VANGUARD WHITEHALL FUNDS INC, 497, 2000-02-18

VANGUARD WHITEHALL FUNDS INC
497, 2000-02-18

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 33-64845) UNDER THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 7

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 10

VANGUARD WHITEHALL FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)

P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER (610) 669-1000

R. GREGORY BARTON, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482

IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
ON FEBRUARY 18, 2000, PURSUANT TO PARAGRAPH (B) OF RULE 485.

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

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VANGUARD SELECTED VALUE FUND

Prospectus
February 18, 2000

This prospectus contains financial data for the Fund through the fiscal year
ended October 31, 1999.

VANGUARD SELECTED VALUE FUND
Prospectus February 18, 2000

A Value Stock Mutual Fund
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CONTENTS
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1 FUND PROFILE
3 ADDITIONAL INFORMATION
3 A WORD ABOUT RISK
3 WHO SHOULD INVEST
4 PRIMARY INVESTMENT STRATEGIES
8 THE FUND AND VANGUARD
8 INVESTMENT ADVISER
9 DIVIDENDS, CAPITAL GAINS, AND TAXES
11 SHARE PRICE
12 FINANCIAL HIGHLIGHTS
14 INVESTING WITH VANGUARD
14 SERVICES AND ACCOUNT FEATURES
15 TYPES OF ACCOUNTS
16 BUYING SHARES
18 REDEEMING SHARES
21 TRANSFERRING REGISTRATION
22 FUND AND ACCOUNT UPDATES
GLOSSARY (inside back cover)
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WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of Vanguard
Selected Value Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk(R)" explanations along the way.
Reading the prospectus will help you to decide whether the Fund is the right
investment for you. We suggest that you keep it for future reference.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FUND PROFILE

The following profile summarizes key features of Vanguard Selected Value Fund.

INVESTMENT OBJECTIVE

The Fund seeks to provide long-term growth of capital and incidental income.

INVESTMENT STRATEGIES

The Fund invests mainly in the stocks of medium-size U.S. companies. The Fund
uses a "value" investment approach, choosing companies with relatively low
price/earnings ratios, reasonable financial strength, and strong cash flows.
These companies tend to be undervalued or out of favor with investors.

PRIMARY RISKS

THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN A
WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG PERIODS.
Because the Fund invests a higher percentage of assets in its ten largest
holdings than the average stock fund does, the Fund is subject to the risk that
its performance may be hurt disproportionately by the poor performance of
relatively few stocks. The Fund is also subject to:

o Investment style risk, which is the chance that returns from value stocks
or stocks of medium-size companies will trail returns from other asset
classes or the overall stock market.
o Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.

PERFORMANCE/RISK INFORMATION

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

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ANNUAL TOTAL RETURNS
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[BAR CHART]
1997 17.40%
1998 -11.77%
1999 -2.72%
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During the period shown in the bar chart, the highest return for a calendar
quarter was 17.51% (quarter ended December 31, 1998) and the lowest return for a
quarter was -27.23% (quarter ended September 30, 1998).

<PAGE>

------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
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1 YEAR SINCE INCEPTION*
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Vanguard Selected Value Fund -2.72% 2.89%
Russell Midcap Index 18.23 18.00
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*February 15, 1996.
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FEES AND EXPENSES

The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended October 31, 1999.

SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fee: None
Exchange Fee: None

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.69%
12b-1 Distribution Fee: None
Other Expenses: 0.04%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.73%

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

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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$75 $233 $406 $906
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THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
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PLAIN TALK ABOUT
FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Selected Value Fund's expense ratio in fiscal year 1999 was
0.73%, or $7.30 per $1,000 of average net assets. The average mid-cap value fund
had expenses in 1999 of 1.55%, or $15.50 per $1,000 of average net assets
(derived from data provided as of December 31, 1999 by Lipper Inc., which
reports on the mutual fund industry). Management expenses, which comprise one
part of operating expenses, include investment advisory fees as well as other
costs of managing a fund--such as account maintenance, reporting, accounting,
legal, and other administrative expenses.
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3
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PLAIN TALK ABOUT
THE COSTS OF INVESTING

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

DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Distributed annually in December $3,000; $1,000 for IRAs and custodial
accounts for minors
INVESTMENT ADVISER
Barrow, Hanley, Mewhinney & NEWSPAPER ABBREVIATION
Strauss, Inc., Dallas, Tex., since SelValu
inception
VANGUARD FUND NUMBER
INCEPTION DATE 934
February 15, 1996
CUSIP NUMBER
NET ASSETS AS OF OCTOBER 31, 1999 921946109
$193 million
TICKER SYMBOL
SUITABLE FOR IRAS VASVX
Yes
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A WORD ABOUT RISK

This prospectus describes risks you would face as an investor in Vanguard
Selected Value Fund. It is important to keep in mind one of the main axioms of
investing: The higher the risk of losing money, the higher the potential reward.
The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in Vanguard Selected Value Fund,
you should also take into account your personal tolerance for the daily
fluctuations of the stock market.
Look for this [FLAG] symbol throughout the prospectus. It is used to mark
detailed information about each type of risk that you would confront as a
shareholder of the Fund.
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WHO SHOULD INVEST

The Fund may be a suitable investment for you if:

o You wish to add a stock fund that emphasizes undervalued, medium-size
companies to your existing holdings, which could include other stock
investments as well as bond, money market, and tax-exempt investments.
o You are seeking growth of capital over the long term--at least five years.
o You are not looking for significant current income.
o You are willing to tolerate fluctuations in share price.

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND
IF YOU ARE A MARKET-TIMER.
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PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.
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The Fund has adopted the following policies, among others, to discourage
short-term trading:
o The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. A purchase request could be rejected
because of the timing of the investment or because of a history of
excessive trading by the investor.
o There is a limit on the number of times you can exchange into and out of
the Fund (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).
o The Fund reserves the right to stop offering shares at any time.

PRIMARY INVESTMENT STRATEGIES

This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objective, long-term growth of capital and incidental income. It
also explains how the adviser implements these strategies. In addition, this
section discusses several important risks--market risk, investment style risk,
concentration risk, and manager risk--faced by investors in the Fund. The Fund's
Board of Trustees oversees the management of the Fund and may change the
investment strategies in the interest of shareholders.

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PLAIN TALK ABOUT
VALUE FUNDS AND GROWTH FUNDS

Value investing and growth investing are two styles employed by stock fund
managers. Value funds generally emphasize stocks of companies from which the
market does not expect strong growth. The prices of value stocks typically are
below-average in comparison to such factors as earnings and book value, and
these stocks typically have above-average dividend yields. Growth funds
generally focus on companies believed to have above-average potential for growth
in revenue and earnings. Reflecting the market's high expectations for superior
growth, such stocks typically have low dividend yields and above-average prices
in relation to such measures as revenue, earnings, and book values. Value and
growth stocks have, in the past, produced similar long-term returns, though each
category has periods when it outperforms the other. In general, value funds are
appropriate for investors who want some dividend income and the potential for
capital gains but are less tolerant of share-price fluctuations. Growth funds,
by contrast, appeal to investors who will accept more volatility in hopes of a
greater increase in share price. Growth funds also may appeal to investors with
taxable accounts who want a higher proportion of returns to come as capital
gains (which may be taxed at lower rates than dividend income).
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5
MARKET EXPOSURE

The Fund's primary strategy is to invest chiefly in mid-capitalization common
stocks considered to have low prices in relation to corporate earnings and book
value.

[FLAG] THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT STOCK
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS.STOCK MARKETS
TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING PRICES AND PERIODS OF
FALLING PRICES.

To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Index, a widely used barometer
of market activity. (Total returns consist of dividend income plus change in
market price.) Note that the returns shown do not include the costs of buying
and selling stocks or other expenses that a real-world investment portfolio
would incur. Note, also, that the gap between best and worst tends to narrow
over the long term.

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U.S. STOCK MARKET RETURNS (1926-1999)
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1 YEAR 5 YEARS 10 YEARS 20 YEARS
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Best 54.20% 28.6% 19.9% 17.9%
Worst -43.13 -12.4 -0.9 3.1
Average 13.24 11.0 11.1 11.1
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The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 11.0%, returns for individual 5-year periods
ranged from a -12.4% average (from 1928 through 1932) to 28.6% (from 1995
through 1999). These average returns reflect past performance on common stocks;
you should not regard them as an indication of future returns from either the
stock market as a whole or this Fund in particular.

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PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS

Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization.
Market capitalization changes over time, and there is no "official" definition
of the boundaries of large-, mid-, and small-cap stocks. However, as of December
31, 1999, Vanguard generally defined large-capitalization (large-cap) funds as
those holding stocks of companies whose outstanding shares have a market value
exceeding $12 billion; mid-cap funds as those holding stocks of companies with a
market value between $1 billion and $12 billion; and small-cap funds as those
typically holding stocks of companies with a market value of less than $1
billion. Vanguard periodically reassesses these classifications.

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[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE POSSIBILITY
THAT RETURNS FROM MID-CAPITALIZATION STOCKS OR VALUE STOCKS WILL TRAIL
RETURNS FROM OTHER ASSET CLASSES OR THE OVERALL STOCK MARKET. EACH TYPE
OF STOCK TENDS TO GO THROUGH CYCLES OF DOING BETTER--OR WORSE--THAN
COMMON STOCKS IN GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS
LONG AS SEVERAL YEARS.

SECURITY SELECTION

Barrow, Hanley, Mewhinney & Strauss, Inc., (Barrow Hanley), adviser to the Fund,
seeks out medium-size companies that it considers to be undervalued, choosing
them on the basis of extensive research and meetings with company management.
According to Barrow Hanley, a company is undervalued if its earnings potential
is not reflected in its stock's price. Such stocks generally have low
price/earnings ratios. Barrow Hanley holds an undervalued stock until its price
reflects, in Barrow Hanley's view, the company's underlying value. Holdings in
the Fund qualify as true mid-cap stocks, i.e., stocks of companies having a
market value of between $1 billion and $12 billion.

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PLAIN TALK ABOUT
FUND DIVERSIFICATION

In general, the more diversified a fund's stock holdings, the less likely it is
that a specific stock's poor performance will hurt the fund. One measure of a
fund's diversification is the percentage of its assets represented by its ten
largest holdings. The average U.S. equity mutual fund has about 30% of its
assets invested in its ten largest holdings, while some less-diversified mutual
funds have more than 50% of their assets invested in the stocks of just ten
companies.
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[FLAG] BECAUSE THE FUND INVESTS A HIGHER PERCENTAGE OF ASSETS IN ITS TEN LARGEST
HOLDINGS THAN THE AVERAGE STOCK FUND DOES,THE FUND IS SUBJECT TO THE RISK
THAT ITS PERFORMANCE MAY BE HURT DISPROPORTIONATELY BY THE POOR PERFORM-
ANCE OF RELATIVELY FEW STOCKS.

As of October 31, 1999, the Fund had invested 36.1% of net assets in its
top ten holdings.

The Fund is run by Barrow Hanley according to traditional methods of active
investment management. This means that securities are bought and sold according
to Barrow Hanley's judgments about companies and their financial prospects,
within the context of the stock market and the economy in general.
The Fund is generally managed without regard to tax ramifications.

[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY THAT THE
ADVISER MAY DO A POOR JOB OF SELECTING STOCKS.

TURNOVER RATE

Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long the securities have been held.
The Fund's average turnover rate since inception has been about 52%. (A turnover
rate of 100% would occur, for example, if the Fund sold and replaced securities
valued at 100% of its net assets within a one-year period.)

<PAGE>

7
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PLAIN TALK ABOUT
TURNOVER RATE

Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. As of October 31, 1999, the average turnover rate for all
domestic stock funds was approximately 87%, according to Morningstar, Inc.
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OTHER INVESTMENT POLICIES AND RISKS

Besides investing in common stocks of medium-size companies that are considered
to be undervalued, the Fund may make certain other kinds of investments to
achieve its objective.
Although the Fund typically does not make significant investments in
securities of companies based outside the United States, it reserves the right
to invest up to 20% of its assets in foreign securities. These securities may be
traded in U.S. or foreign markets. To the extent that it owns foreign stocks,
the Fund is subject to: (1) country risk, which is the chance that political
events (such as a war), financial problems (such as government default), or
natural disasters (such as an earthquake) will weaken a country's economy and
cause investments in that country to lose money; and (2) currency risk, which is
the chance that Americans investing abroad could lose money because of a rise in
the value of the U.S. dollar versus foreign currencies.
The Fund may also invest, to a limited extent, in futures and options
contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small price movement in a futures contract may result in an immediate and
substantial loss (or gain) for a fund. This Fund will not use futures for
speculative purposes or as leveraged investments that magnify the gains or
losses of an investment. The Fund's obligation under futures and options
contracts will not exceed 20% of its total assets.

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

The Fund may temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.
<PAGE>
8

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PLAIN TALK ABOUT
DERIVATIVES

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

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

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PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

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

For the year ended October 31, 1999, the aggregate investment advisory fee
paid to Barrow Hanley represented an effective annual rate of 0.38% of the
Fund's average net assets before a decrease of 0.17% based on performance.
The Fund has authorized Barrow Hanley to choose brokers or dealers to
handle the purchase and sale of securities for the Fund, and to get the best
available price and most favorable execution from these brokers with respect to
all transactions.
In the interest of obtaining better execution of a transaction, Barrow
Hanley may choose brokers who charge higher commissions. If more than one broker
can obtain the best available price and most favorable execution of a
transaction, then Barrow Hanley is authorized to choose a broker who, in
addition to executing the transaction, will provide research services to Barrow
Hanley or the Fund. Also, the Fund may direct Barrow Hanley to use a particular
broker for certain transactions in exchange for commission rebates or research
services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement or hire a new investment adviser, either as
a replacement for Barrow Hanley or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

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PLAIN TALK ABOUT
THE FUND'S ADVISER

Barrow, Hanley, Mewhinney & Strauss, Inc. is an investment advisory firm founded
in 1979. As of October 31, 1999, Barrow Hanley managed more than $35 billion in
stock and bond portfolios for a limited number of institutional clients. The
manager responsible for overseeing the implementation of Barrow Hanley's
strategy for Vanguard Selected Value Fund is:

JAMES P. BARROW, a Founding Partner at Barrow Hanley; has managed portfolio
investments since 1963; with Barrow Hanley since 1979; Fund Manager since 1999;
B.S., University of South Carolina.
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DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. You can receive
distributions of income dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.

BASIC TAX POINTS
Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:
o Distributions are taxable to you whether or not you reinvest these amounts
in additional Fund shares.
o Distributions declared in December--if paid to you by the end of
January--are taxable as if received in December.
<PAGE>

o Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.
o Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.
o Capital gains distributions may vary considerably from year to year as a
result of the Fund's normal investment activities and cash flows.
o A sale or exchange of Fund shares is a taxable event. This means that you
may have a capital gain to report as income, or a capital loss to report as
a deduction, when you complete your federal income tax return.
o State and local income taxes may apply to any dividend or capital gains
distributions that you receive, as well as your gains or losses from any
sale or exchange of Fund shares.

GENERAL INFORMATION

BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not provide us with
your correct taxpayer identification number and certify that it is correct.
Similarly, Vanguard must withhold from your account if the IRS instructs us to
do so.
FOREIGN INVESTORS. The Vanguard funds generally do not offer their shares for
sale outside of the United States. Foreign investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.
INVALID ADDRESSES. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
TAX CONSEQUENCES. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.

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PLAIN TALK ABOUT
DISTRIBUTIONS

As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from both the dividends that the fund earns from its holdings and
the interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. These capital gains are either short-term or long-term, depending
on whether the fund held the securities for one year or less, or more than one
year.
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11
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PLAIN TALK ABOUT
"BUYING A DIVIDEND"

Unless you are investing through a tax-deferred retirement account (such as an
IRA), it is not to your advantage to buy shares of a fund shortly before it
makes a distribution, because doing so can cost you money in taxes. This is
known as "buying a dividend." For example: on December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share
on December 16, its share price would drop to $19 (not counting market change).
You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250
shares x $1 = $250 in distributions), but you owe tax on the $250 distribution
you received--even if you reinvest it in more shares. To avoid "buying a
dividend," check a fund's distribution schedule before you invest.
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SHARE PRICE

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

TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = -------------------------------
NUMBER OF SHARES OUTSTANDING

Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A NOTE ON PRICING: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Fund's Board of Trustees.
The Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading "Vanguard Funds." Different newspapers
use different abbreviations of the Fund's name, but the most common is SELVALU.

<PAGE>
12

FINANCIAL HIGHLIGHTS

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

VANGUARD SELECTED VALUE FUND
YEAR ENDED OCTOBER 31,
------------------------------------- FEB. 15* TO
1999 1998 1997 OCT. 31, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.23 $12.98 $10.07 $10.00
- --------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .12 .07 .06 .04
Net Realized and Unrealized Gain (Loss)
on Investments (.19) (2.31) 3.02 .03
--------------------------------------------------
Total from Investment Operations (.07) (2.24) 3.08 .07
--------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.08) (.05) (.06) --
Distributions from Realized Capital Gains (.33) (.46) (.11) --
--------------------------------------------------
Total Distributions (.41) (.51) (.17) --
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.75 $10.23 $12.98 $10.07
========================================================================================================
TOTAL RETURN -0.61% -17.80% 30.92% 0.70%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $193 $152 $190 $93
Ratio of Total Expenses to Average Net Assets 0.73% 0.65% 0.74% 0.75%**
Ratio of Net Investment Income to Average Net Assets 1.31% 0.58% 0.60% 0.75%**
Turnover Rate 102% 47% 32% 25%
========================================================================================================
</TABLE>

*Inception.
**Annualized.
13
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began fiscal 1999 with a net asset value (price) of $10.23 per share.
During the year, the Fund earned $0.12 per share from investment income
(interest and dividends). There was a decline of $0.19 per share from
investments that had depreciated in value or that were sold for lower prices
than the Fund paid for them.

Shareholders received $0.41 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.

Investment losses ($0.07 per share) plus the distributions ($0.41 per share)
resulted in a share price of $9.75 at the end of the year. This was a decrease
of $0.48 per share (from $10.23 at the beginning of the year to $9.75 at the end
of the year). For a shareholder who reinvested the distributions in the purchase
of more shares, the total return from the Fund was -0.61% for the year.

As of October 31, 1999, the Fund had $193 million in net assets. For the year,
its expense ratio was 0.73% ($7.30 per $1,000 of net assets); and its net
investment income amounted to 1.31% of its average net assets. It sold and
replaced securities valued at 102% of its net assets.
- --------------------------------------------------------------------------------

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500,"
and "500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of the trademarks and copyrights relating to the Russell
Indexes.

<PAGE>
14
- --------------------------------------------------------------------------------
INVESTING WITH VANGUARD
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services
we offer. Booklets providing detailed information are available on the services
marked with a [BOOK]. Please call us to request copies.
- --------------------------------------------------------------------------------

SERVICES AND ACCOUNT FEATURES
Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS (SALES AND EXCHANGES)
Automatically set up for this Fund unless you notify us otherwise.
- --------------------------------------------------------------------------------
VANGUARD(R) DIRECT DEPOSIT SERVICE [BOOK]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- ----------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOK]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
VANGUARD FUND EXPRESS(R)[BOOK]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
VANGUARD DIVIDEND EXPRESS TM [BOOK]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
VANGUARD TELE-ACCOUNT(R) 1-800-662-6273 (ON-BOARD)[BOOK]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange shares to and from MOST
Vanguard funds.
- --------------------------------------------------------------------------------
ACCESS VANGUARD TM www.vanguard.com [PC]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through our website. We will then mail you an account access password
that allows you to process the following financial and administrative
transactions online:

o Open a new account.*
o Buy, sell, or exchange shares of most funds.
o Change your name/address.
<PAGE>

o Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
(Some restrictions may apply.) Please call our Client Services Department
for assistance.

*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
INVESTOR INFORMATION DEPARTMENT: 1-800-662-7447 (SHIP)
TEXT TELEPHONE:1-800-952-3335
Call Vanguard for information on our funds, fund services, and retirement
accounts, and to request literature.
- --------------------------------------------------------------------------------
CLIENT SERVICES DEPARTMENT: 1-800-662-2739 (CREW) TEXT TELEPHONE: 1-800-749-7273
Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
SERVICES FOR CLIENTS OF VANGUARD'S INSTITUTIONAL DIVISION: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
TYPES OF ACCOUNTS
Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
FOR ONE OR MORE PEOPLE
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
FOR HOLDING PERSONAL TRUST ASSETS [BOOK]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOK]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
FOR AN ORGANIZATION [BOOK]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
FOR THIRD-PARTY TRUSTEE RETIREMENT INVESTMENTS
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
VANGUARD PROTOTYPE PLANS
Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A NOTE ON INVESTING WITH VANGUARD THROUGH OTHER FIRMS
You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees, or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------
<PAGE>
16

BUYING SHARES
You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT TO . . .
open a new account
$3,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).

add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
A NOTE ON LOW BALANCES

The Fund reserves the right to close any nonretirement fund account whose
balance falls below the minimum initial investment. The Fund will deduct a $10
annual fee in June if your nonretirement account balance at that time is below
$2,500. The low balance fee is waived for investors who have aggregate Vanguard
account assets of $50,000 or more.
- --------------------------------------------------------------------------------
BY MAIL TO . . .[ENVELOPE]
open a new account

Complete and sign the account registration form and enclose your check.

add to an existing account

Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form. Please do not alter Invest-By-Mail
forms, since they are fund- and account-specific.

Make your check payable to: The Vanguard Group-934
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.

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

For clients of Vanguard's Institutional Division . . .

First-class mail to: Express or Registered mail to:
the Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
BY TELEPHONE TO . . .[TELEPHONE]
open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). (Note that
some restrictions apply to index fund accounts.)
<PAGE>

add to an existing account

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

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

*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.

- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you have initiated a telephone transaction and a
confirmation number has been assigned, the transaction cannot be revoked. We
reserve the right to refuse any purchase request.
- --------------------------------------------------------------------------------
BY WIRE TO OPEN A NEW ACCOUNT OR ADD TO AN EXISTING ACCOUNT [WIRE]

Call Client Services to arrange your wire transaction. Wire transactions to
retirement accounts are only available for asset transfers and rollovers from
other financial institutions. Individual IRA contributions will not be accepted
by wire.

Wire to:
FRB ABA 021001088
HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard Selected Value Fund--934
[Account number, or temporary number for a new account]
[Registered account owner(s)]
[Registered address]
- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A NOTE ON LARGE PURCHASES

It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.

- --------------------------------------------------------------------------------
<PAGE>
18

REDEEMING SHARES

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

When Selling Shares:

o Vanguard sends the redemption proceeds to you or a designated third party.*
o You can sell all or part of your Fund shares at any time.

*May require a signature guarantee; see footnote on page 21.

When Exchanging Shares:
o The redemption proceeds are used to purchase shares of a different Vanguard
fund.
o You must meet the receiving fund's minimum investment requirements.
o Vanguard reserves the right to revise or terminate the exchange privilege,
limit the amount of an exchange, or reject an exchange at any time, without
notice.
o In order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification number),
you must include the guaranteed signatures of all current account owners on
your written instructions.

In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus.
- --------------------------------------------------------------------------------
NOTE: Once a redemption is initiated and a confirmation number given, the
transaction CANNOT be canceled.
- --------------------------------------------------------------------------------
HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.

NOTE: The Vanguard funds whose shares you cannot exchange online or by
telephone are VANGUARD U.S. STOCK INDEX FUNDS, VANGUARD BALANCED INDEX FUND,
VANGUARD INTERNATIONAL STOCK INDEX FUNDS, VANGUARD REIT INDEX FUND, and VANGUARD
GROWTH AND INCOME FUND. These funds do, however, permit online and telephone
exchanges within IRAs and other retirement accounts. If you sell shares of these
funds online, you will receive a redemption check at your address of record.
- --------------------------------------------------------------------------------
ONLINE REQUESTS [PC]
ACCESS VANGUARD at www.vanguard.com

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

- --------------------------------------------------------------------------------
TELEPHONE REQUESTS [TELEPHONE]
All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours--to sell or exchange shares. You can exchange shares from this Fund to
open an account in another Vanguard fund or to add to an existing Vanguard fund
account with an identical registration.

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

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
- --------------------------------------------------------------------------------
SPECIAL INFORMATION: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable to
provide:
o The ten-digit account number.
o The name and address exactly as registered on the account.
o The primary Social Security or employer identification number as registered
on the account.

o The Personal Identification Number (PIN), if applicable (for instance,
Tele-Account).

Please note that Vanguard will not be responsible for any account losses
due to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
MAIL REQUESTS[ENVELOPE]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.
<PAGE>
20

Vanguard Retirement Accounts:
For information on how to request distributions from:
o Traditional IRAs and Roth IRAs--call Client Services.
o SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and
Money Purchase Pension (Keogh) Plans--call Individual Retirement Plans at
1-800-662-2003.

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

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

For clients of Vanguard's Institutional Division . . .

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
A NOTE ON LARGE REDEMPTIONS

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

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

OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of three ways: check, exchange
to another Vanguard fund, or Fund Express redemption.
- --------------------------------------------------------------------------------
CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
EXCHANGE REDEMPTIONS
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------
FUND EXPRESS REDEMPTIONS
Vanguard will electronically transfer funds to your pre-linked checking or
savings account.
- --------------------------------------------------------------------------------
FOR OUR MUTUAL PROTECTION
For your best interests and ours, Vanguard applies these additional requirements
to redemptions:
<PAGE>

REQUEST IN "GOOD ORDER"

All redemption requests must be received by Vanguard in "good order." This means
that your request must include:
o The Fund name and account number.
o The amount of the transaction (in dollars or shares).
o Signatures of all owners exactly as registered on the account (for mail
requests).
o Signature guarantees (if required).*
o Any supporting legal documentation that may be required.
o Any outstanding certificates representing shares to be redeemed.

* For instance, a signature guarantee must be provided by all registered
account shareholders when redemption proceeds are to be sent to a different
person or address. A signature guarantee can be obtained from most
commercial and savings banks, credit unions, trust companies, or member
firms of a U.S. stock exchange.

TRANSACTIONS ARE PROCESSED AT THE NEXT-DETERMINED SHARE PRICE AFTER VANGUARD HAS
RECEIVED ALL REQUIRED INFORMATION.
- --------------------------------------------------------------------------------
LIMITS ON ACCOUNT ACTIVITY

Because excessive account transactions can disrupt the management of the Fund
and increase the Fund's costs for all shareholders, Vanguard limits account
activity as follows:
o You may make no more than TWO SUBSTANTIVE "ROUND TRIPS" THROUGH THE FUND
during any 12-month period.
o Your round trips through the Fund must be at least 30 days apart.
o The Fund may refuse a share purchase at any time, for any reason.
o Vanguard may revoke an investor's telephone exchange privilege at any time,
for any reason.

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

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

The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
ALL TRADES ARE FINAL
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.
- --------------------------------------------------------------------------------
UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
- --------------------------------------------------------------------------------
<PAGE>

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

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

For clients of Vanguard's Institutional Division...

STATEMENTS AND REPORTS

We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.
In addition, you will receive financial reports about the Fund twice a
year. These comprehensive reports include an assessment of the Fund's
performance (and a comparison to its industry benchmark), an overview of the
financial markets, a report from the advisers, and the Fund's financial
statements which include a listing of the Fund's holdings.
To keep the Fund's costs as low as possible (so that you and other
shareholders can keep more of the Fund's investment earnings), Vanguard attempts
to eliminate duplicate mailings to the same address. When two or more Fund
shareholders have the same last name and address, we send just one Fund report
to that address--instead of mailing separate reports to each shareholder. If you
want us to send separate reports, notify our Client Services Department at
1-800-662-2739.
- --------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY [BOOK]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
FUND FINANCIAL REPORTS
Mailed in December and June for this Fund
- --------------------------------------------------------------------------------
TAX STATEMENTS
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE COST REVIEW STATEMENT [BOOK]

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

- --------------------------------------------------------------------------------
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

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

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

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

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

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

FIXED-INCOME SECURITIES
Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.

FUND DIVERSIFICATION
Holding a variety of securities so that a fund's return is not hurt badly by the
poor performance of a single security, industry, or country.

GROWTH STOCK FUND
A mutual fund that emphasizes stocks of companies believed to have above-average
prospects for growth. Reflecting market expectations for superior growth, the
prices of growth stocks often are relatively high in comparison with such
factors as revenue, earnings, book value, and dividends.

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

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

PRICE/EARNINGS (P/E) RATIO
The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.

PRINCIPAL
The amount of money you put into an investment.

SECURITIES
Stocks, bonds, and other investment vehicles.

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

VALUE STOCK FUND
A mutual fund that emphasizes stocks of companies whose growth prospects are
generally regarded as subpar by the market. Reflecting these market
expectations, the prices of value stocks typically are below-average in
comparison with such factors as revenue, earnings, book value, and dividends.

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

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

[SHIP LOGO]
[THE VANGUARD GROUP (R)LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION

If you'd like more information about Vanguard Selected Value Fund, the following
documents are available free upon request:

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

STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI provides more detailed
information about the Fund.

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

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

THE VANGUARD GROUP
INVESTOR INFORMATION DEPARTMENT
P.O. BOX 2600
VALLEY FORGE, PA 19482-2600

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

TEXT TELEPHONE: 1-800-952-3335

WORLD WIDE WEB: WWW.VANGUARD.COM

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

CLIENT SERVICES DEPARTMENT TELEPHONE: 1-800-662-2739 (CREW)

TEXT TELEPHONE: 1-800-749-7273

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

Fund's Investment Company Act
file number: 811-07443

P934N-02/18/2000
<PAGE>

VANGUARD(R)
SELECTED VALUE
FUND

Participant Prospectus
February 18, 2000

This prospectus contains financial data for the Fund through the fiscal year
ended October 31, 1999.

VANGUARD SELECTED VALUE FUND

Participant Prospectus
February 18, 2000

A Value Stock Mutual Fund

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CONTENTS
- --------------------------------------------------------------------------------
1 FUND PROFILE
3 ADDITIONAL INFORMATION
3 A WORD ABOUT RISK
3 WHO SHOULD INVEST
4 PRIMARY INVESTMENT STRATEGIES
8 THE FUND AND VANGUARD
8 INVESTMENT ADVISER
9 DIVIDENDS, CAPITAL GAINS, AND TAXES
10 SHARE PRICE
10 FINANCIAL HIGHLIGHTS
12 INVESTING WITH VANGUARD
13 ACCESSING FUND INFORMATION BY COMPUTER
GLOSSARY (inside back cover)
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- --------------------------------------------------------------------------------
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of Vanguard
Selected Value Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk/(R)/" explanations along the way.
Reading the prospectus will help you to decide whether the Fund is the right
investment for you. We suggest that you keep it for future reference.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPORTANT NOTE
This prospectus is intended for participants in employer-sponsored retirement or
savings plans. Another version--for investors who would like to open a personal
investment account--can be obtained by calling Vanguard at 1-800-662-7447.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>
1

FUND PROFILE

The following profile summarizes key features of Vanguard Selected Value Fund.

INVESTMENT OBJECTIVE

The Fund seeks to provide long-term growth of capital and incidental income.

INVESTMENT STRATEGIES

PRIMARY RISKS

PERFORMANCE/RISK INFORMATION

FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.69%
12b-1 Distribution Fee: None
Other Expenses: 0.04%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.73%

THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

<PAGE>
3

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
FUND EXPENSES

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December SelValu

INVESTMENT ADVISER VANGUARD FUND NUMBER
Barrow, Hanley, Mewhinney & 934
Strauss, Inc., Dallas, Tex., since
inception CUSIP NUMBER
921946109
INCEPTION DATE
February 15, 1996 TICKER SYMBOL
VASVX
NET ASSETS AS OF OCTOBER 31, 1999
$193 million
- --------------------------------------------------------------------------------
================================================================================
A WORD ABOUT RISK

WHO SHOULD INVEST

The Fund may be a suitable investment for you if:

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND
IF YOU ARE A MARKET-TIMER.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

PRIMARY INVESTMENT STRATEGIES

5
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VALUE FUNDS AND GROWTH FUNDS

MARKET EXPOSURE

The Fund's primary strategy is to invest chiefly in mid-capitalization common
stocks considered to have low prices in relation to corporate earnings and book
value.

6
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS

SECURITY SELECTION

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
FUND DIVERSIFICATION

As of October 31, 1999, the Fund had invested 36.1% of net assets in its
top ten holdings.
<PAGE>

7
The Fund is run by Barrow Hanley according to traditional methods of active
investment management. This means that securities are bought and sold according
to Barrow Hanley's judgments about companies and their financial prospects,
within the context of the stock market and the economy in general.
The Fund is generally managed without regard to tax ramifications.

[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY THAT THE
ADVISER MAY DO A POOR JOB OF SELECTING STOCKS.

TURNOVER RATE

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
TURNOVER RATE

OTHER INVESTMENT POLICIES AND RISKS

8
The reasons for which the Fund will invest in futures and options are:
o To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
o To reduce the Fund 's transaction costs or add value when these instruments
are favorably priced.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DERIVATIVES

THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 funds holding assets worth more than $530 billion.
All of the Vanguard funds share in the expenses associated with business
operations, such as personnel, office space, equipment, and advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

9
INVESTMENT ADVISER

The Fund employs Barrow, Hanley, Mewhinney & Strauss, Inc., One McKinney Plaza,
3232 McKinney Avenue, 15th Floor, Dallas, TX 75204, as its investment adviser.
Barrow Hanley is owned by United Asset Management, One International Place,
Boston, MA 02110. Barrow Hanley manages the Fund subject to the control of the
Trustees and officers of the Fund.
Barrow Hanley's advisory fee is paid quarterly. This fee is based on
certain sliding annual percentage rates applied to the Fund's average month-end
assets for each quarter.
In addition, Barrow Hanley's advisory fee is increased or decreased, based
on the cumulative investment performance of the Fund over a trailing 36-month
period as compared with the cumulative total return of the Russell Midcap Index
over the same period. This Index is a market benchmark that covers the smallest
800 of the 1,000 largest companies in the United States.
For the year ended October 31, 1999, the aggregate investment advisory fee
paid to Barrow Hanley represented an effective annual rate of 0.38% of the
Fund's average net assets before a decrease of 0.17% based on performance.
The Fund has authorized Barrow Hanley to choose brokers or dealers to
handle the purchase and sale of securities for the Fund, and to get the best
available price and most favorable execution from these brokers with respect to
all transactions.
In the interest of obtaining better execution of a transaction, Barrow
Hanley may choose brokers who charge higher commissions. If more than one broker
can obtain the best available price and most favorable execution of a
transaction, then Barrow Hanley is authorized to choose a broker who, in
addition to executing the transaction, will provide research services to Barrow
Hanley or the Fund. Also, the Fund may direct Barrow Hanley to use a particular
broker for certain transactions in exchange for commission rebates or research
services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement or hire a new investment adviser, either as
a replacement for Barrow Hanley or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUND'S ADVISER

JAMES P. BARROW, a Founding Partner at Barrow Hanley; has managed portfolio
investments since 1963; with Barrow Hanley since 1979; Fund Manager since 1999;
B.S., University of South Carolina.

- --------------------------------------------------------------------------------
<PAGE>

10
DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Dividend and capital gains distributions generally occur
in December.
Your dividend and capital gains distributions will be reinvested in
additional Fund shares and accumulate on a tax-deferred basis if you are
investing through an employer-sponsored retirement or savings plan. You will not
owe taxes on these distributions until you begin withdrawals from the plan. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of plan withdrawals.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DISTRIBUTIONS

SHARE PRICE

TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = -------------------------------
NUMBER OF SHARES OUTSTANDING

11
FINANCIAL HIGHLIGHTS

*Inception.
**Annualized.
<PAGE>
12

Financial Highlights (continued)
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

Shareholders received $0.41 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.

"Standard & Poor's/(R)/," "S&P/(R)/," "S&P 500/(R)/," "Standard & Poor's 500,"
and "500" are trademarks of The McGraw-Hill Companies, Inc. Frank Russell
Company is the owner of the trademarks and copyrights relating to the Russell
Indexes.

<PAGE>

INVESTING WITH VANGUARD
The Fund is an investment option in your retirement or savings plan. Your plan
administrator or your employee benefits office can provide you with detailed
information on how to participate in your plan and how to elect the Fund as an
investment option.

o If you have any questions about the Fund or Vanguard, including those about
the Fund's investment objective, strategies, or risks, contact Vanguard's
Participant Services Center, toll-free, at 1-800-523-1188.

o If you have questions about your account, contact your plan administrator
or the organization that provides recordkeeping services for your plan.

INVESTMENT OPTIONS AND ALLOCATIONS

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

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

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

EXCHANGES

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

Before making an exchange to or from another fund available in your plan,
consider the following:
o Certain investment options, particularly funds made up of company stock or
investment contracts, may be subject to unique restrictions.
o Make sure to read that fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.
o Vanguard can accept exchanges only as permitted by your plan. Contact your
plan administrator for details on the exchange policies that apply to your
plan.
<PAGE>
14

ACCESSING FUND INFORMATION BY COMPUTER
- --------------------------------------------------------------------------------
VANGUARD ON THE WORLD WIDE WEB www.vanguard.com
Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard funds and services; an
online "university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
- --------------------------------------------------------------------------------
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

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

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

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

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

FIXED-INCOME SECURITIES
Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.

FUND DIVERSIFICATION
Holding a variety of securities so that a fund's return is not hurt badly by the
poor performance of a single security, industry, or country.

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

PRINCIPAL
The amount of money you put into an investment.

SECURITIES
Stocks, bonds, and other investment vehicles.

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

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

[SHIP LOGO]
[THE VANGUARD GROUP (R)LOGO]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482-2900

FOR MORE INFORMATION
If you'd like more information about Vanguard Selected Value Fund, the following
documents are available free upon request:

STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI provides more detailed
information about the Fund.

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

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

THE VANGUARD GROUP
PARTICIPANT SERVICES CENTER
P.O. BOX 2900
VALLEY FORGE, PA 19482-2900

TELEPHONE: 1-800-523-1188

TEXT TELEPHONE: 1-800-523-8004

WORLD WIDE WEB: WWW.VANGUARD.COM

Fund's Investment Company Act
file number: 811-07443

I934N-02/18/2000
<PAGE>

PART B

VANGUARD(R) WHITEHALL FUNDS

(THE TRUST)

STATEMENT OF ADDITIONAL INFORMATION

FEBRUARY 18, 2000

This Statement is not a prospectus but should be read in conjunction with the
Trust's current Prospectus (dated February 18, 2000). To obtain either the
Prospectus or the most recent Annual Report to Shareholders, which contains
Vanguard Selected Value Fund's financial statements as hereby incorporated by
reference, please call:

INVESTOR INFORMATION DEPARTMENT: 1-800-662-7447 (SHIP)

TABLE OF CONTENTS

PAGE
----
DESCRIPTION OF THE TRUST......................................... B-1
INVESTMENT POLICIES.............................................. B-3
FUNDAMENTAL INVESTMENT LIMITATIONS............................... B-8
MANAGEMENT OF THE FUND ...........................................B-9
INVESTMENT ADVISORY SERVICES.....................................B-12
PORTFOLIO TRANSACTIONS...........................................B-14
YIELD AND TOTAL RETURN...........................................B-14
PURCHASE OF SHARES...............................................B-16
REDEMPTION OF SHARES.............................................B-16
SHARE PRICE......................................................B-17
FINANCIAL STATEMENTS.............................................B-17
COMPARATIVE INDEXES..............................................B-17

DESCRIPTION OF THE TRUST
ORGANIZATION

The Trust was organized as a Maryland corporation in 1995, and was reorganized
as a Delaware business trust in June, 1998. Prior to its reorganization as a
Delaware business trust, the Trust was known as Vanguard Whitehall Funds, Inc.
The Trust is registered with the United States Securities and Exchange
Commission (the Commission) under the Investment Company Act of 1940 (the 1940
Act) as an open-end, diversified management investment company. It currently
offers the following fund: Vanguard Selected Value Fund (the Fund).
The Trust currently offers a single class of shares, but has the ability to
offer additional funds or classes of shares. There is no limit on the number of
full and fractional shares that the Trust may issue for a single fund or class
of shares.

SERVICE PROVIDERS
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 serves as the Fund's custodian. The custodian is
responsible for maintaining the Fund's assets and keeping all necessary accounts
and records.
INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Fund's independent accountants.
The accountants audit the Fund's financial statements and provide other related
services.
TRANSFER AND DIVIDEND-PAYING AGENT. The Fund's transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.

B-1

CHARACTERISTICS OF THE TRUST'S SHARES

RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions on
the right of shareholders to retain or dispose of the Trust's shares, other than
the possible future termination of the Trust or any of its funds. The Trust or
any of its fund(s) may be terminated by reorganization into another mutual fund
or by liquidation and distribution of the assets of the affected fund. Unless
terminated by reorganization or liquidation, the Trust and its fund(s) will
continue indefinitely.

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

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

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

LIQUIDATION RIGHTS. In the event of liquidation, shareholders will be
entitled to receive a pro rata share of the net assets of applicable funds of
the Trust.

PREEMPTIVE RIGHTS. There are no preemptive rights associated with the Trust.

CONVERSION RIGHTS. There are no conversion rights associated with the Trust.

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

SINKING FUND PROVISIONS. The Trust has no sinking fund provisions.

CALLS OR ASSESSMENT. The Trust's shares, when issued, are fully paid and non-
assessable.

TAX STATUS OF THE FUND

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

B-2
<PAGE>
INVESTMENT POLICIES

The following policies supplement the Trust's investment policies set forth in
the Prospectus:

FUTURES CONTRACTS

The Fund may enter into stock futures contracts, options, and options on futures
contracts for several reasons: to maintain cash reserves while remaining fully
invested, to facilitate trading, to reduce transaction costs, or to seek higher
investment returns when a futures contract is priced more attractively than the
underlying equity security or index. Futures contracts provide for the future
sale by one party and purchase by another party of a specified amount of a
specific security at a specified future time and at a specified price. Futures
contracts which are standardized as to maturity date and underlying financial
instrument are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC), a U.S. Government agency. Assets committed to futures
contracts will be segregated to the extent required by law.

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

Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on margin which
may range upward from less than 5% of the value of the contract being traded.

After a futures contract position is opened, the value of the contract is
marked to market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.

Traders in futures contracts may be broadly classified as either "hedgers" or
"speculators." Hedgers use the futures markets primarily to offset unfavorable
changes in the value of securities otherwise held for investment purposes or
expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
prices of underlying securities. The Fund intends to use futures contracts only
for bona fide hedging purposes.

Regulations of the CFTC applicable to the Fund require that all of its futures
transactions constitute bona fide hedging transactions except to the extent that
the aggregate initial margins and premiums required to establish any non-hedging
positions do not exceed five percent of the value of the Fund's portfolio. The
Fund will only sell futures contracts to protect securities it owns against
price declines or purchase contracts to protect against an increase in the price
of securities it intends to purchase. As evidence of this hedging interest, the
Fund expects that approximately 75% of its futures contract purchases will be
"completed;" that is, equivalent amounts of related securities will have been
purchased or are being purchased by the Fund upon sale of open futures
contracts.

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

B-3
<PAGE>

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS

The Fund will not enter into futures contract transactions to the extent that,
immediately thereafter, the sum of its initial margin deposits on open contracts
exceeds 5% of the market value of the Fund's total assets. In addition, the Fund
will not enter into futures contracts to the extent that its outstanding
obligations to purchase securities under these contracts would exceed 20% of the
Fund's total assets.

RISK FACTORS IN FUTURES TRANSACTIONS

Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments to maintain its required margin. In such situations, if
the Fund has insufficient cash, it may have to sell portfolio securities to meet
daily margin requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to make delivery of the instruments
underlying futures contracts it holds. The inability to close options and
futures positions also could have an adverse impact on the ability to
effectively hedge. The Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.

The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease in the value of the
futures contract would result in a loss equal to 150% of the original margin
deposit if the contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the contract.
However, because the futures strategies of the Fund are engaged in only for
hedging purposes, the Adviser does not believe that the Fund is subject to the
risks of loss frequently associated with futures transactions. The Fund would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.

Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.

Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.

FEDERAL TAX TREATMENT OF FUTURES CONTRACTS

Except for transactions which the Fund has identified as hedging transactions,
the Fund is required for Federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on certain futures
contracts held as of the end of the year as well as those actually realized
during the year. In most cases, any gain or loss recognized with respect to a
futures contract is considered to be 60% long-term capital gain or loss and 40%
short-term capital gain or loss, without regard to the holding period of the
contract. Furthermore, sales of futures contracts which are intended to hedge
against a change in the value of securities held by the Fund may affect

B-4

<PAGE>

the holding period of such securities and, consequently, the nature of the gain
or loss on such securities upon disposition. The Fund may be required to defer
the recognition of losses on futures contracts to the extent of any unrecognized
gains on related positions held by the Fund.

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

The Fund will distribute to shareholders annually any net capital gains which
have been recognized for Federal income tax purposes (including unrealized gains
at the end of the Fund's fiscal year) on futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the Fund's other investments and shareholders will be advised on the nature of
the transactions.

REPURCHASE AGREEMENTS

The Fund may invest in repurchase agreements with commercial banks, brokers or
dealers either for defensive purposes due to market conditions or to generate
income from its excess cash balances. A repurchase agreement is an agreement
under which the Fund acquires a money market instrument (generally a security
issued by the U.S. Government or an agency thereof, a banker's acceptance or a
certificate of deposit) from a commercial bank, broker or dealer, subject to
resale to the seller at an agreed upon price and date (normally, the next
business day). A repurchase agreement may be considered a loan collateralized by
securities. The resale price reflects an agreed upon interest rate effective for
the period the instrument is held by the Fund and is unrelated to the interest
rate on the underlying instrument. In these transactions, the securities
acquired by the Fund (including accrued interest earned thereon) must have a
total value in excess of the value of the repurchase agreement and are held by a
custodian bank until repurchased. In addition, the Trust's Board of Trustees
will monitor the Fund's repurchase agreement transactions generally and will
establish guidelines and standards for review by the investment adviser of the
creditworthiness of any bank, broker or dealer party to a repurchase agreement
with the Fund.

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

ILLIQUID SECURITIES

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

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

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

B-5
<PAGE>

LENDING OF SECURITIES

The Fund may lend its investment securities to qualified institutional investors
(typically brokers, dealers, banks or other financial institutions) who need to
borrow securities in order to complete certain transactions, such as covering
short sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its securities, the Fund will be attempting to increase
its net investment income through the receipt of interest on the loan. Any gain
or loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund. The terms and the
structure and the aggregate amount of such loans must be consistent with the
Investment Company Act of 1940, and the Rules and Regulations or interpretations
of the Securities and Exchange Commission (the "Commission") thereunder. These
provisions limit the amount of securities a fund may lend to 33/1//3% of the
Fund's total assets, and require that (a) the borrower pledge and maintain with
the Fund collateral consisting of cash, an irrevocable letter of credit or
securities issued or guaranteed by the United States Government having a value
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the Fund at any time and (d) the Fund receive
reasonable interest on the loan which may include the Fund's investing any cash
collateral in interest bearing short-term investments, any distribution on the
loaned securities and any increase in their market value. Loan arrangements made
by the Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which rules presently
require the borrower, after notice, to redeliver the securities within the
normal settlement time of three business days. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered in making decisions with respect to the lending
of securities, subject to review by the Trust's Board of Trustees.

At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company trustees. In addition, voting rights pass
with the loaned securities, but if a material event occurs that affects the
securities on loan, the fund must call the loan and vote the securities.

VANGUARD INTERFUND LENDING PROGRAM

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

FOREIGN INVESTMENTS

The Fund may invest up to 20% of its assets in securities of foreign companies.
Investors should recognize that investing in foreign companies involves certain
special considerations which are not typically associated with investing in U.S.
companies.

CURRENCY RISK

Since the stocks of foreign companies are frequently dominated in foreign
currencies, and since the Fund may temporarily hold uninvested reserves in bank
deposits in foreign currencies, the Fund will be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions between various currencies.

COUNTRY RISK

As foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to domestic companies, there may be less publicly available information about
certain foreign companies than about domestic companies. Securities of some
foreign companies are generally less liquid and more volatile than

B-6

<PAGE>

securities of comparable domestic companies. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the U.S. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
U.S. investments in those countries.

Although the Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions in foreign securities, fixed commissions on many
foreign stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. In addition, it is expected that the expenses for custodial
arrangements of the Fund's foreign securities will be somewhat greater than the
expenses for custodial arrangements for handling U.S. securities of equal value.

Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from foreign companies held by the Fund. However, these
foreign withholding taxes are not expected to have a significant impact on the
Fund, since the Fund seeks long-term capital appreciation and any income should
be considered incidental.

FEDERAL TAX TREATMENT OF NON-U.S. TRANSACTIONS

Special rules govern the Federal income tax treatment of certain
transactions denominated in foreign currency or determined by reference to the
value of one or more foreign currencies. The types of transactions covered by
the special rules include the following: (i) the acquisition of, or becoming the
obligor under, a bond or other debt instrument (including, to the extent
provided in Treasury regulations, preferred stock); (ii) the accruing of certain
trade receivables and payables; and (iii) the entering into or acquisition of
any forward contract, futures contract, option, or similar financial instrument
if such instrument is not marked to market. The disposition of a currency other
than the U.S. dollar by a U.S. taxpayer is also treated as a transaction subject
to the special currency rules. However, foreign currency-related regulated
futures contracts and nonequity options are generally not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the marking-to-market rules applicable to other futures
contracts unless an election is made to have such currency rules apply. With
respect to transactions covered by the special rules, foreign currency gain or
loss is calculated separately from any gain or loss on the underlying
transaction and is normally taxable as ordinary gain or loss. A taxpayer may
elect to treat as capital gain or loss foreign currency gain or loss arising
from certain identified forward contracts, futures contracts and options that
are capital assets in the hands of the taxpayer and which are not part of a
straddle. The Treasury Department issued regulations under which certain
transactions subject to the special currency rules that are part of a "section
988 hedging transaction" (as defined in the Internal Revenue Code of 1986, as
amended, and the Treasury regulations) will be integrated and treated as a
single transaction or otherwise treated consistently for purposes of the Code.
Any gain or loss attributable to the foreign currency component of a transaction
engaged in by a fund which is not subject to the special currency rules (such as
foreign equity investments other than certain preferred stocks) will be treated
as capital gain or loss and will not be segregated from the gain or loss on the
underlying transaction. It is anticipated that some of the non-U.S.
dollar-denominated investments and foreign currency contracts Vanguard Selected
Value Fund may make or enter into will be subject to the special currency rules
described above.

TEMPORARY INVESTMENTS

The Fund may take temporary defensive measures that are inconsistent with the
Fund's normal investment strategies in response to adverse market, economic,
political or other conditions. Such measures could include investments in (a)
highly liquid short-term fixed income securities issued by or on behalf of
municipal or corporate issuers, obligations of the U.S. Government and its
agencies, commercial paper, and bank certificates of deposit; (b) shares of
other investment companies which have investment objectives consistent with
those of the Fund; (c) repurchase agreements involving any such securities; and
(d) other money market instruments. There is no limit on the extent to which the
Fund may take temporary defensive measures. In taking such measures, the Fund
may fail to achieve its investment objective.

B-7
<PAGE>

FUNDAMENTAL INVESTMENT LIMITATIONS

The Fund is subject to the following fundamental investment limitations, which
cannot be changed in any material way without the approval of the holders of a
majority of the Fund's shares. For these purposes, a "majority" of the Fund's
shares means shares representing the lesser of: (i) 67% or more of the Fund's
net asset value present at or represented in the vote, so long as shares
representing more than 50% of the Fund's net asset value are present or
represented by proxy; or (ii) more than 50% of the Fund's net asset value.

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

COMMODITIES. The Fund may not invest in commodities, except that it may invest
in stock futures contracts, stock options, options on stock futures contracts,
and forward foreign currency exchange transactions. No more than 5% of the
Fund's total assets may be used as initial margin deposit for futures contracts,
and no more than 20% of the Fund's total assets may be invested in swap
agreements at any time.

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

ILLIQUID SECURITIES. The Fund may not acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are
illiquid.

INDUSTRY CONCENTRATION. The Fund may not invest more than 25% of its total
assets in any one industry.

INVESTING FOR CONTROL. The Fund may not invest in a company for purposes of
controlling its management.

INVESTMENT COMPANIES. The Fund may not invest in any other investment company,
except through a merger, consolidation or acquisition of assets approved by the
Fund's shareholders, or to the extent permitted by Section 12 of the 1940 Act.
Investment companies whose shares the Fund acquires pursuant to Section 12 must
have investment objectives and investment policies consistent with those of the
Fund.

LOANS. The Fund may not lend money to any person except by purchasing fixed
income securities that are publicly distributed or customarily purchased by
institutional investors, by lending its portfolio securities, or through
Vanguard's interfund lending program.

MARGIN. The Fund may not purchase securities on margin or sell securities
short, except as permitted by the Fund's investment policies relating to
commodities.

PLEDGING ASSETS. The Fund may not pledge, mortgage or hypothecate more than
15% of its net assets.

REAL ESTATE. The Fund may not invest directly in real estate, although it may
invest in securities of companies that deal in real estate and bonds secured by
real estate.

SENIOR SECURITIES. The Fund may not issue senior securities, except in
compliance with the 1940 Act.

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

UNSEASONED COMPANIES. The Fund may not invest more than 5% of its assets in
companies that have less than three years operating history (including the
operating history of any predecessors).

PUTS AND CALLS. The Fund may not purchase or sell put options or call options,
except as provided in the prospectus.

B-8
<PAGE>

The above-mentioned investment limitations are considered at the time
investment securities are purchased. If a percentage restriction is adhered to
at the time the investment is made, a later increase in percentage resulting
from a change in the market value of assets will not constitute a violation of
such restriction. None of these limitations prevents the Trust from
participating in The Vanguard Group, Inc. (Vanguard). As a member of The
Vanguard Group of Investment Companies, the Fund may own securities issued by
Vanguard, make loans to Vanguard, and contribute to Vanguard's costs or other
financial requirements. See "Management of the Trust" for more information.

MANAGEMENT OF THE TRUST

THE VANGUARD GROUP

The Trust is a member of The Vanguard Group of Investment Companies which
consists of more than 100 funds. Through their jointly-owned subsidiary, The
Vanguard Group, Inc. (Vanguard), the Trust and the other funds in The Vanguard
Group obtain at cost virtually all of their corporate management, administrative
and distribution services. Vanguard also provides investment advisory services
on an at-cost basis to several of the Vanguard funds.

Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the funds and also
furnishes the funds with necessary office space, furnishings and equipment. Each
fund pays its share of Vanguard's total expenses which are allocated among the
funds under procedures approved by the Trustees of each fund. In addition, each
fund bears its own direct expenses such as legal, auditing and custodian fees.

The officers of the funds are also officers and employees of Vanguard. No
officer or employee owns, or is permitted to own any securities of any external
adviser for the funds.

Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the Investment Company Act of 1940. The Code is designed to prevent
unlawful practices in connection with the purchase or sale of securities by
persons associated with Vanguard. Under Vanguard's Code of Ethics certain
officers and employees of Vanguard who are considered access persons are
permitted to engage in personal securities transactions. However, such
transactions are subject to procedures and guidelines similar to, and in many
cases more restrictive than, those recommended by a blue ribbon panel of mutual
fund industry executives.

Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the funds.
The amounts which each of the funds has invested are adjusted from time to time
in order to maintain the proportionate relationship between each Trust's
relative net assets and its contribution to Vanguard's capital. The Amended and
Restated Funds' Service Agreement provides as follows: (a) each Vanguard fund
may be called upon to invest up to 0.40% of its current assets in Vanguard, and
(b) there is no other limitation on the dollar amount that each Vanguard fund
may contribute to Vanguard's capitalization. At October 31, 1999, the Trust had
contributed capital of $40,000 to Vanguard, representing 0.02% of the Trust's
net assets and 0.04% of Vanguard's capitalization.

TRUSTEES AND OFFICERS

The officers of the Trust manage its day-to-day operations and are responsible
to the Trust's Board of Trustees. The Trustees set broad policies for the Trust
and choose its officers. The following is a list of the Trustees and officers of
the Trust and a statement of their present positions and principal occupations
during the past five years. As a group, the Trust's Trustees and officers own
less than 1% of the outstanding shares of the Trust. Each Trustee also serves as
a Director of The Vanguard Group, Inc., and as a Trustee of each of the 103
funds administered by Vanguard (102 in the case of Mr. Malkiel and 93 in the
case of Mr. MacLaury). The mailing address of the Trustees and officers of the
Trust is Post Office Box 876, Valley Forge, Pennsylvania 19482.

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

JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) Trustee
Vice President, Chief Information Officer, and member of the Executive Committee
of Johnson & Johnson (Pharmaceuticals/Consumer Products), Director of Johnson &
Johnson*MERCK Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.

B-9

<PAGE>

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

BURTON G. MALKIEL, (DOB: 8/28/1932)Trustee
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co. (Investment Management), The Jeffrey Co. (Holding Company), and Select
Sector SPDR Trust(Exchange-Traded Mutual Fund).

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

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

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

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

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

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

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

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

MANAGEMENT

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

DISTRIBUTION

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

One half of the distribution expenses of a marketing and promotional nature
is allocated among the funds based upon their relative net assets. The remaining
one half of these expenses is allocated among the funds based upon each fund's
sales for the preceding 24 months relative to the total sales of the funds as a
Group. Provided, however, that no fund's aggregate quarterly rate of
contribution for distribution expenses of a marketing and promotional nature
shall exceed 125% of the average distribution expense rate for The Vanguard
Group, and that no fund shall incur annual distribution expenses in excess of
/20//100 of 1% of its average month-end net assets. For the period February 15
to October 31, 1996, the Trust incurred approximately $4,000 of The Vanguard
Group's marketing and distribution expenses. For the fiscal years ended October
31, 1997, 1998, and 1999, the Funds incurred

B-10
<PAGE>
approximately $472,000, $727,000, and $854,000, respectively of The Vanguard
Group's management (including transfer agency), distribution and marketing
expenses.

INVESTMENT ADVISORY SERVICES

Vanguard also provides investment advisory services to many Vanguard funds.
These services are provided on an at-cost basis from a money management staff
employed directly by Vanguard. The compensation and other expenses of this staff
are paid by the funds utilizing these services.

TRUSTEE COMPENSATION

The same individuals serve as Trustees of all Vanguard funds (with two
exceptions, which are noted in the table below), and each fund pays a
proportionate share of the Trustees' compensation. The funds employ their
officers on a shared basis, as well. However, officers are compensated by The
Vanguard Group, Inc., not the funds.

INDEPENDENT TRUSTEES. The funds compensate their independent Trustees--that
is, the ones who are not also officers of the fund--in three ways:
. The independent Trustees receive an annual fee for their service to the funds,
which is subject to reduction based on absences from scheduled Board meetings.
. The independent Trustees are reimbursed for the travel and other expenses that
they incur in attending Board meetings.
. Upon retirement, the independent Trustees receive an aggregate annual fee of
$1,000 for each year served on the Board, up to fifteen years of service. This
annual fee is paid for ten years following retirement or until each Trustee's
death.

"INTERESTED" TRUSTEES. The funds' interested Trustee--Mr. Brennan--receives
no compensation for his service in that capacity. However, he is paid in his
role as officer of The Vanguard Group, Inc.

COMPENSATION TABLE. The following table provides compensation details for
each of the Trustees. We list the amounts paid as compensation and accrued as
retirement benefits by the Trust for each Trustee. In addition, the table shows
the total amount of benefits that we expect each Trustee to receive from all
Vanguard funds upon retirement, and the total amount of compensation paid to
each Trustee by all Vanguard funds. All information shown is for the fiscal year
ended October 31, 1999.

VANGUARD WHITEHALL FUNDS COMPENSATION TABLE

PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENFITS ACCRUED ESTIMATED FROM ALL
COMPENSATION AS PART OF THIS ANNUAL BENEFITS VANGUARD FUNDS
NAMES OF TRUSTEES FROM THIS FUND FUND'S EXPENSES UPON RETIREMENT PAID TO TRUSTEES(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>

John C. Bogle (2) . . . . . . . . . . . None None None None
John J. Brennan. . . . . . . . . . . . . None None None None
Barbara Barnes Hauptfuhrer(3) . . . . $7 $1 $15,000 $0
JoAnn Heffernan Heisen . . . . . . . . . $43 $2 $15,000 $80,000
Bruce K. MacLaury. . . . . . . . . . . . $42 $4 $12,000 $75,000
Burton G. Malkiel . . . . . . . . . . . $43 $4 $15,000 $80,000
Alfred M. Rankin, Jr.. . . . . . . . . . $43 $3 $15,000 $80,000
John C. Sawhill. . . . . . . . . . . . . $43 $4 $15,000 $80,000
James O. Welch, Jr.. . . . . . . . . . . $43 $4 $15,000 $80,000
J. Lawrence Wilson . . . . . . . . . . . $43 $3 $15,000 $80,000
</TABLE>

(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for their service as Trustee of 103 Vanguard funds (102 in the
case of Mr. Malkiel and 92 in the case of Mr. MacLaury).

(2) Mr. Bogle has retired from the Trust's Board, effective December 31, 1999.

(3) Mrs. Hauptfuhrer has retired from the Trust's Board effective December 31,
1998.

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<PAGE>

INVESTMENT ADVISORY SERVICES

INVESTMENT ADVISORY AGREEMENT WITH BARROW, HANLEY, MEWHINNEY & STRAUSS

Vanguard Selected Value Fund is managed by Barrow, Hanley, Mewhinney & Strauss
(Barrow Hanley), One McKinney Plaza, 3232 McKinney Avenue, 15th Floor, Dallas,
TX 75204 under the terms of an agreement. Barrow Hanley is owned by United Asset
Management, One International Place, Boston, MA 02110.
The investment philosophy of Barrow Hanley is to use fundamental research
to identify undervalued stocks. James P. Barrow has been designated as portfolio
manager for the assets of the Fund. Jim has managed portfolio investments since
1963; with Barrow Hanley since 1979.
For the services rendered by Barrow Hanley, the Fund pays Barrow Hanley a
base advisory fee, at the end of each quarter, adjusted by an incentive/penalty
adjustment reflecting the investment performance of the Fund relative to the
total return of the Russell Midcap Index. The Russell Midcap Index is prepared
by Frank Russell Company (which is not affiliated with the Trust or any of the
Trust's affiliates), and is composed of the 800 smallest stocks (by market
capitalization) in the Russell 1000 Index. Barrow Hanley's fees are calculated
according to the following rules:

a) TOTAL QUARTERLY FEE PAYABLE. The total quarterly fee payable by the Fund
to Barrow Hanley is the base advisory fee for the quarter plus the performance
adjustment (which may be negative).

b) BASE ADVISORY FEE FOR THE QUARTER. The base advisory fee for the quarter
is calculated by applying the following quarterly percentage rates to the
average of month-end assets of the Fund for the quarter:

- --------------------------------------------------------------------------------
Net Assets Annual Rate Quarterly Rate
- --------------------------------------------------------------------------------
First $100 million 0.40% 0.1000%
Next $200 million 0.35% 0.0875%
Next $300 million 0.25% 0.0625%
Next $400 million 0.20% 0.0500%
Over $1 billion 0.15% 0.0375%

c) PERFORMANCE ADJUSTMENT. The performance adjustment is calculated as
follows:

i) prior to March 1, 1997, the performance adjustment formula was not
operative.

ii) beginning with the quarter ended April 30, 1997 and thereafter, the
performance adjustment is calculated for the relevant performance period.
The performance period is the 36 months preceding the quarter-end, or the
months that have elapsed between March 1, 1996 and the end of the quarter
for which the fee is being computed, whichever is shorter. A base fee for
the performance period is calculated based on the Fund's average month-end
assets during the performance period multiplied by the quarterly rates used
in calculating the base advisory fee for the quarter. An incentive/penalty
adjustment reflecting the investment performance of the Fund relative to
the total return of the Russell Midcap Index is applied to the base fee for
the performance period. The following table sets forth the calculation of
the performance adjustment:

CUMULATIVE 36-MONTH PERFORMANCE VS.
THE RUSSELL MIDCAP INDEX PERFORMANCE ADJUSTMENT
- --------------------------------------------------------------------------------
Less than -12% -0.50 Base Fee for Performance Period
Between -12% and -6% -0.25 Base Fee for Performance Period
Between -6% and +6% 0 Base Fee for Performance Period
Between +6% and +12% 0.25 Base Fee for Performance Period
More than +12% 0.50 Base Fee for Performance Period

B-12
<PAGE>

iii) Until the quarter ending April 30, 1999, the performance adjustment
for Barrow Hanley was calculated according to the following transition
rules:

(a) March 1, 1996 through April 30, 1999. Beginning with the quarter
ended April 30, 1997, and until the quarter ending April 30, 1999, the
performance adjustment was computed based upon a comparison of the
investment performance of the Fund and that of the Russell Midcap Index
over the number of months that have elapsed between March 1, 1996 and
the end of the quarter for which the fee was computed. The number of
percentage points by which the investment performance of the Fund had
to exceed the investment record of the Russell Midcap Index increased
proportionately from 4.67% and 2.33%, respectively, for the fourteen
months ended April 30, 1997, to 12% and 6%, for the thirty-six months
ended April 30, 1999.

(b) After April 30, 1999. For the quarter ending July 31, 1999 and
thereafter, the period used to calculate the incentive/penalty
adjustment is the 36 months preceding the end of the quarter for which
the fee is being computed, and the number of percentage points used is
twelve and six.

CALCULATING RELATIVE INVESTMENT PERFORMANCE. The investment performance of the
Fund for a period, expressed as a percentage of the net asset value per share of
the Fund at the beginning of such period, shall be the sum of: (i) the change in
the net asset value per share of the Fund during such period; (ii) the value of
the cash distributions per share of the Fund accumulated to the end of such
period; and (iii) the value of capital gains taxes per share paid or payable by
the Fund on undistributed realized long-term capital gains accumulated to the
end of such period.

The investment record of the Russell Midcap Index will be calculated
monthly by (i) multiplying the total return for the month (change in market
price plus dividends) of each stock included in the Russell Midcap Index by its
weighting in the Russell Midcap Index at the beginning of the month, and (ii)
adding the values discussed in (i). For any period, therefore, the investment
record of the Russell Midcap Index will be the compounded monthly returns of the
Russell Midcap Index.

For the fiscal years ended October 31, 1997, 1998, and 1999, the Fund
incurred investment advisory fees of $517,000, $712,000, and $668,000 (before a
decrease of $93,000, $282,000 and $294,000 based on performance), respectively.

RELATED INFORMATION CONCERNING BARROW HANLEY. Barrow Hanley, One McKinney
Plaza, 3232 McKinney Avenue, 15th Floor, Dallas, Texas, 75204, is an
independent, owner-managed investment management firm founded in 1979, which
provides investment advisory services to individuals, employee benefit plans,
investment companies and other institutions. Barrow Hanley is owned by United
Asset Management, 1 International Place, Boston, Massachusetts 02110. As of
October 31, 1999, Barrow Hanley provided investment advisory services to clients
having assets with an approximate value of $35 billion.

The agreement will be renewable for successive one-year periods, only if
each renewal is specifically approved by a vote of the Trust's Board of
Trustees, including the affirmative votes of a majority of the Trustees who are
not parties to the agreement or "interested persons" (as defined in the
Investment Company Act of 1940) of any such party cast in person at a meeting
called for the purpose of considering such approval. The agreement is
automatically terminated if assigned, and may be terminated by the Trust without
penalty, at any time, (1) either by vote of the Board of Trustees of the Trust
on sixty (60) days' written notice to Barrow Hanley, or (2) by Barrow Hanley
upon ninety (90) days' written notice to the Trust. The Trust's Board of
Trustees may, without the approval of shareholders, provide for:

. The employment of a new investment adviser pursuant to the terms of a new
advisory agreement, either as a replacement for an existing adviser or as an
additional adviser.
. A change in the terms of an advisory agreement.
. The continued employment of an existing adviser on the same advisory contract
terms where a contract has been assigned because of a change in control of the
adviser.

Any such change will be communicated to shareholders in writing.

B-13
<PAGE>
PORTFOLIO TRANSACTIONS

The investment advisory agreement authorizes Barrow Hanley (with the approval of
the Trust's Board of Trustees) to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund, and
directs Barrow Hanley to use its best efforts to obtain the best available price
and most favorable execution with respect to all transactions for the Fund. The
investment adviser has undertaken to execute each investment transaction at a
price and commission which provides the most favorable total cost or proceeds
reasonably obtainable under the circumstances. During the years ended October
31, 1997, 1998, and 1999, the Fund paid $169,499, $210,000, and $717,450
respectively, in brokerage commissions.

In placing portfolio transactions, Barrow Hanley will use its best judgment
to choose the broker most capable of providing the brokerage services necessary
to obtain best available price and most favorable execution. The full range and
quality of brokerage services available will be considered in making these
determinations. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the best
available price and most favorable execution, consideration may be given to
those brokers which supply investment research and statistical information, and
provide other services in addition to execution services to the Fund and/or the
investment adviser. The investment adviser considers such information useful in
the performance of its obligations under the agreement but is unable to
determine the amount by which such services may reduce its expenses.

The investment advisory agreement also incorporates the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Trust's Board of Trustees, the investment adviser may cause the
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction; provided that such commission is deemed
reasonable in terms of either that particular transaction or the overall
responsibilities of the investment adviser to the Trust and the other funds in
Vanguard.

Currently, it is the Fund's policy that the investment adviser may at times
pay higher commissions in recognition of brokerage services felt necessary for
the achievement of better execution of certain securities transactions that
otherwise might not be available. An investment adviser will only pay such
higher commissions if it believes this to be in the best interest of the Fund.
Some brokers or dealers who may receive such higher commissions in recognition
of brokerage services related to execution of securities transactions are also
providers of research information to the investment adviser and/or the Fund.

Some securities considered for investment by the Fund may also be
appropriate for the other clients served by the investment adviser. If purchase
or sale of securities consistent with the investment policies of a Fund, and one
or more of these other clients are considered at or about the same time,
transactions in such securities will be allocated among the Vanguard funds and
clients in a manner deemed equitable by the investment adviser. Although there
may be no specified formula for allocating such transactions, the allocation
methods used, and the results of such allocations, will be subject to periodic
review by the Trust's Board of Trustees.

YIELD AND TOTAL RETURN

The yield of the Fund for the 30-day period ended October 31, 1999 was 2.55%.
Yields are calculated daily and premiums and discounts on asset-backed accounts
are not amortized. The average annual total return for Selected Value Fund for
the year ended October 31, 1999, and since its inception on February 15, 1996,
was -0.61% and 2.02%, respectively.

AVERAGE ANNUAL TOTAL RETURN

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

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

B-14
<PAGE>

Where:

T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.

AVERAGE ANNUAL AFTER-TAX TOTAL RETURN QUOTATION

We calculate the Fund's average annual after-tax total return by finding the
average annual compounded rate of return over the 1-, 5-, and 10-year periods
(or for periods of the Fund's operations) that would equate the initial amount
invested to the after-tax value, according to the following formulas:

After-tax return:

P (1+T)/N/ = ATV

Where:

P = a hypothetical initial payment of $1,000
T = average annual after-tax total return
n = number of years
ATV = after-tax value at the end of the 1-, 5-, or 10-year periods of a
hypothetical $1,000 payment made at the beginning of the time
period, assuming no liquidation of the investment at the
end of the measurement periods.

Instructions.

1.Assume all distributions by the Fund are reinvested--less the taxes due on
such distributions--at the price on there investment dates during the period.
Adjustments may be made for subsequent re-characterizations of distributions.

2.Calculate the taxes due on distributions by the Fund by applying the highest
federal marginal tax rates to each component of the distributions on the
reinvestment date (e.g., ordinary income, short-term capital gain, long-term
capital gain, etc.). For periods after December 31, 1997, the federal marginal
tax rates used for the calculations are 39.6% for ordinary income and
short-term capital gains and 20% for long-term capital gains. Note that the
applicable tax rates may vary over the measurement period. Assume no taxes are
due on the portions of any distributions classified as exempt interest or
non-taxable (i.e., return of capital). Ignore any potential tax liabilities
other than federal tax liabilities (e.g., state and local taxes).

3.Include all recurring fees that are charged to all shareholder accounts. For
any account fees that vary with the size of the account, assume an account size
equal to the Fund's mean (or median) account size. Assume that no additional
taxes or tax credits result from any redemption of shares required to pay such
fees.

4.State the total return quotation to the nearest hundredth of one percent.

CUMULATIVE TOTAL RETURN

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

C = cumulative total return
P = a hypothetical initial investment of $1,000

B-15
<PAGE>

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

SEC YIELD

Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[((A-B)/CD+1)/6/-1]

Where:

a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.

PURCHASE OF SHARES

The Trust reserves the right in its sole discretion (i) to suspend the offering
of its shares, (ii) to reject purchase orders when in the judgment of management
such rejection is in the best interest of the Trust, and (iii) to reduce or
waive the minimum investment for or any other restrictions on initial and
subsequent investments for certain fiduciary accounts, such as employee benefit
plans, or under circumstances where certain economies can be achieved in sales
of the Trust's shares.

TRADING SHARES THROUGH CHARLES SCHWAB

The Fund has authorized Charles Schwab & Co., Inc. (Schwab) to accept on its
behalf purchase and redemption orders under certain terms and conditions. Schwab
is also authorized to designate other intermediaries to accept purchase and
redemption orders on the Fund's behalf subject to those terms and conditions.
Under this arrangement, the Fund will be deemed to have received a purchase or
redemption order when Schwab or, if applicable, Schwab's authorized designee,
accepts the order in accordance with the Fund's instructions. Customer orders
that are properly transmitted to the Fund by Schwab, or if applicable, Schwab's
authorized designee, will be priced as follows:
Orders received by Schwab before 3 p.m. Eastern time on any business day,
will be sent to Vanguard that day and your share price will be based on the
Fund's net asset value calculated at the close of trading that day. Orders
received by Schwab after 3 p.m. Eastern time, will be sent to Vanguard on the
following business day and your share price will be based on the Fund's net
asset value calculated at the close of trading that day.

REDEMPTION OF SHARES

The Trust may suspend redemption privileges or postpone the date of payment (i)
during any period that the New York Stock Exchange is closed, or trading on the
Exchange is restricted as determined by the Securities and Exchange Commission
(the Commission), (ii) during any period when an emergency exists as defined by
the rules of the Commission as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it, or fairly to
determine the value of its assets, and (iii) for such other periods as the
Commission may permit.

No charge is made by the Fund for redemptions. Shares redeemed by a Fund
shareholder may be worth more or less than what the shareholder paid for them,
depending on the current market value of the securities held by the Fund.

B-16
<PAGE>
SHARE PRICE

The Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. The net asset value is determined as of the regular close
of the New York Stock Exchange (generally 4:00 p.m. Eastern time) on each day
that the Exchange is open for trading.
Portfolio securities for which market quotations are readily available
(which include those securities listed on national securities exchanges, as well
as those quoted on the NASDAQ Stock Market) will be valued at the last quoted
sales price on the day the valuation is made. Such securities which are not
traded on the valuation date are valued at the mean of the bid and ask prices.
Price information on exchange-listed securities is taken from the exchange where
the security is primarily traded. Securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
Short term instruments (those with remaining maturities of 60 days or less)
may be valued at cost, plus or minus any amortized discount or premium, which
approximates market value.
Bonds and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service may be determined without regard to bid or last sale prices of each
security, but take into account institutional-size transactions in similar
groups of securities as well as any developments related to specific securities.
Foreign securities are valued at the last quoted sales price, according to
the broadest and most representative market, available at the time the Fund is
valued. If events which materially affect the value of a Fund's investments
occur after the close of the securities markets on which such securities are
primarily traded, those investments may be valued by such methods as the Board
of Trustees deems in good faith to reflect fair value.
In determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars using the officially quoted daily exchange rates used by Morgan
Stanley Capital International in calculating various benchmarking indexes. This
officially quoted exchange rate may be determined prior to or after the close of
a particular securities market. If such quotations are not available, the rate
of exchange will be determined in accordance with policies established in good
faith by the Board of Trustees.
Other assets and securities for which no quotations are readily available
or which are restricted as to sale (or resale) are valued by such methods as the
Board of Trustees deems in good faith to reflect fair value.

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

FINANCIAL STATEMENTS

The Fund's Financial Statements for the year ended October 31, 1999, including
the financial highlights for the period February 15, 1996 through October 31,
1996 and the fiscal years ended October 31, 1997, October 31, 1998, and October
31, 1999 appearing in the Vanguard Selected Value Fund 1999 Annual Report to
Shareholders, and the report thereon of PricewaterhouseCoopers LLP, independent
accountants, also appearing therein, are incorporated by reference in this
Statement of Additional Information. For a more complete discussion of the
Fund's performance, please see the Fund's 1999 Annual Report to Shareholders,
which may be obtained without charge.

COMPARATIVE INDEXES

Vanguard may use reprinted material discussing The Vanguard Group, Inc. or any
of the member funds of The Vanguard Group of Investment Companies.
Each of the investment company members of The Vanguard Group, including the
Trust, may use one or more of the following unmanaged indexes for comparative
performance purposes:

STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX--contains the stocks of 500
of the largest domestic companies.

STANDARD & POOR'S MIDCAP 400 INDEX--is composed of 400 medium sized domestic
stocks.

B-17

<PAGE>
STANDARD & POOR'S SMALLCAP 600/BARRA VALUE INDEX--contains stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.

STANDARD & POOR'S SMALLCAP 600/BARRA GROWTH INDEX--contains stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.

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

WILSHIRE 5000 EQUITY INDEX--consists of approximately 7,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.

WILSHIRE 4500 EQUITY INDEX--consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard and Poor's 500 Index.

MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX--is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia, Asia, and the Far East.

MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY INDEX--is an arithmetic, market
value-weighted average of the performance of over 2,427 securities listed on the
stock exchanges of countries included in the EAFE Index, United States, Canada,
and Emerging Markets.

CAPITAL OPPORTUNITIES FUND STOCK INDEX--the Index is composed of the various
common stocks that are held in the largest aggressive growth stock mutual funds,
using year-end net assets, monitored by Morningstar, Inc.

GLOBAL BALANCED INDEX--a fixed weighted index of global stocks, bonds and U.S.
cash reserves, the component parts of which are derived from the adjusted
capitalization weighted averages of individual currency adjusted local country
indexes.

MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX--an arithmetic, market
value-weighted average of the performance of over 1,460 securities listed on the
stock exchanges of 23 countries.

SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX--a market capitalization-weighted
index consisting of government bond markets of 14 countries.

GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX--currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.

SALOMON BROTHERS GNMA INDEX--includes pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.

SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly issued,
non-convertible corporate bonds rated AA or AAA. It is a value-weighted, total
return index, including approximately 800 issues with maturities of 12 years or
greater.

LEHMAN LONG-TERM TREASURY BOND INDEX--is composed of all bonds covered by the
Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.

MERRILL LYNCH CORPORATE & GOVERNMENT BOND INDEX--consists of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.

LEHMAN CORPORATE (BAA) BOND INDEX--all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than 1 year and with more than $25 million outstanding. This index
includes over 1,000 issues.

BOND BUYER MUNICIPAL BOND INDEX--is a yield index on current coupon high-grade
general obligation municipal bonds.

STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average yield
for four high-grade, non-callable preferred stock issues.

NASDAQ INDUSTRIAL INDEX--is composed of more than 3,000 industrial issues. It is
a value-weighted index calculated on price change only and does not include
income.

COMPOSITE INDEX--70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.

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

B-18

<PAGE>

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

LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX--consists of all publicly
issued, fixed rate, nonconvertible investment grade, dollar-denominated,
SEC-registered corporate debt rated AA or AAA.

LEHMAN BROTHERS AGGREGATE BOND INDEX--is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated BBB- or better. The Index has a market value of over
$4 trillion.

LEHMAN BROTHERS MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX--is a market
weighted index that contains individually priced U.S. Treasury, agency, and
corporate investment grade bonds rated BBB- or better with maturities between 1
and 5 years. The index has a market value of over $1.6 trillion.

LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE (5-10) GOVERNMENT/CORPORATE INDEX--is a
market weighted index that contains individually priced U.S. Treasury, agency,
and corporate securities rated BBB- or better with maturities between 5 and 10
years. The index has a market value of over $700 billion.

LEHMAN BROTHERS LONG (10+) GOVERNMENT/CORPORATE INDEX--is a market weighted
index that contains individually priced U.S. Treasury, agency, and corporate
securities rated BBB- or better with maturities greater than 10 years. The index
has a market value of over $900 billion.

LIPPER BALANCED FUND AVERAGE--An industry benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.

LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE--An industry benchmark of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Analytical Services, Inc.

LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE--An industry benchmark of average
government money market funds with similar investment objectives and policies,
as measured by Lipper Analytical Services, Inc.

LIPPER SMALL COMPANY GROWTH FUND AVERAGE--the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper
defines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average performance
and/or the average expense ratio of the small company growth funds. (This fund
category was first established in 1982. For years prior to 1982, the results of
the Lipper Small Company Growth category were estimated using the returns of the
Funds that constituted the Group at its inception.)

RUSSELL 3000 INDEX--consists of approximately the 3,000 largest stocks of U.S.
domiciled companies commonly traded on the New York and American Stock Exchanges
or the NASDAQ over-the-counter market, accounting for over 90% of the market
value of publicly traded Stocks in the U.S.

RUSSELL 2000 STOCK INDEX--composed of the 2,000 smallest securities in the
Russell 3000 Index, representing approximately 7% of the Russell 3000 total
market capitalization.

RUSSELL 2000(R) VALUE INDEX--contains stocks from the Russell 2000 Index with a
less-than-average growth orientation.

RUSSELL MIDCAP TM INDEX--composed of all medium and medium/small companies in
the Russell 1000 Index.

B-19
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SAI934

B-20