VANGUARD INTERNATIONAL EQUITY INDEX FUND INC, 485BPOS, 1999-04-28

VANGUARD INTERNATIONAL EQUITY INDEX FUND INC
485BPOS, 1999-04-28

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT (NO. 33-32548) UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.

Post-Effective Amendment No. 16

and

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 19

VANGUARD INTERNATIONAL EQUITY
INDEX FUND
(Exact Name of Registrant as Specified in Declaration of Trust)

P.O. Box 2600
Valley Forge, PA 19482
(Address of Principal Executive Office)

Registrant's Telephone Number (610) 669-1000

R. Gregory Barton, Esquire
P.O. Box 876
Valley Forge, PA 19482

It is proposed that this amendment become effective: on April 30, 1999, pur-
suant to Rule 485(b) under the Securities Act of 1933.

Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.

We have elected to register an indefinite number of shares pursuant to Regu-
lation 24f-2 under the Investment Company Act of 1940. Registrant filed its
Rule 24f-2 Notice for the year ended December 31, 1998 on March 29, 1999.

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<PAGE>

VANGUARD INTERNATIONAL EQUITY INDEX FUND

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
Form N-1A
Item Number Location in Prospectus
<C> <C> <S>
Item 1. Front and Back Cover Pages............ Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments,
Risks and Performance................. Fund Profile
Item 3. Risk/Return Summary: Fee Table........ Fee Table
Item 4. Investment Objectives, Principal
Investment Strategies, and Related A Word About Risk; Who
Risks................................. Should Invest; Primary
Investment Strategies
Item 5. Management's Discussion of Fund
Performance........................... Herein incorporated by
reference to Registrant's
Annual Report to
Shareholders dated December
31, 1998 filed with the
Securities & Exchange
Commission's EDGAR system
on March 2, 1999.
Item 6. Capital Management, Organization, and
Structure............................. The Fund and Vanguard;
Investment Adviser
Item 7. Shareholder Information............... Share Price; Dividends,
Capital Gains, and Taxes;
Investing with Vanguard
Item 8. Distribution Arrangements............. Inside Front Cover Page
Item 9. Financial Highlights Information...... Financial Highlights
<CAPTION>
Form N-1A Location in Statement
Item Number of Additional Information
<C> <C> <S>
Item 10. Cover Page and Table of Contents...... Cover Page; Table of
Contents
Item 11. Fund History.......................... Description of the Trust
Item 12. Description of the Fund and its
Investments and Risks................. Investment Policies;
Description of the Trust;
Fundamental Investment
Limitations
Item 13. Management of the Fund................ Management of the Trust
Item 14. Control Persons and Principal Holders
of Securities......................... Management of the Trust
Item 15. Investment Advisory and Other Investment Advisory
Services.............................. Services
Item 16. Brokerage Allocation and Other
Practices............................. Portfolio Transactions
Item 17. Capital Stock and Other Securities.... Description of the Trust
Item 18. Purchase, Redemption and Pricing of
Shares................................ Purchase of Shares;
Redemption of Shares; and
Share Price
Item 19. Taxation of the Fund.................. Description of the Trust
Item 20. Underwriters.......................... Not Applicable
Item 21. Calculation of Performance Data....... Total Return
Item 22. Financial Statements.................. Financial Statements
</TABLE>
<PAGE>

Vanguard International Stock Index Funds

Prospectus
April 30, 1999

A Group of International Stock Index Mutual Funds

Contents

1 An Introduction to Index Funds

2 Fund Profiles
2 Vanguard European Stock Index Fund
5 Vanguard Pacific Stock Index Fund
8 Vanguard Emerging Markets Stock Index Fund
11 Vanguard Total International Stock Index Fund

14 More on the Funds

19 The Funds and Vanguard

19 Investment Adviser

20 Year 2000 Challenge

20 Dividends, Capital Gains, and Taxes

21 Share Price

23 Financial Highlights

26 Investing with Vanguard

26 Services and Account Features

27 Types of Accounts

27 Buying Shares

29 Redeeming Shares

32 Transferring Registration

33 Fund and Account Updates

Glossary (inside back cover)

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Why Reading This Prospectus Is Important

This prospectus explains the objective, risks, and strategies of each of the
Vanguard International Stock Index Funds. To highlight terms and concepts
important to mutual fund investors, we have provided "Plain Talk(R)"
explanations along the way. Reading the prospectus will help you to decide
which Fund, if any, is the right investment for you. We suggest that you keep
it for future reference.
- --------------------------------------------------------------------------------

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>

An Introduction to Index Funds

What is indexing?

An index is an unmanaged group of securities whose overall performance is
used as a standard to measure investment performance. An index (or "passively
managed") fund tries to match, as closely as possible, the performance of an
established target index. The fund does this by holding all, or a
representative sample, of the securities that comprise the index. Keep in
mind that an index fund has operating expenses and transaction costs, while a
market index does not. Therefore, an index fund, while expected to track its
target index closely, typically will be unable to match the performance of
the index exactly.

Stock index funds may seek to track indexes that hold a certain type of
stock--such as growth or value, small-cap or large-cap, or those from just one
industry--or they may seek to track indexes that consist of a broader range of
stocks--for example, the entire foreign stock market.

Index funds are not actively managed by investment advisers who buy and
sell securities based on research and analysis in an attempt to outperform a
particular benchmark or the market as a whole. Rather, index funds simply
attempt to mirror what the target index does, for better or worse.

What index funds does Vanguard offer?

Vanguard offers a variety of stock (both U.S. and international), bond, and
balanced index funds. This prospectus provides information about Vanguard's
International Stock Index Funds. There are four such funds, each of which
seeks to track a different segment of the international stock market:

---------------------------------------------
Fund
---------------------------------------------
Vanguard European Stock Index Fund
Vanguard Pacific Stock Index Fund
Vanguard Emerging Markets Stock Index Fund
Vanguard Total International Stock Index Fund
---------------------------------------------

This prospectus contains profiles that summarize key features of each Fund.
Following the profiles, there is important additional information about the
Funds.

<PAGE>

Fund Profile--Vanguard European Stock Index Fund

The following profile provides you with a summary of the key features of
Vanguard European Stock Index Fund.

Investment Objective

The Fund seeks to match the performance of the Morgan Stanley Capital
International Europe Index, which is made up of more than 550 common stocks of
companies located in 15 European countries--mostly in the United Kingdom,
Germany, Switzerland, and France, (which comprise 30%, 15%, 11% and 13% of the
Index's market capitalization, respectively, as of January 31, 1999), as well
as in Austria, Belgium, Denmark, Finland, Ireland, Italy, the Netherlands,
Norway, Portugal, Spain, and Sweden.

Investment Strategies

The Fund employs a "passively managed" investment--or index--approach, by
holding a mix of common stocks included in the MSCI Europe Index. For more
information about passive management, see "Indexing Methods" under More on
the Funds.

Primary Risks

The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:

. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.

. Regional risk, which is the chance that an entire region--namely Europe--
will be hurt by political troubles, financial problems, or natural
disasters.

. Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.

. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

Performance/Risk Information

The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one and
five calendar years and since inception compare with those of a broad-based
securities market index. Keep in mind that the Fund's past performance does not
indicate how it will perform in the future.

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Annual Total Returns
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[BAR CHART APPEARS HERE]

1991 12.4%
1992 -3.3%
1993 29.1%
1994 1.9%
1995 22.3%
1996 21.3%
1997 24.2%
1998 28.9%

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Return figures do not reflect the annual account maintenance fee of $10 for
accounts with balances of less than $10,000, or the 0.5% transaction fee on
purchases.
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During the period shown in the bar chart, the highest return for a calendar
quarter was 20.4% (quarter ended March 31, 1998) and the lowest return for a
quarter was -14.4% (quarter ended September 30, 1998).

<PAGE>

Morgan Stanley Capital International Europe Index 28.68 19.40 14.66
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* June 18, 1990.
** Return figures do not reflect the annual account maintenance fee of $10 for
accounts with balances of less than $10,000, but do reflect the 0.5%
transaction fee on purchases.
- --------------------------------------------------------------------------------

Fees and expenses

The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended December 31, 1998.

Shareholder Fees (fees paid directly from your investment)

Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 0.5%*
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None
Account Maintenance Fee (for accounts under $10,000): $10/year**

Annual Fund Operating Expenses (expenses deducted from the Fund's
assets)

Management Expenses: 0.20%
12b-1 Distribution Fees: None
Other Expenses: 0.09%
Total Annual Fund Operating Expenses: 0.29%

The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain the same. The results apply whether
or not you redeem your investment at the end of each period.

-------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------
$80 $143 $212 $416
-------------------------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>

Fund Profile--Vanguard European Stock Index Fund (continued)

Additional Information

Dividends and Capital Gains
Distributed annually in December

Investment Adviser
Vanguard Core Management Group, Valley Forge, Pa., since inception

Inception Date
June 18, 1990

Net Assets as of December 31, 1998
$4.48 billion

Suitable for IRAs
Yes

Minimum Initial Investment
$3,000; $1,000 for IRAs and custodial accounts for minors

Newspaper Abbreviation
Europe

Vanguard Fund Number
079

Cusip Number
922042205

Ticker Symbol
VEURX
<PAGE>

Fund Profile--Vanguard Pacific Stock Index Fund

The following profile summarizes key features of Vanguard Pacific Stock Index
Fund.

Investment Objective

The Fund seeks to match the performance of the Morgan Stanley Capital
International Pacific Free Index*, which consists of more than 400 common stocks
of companies located in Japan (which comprises 79% of the Index's market
capitalization as of January 31,1999), Australia, Hong Kong, New Zealand, and
Singapore.

* The designation "Free" in the name of the Index refers to the securities that
the index tracks. Some countries restrict foreign investment in certain
industries, so only stocks that can be bought freely by a fund are tracked.

Investment Strategies

The Fund employs a "passively managed" investment--or index--approach, by
holding a mix of common stocks included in the MSCI Pacific Free Index. For
more information about passive management, see "Indexing Methods" under More
on the Funds.

Primary Risks

The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods.
The Fund is also subject to:

. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.

. Regional risk, which is the chance that an entire region--namely the
Pacific region--will be hurt by political troubles, financial problems, or
natural disasters.

. Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.

. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

Performance/Risk Information

The bar chart and table below provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual returns for
one and five years and since inception compare with those of a broad-based
securities market index. Keep in mind that the Fund's past performance does
not indicate how it will perform in the future.

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Annual Total Returns
- --------------------------------------------------------------------------------

1991 10.7%
1992 -18.2%
1993 35.5%
1994 13.0%
1995 2.7%
1996 -7.8%
1997 -25.7%
1998 2.4%

During the period shown in the bar chart, the highest return for a calendar
quarter was 26.5% (quarter ended December 31, 1998) and the lowest return for a
quarter was -20.7% (quarter ended December 31, 1997).

<PAGE>

Fund Profile--Vanguard Pacific Stock Index Fund (continued)

Morgan Stanley Capital International
Pacific Free Index 2.64 -4.08 -1.83
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* June 18, 1990.
** Return figures do not reflect the annual account maintenance fee of $10 for
accounts with balances of less than $10,000, but do reflect the 0.5%
transaction fee on purchases.
- --------------------------------------------------------------------------------

Fees and expenses

The following table describes the fees and expenses you would pay if you
buy and hold shares of the Fund. The expenses shown under Annual Fund Operating
Expenses are based upon those incurred in the fiscal year ended December 31,
1998.

Shareholder Fees (fees paid directly from your investment)

Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 0.5%*
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees None
Account Maintenance Fee (for accounts under $10,000): $10/year**

Annual Fund Operating Expenses (expenses deducted from the Fund's assets)

Management Expenses: 0.30%
12b-1 Distribution Fees: None
Other Expenses: 0.10%
Total Annual Fund Operating Expenses: 0.40%

-------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------------------------------------------
$91 $178 $273 $553
-------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>

Additional Information

Dividends and Capital Gains
Distributed annually in December

Investment Adviser
Vanguard Core Management
Group, Valley Forge, Pa., since inception

Inception Date
June 18, 1990

Net Assets as of December 31, 1998
$1.03 billion

Suitable for IRAs
Yes

Minimum Initial Investment
$3,000; $1,000 for IRAs and custodial accounts for minors

Newspaper Abbreviation
Pacific

Vanguard Fund Number
072

Cusip Number
922042106

Ticker Symbol
VPACX
<PAGE>

Fund Profile--Vanguard Emerging Markets Stock Index Fund

The following profile summarizes key features of Vanguard Emerging Markets Stock
Index Fund.

Investment Objective

The Fund seeks to match the performance of the Morgan Stanley Capital
International Select Emerging Markets Free* Index, which includes more than 600
common stocks of companies located in 13 emerging markets of Europe, Asia,
Africa, and Latin America--mostly in Brazil, South Africa, and Mexico (which
comprise 11%, 15%, and 15% of the Index's market capitalization, respectively,
as of January 31, 1999), as well as Argentina, the Czech Republic, Greece,
Hungary, Indonesia, Israel, Philippines, Poland, Thailand, and Turkey. The
developed countries of Hong Kong and Singapore are included in the Index to
broaden diversification and ensure adequate liquidity.

Investment Strategies
The Fund employs a "passively managed" investment--or index--approach, by
holding a mix of common stocks included in the MSCI Select Emerging Markets
Index. For more information about passive management, see "Indexing Methods"
under More on the Funds.

Primary Risks
The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:

. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters. Country risk
is especially high for funds that focus on stocks in emerging markets.
. Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.
. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

Performance/Risk Information
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of both a broad-based
securities market index and the Fund's target index. Keep in mind that the
Fund's past performance does not indicate how it will perform in the future.

- --------------------------------------------------------------------------------
Annual Total Returns
- --------------------------------------------------------------------------------

[BAR CHART APPEARS HERE]

1995 0.6%
1996 15.8%
1997 -16.8%
1998 -18.1%

- --------------------------------------------------------------------------------
Return figures do not reflect the annual account maintenance fee of $10 for
accounts with balances of less than $10,000, or the 1% transaction fee on
purchases and redemptions.
- --------------------------------------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 18.9% (quarter ended December 31, 1998) and the lowest return for a
quarter was -21.5% (quarter ended June 30, 1998).

<PAGE>

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Average Annual Total Returns for Years Ended December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
- --------------------------------------------------------------------------------
Vanguard Emerging Markets Stock Index Fund** -19.75% -3.34%
Morgan Stanley Capital International
Emerging Markets Free Index -25.34 -7.65
Morgan Stanley Capital International Select
Emerging Markets Free Index -18.39 -4.27
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* May 4, 1994.

** Return figures do not reflect the annual account maintenance fee of $10 for
accounts with balances of less than $10,000, but do reflect the 1%
transaction fee on purchases and redemptions.
- --------------------------------------------------------------------------------

FEES AND EXPENSES

Shareholder Fees (fees paid directly from your investment)

Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 1%*
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: 1%**
Account Maintenance Fee (for accounts under $10,000): $10/year+

Annual Fund Operating Expenses (expenses deducted from the Fund's
assets)

Management Expenses: 0.30%
12b-1 Distribution Fees: None
Other Expenses: 0.31%
Total Annual Fund Operating Expenses: 0.61%

* The transaction fee on purchases is deducted from all purchases
(including exchanges from other Vanguard funds) but not from
reinvested dividends and capital gains.

** The redemption fee applies to all redemptions (sales or exchanges); it
is deducted from redemption proceeds, and retained by the Fund.

+ The account maintenance fee will be deducted from your annual
distribution of the Fund's dividends. If you receive a distribution
that is less than the fee, fractional shares will automatically be
redeemed to make up the difference.

The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, that operating expenses remain the same, and that you redeem all your
shares at the end of each period.

---------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------
$265 $406 $560 $1,007
---------------------------------------

<PAGE>

Fund Profile--Vanguard Emerging Markets Stock Index Fund (continued)

You would pay the following expenses if you did not redeem your shares (the
difference being that the Fund's 1% redemption fee would not apply to any of the
periods below, as it would to those above):

---------------------------------------------
1 Year 3 Years 5 Years 10 Years
---------------------------------------------
$162 $293 $437 $855
---------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.

Additional Information

Dividends and Capital Gains
Distributed annually in December

Investment Adviser
Vanguard Core Management Group, Valley Forge, Pa., since inception

Inception Date
May 4, 1994

Net Assets as of December 31, 1998
$577 million

Suitable for IRAs
Yes

Minimum Initial Investment
$3,000; $1,000 for IRAs and custodial accounts for minors

Newspaper Abbreviation
EmerMkt

Vanguard Fund Number
533

Cusip Number
922042304

Ticker Symbol
VEIEX
<PAGE>

11
Fund Profile--Vanguard Total International Stock Index Fund

The following profile summarizes key features of Vanguard Total International
Stock Index Fund.

Investment Objective

The Fund seeks to match the performance of the Total International Composite
Index, which is a combination of the indexes tracked by the European, Pacific,
and Emerging Markets Stock Index Funds.

Investment Strategies

The Fund employs a "passively managed" investment--or index--approach, by
holding a mix of mutual funds that together seek to match the performance of the
Total International Composite Index. As a "fund of funds," the Fund invests in
Vanguard's European, Pacific, and Emerging Markets Stock Index Funds, in
proportions based on each market segment's contribution to the market
capitalization of the Total International Composite Index. For more information
about passive management, see "Indexing Methods" under More on the Funds.

Primary Risks

The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:

. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.

. Currency risk, which is the chance that returns will be hurt by a rise in the
value of the U.S. dollar versus foreign currencies.

. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

Performance/Risk Information

The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of both a broad-based
securities market index and the Fund's target index. Keep in mind that the
Fund's past performance does not indicate how it will perform in the future.

------------------------------------------------------------------------
Annual Total Returns
------------------------------------------------------------------------

1997 -0.8%
1998 15.6%

------------------------------------------------------------------------
Return figures do not reflect the annual account maintenance fee of $10
for accounts with balances of less than $10,000, or the 0.5% transaction
fee on purchases.

During the period shown in the bar chart, the highest return for a calendar
quarter was 20.5% (quarter ended December 31, 1998) and the lowest return for a
quarter was -14.5% (quarter ended September 30, 1998).

<PAGE>

Fund Profile--Vanguard Total International Stock Index Fund (continued)

- --------------------------------------------------------------------------------
Average Annual Total Returns for Years Ended December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
- --------------------------------------------------------------------------------
Vanguard Total International Stock Index Fund** 15.02% 5.29%
Morgan Stanley Capital International
EAFE + Emerging Markets Free Index 15.25 6.03
Total International Composite Index+ 15.88 5.58
- --------------------------------------------------------------------------------
* April 29, 1996.
** Return figures do not reflect the annual account maintenance fee of $10
for accounts with balances of less than $10,000, but do reflect the
0.5% transaction fee on purchases.
+ Consists of the Morgan Stanley Capital International Europe,
Australasia, Far East Index + Select Emerging Markets Free Index.

FEES AND EXPENSES

Shareholder Fees (fees paid directly from your investment)

Annual Fund Operating Expenses (expenses deducted from the underlying
funds' assets)
Indirect Operating Expenses: +

* The transaction fee on purchases is deducted from all purchases
(including exchanges from other Vanguard funds) but not from reinvested
dividends and capital gains.
** The account maintenance fee will be deducted from your annual
distribution of the Fund's dividends. If your distribution is less than
the fee, fractional shares will be automatically redeemed to make up
the difference.
+ Although the Fund is expected to incur no net expenses directly, the
Fund's shareholders indirectly bear the expenses of the underlying
funds in which the Fund invests. See The Funds and Vanguard. The Fund's
indirect expense ratio, based on its underlying investments, was 0.34%
as of December 31, 1998.

-------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$85 $159 $241 $481
-------------------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.

<PAGE>

Additional Information

Dividends and Capital Gains
Distributed annually in December

Investment Adviser
Vanguard Core Management Group, Valley Forge, Pa., since inception

Inception Date
April 29, 1996

Net Assets as of December 31, 1998
$1.38 billion

Suitable for IRAs
Yes

Minimum Initial Investment
$3,000; $1,000 for IRAs and custodial accounts for minors

Newspaper Abbreviation
TotIntl

Vanguard Fund Number
113

Cusip Number
921909602

Ticker Symbol
VGTSX
<PAGE>

PLAIN TALK ABOUT

The Costs of Investing

Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.

More on the Funds

The following sections discuss other important features of Vanguard
International Stock Index Funds, including indexing methods, fund
characteristics, additional risk information, costs and market-timing, fund
turnover, and other investment policies and risks.

Why invest in index funds?

Index funds appeal to many investors for a number of reasons:

. Diversification. Index funds generally invest in a diversified mix of
companies and industries.

. Relative consistency. Index funds typically match the performance of relevant
market benchmarks more closely than comparable actively managed funds do.

. Low cost. Index funds do not have many of the expenses of an actively managed
fund--such as research--and keep trading activity, and thus brokerage
commissions, to a minimum.

. Low realization of capital gains. Because an index fund typically sells
securities only to respond to redemption requests or to adjust the number of
shares it holds to reflect a change in its target index, the fund's turnover
rate--and thus its realization of capital gains--is usually very low.

Indexing Methods

In seeking to track a particular index, a fund may use one of two indexing
methods to select the stocks it invests in.

Some index funds hold each stock found in their target indexes in about the
same proportions as represented in the indexes themselves. For example, if 5% of
the S&P 500 Index were made up of the stock of a specific company, a fund
tracking that index would invest about 5% of its assets in that company.

Other index funds may use a different selection process. Because it would be
very expensive to buy and sell all of the stocks held in certain indexes (the
MSCI Select Emerging Markets Free Index, for example, includes more than 600
stocks), funds tracking these larger indexes use a "sampling" technique. Using a
sophisticated computer program, these funds invest in stocks that will recreate
their target indexes in terms of industry, size, country, and other
characteristics. For instance, if 10% of the MSCI Select Emerging Markets Free
Index were made up of the stocks of a certain country, the Emerging Markets
Stock Index Fund would invest about 10% of its assets in stocks of the Index
from that country. The European, Pacific, and Emerging Markets Stock Index Funds
each employ this method of indexing. As a "fund of funds," the Total
International Stock Index Fund allocates its assets among these three Funds.

- --------------------------------------------------------------------------------
Number of Stocks Number of Stocks
Fund Held in Target Index
- --------------------------------------------------------------------------------
European 598 598
Pacific 425 432
Emerging Markets 524 60
- --------------------------------------------------------------------------------
As of January 31, 1999.
- --------------------------------------------------------------------------------

PLAIN TALK ABOUT

"Fund of Funds"

The term "fund of funds" is used to describe a mutual fund that pursues its
objective by investing in other mutual funds rather than in individual stocks or
bonds. A fund of funds may charge for its own direct expenses, in addition to
bearing a proportionate share of the expenses charged by the underlying funds in
which it invests. Funds of funds are best suited for long-term investors.

Additional Risk Information

To track their target indexes as closely as possible, the European Stock Index
and Pacific Stock Index Funds attempt to remain fully invested in foreign stocks
included in their particular indexes. The Emerging Markets Stock Index Fund
normally invests 95% of its assets in foreign stocks, holding the remaining 5%
in cash reserves to meet daily

<PAGE>

PLAIN TALK ABOUT

The Risks of International Investing

Because foreign stock markets operate differently from the U.S. market,
Americans investing abroad will encounter risks not typically associated with
U.S. companies. For instance, foreign companies are not subject to the same
accounting, auditing, and financial reporting standards and practices as U.S.
companies; and their stock may not be as liquid as the stock of similar U.S.
companies. In addition, foreign stock exchanges, brokers, and companies
generally have less government supervision and regulation than their
counterparts in the United States. These factors, among others, could negatively
impact the returns Americans receive from a foreign investment.

redemption requests. The Total International Stock Index Fund normally holds
100% of its assets in shares of the other three Funds.

[GRAPHIC APPEARS HERE]
Each Fund is subject to market risk, which is the possibility that stock prices
overall will decline over short or even long periods. Stock markets tend to move
in cycles, with periods of rising prices and periods of falling prices.

In addition, investments in foreign stock markets can be as risky, if not
more risky, than U.S. stock investments. The prices of international stocks and
the prices of U.S. stocks have often moved in opposite directions. These periods
have, in the past, lasted for as long as several years.

To illustrate the volatility of international stock prices, the following
table shows the best, worst, and average total returns for foreign stock markets
over various periods as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (MSCI EAFE) Index, a widely used barometer of
international market activity. (Total returns consist of dividend income plus
change in market price.) Note that the returns shown do not include the costs of
buying and selling stocks or other expenses that a real-world investment
portfolio would incur. Note, also, that the gap between best and worst tends to
narrow over the long term.

- --------------------------------------------------------------------------------
International Stock Market Returns (1969-1998)
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years 20 Years
- --------------------------------------------------------------------------------
Best 69.9% 36.5% 22.8% 16.3%
Worst -23.2 1.5 5.9 12.0
Average 14.7 13.6 14.9 14.7
- --------------------------------------------------------------------------------
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1969
through 1998. Keep in mind that this was a particularly favorable period for
foreign markets. For instance, over 10-year periods, foreign stocks provided an
average return of 14.9%, compared to 11.0% for U.S. stocks (as measured by the
Standard & Poor's 500 Composite Stock Price Index) during the same time frame.
These average returns reflect past performance on international stocks; you
should not regard them as an indication of future returns from either foreign
markets as a whole or any of the Funds in particular.

Keep in mind, too, that none of the Funds will mirror the returns of the MSCI
EAFE Index, since the Funds attempt to track different indexes (for example, the
European Stock Index Fund seeks to track the MSCI Europe Index, which is only
one component of the MSCI EAFE Index).

Also note that the preceding chart does not take into account returns
measured by the MSCI Emerging Markets Free Index, a widely used barometer of
less developed stock markets. Emerging markets can be substantially more
volatile than more developed foreign markets. In addition, because the MSCI EAFE
Index tracks the European and Pacific markets collectively, the above returns do
not reflect the variability of returns from year to year for these markets
individually, or the variability across these and other geographic regions or
market sectors. To illustrate this variability, the following table shows
returns for different international markets--as well as the U.S. market for
comparison--from 1990-1998, as measured by their respective indexes. Note that
the returns shown do not include the costs of buying and selling stocks or other
expenses that a real-world investment portfolio would incur.

<PAGE>

- --------------------------------------------------------------------------------
Stock Market Returns for Different International Markets
- --------------------------------------------------------------------------------
European Pacific Emerging U.S.
Market* Market* Markets* Markets*
- --------------------------------------------------------------------------------
1990 -2.00% -34.43% -10.55% -3.10%
1991 14.12 11.51 59.91 30.47
1992 -3.92 -18.51 11.40 7.62
1993 29.25 36.15 74.84 10.08
1994 2.82 12.82 -7.31 1.32
1995 22.08 2.89 0.01** 37.58
1996 21.42 -8.23 15.19 22.96
1997 23.75 -25.74 -16.37 33.36
1998 28.68 2.64 -18.39 28.58
- --------------------------------------------------------------------------------
* European market returns are measured by the MSCI Europe Index; Pacific
market returns are measured by the MSCI Pacific Free Index; Emerging
markets returns are measured by the MSCI Select Emerging Markets Index;
and U.S. market returns are measured by the Standard & Poor's 500
Composite Stock Price Index.

** The inception date of the MSCI Select Emerging Markets Index was May 4,
1994; returns shown for 1990-1994 are measured by the MSCI Emerging
Markets Free Index.
- --------------------------------------------------------------------------------

PLAIN TALK ABOUT

Regional Versus Broad International Investing

Regional funds are international funds that invest in a particular geographical
region, such as Europe or the Pacific Basin. Because they concentrate their
holdings in a single region, these funds typically have higher share price
volatility than broadly diversified international stock funds (which, by
investing in many different foreign markets, may offset losses from one country
with gains from another at any given time).

Keep in mind, however, that these average returns reflect past performance of
the various indexes; you should not consider them as an indication of future
returns from the indexes, or from any of the Funds in particular.

[GRAPHIC APPEARS HERE]
Each Fund is subject to country risk, which is the possibility that political
events (a war, national elections), financial problems (rising inflation,
government default), or natural disasters (an earthquake, a flood) will weaken a
country's economy and cause investments in that country to lose money.

European Stock Index Fund. Stocks from the United Kingdom, Germany,
Switzerland and France comprised 30%, 15%, 11% and 13% of the MSCI Europe Index,
respectively, as of January 31, 1999; stocks from the remaining 11 countries in
the Index have much less significant market capitalization weightings in the
Index and thus much less impact on its total return. The Fund's heavy exposure
to just four countries involves a higher degree of country risk than that of
more geographically diversified international funds.

The transition to a common European currency the - "euro" - which began on
January 1, 1999, is one form of country risk that the Fund faces. Although the
euro conversion should have no immediate impact on the Fund's share price, it
may cause uncertainty in European financial markets. If there are difficulties
with the euro conversion, the Fund's European holdings could be adversely
affected.

Pacific Stock Index Fund. Japanese stocks comprised 79% of the MCSI Pacific
Free Index as of January 31, 1999. Therefore, Japanese stocks will represent a
correspondingly large component of the Pacific Stock Index Fund's assets. The
Fund's large investment in the Japanese stock market may involve a higher degree
of country risk than that of more geographically diversified international
funds.

Emerging Markets Stock Index Fund. As discussed above, emerging markets can
be substantially more volatile than both U.S and more developed foreign markets.
Therefore, the Emerging Markets Stock Index Fund may expose investors to a
higher degree of volatility than funds that invest in more developed markets.

Total International Stock Index Fund. As a fund of funds, the Total
International Stock Index Fund intends to invest all of its assets in shares of
the other three Funds; indirectly, its country risk will mirror that of the
other Funds.

<PAGE>
17

As of January 31, 1999, the Fund's assets were invested as follows: 67.8% in the
European Stock Index Fund; 24.6% in the Pacific Stock Index Fund; and 7.6% in
the Emerging Markets Stock Index Fund.

[GRAPHIC APPEARS HERE]
Each Fund is subject to currency risk, which is the possibility that a stronger
U.S. dollar will reduce returns for Americans investing overseas. Generally,
when the dollar rises in value against another country's currency, your
investment in that country loses value because its currency is worth fewer U.S.
dollars. On the other hand, a weaker U.S. dollar generally leads to higher
returns for Americans holding foreign investments.

Security Selection
In seeking to track its target index, the European Stock Index, Pacific Stock
Index, and Emerging Markets Stock Index Funds each invest in a portfolio of
foreign stocks selected through statistical methods. The Total International
Stock Index Fund simply invests in shares of the other three Funds.

European Stock Index Fund. The Fund invests in a statistically selected
sample of more than 550 common stocks included in the Morgan Stanley Capital
International (MSCI) Europe Index, which is made up of the stocks of companies
located in 15 European countries. Four countries--the United Kingdom, Germany,
Switzerland and France--dominate the Index, with 30%, 15%, 11%, and 13%,
respectively, as of January 31, 1999. The other 11 countries, which include
Austria, Belgium, Denmark, Finland, Ireland, Italy, the Netherlands, Norway,
Portugal, Spain, and Sweden, are much less significant to the Index and,
consequently, the Fund.

Pacific Stock Index Fund. The Fund invests in a statistically selected sample
of the approximately 400 common stocks included in the Morgan Stanley Capital
International (MSCI)--Pacific Free Index, which is comprised of the stocks of
Pacific Basin companies. The Index is dominated by the Japanese stock market,
which represented 79% of the market capitalization of the Index as of January
31, 1999. The other four countries represented in the Index are Australia, Hong
Kong, New Zealand, and Singapore.

Emerging Markets Stock Index Fund. The Fund invests in a statistically
selected sample of the approximately 600 common stocks included in the Morgan
Stanley Capital International Select Emerging Markets Free Index, which is made
up of the stocks of companies located in 13 emerging markets of Europe, Asia,
Africa, and Latin America. Three countries--Brazil, Mexico, and South
Africa--represent a majority of the Index, with 11%, 15%, and 15% of the market
capitalization of the Index, respectively, as of January 31, 1999. The other 10
countries include Argentina, the Czech Republic, Greece, Hungary, Indonesia,
Israel, Philippines, Poland, Thailand, and Turkey. The developed countries of
Hong Kong and Singapore are included in the Index to broaden diversification and
ensure adequate liquidity.

Note: Prior to January 1, 1999, the MSCI Select Emerging Markets Free Index
included Malaysia. The Fund has liquidated its Malaysian holdings, which
represented approximately 6.50% of its net assets at the end of 1998. However,
Malaysian government regulations currently require the Fund to hold the proceeds
of these securities in ringgits--the Malaysian currency--for at least one year,
and the Malaysian government may impose additional restrictions affecting the
Fund at any time. The Fund considers ringgits illiquid, and will count these
holdings towards its 15% limit on investments in illiquid securities. The
adviser expects to maintain the Fund's normal investment exposure by purchasing
stock futures contracts equal in value to any ringgit holdings.

Although index funds, by their nature, tend to be tax-efficient investment
vehicles, the Funds are generally managed without regard to tax ramifications.

Transaction Fees and Account Maintenance Fees
Some of Vanguard's index funds charge a transaction fee on purchases of fund
shares to offset the higher costs of trading certain securities, particularly
small-company and international stocks. The transaction fee ensures that these
higher costs are borne by the investors making the transactions--and not by
shareholders already in the fund. In addition, most of Vanguard's index funds
charge an account maintenance fee on accounts under $10,000 to divide the costs
of maintaining accounts equitably among shareholders.

All transaction fees are paid directly to the fund itself (unlike a sales
charge or load, which--for many fund companies--ends up in the pocket of the
sponsor, adviser, or sales representative). Without transaction fees, some index
funds would have trouble tracking their target indexes.

Vanguard assesses an account maintenance fee on index fund shareholders
whose account balances are below $10,000 (for any reason, including a decline
in the value of a fund's shares) on the date a dividend is

<PAGE>

distributed. This fee is intended to allocate the costs of maintaining accounts
more equitably among shareholders. For funds that distribute dividends annually,
the account maintenance fee is $10 per year, deducted from the annual dividend,
which usually is distributed during the last two weeks of the calendar year. If
the fee is deducted from your dividend distribution, you will still be taxed on
the full amount of your dividend (unless you hold your shares through a
nontaxable account). If you are due a dividend that is less than the fee,
fractional shares will be automatically redeemed to make up the difference.

Costs and Market-Timing

Some investors try to profit from a strategy called market-timings--switching
money into investments when they expect prices to rise, and taking money out
when they expect prices to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Vanguard International Stock Index Funds have adopted the
following policies, among others, designed to discourage short-term trading:

. Each Fund charges a transaction fee on purchases. In addition, the Emerging
Markets Stock Index Fund charges a transaction fee on redemptions.

. Telephone and online exchanges are not accepted for non-IRA accounts.

. There is a limit on the number of times you can exchange into and out of a
Fund (see "Redeeming Shares" in the Investing with Vanguard section).

. Each Fund reserves the right to stop offering shares at any time.

The Vanguard funds do not permit market-timing. Do not invest in these Funds
if you are a market-timer.

Turnover Rate

Although each Fund seeks to invest for the long term, the Funds retain the right
to sell securities regardless of how long the securities have been held.
Generally, a passively-managed fund sells securities only to respond to
redemption requests or to adjust the number of shares held to reflect a change
in the fund's target index. Because of this, the turnover rate for each Fund has
been extremely low. The Financial Highlights tables beginning on page 23 show
historic turnover rates for each Fund.

Other Investment Policies and Risks

Besides investing in common stocks of foreign companies, each Fund may make
certain other kinds of investments to achieve its objective. Each Fund may
change its objective without shareholder approval.

PLAIN TALK ABOUT

Turnover Rate

Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. According to Morningstar, Inc., the average turnover rate for
passively managed foreign stock index funds is roughly 12%; for all foreign
stock funds, the average turnover is approximately 84%. (A turnover rate of 100%
would occur, for example, if a fund sold and replaced securities valued at 100%
of its net assets within a one-year period.)

<PAGE>
19

substantial loss (or gain) for a fund. Similar risks exist for warrants
(securities that permit their owners to purchase a specific number of shares of
stock at a predetermined price), convertible securities (securities that may be
exchanged for another asset), and swap agreements (contracts between two parties
in which each agrees to make payments to the other based on the return of a
specified index or asset).

For this reason, the Funds will not use futures, options, warrants, convertible
securities, or swap agreements for speculative purposes or as leveraged
investments that magnify the gains or losses of an investment. The value of all
futures contracts in which a Fund acquires an interest cannot exceed 20% of the
Fund's total assets.

The reasons for which a Fund will invest in futures and options are:

. To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.

. To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.

Each Fund may also enter into forward foreign currency contracts in order to
maintain the same currency exposure as its respective Index. A forward foreign
currency contract is an agreement to buy or sell a country's currency at a
specific price on a specific date, usually 30, 60, or 90 days in the future. In
other words, the contract guarantees an exchange rate on a given date. Managers
of international stock funds typically use these contracts to guard against
sudden, unfavorable changes in U.S. dollar/foreign currency exchange rates.
However, the Funds will use these contracts for different reasons:

. To gain currency exposure when investing in stock index futures.

. To settle trades in a foreign currency.

PLAIN TALK ABOUT
Derivatives

A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leverage investments, derivatives can carry considerable risk.

The Funds and Vanguard

Vanguard International Stock Index Funds are offered by The Vanguard Group, a
family of more than 35 investment companies with more than 100 distinct
investment portfolios holding assets worth more than $470 billion. All of the
Vanguard funds share in the expenses associated with business operations, such
as personnel, office space, equipment, and advertising.

Vanguard also provides marketing services to the funds. Although shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund pays its
allocated share of The Vanguard Group's marketing costs.

Vanguard reimburses the Total International Stock Index Fund for (i) the
Fund's contributions to the cost of operating the underlying funds in which it
invests, and (ii) certain savings in administrative and marketing costs that
Vanguard expects to derive from the Fund's operation. As a result, the Fund is
expected to operate at a very low or zero expense ratio. Since its inception in
1996, the Fund in fact has incurred no direct expenses. However, the Fund
indirectly bears its proportionate share of the expenses of the underlying funds
in which it invests.

Investment Adviser

Vanguard Core Management Group (the Group), P.O. Box 2600, Valley Forge, PA
19482, provides advisory services on an at-cost basis to the European, Pacific,
and Emerging Markets Stock Index Funds. The Total International Stock Index Fund
does not have its own investment adviser, but rather benefits from the advisory
services provided to the European, Pacific, and Emerging Markets Stock Index
Funds by the Group. For the fiscal year ended December 31, 1998, the advisory
fees represented an effective annual rate of less than 0.01% each for the
European Stock Index

<PAGE>

PLAIN TALK ABOUT

Vanguard's Unique Corporate Structure

The Vanguard Group is truly a mutual mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.

PLAIN TALK ABOUT

The Funds' Adviser

Vanguard Core Management Group provides investment advisory services to many
Vanguard funds; as of December 31, 1998, the Group managed more than $146
billion in total assets. The individual responsible for overseeing the European,
Pacific, and Emerging Markets Stock Index Funds' investments is:

George U. Sauter, Managing Director of Vanguard; has worked in investment
management since 1985; has managed portfolio investments Vanguard funds since
joining Vanguard in 1987; A.B., Dartmouth College; M.B.A., University of
Chicago.

Fund, the Pacific Stock Index Fund, and the Emerging Markets Stock Index Fund.

The Funds have authorized the Group to choose brokers or dealers to handle
the purchase and sale of securities for the Funds, and to get the best available
price and most favorable execution from these brokers or dealers with respect to
all transactions. The Funds may direct the Group to use a particular broker for
certain transactions in exchange for commission rebates or research services
provided to the Funds.

Year 2000 Challenge

The common practice in computer programming of using just two digits to identify
a year has resulted in the Year 2000 challenge throughout the information
technology industry. If unchanged, many computer applications and systems could
misinterpret dates occurring after December 31, 1999, leading to errors or
failure. Such failure could adversely affect a fund's operations, including
pricing, securities trading, and the servicing of shareholder accounts.

The Vanguard Group is dedicated to providing uninterrupted, high-quality
performance from our computer systems before, during, and after 2000. In July
1998, we completed the renovation and initial testing of our internal systems.
Vanguard is diligently working with external partners, suppliers, and vendors,
including fund managers and other service providers, to assure that the systems
with which we interact remain operational at all times.

In addition to taking every reasonable step to secure our internal systems
and external relationships, Vanguard is further developing contingency plans
intended to assure that unexpected systems failures will not adversely affect
the Funds' operations. Vanguard intends to monitor these processes through the
rollover of 1999 into 2000 and to quickly implement alternate solutions if
necessary.

However, despite Vanguard's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on a Fund's business,
operations, or financial condition. Additionally, a Fund's performance could be
hurt if a computer-system failure at a company or governmental unit affects the
price of securities the Fund owns.

Dividends, Capital Gains, and Taxes

The Funds distribute to shareholders virtually all of their net income (interest
and dividends less expenses) as well as any capital gains realized from the sale
of their holdings. Distributions generally occur in December. In addition, the
Funds may occasionally be required to make supplemental dividend or capital
gains distributions at some other time during the year. You can receive
distributions of income or capital gains in cash, or you can have them
automatically invested in more shares of the Fund. In either case, these
distributions are taxable to you. It is important to note that
<PAGE>

PLAIN TALK ABOUT
Distributions

As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from interest and dividends that the fund earns from its money
market and bond investments. Capital gains are realized whenever the fund sells
securities for higher prices than it paid for them. These capital gains are
either short-term or long-term depending on whether the fund held the securities
for less than or more than one year.

distributions of dividends and capital gains that are declared in December--if
paid to you by the end of January--are taxed as if they had been paid to you in
December.

Vanguard will send you a statement each year showing the tax status of all
your distributions.

. The dividends and short-term capital gains that you receive are considered
ordinary income for tax purposes.

. Any distributions of net long-term capital gains by a Fund are taxable to you
as long-term capital gains, no matter how long you've owned shares in the
Fund. Long-term capital gains may be taxed at different rates depending on
how long the Fund held the securities.

. Although the Funds do not seek to realize capital gains, such gains are
realized from time to time as by-products of their ordinary investment
activities. Consequently, distributions may vary from year to year.

. If you sell or exchange shares, any gain or loss you have is a taxable event.
This means that you may have a capital gain to report as income, or a capital
loss to report as a deduction, when you complete your federal income tax
return.

. Distributions of dividends or capital gains, and capital gains or losses from
your sale or exchange of Fund shares, may be subject to state and local
income taxes as well.

. Foreign governments may withhold taxes on dividends and interest paid, while
taxes on other payments or gains, with respect to foreign securities. For
investors in the European, Pacific and Emerging Markets Stock Index Funds who
meet certain holding period requirements, an offsetting tax credit or
deduction may be available. Investors in these Funds who do not meet these
requirements may still be entitled to a deduction for certain foreign taxes.
Because the Total International Stock Index Fund invests in foreign stocks
indirectly through the other three Funds, its investors are not able to take
advantage of foreign tax credits or deductions.

The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be
subject to U.S. withholding and estate tax.) You should consult your tax adviser
about the tax consequences of an investment in any of the Funds.

Important Note: By law, each Fund must withhold 31% of your taxable
distributions and any redemption proceeds if you do not provide your correct
taxpayer identification number, or certify that it its correct, or if the IRS
instructs the Fund to do so.

Share Price

Each Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of trading on the New York Stock Exchange (the NAV
is not calculated on holidays or other days the Exchange is closed). Net asset
value per share is computed by adding up the total value of the Fund's
investments and other assets, subtracting any of its liabilities (debts), and
then dividing by the number of Fund shares outstanding:

Total Assets - Liabilities
Net Asset Value = ----------------------------------
Number of Shares Outstanding

operate on days which are not business days in the United States, the value of a
Fund's holdings may change on days when shareholders will not be able to
purchase or redeem the Fund's shares.

A Note on Pricing: A Fund's investments will be priced at their market value
when market quotations are readily available. When these quotations are not
readily available, investments will be priced at their fair value, calculated
according to procedures adopted by the Funds' Board of Trustees. A Fund also may
use fair value pricing if the value of a security held by the Fund is materially
affected by events occurring after the close of the primary markets or exchanges
on which such security is traded. In these situations, prices used by the Fund
to calculate its net asset value may differ from quoted or published prices for
the underlying securities.

Each Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading "Vanguard Index Funds." Different
newspapers use different abbreviations for each Fund, but the most common are
Europe, Pacific, EmerMkt, and TotIntl.
<PAGE>

Financial Highlights

The following financial highlights tables are intended to help you understand
each Fund's financial performance for the past five years or since inception,
and certain information reflects financial results for a single Fund share in
each case. The total returns in each table represent the rate that an investor
would have earned or lost each year on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
derived from the financial statements audited by PricewaterhouseCoopers LLP,
independent accountants, whose report--along with each Fund's financial
statements--is included in the Funds' most recent annual report to shareholders.
You may have the annual report sent to you without charge by contacting
Vanguard.

PLAIN TALK ABOUT
How to Read the
Financial Highlights Table

This explanation uses the European Stock Index Fund as an example. The Fund
began fiscal 1998 with a net asset value (price) of $20.13 per share. During the
year, the Fund earned $0.41 per share from investment income (interest and
dividends) and $5.40 per share from investments that had appreciated in value or
that were sold for higher prices than the Fund paid for them.

Shareholders received $0.66 per share in the form of dividend and capital
gains distributions. A portion of each year's distributions may come from the
prior year's income or capital gains.

The earnings ($5.81 per share) minus the distributions ($0.66 per share)
resulted in a share price of $25.28 at the end of the year. This was an increase
of $5.15 per share (from $20.13 at the beginning of the year to $25.28 at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was 28.86% for the year.

As of December 31, 1998, the Fund had $4.48 billion in net assets. For the
year, its expense ratio was 0.29% ($2.90 per $1,000 of net assets); and its net
investment income amounted to 1.97% of its average net assets. It sold and
replaced securities valued at 7% of its net assets.

- --------------------------------------------------------------------------------
Vanguard European Stock Index Fund
Year Ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $20.13 $16.57 $14.02 $11.76 $11.88
- --------------------------------------------------------------------------------
Investment Operations
Net Investment Income .41 .38 .34 .32 .28
Net Realized and Unrealized
Gain (Loss) on Investments 5.40 3.63 2.63 2.30 (.06)
---------------------------------------
Total from Investment Operations 5.81 4.01 2.97 2.62 .22
---------------------------------------
Distributions
Dividends from Net Investment Income (.52) (.37) (.36) (.32) (.28)
Distributions from Realized Capital Gains (.14) (.08) (.06) (.04) (.06)
---------------------------------------
Total Distributions (.66) (.45) (.42) (.36) (.34)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $25.28 $20.13 $16.57 $14.02 $11.76
================================================================================

Total Return* 28.86% 24.23% 21.26% 22.28% 1.88%
================================================================================

Ratios/Supplemental Data
Net Assets, End of Year (Millions) $4,479 $2,432 $1,595 $1,017 $715
Ratio of Total Expenses to
Average Net Assets 0.29% 0.31% 0.35% 0.35% 0.32%
Ratio of Net Investment Income to
Average Net Assets 1.97% 2.19% 2.45% 2.66% 2.41%
Turnover Rate 7% 3% 4% 2% 6%
================================================================================
* Total return figures do not reflect the transaction fee on purchases (0.5%
beginning 11/3/1997, 1% from 1994 through 11/2/1997) or the annual account
maintenance fee of $10.

From time to time, the Vanguard funds advertise yield and total return
figures. Yield is a measure of past dividend income. Total return includes both
past dividend income (assuming that it has been reinvested) plus realized and
unrealized capital appreciation (or depreciation). Neither yield nor total
return should be used to predict the future performance of a fund.
<PAGE>

- --------------------------------------------------------------------------------
Vanguard Pacific Stock Index Fund
Year Ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $7.72 $10.51 $11.50 $11.31 $10.13
- --------------------------------------------------------------------------------
Investment Operations
Net Investment Income .085 .09 .10 .10 .08
Net Realized and Unrealized Gain (Loss)
on Investments .100 (2.79) (1.00) .21 1.24
----------------------------------------
Total from Investment Operations .185 (2.70) (.90) .31 1.32
----------------------------------------
Distributions
Dividends from Net Investment Income (.065) (.09) (.09) (.12) (.08)
Distributions from Realized Capital
Gains -- -- -- -- (.06)
----------------------------------------
Total Distributions (.065) (.09) (.09) (.12) (.14)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $7.84 $ 7.72 $10.51 $11.50 $11.31
================================================================================

Total Return* 2.41% -25.67% -7.82% 2.75% 13.04%
================================================================================

Ratios/Supplemental Data
Net Assets, End of Year (Millions) $1,033 $827 $978 $831 $697
Ratio of Total Expenses to Average
Net Assets 0.40% 0.35% 0.35% 0.35% 0.32%
Ratio of Net Investment Income
to Average Net Assets 1.17% 1.03% 0.89% 0.97% 0.71%
Turnover Rate 4% 8% 9% 1% 4%
================================================================================
* Total return figures do not reflect the transaction fee on purchases (0.5%
beginning 1/1/1997, 1.0% from 1994 through 1996) or the annual account
maintenance fee of $10.

- --------------------------------------------------------------------------------
Vanguard Emerging Markets Stock Index Fund
Year Ended December 31, May 4* to
------------------------------ Dec. 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.98 $12.28 $10.75 $10.87 $10.00
- --------------------------------------------------------------------------------
Investment Operations
Net Investment Income .27 .24 .18 .15 .06
Net Realized and Unrealized Gain (Loss)
on Investments (2.08) (2.31) 1.52 (.09) .92
----------------------------------------
Total from Investment Operations (1.81) (2.07) 1.70 .06 .98
----------------------------------------
Distributions
Dividends from Net Investment Income (.26) (.23) (.17) (.18) (.07)
Distributions from Realized Capital
Gains -- -- -- -- (.04)
----------------------------------------
Total Distributions (.26) (.23) (.17) (.18) (.11)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $7.91 $ 9.98 $12.28 $10.75 $10.87
================================================================================
Total Return** -18.12% -16.82% 15.83% 0.56 % 9.81%
================================================================================
Ratios/Supplemental Data
Net Assets, End of Period (Millions) $577 $660 $637 $234 $83
Ratio of Total Expenses to Average
Net Assets 0.61% 0.57% 0.60% 0.60% 0.60%
Ratio of Net Investment Income
to Average Net Assets 2.99% 1.96% 1.69% 2.00% 1.32%
Turnover Rate 22% 19% 1% 3% 6%
================================================================================
* Inception.
** Total return figures do not reflect the transaction fee on purchases (1.0%
beginning 11/3/1997, 1.5% from 1/1/1997 to 11/2/1997, 2.0% from 1994 through
1996), the 1% transaction fee on redemptions, or the annual account
maintenance fee of $10.
+ Annualized.

<PAGE>

- --------------------------------------------------------------------------------
Vanguard Total International
Stock Index Fund

Year Ended December 31,
----------------------- Apr. 29* to
1998 1997 Dec. 31, 1996
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 9.87 $10.14 $10.26
- --------------------------------------------------------------------------------
Investment Operations

Net Investment Income .21 .18 .150
Capital Gain Distributions Received .02 .02 .015
Net Realized and Unrealized Gain (Loss) on
Investments 1.31 (.28) (.110)
-----------------------------------
Total from Investment Operations 1.54 (.08) .055
-----------------------------------
Distributions

Dividends from Net Investment Income (.21) (.17) (.160)
Distributions from Realized Capital Gains (.01) (.02) (.015)
-----------------------------------
Total Distributions (.22) (.19) (.175)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $11.19 $ 9.87 $10.14
================================================================================

Total Return** 15.60% -0.77% 0.55%
================================================================================

Ratios/Supplemental Data

Net Assets, End of Period (Millions) $1,375 $903 $280
Ratio of Expenses to Average Net Assets 0% 0% 0%
Ratio of Net Investment Income to Average
Net Assets 2.18% 2.19% 1.51%
Turnover Rate 2% 0% 0%
================================================================================
* Inception.

** Total return figures do not reflect the transaction fee on purchases (0.5%
beginning 11/3/1997, 0.75% from 1/1/1997 to 11/2/1997, 1.0% in 1996) or the
annual account maintenance fee of $10.

+ Annualized.

The Funds are not sponsored, sold, promoted, or endorsed by Morgan Stanley
Capital International. Standard & Poor's(R),""S&P(R),""S&P 500(R),""Standard &
Poor's 500," and "500," are trademarks of The McGraw-Hill Companies, Inc., and
have been licensed for use by The Vanguard Group.
<PAGE>

Investing with Vanguard

Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?

Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.

The following sections of the prospectus briefly explain the many services we
offer. Booklets providing detailed information are available on the services
marked with a [GRAPHIC APPEARS HERE]. Please call us to request copies.

Services and Account Features

Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
Telephone Redemptions (Sales and Exchanges)

Automatically set up for these Funds unless you notify us otherwise.
Note: Limitations do apply; see page 30.
- --------------------------------------------------------------------------------
Vanguard Direct Deposit Service/TM/ [GRAPHIC APPEARS HERE]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
Vanguard Automatic Exchange Service/TM/ [GRAPHIC APPEARS HERE]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
Vanguard Fund Express(R) [GRAPHIC APPEARS HERE]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
Vanguard Dividend Express/TM/ [GRAPHIC APPEARS HERE]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
Vanguard Tele-Account(R) 1-800-662-6273 (ON-BOARD) [GRAPHIC APPEARS HERE]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange fund shares.
- --------------------------------------------------------------------------------
Access Vanguard/TM/ www.vanguard.com [GRAPHIC APPEARS HERE]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through the website. We will then send to you, by mail, an account
access password that allows you to process the following financial and
administrative transactions online:

. Open a new account.*
. Buy, sell, or exchange shares of most funds.
. Change your name/address.
. Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).

*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
Investor Information Department: 1-800-662-7447 (SHIP) Text Telephone:
1-800-952-3335

Call Vanguard for information on our funds, fund services, and retirement
accounts, and to request literature.
- --------------------------------------------------------------------------------
Client Services Department: 1-800-662-2739 (CREW) Text Telephone: 1-800-662-2738

Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
Services for Clients of Vanguard's Institutional Division: 1-888-809-8102

Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
<PAGE>

Types of Accounts

Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
For One or More People

Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
For Holding Personal Trust Assets [GRAPHIC APPEARS HERE]

Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
For Individual Retirement Accounts [GRAPHIC APPEARS HERE]

Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
For an Organization [GRAPHIC APPEARS HERE]

Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
For Third-Party Trustee Retirement Investments

Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
Vanguard Prototype Plans

Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------
A Note on Investing with Vanguard Through Other Firms

You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------

Buying Shares

You buy your shares at a Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
Minimum Investment to . . .

open a new account
$3,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).

add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------

A Note on Low Balances

Each Fund reserves the right to close any nonretirement account whose balance
falls below the minimum initial investment. The Fund will deduct a $10 annual
fee in June if your nonretirement account balance at that time is below $2,500.
The fee is waived if your total Vanguard account assets are $50,000 or more.
- --------------------------------------------------------------------------------
A Note On Purchase Fees

The European, Pacific, Emerging Markets and Total International Stock Index
Funds deduct a 0.5%, 0.5%, 1%, and 0.5% fee, respectively, from all purchases
(including exchanges from other Vanguard funds), but not from reinvested
dividends or capital gains.
- --------------------------------------------------------------------------------
By Mail to . . . [GRAPHIC APPEARS HERE]

open a new account
Complete and sign the application form and enclose your check.
<PAGE>

Buying Shares (continued)

add to an existing account
Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form.

Make your check payable to: The Vanguard Group-(insert appropriate Fund number;
see below)

European Stock Index Fund-79
Pacific Stock Index Fund-72
Emerging Markets Stock Index Fund-533
Total International Stock Index Fund-113
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2600 455 Devon Park Drive
Valley Forge, PA 19482-2600 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division . . .

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
By Telephone to . . . [GRAPHIC APPEARS HERE]

open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services
during business hours--to exchange from another Vanguard fund account with the
same registration (name, address, taxpayer identification number, and account
type).

add to an existing account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). Use Vanguard
Fund Express (see "Services and Account Features") to transfer assets from your
bank account. Call Client Services before your first use to verify that this
option is in place.

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739

*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.
- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you've requested a telephone transaction and a confirmation
number has been assigned, the transaction cannot be revoked. We reserve the
right to refuse any purchase request.
- --------------------------------------------------------------------------------
By Wire to Open a New Account or Add to an Existing Account [GRAPHIC APPEARS
HERE]

Call Client Services to arrange your wire transaction. Wire transactions are not
available for retirement accounts, except for asset transfers and direct
rollovers.

Wire to:
FRB ABA 021001088
HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account
<PAGE>

In favor of:
European Stock Index Fund-79
Pacific Stock Index Fund-72
Emerging Markets Stock Index Fund-533
Total International Stock Index Fund-113
[Account number, or temporary number for a new account]
[Registered account owner/s]
[Registered address]
- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or
Vanguard Fund Express at any time. However, while your redemption request will
be processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A Note on Large Purchases

It is important that you call Vanguard before you invest a large dollar amount.
We must consider the interests of all Fund shareholders and so reserve the right
to refuse any purchase that will disrupt the Fund's operation or performance.
- --------------------------------------------------------------------------------

Redeeming Shares

This section describes how you can redeem--that is, sell or exchange--a Fund's
shares.

When Selling Shares:

. Vanguard sends the redemption proceeds to you or a designated third party.*

. You can sell all or part of your Fund shares at any time.

*May require a signature guarantee; see footnote on page 31.

When Exchanging Shares:

. The redemption proceeds are used to purchase shares of a different Vanguard
fund.

. You must meet the receiving fund's minimum investment requirements.

. Vanguard reserves the right to revise or terminate the exchange privilege,
limit the amount of an exchange, or reject an exchange at any time, without
notice.

In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus. In particular, you should note that the Funds do not permit
telephone exchanges.
- --------------------------------------------------------------------------------
A Note on Redemption Fees: The Emerging Markets Stock Index Fund imposes a 1%
redemption fee on all share redemptions. Currently, redemption fees do not apply
to Fund shares held through Vanguard's separate recordkeeping system for
employee benefit plan accounts, due to certain economies associated with these
accounts. However, the Fund reserves the right to impose redemption fees on its
shares at any time if warranted by the Fund's future costs of processing
redemptions from these accounts.
- --------------------------------------------------------------------------------

Note: Once a redemption is requested and a confirmation number given, the
transaction cannot be canceled.
- --------------------------------------------------------------------------------
<PAGE>

Redeeming Shares (continued)

How to Request a Redemption

You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.
- --------------------------------------------------------------------------------
Online Requests [GRAPHIC APPEARS HERE]

Access Vanguard at www.vanguard.com

You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through the website. We will then send you, by mail, an account access password
that will enable you to sell or exchange shares online (as well as perform other
transactions).

Note: The Vanguard funds whose shares you cannot exchange online or by
telephone are Vanguard U.S. Stock Index Funds, Vanguard Balanced Index Fund,
Vanguard International Stock Index Funds, Vanguard REIT Index Fund, Vanguard
Total International Stock Index Fund, and Vanguard Growth and Income Fund. These
funds do, however, permit online and telephone exchanges within IRAs and other
retirement accounts. If you sell shares of these funds online, you will receive
a redemption check at your address of record.
- --------------------------------------------------------------------------------

Telephone Requests [GRAPHIC APPEARS HERE]

All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours--to sell shares.

Retirement Accounts:
You can exchange--but not sell--shares by calling Tele-Account or Client
Services.

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
- --------------------------------------------------------------------------------

Special information: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable to
provide:

[X] The ten-digit account number.
[X] The name and address exactly as registered on the account.
[X] The primary Social Security or employer identification number as
registered on the account.
[X] The Personal Identification Number, if applicable.

Please note that Vanguard will not be responsible for any account losses due
to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A Note on Unusual Circumstances
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
Mail Requests [GRAPHIC APPEARS HERE]

All Account Types Except Retirement:

Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.
<PAGE>

Vanguard Retirement Accounts:

For information on how to request distributions from:

. Traditional IRAs and Roth IRAs--call Client Services.

. SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and
Money Purchase Pension (Keogh) Plans--call Individual Retirement Plans at
1-800-662-2003.

Depending on your account registration type, additional documentation may be
required.

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1120 455 Devon Park Drive
Valley Forge, PA 19482-1120 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division

It is important that you call Vanguard before you redeem a large dollar amount.
We must consider the interests of all fund shareholders and so reserve the right
to delay delivery of your redemption proceeds--up to seven days--if the amount
will disrupt a Fund's operation or performance.

If you redeem more than $250,000 worth of Fund shares within any 90-day
period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in kind, i.e., in securities, rather than in cash. If
payment is made in kind, you may incur brokerage commissions if you elect to
sell the securities for cash.
- --------------------------------------------------------------------------------

Options for Redemption Proceeds

You may receive your redemption proceeds in one of two ways: check or exchange
to another Vanguard fund.
- --------------------------------------------------------------------------------
Check Redemptions

Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
Exchange Redemptions

As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------
For Our Mutual Protection

For your best interests and ours, Vanguard applies these additional requirements
to redemptions:

Request in "Good Order"

All redemption requests must be received by Vanguard in "good order." This means
that your request must include:

[X] The Fund name and account number.
[X] The amount of the transaction (in dollars or shares).
[X] Signatures of all owners exactly as registered on the account (for mail
requests).
[X] Signature guarantees (if required).*
[X] Any supporting legal documentation that may be required.
[X] Any outstanding certificates representing shares to be redeemed.

*For instance, a signature guarantee must be provided by all registered account
shareholders when redemption proceeds are to be sent to a different person or
address. A signature guarantee can be obtained from most banks, credit unions,
and licensed brokers.

Transactions are processed at the next-determined share price after Vanguard has
received all required information.
- --------------------------------------------------------------------------------
<PAGE>

Redeeming Shares (continued)

- --------------------------------------------------------------------------------
Limits on Account Activity

Because excessive account transactions can disrupt management of a Fund and
increase the Fund's costs for all shareholders, Vanguard limits account activity
as follows:

. You may make no more than two substantive "round trips" through the Fund
during any 12-month period.
. Your round trips through the Fund must be at least 30 days apart.
. The Fund may refuse a share purchase at any time, for any reason.
. Vanguard may revoke an investor's telephone exchange privilege at any time,
for any reason.

A "round trip" is a redemption from the Fund followed by a purchase back into
the Fund. Also, "round trip" covers transactions accomplished by any combination
of methods, including transactions conducted by check, wire, or exchange to/from
another Vanguard fund. "Substantive" means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.
- --------------------------------------------------------------------------------
Return Your Share Certificates

Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:

The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
All Trades Final

Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been received
and a confirmation number assigned.
- --------------------------------------------------------------------------------

Transferring Registration

You can transfer the registration of your Fund shares to another owner by
completing a transfer form and sending it to Vanguard.

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division . . .

Fund and Account Updates

Statements and Reports

We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.

In addition, you will receive financial reports about a Fund twice a year.
These comprehensive reports include an assessment of the Fund's performance (and
a comparison to its industry benchmark), an overview of the markets, a report
from the advisers, and the Fund's financial statements which include a listing
of the Fund's holdings.

To keep each Fund's costs as low as possible (so that you and other
shareholders can keep more of the Fund's investment earnings), Vanguard attempts
to eliminate duplicate mailings to the same address. When we find that two or
more Fund shareholders have the same last name and address, we send just one
Fund report to that address--instead of mailing separate reports to each
shareholder. If you want us to send separate reports, however, you may notify
our Client Services Department at 1-800-662-2739.
- --------------------------------------------------------------------------------
Confirmation Statement

Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
Portfolio Summary

Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
Fund Financial Reports

Mailed in February and August for these Funds.
- --------------------------------------------------------------------------------
Tax Statements

Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
Average Cost Review Statement [GRAPHIC APPEARS HERE]

Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using the average cost single category method.
- --------------------------------------------------------------------------------
<PAGE>

(This page intentionally left blank.)
<PAGE>

Glossary of Investment Terms

Active Management

An investment approach that seeks to exceed the average returns of the financial
markets. Active managers rely on research, market forecasts, and their own
judgment and experience in selecting securities to buy and sell.

Capital Gains Distribution

Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.

Cash Reserves

Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.

Common Stock

A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.

Dividend Income

Payment to shareholders of income from interest or dividends generated by a
fund's investments.

Expense Ratio

The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.

Index

An unmanaged group of securities whose overall performance is used as a standard
to measure investment performance.

Investment Adviser

An organization that makes the day-to-day decisions regarding a fund's
investments.

Mutual Fund

An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

Net Asset Value (NAV)

The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.

Passive Management

A low-cost investment strategy in which a mutual fund attempts to match--rather
than outperform--a particular stock or bond market index. Also known as
indexing.

Principal

The amount of your own money you put into an investment.

Securities

Stocks, bonds, money market instruments, and other investment vehicles.

Total Return

A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.

Volatility

The fluctuations in value of a mutual fund or other security. The greater
a fund's volatility, the wider the fluctuations between its high and low prices.

Yield

Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE>

[GRAPHIC APPEARS HERE]
[LOGO OF THE VANGUARD GROUP(R) APPEARS HERE]
Post Office Box 2600
Valley Forge, PA 19482-2600

For More Information

If you'd like more information about Vanguard International Stock Index Funds,
the following documents are available free upon request:

Annual/Semiannual Report to Shareholders

Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareholders. In these reports, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during the most recent fiscal year.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Funds (there is a separate
SAI for Vanguard Total International Stock Index Fund, which is legally a part
of Vanguard STAR Funds).

The current annual and semiannual reports and each SAI are incorporated by
reference into (and are thus legally a part of) this prospectus.

To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Funds or other Vanguard funds,
please contact us as follows:

The Vanguard Group
Investor Information Department
P.O. Box 2600
Valley Forge, PA 19482-2600

Telephone:
1-800-662-7447 (SHIP)

Text Telephone:
1-800-952-3335

World Wide Web:
www.vanguard.com

If you are a current Fund shareholder and would like information about your
account, account transactions, and/or account statements, please call:

Client Services Department
Telephone:
1-800-662-2739 (CREW)

Text Telephone:
1-800-662-2738

Information provided by the Securities and Exchange Commission (SEC)

You can review and copy information about the Funds (including the SAIs) at the
SEC's Public Reference Room in Washington, D.C. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Funds are also available on the SEC's website (www.sec.gov), or you
can receive copies of this information, for a fee, by writing the Public
Reference Section, Securities and Exchange Commission, Washington, DC
20549-6009.

Funds' Investment Company Act file number: 811-5972 (811-3919 for Total
International Stock Index Fund)

PO72N-04/30/1999
<PAGE>

Vanguard International Stock Index Funds

Participant Prospectus
April 30, 1999

A Group of International Stock Index Mutual Funds

Contents

1 An Introduction to Index Funds

2 Fund Profiles
2 Vanguard European Stock Index Fund
5 Vanguard Pacific Stock Index Fund
8 Vanguard Emerging Markets Stock Index Fund
11 Vanguard Total International Stock Index Fund

14 More on the Funds

19 The Funds and Vanguard

19 Investment Adviser

20 Year 2000 Challenge

20 Dividends, Capital Gains, and Taxes

21 Share Price

22 Financial Highlights

25 Investing with Vanguard

26 Accessing Fund Information by Computer

Glossary (inside back cover)

- --------------------------------------------------------------------------------
Why Reading This Prospectus Is Important

This prospectus explains the objective, risks, and strategies of each of the
Vanguard International Stock Index Funds. To highlight terms and concepts
important to mutual fund investors, we have provided "Plain Talk((R))"
explanations along the way. Reading the prospectus will help you to decide which
Fund, if any, is the right investment for you. We suggest that you keep it for
future reference.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Important Note

This prospectus is intended for participants in employer-sponsored retirement or
savings plans. Another version--for investors who would like to open a personal
investment account--can be obtained by calling Vanguard at 1-800-662-7447.
- --------------------------------------------------------------------------------

An Introduction to Index Funds

What is indexing?

An index is an unmanaged group of securities whose overall performance is used
as a standard to measure investment performance. An index (or "passively
managed") fund tries to match, as closely as possible, the performance of an
established target index. The fund does this by holding all, or a representative
sample, of the securities that comprise the index. Keep in mind that an index
fund has operating expenses and transaction costs, while a market index does
not. Therefore, an index fund, while expected to track its target index closely,
typically will be unable to match the performance of the index exactly.

Index funds are not actively managed by investment advisers who buy and sell
securities based on research and analysis in an attempt to outperform a
particular benchmark or the market as a whole. Rather, index funds simply
attempt to mirror what the target index does, for better or worse.

What index funds does Vanguard offer?

Vanguard offers a variety of stock (both U.S. and international), bond, and
balanced index funds. This prospectus provides information about Vanguard's
International Stock Index Funds. There are four such funds, each of which seeks
to track a different segment of the international stock market:

This prospectus contains profiles that summarize key features of each Fund.
Following the profiles, there is important additional information about the
Funds.

<PAGE>

Fund Profile--Vanguard European Stock Index Fund

The following profile provides you with a summary of the key features of
Vanguard European Stock Index Fund.

INVESTMENT OBJECTIVE

INVESTMENT STRATEGIES

PRIMARY RISKS

The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:

. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.
. Regional risk, which is the chance that an entire region--namely
Europe--will be hurt by political troubles, financial problems, or natural
disasters.
. Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.
. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

PERFORMANCE/RISK INFORMATION

----------------------------------------------------------
Annual Total Returns
----------------------------------------------------------

[BAR CHART APPEARS HERE]

1991 12.4%
1992 -3.3%
1993 29.1%
1994 1.9%
1995 22.3%
1996 21.3%
1997 24.2%
1998 28.9%

----------------------------------------------------------
Return figures do not reflect the 0.5% transaction fee on purchases.

<PAGE>

- ----------------------------------------------------------------------------------------------
Average Annual Total Returns for Years Ended December 31, 1998
- ----------------------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vanguard European Stock Index Fund** 28.22% 19.20% 14.31%
Morgan Stanley Capital International Europe Index 28.68 19.40 14.66
- ----------------------------------------------------------------------------------------------
* June 18, 1990.
** Return figures reflect the 0.5% transaction fee on purchases.
- ----------------------------------------------------------------------------------------------
</TABLE>

FEES AND EXPENSES

<TABLE>

<S> <C>
Shareholder Fees (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 0.5%*
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

Annual Fund Operating Expenses (expenses deducted from the Fund's assets)
Management Expenses: 0.20%
12b-1 Distribution Fees: None
Other Expenses: 0.09%
Total Annual Fund Operating Expenses: 0.29%
</TABLE>

*The transaction fee on purchases is deducted from all purchases
(including exchanges from other Vanguard funds) but not from
reinvested dividends and capital gains.

The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain the same. The results apply whether
or not you redeem your investment at the end of each period.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$80 $143 $212 $416
- --------------------------------------------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>

Fund Profile--Vanguard European Stock Index Fund (continued)

Additional Information

Dividends and Capital Gains Newspaper Abbreviation
Distributed annually in December Europe

Investment Adviser Vanguard Fund Number
Vanguard Core Management Group, Valley Forge, Pa., 079
since inception
Cusip Number
Inception Date 922042205
June 18, 1990
Ticker Symbol
Net Assets as of December 31, 1998 VEURX
$4.48 billion

<PAGE>

Fund Profile--Vanguard Pacific Stock Index Fund

The following profile summarizes key features of Vanguard Pacific Stock Index
Fund.

INVESTMENT OBJECTIVE

The Fund seeks to match the performance of the Morgan Stanley Capital
International Pacific Free Index(*), which consists of more than 400 common
stocks of companies located in Japan (which comprises 79% of the Index's market
capitalization as of January 31,1999), Australia, Hong Kong, New Zealand, and
Singapore.

(*)The designation "Free" in the name of the Index refers to the securities that
the index tracks. Some countries restrict foreign investment in certain
industries, so only stocks that can be bought freely by a fund are tracked.

INVESTMENT STRATEGIES

PRIMARY RISKS

The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:
. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.
. Regional risk, which is the chance that an entire region--namely the
Pacific region--will be hurt by political troubles, financial problems, or
natural disasters.
. Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.
. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

PERFORMANCE/RISK INFORMATION

The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one and
five years and since inception compare with those of a broad-based securities
market index. Keep in mind that the Fund's past performance does not indicate
how it will perform in the future.

--------------------------------------------------------------------
Annual Total Returns
--------------------------------------------------------------------

[BAR CHART APPEARS HERE]

1991 10.7%
1992 -18.2%
1993 35.5%
1994 13.0%
1995 2.7%
1996 -7.8%
1997 -25.7%
1998 2.4%

--------------------------------------------------------------------
Return figures do not reflect the 0.5% transaction fee on purchases.
--------------------------------------------------------------------

<PAGE>

Fund Profile--Vanguard Pacific Stock Index Fund (continued)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Average Annual Total Returns for Years Ended December 31, 1998
-----------------------------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vanguard Pacific Stock Index Fund** 1.90% -4.11% -1.82%
Morgan Stanley Capital International Pacific Free Index 2.64 -4.08 -1.83
-----------------------------------------------------------------------------------------------------
* June 18, 1990.
**Return figures reflect the 0.5% transaction fee on purchases.
-----------------------------------------------------------------------------------------------------
</TABLE>

FEES AND EXPENSES

<TABLE>

Annual Fund Operating Expenses (expenses deducted from the Fund's assets)
Management Expenses: 0.30%
12b-1 Distribution Fees: None
Other Expenses: 0.10%
Total Annual Fund Operating Expenses: 0.40%
</TABLE>

*The transaction fee on purchases is deducted from all purchases
(including exchanges from other Vanguard funds) but not from
reinvested dividends and capital gains.

The following example is intended to help you compare the cost of investing in
other mutual funds. It illustrates the hypothetical expenses that you would
incur over various periods if you invest $10,000 in the Fund. This example
assumes that the Fund provides a return of 5% a year, and that operating
expenses remain the same. The results apply whether or not you redeem your
investment at the end of each period.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$91 $178 $273 $553
- --------------------------------------------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>

Additional Information

Dividends and Capital Gains Newspaper Abbreviation
Distributed annually in December Pacific

Investment Adviser Vanguard Fund Number
Vanguard Core Management Group, Valley Forge, Pa., 072
since inception
Cusip Number
Inception Date 922042106
June 18, 1990
Ticker Symbol
Net Assets as of December 31, 1998 VPACX
$1.03 billion

<PAGE>

Fund Profile--Vanguard Emerging Markets Stock Index Fund

The following profile summarizes key features of Vanguard Emerging Markets Stock
Index Fund.

INVESTMENT OBJECTIVE

The Fund seeks to match the performance of the Morgan Stanley Capital
International Select Emerging Markets Free(*) Index, which includes more than
600 common stocks of companies located in 13 emerging markets of Europe, Asia,
Africa, and Latin America--mostly in Brazil, South Africa, and Mexico (which
comprise 11%, 15%, and 15% of the Index's market capitalization, respectively,
as of January 31, 1999), as well as Argentina, the Czech Republic, Greece,
Hungary, Indonesia, Israel, Philippines, Poland, Thailand, and Turkey. The
developed countries of Hong Kong and Singapore are included in the Index to
broaden diversification and ensure adequate liquidity.

INVESTMENT STRATEGIES

The Fund employs a "passively managed" investment--or index--approach, by
holding a mix of common stocks included in the MSCI Select Emerging Markets
Index. For more information about passive management, see "Indexing Methods"
under More on the Funds.

PRIMARY RISKS

The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:
. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters. Country risk
is especially high for funds that focus on stocks in emerging markets.
. Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.
. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

PERFORMANCE/RISK INFORMATION

The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of both a broad-based
securities market index and the Fund's target index. Keep in mind that the
Fund's past performance does not indicate how it will perform in the future.

---------------------------------------------------------------------
Annual Total Returns
---------------------------------------------------------------------

[BAR CHART APPEARS HERE]

1995 0.6%
1996 15.8%
1997 -16.8%
1998 -18.1%

---------------------------------------------------------------------
Return figures do not reflect the 1% transaction fee on purchases and
redemptions.
---------------------------------------------------------------------

-------------------------------------------------------------------------------------
Average Annual Total Returns for Years Ended December 31, 1998
-------------------------------------------------------------------------------------
1 Year Since Inception*
-------------------------------------------------------------------------------------
<S> <C> <C>
Vanguard Emerging Markets Stock Index Fund** -19.75% -3.34%
Morgan Stanley Capital International
Emerging Markets Free Index -25.34 -7.65
Morgan Stanley Capital International Select
Emerging Markets Free Index -18.39 -4.27
-------------------------------------------------------------------------------------
*May 4, 1994.
**Return figures reflect the 1% transaction fee on purchases and redemptions.
-------------------------------------------------------------------------------------
</TABLE>

FEES AND EXPENSES

<TABLE>

<S> <C>
Shareholder Fees (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 1%*
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: 1%**

Annual Fund Operating Expenses (expenses deducted from the Fund's assets)
Management Expenses: 0.30%
12b-1 Distribution Fees: None
Other Expenses: 0.31%
Total Annual Fund Operating Expenses: 0.61%
</TABLE>

*The transaction fee on purchases is deducted from all purchases
(including exchanges from other Vanguard funds) but not from
reinvested dividends and capital gains.
**The redemption fee applies to all redemptions (sales or
exchanges); it is deducted from redemption proceeds, and retained by
the Fund.

The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, that operating expenses remain the same, and that you redeem all your
shares at the end of each period.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$265 $406 $560 $1,007
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$162 $293 $437 $855
- --------------------------------------------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>

Fund Profile--Vanguard Emerging Markets Stock Index Fund (continued)

Additional Information

Dividends and Capital Gains Newspaper Abbreviation
Distributed annually in December EmerMkt

Investment Adviser Vanguard Fund Number
Vanguard Core Management Group, Valley Forge, Pa., 533
since inception
Cusip Number
Inception Date 922042304
May 4, 1994

Ticker Symbol
Net Assets as of December 31, 1998 VEIEX
$577 million
<PAGE>

Fund Profile--Vanguard Total International Stock Index Fund

The following profile summarizes key features of Vanguard Total International
Stock Index Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of the Total International Composite
Index, which is a combination of the indexes tracked by the European, Pacific,
and Emerging Markets Stock Index Funds.

INVESTMENT STRATEGIES

The Fund employs a "passively managed" investment--or index--approach, by
holding a mix of mutual funds that together seek to match the performance of the
Total International Composite Index . As a "fund of funds," the Fund invests in
Vanguard's European, Pacific, and Emerging Markets Stock Index Funds, in
proportions based on each market segment's contribution to the market
capitalization of the Total International Composite Index. For more information
about passive management, see "Indexing Methods" under More on the Funds.

PRIMARY RISKS

The Fund's total return, like stock prices generally, will fluctuate within a
wide range, so an investor could lose money over short or even long periods. The
Fund is also subject to:

. Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.
. Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.
. Investment style risk, which is the chance that returns from foreign stocks
will trail returns from other asset classes or the overall stock market.

PERFORMANCE/RISK INFORMATION

The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception. The table shows how the Fund's average annual returns for one
calendar year and since inception compare with those of both a broad-based
securities market index and the Fund's target index. Keep in mind that the
Fund's past performance does not indicate how it will perform in the future.

-----------------------------------------------------------------------
Annual Total Returns
-----------------------------------------------------------------------

[BAR CHART APPEARS HERE]

1997 -0.8%
1998 15.6%
-----------------------------------------------------------------------
Return figures do not reflect the 0.5% transaction fee on purchases.
-----------------------------------------------------------------------

Fund Profile--Vanguard Total International Stock Index Fund (continued)

- --------------------------------------------------------------------------------
Average Annual Total Returns for Years Ended December 31, 1998
- --------------------------------------------------------------------------------
1 Year Since Inception*
- --------------------------------------------------------------------------------
Vanguard Total International Stock Index Fund** 15.02% 5.29%
Morgan Stanley Capital International
EAFE + Emerging Markets Free Index 15.25 6.03
Total International Composite Index+ 15.88 5.58
- --------------------------------------------------------------------------------
* April 29, 1996.
** Return figures reflect the 0.5% transaction fee on purchases.
+ Consists of the Morgan Stanley Capital International Europe, Australasia,
Far East Index + Select Emerging Markets Free Index.
- --------------------------------------------------------------------------------

FEES AND EXPENSES

Shareholder Fees (fees paid directly from your investment)

Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 0.5%*
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

Annual Fund Operating Expenses (expenses deducted from the underlying
funds' assets)
Indirect Operating Expenses: **

*The transaction fee on purchases is deducted from all purchases (including
exchanges from other Vanguard funds) but not from reinvested dividends and
capital gains.
**Although the Fund is expected to incur no net expenses directly, the Fund's
shareholders indirectly bear the expenses of the underlying funds in which
the Fund invests. See The Funds and Vanguard. The Fund's indirect expense
ratio, based on its underlying investments, was 0.34% as of December 31,
1998.

- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$85 $159 $241 $481
- --------------------------------------------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.
<PAGE>

Additional Information

Dividends and Capital Gains Newspaper Abbreviation
Distributed annually in December TotIntl

Investment Adviser Vanguard Fund Number
Vanguard Core Management Group, Valley Forge, Pa., 113
since inception
Cusip Number
Inception Date 921909602
April 29, 1996

Ticker Symbol
Net Assets as of December 31, 1998 VGTSX
$1.38 billion
<PAGE>

PLAIN TALK ABOUT

The Costs of Investing

More on the Funds

Why invest in index funds?

Index funds appeal to many investors for a number of reasons:
. Diversification. Index funds generally invest in a diversified mix of
companies and industries.
. Relative consistency. Index funds typically match the performance of
relevant market benchmarks more closely than comparable actively managed
funds do.
. Low cost. Index funds do not have many of the expenses of an actively
managed fund--such as research--and keep trading activity, and thus
brokerage commissions, to a minimum.
. Low realization of capital gains. Because an index fund typically sells
securities only to respond to redemption requests or to adjust the number
of shares it holds to reflect a change in its target index, the fund's
turnover rate-and thus its realization of capital gains--is usually very
low.

Indexing Methods

In seeking to track a particular index, a fund may use one of two indexing
methods to select the stocks it invests in.

Other index funds may use a different selection process. Because it would
be very expensive to buy and sell all of the stocks held in certain indexes (the
MSCI Select Emerging Markets Free Index, for example, includes more than 600
stocks), funds tracking these larger indexes use a "sampling" technique. Using a
sophisticated computer program, these funds invest in stocks that will recreate
their target indexes in terms of industry, size, country, and other
characteristics. For instance, if 10% of the MSCI Select Emerging Markets Free
Index were made up of the stocks of a certain country, the Emerging Markets
Stock Index Fund would invest about 10% of its assets in stocks of the Index
from that country. The European, Pacific, and Emerging Markets Stock Index Funds
each employ this method of indexing. As a "fund of funds," the Total
International Stock Index Fund allocates its assets among these three Funds.

PLAIN TALK ABOUT

"Fund of Funds"

Additional Risk Information

PLAIN TALK ABOUT

The Risks of International Investing

redemption requests. The Total International Stock Index Fund normally holds
100% of its assets in shares of the other three Funds.

[GRAPHIC APPEARS HERE] Each Fund is subject to market risk, which is the
possibility that stock prices overall will decline over short or even long
periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.

In addition, investments in foreign stock markets can be as risky, if not
more risky, than U.S. stock investments. The prices of international stocks
and the prices of U.S. stocks have often moved in opposite directions.
These periods have, in the past, lasted for as long as several years.

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1969 through
1998. Keep in mind that this was a particularly favorable period for foreign
markets. For instance, over 10-year periods, foreign stocks provided an average
return of 14.9%, compared to 11.0% for U.S. stocks (as measured by the Standard
& Poor's 500 Composite Stock Price Index) during the same time frame. These
average returns reflect past performance on international stocks; you should not
regard them as an indication of future returns from either foreign markets as a
whole or any of the Funds in particular.

Also note that the preceding chart does not take into account returns measured
by the MSCI Emerging Markets Free Index, a widely used barometer of less
developed stock markets. Emerging markets can be substantially more volatile
than more developed foreign markets. In addition, because the MSCI EAFE Index
tracks the European and Pacific markets collectively, the above returns do not
reflect the variability of returns from year to year for these markets
individually, or the variability across these and other geographic regions or
market sectors. To illustrate this variability, the following table shows
returns for different international markets--as well as the U.S. market for
comparison--from 1990-1998, as measured by their respective indexes. Note that
the returns shown do not include the costs of buying and selling stocks or other
expenses that a real-world investment portfolio would incur.
<PAGE>

- --------------------------------------------------------------------------------
Stock Market Returns for Different International Markets
- --------------------------------------------------------------------------------
European Pacific Emerging U.S.
Market* Market* Markets* Markets*
- --------------------------------------------------------------------------------
1990 -2.00% -34.43% -10.55% -3.10%
1991 14.12 11.51 59.91 30.47
1992 -3.92 -18.51 11.40 7.62
1993 29.25 36.15 74.84 10.08
1994 2.82 12.82 -7.31 1.32
1995 22.08 2.89 0.01** 37.58
1996 21.42 -8.23 15.19 22.96
1997 23.75 -25.74 -16.37 33.36
1998 28.68 2.64 -18.39 28.58
- --------------------------------------------------------------------------------
*European market returns are measured by the MSCI Europe Index; Pacific market
returns are measured by the MSCI Pacific Free Index; Emerging markets returns
are measured by the MSCI Select Emerging Markets Index; and U.S. market
returns are measured by the Standard & Poor's 500 Composite Stock Price Index.
**The inception date of the MSCI Select Emerging Markets Index was May 4, 1994;
returns shown for 1990-1994 are measured by the MSCI Emerging Markets Free
Index.
- --------------------------------------------------------------------------------

PLAIN TALK ABOUT

Regional Versus Broad
International Investing

[GRAPHIC APPEARS HERE] Each Fund is subject to country risk, which is the
possibility that political events (a war, national elections), financial
problems (rising inflation, government default), or natural disasters (an
earthquake, a flood) will weaken a country's economy and cause investments
in that country to lose money.

The transition to a common European currency--the "euro"--which began on
January 1, 1999, is one form of country risk that the Fund faces. Although the
euro conversion should have no immediate impact on the Fund's share price, it
may cause uncertainty in European financial markets. If there are difficulties
with the euro conversion, the Fund's European holdings could be adversely
affected.

Emerging Markets Stock Index Fund. As discussed above, emerging markets can
be substantially more volatile than both U.S. and more developed foreign
markets. Therefore, the Emerging Markets Stock Index Fund may expose investors
to a higher degree of volatility than funds that invest in more developed
markets.

As of January 31, 1999, the Fund's assets were invested as follows: 67.8% in the
European Stock Index Fund; 24.6% in the Pacific Stock Index Fund; and 7.6% in
the Emerging Markets Stock Index Fund.

[GRAPHIC APPEARS HERE] Each Fund is subject to currency risk, which is the
possibility that a stronger U.S. dollar will reduce returns for Americans
investing overseas. Generally, when the dollar rises in value against
another country's currency, your investment in that country loses value
because its currency is worth fewer U.S. dollars. On the other hand, a
weaker U.S. dollar generally leads to higher returns for Americans holding
foreign investments.

Security Selection

In seeking to track its target index, the European Stock Index, Pacific Stock
Index, and Emerging Markets Stock Index Funds each invest in a portfolio of
foreign stocks selected through statistical methods. The Total International
Stock Index Fund simply invests in shares of the other three Funds.

European Stock Index Fund. The Fund invests in a statistically selected sample
of more than 550 common stocks included in the Morgan Stanley Capital
International (MSCI) Europe Index, which is made up of the stocks of companies
located in 15 European countries. Four countries--the United Kingdom, Germany,
Switzerland and France--dominate the Index, with 30%, 15%, 11%, and 13%,
respectively, as of January 31, 1999. The other 11 countries, which include
Austria, Belgium, Denmark, Finland, Ireland, Italy, the Netherlands, Norway,
Portugal, Spain, and Sweden, are much less significant to the Index and,
consequently, the Fund.

Although index funds, by their nature, tend to be tax-efficient investment
vehicles, the Funds are generally managed without regard to tax ramifications.

PLAIN TALK ABOUT

Vanguard's Transaction Fees

Some of Vanguard's index funds charge a transaction fee on purchases of fund
shares to offset the higher costs of trading certain securities, particularly
small-company and international stocks. The transaction fee ensures that these
higher costs are borne by the investors making the transactions--and not by
shareholders already in the fund.

Costs and Market-Timing

Some investors try to profit from a strategy called market-timing--switching
money into investments when they expect prices to rise, and taking money out
when they expect prices to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Vanguard International Stock Index Funds have adopted the
following policies, among others, designed to discourage short-term trading:

. Each Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. A purchase request could be rejected
because of the timing of the investment or because of a history of
excessive trading by the investor.
. Each Fund charges a transaction fee on purchases. In addition, the Emerging
Markets Stock Index Fund charges a transaction fee on redemptions.
. Telephone and online exchanges are not accepted for non-IRA accounts.

. There is a limit on the number of times you can exchange into and out of a
Fund (see "Exchanges" in the Investing with Vanguard section).
. Each Fund reserves the right to stop offering shares at any time.

The Vanguard funds do not permit market-timing. Do not invest in these
Funds if you are a market-timer.

PLAIN TALK ABOUT

Turnover Rate

Other Investment Policies and Risks

The Funds may also invest, to a limited extent, in stock futures and options
contracts, warrants, convertible securities, and swap agreements, which are
types of derivatives. Losses (or gains) involving futures contracts can
sometimes be substantial--in part because a relatively small price movement in a
futures contract may result in an immediate and substantial loss (or gain) for a
fund. Similar risks exist for warrants (securities that permit their owners to
purchase a specific number of shares of stock at a predetermined price),
convertible securities (securities that may be exchanged for another asset), and
swap agreements (contracts between two parties in which each agrees to make
payments to the other based on the return of a specified index or asset).

For this reason, the Funds will not use futures, options, warrants,
convertible securities, or swap agreements for speculative purposes or as
leveraged investments that magnify the gains or losses of an investment. The
value of all futures contracts in which a Fund acquires an interest cannot
exceed 20% of the Fund's total assets.

The reasons for which a Fund will invest in futures and options are:
. To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
. To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
<PAGE>

. To gain currency exposure when investing in stock index futures.

. To settle trades in a foreign currency.

The Funds and Vanguard

Investment Adviser

The Funds have authorized the Group to choose brokers or dealers to handle the
purchase and sale of securities for the Funds, and to get the best available
price and most favorable execution from these brokers or dealers with respect to
all transactions. The Funds may direct the Group to use a particular broker for
certain transactions in exchange for commission rebates or research services
provided to the Funds.

PLAIN TALK ABOUT

Derivatives

A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.

PLAIN TALK ABOUT

Vanguard's Unique
Corporate Structure

PLAIN TALK ABOUT

The Funds' Adviser

George U. Sauter, Managing Director of Vanguard; has worked in investment
management since 1985; has managed portfolio investments for Vanguard funds
since joining Vanguard in 1987; A.B., Dartmouth College; M.B.A., University
of Chicago.

Year 2000 Challenge

Dividends, Capital Gains, and Taxes

Dividend and capital gains distributions of Fund shares that are held as an
investment option in an employer-sponsored retirement or savings plan will be
reinvested in additional Fund shares and accumulate on a tax-deferred basis. You
will not owe taxes on these distributions until you begin withdrawals. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of an investment in any of the Funds
and of any plan withdrawals.
<PAGE>

PLAIN TALK ABOUT

Distributions

<PAGE>

Share Price

Total Assets - Liabilities
Net Asset Value = ------------------------------------------
Number of Shares Outstanding

Knowing the daily net asset value is useful to you as a shareholder because it
indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day. Because
foreign securities markets may operate on days which are not business days in
the United States, the value of a Fund's holdings may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.

Each Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Index Funds." Different newspapers
use different abbreviations for each Fund, but the most common are Europe,
Pacific, EmerMkt, and TotIntl.
<PAGE>

PLAIN TALK ABOUT

How to Read the Financial
Highlights Table

Shareholders received $0.66 per share in the form of dividend and capital
gains distributions. A portion of each year's distributions may come from the
prior year's income or capital gains.

Financial Highlights

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Vanguard European Stock Index Fund
Year Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $20.13 $16.57 $14.02 $11.76 $11.88
- -----------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .41 .38 .34 .32 .28
Net Realized and Unrealized
Gain (Loss) on Investments 5.40 3.63 2.63 2.30 (.06)
-----------------------------------------------
Total from Investment Operations 5.81 4.01 2.97 2.62 .22
-----------------------------------------------
Distributions
Dividends from Net Investment Income (.52) (.37) (.36) (.32) (.28)
Distributions from Realized Capital Gains (.14) (.08) (.06) (.04) (.06)
-----------------------------------------------
Total Distributions (.66) (.45) (.42) (.36) (.34)
- -----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $25.28 $20.13 $16.57 $14.02 $11.76
=====================================================================================================

Total Return* 28.86% 24.23% 21.26 22.28% 1.88%
=====================================================================================================

Ratios/Supplemental Data
Net Assets, End of Year (Millions) $4,479 $2,432 $1,595 $1,017 $ 715
Ratio of Total Expenses to
Average Net Assets 0.29% 0.31% 0.35% 0.35% 0.32%
Ratio of Net Investment Income to
Average Net Assets 1.97% 2.19% 2.45% 2.66% 2.41%
Turnover Rate 7% 3% 4% 2% 6%
=====================================================================================================
</TABLE>
* Total return figures do not reflect the transaction fee on purchases (0.5%
beginning 11/3/1997, 1% from 1994 through 11/2/1997).

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Vanguard Pacific Stock Index Fund
Year Ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 7.72 $ 10.51 $11.50 $11.31 $10.13
Investment Operations
Net Investment Income .085 .09 .10 .10 .08
Net Realized and Unrealized Gain (Loss) on Investments .100 (2.79) (1.00) .21 1.24
--------------------------------------------------
Total from Investment Operations .185 (2.70) (.90) .31 1.32
--------------------------------------------------
Distributions
Dividends from Net Investment Income (.065) (.09) (.09) (.12) (.08)
Distributions from Realized Capital Gains -- -- -- -- (.06)
--------------------------------------------------
Total Distributions (.065) (.09) (.09) (.12) (.14)
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 7.84 $ 7.72 $10.51 $11.50 $11.31
==================================================================================================================

Total Return* 2.41% -25.67% -7.82% 2.75% 13.04%
==================================================================================================================

Ratios/Supplemental Data
Net Assets, End of Year (Millions) $ 1,033 $ 827 $ 978 $ 831 $ 697
Ratio of Total Expenses to Average Net Assets 0.40% 0.35% 0.35% 0.35% 0.32%
Ratio of Net Investment Income to Average Net Assets 1.17% 1.03% 0.89% 0.97% 0.71%
Turnover Rate 4% 8% 9% 1% 4%
==================================================================================================================
</TABLE>
*Total return figures do not reflect the transaction fee on purchases (0.5%
beginning 1/1/1997, 1.0% from 1994 through 1996).

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Vanguard Emerging Markets Stock Index Fund
Year Ended December 31,
-------------------------------------- May 4* to
1998 1997 1996 1995 Dec. 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.98 $ 12.28 $10.75 $10.87 $10.00
Investment Operations
Net Investment Income .27 .24 .18 .15 .06
Net Realized and Unrealized Gain (Loss) on Investments (2.08) (2.31) 1.52 (.09) .92
----------------------------------------------------------
Total from Investment Operations (1.81) (2.07) 1.70 .06 .98
----------------------------------------------------------
Distributions
Dividends from Net Investment Income (.26) (.23) (.17) (.18) (.07)
Distributions from Realized Capital Gains -- -- -- -- (.04)
----------------------------------------------------------
Total Distributions (.26) (.23) (.17) (.18) (.11)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.91 $ 9.98 $12.28 $10.75 $10.87
=============================================================================================================================

Total Return** -18.12% -16.82% 15.83% 0.56% 9.81%
=============================================================================================================================

Ratios/Supplemental Data
Net Assets, End of Period (Millions) $ 577 $ 660 $ 637 $ 234 $ 83
Ratio of Total Expenses to Average Net Assets 0.61% 0.57% 0.60% 0.60% 0.60%+
Ratio of Net Investment Income to Average Net Assets 2.99% 1.96% 1.69% 2.00% 1.32%+
Turnover Rate 22% 19% 1% 3% 6%
=============================================================================================================================
</TABLE>
*Inception.
**Total return figures do not reflect the transaction fee on purchases (1.0%
beginning 11/3/1997, 1.5% from 1/1/1997 to 11/2/1997, 2.0% from 1994
through 1996), or the 1% transaction fee on redemptions.
+Annualized.

<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Vanguard Total International
Stock Index Fund
Year Ended December 31,
----------------------- Apr. 29* to
1998 1997 Dec. 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.87 $10.14 $10.26
- -------------------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .21 .18 .150
Capital Gain Distributions Received .02 .02 .015
Net Realized and Unrealized Gain (Loss) on Investments 1.31 (.28) (.110)
----------------------------------------
Total from Investment Operations 1.54 (.08) .055
----------------------------------------
Distributions
Dividends from Net Investment Income (.21) (.17) (.160)
Distributions from Realized Capital Gains (.01) (.02) (.015)
----------------------------------------
Total Distributions (.22) (.19) (.175)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.19 $ 9.87 $10.14
=========================================================================================================================

Total Return** 15.60% -0.77% 0.55%
=========================================================================================================================

Ratios/Supplemental Data
Net Assets, End of Period (Millions) $1,375 $ 903 $ 280
Ratio of Expenses to Average Net Assets 0% 0% 0%
Ratio of Net Investment Income to Average Net Assets 2.18% 2.19% 1.51%+
Turnover Rate 2% 0% 0%
=========================================================================================================================
</TABLE>
*Inception.
**Total return figures do not reflect the transaction fee on purchases (0.5%
beginning 11/3/1997, 0.75% from 1/1/1997 to 11/2/1997, 1.0% in 1996).
+Annualized.

The Funds are not sponsored, sold, promoted, or endorsed by Morgan Stanley
Capital International. Standard & Poor's(R)," "S&P(R)," "S&P 500(R),"
"Standard & Poor's 500," and "500," are trademarks of The McGraw-Hill Companies,
Inc., and have been licensed for use by The Vanguard Group.
<PAGE>

25
Investing with Vanguard

One or more of the Funds is an investment option in your retirement or savings
plan. Your plan administrator or your employee benefits office can provide you
with detailed information on how to participate in your plan and how to elect
any of the Funds as an investment option.

. If you have any questions about a Fund or Vanguard, including the Fund's
investment objective, strategies, or risks, contact Vanguard's Participant
Services Center, toll-free, at 1-800-523-1188.
. If you have questions about your account, contact your plan administrator
or the organization that provides record-keeping services for your plan.

Investment Options and Allocations

Your plan's specific provisions may allow you to change your investment
selections, the amount of your contributions, or how your contributions are
allocated among the investment choices available to you. Contact your plan
administrator or employee benefits office for more details.

Transactions

Contributions, exchanges, or redemptions of a Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your contribution, exchange, or
redemption, and that Vanguard has received the appropriate assets.

In all cases, your transaction will be based on a Fund's next-determined net
asset value after Vanguard receives your request (or, in the case of new
contributions, the next-determined net asset value after Vanguard receives the
order from your plan administrator). As long as this request is received before
the close of trading on the New York Stock Exchange, generally 4 p.m. Eastern
time, you will receive that day's net asset value.

Exchanges

The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. Although we
make every effort to maintain the exchange privilege, Vanguard reserves the
right to revise or terminate this privilege, limit the amount of an exchange or
reject any exchange, at any time, without notice. Because excessive exchanges
can potentially disrupt the management of a Fund and increase its transaction
costs, Vanguard limits participant exchange activity to no more than four
substantive "round trips" through the Fund (at least 90 days apart) during any
12-month period. A "round trip" is a redemption from the Fund followed by a
purchase back into the Fund. "Substantive" means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.

Before making an exchange to or from another fund available in your plan,
consider the following:

. Certain investment options, particularly funds made up of company stock or
investment contracts, may be subject to unique restrictions.
. Make sure to read that fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.
. Vanguard can accept exchanges only as permitted by your plan. Contact your
plan administrator for details on the exchange policies that apply to your
plan.

- --------------------------------------------------------------------------------
A Note on Redemption Fees: The Emerging Markets Stock Index Fund imposes a 1%
redemption fee on all share redemptions. Currently, redemption fees do not apply
to Fund shares held through Vanguard's separate recordkeeping system for
employee benefit plan accounts, due to certain economies associated with these
accounts. However, the Fund reserves the right to impose redemption fees on its
shares at any time if warranted by the Fund's future costs of processing
redemptions from these accounts.
- --------------------------------------------------------------------------------

<PAGE>

Accessing Fund Information by Computer

- --------------------------------------------------------------------------------
Vanguard on the World Wide Web www.vanguard.com

Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard funds and services; an
online "university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
- --------------------------------------------------------------------------------

<PAGE>

(This page intentionally left blank.)
<PAGE>

Glossary of Investment Terms

Active Management
An investment approach that seeks to exceed the average returns of the financial
markets. Active managers rely on research, market forecasts, and their own
judgment and experience in selecting securities to buy and sell.

Capital Gains Distribution
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.

Cash Reserves
Cash deposits, short-term bank deposits, and money market instruments which
include U.S. Treasury bills, bank certificates of deposit (CDs), repurchase
agreements, commercial paper, and banker's acceptances.

Common Stock
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.

Dividend Income
Payment to shareholders of income from interest or dividends generated by a
fund's investments.

Expense Ratio
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.

Index
An unmanaged group of securities whose overall performance is used as a standard
to measure investment performance.

Investment Adviser
An organization that makes the day-to-day decisions regarding a fund's
investments.

Mutual Fund
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

Net Asset Value (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.

Passive Management
A low-cost investment strategy in which a mutual fund attempts to match--rather
than outperform-a particular stock or bond market index. Also known as indexing.

Principal
The amount of your own money you put into an investment.

Securities
Stocks, bonds, money market instruments, and other investment vehicles.

Total Return
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.

Volatility
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.

Yield
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.
<PAGE>

[LOGO OF THE VANGUARD GROUP(R) APPEARS HERE]

Institutional Division
Post Office Box 2900
Valley Forge, PA 19482-2900

For More Information

If you'd like more information about Vanguard International Stock Index Funds,
the following documents are available free upon request:

Annual/Semiannual Report to Shareholders

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Funds (there is a separate
SAI for Vanguard Total International Stock Index Fund, which is legally a part
of Vanguard STAR Funds).

The current annual and semiannual reports and each SAI are incorporated by
reference into (and are thus legally a part of) this prospectus.

To receive a free copy of the latest annual or semiannual report or the SAI, or
to request additional information about the Funds or other Vanguard funds,
please contact us as follows:

The Vanguard Group
Participant Services Center
P.O. Box 2900
Valley Forge, PA 19482-2900

Telephone:
1-800-523-1188

Text Telephone:
1-800-523-8004

World Wide Web:
www.vanguard.com

Information provided by the Securities and Exchange Commission (SEC)

Funds' Investment Company Act file number: 811-5972 (811-3919 for Total
International Stock Index Fund)

I072N-04/30/1999
<PAGE>

PART B

VANGUARD INTERNATIONAL EQUITY INDEX FUND

(the Trust)
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1999

This Statement is not a prospectus, but should be read in conjunction with
the Trust's current Prospectus (dated April 30, 1999). To obtain the Prospec-
tus or an additional 1998 Annual Report to Shareholders, which contains the
Funds' Financial Statements as hereby incorporated by reference, please call:

Vanguard Investor Information Center

1-800-662-7447

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of the Trust................................................... B-1
Investment Policies........................................................ B-3
Foreign Investments........................................................ B-3
Fundamental Investment Limitations......................................... B-9
Share Price................................................................ B-11
Purchase of Shares......................................................... B-12
Redemption of Shares....................................................... B-12
The Vanguard Group......................................................... B-12
Management of the Trust.................................................... B-16
Portfolio Transactions..................................................... B-18
Performance Measures....................................................... B-19
Total Return............................................................... B-20
Financial Statements....................................................... B-22
</TABLE>

DESCRIPTION OF THE TRUST

Organization

The Trust was organized as a Maryland corporation in 1989, and was reorga-
nized as a Delaware business trust in July, 1998. Prior to its reorganization
as a Delaware business trust, the Trust was known as Vanguard International
Equity Index Fund, Inc. The Trust is registered with the United States Securi-
ties and Exchange Commission (the Commission) under the Investment Company Act
of 1940 (the 1940 Act) as an open-end, diversified management investment com-
pany. It currently offers the following funds and classes of shares:

European Stock Index Fund
Pacific Stock Index Fund
Emerging Markets Stock Index Fund

(individually, the Fund; collectively, the Funds)

The Trust has the ability to offer additional funds or classes of shares.
There is no limit on the number of full and fractional shares that the Trust
may issue for a single fund or class of shares.

B-1
<PAGE>

Service Providers

Custodian. Chase Manhattan Bank, N.A., 4 Chase MetroTech Center, Brooklyn,
New York 11245 serves as the Trust's custodian. The custodian is responsible
for maintaining each Fund's assets and keeping all necessary accounts and rec-
ords.

Independent Accountants. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Trust's independent accoun-
tants. The accountants audit financial statements for the Trusts and provide
other related services.

Transfer and Dividend-Paying Agent. The Funds' transfer agent and dividend-
paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard, Malvern,
Pennsylvania 19355.

Characteristics of the Trust's Shares

Restrictions on Holding or Disposing of Shares. There are no restrictions on
the right of shareholders to retain or dispose of the Trust's shares, other
than the possible future termination of the Trust or any of its funds. The
Trust or any of its funds may be terminated by reorganization into another mu-
tual fund or by liquidation and distribution of the assets of the affected
fund. Unless terminated by reorganization or liquidation, the Trust and its
funds will continue indefinitely.

Shareholder Liability. The Trust is organized under Delaware law, which pro-
vides that shareholders of a business trust are entitled to the same limita-
tions of personal liability as shareholders of a corporation organized under
Delaware law. Effectively, this means that a shareholder of the Trust will not
be personally liable for payment of the Trust's debts except by reason of his
or her own conduct or acts. In addition, a shareholder could incur a financial
loss on account of a Trust obligation only if the Trust itself had no remain-
ing assets with which to meet such obligation. We believe that the possibility
of such a situation arising is extremely remote.

Dividend Rights. The shareholders of a fund are entitled to receive any div-
idends or other distributions declared for such fund. No shares have priority
or preference over any other shares of the same fund with respect to distribu-
tions. Distributions will be made from the assets of a fund, and will be paid
ratably to all shareholders of the fund (or class) according to the number of
shares of such fund (or class) held by shareholders on the record date. The
amount of income dividends per share may vary between separate share classes
of the same fund based upon differences in the way that expenses are allocated
between share classes pursuant to a multiple class plan.

Voting Rights. Shareholders are entitled to vote on a matter if: (i) a
shareholder vote is required under the 1940 Act; (ii) the matter concerns an
amendment to the Declaration of Trust that would adversely affect to a mate-
rial degree the rights and preferences of the shares of any class or fund; or
(iii) the Trustees determine that it is necessary or desirable to obtain a
shareholder vote. The 1940 Act requires a shareholder vote under various cir-
cumstances, including to elect or remove Trustees upon the written request of
shareholders representing 10% or more of the Trust's net assets, and to change
any fundamental policy of the Trust. Shareholders of the Trust receive one
vote for each dollar of net asset value owned on the record date, and a frac-
tional vote for each fractional dollar of net asset value owned on the record
date. However, only the shares of the fund affected by a particular matter are
entitled to vote on that matter. Voting rights are non-cumulative and cannot
be modified without a majority vote.

Liquidation Rights. In the event of liquidation, shareholders will be enti-
tled to receive a pro rata share of the net assets of applicable funds of the
Trust.

Preemptive Rights. There are no preemptive rights associated with shares of
the Trust.

B-2
<PAGE>

Conversion Rights. There are no conversion rights associated with shares of
the Trust.

Redemption Provisions. The Trust's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional
Information.

Sinking Fund Provisions. The Trust has no sinking fund provisions.

Calls or Assessment. The Trust's shares, when issued, are fully paid and
non-assessable.

Tax Status of the Trust

Each fund of the Trust qualifies as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. This special tax status means that
a fund will not be liable for federal tax on income and capital gains distrib-
uted to shareholders. In order to preserve its tax status, each fund of the
Trust must comply with certain requirements. If a fund fails to meet these re-
quirements in any taxable year, it will be subject to tax on its taxable in-
come at corporate rates, and all distributions from earnings and profits, in-
cluding any distributions of net tax-exempt income and net long-term capital
gains, will be taxable to shareholders as ordinary income. In addition, the
fund could be required to recognize unrealized gains, pay substantial taxes
and interest, and make substantial distributions before regaining its tax sta-
tus as a regulated investment company.

INVESTMENT POLICIES

The following policies supplement the investment policies set forth in the
Funds' Prospectuses.

Foreign Investments

Each Fund invests virtually all of its assets in foreign securities under
normal circumstances. Investors should recognize that investing in securities
of foreign companies involves certain special considerations which are not
typically associated with investing in U.S. companies. The stocks of foreign
companies are frequently denominated in foreign currencies, and the Funds may
temporarily hold uninvested reserves in bank deposits in foreign currencies.
As such, the Funds will be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies. The investment poli-
cies of the Funds permit them to enter into forward foreign currency exchange
contracts in order to hedge holdings and commitments against changes in the
level of future currency rates. Such contracts involve an obligation to pur-
chase or sell a specific currency at a future date at a price set at the time
of the contract.

Country Risk

As foreign companies are not generally subject to uniform accounting, audit-
ing and financial reporting standards and practices comparable to those appli-
cable 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 secu-
rities 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 so-
cial instability, or diplomatic developments which could affect U.S. invest-
ments in those countries.

Although the Funds will endeavor to achieve most favorable execution costs
in their portfolio transactions, fixed commissions on many foreign stock ex-
changes are generally higher than negotiated commissions on U.S. exchanges. In
addition, it is expected that the expenses for custodian arrangements of

B-3
<PAGE>

the Funds' foreign securities will be somewhat greater than the expenses for a
fund that invests primarily in domestic securities.

Certain foreign governments levy withholding taxes against dividend and in-
terest income. Although in some countries a portion of these taxes are recov-
erable, the non-recovered portion of foreign withholding taxes will reduce the
income received from the companies comprising the Funds. However, these for-
eign withholding taxes are not expected to have a significant impact on the
Funds, since each Fund seeks long-term capital appreciation and any income
should be considered incidental.

Over the last decade, aggregate growth in international stock markets has
considerably outpaced that of the U.S. stock market. Almost two-thirds of the
world's equity market capitalization now lies outside the United States.

As of December 31, 1998 the total market capitalization of the Morgan Stan-
ley Capital International World Stock Market Index was $15.8 trillion. The ma-
jor countries and regions comprising the Index are as follows:

<TABLE>
<CAPTION>
Percent of World
Index Capitalization
---------------------
<S> <C> <C>
United States.......................................... 50%
Canada................................................. 2
Japan.................................................. 10
Other Pacific Basin.................................. 3
----------
Total Pacific Basin.................................... 13
Europe................................................. 35
==========
100%
</TABLE>

Federal Tax Treatment of Non-U.S. Transactions

Special rules govern the Federal income tax treatment of certain transac-
tions denominated in terms of a currency other than the U.S. dollar or deter-
mined 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 regula-
tions, 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 spe-
cial currency rules. However, foreign currency-related regulated futures con-
tracts 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 con-
tracts unless an election is made to have such currency rules apply. With re-
spect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying transac-
tion 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 cer-
tain identified forward contracts, futures contracts and options that are cap-
ital assets in the hands of the taxpayer and which are not part of a straddle.
The Treasury Department issued 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 transac-
tion 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 Fund which is not subject to the special currency rules (such as for-
eign equity investments other than certain preferred stocks) will be treated
as capital

B-4
<PAGE>

gain or loss and will not be segregated from the gain or loss on the under-
lying transaction. It is anticipated that some of the non-U.S. dollar-denomi-
nated investments and foreign currency contracts that the Funds may make or
enter into will be subject to the special currency rules described above.

Foreign Tax Credit

Foreign governments may withhold taxes on dividends and interest paid with
respect to foreign securities. Foreign governments may also impose taxes on
other payments or gains with respect to foreign securities. If, at the close
of its fiscal year, more than 50% of a Fund's total assets are invested in se-
curities of foreign issuers, the Fund may elect to pass through foreign taxes
paid, and thereby allow shareholders to take a tax credit or deduction on
their tax returns. If shareholders meet certain holding period requirements
with respect to Fund shares, an offsetting tax credit may be available. If
shareholders do not meet the holding period requirements, they may still be
entitled to a deduction for certain foreign taxes. In either case, a share-
holder's tax statement will show more taxable income or capital gains than
were actually distributed by the Fund, but will also show the amount of the
available offsetting credit or deduction.

A shareholder that is a nonresident alien for U.S. tax purposes may be sub-
ject to adverse U.S. tax consequences. For example, dividends and short-term
capital gains paid by the Fund will generally be subject to U.S. federal with-
holding tax at a rate of 30% (or lower treaty rate if applicable). Foreign in-
vestors are urged to consult their tax advisers regarding the U.S. tax treat-
ment of ownership of shares in the Funds.

Repurchase Agreements.

Each Fund, along with the other members of The Vanguard Group, may invest in
repurchase agreements with commercial banks, brokers or dealers to generate
income from its excess cash balances. A repurchase agreement is an agreement
under which a Fund acquires a fixed-income security (generally a security is-
sued by the U.S. Government or an agency thereof, a banker's acceptance or a
certificate of deposit) from a seller, 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 in-
strument is held by a Fund and is unrelated to the interest rate on the under-
lying instrument. In these transactions, the securities acquired by a Fund
(including accrued interest earned thereon) must have a total value in excess
of the value of the repurchase agreement and are held by a custodian bank un-
til repurchased. In addition, the Board of Trustees will monitor the Funds'
repurchase agreement transactions generally and will establish guidelines and
standards for review of the creditworthiness of any bank, broker or dealer
party to a repurchase agreement with a Fund.

The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligation to repurchase the un-
derlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the under-
lying security is collateral for a loan by a Fund not within the control of
the Fund and therefore the Fund may not be able to substantiate its interest
in the underlying security and may be deemed an unsecured creditor of the
other party to the agreement. While the Fund's management acknowledges these
risks, it is expected that they can be controlled through careful monitoring
procedures.

Illiquid Securities

Each Fund may invest up to 15% of its net assets in illiquid securities. Il-
liquid securities are securities that may not be sold or disposed of in the
ordinary course of business within seven business days at approximately the
value at which they are being carried on the Fund's books.

B-5
<PAGE>

Each Fund may invest in restricted, privately placed securities that, under
SEC rules, may be sold only to qualified institutional buyers. Because these
securities can be resold only to qualified institutional buyers, they may be
considered illiquid securities--meaning that they could be difficult for the
Fund to convert to cash if needed.

If a substantial market develops for a restricted security held by a Fund,
it will be treated as a liquid security, in accordance with procedures and
guidelines approved by the Board of Trustees. This generally includes securi-
ties that are unregistered that can be sold to qualified institutional buyers
in accordance with Rule 144A under the 1933 Act. While the Fund's investment
adviser determines the liquidity of restricted securities on a daily basis,
the Board oversees and retains ultimate responsibility for the adviser's deci-
sions. Several factors the Board considers in monitoring these decisions in-
clude the valuation of a security, the availability of qualified institutional
buyers, and the availability of information about the security's issuer.

Lending of Securities

Each Fund may lend its investment securities to qualified institutional in-
vestors (typically brokers, dealers, banks or other financial institutions)
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 Fund 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 Fund. The
terms and the structure and the aggregate amount of such loans must be consis-
tent with the 1940 Act, and the Rules and Regulations or interpretations of
the Commission thereunder. These provisions limit the amount of securities a
Fund may lend to 33 1/3% of the Fund's total assets, and require that (a) the
borrower pledge and maintain with the Fund 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 Fund at any
time, and (d) the Fund receive reasonable interest on the loan (which may in-
clude the Fund's investing any cash collateral in interest bearing short-term
investments), any distribution on the loaned securities and any increase in
their market value. Loan arrangements made by each Fund 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 rede-
liver 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 re-
spect to the lending of securities, subject to review by the Board of Trust-
ees.

At the present time, the Staff of the Commission does not object if an in-
vestment company pays reasonable negotiated fees in connection with loaned se-
curities, so long as such fees are set forth in a written contract and ap-
proved by the investment company's Trustees. In addition, voting rights pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.

Vanguard Interfund Lending Program

The Commission has issued an exemptive order permitting the Funds to partic-
ipate in Vanguard's interfund lending program. This program allows the Van-
guard funds to borrow money from and loan money to each other for temporary or
emergency purposes. The program is subject to a number of conditions, includ-
ing the requirement that no fund may borrow or lend money through the program
unless it receives a more favorable interest rate than is available from a
typical bank for a comparable transaction. In addition, a fund may participate
in the program only if and to the extent that such participation is consistent
with the fund's investment objective and other investment policies. The

B-6
<PAGE>

Boards of Trustees of the Vanguard funds are responsible for ensuring that the
interfund lending program operates in compliance with all conditions of the
Commission's exemptive order.

Futures Contracts, Options on Futures Contracts, Warrants, Convertible
Securities and Swap Agreements

Each Fund may enter into futures contracts, warrants, options on futures
contracts, convertible securities and swap agreements for the purpose of re-
maining fully invested and reducing transaction costs. Futures contracts pro-
vide for the future sale by one party and purchase by another party of a spec-
ified 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.
The Fund's trading of futures contracts and options is regulated under the
Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC), a
U.S. Government Agency. Assets committed to futures contracts will be segre-
gated to the extent required by law.

Each Fund will "under normal circumstances" invest at least 80% of its as-
sets in stocks represented in its respective index. However, each Fund has
given itself the flexibility to invest up to 50% of its assets in futures and
options under other than normal circumstances. Any investment in futures and
options over 20% of a Fund's assets would be made in emergency situations, for
short-term purposes. Each Fund would normally remain 80% invested in stocks
that represent its respective index.

Although futures contracts by their terms call for actual delivery or ac-
ceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Clos-
ing out an open futures position is done by taking an opposite position ("buy-
ing" a contract which has previously been "sold," or "selling" a contract pre-
viously "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is closed.

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 comple-
tion 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. Bro-
kers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin de-
posits which may range upward from less than 5% of the value of the contract
being traded.

After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the con-
tract 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.

Each Fund will use futures contracts and options to simulate full investment
in the underlying index while retaining a cash balance for Fund management
purposes.

Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions except to the
extent that the aggregate initial margins and premiums required to establish
any non-hedging positions do not exceed five percent of the value of the
Fund's portfolio. Each Fund will only sell futures contracts to protect secu-
rities 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, the Fund 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 a Fund upon sale
of open futures contracts.

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<PAGE>

Although techniques other than the sale and purchase of futures contracts
could be used to control a Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure.
While each Fund will incur commission expenses in closing out futures posi-
tions, these costs are lower than transaction costs incurred in the purchase
and sale of the underlying securities.

Restrictions on the Use of Futures Contracts

A Fund will not enter into futures contract transactions to the extent that,
immediately thereafter, the sum of its initial margin deposits on open con-
tracts exceeds 5% of the market value of a Fund'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 assur-
ance that a liquid secondary market will exist for any particular futures con-
tract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, a Fund would continue to be
required to make daily cash payments to maintain its required margin. In such
situations, if a Fund has insufficient cash, it may have to sell portfolio se-
curities to meet daily margin requirements at a time when it may be disadvan-
tageous to do so. In addition, a Fund may be required to make delivery of the
instruments underlying futures contracts it holds. The inability to close op-
tions and futures positions also could have an adverse impact on the ability
to effectively hedge the Fund.

A Fund will minimize the risk that it will be unable to close out a futures
contract by only entering into futures which are traded on national futures
exchanges and for which there appears to be a liquid secondary market.

The risk of loss in trading futures contracts in some strategies can be sub-
stantial, 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 sub-
stantial 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 in
excess of the amount invested in the contract. However, because the futures
strategies of each Fund are engaged in only for hedging purposes, the adviser
does not believe that a Fund is subject to the risks of loss frequently asso-
ciated with futures transactions. A Fund would presumably have sustained com-
parable losses if, instead of the futures contracts, it had invested in the
underlying financial instrument and sold it after the decline.

Utilization of futures transactions by each Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is
also possible that a Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom a Fund has an open position in a futures contract or related
option. Additionally, investments in futures and options involve the risk that
the investment adviser will incorrectly predict stock market and interest rate
trends.

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

B-8
<PAGE>

session. Once the daily limit has been reached in a particular type of con-
tract, 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 occasion-
ally moved to the daily limit for several consecutive trading days with little
or no trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.

Swap Agreements

Swap agreements are contracts in which one party agrees to make payments to
the other party based on the change in market value of a specified index or
asset. In return, the other party agrees to make payments to the first party
based on the return of a different specified index or asset. Although swap
agreements entail the risk that a party will default on its payment obliga-
tions thereunder, the Fund will minimize this risk by entering into agreements
that mark to market no less frequently than quarterly. Swap agreements also
bear the risk that the Fund will not be able to meet its obligation to the
counterparty. This risk will be mitigated by investing the Fund in the spe-
cific asset for which it is obligated to pay a return.

Federal Tax Treatment of Futures Contracts

Each Fund is required for federal income tax purposes to recognize as income
for each taxable year its net unrealized gains and losses on certain futures
contracts as of the end of the year as well as those actually realized during
the year. In most cases, any gain or loss recognized with respect to a futures
contract is considered to be 60% long-term capital gain or loss and 40% short-
term capital gain or loss, without regard to the holding period of the con-
tract. Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by a Fund may affect the
holding period of such securities and, consequently, the nature of the gain or
loss on such securities upon disposition. A Fund may be required to defer the
recognition of losses on futures contracts to the extent of any unrecognized
gains on related positions held by the Fund.

In order for a Fund to continue to qualify for Federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a tax-
able year must be derived from qualifying income; i.e., dividends, interest,
income derived from loans of securities, gains from the sale of securities or
of foreign currencies or other income derived with respect to the Fund's busi-
ness of investing in securities. It is anticipated that any net gain realized
from the closing out of futures contracts will be considered qualifying income
for purposes of the 90% requirement.

Each Fund 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 Fund's fiscal year) on futures transac-
tions. Such distributions will be combined with distributions of capital gains
realized on the Fund's other investments and shareholders will be advised on
the nature of the distributions.

FUNDAMENTAL INVESTMENT LIMITATIONS

Each Fund is subject to the following fundamental investment limitations,
which cannot be changed in any material way without the approval of the hold-
ers of a majority of the affected Fund's shares. For these purposes, a "major-
ity" of shares means shares representing the lesser of: (i) 67% or more of the
votes cast to approve a change, so long as shares representing more than 50%
of the Fund's net asset value are present or represented by proxy; or (ii)
more than 50% of the Fund's net asset value.

B-9
<PAGE>

Assessable Securities. Each Fund may not invest in assessable securities or
securities involving unlimited liability on the part of the holders thereof.

Borrowing. Each Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 15% of the Fund's net assets. Each Fund
may borrow money through banks, or Vanguard's interfund lending program only,
and must comply with all applicable regulatory conditions. Each Fund may not
make any additional investments whenever its outstanding borrowings exceed 5%
of net assets.

Commodities. Each Fund may not invest in commodities, except that each Fund
may invest in stock futures contracts, stock options, and options on stock
futures contracts. Under normal circumstances, no more than 5% of a Fund's to-
tal assets may be used as initial margin deposit for futures contracts, and no
more than 20% of a Fund's total assets may be invested in futures contracts or
options at any time.

Diversification. With respect to 75% of its total assets, each Fund may not:
(i) purchase more than 10% of the outstanding voting securities of any one Is-
suer, or (ii) purchase securities of any issuer if, as a result, more than 5%
of the Fund's total assets would be invested in that issuer's securities.
This limitation does not apply to obligations of the United States Government,
its agencies, or instrumentalities.

Illiquid Securities. Each Fund may not acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are il-
liquid.

Industry Concentration. Each Fund may not invest more than 25% of its total
assets in any one industry.

Investing for Control. Each Fund may not invest in a company for the purpose
of controlling its management.

Investment Companies. Each Fund may not invest in any other investment com-
pany, except through a merger, consolidation or acquisition of assets, or to
the extent permitted by Section 12 of the 1940 Act. Investment companies whose
shares the Fund acquires pursuant to Section 12 must have investment objec-
tives and investment policies consistent with those of the Fund.

Loans. Each Fund may not lend money to any person except by purchasing fixed
income securities, entering into repurchase agreements, lending its portfolio
securities, or through Vanguard's interfund lending program.

Margin. Each Fund may not purchase securities on margin or sell securities
short, except as permitted by the Funds' investment policies relating to com-
modities.

Oil, gas, minerals. Each Fund may not invest in oil, gas or other mineral
exploration or development programs.

Pledging assets. Each Fund may not pledge, mortgage or hypothecate more than
15% of its net assets.

Real Estate. Each Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate and bonds se-
cured by real estate.

Senior securities. Each Fund may not issue senior securities, except in com-
pliance with the 1940 Act.

Underwriting. Each Fund may not engage in the business of underwriting secu-
rities issued by other persons. The Fund will not be considered an underwriter
when disposing of its investment securities.

None of these limitations prevents a Fund from participating in The Vanguard
Group (Vanguard). Because the Trust is a member of Vanguard, each Fund may own
securities issued by Vanguard, make loans to Vanguard, and contribute to Van-
guard's costs or other financial requirements. See Management of the Trust for
more information.

B-10
<PAGE>

The investment limitations set forth above are considered at the time in-
vestment securities are purchased. If a percentage restriction is adhered to
at the time the investment is made, a later increase in percentage resulting
from a change in the market value of assets will not constitute a violation of
such restriction.

SHARE PRICE

Each Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of the Fund, less all liabilities, by the total num-
ber of shares outstanding. The net asset value is determined as of the close
of the New York Stock Exchange (generally 4:00 p.m. Eastern time) on each day
the Exchange is open for trading.

Portfolio securities for which market quotations are readily available (in-
cludes those securities listed on national securities exchanges, as well as
those quoted on the NASDAQ Stock Market) will be valued at the last quoted
sales price on the day the valuation is made. Such securities which are not
traded on the valuation date are valued at the mean of the bid and ask prices.
Price information on exchange-listed securities is taken from the exchange
where the security is primarily traded. Any foreign securities are valued at
the latest quoted sales price available before the time when assets are val-
ued. 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.

Short-term instruments (those acquired with remaining maturities of 60 days
or less) may be valued at cost, plus or minus any amortized discount or premi-
um, which approximates market value.

Bonds and other fixed income 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. The prices provided by a pricing service
may be determined without regard to bid or last sale prices of each security,
but take into account institutional-size transactions in similar groups of se-
curities as well as any developments related to specific securities.

Foreign securities are valued at the last quoted sales price, or the most
recently determined closing price calculated according to local market conven-
tion, available at the time a Fund is valued. Prices are obtained from the
broadest and most representative market on which the securities trade. If
events which materially affect the value of each Fund's investments occur af-
ter the close of the securities markets on which such securities are primarily
traded, those investments may be valued by such methods as the Board of Trust-
ees deems in good faith to reflect fair value.

In determining the Fund's net asset value per share, all assets and liabili-
ties initially expressed in foreign currencies will be converted into U.S.
dollars using the officially quoted daily exchange rates used by Morgan Stan-
ley Capital International in calculating various benchmarking indices. This
officially quoted exchange rate may be determined prior to or after the close
of a particular 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 Trustees.

Other assets and securities for which no quotations are readily available or
which are restricted as to sale (or resale) are valued by such methods as the
Board of Trustees deems in good faith to reflect fair value.

The share price for each Fund can be found daily in the mutual fund listings
of most major newspapers under the heading of Vanguard Index Funds.

B-11
<PAGE>

PURCHASE OF SHARES

The Trust reserves the right in its sole discretion (i) to suspend the of-
ferings of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interests of the Trust, and (iii) to
reduce or waive the minimum investment for or any other restrictions on ini-
tial and subsequent investments as well as redemption fees for certain fidu-
ciary accounts or under circumstances where certain economies can be achieved
in sales of the Trust's shares.

REDEMPTION OF SHARES

The Trust 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 Commission, (ii) during any
period when an emergency exists as defined by the rules of the Commission as a
result of which it is not reasonably practicable for the Trust to dispose of
securities owned by it, or fairly to determine the value of its assets, and
(iii) for such other periods as the Commission may permit.

No charge is made by the Fund for redemptions from the European and Pacific
Funds. There is a 1% redemption transaction fee charged for redemptions from
the Emerging Markets Fund. The redemption transaction fee is paid to the Fund
to reimburse the Fund for transaction costs it incurs while liquidating secu-
rities in order to fund redemptions. Any redemption may be more or less than
the shareholder's cost depending on the market value of the securities held by
the Fund.

Trading Shares through Charles Schwab

Each Fund has authorized Charles Schwab & Co., Inc. (Schwab) to accept on
its behalf purchase and redemption orders under certain terms and conditions.
Schwab is also authorized to designate other intermediaries to accept purchase
and redemption orders on each Fund's behalf subject to those terms and condi-
tions. Under this arrangement, each Fund will be deemed to have received a
purchase or redemption order when Schwab or, if applicable, Schwab's autho-
rized designee, accepts the order in accordance with each Fund's instructions.
Customer orders that are properly transmitted to each Fund by Schwab, or if
applicable, Schwab's authorized designee, will be priced as follows:

Orders received by Schwab before 3 p.m. Eastern time on any business day,
will be sent to Vanguard that day and your share price will be based on each
Fund's net asset value calculated at the close of trading that day. Orders re-
ceived by Schwab after 3 p.m. Eastern time, will be sent to Vanguard on the
following business day and your share price will be based on each Fund's net
asset value calculated at the close of trading that day.

THE VANGUARD GROUP

The Trust is a member of The Vanguard Group of Investment Companies, which
consists of over 35 investment companies (the Trusts).

Through their jointly-owned subsidiary, The Vanguard Group, Inc. (Vanguard),
the Trust and the other Trusts in The Vanguard 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 Trusts.

Vanguard employs a supporting staff of management and administrative person-
nel needed to provide the requisite services to the Trusts and also furnishes
the Trusts with necessary office space, furnishings and equipment. Each Trust
pays its share of Vanguard's net expenses, which are allocated

B-12
<PAGE>

among the Trusts under methods approved by the Board of Trustees of each
Trust. In addition, each Trust bears its own direct expenses, such as legal,
auditing and custodian fees.

The Trust's Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external ad-
viser for the Trusts.

Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1 un-
der the 1940 Act. The Code is designed to prevent unlawful practices in con-
nection 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 similar to, and in many cases more restrictive than, those rec-
ommended by a blue ribbon panel of mutual fund industry executives.

Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the
Trusts. The amounts which each of the Trusts has invested are adjusted from
time to time in order to maintain the proportionate relationship between each
Fund's relative net assets and its contribution to Vanguard's capital. The
Amended and Restated Funds' Service Agreement provides that each Vanguard Fund
may be called upon to invest up to 0.40% of its current net assets in Vanguard
as contributions to Vanguard's capitalization. At December 31, 1998, each Fund
had contributed capital to Vanguard representing 0.02% of each Fund's net
assets. The total amount contributed by the Trust was $1,036,000, which
represented 1.5% of Vanguard's capitalization.

Management

Corporate management and administrative services include: (1) executive
staff; (2) accounting and financial; (3) legal and regulatory; (4) shareholder
account maintenance; (5) monitoring and control of custodian relationships;
(6) shareholder reporting; and (7) review and evaluation of advisory and other
services provided to the Funds by third parties.

Distribution

Vanguard Marketing Corporation, a wholly-owned subsidiary of The Vanguard
Group, Inc., provides all distribution and marketing activities for the Trusts
in the Group. The principal distribution expenses are for advertising, promo-
tional materials and marketing personnel. Distribution services may also in-
clude organizing and offering to the public, from time to time, one or more
new investment companies which will become members of The Vanguard Group. The
Trustees and Officers of Vanguard determine the amount to be spent annually on
distribution activities, the manner and amount to be spent on each Trust, and
whether to organize new investment companies.

One half of the distribution expenses of a marketing and promotional nature
is allocated among the Trusts based upon relative net assets. The remaining
one half of those expenses is allocated among the Trusts based upon each
Trust's sales for the preceding 24 months relative to the total sales of the
Trusts as a Group; provided, however, that no Trust's aggregate quarterly rate
of contribution for distribution expenses of a marketing and promotional na-
ture shall exceed 125% of average distribution expense rate for The Vanguard
Group, and that no Trust shall incur annual distribution expenses in excess of
20/100 of 1% of its average month-end net assets. During the last three fiscal
years, the Funds incurred the following approximate amounts of The Vanguard
Group's management (including transfer agency), distribution and marketing ex-
penses.

B-13
<PAGE>

<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, December 31, December 31,
Fund 1996 1997 1998
- ---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Vanguard European Stock
Index Fund.............. $3,534,000 $4,979,000 $7,906,000
Vanguard Pacific Stock
Index Fund.............. 2,596,000 2,737,000 2,932,000
Vanguard Emerging Markets
Stock Index Fund........ 1,245,000 2,410,000 2,036,000
</TABLE>

Investment Advisory Services

Vanguard's Core Management Group provides investment advisory services to
the Trust. The compensation and other expenses of this staff are paid by the
Trust utilizing these services.

During the last three fiscal years, the Funds incurred advisory fees to Core
Management of approximately the following amounts:

<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended Fiscal year ended
December 31, December 31, December 31,
Fund 1996 1997 1998
- ---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Vanguard European Stock
Index Fund.............. $22,000 $23,000 $47,000
Vanguard Pacific Stock
Index Fund.............. 22,000 23,000 47,000
Vanguard Emerging Markets
Stock Index Fund........ 22,000 23,000 47,000
</TABLE>

Trustee Compensation

The same individuals serve as Trustees of all Vanguard Trusts (with two ex-
ceptions, which are noted in the table appearing on page B-15), and each Trust
pays a proportionate share of the Trustees' compensation. The Trusts employ
their officers on a shared basis, as well. However, officers are compensated
by The Vanguard Group, Inc., not the Trusts.

Independent Trustees. The Trusts compensate their independent Trustees--that
is, the ones who are not also officers of the Trust--in three ways:

. The independent Trustees receive an annual fee for their service to the
Trusts, which is subject to reduction based on absences from scheduled
Board meetings.

. The independent Trustees are reimbursed for the travel and other
expenses that they incur in attending Board meetings.

. Upon retirement, the independent Trustees receive an aggregate annual
fee of $1,000 for each year served on the Board, up to fifteen years of
service. This annual fee is paid for ten years following retirement, or
until each Trustee's death.

"Interested" Trustees. The Trusts' interested Trustees--Messrs. Bogle and
Brennan--receive no compensation for their service in that capacity. However,
they are paid in their role as officers of The Vanguard Group, Inc.

Compensation Table. The following table provides compensation details for
each of the Trustees. We list the amounts paid as compensation and accrued as
retirement benefits by the Trust for each Trustee. In addition, the table
shows the total amount of benefits that we expect each Trustee to receive from
all Vanguard Trusts upon retirement, and the total amount of compensation paid
to each Trustee by all Vanguard Trusts. All information shown is for the fis-
cal year ended December 31, 1998.

B-14
<PAGE>

VANGUARD INTERNATIONAL EQUITY INDEX FUND
COMPENSATION TABLE

<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From All
Benefits Estimated Vanguard
Aggregate Accrued As Annual Benefits Funds
Compensation Part of Upon Paid to
Name of Trustee From Trust Trust Expenses Retirement Trustees(1)
- --------------- ------------ -------------- --------------- ------------
<S> <C> <C> <C> <C>
John C. Bogle........... None None None None
John J. Brennan......... None None None None
Barbara Barnes
Hauptfuhrer(2)......... $1,096 $148 $15,000 $75,000
JoAnn Heffernan Heisen.. $ 548 $ 64 $15,000 $37,500
Robert E. Cawthorn(2)... $ 457 $ 99 $ 6,000 $31,250
Bruce K. MacLaury....... $1,144 $111 $12,000 $70,000
Burton G. Malkiel....... $1,103 $107 $15,000 $75,000
Alfred M. Rankin, Jr.... $1,096 $ 78 $15,000 $75,000
John C. Sawhill......... $1,096 $ 99 $15,000 $75,000
James O. Welch, Jr...... $1,096 $114 $15,000 $75,000
J. Lawrence Wilson...... $1,096 $ 82 $15,000 $75,000
</TABLE>
- --------
(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 36 Vanguard Trusts (35
in the case of Mr. Malkiel; 28 in the case of Mr. MacLaury).
(2) Mr. Cawthorn and Mrs. Hauptfuhrer have retired from the Trust's Board,
effective May 31, 1998 and December 31, 1998, respectively.

B-15
<PAGE>

MANAGEMENT OF THE TRUST

Officers and Trustees

The Officers of the Trust manage its day-to-day operations and are responsi-
ble to the Trust's Board of Trustees. The Trustees set broad policies for the
Trust and choose its Officers. The following is a list of the Trustees and Of-
ficers of the Trust and a statement of their present positions and principal
occupations during the past five years. As a group, the Trust's Trustees and
Officers own less than 1% of the outstanding shares of each Fund of the Trust.
Each Trustee also serves as a Director of The Vanguard Group, Inc., and as a
Trustee of each of the 36 investment companies administered by Vanguard (35 in
the case of Mr. Malkiel and 28 in the case of Mr. MacLaury). The mailing ad-
dress of the Trustees and Officers of the Trust is Post Office Box 876, Valley
Forge, PA 19482.

JOHN C. BOGLE, (DOB: 5/8/1929) Senior Chairman and Trustee*
Senior Chairman and Director of The Vanguard Group, Inc., and Trustee of each
of the investment companies in The Vanguard Group; Director of The Mead Corp.
(Paper Products), General Accident Insurance, and Chris-Craft Industries, Inc.
(Broadcasting & Plastics Manufacturer).

JOHN J. BRENNAN, (DOB: 7/29/1954) Chairman, Chief Executive Officer & Trustee*
Chairman, Chief Executive Officer and Director of The Vanguard Group, Inc.,
and Trustee of each of the investment companies in The Vanguard Group.

JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) Trustee
Vice President, Chief Information Officer, and member of the Executive Commit-
tee of Johnson and Johnson (Pharmaceuticals/Consumer Products). Director of
Johnson & Johnson*MERCK Consumer Pharmaceuticals Co., Women First HealthCare,
Inc. (Research and Education Institution), Recording for the Blind and
Dyslexic, The Medical Center at Princeton, and Women's Research and Education
Institute.

BRUCE K. MACLAURY, (DOB: 5/7/1931) Trustee
President Emeritus of The Brookings Institution (Independent Non-Partisan Re-
search Organization); Director of American Express Bank, Ltd., The St. Paul
Companies, Inc. (Insurance and Financial Services), and National Steel Corp.

BURTON G. MALKIEL, (DOB: 8/28/1932) Trustee
Chemical Bank Chairman's Professor of Economics, Princeton University; Direc-
tor of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker
Fentress & Co. (Investment Management), The Jeffrey Co. (Holding Company), and
Southern New England Telecommunications Co.

ALFRED M. RANKIN, JR., (DOB: 10/8/1941) Trustee
Chairman, President, Chief Executive Officer, and Director of NACCO Industries
(Machinery/ Coal/Appliances); Director of The BFGoodrich Co. (Aircraft
Systems/Manufacturing/Chemicals), and The Standard Products Co. (Rubber Prod-
ucts Company).

JOHN C. SAWHILL, (DOB: 6/12/1936) Trustee
President and Chief Executive Officer of The Nature Conservancy; (Non-Profit
Conservation Group); Director of Pacific Gas and Electric Co., Procter & Gam-
ble Co., NACCO Industries (Machinery/Coal/Appliances), and Newfield Explora-
tion Co. (Energy); formerly, Director and Senior Partner of McKinsey & Co.,
and President of New York University.

JAMES O. WELCH, JR., (DOB: 5/13/1931) Trustee
Retired Chairman of Nabisco Brands, Inc. (Food Products); retired Vice Chair-
man and Director of RJR Nabisco (Food and Tobacco Products); Director of TECO
Energy, Inc., and Kmart Corp.

B-16
<PAGE>

J. LAWRENCE WILSON, (DOB: 3/2/1936) Trustee
Chairman and Chief Executive Officer of Rohm & Haas Co. (Chemicals); Director
of Cummins Engine Co. (Diesel Engine Company), and The Mead Corp. (Paper Prod-
ucts); and Trustee of Vanderbilt University.

RAYMOND J. KLAPINSKY, (DOB: 12/7/1938) Secretary*
Managing Director of The Vanguard Group, Inc.; Secretary of The Vanguard
Group, Inc. and of each of the investment companies in The Vanguard Group.

THOMAS J. HIGGINS, (DOB: 5/21/1957) Treasurer*
Principal of The Vanguard Group, Inc.; Treasurer of each of the investment
companies in The Vanguard Group.

ROBERT D. SNOWDEN, (DOB: 9/4/1961) Controller*
Principal of The Vanguard Group, Inc.; Controller of each of the investment
companies in The Vanguard Group.
- --------

* Officers of the Trust are "interested persons" as defined in the 1940 Act.

B-17
<PAGE>

PORTFOLIO TRANSACTIONS

In placing portfolio transactions, the Fund uses its best judgment to choose
the broker most capable of providing the brokerage services necessary to ob-
tain best available price and most favorable execution. The full range and
quality of brokerage services available are considered in making these deter-
minations. In those instances where it is reasonably determined that more than
one broker can offer the brokerage services needed to obtain the best avail-
able price and most favorable execution, consideration will be given to those
brokers which supply statistical information and provide other services in ad-
dition to execution services to the Fund.

For the fiscal years ended December 31, 1996, 1997, and 1998, the Funds paid
the following approximate amounts in brokerage commissions.

<TABLE>
<CAPTION>
Fund 1996 1997 1998
---- ------------ ------------ ----------
<S> <C> <C> <C>
European Stock Index Fund................. $159,793,462 $152,207,873 $4,485,241
Pacific Stock Index Fund.................. 874,256 60,450,954 370,127
Emerging Markets Stock Index Fund......... 169,405,625 230,169,198 987,240
</TABLE>

B-18
<PAGE>

PERFORMANCE MEASURES

Vanguard may use reprinted material discussing The Vanguard Group, Inc. or
any of the member trusts of The Vanguard Group of Investment Companies.

The Trust may use one or more of the following unmanaged indexes for compar-
ative performance purposes:

Morgan Stanley Capital International--Select Emerging Markets Index--is an
unpublished index which includes common stocks of companies located in the
countries' 15 emerging markets.

Morgan Stanley Capital International--EAFE (Free) Index--is an arithmetic,
market value-weighted average of the performance of over 1,000 securities
listed on the stock exchanges of countries in Europe, Australia, Asia, and the
Far East.

MSCI EMF Index--an arithmetic, market value-weighted average of the perfor-
mance of securities listed on the stock exchanges of twenty-two developing
countries.

MSCI EAFE + Select EMF Index--an arithmetic, market value-weighted average
of the performance of securities listed on the stock markets of Europe, Aus-
tralia, the Far East and fourteen developing countries.

FT-Actuaries World Index--includes approximately 2,400 securities from 24
countries including the U.S.

FT-Actuaries Euro-Pacific Index--a subset of the FT Actuaries World Index,
which excludes companies in the U.S., Canada, Mexico and South Africa.

Salomon-Russell Primary Market Index--consists of the approximately 700
largest stocks within 23 countries.

Salomon-Russell Extended Market Index--consists of approximately 1,000 me-
dium and small capitalization stocks from 23 countries.

Salomon-Russell Broad Market Index--consists of all of the stocks within the
Primary Market Index and the Extended Market Index.

Russell Universe of Non-U.S. Equity Portfolios--a universe of separate ac-
counts and pooled funds available to U.S. investors, which invest in interna-
tional equities.

Russell Universe of World Equity Portfolios--a universe of equity-oriented
global portfolios.

Lipper International Universe--a universe of mutual funds that invest in in-
ternational equities.

Lipper Diversified International Universe--a universe of mutual funds that
invest in international equities from more than one country.

Lipper International Average--the average return of the portfolios included
in the Lipper International Universe.

Lipper Diversified International Average--the average return of the portfo-
lios included in the Lipper Diversified International Universe.

Standard and Poor's 500 Composite Stock Price Index--includes stocks se-
lected by Standard & Poor's Index Committee to include leading companies in
leading industries and to reflect the U.S. stock market.

B-19
<PAGE>

Standard and Poor's MidCap 400 Index--is composed of 400 medium sized domes-
tic stocks.

Standard and Poor's SmallCap 600/BARRA Value Index--contains stocks of the
S&P SmallCap 600 Index which have a lower than average price-to-book ratio.

Standard and Poor's SmallCap 600/BARRA Growth Index--contains stocks of the
S&P SmallCap 600 Index which have a higher than average price-to-book ratio.

Russell 1000 Value Index--consists of the stocks in the Russell 1000 Index
(comprising the 1,000 largest U.S.-based companies measured by total market
capitalization) with the lowest price-to-book ratios, comprising 50% of the
market capitalization of the Russell 1000.

Wilshire 5000 Equity Index--consists of more than 7,000 common equity secu-
rities, covering all stocks in the U.S. for which daily pricing is available.

Wilshire 4500 Equity Index--consists of all stocks in the Wilshire 5000 ex-
cept for the 500 stocks in the Standard and Poor's 500 Index.

Salomon Brothers High-Grade Corporate Bond Index--consists of publicly is-
sued, non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.

Baring Emerging Markets Index--a diversified index of approximately 250 rel-
atively liquid stocks from 13 emerging market countries.

Salomon Brothers Broad Investment-Grade Bond Index--is a market-weighted in-
dex that contains approximately 4,700 individually priced investment-grade
corporate bonds rated BBB or better, U.S. Treasury and agency issues and mort-
gage pass-through securities.

Shearson Lehman Long-Term Treasury Bond Index--is composed of all bonds cov-
ered by the Shearson Lehman Hutton Treasury Bond Index with maturities of 10
years or greater.

NASDAQ Industrial Index--is composed of more than 3,000 industrial issues.
It is a value-weighted index calculated on price change only and does not in-
clude income.

Composite Index--65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.

Composite Index--65% Lehman Long-Term Corporate AA or Better Bond Index and
a 35% weighting in a blended equity composite (75% Standard & Poor's/BARRA
Value Index, 12.5% Standard & Poor's Utilities Index and 12.5% Standard &
Poor's Telephone Index).

Lehman Long-Term Corporate AA or Better Bond Index--consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated, SEC-
registered corporate debt rated AA or AAA.

TOTAL RETURN

The average annual total return for the European Fund for one- and five-year
periods ended December 31, 1998 and since its inception on June 18, 1990 was
28.86%, 19.32% and 14.38%, respectively. The average annual total return for
the Pacific Fund for the same periods was 2.41%, -4.01% and -1.76%, respec-
tively. The average annual total return for the Emerging Markets Fund for the
one-year period ended December 31, 1998 and since its inception on May 4, 1994
was -18.12% and -2.92%.

B-20
<PAGE>

These performance figures have not been adjusted for the transaction fees or
their annual account maintenance fee of $10.

The Funds' transaction fees were as follows:

<TABLE>
<CAPTION>
Fund Purchase Fees Redemption Fees
---- ------------- ---------------
<S> <C> <C>
European Stock Index Fund 0.5% (beginning 11/3/1997)
1.0% (from 6/18/1990 to 11/2/1997) None
Pacific Stock Index Fund 0.5% (beginning 1/1/1997)
1.0% (from 6/18/1990 to 12/31/1996) None
Emerging Markets Stock 1.0% (beginning 11/3/1997)
Index Fund 1.5% (from 1/1/1997 to 11/2/1997) 1.0%
2.0% (from 5/4/1994 to 12/31/1996)
</TABLE>

Average Annual Total Return

Average annual total return is the average annual compounded rate of return
for the periods of one year, five years, ten years or the life of the Fund,
all ended on the last day of a recent month. Average annual total return quo-
tations will reflect changes in the price of the Fund's shares and assume that
all dividends and capital gains distributions during the respective periods
were reinvested in Fund shares. Average annual total return is calculated by
finding the average annual compounded rates of return of a hypothetical in-
vestment over such periods according to the following formula (average annual
total return is then expressed as a percentage):

T = (ERV/P)/1//n-1

Where:

T= average annual total return

P= a hypothetical initial investment of $1,000

n= number of years

ERV= ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.

Cumulative Total Return

Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that
all dividends and capital gains distributions during the period were rein-
vested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of a return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed
as a percentage):

C = (ERV/P)-1

Where:

C= cumulative total return

P= a hypothetical initial investment of $1,000

ERV= ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.

SEC Yields

Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield is calculated by di-
viding the net investment income per share

B-21
<PAGE>

earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:

YIELD = 2[((a-b)/cd+1)/6/-1]

Where:

a= dividends and interest earned during the period.

b= expenses accrued for the period (net of reimbursements).

C= the average daily number of shares outstanding during the period
that were entitled to receive dividends.

d= the maximum offering price per share on the last day of the period.

FINANCIAL STATEMENTS

The Trust's Financial Statements as of and for the year ended December 31,
1998, appearing in the Trust's 1998 Annual Report to Shareholders, and the re-
port thereon of PricewaterhouseCoopers LLP, independent accountants, also ap-
pearing therein, are incorporated by reference in this Statement of Additional
Information. For a more complete discussion of the performance, please see the
Trust's Annual Report to Shareholders, which may be obtained without charge.

B-22
<PAGE>

PART C

VANGUARD INTERNATIONAL EQUITY INDEX FUND

OTHER INFORMATION

Item 23. Exhibits

<TABLE>
<CAPTION>
Exhibit Description
<C> <S>
(a) Declaration of Trust*
(b) By-Laws*
(c) Reference is made to Articles III and V of the Registrant's
Declaration of Trust
(d) Not Applicable
(e) Not Applicable
(f) Reference is made to the section entitled "Management of the Trust" in
the Registrant's Statement of Additional Information
(g) Custodian Agreement*
(h) Amended and Restated Funds' Service Agreement*
(i) Legal Opinion*
(j) Consent of Independent Accountants+
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Financial Data Schedules+
</TABLE>
- --------
*Filed Previously

+Filed Herewith

Item 24. Persons Controlled by or under Common Control with Registrant

Registrant is not controlled by or under common control with any person.

Item 25. Indemnification

The Registrant's organizational documents contain provisions indemnifying
Trustees and Officers against liability incurred in their official capacity.
Article VII, Section 2 of the Declaration of Trust provides that the Regis-
trant may indemnify and hold harmless each and every Trustee and Officer from
and against any and all claims, demands, costs, losses, expenses, and damages
whatsoever arising out of or related to the performance of his or her duties
as a Trustee or Officer. However, this provision does not cover any liability
to which a Trustee or Officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Article VI of the By-Laws gener-
ally provides that the Registrant shall indemnify its Trustees and Officers
from any liability arising out of their past or present service in that capac-
ity. Among other things, this provision excludes any liability arising by rea-
son of willful misfeasance, bad faith, gross negligence, or the reckless dis-
regard of the duties involved in the conduct of the Trustee's or Officer's
office with the Registrant.

Item 26. Business and Other Connections of Investment Adviser

Investment advisory services are provided to the Registrant on an at-cost
basis by The Vanguard Group, Inc., a jointly-owned subsidiary of the Regis-
trant and the other Trusts in the Group. See the information concerning The
Vanguard Group, Inc. set forth in Parts A and B.

C-1
<PAGE>

Item 27. Principal Underwriters

(a) Not Applicable
(b) Not Applicable
(c) Not Applicable

Item 28. Location of Accounts and Records

The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc., Valley Forge, Pennsylvania 19482; and the Registrant's
Custodian, Chase Manhattan Bank, N.A., 4 Chase MetroTech Center, Brooklyn, New
York 11245.

Item 29. Management Services

Other than as set forth under the description of The Vanguard Group in Part
B of this Registration Statement, the Registrant is not a party to any manage-
ment-related service contract.

Item 30. Undertakings

Not Applicable

C-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Invest-
ment Company Act of 1940, the Registrant hereby certifies that it meets all
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Ef-
fective Amendment to this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Town of Valley Forge and
the Commonwealth of Pennsylvania, on the 28th day of April, 1999.

Vanguard International Equity Index
Fund

(Heidi Stam)
By: _________________________________
John J. Brennan*,
Chairman and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effec-
tive Amendment to the Registration Statement has been signed below by the fol-
lowing persons in the capacities and on the date indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
(Heidi Stam) Senior Chairman of the April 28, 1999
______________________________________ Board and Trustee
John C. Bogle*

(Heidi Stam) Chairman, Trustee and April 28, 1999
______________________________________ Chief Executive Officer
John J. Brennan*

(Heidi Stam) Trustee April 28, 1999
______________________________________
JoAnn Heffernan Heisen*

(Heidi Stam) Trustee April 28, 1999
______________________________________
Bruce K. MacLaury*

(Heidi Stam) Trustee April 28, 1999
______________________________________
Burton G. Malkiel*

(Heidi Stam) Trustee April 28, 1999
______________________________________
Alfred M. Rankin, Jr.*

(Heidi Stam) Trustee April 28, 1999
______________________________________
John C. Sawhill*

(Heidi Stam) Trustee April 28, 1999
______________________________________
James O. Welch, Jr.*

(Heidi Stam) Trustee April 28, 1999
______________________________________
J. Lawrence Wilson*

(Heidi Stam) Treasurer and Principal April 28, 1999
______________________________________ Financial Officer and
Thomas J. Higgins* Accounting Officer

</TABLE>
- --------
* By Power of Attorney--See File Number 33-4424, filed on January 25, 1999.
Incorporated by Reference.
<PAGE>

Index to Exhibits

<TABLE>
<S> <C>
Consent of Independent Accountants..................................... EX-99.BJ
Financial Data Schedules............................................... EX-99.BN
</TABLE>

<PAGE>

EX-99.BJ

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 16 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 2, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of Vanguard International Equity Index Fund, which is
also incorporated by reference into the Registration Statement. We also con-
sent to the references to us under the heading "Financial Highlights" in the
Prospectus and under the headings "Financial Statements" and "Service Provid-
ers--Independent Accountants" in the Statement of Additional Information.

PricewaterhouseCoopers LLP
Philadelphia, PA

April 22, 1999

<PAGE>

[ARTICLE] 6
[RESTATED]
[CIK] 0000857489
[NAME] VANGUARD INTERNATIONAL STOCK INDEX FUNDS
[SERIES]
[NUMBER] 001
[NAME] VANGUARD EUROPEAN STOCK INDEX FUND
[MULTIPLIER] 1000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 3,318,134
[INVESTMENTS-AT-VALUE] 4,780,368
[RECEIVABLES] 22,059
[ASSETS-OTHER] 775
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 4,803,202
[PAYABLE-FOR-SECURITIES] 21,604
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 302,292
[TOTAL-LIABILITIES] 323,896
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 3,037,316
[SHARES-COMMON-STOCK] 177,165
[SHARES-COMMON-PRIOR] 120,843
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 18,920
[ACCUMULATED-NET-GAINS] (3,139)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,464,049
[NET-ASSETS] 4,479,306
[DIVIDEND-INCOME] 76,798
[INTEREST-INCOME] 1,808
[OTHER-INCOME] 2,129
[EXPENSES-NET] 10,427
[NET-INVESTMENT-INCOME] 70,308
[REALIZED-GAINS-CURRENT] 13,446
[APPREC-INCREASE-CURRENT] 670,223
[NET-CHANGE-FROM-OPS] 753,977
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 88,786
[DISTRIBUTIONS-OF-GAINS] 21,542
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 75,396
[NUMBER-OF-SHARES-REDEEMED] 23,075
[SHARES-REINVESTED] 4,001
[NET-CHANGE-IN-ASSETS] 2,046,880
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 4,826
[OVERDISTRIB-NII-PRIOR] 311
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 47
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 10,427
[AVERAGE-NET-ASSETS] 3,572,442
[PER-SHARE-NAV-BEGIN] 20.13
[PER-SHARE-NII] 0.41
[PER-SHARE-GAIN-APPREC] 5.40
[PER-SHARE-DIVIDEND] 0.52
[PER-SHARE-DISTRIBUTIONS] 0.14
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 25.28
[EXPENSE-RATIO] 0.29
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>

<PAGE>

[ARTICLE] 6
[CIK] 0000857489
[NAME] VANGUARD INTERNATIONAL STOCK INDEX FUNDS
[SERIES]
[NUMBER] 02
[NAME] VANGUARD PACIFIC STOCK INDEX FUND
[MULTIPLIER] 1,000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 1,342,989
[INVESTMENTS-AT-VALUE] 1,189,889
[RECEIVABLES] 5,120
[ASSETS-OTHER] 175
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,195,184
[PAYABLE-FOR-SECURITIES] 10,607
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 151,745
[TOTAL-LIABILITIES] 162,352
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,304,762
[SHARES-COMMON-STOCK] 131,802
[SHARES-COMMON-PRIOR] 107,206
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 239
[ACCUMULATED-NET-GAINS] (118,205)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (153,486)
[NET-ASSETS] 1,032,832
[DIVIDEND-INCOME] 12,145
[INTEREST-INCOME] 625
[OTHER-INCOME] 1,340
[EXPENSES-NET] 3,568
[NET-INVESTMENT-INCOME] 10,542
[REALIZED-GAINS-CURRENT] (81,819)
[APPREC-INCREASE-CURRENT] 96,076
[NET-CHANGE-FROM-OPS] 24,799
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 8,350
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 47,512
[NUMBER-OF-SHARES-REDEEMED] 23,899
[SHARES-REINVESTED] 982
[NET-CHANGE-IN-ASSETS] 205,592
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (37,701)
[OVERDISTRIB-NII-PRIOR] 1,116
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 47
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,568
[AVERAGE-NET-ASSETS] 899,054
[PER-SHARE-NAV-BEGIN] 7.72
[PER-SHARE-NII] 0.085
[PER-SHARE-GAIN-APPREC] 0.100
[PER-SHARE-DIVIDEND] 0.065
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.84
[EXPENSE-RATIO] 0.40
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>

<PAGE>

[ARTICLE] 6
[CIK] 0000736054
[NAME] VANGUARD STAR FUNDS
[SERIES]
[NUMBER] 06
[NAME] VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND
[MULTIPLIER] 1,000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 1,285,326
[INVESTMENTS-AT-VALUE] 1,378,137
[RECEIVABLES] 4,471
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,382,608
[PAYABLE-FOR-SECURITIES] 5,370
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,756
[TOTAL-LIABILITIES] 7,126
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,282,238
[SHARES-COMMON-STOCK] 122,950
[SHARES-COMMON-PRIOR] 91,519
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 440
[ACCUMULATED-NET-GAINS] 873
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 92,811
[NET-ASSETS] 1,375,482
[DIVIDEND-INCOME] 24,758
[INTEREST-INCOME] 184
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 24,942
[REALIZED-GAINS-CURRENT] 2,035
[APPREC-INCREASE-CURRENT] 134,333
[NET-CHANGE-FROM-OPS] 161,310
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 25,233
[DISTRIBUTIONS-OF-GAINS] 1,202
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 44,998
[NUMBER-OF-SHARES-REDEEMED] 15,789
[SHARES-REINVESTED] 2,221
[NET-CHANGE-IN-ASSETS] 472,500
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 40
[OVERDISTRIB-NII-PRIOR] 149
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 1,145,163
[PER-SHARE-NAV-BEGIN] 9.87
[PER-SHARE-NII] 0.21
[PER-SHARE-GAIN-APPREC] 1.33
[PER-SHARE-DIVIDEND] 0.21
[PER-SHARE-DISTRIBUTIONS] 0.01
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.19
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>

<PAGE>

[ARTICLE] 6
[CIK] 0000857489
[NAME] VANGUARD INTERNATIONAL STOCK INDEX FUNDS
[SERIES]
[NUMBER] 003
[NAME] VANGUARD EMERGING MARKETS STOCK INDEX FUND
[MULTIPLIER] 1,000
[CURRENCY] US
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 838,221
[INVESTMENTS-AT-VALUE] 632,512
[RECEIVABLES] 11,635
[ASSETS-OTHER] 112
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 644,259
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 67,271
[TOTAL-LIABILITIES] 67,271
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 878,553
[SHARES-COMMON-STOCK] 72,935
[SHARES-COMMON-PRIOR] 66,149
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 504
[ACCUMULATED-NET-GAINS] (95,283)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (205,778)
[NET-ASSETS] 576,988
[DIVIDEND-INCOME] 19,206
[INTEREST-INCOME] 1,716
[OTHER-INCOME] 1,303
[EXPENSES-NET] 3,752
[NET-INVESTMENT-INCOME] 18,473
[REALIZED-GAINS-CURRENT] (69,804)
[APPREC-INCREASE-CURRENT] (79,610)
[NET-CHANGE-FROM-OPS] (130,941)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 18,432
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 24,196
[NUMBER-OF-SHARES-REDEEMED] 19,600
[SHARES-REINVESTED] 2,190
[NET-CHANGE-IN-ASSETS] (83,304)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (25,673)
[OVERDISTRIB-NII-PRIOR] 351
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 47
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,752
[AVERAGE-NET-ASSETS] 617,671
[PER-SHARE-NAV-BEGIN] 9.98
[PER-SHARE-NII] 0.27
[PER-SHARE-GAIN-APPREC] (2.08)
[PER-SHARE-DIVIDEND] 0.26
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.91
[EXPENSE-RATIO] 0.61
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>