<PAGE> 1
CHAIRMAN'S LETTER
FELLOW SHAREHOLDER:
During the six months ended February 28, 1995, the first half of the fiscal
year for the Vanguard U.S. Growth and International Growth Portfolios, the
domestic stock market surged ahead while most international markets headed
lower. In this environment, the U.S. Portfolio provided a solid absolute
return, and one that was better than competitive norms. The International
Portfolio turned in a negative return, albeit one that was somewhat better than
the average international fund.
The table below presents the total return (capital change plus income)
of each Portfolio for our fiscal half-year as well as those of their customary
standards: (1) the average mutual fund with similar investment policies; and
(2) the unmanaged index that reflects the broad equity markets in which they
invest:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Total Return
-----------------
Six Months Ended
February 28, 1995
- ------------------------------------------------------------
<S> <C>
VANGUARD U.S. GROWTH PORTFOLIO + 6.6%
AVERAGE GROWTH MUTUAL FUND + 1.2
- ------------------------------------------------------------
VANGUARD INTERNATIONAL GROWTH PORTFOLIO - 10.0%
AVERAGE INTERNATIONAL MUTUAL FUND - 11.3
MSCI EAFE INDEX * - 8.0
- ------------------------------------------------------------
</TABLE>
*Morgan Stanley Capital International Europe, Australia, and
Far East Index.
The total return of the U.S. Growth Portfolio reflects net asset values of
$15.52 per share on August 31, 1994, and $16.36 on February 28, 1995, with the
latter figure adjusted to take into account our December dividend of $.18 per
share from net investment income. For the International Growth Portfolio, the
respective net asset values were $14.36 and $12.75 per share, also with a
December dividend payment of $.18 per share from net investment income.
THE U.S. GROWTH PORTFOLIO
During the past six months, the U.S. Growth Portfolio posted an impressive
gain, outpacing the average growth fund by +5.4%, and the unmanaged Standard &
Poor's 500 Index by +2.6%. All of the Portfolio's appreciation came in the
final two months of the fiscal period, as signs of a slowing economy revived
hopes that the rising interest rate environment had abated.
The Portfolio's advantage over the Index was largely the result of the
two dominant portfolio characteristics: a growth stock style and a large
company stock bias. The superiority of growth stocks over value stocks is a
continuation of a trend that began in mid-1994, reversing a two-year period in
which value stocks were market leaders.
As I mentioned in my letter to you in last year's Annual Report, the
Portfolio remains "double-weighted" in the technology sector (19% of the U.S.
Growth Portfolio's net assets versus 9% for the Index), one of the
best-performing market segments (+12.7%) over the past six months.
Additionally, our adviser's stock selections within the technology sector
provided a further boost to our relative performance. The six-month report from
Lincoln Capital Management appears on page 3.
The Portfolio also distinguished itself from its peer growth funds,
due largely to our focus on the securities of large companies. The average
market capitalization of the stocks held in the U.S. Growth Portfolio is $23
billion--nearly five times the $5 billion capitalization of the average growth
fund. This large-cap bias proved advantageous, as the large capitalization
sector of the market led the current upswing.
THE INTERNATIONAL GROWTH PORTFOLIO
International stock markets turned sharply lower during the past six months,
and the International Portfolio turned in a -10.0% total return for the period.
Only six months ago, I reported that the 1994 fiscal year return was +20.4%.
Rarely do we get to see with such clarity and immediacy the capricious nature
of international investing.
Despite a disappointing absolute return, the Portfolio weathered the
volatile world markets better than most of its peers, as the average
international mutual fund fell -11.3%. Conservative country selection (i.e.,
avoiding the temptation to allocate assets to the latest "hot" markets) helped
us steer clear of the emerging market land mines
1
<PAGE> 2
that ensnared many of our more aggressive international competitors.
I should note that, were it not for a continuing slide in the value of
the U.S. dollar versus most of the world's major currencies, the return to U.S.
investors would have been much worse. Both the financial crisis in Mexico and
the earthquake in Kobe, Japan took a toll not only on the financial markets in
their respective countries, but on the entire global financial community.
Indeed, virtually every country in the Pacific component of the unmanaged
Morgan Stanley Capital International Europe, Australia, and Far East ("EAFE")
Index experienced a negative return for the period.
The Portfolio's largest country weighting is Japan, which represents
28% of net assets. During the last six months, the Japanese market has dropped
- -13.7%. Although our exposure to the Mexican stock market was small (0.5% of
net assets), the turmoil that struck that market (-63.0% return) also hurt our
performance versus the EAFE Index, which does not include any Mexican stocks.
The regular report from our adviser, Schroder Capital Management International,
appears on page 4 of this report.
IN SUMMARY
As the domestic stock market proceeds to repeatedly break new "high-water
marks," I should caution that all financial markets move in cycles. So, the
successful investor must maintain financial discipline, avoiding greed at
market highs, and avoiding fear at market lows.
Along with the risks of market gyrations, the potential rewards
achievable by investing in growth stocks for the long term endure in the U.S.
and abroad. We remain confident that both our U.S. Growth and International
Growth Portfolios will provide returns that are competitive with comparable
growth funds during the years ahead.
We look forward to reporting to you again in more detail six months
hence.
Sincerely,
/s/ JOHN C. BOGLE
- ---------------------
John C. Bogle
Chairman of the Board March 28, 1995
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, 1994) ARE AS FOLLOWS:
<TABLE>
<CAPTION>
10 YEARS
------------------------------
INCEPTION TOTAL CAPITAL INCOME
PORTFOLIO DATE 1 YEAR 5 YEARS RETURN RETURN RETURN
------------------------------ --------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. GROWTH PORTFOLIO 1/6/59 +3.88% +10.06% +12.83% +11.04% +1.79%
INTERNATIONAL GROWTH PORTFOLIO 9/30/81 +0.76 + 4.83 +17.17 +15.59 +1.58
</TABLE>
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
Your U.S. Growth Portfolio enjoyed a moderate market tailwind from the stock
market generally and the growth sector specifically in the first half of its
1995 fiscal year. Additionally, some modest incremental value was added from
good individual stock selections. Never resistant to such gifts, we count our
blessings. The Chairman's letter provides useful details and an evaluation of
the half-year results.
You are by now familiar with Lincoln Capital's comments about the
importance of the ten or fifteen largest holdings in the Portfolio. The ten
issues listed to the right represent 41% of the Portfolio's total net assets
and the fifteen largest represent 55% of the Portfolio. These proportions are
nearly identical to that of August 31, 1994, and are an important determinant
of subsequent returns. During the previous six-month period, two new stocks
joined the top ten. In the instance of AT&T, purchases more than offset a lower
stock price. For Intel, both purchases and interim appreciation contributed to
the ranking upgrade.
The earnings prospects for the large commitments in the Portfolio remain
excellent. While the current dividend yield of the major Portfolio holdings
comes up a bit short of the dividend yield on the S&P 500 Index (1.7% versus
2.7%), the companies' appealing long-term earnings prospects and attractive
valuation levels provide testimony to their longer-term attractiveness.
At the end of the six-month fiscal period, the Portfolio's top ten holdings
were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Consecutive
Years
Company Business Held
- ------------------------------------------------------------------------------
<S> <C> <C>
1. GENERAL ELECTRIC #1 DIVERSIFIED MANUFACTURER 6
2. WAL-MART STORES #1 GENERAL MERCHANDISE
CHAIN 7
3. COCA-COLA #1 SOFT DRINKS 1
4. FNMA #1 MORTGAGE FINANCING
AGENCY 3
5. AT&T #1 COMMUNICATIONS 1
6. AUTOMATIC DATA
PROCESSING #1 PAYROLL SERVICE 6
7. PROCTER & GAMBLE #1 HOUSEHOLD PRODUCTS
COMPANY 3
8. INTEL #1 SEMICONDUCTOR
MANUFACTURER 1
9. AMERICAN
INTERNATIONAL GROUP #1 U.S. OVERSEAS INSURER 7
10. FHLMC #2 MORTGAGE FINANCING
COMPANY 6
- ------------------------------------------------------------------------------
</TABLE>
We look forward to reporting to you again six months hence.
Respectfully,
Dave Fowler and Parker Hall, Co-managers
Lincoln Capital Management Company
March 7, 1995
3
<PAGE> 4
REPORT FROM SCHRODER CAPITAL MANAGEMENT INTERNATIONAL
Vanguard International Growth Portfolio declined in value by -10.0% during the
first half of fiscal 1995. This performance trailed the MSCI EAFE Index, which
fell -8.0% over the same period.
Six months ago, I reported that I believed the Portfolio could be in a
"healthy" period of consolidation after the very strong gains experienced in
1993. At the time, however, the net asset value stood at an all time high, and
therefore the subsequent declines must be kept in context. Considering the
current market conditions, I again remain confident that the market remains
fundamentally strong. Nonetheless, I want to reiterate that this is the risky
part of the business cycle. The easy part tends to be when interest rates are
likely to fall; the difficult part, which we are experiencing now, depends upon
the recovery of corporate profits and their ability to satisfy investor
expectations.
The recent strength of most major foreign currencies against the U.S.
dollar is a mixed blessing: it increases the U.S. dollar value of foreign
assets but, at the same time, it erodes the market share and profitability of
many companies operating in those strong currency countries. Accordingly,
expectations of profit recovery in Japan and many European countries have been
revised downwards. In short, you win with the one hand but give back with the
other. Historically, however, U.S. investors in international stocks have done
better when foreign currencies are strong, not weak. Overall, the Portfolio is
well diversified and combines both strong and weak currency areas (with a
significant bias toward the former).
We have 28% of Portfolio net assets invested in Japanese stocks. Japan
is the last of the major developed world economies to enter the upswing of the
economic cycle and the recovery to date has been moderate. Certain sectors have
improved more quickly--for instance, auto sales are rising strongly--but
capital investment by industry remains cautious.
At this stage in the cycle, the Bank of Japan is very likely to
encourage economic growth with cheap money, which is usually good for stock
prices. However, firm evidence of a recovery in corporate profits is also
required and this has clearly started to come through. The Kobe earthquake had
a small negative effect on many companies, but for the great majority the
impact was temporary and was not significant for any company in your Portfolio.
The Portfolio has 18% of net assets invested in Asia's high-growth
economies, which is slightly more than six months ago. Progressively, we are
increasing exposure in this region because we expect the tremendous economic
growth to continue. We also believe these countries will be natural
beneficiaries of the strength of the Japanese yen. This confidence contrasts
with our outlook on Latin America, which is a much smaller portion of the
Portfolio (currently 3%) and has never exceeded 5%.
We have 33% of our net assets invested in continental Europe with a
particular concentration in Dutch companies (12% of net assets). The
Netherlands became our largest exposure in continental Europe a year ago and
the reason for that decision remains valid today: it is a country at the heart
of Europe that is enjoying the economic recovery of its two large neighbors,
France and Germany, without the specific fiscal problems that confront both.
Roughly 5% of the Portfolio is invested in Italy in stocks that we consider to
be very cheap, but we are becoming increasingly concerned at the Italian
Government's apparent inability to solve its financial problems.
Finally, 17% of the Portfolio is invested in the U.K., where stocks
are amongst the cheapest in the whole of Europe. U.K. industry has benefited
from the weakness of its currency against other European currencies at a time
when demand in its major export markets has been recovering. Moreover, consumer
spending is restrained because of the burden of higher taxes introduced in
1994. As in the U.S., these developments are a possible indication of a
much-desired soft landing for the economy.
Respectfully,
Richard R. Foulkes
Schroder Capital Management International
March 16, 1995
4
<PAGE> 5
TOTAL INVESTMENT RETURN TABLE
The following table illustrates the results of a single share investment in
U.S. GROWTH PORTFOLIO for the 25-year period ended February 28, 1995. During
the period illustrated, stock prices fluctuated widely; these results should
not be considered 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>
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA* TOTAL INVESTMENT RETURN**
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Growth Portfolio
Value with Income -----------------------------
August 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total S&P 500 Index
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Total Return
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1971 $ 7.13 -- $ .07 $ 7.22 +29.1% +1.5% +30.6% +25.4%
- -----------------------------------------------------------------------------------------------------------------------------------
1972 8.14 -- .10 8.35 +14.2 +1.5 +15.7 +15.5
- -----------------------------------------------------------------------------------------------------------------------------------
1973 6.43 $ .13 .07 6.77 -19.7 +0.7 -19.0 - 3.3
- -----------------------------------------------------------------------------------------------------------------------------------
1974 3.60 -- .10 3.84 -44.0 +0.8 -43.2 -28.0
- -----------------------------------------------------------------------------------------------------------------------------------
1975 4.61 -- .04 4.99 +28.2 +1.6 +29.8 +26.1
- -----------------------------------------------------------------------------------------------------------------------------------
1976 5.22 -- .06 5.73 +13.3 +1.5 +14.8 +23.1
- -----------------------------------------------------------------------------------------------------------------------------------
1977 5.18 -- .09 5.79 - 0.7 +1.7 + 1.0 - 1.8
- -----------------------------------------------------------------------------------------------------------------------------------
1978 6.22 -- .10 7.08 +20.0 +2.4 +22.4 +12.4
- -----------------------------------------------------------------------------------------------------------------------------------
1979 6.87 -- .15 8.02 +10.5 +2.7 +13.2 +11.6
- -----------------------------------------------------------------------------------------------------------------------------------
1980 7.69 -- .22 9.27 +11.9 +3.7 +15.6 +18.2
- -----------------------------------------------------------------------------------------------------------------------------------
1981 8.35 -- .23 10.36 + 8.5 +3.2 +11.7 + 5.4
- -----------------------------------------------------------------------------------------------------------------------------------
1982 7.94 -- .28 10.23 - 4.8 +3.5 - 1.3 + 3.2
- -----------------------------------------------------------------------------------------------------------------------------------
1983 12.02 -- .22 15.90 +51.3 +4.2 +55.5 +44.0
- -----------------------------------------------------------------------------------------------------------------------------------
1984 10.29 1.86 .24 16.35 + 0.9 +1.9 + 2.8 + 6.1
- -----------------------------------------------------------------------------------------------------------------------------------
1985 11.57 .33 .31 19.63 +16.4 +3.7 +20.1 +18.2
- -----------------------------------------------------------------------------------------------------------------------------------
1986 13.21 .82 .26 24.85 +23.6 +3.0 +26.6 +38.9
- -----------------------------------------------------------------------------------------------------------------------------------
1987 12.74 1.94 .28 29.27 +15.1 +2.7 +17.8 +34.4
- -----------------------------------------------------------------------------------------------------------------------------------
1988 7.17 3.26 .31 22.94 -23.5 +1.9 -21.6 -17.8
- -----------------------------------------------------------------------------------------------------------------------------------
1989 10.01 -- .06 32.29 +39.6 +1.1 +40.7 +39.1
- -----------------------------------------------------------------------------------------------------------------------------------
1990 10.38 -- .13 33.91 + 3.7 +1.3 + 5.0 - 5.0
- -----------------------------------------------------------------------------------------------------------------------------------
1991 13.69 -- .19 45.54 +31.9 +2.4 +34.3 +26.9
- -----------------------------------------------------------------------------------------------------------------------------------
1992 14.71 -- .19 49.56 + 7.5 +1.3 + 8.8 + 7.9
- -----------------------------------------------------------------------------------------------------------------------------------
1993 14.71 .08 .18 50.40 + 0.5 +1.2 + 1.7 +15.2
- -----------------------------------------------------------------------------------------------------------------------------------
1994 15.52 -- .21 53.91 + 5.5 +1.5 + 7.0 + 5.5
- -----------------------------------------------------------------------------------------------------------------------------------
1995 (2/28) 16.36 -- .18 57.48 + 5.4 +1.2 + 6.6 + 4.0
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL +939.4% +1,473.5%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN +10.0% +11.9%
- -----------------------------------------------------------------------------------------------------------------------------------
</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 initial net asset value was $5.53 on August 31, 1970. 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
INTERNATIONAL GROWTH PORTFOLIO since inception through February 28, 1995.
During the period illustrated, stock prices fluctuated widely; these results
should not be considered 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>
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD PER SHARE DATA* TOTAL INVESTMENT RETURN**
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Growth Portfolio
Value with Income -----------------------------
August 31 Net Asset Capital Gains Income Dividends & Capital Capital Income Total S&P 500 Index
Fiscal Year Value Distributions Dividends Gains Reinvested Return Return Return Total Return
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial (9/81) $ 3.95 -- -- $ 3.95 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
1982 3.73 -- -- 3.73 - 5.7% 0.0% - 5.7% - 4.7%
- -----------------------------------------------------------------------------------------------------------------------------------
1983 5.86 -- $ .10 6.02 +57.1 +4.3 +61.4 + 31.0
- -----------------------------------------------------------------------------------------------------------------------------------
1984 6.07 $ .12 .09 6.46 + 5.7 +1.6 + 7.3 + 14.7
- -----------------------------------------------------------------------------------------------------------------------------------
1985 6.57 .38 .11 7.61 +15.7 +2.1 +17.8 + 32.3
- -----------------------------------------------------------------------------------------------------------------------------------
1986 11.67 .65 .09 15.14 +96.4 +2.5 +98.9 +103.7
- -----------------------------------------------------------------------------------------------------------------------------------
1987 14.21 .80 .07 19.99 +31.2 +0.8 +32.0 + 46.0
- -----------------------------------------------------------------------------------------------------------------------------------
1988 10.45 2.43 .13 18.01 -10.8 +0.9 - 9.9 - 6.2
- -----------------------------------------------------------------------------------------------------------------------------------
1989 11.61 1.07 .16 22.42 +22.7 +1.8 +24.5 + 22.4
- -----------------------------------------------------------------------------------------------------------------------------------
1990 11.81 .28 .15 23.60 + 4.0 +1.2 + 5.2 - 11.8
- -----------------------------------------------------------------------------------------------------------------------------------
1991 10.31 .68 .20 22.39 - 6.8 +1.7 - 5.1 - 0.3
- -----------------------------------------------------------------------------------------------------------------------------------
1992 10.15 .12 .19 22.72 - 0.4 +1.9 + 1.5 + 0.4
- -----------------------------------------------------------------------------------------------------------------------------------
1993 12.02 -- .21 27.50 +18.4 +2.7 +21.1 + 27.1
- -----------------------------------------------------------------------------------------------------------------------------------
1994 14.36 -- .11 33.12 +19.5 +0.9 +20.4 + 11.1
- -----------------------------------------------------------------------------------------------------------------------------------
1995 (2/28) 12.75 -- .18 29.77 -11.2 +1.2 -10.0 - 8.0
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL +653.6% +642.2%
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RATE OF RETURN +16.3% +16.1%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted for stock split of 2.908 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: No adjustment has been made for income taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
6
<PAGE> 7
FINANCIAL STATEMENTS
(unaudited)
Febuary 28,1995
STATEMENT OF NET ASSETS
<TABLE>
Market
Value
U.S. GROWTH PORTFOLIO Shares (000)+
- -----------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.1%)
- -----------------------------------------------------------
BASIC MATERIALS (1.6%)
Morton International, Inc. 1,275,000 $ 37,294
--------
- -----------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (5.9%)
General Electric Co. 2,173,000 119,243
Honeywell, Inc. 373,000 13,568
Illinois Tool Works, Inc. 153,000 6,866
--------
GROUP TOTAL 139,677
--------
- -----------------------------------------------------------
CONSUMER CYCLICAL (15.8%)
Carnival Cruise Lines, Inc. 932,000 22,135
Home Depot, Inc. 837,000 37,560
Lowes Cos., Inc. 921,000 30,969
May Department Stores Co. 796,000 29,054
McDonald's Corp. 2,046,000 68,030
* Mirage Resorts Inc. 91,000 2,173
* Promus Co., Inc. 171,000 6,113
* Toys R Us, Inc. 587,000 16,363
Wal-Mart Stores, Inc. 4,670,000 110,912
The Walt Disney Co. 926,000 49,425
--------
GROUP TOTAL 372,734
--------
- -----------------------------------------------------------
CONSUMER STAPLES (17.1%)
The Coca-Cola Co. 2,006,000 110,330
Colgate-Palmolive Co. 273,000 17,608
Gillette Co. 999,000 79,046
Kellogg Co. 184,000 9,959
PepsiCo, Inc. 2,007,000 78,524
Procter & Gamble Co. 1,345,000 89,443
Ralston-Purina Group 105,000 5,014
Unilever NV 112,000 13,608
--------
GROUP TOTAL 403,532
--------
- -----------------------------------------------------------
DIVERSIFIED (2.7%)
Alco Standard Corp. 194,000 13,192
Minnesota Mining &
Manufacturing Co. 941,000 51,520
--------
GROUP TOTAL 64,712
--------
- -----------------------------------------------------------
ENERGY (1.5%)
* Renaissance Energy Ltd. 884,000 17,610
* Talisman Energy, Inc. 1,023,000 17,993
--------
GROUP TOTAL 35,603
--------
- -----------------------------------------------------------
FINANCIAL (14.4%)
AMBAC, Inc. 123,000 4,997
American International Group, Inc. 805,000 83,519
Chemical Banking Corp. 1,262,000 50,637
Federal Home Loan
Mortgage Corp. 1,439,000 83,462
Federal National Mortgage Assn. 1,221,000 94,169
First Financial Management 118,000 8,157
Norwest Corp. 549,000 14,137
--------
GROUP TOTAL 339,078
--------
- -----------------------------------------------------------
HEALTH CARE (8.8%)
Abbott Laboratories, Inc. 1,245,000 44,198
American Home Products Corp. 170,000 12,155
Columbia/HCA Healthcare Corp. 257,000 10,633
Eli Lilly & Co. 370,000 24,790
Johnson & Johnson 587,000 33,312
Merck & Co., Inc. 561,000 23,772
Pfizer, Inc. 717,000 59,332
--------
GROUP TOTAL 208,192
--------
- -----------------------------------------------------------
TECHNOLOGY (18.5%)
AMP, Inc. 529,000 39,675
Automatic Data Processing, Inc. 1,474,000 90,651
* Cisco Systems, Inc. 1,217,000 40,770
Duracell International, Inc. 553,000 23,019
General Motors Corp. Class E 1,576,000 60,479
Hewlett-Packard Co. 450,000 51,750
Intel Corp. 1,103,000 87,826
* Oracle Systems Corp. 582,000 18,187
Reuters Holdings PLC ADR 585,000 24,643
--------
GROUP TOTAL 437,000
--------
- -----------------------------------------------------------
UTILITIES (4.8%)
AT&T Corp. 1,782,000 92,218
MCI Communications Corp. 1,107,000 22,140
--------
GROUP TOTAL 114,358
--------
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,730,866) 2,152,180
- -----------------------------------------------------------
TEMPORARY CASH INVESTMENT (8.4%)
- -----------------------------------------------------------
Face
Amount
(000)
---------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 6.12%, 3/1/95
(Cost $199,388) $199,388 199,388
- -----------------------------------------------------------
TOTAL INVESTMENTS (99.5%)
(Cost $1,930,254) 2,351,568
- -----------------------------------------------------------
</TABLE>
7
<PAGE> 8
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
(000)+
- -----------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (.5%)
- -----------------------------------------------------------
Other Assets--Note C $ 34,180
Liabilities (21,954)
--------
12,226
- -----------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------
Applicable to 144,472,977 outstanding
$1.00 par value shares
(authorized 200,000,000 shares) $2,363,794
- -----------------------------------------------------------
NET ASSET VALUE PER SHARE $16.36
===========================================================
+ See Note A to Financial Statements.
* Non-Income Producing Security.
ADR--American Depository Receipt
<CAPTION>
- -----------------------------------------------------------
AT FEBRUARY 28, 1995,
NET ASSETS CONSISTED OF:
- -----------------------------------------------------------
Amount Per
(000) Share
---------- -------
<S> <C> <C>
Paid in Capital $1,943,268 $13.45
Undistributed Net
Investment Income 7,518 .05
Accumulated Net
Realized Losses--Note D (8,306) (.06)
Unrealized Appreciation
of Investments--Note E 421,314 2.92
- -----------------------------------------------------------
NET ASSETS $2,363,794 $16.36
- -----------------------------------------------------------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Market
Value
INTERNATIONAL GROWTH PORTFOLIO Shares (000)+
- -----------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.5%)
- -----------------------------------------------------------
ARGENTINA (.1%)
YPF Sociedad ADR 162,500 $ 3,088
--------
- -----------------------------------------------------------
AUSTRALIA (1.3%)
Broken Hill Proprietary Ltd. 505,000 6,931
Mayne Nickless Ltd. 1,044,289 4,742
News Corp. Ltd. 1,915,000 8,526
News Corp. Ltd. Pfd. 757,500 3,004
Normandy Poseidon Ltd. 3,171,315 4,068
Pacific Dunlop Ltd. 1,200,000 2,645
Western Mining Corp. 954,937 5,117
--------
GROUP TOTAL 35,033
--------
- -----------------------------------------------------------
BELGIUM (.6%)
Cimenteries Cbr Npv 38,231 14,762
* Cimenteries Cbr Warrants
Exp. 12/20/96 36,023 258
Sibeka 10,575 2,146
--------
GROUP TOTAL 17,166
--------
- -----------------------------------------------------------
BRAZIL (1.8%)
Banco Itau Pfd. 9,432,000 2,558
Brazilian Distriburda
de Petrobras Pfd. 70,551,000 3,120
Cemig Pfd. 16,520,400 1,334
Electrobras Pfd. 34,638,332 7,638
Ipiranga Pfd. 211,040,000 3,288
Panamerican Beverage Inc. 60,000 1,463
Sadia Concordia Pfd. 2,708,000 2,874
* Siderugica Nacional (CSN) 43,300,000 1,123
Telebras 147,460,000 3,547
Telebras Pfd. 313,665,755 9,284
Usiminas ADR 440,000 6,050
Usiminas Pfd. 4,612,149 6,635
--------
GROUP TOTAL 48,914
--------
- -----------------------------------------------------------
CHILE (.3%)
Compania de Telefonos de
Chile ADR 108,000 6,588
Sociedad Quimica 60,000 1,898
--------
GROUP TOTAL 8,486
--------
- -----------------------------------------------------------
FINLAND (.8%)
Kone Corp. B 43,000 5,089
Kymmene Oy 330,000 9,491
Repola Oy 370,000 6,507
--------
GROUP TOTAL 21,087
--------
- -----------------------------------------------------------
FRANCE (3.9%)
Cardif 59,222 6,124
Docks de France 49,500 6,832
Eaux (Cie Generale) 120,249 11,103
Michelin Class B (Registered) 553,870 22,082
Paribas Compagnie Financiere A 299,103 17,029
Primagaz 24,938 4,174
* Primagaz Warrants Exp. 6/30/95 1,438 11
Societe Centrale des Assurances
Generales de France 389,376 13,223
Societe National Elf Aquitaine 100,000 7,159
Total SA B 317,828 17,527
--------
GROUP TOTAL 105,264
--------
- -----------------------------------------------------------
GERMANY (3.9%)
Friedrich Grohe AG Pfd. 18,747 6,268
Muenchener Ruckver 3,500 6,444
Sap AG Pfd. 36,000 29,690
Signalbau Huber AG Pfd. 7,500 1,155
Veba AG 175,000 62,761
--------
GROUP TOTAL 106,318
--------
- -----------------------------------------------------------
HONG KONG (6.0%)
Amoy Properties 5,500,000 5,015
Cheung Kong Holdings Ltd. 4,800,000 20,919
Hong Kong Electric Holdings 5,500,000 16,466
HSBC Holdings PLC 2,172,943 22,832
Hutchison Whampoa Ltd. 3,600,000 15,271
Mandarin Oriental
International Ltd. 4,545,369 5,379
Sun Hung Kai Properties Ltd. 4,500,400 30,265
Swire Pacific Ltd. A 4,084,000 28,653
Wharf Holdings Ltd. 5,500,000 18,920
--------
GROUP TOTAL 163,720
--------
- -----------------------------------------------------------
INDONESIA (1.3%)
Bank Bali (Foreign) 1,129,500 2,370
Indocement (Foreign) 1,222,000 4,136
* Indofood (Foreign) 668,400 2,488
* Indonesia Satellite ADR 400,000 14,250
Kalbe Farma (Foreign) 1,874,000 7,738
Unilever Indonesia (Foreign) 287,551 4,152
--------
GROUP TOTAL 35,134
--------
- -----------------------------------------------------------
ITALY (4.7%)
Montedison SPA 12,000,000 8,776
Parmalat SPA 15,681,600 13,842
* Parmalat SPA Warrants
Exp. 7/17/99 1,810,200 1,343
STET-Societa Finanziaria
Tele-Fonica 14,452,600 40,080
Telecom Italia 26,712,190 64,359
--------
GROUP TOTAL 128,400
--------
- -----------------------------------------------------------
</TABLE>
9
<PAGE> 10
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -----------------------------------------------------------
<S> <C> <C>
JAPAN (27.9%)
Alps Electric Co., Ltd. 500,000 $ 5,942
Anritsu Corp. 1,000,000 10,644
Bridgestone Corp. 2,100,000 28,647
Casio Computer Co. 2,100,000 22,787
Daini Den Den Corp. 1,100 8,151
Dai-Nippon Printing Co. Ltd. 1,500,000 22,167
East Japan Railway 6,510 28,660
Eisai Co., Ltd. 350,000 5,317
Fanuc Co. Ltd. 60,000 2,443
Heiwa Real Estate 1,200,000 8,681
Hirose Electronics Co. Ltd. 240,000 12,773
Hitachi Ltd. 4,300,000 37,550
Hoya Corp. 300,000 6,449
Ito-Yokado Co. 1,550,000 70,480
Japan Air Terminal Co. Ltd. 160,000 1,736
Keyence Inc. 50,000 4,785
Kuraray 2,250,000 23,252
Kyocera Corp. 245,000 15,774
Mabuchi Motors 400,000 24,885
Makita Corp. 700,000 10,851
Matsushita Electric
Industrial Co. Ltd. 3,200,000 46,298
Mitsubishi Corp. 1,500,000 16,121
Mitsui & Co., Ltd. 3,480,000 24,095
Murata Manufacturing Co. Ltd. 882,000 29,076
Nippon Television Network 39,300 8,041
Nissei Sangyo 100,000 1,199
Nomura Securities Co. Ltd. 2,200,000 37,968
Orix Corp. 150,000 5,239
Sankyo Co., Ltd. 850,000 19,940
Seino Transportation Co. Ltd. 425,000 6,676
Sekisui House Ltd. 3,750,000 42,241
Sharp Corp. 800,000 11,409
Shin-Etsu Chemical Co. Ltd. 1,200,000 19,346
Showa Shell Sekiyu 2,400,000 26,786
Skylark Co., Ltd. 225,000 3,302
Tokio Marine & Fire
Insurance Ltd. 700,000 7,306
Tokyo Electron Inc. 600,000 15,811
Tokyo Ohka Kogyo Co. Ltd. 202,000 5,344
Toshiba Corp. 5,800,000 36,623
Toyota Motor Corp. 2,000,000 35,963
Yamazaki Banking Co., Ltd. 400,000 7,193
Yao-han Japan Corp. 217,000 1,886
Yokohama Reito 211,000 2,181
--------
GROUP TOTAL 762,018
--------
- -----------------------------------------------------------
KOREA (1.6%)
Daewoo Corp. (Foreign) 84,591 1,114
Daewoo Securities (Foreign) 247,200 7,334
Hanil Bank (Foreign) 375,326 4,320
Hanshin Securities (Foreign) 127,500 2,576
Hyundai Engineering and
Construction (Foreign) 189,352 8,160
Korea Electric Power Co. (Foreign) 223,000 7,300
Samsung Electronics Co. Ltd. GDR 90,043 3,332
Shinhan Bank (Foreign) 465,162 9,160
--------
GROUP TOTAL 43,296
--------
- -----------------------------------------------------------
MALAYSIA (2.9%)
Genting Bhd. 4,047,000 35,036
Malayan Banking Bhd. 3,933,000 26,037
Malaysian Helicopter Services 280,000 509
Tan Chong Motor
Holdings Bhd. 2,242,000 2,652
Technology Resources
Industries Bhd. 700,000 2,386
Telekom Malaysian Bhd. 1,713,000 12,011
--------
GROUP TOTAL 78,631
--------
- -----------------------------------------------------------
MEXICO (.5%)
Apasco 'A' 1,066,000 2,845
Cifra SA de CV 'C' 4,309,000 3,814
* Grupo Carso A 340,000 1,264
* Grupo Carso ADS 162,000 1,204
Grupo Financiero Banamex B 1,618,300 1,389
Grupo Financiero Banamex L 80,915 68
Tolmex SA de CV B2 904,000 2,825
--------
GROUP TOTAL 13,409
--------
- -----------------------------------------------------------
NETHERLANDS (12.0%)
Borsumij Wehry 385,710 6,521
* Borsumij Wehry Warrants
Exp. 12/21/98 14,287 244
CAP VOLMAC Software NV 460,000 7,496
Ceteco Holdings NV 120,540 3,053
* Delft Instruments 454,330 7,459
Getronics NV 557,196 20,643
Heineken NV 502,000 78,560
International Nederlanden Groep 1,795,079 87,760
Koninklijke PTT Nederland NV 267,000 9,419
Oce van der Grinten 400,000 20,142
Otra NV 78,950 15,107
Philips Gloelampenfabrieken NV
(Non-Voting) 1,700,000 56,238
Sphinx (Kon) NV 396,046 13,537
--------
GROUP TOTAL 326,179
--------
- -----------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
- -----------------------------------------------------------
<S> <C> <C>
NORWAY (1.2%)
Norsk Hydro 900,000 $ 34,049
--------
- -----------------------------------------------------------
PHILIPPINES (1.1%)
Ayala Land Inc. 'B' 6,106,750 7,352
Meralco GDR 202,875 10,550
Philippine Long Distance
Telephone 102,000 6,041
Philippine National Bank
Class B 242,550 2,661
San Miguel Corp. B 900,000 4,124
--------
GROUP TOTAL 30,728
--------
- -----------------------------------------------------------
SINGAPORE (2.5%)
DBS Land 3,038,000 7,925
Development Bank of
Singapore (Foreign) 1,575,000 15,217
Keppel Corp. 2,086,000 16,700
Overseas Chinese
Banking Corp. (Foreign) 1,193,500 11,779
Singapore International Airlines
Ltd. (Foreign) 628,000 6,284
Singapore Press
Holdings Ltd. (Foreign) 663,600 11,403
--------
GROUP TOTAL 69,308
--------
- -----------------------------------------------------------
SWEDEN (1.7%)
Astra AB Series B 650,000 16,024
Stora Kopparberg Series A 180,000 11,662
Volvo AB Series B 875,000 17,470
--------
GROUP TOTAL 45,156
--------
- -----------------------------------------------------------
SWITZERLAND (3.8%)
BBC Brown Boveri (Bearer) 15,000 13,044
Ciba Geigy AG (Bearer) 38,000 24,024
Nestle SA (Registered) 30,000 28,922
Sandoz AG (Registered) 30,000 17,198
Swiss Bank Corp. (Bearer) 72,058 20,654
* Swiss Bank Corp. (Bearer) Warrants
Exp. 6/30/98 2,058 21
--------
GROUP TOTAL 103,863
--------
- -----------------------------------------------------------
TAIWAN
* President Enterprises Corp. GDS 19,724 345
--------
- -----------------------------------------------------------
THAILAND (1.5%)
Land & House Co. Ltd. (Foreign) 391,000 6,895
Siam Cement Co., Ltd. (Foreign) 125,000 7,565
* TelecomAsia Corp. (Foreign) 2,989,000 10,962
Thai Farmers Bank Ltd. (Foreign) 1,840,000 15,192
--------
GROUP TOTAL 40,614
--------
- -----------------------------------------------------------
UNITED KINGDOM (17.1%)
Allied-Domecq PLC 1,730,768 13,755
Asda Group PLC 20,000,000 21,430
Barclays PLC 1,560,000 14,963
Blue Circle Industries 2,000,000 8,097
BOC Group 2,150,000 23,632
Bowater PLC 1,750,000 11,223
British Aerospace 3,000,000 22,347
British Airways PLC 2,350,000 14,495
British Land Co., PLC 4,200,000 24,610
British Petroleum Co. 2,555,000 16,002
British Steel 6,000,000 15,135
Burton Group 15,900,000 16,848
Cable and Wireless PLC 4,588,000 27,065
Camas PLC 1,400,000 1,661
Courtaulds PLC 1,500,000 9,928
English China Clays 1,400,000 7,484
Fisons 3,000,000 6,026
Glaxo Holdings PLC 1,400,000 14,038
Grand Metropolitan PLC 2,500,000 15,123
National Power 2,300,000 16,860
Peninsular & Orient Steam
Navigation Co. 1,957,704 17,447
Rank Organisation Ltd. 4,465,000 26,022
Rolls Royce PLC 7,437,500 17,791
Smith (David S.) 1,400,400 11,694
Suter PLC 1,050,000 2,532
* Suter PLC Warrants
Exp. 1996/98 105,000 60
* Suter PLC Warrants
Exp. 1999/2004 105,000 51
Thorn EMI PLC 1,500,000 24,696
United Newspapers 3,000,000 24,008
Vodafone Group PLC 4,600,000 13,750
Wellcome PLC 1,700,000 27,249
--------
GROUP TOTAL 466,022
--------
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $2,420,838) 2,686,228
- -----------------------------------------------------------
TEMPORARY CASH INVESTMENT (.4%)
- -----------------------------------------------------------
Face
Amount
(000)
---------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 6.12%, 3/1/95
(Cost $12,080) $12,080 12,080
- -----------------------------------------------------------
TOTAL INVESTMENTS (98.9%)
(Cost $2,432,918) 2,698,308
- -----------------------------------------------------------
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
(000)+
- -----------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (1.1%)
- -----------------------------------------------------------
Other Assets--Notes C and F $ 245,402
Liabilities--Note F (216,100)
--------
29,302
- -----------------------------------------------------------
NET ASSETS (100%)
- -----------------------------------------------------------
Applicable to 213,914,121 outstanding
$1.00 par value shares
(authorized 250,000,000 shares) $2,727,610
- -----------------------------------------------------------
NET ASSET VALUE PER SHARE $ 12.75
===========================================================
</TABLE>
+See Note A to Financial Statements.
*Non-Income Producing Security.
ADR--American Depository Receipt
ADS--American Depository Share
GDR--Global Depository Receipt
GDS--Global Depository Share
<TABLE>
<CAPTION>
- -----------------------------------------------------------
AT FEBRUARY 28, 1995,
NET ASSETS CONSISTED OF:
- -----------------------------------------------------------
Amount Per
(000) Share
----------- ------
<S> <C> <C>
Paid in Capital $2,487,804 $11.63
Undistributed Net
Investment Income--Note D 645 --
Accumulated Net
Realized Losses--Note D (26,229) (.12)
Unrealized Appreciation
of Investments--Note E 265,390 1.24
- -----------------------------------------------------------
NET ASSETS $2,727,610 $12.75
- -----------------------------------------------------------
</TABLE>
12
<PAGE> 13
STATEMENT OF OPERATION
<TABLE>
<CAPTION>
U.S. GROWTH INTERNATIONAL
PORTFOLIO GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended
February 28, 1995 February 28,1995
(000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) . . . . . . . . . . . . . . . . . $ 16,356 $ 15,229
Interest . . . . . . . . . . . . . . . . . . . 4,486 1,813
- ------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . 20,842 17,042
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fees . . . . . . . . . . . . . . . . . $2,049 $2,374
Performance Adjustments . . . . . . . . . . -- 2,049 -- 2,374
------ ------
The Vanguard Group--Note C
Management & Administrative . . . . . . . . 2,564 3,098
Marketing and Distribution . . . . . . . . . 199 2,763 258 3,356
------ ------
Taxes (other than income taxes) . . . . . . . . 81 122
Custodians' Fees . . . . . . . . . . . . . . . 6 1,140
Auditing Fees . . . . . . . . . . . . . . . . . 4 5
Shareholders' Reports . . . . . . . . . . . . . 66 128
Annual Meeting and Proxy Costs . . . . . . . . 19 20
Directors Fees and Expenses . . . . . . . . . 3 5
- ------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . 4,991 7,150
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . 15,851 9,892
- ------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . 8,570 11,056
Forward Currency Contracts . . . . . . . . . . -- (24,010)
- ------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . 8,570 (12,954)
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . 121,361 (311,361)
Forward Currency Contracts . . . . . . . . . . -- 6,787
- ------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . 121,361 (304,574)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations $145,782 $(307,636)
========================================================================================================================
</TABLE>
(1) Dividends for the International Growth Portfolio are net of foreign
withholding taxes of $3,204,000.
13
<PAGE> 14
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, 1995 August 31, 1994 FEBRUARY 28, 1995 August 31, 1994
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . $ 15,851 $ 24,103 $ 9,892 $ 31,686
Realized Net Gain (Loss) . . . . . . . . 8,570 4,709 (12,954) 35,464
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . 121,361 99,469 (304,574) 322,922
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . 145,782 128,281 (307,636) 390,072
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . (24,203) (25,703) (38,606) (16,917)
Realized Net Gain . . . . . . . . . . . -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . (24,203) (25,703) (38,606) (16,917)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . 282,956 380,823 305,413 804,345
--In Lieu of Cash Distributions 23,082 21,905 36,111 15,892
--Exchange . . . . . . . . . 121,868 128,844 193,322 992,770
Redeemed --Regular . . . . . . . . . . (91,607) (332,474) (156,528) (264,837)
--Exchange . . . . . . . . . . (57,515) (292,386) (293,624) (409,381)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions . 278,784 (93,288) 84,694 1,138,789
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . 400,363 9,290 (261,548) 1,511,944
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . 1,963,431 1,954,141 2,989,158 1,477,214
- -------------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . $2,363,794 $1,963,431 $2,727,610 $2,989,158
===============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . $.18 $.21 $.18 $.11
Realized Net Gain . . . . . . . . -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . 26,092 34,159 36,645 134,746
Issued in Lieu of Cash Distributions 1,504 1,453 2,719 1,180
Redeemed . . . . . . . . . . . . . (9,628) (41,944) (33,641) (50,592)
- -------------------------------------------------------------------------------------------------------------------------------
17,968 (6,332) 5,723 85,334
- -------------------------------------------------------------------------------------------------------------------------------
(3) Undistributed Net
Investment Income--Note D . . . $ 7,518 $ 15,870 $ 645 $ 28,464
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended August 31,
SIX MONTHS ENDED -------------------------------------------------
For a Share Outstanding Throughout Each Period FEBRUARY 28, 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $15.52 $14.71 $14.71 $13.69 $10.38 $10.01
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .11 .20 .21 .19 .20 .14
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . .91 .82 .05 1.02 3.30 .36
---- ---- ---- ---- ---- ----
TOTAL FROM INVESTMENT OPERATIONS . . . 1.02 1.02 .26 1.21 3.50 .50
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.18) (.21) (.18) (.19) (.19) (.13)
Distributions from Realized Capital Gains . . -- -- (.08) -- -- --
---- ---- ---- ---- ---- ----
TOTAL DISTRIBUTIONS . . . . . . . . . . (.18) (.21) (.26) (.19) (.19) (.13)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $16.36 $15.52 $14.71 $14.71 $13.69 $10.38
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . +6.65% +6.98% +1.69% +8.83% +34.28% +5.03%
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $2,364 $1,963 $1,954 $1,441 $747 $339
Ratio of Expenses to Average Net Assets . . . . . .48%* .52% .49% .49% .56% .74%
Ratio of Net Investment Income to Average Net Assets 1.51%* 1.30% 1.50% 1.52% 1.82% 1.77%
Portfolio Turnover Rate . . . . . . . . . . . . . 22%* 47% 37% 24% 30% 49%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
15
<PAGE> 16
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended August 31,
SIX MONTHS ENDED ---------------------------------------------------------------
For a Share Outstanding Throughout Each Period FEBUARY 28, 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . $14.36 $12.02 $10.15 $10.31 $11.81 $11.61
------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . .04 .14 .12 .20 .18 .32
Net Realized and Unrealized Gain (Loss)
on Investments . . . . . . . . . . . . . . (1.47) 2.31 1.96 (.05) (.80) .31
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . (1.43) 2.45 2.08 .15 (.62) .63
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . (.18) (.11) (.21) (.19) (.20) (.15)
Distributions from Realized Capital Gains . . -- -- -- (.12) (.68) (.28)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . (.18) (.11) (.21) (.31) (.88) (.43)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . $12.75 $14.36 $12.02 $10.15 $10.31 $11.81
====================================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . 10.01% +20.44% +21.06% +1.49% - 5.11% +5.25%
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (Millions) . . . . . . $2,728 $2,989 $1,477 $919 $846 $796
Ratio of Expenses to Average Net Assets . . . . . .49%* .46% .59% .58% .67% .68%
Ratio of Net Investment Income to Average Net Assets 69%* 1.37% 1.27% 2.04% 1.80% 3.01%
Portfolio Turnover Rate . . . . . . . . . . . . . 24%* 28% 51% 58% 49% 45%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
16
<PAGE> 17
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 last quoted by major banks as of 4:00 PM London
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.
B. U.S. GROWTH PORTFOLIO: Under the terms of a contract which expires
March 31, 1996, the Portfolio pays Lincoln Capital Management Co. an investment
advisory fee calculated at an annual percentage rate of average net assets. For
the six months ended February 28, 1995, 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, 1996, the Portfolio pays Schroder Capital Management International an
investment advisory fee calculated at an annual percentage rate of average net
assets.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (continued)
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, 1995, the
investment advisory fee represented an effective annual base rate of .16 of 1%
of the Portfolio's average net assets. No performance adjustments were required
during the period.
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, 1995, the Fund had contributed capital of $757,000 to Vanguard
(included in Other Assets), representing 3.8% of Vanguard's capitalization. The
Fund's directors and officers are also directors and officers of Vanguard.
Vanguard has requested the Fund's investment advisers to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate or credit to the Fund a portion of the commissions
generated. Such rebates or credits are used solely to reduce the Fund's
administrative expenses. For the six months ended February 28, 1995, directed
brokerage arrangements reduced the expenses of the U.S. Growth and
International Growth Portfolios by $290,000 (an annual rate of .03 of 1% of
average net assets) and $309,000 (an annual rate of .02 of 1% of average net
assets), respectively.
D. During the six months ended February 28, 1995, purchases and sales of
investment securities other than U.S. Government securities and temporary cash
investments were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(000)
-----------------------------
Portfolio Purchases Sales
- ----------------------------------------------------------
<S> <C> <C>
U.S. GROWTH $ 418,539 $209,333
INTERNATIONAL GROWTH 390,634 337,482
- ----------------------------------------------------------
</TABLE>
During the period ended February 28, 1995, the International Portfolio realized
gains on the sale of "passive foreign investment companies" of $895,000, which
had been included in 1994 and prior years' distributable income for tax
purposes; accordingly such gains have been reclassified from accumulated net
realized gains to undistributed net investment income.
At August 31, 1994, the Fund had available capital loss carryforwards 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 $15,721
INTERNATIONAL GROWTH 2001 20,227
- ---------------------------------------------------------
</TABLE>
E. At February 28, 1995, unrealized appreciation 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 $433,964 $(12,650) $421,314
INTERNATIONAL GROWTH 397,844 (132,454) 265,390
- ---------------------------------------------------------------------
</TABLE>
F. The market value of International Growth Portfolio securities on loan to
broker/dealers at February 28, 1995, was $159,229,000 for which the Portfolio
had received cash collateral of $172,929,000.
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 of Rhone-Poulenc Rorer, Inc.; Director of Sun
Company, Inc.
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 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., The Jeffrey Co., and Southern New England
Communications Company.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich Company,
Reliance Electric 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 Chief Executive Officer 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
ROBERT A. DiSTEFANO VINCENT S. McCORMACK
Senior Vice President Senior Vice President
Information Technology Operations
JEREMY G. DUFFIELD F. WILLIAM McNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MacKINNON
Senior Vice President
Fixed Income Group
19
<PAGE> 20
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LIFEStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Portfolio
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
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 Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
[VANGUARD LOGO]
<TABLE>
<S> <C>
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739
</TABLE>
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.
Q232-2/95
[VANGUARD U.S. GROWTH PORTFOLIO/INTERNATIONAL GROWTH PORTFOLIO LOGO]
Semi-Annual Report
February 28, 1995
