VANGUARD FIXED INCOME SECURITIES FUND INC, 485APOS, 2000-03-17

VANGUARD FIXED INCOME SECURITIES FUND INC
485APOS, 2000-03-17

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 2-47371) UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 50
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

AMENDMENT NO. 51

VANGUARD FIXED INCOME SECURITIES 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 AMENDMENT BECOME EFFECTIVE:
ON MAY 31, 2000, PURSUANT TO RULE 485(A) OF THE SECURITIES ACT OF 1933.

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

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[SHIP GRAPHIC]

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS
DATED MARCH 17, 2000

VANGUARD(R)
INFLATION-PROTECTED
SECURITIES FUND

Prospectus
May 31, 2000

This is the Fund's initial
prospectus, so it contains
no performance data.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. SHARES OF
VANGUARD INFLATION-PROTECTED SECURITIES FUND MAY NOT BE SOLD, NOR MAY OFFERS TO
BUY BE ACCEPTED, PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN A STATE IN
WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAW OF THE STATE.

[A MEMBER OF THE VANGUARD GROUP (R)]
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VANGUARD INFLATION-PROTECTED SECURITIES FUND
Prospectus
May 31, 2000
A Bond Mutual Fund

2 ADDITIONAL INFORMATION 12 Services and Account Features

3 A WORD ABOUT RISK 13 Types of Accounts

3 WHO SHOULD INVEST 14 Buying Shares

4 PRIMARY INVESTMENT STRATEGIES 16 Redeeming Shares
AND RISKS
20 Transferring Registration
8 THE FUND AND VANGUARD
20 Fund and Account Updates
8 INVESTMENT ADVISER
GLOSSARY (inside back cover)
9 DIVIDENDS, CAPITAL GAINS, AND TAXES

11 SHARE PRICE
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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 Inflation-Protected
Securities Fund.

INVESTMENT OBJECTIVE
The Fund seeks to provide investors inflation protection and income consistent
with investment in inflation-indexed securities.

INVESTMENT STRATEGIES
The Fund will invest primarily in inflation-indexed bonds issued by the U.S.
government, its agencies and instrumentalities, and corporations. For more
information about the Funds' investments, see "Primary Investment Strategies."

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause an investor to
lose money. These include:
o Income fluctuations. The Fund's quarterly income distributions are likely
to fluctuate considerably more than the income distributions of a typical
bond fund.
o Interest rate risk, which is the chance that bond prices overall, including
the prices of bonds held by the Fund, will decline over short or even long
periods due to rising interest rates. Interest rate risk is expected to be
low for the Fund.
o Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner. Credit risk, which has the
potential to hurt the Fund's performance, should be low for the Fund.
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 Fund began operations on May 31, 2000, so performance information (including
annual total returns and average annual total returns) for a full calendar year
is not yet available.

FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based on estimated amounts for the current fiscal year. The Fund has no
operating history; actual operating expenses could be different.

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: o%
12b-1 Distribution Fee: None
Other Expenses: o%
TOTAL ANNUAL FUND OPERATING EXPENSES: o%

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2

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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. We expect the Fund's expense ratio for the current fiscal year to be
o%, or $o per $1,000 of average net assets. The average inflation-protected
securities mutual fund had expenses in 1999 of o%, or $o per $1,000 of average
net assets (derived from data provided by Lipper Inc., which reports on the
mutual fund industry). Management expenses, which are 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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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 match our estimates for the Fund's first
year of operations. The results apply whether or not you redeem your investment
at the end of each period.

----------------------------
1 YEAR 3 YEARS
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$. $.
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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
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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<TABLE>
<CAPTION>
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ADDITIONAL INFORMATION
<S> <C>
DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Dividends are distributed in March, June, $o
September, and December; capital gains, if any,
are distributed in December
NEWSPAPER ABBREVIATION
INVESTMENT ADVISER o
The Vanguard Group, Valley Forge, Pa.,
since inception VANGUARD FUND NUMBER
o
INCEPTION DATE
May 31, 2000 CUSIP NUMBER
o
SUITABLE FOR IRAS
Yes TICKER SYMBOL
o
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</TABLE>
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3
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A WORD ABOUT RISK

This prospectus describes risks you would face as an investor in Vanguard
Inflation- Protected Securities 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 the Fund, you
should also take into account your personal tolerance for the daily fluctuations
in the 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 are seeking a bond fund that provides inflation protection.
o You are willing to accept some volatility in income distributions.
o You are willing to tolerate some modest fluctuation in share price.
o You want the additional portfolio diversification that inflation-indexed
securities can offer.

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 to 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.
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4

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PLAIN TALK ABOUT
REAL RETURNS
Inflation-indexed securities are designed to provide a "real rate of return"--a
return after adjusting for the impact of inflation. Inflation--a general rise
in prices of goods and services--erodes the purchasing power of an investor's
portfolio. For example, if an investment provides a "nominal" total return of
8% in a given year and inflation is 4% during that period, the
inflation-adjusted, or real, return is 4%. Inflation, as measured by the
Consumer Price Index, has occurred in 49 of the past 50 years, so investors
should be conscious of both nominal and real returns of their investments. It
should be noted that investors in inflation-indexed bond funds who do not
reinvest the portion of the income distribution that comes from inflation
adjustments will not maintain the purchasing power of the investment over the
long term. This is because interest earned depends on the amount of principal
invested, and that principal won't grow with inflation if the investor spends
the principal adjustment paid out as part of a fund's income distributions.
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PRIMARY INVESTMENT STRATEGIES AND RISKS

This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objectives--inflation protection and income. It also explains how
the adviser implements these strategies. In addition, this section discusses
several important risks--income risk, interest rate risk, credit 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.

MARKET EXPOSURE
The Fund's primary strategy is to invest at least 65% of its assets in
inflation-indexed securities. The Fund may also invest up to 35% of its assets
in holdings that are not "inflation-indexed."

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PLAIN TALK ABOUT
INFLATION-INDEXED SECURITIES
Unlike conventional bonds, which make regular fixed interest payments and repay
the face value of the bonds at maturity, the principal and interest payments of
inflation-indexed securities (IIS) are adjusted over time to reflect
inflation--a rise in the general price level. This adjustment is a key feature
given that the Consumer Price Index (CPI) has risen in 49 of the past 50 years.
Importantly, in the event of sustained deflation, or a drop in prices, the U.S.
Treasury has guaranteed that it would repay at least the original face value of
its Inflation-Indexed Securities.
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Because the Fund invests primarily in bonds, it is subject to certain
risks.
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5

[FLAG] THE FUND IS SUBJECT TO INCOME FLUCTUATIONS. THE FUND'S QUARTERLY INCOME
DISTRIBUTIONS ARE LIKELY TO FLUCTUATE CONSIDERABLY MORE THAN INCOME
DISTRIBUTIONS OF A TYPICAL BOND FUND. INCOME FLUCTUATIONS ASSOCIATED WITH
CHANGES IN INTEREST RATES ARE EXPECTED TO BE LOW; HOWEVER, INCOME
FLUCTUATIONS RESULTING FROM CHANGES IN INFLATION ARE EXPECTED TO BE HIGH.
OVERALL,INVESTORS CAN EXPECT INCOME FLUCTUATIONS TO BE HIGH FOR THE FUND.

While fluctuations in quarterly income distributions are expected to be
high, distributions should, over the long term, provide an income yield that
exceeds inflation.
Changes in interest rates will affect bond prices as well as bond income.

[FLAG] THE FUND IS SUBJECT TO INTEREST RATE RISK, WHICH IS THE CHANCE THAT BOND
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS DUE TO RISING
INTEREST RATES. INTEREST RATE RISK SHOULD BE LOW FOR THE FUND.

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PLAIN TALK ABOUT
INFLATION-INDEXED SECURITIES AND INTEREST RATES
Interest rates on conventional bonds have two primary components: a "real"
yield, plus an increment that reflects investor expectations of future
inflation. By contrast, rates on inflation-indexed securities (IIS) are
adjusted for inflation and therefore aren't affected meaningfully by inflation
expectations. This leaves only real rates to influence the prices of IIS. A
rise in real rates will cause prices of IIS to fall, while a decline in real
rates will boost the prices of IIS. In the past, interest rates on conventional
bonds have varied considerably more than real rates because of wide
fluctuations in actual and expected inflation (annual changes in the Consumer
Price Index since 1925 have ranged from -10% to +18% and have averaged 3.1%).
Because real interest yields have been relatively stable, the prices of IIS
have generally fluctuated less than those of conventional bonds with comparable
maturity and credit-quality characteristics.
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[FLAG] THE FUND IS SUBJECT TO CREDIT RISK, WHICH IS THE CHANCE THAT A BOND
ISSUER WILL FAIL TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.

The credit quality of the Fund depends on the quality of its investments.
Since the Fund invests primarily in securities backed by the full faith and
credit of the U.S. government, the average credit quality of the Fund's holdings
is expected to be high, and consequently credit risk should be low for the Fund.
The expected dollar-weighted average credit quality of the Fund's holdings, as
rated by Moody's Investors Service, will be Treasury/AAA.

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6
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PLAIN TALK ABOUT
CREDIT QUALITY
A bond's credit quality depends on the issuer's ability to pay interest on the
bond and, ultimately, to repay the debt. The lower the rating by one of the
independent bond-rating agencies (for example, Moody's or Standard & Poor's),
the greater the chance (in the rating agency's opinion) that the bond issuer
will default, or fail to meet its payment obligations. All things being equal,
the lower a bond's credit rating, the higher its yield should be to compensate
investors for assuming additional risk. Bonds rated in one of the four highest
rating categories are considered "investment grade." The Fund's Statement of
Additional Information includes a detailed description of the credit-rating
scales used by major, independent bond-rating agencies.
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PLAIN TALK ABOUT
TAXES AND INFLATION-INDEXED SECURITIES
Any increase in principal for an inflation-indexed security (IIS) resulting
from inflation adjustments is considered by IRS regulations to be taxable
income in the year it occurs. For holders of an IIS, this means that taxes must
be paid on income that is not received until the bond matures. By contrast, a
mutual fund holding these securities pays out both interest income and the
income attributable to inflation adjustments each quarter in the form of cash
or reinvested shares.
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SECURITY SELECTION
The Vanguard Group, adviser to the Fund through its Fixed Income Group, buys and
sells securities based on its judgment about issuers, the prices of the
securities, and other economic factors. The Fund is generally managed without
regard to tax ramifications.

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

OTHER INVESTMENT STRATEGIES AND RISKS
The Fund may invest, to a limited extent, in the following types of financial
instruments: corporate debt; U.S. government and agency bonds; cash reserves;
futures, options, and other derivatives; and restricted or illiquid securities.
o Corporate debt. As the name implies, corporate debt obligations--usually
called bonds--represent loans by an investor to a corporation.
o U.S. government and agency bonds. These bonds represent loans by an
investor to the U.S. Treasury Department or a wide variety of governmental
agencies and instrumentalities. Timely payment of principal and interest on
U.S. Treasury bonds is always guaranteed by the full faith and credit of
the U.S. government; many (but not all) agency bonds have the same
guarantee.
o Cash reserves. This blanket term describes a variety of short-term
fixed-income investments, including money market instruments, commercial
paper, bank certificates of deposit, banker's acceptances, and repurchase
agreements. Repurchase agreements represent short-term (normally overnight)
loans by a Fund to commercial banks or large securities dealers.
o Futures, options, and other derivatives. The Fund may invest up to 20% of
its total assets in bond futures contracts, options, credit swaps, interest
rate swaps, and other types of
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derivatives. Losses (or gains) involving futures contracts can sometimes be
substantial--in part because a relatively small price movement in a futures
contract may result in an immediate and substantial loss (or gain) for a fund.
Similar risks exist for other types of derivatives. For this reason, the Fund
will not use futures, options, or other derivatives for speculative purposes or
as leverage investments that magnify the gains or losses of an investment.
The reasons for which the Fund will invest in futures and options are:
--To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in bonds.
--To reduce the Fund's transaction costs, for hedging purposes, or to add
value when these instruments are favorably priced.
o Restricted or illiquid securities. Restricted securities are privately
placed securities that, pursuant to the rules of the Securities and
Exchange Commission, generally can only be sold to qualified institutional
buyers. Because these securities can only be resold to qualified
institutional investors, they are considered illiquid securities--that is,
they could be difficult for the Fund to convert to cash, if needed. The
Fund will not invest more than 15% of its net assets in illiquid
securities. The Fund's Board of Trustees may, from time to time, determine
that certain restricted securities are liquid; such securities would then
not be subject to the 15% limitation. In other words, the Fund may invest
in restricted securities that are deemed to be liquid securities, without
limit.

RISK OF NONDIVERSIFICATION

[FLAG] THE SEC REQUIRES ALL FUNDS TO CLASSIFY THEMSELVES AS DIVERSIFIED OR
NONDIVERSIFIED.A DIVERSIFIED FUND MAY NOT INVEST A SIGNIFICANT PERCENTAGE
OF ITS ASSETS IN A SMALL NUMBER OF SECURITIES. THE INFLATION-PROTECTED
SECURITIES FUND'S PORTFOLIO IS EXPECTED TO BE DIVERSIFIED UNDER SEC
STANDARDS, AND REMAIN THAT WAY INDEFINITELY. NEVERTHELESS, THE FUND HAS
CLASSIFIED ITSELF AS NONDIVERSIFIED SO THAT, IN THE UNLIKELY EVENT THAT
THE INFLATION-PROTECTED SECURITIES MARKET BECOMES DOMINATED BY JUST A FEW
CORPORATE ISSUERS, THE FUND CAN CONTINUE TO FULFILL ITS MANDATE. IF THE
FUND'S PORTFOLIO WERE TO BECOME NONDIVERSIFIED, SHAREHOLDERS WOULD BE
SUBJECT TO THE RISK THAT THE FUND'S PERFORMANCE COULD BE HURT
DISPROPORTIONATELY BY A DECLINE IN THE PRICES OF JUST A FEW SECURITIES.

TEMPORARY INVESTMENT MEASURES
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.

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.
Longer-term bonds will mature--and need to be replaced--less frequently than
shorter-term bonds. As a result, longer-term bond funds tend to have lower
turnover rates than shorter-term bond funds.
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8

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 $520 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.

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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

The Vanguard Group (Vanguard), P.O. Box 2600, Valley Forge, PA 19482, founded in
1975, serves as the Fund's adviser through its Fixed Income Group. As of January
31, 2000, Vanguard served as adviser for about $. billion in assets. Vanguard
manages the Fund on an at-cost basis, subject to the control of the Trustees and
officers of the Fund. The Fund began operations on May 31, 2000; its advisory
expenses for the first fiscal year are estimated at an effective annual rate of
0.01%.
The adviser is authorized to choose broker-dealers to handle the purchase
and sale of the Fund's securities, and to seek out the best available price and
most favorable execution for all transactions. Also, the Fund may direct the
adviser to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.
In the interest of obtaining better execution of a transaction, the adviser
may at times choose brokers who charge higher commissions. If more than one
broker can obtain the best available price and most favorable execution, then
the adviser is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to the adviser or the Fund.
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PLAIN TALK ABOUT
THE FUND'S ADVISER

The managers responsible for the Fund's investments are:

IAN A. MACKINNON, Managing Director of Vanguard and head of Vanguard's Fixed
Income Group; has worked in investment management since 1974; primary
responsibility for Vanguard's internal fixed-income policy and strategy since
1981; B.A., Lafayette College; M.B.A., Pennsylvania State University.

JOHN HOLLYER, Principal of Vanguard and Fund Manager; has worked in investment
management since 1987; has managed portfolio investments since 1989; B.S.,
University of Pennsylvania.

KENNETH E. VOLPERT, CFA, Principal of Vanguard, and Fund Manager; has worked in
investment management since 1981; has managed portfolio investments since 1982;
B.S., University of Illinois; M.B.A., University of Chicago.

Mr. Hollyer and Mr. Volpert manage the Fund on a day-to-day basis. Mr. MacKinnon
is responsible for setting the Fund's broad investment policies and for
overseeing the Fund Managers.
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DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
less expenses), as well as any capital gains realized from the sale of its
holdings. Income dividends generally are distributed in March, June, September,
and December; capital gains distributions generally occur in December. In
addition, the Fund may occasionally be required to make supplemental dividend or
capital gains distributions at some other time during the year. You can receive
distributions of income 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 for federal income tax purposes 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 for federal income tax purposes as if received in
December.
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.
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10

o Dividend and capital gains distributions that you receive, as well as your
gains or losses from any sale or exchange of Fund shares, may be subject to
state or local income taxes. Depending on your state's rules, however, any
dividends attributable to interest earned on direct obligations of the U.S.
Treasury may be exempt from state and local taxes. Vanguard will notify you
each year how much, if any, of your dividends may qualify for this
exemption.

GENERAL INFORMATION

BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not:
o provide us with your correct taxpayer identification number;
o certify that the taxpayer identification number is correct; and
o confirm that you are not subject to backup withholding.
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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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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11

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 ..

"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.

<PAGE>

12
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
CHECKWRITING [CHECK]
Method for drawing money from your account by writing a check for $250 or more.
- --------------------------------------------------------------------------------
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>
14

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
$o.

add to an existing account
$o by mail or exchange; $o 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
$o. 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-.
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>
15

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 (PIN) 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 Inflation-Protected Securities Fund-.
[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>

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 20.

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.
- --------------------------------------------------------------------------------
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. You can also sell shares by check.
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, a redemption check will be sent to 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).
- --------------------------------------------------------------------------------
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.

<PAGE>

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.

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.

<PAGE>

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
- --------------------------------------------------------------------------------
CHECK REQUESTS [CHECK]
You can sell shares by writing a check for $250 or more.
- --------------------------------------------------------------------------------
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 four ways: check, wire (money
market funds and other daily dividend funds only), exchange to another Vanguard
fund, or Fund Express Redemption.
- --------------------------------------------------------------------------------
CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
WIRE REDEMPTIONS [WIRE]
The wire redemption option is not automatic; you must establish it by completing
a special form or the appropriate section of your account application. Wire
redemptions can be initiated by mail or by telephone during Vanguard's business
hours, but not online.

For telephone requests made by 4 p.m. Eastern time, the wire will arrive at your
bank by the close of business on the following business day.
- --------------------------------------------------------------------------------
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 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 CERTIFICATES

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

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

- --------------------------------------------------------------------------------
ALL TRADES 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 . . .

FUND AND ACCOUNT UPDATES

STATEMENTS AND REPORTS

We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.
In addition, you will receive financial reports about 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.
- --------------------------------------------------------------------------------
CHECKWRITING STATEMENT
Sent monthly to shareholders using Vanguard's checkwriting option. Our statement
provides images of the front and back of each checkwriting draft paid in the
previous month. This consolidated statement is sent instead of the original
canceled drafts, which will not be returned.
- --------------------------------------------------------------------------------

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

AVERAGE MATURITY
The average length of time until bonds held by a fund reach maturity (or are
called) and are repaid. In general, the longer the average maturity, the more a
fund's share price will fluctuate in response to changes in market interest
rates.

BOND
A debt security (IOU) issued by a corporation, government, or government agency
in exchange for the money you lend it. In most instances, the issuer agrees to
pay back the loan by a specific date and make regular interest payments until
that date.

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.

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.

FACE VALUE
The amount to be paid at maturity of a bond; also known as the par value or
principal.

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.

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

INVESTMENT GRADE
A bond whose credit quality is considered by independent bond-rating agencies to
be sufficient to ensure timely payment of principal and interest under current
economic circumstances.

MATURITY
The date when a bond issuer agrees to repay the bond's principal, or face value,
to the bond's buyer.

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, money market instruments, and interests in other investment
vehicles.

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

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

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

<PAGE>
[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 Inflation-Protected
Securities Fund, the following
documents are available free
upon request:

ANNUAL/SEMIANNUAL REPORTS TO
SHAREHOLDERS
Additional information about the
Fund's investments is available in
the Fund's annual and semiannual
reports to shareholders.

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 20549-0102.

Fund's Investment Company Act
file number: .

P0.N-05/31/2000
<PAGE>
[SHIP GRAPHIC]

VANGUARD(R)
INFLATION-PROTECTED
SECURITIES FUND

Participant Prospectus
May 31, 2000

This is the Fund's initial
prospectus, so it contains
no performance data.

[A MEMBER OF THE VANGUARD GROUP (R)]
<PAGE>

VANGUARD INFLATION-PROTECTED SECURITIES FUND
Participant Prospectus
May 31, 2000
A Bond Mutual Fund

- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
1 FUND PROFILE 9 DIVIDENDS, CAPITAL GAINS,
AND TAXES
2 ADDITIONAL INFORMATION
10 SHARE PRICE
3 A WORD ABOUT RISK
11 INVESTING WITH VANGUARD
3 WHO SHOULD INVEST
12 ACCESSING FUND INFORMATION BY
4 PRIMARY INVESTMENT STRATEGIES COMPUTER
AND RISKS
GLOSSARY (inside back cover)
8 THE FUND AND VANGUARD

8 INVESTMENT ADVISER

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WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of Vanguard
Inflation-Protected Securities 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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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.
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<PAGE>

FUND PROFILE

The following profile summarizes key features of Vanguard Inflation-Protected
Securities Fund.

INVESTMENT OBJECTIVE
The Fund seeks to provide investors inflation protection and income consistent
with investment in inflation-indexed securities.

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

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2

----------------------------
1 YEAR 3 YEARS
----------------------------
$. $.
----------------------------

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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ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are distributed in March, June, o
September, and December; capital gains, if any,
are distributed in December VANGUARD FUND NUMBER
o
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., CUSIP NUMBER
since inception o

INCEPTION DATE TICKER SYMBOL
May 31, 2000 o
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<PAGE>
3
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A WORD ABOUT RISK

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

PRIMARY INVESTMENT STRATEGIES AND RISKS

[FLAG] THE FUND IS SUBJECT TO CREDIT RISK, WHICH IS THE CHANCE THAT A BOND
ISSUER WILL FAIL TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
<PAGE>
6

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PLAIN TALK ABOUT
CREDIT QUALITY
A bond's credit quality depends on the issuer's ability to pay interest on the
bond and, ultimately, to repay the debt. The lower the rating by one of the
independent bond-rating agencies (for example, Moody's or Standard & Poor's),
the greater the chance (in the rating agency's opinion) that the bond issuer
will default, or fail to meet its payment obligations. All things being equal,
the lower a bond's credit rating, the higher its yield should be to compensate
investors for assuming additional risk. Bonds rated in one of the four highest
rating categories are considered "investment grade." The Fund's Statement of
Additional Information includes a detailed description of the credit-rating
scales used by major, independent bond-rating agencies.
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PLAIN TALK ABOUT
TAXES AND INFLATION-INDEXED SECURITIES
Any increase in principal for an inflation-indexed security (IIS) resulting
from inflation adjustments is considered by IRS regulations to be taxable
income in the year it occurs. For holders of an IIS, this means that taxes must
be paid on income that is not received until the bond matures. By contrast, a
mutual fund holding these securities pays out both interest income and the
income attributable to inflation adjustments each quarter in the form of cash
or reinvested shares.
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[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE CHANCE THAT THE
ADVISERS MAY DO A POOR JOB OF SELECTING STOCKS.

o Cash reserves. This blanket term describes a variety of short-term
fixed-income investments, including money market instruments, commercial
paper, bank certificates of deposit, banker's acceptances, and repurchase
agreements. Repurchase agreements represent short-term (normally overnight)
loans by a Fund to commercial banks or large securities dealers.

o Futures, options, and other derivatives. The Fund may invest up to 20% of
its total assets in bond futures contracts, options, credit swaps, interest
rate swaps, and other types of derivatives. Losses (or gains) involving
futures contracts can sometimes be substantial--in part because a
relatively small price movement in a futures contract may result in an
immediate and substantial loss (or gain) for a fund. Similar risks exist
for other types of derivatives. For this reason, the Fund will not use
futures, options, or other derivatives for speculative purposes or as
leverage investments that magnify the gains or losses of an investment.
The reasons for which the Fund will invest in futures and options are:
--To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in bonds.
--To reduce the Fund's transaction costs, for hedging purposes, or to add
value when these instruments are favorably priced.
o Restricted or illiquid securities. Restricted securities are privately
placed securities that, pursuant to the rules of the Securities and
Exchange Commission, generally can only be sold to qualified institutional
buyers. Because these securities can only be resold to qualified
institutional investors, they are considered illiquid securities--that is,
they could be difficult for the Fund to convert to cash, if needed. The
Fund will not invest more than 15% of its net assets in illiquid
securities. The Fund's Board of Trustees may, from time to time, determine
that certain restricted securities are liquid; such securities would then
not be subject to the 15% limitation. In other words, the Fund may invest
in restricted securities that are deemed to be liquid securities, without
limit.

RISK OF NONDIVERSIFICATION

INVESTMENT ADVISER

The managers responsible for the Fund's investments are:

JOHN HOLLYER, Principal of Vanguard and Fund Manager; has worked in investment
management since 1987; has managed portfolio investments since 1989; B.S.,
University of Pennsylvania.

DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund distributes to shareholders virtually all of its net income (interest
less expenses), as well as any capital gains realized from the sale of its
holdings. Income dividends generally are distributed in March, June, September,
and December; capital gains distributions generally occur in December. In
addition, the Fund may occasionally be required to make supplemental dividend or
capital gains distributions at some other time during the year.
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 employee-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.

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PLAIN TALK ABOUT
DISTRIBUTIONS

SHARE PRICE

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

"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.

<PAGE>

11
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 a Fund's next-determined
net asset value after Vanguard receives your request (or, in the case of new
contributions, the next-determined net asset value after Vanguard receives the
order from your plan administrator). As long as this request is received before
the close of trading on the New York Stock Exchange, generally 4 p.m. Eastern
time, you will receive that day's net asset value.

EXCHANGES
The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. Although we
make every effort to maintain the exchange privilege, Vanguard reserves the
right to revise or terminate this privilege, limit the amount of an exchange or
reject any exchange, at any time, without notice. Because excessive exchanges
can potentially disrupt the management of 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>
12

ACCESSING FUND INFORMATION BY COMPUTER
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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.
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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.

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.

FACE VALUE
The amount to be paid at maturity of a bond; also known as the par value or
principal.

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.

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

MATURITY
The date when a bond issuer agrees to repay the bond's principal, or face value,
to the bond's buyer.

PRINCIPAL
The amount of money you put into an investment.

SECURITIES
Stocks, bonds, money market instruments, and interests in 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 Inflation-Protected
Securities Fund, the following
documents are available free
upon request:

ANNUAL/SEMIANNUAL REPORTS TO
SHAREHOLDERS
Additional information about the
Fund's investments is available in
the Fund's annual and semiannual
reports to shareholders.

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: .

I0.N-05/31/2000
<PAGE>

The Vanguard Fixed Income Securities Funds prospectuses from PEA #49 is
incorporated by reference.

<PAGE>

PART B

VANGUARD(R) FIXED INCOME SECURITIES FUND
(THE TRUST)

STATEMENT OF ADDITIONAL INFORMATION

MAY 31, 2000

This Statement is not a prospectus but should be read in conjunction with the
Trust's current Prospectuses dated May 31, 2000. To obtain, without charge, a
Prospectus or the most recent Annual Report to Shareholders, which contains the
Funds' Financial Statements as hereby incorporated by reference, please call:

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

TABLE OF CONTENTS

PAGE
----
DESCRIPTION OF THE TRUST ................................................... B-1
INVESTMENT POLICIES ........................................................ B-3
PURCHASE OF SHARES ......................................................... B-8
SHARE PRICE ................................................................ B-8
REDEMPTION OF SHARES ....................................................... B-8
FUNDAMENTAL INVESTMENT LIMITATIONS ......................................... B-9
MANAGEMENT OF THE FUNDS ................................................... B-10
INVESTMENT ADVISORY SERVICES .............................................. B-13
PORTFOLIO TRANSACTIONS .................................................... B-15
YIELD AND TOTAL RETURN .................................................... B-16
FINANCIAL STATEMENTS ...................................................... B-18
COMPARATIVE INDEXES ....................................................... B-19
OTHER DEFINITIONS ......................................................... B-20
APPENDIX--DESCRIPTION OF SECURITIES AND RATINGS ........................... B-20

DESCRIPTION OF THE TRUST

ORGANIZATION

The Trust was organized as Westminster Fixed Income Securities Fund, a Maryland
corporation, in1972. It was reorganized as a Pennsylvania business trust in
1984, then reorganized as a Maryland corporation in 1985 and, finally,
reorganized as a Delaware business trust in May, 1998. Prior to its
reorganization as a Delaware business trust, the Trust was known as Vanguard
Fixed Income Securities Fund, Inc. The Trust (except for the Inflation-Protected
Securities Fund) 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. The
Inflation-Protected Securities Fund is registered with the Commission as an
open-end, non-diversified management investment company. The Trust currently
offers the following funds:

GNMA Fund
Short-Term Corporate Fund*
Long-Term Treasury Fund
Short-Term Treasury Fund
Intermediate-Term Treasury Fund
Long-Term Corporate Fund
Short-Term Federal Fund
Intermediate-Term Corporate Fund
High-Yield Corporate Fund
Inflation-Protected Securities Fund
(individually, a Fund; collectively, the Funds)

* THE SHORT-TERM CORPORATE FUND OFFERS TWO CLASSES OF SHARES, INVESTOR SHARES
AND INSTITUTIONAL SHARES.

B-1

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

SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, The Chase Manhattan Bank, N.A., 4 Chase MetroTech
Center, Brooklyn, New York 11245, and First Union, PA4943, 530 Walnut Street,
Philadelphia, Pennsylvania 19106, serve as the Funds' custodians. The custodians
are responsible for maintaining the Funds' assets and keeping all necessary
accounts and records of Fund assets.

INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania, 19103, serves as the Funds' independent accountants.
The accountants audit financial statements for the Funds and provide other
related services.

TRANSFER AND DIVIDEND-PAYING AGENT. The Funds' transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.

CHARACTERISTICS OF THE FUNDS' SHARES

RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions
on the right of shareholders to retain or dispose of the Funds' shares, other
than the possible future termination of the Funds. The Funds 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 Funds will continue indefinitely.

SHAREHOLDER LIABILITY. The Funds are 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 a Fund will
not be personally liable for payment of the Fund'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 Fund obligation only if the Fund 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 each 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 series, 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 series 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 fund's net assets, and to change any fundamental
policy of the fund. Shareholders of a fund 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.

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

PREEMPTIVE RIGHTS. There are no preemptive rights associated with shares of
the Funds.

CONVERSION RIGHTS. Shareholders of the Short-Term Corporate Fund may
convert their Individual (or Institutional) Shares into Institutional (or
Individual) Shares upon the satisfaction of any then applicable eligibility
requirements.

REDEMPTION PROVISIONS. The Funds' redemption provisions are described in
their current prospectuses and elsewhere in this Statement of Additional
information.

SINKING FUND PROVISIONS. The Funds have no sinking fund provisions.

B-2

<PAGE>

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

TAX STATUS OF THE FUNDS

Each Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. This special tax status means
that a Fund will not be liable for federal tax on income and capital gains
distributed to shareholders. In order to preserve its tax status, each Fund must
comply with certain requirements. If a Fund 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, a 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.

INVESTMENT POLICIES

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

REPURCHASE AGREEMENTS

Each 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 a Fund acquires a fixed-income security (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 Fund's Board of Trustees will
monitor a 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 a Fund.

The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, a
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 bankruptcy or other laws, a court may determine that the underlying
security is collateral for a loan by a 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 a 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 advisers
acknowledge these risks, it is expected that they can be controlled through
careful monitoring procedures.

LENDING OF SECURITIES

Each 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 investment securities, a Fund attempts to
increase its net investment income through the receipt of interest on the loan.
Any gain or loss in the market price of the securities loaned that might occur
during the term of the loan would be for the account of the Fund. The terms and
the structure and the aggregate amount of such loans must be consistent with the
1940 Act, and the Rules and Regulations or interpretations of the Commission
thereunder. These provisions limit the amount of securities a Fund may lend to
33 1/3% of the Fund's total assets, and require that (a) the borrower pledge and
maintain with the Fund collateral consisting of cash, an irrevocable letter of
credit or securities issued or guaranteed by the United States Government having
at all times not less than 100% of the value of the securities loaned, (b) the
borrower add to such collateral whenever the price of the securities loaned
rises (i.e., the borrower "marks to the market" on a daily basis), (c) the loan
be made subject to termination by the

B-3

<PAGE>

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 each Fund will comply
with all other applicable regulatory requirements, including the rules of the
New York Stock Exchange, which presently require the borrower, after notice, to
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 Funds' 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's Trustees. In addition, voting rights pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.

VANGUARD INTERFUND LENDING PROGRAM

The Commission has issued an exemptive order permitting the Funds to 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.

TEMPORARY INVESTMENTS

The Funds may take temporary defensive measures that are inconsistent with the
Funds' normal fundamental or non-fundamental investment policies and 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 Funds may take temporary defensive measures.
In taking such measures, the Fund may fail to achieve its investment objective.

ILLIQUID SECURITIES

Each 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.

Each Fund may invest in restricted, privately placed securities that,
under securities laws, may be sold only to qualified institutional buyers.
Because these securities can be resold only to qualified institutional buyers,
they may be considered illiquid securities--meaning that they could be difficult
for the Fund to convert to cash if needed.
If a substantial market develops for a restricted security held by a Fund,
it will be treated as a liquid security, in accordance with procedures and
guidelines approved by the Fund's Board of Trustees. This generally includes
securities that are unregistered that can be sold to qualified institutional
buyers in accordance with Rule 144A under the 1933 Act. While the Fund's
investment adviser determines the liquidity of restricted securities on a daily
basis, the Board oversees and retains ultimate responsibility for the adviser's
decisions. Several factors that 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-4
<PAGE>

FOREIGN INVESTMENTS

As indicated in the prospectuses, the Funds may include foreign securities to a
certain extent. Investors should recognize that investing in foreign companies
involves certain special considerations which are not typically associated with
investing in U.S. companies.

FEDERAL TAX TREATMENT OF NON-U.S. TRANSACTIONS. Special rules govern the
Federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury 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 taxpayer whose functional currency
is the U.S. dollar 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 income 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 the Funds may make or enter into will
be subject to the special currency rules described above.

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

Although the Funds 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 the custodial arrangement 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 the Fund receives from its foreign investments.

FUTURES CONTRACTS AND OPTIONS. Each Fund may enter into futures contracts,
options, and options on futures contracts for several reasons: to simulate full
investment in the underlying securities while retaining a cash balance for Fund
management purposes, 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

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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
deposits 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 Funds
expect to earn interest income on their 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 Funds intend 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. A 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.

Although techniques other than the sale and purchase of futures contracts
could be used to control each Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
a 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.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. A Fund will not enter into
futures contract trans-actions 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, a 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, a 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 hedge it effectively.

Each 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.

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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 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. Additionally, a Fund incurs the
risk that its adviser will incorrectly predict future interest rate trends.
However, because the futures strategies of the Funds are engaged in only for
hedging purposes, the Advisers do not believe that the Funds are subject to the
risks of loss frequently associated with futures transactions. The Funds would
presumably have sustained comparable losses if, instead of the futures contract,
they had invested in the underlying financial instrument and sold it after the
decline.

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

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. Each Fund is required for
Federal income tax purposes to recognize as income for each taxable year its net
unrealized gains and losses on certain futures contracts as of the end of the
year as well as those actually realized during the year. In these 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. Gains and losses on
certain other futures contracts (primarily non-U.S. futures contracts) are not
recognized until the contracts are closed and are treated as long-term or
short-term depending on the holding period of the contract. Sales of futures
contracts which are intended to hedge against a change in the value of
securities held by a Fund may affect the holding period of such securities and,
consequently, the nature of the gain or loss on such securities upon
disposition. A Fund may be required to defer the recognition of losses on
futures contracts to the extent of any unrecognized gains on related positions
held by the Fund.

In order for a Fund to continue to qualify for Federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
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 securities or currencies. It is anticipated that any net gain
recognized on futures contracts will be considered qualifying income for
purposes of the 90% requirement.

A Fund will distribute to shareholders annually any net capital gains which
have been recognized for Federal income tax purposes 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.

OTHER TYPES OF DERIVATIVES. In addition to bond futures contracts and
options, each Fund may invest in other types of derivatives, including swap
agreements. Swap agreements can be structured in a variety of ways and are known
by many different names. In a typical swap agreement, the Fund negotiates with a
counterparty to trade off investment exposure to a particular market factor,
such as interest rate movements or the credit quality of a bond issuer. Based on
the

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terms of the swap, the Fund may either receive from or make payments to the
counterparty on a regular basis.
Depending on how they are used, swap agreements have the potential to
increase or decrease the Funds' investment risk. The Funds will invest in swap
agreements only to the extent consistent with their respective investment
objectives and policies.

PURCHASE OF SHARES

Each Fund 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 Fund, 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
Fund's shares.

SHARE PRICE

Each Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. The net asset value is determined as of the close of the
New York Stock Exchange (the 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
(includes 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 acquired 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.
Other assets and securities for which no quotations are readily available
or which are restricted as to sale (or resale) are valued by such methods as the
Board of Trustees deems in good faith to reflect fair value.

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

REDEMPTION OF SHARES

Each Fund may suspend redemption privileges or postpone the date of payment: (i)
during any period that the New York Stock Exchange is closed, or trading on the
Exchange is restricted as determined by the Commission, (ii) during any period
when an emergency exists as defined by the Commission as a result of which it is
not reasonably practicable for a 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.
Each Fund has made an election with the Commission to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at
the beginning of such period. Such commitment is irrevocable without the prior
approval of the Commission. Redemptions in excess of the above limits may be
paid in whole or in part, in readily marketable investment securities or in
cash, as the Trustees may deem advisable; however, payment will be made wholly
in cash unless the Trustees believe that economic or market conditions exist
which would make such a practice detrimental to the best interests of the Fund.
If redemptions are paid in investment securities, such securities will be valued

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as set forth in the Prospectuses under "Share Price" and a redeeming shareholder
would normally incur brokerage expenses if he converted these securities to
cash.

No charge is made by a Fund for redemptions (except for Vanguard High-Yield
Corporate Fund, which charges a redemption fee of 1% if shares held for less
than one year are redeemed). Shares redeemed may be worth more or less than what
was paid for them, depending on the market value of the securities held by the
Fund.

FUNDAMENTAL INVESTMENT LIMITATIONS

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

BORROWING. A 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. A Fund may not invest in commodities, except that it may
invest in bond (stock) futures contracts, bond (stock) options and options on
bond (stock) futures contracts. 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 futures contracts or options at any
time.

DIVERSIFICATION. With respect to 75% of their total assets, all Vanguard
Fixed Income Securities Funds except Vanguard Inflation-Protected Securities
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. Vanguard Inflation-Protected
Securities Fund will limit the aggregate value of all holdings (except U.S.
Government and cash items, as defined under subchapter M of the Internal Revenue
Code (the Code)), each of which exceeds 5% of the Fund's total assets, to an
aggregate of 50% of such assets. Additionally, the Fund will limit the aggregate
value of holdings of a single issuer (except U.S. Government and cash items, as
defined in the Code) to a maximum of 25% of the Fund's total assets.

ILLIQUID OR RESTRICTED SECURITIES. A 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. A Fund may not invest more that 25% of its total
assets in any one industry.

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

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

LOANS. A Fund may not lend money to any person except (i) by purchasing
bonds or other debt securities or by entering into repurchase agreements; (ii)
by lending its portfolio securities; and (iii) to another Vanguard fund through
Vanguard's interfund lending program.

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

OIL, GAS, MINERALS. A Fund may not invest in interests in oil, gas or other
mineral exploration or development programs.

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

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

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

WARRANTS. A Fund may not purchase or sell warrants, put options or call
options. The investment limitations set forth above are considered at the time
that investment securities are purchased. If a percentage restriction is adhered
to at the time of purchase, 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 a Fund from participating in The
Vanguard Group, Inc. (Vanguard). As members of The Vanguard Group of Investment
Companies, the Funds may own securities issued by Vanguard, make loans to
Vanguard, and contribute to Vanguard's costs or other financial requirement. See
"Management of the Funds" for more information.

MANAGEMENT OF THE FUNDS

OFFICERS AND TRUSTEES

The Officers of the Funds manage its day-to-day operations and are responsible
to the Funds' Board of Trustees. The Trustees set broad policies for each Fund
and choose its officers. The following is a list of the Trustees and Officers of
the Funds and a statement of their present positions and principal occupations
during the past five years. As a group, the Funds' Trustees and Officers own
less than 1% of the outstanding shares of each Fund. 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
Funds is Post Office Box 876, Valley Forge, PA 19482.

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

JOHN J. BRENNAN, (DOB: 7/29/1954) Chairman, Chief Executive Officer, and 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.

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 (Exhange-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.

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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), The Mead Corp. (Paper Products), and AmeriSource Health
Corp.; 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 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 Funds are "interested persons" as defined in the 1940 Act.

THE VANGUARD GROUP

Each Fund 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 Fund and the other funds in the Group
obtain at cost virtually all of their corporate management, administrative and
distribution services. Vanguard also provides investment advisory services on an
at-cost basis to certain 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 net expenses which are allocated among the
funds under methods approved by the Board of Trustees of each fund. In addition,
each fund bears its own direct expenses, such as legal, auditing, and custodian
fees.
Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the 1940 Act. 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 fund's relative
net assets and its contribution to Vanguard capital. At January 31, 2000, each
Fund had contributed capital representing .% of each Fund's net assets. The
total amount contributed by the Funds was $., which represented .% of Vanguard's
capitalization. The Funds' Service Agreement provides for the following
arrangement: (1) each Vanguard fund may be called upon to invest a maximum of
0.40% of its assets in Vanguard, and (2) there is no restriction on the maximum
cash investment that the Vanguard funds may make in Vanguard.

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

DISTRIBUTION. Vanguard Marketing Corporation, a wholly-owned subsidiary of
The Vanguard Group, Inc. provides all distribution and marketing activities for
the 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

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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.

During the fiscal years ended January 31, 1998, 1999, and 2000, the Funds
incurred the following approximate amounts of The Vanguard Group's management
(including transfer agency), distribution, and marketing expenses.

FUND 1998 1999 2000
- ---- ---- ---- ----
Vanguard GNMA Fund $12,822,000 $16,285,000 $.
Vanguard High-Yield Corporate Fund $5,431,000 $7,817,000 $.
Vanguard Intermediate-Term Treasury Fund $1,675,000 $2,292,000 $.
Vanguard Intermediate-Term Corporate Fund $1,175,000 $1,890,000 $.
Vanguard Long-Term Treasury Fund $885,000 $1,378,000 $.
Vanguard Long-Term Corporate Fund $5,262,000 $5,628,000 $.
Vanguard Short-Term Treasury Fund $1,103,000 $1,271,000 $.
Vanguard Short-Term Corporate Fund $7,823,000 $7,287,000 $.
Vanguard Short-Term Federal Fund $1,448,000 $1,889,000 $.

INVESTMENT ADVISORY SERVICES

Vanguard provides investment advisory services to several Vanguard funds,
including these 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.
Wellington Management and its predecessor organizations have provided investment
advisory services to investment companies since 1928 and to investment
counseling clients since 1960.

TRUSTEE COMPENSATION

The same individuals serve as Trustees of all Vanguard funds (with two
exceptions, which are noted in the table appearing on the following page), 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" TRUSTEE. Mr. Brennan serves as a Trustee, but is not paid in
this capacity. He is, however, 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 fund 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.

B-12

<PAGE>
VANGUARD FIXED INCOME SECURITIES FUND
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
AGGREGATE ACCRUED AS ESTIMATED FROM ALL
COMPENSATION PART OF THESE ANNUAL VANGUARD
FROM THESE FUNDS' BENEFITS UPON FUNDS PAID TO
NAMES OF TRUSTEES FUNDS(1) EXPENSES(1) RETIREMENT TRUSTEES(2)
- --------------------------------------------------------------------------------------------
John C. Bogle(3) None None None None
John J. Brennan None None None None
JoAnn Heffernan Heisen $. $. $. $.
Bruce K. MacLaury $. $. $. $.
Burton G. Malkiel $. $. $. $.
Alfred M. Rankin, Jr. $. $. $. $.
John C. Sawhill $. $. $. $.
James O. Welch, Jr. $. $. $. $.
J. Lawrence Wilson $. $. $. $.
</TABLE>

(1) The amounts shown in this column are based on the Funds' fiscal year ended
October 31, 1999.

(2) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 103 Vanguard funds (102
in the case of Mr. Malkiel; 93 in the case of Mr. MacLaury) for the 1999
calendar year.

(3) Mr. Bogle has retired from the Funds' Board, effective December 31, 1999.

INVESTMENT ADVISORY SERVICES
GNMA, LONG-TERM CORPORATE AND HIGH-YIELD CORPORATE FUNDS

Several Funds employ Wellington Management Company, LLP (Wellington Management)
under an investment advisory agreement to manage the investment and reinvestment
of the assets of the GNMA, Long-Term Corporate and High-Yield Corporate Funds
and to continuously review, supervise and administer the investment program for
each of these three Funds. Wellington Management discharges its responsibilities
subject to the control of the Officers and Trustees of the Funds.
The GNMA, Long-Term Corporate and High-Yield Corporate Funds pay Wellington
Management an aggregate fee at the end of each fiscal quarter, calculated by
applying a quarterly rate, based on the following annual percentage rates, to
the aggregate average month-end net assets of the three Funds for the quarter:

GNMA FUND

NET ASSETS ANNUAL RATE
- ---------- -----------
First $3 billion........ .020%
Next $3 billion......... .010%
Over $6 billion......... .008%

LONG-TERM CORPORATE FUND

NET ASSETS ANNUAL RATE
- ---------- -----------
First $1 billion........ .040%
Next $1 billion......... .030%
Next $1 billion......... .020%
Over $3 billion......... .015%

B-13

<PAGE>
HIGH-YIELD CORPORATE FUND

NET ASSETS ANNUAL RATE
- ---------- -----------
First $1 billion........ .060%
Next $1 billion......... .040%
Next $1 billion......... .030%
Over $3 billion......... .025%

The fee, as determined above, is allocated to each Fund based on the
relative net assets of each.

During the fiscal years ended January 31, 1998, 1999 and 2000, the three
Funds incurred the following advisory fees:

FUND 1998 1999 2000
- ---- ---- ---- ----
Vanguard GNMA Fund $1,067,000 $1,229,000 $.
Vanguard Long-Term Corporate Fund $963,000 $1,048,000 $.
Vanguard High-Yield Corporate Fund $1,593,000 $1,831,000 $.

Prior to May 1, 1996, these fees were paid under the terms of a previous
investment advisory agreement which called for a higher rate of fees. The
present agreement may be continued for successive one-year periods, as long as
such continuance is specifically approved by a vote of the Funds' Board of
Trustees, including the affirmative votes of a majority of those members of the
Board of Trustees who are not parties to the agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of
considering such approval. The agreement may be terminated by any Fund at any
time, without penalty, by vote of the Board of Trustees of the Fund on 60 days'
written notice to Wellington Management, or by Wellington Management on 90 days'
written notice to the Fund. The agreement will automatically terminate in the
event of its assignment.
The Funds' 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.

DESCRIPTION OF THE ADVISER. Wellington Management Company, LLP, 75 State
Street, Boston, MA 02109, is a Massachusetts limited liability partnership, of
which the following persons are managing partners: Robert W. Doran, Duncan M.
McFarland, and John R. Ryan.

SHORT-TERM CORPORATE, SHORT-TERM FEDERAL, SHORT-TERM TREASURY,
INTERMEDIATE-TERM CORPORATE, INTERMEDIATE-TERM TREASURY, LONG-TERM
TREASURY, AND INFLATION-PROTECTED SECURITIES FUNDS

The Short-Term Corporate, Short-Term Federal, Short-Term Treasury,
Intermediate-Term Corporate, Intermediate-Term Treasury, Long-Term Treasury, and
Inflation-Protected Securities Funds receive all investment advisory services
from The Vanguard Group, through its Fixed Income Group. These services are
provided on an at-cost basis from an experienced investment management staff
employed directly by Vanguard. The compensation and other expenses of the staff
are allocated among the Funds utilizing these services.

During the fiscal years ended January 31, 1998, 1999 and 2000, the Funds
incurred the following advisory expenses:

FUND 1998 1999 2000
- ---- ---- ---- ----
Vanguard Intermediate-Term Treasury Fund $199,000 $212,000 $.
Vanguard Intermediate-Term Corporate Fund $102,000 $128,000 $.
Vanguard Long-Term Treasury Fund $136,000 $147,000 $.

</TABLE>

B-14

Vanguard Short-Term Treasury Fund $147,000 $133,000 $.
Vanguard Short-Term Corporate Fund $698,000 $671,000 $.
Vanguard Short-Term Federal Fund $205,000 $191,000 $.
</TABLE>
- -------------
The Inflation-Protected Securities Fund was not operational until June, 2000.

The investment management staff is supervised by the senior Officers of the
Funds. The senior Officers are directly responsible to the Board of Trustees of
the Funds. The Board of Trustees, elected annually by shareholders, sets broad
policies for the Funds and chooses the Funds' Officers.

PORTFOLIO TRANSACTIONS

GNMA, LONG-TERM CORPORATE AND HIGH-YIELD CORPORATE FUNDS

The investment advisory agreement authorizes Wellington Management to select the
brokers or dealers that will execute the purchases and sales of portfolio
securities for the Funds and directs Wellington Management to use its best
efforts to obtain the best available price and most favorable execution as to
all transactions for the Funds. Wellington Management 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.
In placing portfolio transactions, Wellington Management will use its best
judgment to choose the broker most capable of providing the brokerage services
necessary to obtain the 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
Funds and/or Wellington Management. Wellington Management 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.
Currently, it is each Fund's policy that Wellington Management 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. Wellington Management will only pay such
higher commissions if it believes this to be in the best interest of the Funds.
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 Wellington Management and/or the Funds.
However, Wellington Management has informed the Funds that it generally will not
pay higher commission rates specifically for the purpose of obtaining research
services.
Some securities considered for investment by the Funds may also be
appropriate for other Funds and/or clients served by Wellington Management. If
purchase or sale of securities consistent with the investment policies of the
Funds and one or more of these other Funds or clients served by Wellington
Management are considered at or about the same time, transactions in such
securities will be allocated among the several Funds and clients in a manner
deemed equitable by Wellington Management. 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 Funds'
Board of Trustees.

SHORT-TERM CORPORATE, SHORT-TERM FEDERAL,
SHORT-TERM TREASURY, INTERMEDIATE-TERM CORPORATE,
INTERMEDIATE-TERM TREASURY, AND LONG-TERM TREASURY FUNDS

Brokers or dealers who execute transactions for the Short-Term Corporate,
Short-Term Federal, Short-Term Treasury, Intermediate-Term Corporate,
Intermediate-Term Treasury, and Long-Term Treasury Funds are selected by
Vanguard's investment management staff, which is responsible for using its best
efforts to obtain the best available price and most favorable execution for each
transaction. Principal transactions are made directly with issuers, underwriters
and market makers and usually do not involve brokerage commissions, although
underwriting commissions and dealer mark-ups may be involved. Brokerage
transactions are placed with brokers deemed most capable

B-15

<PAGE>

of providing favorable terms; where more than one broker can offer such terms,
consideration may be given to brokers who provide the staff with research and
statistical information.
Vanguard's investment management staff may occasionally make
recommendations to other Vanguard Funds or clients which result in their
purchasing or selling securities simultaneously with the Funds. As a result, the
demand for securities being purchased or the supply of securities being sold may
increase, and this could have an adverse effect on the price of those
securities. It is the staff's policy not to favor one client over another in
making recommendations or placing an order. If two or more clients are
purchasing a given security on the same day from the same broker-dealer, such
transactions may be averaged as to price.

ALL FUNDS

The Funds did not incur any brokerage commissions for the fiscal years ended
January 31, 1998, 1999, or 2000.

YIELD AND TOTAL RETURN

SEC YIELDS
Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield is calculated by
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

The yield* of each Fund for the 30-day period ended January 31, 2000 is set
forth below:

FUND YIELD
- ---- -----
Vanguard Short-Term Treasury Fund .%
Vanguard Short-Term Federal Fund .%
Vanguard Short-Term Corporate Fund-Investor Shares .%
Vanguard Short-Term Corporate Fund-Institutional Shares .%
Vanguard Intermediate-Term Treasury Fund .%
Vanguard GNMA Fund .%
Vanguard Long-Term Treasury Fund .%
Vanguard Long-Term Corporate Fund .%
Vanguard High-Yield Corporate Fund .%(1)
Vanguard Intermediate-Term Corporate Fund .%

- ------------
The Inflation-Protected Securities Fund was not operational until June, 2000.

* The yield for each Fund is calculated daily. In calculating the yield, the
premiums and discounts on asset-backed securities are not amortized.

(1) Yield for the High-Yield Corporate Fund reflects a premium based on the
possibility that interest payments on some bonds may be reduced or eliminated.
Also, since bonds with higher interest coupons may be replaced by bonds with
lower coupons, income dividends are subject to reduction.

B-16

<PAGE>

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

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

The average annual total return of each Fund for the one-, five-, and ten-year
periods ended January 31, 2000 is set forth below:

<TABLE>

1 YEAR 5 YEARS 10 YEARS
ENDED ENDED ENDED
FUND 1/31/2000 1/31/2000 1/ 31/2000
- -------------------------------------------------------------------------------------
Vanguard Short-Term Treasury Fund .% .% .%*
Vanguard Short-Term Federal Fund .% .% .%
Vanguard Short-Term Corporate Fund-Investor .% .% .%
Shares
Vanguard Short-Term Corporate Fund-Institutional .% .% .%*
Shares
Vanguard GNMA Fund .% .% .%
Vanguard Intermediate-Term Treasury Fund .% .% .%*
Vanguard Intermediate-Term Corporate Fund .% .% .%*
Vanguard Long-Term Treasury Fund .% .% .%
Vanguard Long-Term Corporate Fund .% .% .%
Vanguard High-Yield Corporate Fund .% .% .%
</TABLE>

- ---------
The Inflation-Protected Securities Fund was not operational until June, 2000.

* Since inception:

Short-Term Treasury and Intermediate-Term Treasury Funds--October 28, 1991
Intermediate-Term Corporate Fund--November 1, 1993
Short-Term Corporate Fund--Institutional Shares--September 30, 1997

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
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

B-17

<PAGE>

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 the reinvestment 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
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

FINANCIAL STATEMENTS

The Funds' financial statements as of and for the fiscal year ended January 31,
2000, appearing in the Funds' 2000 Annual Report to Shareholders, and the
reports 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 each Fund's performance, please
see the Funds' 2000 Annual Report to Shareholders, which may be obtained without
charge.

B-18

<PAGE>

COMPARATIVE INDEXES

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

Each of the investment company members of The Vanguard Group, including
each Fund of Vanguard Fixed Income Securities Fund, may, from time to time, use
one or more of the following unmanaged indexes for comparative performance
purposes.

STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX--includes stocks selected by
Standard and Poor's Index Committee to include leading companies in leading
industries and to reflect the U.S. stock market.

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

STANDARD & POOR'S 500/BARRA VALUE INDEX--consists of the stocks in the Standard
and Poor's 500 Composite Stock Price Index (S&P 500) with the lowest
price-to-book ratios, comprising 50% of the market capitalization of the S&P
500.

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 more than 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, Australasia and the Far East.

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.

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

LEHMAN LONG-TERM TREASURY BOND INDEX--is a market weighted index that contains
individually priced U.S. Treasury securities with maturities of ten 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 one year and with more than $100 million outstanding. This index
includes over 1,500 issues.

LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX--is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $100 million
principal outstanding and maturity greater than ten years.

MERRILL LYNCH DRD-ELIGIBLE INDEX--includes preferred stock issues which are
eligible for the corporate dividends-received deduction.

LEHMAN BROTHERS HIGH YIELD INDEX--includes all fixed income securities having a
maximum quality rating of Ba1 (including defaulted issues; a minimum outstanding
of $100mm, and at least one year to maturity; payment-in-kind bonds and
Eurobonds are excluded.

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

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.

B-19

<PAGE>

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.

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 Baa- or better. The Index has a market value of over
$5 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 BBB1 or better with maturities
between one and five 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 BBB1 or better with maturities between five and
ten years. The index has a market value of over $800 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 BBB1 or better with maturities greater than ten years. The
index has a market value of over $900 billion.

LEHMAN BROTHERS INTERMEDIATE-TERM CORPORATE BOND INDEX--consists of all
investment grade corporate debt with maturities of five to ten years.

LEHMAN BROTHERS U.S. TIPS INDEX--a market capitalization weighted index of all
U.S. Treasury Inflation-Indexed securities.

LIPPER GENERAL EQUITY FUND AVERAGE--an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Inc.

LIPPER FIXED INCOME FUND AVERAGE--an industry benchmark of average fixed income
funds with similar investment objectives and policies, as measured by Lipper
Inc.

OTHER DEFINITIONS

Marketing literature for the Funds of Vanguard Fixed Income Securities Fund, may
from time to time refer to or discuss a Fund's DURATION. Duration is the
weighted average life of a Fund's debt instruments measured on a present-value
basis; it is generally superior to average weighted maturity as a measure of a
Fund's potential volatility due to changes in interest rates.
Unlike a Fund's average weighted maturity, which takes into account only
the stated maturity date of the Fund's debt instruments, duration represents a
weighted average of both interest and principal payments, discounted by the
current yield-to-maturity of the securities held. For example, a four-year,
zero-coupon bond, which pays interest only upon maturity (along with principal),
has both a maturity and duration of four years. However, a four-year bond priced
at par with an 8% coupon has a maturity of four years but a duration of 3.6
years (at an 8% yield), reflecting the bond's earlier payment of interest.
In general, a bond with a longer duration will fluctuate more in price than
a bond with a shorter duration. Also, for small changes in interest rates,
duration serves to approximate the resulting change in a bond's price. For
example, a 1% change in interest rates will cause roughly a 4% move in the price
of a zero-coupon bond with a four-year duration, while an 8% coupon bond (with a
3.6 year duration) will change by approximately 3.6%.

B-20

<PAGE>

APPENDIX--DESCRIPTION OF SECURITIES AND RATINGS

DESCRIPTION OF BOND RATINGS

Excerpts from Moody's Investors Service, Inc., (Moody's) description of its
highest bond ratings: AAA--judged to be the best quality. They carry the
smallest degree of investment risk; AA--judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds; A--possess many favorable investment attributes and are to be
considered as "upper medium grade obligations"; BAA--considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. BA--judged to have speculative
elements; their future cannot be considered as well assured; B--generally lack
characteristics of the desirable investment; CAA--are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest; CA--speculative in a high degree; often in default;
C--lowest rated class of bonds; regarded as having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2, and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of the category.
Excerpts from Standard & Poor's Corporation (S&P) description of its five
highest bond ratings: AAA--highest grade obligations. Capacity to pay interest
and repay principal is extremely strong; AA--also qualify as high grade
obligations. A very strong capacity to pay interest and repay principal and
differs from AAA issues only in small degree; A--regarded as upper medium grade.
They have a strong capacity to pay interest and repay principal although they
are somewhat susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories; BBB--regarded as
having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. This group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC--predominately speculative with respect to capacity
to pay interest and repay principal in accordance with terms of the obligation;
BB indicates the lowest degree of speculation and CC the highest.
S&P applies indicators "+," no character, and "1" to its rating categories.
The indicators show relative standing within the major rating categories.

DESCRIPTION OF GNMA MORTGAGE-BACKED CERTIFICATES

GNMA (Government National Mortgage Association) Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the GNMA Portfolio will purchase are of the
"modified pass-through" type. "Modified pass-through" Certificates entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of fees paid to the "issuer" and GNMA, regardless of whether or not the
mortgagor actually makes the payment.

THE GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee
the timely payment of principal of and interest on securities backed by a group
(or pool) of mortgages insured by FHA or FHMA, or guaranteed by VA. The GNMA
guarantee is backed by the full faith and credit of the U.S. Government. GNMA is
also empowered to borrow without limitation from the U.S. Treasury if necessary
to make any payments required under its guarantee.

THE LIFE OF GNMA CERTIFICATES. The average life of GNMA Certificates is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greatest part of principal
invested well before the maturity of the mortgages in the pool. (Note: Due to
the GNMA guarantee, foreclosures impose no risk to principal investment.) As
prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA are normally used as an
indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. For this reason, it is standard
practice to treat GNMA Certificates as 30-year mortgage-backed securities which
prepay fully in the twelfth year.

B-21

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YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the issuer. For the most common type of mortgage pool,
containing single-family dwelling mortgages. GNMA receives an annual fee of 0.06
of 1% of the outstanding principal for providing its guarantee, and the issuer
is paid an annual fee of 0.44 of 1% for assembling the mortgage pool and for
passing through monthly payments of interest and principal to Certificate
holders.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates may be issued at a premium or discount, rather than at par.
2. After issuance, Certificates may trade in the secondary market at a premium
or discount.
3. Interest is earned monthly, rather than semiannually as for traditional
bonds. Monthly compounding has the effect of raising the effective yield
earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying the Certificate. That is, if
mortgagors pay off their mortgages early, the principal returned to
Certificate holders may be reinvested at more or less favorable rates.
In quoting yields for GNMA Certificates, the standard practice is to assume
that the Certificates will have a 12-year life. Compared on this basis, GNMA
Certificates have historically yielded roughly 0.25 of 1% more than high-grade
corporate bonds and 0.50 of 1% more than U.S. Government and U.S. Government
Agency bonds. As the life of individual pools may vary widely, however, the
actual yield earned on any issue of GNMA Certificates may differ significantly
from the yield estimated on the assumption of a 12-year life.

MARKET FOR GNMA CERTIFICATES. Since the inception of the GNMA Mortgage-Backed
Securities program in 1970, the amount of GNMA Certificates outstanding has
grown rapidly. The size of the market and the active participation in the
secondary market by securities dealers and many types of investors make the GNMA
Certificates a highly liquid instrument. Prices of GNMA Certificates are readily
available from securities dealers and depend on, among other things, the level
of market rates, the Certificate's coupon rate and the prepayment experience of
the pool of mortgages backing each Certificate.

"WHEN ISSUED" SECURITIES. GNMA securities may be purchased and sold on a when
issued and delayed delivery basis. Delayed delivery or when issued transactions
arise when securities are purchased or sold by a Fund with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. When a Fund engages in "when issued" and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. When
issued and delayed delivery transactions may be expected to occur a month or
more before delivery is due. However, no payment or delivery is made by the Fund
until it receives payment or delivery from the other party to the transaction. A
separate account of liquid assets equal to the value of such purchase
commitments will be maintained until payment is made. To the extent a Fund
engages in "when issued" and delayed delivery transactions, it will do so for
the purpose of acquiring securities consistent with its investment objective and
policies and not for the purpose of investment leverage.

COMMERCIAL PAPER

A Fund may invest in commercial paper (including variable amount master demand
notes) rated A-1 or better by Standard & Poor's or Prime-1 by Moody's, or, if
unrated, issued by a corporation having an outstanding unsecured debt issue
rated A or better by Moody's or by Standard & Poor's. Commercial paper refers to
short-term, unsecured promissory notes issued by corporations to finance
short-term credit needs. Commercial paper is usually sold on a discount basis
and has a maturity at the time of issuance not exceeding nine months. Variable
amount master demand notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangement
between the issuer and a commercial bank acting as agent for the payees of such
notes, whereby both parties have the right to vary the amount of the outstanding
indebtedness on the notes. Because variable amount master demand notes are
direct lending arrangements between a lender and a borrower, it is not generally
contemplated that such instruments will be traded, and there is no secondary
market for these notes, although they are

B-22

<PAGE>

redeemable (and thus immediately repayable by the borrower) at face value, plus
accrued interest, at any time. In connection with a Fund's investment in
variable amount master demand notes, Vanguard's investment management staff will
monitor, on an ongoing basis, the earning power, cash flow and other liquidity
ratios of the issuer, and the borrower's ability to pay principal and interest
on demand.
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) long-term senior debt is rated "A" or better; (3) the issuer has access to
at least two additional channels of borrowing; (4) basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances; (5)
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and (6) the reliability and quality of management
are unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is A-1, A-2 or A-3. The rating Prime-1 is
the highest commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following: (1) evaluation of
the management of the issuer; (2) economic evaluation of the issuer's industry
or industries and the appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
completion and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.

U.S. GOVERNMENT SECURITIES

The term "U.S. Government securities" refers to a variety of securities which
are issued or guaranteed by the United States Treasury, by various agencies of
the United States Government, and by various instrumentalities which have been
established or sponsored by the United States Government. The term also refers
to "repurchase agreements" collateralized by such securities.
U.S. Treasury securities are backed by the "full faith and credit" of the
United States. Securities issued or guaranteed by Federal agencies and U.S.
Government-sponsored instrumentalities may or may not be backed by the full
faith and credit of the United States. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration, and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a government agency organized
under Federal charter with government supervision. Instrumentalities issuing or
guaranteeing securities include, among others, Federal Home Loan Banks, the
Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, and the Federal National Mortgage Association.

BANK OBLIGATIONS

Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Certificates of
deposit are negotiable short-term obligations of commercial banks. Variable rate
certificates of deposit are certificates of deposit on which the interest rate
is periodically adjusted prior to their stated maturity based upon a specified
market rate. As a result of these adjustments, the interest rate on these
obligations may be increased or decreased periodically. Frequently, dealers
selling variable rate certificates of deposit to a Fund will agree to repurchase
such instruments, at the Fund's option, at par on or near the coupon dates. The
dealers' obligations to repurchase these instruments are subject to conditions
imposed by various dealers; such conditions typically are the continued credit
standing of the issuer and the existence of reasonably orderly market
conditions. A Fund is also able to sell variable rate certificates of deposit in
the secondary market. Variable rate certificates of deposit normally carry a
higher interest rate than comparable fixed-rate certificates of deposit. A
banker's acceptance is a time draft drawn on a commercial bank by a borrower
usually in connection with an international commercial transaction (to finance
the import, export, transfer or storage of goods). The borrower is liable for
payment as well as the bank, which unconditionally guarantees to pay the draft
at its face amount

B-23

<PAGE>

on the maturity date. Most acceptances have maturities of six months or less and
are traded in the secondary markets prior to maturity.

SHORT AND INTERMEDIATE TERM CORPORATE DEBT SECURITIES

Outstanding non-convertible corporate debt securities (e.g. bonds and
debentures) which are rated Baa3 or better either by Moody's or BBB1 or better
by Standard & Poor's are considered investment grade.

FOREIGN INVESTMENTS

The Short-Term Corporate, Intermediate-Term Corporate, High Yield Corporate and
Long-Term Corporate Funds may invest in the securities (payable in U.S. dollars)
of foreign issues and in the securities of foreign branches of U.S. banks such
as negotiable certificates of deposit (Eurodollars). Because these Funds invest
in such securities, investment in these Funds involves investment risks that are
different in some respects from an investment in a fund which invests only in
debt obligations of U.S. issuers. Such risks may include future political and
economic developments, the possible imposition of withholding taxes on interest
income payable on the securities held, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls or the
adoption of other restrictions by foreign governments which may adversely affect
the payment of principal and interest on securities held by the Funds,
difficulty in obtaining and enforcing court judgments abroad, the possibility of
restrictions on investments in other jurisdictions, reduced levels of government
regulation of securities markets in foreign countries, and difficulties in
effecting the repatriation of capital invested abroad.

ZERO COUPON TREASURY BONDS

All Funds may invest in zero coupon Treasury bonds, a term used to describe U.S.
Treasury notes and bonds which have been stripped of their unmatured interest
coupons, or the coupons themselves, and also receipts or certificates
representing interest in such stripped debt obligations and coupons. The timely
payment of coupon interest and principal on these instruments remains guaranteed
by the "full faith and credit" of the United States Government.

A zero coupon bond does not pay interest. Instead, it is issued at a
substantial discount to its "face value"--what it will be worth at maturity. The
difference between a security's issue or purchase price and its face value
represents the imputed interest an investor will earn if the security is held
until maturity. For tax purposes, a portion of this imputed interest is deemed
as income received by zero coupon bondholders each year. Each Fund, which
expects to qualify as a regulated investment company, intends to pass along such
interest as a component of a Fund's distributions of net investment income.

Zero coupon bonds may offer investors the opportunity to earn higher yields
than those available on U.S. Treasury bonds of similar maturity. However, zero
coupon bond prices may also exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest is
returned to the investor.

COLLATERALIZED MORTGAGE OBLIGATIONS

The Short-Term Federal, Short-Term Corporate, Intermediate-Term Corporate and
the Short-, Intermediate- and Long-Term U.S. Treasury Funds may invest in
collateralized mortgage obligations (CMOs), bonds that are collateralized by
whole loan mortgages or mortgage pass-through securities. The bonds issued in a
CMO deal are divided into groups, and each group of bonds is referred to as a
"tranche". Under the CMO structure, the cash flows generated by the mortgages or
mortgage pass-through securities in the collateral pool are used to first pay
interest and then pay principal to the CMO bondholders. The bonds issued under a
CMO structure are retired sequentially as opposed to the pro rata return of
principal found in traditional pass-through obligations. Subject to the various
provisions of individual CMO issues, the cash flow generated by the underlying
collateral (to the extent it exceeds the amount required to pay the stated
interest) is used to retire the bonds. Under the CMO structure, the repayment of
principal among the different tranches is prioritized in accordance with the
terms of the particular CMO issuance. The "fastest-pay" tranche of bonds, as
specified in the prospectus for the issuance, would initially receive all
principal payments. When that tranche of bonds is retired, the next tranche, or
tranches, in the sequence, as specified in the prospectus, receive all of the
principal payments until they are retired. The sequential retirement of bond
groups continues until the last tranche, or group of bonds, is retired.

B-24

<PAGE>

Accordingly, the CMO structure allows the issuer to use cash flows of long
maturity, monthly-pay collateral to formulate securities with short,
intermediate and long final maturities and expected average lives. The primary
risks involved in any mortgage security, such as a CMO issuance, is its exposure
to prepayment risk. To the extent a particular tranche is exposed to this risk,
the bondholder is generally compensated in the form of higher yield. In order to
provide security, in addition to the underlying collateral, many CMO issues also
include minimum reinvestment rate and minimum sinking-fund guarantees.
Typically, the Funds will invest in those CMOs that most appropriately reflect
their average maturities and market risk profiles. Consequently, the Short-Term
Funds invest only in CMOs with highly predictable short-term average maturities.
Similarly, the Intermediate- and Long-Term Treasury Funds will invest in those
CMOs that carry market risks consistent with intermediate- and long-term bonds.

REAL ESTATE

All Funds may invest in real estate investment conduits (REMICs), to the extent
consistent with the Funds' respective maturity and credit quality standards.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in certain mortgages
principally secured by interests in real property. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests, or
"residual" interests. Guaranteed REMIC pass-through certificates ("REMIC
Certificates") issued by FNMA or FHLMC represent beneficial ownership interests
in a REMIC trust consisting principally of mortgage loans or FNMA, FHLMC or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates. FNMA REMIC Certificates are
issued and guaranteed as to timely distribution of principal and interest by
FNMA.

INFLATION-INDEXED SECURITIES

All Funds may invest in inflation-indexed securities. The Inflation Protected
Securities Fund will invest primarily in such securities. Unlike conventional
bonds, which make regular fixed interest payments and repay the face value of
the bonds at maturity, the principal and interest payments of inflation-indexed
securities (IIS) are adjusted over time to reflect inflation--a rise in the
general price level. Inflation-indexed securities are designed to provide a
"real rate of return" - a return after adjusting for the impact of inflation.

B-25

<PAGE>

SAI028-FIXED INCOME SECURITIES FUNDS

B-26

<PAGE>

PART C

VANGUARD FIXED INCOME SECURITIES FUNDS
OTHER INFORMATION

ITEM 23. EXHIBITS
(a) Declaration of Trust**
(b) By-Laws**
(c) Reference is made to Articles III and V of the Registrant's Declaration
of Trust
(d) Investment Advisory Contract**
(e) Not applicable
(f) Reference is made to the section entitled "Management of the Fund" in the
Registrant's Statement of Additional Information
(g) Custodian Agreement**
(h) Amended and Restated Funds' Service Agreement**
(i) Legal Opinion**
(j) Consent of Independent Accountants*
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable

- -----------------
* To be filed
**Previously filed

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

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

ITEM 25. INDEMNIFICATION

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

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Wellington Management Company, LLP ("Wellington Management" is an investment
adviser registered under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). The list required by this Item 28 of officers and partners of
Wellington Management, together with any information as to any business
profession, vocation, or employment of a substantial nature engaged in by such
officers and partners during the past two years, is incorporated herein by
reference from Schedules B and D of Form ADV filed by Wellington Management
pursuant to the Advisers Act (SEC File No. 801-15908).

C-1

<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS

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

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

The books, accounts, and other documents required to be maintained by Section 31
(a) of the Investment Company Act and the rules promulgated thereunder will be
maintained at the offices of Registrant; Registrant's Transfer Agent, The
Vanguard Group, Inc., Valley Forge, Pennsylvania 19482; and the Registrant's
Custodian, State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02105.

ITEM 29. MANAGEMENT SERVICES

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

ITEM 30. UNDERTAKINGS

Not Applicable

C-2

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant hereby certifies that it has duly caused
this Post-Effective Amendment to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Valley
Forge and the Commonwealth of Pennsylvania, on the 17th day of March, 2000.

VANGUARD FIXED INCOME SECURITIES FUNDS

SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------
By: /S/ JOHN J. BRENNAN President, Chairman, Chief March 17, 2000
-------------------------- Executive Officer, and Trustee
(Heidi Stam)
John J. Brennan*

By: /S/ JOANN HEFFERNAN HEISEN Trustee March 17, 2000
--------------------------
(Heidi Stam)
JoAnn Heffernan Heisen*

By: /S/ BRUCE K. MACLAURY Trustee March 17, 2000
--------------------------
(Heidi Stam)
Bruce K. MacLaury*

By: /S/ BURTON G. MALKIEL Trustee March 17, 2000
--------------------------
(Heidi Stam)
Burton G. Malkiel*

By: /S/ ALFRED M. RANKIN, JR. Trustee March 17, 2000
--------------------------
(Heidi Stam)
Alfred M. Rankin, Jr.*

By: /S/ JOHN C. SAWHILL Trustee March 17, 2000
--------------------------
(Heidi Stam)
John C. Sawhill*

By: /S/ JAMES O. WELCH, JR. Trustee March 17, 2000
--------------------------
(Heidi Stam)
James O. Welch, Jr.*

By: /S/ J. LAWRENCE WILSON Trustee March 17, 2000
(Heidi Stam)
J. Lawrence Wilson*

By: /S/ THOMAS J. HIGGINS Treasurer and Principal March 17, 2000
-------------------------- Financial Officer and
(Heidi Stam) Accounting Officer
Thomas J. Higgins*

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

<PAGE>