VANGUARD SPECIALIZED PORTFOLIOS INC, 485BPOS, 2000-05-23

VANGUARD SPECIALIZED PORTFOLIOS INC
485BPOS, 2000-05-23

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 2-88116) UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 28

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

AMENDMENT NO. 30

VANGUARD SPECIALIZED 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 AMENDMENT BECOME EFFECTIVE:
ON MAY 31, 2000, PURSUANT TO PARAGRAPH (B) OF RULE 485.

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VANGUARD(R)
ENERGY
FUND

Prospectus
May 31, 2000

This prospectus contains
financial data for the
Fund through the
fiscal year ended
January 31, 2000.

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

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VANGUARD ENERGY FUND
Prospectus
May 31, 2000

An Aggressive Stock Mutual Fund

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CONTENTS
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1 FUND PROFILE 13 FINANCIAL HIGHLIGHTS

3 ADDITIONAL INFORMATION 15 INVESTING WITH VANGUARD

4 A WORD ABOUT RISK 15 Services and Account Features

4 WHO SHOULD INVEST 16 Types of Accounts

5 PRIMARY INVESTMENT STRATEGIES 17 Buying Shares

9 THE FUND AND VANGUARD 19 Redeeming Shares

10 INVESTMENT ADVISER 22 Transferring Registration

11 DIVIDENDS, CAPITAL GAINS, AND TAXES 23 Fund and Account Updates

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

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FUND PROFILE

The following profile summarizes key features of Vanguard Energy Fund.

INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.

INVESTMENT STRATEGIES
The Fund invests at least 80% of its assets in the common stocks of companies
engaged in energy-related activities, such as: production and transmission of
energy or energy fuels; the making of component products for such activities;
energy research; and energy conservation or pollution control. In selecting
stocks, the adviser uses a "bottom up" approach, where stocks are chosen based
on the adviser's estimates of fundamental investment value.

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:
- - Industry concentration risk, which is the chance that the Fund's returns
could be hurt significantly by problems affecting a particular industry.
Because more than 80% of the Fund's holdings typically are invested in the
energy and energy-related industries, the Fund's performance can be
significantly affected, for better or for worse, by developments in those
industries.
- - Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.
- - Investment style risk, which is the chance that returns from small- or
mid-capitalization stocks--which constitute a significant portion of the
energy and energy-related industries--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.

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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 and an industry-related fund index. Keep in mind that
the Fund's past performance does not indicate how it will perform in the future.

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ANNUAL TOTAL RETURNS
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1990 -1.37%
1991 0.28%
1992 6.10%
1993 26.52%
1994 -1.63%
1995 25.32%
1996 34.00%
1997 14.89%
1998 -20.53%
1999 20.98%
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The Fund's year-to-date return as of the most recent
calendar quarter ended March 31, 2000, was 12.14%.
----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 21.39% (quarter ended March 31, 1993) and the lowest return for a
quarter was -14.20% (quarter ended September 30, 1998).

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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 Energy Fund 20.98% 13.15% 9.25%
S&P 500 Index 21.04 28.56 18.21
Average Natural Resources Fund* 30.68 9.43 6.05
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* Derived from data provided by Lipper Inc.
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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 January 31, 2000.

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: 1%*

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.44%
12b-1 Distribution Fee: None
Other Expenses: 0.04%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.48%

*The 1% fee applies to shares redeemed (either by selling or exchanging to
another fund) within one year of purchase. The fee is withheld from
redemption proceeds and retained by the Fund. Shares held for one year or
more are NOT subject to the 1% fee.

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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
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$49 $154 $269 $604
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THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

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PLAIN TALK ABOUT
FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Energy Fund's expense ratio in fiscal year 2000 was 0.48%, or
$4.80 per $1,000 of average net assets. The average natural resources mutual
fund had expenses in 1999 of 1.95%, or $19.50 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 achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
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ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Distributed annually in December. $3,000; $1,000 for IRAs and custodial
accounts for minors
INVESTMENT ADVISER
Wellington Management Company, LLP, NEWSPAPER ABBREVIATION
Boston, Mass., since inception Energy

INCEPTION DATE VANGUARD FUND NUMBER
May 23, 1984 051

NET ASSETS AS OF JANUARY 31, 2000 CUSIP NUMBER
$973 million 921908109

SUITABLE FOR IRAS TICKER SYMBOL
Yes VGENX
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A WORD ABOUT RISK

This prospectus describes risks you would face as an investor in Vanguard Energy
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 the stock market.
Look for this [FLAG] symbol throughout the prospectus. It is used to mark
detailed information about each type of risk that you would confront as a
shareholder of the Fund.
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WHO SHOULD INVEST

The Fund may be a suitable investment for you if:
- - You wish to add a value-oriented stock fund to your existing holdings,
which could include other stock investments as well as bond, money market,
and tax-exempt investments.
- - You are seeking growth of capital over the long term--at least five years.
- - You are seeking an investment that may perform differently from a
diversified stock or bond fund.

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

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PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.
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The Fund has adopted the following policies, among others, to discourage
short- term trading:
- - 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.
- - The Fund imposes a 1% redemption fee on shares that are redeemed by any
method within one year of purchase.
- - 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. The Fund's Board of
Trustees oversees the management of the Fund, and may change the investment
strategies in the interest of shareholders. In addition, this section discusses
several important risks--investment style risk, industry concentration risk,
stock market risk, manager risk, country risk, and currency risk--faced by
investors in the Fund.

MARKET EXPOSURE
The Fund invests at least 80% of its assets in the common stocks of companies
engaged in energy-related activities, such as: production and transmission of
energy or energy fuels; the making of component products for such activities;
energy research; and energy conservation or pollution control. The Fund's
investments, in aggregate, tend to be classified as mid-cap value-oriented
stocks.

[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE CHANCE THAT
RETURNS FROM SMALL- OR MID-CAPITALIZATION STOCKS--WHICH CONSTITUTE A
SIGNIFICANT PORTION OF THE ENERGY AND ENERGY-RELATED INDUSTRIES--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.

The Fund faces the risk that earnings and dividends of energy companies
will be greatly affected by changes in the prices and supplies of oil and other
energy fuels. Prices and supplies can fluctuate significantly over short periods
due to a variety of factors, including: changes in international politics;
policies of the Organization of Petroleum Exporting Countries (OPEC);
relationships among OPEC members and between OPEC and oil- importing nations;
energy conservation; the regulatory environment; governmental tax policies; and
the economic growth and stability of the main energy-consuming countries.

[FLAG] THE FUND IS SUBJECT TO INDUSTRY CONCENTRATION RISK, WHICH IS THE CHANCE
THAT THE FUND'S PERFORMANCE CAN BE SIGNIFICANTLY AFFECTED, FOR BETTER OR
WORSE, BY DEVELOPMENTS IN THE ENERGY INDUSTRY.

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

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U.S. STOCK MARKET RETURNS (1926-1999)
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1 YEAR 5 YEARS 10 YEARS 20 YEARS
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Best 54.2% 28.6% 19.9% 17.9%
Worst -43.1 -12.4 -0.9 3.1
Average 13.2 11.0 11.1 11.1
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The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on 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 this Fund in particular.
Keep in mind that the S&P 500 Index tracks mainly large-cap stocks.
Historically, industry specific mid-cap stocks such as those held by the Fund
have been more volatile than--and at times have performed quite differently
from--the large-cap stocks found in the S&P 500 Index. This is due to several
factors, including special industry risks and less-certain growth and dividend
prospects for smaller companies.

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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, on average, a market value exceeding
$12 billion; mid-cap funds as those holding stocks of companies with a market
value between $1 billion and $12 billion; and small-cap funds as those typically
holding stocks of companies with a market value of less than $1 billion.
Vanguard periodically reassesses these classifications.
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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.
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SECURITY SELECTION
The investment strategy of the Fund is designed to provide returns that are
broadly representative of the energy sector. To achieve this, the Fund invests
in the common stocks of companies engaged in the following energy-related
activities: the production, transmission, marketing, control, and measurement of
energy or energy fuels; the making of component products for such activities;
energy research or experimentation; and activities related to energy
conservation and pollution control. These activities may involve newer sources
of energy, such as geothermal, nuclear, and solar power, as well as more
traditional sources of energy, such as oil, natural gas, and coal. As new
sources of energy are developed and current methods of exploiting and developing
energy are advanced, companies in these new areas will also be considered for
the Fund. However, the Fund will not purchase the stocks of electric utility
companies, although it may invest in natural gas distributors and natural gas
pipeline concerns.
In selecting stocks, Wellington Management Company, LLP (Wellington
Management), adviser to the Fund, uses a "bottom up" approach in which stocks
are chosen based on the adviser's estimate of fundamental investment value.
Because the energy sector often has large write-offs for exploration charges,
fundamental investment value is often determined by cash flow and asset
valuations in addition to earnings valuations. A security will generally be
considered appropriate if (as determined by the investment adviser) at least 50%
of the issuer's assets, revenues, or net income is related to, or derived from,
the energy industry. Also, a security will be sold when the adviser believes
that an alternative investment provides more attractive risk/return
characteristics.

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

The Fund is generally managed without regard to tax ramifications.

OTHER INVESTMENT POLICIES AND RISKS
The Fund may invest up to 30% of its assets in foreign stocks. The ability to
invest internationally expands the investment opportunities available to the
Fund, and may result in improved diversification and performance.

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PLAIN TALK ABOUT
THE RISKS OF INTERNATIONAL INVESTING

Because foreign stock and bond 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 stocks may not be as liquid as those 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 foreign investments.
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[FLAG] BECAUSE OF ITS FOREIGN INVESTMENTS, THE FUND IS SUBJECT TO COUNTRY RISK
AND CURRENCY RISK. COUNTRY RISK IS THE CHANCE THAT POLITICAL EVENTS (SUCH
AS A WAR), FINANCIAL PROBLEMS (SUCH AS GOVERNMENT DEFAULT), OR NATURAL
DISASTERS (SUCH AS AN EARTHQUAKE) WILL WEAKEN A COUNTRY'S ECONOMY AND CAUSE
INVESTMENTS IN THAT COUNTRY TO LOSE MONEY. CURRENCY RISK IS THE CHANCE THAT
A "STRONGER" U.S. DOLLAR WILL REDUCE RETURNS FOR AMERICANS INVESTING
OVERSEAS. GENERALLY, WHEN THE DOLLAR RISES IN VALUE AGAINST A FOREIGN
CURRENCY, YOUR INVESTMENT IN THAT COUNTRY LOSES VALUE BECAUSE ITS CURRENCY
IS WORTH FEWER U.S. DOLLARS.

The Fund may purchase forward foreign currency exchange contracts to help
protect its holdings against unfavorable short-term changes in exchange rates. A
forward currency exchange 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 funds that invest in foreign stocks use these contracts to
guard against sudden, unfavorable changes in U.S. dollar/foreign currency
exchange rates. These contracts will not, however, prevent the Fund's securities
from falling in value during foreign market downswings. Note that the Fund will
not enter into such contracts for speculative purposes. Under normal
circumstances, the Fund will not commit more than 20% of its assets to forward
currency exchange contracts.
The Fund may invest in futures contracts and options, 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.
The Fund will not use derivatives for speculative purposes or as leveraged
investments that magnify gains or losses. In addition, the Fund's obligation
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.

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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 forms
of derivatives, such as exchange-traded futures and options on securities,
commodities, or indexes, have been trading on regulated exchanges for more than
two decades. These types of 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
other types of derivatives that may be more specialized or complex. If used for
speculation or as leveraged investments, derivatives can carry considerable
risks.
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TEMPORARY INVESTMENT MEASURES
The Fund may temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

TURNOVER RATE
Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long the securities have been held.
The Fund's average turnover rate for the past five years has been about 19%. 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 January 31, 2000, the average turnover rate for all
natural resources funds was approximately 122%, according to Morningstar, Inc.
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THE FUND'S REDEMPTION FEE
The Fund charges a redemption fee on shares that are redeemed before they have
been held for one year. This fee also applies when shares are redeemed by
exchange to another Vanguard fund. Unlike a sales charge or load paid to a
broker or fund management company, the redemption fee is paid directly to the
fund to offset the costs of buying and selling securities. The fee, which is
intended to discourage short-term trading, ensures that short-term investors pay
their share of the fund's transaction costs and that long-term investors do not
subsidize the activities of short-term traders.

THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 funds holding assets worth more than $550 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>

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PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

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

The Fund employs Wellington Management Company, LLP (Wellington Management), 75
State Street, Boston, MA 02109, as its investment advisor. Wellington Management
is an investment advisory firm founded in 1928. As of January 31, 2000,
Wellington Management managed more than $235 billion in assets, including all or
part of 14 Vanguard funds.
Wellington Management's advisory fee is paid quarterly. This fee is based
on certain annual percentage rates applied to the Fund's average month-end
assets for each quarter. For the fiscal year ended January 31, 2000, the
advisory fees of the Energy Fund represented an effective annual rate of 0.06%
of the Fund's average net assets.
The Fund has authorized the adviser 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,
Wellington Management may choose brokers who charge higher commissions. If more
than one broker can obtain the best available price and most favorable execution
of a transaction, then Wellington Management is authorized to choose a broker
who, in addition to executing the transaction, will provide research services to
Wellington Management or the Fund. Also, the Fund may direct the adviser to use
a particular broker for certain transactions in exchange for commission rebates
or research services provided to the Fund.
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.

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PLAIN TALK ABOUT
THE FUND'S ADVISER

The individual primarily responsible for overseeing the Fund's investments is:

ERNST H. VON METZSCH, CFA, Senior Vice President and Partner of Wellington
Management; Fund Manager since the Fund's inception in 1984; has worked in
investment management since 1971; with Wellington Management since 1973; M.Sc.,
University of Leiden, Holland; Ph.D., Harvard University.
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DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. 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.

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PLAIN TALK ABOUT
DISTRIBUTIONS

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

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 or local income taxes.

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

<PAGE>

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
"BUYING A DIVIDEND"

Unless you are investing through a tax-deferred retirement account (such as an
IRA), you should avoid buying 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.
- --------------------------------------------------------------------------------

SHARE PRICE

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

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

Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A NOTE ON PRICING: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Fund's Board of Trustees. The
Fund 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.

<PAGE>

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 for the Fund, but the most common is ENERGY.

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 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 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.

- --------------------------------------------------------------------------------
VANGUARD ENERGY FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $17.16 $22.68 $23.44 $17.19 $13.82
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .355 .33 .32 .25 .27
Net Realized and
Unrealized Gain (Loss)
on Investments 4.080 (5.08) .57 6.64 3.68
--------------------------------------------------------
Total from Investment
Operations 4.435 (4.75) .89 6.89 3.95
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.355) (.35) (.32) (.24) (.28)
Distributions from
Realized Capital Gains -- (.42) (1.33) (.40) (.30)
--------------------------------------------------------
Total Distributions (.355) (.77) (1.65) (.64) (.58)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $21.24 $17.16 $22.68 $23.44 $17.19
- --------------------------------------------------------------------------------

TOTAL RETURN* 25.83% -21.20% 3.80% 40.32% 28.68%
- --------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Year (Millions) $973 $760 $1,090 $989 $505
Ratio of Total
Expenses to Average
Net Assets 0.48% 0.41% 0.38% 0.39% 0.51%
Ratio of Net
Investment Income to
Average Net Assets 1.63% 1.46% 1.36% 1.36% 1.55%
Turnover Rate 18% 22% 19% 15% 21%
- --------------------------------------------------------------------------------
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

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

The Fund began fiscal 2000 with a net asset value (price) of $17.16 per share.
During the year, the Fund earned $0.355 per share from investment income
(interest and dividends) and $4.08 per share from investments that had
appreciated in value or that were sold for higher prices than the Fund paid for
them.

Shareholders received $0.355 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.

The earnings ($4.435 per share) minus the distributions ($0.355 per share)
resulted in a share price of $21.24 at the end of the year. This was an increase
of $4.08 per share (from $17.16 at the beginning of the year to $21.24 at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was 25.83% for the year.

As of January 31, 2000, the Fund had $973 million in net assets. For the year,
its expense ratio was 0.48% ($4.80 per $1,000 of net assets), and its net
investment income amounted to 1.63% of its average net assets. It sold and
replaced securities valued at 18% of its net assets.
- --------------------------------------------------------------------------------

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed
for use by The Vanguard Group.

<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 [BOOK]. Please call us to request copies.
- --------------------------------------------------------------------------------

SERVICES AND ACCOUNT FEATURES

Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS (SALES AND EXCHANGES)
Automatically set up for this Fund unless you notify us otherwise.
- --------------------------------------------------------------------------------
VANGUARD(R) DIRECT DEPOSIT SERVICE [BOOK]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOK]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
VANGUARD FUND EXPRESS(R) [BOOK]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
VANGUARD DIVIDEND EXPRESS(R) [BOOK]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
VANGUARD TELE-ACCOUNT(R) 1-800-662-6273 (ON-BOARD) [BOOK]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange shares to and from most
Vanguard funds.
- --------------------------------------------------------------------------------
ONLINE TRANSACTIONS www.vanguard.com [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 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 [BOOK]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOK]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
FOR AN ORGANIZATION [BOOK]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
FOR THIRD-PARTY TRUSTEE RETIREMENT INVESTMENTS
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
VANGUARD PROTOTYPE PLANS
Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
A NOTE ON INVESTING WITH VANGUARD THROUGH OTHER FIRMS
You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees, or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------

<PAGE>

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 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-51
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 . . . [PHONE]
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 Energy Fund-51
[Account number, or temporary number for a new account]
[Registered account owner(s)]
[Registered address]
- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A NOTE ON LARGE PURCHASES
It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.
- --------------------------------------------------------------------------------

<PAGE>

REDEEMING SHARES

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

When Selling Shares:
- - 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 21.

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 this "Redeeming Shares"
section of the prospectus.
- --------------------------------------------------------------------------------
A NOTE ON REDEMPTION FEES
The Fund imposes a 1% redemption fee on shares that are redeemed by any method
within one year of purchase. From time to time, the Fund may determine to waive
or modify the redemption fee for certain categories of redemptions.
- --------------------------------------------------------------------------------
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, a redemption check will be sent to 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 [PHONE]
All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours-- to sell or exchange shares. You can exchange shares from this Fund to
open an account in another Vanguard fund or to add to an existing Vanguard fund
account with an identical registration.

<PAGE>

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

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

<PAGE>

For clients of Vanguard's Institutional Division . . .

FUND AND ACCOUNT UPDATES

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

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized on securities that 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 securities markets.

CURRENCY RISK
The chance that a foreign investment will decrease in value because of
unfavorable changes in 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-1distribution 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.

INDUSTRY CONCENTRATION
Focusing on the securities of a specific industry (such as energy, gold and
precious metals, or health care).

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

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

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

PRINCIPAL
The amount of money you put into an investment.

SECURITIES
Stocks, bonds, money market instruments, and other investment vehicles.

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

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

[THE VANGUARD GROUP(R) SHIP LOGO]

Post Office Box 2600
Valley Forge, PA 19482-2600
FOR MORE INFORMATION
If you'd like more information about
Vanguard Energy Fund, the
following documents are available
free upon request:

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

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

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

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

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

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

TEXT TELEPHONE:
1-800-952-3335

WORLD WIDE WEB:
WWW.VANGUARD.COM

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

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

TEXT TELEPHONE:
1-800-749-7273

INFORMATION PROVIDED BY THE
SECURITIES AND EXCHANGE
COMMISSION (SEC)
You can review and copy
information about the Fund
(including the SAI) at the SEC's
Public Reference Room in
Washington, DC. To find out more
about this public service, call the
SEC at 1-202-942-8090. 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: 811-3916

P051N-052000

<PAGE>

VANGUARD(R) GOLD
AND PRECIOUS
METALS FUND

Prospectus
May 31, 2000

This prospectus contains
financial data for the
Fund through the
fiscal year ended
January 31, 2000.

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

<PAGE>

VANGUARD GOLD AND PRECIOUS METALS FUND
Prospectus
May 31, 2000

An Aggressive Stock Mutual Fund

3 ADDITIONAL INFORMATION 17 INVESTING WITH VANGUARD

4 A WORD ABOUT RISK 17 Services and Account Features

4 WHO SHOULD INVEST 18 Types of Accounts

5 PRIMARY INVESTMENT STRATEGIES 19 Buying Shares

12 THE FUND AND VANGUARD 21 Redeeming Shares

12 INVESTMENT ADVISER 24 Transferring Registration

13 DIVIDENDS, CAPITAL GAINS, AND TAXES 25 Fund and Account Updates

15 SHARE PRICE GLOSSARY (inside back cover)
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of Vanguard Gold
and Precious Metals 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.
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE

The following profile summarizes key features of Vanguard Gold and Precious
Metals Fund.

INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation.

INVESTMENT STRATEGIES
The Fund invests at least 80% of its assets in the stocks of foreign and
domestic companies engaged in the exploration, mining, marketing, and
distribution of (and other activities related to) gold, silver, platinum,
diamonds or other precious and rare metals and minerals. Up to 100% of the
Fund's assets may be invested in foreign securities. The Fund may also invest up
to 20% of its assets directly in gold, silver, or other precious metal bullion
and coins.

PRIMARY RISKS
THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN A
WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG PERIODS.
Because the Fund invests a higher percentage of assets in its ten largest
holdings than the average stock fund does, the Fund is subject to the risk that
its performance may be hurt disproportionately by the poor performance of
relatively few stocks. The Fund is also subject to:
- - Industry concentration risk, which is the chance that the Fund's returns
could be hurt significantly by problems affecting a particular industry.
Because more than 80% of the Fund's holdings typically are invested in the
gold, silver, and other precious metals industries, the Fund's performance
can be significantly affected, for better or for worse, by developments in
those industries.
- - 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.
- - Currency risk, which is the chance that investments in a particular country
will decrease in value if the U.S. dollar rises in value against that
country's currency.
- - Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.
- - Investment style risk, which is the chance that returns from small- or
mid-capitalization stocks--which constitute a significant portion of the
industries targeted by the Fund--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.

<PAGE>

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 and an industry-related market index. Keep in mind that
the Fund's past performance does not indicate how it will perform in the future.

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------
1990 -19.86%
1991 4.37%
1992 -19.41%
1993 93.36%
1994 -5.42%
1995 -4.48%
1996 -0.75%
1997 -38.92%
1998 -3.91%
1999 28.82%
----------------------------------------------------
The Fund's year-to-date return as of the most recent
calendar quarter ended March 31, 2000, was -19.15%.
----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 31.28% (quarter ended June 30, 1993) and the lowest return for a
quarter was -28.74% (quarter ended December 31, 1997).

-------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------
Vanguard Gold and Precious
Metals Fund 28.82% -6.44% -1.23%
S&P 500 Index 21.04 28.56 18.21
Salomon Smith Barney Global
Gold Index* 27.08 -7.68 -2.31
-------------------------------------------------------------------
*Morgan Stanley Capital International Gold Mines Index through
December 31, 1994; Salomon Smith Barney Global Gold Index
thereafter.
-------------------------------------------------------------------

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: 1%*

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.72%
12b-1 Distribution Fee: None
Other Expenses: 0.05%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.77%

<PAGE>

- -------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------
$79 $246 $428 $954
- -------------------------------------------------

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.

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

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Gold and Precious Metals Fund's expense ratio in fiscal year
2000 was 0.77%, or $7.70 per $1,000 of average net assets. The average
gold-oriented mutual fund had expenses in 1999 of 1.95%, or $19.50 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE COSTS OF INVESTING

- --------------------------------------------------------------------------------
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 NEWSPAPER ABBREVIATION
M&G Investment Management Limited, Gold
Minster Court, London, since
inception

INCEPTION DATE VANGUARD FUND NUMBER
May 23, 1984 053

NET ASSETS AS OF JANUARY 31, 2000 CUSIP NUMBER
$341 million 921908208

SUITABLE FOR IRAS TICKER SYMBOL
Yes VGPMX
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
A WORD ABOUT RISK

This prospectus describes risks you would face as an investor in Vanguard Gold
and Precious Metals 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 the
stock market.
Look for this [FLAG] symbol throughout the prospectus. It is used to mark
detailed information about each type of risk that you would confront as a
shareholder of the Fund.
- --------------------------------------------------------------------------------

WHO SHOULD INVEST

The Fund may be a suitable investment for you if:
- - You wish to add a growth stock fund to your existing holdings, which could
include other stock investments as well as bond, money market, and
tax-exempt investments.
- - You are seeking growth of capital over the long term--at least five years.
- - You are comfortable with the volatility that accompanies growth-stock
investing.
- - You are seeking an investment that may perform differently from a
diversified stock or bond fund.

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

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

<PAGE>

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. The Fund's Board of
Trustees oversees the management of the Fund, and may change the investment
strategies in the interest of shareholders. In addition, this section discusses
several important risks--investment style risk, industry concentration risk,
stock market risk, country risk, currency risk, and manager risk--faced by
investors in the Fund.

MARKET EXPOSURE
The Fund invests at least 80% of its assets in the stocks of foreign and
domestic companies engaged in the exploration, mining, marketing, and
distribution of (and other activities related to) gold, silver, platinum,
diamonds, or other precious and rare metals and minerals. The Fund may also
invest up to 20% of its assets directly in gold, silver, or other precious metal
bullion and coins. The Fund invests mainly in small- and mid-capitalization
growth stocks.

[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE CHANCE THAT
RETURNS FROM SMALL- OR MID-CAPITALIZATION STOCKS--WHICH CONSTITUTE A
SIGNIFICANT PORTION OF THE INDUSTRIES TARGETED BY THE FUND--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.

The Fund is subject to the risk of sharp price volatility of gold and other
precious metals, and of mining company shares. Investments related to gold or
other precious metals or minerals are considered speculative and prices may
fluctuate significantly over short periods due to a variety of worldwide
economic, financial, and political factors, including: changes in inflation or
expectations about inflation in various countries; currency fluctuations; metal
sales by governments, central banks, or international agencies; investment
speculation; changes in industrial and commercial demand; and government
prohibitions or restrictions on the private ownership of certain precious
metals.

[FLAG] THE FUND IS SUBJECT TO INDUSTRY CONCENTRATION RISK, WHICH IS THE CHANCE
THAT THE FUND'S PERFORMANCE CAN BE SIGNIFICANTLY AFFECTED, FOR BETTER OR
WORSE, BY DEVELOPMENTS IN THE GOLD AND PRECIOUS METALS INDUSTRY.

In addition, political and economic conditions in gold-producing countries
may have a direct effect on the mining and distribution of gold, and
consequently, on its price. The vast majority of gold producers are domiciled in
just five countries. In order of magnitude, they are: South Africa, the United
States, Australia, Canada, and Russia.

<PAGE>

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

In general, the more diversified a fund's stock holdings, the less likely it is
that a specific stock's poor performance will hurt the fund. One measure of a
fund's diversification is the percentage of its assets represented by its ten
largest holdings. The average U.S. equity mutual fund has about 34% of its
assets invested in its ten largest holdings, while some less-diversified funds
have more than 50% of their assets invested in the stocks of just ten companies.
As of January 31, 2000, the Fund had invested 67.9% of its assets in its top ten
holdings.
- --------------------------------------------------------------------------------

[FLAG] BECAUSE THE FUND INVESTS A HIGHER PERCENTAGE OF ASSETS IN ITS TEN LARGEST
HOLDINGS THAN THE AVERAGE STOCK FUND DOES, THE FUND IS SUBJECT TO THE RISK
THAT ITS PERFORMANCE MAY BE HURT DISPROPOR-TIONATELY BY THE POOR
PERFORMANCE OF RELATIVELY FEW STOCKS.

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

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

<PAGE>

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 this Fund in particular.
Keep in mind that the S&P 500 Index tracks mainly large-cap stocks.
Historically, industry specific mid- and small-cap stocks such as those held by
the Fund have been more volatile than--and at times have performed quite
differently from--the large-cap stocks found in the S&P 500 Index. This is due
to several factors, including special industry risks and less-certain growth and
dividend prospects for smaller companies.

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

[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 RISKIER 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.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE RISKS OF INTERNATIONAL INVESTING

FOREIGN STOCKS
The Fund may invest up to 100% of its assets in foreign stocks.
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 Morgan Stanley Capital International
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.

- ----------------------------------------------------------
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 preceding chart does not take into account returns for
foreign stock markets as measured by the MSCI Emerging Markets Free Index, a
widely used barometer of less developed stock markets. Emerging markets can be
substantially more volatile than more developed foreign markets. In addition,
because the MSCI EAFE Index tracks the European and Pacific markets
collectively, the above returns do not reflect the variability of returns from
year to year for these markets individually, or the variability across these and
other geographic regions or market sectors. To illustrate this variability, the
following table shows returns for different international markets--as well as
U.S. markets 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>

- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
*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.
- --------------------------------------------------------------------------------

Keep in mind, however, that these average returns reflect past performance
of the various indexes; you should not consider them as an indication of future
returns from the indexes, or from this Fund in particular.

SECURITY SELECTION
The investment strategy of the Fund is designed to provide returns that are
broadly representative of the gold and precious metals sector. To achieve this,
the Fund focuses on stocks of foreign and domestic companies engaged in the
exploration, mining, fabrication, processing, or marketing and distribution of
gold, silver, platinum, diamonds, or other precious and rare metals and
minerals. The Fund may commit up to 100% of its assets to foreign stocks.
In addition, up to 20% of the Fund's assets may be invested directly in
gold, silver, and other precious metal bullion and coins. Bullion and coins for
the Fund will only be bought from and sold to banks (both U.S. and foreign), and
dealers who are members--or affiliated with members--of a regulated U.S.
commodities exchange. Gold, silver, or other precious metal bullion will not be
purchased in any form that is not readily marketable. Coins will not be bought
for their numismatic value, and will not be considered for the Fund if they
cannot

<PAGE>

be bought and sold in an active market. Any bullion or coins bought by the Fund
will be delivered to and stored with a qualified custodian bank in the U.S. Keep
in mind that bullion and coins do not generate income--they offer only the
potential for capital appreciation or depreciation, and may subject the Fund to
higher custody and transaction costs than those normally associated with the
ownership of stocks. Investments relating to gold and other precious metals or
minerals are considered speculative.
In selecting stocks for the Fund, M&G Investment Management Limited (M&G),
adviser to the Fund, emphasizes quality companies with attractive reserve
positions and sound operations. The adviser considers, among other things, the
ability of a company to mine ore in a cost-effective way, to find and establish
new reserves, and to increase production relative to competitors. The adviser
also looks to maintain geographic diversity in the Fund. A security will
generally be considered appropriate if (as determined by the investment adviser)
at least 50% of the issuer's assets, revenues, or net income is related to, or
derived from, the gold and precious metals industries. Also, a security will be
sold when the adviser believes that an alternative investment provides more
attractive risk/return characteristics.

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

The Fund is generally managed without regard to tax ramifications.

OTHER INVESTMENT POLICIES AND RISKS
The Fund may purchase forward foreign currency exchange contracts to help
protect its holdings against unfavorable short-term changes in exchange rates. A
forward currency exchange 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 funds that invest in foreign stocks use these contracts to
guard against sudden, unfavorable changes in U.S. dollar/ foreign currency
exchange rates. These contracts will not, however, prevent the Fund's securities
from falling in value during foreign market downswings. Note that the Fund will
not enter into such contracts for speculative purposes. Under normal
circumstances, the Fund will not commit more than 20% of its assets to forward
currency exchange contracts.
The Fund may invest in futures contracts and options, 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.
The Fund will not use derivatives for speculative purposes or as leveraged
investments that magnify gains or losses. In addition, the Fund's obligation
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.

<PAGE>

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

TURNOVER RATE
Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long the securities have been held.
The Fund's average turnover rate for the past five years has been about 20%. 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.

- --------------------------------------------------------------------------------
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 January 31, 2000, the average turnover rate for all
precious metals funds was approximately 109%, according to Morningstar, Inc.
- --------------------------------------------------------------------------------

<PAGE>

THE FUND AND VANGUARD

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

INVESTMENT ADVISER

The Fund employs M&G Investment Management Limited (M&G), 3 Minster Court, Great
Tower Street, London, England EC3R 7XH, as its investment advisor. M&G is an
advisory firm and wholly owned subsidiary of the M&G Group, an independent group
of companies that began providing investment services when it launched Great
Britain's first unit trust (mutual fund) in 1931. As of January 31, 2000, M&G
managed more than $18 billion in assets.
M&G's advisory fee is paid quarterly. This fee is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter. For the fiscal year ended January 31, 2000, the advisory fees of the
Gold and Precious Metals Fund represented an effective annual rate of 0.22% of
the Fund's average net assets.
The Fund has authorized the adviser 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,
M&G may choose brokers who charge higher commissions. If more than one broker
can obtain the best available price and most favorable execution of a
transaction, then M&G is authorized to choose a broker who, in addition to
executing the transaction, will provide research services to M&G or the Fund.
Also, the Fund may direct the adviser to use a particular broker for certain
transactions in exchange for commission rebates or research services provided to
the Fund.
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 Fund's investments is:

GRAHAM E. FRENCH, Investment Manager at M&G Investment Management Limited; Fund
Manager since 1996; Assistant Fund Manager from 1991 through 1996; has worked in
investment management since 1988; with M&G since 1989; B.Sc., University of
Durham.
- --------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

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

<PAGE>

- - Dividend and capital gains distributions that you receive, as well as your
gains or losses from any sale or exchange of Fund shares, may be subject to
state or local income taxes.
- - 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.

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PLAIN TALK ABOUT
"BUYING A DIVIDEND"

<PAGE>

SHARE PRICE

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

FINANCIAL HIGHLIGHTS

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

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

The Fund began fiscal 2000 with a net asset value (price) of $6.61 per share.
During the year, the Fund earned $0.11 per share from investment income
(interest and dividends) and $1.05 per share from investments that had
appreciated in value or that were sold for higher prices than the Fund paid for
them.

Shareholders received $0.10 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.

The earnings ($1.16 per share) minus the distributions ($0.10 per share)
resulted in a share price of $7.67 at the end of the year. This was an increase
of $1.06 per share (from $6.61 at the beginning of the year to $7.67 at the end
of the year). For a shareholder who reinvested the distributions in the purchase
of more shares, the total return from the Fund was 17.49% for the year.

As of January 31, 2000, the Fund had $341 million in net assets. For the year,
its expense ratio was 0.77% ($7.70 per $1,000 of net assets), and its net
investment income amounted to 1.42% of its average net assets. It sold and
replaced securities valued at 28% of its net assets.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
VANGUARD GOLD AND PRECIOUS METALS FUND
YEAR ENDED JANUARY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $6.61 $7.53 $10.94 $14.07 $10.71
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .11 .10 .14 .13 .17
Net Realized and
Unrealized Gain (Loss)
on Investments 1.05 (.93) (3.42) (2.98) 3.36
--------------------------------------------------------
Total from Investment
Operations 1.16 (.83) (3.28) (2.85) 3.53
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (.10) (.09) (.13) (.21) (.17)
Distributions from
Realized Capital Gains -- -- -- (.07) --
--------------------------------------------------------
Total Distributions (.10) (.09) (.13) (.28) (.17)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $7.67 $6.61 $ 7.53 $10.94 $14.07
- --------------------------------------------------------------------------------

TOTAL RETURN* 17.49% -11.06% -29.85% -20.51% 33.24%
- --------------------------------------------------------------------------------

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Year (Millions) $341 $310 $327 $463 $648
Ratio of Total Expenses
to Average Net Assets 0.77% 0.77% 0.62% 0.50% 0.60%
Ratio of Net
Investment Income to
Average Net Assets 1.42% 1.33% 1.41% 1.07% 1.38%
Turnover Rate 28% 23% 26% 19% 5%
- --------------------------------------------------------------------------------
*Total return figures do not reflect the 1% fee assessed on redemptions of
shares held for less than one year.

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed
for use by The Vanguard Group.

<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 [BOOK]. Please call us to request copies.
- --------------------------------------------------------------------------------

SERVICES AND ACCOUNT FEATURES

<PAGE>

TYPES OF ACCOUNTS

<PAGE>

BUYING SHARES

Make your check payable to: The Vanguard Group-53
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 . . .

<PAGE>

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

Wire to:
FRB ABA 021001088
HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard Gold and Precious Metals Fund-53
[Account number, or temporary number for a new account]
[Registered account owner(s)]
[Registered address]
- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A NOTE ON LARGE PURCHASES
It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.
- --------------------------------------------------------------------------------

<PAGE>

REDEEMING SHARES

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

When Selling Shares:
- - 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 23.