[Vanguard Ship Logo]
December 20, 2006
Christian Sandoe, Esq.
Division of Investment Management
U.S. Securities and Exchange Commission via electronic filing address
100 F Street NE
Washington, D.C. 20549
Re: Vanguard World Funds
Dear Mr. Sandoe:
The following responds to your comments of December 11, 2006, on the
post-effective amendment of the registration statement of the above-referenced
registrant. You commented on Post-Effective Amendment No. 102 that was filed on
October 26, 2006.
Vanguard U.S. Growth Fund
Comment 1: Prospectus - Primary Investment Strategies
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Comment: Include the Fund's 80% [names rule] policy in the Primary
Investment Strategies. While the names rule does not require
disclosure in Item 2, it is suggested in the footnotes to the
rule that such disclosure be added.
Response: Footnote 15 to rule 35d-1 (the "names rule") states that:
"We note that an investment company that is covered by the
rule should disclose its policy to invest its assets in
accordance with the 80% investment requirement suggested by
its name as one of its principal investment strategies in the
prospectus."
The footnote to the names rule requires that the fund disclose
its policy to invest its assets in accordance with the 80%
investment requirement suggested by its name and we believe
that the fund's principal investment strategies does that by
stating: "The Fund invests mainly in large-capitalization
stocks of U.S. companies..." We believe our current disclosure
is in compliance with the names rule and Form N-1A.
Vanguard International Growth Fund
Comment 2: Prospectus -Investment Strategy
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Comment: Explain how the Fund diversifies its assets across a number of
countries throughout the world (see footnote 42 to
the names rule).
Response: In footnote 42 of Release No. IC-24828 (the "names rule
Release"), the SEC stated that:
"[t]he terms `international' and `global,' however, connote
diversification among investments in a number of different
countries throughout the world, and `international' and
`global' funds will not be subject to the [names] rule. We
would expect, however, that investment companies using these
terms in their names will invest their assets in investments
that are tied economically to a number of countries throughout
the world." (Emphasis added.)
The above-quoted guidance does not impose a particular
disclosure requirement; rather, it sets forth an expectation
regarding a fund's investment approach.
The Fund satisfies this expectation. We think that our
existing disclosure sufficiently conveys the idea that the
Fund invests (chooses and allocates) across a number of
countries throughout the world. In describing the investment
process used by the Fund's two investment advisors, the
prospectus states in the "Securities Selection" section:
o Schroders continually evaluates financial markets around
the world and identifies those countries with, in the
advisor's opinion, the most favorable business climates...
The companies chosen by Schroders reflect a wide variety
of countries and industries
o To determine how to allocate its portion of the Fund's
assets geographically, Baillie Gifford constantly
evaluates economic, market, and political trends
worldwide.
Comment 3: Prospectus - Investment Advisors
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Comment: Identify The Vanguard Group, Inc. as an investment advisor of
the fund in the "Investment Advisor" section of the prospectus
because on page 9 of the prospectus, it states that "The
Vanguard Group (Vanguard) manages a small portion
(approximately 3%) of the Fund's assets to facilitate cash
flows to and from the Fund's advisors. Vanguard typically
invests its portion of the Fund's assets in stock index
futures and/or shares of exchange-traded funds."
Response: We disagree that Vanguard should be listed as an investment
advisor of the Fund. Vanguard's responsibilities are very
limited. As stated in the prospectus, "[t]he Fund's board of
trustees designates the proportion of Fund assets to be
managed by each advisor and may change these proportions at
any time." Vanguard's role is simply to maintain the
allocation of assets mandated by the board. Assume, for
example, that the Fund's two advisors are entrusted with 60%
and 40%, respectively, of the Fund's assets. Over time, due
to differing performance of the respective sub-portfolios,
the allocation may have become 62% and 38%, respectively.
Forcing one advisor to sell assets and deliver the proceeds
to the other advisor would drive up transaction costs to the
detriment of the Fund and its shareholders. To accomplish
the reallocation in a more cost-effective manner, the board
has directed that a small percentage of the Fund's assets be
maintained in highly liquid instruments that can be sold at
minimal cost with the proceeds allocated to one party or the
other as necessary. Vanguard's role is to oversee this
"buffer" and use it as needed to ensure that the allocation
of Fund assets between advisors remains in line with the
board's mandate. To avoid "cash drag," Vanguard places the
buffer in highly liquid proxies for the equity market, such
as futures contracts and shares of exchange-traded funds
tied to the same general market segment as the Fund.
In any event, under section 2(a)(20) of the Investment Company
Act, Vanguard is not an investment advisor. Section 2(a)(20)
provides that the definition of investment advisor does not
include "a company furnishing such services at cost to one or
more investment companies...." Vanguard is compensated at cost
for managing the allocation of assets among the Fund's
investment advisors, and therefore is not an investment
advisor subject to the disclosure requirements of Form N-1A.
Comment 4: Prospectus - Investment Advisors
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Comment: Describe the relationship between the Schroder "co-managers"
and state that relationship more clearly in the Fund's
prospectus.
Response: We will update this disclosure via the 485(b) filing to
indicate that the named Schroder portfolio managers "jointly
manage" the Fund's assets.
World Funds SAI
Comment 5: SAI - Description of PM Compensation
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Comment: Describe the specific investment performance criteria (i.e.,
benchmark, time periods) in the Description of Compensation
for William Blair & Company and any other advisor listed in
this Part B.
Response: We will update this disclosure via the 485(b) filing as
requested.
As required by the SEC, the Funds acknowledge that:
o Each Fund is responsible for the adequacy and accuracy of the
disclosure in the filing.
o Staff comments or changes in response to staff comments in the
filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filing.
o Each Fund may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the placecountry-regionUnited
States.
Please contact me at (610) 669-6018 with any questions or comments
regarding the above responses. Thank you.
Sincerely,
Beverly Hart
Legal Manager