<PAGE>
VANGUARD
U.S. STOCK INDEX FUNDS
Admiral(TM) Shares
Participant Prospectus
November 13, 2000
VANGUARD TOTAL STOCK
MARKET INDEX FUND
VANGUARD 500
INDEX FUND
VANGUARD EXTENDED
MARKET INDEX FUND
VANGUARD SMALL-CAP
INDEX FUND
VANGUARD VALUE
INDEX FUND
VANGUARD GROWTH
INDEX FUND
This prospectus contains
financial data for the Funds
through the period 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.
[MEMBERS OF
THE VANGUARD GROUP LOGO]
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VANGUARD U.S. STOCK INDEX FUNDS ADMIRAL SHARES
Participant Prospectus
November 13, 2000
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CONTENTS
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1 AN INTRODUCTION TO INDEX FUNDS 25 THE FUNDS AND VANGUARD
2 FUND PROFILES 26 INVESTMENT ADVISER
2 Vanguard Total Stock Market Index Fund 26 DIVIDENDS, CAPITAL GAINS, AND TAXES
5 Vanguard 500 Index Fund 27 SHARE PRICE
8 Vanguard Extended Market Index Fund 27 FINANCIAL HIGHLIGHTS
11 Vanguard Small-Cap Index Fund 32 INVESTING WITH VANGUARD
14 Vanguard Value Index Fund 33 ACCESSING FUND INFORMATION BY COMPUTER
17 Vanguard Growth Index Fund GLOSSARY (inside back cover)
20 MORE ON THE FUNDS
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WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objectives, risks, and strategies of the Vanguard
U.S. Stock Index Funds. 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 which Funds, if any, are the right
investments for you. We suggest that you keep it for future reference.
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SHARE CLASSES
Each of the Vanguard U.S. Stock Index Funds offers two or three separate classes
of shares: Investor Shares, Admiral Shares, and Institutional Shares. This
prospectus offers Admiral Shares for six of the Funds and 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.
The Fund's separate share classes have different expenses; as a result,
their investment performances will vary. ALL REFERENCES IN THIS PROSPECTUS TO
FEES, EXPENSES, AND INVESTMENT PERFORMANCE RELATE SPECIFICALLY TO ADMIRAL
SHARES, UNLESS OTHERWISE NOTED.
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1
AN INTRODUCTION TO INDEX FUNDS
WHAT IS INDEXING?
An index is an unmanaged group of securities whose overall performance is used
as a standard to measure the investment performance of a particular market. An
index (or "passively managed") fund tries to match, as closely as possible, the
performance of an established target index. The fund does this by holding all,
or a representative sample, of the securities that make up the index.
Stock index funds may seek to track indexes that hold a certain type of
stock--such as growth or value, small-cap or large-cap, or those from just one
industry--or they may seek to track indexes that consist of a broader range of
stocks--for example, the entire U.S. stock market.
Index funds do not have active managers, who buy and sell securities based
on research and analysis in an attempt to outperform a particular benchmark or
the market as a whole. Rather, index funds simply attempt to mirror what the
target index does, for better or worse.
KEEP IN MIND THAT AN INDEX FUND HAS OPERATING EXPENSES AND TRANSACTION
COSTS; A MARKET INDEX DOES NOT. THEREFORE, AN INDEX FUND--WHILE EXPECTED TO
TRACK ITS TARGET INDEX AS CLOSELY AS POSSIBLE--WILL TYPICALLY BE UNABLE TO MATCH
THE PERFORMANCE OF THE INDEX EXACTLY.
WHAT INDEX FUNDS DOES VANGUARD OFFER?
Vanguard offers a variety of stock (both U.S. and international), bond, and
balanced index funds. This prospectus provides information about six of
Vanguard's U.S. Stock Index Funds, each of which seeks to track a different
segment of the U.S. stock market:
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FUND SEEKS TO TRACK
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Vanguard Total Stock Market Index Fund The overall stock market
Vanguard 500 Index Fund Large-cap stocks
Vanguard Extended Market Index Fund Mid- and small-cap stocks
Vanguard Small-Cap Index Fund Small-cap stocks
Vanguard Value Index Fund Large-cap value stocks
Vanguard Growth Index Fund Large-cap growth stocks
-------------------------------------------------------------------
This prospectus contains profiles that summarize key features of each Fund.
Following the profiles, there is important additional information about the
Funds.
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2
FUND PROFILE--
VANGUARD(R) TOTAL STOCK MARKET INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of the overall stock market.
INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Wilshire 5000 Total Market Index, which consists of all the U.S. common
stocks regularly traded on the New York and American Stock Exchanges and the
Nasdaq over-the-counter market. The Fund invests all or substantially all of its
assets in a representative sample of the stocks that make up the Index. For a
description of the Fund's sampling technique, please see "Indexing Methods"
under MORE ON THE FUNDS.
PRIMARY RISK
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.
Stock markets tend to move in cycles, with periods of rising prices and periods
of falling prices.
PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since the Fund's inception. The table shows how the Fund's average annual total
returns for one and five calendar years and since inception compare with those
of the index that the Fund seeks to track. Both the bar chart and the table
present information for the Fund's Investor Shares only, since Admiral Shares
were not available during the time periods shown. Keep in mind that the Fund's
past performance does not indicate how it will perform in the future.
--------------------------------------------------------------------
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------
SCALE -20% - 50% 1993 10.62%
1994 -0.17%
1995 35.79%
1996 20.96%
1997 30.99%
1998 23.26%
1999 23.81%
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Return figures do not reflect the transaction fee on purchases
through 1995. The Fund's year-to-date return as of the calendar
quarter ended September 30, 2000, was -0.45%.
-------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was 21.51% (quarter ended December 31, 1998), and the lowest return for
a quarter was -12.07% (quarter ended September 30, 1998).
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3
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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
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Vanguard Total Stock Market Index Fund** 23.81% 26.84% 19.80%
Wilshire 5000 Index 23.77 27.11 20.11
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*April 27, 1992.
**Return figures do not reflect the transaction fee on purchases through 1995.
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FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold Admiral Shares of the Fund. The expenses shown under Annual Fund Operating
Expenses for Admiral Shares are based on estimated amounts for the current
fiscal year.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee 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: 0.13%
12b-1 Distribution Fee: None
Other Expenses: 0.02%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.15%
*The Fund reserves the right to deduct a transaction fee from future
purchases of shares.
The following example is intended to help you compare the cost of investing
in the Fund's Admiral Shares 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 Admiral Shares. The results apply whether or not you redeem your investment
at the end of each period.
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$15 $48 $85 $192
-------------------------------------------------
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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4
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ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NET ASSETS (INVESTOR AND INSTITUTIONAL
Dividends are distributed quarterly in SHARES) AS OF JUNE 30, 2000
March, June, September, and $24.3 billion
December; capital gains, if any,
are distributed annually in December NEWSPAPER ABBREVIATION
TotstAdml
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., VANGUARD FUND NUMBER
since inception 585
INCEPTION DATE
Investor Shares--April 27, 1992 CUSIP NUMBER
Admiral Shares--November 13, 2000 922908728
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5
FUND PROFILE--VANGUARD(R) 500 INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of large-capitalization stocks.
INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's 500 Index, which is dominated by the stocks of large
U.S. companies. The Fund attempts to replicate the target index by investing all
or substantially all of its assets in the stocks that make up the Index. For a
description of the Fund's replication technique, please see "Indexing Methods"
under MORE ON THE FUNDS.
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. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- The Fund is also subject to investment style risk, which is the chance that
returns from large-capitalization stocks will trail returns from other
asset classes or the overall stock market. Large-capitalization stocks tend
to go through cycles of doing better--or worse--than the stock market in
general. These periods have, in the past, lasted for as long as several
years.
PERFORMANCE/RISK INFORMATION
The following bar chart and table 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 the index
that the Fund seeks to track. Both the bar chart and the table present
information for the Fund's Investor Shares only, since Admiral Shares were not
available during the time periods shown. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.
--------------------------------------------------------------------
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------
SCALE -20% - 50% 1990 -3.32%
1991 30.22%
1992 7.42%
1993 9.89%
1994 1.18%
1995 37.45%
1996 22.88%
1997 33.19%
1998 28.62%
1999 21.07%
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The Fund's year-to-date return as of the calendar quarter ended
September 30, 2000, was -1.35%.
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During the period shown in the bar chart, the highest return for a calendar
quarter was 21.39% (quarter ended December 31, 1998), and the lowest return for
a quarter was -13.76% (quarter ended September 30, 1990).
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6
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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Vanguard 500 Index Fund 21.07% 28.49% 18.07%
S&P 500 Index 21.04 28.56 18.21
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FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold Admiral Shares of the Fund. The expenses shown under Annual Fund Operating
Expenses for Admiral Shares are based on estimated amounts for the current
fiscal year.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee 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: 0.10%
12b-1 Distribution Fee: None
Other Expenses: 0.02%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.12%
*The Fund reserves the right to deduct a transaction fee from future
purchases of shares.
The following example is intended to help you compare the cost of investing
in the Fund's Admiral Shares 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 Admiral Shares. The results apply whether or not you redeem your investment
at the end of each period.
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$12 $39 $68 $154
-------------------------------------------------
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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7
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ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NET ASSETS (INVESTOR SHARES) AS OF
Dividends are distributed quarterly in March, JUNE 30, 2000
June, September, and December; capital gains, $105.6 billion
if any, are distributed annually in December
INVESTMENT ADVISER NEWSPAPER ABBREVIATION
The Vanguard Group, Valley Forge, Pa., 500Adml
since inception
INCEPTION DATE VANGUARD FUND NUMBER
Investor Shares--August 31, 1976 540
Admiral Shares--November 13, 2000
CUSIP NUMBER
922908710
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8
FUND PROFILE-- VANGUARD(R) EXTENDED MARKET INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of mid- and small-capitalization stocks.
INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Wilshire 4500 Completion Index, a broadly diversified index of stocks of
medium-sized and small U.S. companies. The Wilshire 4500 Index contains all of
the U.S. common stocks regularly traded on the New York and American Stock
Exchanges and the Nasdaq over-the-counter market, except those stocks included
in the S&P 500 Index. The Fund invests all or substantially all of its assets in
a representative sample of the stocks that make up the Index. For a description
of the Fund's sampling technique, please see "Indexing Methods" under MORE ON
THE FUNDS.
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. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- The Fund is also subject to investment style risk, which is the chance that
returns from mid- or small-capitalization stocks will trail returns from
other asset classes or the overall stock market. Small- and mid-cap stocks
historically have been more volatile in price than the large-cap stocks
that dominate the S&P 500 Index, and perform differently from the overall
stock market.
PERFORMANCE/RISK INFORMATION
The following bar chart and table 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 the index
that the Fund seeks to track. Both the bar chart and the table present
information for the Fund's Investor Shares only, since Admiral Shares were not
available during the time periods shown. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.
--------------------------------------------------------------------
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------
SCALE -20% - 50% 1990 -14.05%
1991 41.85%
1992 12.47%
1993 14.49%
1994 -1.76%
1995 33.80%
1996 17.65%
1997 26.73%
1998 8.32%
1999 36.22%
--------------------------------------------------------------------
Return figures do not reflect the transaction fee on purchases through
March 31, 2000. The Fund's year-to-date return as of the calendar
quarter ended September 30, 2000, was 3.95%.
-------------------------------------------------------------------
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9
During the period shown in the bar chart, the highest return for a calendar
quarter was 29.54% (quarter ended December 31, 1999), and the lowest return for
a quarter was -18.87% (quarter ended September 30, 1990).
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Vanguard Extended Market Index Fund* 36.22% 24.10% 16.33%
Wilshire 4500 Index 35.37 23.65 16.16
--------------------------------------------------------------------------------
*Return figures do not reflect the transaction fee on purchases through
March 31, 2000.
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FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy
and hold Admiral Shares of the Fund. The expenses shown under Annual Fund
Operating Expenses for Admiral Shares are based on estimated amounts for the
current fiscal year.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee 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: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%
*The Fund reserves the right to deduct a transaction fee from future
purchases of shares.
The following example is intended to help you compare the cost of investing
in the Fund's Admiral Shares 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 Admiral Shares. The results apply whether or not you redeem your investment
at the end of each period.
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------
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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10
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ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NET ASSETS (INVESTOR AND INSTITUTIONAL
Distributed annually in December SHARES) AS OF JUNE 30, 2000
$6.1 billion
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., NEWSPAPER ABBREVIATION
since inception ExtndAdml
INCEPTION DATE VANGUARD FUND NUMBER
Investor Shares--December 21, 1987 598
Admiral Shares--November 13, 2000
CUSIP NUMBER
922908694
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11
FUND PROFILE--VANGUARD(R)SMALL-CAP INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of small-capitalization stocks.
INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Russell 2000 Small Stock Index, which is made up of the stocks of smaller
U.S. companies. The Russell 2000 Index is made up of the 2,000 smallest
companies out of the 3,000 largest U.S. companies. The Fund invests all or
substantially all of its assets in a representative sample of the stocks that
make up the Index. For a description of the Fund's sampling technique, please
see "Indexing Methods" under MORE ON THE FUNDS.
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. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- The Fund is also subject to investment style risk, which is the chance that
returns from small-capitalization stocks will trail returns from other
asset classes or the overall stock market. Small-cap stocks historically
have been more volatile in price than the large-cap stocks that dominate
the S&P 500 Index, and perform differently from the overall stock market.
PERFORMANCE/RISK INFORMATION
The following bar chart and table 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 the index
that the Fund seeks to track. Both the bar chart and the table present
information for the Fund's Investor Shares only, since Admiral Shares were not
available during the time periods shown. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.
--------------------------------------------------------------------
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------
SCALE -20% - 50% 1990 -18.13%
1991 45.26%
1992 18.20%
1993 18.70%
1994 -0.51%
1995 28.74%
1996 18.12%
1997 24.59%
1998 -2.61%
1999 23.13%
--------------------------------------------------------------------
Return figures do not reflect the transaction fee on purchases through
March 31, 2000. The Fund's year-to-date return as of the calendar
quarter ended September 30, 2000, was 4.39%.
-------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was 29.29% (quarter ended March 31, 1991), and the lowest return for a
quarter was -24.00% (quarter ended September 30, 1990).
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12
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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Vanguard Small-Cap Index Fund* 23.13% 17.84% 14.20%
Russell 2000 Index 21.26 16.69 13.40
--------------------------------------------------------------------------------
*Return figures do not reflect the transaction fee on purchases through
March 31, 2000.
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FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold Admiral Shares of the Fund. The expenses shown under Annual Fund Operating
Expenses for Admiral Shares are based on estimated amounts for the current
fiscal year.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee 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: 0.16%
12b-1 Distribution Fee: None
Other Expenses: 0.04%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%
*The Fund reserves the right to deduct a transaction fee from future
purchases of shares.
The following example is intended to help you compare the cost of investing
in the Fund's Admiral Shares 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 Admiral Shares. The results apply whether or not you redeem your investment
at the end of each period.
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------
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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13
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ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NET ASSETS (INVESTOR AND INSTITUTIONAL
Distributed annually in December SHARES) AS OF JUNE 30, 2000
$4.6 billion
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., NEWSPAPER ABBREVIATION
since inception SmcapAdml
INCEPTION DATE VANGUARD FUND NUMBER
Investor Shares--October 3, 1960 548
Admiral Shares--November 13, 2000
CUSIP NUMBER
922908686
--------------------------------------------------------------------------------
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14
FUND PROFILE--VANGUARD(R) VALUE INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of large-capitalization value stocks.
INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's 500/BARRA Value Index, which includes those stocks of
the S&P 500 Index with lower-than-average price/book ratios. The Fund attempts
to replicate the target index by investing all or substantially all of its
assets in the stocks that make up the Index. For a description of the Fund's
replication technique, please see "Indexing Methods" under MORE ON THE FUNDS.
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. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- The Fund is also subject to investment style risk, which is the chance that
returns from large-capitalization value stocks will trail returns from
other asset classes or the overall stock market. Value stocks tend to go
through cycles of doing better--or worse--than the stock market in general.
These periods have, in the past, lasted for as long as several years.
PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since the Fund's inception. The table shows how the Fund's average annual total
returns for one and five calendar years and since inception compare with those
of the index that the Fund seeks to track. Both the bar chart and the table
present information for the Fund's Investor Shares only, since Admiral Shares
were not available during the time periods shown. Keep in mind that the Fund's
past performance does not indicate how it will perform in the future.
--------------------------------------------------------------------
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------
SCALE -20% - 50% 1993 18.35%
1994 -0.73%
1995 36.94%
1996 21.86%
1997 29.77%
1998 14.64%
1999 12.57%
--------------------------------------------------------------------
The Fund's year-to-date return as of the calendar quarter ended
September 30, 2000, was 4.31%.
-------------------------------------------------------------------
During the period shown in the bar chart, the highest return for a calendar
quarter was 17.50% (quarter ended December 31, 1998), and the lowest return for
a quarter was -12.96% (quarter ended September 30, 1998).
<PAGE>
15
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
--------------------------------------------------------------------------------
Vanguard Value Index Fund 12.57% 22.82% 18.66%
S&P 500/BARRA Value Index 12.72 22.94 18.81
--------------------------------------------------------------------------------
*November 2, 1992.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold Admiral Shares of the Fund. The expenses shown under Annual Fund Operating
Expenses for Admiral Shares are based on estimated amounts for the current
fiscal year.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee 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: 0.14%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.17%
*The Fund reserves the right to deduct a transaction fee from future
purchases of shares.
The following example is intended to help you compare the cost of investing
in the Fund's Admiral Shares 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 Admiral Shares. The results apply whether or not you redeem your investment
at the end of each period.
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$17 $55 $96 $217
-------------------------------------------------
THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
<PAGE>
16
<TABLE>
<CAPTION>
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<S> <C>
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NET ASSETS (INVESTOR AND INSTITUTIONAL
Dividends are distributed quarterly in SHARES) AS OF JUNE 30, 2000
March, June, September, and $4 billion
December; capital gains, if any,
are distributed annually in December NEWSPAPER ABBREVIATION
ValAdml
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., VANGUARD FUND NUMBER
since inception 506
INCEPTION DATE CUSIP NUMBER
Investor Shares--November 2, 1992 922908678
Admiral Shares--November 13, 2000
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
17
FUND PROFILE--VANGUARD(R) GROWTH INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of large-capitalization growth stocks.
INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's 500/BARRA Growth Index, which includes those stocks of
the S&P 500 Index with higher-than-average price/book ratios. The Fund attempts
to replicate the target index by investing all or substantially all of its
assets in the stocks that make up the Index. For a description of the Fund's
replication technique, please see "Indexing Methods" under MORE ON THE FUNDS.
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.
Stock markets tend to move in cycles, with periods of rising prices and periods
of falling prices. The Fund is also subject to:
- Investment style risk, which is the chance that returns from
large-capitalization growth stocks will trail returns from other asset
classes or the overall stock market. Growth stocks tend to go through
cycles of doing better--or worse--than the stock market in general. These
periods have, in the past, lasted for as long as several years.
- Nondiversification risk, which is the chance that the Fund's performance
could be hurt disproportionately by a decline in the price of just a few
stocks. This is because the Fund invests a greater percentage of its assets
in the stocks of fewer companies as compared with other mutual funds.
PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since the Fund's inception. The table shows how the Fund's average annual total
returns for one and five calendar years and since inception compare with those
of the index that the Fund seeks to track. Both the bar chart and the table
present information for the Fund's Investor Shares only, since Admiral Shares
were not available during the time periods shown. Keep in mind that the Fund's
past performance does not indicate how it will perform in the future.
--------------------------------------------------------------------
ANNUAL TOTAL RETURNS
--------------------------------------------------------------------
SCALE -20% - 50% 1993 1.53%
1994 2.89%
1995 38.06%
1996 23.74%
1997 36.34%
1998 42.21%
1999 28.76%
--------------------------------------------------------------------
The Fund's year-to-date return as of the calendar quarter ended
September 30, 2000, was -6.41%.
-------------------------------------------------------------------
<PAGE>
18
During the period shown in the bar chart, the highest return for a calendar
quarter was 24.64% (quarter ended December 31, 1998), and the lowest return for
a quarter was -7.21% (quarter ended September 30, 1998).
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
--------------------------------------------------------------------------------
Vanguard Growth Index Fund 28.76% 33.65% 23.74%
S&P 500/BARRA Growth Index 28.25 33.64 23.84
--------------------------------------------------------------------------------
*November 2, 1992.
--------------------------------------------------------------------------------
FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold Admiral Shares of the Fund. The expenses shown under Annual Fund Operating
Expenses for Admiral Shares are based on estimated amounts for the current
fiscal year.
SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee 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: 0.14%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.17%
*The Fund reserves the right to deduct a transaction fee from future
purchases of shares.
The following example is intended to help you compare the cost of investing
in the Fund's Admiral Shares 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 Admiral Shares. The results apply whether or not you redeem your investment
at the end of each period.
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$17 $55 $96 $217
-------------------------------------------------
THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
<PAGE>
19
<TABLE>
<CAPTION>
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<S> <C>
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NET ASSETS (INVESTOR AND INSTITUTIONAL
Dividends are distributed quarterly in SHARES) AS OF JUNE 30, 2000
March, June, September, and December; $17.2 billion
capital gains, if any, are distributed
annually in December NEWSPAPER ABBREVIATION
GrwthAdml
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., VANGUARD FUND NUMBER
since inception 509
INCEPTION DATE
Investor Shares--November 2, 1992 CUSIP NUMBER
Admiral Shares--November 13, 2000 922908660
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
20
MORE ON THE FUNDS
The following sections discuss other important features of Vanguard U.S. Stock
Index Funds.
WHY INVEST IN INDEX FUNDS?
Index funds appeal to many investors for a number of reasons:
- Variety of investments. Vanguard index funds generally invest in a wide
variety of companies and industries.
- Relative consistency. Because they seek to track market benchmarks, index
funds by definition will not perform dramatically better or worse than
their target indexes.
- Low cost. Index funds do not have many of the expenses of an actively
managed fund, such as research costs; in addition, they keep trading
activity--and thus brokerage commissions--to a minimum.
Compared with actively managed funds, most index funds have lower turnover
rates and lower capital gains distributions. However, from time to time, some
index funds may pay out higher-than-expected taxable distributions. That's
because index funds must adjust their holdings to reflect changes in their
target indexes. In some cases, such changes may force an index fund to sell
securities that have appreciated in value, and, thus, realize a capital gain
that must be distributed to shareholders. A security may move out of an index
for a number of reasons, including a merger or acquisition, or a substantial
change in the market capitalization of the issuer. Generally, these changes tend
to occur more frequently with small and medium-sized companies than they do with
large, well-established companies.
INDEXING METHODS
In seeking to track a particular index, a fund generally uses one of two methods
to select stocks.
Some index funds hold each stock found in their target indexes in about the
same proportions as represented in the indexes themselves. This is called a
"replication" method. For example, if 5% of the S&P 500 Index were made up of
the stock of a specific company, a fund tracking that index (such as Vanguard
500 Index Fund) would invest about 5% of its assets in that company. The 500,
Value, and Growth Index Funds employ the replication method of indexing.
Because it would be very expensive to buy and sell all of the stocks held
in certain indexes (the Wilshire 5000 Index, for example, included more than
6,800 stocks as of June 30, 2000), many funds tracking these larger indexes use
a "sampling" technique. At Vanguard, we use a sophisticated computer program to
select a representative sample of stocks from a Fund's target index that will
resemble the full index in terms of industry weightings, market capitalization,
price/earnings ratio, dividend yield, and other characteristics. For instance,
if 10% of the Wilshire 5000 Index were made up of utility stocks, the Total
Stock Market Index Fund would invest about 10% of its assets in some--but not
all--of those utility stocks. The particular utility stocks selected by the
Fund, as a group, would have investment characteristics similar to those of the
utility stocks in the Index. Although the Funds' adviser attempts to closely
track the performance of the index, there is no guarantee that securities
selected for a Fund will provide investment performance exactly matching that of
its target index. The Total Stock Market, Extended Market, and Small-Cap Index
Funds employ the sampling method of indexing.
<PAGE>
21
Each Fund seeks to provide investment results that correspond to its target
index. The correlation between the performance of a Fund and its target index is
expected to be at least 95%. (A correlation of 100% would indicate perfect
correlation.)
The following table shows the number of stocks held by each of the Funds,
and the number of stocks in each Fund's target index, as of June 30, 2000.
-----------------------------------------------------
NUMBER OF NUMBER OF STOCKS
FUND STOCKS HELD IN TARGET INDEX
-----------------------------------------------------
Total Stock Market 3,440 6,875
500 516 500
Extended Market 3,008 6,386
Mid-Cap 405 400
Small-Cap 2,029 2,000
Value 401 391
Small-Cap Value 427 423
Growth 120 109
Small-Cap Growth 185 177
----------------------------------------------------
--------------------------------------------------------------------------------
PLAIN TALK ABOUT
GROWTH FUNDS AND VALUE FUNDS
Growth investing and value investing are two styles employed by stock fund
managers. 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 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 with such factors as
earnings and book value, and these stocks typically have above-average dividend
yields. Growth and value stocks have, in the past, produced similar long-term
returns, though each category has periods when it outperforms the other. In
general, growth funds 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). Value
funds, by contrast, are appropriate for investors who want some dividend income
and the potential for capital gains, but are less tolerant of share-price
fluctuations.
--------------------------------------------------------------------------------
ADDITIONAL RISK INFORMATION
[FLAG]EACH FUND IS SUBJECT TO 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 STOCK PRICES AND PERIODS OF FALLING
STOCK PRICES.
To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the S&P 500 Index, which--in addition to being the target
index for Vanguard 500 Index Fund--is a widely used barometer of stock market
activity. (Total returns consist of dividend income plus change in market
price.) Note that the returns shown do not include the costs
<PAGE>
22
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.
------------------------------------------------------
U.S. STOCK MARKET RETURNS (1926-1999)
------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------------------------------------------------------
Best 54.2% 28.6% 19.9% 17.9%
Worst -43.1 -12.4 -0.9 3.1
Average 13.2 11.0 11.1 11.1
------------------------------------------------------
The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on common
stocks for all of the 5-year periods was 11.0%, returns for individual 5-year
periods ranged from a -12.4% average (from 1928 through 1932) to 28.6% (from
1995 through 1999). These average returns reflect past performance on common
stocks; you should not regard them as an indication of future returns from
either the stock market as a whole or any Fund in particular.
Even indexes that are subsets of the S&P 500 Index--such as the S&P
500/BARRA Value Index and the S&P 500/BARRA Growth Index (the target indexes for
the Value and Growth Index Funds)--will not perform in the same way as the
broader S&P 500 Index. Historically, stocks of the S&P 500/BARRA Value Index
have been less volatile than the stocks found in the broader S&P 500 Index;
stocks of the S&P 500/BARRA Growth Index, on the other hand, have displayed
somewhat greater short-term volatility than the S&P 500 Index's stocks. However,
both value and growth stocks have the potential at times to be more volatile
than the broader market.
[FLAG]THE FUNDS ARE ALSO SUBJECT, IN VARYING DEGREES, TO INVESTMENT STYLE RISK,
WHICH IS THE CHANCE THAT RETURNS FROM A SPECIFIC TYPE OF STOCK (FOR
INSTANCE, SMALL-CAP OR VALUE) WILL TRAIL RETURNS FROM OTHER ASSET CLASSES
OR THE OVERALL STOCK MARKET. EACH TYPE OF STOCK TENDS TO GO THROUGH CYCLES
OF DOING BETTER--OR WORSE--THAN COMMON STOCKS IN GENERAL. THESE PERIODS
HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL YEARS.
RISK OF NONDIVERSIFICATION
[FLAG]As index funds, each of the U.S. Stock Index Funds holds the largest
stocks in its target index in approximately the same percentages as those stocks
are represented in its index. When a target index becomes less diversified, a
fund that tracks that index similarly becomes less diversified. This has
happened to the GROWTH INDEX FUND. Due to the rapid appreciation of certain
stocks in its target index, the Fund's top four holdings have at times
represented more than 25% of its total assets. By tracking its target index, the
Fund technically has become "nondiversified" under SEC standards, although it
continues to hold more than 100 stock positions in a variety of market sectors.
As the market values of the Fund's largest holdings rise and fall, there may be
times when the Fund is diversified under SEC standards and other times when it
is not. Shareholders in Vanguard Growth Index Fund are subject to the risk that
the Fund's performance could be hurt disproportionately by a decline in the
price of just a few stocks.
In the unlikely event that the target index of any of the other Vanguard
U.S. Stock Index Funds becomes dominated by just a few companies, shareholders
in that Fund would similarly be subject to the risk of nondiversification.
<PAGE>
23
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
TRANSACTION FEES
Some of Vanguard's index funds charge a transaction fee on purchases of fund
shares to offset the higher costs of trading certain securities, particularly
small-company stocks. The transaction fee ensures that these higher costs are
borne by the investors making the transactions--and not by shareholders already
in the fund who do not generate the costs. All transaction fees are paid
directly into the fund itself (unlike a sales charge or load that non-Vanguard
funds may impose to compensate their sales representatives). Without transaction
fees, some index funds would have trouble tracking their target indexes.
COSTS AND MARKET-TIMING
Some investors try to profit from a strategy called market-timing--switching
money into investments when they expect prices to rise and taking money out when
they expect prices 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 Funds have adopted the following policies, among others, designed
to discourage short-term trading:
- Each 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 a
Fund (see "Exchanges" in the INVESTING WITH VANGUARD section).
- Telephone and online exchanges are not permitted for non-IRA accounts.
THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THESE
FUNDS IF YOU ARE A MARKET-TIMER.
--------------------------------------------------------------------------------
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 fund expenses can, over time,
have a dramatic effect on a fund's performance.
--------------------------------------------------------------------------------
<PAGE>
24
TURNOVER RATE
Generally, a passively managed fund sells securities only to respond to
redemption requests or to adjust the number of shares held to reflect a change
in the fund's target index. Turnover rates for large-cap stock index funds tend
to be very low because large-cap indexes, such as the S&P 500, typically do not
change much from year to year. Turnover rates for mid-cap and small-cap stock
index funds tend to be higher (although still relatively low, compared to
actively managed stock funds), because the indexes they track are more likely to
change as a result of mergers, acquisitions, business failures, or growth of
companies than a larger-cap index. The turnover rate of each Fund for each of
the last five years (or since inception of the Fund, if shorter) is shown in the
FINANCIAL HIGHLIGHTS section of this prospectus.
--------------------------------------------------------------------------------
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 passively
managed domestic equity index funds investing in common stocks was approximately
21%; for all domestic stock funds, the average turnover rate was approximately
90%, according to Morningstar, Inc. (A turnover rate of 100% would occur, for
example, if a fund sold and replaced securities valued at 100% of its net assets
within a one-year period.)
--------------------------------------------------------------------------------
INVESTMENT POLICIES
Each Fund reserves the right to substitute a different index for the index it
currently tracks if the current index is discontinued, or for any other reason
determined in good faith by the Fund's board of trustees. In every such
instance, the substitute index will measure the same general market (large-,
mid-, or small-cap, growth, or value) as the current index.
Each Fund may invest in foreign securities to the extent necessary to carry
out its investment strategy of holding all, or a representative sample, of the
stocks that make up the index it tracks. It is not expected that any Fund will
invest more than 5% of its assets in foreign securities.
Although index funds, by their nature, tend to be tax-efficient investment
vehicles, the Funds generally are managed without regard to tax ramifications.
To track their target indexes as closely as possible, the Funds attempt to
remain fully invested (at least 95% of total assets) in the stocks of the index.
To help stay fully invested, and to reduce transaction costs, the Funds may
invest, to a limited extent, in futures and options contracts, warrants,
convertible securities, and swap agreements, which are 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. Similar risks exist for
warrants (securities that permit their owners to purchase a specific number of
stock shares at a predetermined price), convertible securities (securities that
may be exchanged for another asset), and swap agreements
<PAGE>
25
(contracts in which each party agrees to make payments to the other based on the
return of a specified index or asset).
For this reason, the Funds will not use futures, options, warrants,
convertible securities, or swap agreements for speculative purposes or as
leveraged investments that magnify the gains or losses of an investment. A
Fund's obligation under futures contracts will not exceed 20% of that Fund's
total assets.
The reasons for which a 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.
PENDING LEGAL PROCEEDINGS
On June 8, 2000, Vanguard was sued by McGraw-Hill over Vanguard's right to use
certain Standard & Poor's (S&P) trademarks and other intellectual property owned
by McGraw-Hill. The suit currently is pending in the federal district court for
the Southern District of New York. The suit requests, among other things:
monetary damages; injunctive relief that would prevent Vanguard from using S&P
indexes and S&P trademarks in connection with Vanguard's potential offering of
an exchange-traded class of shares of the Funds; and declaratory relief that
McGraw-Hill is entitled to terminate the license agreement that grants Vanguard
the right to use certain S&P indexes and S&P trademarks. Vanguard believes that
it should prevail in these proceedings; however, there is no assurance that it
will do so.
THE FUNDS AND VANGUARD
The Funds are members of The Vanguard Group, a family of more than 35 investment
companies with more than 100 funds holding assets worth more than $570 billion.
All of the funds share in the expenses associated with business operations, such
as personnel, office space, equipment, and advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.
--------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE
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.
--------------------------------------------------------------------------------
<PAGE>
26
INVESTMENT ADVISER
The Vanguard Group (Vanguard), P.O. Box 2600, Valley Forge, PA 19482, founded in
1975, serves as the Funds' adviser. As of June 30, 2000, Vanguard served as
adviser for about $388.1 billion in assets. Vanguard manages the Funds on an
at-cost basis, subject to the control of the trustees and officers of the Funds.
For the six months ended June 30, 2000, the investment advisory expenses
represented an effective annual rate of approximately 0.01% of each Fund's
average net assets.
The Funds have authorized Vanguard to choose brokers or dealers to handle
the purchase and sale of securities for the Funds, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions. The Funds may direct Vanguard to use a particular broker for
certain transactions in exchange for commission rebates or research services
provided to the Funds.
--------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUNDS' ADVISER
The individual responsible for overseeing each Fund's investments is:
GEORGE U. SAUTER, Managing Director of Vanguard and head of Vanguard's
Quantitative Equity Group; has worked in investment management since 1985;
primary responsibility for Vanguard's stock indexing policy and strategy since
joining the company in 1987; A.B., Dartmouth College; M.B.A., University of
Chicago.
--------------------------------------------------------------------------------
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each 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. Income dividends for the Total Stock Market, 500, Value,
and Growth Index Funds generally are distributed in March, June, September, and
December; income dividends for the Extended Market, and Small-Cap Index Funds
generally are distributed in December. Capital gains distributions generally
occur in December. In addition, the Funds 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>
27
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
SHARE PRICE
Each 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 dividing the net assets
attributed to each share class by the number of shares outstanding for that
class.
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: A 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 Funds' Board of Trustees.
Each Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading "Vanguard Index Funds."
FINANCIAL HIGHLIGHTS
The following financial highlights tables pertain to the Fund's Investor Shares;
Admiral Shares were not available during the periods shown.The tables are
intended to help you understand each Fund's financial performance for the past
five years or since inception, plus the six months ended June 30, 2000, and
certain information reflects financial results for a single Fund share in each
case. The total returns in each table represent the rate that an investor would
have earned or lost each year 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 each Fund's financial
statements--is included in the Funds' most recent annual reports to
shareholders. The information for the six-month period ended June 30, 2000, has
not been audited by independent accountants. You may have the annual reports
sent to you without charge by contacting Vanguard.
<PAGE>
28
--------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
This explanation uses the Total Stock Market Index Fund as an example. The Fund
began the six months ended June 30, 2000, with a net asset value (price) of
$33.22 per share. During the period, the Fund earned $0.16 per share from
investment income (interest and dividends). There was a decline of $0.39 per
share from investments that had depreciated in value or that were sold for lower
prices than the Fund paid for them.
Shareholders received $0.21 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.
Investment losses ($0.23 per share) plus the distributions ($0.21 per share)
resulted in a share price of $32.78 at the end of the period. This was a
decrease of $0.44 per share (from $33.22 at the beginning of the period to
$32.78 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
-0.72% for the period.
As of June 30, 2000, the Fund (Investor Shares only) had $19.8 billion in net
assets. For the six-month period, its annualized expense ratio was 0.20% ($2.00
per $1,000 of net assets); and its annualized net investment income amounted to
1.00% of its average net assets. It sold and replaced securities valued at 8% of
its net assets.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
VANGUARD TOTAL STOCK MARKET INDEX FUND
INVESTOR SHARES
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED--------------------------------------------------------------
JUNE 30, 2000* 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $33.22 $27.42 $22.64 $17.77 $15.04 $11.37
------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .16 .317 .336 .319 .29 .29
Net Realized and Unrealized Gain (Loss)
on Investments (.39) 6.133 4.898 5.143 2.84 3.75
-----------------------------------------------------------------------------
Total from Investment Operations (.23) 6.450 5.234 5.462 3.13 4.04
-----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.15) (.330) (.329) (.322) (.29) (.28)
Distributions from Realized Capital Gains (.06) (.320) (.125) (.270) (.11) (.09)
-----------------------------------------------------------------------------
Total Distributions (.21) (.650) (.454) (.592) (.40) (.37)
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $32.78 $33.22 $27.42 $22.64 $17.77 $15.04
========================================================================================================================
TOTAL RETURN** -0.72% 23.81% 23.26% 30.99% 20.96% 35.79%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $19,829 $18,133 $9,308 $5,092 $3,531 $1,571
Ratio of Total Expenses to
Average Net Assets 0.20%*** 0.20% 0.20% 0.20% 0.22% 0.25%
Ratio of Net Investment Income to Average
Net Assets 1.00%*** 1.15% 1.44% 1.65% 1.86% 2.14%
Turnover Rate 8%***+ 3% 3% 2% 3% 3%
========================================================================================================================
</TABLE>
*Unaudited.
**Total return figures do not reflect the 0.25% transaction fee on
purchases through 1995.
***Annualized.
+The turnover rate excluding in-kind redemptions was 4%.
<PAGE>
29
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
VANGUARD 500 INDEX FUND
INVESTOR SHARES
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED--------------------------------------------------------------
JUNE 30, 2000* 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $135.33 $113.95 $ 90.07 $69.17 $57.60 $42.97
------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .65 1.370 1.33 1.31 1.28 1.22
Net Realized and Unrealized Gain Loss)
on Investments (1.21) 22.415 24.30 21.50 11.82 14.76
-----------------------------------------------------------------------------
Total from Investment Operations (.56) 23.785 25.63 22.81 13.10 15.98
-----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.61) (1.410) (1.33) (1.32) (1.28) (1.22)
Distributions from Realized Capital Gains -- (.995) (.42) (.59) (.25) (.13)
-----------------------------------------------------------------------------
Total Distributions (.61) (2.405) (1.75) (1.91) (1.53) (1.35)
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $134.16 $135.33 $113.95 $90.07 $69.17 $57.60
========================================================================================================================
TOTAL RETURN -0.42% 21.07% 28.62% 33.19% 22.88% 37.45%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $105,583 $104,652 $74,229 $49,358 $30,332 $17,372
Ratio of Total Expenses to
Average Net Assets 0.18%** 0.18% 0.18% 0.19% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets .97%** 1.13% 1.35% 1.66% 2.04% 2.38%
Turnover Rate*** 9%** 6% 6% 5% 5% 4%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Unaudited.
**Annualized.
***Turnover rates excluding in-kind redemptions were 7%, 3%, 3%, 3%, 2%, and 2%,
respectively.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
VANGUARD EXTENDED MARKET INDEX FUND
INVESTOR SHARES
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED---------------------------------------------------------------
JUNE 30, 2000* 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $37.07 $30.63 $30.76 $26.20 $24.07 $18.52
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .143 .297 .388 .351 .34 .30
Net Realized and Unrealized Gain (Loss) .077 10.101 2.025 6.479 3.85 5.95
on Investments
----------------------------------------------------------------------------
Total from Investment Operations .220 10.398 2.413 6.830 4.19 6.25
----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -- (.318) (.373) (.360) (.34) (.30)
Distributions from Realized Capital Gains (1.110) (3.640) (2.170) (1.910) (1.72) (.40)
----------------------------------------------------------------------------
Total Distributions (1.110) (3.958) (2.543) (2.270) (2.06) (.70)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $36.18 $37.07 $30.63 $30.76 $26.20 $24.07
=========================================================================================================================
TOTAL RETURN** 0.16% 36.22% 8.32% 26.73% 17.65% 33.80%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $5,028 $4,221 $2,939 $2,723 $2,099 $1,523
Ratio of Total Expenses to
Average Net Assets 0.25%*** 0.25% 0.23% 0.23 0.25% 0.25%
Ratio of Net Investment Income to
Average Net Assets .82%*** 1.04% 1.21% 1.30% 1.42% 1.51%
Turnover Rate 30%*** 26% 27% 15% 22% 15%
=========================================================================================================================
</TABLE>
*Unaudited.
**Total return figures do not reflect transaction fees on purchases (0.25%
from October 31, 1997,through March 31, 2000; 0.5% from 1995 through
October 31, 1997).
***Annualized.
<PAGE>
30
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
VANGUARD SMALL-CAP INDEX FUND
INVESTOR SHARES
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED---------------------------------------------------------------
JUNE 30, 2000* 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $23.60 $21.20 $23.75 $20.23 $18.61 $14.99
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .119 .256 .311 .277 .26 .24
Net Realized and Unrealized Gain (Loss) .726 4.491 (1.007) 4.632 3.07 4.06
on Investments ----------------------------------------------------------------------------
Total from Investment Operations .845 4.747 (.696) 4.909 3.33 4.30
----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -- (.267) (.304) (.274) (.27) (.23)
Distributions from Realized Capital Gains (.215) (2.080) (1.550) (1.115) (1.44) (.45)
----------------------------------------------------------------------------
Total Distributions (.215) (2.347) (1.854) (1.389) (1.71) (.68)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $24.23 $23.60 $21.20 $23.75 $20.23 $18.61
=========================================================================================================================
TOTAL RETURN** 3.50% 23.13% -2.61% 24.59% 18.12% 28.74%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $4,096 $3,553 $2,768 $2,652 $1,713 $971
Ratio of Total Expenses to
Average Net Assets 0.27%*** 0.25% 0.24% 0.23% 0.25% 0.25%
Ratio of Net Investment Income to
Average Net Assets 1.03%*** 1.25% 1.39% 1.38% 1.51% 1.58%
Turnover Rate 70%*** 42% 35% 29% 28% 28%
=========================================================================================================================
</TABLE>
*Unaudited.
**Total return figures do not reflect transaction fees on purchases
(0.5% from 1996 through March 31, 2000; 1.0% from 1995 through 1996).
***Annualized.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
VANGUARD VALUE INDEX FUND
INVESTOR SHARES
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED--------------------------------------------------------------
JUNE 30, 2000* 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $22.89 $22.51 $20.85 $17.02 $14.79 $11.12
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .18 .355 .366 .38 .37 .41
Net Realized and Unrealized Gain (Loss)
on Investments (1.10) 2.342 2.647 4.57 2.81 3.66
----------------------------------------------------------------------------
Total from Investment Operations (.92) 2.697 3.013 4.95 3.18 4.07
----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.17) (.362) (.363) (.37) (.38) (.40)
Distributions from Realized Capital Gains (.41) (1.955) (.990) (.75) (.57) --
----------------------------------------------------------------------------
Total Distributions (.58) (2.317) (1.353) (1.12) (.95) (.40)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $21.39 $22.89 $22.51 $20.85 $17.02 $14.79
=========================================================================================================================
TOTAL RETURN -4.12% 12.57% 14.64% 29.77% 21.86% 36.94%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $3,330 $3,378 $2,421 $1,796 $1,016 $496
Ratio of Total Expenses to Average Net Assets 0.22%** 0.22% 0.22% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to Average
Net Assets 1.63%** 1.59% 1.72% 2.05 2.54% 3.06%
Turnover Rate 32%** 41% 33% 25% 29% 27%
=========================================================================================================================
</TABLE>
*Unaudited.
**Annualized.
<PAGE>
31
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
VANGUARD GROWTH INDEX FUND
INVESTOR SHARES
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED---------------------------------------------------------------
JUNE 30, 2000* 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $39.43 $31.67 $22.53 $16.90 $13.97 $10.28
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .07 .207 .230 .23 .22 .21
Net Realized and Unrealized Gain (Loss)
on Investments .94 8.821 9.244 5.88 3.07 3.68
----------------------------------------------------------------------------
Total from Investment Operations 1.01 9.028 9.474 6.11 3.29 3.89
----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.07) (.228) (.219) (.23) (.22) (.20)
Distributions from Realized Capital Gains -- (1.040) (.115) (.25) (.14) --
----------------------------------------------------------------------------
Total Distributions (.07) (1.268) (.334) (.48) (.36) (.20)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $40.37 $39.43 $31.67 $22.53 $16.90 $13.97
=========================================================================================================================
TOTAL RETURN 2.56% 28.76% 42.21% 36.34% 23.74% 38.06%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $16,476 $15,232 $6,644 $2,365 $787 $271
Ratio of Total Expenses to
Average Net Assets 0.22%** 0.22% 0.22% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 0.34%** 0.64% 0.92% 1.19% 1.57% 1.71%
Turnover Rate 27%** 33% 29% 26% 29% 24%
=========================================================================================================================
</TABLE>
*Unaudited.
**Annualized.
"Standard & Poor's (R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," "500,"
"S&P MidCap 400," and "S&P SmallCap 600" are trademarks of The McGraw-Hill
Companies, Inc., and have been licensed for use by Vanguard U.S. Stock Index
Funds and The Vanguard Group. These mutual funds are not sponsored, endorsed,
sold, or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the Funds. "Wilshire
4500" and "Wilshire 5000" are registered trademarks of Wilshire Associates.
Frank Russell Company is the owner of the trademarks and copyrights relating to
the Russell Indexes. Note: McGraw-Hill has sued Vanguard over Vanguard's right
to use certain S&P Indexes. See page 25.
<PAGE>
32
INVESTING WITH VANGUARD
One or more of the Funds are 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 a
Fund as an investment option.
- If you have any questions about a Fund or Vanguard, including those about a
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 a 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. Contact your plan
administrator for special cut off times that may apply to transaction requests
placed with another service provider.
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 a 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: n 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>
33
ACCESSING FUND INFORMATION BY COMPUTER
--------------------------------------------------------------------------------
VANGUARD ON THE WORLD WIDE WEB www.vanguard.com
Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard funds and services; an
online "university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
--------------------------------------------------------------------------------
<PAGE>
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<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>
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<PAGE>
GLOSSARY OF INVESTMENT TERMS
ACTIVE MANAGEMENT
An investment approach that seeks to exceed the average returns of the financial
markets. Active managers rely on research, market forecasts, and their own
judgment and experience in selecting securities to buy and sell.
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.
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.
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.
INDEX
An unmanaged group of securities whose overall performance is used as a standard
to measure investment performance.
INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a fund's
investments.
NET ASSET VALUE (NAV)
Net asset value per share is computed by dividing the net assets attributed to
each share class by the number of shares outstanding for that class.
PASSIVE MANAGEMENT
A low-cost investment strategy in which a mutual fund attempts to match--rather
than outperform--a particular stock or bond market index. Also known as
indexing.
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.
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 LOGO]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482-2900
FOR MORE INFORMATION
If you'd like more information about
Vanguard U.S. Stock Index Funds,
the following documents are
available free upon request:
ANNUAL/SEMIANNUAL REPORTS
TO SHAREHOLDERS
Additional information about the
Funds' investments is available in
the Funds'annual and semiannual
reports to shareholders.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI provides more detailed
information about the Funds.
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 Funds or other
Vanguard funds, please contact us
as follows:
THE VANGUARD GROUP
PARTICIPANT ACCESS 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
INFORMATION PROVIDED BY THE
SECURITIES AND EXCHANGE
COMMISSION (SEC)
You can review and copy information
about the Funds (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 Funds
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.
Funds' Investment Company Act
file number: 811-2652
(C) 2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.
I585N 112000
