of the Acquired Fund in an attempt to achieve greater operating economies and reduce expenses; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF THE ACQUIRED FUND LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND 1.1. Subject to the terms and conditions herein set forth and on the basis of the representatives and warranties contained herein, the Acquired Fund agrees to transfer all of the Acquired Fund's assets as set forth in paragraph 1.2 to the Acquiring Fund and the Acquiring Fund agrees in exchange therefor (i) to deliver to - - ------------ 1 It is anticipated that VTEF Trust will have reorganized as a Delaware business trust, assuming shareholder approval of that reorganization is obtained, pursuant to the terms of a separate agreement and plan of reorganization prior to the completion of the transaction contemplated by this Agreement. the Acquired Fund the number of Acquiring Fund Shares, including fractional Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's net assets computed in the manner and as of the time and date set forth in paragraph 2.1 by the net asset value of one Acquiring Fund Share computed in the manner and as of the time and date set forth in paragraph 2.2; and (ii) to assume the liabilities of the Acquired Fund, as set forth in paragraph 1.3. Such transactions shall take place at the closing provided for in paragraph 3.1 (the "Closing"). 1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all property, including without limitation, all cash, securities, commodities and futures interests and dividends or interest receivable which are owned by the Acquired Fund and any deferred or prepaid expenses shown as an asset on the books of the Acquired Fund on the closing date provided in paragraph 3.1 (the "Closing Date"). 1.3. The Acquired Fund will endeavor to discharge all of its known liabilities and obligations prior to the Closing Date. The Acquiring Fund shall assume all liabilities, expenses, costs, charges and reserves (expected to include expenses incurred in the ordinary course of the Acquired Fund's operations, such as accounts payable relating to custodian and transfer agency fees, legal and audit fees, and expenses of state securities registration of the Acquired Fund's shares). 1.4. Immediately after the transfer of assets provided for in paragraph 1.1, the Acquired Fund will distribute pro rata to the Acquired Fund's shareholders of record, determined as of immediately after the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1 and will completely liquidate. Such distribution and liquidation will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund Shareholders. The aggregate net asset value of Acquiring Fund Shares to be so credited to Acquired Fund Shareholders shall be equal to the aggregate net asset value of the Acquired Fund shares owned by such shareholders as of immediately after the close of business on the Closing Date. The outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund, although share certificates representing interests in the Acquired Fund will represent a number of Acquiring Fund Shares after the Closing Date as determined in accordance with paragraph 2.3. The Acquiring Fund will not issue certificates representing the Acquiring Fund Shares in connection with such exchange except upon request by a shareholder of the Acquired Fund. 1.5. Ownership of Acquiring Fund Shares will be shown on the books of the Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner described in the Acquiring Fund's then-current prospectus and statement of additional information. 1.6. Any reporting responsibility of the Acquired Fund including (but not limited to) the responsibility for any periods ending on or before the Closing Date for filing of regulatory reports, tax returns, or other documents with the Securities and Exchange Commission, any state securities or any other relevant regulatory authority, is and shall remain the responsibility of the Acquired Fund. 2. VALUATION 2.1. The value of the Acquired Fund's assets to be acquired by the Acquiring Fund hereunder shall be the value of such assets computed as of the normal close of business of the New York Stock Exchange on the Closing Date (such time and date being hereinafter called the "Valuation Date"), using the valuation procedures set forth in the VQF Trust's Declaration of Trust and then-current prospectus or statement of additional information. 2 2.2. The net asset value of an Acquiring Fund Share shall be the net asset value per share computed as of immediately after the close of business of the New York Stock Exchange on the Valuation Date, using the valuation procedures set forth in the VQF Trust's Declaration of Trust and then-current prospectus or statement of additional information. 2.3. The number of the Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's assets shall be determined by dividing the value of the net assets of the Acquired Fund determined using the same valuation procedures referred to in paragraph 2.1 by the net asset value of an Acquiring Fund Share determined in accordance with paragraph 2.2. 2.4. All computations of value with respect to the Acquiring Fund shall be made no later than _______ , unless extended by agreement of the parties. 3. CLOSING AND CLOSING DATE 3.1. The Closing Date shall be _______ , 1998 or such later date as the parties may agree in writing. All acts taking place at the Closing shall be deemed to take place simultaneously as of immediately after the close of business on the Closing Date unless otherwise agreed to by the parties. The close of business on the Closing Date shall be as of 4:00 p.m. Eastern Standard time. The Closing shall be held at the offices of the VQF Trust, 100 Vanguard Boulevard, Malvern, Pennsylvania, 19355, or at such other place and time as the parties shall mutually agree. 3.2. The Corestates Bank, N.A., as custodian for the Acquired Fund (the "Custodian"), shall deliver at the Closing a certificate of an authorized officer stating that: (a) the Acquired Fund's portfolio securities, cash, and any other assets shall have been delivered in proper form to the Acquiring Fund; and (b) all necessary taxes including without limitation all applicable federal and state stock transfer stamps, if any, shall have been paid, or provision for payment shall have been made, in conjunction with the delivery of portfolio securities. 3.3. Vanguard Group, Inc. (the "Transfer Agent") on behalf of the Acquired Fund shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Acquired Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall deliver a certificate evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Acquired Fund or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing each party shall deliver to the other such bills of sale, checks, assignments, share certificates, if any, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES 4.1. The VTEF Trust on behalf of the Acquired Fund represents and warrants to the VQF Trust that for each taxable year of operation since inception (including the taxable year ending on the Closing Date) the Acquired Fund has met the requirements of Subchapter M of the Code for qualification as a regulated investment company and has elected to be treated as such. The VTEF Trust on behalf of the Acquired Fund represents and warrants to the VQF Trust that on or before the Closing Date, the Acquired Fund will have distributed to its shareholders all of its current and accumulated investment company taxable income and net realized capital gain, including any such income or gain accruing through the Closing Date. 3 4.2. The VQF Trust on behalf of the Acquiring Fund represents and warrants to the Acquired Fund that for each taxable year of its operation since inception (including the taxable year ending on the Closing Date), the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification as a regulated investment company and has elected to be treated as such and intends to so qualify and elect each taxable year following the Reorganization. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND 5.1. The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions, and any other distributions that may be advisable. 5.2. The VTEF Trust, on behalf of the Acquired Fund, will call or has called a meeting of the Acquired Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3. The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.4. The Acquired Fund will distribute to its shareholders on or before the Closing Date all of its current or accumulated investment company taxable income and net realized capital gain, including any such income or gain accruing through the Closing Date. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE ACQUIRED FUND If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement: 6.1. The Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the VTEF Trust's Declaration of Trust and Bylaws and certified copies of the resolutions evidencing such approval shall have been delivered to the Acquiring Fund; 6.2. On the Closing Date, no action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein; 6.3. All consents of other parties and all other consents, orders and permits of Federal, state, and local regulatory authorities deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions; 4 6.4. The Acquiring Fund's registration statement relating to the shares to be issued in connection with the transactions contemplated by this Agreement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act; and 6.5. The VTEF Trust shall have received on the Closing Date the opinion of Dechert Price & Rhoads in a form reasonably satisfactory to the VTEF Trust, and dated as of the Closing Date, to the effect that: (a) the VQF Trust has been duly formed and is validly existing and in good standing under the laws of the State of Delaware; and (b) the Agreement has been duly authorized, executed and delivered by the VQF Trust on behalf of the Acquiring Fund and constitutes a valid and legally binding obligation of the VQF Trust enforceable against the VQF Trust in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and laws of general applicability relating to or affecting creditors' rights and to general equity principles. 6.6. The VQF Trust shall have received on the Closing Date the opinion of Dechert Price & Rhoads in a form reasonably satisfactory to the VQF Trust, dated as of the Closing Date, to the effect that: (a) VTEF Trust has been duly formed and is in good standing under the laws of the State of Delaware; (b) the Agreement has been duly authorized, executed and delivered by the VTEF Trust on behalf of the Acquired Fund constitutes a valid and legally binding obligation of the VTEF Trust; and (c) the Agreement is enforceable against the VTEF Trust in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and laws of general applicability relating to or affecting creditors' rights and to general equity principles. 6.7. The parties shall have received the opinion of Dechert Price & Rhoads addressed to the VQF Trust and the VTEF Trust substantially to the effect that the transactions contemplated by this Agreement will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. The VTEF Trust on behalf of the Acquired Fund and the VQF Trust on behalf of the Acquiring Fund each agree to make and provide representations which are reasonably necessary to enable Dechert Price & Rhoads to deliver the opinion referred to in this section. Notwithstanding anything herein to the contrary, neither the VQF Trust nor the VTEF Trust may waive the condition set forth in this paragraph 6.7. 7. BROKERAGE FEES AND EXPENSES 7.1. The Acquiring Fund and the Acquired Fund each represents and warrants to the other that it has no obligations to pay any brokers or finders fees in connection with the transactions provided for herein. 7.2. Each party to this Agreement shall bear its own expenses in connection with carrying out the terms of this Agreement. 8. TERMINATION This Agreement may be terminated by the mutual agreement of the VQF Trust and the VTEF Trust. In addition, this Agreement may be terminated as follows at or prior to the Closing Date: (a) the VTEF Trust may terminate this Agreement by resolution of the Board of Trustees of the VTEF Trust if, in the good faith opinion of such Board, proceeding with the Agreement is not in the best interests of the Acquired Fund or the shareholders of the Acquired Fund; or 5 (b) the VQF Trust may terminate this Agreement by resolution of the Board of Trustees of the VQF Trust if, in the good faith opinion of such Board, proceeding with the Agreement is not in the best interests of the VQF Trust or the shareholders of the Acquiring Fund. 9. GOVERNING LAW This Agreement and the transactions contemplated hereby shall be governed and construed and enforced in accordance with the laws of the State of Delaware. 10. AMENDMENTS This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the VTEF Trust and the VQF Trust; provided, however, that following the meeting of the Acquired Fund Shareholders called by the VTEF Trust pursuant to paragraph 4.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of the Acquiring Fund shares to be issued to the Acquired Fund Shareholders under this Agreement to the detriment of such shareholders without their further approval. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its President or Vice President and its seal to be affixed thereto and attested by its Secretary or Assistant Secretary. Attest: VANGUARD QUANTITATIVE FUNDS on behalf of VANGUARD GROWTH AND INCOME PORTFOLIO By: - - ------------------------------------ -------------------------------- Secretary Attest: VANGUARD/TRUSTEES' EQUITY FUND on behalf of VANGUARD/TRUSTEES' EQUITY FUND--U.S. PORTFOLIO By: - - ------------------------------------ -------------------------------- Secretary 6 Appendix B Growth and Income Portfolio Prospectus (enclosed) TABLE OF CONTENTS INTRODUCTION...................................................... 5 OVERVIEW ......................................................... 6 The Proposed Reorganization ................................... 6 Investment Objectives and Policies ............................ 6 Investment Advisers ........................................... 6 Fees and Expenses ............................................. 7 Purchase, Redemption, and Exchange Information ................ 8 Federal Income Tax Consequences of the Reorganization ......... 8 INVESTMENT PRACTICES AND RISK CONSIDERATIONS ..................... 9 Comparison of Objectives and Primary Investments .............. 9 Comparison of Risk Factors .................................... 9 FEES AND EXPENSES ................................................ 11 INFORMATION ABOUT THE REORGANIZATION ............................. 11 ADDITIONAL INFORMATION ABOUT THE FUNDS ........................... 13 GENERAL INFORMATION .............................................. 15 Proxy Solicitation Methods .................................... 15 Proxy Solicitation Costs....................................... 15 Quorom ........................................................ 15 Revoking your Proxy............................................ 15 Shareholder Proposals ......................................... 15 Nominee Accounts .............................................. 15 Litigation..................................................... 15 Other Matters.................................................. 15 The Vanguard Group, Inc. ...................................... 15 APPENDIX A Agreement and Plan of Reorganization .......................... APPENDIX B Growth and Income Portfolio Prospectus ........................ Enclosed
VOTE BY TOUCH-TONE PHONE OR THE INTERNET - - ---------------------------------------- CALL TOLL-FREE: 1-800-690-6903 OR VISIT OUR WEBSITE WWW.VANGUARD.COM OR WWW.PROXYVOTE.COM [THE VANGUARD GROUP(R) LOGO] 12-DIGIT CONTROL NUMBER: (unavailable *Please detach at perforation before mailing* (See enclosed insert for further instructions to vote by phone/internet) VANGUARD TRUSTEES' EQUITY FUND - U.S. PORTFOLIO ("FUND") PROXY SOLICITED BY THE BOARD OF TRUSTEES By my signature below, I appoint John J. Brennan, J. Lawrence Wilson and Raymond J. Klapinsky as my attorneys to vote all Fund shares that I am entitled to vote at the Special Meeting of Shareholders to be held in the Majestic Building, Room 118A, Vanguard Financial Center, 100 Vanguard Boulevard, Malvern, PA on July 31, 1998 at 9:30 A.M., E.T. and at any adjournments of the meeting. Any one or more Messers. Brennan, Wilson and Klapinsky may vote my shares, and they may appoint substitutes to vote my shares on their behalf. I instruct Messers. Brennan, Wilson and Klapinsky to vote this proxy as specified on the reverse side, and I revoke any previous proxies that I have executed. I acknowledge receipt of the Fund's Notice of Special Meeting of Shareholders and proxy statement. PLEASE SIGN, DATE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY PHONE OR INTERNET Date: ---------------------------------------------- NOTE: Please sign exactly as your name appears on this proxy. When signing in a fiduciary capacity, such as executor, administrator, trustee, attorney, guardian, etc., please so indicate. Corporate and partnership proxies should be signed by an authorized person indicating the person's title. --------------------------------------------------- Signature(s) (and Title(s), if applicable) VAN PH3
CONTINUED ON REVERSE SIDE Please refer to the Proxy Statement discussion of these proposals. THIS PROXY WILL BE VOTED FOR THE PROPOSALS IF YOU DO NOT SPECIFY OTHERWISE. --- Your appointed attorneys will vote any other matters that arise at the meeting in accordance with their best judgment. THE BOARD OF DIRECTORS/TRUSTEES RECOMMENDS A VOTE FOR THIS PROPOSAL. --- Please detach at perforation before mailing. Please vote by checking the appropriate box(es) below.
FOR AGAINST ABSTAIN 1. The proposal to reorganize your Fund as part of Vanguard/Growth and Income Portfolio. [ ] [ ] [ ] 1. PLEASE SIGN ON REVERSE SIDE VAN-PH3
- - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] A Member of The Vanguard Group - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- PROSPECTUS -- April 17, 1998 - - -------------------------------------------------------------------------------- NEW ACCOUNT INFORMATION: Investor Information Department -- 1-800-662-7447 (SHIP) - - -------------------------------------------------------------------------------- SHAREHOLDER ACCOUNT SERVICES: Client Services Department -- 1-800-662-2739 (CREW) - - -------------------------------------------------------------------------------- INVESTMENT Vanguard Growth and Income Portfolio (the "Portfolio"), a OBJECTIVE AND portfolio of Vanguard Quantitative Portfolios, Inc. (the POLICIES "Fund"), is an open-end diversified investment company that seeks to realize a total return (dividend income plus capital change) greater than the return of the aggregate U.S. stock market, as measured by the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"). (Prior to April 30, 1997, this Portfolio was known as Vanguard Quantitative Portfolios.) The Portfolio will hold a broadly diversified portfolio of common stocks that in the aggregate exhibit investment characteristics similar to those of the S&P 500 Index. There is no assurance that the Portfolio will achieve its stated objective. Shares of the Portfolio are neither insured nor guaranteed by any agency of the U.S. Government, including the FDIC. - - -------------------------------------------------------------------------------- OPENING AN To open a regular (non-retirement) account, please complete ACCOUNT and return the Account Registration Form. If you need assistance in completing this Form, please call our Investor Information Department. To open an Individual Retirement Account (IRA), please use a Vanguard IRA Adoption Agreement. To obtain a copy of this form, call 1-800-662-7447, Monday through Friday, from 8:00 a.m. to 9:00 p.m. and Saturday, from 9:00 a.m. to 4:00 p.m. (Eastern time). The minimum initial investment is $3,000, or $1,000 for Uniform Gifts/Transfers to Minors Act accounts. The Portfolio is offered on a no-load basis (i.e. there are no sales commissions or 12b-1 fees). However, the Portfolio incurs expenses for investment advisory, management, administrative and distribution services. - - -------------------------------------------------------------------------------- ABOUT THIS This Prospectus is designed to set forth concisely the PROSPECTUS information you should know about the Portfolio before you invest. It should be retained for future reference. A "Statement of Additional Information" containing additional information about the Portfolio has been filed with the Securities and Exchange Commission. This Statement is dated April 17, 1998 and has been incorporated by reference into this Prospectus. A copy may be obtained without charge by writing to the Fund, by calling the Investor Information Department at 1-800-662-7447 or visiting the Securities and Exchange Commission's website (www.sec.gov). - - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page Portfolio Expenses ................... 2 Financial Highlights ................. 2 Yield and Total Return ............... 3 PORTFOLIO INFORMATION Investment Objective ................. 4 Investment Policies .................. 4 Investment Risks ..................... 5 Who Should Invest .................... 5 Implementation of Policies ........... 6 Page Investment Limitations ............... 8 Management of the Portfolio .......... 9 Investment Adviser ................... 9 Performance Record ................... 11 Dividends, Capital Gains and Taxes ............................. 11 The Share Price of the Portfolio ..... 13 General Information .................. 13 Page SHAREHOLDER GUIDE Opening an Account and Purchasing Shares ................. 15 When Your Account Will Be Credited .......................... 18 Selling Your Shares .................. 19 Exchanging Your Shares ............... 21 Important Information About Telephone Transactions ............ 22 Transferring Registration ............ 23 Other Vanguard Services .............. 23 - - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - - -------------------------------------------------------------------------------- PORTFOLIO The following table illustrates all expenses and fees that EXPENSES you would incur as a shareholder of the Portfolio. The expenses and fees set forth in the table are for the 1997 fiscal year. Shareholder Transaction Expenses ----------------------------------------------------------- Sales Load Imposed on Purchases .................... None Sales Load Imposed on Reinvested Dividends ......... None Redemption Fees .................................... None Exchange Fees ...................................... None Annual Portfolio Operating Expenses --------------------------------------------------------------- Management & Administrative Expenses ......... 0.21% Investment Advisory Fees ..................... 0.12 12b-1 Fees ................................... None Other Expenses Distribution Costs ......................... 0.02% Miscellaneous Expenses ..................... 0.01 ----- Total Other Expenses ......................... 0.03 ----- Total Operating Expenses ................. 0.36% ===== The purpose of this table is to assist you in understanding the various costs and expenses that you would bear directly or indirectly as an investor in the Portfolio. The following example illustrates the expenses that you would incur on a $1,000 investment over various periods, assuming (1) a 5% annual rate of return and (2) redemption at the end of each period. As noted in the table above, the Portfolio charges no redemption fees of any kind. 1 Year 3 Years 5 Years 10 Years -------- --------- --------- --------- $ 4 $12 $20 $46 This example should not be considered a representation of past or future expenses or performance. Actual expenses may be higher or lower than those shown. - - -------------------------------------------------------------------------------- FINANCIAL The following financial highlights for a share outstanding HIGHLIGHTS throughout each period, insofar as they relate to each of the five years in the period ended December 31, 1997, have been derived from financial statements which were audited by Price Waterhouse LLP, independent accountants, whose report thereon was unqualified. (Please note, Vanguard Growth and Income Portfolio was previously known as Vanguard Quantitative Portfolios.) This information should be read in conjunction with the Fund's financial statements and notes thereto, which, together with the remaining portions of the Fund's 1997 Annual Report to Shareholders, are incorporated by reference in the Statement of Additional Information and in this Prospectus, and which appear, along with the report of Price Waterhouse LLP, in the Fund's 1997 Annual Report to Shareholders. The Fund's 1997 Annual Report to Shareholders may be obtained without charge by writing to the Fund or by calling our Investor Information Department at 1-800-662-7447. 2
Year Ended December 31, -------------------------------------------------- 1997 1996 1995 1994 ----------- ----------- ----------- ----------- Net Asset Value, Beginning of Year .................................. $ 22.23 $ 19.95 $ 15.56 $ 16.45 -------- -------- -------- -------- Investment Operations Net Investment Income ................. .41 .41 .41 .40 Net Realized and Unrealized Gain (Loss) on Investments ................ 7.15 4.09 5.14 (.50) -------- -------- -------- -------- Total from Investment Operations ........................... 7.56 4.50 5.55 (.10) - - ----------------------------------------- -------- -------- -------- -------- Distributions Dividends from Net Investment Income ............................... (.42) (.40) (.42) (.39) Distributions from Realized Capital Gains ................................ (3.18) (1.82) (.74) (.40) -------- -------- -------- -------- Total Distributions .................. (3.60) (2.22) (1.16) (.79) - - ----------------------------------------- -------- -------- -------- -------- Net Asset Value, End of Year ........... $ 26.19 $ 22.23 $ 19.95 $ 15.56 ========================================= ======== ======== ======== ======== Total Return ........................... 35.59% 23.06% 35.93% (0.61)% ========================================= ======== ======== ======== ======== Ratios/Supplemental Data Net Assets, End of Year (Millions) ..... $ 2,142 $ 1,285 $ 909 $ 596 Ratio of Expenses to Average Net Assets ................................ 0.36% 0.38% 0.47% 0.48% Ratio of Net Investment Income to Average Net Assets .................... 1.74% 1.97% 2.25% 2.50% Portfolio Turnover Rate ................ 66% 75% 59% 71% Average Commission Rate Paid ........... $ .0388 $ .0333 N/A N/A
[RESTUBBED FROM TABLE ABOVE]
Year Ended December 31, ---------------------------------------------------------------------------- 1993 1992 1991 1990 1989 1988 ----------- ----------- ----------- ----------- ----------- ----------- Net Asset Value, Beginning of Year .................................. $ 16.30 $ 16.32 $ 13.29 $ 14.14 $ 11.08 $ 9.80 ------- ------- ------- -------- ------- ------- Investment Operations Net Investment Income ................. .40 .44 .47 .49 .43 .36 Net Realized and Unrealized Gain (Loss) on Investments ................ 1.83 .69 3.47 (.83) 3.10 1.27 ------- ------- ------- -------- ------- ------- Total from Investment Operations ........................... 2.23 1.13 3.94 (.34) 3.53 1.63 - - ----------------------------------------- ------- ------- ------- -------- ------- ------- Distributions Dividends from Net Investment Income ............................... (.39) (.44) (.47) (.47) (.47) (.35) Distributions from Realized Capital Gains ................................ (1.69) (.71) (.44) (.04) -- -- ------- ------- ------- -------- ------- ------- Total Distributions .................. ( 2.08) (1.15) (.91) (.51) (.47) (.35) - - ----------------------------------------- ------- ------- ------- -------- ------- ------- Net Asset Value, End of Year ........... $ 16.45 $ 16.30 $ 16.32 $ 13.29 $ 14.14 $ 11.08 ========================================= ======= ======= ======= ======== ======== ======= Total Return ........................... 13.83% 7.01% 30.29% (2.44)% 32.00% 16.80% ========================================= ======= ======= ======= ======== ======== ======= Ratios/Supplemental Data Net Assets, End of Year (Millions) ..... $ 531 $ 416 $ 335 $ 211 $ 175 $ 144 Ratio of Total Expenses to Average Net Assets ................................ 0.50% 0.40% 0.43% 0.48% 0.53% 0.64% Ratio of Net Investment Income to Average Net Assets .................... 2.22% 2.67% 2.95% 3.34% 3.35% 3.38% Portfolio Turnover Rate ................ 85% 51% 61% 81% 78% 50% Average Commission Rate Paid ........... N/A N/A N/A N/A N/A N/A
- - -------------------------------------------------------------------------------- YIELD AND From time to time the Portfolio may advertise its yield and TOTAL RETURN total return. Both yield and total return figures are based on historical earnings and are not intended to indicate future performance. The "total return" of the Portfolio refers to the average annual compounded rates of return over one-, five- and ten-year periods or for the life of the Portfolio (as stated in the advertisement) that would equate an initial amount invested at the beginning of a stated period to the ending redeemable value of the investment, assuming the reinvestment of all dividend and capital gains distributions. In accordance with industry guidelines set forth by the U.S. Securities and Exchange Commission, the "30-day yield" of the Portfolio is calculated by dividing the net investment income per share earned during a 30-day period by the net asset value per share on the last day of the period. Net investment income includes interest and dividend income earned on the Portfolio's securities; it is net of all expenses and all recurring and nonrecurring charges that have been applied to all shareholder accounts. The yield calculation assumes that net investment income earned over 30 days is compounded monthly for six months and then annualized. Methods used to calculate advertised yields are standardized for all stock and bond mutual funds. However, these methods differ from the accounting methods used by the Portfolio to maintain its books and records, and so the advertised 30-day yield may not fully reflect the income paid to an investor's account or the yield reported in the Fund's Annual Report to Shareholders. - - -------------------------------------------------------------------------------- 3 INVESTMENT The Portfolio is an open-end diversified investment OBJECTIVE company. The objective of the Portfolio is to realize a total investment return (dividend income plus capital change) greater than the return of the aggregate U.S. stock market, as measured by the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"). There is no assurance that the Portfolio will achieve its stated objective. - - -------------------------------------------------------------------------------- INVESTMENT The Portfolio will invest in a broadly diversified POLICIES portfolio of common stocks. At least 65% of the The Portfolio uses Portfolio's assets will be invested in securities which quantitative are included in the S&P 500 Index, while the balance of techniques to the Portfolio's assets may be invested in common stocks select common not represented in the Index. Historically, the types stocks of securities that the Portfolio invests in have provided capital appreciation and dividend income. The Portfolio is managed without regard to tax ramifications. Stocks are selected for the Portfolio so that, in the aggregate, the investment characteristics of the Portfolio are similar to those of the S&P 500 Index. These characteristics include such measures as dividend yield (before expenses), price-to-earnings ratio, "beta" (relative volatility), return on equity, and market price-to-book value ratio. However, while maintaining aggregate investment characteristics similar to those of the S&P 500 Index, the Portfolio seeks to invest in individual common stocks -- including stocks which are not part of the Index -- which will in the aggregate provide a higher total return than the Index. Of course, there can be no assurance that the Portfolio's investment performance will match or exceed that of the S&P 500 Index. To select stocks for the Portfolio, the Portfolio's investment adviser first ranks a broad universe of common stocks using several quantitative investment models. These models are based upon such factors as measures of changes in earnings and of relative value based on present and historical price-to-earnings ratios and yields, as well as dividend discount calculations based on corporate cash flow. Once the ranking of common stocks is completed, the adviser, using a technique known as "portfolio optimization," then constructs a portfolio that in the aggregate resembles the S&P 500 Index, but is weighted towards the most attractive stocks in the universe of stocks monitored, as determined by the quantitative models. The Portfolio seeks to remain fully invested in common stocks. However, the Portfolio is also authorized to invest in certain short-term fixed income securities and in stock index futures contracts and options to a limited extent. See "Implementation of Policies" for a description of these and other investment practices of the Portfolio. The Portfolio is responsible for voting the shares of all securities it holds. The investment objective and policies of the Portfolio are not fundamental and so may be changed by the Board of Directors without shareholder approval. However, shareholders would be notified prior to a material change in either. - - -------------------------------------------------------------------------------- 4 INVESTMENT RISKS As a mutual fund investing primarily in common stocks, the Portfolio is subject to market risk -- i.e., the The Portfolio is possibility that common stock prices will decline over subject to market short or even extended periods. The U.S. stock market tends risk to be cyclical, with periods when stock prices generally rise and periods when prices generally decline. To illustrate the volatility of stock prices, the following table sets forth the extremes for stock market returns as well as the average return for the period from 1926 to 1997, as measured by the Standard & Poor's 500 Composite Stock Price Index: Average Annual U.S. Stock Market Returns (1926-1997) Over Various Time Horizons 1 Year 5 Years 10 Years 20 Years ------ ------- -------- -------- Best +53.9% +23.9% +20.1% +16.9% Worst -43.3 -12.5 - 0.9 + 3.1 Average +13.0 +10.5 +10.9 +10.9 As shown, common stocks have provided annual total returns (capital appreciation plus dividend income) averaging +10.9% for all 10-year periods from 1926 to 1997. While this average return can be used as a guide for setting reasonable expectations for future stock market returns, it may not be useful for forecasting future returns in any particular period, as stock returns are quite volatile from year to year. This table of U.S. stock market returns should not be viewed as a representation of future returns from the Portfolio or the U.S. stock market. The illustrated returns represent the historical investment performance, which may be a poor guide to future returns. Also, stock market indexes such as the S&P 500 are based upon unmanaged portfolios of securities, before transaction costs and other expenses. Such costs will reduce the relative investment performance of the Portfolio and other "real world" portfolios. - - -------------------------------------------------------------------------------- WHO SHOULD The Portfolio is designed for investors whose objective is INVEST to achieve a total return marginally superior to the return from the S&P 500 Index with reasonable consistency Investors seeking over time, while minimizing the risk of substantial a "margin of underperformance during any individual year. Because superiority" over of the risks associated the with common stock investments, S&P 500 Index the Portfolio is intended to be a long-term investment vehicle and is not designed to provide investors with a means of speculating on short-term market movements. Investors who engage in excessive account activity generate additional costs which are borne by all of the Portfolio's shareholders. In order to minimize such costs the Portfolio has adopted the following policies. The Portfolio reserves the right to reject any purchase request (including exchange purchases from other Vanguard portfolios) that is reasonably deemed to be disruptive to efficient portfolio management, either because of the timing of the investment 5 or previous excessive trading by the investor. Additionally, the Portfolio has adopted exchange privilege limitations as described in the section "Exchange Privilege Limitations." Finally, the Portfolio reserves the right to suspend the offering of its shares. No assurance can be given that the Portfolio will attain its objective or that shareholders will be protected from the risk of loss that is inherent in equity investing. All equity portfolios are influenced by price movements in the broad equity market. Investors may wish to reduce the potential risk of investing in the Portfolio by purchasing shares on a regular, periodic basis (dollar-cost averaging) rather than making an investment in one lump sum. Investors should not consider the Portfolio a complete investment program, but should also maintain holdings in investments with different risk characteristics, such as bonds and money market instruments. Investors may also wish to complement an investment in the Portfolio with other types of common stock investments. - - -------------------------------------------------------------------------------- IMPLEMENTATION The Portfolio utilizes a variety of investment practices in OF POLICIES its effort to surpass the total return of the S&P 500 Index. The Portfolio The Portfolio will invest at least 65% of its assets in invests primarily securities that are included in the S&P 500 Index (the in S&P 500 "Index"), and it is expected thatthe aggregate investment stocks characteristics of the Portfolio will be similar to those of the Index. The S&P 500 Index measures the total investment return (capital change plus dividend income) provided by a universe of 500 common stocks, weighted by their market value. These 500 securities, most of which trade on the New York Stock Exchange, represent approximately 70% of the market value of all U.S. common stocks. Because of the market-value weighting, the 50 largest companies in the Index currently account for approximately 50% of the Index. As of December 31, 1997, the five largest companies in the Index were: General Electric Company (3.2%), Coca-Cola Company (2.2%), Microsoft Corporation (2.1%), Exxon Corporation (2.0%), and Merck & Co., Inc. (1.7%) . The largest industry categories were: pharmaceutical companies (9.3%), banks (8.5%), telephone companies (7.1%), multi-sector companies (5.4%), and computer companies (4.7%). The S&P 500 Index is an unmanaged, statistical measure of stock market performance. As such, it does not reflect the actual, "real world" costs of investing in common stocks. By contrast, the Portfolio is actively managed and therefore incurs the normal costs of a mutual fund, including brokerage and execution costs, advisory fees, costs of distribution and administration, and custodial fees. Standard & Poor's Corporation chooses the common stocks to be included in the S&P 500 Index solely on a statistical basis. Inclusion of a security in the Index in 6 no way implies an opinion by Standard & Poor's Corporation as to its attractiveness or appropriateness as an investment. Standard & Poor's Corporation is neither a sponsor of nor in any way affiliated with the Portfolio. The Fund may invest Although it normally seeks to remain substantially fully in short-term fixed invested in common stocks, the Portfolio may invest income securities temporarily in certain short-term fixed income securities. Such securities may be used to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions. These securities include: obligations of the United States Government and its agencies or instrumentalities; commercial paper, bank certificates of deposit, and bankers' acceptances; and repurchase agreements collateralized by these securities. The Portfolio may The Portfolio may lend its investment securities to lend its securities qualified institutional investors for either short-term or long-term purposes of realizing additional income. Loans of securities by the Portfolio will be collateralized by cash, letters of credit, or securities issued or guaranteed by the U.S. Government or its agencies. The collateral will equal at least 100% of the current market value of the loaned securities. The Portfolio may The Portfolio may borrow money, subject to the limits set borrow money forth on page 8, for temporary or emergency purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities. Portfolio turnover Although it generally seeks to invest for the long term, is not expected to the Portfolio retains the right to sell securities exceed 100% irrespective of how long they have been held. It is anticipated that the annual portfolio turnover of the Portfolio will not exceed 100%. A turnover rate of 100% would occur, for example, if all of the securities of the Portfolio were replaced within one year. Derivative Derivatives are instruments whose values are linked to or Investing derived from an underlying security or index. The most common and conventional types of derivative securities are futures and options. The Portfolio may The Portfolio may invest in futures contracts and options, invest in but only to a limited extent. Specifically, the Portfolio derivative may enter into futures contracts provided that not more securities than 5% of its assets are required as a futures contract deposit; in addition, the Portfolio may enter into futures contracts and options transactions only to the extent that obligations under such contracts or transactions represent not more than 20% of the Portfolio's assets. Futures contracts and options may be used for several common fund management strategies: to maintain cash reserves while simulating full investment, to facilitate trading, to reduce transaction costs, or to seek higher investment returns when a specific futures contract is priced more attractively than other futures contracts or the underlying security or index. The Portfolio may use futures contracts for bona fide "hedging" purposes. In executing a hedge, a manager sells, for example, stock index futures to protect against a decline in the stock market. As such, if the market drops, the value of 7 the futures position will rise, thereby offsetting the decline in value of the Portfolio's stock holdings. Futures contracts The primary risks associated with the use of futures and options pose contracts and options are: (i) imperfect correlation certain risks between the change in market value of the stocks held by the Portfolio and the prices of futures contracts and options; and (ii) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures position prior to its maturity date. The risk of imperfect correlation will be minimized by investing in those contracts whose price fluctuations are expected to resemble those of the Portfolio's underlying securities. The risk that the Portfolio will be unable to close out a futures position will be minimized by entering into such transactions on a national exchange with an active and liquid secondary market. The risk of loss in trading futures contracts in some strategies can be substantial, due both to the low margin deposits required and the extremely high degree of leverage involved in futures pricing. As a result, relatively small price movement in a futures contract may result in immediate and substantial loss (or gain) to the investor. When investing in futures contracts, the Portfolio will segregate cash or other liquid portfolio securities in the amount of the underlying obligation. - - -------------------------------------------------------------------------------- INVESTMENT The Portfolio has adopted limitations on some of its LIMITATIONS investment policies. Some of these limitations are that the Portfolio will not: The Portfolio has (a) with respect to 75% of the value of its total assets, adopted certain purchase the securities of any issuer (except fundamental obligations of the United States Government and its limitations instrumentalities) if as a result the Portfolio would hold more than 10% of the outstanding voting securities of the issuer, or more than 5% of the value of the Portfolio's total assets would be invested in the securities of such issuer; (b) borrow money, except that the Portfolio may borrow from banks (or through reverse repurchase agreements) for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities, in an amount not exceeding 10% of the value of the Portfolio's net assets (including the amount borrowed and the value of any outstanding reverse repurchase agreements) at the time the borrowing is made. Whenever borrowings exceed 5% of the value of the Portfolio's net assets, the Portfolio will not make any additional investments; and (c) pledge, mortgage or hypothecate any of its assets to an extent greater than 5% of its total assets. A complete list of the Portfolio's investment limitations can be found in the Statement of Additional Information. These limitations are fundamental and may be changed only by approval of a majority of the Portfolio's shareholders. - - -------------------------------------------------------------------------------- 8 MANAGEMENT OF The Portfolio is a member of The Vanguard Group of THE PORTFOLIO Investment Companies, a family of more than 30 investment companies with more than 95 distinct investment portfolios Vanguard and total assets in excess of $360 billion. Through their administers and jointly-owned subsidiary, The Vanguard Group, Inc. distributes the ("Vanguard"), the Fund and the other funds in the Group Fund obtain at cost virtually all of their corporate management, administrative and distribution services. Vanguard also provides investment advisory services on an at-cost basis to certain Vanguard funds. As a result of Vanguard's unique corporate structure, the Vanguard funds have costs substantially lower than those of most competing mutual funds. In 1997, the average expense ratio (annual costs including advisory fees divided by total net assets) for the Vanguard funds amounted to approximately 0.28% compared to an average of 1.24% for the mutual fund industry (data provided by Lipper Analytical Services). The Officers of the Fund manage its day-to-day operations and are responsible to the Fund's Board of Directors. The Directors set broad policies for the Portfolio and choose the Fund's Officers. A list of the Directors and Officers of the Fund and a statement of their present positions and principal occupations during the past five years can be found in the Statement of Additional Information. Vanguard employs a supporting staff of management and administrative personnel needed to provide the requisite services to the funds and also furnishes the funds with necessary office space, furnishings and equipment. Each fund pays its share of Vanguard's net expenses, which are allocated among the funds under methods approved by the Board of Directors (Trustees) of each fund. In addition, each fund bears its own direct expenses, such as legal, auditing and custodian fees. Vanguard provides distribution and marketing services to the funds. The funds are available on a no-load basis (i.e., there are no sales commissions or 12b-1 fees). However, each fund bears its share of the Group's distribution costs. - - -------------------------------------------------------------------------------- INVESTMENT The Fund employs Franklin Portfolio Associates LLC ADVISER ("Associates"), Two International Place, Boston, MA 02110, as the Portfolio's investment adviser. Under an Franklin Portfolio investment advisory agreement with the Fund dated April 1, Associates manages 1996, Associates manages the investment and reinvestment the Portfolio's of the Portfolio's assets and continuously reviews, investments supervises, and directs the Portfolio's investment program. Associates discharges its responsibilities subject to the control of the Officers and Directors of the Fund. Associates is a professional investment counseling firm which specializes in the management of common stock portfolios through the use of quantitative investment models. Founded in 1982, Associates, a Massachusetts limited liability company, is a wholly-owned indirect subsidiary of Mellon Bank Corporation that has no affiliation to The Franklin/Templeton Group of Funds or Franklin Resources, Inc. As of December 31, 1997, Associates provided investment advisory services 9 with respect to approximately $13.8 billion of client assets. Associates also serves as adviser to approximately one-third of the equity investments of Vanguard/Morgan Growth Fund, another mutual fund member of The Vanguard Group. Associates employs proprietary computer models in selecting individual equity securities and in structuring investment portfolios for its clients, including the Portfolio. John J. Nagorniak, President of Associates, has been designated as the portfolio manager of the Fund, a position he has held since the Fund's inception in December 1986; he is responsible for overseeing the application of Associates' quantitative techniques to the Portfolio's assets. Mr. Nagorniak and the other investment principals of Associates are responsible for the ongoing development and enhancement of Associates' quantitative investment techniques. The Portfolio pays Associates an advisory fee at the end of each fiscal quarter, calculated by applying a quarterly rate, based on the following annual percentage rates, to the Portfolio's average month-end net assets for the quarter: Net Assets Rate ---------------------- ---- First $100 million .30% Next $650 million .15% Over $750 million .10% This fee may be increased or reduced by applying an adjustment formula based on the investment performance of the Portfolio relative to the S&P 500 Index. For the year ended December 31, 1997, the advisory fee represented an effective annual basis rate of 0.13% of the Portfolio's average net assets before a decrease of 0.01% based on performance. The investment advisory agreement authorizes Associates to select brokers and dealers to execute purchases and sales of the Portfolio's securities, and directs Associates to use its best efforts to obtain the best available price and most favorable execution with respect to all transactions. The full range and quality of brokerage services are considered in making these determinations. The Portfolio has authorized Associates to pay higher commissions in recognition of brokerage services felt necessary for the achievement of better execution, provided Associates believes this to be in the best interest of the Portfolio. If more than one broker can obtain the best available price and favorable execution of a transaction, then Associates is authorized to choose a broker who, in addition to executing the transaction, will provide research services to Associates or the Portfolio. However, Associates will not pay higher commissions specifically for the purpose of obtaining research services. The Portfolio may direct Associates to use a particular broker for certain transactions in exchange for commission rebates or research services provided to the Portfolio. The Fund's Board of Directors may, without the approval of shareholders, provide for: (a) the employment of a new investment adviser pursuant to the terms of a new advisory agreement either as a replacement for an existing adviser or as an additional adviser; (b) a change in the terms of an advisory agreement; and (c) 10 the continued employment of an existing adviser on the same advisory contract terms where a contract has been assigned because of a change in control of the adviser. Any such change will only be made upon not less than 30 days' prior written notice to shareholders of the Portfolio which shall include substantially the information concerning the adviser that would have normally been included in a proxy statement. - - -------------------------------------------------------------------------------- PERFORMANCE The table in this section provides investment results for RECORD the Portfolio for several periods throughout the Fund's lifetime. (Please note, Vanguard Growth and Income Portfolio was previously known simply as Vanguard Quantitative Portfolios.) The results shown represent "total return" investment performance, which assumes the reinvestment of all capital gains and income dividends for the indicated periods. Also included is comparative information with respect to the unmanaged Standard & Poor's 500 Composite Stock Price Index, a widely-used barometer of stock market activity, and the Consumer Price Index, a statistical measure of changes in the prices of goods and services. The tables do not make any allowance for federal, state or local income taxes, which shareholders must pay on a current basis. The results shown should not be considered a representation of the total return from an investment made in the Portfolio today. This information is provided to help investors better understand the Portfolio and may not provide a basis for comparison with other investments or mutual funds which use a different method to calculate performance. Average Annual Return for Vanguard Growth and Income Portfolio Vanguard Consumer Fiscal Years Growth and S&P 500 Price Ended 12/31/97 Income Portfolio Index Index -------------- ---------------- ------- -------- 1 Year +35.6% +33.4% +1.7% 3 Years +31.4 +31.2 +2.5 5 Years +20.7 +20.3 +2.6 10 Years +18.3 +18.1 +3.4 - - -------------------------------------------------------------------------------- DIVIDENDS, CAPITAL The Portfolio expects to pay dividends consisting of GAINS AND TAXES ordinary income on a semi-annual basis. Capital gains distributions, if any, will be made annually. The The Portfolio pays Portfolio is managed without regard to tax ramifications. semi-annual dividends and any Dividend and capital gains distributions may be capital gains automatically reinvested or received in cash. See annually "Choosing a Distribution Option" for a description of these distribution methods. In addition, in order to satisfy certain distribution requirements of the Tax Reform Act of 1986, the Portfolio may declare special year-end dividend and capital gains distributions during December. Such distributions, if received by shareholders by January 31, are deemed to have been paid by the Fund and received by shareholders on December 31 of the prior year. 11 The Portfolio intends to continue to qualify for taxation as a "regulated investment company" under the Internal Revenue Code so that it will not be subject to federal income tax to the extent its income is distributed to shareholders. Dividends paid by the Portfolio from net investment income and net short-term capital gains, whether received in cash or reinvested in additional shares, will be taxable to shareholders as ordinary income. For corporate investors, dividends from net investment income will generally qualify in part for the intercorporate dividends-received deduction. However, the portion of the dividends so qualified depends on the aggregate taxable qualifying dividend income received by the Fund from domestic (U.S.) sources. Distributions paid by the Portfolio from long-term capital gains, whether received in cash or reinvested in additional shares, are taxable as long-term capital gains, regardless of the length of time you have owned shares in the Fund. Long-term capital gains may be taxed at different rates depending on how long the Fund held the securities. Capital gains distributions are made when the Portfolio realizes net capital gains on sales of portfolio securities during the year. The Portfolio does not seek to realize any particular amount of capital gains during a year; rather, realized gains are a by-product of portfolio management activities. Consequently, capital gains distributions may be expected to vary considerably from year to year; there will be no capital gains distributions in years when the Portfolio realizes net capital losses. Note that if you elect to receive capital gains distributions in cash, instead of reinvesting them in additional shares, you are in effect reducing the capital at work for you in the Portfolio. Also, keep in mind that if you purchase shares in the Portfolio shortly before the record date for a dividend or capital gains distribution, a portion of your investment will be paid to you as a taxable distribution, regardless of whether you are reinvesting your distributions or receiving them in cash. The Portfolio will notify you annually as to the tax status of dividend and capital gains distributions paid by the Portfolio. A capital gain A sale of shares of the Portfolio is a taxable event and or loss may be may result in a capital gain or loss. A capital gain or realized upon loss may be realized from an ordinary redemption of shares exchange or or an exchange of shares between two mutual funds (or two redemption portfolios of a mutual fund). Dividend distributions, capital gains distributions, and capital gains or losses from redemptions and exchanges may be subject to state and local taxes. The Portfolio is required to withhold 31% of taxable dividends, capital gains distributions, and redemptions paid to shareholders who have not complied with IRS taxpayer identification regulations. You may avoid this withholding requirement by certifying on your Account Registration Form your proper Social Security or employer identification number and by certifying that you are not subject to backup withholding. 12 The Portfolio has obtained a Certificate of Authority to do business as a foreign corporation in Pennsylvania and does business and maintains an office in thatstate. In the opinion of counsel, the shares of the Portfolio are exempt from Pennsylvania personal property taxes. The tax discussion set forth above is included for general information only. Prospective investors should consult their own tax advisers concerning the tax consequences of an investment in the Portfolio. - - -------------------------------------------------------------------------------- THE SHARE PRICE The Portfolio's share price, or "net asset value" per OF THE PORTFOLIO share, is calculated by divid ing the total assets of the Portfolio, less all liabilities, by the total number of shares outstanding. The net asset value is determined as of the close of the New York Stock Exchange (generally 4:00 p.m. Eastern time) on each day the exchange is open for trading. Portfolio securities for which market quotations are readily available (includes those securities listed on national securities exchanges, as well as those quoted on the NASDAQ Stock Market) will be valued at the last quoted sales price on the day the valuation is made. Such securities which are not traded on the valuation date are valued at the mean of the bid and ask prices. Price information on exchange-listed securities is taken from the exchange where the security is primarily traded. Securities may be valued on the basis of prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. Short-term instruments (those acquired with remaining maturities of 60 days or less) may be valued at cost, plus or minus any amortized discount or premium, which approximates market value. Bonds and other fixed income securities may be valued on the basis of prices provided by a pricing service when such prices are believed to reflect the fair market value of such securities. The prices provided by a pricing service may be determined without regard to bid or last sale prices of each security, but take into account institutional-size transactions in similiar groups of securities as well as any developments related to specific securities. Other assets and securities for which no quotations are readily available or which are restricted as to sale (or resale) are valued by such methods as the Board of Directors deems in good faith to reflect fair value. The share price for the Portfolio can be found daily in the mutual fund listings of most major newspapers under the heading of Vanguard Funds. - - -------------------------------------------------------------------------------- GENERAL The Fund is a Maryland corporation. The Articles of INFORMATION Incorporation permit the Directors to issue 1,000,000,000 shares of common stock, with a $.001 par value. The Board of Directors has the power to designate one or more classes ("series") of shares of common stock and to classify or reclassify any unissued shares with respect to such series. Currently the Fund is offering shares of one series. The shares of the Fund are fully paid and non-assessable; have no preference as to conversion, exchange, dividends, retirement or other features; and have no 13 preemptive rights. Such shares have non-cumulative voting rights, meaning that the holders of more than 50% of the shares voting for the election of Directors can elect 100% of the Directors if they so choose. Annual meetings of shareholders will not be held except as required by the Investment Company Act of 1940 and other applicable law. An annual meeting will be held to vote on the removal of a Director or Directors of the Fund if requested in writing by the holders of not less than 10% of the outstanding shares of the Fund. All securities and cash are held by CoreStates Bank, Philadelphia, PA. The Vanguard Group, Inc., Valley Forge, PA, serves as the Fund's Transfer and Dividend Disbursing Agent. Price Waterhouse LLP, serves as independent accountants for the Fund and will audit its financial statements annually. The Fund is not involved in any litigation. - - -------------------------------------------------------------------------------- 14 SHAREHOLDER GUIDE OPENING AN You may open a regular (non-retirement) account, either by ACCOUNT AND mail or wire. Simply complete and return an Account PURCHASING Registration Form and any required legal documentation, SHARES indicating the amount you wish to invest. Your purchase must be equal to or greater than the $3,000 minimum initial investment requirement ($1,000 for Uniform Gifts/Transfers to Minors Act accounts, $500 minimum for an Education IRA). You must open a new Individual Retirement Account by mail (IRAs may not be opened by wire) using a Vanguard IRA Adoption Agreement. Your purchase must be equal to or greater than the $1,000 minimum initial investment requirement, but no more than $2,000 if you are making a regular IRA contribution. Rollover contributions are generally limited to the amount withdrawn within the past 60 days from an IRA or other qualified retirement plan. If you need assistance with the forms or have any questions about the Fund, please call our Investor Information Department (1-800-662-7447). Note: For other types of account registrations (e.g., corporations, associations, other organizations, trusts or powers of attorney), please call us to determine which additional forms you may need. The Portfolio's shares generally are purchased at the next-determined net asset value after your investment has been received. The Portfolio is offered on a no-load basis (i.e., there are no sales commissions or 12b-1 fees). Purchase 1) Because of the risks associated with common stock Restrictions investments, the Portfolio is intended to be a long-term investment vehicle and is not designed to provide investors with a means of speculating on short-term market movements. Consequently, the Portfolio reserves the right to reject any specific purchase (and exchange purchase) request. The Portfolio also reserves the right to suspend the offering of shares for a period of time. 2) Vanguard will not accept third-party checks to purchase shares of the Portfolio. Please be sure your purchase check is made payable to the Vanguard Group. Additional Subsequent investments to regular accounts may be made by Investments mail ($100 minimum), wire ($1,000 minimum), written exchange from another Vanguard Fund account ($100 minimum), or Vanguard Fund Express. Subsequent investments to IRAs may be made by mail ($100 minimum) or written exchange from another Vanguard Fund account. In some instances, contributions may be made by wire or Vanguard Fund Express. Please call us for more information on these options. ------------------------------------------------------------ 15 ADDITIONAL INVESTMENTS TO NEW ACCOUNT EXISTING ACCOUNTS Purchasing By Mail Please include the amount Complete and sign the of your initial Additional investments enclosed Account investment on the should include the Registration Form registration form, make Invest-by-Mail remittance your check payable to The form attached to your Vanguard Group-93 and Fund confirmation mail to: statements. Please make your check payable The Vanguard Group to The Vanguard Group-93, P.O. Box 2600 write your account number Valley Forge, PA 19482-2600 on your check and, using the return envelope provided, mail to the address indicated on the Invest-by-Mail Form. For express or The Vanguard Group All written requests registered mail, 455 Devon Park Drive should be mailed to one send to: Wayne, PA 19087-1815 of the addresses indicated for new accounts. Do not send registered or express mail to the post office box address. ------------------------------------------------------------ Purchasing By Wire CORESTATES BANK, N.A. Money should be ABA 031000011 wired to: CORESTATES NO. 0101 9897 ATTN: VANGUARD Before Wiring VANGUARD GROWTH AND INCOME PORTFOLIO Please contact ACCOUNT NUMBER Client Services ACCOUNT REGISTRATION (1-800-662-2739) To assure proper receipt, please be sure your bank includes the Fund name, the account number Vanguard has assigned to you and the eight-digit CoreStates number. If you are opening a new account, please complete the Account Registration Form and mail it to the "New Account" address above after completing your wire arrangement. Note: Federal Funds wire purchase orders will be accepted only when the Fund and Custodian Bank are open for business. ------------------------------------------------------------ Purchasing By Telephone exchanges are not permitted to or from Exchange (from a non-retirement accounts in Vanguard Growth and Vanguard account) Income Portfolio. (The Fund will accept telephone exchange requests for retirement accounts only.) You may, however, purchase shares of the Portfolio by exchange from another Vanguard Fund account by providing the appropriate information on your Account Registration Form. The Portfolio reserves the right to refuse any exchange purchase request. ------------------------------------------------------------ Purchasing By Fund The Fund Express Special Purchase option lets you move money Express from your bank account to your Vanguard account on an "as needed" basis. Or if you choose the Automatic Investment Special Purchase option, money will be moved automatically from your bank and Automatic account to your Vanguard account on the schedule (monthly, Investment bimonthly 16 [every other month], quarterly, semiannually or annually) you select. To establish these Fund Express options, please provide the appropriate information on the Account Registration Form. We will send you a confirmation of your Fund Express enrollment; please wait two weeks before using the service. - - -------------------------------------------------------------------------------- CHOOSING A You must select one of four distribution options: DISTRIBUTION OPTION 1. Automatic Reinvestment Option -- Both dividend and capital gains distributions will be reinvested in additional Fund shares. This option will be selected for you automatically unless you specify one of the other options. 2. Cash Dividend Option -- Your dividends will be paid in cash and your capital gains will be reinvested in additional Fund shares. 3. Cash Capital Gain Option -- Your capital gains distributions will be paid in cash and your dividends will be reinvested in additional Fund shares. 4. All Cash Option -- Both dividend and capital gains distributions will be paid in cash. You may change your option by calling our Client Services Department (1-800-662-2739). If a shareholder has chosen to receive dividend and/or capital gains distributions in cash, and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, we will change the distribution option so that all dividends and other distributions are automatically reinvested in additional shares. We will not pay interest on uncashed distribution checks. In addition, an option to invest your cash dividend and/or capital gains distributions in another Vanguard Fund account is available. Please call our Client Services Department (1-800-662-2739) for information. You may also elect Vanguard Dividend Express which allows you to transfer your cash dividend and/or capital gains distributions automatically to your bank account. Please see "Other Vanguard Services" for more information. - - -------------------------------------------------------------------------------- TAX CAUTION Under Federal tax laws, the Portfolio is required to distribute net capital gains and dividend income to Investors should Portfolio shareholders. These distributions are made to all ask about the shareholders who own Portfolio shares as of the timing of capital distribution's record date, regardless of how long the gains and dividend shares have been owned. Purchasing shares just prior to the distributions record date could have a significant impact on your tax before investing liability for the year. For example, if you purchase shares immediately prior to the record date of a sizable capital gain or income dividend distribution, you will be assessed taxes on the amount of the capital gain and/or dividend distribution later paid even though you owned the Portfolio shares for just a short period of time. (Taxes are due on the distributions even if the dividend or capital gain is reinvested in additional Portfolio shares.) While the total value of your investment will be the same after the distribution -- the amount of the distribution will offset the drop in the net asset 17 value of the shares -- you should be aware of the tax implications the timing of your purchase may have. Prospective investors should, therefore, inquire about potential distributions before investing. The Portfolio's annual capital gains distribution normally occurs in December, while income dividends are generally paid semi-annually in June and December. In addition, the Portfolio may be required to make supplemental dividend or capital gains distributions at some other time during the year. For additional information on distributions and taxes, see the section titled "Dividends, Capital Gains and Taxes." - - -------------------------------------------------------------------------------- IMPORTANT The easiest way to establish optional Vanguard services on INFORMATION your account is to select the options you desire when you complete your Account Registration Form. Establishing If you wish to add options later, you may need to provide Optional Vanguard with additional information and a signature Services guarantee. Please call our Client Services Department (1-800-662-2739) for further assistance. Signature For our mutual protection, we may require a signature Guarantees guarantee on certain written transaction requests. A signature guarantee verifies the authenticity of your signature and may be obtained from banks, brokers and any other guarantor that Vanguard deems acceptable. A signature guarantee cannot be provided by a notary public. Certificates Share certificates will be issued upon request. If a certificate is lost, you may incur an expense to replace it. Broker/Dealer If you purchase shares in Vanguard Funds through a Purchases registered broker/dealer or investment adviser, the broker/dealer or adviser may charge a service fee. Cancelling Trades The Portfolio will not cancel any trade (e.g., a purchase, exchange or redemption) believed to be authentic once the trade request has been received in writing or by telephone. Electronic You may receive a prospectus for the Fund or any of the Prospectus Vanguard Funds in an electronic format through Vanguard's Delivery website at www.vanguard.com. For additional information please see "Other Vanguard Services -- Computer Access." - - -------------------------------------------------------------------------------- WHEN YOUR Your trade date is the date on which your account is ACCOUNT WILL BE credited. If your purchase is made by check, Federal Funds CREDITED wire or exchange and is received by the close of trading on the New York Stock Exchange (the "Exchange"), generally 4:00 p.m. Eastern time, your trade date is the day of receipt. If your purchase is received after the close of the Exchange your trade date is the next business day. Your shares are purchased at the net asset value determined on your trade date. In order to prevent lengthy processing delays caused by the clearing of foreign checks, Vanguard will only accept a foreign check which has been drawn in U.S. dollars and has been issued by a foreign bank with a U.S. correspondent bank. The name of the U.S. correspondent bank must be printed on the face of the foreign check. - - -------------------------------------------------------------------------------- 18 SELLING YOUR You may withdraw any portion of the funds in your account by SHARES redeeming shares at any time. (Please see "Important Redemption Information.") You generally may initiate a request by writing or by telephoning. Your redemption proceeds are normally mailed within two business days after the receipt of the request in Good Order. No interest will accrue on amounts represented by uncashed redemption checks. Selling By Mail Requests should be mailed to The Vanguard Group, Vanguard Growth and Income Portfolio, P.O. Box 1120, Valley Forge, PA 19482-1120. (For express or registered mail, send your request to The Vanguard Group, Vanguard Growth and Income Portfolio, 455 Devon Park Drive, Wayne, PA 19087-1815.) The redemption price of shares will be the Fund's net asset value next determined after Vanguard has received all required documents in Good Order. ------------------------------------------------------------ Definition of Good Good Order means that the request includes the following: Order 1. The account number and Fund name. 2. The amount of the transaction (specified in dollars or shares). 3. The signatures of all owners exactly as they are registered on the account. 4. Any required signature guarantees. 5. Other supporting legal documentation that may be required in the case of estates, corporations, trusts and certain other accounts. 6. Any certificates that you are holding for the account. If you have questions about this definition as it pertains to your request, please call our Client Services Department (1-800-662-2739). ------------------------------------------------------------ Selling By To sell shares by telephone, you or your pre-authorized Telephone representative may call our Client Services Department at 1-800-662-2739. The proceeds will be sent to you by mail. Please Note: As a protection against fraud, your telephone mail redemption privilege will be suspended for 15 calendar days following any expedited address change to your account. An expedited address change is one that is made by telephone or in writing, without the signatures of all account owners. Please see "Important Information About Telephone Transactions". ------------------------------------------------------------ Selling By Fund If you select the Fund Express Automatic Withdrawal option, Express money will be automatically moved from your Vanguard Fund account to your bank account according to the schedule you Automatic have selected. The Special Redemption option lets you move Withdrawal money from your Vanguard account to your bank account on & Special an "as needed" basis. To establish these Fund Express Redemption options, please provide the appropriate information on the Account Registration Form. We will send you a confirmation of your Fund Express service; please wait two weeks before using the service. ------------------------------------------------------------ 19 Selling by You may sell shares by making an exchange into another Exchange Vanguard Fund account. Exchanges may be made only by mail; telephone exchanges between non-retirement accounts are not accepted for the Portfolio. ------------------------------------------------------------ Important Shares purchased by check or Fund Express may be redeemed at Redemption any time. However, your redemption proceeds will Information not be paid until payment for the purchase is collected, which may take up to ten calendar days. ------------------------------------------------------------ Delivery of Redemption requests received by telephone prior to the close Redemption of trading on the Exchange are processed on the day of Proceeds receipt and the redemption proceeds are normally sent on the following business day. Redemption requests received by telephone after the close of the Exchange are processed on the business day following receipt and the proceeds are normally sent on the second business day following receipt. Redemption proceeds must be sent to you within seven days of receipt of your request in Good Order, except as described above in "Important Redemption Information." If you experience difficulty in making a telephone redemption during periods of drastic economic or market changes, your redemption request may be made by regular or express mail. It will be implemented at the net asset value next determined after your request has been received by Vanguard in Good Order. The Portfolio reserves the right to revise or terminate the telephone redemption privilege at any time. The Fund may suspend the redemption right or postpone payment at times when the New York Stock Exchange is closed or under any emergency circumstances as determined by the United States Securities and Exchange Commission. If the Board of Directors determines that it would be detrimental to the best interests of the Fund's remaining shareholders to make payment in cash, the Fund may pay redemption proceeds in whole or in part by a distribution in kind of readily marketable securities. ------------------------------------------------------------ Vanguard's Average If you make a redemption from a qualifying account, Vanguard Cost Statement will send you an Average Cost Statement which provides you with the tax basis of the shares you redeemed. Please see "Statements and Reports" for additional information. ------------------------------------------------------------ Low Balance fee Due to the relatively high cost of maintaining smaller and Minimum accounts, the Fund will automatically deduct a $10 annual Account Balance fee in either June or December from non-retirement accounts Requirement with balances falling below $2,500 ($500 for Uniform Gifts/Transfers to Minors Act accounts). The fee generally will be waived for investors whose aggregate Vanguard assets exceed $50,000. In addition, the Portfolio reserves the right to liquidate any non-retirement account that is below the minimum initial investment amount of $3,000. If at any time your total investment does not have a value of at least $3,000, you may be 20 notified that your account is below the Portfolio's minimum account balance requirement. You would then be allowed 60 days to make an additional investment before the account is liquidated. Proceeds would be promptly paid to the registered shareholder. Vanguard will not liquidate your account if it has fallen below $3,000 solely as a result of declining markets (i.e., a decline in a Portfolio's net asset value). - - -------------------------------------------------------------------------------- EXCHANGING YOUR Should your investment goals change, you may exchange your SHARES shares of Vanguard Growth and Income Portfolio for those of other available Vanguard funds. Exchanges to or from Vanguard Growth and Income Portfolio may be made only by mail. Telephone exchanges between non-retirement accounts are not accepted for the Portfolio. Exchanging By Mail Please be sure to include on your exchange request the name and account number of your current Fund, the name of the Fund you wish to exchange into, the amount you wish to exchange, and the signatures of all registered account holders. Send your request to The Vanguard Group, Vanguard Growth and Income Portfolio, P.O. Box 1120, Valley Forge, PA 19482-1120. (For express or registered mail, send your request to The Vanguard Group, Vanguard Growth and Income Portfolio, 455 Devon Park Drive, Wayne, PA 19087-1815.) ------------------------------------------------------------ Exchanging Online You may use your personal computer to exchange shares of most Vanguard funds by accessing our website (www.vanguard.com). To establish this service for your account, you must first register through the website. We will then send to you, by mail, an account access password that will enable you to make online exchanges. The Vanguard funds that you cannot purchase or sell through online exchange are Vanguard Index Trust, Vanguard Balanced Index Fund, Vanguard International Equity Index Fund, Vanguard REIT Index Portfolio, Vanguard Total International Portfolio, and Vanguard Growth and Income Portfolio (formerly known as Vanguard Quantitative Portfolios). These funds do permit online exchanges within IRAs and other retirement accounts. ------------------------------------------------------------ Important Exchange Before you make an exchange, you should consider the Information following: o Please read the Fund's prospectus before making an exchange. For a copy and for answers to any questions you may have, call our Investor Information Department (1-800-662-7447). o An exchange is treated as a redemption and a purchase. Therefore, you could realize a taxable gain or loss on the transaction. o Exchanges by telephone are accepted only if the registrations and the taxpayer identification numbers of the two accounts are identical. o To exchange into an account with a different registration (including a different name, address, or taxpayer identification number), you must provide Vanguard with written instructions that include the guaranteed signatures of all current account owners. 21 o The shares to be exchanged must be on deposit and not held in certificate form. o New accounts are not currently accepted in Vanguard/Windsor Fund. o The redemption price of shares redeemed by exchange is the net asset value next determined after Vanguard has received all required documentation in Good Order. o When opening a new account by exchange, you must meet the minimum investment requirement of the new Fund. Every effort will be made to maintain the exchange privilege. However, the Portfolio reserves the right to revise or terminate its provisions, limit the amount of, or reject any exchange, as deemed necessary, at any time. - - -------------------------------------------------------------------------------- EXCHANGE The Portfolio's exchange privilege is not intended to afford PRIVILEGE shareholders a way to speculate on short-term movements in LIMITATIONS the market. Accordingly, in order to prevent excessive use of the exchange privilege that may potentially disrupt the management of the Portfolio and increase transaction costs, the Portfolio has established a policy of limiting excessive exchange activity. Exchange activity generally will not be deemed excessive if limited to two substantive exchange redemptions (at least 30 days apart) from the Portfolio during any twelve month period. "Substantive" means either a dollar amount or a series of movements between Vanguard funds that Vanguard determines, in its sole discretion, could have an adverse impact on the management of the Portfolio. Notwithstanding these limitations, the Portfolio reserves the right to reject any purchase request (including exchange purchases from other Vanguard portfolios) that is reasonably deemed to be disruptive to efficient portfolio management. - - -------------------------------------------------------------------------------- IMPORTANT The ability to initiate redemptions (except wire or Fund INFORMATION Express redemptions) by telephone is automatically ABOUT TELEPHONE established on your account unless you request in writing TRANSACTIONS that telephone transactions on your account not be permitted. To protect your account from losses resulting from unauthorized or fraudulent telephone instructions, Vanguard adheres to the following security procedures: 1. Security Check. To request a transaction by telephone, the caller must know (i) the name of the Portfolio; (ii) the 10-digit account number; (iii) the exact name and address used in the registration; and (iv) the Social Security or employer identification number listed on the account. 2. Payment Policy. The proceeds of any telephone redemption by mail will be made payable to the registered shareowner and mailed to the address of record only. 22 Neither the Fund nor Vanguard will be responsible for the authenticity of transaction instructions received by telephone, provided that reasonable security procedures have been followed. Vanguard believes that the security procedures described above are reasonable, and that if such procedures are followed, you will bear the risk of any losses resulting from unauthorized or fraudulent telephone transactions on your account. - - -------------------------------------------------------------------------------- TRANSFERRING You may transfer the registration of any of your Portfolio REGISTRATION shares to another person by completing a transfer form and sending it to: The Vanguard Group, Attention: Transfer Department, P.O. Box 1110, Valley Forge, PA 19482-1110. The request must be in Good Order. To obtain a transfer form and complete instructions, please call our Client Services Department (1-800-662-2739). - - -------------------------------------------------------------------------------- STATEMENTS AND Vanguard will send you a confirmation statement each time REPORTS you initiate a transaction in your account except for checkwriting redemptions from Vanguard money market accounts. You will also receive a comprehensive account statement at the end of each calendar quarter. The fourth-quarter statement will be a year-end statement, listing all transaction activity for the entire calendar year. Vanguard's Average Cost Statement provides you with the average cost of shares redeemed from your account during the calendar year, using the average cost, single category method. This service is available for most taxable accounts opened since January 1, 1986. In general, investors who redeemed shares from a qualifying Vanguard account may expect to receive their Average Cost Statement along with their Portfolio Summary Statement. Please call our Client Services Department (1-800-662-2739) for information. Financial reports on the Fund will be mailed to you semiannually, according to the Fund's fiscal year-end. To keep the Fund's cost as low as possible (so that you and other shareholders can keep more of the Fund's investment earnings), Vanguard attempts to eliminate duplicate mailings to the same address. When we find that two or more Fund shareholders have the same last name and address, we send just one Fund report to that address--instead of mailing separate reports to each shareholder. If you want us to send separate reports, however, you may notify our Investor Information Department at 1-800-662-7447. - - -------------------------------------------------------------------------------- OTHER VANGUARD For more information about any of these services, please SERVICES call our Investor Information Department at 1-800-662-7447. Vanguard Direct With Vanguard's Direct Deposit Service, most U.S. Deposit Service Government checks (including Social Security and military pension checks) and private payroll checks may be automatically deposited into your Vanguard Fund account. Separate brochures and forms are available for direct deposit of U.S. Government and private payroll checks. Vanguard Automatic Vanguard's Automatic Exchange Service allows you to move Exchange Service money automatically among your Vanguard Fund accounts. For instance, the service can be used 23 to "dollar cost average" from a money market portfolio into a stock or bond fund or to contribute to an IRA or other retirement plan. Please contact our Client Services Department at 1-800-662-2739 for additional information. Vanguard Fund Vanguard's Fund Express allows you to transfer money Exchange Service between your Portfolio account and your account at a bank, savings and loan association, or a credit union that is a member of the Automated Clearing House (ACH) system. You may elect this service on the Account Registration Form or call our Investor Information Department (1-800-662-7447) for a Fund Express application. Special rules govern how your Fund Express purchases or redemptions are credited to your account. In addition, some services of Fund Express cannot be used with specific Vanguard Funds. For more information, please refer to the Vanguard Fund Express brochure. Vanguard Dividend Vanguard's Dividend Express allows you to transfer your Express dividend and/or capital gains distributions automatically from your Portfolio account, one business day after the Portfolio's payable date, to your account at a bank, savings and loan association, or a credit union that is a member of the Automated Clearing House (ACH) system. You may elect this service on the Account Registration Form or call our Investor Information Department (1-800-662-7447) for a Vanguard Dividend Express application. Vanguard Vanguard's Tele-Account is a convenient, automated service Tele-Account(R) that provides share price, price change and yield quotations on Vanguard Funds through any TouchTone(TM) telephone. This service also lets you obtain information about your account balance, your last transaction, and your most recent dividend or capital gains payment. In addition, you may perform investment exchanges of Vanguard Fund shares and redemptions by check using Tele-Account. To contact Vanguard's Tele-Account service, dial 1-800-ON-BOARD (1-800-662-6273). A brochure offering detailed operating instructions is available from our Investor Information Department (1-800-662-7447). Vanguard Online Use your personal computer to learn more about Vanguard's www.vanguard.com funds and services; keep in touch with your Vanguard accounts; map out a long-term investment strategy; initiate certain transactions; and ask questions, make suggestions, and send messages to Vanguard. Our education-oriented website provides timely news and information about Vanguard's funds and services; an online "university" that offers a variety of mutual fund classes; and easy-to-use, interactive tools to help you create your own investment and retirement strategies. - - -------------------------------------------------------------------------------- 24 [GRAPHIC OMITTED] [GRAPHIC OMITTED] ----------------- The Vanguard Group P R O S P E C T U S P.O. Box 2600 Valley Forge, PA 19482 Investor Information APRIL 17, 1998 Department: 1-800-662-7447 (SHIP) FORMERLY KNOWN AS VANGUARD Client Services QUANTITATIVE Department: PORTFOLIOS 1-800-662-2739 (CREW) Tele-Account for 24-Hour Access: 1-800-662-6273 (ON-BOARD) Telecommunication Service for the Hearing-Impaired: 1-800-662-2738 Transfer Agent: The Vanguard Group, Inc. P.O. Box 2600 Valley Forge, PA 19482 P093 PART B STATEMENT OF ADDITIONAL INFORMATION June ______, 1998 This statement is not a prospectus, but should be read in conjunction with the Combined Proxy Statement/Prospectus of Vanguard Quantitative Portfolios - - -- Growth and Income Portfolio (the "Growth and Income Portfolio") and Vanguard/Trustee's Equity Fund -- U.S. Portfolio (the "U.S. Portfolio") dated ______, 1998. Growth and Income Portfolio's Prospectus (dated April 17, 1998) and Statement of Additional Information (dated April 17, 1998) and the 1997 Annual Report to Shareholders of the Growth and Income Portfolio and the 1997 Annual Report to Shareholders of the U.S. Portfolio are on file with the U.S. Securities and Exchange Commission and are hereby incorporated by reference. Each of the aforementioned documents may be obtained without charge by writing to Vanguard Financial Center, 100 Vanguard Boulevard, (P.O. Box 876), Valley Forge, Pa. 19482 or by calling 1-800-662-7447. PART C OTHER INFORMATION Item 15. Indemnification Reference is made to Article XI of the Registrant's Articles of Incorporation. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to Trustees, Officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by Trustees, Officers or controlling persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such Trustees, Officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. Item 16. Exhibits 1(a) ...... Articles of Incorporation of Registrant** 1(b) ...... Proposed Declaration of Trust of Registrant* 1(c) ...... Amendment No. 1 to Proposed Declaration of Trust of Registrant* 2(a) ...... By-laws of Registrant** 2(b) ...... Proposed By-laws of Registrant* 3 ......... Not Applicable 4 ......... Agreement and Plan of Reorganization* 5 ......... See Exhibits 1 and 2. 6 ......... Investment Advisory Agreement** 7 ......... Not Applicable 8 ......... Not Applicable 9 ......... Custodian Agreement** 10 ......... Not Applicable 11 ......... Opinion and Consent of Counsel* 12 ......... Form of Opinion and Consent of Counsel supporting tax matters and consequences.* 13 ......... Not Applicable 14 ......... Consent of Independent Auditors* 15 ......... Not Applicable 16 ......... Powers of Attorney** 17 ......... Not Applicable
- - ------------ * Filed herewith ** Previously filed Item 17. Undertakings (1) The undersigned registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is C-1 deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The undersigned registrant agrees to file, by post-effective amendment, an opinion of counsel supporting the tax consequences of the proposed reorganization within a reasonable time after receipt of such opinion. C-2 - - ---- ---- SIGNATURES Pursuant to the requirements of the Securities Act of 1933 the Registrant has duly caused this Registration Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Malvern and the Commonwealth of Pennsylvania on the 27th day of May, 1998. VANGUARD QUANTITATIVE PORTFOLIOS, INC. (REGISTRANT) RAYMOND J. KLAPINSKY By ----------------------------------- John J. Brennan* Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signatures Title Date - - ---------------------------------------- --------------------------- --------------- (Raymond J. Klapinsky) Senior Chairman of the May 27, 1998 - - -------------------------------------- Board and Trustee John C. Bogle* (Raymond J. Klapinsky) Chairman, Chief Executive May 27, 1998 - - -------------------------------------- Officer and Trustee John J. Brennan* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- Robert E. Cawthorn* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- Barbara Barnes Hauptfuhrer* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- Bruce K. MacLaury* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- Burton G. Malkiel* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- Alfred M. Rankin, Jr.* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- John C. Sawhill* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- James O. Welch Jr.* (Raymond J. Klapinsky) Trustee May 27, 1998 - - -------------------------------------- J. Lawrence Wilson*
* By Power of Attorney. See File No. 2-14336; January 23, 1990. Incorporated by Reference. EXHIBIT INDEX Exhibit No. Exhibit Name - - ------------- -------------------------------- 1(b) Proposed Declaration of Trust (c) Amendment No. 1 to Proposed Declaration of Trust 2(b) Proposed By-laws 11 Opinion of Counsel 12 Form of Opinion of Counsel 14 Consent of Independent Auditors EX-1.(B) 2 EXHIBIT 1(B) AGREEMENT AND DECLARATION OF TRUST of VANGUARD QUANTITATIVE FUNDS a Delaware Business Trust Principal Place of Business: 100 Vanguard Boulevard Malvern, Pennsylvania 19355 AGREEMENT AND DECLARATION OF TRUST OF VANGUARD QUANTITATIVE FUNDS WHEREAS, this AGREEMENT AND DECLARATION OF TRUST is made and entered into as of the date set forth below by the Trustees named hereunder for the purpose of forming a Delaware business trust in accordance with the provisions hereinafter set forth, NOW, THEREFORE, the Trustees hereby direct that a Certificate of Trust be filed with the Office of the Secretary of State of the State of Delaware and do hereby declare that the Trustees will hold IN TRUST all cash, securities and other assets which the Trust now possesses or may hereafter acquire from time to time in any manner and manage and dispose of the same upon the following terms and conditions for the pro rata benefit of the holders of Shares in this Trust. ARTICLE I. Name and Definitions Section 1. Name. This trust shall be known as Vanguard Quantitative Funds and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine. Section 2. Definitions. Whenever used herein, unless otherwise required by the context or specifically provided: (a) The "Trust" refers to the Delaware business trust established by this Agreement and Declaration of Trust, as amended from time to time; (b) The "Trust Property" means any and all property, real or personal, tangible or intangible, which is owned or held by or for the account of the Trust; (c) "Trustees" refers to the persons who have signed this Agreement and Declaration of Trust, so long as they continue in office in accordance with the terms hereof, and all other persons who may from time to time be duly elected or appointed to serve on the Board of Trustees in accordance with the provisions hereof, and reference herein to a Trustee or the Trustees shall refer to such person or persons in their capacity as trustees hereunder; (d) "Shares" means the shares of beneficial interest into which the beneficial interest in the Trust shall be divided from time to time and includes fractions of Shares as well as whole Shares; (e) "Shareholder" means a record owner of outstanding Shares; (f) "Person" means and includes individuals, corporations, partnerships, trusts, foundations, plans, associations, joint ventures, estates and other entities, whether or not legal entities, and governments and agencies and political subdivisions thereof, whether domestic or foreign; (g) The "1940 Act" refers to the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time. References herein to specific sections of the 1940 Act shall be deemed to include such Rules and Regulations as are applicable to such sections as determined by the Trustees or their designees; (h) The terms "Commission" and "Principal Underwriter" shall have the respective meanings given them in Section 2(a)(7) and Section (2)(a)(29) of the 1940 Act; (i) "Declaration of Trust" shall mean this Agreement and Declaration of Trust, as amended or restated from time to time; (j) "By-Laws" shall mean the By-Laws of the Trust as amended from time to time; (k) The term "Interested Person" has the meaning given it in Section 2(a)(19) of the 1940 Act; (l) "Investment Adviser" or "Adviser" means a party furnishing services to the Trust pursuant to any contract described in Article IV, Section 7(a) hereof; (m) "Series" refers to each Series of Shares established and designated under or in accordance with the provisions of Article III. ARTICLE II. Purpose of Trust The purpose of the Trust is to conduct, operate and carry on the business of a management investment company registered under the 1940 Act through one or more Series investing primarily in securities. -2- ARTICLE III. Shares Section 1. Division of Beneficial Interest. The beneficial interest in the Trust shall at all times be divided into an unlimited number of Shares, with a par value of $ .001 per Share. The Trustees may authorize the division of Shares into separate Series and the division of Series into separate classes of Shares. The different Series shall be established and designated, and the variations in the relative rights and preferences as between the different Series shall be fixed and determined, by the Trustees. If only one Series shall be established, the Shares shall have the rights and preferences provided for herein and in Article III, Section 6 hereof to the extent relevant and not otherwise provided for herein. Subject to the provisions of Section 6 of this Article III, each Share shall have voting rights as provided in Article V hereof, and holders of the Shares of any Series shall be entitled to receive dividends, when, if and as declared with respect thereto in the manner provided in Article VI, Section 1 hereof. No Share shall have any priority or preference over any other Share of the same Series with respect to dividends or distributions of the Trust or otherwise. All dividends and distributions shall be made ratably among all Shareholders of a Series (or class) from the assets held with respect to such Series according to the number of Shares of such Series (or class) held of record by such Shareholders on the record date for any dividend or distribution or on the date of termination of the Trust, as the case may be. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust or any Series. The Trustees may from time to time divide or combine the Shares of a Series into a greater or lesser number of Shares of such Series without thereby materially changing the proportionate beneficial interest of such Shares in the assets held with respect to that Series or materially affecting the rights of Shares of any other Series. Section 2. Ownership of Shares. The ownership of Shares shall be recorded on the books of the Trust or a transfer or similar agent for the Trust, which books shall be maintained separately for the Shares of each Series. No certificates evidencing the ownership of Shares shall be issued except as the Board of Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the transfer of Shares of each Series (or class) and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to the identity of the Shareholders of each Series and as to the number of Shares of each Series held from time to time by each Shareholder. -3- Section 3. Investments in the Trust. Investments may be accepted by the Trust from such Persons, at such times, on such terms, and for such consideration as the Trustees from time to time may authorize. Each investment shall be credited to the Shareholder's account in the form of full and fractional Shares of the Trust, in such Series (or class) as the purchaser shall select, at the net asset value per Share next determined for such Series (or class) after receipt of the investment; provided, however, that the Trustees may, in their sole discretion, impose a sales charge or reimbursement fee upon investments in the Trust. Section 4. Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving only the rights provided in this instrument and the By-Laws of the Trust. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof. The death of a Shareholder during the existence of the Trust shall not operate to terminate the Trust, nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but shall entitle such representative only to the rights of said deceased Shareholder under this Declaration of Trust. Ownership of Shares shall not entitle a Shareholder to any title in or to the whole or any part of the Trust Property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders as partners or joint venturers. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholder, or to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time agree to pay. Section 5. Power of Board of Trustees to Change Provisions Relating to Shares. Notwithstanding any other provision of this Declaration of Trust to the contrary, and without limiting the power of the Board of Trustees to amend the Declaration of Trust as provided elsewhere herein, the Board of Trustees shall have the power to amend this Declaration of Trust, at any time and from time to time, in such manner as the Board of Trustees may determine in their sole discretion, without the need for Shareholder action, so as to add to, delete, replace or otherwise modify any provisions relating to the Shares contained in this Declaration of Trust, provided that before adopting any such amendment without Shareholder approval the Board of Trustees shall determine that it is consistent with the fair and equitable treatment of all Shareholders and that Shareholder approval is not required by the 1940 Act or other applicable law. If Shares have been issued, Shareholder approval shall be required to adopt any amendments to this Declaration of Trust which would adversely affect to a material degree the rights and preferences of the Shares of any Series (or class) or to increase or decrease the par value of the Shares of any Series (or class). -4- Section 6. Establishment and Designation of Shares. The establishment and designation of any Series (or class) of Shares shall be effective upon the adoption by a majority of the Trustees, of a resolution which sets forth such establishment and designation and the relative rights and preferences of such Series (or class). Each such resolution shall be incorporated herein by reference upon adoption. Shares of each Series (or class) established pursuant to this Section 6, unless otherwise provided in the resolution establishing such Series, shall have the following relative rights and preferences: (a) Assets Held with Respect to a Particular Series. All consideration received by the Trust for the issue or sale of Shares of a Series, including dividends and distributions paid by, and reinvested in, such Series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits, and proceeds thereof from whatever source derived, including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably be held with respect to that Series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Trust. Such consideration, assets, income, earnings, profits and proceeds thereof, from whatever source derived, including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds, in whatever form the same may be, are herein referred to as "assets held with respect to" that Series. In the event that there are any assets, income, earnings, profits and proceeds thereof, funds or payments which are not readily identifiable as assets held with respect to any particular Series (collectively "General Assets"), the Trustees shall allocate such General Assets to, between or among any one or more of the Series in such manner and on such basis as the Trustees, in their sole discretion, deem fair and equitable, and any General Asset so allocated to a particular Series shall be held with respect to that Series. Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all Series for all purposes in absence of manifest error. -5- (b) Liabilities Held with Respect to a Particular Series. The assets of the Trust held with respect to each Series shall be charged with the liabilities of the Trust with respect to such Series and all expenses, costs, charges and reserves attributable to such Series, and any general liabilities of the Trust which are not readily identifiable as being held in respect of a Series shall be allocated and charged by the Trustees to and among any one or more Series in such manner and on such basis as the Trustees in their sole discretion deem fair and equitable. The liabilities, expenses, costs, charges, and reserves so charged to a Series are herein referred to as "liabilities held with respect to" that Series. Each allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the holders of all Series for all purposes in absence of manifest error. All Persons who have extended credit which has been allocated to a particular Series, or who have a claim or contract which has been allocated to a Series, shall look exclusively to the assets held with respect to such Series for payment of such credit, claim, or contract. In the absence of an express agreement so limiting the claims of such creditors, claimants and contracting parties, each creditor, claimant and contracting party shall be deemed nevertheless to have agreed to such limitation unless an express provision to the contrary has been incorporated in the written contract or other document establishing the contractual relationship. (c) Dividends, Distributions, Redemptions, and Repurchases. No dividend or distribution including, without limitation, any distribution paid upon termination of the Trust or of any Series (or class) with respect to, or any redemption or repurchase of, the Shares of any Series (or class) shall be effected by the Trust other than from the assets held with respect to such Series, nor shall any Shareholder of any Series otherwise have any right or claim against the assets held with respect to any other Series except to the extent that such Shareholder has such a right or claim hereunder as a Shareholder of such other Series. The Trustees shall have full discretion to determine which items shall be treated as income and which items as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders in absence of manifest error. (d) Voting. All Shares of the Trust entitled to vote on a matter shall vote without differentiation between the separate Series on a one-vote-per-each dollar (and a fractional vote for each fractional dollar) of the net asset value of each share (including fractional shares) basis; provided however, if a matter to be voted on affects only the interests of not all Series (or class of a Series), then only the Shareholders of such affected Series (or class) shall be entitled to vote on the matter. -6- (e) Equality. All the Shares of each Series shall represent an equal proportionate undivided interest in the assets held with respect to such Series (subject to the liabilities of such Series and such rights and preferences as may have been established and designated with respect to classes of Shares within such Series), and each Share of a Series shall be equal to each other Share of such Series. (f) Fractions. Any fractional Share of a Series shall have proportionately all the rights and obligations of a whole share of such Series, including rights with respect to voting, receipt of dividends and distributions and redemption of Shares. (g) Exchange Privilege. The Trustees shall have the authority to provide that the holders of Shares of any Series shall have the right to exchange such Shares for Shares of one or more other Series in accordance with such requirements and procedures as may be established by the Trustees. (h) Combination of Series. The Trustees shall have the authority, without the approval of the Shareholders of any Series unless otherwise required by applicable law, to combine the assets and liabilities held with respect to any two or more Series into assets and liabilities held with respect to a single Series. (i) Elimination of Series. At any time that there are no Shares outstanding of a Series (or class), the Trustees may abolish such Series (or class). ARTICLE IV. The Board of Trustees Section 1. Number, Election and Tenure. The number of Trustees constituting the Board of Trustees shall be fixed from time to time by a written instrument signed, or by resolution approved at a duly constituted meeting, by a majority of the Board of Trustees, provided, however, that the number of Trustees shall in no event be less than one (1) nor more than fifteen (15). Subject to the requirements of Section 16(a) of the 1940 Act, the Board of Trustees, by action of a majority of the then Trustees at a duly constituted meeting, may fill vacancies in the Board of Trustees and remove Trustees with or without cause. Each Trustee shall serve during the continued lifetime of the Trust until he or she dies, resigns, is declared bankrupt or incompetent by a court of competent jurisdiction, or is removed. Any Trustee may resign at any time by written instrument signed by him and delivered to any officer of the Trust or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Except to the extent expressly provided in a written agreement with the Trust, no Trustee -7- resigning and no Trustee removed shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages or other payment on account of such removal. Any Trustee may be removed at any meeting of Shareholders by a vote of two-thirds of the total combined net asset value of all Shares of the Trust issued and outstanding. A meeting of Shareholders for the purpose of electing or removing one or more Trustees may be called (i) by the Trustees upon their own vote, or (ii) upon the demand of Shareholders owning 10% or more of the Shares of the Trust in the aggregate. Section 2. Effect of Death, Resignation, etc. of a Trustee. The death, declination, resignation, retirement, removal, or incapacity of one or more Trustees, or all of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is filled as provided in Article IV, Section 1, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration of Trust. Section 3. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Board of Trustees, and such Board shall have all powers necessary or convenient to carry out that responsibility including the power to engage in transactions of all kinds on behalf of the Trust. Trustees, in all instances, shall act as principals and are and shall be free from the control of the Shareholders. The Trustees shall have full power and authority to do any and all acts and to make and execute any and all contracts, documents and instruments that they may consider desirable, necessary or appropriate in connection with the administration of the Trust. Without limiting the foregoing, the Trustees may: adopt, amend and repeal By-Laws not inconsistent with this Declaration of Trust providing for the regulation and management of the affairs of the Trust; elect and remove such officers and appoint and terminate such agents as they consider appropriate; appoint from their own number and establish and terminate one or more committees consisting of two or more Trustees who may exercise the powers and authority of the Board of Trustees to the extent that the Trustees determine; employ one or more custodians of the assets of the Trust and may -8- authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities or with a Federal Reserve Bank, retain a transfer agent or a shareholder servicing agent, or both; provide for the issuance and distribution of Shares by the Trust directly or through one or more Principal Underwriters or otherwise; redeem, repurchase and transfer Shares pursuant to applicable law; set record dates for the determination of Shareholders with respect to various matters; declare and pay dividends and distributions to Shareholders of each Series from the assets of such Series; establish from time to time, in accordance with the provisions of Article III, Section 6 hereof, any Series of Shares, each such Series to operate as a separate and distinct investment medium and with separately defined investment objectives and policies and distinct investment purpose; and in general delegate such authority as they consider desirable to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian, transfer or shareholder servicing agent, Investment Manager or Principal Underwriter. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration of Trust, the presumption shall be in favor of a grant of power to the Trustees and unless otherwise specified herein or required by the 1940 Act or other applicable law, any action by the Board of Trustees shall be deemed effective if approved or taken by a majority of the Trustees then in office or a majority of any duly constituted committee of Trustees. Any action required or permitted to be taken at any meeting of the Board of Trustees, or any committee thereof, may be taken without a meeting if all members of the Board of Trustees or committee (as the case may be) consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Trustees, or committee, except as otherwise provided in the 1940 Act. Without limiting the foregoing, the Trust shall have power and authority: (a) To invest and reinvest cash and cash items, to hold cash uninvested, and to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, write options on, lend or otherwise deal in or dispose of contracts for the future acquisition or delivery of all types of securities, futures contracts and options thereon, and forward currency contracts of every nature and kind, including, without limitation, all types of bonds, debentures, stocks, preferred stocks, negotiable or non-negotiable instruments, obligations, evidences of indebtedness, certificates of deposit or indebtedness, commercial paper, repurchase agreements, bankers' acceptances, and other securities of any kind, issued, created, guaranteed, or sponsored by any and all Persons, including, without limitation, states, territories, and possessions of the United States and the District of Columbia and any political subdivision, agency, or instrumentality thereof, any foreign government or any political subdivision of -9- the U.S. Government or any foreign government, or any international instrumentality or organization, or by any bank or savings institution, or by any corporation or organization organized under the laws of the United States or of any state, territory, or possession thereof, or by any corporation or organization organized under any foreign law, or in "when issued" contracts for any such securities, futures contracts and options thereon, and forward currency contracts, to change the investments of the assets of the Trust; and to exercise any and all rights, powers, and privileges of ownership or interest in respect of any and all such investments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more Persons, to exercise any of said rights, powers, and privileges in respect of any of said instruments; (b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write options with respect to or otherwise deal in any property rights relating to any or all of the assets of the Trust or any Series; (c) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (d) To exercise powers and right of subscription or otherwise which in any manner arise out of ownership of securities; (e) To hold any security or property in a form not indicating that it is trust property, whether in bearer, unregistered or other negotiable form, or in its own name or in the name of a custodian or subcustodian or a nominee or nominees or otherwise or to authorize the custodian or a subcustodian or a nominee or nominees to deposit the same in a securities depository, subject in each case to the applicable provisions of the 1940 Act; (f) To consent to, or participate in, any plan for the reorganization, consolidation or merger of any corporation or issuer of any security which is held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer; and to pay calls or subscriptions with respect to any security held in the Trust; -10- (g) To join with other security holders in acting through a committee, depository, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depository or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depository or trustee as the Trustees shall deem proper; (h) To litigate, compromise, arbitrate, settle or otherwise adjust claims in favor of or against the Trust or a Series, or any matter in controversy, including but not limited to claims for taxes; (i) To enter into joint ventures, general or limited partnerships and any other combinations or associations; (j) To borrow funds or other property in the name of the Trust or Series exclusively for Trust purposes; (k) To endorse or guarantee the payment of any notes or other obligations of any Person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; (l) To purchase and pay for entirely out of Trust Property such insurance as the Trustees may deem necessary, desirable or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust or payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, Investment Manager, principal underwriters, or independent contractors of the Trust, individually against all claims and liabilities of every nature arising by reason of holding Shares, holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such Person as Trustee, officer, employee, agent, Investment Manager, Principal Underwriter, or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such Person against liability; and (m) To adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust. -11- The Trust shall not be limited to investing in obligations maturing before the possible termination of the Trust or one or more of its Series. The Trust shall not in any way be bound or limited by any present or future law or custom in regard to investment by fiduciaries. The Trust shall not be required to obtain any court order to deal with any assets of the Trust or take any other action hereunder. Section 4. Payment of Expenses by the Trust. Subject to the provisions of Article III, Section 6(b), the Trustees are authorized to pay or cause to be paid out of the principal or income of the Trust or Series, or partly out of the principal and partly out of income, and to charge or allocate the same to, between or among such one or more of the Series that may be established or designated pursuant to Article III, Section 6, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust or Series, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, Investment Manager^, Principal Underwriter, auditors, counsel, custodian, transfer agent, Shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur. Section 5. Ownership of Assets of the Trust. Title to all of the assets of the Trust shall at all times be considered as vested in the Trust, except that the Trustees shall have power to cause legal title to any Trust Property to be held by or in the name of one or more of the Trustees, or in the name of the Trust, or in the name of any other Person as nominee, on such terms as the Trustees may determine. Upon the resignation, incompetency, bankruptcy, removal, or death of a Trustee he or she shall automatically cease to have any such title in any of the Trust Property, and the title of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. The Trustees may determine that the Trust or the Trustees, acting for and on behalf of the Trust, shall be deemed to hold beneficial ownership of any income earned on the securities owned by the Trust, whether domestic or foreign. Section 6. Service Contracts. (a) The Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory, management and/or administrative services for the Trust or for any Series with any Person; and any such contract may contain such other terms as the Trustees may determine, including without limitation, authority for the Investment Adviser to determine from time to time without prior consultation with the Trustees what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments, and such other responsibilities as may specifically be delegated to such Person. -12- (b) The Trustees may also, at any time and from time to time, contract with any Persons, appointing such Persons exclusive or nonexclusive distributor or Principal Underwriter for the Shares of one or more of the Series or other securities to be issued by the Trust. Every such contract may contain such other terms as the Trustees may determine. (c) The Trustees are also empowered, at any time and from time to time, to contract with any Persons, appointing such Person(s) to serve as custodian(s), transfer agent and/or shareholder servicing agent for the Trust or one or more of its Series. Every such contract shall comply with such terms as may be required by the Trustees. (d) The Trustees are further empowered, at any time and from time to time, to contract with any Persons to provide such other services to the Trust or one or more of the Series, as the Trustees determine to be in the best interests of the Trust and the applicable Series. (e) The fact that: (i) any of the Shareholders, Trustees, or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, Manager, adviser, Principal Underwriter, distributor, or affiliate or agent of or for any Person with which an advisory, management or administration contract, or Principal Underwriter's or distributor's contract, or transfer, shareholder servicing or other type of service contract may be made, or that (ii) any Person with which an advisory, management or administration contract or Principal Underwriter's or distributor's contract, or transfer, shareholder servicing or other type of service contract may be made also has an advisory, management or administration contract, or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other service contract, or has other business or interests with any other Person, shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same, or create any liability or accountability to the Trust or its Shareholders, provided approval of each such contract is made pursuant to the applicable requirements of the 1940 Act. -13- ARTICLE V. Shareholders' Voting Powers and Meetings Section 1. Voting Powers. Subject to the provisions of Article III, Sections 5 and 6(d), the Shareholders shall have right to vote only (i) for the election or removal of Trustees as provided in Article IV, Section 1, and (ii) with respect to such additional matters relating to the Trust as may be required by the applicable provisions of the 1940 Act, including Section 16(a) thereof, and (iii) on such other matters as the Trustees may consider necessary or desirable. Each shareholder shall have one vote for each dollar (and a fractional vote for each fractional dollar) of the net asset value of each share (including fractional shares) held by such shareholder on the record date on each matter submitted to a vote at a meeting of shareholders. For purposes of this section, net asset value shall be determined pursuant to Section 3 of Article VIII of the Trustee's Bylaws as of the record date for such meeting set pursuant to Section 5 of such Bylaws. There shall be no cumulative voting in the election of Trustees. Votes may be made in person or by proxy. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Section 2. Voting Power and Meetings. Meetings of the Shareholders may be called by the Trustees for the purposes described in Section 1 of this Article V. A meeting of Shareholders may be held at any place designated by the Trustees. Written notice of any meeting of Shareholders shall be given or caused to be given by the Trustees by delivering personally or mailing such notice not more than ninety (90), nor less than ten (10) days before such meeting, postage prepaid, stating the time and place of the meeting, to each Shareholder at the Shareholder's address as it appears on the records of the Trust. Whenever notice of a meeting is required to be given to a Shareholder under this Declaration of Trust, a written waiver thereof, executed before or after the meeting by such Shareholder or his or her attorney thereunto authorized and filed with the records of the meeting, or actual attendance at the meeting of Shareholders in person or by proxy, shall be deemed equivalent to such notice. Section 3. Quorum and Required Vote. Except as otherwise provided by the Investment Company Act of 1940 or in the Trust's Declaration of Trust, at any meeting of shareholders, the presence in person or by proxy of the holders of record of Shares issued and outstanding and entitled to vote representing more than fifty percent of the total combined net asset value of all Shares issued and outstanding and entitled to vote shall constitute a quorum for the transaction of any business at the meeting. Any meeting of Shareholders may be adjourned from time to time by a majority of the votes properly cast upon the question of adjourning a meeting to another date and time, whether or not a quorum is present, and the meeting may be held as adjourned within a reasonable time after the date set for the original meeting without further notice. Subject to the provisions of Article III, Section 6(d) and the applicable provisions of the 1940 Act, when a quorum is present at any meeting, a majority vote of the combined net asset value of all shares issued outstanding and shall decide any questions except only a plurality vote shall be necessary to elect Trustees. -14- Section 4. Action by Written Consent. Any action taken by Shareholders may be taken without a meeting if all the holders of Shares entitled to vote on the matter are provided with not less than 7 days written notice thereof and written consent to the action is filed with the records of the meetings of Shareholders by the holders of the number of votes that would be required to approve the matter as provided in Article V, Section 3. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. Section 5. Record Dates. For the purpose of determining the Shareholders who are entitled to vote or act at any meeting or any adjournment thereof, the Trustees may fix a time, which shall be not more than ninety (90) nor less than ten (10) days before the date of any meeting of Shareholders, as the record date for determining the Shareholders having the right to notice of and to vote at such meeting and any adjournment thereof, and in such case only Shareholders of record on such record date shall have such right, notwithstanding any transfer of shares on the books of the Trust after the record date. For the purpose of determining the Shareholders who are entitled to receive payment of any dividend or of any other distribution, the Trustees may fix a date, which shall be before the date for the payment of such dividend or distribution, as the record date for determining the Shareholders having the right to receive such dividend or distribution. Nothing in this Section shall be construed as precluding the Trustees from setting different record dates for different Series. ARTICLE VI. Net Asset Value, Distributions, and Redemptions Section 1. Determination of Net Asset Value, Net Income, and Distributions. Subject to Article III, Section 6 hereof, the Trustees, in their absolute discretion, may prescribe and shall set forth in the By-laws or in a duly adopted resolution of the Trustees such bases and time for determining the per Share net asset value of the Shares of any Series and the declaration and payment of dividends and distributions on the Shares of any Series, as they may deem necessary or desirable. -15- Section 2. Redemptions and Repurchases. The Trust shall purchase such Shares as are offered by any Shareholder for redemption, upon receipt by the Trust or a Person designated by the Trust that the Trust redeem such Shares or in accordance with such procedures for redemption as the Trustees may from time to time authorize; and the Trust will pay therefor the net asset value thereof, in accordance with the By-Laws and the applicable provisions of the 1940 Act. Payment for said Shares shall be made by the Trust to the Shareholder within seven days after the date on which the request for redemption is received in proper form. The obligation set forth in this Section 2 is subject to the provision that in the event that any time the New York Stock Exchange (the "Exchange") is closed for other than weekends or holidays, or if permitted by the Rules of the Commission during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Trust to dispose of the investments of the applicable Series or to determine fairly the value of the net assets held with respect to such Series or during any other period permitted by order of the Commission for the protection of investors, such obligations may be suspended or postponed by the Trustees. The redemption price may in any case or cases be paid in cash or wholly or partly in kind in accordance with Rule 18f-1 under the 1940 Act if the Trustees determine that such payment is advisable in the interest of the remaining Shareholders of the Series of which the Shares are being redeemed. Subject to the foregoing, the selection and quantity of securities or other property so paid or delivered as all or part of the redemption price shall be determined by or under authority of the Trustees. In no case shall the Trust be liable for any delay of any corporation or other Person in transferring securities selected for delivery as all or part of any payment in kind. Section 3. Redemptions at the Option of the Trust. The Trust shall have the right, at its option, upon 30 days notice to the affected Shareholder at any time to redeem Shares of any Shareholder at the net asset value thereof as described in Section 1 of this Article VI: (i) if at such time such Shareholder owns Shares of any Series having an aggregate net asset value of less than a minimum value determined from time to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares of a Series equal to or in excess of a maximum percentage of the outstanding Shares of such Series determined from time to time by the Trustees; or (iii) to the extent that such Shareholder owns Shares equal to or in excess of a maximum percentage, determined from time to time by the Trustees, of the outstanding Shares of the Trust. -16- Section 4. Transfer of Shares. The Trust shall transfer shares held of record by any Person to any other Person upon receipt by the Trust or a Person designated by the Trust of a written request therefore in such form and pursuant to such procedures as may be approved by the Trustees. ARTICLE VII. Compensation and Limitation of Liability Section 1. Compensation of Trustees. The Trustees as such shall be entitled to reasonable compensation from the Trust, and they may fix the amount of such compensation from time to time. Nothing herein shall in any way prevent the employment of any Trustee to provide advisory, management, legal, accounting, investment banking or other services to the Trust and to be specially compensated for such services by the Trust. Section 2. Indemnification and Limitation of Liability. The Trustees shall not be responsible or liable in any event for any neglect or wrong-doing of any officer, agent, employee, Manager or Principal Underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, and, subject to the provisions of the Bylaws, the Trust out of its assets may indemnify and hold harmless each and every Trustee and officer of the Trust from and against any and all claims, demands, costs, losses, expenses, and damages whatsoever arising out of or related to such Trustee's performance of his or her duties as a Trustee or officer of the Trust; provided that nothing herein contained shall indemnify, hold harmless or protect any Trustee or officer from or against any liability to the Trust or any Shareholder to which he or she 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. Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever issued, executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been issued, executed or done only in or with respect to their or his or her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety. The exercise by the Trustees of their powers hereunder shall be binding upon everyone interested in or dealing with the Trust. A Trustee shall be liable to the Trust and to any Shareholder solely for his or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice nor for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. -17- Section 4. Insurance. The Trustees shall be entitled and empowered to the fullest extent permitted by law to purchase with Trust assets insurance for liability and for all expenses reasonably incurred or paid or expected to be paid by a Trustee or officer in connection with any claim, action, suit or proceeding in which he or she becomes involved by virtue of his or her capacity or former capacity with the Trust, whether or not the Trust would have the power to indemnify him or her against such liability under the provisions of this Article. ARTICLE VIII. Miscellaneous Section 1. Liability of Third Persons Dealing with Trustees. No Person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order. Section 2. Termination of Trust or Series. Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by the Trustees upon 60 days prior written notice to the Shareholders. Any Series may be terminated at any time by the Trustees upon 60 days prior written notice to the Shareholders of that Series. Upon termination of the Trust (or any Series, as the case may be), after paying or otherwise providing for all charges, taxes, expenses and liabilities held, severally, with respect to each Series (or the applicable Series, as the case may be), whether due or accrued or anticipated as may be determined by the Trustees, the Trust shall, in accordance with such procedures as the Trustees consider appropriate, reduce the remaining assets held, severally, with respect to each Series (or the applicable Series, as the case may be), to distributable form in cash or shares or other securities, and any combination thereof, and distribute the proceeds held with respect to each Series (or the applicable Series, as the case may be), to the Shareholders of that Series, as a Series, ratably according to the number of Shares of that Series held by the several Shareholders on the date of termination. -18- Section 3. Merger and Consolidation. The Trustees may cause (i) the Trust or one or more of its Series to the extent consistent with applicable law to be merged into or consolidated with another Trust, series or Person, (ii) the Shares of the Trust or any Series to be converted into beneficial interests in another business trust (or series thereof), (iii) the Shares to be exchanged for assets or property under or pursuant to any state or federal statute to the extent permitted by law or (iv) a sale of assets of the Trust or one or more of its Series. Such merger or consolidation, Share conversion, Share exchange or sale of assets must be authorized by vote as provided in Article V, Section 3 herein; provided that in all respects not governed by statute or applicable law, the Trustees shall have power to prescribe the procedure necessary or appropriate to accomplish a sale of assets, Share exchange, merger or consolidation including the power to create one or more separate business trusts to which all or any part of the assets, liabilities, profits or losses of the Trust may be transferred and to provide for the conversion of Shares of the Trust or any Series into beneficial interests in such separate business trust or trusts (or series thereof). Section 4. Amendments. This Declaration of Trust may be restated and/or amended at any time by an instrument in writing signed by a majority of the Trustees then holding office. Any such restatement and/or amendment hereto shall be effective immediately upon execution and approval. The Certificate of Trust of the Trust may be restated and/or amended by a similar procedure, and any such restatement and/or amendment shall be effective immediately upon filing with the Office of the Secretary of State of the State of Delaware or upon such future date as may be stated therein. Section 5. Filing of Copies, References, Headings. The original or a copy of this instrument and of each restatement and/or amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such restatements and/or amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such restatements and/or amendments. In this instrument and in any such restatements and/or amendment, references to this instrument, and all expressions like "herein," "hereof" and "hereunder," shall be deemed to refer to this instrument as amended or affected by any such restatements and/or amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. Whenever the singular number is used herein, the same shall include the plural; and the neuter, masculine and feminine genders shall include each other, as applicable. This instrument may be executed in any number of counterparts each of which shall be deemed an original. -19- Section 6. Applicable Law. This Agreement and Declaration of Trust is created under and is to be governed by and construed and administered according to the laws of the State of Delaware and the Delaware Business Trust Act, as amended from time to time (the "Act"). The Trust shall be a Delaware business trust pursuant to such Act, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a business trust. Section 7. Provisions in Conflict with Law or Regulations. (a) The provisions of the Declaration of Trust are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the regulated investment company provisions of the Internal Revenue Code or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of the Declaration of Trust; provided, however, that such determination shall not affect any of the remaining provisions of the Declaration of Trust or render invalid or improper any action taken or omitted prior to such determination. (b) If any provision of the Declaration of Trust shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of the Declaration of Trust in any jurisdiction. Section 8. Business Trust Only. It is the intention of the Trustees to create a business trust pursuant to the Act, and thereby to create only the relationship of trustee and beneficial owners within the meaning of such Act between the Trustees and each Shareholder. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment, joint venture, or any form of legal relationship other than a business trust pursuant to such Act. Nothing in this Declaration of Trust shall be construed to make the Shareholders, either by themselves or with the Trustees, partners or members of a joint stock association. -20- Section 9. Use of the Name "The Vanguard Group, Inc.". The name "The Vanguard Group, Inc." and any variants thereof and all rights to the use of the name "The Vanguard Group, Inc." or any variants thereof shall be the sole and exclusive property of The Vanguard Group, Inc. ("VGI"). VGI has permitted the use by the Trust of the identifying word "Vanguard" and the use of the name "Vanguard" as part of the name of the Trust and the name of any Series of Shares. Upon the Trust's withdrawal from the Amended and Restated Funds' Service Agreement among the Trust, the other investment companies within the Vanguard Group of Investment Companies and VGI, and upon the written request of VGI, the Trust and any Series of Shares thereof shall cease to use or in any way to refer to itself as related to "The Vanguard Group, Inc." or any variant thereof. IN WITNESS WHEREOF, the Trustees named below do hereby make and enter into this Declaration of Trust as of the 23rd day of January, 1998. ------------------------------------- John J. Brennan ------------------------------------- Raymond J. Klapinsky ------------------------------------- R. Gregory Barton THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 100 Vanguard Boulevard Malvern, PA 19355 -21- TABLE OF CONTENTS Page ARTICLE I. Name and Definitions............................................ 1 Section 1. Name............................................. 1 Section 2. Definitions...................................... 1 (a) The Trust................................................. 1 (b) Trust Property............................................ 1 (c) Trustees.................................................. 1 (d) Shares.................................................... 2 (e) Shareholder............................................... 2 (f) Person.................................................... 2 (g) 1940 Act.................................................. 2 (h) Commission and Principal Underwriter...................... 2 (i) Declaration of Trust...................................... 2 (j) By-Laws................................................... 2 (k) Interested Person......................................... 2 (l) Investment Adviser........................................ 2 (m) Series.................................................... 2 ARTICLE II. Purpose of Trust............................................... 2 ARTICLE III. Shares........................................................ 3 Section 1. Division of Beneficial Interest.................. 3 Section 2. Ownership of Shares.............................. 3 Section 3. Investments in the Trust......................... 4 Section 4. Status of Shares and Limitation of Personal Liability...................................... 4 Section 5. Power of Board of Trustees to Change Provisions Relating to Shares.................. 4 Section 6. Establishment and Designation of Shares.......... 5 (a) Assets Held with Respect to a Particular Series........... 5 (b) Liabilities Held with Respect to a Particular Series....................................... 5 (c) Dividends, Distributions, Redemptions, and Repurchases............................................. 6 (d) Voting.................................................... 6 (e) Equality.................................................. 6 (f) Fractions................................................. 7 (g) Exchange Privilege........................................ 7 (h) Combination of Series..................................... 7 (i) Elimination of Series..................................... 7 ARTICLE IV. The Board of Trustees.......................................... 7 Section 1. Number, Election and Tenure...................... 7 Section 2. Effect of Death, Resignation, etc. of a Trustee................................... 8 Section 3. Powers........................................... 8 Section 4. Payment of Expenses by the Trust................. 11 Section 5. Ownership of Assets of the Trust................. 12 Section 6. Service Contracts................................ 12 -i- ARTICLE V. Shareholders' Voting Powers and Meetings........................ 13 Section 1. Voting Powers.................................... 13 Section 2. Voting Power and Meetings........................ 14 Section 3. Quorum and Required Vote......................... 14 Section 4. Action by Written Consent........................ 14 Section 5. Record Dates..................................... 14 ARTICLE VI. Net Asset Value, Distributions, and Redemptions................ 15 Section 1. Determination of Net Asset Value, Net Income, and Distributions...................... 15 Section 2. Redemptions and Repurchases...................... 15 Section 3. Redemptions at the Option of the Trust........... 16 Section 4. Transfer of Shares............................... 16 ARTICLE VII. Compensation and Limitation of Liability...................... 16 Section 1. Compensation of Trustees......................... 16 Section 2. Indemnification and Limitation of Liability...... 16 Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety...................... 17 Section 4. Insurance........................................ 17 ARTICLE VIII. Miscellaneous................................................ 17 Section 1. Liability of Third Persons Dealing with Trustees.................................. 17 Section 2. Termination of Trust or Series................... 18 Section 3. Merger and Consolidation......................... 18 Section 4. Amendments....................................... 18 Section 5. Filing of Copies, References, Headings........... 19 Section 6. Applicable Law................................... 19 Section 7. Provisions in Conflict with Law or Regulations... 19 Section 8. Business Trust Only.............................. 20 Section 9. Use of the Name "The Vanguard Group, Inc."....... 20 (ii) EX-2.(B) 3 EXHIBIT 2(B) BY-LAWS OF VANGUARD QUANTITATIVE FUNDS ARTICLE I Fiscal Year and Offices Section 1. Fiscal Year. Unless otherwise provided by resolution of the Board of Trustees, the fiscal year of the Trust shall begin on the 1st day of February and end on the last day of January. Section 2. Delaware Office. The Board of Trustees shall establish a registered office in the State of Delaware and shall appoint as the Trust's registered agent for service of process in the State of Delaware an individual resident of the State of Delaware or a Delaware corporation or a foreign corporation authorized to transact business in the State of Delaware; in each case the business office of such registered agent for service of process shall be identical with the registered Delaware office of the Trust. Section 3. Other Offices. The Board of Trustees may at any time establish branch or subordinate offices at any place or places where the Trust intends to do business. ARTICLE II Meetings of Shareholders Section 1. Place of Meeting. Meetings of the shareholders for the election of trustees shall be held in such place as shall be fixed by resolution of the Board of Trustees and stated in the notice of the meeting. Section 2. Annual Meetings. An Annual Meeting of shareholders will not be held unless the Investment Company Act of 1940 requires the election of trustees to be acted upon. Section 3. Special Meetings. Special Meetings of the shareholders may be called at any time by the Chairman, or President, or by a majority of the Board of Trustees, and shall be called by the Secretary upon written request of the holders of shares entitled to cast not less than twenty percent of all the votes entitled to be cast at such meeting provided that (a) such request shall state the purposes of such meeting and the matters proposed to be acted on and (b) the shareholders requesting such meeting shall have paid to the Trust the reasonable estimated cost of preparing and mailing the notice thereof, which the Secretary shall determine and specify to such shareholders. No special meeting need be called upon the request of shareholders entitled to cast less than a majority of all votes entitled to be cast at such meeting to consider any matter which is substantially the same as a matter voted on at any meeting of the shareholders held during the preceding twelve months. The foregoing provisions of this section 3 notwithstanding a special meeting of shareholders shall be called upon the request of the holders of at least ten percent of the votes entitled to be cast for the purpose of consideration removal of a trustee from office as provided in section 16(c) of the Investment Company Act of 1940. Section 4. Notice. Not less than ten, nor more than ninety days before the date of every Annual or Special Shareholders Meeting, the Secretary shall cause to be mailed to each shareholder entitled to vote at such meeting at his (her) address (as it appears on the records of the Trust at the time of mailing) written notice stating the time and place of the meeting and, in the case of a Special Meeting of Shareholders, shall be limited to the purposes stated in the notice. Notice of adjournment of a shareholders meeting to another time or place need not be given, if such time and place are announced at the meeting. Section 5. Record Date for Meetings. Subject to the provisions of the Declaration of Trust, the Board of Trustees may fix in advance a date not more than ninety, nor less than ten days, prior to the date of any annual or special meeting of the shareholders as a record date for the determination of the shareholders entitled to receive notice of, and to vote at any meeting and any adjournment thereof; and in such case such shareholders and only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to receive notice of and to vote at such meeting and any adjournment thereof as the case may be, notwithstanding any transfer of any stock on the books of the Trust after any such record date fixed as aforesaid. Section 6. Quorum. Except as otherwise provided by the Investment Company Act of 1940 or in the Trust's Declaration of Trust, at any meeting of shareholders, the presence in person or by proxy of the holders of record of Shares issued and outstanding and entitled to vote representing more than fifty percent of the total combined net asset value of all Shares issued and outstanding and entitled to vote shall constitute a quorum for the transaction of any business at the meeting. If, however, a quorum shall not be present or represented at any meeting of the shareholders, the holders of a majority of the votes present or in person or by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented to a date not more than 120 days after the original record date. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. -2- Section 7. Voting. Each shareholder shall have one vote for each dollar (and a fractional vote for each fractional dollar) of the net asset value of each share (including fractional shares) held by such shareholder on the record date set pursuant to Section 5 on each matter submitted to a vote at a meeting of shareholders. For purposes of this section and Section 6 of this Article II, net asset value shall be determined pursuant to Section 3 Article VIII of these Bylaws as of the record date for such meeting set pursuant to Section 5. There shall be no cumulative voting in the election of trustees. Votes may be made in person or by proxy. At all meetings of the shareholders, a quorum being present, all matters shall be decided by majority of the votes entitled to be cast held by shareholders present in person or by proxy, unless the question is one for which by express provision of the laws of the State of Delaware, the Investment Company Act of 1940, as from time to time amended, or the Declaration of Trust, a different vote is required, in which case such express provision shall control the decision of such question. At all meetings of shareholders, unless the voting is conducted by inspectors, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the Chairman of the meeting. Section 8. Inspectors. At any election of trustees, the Board of Trustees prior thereto may, or, if they have not so acted, the Chairman of the meeting may appoint one or more inspectors of election who shall first subscribe an oath of affirmation to execute faithfully the duties of inspectors at such election with strict impartiality and according to the best of their ability, and shall after the election make a certificate of the result of the vote taken. Section 9. Stock Ledger and List of Shareholders. It shall be the duty of the Secretary or Assistant Secretary of the Trust to cause an original or duplicate share ledger to be maintained at the office of the Trust's transfer agent. Such share ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection. Section 10. Action Without Meeting. Any action to be taken by shareholders may be taken without a meeting if (a) all shareholders entitled to vote on the matter consent to the action in writing, and (b) all shareholders entitled to notice of the meeting but not entitled to vote at it sign a written waiver of any right to dissent, and (c) the written consents are filed with the records of the meeting of shareholders. Such consent shall be treated for all purposes as a vote at a meeting. -3- ARTICLE III Trustees Section 1. General Powers. The business of the Trust shall be managed under the direction of its Board of Trustees, which may exercise all powers of the Trust, except such as are by statute, or the Declaration of Trust, or by these Bylaws conferred upon or reserved to the shareholders. Section 2. Number and Term of Office. The number of trustees which shall constitute the whole Board shall be determined from time to time by the Board of Trustees, but shall not be fewer than the minimum number permitted by applicable laws, nor more than fifteen. Each trustee elected shall hold office until his successor is elected and qualified. Trustees need not be shareholders. Section 3. Elections. Provided a quorum is present, the trustees shall be elected by the vote of a plurality of the votes present in person or by proxy, except that any vacancy on the Board of Trustees may be filled by a majority vote of the Board of Trustees, although less than a quorum, subject to the requirements of Section 16(a) of the Investment Company Act of 1940. Section 4. Place of Meeting. Meetings of the Board of Trustees, regular or special, may be held at any place as the Board may from time to time determine. Section 5. Quorum. At all meetings of the Board of Trustees, one-third of the entire Board of Trustees shall constitute a quorum for the transaction of business provided that in no case may a quorum be less than two persons. The action of a majority of the trustees present at any meeting at which a quorum is present shall be the action of the Board of Trustees unless the concurrence of a greater proportion is required for such action by the Investment Company Act of 1940, these Bylaws or the Declaration of Trust. If a quorum shall not be present at any meeting of trustees, the trustees present thereat may by a majority vote adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. -4- Section 6. Regular Meetings. Regular meetings of the Board of Trustees may be held without additional notice at such time and place as shall from time to time be determined by the Board of Trustees provided that notice of any change in the time or place of such meetings shall be sent promptly to each trustee not present at the meeting at which such change was made in the manner provided for notice of special meetings. Section 7. Special Meetings. Special meetings of the Board of Trustees may be called by the Chairman or President on one day's notice to each trustee; Special meetings shall be called by the Chairman or President or Secretary in like manner and on like notice on the written request of two trustees. Section 8. Telephone Meeting. Members of the Board of Trustees or a committee of the Board of Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Section 9. Informal Actions. Any action required or permitted to be taken at any meeting of the Board of Trustees or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. Section 10. Committees. The Board of Trustees may by resolution passed by a majority of the entire Board appoint from among its members an Executive Committee and other committees composed of two or more trustees, and may delegate to such committees, in the intervals between meetings of the Board of Trustees, any or all of the powers of the Board of Trustees in the management of the business and affairs of the Trust. Section 11. Action of Committees. In the absence of an appropriate resolution of the Board of Trustees, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable, provided that the quorum shall not be less than two trustees. The committees shall keep minutes of their proceedings and shall report the same to the Board of Trustees at the meeting next succeeding, and any action by the committee shall be subject to revision and alteration by the Board of Trustees, provided that no rights of third persons shall be affected by any such revision or alteration. In the absence of any member of such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board of Trustees to act in the place of such absent member. -5- Section 12. Compensation. Any trustee, whether or not he is a salaried officer or employee of the Trust, may be compensated for his services as trustee or as a member of a committee of trustees, or as chairman of a committee by fixed periodic payments or by fees for attendance at meetings or by both, and in addition may be reimbursed for transportation and other expenses, all in such manner and amounts as the Board of Trustees may from time to time determine. ARTICLE IV Notices Section 1. Form. Notices to shareholders shall be in writing and delivered personally or mailed to the shareholders at their addresses appearing on the books of the Trust. Notices to trustees shall be oral or by telephone or telegram or in writing delivered personally or mailed to the trustees at their addresses appearing on the books of the Trust. Notice by mail shall be deemed to be given at the time when the same shall be mailed. Subject to the provisions of the Investment Company Act of 1940, notice to trustees need not state the purpose of a regular or special meeting. Section 2. Waiver. Whenever any notice of the time, place or purpose of any meeting of shareholders, trustees or a committee is required to be given under the provisions of the Declaration of Trust or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting of shareholders in person or by proxy, or at the meeting of trustees or a committee in person, shall be deemed equivalent to the giving of such notice to such persons. ARTICLE V Officers Section 1. Executive Officers. The officers of the Trust shall be chosen by the Board of Trustees and shall include a Chairman, President, a Secretary and a Treasurer. The Board of Trustees may, from time to time, elect or appoint a Controller, one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. The Board of Trustees, at its discretion, may also appoint a trustee as Senior Chairman of the Board who shall perform and execute such executive and administrative duties and powers as the Board of Trustees shall from time to time prescribe. The same person may hold two or more offices, except that no person shall be both President and Vice-President and no officer shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law, the Declaration of Trust or these Bylaws to be executed, acknowledged or verified by two or more officers. -6- Section 2. Election. The Board of Trustees shall choose a Chairman, President, a Secretary and a Treasurer. Section 3. Other Officers. The Board of Trustees from time to time may appoint such other officers and agents as it shall deem advisable, who shall hold their offices for such terms and shall exercise powers and perform such duties as shall be determined from time to time by the Board. The Board of Trustees from time to time may delegate to one or more officers or agents the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Section 4. Compensation. The salaries or other compensation of all officers and agents of the Trust shall be fixed by the Board of Trustees, except that the Board of Trustees may delegate to any person or group of persons the power to fix the salary or other compensation of any subordinate officers or agents appointed pursuant to Section 3 of this Article V. Section 5. Tenure. The officers of the Trust shall serve at the pleasure of the Board of Trustees. Any officer or agent may be removed by the affirmative vote of a majority of the Board of Trustees whenever, in its judgment, the best interests of the Trust will be served thereby. In addition, any officer or agent appointed pursuant to Section 3 may be removed, either with or without cause, by any officer upon whom such power of removal shall have been conferred by the Board of Trustees. Any vacancy occurring in any office of the Trust by death, resignation, removal or otherwise shall be filled by the Board of Trustees, unless pursuant to Section 3 the power of appointment has been conferred by the Board of Trustees on any other officer. Section 6. President and Chief Executive Officer. The President shall be the Chief Executive Officer of the Trust, unless the Board of Trustees designates the Chairman as Chief Executive Officer. The Chief Executive Officer shall see that all orders and resolutions of the Board are carried into effect. The Chief Executive Officer shall also be the Chief Administrative Officer of the Trust and shall perform such other duties and have such other powers as the Board of Trustees may from time to time prescribe. Section 7.Chairman. The Chairman of the Board shall perform and execute such duties and administrative powers as the Board of Trustees shall from time to time prescribe. Section 8. Senior Chairman of the Board. The Senior Chairman of the Board, if one shall be chosen, shall perform and execute such executive duties and administrative powers as the Board of Trustees shall from time to time prescribe. -7- Section 9. Vice-President. The Vice-Presidents, in order of their seniority, shall, in the absence or disability of the Chief Executive Officer, perform the duties and exercise the powers of the Chief Executive Officer and shall perform such other duties as the Board of Trustees or the Chief Executive Officer may from time to time prescribe. Section 10. Secretary. The Secretary shall attend all meetings of the Board of Trustees and all meetings of the shareholders and record all the proceedings thereof and shall perform like duties for any committee when required. He shall give, or cause to be given, notice of meetings of the shareholders and of the Board of Trustees, shall have charge of the records of the Trust, including the stock books, and shall perform such other duties as may be prescribed by the Board of Trustees or Chief Executive Officer, under whose supervision he shall be. He shall keep in safe custody the seal of the Trust and, when authorized by the Board of Trustees, shall affix and attest the same to any instrument requiring it. The Board of Trustees may give general authority to any other officer to affix the seal of the Trust and to attest the affixing by his signature. Section 11. Assistant Secretaries. The Assistant Secretaries in order of their seniority, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Trustees shall prescribe. Section 12. Treasurer. The Treasurer, unless another officer has been so designated, shall be the Chief Financial Officer of the Trust. He shall have general charge of the finances and books of account of the Trust. Except as otherwise provided by the Board of Trustees, he shall have general supervision of the funds and property of the Trust and of the performance by the custodian of its duties with respect thereto. He shall render to the Board of Trustees, whenever directed by the Board, an account of the financial condition of the Trust and of all his transactions as Treasurer. He shall cause to be prepared annually a full and correct statement of the affairs of the Trust, including a balance sheet and a statement of operations for the preceding fiscal year. He shall perform all the acts incidental to the office of Treasurer, subject to the control of the Board of Trustees. Section 13. Assistant Treasurer. The Assistant Treasurer shall in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Trustees may from time to time prescribe. -8- ARTICLE VI Indemnification and Insurance Section 1. Agents, Proceedings and Expenses. For the purpose of this Article, "agent" means any person who is or was a trustee or officer of this Trust and any person who, while a trustee or officer of this Trust, is or was serving at the request of this Trust as a trustee, director, officer, partner, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise; "Trust" includes any domestic or foreign predecessor entity of this Trust in a merger, consolidation, or other transaction in which the predecessor's existence ceased upon consummation of the transaction; "proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes without limitation attorney's fees and any expenses of establishing a right to indemnification under this Article. Section 2. Actions Other Than by Trust. This Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of this Trust) by reason of the fact that such person is or was an agent of this Trust, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding, if it is determined that person acted in good faith and reasonably believed: (a) in the case of conduct in his official capacity as an agent of the Trust, that his conduct was in the Trust's best interests and (b) in all other cases, that his conduct was at least not opposed to the Trust's best interests and (c) in the case of a criminal proceeding, that he had no reasonable cause to believe the conduct of that person was unlawful. The termination of any proceeding by judgment, order or settlement shall not of itself create a presumption that the person did not meet the requisite standard of conduct set forth in this Section. The termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the person did not meet the requisite standard of conduct set forth in this Section. Section 3. Actions by the Trust. This Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding by or in the right of this Trust to procure a judgment in its favor by reason of the fact that that person is or was an agent of this Trust, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of this Trust and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. -9- Section 4. Exclusion of Indemnification. Notwithstanding any provision to the contrary contained herein, there shall be no right to indemnification for any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of the agent's office with this Trust. No indemnification shall be made under Sections 2 or 3 of this Article: (a) In respect of any proceeding as to which that person shall have been adjudged to be liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person's official capacity; or (b) In respect of any proceeding as to which that person shall have been adjudged to be liable in the performance of that person's duty to this Trust, unless and only to the extent that the court in which that action was brought shall determine upon application that in view of all the relevant circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; however, in such case, indemnification with respect to any proceeding by or in the right of the Trust or in which liability shall have been adjudged by reason of the disabling conduct set forth in the preceding paragraph shall be limited to expenses; or (c) Of amounts paid in settling or otherwise disposing of a proceeding, with or without court approval, or of expenses incurred in defending a proceeding which is settled or otherwise disposed of without court approval, unless the required approval set forth in Section 6 of this Article is obtained. Section 5. Successful Defense by Agent. To the extent that an agent of this Trust has been successful, on the merits or otherwise, in the defense of any proceeding referred to in Sections 2 or 3 of this Article before the court or other body before whom the proceeding was brought, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith, provided that the Board of Trustees, including a majority who are disinterested, non-party trustees, also determines that based upon a review of the facts, the agent was not liable by reason of the disabling conduct referred to in Section 4 of this Article. -10- Section 6. Required Approval. Except as provided in Section 5 of this Article, any indemnification under this Article shall be made by this Trust only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article and is not prohibited from indemnification because of the disabling conduct set forth in Section 4 of this Article, by: (a) A majority vote of a quorum consisting of trustees who are not parties to the proceeding and are not interested persons of the Trust (as defined in the Investment Company Act of 1940); (b) A written opinion by an independent legal counsel; or (c) The shareholders; however, shares held by agents who are parties to the proceeding may not be voted on the subject matter under this Sub-Section. Section 7. Advance of Expenses. Expenses incurred in defending any proceeding may be advanced by this Trust before the final disposition of the proceeding if (a) receipt of a written affirmation by the agent of his good faith belief that he has met the standard of conduct necessary for indemnification under this Article and a written undertaking by or on behalf of the agent, such undertaking being an unlimited general obligation to repay the amount of the advance if it is ultimately determined that he has not met those requirements, and (b) a determination that the facts then known to those making the determination would not preclude indemnification under this Article. Determinations and authorizations of payments under this Section must be made in the manner specified in Section 6 of this Article for determining that the indemnification is permissible. Section 8. Other Contractual Rights. Nothing contained in this Article shall affect any right to indemnification to which persons other than Trustees and officers of this Trust or any subsidiary hereof may be entitled by contract or otherwise. Section 9. Limitations. No indemnification or advance shall be made under this Article, except as provided in Sections 5 or 6 in any circumstances where it appears: (a) That it would be inconsistent with a provision of the Agreement and Declaration of Trust of the Trust, a resolution of the shareholders, or an agreement in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. -11- Section 10. Insurance. Upon and in the event of a determination by the Board of Trustees of this Trust to purchase such insurance, this Trust shall purchase and maintain insurance on behalf of any agent or employee of this Trust against any liability asserted against or incurred by the agent or employee in such capacity or arising out of the agent's or employee's status as such to the fullest extent permitted by law. Section 11. Fiduciaries of Employee Benefit Plan. This Article does not apply to any proceeding against any trustee, investment manager or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of this Trust as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise which shall be enforceable to the extent permitted by applicable law other than this Article. ARTICLE VII Shares of Beneficial Interest Section 1. Certificates. A certificate or certificates representing and certifying the class and the full, but not fractional, number of shares of beneficial interest owned by each shareholder in the Trust shall not be issued except as the Board of Trustees may otherwise determine from time to time. Any such certificate issued shall be signed by facsimile signature or otherwise by the Chairman or President or a Vice-President and counter-signed by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Section 2. Signature. In case any officer who has signed any certificate ceases to be an officer of the Trust before the certificate is issued, the certificate may nevertheless be issued by the Trust with the same effect as if the officer had not ceased to be such officer as of the date of its issue. Section 3. Recording and Transfer Without Certificates. The Trust shall have the full power to participate in any program approved by the Board of Trustees providing for the recording and transfer of ownership of the Trust's shares by electronic or other means without the issuance of certificates. -12- Section 4. Lost Certificates. The Board of Trustees may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Trust alleged to have been stolen, lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to have been stolen, lost or destroyed, or upon other satisfactory evidence of such theft, loss or destruction and may in its discretion and as a condition precedent to the issuance thereof, require the owner of such stolen, lost or destroyed certificate or certificates, or his legal representative, to give the Trust a bond with sufficient surety, to the Trust to indemnify it against any loss or claim that may be made by reason of the issuance of a new certificate. Section 5. Transfer of Shares. Transfers of shares of beneficial interest of the Trust shall be made on the books of the Trust by the holder of record thereof (in person or by his attorney thereunto duly authorized by a power of attorney duly executed in writing and filed with the Secretary of the Trust) (i) if a certificate or certificates have been issued, upon the surrender of the certificate or certificates, properly endorsed or accompanied by proper instruments of transfer, representing such shares, or (ii) as otherwise prescribed by the Board of Trustees. Every certificate exchanged, surrendered for redemption or otherwise returned to the Trust shall be marked "Canceled" with the date of cancellation. Section 6. Registered Shareholders. The Trust shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by applicable law or the Declaration of Trust. Section 7. Transfer Agents and Registrars. The Board of Trustees may, from time to time, appoint or remove transfer agents and or registrars of the Trust, and they may appoint the same person as both transfer agent and registrar. Upon any such appointment being made, all certificates representing shares of beneficial interest thereafter issued shall be countersigned by such transfer agent and shall not be valid unless so countersigned. Section 8. Stock Ledger. The Trust shall maintain an original stock ledger containing the names and addresses of all shareholders and the number and class of shares held by each shareholder. Such stock ledger may be in written form or any other form capable of being converted into written form within reasonable time for visual inspection. -13- ARTICLE VIII General Provisions Section 1. Custodianship. Except as otherwise provided by resolution of the Board of Trustees, the Trust shall place and at all times maintain in the custody of a custodian (including any sub-custodian for the custodian) all funds, securities and similar investments owned by the Trust. Subject to the approval of the Board of Trustees, the custodian may enter into arrangements with securities depositories, provided such arrangements comply with the provisions of the Investment Company Act of 1940 and the rules and regulations promulgated thereunder. Section 2. Execution of Instruments. All deeds, documents, transfers, contracts, agreements and other instruments requiring execution by the Trust shall be signed by the Chairman or President or a Vice President. Section 3. Net Asset Value. The net asset value per share shall be determined separately as to each class of the Trust's shares, by dividing the sum of the total market value of the class's investments and other assets, less any liabilities, by the total outstanding shares of such class, subject to the Investment Company Act of 1940 and any other applicable Federal securities law or rule or regulation currently in effect. ARTICLE IX Amendments The Board of Trustees shall have the power to make, alter and repeal the Bylaws of the Trust. -14- EX-1.(C) 4 EXHIBIT 1(C) Exhibit 1(c) VANGUARD QUANTITATIVE FUNDS Amendment No. 1 to the Declaration of Trust The undersigned, being a majority of the Trustees of Vanguard Quantitative Funds (the "Trust"), a Delaware business trust, acting pursuant to Article VIII, Section 4 of the Trust's Declaration of Trust, do hereby amend Article VIII, Section 3 of the Trust's Declaration of Trust to read as follows: Section 3. Merger and Consolidation. The Trustees may cause (i) the Trust or one or more of its Series to the extent consistent with applicable law to be merged into or consolidated with another Trust, series or Person, (ii) the Shares of the Trust or any Series to be converted into beneficial interests in another business trust (or series thereof), (iii) the Shares to be exchanged for assets or property under or pursuant to any state or federal statute to the extent permitted by law or (iv) a sale of assets of the Trust or one or more of its Series. Such merger or consolidation, Share conversion, Share exchange or sale of assets must be authorized by vote as provided in Article V, Section 3 herein; provided that in all respects not governed by statute or applicable law, the Trustees shall have power to prescribe the procedure necessary or appropriate to accomplish a sale of assets, Share exchange, merger or consolidation including the power to create one or more separate business trusts to which all or any part of the assets, liabilities, profits or losses of the Trust may be transferred and to provide for the conversion of Shares of the Trust or any Series into beneficial interests in such separate business trust or trusts (or series thereof); and further provided that no vote of shareholders will be required to approve an acquisition by the Trust or one or more of its Series of all or substantially all of the assets of another investment company or any series thereof in exchange solely for Shares. Pursuant to Article VIII, Section 4 of the Declaration of Trust, this Amendment No. 1 shall become effective upon its execution by a majority of the Trustees. This Amendment No. 1 to the Declaration of Trust may be executed in one or more counterparts, each of which shall be deemed to be an original. EX-11 5 EXHIBIT 11 Exhibit 11 May 27, 1998 Vanguard Quantitative Portfolios, Inc. Post Office Box 2600 Valley Forge, PA 19482 Gentlemen: We have acted as counsel to The Vanguard Group of Investment Companies ("Vanguard Group") and Vanguard Quantitative Portfolios, Inc. (the "Company"), currently organized as a Maryland corporation, in connection with the proposed acquisition by Vanguard Growth and Income Portfolio (the "Acquiring Fund"), a separate series of the Company, of the assets of the U.S. Portfolio (the "Acquired Fund"), a separate series of Vanguard/Trustees' Equity Fund (the "Transaction"). While acting in this capacity, we have acquired a general familiarity with the Company's business operations, practices and procedures. You have asked that we render an opinion in connection with the Transaction regarding the status of the shares of the Acquiring Fund (the "Shares") that will be issued in exchange for the assets of the Acquired Fund. The Shares will be registered for public offer and sale with the U.S. Securities and Exchange Commission ("Commission") under the Securities Act of 1933 (the "1933 Act") by the filing of a registration statement on Form N-14 (the "Registration Statement"). We understand that, on May 1, 1998, the shareholders of the Company approved an agreement and plan of reorganization pursuant to which the Company will be reorganized into Vanguard Quantitative Funds (the "Delaware Trust") a Delaware business trust that was recently organized for the sole purpose of facilitating the conversion of the Company into a Delaware business trust. We understand that this reorganization is scheduled to occur on or about May 29, 1998. In connection with the preparation of this opinion, we have examined originals, certified copies or copies identified to us as being true copies, of various corporate documents and records of the Company and the Delaware Trust, as well as such other instruments, documents and records as we have deemed necessary in order to render this opinion. In particular, we have examined copies of the Articles of Incorporation and By-Laws of the Company, the Declaration of Trust, Form of Amendment No. 1 to the Declaration of Trust and the By-Laws of the Delaware Trust, the Agreement and Plan of Reorganization ("Agreement and Plan") filed with the Registration Statement. We have assumed the genuineness of all signatures, the authenticity of all documents provided to us, and the correctness of all statements of fact made in those documents. Vanguard Quantitative Portfolios May 27, 1998 Page 2 On the basis of the foregoing, and assuming that prior to the transaction (i) the reorganization of the Company as a Delaware business trust goes forward as planned, with all necessary actions being taken by or on behalf of the Company and the Delaware Trust by the officers and directors/trustees, (ii) Amendment No. 1 to the Declaration of Trust of the Delaware Trust has been executed by a majority of the trustees; and (iii) the Declaration of Trust and By-Laws of the Delaware Trust are not otherwise amended materially, we are of the opinion that the shares of beneficial interest of the Acquiring Fund (which would then be a separate series of the Delaware Trust) being registered under the 1933 Act by the Registration Statement, will be legally and validly issued, fully paid and non-assessable, upon their issuance to the Acquired Fund as contemplated by the Agreement and Plan. In the event that the reorganization of the Company as a Delaware business trust does not take place prior to the closing of the Transaction, we are of the opinion that the shares of common stock of the Acquiring Fund being registered under the 1933 Act by the Registration Statement, will be legally and validly issued, fully paid and non-assessable, upon their issuance to the Acquired Fund as contemplated by the Agreement and Plan. We hereby consent to the filing of this opinion with and as a part of the Registration Statement. Very truly yours, EX-12 6 EXHIBIT 12 _______, 1998 Vanguard/Trustees' Equity Fund on behalf of Vanguard/Trustees' Equity Fund - U.S. - Portfolio [Post Office Box 2600 Valley Forge, PA 19482] Vanguard Quantitative Portfolios on behalf of Vanguard Growth and Income Portfolio [Post Office Box 2600 Valley Forge, PA 19482] Gentlemen: You have requested our opinion regarding certain federal income tax consequences to Vanguard/Trustees' Equity Fund - U.S. Portfolio ("Acquired Fund"), a separate series of Vanguard/Trustees' Equity Fund ("VTEF Trust"), to the holders of the shares of beneficial interest of the Acquired Fund (the "Acquired Fund Shareholders"), and to Vanguard Growth and Income Portfolio ("Acquiring Fund"), a separate series of Vanguard Quantitative Funds ("VQF Trust"), in connection with the proposed transfer of substantially all of the assets of Acquired Fund to Acquiring Fund and the assumption by Acquiring Fund of all of the liabilities of Acquired Fund in exchange solely for voting shares of beneficial interest of Acquiring Fund, followed by the distribution in complete liquidation by Acquired Fund of such Acquiring Fund shares, all pursuant to the Agreement and Plan of Reorganization (the "Plan") dated as of May __, 1998 (the "Reorganization"). For purposes of this opinion, we have examined and rely upon (1) the Plan, (2) the Form N-14, filed by VQF Trust (formerly Vanguard Quantitative Portfolios, Inc.) on May __, 1998, with the Securities and Exchange Commission, (3) the facts and representations contained in the letter dated May __, 1998, addressed to us from VTEF Trust, (4) the facts and representations contained in the letter dated May __, 1998, addressed to us from VQF Trust, and (5) such other documents and instruments as we have deemed necessary or appropriate for purposes of rendering this opinion. Vanguard/Trustees' Equity Fund Vanguard Quantitative Funds ______, 1998 Page 2 This opinion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), United States Treasury Regulations, judicial decisions and administrative rulings and pronouncements of the Internal Revenue Service, all as in effect on the date hereof. This opinion is conditioned upon (a) the Reorganization taking place in the manner described in the Plan and the Form N-14 referred to above, (b) the facts and representations contained in the presentation letters referred to herein being true and accurate as of May 1998, and (c) there being no change in the Code, United States Treasury Regulations, judicial decisions, or administrative rulings and pronouncements of the Internal Revenue Service between the date hereof and May __,1998. This opinion is further conditioned upon our receiving such executed letters of representation from Acquiring Fund, Acquired Fund, VTEF Trust, and VQF Trust as we shall request. This opinion shall be effective only at such time as we receive those letters and confirm our opinion in writing on the closing date of the Reorganization. Based upon the foregoing, it is our opinion that: (1) The acquisition by Acquiring Fund of substantially all of the assets of Acquired Fund in exchange solely for Acquiring Fund shares and the assumption by Acquiring Fund of all of the liabilities of Acquired Fund, followed by the distribution of such Acquiring Fund shares to the Acquired Fund shareholders in exchange for their Acquired Fund shares in complete liquidation of Acquired Fund, will constitute a reorganization within the meaning of section 368(a) of the Code. Acquiring Fund and Acquired Fund will each be "a party to a reorganization" within the meaning of section 368(b) of the Code. (2) Acquired Fund will not recognize gain or loss upon the transfer of substantially all of its assets to Acquiring Fund in exchange solely for Acquiring Fund shares, or upon the distribution to Acquired Fund shareholders of the Acquiring Fund shares. (3) Acquiring Fund will not recognize gain or loss upon the receipt of Acquired Fund's assets in exchange for Acquiring Fund shares. (4) The basis of the assets of Acquired Fund in the hands of Acquiring Fund will be, in each instance, the same as the basis of those assets in the hands of Acquired Fund immediately prior to the Reorganization. (5) The holding period of Acquired Fund's assets in the hands of Acquiring Fund will include the period during which the assets were held by Acquired Fund (except where investment activities of Acquired Fund have the effect of reducing or eliminating a holding period with respect to an asset). (6) Acquired Fund shareholders will not recognize gain or loss upon the receipt of Acquiring Fund shares solely in exchange for Acquired Fund shares. (7) The basis of the Acquiring Fund shares received by the Acquired Fund shareholders will be the same as the basis of the Acquired Fund shares surrendered in exchange therefor. Vanguard/Trustees' Equity Fund Vanguard Quantitative Funds _______, 1998 Page 3 (8) The holding period of the Acquiring Fund shares received by the Acquired Fund shareholders will include the holding period of the Acquired Fund shares surrendered in exchange therefor, provided that such Acquired Fund shares were held as capital assets in the hands of the Acquired Fund shareholders upon the date of the exchange. We express no opinion as to the federal income tax consequences of the Reorganization except as expressly set forth above, or as to any transaction except those consummated in accordance with the Plan. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form N-14 filed by VQF Trust with the Securities and Exchange Commission. Very truly yours, Dechert Price & Rhoads EX-14 7 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Proxy Statement and Prospectus constituting part of this registration statement on Form N-14 (the "Registration Statement") of our report dated February 6, 1998, relating to the financial statements and financial highlights appearing in the December 31, 1997 Annual Report to Shareholders of the Vanguard Growth and Income Portfolio, which is incorporated by reference into the Registration Statement. We also consent to the incorporation by reference in the Prospectus and Statement of Additional Information dated April 17, 1998 constituting parts of the registration statement on Form N-1A of Vanguard Growth and Income Portfolio of our report dated February 6, 1998, relating to the financial statements and financial highlights appearing in the December 31, 1997 Annual Report to Shareholders to Vanguard Growth and Income Portfolio, which Prospectus and Statement of Additional Information are incorporated by reference in the Registration Statement. We also consent to the incorporation by reference in the Prospectus and Statement of Additional Information dated April 30, 1998 constituting parts of the registration statement on Form N-1A of Vanguard Trustees' Equity Fund of our report dated February 6, 1998, relating to the financial statements and financial highlights appearing in the December 31, 1997 Annual Report to Shareholders of Vanguard Trustees' Equity Fund - U.S. Portfolio, which Prospectus and Statement of Additional Information are incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" in the Prospectuses and "Financial Statements" in the Statements of Additional Information for Vanguard Growth and Income Portfolio and Trustees Equity Fund and to the reference to us under the heading "General Information" in the Prospectus of Vanguard Growth and Income Portfolio. /s/ Price Waterhouse LLP - - ------------------------ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania May 20,1998 -----END PRIVACY-ENHANCED MESSAGE-----