<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
The six months ended February 28, the first half of the 1994 fiscal year for
the Vanguard U.S. Growth and International Growth Portfolios, saw domestic
common stocks "mark time," while stocks in international markets extended the
solid gains they achieved during the 1993 fiscal year. I am pleased to report
that both Vanguard Portfolios outpaced their traditional benchmarks.
This table presents the total return (capital change plus income) of
each Portfolio for our fiscal half-year along with the returns achieved by our
customary standards: (1) the unmanaged indexes that reflect the broad equity
markets in which the Portfolios invest; and (2) the "peer groups" of mutual
funds with roughly comparable investment policies.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------
Total Return
Six Months Ended
February 28, 1994
- - -----------------------------------------------------------
<S> <C>
VANGUARD U.S. GROWTH PORTFOLIO + 4.8%
- - -----------------------------------------------------------
STANDARD & POOR'S 500 STOCK INDEX + 2.1%
AVERAGE GROWTH MUTUAL FUND + 4.7
- - -----------------------------------------------------------
VANGUARD INTERNATIONAL GROWTH PORTFOLIO + 16.4%
- - -----------------------------------------------------------
MSCI EAFE INDEX* + 6.8%
AVERAGE INTERNATIONAL MUTUAL FUND + 15.3
- - -----------------------------------------------------------
</TABLE>
*Morgan Stanley Capital International Europe, Australia, and Far East Index.
The total return for the U.S. Growth Portfolio is based on per share net asset
values of $14.71 on August 31, 1993, and $15.20 on February 28, 1994, with the
latter figure adjusted to take into account our annual income dividend of $.21
per share, paid on January 3, 1994. For the International Growth Portfolio, the
respective net asset values were $12.02 and $13.88, and the annual dividend was
$.11 per share.
* THE U. S. GROWTH PORTFOLIO
During the past six months, stock prices in the U.S. were fairly placid and, on
balance, "went nowhere." The total return of +2.1% for the Standard & Poor's
500 Stock Index was accounted for almost entirely by its dividend income
component. However, one of last year's two major market divergences persisted:
stocks of small companies continued to outpace stocks of large companies,
albeit by a far less powerful margin. Happily for the U.S. Growth Portfolio,
the other major divergence did not persist: growth stocks began to outpace
value stocks, after lagging during most of the preceding two years. While the
difference in performance was small (Standard & Poor's/BARRA Growth Index
+3.1%; Value Index +1.3%), it was a welcome sign of relative improvement for
the kind of large growth stocks that are the U.S. Growth Portfolio's
stock-in-trade.
The Fund's superior record--admittedly modest to a fault--over the
Standard & Poor's 500 Index was largely borne of two significant advantages:
(1) The absence of utility stocks in the portfolio. This sector, which
comprises 12% of the Index, was the market's worst performer. (2) Good
selection of individual stocks within the financial and technology sectors.
A report from our adviser, Lincoln Capital Management, describing the
Fund's investment operations during the period is presented on page 3 of this
report.
* THE INTERNATIONAL GROWTH PORTFOLIO
International stocks continued to display the strong performance that
characterized their results during our 1993 fiscal year, with most of the price
gains achieved during the past three months. One of the most striking events of
the period was a "non-event": the stability of the U.S. dollar relative to most
foreign currencies.
In our Annual Report for fiscal 1993, we pointed out the striking
contribution to foreign market returns--sometimes positive, sometimes
negative--engendered by the change in the relative value of the U.S. dollar. We
showed (see table that follows) that the strength in the dollar relative to
European currencies slashed the fine market returns earned in local currency
terms, while the dollar's weakness relative to the Pacific Basin currencies
(notably the Japanese yen) added markedly to the generous--but much
lower--local market returns.
(continued)
1
<PAGE> 2
It was a different story during the past six months, however, as the
"dollar-impact" on foreign market returns was minuscule, barely altering the
local currency returns. This table presents the contrast:
<TABLE>
<CAPTION>
Total Return
Twelve Months Ended Six Months Ended
August 31, 1993 February 28, 1994
Based Based Based Based
on Local Currency on U.S. on Local Currency on U.S.
Currency Effect Dollars Currency Effect Dollars
<S> <C> <C> <C> <C> <C> <C>
EUROPE +43.1% -31.9% +11.2% +11.1% -0.2% +10.9%
PACIFIC +24.9 +18.0 +42.9 + 3.1 +0.4 + 3.5
TOTAL +33.9% - 6.7% +27.2% + 6.6% +0.2% + 6.8%
Note: MSCI Indexes.
</TABLE>
The International Portfolio's substantial outperformance of the EAFE Index
(+16.4% for the Portfolio versus +6.8% for the Index) was accounted for largely
by: (1) a major underweighting in Japan (25% of assets versus 42% for the
Index), the only major international market to decline during the period; (2)
an overweighting in Hong Kong (7% versus 5%), also a top world performer; and
(3) generally very good individual stock selections relative to their
respective overall markets, most notably concentrated in Japan (despite the
weakness there) and Hong Kong (adding to the already positive market impact on
the Fund).
The regular report from our adviser, Schroder Capital Management,
appears on page 4 of this report.
* IN SUMMARY
The remainder of fiscal 1994 will hold its usual share of challenges. The
slowdown in the long upward march of U.S. stock prices is probably overdue, and
in that sense would be beneficial. On the international side, the stability of
the dollar in world markets--such a contrast to its customary volatility--seems
unlikely to persist, and world markets too, following nearly two years of sharp
advances, may slow their upward pace.
While this outlook may be a subdued one and involves the ever-present
risk of market volatility, it should not disturb the investment programs of
shareholders who invest in our two Portfolios not for quick market turns nor
for transitory market trends, but for long-run capital growth.
Sincerely,
/S/ JOHN C. BOGLE
- - ---------------------
John C. Bogle
Chairman of the Board
March 24, 1994
Note: Mutual fund data from Lipper Analytical Services, Inc.
AVERAGE ANNUAL TOTAL RETURNS--THE AVERAGE ANNUAL TOTAL RETURNS FOR THE
PORTFOLIOS (PERIODS ENDED DECEMBER 31, 1993) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
PORTFOLIO (INCEPTION DATE) 1 YEAR 5 YEARS 10 YEARS
- - ----------------------------------------- -------- --------- ----------
<S> <C> <C> <C>
INTERNATIONAL GROWTH PORTFOLIO (9/30/81) +44.74% + 9.40% +16.96%
U.S. GROWTH PORTFOLIO (1/6/59) - 1.45 +16.44 +12.54
</TABLE>
EACH PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURN FOR THE TEN-YEAR PERIOD INCLUDES A
CAPITAL RETURN AND AN INCOME RETURN. FOR THE INTERNATIONAL GROWTH PORTFOLIO,
THE CAPITAL RETURN IS +15.34% AND THE INCOME RETURN IS +1.62%; FOR THE U.S.
GROWTH PORTFOLIO, THE CAPITAL RETURN IS +10.53% AND THE INCOME RETURN IS
+2.01%. ALL OF THESE DATA REPRESENT PAST PERFORMANCE. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT INVESTORS' SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
2
<PAGE> 3
REPORT FROM LINCOLN CAPITAL MANAGEMENT COMPANY
As indicated in the Chairman's letter, the return for the U.S. Growth Portfolio
during the first six months of fiscal 1994 was satisfactory. We are reassured
that our people, philosophy, and process are generating favorable returns after
a difficult prior year.
There have been no interim changes in Lincoln Capital Management's
equity staff. The philosophy of the firm, applicable to each equity and
balanced fund client, remains focused: emphasis on quality, seasoned growth
stocks. The investment process, always being enhanced around the edges,
emphasizes fundamental research combined with long-pursued valuation
disciplines. So, there is stability at Lincoln and how the firm goes about
trying to add value to your investment in the U.S. Growth Portfolio.
Some of the changes in industry emphasis and major holdings during the
past six months are noteworthy. With respect to weighting of industry sectors
within the growth area, the consumer sector was increased from 31% to 40% of
net assets, and a 3% position was established in Coca-Cola. Additionally, with
both Gillette and Procter & Gamble joining the top ten holdings, a very strong
product presence and an important international flavor are apparent. The
technology sector was supplemented by 6%, while health care was attenuated by
5%. Finally, short-term reserves were reduced from 14% of net assets to 9%, as
investors appeared to have assimilated our concerns relating to new initiatives
by the Administration and equity valuations.
<TABLE>
<CAPTION>
TOP TEN HOLDINGS FEBRUARY 28, 1994
- - ------------------------------------------------------------
Company Business
- - ------------------------------------------------------------
<S> <C> <C>
1. GENERAL ELECTRIC #1 DIVERSIFIED
MANUFACTURER
2. MCDONALD'S #1 FAST FOOD CHAIN
3. WAL-MART STORES #1 GENERAL
MERCHANDISE CHAIN
4. FANNIE MAE (FNMA) #1 MORTGAGE
FINANCING AGENCY
5. PEPSICO #1 SNACK FOODS,
#2 SOFT DRINK COMPANY
6. AUTOMATIC DATA #1 PAYROLL SERVICE
PROCESSING COMPANY
7. FREDDIE MAC (FHLMC) #2 MORTGAGE
FINANCING AGENCY
8. GILLETTE #1 RAZOR AND
BLADE MANUFACTURER
9. AMERICAN #1 U.S. OVERSEAS
INTERNATIONAL GROUP INSURER
10. PROCTER & GAMBLE #1 HOUSEHOLD
PRODUCTS COMPANY
- - ------------------------------------------------------------
</TABLE>
The largest commitments (listed above) and indeed the entire Portfolio sell at
price-earnings ratios in line with the market as a whole. Historically, this
is unusual and suggests that the Portfolio represents good value for
growth-oriented investors with a moderately conservative bent in terms of stock
selection.
Respectfully,
J. Parker Hall III, President
Lincoln Capital Management Company
March 7, 1994
3
<PAGE> 4
REPORT FROM SCHRODER CAPITAL MANAGEMENT INTERNATIONAL
Twelve months ago, I wrote my interim report against a background of dull
returns from international markets that stretched back to the middle of 1990.
At that time, I sought to explain where international markets were in the
cyclical pattern that they often follow, so that you would not lose patience
but rather "stay the course." With hindsight, February 1993 turned out to be a
major turning point for international markets, and since that time the
Portfolio has risen by +46%. Over the past six months, the rise has been +16%,
and an interim report is indeed timely. (See Chairman's letter for details.)
The rise in international markets has been very broad over the past
twelve months, with the EAFE Index up +40% and its weakest constituent, France,
still up +17%. However, more volatility has crept in during the first half of
fiscal 1994. The unmanaged EAFE Index is up only +7%, due largely to a 1%
decline in Japan, its largest constituent. The European markets and the small
Pacific Basin markets continued to produce strong rises.
My "roadmap" divides bull markets into two broad phases: stage one,
when price-earnings ratios rise as a consequence of falling interest rates and
bond yields; and stage two, when a recovery in corporate profits becomes the
driving force behind the rise in share prices. Twelve months ago, Japan, the
UK, and Switzerland were well advanced in stage one, while Continental Europe,
for the most part, was early in stage one. Now, Japan is at the threshold of
stage two, the UK and Switzerland are well into stage two, and investors may
debate whether Continental Europe is or is not through with stage one.
During the past few months, we have been increasing your Japanese
exposure to 25% of net assets and we intend to push that percentage higher. The
Japanese economy appears to be at its nadir and, with the help of no fewer than
four stimulatory fiscal packages in the past 18 months, should soon begin to
show signs of recovery. Some signs are already there, notably in the housing
market, which should lead to better durable goods sales; public works orders
are also expected imminently to pick up. At February 28, 1994, your Fund's
equity investments were as follows:
* 18% of Portfolio net assets is invested in Japanese manufacturing and other
cyclical companies that are leveraged to a recovery in demand, and a
further 4% will be direct beneficiaries of a pick-up in consumer spending.
Further strength in the yen would undoubtedly damage recovery prospects,
but we view this development as unlikely.
* 17% of the Portfolio is invested in the UK and a further 6% in Switzerland,
two markets where the corporate profits recovery is well under way. In both
markets, nearly 80% is invested in seasoned growth and cyclical recovery
stocks.
* 25% is invested in the remainder of Europe where, generally speaking,
economic growth prospects will remain modest on balance until interest rates
fall significantly further. However, this will not stop a recovery in
corporate profits in 1994, and our stock selection in this part of the
portfolio is very specific given that, at this stage in the cycle, prices
can be sensitive to company profits falling below expectations.
* Finally, 17% of the Portfolio is invested in the faster growing Pacific
Basin countries and 5% in Latin America. Your stocks in these regions have
performed extremely well in the past six and indeed twelve months, and we
have reduced exposure somewhat. However, the long- term arguments, based on
high economic growth in the Pacific Basin and recovery in Latin America, are
still wholly valid and we shall stay with a substantial commitment.
Respectfully,
Richard Foulkes
Schroder Capital Management International
March 10, 1994
4
<PAGE> 5
TOTAL INVESTMENT RETURN
The following table illustrates the results of a single share investment in the
U.S. Growth Portfolio through February 28, 1994. During the period illustrated,
stock prices fluctuated and were higher at the end than at the beginning. These
results should not be considered as a representation of the dividend income or
capital gain or loss that may be realized from an investment made in the
Portfolio today.
<TABLE>
<CAPTION>
U.S. GROWTH PORTFOLIO
- - ---------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA* TOTAL INVESTMENT RETURN
- - ---------------------------------------------------------------------------------------------------------------------
Annual Percentage Change**
---------------------------------
Value with Income
August 31 Net Asset Capital Gains Income Dividends & Capital U.S. Growth S&P 500
Fiscal Year Value Distributions Dividends Gains Reinvested Portfolio Index
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1969 $ 6.52 $ .36 $.039 $ 6.88 - 5.4% - 0.3%
- - ---------------------------------------------------------------------------------------------------------------------
1970 5.53 -- .065 5.88 - 14.5 - 11.4
- - ---------------------------------------------------------------------------------------------------------------------
1971 7.13 -- .065 7.68 + 30.6 + 25.4
- - ---------------------------------------------------------------------------------------------------------------------
1972 8.14 -- .095 8.89 + 15.7 + 15.5
- - ---------------------------------------------------------------------------------------------------------------------
1973 6.43 .133 .072 7.20 - 19.0 - 3.3
- - ---------------------------------------------------------------------------------------------------------------------
1974 3.60 -- .098 4.09 - 43.2 - 28.0
- - ---------------------------------------------------------------------------------------------------------------------
1975 4.61 -- .039 5.31 + 29.8 + 26.1
- - ---------------------------------------------------------------------------------------------------------------------
1976 5.22 -- .059 6.09 + 14.8 + 23.1
- - ---------------------------------------------------------------------------------------------------------------------
1977 5.18 -- .091 6.15 + 1.0 - 1.8
- - ---------------------------------------------------------------------------------------------------------------------
1978 6.22 -- .104 7.54 + 22.4 + 12.4
- - ---------------------------------------------------------------------------------------------------------------------
1979 6.87 -- .15 8.53 + 13.2 + 11.6
- - ---------------------------------------------------------------------------------------------------------------------
1980 7.69 -- .221 9.86 + 15.6 + 18.2
- - ---------------------------------------------------------------------------------------------------------------------
1981 8.35 -- .234 11.02 + 11.7 + 5.4
- - ---------------------------------------------------------------------------------------------------------------------
1982 7.94 -- .28 10.88 - 1.3 + 3.2
- - ---------------------------------------------------------------------------------------------------------------------
1983 12.02 -- .224 16.91 + 55.5 + 44.0
- - ---------------------------------------------------------------------------------------------------------------------
1984 10.29 1.861 .241 17.39 + 2.8 + 6.1
- - ---------------------------------------------------------------------------------------------------------------------
1985 11.57 .332 .312 20.88 + 20.1 + 18.2
- - ---------------------------------------------------------------------------------------------------------------------
1986 13.21 .82 .26 26.43 + 26.6 + 38.9
- - ---------------------------------------------------------------------------------------------------------------------
1987 12.74 1.94 .28 31.14 + 17.8 + 34.4
- - ---------------------------------------------------------------------------------------------------------------------
1988 7.17 3.26 .31 24.41 - 21.6 - 17.8
- - ---------------------------------------------------------------------------------------------------------------------
1989 10.01 -- .06 34.34 + 40.7 + 39.1
- - ---------------------------------------------------------------------------------------------------------------------
1990 10.38 -- .13 36.07 + 5.0 - 5.0
- - ---------------------------------------------------------------------------------------------------------------------
1991 13.69 -- .19 48.43 + 34.3 + 26.9
- - ---------------------------------------------------------------------------------------------------------------------
1992 14.71 -- .19 52.71 + 8.8 + 7.9
- - ---------------------------------------------------------------------------------------------------------------------
1993 14.71 .08 .18 53.60 + 1.7 + 15.2
- - ---------------------------------------------------------------------------------------------------------------------
1994 (2/28) 15.20 -- .21 56.15 + 4.8 + 2.1
- - ---------------------------------------------------------------------------------------------------------------------
TOTAL + 672.4% + 1,193.2%
- - ---------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN + 8.3% + 10.6%
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Adjusted for stock splits of 3 for 2 in April 1972, and 1.537 for 1 upon the
restructuring of the Portfolio on September 30, 1985.
**Adjusted to include reinvestment of income dividends and any capital gains
distributions for both the Portfolio and the Index.
Note: The net asset value was $7.27 on August 31, 1968, the beginning of the
period illustrated. No adjustment has been made for income taxes payable by
shareholders on reinvested income dividends and capital gains distributions.
5
<PAGE> 6
TOTAL INVESTMENT RETURN
The following table illustrates the results of a single share investment in the
International Growth Portfolio through February 28, 1994. During the period
illustrated, stock prices fluctuated and were higher at the end than at the
beginning. These results should not be considered as a representation of the
dividend income or capital gain or loss that may be realized from an investment
made in the Portfolio today.
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA* TOTAL INVESTMENT RETURN
- - ------------------------------------------------------------------------------------------------------------------------
Annual Percentage Change**
--------------------------------
Value with Income
August 31 Net Asset Capital Gains Income Dividends & Capital International EAFE
Fiscal Year Value Distributions Dividends Gains Reinvested Growth Portfolio Index
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL (9/81) $ 3.95 -- -- $ 3.95 -- --
- - ------------------------------------------------------------------------------------------------------------------------
1982 3.73 -- -- 3.73 - 5.7% - 4.6%
- - ------------------------------------------------------------------------------------------------------------------------
1983 5.86 -- $.10 6.02 + 61.4 + 31.2
- - ------------------------------------------------------------------------------------------------------------------------
1984 6.07 $ .12 .09 6.46 + 7.3 + 14.8
- - ------------------------------------------------------------------------------------------------------------------------
1985 6.57 .38 .11 7.61 + 17.8 + 32.5
- - ------------------------------------------------------------------------------------------------------------------------
1986 11.67 .65 .09 15.14 + 98.9 + 104.0
- - ------------------------------------------------------------------------------------------------------------------------
1987 14.21 .80 .07 19.99 + 32.0 + 46.4
- - ------------------------------------------------------------------------------------------------------------------------
1988 10.45 2.43 .13 18.01 - 9.9 - 6.0
- - ------------------------------------------------------------------------------------------------------------------------
1989 11.61 1.07 .16 22.42 + 24.5 + 22.7
- - ------------------------------------------------------------------------------------------------------------------------
1990 11.81 .28 .15 23.60 + 5.2 - 11.6
- - ------------------------------------------------------------------------------------------------------------------------
1991 10.31 .68 .20 22.39 - 5.1 0.0
- - ------------------------------------------------------------------------------------------------------------------------
1992 10.15 .12 .19 22.72 + 1.5 + 0.8
- - ------------------------------------------------------------------------------------------------------------------------
1993 12.02 -- .21 27.50 + 21.1 + 27.2
- - ------------------------------------------------------------------------------------------------------------------------
1994 (2/28) 13.88 -- .11 32.02 + 16.4 + 6.8
- - ------------------------------------------------------------------------------------------------------------------------
LIFETIME +709.5% +694.8%
- - ------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN + 18.3% + 18.2%
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Adjusted for a stock split of 2.908 for 1 on September 30, 1985.
**Adjusted to include reinvestment of income dividends and any capital gains
distributions for both the Portfolio and the Index.
Note: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
6
<PAGE> 7
STATEMENT OF NET ASSETS
FINANCIAL STATEMENTS (unaudited)
February 28, 1994
<TABLE>
<CAPTION>
Market
Value
U.S. GROWTH PORTFOLIO Shares (000)+
- - ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.2%)
CONSUMER (29.2%)
*Caesars World, Inc. 149,000 $ 8,512
Campbell Soup Co. 108,000 4,536
Carnival Cruise Lines, Inc. 295,000 14,271
Circus Circus Enterprises Inc. 167,000 6,221
The Coca-Cola Co. 1,289,000 54,944
The Walt Disney Co. 403,000 19,394
Duracell International, Inc. 787,000 32,759
General Mills, Inc. 414,000 23,081
Gillette Co. 1,078,000 66,566
Hilton Hotels Corp. 119,000 8,642
McDonald's Corp. 1,635,000 99,122
Mirage Resorts Inc. 341,000 8,610
PepsiCo, Inc. 2,032,000 79,502
Perrigo 294,000 8,526
Polygram NV ADR 137,000 5,531
Procter & Gamble Co. 1,040,000 59,670
Promus Co. Inc. 345,000 16,991
Rubbermaid, Inc. 285,000 8,621
*Station Casinos, Inc. 98,000 2,034
Unilever NV 94,000 10,610
------------
GROUP TOTAL 538,143
------------
- - ---------------------------------------------------------
FINANCE AND INSURANCE (15.9%)
AMBAC, Inc. 123,000 5,135
American International
Group, Inc. 738,000 64,760
Chemical Banking Corp. 1,277,000 47,568
Countrywide Credit
Industries, Inc. 420,000 10,500
Federal Home Loan Mortgage Corp. 1,227,000 68,405
Federal National Mortgage Assn. 980,000 81,462
Norwest Corp. 380,000 8,930
TIG Holdings, Inc. 337,000 6,993
------------
GROUP TOTAL 293,753
------------
- - ---------------------------------------------------------
HEALTH CARE (7.8%)
Abbott Laboratories, Inc. 999,000 27,597
IMCERA Group, Inc. 623,000 23,129
Medtronic, Inc. 179,000 14,275
Merck & Co., Inc. 516,000 16,706
Pfizer, Inc. 900,000 52,200
Wellcome PLC ADR 980,000 9,555
------------
GROUP TOTAL 143,462
------------
- - ---------------------------------------------------------
MEDIA (1.6%)
Reuters Holdings PLC ADR 330,000 29,741
------------
- - ---------------------------------------------------------
RETAIL AND DISTRIBUTION (11.2%)
Home Depot, Inc. 715,000 $ 29,762
TJX Cos., Inc. 330,000 8,869
*Toys R Us, Inc. 1,412,000 51,538
Wal-Mart Stores, Inc. 3,227,000 91,566
Walgreen Co. 580,000 23,562
------------
GROUP TOTAL 205,297
------------
- - ---------------------------------------------------------
TECHNOLOGY (8.2%)
American Telephone & Telegraph Co. 332,000 17,430
AMP, Inc. 353,000 22,416
Intel Corp. 620,000 42,625
*Microsoft Corp. 461,000 38,033
*Novell, Inc. 583,000 14,866
Oracle Systems Corp. 483,000 15,939
------------
GROUP TOTAL 151,309
------------
- - ---------------------------------------------------------
OTHER (17.3%)
Automatic Data Processing, Inc. 1,459,000 74,591
First Data Corp. 249,600 10,951
First Financial Management 262,000 15,425
General Electric Co. 993,000 104,637
General Motors Corp. Class E 1,467,000 48,411
Great Lakes Chemical Corp. 134,000 10,486
Minnesota Mining &
Manufacturing Co. 165,000 17,387
Morton International, Inc. 195,900 20,447
*Renaissance Energy Ltd. 612,000 12,453
Tarragon Oil & Gas 399,300 4,580
------------
GROUP TOTAL 319,368
------------
- - ---------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,419,967) 1,681,073
- - ---------------------------------------------------------
TEMPORARY CASH INVESTMENT (9.3%)
- - ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
-----------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 3.48%, 3/1/94
(Cost $172,184) $172,184 $172,184
- - ---------------------------------------------------------
TOTAL INVESTMENTS (100.5%)
(Cost $1,592,151) 1,853,257
- - ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-.5%)
- - ---------------------------------------------------------
Other Assets--Note C 18,799
Liabilities (28,079)
----------
(9,280)
- - ---------------------------------------------------------
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
Market
Value
(000)+
- - ---------------------------------------------------------
<S> <C>
NET ASSETS (100%)
- - ---------------------------------------------------------
Applicable to 121,289,850 outstanding
$.001 par value shares
(authorized 200,000,000 shares) $1,843,977
- - ---------------------------------------------------------
NET ASSET VALUE PER SHARE $15.20
------------
=========================================================
</TABLE>
See Note A to Financial Statements.
*Non-Income Producing Security.
<TABLE>
- - ---------------------------------------------------------
AT FEBRUARY 28, 1994 NET ASSETS CONSISTED OF:
- - ---------------------------------------------------------
<S> <C> <C>
Amount Per
(000) Share
---------- -------
Paid in Capital $1,586,317 $13.08
Undistributed Net Investment
Income 2,941 .02
Accumulated Net Realized Losses (6,387) (.05)
Unrealized Appreciation
of Investments--Note D 261,106 2.15
- - ----------------------------------------------------------
NET ASSETS $1,843,977 $15.20
- - ----------------------------------------------------------
</TABLE>
<TABLE>
Market
Value
INTERNATIONAL GROWTH PORTFOLIO Shares (000)
- - ----------------------------------------------------------
<S> <C> <C>
- - ----------------------------------------------------------
COMMON STOCKS (98.2%)
- - ----------------------------------------------------------
ARGENTINA (.3%)
YPF Sociedad ADS 260,000 $ 7,085
AUSTRALIA (3.5%)
Australia National Industries 4,200,000 7,112
Australia & New Zealand
Banking Group 2,845,707 10,912
Broken Hill Proprietary Co. Ltd. 920,000 11,768
Coles Myer Ltd. 1,600,000 5,635
Fairfax (John) 2,266,700 4,838
GIO Australia Holdings Ltd. 1,840,000 4,320
Mayne Nickless Ltd. 650,000 4,139
National Foods 2,400,000 3,261
News Corp. Ltd. 2,050,000 14,672
Normandy Poseidon Ltd. 2,200,000 3,443
Western Mining Corp. 1,724,937 8,774
Westpac Banking Ltd. 1,969,672 7,091
Woodside Petroleum Ltd. 2,138,000 6,404
------------
GROUP TOTAL 92,369
------------
- - ---------------------------------------------------------
BELGIUM (.8%)
Cimenteries Cbr Belgium Npv 55,000 19,241
*Cimenteries Cbr Warrants
Exp. 12/20/96 55,000 550
Sibeka 11,000 1,945
------------
GROUP TOTAL 21,736
------------
- - ---------------------------------------------------------
BRAZIL (.9%)
*Brazilian Distriburda
de Petrobras 19,823,000 747
*Cemig ADR Pfd. 635,400,000 1,645
Siderugica Nacional (csn) 84,400,000 2,715
Telebras Pfd. 366,520,000 17,311
------------
GROUP TOTAL 22,418
------------
- - ---------------------------------------------------------
CHILE (.5%)
Compania de Telefonos
de Chile ADR 88,000 10,274
*Sociedad Quimica 60,000 1,980
------------
GROUP TOTAL 12,254
------------
- - ---------------------------------------------------------
FINLAND (1.0%)
Kone Corp B 43,000 5,195
Kymmene Corp. 330,000 7,557
Repola Oy 370,000 7,472
Unitas A 1,600,000 5,250
------------
GROUP TOTAL 25,474
------------
- - ---------------------------------------------------------
FRANCE (4.8%)
Accor 62,750 7,798
Assurances Generale de France (AGF) 189,770 20,483
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - ---------------------------------------------------------
<S> <C> <C>
Bollore Technologies 60,266 $ 3,941
Cardif 48,870 9,752
Docks de France 49,500 6,381
Generale Des Eaux 29,428 13,383
Michelin Class B (Registered) 653,870 29,051
Paribas 77,250 6,957
Primagaz 24,938 4,136
*Primagaz Warrants Exp. 6/30/95 1,438 34
Thomson-C.S.F. 170,000 5,771
Total 310,000 17,370
------------
GROUP TOTAL 125,057
------------
- - ---------------------------------------------------------
GERMANY (1.9%)
Commerzbank AG 2,598 525
Deutsche Pfandbrief &
Hypobank AG 22,500 10,732
Frederick Grohe AG Pfd. 18,747 4,487
Muenchener Ruckvers AG 7,000 13,772
Schering AG 30,000 18,425
Signalbau Huber AG 7,500 1,585
------------
GROUP TOTAL 49,526
------------
- - ---------------------------------------------------------
HONG KONG (6.6%)
Amoy Properties 5,500,000 8,471
Cheung Kong Holdings Ltd. 3,300,000 19,006
Hong Kong Electric Holdings 5,000,000 15,919
HSBC Holding PLC 1,908,150 28,154
Hutchinson Whampoa Ltd. 3,400,000 15,182
Jardine Matheson Holdings 604,805 5,284
Mandarin Oriental
International Ltd. 4,430,000 6,708
Sun Hung Kai Properties Ltd. 3,000,400 22,911
Swire Pacific Ltd. 4,084,000 29,071
Wharf Holdings Ltd. 5,000,000 20,384
------------
GROUP TOTAL 171,090
------------
- - ---------------------------------------------------------
INDONESIA (.9%)
Bank Bali 1,500,000 5,175
Indocement 611,000 6,694
Kalbe Farma 937,000 6,378
Unilever Indonesia 287,551 5,898
------------
GROUP TOTAL 24,145
------------
- - ---------------------------------------------------------
ITALY (5.5%)
Edison SPA 3,000,000 12,866
Parmalat SPA 15,681,600 22,940
*Parmalat SPA Warrants
Exp. 7/17/99 1,810,200 1,746
SIP 26,712,190 65,512
STET-Societa Finanziaria
Tele-Fonica 14,452,600 39,199
------------
GROUP TOTAL 142,263
------------
- - ---------------------------------------------------------
JAPAN (24.5%)
Bridgestone Corp. 1,900,000 $ 27,542
Casio Computer Co. 1,500,000 18,719
Dai Nippon Printing Co. Ltd. 1,300,000 24,086
Daini Den Den 1,000 8,361
Daiwa House Industries 750,000 11,952
East Japan Railway 400,000 19,468
Hirose Electric Co. Ltd. 240,000 14,031
Hitachi Ltd. 3,100,000 28,271
Ito-Yokado Co. 1,400,000 79,831
Japan Air Terminal Co. Ltd. 160,000 1,782
*Kao Corp. Warrants Exp. 11/16/94 2,600 1,430
Kyocera Corp. 220,000 14,636
Mabuchi Motors 400,000 29,529
Makita Corp. 700,000 12,969
Matsushita Electric
Industrial Co. 3,000,000 51,262
Mitsui & Co., Ltd. 2,206,000 16,285
Murata Manufacturing Co. Ltd. 720,000 33,522
Nippon Television Network 39,300 9,130
The Nomura Securities Co. Ltd. 900,000 20,563
Sankyo Co., Ltd. 600,000 13,939
Seino Transportation Co. Ltd. 425,000 7,262
Sekisui House Ltd. 3,750,000 50,398
Shin-Etsu Chemical Co. Ltd. 1,400,000 28,895
Showa Shell Sekiyu 1,658,000 21,805
Tokio Marine & Fire
Insurance Ltd. 700,000 9,072
Tokyo Electron Inc. 425,000 13,708
Tokyo Ohka Kogyo Co. Ltd. 202,000 7,175
Toshiba Corp. 4,300,000 31,908
Toyota Motor Corp. 1,350,000 26,178
Yaohan 217,000 2,646
Yokohama Reito 211,000 2,876
------------
GROUP TOTAL 639,231
------------
- - ---------------------------------------------------------
KOREA (1.9%)
Daewoo Securities 240,000 9,952
Hanil Bank 309,000 3,473
Hanshin Securities 125,000 3,435
Hyundai Engineering and
Construction 185,640 8,939
Korea Electric Power Co. 253,000 9,552
Samsung Electronics Co. Ltd. 113,461 6,411
Shinhan Bank 393,000 6,762
------------
GROUP TOTAL 48,524
------------
- - ---------------------------------------------------------
MALAYSIA (3.5%)
Genting Bhd. 2,698,000 30,682
Malayan Banking Bhd. 3,933,000 22,507
Sime Darby Bhd. 2,112,000 5,152
Telekom Malaysian Bhd. 2,713,000 18,710
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- - ---------------------------------------------------------
<S> <C> <C>
Tan Chong Motor Holdings Bhd. 2,266,000 $ 3,375
Tanjong PLC 700,000 3,492
Tenaga Nasional 1,330,000 8,002
------------
GROUP TOTAL 91,920
------------
- - ---------------------------------------------------------
MEXICO (3.0%)
Apasco 'A' 1,066,000 9,822
Cifra 'C' SA 4,309,000 11,437
*Grupo Carso 340,000 3,475
*Grupo Carso ADR 162,000 3,321
Grupo Financiero Banamex L 80,915 636
Grupo Financiero Bancomer
SA de CV 1,618,300 11,196
Panamerican Beverage Inc. 60,000 2,400
Telefonos de Mexico SA ADR 332,800 22,339
Tolmex SA de CV 904,000 12,593
------------
GROUP TOTAL 77,219
------------
- - ---------------------------------------------------------
NETHERLANDS (8.3%)
Akzo NV 378,090 41,982
Borsumij Wehry 75,000 5,609
*Borsumij Wehry Warrants
Exp. 12/21/98 14,287 282
Getronics NV 548,062 13,368
Heineken NV 502,000 60,570
International Nederlanden Groep 1,611,021 72,139
*International Nederlanden Groep
(Dep. Rect.) 30,800 132
Otra NV 78,950 11,579
Sphinx (Kon) NV 389,554 11,548
------------
GROUP TOTAL 217,209
------------
- - ---------------------------------------------------------
NEW ZEALAND
Fletcher Challenge
Forestry Division 195,250 317
------------
- - ---------------------------------------------------------
PHILIPPINES (1.0%)
Ayala Land Inc. 'B' 4,788,600 5,359
Meralco GDR 135,250 10,144
Philippine Long Distance
Telephone 102,000 7,493
Philippine National Bank Class B 135,000 2,900
------------
GROUP TOTAL 25,896
------------
- - ---------------------------------------------------------
SINGAPORE (2.3%)
Development Bank of Singapore
Land 3,038,000 8,605
Development Bank of Singapore 1,575,000 15,136
Keppel Corp. 2,086,000 14,111
Overseas Chinese Banking Corp. 1,193,534 10,866
Singapore Press Holdings Ltd. 663,600 10,279
------------
GROUP TOTAL 58,997
------------
- - ---------------------------------------------------------
SWEDEN (3.0%)
Astra B AB 931,000 $ 20,731
SKF B AB 1,070,000 19,944
Stora Kopparberg A 420,000 23,328
Volvo B 190,000 15,545
------------
GROUP TOTAL 79,548
------------
- - ---------------------------------------------------------
SWITZERLAND (6.4%)
Alusuisse-Lonza Holding
AG (Registered) 47,000 21,135
CS Holding (Bearer) 50,000 22,309
Ciba-Geigy 23,000 13,270
Nestle SA (Registered) 44,000 39,480
Roche Holdings Ltd. CS 4,580 22,421
Sandoz AG (Ptg. Ctf.) 10,000 27,205
Schweizer Bankverein 70,000 22,029
------------
GROUP TOTAL 167,849
------------
- - ---------------------------------------------------------
TAIWAN (.1%)
*President Enterprises Corp. 100,449 1,908
THAILAND (.7%)
International Cosmetics Corp. 21,700 840
Land & House 249,000 5,016
Post Publishing 143,000 1,378
Siam Cement (Foreign) 125,000 4,897
Siam Commercial Bank Ltd. 695,000 4,913
Sri Thai Superware 154,000 1,338
Thai President Foods 134,000 1,313
------------
GROUP TOTAL 19,695
------------
- - ---------------------------------------------------------
UNITED KINGDOM (16.8%)
Argyll Group PLC 2,200,000 8,392
Asda Group PLC 20,000,000 17,070
Barclays PLC 3,320,000 27,498
Blue Circle Industries 2,700,000 13,947
Boc Group 2,650,000 27,967
British Aerospace 2,700,000 20,399
British Airways PLC 2,100,000 14,121
British Land Co., PLC 4,200,000 27,680
British Petroleum Co. 2,805,000 15,301
Burton Group 15,400,000 12,687
Cable & Wireless PLC 2,588,000 18,170
Fisons 4,000,000 7,540
General Accident PLC 800,000 7,683
Glaxo Holdings PLC 1,100,000 11,078
Guardian Royal Exchange PLC 3,730,000 11,959
Hartstone Group PLC 790,400 892
Kingfisher PLC 2,000,000 17,871
Legal & General Group PLC 2,500,000 18,480
National Power 2,800,000 20,490
National Westminster Bank PLC 3,070,000 22,830
Peninsular & Orient Steam
Navigation Co. 2,207,704 22,284
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
Shares (000)
- - ---------------------------------------------------------
<S> <C> <C>
Prudential Corp. 2,000,000 $ 9,648
Rank Organization 1,486,000 24,065
Rolls Royce PLC 5,437,500 13,802
Smith (David S.) 1,900,400 14,020
Suter PLC 1,050,000 3,226
*Suter PLC Warrants Exp. 1996/98 105,000 104
Vodafone Group 1,200,000 10,705
Wellcome PLC 1,700,000 16,503
------------
GROUP TOTAL 436,412
------------
- - ---------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $2,059,655) 2,558,142
- - ---------------------------------------------------------
CONVERTIBLE BOND (.1%)
- - ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
-------
<S> <C> <C> <C>
FRANCE
Michelin 2.5%, 1/1/01
(Cost $1,160) FF 6,866 1,340
- - -----------------------------------------------------------
BONDS (.2%)
- - -----------------------------------------------------------
KOREA
Daewoo Corp. 4.5%, 12/31/96 SF 1,100 1,300
Dong AH Construction
3.25%, 12/31/97 SF 1,600 2,686
- - -----------------------------------------------------------
TOTAL BONDS (COST $2,716) 3,986
- - -----------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.8%)
- - -----------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 3.48%, 3/1/94
(Cost $99,626) 99,626 99,626
- - -----------------------------------------------------------
TOTAL INVESTMENTS (102.3%)
(Cost $2,163,157) 2,663,094
- - -----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.3%)
- - -----------------------------------------------------------
Other Assets--Notes C and F $ 45,585
Liabilities--Note F (104,782)
------------
(59,197)
- - -----------------------------------------------------------
NET ASSETS (100%)
- - -----------------------------------------------------------
Applicable to 187,562,638 outstanding
$.001 par value shares
(authorized 250,000,000 shares) $2,603,897
- - -----------------------------------------------------------
NET ASSET VALUE PER SHARE $13.88
------------
- - -----------------------------------------------------------
</TABLE>
*See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt
ADS--American Depository Share
(Dep. Rect.)--Depository Receipt
GDR--Global Depository Receipt
(Ptg. Ctf.)--Participating Certificate FF--French Francs
SF--Swiss Francs
<TABLE>
<CAPTION>
- - ---------------------------------------------------------
At FEBRUARY 28, 1994 Net Assets Consisted of:
- - ---------------------------------------------------------
Amount Per
(000) Share
---------- --------
<S> <C> <C>
Paid in Capital $2,116,999 $11.29
Undistributed Net
Investment Income 3,361 .02
Accumulated Net
Realized Losses (10,152) (.06)
Unrealized Appreciation
of Investments--Note D 493,689 2.63
- - ---------------------------------------------------------
NET ASSETS $2,603,897 $13.88
- - ---------------------------------------------------------
</TABLE>
11
<PAGE> 12
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
U.S. GROWTH INTERNATIONAL
PORTFOLIO GROWTH PORTFOLIO
- - -------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
February 28, 1994 February 28, 1994
(000) (000)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) $13,360 $9,431
Interest 2,559 1,779
- - -------------------------------------------------------------------------------------------------------------------
Total Income 15,919 11,210
- - -------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee $1,851 $1,581
Performance Adjustment -- 1,851 101 1,682
------ ------
The Vanguard Group--Note C
Management & Administrative 2,522 2,047
Marketing and Distribution 250 2,772 157 2,204
------ ------
Taxes (other than income taxes)--Note A 72 76
Custodians' Fees 4 566
Auditing Fees 5 4
Shareholders' Reports 10 86
Annual Meeting and Proxy Costs 24 6
Directors' Fees and Expenses 6 5
- - -------------------------------------------------------------------------------------------------------------------
Total Expenses 4,744 4,629
- - -------------------------------------------------------------------------------------------------------------------
Net Investment Income 11,175 6,581
- - -------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold 15,198 34,079
Forward Currency Contracts -- 3,613
- - -------------------------------------------------------------------------------------------------------------------
Realized Net Gain 15,198 37,692
- - -------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 60,622 251,727
Forward Currency Contracts -- (5,080)
- - -------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) 60,622 246,647
- - -------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $86,995 $290,920
===================================================================================================================
</TABLE>
(1) Dividends for the International Growth Portfolio are net of foreign
withholding taxes of $1,441,000.
12
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. GROWTH INTERNATIONAL
PORTFOLIO GROWTH PORTFOLIO
- - ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED Year Ended SIX MONTHS ENDED Year Ended
FEBRUARY 28, 1994 August 31, 1993 FEBRUARY 28, 1994 August 31, 1993
(000) (000) (000) (000)
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 11,175 $ 27,024 $ 6,581 $ 13,008
Realized Net Gain (Loss) 15,198 (20,430) 37,692 (1,105)
Change in Unrealized Appreciation
(Depreciation) 60,622 10,429 246,647 210,657
- - ----------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 86,995 17,023 290,920 222,560
- - ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income (25,704) (20,757) (16,915) (19,292)
Realized Net Gain -- (9,225) -- --
- - ----------------------------------------------------------------------------------------------------------------
Total Distributions (25,704) (29,982) (16,915) (19,292)
- - ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular 195,747 706,280 471,449 304,728
--In Lieu of Cash
Distributions 21,906 28,688 15,891 17,834
--Exchange 69,858 365,093 659,930 386,667
Redeemed --Regular (232,677) (196,210) (110,606) (201,879)
--Exchange (226,289) (377,448) (183,986) (152,286)
- - ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions (171,455) 526,403 852,678 355,064
- - ----------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (110,164) 513,444 1,126,683 558,332
- - ----------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 1,954,141 1,440,697 1,477,214 918,882
- - ----------------------------------------------------------------------------------------------------------------
End of Period (3) $1,843,977 $1,954,141 $2,603,897 $1,477,214
================================================================================================================
(1) Distributions Per Share
Net Investment Income $.21 $.18 $.11 $.21
Realized Net Gain -- $.08 -- --
- - ----------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued 17,735 71,904 86,195 65,055
Issued in Lieu of Cash
Distributions 1,453 1,860 1,180 1,889
Redeemed (30,735) (38,898) (22,669) (34,621)
- - ----------------------------------------------------------------------------------------------------------------
(11,547) 34,866 64,706 32,323
- - ----------------------------------------------------------------------------------------------------------------
(3) Undistributed Net
Investment Income $ 2,941 $ 17,470 $ 3,361 $ 13,695
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. GROWTH PORTFOLIO
- - ------------------------------------------------------------------------------------------------------------------------
Year Ended August 31,
SIX MONTHS ENDED --------------------------------------------
For a Share Outstanding Throughout Each Period FEBRUARY 28, 1994 1993 1992 1991 1990 1989
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.71 $14.71 $13.69 $10.38 $10.01 $7.17
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income .10 .21 .19 .20 .14 .11
Net Realized and Unrealized Gain (Loss)
on Investments .60 .05 1.02 3.30 .36 2.79
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS .70 .26 1.21 3.50 .50 2.90
- - ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.21) (.18) (.19) (.19) (.13) (.06)
Distributions from Realized Capital Gains -- (.08) -- -- -- --
TOTAL DISTRIBUTIONS ------ ------ ------ ------ ------ ------
(.21) (.26) (.19) (.19) (.13) (.06)
- - ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.20 $14.71 $14.71 $13.69 $10.38 $10.01
========================================================================================================================
TOTAL RETURN +4.77% +1.69% +8.83% +34.28% +5.03% +40.72%
- - ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- - ------------------------
Net Assets, End of Period (Millions) $1,844 $1,954 $1,441 $747 $339 $184
Ratio of Expenses to Average Net Assets .51%* .49% .49% .56% .74% .95%
Ratio of Net Investment Income to
Average Net Assets 1.19%* 1.50% 1.52% 1.82% 1.77% 1.44%
Portfolio Turnover Rate 43%* 37% 24% 30% 49% 48%
- - ------------------------------------------------------------------------------------------------------------------------
*Annualized.
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
International Growth Portfolio
- - -----------------------------------------------------------------------------------------------------------------------
Year Ended August 31,
SIX MONTHS ENDED --------------------------------------------
For a Share Outstanding Throughout Each Period FEBRUARY 28, 1994 1993 1992 1991 1990 1989
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.02 $10.15 $10.31 $11.81 $11.61 $10.45
INVESTMENT OPERATIONS ------ ------ ------ ------ ------ ------
Net Investment Income .02 .12 .20 .18 .32 .13
Net Realized and Unrealized Gain (Loss)
on Investments 1.95 1.96 (.05) (.80) .31 2.26
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.97 2.08 .15 (.62) .63 2.39
- - -----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.11) (.21) (.19) (.20) (.15) (.16)
Distributions from Realized Capital Gains -- -- (.12) (.68) (.28) (1.07)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.11) (.21) (.31) (.88) (.43) (1.23)
- - -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.88 $12.02 $10.15 $10.31 $11.81 $11.61
=======================================================================================================================
TOTAL RETURN +16.42% +21.06% +1.49% -5.11% +5.25% +24.49%
- - -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $2,604 $1,477 $919 $846 $796 $550
Ratio of Expenses to Average Net Assets .47%* .59% .58% .67% .68% .64%
Ratio of Net Investment Income to
Average Net Assets .66%* 1.27% 2.04% 1.80% 3.01% 1.27%
Portfolio Turnover Rate 28%* 51% 58% 49% 45% 50%
- - -----------------------------------------------------------------------------------------------------------------------
*Annualized.
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Vanguard World Fund is registered under the Investment Company Act of 1940 as a
diversified open-end investment company and consists of the U.S. Growth and
International Growth Portfolios. The International Growth Portfolio invests in
securities of foreign issuers which may subject the Portfolio to investment
risks not normally associated with investing in securities of United States
corporations.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Market values for securities listed on the New York
Stock Exchange or other U.S. exchanges are based upon the latest quoted
sales prices for such securities on the appropriate exchange at 4:00 PM on
the valuation date; such securities not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Securities
listed on foreign exchanges are valued at the latest quoted sales prices.
Securities not listed are valued at the latest quoted bid prices. Temporary
cash investments are valued at cost which approximates market value.
Foreign currency amounts are translated into U.S. dollars at the bid prices
of such currencies against U.S. dollars quoted by major banks as of 4:00 PM
Central Europe Time.
2. FORWARD CURRENCY CONTRACTS: The International Growth Portfolio may enter
into forward foreign currency contracts to protect securities and related
receivables and payables against changes in future foreign exchange rates.
Risks associated with such contracts include movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the
counterparty to perform. Fluctuations in the value of such contracts are
recorded as unrealized appreciation (depreciation) until terminated, at
which time realized gains (losses) are recognized.
3. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue to
qualify as a regulated investment company and distribute all of its taxable
income. Accordingly, no provision for Federal income taxes is required in
the financial statements.
4. REPURCHASE AGREEMENTS: Each Portfolio of the Fund, along with other members
of The Vanguard Group of Investment Companies, transfers uninvested cash
balances into a Pooled Cash Account, the daily aggregate of which is
invested in repurchase agreements secured by U.S. Government obligations.
Securities pledged as collateral for repurchase agreements are held by the
Portfolios' custodian banks until maturity of the repurchase agreements.
Provisions of each agreement ensure that the market value of the collateral
is sufficient in the event of default; however, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
5. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains (losses) on
the sale of investment securities are those of specific securities sold.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
16
<PAGE> 17
B. U.S. GROWTH PORTFOLIO: Under the terms of a contract which expires March
31, 1995, the Fund pays Lincoln Capital Management Co. an investment advisory
fee calculated at an annual percentage rate of the average net assets of the
U.S. Growth Portfolio. For the six months ended February 28, 1994, the
investment advisory fee represented an effective annual rate of .20 of 1% of
the Portfolio's average net assets.
INTERNATIONAL GROWTH PORTFOLIO: Under the terms of a contract which expires
March 31, 1995, the Fund pays Schroder Capital Management International an
investment advisory fee calculated at an annual percentage rate of the average
net assets of the International Growth Portfolio. The basic fee thus computed
is subject to quarterly adjustments based on performance relative to the Morgan
Stanley Capital International Europe, Australia, and Far East Index. For the
six months ended February 28, 1994, the investment advisory fee represented an
effective annual base rate of .16 of 1% of the Portfolio's average net assets
before an increase of $101,000 (.01 of 1%) based on performance.
C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing and distribution services. The costs of such services
are allocated to the Fund under methods approved by the Board of Directors. At
February 28, 1994, the Fund had contributed capital of $677,000 to Vanguard
(included in Other Assets), representing 3.4% of Vanguard's capitalization. The
Fund's directors and officers are also directors and officers of Vanguard.
D. During the six months ended February 28, 1994, purchases and sales of
investment securities other than U.S. Government securities and temporary cash
investments were as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------
(000)
-------------------------------
Portfolio Purchases Sales
- - ------------------------------------------------------------
<S> <C> <C>
U.S. GROWTH $ 368,563 $452,421
INTERNATIONAL GROWTH 1,145,155 264,632
- - ------------------------------------------------------------
</TABLE>
At August 31, 1993, the Fund had available realized capital losses to offset
future net capital gains through the following fiscal year ends:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------
Expiration
Fiscal Year(s) Ending Amount
Portfolio August 31, (000)
- - ------------------------------------------------------------
<S> <C> <C>
U.S. GROWTH 2001-2002 $20,427
INTERNATIONAL GROWTH 2001 45,191
- - ------------------------------------------------------------
</TABLE>
At February 28, 1994, unrealized appreciation (depreciation) of investment
securities for financial reporting and Federal income tax purposes was:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------
(000)
---------------------------------------
Net
Appreciated Depreciated Unrealized
Portfolio Securities Securities Appreciation
- - ------------------------------------------------------------
<S> <C> <C> <C>
U.S. GROWTH $293,702 ($32,596) $261,106
INTERNATIONAL GROWTH 540,937 (41,000) 499,937
- - ------------------------------------------------------------
</TABLE>
Net unrealized depreciation related to open forward currency exchange contracts
of the International Growth Portfolio at February 28, 1994 was $6,248,000.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (continued)
E. Under the terms of open forward currency exchange contracts at February 28,
1994, the International Growth Portfolio was obligated to deliver foreign
currencies in exchange for U.S. dollars as follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------
(000)
---------------------------
Contract Foreign U.S.
Date Currency Dollars
- - ----------------------------------------------------------
<S> <C> <C>
1/12/94 NETHERLAND GUILDERS 300,000 $153,178
1/12/94 GERMAN MARKS 80,000 45,687
2/10/94 FRENCH FRANCS 650,000 108,550
- - ----------------------------------------------------------
</TABLE>
F. The market value of International Growth Portfolio securities on loan to
broker/dealers at February 28, 1994 was $230,079,000 for which the Portfolio
had received cash collateral of $249,519,000.
18
<PAGE> 19
DIRECTORS AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman and Chief Executive Officer of Rhone-Poulenc Rorer
Inc.; Director of Sun Company, Inc. and Immune Response Corporation; Trustee of
the Universal Health Realty Income Trust.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of Dayton
Hudson Corporation, American Express Bank Ltd., The St. Paul Companies, Inc.
and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., and The Southern New England Telephone
Company.
ALFRED M. RANKIN, JR., President and Chief Executive Officer of NACCO
Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company, and The
Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric Company
and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Director of Rohm & Haas Company; Director of
Cummins Engine Company; Trustee of Vanderbilt University and the Culver
Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
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.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
JEREMY G. DUFFIELD
Senior Vice President
Planning & Development
JAMES H. GATELY
Senior Vice President
Institutional
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
VINCENT S. MCCORMACK
Senior Vice President
Operations
RALPH K. PACKARD
Senior Vice President
Chief Financial Officer
19
<PAGE> 20
THE VANGUARD FAMILY OF FUNDS
MONEY MARKET FUNDS
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund-Money Market Portfolio
Vanguard State Tax-Free Funds (CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds (CA, FL, NJ, NY, OH, PA)
FIXED INCOME FUNDS
Vanguard Admiral Funds
Vanguard Bond Index Fund
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard Balanced Index Fund
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
Equity Funds
GROWTH AND INCOME FUNDS
Vanguard Convertible Securities Fund
Vanguard Equity Income Fund
Vanguard Index Trust
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund-U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International Equity Index Fund
Vanguard International Growth Portfolio
Vanguard/Trustees' Equity Fund-International Portfolio
The Vanguard Group * Vanguard Financial Center
Valley Forge, PA 19482
New Account Information: 1-(800) 662-7447
Shareholder Account Services: 1-(800) 662-2739
This Report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus. All
Funds in the Vanguard Family are offered by prospectus only.
Q952-02/94
VANGUARD
U.S. GROWTH
PORTFOLIO
- - ------------
INTERNATIONAL
GROWTH
PORTFOLIO
[PHOTO -- SEE EDGAR APPENDIX]
SEMI-ANNUAL REPORT
FEBRUARY 28, 1994
