<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. 48
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 50
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 June 27, 1997 pursuant to paragraph (b) of Rule 485.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.
WE HAVE ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES PURSUANT TO
REGULATION 24f-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. REGISTRANT FILED ITS
RULE 24f-2 NOTICE FOR THE YEAR ENDED DECEMBER 31, 1996 ON FEBRUARY 19, 1997.
================================================================================
<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...................................... Fund & Trust Expenses
Item 3. Condensed Financial Information............... Financial Highlights
Item 4. General Description of Registrant............. Investment Objectives; Investment
Limitations; Investment Policies;
Investment Risks; General Information
Item 5. Management of the Fund........................ Management and Investment Advisory
Services
Item 5A. Management's Discussion of Fund Performance... Herein incorporated by reference to
Registrant's Annual Report to
Shareholders dated December 31, 1996
filed with the Securities & Exchange
Commission's EDGAR system on March
11, 1997
Item 6. Capital Stock and Other Securities............ Opening an Account and Purchasing
Shares; Selling Shares; The Share
Price of the Fund and Each Portfolio;
Dividends, Capital Gains and Taxes;
General Information
Item 7. Purchase of Securities Being Offered.......... Opening an Account and Purchasing
Shares; Exchanging Shares; Exchange
Privilege Limitations
Item 8. Redemption or Repurchase...................... Selling 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............... Not Applicable
Item 13. Investment Objectives and Policies............ Investment Objectives and Policies;
Investment Limitations
Item 14. Management of the Registrant.................. Management of the Trust
Item 15. Control Persons and Principal Holders of
Securities.................................... Not Applicable
Item 16. Investment Advisory and Other Services........ Management of the Trust
Item 17. Brokerage Allocation and Other Services....... Portfolio Transactions
Item 18. Capital Stock and Other Securities............ Description of Shares and Voting
Rights
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................. Purchase of Shares; Redemption of
Shares
Item 20. Tax Status.................................... Not Applicable
Item 21. Underwriters.................................. Management of the Trust
Item 22. Calculation Performance Data.................. Yield and Total Return; Performance
Measures
Item 23. Financial Statements.......................... Financial Statements
</TABLE>
<PAGE> 3
Subject to Completion
Preliminary Prospectus Dated May 21, 1997
[FLAG LOGO]
P R O S P E C T U S
JUNE 27, 1997
VANGUARD INSTITUTIONAL INDEX FUND
INSTITUTIONAL SHARES
INSTITUTIONAL PLUS SHARES
VANGUARD INDEX TRUST
INSTITUTIONAL SHARES
OF
- EXTENDED MARKET PORTFOLIO
- TOTAL STOCK MARKET PORTFOLIO
- SMALL CAPITALIZATION STOCK PORTFOLIO
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THE
INSTITUTIONAL PLUS SHARES OF VANGUARD INSTITUTIONAL INDEX FUND AND THE
INSTITUTIONAL SHARES OF VANGUARD INDEX TRUST MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATES IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE. TO OBTAIN A CURRENTLY EFFECTIVE PROSPECTUS FOR THE
INSTITUTIONAL SHARES OF VANGUARD INSTITUTIONAL INDEX FUND OR THE PORTFOLIO
SHARES OF VANGUARD INDEX TRUST PLEASE CONTACT VANGUARD INSTITUTIONAL
INVESTOR SERVICES AT 1-800-523-1036.
<PAGE> 4
================================================================================
PROSPECTUS -- JUNE 27, 1997
================================================================================
FUND INFORMATION: PARTICIPANT SERVICES -- 1-800-523-8066
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES AND
POLICIES The Vanguard index funds (the "Funds") offered in this
prospectus are Vanguard Institutional Index Fund and three
Portfolios of Vanguard Index Trust (the Extended Market, Total
Stock Market and Small Capitalization Stock Portfolios). The
Funds are open-end, diversified investment companies. Each
Fund invests in common stocks in order to match the investment
performance of a distinct market index. There is no assurance
that the Funds will achieve their stated objectives. Shares of
the Funds are neither insured nor guaranteed by any agency of
the U.S. Government, including the FDIC.
- --------------------------------------------------------------------------------
INVESTMENT
ALTERNATIVES VANGUARD INSTITUTIONAL INDEX FUND offers two separate classes
of shares. The "Institutional Shares" are designed for
investors who meet the minimum initial investment of $10
million and may require special employee benefit plan
services. The "Institutional Plus Shares" are designed for
investors who meet the minimum initial investment of $200
million and do not require special employee benefit plan
services. Both the Institutional Shares and the Institutional
Plus Shares of Vanguard Institutional Index Fund are offered
through this prospectus.
THE EXTENDED MARKET PORTFOLIO, TOTAL STOCK MARKET PORTFOLIO,
AND SMALL CAPITALIZATION STOCK PORTFOLIO of Vanguard Index
Trust each offers two separate classes of shares. The
"Institutional Shares" of these portfolios are designed for
investors who meet the minimum initial investment of $10
million and generally do not require special employee benefit
plan services. Only the "Institutional Shares" are offered
through this prospectus; the other share class (the "Portfolio
Shares") is offered by a separate prospectus. To obtain
information on the Portfolio Shares, please call
1-800-662-7447 (SHIP), Monday through Friday, from 8:00 a.m.
to 9:00 p.m. and Saturday from 9:00 a.m. to 4:00 p.m.
- --------------------------------------------------------------------------------
OPENING AN
ACCOUNT Shares of the Funds may be purchased by Federal Funds wire of
the minimum initial investment. In certain circumstances, a
portfolio transaction fee may be deducted from purchases of
Vanguard Institutional Index Fund and the Total Stock Market
Portfolio. A portfolio transaction fee of 0.5% is deducted
from purchases of the Extended Market and Small Capitalization
Stock Portfolios. These fees offset the relevant Fund's
transaction costs of buying and selling securities.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS This prospectus is designed to set forth concisely the
information you should know about the Funds before you invest.
It should be retained for future reference. "Statements of
Additional Information" containing additional information
about Vanguard Institutional Index Fund, dated June 27, 1997
and Vanguard Index Trust, dated June 27, 1997, have been filed
with the Securities and Exchange Commission. These Statements
have been incorporated by reference into this prospectus.
Copies may be obtained without charge by writing to Vanguard
or by calling our Participant Services Department. The
Securities and Exchange Commission maintains a web site
(http.//www.sec.gov) which contains the Statements of
Additional Information, material incorporated by reference,
and other information regarding the Funds.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Highlights................... 2 Implementation of Policies... 13 SHAREHOLDER GUIDE
Fund Expenses................ 3 Investment Limitations....... 18 Opening an Account and
Financial Highlights......... 6 Management and Investment Purchasing Shares............ 25
Yield and Total Return....... 9 Advisory Services............ 18 Trade Date Policy............ 27
FUND INFORMATION Portfolio Transactions....... 20 Selling Your Shares.......... 28
Investment Objectives........ 9 Dividends, Capital Gains Exchanging Your Shares....... 29
Investment Policies.......... 10 and Taxes.................... 21 Exchange Privilege
Investment Risks............. 12 The Share Price of Each Limitations.................. 29
Who Should Invest............ 13 Fund......................... 22 Important Information About 29
General Information.......... 23 Telephone Transactions..... 29
Other Account Information.... 30
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
<PAGE> 5
HIGHLIGHTS
This prospectus describes the Institutional Shares and
Institutional Plus Shares of Vanguard Institutional
Index Fund and the Institutional Shares of three
Vanguard Index Trust Portfolios. Unlike other mutual
funds which generally attempt to "beat" market averages
with often unpredictable results, each of these Funds
seeks to "match" the performance of a different stock
market benchmark or index. The Funds are expected to
provide highly predictable returns relative to their
benchmarks. The Funds offer investors the advantages of
a "passive" approach to investing. These include low
investment costs, broad diversification among
securities, minimal portfolio turnover, and relative
predictability.
As with any mutual fund there is no assurance that the
Funds will meet their objectives.
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES AND
POLICIES The Funds are open-end, diversified investment companies
designed as "index" funds.
VANGUARD INSTITUTIONAL
INDEX FUND The Vanguard Institutional Index Fund seeks to replicate
the performance of the S&P 500 Index.
------------------------------------------------------------------------------
VANGUARD INDEX TRUST Vanguard Index Trust consists of six separate
Portfolios, each of which invests in U.S. common stocks.
The Institutional Shares of three Vanguard Index Trust
Portfolios are offered through this prospectus:
- The EXTENDED MARKET PORTFOLIO seeks to replicate the
performance of the Wilshire 4500 Index.
- The TOTAL STOCK MARKET PORTFOLIO seeks to replicate
the performance of the Wilshire 5000 Index.
- The SMALL CAPITALIZATION STOCK PORTFOLIO seeks to
replicate the performance of the Russell 2000 Small
Stock Index. PAGE 14
- --------------------------------------------------------------------------------
INVESTMENT
RISKS The Funds are subject to stock market risk, which is the
possibility that common stock prices will decline over
short or extended periods. U.S. stock markets tend to be
cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
Because of the risks associated with common stocks, the
Funds are intended to be long-term investment vehicles
and are not designed to provide investors with a means
of speculating on short-term market movements. Investors
should not consider an investment in any one portfolio a
complete investment program, but should maintain
holdings of securities with different risk
characteristics -- including U.S. common stocks, bonds
and money market instruments. For further information
concerning the risks associated with investing in the
Funds, see "Investment Risks." PAGE 17
- --------------------------------------------------------------------------------
2
<PAGE> 6
THE VANGUARD
GROUP Vanguard Index Trust is a member of The Vanguard Group
of Investment Companies, a group of more than 30
investment companies with more than 90 distinct
investment portfolios and total assets in excess of $250
billion. The Vanguard Group, Inc. ("Vanguard"), a
jointly owned subsidiary of the Vanguard funds, provides
all corporate management, administrative, distribution
and shareholder accounting services on an at-cost basis
to the funds in the Group. Vanguard Institutional Index
Fund is not part of the Group, however, it employs
Vanguard to provide virtually all of its necessary
services. PAGE 23
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER The Funds receive investment advisory services from
Vanguard's Core Management Group. As a result, the Funds
receive investment advisory services at a substantially
lower cost than would be possible if they each paid an
investment advisory fee to an external investment
advisor.
PAGE 23
- --------------------------------------------------------------------------------
FEES AND EXPENSES The following transaction fees apply to share purchases:
<TABLE>
<CAPTION>
FEE DEDUCTED
FROM PURCHASES
<S> <C>
Vanguard Institutional Index Fund None
Extended Market Portfolio .5%
Total Stock Market Portfolio None
Small Capitalization Stock Portfolio .5%
</TABLE>
Under certain circumstances, Vanguard Institutional
Index Fund and the Total Stock Market Portfolio may
deduct a portfolio transaction fee, ranging from 0.08%
to 0.20%, from purchases of their shares.
Where portfolio transaction fees apply, they are paid
directly to the Fund to offset transaction costs of
buying securities.
PAGE
- --------------------------------------------------------------------------------
FUND EXPENSES The following tables illustrate ALL expenses and fees
that you would incur as a shareholder of each share
class of Vanguard Institutional Index Fund, the Extended
Market Portfolio, Total Stock Market Portfolio and Small
Capitalization Portfolio. Because the Institutional Plus
Shares Vanguard Institutional Index Fund and the
Institutional Shares of the other Funds were not offered
prior to June 27, 1997, the table is based on the
historical expenses of these Funds' other share classes
for the 1996 fiscal year. The expenses and fees for the
Institutional Shares of Vanguard Institutional Index
Fund and the Portfolio Shares of the other Funds are
also based upon those incurred during the 1996 fiscal
year.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
PLUS INSTITUTIONAL SHARES OF SHARES OF
SHARES OF SHARES OF TOTAL SMALL
SHAREHOLDER VANGUARD EXTENDED STOCK CAPITALIZATION
TRANSACTION INSTITUTIONAL MARKET MARKET STOCK
EXPENSES INDEX FUND PORTFOLIO PORTFOLIO PORTFOLIO+
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Load Imposed on
Purchases.................... None* None** None* None**
Sales Load Imposed on
Reinvested Dividends......... None None None None
Redemption Fees............... None None None None
Exchange Fees................. None None None None
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
PLUS INSTITUTIONAL SHARES OF SHARES OF
SHARES OF SHARES OF TOTAL SMALL
VANGUARD EXTENDED STOCK CAPITALIZATION
ANNUAL FUND INSTITUTIONAL MARKET MARKET STOCK
OPERATING EXPENSES INDEX FUND PORTFOLIO PORTFOLIO PORTFOLIO+
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and Administrative
Expenses..................... --% --% --% --%
Investment Advisory Fees...... None None None None
12b-1 Fees.................... None None None None
Other Expenses
Distributions Costs.......... None --% --% --%
Miscellaneous Expenses....... None --% --% --%
----- ----- ----- -----
Total Operating
Expenses.............. .025--% .10--% .10--% .12--%
===== ===== ===== =====
</TABLE>
* As described below, these Funds reserve the right to
deduct a portfolio transaction fee, ranging from 0.08%
to 0.20% from purchases of their shares.
** As described below, these Funds deduct a 0.5%
portfolio transaction fee from each purchase of
shares.
+ Formerly Vanguard Small Capitalization Stock Fund,
Inc.
<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO
INSTITUTIONAL PORTFOLIO SHARES OF SHARES OF
SHARES OF SHARES OF TOTAL SMALL
SHAREHOLDER VANGUARD EXTENDED STOCK CAPITALIZATION
TRANSACTION INSTITUTIONAL MARKET MARKET STOCK
EXPENSES INDEX FUND PORTFOLIO PORTFOLIO PORTFOLIO+
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Load Imposed on
Purchases.......................... None* None** None None**
Sales Load Imposed on
Reinvested Dividends............... None None None None
Redemption Fees..................... None None None None
Exchange Fees....................... None None None None
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO
INSTITUTIONAL PORTFOLIO SHARES OF SHARES OF
SHARES OF SHARES OF TOTAL SMALL
VANGUARD EXTENDED STOCK CAPITALIZATION
ANNUAL FUND INSTITUTIONAL MARKET MARKET STOCK
OPERATING EXPENSES INDEX FUND PORTFOLIO PORTFOLIO PORTFOLIO+
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management & Administrative
Expenses............................. 0.06% 0.21% 0.18% 0.21%
Investment Advisory Fees.............. None None None None
12b-1 Fees............................ None None None None
Other Expenses
Distributions Costs.................. None 0.02% 0.02% 0.02%
Miscellaneous Expenses............... None 0.02% 0.02% 0.02%
----- ----- ----- -----
TOTAL OPERATING EXPENSES........... 0.06% 0.25% 0.22% 0.25%
===== ===== ===== =====
</TABLE>
*As described below, the Fund reserves the right to
deduct a portfolio transaction fee, ranging from 0.08%
to 0.20%, from purchases of its shares.
**As described below, these Funds deduct a 0.5% portfolio
transaction fee from each purchase of shares.
+Formerly Vanguard Small Capitalization Stock Fund, Inc.
- --------------------------------------------------------------------------------
PORTFOLIO
TRANSACTION
FEES Vanguard Institutional Index Fund and the Total Stock
Market Portfolio reserve the right to deduct a portfolio
transaction fee, ranging from 0.08% to 0.20% from
purchases of their shares, if such purchase or
cumulative purchases are of a size that is reasonably
deemed to be disruptive to efficient portfolio
management. A prospective investor may determine whether
a fee will be charged by calling Vanguard's
Institutional Investor Services Department at
1-800-523-1036 before purchasing shares.
The Extended Market Portfolio and the Small
Capitalization Stock Portfolio assess a portfolio
transaction fee equal to 0.5% of the dollar amount
invested. All portfolio transaction fees are paid to the
respective Fund, not to Vanguard. They are not sales
charges.
4
<PAGE> 8
These fees apply to initial investments in the
respective Funds and all subsequent purchases (including
purchases made by exchange from another Vanguard fund),
but not to reinvested dividend or capital gains
distributions. Portfolio transaction fees are deducted
automatically from the amount invested; they cannot be
paid separately.
The purpose of these transaction fees is to allocate
transaction costs associated with new purchases to
investors making those purchases, thus insulating
existing shareholders from those transaction costs.
These costs include: (1) brokerage costs; (2) market
impact costs -- i.e., the increase in market prices
which may result when the Fund purchases thinly traded
stocks; and, most importantly, (3) the effect of the
"bid-ask" spread in the over-the-counter market.
(Securities in the over-the-counter market are bought at
the "ask" or purchase price, but are valued in the Fund
at the mean of the "bid" or sale, and "ask" prices).
The fees represent Vanguard's estimate of the brokerage
and other transaction costs incurred by the Funds in
acquiring stocks in their respective markets. Without
the fees, the Funds, which incur these costs directly,
would experience reduced investment performance for all
shareholders in each Portfolio. With the fees, the
transaction costs of acquiring additional stocks are
borne not by all existing shareholders, but by those
investors making additional purchases. Because the
purchaser, not the Funds, bears these costs, the Funds
are expected to track their respective benchmark indexes
more closely. The purpose of these tables is to assist
an investor in understanding the various expenses that
an investor in each Fund would bear directly or
indirectly.
The following example illustrates the expenses that an
investor would incur on a $1,000 investment over various
periods, assuming (1) a 5% annual rate of return; and
(2) redemption at the end of each period. As noted in
the table above, there are no redemption fees of any
kind.
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VANGUARD INSTITUTIONAL INDEX FUND
Institutional Plus Shares................ $-- $-- $-- $--
Institutional Shares..................... $ 1 $ 2 $ 3 $ 8
VANGUARD INDEX TRUST
EXTENDED MARKET PORTFOLIO
Institutional Shares..................... $-- $-- $-- $--
Portfolio Shares......................... $ 8 $13 $19 $37
TOTAL STOCK MARKET PORTFOLIO
Institutional Shares..................... $-- $-- $-- $--
Portfolio Shares......................... $ 2 $ 7 $12 $28
SMALL CAPITALIZATION STOCK PORTFOLIO
Institutional Shares..................... $-- $-- $-- $--
Portfolio Shares......................... $ 8 $13 $19 $37
</TABLE>
Included in these estimates are account maintenance fees
of $10 per year for the Portfolio Shares of the Extended
Market Portfolio, Total Stock Market Portfolio and Small
Capitalization Stock Portfolio.
5
<PAGE> 9
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL
EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS The following financial highlights for a share
outstanding throughout each period presented have been
audited by Price Waterhouse LLP, independent
accountants, whose reports on the financial statements,
which include this information, was unqualified. This
information should be read in conjunction with the
financial statements and notes thereto appearing in
Vanguard Institutional Index Fund's 1996 Annual Report
to Shareholders and Vanguard Index Trust's 1996 Annual
Report to Shareholders relating to the Extended Market,
Total Stock Market and Small Capitalization Stock
Portfolios, which are incorporated by reference in the
Funds' Statements of Additional Information and this
Prospectus, and which appear, along with the reports of
Price Waterhouse LLP, in the Funds' 1996 Annual Reports
to Shareholders. For a more complete discussion of the
Fund's and each Portfolio's performance, please see the
Fund's or the Trust's 1996 Annual Report to
Shareholders, which may be obtained without charge by
writing to the Fund or the Trust or by calling Vanguard
at 1-800-523-8066.
These financial highlights relate only to the
Institutional Class of Vanguard Institutional Index Fund
and the Portfolio Shares of the other Fund.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
VANGUARD INSTITUTIONAL INDEX FUND INSTITUTIONAL SHARES
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------- JULY 31, 1990*
1996 1995 1994 1993 1992 1991 TO DEC. 31, 1990
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.... $57.93 $43.22 $44.20 $41.45 $39.91 $31.62 $34.10
------ ------ ------ ------ ------ ------ -----------
INVESTMENT OPERATIONS
Net Investment Income.................. 1.38 1.28 1.23 1.20 1.17 1.16 .52
Net Realized and Unrealized Gain (Loss)
on Investments....................... 11.90 14.86 (.66) 2.92 1.79 8.35 (2.48)
----- ----- ----- ----- ----- ----- ----------
TOTAL FROM INVESTMENT OPERATIONS..... 13.28 16.14 .57 4.12 2.96 9.51 (1.96)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income... (1.36) (1.27) (1.21) (1.19) (1.17) (1.16) (.52)
Distributions from Realized Capital
Gains................................ (.99) (.16) (.34) (.18) (.25) (.06) --
----- ----- ----- ----- ----- ----- ----------
TOTAL DISTRIBUTIONS.................. (2.35) (1.43) (1.55) (1.37) (1.42) (1.22) (.52)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......... $68.86 $57.93 $43.22 $44.20 $41.45 $39.91 $31.63
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................ 23.06% 37.60% 1.31% 10.02% 7.54% 30.34% (5.74)%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions).... $11,426 $6,674 $3,265 $3,103 $1,525 $1,069 $512
Ratio of Expenses to Average Net
Assets................................. 0.06% 0.06% 0.07% 0.07% 0.07% 0.08% 0.09%**
Ratio of Net Investment Income to
Average Net Assets..................... 2.18% 2.49% 2.80% 2.72% 2.94% 3.15% 3.98%**
Portfolio Turnover Rate................. 9% 4%+ 23%+ 4%+ 9%+ 4% 2%
Average Commission Rate Paid............ $.0167 N/A N/A N/A N/A N/A N/A
</TABLE>
* Commencement of operations.
** Annualized.
+ The portfolio turnover rates excluding in-kind redemptions were 4%, 19%,
3%, and 6%, respectively.
- -------------------------------------------------------------------------------
6
<PAGE> 10
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
EXTENDED MARKET PORTFOLIO SHARES
-------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------- DEC. 21,+
1996 1995 1994 1993 1992 1991 1990 1989 1988 TO 31, 1987
<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............. .34 .30 .28 .23 .24 .25 .30 .26 .34 .03
Net Realized and
Unrealized Gain
(Loss) on
Investments........ 3.85 5.95 (.62) 2.28 1.72 4.54 (2.25) 2.52 1.63 (.04)
----- ----- ----- ----- ----- ----- ----- ----- ----- -------
TOTAL FROM
INVESTMENT
OPERATIONS....... 4.19 6.25 (.34) 2.51 1.96 4.79 (1.95) 2.78 1.97 (.01)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment
Income............. (.34) (.30) (.28) (.23) (.25) (.25) (.33) (.23) (.20) --
Distributions from
Realized Capital
Gains.............. (1.72) (.40) (.29) (.20) (.18) (.20) (.16) (.23) (.16) --
----- ----- ----- ----- ----- ----- ----- ----- ----- -------
TOTAL
DISTRIBUTIONS.... (2.06) (.70) (.57) (.43) (.43) (.45) (.49) (.46) (.36) --
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD............ $26.20 $24.07 $18.52 $19.43 $17.35 $15.82 $11.48 $13.92 $11.60 $9.99
=============================================================================================================================
TOTAL RETURN*......... 17.65% 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).... $2,099 $1,523 $967 $928 $585 $372 $179 $147 $35 $5
Ratio of Expenses to
Average Net Assets... 0.25% 0.25% 0.20% 0.20% 0.20% 0.19% 0.23% 0.23% 0.24% 0%
Ratio of Net
Investment Income to
Average Net Assets... 1.42% 1.51% 1.51% 1.48% 1.73% 2.14% 2.68% 2.92% 2.90% 0%
Portfolio Turnover
Rate................. 22% 15% 19% 13% 9% 11% 9% 14% 26% 3%
Average Commission
Rate Paid............ $.0235 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
*Total return figures do not reflect transaction fees on purchases (0.5% in 1995
and 1996, 1.0% in 1992 through 1994) or the annual account maintenance fee of
$10.
+ Commencement of Operations.
<TABLE>
<CAPTION>
----------------------------------------------
TOTAL STOCK
MARKET PORTFOLIO SHARES**
----------------------------------------------
MARCH 16+,
YEAR ENDED DEC. 31, 1992, TO
--------------------------------------- DEC. 31,
1996 1995 1994 1993 1992
<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............................................... .29 .29 .27 .26 .23
Net Realized and Unrealized Gain (Loss) on Investments.............. 2.84 3.75 (.29) .88 .84
----- ----- ----- ----- -------
TOTAL FROM INVESTMENT OPERATIONS.................................. 3.13 4.04 (.02) 1.14 1.07
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income................................ (.29) (.28) (.27) (.26) (.23)
Distributions from Realized Capital Gains........................... (.11) (.09) (.03) (.03) --
----- ----- ----- ----- -------
TOTAL DISTRIBUTIONS.............................................. (.40) (.37) (.30) (.29) (.23)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD....................................... $17.77 $15.04 $11.37 $11.69 $10.84
=============================================================================================================================
TOTAL RETURN......................................................... 20.96% 35.79% (0.17)% 10.62% 10.41%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions)................................. $3,531 $1,571 $786 $512 $275
Ratio of Expenses to Average Net Assets.............................. 0.22% 0.25% 0.20% 0.20% 0.21%*
Ratio of Net Investment Income to Average Net Assets................. 1.86% 2.14% 2.35% 2.31% 2.42%*
Portfolio Turnover Rate.............................................. 3% 3% 2% 1% 3%
Average Commission Rate Paid......................................... $.0216 N/A N/A N/A N/A
</TABLE>
* Annualized.
** Total return figures do not reflect the .25% transaction fee on purchases
through 1995 or the annual account maintenance fee of $10. Subscription
period for the Portfolio was from March 16, 1992, to April 26, 1992, during
which time all assets were held in money market instruments. Performance
measurement begins on April 27, 1992.
+ Commencement of operations.
7
<PAGE> 11
<TABLE>
<CAPTION>
---------------------------------------------------------------------
SMALL CAPITALIZATION STOCK PORTFOLIO SHARES(1)
---------------------------------------------------------------------
YEAR ENDED OCT. 1,
DECEMBER 31, FEB. 1 TO 1993 TO YEAR ENDED SEPTEMBER 30,
------------- DEC. 31, JAN. 31, -------------------------------
1996 1995 1994** 1994** 1993 1992 1991 1990(2)
<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 $8.55 $11.88
----- ------ -------- ------- ------ ------ ------ -------
INVESTMENT OPERATIONS
Net Investment Income (Loss)............ .26 .24 .20 .05 .20 .19 .20 .17
Net Realized and Unrealized Gain (Loss)
on Investments........................ 3.07 4.06 (.86) .96 3.73 .88 3.60 (3.46)
----- ----- ------- ------ ----- ----- ----- ------
TOTAL FROM INVESTMENT OPERATIONS...... 3.33 4.30 (.66) 1.01 3.93 1.07 3.80 (3.29)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income.... (.27) (.23) (.22) (.18) (.18) (.18) (.18) (.04)
Distributions from Realized Capital
Gains................................. (1.44) (.45) (.37) (.82) (.15) (.29) (.14) --
----- ----- ------- ------ ----- ----- ----- ------
TOTAL DISTRIBUTIONS................... (1.71) (.68) (.59) (1.00) (.33) (.47) (.32) (.04)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........... $20.23 $18.61 $14.99 $16.24 $16.23 $12.63 $12.03 $8.55
=============================================================================================================================
TOTAL RETURN++........................... 18.12% 28.74% (4.00)% 6.65% 31.60% 9.34% 45.91% (27.73)%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions)..... $1,713 $971 $605 $533 $432 $202 $111 $40
Ratio of Expenses to Average Net
Assets.................................. 0.25% 0.25% 0.17%* 0.18%* 0.18% 0.18% 0.21% 0.31%
Ratio of Net Investment Income (Loss) to
Average Net Assets...................... 1.51% 1.58% 1.50%* 1.16%* 1.47% 1.65% 2.11% 1.91%
Portfolio Turnover Rate.................. 28% 28% 25%* 5%* 26% 26% 33% 40%
Average Commission Rate Paid............. $.0245 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
--------------------------------
SMALL CAPITALIZATION STOCK
PORTFOLIO SHARES(1)
--------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------
1989+ 1988 1987
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD..................................................... $11.96 $15.73 $13.24
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income (Loss)............................................................ .10 .03 (.04)
Net Realized and Unrealized Gain (Loss) on Investments.................................. 2.13 (2.59) 4.42
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS...................................................... 2.23 (2.56) 4.38
- -------------------------------------------------------------------------------------------------------------------------------
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
===============================================================================================================================
TOTAL RETURN++........................................................................... 18.83% (14.30)% 38.02%
===============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions)..................................................... $20 $27 $35
Ratio of Expenses to Average Net Assets.................................................. 1.00% 0.95% 0.92%
Ratio of Net Investment Income (Loss) to Average Net Assets.............................. .65% .24% (.25)%
Portfolio Turnover Rate.................................................................. 160% 68% 92%
Average Commission Rate Paid............................................................. N/A N/A N/A
</TABLE>
* Annualized.
** Unaudited.
(1) Results prior to January 31, 1994, are for the former Vanguard Small
Capitalization Stock Fund.
(2) 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, The Vanguard Group, Inc. began providing investment advisory services
to the Fund on an at-cost basis.
++ Total return figures do not reflect the annual account maintenance fees of
$10 or applicable portfolio transaction fees.
- --------------------------------------------------------------------------------
8
<PAGE> 12
YIELD AND TOTAL
RETURN From time to time each share class of the Funds may
advertise its yield and total return. Both yield and
total return figures are based on historical earnings
and are not intended to indicate future performance. The
"total return" of a class of shares of a fund refers to
the average annual compounded rates of return over one-,
five- and ten-year periods or for the life of the class
of shares of the fund (as stated in the advertisement)
that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of
all dividend and capital gains distributions. Any
advertised total returns for the Extended Market or
Small Capitalization Stock Portfolios will take into
account the 0.5% transaction fee on share purchases. The
investment results of each class of shares of the Funds
will vary.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of each class of shares of the Funds is
calculated by dividing the net investment income per
share earned by that class during a 30-day period by the
net asset value per share on the last day of the period.
Net investment income includes interest and dividend
income per share earned by the class of shares; it is
net of all expenses and all recurring and nonrecurring
charges that have been applied to all shareholder
accounts of that class. The yield calculation assumes
that net investment income per share earned by a class
over 30 days is compounded monthly for six months and
then annualized. Methods used to calculate advertised
yields are standardized for all stock and bond mutual
funds. However, these methods differ from the accounting
methods used by the Funds to maintain their books and
records, and so the advertised 30-day yield may not
fully reflect the income paid to an investor's account
or the yield reported in the Funds reports to
shareholders.
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVES The Funds are open-end, diversified investment companies
designed as "index" funds.
- --------------------------------------------------------------------------------
VANGUARD
INSTITUTIONAL
INDEX FUND
SEEKS TO MATCH
THE INVESTMENT
PERFORMANCE OF THE
S&P 500 INDEX
Vanguard Institutional Index Fund is an open-end
diversified investment company designed as an "index"
fund. It seeks to replicate the aggregate price and
yield performance, before Fund expenses, of the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500
Index"), an unmanaged index that emphasizes
large-capitalization companies. The correlation between
the performance of this Fund and the Index is expected
to be 0.95 or higher. A correlation of 1.00 would
indicate perfect correlation. There is no assurance that
the Fund will achieve its stated objective.
Vanguard Institutional Index Fund is neither sponsored
by or affiliated with Standard & Poor's Corporation.
The investment objective is fundamental and so cannot be
changed without the approval of a majority of the Fund's
shareholders.
- --------------------------------------------------------------------------------
9
<PAGE> 13
VANGUARD
INDEX TRUST
THE EXTENDED
MARKET, TOTAL STOCK
MARKET AND SMALL
CAPITALIZATION STOCK
PORTFOLIOS EACH
SEEKS TO MATCH
THE INVESTMENT
PERFORMANCE OF A
PARTICULAR STOCK
MARKET INDEX Vanguard Index Trust consists of six portfolios, each of
which seeks to provide investment results that
correspond to a particular stock market index. The
correlation between the performance of each portfolio
and the respective index that it attempts to match is
expected to be at least 0.95. Three of the portfolios
(called "Funds" in this prospectus) are offered through
this prospectus: Extended Market, Total Stock Market and
Small Capitalization Stock Portfolios. Each of these
three Funds attempt to replicate the investment
performance of broad market indexes.
- The EXTENDED MARKET PORTFOLIO seeks to replicate the
aggregate price and yield performance of the Wilshire
4500 Index, an index which consists of more than 6,500
medium- and small-capitalization companies that are
not included in the S&P 500 Index.
- The TOTAL STOCK MARKET PORTFOLIO seeks to replicate
the aggregate price and yield performance of the
Wilshire 5000 Index, an index which consists of all
U.S. stocks that trade on a regular basis on either
the New York or American Stock Exchange or the NASDAQ
over-the-counter market. These stocks include the
large-capitalization companies of the S&P 500 Index,
with the exception of Royal Dutch and Unilever, N.V.,
which trade on the New York Stock Exchange as ADR's,
as well as the medium- and small-capitalization
companies of the Wilshire 4500 Index.
- The SMALL CAPITALIZATION STOCK PORTFOLIO seeks to
replicate the aggregate price and yield performance of
the Russell 2000 Small Stock Index (the "Russell
2000"), a broadly diversified small-capitalization
stock index consisting of approximately 2,000 common
stocks.
There is no assurance that the Portfolios will achieve
their stated objectives.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES
THE FUNDS USE
A "PASSIVE"
INVESTMENT APPROACH The Funds are not managed according to traditional
methods of "active" investment management, which involve
the buying and selling of securities based upon
economic, financial and market analysis and investment
judgment. Instead, the Funds utilizing a "passive" or
indexing investment approach, attempt to approximate the
investment performance of their respective indexes
through statistical procedures. The Funds are managed
without regard to tax ramifications.
The Funds are responsible for voting the shares of all
securities they hold.
The investment policies of the Funds are not fundamental
and so may be changed by the Board of Trustees without
shareholder approval. However, shareholders would be
notified prior to a material change.
- --------------------------------------------------------------------------------
VANGUARD
INSTITUTIONAL
INDEX FUND Vanguard Institutional Index Fund attempts to remain
fully invested in common stocks. Under normal
circumstances this Fund will invest at least 95% of its
assets in the common stocks of the S&P 500 Index and
futures contracts and options. This Fund may invest in
certain short-
10
<PAGE> 14
term fixed-income securities as cash reserves, although
cash or cash equivalents are normally expected to
represent less than 1% of its assets. Vanguard
Institutional Index Fund may also invest up to 20% of
its assets in stock futures contracts and options in
order to invest uncommitted cash balances, to maintain
liquidity to meet shareholder redemptions, or to
minimize trading costs. The Fund will not invest in cash
reserves, futures contracts or options as part of a
temporary defensive strategy, such as lowering its
investment in common stocks to protect against potential
stock market declines. Nor may the Fund use futures
contracts or options to leverage its net assets in an
attempt to speculate on potential stock market gains.
See "Implementation of Policies" for a description of
these and other investment practices of the Fund.
------------------------------------------------------------------------------
VANGUARD
INDEX TRUST The Extended Market, Total Stock Market, and Small
Capitalization Stock Portfolios invest in statistically
selected samples of the stocks included in each of their
respective indexes. This sampling technique is expected
to enable each of these Funds to track the price
movements of its respective index, while minimizing
brokerage, custodial, and accounting costs.
The EXTENDED MARKET PORTFOLIO invests in a statistically
selected sample of the more than 6,500 stocks included
in the Wilshire 4500 Index. Typically, this Fund invests
in approximately 2,000 stocks. Stocks are selected for
inclusion in the Fund based primarily on their
contribution to the Fund's market capitalization,
industry weightings and other fundamental
characteristics, such as price-earnings ratios, dividend
yields, price-to-book ratios and financial leverage. The
stocks held by this Fund are weighted to make the Fund's
aggregate investment characteristics similar to those of
the Wilshire 4500 Index as a whole.
The TOTAL STOCK MARKET PORTFOLIO invests in a
statistically selected sample of the more than 7,000
stocks included in the Wilshire 5000 Index. Typically,
this Fund invests in approximately 2,800 stocks. Stocks
are selected for inclusion in the Fund based primarily
on their contribution to the Fund's market
capitalization, industry weightings and other
fundamental characteristics such as price-earnings
ratios, dividend yields, price-to-book ratios and
financial leverage. The stocks held by this Fund are
weighted to make the Fund's aggregate investment
characteristics similar to those of the Wilshire 5000
Index.
The SMALL CAPITALIZATION STOCK PORTFOLIO invests in a
statistically selected sample of the approximately 2,000
stocks included in the Russell 2000 Index. Typically,
this Fund invests in approximately 1,500 stocks. Stocks
are selected for inclusion in the Fund based on their
contribution to the Fund's market capitalization,
industry weightings and other fundamental
characteristics, such as price-earnings ratios, dividend
yields, price-to-book ratios and financial leverage. The
stocks held by the Fund are weighted to make the Fund's
aggregate investment characteristics similar to those of
the Russell 2000 Index as a whole.
11
<PAGE> 15
As with Vanguard Institutional Index Fund, these Funds
each attempt to remain fully invested in common stocks.
Under normal circumstances each Fund will invest at
least 95% of its assets in the common stocks of its
respective index and futures contracts and options. Each
Fund may invest in certain short-term fixed income
securities as cash reserves, although cash or cash
equivalents are normally expected to represent less than
1% of each Fund's assets. Each Fund may also invest up
to 20% of its assets in stock futures contracts and
options in order to invest uncommitted cash balances, to
maintain liquidity to meet shareholder redemptions, or
to minimize trading costs. The Funds will not invest in
cash reserves, futures contracts or options as part of a
temporary defensive strategy, such as lowering a Fund's
investment in common stocks to protect against potential
stock market declines. The Funds intend to remain fully
invested, to the extent practicable, in a pool of
securities which will duplicate the investment
characteristics of their respective indexes. See
"Implementation of Policies" for a description of these
and other investment practices of the Funds.
- --------------------------------------------------------------------------------
INVESTMENT
RISKS
THE FUNDS ARE
SUBJECT TO MARKET RISK As mutual funds investing primarily in common stocks,
the Funds are subject to MARKET RISK -- i.e., the
possibility that common stock prices will decline over
short or even extended periods. Both U.S. and foreign
stock markets tend to be cyclical, with periods when
stock prices generally rise and periods when prices
generally decline.
Common stocks, as measured by the S&P 500 Index, have
provided annual total returns (capital appreciation plus
dividend income), averaging +10.8% for all 10-year
periods from 1926 to 1996. Average return may not be
useful for forecasting future returns in any particular
period, as stock returns are quite volatile from year to
year.
------------------------------------------------------------------------------
VANGUARD
INDEX TRUST
THE EXTENDED MARKET,
TOTAL STOCK MARKET
AND SMALL
CAPITALIZATION STOCK
PORTFOLIOS MAY EXHIBIT
GREATER VOLATILITY
RELATIVE TO THE
S&P 500 INDEX
Historically, medium- and small-capitalization stocks
have been more volatile in price than the
larger-capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price
volatility of these securities are the less certain
growth prospects of smaller firms, the lower degree of
liquidity in the markets for such stocks, and the
greater sensitivity of medium- and small-size companies
to changing economic conditions. Besides exhibiting
greater volatility, medium- and small-size company
stocks may, to a degree, fluctuate independently of
larger company stocks. Medium- and small-size company
stocks may decline in price as large company stocks
rise, or rise in price as large company stocks decline.
Medium- and small-size company stocks constitute the
investments of the Extended Market Portfolio, while the
Small Capitalization Stock Portfolio is composed
primarily of small-size company stocks. Investors in
these Funds should therefore expect that the Extended
Market and Small Capitalization Stock Portfolios will be
more volatile than, and may fluctuate independently of,
the S&P 500 Index.
Similarly, medium- and small-size company stocks
constituted approximately 30% of the net assets of the
Total Stock Market Portfolio on
12
<PAGE> 16
December 31, 1996. Investors in this Fund should
therefore also anticipate somewhat greater price
volatility in the Total Stock Market Portfolio relative
to the S&P 500 Index.
- --------------------------------------------------------------------------------
WHO SHOULD
INVEST Each Fund is designed for investors seeking to replicate
the total return of a different broad market index. The
Funds offer investors the advantages of a "passive"
approach to investing. These include low investment
costs, exceptional diversification among a wide range of
stocks, minimal portfolio turnover, and relative
predictability. Unlike other mutual funds, which
generally attempt to "beat" market averages with often
unpredictable results, the Funds seek to "match" the
performance of their underlying indexes and thus are
expected to provide a highly predictable return relative
to these benchmarks.
However, shareholders should expect to be fully exposed
to the market risks inherent in investing in stocks. As
the prices of stocks may be volatile, only investors
able to tolerate short-term, possibly substantial
fluctuations in the value of their investment, brought
about by generally declining stock prices, should
contemplate an investment in the Funds.
Investors may wish to reduce the potential risk of
investing in the Funds by purchasing shares on a
regular, periodic basis (dollar-cost averaging) rather
than making an investment in one lump sum.
The Funds are intended to be long-term investment
vehicles and are not designed to provide investors with
a means of speculating on short-term market movements.
Investors who engage in excessive account activity
generate additional costs which are borne by all
shareholders. In order to minimize such costs, the Funds
have adopted the following policies. Each reserves the
right to reject any purchase request (including exchange
purchases from other Vanguard portfolios) that is
reasonably deemed to be disruptive to efficient
portfolio management, either because of the timing of
the investment or previous excessive trading by the
investor. Additionally, the Funds have adopted exchange
privilege limitations as described in the section
"Exchange Privilege Limitations." Finally, the Funds
reserve the right to suspend the offering of their
shares.
Investors should not consider an investment in any one
Fund a complete investment program, but should maintain
holdings of securities with different risk
characteristics -- including common stocks, bonds and
money market instruments.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES The Funds follow a variety of investment practices in an
effort to duplicate the total return of their respective
indexes.
------------------------------------------------------------------------------
VANGUARD
INSTITUTIONAL
INDEX FUND Vanguard Institutional Index Fund attempts to duplicate
the investment results of the S&P 500 Index by holding
all 500 stocks in approximately the same proportions as
they are represented in the Index. This indexing
technique is known as "complete replication."
13
<PAGE> 17
The S&P 500 Index is composed of 500 common stocks,
which are chosen by Standard & Poor's Corporation on a
statistical basis to be included in the Index. The
inclusion of a stock in the S&P 500 Index in no way
implies that Standard & Poor's Corporation believes the
stock to be an attractive investment. The 500
securities, most of which trade on the New York Stock
Exchange, represented, as of December 31, 1996,
approximately 70% of the market value of all U.S. common
stocks. Each stock in the S&P 500 Index is weighted by
its market value.
Because of the market-value weighting, the 50 largest
companies in the S&P 500 Index currently account for
approximately 47% of the Index. Typically, companies
included in the S&P 500 Index are the largest and most
dominant firms in their respective industries. As of
December 31, 1996, the five largest companies in the
Index were: General Electric (2.9%), Coca Cola (2.3%),
Exxon Corporation (2.2%), Intel Corporation (1.9%) and
Microsoft Corporation (1.7%). The largest industry
categories were: banks (7.7%), telephone companies
(6.6%), pharmaceutical companies (6.4%), international
oil companies (5.8%) and computer companies (4.6%).
Vanguard Institutional Index Fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P"). S&P makes no representation or
warranty, implied or express, to the purchasers of the
Fund or any member of the public regarding the
advisability of investing in index funds or the ability
of the S&P 500 Index to track general stock market
performance. S&P does not guarantee the accuracy and/or
the completeness of the S&P 500 Index or any data
included therein.
THE S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUND,
ANY PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR ANY
DATA INCLUDED THEREIN IN CONNECTION WITH THE USE
LICENSED HEREUNDER, OR FOR ANY OTHER USE. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY
DISCLAIMS ALL SUCH WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO
THE S&P 500 OR ANY DATA INCLUDED THEREIN.
S&P's only relationship to Vanguard Institutional Index
Fund is the licensing of the S&P marks and the S&P 500,
which is determined, composed and calculated by S&P
without regard to the Fund.
VANGUARD
INDEX TRUST
THE EXTENDED MARKET
PORTFOLIO INVESTS IN
MEDIUM- AND
SMALL-SIZE COMPANY
STOCKS While the S&P 500 Index includes the preponderance of
large market capitalization stocks, it excludes most of
the medium- and small-size companies which comprise the
remaining 30% of the capitalization of the U.S. stock
market. The Wilshire 4500 Index consists of all U.S.
stocks that are not in the S&P 500 Index and that trade
regularly on the New York and American Stock Exchanges
as well as in the NASDAQ over-the-counter market. More
than 6,500 stocks of medium- and small-capitalization
companies are included in the Wilshire 4500 Index.
14
<PAGE> 18
The Extended Market Portfolio will be unable to hold all
of the more than 6,500 issues which comprise the
Wilshire 4500 Index because of the costs involved and
the illiquidity of many of the securities. Instead, this
Fund will hold a representative sample of the securities
in the Wilshire 4500 Index.
THE TOTAL STOCK
MARKET PORTFOLIO
INVESTS IN A SAMPLE OF
ALL U.S. STOCKS Neither the S&P 500 Index nor the Wilshire 4500 Index
independently represents the U.S. stock market as a
whole. The Wilshire 5000 Index, which consists of all
regularly and publicly traded U.S. stocks, provides a
complete proxy for the U.S. stock market. More than
7,800 stocks, including large-, medium-, and
small-capitalization companies are included in the
Wilshire 5000 Index.
In an effort to replicate the investment performance of
the Wilshire 5000 Index, the Total Stock Market
Portfolio will invest in approximately 900 of the
largest stocks in the index and an additional
representative sample of the remaining stocks. As in the
case for the Extended Market Portfolio, the high
transaction costs and illiquidity of many of the smaller
stocks make complete replication of the Wilshire 4500
Index's holdings impractical.
The Extended Market and Total Stock Market Portfolios
are not sponsored, endorsed, sold or promoted by
Wilshire Associates. Wilshire(R) and Wilshire 5000(R)
are registered service marks of Wilshire Associates.
THE SMALL
CAPITALIZATION STOCK
PORTFOLIO INVESTS IN
SMALL-SIZE COMPANY
STOCKS The Small Capitalization Stock Portfolio attempts to
duplicate the investment results of the Russell 2000
Index by investing in approximately 1,500 of the 2,000
stocks in the Russell 2000 Index. The Russell 2000 Index
is composed of approximately 2,000 small-capitalization
common stocks. A company's stock market capitalization
is the total market value of its floating outstanding
shares. As of December 31, 1996, the average stock
market capitalization of the Russell 2000 was $660
million. As in the case of the Extended Market
Portfolio, the high transaction costs and illiquidity of
many of the small stocks contained in the Russell 2000
Index make complete replication of the holdings
impractical.
The Small Capitalization Stock Portfolio is neither
sponsored by nor affiliated with the Frank Russell
Company. Frank Russell's only relationship to the
Portfolio is the licensing of the use of the Russell
2000 Small Stock Index. Frank Russell Company is the
owner of the trademarks and copyrights relating to the
Russell indexes.
THE EXTENDED MARKET,
TOTAL STOCK MARKET
AND SMALL
CAPITALIZATION STOCK
PORTFOLIOS USE
SAMPLING TECHNIQUES The stocks to be included in the Extended Market, Total
Stock Market and Small Capitalization Stock Portfolios
will be selected utilizing a statistical sampling
technique known as "optimization."
This process selects stocks for each Fund so that
various industry weightings, market capitalizations, and
fundamental characteristics (e.g., price-to-book,
price-to-earnings, and debt-to-asset ratios, as well as
dividend yields) match those of their respective
indexes. For instance, if 10% of the capitalization of
the Wilshire 5000 consists of utility companies with
relatively large market capitalizations, then the Total
Stock Market Portfolio's stock holdings are constructed
so that approxi-
15
<PAGE> 19
mately 10% of this Fund's stocks represent utilities
with relatively large capitalizations.
This sampling technique is expected to be an effective
means of substantially duplicating the income and
capital returns of the Extended Market, Total Stock
Market and Small Capitalization Stock Portfolios' target
benchmarks. Over time, the correlation between the
performance of the Extended Market, Total Stock Market
and Small Capitalization Stock Portfolios and their
respective indexes, the Wilshire 4500 Index, Wilshire
5000 Index and Russell 2000 Index, is expected to be at
least 0.95. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the net asset
value of a Fund, including the value of its dividend and
capital gains distributions, increases or decreases in
exact proportion to changes in the respective target
benchmark.
Due to the use of the sampling technique, neither the
Extended Market Portfolio, Total Stock Market Portfolio
nor the Small Capitalization Stock Portfolio is expected
to track its benchmark index with the same degree of
accuracy as evidenced by the high degree of correlation
between Vanguard Institutional Index Fund and its
benchmark. However, the principal advantage of this
technique is to provide an efficient means to invest in
the universe of stocks. In particular, the three Funds
using sampling are expected to provide broad
diversification, and should operate at low costs due
both to their "passive" approach to portfolio management
and low portfolio turnover rate.
------------------------------------------------------------------------------
EACH OF THE FUNDS
MAY INVEST IN SHORT-
TERM MONEY MARKET
INSTRUMENTS
Although they normally seek to remain substantially
fully invested in securities in the respective indexes,
the Funds each may invest temporarily in certain
short-term money market instruments. Such securities may
be used to invest uncommitted cash balances or to
maintain liquidity to meet shareholder redemptions.
These securities include: obligations of the United
States Government and its agencies or instrumentalities;
commercial paper, bank certificates of deposit, and
bankers' acceptances; and repurchase agreements
collateralized by these securities.
------------------------------------------------------------------------------
DERIVATIVE INVESTING Derivatives are instruments whose values are linked to
or derived from an underlying security or index. The
most common and conventional types of derivative
securities are futures and options.
The Funds may utilize stock futures contracts, options,
warrants, and swap agreements to a limited extent.
Specifically, each Fund may enter into futures contracts
and options provided that not more than 5% of its assets
are required as a margin deposit for futures contracts
or options. Furthermore, not more than 20% of each
Fund's assets are to be invested in futures and options
at any time. Additionally, the Funds' investments in
warrants will not exceed more than 5% of each of their
assets (2% with respect to warrants not listed on the
New York or American Stock Exchanges).
16
<PAGE> 20
The Funds may invest in convertible securities but these
investments are not expected to exceed 5% of each of
their assets.
The risk of loss associated with 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 an immediate and substantial loss or gain.
However, the Fund's will not use futures contracts,
options, warrants, convertible securities or swap
agreements for speculative purposes or to leverage their
net assets. Accordingly, the primary risks associated
with the Fund's use of these investments are: (i)
imperfect correlation between the change in market value
of the stocks held by a Fund and the prices of futures
contracts and options; and (ii) possible lack of a
liquid secondary market for a futures contract and the
resulting inability to close a futures position prior to
its maturity date. The risk of imperfect correlation
will be minimized by investing only in those contracts
whose behavior is expected to resemble that of the
Fund's underlying securities. The risk that a Fund will
be unable to close out a futures position will be
minimized by entering into such transactions on a
national exchange with an active and liquid secondary
market. However, options, warrants, convertible
securities and swap agreements purchased or sold
over-the-counter may be less liquid than exchange traded
securities. Illiquid securities, in general, may not
represent more than 15% of the net assets of any Fund.
Swap agreements are contracts between parties in which
one party agrees to make payments to the other party
based on the change in market value of a specified index
or asset. In return, the other party agrees to make
payments to the first party based on the return of a
different specified index or asset. Although swap
agreements entail the risk that a party will default on
its payment obligations thereunder, the Funds will
minimize this risk by entering into agreements that mark
to market no less frequently than quarterly. Swap
agreements also bear the risk that a Fund will not be
able to meet its obligation to the counterparty. This
risk will be mitigated by a Fund's investment in the
specific asset for which it is obligated to pay a
return.
------------------------------------------------------------------------------
SECURITY LENDING
The Funds may lend their investment securities to
qualified institutional investors for either short-term
or long-term purposes of realizing additional income.
Loans of securities by the Funds will be collateralized
by cash, letters of credit, or securities issued or
guaranteed by the U.S. Government or its agencies. The
collateral will equal at least 100% of the current
market value of the loaned securities. Each Fund will
limit such loans so that they will not exceed 33 1/3 of
the value of its securities.
------------------------------------------------------------------------------
17
<PAGE> 21
PORTFOLIO TURNOVER FOR
THE FUNDS IS EXPECTED
TO BE LOW Although they generally seek to invest for the long
term, the Funds retain the right to sell securities
irrespective of how long they have been held. It is
anticipated that the annual portfolio turnover of each
Fund will not exceed 50%. A turnover rate of 50% would
occur, for example, if one half of the securities of a
Fund were replaced within one year.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE FUND AND EACH
PORTFOLIO HAVE
ADOPTED CERTAIN
FUNDAMENTAL
LIMITATIONS Each Fund has adopted certain limitations on its
investment practices. Specifically, each Fund will not:
(a) invest more than 25% of its total assets in any one
industry;
(b) borrow money, except that the Fund may borrow from
banks (or through reverse repurchase agreements),
for temporary or emergency (not leveraging)
purposes, including the meeting of redemption
requests which might otherwise require the untimely
disposition of securities, in an amount not
exceeding 15% of the value of the Fund's net assets
(including the amount borrowed and the value of any
outstanding reverse repurchase agreements) at the
time the borrowing is made. Whenever borrowings
exceed 5% of the value of a Fund's net assets, the
Fund will not make any additional investments.
(c) with respect to 75% of its assets, purchase
securities of any issuer (except obligations of the
U.S. Government and its instrumentalities) if, as a
result, more than 5% of the value of the Fund's
assets would be invested in the securities of each
issuer; and
(d) with respect to 75% of its total assets, purchase
more than 10% of the outstanding voting securities
of any issuer.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statements of Additional
Information relating to the Funds may be changed only
with the approval of a majority of the shareholders of
the applicable Fund.
- --------------------------------------------------------------------------------
MANAGEMENT AND
INVESTMENT
ADVISORY SERVICES Vanguard Institutional Index Fund currently employs
Vanguard to provide management, administrative,
shareholder services and investment advisory services.
------------------------------------------------------------------------------
VANGUARD ADMINISTERS
AND PROVIDES ADVISORY
SERVICES TO THE FUNDS
Vanguard Index Trust is a member of The Vanguard Group
of Investment Companies, a family of more than 30
investment companies with more than 90 distinct
investment portfolios and total assets in excess of $250
billion. Through their jointly-owned subsidiary,
Vanguard, Vanguard Index Trust and the other funds in
the Group obtain virtually all of their corporate
management, administrative, shareholder accounting and
distribution services. Vanguard also provides investment
advisory services to Vanguard Index Trust and to certain
Vanguard funds on an at-cost basis.
As a result of Vanguard's unique corporate structure,
the Vanguard funds have costs substantially lower than
those of most competing
18
<PAGE> 22
mutual funds. In 1996, the average expense ratio (annual
costs including advisory fees divided by total net
assets) for the Vanguard funds amounted to approximately
.29% compared to an average of 1.22% for the mutual fund
industry (data provided by Lipper Analytical Services).
Each fund that is a member of The Vanguard Group of
Investment Companies pays its share of Vanguard's net
expenses, which are allocated among the funds under
methods approved by the Board of Directors (Trustees) of
each fund. In addition, each fund bears its own direct
expenses, such as legal, auditing and custodian fees.
Vanguard also provides distribution and marketing
services to the Funds. The Funds are available on a
no-load basis (i.e., there are no sales commissions or
12b-1 fees).
------------------------------------------------------------------------------
VANGUARD PROVIDES
MANAGEMENT AND
ADMINISTRATIVE
PERSONNEL TO
THE FUNDS
Vanguard employs a supporting staff of management and
administrative personnel to provide the requisite
services to the Funds and also furnishes the Funds with
the necessary office space, furnishings and equipment.
The Officers of Vanguard Institutional Index Fund and
Vanguard Index Trust manage the day-to-day operations of
the Fund and are responsible to their respective Boards
of Trustees. The Trustees set broad policies for
Vanguard Institutional Index Fund and Vanguard Index
Trust and choose their Officers. A list of Trustees and
Officers and a statement of their present positions and
principal occupations during the past five years can be
found in the Statements of Additional Information of the
Funds.
The Fund and each Portfolio of the Trust are not
actively managed, but are instead administered by the
Core Management Group using computerized, quantitative
techniques. The Group is supervised by the Officers of
the Fund and the Trust.
The Core Management Group manages the investment and
reinvestment of the Funds' assets and continuously
reviews, supervises, and administers the Funds'
investment programs with respect to those assets.
The Core Management Group also provides investment
advisory services to several Vanguard funds, including
Vanguard Balanced Index Fund, Vanguard International
Equity Index Fund, the Equity Index Portfolio of the
Vanguard Variable Insurance Fund, the Growth and Income
and Capital Appreciation Portfolios and the equity
portion of the Balanced Portfolio of Vanguard
Tax-Managed Fund, the Aggressive Growth Portfolio of
Vanguard Horizon Fund, the REIT Index of Vanguard
Specialized Portfolio, a portion of Vanguard/Morgan
Growth Fund and a portion of the assets of
Vanguard/Windsor II, as well as to several indexed
separate accounts. Total assets under management by the
Core Management Group were approximately $57 billion as
of December 31, 1996.
------------------------------------------------------------------------------
19
<PAGE> 23
VANGUARD
INSTITUTIONAL
INDEX FUND PAYS
VANGUARD A
QUARTERLY FEE Under the terms of a Service and Advisory Agreement with
Vanguard, Vanguard pays all of Vanguard Institutional
Index Fund's expenses, except for taxes and brokerage
commissions. In turn, the Fund pays Vanguard a fee at
the end of each fiscal quarter, calculated by applying a
quarterly rate, based on the annual percentage rate of
.02%, to average daily net assets for the quarter for
advisory services, corporate management and
administrative services and .005% for the provision of
shareholder services with respect to the Institutional
Plus Shares and .04% for the provision of shareholder
services with respect to the Institutional Shares. The
Institutional Plus Shares and the Institutional Shares
each bear their own expenses for shareholder services
provided by Vanguard.
Under a previous Service and Advisory Agreement with
Vanguard for the 1996 fiscal year, the Fund paid
Vanguard an investment advisory and administrative
services fee which represented an effective annual rate
of .06 of 1% of average (daily) net assets; this
reflects the total expenses as a percentage of average
net assets of the Institutional Shares of the Fund for
the 1996 fiscal year.
------------------------------------------------------------------------------
VANGUARD MANAGES
VANGUARD INDEX TRUST
ON AN AT-COST BASIS
The Vanguard Index Trust portfolios receive all
investment advisory services on an at-cost basis from
Vanguard's Core Management Group.
For the fiscal year ended December 31, 1996 the total
expenses as a percentage of average net assets of the
Portfolio Shares of Total Stock Market Portfolio,
Extended Market Portfolio and Small Capitalization Stock
Portfolio were --%, --%, and --%, respectively.
The Institutional Shares and the Portfolio Shares of
these Funds each bear their own expenses relating to
marketing and distribution, account maintenance and
shareholder services.
- --------------------------------------------------------------------------------
PORTFOLIO
TRANSACTIONS In placing portfolio transactions for both the Funds,
Vanguard's Core Management Group uses its best judgment
to choose the broker most capable of providing the
brokerage services necessary to obtain the best
available price and most favorable execution at the
lowest commission rate. 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 services needed to obtain the best available
price and most favorable execution, consideration may be
given to those brokers which supply statistical
information and provide other services in addition to
execution services to the Funds. However, the Core
Management Group will not pay higher commissions
specifically for the purpose of obtaining research
services.
- --------------------------------------------------------------------------------
20
<PAGE> 24
DIVIDENDS, CAPITAL
GAINS AND TAXES Vanguard Institutional Index Fund and the Total Stock
Market Portfolio each distributes substantially all of
its ordinary income in the form of quarterly dividends.
The Extended Market and Small Capitalization Stock
Portfolios each pay annual dividends. Capital gains
distributions for each Fund, if any, are made annually.
The Funds' dividend and capital gains distributions may
be reinvested in additional shares or received in cash.
See "Distribution Options."
Pursuant to the Internal Revenue Code, certain dividend
and capital gains distributions declared by each Fund
during December, if received by shareholders by January
31, are deemed to have been paid by the Fund and
received by shareholders on December 31 of the prior
year.
The Funds intend to continue to qualify for taxation as
a "regulated investment company" under the Internal
Revenue Code so that they will not be subject to federal
income tax to the extent its income is distributed to
shareholders. Dividends paid by the Funds from net
investment income, whether received in cash or
reinvested in additional shares, will be taxable to
shareholders as ordinary income. For corporate
investors, dividends from net investment income will
generally qualify in part for the intercorporate
dividends-received deduction. However, the portion of
the dividends so qualified depends on the aggregate
taxable qualifying dividend income received by the Funds
from domestic (U.S.) sources.
Distributions paid by the Funds from long-term capital
gains, whether received in cash or reinvested in
additional shares, are taxable as long-term capital
gains, regardless of the length of time the shares have
been owned. Capital gains distributions are made when a
Fund realizes net capital gains on sales of portfolio
securities during the year. The Funds do not seek to
realize any particular amount of capital gains during a
year; rather, realized gains are a by-product of
portfolio management activities. Consequently, capital
gains distributions may be expected to vary considerably
from year to year; there will be no capital gains
distributions in years when a Fund realizes net capital
losses.
Note that if you elect to receive capital gains
distributions in cash, instead of reinvesting them in
additional shares, you are in effect reducing the
capital at work for you in a Fund. Also, keep in mind
that if you purchase shares in a Fund shortly before the
record date for a dividend or capital gains
distribution, a portion of your investment will be
returned to you as a taxable distribution, regardless of
whether you are reinvesting your distributions or
receiving them in cash.
The Funds will notify you annually as to the tax status
of dividend and capital gains distributions paid by
them.
Dividends and capital gains are calculated and
distributed the same way for each class of shares. The
amount of any income dividends per share will vary,
however, generally due to the differences in shareholder
services expenses for Vanguard Institutional Index
Fund's separate share classes and differences in
marketing and distribution, account maintenance and
shareholder services expenses for Vanguard Index Trust's
separate share classes.
21
<PAGE> 25
A CAPITAL GAIN OR LOSS
MAY BE REALIZED UPON
EXCHANGE OR
REDEMPTION A sale of shares of a Fund is a taxable event, and may
result in a capital gain or loss. A capital gain or loss
may be realized from an ordinary redemption of shares or
an exchange of shares between two mutual funds (or two
portfolios of the same fund).
Dividend distributions, capital gain distributions, and
capital gains or losses from redemptions and exchanges
may be subject to state and local taxes.
Each Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with IRS
taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your Account
Registration Form your proper Social Security or
Employer Identification number and by certifying that
you are not subject to backup withholding.
Vanguard Institutional Index Fund and Vanguard Index
Trust are organized as Pennsylvania business trusts and,
in the opinion of counsel, are not liable for any income
or franchise tax in the Commonwealth of Pennsylvania.
Vanguard Institutional Index Fund and Vanguard Index
Trust will be subject to Pennsylvania county personal
property tax (if any) in the county which is the site of
its principal office. Shareholders who are Pennsylvania
residents generally will not be subject to county
personal property taxes.
The tax discussion set forth above is included for
general information only. Prospective investors should
consult their own tax advisers concerning the tax
consequences of an investment in the Funds.
- --------------------------------------------------------------------------------
THE SHARE PRICE
OF THE FUND AND
EACH PORTFOLIO The share price or "net asset value" per share of each
class of the Funds equals net assets attributable to a
class divided by shares outstanding of the Class. Net
asset value per share is determined once daily at the
close of regular trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time).
Portfolio securities of the Funds that are listed on a
securities exchange are valued at the last quoted sales
price on the day the valuation is made. Price
information on listed securities is taken from the
exchange where the security is primarily traded.
Securities which are listed on an exchange and which are
not traded on the valuation date are valued at the mean
of the bid and ask prices. For Vanguard Institutional
Index Fund, unlisted securities for which market
quotations are readily available are valued at the
latest quoted bid price. For the Extended Market, Total
Stock Market and Small Capitalization Stock Portfolios,
unlisted securities for which market quotations are
readily available are valued at the mean of the bid and
ask prices. Temporary cash investments are valued at
amortized cost which approximates market value. For each
Fund, securities for which no current quotations are
readily available are valued at fair market value as
determined in good faith by the Trustees. Securities may
be valued on the basis of prices provided by a pricing
service when such prices are believed to reflect the
fair market value of such securities.
22
<PAGE> 26
Each Fund's share price can be found daily in the mutual
fund listings of most major newspapers under the heading
of Vanguard.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION Vanguard Institutional Index Fund and Vanguard Index
Trust are Pennsylvania business trusts. The Declarations
of Trust of Vanguard Institutional Index Fund and
Vanguard Index Trust permit the Trustees to issue an
unlimited number of shares of beneficial interest with
no par value. The Boards of Trustees of Vanguard
Institutional Index Fund and Vanguard Index Trust have
the power to designate one or more classes or series of
shares of beneficial interest and to classify or
reclassify any unissued shares with respect to such
series or classes. Currently, Vanguard Institutional
Index Fund is offering shares of one series and Vanguard
Index Trust is offering shares of six series.
Vanguard Institutional Index Fund offers two distinct
classes of shares, the Institutional Shares and the
Institutional Plus Shares. The Institutional Shares are
available for investors who meet the minimum initial
investment of $10 million and may require special
employee benefit plan services. The Institutional Plus
Shares are available for investors who meet the minimum
initial investment of $200 million and do not require
special employee benefit plan services. The
Institutional Shares and the Institutional Plus Shares
each bear their own expenses for shareholder services;
the Institutional Shares are subject to higher expenses
for such services, which may affect performance.
The Extended Market, Total Stock Market and Small
Capitalization Stock Portfolios of Vanguard Index Trust
each offer two distinct classes of shares, the Portfolio
Shares and the Institutional Shares. The Portfolio
Shares are available for investors who meet the minimum
initial investment of $3,000 ($1,000 for retirement plan
accounts) and may require special employee benefit plan
services. The Institutional Shares of each Portfolio are
available for investors who meet the minimum initial
investment of $10 million and generally do not require
special employee benefit plan services. The Portfolio
Shares and the Institutional Shares each bear their own
expenses for marketing and distribution and account
maintenance. It is expected that the expenses to be
borne by the Portfolio Shares will be higher than the
expenses to be borne by the Institutional Shares, which
may affect performance.
The shares of Vanguard Institutional Index Fund and each
series of Vanguard Index Trust are fully paid and
non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no preemptive rights. Such shares have non-
cumulative voting rights, meaning that the holders of
more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees if they so
choose.
Annual meetings of shareholders will not be held except
as required by the Investment Company Act of 1940 and
other applicable law. An annual meeting will be held to
vote on the removal of a Trustee or Trustees of Vanguard
Institutional Index Fund or Vanguard Index Trust if
requested in writing by the holders of not less than 10%
of the outstanding shares of Vanguard Institutional
Index Fund or Vanguard Index Trust, as applicable.
23
<PAGE> 27
All securities and cash for Vanguard Institutional Index
Fund and the Small Capitalization Stock Portfolio are
held by CoreStates Bank, N.A. All securities and cash
for the Extended Market and Total Stock Market
Portfolios of Vanguard Index Trust are held by State
Street Bank and Trust Company. CoreStates Bank, N.A.
holds daily cash balances that are used by these two
Funds to invest in repurchase agreements or securities
acquired in these transactions.
Vanguard, Valley Forge, PA, serves as the Transfer and
Dividend Disbursing Agent for the Funds. Price
Waterhouse LLP serves as independent accountants for the
Funds and will audit their financial statements
annually. Neither Vanguard Institutional Index Fund nor
Vanguard Index Trust is involved in any litigation.
- --------------------------------------------------------------------------------
24
<PAGE> 28
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES To open a new account in Vanguard Institutional Index
Fund, complete an Account Registration Form and mail it
to:
Vanguard Financial Center
Vanguard Institutional Index Fund
Name of Class
Attn: Institutional Investor Services
P.O. Box 1472
Valley Forge, PA 19482
VANGUARD
INSTITUTIONAL
INDEX FUND For express or registered mail, send your registration
form to: Vanguard Financial Center, Vanguard
Institutional Index Fund, Attn: Institutional Investor
Services, 100 Vanguard Boulevard, Malvern, PA 19355.
Once the account has been opened, Vanguard will assign a
Service Representative for future account transactions.
Because of the risks associated with common stock
investments, this Fund is intended to be a long-term
investment vehicle and is not designed to provide
investors with a means of speculating on short-term
stock market movements. Consequently, the Fund reserves
the right to reject any specific purchase (or exchange
purchase) request. The Fund also reserves the right to
suspend the offering of shares for a period of time.
Shares of the Fund generally may be purchased by Federal
Funds wire. The minimum initial investment for the Fund
is $10 million for the Institutional Shares and $200
million for the Institutional Plus Shares. Please
contact your Institutional Investor Services
Representative or call Participant Services
(1-800-523-8066) to notify the Fund of the intended
investment and to receive an account number. Wiring
instructions are provided below.
Subsequent investments of $5 million or more will be
credited to an account on the date of purchase if
Vanguard is notified one business day in advance of the
intended purchase and a Federal Funds wire is received
by 4:00 p.m. (Eastern time) on the date of purchase. See
"Trade Date Policy."
VANGUARD
INDEX TRUST --
EXTENDED
MARKET PORTFOLIO,
TOTAL STOCK MARKET
PORTFOLIO AND
SMALL CAPITALIZATION
STOCK PORTFOLIOS To open an account in Vanguard Index Trust, complete an
Account Registration Form and mail it to:
Vanguard Financial Center
Vanguard Index Trust
NAME OF PORTFOLIO -- INSTITUTIONAL SHARES
Attn: Institutional Investor Services
P.O. Box 1472
Valley Forge, PA 19482
For express or registered mail, send your registration
form to: Vanguard Financial Center, Vanguard Index
Trust, NAME OF PORTFOLIO -- Insti-
25
<PAGE> 29
tutional Shares, Attn: Institutional Investor Services,
100 Vanguard Boulevard, Malvern, PA 19355.
Once the account has been opened, Vanguard will assign a
Service Representative for future account transactions.
Because of the risks associated with common stock
investments, these Funds are intended to be long-term
investment vehicles and are not designed to provide
investors with a means of speculating on short-term
stock market movements. Consequently, the Funds reserve
the right to reject any specific purchase (or exchange
purchase) request. The Funds also reserve the right to
suspend the offering of shares for a period of time.
Shares of the Funds generally may be purchased by
Federal Funds wire. The minimum initial investment for
the Institutional Shares of each Portfolio is $10
million. Please contact your Institutional Investor
Services Representative or call Participant Services
(1-800-523-8066) to notify the Funds of the intended
investment and to receive an account number. Wiring
instructions are provided below.
Subsequent investments of $5 million or more will be
credited to an account on the date of purchase if
Vanguard is notified one business day in advance of the
intended purchase and a Federal Funds wire is received
by 4:00 p.m. (Eastern time) on the date of purchase. See
"Trade Date Policy."
IMPORTANT NOTE
ON EXPENSES
The Extended Market Portfolio and the Small
Capitalization Stock Portfolio each assess a portfolio
transaction fee on purchases of shares equal to 0.5% of
the dollar amount invested.
Vanguard Institutional Index Fund and the Total Stock
Market Portfolio reserve the right to deduct a portfolio
transaction fee, ranging from 0.08% to 0.20%, from
purchases of their shares, if such purchase or
cumulative purchases are of a size that is reasonably
deemed to be disruptive to efficient portfolio
management. Please call Vanguard's Institutional
Investor Services Department before investing to
determine whether a fee will be charged for your share
purchases.
Portfolio transaction fees for the Funds apply to
initial investments and all subsequent purchases
(including purchases made by exchange from another
Vanguard fund) but not to reinvested dividend or capital
gains distributions. Portfolio transaction fees are
deducted automatically from the amount invested, they
cannot be paid separately. The portfolio transaction fee
will be paid to the Fund or the Trust to offset
transaction costs of buying securities. The fee is not
paid to Vanguard and is not a sales charge.
The Extended Market, Total Stock Market and Small
Capitalization Portfolios also charge a $10 annual
account maintenance fee for Portfolio Shares accounts
with balances less than $10,000.
26
<PAGE> 30
ADDITIONAL
INVESTMENTS
Please contact
your Service
Representative
Additional investments may be made at any time by wiring
monies to Vanguard. As noted above, investments of $5
million or more require prior-day notification to
qualify for credit on the date of purchase. To ensure
prompt investment, please notify your Institutional
Investor Services Representative in advance of the wire.
------------------------------------------------------------------------------
<TABLE>
<S> <C>
PURCHASING BY WIRE Monies should be wired to:
BEFORE WIRING CORESTATES BANK, N.A.
Please contact your ABA 031000011
Service Representative CORESTATES ACCT NO 0101-9897
ATTN VANGUARD
NAME OF FUND
NAME OF PORTFOLIO
NAME OF CLASS
ACCOUNT NUMBER
ACCOUNT REGISTRATION
To ensure proper receipt, please be sure to include in the
wiring instructions the complete name of the Fund, the account
number Vanguard has assigned you and the eight-digit CoreStates
number. NOTE: Federal Funds wire purchase orders will be
accepted only when the Funds and Custodian Bank are open for
business.
</TABLE>
------------------------------------------------------------------------------
PURCHASING BY
EXCHANGE (from a
Vanguard account) Purchases may also be made by exchange from an existing
Vanguard Fund account. However, the Funds reserve the
right to refuse any exchange purchase request. Please
call your Service Representative or call Participant
Services (1-800-523-8066.)
------------------------------------------------------------------------------
DISTRIBUTION OPTIONS Dividend and capital gains distributions paid by the
Funds will be automatically reinvested in additional
shares of the same class of shares of the Fund that you
own. A cash dividend option is also available. Please
contact your Service Representative for further
information.
CERTIFICATES Share certificates will not be issued for any Fund.
ELECTRONIC PROSPECTUS
DELIVERY If you would prefer to receive a prospectus for a Fund
or any of the Vanguard Funds in an electronic format,
please call 1-800-231-7870 for additional information.
If you elect to do so, you may also receive a paper copy
of the prospectus, by calling 1-800-523-8066.
- --------------------------------------------------------------------------------
TRADE DATE POLICY Investments will be credited on the date of purchase
under the following conditions:
- FOR INVESTMENTS OF $5 MILLION OR MORE: The Fund must
be notified of the intended purchase by the close of
the New York Stock Exchange, (generally 4:00 p.m.
Eastern time) on the prior business day and the
Federal Funds wire must be received by Vanguard by the
close of the Exchange on the date of purchase.
- FOR INVESTMENTS OF LESS THAN $5 MILLION: The Fund must
be notified of the intended purchase by 10:45 a.m.
(Eastern time) on the day of
27
<PAGE> 31
purchase and the Federal Funds wire must be received by
the close of the Exchange.
Generally, if these requirements are not met, an
investment will be credited to the account on the
business day following receipt of a Federal Funds wire.
The trade date, the day on which an account is credited,
is generally the day on which the Fund receives an
investment in the form of Federal Funds. For purchases
by Federal Funds wire or by exchange, the Fund is
credited immediately with Federal Funds. If a purchase
by Federal Funds wire or exchange is received by the
close of the New York Stock Exchange, (generally 4:00
p.m. Eastern time), the trade date is the day of receipt
assuming proper notification has been given, as
described above. If a purchase is received after the
close of the Exchange, the trade date is the business
day following the receipt of the wire or exchange.
- --------------------------------------------------------------------------------
SELLING YOUR
SHARES
WIRE PROCEEDS Any portion of an account may be withdrawn by contacting
your Service Representative. The redemption proceeds
will be wired to the bank account indicated on the
Account Registration Form within five business days
following receipt of a request.
Wire redemptions of less than $5,000 are subject to a $5
charge deducted from the principal in your account.
There is no charge for wire redemptions of $5,000 or
more, or for subsequent dividend wires.
For our mutual protection, wiring instructions must be
on file at Vanguard prior to executing any redemption
request. A request to change the bank account associated
with the wire redemption feature or a request to wire
funds to a bank other than that on file must be received
in writing. A signature guarantee of an authorized
officer is required if the bank registration is not
identical to your account registration.
------------------------------------------------------------------------------
OTHER REDEMPTION
INFORMATION Each Fund may suspend the redemption rights or postpone
payment at times when the New York Stock Exchange is
closed or under any emergency circumstances as
determined by the United States Securities and Exchange
Commission.
If the Board of Trustees determines that it would be
detrimental to the best interests of a Fund's remaining
shareholders to make payment in cash, the Fund may pay
redemption proceeds in whole or in part by a
distribution in kind of readily marketable securities.
With respect to the Institutional Shares of Vanguard
Institutional Index Fund, the Fund reserves the right to
redeem shares of any account with a balance of less than
$10 million. This action will be taken when the balance
of the account falls below $10 million due to account
redemptions. Reductions in account balances due to
market depreciation will not be considered until the
account balance declines to less than $5 million.
Investors will be provided with 60 days' notice before
any such action is taken.
------------------------------------------------------------------------------
28
<PAGE> 32
CONVERSION TO
INSTITUTIONAL SHARES
OR PORTFOLIO
SHARES Vanguard Institutional Index Fund reserves the right to
convert an investor's Institutional Plus Shares into the
Institutional Shares of the Fund if the investor's
account balance falls below $200 million. The Extended
Market, Total Stock Market and Small Capitalization
Stock Portfolios, each reserves the right to convert an
investor's Institutional Shares of a Fund into the
Portfolio Shares of the same Fund if the investor's
account balance falls below $10 million. Any such
conversion will be preceded by written notice to the
investor. There will be no portfolio transaction fee
imposed with regard to such conversions.
- --------------------------------------------------------------------------------
EXCHANGING YOUR
SHARES Shares of the Funds may be exchanged for those of other
available Vanguard funds, but only upon prior approval
by Vanguard. Exchanges without prior Vanguard
authorization are not permitted for the Funds. Contact
your Service Representative for further information.
Through December 31, 1997, Portfolio Shares of the
Extended Market, Total Stock Market and Small
Capitalization Stock Portfolios may be exchanged for the
Institutional Shares of these Funds, provided that the
investor satisfies all purchase eligibility requirements
for the Institutional Shares.
Exchange requests may be made in writing or by
telephone. The Funds reserve the right to revise or
terminate the exchange privilege and its provisions,
limit the amount of or reject any exchange, as deemed
necessary, at any time, without prior notice.
- --------------------------------------------------------------------------------
EXCHANGE
PRIVILEGE
LIMITATIONS The Funds exchange privilege is not intended to afford
investors a way to speculate on short-term movements in
the market. Accordingly, in order to prevent excessive
use of the exchange privilege that may potentially
disrupt the management of the Funds and increase
transaction costs, the Funds have established a policy
of limiting excessive exchange activity. With regard to
Vanguard Institutional Index Fund, exchange activity
will not be deemed excessive if limited to one
substantive exchange redemption per calendar year, taken
from assets that have been invested in the Fund for
periods of one year or longer. With regard to the other
Funds, exchange activity will not be deemed excessive if
limited to two substantive exchange redemptions (at
least 30 days apart) from a Fund during any twelve month
period. The Fund and the Portfolios are designed for
long-term investors.
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION
ABOUT TELEPHONE
TRANSACTIONS The ability to initiate exchanges by telephone is
automatically established on your account unless you
request in writing that telephone transactions on your
account not be permitted. The ability to initiate wire
redemptions by telephone will be established on your
account only if you specifically elect this option in
writing.
29
<PAGE> 33
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions,
Vanguard generally adheres to the following security
procedures:
1. SECURITY CHECK. To request a transaction by
telephone, the caller must identify (i) the fund
name; and (ii) the 10-digit account number.
2. PAYMENT POLICY. The proceeds of any telephone
redemption by wire will be made only in accordance
with the shareowner's prior written instructions.
Neither the Fund nor Vanguard will be responsible for
the authenticity of transaction instructions received by
telephone, provided that reasonable security procedures
have been followed. Vanguard believes that the security
procedures described above are reasonable, and that if
such procedures are followed, you will bear the risk of
any losses resulting from unauthorized or fraudulent
telephone transactions on your account.
- --------------------------------------------------------------------------------
OTHER ACCOUNT
INFORMATION For corporate investors, a current corporate resolution
must be maintained on file at Vanguard at all times. Any
revisions to a corporate resolution must be submitted to
your Service Representative at Vanguard.
To change the registration of an account, a request must
be submitted in writing to Vanguard and include the
following information: the account number and fund name
and class, authorized signatures, any applicable
signature guarantees, and other supporting legal
documents as necessary.
All requests should be mailed to the following address:
Vanguard Financial Center
Attn: Institutional Investor Services
P.O. Box 1472
Valley Forge, PA 19482-1472
30
<PAGE> 34
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
---------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-6273 (ON-BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
I009
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 35
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE INSTITUTIONAL SHARES OF THESE
SECURITIES MAY NOT BE SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF
ADDITIONAL DOES NOT CONSTITUTE A PROSPECTUS. TO OBTAIN A CURRENTLY
EFFECTIVE
PROSPECTUS FOR THE PORTFOLIO SHARES OF VANGUARD INDEX TRUST, PLEASE
CONTACT VANGUARD INSTITUTIONAL INVESTOR SERVICES AT 1-800-523-1036.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 21, 1997
PART B
VANGUARD INDEX TRUST
STATEMENT OF ADDITIONAL INFORMATION
JUNE 27, 1997
This Statement is not a prospectus but should be read in conjunction with
the Trust's current Prospectuses (each of which is dated June 27, 1997), as may
be amended from time to time. To obtain a 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 Trustees 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
1
<PAGE> 36
becomes insolvent and subject to liquidation or reorganization under the
Bankruptcy Code or other laws, a court may determine that the underlying
security is collateral for a loan by the Portfolio not within the control of the
Portfolio and therefore the Portfolio may not be able to substantiate its
interest in the underlying security and may be deemed an unsecured creditor of
the other party to the agreement. While the 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
2
<PAGE> 37
prior to the specified delivery date. Minimal initial margin requirements are
established by the futures exchange and may be changed. Brokers may establish
deposit requirements which are higher than the exchange minimums. Futures
contracts are customarily purchased and sold 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.
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
3
<PAGE> 38
loss of the margin deposit, before any deduction for the transaction costs, if
the account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the contract. 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.
4
<PAGE> 39
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, 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 is
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, is 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, is 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 is 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 total 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;
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
5
<PAGE> 40
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 PORTFOLIOS WILL NOT BE SUBJECT TO THE
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 become 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
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.
6
<PAGE> 41
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, 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
December 31, 1996 was +1.83%. The yield of the Extended Market Portfolio Shares
of the Extended Market Portfolio of the Trust for the 30-day period ended
December 31, 1996 was +1.31%. The yield of the Total Stock Market Portfolio
Shares of the Total Stock Market Portfolio of the Trust for the 30-day period
ended December 31, 1996 was +1.71%. The yield of the Value Portfolio for the
30-day period ended December 31, 1996 was +2.32%. The yield of the Growth
Portfolio for the 30-day period ended December 31, 1996 was +1.40%. The yield of
the Small Capitalization Stock Portfolio Shares of the Small Capitalization
Stock Portfolio for the 30-day period ended December 31, 1996 was +1.52%.
The average annual total return of the 500 Portfolio* for the one- five-
and ten-year periods ended December 31, 1996 was +22.88%, +15.07% and +15.04%,
respectively. The average annual total return for the Portfolio Shares of the
Extended Market Portfolio** for the one- and five-year periods ended December
31, 1996 and since the Portfolio's inception on December 21, 1987 was +17.65%,
+14.77% and +15.26%, respectively. The average annual total return of the
Portfolio Shares of the Total Stock Market Portfolio* for the period ended
December 31, 1996, and since the Portfolio's inception on April 27, 1992 was
+20.96% and +16.01%+. The average annual total return of the Value Portfolio*
for the period ended December 31, 1996 and since inception on November 2, 1992
was +21.86% and +18.59%+. The average annual total return of the Growth
Portfolio* for the period ended December 31, 1996 and since inception on
November 2, 1992 was +23.74% and +15.81%+. The average annual total return of
the Portfolio Shares of the Small Capitalization Stock Portfolio for the one-
five- and ten-year periods ended December 31, 1996 was +18.12%, +16.25% and
+12.46%, 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.
The Institutional Shares of the Extended Market Portfolio, Total Stock
Market Portfolio and Small Capitalization Stock Portfolio were not offered prior
to June 27, 1997.
- ---------------
* Total return figures are not adjusted to reflect the $10 annual account
maintenance fee.
** Total return figures for the Extended Market Portfolio are not adjusted to
reflect the 0.5% portfolio transaction fee and the $10 annual account
maintenance fee.
*** Total return figures for the Small Capitalization Stock Portfolio are not
adjusted to reflect the 0.5% portfolio transaction fee and the $10 annual
account maintenance fee.
+ Annualized.
7
<PAGE> 42
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
Corporation, General Accident Insurance, and Chris-Craft Industries, Inc.
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 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.
8
<PAGE> 43
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 has invested are adjusted
from time to time in order to maintain the proportionate relationship between
each Fund's relative net assets and its contribution to Vanguard's capital. At
December 31, 1996, the Trust had contributed capital of $3,464,000 to Vanguard,
representing 17.3% 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, 1996, the Trust's share of Vanguard's actual net
costs of operation relating to management and administrative services (including
transfer agency) totaled approximately $52,747,000.
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
the average distribution expense rate for the Group, and that no Fund shall
incur annual distribution expenses in excess of 20/100 of 1% of its average
month-end net assets. During the fiscal year ended December 31, 1996, the Trust
paid approximately $7,210,000 of the Group's distribution and marketing
expenses. With respect to the Extended Market, Total Stock Market and Small
Capitalization Portfolios, expenses paid to Vanguard that are associated with
marketing and distribu-
9
<PAGE> 44
tion activities will be allocated to the class of shares of the Portfolio on
behalf of which the expenses were incurred by making such allocations to each
share class as if each such class were a separate Vanguard Fund. With respect to
the Extended Market, Total Stock Market and Small Capitalization Stock
Portfolios' expenses associated with Vanguard's provision of shareholder account
services will be allocated to each share class on the basis of the amount
incurred by each share class.
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, the REIT Index Portfolio of Vanguard Specialized Portfolios,
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,
1994, 1995 and 1996, the Trust paid the following amount of Vanguard's expenses
relating to investment advisory services:
<TABLE>
<CAPTION>
PORTFOLIO 1994 1995 1996
- ------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
500 Portfolio................................................ $ 36,000 $ 24,000 $ 20,000
Extended Market Portfolio.................................... $ 73,000 $ 47,000 $ 27,000
Total Stock Market Portfolio................................. $ 73,000 $ 47,000 $ 27,000
Small Capitalization Stock Portfolio......................... $ 57,000 $ 47,000 $ 29,000
Value Portfolio.............................................. $ 36,000 $ 24,000 $ 12,000
Growth Portfolio............................................. $ 36,000 $ 24,000 $ 12,000
</TABLE>
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, 1996, the Fund's
proportionate share of remuneration for all Officers as a group was
approximately $932,994, and its proportionate share of the amounts contributed
to the retirement plans of all Officers as a group was approximately $25,950.
During the fiscal year ended December 31, 1996, the Trust paid
approximately $84,000 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.
10
<PAGE> 45
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, 1996.
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) $479,232 $5,190 -- --
John J. Brennan(1) $294,423 $5,190 -- --
Barbara Barnes Hauptfuhrer $ 9,454 $1,468 $15,000 $65,000
Robert E. Cawthorn $ 9,454 $1,223 $13,000 $65,000
Bruce K. MacLaury $ 10,244 $1,435 $12,000 $60,000
Burton G. Malkiel $ 9,454 $ 979 $15,000 $65,000
Alfred M. Rankin, Jr. $ 9,454 $ 773 $15,000 $65,000
John C. Sawhill $ 9,454 $ 917 $15,000 $65,000
James O. Welch, Jr. $ 9,454 $1,129 $15,000 $65,000
J. Lawrence Wilson $ 9,454 $ 816 $15,000 $65,000
NAMES OF OTHER OFFICERS
- ---------------------
Raymond J. Klapinsky,
Secretary $ 79,607 $5,190 -- --
</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
(33 in the case of Mr. Malkiel; 27 in the case of Mr. MacLaury).
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, 1994, 1995 and 1996, the Trust paid
brokerage commissions of $2,092,196, $3,421,567 and $5,809,682, respectively.
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
series ("Portfolios") or classes of shares. Currently the Trust is offering
shares of six Portfolios. The Extended Market Portfolio, the Total Stock Market
Portfolio and the Small Capitalization Stock Portfolio of the Trust each offer
two classes of shares as follows: the Extended Market Portfolio Shares and the
Extended Market Portfolio Institutional Shares; the Total Stock Market Portfolio
Shares and the Total Stock Market Portfolio Institutional Shares; and the Small
Capitalization Stock Portfolio Shares and the Small Capitalization Stock
Portfolio Institutional Shares.
11
<PAGE> 46
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 Portfolio or class, shall be voted in the aggregate
and not by Portfolio except (i) when required by the Investment Company Act of
1940, shares shall be voted by individual Portfolio or class; and (ii) when the
matter does not affect any interest of a particular Portfolio or class, then
only shareholders of the affected Portfolio(s) or class(es) 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 and any classes thereof;
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 or its classes; 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 or classes into a single Portfolio or class 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), and 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.
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 and not because of such shareholder's acts or omissions. 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 neglect or wrongdoing, errors of judgment or mistakes of fact or law,
provided the Trustees have exercised reasonable care and have acted under the
reasonable belief that their actions are in the best interests of the Trust.
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 of Investment Companies.
12
<PAGE> 47
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, Australasia and the Far East.
GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX -- currently includes 71 bonds and 29
preferred stocks. 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 INDEX -- 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 INDEX -- is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
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, 12.5% Standard & Poor's Utilities Index and 12.5% Standard & Poor's
Telephone Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX -- consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.
LEHMAN BROTHERS AGGREGATE BOND INDEX -- is a market-weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated 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 $1.6 trillion.
13
<PAGE> 48
LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE
INDEX -- is a market-weighted index that contains individually priced U.S.
Treasury, agency, and corporate securities rated BBB- or better with maturities
between 5 and 10 years. The index has a market value of over $700 billion.
LEHMAN BROTHERS MUTUAL FUND LONG (10+) GOVERNMENT/CORPORATE INDEX -- is a
market-weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities greater than 10
years. The index has a market value of over $900 billion.
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, 1996,
including the financial highlights for each of the respective periods presented,
appearing in the Vanguard Index Trust 1996 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 Trust's 1996 Annual Report to
Shareholders and inserts thereto, are enclosed with this Statement of Additional
Information. The Trust's 1996 Annual Report to Shareholders does not include
information for the Institutional Shares of the Extended Market Portfolio, Total
Stock Market Portfolio and Small Capitalization Stock Portfolio because such
class of shares was not offered during the Trust's 1996 fiscal year.
14
<PAGE> 49
PART C
VANGUARD INDEX TRUST
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
The Registrant's Financial Statements for the year ended December 31, 1996,
including the financial highlights for each of the respective periods presented,
appearing in the Vanguard Index Trust 1996 Annual Report to Shareholders and
inserts thereto, and the reports thereon of Price Waterhouse LLP, independent
accountants, are incorporated by reference in this Statement of Additional
Information, from the Registrant's 1996 Annual Report to Shareholders which has
been filed with the Commission. The Financial Statements included in the Annual
Report are:
1. Statement of Net Assets as of December 31, 1996.
2. Statement of Operations for the year ended December 31, 1996.
3. Statement of Changes in Net Assets for the years ended December 31, 1995
and 1996.
4. Financial Highlights for the respective periods ended December 31, 1996.
5. Notes to Financial Statements.
6. Reports of Independent Accountants.
(b) EXHIBITS
1. 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 Trust" 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. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Not Applicable.
16. Schedules for Computation of Performance Quotations.*
18. Registrant's Form of Multiple Class Plan Pursuant to Rule 18f-3 under
the Investment Company Act of 1940.**
19. Powers-of-Attorney.**
27. Financial Data Schedules.*
- ---------------
* 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 and Investment Advisory Services" in the
Prospectus constituting Part A and "Management of the Trust" in the Statement of
Additional Information constituting Part B of this Registration Statement.
<PAGE> 50
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of March 31, 1997 there were 1,105,990 shareholders of the 500
Portfolio, 74,411 shareholders of the Extended Market Portfolio, 63,312
shareholders of the Total Stock Market Portfolio, 47,989 shareholders of the
Value Portfolio, 56,817 shareholders of the Growth Portfolio and 71,123
shareholders of Vanguard Small Capitalization Stock Portfolio.
ITEM 27. INDEMNIFICATION
Reference is made to Article X of Registrant's Declaration of Trust.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to trustees, 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
trustee, 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 Vanguard Group of Investment Companies. See the
information concerning The Vanguard Group, Inc. set forth in Parts A and B. For
information as to any other business, vocation or employment of a substantial
nature in which each director or officer of the Registrant's investment advisor
is or has been engaged for his own account or in the capacity of trustee,
officer, employee, partner or trustee, reference is made to Form ADV (File
#801-11953) filed by it under the Investment Advisers Act of 1940.
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, MA 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 an Exhibit and described in
Part B under "Management of the Trust," Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to provide an Annual Report to Shareholders or
prospective investors, free of charge, upon request.
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it meets
the requirements for effectiveness pursuant to paragraph (b) of Rule 485 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 21st day of May,
1997.
VANGUARD INDEX TRUST
By:
-----------------------------------
John J. Brennan, President &
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
BY: (Raymond J. Klapinsky)*
John C. Bogle, Chairman of the Board and Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
John J. Brennan, President, Trustee and Chief Executive Officer
May 21, 1997
BY: (Raymond J. Klapinsky)*
Robert E. Cawthorn, Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
Barbara B. Hauptfuhrer, Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
Bruce K. MacLaury, Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
Burton G. Malkiel, Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
Alfred M. Rankin, Jr., Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
John C. Sawhill, Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
James O. Welch, Jr., Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
J. Lawrence Wilson, Trustee
May 21, 1997
BY: (Raymond J. Klapinsky)*
Richard F. Hyland, Treasurer and Principal
Financial Officer and Accounting Officer
May 21, 1997
* As Attorney-in-Fact, pursuant to Power-of-Attorney. See Form SE filed for the
Windsor Funds, Inc. (File Number 2-14336), as filed with the Commission on or
about January 23, 1990. Incorporated by reference.
<PAGE> 52
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>
<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. 47 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated January 31, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of Vanguard Index Trust, which are also incorporated by
reference into the Registration 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
May 20, 1997
<PAGE> 1
EX-99.B16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD INDEX TRUST -- 500 PORTFOLIO
1. Average Annual Total Return (As of December 31, 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 = +22.88%
N = 1
ERV = $1,228.77*
Five Year
P = $1,000
T = +15.07%
N = 5
ERV = $2,017.18*
Ten Year
P = $1,000
T = +15.04%
N = 10
ERV = $4,059.50*
</TABLE>
*Not adjusted for $10 account maintenance fee.
2. YIELD (30 Days Ended December 31, 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 = $50,502,933.40
b = $4,901,647.98
c = 427,690,268.899
d = $70.37
Yield = 1.83%
</TABLE>
<PAGE> 2
VANGUARD INDEX TRUST -- EXTENDED MARKET PORTFOLIO
1. Average Annual Total Return (As of December 31, 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 = +17.65%
N = 1
ERV = $1,176.46*
Five Year
-------
P = $1,000
T = +14.77%
N = 5
ERV = $1,991.06*
Ten Year
-------
P = $1,000
T = +15.26%
N = since inception 12/21/87
ERV = $3,603.89*
</TABLE>
*Not adjusted for $10 account maintenance fee and .50% portfolio transaction
fee.
2. YIELD (30 Days Ended December 31, 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 = $2,589,754.86
b = $423,346.16
c = 76,486,384.593
d = $26.08
Yield = 1.31%
</TABLE>
<PAGE> 3
VANGUARD INDEX TRUST -- TOTAL STOCK MARKET PORTFOLIO
1. Average Annual Total Return (As of December 31, 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 = +20.96%
N = 1
ERV = $1,209.62**
Five Year
-------
P = $1,000
T = +16.01%
N = *
ERV = $2,002.72**
</TABLE>
* Since inception March 16, 1992.
** Not adjusted for $10 account maintenance fee.
2. YIELD (30 Days Ended December 31, 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 = $5,550,787.82
b = $623,515.97
c = 193,336,967.477
d = $17.97
Yield = 1.71%
</TABLE>
<PAGE> 4
VANGUARD INDEX TRUST -- VALUE PORTFOLIO
1. Average Annual Total Return (As of December 31, 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 = +21.86%
N = 1
ERV = $1,218.63**
Five Year
-------
P = $1,000
T = +18.59%*
N = *
ERV = $2,033.04**
</TABLE>
* Since inception November 2, 1992.
** Not adjusted for $10 account maintenance fee.
2. YIELD (30 Days Ended December 31, 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 = $2,085,020.43
b = $163,744.99
c = 57,593,753.062
d = $17.33
Yield = 2.32%
</TABLE>
<PAGE> 5
VANGUARD INDEX TRUST -- GROWTH PORTFOLIO
1. Average Annual Total Return (As of December 31, 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 = +23.74%
N = 1
ERV = $1,237.39**
Five Year
-------
P = $1,000
T = +15.81%
N = *
ERV = $1,841.62**
</TABLE>
* Since inception November 2, 1992.
** Not adjusted for $10 account maintenance fee.
2. YIELD (30 Days Ended December 31, 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 = $1,033,122.47
b = $127,299.97
c = 45,463,335.892
d = $17.19
Yield = 1.40%
</TABLE>
<PAGE> 6
SMALL CAPITALIZATION STOCK PORTFOLIO
(FORMERLY VANGUARD SMALL CAPITALIZATION STOCK FUND, INC.)
1. Average Annual Total Return (As of December 31, 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 = +18.12%
N = 1
ERV = $1,181.18*
Five Year
-------
P = $1,000
T = +16.25%
N = 5
ERV = $2,122.81*
Ten Year
-------
P = $1,000
T = +12.46%
N = 10
ERV = $3,235.30*
</TABLE>
*Not adjusted for $10 account maintenance fee and 1% portfolio transaction
fee.
2. YIELD (30 Days Ended December 31, 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 = $2,358,894.93
b = $339,787.52
c = 79,526,078.028
d = $20.12
Yield = 1.52%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
<NUMBER> 01
<NAME> 500 PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 21920780
<INVESTMENTS-AT-VALUE> 30376657
<RECEIVABLES> 600999
<ASSETS-OTHER> 2671
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30980327
<PAYABLE-FOR-SECURITIES> 412185
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 236290
<TOTAL-LIABILITIES> 648475
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21808593
<SHARES-COMMON-STOCK> 438518
<SHARES-COMMON-PRIOR> 301574
<ACCUMULATED-NII-CURRENT> 23865
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 43958
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8455436
<NET-ASSETS> 30331852
<DIVIDEND-INCOME> 519277
<INTEREST-INCOME> 10100
<OTHER-INCOME> 0
<EXPENSES-NET> 47261
<NET-INVESTMENT-INCOME> 482116
<REALIZED-GAINS-CURRENT> 540258
<APPREC-INCREASE-CURRENT> 3961266
<NET-CHANGE-FROM-OPS> 4983640
<EQUALIZATION> 36930
<DISTRIBUTIONS-OF-INCOME> 510308
<DISTRIBUTIONS-OF-GAINS> 103232
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 197182
<NUMBER-OF-SHARES-REDEEMED> 68675
<SHARES-REINVESTED> 8437
<NET-CHANGE-IN-ASSETS> 12960017
<ACCUMULATED-NII-PRIOR> 15127
<ACCUMULATED-GAINS-PRIOR> 11106
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 47261
<AVERAGE-NET-ASSETS> 23640124
<PER-SHARE-NAV-BEGIN> 57.60
<PER-SHARE-NII> 1.28
<PER-SHARE-GAIN-APPREC> 11.82
<PER-SHARE-DIVIDEND> 1.28
<PER-SHARE-DISTRIBUTIONS> 0.25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 69.17
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
<NUMBER> 02
<NAME> EXTENDED MARKET PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1568660
<INVESTMENTS-AT-VALUE> 2103889
<RECEIVABLES> 112316
<ASSETS-OTHER> 969
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2217174
<PAYABLE-FOR-SECURITIES> 32626
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 85710
<TOTAL-LIABILITIES> 118336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1532921
<SHARES-COMMON-STOCK> 80119
<SHARES-COMMON-PRIOR> 63273
<ACCUMULATED-NII-CURRENT> 263
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 30245
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 535409
<NET-ASSETS> 2098838
<DIVIDEND-INCOME> 26241
<INTEREST-INCOME> 4195
<OTHER-INCOME> 0
<EXPENSES-NET> 4568
<NET-INVESTMENT-INCOME> 25868
<REALIZED-GAINS-CURRENT> 135342
<APPREC-INCREASE-CURRENT> 133530
<NET-CHANGE-FROM-OPS> 294740
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25620
<DISTRIBUTIONS-OF-GAINS> 127262
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26677
<NUMBER-OF-SHARES-REDEEMED> 15254
<SHARES-REINVESTED> 5423
<NET-CHANGE-IN-ASSETS> 575625
<ACCUMULATED-NII-PRIOR> 15
<ACCUMULATED-GAINS-PRIOR> 22165
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4568
<AVERAGE-NET-ASSETS> 1824210
<PER-SHARE-NAV-BEGIN> 24.07
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 3.85
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 1.72
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.20
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
<NUMBER> 03
<NAME> TOTAL STOCK MARKET PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2764442
<INVESTMENTS-AT-VALUE> 3509331
<RECEIVABLES> 98857
<ASSETS-OTHER> 401
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3608589
<PAYABLE-FOR-SECURITIES> 35437
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42296
<TOTAL-LIABILITIES> 77733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2776906
<SHARES-COMMON-STOCK> 198663
<SHARES-COMMON-PRIOR> 104429
<ACCUMULATED-NII-CURRENT> 92
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8749
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 745109
<NET-ASSETS> 3530856
<DIVIDEND-INCOME> 48257
<INTEREST-INCOME> 4842
<OTHER-INCOME> 0
<EXPENSES-NET> 5598
<NET-INVESTMENT-INCOME> 47501
<REALIZED-GAINS-CURRENT> 27380
<APPREC-INCREASE-CURRENT> 412119
<NET-CHANGE-FROM-OPS> 487000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 47409
<DISTRIBUTIONS-OF-GAINS> 19087
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 109053
<NUMBER-OF-SHARES-REDEEMED> 18391
<SHARES-REINVESTED> 3572
<NET-CHANGE-IN-ASSETS> 1959967
<ACCUMULATED-NII-PRIOR> 623
<ACCUMULATED-GAINS-PRIOR> 4197
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5598
<AVERAGE-NET-ASSETS> 2551018
<PER-SHARE-NAV-BEGIN> 15.04
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 2.84
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0.11
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.77
<EXPENSE-RATIO> 0.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
<NUMBER> 04
<NAME> VALUE PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 838326
<INVESTMENTS-AT-VALUE> 1014323
<RECEIVABLES> 82987
<ASSETS-OTHER> 88
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1097398
<PAYABLE-FOR-SECURITIES> 77747
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3924
<TOTAL-LIABILITIES> 81671
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 818752
<SHARES-COMMON-STOCK> 59666
<SHARES-COMMON-PRIOR> 33551
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 531
<ACCUMULATED-NET-GAINS> 21497
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 176009
<NET-ASSETS> 1015727
<DIVIDEND-INCOME> 20433
<INTEREST-INCOME> 276
<OTHER-INCOME> 0
<EXPENSES-NET> 1511
<NET-INVESTMENT-INCOME> 19198
<REALIZED-GAINS-CURRENT> 46863
<APPREC-INCREASE-CURRENT> 88860
<NET-CHANGE-FROM-OPS> 154921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19729
<DISTRIBUTIONS-OF-GAINS> 28488
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34020
<NUMBER-OF-SHARES-REDEEMED> 10585
<SHARES-REINVESTED> 2679
<NET-CHANGE-IN-ASSETS> 519400
<ACCUMULATED-NII-PRIOR> 195
<ACCUMULATED-GAINS-PRIOR> 9219
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1511
<AVERAGE-NET-ASSETS> 755653
<PER-SHARE-NAV-BEGIN> 14.79
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 2.81
<PER-SHARE-DIVIDEND> 0.38
<PER-SHARE-DISTRIBUTIONS> 0.57
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.02
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
<NUMBER> 05
<NAME> GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 643371
<INVESTMENTS-AT-VALUE> 787310
<RECEIVABLES> 63985
<ASSETS-OTHER> 69
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 851364
<PAYABLE-FOR-SECURITIES> 63330
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1130
<TOTAL-LIABILITIES> 64460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 644969
<SHARES-COMMON-STOCK> 46552
<SHARES-COMMON-PRIOR> 19405
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2052)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 143939
<NET-ASSETS> 786904
<DIVIDEND-INCOME> 8880
<INTEREST-INCOME> 268
<OTHER-INCOME> 0
<EXPENSES-NET> 1031
<NET-INVESTMENT-INCOME> 8117
<REALIZED-GAINS-CURRENT> 6444
<APPREC-INCREASE-CURRENT> 97843
<NET-CHANGE-FROM-OPS> 112404
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8068
<DISTRIBUTIONS-OF-GAINS> 5200
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34801
<NUMBER-OF-SHARES-REDEEMED> 8427
<SHARES-REINVESTED> 772
<NET-CHANGE-IN-ASSETS> 515902
<ACCUMULATED-NII-PRIOR> 142
<ACCUMULATED-GAINS-PRIOR> 1573
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1031
<AVERAGE-NET-ASSETS> 516406
<PER-SHARE-NAV-BEGIN> 13.97
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 3.07
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.90
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000036405
<NAME> VANGUARD INDEX TRUST
<SERIES>
<NUMBER> 06
<NAME> SMALL CAPITALIZATION STOCK PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1456282
<INVESTMENTS-AT-VALUE> 1723370
<RECEIVABLES> 62328
<ASSETS-OTHER> 145
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1785843
<PAYABLE-FOR-SECURITIES> 9626
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62863
<TOTAL-LIABILITIES> 72489
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1440834
<SHARES-COMMON-STOCK> 84695
<SHARES-COMMON-PRIOR> 52196
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 494
<ACCUMULATED-NET-GAINS> 5966
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 267048
<NET-ASSETS> 1713354
<DIVIDEND-INCOME> 21215
<INTEREST-INCOME> 2741
<OTHER-INCOME> 0
<EXPENSES-NET> 3401
<NET-INVESTMENT-INCOME> 20555
<REALIZED-GAINS-CURRENT> 108296
<APPREC-INCREASE-CURRENT> 83327
<NET-CHANGE-FROM-OPS> 212178
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21098
<DISTRIBUTIONS-OF-GAINS> 109741
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37170
<NUMBER-OF-SHARES-REDEEMED> 10771
<SHARES-REINVESTED> 6100
<NET-CHANGE-IN-ASSETS> 742121
<ACCUMULATED-NII-PRIOR> 49
<ACCUMULATED-GAINS-PRIOR> 7411
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3401
<AVERAGE-NET-ASSETS> 1364219
<PER-SHARE-NAV-BEGIN> 18.61
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 3.07
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 1.44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.23
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
