UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-1027
Name of Registrant: VANGUARD WORLD FUND
Address of Registrant: P.O. BOX 2600, VALLEY FORGE, PA 19482
Name and address of agent for service: R. GREGORY BARTON
P.O. BOX 876
VALLEY FORGE, PA 19482
Registrant's telephone number, including area code: (610) 669-1000
Date of fiscal year end: August 31
Date of reporting period: September 1, 2002 - August 31, 2003
ITEM 1: Reports to Shareholders
VANGUARD(R) U.S. GROWTH FUND
AUGUST 31, 2003
[GRAPHIC]
ANNUAL REPORT
[THE VANGUARD GROUP(R) LOGO]
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's Chairman, John J. Brennan, together with
the letter from the managers who select securities for your fund, you'll get an
understanding of how the fund invests and how the market environment affected
its performance. The statistical information that follows can help you
understand how the fund's performance and characteristics stack up against those
of similar funds and market benchmarks.
It's important to keep in mind that the opinions expressed by Vanguard's
investment managers are just that: informed opinions. They should not be
considered promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. As things change--and in
the financial markets you can be certain only of change--the investment
manager's job is to evaluate new information and make adjustments, if necessary.
Of course, the risks of investing in the fund are spelled out in the prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com.(R)
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CONTENTS
1. letter from the chairman
6. report from the advisor
10. fund profile
11. glossary
12. performance summary
14. your fund's after-tax returns
15. about your fund expenses
16. financial statements
26. advantages of vanguard.com
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SUMMARY
* Vanguard U.S. Growth Fund's Investor Shares returned 8.7% during the 12
months ended August 31, 2003.
* The fund's gains, while healthy, were outpaced by the market and by the
average for competitors' funds.
* Fund holdings in the technology and financial services sectors were the
biggest gainers, while health care and retail holdings underperformed.
Want less clutter in your mailbox? Just register with VANGUARD.COM and opt to
get fund reports online.
LETTER FROM THE CHAIRMAN
FELLOW SHAREHOLDER,
After two painful fiscal years, Vanguard U.S. Growth Fund's Investor Shares
returned 8.7% (9% for Admiral Shares) during the fiscal year ended August 31,
2003. While the rebound was welcome, the result lagged the 12.5% return of the
average large-capitalization growth mutual fund and the 14.1% gain of the
Russell 1000 Growth Index, a benchmark for the U.S. large-cap universe.
[PICTURES OF JOHN J. BRENNAN]
- -------------------------------------------------
2003 TOTAL RETURNS FISCAL YEAR ENDED
AUGUST 31
- -------------------------------------------------
VANGUARD U.S. GROWTH FUND
Investor Shares 8.7%
Admiral Shares 9.0
Russell 1000 Growth Index 14.1
Average Large-Cap Growth Fund* 12.5
Wilshire 5000 Index 14.9
- -------------------------------------------------
*Derived from data provided by Lipper Inc.
The fund benefited from a stock market environment that brightened considerably
with the onset of spring. While some of the fund's holdings recorded outsized
gains, the fund's investments collectively didn't keep pace with the large-cap
segment of the market. The table on this page provides details about the total
return (capital change plus reinvested distributions) for the fund and its
peers, its unmanaged benchmark, and the index that tracks the entire U.S. stock
market.
DISMAL AT THE START, THE OVERALL STOCK MARKET EVENTUALLY PERKED UP
A slumping economy, weak corporate profits, and growing geopolitical tensions
weighed heavily on the stock market last fall as our fiscal year began, and a
two-month rally from mid-October quickly ran out of steam. However, following
the successful conclusion of major combat operations in Iraq, a distinctly
upbeat mood permeated the marketplace. Stock prices began to rebound across
capitalizations and industry sectors in response to solid corporate earnings
reports and a slew of positive economic reports.
1
The U.S. stock market, as measured by the Wilshire 5000 Total Market Index,
returned 14.9% for the fiscal year. Technology and other growth-oriented stocks,
which had sustained massive losses during the past few years, were among the
most impressive gainers. The market's smaller stocks outpaced larger issues,
demonstrating investors' renewed appetite for risk.
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ADMIRAL(TM) SHARES
A lower-cost class of shares available to many longtime shareholders and to
those with significant investments in the fund.
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U.S. investors were rewarded with good returns in many international markets as
well, although stock performance was only part of the story. The weakening of
the U.S. dollar by almost 10% relative to the euro transformed results that were
mediocre by local-currency standards into strong dollar-denominated returns.
INTEREST RATES FELL THROUGH MUCH OF THE YEAR, THEN BOUNCED BACK
In the bond market, the fiscal year was marked by two distinctly different
phases. Prior to mid-June, the lethargic economy and ongoing flight from
equities to bonds drove the prices of bonds higher and their yields lower. The
yield of the benchmark 10-year U.S. Treasury note dropped to a 45-year low of
3.11% on June 13. After that point, however, longer-term interest rates rose
rapidly, with the yield of the 10-year T-note standing at 4.46% on August 31.
For the 12 months, the Lehman Brothers Aggregate Bond Index, a measure of the
taxable investment-grade bond market, provided a total return of 4.4%.
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MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
--------------------------------
ONE THREE FIVE
YEAR YEARS YEARS
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STOCKS
Russell 1000 Index (Large-caps) 12.9% -11.4% 3.1%
Russell 2000 Index (Small-caps) 29.1 -1.2 9.5
Wilshire 5000 Index (Entire market) 14.9 -10.7 3.5
MSCI All Country World Index Free
ex USA (International) 12.2 -10.0 1.1
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BONDS
Lehman Aggregate Bond Index 4.4% 8.2% 6.6%
(Broad taxable market)
Lehman Municipal Bond Index 3.1 6.5 5.3
Citigroup 3-Month Treasury Bill Index 1.3 2.9 3.8
================================================================================
CPI
Consumer Price Index 2.2% 2.2% 2.5%
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Corporate bonds outperformed Treasuries across all maturities. High-yield
corporate bonds performed spectacularly--the Lehman High Yield Index, which
tracks the performance of bonds issued by companies with low credit ratings,
returned 24.9% for the year.
2
Short-term interest rates generally declined for the 12 months, but rose
somewhat toward the end. In an effort to add fuel to the economic recovery, the
Federal Reserve Board trimmed its target for the federal funds rate two
times--in November 2002 and June 2003-- by a total of 75 basis points (0.75
percentage point). The rate stood at 1.00% at the fiscal year-end. The 3-month
U.S. Treasury bill, which typically lags Fed moves, began the fiscal year
yielding 1.67% and closed at 0.97% after falling as low as 0.81% in mid-June.
AFTER A POOR SHOWING IN THE FIRST SIX MONTHS, THE FUND REBOUNDED
The U.S. Growth Fund struggled during the first half of its fiscal year as the
undertow exerted by the still-declining stock market and poor stock selections
pulled performance under. Fortunately, the second half of the period brought
welcome relief from a historic bear market. The fund's technology holdings led
the way, rising 33.5%, accounting for about two-thirds of the fund's advance
over the past 12 months.
Also adding buoyancy were the fund's financial service selections. As investment
sentiment improved and activity in the capital markets increased, the fund's
investments in familiar names such as Citigroup and Merrill Lynch paid off
handsomely. These and other successful selections enabled the fund to outperform
the financial services stocks in the Russell 1000 Growth Index.
In the utilities sector, overweighted considerably by the fund's advisor
relative to the Russell 1000 Growth Index, the U.S. Growth Fund benefited from
holding two of the larger cable TV providers.
POOR PERFORMANCE IN A FEW SECTORS HELD RETURNS BACK
Unfortunately, U.S. Growth's holdings in other industry groups underperformed,
causing the fund's one-year return to trail its benchmark. The biggest
disappointments were among health care holdings. These stocks, which on average
represented the fund's largest sector weighting, declined -3.2%, substantially
trailing the 6.6% performance of that sector in the benchmark.
The performance of fund holdings in the consumer staples (-3.2%) and consumer
discretionary (13.1%) sectors were also lackluster.
3
THE RISKS AND REWARDS OF THE FUND'S APPROACH
At the close of its fiscal year, your fund held a relatively concentrated
portfolio of 58 stocks. The U.S. Growth Fund's strategy is to seek superior
performance by investing in 45 to 65 large, established companies believed by
its investment advisor to have the best prospects for strong growth. On August
31, the top ten holdings made up 37% of assets--evidence that the fund will take
sizable positions in the stocks of just a handful of companies. This kind of
investment approach inevitably leads at times to ups and downs that are steeper
than those of the broad market's. The goal, of course, is to have the ups more
than offset the downs. As we close our second full fiscal year with Alliance
Capital Management as our advisor, we haven't accomplished that goal.
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TOTAL RETURNS TEN YEARS ENDED
AUGUST 31, 2003
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AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
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U.S. Growth Fund
Investor Shares 5.0% $16,340
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Russell 1000 Growth Index 8.6% $22,782
Average Large-Cap
Growth Fund 8.2 21,979
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Wilshire 5000 Index 9.6 25,093
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Of course, we believe that performance over long periods is the best measure of
any fund. Vanguard U.S. Growth Fund has struggled during the bear market in
stocks and subsequently. The fund's ten-year average annual return of 5% trails
both the average large-cap fund and the Russell 1000 Growth Index by several
percentage points, as shown in the accompanying table. Also disappointing are
the results of a hypothetical $10,000 investment made ten years ago. The fund's
shortfall is largely the result of its performance in the previous two fiscal
years, when it experienced the steepest two-year decline in its 44-year history.
THE FUND'S MANAGEMENT TEAM HAS EXPERIENCE NAVIGATING THE MARKET
Despite the substandard results of recent years, we remain confident that
Vanguard U.S. Growth Fund's investment management team, which has been in place
for just over two years, will ultimately serve shareholders well. The people at
Alliance Capital Management overseeing the fund's assets have considerable
experience in both bull and bear markets and have compiled an excellent
long-term record using the same strategy that is used in your fund.
Besides seasoned investment professionals, your fund features an enduring
advantage in the form of its low costs. The expense ratio (annual
4
operating costs as a percentage of average net assets) of the Investor Shares
was 0.55% for the fiscal year, or $5.50 per $1,000 in assets, which is just over
one-third the 1.57% ($15.70 per $1,000) charged by the average large-cap growth
fund in 2002 (according to Lipper Inc.). This substantial cost savings will
almost certainly compound to your financial advantage over time.
DIVERSIFICATION REMAINS KEY
Because Vanguard U.S. Growth Fund focuses on large-cap stocks and is somewhat
aggressive in its pursuit of capital appreciation, we like to remind our
shareholders that the fund is appropriate as just one component of a
well-diversified portfolio. Sticking with a broad mix of stock, bond, and money
market investments that matches your goals and risk tolerance will always
provide the best chance for success over the long haul, no matter how the
market--or any single fund--performs in the short term.
We deeply appreciate your continued confidence and look forward to reporting to
you in six months.
Sincerely,
/S/JOHN J. BRENNAN
John J. Brennan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SEPTEMBER 10, 2003
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YOUR FUND'S PERFORMANCE AT A GLANCE AUGUST 31, 2002-AUGUST 31, 2003
DISTRIBUTIONS PER SHARE
--------------------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------
U.S. Growth Fund
Investor Shares $12.92 $14.00 $0.042 $0.00
Admiral Shares 33.46 36.28 0.155 0.00
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5
REPORT FROM THE ADVISOR
For the 12-month period ended August 31, 2003, the Investor Shares of the U.S.
Growth Fund advanced 8.7% while our benchmark, the Russell 1000 Growth Index,
rose 14.1%. Market volatility remained exceptionally high during the period,
with investor confidence vacillating on perceptions of risks in Iraq and
evolving business fundamentals. The underperformance of our portfolio is a
product of our unwillingness to chase these extremes in investors' risk
tolerance.
Frankly, we were insufficiently defensive during the period of maximum stress
that preceded mid-March 2003. We were characteristically underweighted in the
slower-growing, stable consumer staples stocks whose valuations soared in the
face of immense risk-aversion. That risk-aversion vanished dramatically as the
Iraq war unfolded, predictably benefiting the most volatile and speculative
stocks, which became the best performers over the last 51/2 months of the fiscal
year. Adherence to our discipline of owning quality growth companies kept us out
of these stocks, resulting in further underperformance. However, the developing
trend of improvement in corporate earnings should benefit our positions in
attractively valued, fundamentally strong companies.
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INVESTMENT PHILOSOPHY
The advisor believes that superior long-term investment results can be achieved
by emphasizing investments in growth companies that are leaders in their
industries and that have a strong market presense.
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INVESTMENT ENVIRONMENT
After a protracted decline over the past several years, investor confidence
finally began to strengthen on news of general success in Iraq and the
continuing economic and corporate recovery. Risk-aversion declined materially,
producing a strong relative price recovery in the market's more volatile stocks.
For the 12 months ended August 31, stocks with betas (a measure of volatility)
above 1.3--which account for 27% of the Russell 1000
6
Growth Index benchmark--returned 39% on a capitalization-weighted basis, versus
14.1% for the benchmark as a whole. The beta of our portfolio averaged about 1.1
over this time frame, consistent with its long-term average. Similarly, stocks
with market capitalizations below $8 billion (a 15% weighting in the Russell
1000 Growth Index) returned 36%, while those with market caps above $115 billion
(29% of the index), returned 4%. Our portfolio's median market cap was $61
billion as of August 31.
OUR SUCCESSES
Top contributors to the fund's return included several leading companies in
technology, financial services, and health care. Good performers in financial
services, including Citigroup and Merrill Lynch, provided a boost that offset
our overweighted position in the financial services sector, which underperformed
the market. Veritas Software, our leading contributor, added nearly 1.8
percentage points to relative performance. Veritas continues to lead the storage
software market and remains a significant fund holding. Juniper Networks and
Altera were also solid tech contributors. In health care, Amgen has posted
strong operating results and stock performance. In the cable industry, Comcast
and Cox Communications did well for us. These companies' new services, including
broadband and digital video, are supporting solid revenue and growth in
operating cash flow.
OUR SHORTFALLS
Poor stock selection in the underperforming health care sector was the major
detractor to our relative performance in the fiscal year. Our holdings in Tenet
Healthcare, Cardinal Health, and Wyeth cost the fund about 3 percentage points
in relative performance. (Tenet and Cardinal Health have produced disappointing
operating results, and we have now sold them both.)
The fund was underweighted in the consumer discretionary sector, which
outperformed during the period. Our holdings in Kohl's and Home Depot detracted
more than 2 percentage points from relative performance. Home Depot has been
replaced in the portfolio by Lowe's, which continues to grow faster and to
execute successfully in the current competitive environment. We have reduced our
exposure to Kohl's, but it remains a significant holding.
POSITIONING OF THE PORTFOLIO
The foundation is in place for a rebound in the nation's economic growth and in
corporate profits. Many of the structural excesses that developed during the
expansion of the 1990s have been corrected, and
7
restructuring and recapitalization have improved corporations' operating
efficiency. Inventory levels are low, suggesting potential for a pickup in
manufacturing with any improvement in consumption.
Despite subdued revenue growth and pricing power, corporate profits and
productivity have been impressive: Profits have now expanded for six consecutive
quarters, and free cash flow is currently at record levels. Capital
spending--which appears particularly depressed relative to depreciation--is
exhibiting tentative signs of recovery from the most severe cyclical contraction
in 50 years. The U.S. banking system has emerged from three very challenging
years with capital ratios, asset quality, profitability, and liquidity all
comparing impressively with prior recessionary periods. Recent months have seen
encouraging trends in consumer, corporate, and investor confidence alike. Last
but not least, liquidity appears ample, and federal monetary and fiscal policies
remain stimulative.
We are positioning the portfolio to benefit from a continuing cyclical recovery,
but we are maintaining our discipline regarding valuation. Thus, we have
selectively built positions in leading technology companies, but have not chased
companies whose recovery appears to be fully reflected in their stock prices
already. Instead, we are finding many leading companies in the consumer, health
care, and financial services sectors whose valuations are very attractive.
Importantly, we have concentrated the portfolio in companies that are successful
and, in many cases, dominant across sectors. These companies have certainly been
stress-tested over the past few years, yet they have maintained superior balance
sheets, cash flows, sales, and earnings growth. We believe companies that have
executed successfully throughout the challenging environment of recent years
will be outperformers in the period ahead.
These stocks, among the fund's largest positions, include Pfizer, Amgen, and
Johnson & Johnson in health care; Wal-Mart and Procter & Gamble among consumer
companies; AIG and Citigroup in finance; and Microsoft, Intel, Dell, and Veritas
Software in technology.
The overall historical earnings growth of the stocks in our portfolio compares
favorably with that of the broad market, reflecting their fundamental strength.
While we have been disappointed with recent relative performance, we are
encouraged by the strong fundamentals of our holdings, which have
8
in many cases exceeded expectations. We believe such fundamental success will be
reflected in relative valuation and superior performance.
John L. Blundin, Executive Vice President
Christopher M. Toub, Executive Vice President
Alan Levi, Senior Vice President
Alliance Capital Management L.P.
SEPTEMBER 17, 2003
9
FUND PROFILE
This Profile provides a snapshot of the fund's characteristics, compared where
indicated with both an appropriate market index and a broad market index. Key
terms are defined on page 11.
U.S. GROWTH FUND
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PORTFOLIO CHARACTERISTICS
COMPARATIVE BROAD
FUND INDEX* INDEX**
- ------------------------------------------------------------------
Number of Stocks 58 589 5,319
Median Market Cap $60.5B $58.4B $26.8B
Price/Earnings Ratio 28.1x 27.2x 21.7x
Price/Book Ratio 4.0x 4.4x 2.8x
Yield 1.0% 1.6%
Investor Shares 0.3%
Admiral Shares 0.5%
Return on Equity 21.1% 23.8% 19.9%
Earnings Growth Rate 11.6% 10.6% 7.7%
Foreign Holdings 0.4% 0.0% 0.8%
Turnover Rate 47% -- --
Expense Ratio -- --
Investor Shares 0.55%
Admiral Shares 0.37%
Cash Investments 1% -- --
- ------------------------------------------------------------------
- -----------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Microsoft Corp. 4.9%
(software)
Pfizer Inc. 4.4
(pharmaceuticals)
American International Group, Inc. 4.2
(insurance)
Citigroup, Inc. 3.9
(banking)
Intel Corp. 3.8
(electronics)
Dell Inc. 3.8
(computer hardware)
Amgen, Inc. 3.3
(pharmaceuticals)
Veritas Software Corp. 3.1
(computer software)
Harley-Davidson, Inc. 3.0
(automotive and transport)
Comcast Corp. Special Class A 3.0
(telecommunications)
- -----------------------------------------------------
Top Ten 37.4%
- -----------------------------------------------------
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VOLATILITY MEASURES
COMPARATIVE BROAD
FUND INDEX* FUND INDEX**
- ----------------------------------------------------------------------
R-Squared 0.95 1.00 0.87 1.00
Beta 1.14 1.00 1.40 1.00
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The "Ten Largest Holdings" excludes any temporary cash investments and equity
index products.
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SECTOR DIVERSIFICATION (% OF PORTFOLIO)
COMPARATIVE BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Auto & Transportation 3% 2% 3%
Consumer Discretionary 14 18 16
Consumer Staples 5 9 7
Financial Services 21 11 22
Health Care 25 24 13
Integrated Oils 0 0 3
Other Energy 0 1 2
Materials & Processing 0 1 4
Producer Durables 2 4 4
Technology 25 23 15
Utilities 3 1 7
Other 1 6 4
Cash Investments 1% 0% 0%
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- ---------------------------------------
INVESTMENT FOCUS
MARKET CAP LARGE
STYLE GROWTH
- ---------------------------------------
*Russell 1000 Growth Index.
**Wilshire 5000 Index.
VISIT OUR WEBSITE AT VANGUARD.COM
FOR REGULARLY UPDATED FUND INFORMATION.
10
GLOSSARY OF INVESTMENT TERMS
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the fund's target index or an overall market
index. Each index is assigned a beta of 1.00. Compared with a given index, a
fund with a beta of 1.20 typically would have seen its share price rise or fall
by 12% when the index rose or fell by 10%. A fund's beta should be reviewed in
conjunction with its R-squared (see definition below). The lower the R-squared,
the less correlation there is between the fund and the benchmark, and the less
reliable beta is as an indicator of volatility.
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CASH INVESTMENTS. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts or other equity index
products to simulate stock investment.
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EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
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EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
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FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or American Depositary Receipts of companies based outside the United States.
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MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
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PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
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PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by the fund's target index
or by an overall market index. If a fund's total returns were precisely
synchronized with an index's returns, its R-squared would be 1.00. If the fund's
returns bore no relationship to the index's returns, its R-squared would be 0.
- --------------------------------------------------------------------------------
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
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TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and are more likely to distribute
capital gains (which are taxable to investors).
- --------------------------------------------------------------------------------
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
- --------------------------------------------------------------------------------
11
PERFORMANCE SUMMARY AS OF 8/31/2003
All of the returns in this report represent past performance, which cannot be
used to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost. The returns
shown do not reflect taxes that a shareholder would pay on fund distributions or
on the redemption of fund shares.
U.S. GROWTH FUND
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE AUGUST 31, 1993-AUGUST 31, 2003
US GROWTH WILSHIRE RUSSELL AVERAGE
FUND INVESTOR 5000 1000 GROWTH LARGE-CAP
SHARES INDEX INDEX GROWTH FUND*
199308 10000 10000 10000 10000
199311 10177 10021 10134 10039
199402 10477 10287 10356 10489
199405 10353 10013 10052 10017
199408 10698 10477 10651 10451
199411 10546 10060 10409 10062
199502 11409 10831 11262 10586
199505 12539 11778 12258 11488
199508 13131 12777 13275 12758
199511 14756 13688 14436 13471
199602 15869 14534 15279 14151
199605 16582 15468 16250 14925
199608 16451 14977 15714 14434
199611 19091 17055 18233 16574
199702 19842 17757 19000 16981
199705 21327 18967 20549 18193
199708 21799 20560 21899 19718
199711 23150 21737 23068 20438
199802 26063 23880 25831 22812
199805 27356 24697 26459 23602
199808 24851 21109 23707 20945
199811 30262 25683 29678 25672
199902 32956 27304 32690 29334
199905 32736 29066 33397 29955
199908 34140 29315 35165 31182
199911 37552 31381 39024 35106
200002 38788 33087 43070 40693
200005 38835 32067 41743 37810
200008 45504 35179 46931 43493
200011 32996 29546 34514 33144
200102 26123 28264 29665 28802
200105 25287 28815 29342 28981
200108 20898 26178 25661 25243
200111 21897 26302 26646 25415
200202 19274 25898 25042 23534
200205 17669 25410 23218 22791
200208 15029 21845 19971 19546
200211 15203 22434 20603 19579
200302 13609 20308 18628 17540
200305 15430 23579 21395 20528
200308 16340 25093 22782 21979
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AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
------------------------------ FINAL VALUE
ONE FIVE TEN OF A $10,000
YEAR YEARS YEARS INVESTMENT
- --------------------------------------------------------------------------------
U.S. Growth Fund Investor Shares 8.73% -8.04% 5.03% $16,340
Wilshire 5000 Index 14.87 3.52 9.64 25,093
Russell 1000 Growth Index 14.08 -0.79 8.58 22,782
Average Large-Cap Growth Fund* 12.45 0.97 8.19 21,979
- --------------------------------------------------------------------------------
FINAL VALUE
ONE SINCE OF A $250,000
YEAR INCEPTION** INVESTMENT
- --------------------------------------------------------------------------------
U.S. Growth Fund Admiral Shares 8.95% -14.18% $182,763
Wilshire 5000 Index 14.87 -4.22 228,867
Russell 1000 Growth Index 14.08 -8.54 208,218
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) AUGUST 31, 1993-AUGUST 31, 2003
U.S. GROWTH FUND RUSSELL 1000
INVESTOR SHARES GROWTH INDEX
1994 7.0 6.5
1995 22.8 24.6
1996 25.3 18.4
1997 32.5 39.4
1998 14.0 8.3
1999 37.4 48.3
2000 33.3 33.5
2001 -54.1 -45.3
2002 -28.1 -22.2
2003 8.7 14.1
- --------------------------------------------------------------------------------
*Derived from data provided by Lipper Inc.
**August 13, 2001.
Note: See Financial Highlights tables on pages 20 and 21 for dividend and
capital gains information.
12
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED JUNE 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
TEN YEARS
INCEPTION ONE FIVE ------------------------
DATE YEAR YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
U.S. Growth Fund
Investor Shares 1/6/1959 -3.08% -11.80% 3.82% 0.79% 4.61%
Admiral Shares 8/13/2001 -2.89 -17.61* -- -- --
- --------------------------------------------------------------------------------
*Return since inception.
13
YOUR FUND'S AFTER-TAX RETURNS
This table presents returns for your fund both before and after taxes. The
after-tax returns are shown in two ways: (1) assuming that an investor owned the
fund during the entire period and paid taxes on the fund's distributions, and
(2) assuming that an investor paid taxes on the fund's distributions and sold
all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital
gains tax rates in effect at the times of the distributions and the hypothetical
sales. State and local taxes were not considered. After-tax returns reflect the
reduced tax rates on ordinary income and short-term capital gains that became
effective as of January 1, 2003, and on long-term capital gains realized on or
after May 6, 2003. However, they do not reflect the reduced rates on "qualified
dividend income."
The table shows returns for Investor Shares only; returns for other share
classes will differ. Please note that your actual after-tax returns will depend
on your tax situation and may differ from those shown. Also note that if you own
the fund in a tax-deferred account, such as an individual retirement account or
a 401(k) plan, this information does not apply to you. Such accounts are not
subject to current taxes.
Finally, keep in mind that a fund's performance--whether before or after
taxes--does not indicate how it will perform in the future.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED AUGUST 31, 2003
ONE YEAR FIVE YEARS TEN YEARS
--------------------------------------------
U.S. GROWTH FUND INVESTOR SHARES
Returns Before Taxes 8.73% -8.04% 5.03%
Returns After Taxes on Distributions 8.59 -9.36 3.66
Returns After Taxes on Distributions
and Sale of Fund Shares 5.65 -6.33 4.27
- --------------------------------------------------------------------------------
14
ABOUT YOUR FUND EXPENSES
All mutual funds have operating expenses. These expenses include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund's
gross income, directly reduce the investment return of the fund. A fund's
expenses are expressed as a percentage of its net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would incur
over a 12-month period if you invested $10,000 in the fund, using the fund's
actual return and operating expenses for the fiscal year ended August 31, 2003.
For comparative purposes, we also list the average expense ratio for the fund's
peer group, which is derived from data provided by Lipper Inc.
- --------------------------------------------------------------------------------
FUND COST OF $10,000 PEER GROUP
EXPENSE RATIO INVESTMENT IN FUND EXPENSE RATIO
- --------------------------------------------------------------------------------
U.S. Growth Fund
Investor Shares 0.55% $57 1.57%
Admiral Shares 0.37 39 1.57
- --------------------------------------------------------------------------------
The funds do not charge transaction fees; these results apply whether or not you
redeemed your investment at the end of the given period. Your actual costs may
have been higher or lower, depending on the amount of your investment and your
holding period. Peer-group ratios capture data through year-end 2002.
You can find more information about a fund's expense ratio, including annual
expense ratios for the past five years, in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the fund's prospectus. The prospectus
presents hypothetical shareholder costs over various time periods based upon a
$10,000 investment and a return of 5% a year. This standardized example, which
appears in all mutual fund prospectuses, may be useful to you in comparing the
costs of investing in different funds.
15
FINANCIAL STATEMENTS AS OF 8/13/2003
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
- --------------------------------------------------------------------------------
MARKET
VALUE*
U.S.GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (99.5%)
- --------------------------------------------------------------------------------
AUTO & Transportation (3.0%)
Harley-Davidson, Inc. 4,246,700 $ 211,571
-------------
CONSUMER DISCRETIONARY (13.7%)
Viacom Inc. Class B 3,883,174 174,743
Wal-Mart Stores, Inc. 2,661,200 157,463
Avon Products, Inc. 2,322,400 148,866
* Bed Bath & Beyond, Inc. 2,919,200 125,613
* eBay Inc. 1,788,400 99,042
Lowe's Cos., Inc. 1,692,700 92,862
* Kohl's Corp. 1,149,600 72,712
* Electronic Arts Inc. 530,170 47,583
* EchoStar Communications
Corp. Class A 966,100 35,649
-------------
$ 954,533
-------------
CONSUMER STAPLES (4.7%)
The Procter & Gamble Co. 1,768,000 154,329
Colgate-Palmolive Co. 1,494,000 82,588
Anheuser-Busch Cos., Inc. 945,400 48,726
Walgreen Co. 1,142,890 37,224
-------------
$ 322,867
-------------
FINANCIAL SERVICES (21.0%)
American International
Group, Inc. 4,889,852 291,288
Citigroup, Inc. 6,215,700 269,451
Morgan Stanley 3,797,070 185,259
Fannie Mae 2,528,300 163,809
MBNA Corp. 6,954,800 162,325
First Data Corp. 2,745,400 105,423
Merrill Lynch & Co., Inc. 1,589,595 85,488
The Goldman Sachs Group, Inc. 934,900 82,729
* Affiliated Computer
Services, Inc. Class A 773,800 38,388
Bank One Corp. 867,100 34,224
Progressive Corp. of Ohio 370,500 26,209
Willis Group Holdings Ltd. 709,300 20,563
-------------
$ 1,465,156
-------------
HEALTH CARE (24.7%)
BIOTECH RESEARCH & PRODUCTION (3.3%)
* Amgen, Inc. 3,463,950 $ 228,274
-------------
DRUGS & Pharmaceuticals (10.7%)
Pfizer Inc. 10,334,200 309,199
Johnson & Johnson 4,184,760 207,480
* Forest Laboratories, Inc. 1,847,100 86,814
Allergan, Inc. 1,075,300 85,443
Wyeth 1,168,600 50,075
* Gilead Sciences, Inc. 106,500 7,104
ELECTRONICS--MEDICAL SYSTEMS (2.4%)
Medtronic, Inc. 3,414,600 $ 169,296
-------------
16
- --------------------------------------------------------------------------------
MARKET
VALUE*
U.S.GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
HEALTH & Personal Care (1.0%)
* Express Scripts Inc. 1,069,540 $ 69,317
HEALTH CARE FACILITIES (1.6%)
Health Management Associates Class A 4,962,400 110,562
HEALTH CARE MANAGEMENT SERVICES (3.5%)
* WellPoint Health Networks Inc. Class A 1,988,700 155,119
UnitedHealth Group Inc. 1,806,000 89,271
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (2.2%)
* Boston Scientific Corp. 1,204,900 72,414
Stryker Corp. 664,700 50,384
Alcon, Inc. 590,860 30,872
-------------
$ 1,721,624
-------------
PRODUCER DURABLES (2.0%)
Danaher Corp. 1,210,000 93,472
Centex Corp. 376,100 28,365
Lennar Corp. Class A 304,500 20,478
-------------
$ 142,315
-------------
TECHNOLOGY (25.2%)
Communications Technology (4.4%)
* Cisco Systems, Inc. 9,748,900 186,691
* Juniper Networks, Inc. 7,059,700 121,568
COMPUTER SERVICES SOFTWARE & Systems (10.2%)
Microsoft Corp. 12,985,260 344,369
* Veritas Software Corp. 6,303,500 217,345
* Symantec Corp. 1,865,600 107,141
* Intuit, Inc. 901,710 40,866
COMPUTER TECHNOLOGY (3.8%)
* Dell Inc. 8,070,475 263,340
ELECTRONICS--SEMICONDUCTORS/COMPONENTS (6.8%)
Intel Corp. 9,326,100 266,913
Linear Technology Corp. 2,056,300 84,761
Maxim Integrated Products, Inc. 1,557,491 69,947
* Altera Corp. 2,154,600 48,349
-------------
$ 1,751,290
-------------
UTILITIES (3.3%)
* Comcast Corp. Special Class A 7,333,940 207,991
* Cox Communications, Inc. Class A 661,500 21,644
-------------
$ 229,635
-------------
OTHER (1.9%)
General Electric Co. 4,433,100 $ 131,087
-------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $7,077,287) $ 6,930,078
- -------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.9%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.05%, 9/2/2003 $48,985 48,985
1.06%, 9/2/2003--Note G 10,989 10,989
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $59,974) $ 59,974
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.4%) (Cost $7,137,261) $ 6,990,052
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.4%)
- --------------------------------------------------------------------------------
Other Assets--Note C 24,360
Liabilities--Note G (50,707)
-------------
$ (26,347)
-------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $ 6,963,705
================================================================================
*See Note A in Notes to Financial Statements.
*Non-income-producing security.
- --------------------------------------------------------------------------------
AT AUGUST 31, 2003, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
Paid-in Capital $ 14,453,186
Undistributed Net Investment Income 2,467
Accumulated Net Realized Losses (7,344,739)
Unrealized Depreciation (147,209)
- --------------------------------------------------------------------------------
NET ASSETS $ 6,963,705
================================================================================
Investor Shares--Net Assets
Applicable to 420,870,921 outstanding $.001 par value shares of
beneficial interest (unlimited authorization) $ 5,892,478
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- INVESTOR SHARES $ 14.00
================================================================================
Admiral Shares--Net Assets
Applicable to 29,529,003 outstanding $.001 par value shares of
beneficial interest (unlimited authorization) $ 1,071,227
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- ADMIRAL SHARES $ 36.28
================================================================================
See Note E in Notes to Financial Statements for the tax-basis components of net
assets.
17
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
- --------------------------------------------------------------------------------
U.S. GROWTH FUND
YEAR ENDED AUGUST 31, 2003
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 51,266
Interest 1,030
Security Lending 157
- --------------------------------------------------------------------------------
Total Income $ 52,453
- --------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 9,035
Performance Adjustment (1,362)
The Vanguard Group--Note C
Management and Administrative
Investor Shares 21,434
Admiral Shares 2,370
Marketing and Distribution
Investor Shares 926
Admiral Shares 134
Custodian Fees 126
Auditing Fees 13
Shareholders' Reports and Proxies
Investor Shares 400
Admiral Shares 5
Trustees' Fees and Expenses 12
- --------------------------------------------------------------------------------
Total Expenses 33,093
Expenses Paid Indirectly--Note D (3,086)
- --------------------------------------------------------------------------------
Net Expenses 30,007
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 22,446
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (1,064,662)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES $ 1,601,726
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 559,510
================================================================================
18
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the net amount shareholders invested in
or redeemed from the fund. Distributions and Capital Share Transactions are
shown separately for each class of shares.
- --------------------------------------------------------------------------------
U.S. GROWTH FUND
-----------------------------
YEAR ENDED AUGUST 31,
- --------------------------------------------------------------------------------
2003 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 22,446 $ 18,426
Realized Net Gain (Loss) (1,064,662) (1,793,791)
Change in Unrealized Appreciation (Depreciation) 1,601,726 (873,403)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 559,510 (2,648,768)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (17,640) (17,699)
Admiral Shares (4,869) (2,255)
Realized Capital Gain
Investor Shares -- --
Admiral Shares -- --
- --------------------------------------------------------------------------------
Total Distributions (22,509) (19,954)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--NOTE H
Investor Shares (36,645) (1,851,046)
Admiral Shares (77,590) 1,117,289
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions (114,235) (733,757)
- --------------------------------------------------------------------------------
Total Increase (Decrease) 422,766 (3,402,479)
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 6,540,939 9,943,418
- --------------------------------------------------------------------------------
End of Period $ 6,963,705 $ 6,540,939
================================================================================
19
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
U.S. GROWTH FUND INVESTOR SHARES
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.92 $ 18.00 $ 49.26 $ 38.92 $ 30.36
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .040 .031 .039 .10 .21
- -------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss)
on Investments 1.082 (5.075) (23.799) 12.47 10.85
- -------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.122 (5.044) (23.760) 12.57 11.06
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.042) (.036) (.050) (.21) (.19)
Distributions from Realized Capital Gains -- -- (7.450) (2.02) (2.31)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions (.042) (.036) (7.500) (2.23) (2.50)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.00 $ 12.92 $ 18.00 $ 49.26 $ 38.92
===================================================================================================================
TOTAL RETURN 8.73% -28.09% -54.07% 33.29% 37.38%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 5,892 $ 5,472 $ 9,681 $ 22,331 $16,007
Ratio of Total Expenses to Average Net Assets 0.55% 0.50% 0.44% 0.38% 0.39%
Ratio of Net Investment Income to Average Net Assets 0.32% 0.20% 0.13% 0.24% 0.59%
Portfolio Turnover Rate 47% 53% 135% 76% 49%
===================================================================================================================
20
U.S. GROWTH FUND ADMIRAL SHARES
- --------------------------------------------------------------------------------
YEAR ENDED
AUGUST 31, AUG. 13* TO
------------------- AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $33.46 $46.59 $50.00
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .164 .168 .022
Net Realized and Unrealized Gain (Loss)
on Investments 2.811 (13.167) (3.432)
- --------------------------------------------------------------------------------
Total from Investment Operations 2.975 (12.999) (3.410)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.155) (.131) --
Distributions from Realized Capital Gains -- -- --
- --------------------------------------------------------------------------------
Total Distributions (.155) (.131) --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $36.28 $33.46 $46.59
================================================================================
TOTAL RETURN 8.95% -27.99% -6.82%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 1,071 $ 1,069 $ 262
Ratio of Total Expenses to Average Net Assets 0.37% 0.36% 0.38%**
Ratio of Net Investment Income to
Average Net Assets 0.50% 0.37% 0.35%**
Portfolio Turnover Rate 47% 53% 135%
================================================================================
*Inception.
**Annualized.
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
NOTES TO FINANCIAL STATEMENTS
Vanguard U.S. Growth Fund is registered under the Investment Company Act of 1940
as an open-end investment company, or mutual fund. The fund offers two classes
of shares, Investor Shares and Admiral Shares. Investor Shares are available to
any investor who meets the fund's minimum purchase requirements. Admiral Shares
are designed for investors who meet certain administrative, servicing, tenure,
and account-size criteria.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. The fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Securities are valued as of the close of trading on
the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund's pricing time but after the close of the securities'
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Temporary cash investments acquired over 60 days to
maturity are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and ratings), both as furnished by independent pricing services.
Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. REPURCHASE AGREEMENTS: The fund, along with other members of The
Vanguard Group, transfers uninvested cash balances to a pooled cash account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
3. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except
that each class separately bears certain class-specific expenses related to
maintenance of shareholder accounts (included in Management and Administrative
expenses), shareholder reporting, and proxies. Marketing and distribution
expenses are allocated to each class of shares based on a method approved by the
board of trustees. Income, other non-class-specific expenses, and gains and
losses on investments are allocated to each class of shares based on its
relative net assets.
B. Alliance Capital Management L.P. provides investment advisory services to the
fund for a fee calculated at an annual percentage rate of average net assets.
The basic fee is subject to quarterly adjustments based on the fund's
performance relative to the Russell 1000 Growth Index. For the year ended August
31, 2003, the investment advisory fee represented an effective annual basic rate
of 0.14% of the fund's average net assets before a decrease of $1,362,000
(0.02%) based on performance.
22
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the fund under methods approved by the board of trustees. The fund has
committed to provide up to 0.40% of its net assets in capital contributions to
Vanguard. At August 31, 2003, the fund had contributed capital of $1,178,000 to
Vanguard (included in Other Assets), representing 0.02% of the fund's net assets
and 1.18% of Vanguard's capitalization. The fund's trustees and officers are
also directors and officers of Vanguard.
D. The fund has asked its investment advisor to direct certain security trades,
subject to obtaining the best price and execution, to brokers who have agreed to
rebate to the fund part of the commissions generated. Such rebates are used
solely to reduce the fund's management and administrative expenses. For the year
ended August 31, 2003, these arrangements reduced expenses by $3,086,000 (an
annual rate of 0.05% of average net assets).
E. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
During 2002, the fund elected to use a provision of the Taxpayer Relief Act of
1997 to mark-to-market certain appreciated securities held on January 1, 2001;
such securities were treated as sold and repurchased, with unrealized gains of
$912,491,000 becoming realized and reducing the fund's capital loss
carryforward, for tax purposes. The mark-to-market had no effect on realized
gains or unrealized appreciation for financial statement purposes; it created a
difference between the cost of investments for financial statement and tax
purposes, which will reverse when the securities are sold. The fund realized
gains on the sale of these securities through August 31, 2002, and subsequently
during the year ended August 31, 2003, of $347,099,000 and $309,008,000,
respectively, for financial statement purposes, which were included in fiscal
2001 mark-to-market gains for tax purposes. The remaining difference of
$256,384,000 is reflected in the balance of accumulated net realized losses; the
corresponding difference between the securities' costs for financial statement
purposes and for tax purposes is reflected in unrealized depreciation.
For tax purposes, at August 31, 2003, the fund had $17,037,000 of ordinary
income available for distribution. The fund had available realized losses of
$7,087,673,000 to offset future net capital gains of $3,610,329,000 through
August 31, 2010, $2,548,333,000 through August 31, 2011, and $929,011,000
through August 31, 2012.
At August 31, 2003, net unrealized depreciation of investment securities for tax
purposes was $403,593,000, consisting of unrealized gains of $444,713,000 on
securities that had risen in value since their purchase and $848,306,000 in
unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2003, the fund purchased $2,954,500,000 of
investment securities and sold $3,040,533,000 of investment securities other
than temporary cash investments.
G. The market value of securities on loan to broker/dealers at August 31, 2003,
was $10,620,000, for which the fund held cash collateral of $10,989,000. The
fund invests cash collateral received in repurchase agreements, and records a
liability for the return of the collateral, during the period the securities are
on loan.
23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
H. Capital share transactions for each class of shares were:
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------
2003 2002
-------------------------- -----------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------
INVESTOR SHARES
Issued $1,226,990 97,854 $1,605,407 97,397
Issued in Lieu of Cash Distributions 17,225 1,395 17,249 902
Redeemed (1,280,860) (101,975) (3,473,702) (212,581)
-----------------------------------------------------------
Net Increase (Decrease)--Investor Shares (36,645) (2,726) (1,851,046) (114,282)
-----------------------------------------------------------
ADMIRAL SHARES
Issued 347,808 10,762 1,310,737 31,332
Issued in Lieu of Cash Distributions 4,667 146 2,167 44
Redeemed (430,065) (13,311) (195,615) (5,077)
-----------------------------------------------------------
Net Increase (Decrease)--Admiral Shares (77,590) (2,403) 1,117,289 26,299
- ---------------------------------------------------------------------------------------------------------------
24
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND TRUSTEES OF VANGUARD U.S. GROWTH FUND:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard U.S. Growth Fund (the "Fund") at August 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at August 31, 2003 by correspondence with the custodian, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
PHILADELPHIA, PENNSYLVANIA
OCTOBER 7, 2003
- --------------------------------------------------------------------------------
SPECIAL 2003 TAX INFORMATION
(UNAUDITED) FOR VANGUARD U.S. GROWTH FUND
This information for the fiscal year ended August 31, 2003, is included pursuant
to provisions of the Internal Revenue Code.
For corporate shareholders, 100% of investment income (dividend income plus
short-term gains, if any) qualifies for the dividends received deduction.
The fund intends to distribute the maximum amount of qualified dividend income
allowable. The amount of qualified dividend income distributed by the fund will
be provided to individual shareholders on their 2003 Form 1099-DIV.
- --------------------------------------------------------------------------------
25
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26
CAPITALIZE ON YOUR IRA
Are you taking full advantage of your individual retirement account? You really
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Here's how you can exploit your IRA--and improve your chances of having the
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CONTRIBUTE THE MAXIMUM AMOUNT EACH YEAR.
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27
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services
to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
- ------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee
(1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(112)
- ------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (112) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (112) Chairman (JanuarySeptember 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
- ------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (112) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
- ------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (110) Director of Vanguard Investment Series plc (Irish invest-ment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------
J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------
executive officers*
R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (112) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (112) investment companies served by The Vanguard Group.
July 1998
- ------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------
[PICTURE OF SHIP]
[THE VANGUARD GROUP(R)LOGO]
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ABOUT OUR COVER
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FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
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(C) 2003 THE VANGUARD GROUP, INC.
ALL RIGHTS RESERVED.
VANGUARD MARKETING
CORPORATION, DISTRIBUTOR.
Q230 102003
VANGUARD(R) INTERNATIONAL GROWTH FUND
AUGUST 31, 2003
[GRAPHIC]
ANNUAL REPORT
[THE VANGUARD GROUP(R) LOGO]
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's Chairman, John J. Brennan, together with
the letter from the managers who select securities for your fund, you'll get an
understanding of how the fund invests and how the market environment affected
its performance. The statistical information that follows can help you
understand how the fund's performance and characteristics stack up against those
of similar funds and market benchmarks.
It's important to keep in mind that the opinions expressed by Vanguard's
investment managers are just that: informed opinions. They should not be
considered promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. As things change--and in
the financial markets you can be certain only of change--the investment
manager's job is to evaluate new information and make adjustments, if necessary.
Of course, the risks of investing in the fund are spelled out in the prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com(R).
- --------------------------------------------------------------------------------
CONTENTS
1 letter from the chairman
7 advisor's report
10 fund profile
12 glossary of investment terms
13 performance summary
15 fund's after-tax returns
16 about your fund expenses
17 financial statements
SUMMARY
- - The Investor Shares of Vanguard International Growth Fund returned 9.6%
during the 12 months ended August 31, well ahead of the average return of
international mutual funds.
- - The fund's strong returns reflected a surge in world stock markets during
the second half of the fiscal year.
- - In February, International Growth Fund's board of trustees added a second
investment advisor, Baillie Gifford Overseas Ltd., to the fund's management
team. The addition does not affect the fund's characteristics or its
investment objective.
WANT LESS CLUTTER IN YOUR MAILBOX? JUST REGISTER WITH
VANGUARD.COM AND OPT TO GET FUND REPORTS ONLINE.
LETTER FROM THE CHAIRMAN
Fellow Shareholder,
Vanguard International Growth Fund's performance during its 2003 fiscal year was
similar to that of the world equity markets--poor early on but exceptionally
strong in the second half, benefiting from a surge in early spring that affected
stock markets around the globe.
As shown in the adjacent table, the 9.6% return of the fund's Investor Shares
(+9.8% for its Admiral Shares) was well ahead of the average result of
international mutual funds. Among the factors that contributed to the fund's
success during the 12 months ended August 31 were the strong returns in emerging
markets, the solid gains in some retailing and technology companies, and our
main investment advisor's excellent management of currency fluctuations.
[PICTURES OF JOHN J. BRENNAN]
- ----------------------------------------------------
2003 TOTAL RETURNS FISCAL YEAR ENDED
AUGUST 31
- ----------------------------------------------------
VANGUARD INTERNATIONAL GROWTH FUND
Investor Shares 9.6%
Admiral Shares 9.8
MSCI EAFE Index 9.1
Average International Fund* 7.5
MSCI All Country World Index Free ex USA 12.2
- ----------------------------------------------------
*Derived from data provided by Lipper Inc.
The components of your fund's total returns--per-share distributions and change
in net asset value--appear in the table on page 6. If you hold Vanguard
International Growth Fund in a taxable account, you may wish to review the
information about your fund's after-tax performance, which appears in the table
on page 15.
DISMAL AT THE START, WORLD STOCK MARKETS PERKED UP
In the year ended August 31, 2003, the returns of stock markets across the globe
bounced up and down during the first several months, sunk early in calendar
2003, and then stormed ahead beginning in early spring.
1
Slumping economies, weak corporate profits, and growing geopolitical tensions
weighed heavily on world stock markets at the onset of the period. However,
following the successful conclusion of major combat operations in Iraq, a more
upbeat mood began to permeate the marketplace. Stock prices began to rebound as
corporate earnings reports improved and the U.S. economy showed signs of a
recovery.
- --------------------------------------------------------------------------------
ADMIRAL(TM) SHARES
A lower-cost class of shares available to many longtime shareholders and to
those with significant investments in the fund.
- --------------------------------------------------------------------------------
U.S. investors were rewarded with good returns in many international markets,
although stock performance was only part of the story. The weakening of the U.S.
dollar by almost 10% relative to the euro and the Japanese yen transformed
results that were mediocre by local-currency standards into strong
dollar-denominated returns.
The U.S. stock market, as measured by the Wilshire 5000 Total Market Index,
returned 14.9% for the fiscal year. Technology and other growth-oriented stocks,
which had sustained massive losses during the past few years, were among the
most impressive gainers. The market's smaller stocks outpaced larger issues,
demonstrating investors' renewed appetite for risk.
- --------------------------------------------------------------------------------
MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
-----------------------------
ONE THREE FIVE
YEAR YEARS YEARS
- --------------------------------------------------------------------------------
STOCKS
MSCI All Country World Index Free
ex USA (International) 12.2% -10.0% 1.1%
Russell 1000 Index (Large-caps) 12.9 -11.4 3.1
Russell 2000 Index (Small-caps) 29.1 -1.2 9.5
Wilshire 5000 Index (Entire market) 14.9 -10.7 3.5
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.4% 8.2% 6.6%
(Broad taxable market)
Lehman Municipal Bond Index 3.1 6.5 5.3
Citigroup 3-Month Treasury Bill Index 1.3 2.9 3.8
================================================================================
CPI
Consumer Price Index 2.2% 2.2% 2.5%
- --------------------------------------------------------------------------------
In the fixed income arena, the theme was low--and declining--interest rates. In
Europe, both the Bank of England and the European Central Bank cut their targets
for short-term interest rates during the period. At the end of August, the
European Central Bank's target for short-term rates (the minimum bid rate on the
main refinancing operations) stood at 2.0%, and the Bank of England's target
(the repo rate) stood at 3.5%. The U.S. Federal Reserve Board lowered its target
for the federal funds rate (the interest rate charged for
2
overnight loans between banks) to 1.0%, its lowest level in 45 years. The Bank
of Japan's target for short-term interest rates (the discount rate, or the
interest rate on the bank's loans to other banks) remained a nearly invisible
0.1%.
STRONG SECOND HALF RESULTED IN SOLID FISCAL-YEAR RETURNS
Vanguard International Growth Fund's fiscal-year return of 9.6% for its Investor
Shares reflects a remarkable turnaround from its dismal start. During the first
six months of the period, the fund returned -11.0%. However, from the end of
February through August 31, the fund's return was a remarkable 23.2%.
Broadly, the fund benefited from a stock market surge that kicked in during
early spring. Many markets in Europe and the Pacific region followed the lead of
the United States, where positive economic signals and strengthening corporate
profits led to a stock market upswing.
- -------------------------------------------------------
FUND ASSETS MANAGED AUGUST 31, 2003
-----------------------
$ MILLION PERCENTAGE
- -------------------------------------------------------
Schroder Investment Management
North America Inc. $5,072 78%
Baillie Gifford Overseas Ltd. 1,300 20
Cash Investments* 130 2
- -------------------------------------------------------
Total $6,502 100%
- -------------------------------------------------------
*This cash is invested by The Vanguard Group in equity
index products to simulate investment in stocks; each
advisor also may maintain a modest cash position.
Specifically, the fund's commitment to emerging markets, which averaged about
15% of assets during the period, helped performance, as did the decision by
Schroder Investment Management North America, our main advisor, to hedge its
exposure to the Japanese yen. (Schroder shifted from yen to euros, protecting
the portfolio against the yen's decline.)
Japanese stocks, as a group, suffered during most of the period but recovered in
the summer, aiding performance. In terms of broad industry groups, our advisors'
selections among retailers and technology companies helped most during the six
months. Vodafone Group made a strong advance, and drug company AstraZeneca Group
and home-improvement retailer Kingfisher registered big gains. Finally, the
fund's underweighted position in energy stocks boosted performance relative to
the average peer and broad international stock indexes.
On the negative side, insurance giant ING Groep, which one year ago accounted
for nearly 6% of fund assets, struggled mightily and has since been eliminated
from the portfolio.
3
See the Advisor's Report on page 7 for more details about the fund's
performance.
Since early February, the fund's assets have been managed by two investment
advisors, who independently select securities for the fund. The addition of
Baillie Gifford Overseas Ltd. does not change the fund's investment objective.
Schroder, which currently manages more than three-quarters of the International
Growth Fund's assets, has served as investment advisor to the fund since its
inception in 1981. The table on page 3 provides a breakdown of the fund's assets
managed by each advisor.
SOLID 2003 ADDS TO FUND'S DISTINGUISHED HISTORY
The fund's strong performance during the past 12 months--both in absolute terms
and relative to competing funds--was consistent with its excellent long-term
results. The adjacent table shows that over the ten years ended August 31, 2003,
Vanguard International Growth Fund returned an annualized 5.0%, nearly 2
percentage points ahead of the average return of international mutual funds.
This impressive margin led to a significant difference in wealth over the
decade. A hypothetical $10,000 invested in Vanguard International Growth Fund
would have grown to more than $16,000 in the ten-year period. The same
investment in the average competitor would have increased to about $13,600.
- -------------------------------------------------------
TOTAL RETURNS TEN YEARS ENDED
AUGUST 31, 2003
- -------------------------------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- -------------------------------------------------------
INTERNATIONAL GROWTH FUND
INVESTOR SHARES 5.0% $16,237
MSCI EAFE Index 2.4 12,647
Average International Fund 3.1 13,589
MSCI All Country World
Index Free ex USA 2.8 13,241
- -------------------------------------------------------
As you may know, the fund's ten-year performance record is made up of periods of
both terrific gains and disappointing declines. Vanguard International Growth
Fund's long-term success is testament to the power of a sound investment
strategy applied during good markets and bad. Throughout the fund's history,
shareholders have benefited not only from the fund's excellent investment
management but also from its low operating costs. In 2003, Vanguard
International Growth Fund's operating expenses amounted to 0.69% of average net
assets for the Investor Shares and 0.51% for the Admiral Shares. The average
competitor's expenses consumed a full 1.70% of average net assets.
4
Because expenses directly reduce the return that investors receive, this
difference works to the advantage of our shareholders year after year, and
especially over the long run.
TIMELESS PRINCIPLES AMID PERSISTENT CHANGE
Since early 2000, the financial markets have followed trajectories unfamiliar to
most market participants. Stocks endured one of the longest and deepest declines
in financial history, while the yields of fixed income securities dropped to
levels not seen in a generation. In recent months, though, the cycles seem to
have turned: Many stocks have produced exceptional returns, and interest rates
have begun to rise.
These events are no more than extreme manifestations of the uncertainty that
always rules the financial markets. At Vanguard, we believe that the best
approach to this uncertainty is faithful use of the time-tested investment
principles: balance, diversification, and low costs. A balance among stocks,
bonds, and money market funds allows you to pursue growth of capital while
securing some protection from the markets' inevitable downturns. In any asset
mix, low costs are key to ensuring that you reap the maximum possible share of
the financial markets' rewards.
Vanguard International Growth Fund can be an important component of your equity
allocation, providing exposure to markets outside of the United States and to
the talents of an excellent investment management team.
Thank you for entrusting your assets to us.
Sincerely,
/S/ JOHN J. BRENNAN
John J. Brennan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SEPTEMBER 12, 2003
5
- --------------------------------------------------------------------------------
YOUR FUND'S PERFORMANCE AT A GLANCE AUGUST 31, 2002-AUGUST 31, 2003
DISTRIBUTIONS PER SHARE
-----------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------------
International Growth Fund
Investor Shares $12.97 $14.01 $0.180 $0.000
Admiral Shares 41.27 44.57 0.645 0.000
- --------------------------------------------------------------------------------
6
ADVISOR'S REPORT
In fiscal 2003, the Investor Shares of Vanguard International Growth Fund
returned 9.6%. This compared with a 7.5% rise in the average international fund
and a 9.1% rise in the Morgan Stanley Capital International Europe, Australasia,
Far East (MSCI EAFE) Index.
THE INVESTMENT ENVIRONMENT
When I wrote to you six months ago, stock markets in most countries were at
their worst. However, in the ensuing months, many markets performed well; only
the Asian markets continued to fall under the deadly influence of the SARS
(Severe Acute Respiratory Syndrome) epidemic, but even that pattern changed at
the end of April. The Asian markets' subsequent rebound closed their performance
gap with Western markets. We recognized the buying opportunity this delayed
recovery offered and poured money into Japan, South Korea, and Taiwan.
In hindsight, it is evident that the recovery in global stock markets started in
October in the United States, led by technology stocks. However, progress was
impaired first by the war with Iraq and then by the SARS outbreak. Once again,
it is the U.S. market and U.S. consumers that are leading the world out of
recession. U.S. monetary and fiscal policy have played major roles, as has the
U.S. dollar's weakness. Outside of the United States, economic recovery has been
very tentative, both because the monetary and fiscal responses have been much
weaker and because many currencies have strengthened relative to the dollar--a
disadvantage to exporters, especially in Europe.
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY
The advisor believes that superior long-term investment results can be achieved
by selecting the stocks of companies with the potential for above-average
earnings growth, with particular emphasis on companies in countries with
favorable business and market environments.
- --------------------------------------------------------------------------------
Surging economic growth in China has been a major support to the Asian
economies. This has benefited a range of industries, notably basic materials
like steel and commodities. But these industries are not the natural province of
the International Growth Fund, which benefits more from the indirect effects of
such booms. For example, we have bought domestic-demand plays in South Korea
(Shinsegae, a
7
department store, and insurer Samsung Fire & Marine) and cyclical companies in
Japan that have distinctive products, like capital goods and autos. Purchases
there included Toyota, SMC, and Mitsubishi Electric.
Another feature of the fiscal year was the dramatic recovery in companies with
parlous balance sheets and volatile earnings. Again, such companies are not
natural inhabitants of our portfolio, as we have always sought quality and
stability. So the result that we achieved during the year came despite a very
difficult environment for the fund's style of investing. We managed to make
money by being broadly in the right markets, the right sectors, and the right
currencies--but not in the stocks that performed best.
OUR SUCCESSES
During the year, we had about 10% to 15% of our portion of the portfolio in
emerging markets, mostly in Asia, as part of a long-term strategy focused
particularly on technology companies. But, as mentioned above, we have
tactically invested in a range of more locally oriented stocks since the turn in
world markets. This includes several new holdings in India. On average, these
investments rose 25% during the year.
I should update you on Samsung Electronics, the fund's largest holding, which
six months ago I highlighted as having fallen steeply. We held on tightly to our
position and have enjoyed a 60% recovery. For the fiscal year, the stock was up
40%.
Japan remained depressed for much of the year, but as noted earlier, we took
advantage of the prime investment opportunity there and increased our exposure
from a very underweight position relative to the MSCI EAFE Index, enabling our
holdings to enjoy a strong recovery since May.
Two long-standing policies of the portfolio also benefited performance. First,
we added a lot of value by hedging the risk of a depreciating yen into the euro,
the only currency (including the U.S. dollar) that we expected would be safe.
Significantly, we stopped hedging as the euro reached its peak, and we locked in
a good profit. Second, despite higher-than-expected oil prices and the war in
Iraq, we held to our negative view on oil stocks. We were correct: Oil stocks
underperformed by some 13% as a group.
OUR FAILURES
First among our setbacks, several large, well-known companies that had been
teetering on the edge of insolvency a year ago rescued themselves, and their
share prices more than doubled. Sadly, we held none of them.
8
Second, we had almost no exposure to Australia and Canada in our portion of the
portfolio. The currencies of both countries, which have strong resource-based
economies, soared during the period. And South Africa, where we have no
exposure, enjoyed a currency that was stronger still.
Third, we sold several stocks during the markets' deterioration that, in
retrospect, we should have either kept faith with or waited to sell after the
markets recovered. Most obviously, we sold all of our portfolio's shares in its
largest holding of a year ago, ING Groep, a Dutch-based insurance company. We
did not lose confidence in the company, but the risk of a market collapse
devastating its balance sheet became too great for us. The stock has
subsequently recovered to a little above our average selling price.
THE FUND'S POSITIONING
The fund is not positioned for a strong global economic recovery. We now have
our highest exposure ever in emerging markets--about 15% of the assets we
manage. This reflects our conviction that, owing to their lower cost bases,
Asian-based companies in particular will gain market share from their Western
competitors.
In previous reports I have emphasized that our Japanese investments are quality
companies with strong balance sheets and, for the most part, relatively good
pricing power. These companies are also more willing to restructure than are
typical Japanese companies. Companies that have these characteristics will fare
best if the incipient Japanese economic recovery, which has ridden mostly on
exports to the United States and China, does not extend broadly or in a
sustained manner into the domestic economy. We have 18% of our portfolio's
assets in Japan.
About 60% of our portfolio is invested in European companies. As holds true for
the fund as a whole, the key to our success in this region is as much a matter
of companies and sectors selected as of individual country weightings. Many of
our European stocks performed relatively poorly in the past year, but against a
background of continued improvement in profits. Large, high-quality companies
look comparatively cheap now, and given the portfolio's clear bias toward such
firms in both Europe and Japan, we look forward to a relatively strong
performance from such companies in the year ahead.
RICHARD FOULKES, EXECUTIVE VICE PRESIDENT
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC.
SEPTEMBER 12, 2003
9
FUND PROFILE
As of 8/31/2003
This Profile provides a snapshot of the fund's characteristics, compared where
indicated with both an appropriate market index and a broad market index. Key
terms are defined on page 12.
INTERNATIONAL GROWTH FUND
- -------------------------------------------------------
PORTFOLIO CHARACTERISTICS
COMPARATIVE BROAD
FUND INDEX* INDEX**
- -------------------------------------------------------
Number of Stocks 194 1,006 1,740
Turnover Rate 59% -- --
Expense Ratio -- --
Investor Shares 0.69%
Admiral Shares 0.51%
Cash Investments 3% -- --
- -------------------------------------------------------
- -------------------------------------------------------
TEN LARGEST HOLDINGS (% of total net assets)
Samsung Electronics Co., Ltd. 4.0%
(electronics)
Vodafone Group PLC 2.3
(telecommunications)
Tesco PLC 2.2
(retail)
Royal Bank of Scotland Group PLC 2.2
(banking)
Nestle SA (Registered) 2.1
(food, beverage and tobacco)
Allied Irish Banks PLC 2.0
(banking)
Toyota Motor Corp. 1.9
(automotive and transport equipment)
Mitsui and Co., Ltd. 1.8
(energy and utilities)
Telecom Italia S.p.A. 1.8
(telecommunications)
Ricoh Co. 1.8
(computer hardware)
- -------------------------------------------------------
Top Ten 22.1%
- -------------------------------------------------------
The "Ten Largest Holdings" excludes any temporary cash
investments and equity index products.
- --------------------------------------------------------------------------------
VOLATILITY MEASURES
COMPARATIVE BROAD
FUND INDEX* FUND INDEX**
- --------------------------------------------------------------------------------
R-Squared 0.96 1.00 0.96 1.00
Beta 1.04 1.00 1.02 1.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION (% of portfolio)
COMPARATIVE BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Consumer Discretionary 18% 13% 12%
Consumer Staples 9 9 8
Energy 2 8 9
Financials 24 26 25
Health Care 6 9 8
Industrials 11 9 9
Information Technology 16 7 8
Materials 4 7 8
Telecommunication Services 6 7 8
Utilities 1 5 5
- --------------------------------------------------------------------------------
Cash Investments 3% -- --
- --------------------------------------------------------------------------------
- -------------------------------------------------------
ALLOCATION BY REGION
[PIE CHART APPEARS HERE]
EUROPE 60%
EMERGING MARKETS 13%
PACIFIC 24%
CASH INVESTMENTS 3%
- -------------------------------------------------------
*MSCI EAFE Index.
**MSCI All Country World Index Free ex USA.
10
- -------------------------------------------------------
COUNTRY DIVERSIFICATION (% of portfolio)
COMPARATIVE BROAD
FUND INDEX* INDEX**
- -------------------------------------------------------
EUROPE
United Kingdom 22% 26% 22%
France 11 9 8
Switzerland 7 7 6
Netherlands 4 5 5
Germany 3 6 5
Ireland 3 1 1
Italy 3 4 3
Sweden 3 2 2
Finland 2 2 2
Denmark 1 1 1
Spain 1 4 3
Belgium 0 2 2
- -------------------------------------------------------
Subtotal 60% 69% 60%
- -------------------------------------------------------
PACIFIC
Japan 19% 23% 19%
Hong Kong 3 2 2
Australia 1 5 4
Singapore 1 1 1
- -------------------------------------------------------
Subtotal 24% 31% 26%
- -------------------------------------------------------
EMERGING MARKETS
South Korea 6% -- 2%
Taiwan 3 -- 1
Brazil 2 -- 1
India 1 -- 0
Mexico 1 -- 1
Other Emerging Markets 0 -- 4
- -------------------------------------------------------
Subtotal 13% -- 9%
- -------------------------------------------------------
OTHER 0% -- 5%
- -------------------------------------------------------
Cash Investments 3% -- --
- -------------------------------------------------------
Total 100% 100% 100%
- -------------------------------------------------------
*MSCI EAFE Index.
**MSCI All Country World Index Free ex USA.
VISIT OUR WEBSITE AT VANGUARD.COM
FOR REGULARLY UPDATED FUND INFORMATION.
11
GLOSSARY OF INVESTMENT TERMS
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of a comparative index and an overall market
index. Each index is assigned a beta of 1.00. Compared with a given index, a
fund with a beta of 1.20 typically would have seen its share price rise or fall
by 12% when the index rose or fell by 10%. However, a fund's beta should be
reviewed in conjunction with its R-squared (see definition below). The lower the
R-squared, the less correlation there is between the fund and the benchmark, and
the less reliable beta is as an indicator of volatility.
- --------------------------------------------------------------------------------
CASH INVESTMENTS. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts or other equity index
products to simulate stock investment.
- --------------------------------------------------------------------------------
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by a comparative index or an
overall market index. If a fund's total returns were precisely synchronized with
an index's returns, its R-squared would be 1.00. If the fund's returns bore no
relationship to the index's returns, its R-squared would be 0.
- --------------------------------------------------------------------------------
TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and may be more likely to
distribute capital gains (which are taxable to investors).
- --------------------------------------------------------------------------------
12
PERFORMANCE SUMMARY
As of 8/31/2003
All of the returns in this report represent past performance, which cannot be
used to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost. The returns
shown do not reflect taxes that a shareholder would pay on fund distributions or
on the redemption of fund shares.
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE AUGUST 31, 1993-AUGUST 31, 2003
[MOUNTAIN CHART APPEARS HERE]
FISCAL AVERAGE
QUARTER INTERNATIONAL INTERNATIONAL MSCI EAFE MSCI AC WORLD
ENDED GROWTH INVESTOR SHARES FUND INDEX INDEX FREE EX USA
- -----------------------------------------------------------------------------------
199308 10000 10000 10000 10000
199311 10191 10129 9195 9376
199402 11642 11501 10663 10856
199405 11415 11242 10576 10713
199408 12044 11600 11085 11334
199411 11491 11057 10560 10803
199502 10839 10470 10189 10232
199505 12080 11243 11097 11183
199508 12497 11479 11140 11250
199511 12684 11624 11360 11398
199602 13519 12339 11906 12012
199605 14217 12889 12282 12417
199608 14086 12477 12016 12136
199611 15012 13313 12695 12788
199702 15239 13593 12291 12635
199705 16646 14440 13208 13500
199708 16317 14227 13104 13390
199711 15559 13963 12644 12751
199802 17148 15470 14194 14170
199805 17970 16486 14675 14497
199808 15830 14021 13086 12524
199811 17693 15395 14724 14271
199902 17820 15681 14896 14417
199905 18250 16257 15315 15123
199908 19264 17228 16445 16245
199911 20854 19504 17832 17643
200002 23881 21998 18687 18770
200005 22894 20085 17941 17919
200008 22863 20265 18016 18167
200011 20240 17741 16106 15868
200102 19852 17341 15421 15337
200105 18911 16486 14850 14802
200108 17264 14818 13629 13572
200111 16570 14181 13025 13043
200202 16365 14073 12493 12736
200205 17199 14897 13424 13662
200208 14812 12640 11591 11799
200211 14823 12429 11397 11649
200302 13177 11390 10312 10657
200305 15113 12868 11773 12187
200308 16237 13589 12647 13241
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
----------------------------- FINAL VALUE
ONE FIVE TEN OF A $10,000
YEAR YEARS YEARS INVESTMENT
- --------------------------------------------------------------------------------------------------
International Growth Fund Investor Shares* 9.62% 0.51% 4.97% $16,237
MSCI All Country World Index Free ex USA 12.22 1.12 2.85 13,241
MSCI EAFE Index 9.11 -0.68 2.38 12,647
Average International Fund** 7.51 -0.62 3.11 13,589
FINAL VALUE
ONE SINCE OF A $250,000
YEAR INCEPTION+ INVESTMENT
- --------------------------------------------------------------------------------------------------
International Growth Fund Admiral Shares* 9.80% -3.76% $231,132
MSCI All Country World Index Free ex USA 12.22 -1.98 239,283
MSCI EAFE Index 9.11 -4.30 228,452
- --------------------------------------------------------------------------------------------------
- -------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%)
AUGUST 31, 1993-AUGUST 31, 2003
INTERNATIONAL
GROWTH FUND MSCI EAFE
INVESTOR SHARES* INDEX
FISCAL YEAR TOTAL RETURN TOTAL RETURN
- -------------------------------------------
1993 21.1% 26.7%
1994 20.4 10.8
1995 3.8 0.5
1996 12.7 7.9
1997 15.8 9.1
1998 -3.0 -0.1
1999 21.7 25.7
2000 18.7 9.6
2001 -24.5 -24.4
2002 -14.2 -15
2003 9.6 9.1
- -------------------------------------------
*Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
**Derived from data provided by Lipper Inc.
+August 31, 2001.
Note: See Financial Highlights tables on pages 24 and 25 for dividend and
capital gains information.
13
PERFORMANCE SUMMARY (continued)
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED JUNE 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
TEN YEARS
ONE FIVE -------------------------
INCEPTION DATE YEAR YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
International Growth Fund*
Investor Shares 9/30/1981 -6.75% -2.93% 4.12% 1.31% 5.43%
Admiral Shares 8/13/2001 -6.57 -6.90** -- -- --
- --------------------------------------------------------------------------------
*Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
**Return since inception.
14
YOUR FUND'S AFTER-TAX RETURNS
This table presents returns for your fund both before and after taxes. The
after-tax returns are shown in two ways: (1) assuming that an investor owned the
fund during the entire period and paid taxes on the fund's distributions, and
(2) assuming that an investor paid taxes on the fund's distributions and sold
all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital
gains tax rates in effect at the times of the distributions and the hypothetical
sales. State and local taxes were not considered. After-tax returns reflect the
reduced tax rates on ordinary income and short-term capital gains that became
effective as of January 1, 2003, and on long-term capital gains realized on or
after May 6, 2003. However, they do not reflect the reduced rates on "qualified
dividend income".
The table shows returns for Investor Shares only; returns for other share
classes will differ. Please note that your actual after-tax returns will depend
on your tax situation and may differ from those shown. Also note that if you own
the fund in a tax-deferred account, such as an individual retirement account or
a 401(k) plan, this information does not apply to you. Such accounts are not
subject to current taxes.
Finally, keep in mind that a fund's performance--whether before or after
taxes--does not indicate how it will perform in the future.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED AUGUST 31, 2003
ONE YEAR FIVE YEARS TEN YEARS
---------------------------------
INTERNATIONAL GROWTH FUND INVESTOR SHARES*
Returns Before Taxes 9.62% 0.51% 4.97%
Returns After Taxes on Distributions 9.07 -0.46 4.05
Returns After Taxes on Distributions
and Sale of Fund Shares 6.21 0.13 3.95
- --------------------------------------------------------------------------------
*Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
15
ABOUT YOUR FUND EXPENSES
All mutual funds have operating expenses. These expenses include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund's
gross income, directly reduce the investment return of the fund. A fund's
expenses are expressed as a percentage of its net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would incur
over a 12-month period if you invested $10,000 in the fund, using the fund's
actual return and operating expenses for the fiscal year ended August 31, 2003.
For comparative purposes, we also list the average expense ratio for the fund's
peer group, which is derived from data provided by Lipper Inc.
- --------------------------------------------------------------------------------
FUND COST OF $10,000 PEER GROUP
EXPENSE RATIO INVESTMENT IN FUND EXPENSE RATIO
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
Investor Shares 0.69% $72 1.70%
Admiral Shares 0.51 54 1.70
- --------------------------------------------------------------------------------
The funds do not charge transaction fees; these results apply whether or not you
redeemed your investment at the end of the given period. Your actual costs may
have been higher or lower, depending on the amount of your investment and your
holding period. Peer-group ratios capture data through year-end 2002.
You can find more information about a fund's expense ratio, including annual
expense ratios for the past five years, in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the fund's prospectus. The prospectus
presents hypothetical shareholder costs over various time periods based upon a
$10,000 investment and a return of 5% a year. This standardized example, which
appears in all mutual fund prospectuses, may be useful to you in comparing the
costs of investing in different funds.
16
As of 8/31/2003
FINANCIAL STATEMENTS
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
country. Other assets are added to, and liabilities are subtracted from, the
value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
- --------------------------------------------------------------------------------
MARKET
VALUE^
INTERNATIONAL GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (97.5%)(1)
- --------------------------------------------------------------------------------
AUSTRALIA (1.2%)
BHP Billiton Ltd. 2,654,600 18,780
Commonwealth Bank of Australia 1,000,000 18,155
Westpac Banking Corp., Ltd. 1,559,615 15,798
National Australia Bank Ltd. 447,700 9,009
Foster's Group Ltd. 1,963,400 5,770
Amcor Ltd. 886,300 5,180
Woolworths Ltd. 635,000 4,833
-----------
77,525
-----------
AUSTRIA (0.1%)
* Telekom Austria AG 812,000 8,478
-----------
BELGIUM (0.3%)
UCB SA 417,000 11,084
Groupe Bruxelles Lambert SA 239,000 10,934
-----------
22,018
-----------
BRAZIL (1.6%)
Petrol Brasil Series A ADR 1,630,021 33,252
Itausa-Investimentos Itau SA 18,181,000 17,377
Companhia Vale do Rio Doce ADR 500,000 17,065
Brasil Telecom SA 3,298,100,000 15,204
Companhia de Bebidas das Americas ADR 470,000 10,429
Tele Norte Leste Participacoes ADR 528,000 6,869
-----------
100,196
-----------
CHINA (0.2%)
CNOOC Ltd. 5,727,000 10,721
Legend Group Ltd. 4,552,000 1,955
-----------
12,676
-----------
DENMARK (1.1%)
ISS A/S 825,000 35,130
Novo Nordisk A/S B Shares 722,000 25,620
Danske Bank A/S 726,530 13,320
-----------
74,070
-----------
FINLAND (1.7%)
Nokia Oyj 6,881,078 112,718
-----------
FRANCE (10.2%)
L'Air Liquide SA (Registered) 551,000 79,127
* Vivendi Universal SA 3,929,000 66,043
PSA Peugeot Citroen 1,386,000 63,257
BNP Paribas SA 1,189,000 59,240
Thales SA 2,016,000 57,792
Suez SA 3,370,000 53,168
Societe Generale Class A 631,000 41,844
Schneider Electric SA 709,000 38,283
L'Oreal SA 520,870 36,199
Publicis Groupe SA 1,018,000 29,820
Accor SA 651,000 25,366
17
- --------------------------------------------------------------------------------
MARKET
VALUE^
INTERNATIONAL GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
Sanofi-Synthelabo SA 358,000 20,124
* Orange SA 2,150,490 19,951
* France Telecom SA 665,270 16,507
LVMH Louis Vuitton Moet Hennessy 273,000 16,410
Pernod Ricard SA 174,175 14,945
Vinci SA 177,000 11,485
Essilor International SA 250,490 10,176
* JCDecaux SA 230,000 3,061
-----------
662,798
-----------
GERMANY (2.9%)
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered) 689,000 70,502
BASF AG 669,000 30,805
SAP AG 213,410 25,610
Deutsche Boerse AG 435,500 21,053
Porsche AG 43,120 18,369
Bayerische Motoren Werke AG 413,000 16,319
Adidas-Salomon AG 105,420 8,828
-----------
191,486
-----------
GREECE (0.1%)
Greek Organization of Football Prognostics 601,481 7,158
-----------
HONG KONG (3.4%)
Swire Pacific Ltd. A Shares 12,787,000 71,810
Sun Hung Kai Properties Ltd. 8,042,000 58,000
Wharf Holdings Ltd. 8,046,000 18,879
Johnson Electric Holdings Ltd. 11,181,000 17,418
Esprit Holdings Ltd. 6,660,000 16,566
Television Broadcasts Ltd. 3,878,833 16,362
Hang Seng Bank Ltd. 1,000,000 11,091
Cheung Kong Holdings Ltd. 995,000 7,718
Boc Hong Kong Holdings Ltd. 4,535,500 5,815
-----------
223,659
-----------
INDIA (0.7%)
*(3)Zee Telefilm Warrants Exp. 5/19/2006 8,315,289 18,551
*(3)Housing Development Finance Corp.
Warrants Exp. 2/10/2006 1,752,000 18,438
*(3)State Bank of India Warrants Exp. 1/5/2006 654,729 6,233
*(3)State Bank of India Warrants Exp. 12/23/2005 414,955 3,975
-----------
47,197
-----------
INDONESIA (0.3%)
PT Gudang Garam Tbk 8,262,846 8,959
PT Hanjaya Mandala Sampoerna Tbk 17,200,000 8,210
-----------
17,169
-----------
IRELAND (3.1%)
Allied Irish Banks PLC 9,148,900 127,668
Bank of Ireland 4,598,000 54,622
* Ryanair Holdings PLC ADR 392,650 16,605
-----------
198,895
-----------
ITALY (2.5%)
* Telecom Italia SpA 50,081,285 117,668
ENI SpA 1,836,300 27,741
Riunione Adriatica di Sicurta SpA 1,156,280 16,630
-----------
162,039
-----------
ISRAEL (0.4%)
Teva Pharmaceutical Industries Ltd. Sponsored ADR 440,100 25,839
-----------
JAPAN (19.0%)
Toyota Motor Corp. 4,393,500 121,247
Mitsui & Co., Ltd. 18,655,000 119,112
Ricoh Co. 6,227,000 114,742
Takeda Chemical Industries Ltd. 2,905,100 105,070
Murata Manufacturing Co., Ltd. 1,535,000 86,301
East Japan Railway Co. 15,400 65,069
Rohm Co., Ltd. 458,000 59,821
Mabuchi Motor Co. 696,100 58,764
Bridgestone Corp. 3,725,000 51,878
Sumitomo Electric Industries Ltd. 4,591,000 40,055
Sankyo Co., Ltd. 815,400 26,695
Nippon Television Network Corp. 170,640 26,134
Nippon Unipac Holding 5,700 26,087
Yamanouchi Pharmaceuticals Co., Ltd. 900,000 23,603
SMC Corp. 211,600 23,539
NTT DoCoMo, Inc. 8,489 21,826
Konica Minolta Holdings, Inc. 1,562,000 21,406
Canon, Inc. 401,000 19,280
Kyocera Corp. 289,900 18,634
Kao Corp. 890,000 16,781
Mitsui Sumitomo Insurance Co. 2,773,000 16,565
Mitsubishi Electric Corp. 4,000,000 16,421
NGK Spark Plug Co. 1,775,000 16,323
Shin-Etsu Chemical Co., Ltd. 401,300 15,752
Keyence Corp. 73,600 15,372
Omron Corp. 721,000 14,676
Asahi Glass Co., Ltd. 1,911,000 13,430
Japan Tobacco, Inc. 2,279 13,321
Hirose Electric Co., Ltd. 117,900 12,621
Tokyu Corp. 3,340,000 11,651
18
- --------------------------------------------------------------------------------
MARKET
VALUE^
SHARES (000)
- --------------------------------------------------------------------------------
Brother Industries Ltd. 1,308,000 11,603
Nippon Telegraph and Telephone Corp. 2,547 11,220
Fuji Photo Film Co., Ltd. 304,000 9,119
Alps Electric Co., Ltd. 535,000 9,097
-----------
1,233,215
-----------
MEXICO (1.1%)
* Grupo Financiero BBVA Bancomer, SA de CV Class B 42,210,425 34,279
Telefonos de Mexico SA Class L ADR 805,000 24,400
America Movil SA de CV Series L ADR 681,000 15,663
-----------
74,342
-----------
NETHERLANDS (4.0%)
TPG NV 3,380,000 63,086
Aegon NV 4,942,920 61,215
Unilever NV 524,000 29,168
Wolters Kluwer NV 1,834,000 28,532
* Koninklijke Numico NV 1,331,573 25,833
Verenigde Nederlandse Uitgeversbedrijven NV 582,590 18,102
* ASML Holding NV 1,009,000 15,897
Reed Elsevier NV 898,300 9,902
Oce NV 694,166 8,947
-----------
260,682
-----------
NEW ZEALAND (0.1%)
Telecom Corp. of New Zealand Ltd. 1,226,200 3,574
-----------
RUSSIA (0.3%)
* OAO Lukoil Holding Sponsored ADR 243,200 19,018
-----------
SINGAPORE (1.0%)
Singapore Press Holdings Ltd. 2,830,486 30,196
United Overseas Bank Ltd. 2,854,000 20,678
Great Eastern Holdings Ltd. 1,234,000 7,251
Venture Corporation Ltd. 582,000 6,707
-----------
64,832
-----------
SOUTH AFRICA (0.2%)
Sasol Ltd. 886,000 10,274
Anglo American Platinum Corp. 136,600 5,075
-----------
15,349
-----------
SOUTH KOREA (6.0%)
Samsung Electronics Co., Ltd. 706,142 260,702
Kookmin Bank 700,000 25,517
Hyundai Motor Co. Ltd. 753,000 25,052
Samsung Fire & Marine Insurance Co. 445,000 24,549
Koram Bank 1,950,000 19,694
Shinsegae Co. Ltd. 100,000 17,738
Shinhan Financial Group Ltd. 1,000,000 13,579
(3)KT & G Corporation GDR 719,800 5,888
-----------
392,719
-----------
SPAIN (1.0%)
Bankinter SA 1,022,000 34,335
Altadis SA 647,100 15,275
Banco Popular Espanol SA 285,290 12,842
-----------
62,452
-----------
SWEDEN (2.9%)
Svenska Handelsbanken AB A Shares 2,934,000 46,495
Electrolux AB Series B 1,679,000 37,451
Skandinaviska Enskilda Banken AB A Shares 3,614,000 34,579
Assa Abloy AB 3,290,000 29,118
Atlas Copco AB A Shares 712,790 21,312
* Telefonaktiebolaget LM Ericsson AB Class B 12,641,200 19,352
-----------
188,307
-----------
SWITZERLAND (7.2%)
Nestle SA (Registered) 619,000 134,803
Credit Suisse Group (Registered) 3,210,321 100,285
Cie. Financiere Richemont AG 2,344,000 44,854
Zurich Financial Services AG 321,000 41,256
Adecco SA (Registered) 768,870 38,868
Syngenta AG 559,000 30,733
Novartis AG (Registered) 624,780 22,974
Swiss Re (Registered) 312,080 19,163
Holcim Ltd. (Registered) 432,550 17,141
UBS AG 310,360 16,742
-----------
466,819
-----------
TAIWAN (2.6%)
Taiwan Semiconductor Manufacturing Co., Ltd. 35,188,560 69,021
Hon Hai Precision Industry Co., Ltd. 12,417,600 51,258
Acer Inc. 16,549,500 24,467
* Siliconware Precision Industries Co. 27,092,000 22,525
-----------
167,271
-----------
UNITED KINGDOM (22.3%)
Vodafone Group PLC 81,176,000 148,623
Tesco PLC 42,167,983 144,071
Royal Bank of Scotland Group PLC 5,701,600 141,952
Compass Group PLC 15,729,000 87,140
Kingfisher PLC 18,856,375 81,127
GKN PLC 14,105,000 58,510
BG Group PLC 13,048,000 56,292
19
- --------------------------------------------------------------------------------
MARKET
VALUE^
INTERNATIONAL GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
* British Sky Broadcasting Group PLC 4,988,000 52,230
GlaxoSmithKline PLC 2,192,000 41,849
Reckitt Benckiser PLC 2,215,000 41,693
AstraZeneca Group PLC 1,078,000 41,435
HBOS PLC 3,429,000 38,184
IMI PLC 7,148,000 37,650
Standard Chartered PLC 2,794,000 37,388
Smith & Nephew PLC 5,725,472 36,769
Bunzl PLC 4,751,000 34,569
Enterprise Inns PLC 2,554,000 34,338
Johnson Matthey PLC 1,791,562 27,814
Provident Financial PLC 2,638,000 26,663
Dixons Group PLC 10,731,000 23,381
Abbey National PLC 2,471,000 20,598
Centrica PLC 7,179,000 20,184
HSBC Holdings PLC 1,505,000 19,354
Diageo PLC 1,790,000 19,196
Reuters Group PLC 4,762,000 18,643
Rexam PLC 2,759,000 17,882
* Kesa Electricals PLC 5,042,600 17,827
Imperial Tobacco Group PLC 1,027,000 16,050
Barclays PLC 1,957,000 14,239
Carnival PLC 429,030 13,946
Cadbury Schweppes PLC 1,976,000 11,940
Man Group PLC 588,000 11,421
Aviva PLC 1,406,000 11,153
British American Tobacco PLC 1,069,000 10,805
Capita Group PLC 2,434,000 9,288
Debenhams PLC 1,295,587 8,863
* Celltech Group PLC 1,630,000 8,605
LogicaCMG PLC 1,928,450 6,108
-----------
1,447,780
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $5,630,580) 6,340,281
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (10.9%)(1)
- --------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSN.
(2)0.98%, 10/1/2003 $ 15,000 14,988
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
1.05%, 9/2/2003 166,618 166,618
1.06%, 9/2/2003--Note G 524,353 524,353
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $705,959) 705,959
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (108.4%)
(Cost $6,336,539) 7,046,240
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-8.4%)
- --------------------------------------------------------------------------------
Other Assets--Note C 30,169
Security Lending Collateral
Payable to Brokers--Note G (524,353)
Other Liabilities (50,211)
-----------
(544,395)
-----------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $6,501,845
================================================================================
^See Note A in Notes to Financial Statements.
*Non-income-producing security.
(1)The fund invests a portion of its cash reserves in equity markets through the
use of index futures contracts. After giving effect to futures investments, the
fund's effective common stock and temporary cash investment positions represent
99.7% and 8.7%, respectively, of net assets. See Note E in Notes to Financial
Statements.
(2)Security segregated as initial margin for open futures contracts.
(3)Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At August 31, 2003, the aggregate
value of these securities was $53,085,000, representing 0.8% of net assets.
ADR--American Depositary Receipt.
GDR--Global Depositary Receipt.
20
- ------------------------------------------------------------------
AMOUNT
(000)
- ------------------------------------------------------------------
AT AUGUST 31, 2003, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
Paid-in Capital $7,116,320
Undistributed Net Investment Income 75,076
Accumulated Net Realized Losses (1,399,749)
Unrealized Appreciation (Depreciation)
Investment Securities 709,701
Futures Contracts 6,034
Foreign Currencies and Forward Currency Contracts (5,537)
- ------------------------------------------------------------------
NET ASSETS $6,501,845
==================================================================
Investor Shares--Net Assets
Applicable to 389,735,631 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $5,458,306
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE--INVESTOR SHARES $14.01
==================================================================
Admiral Shares--Net Assets
Applicable to 23,415,624 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $1,043,539
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE--ADMIRAL SHARES $44.57
==================================================================
See Note E in Notes to Financial Statements for the tax-basis
components of net assets.
21
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
YEAR ENDED AUGUST 31, 2003
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends* $ 122,298
Interest 4,654
Security Lending 2,571
- --------------------------------------------------------------------------------
Total Income 129,523
- --------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 7,728
Performance Adjustment 526
The Vanguard Group--Note C
Management and Administrative
Investor Shares 22,977
Admiral Shares 2,806
Marketing and Distribution
Investor Shares 909
Admiral Shares 142
Custodian Fees 2,821
Auditing Fees 20
Shareholders' Reports and Proxies
Investor Shares 385
Admiral Shares 6
Trustees' Fees and Expenses 11
- --------------------------------------------------------------------------------
Total Expenses 38,331
Expenses Paid Indirectly--Note D (1,849)
- --------------------------------------------------------------------------------
Net Expenses 36,482
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 93,041
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (929,664)
Futures Contracts 18,928
Foreign Currencies and Forward Currency Contracts 162,329
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (748,407)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 1,287,507
Futures Contracts 6,034
Foreign Currencies and Forward Currency Contracts (14,837)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 1,278,704
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 623,338
================================================================================
*Dividends are net of foreign withholding taxes of $8,334,000.
22
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the net amount shareholders invested in
or redeemed from the fund. Distributions and Capital Share Transactions are
shown separately for each class of shares.
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
---------------------------
YEAR YEAR
ENDED ENDED
AUG. 31, 2003 AUG. 31, 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 93,041 $ 86,037
Realized Net Gain (Loss) (748,407) (701,711)
Change in Unrealized Appreciation (Depreciation) 1,278,704 (342,767)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 623,338 (958,441)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (70,275) (96,756)
Admiral Shares (14,773) (12,361)
Realized Capital Gain
Investor Shares -- (16,126)
Admiral Shares -- (2,021)
- --------------------------------------------------------------------------------
Total Distributions (85,048) (127,264)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--Note H
Investor Shares 80,206 (567,520)
Admiral Shares 57,502 536,528
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 137,708 (30,992)
- --------------------------------------------------------------------------------
Total Increase (Decrease) 675,998 (1,116,697)
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 5,825,847 6,942,544
- --------------------------------------------------------------------------------
End of Period $6,501,845 $5,825,847
================================================================================
23
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
INTERNATIONAL GROWTH FUND INVESTOR SHARES
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.97 $15.41 $22.23 $19.75 $16.57
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .19 .19 .23 .26 .27
Net Realized and Unrealized Gain (Loss) on Investments 1.03 (2.35) (5.41) 3.38 3.29
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.22 (2.16) (5.18) 3.64 3.56
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.18) (.24) (.22) (.26) (.22)
Distributions from Realized Capital Gains -- (.04) (1.42) (.90) (.16)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (.18) (.28) (1.64) (1.16) (.38)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.01 $12.97 $15.41 $22.23 $19.75
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN* 9.62% -14.20% -24.49% 18.68% 21.70%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $5,458 $4,930 $6,447 $10,144 $8,000
Ratio of Total Expenses to Average Net Assets 0.69% 0.67% 0.61% 0.53% 0.58%
Ratio of Net Investment Income to Average Net Assets 1.57% 1.28% 1.19% 1.26% 1.42%
Portfolio Turnover Rate 59% 40% 48% 48% 37%
========================================================================================================================
*Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
24
INTERNATIONAL GROWTH FUND ADMIRAL SHARES
===============================================================================================
YEAR ENDED YEAR ENDED AUG. 13* TO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIODAUG. 31, 2003 AUG. 31, 2002 AUG. 31, 2001
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $41.27 $49.02 $50.00
- -----------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .681 .677 .07
Net Realized and Unrealized Gain (Loss)
on Investments 3.264 (7.502) (1.05)
- -----------------------------------------------------------------------------------------------
Total from Investment Operations 3.945 (6.825) (.98)
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.645) (.795) --
Distributions from Realized Capital Gains -- (.130) --
- -----------------------------------------------------------------------------------------------
Total Distributions (.645) (.925) --
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $44.57 $41.27 $49.02
- -----------------------------------------------------------------------------------------------
TOTAL RETURN** 9.80% -14.12% -1.96%
- -----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,044 $895 $495
Ratio of Total Expenses to Average Net Assets 0.51% 0.54% 0.54%+
Ratio of Net Investment Income to Average Net Assets 1.76% 1.53% 2.50%+
Portfolio Turnover Rate 59% 40% 48%
===============================================================================================
*Inception.
**Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
+Annualized.
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
NOTES TO FINANCIAL STATEMENTS
Vanguard International Growth Fund is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund. The fund invests
in securities of foreign issuers, which may subject it to investment risks not
normally associated with investing in securities of United States corporations.
The fund offers two classes of shares, Investor Shares and Admiral Shares.
Investor Shares are available to any investor who meets the fund's minimum
purchase requirements. Admiral Shares are designed for investors who meet
certain administrative, servicing, tenure, and account-size criteria.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. The fund consistently follows such
policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the
New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund's pricing time but after the close of the securities'
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Temporary cash investments acquired over 60 days to
maturity are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and ratings), both as furnished by independent pricing services.
Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. Foreign Currency: Securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollars at the exchange rates on the
valuation date as employed by Morgan Stanley Capital International in the
calculation of its indexes.
Realized gains (losses) and unrealized appreciation (depreciation) on investment
securities include the effects of changes in exchange rates since the securities
were purchased, combined with the effects of changes in security prices.
Fluctuations in the value of other assets and liabilities resulting from changes
in exchange rates are recorded as unrealized foreign currency gains (losses)
until the asset or liability is settled in cash, when they are recorded as
realized foreign currency gains (losses).
3. Futures and Forward Currency Contracts: The fund uses S&P ASX 200 Index, Dow
Jones EURO STOXX 50 Index, FTSE 100 Index, and Topix Index futures contracts to
a limited extent, with the objective of maintaining exposure to the European and
Pacific stock markets while maintaining liquidity. The fund may purchase or sell
futures contracts to achieve a desired level of investment, whether to
accommodate portfolio turnover or cash flows from capital share transactions.
The primary risks associated with the use of futures contracts are imperfect
correlation between changes in market values of stocks held by the portfolio and
the prices of futures contracts, and the possibility of an illiquid market.
The fund also enters into forward currency contracts to protect the value of
securities and related receivables and payables against changes in future
foreign exchange rates, or to provide the appropriate currency exposure related
to any open futures contracts. The fund's risks in using these contracts include
movement in the values of the foreign currencies relative to the U.S. dollar and
the ability of the counterparties to fulfill their obligations under the
contracts.
Futures and forward currency contracts are valued at their quoted daily
settlement prices. The aggregate principal amounts of the contracts are not
recorded in the financial statements. Fluctuations in the value of the contracts
are recorded in the Statement of Net Assets as an asset (liability) and in the
Statement of Operations as unrealized appreciation (depreciation) until the
contracts are closed, when they are recorded as realized gains (losses) on
futures or forward currency contracts.
26
4. Repurchase Agreements: The fund, along with other members of The Vanguard
Group, transfers uninvested cash balances to a pooled cash account, which is
invested in repurchase agreements secured by U.S. government securities.
Securities pledged as collateral for repurchase agreements are held by a
custodian bank until the agreements mature. Each agreement requires that the
market value of the collateral be sufficient to cover payments of interest and
principal; however, in the event of default or bankruptcy by the other party to
the agreement, retention of the collateral may be subject to legal proceedings.
5. Federal Income Taxes: The fund intends to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for federal income taxes is required in the financial statements.
6. Distributions: Distributions to shareholders are recorded on the ex-dividend
date.
7. Other: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold. Fees assessed on redemptions of
capital shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that
each class separately bears certain class-specific expenses related to
maintenance of shareholder accounts (included in Management and Administrative
expenses), shareholder reporting, and proxies. Marketing and distribution
expenses are allocated to each class of shares based on a method approved by the
board of trustees. Income, other non-class-specific expenses, and gains and
losses on investments are allocated to each class of shares based on its
relative net assets.
B. Schroder Investment Management North America Inc. and, beginning February 6,
2003, Baillie Gifford Overseas Ltd. each provide investment advisory services to
a portion of the fund for a fee calculated at an annual percentage rate of
average net assets managed by the advisor. The basic fee of Schroder Investment
Management North America Inc. is subject to quarterly adjustments based on
performance for the preceding three years relative to the Morgan Stanley Capital
International Europe, Australasia, Far East Index. In accordance with the
advisory contract entered into with Baillie Gifford Overseas Ltd. in February
2003, the investment advisory fee will be subject to quarterly adjustments based
on performance relative to the Morgan Stanley Capital International Europe,
Australasia, Far East Index beginning December 1, 2003.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the year ended August 31, 2003, the aggregate investment advisory fee
represented an effective annual basic rate of 0.13% of the fund's average net
assets, before an increase of $526,000 (0.01%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the fund under methods approved by the board of trustees. The fund has
committed to provide up to 0.40% of its net assets in capital contributions to
Vanguard. At August 31, 2003, the fund had contributed capital of $1,088,000 to
Vanguard (included in Other Assets), representing 0.02% of the fund's net assets
and 1.09% of Vanguard's capitalization. The fund's trustees and officers are
also directors and officers of Vanguard.
D. The fund has asked its investment advisors to direct certain security trades,
subject to obtaining the best price and execution, to brokers who have agreed to
rebate to the fund part of the commissions generated. Such rebates are used
solely to reduce the fund's management and administrative expenses.
27
NOTES TO FINANCIAL STATEMENTS (continued)
The fund's custodian bank has also agreed to reduce its fees when the fund
maintains cash on deposit in the non-interest-bearing custody account. For the
year ended August 31, 2003, directed brokerage and custodian fee offset
arrangements reduced expenses by $1,844,000 and $5,000, respectively. The total
expense reduction represented an effective annual rate of 0.03% of the fund's
average net assets.
E. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2003, the fund realized net foreign currency
losses of $2,596,000, which decreased distributable net income for tax purposes;
accordingly, such losses have been reclassified from accumulated net realized
losses to undistributed net investment income.
For tax purposes, at August 31, 2003, the fund had $88,217,000 of ordinary
income available for distribution. The fund had available realized losses of
$1,405,609,000 to offset future net capital gains of $233,177,000 through August
31, 2010, $709,774,000 through August 31, 2011, and $462,658,000 through August
31, 2012.
At August 31, 2003, net unrealized appreciation of investment securities for tax
purposes was $709,701,000, consisting of unrealized gains of $990,635,000 on
securities that had risen in value since their purchase and $280,934,000 in
unrealized losses on securities that had fallen in value since their purchase.
At August 31, 2003, the aggregate settlement value of open futures contracts
expiring in September 2003 and the related unrealized appreciation were:
- --------------------------------------------------------------------------------
(000)
-----------------------------
AGGREGATE UNREALIZED
NUMBER OF SETTLEMENT APPRECIATION
FUTURES CONTRACTS LONG CONTRACTS VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
S&P ASX 200 Index 244 $12,618 $ 411
Dow Jones EURO STOXX 50 Index 1,886 53,096 1,861
FTSE 100 Index 652 42,861 317
Topix Index 360 30,912 3,445
- --------------------------------------------------------------------------------
28
At August 31, 2003, the fund had open forward currency contracts to receive and
deliver currencies as follows:
- --------------------------------------------------------------------------------
(000)
--------------------------------------------------
CONTRACT AMOUNT UNREALIZED
---------------------------------- APPRECIATION
CONTRACT SETTLEMENT DATE RECEIVE DELIVER (DEPRECIATION)
- --------------------------------------------------------------------------------
9/22/2003 AUD 19,331 USD 12,482 $ (360)
9/24/2003 EUR 48,847 USD 53,590 (3,115)
9/24/2003 GBP 27,586 USD 43,559 (2,110)
9/18/2003 JPY 3,621,600 USD 31,059 253
- --------------------------------------------------------------------------------
AUD--Australian dollar.
EUR--Euro.
GBP--British pound.
JPY--Japanese yen.
USD--U.S. dollar.
Unrealized appreciation (depreciation) on open forward currency contracts is
treated as realized gain (loss) for tax purposes.
The fund had net unrealized foreign currency losses of $205,000 resulting from
the translation of other assets and liabilities at August 31, 2003.
F. During the year ended August 31, 2003, the fund purchased $3,712,983,000 of
investment securities and sold $3,221,346,000 of investment securities other
than temporary cash investments.
G. The market value of securities on loan to broker/dealers at August 31, 2003,
was $498,867,000, for which the fund held cash collateral of $524,353,000. The
fund invests cash collateral received in repurchase agreements, and records a
liability for the return of the collateral, during the period the securities are
on loan.
H. Capital share transactions for each class of shares were:
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------------
2003 2002
------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
Investor Shares
Issued $ 2,142,681 176,255 $ 2,682,592 187,641
Issued in Lieu of Cash
Distributions 66,589 5,481 106,337 7,354
Redeemed* (2,129,064) (172,227) (3,356,449) (233,074)
----------------------------------------------------
Net Increase (Decrease)
--Investor Shares 80,206 9,509 (567,520) (38,079)
----------------------------------------------------
Admiral Shares
Issued $ 833,188 21,460 $ 807,636 17,599
Issued in Lieu of Cash
Distributions 12,565 326 12,609 274
Redeemed* (788,251) (20,067) (283,717) (6,277)
----------------------------------------------------
Net Increase (Decrease)
--Admiral Shares 57,502 1,719 536,528 11,596
- --------------------------------------------------------------------------------
*Net of redemption fees of $216,000 for 2003 (fund total). The fund did not
assess redemption fees in 2002.
29
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of Vanguard International Growth Fund:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard International Growth Fund (the "Fund") at August 31, 2003, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at August 31, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 7, 2003
30
- --------------------------------------------------------------------------------
SPECIAL 2003 TAX INFORMATION
(UNAUDITED) FOR VANGUARD INTERNATIONAL GROWTH FUND
This information for the fiscal year ended August 31, 2003, is included pursuant
to provisions of the Internal Revenue Code.
The fund has elected to pass through to shareholders taxes paid in foreign
countries. The foreign income and foreign tax paid per share outstanding on
August 31, 2003, are as follows:
- -----------------------------------------------------------
GROSS
FOREIGN FOREIGN
COUNTRY DIVIDENDS TAX
- -----------------------------------------------------------
Australia 0.0046 0.0000
Belgium 0.0028 0.0001
Brazil 0.0023 0.0002
Denmark 0.0030 0.0000
Finland 0.0021 0.0000
France 0.0471 0.0016
Germany 0.0015 0.0000
Hong Kong 0.0161 0.0000
India 0.0003 0.0000
Indonesia 0.0017 0.0002
Ireland 0.0180 0.0000
Israel 0.0001 0.0000
Italy 0.0108 0.0000
Japan 0.0193 0.0017
Mexico 0.0028 0.0000
Netherlands 0.0181 0.0016
New Zealand 0.0002 0.0000
Portugal 0.0005 0.0001
Russia 0.0008 0.0000
Singapore 0.0086 0.0017
South Africa 0.0005 0.0000
South Korea 0.0152 0.0032
Spain 0.0070 0.0002
Sweden 0.0117 0.0000
Switzerland 0.0135 0.0002
Taiwan 0.0026 0.0004
United Kingdom 0.1025 0.0063
- -----------------------------------------------------------
The pass-through of foreign taxes paid will affect only shareholders on the
dividend record date in December 2003. Shareholders will receive more detailed
information along with their Form 1099-DIV in January 2004.
The fund intends to distribute the maximum amount of qualified dividend income
allowable. The amount of qualified dividend income distributed by the fund will
be provided to individual shareholders on their 2003 Form 1099-DIV.
- --------------------------------------------------------------------------------
31
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services
to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
- ------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee
(1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(112)
- ------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (112) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (112) Chairman (JanuarySeptember 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
- ------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (112) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
- ------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (110) Director of Vanguard Investment Series plc (Irish invest-ment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------
J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (112) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (112) investment companies served by The Vanguard Group.
July 1998
- ------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------
[SHIP]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600
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All other marks are the exclusive property of their respective owners.
ABOUT OUR COVER
The photographs that appear on the cover of this report are copyrighted by
Michael Kahn.
FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
To receive a free copy of the prospectus or the Statement of Additional
Information, or to request additional information about the fund or other
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website, www.vanguard.com, and searching for "proxy voting guidelines," or by
calling 1-800-662-2739. The guidelines are also available from the SEC's
website, www.sec.gov.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
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(C) 2003 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
Q810 102003
VANGUARD(R) CALVERT SOCIAL INDEX FUND
AUGUST 31, 2003
[GRAPHIC]
ANNUAL REPORT
THE VANGUARD GROUP(R)LOGO
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, you'll get an understanding of
how the fund invests and how the market environment affected its performance.
The statistical information that follows can help you understand how the fund's
performance and characteristics stack up against those of similar funds and
market benchmarks.
It's important to keep in mind that the opinions expressed by Vanguard's
investment managers are just that: informed opinions. They should not be
considered promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. As things change--and in
the financial markets you can be certain only of change--the investment
manager's job is to evaluate new information and make adjustments, if necessary.
Of course, the risks of investing in the fund are spelled out in the prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com.
- --------------------------------------------------------------------------------
CONTENTS
1. letter from the chairman
6. fund profile
7. glossary of investment terms
8. performance summary
10. your fund's after-tax returns
11. about your fund expenses
12. financial statements
28. advantages of vanguard.com
- --------------------------------------------------------------------------------
SUMMARY
* The Investor Shares of Vanguard Calvert Social Index Fund returned 15.3%
during the 2003 fiscal year.
* The fund's performance was in line with the 15.6% rise in its unmanaged
target index and significantly better than the 12.5% gain posted by the
average large-cap growth fund.
* The fund's technology, health care, and consumer discretionary holdings
earned solid returns as a postwar rally boosted returns across all U.S.
stock sectors.
- --------------------------------------------------------------------------------
WANT LESS CLUTTER IN YOUR MAILBOX? JUST REGISTER WITH VANGUARD.COM AND OPT TO
GET FUND REPORTS ONLINE.
FELLOW SHAREHOLDER,
The Investor Shares of Vanguard Calvert Social Index Fund returned 15.3% during
the fiscal year ended August 31, 2003, as the U.S. stock market regained vigor.
The fund closely tracked the performance of its target, the Calvert Social
Index, and outpaced its average mutual fund peer.
[PICTURES OF JOHN J. BRENNAN]
- -----------------------------------------------------------
2003 TOTAL RETURNS FISCAL YEAR ENDED
AUGUST 31
- -----------------------------------------------------------
VANGUARD CALVERT SOCIAL INDEX FUND
Investor Shares 15.3%
Institutional Shares 10.6*
Calvert Social Index 15.6
Average Large-Cap Growth Fund** 12.5
Wilshire 5000 Index 14.9
- -----------------------------------------------------------
*Return since inception, January 14, 2003.
**Derived from data provided by Lipper Inc.
The adjacent table presents the 12-month total return (capital change plus
reinvested dividends) for your fund's Investor Shares along with those of its
comparative standards: the average competitor, the Calvert Social Index, and the
Wilshire 5000 Total Market Index, a proxy for the broad U.S. stock market. The
table also includes the return for the fund's Institutional Shares, which
require a minimum investment of $10 million and were first offered on January
14.
Details on changes in the fund's net asset values, along with its income
distributions to shareholders, appear in the table on page 5. If you own
Vanguard Calvert Social Index Fund in a taxable account, you may wish to review
our report on the fund's after-tax returns on page 10.
DISMAL AT THE START, THE STOCK MARKET PERKED UP
A slumping economy, weak corporate profits, and growing geopolitical tensions
weighed heavily on the stock market as our fiscal year began, and a two-month
rally from mid-October quickly ran out of steam. However, following the
successful conclusion of major combat operations in Iraq, a distinctly upbeat
mood began to permeate the
1
marketplace. Stock prices began to rebound across capitalizations and industry
sectors in response to solid corporate earnings announcements and a slew of
positive economic reports.
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
This class of shares carries lower expenses and is available for a minimum
investment of $10 Million.
- --------------------------------------------------------------------------------
The U.S. stock market, as measured by the Wilshire 5000 Index, returned
14.9% for the fiscal year. Technology and other growth-oriented stocks, which
had sustained massive losses during the past few years, were among the most
impressive gainers. The market's smaller stocks outpaced larger issues,
demonstrating investors' renewed appetite for risk.
U.S. investors were rewarded with good returns in many international markets as
well, although stock performance was only part of the story. The weakening of
the U.S. dollar by almost 10% relative to the euro and Japanese yen transformed
results that were mediocre by local-currency standards into strong
dollar-denominated returns.
INTEREST RATES FELL FOR MONTHS, THEN BOUNCED BACK A BIT
In the bond market, the fiscal year was marked by two distinctly different
phases. Prior to mid-June, the lethargic economy and on-going flight from
equities to bonds drove the prices of bonds higher and their yields lower. The
yield of the benchmark 10-year U.S. Treasury note dropped to a 45-year low of
3.11% on June 13. After that point, however, longer-term interest rates rose
rapidly, with the yield of the 10-year note standing at 4.46% on August 31. For
the 12 months, the Lehman Brothers Aggregate Bond Index, a measure of the
taxable investment-grade bond market, provided a total return of 4.4%.
- ------------------------------------------------------------------------------
MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
----------------------------------
ONE THREE FIVE
YEAR YEARS YEARS
- ------------------------------------------------------------------------------
STOCKS
Russell 1000 Index (Large-caps) 12.9% -11.4% 3.1%
Russell 2000 Index (Small-caps) 29.1 -1.2 9.5
Wilshire 5000 Index (Entire market) 14.9 -10.7 3.5
MSCI All Country World Index Free
ex USA (International) 12.2 -10.0 1.1
- ------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.4% 8.2% 6.6%
(Broad taxable market)
Lehman Municipal Bond Index 3.1 6.5 5.3
Citigroup 3-Month Treasury Bill Index 1.3 2.9 3.8
==============================================================================
CPI
Consumer Price Index 2.2% 2.2% 2.5%
- ------------------------------------------------------------------------------
Corporate bonds outperformed Treasuries across all maturities. High-
2
yield corporate bonds performed spectacularly--the Lehman High Yield Index,
which tracks the performance of bonds issued by com-panies with low credit
ratings, returned 24.9% for the period.
Short-term interest rates generally declined for the 12 months, but rose
somewhat toward the end. In an effort to add fuel to the economic recovery, the
Federal Reserve Board trimmed its target for the federal funds rate twice--in
November 2002 and June 2003--by a total of 75 basis points (0.75 percentage
point). The rate stood at 1.00% at the fiscal year-end. The yield of the 3-month
Treasury bill, which typically lags Fed moves, began the fiscal year at 1.67%
and closed at 0.97% after falling to 0.81% in mid-June.
FOR THE FUND, A STRONG SECOND HALF FOLLOWED A POOR START
The performance of Vanguard Calvert Social Index Fund reflected the starkly
different moods in the stock market during the first and second halves of the
fiscal year. From August 31, 2002, through February 28, 2003, the fund's
Investor Shares returned -5.7%. During the second half of the year, they gained
22.2%.
The turnaround in the fund's performance mirrored the strong post-war resurgence
of the overall market. Stocks of companies in the technology, health care, and
consumer discretionary sectors--which together accounted for 55% of the fund's
assets at the fiscal year-end-- posted strong results and were among the largest
contributors to the fund's return.
The contribution of technology stocks to the fund's success is particularly
noteworthy, as these stocks severely hampered performance in 2001 and 2002. For
2003, the fund's tech holdings rose more than 32%. The fund's relatively large
allocation to such stocks, in both up markets and down, results from the social
screens of the target Calvert Social Index. The index criteria exclude many
companies in older industries that generally fall into the value stock category,
thus producing a lineup with a tilt toward growth sectors such as technology.
Also boosting performance was a rebound in financial services stocks, the fund's
largest sector at 29% of assets. These stocks experienced steep losses early in
the fiscal year, when investors were repelled by headlines about accounting and
management misdeeds, but the group recovered to gain about 7% for the full 12
months.
3
THE FUND'S RECORD SINCE INCEPTION REFLECTS A TOUGH MARKET
Vanguard Calvert Social Index Fund began operations on May 31, 2000, just after
the onset of what proved to be a severe three-year downturn in the U.S. stock
market. As a result, the fund's since-inception performance is quite
disappointing. Viewed in context, however, things look a bit better. As the
chart at left shows, the fund has met its mandate to closely track the total
return of the Calvert Social Index and has fared significantly better--that is,
lost less--than the average large-cap growth fund. An initial investment of
$10,000 in the fund would have been worth $6,994 on August 31, while the same
investment in the average peer would have resulted in some $1,100 less.
- ------------------------------------------------------------------------------
TOTAL RETURNS MAY 31, 2000,*
TO AUGUST 31, 2003
- ------------------------------------------------------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- ------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares -10.4% $6,994
Calvert Social Index -10.3 7,013
Average Large-Cap
Growth Fund -15.3 5,835
Wilshire 5000 Index -7.3 7,825
- ------------------------------------------------------------------------------
*Fund inception.
Through both good and bad markets, one factor that enhances your fund's
long-term competitiveness is its low operating costs. During fiscal 2003, for
example, the fund's Investor Shares had an expense ratio (operating expenses as
a percentage of average net assets) of 0.25%, or $2.50 per $1,000 invested--just
a fraction of the 1.57%, or $15.70 per $1,000 invested, charged by the average
large-cap growth fund. Our Institutional Shares enjoyed an even lower expense
ratio of 0.12% (annualized since inception on January 14). Over time, these low
costs mean that more of your fund's returns stay in your account, where they can
keep working for you.
KEEP YOUR FOCUS ON A LONG-TERM INVESTMENT PLAN
The stock market looked more enticing in the past few months than it had in a
long time. Does that mean we should expect even better things to come? Is now
the "right" time to put more assets in stocks?
The truth is that not even the most skilled market-watcher can answer those
questions. Nobody knows what the future holds for any asset class. That's why
Vanguard has always advocated a balanced, long-term investment approach that
includes a mix of stock, bond, and money market funds appropriate for your
unique goals, financial circumstances, and risk tolerance. Vanguard Calvert
Social Index
4
Fund, which exemplifies both the principles of socially screened investing and
the benefits of indexing--broad diversification, tax efficiency, and low
costs--can serve a role in such a portfolio.
Thank you for your continued confidence in Vanguard.
Sincerely,
/S/JOHN J. BRENNAN
John J. Brennan
chairman and chief executive officer
SEPTEMBER 15, 2003
- --------------------------------------------------------------------------------
YOUR FUND'S PERFORMANCE AT A GLANCE AUGUST 31, 2002-AUGUST 31, 2003
DISTRIBUTIONS PER SHARE
---------------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares $6.02 $6.87 $0.06 $0.00
Institutional Shares* 6.22 6.88 0.00 0.00
- --------------------------------------------------------------------------------
*Since inception, January 14, 2003.
5
FUND PROFILE As of 8/31/2003
This Profile provides a snapshot of the fund's characteristics, compared where
appropriate with both its unmanaged target index and a broad market index. Key
terms are defined on page 7.
CALVERT SOCIAL INDEX FUND
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- -------------------------------------------------------------------
Number of Stocks 631 629 5,319
Median Market Cap $31.1B $28.7B $26.8B
Price/Earnings Ratio 23.4x 22.7x 21.7x
Price/Book Ratio 3.0x 3.0x 2.8x
Yield 1.3% 1.6%
Investor Shares 1.2%
Institutional Shares 1.3%
Return on Equity 16.3% 16.2% 19.9%
Earnings Growth Rate 13.7% 13.9% 7.7%
Foreign Holdings 0.1% 0.1% 0.8%
Turnover Rate 14% -- --
Expense Ratio -- --
Investor Shares 0.25%
Institutional Shares 0.12%+
Cash Investments 0% -- --
- -------------------------------------------------------------------
- -----------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Microsoft Corp. 4.3%
(software)
Pfizer Inc. 4.2
(pharmaceuticals)
Intel Corp. 3.3
(electronics)
Johnson & Johnson 2.6
(pharmaceuticals)
International Business Machines Corp. 2.5
(computer hardware)
American International Group, Inc. 2.4
(insurance)
Cisco Systems, Inc. 2.4
(computer hardware)
Bank of America Corp. 2.1
(banking)
Merck & Co., Inc. 2.0
(pharmaceuticals)
Wells Fargo & Co. 1.5
(banking)
- -----------------------------------------------------
Top Ten 27.3%
- -----------------------------------------------------
- -----------------------------------------------------------
VOLATILITY MEASURES
TARGET BROAD
FUND INDEX* FUND INDEX**
- -----------------------------------------------------------
R-Squared 1.00 1.00 0.97 1.00
Beta 1.00 1.00 1.13 1.00
- -----------------------------------------------------------
The "Ten Largest Holdings" excludes any temporary cash investments and equity
index products.
- ------------------------------
INVESTMENT FOCUS
MARKET CAP Large
STYLE Growth
- ------------------------------
- -------------------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
TARGET BROAD
FUND INDEX* INDEX**
- -------------------------------------------------------------
Auto & Transportation 2% 2% 3%
Consumer Discretionary 13 13 16
Consumer Staples 3 3 7
Financial Services 29 30 22
Health Care 19 18 13
Integrated Oils 0 0 3
Other Energy 1 1 2
Materials & Processing 1 1 4
Producer Durables 4 4 4
Technology 23 23 15
Utilities 5 5 7
Other 0 0 4
- -------------------------------------------------------------
*Calvert Social Index.
**Wilshire 5000 Index.
+Annualized.
VISIT OUR WEBSITE AT
VANGUARD.COM
FOR REGULARLY UPDATED FUND INFORMATION.
6
GLOSSARY OF INVESTMENT TERMS
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the fund's target index or an overall market
index. Each index is assigned a beta of 1.00. Compared with a given index, a
fund with a beta of 1.20 typically would have seen its share price rise or fall
by 12% when the index rose or fell by 10%. However, a fund's beta should be
reviewed in conjunction with its R-squared (see definition below). The lower the
R-squared, the less correlation there is between the fund and the benchmark, and
the less reliable beta is as an indicator of volatility.
- --------------------------------------------------------------------------------
CASH INVESTMENTS. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts or other equity index
products to simulate stock investment.
- --------------------------------------------------------------------------------
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
- --------------------------------------------------------------------------------
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
- --------------------------------------------------------------------------------
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or American Depositary Receipts of companies based outside the United States.
- --------------------------------------------------------------------------------
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by the fund's target index
or by an overall market index. If a fund's total returns were precisely
synchronized with an index's returns, its R-squared would be 1.00. If the fund's
returns bore no relationship to the index's returns, its R-squared would be 0.
- --------------------------------------------------------------------------------
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
- --------------------------------------------------------------------------------
TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and are more likely to distribute
capital gains (which are taxable to investors).
- --------------------------------------------------------------------------------
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
- --------------------------------------------------------------------------------
7
PERFORMANCE SUMMARY AS OF 8/31/2003
All of the returns in this report represent past performance, which cannot be
used to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost. The returns
shown do not reflect taxes that a shareholder would pay on fund distributions or
on the redemption of fund shares.
CALVERT SOCIAL INDEX FUND
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE MAY 31, 2000-AUGUST 31, 2003
CALVERT SOCIAL AVERAGE
INDEX FUND WILSHIRE CALVERT LARGE-CAP
INVESTOR SHARES 5000 INDEX SOCIAL INDEX GROWTH FUND**
5/31/2000 10000 10000 10000 10000
200008 11107 11055 11547 10971
200011 9103 9063 8746 9214
200102 8431 8397 7589 8814
200105 8451 8418 7665 8986
200108 7580 7553 6635 8164
200111 7801 7789 6671 8202
200202 7387 7380 6201 8076
200205 7115 7106 6028 7924
200208 6067 6064 5138 6812
200211 6359 6365 5140 6996
200302 5722 5731 4622 6333
200305 6638 6648 5429 7353
200308 6994 7013 5777 7825
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
-------------------------------- FINAL VALUE
ONE SINCE OF A $10,000
YEAR INCEPTION INVESTMENT
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares* 15.28% -10.42% $6,994
Wilshire 5000 Index 14.87 -7.27 7,825
Calvert Social Index 15.65 -10.34 7,013
Average Large-Cap Growth Fund** 12.45 -15.27 5,835
- --------------------------------------------------------------------------------
FINAL VALUE OF
SINCE A $10,000,000
INCEPTION+ INVESTMENT
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Institutional Shares 10.61% $11,061,093
Wilshire 5000 Index 12.32 11,231,937
Calvert Social Index 10.55 11,055,102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) MAY 31, 2000-AUGUST 31, 2003
CALVERT SOCIAL
INDEX FUND CALVERT
INVESTOR SHARES SOCIAL INDEX
2000 11.2 10.5
2001 -31.8 -31.7
2002 -20 -19.7
2003 15.3 15.6
- --------------------------------------------------------------------------------
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
**Derived from data provided by Lipper Inc.
+January 14, 2003.
Note: See Financial Highlights tables on pages 23 and 24 for dividend and
capital gains information.
8
- --------------------------------------------------------------------------------
Average Annual Total Returns for periods ended June 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
SINCE INCEPTION
ONE -------------------------
INCEPTION DATE YEAR CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares* 5/31/2000 2.89% -12.72% 0.57% -12.15%
Institutional Shares 1/14/2003 6.11** -- -- --
- --------------------------------------------------------------------------------
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
**Return since inception.
9
YOUR FUND'S AFTER-TAX RETURNS
This table presents returns for your fund both before and after taxes. The
after-tax returns are shown in two ways: (1) assuming that an investor owned the
fund during the entire period and paid taxes on the fund's distributions, and
(2) assuming that an investor paid taxes on the fund's distributions and sold
all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital
gains tax rates in effect at the times of the distributions and the hypothetical
sales. State and local taxes were not considered. After-tax returns reflect the
reduced tax rates on ordinary income and short-term capital gains that became
effective as of January 1, 2003, and on long-term capital gains realized on or
after May 6, 2003. However, they do not reflect the reduced rates on "qualified
dividend income."
The table shows returns for Investor Shares only; returns for other share
classes will differ. Please note that your actual after-tax returns will depend
on your tax situation and may differ from those shown. Also note that if you own
the fund in a tax-deferred account, such as an individual retirement account or
a 401(k) plan, this information does not apply to you. Such accounts are not
subject to current taxes.
Finally, keep in mind that a fund's performance--whether before or after
taxes--does not indicate how it will perform in the future.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED AUGUST 31, 2003
SINCE
ONE YEAR INCEPTION*
--------------------------------
CALVERT SOCIAL INDEX FUND INVESTOR SHARES**
Returns Before Taxes 15.28% -10.42%
Returns After Taxes on Distributions 14.83 -10.64
Returns After Taxes on Distributions and
Sale of Fund Shares 9.86 -8.81
- --------------------------------------------------------------------------------
*May 31, 2000.
**Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
10
ABOUT YOUR FUND EXPENSES
All mutual funds have operating expenses. These expenses include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund's
gross income, directly reduce the investment return of the fund. A fund's
expenses are expressed as a percentage of its net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would incur
over a 12-month period if you invested $10,000 in the fund, using the fund's
actual return and operating expenses for the fiscal year ended August 31, 2003.
For comparative purposes, we also list the average expense ratio for the fund's
peer group, which is derived from data provided by Lipper Inc.
- --------------------------------------------------------------------------------
FUND COST OF $10,000 PEER GROUP
EXPENSE RATIO INVESTMENT IN FUND EXPENSE RATIO
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares 0.25% $27 1.57%
Institutional Shares 0.12* 13 1.57
- --------------------------------------------------------------------------------
* Annualized; the Institutional Shares' inception was January 14, 2003.
The funds do not charge transaction fees; these results apply whether or not you
redeemed your investment at the end of the given period. Your actual costs may
have been higher or lower, depending on the amount of your investment and your
holding period. Peer-group ratios capture data through year-end 2002.
You can find more information about a fund's expense ratio, including annual
expense ratios for the past five years, in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the fund's prospectus. The prospectus
presents hypothetical shareholder costs over various time periods based upon a
$10,000 investment and a return of 5% a year. This standardized example, which
appears in all mutual fund prospectuses, may be useful to you in comparing the
costs of investing in different funds.
11
FINANCIAL STATEMENTS AS OF 8/31/2003
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (99.8%)
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION (1.9%)
United Parcel Service, Inc. 14,738 $ 925
FedEx Corp. 8,002 537
Harley-Davidson, Inc. 8,740 435
Southwest Airlines Co. 19,934 341
Genuine Parts Co. 4,971 159
Delphi Corp. 14,032 127
Expeditors International of
Washington, Inc. 3,000 113
C.H. Robinson Worldwide, Inc. 2,268 86
* Gentex Corp. 2,200 83
BorgWarner, Inc. 800 57
CNF Inc. 1,365 41
Delta Air Lines, Inc. 3,100 40
ArvinMeritor, Inc. 1,900 36
* Swift Transportation Co., Inc. 1,500 32
Skywest, Inc. 1,700 30
* Continental Airlines, Inc. Class B 1,900 29
Visteon Corp. 3,600 24
* Kansas City Southern 1,700 21
* Atlantic Coast Airlines
Holdings Inc. 1,100 9
---------------
$ 3,125
---------------
CONSUMER DISCRETIONARY (13.0%)
Home Depot, Inc. 66,108 2,126
* AOL Time Warner Inc. 123,219 2,016
Lowe's Cos., Inc. 20,296 1,113
Target Corp. 23,646 960
Gillette Co. 26,672 866
Kimberly-Clark Corp. 14,678 750
* eBay Inc. 12,186 675
* Kohl's Corp. 8,639 546
* Yahoo! Inc. 14,609 488
* InterActiveCorp 12,634 468
Avon Products, Inc. 6,726 431
Omnicom Group Inc. 5,439 425
* Costco Wholesale Corp. 13,064 419
* Best Buy Co., Inc. 7,545 392
The Gap, Inc. 18,445 385
* Electronic Arts Inc. 4,172 374
* Amazon.com, Inc. 8,048 374
* Bed Bath & Beyond, Inc. 8,378 361
* Staples, Inc. 14,035 346
The McGraw-Hill Cos., Inc. 5,464 333
* Starbucks Corp. 11,094 316
* Apollo Group, Inc. Class A 3,826 245
* EchoStar Communications
Corp. Class A 6,546 242
Eastman Kodak Co. 8,200 229
Dollar General Corp. 8,645 198
New York Times Co. Class A 4,329 192
Family Dollar Stores, Inc. 4,631 186
Newell Rubbermaid, Inc. 7,458 177
12
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
J.C. Penney Co., Inc.
(Holding Company) 7,750 $ 164
* Office Depot, Inc. 8,743 159
* Univision Communications Inc. 4,174 156
Whirlpool Corp. 2,000 139
* Dollar Tree Stores, Inc. 3,274 128
* Career Education Corp. 2,600 117
Estee Lauder Cos. Class A 3,220 111
Darden Restaurants Inc. 4,838 105
Jones Apparel Group, Inc. 3,400 105
Ross Stores, Inc. 2,040 103
* Robert Half International, Inc. 4,521 101
* ChoicePoint Inc. 2,500 98
* PETsMART, Inc. 4,066 97
E.W. Scripps Co. Class A 1,105 96
Black & Decker Corp. 2,217 95
Sabre Holdings Corp. 4,174 94
* Brinker International, Inc. 2,732 93
Harman International
Industries, Inc. 900 90
* CDW Corp. 1,716 89
* Iron Mountain, Inc. 2,250 83
* Monster Worldwide Inc. 3,044 83
* Williams-Sonoma, Inc. 2,652 81
Manpower Inc. 2,002 78
* Lamar Advertising Co. Class A 2,318 77
* Convergys Corp. 4,301 77
Fastenal Co. 1,902 77
Nordstrom, Inc. 2,881 75
* Corinthian Colleges, Inc. 1,300 75
R.R. Donnelley & Sons Co. 2,966 75
Outback Steakhouse 1,900 73
The Stanley Works 2,420 73
* Krispy Kreme Doughnuts, Inc. 1,500 66
Belo Corp. Class A 2,759 64
* Hispanic Broadcasting Corp. 1,938 61
Viad Corp. 2,527 60
Maytag Corp. 2,214 60
* ITT Educational Services, Inc. 1,300 56
* Entercom Communications Corp. 1,100 55
* Education Management Corp. 900 55
* O'Reilly Automotive, Inc. 1,400 54
* Tech Data Corp. 1,570 52
* The Cheesecake Factory 1,400 51
* Getty Images, Inc. 1,200 49
* The Corporate Executive Board Co. 1,100 49
* Saks Inc. 3,600 45
* Borders Group, Inc. 2,304 45
* DeVry, Inc. 1,700 44
Snap-On Inc. 1,479 44
Reebok International Ltd. 1,300 43
* Valassis Communications, Inc. 1,476 43
* Furniture Brands
International Inc. 1,500 43
Regis Corp. 1,200 42
* BJ's Wholesale Club, Inc. 1,899 41
Meredith Corp. 869 41
Ruby Tuesday, Inc. 1,800 41
* DoubleClick Inc. 3,559 40
Alberto-Culver Co. Class B 700 40
* Advance Auto Parts, Inc. 533 40
Lee Enterprises, Inc. 1,000 39
Media General, Inc. Class A 636 39
* Charter Communications, Inc. 8,500 38
* Extended Stay America, Inc. 2,500 38
Harte-Hanks, Inc. 2,000 38
* Overture Services, Inc. 1,500 37
* United Statioers, Inc. 900 37
John Wiley & Sons Class A 1,282 36
Ethan Allen Interiors, Inc. 900 35
* Linens 'n Things, Inc. 1,200 35
* Barnes & Noble, Inc. 1,293 34
La-Z-Boy Inc. 1,500 34
* BearingPoint, Inc. 3,876 32
* American Greetings Corp. Class A 1,700 31
* CEC Entertainment Inc. 800 31
* Tommy Hilfiger Corp. 2,499 31
* Earthlink, Inc. 4,057 31
* Arbitron Inc. 800 30
* Hollywood Entertainment Corp. 1,600 28
Callaway Golf Co. 1,802 27
The Brink's Co. 1,600 26
Blyth, Inc. 900 25
Tupperware Corp. 1,500 24
* Cox Radio, Inc. 1,000 24
* Insight Enterprises, Inc. 1,300 23
* Scholastic Corp. 800 23
* Catalina Marketing Corp. 1,275 18
Washington Post Co. Class B 20 14
The Nautilus Group, Inc. 900 11
---------------
$ 20,893
---------------
CONSUMER STAPLES (2.9%)
Walgreen Co. 29,420 958
Colgate-Palmolive Co. 15,517 858
Sysco Corp. 18,688 588
General Mills, Inc. 10,571 490
CVS Corp. 11,260 367
H.J. Heinz Co. 10,110 327
Kellogg Co. 6,679 224
Wm. Wrigley Jr. Co. 4,208 223
Hershey Foods Corp. 2,600 182
* Whole Foods Market, Inc. 1,700 92
13
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
SuperValu Inc. 3,788 $ 91
McCormick & Co., Inc. 2,322 62
Dial Corp. 2,702 55
* Performance Food Group Co. 1,333 52
Church & Dwight, Inc. 1,100 35
* American Italian Pasta Co. 500 21
---------------
$ 4,625
---------------
FINANCIAL SERVICES (29.6%)
BANKS--NEW YORK CITY (1.6%)
J.P. Morgan Chase & Co. 58,349 1,997
The Bank of New York Co., Inc. 20,940 616
BANKS--OUTSIDE NEW YORK CITY (12.3%)
Bank of America Corp. 42,996 3,407
Wells Fargo & Co. 48,163 2,415
Wachovia Corp. 38,664 1,630
Bank One Corp. 33,309 1,315
U.S. Bancorp 54,960 1,314
FleetBoston Financial Corp. 30,074 890
Fifth Third Bancorp 13,897 814
BB&T Corp. 16,032 585
National City Corp. 17,517 555
SunTrust Banks, Inc. 6,913 423
State Street Corp. 9,563 420
Mellon Financial Corp. 12,425 390
PNC Financial Services Group 8,129 387
KeyCorp 12,102 330
SouthTrust Corp. 9,752 283
M & T Bank Corp. 3,025 255
Comerica, Inc. 5,010 247
Northern Trust Corp. 5,533 234
Regions Financial Corp. 6,301 222
AmSouth Bancorp 10,092 217
Synovus Financial Corp. 8,771 214
Marshall & Ilsley Corp. 6,075 188
Union Planters Corp. 5,635 180
North Fork Bancorp, Inc. 4,537 153
First Tennessee National Corp. 3,600 149
National Commerce Financial Corp. 5,944 149
Zions Bancorp 2,615 146
Popular, Inc. 3,533 133
Banknorth Group, Inc. 4,687 132
Huntington Bancshares Inc. 6,300 126
Compass Bancshares Inc. 3,653 126
Mercantile Bankshares Corp. 2,364 97
TCF Financial Corp. 2,012 93
Hibernia Corp. Class A 4,416 92
Commerce Bancshares, Inc. 1,800 78
Commerce Bancorp, Inc. 1,900 77
Associated Banc-Corp 2,014 77
Valley National Bancorp 2,697 76
Doral Financial Corp. 1,800 74
Fulton Financial Corp. 3,103 63
City National Corp. 1,167 60
Wilmington Trust Corp. 1,888 60
Bank of Hawaii Corp. 1,740 59
Sky Financial Group, Inc. 2,500 59
Cullen/Frost Bankers, Inc. 1,500 57
Hudson United Bancorp 1,300 51
FirstMerit Corp. 2,021 51
Investors Financial Services Corp. 1,700 51
Colonial BancGroup, Inc. 3,251 48
Park National Corp. 394 44
Westamerica Bancorporation 1,000 44
BancorpSouth, Inc. 2,000 43
Old National Bancorp 1,796 42
First Midwest Bancorp, Inc. 1,350 41
Trustmark Corp. 1,496 39
Whitney Holdings Corp. 1,100 38
United Bankshares, Inc. 1,200 37
Southwest Bancorporation
of Texas, Inc. 900 33
The South Financial Group, Inc. 1,300 32
Community First Bankshares, Inc. 1,100 31
Greater Bay Bancorp 1,500 31
Chittenden Corp. 1,000 29
Citizens Banking Corp. 1,100 29
* Silicon Valley Bancshares 1,000 24
DIVERSIFIED FINANCIAL SERVICES (1.8%)
American Express Co. 33,206 1,496
Marsh & McLennan Cos., Inc. 15,351 768
The Goldman Sachs Group, Inc. 6,931 613
* BISYS Group, Inc. 3,448 63
Leucadia National Corp. 1,000 38
FINANCE COMPANIES (0.2%)
Capital One Financial Corp. 6,465 345
FINANCE--SMALL LOAN (0.4%)
SLM Corp. 13,242 532
* AmeriCredit Corp. 4,500 48
FINANCIAL DATA PROCESSING SERVICES (1.9%)
First Data Corp. 21,594 829
Automatic Data Processing, Inc. 17,148 684
Paychex, Inc. 9,665 348
* SunGard Data Systems, Inc. 8,112 229
* Fiserv, Inc. 5,547 216
* Concord EFS, Inc. 13,895 192
* Affiliated Computer
Services, Inc. Class A 3,657 181
14
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* DST Systems, Inc. 3,181 $ 126
Fair, Isaac, Inc. 1,400 82
Delux Corp. 1,602 68
* CheckFree Corp. 1,808 42
Jack Henry & Associates Inc. 2,100 39
NDCHealth Corp. 1,000 21
* Advent Software, Inc. 900 15
FINANCIAL INFORMATION SERVICES (0.2%)
Moody's Corp. 3,616 188
* The Dun & Bradstreet Corp. 2,160 91
Dow Jones & Co., Inc. 1,121 48
FINANCIAL MISCELLANEOUS (3.0%)
Fannie Mae 28,147 1,824
Freddie Mac 19,904 1,058
MBNA Corp. 32,584 761
MBIA, Inc. 4,184 236
H & R Block, Inc. 4,664 206
Ambac Financial Group, Inc. 3,041 197
MGIC Investment Corp. 2,842 160
Radian Group, Inc. 2,700 128
Fidelity National Financial, Inc. 3,891 112
* Providian Financial Corp. 8,181 84
First American Corp. 2,200 53
Brown & Brown, Inc. 1,600 50
Nationwide Financial Services, Inc. 1,600 47
Cross Timbers Royalty Trust 38 1
INSURANCE--LIFE (0.6%)
Prudential Financial, Inc. 15,826 576
The Principal Financial Group, Inc. 8,009 252
Jefferson-Pilot Corp. 4,111 182
The MONY Group Inc. 1,300 36
INSURANCE--MULTILINE (4.0%)
American International Group, Inc. 65,854 3,923
AFLAC Inc. 14,716 471
The Hartford Financial
Services Group Inc. 7,398 394
St. Paul Cos., Inc. 6,539 227
CIGNA Corp. 4,052 193
Lincoln National Corp. 5,063 179
Aon Corp. 7,811 173
Cincinnati Financial Corp. 4,018 162
SAFECO Corp. 4,008 145
Torchmark Corp. 3,377 136
UnumProvident Corp. 7,423 105
Arthur J. Gallagher & Co. 2,600 70
* Markel Corp. 257 69
Protective Life Corp. 1,787 52
StanCorp Financial Group, Inc. 900 51
Unitrin, Inc. 1,396 41
American National Insurance Co. 436 37
* Allmerica Financial Corp. 1,473 35
INSURANCE--PROPERTY-CASUALTY (1.2%)
Progressive Corp. of Ohio 5,477 387
The Chubb Corp. 4,937 335
XL Capital Ltd. Class A 3,900 295
ACE Ltd. 7,533 243
Everest Re Group, Ltd. 1,463 107
The PMI Group Inc. 2,520 89
RenaissanceRe Holdings Ltd. 1,900 79
White Mountains
Insurance Group Inc. 190 76
W.R. Berkley Corp. 2,100 69
PartnerRe Ltd. 1,296 65
HCC Insurance Holdings, Inc. 1,700 50
Transatlantic Holdings, Inc. 670 47
Erie Indemnity Co. Class A 1,122 46
Mercury General Corp. 800 35
Commerce Group, Inc. 800 29
* Ohio Casualty Corp. 1,800 25
INVESTMENT MANAGEMENT COMPANIES (0.5%)
T. Rowe Price Group Inc. 3,561 151
Janus Capital Group Inc. 6,875 119
Allied Capital Corp. 3,200 82
Federated Investors, Inc. 2,716 80
SEI Corp. 2,144 75
Neuberger Berman Inc. 1,654 69
Waddell & Reed Financial, Inc. 2,367 61
Eaton Vance Corp. 1,718 59
* Affiliated Managers Group, Inc. 600 41
RENT & LEASE SERVICES--COMMERCIAL
* United Rentals, Inc. 1,497 25
SAVINGS & LOAN (1.3%)
Washington Mutual, Inc. 26,603 1,037
Golden West Financial Corp. 3,734 322
Sovereign Bancorp, Inc. 7,468 147
Green Point Financial Corp. 3,431 116
New York Community Bancorp, Inc. 3,600 111
Astoria Financial Corp. 2,146 69
Hudson City Bancorp, Inc. 2,000 58
People's Bank 1,700 51
Webster Financial Corp. 1,200 47
Independence Community Bank Corp. 1,400 46
Washington Federal Inc. 1,750 44
15
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
IndyMac Bancorp, Inc. 1,500 $ 35
Staten Island Bancorp, Inc. 1,500 31
Commercial Federal Corp. 1,200 30
Downey Financial Corp. 600 25
SECURITIES BROKERS & Services (0.6%)
Charles Schwab Corp. 29,422 320
Franklin Resources Corp. 4,135 179
Legg Mason Inc. 1,969 141
* E*TRADE Group, Inc. 10,189 94
A.G. Edwards & Sons, Inc. 2,320 84
Jefferies Group, Inc. 1,400 42
American Capital Strategies, Ltd. 1,579 39
LaBranche & Co. Inc. 1,600 28
* Investment Technology Group, Inc. 1,450 26
---------------
$ 47,991
---------------
HEALTH CARE (18.6%)
BIOTECH RESEARCH & Production (2.2%)
* Amgen, Inc. 33,874 2,232
* Genzyme Corp.-General Division 6,126 289
* Biogen, Inc. 4,302 170
* IDEC Pharmaceuticals Corp. 4,433 154
* Millennium Pharmaceuticals, Inc. 7,888 110
* Invitrogen Corp. 1,300 75
* Cephalon, Inc. 1,600 71
* ICOS Corp. 1,593 62
* Millipore Corp. 1,300 59
* Quintiles Transnational Corp. 3,255 46
* IDEXX Laboratories Corp. 1,000 42
* OSI Pharmaceuticals, Inc. 1,000 38
* Protein Design Labs, Inc. 2,600 32
* Abgenix, Inc. 2,200 29
* Applera Corp.-
Celera Genomics Group 2,100 21
* Enzon Pharmaceuticals, Inc. 1,100 13
* Transkaryotic Therapies, Inc. 700 9
DRUGS & PHARMACEUTICALS (11.7%)
Pfizer Inc. 226,899 6,789
Johnson & Johnson 85,317 4,230
Merck & Co., Inc. 64,451 3,243
Bristol-Myers Squibb Co. 55,732 1,414
Cardinal Health, Inc. 12,871 733
Schering-Plough Corp. 42,011 638
* Forest Laboratories, Inc. 10,356 487
* Gilead Sciences, Inc. 5,736 383
Allergan, Inc. 3,833 305
* MedImmune Inc. 6,792 237
AmerisourceBergen Corp. 3,200 186
* Barr Laboratories, Inc. 1,693 115
* IVAX Corp. 4,366 86
* SICOR, Inc. 2,300 46
Medicis Pharmaceutical Corp. 733 45
* Vertex Pharmaceuticals, Inc. 1,886 24
* Alkermes, Inc. 1,600 18
ELECTRONICS--MEDICAL SYSTEMS (1.2%)
Medtronic, Inc. 34,906 1,731
* Varian Medical Systems, Inc. 2,000 112
* Affymetrix, Inc. 1,400 32
HEALTH & PERSONAL CARE (0.6%)
* Anthem, Inc. 4,033 295
McKesson Corp. 8,313 272
* Express Scripts Inc. 1,804 117
* Lincare Holdings, Inc. 2,979 103
Omnicare, Inc. 2,923 99
* Apria Healthcare Group Inc. 1,600 41
* Accredo Health, Inc. 1,350 32
HEALTH CARE FACILITIES (0.3%)
* Quest Diagnostics, Inc. 2,300 138
* Laboratory Corp. of
America Holdings 4,200 127
Health Management
Associates Class A 5,691 127
* DaVita, Inc. 1,741 53
* Renal Care Group, Inc. 1,400 51
* Pharmaceutical Product
Development, Inc. 1,400 36
* LifePoint Hospitals, Inc. 1,000 29
HEALTH CARE MANAGEMENT SERVICES (0.8%)
* WellPoint Health
Networks Inc. Class A 4,236 330
* Caremark Rx, Inc. 7,500 188
IMS Health, Inc. 6,494 126
* Health Net Inc. 2,976 95
* WebMD Corp. 8,770 90
* Oxford Health Plans, Inc. 2,410 87
* AdvancePCS 1,900 76
* Universal Health Services Class B 1,482 74
* First Health Group Corp. 2,737 72
* Mid Atlantic Medical Services, Inc. 1,400 69
* Cerner Corp. 800 28
* Orthodontic Centers of America, Inc. 1,100 8
MEDICAL & Dental Instruments & Supplies (1.8%)
* Boston Scientific Corp. 8,358 502
Guidant Corp. 8,914 447
Stryker Corp. 3,994 303
* Zimmer Holdings, Inc. 5,600 290
16
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* St. Jude Medical, Inc. 5,226 272
Becton, Dickinson & Co. 7,339 268
Biomet, Inc. 6,817 203
* Patterson Dental Co. 2,000 109
DENTSPLY International Inc. 1,956 86
Beckman Coulter, Inc. 1,800 80
* Henry Schein, Inc. 1,300 75
* Apogent Technologies Inc. 2,873 63
* Edwards Lifesciences Corp. 1,700 48
* ResMed Inc. 1,000 43
* Respironics, Inc. 1,000 42
* Cytyc Corp. 3,100 41
* Techne Corp. 1,200 40
Invacare Corp. 900 34
MEDICAL SERVICES
* Coventry Health Care Inc. 1,200 56
---------------
$ 30,071
---------------
MATERIALS & PROCESSING (1.4%)
Weyerhaeuser Co. 6,300 375
Masco Corp. 13,631 338
Praxair, Inc. 4,714 301
Air Products & Chemicals, Inc. 6,113 289
Avery Dennison Corp. 2,785 152
* American Standard Cos., Inc. 1,800 144
Ecolab, Inc. 5,300 137
* Sealed Air Corp. 2,412 117
Sigma-Aldrich Corp. 1,736 95
Bemis Co., Inc. 1,500 68
* Catellus Development Corp. 2,244 53
* Cabot Microelectronics Corp. 700 46
Harsco Corp. 1,154 45
AptarGroup Inc. 1,000 39
York International Corp. 1,100 36
Corn Products International, Inc. 1,000 32
Worthington Industries, Inc. 1,900 29
Hughes Supply, Inc. 600 21
---------------
$ 2,317
---------------
OTHER ENERGY (0.5%)
EOG Resources, Inc. 3,321 141
* Smith International, Inc. 2,932 115
XTO Energy, Inc. 5,237 111
* Pioneer Natural Resources Co. 3,300 84
Equitable Resources, Inc. 1,800 71
* Cooper Cameron Corp. 1,400 68
* Calpine Corp. 10,300 58
Chesapeake Energy Corp. 5,300 57
* FMC Technologies Inc. 1,838 44
* Key Energy Services, Inc. 3,600 37
* Grant Prideco, Inc. 3,200 37
* SEACOR SMIT Inc. 600 24
---------------
$ 847
---------------
PRODUCER DURABLES (4.4%)
* Applied Materials, Inc. 47,190 1,019
Emerson Electric Co. 12,133 677
Illinois Tool Works, Inc. 7,604 550
Deere & Co. 6,915 391
* KLA-Tencor Corp. 5,447 323
* Agilent Technologies, Inc. 12,266 298
Pitney Bowes, Inc. 6,757 264
Danaher Corp. 3,225 249
* Lexmark International, Inc. 3,672 246
* Xerox Corp. 21,094 227
Dover Corp. 5,774 220
Parker Hannifin Corp. 3,451 171
* Novellus Systems, Inc. 4,258 170
Cooper Industries, Inc. Class A 2,600 132
W.W. Grainger, Inc. 2,356 117
D. R. Horton, Inc. 3,650 114
* Waters Corp. 3,601 110
Diebold, Inc. 2,095 102
Pulte Homes, Inc. 1,426 95
* LAM Research Corp. 3,600 93
American Power Conversion Corp. 5,159 92
Pall Corp. 3,600 90
* Teradyne, Inc. 4,930 88
* Garmin Ltd. 1,906 76
Donaldson Co., Inc. 1,246 68
* NVR, Inc. 155 67
KB HOME 1,100 63
Pentair, Inc. 1,457 62
* Crown Castle International Corp. 5,300 57
* Tektronix, Inc. 2,400 57
Hubbell Inc. Class B 1,373 55
* Andrew Corp. 4,308 53
Graco, Inc. 1,300 51
HON Industries, Inc. 1,382 51
Herman Miller, Inc. 2,106 49
Molex, Inc. Class A 1,932 49
* AGCO Corp. 2,200 49
Cummins Inc. 956 48
Ryland Group, Inc. 700 47
* Cymer, Inc. 1,000 46
* Polycom, Inc. 2,600 45
MDC Holdings, Inc. 870 44
Ametek, Inc. 1,000 42
* Varian Semiconductor
Equipment Associates, Inc. 1,000 41
Kennametal, Inc. 1,000 39
Roper Industries Inc. 900 38
* Flowserve Corp. 1,600 34
Cognex Corp. 1,000 31
* Terex Corp. 1,300 30
17
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* Axcelis Technologies, Inc. 2,800 $ 24
* Credence Systems Corp. 1,800 21
---------------
$ 7,175
---------------
TECHNOLOGY (22.7%)
COMMUNICATIONS TECHNOLOGY (3.8%)
* Cisco Systems, Inc. 201,777 3,864
QUALCOMM Inc. 22,519 930
* Juniper Networks, Inc. 9,300 160
Scientific-Atlanta, Inc. 4,313 147
* JDS Uniphase Corp. 35,785 123
* Avaya Inc. 8,974 94
Symbol Technologies, Inc. 6,768 92
* UTStarcom, Inc. 2,000 86
* CIENA Corp. 12,480 81
* NCR Corp. 2,563 74
* Tellabs, Inc. 10,641 69
Harris Corp. 1,900 63
* 3Com Corp. 10,361 59
* ADC Telecommunications, Inc. 22,916 58
* Advanced Fibre
Communications, Inc. 2,500 58
* Brocade Communications
Systems, Inc. 6,700 38
Black Box Corp. 600 28
* CSG Systems International, Inc. 1,570 24
* Extreme Networks, Inc. 2,900 20
* CommScope, Inc. 1,368 14
COMPUTER SERVICES SOFTWARE & Systems (6.2%)
Microsoft Corp. 265,171 7,032
* Veritas Software Corp. 11,956 412
Adobe Systems, Inc. 6,655 258
* Intuit, Inc. 5,399 245
* Symantec Corp. 4,056 233
* Computer Sciences Corp. 5,083 216
* BEA Systems, Inc. 11,100 150
* QLogic Corp. 2,699 132
* Siebel Systems, Inc. 12,598 127
* Amdocs Ltd. 4,976 111
* Mercury Interactive Corp. 2,500 110
* Cadence Design Systems, Inc. 7,594 108
* BMC Software, Inc. 6,729 99
* Citrix Systems, Inc. 4,741 98
* Check Point Software
Technologies Ltd. 5,200 91
* Ceridian Corp. 4,077 79
* Compuware Corp. 10,085 60
Autodesk, Inc. 3,266 58
* Novell, Inc. 10,643 54
Reynolds & Reynolds Class A 1,703 49
* Sybase, Inc. 2,656 45
* Acxiom Corp. 2,617 42
* Mentor Graphics Corp. 2,000 41
National Instruments Corp. 1,000 40
* CACI International, Inc. 800 36
* Electronics for Imaging, Inc. 1,575 34
* Ascential Software Corp. 1,800 32
* Parametric Technology Corp. 7,070 24
* NetIQ Corp. 1,600 22
* American Management
Systems, Inc. 1,155 17
* Retek Inc. 1,200 9
COMPUTER TECHNOLOGY (6.4%)
International Business
Machines Corp. 49,657 4,072
* Dell Inc. 64,984 2,121
Hewlett-Packard Co. 78,734 1,568
* EMC Corp. 62,735 800
* Sun Microsystems, Inc. 91,570 353
Electronic Data Systems Corp. 13,634 298
* Apple Computer, Inc. 9,874 223
* Network Appliance, Inc. 9,710 218
* Synopsys, Inc. 2,195 150
* Unisys Corp. 9,299 121
* NVIDIA Corp. 4,400 80
* Storage Technology Corp. 3,069 79
* Zebra Technologies Corp. Class A 1,200 64
* Maxtor Corp. 5,483 63
* Emulex Corp. 2,300 56
* Ingram Micro, Inc. Class A 3,356 47
* Gateway, Inc. 5,826 34
* Quantum Corp. 4,316 13
ELECTRONICS (0.1%)
* Sanmina-SCI Corp. 14,688 132
* Semtech Corp. 2,200 46
AVX Corp. 1,034 14
ELECTRONICS--SEMICONDUCTORS/COMPONENTS (6.0%)
Intel Corp. 187,764 5,374
Texas Instruments, Inc. 49,765 1,187
* Analog Devices, Inc. 10,466 429
Linear Technology Corp. 8,919 368
* Xilinx, Inc. 9,632 297
* Micron Technology, Inc. 15,685 225
* Altera Corp. 9,828 221
Microchip Technology, Inc. 5,800 162
* Broadcom Corp. 5,946 162
* Jabil Circuit, Inc. 4,634 130
* LSI Logic Corp. 10,695 123
* Intersil Corp. 3,900 114
18
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* Advanced Micro Devices, Inc. 9,898 $ 112
* Marvell Technology Group Ltd. 2,433 103
* PMC Sierra Inc. 4,883 70
* Integrated Circuit Systems, Inc. 2,000 69
* Atmel Corp. 11,992 55
* Avnet, Inc. 2,918 53
* Arrow Electronics, Inc. 2,429 50
* Applied Micro Circuits Corp. 8,446 49
* RF Micro Devices, Inc. 5,114 45
* Fairchild Semiconductor
International, Inc. 2,500 44
* Conexant Systems, Inc. 7,600 42
* Agere Systems Inc. Class A 13,764 42
* Integrated Device Technology Inc. 2,900 40
* Agere Systems Inc. Class B 11,800 34
* Micrel, Inc. 1,900 26
* Lattice Semiconductor Corp. 2,900 26
* TriQuint Semiconductor, Inc. 3,545 20
ELECTRONICS--TECHNOLOGY (0.1%)
* Solectron Corp. 22,298 132
* The Titan Corp. 2,200 35
* KEMET Corp. 2,472 30
* Coherent, Inc. 800 21
SCIENTIFIC EQUIPMENT & Supplies (0.1%)
Applera Corp.- Applied Biosystems Group 5,945 129
* Varian, Inc. 1,000 34
---------------
$ 36,751
---------------
UTILITIES (4.6%)
SBC Communications Inc. 95,389 2,145
BellSouth Corp. 53,024 1,336
* Comcast Corp. Special Class A 25,369 719
* AT&T Wireless Services Inc. 64,158 553
* NEXTEL Communications, Inc. 28,494 549
ALLTEL Corp. 8,922 409
* Cox Communications, Inc. Class A 5,701 187
KeySpan Corp. 4,513 152
Kinder Morgan, Inc. 2,751 146
NiSource, Inc. 7,523 145
CenturyTel, Inc. 3,888 135
* Cablevision Systems
NY Group Class A 5,429 109
* AES Corp. 16,488 107
* Citizens Communications Co. 8,152 93
Telephone & Data Systems, Inc. 1,374 79
Questar Corp. 2,411 77
MDU Resources Group, Inc. 2,145 73
Puget Energy, Inc. 2,714 59
OGE Energy Corp. 2,200 48
AGL Resources Inc. 1,700 47
Philadelphia Suburban Corp. 2,000 47
Hawaiian Electric Industries Inc. 1,100 47
ONEOK, Inc. 2,130 45
NICOR Inc. 1,263 43
Peoples Energy Corp. 1,000 40
WGL Holdings Inc. 1,400 38
Piedmont Natural Gas, Inc. 900 35
IDACORP, Inc. 1,051 25
Cleco Corp. 1,400 22
* Sierra Pacific Resources 3,200 16
---------------
$ 7,526
---------------
OTHER (0.2%)
* SPX Corp. 2,300 114
Teleflex Inc. 1,100 52
Carlisle Co., Inc. 933 42
Lancaster Colony Corp. 800 32
---------------
$ 240
---------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $177,114) $ 161,561
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.2%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.05%, 9/2/2003 $ 212 212
1.06%, 9/2/2003--Note E 78 78
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $290) 290
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%) (Cost $177,404) $ 161,851
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Other Assets--Note B 857
Liabilities--Note E (782)
---------------
$ 75
---------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $ 161,926
================================================================================
*See Note A in Notes to Financial Statements.
*Non-income-producing security.
19
- ------------------------------------------------------------------
AMOUNT
CALVERT SOCIAL INDEX FUND (000)
- ------------------------------------------------------------------
AT AUGUST 31, 2003, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
Paid-in Capital $ 188,534
Undistributed Net Investment Income 869
Accumulated Net Realized Losses (11,924)
Unrealized Depreciation (15,553)
- ------------------------------------------------------------------
NET ASSETS $ 161,926
==================================================================
Investor Shares--Net Assets
Applicable to 21,851,405 outstanding $.001 par value
shares of beneficial interest
(unlimited authorization) $ 150,147
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- INVESTOR SHARES $ 6.87
==================================================================
Institutional Shares--Net Assets
Applicable to 1,712,779 outstanding $.001 par value
shares of beneficial interest
(unlimited authorization) $ 11,779
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- INSTITUTIONAL SHARES $ 6.88
==================================================================
See Note C in Notes to Financial Statements for the tax-basis
components of net assets.
20
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
- --------------------------------------------------------------------------------
CALVERT SOCIAL INDEX FUND
YEAR ENDED AUGUST 31, 2003
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 1,668
Interest 5
Security Lending 4
- --------------------------------------------------------------------------------
Total Income $ 1,677
- --------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Management and Administrative
Investor Shares 194
Institutional Shares 7
Marketing and Distribution
Investor Shares 19
Institutional Shares --
Custodian Fees 38
Auditing Fees 13
Shareholders' Reports and Proxies
Investor Shares 14
Institutional Shares --
- --------------------------------------------------------------------------------
Total Expenses 285
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,392
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (6,002)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES $ 24,084
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 19,474
================================================================================
21
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
fund, either by purchasing shares or by reinvesting distributions, as well as
the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
- --------------------------------------------------------------------------------
CALVERT SOCIAL INDEX FUND
-------------------------------
YEAR ENDED YEAR ENDED
AUG. 31, AUG. 31,
2003 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,392 $ 765
Realized Net Gain (Loss) (6,002) (5,575)
Change in Unrealized Appreciation (Depreciation) 24,084 (17,116)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 19,474 (21,926)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (994) (621)
Institutional Shares -- --
Realized Capital Gain
Investor Shares -- --
Institutional Shares -- --
- --------------------------------------------------------------------------------
Total Distributions (994) (621)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--NOTE F
Investor Shares 38,311 37,054
Institutional Shares 10,640 --
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 48,951 37,054
- --------------------------------------------------------------------------------
Total Increase (Decrease) 67,431 14,507
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 94,495 79,988
- --------------------------------------------------------------------------------
End of Period $ 161,926 $ 94,495
================================================================================
22
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
CALVERT SOCIAL INDEX FUND INVESTOR SHARES
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, MAY 8* TO
------------------------------------------- AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.02 $ 7.57 $ 11.14 $ 10.00
- ---------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .07 .05 .04 .02
Net Realized and Unrealized Gain (Loss) on Investments .84 (1.55) (3.57) 1.12
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations .91 (1.50) (3.53) 1.14
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.06) (.05) (.03) --
Distributions from Realized Capital Gains -- -- (.01) --
- ---------------------------------------------------------------------------------------------------------
Total Distributions (.06) (.05) (.04) --
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 6.87 $ 6.02 $ 7.57 $ 11.14
=========================================================================================================
TOTAL RETURN** 15.28% -19.96% -31.75% 11.07%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 150 $ 94 $ 80 $ 40
Ratio of Total Expenses to Average Net Assets 0.25% 0.25% 0.25% 0.25%+
Ratio of Net Investment Income to Average Net Assets 1.18% 0.82% 0.70% 0.98%+
Portfolio Turnover Rate 14% 18% 10% 3%
==========================================================================================================
* Subscription period for the fund was May 8, 2000, to May 31, 2000, during
which time all assets were held in money market instruments. Performance
measurement begins May 31, 2000.
** Total returns do not reflect the $10 annual account maintenance fee applied
on balances under $10,000.
+Annualized.
23
FINANCIAL HIGHLIGHTS (CONTINUED)
CALVERT SOCIAL INDEX FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
JAN. 14* TO
AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD 2003
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.22
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .05
Net Realized and Unrealized Gain (Loss) on Investments .61
- --------------------------------------------------------------------------------
Total from Investment Operations .66
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income --
Distributions from Realized Capital Gains --
- --------------------------------------------------------------------------------
Total Distributions --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 6.88
================================================================================
TOTAL RETURN 10.61%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 12
Ratio of Total Expenses to Average Net Assets 0.12%**
Ratio of Net Investment Income to Average Net Assets 1.32%**
Portfolio Turnover Rate 14%
================================================================================
*Inception.
**Annualized.
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
NOTES TO FINANCIAL STATEMENTS
Vanguard Calvert Social Index Fund is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund. The fund offers
two classes of shares, Investor Shares and Institutional Shares. Investor Shares
are available to any investor who meets the fund's minimum purchase
requirements. Institutional Shares were first issued on January 14, 2003, and
are designed for investors who meet certain administrative and servicing
criteria and invest a minimum of $10 million.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. The fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Securities are valued as of the close of trading on
the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund's pricing time but after the close of the securities'
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Temporary cash investments acquired over 60 days to
maturity are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and ratings), both as furnished by independent pricing services.
Other temp-orary cash investments are valued at amortized cost, which
approximates market value.
2. REPURCHASE AGREEMENTS: The fund, along with other members of The
Vanguard Group, transfers uninvested cash balances to a pooled cash account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
3. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that
each class separately bears certain class-specific expenses related to
maintenance of shareholder accounts (included in Management and Administrative
expenses), shareholder reporting, and proxies. Marketing and distribution
expenses are allocated to each class of shares based on a method approved by the
board of trustees. Income, other non-class-specific expenses, and gains and
losses on investments are allocated to each class of shares based on its
relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the fund under methods approved by the board of
trustees. The fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At August 31, 2003, the fund had contributed
capital of $26,000 to Vanguard (included in Other Assets), representing 0.02% of
the fund's net assets and 0.03% of Vanguard's capitalization. The fund's
trustees and officers are also directors and officers of Vanguard.
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
For tax purposes, at August 31, 2003, the fund had $1,036,000 of ordinary income
available for distribution. The fund had available realized losses of
$11,904,000 to offset future net capital gains of $57,000 through August 31,
2009, $3,511,000 through August 31, 2010, $5,505,000 through August 31, 2011,
and $2,831,000 through August 31, 2012.
At August 31, 2003, net unrealized depreciation of investment securities for tax
purposes was $15,553,000, consisting of unrealized gains of $12,905,000 on
securities that had risen in value since their purchase and $28,458,000 in
unrealized losses on securities that had fallen in value since their purchase.
D. During the year ended August 31, 2003, the fund purchased $64,792,000 of
investment securities and sold $16,060,000 of investment securities other than
temporary cash investments.
E. The market value of securities on loan to broker/dealers at August 31, 2003,
was $76,000, for which the fund held cash collateral of $78,000. The fund
invests cash collateral received in repurchase agreements, and records a
liability for the return of the collateral, during the period the securities are
on loan.
F. Capital share transactions for each class of shares were:
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------
2003 2002
--------------------- --------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
INVESTOR SHARES
Issued $ 56,456 9,160 $ 56,138 7,847
Issued in Lieu of Cash Distributions 910 154 551 71
Redeemed (19,055) (3,163) (19,635) (2,790)
- --------------------------------------------------------------------------------
Net Increase (Decrease)--
Investor Shares 38,311 6,151 37,054 5,128
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Issued 12,139 1,954 -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed (1,499) (241) -- --
- --------------------------------------------------------------------------------
Net Increase (Decrease)--
Institutional Shares 10,640 1,713 -- --
================================================================================
26
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of Vanguard Calvert Social Index Fund:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard Calvert Social Index Fund (the "Fund") at August 31, 2003, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 2003 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
PHILADELPHIA, PENNSYLVANIA
OCTOBER 7, 2003
- --------------------------------------------------------------------------------
SPECIAL 2003 TAX INFORMATION
(UNAUDITED) FOR VANGUARD CALVERT SOCIAL INDEX FUND
This information for the fiscal year ended August 31, 2003, is included pursuant
to provisions of the Internal Revenue Code.
For corporate shareholders, 100% of investment income (dividend income plus
short-term gains, if any) qualifies for the dividends-received deduction.
The fund intends to distribute the maximum amount of qualified dividend income
allowable. The amount of qualified dividend income distributed by the fund will
be provided to individual shareholders on their 2003 Form 1099-DIV.
- --------------------------------------------------------------------------------
27
INVESTING IS FAST AND EASY ON VANGUARD.COM
If you're like many Vanguard investors, you believe in planning and taking
control of your own investments. VANGUARD.COM(R) was built for you--and it's
getting better all the time.
MANAGE YOUR INVESTMENTS WITH EASE
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* See what you own (at Vanguard and elsewhere) and how you're doing by using
our Consolidated View(TM) tool.
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Go to our PLANNING & ADVICE and RESEARCH FUNDS & STOCKS sections and:
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28
CAPITALIZE ON YOUR IRA
Are you taking full advantage of your individual retirement account? You really
should be. The contribution limits on IRAs were recently raised, making these
tax-deferred accounts more powerful options for retirement savers.
Here's how you can exploit your IRA--and improve your chances of having the
retirement of your dreams.
CONTRIBUTE THE MAXIMUM AMOUNT EACH YEAR
It may be an obvious point, but if you invest as much in your IRA as the law
allows--currently $3,000 per tax year if you are under age 50 and $3,500 if you
are age 50 or over--you will increase the odds of meeting your retirement goals.
"Max out" every year you can.
MAKE IT AUTOMATIC
Put your IRA on autopilot by taking advantage of Vanguard's Automatic Investment
Plan. Your IRA contributions will be deducted from your bank account on a
schedule of your choosing, making retirement investing a healthy habit.
CONSIDER COST
The owners of low-cost investments keep a larger portion of their gross returns
than the owners of high-cost investments. Over the long term, avoiding costlier
mutual funds and brokerage commissions could significantly boost your retirement
savings.Our low costs are one reason a Vanguard IRA(R) is such a smart choice.
REQUEST A DIRECT ROLLOVER WHEN YOU CHANGE JOBS
Don't spend your retirement assets before you've retired. When you change jobs,
roll your 401(k) or other employer-sponsored retirement plan assets directly
into your IRA.
If you have questions about your IRA, want to transfer an IRA from another
institution to Vanguard, or need help with any other IRA transaction, call our
Retirement Resource Center at 1-800-205-6189 or visit VANGUARD.COM. You can open
or fund your IRA on our website and have a confirmation in your hand within
minutes.
29
THE VANGUARD(R) FAMILY OF FUNDS
STOCK FUNDS
500 Index Fund
Calvert Social Index Fund
Capital Opportunity Fund
Capital Value Fund
Convertible Securities Fund
Developed Markets Index Fund
Dividend Growth Fund
Emerging Markets Stock Index Fund
Energy Fund
Equity Income Fund
European Stock Index Fund
Explorer(TM) Fund
Extended Market Index Fund
Global Equity Fund
Growth and Income Fund
Growth Equity Fund
Growth Index Fund
Health Care Fund
Institutional Developed Markets Index Fund
Institutional Index Fund
Institutional Total Stock Market Index Fund
International Explorer(TM) Fund
International Growth Fund
International Value Fund
Mid-Cap Growth Fund
Mid-Cap Index Fund
Morgan(TM) Growth Fund
Pacific Stock Index Fund
Precious Metals Fund
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund
Small-Cap Index Fund
Small-Cap Value Index Fund
Strategic Equity Fund
Tax-Managed Capital Appreciation Fund
Tax-Managed Growth and Income Fund
Tax-Managed International Fund
Tax-Managed Small-Cap Fund
Total International Stock Index Fund
Total Stock Market Index Fund
U.S. Growth Fund
U.S. Value Fund
Value Index Fund
Windsor(TM) Fund
Windsor(TM) II Fund
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
LifeStrategy(R) Conservative Growth Fund
LifeStrategy(R) Growth Fund
LifeStrategy(R) Income Fund
LifeStrategy(R) Moderate Growth Fund
STAR(R) Fund
Tax-Managed Balanced Fund
Wellesley(R) Income Fund
Wellington(TM) Fund
BOND FUNDS
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Inflation-Protected Securities Fund
Institutional Total Bond Market Index Fund
Insured Long-Term Tax-Exempt Fund
Intermediate-Term Bond Index Fund
Intermediate-Term Corporate Fund
Intermediate-Term Tax-Exempt Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida, Massachusetts,
New Jersey, New York, Ohio, Pennsylvania)
Total Bond Market Index Fund
MONEY MARKET FUNDS
Admiral(TM) Treasury Money Market Fund
Federal Money Market Fund
Prime Money Market Fund
State Tax-Exempt Money Market
Funds (California, New Jersey,
New York, Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY
Balanced Portfolio
Capital Growth Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
Total Bond Market Index Portfolio
Total Stock Market Index Portfolio
For information about Vanguard funds and annuities, including charges and
expenses, obtain a prospectus from The Vanguard Group, P.O. Box 2600, Valley
Forge, PA 19482-2600. Read it carefully before you invest or send money. this
page intentionally left blank
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services
to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
- ------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee
(1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(112)
- ------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (112) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (112) Chairman (JanuarySeptember 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
- ------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (112) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
- ------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (110) Director of Vanguard Investment Series plc (Irish invest-ment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------
J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (112) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (112) investment companies served by The Vanguard Group.
July 1998
- ------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------
[SHIP]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600
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Calvert Social Index is a trademark of Calvert Group, Ltd., and has been
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ABOUT OUR COVER
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FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
To receive a free copy of the prospectus or the Statement of Additional
Information, or to request additional information about the fund or other
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calling 1-800-662-2739. The guidelines are also available from the SEC's
website, www.sec.gov.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
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(C) 2003 THE VANGUARD GROUP, INC.
ALL RIGHTS RESERVED.
VANGUARD MARKETING
CORPORATION, DISTRIBUTOR.
Q2130 102003
VANGUARD(R) CALVERT SOCIAL INDEX FUND
AUGUST 31, 2003
[GRAPHIC]
ANNUAL REPORT
THE VANGUARD GROUP(R)LOGO
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, you'll get an understanding of
how the fund invests and how the market environment affected its performance.
The statistical information that follows can help you understand how the fund's
performance and characteristics stack up against those of similar funds and
market benchmarks.
It's important to keep in mind that the opinions expressed by Vanguard's
investment managers are just that: informed opinions. They should not be
considered promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. As things change--and in
the financial markets you can be certain only of change--the investment
manager's job is to evaluate new information and make adjustments, if necessary.
Of course, the risks of investing in the fund are spelled out in the prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com.
- --------------------------------------------------------------------------------
CONTENTS
1. letter from the chairman
6. fund profile
7. glossary of investment terms
8. performance summary
10. your fund's after-tax returns
11. about your fund expenses
12. financial statements
28. advantages of vanguard.com
- --------------------------------------------------------------------------------
SUMMARY
* The Investor Shares of Vanguard Calvert Social Index Fund returned 15.3%
during the 2003 fiscal year.
* The fund's performance was in line with the 15.6% rise in its unmanaged
target index and significantly better than the 12.5% gain posted by the
average large-cap growth fund.
* The fund's technology, health care, and consumer discretionary holdings
earned solid returns as a postwar rally boosted returns across all U.S.
stock sectors.
- --------------------------------------------------------------------------------
WANT LESS CLUTTER IN YOUR MAILBOX? JUST REGISTER WITH VANGUARD.COM AND OPT TO
GET FUND REPORTS ONLINE.
FELLOW SHAREHOLDER,
The Investor Shares of Vanguard Calvert Social Index Fund returned 15.3% during
the fiscal year ended August 31, 2003, as the U.S. stock market regained vigor.
The fund closely tracked the performance of its target, the Calvert Social
Index, and outpaced its average mutual fund peer.
[PICTURES OF JOHN J. BRENNAN]
- -----------------------------------------------------------
2003 TOTAL RETURNS FISCAL YEAR ENDED
AUGUST 31
- -----------------------------------------------------------
VANGUARD CALVERT SOCIAL INDEX FUND
Investor Shares 15.3%
Institutional Shares 10.6*
Calvert Social Index 15.6
Average Large-Cap Growth Fund** 12.5
Wilshire 5000 Index 14.9
- -----------------------------------------------------------
*Return since inception, January 14, 2003.
**Derived from data provided by Lipper Inc.
The adjacent table presents the 12-month total return (capital change plus
reinvested dividends) for your fund's Investor Shares along with those of its
comparative standards: the average competitor, the Calvert Social Index, and the
Wilshire 5000 Total Market Index, a proxy for the broad U.S. stock market. The
table also includes the return for the fund's Institutional Shares, which
require a minimum investment of $10 million and were first offered on January
14.
Details on changes in the fund's net asset values, along with its income
distributions to shareholders, appear in the table on page 5. If you own
Vanguard Calvert Social Index Fund in a taxable account, you may wish to review
our report on the fund's after-tax returns on page 10.
DISMAL AT THE START, THE STOCK MARKET PERKED UP
A slumping economy, weak corporate profits, and growing geopolitical tensions
weighed heavily on the stock market as our fiscal year began, and a two-month
rally from mid-October quickly ran out of steam. However, following the
successful conclusion of major combat operations in Iraq, a distinctly upbeat
mood began to permeate the
1
marketplace. Stock prices began to rebound across capitalizations and industry
sectors in response to solid corporate earnings announcements and a slew of
positive economic reports.
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
This class of shares carries lower expenses and is available for a minimum
investment of $10 Million.
- --------------------------------------------------------------------------------
The U.S. stock market, as measured by the Wilshire 5000 Index, returned
14.9% for the fiscal year. Technology and other growth-oriented stocks, which
had sustained massive losses during the past few years, were among the most
impressive gainers. The market's smaller stocks outpaced larger issues,
demonstrating investors' renewed appetite for risk.
U.S. investors were rewarded with good returns in many international markets as
well, although stock performance was only part of the story. The weakening of
the U.S. dollar by almost 10% relative to the euro and Japanese yen transformed
results that were mediocre by local-currency standards into strong
dollar-denominated returns.
INTEREST RATES FELL FOR MONTHS, THEN BOUNCED BACK A BIT
In the bond market, the fiscal year was marked by two distinctly different
phases. Prior to mid-June, the lethargic economy and on-going flight from
equities to bonds drove the prices of bonds higher and their yields lower. The
yield of the benchmark 10-year U.S. Treasury note dropped to a 45-year low of
3.11% on June 13. After that point, however, longer-term interest rates rose
rapidly, with the yield of the 10-year note standing at 4.46% on August 31. For
the 12 months, the Lehman Brothers Aggregate Bond Index, a measure of the
taxable investment-grade bond market, provided a total return of 4.4%.
- ------------------------------------------------------------------------------
MARKET BAROMETER AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
----------------------------------
ONE THREE FIVE
YEAR YEARS YEARS
- ------------------------------------------------------------------------------
STOCKS
Russell 1000 Index (Large-caps) 12.9% -11.4% 3.1%
Russell 2000 Index (Small-caps) 29.1 -1.2 9.5
Wilshire 5000 Index (Entire market) 14.9 -10.7 3.5
MSCI All Country World Index Free
ex USA (International) 12.2 -10.0 1.1
- ------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.4% 8.2% 6.6%
(Broad taxable market)
Lehman Municipal Bond Index 3.1 6.5 5.3
Citigroup 3-Month Treasury Bill Index 1.3 2.9 3.8
==============================================================================
CPI
Consumer Price Index 2.2% 2.2% 2.5%
- ------------------------------------------------------------------------------
Corporate bonds outperformed Treasuries across all maturities. High-
2
yield corporate bonds performed spectacularly--the Lehman High Yield Index,
which tracks the performance of bonds issued by com-panies with low credit
ratings, returned 24.9% for the period.
Short-term interest rates generally declined for the 12 months, but rose
somewhat toward the end. In an effort to add fuel to the economic recovery, the
Federal Reserve Board trimmed its target for the federal funds rate twice--in
November 2002 and June 2003--by a total of 75 basis points (0.75 percentage
point). The rate stood at 1.00% at the fiscal year-end. The yield of the 3-month
Treasury bill, which typically lags Fed moves, began the fiscal year at 1.67%
and closed at 0.97% after falling to 0.81% in mid-June.
FOR THE FUND, A STRONG SECOND HALF FOLLOWED A POOR START
The performance of Vanguard Calvert Social Index Fund reflected the starkly
different moods in the stock market during the first and second halves of the
fiscal year. From August 31, 2002, through February 28, 2003, the fund's
Investor Shares returned -5.7%. During the second half of the year, they gained
22.2%.
The turnaround in the fund's performance mirrored the strong post-war resurgence
of the overall market. Stocks of companies in the technology, health care, and
consumer discretionary sectors--which together accounted for 55% of the fund's
assets at the fiscal year-end-- posted strong results and were among the largest
contributors to the fund's return.
The contribution of technology stocks to the fund's success is particularly
noteworthy, as these stocks severely hampered performance in 2001 and 2002. For
2003, the fund's tech holdings rose more than 32%. The fund's relatively large
allocation to such stocks, in both up markets and down, results from the social
screens of the target Calvert Social Index. The index criteria exclude many
companies in older industries that generally fall into the value stock category,
thus producing a lineup with a tilt toward growth sectors such as technology.
Also boosting performance was a rebound in financial services stocks, the fund's
largest sector at 29% of assets. These stocks experienced steep losses early in
the fiscal year, when investors were repelled by headlines about accounting and
management misdeeds, but the group recovered to gain about 7% for the full 12
months.
3
THE FUND'S RECORD SINCE INCEPTION REFLECTS A TOUGH MARKET
Vanguard Calvert Social Index Fund began operations on May 31, 2000, just after
the onset of what proved to be a severe three-year downturn in the U.S. stock
market. As a result, the fund's since-inception performance is quite
disappointing. Viewed in context, however, things look a bit better. As the
chart at left shows, the fund has met its mandate to closely track the total
return of the Calvert Social Index and has fared significantly better--that is,
lost less--than the average large-cap growth fund. An initial investment of
$10,000 in the fund would have been worth $6,994 on August 31, while the same
investment in the average peer would have resulted in some $1,100 less.
- ------------------------------------------------------------------------------
TOTAL RETURNS MAY 31, 2000,*
TO AUGUST 31, 2003
- ------------------------------------------------------------------------------
AVERAGE FINAL VALUE OF
ANNUAL A $10,000
RETURN INITIAL INVESTMENT
- ------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares -10.4% $6,994
Calvert Social Index -10.3 7,013
Average Large-Cap
Growth Fund -15.3 5,835
Wilshire 5000 Index -7.3 7,825
- ------------------------------------------------------------------------------
*Fund inception.
Through both good and bad markets, one factor that enhances your fund's
long-term competitiveness is its low operating costs. During fiscal 2003, for
example, the fund's Investor Shares had an expense ratio (operating expenses as
a percentage of average net assets) of 0.25%, or $2.50 per $1,000 invested--just
a fraction of the 1.57%, or $15.70 per $1,000 invested, charged by the average
large-cap growth fund. Our Institutional Shares enjoyed an even lower expense
ratio of 0.12% (annualized since inception on January 14). Over time, these low
costs mean that more of your fund's returns stay in your account, where they can
keep working for you.
KEEP YOUR FOCUS ON A LONG-TERM INVESTMENT PLAN
The stock market looked more enticing in the past few months than it had in a
long time. Does that mean we should expect even better things to come? Is now
the "right" time to put more assets in stocks?
The truth is that not even the most skilled market-watcher can answer those
questions. Nobody knows what the future holds for any asset class. That's why
Vanguard has always advocated a balanced, long-term investment approach that
includes a mix of stock, bond, and money market funds appropriate for your
unique goals, financial circumstances, and risk tolerance. Vanguard Calvert
Social Index
4
Fund, which exemplifies both the principles of socially screened investing and
the benefits of indexing--broad diversification, tax efficiency, and low
costs--can serve a role in such a portfolio.
Thank you for your continued confidence in Vanguard.
Sincerely,
/S/JOHN J. BRENNAN
John J. Brennan
chairman and chief executive officer
SEPTEMBER 15, 2003
- --------------------------------------------------------------------------------
YOUR FUND'S PERFORMANCE AT A GLANCE AUGUST 31, 2002-AUGUST 31, 2003
DISTRIBUTIONS PER SHARE
---------------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares $6.02 $6.87 $0.06 $0.00
Institutional Shares* 6.22 6.88 0.00 0.00
- --------------------------------------------------------------------------------
*Since inception, January 14, 2003.
5
FUND PROFILE As of 8/31/2003
This Profile provides a snapshot of the fund's characteristics, compared where
appropriate with both its unmanaged target index and a broad market index. Key
terms are defined on page 7.
CALVERT SOCIAL INDEX FUND
- -------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- -------------------------------------------------------------------
Number of Stocks 631 629 5,319
Median Market Cap $31.1B $28.7B $26.8B
Price/Earnings Ratio 23.4x 22.7x 21.7x
Price/Book Ratio 3.0x 3.0x 2.8x
Yield 1.3% 1.6%
Investor Shares 1.2%
Institutional Shares 1.3%
Return on Equity 16.3% 16.2% 19.9%
Earnings Growth Rate 13.7% 13.9% 7.7%
Foreign Holdings 0.1% 0.1% 0.8%
Turnover Rate 14% -- --
Expense Ratio -- --
Investor Shares 0.25%
Institutional Shares 0.12%+
Cash Investments 0% -- --
- -------------------------------------------------------------------
- -----------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Microsoft Corp. 4.3%
(software)
Pfizer Inc. 4.2
(pharmaceuticals)
Intel Corp. 3.3
(electronics)
Johnson & Johnson 2.6
(pharmaceuticals)
International Business Machines Corp. 2.5
(computer hardware)
American International Group, Inc. 2.4
(insurance)
Cisco Systems, Inc. 2.4
(computer hardware)
Bank of America Corp. 2.1
(banking)
Merck & Co., Inc. 2.0
(pharmaceuticals)
Wells Fargo & Co. 1.5
(banking)
- -----------------------------------------------------
Top Ten 27.3%
- -----------------------------------------------------
- -----------------------------------------------------------
VOLATILITY MEASURES
TARGET BROAD
FUND INDEX* FUND INDEX**
- -----------------------------------------------------------
R-Squared 1.00 1.00 0.97 1.00
Beta 1.00 1.00 1.13 1.00
- -----------------------------------------------------------
The "Ten Largest Holdings" excludes any temporary cash investments and equity
index products.
- ------------------------------
INVESTMENT FOCUS
MARKET CAP Large
STYLE Growth
- ------------------------------
- -------------------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
TARGET BROAD
FUND INDEX* INDEX**
- -------------------------------------------------------------
Auto & Transportation 2% 2% 3%
Consumer Discretionary 13 13 16
Consumer Staples 3 3 7
Financial Services 29 30 22
Health Care 19 18 13
Integrated Oils 0 0 3
Other Energy 1 1 2
Materials & Processing 1 1 4
Producer Durables 4 4 4
Technology 23 23 15
Utilities 5 5 7
Other 0 0 4
- -------------------------------------------------------------
*Calvert Social Index.
**Wilshire 5000 Index.
+Annualized.
VISIT OUR WEBSITE AT
VANGUARD.COM
FOR REGULARLY UPDATED FUND INFORMATION.
6
GLOSSARY OF INVESTMENT TERMS
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of the fund's target index or an overall market
index. Each index is assigned a beta of 1.00. Compared with a given index, a
fund with a beta of 1.20 typically would have seen its share price rise or fall
by 12% when the index rose or fell by 10%. However, a fund's beta should be
reviewed in conjunction with its R-squared (see definition below). The lower the
R-squared, the less correlation there is between the fund and the benchmark, and
the less reliable beta is as an indicator of volatility.
- --------------------------------------------------------------------------------
CASH INVESTMENTS. The percentage of a fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts or other equity index
products to simulate stock investment.
- --------------------------------------------------------------------------------
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
- --------------------------------------------------------------------------------
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
- --------------------------------------------------------------------------------
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or American Depositary Receipts of companies based outside the United States.
- --------------------------------------------------------------------------------
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by the fund's target index
or by an overall market index. If a fund's total returns were precisely
synchronized with an index's returns, its R-squared would be 1.00. If the fund's
returns bore no relationship to the index's returns, its R-squared would be 0.
- --------------------------------------------------------------------------------
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
- --------------------------------------------------------------------------------
TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and are more likely to distribute
capital gains (which are taxable to investors).
- --------------------------------------------------------------------------------
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
- --------------------------------------------------------------------------------
7
PERFORMANCE SUMMARY AS OF 8/31/2003
All of the returns in this report represent past performance, which cannot be
used to predict future returns that may be achieved by the fund. Note, too, that
both share price and return can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost. The returns
shown do not reflect taxes that a shareholder would pay on fund distributions or
on the redemption of fund shares.
CALVERT SOCIAL INDEX FUND
- --------------------------------------------------------------------------------
CUMULATIVE PERFORMANCE MAY 31, 2000-AUGUST 31, 2003
CALVERT SOCIAL AVERAGE
INDEX FUND WILSHIRE CALVERT LARGE-CAP
INVESTOR SHARES 5000 INDEX SOCIAL INDEX GROWTH FUND**
5/31/2000 10000 10000 10000 10000
200008 11107 11055 11547 10971
200011 9103 9063 8746 9214
200102 8431 8397 7589 8814
200105 8451 8418 7665 8986
200108 7580 7553 6635 8164
200111 7801 7789 6671 8202
200202 7387 7380 6201 8076
200205 7115 7106 6028 7924
200208 6067 6064 5138 6812
200211 6359 6365 5140 6996
200302 5722 5731 4622 6333
200305 6638 6648 5429 7353
200308 6994 7013 5777 7825
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 2003
-------------------------------- FINAL VALUE
ONE SINCE OF A $10,000
YEAR INCEPTION INVESTMENT
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares* 15.28% -10.42% $6,994
Wilshire 5000 Index 14.87 -7.27 7,825
Calvert Social Index 15.65 -10.34 7,013
Average Large-Cap Growth Fund** 12.45 -15.27 5,835
- --------------------------------------------------------------------------------
FINAL VALUE OF
SINCE A $10,000,000
INCEPTION+ INVESTMENT
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Institutional Shares 10.61% $11,061,093
Wilshire 5000 Index 12.32 11,231,937
Calvert Social Index 10.55 11,055,102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) MAY 31, 2000-AUGUST 31, 2003
CALVERT SOCIAL
INDEX FUND CALVERT
INVESTOR SHARES SOCIAL INDEX
2000 11.2 10.5
2001 -31.8 -31.7
2002 -20 -19.7
2003 15.3 15.6
- --------------------------------------------------------------------------------
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
**Derived from data provided by Lipper Inc.
+January 14, 2003.
Note: See Financial Highlights tables on pages 23 and 24 for dividend and
capital gains information.
8
- --------------------------------------------------------------------------------
Average Annual Total Returns for periods ended June 30, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
SINCE INCEPTION
ONE -------------------------
INCEPTION DATE YEAR CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares* 5/31/2000 2.89% -12.72% 0.57% -12.15%
Institutional Shares 1/14/2003 6.11** -- -- --
- --------------------------------------------------------------------------------
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
**Return since inception.
9
YOUR FUND'S AFTER-TAX RETURNS
This table presents returns for your fund both before and after taxes. The
after-tax returns are shown in two ways: (1) assuming that an investor owned the
fund during the entire period and paid taxes on the fund's distributions, and
(2) assuming that an investor paid taxes on the fund's distributions and sold
all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital
gains tax rates in effect at the times of the distributions and the hypothetical
sales. State and local taxes were not considered. After-tax returns reflect the
reduced tax rates on ordinary income and short-term capital gains that became
effective as of January 1, 2003, and on long-term capital gains realized on or
after May 6, 2003. However, they do not reflect the reduced rates on "qualified
dividend income."
The table shows returns for Investor Shares only; returns for other share
classes will differ. Please note that your actual after-tax returns will depend
on your tax situation and may differ from those shown. Also note that if you own
the fund in a tax-deferred account, such as an individual retirement account or
a 401(k) plan, this information does not apply to you. Such accounts are not
subject to current taxes.
Finally, keep in mind that a fund's performance--whether before or after
taxes--does not indicate how it will perform in the future.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED AUGUST 31, 2003
SINCE
ONE YEAR INCEPTION*
--------------------------------
CALVERT SOCIAL INDEX FUND INVESTOR SHARES**
Returns Before Taxes 15.28% -10.42%
Returns After Taxes on Distributions 14.83 -10.64
Returns After Taxes on Distributions and
Sale of Fund Shares 9.86 -8.81
- --------------------------------------------------------------------------------
*May 31, 2000.
**Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
10
ABOUT YOUR FUND EXPENSES
All mutual funds have operating expenses. These expenses include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund's
gross income, directly reduce the investment return of the fund. A fund's
expenses are expressed as a percentage of its net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would incur
over a 12-month period if you invested $10,000 in the fund, using the fund's
actual return and operating expenses for the fiscal year ended August 31, 2003.
For comparative purposes, we also list the average expense ratio for the fund's
peer group, which is derived from data provided by Lipper Inc.
- --------------------------------------------------------------------------------
FUND COST OF $10,000 PEER GROUP
EXPENSE RATIO INVESTMENT IN FUND EXPENSE RATIO
- --------------------------------------------------------------------------------
Calvert Social Index Fund
Investor Shares 0.25% $27 1.57%
Institutional Shares 0.12* 13 1.57
- --------------------------------------------------------------------------------
* Annualized; the Institutional Shares' inception was January 14, 2003.
The funds do not charge transaction fees; these results apply whether or not you
redeemed your investment at the end of the given period. Your actual costs may
have been higher or lower, depending on the amount of your investment and your
holding period. Peer-group ratios capture data through year-end 2002.
You can find more information about a fund's expense ratio, including annual
expense ratios for the past five years, in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the fund's prospectus. The prospectus
presents hypothetical shareholder costs over various time periods based upon a
$10,000 investment and a return of 5% a year. This standardized example, which
appears in all mutual fund prospectuses, may be useful to you in comparing the
costs of investing in different funds.
11
FINANCIAL STATEMENTS AS OF 8/31/2003
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (99.8%)
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION (1.9%)
United Parcel Service, Inc. 14,738 $ 925
FedEx Corp. 8,002 537
Harley-Davidson, Inc. 8,740 435
Southwest Airlines Co. 19,934 341
Genuine Parts Co. 4,971 159
Delphi Corp. 14,032 127
Expeditors International of
Washington, Inc. 3,000 113
C.H. Robinson Worldwide, Inc. 2,268 86
* Gentex Corp. 2,200 83
BorgWarner, Inc. 800 57
CNF Inc. 1,365 41
Delta Air Lines, Inc. 3,100 40
ArvinMeritor, Inc. 1,900 36
* Swift Transportation Co., Inc. 1,500 32
Skywest, Inc. 1,700 30
* Continental Airlines, Inc. Class B 1,900 29
Visteon Corp. 3,600 24
* Kansas City Southern 1,700 21
* Atlantic Coast Airlines
Holdings Inc. 1,100 9
---------------
$ 3,125
---------------
CONSUMER DISCRETIONARY (13.0%)
Home Depot, Inc. 66,108 2,126
* AOL Time Warner Inc. 123,219 2,016
Lowe's Cos., Inc. 20,296 1,113
Target Corp. 23,646 960
Gillette Co. 26,672 866
Kimberly-Clark Corp. 14,678 750
* eBay Inc. 12,186 675
* Kohl's Corp. 8,639 546
* Yahoo! Inc. 14,609 488
* InterActiveCorp 12,634 468
Avon Products, Inc. 6,726 431
Omnicom Group Inc. 5,439 425
* Costco Wholesale Corp. 13,064 419
* Best Buy Co., Inc. 7,545 392
The Gap, Inc. 18,445 385
* Electronic Arts Inc. 4,172 374
* Amazon.com, Inc. 8,048 374
* Bed Bath & Beyond, Inc. 8,378 361
* Staples, Inc. 14,035 346
The McGraw-Hill Cos., Inc. 5,464 333
* Starbucks Corp. 11,094 316
* Apollo Group, Inc. Class A 3,826 245
* EchoStar Communications
Corp. Class A 6,546 242
Eastman Kodak Co. 8,200 229
Dollar General Corp. 8,645 198
New York Times Co. Class A 4,329 192
Family Dollar Stores, Inc. 4,631 186
Newell Rubbermaid, Inc. 7,458 177
12
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
J.C. Penney Co., Inc.
(Holding Company) 7,750 $ 164
* Office Depot, Inc. 8,743 159
* Univision Communications Inc. 4,174 156
Whirlpool Corp. 2,000 139
* Dollar Tree Stores, Inc. 3,274 128
* Career Education Corp. 2,600 117
Estee Lauder Cos. Class A 3,220 111
Darden Restaurants Inc. 4,838 105
Jones Apparel Group, Inc. 3,400 105
Ross Stores, Inc. 2,040 103
* Robert Half International, Inc. 4,521 101
* ChoicePoint Inc. 2,500 98
* PETsMART, Inc. 4,066 97
E.W. Scripps Co. Class A 1,105 96
Black & Decker Corp. 2,217 95
Sabre Holdings Corp. 4,174 94
* Brinker International, Inc. 2,732 93
Harman International
Industries, Inc. 900 90
* CDW Corp. 1,716 89
* Iron Mountain, Inc. 2,250 83
* Monster Worldwide Inc. 3,044 83
* Williams-Sonoma, Inc. 2,652 81
Manpower Inc. 2,002 78
* Lamar Advertising Co. Class A 2,318 77
* Convergys Corp. 4,301 77
Fastenal Co. 1,902 77
Nordstrom, Inc. 2,881 75
* Corinthian Colleges, Inc. 1,300 75
R.R. Donnelley & Sons Co. 2,966 75
Outback Steakhouse 1,900 73
The Stanley Works 2,420 73
* Krispy Kreme Doughnuts, Inc. 1,500 66
Belo Corp. Class A 2,759 64
* Hispanic Broadcasting Corp. 1,938 61
Viad Corp. 2,527 60
Maytag Corp. 2,214 60
* ITT Educational Services, Inc. 1,300 56
* Entercom Communications Corp. 1,100 55
* Education Management Corp. 900 55
* O'Reilly Automotive, Inc. 1,400 54
* Tech Data Corp. 1,570 52
* The Cheesecake Factory 1,400 51
* Getty Images, Inc. 1,200 49
* The Corporate Executive Board Co. 1,100 49
* Saks Inc. 3,600 45
* Borders Group, Inc. 2,304 45
* DeVry, Inc. 1,700 44
Snap-On Inc. 1,479 44
Reebok International Ltd. 1,300 43
* Valassis Communications, Inc. 1,476 43
* Furniture Brands
International Inc. 1,500 43
Regis Corp. 1,200 42
* BJ's Wholesale Club, Inc. 1,899 41
Meredith Corp. 869 41
Ruby Tuesday, Inc. 1,800 41
* DoubleClick Inc. 3,559 40
Alberto-Culver Co. Class B 700 40
* Advance Auto Parts, Inc. 533 40
Lee Enterprises, Inc. 1,000 39
Media General, Inc. Class A 636 39
* Charter Communications, Inc. 8,500 38
* Extended Stay America, Inc. 2,500 38
Harte-Hanks, Inc. 2,000 38
* Overture Services, Inc. 1,500 37
* United Statioers, Inc. 900 37
John Wiley & Sons Class A 1,282 36
Ethan Allen Interiors, Inc. 900 35
* Linens 'n Things, Inc. 1,200 35
* Barnes & Noble, Inc. 1,293 34
La-Z-Boy Inc. 1,500 34
* BearingPoint, Inc. 3,876 32
* American Greetings Corp. Class A 1,700 31
* CEC Entertainment Inc. 800 31
* Tommy Hilfiger Corp. 2,499 31
* Earthlink, Inc. 4,057 31
* Arbitron Inc. 800 30
* Hollywood Entertainment Corp. 1,600 28
Callaway Golf Co. 1,802 27
The Brink's Co. 1,600 26
Blyth, Inc. 900 25
Tupperware Corp. 1,500 24
* Cox Radio, Inc. 1,000 24
* Insight Enterprises, Inc. 1,300 23
* Scholastic Corp. 800 23
* Catalina Marketing Corp. 1,275 18
Washington Post Co. Class B 20 14
The Nautilus Group, Inc. 900 11
---------------
$ 20,893
---------------
CONSUMER STAPLES (2.9%)
Walgreen Co. 29,420 958
Colgate-Palmolive Co. 15,517 858
Sysco Corp. 18,688 588
General Mills, Inc. 10,571 490
CVS Corp. 11,260 367
H.J. Heinz Co. 10,110 327
Kellogg Co. 6,679 224
Wm. Wrigley Jr. Co. 4,208 223
Hershey Foods Corp. 2,600 182
* Whole Foods Market, Inc. 1,700 92
13
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
SuperValu Inc. 3,788 $ 91
McCormick & Co., Inc. 2,322 62
Dial Corp. 2,702 55
* Performance Food Group Co. 1,333 52
Church & Dwight, Inc. 1,100 35
* American Italian Pasta Co. 500 21
---------------
$ 4,625
---------------
FINANCIAL SERVICES (29.6%)
BANKS--NEW YORK CITY (1.6%)
J.P. Morgan Chase & Co. 58,349 1,997
The Bank of New York Co., Inc. 20,940 616
BANKS--OUTSIDE NEW YORK CITY (12.3%)
Bank of America Corp. 42,996 3,407
Wells Fargo & Co. 48,163 2,415
Wachovia Corp. 38,664 1,630
Bank One Corp. 33,309 1,315
U.S. Bancorp 54,960 1,314
FleetBoston Financial Corp. 30,074 890
Fifth Third Bancorp 13,897 814
BB&T Corp. 16,032 585
National City Corp. 17,517 555
SunTrust Banks, Inc. 6,913 423
State Street Corp. 9,563 420
Mellon Financial Corp. 12,425 390
PNC Financial Services Group 8,129 387
KeyCorp 12,102 330
SouthTrust Corp. 9,752 283
M & T Bank Corp. 3,025 255
Comerica, Inc. 5,010 247
Northern Trust Corp. 5,533 234
Regions Financial Corp. 6,301 222
AmSouth Bancorp 10,092 217
Synovus Financial Corp. 8,771 214
Marshall & Ilsley Corp. 6,075 188
Union Planters Corp. 5,635 180
North Fork Bancorp, Inc. 4,537 153
First Tennessee National Corp. 3,600 149
National Commerce Financial Corp. 5,944 149
Zions Bancorp 2,615 146
Popular, Inc. 3,533 133
Banknorth Group, Inc. 4,687 132
Huntington Bancshares Inc. 6,300 126
Compass Bancshares Inc. 3,653 126
Mercantile Bankshares Corp. 2,364 97
TCF Financial Corp. 2,012 93
Hibernia Corp. Class A 4,416 92
Commerce Bancshares, Inc. 1,800 78
Commerce Bancorp, Inc. 1,900 77
Associated Banc-Corp 2,014 77
Valley National Bancorp 2,697 76
Doral Financial Corp. 1,800 74
Fulton Financial Corp. 3,103 63
City National Corp. 1,167 60
Wilmington Trust Corp. 1,888 60
Bank of Hawaii Corp. 1,740 59
Sky Financial Group, Inc. 2,500 59
Cullen/Frost Bankers, Inc. 1,500 57
Hudson United Bancorp 1,300 51
FirstMerit Corp. 2,021 51
Investors Financial Services Corp. 1,700 51
Colonial BancGroup, Inc. 3,251 48
Park National Corp. 394 44
Westamerica Bancorporation 1,000 44
BancorpSouth, Inc. 2,000 43
Old National Bancorp 1,796 42
First Midwest Bancorp, Inc. 1,350 41
Trustmark Corp. 1,496 39
Whitney Holdings Corp. 1,100 38
United Bankshares, Inc. 1,200 37
Southwest Bancorporation
of Texas, Inc. 900 33
The South Financial Group, Inc. 1,300 32
Community First Bankshares, Inc. 1,100 31
Greater Bay Bancorp 1,500 31
Chittenden Corp. 1,000 29
Citizens Banking Corp. 1,100 29
* Silicon Valley Bancshares 1,000 24
DIVERSIFIED FINANCIAL SERVICES (1.8%)
American Express Co. 33,206 1,496
Marsh & McLennan Cos., Inc. 15,351 768
The Goldman Sachs Group, Inc. 6,931 613
* BISYS Group, Inc. 3,448 63
Leucadia National Corp. 1,000 38
FINANCE COMPANIES (0.2%)
Capital One Financial Corp. 6,465 345
FINANCE--SMALL LOAN (0.4%)
SLM Corp. 13,242 532
* AmeriCredit Corp. 4,500 48
FINANCIAL DATA PROCESSING SERVICES (1.9%)
First Data Corp. 21,594 829
Automatic Data Processing, Inc. 17,148 684
Paychex, Inc. 9,665 348
* SunGard Data Systems, Inc. 8,112 229
* Fiserv, Inc. 5,547 216
* Concord EFS, Inc. 13,895 192
* Affiliated Computer
Services, Inc. Class A 3,657 181
14
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* DST Systems, Inc. 3,181 $ 126
Fair, Isaac, Inc. 1,400 82
Delux Corp. 1,602 68
* CheckFree Corp. 1,808 42
Jack Henry & Associates Inc. 2,100 39
NDCHealth Corp. 1,000 21
* Advent Software, Inc. 900 15
FINANCIAL INFORMATION SERVICES (0.2%)
Moody's Corp. 3,616 188
* The Dun & Bradstreet Corp. 2,160 91
Dow Jones & Co., Inc. 1,121 48
FINANCIAL MISCELLANEOUS (3.0%)
Fannie Mae 28,147 1,824
Freddie Mac 19,904 1,058
MBNA Corp. 32,584 761
MBIA, Inc. 4,184 236
H & R Block, Inc. 4,664 206
Ambac Financial Group, Inc. 3,041 197
MGIC Investment Corp. 2,842 160
Radian Group, Inc. 2,700 128
Fidelity National Financial, Inc. 3,891 112
* Providian Financial Corp. 8,181 84
First American Corp. 2,200 53
Brown & Brown, Inc. 1,600 50
Nationwide Financial Services, Inc. 1,600 47
Cross Timbers Royalty Trust 38 1
INSURANCE--LIFE (0.6%)
Prudential Financial, Inc. 15,826 576
The Principal Financial Group, Inc. 8,009 252
Jefferson-Pilot Corp. 4,111 182
The MONY Group Inc. 1,300 36
INSURANCE--MULTILINE (4.0%)
American International Group, Inc. 65,854 3,923
AFLAC Inc. 14,716 471
The Hartford Financial
Services Group Inc. 7,398 394
St. Paul Cos., Inc. 6,539 227
CIGNA Corp. 4,052 193
Lincoln National Corp. 5,063 179
Aon Corp. 7,811 173
Cincinnati Financial Corp. 4,018 162
SAFECO Corp. 4,008 145
Torchmark Corp. 3,377 136
UnumProvident Corp. 7,423 105
Arthur J. Gallagher & Co. 2,600 70
* Markel Corp. 257 69
Protective Life Corp. 1,787 52
StanCorp Financial Group, Inc. 900 51
Unitrin, Inc. 1,396 41
American National Insurance Co. 436 37
* Allmerica Financial Corp. 1,473 35
INSURANCE--PROPERTY-CASUALTY (1.2%)
Progressive Corp. of Ohio 5,477 387
The Chubb Corp. 4,937 335
XL Capital Ltd. Class A 3,900 295
ACE Ltd. 7,533 243
Everest Re Group, Ltd. 1,463 107
The PMI Group Inc. 2,520 89
RenaissanceRe Holdings Ltd. 1,900 79
White Mountains
Insurance Group Inc. 190 76
W.R. Berkley Corp. 2,100 69
PartnerRe Ltd. 1,296 65
HCC Insurance Holdings, Inc. 1,700 50
Transatlantic Holdings, Inc. 670 47
Erie Indemnity Co. Class A 1,122 46
Mercury General Corp. 800 35
Commerce Group, Inc. 800 29
* Ohio Casualty Corp. 1,800 25
INVESTMENT MANAGEMENT COMPANIES (0.5%)
T. Rowe Price Group Inc. 3,561 151
Janus Capital Group Inc. 6,875 119
Allied Capital Corp. 3,200 82
Federated Investors, Inc. 2,716 80
SEI Corp. 2,144 75
Neuberger Berman Inc. 1,654 69
Waddell & Reed Financial, Inc. 2,367 61
Eaton Vance Corp. 1,718 59
* Affiliated Managers Group, Inc. 600 41
RENT & LEASE SERVICES--COMMERCIAL
* United Rentals, Inc. 1,497 25
SAVINGS & LOAN (1.3%)
Washington Mutual, Inc. 26,603 1,037
Golden West Financial Corp. 3,734 322
Sovereign Bancorp, Inc. 7,468 147
Green Point Financial Corp. 3,431 116
New York Community Bancorp, Inc. 3,600 111
Astoria Financial Corp. 2,146 69
Hudson City Bancorp, Inc. 2,000 58
People's Bank 1,700 51
Webster Financial Corp. 1,200 47
Independence Community Bank Corp. 1,400 46
Washington Federal Inc. 1,750 44
15
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
IndyMac Bancorp, Inc. 1,500 $ 35
Staten Island Bancorp, Inc. 1,500 31
Commercial Federal Corp. 1,200 30
Downey Financial Corp. 600 25
SECURITIES BROKERS & Services (0.6%)
Charles Schwab Corp. 29,422 320
Franklin Resources Corp. 4,135 179
Legg Mason Inc. 1,969 141
* E*TRADE Group, Inc. 10,189 94
A.G. Edwards & Sons, Inc. 2,320 84
Jefferies Group, Inc. 1,400 42
American Capital Strategies, Ltd. 1,579 39
LaBranche & Co. Inc. 1,600 28
* Investment Technology Group, Inc. 1,450 26
---------------
$ 47,991
---------------
HEALTH CARE (18.6%)
BIOTECH RESEARCH & Production (2.2%)
* Amgen, Inc. 33,874 2,232
* Genzyme Corp.-General Division 6,126 289
* Biogen, Inc. 4,302 170
* IDEC Pharmaceuticals Corp. 4,433 154
* Millennium Pharmaceuticals, Inc. 7,888 110
* Invitrogen Corp. 1,300 75
* Cephalon, Inc. 1,600 71
* ICOS Corp. 1,593 62
* Millipore Corp. 1,300 59
* Quintiles Transnational Corp. 3,255 46
* IDEXX Laboratories Corp. 1,000 42
* OSI Pharmaceuticals, Inc. 1,000 38
* Protein Design Labs, Inc. 2,600 32
* Abgenix, Inc. 2,200 29
* Applera Corp.-
Celera Genomics Group 2,100 21
* Enzon Pharmaceuticals, Inc. 1,100 13
* Transkaryotic Therapies, Inc. 700 9
DRUGS & PHARMACEUTICALS (11.7%)
Pfizer Inc. 226,899 6,789
Johnson & Johnson 85,317 4,230
Merck & Co., Inc. 64,451 3,243
Bristol-Myers Squibb Co. 55,732 1,414
Cardinal Health, Inc. 12,871 733
Schering-Plough Corp. 42,011 638
* Forest Laboratories, Inc. 10,356 487
* Gilead Sciences, Inc. 5,736 383
Allergan, Inc. 3,833 305
* MedImmune Inc. 6,792 237
AmerisourceBergen Corp. 3,200 186
* Barr Laboratories, Inc. 1,693 115
* IVAX Corp. 4,366 86
* SICOR, Inc. 2,300 46
Medicis Pharmaceutical Corp. 733 45
* Vertex Pharmaceuticals, Inc. 1,886 24
* Alkermes, Inc. 1,600 18
ELECTRONICS--MEDICAL SYSTEMS (1.2%)
Medtronic, Inc. 34,906 1,731
* Varian Medical Systems, Inc. 2,000 112
* Affymetrix, Inc. 1,400 32
HEALTH & PERSONAL CARE (0.6%)
* Anthem, Inc. 4,033 295
McKesson Corp. 8,313 272
* Express Scripts Inc. 1,804 117
* Lincare Holdings, Inc. 2,979 103
Omnicare, Inc. 2,923 99
* Apria Healthcare Group Inc. 1,600 41
* Accredo Health, Inc. 1,350 32
HEALTH CARE FACILITIES (0.3%)
* Quest Diagnostics, Inc. 2,300 138
* Laboratory Corp. of
America Holdings 4,200 127
Health Management
Associates Class A 5,691 127
* DaVita, Inc. 1,741 53
* Renal Care Group, Inc. 1,400 51
* Pharmaceutical Product
Development, Inc. 1,400 36
* LifePoint Hospitals, Inc. 1,000 29
HEALTH CARE MANAGEMENT SERVICES (0.8%)
* WellPoint Health
Networks Inc. Class A 4,236 330
* Caremark Rx, Inc. 7,500 188
IMS Health, Inc. 6,494 126
* Health Net Inc. 2,976 95
* WebMD Corp. 8,770 90
* Oxford Health Plans, Inc. 2,410 87
* AdvancePCS 1,900 76
* Universal Health Services Class B 1,482 74
* First Health Group Corp. 2,737 72
* Mid Atlantic Medical Services, Inc. 1,400 69
* Cerner Corp. 800 28
* Orthodontic Centers of America, Inc. 1,100 8
MEDICAL & Dental Instruments & Supplies (1.8%)
* Boston Scientific Corp. 8,358 502
Guidant Corp. 8,914 447
Stryker Corp. 3,994 303
* Zimmer Holdings, Inc. 5,600 290
16
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* St. Jude Medical, Inc. 5,226 272
Becton, Dickinson & Co. 7,339 268
Biomet, Inc. 6,817 203
* Patterson Dental Co. 2,000 109
DENTSPLY International Inc. 1,956 86
Beckman Coulter, Inc. 1,800 80
* Henry Schein, Inc. 1,300 75
* Apogent Technologies Inc. 2,873 63
* Edwards Lifesciences Corp. 1,700 48
* ResMed Inc. 1,000 43
* Respironics, Inc. 1,000 42
* Cytyc Corp. 3,100 41
* Techne Corp. 1,200 40
Invacare Corp. 900 34
MEDICAL SERVICES
* Coventry Health Care Inc. 1,200 56
---------------
$ 30,071
---------------
MATERIALS & PROCESSING (1.4%)
Weyerhaeuser Co. 6,300 375
Masco Corp. 13,631 338
Praxair, Inc. 4,714 301
Air Products & Chemicals, Inc. 6,113 289
Avery Dennison Corp. 2,785 152
* American Standard Cos., Inc. 1,800 144
Ecolab, Inc. 5,300 137
* Sealed Air Corp. 2,412 117
Sigma-Aldrich Corp. 1,736 95
Bemis Co., Inc. 1,500 68
* Catellus Development Corp. 2,244 53
* Cabot Microelectronics Corp. 700 46
Harsco Corp. 1,154 45
AptarGroup Inc. 1,000 39
York International Corp. 1,100 36
Corn Products International, Inc. 1,000 32
Worthington Industries, Inc. 1,900 29
Hughes Supply, Inc. 600 21
---------------
$ 2,317
---------------
OTHER ENERGY (0.5%)
EOG Resources, Inc. 3,321 141
* Smith International, Inc. 2,932 115
XTO Energy, Inc. 5,237 111
* Pioneer Natural Resources Co. 3,300 84
Equitable Resources, Inc. 1,800 71
* Cooper Cameron Corp. 1,400 68
* Calpine Corp. 10,300 58
Chesapeake Energy Corp. 5,300 57
* FMC Technologies Inc. 1,838 44
* Key Energy Services, Inc. 3,600 37
* Grant Prideco, Inc. 3,200 37
* SEACOR SMIT Inc. 600 24
---------------
$ 847
---------------
PRODUCER DURABLES (4.4%)
* Applied Materials, Inc. 47,190 1,019
Emerson Electric Co. 12,133 677
Illinois Tool Works, Inc. 7,604 550
Deere & Co. 6,915 391
* KLA-Tencor Corp. 5,447 323
* Agilent Technologies, Inc. 12,266 298
Pitney Bowes, Inc. 6,757 264
Danaher Corp. 3,225 249
* Lexmark International, Inc. 3,672 246
* Xerox Corp. 21,094 227
Dover Corp. 5,774 220
Parker Hannifin Corp. 3,451 171
* Novellus Systems, Inc. 4,258 170
Cooper Industries, Inc. Class A 2,600 132
W.W. Grainger, Inc. 2,356 117
D. R. Horton, Inc. 3,650 114
* Waters Corp. 3,601 110
Diebold, Inc. 2,095 102
Pulte Homes, Inc. 1,426 95
* LAM Research Corp. 3,600 93
American Power Conversion Corp. 5,159 92
Pall Corp. 3,600 90
* Teradyne, Inc. 4,930 88
* Garmin Ltd. 1,906 76
Donaldson Co., Inc. 1,246 68
* NVR, Inc. 155 67
KB HOME 1,100 63
Pentair, Inc. 1,457 62
* Crown Castle International Corp. 5,300 57
* Tektronix, Inc. 2,400 57
Hubbell Inc. Class B 1,373 55
* Andrew Corp. 4,308 53
Graco, Inc. 1,300 51
HON Industries, Inc. 1,382 51
Herman Miller, Inc. 2,106 49
Molex, Inc. Class A 1,932 49
* AGCO Corp. 2,200 49
Cummins Inc. 956 48
Ryland Group, Inc. 700 47
* Cymer, Inc. 1,000 46
* Polycom, Inc. 2,600 45
MDC Holdings, Inc. 870 44
Ametek, Inc. 1,000 42
* Varian Semiconductor
Equipment Associates, Inc. 1,000 41
Kennametal, Inc. 1,000 39
Roper Industries Inc. 900 38
* Flowserve Corp. 1,600 34
Cognex Corp. 1,000 31
* Terex Corp. 1,300 30
17
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* Axcelis Technologies, Inc. 2,800 $ 24
* Credence Systems Corp. 1,800 21
---------------
$ 7,175
---------------
TECHNOLOGY (22.7%)
COMMUNICATIONS TECHNOLOGY (3.8%)
* Cisco Systems, Inc. 201,777 3,864
QUALCOMM Inc. 22,519 930
* Juniper Networks, Inc. 9,300 160
Scientific-Atlanta, Inc. 4,313 147
* JDS Uniphase Corp. 35,785 123
* Avaya Inc. 8,974 94
Symbol Technologies, Inc. 6,768 92
* UTStarcom, Inc. 2,000 86
* CIENA Corp. 12,480 81
* NCR Corp. 2,563 74
* Tellabs, Inc. 10,641 69
Harris Corp. 1,900 63
* 3Com Corp. 10,361 59
* ADC Telecommunications, Inc. 22,916 58
* Advanced Fibre
Communications, Inc. 2,500 58
* Brocade Communications
Systems, Inc. 6,700 38
Black Box Corp. 600 28
* CSG Systems International, Inc. 1,570 24
* Extreme Networks, Inc. 2,900 20
* CommScope, Inc. 1,368 14
COMPUTER SERVICES SOFTWARE & Systems (6.2%)
Microsoft Corp. 265,171 7,032
* Veritas Software Corp. 11,956 412
Adobe Systems, Inc. 6,655 258
* Intuit, Inc. 5,399 245
* Symantec Corp. 4,056 233
* Computer Sciences Corp. 5,083 216
* BEA Systems, Inc. 11,100 150
* QLogic Corp. 2,699 132
* Siebel Systems, Inc. 12,598 127
* Amdocs Ltd. 4,976 111
* Mercury Interactive Corp. 2,500 110
* Cadence Design Systems, Inc. 7,594 108
* BMC Software, Inc. 6,729 99
* Citrix Systems, Inc. 4,741 98
* Check Point Software
Technologies Ltd. 5,200 91
* Ceridian Corp. 4,077 79
* Compuware Corp. 10,085 60
Autodesk, Inc. 3,266 58
* Novell, Inc. 10,643 54
Reynolds & Reynolds Class A 1,703 49
* Sybase, Inc. 2,656 45
* Acxiom Corp. 2,617 42
* Mentor Graphics Corp. 2,000 41
National Instruments Corp. 1,000 40
* CACI International, Inc. 800 36
* Electronics for Imaging, Inc. 1,575 34
* Ascential Software Corp. 1,800 32
* Parametric Technology Corp. 7,070 24
* NetIQ Corp. 1,600 22
* American Management
Systems, Inc. 1,155 17
* Retek Inc. 1,200 9
COMPUTER TECHNOLOGY (6.4%)
International Business
Machines Corp. 49,657 4,072
* Dell Inc. 64,984 2,121
Hewlett-Packard Co. 78,734 1,568
* EMC Corp. 62,735 800
* Sun Microsystems, Inc. 91,570 353
Electronic Data Systems Corp. 13,634 298
* Apple Computer, Inc. 9,874 223
* Network Appliance, Inc. 9,710 218
* Synopsys, Inc. 2,195 150
* Unisys Corp. 9,299 121
* NVIDIA Corp. 4,400 80
* Storage Technology Corp. 3,069 79
* Zebra Technologies Corp. Class A 1,200 64
* Maxtor Corp. 5,483 63
* Emulex Corp. 2,300 56
* Ingram Micro, Inc. Class A 3,356 47
* Gateway, Inc. 5,826 34
* Quantum Corp. 4,316 13
ELECTRONICS (0.1%)
* Sanmina-SCI Corp. 14,688 132
* Semtech Corp. 2,200 46
AVX Corp. 1,034 14
ELECTRONICS--SEMICONDUCTORS/COMPONENTS (6.0%)
Intel Corp. 187,764 5,374
Texas Instruments, Inc. 49,765 1,187
* Analog Devices, Inc. 10,466 429
Linear Technology Corp. 8,919 368
* Xilinx, Inc. 9,632 297
* Micron Technology, Inc. 15,685 225
* Altera Corp. 9,828 221
Microchip Technology, Inc. 5,800 162
* Broadcom Corp. 5,946 162
* Jabil Circuit, Inc. 4,634 130
* LSI Logic Corp. 10,695 123
* Intersil Corp. 3,900 114
18
- --------------------------------------------------------------------------------
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* Advanced Micro Devices, Inc. 9,898 $ 112
* Marvell Technology Group Ltd. 2,433 103
* PMC Sierra Inc. 4,883 70
* Integrated Circuit Systems, Inc. 2,000 69
* Atmel Corp. 11,992 55
* Avnet, Inc. 2,918 53
* Arrow Electronics, Inc. 2,429 50
* Applied Micro Circuits Corp. 8,446 49
* RF Micro Devices, Inc. 5,114 45
* Fairchild Semiconductor
International, Inc. 2,500 44
* Conexant Systems, Inc. 7,600 42
* Agere Systems Inc. Class A 13,764 42
* Integrated Device Technology Inc. 2,900 40
* Agere Systems Inc. Class B 11,800 34
* Micrel, Inc. 1,900 26
* Lattice Semiconductor Corp. 2,900 26
* TriQuint Semiconductor, Inc. 3,545 20
ELECTRONICS--TECHNOLOGY (0.1%)
* Solectron Corp. 22,298 132
* The Titan Corp. 2,200 35
* KEMET Corp. 2,472 30
* Coherent, Inc. 800 21
SCIENTIFIC EQUIPMENT & Supplies (0.1%)
Applera Corp.- Applied Biosystems Group 5,945 129
* Varian, Inc. 1,000 34
---------------
$ 36,751
---------------
UTILITIES (4.6%)
SBC Communications Inc. 95,389 2,145
BellSouth Corp. 53,024 1,336
* Comcast Corp. Special Class A 25,369 719
* AT&T Wireless Services Inc. 64,158 553
* NEXTEL Communications, Inc. 28,494 549
ALLTEL Corp. 8,922 409
* Cox Communications, Inc. Class A 5,701 187
KeySpan Corp. 4,513 152
Kinder Morgan, Inc. 2,751 146
NiSource, Inc. 7,523 145
CenturyTel, Inc. 3,888 135
* Cablevision Systems
NY Group Class A 5,429 109
* AES Corp. 16,488 107
* Citizens Communications Co. 8,152 93
Telephone & Data Systems, Inc. 1,374 79
Questar Corp. 2,411 77
MDU Resources Group, Inc. 2,145 73
Puget Energy, Inc. 2,714 59
OGE Energy Corp. 2,200 48
AGL Resources Inc. 1,700 47
Philadelphia Suburban Corp. 2,000 47
Hawaiian Electric Industries Inc. 1,100 47
ONEOK, Inc. 2,130 45
NICOR Inc. 1,263 43
Peoples Energy Corp. 1,000 40
WGL Holdings Inc. 1,400 38
Piedmont Natural Gas, Inc. 900 35
IDACORP, Inc. 1,051 25
Cleco Corp. 1,400 22
* Sierra Pacific Resources 3,200 16
---------------
$ 7,526
---------------
OTHER (0.2%)
* SPX Corp. 2,300 114
Teleflex Inc. 1,100 52
Carlisle Co., Inc. 933 42
Lancaster Colony Corp. 800 32
---------------
$ 240
---------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $177,114) $ 161,561
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.2%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.05%, 9/2/2003 $ 212 212
1.06%, 9/2/2003--Note E 78 78
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS (Cost $290) 290
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%) (Cost $177,404) $ 161,851
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Other Assets--Note B 857
Liabilities--Note E (782)
---------------
$ 75
---------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $ 161,926
================================================================================
*See Note A in Notes to Financial Statements.
*Non-income-producing security.
19
- ------------------------------------------------------------------
AMOUNT
CALVERT SOCIAL INDEX FUND (000)
- ------------------------------------------------------------------
AT AUGUST 31, 2003, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
Paid-in Capital $ 188,534
Undistributed Net Investment Income 869
Accumulated Net Realized Losses (11,924)
Unrealized Depreciation (15,553)
- ------------------------------------------------------------------
NET ASSETS $ 161,926
==================================================================
Investor Shares--Net Assets
Applicable to 21,851,405 outstanding $.001 par value
shares of beneficial interest
(unlimited authorization) $ 150,147
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- INVESTOR SHARES $ 6.87
==================================================================
Institutional Shares--Net Assets
Applicable to 1,712,779 outstanding $.001 par value
shares of beneficial interest
(unlimited authorization) $ 11,779
- ------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- INSTITUTIONAL SHARES $ 6.88
==================================================================
See Note C in Notes to Financial Statements for the tax-basis
components of net assets.
20
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
- --------------------------------------------------------------------------------
CALVERT SOCIAL INDEX FUND
YEAR ENDED AUGUST 31, 2003
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 1,668
Interest 5
Security Lending 4
- --------------------------------------------------------------------------------
Total Income $ 1,677
- --------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Management and Administrative
Investor Shares 194
Institutional Shares 7
Marketing and Distribution
Investor Shares 19
Institutional Shares --
Custodian Fees 38
Auditing Fees 13
Shareholders' Reports and Proxies
Investor Shares 14
Institutional Shares --
- --------------------------------------------------------------------------------
Total Expenses 285
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,392
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (6,002)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES $ 24,084
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 19,474
================================================================================
21
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
fund, either by purchasing shares or by reinvesting distributions, as well as
the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
- --------------------------------------------------------------------------------
CALVERT SOCIAL INDEX FUND
-------------------------------
YEAR ENDED YEAR ENDED
AUG. 31, AUG. 31,
2003 2002
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,392 $ 765
Realized Net Gain (Loss) (6,002) (5,575)
Change in Unrealized Appreciation (Depreciation) 24,084 (17,116)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations 19,474 (21,926)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (994) (621)
Institutional Shares -- --
Realized Capital Gain
Investor Shares -- --
Institutional Shares -- --
- --------------------------------------------------------------------------------
Total Distributions (994) (621)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--NOTE F
Investor Shares 38,311 37,054
Institutional Shares 10,640 --
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions 48,951 37,054
- --------------------------------------------------------------------------------
Total Increase (Decrease) 67,431 14,507
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 94,495 79,988
- --------------------------------------------------------------------------------
End of Period $ 161,926 $ 94,495
================================================================================
22
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
CALVERT SOCIAL INDEX FUND INVESTOR SHARES
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, MAY 8* TO
------------------------------------------- AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.02 $ 7.57 $ 11.14 $ 10.00
- ---------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .07 .05 .04 .02
Net Realized and Unrealized Gain (Loss) on Investments .84 (1.55) (3.57) 1.12
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations .91 (1.50) (3.53) 1.14
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.06) (.05) (.03) --
Distributions from Realized Capital Gains -- -- (.01) --
- ---------------------------------------------------------------------------------------------------------
Total Distributions (.06) (.05) (.04) --
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 6.87 $ 6.02 $ 7.57 $ 11.14
=========================================================================================================
TOTAL RETURN** 15.28% -19.96% -31.75% 11.07%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 150 $ 94 $ 80 $ 40
Ratio of Total Expenses to Average Net Assets 0.25% 0.25% 0.25% 0.25%+
Ratio of Net Investment Income to Average Net Assets 1.18% 0.82% 0.70% 0.98%+
Portfolio Turnover Rate 14% 18% 10% 3%
==========================================================================================================
* Subscription period for the fund was May 8, 2000, to May 31, 2000, during
which time all assets were held in money market instruments. Performance
measurement begins May 31, 2000.
** Total returns do not reflect the $10 annual account maintenance fee applied
on balances under $10,000.
+Annualized.
23
FINANCIAL HIGHLIGHTS (CONTINUED)
CALVERT SOCIAL INDEX FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
JAN. 14* TO
AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD 2003
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.22
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .05
Net Realized and Unrealized Gain (Loss) on Investments .61
- --------------------------------------------------------------------------------
Total from Investment Operations .66
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income --
Distributions from Realized Capital Gains --
- --------------------------------------------------------------------------------
Total Distributions --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 6.88
================================================================================
TOTAL RETURN 10.61%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $ 12
Ratio of Total Expenses to Average Net Assets 0.12%**
Ratio of Net Investment Income to Average Net Assets 1.32%**
Portfolio Turnover Rate 14%
================================================================================
*Inception.
**Annualized.
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
NOTES TO FINANCIAL STATEMENTS
Vanguard Calvert Social Index Fund is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund. The fund offers
two classes of shares, Investor Shares and Institutional Shares. Investor Shares
are available to any investor who meets the fund's minimum purchase
requirements. Institutional Shares were first issued on January 14, 2003, and
are designed for investors who meet certain administrative and servicing
criteria and invest a minimum of $10 million.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. The fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Securities are valued as of the close of trading on
the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund's pricing time but after the close of the securities'
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Temporary cash investments acquired over 60 days to
maturity are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and ratings), both as furnished by independent pricing services.
Other temp-orary cash investments are valued at amortized cost, which
approximates market value.
2. REPURCHASE AGREEMENTS: The fund, along with other members of The
Vanguard Group, transfers uninvested cash balances to a pooled cash account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
3. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that
each class separately bears certain class-specific expenses related to
maintenance of shareholder accounts (included in Management and Administrative
expenses), shareholder reporting, and proxies. Marketing and distribution
expenses are allocated to each class of shares based on a method approved by the
board of trustees. Income, other non-class-specific expenses, and gains and
losses on investments are allocated to each class of shares based on its
relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the fund under methods approved by the board of
trustees. The fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At August 31, 2003, the fund had contributed
capital of $26,000 to Vanguard (included in Other Assets), representing 0.02% of
the fund's net assets and 0.03% of Vanguard's capitalization. The fund's
trustees and officers are also directors and officers of Vanguard.
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
For tax purposes, at August 31, 2003, the fund had $1,036,000 of ordinary income
available for distribution. The fund had available realized losses of
$11,904,000 to offset future net capital gains of $57,000 through August 31,
2009, $3,511,000 through August 31, 2010, $5,505,000 through August 31, 2011,
and $2,831,000 through August 31, 2012.
At August 31, 2003, net unrealized depreciation of investment securities for tax
purposes was $15,553,000, consisting of unrealized gains of $12,905,000 on
securities that had risen in value since their purchase and $28,458,000 in
unrealized losses on securities that had fallen in value since their purchase.
D. During the year ended August 31, 2003, the fund purchased $64,792,000 of
investment securities and sold $16,060,000 of investment securities other than
temporary cash investments.
E. The market value of securities on loan to broker/dealers at August 31, 2003,
was $76,000, for which the fund held cash collateral of $78,000. The fund
invests cash collateral received in repurchase agreements, and records a
liability for the return of the collateral, during the period the securities are
on loan.
F. Capital share transactions for each class of shares were:
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------
2003 2002
--------------------- --------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- --------------------------------------------------------------------------------
INVESTOR SHARES
Issued $ 56,456 9,160 $ 56,138 7,847
Issued in Lieu of Cash Distributions 910 154 551 71
Redeemed (19,055) (3,163) (19,635) (2,790)
- --------------------------------------------------------------------------------
Net Increase (Decrease)--
Investor Shares 38,311 6,151 37,054 5,128
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Issued 12,139 1,954 -- --
Issued in Lieu of Cash Distributions -- -- -- --
Redeemed (1,499) (241) -- --
- --------------------------------------------------------------------------------
Net Increase (Decrease)--
Institutional Shares 10,640 1,713 -- --
================================================================================
26
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of Vanguard Calvert Social Index Fund:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Vanguard Calvert Social Index Fund (the "Fund") at August 31, 2003, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 2003 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
PHILADELPHIA, PENNSYLVANIA
OCTOBER 7, 2003
- --------------------------------------------------------------------------------
SPECIAL 2003 TAX INFORMATION
(UNAUDITED) FOR VANGUARD CALVERT SOCIAL INDEX FUND
This information for the fiscal year ended August 31, 2003, is included pursuant
to provisions of the Internal Revenue Code.
For corporate shareholders, 100% of investment income (dividend income plus
short-term gains, if any) qualifies for the dividends-received deduction.
The fund intends to distribute the maximum amount of qualified dividend income
allowable. The amount of qualified dividend income distributed by the fund will
be provided to individual shareholders on their 2003 Form 1099-DIV.
- --------------------------------------------------------------------------------
27
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28
CAPITALIZE ON YOUR IRA
Are you taking full advantage of your individual retirement account? You really
should be. The contribution limits on IRAs were recently raised, making these
tax-deferred accounts more powerful options for retirement savers.
Here's how you can exploit your IRA--and improve your chances of having the
retirement of your dreams.
CONTRIBUTE THE MAXIMUM AMOUNT EACH YEAR
It may be an obvious point, but if you invest as much in your IRA as the law
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are age 50 or over--you will increase the odds of meeting your retirement goals.
"Max out" every year you can.
MAKE IT AUTOMATIC
Put your IRA on autopilot by taking advantage of Vanguard's Automatic Investment
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CONSIDER COST
The owners of low-cost investments keep a larger portion of their gross returns
than the owners of high-cost investments. Over the long term, avoiding costlier
mutual funds and brokerage commissions could significantly boost your retirement
savings.Our low costs are one reason a Vanguard IRA(R) is such a smart choice.
REQUEST A DIRECT ROLLOVER WHEN YOU CHANGE JOBS
Don't spend your retirement assets before you've retired. When you change jobs,
roll your 401(k) or other employer-sponsored retirement plan assets directly
into your IRA.
If you have questions about your IRA, want to transfer an IRA from another
institution to Vanguard, or need help with any other IRA transaction, call our
Retirement Resource Center at 1-800-205-6189 or visit VANGUARD.COM. You can open
or fund your IRA on our website and have a confirmation in your hand within
minutes.
29
THE VANGUARD(R) FAMILY OF FUNDS
STOCK FUNDS
500 Index Fund
Calvert Social Index Fund
Capital Opportunity Fund
Capital Value Fund
Convertible Securities Fund
Developed Markets Index Fund
Dividend Growth Fund
Emerging Markets Stock Index Fund
Energy Fund
Equity Income Fund
European Stock Index Fund
Explorer(TM) Fund
Extended Market Index Fund
Global Equity Fund
Growth and Income Fund
Growth Equity Fund
Growth Index Fund
Health Care Fund
Institutional Developed Markets Index Fund
Institutional Index Fund
Institutional Total Stock Market Index Fund
International Explorer(TM) Fund
International Growth Fund
International Value Fund
Mid-Cap Growth Fund
Mid-Cap Index Fund
Morgan(TM) Growth Fund
Pacific Stock Index Fund
Precious Metals Fund
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund
Small-Cap Index Fund
Small-Cap Value Index Fund
Strategic Equity Fund
Tax-Managed Capital Appreciation Fund
Tax-Managed Growth and Income Fund
Tax-Managed International Fund
Tax-Managed Small-Cap Fund
Total International Stock Index Fund
Total Stock Market Index Fund
U.S. Growth Fund
U.S. Value Fund
Value Index Fund
Windsor(TM) Fund
Windsor(TM) II Fund
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
LifeStrategy(R) Conservative Growth Fund
LifeStrategy(R) Growth Fund
LifeStrategy(R) Income Fund
LifeStrategy(R) Moderate Growth Fund
STAR(R) Fund
Tax-Managed Balanced Fund
Wellesley(R) Income Fund
Wellington(TM) Fund
BOND FUNDS
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Inflation-Protected Securities Fund
Institutional Total Bond Market Index Fund
Insured Long-Term Tax-Exempt Fund
Intermediate-Term Bond Index Fund
Intermediate-Term Corporate Fund
Intermediate-Term Tax-Exempt Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida, Massachusetts,
New Jersey, New York, Ohio, Pennsylvania)
Total Bond Market Index Fund
MONEY MARKET FUNDS
Admiral(TM) Treasury Money Market Fund
Federal Money Market Fund
Prime Money Market Fund
State Tax-Exempt Money Market
Funds (California, New Jersey,
New York, Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY
Balanced Portfolio
Capital Growth Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
Total Bond Market Index Portfolio
Total Stock Market Index Portfolio
For information about Vanguard funds and annuities, including charges and
expenses, obtain a prospectus from The Vanguard Group, P.O. Box 2600, Valley
Forge, PA 19482-2600. Read it carefully before you invest or send money. this
page intentionally left blank
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services
to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
- ------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee
(1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(112)
- ------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (112) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (112) Chairman (JanuarySeptember 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
- ------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (112) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
- ------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL TRUSTEE Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (110) Director of Vanguard Investment Series plc (Irish invest-ment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (112) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------
J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (112) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceuti-cal
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------
executive officers*
R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (112) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (112) investment companies served by The Vanguard Group.
July 1998
- ------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------
[PICTURE OF SHIP]
[THE VANGUARD GROUP(R)LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600
Vanguard, The Vanguard Group, Vanguard.com, Vanguard IRA, Admiral, Consolidated
View, Explorer, Morgan, LifeStrategy, PlainTalk, STAR, Wellesley, Wellington,
Windsor, and the ship logo are trademarks of The Vanguard Group, Inc.
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, Inc.
Vanguard mutual funds are not sponsored, endorsed, sold, or promoted by Standard
& Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in the funds.
Calvert Social Index is a trademark of Calvert Group, Ltd., and has been
licensed for use by The Vanguard Group, Inc. Vanguard Calvert Social Index Fund
is not sponsored, endorsed, sold, or promoted by Calvert Group, Ltd., and
Calvert Group, Ltd., makes no representation regarding the advisability of
investing in the fund.
All other marks are the exclusive property of their respective owners.
ABOUT OUR COVER
The photographs that appear on the cover of this report are copyrighted by
Michael Kahn.
FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
To receive a free copy of the prospectus or the Statement of Additional
Information, or to request additional information about the fund or other
Vanguard funds, please contact us at one of the adjacent telephone numbers or by
e-mail through Vanguard.com(R). Prospectuses may also be viewed online.
You can obtain a free copy of Vanguard's proxy voting guidelines by visiting our
website, www.vanguard.com, and searching for "proxy voting guidelines," or by
calling 1-800-662-2739. The guidelines are also available from the SEC's
website, www.sec.gov.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
DIRECT INVESTOR ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
TEXT TELEPHONE
1-800-952-3335
(C) 2003 THE VANGUARD GROUP, INC.
ALL RIGHTS RESERVED.
VANGUARD MARKETING
CORPORATION, DISTRIBUTOR.
Q2130 102003
ITEM 2: Code of Ethics. The Board of Trustees has adopted a code of ethics that
applies to the principal executive officer, principal financial officer,
principal accounting officer or controller of the Registrant and The Vanguard
Group, Inc., and to persons performing similar functions.
ITEM 3: Audit Committee Financial Expert. All of the members of the Audit
Committee have been determined by the Registrant's Board of Trustees to be Audit
Committee Financial Experts. The members of the Audit Committee are: Charles D.
Ellis, Rajiv L. Gupta, JoAnn Heffernan Heisen, Burton G. Malkiel, Alfred M.
Rankin, Jr., and J. Lawrence Wilson. All Audit Committee members are independent
under applicable rules.
ITEM 4: Not applicable.
ITEM 5: Not applicable.
ITEM 6: Reserved.
ITEM 7: Not applicable.
ITEM 8: Reserved.
ITEM 9: CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. The Principal Executive and
Financial Officers concluded that the Registrant's Disclosure Controls and
Procedures are effective based on their evaluation of the Disclosure Controls
and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant
changes in Registrant's internal control over financial reporting or in other
factors that could significantly affect this control subsequent to the date of
the evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 10: EXHIBITS. The following exhibits are attached hereto:
(a) code of ethics
(b) certifications
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD WORLD FUND
BY:_____________(signature)________________
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: October 27, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
VANGUARD WORLD FUND
BY:_____________(signature)________________
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: October 27, 2003
VANGUARD WORLD FUND
BY:_____________(signature)________________
(HEIDI STAM)
THOMAS J. HIGGINS*
TREASURER
Date: October 27, 2003
*By Power of Attorney. See File Number 2-57689, filed on December 26, 2002.
Incorporated by Reference.