<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO. 2-17620) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 69 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 69 /X/
VANGUARD WORLD FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ARTICLES OF INCORPORATION)
P.O. BOX 2600,
VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (610) 669-1000
RAYMOND J. KLAPINSKY, SECRETARY
P.O. BOX 876
VALLEY FORGE, PA 19482
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE
on December 29, 1995 pursuant to paragraph (b) of Rule 485.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Registration Statement becomes effective.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SECURITIES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF
1940. REGISTRANT FILED ITS RULE 24F-2 NOTICE FOR ITS FISCAL YEAR ENDED AUGUST
31, 1995, WITH THE COMMISSION ON OCTOBER 26, 1995.
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<PAGE> 2
VANGUARD WORLD FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
- ----------------------------------------------------- ----------------------------------------
<S> <C> <C>
Item 1. Cover Page.............................. Cover Page
Item 2. Synopsis................................ Not Applicable
Item 3. Condensed Financial Information......... Financial Highlights
Item 4. General Description of Registrant....... Investment Objective; Investment
Policies; General Information
Item 5. Management of the Fund.................. Management of the Portfolio
Item 6. Capital Stock and Other Securities...... Opening an Account and Purchasing
Shares; Selling Your Shares; The Share
Price of the Portfolio; Dividends,
Capital Gains and Taxes; General
Information Cover Page; Other Vanguard
Services
Item 7. Purchase of Securities Being Offered.... Cover Page; Opening an Account and
Purchasing Shares
Item 8. Redemption or Repurchase................ Selling Your Shares
Item 9. Pending Legal Proceedings............... Not Applicable
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
- ----------------------------------------------------- ----------------------------------------
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Cover Page
Item 12. General Information and History......... Investment Objective and Policies;
Management of the Fund
Item 13. Investment Objective and Policies....... Investment Objective and Policies;
Investment Limitations
Item 14. Management of the Fund.................. Management of the Fund; Investment
Advisory Services
Item 15. Control Persons and Principal Holders of
Securities.............................. Management of the Fund
Item 16. Investment Advisory and Other
Services................................ Management of the Fund; Investment
Advisory Services
Item 17. Brokerage Allocation.................... Portfolio Transactions
Item 18. Capital Stock and Other Securities...... Financial Statements
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered................ Purchase of Shares; Redemption of
Shares; Financial Statements
Item 20. Tax Status.............................. Not Applicable
Item 21. Underwriters............................ Not Applicable
Item 22. Calculations of Yield Quotations of
Money Market Fund....................... Not Applicable
Item 23. Financial Statements.................... Financial Statements
</TABLE>
<PAGE> 3
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[VANGUARD U.S. GROWTH PORTFOLIO LOGO]
A Member of The Vanguard Group
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PROSPECTUS -- DECEMBER 29, 1995
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NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT -- 1-800-662-7447
(SHIP)
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SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT -- 1-800-662-2739
(CREW)
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INVESTMENT
OBJECTIVE AND
POLICIES Vanguard U.S. Growth Portfolio (the "Portfolio") is an
independent series of Vanguard World Fund, Inc. (the
"Fund"), an open-end diversified investment company. The
Portfolio seeks to provide long-term capital appreciation.
Dividend income is expected to be incidental to this
objective. The Fund is currently offering shares of two
Portfolios. This prospectus relates to Vanguard U.S.
Growth Portfolio only. There is no assurance that the
Portfolio will achieve its stated objective. Shares of the
Fund are neither insured nor guaranteed by any agency of
the U.S. Government, including the FDIC.
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OPENING AN
ACCOUNT To open a regular (non-retirement) account, please
complete and return the Account Registration Form. If you
need assistance in completing this Form, please call our
Investor Information Department. To open an Individual
Retirement Account (IRA), please use a Vanguard IRA
Adoption Agreement. To obtain a copy of this form, call
1-800-662-7447, Monday through Friday, from 8:00 a.m. to
9:00 p.m. and Saturday, from 9:00 a.m. to 4:00 p.m.
(Eastern time). The minimum initial investment is $3,000
or $1,000 for Uniform Gifts/Transfers to Minors Act
accounts. The Portfolio is offered on a no-load basis
(i.e., there are no sales commissions or 12b-1 fees).
However, the Portfolio incurs expenses for investment
advisory, management, administrative, and distribution
services.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information you should know about the Portfolio before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Portfolio has been filed
with the Securities and Exchange Commission. Such
Statement is dated December 29, 1995 and has been
incorporated by reference into this Prospectus. A copy may
be obtained without charge by writing to the Portfolio or
by calling our Investor Information Department.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page Page
<S> <C> <C>
Portfolio Expenses ................. 2 Investment Limitations ............ 7 SHAREHOLDER GUIDE
Financial Highlights ............... 2 Management of the Portfolio ....... 8 Opening an Account and
Yield and Total Return ............. 4 Investment Adviser ................ 8 Purchasing Shares .............. 13
Performance Record ................ 9 When Your Account Will Be
PORTFOLIO INFORMATION Dividends, Capital Gains Credited ....................... 16
Investment Objective ............... 4 and Taxes ........................ 10 Selling Your Shares ............. 16
Investment Policies ................ 4 The Share Price of The Exchanging Your Shares .......... 18
Investment Risks ................... 5 Portfolio ........................ 11 Important Information about
Who Should Invest .................. 5 General Information ............... 12 Telephone Transactions ......... 20
Implementation of Policies ......... 6 Transferring Registration ....... 20
Other Vanguard Services ......... 21
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE> 4
PORTFOLIO
EXPENSES The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Portfolio. The
expenses and fees set forth in the table are for the 1995
fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
---------------------------------------------------------------------------------
<S> <C> <C>
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES
---------------------------------------------------------------------------------
Management & Administrative Expenses................................... 0.25%
Investment Advisory Fees............................................... 0.19
12b-1 Fees............................................................. None
Other Expenses
Distribution Costs.......................................... 0.02%
Miscellaneous Expenses...................................... 0.01
----
Total Other Expenses................................................... 0.03
----
TOTAL OPERATING EXPENSES...................................... 0.47%
====
</TABLE>
The purpose of this table is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in the
Portfolio.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above,
the Portfolio charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$5 $15 $26 $59
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
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FINANCIAL
HIGHLIGHTS The following financial highlights for a share outstanding
through each period, insofar as they relate to each of the
five years in the period ended August 31, 1995, have been
audited by Price Waterhouse LLP, independent accountants,
whose report thereon was unqualified. This information
should be read in conjunction with the Fund's financial
statements and notes thereto, which, together with the
remaining portions of the Fund's 1995 Annual Report to
Shareholders, are incorporated by reference in the
Statement of Additional Information and this Prospectus,
and which appear, along with the report of Price
Waterhouse LLP, in the Fund's 1995 Annual Report to
Shareholders. For a more complete discussion of the Fund's
performance, please see the Fund's 1995 Annual Report to
Shareholders, which may be obtained without charge by
writing to the Fund or by calling our Investor Information
Department at 1-800-662-7447.
2
<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, OCT. 1,
1985 TO
----------------------------------------------------------------------------------- AUG. 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD.... $15.52 $14.71 $14.71 $13.69 $10.38 $10.01 $7.17 $12.74 $13.21 $9.94
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
INVESTMENT OPERATIONS
Net Investment
Income............... .25 .20 .21 .19 .20 .14 .11 .10 .30 .24
Net Realized and
Unrealized Gain
(Loss) on
Investments.......... 3.24 .82 .05 1.02 3.30 .36 2.79 (2.10) 1.45 3.03
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
TOTAL FROM INVESTMENT
OPERATIONS......... 3.49 1.02 .26 1.21 3.50 .50 2.90 (2.00) 1.75 3.27
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income.... (.18) (.21) (.18) (.19) (.19) (.13) (.06) (.31) (.28) --
Distributions from
Realized Capital
Gains................ -- -- (.08) -- -- -- -- (3.26) (1.94) --
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
TOTAL
DISTRIBUTIONS...... (.18) (.21) (.26) (.19) (.19) (.13) (.06) (3.57) (2.22) --
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $18.83 $15.52 $14.71 $14.71 $13.69 $10.38 $10.01 $7.17 $12.74 $13.21
============================================================================================================================
TOTAL RETURN............. 22.75% 6.98% 1.69% 8.83% 34.28% 5.03% 40.72% (21.62)% 17.81% 32.90%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(Millions)............. $2,989 $1,963 $1,954 $1,441 $747 $339 $184 $130 $184 $188
Ratio of Expenses to
Average Net Assets..... .47%+ .52% .49% .49% .56% .74% .95% .88% .65% .80%*
Ratio of Net Investment
Income
to Average Net
Assets................. 1.59% 1.30% 1.50% 1.52% 1.82% 1.77% 1.44% 1.23% 2.41% 2.27%*
Portfolio Turnover
Rate................... 32% 47% 37% 24% 30% 49% 48% 38% 142% 77%
</TABLE>
* Annualized.
+ Effective in fiscal 1995, does not include expense reductions from directed
brokerage arrangements. The Ratio of Net Expenses to Average Net Assets is
.44%.
<TABLE>
<CAPTION>
IVEST FUND+
------------
SEPT. 1 TO 30
1985
------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................................................. $18.15
------
INVESTMENT OPERATIONS
Net Investment Income............................................................................... .04
Net Realized and Unrealized Gain (Loss) on Investments.............................................. (.23)
------
TOTAL FROM INVESTMENT OPERATIONS.................................................................. (.19)
------
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income................................................................ (.35)
Distributions from Realized Capital Gains........................................................... (1.48)
------
TOTAL DISTRIBUTIONS............................................................................... (1.83)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................................................................ $16.13
========================================================================================================================
TOTAL RETURN.......................................................................................... (1.05)%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions).................................................................. $201
Ratio of Expenses to Average Net Assets............................................................... .76%*
Ratio of Net Investment Income to Average Net Assets.................................................. 2.97%*
Portfolio Turnover Rate............................................................................... 30%
</TABLE>
* Annualized.
+ Prior to October 1, 1985, the Fund consisted of one Portfolio and was known as
Ivest Fund.
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3
<PAGE> 6
YIELD AND TOTAL
RETURN From time to time the Portfolio may advertise its yield
and total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Portfolio refers to the average annual compounded rates of
return over one-, five- and ten-year periods or for the
life of the Portfolio (as stated in the advertisement)
that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all
dividend and capital gains distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "thirty-day
yield" of the Portfolio is calculated by dividing net
investment income per share earned during a thirty-day
period by the net asset value per share on the last day of
the period. Net investment income includes interest and
dividend income earned on the Portfolio's securities and
is net of all expenses and all recurring and nonrecurring
charges that have been applied to all shareholder
accounts. The yield calculation assumes that net
investment income earned over thirty days is compounded
monthly for six months and then annualized. Methods used
to calculate advertised yields are standardized for all
stock and bond mutual funds. However, these methods differ
from the accounting methods used by the Portfolio to
maintain its books and records, and so the advertised
thirty-day yield may not fully reflect the income paid to
an investor's account.
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INVESTMENT
OBJECTIVE
THE PORTFOLIO SEEKS
TO PROVIDE LONG-TERM
CAPITAL GROWTH The Portfolio invests primarily in equity securities of
companies based in the United States. The objective of the
Portfolio is to provide long-term capital appreciation.
Dividend income is expected to be incidental to this
objective. There is no assurance that the Portfolio will
achieve its objective.
The investment objective of the Portfolio is fundamental,
and so cannot be changed without the approval of a
majority of the Portfolio's shareholders.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES
THE PORTFOLIO
EMPHASIZES STOCKS
WITH ABOVE-
AVERAGE GROWTH
POTENTIAL The Portfolio invests chiefly in equity securities,
including common stocks and securities convertible into
common stocks, which offer favorable prospects for capital
growth but little current income. The Portfolio is managed
without regard to tax ramifications.
The Portfolio invests primarily in equity securities of
seasoned U.S. companies with above-average prospects for
growth. In selecting securities for the Portfolio, Lincoln
Capital Management, adviser to the Portfolio, emphasizes
common stocks of high-quality, established-growth
companies. Such companies tend to have exceptional growth
records, strong market positions, reasonable financial
strength, and relatively low sensitivity to changing
economic conditions. The adviser seeks to identify common
stocks that sell at attractive valuations and companies
that have the best prospects for continued above-average
growth.
Besides investing in equity securities, the Portfolio may
utilize stock index futures contracts and options to a
limited extent. In addition, although the Portfolio will
normally remain fully invested in equity securities, the
Portfolio may temporarily invest in certain short-term
fixed income securities. See "Implementation of Policies"
for a description of these and other investment practices
of the Portfolio.
4
<PAGE> 7
The Portfolio is responsible for voting the shares of all
securities it holds.
The investment policies described above are not
fundamental policies and therefore may be changed by the
Board of Directors without shareholder approval. However,
shareholders would be notified prior to any material
change in the Portfolio's policies.
- --------------------------------------------------------------------------------
INVESTMENT RISKS As a mutual fund investing in equity securities, the
Portfolio is subject to market risk -- i.e., the
THE PORTFOLIO IS possibility that stock prices in general will decline over
SUBJECT TO STOCK short or even extended periods. Stock markets tend to be
MARKET RISK cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
To illustrate the volatility of stock prices, the
following table sets forth the extremes for U.S. stock
market returns as well as the average return for the
period from 1926 to 1994, as measured by the Standard &
Poor's 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1994)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +53.9 +23.9 +20.1 +16.9
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.2 +10.2 +10.6 +10.7
</TABLE>
As shown, stocks have provided an average annual total
return (capital appreciation plus dividend income) for 10
years, of +10.6%. Average return may not be useful for
forecasting future returns in any particular period, as
stock returns are quite volatile from year to year.
This table on U.S. stock market returns should not be
viewed as a representation of future returns from U.S.
stock markets or the Portfolio. The illustrated returns
represent the historical performance of unmanaged
portfolios of securities (before subtracting portfolio
transaction costs and other expenses of an investment
portfolio), which may be a poor guide to future returns.
In addition, the Portfolio is likely to differ in terms of
portfolio composition from these particular indices, and
so the performance of the Portfolio should not be expected
to mirror the return provided by a specific index.
THE PORTFOLIO The investment adviser manages the Portfolio according to
IS SUBJECT TO the traditional methods of "active" investment management,
MANAGER RISK which involve the buying and selling of securities based
upon economic, financial and market analysis and
investment judgment. Manager risk refers to the
possibility that the Portfolio's investment adviser may
fail to effectively execute the Portfolio's investment
strategy. As a result, the Portfolio may fail to achieve
its stated objective.
- --------------------------------------------------------------------------------
WHO SHOULD The Portfolio is intended for investors who are seeking
INVEST long-term capital appreciation, and who do not need to
earn current income from their investment in the
LONG-TERM INVESTORS Portfolio. Because of the risks associated with common
SEEKING CAPITAL stock investments, the Portfolio is intended to be a
APPRECIATION long-term investment vehicle and is not designed to
provide investors with a means of speculating on
short-term stock market movements. Investors should be
able to tolerate sudden, sometimes substantial
5
<PAGE> 8
fluctuations in the value of their investment. Investors
who engage in excessive account activity generate
additional costs which are borne by all the Portfolio's
shareholders. In order to minimize such costs, the
Portfolio has adopted the following policies. The
Portfolio reserves the right to reject any purchase
request (including exchange purchases from other Vanguard
portfolios) that is reasonably deemed to be disruptive to
efficient portfolio management, either because of the
timing of the investment or previous excessive trading by
the investor. Additionally, the Portfolio has adopted
exchange privilege limitations as described in the section
"Exchange Privilege Limitations." Finally, the Portfolio
reserves the right to suspend the offering of its shares.
Because of these risks, the Portfolio should not be
considered a complete investment program. Most investors
should maintain diversified holdings of securities with
different risk characteristics -- including common stocks,
bonds and money market instruments. Investors may wish to
purchase shares on a regular, periodic basis (dollar-cost
averaging), rather than investing in one lump sum in order
to reduce the risk of investing all their monies in common
stocks at a particularly unfavorable time. Investors may
also wish to complement an investment in the Portfolio
with other types of common stock investments.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES In addition to investing in growth-oriented common stocks,
the Portfolio follows a number of additional investment
practices to achieve its objective.
THE PORTFOLIO MAY
INVEST IN SHORT-TERM
FIXED INCOME
SECURITIES Although the Portfolio normally seeks to remain fully
invested in equity securities, the Portfolio may invest
temporarily in certain short-term fixed income securities.
Such securities may be used to invest uncommitted cash
balances, to maintain liquidity to meet shareholder
redemptions, or to take a temporary defensive position
against potential stock market declines. These securities
include: obligations of the United States Government and
its agencies or instrumentalities; commercial paper, bank
certificates of deposit, and bankers' acceptances; and
repurchase agreements collateralized by these securities.
THE PORTFOLIO MAY
LEND ITS SECURITIES The Portfolio may lend its investment securities to
qualified institutional investors for either short-term or
long-term purposes of realizing additional net investment
income. Loans of securities by the Portfolio will be
collateralized by cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The collateral will equal
at least 100% of the current market value of the loaned
securities.
PORTFOLIO TURNOVER IS
NOT EXPECTED TO
EXCEED 100% Although it generally seeks to invest for the long term,
the Portfolio retains the right to sell securities
irrespective of how long they have been held. It is
anticipated that the annual turnover rate of the Portfolio
will not exceed 100%. A turnover rate of 100% would occur,
for example, if all of the securities of the Portfolio
were replaced within a one-year period.
DERIVATIVE
INVESTING
Derivatives are instruments whose values are linked to or
derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
6
<PAGE> 9
THE PORTFOLIO MAY
INVEST IN DERIVATIVE
SECURITIES
The Portfolio may invest in futures contracts and options,
but only to a limited extent. Specifically, a Portfolio of
the Fund may enter into futures contracts provided that
not more than 5% of its assets are required as a futures
contract deposit; in addition, a Portfolio may enter into
futures contracts and options transactions only to the
extent that obligations under such contracts or
transactions represent not more than 20% of the
Portfolio's assets.
Futures contracts and options may be used for several
common fund management strategies: to maintain cash
reserves while simulating full investment, to facilitate
trading, to reduce transaction costs, or to seek higher
investment returns when a specific futures contract is
priced more attractively than other futures contracts or
the underlying security or index.
FUTURES AND OPTIONS
POSE CERTAIN RISKS The primary risks associated with the use of futures
contracts and options are: (i) imperfect correlation
between the change in market value of the stocks held by a
Portfolio and the prices of futures and options; and (ii)
possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures
position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those
contracts whose behavior is expected to resemble that of
the Portfolio's underlying securities. The risk that the
Portfolio will be unable to close out a futures position
will be minimized by entering into such transactions on a
national exchange with an active and liquid secondary
market.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of
leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may
result in immediate and substantial loss (or gain) to the
investor. When investing in futures contracts, the
Portfolio will segregate cash or cash equivalents in the
amount of the underlying obligation.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE PORTFOLIO HAS
ADOPTED CERTAIN
FUNDAMENTAL
LIMITATIONS The Portfolio has adopted certain limitations on its
investment practices. Specifically, the Portfolio will
not:
(a) with respect to 75% of its assets, invest more than
5% of its assets in the securities of any single
company, excluding obligations of the U.S.
government;
(b) with respect to 75% of its assets, purchase more
than 10% of the outstanding voting securities of any
issuer;
(c) invest more than 5% of its assets in the securities
of companies that have a continuous operating
history of less than 3 years;
(d) invest more than 25% of its assets in any one
industry;
(e) borrow money, except from a bank and only for
temporary or emergency purposes to facilitate the
meeting of redemption requests (not for leverage);
and
(f) pledge, mortgage or hypothecate assets to an extent
greater than 15% of the value of its gross assets.
7
<PAGE> 10
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information are fundamental and so may be changed only
with the approval of a majority of the Portfolio's
shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT OF
THE PORTFOLIO
VANGUARD ADMINISTERS
AND DISTRIBUTES THE
PORTFOLIO The Fund is a member of The Vanguard Group of Investment
Companies, a family of more than 30 investment companies
with more than 90 distinct investment portfolios and total
assets in excess of $170 billion. Through its
jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other funds in the Group
obtain at cost virtually all of their corporate
management, administrative and distribution services.
Vanguard also provides investment advisory services on an
at-cost basis to certain Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most mutual
funds. In 1994, the average expense ratio (annual costs
including advisory fees divided by average total net
assets) for the Vanguard funds amounted to approximately
.30%, compared to an average of 1.05% for the mutual fund
industry (data provided by Lipper Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's total expenses, which
are allocated among the funds under methods approved by
the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing and custodian fees.
Vanguard provides distribution and marketing services to
the funds. The funds are available on a no-load basis,
(i.e., there are no sales commissions or 12b-1 fees).
However, each fund bears its allocated share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT
ADVISER
LINCOLN CAPITAL
MANAGEMENT SERVES
AS ADVISER TO THE
PORTFOLIO The Portfolio employs Lincoln Capital Management Company
("Lincoln"), 200 South Wacker Drive, Chicago, IL 60606 as
the adviser to the Portfolio. The adviser discharges its
responsibilities subject to the control of the Officers
and Directors of the Fund.
Lincoln, an investment advisory firm founded in 1967,
currently provides investment counseling services to a
limited number of clients, most of which are institutional
clients, such as pension funds. Currently, Lincoln holds
discretionary management authority with respect to
approximately $33 billion in assets.
Lincoln employs a team of investment professionals who
participate in investment strategy formulation and issue
selection. Client equity portfolios are highly similar in
terms of their stock composition. The individuals
responsible for overseeing the
8
<PAGE> 11
implementation of Lincoln's strategy for the Portfolio,
who have served in this capacity since Lincoln became the
Portfolio's adviser in August 1987, are J. Parker Hall
III, President of Lincoln, and David M. Fowler, Vice
President of Lincoln.
The Portfolio pays Lincoln an advisory fee calculated by
applying varying percentage rates to the average month-end
net assets of the Portfolio. The maximum rate is .40% on
the first $25 million of net assets. The rate decreases to
.35% on the next $125 million of net assets, to .25% on
the next $350 million of net assets, to .20% on the next
$500 million of net assets, .15% on the next $1.5 billion
of assets and .10% on assets in excess of $2.5 billion.
The agreement does not provide for an incentive
fee/penalty based on performance. For the year ended
August 31, 1995, the investment advisory fee paid to
Lincoln, represented an effective annual rate of .19 of 1%
of the Portfolio's average net assets.
The investment advisory agreement with Lincoln authorizes
the adviser to select brokers or dealers to execute
purchases and sales of the Portfolio's securities, and
directs the adviser to use its best efforts to obtain the
best available price and most favorable execution with
respect to all transactions.
The Portfolio has authorized Lincoln to pay higher
commissions in recognition of brokerage services felt
necessary for the achievement of better execution,
provided the investment adviser believes this to be in the
best interest of the Portfolio. Although the Portfolio
does not market its shares through intermediary brokers or
dealers, the Portfolio may place orders for the Portfolio
with qualified broker-dealers who recommend the Portfolio
to clients, if the Officers of the Fund believe that the
quality of the transaction and the commission are
comparable to what they would be with other qualified
brokerage firms.
The Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days prior written notice to
shareholders of the Portfolio which shall include
substantially the information concerning the adviser that
would have normally been included in a proxy statement.
- --------------------------------------------------------------------------------
PERFORMANCE
RECORD The table on page 10 shows the investment results for the
Portfolio for several periods throughout the Portfolio's
lifetime, both as Ivest Fund and as Vanguard U.S. Growth
Portfolio. The results shown represent "total return"
investment performance, which assumes the reinvestment of
all capital gains and income dividends for the indicated
periods. Also included is comparative information with
respect to the unmanaged Standard & Poor's 500 Composite
Index, a widely-used barometer of stock market activity;
and the Consumer Price Index, a statistical measurement of
changes in the prices of goods and services. The table
does not make any allowance for federal, state or local
income taxes which shareholders must pay on a current
basis.
9
<PAGE> 12
The results should not be considered a representation of
the total return from an investment made in the Portfolio
today. The periods shown were generally favorable ones for
stock market investing. This information is provided to
help you better understand the Portfolio and may not
provide a basis for comparison with other investments or
mutual funds which use a different method to calculate
performance. In weighing these performance figures, you
should note that the Portfolio was managed by a different
adviser through August 31, 1987.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
VANGUARD CONSUMER
PERIODS U.S. GROWTH S&P 500 PRICE
ENDED 8/31/95 PORTFOLIO INDEX INDEX
-------------- ----------- ------- --------
<S> <C> <C> <C>
1 Year 22.8% 21.4% 2.6%
3 Years 10.1 13.8 2.8
5 Years 14.3 15.1 3.1
10 Years 12.9 15.1 3.5
20 Years 13.8 14.3 5.3
Lifetime* 12.8 10.5 4.5
* January 6, 1959, to August 31, 1995.
</TABLE>
- --------------------------------------------------------------------------------
DIVIDENDS,
CAPITAL GAINS
AND TAXES
THE PORTFOLIO PAYS
DIVIDENDS AND ANY
CAPITAL GAINS
ANNUALLY Dividends consisting of virtually all of the ordinary
income of the Portfolio are declared and paid to
shareholders annually. Capital gains distributions, if
any, will also be made annually. Dividend and capital
gains distributions may be automatically reinvested or
received in cash. See "Choosing a Distribution Option" for
a description of these distribution methods.
In order to satisfy certain distribution requirements of
the Tax Reform Act of 1986, the Portfolio may declare
special year-end dividend and capital gains distributions
during December. Such distributions, if received by
shareholders by January 31, are deemed to have been paid
by the Portfolio and received by shareholders on December
31 of the prior year.
The Portfolio intends to continue to qualify for taxation
as a "regulated investment company" under the Internal
Revenue Code so that it will not be subject to federal
income tax to the extent its income is distributed to
shareholders. Dividends paid by the Portfolio from net
investment income, whether received in cash or reinvested
in additional shares, will be taxable to shareholders as
ordinary income. For corporate investors, dividends from
net investment income will generally qualify in part for
the intercorporate dividends-received deduction. However,
the portion of the dividends so qualified depends on the
aggregate taxable qualifying dividend income received by
the Portfolio from domestic (U.S.) sources.
Distributions paid by the Portfolio from long-term capital
gains, whether received in cash or reinvested in
additional shares, are taxable, regardless of the length
of time you have owned shares in the Portfolio. Capital
gains distributions are made when the Portfolio realizes
net capital gains on sales of portfolio securities during
the year. The Portfolio does not seek to realize any
particular amount of capital gains during a year; rather,
realized gains are a by-product of portfolio management
10
<PAGE> 13
activities. Consequently, capital gains distributions may
be expected to vary considerably from year to year; there
will be no capital gains distributions in years when the
Portfolio realizes net capital losses.
Note that if you elect to receive capital gains
distributions in cash, instead of reinvesting them in
additional shares, you are in effect reducing the capital
at work for you in the Portfolio. Also, keep in mind that
if you purchase shares in the Portfolio shortly before the
record date for a dividend or capital gains distribution,
a portion of your investment will be returned to you as a
taxable distribution, regardless of whether you are
reinvesting your distributions or receiving them in cash.
The Portfolio will notify you annually as to the tax
status of dividend and capital gains distributions paid by
the Portfolio.
A CAPITAL GAIN OR A sale of shares of the Portfolio is a taxable event, and
LOSS MAY BE may result in a capital gain or loss. A capital gain or
REALIZED UPON loss may be realized from an ordinary redemption of shares
EXCHANGE OR or an exchange of shares between two mutual funds (or two
REDEMPTION portfolios of a mutual fund).
Dividend distributions, capital gains distributions and
capital gains or losses from redemptions and exchanges may
be subject to state and local taxes.
The Portfolio is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with IRS
taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your account
registration form your proper Social Security or Employer
Identification number and certifying that you are not
subject to backup withholding.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania, and
does business and maintains an office in that state. In
the opinion of counsel, the shares of the Portfolio are
exempt from Pennsylvania personal property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of
an investment in the Portfolio.
- --------------------------------------------------------------------------------
THE SHARE PRICE The Portfolio's share price or "net asset value" is
OF THE calculated each business day after the close of regular
PORTFOLIO trading (generally 4:00 p.m. Eastern time) of the New York
Stock Exchange. Net asset value per share is computed by
adding up the total value of the Portfolio's investments
and other assets, subtracting any of its liabilities, or
debts, and then dividing by the number of outstanding
shares of the Portfolio.
Securities listed on a U.S. exchange are valued at the
latest quoted sale price on the day the valuation is made.
Securities listed on a U.S. exchange not traded on the
valuation date are valued at the mean of the bid and ask
prices. If events which materially affect the value of a
Portfolio's investments occur after the close of the
securities markets on which such securities are primarily
traded, those investments will be priced at "fair value".
All prices of listed securities are taken from the
exchange where the security is primarily traded.
Securities regularly traded in the over-the-counter market
for which market quotations are readily available will be
valued at the latest quoted bid price.
11
<PAGE> 14
Securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to
reflect the fair market value of such securities. Other
assets and securities for which no quotations are readily
available will be valued in a manner determined in good
faith by the Board of Directors.
The Portfolio's share price can be found daily in the
mutual fund listings of most major newspapers under the
heading of Vanguard.
- --------------------------------------------------------------------------------
GENERAL The Fund was organized as Ivest Fund, a Massachusetts
INFORMATION Corporation, in 1959. The Fund is now a Maryland
Corporation and is authorized to issue 550,000,000 shares
with a par value of $1.00 per share. Currently, the Fund
is offering shares of two Portfolios with 250,000,000
shares allocated to the U.S. Growth Portfolio and
300,000,000 shares allocated to the International Growth
Portfolio.
The shares of each Portfolio are fully paid and
non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, meaning that the
holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if
they so choose.
The Fund will not hold annual meetings of shareholders
except as required by the Investment Company Act of 1940
and other applicable law. The Directors of the Fund will
call a meeting of shareholders for the purpose of voting
upon the question of removal of a Director or Directors if
such a meeting is requested in writing by the holders of
not less than 10% of the outstanding shares of the Fund.
All securities and cash of the Portfolio are held by State
Street Bank and Trust Company, Boston, MA. The Vanguard
Group, Inc. Valley Forge, PA, serves as the Portfolio's
Transfer and Dividend Disbursing Agent. Price Waterhouse
LLP, serves as independent accountants for the Fund and
will audit its financial statements annually. The Fund is
not involved in any litigation.
- --------------------------------------------------------------------------------
12
<PAGE> 15
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES You may open a regular (non-retirement) account, either by
mail or wire. Simply complete and return an Account
Registration Form and any required legal documentation,
indicating the amount you wish to invest. Your purchase
must be equal to or greater than the $3,000 minimum
initial investment requirement ($1,000 for Uniform
Gifts/Transfers to Minors Act accounts). You must open a
new Individual Retirement Account by mail (IRA's may not
be opened by wire) using a Vanguard IRA Adoption
Agreement. Your purchase must be equal to or greater than
the $1,000 minimum initial investment requirement, but no
more than $2,000 if you are making a regular IRA
contribution. Rollover contributions are generally limited
to the amount withdrawn within the past 60 days from an
IRA or other qualified Retirement Plan. If you need
assistance with the forms or have any questions about the
Portfolio, please call our Investor Information Department
at 1-800-662-7447. Note: For other types of account
registrations (e.g., corporations, associations, other
organizations, trust or powers of attorney), please call
our Investor Information Department to determine which
additional forms you may need.
The Portfolio's shares are purchased at the
next-determined net asset value after your investment has
been received. The Portfolio is offered on a no-load basis
(i.e., there are no sales commissions or 12b-1 fees).
PURCHASE
RESTRICTIONS 1) Because of the risks associated with common stock
investments, the Portfolio is intended to be a
long-term investment vehicle and is not designed to
provide investors with a means of speculating on
short-term market movements. Consequently, the
Portfolio reserves the right to reject any specific
purchase (and exchange purchase) request. The Portfolio
also reserves the right to suspend the offering of
shares for a period of time.
2) Vanguard will not accept third-party checks to purchase
shares of the Fund. Please be sure your purchase check
is made payable to the Vanguard Group.
ADDITIONAL
INVESTMENTS Subsequent investments to regular accounts may be made by
mail ($100 minimum), wire ($1,000 minimum), exchange from
another Vanguard Fund account, or Vanguard Fund Express.
Subsequent investments to Individual Retirement Accounts
may be made by mail ($100 minimum) or exchange from
another Vanguard Fund account. In some instances,
contributions may be made by wire or Vanguard Fund
Express. Please call us for more information on these
options.
- --------------------------------------------------------------------------------
13
<PAGE> 16
<TABLE>
<S> <C> <C>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of Additional investments should
Complete and sign the your initial investment on the include the Invest-by-Mail
enclosed Account registration form, make your remittance form attached to your
Registration Form check payable to The Vanguard Portfolio confirmation
Group-23 and mail to: statements. Please make your
check payable to The Vanguard
VANGUARD FINANCIAL CENTER Group-23, write your account
P.O. BOX 2600 number on your check and, using
VALLEY FORGE, PA 19482 the return envelope provided,
mail to the address indicated on
the Invest-by-Mail Form.
For express or VANGUARD FINANCIAL CENTER All written requests should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the addresses
send to: WAYNE, PA 19087 indicated for new accounts. Do
not send registered or express
mail to the post office box
address.
--------------------------------------------------------------------------
</TABLE>
PURCHASING BY WIRE
Money should be
wired to: CORESTATES BANK, N.A.
ABA 031000011
CORESTATES NO 01019897
ATTN VANGUARD
BEFORE WIRING VANGUARD U.S. GROWTH PORTFOLIO
Please contact ACCOUNT NUMBER
Client Services ACCOUNT REGISTRATION
(1-800-662-2739)
To assure proper receipt, please be sure your bank
includes the name of the Portfolio, the account number
Vanguard has assigned to you and the eight digit
CoreStates number. If you are opening a new account,
please complete the Account Registration Form and mail it
to the "New Account" address above after completing your
wire arrangement. Note: Federal Funds wire purchase orders
will be accepted only when the Fund and Custodian Bank are
open for business.
----------------------------------------------------------
PURCHASING BY
EXCHANGE (from a
Vanguard account) You may open an account or purchase additional shares by
making an exchange from another Vanguard Fund account.
However, the Portfolio reserves the right to refuse any
exchange purchase request. Call our Client Services
Department at 1-800-662-2739 to request an exchange. The
new account will have the same registration as the
existing account.
----------------------------------------------------------
PURCHASING BY
FUND EXPRESS
Special Purchase and
Automatic Investment The Fund Express Special Purchase option lets you move
money from your bank account to your Vanguard account at
your request. Or if you choose the Automatic Investment
option, money will be moved from your bank account to your
Vanguard account on the schedule (monthly, bimonthly
[every other month], quarterly or yearly) you select. To
establish these Fund Express options, please provide the
appropriate
14
<PAGE> 17
information on the Account Registration Form. We will send
you a confirmation of your Fund Express service; please
wait three weeks before using the service.
- --------------------------------------------------------------------------------
CHOOSING A
DISTRIBUTION
OPTION You must select one of three distribution options:
1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and
capital gains distributions will be reinvested in
additional Portfolio shares. This option will be
selected for you automatically unless you specify one
of the other options.
2. CASH DIVIDEND OPTION -- Your dividends will be paid in
cash and your capital gains will be reinvested in
additional Portfolio shares.
3. ALL CASH OPTION -- Both dividend and capital gains
distributions will be paid in cash.
You may change your option by calling our Client Services
Department (1-800-662-2739).
In addition, an option to invest your cash dividends
and/or capital gains distributions in another Vanguard
Fund account is available. Please call our Client Services
Department (1-800-662-2739) for information. You may also
elect Vanguard Dividend Express which allows you to
transfer your cash dividends and/or capital gains
distributions automatically to your bank account. Please
see "Other Vanguard Services" for more information.
- --------------------------------------------------------------------------------
TAX CAUTION
INVESTORS SHOULD ASK
ABOUT THE TIMING OF
CAPITAL GAINS AND
DIVIDEND DISTRIBUTIONS
BEFORE INVESTING Under Federal tax laws, the Portfolio is required to
distribute net capital gains and dividend income to
Portfolio shareholders. These distributions are made to
all shareholders who own Portfolio shares as of the
distribution's record date, regardless of how long the
shares have been owned. Purchasing shares just prior to
the record date could have a significant impact on your
tax liability for the year. For example, if you purchase
shares immediately prior to the record date of a sizable
capital gain or income dividend distribution, you will be
assessed taxes on the amount of the capital gain and/or
dividend distribution later paid even though you owned the
Portfolio shares for just a short period of time. (Taxes
are due on the distributions even if the dividend or gain
is reinvested in additional Portfolio shares.) While the
total value of your investment will be the same after the
distribution -- the amount of the distribution will offset
the drop in the net asset value of the shares -- you
should be aware of the tax implications the timing of your
purchase may have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Portfolio's
annual dividend and capital gains distributions normally
occur in December. For additional information on
distributions and taxes, see the section titled
"Dividends, Capital Gains, and Taxes."
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION
ESTABLISHING OPTIONAL
SERVICES The easiest way to establish optional Vanguard services on
your account is to select the options you desire when you
complete your Account Registration Form. IF YOU WISH TO
ADD SHAREHOLDER OPTIONS LATER, YOU MAY NEED TO PROVIDE
VANGUARD WITH ADDITIONAL INFORMATION AND A SIGNATURE
GUARANTEE. PLEASE CALL OUR CLIENT SERVICES DEPARTMENT
(1-800-662-2739) FOR FURTHER ASSISTANCE.
15
<PAGE> 18
SIGNATURE GUARANTEES For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature, and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A
SIGNATURE GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace
it.
BROKER-DEALER
PURCHASES If you purchase shares in Vanguard Funds through a
registered broker-dealer or investment adviser, the
broker-dealer or investment adviser may charge a service
fee.
CANCELLING TRADES The Portfolio will not cancel any trade (e.g., purchase,
redemption or exchange) believed to be authentic,
received in writing or by telephone, once the trade
request has been received.
ELECTRONIC PROSPECTUS
DELIVERY If you would prefer to receive a prospectus for the Fund
or any of the Vanguard Funds in an electronic format,
please call 1-800-231-7870 for additional information. If
you elect to do so, you may also receive a paper copy of
the prospectus, by calling 1-800-662-7447.
- --------------------------------------------------------------------------------
WHEN YOUR
ACCOUNT WILL BE
CREDITED Your trade date is the date on which your account is
credited. If your purchase is made by check, Federal Funds
wire, or exchange, and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00
p.m. Eastern time), your trade date is the day of receipt.
If your purchase is received after the close of the
Exchange, your trade date is the next business day. Your
shares are purchased at the net asset value determined on
your trade date.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, Vanguard will only accept
a foreign check which has been drawn in U.S. dollars and
has been issued by a foreign bank with a U.S.
correspondent bank. The name of the U.S. correspondent
bank must be printed on the face of the foreign check.
- --------------------------------------------------------------------------------
SELLING YOUR
SHARES You may withdraw any portion of the funds in your account
by redeeming shares at anytime. You generally may initiate
a request by writing or by telephoning. Your redemption
proceeds are normally mailed within two business days
after the receipt of the request in Good Order.
SELLING BY MAIL Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD U.S. GROWTH PORTFOLIO, P.O. BOX 1120, VALLEY
FORGE, PA 19482. (For express or registered mail, send
your request to Vanguard Financial Center, Vanguard U.S.
Growth Portfolio, 455 Devon Park Drive, Wayne, PA 19087.)
The redemption price of shares will be the Portfolio's net
asset value next determined after Vanguard has received
all required documents in Good Order.
---------------------------------------------------------
16
<PAGE> 19
DEFINITION OF
GOOD ORDER GOOD ORDER means that the request includes the following:
1. The account number and Portfolio name.
2. The amount of the transaction (specified in dollars or
shares).
3. Signatures of all owners EXACTLY as they are registered
on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required in cases of estates, corporations, trusts, and
certain other accounts.
6. Any certificates you are holding for the account.
IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS
TO YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES
DEPARTMENT AT 1-800-662-2739.
----------------------------------------------------------
SELLING BY TELEPHONE To sell shares by telephone, you or your pre-authorized
representative may call our Client Services Department at
1-800-662-2739. PLEASE NOTE: As a protection against
fraud, your telephone mail redemption privilege will be
suspended for 10 calendar days following any expedited
address change to your account. An expedited address
change is one that is made by telephone, by Vanguard
On-line or, in writing, without the signatures of all
account owners. The proceeds will be sent to you by mail.
Please see "Important Information About Telephone
Transactions."
----------------------------------------------------------
SELLING BY
FUND EXPRESS
Automatic Withdrawal
& Special Redemption If you select the Fund Express AUTOMATIC WITHDRAWAL
option, money will be automatically moved from your
Vanguard account to your bank account according to the
schedule you have selected. The SPECIAL REDEMPTION option
lets you move money from your Vanguard account to your
bank account upon your request. You may elect Fund Express
on the Account Registration Form or call our Investor
Information Department at 1-800-662-7447 for a Fund
Express application.
----------------------------------------------------------
SELLING BY EXCHANGE You may sell shares by making an exchange into another
Vanguard Fund account. Please see "Exchanging Your Shares"
for details.
----------------------------------------------------------
IMPORTANT REDEMPTION
INFORMATION Shares purchased by check, Fund Express Special Purchase
or Fund Express Automatic Investment Plan may not be
redeemed until payment for the purchase is collected,
which may take up to ten calendar days. Your money is
invested during the holding period.
----------------------------------------------------------
DELIVERY OF
REDEMPTION PROCEEDS Redemption requests received by telephone prior to the
close of regular trading on the New York Stock Exchange
(generally, 4:00 p.m. Eastern time) are processed on the
day of receipt and the redemption proceeds are normally
sent on the following business day.
Redemption requests received by telephone after the close
of the Exchange are processed on the business day
following receipt and the proceeds are normally sent on
the second business day following receipt. Redemption
proceeds must be sent to you within seven days of receipt
of your request in Good Order.
If you experience difficulty in making a telephone
redemption during periods of drastic economic or market
changes, your redemption request may be made by regular or
17
<PAGE> 20
express mail. It will be implemented at the net asset
value next determined after your request has been received
by Vanguard in Good Order. The Portfolio reserves the
right to revise or terminate the telephone redemption
privilege at any time.
The Portfolio may suspend the redemption right or postpone
payment at times when the New York Stock Exchange is
closed, or under any emergency circumstances as determined
by the United States Securities and Exchange Commission.
If the Board of Directors determines that it would be
detrimental to the best interests of the Portfolio's
remaining shareholders to make payment in cash, the
Portfolio may pay the redemption proceeds in whole or in
part by a distribution in kind of readily marketable
securities.
----------------------------------------------------------
VANGUARD'S AVERAGE
COST STATEMENT If you make a redemption from a qualifying account,
Vanguard will send you an Average Cost Statement which
provides you with the tax basis of the shares you
redeemed. Please see "Statements and Reports" for
additional information.
----------------------------------------------------------
LOW BALANCE FEE AND
MINIMUM ACCOUNT
BALANCE REQUIREMENT Due to the relatively high cost of maintaining smaller
accounts, the Portfolio will automatically deduct a $10
annual fee from non-retirement accounts with balances
falling below $2,500 ($1,000 for Uniform Gifts/Transfers
to Minors Act accounts). This fee deduction will occur
mid-year, beginning in 1996. The fee generally will be
waived for investors whose aggregate Vanguard assets
exceed $50,000. In addition, the Portfolio reserves the
right to liquidate any non-retirement account that is
below the minimum initial investment amount of $3,000. If
at any time the total investment does not have a value of
at least $3,000, you may be notified that the value of
your account is below the Portfolio's minimum account
balance requirement. You would then be allowed 60 days to
make an additional investment before the account is
liquidated. Proceeds would be promptly paid to the
registered shareholder.
Vanguard will not liquidate your account if it has fallen
below $3,000 solely as a result of declining markets
(i.e., a decline in a Portfolio's net asset value).
- --------------------------------------------------------------------------------
EXCHANGING YOUR
SHARES Should your investment goals change, you may exchange your
shares of Vanguard U.S. Growth Portfolio for those of
other available Vanguard Funds.
In addition to the details below, please see "Important
Information About Telephone Transactions."
EXCHANGING BY
TELEPHONE
Call Client Services
(1-800-662-2739) When exchanging shares by telephone, please have ready the
Portfolio name, account number, Social Security number or
Employer Identification number listed on the account, and
the exact name and address in which the account is
registered. Only the registered shareowner may complete
such an exchange. Requests for telephone exchanges
received prior to the close of regular trading on the New
York Stock Exchange (generally 4:00 p.m. Eastern time) are
processed at the close of business that same day. Requests
received after the close of the Exchange are processed the
next business day. Telephone exchanges are not accepted
into or from VANGUARD BALANCED INDEX FUND, VANGUARD INDEX
TRUST, VANGUARD INTERNATIONAL EQUITY INDEX FUND, AND
VANGUARD QUANTITATIVE PORTFOLIOS. If you experience
18
<PAGE> 21
difficulty in making a telephone exchange, your exchange
request may be made by regular or express mail, and it
will be implemented at the closing net asset value on the
date received by Vanguard provided the request is received
in Good Order.
Neither the Portfolio nor Vanguard is responsible for the
authenticity of exchange instructions received by
telephone. Investors bear the full risk of any loss
arising from unauthorized telephone exchanges. To prohibit
telephone exchanges on your account, please notify the
Portfolio in writing. Otherwise, the telephone exchange
privilege will be automatically established for your
account.
----------------------------------------------------------
EXCHANGING BY MAIL Please be sure to include on your exchange request the
name and account number of your current Portfolio, the
name of the Fund you wish to exchange into, the amount you
wish to exchange, and the signatures of all registered
account holders. Send your request to VANGUARD FINANCIAL
CENTER, VANGUARD U.S. GROWTH PORTFOLIO, P.O. BOX 1120,
VALLEY FORGE, PA 19482. (For express or registered mail,
send your request to Vanguard Financial Center, Vanguard
U.S. Growth Portfolio, 455 Devon Park Drive, Wayne, PA
19087.)
----------------------------------------------------------
IMPORTANT EXCHANGE
INFORMATION Before you make an exchange, you should consider the
following:
- Please read the Portfolio's prospectus before making an
exchange. For a copy and for answers to any questions
you may have, call our Investor Information Department
(1-800-662-7447).
- An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on
the transaction.
- Exchanges are accepted only if the registrations and
the Taxpayer Identification numbers of the two accounts
are identical.
- The shares to be exchanged must be on deposit and not
held in certificate form.
- New accounts are not currently accepted in
Vanguard/Windsor Fund or Vanguard/PRIMECAP Fund.
- The redemption price of shares redeemed by exchange is
the net asset value next determined after Vanguard has
received the required documentation in Good Order.
- When opening a new account by exchange, you must meet
the minimum investment requirement of the new Fund.
Every effort will be made to maintain the exchange
privilege. However, the Portfolio reserves the right to
revise or terminate its provisions, limit the amount of or
reject any exchange, as deemed necessary, at any time.
The exchange privilege is only available in states in
which the shares of the Portfolio are registered for sale.
The Portfolio's shares are currently registered for sale
in all 50 states and the Portfolio intends to maintain
such registration.
- --------------------------------------------------------------------------------
19
<PAGE> 22
EXCHANGE
PRIVILEGE
LIMITATIONS The Portfolio's exchange privilege is not intended to
afford shareholders a way to speculate on short-term
movements in the market. Accordingly, in order to prevent
excessive use of the exchange privilege that may
potentially disrupt the management of the Portfolio and
increase transactions costs, the Portfolio has established
a policy of limiting excessive exchange activity.
Exchange activity generally will not be deemed excessive
if limited to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT
LEAST 30 DAYS APART) from the Portfolio during any
twelve-month period. Notwithstanding these limitations,
the Portfolio reserves the right to reject any purchase
request (including exchange purchases from other Vanguard
portfolios) that is reasonably deemed to be disruptive to
efficient portfolio management.
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION ABOUT
TELEPHONE
TRANSACTIONS The ability to initiate redemptions (except wire
redemptions) and exchanges by telephone is automatically
established on your account unless you request in writing
that telephone transactions on your account not be
permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions,
Vanguard adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio;
(ii) the 10-digit account number; (iii) the exact name
and address used in the registration; and (iv) the
Social Security or Employer Identification number
listed on the account.
2. PAYMENT POLICY. The proceeds of any telephone
redemption made by mail will be made payable to the
registered shareowner and mailed to the address of
record, only.
Neither the Portfolio nor Vanguard will be responsible for
the authenticity of transaction instructions received by
telephone, provided that reasonable security procedures
have been followed. Vanguard believes that the security
procedures described above are reasonable and that if such
procedures are followed, you will bear the risk of any
losses resulting from unauthorized or fraudulent telephone
transactions on your account. If Vanguard fails to follow
reasonable security procedures, it may be liable for any
losses resulting from unauthorized or fraudulent telephone
transactions on your account.
- --------------------------------------------------------------------------------
TRANSFERRING
REGISTRATION You may transfer the registration of any of your Portfolio
shares to another person by completing a transfer form and
sending it to: VANGUARD FINANCIAL CENTER, P.O. BOX 1110,
VALLEY FORGE, PA 19482. The request must be in Good Order.
Before mailing your request, please call our Client
Services Department (1-800-662-2739) for full
instructions.
- --------------------------------------------------------------------------------
STATEMENTS
AND REPORTS Vanguard will send you a confirmation statement each time
you initiate a transaction in your account (except for
checkwriting redemptions from Vanguard money market
accounts). You will also receive a comprehensive account
statement at the end of each calendar quarter. The
fourth-quarter statement will be a year-end statement,
listing all transaction activity for the entire calendar
year.
20
<PAGE> 23
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using
the average cost single category method. This service is
available for most taxable accounts opened since January
1, 1986. In general, investors who redeemed shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement along with their Portfolio Summary
Statement. Please call our Client Services Department
(1-800-662-2739) for information.
Financial reports on the Fund will be mailed to you
semi-annually, according to the Fund's fiscal year-end.
- --------------------------------------------------------------------------------
OTHER VANGUARD
SERVICES For more information about any of these services, please
call our Investor Information Department at
1-800-662-7447.
VANGUARD
DIRECT DEPOSIT
SERVICE With Vanguard's Direct Deposit Service, most U.S.
Government checks (including Social Security and military
pension checks) and private payroll checks may be
automatically deposited into your Vanguard Fund account.
Separate brochures and forms are available for direct
deposit of U.S. Government and private payroll checks.
VANGUARD AUTOMATIC
EXCHANGE SERVICE Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan. Please
contact our Client Services Department at 1-800-662-2739
for additional information.
VANGUARD
FUND EXPRESS Vanguard's Fund Express allows you to transfer money
between your Fund account and your account at a bank,
savings and loan association, or a credit union that is a
member of the Automated Clearing House (ACH) system. You
may elect this service on the Account Registration Form or
call our Investor Information Department (1-800-662-7447)
for a Fund Express application.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition,
some services of Fund Express cannot be used with specific
Vanguard Funds. For more information, please refer to the
Vanguard Fund Express brochure.
VANGUARD DIVIDEND
EXPRESS Vanguard's Dividend Express allows you to transfer your
dividends and/or capital gains distributions
automatically from your Fund account, one business day
after the Fund's payable date, to your account at any
bank, savings and loan association, or a credit union
that is a member of the Automated Clearing House (ACH)
system. You may elect this service on the Account
Registration Form or call our Investor Information
Department (1-800-662-7447) for a Vanguard Dividend
Express application.
21
<PAGE> 24
VANGUARD
TELE-ACCOUNT Vanguard's Tele-Account is a convenient, automated service
that provides share price, price change and yield
quotations on Vanguard Funds through any TouchTone (TM)
telephone. This service also lets you obtain information
about your account balance, your last transaction, and
your most recent dividend or capital gains payment. To
contact our Tele-Account service, dial 1-800-ON-BOARD
(1-800-662-6273). A brochure offering detailed operating
instructions is available from our Investor Information
Department (1-800-662-7447).
- --------------------------------------------------------------------------------
22
<PAGE> 25
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 26
[VANGUARD U.S. GROWTH PORTFOLIO LOGO]
-----------------------------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT FOR
24-HOUR ACCESS:
1-800-662-2739 (ON-BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
[FLAG LOGO]
[VANGUARD U.S. GROWTH PORTFOLIO LOGO]
P R O S P E C T U S
DECEMBER 29, 1995
[VANGUARD GROUP LOGO]
PO23
- --------------------------------------------------------------------------------
<PAGE> 27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[VANGUARD U.S. GROWTH PORTFOLIO LOGO]
A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- DECEMBER 29, 1995
- --------------------------------------------------------------------------------
FUND INFORMATION: PARTICIPANT SERVICES DEPARTMENT -- 1-800-523-1188
- --------------------------------------------------------------------------------
INVESTMENT Vanguard U.S. Growth Portfolio (the "Portfolio") is an
OBJECTIVE AND independent series of Vanguard World Fund, Inc. (the
POLICIES "Fund"), an open-end diversified investment company. The
Portfolio seeks to provide long-term capital appreciation.
Dividend income is expected to be incidental to this
objective. The Fund is currently offering shares of two
Portfolios. This prospectus relates to Vanguard U.S.
Growth Portfolio only. There is no assurance that the
Portfolio will achieve its stated objective. Shares of the
Fund are neither insured nor guaranteed by any agency of
the U.S. Government, including the FDIC.
- --------------------------------------------------------------------------------
IMPORTANT NOTE This Prospectus is intended exclusively for participants
in employer-sponsored retirement or savings plans, such as
tax-qualified pension and profit-sharing plans and 401(k)
thrift plans, as well as 403(b)7 custodial accounts for
non-profit educational and charitable organizations.
Another version of this Prospectus, containing information
on how to open a personal investment account with the
Portfolio, is available for individual investors. To
obtain a copy of that version of the Prospectus, please
call 1-800-662-7447.
- --------------------------------------------------------------------------------
OPENING AN The Portfolio is an investment option under a retirement
ACCOUNT or savings program sponsored by your employer. The
administrator of your retirement plan or your employee
benefits office can provide you with detailed information
on how to participate in your plan and how to elect the
Portfolio as an investment option. If you have any
questions about the Portfolio please contact Participant
Services at 1-800-523-1188. If you have any questions
about your plan account, contact your plan administrator
or the organization that provides recordkeeping services
for your plan.
- --------------------------------------------------------------------------------
ABOUT THIS This Prospectus is designed to set forth concisely the
PROSPECTUS information you should know about the Portfolio before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Portfolio has been filed
with the Securities and Exchange Commission. This
Statement is dated December 29, 1994, and has been
incorporated by reference into this Prospectus. A copy may
be obtained without charge by writing to the Portfolio or
by calling our Participant Services Department.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page Page
<S> <C> <C>
Portfolio Expenses ................ 2 Who Should Invest ................. 5 Dividends, Capital Gains
Financial Highlights ............. 2 Implementation of Policies ........ 6 and Taxes ...................... 10
Yield and Total Return ........... 4 Investment Limitations ............ 7 The Share Price of The
Investment Objective .............. 4 Management of the Portfolio ....... 8 Portfolio ...................... 10
Investment Policies ............... 4 Investment Adviser ................ 8 General Information ............ 11
Investment Risks .................. 5 Performance Record ................ 9 Service Guide .................. 12
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 28
PORTFOLIO The following table illustrates ALL expenses and fees that
EXPENSES you would incur as a shareholder of the Portfolio. The
expenses and fees set forth in the table are for the 1995
fiscal year.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
-----------------------------------------------------------------------------------
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES
-----------------------------------------------------------------------------------
Management & Administrative Expenses................................... 0.25%
Investment Advisory Fees............................................... 0.19
12b-1 Fees............................................................. None
Other Expenses
Distribution Costs............................................ 0.02%
Miscellaneous Expenses........................................ 0.01
----
Total Other Expenses................................................... 0.03
------
TOTAL OPERATING EXPENSES...................................... 0.47%
======
</TABLE>
The purpose of this table is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in the
Fund.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above,
the Fund charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ 3 YEARS ------- --------
-------
<S> <C> <C> <C>
$ 5 $ 15 $ 26 $ 59
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL The following financial highlights for a share outstanding
HIGHLIGHTS through each period, insofar as they relate to each of the
five years in the period ended August 31, 1995, have been
audited by Price Waterhouse LLP, independent accountants,
whose report thereon was unqualified. This information
should be read in conjunction with the Fund's financial
statements and notes thereto, which, together with the
remaining portions of the Fund's 1995 Annual Report to
Shareholders, are incorporated by reference in the
Statement of Additional Information and this Prospectus,
and which appear, along with the report of Price
Waterhouse LLP, in the Fund's 1995 Annual Report to
Shareholders. For a more complete discussion of the Fund's
performance, please see the Fund's 1995 Annual Report to
Shareholders, which may be obtained without charge by
writing to the Fund or by calling Participant Services at
1-800-523-1188.
2
<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, OCT. 1,
1985 TO
-------------------------------------------------------------------------- AUG. 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD.... $15.52 $14.71 $14.71 $13.69 $10.38 $10.01 $7.17 $12.74 $13.21 $9.94
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
INVESTMENT OPERATIONS
Net Investment
Income............... .25 .20 .21 .19 .20 .14 .11 .10 .30 .24
Net Realized and
Unrealized Gain
(Loss) on
Investments.......... 3.24 .82 .05 1.02 3.30 .36 2.79 (2.10) 1.45 3.03
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
TOTAL FROM INVESTMENT
OPERATIONS......... 3.49 1.02 .26 1.21 3.50 .50 2.90 (2.00) 1.75 3.27
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income.... (.18) (.21) (.18) (.19) (.19) (.13) (.06) (.31) (.28) --
Distributions from
Realized Capital
Gains................ -- -- (.08) -- -- -- -- (3.26) (1.94) --
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
TOTAL
DISTRIBUTIONS...... (.18) (.21) (.26) (.19) (.19) (.13) (.06) (3.57) (2.22) --
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $18.83 $15.52 $14.71 $14.71 $13.69 $10.38 $10.01 $7.17 $12.74 $13.21
=============================================================================================================================
TOTAL RETURN............. 22.75% 6.98% 1.69% 8.83% 34.28% 5.03% 40.72% (21.62)% 17.81% 32.90%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(Millions)............. $2,989 $1,963 $1,954 $1,441 $747 $339 $184 $130 $184 $188
Ratio of Expenses to
Average Net Assets..... .47%+ .52% .49% .49% .56% .74% .95% .88% .65% .80%*
Ratio of Net Investment
Income to
Average Net Assets..... 1.59% 1.30% 1.50% 1.52% 1.82% 1.77% 1.44% 1.23% 2.41% 2.27%*
Portfolio Turnover
Rate................... 32% 47% 37% 24% 30% 49% 48% 38% 142% 77%
</TABLE>
* Annualized.
+ Effective in fiscal 1995, does not include expense reductions from directed
brokerage arrangements. The Ratio of Net Expenses to Average Net Assets is
.44%.
<TABLE>
<CAPTION>
IVEST FUND+
---------------
SEPT. 1 TO 30,
1985
------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................................. $18.15
---------
INVESTMENT OPERATIONS
Net Investment Income.............................................................................. .04
Net Realized and Unrealized Gain (Loss) on Investments............................................. (.23)
---------
TOTAL FROM INVESTMENT OPERATIONS................................................................. (.19)
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income............................................................... (.35)
Distributions from Realized Capital Gains.......................................................... (1.48)
---------
TOTAL DISTRIBUTIONS.............................................................................. (1.83)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF PERIOD........................................................................ $16.13
========================================================================================================================
TOTAL RETURN......................................................................................... (1.05)%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions)................................................................. $201
Ratio of Expenses to Average Net Assets.............................................................. .76%*
Ratio of Net Investment Income to Average Net Assets................................................. 2.97%*
Portfolio Turnover Rate.............................................................................. 30%
</TABLE>
* Annualized.
+ Prior to October 1, 1985, the Fund consisted of one portfolio and was known as
Ivest Fund.
- --------------------------------------------------------------------------------
3
<PAGE> 30
YIELD AND TOTAL From time to time the Portfolio may advertise its yield
RETURN and total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Portfolio refers to the average annual compounded rates of
return over one-, five- and ten-year periods or for the
life of the Portfolio (as stated in the advertisement)
that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all
dividend and capital gains distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of the Portfolio is calculated by dividing net
investment income per share earned during a 30-day period
by the net asset value per share on the last day of the
period. Net investment income includes interest and
dividend income earned on the Portfolio's securities and
is net of all expenses and all recurring and nonrecurring
charges that have been applied to all shareholder
accounts. The yield calculation assumes that net
investment income earned over 30 days is compounded
monthly for six months and then annualized. Methods used
to calculate advertised yields are standardized for all
stock and bond mutual funds. However, these methods differ
from the accounting methods used by the Portfolio to
maintain its books and records, and so the advertised
30-day yield may not fully reflect the income paid to your
own account.
- --------------------------------------------------------------------------------
INVESTMENT The Portfolio invests primarily in equity securities of
OBJECTIVE companies based in the United States. The objective of the
Portfolio is to provide long-term capital appreciation.
THE PORTFOLIO SEEKS Dividend income is expected to be incidental to this
TO PROVIDE LONG-TERM objective. There is no assurance that the Portfolio will
CAPITAL GROWTH achieve its objective.
The investment objective of the Portfolio is fundamental,
and so cannot be changed without the approval of a
majority of its shareholders.
- --------------------------------------------------------------------------------
INVESTMENT The Portfolio invests primarily in equity securities of
POLICIES seasoned U.S. companies with above-average prospects for
growth. In selecting securities for the Portfolio, Lincoln
THE PORTFOLIO Capital Management, adviser to the Portfolio, emphasizes
EMPHASIZES U.S. common stocks of high-quality, established-growth
STOCKS WITH ABOVE- companies. Such companies tend to have exceptional growth
AVERAGE GROWTH records, strong market positions, reasonable financial
POTENTIAL strength, and relatively low sensitivity to changing
economic conditions. The adviser seeks to identify common
stocks that sell at attractive valuations and companies
that have the best prospects for continued above-average
growth. The Portfolio is managed without regard to tax
ramifications.
Besides investing in equity securities, the Portfolio may
utilize stock index futures contracts and options to a
limited extent. In addition, although the Portfolio will
normally remain fully invested in equity securities, it
may temporarily invest in certain short-term fixed income
securities. See "Implementation of Policies" for a
description of these and other investment practices of the
Portfolio.
The Portfolio is responsible for voting the shares of all
securities it holds.
4
<PAGE> 31
The investment policies described above are not
fundamental policies and therefore may be changed by the
Board of Directors without shareholder approval. However,
shareholders would be notified prior to any material
change in the Portfolio policies.
- --------------------------------------------------------------------------------
INVESTMENT RISKS As a mutual fund investing in equity securities, the
Portfolio is subject to market risk -- i.e., the
THE PORTFOLIO IS possibility that stock prices in general will decline over
SUBJECT TO STOCK short or even extended periods. Stock markets tend to be
MARKET RISK cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
To illustrate the volatility of domestic stock prices, the
following table sets forth the extremes for U.S. stock
market returns as well as the average return for the
period from 1926 to 1994, as measured by the Standard &
Poor's 500 Composite Stock Price Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL U.S. STOCK MARKET RETURNS (1926-1994)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +53.9 +23.9 +20.1 +16.9
Worst -43.3 -12.5 - 0.9 + 3.1
Average +12.2 +10.2 +10.6 +10.7
</TABLE>
As shown, stocks have provided an average annual total
return (capital appreciation plus dividend income) for 10
years, of +10.6%. Average return may not be useful for
forecasting future returns in any particular period, as
stock returns are quite volatile from year-to-year.
This table on U.S. stock market returns should not be
viewed as a representation of future returns from the U.S.
stock market or the Portfolio. The illustrated returns
represent the historical performance of an unmanaged
portfolio of securities (before subtracting portfolio
transaction costs and other expenses of an investment
portfolio), which may be a poor guide to future returns.
In addition, the Portfolio is likely to differ in terms of
portfolio composition from this particular index, and so
the performance of the Portfolio should not be expected to
mirror the return provided by such an index.
THE PORTFOLIO IS The investment adviser manages the Portfolio according to
SUBJECT TO MANAGER the traditional methods of "active" investment management,
RISK which involve the buying and selling of securities based
upon economic, financial and market analysis and
investment judgment. Manager risk refers to the
possibility that the Portfolio's investment adviser may
fail to effectively execute the Portfolio's investment
strategy. As a result, the Portfolio may fail to achieve
its stated objective.
- --------------------------------------------------------------------------------
WHO SHOULD The U.S. Growth Portfolio is intended for investors who
INVEST are seeking long-term capital appreciation, and who do not
need to earn current income from their investment in the
LONG-TERM INVESTORS Portfolio. Because of the risks associated with common
SEEKING CAPITAL stock investments, the Portfolio is intended to be a
APPRECIATION long-term investment vehicle and is not designed to
provide investors with a means of speculating on
short-term stock market movements. Investors should be
able to tolerate sudden, sometimes
5
<PAGE> 32
substantial fluctuations in the value of their investment.
Investors who engage in excessive account activity
generate additional costs which are borne by all the
Portfolio's shareholders. In order to minimize such costs,
the Portfolio has adopted the following policies. The
Portfolio reserves the right to reject any purchase
request (including exchange purchases from other Vanguard
portfolios) that is reasonably deemed to be disruptive to
efficient portfolio management, either because of the
timing of the investment or previous excessive trading by
the investor. Additionally, the Portfolio reserves the
right to suspend the offering of its shares.
Because of these risks, the Portfolio should not be
considered a complete investment program. Most investors
should maintain diversified holdings of securities with
different risk characteristics -- including common stocks,
bonds and money market instruments. Investors may wish to
purchase shares on a regular, periodic basis (dollar-cost
averaging), rather than investing in one lump sum in order
to reduce the risk of investing all their monies in common
stocks at a particularly unfavorable time. Investors may
also wish to complement an investment in the Portfolio
with other types of common stock investments.
- --------------------------------------------------------------------------------
IMPLEMENTATION In addition to investing in growth-oriented common stocks,
OF POLICIES the Portfolio follows a number of additional investment
practices to achieve its objective.
THE PORTFOLIO MAY Although the Portfolio normally seeks to remain fully
INVEST IN SHORT-TERM invested in equity securities, the Portfolio may invest in
FIXED INCOME certain short-term fixed income securities for temporary
SECURITIES defensive purposes. Such securities may be used to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or to take a temporary defensive
position against potential stock market declines. These
securities include: obligations of the United States
Government and its agencies or instrumentalities;
commercial paper, bank certificates of deposit, and
bankers' acceptances; and repurchase agreements
collateralized by these securities.
THE PORTFOLIO MAY The Portfolio may lend its investment securities to
LEND ITS SECURITIES qualified institutional investors for either short-term or
long-term purposes of realizing additional net investment
income. Loans of securities by the Portfolio will be
collateralized by cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The collateral will equal
at least 100% of the current market value of the loaned
securities.
PORTFOLIO TURNOVER IS Although it generally seeks to invest for the long term,
NOT EXPECTED TO the Portfolio retains the right to sell securities
EXCEED 100% irrespective of how long they have been held. It is
anticipated that the annual portfolio turnover rate of the
Portfolio will not exceed 100%. A turnover rate of 100%
would occur, for example, if all of the securities of the
Portfolio were replaced within a one-year period.
DERIVATIVE Derivatives are instruments whose values are linked to or
INVESTING derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
6
<PAGE> 33
THE PORTFOLIO MAY The Portfolio may invest in futures contracts and options,
INVEST IN DERIVATIVE but only to a limited extent. Specifically, a Portfolio of
SECURITIES the Fund may enter into futures contracts provided that
not more than 5% of its assets are required as a futures
contract deposit; in addition, a Portfolio may enter into
futures contracts and options transactions only to the
extent that obligations under such contracts or
transactions represent not more than 20% of the
Portfolio's assets.
Futures contracts and options may be used for several
common fund management strategies; to maintain cash
reserves while simulating full investment, to facilitate
trading, to reduce transaction costs, or to seek higher
investment returns when a specific futures contract is
priced more attractively than other futures contracts or
the underlying security or index.
FUTURES AND OPTIONS The primary risks associated with the use of futures
POSE CERTAIN RISKS contracts and options are: (i) imperfect correlation
between the change in market value of the stocks held by
the Portfolio and the prices of futures and options; and
(ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of
imperfect correlation will be minimized by investing only
in those contracts whose behavior is expected to resemble
that of the Portfolio's underlying securities. The risk
that the Portfolio will be unable to close out a futures
position will be minimized by entering into such
transactions on a national exchange with an active and
liquid secondary market.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of
leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may
result in immediate and substantial loss (or gain) to the
Portfolio. When investing in futures contracts, the
Portfolio will segregate cash or cash equivalents in the
amount of the underlying obligation.
- --------------------------------------------------------------------------------
INVESTMENT The Portfolio has adopted certain limitations on its
LIMITATIONS investment practices. Specifically, the Portfolio will
not:
THE PORTFOLIO HAS (a) with respect to 75% of its assets, invest more than 5%
ADOPTED CERTAIN of its assets in the securities of any single company,
FUNDAMENTAL excluding obligations of the U.S. Government;
LIMITATIONS
(b) with respect to 75% of its assets, purchase more than
10% of the outstanding voting securities of any
issuer;
(c) invest more than 5% of its assets in the securities of
companies that have a continuous operating history of
less than three years;
(d) invest more than 25% of its assets in any one
industry;
(e) borrow money, except from a bank and only for
temporary or emergency purposes to facilitate the
meeting of redemption requests (not for leverage); and
(f) pledge, mortgage or hypothecate assets to an extent
greater than 15% of the value of its gross assets.
7
<PAGE> 34
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information are fundamental and so may be changed only
with the approval of a majority of the Portfolio's
shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT OF The Fund is a member of The Vanguard Group of Investment
THE PORTFOLIO Companies, a family of more than 30 investment companies
with more than 90 distinct investment portfolios and total
VANGUARD ADMINISTERS assets in excess of $170 billion. Through their
AND DISTRIBUTES jointly-owned subsidiary, The Vanguard Group, Inc.
THE PORTFOLIO ("Vanguard"), the Fund and the other funds in the Group
obtain at cost virtually all of their corporate
management, administrative and distribution services.
Vanguard also provides investment advisory services on an
at-cost basis to certain Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most
competing mutual funds. In 1994, the average expense ratio
(annual costs including advisory fees divided by average
total net assets) for the Vanguard funds amounted to
approximately .30%, compared to an average of 1.05% for
the mutual fund industry (data provided by Lipper
Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's total expenses, which
are allocated among the funds under methods approved by
the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing, and custodian fees.
Vanguard provides distribution and marketing services to
the funds. The funds are available on a no-load basis,
(i.e., there are no sales commissions or 12b-1 fees).
However, each fund bears its allocated share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
INVESTMENT Lincoln Capital Management Company ("Lincoln"), 200 South
ADVISER Wacker Drive, Chicago, IL 60606, serves as the adviser to
the Portfolio. Lincoln is responsible for the investment
LINCOLN CAPITAL management of the assets in the Portfolio and discharges
SERVES AS ADVISER its responsibilities subject to the control of the
TO THE PORTFOLIO Officers and Directors of the Portfolio.
Lincoln, an investment advisory firm founded in 1967,
currently provides investment counseling services to a
limited number of clients, most of which are institutional
clients, such as pension funds. Currently, Lincoln holds
discretionary management authority with respect to
approximately $33 billion in assets.
Lincoln employs a team of investment professionals who
participate in investment strategy formulation and issue
selection. Client equity portfolios are similar in terms
of their stock composition. The individuals responsible
for overseeing
8
<PAGE> 35
the implementation of Lincoln's strategy for the U.S.
Growth Portfolio, who have served in this capacity since
Lincoln became the Portfolio's adviser in August 1987, are
J. Parker Hall III, President of Lincoln, and David M.
Fowler, Vice President of Lincoln.
The Portfolio pays Lincoln an advisory fee calculated by
applying varying percentage rates to the average month-end
net assets of the Portfolio. The maximum rate is .40% on
the first $25 million of net assets. The rate decreases to
.35% on the next $125 million of net assets, to .25% on
the next $350 million of net assets to .20% on the next
$500 million of net assets, .15% on the next $1.5 billion
of assets and .10% on assets in excess of $2.5 billion.
The agreement does not provide for an incentive
fee/penalty based on performance. For the year ended
August 31, 1995, the investment advisory fee paid to
Lincoln represented an effective annual rate of .19 of 1%
of the Portfolio's average net assets.
The investment advisory agreement with Lincoln authorizes
the adviser to select brokers or dealers to execute
purchases and sales of the Portfolio's securities, and
directs the adviser to use its best efforts to obtain the
best available price and most favorable execution with
respect to all transactions.
The Portfolio has authorized Lincoln to pay higher
commissions in recognition of brokerage services felt
necessary for the achievement of better execution,
provided Lincoln believes this to be in the best interest
of the Portfolio. Although the Portfolio does not market
its shares through intermediary brokers or dealers, the
Portfolio may place orders for the Portfolio with
qualified broker-dealers who recommend the Portfolio to
clients if the Officers of the Fund believe that the
quality of the transaction and the commission are
comparable to what they would be with other qualified
brokerage firms.
The Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days, prior written notice to
shareholders of the Portfolio which shall include
substantially the information concerning the adviser that
would have normally been included in a proxy statement.
- --------------------------------------------------------------------------------
PERFORMANCE The table below shows the investment results for the
RECORD Portfolio for several periods throughout the Portfolio's
lifetime, both as Ivest Fund and as Vanguard U.S. Growth
Portfolio. The results shown represent "total return"
investment performance, which assumes the reinvestment of
all capital gains and income dividends for the indicated
periods. Also included is comparative information with
respect to the unmanaged Standard & Poor's 500 Composite
Stock Price Index, a widely-used barometer of stock market
activity; and the Consumer Price Index, a statistical
measurement of changes in the prices of goods and
services. The table does not
9
<PAGE> 36
make any allowance for federal, state or local income
taxes which shareholders may pay on a current basis.
The results should not be considered a representation of
the total return from an investment made in the Portfolio
today. The periods shown were generally favorable ones for
stock market investing. This information is provided to
help you better understand the Portfolio and may not
provide a basis for comparison with other investments or
mutual funds which use a different method to calculate
performance. In weighing these performance figures, you
should note that the Portfolio was managed by a different
adviser through August 31, 1987.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------
VANGUARD CONSUMER
PERIODS U.S. GROWTH S&P 500 PRICE
ENDED 8/31/95 PORTFOLIO INDEX INDEX
------------- ----------- ------- ---------
<S> <C> <C> <C>
1 Year 22.8% 21.4% 2.6%
3 Years 10.1 13.8 2.8
5 Years 14.3 15.1 3.1
10 Years 12.9 15.1 3.5
20 Years 13.8 14.3 5.3
Lifetime* 12.8 10.5 4.5
* January 6, 1959 to August 31, 1995.
</TABLE>
- --------------------------------------------------------------------------------
DIVIDENDS, CAPITAL The Portfolio expects to pay annual dividends. Net capital
GAINS AND TAXES gains, if any, will also be distributed annually. Dividend
and capital gains distributions may be automatically
THE PORTFOLIO PAYS reinvested in additional shares. The Portfolio intends to
DIVIDENDS AND ANY continue to qualify for taxation as a "regulated
CAPITAL GAINS investment company" under the Internal Revenue Code so
ANNUALLY that it will not be subject to federal income tax to the
extent its income is distributed to shareholders.
If you utilize the Portfolio as an investment option in an
employer-sponsored retirement savings plan, dividend and
capital gains distributions from the Portfolio ordinarily
will not be subject to current taxation, but will
accumulate on a tax-deferred basis. In general,
employer-sponsored retirement and savings plans are
governed by complex tax rules. If you participate in such
a plan, consult your plan administrator, your plan's
Summary Plan Description, or a professional tax adviser
regarding the tax consequences of your participation in
the plan and of any plan contributions or withdrawals.
- --------------------------------------------------------------------------------
THE SHARE PRICE OF The Portfolio's share price or "net asset value" is
THE PORTFOLIO calculated each business day after the close of regular
trading (generally 4:00 p.m. Eastern time) of the New York
Stock Exchange. Net asset value per share is computed by
adding up the total value of the Portfolio's investments
and other assets, subtracting any of its liabilities, or
debts, and then dividing by the number of outstanding
shares of the Portfolio.
Securities listed on a U.S. exchange are valued at the
latest quoted sale price on the day the valuation is made.
Securities listed on a U.S. exchange not traded on the
valuation date are valued at the mean of the bid and ask
prices. If events which
10
<PAGE> 37
materially affect the value of a Portfolio's investments
occur after the close of the securities markets on which
such securities are primarily traded, those investments
will be priced at "fair value". All prices of listed
securities are taken from the exchange where the security
is primarily traded. Securities regularly traded in the
over-the-counter market for which market quotations are
readily available will be valued at the latest quoted bid
price. Securities may be valued on the basis of prices
provided by a pricing service when such prices are
believed to reflect the fair market value of such
securities. Other assets and securities for which no
quotations are readily available will be valued in a
manner determined in good faith by the Board of Directors.
The Portfolio's share price can be found daily in the
mutual fund listings of most major newspapers under the
heading of The Vanguard Group.
- --------------------------------------------------------------------------------
GENERAL The Fund was organized as Ivest Fund, a Massachusetts
INFORMATION Corporation, in 1959. The Fund is now a Maryland
Corporation. The Fund is authorized to issue 550,000,000
shares with a par value of $1.00 per share. Currently, the
Fund is offering shares of two Portfolios with 250,000,000
shares allocated to the U.S. Growth Portfolio and
300,000,000 shares allocated to the International Growth
Portfolio.
The shares of each Portfolio of the Fund are fully paid
and non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, meaning that the
holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if
they so choose.
The Fund will not hold annual meetings of shareholders
except as required by the Investment Company Act of 1940
and other applicable law. The Directors of the Fund will
call a meeting of shareholders for the purpose of voting
upon the question of removal of a Director or Directors if
such a meeting is requested in writing by the holders of
not less than 10% of the outstanding shares of the Fund.
All securities and cash of the Portfolio are held by State
Street Bank and Trust Company, Boston, MA. The Vanguard
Group, Inc., Valley Forge, PA, serves as the Portfolio's
Transfer and Dividend Disbursing Agent. Price Waterhouse
LLP, serves as independent accountants for the Portfolio
and will audit its financial statements annually. The
Portfolio is not involved in any litigation.
- --------------------------------------------------------------------------------
11
<PAGE> 38
SERVICE GUIDE
PARTICIPATING The Portfolio is available as an investment option in your
IN YOUR PLAN retirement or savings plan. The administrator of your plan
or your employee benefits office can provide you with
detailed information on how to participate in your plan
and how to elect the Portfolio as an investment option.
If you have any questions about the Portfolio, including
the Portfolio's investment objective, policies, risk
characteristics or historical performance, please contact
Participant Services at 1-800-523-1188.
If you have questions about your account, contact your
plan administrator or the organization which provides
recordkeeping services for your plan.
----------------------------------------------------------
INVESTMENT OPTIONS You may be permitted to elect different investment
AND ALLOCATIONS options, alter the amounts contributed to your plan, or
change how contributions are allocated among your
investment options in accordance with your plan's specific
provisions. See your plan administrator or employee
benefits office for more details.
----------------------------------------------------------
TRANSACTIONS IN Contributions, exchanges or redemptions of the Portfolio's
FUND SHARES shares are effective when received in "good order" by
Vanguard. "Good order" means that complete information on
the contribution, exchange or redemption and the
appropriate monies have been received by Vanguard.
----------------------------------------------------------
MAKING EXCHANGES Your plan may allow you to exchange monies from one
investment option to another. However, the Fund reserves
the right to refuse any exchange purchase request. Check
with your plan administrator for details on the rules
governing exchanges in your plan. Certain investment
options, particularly company stock or guaranteed
investment contracts (GICs), may be subject to unique
restrictions.
Before making an exchange, your should consider the
following:
- If you are making an exchange to another Vanguard Fund
option, please read that Fund's prospectus. Contact
Participant Services at 1-800-523-1188 for a copy.
- Exchanges are accepted by Vanguard only as permitted by
your plan. Your plan administrator can explain how
frequently exchanges are allowed.
- --------------------------------------------------------------------------------
12
<PAGE> 39
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 40
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 41
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 42
<TABLE>
<S> <C> <C>
[VANGUARD U.S. GROWTH PORTFOLIO LOGO] [FLAG LOGO]
-------------------------------------
THE VANGUARD GROUP [VANGUARD U.S. GROWTH PORTFOLIO LOGO]
OF INVESTMENT
COMPANIES INSTITUTIONAL
Vanguard Financial Center PROSPECTUS
P.O. Box 2900
Valley Forge, PA 19482 DECEMBER 29, 1995
INSTITUTIONAL PARTICIPANT
SERVICES DEPARTMENT:
1-800-523-1188
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
I023 LOGO
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[VANGUARD INTERNATIONAL
GROWTH PORTFOLIO LOGO]
A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- DECEMBER 29, 1995
- --------------------------------------------------------------------------------
NEW ACCOUNT INFORMATION: INVESTOR INFORMATION DEPARTMENT -- 1-800-662-7447
(SHIP)
- --------------------------------------------------------------------------------
SHAREHOLDER ACCOUNT SERVICES: CLIENT SERVICES DEPARTMENT -- 1-800-662-2739
(CREW)
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE AND
POLICIES Vanguard International Growth Portfolio (the "Portfolio")
is an independent series of Vanguard World Fund, Inc. (the
"Fund"), an open-end diversified investment company. The
Portfolio seeks to provide long-term capital appreciation.
Dividend income is expected to be incidental to this
objective. The Fund is currently offering shares of two
Portfolios. This prospectus relates to Vanguard
International Growth Portfolio only. There is no assurance
that the Portfolio will achieve its stated objective.
Shares of the Fund are neither insured nor guaranteed by
any agency of the U.S. Government, including the FDIC.
- --------------------------------------------------------------------------------
OPENING AN
ACCOUNT To open a regular (non-retirement) account, please
complete and return the Account Registration Form. If you
need assistance in completing this Form, please call our
Investor Information Department. To open an Individual
Retirement Account (IRA), please use a Vanguard IRA
Adoption Agreement. To obtain a copy of this form, call
1-800-662-7447, Monday through Friday, from 8:00 a.m. to
9:00 p.m. and Saturday from 9:00 a.m. to 4:00 p.m.
(Eastern time). The minimum initial investment is $3,000
or $1,000 for Uniform Gifts/Transfers to Minors Act
accounts. The Portfolio is offered on a no-load basis
(i.e. there are no sales commissions or 12b-1 fees).
However, the Portfolio incurs expenses for investment
advisory, management, administrative and distribution
services.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information you should know about the Portfolio before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Portfolio has been filed
with the Securities and Exchange Commission. Such
Statement is dated December 29, 1995 and has been
incorporated by reference into this Prospectus. A copy may
be obtained without charge by writing to the Portfolio or
by calling our Investor Information Department.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page Page
<S> <C> <C>
Portfolio Expenses ................ 2 Investment Limitations ............ 8 SHAREHOLDER GUIDE
Financial Highlights ............... 2 Management of the Portfolio ........ 9 Opening an Account and
Yield and Total Return ............. 4 Investment Adviser ................ 10 Purchasing Shares ............... 15
Performance Record ................ 11 When Your Account Will Be
PORTFOLIO INFORMATION Dividends, Capital Gains Credited ........................ 18
Investment Objective .............. 4 and Taxes ........................ 12 Selling Your Shares ............. 18
Investment Policies ................ 4 The Share Price of The Exchanging Your Shares ........... 21
Investment Risks .................. 5 Portfolio ........................ 13 Important Information About
Who Should Invest .................. 6 General Information ............... 14 Telephone Transactions .......... 22
Implementation of Policies ......... 7 Transferring Registration......... 23
Other Vanguard Services .......... 23
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 44
PORTFOLIO
EXPENSES The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Portfolio. The
expenses and fees set forth in the table are for the 1995
fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
---------------------------------------------------------------------------------
<S> <C> <C>
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES
---------------------------------------------------------------------------------
Management & Administrative Expenses................................... 0.32%
Investment Advisory Fees............................................... 0.16
12b-1 Fees............................................................. None
Other Expenses
Distribution Costs.......................................... 0.02%
Miscellaneous Expenses...................................... 0.09
----
Total Other Expenses................................................... 0.11
----
TOTAL OPERATING EXPENSES...................................... 0.59%
====
</TABLE>
The purpose of this table is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in the
Portfolio.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above,
the Portfolio charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$6 $19 $33 $74
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS The following financial highlights for a share outstanding
throughout each period, insofar they relate to each of the
five years in the period ended August 31, 1995, have been
audited by Price Waterhouse LLP, independent accountants,
whose report thereon was unqualified. This information
should be read in conjunction with the Fund's financial
statements and notes thereto, which, together with the
remaining portions of the Fund's 1995 Annual Report to
Shareholders, are incorporated by reference in the
Statement of Additional Information and this Prospectus,
and which appear, along with the report of Price
Waterhouse LLP, in the Fund's 1995 Annual Report to
Shareholders. For a more complete discussion of the Fund's
performance, please see the Fund's 1995 Annual Report to
Shareholders, which may be obtained without charge by
writing to the Fund or by calling our Investor Information
Department at 1-800-662-7447.
2
<PAGE> 45
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, OCT. 1,
1985 TO
------------------------------------------------------------------------------------ AUG. 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD............... $14.36 $12.02 $10.15 $10.31 $11.81 $11.61 $10.45 $14.21 $11.67 $ 6.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income... .20 .14 .12 .20 .18 .32 .13 .16 .12 .07
Net Realized and
Unrealized Gain (Loss)
on Investments........ .32 2.31 1.96 (.05) (.80) .31 2.26 (1.36) 3.29 5.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS.......... .52 2.45 2.08 .15 (.62) .63 2.39 (1.20) 3.41 5.48
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income..... (.18) (.11) (.21) (.19) (.20) (.15) (.16) (.13) (.07) --
Distributions from
Realized Capital
Gains................. -- -- -- (.12) (.68) (.28) (1.07) (2.43) (.80) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS... (.18) (.11) (.21) (.31) (.88) (.43) (1.23) (2.56) (.87) --
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD.................. $14.70 $14.36 $12.02 $10.15 $10.31 $11.81 $11.61 $10.45 $14.21 $11.67
============================================================================================================================
TOTAL RETURN.............. 3.76% 20.44% 21.06% 1.49% (5.11)% 5.25% 24.49% (9.92)% 32.01% 88.53%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(Millions).............. $3,354 $2,989 $1,477 $919 $846 $796 $550 $454 $607 $451
Ratio of Expenses to
Average Net Assets...... .59%+ .46% .59% .58% .67% .68% .64% .67% .66% .78%*
Ratio of Net Investment
Income to Average
Net Assets.............. 1.53% 1.37% 1.27% 2.04% 1.80% 3.01% 1.27% 1.39% 1.00% 1.10%*
Portfolio Turnover Rate... 31% 28% 51% 58% 49% 45% 50% 71% 77% 39%
</TABLE>
* Annualized.
+ Effective in fiscal 1995, does not include expense reductions from directed
brokerage arrangements. The Ratio of Net Expenses to Average Net Assets is
.58%.
<TABLE>
<CAPTION>
IVEST FUND+
------------
SEPT. 1 TO
30,
1985
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................................. $18.15
----------
INVESTMENT OPERATIONS
Net Investment Income.............................................................................. .04
Net Realized and Unrealized Gain (Loss) on Investments............................................. (.23)
---------
TOTAL FROM INVESTMENT OPERATIONS................................................................. (.19)
---------
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income............................................................... (.35)
Distributions from Realized Capital Gains.......................................................... (1.48)
---------
TOTAL DISTRIBUTIONS.............................................................................. (1.83)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD....................................................................... $16.13
========================================================================================================================
TOTAL RETURN......................................................................................... (1.05)%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions)................................................................. $201
Ratio of Expenses to Average Net Assets.............................................................. .76%*
Ratio of Net Investment Income to Average Net Assets................................................. 2.97%*
Portfolio Turnover Rate.............................................................................. 30%
</TABLE>
* Annualized.
+ Prior to October 1, 1985, the Fund consisted of one Portfolio and was known as
Ivest Fund.
- --------------------------------------------------------------------------------
3
<PAGE> 46
YIELD AND TOTAL
RETURN From time to time the Portfolio may advertise its yield
and total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Portfolio refers to the average annual compounded rates of
return over one-, five- and ten- year periods or for the
life of the Portfolio (as stated in the advertisement)
that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all
dividend and capital gains distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "thirty-day
yield" of the Portfolio is calculated by dividing net
investment income per share earned during a thirty-day
period by the net asset value per share on the last day of
the period. Net investment income includes interest and
dividend income earned on the Portfolio's securities and
is net of all expenses and all recurring and nonrecurring
charges that have been applied to all shareholder
accounts. The yield calculation assumes that net
investment income earned over thirty days is compounded
monthly for six months and then annualized. Methods used
to calculate advertised yields are standardized for all
stock and bond mutual funds. However, these methods differ
from the accounting methods used by the Portfolio to
maintain its books and records, and so the advertised
thirty-day yield may not fully reflect the income paid to
an investor's account.
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE
THE PORTFOLIO SEEKS
TO PROVIDE LONG-TERM
CAPITAL GROWTH The Portfolio invests primarily in equity securities of
companies based outside the United States. The objective
of the Portfolio is to provide long-term capital
appreciation. Dividend income is expected to be incidental
to this objective. There is no assurance that the
Portfolio will achieve its objective.
The investment objective of the Portfolio is fundamental,
and so cannot be changed without the approval of a
majority of the Portfolio's shareholders.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES
THE PORTFOLIO INVESTS
PRIMARILY IN COMMON
STOCKS The Portfolio invests chiefly in equity securities,
including common stocks and securities convertible into
common stocks, which offer favorable prospects for capital
growth but little current income. The Portfolio is managed
without regard to tax ramifications.
The Portfolio invests primarily in growth-oriented equity
securities of seasoned companies located outside the
United States. The Portfolio seeks to diversify its assets
among as many as thirty foreign stock markets, including
Japan, the United Kingdom, Germany, France, Switzerland,
the Netherlands, Sweden, Australia, Hong Kong and
Singapore. Schroder Capital Management International,
adviser to the Portfolio, believes that both the selection
of individual stocks and the allocation of the Portfolio's
assets across foreign stock markets are important in
managing an international equity portfolio. Within each
country, the adviser seeks to invest in securities of
companies with consistent above-average earnings prospects
whose values, as deemed by the adviser, are not yet
recognized by the stock market.
Besides investing in equity securities, the International
Growth Portfolio may also enter into forward foreign
currency exchange contracts in order to protect against
4
<PAGE> 47
fluctuations in exchange rates. See "Implementation of
Policies" for a description of such contracts.
Investing in foreign stock markets poses certain unique
risks compared with investing in U.S. stock markets. See
"Investment Risks" for a description of the risks
involved.
Besides investing in equity securities, the Portfolio may
utilize stock index futures contracts and options to a
limited extent. In addition, although the Portfolio will
normally remain fully invested in equity securities, the
Portfolio may temporarily invest in certain short-term
fixed income securities. See "Implementation of Policies"
for a description of these and other investment practices
of the Portfolio.
The Portfolio is responsible for voting the shares of all
securities it holds.
The investment policies described above are not
fundamental policies and therefore may be changed by the
Board of Directors without shareholder approval. However,
shareholders would be notified prior to any material
change in the Portfolio's policies.
- --------------------------------------------------------------------------------
INVESTMENT RISKS As a mutual fund investing in equity securities, the
Portfolio is subject to market risk -- i.e., the
THE PORTFOLIO IS possibility that stock prices in general will decline over
SUBJECT TO short or even extended periods. Stock markets tend to be
STOCK MARKET RISK cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
INTERNATIONAL STOCKS Investments in foreign stock markets can be as volatile,
MAY BE MORE VOLATILE if not more volatile, than investments in U.S. markets. To
THAN U.S. STOCKS illustrate the volatility of foreign stock market returns
for the U.S. dollar-based investor, the following table
sets forth the extremes for foreign stock market returns
as well as the average return for the period from 1969 to
1994, as measured by the Morgan Stanley Capital
International Europe, Australia, Far East (EAFE) Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL INTERNATIONAL STOCK MARKET RETURNS
(1969-1994)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +69.9% +36.5% +22.8% +16.3%
Worst -23.2 + 1.5 + 7.0 +12.0
Average +15.0 +14.1 +16.0 +15.0
</TABLE>
As shown, over the period from 1969 to 1994, international
(non-U.S.) stocks have provided an average annual total
return, for 10 years, of +16.0%. By comparison, the annual
total return, on average, for U.S. stocks during this same
period was +12.4% (as measured by the Standard & Poor's
500 Composite Stock Price Index). Note, however, that the
period from 1969 to 1994 was a favorable one for foreign
stock market investing. As a result, the figures on total
return and stock market volatility are provided here only
as a guide to potential market risk, and may not be useful
for forecasting future returns in any particular period.
The table on international stock market returns should not
be viewed as a representation of future returns from
international stock markets of the Portfolio.
5
<PAGE> 48
The illustrated returns represent the historical
performance of unmanaged portfolios of securities (before
subtracting portfolio transaction costs and other expenses
of an investment portfolio), which may be a poor guide to
future returns. In addition, the Portfolio is likely to
differ in terms of portfolio composition from the EAFE
Index, and so the performance of the Portfolio should not
be expected to mirror the return provided by the Index.
INTERNATIONAL STOCKS
ALSO EXPOSE INVESTORS
TO CURRENCY AND OTHER
RISKS For U.S. investors, the returns of foreign investments,
such as those held by the Portfolio, are influenced by not
only the returns on foreign common stocks themselves, but
also by currency risk -- i.e., changes in the value of the
currencies in which the stocks are denominated. In a
period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for a
U.S. investor may be diminished. By contrast, in a period
when the U.S. dollar generally declines, the returns on
foreign stocks may be enhanced.
Other risks and considerations of international investing
include the following: differences in accounting, auditing
and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the
smaller trading volumes and generally lower liquidity of
foreign stock markets, which may result in greater price
volatility; foreign withholding taxes payable on the
Portfolio's foreign securities, which may reduce dividend
income payable to shareholders; the possibility of
expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations; difficulty in
obtaining a judgment from a foreign court; political
instability which could affect U.S. investment in foreign
countries; and potential restrictions on the flow of
international capital.
THE PORTFOLIO IS
SUBJECT TO
MANAGER RISK The investment adviser manages the Portfolio according to
the traditional methods of "active" investment management,
which involve the buying and selling of securities based
upon economic, financial and market analysis and
investment judgment. Manager risk refers to the
possibility that the Portfolio's investment adviser may
fail to execute the Portfolio's investment strategy
effectively. As a result, the Portfolio may fail to
achieve its stated objective.
- --------------------------------------------------------------------------------
WHO SHOULD
INVEST
LONG-TERM INVESTORS
SEEKING CAPITAL
APPRECIATION The Portfolio is intended for investors who are seeking
long-term capital appreciation, and who do not need to
earn current income from their investment in the
Portfolio. Because of the risks associated with common
stock investments, the Portfolio is intended to be a
long-term investment vehicle and is not designed to
provide investors with a means of speculating on
short-term stock market movements. Investors should be
able to tolerate sudden, sometimes substantial
fluctuations in the value of their investment. Investors
in the Portfolio should be cognizant of the unique risks
of international investing, including their exposure to
currency fluctuations. Investors who engage in excessive
account activity generate additional costs which are borne
by all of the Portfolio's shareholders. In order to
minimize such costs, the Portfolio has adopted the
following policies. The Portfolio reserves the right to
reject any purchase request (including exchange purchases
from other Vanguard portfolios) that is reasonably deemed
to be disruptive to efficient portfolio management, either
because of the timing of the investment or previous
excessive trading by the investor. Additionally,
6
<PAGE> 49
the Portfolio has adopted exchange privilege limitations
as described in the section "Exchange Privilege
Limitations." Finally, the Portfolio reserves the right to
suspend the offering of its shares.
Because of the risks involved, the Portfolio should not be
considered a complete investment program. Most investors
should maintain diversified holdings of securities with
different risk characteristics -- including common stocks,
bonds and money market instruments. Investors may wish to
purchase shares on a regular, periodic basis (dollar-cost
averaging), rather than investing in one lump sum in order
to reduce the risk of investing all their monies in common
stocks at a particularly unfavorable time. Investors may
also wish to complement an investment in the Portfolio
with other types of common stock investments.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES
THE PORTFOLIO MAY
ENTER INTO FORWARD
CURRENCY CONTRACTS In addition to investing in growth-oriented common stocks,
the Portfolio follows a number of additional investment
practices to achieve its objective.
The Portfolio may enter into forward foreign currency
exchange contracts. Such contracts are used to protect the
Portfolio's securities against uncertainty in the level of
future foreign exchange rates. The Portfolio may not enter
into such contracts for speculative purposes.
A forward foreign currency exchange contract is an
obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts may
be bought or sold to protect the Portfolio to a limited
extent against adverse changes in exchange rates between
foreign currencies and the U.S. dollar. Such contracts,
which protect the value of a Portfolio's investment
securities against a decline in the value of a currency,
do not eliminate fluctuations in the underlying prices of
the securities. They simply establish an exchange rate at
a future date. Also, although such contracts tend to
minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit
any potential gain that might be realized should the value
of such currency increase.
THE PORTFOLIO MAY
INVEST IN SHORT-TERM
FIXED INCOME
SECURITIES Although the Portfolio normally seeks to remain fully
invested in equity securities, the Portfolio may invest
temporarily in certain short-term fixed income securities.
Such securities may be used to invest uncommitted cash
balances, to maintain liquidity to meet shareholder
redemptions, or to take a temporary defensive position
against potential stock market declines. These securities
include: obligations of the United States Government and
its agencies or instrumentalities; commercial paper, bank
certificates of deposit, and bankers' acceptances; and
repurchase agreements collateralized by these securities.
THE PORTFOLIO MAY
LEND ITS SECURITIES The Portfolio may lend its investment securities to
qualified institutional investors for either short-term or
long-term purposes of realizing additional net investment
income. Loans of securities by the Portfolio will be
collateralized by cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The collateral will equal
at least 100% of the current market value of the loaned
securities.
7
<PAGE> 50
PORTFOLIO TURNOVER IS
NOT EXPECTED TO
EXCEED 100% Although it generally seeks to invest for the long term,
the Portfolio retains the right to sell securities
irrespective of how long they have been held. It is
anticipated that the annual turnover rate of the Portfolio
will not exceed 100%. A turnover rate of 100% would occur,
for example, if all of the securities of the Portfolio
were replaced within a one-year period.
DERIVATIVE
INVESTING
Derivatives are instruments whose values are linked to or
derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
THE PORTFOLIO MAY
INVEST IN DERIVATIVE
SECURITIES
The Portfolio may invest in futures contracts and options,
but only to a limited extent. Specifically, a Portfolio of
the Fund may enter into futures contracts provided that
not more than 5% of its assets are required as a futures
contract deposit; in addition, a Portfolio may enter into
futures contracts and options transactions only to the
extent that obligations under such contracts or
transactions represent not more than 20% of the
Portfolio's assets.
Futures contracts and options may be used for several
common fund management strategies: to maintain cash
reserves while simulating full investment, to facilitate
trading, to reduce transaction costs, or to seek higher
investment returns when a specific futures contract is
priced more attractively than other futures contracts or
the underlying security or index.
FUTURES AND OPTIONS
POSE CERTAIN RISKS The primary risks associated with the use of futures
contracts and options are: (i) imperfect correlation
between the change in market value of the stocks held by a
Portfolio and the prices of futures and options; and (ii)
possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures
position prior to its maturity date. The risk of imperfect
correlation will be minimized by investing only in those
contracts whose behavior is expected to resemble that of
the Portfolio's underlying securities. The risk that the
Portfolio will be unable to close out a futures position
will be minimized by entering into such transactions on a
national exchange with an active and liquid secondary
market.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of
leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may
result in immediate and substantial loss (or gain) to the
investor. When investing in futures contracts, the
Portfolio will segregate cash or cash equivalents in the
amount of the underlying obligation.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE PORTFOLIO HAS
ADOPTED CERTAIN
FUNDAMENTAL
LIMITATIONS The Portfolio has adopted certain limitations on its
investment practices. Specifically, the Portfolio will
not:
(a) with respect to 75% of its assets, invest more than 5%
of its assets in the securities of any single company,
excluding obligations of the U.S. government;
(b) with respect to 75% of its assets, purchase more than
10% of the outstanding voting securities of any
issuer;
8
<PAGE> 51
(c) invest more than 5% of its assets in the securities of
companies that have a continuous operating history of
less than 3 years;
(d) invest more than 25% of its assets in any one
industry;
(e) borrow money, except from a bank and only for
temporary or emergency purposes to facilitate the
meeting of redemption requests (not for leverage); and
(f) pledge, mortgage or hypothecate assets to an extent
greater than 15% of the value of its gross assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information are fundamental and so may be changed only
with the approval of a majority of the Portfolio's
shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT OF
THE PORTFOLIO
VANGUARD
ADMINISTERS AND
DISTRIBUTES THE
PORTFOLIO The Portfolio is a member of The Vanguard Group of
Investment Companies, a family of more than 30 investment
companies with more than 90 distinct investment
portfolios and total assets in excess of $170 billion.
Through its jointly-owned subsidiary, The Vanguard Group,
Inc. ("Vanguard"), the Portfolio and the other funds in
the Group obtain at cost virtually all of their corporate
management, administrative and distribution services.
Vanguard also provides investment advisory services on an
at-cost basis to certain Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most
competing mutual funds. In 1994, the average expense
ratio (annual costs including advisory fees divided by
average total net assets) for the Vanguard Funds amounted
to approximately .30%, compared to an average of 1.05%
for the mutual fund industry (data provided by Lipper
Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's total expenses, which
are allocated among the funds under methods approved by
the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing and custodian fees.
Vanguard provides distribution and marketing services to
the funds. The funds are available on a no-load basis,
(i.e., there are no sales commissions or 12b-1 fees).
However, each fund bears its allocated share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
9
<PAGE> 52
INVESTMENT
ADVISER The Fund employs Schroder Capital Management International
Inc. ("Schroder Capital"), 787 Seventh Avenue, New York,
NY 10019 as the adviser to the Portfolio. The adviser
discharges its responsibilities, subject to the control of
the Officers and Directors of the Fund.
SCHRODER CAPITAL
SERVES AS ADVISER TO
THE PORTFOLIO Schroder Capital is a wholly-owned subsidiary of Schroders
PLC. Schroders PLC is the holding company parent of a
large worldwide group of banks and financial service
companies (referred to as "The Schroder Group") with
associated companies and branch and representative offices
located in twenty-four countries. The Schroder Group
specializes in providing investment management services,
with funds under management currently in excess of $102
billion.
Richard Foulkes, Executive Vice President of Schroder
Capital, serves as Portfolio Manager, a position he has
held since 1981. He is supported by research teams in
seven offices world-wide and by four teams of regional
specialists in their London office.
The Portfolio pays Schroder Capital a basic advisory fee
calculated by applying varying percentage rates to the
average month-end net assets of the Portfolio. The maximum
rate is .350 of 1% for the first $50 million of net
assets. This rate decreases to .175 of 1% on the next $950
million of net assets and .125% on net assets in excess of
$1 billion. This basic advisory fee is increased or
decreased by applying an adjustment formula based on the
investment performance of the Portfolio relative to the
investment record of the Morgan Stanley Capital
International Europe, Australia, Far East Index ("EAFE")
over the preceding 36-month period as follows:
(a) On assets of the Portfolio of $1 billion or less:
<TABLE>
<CAPTION>
THREE-YEAR PERFORMANCE ANNUAL INCENTIVE (+)/
DIFFERENTIAL VS. EAFE PENALTY (-) FEE RATE
--------------------------- ---------------------
<S> <C>
+12% or above +0.0750%
Between +6% and +12% +0.0375%
Between +6% and -6% -0-
Between -6% and -12% -0.0375%
-12% or below -0.0750%
</TABLE>
(b) On assets of the Portfolio of more than $1 billion:
<TABLE>
<CAPTION>
THREE-YEAR PERFORMANCE ANNUAL INCENTIVE (+)/
DIFFERENTIAL VS. EAFE PENALTY (-) FEE RATE
------------------------ ---------------------
<S> <C>
+12% or above +0.0500%
Between +6% and +12% +0.0250%
Between +6% and -6% -0-
Between -6% and -12% -0.0250%
-12% or below -0.0500%
</TABLE>
The incentive/penalty fee adjustment for assets in excess
of $1 billion will not be fully operable until the quarter
ending February 29, 1996, and until that date the
incentive/penalty fee adjustment on assets in excess of $1
billion will be computed based on a comparison of the
investment performance of the Portfolio and that of
10
<PAGE> 53
the EAFE Index over the number of months that have elapsed
between March 1, 1993 and the end of the quarter for which
the fee is computed.
For the fiscal year ended August 31, 1995, the investment
advisory fee paid to Schroder Capital represented an
effective annual rate of .14 of 1% of the Portfolio's
average month-end net assets before an increase of .02 of
1% based on performance.
The investment advisory agreement with Schroder Capital
authorizes the adviser to select brokers or dealers to
execute purchases and sales of the Portfolio's securities,
and directs the adviser to use its best efforts to obtain
the best available price and most favorable execution with
respect to all transactions.
The Portfolio has authorized Schroder Capital to pay
higher commissions in recognition of brokerage services
felt necessary for the achievement of better execution,
provided the investment adviser believes this to be in the
best interest of the Portfolio. Although the Portfolio
does not market its shares through intermediary brokers or
dealers, the Portfolio may place orders for the Portfolio
with qualified broker-dealers who recommend the Portfolio
to clients, if the Officers of the Fund believe that the
quality of the transaction and the commission are
comparable to what they would be with other qualified
brokerage firms.
The Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days' prior written notice to
shareholders of the Portfolio which shall include
substantially the information concerning the adviser that
would have normally been included in a proxy statement.
- --------------------------------------------------------------------------------
PERFORMANCE
RECORD The table in this section shows the investment results for
the Portfolio for several periods throughout the
Portfolio's lifetime, both as Ivest Fund and as Vanguard
International Growth Portfolio. The results shown
represent "total return" investment performance, which
assumes the reinvestment of all capital gains and income
dividends for the indicated periods. Also included is
comparative information with respect to the Morgan Stanley
Capital International Europe, Australia, Far East Index
("EAFE"), a diversified portfolio of foreign stocks
commonly used as a benchmark of foreign stock market
activity; and the Consumer Price Index, a statistical
measurement of changes in the prices of goods and
services. The table does not make any allowance for
federal, state or local income taxes which shareholders
must pay on a current basis.
The results should not be considered a representation of
the total return from an investment made in the Portfolio
today. The periods shown were generally favorable ones
for foreign stock market investing. This information is
provided to help you better understand the Portfolio and
may not provide a basis for
11
<PAGE> 54
comparison with other investments or mutual funds which
use a different method to calculate performance.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
VANGUARD CONSUMER
PERIODS INTERNATIONAL EAFE PRICE
ENDED 8/31/95 GROWTH PORTFOLIO INDEX INDEX
-------------- ---------------- ----- --------
<S> <C> <C> <C>
3 Years 14.8% 12.5% 2.8%
5 Years 7.8 7.3 3.1
10 Years 16.3 15.7 3.5
Lifetime* 16.8 16.2 3.6
* September 30, 1981, to August 31, 1995.
</TABLE>
- --------------------------------------------------------------------------------
DIVIDENDS,
CAPITAL GAINS
AND TAXES
THE PORTFOLIO PAYS
DIVIDENDS AND ANY
CAPITAL GAINS
ANNUALLY Dividends consisting of virtually all of the ordinary
income of the Portfolio are declared and paid to
shareholders annually. Capital gains distributions, if
any, will also be made annually. Dividend and capital
gains distributions may be automatically reinvested or
received in cash. See "Choosing a Distribution Option" for
a description of these distribution methods.
In order to satisfy certain distribution requirements of
the Tax Reform Act of 1986, the Portfolio may declare
special year-end dividend and capital gains distributions
during December. Such distributions, if received by
shareholders by January 31, are deemed to have been paid
by the Portfolio and received by shareholders on December
31 of the prior year.
The Portfolio intends to continue to qualify for taxation
as a "regulated investment company" under the Internal
Revenue Code so that it will not be subject to federal
income tax to the extent its income is distributed to
shareholders. Dividends paid by the Portfolio from net
investment income, whether received in cash or reinvested
in additional shares, will be taxable to shareholders as
ordinary income. Dividends paid by the Portfolio will
generally not qualify for the intercorporate dividends-
received deduction.
Distributions paid by the Portfolio from long-term capital
gains, whether received in cash or reinvested in
additional shares, are taxable, regardless of the length
of time you have owned shares in the Portfolio. Capital
gains distributions are made when the Portfolio realizes
net capital gains on sales of portfolio securities during
the year. The Portfolio does not seek to realize any
particular amount of capital gains during a year; rather,
realized gains are a by-product of portfolio management
activities. Consequently, capital gains distributions may
be expected to vary considerably from year to year; there
will be no capital gains distributions in years when the
Portfolio realizes net capital losses.
Note that if you elect to receive capital gains
distributions in cash, instead of reinvesting them in
additional shares, you are in effect reducing the capital
at work for you in the Portfolio. Also, keep in mind that
if you purchase shares in the Portfolio shortly before the
record date for a dividend or capital gains distribution,
a portion of your investment will be returned to you as a
taxable distribution, regardless of whether you are
reinvesting your distributions or receiving them in cash.
12
<PAGE> 55
The Portfolio will notify you annually as to the tax
status of dividend and capital gains distributions paid by
the Portfolio.
THE PORTFOLIO MAY
"PASS THROUGH"
FOREIGN TAXES The Portfolio may elect to "pass through" to the
Portfolio's shareholders the amount of foreign income
taxes paid by the Portfolio. The Portfolio will make such
an election only if it deems it to be in the best
interests of its shareholders.
If this election is made, shareholders of the Portfolio
will be required to include in their gross income their
pro rata share of foreign taxes paid by the Portfolio.
However, shareholders will be able to treat their pro rata
share of foreign taxes as either an itemized deduction or
a foreign tax credit against U.S. income taxes on their
tax return.
A CAPITAL GAIN OR LOSS
MAY BE REALIZED UPON
EXCHANGE OR
REDEMPTION A sale of shares of the Portfolio is a taxable event, and
may result in a capital gain or loss. A capital gain or
loss may be realized from an ordinary redemption of shares
or an exchange of shares between two mutual funds (or two
portfolios of a mutual fund).
Dividend distributions, capital gains distributions and
capital gains or losses from redemptions and exchanges may
be subject to state and local taxes.
The Portfolio is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions
paid to shareholders who have not complied with IRS
taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your account
registration form your proper Social Security or Taxpayer
Identification Number and certifying that you are not
subject to backup withholding.
The Fund has obtained a Certificate of Authority to do
business as a foreign corporation in Pennsylvania, and
does business and maintains an office in that state. In
the opinion of counsel, the shares of the Portfolio are
exempt from Pennsylvania personal property taxes.
The tax discussion set forth above is included for general
information only. Prospective investors should consult
their own tax advisers concerning the tax consequences of
an investment in the Portfolio.
- --------------------------------------------------------------------------------
THE SHARE PRICE
OF THE PORTFOLIO The Portfolio's share price or "net asset value" is
calculated each business day after the close of regular
trading (generally 4:00 p.m. Eastern time) of the New York
Stock Exchange. Net asset value per share is computed by
adding up the total value of the Portfolio's investments
and other assets, subtracting any of its liabilities, or
debts, and then dividing by the number of outstanding
shares of the Portfolio.
Securities listed on a foreign exchange, as well as
American Depository Receipts ("ADRs"), which are traded on
U.S. exchanges are valued at the latest quoted sales price
available before the time when assets are valued. All
prices of listed securities are taken from the exchange
where the security is primarily traded. Securities
regularly traded in the over-the-counter market for which
market quotations are readily available will be valued at
the latest quoted bid price. Securities may be valued on
the basis of prices provided by a pricing service when
such prices are believed to reflect the fair market value
of such securities. Other assets and
13
<PAGE> 56
securities for which no quotations are readily available
will be valued in a manner determined in good faith by the
Board of Directors to reflect their fair value.
For purposes of determining the Portfolio's net asset
value per share, all assets and liabilities, initially
expressed in foreign currencies will be converted into
U.S. dollars using the quoted daily exchange rates
determined by Morgan Stanley Capital International (MSCI)
in the calculation of their various benchmarking indices.
This officially quoted daily exchange rate may be
determined by MSCI prior to or after the close of a
particular foreign securities market. If such quotations
are not available, the rate of exchange will be determined
in accordance with policies established in good faith by
the Board of Directors.
The Portfolio's share price can be found daily in the
mutual fund listings of most major newspapers under the
heading of Vanguard.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION The Fund was organized as Ivest Fund, a Massachusetts
Corporation, in 1959. The Fund is now a Maryland
Corporation and is authorized to issue 550,000,000 shares
with a par value of $1.00 per share. Currently the Fund is
offering shares of two Portfolios with 250,000,000 shares
allocated to the U.S. Growth Portfolio and 300,000,000
shares allocated to the International Growth Portfolio.
The shares of each Portfolio of the Fund are fully paid
and non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, meaning that the
holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if
they so choose.
The Fund will not hold annual meetings of shareholders
except as required by the Investment Company Act of 1940
and other applicable law. The Directors of the Fund will
call a meeting of shareholders for the purpose of voting
upon the question of removal of a Director or Directors if
such a meeting is requested in writing by the holders of
not less than 10% of the outstanding shares of the Fund.
All securities and cash of the Portfolio are held by
Morgan Guaranty Trust Company, New York, NY. The Vanguard
Group, Inc., Valley Forge, PA, serves as the Portfolio's
Transfer and Dividend Disbursing Agent. Price Waterhouse
LLP, serves as independent accountants for the Fund and
will audit its financial statements annually. The Fund is
not involved in any litigation.
- --------------------------------------------------------------------------------
14
<PAGE> 57
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES You may open a regular (non-retirement) account, either by
mail or wire. Simply complete and return an Account
Registration Form and any required legal documentation,
indicating the amount you wish to invest. Your purchase
must be equal to or greater than the $3,000 minimum
initial investment requirement ($1,000 for Uniform
Gifts/Transfers to Minors Act accounts). You must open a
new Individual Retirement Account by mail (IRA's may not
be opened by wire) using a Vanguard IRA Adoption
Agreement. Your purchase must be equal to or greater than
the $1,000 minimum initial investment requirement, but no
more than $2,000 if you are making a regular IRA
contribution. Rollover contributions are generally limited
to the amount withdrawn within the past 60 days from an
IRA or other qualified Retirement Plan. If you need
assistance with the forms or have any questions about the
Portfolio, please call our Investor Information Department
at 1-800-662-7447. Note: For other types of account
registrations (e.g., corporations, associations, other
organizations, trust or powers of attorney), please call
our Investor Information Department to determine which
additional forms you may need.
The Portfolio's shares are purchased at the
next-determined net asset value after your investment has
been received. The Portfolio is offered on a no-load basis
(i.e., there are no sales commissions or 12b-1 fees).
PURCHASE
RESTRICTIONS 1) Because of the risks associated with common stock
investments, the Portfolio is intended to be a
long-term investment vehicle and is not designed to
provide investors with a means of speculating on
short-term market movements. Consequently, the
Portfolio reserves the right to reject any specific
purchase (and exchange purchase) request. The Portfolio
also reserves the right to suspend the offering of
shares for a period of time.
2) Vanguard will not accept third-party checks to purchase
shares of the Fund. Please be sure your purchase check
is made payable to the Vanguard Group.
ADDITIONAL
INVESTMENTS Subsequent investments to regular accounts may be made by
mail ($100 minimum), wire ($1,000 minimum), exchange from
another Vanguard Fund account, or Vanguard Fund Express.
Subsequent investments to Individual Retirement Accounts
may be made by mail ($100 minimum) or exchange from
another Vanguard Fund account. In some instances,
contributions may be made by wire or Vanguard Fund
Express. Please call us for more information on these
options.
- --------------------------------------------------------------------------------
15
<PAGE> 58
<TABLE>
<S> <C> <C>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of Additional investments should
Complete and sign the your initial investment on the include the Invest-by-Mail
enclosed Account registration form, make your remittance form attached to your
Registration Form check payable to The Vanguard Portfolio confirmation
Group-81 and mail to: statements. Please make your
check payable to The Vanguard
VANGUARD FINANCIAL CENTER Group-81, write your account
P.O. BOX 2600 number on your check and, using
VALLEY FORGE, PA 19482 the return envelope provided,
mail to the address indicated on
the Invest-by-Mail Form.
For express or VANGUARD FINANCIAL CENTER All written requests should be
registered mail, 455 DEVON PARK DRIVE mailed to one of the addresses
send to: WAYNE, PA 19087 indicated for new accounts. Do
not send registered or express
mail to the post office box
address.
--------------------------------------------------------------------------
PURCHASING BY WIRE CORESTATES BANK,
Money should be ABA 031000011
wired to: CORESTATES NO 01019897
ATTN VANGUARD
BEFORE WIRING VANGUARD INTERNATIONAL GROWTH PORTFOLIO
Please contact ACCOUNT NUMBER
Client Services ACCOUNT REGISTRATION
(1-800-662-2739)
</TABLE>
To assure proper receipt, please be sure your bank
includes the name of the Portfolio, the account number
Vanguard has assigned to you and the eight-digit
CoreStates number. If you are opening a new account,
please complete the Account Registration Form and mail it
to the "New Account" address above after completing your
wire arrangement. Note: Federal Funds wire purchase orders
will be accepted only when the Fund and Custodian Bank are
open for business.
PURCHASING BY
EXCHANGE (from a
Vanguard account) You may open an account or purchase additional shares by
making an exchange from another Vanguard Fund account.
However, the Portfolio reserves the right to refuse any
exchange purchase request. Call our Client Services
Department at 1-800-662-2739 to request an exchange. The
new account will have the same registration as the
existing account.
PURCHASING BY
FUND EXPRESS
Special Purchase and
Automatic Investment The Fund Express Special Purchase option lets you move
money from your bank account to your Vanguard account at
your request. Or if you choose the Automatic Investment
option, money will be moved from your bank account to your
Vanguard account on the schedule (monthly, bimonthly
[every other month], quarterly or yearly) you select. To
establish these Fund Express options, please provide the
appropriate information on the Account Registration Form.
We will send you a
16
<PAGE> 59
confirmation of your Fund Express service; please wait
three weeks before using the service.
- --------------------------------------------------------------------------------
CHOOSING A
DISTRIBUTION
OPTION You must select one of three distribution options:
1. AUTOMATIC REINVESTMENT OPTION -- Both dividends and
capital gains distributions will be reinvested in
additional Portfolio shares. This option will be
selected for you automatically unless you specify one
of the other options.
2. CASH DIVIDEND OPTION -- Your dividends will be paid in
cash and your capital gains will be reinvested in
additional Portfolio shares.
3. ALL CASH OPTION -- Both dividend and capital gains
distributions will be paid in cash.
You may change your option by calling our Client Services
Department (1-800-662-2739).
In addition, an option to invest your cash dividends
and/or capital gains distributions in another Vanguard
Fund account is available. Please call our Client Services
Department (1-800-662-2739) for information. You may also
elect Vanguard Dividend Express which allows you to
transfer your cash dividends and/or capital gains
distributions automatically to your bank account. Please
see "Other Vanguard Services" for more information.
- --------------------------------------------------------------------------------
TAX CAUTION
INVESTORS SHOULD ASK
ABOUT THE TIMING
OF CAPITAL GAINS AND
DIVIDEND DISTRIBUTIONS
BEFORE INVESTING Under Federal tax laws, the Portfolio is required to
distribute net capital gains and dividend income to
Portfolio shareholders. These distributions are made to
all shareholders who own Portfolio shares as of the
distribution's record date, regardless of how long the
shares have been owned. Purchasing shares just prior to
the record date could have a significant impact on your
tax liability for the year. For example, if you purchase
shares immediately prior to the record date of a sizable
capital gain or income dividend distribution, you will be
assessed taxes on the amount of the capital gain and/or
dividend distribution later paid even though you owned the
Portfolio shares for just a short period of time. (Taxes
are due on the distributions even if the dividend or gain
is reinvested in additional Portfolio shares.) While the
total value of your investment will be the same after the
distribution -- the amount of the distribution will offset
the drop in the net asset value of the shares -- you
should be aware of the tax implications the timing of your
purchase may have.
Prospective investors should, therefore, inquire about
potential distributions before investing. The Fund's
annual dividend and capital gains distributions normally
occur in December. For additional information on
distributions and taxes, see the section titled
"Dividends, Capital Gains, and Taxes."
- --------------------------------------------------------------------------------
17
<PAGE> 60
IMPORTANT
INFORMATION
ESTABLISHING
OPTIONAL SERVICES The easiest way to establish optional Vanguard services on
your account is to select the options you desire when you
complete your Account Registration Form. IF YOU WISH TO
ADD SHAREHOLDER OPTIONS LATER, YOU MAY NEED TO PROVIDE
VANGUARD WITH ADDITIONAL INFORMATION AND A SIGNATURE
GUARANTEE. PLEASE CALL OUR CLIENT SERVICES DEPARTMENT
(1-800-662-2739) FOR FURTHER ASSISTANCE.
SIGNATURE
GUARANTEES For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature, and may be obtained from banks, brokers and any
other guarantor that Vanguard deems acceptable. A
SIGNATURE GUARANTEE CANNOT BE PROVIDED BY A NOTARY PUBLIC.
CERTIFICATES Share certificates will be issued upon request. If a
certificate is lost, you may incur an expense to replace
it.
BROKER-DEALER
PURCHASES If you purchase shares in Vanguard Funds through a
registered broker-dealer or investment adviser, the
broker-dealer or investment adviser may charge a service
fee.
CANCELLING
TRADES The Portfolio will not cancel any trade (e.g., purchase,
redemption or exchange) believed to be authentic, received
in writing or by telephone, once the trade has been
received.
ELECTRONIC
PROSPECTUS
DELIVERY If you would prefer to receive a prospectus for the Fund
or any of the Vanguard Funds in an electronic format,
please call 1-800-231-7870 for additional information. If
you elect to do so, you may also receive a paper copy of
the prospectus, by calling 1-800-662-7447.
- --------------------------------------------------------------------------------
WHEN YOUR
ACCOUNT WILL BE
CREDITED Your trade date is the date on which your account is
credited. If your purchase is made by check, Federal Funds
wire, or exchange, and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00
p.m. Eastern time), your trade date is the day of receipt.
If your purchase is received after the close of the
Exchange, your trade date is the next business day. Your
shares are purchased at the net asset value determined on
your trade date.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, Vanguard will only accept
a foreign check which has been drawn in U.S. dollars and
has been issued by a foreign bank with a U.S.
correspondent bank. The name of the U.S. correspondent
bank must be printed on the face of the foreign check.
- --------------------------------------------------------------------------------
SELLING YOUR
SHARES You may withdraw any portion of the funds in your account
by redeeming shares at any time. You generally may
initiate a request by writing or by telephoning. Your
redemption proceeds are normally mailed within two
business days after the receipt of the request in Good
Order.
18
<PAGE> 61
SELLING BY MAIL Requests should be mailed to VANGUARD FINANCIAL CENTER,
VANGUARD INTERNATIONAL GROWTH PORTFOLIO, P.O. BOX 1120,
VALLEY FORGE, PA 19482. (For express or registered mail,
send your request to Vanguard Financial Center, Vanguard
International Growth Portfolio, 455 Devon Park Drive,
Wayne, PA 19087.)
The redemption price of shares will be the Portfolio's net
asset value next determined after Vanguard has received
all required documents in Good Order.
- --------------------------------------------------------------------------------
DEFINITION OF
GOOD ORDER GOOD ORDER means that the request includes the following:
1. The account number and Portfolio name.
2. The amount of the transaction (specified in dollars or
shares).
3. Signatures of all owners EXACTLY as they are registered
on the account.
4. Any required signature guarantees.
5. Other supporting legal documentation that might be
required in cases of estates, corporations, trusts, and
certain other accounts.
6. Any certificates you are holding for the account.
IF YOU HAVE QUESTIONS ABOUT THIS DEFINITION AS IT PERTAINS
TO YOUR REQUEST, PLEASE CALL OUR CLIENT SERVICES
DEPARTMENT AT 1-800-662-2739.
- --------------------------------------------------------------------------------
SELLING BY TELEPHONE To sell shares by telephone, you or your pre-authorized
representative may call our Client Services Department at
1-800-662-2739. PLEASE NOTE: As a protection against
fraud, your telephone mail redemption privilege will be
suspended for 10 calendar days following any expedited
address change to your account. An expedited address
change is one that is made by telephone, by Vanguard
On-line or, in writing, without the signatures of all
account owners. The proceeds will be sent to you by mail.
Please see "Important Information About Telephone
Transactions."
- --------------------------------------------------------------------------------
SELLING BY
FUND EXPRESS
Automatic
Withdrawal
& Special Redemption If you select the Fund Express Automatic Withdrawal
option, money will be automatically moved from your
Vanguard account to your bank account according to the
schedule you have selected. The Special Redemption option
lets you move money from your Vanguard account to your
bank account upon your request. You may elect Fund Express
on the Account Registration Form or call our Investor
Information Department at 1-800-662-7447 for a Fund
Express application.
- --------------------------------------------------------------------------------
SELLING BY EXCHANGE You may sell shares by making an exchange into another
Vanguard Fund account. Please see "Exchanging Your Shares"
for details.
- --------------------------------------------------------------------------------
IMPORTANT
REDEMPTION
INFORMATION Shares purchased by check, Fund Express Special Purchase
or Fund Express Automatic Investment Plan may not be
redeemed until payment for the purchase is collected,
which may take up to ten calendar days. Your money is
invested during the holding period.
- --------------------------------------------------------------------------------
19
<PAGE> 62
DELIVERY OF
REDEMPTION PROCEEDS Redemption requests received by telephone prior to the
close of regular trading on the New York Stock Exchange
(generally, 4:00 p.m. Eastern time) are processed on the
day of receipt and the redemption proceeds are normally
sent on the following business day.
Redemption requests received by telephone after the close
of the Exchange are processed on the business day
following receipt and the proceeds are normally sent on
the second business day following receipt.
Redemption proceeds must be sent to you within seven days
of receipt of your request in Good Order.
If you experience difficulty in making a telephone
redemption during periods of drastic economic or market
changes, your redemption request may be made by regular or
express mail. It will be implemented at the net asset
value next determined after your request has been received
by Vanguard in Good Order. The Portfolio reserves the
right to revise or terminate the telephone redemption
privilege at any time.
The Portfolio may suspend the redemption right or postpone
payment at times when the New York Stock Exchange is
closed, or under any emergency circumstances as determined
by the United States Securities and Exchange Commission.
If the Board of Directors determines that it would be
detrimental to the best interests of the Portfolio's
remaining shareholders to make payment in cash, the
Portfolio may pay the redemption proceeds in whole or in
part by a distribution in kind of readily marketable
securities.
- --------------------------------------------------------------------------------
VANGUARD'S AVERAGE
COST STATEMENT If you make a redemption from a qualifying account,
Vanguard will send you an Average Cost Statement which
provides you with the tax basis of the shares you
redeemed. Please see "Other Vanguard Services" for
additional information.
- --------------------------------------------------------------------------------
LOW BALANCE FEE
AND MINIMUM
ACCOUNT BALANCE
REQUIREMENT Due to the relatively high cost of maintaining smaller
accounts, the Portfolio will automatically deduct a $10
annual fee from non-retirement accounts with balances
falling below $2,500 ($1,000 for Uniform Gifts/Transfers
to Minors Act accounts). This fee deduction will occur
mid-year, beginning in 1996. The fee generally will be
waived for investors whose aggregate Vanguard assets
exceed $50,000. In addition, the Portfolio reserves the
right to liquidate any non-retirement account that is
below the minimum initial investment amount of $3,000. If
at any time the total investment does not have a value of
at least $3,000, you may be notified that the value of
your account is below the Portfolio's minimum account
balance requirement. You would then be allowed 60 days to
make an additional investment before the account is
liquidated. Proceeds would be promptly paid to the
shareholder.
Vanguard will not liquidate your account if it has fallen
below $3,000 solely as a result of declining markets
(i.e., a decline in a Portfolio's net asset value).
- --------------------------------------------------------------------------------
20
<PAGE> 63
EXCHANGING YOUR
SHARES Should your investment goals change, you may exchange your
shares of Vanguard International Growth Portfolio for
those of other available Vanguard Funds.
In addition to the details below, please see "Important
Information About Telephone Transactions."
EXCHANGING BY
TELEPHONE
Call Client Services
(1-800-662-2739) When exchanging shares by telephone, please have ready the
Portfolio name, account number, Social Security number or
Employer Identification number listed on the account, and
the exact name and address in which the account is
registered. Only the registered shareowner may complete
such an exchange. Requests for telephone exchanges
received prior to the close of regular trading on the New
York Stock Exchange (generally 4:00 p.m. Eastern time) are
processed at the close of business that same day. Requests
received after the close of the Exchange are processed the
next business day. TELEPHONE EXCHANGES ARE NOT ACCEPTED
INTO OR FROM VANGUARD BALANCED INDEX FUND, VANGUARD INDEX
TRUST, VANGUARD INTERNATIONAL EQUITY INDEX FUND, AND
VANGUARD QUANTITATIVE PORTFOLIOS. If you experience
difficulty in making a telephone exchange, your exchange
request may be made by regular or express mail, and it
will be implemented at the closing net asset value on the
date received by Vanguard provided the request is received
in Good Order.
Neither the Portfolio nor Vanguard is responsible for the
authenticity of exchange instructions received by
telephone. Investors bear the full risk of any loss
arising from unauthorized telephone exchanges. To prohibit
telephone exchanges on your account, please notify the
Portfolio in writing. Otherwise, the telephone exchange
privilege will be automatically established for your
account.
----------------------------------------------------------
EXCHANGING BY MAIL Please be sure to include on your exchange request the
name and account number of your current Portfolio, the
name of the Fund you wish to exchange into, the amount you
wish to exchange, and the signatures of all registered
account holders. Send your request to VANGUARD FINANCIAL
CENTER, VANGUARD INTERNATIONAL GROWTH PORTFOLIO, P.O. BOX
1120, VALLEY FORGE, PA 19482. (For express or registered
mail, send your request to Vanguard Financial Center,
Vanguard International Growth Portfolio, 455 Devon Park
Drive, Wayne, PA 19087.)
----------------------------------------------------------
IMPORTANT EXCHANGE
INFORMATION Before you make an exchange, you should consider the
following:
- Please read the Portfolio's prospectus before making an
exchange. For a copy and for answers to any questions
you may have, call our Investor Information Department
(1-800-662-7447).
- An exchange is treated as a redemption and a purchase.
Therefore, you could realize a taxable gain or loss on
the transaction.
- Exchanges are accepted only if the registrations and
Taxpayer Identification numbers of the two accounts are
identical.
- The shares to be exchanged must be on deposit and not
held in certificate form.
21
<PAGE> 64
- New accounts are not currently accepted in
Vanguard/Windsor Fund or Vanguard/PRIMECAP Fund.
- The redemption price of shares redeemed by exchange is
the net asset value next determined after Vanguard has
received the required documentation in Good Order.
- When opening a new account by exchange, you must meet
the minimum investment requirement of the new Fund.
Every effort will be made to maintain the exchange
privilege. However, the Portfolio reserves the right to
revise or terminate its provisions, limit the amount of or
reject any exchange, as deemed necessary, at any time.
The exchange privilege is only available in states in
which the shares of the Portfolio are registered for sale.
The Portfolio's shares are currently registered for sale
in all 50 states and the Portfolio intends to maintain
such registration.
- --------------------------------------------------------------------------------
EXCHANGE
PRIVILEGE
LIMITATIONS The Portfolio's exchange privilege is not intended to
afford shareholders a way to speculate on short-term
movements in the market. Accordingly, in order to prevent
excessive use of the exchange privilege that may
potentially disrupt the management of the Portfolio and
increase transactions costs, the Portfolio has established
a policy of limiting excessive exchange activity.
Exchange activity generally will not be deemed excessive
if limited to TWO SUBSTANTIVE EXCHANGE REDEMPTIONS (AT
LEAST 30 DAYS APART) from the Portfolio during any
twelve-month period. Notwithstanding these limitations,
the Portfolio reserves the right to reject any purchase
request (including exchange purchases from other Vanguard
portfolios) that is reasonably deemed to be disruptive to
efficient portfolio management.
- --------------------------------------------------------------------------------
IMPORTANT
INFORMATION
ABOUT TELEPHONE
TRANSACTIONS The ability to initiate redemptions (except wire
redemptions) and exchanges by telephone is automatically
established on your account unless you request in writing
that telephone transactions on your account not be
permitted.
To protect your account from losses resulting from
unauthorized or fraudulent telephone instructions,
Vanguard adheres to the following security procedures:
1. SECURITY CHECK. To request a transaction by telephone,
the caller must know (i) the name of the Portfolio;
(ii) The 10-digit account number; (iii) the exact name
and address used in the registration; and (iv) the
Social Security or Employer Identification number
listed on the account.
2. PAYMENT POLICY. The proceeds of any telephone
redemption made by mail will be made payable to the
registered shareowner and mailed to the address of
record, only.
Neither the Fund nor Vanguard will be responsible for the
authenticity of transaction instructions received by
telephone, provided that reasonable security procedures
have been followed. Vanguard believes that the security
procedures
22
<PAGE> 65
described above are reasonable and that if such procedures
are followed, you will bear the risk of any losses
resulting from unauthorized or fraudulent telephone
transactions on your account. If Vanguard fails to follow
reasonable security procedures, it may be liable for any
losses resulting from unauthorized or fraudulent telephone
transactions on your account.
- --------------------------------------------------------------------------------
TRANSFERRING
REGISTRATION You may transfer the registration of any of your Portfolio
shares to another person by writing: VANGUARD FINANCIAL
CENTER, P.O. BOX 1110, VALLEY FORGE, PA 19482. The request
must be in Good Order. Before mailing your request, please
call Client Services Department (1-800-662-2739) for full
instructions.
- --------------------------------------------------------------------------------
STATEMENTS AND
REPORTS Vanguard will send you a confirmation statement each time
you initiate a transaction in your account (except for
checkwriting redemptions from Vanguard money market
accounts). You will also receive a comprehensive account
statement at the end of each calendar quarter. The
fourth-quarter statement will be a year-end statement,
listing all transaction activity for the entire calendar
year.
Vanguard's Average Cost Statement provides you with the
average cost of shares redeemed from your account, using
the average cost single category method. This service is
available for most taxable accounts opened since January
1, 1986. In general, investors who redeemed shares from a
qualifying Vanguard account may expect to receive their
Average Cost Statement in February of the following year.
Please call our Client Services Department
(1-800-662-2739) for information.
Financial reports on the Fund will be mailed to you
semi-annually, according to the Fund's fiscal year-end.
- --------------------------------------------------------------------------------
OTHER VANGUARD
SERVICES For more information about any of these services, please
call our Investor Information Department at
1-800-662-7447.
VANGUARD DIRECT
DEPOSIT SERVICE With Vanguard's Direct Deposit Service, most U.S.
Government checks (including Social Security and military
pension checks) and private payroll checks may be
automatically deposited into your Vanguard Fund account.
Separate brochures and forms are available for direct
deposit of U.S. Government and private payroll checks.
VANGUARD AUTOMATIC
EXCHANGE SERVICE Vanguard's Automatic Exchange Service allows you to move
money automatically among your Vanguard Fund accounts. For
instance, the service can be used to "dollar cost average"
from a money market portfolio into a stock or bond fund or
to contribute to an IRA or other retirement plan. Please
contact our Client Services Department at 1-800-662-2739
for additional information.
VANGUARD
FUND EXPRESS Vanguard's Fund Express allows you to transfer money
between your Fund account and your account at a bank,
savings and loan association, or a credit union that is a
member of the Automated Clearing House (ACH) system. You
may elect this service on the Account Registration Form or
call our Investor Information Department (1-800-662-7447)
for a Fund Express application.
Special rules govern how your Fund Express purchases or
redemptions are credited to your account. In addition,
some services of Fund Express cannot be used with
23
<PAGE> 66
specific Vanguard Funds. For more information, please
refer to the Vanguard Fund Express brochure.
VANGUARD DIVIDEND
EXPRESS Vanguard's Dividend Express allows you to transfer your
dividends and/or capital gains distributions automatically
from your Fund account, one business day after the Fund's
payable date, to your account at any bank, savings and
loan association, or credit union that is a member of the
Automated Clearing House (ACH) system. You may elect this
service on the Account Registration Form or call our
Investor Information Department (1-800-662-7447) for a
Vanguard Dividend Express application.
VANGUARD
TELE-ACCOUNT Vanguard's Tele-Account is a convenient, automated service
that provides share price, price change, and yield
quotations on Vanguard Funds through any TouchTone(TM)
telephone. This service also lets you obtain information
about your account balance, your last transaction, and
your most recent dividend or capital gains payment. To
contact Vanguard's Tele-Account service, dial
1-800-ON-BOARD (1-800-622-6273). A brochure offering
detailed operating instructions is available from our
Investor Information Department (1-800-662-7447).
- --------------------------------------------------------------------------------
24
<PAGE> 67
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 68
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 69
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE> 70
[VANGUARD INTERNATIONAL GROWTH PORTFOLIO LOGO]
- ----------------------------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2600
Valley Forge, PA 19482
INVESTOR INFORMATION
DEPARTMENT:
1-800-662-7447 (SHIP)
CLIENT SERVICES
DEPARTMENT:
1-800-662-2739 (CREW)
TELE-ACCOUNT
FOR 24-HOUR ACCESS:
1-800-662-6273
(ON-BOARD)
TELECOMMUNICATION SERVICE
FOR THE HEARING-IMPAIRED:
1-800-662-2738
TRANSFER AGENT:
The Vanguard Group Inc.
Vanguard Financial Center
Valley Forge, PA 19482
[FLAG LOGO]
[VANGUARD INTERNATIONAL GROWTH PORTFOLIO LOGO]
P R O S P E C T U S
DECEMBER 29, 1995
[VANGUARD GROUP LOGO]
P081
- --------------------------------------------------------------------------------
<PAGE> 71
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[VANGUARD INTERNATIONAL
GROWTH PORTFOLIO LOGO] A Member of The Vanguard Group
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- DECEMBER 29, 1995
- --------------------------------------------------------------------------------
FUND INFORMATION: PARTICIPANT SERVICES DEPARTMENT -- 1-800-523-1188
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE AND
POLICIES
Vanguard International Growth Portfolio (the "Portfolio")
is an independent series of Vanguard World Fund, Inc. (the
"Fund"), an open-end diversified investment company. The
Portfolio seeks to provide long-term capital appreciation.
Dividend income is expected to be incidental to this
objective. The Fund is currently offering shares of two
Portfolios. This prospectus relates to Vanguard
International Growth Portfolio only. There is no assurance
that the Portfolio will achieve its stated objective.
Shares of the Fund are neither insured nor guaranteed by
any agency of the U.S. Government, including the FDIC.
- --------------------------------------------------------------------------------
IMPORTANT NOTE This Prospectus is intended exclusively for participants
in employer-sponsored retirement or savings plans, such as
tax-qualified pension and profit-sharing plans and 401(k)
thrift plans, as well as 403(b)7 custodial accounts for
non-profit educational and charitable organizations.
Another version of this Prospectus, containing information
on how to open a personal investment account with the
Portfolio, is available for individual investors. To
obtain a copy of that version of the Prospectus, please
call 1-800-662-7447.
- --------------------------------------------------------------------------------
OPENING AN
ACCOUNT The Portfolio is an investment option under a retirement
or savings program sponsored by your employer. The
administrator of your retirement plan or your employee
benefits office can provide you with detailed information
on how to participate in your plan and how to elect the
Portfolio as an investment option. If you have any
questions about the Portfolio please contact Participant
Services at 1-800-523-1188. If you have any questions
about your plan account, contact your plan administrator
or the organization that provides recordkeeping services
for your plan.
- --------------------------------------------------------------------------------
ABOUT THIS
PROSPECTUS This Prospectus is designed to set forth concisely the
information you should know about the Portfolio before you
invest. It should be retained for future reference. A
"Statement of Additional Information" containing
additional information about the Portfolio has been filed
with the Securities and Exchange Commission. This
Statement is dated December 29, 1995, and has been
incorporated by reference into this Prospectus. A copy may
be obtained without charge by writing to the Portfolio or
by calling our Participant Services Department.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page Page Page
Portfolio Expenses ................. 2 Who Should Invest ................ 6 Dividends, Capital Gains
Financial Highlights ............... 2 Implementation of Policies ....... 7 and Taxes ....................... 12
Yield and Total Return ............. 4 Investment Limitations ........... 8 The Share Price of The
Investment Objective ............... 4 Management of the Portfolio ...... 9 Portfolio ....................... 12
Investment Policies ................ 4 Investment Adviser ............... 10 General Information .............. 13
Investment Risks ................... 5 Performance Record ............... 11 Service Guide .................... 14
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 72
PORTFOLIO
EXPENSES The following table illustrates ALL expenses and fees that
you would incur as a shareholder of the Portfolio. The
expenses and fees set forth in the table are for the 1995
fiscal year.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
---------------------------------------------------------------------------------
<S> <C> <C>
Sales Load Imposed on Purchases........................................ None
Sales Load Imposed on Reinvested Dividends............................. None
Redemption Fees........................................................ None
Exchange Fees.......................................................... None
ANNUAL PORTFOLIO OPERATING EXPENSES
---------------------------------------------------------------------------------
Management & Administrative Expenses................................... 0.32%
Investment Advisory Fees............................................... 0.16
12b-1 Fees............................................................. None
Other Expenses
Distribution Costs.......................................... 0.02%
Miscellaneous Expenses...................................... 0.09
----
Total Other Expenses................................................... 0.11
----
TOTAL OPERATING EXPENSES...................................... 0.59%
====
</TABLE>
The purpose of this table is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in the
Portfolio.
The following example illustrates the expenses that you
would incur on a $1,000 investment over various periods,
assuming (1) a 5% annual rate of return and (2) redemption
at the end of each period. As noted in the table above,
the Portfolio charges no redemption fees of any kind.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$6 $19 $33 $74
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES
MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL
HIGHLIGHTS The following financial highlights for a share outstanding
through each period, insofar as they relate to each of the
five years in the period ended August 31, 1995, have been
audited by Price Waterhouse LLP, independent accountants,
whose report thereon was unqualified. This information
should be read in conjunction with the Fund's financial
statements and notes thereto, which, together with the
remaining portions of the Fund's 1995 Annual Report to
Shareholders, are incorporated by reference in the
Statement of Additional Information and this Prospectus,
and which appear, along with the report of Price
Waterhouse LLP, in the Fund's 1995 Annual Report to
Shareholders. For a more complete discussion of the Fund's
performance, please see the Fund's 1995 Annual Report to
Shareholders which may be obtained without charge by
writing to the Fund or by calling Participant Services at
1-800-523-1188.
2
<PAGE> 73
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, OCT. 1,
1985 TO
----------------------------------------------------------------------------------- AUG. 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD.... $14.36 $12.02 $10.15 $10.31 $11.81 $11.61 $10.45 $14.21 $11.67 $ 6.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment
Income............... .20 .14 .12 .20 .18 .32 .13 .16 .12 .07
Net Realized and
Unrealized Gain
(Loss) on
Investments.......... .32 2.31 1.96 (.05) (.80) .31 2.26 (1.36) 3.29 5.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS......... .52 2.45 2.08 .15 (.62) .63 2.39 (1.20) 3.41 5.48
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income.... (.18) (.11) (.21) (.19) (.20) (.15) (.16) (.13) (.07) --
Distributions from
Realized
Capital Gains........ -- -- -- (.12) (.68) (.28) (1.07) (2.43) (.80) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
DISTRIBUTIONS...... (.18) (.11) (.21) (.31) (.88) (.43) (1.23) (2.56) (.87) --
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $14.70 $14.36 $12.02 $10.15 $10.31 $11.81 $11.61 $10.45 $14.21 $11.67
============================================================================================================================
TOTAL RETURN............. 3.76% 20.44% 21.06% 1.49% (5.11)% 5.25% 24.49% (9.92)% 32.01% 88.53%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period
(Millions)............. $3,354 $2,989 $1,477 $ 919 $ 846 $ 796 $ 550 $ 454 $ 607 $ 451
Ratio of Expenses to
Average Net Assets..... .59%+ .46% .59% .58% .67% .68% .64% .67% .66% .78%*
Ratio of Net Investment
Income to Average Net
Assets................. 1.53% 1.37% 1.27% 2.04% 1.80% 3.01% 1.27% 1.39% 1.00% 1.10%*
Portfolio Turnover
Rate................... 31% 28% 51% 58% 49% 45% 50% 71% 77% 39%
</TABLE>
* Annualized.
+ Effective in fiscal 1995, does not include expense reductions from directed
brokerage arrangements. The Ratio of Net Expenses to Average Net Assets is
.58%.
<TABLE>
<CAPTION>
IVEST FUND+
-------------
SEPT. 1 TO 30,
1985
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................................... $18.15
------
INVESTMENT OPERATIONS
Net Investment Income................................................................................ .04
Net Realized and Unrealized Gain (Loss) on Investments............................................... (.23)
------
TOTAL FROM INVESTMENT OPERATIONS................................................................... (.19)
------
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income................................................................. (.35)
Distributions from Realized Capital Gains............................................................ (1.48)
------
TOTAL DISTRIBUTIONS................................................................................ (1.83)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD......................................................................... $16.13
========================================================================================================================
TOTAL RETURN........................................................................................... (1.05)%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions)................................................................... $ 201
Ratio of Expenses to Average Net Assets................................................................ .76%*
Ratio of Net Investment Income to Average Net Assets................................................... 2.97%*
Portfolio Turnover Rate................................................................................ 30%
</TABLE>
* Annualized.
+ Prior to October 1, 1985, the Fund consisted of one Portfolio
and was known as Ivest Fund.
- ------------------------------------------------------------------------------
3
<PAGE> 74
YIELD AND TOTAL
RETURN From time to time the Portfolio may advertise its yield
and total return. Both yield and total return figures are
based on historical earnings and are not intended to
indicate future performance. The "total return" of the
Portfolio refers to the average annual compounded rates
of return over one-, five- and ten-year periods or for
the life of the Portfolio (as stated in the
advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the
reinvestment of all dividend and capital gains
distributions.
In accordance with industry guidelines set forth by the
U.S. Securities and Exchange Commission, the "30-day
yield" of the Portfolio is calculated by dividing net
investment income per share earned during a 30-day period
by the net asset value per share on the last day of the
period. Net investment income includes interest and
dividend income earned on the Portfolio's securities and
is net of all expenses and all recurring and nonrecurring
charges that have been applied to all shareholder
accounts. The yield calculation assumes that net
investment income earned over 30 days is compounded
monthly for six months and then annualized. Methods used
to calculate advertised yields are standardized for all
stock and bond mutual funds. However, these methods differ
from the accounting methods used by the Portfolio to
maintain its books and records, and so the advertised
30-day yield may not fully reflect the income paid to an
investor's account.
- --------------------------------------------------------------------------------
INVESTMENT
OBJECTIVE
THE PORTFOLIO SEEKS
TO PROVIDE LONG-TERM
CAPITAL GROWTH
The Portfolio invests primarily in equity securities of
companies based outside of the United States. The
objective of the Portfolio is to provide long-term capital
appreciation. Dividend income is expected to be incidental
to this objective. There is no assurance that the
Portfolio will achieve its objective.
The investment objective of the Portfolio is fundamental,
and so cannot be changed without the approval of a
majority of its shareholders.
- --------------------------------------------------------------------------------
INVESTMENT
POLICIES
THE PORTFOLIO INVESTS
PRIMARILY IN COMMON
STOCKS
The Portfolio invests chiefly in equity securities,
including common stocks, which offer favorable prospects
for growth, but little current income. The Portfolio is
managed without regard to tax ramifications.
The Portfolio invests primarily in growth-oriented equity
securities of seasoned companies located outside the
United States. The Portfolio seeks to diversify its assets
among as many as thirty foreign stock markets, including
Japan, the United Kingdom, Germany, France, Switzerland,
the Netherlands, Sweden, Australia, Hong Kong and
Singapore. Schroder Capital Management International,
adviser to the Portfolio, believes that both the selection
of individual stocks and the allocation of the Portfolio's
assets across foreign stock markets are important in
managing an international equity portfolio. Within each
country, the adviser seeks to invest in securities of
companies with consistent above-average earnings prospects
whose values are not yet recognized by the stock market.
Besides investing in equity securities, the International
Growth Portfolio may also enter into forward foreign
currency exchange contracts in order to protect against
fluctuations in exchange rates. See "Implementation of
Policies" for a description of
4
<PAGE> 75
such contracts. Investing in foreign stock markets poses
certain unique risks compared with investing in U.S. stock
markets. See "Investment Risks" for a description of the
risks involved.
Besides investing in equity securities, the Portfolio may
utilize stock index futures contracts and options to a
limited extent. In addition, although the Portfolio will
normally remain fully invested in equity securities, the
Portfolio may temporarily invest in certain short-term
fixed income securities. See "Implementation of Policies"
for a description of these and other investment practices
of the Portfolio.
The Portfolio is responsible for voting the shares of all
securities it holds.
The investment policies described above are not
fundamental policies and therefore may be changed by the
Board of Directors without shareholder approval. However,
shareholders would be notified prior to any material
change in the Portfolio's policies.
- --------------------------------------------------------------------------------
INVESTMENT RISKS As a mutual fund investing in equity securities, the
Portfolio is subject to market risk -- i.e., the
THE PORTFOLIO IS possibility that stock prices in general will decline over
SUBJECT TO STOCK short or even extended periods. Stock markets tend to be
MARKET RISK cyclical, with periods when stock prices generally rise
and periods when stock prices generally decline.
INTERNATIONAL STOCKS Investments in foreign stock markets can be as volatile,
MAY BE MORE VOLATILE if not more volatile, than investments in U.S. markets. To
THAN U.S. STOCKS illustrate the volatility of foreign stock market returns
for the U.S. dollar-based investor, the following table
sets forth the extremes for foreign stock market returns
as well as the average return for the period from 1969 to
1994, as measured by the Morgan Stanley Capital
International Europe, Australia, Far East (EAFE) Index:
<TABLE>
<CAPTION>
AVERAGE ANNUAL INTERNATIONAL STOCK MARKET RETURNS
(1969-1994)
OVER VARIOUS TIME HORIZONS
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best +69.9 % +36.5% +22.8% +16.3%
Worst -23.2 + 1.5 + 7.0 +12.0
Average +15.0 +14.1 +16.0 +15.0
</TABLE>
As shown, over the period from 1969 to 1994, international
(non-U.S.) stocks have provided an average annual total
return, for 10 years, of +16.0%. By comparison, the annual
total return, on average, for U.S. stocks during this same
period was +12.4% (as measured by the Standard & Poor's
500 Composite Stock Price Index). Note, however, that the
period from 1969 to 1994 was a favorable one for foreign
stock market investing. As a result, the figures on total
return and stock market volatility are provided here only
as a guide to potential market risk, and may not be useful
for forecasting future returns in any particular period.
The table on international stock market returns should not
be viewed as a representation of future returns from
international stock markets of the Portfolio.
5
<PAGE> 76
The illustrated returns represent the historical
performance of unmanaged portfolios of securities (before
subtracting portfolio transaction costs and other expenses
of an investment portfolio), which may be a poor guide to
future returns. In addition, the Portfolio is likely to
differ in terms of portfolio composition from the EAFE
Index, and so the performance of the Portfolio should not
be expected to mirror the return provided by the Index.
INTERNATIONAL STOCKS
ALSO EXPOSE INVESTORS
TO CURRENCY AND OTHER
RISKS
For U.S. investors, the returns of foreign investments,
such as those held by the Portfolio, are influenced by not
only the returns on foreign common stocks themselves, but
also by currency risk--i.e., changes in the value of the
currencies in which the stocks are denominated. In a
period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for a
U.S. investor may be diminished. By contrast, in a period
when the U.S. dollar generally declines, the returns on
foreign stocks may be enhanced.
Other risks and considerations of international investing
include the following: differences in accounting, auditing
and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the
smaller trading volumes and generally lower liquidity of
foreign stock markets, which may result in greater price
volatility; foreign withholding taxes payable on the
Portfolio's foreign securities, which may reduce dividend
income payable to shareholders; the possibility of
expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations; difficulty in
obtaining a judgment from a foreign court; political
instability which could affect U.S. investment in foreign
countries; and potential restrictions on the flow of
international capital.
THE PORTFOLIO IS
SUBJECT TO MANAGER
RISK
The investment adviser manages the Portfolio according to
the traditional methods of "active" investment management,
which involve the buying and selling of securities based
upon economic, financial and market analysis and
investment judgment. Manager risk refers to the
possibility that the Portfolio's investment adviser may
fail to execute the Portfolio's investment strategy
effectively. As a result, the Portfolio may fail to
achieve its stated objective.
- --------------------------------------------------------------------------------
WHO SHOULD
INVEST
LONG-TERM INVESTORS
SEEKING CAPITAL
APPRECIATION
The Portfolio is intended for investors who are seeking
long-term capital appreciation, and who do not need to
earn current income from their investment in the
Portfolio. Because of the risks associated with foreign
common stock investments, the Portfolio is intended to be
a long-term investment vehicle and is not designed to
provide investors with a means of speculating on
short-term stock market movements. Investors should be
able to tolerate sudden, sometimes substantial
fluctuations in the value of their investment. Investors
in the Portfolio should be cognizant of the unique risks
of international investing, including their exposure to
currency fluctuations. Investors who engage in excessive
account activity generate additional costs which are borne
by all of the Portfolio's shareholders. In order to
minimize such costs, the Portfolio has adopted the
following policies. The Portfolio reserves the right to
reject any purchase request (including exchange purchases
from other Vanguard portfolios) that is reasonably deemed
to be disruptive to efficient portfolio management, either
because of the timing of the investment or
6
<PAGE> 77
previous excessive trading by the investor. Additionally,
the Portfolio reserves the right to suspend the offering
of its shares.
Because of the risks involved, the Portfolio should not be
considered a complete investment program. Most investors
should maintain diversified holdings of securities with
different risk characteristics -- including common stocks,
bonds and money market instruments. Investors may wish to
purchase shares on a regular, periodic basis (dollar-cost
averaging), rather than investing in one lump sum in order
to reduce the risk of investing all their monies in common
stocks at a particularly unfavorable time. Investors may
also wish to complement an investment in the Portfolio
with other types of common stock investments.
- --------------------------------------------------------------------------------
IMPLEMENTATION
OF POLICIES
THE PORTFOLIO MAY
ENTER INTO FORWARD
CURRENCY CONTRACTS In addition to investing in growth-oriented common stocks,
the Portfolio follows a number of additional investment
practices to achieve its objective.
The Portfolio may enter into forward foreign currency
exchange contracts. Such contracts are used to protect the
Portfolio's securities against uncertainty in the level of
future foreign exchange rates. The Portfolio may not enter
into such contracts for speculative purposes.
A forward foreign currency exchange contract is an
obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts may
be bought or sold to protect the Portfolio to a limited
extent against adverse changes in exchange rates between
foreign currencies and the U.S. dollar. Such contracts,
which protect the value of a Portfolio's investment
securities against a decline in the value of a currency,
do not eliminate fluctuations in the underlying prices of
the securities. They simply establish an exchange rate at
a future date. Also, although such contracts tend to
minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit
any potential gain that might be realized should the value
of such currency increase.
THE PORTFOLIO MAY
INVEST IN SHORT-TERM
FIXED INCOME
SECURITIES
Although the Portfolio normally seeks to remain fully
invested in equity securities, the Portfolio may invest in
certain short-term fixed income securities for temporary
defensive purposes. Such securities may be used to invest
uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or to take a temporary defensive
position against potential stock market declines. These
securities include: obligations of the United States
Government and its agencies or instrumentalities;
commercial paper, bank certificates of deposit, and
bankers' acceptances; and repurchase agreements
collateralized by these securities.
THE PORTFOLIO MAY
LEND ITS SECURITIES
The Portfolio may lend its investment securities to
qualified institutional investors for either short-term or
long-term purposes of realizing additional net investment
income. Loans of securities by the Portfolio will be
collateralized by cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The collateral will equal
at least 100% of the current market value of the loaned
securities.
7
<PAGE> 78
PORTFOLIO TURNOVER IS
NOT EXPECTED TO
EXCEED 100% Although it generally seeks to invest for the long term,
the Portfolio retains the right to sell securities
irrespective of how long they have been held. It is
anticipated that the annual portfolio turnover rate of the
Portfolio will not exceed 100%. A turnover rate of 100%
would occur, for example, if all of the securities of the
Portfolio were replaced within a one-year period.
DERIVATIVE
INVESTING Derivatives are instruments whose values are linked to or
derived from an underlying security or index. The most
common and conventional types of derivative securities are
futures and options.
THE FUND MAY INVEST
IN DERIVATIVE
SECURITIES The Fund may invest in futures contracts and options, but
only to a limited extent. Specifically, a Portfolio of the
Fund may enter into futures contracts provided that not
more than 5% of its assets are required as a futures
contract deposit; in addition, a Portfolio may enter into
futures contracts and options transactions only to the
extent that obligations under such contracts or
transactions represent not more than 20% of the
Portfolio's assets.
Futures contracts and options may be used for several
common fund management strategies: to maintain cash
reserves while simulating full investment, to facilitate
trading, to reduce transaction costs, or to seek higher
investment returns when a specific futures contract is
priced more attractively than other futures contracts or
the underlying security or index.
FUTURES AND OPTIONS
POSE CERTAIN RISKS The primary risks associated with the use of futures
contracts and options are: (i) imperfect correlation
between the change in market value of the stocks held by
the Portfolio and the prices of futures and options; and
(ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a
futures position prior to its maturity date. The risk of
imperfect correlation will be minimized by investing only
in those contracts whose behavior is expected to resemble
that of the Portfolio's underlying securities. The risk
that the Portfolio will be unable to close out a futures
position will be minimized by entering into such
transactions on a national exchange with an active and
liquid secondary market.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin
deposits required and the extremely high degree of
leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may
result in immediate and substantial loss (or gain) to the
investor. When investing in futures contracts, the
Portfolio will segregate cash or cash equivalents in the
amount of the underlying obligation.
- --------------------------------------------------------------------------------
INVESTMENT
LIMITATIONS
THE PORTFOLIO HAS
ADOPTED CERTAIN
FUNDAMENTAL
LIMITATIONS
The Portfolio has adopted certain limitations on its
investment practices. Specifically, the Portfolio will
not:
(a) with respect to 75% of its assets, invest more than 5%
of its assets in the securities of any single company,
excluding obligations of the U.S. Government;
(b) with respect to 75% of its assets, purchase more than
10% of the outstanding voting securities of any
issuer;
8
<PAGE> 79
(c) invest more than 5% of its assets in the securities of
companies that have a continuous operating history of
less than three years;
(d) invest more than 25% of its assets in any one
industry;
(e) borrow money, except from a bank and only for
temporary or emergency purposes to facilitate the
meeting of redemption requests (not for leverage); and
(f) pledge, mortgage or hypothecate assets to an extent
greater than 15% of the value of its gross assets.
These investment limitations are considered at the time
investment securities are purchased. The limitations
described here and in the Statement of Additional
Information are fundamental and so may be changed only
with the approval of a majority of the Portfolio's
shareholders.
- --------------------------------------------------------------------------------
MANAGEMENT
OF THE PORTFOLIO
VANGUARD
ADMINISTERS AND
DISTRIBUTES THE
PORTFOLIO The Portfolio is a member of The Vanguard Group of
Investment Companies, a family of more than 30 investment
companies with more than 90 distinct investment portfolios
and total assets in excess of $170 billion. Through their
jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Portfolio and the other funds in the
Group obtain at cost virtually all of their corporate
management, administrative and distribution services.
Vanguard also provides investment advisory services on an
at-cost basis to certain Vanguard funds. As a result of
Vanguard's unique corporate structure, the Vanguard funds
have costs substantially lower than those of most
competing mutual funds. In 1994, the average expense ratio
(annual costs including advisory fees divided by average
total net assets) for the Vanguard Funds amounted to
approximately .30%, compared to an average of 1.05% for
the mutual fund industry (data provided by Lipper
Analytical Services).
The Officers of the Fund manage its day-to-day operations
and are responsible to the Fund's Board of Directors. The
Directors set broad policies for the Fund and choose its
Officers. A list of the Directors and Officers of the Fund
and a statement of their present positions and principal
occupations during the past five years can be found in the
Statement of Additional Information.
Vanguard employs a supporting staff of management and
administrative personnel needed to provide the requisite
services to the funds and also furnishes the funds with
necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's total expenses, which
are allocated among the funds under methods approved by
the Board of Directors (Trustees) of each fund. In
addition, each fund bears its own direct expenses, such as
legal, auditing, and custodian fees.
Vanguard provides distribution and marketing services to
the funds. The funds are available on a no-load basis,
(i.e., there are no sales commissions or 12b-1 fees).
However, each fund bears its allocated share of the
Group's distribution costs.
- --------------------------------------------------------------------------------
9
<PAGE> 80
INVESTMENT
ADVISER Schroder Capital Management International Inc. ("Schroder
Capital"), 787 Seventh Avenue, New York, NY 10019 serves
as the adviser to the Portfolio. The adviser discharges
its responsibilities, subject to the control of the
Officers and Directors of the Portfolio.
SCHRODER CAPITAL
SERVES AS ADVISER TO
THE PORTFOLIO Schroder Capital is a wholly-owned subsidiary of Schroders
PLC. Schroders PLC is the holding company parent of a
large worldwide group of banks and financial service
companies (referred to as "The Schroder Group") with
associated companies and branch and representative offices
located in twenty-four countries. The Schroder Group
specializes in providing investment management services,
with Group funds under management currently in excess of
$102 billion.
Richard Foulkes, Executive Vice President of Schroder
Capital, serves as Portfolio Manager for the Portfolio, a
position he has held since 1981. He is supported by
research teams in seven offices world-wide and by four
teams of regional specialists in their London Office.
The Portfolio pays Schroder Capital a basic advisory fee
calculated by applying varying percentage rates to the
average net assets of the Portfolio. The maximum rate is
.350 of 1% for the first $50 million of net assets. This
rate decreases to .175 of 1% on the next $950 million of
net assets and .125% on net assets in excess of $1
billion. This basic advisory fee is increased or decreased
by applying an adjustment formula based on the investment
performance of the Portfolio relative to the investment
record of the Morgan Stanley Capital International Europe,
Australia, Far East Index ("EAFE") over the preceding
36-month period as follows:
(a) On assets of the Portfolio of $1 billion or less:
<TABLE>
<CAPTION>
THREE-YEAR PERFORMANCE ANNUAL INCENTIVE (+) /
DIFFERENTIAL VS. EAFE PENALTY (-) FEE RATE
----------------------- ------------------------
<S> <C>
+12% or above +0.0750%
Between +6% and +12% +0.0375%
Between +6% and -6% -0-
Between -6% and -12% -0.0375%
-12% or below -0.0750%
</TABLE>
(b) On assets of the Portfolio of more than $1 billion:
<TABLE>
<CAPTION>
THREE-YEAR PERFORMANCE ANNUAL INCENTIVE (+) /
DIFFERENTIAL VS. EAFE PENALTY (-) FEE RATE
----------------------- ------------------------
<S> <C>
+12% or above +0.0500%
Between +6% and +12% +0.0250%
Between +6% and -6% -0-
Between -6% and -12% -0.0250%
-12% or below -0.0500%
</TABLE>
The incentive/penalty fee adjustment for assets in excess
of $1 billion will not be fully operable until the quarter
ending February 29, 1996, and until that date, the
incentive/penalty fee adjustment on assets in excess of $1
billion will be computed based on a comparison of the
investment performance of the Portfolio and that of
10
<PAGE> 81
the EAFE Index over the number of months that have elapsed
between March 1, 1993 and the end of the quarter for which
the fee is computed.
For the fiscal year ended August 31, 1995, the investment
advisory fee paid to Schroder Capital represented an
effective annual rate of .14 of 1% of the Portfolio's
average net assets before an increase of .02 of 1% based
on performance.
The investment advisory agreement with Schroder Capital
authorizes the adviser to select brokers or dealers to
execute purchases and sales of the Portfolio's securities,
and directs the adviser to use its best efforts to obtain
the best available price and most favorable execution with
respect to all transactions.
The Portfolio has authorized Schroder Capital to pay
higher commissions in recognition of brokerage services
felt necessary for the achievement of better execution,
provided the investment adviser believes this to be in the
best interest of the Portfolio. Although the Portfolio
does not market its shares through intermediary brokers or
dealers, the Portfolio may place orders for the Portfolio
with qualified broker-dealers who recommend the Portfolio
to clients if the Officers of the Fund believe that the
quality of the transaction and the commission are
comparable to what they would be with other qualified
brokerage firms.
The Board of Directors may, without the approval of
shareholders, provide for: (a) the employment of a new
investment adviser pursuant to the terms of a new advisory
agreement either as a replacement for an existing adviser
or as an additional adviser; (b) a change in the terms of
an advisory agreement; and (c) the continued employment of
an existing adviser on the same advisory contract terms
where a contract has been assigned because of a change in
control of the adviser. Any such change will only be made
upon not less than 30 days' prior written notice to
shareholders of the Portfolio which shall include
substantially the information concerning the adviser that
would have normally been included in a proxy statement.
- --------------------------------------------------------------------------------
PERFORMANCE
RECORD The table in this section shows the investment results for
the Portfolio for several periods throughout the
Portfolio's lifetime, both as Ivest Fund and as Vanguard
International Growth Portfolio. The results shown
represent "total return" investment performance, which
assumes the reinvestment of all capital gains and income
dividends for the indicated periods. Also included is
comparative information with respect to the Morgan Stanley
Capital International Europe, Australia, Far East Index
("EAFE"), a diversified portfolio of foreign stocks
commonly used as a benchmark of foreign stock market
activity; and the Consumer Price Index, a statistical
measurement of changes in the prices of goods and
services. The table does not make any allowance for
federal, state or local income taxes which shareholders
may pay on a current basis.
The results should not be considered a representation of
the total return from an investment made in the Portfolio
today. The periods shown were generally favorable ones for
stock market investing. This information is provided to
help you better
11
<PAGE> 82
understand the Portfolio and may not provide a basis for
comparison with other investments or mutual funds which
use a different method to calculate performance.
<TABLE>
<CAPTION>
PERIODS
ENDED 8/31/95
--------------- AVERAGE ANNUAL TOTAL RETURN
VANGUARD EAFE CONSUMER
INTERNATIONAL INDEX PRICE
GROWTH PORTFOLIO ----- INDEX
---------------- --------
<S> <C> <C> <C>
3 Years 14.8% 12.5 % 2.8%
5 Years 7.8 7.3 3.1
10 Years 16.3 15.7 3.5
Lifetime* 16.8 16.2 3.6
* September 30, 1981, to August 31, 1995.
</TABLE>
- --------------------------------------------------------------------------------
DIVIDENDS, Dividends consisting of virtually all of the ordinary
CAPITAL GAINS income of the Portfolio are declared and paid to
AND TAXES shareholders annually. Capital gains distributions, if
THE PORTFOLIO PAYS any, will also be made annually. All dividend and capital
DIVIDENDS AND ANY gains distributions are automatically reinvested in
CAPITAL GAINS additional shares of the Portfolio.
ANNUALLY
In order to satisfy certain distribution requirements of
the Tax Reform Act of 1986, the Portfolio may declare
special year-end dividend and capital gains distributions
during December. The Portfolio intends to continue to
qualify for taxation as a "regulated investment company"
under the Internal Revenue Code so that it will not be
subject to federal income tax to the extent its income is
distributed to shareholders.
If you utilize the Portfolio as an investment option in an
employer-sponsored retirement savings plan, dividend and
capital gains distributions from the Portfolio will
generally not be subject to current taxation, but will
accumulate on a tax-deferred basis. In general, employer
sponsored retirement and savings plans are governed by a
complex set of tax rules. If you participate in such a
plan, consult your plan administrator, your plan's Summary
Plan Description, or a professional tax adviser regarding
the tax consequences of your participation in the plan and
of any plan contributions or withdrawals.
- --------------------------------------------------------------------------------
THE SHARE PRICE The Portfolio's share price or "net asset value" is
OF THE PORTFOLIO calculated each business day after the close of regular
trading (generally 4:00 p.m. Eastern time) of the New York
Stock Exchange. Net asset value per share is computed by
adding up the total value of the Portfolio's investments
and other assets, subtracting any of its liabilities, or
debts, and then dividing by the number of outstanding
shares of the Portfolio.
Securities listed on a foreign exchange, as well as
American Depository Receipts ("ADRs"), which are traded on
U.S. exchanges are valued at the latest quoted sale price
available before the assets are valued. All prices of
listed securities are taken from the exchange where the
security is primarily traded. Securities regularly traded
in the over-the-counter market for which market quotations
are readily available will be valued at the latest quoted
bid price. Securities may be valued on the basis of prices
provided by a pricing service when such prices are
believed to reflect the fair market value of such
securities. Other assets and securities for which
12
<PAGE> 83
no quotations are readily available will be valued in a
manner determined in good faith by the Board of Directors
to reflect their fair value.
For purposes of determining the Portfolio's net asset
value per share, all assets and liabilities initially
expressed in foreign currencies will be converted into
U.S. dollars using the quoted daily exchange rates
determined by Morgan Stanley Capital International (MSCI)
in the calculation of their various benchmarking indices.
This officially quoted daily exchange rate may be
determined by MSCI prior to or after the close of a
particular foreign securities market. If such quotations
are not available, the rate of exchange will be determined
in accordance with policies established in good faith by
the Board of Directors.
The Portfolio's share price can be found daily in the
mutual fund listings of most major newspapers under the
heading of Vanguard.
- --------------------------------------------------------------------------------
GENERAL
INFORMATION The Fund was organized as Ivest Fund, a Massachusetts
Corporation, in 1959. The Fund is now a Maryland
Corporation. The Fund is authorized to issue 550,000,000
shares with a par value of $1.00 per share. Currently, the
Fund is offering shares of two Portfolios with 250,000,000
shares allocated to the U.S. Growth Portfolio and
300,000,000 shares allocated to the International Growth
Portfolio.
The shares of each Portfolio of the Fund are fully paid
and non-assessable; have no preference as to conversion,
exchange, dividends, retirement or other features; and
have no pre-emptive rights. The shares of each Portfolio
have non-cumulative voting rights, meaning that the
holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if
they so choose.
The Fund will not hold annual meetings of shareholders
except as required by the Investment Company Act of 1940
and other applicable law. The Directors of the Fund will
call a meeting of shareholders for the purpose of voting
upon the question of removal of a Director or Directors if
such a meeting is requested in writing by the holders of
not less than 10% of the outstanding shares of the Fund.
All securities and cash of the Portfolio are held by
Morgan Guaranty Trust Company, New York, NY. The Vanguard
Group, Inc., Valley Forge, PA, serves as the Portfolio's
Transfer and Dividend Disbursing Agent. Price Waterhouse
LLP, serves as independent accountants for the Portfolio
and will audit its financial statements annually. The
Portfolio is not involved in any litigation.
- --------------------------------------------------------------------------------
13
<PAGE> 84
SERVICE GUIDE
PARTICIPATING
IN YOUR PLAN The Portfolio is available as an investment option in your
retirement or savings plan. The administrator of your plan
or your employee benefits office can provide you with
detailed information on how to participate in your plan
and how to elect the Portfolio as an investment option.
If you have any questions about the Portfolio, including
the Portfolio's investment objective, policies, risk
characteristics or historical performance, please contact
Participant Services at 1-800-523-1188.
If you have questions about your account, contact your
plan administrator or the organization which provides
recordkeeping services for your plan.
----------------------------------------------------------
INVESTMENT OPTIONS
AND ALLOCATIONS You may be permitted to elect different investment
options, alter the amounts contributed to your plan, or
change how contributions are allocated among your
investment options in accordance with your plan's specific
provisions. See your plan administrator or employee
benefits office for more details.
----------------------------------------------------------
TRANSACTIONS IN
FUND SHARES Contributions, exchanges or redemptions of the Portfolio's
shares are effective when received in "good order" by
Vanguard. "Good order" means that complete information on
the contribution, exchange or redemption and the
appropriate monies have been received by Vanguard.
----------------------------------------------------------
MAKING EXCHANGES Your plan may allow you to exchange monies from one
investment option to another. However, the Fund reserves
the right to refuse any exchange purchase request. Check
with your plan administrator for details on the rules
governing exchanges in your plan. Certain investment
options, particularly company stock or guaranteed
investment contracts (GICs), may be subject to unique
restrictions.
Before making an exchange, you should consider the
following:
- If you are making an exchange to another Vanguard Fund
option, please read that Fund's prospectus. Contact
Participant Services at 1-800-523-1188 for a copy.
- Exchanges are accepted by Vanguard only as permitted by
your plan. Your plan administrator can explain how
frequently exchanges are allowed.
- --------------------------------------------------------------------------------
14
<PAGE> 85
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 86
[VANGUARD INTERNATIONAL
GROWTH PORTFOLIO LOGO]
---------------------------
THE VANGUARD GROUP
OF INVESTMENT
COMPANIES
Vanguard Financial Center
P.O. Box 2900
Valley Forge, PA 19482
INSTITUTIONAL PARTICIPANT
SERVICES DEPARTMENT:
1-800-523-1188
TRANSFER AGENT:
The Vanguard Group, Inc.
Vanguard Financial Center
Valley Forge, PA 19482
[FLAG LOGO]
[VANGUARD INTERNATIONAL GROWTH PORTFOLIO LOGO]
I N S T I T U T I O N A L
P R O S P E C T U S
DECEMBER 29, 1995
[VANGUARD GROUP LOGO]
I081
- --------------------------------------------------------------------------------
<PAGE> 87
PART B
VANGUARD WORLD FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1995
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectuses (dated December 29, 1995). To obtain the
Prospectuses please call:
INVESTOR INFORMATION DEPARTMENT
1-800-662-7447
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies..................................................... 1
Yield and Total Return................................................................ 6
Purchase of Shares.................................................................... 6
Redemption of Shares.................................................................. 6
Dividends, Capital Gains and Taxes.................................................... 7
Investment Limitations................................................................ 7
Management of the Fund................................................................ 9
Investment Advisory Services.......................................................... 11
Portfolio Transactions................................................................ 16
Financial Statements.................................................................. 17
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's investment objective and
policies set forth in the Prospectus for each of the Fund's Portfolios.
FUTURES AND OPTIONS Each Portfolio may enter into stock futures contracts,
options, and options on futures contracts only for several reasons: to maintain
cash reserves while simulating full investment, to facilitate trading, to reduce
transactions costs, or to seek higher investment returns when a futures contract
is priced more attractively than the underlying equity security or index.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. Futures contracts which are standardized as to
maturity date and underlying financial instrument are traded on national futures
exchanges. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission ("CFTC"), a U.S.
Government Agency.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," "selling" a contract previously
purchased) in an identical contract to terminate the position. Brokerage
commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin that
may range upward from less than 5% of the value of the contract being traded.
1
<PAGE> 88
After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either "hedgers"
or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the market value of the underlying securities. Each Portfolio intends to use
futures contracts only for bona fide hedging purposes.
Regulations of the CFTC applicable to each Portfolio require that all of
its futures transactions constitute bona fide hedging transactions. Each
Portfolio will only sell futures contracts to protect securities it owns against
price declines or purchase contracts to protect against an increase in the price
of securities it intends to purchase. As evidence of this hedging interest, each
Portfolio expects that approximately 75% of its futures contract purchases will
be "completed;" that is, equivalent amounts of related securities will have been
purchased or are being purchased by each Portfolio upon sale of open futures
contracts.
Although techniques other than the sale and purchase of futures contracts
could be used to control the exposure of a Portfolio's income to fluctuations in
the market value of the underlying securities, the use of futures contracts may
be a more effective means of hedging this exposure. While the Portfolio will
incur commission expenses in both opening and closing out futures positions,
these costs are lower than transaction costs incurred in the purchase and sale
of portfolio securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS Each Portfolio will not enter
into futures contract transactions to the extent that, immediately thereafter,
the sum of its initial margin deposits on open contracts exceeds 5% of the
market value of the Portfolio's total assets. In addition, each Portfolio will
not enter into futures contracts to the extent that its outstanding obligations
to purchase securities under these contracts would exceed 20% of the Portfolio's
total assets.
RISK FACTORS IN FUTURES TRANSACTIONS Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, each Portfolio would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if the Portfolio
has insufficient cash, it may have to sell portfolio securities to meet daily
margin requirements at a time when it may be disadvantageous to do so. In
addition, each Portfolio may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the ability to
effectively hedge it.
Each Portfolio will minimize the risk that it will be unable to close out a
futures contract by only entering into futures contracts which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if, at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses
2
<PAGE> 89
in excess of the amount invested in the contract. However, because the futures
strategies of each Portfolio are engaged in only for hedging purposes, the
investment advisers do not believe that the Portfolios are subject to the risks
of loss frequently associated with futures transactions. Each Portfolio would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
FEDERAL TAX TREATMENT OF FUTURES CONTRACTS Except for transactions each
Portfolio has identified as hedging transactions, each Portfolio is required for
federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on futures contracts held as of the end of the year
as well as those actually realized during the year. In most cases, any gain or
loss recognized with respect to a futures contract is considered to be 60%
long-term capital gain or loss and 40% short-term capital gain or loss, without
regard to the holding period of the contract. Furthermore, sales of futures
contracts which are intended to hedge against a change in the value of
securities held by each Portfolio may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
In order for each Portfolio to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities, or currencies. In addition,
gains realized on the sale or other disposition of securities held for less than
three months must be limited to less than 30% of the Portfolio's annual gross
income. It is anticipated that any net gain realized from the closing out of
futures contracts will be considered gain from the sale of securities and
therefore be qualifying income for purposes of the 90% requirement. In order to
avoid realizing excessive gains on securities held less than three months, each
Portfolio may be required to defer the closing out of futures contracts beyond
the time when it would otherwise be advantageous to do so. It is anticipated
that unrealized gains on futures contracts, which have been open for less than
three months as of the end of the Portfolio's fiscal year and which are
recognized for tax purposes, will not be considered gains on securities held,
less than three months for the purpose of the 30% test.
Each Portfolio will distribute to shareholders annually any net capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the Portfolio's fiscal year) on futures
transactions. Such distributions will be combined with distributions of capital
gains realized on the Portfolio's other investments and shareholders will be
advised on the nature of the payments.
FOREIGN INVESTMENTS The International Growth Portfolio seeks to diversify
its assets among various foreign stock markets. With respect to 65% of its
assets, the Portfolio will invest in the securities of at least three different
countries. Investors should recognize that investing in foreign companies
involves certain special considerations which are not typically associated with
investing in U.S. companies. Since the stocks of foreign companies are
frequently denominated in foreign currencies, and since the International Growth
Portfolio may temporarily hold uninvested reserves in bank deposits in foreign
currencies, the International Growth Portfolio will be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions
3
<PAGE> 90
between various currencies. The investment policies of the International Growth
Portfolio permit it to enter into forward foreign currency exchange contracts in
order to hedge the Portfolio's holdings and commitments against changes in the
level of future currency rates. Such contracts involve an obligation to purchase
or sell a specific currency at a future date at a price set at the time of the
contract.
Special rules govern the Federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include the
following: (i) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instrument if such
instrument is not marked to market. The disposition of a currency other than the
U.S. dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the marking-to-market rules applicable to other futures
contracts unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. The Treasury Department has authority to issue regulations under which
certain transactions subject to the special currency rules that are part of a
"section 988 hedging transaction" (as defined in the Internal Revenue Code of
1986, as amended, and the Treasury regulations) will be integrated and treated
as a single transaction or otherwise treated consistently for purposes of the
Code. Any gain or loss attributable to the foreign currency component of a
transaction engaged in by a Portfolio which is not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks) will be treated as capital gain or loss and will not be segregated from
the gain or loss on the underlying transaction. It is anticipated that some of
the non-U.S. dollar-denominated investments and foreign currency contracts the
International Growth Portfolio may make or enter into will be subject to the
special currency rules described above.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.
Although the International Growth Portfolio will endeavor to achieve most
favorable execution costs in its portfolio transactions, fixed commissions on
many foreign stock exchanges are generally higher than negotiated commissions on
U.S. exchanges. In addition, it is expected that the expenses for custodian
arrangements of the Portfolio's foreign securities will be somewhat greater than
the expenses for the custodian arrangements for handling the U.S. Growth
Portfolio's securities of equal value.
Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from the companies comprising the Fund's International
Growth Portfolio. However, these foreign withholding taxes are not expected to
have a significant impact on the International Growth Portfolio, since the
Portfolio's investment objective is to seek long-term capital appreciation and
any income should be considered incidental.
4
<PAGE> 91
PORTFOLIO TURNOVER While the rate of portfolio turnover is not a limiting
factor when management deems changes appropriate, it is anticipated that the
annual turnover rate for each Portfolio will not normally exceed 100%. A rate of
turnover of 100% could occur, for example, if all of the securities held by a
Portfolio are replaced within a period of one year. The portfolio turnover rate
for each Portfolio for each of the fiscal years presented is set forth under
"Financial Highlights," in each Portfolio's Prospectus.
REPURCHASE AGREEMENTS Each Portfolio along with other members of the
Vanguard Group may invest in repurchase agreements with commercial banks,
brokers or dealers either for defensive purposes due to market conditions or to
generate income from its excess cash balances. A repurchase agreement is an
agreement under which the Portfolio acquires a money market instrument
(generally a security issued by the U.S. Government or an agency thereof, a
banker's acceptance or a certificate of deposit) from a commercial bank, broker
or dealer, subject to resale to the seller at an agreed upon price and date
(normally, the next business day). A repurchase agreement may be considered a
loan collateralized by securities. The resale price reflects an agreed upon
interest rate effective for the period the instrument is held by the Portfolio
and is unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by the Portfolio (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Fund's custodian bank until
repurchased. In addition, the Fund's Board of Directors will monitor repurchase
agreement transactions generally and will establish guidelines and standards for
review by the investment adviser of the creditworthiness of any bank, broker or
dealer party to a repurchase agreement. No more than an aggregate of 15% of the
Portfolio's assets, at the time of investment, will be invested in repurchase
agreements having maturities longer than seven days and securities subject to
legal or contractual restrictions on resale, or for which there are no readily
available market quotations.
LENDING OF SECURITIES Each Portfolio may lend its investment securities
for either short-term or long-term purposes to qualified institutional investors
who need to borrow securities in order to complete certain transactions, such as
covering short sales, avoiding failures to deliver securities or completing
arbitrage operations. By lending its investment securities, a Portfolio attempts
to increase its net investment income through the receipt of interest on the
loan. Any gain or loss in the market price of the securities loaned that might
occur during the term of the loan would be for the account of the Portfolio.
Each Portfolio may lend its investment securities to qualified brokers, dealers,
banks or other financial institutions, so long as the terms and the structure
and the aggregate amount of such loans are not inconsistent with the Investment
Company Act of 1940, or the Rules and Regulations or interpretations of the
Securities and Exchange Commission (the "Commission") thereunder, which
currently require that (a) the borrower pledge and maintain with the Portfolio
collateral consisting of cash, an irrevocable letter of credit or securities
issued or guaranteed by the United States Government having at all times not
less than 100% of the value of the securities loaned, (b) the borrower add to
such collateral whenever the price of the securities loaned rises (i.e. the
borrower "marks to the market" on a daily basis), (c) the loan be made subject
to termination by the Portfolio at any time and (d) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio's investing any
cash collateral in interest bearing short-term investments), any distribution on
the loaned securities and any increase in their market value. The Portfolio will
not lend investment securities if as a result, the aggregate of such loans
exceeds 33 1/3% of the value of the Portfolio's total assets. Loan arrangements
made by the Portfolio will comply with all other applicable regulatory
requirements, including the rules of the New York Stock Exchange, which
presently require the borrower, after notice, to redeliver the securities within
the normal settlement time of three business days. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Fund's Board of Directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in written contract and approved
by the investment company's Directors. In addition, voting rights may pass with
the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
5
<PAGE> 92
YIELD AND TOTAL RETURN
The yield of the U.S. Growth Portfolio of the Fund for the 30-day period
ended August 31, 1995, was 1.76%.
The average annual total return of each Portfolio of the Fund for certain
periods ended August 31, 1995, is set forth below:
<TABLE>
<CAPTION>
1 YEAR ENDED 5 YEARS ENDED 10 YEARS ENDED
8/31/95 8/31/95 8/31/95
------------ ------------- --------------
<S> <C> <C> <C>
U.S. Growth Portfolio............... +22.75% + 14.30% +12.92%
International Growth Portfolio...... + 3.76% + 7.82% +16.27%
</TABLE>
Total return is computed by determining the average compounded rates of
return over the periods set forth above that would equate an initial amount
invested at the beginning of the periods to the ending redeemable value of the
investment.
PURCHASE OF SHARES
The purchase price of shares of each Portfolio of the Fund is the net asset
value per share next determined after the order is received. The net asset value
per share is calculated as of the close of the New York Stock Exchange on each
day the Exchange is open for business. An order received prior to the close of
the Exchange will be executed at the price computed on the date of receipt; and
an order received after the close of the Exchange will be executed at the price
computed on the next day the Exchange is open.
Each Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum investment for or any other restrictions on initial
and subsequent investments for certain fiduciary accounts such as employee
benefit plans or under circumstances where certain economies can be achieved in
sales of a Portfolio's shares.
STOCK CERTIFICATES Your purchase will be made in full and fractional
shares of each Portfolio calculated to three decimal places. Shares are normally
held on deposit for shareholders by the Fund, which will send to shareholders a
statement of shares owned at the time of each transaction. This saves the
shareholders the trouble of safekeeping the certificates, and saves the Fund the
cost of issuing certificates. Share certificates are, of course, available at
any time upon written request at no additional cost to shareholders. No
certificates will be issued for fractional shares.
REDEMPTION OF SHARES
Each Portfolio may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Securities and
Exchange Commission (the "Commission"), (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of which it is not
reasonably practicable for a Portfolio to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
No charge is made by a Portfolio for redemptions. Any redemption may be
more or less than the shareholder's cost depending on the market value of the
securities held by the Portfolio.
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of a Portfolio to make payment
wholly or partly in cash, a Portfolio may pay the redemption price in whole or
in part by a distribution in kind of readily marketable securities held by the
Portfolio in lieu of cash in conformity with applicable rules of the Commission.
Investors may incur brokerage charges on the sale of such securities so received
in payment of redemptions.
6
<PAGE> 93
SIGNATURE GUARANTEES To protect your account, the Fund and Vanguard from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Fund to verify the identity of a person who has authorized
a redemption from your account. Signature guarantees are required in connection
with: (1) redemptions involving more than $25,000 on the date of receipt by
Vanguard of all necessary documents; (2) all redemptions, regardless of the
amount involved, when the proceeds are to be paid to someone other than the
registered owner(s); and (3) share transfer requests. These requirements are not
applicable to redemptions in Vanguard's prototype plans except in connection
with: (1) distributions made when the proceeds are to be paid to someone other
than the plan participant; (2) certain authorizations to effect exchanges by
telephone; and (3) when proceeds are to be wired. These requirements may be
waived by the Fund in certain instances.
Signature guarantees can be obtained from a bank, broker or any other
guarantor that Vanguard deems acceptable. Notaries public are not acceptable
guarantors.
The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Fund are also
being redeemed, on the letter or stock power.
DIVIDENDS, CAPITAL GAINS AND TAXES
The Fund's policy is to distribute annually substantially all of its net
investment income from each Portfolio, if any, together with any net realized
capital gains, after the close of the Fund's fiscal year. Any dividend or
capital gains distribution paid shortly after the purchase of shares by an
investor may have the effect of reducing the per share net asset value by the
per share amount of the dividend or distribution. Furthermore, such dividends or
distributions, although in effect a return of capital, are subject to income
taxes.
Unless the shareholder elects otherwise, dividends and capital gain
distributions are paid in additional shares which are credited to the
shareholder's account. Any dividend and distribution election will remain in
effect until the Fund's Transfer Agent is notified by the shareholder in writing
or by calling Customer Service to change the election at least three days prior
to the record date. An account statement is sent to shareholders whenever an
income dividend or capital gains distribution is paid.
INVESTMENT LIMITATIONS
Each Portfolio of the Fund is subject to the following restrictions which
may not be changed without the approval of the lesser of (i) 67 percent or more
of the voting securities present at a meeting if the holders of more than 50
percent of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) more than 50 percent of the outstanding voting
securities of the Portfolio. Each Portfolio will not:
(1) make investments in commodities except that each Portfolio may
invest in stock futures contracts, stock options, options on stock futures
contracts and, in the case of the International Growth Portfolio foreign
currency futures contracts and options, to the extent that not more than 5%
of the Portfolio's assets are used as initial margin deposit at any time
and not more than 20% of the Portfolio's assets are invested in futures
contracts and/or options at any time;
(2) make investments in real estate, although it may purchase and sell
securities of companies which deal in real estate or interests therein;
(3) each Portfolio of the Fund may lend its investment securities to
qualified brokers, dealers, banks or other financial institutions, so long
as the terms and the structure of such loans are not inconsistent with the
Investment Company Act of 1940, as amended, or the Rules and Regulations or
interpretations of the Securities and Exchange Commission thereunder, which
currently require that (a) the borrower pledge and maintain with the
Portfolio collateral consisting of cash, an
7
<PAGE> 94
irrevocable letter of credit or securities issued or guaranteed by the
United States Government having a value at all times not less than 100
percent of the value of the securities loaned, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e. the
borrower "marks to the market" on a daily basis), (c) the loan be made
subject to termination by the Portfolio at any time and (d) the Portfolio
receive reasonable interest on the loan (which may include the Portfolio's
investing any cash collateral in interest bearing short-term investments),
and distributions on the loaned securities and any increase in their market
value. Each Portfolio of the Fund will not lend securities if, as a result,
the aggregate of such loans exceeds 33 1/3% of the value of the Portfolio's
total assets. Loan arrangements made by the Fund will comply with all other
applicable regulatory requirements, including the rules of the New York
Stock Exchange, which rules presently require the borrower, after notice,
to redeliver the securities within the normal settlement time of five
business days;
(4) engage in the business of underwriting securities issued by others
except to the extent that a Portfolio may technically be deemed to be an
underwriter under the Securities Act of 1933 in disposing of portfolio
securities;
(5) purchase securities on margin or make short sales except as
described above in (1);
(6) borrow except from banks and not in excess of the lesser of 10% of
its gross assets taken at cost (before such borrowings) or 33 1/3% of its
gross assets, less liabilities other than such borrowings, taken at market
or other fair value, and any borrowing may be undertaken only as a
temporary measure for extraordinary or emergency purposes to facilitate the
meeting of redemption requests (not for leverage); or pledge, mortgage or
hypothecate assets to an extent greater than 15% of the value of its gross
assets, taken at cost (as a matter of policy each Portfolio will limit any
such pledging, mortgaging or hypothecating to 10% of its assets);
(7) invest for the purpose of exercising control over or management of
any company;
(8) invest in securities of other investment companies, except as may
be acquired as a part of a merger, consolidation or acquisition of assets
or otherwise to the extent permitted by Section 12 of the 1940 Act. A
Portfolio will invest only in investment companies which have investment
objectives and investment policies consistent with those of the Portfolio;
(9) with respect to 75% of its assets, purchase securities of any
issuer (except obligations of the United States government and its
instrumentalities) if as a result the Fund would hold more than 10% of the
voting securities of the issuer, or more than 5% of the value of the
Portfolio's total assets would be invested in the securities of the issuer;
(10) purchase or retain securities of an issuer if an officer or
director of such issuer is an officer or director of the Fund or its
investment adviser and one or more of such officers or directors of the
Fund or its investment adviser owns beneficially more than 1/2% of the
shares or securities of such issuer and all such directors and officers
owning more than 1/2% of such shares or securities together own more than
5% of such shares or securities;
(11) purchase securities of any company which has (with predecessors)
a record of less than three years' continuous operation if as a result more
than 5% of the Portfolio's assets would be invested in securities of such
companies; or
(12) invest more than 25% of the value of its total assets in any one
industry; and
(13) purchase or otherwise acquire any security if, as a result more
than 15% of its net assets would be invested in securities that are
illiquid (this limitation applies to the Fund's investment in The Vanguard
Group, Inc.).
These investment limitations are considered at the time that investment
securities are purchased. Notwithstanding these limitations, the Fund may own
all or any portion of the securities of, or make loans to, or contribute to the
costs or other financial requirements of any company which will be wholly
8
<PAGE> 95
owned by the Fund and one or more other investment companies and is primarily
engaged in the business of providing, at-cost, management, administrative or
related services to the Fund and other investment companies. See "Management of
the Fund."
Although not fundamental policies subject to shareholder vote, as long as
the Fund's shares are registered for sale in certain states, a Portfolio will
not (i) invest in put, call, straddle or spread options, except as set forth
above in (1), (ii) invest in interests in oil, gas or other mineral exploration
or development programs, and (iii) pledge, mortgage or hypothecate assets to an
extent greater than 10% of the value of its net assets at market value.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Officers of the Fund manage its day-to-day operations and are
responsible to the Fund's Board of Directors. The Directors set broad policies
for each Portfolio of the Fund and choose its Officers. The following is a list
of the Directors and Officers of the Fund and a statement of their present
positions and principal occupations during the past five years. As of November
1, 1995, the Directors and Officers of the Fund owned less than 1% of the Fund's
outstanding shares. The mailing address of the Directors and Officers of the
Fund is Post Office Box 876, Valley Forge, PA 19482.
<TABLE>
<S> <C>
JOHN C. BOGLE, Chairman, Chief Executive JOHN C. SAWHILL, Director
Officer and Director *(1) President and Chief Executive Officer, The
Chairman, Chief Executive Officer, and Nature Conservancy; formerly, Director and
Director of The Vanguard Group, Inc., and Senior Partner, McKinsey & Co.; and
of each of the investment companies in The President, New York University; Director of
Vanguard Group; Director of The Mead Pacific Gas and Electric Company and NACCO
Corporation and General Accident Insurance. Industries.
JOHN J. BRENNAN, President & Director *(1) JAMES O. WELCH, JR., Director
President and Director of The Vanguard Retired Chairman of Nabisco Brands, Inc.,
Group, Inc., and of each of the other retired Vice Chairman and Director of RJR
investment companies in The Vanguard Group. Nabisco; Director of TECO Energy, Inc. and
Kmart Corporation.
ROBERT E. CAWTHORN, Director
Chairman and Chief Executive Officer, J. LAWRENCE WILSON, Director
Rhone-Poulenc Rorer, Inc.; Director of Sun Chairman and Chief Executive Officer of Rohm
Company, Inc. & Haas Company; Director of Cummins Engine
Company; and Trustee of Vanderbilt
BARBARA BARNES HAUPTFUHRER, Director University.
Director of The Great Atlantic and Pacific
Tea Company, ALCO Standard Corp., Raytheon RAYMOND J. KLAPINSKY, Secretary *
Company, Knight-Ridder, Inc., and Senior Vice President and Secretary of The
Massachusetts Mutual Life Insurance Co. and Vanguard Group, Inc.; Secretary of each of
Trustee Emerita of Wellesley College. the investment companies in The Vanguard
Group.
BRUCE K. MACLAURY, Director
President, The Brookings Institution; RICHARD F. HYLAND, Treasurer *
Director of the American Express Bank, Treasurer of The Vanguard Group, Inc., and of
Ltd., the St. Paul Companies, Inc., and each of the investment companies in The
Scott Paper Company. Vanguard Group.
BURTON G. MALKIEL, Director KAREN E. WEST, Controller *
Chemical Bank Chairman's Professor of Vice President of The Vanguard Group, Inc.;
Economics, Princeton University; Director Controller of each of the investment
of Prudential Insurance Co. of America, companies in The Vanguard Group.
Amdahl Corporation, Baker Fentress & Co., ---------------------------------------------
The Jeffrey Co. and Southern New England
Communications Company. *Officers of the Fund are "interested
persons" as defined in the Investment Company
ALFRED M. RANKIN, JR., Director Act of 1940.
Chairman, President and Chief Executive (1) Effective February 1, 1996, Mr. Brennan
Officer of NACCO Industries, Inc.; Director will succeed Mr. Bogle as Chief Executive
of The BFGoodrich Company and The Standard Officer of the Fund, The Vanguard Group, Inc.
Products Company. and each of the investment companies in The
Vanguard Group. Mr. Bogle will remain
Chairman and Director of the Fund, The
Vanguard Group, Inc. and each of the
investment companies in The Vanguard Group.
</TABLE>
9
<PAGE> 96
THE VANGUARD GROUP
Vanguard World Fund, Inc. is a member of The Vanguard Group of Investment
Companies. Through their jointly-owned subsidiary, The Vanguard Group, Inc.
("Vanguard"), the Fund and the other Funds in the Group obtain at-cost virtually
all of their corporate management, administrative and distribution services.
Vanguard also provides investment advisory services on an at-cost basis to
several of the Vanguard Funds.
Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services, furnishings and equipment.
Each fund pays its share of Vanguard's total expenses which are allocated among
the funds under methods approved by the Board of Directors (Trustees) of each
Fund. In addition, each Fund bears its own direct expenses such as legal,
auditing and custodian fees. In order to generate additional revenues for
Vanguard and thereby reduce the Funds' expenses, Vanguard also provides certain
administrative services to other organizations.
The Fund's officers are also officers and employees of Vanguard. No officer
or employee owns, or is permitted to own, any securities of any external adviser
for the Funds.
The Vanguard Group adheres to a Code of Ethics established pursuant to Rule
17j-l under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines substantially similar to
those recommended by the mutual fund industry and approved by the U.S.
Securities and Exchange Commission.
Vanguard was established and operates under a Funds' Service Agreement
which was approved by the shareholders of each of the Funds. The amounts which
each of the Funds have invested are adjusted from time to time in order to
maintain the proportionate relationship between each Fund's relative net assets
and its contribution to Vanguard's capital. At August 31, 1995, the Fund had
contributed capital of $823,000 to Vanguard, representing 4.1% of Vanguard's
capitalization. The Funds' Service Agreement provides as follows: (a) each
Vanguard Fund may invest up to .40% of its current assets in Vanguard, and (b)
there is no other limitation on the amount each Vanguard Fund may contribute to
Vanguard's capitalization.
MANAGEMENT Corporate management and administrative services include: (1)
executive staff; (2) accounting and financial; (3) legal and regulatory; (4)
shareholder account maintenance; (5) monitoring and control of custodian
relationships; (6) shareholder reporting; and (7) review and evaluation of
advisory and other services provided to the Funds by third parties. During the
fiscal year ended August 31, 1995, the Fund's allocated share of Vanguard's
actual net costs of operation relating to management and administrative services
(including transfer agency) totaled approximately $15,724,000.
DISTRIBUTION Vanguard provides all distribution and marketing activities
for the Funds in the Group. Vanguard Marketing Corporation, a wholly-owned
subsidiary of The Vanguard Group, Inc., acts as Sales Agent for the shares of
the Funds, in connection with any sales made directly to investors in the states
of Florida, Missouri, New York, Ohio, Texas and such other states as it may be
required.
The principal distribution expenses are for advertising, promotional
materials and marketing personnel. Distribution services may also include
organizing and offering to the public, from time to time, one or more new
investment companies which will become members of the Group. The Directors and
Officers of Vanguard determine the amount to be spent annually on distribution
activities, the manner and amount to be spent on each Fund, and whether to
organize new investment companies.
One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon relative net assets. The remaining one
half of those expenses is allocated among the Funds based upon each Fund's sales
for the preceding 24 months relative to the total sales of the Funds
10
<PAGE> 97
as a Group, provided, however, that no Fund's aggregate quarterly rate of
contribution for distribution expenses of a marketing and promotional nature
shall exceed 125% of the average distribution expense rate for the Group, and
that no Fund shall incur annual distribution expenses in excess of 20/100 of 1%
of its average month-end net assets. During the fiscal year ended August 31,
1995, the Fund paid approximately $1,144,000 of the Group's distribution and
marketing expenses, which represented an effective annual rate of .02% of 1% of
the Fund's average net assets.
INVESTMENT ADVISORY SERVICES Vanguard also provides investment advisory
services to Vanguard Municipal Bond Fund, Vanguard California Tax-Free Fund,
Vanguard New Jersey Tax-Free Fund, Vanguard New York Insured Tax-Free Fund,
Vanguard Pennsylvania Tax-Free Fund, Vanguard Ohio Tax-Free Fund, Vanguard
Florida Insured Tax-Free Fund, Vanguard Admiral Funds, Vanguard Bond Index Fund,
Vanguard Index Trust, Vanguard International Equity Index Fund, Vanguard
Balanced Index Fund, the Money Market, High-Grade Bond, and Equity Index
Portfolios of Vanguard Variable Insurance Fund,Vanguard Money Market Reserves,
Vanguard Institutional Portfolios, several portfolios of Vanguard Fixed Income
Securities Fund, Vanguard Tax-Managed Fund, the Aggressive Growth Portfolio of
Vanguard Horizon Fund, a portion of Vanguard/Windsor, a portion of
Vanguard/Morgan Growth Fund as well as several indexed separate accounts. These
services are provided on an at-cost basis from a money management staff employed
directly by Vanguard. The compensation and other expenses of this staff are paid
by the Funds utilizing these services.
REMUNERATION OF DIRECTORS AND OFFICERS The Fund pays each Director, who is
not also an Officer, an annual fee plus travel and other expenses incurred in
attending Board meetings. The Fund's officers and employees are paid by Vanguard
which, in turn, is reimbursed by the Fund and each other Fund in the Group, for
its allocated share of Officers' and employees' salaries and retirement
benefits. The Fund's proportionate share of remuneration paid by Vanguard (and
reimbursed by the Fund) during the 1995 fiscal year to all Officers of the Fund,
as a group, was approximately $ -- .
Directors who are not Officers are paid an annual fee based on the number
of years of service on the Board upon retirement. The fee is equal to $1,000 for
each year of service (up to fifteen years) and each investment company member of
the Vanguard Group contributes a proportionate amount to this fee based on its
relative net assets. Under its retirement plan, Vanguard contributes annually an
amount equal to 10% of each eligible officer's annual compensation plus 5.7% of
that part of an eligible officer's compensation during the year, if any, that
exceeds the Social Security Taxable Wage Base then in effect. Under its thrift
plan, all eligible officers are permitted to make pre-tax contributions in an
amount up to 4% of total compensation, subject to federal tax limitations, which
are matched by Vanguard on a 100% basis. The Fund's proportionate share of
retirement contributions made by Vanguard under its retirement and thrift plans
on behalf of all Officers of the Fund, as a group, during the 1995 fiscal year
was approximately $ -- .
11
<PAGE> 98
The following table provides detailed information with respect to the
amounts paid or accrued for the Directors, and the Officers of the Fund, for the
fiscal year ended August 31, 1995.
VANGUARD WORLD FUND, INC.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM ALL VANGUARD FUND
NAME OF DIRECTORS FROM FUND PART OF FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS(2)
- ----------------- ------------ --------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
John C. Bogle(1)............ -- -- -- --
John J. Brennan(1).......... -- -- -- --
Barbara Barnes
Hauptfuhrer............... $2,442 $ 411 $15,000 $60,000
Robert E. Cawthorn.......... $2,442 $ 342 $13,000 $60,000
Bruce K. MacLaury........... $2,647 $ 405 $12,000 $55,000
Burton G. Malkiel........... $2,442 $ 274 $15,000 $60,000
Alfred M. Rankin, Jr. ...... $2,442 $ 216 $15,000 $60,000
John C. Sawhill............. $2,442 $ 257 $15,000 $60,000
James O. Welch, Jr. ........ $2,442 $ 316 $15,000 $60,000
J. Lawrence Wilson.......... $2,442 $ 228 $15,000 $60,000
</TABLE>
(1) As "Interested Directors," Messrs. Bogle and Brennan receive no compensation
for their service as Directors.
(2) The amounts reported in this column reflect the total compensation paid to
each Director for their service as Director or Trustee of 34 Vanguard Funds
(27 in the case of Mr. MacLaury).
INVESTMENT ADVISORY SERVICES
THE U.S. GROWTH PORTFOLIO INVESTMENT ADVISORY AGREEMENT
The Fund entered into an investment advisory agreement with Lincoln Capital
Management Company (Lincoln) as of April 1, 1993, under which Lincoln manages
the investment and reinvestment of the assets included in the Fund's U.S. Growth
Portfolio and continuously reviews, supervises and administers the Fund's U.S.
Growth Portfolio. Lincoln will invest or reinvest such assets primarily in U.S.
securities. Lincoln discharges its responsibilities subject to the control of
the Officers and Directors of the Fund. Under this agreement the Fund pays
Lincoln an advisory fee at the end of each fiscal quarter, calculated by
applying a quarterly rate, based on the following annual percentage rates, to
the Portfolio's average month-end net assets for the quarter:
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C>
First $25 million.................................... .40%
Next $125 million.................................... .35%
Next $350 million.................................... .25%
Next $500 million.................................... .20%
Next $1.5 billion.................................... .15%
Over $2.5 billion.................................... .10%
</TABLE>
For the fiscal years ended August 31, 1993, 1994, and 1995 the Fund paid
advisory fees of $3,655,000, $3,688,000 and $4,523,000 respectively, to Lincoln.
The fee for the 1993 fiscal year included a fee waiver of $578,000.
12
<PAGE> 99
DESCRIPTION OF LINCOLN
Lincoln is an Illinois corporation in which a controlling interest is held
by the following persons: John W. Croghan, Chairman; J. Parker Hall III,
President; Kenneth R. Meyer, Executive Vice President; and Timothy H. Ubben,
Executive Vice President.
Because Lincoln provides only investment advisory services to the Fund and
has no control over the Fund's expenses, Lincoln has not undertaken to guarantee
expenses of the Fund. The Officers of the Fund have worked out alternative
arrangements with the state authorities which do not require an expense
guarantee.
The agreement with Lincoln continues until March 31, 1996. The agreement is
renewable thereafter, for successive one-year periods, only if each renewal is
specifically approved by a vote of the Fund's Board of Directors, including the
affirmative votes of a majority of the directors who are not parties to the
agreement or "interested persons" (as defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
considering such approval. The agreement is automatically terminated if
assigned, and may be terminated without penalty at any time (1) by vote of the
Board of Directors of the Portfolio on sixty (60) days' written notice to
Lincoln, or (2) by Lincoln upon ninety (90) days' written notice to the Fund.
The Directors may make any of these changes without the approval of
shareholders, however, shareholders will receive 30 days' advance written notice
of any such changes.
THE INTERNATIONAL GROWTH PORTFOLIO INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an investment advisory agreement dated as of
April 1, 1993 with Schroder Capital Management, Inc. ("Schroder Capital") under
which Schroder Capital, through its Schroder Capital Management International,
London, England branch, supervises and administers the International Growth
Portfolio's investment program. In this regard, it is the responsibility of
Schroder Capital to make decisions relating to the International Growth
Portfolio's investment in foreign securities and to place the International
Growth Portfolio's purchase and sale orders for such securities. Schroder
Capital will invest or reinvest the assets of the International Growth Portfolio
only in foreign (non-U.S.) securities. Schroder Capital discharges its
responsibilities subject to the control of the Officers and Directors of the
Fund.
As compensation for the services rendered by Schroder Capital under the
agreement, the Fund pays Schroder Capital a Basic Fee calculated by applying a
quarterly rate, based on the following annual percentage rates, to the average
value of the month-end net assets of the International Growth Portfolio for the
quarter:
<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C>
First $50 million................................... .350%
Next $950 million................................... .175%
Over $1 billion..................................... .125%
</TABLE>
13
<PAGE> 100
The Basic Fee, as provided above, shall be increased or decreased by
applying an adjustment formula based on the investment performance of the
International Growth Portfolio relative to that of the Morgan Stanley Capital
Europe, Australia, Far East Index ("EAFE") as follows:
(a) On assets of the Portfolio of $1 billion or less:
<TABLE>
<CAPTION>
THREE-YEAR PERFORMANCE ANNUAL INCENTIVE (+)/
DIFFERENTIAL VS. EAFE PENALTY (-) FEE RATE
---------------------- ---------------------
<S> <C>
+12% or above........................... +0.0750%
Between +6% and +12%.................... +0.0375%
Between +6% and -6%..................... -0-
Between -6% and -12%.................... -0.0375%
-12% or below........................... -0.0750%
</TABLE>
(b) On assets of the Portfolio of more than $1 billion:
<TABLE>
<CAPTION>
THREE-YEAR PERFORMANCE ANNUAL INCENTIVE (+)/
DIFFERENTIAL VS. EAFE PENALTY (-) FEE RATE
---------------------- ---------------------
<S> <C>
+12% or above........................... +0.0500%
Between +6% and +12%.................... +0.0250%
Between +6% and -6%..................... -0-
Between -6% and -12%.................... -0.0250%
-12% or below........................... -0.0500%
</TABLE>
The incentive/penalty fee adjustment for assets in excess of $1 billion
will not be fully operable until the quarter ending February 29, 1996, and,
until that date, will be calculated according to certain transition rules. From
April 1, 1993 through November 30, 1993, the incentive/penalty fee on assets in
excess of $1 billion was not operable. For quarters ending after this period,
the incentive/penalty fee adjustment on assets in excess of $1 billion will be
computed based on a comparison of the investment performance of the Portfolio
and that of the EAFE Index over the number of months that have elapsed between
March 1, 1993 and the end of the quarter for which the fee is computed.
For the purpose of determining the fee adjustment for investment
performance, as described above, the net assets of the International Growth
Portfolio are averaged over the same period as the investment performance of the
International Growth Portfolio and the investment record of the EAFE Index are
computed.
The investment performance of the International Growth Portfolio for such
period, expressed as a percentage of the net asset value per share of the
International Growth Portfolio at the beginning of such period, shall be the sum
of: (i) the change in the net asset value per share of the International Growth
Portfolio during such period; (ii) the value of the cash distributions per share
of the International Growth Portfolio accumulated to the end of such period; and
(iii) the value of capital gains taxes per share paid or payable by the
International Growth Portfolio on undistributed realized long-term capital gains
accumulated to the end of such period. For this purpose, the value of
distributions per share of realized capital gains, of dividends per share paid
from investment income and of capital gains taxes per share paid or payable on
undistributed realized long-term capital gains shall be treated as reinvested in
shares of the International Growth Portfolio at the net asset value per share in
effect at the close of business on the record date for the payment of such
distributions and dividends and the date on which provision is made for such
taxes, after giving effect to such distributions, dividends and taxes. The
investment record of the EAFE Index for any period, expressed as a percentage of
the EAFE Index level at the beginning of such period, shall be the sum of (i)
the change in the level of the EAFE Index during such period and (ii) the value,
computed consistently with the EAFE Index, of cash distributions made by
companies whose securities comprise the EAFE Index accumulated to the end of
such period. For this purpose cash distributions on the securities which
comprise the EAFE Index shall be treated as reinvested in the EAFE Index at
least as frequently as the end of each calendar quarter following the payment of
the dividend.
14
<PAGE> 101
The foregoing notwithstanding, any computation of the investment performance of
the International Growth Portfolio and the investment record of the EAFE Index
shall be in accordance with any then applicable rules of the Securities and
Exchange Commission.
The Directors believe that the EAFE Index is an appropriate standard
against which the investment performance of the Fund's International Growth
Portfolio can be measured. The EAFE Index is the only index available which
covers the major international markets outside North America. The weighting of
securities in the EAFE Index is based on each stock's relative total market
value, that is, its market price per share times the number of shares
outstanding.
The agreement with Schroder Capital continues until March 31, 1996. The
agreement may be terminated prior to that date, or continued after March 31,
1996, in accordance with the same provisions applicable to the Fund's agreement
with Lincoln.
During the three fiscal years ending August 31, 1993, 1994 and 1995,
respectively, the Fund paid Schroder Capital the following advisory fees:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Basic Fee............................................... $1,851,000 $3,577,000 $4,369,000
Increase/(Decrease) for Performance Adjustment.......... (89,000) 195,000 518,000
---------- ---------- ----------
Total.............................................. $1,762,000 $3,772,000 $4,887,000
========== ========== ==========
</TABLE>
DESCRIPTION OF SCHRODER CAPITAL
Schroder Capital Management International ("Schroder Capital"), is the
London branch office of Schroder Capital. Schroder Capital is a wholly-owned
subsidiary of Schroders Incorporated, One State Street, New York, New York.
Schroders PLC is the holding company parent of a large world-wide group of
banks and financial service companies (referred to as "The Schroder Group") with
associated companies and branch and representative offices located in seventeen
countries.
The Schroder Group specializes in providing investment management services,
with Group funds under management currently in excess of $102 billion. Schroder
Capital Management International was established in London in 1979 to manage
international portfolios for U.S. institutions.
15
<PAGE> 102
PORTFOLIO TRANSACTIONS
The investment advisory agreements with Lincoln and Schroder Capital
authorize the investment advisers (with the approval of the Fund's Board of
Directors) to select the brokers or dealers that will execute the purchases and
sales of portfolio securities for the Fund and direct each investment adviser to
use its best efforts to obtain the best available price and most favorable
execution with respect to all transactions for each Portfolio of the Fund. Each
investment adviser has undertaken to execute each investment transaction at a
price and commission which provides the most favorable total cost or proceeds
reasonably obtainable under the circumstances.
In placing portfolio transactions, each investment adviser will use its
best judgment to choose the broker most capable of providing the brokerage
services necessary to obtain best available price and most favorable execution.
The full range and quality of brokerage services available will be considered in
making these determinations. In those instances where it is reasonably
determined that more than one broker can offer the brokerage services needed to
obtain the best available price and most favorable execution, consideration may
be given to those brokers which supply investment research statistical
information, and provide other services in addition to execution services to the
Portfolios and/or the investment adviser. Each investment adviser considers the
investment services it receives useful in the performance of its obligations
under the agreement but is unable to determine the amount by which such services
may reduce its expenses.
The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Fund's Board of Directors, each investment adviser may cause the
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the investment adviser to the Fund and the other Funds in
the Group.
Currently, it is the Fund's policy that each investment adviser may at
times pay higher commissions in recognition of brokerage services felt necessary
for the achievement of better execution of certain securities transactions than
otherwise might not be available. An investment adviser will only pay such
higher commissions if it believes this to be in the best interest of the
Portfolio. Some brokers or dealers who may receive such higher commissions in
recognition of brokerage services related to execution of securities
transactions are also providers of research information to the investment
adviser and/or the Portfolios. However, the investment adviser has informed the
Fund that it will not pay higher commission rates specifically for the purpose
of obtaining research services.
The Fund's Board of Directors has authorized Schroder Capital to utilize
Schroders Asia Limited, an affiliated company 75% owned by the Schroder Group,
in the capacity of broker in connection with the execution of the International
Growth Portfolio transactions in Hong Kong securities; provided, however, that
Schroder Capital believes that doing so will result in an economic advantage (in
the form of lower execution costs or otherwise) being obtained for the
Portfolio. This authorization was made in accordance with Section 17(e) of the
Investment Company Act of 1940 and Rule 17e-1 which require the Fund's
non-interested Directors to approve the procedures under which such brokerage
allocation is to be made and to monitor such allocations on a continuing basis.
Except with respect to tender offers, it is not expected that any portion of the
commissions, fees, brokerage, or similar payments received by Schroders Asia
Limited in such transactions will be recaptured by the Portfolio. The Directors
have reviewed and intend to continue to review whether other recapture
opportunities are legally permissible and available and, if they appear to be,
determine whether it would be advisable for the Portfolio to seek to take
advantage of them.
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, each Portfolio may place orders with qualified broker-dealers
who recommend the Fund and its Portfolios to clients, or who act as agent in the
purchase of shares of the
16
<PAGE> 103
Fund for their clients, and may, when a number of brokers and dealers can
provide comparable best price and execution on a particular transaction,
consider the sale of Fund shares by a broker or dealer in selecting among
qualified broker-dealers.
During the fiscal years ending August 31, 1993, 1994 and 1995 the Fund paid
$4,903,334, $6,863,785 and $6,681,209 in brokerage commissions, respectively.
Some securities considered for investment by the Portfolios may also be
appropriate for other Funds or clients served by the investment advisers. If
purchase or sale of securities consistent with the investment policies of the
Portfolio and one or more of these other Funds or clients served by the
investment advisers are considered at or about the same time, transactions in
such securities will be allocated among the Portfolios and the several Funds and
clients in a manner deemed equitable by the respective investment adviser.
Although there will be no specified formula for allocating such transactions,
the allocation methods used, and the results of such allocations, will be
subject to periodic review by the Fund's Board of Directors.
FINANCIAL STATEMENTS
Vanguard World Fund Financial Statements (comprised of the U.S. Growth and
International Growth Portfolios) for the year ended August 31, 1995, including
the financial highlights for each of the five years in the period ended August
31, 1995, appearing in the Vanguard World Fund 1995 Annual Report to
Shareholders, and the report thereon of Price Waterhouse LLP, independent
accountants, also appearing therein, are incorporated by reference in this
Statement of Additional Information. The Fund's 1995 Annual Report to
Shareholders is enclosed with this Statement of Additional Information.
17
<PAGE> 104
PART C
VANGUARD WORLD FUND, INC.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
(a) Financial Statements:
The Registrant's audited financial statements for the year ended August 31,
1995, including Price Waterhouse LLP's report thereon, are incorporated by
reference, in the Statement of Additional Information, from the Registrant's
1995 Annual Report which has been filed under cover of Form SE as an Exhibit to
this Registration Statement. The financial statements for the U.S. Growth and
International Growth Portfolios included in the Annual Report are the:
1. Statements of Net Assets as of August 31, 1995.
2. Statements of Operations for the year ended August 31, 1995.
3. Statements of Changes in Net Assets for the years ended August 31, 1994
and August 31, 1995.
4. Financial Highlights for each of the five years in the period ended
August 31, 1995.
5. Notes to Financial Statements.
6. Report of Independent Accountants.
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
11............... Consent of Independent Accountants
12............... Financial Statements--See (a)(1) and (a)(2) above.
16............... Schedule for Computation of performance quotations
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any person.
Registrant is a member of The Vanguard Group of Investment Companies, a group of
over 30 registered investment companies. The officers of the Registrant, the
other investment companies in the Group and The Vanguard Group, Inc. are
identical. Reference is made to the information concerning The Vanguard Group
set forth in Parts A and B of this Registration Statement.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders on August 31, 1995
Common Stock ($1.00 Par Value) International Growth Portfolio--250,936
U.S. Growth Portfolio--149,986
ITEM 27. INDEMNIFICATION
Reference is made to Article IX of Registrant's proposed Amended and
Restated Articles of Incorporation which is incorporated by reference herein.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
C-1
<PAGE> 105
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the caption "Investment Advisers" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory
Services" in Part B of this Registration Statement.
Listed below are the names of each of the officers of Lincoln Capital
Management Company, the investment adviser to the U.S. Growth Portfolio. The
business address of each officer is 200 South Wacker Drive, Chicago, Illinois,
60606. No officer has any other affiliation with the Registrant.
Officers of Lincoln Capital Management Company
John W. Croghan, Chairman
J. Parker Hall III, President
Kenneth R. Meyer, Executive Vice President
Timothy H. Ubben, Executive Vice President
Listed below are the officers and directors of Schroder Capital Management,
Inc.:
<TABLE>
<CAPTION>
BUSINESS BACKGROUND
NAME EDUCATION PAST 5 YEARS
<S> <C> <C>
John S. Ager Oxford University Portfolio Manager
Senior Vice President Oxford, England 2/81-Present
Director B.A., 1969
DOB: 6/1/48
John M. Cupelo Providence College Portfolio Manager
Associate B.S., 1981 11/84-Present
DOB: 1/11/59 Long Island University Supervisor
M.B.A., 1987 J. Henry Schroder Bank & Trust
8/81-11/84
Margaret Douglas-Hamilton Wellsley College Secretary
Secretary B.A., 1963 10/87-Present
DOB: 7/28/41 Syracuse University First Vice President & General Counsel
M.A., 1965 5/87-Present
Boston University Partner
Law School Sullivan & Worchester, Boston
LIB, 1967 11/80-5/87
Richard R. Foulkes Cambridge University Portfolio Manager
Executive Vice President Cambridge, England 7/79-Present
Director B.A., 1968
DOB: 10/28/45 M.A., 1972
Alan Gilston Baruch College Portfolio Manager
Vice President B.B.A., 1980 7/87-Present
DOB: 5/30/58 M.B.A., 1981 8/84-7/87
Technology Analyst
Dreyfus Corp., NY
7/81-8/84
Elizabeth F. Goldhill Balliol College Portfolio Manager
Vice President Oxford University 3/88-Present
DOB: 7/13/61 Oxford, England Fund Manager
B.A., Mathematics, 1982 N.M. Rothschild Asset Management,
London
10/82-3/88
Sharon L. Haugh University of Arizona Director of Marketing/Client Liaison
Senior Vice President Columbia University 7/82-Present
Director
DOB: 8/5/46
</TABLE>
C-2
<PAGE> 106
<TABLE>
<CAPTION>
BUSINESS BACKGROUND
NAME EDUCATION PAST 5 YEARS
<S> <C> <C>
Laura E. Luckyn-Malone Newnhaur College Portfolio Manager
Senior Vice President B.A, M.A., 1974 2/90-Present
Director Columbia University Portfolio Manager
DOB: 10/06/52 M.B.A., 1980 Scudder Stevens & Clark
12/85-2/90
John J. Mahar Union College Portfolio Manager
First Vice President Schenectady, NY 9/83-Present
DOB: 3/25/54 B.A., 1976 Assistant Vice President
University of Rochester J. Henry Schroder Bank & Trust Co.
M.B.A., 1978 5/83-9/83
Catherine L. Martens South Glamorgan Institute Securities Analyst
Vice President Carniff, U.K., 1981 1/88-Present
DOB: 3/23/59 Securities Analyst
Schroder Investment Management, London
10/81-12/87
Teaching Assistant
Abdallah Nauphal New England College Analyst
Vice President B.A., 1980 8/86-Present
DOB: 10/20/60 George Washington University Teaching Assistant
M.B.A., 1983 George Washington University
George Washington University 1984-1985
M.S., 1985 (M.B.A.) Student 1983
Gavin D.L. Ralston University College Director/Portfolio Manager
First Vice President Oxford University 6/85-Present
DOB: 8/18/58 Oxford, England Portfolio Manager
B.A., Classics, 1980 J. Henry Schroder Wagg & Co. Ltd.
10/80-6/85
David M. Salisbury Trinity College Chief Investment Manager
Chief Executive Oxford University 4/84-Present
Director Oxford, England Portfolio Manager & Head of Investment
DOB: 2/18/52 B.A., Mathematics, 1983 Research
J. Henry Schroder Wagg & Co. Ltd.
4/77-4/84
J. Peter Sedgwick Exeter School Investment Strategist
Chairman 1944-1952, N.Y. 9/82-Present
Director
DOB: 10/13/35
Peter J. Seeley SUNY-Binghamton Portfolio Manager
First Vice President B.S., 1971 9/83-Present
DOB: 8/30/49 SUNY-Binghamton
M.B.A., 1975
Carnegie-Mellon University
M.S., 1979
Joshua Shapiro Tuft's University Economist
Vice President B.A., 1980 11/87-Present
DOB: 12/4/58 New York University Economist
International Treasury Consulting,
N.Y.
4/85-11/87
Assistant Treasurer
J. Henry Schroder Bank & Trust Co.
6/80-4/85
</TABLE>
C-3
<PAGE> 107
<TABLE>
<CAPTION>
BUSINESS BACKGROUND
NAME EDUCATION PAST 5 YEARS
<S> <C> <C>
Jane P. Smith Jesus College, Oxford First Vice President
Vice President M.A., 1982 7/89-Present
DOB: 10/18/61 Portfolio Manager
Schroder Investment Management Ltd.
12/87-7/89
Portfolio Manager
Kleinwort Benson Investment Management
9/82-12/87
Mark Smith Cambridge University First Vice President
Vice President M.A., 1983 England 1/88-Present
DOB: 2/7/62 Securities Analyst
J. Henry Schroder Wagg & Co. Ltd.
10/83-12/87
Ricarda Stoffers Justus-Liebig-Universitaet Vice President
Vice President M.B.A., 1985 West Germany 4/89-Present
DOB: 9/14/60 Asst. Fund Manager
7/87-4/89
Executive
J. Henry Schroder Wagg & Co. Ltd.
9/86-6/87
Executive
Jonathan Mervis & Co.
10/85-2/86
Ton F. Tjia Doctoral Director/Portfolio Manager
First Vice President Econometric Sciences 10/86-Present
DOB: 11/6/54 University of Amsterdam, 1982 Investment Manager
D.P. Asset Management
4/84-8/86
Senior Investment Manager
Pierson Heldring & Pierson
5/80-4/84
Analyst
Patrick Vermeulen Applied Economics Vice President
Vice President Vlekho, Belgium 4/90-Present
DOB: 5/20/59 B.S., Applied Economics, 1981 Analyst
Dewaay Servais
4/87-3/90
Analyst
Budget Week
8/83-3/87
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
Registrant has no principal underwriter. Vanguard Marketing Corporation, a
wholly-owned subsidiary of The Vanguard Group, Inc., serves as Sales Agent for
the offering of Registrant's shares in certain states. See the information
concerning the purchase of shares and The Vanguard Group set forth in Parts A
and B of this Registration Statement.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a)of the 1940 Act and the Rules thereunder will be maintained at the
offices of the Registrant; Registrants' Transfer Agent, The Vanguard Group, Inc.
c/o Vanguard Financial Center, Valley Forge, Pennsylvania 19482; and the
Registrant's custodians, State Street Bank and Trust Company, Boston MA and
Morgan Guaranty Trust Company, New York, N.Y.
C-4
<PAGE> 108
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the description of The Vanguard Group in
Parts A and B of this Registration Statement. Registrant is not a party to any
management-related service contract.
ITEM 32. UNDERTAKINGS
Annual meetings of shareholders will not be held except as required by the
Investment Company Act of 1940 ("1940 Act") or other applicable law. Registrant
undertakes to comply with the provisions of Section 16(c) of the 1940 Act in
regard to shareholders' rights to call a meeting of shareholders for the purpose
of voting on the removal of Directors and to assist in shareholder
communications in such matters, to the extent required by law.
Registrant hereby undertakes to provide an Annual Report to Shareholders or
prospective investors, free of charge, upon request.
C-5
<PAGE> 109
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485 (B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE TOWN OF VALLEY FORGE AND THE COMMONWEALTH OF PENNSYLVANIA, ON
THE 22ND DAY OF DECEMBER, 1995.
VANGUARD WORLD FUND, INC.
BY: (signature)
--------------------------------
(RAYMOND J. KLAPINSKY)
JOHN C. BOGLE*, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------- -----------------
<S> <C> <C>
BY: (signature)
------------------------------------------ John C. Bogle*, Chairman December 22, 1995
(RAYMOND J. KLAPINSKY) of the Board, Director,
and Chief Executive
Officer
BY: (signature)
------------------------------------------ John J. Brennan*, December 22, 1995
(RAYMOND J. KLAPINSKY) President and Director
BY: (signature)
------------------------------------------ Robert E. Cawthorn*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ Barbara B. Hauptfuhrer*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ Burton G. Malkiel*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ Bruce K. MacClaury*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ Alfred M. Rankin, Jr.*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ John C. Sawhill*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ James O. Welch, Jr.*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ J. Lawrence Wilson*, December 22, 1995
(RAYMOND J. KLAPINSKY) Director
BY: (signature)
------------------------------------------ Richard F. Hyland*, December 22, 1995
(RAYMOND J. KLAPINSKY) Treasurer and Principal
Financial Officer and
Accounting Officer
</TABLE>
- ---------------
* By Power of Attorney. See File Number 2-14336. January 23, 1990. Incorporated
by Reference.
<PAGE> 110
EXHIBIT INDEX
<TABLE>
<S> <C>
CONSENT OF INDEPENDENT ACCOUNTANTS............................................... EX-99.B11
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS............................... EX-99.B16
FINANCIAL DATA SCHEDULE.......................................................... EX-27
</TABLE>
<PAGE> 1
EX-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
the Statement of Additional Information, constituting parts of this amended
Registration Statement on Form N-1A, of our report dated October 10, 1995
relating to the financial statements, including the financial highlights,
appearing in the August 31, 1995 Annual Report to Shareholders of Vanguard World
Fund, which is also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Financial
Highlights" and "General Information" in the Prospectuses and "Financial
Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Philadelphia, PA
December 21, 1995
<PAGE> 1
EX-99.B16
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD WORLD FUND, INC. (U.S. GROWTH PORTFOLIO)
1. Average Annual Total Return (As of August 31, 1995)
n
P (1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
One Year
--------
P = $1,000
T = +22.75
N = 1
ERV = $1,227.50
Five Years
----------
P = $1,000
T = +14.30
N = 5
ERV = $1,951.19
Ten Years
---------
P = $1,000
T = +12.92
N = 10
ERV = $3,370.77
2. YIELD (30 Days Ended August 31, 1995)
a - b
----- (6)
Yield = 2[( c X d + 1) - 1]
Where: a = dividends and interest accrued during the period based on
the market price
b = expense dollars during the period
c = the 30-day average daily number of shares outstanding
during the period
d = the maximum offering price per share on the last day of
the period
Example a = $4,974,153.66
b = $1,082,259.49
c = 159,087,111.847
d = $19.89
Yield = 1.48%
<PAGE> 2
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
VANGUARD WORLD FUND, INC. (INTERNATIONAL GROWTH PORTFOLIO)
1. Average Annual Total Return (As of August 31, 1995)
n
P (1 + T) = ERV
Where P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of the period
EXAMPLE:
One Year
P = $1,000
T = +3.76%
N = 1
ERV = $1,037.55
Five Years
P = $1,000
T = +7.82%
N = 5
ERV = $1,456.96
Ten Years
P = $1,000
T = +16.27%
N = 10
ERV = $4,515.65
<TABLE> <S> <C>
<ARTICLE> 6
<RESTATED>
<CIK> 0000052848
<NAME> VANGUARD WORLD FUND, INC.
<SERIES>
<NUMBER> 001
<NAME> U.S. GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2315142
<INVESTMENTS-AT-VALUE> 3003141
<RECEIVABLES> 37097
<ASSETS-OTHER> 384
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3040622
<PAYABLE-FOR-SECURITIES> 39368
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12204
<TOTAL-LIABILITIES> 51572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2196727
<SHARES-COMMON-STOCK> 158739
<SHARES-COMMON-PRIOR> 144473
<ACCUMULATED-NII-CURRENT> 29948
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74376
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 687999
<NET-ASSETS> 2989050
<DIVIDEND-INCOME> 37847
<INTEREST-INCOME> 11115
<OTHER-INCOME> 0
<EXPENSES-NET> 10681
<NET-INVESTMENT-INCOME> 38281
<REALIZED-GAINS-CURRENT> 91924
<APPREC-INCREASE-CURRENT> 388046
<NET-CHANGE-FROM-OPS> 518251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24203
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57733
<NUMBER-OF-SHARES-REDEEMED> 27003
<SHARES-REINVESTED> 1504
<NET-CHANGE-IN-ASSETS> 1025619
<ACCUMULATED-NII-PRIOR> 7518
<ACCUMULATED-GAINS-PRIOR> (8306)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4523
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11379
<AVERAGE-NET-ASSETS> 2420472
<PER-SHARE-NAV-BEGIN> 15.52
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 3.24
<PER-SHARE-DIVIDEND> 0.18
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.83
<EXPENSE-RATIO> 0.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<RESTATED>
<CIK> 0000052848
<NAME> VANGUARD WORLD FUND, INC.
<SERIES>
<NUMBER> 002
<NAME> INTERNATIONAL GROWTH PORTFOLIO
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2667622
<INVESTMENTS-AT-VALUE> 3280043
<RECEIVABLES> 164615
<ASSETS-OTHER> 439
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3445097
<PAYABLE-FOR-SECURITIES> 2250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89202
<TOTAL-LIABILITIES> 91452
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2693507
<SHARES-COMMON-STOCK> 228145
<SHARES-COMMON-PRIOR> 213914
<ACCUMULATED-NII-CURRENT> 35617
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (28210)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 652731
<NET-ASSETS> 3353645
<DIVIDEND-INCOME> 57741
<INTEREST-INCOME> 6009
<OTHER-INCOME> 0
<EXPENSES-NET> 17605
<NET-INVESTMENT-INCOME> 46145
<REALIZED-GAINS-CURRENT> (16215)
<APPREC-INCREASE-CURRENT> 82767
<NET-CHANGE-FROM-OPS> 112697
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38607
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80730
<NUMBER-OF-SHARES-REDEEMED> 63495
<SHARES-REINVESTED> 2719
<NET-CHANGE-IN-ASSETS> 364487
<ACCUMULATED-NII-PRIOR> 645
<ACCUMULATED-GAINS-PRIOR> (26229)
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<AVERAGE-NET-ASSETS> 3027469
<PER-SHARE-NAV-BEGIN> 14.36
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<PER-SHARE-DIVIDEND> 0.18
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<PER-SHARE-NAV-END> 14.70
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
