VANGUARD TRUSTEES EQUITY FUND, 497, 2000-09-21

VANGUARD TRUSTEES EQUITY FUND
497, 2000-09-21

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 2-65955-99) UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 30

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 30

VANGUARD TRUSTEES' EQUITY 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

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

IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
ON SEPTEMBER 15, 2000, PURSUANT TO PARAGRAPH (B) OF RULE 485.

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VANGUARD INTERNATIONAL VALUE FUND

Prospectus
September 15, 2000

This prospectus contains
financial data for the
Fund for the six months
ended June 30, 2000.

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.

[A MEMBER OF
THE VANGUARD GROUP(R) LOGO]

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VANGUARD INTERNATIONAL VALUE FUND
Prospectus
September 15, 2000

An International Stock Mutual Fund

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CONTENTS
1 FUND PROFILE 14 FINANCIAL HIGHLIGHTS

3 ADDITIONAL INFORMATION 16 INVESTING WITH VANGUARD

4 A WORD ABOUT RISK 16 Services and Account Features

4 WHO SHOULD INVEST 17 Types of Accounts

5 PRIMARY INVESTMENT STRATEGIES 18 Buying Shares

10 THE FUND AND VANGUARD 20 Redeeming Shares

11 INVESTMENT ADVISER 23 Transferring Registration

12 DIVIDENDS, CAPITAL GAINS, AND TAXES 24 Fund and Account Updates

14 SHARE PRICE GLOSSARY (inside back cover)
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WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of Vanguard
International Value Fund. To highlight terms and concepts important to mutual
fund investors, we have provided "Plain Talk(R)" explanations along the way.
Reading the prospectus will help you to decide whether the Fund is the right
investment for you. We suggest that you keep it for future reference.
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FUND PROFILE

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

INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital growth and some income.

INVESTMENT STRATEGIES

The Fund invests mainly in common stocks of companies located outside the United
States that are considered by the Fund's adviser to be undervalued. Such stocks,
called "value" stocks, often are out of favor in periods when investors are
drawn to companies with strong prospects for growth. The prices of value stocks
therefore may be below average in comparison to such fundamental factors as
earnings, revenue, and book value. The Fund invests in small-, mid-, and
large-capitalization companies, and is expected to diversify its assets across
developed and emerging markets in Eastern and Western Europe, the Far East, and
Latin America.

PRIMARY RISKS
THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN A
WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG PERIODS. The
Fund is also subject to:
- Currency risk, which is the chance investments in a particular country will
decrease in value if the U.S. dollar rises in value against that country's
currency.

- Country risk, which is the chance that domestic events--such as political
upheaval, financial troubles, or a natural disaster--will weaken a
country's securities markets. Investments in emerging market countries
involve a greater degree of country risk than investments in developed
countries.

- Investment style risk, which is the chance that returns from the types of
stocks held by the Fund--small-, mid-, and large-capitalization value
stocks--will trail returns from the overall stock market. Historically,
small- and mid-cap stocks have been much more volatile than large-cap
stocks.
- Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.

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

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ANNUAL TOTAL RETURNS
----------------------------------------------------
1990 -12.26%
1991 9.96%
1992 -8.72%
1993 30.49%
1994 5.25%
1995 9.65%
1996 10.22%
1997 -4.58%
1998 19.46%
1999 21.81%
----------------------------------------------------

The Fund's year-to-date return as of the most recent
calendar quarter ended June 30, 2000, was 0.20%.

----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 20.62% (quarter ended December 31, 1998) and the lowest return for a
quarter was -18.00% (quarter ended September 30, 1990).

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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
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1 YEAR 5 YEARS 10 YEARS
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Vanguard International Value Fund 21.81% 10.91% 7.34%
MSCI EAFE Index* 27.30 13.15 7.33
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*Morgan Stanley Capital International Europe, Australasia, Far East Index.
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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 upon those incurred in the fiscal year ended December 31, 1999.

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

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.51%
12b-1 Distribution Fee: None
Other Expenses: 0.08%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.59%

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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 remain the same. The results apply whether or
not you redeem your investment at the end of each period.

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1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$60 $189 $329 $738
-------------------------------------------------

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

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PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income or assets, are expressed as a percentage of the net
assets of the fund. Vanguard International Value Fund's expense ratio in fiscal
year 1999 was 0.59%, or $5.90 per $1,000 of average net assets. The average
international stock mutual fund had expenses in 1999 of 1.72%, or $17.20 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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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 may achieve. Even seemingly small differences in expenses can, over time,
have a dramatic effect on a fund's performance.
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ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Distributed annually in December $3,000; $1,000 for IRAs and custodial
accounts for minors
INVESTMENT ADVISER
Hansberger Global Investors, Inc., NEWSPAPER ABBREVIATION
Fort Lauderdale, Fla., since IntlVal
August 1, 2000

INCEPTION DATE VANGUARD FUND NUMBER
May 16, 1983 046

NET ASSETS AS OF JUNE 30, 2000 CUSIP NUMBER
$982 million 921939203

SUITABLE FOR IRAS TICKER SYMBOL
Yes VTRIX
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A WORD ABOUT RISK

This prospectus describes risks you would face as an investor in Vanguard
International Value Fund. It is important to keep in mind one of the main axioms
of investing: The higher the risk of losing money, the higher the potential
reward. The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in the Fund, you should also
take into account your personal tolerance for the daily fluctuations of
international stock and currency markets.
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.
================================================================================

WHO SHOULD INVEST

The Fund may be a suitable investment for you if:
- You are seeking investment opportunities outside the United States.
- You wish to add a value-oriented international stock fund to your existing
holdings-- which could include other stock investments as well as bond,
money market, and tax-exempt investments.
- You are willing to accept the additional risks (country risk, currency
risk, etc.) associated with international investments.
- You are seeking growth of capital over the long term--at least five
years--along with some income.

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

The Fund has adopted the following policies, among others, to discourage short-
term trading:
- 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.
- There is a limit on the number of times you can exchange into and out of
the Fund (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).
- The Fund reserves the right to stop offering shares at any time.

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PRIMARY INVESTMENT STRATEGIES

This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objective, long-term growth of capital and some income. It also
explains how the adviser implements these strategies. In addition, this section
discusses several important risks--market risk, currency risk, country risk,
investment style risk, and manager risk--faced by investors in the Fund. The
Fund's Board of Trustees, which oversees the management of the Fund, may change
the Fund's investment objectives or strategies in the interest of shareholders
without a shareholder vote.

MARKET EXPOSURE
The Fund is a value-oriented fund that invests primarily in the common stocks of
large, medium-size and small foreign companies. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in foreign stocks of at
least three different countries. As of June 30, 2000, the Fund's top three
country holdings were the United Kingdom (25.5%), Japan (24.2%), and France
(10.6%). These percentages, however, are subject to change, and consequently so
may the countries that constitute the top three holdings.

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PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS
Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization.
Market capitalization changes over time, and there is no "official" definition
of the boundaries of large-, mid-, and small-cap stocks. Vanguard generally
defines large-capitalization (large-cap) funds as those holding stocks of
companies whose outstanding shares have a market value exceeding $13 billion;
mid-cap funds as those holding stocks of companies with a market value between
$1.5 billion and $13 billion; and small-cap funds as those typically holding
stocks of companies with a market value of less than $1.5 billion. Vanguard
periodically reassesses these classifications.
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[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK, WHICH IS THE CHANCE THAT STOCK
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS. STOCK MARKETS
TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING PRICES AND PERIODS OF
FALLING PRICES.
IN ADDITION, INVESTMENTS IN FOREIGN STOCK MARKETS CAN BE AS RISKY AS, IF
NOT MORE RISKY THAN, U.S. STOCK INVESTMENTS. THE PRICES OF INTERNATIONAL
STOCKS AND THE PRICES OF U.S. STOCKS HAVE OFTEN MOVED IN OPPOSITE
DIRECTIONS. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL
YEARS.

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PLAIN TALK ABOUT
THE RISKS OF INTERNATIONAL INVESTING
Because foreign stock markets operate differently from the U.S. market,
Americans investing abroad will encounter risks not typically associated with
U.S. companies. For instance, foreign companies are not subject to the same
accounting, auditing, and financial reporting standards and practices as U.S.
companies; and their stock may not be as liquid as the stock of similar U.S.
companies. In addition, foreign stock exchanges, brokers, and companies
generally have less government supervision and regulation than their
counterparts in the United States. These factors, among others, could negatively
impact the returns Americans receive from a foreign investment.
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To illustrate the volatility of international stock prices, the following
table shows the best, worst, and average total returns for foreign stock markets
over various periods as measured by the MSCI Europe, Australasia, Far East (MSCI
EAFE) Index, a widely used barometer of international market activity. (Total
returns consist of dividend income plus change in market price.) Note that the
returns shown do not include the costs of buying and selling stocks or other
expenses that a real-world investment portfolio would incur. Note, also, that
the gap between best and worst tends to narrow over the long term.

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INTERNATIONAL STOCK MARKET RETURNS (1969-1999)
-------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
-------------------------------------------------------------
Best 69.9% 36.5% 22.8% 16.3%
Worst -23.2% 1.5% 5.9% 12.0%
Average 15.2% 13.6% 14.5% 14.7%
--------------------------------------------------------------

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1969
through 1999. Keep in mind that this was a particularly favorable period for all
stock markets. These average returns reflect past performance on international
stocks; you should not regard them as an indication of future returns from
either foreign markets as a whole or this Fund in particular.
Note that the table does not take into account returns for emerging
markets, which can be substantially more volatile than the more developed
markets included in the MSCI EAFE Index. To illustrate this variability, the
following table shows returns for different international markets--as well as
the U.S. market for comparison--from 1990 through 1999, as measured by their
respective indexes. Note that the returns shown do not include the costs of
buying and selling stocks or other expenses that a real-world investment
portfolio would incur.

<PAGE>

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STOCK MARKET RETURNS FOR DIFFERENT INTERNATIONAL MARKETS*
--------------------------------------------------------------------------------
EUROPEAN PACIFIC EMERGING U.S.
MARKET MARKET MARKETS MARKETS
--------------------------------------------------------------------------------
1990 -2.00% -34.43% -10.55% -3.10%
1991 14.12 11.51 59.91 30.47
1992 -3.92 -18.51 11.40 7.62
1993 29.25 36.15 74.84 10.08
1994 2.82 12.82 -7.31 1.32
1995 22.08 2.89 0.01** 37.58
1996 21.42 -8.23 15.19 22.96
1997 23.75 -25.74 -16.37 33.36
1998 28.68 2.64 -18.39 28.58
1999 15.77 56.38 60.86 21.04
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*European market returns are measured by the MSCI Europe Index; Pacific market
returns are measured by the MSCI Pacific Free Index; emerging markets returns
are measured by the Select Emerging Markets Free Index; and U.S. market
returns are measured by the Standard & Poor's 500 Index.
**The inception date of the Select Emerging Markets Free Index was May 4, 1994;
returns shown for 1990 to 1994 are measured by the MSCI Emerging Markets Free
Index.
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[FLAG] THE FUND IS SUBJECT TO CURRENCY RISK, WHICH IS THE CHANCE THAT A STRONGER
U.S. DOLLAR WILL REDUCE RETURNS FOR AMERICANS INVESTING OVERSEAS.
GENERALLY, WHEN THE DOLLAR RISES IN VALUE AGAINST ANOTHER COUNTRY'S
CURRENCY, YOUR INVESTMENT IN THAT COUNTRY LOSES VALUE BECAUSE IT IS
DENOMINATED IN A CURRENCY THAT IS WORTH FEWER U.S. DOLLARS. ON THE OTHER
HAND, A WEAKER U.S. DOLLAR GENERALLY LEADS TO HIGHER RETURNS FOR AMERICANS
HOLDING INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES.

[FLAG] THE FUND IS SUBJECT TO COUNTRY RISK, WHICH IS THE CHANCE THAT POLITICAL
EVENTS (A WAR, NATIONAL ELECTIONS), FINANCIAL PROBLEMS (RISING INFLATION,
GOVERNMENT DEFAULT), OR NATURAL DISASTERS (AN EARTHQUAKE, A FLOOD) WILL
WEAKEN A COUNTRY'S ECONOMY AND CAUSE INVESTMENTS IN THAT COUNTRY TO LOSE
MONEY.

<PAGE>

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PLAIN TALK ABOUT
VALUE FUNDS AND GROWTH FUNDS
Value investing and growth investing are two styles employed by stock fund
managers. Value funds generally emphasize stocks of companies from which the
market does not expect strong growth. The prices of value stocks typically are
below-average in comparison to such factors as earnings and book value, and
these stocks typically have above-average dividend yields. Growth funds
generally focus on companies believed to have above-average potential for growth
in revenue and earnings. Reflecting the market's high expectations for superior
growth, such stocks typically have low dividend yields and above-average prices
in relation to such measures as revenue, earnings, and book value. Value and
growth stocks have, in the past, produced similar long-term returns, though each
category has periods when it outperforms the other. (Source: Historic returns of
the Russell 3000 Value Index and the Russell 3000 Growth Index). In general,
value funds are appropriate for investors who want some dividend income and the
potential for capital gains, but are less tolerant of share-price fluctuations.
Growth funds, by contrast, appeal to investors who will accept more volatility
in hopes of a greater increase in share price. Growth funds also may appeal to
investors with taxable accounts who want a higher proportion of returns to come
as capital gains (which may be taxed at lower rates than dividend income).
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[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE CHANCE THAT
RETURNS FROM VALUE STOCKS WILL TRAIL RETURNS FROM OTHER ASSET CLASSES OR
THE OVERALL STOCK MARKET. AS A GROUP, VALUE STOCKS TEND TO GO THROUGH
CYCLES OF DOING BETTER--OR WORSE--THAN COMMON STOCKS IN GENERAL. THESE
PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL YEARS.

SECURITY SELECTION
Hansberger Global Investors, Inc. (HGI), adviser to the Fund, employs an
intensive fundamental approach to selecting stocks. HGI seeks to identify stocks
with a market value that is believed to be less than a company's intrinsic
value, based on its long-term potential.
HGI's investment approach integrates extensive research (both internal and
external), proprietary valuation screens, and fundamental analysis of stocks
with a long-term investment perspective. This analysis involves evaluating a
company's prospects by focusing on such factors as: the quality of a company's
management; the company's competitive position within its industry; the
financial strength of the company; the quality and growth potential of its
earnings; and the outlook for the company's future based on these and other
similar factors. The objective of this analysis is to identify undervalued
securities for the Fund, to hold them for the long term, and to achieve
long-term capital growth as the marketplace realizes the value of these
securities over time. HGI will also consider other factors in its analysis,
including country and political risks, and economic and market conditions.
HGI seeks to broaden the scope, and increase the effectiveness, of its
fundamental analysis by searching for undervalued stocks in many countries
around the world. This global search provides the adviser with more diverse
opportunities and flexibility to shift portfolio investments not only from
company to company and industry to industry, but also from country to country,
in search of undervalued stocks.

<PAGE>

Under HGI's management, the Fund is expected to invest in 90-120 stocks,
across a broad spectrum of market capitalizations. The Fund's range of stock
holdings, and diversity of capitalization ranges, may differ significantly from
the typical international equity fund.
The Fund is generally managed without regard to tax ramifications.

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

TURNOVER RATE
Although the Fund normally seeks to invest for the long term, it may sell
securities regardless of how long the securities have been held. The "Financial
Highlights" section of this prospectus shows historic turnover rates for the
Fund. A substantial portion of Fund assets will be turned over in the current
fiscal year as a result of HGI's restructuring of the Fund, following its
replacement of a prior adviser on August 1, 2000. In the long run, however, it
is expected that under normal circumstances the Fund's average annual turnover
rate will be less than 50%. (A turnover rate of 100% would occur, for example,
if the Fund sold and replaced securities valued at 100% of its net assets within
a one-year period.)

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PLAIN TALK ABOUT
TURNOVER RATE
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. As of June 30, 2000, the average turnover rate for all
international stock funds was approximately 91%, according to Morningstar, Inc.
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OTHER INVESTMENT POLICIES AND RISKS
Besides investing in stocks of foreign companies, the Fund may make certain
other kinds of investments to achieve its objective.
The Fund may enter into forward foreign currency contracts, which help
protect its holdings against unfavorable short-term changes in exchange rates. A
forward foreign currency contract is an agreement to buy or sell a country's
currency at a specific price on a specific date, usually 30, 60, or 90 days in
the future. In other words, the contract guarantees an exchange rate on a given
date. Managers of international stock funds use these contracts to guard against
sudden, unfavorable changes in U.S. dollar/foreign currency exchange rates. The
contracts will not prevent the Fund's securities from falling in value during
foreign market downswings. The adviser may use these contracts to eliminate
some of the uncertainty of foreign exchange rates--but will not speculate on
changes in the market.
The Fund may also invest, to a limited extent, in futures and options
contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small price movement in a futures contract may result in an immediate and
substantial loss (or gain) for a fund. This Fund will not use futures for
speculative purposes or as leveraged investments that magnify the gains or

<PAGE>

losses of an investment. The Fund's obligation to purchase securities under
futures contracts will not exceed 20% of its total assets.
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 stocks.
- To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
The Fund may also invest in preferred stocks and convertible bonds. With
preferred stocks, holders receive set dividends from the issuer; their claim on
the issuer's income and assets ranks before that common stockholders, but after
that of bondholders. Convertible bonds are those that are convertible into, or
exchangeable for, common stocks.
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.

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

The Fund is a member of The Vanguard Group (R), a family of more than 35
investment companies with more than 100 funds holding assets worth more than
$580 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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<PAGE>

INVESTMENT ADVISER

HGI's advisory fee is paid quarterly, and is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter.

In addition, starting September 30, 2001, HGI's advisory fee may be
increased or decreased, based on the cumulative investment performance of the
Fund over a trailing 36-month period as compared with the cumulative total
return of the MSCI EAFE Index over the same period. This index is a widely used
barometer of international market activity. Note that this performance fee
structure will not be in full operation until October 1, 2003; until then, the
fee will be phased in over a 36-month period, using certain transition rules.
Please consult the Fund's Statement of Additional Information for a complete
explanation of how advisory fees are calculated.

The Fund has authorized HGI to choose brokers or dealers to handle the
purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions.
In the interest of obtaining better execution of a transaction, HGI may at
times choose brokers that charge higher commissions. If more than one broker can
obtain the best available price and most favorable execution of a transaction,
then HGI is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to HGI or the Fund. Also, the Fund
may direct HGI to use a particular broker for certain transactions in exchange
for commission rebates or research services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

<PAGE>

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PLAIN TALK ABOUT
THE FUND'S ADVISER
The individual primarily responsible for overseeing the implementation of
Hansberger Global Investors' (HGI) strategy for the Fund is:

AJIT DAYAL, Deputy Chief Investment Officer of HGI, and Fund Manager; has worked
in investment management since 1987; with HGI since 1998; B.A., Bombay
University; M.B.A., University of North Carolina at Chapel Hill.

Assisting Mr. Dayal are:

THOMAS HANSBERGER, CFA, CIC, Chief Investment Officer of HGI; has worked in
investment management since 1965; founded HGI in 1994; B.S., Miami University
(Oxford, Ohio).

RONALD HOLT, Vice President-Research at HGI; has worked in investment management
since 1991; with HGI since 1997; B.A., Columbia University; M.B.A., Stern School
of Business at New York University.

AUREOLE L. W. FOONG, Managing Director-Asian Research at HGI; has worked in
investment management since 1989; with HGI since 1997; B.S., M.B.A., University
of Southern California at Los Angeles.
--------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. 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:
- Distributions are taxable to you for federal income tax purposes whether or
not you reinvest these amounts in additional Fund shares.
- 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.
- Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.
- 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.
- Capital gains distributions may vary considerably from year to year as a
result of the Fund's normal investment activities and cash flows.
- 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.
- 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 and local income taxes.

<PAGE>

- The Fund may be subject to foreign taxes or foreign tax withholding on
dividends, interest, and some capital gains that it receives on foreign
securities. You may qualify for an offsetting credit or deduction under
U.S. tax laws for your portion of the Fund's foreign tax obligations,
provided that you meet certain requirements. See your tax adviser or IRS
Publications for more information.

GENERAL INFORMATION
BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not:
- provide us with your correct taxpayer identification number;
- certify that the taxpayer identification number is correct; and
- 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.

--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------

<PAGE>

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. Because foreign
securities markets may operate on days which are not business days in the United
States, the value of the Fund's holdings may change on days when shareholders
will not be able to purchase or redeem the Fund's shares.
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 also may use fair value pricing if the value of a security held by the Fund
is materially affected by events occurring after the close of the primary
markets or exchanges on which such security is traded. In these situations,
prices used by the Fund to calculate its net asset value may differ from quoted
or published prices for the securities.
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 INTLVAL.

FINANCIAL HIGHLIGHTS

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

<PAGE>

--------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began the six monther ended June 30, 2000 with a net asset value
(price) of $29.13 per share. During the period, the Fund earned $0.32 per share
from investment income (interest and dividends). There was a decline of $0.28
per share from investments that had depreciated in value or that were sold for
lower prices than the Fund paid for them.

Shareholders received $0.22 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's dividends or capital gains.

The earnings ($0.04 per share) minus the distributions ($0.22 per share)
resulted in a share price of $28.95 at the end of the period. This was a
decrease of $0.18 per share (from $29.13 at the beginning of the period to
$28.95 at the end of the period). For a shareholder who reinvested the
distributions in the purchase of more shares, the total return from the Fund was
0.20% for the period.

As of June 30, 2000, the Fund had $982 million in net assets. For the period,
its annualized expense ratio was 0.50% ($5.00 per $1,000 of net assets); and its
annualized net investment income amounted to 2.30% of its average net assets. It
sold and replaced securities valued at 38% of its net assets.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
VANGUARD INTERNATIONAL VALUE FUND
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------------------------------------------
JUNE 30, 2000* 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $29.13 $25.09 $22.64 $27.54 $31.11 $31.48
---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .32 .69 .77 .690 .82 .750
Net Realized and Unrealized Gain (Loss) on Investments (.28) 4.74 3.64 (1.945) 2.20 2.185
---------------------------------------------------------------------------------
Total from Investment Operations .04 5.43 4.41 (1.255) 3.02 2.935
---------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.03) (.66) (1.06) (.690) (.82) (.790)
Distributions from Realized Capital Gains (.19) (.73) (.90) (2.955) (5.77) (2.515)
---------------------------------------------------------------------------------
Total Distributions (.22) (1.39) (1.96) (3.645) (6.59) (3.305)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $28.95 $29.13 $25.09 $22.64 $27.54 $31.11
---------------------------------------------------------------------------------------------------------------------------------

TOTAL RETURN 0.20% 21.81% 19.46% -4.58% 10.22% 9.65%
=================================================================================================================================

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $982 $1,045 $806 $777 $917 $988
Ratio of Total Expenses to Average Net Assets 0.50%+ 0.59% 0.52% 0.49% 0.50% 0.47%
Ratio of Net Investment Income to Average Net Assets 2.30%+ 2.54% 2.77% 2.36% 2.50% 2.29%
Turnover Rate 38%+ 41% 39% 37% 82% 47%
=================================================================================================================================
</TABLE>
*Unaudited.
+Annualized.

<PAGE>

--------------------------------------------------------------------------------
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 [BOOKLET]. Please call us to request copies.
--------------------------------------------------------------------------------

SERVICES AND ACCOUNT FEATURES

Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
--------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS (SALES AND EXCHANGES)
Automatically set up for this Fund unless you notify us otherwise.
--------------------------------------------------------------------------------
VANGUARD(R) DIRECT DEPOSIT SERVICE [BOOKLET]
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 [BOOKLET]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
--------------------------------------------------------------------------------
VANGUARD FUND EXPRESS(R) [BOOKLET]
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(R) [BOOKLET]
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) [BOOKLET]
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.
--------------------------------------------------------------------------------
ONLINE TRANSACTIONS [COMPUTER]
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:
- Open a new account.*
- Buy, sell, or exchange shares of most Vanguard funds.
- Change your name/address.

<PAGE>

- 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 [BOOKLET]
Invest assets held in an existing personal trust.
--------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOKLET]
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 [BOOKLET]
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>

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
regular trading on the New York Stock Exchange, generally 4:00 p.m. Eastern
time, you will buy your shares at that day's net asset value.
--------------------------------------------------------------------------------
MINIMUM INVESTMENT TO . . .
open a new account
$3,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).

add to an existing account
$100 by mail or exchange; $1,000 by wire.
--------------------------------------------------------------------------------
A NOTE ON LOW BALANCES
The Fund reserves the right to close any nonretirement fund account whose
balance falls below the minimum initial investment. The Fund will deduct a $10
annual fee in June if your nonretirement account balance at that time is below
$2,500. The low balance fee is waived for investors who have aggregate Vanguard
account assets of $50,000 or more.
--------------------------------------------------------------------------------
BY MAIL TO . . .[ENVELOPE]
open a new account
Complete and sign the account registration form and enclose your check.

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

Make your check payable to: The Vanguard Group-46
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.

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

For clients of Vanguard's Institutional Division . . .

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

<PAGE>

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

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

*You must obtain a Personal Identification Number (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 International Value Fund-46
[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 Fund's next-determined net asset value after the request 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:
- Vanguard sends the redemption proceeds to you or a designated third party.*
- You can sell all or part of your Fund shares at any time.
*May require a signature guarantee; see footnote on page 22.

When Exchanging Shares:
- The redemption proceeds are used to purchase shares of a different Vanguard
fund.
- You must meet the receiving fund's minimum investment requirements.
- 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.
- 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 the "Redeeming Shares"
section of 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.
The Vanguard funds whose shares you cannot exchange online or by telephone
are: VANGUARD U.S. STOCK INDEX FUNDS, VANGUARD BALANCED INDEX FUND, VANGUARD
INTERNATIONAL STOCK INDEX FUNDS, VANGUARD REIT INDEX FUND, and VANGUARD GROWTH
AND INCOME FUND. These funds do, however, permit online and telephone exchanges
within IRAs and other retirement accounts. If you sell shares of these funds
online, you will receive a redemption check at your address of record.
--------------------------------------------------------------------------------
ONLINE REQUESTS www.vanguard.com [COMPUTER]
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.

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

<PAGE>

--------------------------------------------------------------------------------
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:
- The ten-digit account number.
- The name and address exactly as registered on the account.
- The primary Social Security or employer identification number as registered
on the account.
- 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:
- Traditional IRAs and Roth IRAs--call Client Services.
- 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
--------------------------------------------------------------------------------
A NOTE ON LARGE REDEMPTIONS
It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may disrupt the Fund's operation or performance.
If you redeem more than $250,000 worth of Fund shares within any 90-day
period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in-kind, i.e., in securities, rather than in cash. If
payment is made in-kind, you may incur brokerage commissions if you elect to
sell the securities for cash.
--------------------------------------------------------------------------------

OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of three ways: check, exchange
to another Vanguard fund, or Fund Express redemption.
--------------------------------------------------------------------------------
CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.
--------------------------------------------------------------------------------
EXCHANGE REDEMPTIONS
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
--------------------------------------------------------------------------------
FUND EXPRESS(R) REDEMPTIONS
Vanguard will electronically transfer funds to your prelinked checking or
savings account.
--------------------------------------------------------------------------------

FOR OUR MUTUAL PROTECTION
For your best interests and ours, Vanguard applies these additional requirements
to redemptions:

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

<PAGE>

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:
- You may make no more than TWO SUBSTANTIVE "ROUND TRIPS" THROUGH THE FUND
during any 12-month period.
- Your round trips through the Fund must be at least 30 days apart.
- The Fund may refuse a share purchase at any time, for any reason.
- 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.
--------------------------------------------------------------------------------

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 . . .

<PAGE>

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 [BOOKLET]
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 February and August 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.
--------------------------------------------------------------------------------
AVERAGE COST REVIEW STATEMENT [BOOKLET]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using only the average cost single category method.
--------------------------------------------------------------------------------

<PAGE>

GLOSSARY OF INVESTMENT TERMS

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

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

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

COUNTRY RISK
The chance that domestic events--such as political upheaval, financial troubles,
or a natural disaster--will weaken a country's economy.

CURRENCY RISK
The chance that a foreign investment will decrease in value because of
unfavorable currency exchange rates.

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.

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

GROWTH STOCK FUND
A mutual fund that emphasizes stocks of companies believed to have above-average
prospects for growth. Reflecting market expectations for superior growth, these
stocks typically have low dividend yields and above-average prices in relation
to such factors as revenue, earnings, and book value.

INTERNATIONAL STOCK FUND
A mutual fund that invests in the stocks of companies located outside the United
States.

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

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

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

PRINCIPAL
The amount of money you put into an investment.

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

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

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]
[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 International Value 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.

All market indexes referenced in
this prospectus are the exclusive
property of their respective owners

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 1-202-942-8090. 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 electronic request at the
following e-mail address:
[email protected], or by writing the
Public Reference Section, Securities
and Exchange Commission,
Washington, DC 20549-0102.

Fund's Investment Company Act
file number: 811-2968

P046N 092000

<PAGE>

VANGUARD
INTERNATIONAL VALUE
FUND

Participant Prospectus
September 15, 2000

This prospectus contains
financial data for the
Fund for the six months ended
June 30, 2000.

[A MEMBER OF THE VANGUARD GROUP(R) LOGO]

<PAGE>

VANGUARD INTERNATIONAL VALUE FUND
Participant Prospectus
September 15, 2000

An International Stock Mutual Fund

--------------------------------------------------------------------------------
CONTENTS

1 FUND PROFILE 12 DIVIDENDS, CAPITAL GAINS, AND TAXES

3 ADDITIONAL INFORMATION 13 SHARE PRICE

4 A WORD ABOUT RISK 13 FINANCIAL HIGHLIGHTS

4 WHO SHOULD INVEST 15 INVESTING WITH VANGUARD

5 PRIMARY INVESTMENT STRATEGIES 16 ACCESSING FUND INFORMATION BY COMPUTER

10 THE FUND AND VANGUARD GLOSSARY (inside back cover)

11 INVESTMENT ADVISER
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------

<PAGE>

FUND PROFILE

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

INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital growth and some income.

INVESTMENT STRATEGIES

<PAGE>

The Fund's year-to-date return as of the most recent
calendar quarter ended June 30, 2000, was 0.20%.

----------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.51%
12b-1 Distribution Fee: None
Other Expenses: 0.08%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.59%

<PAGE>

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.

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December IntlVal

INVESTMENT ADVISER VANGUARD FUND NUMBER
Hansberger Global Investors, Inc., 046
Fort Lauderdale, Fla., since
August 1, 2000
CUSIP NUMBER
INCEPTION DATE 921939203
May 16, 1983
TICKER SYMBOL
NET ASSETS AS OF JUNE 30, 2000 VTRIX
$982 million
--------------------------------------------------------------------------------

<PAGE>

================================================================================
A WORD ABOUT RISK

WHO SHOULD INVEST

The Fund may be a suitable investment for you if:
- You are seeking investment opportunities outside the United States.
- You wish to add a value-oriented international stock fund to your existing
holdings--which could include other stock investments as well as bond,
money market, and tax-exempt investments.
- You are willing to accept the additional risks (country risk, currency
risk, etc.) associated with international investments.
- You are seeking growth of capital over the long term--at least five
years--along with some income.

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

The Fund has adopted the following policies, among others, to discourage
short- term trading:
- 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.
- There is a limit on the number of times you can exchange into and out of
the Fund (see "Exchanges" in the INVESTING WITH VANGUARD section).
- The Fund reserves the right to stop offering shares at any time.

<PAGE>

5
PRIMARY INVESTMENT STRATEGIES

<PAGE>

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

<PAGE>

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

<PAGE>

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 stocks.
- To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
The Fund may also invest in preferred stocks and convertible bonds. With
preferred stocks, holders receive set dividends from the issuer; their claim on
the issuer's income and assets ranks before that common stockholders, but after
that of bondholders. Convertible bonds are those that are convertible into, or
exchangeable for, common stocks.
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.

THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group (R) , a family of more than 35
investment companies with more than 100 funds holding assets worth more than
$580 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.

<PAGE>

11
INVESTMENT ADVISER

Hansberger Global Investors, Inc. (HGI), 515 East Las Olas Boulevard, Suite
1300, Fort Lauderdale, FL 33301, founded in 1994, serves as the Fund's
investment adviser. As of June 30, 2000, HGI managed nearly $3 billion in
assets. HGI manages the Fund subject to the control of the trustees and officers
of the Fund.
The firm began advising the Fund on August 1, 2000, replacing a prior
adviser, Phillips & Drew. For the year ended December 31, 1999, the advisory fee
paid to Phillips & Drew represented an effective annual rate of 0.15% of the
Fund's average net assets before a decrease of 0.04% based on performance.
HGI's advisory fee is paid quarterly, and is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter.
In addition, starting September 30, 2001, HGI's advisory fee may be
increased or decreased, based on the cumulative investment performance of the
Fund over a trailing 36-month period as compared with the cumulative total
return of the MSCI-EAFE Index over the same period. This index is a widely used
barometer of international market activity. Note that this performance fee
structure will not be in full operation until October 1, 2003; until then, the
fee will be phased in over a 36-month period, using certain transition rules.
Please consult the Fund's Statement of Additional Information for a complete
explanation of how advisory fees are calculated.

The Fund has authorized HGI to choose brokers or dealers to handle the
purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions.
In the interest of obtaining better execution of a transaction, HGI may at
times choose brokers that charge higher commissions. If more than one broker can
obtain the best available price and favorable execution of a transaction, then
HGI is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to HGI or the Fund. Also, the Fund
may direct HGI to use a particular broker for certain transactions in exchange
for commission rebates or research services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

<PAGE>

Assisting Mr. Dayal are:

THOMAS HANSBERGER, CFA, CIC, Chief Investment Officer of HGI; has worked in
investment management since 1965; founded HGI in 1994; B.S., Miami University
(Oxford, Ohio).

RONALD HOLT, Vice President-Research at HGI; has worked in investment management
since 1991; with HGI since 1997; B.A., Columbia University; M.B.A., Stern School
of Business at New York University.

DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. 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 employer-sponsored retirement or savings plan. You will not
owe taxes on these distributions until you begin withdrawals from the plan. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of plan withdrawals.

<PAGE>

SHARE PRICE

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

FINANCIAL HIGHLIGHTS

<PAGE>

--------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

Shareholders received $0.22 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's dividends or capital gains.

TOTAL RETURN 0.20% 21.81% 19.46% -4.58% 10.22% 9.65%
=================================================================================================================================

<PAGE>

INVESTING WITH VANGUARD

The Fund is an investment option in your retirement or savings plan. Your plan
administrator or your employee benefits office can provide you with detailed
information on how to participate in your plan and how to elect the Fund as an
investment option.
- 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 Access Center, toll-free, at 1-800-523-1188.
- If you have questions about your account, contact your plan administrator
or the organization that provides recordkeeping services for your plan.

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

TRANSACTIONS
Contributions, exchanges, or redemptions of the Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your contribution, exchange, or
redemption, and that Vanguard has received the appropriate assets.
In all cases, your transaction will be based on the Fund's next-determined
net asset value after Vanguard receives your request (or, in the case of new
contributions, the next- determined net asset value after Vanguard receives the
order from your plan administrator). As long as this request is received before
the close of regular 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:
- Certain investment options, particularly funds made up of company stock or
investment contracts, may be subject to unique restrictions.
- Make sure to read that fund's prospectus. Contact Vanguard's Participant
Access Center, toll-free, at 1-800-523-1188 for a copy.
- 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>

ACCESSING FUND INFORMATION BY COMPUTER

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