<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO. 2-56846) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 45
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 47
VANGUARD INDEX TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
RAYMOND J. KLAPINSKY, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482
IT IS PROPOSED THAT THIS AMENDMENT BECOME EFFECTIVE;
on January 6, 1997, pursuant to paragraph (a) of Rule 485.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.
REGISTRANT ELECTS TO REGISTER AN INDEFINITE NUMBER OF SHARES PURSUANT TO
REGULATION 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. REGISTRANT FILED ITS
RULE 24F-2 NOTICE FOR THE YEAR ENDED DECEMBER 31, 1995 ON FEBRUARY 28, 1996.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
VANGUARD INDEX TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <S> <C>
Item 1. Cover Page.................................... Cover Page
Item 2. Synopsis...................................... Highlights
Item 3. Condensed Financial Information............... Financial Highlights
Item 4. General Description of Registrant............. Investment Objectives; Investment
Limitations; Investment Policies;
General Information
Item 5. Management of the Funds....................... Management of the Funds
Item 6. Capital Stock and Other Securities............ Opening an Account and Purchasing
Each Funds Shares; Selling Your
Shares; The Share Price of Each
Portfolio; Dividends, Capital Gains
and Taxes; General Information
Item 7. Purchase of Securities Being Offered.......... Cover Page; Opening an Account and
Purchasing Shares
Item 8. Redemption or Repurchase...................... Selling Your Shares
Item 9. Pending Legal Proceedings..................... Not Applicable
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <S> <C>
Item 10. Cover Page.................................... Cover Page
Item 11. Table of Contents............................. Cover Page
Item 12. General Information and History............... Investment Objectives and Policies
Item 13. Investment Objective and Policies............. Investment Objectives and Policies;
Investment Limitations
Item 14. Management of the Fund........................ Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Fund
Item 16. Investment Advisory and Other Services........ Management of the Fund
Item 17. Brokerage Allocation.......................... Not Applicable
Item 18. Capital Stock and Other Securities............ Financial Statements
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption of
Shares
Item 20. Tax Status.................................... Appendix
Item 21. Underwriters.................................. Not Applicable
Item 22. Calculations of Yield Quotations of Money
Market Fund................................... Not Applicable
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE> 3
VANGUARD
INDEX TRUST
Prospectus
January 6, 1997
TOTAL STOCK MARKET GRAPHIC OF BOAT
PORTFOLIO
500 PORTFOLIO
EXTENDED MARKET
PORTFOLIO
SMALL CAPITALIZATION
STOCK PORTFOLIO
VALUE PORTFOLIO
GROWTH PORTFOLIO
This prospectus contains financial data for the Trust through the fiscal period
ended June 30, 1996.
<PAGE> 4
VANGUARD INDEX TRUST
CONTENTS
Portfolio Expenses 3
Financial Highlights 5
A Word About Risk 8
The Portfolios'
Objectives 9
Who Should Invest 9
Investment Strategies 10
Investment Policies 14
Investment Limitations 15
Investment
Performance 15
Share Price 16
Dividends, Capital
Gains, and Taxes 17
The Trust and
Vanguard 18
Investment Adviser 18
General Information 18
Investing
with Vanguard 19
Services and
Account Features 19
Types of Accounts 20
Distribution Options 21
Buying Shares 21
Redeeming Shares 23
Fund and Account
Updates 25
Prospectus Postscript 27
Risk Quiz 28
Glossary Inside Back Cover
A STOCK INDEX MUTUAL FUND
INVESTMENT OBJECTIVES AND POLICIES
Vanguard Index Trust (the "Trust") is an open-end investment company that
includes six separate, diversified mutual fund Portfolios: Total Stock Market,
500, Extended Market, Small Capitalization Stock, Value, and Growth.
Each Portfolio seeks to match, as closely as possible, the performance
of a different stock market benchmark, or index. One index reflects the entire
U.S. stock market; the five other indexes focus on specific stock market
segments. Long-term capital growth (and, for some Portfolios, dividend income)
may be achieved as the Portfolios track their respective indexes.
You can buy shares in any of the six Portfolios that meet your
investment needs; you do not have to buy shares in all six.
IT IS IMPORTANT TO NOTE THAT NONE OF THE PORTFOLIOS' SHARES IS
GUARANTEED OR INSURED BY THE FDIC OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT. AS
WITH ANY INVESTMENT IN COMMON STOCKS, WHICH ARE SUBJECT TO WIDE FLUCTUATIONS IN
MARKET VALUE, YOU COULD LOSE MONEY BY INVESTING IN ANY OF THE PORTFOLIOS.
FEES AND EXPENSES
The Portfolios are offered on a no-load basis, which means that you pay no sales
commissions or 12b-1 marketing fees. You will, however, incur expenses for
investment advisory, management, administrative, and distribution services,
which are included in each Portfolio's expense ratio.
Each Portfolio charges a $10 annual account maintenance fee for
accounts with balances of less than $10,000.
Two Portfolios charge a fee on purchases: 0.5% for the Extended Market
Portfolio, 1% for the Small Capitalization Stock Portfolio.
ADDITIONAL INFORMATION ABOUT THE TRUST
A Statement of Additional Information (January 6, 1997) containing more
information about the Trust is, by reference, part of this prospectus and may be
obtained without charge by writing to Vanguard or by calling our Investor
Information Department at 1-800-662-7447.
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objectives, risks, and strategies of each Portfolio
of Vanguard Index Trust. To highlight terms and concepts important to mutual
fund investors, we have provided "Plain Talk" explanations along the way.
Reading the prospectus will help you decide which Portfolios, if any, are the
right investment for you. We suggest that you keep it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
PORTFOLIO PROFILE VANGUARD INDEX TRUST
WHO SHOULD INVEST (PAGE 9)
- - - Investors looking for a simple way to match the performance of a specific
stock market index.
- - - Investors seeking a stock mutual fund as part of a balanced and
diversified investment program.
- - - Investors seeking growth of their capital over the long term -- at least
five years.
WHO SHOULD NOT INVEST
- - - Investors unwilling to accept significant fluctuations in share price.
- - - Investors hoping to beat the stock market.
RISKS OF THE PORTFOLIOS (PAGES 8 - 14)
The Portfolios' total return will fluctuate within a wide range, so an investor
could lose money over short or even extended periods. All six Portfolios are
subject to market risk (the chance that stock prices in general will fall,
sometimes suddenly and sharply) and objective risk (the chance that a specific
segment of the stock market will not perform as well as the overall market).
More detailed information about risk -- including risks specific to each
Portfolio -- is provided beginning on page 18.
DIVIDENDS AND CAPITAL GAINS (PAGE 17)
The Total Stock Market, 500, Value, and Growth Portfolios pay dividends in
March, June, September, and December. The Extended Market and Small
Capitalization Stock Portfolios pay dividends in December. All six of the
Trust's Portfolios pay capital gains, if any, in December.
INVESTMENT ADVISER (PAGE 18)
Vanguard Core Management Group, Valley Forge, PA, manages each of the six
Portfolios.
MINIMUM INITIAL INVESTMENT FOR EACH PORTFOLIO: $3,000; $1,000 for IRAs and
accounts for minors
ACCOUNT FEATURES (PAGE 19)
- - - Telephone Redemption (sales, not exchanges)
- - - Vanguard Direct Deposit Servicesm
- - - Vanguard Automatic Exchange Servicesm
- - - Vanguard Fund Express(R)
- - - Vanguard Dividend Expresssm
AVERAGE ANNUAL TOTAL RETURNS -- PERIODS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
--------------------------------------
<S> <C> <C> <C>
Total Stock Market 25.3% 15.4%* --
Wilshire 5000 Index 26.2 15.9* --
500 25.9% 15.6% 13.5%
S&P 500 Index 26.0 15.7 13.8
Extended Market** 26.2% 17.2% 15.4%*
Wilshire 4500 Index 26.6 17.1 15.6*
SmallCap Stock** 25.3% 18.0% 9.6%
Russell 2000 Index 23.9 17.5 10.4
Value 24.8% 17.6%* --
S&P/BARRA Value 24.8 17.8* --
Index
Growth 27.1% 14.8%* --
S&P/BARRA Growth 27.3 15.1* --
Index
</TABLE>
*Since Portfolio's inception.
**Does not include transaction fee; see table on page 2.
In evaluating past performance, remember that it is not indicative of future
performance and that returns from stocks before adjusting for inflation were
relatively high during the periods shown. Performance figures include the
reinvestment of any dividends and capital gains distributions. The returns shown
are net of expenses, but they do not reflect income taxes an investor would have
incurred. Note, too, that both the return and principal value of an investment
will fluctuate so that investors' shares, when redeemed, may be worth more or
less than their original cost.
1
<PAGE> 6
PORTFOLIO PROFILE (CONTINUED) VANGUARD INDEX TRUST
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
TOTAL STOCK EXTENDED
MARKET 500 MARKET
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCEPTION DATE: 4/27/92 8/31/76 12/21/87
NET ASSETS AS OF 6/30/96: $2.86 billion $23.6 billion $1.74 billion
PORTFOLIO EXPENSE RATIO FOR
THE SIX MONTHS ENDED 6/30/96: 0.21% 0.20% 0.25%
FEES
LOADS, 12b-1 MARKETING FEE: None None None
ANNUAL ACCOUNT MAINTENANCE FEE:* $10 $10 $10
TRANSACTION FEE ON PURCHASES: None None 0.5%
SUITABLE FOR IRAs: Yes Yes Yes
NEWSPAPER ABBREVIATION: IdxTot Idx 500 IdxExt
VANGUARD FUND NUMBER: 085 040 098
- - -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
SMALLCAP
STOCK VALUE GROWTH
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCEPTION DATE: 10/3/60 11/2/92 11/2/92
NET ASSETS AS OF 6/30/96: $1.45 billion $765 million $511 million
PORTFOLIO EXPENSE RATIO FOR
THE SIX MONTHS ENDED 6/30/96: 0.25% 0.20% 0.20%
FEES
LOADS, 12b-1 MARKETING FEE: None None None
ANNUAL ACCOUNT MAINTENANCE FEE:* $10 $10 $10
TRANSACTION FEE ON PURCHASES: 0.5% None None
SUITABLE FOR IRAs: Yes Yes Yes
NEWSPAPER ABBREVIATION: IdxSmCap IdxVal IdxGro
VANGUARD FUND NUMBER: 048 006 009
- - -------------------------------------------------------------------------------------
</TABLE>
*Waived for accounts with balances of $10,000 or more.
2
<PAGE> 7
PORTFOLIO EXPENSES
The examples below are designed to help you understand the costs you would bear
as an investor in one of the Portfolios.
SHAREHOLDER TRANSACTION EXPENSES AND FEES
Sales Load Imposed on Purchases: None
Transaction Fee on Purchases*
Extended Market Portfolio: 0.5%
SmallCap Stock Portfolio: 0.5%
Total Stock Market, 500, Value, and Growth Portfolios: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
* The transaction fee is deducted from all purchases (including exchanges from
other Vanguard Funds) but not from reinvested dividends and capital gains.
For accounts with balances of less than $10,000, an account maintenance fee is
deducted from a Portfolio's dividends ($2.50 each quarter for the Total Stock
Market, 500, Value, and Growth Port-folios, and $10 each December for the
Extended Market and Small Capitalization Stock Portfolios). If you receive a
distribution that is less than the fee, shares will be automatically redeemed to
make up the difference.
The next tables illustrate the expenses that you would incur, outside of
transaction and maintenance fees, as a Portfolio shareholder. These expenses are
deducted from the Portfolio's income before it is paid to you. Expenses include
investment advisory fees as well as fees for administering the Portfolio,
providing services, and other activities. The expenses shown are for the fiscal
year ended December 31, 1995.
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
TOTAL STOCK
MARKET 500
- - ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Expenses: 0.21% 0.17%
Investment Advisory Expenses: None None
12b-1 Marketing Fees: None None
Other Expenses
Marketing and Distribution
Expenses: 0.02% 0.02%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.02% 0.01%
---- ----
Total Other Expenses: 0.04% 0.03%
---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.25% 0.20%
==== ====
</TABLE>
PLAIN TALK ABOUT
VANGUARD'S FEES
Some of Vanguard's index portfolios charge a transaction fee on purchases of
Portfolio shares to offset the higher costs of trading certain securities,
particularly small-company and international stocks. The transaction fee ensures
that these higher costs are borne by the investors making the transactions --
and not by shareholders already in the Portfolio. In addition, most of
Vanguard's index portfolios charge an account maintenance fee to divide the
costs of maintaining accounts equally among shareholders.
At Vanguard, all fees are paid directly to the Portfolio itself (unlike a
sales charge or load, which -- for many fund companies -- ends up in the pocket
of the sponsor, adviser, or sales representative). Without transaction fees, an
index portfolio would have trouble tracking its target index.
PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. For instance, the Total Stock Market Portfolio's expense ratio in
fiscal year 1995 was 0.25%, or $2.50 per $1,000 of average net assets. The
average equity index fund had expenses in 1995 of 0.67%, or $6.70 per $1,000 of
average net assets, according to Lipper Analytical Services, Inc., which reports
on the mutual fund industry.
3
<PAGE> 8
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
EXTENDED SMALLCAP
MARKET STOCK
- - ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Expenses: 0.21% 0.21%
Investment Advisory Expenses: None 0.01%
12b-1 Marketing Fees: None None
Other Expenses
Marketing and Distribution
Expenses: 0.02% 0.02%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.02% 0.01%
---- ----
Total Other Expenses: 0.04% 0.03%
---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.25% 0.25%
==== ====
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
VALUE GROWTH
- - ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Expenses: 0.15% 0.14%
Investment Advisory Expenses: 0.01% 0.01%
12b-1 Marketing Fees: None None
Other Expenses
Marketing and Distribution
Expenses: 0.02% 0.02%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.02% 0.03%
---- ----
Total Other Expenses: 0.04% 0.05%
---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.20% 0.20%
==== ====
</TABLE>
The following examples illustrate the hypothetical expenses that you would
incur on a $1,000 investment in each Portfolio over various periods. These
examples assume (1) that each Portfolio provides a return of 5% a year, (2) that
you redeem your investment at the end of each period, and(3) that any
transaction fees have been deducted. If your investment were larger than $1,000
but less than $10,000, your total expenses would be lower, percentage-wise, than
the amounts shown.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Stock Market $ 3 $ 8 $14 $30
500 $ 2 $ 6 $11 $24
Extended Market $ 5 $10 $16 $33
SmallCap Stock $13 $18 $24 $40
Value $ 2 $ 6 $11 $24
Growth $ 2 $ 6 $11 $24
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
The following financial highlights tables show the results for a share
outstanding for each of the last ten years ended December 31, 1995 (or each year
since the Portfolio's inception date) and the six months ended June 30, 1996.
The financial highlights for the fiscal years ended December 31 were audited by
Price Waterhouse LLP, independent accountants. The information for the six-month
period ended June 30, 1996, has not been audited by independent accountants. You
should read this information in conjunction with each Portfolio's financial
statements and accompanying notes, which appear, along with the audit report
from Price Waterhouse, in the Trust's most recent Annual Report and Semi-Annual
Report to shareholders. The Annual Report and Semi-Annual Report are
incorporated by reference in the Statement of Additional Information and in this
prospectus, and contain a more complete discussion of each Portfolio's
performance. You may have the report sent to you without charge by writing to
Vanguard or by calling our Investor Information Department.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
TOTAL STOCK MARKET PORTFOLIO
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ------------------------ 3/16/92 -
ENDED JUNE 30, 1996 1995 1994 1993 12/31/92
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.04 $11.37 $11.69 $10.84 $10.00
----------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .14 .29 .27 .26 .23
Net Realized and Unrealized Gain (Loss)
on Investment 1.36 3.75 (.29) .88 .84
----------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.50 4.04 (.02) 1.14 1.07
- - --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.12) (.28) (.27) (.26) (.23)
Distributions from Realized Capital
Gains (.03) (.09) (.03) (.03) --
----------------------------------------------------------------
TOTAL DISTRIBUTIONS (.15) (.37) (.30) (.29) (.23)
- - --------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $16.39 $15.04 $11.37 $11.69 $10.84
========================================================================================================
TOTAL RETURN* 10.00% 35.79% - 0.17% 10.62% 10.41%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $2,865 $1,571 $ 786 $ 512 $ 275
Ratio of Expenses to Average Net Assets .21%** .25% .20% .20% .21%**
Ratio of Net Investment Income to
Average Net Assets 1.81%** 2.14% 2.35% 2.31% 2.42%**
Portfolio Turnover Rate 3%** 3% 2% 1% 3%
Average Commission Rate Paid $ .0208+ NA NA NA NA
- - --------------------------------------------------------------------------------------------------------
</TABLE>
* Total return figures do not include the 0.25% transaction fee on purchases
(eliminated at year-end 1995) or the $10 annual account maintenance fee.
During the Portfolio's subscription period (March 16 to April 26, 1992), all
assets were invested in money market instruments. Performance measurement
began on April 27, 1992.
** Annualized. +Represents total commissions paid on portfolio securities
divided by the total number of shares purchased or sold on which commissions
were charged. This disclosure is required by the SEC beginning in 1996.
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
This explanation uses the Total Stock Market Portfolio as an example. The Total
Stock Market Portfolio began fiscal 1996 with a net asset value (price) of
$15.04 per share. During the six months ended June 30, 1996, the Portfolio
earned $0.14 per share from investment income (interest and dividends) and $1.36
per share from investments that had appreciated in value or were sold for a
price that was higher than the Portfolio paid for them. This resulted in total
earnings of $1.50 per share. Of those total earnings, $0.15 per share was
returned to shareholders in distributions ($0.12 in dividends, $0.03 in capital
gains). The earnings ($1.50 per share) less distributions ($0.15 per share)
resulted in a share price of $16.39 at the six months ended June 30, 1996, an
increase of $1.35 per share (from $15.04 at the beginning of the period to
$16.39 at the end of the period). Assuming the shareholder had reinvested the
distributions in the purchase of more shares, total return from the Total Stock
Market Portfolio was 10.00% for the six months ended June 30, 1996.
As of June 30, 1996, the Portfolio had $2.86 billion in net assets; an expense
ratio of 0.21% ($2.10 per $1,000 of net assets); and net investment income
amounting to 1.81% of its average net assets. It sold and replaced securities
valued at 3% of its total net assets.
5
<PAGE> 10
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
500 PORTFOLIO
------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ---------------------------------------------------------------------------
JUNE 30,1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $57.60 $42.97 $43.83 $40.97 $39.32 $31.24 $33.64 $27.18 $24.65 $24.27 $22.99
------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .62 1.22 1.18 1.13 1.12 1.15 1.17 1.20 1.08 .88 .89
Net Realized and Unrealized
Gain (Loss) on Investment 5.15 14.76 (.67) 2.89 1.75 8.20 (2.30) 7.21 2.87 .36 3.30
------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.77 15.98 .51 4.02 2.87 9.35 (1.13) 8.41 3.95 1.24 4.19
- - ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.44) (1.22) (1.17) (1.13) (1.12) (1.15) (1.17) (1.20) (1.10) (.69) (.89)
Distributions from
Realized Capital Gains (.04) (.13) (.20) (.03) (.10) (.12) (.10) (.75) (.32) (.17) (2.02)
------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.48) (1.35) (1.37) (1.16) (1.22) (1.27) (1.27) (1.95) (1.42) (.86) (2.91)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $62.89 $57.60 $42.97 $43.83 $40.97 $39.32 $31.24 $33.64 $27.18 $24.65 $24.27
====================================================================================================================================
TOTAL RETURN* 10.03% 37.45% 1.18% 9.89% 7.42% 30.22% -3.32% 31.36% 16.22% 4.71% 18.06%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $23,674 $17,372 $9,356 $8,273 $6,547 $4,345 $2,173 $1,804 $1,055 $ 826 $ 485
Ratio of Expenses to Average Net Assets .20%+ .20% .19% .19% .19% .20% .22% .21% .22% .26% .28%
Ratio of Net Investment Income to
Average Net Assets 2.05%+ 2.38% 2.72% 2.65% 2.81% 3.07% 3.60% 3.62% 4.08% 3.15% 3.40%
Portfolio Turnover Rate 6%**+ 4%** 6%** 6%** 4%** 5%** 23%** 8% 10% 15% 29%
Average Commission Rate Paid $ .0131++ NA NA NA NA NA NA NA NA NA NA
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not include the $10 annual account maintenance fee.
**Portfolio turnover rates excluding in-kind redemptions were 4%, 2%, 1%, 1%,
and 6%, respectively.
+Annualized.
++Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
EXTENDED MARKET PORTFOLIO
YEAR ENDED DECEMBER 31, 12/21**-
SIX MONTHS ENDED ------------------------------------------------------------------------- 12/31/87
JUNE 30,1996 1995 1994 1993 1992 1991 1990 1989 1988
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $24.07 $18.52 $19.43 $17.35 $15.82 $11.48 $13.92 $11.60 $9.99 $10.00
-------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .20 .30 .28 .23 .24 .25 .30 .26 .34 .03
Net Realized and Unrealized
Gain (Loss) on Investment 2.30 5.95 (.62) 2.28 1.72 4.54 (2.25) 2.52 1.63 (.04)
-------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.50 6.25 (.34) 2.51 1.96 4.79 (1.95) 2.78 1.97 (.01)
- - ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income -- (.30) (.28) (.23) (.25) (.25) (.33) (.23) (.20) --
Distributions from
Realized Capital Gains (.32) (.40) (.29) (.20) (.18) (.20) (.16) (.23) (.16) --
-------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.32) (.70) (.57) (.43) (.43) (.45) (.49) (.46) (.36) --
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $26.25 $24.07 $18.52 $19.43 $17.35 $15.82 $11.48 $13.92 $11.60 $ 9.99
====================================================================================================================================
TOTAL RETURN* 10.45% 33.80% -1.76% 14.49% 12.47% 41.85% -14.05% 24.10% 19.75% -0.10%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(Millions) $1,746 $1,523 $ 967 $ 928 $ 585 $ 372 $ 179 $ 147 $ 35 $ 5
Ratio of Expenses to Average
Net Assets .25%+ .25% .20% .20% .20% .19% .23% .23% .24% 0%
Ratio of Net Investment
Income to Average Net Assets 1.53%+ 1.51% 1.51% 1.48% 1.73% 2.14% 2.68% 2.92% 2.90% 0%
Portfolio Turnover Rate 31%+ 15% 19% 13% 9% 11% 9% 14% 26% 3%
Average Commission Rate Paid $.0247++ NA NA NA NA NA NA NA NA NA
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total return figures do not include transaction fees (0.5% in 1995, 1%
in 1991 through 1994) on purchases or the $10 annual account maintenance fee.
** Commencement of operations.
+ Annualized.
++ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
This disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
6
<PAGE> 11
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
SMALL CAPITALIZATION STOCK PORTFOLIO*
------------------------------------------------------------------------------------------------------
YEAR YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ENDED 2/1/94- 10/1/93- --------------------------------------------------------
JUNE 30, 1996 12/31/95 12/31/94 1/31/94 1993 1992 1991 1990++ 1989 1988 1987 1986
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $18.61 $14.99 $16.24 $16.23 $12.63 $12.03 $ 8.55 $11.88 $11.96 $15.73 $13.24 $11.68
------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .12 .24 .20 .05 .20 .19 .20 .17 .10 .03 (.04) (.01)
Net Realized and Unrealized
Gain (Loss) on Investment 2.00 4.06 (.86) .96 3.73 .88 3.60 (3.46) 2.13 (2.59) 4.42 1.57
------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.12 4.30 (.66) 1.01 3.93 1.07 3.80 (3.29) 2.23 (2.56) 4.38 1.56
- - ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income -- (.23) (.22) (.18) (.18) (.18) (.18) (.04) (.14) -- -- --
Distributions from
Realized Capital Gains (.14) (.45) (.37) (.82) (.15) (.29) (.14) -- (2.17) (1.21) (1.89) --
------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.14) (.68) (.59) (1.00) (.33) (.47) (.32) (.04) (2.31) (1.21) (1.89) --
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $20.59 $18.61 $14.99 $16.24 $16.23 $12.63 $12.03 $ 8.55 $11.88 $11.96 $15.73 $13.24
====================================================================================================================================
TOTAL RETURN** 11.44% 28.74% -4.00% 6.65% 31.60% 9.34% 45.91%-27.73% 18.83%-14.30% 38.02% 13.33%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $1,450 $ 971 $ 605 $ 533 $ 432 $ 202 $ 111 $ 40 $ 20 $ 27 $ 35 $ 31
Ratio of Expenses to
Average Net Assets .25%+ .25% .17%+ .18%+ .18% .18% .21% .31% 1.00% .95% .92% .92%
Ratio of Net Investment
Income to Average
Net Assets 1.40%+ 1.58% 1.50%+ 1.16%+ 1.47% 1.65% 2.11% 1.91% .65% .24% (.25)%(.06)%
Portfolio Turnover Rate 39%+ 28% 25% 5% 26% 26% 33% 40% 160% 68% 92% 92%
Average Commission Rate Paid $.0250(1) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Returns prior to January 31, 1994, are for the former Vanguard Small
Capitalization Stock Fund.
**Total return figures do not include the 1% transaction fee on purchases or
the $10 annual account maintenance fee.
+Annualized.
++Adjusted to reflect a 3-for-1 stock split as of February 3, 1990.
$Prior to September 11, 1989, Schroder Capital Management International
provided investment advisory services to the Fund. Effective September 11,
1989, investment advisory services were provided on an at-cost basis by The
Vanguard Group, Inc.
(1)Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
This disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
VALUE PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------- 11/2/92+
JUNE 30, 1996 1995 1994 1993 -12/31/92
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.79 $11.12 $11.74 $10.30 $10.00
----------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .20 .41 .38 .38 .07
Net Realized and Unrealized
Gain (Loss) on Investment 1.06 3.66 (.46) 1.50 .30
----------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.26 4.07 (.08) 1.88 .37
- - ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.14) (.40) (.38) (.38) (.07)
Distributions from Realized Capital Gains (.24) -- (.16) (.06) --
----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.38) (.40) (.54) (.44) (.07)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.67 $14.79 $11.12 $11.74 $10.30
====================================================================================================================================
TOTAL RETURN* 8.54% 36.94% -0.73% 18.35% 3.70%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 765 $ 496 $ 297 $ 190 $ 24
Ratio of Expenses to Average Net Assets .20%** .20% .20% .20% 0%**
Ratio of Net Investment Income to Average Net Assets 2.64%** 3.06% 3.37% 3.26% 3.46%**
Portfolio Turnover Rate 34%** 27% 32% 30% 4%
Average Commission Rate Paid $.0185++ N/A N/A N/A N/A
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not include the $10 annual account maintenance fee.
**Annualized.
+Commencement of operations.
++Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
7
<PAGE> 12
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------------- 11/2/92+
JUNE 30, 1996 1995 1994 1993 - 12/31/92
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.97 $ 10.28 $ 10.20 $ 10.26 $ 10.00
INVESTMENT OPERATIONS
Net Investment Income .11 .21 .21 .21 .06
Net Realized and Unrealized Gain (Loss)
on Investment 1.48 3.68 .08 (.06) .26
TOTAL FROM INVESTMENT OPERATIONS 1.59 3.89 .29 .15 .32
------- ------- ------- ------- -------
DISTRIBUTIONS
Dividends from Net
Investment Income (.10) (.20) (.21) (.21) (.06)
Distributions from Realized Capital Gains (.06) -- -- -- --
TOTAL DISTRIBUTIONS (.16) (.20) (.21) (.21) (.06)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 15.40 $ 13.97 $ 10.28 $ 10.20 $ 10.26
======= ======= ======= ======= =======
TOTAL RETURN* 11.43% 38.06% 2.89% 1.53% 3.19%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions $ 511 $ 271 $ 86 $ 51 $ 21
Ratio of Expenses to Average Net Assets .20%** .20% .20% .20% 0%**
Ratio of Net Investment Income to
Average Net Assets 1.50%** 1.71% 2.08% 2.10% 2.85%**
Portfolio Turnover Rate 36%** 24% 28% 36% 2%
Average Commission Rate Paid $ .0186++ NA NA NA NA
------- ------- ------- ------- -------
</TABLE>
* Total return figures do not include the $10 annual account maintenance fee.
** Annualized.
+ Commencement of operations.
++ Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
From time to time, the Vanguard Funds advertise yield and total return
figures. Yield is an historical measure of dividend income, and total return is
a measure of past dividend income (assuming that it has been reinvested) plus
capital appreciation. Neither yield nor total return should be used to predict
the future performance of a fund.
A WORD ABOUT RISK
This prospectus describes the risks you will face as an investor in the
Portfolios of Vanguard Index Trust. It is important to keep in mind one of the
main axioms of investing: the higher the risk of losing money, the higher the
potential reward. The reverse, also, is generally true: the lower the risk, the
lower the potential reward. As you consider an investment in one or more of the
Trust's Portfolios, you should take into account your personal tolerance for the
daily fluctuations of the stock market. Remember, too, that each Portfolio seeks
to match a different stock market index; therefore, investment risk will vary
from Portfolio to Portfolio.
Look for this "warning flag" symbol [FLAG GRAPHIC] throughout the
prospectus. It is used to mark detailed information about each type of risk that
you, as a shareholder of any of the six Portfolios, will confront.
8
<PAGE> 13
THE PORTFOLIOS' OBJECTIVES
Each Portfolio seeks to match, as closely as possible, the performance of a
specific stock market index. This objective is fundamental, which means that it
cannot be changed unless a majority of Portfolio shareholders vote to do so.
[FLAG BECAUSE OF THE SEVERAL TYPES OF RISK DESCRIBED ON THE FOLLOWING PAGES,
GRAPHIC] YOUR INVESTMENT IN ANY OF THE PORTFOLIOS, AS WITH ANY INVESTMENT IN
COMMON STOCKS, COULD LOSE MONEY.
The TOTAL STOCK MARKET PORTFOLIO seeks to parallel the performance of the
Wilshire 5000 Index, which consists of all of the U.S. stocks regularly traded
on the New York and American Stock Exchanges and the Nasdaq over-the-counter
market.
The 500 PORTFOLIO seeks to track the performance of the Standard & Poor's
500 Composite Stock Price Index, which emphasizes stocks of large U.S.
companies.
The EXTENDED MARKET PORTFOLIO seeks to track the performance of the Wilshire
4500 Index, a broadly diversified index of stocks of medium-size and small U.S.
companies (none of which is included in the S&P 500 Index).
The SMALL CAPITALIZATION STOCK PORTFOLIO seeks to match the performance of
the Russell 2000 Small Stock Index, which is made up of stocks of small,
generally unseasoned U.S. companies.
The VALUE PORTFOLIO seeks to replicate the performance of the S&P/BARRA
Value Index, which includes those stocks of the S&P 500 Index that offer
higher-than-average dividend yields and are considered out of favor with
investors.
The GROWTH PORTFOLIO seeks to parallel the performance of the S&P/BARRA
Growth Index, which is made up of those stocks of the S&P 500 Index with
above-average growth potential and lower-than-average dividend yields.
[FLAG AN INDEX FUND HAS OPERATING EXPENSES; A MARKET INDEX DOES NOT.
GRAPHIC] THEREFORE, AN INDEX FUND--WHILE EXPECTED TO TRACK ITS TARGET INDEX AS
CLOSELY AS POSSIBLE--WILL NOT BE ABLE TO MATCH THE PERFORMANCE OF THE
INDEX EXACTLY.
The Portfolios of Vanguard Index Trust are not sponsored, sold, promoted, or
endorsed by Standard & Poor's Corporation, BARRA Associates, Wilshire
Associates, or the Frank Russell Company.
WHO SHOULD INVEST
Any of the Portfolios of Vanguard Index Trust may be a suitable investment for
you if you are looking for a U.S. stock portfolio that follows a simple,
cost-effective index-matching strategy and, in doing
PLAIN TALK ABOUT
INDEXES
An index is a group of securities whose overall performance is used as a
standard to measure investment performance.
PLAIN TALK ABOUT
VALUE FUNDS AND
GROWTH FUNDS
Value investing and growth investing are two styles employed by stock fund
managers. Value funds generally emphasize companies that, considering their
assets and earnings history, are attractively priced; these companies often pay
regular dividend income to shareholders. Growth funds generally focus on
companies that, due to their strong earnings and revenue potential, offer
above-average prospects for capital growth, with less emphasis on dividend
income. Value and growth stocks have, in the past, produced similar long-term
returns, though each has periods when it outperforms the other. In general,
value funds are appropriate for investors who want some dividend income and the
potential for capital gains but are less tolerant of share-price fluctuations,
while growth funds appeal to investors who will accept more volatility in hope
of a greater increase in share price.
9
<PAGE> 14
PLAIN TALK ABOUT
INVESTING FOR THE LONG TERM
Each Portfolio is intended to be a long-term investment vehicle; none is
designed to provide investors with a means of speculating on short-term
fluctuations in the stock market.
PLAIN TALK ABOUT
COSTS AND MARKET TIMING
Some investors try to profit from "market timing"--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Trust discourages short-term trading by, among other things,
limiting the number of exchanges it permits and not offering telephone exchanges
for non-retirement accounts.
so, provides the potential for growth in the value of your investment over the
long term. However, one Portfolio may more closely meet your personal investment
objectives than the others.
For instance, the Total Stock Market Portfolio may be suitable for you if:
- - - You are looking for an investment that reflects the performance of the
entire U.S. stock market.
- - - You are seeking some dividend income. The 500 and Value Portfolios may be
suitable for you if:
- - - You want to invest in large companies.
- - - You are seeking some dividend income. The Growth Portfolio may be suitable
for you if:
- - - You want to invest in large companies, but you are not seeking dividend
income.
- - - You are looking for more growth potential than the 500 and Value Portfolios
offer--and are willing to accept greater fluctuations in share price.
The Extended Market and Small Capitalization Stock Portfolios may be
suitable for you if:
- - - You want to focus on the stocks of medium-size and/or small companies.
- - - You can accept greater share-price volatility than the Trust's other
Portfolios tend to experience.
None of the Portfolios would be an appropriate investment if you are a
market-timer. Investors who engage in excessive in-and-out trading activity
generate additional costs that are borne by all of the shareholders in a
Portfolio. To minimize such costs, which reduce the ultimate returns achieved by
you and other shareholders, the Trust has adopted the following policies:
- - - The Trust reserves the right to reject any purchase request into any of its
Portfolios--including exchanges from other Vanguard Funds--that it regards
as disruptive to the efficient management of the Portfolio. This could be
because of the timing of the investment or because of a history of excessive
trading by the investor.
- - - Two of the Trust's Portfolios (Extended Market and Small Capitalization
Stock) charge a transaction fee on purchases.
- - - Telephone exchanges are not accepted for non-IRA accounts.
- - - There is a limit on the number of times you can exchange into or out of each
Portfolio (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).
- - - The Trust reserves the right to stop offering shares at any time.
Investment Strategies
This section explains how the Trust's investment adviser pursues the objective
of matching the performance of specific stock indexes. It also explains the
market and objective risks faced by Portfolio shareholders. Unlike each
Portfolio's investment objectives, the adviser's investment strategies are not
fundamental and can be changed by
10
<PAGE> 15
the Trust's Board of Trustees without shareholder approval. However, before
making any important change in its strategies, the Trust will give shareholders
30-days notice, in writing.
MARKET EXPOSURE
To track their target indexes as closely as possible, the Portfolios attempt to
remain fully invested in stocks.
[FLAG Each Portfolio is subject to market risk, which is the possibility that
GRAPHIC] stock prices overall will decline over short or even extended periods.
Stock markets tend to move in cycles, with periods of rising stock
prices and periods of falling stock prices.
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns (dividend income plus change in market
value) for the U.S. stock market over various periods as measured by the S&P 500
Index, which--in addition to being the target index for the 500 Portfolio--is a
widely used barometer of stock market activity. Note that the returns shown do
not include the costs of buying and selling stocks or other expenses that a
real-world investment portfolio would incur. Note, also, how the gap between the
best and worst tends to narrow over the long term.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
U.S. STOCK MARKET RETURNS (1926-1995)
- - --------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Best 53.9% 23.9% 20.1% 16.9%
Worst -43.3 -12.5 -0.9 3.1
Average 12.5 10.3 10.7 10.7
- - --------------------------------------------------------------------------------
</TABLE>
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1995. For example, while the average return on stocks for all of the
5-year periods was 10.3%, returns for these 5-year periods ranged from a -12.5%
average (from 1928 through 1932) to 23.9% (from 1951 through 1955). These
average returns reflect past performance on common stocks and should not be
regarded as an indication of future returns from either the stock market as a
whole or any of the Trust's Portfolios in particular.
Keep in mind that the S&P 500 Index tracks mainly large-cap stocks.
Historically, the mid- and small-cap stocks of the Wilshire 4500 and Russell
2000 Indexes (the target indexes for the Extended Market and Small
Capitalization Stock Portfolios, respectively) have been more volatile than--and
at times have performed quite differently from--the large-cap stocks of the S&P
500 Index. This is due to several factors, including less-certain growth and
dividend prospects for smaller companies.
Even indexes that are subsets of the S&P 500 Index--such as the S&P/BARRA
Value Index and the S&P/BARRA Growth Index (the target indexes for the Value and
Growth Portfolios)--will not
PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND
SMALL-CAP STOCKS
Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization.
Vanguard defines large-capitalization, or large-cap, funds as those holding
stocks of companies with an average total market value exceeding $5 billion.
Mid-cap funds hold stocks of companies with an average market value between $750
million and $5 billion. Small-cap funds hold stocks of companies with an average
market value of less than $750 million. Note that a fund's capitalization
parameters (that is, what constitutes a large-, mid-, or small-cap stock) may
vary from the parameters set by a particular index.
11
<PAGE> 16
PLAIN TALK ABOUT
ACTIVE VERSUS PASSIVE
MANAGEMENT
Index portfolios are not actively managed by investment advisers who buy and
sell securities based on research and analysis. Instead, a "passively managed"
portfolio tries to match, as closely as possible, the performance of a target
index by holding either all--or a representative sample--of the securities in
the index. Indexing appeals to many investors because of its simplicity
(indexing is a straightforward market-matching strategy); diversification
(indexes generally cover a wide variety of companies and industries); relative
performance predictability (an index portfolio is expected to move in the same
direction--up or down--as its target index); low cost (index funds do not have
many of the expenses of an actively managed fund--such as research and company
visits--and keep trading activity--and, thus, brokerage commissions--to a
minimum); and low realiza-tion of capital gains.
perform in the same way as the broader S&P 500 Index. Historically, stocks of
the S&P/BARRA Value Index have been less volatile than the stocks found in the
broader S&P 500 Index; stocks of the S&P/BARRA Growth Index, on the other hand,
have displayed somewhat greater short-term volatility than the S&P 500's stocks.
Historical performance aside, however, both value and growth stocks have the
potential to be more volatile than the broader market.
[FLAG THE PORTFOLIOS ARE SUBJECT, IN VARYING DEGREES, TO OBJECTIVE RISK,
GRAPHIC] WHICH IS THE POSSIBILITY THAT RETURNS FROM A SPECIFIC TYPE OF STOCK
(FOR INSTANCE, SMALL-CAP OR VALUE) WILL TRAIL RETURNS FROM THE OVERALL
STOCK MARKET. EACH TYPE OF STOCK TENDS TO GO THROUGH CYCLES OF
OUTPERFORMANCE AND UNDERPERFORMANCE IN COMPARISON TO THE STOCK MARKET
IN GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS
SEVERAL YEARS.
SECURITY SELECTION
Each Portfolio of Vanguard Index Trust employs a "passively" managed
investment--or index--approach. Vanguard Core Management Group, the Portfolios'
adviser, creates a mix of securities that will match the performance of a
benchmark index.
The 500, Value, and Growth Portfolios hold each stock found in their
respective benchmark indexes in roughly the same proportions as represented in
the indexes themselves. For example, if 5% of the S&P 500 Index were made up of
the assets of a specific company, the 500 Portfolio would invest the same
percentage of its assets in that company.
The Total Stock Market, Extended Market, and Small Capitalization Stock
Portfolios use a different selection process. Because it would be very expensive
to buy and sell all of the stocks in each Portfolio's target index (the Total
Stock Market Portfolio's target index, for example, includes nearly 7,000
stocks), these three Portfolios use a "sampling" technique. Using a
sophisticated computer program, each Portfolio selects stocks that will recreate
its target index in terms of industry, size, and other characteristics (such as
projected earnings, financial strength, and debt). For instance, if 10% of the
Wilshire 4500 Index were made up of utility stocks, the Extended Market
Portfolio would invest 10% of its assets in the utility stocks of the Wilshire
4500 Index with similar characteristics.
The following table shows the number of stocks generally held by each
Portfolio.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
NUMBER OF NUMBER OF STOCKS
PORTFOLIO STOCKS HELD IN TARGET INDEX
- - --------------------------------------------------------------------------------
<S> <C> <C>
Total Stock Market 2,400 Nearly 7,000
500 500 500
Extended Market 1,900 More than 6,500
SmallCap Stock 1,400 About 2,000
Value About 320 About 320
Growth About 180 About 180
- - --------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 17
The top ten holdings for each Portfolio as of June 30, 1996, follow.
<TABLE>
<CAPTION>
TOTAL STOCK
MARKET PORTFOLIO 500 PORTFOLIO
<S> <C>
1. General Electric Co. 1. General Electric Co.
2. The Coca-Cola Co. 2. The Coca-Cola Co.
3. Exxon Corp. 3. Exxon Corp.
4. AT&T Corp. 4. AT&T Corp.
5. Philip Morris Cos., Inc. 5. Philip Morris Cos., Inc.
6. Merck & Co. 6. Royal Dutch Petroleum Co.
7. Microsoft Corp. 7. Merck & Co., Inc.
8. Johnson & Johnson 8. Microsoft Corp.
9. Procter & Gamble Co. 9. Johnson & Johnson
10. Intel Corp. 10. Procter & Gamble Co.
13% of the Portfolio's total net assets. 18% of the Portfolio's total net assets.
</TABLE>
<TABLE>
<CAPTION>
EXTENDED MARKET PORTFOLIO SMALLCAP STOCK PORTFOLIO
<S> <C>
1. Berkshire Hathaway 1. Iomega Corp.
2. Electronic Data Systems 2. Apria Healthcare Group
3. Rhone-Poulenc Rorer, Inc 3. Phycor, Inc.
4. HFS Incorporated 4. Charter-One Financial
5. Carnival Cruise Lines, Inc 5. Helig-Meyers Co.
6. RJR Nabisco Holdings Corp 6. Premark International
7. U.S. Robotics Corp 7. America West Airlines
8. Safeway, Inc 8. Community Health Systems
9. CNA Financial Corp. 9. DSP Communications Inc.
10. Ascend Communications Inc. 10. First Bancorp of Ohio
6% of the Portfolio's total net assets. 2% of the Portfolio's total net assets.
</TABLE>
<TABLE>
<CAPTION>
VALUE PORTFOLIO GROWTH PORTFOLIO
<S> <C>
1. Exxon Corp. 1. General Electric Co.
2. Royal Dutch Petroleum Co. 2. The Coca-Cola Co.
3. International Business 3. AT&T Corp.
Machines Corp. 4. Philip Morris Cos., Inc.
4. Mobil Corp. 5. Merck & Co., Inc.
5. BellSouth Corp. 6. Microsoft Corp.
6. Citicorp 7. Johnson & Johnson
7. General Motors Corp. 8. Procter & Gamble Co.
8. Chevron Corp. 9. Intel Corp.
9. Ford Motor Co. 10. Wal-Mart Stores, Inc.
10. Motorola, Inc. 33% of the Portfolio's total net assets.
21% of the Portfolio's total net assets.
</TABLE>
Keep in mind that, because the makeup of a Portfolio changes daily, these
listings are only "snapshots" at one point in time. Note, too, that portfolios
that track indexes made up of a relatively small number of securities tend to be
less diversified than portfolios whose target indexes contain thousands of
securities. For instance, the Growth Portfolio, which seeks to parallel an index
of about 180 stocks, has far
PLAIN TALK ABOUT
PORTFOLIO DIVERSIFICATION
In general, the more diversified a fund's portfolio of stocks, the less likely
that a specific stock's poor performance will hurt the fund. One measure of a
fund's level of diversification is the percentage of total net assets
represented by its ten largest holdings. The average U.S. equity mutual fund has
about 25% of its assets invested in its ten largest holdings, while some
less-diversified mutual funds have more than 50% of their assets invested in the
stocks of just ten companies.
13
<PAGE> 18
PLAIN TALK ABOUT
PORTFOLIO TURNOVER
Before investing in a mutual fund, you should review its portfolio turnover rate
for an indication of the potential effect of transaction costs on the fund's
future returns. In general, the greater the volume of buying and selling by the
fund, the greater the impact that brokerage commissions and other transaction
costs will have on its return. Also, funds with high portfolio turnover rates
may be more likely than low-turnover funds to generate capital gains that must
be distributed to shareholders as taxable income. The average turnover rate for
passively managed funds investing in common stocks is roughly 35%; for actively
managed funds, the average turnover rate is 75%.
PLAIN TALK ABOUT
DERIVATIVES
A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). For
instance, futures and options are derivatives that have been trading on
regulated exchanges for more than two decades. These "traditional" derivatives
are standardized contracts that can be easily bought and sold, and whose market
values are determined and published daily. It is these characteristics that
differentiate futures and options from the relatively new, exotic types of
derivatives--some of which can carry considerable risks.
more of its assets invested in its top ten holdings (32%) than the Total Stock
Market Portfolio (12%), which seeks to track a much larger universe of nearly
7,000 stocks. This means that the Growth Portfolio stands a greater chance than
the Total Stock Market Portfolio of being hurt by the poor performance of a
single stock.
PORTFOLIO TURNOVER
Although each seeks to invest for the long term, the Portfolios retain the right
to sell securities regardless of how long they have been held. Generally, a
passively managed fund sells securities only to respond to redemption requests
or to adjust the number of shares held to reflect a change in the portfolio's
target index. Because of this, the turnover rate for the Portfolios has been
extremely low, with averages over the past five years (or since inception)
ranging from 2% for the Total Stock Market Portfolio, to 28% for the Small
Capitalization Stock Portfolio. (A turnover rate of 100% would occur, for
example, if a Portfolio sold and replaced securities valued at 100% of its total
net assets within a one-year period.)
INVESTMENT POLICIES
Besides investing in the stocks found in its target index, each Portfolio may
follow a number of other investment policies to achieve its objective.
[FLAG The Portfolios reserve the right to invest, to a limited extent, in
GRAPHIC] stock futures and options contracts, warrants, convertible securities,
and swap agreements, which are types of derivatives.
Losses (or gains) involving contracts can sometimes be substantial--in part
because a relatively small price movement in a contract may result in an
immediate and substantial loss (or gain) for a Portfolio. Similar risks exist
for warrants (securities that permit their owners to purchase a specific number
of shares of stock at a predetermined price), convertible securities (securities
that may be exchanged for another asset), and swap agreements (contracts between
two parties in which each agrees to make payments to the other based on the
return of a specified index or asset).
For this reason, the Portfolios will not use futures, options, warrants,
convertible securities, or swap agreements for speculative purposes or as
leveraged investments that magnify the gains or losses of an investment. Rather,
each Portfolio will keep separate cash reserves or short-term, cash-equivalent
securities in the amount of the obligation underlying the contract. Only a
limited percentage of each Portfolio's assets--up to 5% if required for deposit
and no more than 20% of total assets--may be committed to such contracts.
14
<PAGE> 19
The reasons for which a Portfolio may use futures, options, warrants,
convertible securities, and swap agreements are:
- - - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
- - - To reduce costs by buying futures instead of actual stocks when futures are
cheaper.
INVESTMENT LIMITATIONS
To reduce risk and maintain diversification, the Portfolios have adopted limits
on some of their investment policies. Specifically, a Portfolio will not:
- - - Invest more than 25% of its assets in any one industry.
- - - Borrow money in an amount that is more than 15% of its assets. If borrowing
exceeds 5%, the Portfolio will not make any additional investments.
With respect to 75% of its assets, a Portfolio will not:
- - - Invest more than 5% in the outstanding securities of any one company.
- - - Buy more than 10% of the outstanding voting securities of any company.
The limitations listed in this prospectus and in the Statement of Additional
Information are fundamental and may be changed only by approval of a majority of
the Portfolio's shareholders.
INVESTMENT PERFORMANCE
Each Portfolio's performance is expected to mirror the performance of a specific
U.S. stock market segment (or, in the case of the Total Stock Market Portfolio,
the entire stock market). Historically, stock market performance has been
characterized by sharp up-and-down swings in the short term and by more stable
growth over the long term.
PLAIN TALK ABOUT
CASH RESERVES
With mutual funds, holding cash reserves--or "cash"--does not mean literally
that the fund holds a stack of currency. Rather, cash reserves refer to
short-term, interest-bearing securities that can easily and quickly be converted
to cash. (Most mutual funds keep at least a small percentage of assets in cash
to accommodate shareholder redemptions.) While some funds like index funds
strive to keep cash levels at a minimum and to always remain fully invested in
stocks, others allow investment advisers to hold up to 20% of a fund's assets in
cash reserves.
15
<PAGE> 20
PLAIN TALK ABOUT
PAST PERFORMANCE
Whenever you see information on a fund's performance, do not consider the
figures to be an indication of the performance you could expect by making an
investment in the fund today. The past is an imperfect guide to the future;
history does not repeat itself in neat, predictable patterns.
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 6/30/96
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Stock Market 25.3% 15.4%* -- --
Wilshire 5000 Index 26.2 15.9* -- --
- - --------------------------------------------------------------------------------
500 25.9% 15.6% 13.5% 13.9%*
S&P 500 Index 26.0 15.7 13.8 14.4*
- - --------------------------------------------------------------------------------
Extended Market** 26.2% 17.2% 15.4%* --
Wilshire 4500 Index 26.6 17.1 15.5* --
- - --------------------------------------------------------------------------------
SmallCap Stock** 25.3% 18.0% 9.6% --
Russell 2000 Index 23.9 17.5 10.4 --
- - --------------------------------------------------------------------------------
Value 24.8% 17.6%* -- --
S&P/BARRA Value 24.8 17.8* -- --
Index
- - --------------------------------------------------------------------------------
Growth 27.1% 14.8%* -- --
S&P/BARRA Growth 27.3 15.1* -- --
Index
- - --------------------------------------------------------------------------------
</TABLE>
* Since Portfolio's inception.
** Does not include transaction fee.
The results shown represent each Portfolio's "average annual total return"
performance, which assumes that any distributions of capital gains and dividends
were reinvested for the indicated periods. Also included is comparative
information on the appropriate unmanaged benchmark index. The Portfolios'
returns are not adjusted for the annual account maintenance fee (as well as the
purchase fee for the Extended Market and Small Capitalization Stock Portfolios,
or the purchase fee for the Total Stock Market Portfolio that was eliminated at
year end 1995), nor has an allowance been made for Federal, state, or local
income taxes that shareholders must pay on a current basis.
SHARE PRICE
Each Portfolio's share price, called its net asset value, is calculated each
business day after the close of regular trading (generally 4:00 p.m. Eastern
time) of the New York Stock Exchange. Each Portfolio's net asset value per share
is computed by adding up the total value of the Portfolio's investments and
other assets, subtracting any of its liabilities, or debts, and then dividing by
the number of Portfolio shares outstanding:
TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = -----------------------------------------
NUMBER OF SHARES OUTSTANDING
Daily net asset value, or NAV, is useful to you as a shareholder because the
NAV, multiplied by the number of Portfolio shares you
16
<PAGE> 21
own, gives you the dollar amount you would have received had you sold your
shares back to the Portfolio that day.
Each Portfolio's share price can be found daily in the mutual fund listings
of most major newspapers under the heading Vanguard Group. Different newspapers
use different abbreviations for each Portfolio, but the most common are IDXTOT,
IDX 500, IDXEXT, IDXSMCAP, IDXVAL, AND IDXGRO.
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each March, June, September, and December, the Total Stock Market, 500, Value,
and Growth Portfolios distribute virtually all of their income from interest and
dividends to their shareholders; the Extended Market and Small Capitalization
Stock Portfolios distribute their income in December. All six Portfolios
distribute any capital gains realized from the sale of securities in December;
keep in mind that index portfolios tend to provide less in capital gains
distributions than actively managed funds generally do.
You can receive distributions of income or capital gains in cash, or you may
have them automatically reinvested in additional Portfolio shares. In either
case, distributions of dividends and capital gains that are declared in
December--even if paid to you in January--are taxed as if they had been paid to
you in December. Vanguard will process your dividend distribution and send you a
statement each year showing the tax status of all your distributions.
- - - The dividends and short-term capital gains that you receive are taxable to
you as ordinary dividend income. Any distributions of net long-term capital
gains by a Portfolio are taxable to you as long-term capital gains, no
matter how long you've owned shares in the Portfolio. Both dividends and
capital gains distributions are taxable to you whether received in cash or
reinvested in additional shares. Although the Portfolios do not seek to
realize any particular amount of capital gains during a year, such gains are
realized from time to time as byproducts of the ordinary investment
activities of the Portfolios. Consequently, distributions may vary
considerably from year to year.
- - - If you sell or exchange shares, any gain or loss you have is a taxable
event, which means that you may have a capital gain to report as income, or
a capital loss to report as a deduction, when you complete your Federal
income tax return.
- - - Distributions of dividends or capital gains, and capital gains or losses
from your sale or exchange of Portfolio shares, may be subject to state and
local income taxes as well.
The tax information in this prospectus is provided as general information
and will not apply to you if you are investing in a tax-deferred account such as
an IRA. You should consult your own tax adviser about the tax consequences of an
investment in one or more of the Trust's Portfolios.
PLAIN TALK ABOUT
Distributions
As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or capital gains distribution. Income
dividends come from the dividends that the fund earns from its holdings as well
as interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. These capital gains are either short-term or long-term depending
on whether the fund held the securities for less than or more than one year. 17
PLAIN TALK ABOUT
"BUYING A DIVIDEND"
Unless you are investing in a tax-deferred retirement account (such as an IRA),
it is not to your advantage to buy shares of a fund shortly before it makes a
distribution, because part of your investment will come back to you as a taxable
distribution. This is known as "buying a dividend." For example: on December 15,
you invest $5,000, buying 250 shares for $20 each. If the fund pays a
distribution of $1 per share on December 16, its share price would drop to $19
(not counting market change). You would still have only $5,000 (250 shares x $19
= $4,750 in share value, plus 250 shares x $1 = $250 in distributions), but you
would owe tax on the $250 distribution you received, even if you had reinvested
the dividends in more shares. To avoid "buying a dividend," check a fund's
distribution schedule before you invest.
17
<PAGE> 22
PLAIN TALK ABOUT
VANGUARD'S UNIQUE
CORPORATE STRUCTURE
The Vanguard Group, Inc. is the only MUTUAL mutual fund company. It is owned
jointly by the Funds it oversees and by the shareholders in those Funds. Other
mutual funds are operated by for-profit management companies that may be owned
by one person, by a group of individuals, or by investors who bought the
management company's publicly traded stock. Because of its structure, Vanguard
operates its Funds at cost. Instead of distributing profits from operations to a
separate management company, Vanguard returns profits to Fund shareholders in
the form of lower operating expenses.
PLAIN TALK ABOUT
THE PORTFOLIOS' ADVISER
Vanguard Core Management Group provides investment advisory services to many
Vanguard Funds; as of December 31, 1995, the Group managed $33 billion in total
assets. The individual primarily responsible for overseeing each Portfolio's
investments is:
GEORGE U. SAUTER, Principal of Vanguard; 11 years investment experience, 9
years primary responsibility for Vanguard Core Management Group; A.B. from
Dartmouth College, M.B.A. from the University of Chicago.
Mr. Sauter has served in this capacity since 1987.
THE TRUST AND VANGUARD
Vanguard Index Trust is a member of The Vanguard Group, a family of more than 30
investment companies with more than 90 distinct investment portfolios and total
net assets of more than $230 billion. All of the Vanguard Funds share in the
expenses associated with business operations, such as personnel, office space,
equipment, and advertising.
Vanguard also provides marketing services to the Funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each Fund
pays its allocated share of The Vanguard Group's costs.
A list of the Trustees and Officers, and their present positions and
principal occupations during the past five years, can be found in the Statement
of Additional Information.
INVESTMENT ADVISER
Vanguard Core Management Group, P.O. Box 2600, Valley Forge, PA 19482, provides
advisory services on an at-cost basis to the Portfolios of Vanguard Index Trust.
For the year ended December 31, 1995, the six Portfolios paid a total of
$213,000 in investment advisory expenses (the 500, Value, and Growth Portfolios
each paid $24,000; the Total Stock Market, Extended Market, and Small
Capitalization Stock Portfolios each paid $47,000).
The Group is authorized to choose brokers or dealers to handle the purchase
and sale of the Portfolios' securities, and is directed to get the best
available price and most favorable execution from these brokers with respect to
all transactions.
GENERAL INFORMATION
Vanguard Index Trust is organized as a Pennsylvania business trust.
Shareholders of each Portfolio have rights and privileges similar to those
enjoyed by other corporate shareholders. For example, shareholders will not be
responsible for any liabilities of the Trust. If any matters are to be voted on
by shareholders (such as a change in a fundamental investment objective or the
election of trustees), each Portfolio share outstanding at that point would be
entitled to one vote. Although the Trust does not usually hold an annual
meeting, shareholders may request one under certain circumstances, which are
described in the Statement of Additional Information.
"Standard & Poor's," "Standard & Poor's 500," "S&P 500," "S&P," and "500" are
trademarks of The McGraw-Hill Companies, Inc. "Wilshire 4500" and "Wilshire
5000" are registered trademarks of Wilshire Associates. Frank Russell Company is
the owner of the trademarks and copyrights relating to the Russell Indexes.
18
<PAGE> 23
INVESTING WITH VANGUARD
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to Fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services
we offer you as a Vanguard Index Trust shareholder. Booklets providing detailed
information are available on the services marked with a [OPEN BOOKLET GRAPHIC].
Please call us to request copies.
SERVICES AND ACCOUNT FEATURES
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares.
TELEPHONE REDEMPTIONS
(Sales for non-retirement accounts only; exchanges for retirement
accounts only)
Automatically set up for each portfolio unless you notify us otherwise.
VANGUARD DIRECT DEPOSIT
SERVICE
[OPEN BOOKLET GRAPHIC]
Automatic method for depositing your paycheck or U.S. Government payment
(including Social Security and Government pension checks) into your account.
VANGUARD AUTOMATIC EXCHANGE
SERVICE
[OPEN BOOKLET GRAPHIC]
Automatic method for moving a fixed amount of money from one Vanguard Fund
account to another.*
VANGUARD FUND EXPRESS
[OPEN BOOKLET GRAPHIC]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard Fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule.*
VANGUARD DIVIDEND EXPRESS
[OPEN BOOKLET GRAPHIC]
Electronic method for transferring dividends and/or capital gains distributions
directly from your Vanguard Fund account to your bank, savings and loan, or
credit union account, or to another Vanguard Fund account.
VANGUARD BROKERAGE SERVICES
(VBS)
[OPEN BOOKLET GRAPHIC]
A cost-effective way to trade stocks, bonds, and options on major exchanges,
Nasdaq, and other domestic over-the-counter markets at reduced rates, and to
buy and sell shares of non-Vanguard mutual funds. Call VBS (1-800-992-8327)
for additional information and the appropriate forms.
*Can be used to "dollar-cost average" [OPEN BOOKLET GRAPHIC] or to contribute to
an IRA or other retirement plan.
19
<PAGE> 24
TYPES OF ACCOUNTS
INDIVIDUAL OR OTHER ENTITY
Vanguard's account registration form can be used to establish a variety of
non-retirement accounts.
FOR ONE OR MORE PEOPLE
To open an account in the name of one (individual) or more (joint tenants)
people. $3,000 minimum initial investment.
FOR A MINOR CHILD
[OPEN BOOKLET GRAPHIC]
To open an account as an UGMA/UTMA (Uniform Gifts/Transfers to Minors Act). Age
of majority and other transfer requirements are set by state law. $1,000 minimum
initial investment.
FOR HOLDING TRUST ASSETS
[OPEN BOOKLET GRAPHIC]
To invest assets held in an existing trust. $3,000 minimum initial investment.
FOR THIRD-PARTY TRUSTEE
RETIREMENT INVESTMENTS
(Vanguard is not the custodian
or trustee.)
To open an account as a retirement trust or plan based on an existing corporate
or institutional plan. These accounts are established by the custodian or
trustee of the existing plan.
FOR AN ORGANIZATION
To open an account as a corporation, partnership, or other entity. These
accounts may require a corporate resolution or other documents to name the
individuals authorized to act. $3,000 minimum initial investment.
RETIREMENT
You establish these accounts with a Vanguard adoption agreement--not a Vanguard
account registration form. To request the appropriate adoption agreement and
forms, or to ask questions about investing for retirement, call Investor
Information.
FOR AN INDIVIDUAL RETIREMENT ACCOUNT (IRA)
(Vanguard Fiduciary Trust Company is the custodian.)
To open a retirement account in the name of an individual. IRAs can be
established with a contribution, a direct roll over from an employer's plan such
as a 401(k), or an asset transfer or rollover from another institution such as a
bank or mutual fund company. $1,000 minimum initial investment.
FOR A SIMPLIFIED EMPLOYEE PENSION PLAN ACCOUNT (SEP-IRA)
(Vanguard Fiduciary Trust Company is the custodian.)
To open a retirement account in the name of an employee. SEPs allow employers to
make deductible contributions directly to IRAs established by their employees. A
SEP can be established by people who are self-employed, small-business owners,
partnerships, or corporations.
FOR A QUALIFIED RETIREMENT PROGRAM ACCOUNT
(Vanguard Fiduciary Trust Company can be the custodian.)
To open a retirement account that allows small-business owners or people who are
self-employed to make tax-deductible retirement contributions for themselves and
their employees into Profit-Sharing and Money Purchase Pension (Keogh) plans.
FOR A 403(B)(7) CUSTODIAL ACCOUNT
(Vanguard Fiduciary Trust Company is the custodian.)
To open a retirement account that allows employees of tax exempt institutions
(for example, schools or hospitals) to make pre-tax retirement contributions.
20
<PAGE> 25
DISTRIBUTION OPTIONS
You can receive distributions of dividends and/or capital gains in a number of
ways:
REINVESTMENT
Dividends and capital gains are automatically reinvested in additional shares of
the Portfolio.
DIVIDENDS IN CASH
Dividends are paid by check and mailed to your account's address of record, and
capital gains are reinvested in additional shares of the Portfolio.
DIVIDENDS AND CAPITAL GAINS IN CASH
Both dividends and capital gains are paid by check and mailed to your account's
address of record.
To electronically transfer cash dividends and/or capital gains to your bank,
savings and loan, or credit union account, or to another Vanguard Fund account,
see Vanguard Dividend Express under "Services and Account Features."
BUYING SHARES
You buy your shares at the Portfolio's next-determined net asset value after
Vanguard receives your request, provided we receive your request before 4:00
p.m. Eastern time (the close of trading on the New York Stock Exchange). All of
the Trust's Portfolios are offered on a no-load basis, meaning that you do not
pay sales commissions or 12b-1 marketing fees.
MINIMUM INVESTMENT
BY MAIL
[ENVELOPE GRAPHIC]
First-class mail to:
The Vanguard Group
P.O. Box 2600
Valley Forge, PA 19482
Express or Registered mail to:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087
OPEN A NEW ACCOUNT
$3,000 (regular account); $1,000 (IRAs and custodial accounts for minors).
Complete and sign the application form.
Make your check payable to:
The Vanguard Group-(appropriate Portfolio Number; see below)
Total Stock Market Portfolio 85
500 40
Extended Market 98
SmallCap Stock 48
Value 06
Growth 09
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.
ADD TO AN EXISTING ACCOUNT
$100 by mail or exchange; $1,000 by wire.
Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form.
Make your check payable to:
The Vanguard Group-(appropriate Portfolio Number; see below)
Total Stock Market Portfolio 85
500 40
Extended Market 98
SmallCap Stock 48
Value 06
Growth 09
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.
Important Note: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
21
<PAGE> 26
BUYING SHARES (CONTINUED)
BY TELEPHONE
[TELEPHONE GRAPHIC]
1-800-662-6273
Vanguard Tele-Account(R)
1-800-662-2739
Client Services
OPEN A NEW ACCOUNT
For Retirement Accounts Only: Call Vanguard Tele-Account* 24 hours a day--or
Client Services during business hours--to exchange from another Vanguard Fund
account with the same registration (name, address, taxpayer I.D., and account
type).
ADD TO AN EXISTING ACCOUNT
For Retirement Accounts Only: Call Vanguard Tele-Account* 24 hours a day--or
Client Services during business hours--to exchange from another Vanguard Fund
account with the same registration (name, address, taxpayer I.D., and account
type).
*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.
Important Note: Once a telephone transaction has been approved by you and a
confirmation number assigned, it cannot be revoked. We reserve the right to
refuse any purchase.
BY WIRE
[WIRE GRAPHIC]
Wire to:
CoreStates Bank, N.A.
ABA 031000011
CoreStates No 01019897
[Temporary Account Number]
Vanguard Index Trust
[Portfolio Name]
[Account Registration]
Attn Vanguard
AUTOMATICALLY
[CIRCLE OF ARROWS GRAPHIC]
Call Client Services to arrange your wire transaction.
Wire transactions are not available for retirement accounts.
Call Client Services to arrange your wire transaction.
Wire transactions are not available for retirement accounts.
Vanguard offers a variety of ways that you can add to your account
automatically. See "Services and Account Features."
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten days.
It is important that you call Vanguard before you invest a large dollar
amount by wire or check. We must consider the interests of all Portfolio
shareholders and so reserve the right to delay or refuse any purchase that will
disrupt the Portfolio's operation or performance.
22
<PAGE> 27
REDEEMING SHARES
IMPORTANT TAX NOTE: Any sale or exchange of shares in a non-retirement account
could result in a taxable gain or a loss.
The ability to sell Portfolio shares by telephone is automatically established
for your non-retirement account unless you tell us in writing that you do not
want this option.
To protect your account from unauthorized or fraudulent telephone
instructions, Vanguard follows specific security procedures. When we receive a
call requesting an account transaction, we require the caller to provide:
[X] Portfolio name.
[X] 10-digit account number.
[X] Name and address exactly as registered on that account.
[X] Social Security or Employer Identification number as registered on that
account.
If you call to sell shares, the sale proceeds will be made payable to you,
as the registered shareholder, and mailed to your account's address of record.
If we follow reasonable security procedures, neither the Trust nor Vanguard
will be responsible for the authenticity of transaction instructions received by
telephone. We believe that these procedures are reasonable and that, if we
follow them, you bear the risk of any losses resulting from unauthorized or
fraudulent telephone transactions on your account. However, if we do not follow
these or other reasonable procedures, Vanguard may be liable for any losses
resulting from unauthorized or fraudulent transactions.
HOW TO SELL SHARES
You may withdraw any part of your account, at any time, by selling shares. Sale
proceeds are normally mailed within two business days after Vanguard receives
your request. The sale price of your shares will be the Portfolio's
next-determined net asset value after Vanguard receives all required documents
in good order.
Good order means that your request includes:
[X] Portfolio name and account number.
[X] Amount of the transaction (in dollars or shares).
[X] Signatures of all owners exactly as registered on the account.
[X] Signature guarantees (if required).
[X] Any supporting legal documentation that may be required.
[X] Any certificates you are holding for the account.
Sales or exchange requests received after the close of trading on the New
York Stock Exchange (generally 4:00 p.m. Eastern time) are processed at the next
business day's net asset value.
The Fund reserves the right to close any non-retirement or UGMA/UTMA account
whose balance falls below the minimum initial investment. Each Portfolio will
deduct a $10 annual fee if your non-retirement account balance falls below
$2,500 or if your UGMA/UTMA account balance falls below $500. The fee is waived
if your total Vanguard account assets are $50,000 or more.
Some written requests require a signature guarantee from a bank, broker, or
other acceptable institution. A notary public cannot provide a signature
guarantee.
23
<PAGE> 28
REDEEMING SHARES (CONTINUED)
HOW TO EXCHANGE SHARES
An exchange is the selling of shares of one Vanguard Fund to purchase shares of
another.
Although we make every effort to maintain the exchange privilege, Vanguard
reserves the right to revise or terminate the exchange privilege, limit the
amount of an exchange, or reject any exchange, at any time, without notice.
Because excessive exchanges can potentially disrupt the management of the
Trust's Portfolios and increase transaction costs, Vanguard limits exchange
activity to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (at least 30 days apart) from
any Portfolio during any 12-month period. "Substantive" means either a dollar
amount large enough to have a negative impact on the Fund or a series of
movements between Vanguard Funds.
Before you exchange into a new Vanguard Fund, be sure to read its
prospectus. For a copy and for answers to questions you might have, call
Investor Information.
SELLING OR EXCHANGING SHARES
BY TELEPHONE
[TELEPHONE GRAPHIC]
1-800-662-6273
Vanguard Tele-Account
1-800-662-2739
Client Services
BY MAIL
[ENVELOPE GRAPHIC]
First-class mail to:
The Vanguard Group
Vanguard Index Trust
P.O. Box 1120
Valley Forge, PA 19482
Express or Registered mail to:
The Vanguard Group
Vanguard Index Trust
455 Devon Park Drive
Wayne, PA 19087
AUTOMATICALLY
[CIRCLE OF ARROWS GRAPHIC]
ACCOUNT TYPE
ALL TYPES EXCEPT RETIREMENT:
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to sell shares. You cannot exchange shares of any Trust Portfolio by
telephone.
RETIREMENT:
You can exchange--but not sell--shares by calling TeleAccount or Client
Services.
*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first redemption.
ALL TYPES EXCEPT RETIREMENT:
Send a letter of instruction signed by all registered account holders. Include
the Portfolio name and account number and (if you are selling) a dollar amount
or number of shares OR (if you are exchanging) the name of the Fund you want to
exchange into and a dollar amount or number of shares.
RETIREMENT:
For information on how to request distributions from . . .
* IRAs, call Client Services.
* SEP-IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and Money Purchase
Pension (Keogh) Plans, call Individual Retirement Services at 1-800-662-2003.
Depending on your account registration type, additional documentation may be
required.
ALL TYPES EXCEPT RETIREMENT:
Vanguard offers several ways to sell or exchange shares automatically (see
"Services and Account Features"). Call Investor Information for the appropriate
booklet and application if you did not elect a feature when you opened your
account.
24
<PAGE> 29
REDEEMING SHARES (CONTINUED)
It is important that you call Vanguard before you redeem a large dollar
amount. We must consider the interests of all Portfolio shareholders and so
reserve the right to delay your redemption proceeds--up to seven days--if the
amount will disrupt the Portfolio's operation or performance.
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the United States
Securities and Exchange Commission. If you experience difficulty making a
telephone redemption during periods of drastic economic or market change, you
can send us your request by regular or express mail. Follow the instructions on
selling or exchanging shares by mail in the "Redeeming Shares" section.
FUND AND ACCOUNT UPDATES
STATEMENTS AND REPORTS
We will send you clear, concise account and tax statements to help you keep
track of your Vanguard Index Trust account throughout the year as well as when
you are preparing your income tax returns.
In addition, you will receive financial reports about each Trust Portfolio
twice a year. These comprehensive reports include an assessment of the
Portfolio's performance (and a comparison to its target benchmark), an overview
of the markets, a report from the adviser, as well as a listing of its holdings
and other financial statements.
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the date and the
amount of your transaction.
PORTFOLIO SUMMARY
Mailed quarterly; shows the market value of your account at the close of the
statement period, as well as distributions, purchases, sales, and exchanges for
the current calendar year.
FUND FINANCIAL REPORTS
Mailed in February and August for all six Trust Portfolios.
TAX STATEMENTS
Generally mailed in January; report previous year's dividend distributions,
proceeds from the sale of shares, and distributions from IRAs or other
retirement accounts.
AVERAGE COST STATEMENT
[OPEN BOOKLET GRAPHIC]
Issued quarterly for taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the previous quarter,
using the average cost single category method.
25
<PAGE> 30
FUND AND ACCOUNT UPDATES (CONTINUED)
AUTOMATED TELEPHONE ACCESS
VANGUARD TELE-ACCOUNT
1-800-662-6273
Any time, seven days a week, from anywhere in the continental United States and
Canada.
[OPEN BOOKLET GRAPHIC]
Toll-free access to Vanguard Fund and account information--as well as some
transactions--through any TouchTone(TM) telephone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard Funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell Portfolio shares.
COMPUTER ACCESS
VANGUARD ONLINES (M)
KEYWORD: VANGUARD
Use your personal computer to learn more about Vanguard Funds and services; keep
in touch with your Vanguard accounts; map out a long-term investment strategy;
and ask questions, make suggestions, and send messages to Vanguard. Vanguard
Online is offered through America Online(R) (AOL). To establish an AOL account,
call 1-800-238-6336.
VANGUARD ON THE WORLD WIDE WEB
http://www.vanguard.com
Use your personal computer to visit Vanguard's education oriented website, which
provides timely news and infor mation about Vanguard Funds and services; an
online "university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
Shares of the Trust's Portfolio may only be sold in those states in which they
are registered. The Portfolio's shares are currently registered for sale in all
50 states, and the Trust intends to maintain such registration.
26
<PAGE> 31
PROSPECTUS POSTSCRIPT
This prospectus is designed to provide you with pertinent information about the
Portfolios of Vanguard Index Trust, including their investment objectives,
risks, strategies, and expenses, as well as services available to you as a
shareholder.
It is important that you understand these facts so that you can decide
whether an investment in any of the Portfolios is right for you. The following
questions offer a quick review of some of the subjects covered by this
prospectus.
IN READING THE PROSPECTUS, DID YOU LEARN . . .
[] Each Portfolio's objective? (page 9)
[] Each Portfolio's investment strategies? (page 10)
[] Who should invest in each Portfolio? (page 9)
[] The risks associated with each Portfolio? (pages 8-14)
[] Whether each Portfolio is Federally insured? (inside front cover)
[] Each Portfolio's expenses? (pages 3 and 4)
[] The background of the Portfolios' investment manager? (page 17)
[] How to open an account? (page 21)
[] How to sell or exchange shares? (page 23)
[] How often you'll receive statements and financial reports? (page 25)
PLAIN TALK ABOUT
KEEPING YOUR PROSPECTUS
Reading this prospectus will help you to decide whether one or more of the
Portfolios is suitable for your investment goals. If you decide to invest, don't
throw the prospectus out: you will no doubt need it for future reference.
27
<PAGE> 32
ABOUT THE QUIZ
Knowing your risk tolerance is important when you are making an investment
decision. To give you a general idea of your comfort level with investing,
circle the response that most closely matches your personal situation. Keep in
mind, though, that there is no "foolproof" way to accurately gauge your risk
tolerance. Scoring for the quiz is below.
HOW TO SCORE THE QUIZ
Use the number of your answer as the number of points scored. For instance, if
you chose answer #3 to a question, that's worth three points. Add up your points
and check below for the type of investor you are. (Note: if you chose answer #1
or #2 to Question C, subtract five points from your total score.)
[] If you scored between 0 and 25 points, you are considered a conservative
investor.
[] If you scored between 26 and 32 points, you are considered a moderate
investor.
[] If you scored between 33 and 35 points, you are considered an aggressive
investor.
A SIMPLE RISK QUIZ
A. I have been investing in stock and bond mutual funds (or in individual
stocks or bonds) for . . .
1. Less than a year
2. 1-2 years
3. 3-4 years
4. 5-9 years
5. 10 years or more
B. When it comes to investing in stock or bond mutual funds (or individual
stocks or bonds), I would say I'm . . .
1. A very inexperienced investor
2. A somewhat inexperienced investor
3. A somewhat experienced investor
4. An experienced investor
5. A very experienced investor
C. I am comfortable with investments that may lose money from time to time
if they offer the potential for higher returns.
1. I strongly disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
D. I will keep an investment even if it loses 10% of its value over the
course of a year.
1. I strongly disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
E. In addition to my long-term investments, I have emergency savings equal
to ____ months of my take-home pay.
1. Zero
2. One
3. Two
4. Three
5. Four or more
F. I find it easy to pay my monthly bills from my current pay.
1. I strong disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
G. Overall, my personal financial situation is secure.
1. I strongly disagree
2. I disagree
3. I somewhat agree
4. I agree
5. I strongly agree
28
<PAGE> 33
GLOSSARY OF INVESTMENT TERMS
ACTIVE MANAGEMENT
An investment approach that seeks to exceed the average returns of the financial
markets. Active managers rely on research, market forecasts, and their own
judgment and experience in selecting securities to buy and sell.
CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized during the year on
securities that the fund has sold at a profit, minus any realized losses.
CASH RESERVES
Cash deposits as well as short-term bank deposits, money market instruments, and
U.S. Treasury bills.
COMMON STOCK
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.
DIVIDEND INCOME
Payment to shareholders of income from interest or dividends generated by a
fund's investments.
DOLLAR-COST AVERAGING
Investing equal amounts of money at regular intervals on an ongoing basis. This
technique ensures that an investor buys fewer shares when prices are high and
more shares when prices are low.
EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes account management fees, administrative fees, and any
12b-1 marketing fees.
INDEX
An unmanaged group of securities whose overall performance is used as a standard
to measure investment performance.
INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a portfolio's
investments.
MUTUAL FUND
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.
NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.
PASSIVE MANAGEMENT
A low-cost investment strategy in which a mutual fund attempts to match--rather
than outperform--a particular stock or bond market index. Also known as
indexing.
PORTFOLIO DIVERSIFICATION
Holding a variety of securities so that a portfolio's return is not hurt by the
poor performance of a single security or industry.
PRICE/EARNINGS (P/E) RATIO
The current price of a stock, divided by its per-share earnings (profits) from
the past year. A stock selling for $20, with earnings of $2 per share, has a
price/earnings ratio of 10.
PRINCIPAL
The amount of your own money you put into an investment.
SECURITIES
Stocks, bonds, and other investment vehicles.
TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.
VOLATILITY
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.
YIELD
Current income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE> 34
BOAT GRAPHIC
THE VANGUARD GROUP
Post Office Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION DEPARTMENT
1-800-662-7447 (SHIP)
TEXT TELEPHONE:
1-800-952-3335
For information on our Funds, Fund services, and retirement accounts; requests
for literature
CLIENT SERVICES DEPARTMENT
1-800-662-2739 (CREW)
TEXT TELEPHONE:
1-800-662-2738
For information on your account, account transactions, account statements
VANGUARD BROKERAGE SERVICES
1-800-992-8327
For information on trading stocks, bonds, and options at reduced commissions
VANGUARD TELE-ACCOUNT(R)
1-800-662-6273 (ON-BOARD)
For 24-hour automated access to price and yield, information on your account,
certain transactions
ELECTRONIC ACCESS TO THE VANGUARD MUTUAL FUND EDUCATION AND INFORMATION CENTER
On America Online(R)
Keyword: vanguard
On the World Wide Web
http://www.vanguard.com
To send e-mail to Vanguard
[email protected]
(C) 1997 Vanguard Marketing
Corporation, Distributor
P640N
<PAGE> 35
VANGUARD
INDEX TRUST
Institutional Prospectus
January 6, 1997
- - ----------
TOTAL STOCK MARKET
PORTFOLIO
500 PORTFOLIO
EXTENDED MARKET
PORTFOLIO
[GRAPHIC OF SHIP]
SMALL CAPITALIZATION
STOCK PORTFOLIO
VALUE PORTFOLIO
GROWTH PORTFOLIO
This prospectus contains
financial data for the
Trust through the
fiscal period ended
June 30, 1996.
[THE VANGUARD GROUP LOGO]
<PAGE> 36
VANGUARD INDEX TRUST
CONTENTS
Portfolio Expenses 3
Financial Highlights 5
A Word About Risk 8
The Portfolios'
Objective 9
Who Should Invest 9
Investment Strategies 10
Investment Policies 14
Investment Limitations 15
Investment Performance 15
Share Price 16
Dividends, Capital
Gains, and Taxes 16
The Trust and
Vanguard 17
Investment Adviser 17
General Information 18
Investing
with Vanguard
- - - For Plan Participants 19
- - - For Other
Institutional Investors 19
Accessing Fund
Information by
Computer 20
Glossary Inside Back Cover
A Stock Index Mutual Fund
INVESTMENT OBJECTIVES AND POLICIES
Vanguard Index Trust (the "Trust") is an open-end investment company that
includes six separate, diversified mutual fund Portfolios: Total Stock Market,
500, Extended Market, Small Capitalization Stock, Value, and Growth.
Each Portfolio seeks to match, as closely as possible, the performance of a
different stock market benchmark, or index. Long-term capital growth (and, for
some Portfolios, dividend income) may be achieved as the Portfolios track their
respective indexes.
You can buy shares in any of the six Portfolios.
IT IS IMPORTANT TO NOTE THAT NONE OF THE PORTFOLIOS' SHARES IS GUARANTEED OR
INSURED BY THE FDIC OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT. AS WITH ANY
INVESTMENT IN COMMON STOCKS, WHICH ARE SUBJECT TO WIDE FLUCTUATIONS IN MARKET
VALUE, YOU COULD LOSE MONEY BY INVESTING IN ANY OF THE PORTFOLIOS.
IMPORTANT NOTE
This prospectus is intended for institutional clients and for participants in
employer-sponsored retirement or savings plans. Another version--for investers
who would like to open a personal investment account--can be obtained by calling
Vanguard at 1-800-662-7447.
FEES AND EXPENSES
The Portfolios are offered on a no-load basis, which means that you pay no sales
commissions or 12b-1 marketing fees. You will, however, incur expenses for
investment advisory, management, administrative, and distribution services,
which are included in each Portfolio's expense ratio.
Two Portfolios charge a fee on purchases: 0.5% for the Extended Market
Portfolio, 1% for the Small Capitalization Stock Portfolio.
ADDITIONAL INFORMATION ABOUT THE TRUST
A Statement of Additional Information (dated January 6, 1997) containing more
information about the Trust is, by reference, part of this prospectus and may be
obtained without charge by contacting Vanguard (see back cover).
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objectives, risks, and strategies of each Portfolio
of Vanguard Index Trust. To highlight terms and concepts important to mutual
fund investors, we have provided "Plain Talk" explanations along the way.
Reading the prospectus will help you decide which Portfolios, if any, are the
right investment for your needs. We suggest that you keep it for future
reference.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission, nor has the Securities
and Exchange Commission or any state commission passed upon the accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
4
<PAGE> 37
PORTFOLIO PROFILE
WHO SHOULD INVEST (page 9)
- - - Investors looking for a simple way to match the performance of a
specific stock market index.
- - - Investors seeking a stock mutual fund as part of a balanced and
diversified investment program.
- - - Investors seeking growth of their capital over the long term--at least
five years.
WHO SHOULD NOT INVEST
- - - Investors unwilling to accept significant fluctuations in share price.
- - - Investors hoping to beat the stock market.
RISKS OF THE PORTFOLIOS (pages 8-14)
The Portfolios' total return will fluctuate within a wide range, so an investor
could lose money over short or even extended periods. All six Portfolios are
subject to market risk (the chance that stock prices in general will fall,
sometimes suddenly and sharply) and objective risk (the chance that a specific
segment of the stock market will not perform as well as the overall market).
More detailed information about risk--including risks specific to each
Portfolio--is provided beginning on page 18.
DIVIDENDS AND CAPITAL GAINS (PAGE 17)
The Total Stock Market, 500, Value, and Growth Portfolios pay dividends in
March, June, September, and December. The Extended Market and Small
Capitalization Stock Portfolios pay dividends in December. All six of the
Trust's Portfolios pay capital gains, if any, in December. In participant
accounts, all distributions are automatically reinvested.
VANGUARD INDEX TRUST
INVESTMENT ADVISER (page 18)
Vanguard Core Management Group, Valley
Forge, PA, manages each of the six Portfolios.
AVERAGE ANNUAL TOTAL RETURNS--
PERIODS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------------------------------
<S> <C> <C> <C>
Total Stock Market 25.3% 15.4%* --
Wilshire 5000 Index 26.2 15.9* --
500 25.9% 15.6% 13.5%
S&P 500 Index 26.0 15.7 13.8
Extended Market** 26.2% 17.2% 15.4%*
Wilshire 4500 Index 26.6 17.1 15.6*
SmallCap Stock** 25.3% 18.0% 9.6%
Russell 2000 Index 23.9 17.5 10.4
Value 24.8% 17.6%* --
S&P/BARRA Value 24.8 17.8* --
Index
Growth 27.1% 14.8%* --
S&P/BARRA Growth 27.3 15.1* --
Index
- - ---------------------------------------------------------
</TABLE>
*Since Portfolio's inception.
**Does not include transaction fee; see table on page 2.
In evaluating past performance, remember that it is not indicative of future
performance and that returns from stocks before adjusting for inflation were
relatively high during the periods shown. Performance figures include the
reinvestment of any dividends and capital gains distributions. The returns shown
are net of expenses, but they do not reflect income taxes an investor would have
incurred. Note, too, that both the return and principal value of an investment
will fluctuate so that investors' shares, when redeemed, may be worth more or
less than their original cost.
1
<PAGE> 38
PORTFOLIO PROFILE (continued) Vanguard Index Trust
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
TOTAL STOCK EXTENDED
MARKET 500 MARKET
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception Date: 4/27/92 8/31/76 12/21/87
Net Assets as of 6/30/96: $2.86 billion $23.6 billion $1.74 billion
Portfolio Expense Ratio for
the Six Months Ended 6/30/96: 0.21% 0.20% 0.25%
Transaction Fee on Purchases: None None 0.5%
Newspaper Abbreviation: IdxTot Idx 500 IdxExt
Vanguard Fund Number: 085 040 098
- - -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
SMALLCAP
STOCK VALUE GROWTH
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inception Date: 10/3/60 11/2/92 11/2/92
Net Assets as of 6/30/96: $1.45 billion $765 million $511 million
Portfolio Expense Ratio for
the Six Months Ended 6/30/96: 0.25% 0.20% 0.20%
Transaction Fee on Purchases: 0.5 None None
Newspaper Abbreviation: IdxSmCap IdxVal IdxGro
Vanguard Fund Number: 048 006 009
- - -----------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 39
PORTFOLIO EXPENSES
The examples below are designed to help you understand the costs you would bear
as an investor in one of the Portfolios.
SHAREHOLDER TRANSACTION EXPENSES AND FEES
<TABLE>
<CAPTION>
<S> <C>
Sales Load Imposed on Purchases: None
Transaction Fee on Purchases*
Extended Market Portfolio: 0.5%
SmallCap Stock Portfolio: 0.5%
Total Stock Market, 500, Value, and Growth Portfolios: None
Sales Load Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
</TABLE>
* The transaction fee is deducted from all purchases (including exchanges from
other Vanguard Funds) but not from reinvested dividends and capital gains.
PLAIN TALK ABOUT
VANGUARD'S FEES
Some of Vanguard's index portfolios charge a transaction fee on purchases of
Portfolio shares to offset the higher costs of trading certain securities,
particularly small-company and international stocks. The transaction fee ensures
that these higher costs are borne by the investors making the transactions--and
not by shareholders already in the Portfolio.
At Vanguard, all fees are paid directly to the Portfolio itself (unlike a
sales charge or load, which--for many fund companies--ends up in the pocket of
the sponsor, adviser, or sales representative). Without transaction fees, an
index portfolio would have trouble tracking its target index.
The next tables illustrate the expenses that you would incur, outside of
transaction fees, as a Portfolio shareholder. These expenses are deducted from
the Portfolio's income before it is paid to you. Expenses include investment
advisory fees as well as fees for administering the Portfolio, providing
services, and other activities. The expenses shown are for the fiscal year ended
December 31, 1995.
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
<CAPTION>
- - -------------------------------------------------------------
TOTAL STOCK
MARKET 500
- - -------------------------------------------------------------
<S> <C> <C>
Management and
Administrative Expenses: 0.21% 0.17%
Investment Advisory Expenses: None None
12b-1 Marketing Fees: None None
Other Expenses
Marketing and Distribution
Expenses: 0.02% 0.02%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.02% 0.01%
---- ----
Total Other Expenses: 0.04% 0.03%
---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.25% 0.20%
==== ====
</TABLE>
PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. For instance, the Total Stock Market Portfolio's expense ratio in
fiscal year 1995 was 0.25%, or $2.50 per $1,000 of average equity index fund
had expenses in 1995 of 0.67%, or $6.70 per $1,000 of average net assets,
according to Lipper Analytical Services, Inc., which reports on the mutual fund
industry.
3
<PAGE> 40
<TABLE>
<CAPTION>
- - --------------------------------------------------------------
EXTENDED SMALLCAP
MARKET STOCK
- - --------------------------------------------------------------
<S> <C> <C>
Management and
Administrative Expenses: 0.21% 0.21%
Investment Advisory Expenses: None 0.01%
12b-1 Marketing Fees: None None
Other Expenses
Marketing and Distribution
Expenses: 0.02% 0.02%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.02% 0.01%
---- ----
Total Other Expenses: 0.04% 0.03%
---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.25% 0.25%
==== ====
</TABLE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------
VALUE GROWTH
- - --------------------------------------------------------------
<S> <C> <C>
Management and
Administrative Expenses: 0.15% 0.14%
Investment Advisory Expenses: 0.01% 0.01%
12b-1 Marketing Fees: None None
Other Expenses
Marketing and Distribution
Expenses: 0.02% 0.02%
Miscellaneous Expenses
(e.g., Taxes, Auditing): 0.02% 0.03%
---- ----
Total Other Expenses: 0.04% 0.05%
---- ----
TOTAL OPERATING EXPENSES
(EXPENSE RATIO): 0.20% 0.20%
==== ====
- - --------------------------------------------------------------
</TABLE>
The following examples illustrate the hypothetical expenses that you would
incur on a $1,000 investment in each Portfolio over various periods. These
examples assume (1) that each Portfolio provides a return of 5% a year, (2) that
you redeem your investment at the end of each period, and(3) that any
transaction fees have been deducted. If your investment were larger than $1,000
but less than $10,000, your total expenses would be lower, percentage-wise, than
the amounts shown.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Stock Market $ 3 $ 8 $14 $30
500 $ 2 $ 6 $11 $24
Extended Market $ 5 $10 $16 $33
SmallCap Stock $13 $18 $24 $40
Value $ 2 $ 6 $11 $24
Growth $ 2 $ 6 $11 $24
- - ------------------------------------------------------------
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE, WHICH MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
4
<PAGE> 41
FINANCIAL HIGHLIGHTS
The following financial highlights tables show the results for a share
outstanding for each of the last ten years ended December 31, 1995 (or each year
since the Portfolio's inception date) and the six months ended June 30, 1996.
The financial highlights for the fiscal years ended December 31 were audited by
Price Waterhouse LLP, independent accountants. The information for the six-month
period ended June 30, 1996, has not been audited by independent accountants. You
should read this information in conjunction with each Portfolio's financial
statements and accompanying notes, which appear, along with the audit report
from Price Waterhouse, in the Trust's most recent Annual Report and Semi-Annual
Report to shareholders. The Annual Report and Semi-Annual Report are
incorporated by reference in the Statement of Additional Information and in this
prospectus, and contain a more complete discussion of each Portfolio's
performance. You may have the report sent to you without charge by contacting
Vanguard (see back cover).
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
TOTAL STOCK MARKET PORTFOLIO
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ----------------------- 3/16/92-
ENDED JUNE 30, 1996 1995 1994 1993 12/31/92
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.04 $11.37 $11.69 $10.84 $10.00
INVESTMENT OPERATIONS
Net Investment Income .14 .29 .27 .26 .23
Net Realized and Unrealized Gain (Loss)
on Investment 1.36 3.75 (.29) .88 .84
--------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.50 4.04 (.02) 1.14 1.07
- - -------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.12) (.28) (.27) (.26) (.23)
Distributions
from Realized Capital Gains (.03) (.09) (.03) (.03) --
--------------------------------------------------
TOTAL DISTRIBUTIONS (.15) (.37) (.30) (.29) (.23)
- - -------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $16.39 $15.04 $11.37 $11.69 $10.84
=================================================================================================
TOTAL RETURN* 10.00% 35.79% -0.17% 10.62% 10.41%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $2,865 $1,571 $ 786 $ 512 $ 275
Ratio of Expenses to Average Net Assets .21%** .25% .20% .20% .21%**
Ratio of Net Investment Income to
Average Net Assets 1.81%** 2.14% 2.35% 2.31% 2.42%**
Portfolio Turnover Rat 3%** 3% 2% 1% 3%
Average Commission Rate Paid $.0208+ NA NA NA NA
- - -------------------------------------------------------------------------------------------------
</TABLE>
* Total return figures do not include the 0.25% transaction fee on purchases
(eliminated at year-end 1995). During the Portfolio's subscription period
(March 16 to April 26, 1992), all assets were invested in money market
instruments. Performance measurement began on April 27, 1992.
**Annualized.
+ Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL
HIGHLIGHTS TABLE
This explanation uses the Total Stock Market Portfolio as an example. The Total
Stock Market Portfolio began fiscal 1996 with a net asset value (price) of
$15.04 per share. During the six months ended June 30, 1996, the Portfolio
earned $0.14 per share from investment income (interest and dividends) and $1.36
per share from investments that had appreciated in value or were sold for a
price that was higher than the Portfolio paid for them. This resulted in total
earnings of $1.50 per share. Of those total earnings, $0.15 per share was
returned to shareholders in distributions ($0.12 in dividends, $0.03 in capital
gains). The earnings ($1.50 per share) less distributions ($0.15 per share)
resulted in a share price of $16.39 at the six months ended June 30, 1996, an
increase of $1.35 per share (from $15.04 at the beginning of the period to
$16.39 at the end of the period). Assuming the shareholder had reinvested the
distributions in the purchase of more shares, total return from the Total Stock
Market Portfolio was 10.00% for the six months ended June 30, 1996.
As of June 30, 1996, the Portfolio had $2.86 billion in net assets; an expense
ratio of 0.21% ($2.10 per $1,000 of net assets); and net investment income
amounting to 1.81% of its average net assets. It sold and replaced securities
valued at 3% of its total net assets.
5
<PAGE> 42
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
500 PORTFOLIO
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 57.60 $ 42.97 $43.83 $40.97 $39.32
---------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .62 1.22 1.18 1.13 1.12
Net Realized and Unrealized
Gain (Loss) on Investment 5.15 14.76 (.67) 2.89 1.75
---------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 5.77 15.98 .51 4.02 2.87
- - -----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.44) (1.22) (1.17) (1.13) (1.12)
Distributions from
Realized Capital Gains (.04) (.13) (.20) (.03) (.10)
---------------------------------------------------------------
TOTAL DISTRIBUTIONS (.48) (1.35) (1.37) (1.16) (1.22)
- - -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 62.89 $ 57.60 $42.97 $43.83 $40.97
===========================================================================================================
TOTAL RETURN 10.03% 37.45% 1.18% 9.89% 7.42%
===========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $23,674 $17,372 $9,356 $8,273 $6,547
Ratio of Expenses to Average Net Assets .20%+ .20% .19% .19% .19%
Ratio of Net Investment
Income to Average Net Assets 2.05%+ 2.38% 2.72% 2.65% 2.81%
Portfolio Turnover Rate 6%*+ 4%* 6%* 6%* 4%*
Average Commission Rate Paid $ .0131++ NA NA NA NA
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
500 PORTFOLIO
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1991 1990 1989 1988 1987 1986
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $31.24 $33.64 $27.18 $24.65 $24.27 $22.99
--------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income 1.15 1.17 1.20 1.08 .88 .89
Net Realized and Unrealized
Gain (Loss) on Investment 8.20 (2.30) 7.21 2.87 .36 3.30
--------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 9.35 (1.13) 8.41 3.95 1.24 4.19
- - ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (1.15) (1.17) (1.20) (1.10) (.69) (.89)
Distributions from
Realized Capital Gains (.12) (.10) (.75) (.32) (.17) (2.02)
--------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.27) (1.27) (1.95) (1.42) (.86) (2.91)
- - ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $39.32 $31.24 $33.64 $27.18 $24.65 $24.27
======================================================================================================================
TOTAL RETURN 30.22% -3.32% 31.36% 16.22% 4.71% 18.06%
======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $4,345 $2,173 $1,804 $1,055 $ 826 $ 485
Ratio of Expenses to Average Net Assets .20% .22% .21% .22% .26% .28%
Ratio of Net Investment
Income to Average Net Assets 3.07% 3.60% 3.62% 4.08% 3.15% 3.40%
Portfolio Turnover Rate 5%* 23%* 8% 10% 15% 29%
Average Commission Rate Paid NA NA NA NA NA NA
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Portfolio turnover rates excluding in-kind redemptions were 4%, 2%, 1%, 1%,
and 6%, respectively.
+Annualized.
++Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
EXTENDED MARKET PORTFOLIO
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------------------------------------------------- 12/21**-
JUNE 30,1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $24.07 $18.52 $19.43 $17.35 $15.82 $11.48 $13.92 $11.60 $ 9.99 $10.00
-------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .20 .30 .28 .23 .24 .25 .30 .26 .34 .03
Net Realized and Unrealized
Gain (Loss) on Investment 2.30 5.95 (.62) 2.28 1.72 4.54 (2.25) 2.52 1.63 (.04)
-------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.50 6.25 (.34) 2.51 1.96 4.79 (1.95) 2.78 1.97 (.01)
- - ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -- (.30) (.28) (.23) (.25) (.25) (.33) (.23) (.20) --
Distributions from
Realized Capital Gains (.32) (.40) (.29) (.20) (.18) (.20) (.16) (.23) (.16) --
-------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.32) (.70) (.57) (.43) (.43) (.45) (.49) (.46) (.36) --
- - ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.25 $24.07 $18.52 $19.43 $17.35 $15.82 $11.48 $13.92 $11.60 $19.99
====================================================================================================================================
TOTAL RETURN* 10.45% 33.80% -1.76% 14.49% 12.47% 41.85% -14.05% 24.10% 19.75% -0.10%
====================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,746 $1,523 $ 967 $ 928 $ 585 $ 372 $ 179 $ 147 $ 35 $ 5
Ratio of Expenses to Average Net Assets .25%+ .25% .20% .20% .20% .19% .23% .23% .24% 0%
Ratio of Net Investment
Income to Average Net Assets 1.53%+ 1.51% 1.51% 1.48% 1.73% 2.14% 2.68% 2.92% 2.90% 0%
Portfolio Turnover Rate 31%+ 15% 19% 13% 9% 11% 9% 14% 26% 3%
Average Commission Rate Paid $.0247++ NA NA NA NA NA NA NA NA NA
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Total return figures do not include transaction fees (0.5% in 1995, 1% in 1991
through 1994) on purchases.
**Commencement of operations.
+Annualized.
++Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
6
<PAGE> 43
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
SMALL CAPITALIZATION STOCK PORTFOLIO*
--------------------------------------------------------------------------------------------
YEAR YEAR ENDED SEPTEMBER 30,
SIX MONTHS ENDED ENDED 2/1/94- 10/1/93- -----------------------------------
JUNE 30, 1996 12/31/95 12/31/94 1/31/94 1993 1992 1991 1990++
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $18.61 $14.99 $16.24 $16.23 $12.63 $12.03 $18.55 $11.88
-----------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .12 24 .20 .05 .20 .19 .20 .17
Net Realized and Unrealized
Gain (Loss) on Investment 2.00 4.06 (.86) .963 .73 .88 3.60 (3.46)
-----------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.12 4.30 (.66) 1.01 3.93 1.07 3.80 (3.29)
- - -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income -- (.23) (.22) (.18) (.18) (.18) (.18) (.04)
Distributions from
Realized Capital Gains (.14) (.45) (.37) (.82) (.15) (.29) (.14) --
-----------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.14) (.68) (.59) (1.00) (.33) (.47) (.32) (.04)
- - -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $20.59 $18.61 $14.99 $16.24 $16.23 $12.63 $12.03 $18.55
=======================================================================================================================
TOTAL RETURN** 11.44% 28.74% -4.00% 6.65% 31.60% 9.34% 45.91% -27.73%
=======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $1,450 $ 971 $ 605 $ 533 $ 432 $ 202 $ 111 $ 40
Ratio of Expenses to
Average Net Assets .25%+ .25% .17%+ .18%+ .18% .18% .21% .31%
Ratio of Net Investment Income
to Average Net Assets 1.40%+ 1.58% 1.50%+ 1.16%+ 1.47% 1.65% 2.11% 1.91%
Portfolio Turnover Rate 39%+ 28% 25% 5% 26% 26% 33% 40%
Average Commission Rate Paid $.0250(1) N/A N/A N/A N/A N/A N/A N/A
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------
SMALL CAPITALIZATION STOCK PORTFOLIO*
-------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1989 1988 1987 1986
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.96 $15.73 $13.24 $11.68
-------------------------------------------------
Investment Operations
Net Investment Income .10 .03 (.04) (.01)
Net Realized and Unrealized
Gain (Loss) on Investment 2.13 (2.59) 4.42 1.57
-------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.23 (2.56) 4.38 1.56
- - ----------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.14) -- -- --
Distributions from
Realized Capital Gains (2.17) (1.21) (1.89) --
-------------------------------------------------
TOTAL DISTRIBUTIONS (2.31) (1.21) (1.89) --
- - ----------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $11.88 $11.96 $15.73 $13.24
=========================================================================================
TOTAL RETURN** 18.83% -14.30% 38.02% 13.33%
=========================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (Millions) $ 20 $ 27 $ 35 $ 31
Ratio of Expenses to
Average Net Assets 1.00% .95% .92% .92%
Ratio of Net Investment Income to
Average Net Assets .65% .24% (.25)% (.06)%
Portfolio Turnover Rate 160% 68% 92% 92%
Average Commission Rate Paid N/A N/A N/A N/A
- - ----------------------------------------------------------------------------------------
</TABLE>
* Returns prior to January 31, 1994, are for the former Vanguard Small
Capitalization Stock Fund.
** Total return figures do not include the 1% transaction fee on
purchases.
+ Annualized.
++ Adjusted to reflect a 3-for-1 stock split as of February 3, 1990.
Prior to September 11, 1989, Schroder Capital Management International
provided investment advisory services to the Fund. Effective September
11, 1989, investment advisory services were provided on an at-cost
basis by The Vanguard Group, Inc.
(1) Represents total commissions paid on portfolio securities divided
by the total number of shares purchased or sold on which commissions
were charged. This disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------
VALUE PORTFOLIO
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------- 11/2/92**
JUNE 30, 1996 1995 1994 1993 -12/31/92
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.79 $11.12 $11.74 $10.30 $10.00
INVESTMENT OPERATIONS
---------------------------------------------------------------------
NET INVESTMENT INCOME .20 .41 .38 .38 .07
Net Realized and Unrealized
Gain (Loss) on Investment 1.06 3.66 (.46) 1.50 .30
---------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 1.26 4.07 (.08) 1.88 .37
- - --------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.14) (.40) (.38) (.38) (.07)
Distributions from Realized Capital Gains (.24) -- (.16) (.06) --
---------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.38) (.40) (.54) (.44) (.07)
- - --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.67 $14.79 $11.12 $11.74 $10.30
==========================================================================================================================
TOTAL RETURN 8.54% 36.94% -0.73% 18.35% 3.70%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 765 $ 496 $ 297 $ 190 $ 24
Ratio of Expenses to Average Net Assets .20%** .20% .20% .20% 0%*
Ratio of Net Investment Income to Average Net Assets 2.64%** 3.06% 3.37% 3.26% 3.46%*
Portfolio Turnover Rate 34% 27% 32% 30% 4%
Average Commission Rate Paid $.0185++ N/A N/A N/A N/A
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
**Commencement of operations.
++Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
7
<PAGE> 44
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------------- 11/2/92**
JUNE 30, 1996 1995 1994 1993 -12/31/92
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.97 $10.28 $10.20 $10.26 $10.00
-----------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .11 .21 .21 .21 .06
Net Realized and Unrealized Gain (Loss)
on Investment 1.48 3.68 .08 (.06) .26
-----------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.59 3.89 .29 .15 .32
- - --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.10) (.20) (.21) (.21) (.06)
Distributions from Realized
Capital Gains (.06) -- -- -- --
-----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.16) (.20) (.21) (.21) (.06)
- - --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.40 $13.97 $10.28 $10.20 $10.26
====================================================================================================================
TOTAL RETURN 11.43% 38.06% 2.89% 1.53% 3.19%
====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 511 $ 271 $ 86 $ 51 $ 21
Ratio of Expenses to Average Net Assets .20%** .20% .20% .20% 0%*
Ratio of Net Investment Income to
Average Net Assets 1.50%** 1.71% 2.08% 2.10% 2.85%*
Portfolio Turnover Rate 36%** 24% 28% 36% 2%
Average Commission Rate Paid $.0186++ NA NA NA NA
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
**Annualized.
**Commencement of operations.
++Represents total commissions paid on portfolio securities divided by the total
number of shares purchased or sold on which commissions were charged. This
disclosure is required by the SEC beginning in 1996.
- - --------------------------------------------------------------------------------
From time to time, the Vanguard Funds advertise yield and total return
figures. Yield is an historical measure of dividend income, and total return is
a measure of past dividend income (assuming that it has been reinvested) plus
capital appreciation. Neither yield nor total return should be used to predict
the future performance of a fund.
A WORD ABOUT RISK
This prospectus describes the risks you will face as an investor in the
Portfolios of Vanguard Index Trust. It is important to keep in mind one of the
main axioms of investing: the higher the risk of losing money, the higher the
potential reward. The reverse, also, is generally true: the lower the risk, the
lower the potential reward. As you consider an investment in one or more of the
Trust's Portfolios, you should take into account your personal tolerance for the
daily fluctuations of the stock market. Remember, too, that each Portfolio seeks
to match a different stock market index; therefore, investment risk will vary
from Portfolio to Portfolio.
Look for this "warning flag" symbol [GRAPH OF FLAG] throughout the
prospectus. It is used to mark detailed information about each type of risk that
you, as a shareholder of any of the six Portfolios, will confront.
8
<PAGE> 45
PLAIN TALK ABOUT
INDEXES
AN INDEX IS A GROUP OF SECURITIES WHOSE OVERALL PERFORMANCE IS USED AS A
STANDARD TO MEASURE INVESTMENT PERFORMANCE.
PLAIN TALK ABOUT
VALUE FUNDS AND
GROWTH FUNDS
VALUE INVESTING AND GROWTH INVESTING ARE TWO STYLES EMPLOYED BY STOCK FUND
MANAGERS. VALUE FUNDS GENERALLY EMPHASIZE COMPANIES THAT, CONSIDERING THEIR
ASSETS AND EARNINGS HISTORY, ARE ATTRACTIVELY PRICED; THESE COMPANIES OFTEN PAY
REGULAR DIVIDEND INCOME TO SHAREHOLDERS. GROWTH FUNDS GENERALLY FOCUS ON
COMPANIES THAT, DUE TO THEIR STRONG EARNINGS AND REVENUE POTENTIAL, OFFER
ABOVE-AVERAGE PROSPECTS FOR CAPITAL GROWTH, WITH LESS EMPHASIS ON DIVIDEND
INCOME. VALUE AND GROWTH STOCKS HAVE, IN THE PAST, PRODUCED SIMILAR LONG-TERM
RETURNS, THOUGH EACH HAS PERIODS WHEN IT OUTPERFORMS THE OTHER. IN GENERAL,
VALUE FUNDS ARE APPROPRIATE FOR INVESTORS WHO WANT SOME DIVIDEND INCOME AND THE
POTENTIAL FOR CAPITAL GAINS BUT ARE LESS TOLERANT OF SHARE-PRICE FLUCTUATIONS,
WHILE GROWTH FUNDS APPEAL TO INVESTORS WHO WILL ACCEPT MORE VOLATILITY IN HOPE
OF A GREATER INCREASE IN SHARE PRICE.
THE PORTFOLIOS' OBJECTIVES
Each Portfolio seeks to match, as closely as possible, the performance of a
specific stock market index. This objective is fundamental, which means that it
cannot be changed unless a majority of Portfolio shareholders vote to do so.
[FLAG BECAUSE OF THE SEVERAL TYPES OF RISK DESCRIBED ON THE FOLLOWING PAGES,
GRAPH] YOUR INVESTMENT IN ANY OF THE PORTFOLIOS, AS WITH ANY INVESTMENT IN
COMMON STOCKS, COULD LOSE MONEY.
The TOTAL STOCK MARKET PORTFOLIO seeks to parallel the performance of
the Wilshire 5000 Index, which consists of all of the U.S. stocks regularly
traded on the New York and American Stock Exchanges and the Nasdaq
over-the-counter market.
The 500 PORTFOLIO seeks to track the performance of the Standard &
Poor's 500 Composite Stock Price Index, which emphasizes stocks of large U.S.
companies.
The EXTENDED MARKET PORTFOLIO seeks to track the performance of the
Wilshire 4500 Index, a broadly diversified index of stocks of medium-size and
small U.S. companies (none of which is included in the S&P 500 Index).
The SMALL CAPITALIZATION STOCK PORTFOLIO seeks to match the performance
of the Russell 2000 Small Stock Index, which is made up of stocks of small,
generally unseasoned U.S. companies.
The VALUE PORTFOLIO seeks to replicate the performance of the S&P/BARRA
Value Index, which includes those stocks of the S&P 500 Index that offer
higher-than-average dividend yields and are considered out of favor with
investors.
The GROWTH PORTFOLIO seeks to parallel the performance of the S&P/BARRA
Growth Index, which is made up of those stocks of the S&P 500 Index with
above-average growth potential and lower-than-average dividend yields.
AN INDEX FUND HAS OPERATING EXPENSES; A MARKET INDEX DOES NOT.
[FLAG THEREFORE, AN INDEX FUND-WHILE EXPECTED TO TRACK ITS TARGET INDEX AS
GRAPH] CLOSELY AS POSSIBLE-WILL NOT BE ABLE TO MATCH THE PERFORMANCE OF THE
INDEX EXACTLY.
The Portfolios of Vanguard Index Trust are not sponsored, sold,
promoted, or endorsed by Standard & Poor's Corporation, BARRA Associates,
Wilshire Associates, or the Frank Russell Company.
WHO SHOULD INVEST
Any of the Portfolios of Vanguard Index Trust may be a suitable investment for
you if you are looking for a U.S. stock portfolio that follows a simple,
cost-effective index-matching strategy and, in doing
9
<PAGE> 46
PLAIN TALK ABOUT
INVESTING FOR THE LONG TERM
EACH PORTFOLIO IS INTENDED TO BE A LONG-TERM INVESTMENT VEHICLE; NONE IS
DESIGNED TO PROVIDE INVESTORS WITH A MEANS OF SPECULATING ON SHORT-TERM
FLUCTUATIONS IN THE STOCK MARKET.
PLAIN TALK ABOUT
COSTS AND MARKET TIMING
SOME INVESTORS TRY TO PROFIT FROM "MARKET TIMING"--SWITCHING MONEY INTO
INVESTMENTS WHEN THEY EXPECT PRICES TO RISE, AND TAKING MONEY OUT WHEN THEY
EXPECT THE MARKET TO FALL. AS MONEY IS SHIFTED IN AND OUT, A FUND INCURS
EXPENSES FOR BUYING AND SELLING SECURITIES. THESE COSTS ARE BORNE BY ALL FUND
SHAREHOLDERS, INCLUDING THE LONG-TERM INVESTORS WHO DO NOT GENERATE THE COSTS.
THEREFORE, THE TRUST DISCOURAGES SHORT-TERM TRADING BY, AMONG OTHER THINGS,
CLOSELY MONITORING DAILY TRANSACTIONS.
so, provides the potential for growth in the value of your investment over the
long term. However, one Portfolio may more closely meet your personal investment
objectives than the others.
For instance, the Total Stock Market Portfolio may be suitable for you
if:
- - - You are looking for an investment that reflects the performance of the
entire U.S. stock market.
The 500 and Value Portfolios may be suitable for you if:
- - - You want to invest in large companies.
The Growth Portfolio may be suitable for you if:
- - - You want to invest in large companies, but you are looking for more
growth potential than the 500 and Value Portfolios offer -- and are
willing to accept greater fluctuations in share price.
The Extended Market and Small Capitalization Stock Portfolios may be
suitable for you if:
- - - You want to focus on the stocks of medium-size and/or small companies.
- - - You can accept greater share-price volatility than the Trust's other
Portfolios tend to experience.
None of the Portfolios would be an appropriate investment if you are a
market-timer. Investors who engage in excessive in-and-out trading activity
generate additional costs that are borne by all of the shareholders in a
Portfolio. To minimize such costs, which reduce the ultimate returns achieved by
you and other shareholders, the Trust has adopted the following policies:
- - - The Trust reserves the right to reject any purchase request into any of
its Portfolios--including exchanges from other Vanguard Funds--that it
regards as disruptive to the efficient management of the Portfolio.
This could be because of the timing of the investment or because of a
history of excessive trading by the investor.
- - - Two of the Trust's Portfolios (Extended Market and Small Capitalization
Stock) charge a transaction fee on purchases.
- - - There is a limit on the number of times you can exchange into or out of
each Portfolio. If you own shares of any of the Trust's Portfolios as
an investment option in an employer-sponsored retirement or savings
plan, your plan dictates the rules governing exchanges. Contact your
plan administrator for details.
- - - The Trust reserves the right to stop offering shares at any time.
INVESTMENT STRATEGIES
This section explains how the Trust's investment adviser pursues the objective
of matching the performance of specific stock indexes. It also explains the
market and objective risks faced by Portfolio shareholders. Unlike each
Portfolio's investment objectives, the adviser's investment strategies are not
fundamental and can be changed by the Trust's Board of Trustees without
shareholder approval. However, before making any important change in its
strategies, the Trust will give shareholders 30-days notice, in writing.
10
<PAGE> 47
MARKET EXPOSURE
To track their target indexes as closely as possible, the Portfolios attempt to
remain fully invested in stocks.
[FLAG EACH PORTFOLIO IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT
GRAPH] STOCK PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN EXTENDED PERIODS.
STOCK MARKETS TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING STOCK
PRICES AND PERIODS OF FALLING STOCK PRICES.
To illustrate the volatility of stock prices, the following table shows
the best, worst, and average total returns (dividend income plus change in
market value) for the U.S. stock market over various periods as measured by the
S&P 500 Index, which--in addition to being the target index for the 500
Portfolio--is a widely used barometer of stock market activity. Note that the
returns shown do not include the costs of buying and selling stocks or other
expenses that a real-world investment portfolio would incur. Note, also, how the
gap between the best and worst tends to narrow over the long term.
U.S. STOCK MARKET RETURNS (1926--1995)
1 YEAR 5 YEARS 10 YEARS 20 YEARS
Best 53.9% 23.9% 20.1% 16.9%
Worst -43.3% -12.5% -0.9% 3.1%
Average 12.5% 10.3% 10.7% 10.7%
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1995. For example, while the average return on stocks for all of the
5-year periods was 10.3%, returns for these 5-year periods ranged from a -12.5%
average (from 1928 through 1932) to 23.9% (from 1951 through 1955). These
average returns reflect past performance on common stocks and should not be
regarded as an indication of future returns from either the stock market as a
whole or any of the Trust's Portfolios in particular.
Keep in mind that the S&P 500 Index tracks mainly large-cap stocks.
Historically, the mid- and small-cap stocks of the Wilshire 4500 and Russell
2000 Indexes (the target indexes for the Extended Market and Small
Capitalization Stock Portfolios, respectively) have been more volatile than--and
at times have performed quite differently from--the large-cap stocks of the S&P
500 Index. This is due to several factors, including less-certain growth and
dividend prospects for smaller companies.
Even indexes that are subsets of the S&P 500 Index--such as the
S&P/BARRA Value Index and the S&P/BARRA Growth Index (the target indexes for the
Value and Growth Portfolios)--will not perform in the same way as the broader
S&P 500 Index. Historically, stocks of the S&P/BARRA Value Index have been less
volatile than the stocks found in the broader S&P 500 Index; stocks of the
S&P/BARRA Growth Index, on the other hand, have displayed
PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND
SMALL-CAP STOCKS
STOCKS OF PUBLICLY TRADED COMPANIES--AND MUTUAL FUNDS THAT HOLD THESE
STOCKS--CAN BE CLASSIFIED BY THE COMPANIES' MARKET VALUE, OR CAPITALIZATION.
VANGUARD DEFINES LARGE-CAPITALIZATION, OR LARGE-CAP, FUNDS AS THOSE HOLDING
STOCKS OF COMPANIES WITH AN AVERAGE TOTAL MARKET VALUE EXCEEDING $5 BILLION.
MID-CAP FUNDS HOLD STOCKS OF COMPANIES WITH AN AVERAGE MARKET VALUE BETWEEN $750
MILLION AND $5 BILLION. SMALL-CAP FUNDS HOLD STOCKS OF COMPANIES WITH AN AVERAGE
MARKET VALUE OF LESS THAN $750 MILLION. NOTE THAT A FUND'S CAPITALIZATION
PARAMETERS (THAT IS, WHAT CONSTITUTES A LARGE-, MID-, OR SMALL-CAP STOCK) MAY
VARY FROM THE PARAMETERS SET BY A PARTICULAR INDEX.
11
<PAGE> 48
PLAIN TALK ABOUT
ACTIVE VERSUS PASSIVE
MANAGEMENT
INDEX PORTFOLIOS ARE NOT ACTIVELY MANAGED BY INVESTMENT ADVISERS WHO BUY AND
SELL SECURITIES BASED ON RESEARCH AND ANALYSIS. INSTEAD, A "PASSIVELY MANAGED"
PORTFOLIO TRIES TO MATCH, AS CLOSELY AS POSSIBLE, THE PERFORMANCE OF A TARGET
INDEX BY HOLDING EITHER ALL--OR A REPRESENTATIVE SAMPLE--OF THE SECURITIES IN
THE INDEX. INDEXING APPEALS TO MANY INVESTORS BECAUSE OF ITS SIMPLICITY
(INDEXING IS A STRAIGHTFORWARD MARKET-MATCHING STRATEGY); DIVERSIFICATION
(INDEXES GENERALLY COVER A WIDE VARIETY OF COMPANIES AND INDUSTRIES); RELATIVE
PERFORMANCE PREDICTABILITY (AN INDEX PORTFOLIO IS EXPECTED TO MOVE IN THE SAME
DIRECTION--UP OR DOWN--AS ITS TARGET INDEX); AND LOW COST (INDEX FUNDS DO NOT
HAVE MANY OF THE EXPENSES OF AN ACTIVELY MANAGED FUND--SUCH AS RESEARCH AND
COMPANY VISITS--AND KEEP TRADING ACTIVITY--AND, THUS, BROKERAGE COMMISSIONS--TO
A MINIMUM).
somewhat greater short-term volatility than the S&P 500's stocks. Historical
performance aside, however, both value and growth stocks have the potential to
be more volatile than the broader market.
[FLAG THE PORTFOLIOS ARE SUBJECT, IN VARYING DEGREES, TO OBJECTIVE RISK,
GRAPH] WHICH IS THE POSSIBILITY THAT RETURNS FROM A SPECIFIC TYPE OF STOCK
(FOR INSTANCE, SMALL-CAP OR VALUE) WILL TRAIL RETURNS FROM THE OVERALL
STOCK MARKET. EACH TYPE OF STOCK TENDS TO GO THROUGH CYCLES OF
OUTPERFORMANCE AND UNDERPERFORMANCE IN COMPARISON TO THE STOCK MARKET
IN GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS
SEVERAL YEARS.
SECURITY SELECTION
Each Portfolio of Vanguard Index Trust employs a "passively" managed
investment--or index--approach. Vanguard Core Management Group, the Portfolios'
adviser, creates a mix of securities that will match the performance of a
benchmark index.
The 500, Value, and Growth Portfolios hold each stock found in their
respective benchmark indexes in roughly the same proportions as represented in
the indexes themselves. For example, if 5% of the S&P 500 Index were made up of
the assets of a specific company, the 500 Portfolio would invest the same
percentage of its assets in that company.
The Total Stock Market, Extended Market, and Small Capitalization Stock
Portfolios use a different selection process. Because it would be very expensive
to buy and sell all of the stocks in each Portfolio's target index (the Total
Stock Market Portfolio's target index, for example, includes nearly 7,000
stocks), these three Portfolios use a "sampling" technique. Using a
sophisticated computer program, each Portfolio selects stocks that will recreate
its target index in terms of industry, size, and other characteristics (such as
projected earnings, financial strength, and debt). For instance, if 10% of the
Wilshire 4500 Index were made up of utility stocks, the Extended Market
Portfolio would invest 10% of its assets in the utility stocks of the Wilshire
4500 Index with similar characteristics.
The following table shows the number of stocks generally held by each
Portfolio.
NUMBER OF NUMBER OF STOCKS
PORTFOLIO STOCKS HELD IN TARGET INDEX
Total Stock Market 2,400 Nearly 7,000
500 500 500
Extended Market 1,900 More than 6,500
SmallCap Stock 1,400 About 2,000
Value About 320 About 320
Growth About 180 About 180
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The top ten holdings for each Portfolio as of June 30, 1996, follow.
TOTAL STOCK
MARKET PORTFOLIO 500 PORTFOLIO
1. General Electric Co. 1. General Electric Co.
2. The Coca-Cola Co. 2. The Coca-Cola Co.
3. Exxon Corp. 3. Exxon Corp.
4. AT&T Corp. 4. AT&T Corp.
5. Philip Morris Cos., Inc. 5. Philip Morris Cos., Inc.
6. Merck & Co. 6. Royal Dutch Petroleum Co.
7. Microsoft Corp. 7. Merck & Co., Inc.
8. Johnson & Johnson 8. Microsoft Corp.
9. Procter & Gamble Co. 9. Johnson & Johnson
10. Intel Corp. 10. Procter & Gamble Co.
13% of the Portfolio's 18% of the Portfolio's
total net assets. total net assets.
EXTENDED MARKET PORTFOLIO SMALLCAP STOCK PORTFOLIO
1. Berkshire Hathaway 1. Iomega Corp.
2. Electronic Data Systems 2. Apria Healthcare Group
3. Rhone-Poulenc Rorer, Inc. 3. Phycor, Inc.
4. HFS Incorporated 4. Charter-One Financial
5. Carnival Cruise Lines, Inc. 5. Helig-Meyers Co.
6. RJR Nabisco Holdings Corp. 6. Premark International
7. U.S. Robotics Corp. 7. America West Airlines
8. Safeway, Inc. 8. Community Health Systems
9. CNA Financial Corp. 9. DSP Communications Inc.
10. Ascend Communications Inc. 10. First Bancorp of Ohio
6% of the Portfolio's 2% of the Portfolio's
total net assets. total net assets.
VALUE PORTFOLIO GROWTH PORTFOLIO
1. Exxon Corp. 1. General Electric Co.
2. Royal Dutch Petroleum Co. 2. The Coca-Cola Co.
3. International Business 3. AT&T Corp.
Machines Corp. 4. Philip Morris Cos., Inc.
4. Mobil Corp. 5. Merck & Co., Inc.
5. BellSouth Corp. 6. Microsoft Corp.
6. Citicorp 7. Johnson & Johnson
7. General Motors Corp. 8. Procter & Gamble Co.
8. Chevron Corp. 9. Intel Corp.
9. Ford Motor Co. 10. Wal-Mart Stores, Inc.
10. Motorola, Inc.
21% of the Portfolio's 33% of the Portfolio's
total net assets. total net assets.
Keep in mind that, because the makeup of a Portfolio changes daily,
these listings are only "snapshots" at one point in time. Note, too, that
portfolios that track indexes made up of a relatively small number of securities
tend to be less diversified than portfolios whose target indexes contain
thousands of securities. For instance, the Growth Portfolio, which seeks to
parallel an index of about 180 stocks, has far
PLAIN TALK ABOUT
PORTFOLIO DIVERSIFICATION
IN GENERAL, THE MORE DIVERSIFIED A FUND'S PORTFOLIO OF STOCKS, THE LESS LIKELY
THAT A SPECIFIC STOCK'S POOR PERFORMANCE WILL HURT THE FUND. ONE MEASURE OF A
FUND'S LEVEL OF DIVERSIFICATION IS THE PERCENTAGE OF TOTAL NET ASSETS
REPRESENTED BY ITS TEN LARGEST HOLDINGS. THE AVERAGE U.S. EQUITY MUTUAL FUND HAS
ABOUT 25% OF ITS ASSETS INVESTED IN ITS TEN LARGEST HOLDINGS, WHILE SOME
LESS-DIVERSIFIED MUTUAL FUNDS HAVE MORE THAN 50% OF THEIR ASSETS INVESTED IN THE
STOCKS OF JUST TEN COMPANIES.
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<PAGE> 50
PLAIN TALK ABOUT
PORTFOLIO TURNOVER
BEFORE INVESTING IN A MUTUAL FUND, YOU SHOULD REVIEW ITS PORTFOLIO TURNOVER RATE
FOR AN INDICATION OF THE POTENTIAL EFFECT OF TRANSACTION COSTS ON THE FUND'S
FUTURE RETURNS. IN GENERAL, THE GREATER THE VOLUME OF BUYING AND SELLING BY THE
FUND, THE GREATER THE IMPACT THAT BROKERAGE COMMISSIONS AND OTHER TRANSACTION
COSTS WILL HAVE ON ITS RETURN. THE AVERAGE TURNOVER RATE FOR PASSIVELY MANAGED
FUNDS INVESTING IN COMMON STOCKS IS ROUGHLY 35%; FOR ACTIVELY MANAGED FUNDS, THE
AVERAGE TURNOVER RATE IS 75%.
PLAIN TALK ABOUT
DERIVATIVES
A DERIVATIVE IS A FINANCIAL CONTRACT WHOSE VALUE IS BASED ON (OR "DERIVED" FROM)
A TRADITIONAL SECURITY (SUCH AS A STOCK OR A BOND), AN ASSET (SUCH AS A
COMMODITY LIKE GOLD), OR A MARKET INDEX (SUCH AS THE S&P 500 INDEX). FOR
INSTANCE, FUTURES AND OPTIONS ARE DERIVATIVES THAT HAVE BEEN TRADING ON
REGULATED EXCHANGES FOR MORE THAN TWO DECADES. THESE " TRADITIONAL" DERIVATIVES
ARE STANDARDIZED CONTRACTS THAT CAN BE EASILY BOUGHT AND SOLD, AND WHOSE MARKET
VALUES ARE DETERMINED AND PUBLISHED DAILY. IT IS THESE CHARACTERISTICS THAT
DIFFERENTIATE FUTURES AND OPTIONS FROM THE RELATIVELY NEW, EXOTIC TYPES OF
DERIVATIVES--SOME OF WHICH CAN CARRY CONSIDERABLE RISKS.
more of its assets invested in its top ten holdings (32%) than the Total Stock
Market Portfolio (12%), which seeks to track a much larger universe of nearly
7,000 stocks. This means that the Growth Portfolio stands a greater chance than
the Total Stock Market Portfolio of being hurt by the poor performance of a
single stock.
PORTFOLIO TURNOVER
Although each seeks to invest for the long term, the Portfolios retain the right
to sell securities regardless of how long they have been held. Generally, a
passively managed fund sells securities only to respond to redemption requests
or to adjust the number of shares held to reflect a change in the portfolio's
target index. Because of this, the turnover rate for the Portfolios has been
extremely low, with averages over the past five years (or since inception)
ranging from 2% for the Total Stock Market Portfolio, to 28% for the Small
Capitalization Stock Portfolio. (A turnover rate of 100% would occur, for
example, if a Portfolio sold and replaced securities valued at 100% of its total
net assets within a one-year period.)
INVESTMENT POLICIES
Besides investing in the stocks found in its target index, each Portfolio may
follow a number of other investment policies to achieve its objective.
THE PORTFOLIOS RESERVE THE RIGHT TO INVEST, TO A LIMITED EXTENT, IN
STOCK FUTURES AND OPTIONS CONTRACTS, WARRANTS, CONVERTIBLE SECURITIES,
AND SWAP AGREEMENTS, WHICH ARE TYPES OF DERIVATIVES.
Losses (or gains) involving contracts can sometimes be substantial--in
part because a relatively small price movement in a contract may result in an
immediate and substantial loss (or gain) for a Portfolio. Similar risks exist
for warrants (securities that permit their owners to purchase a specific number
of shares of stock at a predetermined price), convertible securities (securities
that may be exchanged for another asset), and swap agreements (contracts between
two parties in which each agrees to make payments to the other based on the
return of a specified index or asset).
For this reason, the Portfolios will not use futures, options,
warrants, convertible securities, or swap agreements for speculative purposes or
as leveraged investments that magnify the gains or losses of an investment.
Rather, each Portfolio will keep separate cash reserves or short-term,
cash-equivalent securities in the amount of the obligation underlying the
contract. Only a limited percentage of each Portfolio's assets--up to 5% if
required for deposit and no more than 20% of total assets--may be committed to
such contracts.
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<PAGE> 51
The reasons for which a Portfolio may use futures, options, warrants,
convertible securities, and swap agreements are:
- - - To keep cash on hand to meet shareholder redemptions or other needs
while simulating full investment in stocks.
- - - To reduce costs by buying futures instead of actual stocks when futures
are cheaper.
INVESTMENT LIMITATIONS
To reduce risk and maintain diversification, the Portfolios have adopted limits
on some of their investment policies. Specifically, a Portfolio will not:
- - - Invest more than 25% of its assets in any one industry.
- - - Borrow money in an amount that is more than 15% of its assets. If
borrowing exceeds 5%, the Portfolio will not make any additional
investments.
With respect to 75% of its assets, a Portfolio will not:
- - - Invest more than 5% in the outstanding securities of any one company.
- - - Buy more than 10% of the outstanding voting securities of any company.
The limitations listed in this prospectus and in the Statement of
Additional Information are fundamental and may be changed only by approval of a
majority of the Portfolio's shareholders.
INVESTMENT PERFORMANCE
Each Portfolio's performance is expected to mirror the performance of a specific
U.S. stock market segment (or, in the case of the Total Stock Market Portfolio,
the entire stock market). Historically, stock market performance has been
characterized by sharp up-and-down swings in the short term and by more stable
growth over the long term.
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 6/30/96
1 YEAR 5 YEARS 10 YEARS 20 YEARS
Total Stock Market 25.3% 15.4%* _ _
Wilshire 5000 Index 26.2 15.9* _ _
500 25.9% 15.6% 13.5% 13.9%*
S&P 500 Index 26.0 15.7 13.8 14.4*
Extended Market** 26.2% 17.2% 15.4%* _
Wilshire 4500 Index 26.6 17.1 15.5* _
SmallCap Stock** 25.3% 18.0% 9.6% _
Russell 2000 Index 23.9 17.5 10.4 _
Value 24.8% 17.6%* _ _
S&P/BARRA Value Index 24.8 17.8* _ _
Growth 27.1% 14.8%* _ _
S&P/BARRA Growth Index 27.3 15.1* _ _
* Since Portfolio's inception.
** Does not include transaction fee.
PLAIN TALK ABOUT
CASH RESERVES
WITH MUTUAL FUNDS, HOLDING CASH RESERVES--OR "CASH"--DOES NOT MEAN LITERALLY
THAT THE FUND HOLDS A STACK OF CURRENCY. RATHER, CASH RESERVES REFER TO
SHORT-TERM, INTEREST-BEARING SECURITIES THAT CAN EASILY AND QUICKLY BE CONVERTED
TO CASH. (MOST MUTUAL FUNDS KEEP AT LEAST A SMALL PERCENTAGE OF ASSETS IN CASH
TO ACCOMMODATE SHAREHOLDER REDEMPTIONS.) WHILE SOME FUNDS LIKE INDEX FUNDS
STRIVE TO KEEP CASH LEVELS AT A MINIMUM AND TO ALWAYS REMAIN FULLY INVESTED IN
STOCKS, OTHERS ALLOW INVESTMENT ADVISERS TO HOLD UP TO 20% OF A FUND'S ASSETS IN
CASH RESERVES.
PLAIN TALK ABOUT
PAST PERFORMANCE
WHENEVER YOU SEE INFORMATION ON A FUND'S PERFORMANCE, DO NOT CONSIDER THE
FIGURES TO BE AN INDICATION OF THE PERFORMANCE YOU COULD EXPECT BY MAKING AN
INVESTMENT IN THE FUND TODAY. THE PAST IS AN IMPERFECT GUIDE TO THE FUTURE;
HISTORY DOES NOT REPEAT ITSELF IN NEAT, PREDICTABLE PATTERNS.
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<PAGE> 52
PLAIN TALK ABOUT
DISTRIBUTIONS
AS A SHAREHOLDER, YOU ARE ENTITLED TO YOUR SHARE OF THE FUND'S INCOME FROM
INTEREST AND DIVIDENDS, AND GAINS FROM THE SALE OF INVESTMENTS. YOU RECEIVE SUCH
EARNINGS AS EITHER AN INCOME DIVIDEND OR CAPITAL GAINS DISTRIBUTION. INCOME
DIVIDENDS COME FROM THE DIVIDENDS THAT THE FUND EARNS FROM ITS HOLDINGS AS WELL
AS INTEREST IT RECEIVES FROM ITS MONEY MARKET AND BOND INVESTMENTS. CAPITAL
GAINS ARE REALIZED WHENEVER THE FUND SELLS SECURITIES FOR HIGHER PRICES THAN IT
PAID FOR THEM. THESE CAPITAL GAINS ARE EITHER SHORT-TERM OR LONG-TERM DEPENDING
ON WHETHER THE FUND HELD THE SECURITIES FOR LESS THAN OR MORE THAN ONE YEAR.
The results shown represent each Portfolio's "average annual total
return" performance, which assumes that any distributions of capital gains and
dividends were reinvested for the indicated periods. Also included is
comparative information on the appropriate unmanaged benchmark index. The
Portfolios' returns are not adjusted for the purchase fee for the Extended
Market and Small Capitalization Stock Portfolios (or the purchase fee for the
Total Stock Market Portfolio that was eliminated at year end 1995), nor has an
allowance been made for Federal, state, or local income taxes that shareholders
must pay on a current basis.
SHARE PRICE
Each Portfolio's share price, called its net asset value, is calculated each
business day after the close of regular trading (generally 4:00 p.m. Eastern
time) of the New York Stock Exchange. Each Portfolio's net asset value per share
is computed by adding up the total value of the Portfolio's investments and
other assets, subtracting any of its liabilities, or debts, and then dividing by
the number of Portfolio shares outstanding:
TOTAL ASSETS -- LIABILITIES
NET ASSET VALUE = ---------------------------------
NUMBER OF SHARES OUTSTANDING
Daily net asset value, or NAV, is useful to you as a shareholder
because the NAV, multiplied by the number of Portfolio shares you own, gives you
the dollar amount you would have received had you sold your shares back to the
Portfolio that day.
Each Portfolio's share price can be found daily in the mutual fund
listings of most major newspapers under the heading Vanguard Group. Different
newspapers use different abbreviations for each Portfolio, but the most common
are IdxTot, Idx 500, IdxExt, IdxSmCap, IdxVal, and IdxGro.
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each March, June, September, and December, the Total Stock Market, 500, Value,
and Growth Portfolios distribute virtually all of their income from interest and
dividends to their shareholders; the Extended Market and Small Capitalization
Stock Portfolios distribute their income in December. All six Portfolios
distribute any capital gains realized from the sale of securities in December;
keep in mind that index portfolios tend to provide less in capital gains
distributions than actively managed funds generally do.
If you own shares of any of the Trust's Portfolio as an investment
option in an employer-sponsored retirement or savings plan, these dividend and
capital gains distributions will be reinvested in additional Portfolio shares
and accumulate on a tax-deferred basis. You
16
<PAGE> 53
will not owe taxes on these distributions until you begin withdrawals. You
should consult your plan administrator, your plan's Summary Plan Document, or
your own tax adviser about the tax consequences of an investment in the
Portfolio and of any plan withdrawals.
If your investment in a Portfolio of Vanguard Index Trust is not part
of an employer-sponsored plan, you can receive distributions of income or
capital gains in cash, or you may have them automatically reinvested in more
shares of the Portfolio. Both dividend and capital gains distributions--whether
received in cash or reinvested in additional shares--are subject to Federal (and
possibly state and local) income taxes, no matter how long you have held the
shares in the Portfolio. You should consult your own tax adviser about other tax
consequences of an investment in the Portfolio.
THE TRUST AND VANGUARD
Vanguard Index Trust is a member of The Vanguard Group, a family of more than 30
investment companies with more than 90 distinct investment portfolios and total
net assets of more than $230 billion. All of the Vanguard Funds share in the
expenses associated with business operations, such as personnel, office space,
equipment, and advertising.
Vanguard also provides marketing services to the Funds. Although
shareholders do not pay sales commissions or 12b-1 marketing fees, each Fund
pays its allocated share of The Vanguard Group's costs.
A list of the Trustees and Officers, and their present positions and
principal occupations during the past five years, can be found in the Statement
of Additional Information.
INVESTMENT ADVISER
Vanguard Core Management Group, P.O. Box 2600, Valley Forge, PA 19482, provides
advisory services on an at-cost basis to the Portfolios of Vanguard Index Trust.
For the year ended December 31, 1995, the six Portfolios paid a total of
$213,000 in investment advisory expenses (the 500, Value, and Growth Portfolios
each paid $24,000; the Total Stock Market, Extended Market, and Small
Capitalization Stock Portfolios each paid $47,000).
The Group is authorized to choose brokers or dealers to handle the
purchase and sale of the Portfolios' securities, and is directed to get the best
available price and most favorable execution from these brokers with respect to
all transactions.
PLAIN TALK ABOUT
VANGUARD'S UNIQUE
CORPORATE STRUCTURE
THE VANGUARD GROUP, INC. IS THE ONLY MUTUAL MUTUAL FUND COMPANY. IT IS OWNED
JOINTLY BY THE FUNDS IT OVERSEES AND BY THE SHAREHOLDERS IN THOSE FUNDS. OTHER
MUTUAL FUNDS ARE OPERATED BY FOR-PROFIT MANAGEMENT COMPANIES THAT MAY BE OWNED
BY ONE PERSON, BY A GROUP OF INDIVIDUALS, OR BY INVESTORS WHO BOUGHT THE
MANAGEMENT COMPANY'S PUBLICLY TRADED STOCK. BECAUSE OF ITS STRUCTURE, VANGUARD
OPERATES ITS FUNDS AT COST. INSTEAD OF DISTRIBUTING PROFITS FROM OPERATIONS TO A
SEPARATE MANAGEMENT COMPANY, VANGUARD RETURNS PROFITS TO FUND SHAREHOLDERS IN
THE FORM OF LOWER OPERATING EXPENSES.
PLAIN TALK ABOUT
THE PORTFOLIOS' ADVISER
VANGUARD CORE MANAGEMENT GROUP PROVIDES INVESTMENT ADVISORY SERVICES TO
MANY VANGUARD FUNDS; AS OF DECEMBER 31, 1995, THE GROUP MANAGED $33 BILLION IN
TOTAL ASSETS. THE INDIVIDUAL PRIMARILY RESPONSIBLE FOR OVERSEEING EACH
PORTFOLIO'S INVESTMENTS IS:
GEORGE U. SAUTER, PRINCIPAL OF VANGUARD; 11 YEARS INVESTMENT
EXPERIENCE, 9 YEARS PRIMARY RESPONSIBILITY FOR VANGUARD CORE MANAGEMENT GROUP;
A.B. FROM DARTMOUTH COLLEGE, M.B.A. FROM THE UNIVERSITY OF CHICAGO.
MR. SAUTER HAS SERVED IN THIS CAPACITY SINCE 1987.
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<PAGE> 54
GENERAL INFORMATION
Vanguard Index Trust is organized as a Pennsylvania business trust.
Shareholders of each Portfolio have rights and privileges similar to
those enjoyed by other corporate shareholders. For example, shareholders will
not be responsible for any liabilities of the Trust. If any matters are to be
voted on by shareholders (such as a change in a fundamental investment objective
or the election of trustees), each Portfolio share outstanding at that point
would be entitled to one vote. Annual meetings will not be held by the
Portfolios except as required by the Investment Company Act of 1940. A meeting
will be scheduled (for example, to vote on the removal of a director) if the
holders of at least 10% of a Portfolio's shares request a meeting in writing.
"Standard & Poor's," "Standard & Poor's 500," "S&P 500," "S&P," and "500" are
trademarks of The McGraw-Hill Companies, Inc. "Wilshire 4500" and "Wilshire
5000" are registered trademarks of Wilshire Associates. Frank Russell Company is
the owner of the trademarks and copyrights relating to the Russell Indexes.
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<PAGE> 55
INVESTING WITH VANGUARD
FOR PLAN PARTICIPANTS
One or more of the six Portfolios described in this prospectus is an investment
option in your retirement or savings plan. Your plan administrator or your
employee benefits office can provide you with detailed information on how to
participate in your plan and how to elect the Portfolio as an investment option.
- - - If you have any questions about a Portfolio or Vanguard, including the
Portfolio's investment objective, strategies, or risks, contact
Vanguard's Participant Services Department, toll-free, at
1-800-523-1188.
- - - If you have questions about your account, contact your plan
administrator or the organization that provides recordkeeping services
for your plan.
INVESTMENT OPTIONS AND ALLOCATIONS
Your plan's specific provisions may allow you to change your investment
selections, the amount of your contributions, or how your contributions are
allocated among the investment choices available to you. Contact your plan
administrator or employee benefits office for more details.
TRANSACTIONS
Contributions, exchanges, or redemptions of a Portfolio's shares are processed
as soon as they have been received by Vanguard in good order. Good order means
that your request includes complete information on your contribution, exchange,
or redemption, and that Vanguard has received the appropriate assets.
EXCHANGES
The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. However,
because excessive exchanges can potentially disrupt the management of a
Portfolio and increase its transaction costs, Vanguard reserves the right to
refuse any exchange request. In addition, certain investment options,
particularly funds made up of company stock or investment contracts, may be
subject to unique restrictions. Contact your plan administrator for details on
the exchange policies that apply to your plan.
Before making an exchange, you should consider the following:
- - - Before you exchange to another Vanguard Fund available in your plan,
you should read that Fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.
- - - Vanguard can accept exchanges only as permitted by your plan. Your plan
administrator can explain how frequently exchanges are allowed.
FOR OTHER INSTITUTIONAL INVESTORS
If you have questions about one of the Portfolios of Vanguard Index Trust,
including how to establish an account, call Vanguard, toll-free, at
1-800-523-1036.
If you have questions about an existing account, contact your Vanguard account
administrator.
TRANSACTIONS
Purchases, exchanges, or redemptions of a Portfolio's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request in-
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<PAGE> 56
INVESTING WITH VANGUARD (CONTINUED)
cludes complete information on your purchase, exchange, or redemption, and that
Vanguard has received the appropriate assets. The price of shares bought,
exchanged, or sold will be the Portfolio's next-determined net asset value after
Vanguard has processed your request, provided your request has been received
before 4:00 p.m. Eastern time.
Vanguard must consider the interests of all Portfolio shareholders and
so reserves the right to . . .
- - - Delay or reject any purchase or exchange request that may disrupt the
Portfolio's operation or performance.
- - - Revise or terminate the exchange privilege or limit the amount of an
exchange, at any time, without notice.
- - - Take up to seven days to deliver your redemption proceeds.
- - - Pay redemption proceeds--in whole or in part--through a distribution in
kind of readily marketable securities.
ACCESSING FUND INFORMATION BY COMPUTER
VANGUARD ONLINE(SM)
KEYWORD: Vanguard
Use your personal computer to learn more about Vanguard Funds and services; map
out a long-term investment strategy; and ask questions, make suggestions, and
send messages to Vanguard. Vanguard Online is offered through America Online(R)
(AOL). To establish an AOL account, call 1-800-238-6336.
VANGUARD ON THE
WORLD WIDE WEB
hrrp://www vanguard.com
Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard Funds and services; an
online "university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
SHARES OF THE PORTFOLIOS MAY ONLY BE SOLD IN THOSE STATES IN WHICH THEY ARE
REGISTERED. THE PORTFOLIOS' SHARES ARE CURRENTLY REGISTERED FOR SALE IN ALL 50
STATES, AND THE PORTFOLIOS INTEND TO MAINTAIN SUCH REGISTRATION.
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[THE VANGUARD GROUP LOGO]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482
FOR PARTICIPANTS IN
EMPLOYER-SPONSORED PLANS
PARTICIPANT SERVICES DEPARTMENT
1-800-523-1188
TEXT TELEPHONE:
1-800-523-8004
For information on the
Vanguard Funds in your plan,
Monday through Friday
8:30 a.m. to 7:00 p.m.,
Eastern time
FOR OTHER INSTITUTIONAL
INVESTORS
1-800-523-1036
For information on Vanguard
Funds and services
ELECTRONIC ACCESS TO THE
VANGUARD MUTUAL FUND
EDUCATION AND INFORMATION
CENTER
On America Online(R)
Keyword: Vanguard
On the World Wide Web
http://www.vanguard.com
To send e-mail to Vanguard
[email protected]
(C) 1997 Vanguard Marketing
Corporation, Distributor
<PAGE> 58
PART B
VANGUARD INDEX TRUST
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 6, 1997
This Statement is not a prospectus but should be read in conjunction with
the Trust's current Prospectus (dated January 6, 1997). To obtain the Prospectus
please call:
VANGUARD INVESTOR INFORMATION CENTER
1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies........................................................ 1
Investment Limitations.................................................................... 5
Purchase of Shares........................................................................ 6
Redemption of Shares...................................................................... 7
Yield and Total Return.................................................................... 7
Management of the Trust................................................................... 8
Portfolio Transactions.................................................................... 11
Description of Shares and Voting Rights................................................... 11
Performance Measures...................................................................... 12
Financial Statements...................................................................... 13
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
REPURCHASE AGREEMENTS Each Portfolio of the Trust may invest in repurchase
agreements with commercial banks, brokers or dealers either for defensive
purposes due to market conditions or to generate income from its excess cash
balances. A repurchase agreement is an agreement under which the Portfolio
acquires a money market instrument (generally a security issued by the U.S.
Government or an agency thereof, a banker's acceptance or a certificate of
deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally, the next business day). A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by the Portfolio and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by the
Portfolio (including accrued interest earned thereon) must have a total value in
excess of the value of the repurchase agreement and are held by a custodian bank
until repurchased. In addition, the Board of Trustees will monitor the Trust's
repurchase agreement transactions generally and will establish guidelines and
standards for review of the creditworthiness of any bank, broker or dealer party
to a repurchase agreement with the Trust. No more than an aggregate of 15% of a
Portfolio's assets at the time of investment, will be invested in repurchase
agreements having maturities longer than seven days and securities subject to
legal or contractual restrictions on resale, for which there are no readily
available market quotations. From time to time, the Fund's Board of Directors
may determine that certain restricted securities known as Rule 144A securities
are liquid and not subject to the 15% limitation described above.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Portfolio may incur a loss upon disposition of the security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Portfolio not within the
control of the Portfolio and therefore the Portfolio may not be able to
substantiate its interest in the underlying security and
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may be deemed an unsecured creditor of the other party to the agreement. While
the Trust's management acknowledges these risks, it is expected that they can be
controlled through careful monitoring procedures.
LENDING OF SECURITIES Each Portfolio of the Trust may lend its securities
to qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities or completing arbitrage operations. By lending its
portfolio securities, a Portfolio attempts to increase its net investment income
through the receipt of interest on the loan. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would be for the account of the Portfolio. The Portfolio may lend its portfolio
securities to qualified brokers, dealers, banks or other financial institutions,
so long as the terms, the structure and the aggregate amount of such loans are
not inconsistent with the Investment Company Act of 1940, or the Rules and
Regulations or interpretations of the Securities and Exchange Commission (the
"Commission") thereunder, which currently require that (a) the borrower pledge
and maintain with the Trust collateral consisting of cash, a letter of credit
issued by a domestic U.S. bank, or securities issued or guaranteed by the United
States Government having at all times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e. the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Trust at any time and
(d) the Portfolio receive reasonable interest on the loan (which may include the
Portfolio's investing any cash collateral in interest bearing short-term
investments), any distribution on the loaned securities and any increase in
their market value. Loan arrangements made by the Trust will comply with all
other applicable regulatory requirements, including the rules of the New York
Stock Exchange, which rules presently require the borrower, after notice, to
redeliver the securities within the normal settlement time of three business
days. All relevant facts and circumstances, including the creditworthiness of
the broker, dealer or institution, will be considered in making decisions with
respect to the lending of securities, subject to review by the Board of
Trustees.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's trustees. In addition, voting rights pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
FUTURES CONTRACTS Each Portfolio of the Trust may enter into futures
contracts, options, warrants, options on futures contracts, convertible
securities and swap agreements for the purpose of simulating full investment and
reducing transactions costs. The Trust does not use futures or options for
speculative purposes. Each Portfolio will only use futures and options to
simulate full investment in the underlying index while retaining a cash balance
for fund management purposes. Futures contracts provide for the future sale by
one party and purchase by another party of a specified amount of a specific
security at a specified future time and at a specified price. Futures contracts
which are standardized as to maturity date and underlying financial instrument
are traded on national futures exchanges. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"), a U.S. Government Agency. Assets committed to futures
contracts will be segregated at the Trust's custodian bank to the extent
required by law.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the
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exchange minimums. Futures contracts are customarily purchased and sold on
deposits which may range upward from less than 5% of the value of the contract
being traded.
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. A Portfolio of
the Trust expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Trust's Portfolios intend to use
futures contracts only for bona fide hedging purposes.
Regulations of the CFTC applicable to the Trust require that all of its
futures transactions constitute bona fide hedging transactions. A Portfolio will
only sell futures contracts to protect against a decrease in the price of
securities it intends to sell or purchase contracts to protect against an
increase in the price of securities it intends to purchase. As evidence of this
hedging interest, the Portfolio expects that approximately 75% of its futures
contract purchases will be "completed," that is, equivalent amounts of related
securities will have been purchased or are being purchased by the Portfolio upon
sale of open futures contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the Portfolio's exposure to market fluctuations, the
use of futures contracts may be a more effective means of hedging this exposure.
While a Portfolio will incur commission expenses in both opening and closing out
futures positions, these costs are lower than transaction costs incurred in the
purchase and sale of the underlying securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS A Portfolio will not enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of the Portfolio's total assets. In addition, a Portfolio will not
enter into futures contracts to the extent that its outstanding obligations to
purchase securities under these contracts would exceed 20% of the Portfolio's
total assets.
RISK FACTORS IN FUTURES TRANSACTIONS Positions in futures contracts may be
closed out only on an Exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Portfolio would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if the Portfolio
has insufficient cash, it may have to sell portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, the Portfolio may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the ability to
effectively hedge it.
Each Portfolio will minimize the risk that it will be unable to close out a
futures contract by only entering into futures which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
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out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the contract. The Trust also bears the risk
that the adviser will incorrectly predict future stock market trends. However,
because the futures strategies of the Trust are engaged in only for hedging
purposes, the Trust's officers do not believe that the Portfolios are subject to
the risks of loss frequently associated with futures transactions. A Portfolio
would presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and sold it
after the decline.
Utilization of futures transactions by the Trust does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged.
It is also possible that the Portfolio could both lose money on futures
contracts and also experience a decline in value of its portfolio securities.
There is also the risk of loss by the Portfolio of margin deposits in the event
of bankruptcy of a broker with whom the Portfolio has an open position in a
futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS Each Portfolio of the Trust is
required for federal income tax purposes to recognize as income for each taxable
year its net unrealized gains and losses on certain futures contracts as of the
end of the year as well as those actually realized during the year. In most
cases, any gain or loss recognized with respect to a futures contract is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the contract. Furthermore,
sales of futures contracts which are intended to hedge against a change in the
value of securities held by the Portfolio may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition. A Portfolio may be required to defer the recognition of losses
on futures contracts to the extent of any unrecognized gains on related
positions held by the Portfolio.
In order for each Portfolio to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Portfolio's business of investing in securities. In addition, gains realized on
the sale or other disposition of securities held for less than three months must
be limited to less than 30% of the Portfolio's annual gross income. Net gain
realized from the closing out of futures contracts will be considered gain from
the sale of securities and therefore be qualifying income for purposes of the
90% requirement. In order to avoid realizing excessive gains on securities held
less than three months, the Portfolio may be required to defer the closing out
of futures contracts beyond the time when it would otherwise be advantageous to
do so. It is anticipated that unrealized gains on futures contracts, which have
been open for less than three months as of the end of the Portfolio's fiscal
year and which are recognized for tax purposes, will not be considered gains on
sales of securities held less than three months for the purpose of the 30% test.
Each Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the Portfolio's fiscal year) on futures
transactions. Such distributions will be combined with distributions of capital
gains realized on the Portfolio's other investments and shareholders will be
advised on the nature of the distributions.
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INVESTMENT LIMITATIONS
The following restrictions and fundamental policies cannot be changed
without approval of the holders of a majority of the outstanding shares of each
Portfolio (as defined in the Investment Company Act of 1940). Each Portfolio may
not under any circumstances:
1) change its investment objective, which is to provide investment results
that correspond to the performance of a particular stock index as set
forth in (2) below;
2) change its investment policy, which is, in the case of the 500
Portfolio, is to attempt to duplicate the performance of Standard &
Poor's 500 Composite Stock Price Index by owning as many of the 500
stocks contained in the index as is feasible; in the case of the
Extended Market Portfolio, is to attempt to duplicate the performance
of common stocks traded on the New York Stock Exchange, American Stock
Exchange and NASDAQ not included in the S&P 500 Index as represented by
the Wilshire 4500 Index; in the case of the Total Stock Market
Portfolio to match the investment performance of the Wilshire 5000
Index, an index consisting of all regularly traded U.S. stocks; in the
case of the Value Portfolio to attempt to duplicate the performance of
the Standard & Poor's/BARRA Value Index by owning as many of the stocks
contained in the index as is feasible; in the case of the Growth
Portfolio to attempt to duplicate the performance of the Standard &
Poor's/BARRA Growth Index by owning as many of the stocks contained in
the index as is feasible; and, in the case of the Small Capitalization
Stock Portfolio to duplicate the investment performance of the Russell
2000 Small Stock Index;
3) invest in commodities or purchase real estate, although it may purchase
securities of companies which deal in real estate or interests therein,
and that each Portfolio may invest in stock index futures contracts,
stock options and options on stock index futures contracts to the
extent that not more than 5% of the Portfolio's assets are required as
margin deposit for futures contracts and not more than 20% of a
Portfolio's assets are invested in futures and options at any time;
4) lend money to any person except (i) by purchasing a portion of an issue
of short-term debt securities or similar obligations (including
repurchase agreements) which are publicly distributed or customarily
purchased by institutional investors, and (ii) as provided under
"Lending of Securities";
5) purchase securities on margin or sell securities short, except as set
forth in paragraph 3 above;
6) with respect to 75% of net assets, purchase more than 10% of the
outstanding voting securities of any company;
7) with respect to 75% of its assets, purchase securities of any issuer
(except obligations of the United States Government and its
instrumentalities), if, as a result, more than 5% of the value of the
Portfolio's total assets would be invested in the securities of such
issuer;
8) borrow money, except 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 15% of its net assets (including the amount borrowed and the
value of any outstanding reverse repurchase agreements) at the time the
borrowing is made. Whenever a borrowing exceeds 5% of a Portfolio's net
assets, the Portfolio will not make any additional investments;
9) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 5% of the value of its total assets;
10) engage in the business of underwriting securities issued by other
persons except to the extent that a Portfolio may technically be deemed
an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities;
11) purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are illiquid
(including the Trust's investment in The Vanguard Group, Inc.);
12) invest for the purpose of controlling management of any company;
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13) invest in securities of other investment companies, except as may be
acquired as a part of a merger, consolidation or acquisition of assets
approved by the Portfolio's shareholders, or otherwise to the extent
permitted by Section 12 of the Investment Company Act of 1940. The
Portfolio will invest only in investment companies which have
investment objectives and investment policies consistent with those of
the Portfolio;
14) invest more than 25% of the value of its total assets in any one
industry; or
15) invest in put, call, straddle or spread options or in interests in oil,
gas or other mineral exploration or development programs, except as set
forth in limitation number "3", above.
The above-mentioned investment limitations are considered at the time
investment securities are purchased. Notwithstanding these limitations, the
Trust may own all or any portion of the securities of, or make loans to, or
contribute to the costs or other financial requirements of any company which
will be wholly owned by the Trust and one or more other investment companies and
is primarily engaged in the business of providing, at-cost, management,
administrative, distribution or related services to the Trust and other
investment companies. See "The Vanguard Group". Each Portfolio of the Trust may
not invest more than 5% of its total assets in securities of companies which
have (with predecessors) a record of less than three years' of continuous
operation. Additionally, each Portfolio of the Trust will not purchase or retain
securities of an issuer if those Officers and Trustees of the Trust owning more
than 1/2 of 1% of such securities together own more than 5% of such securities.
These are non-fundamental policies which may be changed by the vote of a
majority of the Trustees.
PURCHASE OF SHARES
The Trust reserves the right in its sole discretion (i) to suspend the
offerings of its shares, (ii) to reject purchase or exchange purchase orders
when in the judgment of management such rejection is in the best interest of the
Trust, and (iii) to reduce or waive the minimum investment for or any other
restrictions on initial and subsequent investments as well as redemption fees
for certain fiduciary accounts or under circumstances where certain economies
can be achieved in sales of the Trust's shares.
EXCHANGE OF SECURITIES FOR SHARES OF THE TRUST In certain circumstances,
shares of the Trust's Portfolios may be purchased in exchange for a minimum
value of $1 million in common stocks. Such common stocks must be included in the
appropriate Index and each position must have a market value in excess of
$10,000. Additionally, such securities will be acquired by a Portfolio of the
Trust for investment purpose and not for resale and must be liquid securities
which are not restricted as to transfer and have a value which is readily
ascertainable as evidenced by a listing on the American Stock Exchange, the New
York Stock Exchange or NASDAQ. Securities accepted by the Portfolio will be
valued as set forth under "The Share Price of Each Portfolio" in the Trust's
prospectus as of the time of the next determination of net asset value after
such acceptance. Shares of each Portfolio of the Trust are issued at net asset
value determined as of the same time. "IN-KIND" PURCHASES OF THE SMALL
CAPITALIZATION STOCK AND, EXTENDED MARKET PORTFOLIO WILL NOT BE SUBJECT TO THE
1% AND 0.5% TRANSACTION FEES. All dividends, subscription, or other rights which
are reflected in the market price of accepted securities at the time of
valuation become the property of the Portfolio and must be delivered to the
Portfolio by the investor upon receipt from the issuer. A gain or loss for
Federal income tax purposes would be realized by the investor upon the exchange
depending upon the cost of the securities tendered.
The Portfolio will not accept securities in exchange unless: (1) such
securities are, at the time of the exchange, included in the Portfolio; (2) such
an exchange will not cause the Portfolio's weightings to come imbalanced with
respect to the weightings of the stocks included in the Index; (3) the investor
represents and agrees that all securities offered to the Portfolio are not
subject to any restrictions upon their sale by the Portfolio under the
Securities Act of 1933, or otherwise; (4) such securities are traded in an
unrelated transaction with a quoted sales price on the same day the exchange
valuation is made; (5) the quoted sales price used as a basis of valuation is
representative (i.e., one that does not involve a trade of substantial size
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which artificially influences the price of the security); and (6) the value of
any such security being exchanged will not exceed 5% of the Portfolio's net
assets immediately prior to the transaction.
Investors interested in such purchases should contact the Trust.
REDEMPTION OF SHARES
Each Portfolio may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Securities and
Exchange Commission (the "Commission"), (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of which it is not
reasonably practicable for the Trust to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
No charge is made by the Trust for redemptions. Any redemption may be more
or less than the shareholder's cost depending on the market value of the
securities held by each Portfolio.
The Trust has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of a Portfolio
at the beginning of such period. Such commitment is irrevocable without the
prior approval of the Commission. Redemptions in excess of the above limits may
be paid in whole or in part, in investment securities or in cash, as the
Trustees may deem advisable; however, payment will be made wholly in cash unless
the Trustees believe that economic or market conditions exist which would make
such a practice detrimental to the best interests of the Trust. If redemptions
are paid in investment securities, such securities will be valued as set forth
in the Prospectus under "The Share Price of Each Portfolio" and a redeeming
shareholder would normally incur brokerage expenses if he converted these
securities to cash.
YIELD AND TOTAL RETURN
The yield of the 500 Portfolio of the Trust for the 30-day period ended
June 30, 1996 was 2.04%. The yield of the Extended Market Portfolio of the Trust
for the 30-day period ended June 30, 1996 was 1.25%. The yield of the Total
Stock Market Portfolio of the Trust for the 30-day period ended June 30, 1996
was 1.73%. The yield of the Value Portfolio for the 30-day period ended June 30,
1996 was 2.63%. The yield of the Growth Portfolio for the 30-day period ended
June 30, 1996 was 1.45%. The yield of the Small Capitalization Stock Portfolio
for the 30-day period ended June 30, 1996 was 1.36%.
The average annual total return of the 500 Portfolio* for the one- five-
and ten-year periods ended June 30, 1996 was +25.87%, +15.51% and +13.49%,
respectively. The average annual total return for the Extended Market
Portfolio** for the one- and five-year periods ended June 30, 1996 and since the
Portfolio's inception on December 21, 1987 was +25.58%, +17.05% and +15.25%,
respectively. The average annual total return of the Total Stock Market
Portfolio* for the period ended June 30, 1996, and since the Portfolio's
inception on April 27, 1992 was +25.25% and +15.40%+. The average annual total
return of the Value Portfolio* for the period ended June 30, 1996 and since
inception on November 2, 1992 was +24.72% and +17.57%+. The average annual total
return of the Growth Portfolio* for the period ended June 30, 1996 and since
inception on November 2, 1992 was +24.72% and +17.57%+. The average annual total
return of the Growth Portfolio* for the period ended June 30, 1996 and since
inception on November 2, 1992 was +27.02% and +14.74%+. The average annual
return of the Small Capitalization Stock Portfolio*** for the one- five- and
ten-year periods ended December 31, 1996 was +23.96%, +17.73% and +9.39%,
respectively. Total return is computed by finding the average compounded rates
of return over the one- five- and ten-year periods set forth above that would
equate an initial amount invested at the beginning of the periods to the ending
redeemable value of the investment.
- - ---------------
* Total return figures are adjusted to reflect the $10 annual account
maintenance fee.
** Total return figures for the Extended Market Portfolio reflects the 0.50%
portfolio transaction fee and the $10 annual account maintenance fee.
*** Total return figures for the Small Capitalization Stock Portfolio reflects
the 1% portfolio transaction fee and the $10 annual account maintenance fee.
+ Annualized.
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MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Officers of the Trust manage its day-to-day operations and are
responsible to the Trust's Board of Trustees. The Trustees set broad policies
for the Trust and choose its Officers. The following is a list of the Trustees
and Officers of the Trust and a statement of their present positions and
principal occupations during the past five years. The mailing address of the
Trustees and Officers of the Trust is Post Office Box 876, Valley Forge, PA
19482.
JOHN C. BOGLE, Chairman and Trustee*
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group. Director of The Mead
Corporatio and General Accident Insurance.
JOHN J. BRENNAN, President, Chief Executive
Officer & Trustee*
President, Chief Executive Officer and Director of The Vanguard Group, Inc.
and of each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Trustee
Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Director of
Sun Company.
BARBARA BARNES HAUPTFUHRER, Trustee
Director of The Great Atlantic and Pacific Tea Company. Alco Standard
Corp., Raytheon Company, Knight-Ridder Inc., and Massachusetts Mutual Life
Insurance Co. and Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY, Trustee
President, The Brookings Institution; Director of American Express Bank,
Ltd., The St. Paul Companies, Inc., and National Steel Corporation.
BURTON G. MALKIEL, Trustee
Chemical Bank Chairman's Professor of Economics, Princeton University;
Director of Prudential Insurance Co. of America, Amdahl Corporation, Baker
Fentress & Co., The Jeffrey Co., and Southern New England Communications
Company.
ALFRED M. RANKIN, JR., Trustee
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of The BFGoodrich Company, and The Standard Products Company.
JOHN C. SAWHILL, Trustee
President and Chief Executive Officer, The Nature Conservancy; formerly,
Director and Senior Partner, McKinsey & Co.; President, New York
University; Director of Pacific Gas and Electric Company, Procter & Gamble
Company and NACCO Industries.
JAMES O. WELCH, JR., Trustee
Retired Chairman of Nabisco Brands, Inc. retired Vice Chairman and Director
of RJR Nabisco; Director of TECO Energy, Inc.; and Director of Kmart
Corporation.
J. LAWRENCE WILSON, Trustee
Chairman and Chief Executive Officer of Rohm & Haas Company; Director of
Cummins Engine Company; Trustee of Vanderbilt University.
RAYMOND J. KLAPINSKY, Secretary*
Senior Vice President and Secretary of The Vanguard Group, Inc.; Secretary
of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND, Treasurer*
Treasurer of The Vanguard Group, Inc. and of each of the investment
companies in The Vanguard Group.
KAREN E. WEST, Controller*
Principal of The Vanguard Group, Inc.; Controller of each of the investment
companies in The Vanguard Group.
- - ---------------
*Officers of the Trust are "interested persons" as defined in the Investment
Company Act of 1940.
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THE VANGUARD GROUP, INC.
Vanguard Index Trust is a member of the Vanguard Group of Investment
companies which consists of more than 30 investment companies. Through their
jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Trust and
the other Funds in the Group obtain at cost virtually all of their corporate
management, administrative and distribution services. Vanguard also provides
investment advisory services on an at-cost basis to several of the Vanguard
Funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Funds and also
furnishes the Funds with necessary office space, furnishings and equipment. Each
Fund pays its share of Vanguard's total expenses which are allocated among the
Funds under methods approved by the Board of Trustees (Directors) of each Fund.
In addition, each Fund bears its own direct expenses such as legal, auditing and
custodian fees.
The Fund's Officers are Officers of Vanguard. No Officer or employee owns,
or is permitted to own, any securities of any external adviser for the Funds.
The Vanguard Group adheres to a Code of Ethics established pursuant to Rule
17j-1 under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.
The Vanguard Group was established and operates under a Funds' Service
Agreement which was approved by the shareholders of each of the Funds. The
Funds' Service Agreement provides as follows: (a) each aggregate Vanguard Fund
may invest up to .40% of its current assets in Vanguard, and (b) there is no
limitation on the amount that the Vanguard Funds may contribute to Vanguard's
capitalization. The amounts which each of the Funds have invested are adjusted
from time to time in order to maintain the proportionate relationship between
each Fund's relative net assets and its contribution to Vanguard's capital. At
December 31, 1995 and for the six months ended June 30, 1996, the Trust had
contributed capital of $2,487,000 and $3,054,000 to Vanguard, representing 12.4%
and 15.3% of Vanguard's capitalization.
MANAGEMENT Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended December 31, 1995 and the six months ended June 30, 1996, the
Trust's share of Vanguard's actual net costs of operation relating to management
and administrative services (including transfer agency) totaled approximately
$28,811,000 and $22,202,000.
DISTRIBUTION Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for the shares of
the Funds in connection with any sales made directly to investors in the states
of Florida, Missouri, New York, Ohio, Texas and such other states as it may be
required.
The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The directors and
officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon relative net assets. The remaining one
half of those expenses is allocated among the Funds based upon each Fund's sales
for the preceding 24 months relative to the total sales of the Funds as a Group,
provided, however, that no Fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
average distribution expense rate for the Group, and
9
<PAGE> 67
that no Fund shall incur annual distribution expenses in excess of 20/100 of 1%
of its average month-end net assets. During the fiscal year ended December 31,
1995 and the six months ended June 30, 1996, the Trust paid approximately
$3,385,000 and $3,125,000 of the Group's distribution and marketing expenses.
INVESTMENT ADVISORY SERVICES Vanguard also provides investment advisory
services to Vanguard Municipal Bond Fund, Vanguard Admiral Funds, Vanguard
Balanced Index Fund, several Portfolios of Vanguard Variable Insurance Fund,
Vanguard Bond Index Fund, Vanguard International Equity Index Fund, Vanguard
Institutional Index Fund, Vanguard Money Market Reserves, several Portfolios of
Vanguard Fixed Income Securities Fund, Vanguard Tax-Managed Fund, the Aggressive
Growth Portfolio of Vanguard Horizon Fund, the Total International Portfolio of
Vanguard STAR Fund, Vanguard California Tax-Free Fund, Florida Insured Tax-Free
Fund, New Jersey Tax-Free Fund, New York Insured Tax-Free Fund, Ohio Tax-Free
Fund, Pennsylvania Tax-Free Fund, a portion of the assets of Vanguard/Windsor
II, a portion of Vanguard/Morgan Growth Fund and several indexed separate
accounts. These services are provided on an at-cost basis from money management
staff employed directly by Vanguard. The compensation and other expenses of this
staff are paid by the Funds utilizing these services. During the fiscal year
ended December 31, 1995 and the six months ended June 30, 1996, the Fund paid
approximately $213,000 and $67,000 of Vanguard's expenses relating to investment
advisory services.
REMUNERATION OF TRUSTEES AND OFFICERS The Trust pays each Trustee, who is
not also an Officer, an annual fee plus travel and other expenses incurred in
attending Board meetings. The Trust's Officers and employees are paid by
Vanguard which, in turn, is reimbursed by the Trust and each other Fund in the
Group, for its proportionate share of Officers' and employees' salaries and
retirement benefits. For the fiscal year ended December 31, 1995, the Fund's
proportionate share of remuneration for all Officers as a group was
approximately $634,687, and its proportionate share of the amounts contributed
to the retirement plans of all Officers as a group was approximately $18,600.
During the fiscal year ended December 31, 1995, the Trust paid
approximately $60,000 in Trustees' fees and expenses.
Upon retirement, Trustees who are not Officers receive an annual fee of
$1,000 for each year of service on the Board up to a maximum of $15,000. Under
its retirement plan, Vanguard contributes annually an amount equal to 10% of
each Officer's annual compensation plus 7% of that part of the Officer's
compensation during the year, if any, that exceeds the Social Security Taxable
Wage Base then in effect.
The following table provides detailed information with respect to the
amounts paid or accrued for the Trustees and Officers of the Trust for whom the
Trust's proportionate share of remuneration exceeded $60,000 for the fiscal year
ended December 31, 1995.
VANGUARD INDEX TRUST
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM ALL VANGUARD FUNDS
NAMES OF TRUSTEES FROM TRUST PART OF TRUST EXPENSES UPON RETIREMENT PAID TO TRUSTEES(2)
- - --------------------------- ------------ ---------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1) $352,833 $3,720 -- --
John J. Brennan(1) $175,833 $3,720 -- --
Barbara Barnes Hauptfuhrer $ 6,512 $1,114 $15,000 $59,000
Robert E. Cawthorn $ 6,512 $ 928 $13,000 $59,000
Bruce K. MacLaury $ 7,180 $1,098 $12,000 $55,000
Burton G. Malkiel $ 6,622 $ 742 $15,000 $60,000
Alfred M. Rankin, Jr. $ 6,622 $ 586 $15,000 $60,000
John C. Sawhill $ 6,622 $ 696 $15,000 $60,000
James O. Welch, Jr. $ 6,512 $ 857 $15,000 $59,000
J. Lawrence Wilson $ 6,622 $ 619 $15,000 $60,000
</TABLE>
(1) As "Interested Trustees," Messrs. Bogle and Brennan receive no compensation
for their service as Trustees.
(2) The amounts reported in this column reflect the total compensation paid to
each Trustee for their service as Director or Trustee of 34 Vanguard Funds
(27 in the case of Mr. MacLaury).
10
<PAGE> 68
PORTFOLIO TRANSACTIONS
In placing portfolio transactions, the Trust uses its best judgment to
choose the broker most capable of providing the brokerage services necessary to
obtain best available price and most favorable execution. The full range and
quality of brokerage services available 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 will be given to
those brokers which supply statistical information and provide other services in
addition to execution services to the Trust.
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Trust may place portfolio orders with qualified
broker-dealers who recommend the Trust to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider the sale of Trust shares by a broker or dealer in
selecting among broker-dealers.
During the years ended December 31, 1993, 1994 and 1995 the Trust paid
brokerage commissions of $1,454,492*, $2,092,196 and $3,421,567, respectively.
*Does not include the Small Capitalization Stock Portfolio (formerly Vanguard
Small Capitalization Stock Fund, Inc.).
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest, without par value, from an unlimited number of
classes ("Portfolios") of shares. Currently the Trust is offering shares of six
Portfolios.
The shares of the Trust are fully paid and nonassessable, except as set
forth under "Shareholder and Trustee Liability," and have no preference as to
conversion, exchange, dividends, retirement or other features. The shares of the
Trust have no pre-emptive rights. The shares of the Trust have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees if they
choose to do so. A shareholder is entitled to one vote for each full share held
(and a fractional vote for each fractional share held), then standing in his
name on the books of the Trust. On any matter submitted to a vote of
shareholders, all shares of the Trust then issued and outstanding and entitled
to vote, irrespective of the class, shall be voted in the aggregate and not by
class: except (i) when required by the Investment Company Act of 1940, shares
shall be voted by individual class; and (ii) when the matter does not affect any
interest of a particular class, then only shareholders of the affected class or
classes shall be entitled to vote thereon.
The Trust will continue without limitation of time, provided however that:
1) Subject to the majority vote of the holders of shares of any Portfolio
of the Trust outstanding, the Trustees may sell or convert the assets of
such Portfolio to another investment company in exchange for shares of
such investment company and distribute such shares ratably among the
shareholders of such Portfolio;
2) Subject to the majority vote of shares of any Portfolio of the Trust
outstanding, the Trustees may sell and convert into money the assets of
such Portfolio and distribute such assets ratably among the shareholders
of such Portfolio; and
3) Without the approval of the shareholders of any Portfolio, unless
otherwise required by law, the Trustees may combine the assets of any
two or more Portfolios into a single Portfolio so long as such
combination will not have a material adverse effect upon the
shareholders of such Portfolio.
Upon completion of the distribution of the remaining proceeds or the
remaining assets of any Portfolio as provided in paragraphs 1), 2), 3) above the
Trust shall terminate as to that Portfolio and the Trustees shall be discharged
of any and all further liabilities and duties hereunder and the right, title and
interest of all parties shall be cancelled and discharged.
11
<PAGE> 69
SHAREHOLDER AND TRUSTEE LIABILITY Under Pennsylvania law, shareholders of
such a Trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. Therefore, the Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees. The Declaration of Trust provides for indemnification out of the
Trust property of any shareholder held personally liable for the obligations of
the Trust. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim against any shareholder for any act or
obligation of the Trust and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he 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
office.
PERFORMANCE MEASURES
Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member funds of The Vanguard Group, Inc.
Each of the investment company members of the Vanguard Group, including
Vanguard Index Trust, may from time to time, use one or more of the following
unmanaged indices for comparative performance purposes.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well diversified list
of 500 companies representing the U.S. Stock Market.
STANDARD & POOR'S/BARRA VALUE INDEX -- contains common stocks of the S&P 500
Index which have lower than average price-to-book ratios.
STANDARD & POOR'S/BARRA GROWTH INDEX -- contains common stocks of the S&P 500
Index which have higher than average price-to-book ratios.
WILSHIRE 5000 EQUITY INDEX -- consists of more than 7,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.
RUSSELL 2000 STOCK INDEX -- is composed of approximately 2,000 small
capitalization stocks.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX -- is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 71 bonds and 29
preferred. The original list of names was generated by screening for convertible
issues of $100 million or greater in market capitalization. The index is priced
monthly.
SALOMON BROTHERS GNMA INDEX -- includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly issued,
non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.
SALOMON BROTHERS BROAD INVESTMENT-GRADE BOND -- is a market-weighted index that
contains approximately 4700 individually priced investment-grade corporate bonds
rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.
LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
12
<PAGE> 70
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial issues. It
is a value-weighted index calculated on price change only and does not include
income.
COMPOSITE INDEX -- 70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
COMPOSITE INDEX -- 65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's/BARRA Value
Index and 25% Standard & Poor's Utilities Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX -- consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market-weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated Baa- or better. The Index has a market value of over
$4 trillion.
LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate investment grade bonds rated BBB- or better with maturities
between 1 and 5 years. The index has a market value of over $1.3 trillion.
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10+) GOVERNMENT/CORPORATE
INDEX -- is a market-weighted index that contains individually priced U.S.
Treasury, agency, and corporate securities rated BBB- or better with maturities
between 5 and 10 years. The index has a market value of over $600 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities greater than 10
years. The index has a market value of over $900 billion.
LEHMAN CORPORATE (BAA) BOND INDEX -- all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.
LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX -- is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate
nonconvertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.
FINANCIAL STATEMENTS
The Trust's Financial Statements for the year ended December 31, 1995,
including the financial highlights for each of the respective periods presented,
appearing in the Vanguard Index Trust 1995 Annual Report to Shareholders and
inserts thereto, and the reports thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, are incorporated by reference in this
Statement of Additional Information. The unaudited financial statements and
financial highlights of the Trust for the six months ended June 30, 1996, as set
forth in the Vanguard Index Trust Semi-Annual Report to Shareholders, are
incorporated herein by reference. The Trust's 1995 Annual Report and Semi-Annual
Report to Shareholders and inserts thereto, are enclosed with this Statement of
Additional Information.
13
<PAGE> 71
PART C
VANGUARD INDEX TRUST
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
The Trust's Financial Statements for the year ended December 31, 1995,
including the financial highlights for each of the respective periods presented,
appearing in the Vanguard Index Trust 1995 Annual Report to Shareholders and
inserts thereto, and the reports thereon of Price Waterhouse LLP, independent
accountants, and the unaudited financial statements for the six months ended
June 30, 1996 are incorporated by reference in this Statement of Additional
Information, from the Registrants 1995 Annual Report and the June 30, 1996
Semi-Annual Report to Shareholders which have been filed with the Commission.
The Financial Statements included in the Annual Report:
1. Statement of Net Assets as of December 31, 1995 and as of June 30, 1996.
2.Statement of Operations for the year ended December 31, 1995 and for six
months ended June 30, 1996.
3. Statement of Changes in Net Assets for the years ended December 31,
1994, December 31, 1995 and for six months ended June 30, 1996.
4. Financial Highlights for the respective periods ended December 31, 1995
and for six months ended June 30, 1996.
5. Notes to Financial Statements.
6. Reports of Independent Accountants.
(B) EXHIBITS
1. Articles of Declaration of Trust**
2. By-Laws of Registrant**
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Not Applicable
7. Reference is made to the section entitled "Management of the Fund" in
the Registrant's Statement of Additional Information
8. Form of Custody Agreement**
9. Form of Vanguard Service Agreement**
10. Opinion of Counsel**
11. Consent of Independent Accountants*
12. Financial Statements -- reference is made to (a) above
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Schedule for Computation of Performance Quotations*
27. Financial Data Schedule*.
- - ---------------
* Filed herewith
** Previously filed.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any person.
The Officers of the Registrant, the investment companies in The Vanguard Group
of Investment Companies and The Vanguard Group, Inc. are identical. Reference is
made to the caption "Management of the Fund" in the Prospectus constituting Part
A and in the Statement of Additional Information constituting Part B of this
Registration Statement.
<PAGE> 72
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of June 30, 1996 there were 824,510 shareholders of the 500 Portfolio,
62,173 shareholders of the Extended Market Portfolio, 45,228 shareholders of the
Total Stock Market Portfolio, 33,511 shareholders of the Value Portfolio, 29,796
shareholders of the Growth Portfolio and 58,767 shareholders of Vanguard Small
Capitalization Stock Portfolio.
ITEM 27. INDEMNIFICATION
Reference is made to Article XI of Registrant's Declaration of Trust.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Investment advisory services are provided to the Registrant on an at-cost
basis by The Vanguard Group, Inc., a jointly-owned subsidiary of the Registrant
and the other Funds in the Group. See the information concerning The Vanguard
Group set forth in Parts A and B.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None
(b) Not Applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc. c/o The Vanguard Financial Center, Valley Forge,
Pennsylvania 19482; and the Registrant's Custodians, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02105, and CoreStates Bank,
N.A., Broad and Market Sts., Philadelphia, PA 19103.
ITEM 31. MANAGEMENT SERVICES
Other than the Amended and Restated Funds' Service Agreement with The
Vanguard Group, Inc. which was previously filed as Exhibit 9(c) and described
Registrant is not a party of any management-related service contract.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940 in regard to shareholder's rights to call
a meeting of shareholders for the purpose of voting on the removal of trustees
and to assist in shareholder communications in such matters to the extent
required by law.
Registrant hereby undertakes to provide an Annual Report to Shareholders of
prospective investors, free of charge, upon request.
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Valley Forge and the
Commonwealth of Pennsylvania, on the 30th day of December, 1996.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
BY: John C. Bogle*, Chairman of the Board and Trustee
December 30, 1996
BY: John J. Brennan*, President, Trustee and Chief Executive Officer
December 30, 1996
BY: Robert E. Cawthorn*, Trustee
December 30, 1996
BY: Barbara B. Hauptfuhrer*, Trustee
December 30, 1996
BY: Bruce K. MacLaury*, Trustee
December 30, 1996
BY: Burton G. Malkiel*, Trustee
December 30, 1996
BY: Alfred M. Rankin, Jr.*, Trustee
December 30, 1996
BY: John C. Sawhill*, Trustee
December 30, 1996
BY: James O. Welch, Jr.*, Trustee
December 30, 1996
BY: J. Lawrence Wilson*, Trustee
December 30, 1996
BY: Richard F. Hyland*, Treasurer and Principal
Financial Officer and Accounting Officer
December 30, 1996
*By Power of Attorney. See File Number 2-14336, January 23, 1990. Incorporated
by Reference.
<PAGE> 74
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Consent of Independent Accountants................................................... EX-99.B11
Schedule for Computation of Performance Quotations................................... EX-99.B16
Financial Data Schedules............................................................. EX-27
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
<NUMBER> 01
<NAME> 500 PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 17746981
<INVESTMENTS-AT-VALUE> 23660663
<RECEIVABLES> 175872
<ASSETS-OTHER> 3666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23840201
<PAYABLE-FOR-SECURITIES> 100332
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65496
<TOTAL-LIABILITIES> 165828
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17602765
<SHARES-COMMON-STOCK> 376458
<SHARES-COMMON-PRIOR> 301574
<ACCUMULATED-NII-CURRENT> 87290
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 70742
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5913576
<NET-ASSETS> 23674373
<DIVIDEND-INCOME> 228943
<INTEREST-INCOME> 4640
<OTHER-INCOME> 0
<EXPENSES-NET> 20608
<NET-INVESTMENT-INCOME> 212945
<REALIZED-GAINS-CURRENT> 304262
<APPREC-INCREASE-CURRENT> 1419406
<NET-CHANGE-FROM-OPS> 1936613
<EQUALIZATION> 16022
<DISTRIBUTIONS-OF-INCOME> 156804
<DISTRIBUTIONS-OF-GAINS> 13576
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 104572
<NUMBER-OF-SHARES-REDEEMED> 32185
<SHARES-REINVESTED> 2497
<NET-CHANGE-IN-ASSETS> 6302538
<ACCUMULATED-NII-PRIOR> 15127
<ACCUMULATED-GAINS-PRIOR> 11106
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20608
<AVERAGE-NET-ASSETS> 10735958
<PER-SHARE-NAV-BEGIN> 57.60
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 5.15
<PER-SHARE-DIVIDEND> 0.44
<PER-SHARE-DISTRIBUTIONS> 0.04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 62.89
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
[NUMBER] 02
<NAME> EXTENDED MARKET PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
[INVESTMENTS-AT-COST] 1310068
[INVESTMENTS-AT-VALUE] 1788488
[RECEIVABLES] 234254
[ASSETS-OTHER] 1869
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2024611
[PAYABLE-FOR-SECURITIES] 1092
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 277761
[TOTAL-LIABILITIES] 278853
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1177451
[SHARES-COMMON-STOCK] 66495
[SHARES-COMMON-PRIOR] 63273
[ACCUMULATED-NII-CURRENT] 13217
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 76626
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 478464
[NET-ASSETS] 1745758
[DIVIDEND-INCOME] 13098
[INTEREST-INCOME] 2283
[OTHER-INCOME] 0
[EXPENSES-NET] 2179
[NET-INVESTMENT-INCOME] 13202
[REALIZED-GAINS-CURRENT] 76224
[APPREC-INCREASE-CURRENT] 76585
[NET-CHANGE-FROM-OPS] 166011
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 21763
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 13867
[NUMBER-OF-SHARES-REDEEMED] 11462
[SHARES-REINVESTED] 817
[NET-CHANGE-IN-ASSETS] 222545
[ACCUMULATED-NII-PRIOR] 15
[ACCUMULATED-GAINS-PRIOR] 22165
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 15
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2179
[AVERAGE-NET-ASSETS] 1731719
[PER-SHARE-NAV-BEGIN] 24.07
[PER-SHARE-NII] 0.20
[PER-SHARE-GAIN-APPREC] 2.30
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0.32
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 26.25
[EXPENSE-RATIO] 0.25
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
[NUMBER] 03
<NAME> TOTAL STOCK MARKET PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
[INVESTMENTS-AT-COST] 2324137
[INVESTMENTS-AT-VALUE] 2807697
[RECEIVABLES] 710767
[ASSETS-OTHER] 1002
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 3519466
[PAYABLE-FOR-SECURITIES] 636405
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 18185
[TOTAL-LIABILITIES] 654590
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2363696
[SHARES-COMMON-STOCK] 174761
[SHARES-COMMON-PRIOR] 104429
[ACCUMULATED-NII-CURRENT] 6259
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 11430
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 483491
[NET-ASSETS] 2864876
[DIVIDEND-INCOME] 18797
[INTEREST-INCOME] 1683
[OTHER-INCOME] 0
[EXPENSES-NET] 2163
[NET-INVESTMENT-INCOME] 18317
[REALIZED-GAINS-CURRENT] 10871
[APPREC-INCREASE-CURRENT] 150501
[NET-CHANGE-FROM-OPS] 179689
[EQUALIZATION] 2511
[DISTRIBUTIONS-OF-INCOME] 15192
[DISTRIBUTIONS-OF-GAINS] 3638
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 76942
[NUMBER-OF-SHARES-REDEEMED] 7671
[SHARES-REINVESTED] 1061
[NET-CHANGE-IN-ASSETS] 1293987
[ACCUMULATED-NII-PRIOR] 623
[ACCUMULATED-GAINS-PRIOR] 4197
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 15
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2163
[AVERAGE-NET-ASSETS] 2026883
[PER-SHARE-NAV-BEGIN] 15.04
[PER-SHARE-NII] 0.14
[PER-SHARE-GAIN-APPREC] 1.36
[PER-SHARE-DIVIDEND] 0.12
[PER-SHARE-DISTRIBUTIONS] 0.03
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.39
[EXPENSE-RATIO] 0.21
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
[NUMBER] 04
<NAME> VALUE PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
[INVESTMENTS-AT-COST] 661603
[INVESTMENTS-AT-VALUE] 767757
[RECEIVABLES] 101058
[ASSETS-OTHER] 75
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 868890
[PAYABLE-FOR-SECURITIES] 102794
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1343
[TOTAL-LIABILITIES] 104137
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 635158
[SHARES-COMMON-STOCK] 48817
[SHARES-COMMON-PRIOR] 33551
[ACCUMULATED-NII-CURRENT] 3399
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 20038
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 106158
[NET-ASSETS] 764753
[DIVIDEND-INCOME] 8879
[INTEREST-INCOME] 112
[OTHER-INCOME] 0
[EXPENSES-NET] 629
[NET-INVESTMENT-INCOME] 8362
[REALIZED-GAINS-CURRENT] 20346
[APPREC-INCREASE-CURRENT] 19009
[NET-CHANGE-FROM-OPS] 47717
[EQUALIZATION] 996
[DISTRIBUTIONS-OF-INCOME] 6154
[DISTRIBUTIONS-OF-GAINS] 9527
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 18184
[NUMBER-OF-SHARES-REDEEMED] 3839
[SHARES-REINVESTED] 920
[NET-CHANGE-IN-ASSETS] 268426
[ACCUMULATED-NII-PRIOR] 195
[ACCUMULATED-GAINS-PRIOR] 9219
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 8
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 629
[AVERAGE-NET-ASSETS] 634265
[PER-SHARE-NAV-BEGIN] 14.79
[PER-SHARE-NII] 0.20
[PER-SHARE-GAIN-APPREC] 1.06
[PER-SHARE-DIVIDEND] 0.14
[PER-SHARE-DISTRIBUTIONS] 0.24
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 15.67
[EXPENSE-RATIO] 0.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
[NUMBER] 05
<NAME> GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
[INVESTMENTS-AT-COST] 428760
[INVESTMENTS-AT-VALUE] 511861
[RECEIVABLES] 63933
[ASSETS-OTHER] 50
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 575844
[PAYABLE-FOR-SECURITIES] 64171
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 795
[TOTAL-LIABILITIES] 64966
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 424695
[SHARES-COMMON-STOCK] 33165
[SHARES-COMMON-PRIOR] 19405
[ACCUMULATED-NII-CURRENT] 565
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2517
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 83101
[NET-ASSETS] 510878
[DIVIDEND-INCOME] 3225
[INTEREST-INCOME] 129
[OTHER-INCOME] 0
[EXPENSES-NET] 391
[NET-INVESTMENT-INCOME] 2963
[REALIZED-GAINS-CURRENT] 2506
[APPREC-INCREASE-CURRENT] 37005
[NET-CHANGE-FROM-OPS] 42474
[EQUALIZATION] 401
[DISTRIBUTIONS-OF-INCOME] 2941
[DISTRIBUTIONS-OF-GAINS] 1562
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 17230
[NUMBER-OF-SHARES-REDEEMED] 3751
[SHARES-REINVESTED] 281
[NET-CHANGE-IN-ASSETS] 239876
[ACCUMULATED-NII-PRIOR] 142
[ACCUMULATED-GAINS-PRIOR] 1573
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 7
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 391
[AVERAGE-NET-ASSETS] 395234
[PER-SHARE-NAV-BEGIN] 13.97
[PER-SHARE-NII] 0.11
[PER-SHARE-GAIN-APPREC] 1.48
[PER-SHARE-DIVIDEND] 0.10
[PER-SHARE-DISTRIBUTIONS] 0.06
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 15.40
[EXPENSE-RATIO] 0.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
[NUMBER] 06
<NAME> SMALL CAPITALIZATION STOCK PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
[INVESTMENTS-AT-COST] 1210211
[INVESTMENTS-AT-VALUE] 1449518
[RECEIVABLES] 99639
[ASSETS-OTHER] 713
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1549870
[PAYABLE-FOR-SECURITIES] 70596
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 29243
[TOTAL-LIABILITIES] 99839
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1151713
[SHARES-COMMON-STOCK] 70434
[SHARES-COMMON-PRIOR] 52196
[ACCUMULATED-NII-CURRENT] 8446
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 51446
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 238426
[NET-ASSETS] 1450031
[DIVIDEND-INCOME] 8788
[INTEREST-INCOME] 1086
[OTHER-INCOME] 0
[EXPENSES-NET] 1477
[NET-INVESTMENT-INCOME] 8397
[REALIZED-GAINS-CURRENT] 52195
[APPREC-INCREASE-CURRENT] 54705
[NET-CHANGE-FROM-OPS] 115297
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 8160
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 22639
[NUMBER-OF-SHARES-REDEEMED] 4797
[SHARES-REINVESTED] 396
[NET-CHANGE-IN-ASSETS] 478798
[ACCUMULATED-NII-PRIOR] 49
[ACCUMULATED-GAINS-PRIOR] 7411
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 15
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1477
[AVERAGE-NET-ASSETS] 1199446
[PER-SHARE-NAV-BEGIN] 18.61
[PER-SHARE-NII] 0.12
[PER-SHARE-GAIN-APPREC] 2.00
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0.14
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 20.59
[EXPENSE-RATIO] 0.25
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
EX-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 45 registration statement on Form N-1A (the "Registration
Statement") of our reports dated January 31, 1996 relating to the financial
statements and financial highlights appearing in the 1995 Annual Report to
Shareholders of Vanguard Index Trust, which is also incorporated by reference
into the Statement Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectuses and under the heading
"Financial Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Philadelphia, PA
December 26, 1996
<PAGE> 1
EX-99.B16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD INDEX TRUST -- 500 PORTFOLIO
1. Average Annual Total Return (As of June 30, 1996)
P (1 + T)(n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
One Year
P = $1,000
T = +25.87%
N = 1
ERV = $1,258.72*
Five Year
P = $1,000
T = +15.51%
N = 5
ERV = $2,056.72*
Ten Year
P = $1,000
T = +13.49%
N = 10
ERV = $3,545.56*
</TABLE>
*Adjusted for $10 account maintenance fee.
2. YIELD (30 Days Ended June 30, 1996)
Yield = 2[(a - b +1)(6)-1]
---------------------------
c x d
<TABLE>
<C> <S>
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $43,169,047.15
b = $3,814,979.20
c = 370,640,076.348
d = $62.89
Yield = 2.04%
</TABLE>
<PAGE> 2
VANGUARD INDEX TRUST -- EXTENDED MARKET PORTFOLIO
1. Average Annual Total Return (As of June 30, 1996)
P (1 + T)(n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
One Year
-------
P = $1,000
T = +25.58%
N = 1
ERV = $1,255.78*
Five Year
-------
P = $1,000
T = +17.05%
N = 5
ERV = $2,196.77*
Ten Year
-------
P = $1,000
T = +15.25%
N = since inception 12/21/87
ERV = $3,352.40*
</TABLE>
*Adjusted for $10 account maintenance fee and .50% portfolio transaction
fee.
2. YIELD (30 Days Ended June 30, 1996)
Yield = 2[(a - b +1)(6)-1]
---------------------------
c x d
<TABLE>
<C> <S>
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $2,401,831.19
b = $400,967.00
c = 73,079,621.740
d = $26.26
Yield = 1.26%
</TABLE>
<PAGE> 3
VANGUARD INDEX TRUST -- TOTAL STOCK MARKET PORTFOLIO
1. Average Annual Total Return (As of June 30, 1996)
P (1 + T)(n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
----------
One Year
-------
P = $1,000
T = +25.25%
N = 1
ERV = $1,252.49**
Five Year
-------
P = $1,000
T = +15.40%
N = *
ERV = $1,818.27**
</TABLE>
* Since inception March 16, 1992.
** Adjusted for $10 account maintenance fee and .25% portfolio transaction
fee.
2. YIELD (30 Days Ended June 30, 1996)
Yield = 2[(a - b +1)(6)-1]
---------------------------
c x d
<TABLE>
<C> <S>
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $3,599,062.62
b = $399,006.00
c = 135,716,734.011
d = $16.39
Yield = 1.73%
</TABLE>
<PAGE> 4
VANGUARD INDEX TRUST -- VALUE PORTFOLIO
1. Average Annual Total Return (As of June 30, 1996)
P (1 + T)(n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
----------
One Year
-------
P = $1,000
T = +24.72%
N = 1
ERV = $1,247.18**
Five Year
-------
P = $1,000
T = +15.57%*
N = *
ERV = $1,807.73**
</TABLE>
* Since inception November 2, 1992.
** Adjusted for $10 account maintenance fee.
2. YIELD (30 Days Ended June 30, 1996)
Yield = 2[(a - b +1)(6)-1]
---------------------------
c x d
<TABLE>
<C> <S>
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $1,740,729.28
b = $121,401.00
c = 47,451,509.343
d = $15.67
Yield = 2.63%
</TABLE>
<PAGE> 5
VANGUARD INDEX TRUST -- GROWTH PORTFOLIO
1. Average Annual Total Return (As of June 30, 1996)
P (1 + T)(n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
----------
One Year
-------
P = $1,000
T = +27.02%
N = 1
ERV = $1,270.16**
Five Year
-------
P = $1,000
T = +14.74%
N = *
ERV = $1,653.89**
</TABLE>
* Since inception November 2, 1992.
** Adjusted for $10 account maintenance fee.
2. YIELD (30 Days Ended June 30, 1996)
Yield = 2[(a - b +1)(6)-1]
---------------------------
c x d
<TABLE>
<C> <S>
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $682,568.15
b = $81,399.00
c = 32,426,590.584
d = $15.40
Yield = 1.45%
</TABLE>
<PAGE> 6
SMALL CAPITALIZATION STOCK PORTFOLIO
(FORMERLY VANGUARD SMALL CAPITALIZATION STOCK FUND, INC.)
1. Average Annual Total Return (As of June 30, 1996)
P (1 + T)(n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
----------
One Year
-------
P = $1,000
T = +23.96%
N = 1
ERV = $1,239.58*
Five Year
-------
P = $1,000
T = +17.73%
N = 5
ERV = $2,262.00*
Ten Year
-------
P = $1,000
T = +9.39%
N = 10
ERV = $2,453.49*
</TABLE>
*Adjusted for $10 account maintenance fee and 1% portfolio transaction fee.
2. YIELD (30 Days Ended June 30, 1996)
Yield = 2[(a - b +1)(6)-1]
---------------------------
c x d
<TABLE>
<C> <S>
Where: a = dividends and interest paid during the period
b = expense dollars during the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
Example a = $1,906,110.56
b = $297,045.00
c = 69,399,626.439
d = $20.58
Yield = 1.36%
</TABLE>
