Vanguard FTSE All-World ex-US Small-Cap Index Fund

from the preliminary prospectus: ''The Fund employs a "passive management"--or indexing--investment approach designed to track the performance of the FTSE Global Small Cap ex US Index, a free-float- adjusted, market capitalization-weighted index designed to measure equity market performance of international small-capitalization stocks. The Index includes approximately 3,300 stocks of companies located in 47 countries, including both developed and emerging markets. As of September 30, 2008, the largest markets covered in the Index were the United Kingdom, Japan, Canada, France, and Switzerland (which made up approximately 18%, 13%, 12%, 5%, and 4%, respectively, of the Index's market capitalization). The Fund attempts to sample the target index by holding a representative sample of securities that resembles the full Index in terms of key risk factors and other characteristics. These factors include industry ratings, country ratings, market capitalization, and other financial characteristics of stocks. The Fund holds approximately 1,500 stocks of the 3,300 contained within the Index.''

Share Classes
Two share classes are expected to be available to individual investors:

Total costs of the ETF and open-end classes may be compared via this Vanguard calculator, although the differential in Vanguard's charges will likely steer most investors toward the ETF share.
 * Investor (ticker symbol to be determined), with an expense ratio (ER) of 0.60%, an initial minimum investment of $3,000, along with 0.75% purchase and redemption fees on all shares
 * ETF (ticker symbol to be determined) with an ER of 0.38% and no minimums, though transaction costs apply in buying and selling through a brokerage

An additional share class is expected to be offered through some workplace retirement plans:


 * Institutional (ticker symbol to be determined) with an ER of 0.35%

Broad coverage
The fund contains both developed and emerging market stocks, which is the first of its kind.

Expense Ratio
The current 0.60% expense ratio of the fund is high by Vanguard standards. Vanguard International Explorer Fund gives you access to a similar asset class although the fund is much less diversified, containing only about 200 stocks.

Fees
The purchase and redemption fees are nonexpiring, and thus discourage trading by imposing a 0.75% round-trip cost on every trade. Given the volatility of small cap stocks, there are many opportunities for tax loss harvesting, but the 0.75% cost significantly reduces the benefit.

The purchase and redemption fees can be avoided by using the ETF class; there are still brokerage fees and trading costs, but the fees can be less than 0.75%.

Vanguard has a history of reducing, and eventually eliminating, the transaction fee as fund net assets increase. [1]

History
On December 11, 2008, Vanguard announced that it has filed a registration statement with SEC with the availability expected to be in the first quarter of 2009.