VANGUARD STAR FUND, 497, 1999-10-04

VANGUARD STAR FUND
497, 1999-10-04

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT (NO. 2-88373) UNDER
THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. [X]
Post-Effective Amendment No. 26 [X]
and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 28 [X]

VANGUARD STAR FUNDS
(Exact Name of Registrant as Specified in Declaration of Trust)

P.O. Box 2600,
Valley Forge, PA 19482
(Address of Principal Executive Office)

Registrant's Telephone Number (610) 669-1000

R. Gregory Barton, Esquire
P.O. Box 876
Valley Forge, PA 19482

It is requested that this filing become effective on September 29, 1999
pursuant to paragraph (b) of Rule 485.

Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.

We have elected to register an indefinite number of shares pursuant to
Regulation 24f-2 under the Investment Company Act of 1940. We filed our Rule
24f-2 Notice for the year ended December 31, 1998 on March 29, 1999.

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VANGUARD STAR FUND

CROSS REFERENCE SHEET

Form N-1A
Item Number Location in Prospectus

Item 1. Front and Back Cover Pages............ Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments,
Risks, and Performance................ Fund Profile
Item 3. Risk/Return Summary: Fee Table........ Fee Table
Item 4. Investment Objectives, Principal
Investment Strategies, and Related
Risks................................. A Word About Risk; Who
Should Invest; Primary
Investment Strategies;
More on the Funds
Item 5. Management's Discussion of Fund
Performance........................... Herein incorporated by
reference to Registrant's
Annual Report to
Shareholders dated
December 31, 1998 filed
with the Securities &
Exchange Commission's
EDGAR system on February
24, 1999
Item 6. Management, Organization, and Capital
Structure............................. The Funds and Vanguard;
Investment Adviser
Item 7. Shareholder Information............... Share Price; Dividends,
Capital Gains, and Taxes;
Investing with Vanguard
Item 8. Distribution Arrangements............. Not Applicable
Item 9. Financial Highlights Information...... Financial Highlights

Form N-1A Location in Statement
Item Number of Additional Information

Item 10. Cover Page and Table of Contents...... Cover Page; Table of
Contents
Item 11. Fund History.......................... Description of the Trust
Item 12. Description of the Fund and its
Investments and Risks................. Investment Policies;
Description of the Trust;
Fundamental Investment
Limitations
Item 13. Management of the Fund................ Management of the Trust
Item 14. Control Persons and Principal Holders
of Securities......................... Management of the Trust
Item 15. Investment Advisory and Other
Services.............................. Management of the Trust;
Investment Advisory
Services
Item 16. Brokerage Allocation and Other
Practices............................. Portfolio Transactions
Item 17. Capital Stock and Other Securities.... Description of the Trust
Item 18. Purchase, Redemption, and Pricing of
Shares................................ Purchase of Shares;
Redemption of Shares;
Share Price
Item 19. Taxation of the Fund.................. Description of the Trust
Item 20. Underwriters.......................... Not Applicable
Item 21. Calculation of Performance Data ...... Yield and Total Return
Item 22. Financial Statements.................. Financial Statements
<PAGE>

Vanguard STAR Fund
Prospectus

September 29, 1999

A Balanced Mutual Fund

Contents

1 Fund Profile

3 Additional Information

3 A Word About Risk

3 Who Should Invest

4 Primary Investment Strategies

9 The Fund and Vanguard

10 Investment Adviser

12 Year 2000 Challenge

12 Dividends, Capital Gains, and Taxes

13 Share Price

14 Financial Highlights

15 Investing with Vanguard

15 Services and Account Features

16 Types of Accounts

16 Buying Shares

18 Redeeming Shares

21 Transferring Registration

21 Fund and Account Updates

Glossary (inside back cover)

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Why Reading This Prospectus Is Important

This prospectus explains the objective, risks, and strategies of Vanguard STAR
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.
<PAGE>

Fund Profile

The following profile summarizes key features of Vanguard STAR Fund.

INVESTMENT OBJECTIVE
The Fund is a balanced fund that seeks to provide long-term capital growth and
income.

INVESTMENT STRATEGIES

As a "fund of funds," STAR Fund invests in a diversified group of other Vanguard
mutual funds, rather than in individual securities. The Fund follows a balanced
investment approach by placing 60% to 70% of its assets in common stocks through
six stock funds; 20% to 30% of its assets in bonds through two bond funds; and
10% to 20% of its assets in short-term reserves through a short-term bond fund
and a money market fund. Through the underlying funds, STAR Fund owns a
diversified mix of stocks (with emphasis on large-cap value stocks) and bonds
(primarily short- and long-term investment-grade corporate bonds and
intermediate-term GNMA mortgage-backed bonds).

PRIMARY RISKS

The Fund is subject to several stock and bond market risks, any of which could
cause an investor to lose money. However, because stock and bond prices can move
in different directions or in different amounts, the Fund's bond and short-term
reserve holdings may counteract some of the volatility experienced by the Fund's
stock holdings. The Fund's balanced portfolio, in the long run, should result in
less investment risk--but a lower investment return--than that of a fund
investing exclusively in common stocks.

. Stock risks include: stock market risk, which is the chance that stock prices
in general will decline over short or even long periods; and investment style
risk, which is the chance that returns from the stock market segments in
which the Fund is most heavily weighted (large-capitalization and value
stocks) may underperform other asset classes or the overall stock market.
. Bond risks include: interest rate risk, which is the chance that bond prices
overall will decline over short or even long periods due to rising interest
rates; credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner; and call/prepayment risk, which is
the chance that during periods of falling interest rates, a bond issuer will
repay a higher-yielding bond before its maturity date, forcing the Fund to
reinvest the unanticipated proceeds at lower interest rates.
. The Fund is also subject to manager risk, which is the chance that poor
security selection by the investment advisers of the underlying funds will
cause the Fund to underperform other funds with similar investment
objectives. For additional information on investment risks, see Primary
Investment Strategies.

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 a composite stock/bond index weighted to match the
Fund's target allocation. 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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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

18.80% -3.62% 24.18% 10.51% 10.88% -0.21% 28.64% 16.11% 21.15% 12.38%
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<PAGE>

During the period shown in the bar chart, the highest return for a calendar
quarter was 12.30% (quarter ended March 31, 1991) and the lowest return for a
quarter was -10.71% (quarter ended September 30, 1990).

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Average Annual Total Returns for Years Ended December 31, 1998
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1 Year 5 Years 10 Years
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Vanguard STAR Fund 12.38% 15.20% 13.46%
Wilshire 5000 Index 23.39 21.78 18.10
Lehman Brothers Aggregate Bond Index 8.69 7.27 9.26
STAR Lipper Composite* 11.30 12.69 12.33
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*Weighted 62.5% Lipper General Equity, 25% Lipper Fixed Income, and 12.5% Lipper
Money Market.
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Shareholder Fees (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

Annual Fund Operating Expenses (expenses deducted from the
underlying funds' assets)
Indirect Operating Expenses: *

*Although STAR Fund is not expected to incur any net expenses directly, the
Fund's shareholders indirectly bear the expenses of the underlying Vanguard
funds in which the Fund invests. See The Fund and Vanguard. The Fund's indirect
expense ratio, based on its investments in the underlying Vanguard funds, was
0.37% as of December 31, 1998.

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 of the Fund and its underlying funds 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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$38 $119 $207 $467
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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.

PLAIN TALK ABOUT
The Cost of Investing

Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs operating a fund, plus any transaction
costs associated with the fund'd 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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3
Additional Information

Dividends and Capital Gains
Dividends are distributed in June and December; capital gains, if any, are
distributed annually in December

Investment Adviser
The Fund does not employ an investment adviser, but rather benefits from the
investment advisory services provided to the underlying Vanguard funds in which
it invests

Inception Date
March 29, 1985

Net Assets as of December 31, 1998
$8.08 billion

Suitable for IRAs
Yes

Minimum Initial Investment
$1,000

Newspaper Abbreviation
STAR

Vanguard Fund Number
056

Cusip Number
921909107

Ticker Symbol
VGSTX

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A Word About Risk

This prospectus describes the risks you would face as an investor in Vanguard
STAR Fund. It is important to keep in mind one of the main axioms of investing:
The higher the risk of losing money, the higher the potential reward. The
reverse, also, is generally true: The lower the risk, the lower the potential
reward. As you consider an investment in Vanguard STAR Fund, you should also
take into account your personal tolerance for the daily fluctuations of the
stock and bond markets.
Look for this [LOGO OF FLAG APPEARS HERE] 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 balanced fund to your existing holdings, which could
include other stock and bond--as well as money market and
tax-exempt--investments.
. You are seeking growth of your capital over the long term--at least five
years--without taking undue risk.
. You are seeking moderate current income.

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.

The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.
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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 request or because of a history of excessive
trading by the investor.
. There is a limit on the number of times you can exchange into and out of the
Fund (see "Redeeming Shares" in the Investing with Vanguard section).
. The Fund reserves the right to stop offering shares at any time.

Primary Investment Strategies

This section explains how the Fund pursues its objective, long-term growth of
capital and income. 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 faced by investors
in the Fund.

Market Exposure

Stocks
Through six underlying Vanguard funds, STAR Fund invests 60% to 70% of its
assets in common stocks. The Fund's indirect investment in stocks is designed to
provide long-term capital growth and some income. The underlying stock funds are
described on page 7.

The Fund is subject to stock market risk, which is the possibility that
stock prices overall will decline over short or even long periods. Stock
markets tend to move in cycles, with periods of rising prices and periods of
falling prices.

To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Composite Stock Price Index, a
widely used barometer of stock market activity. (Total returns consist of
dividend income plus change in market price.) Note that the returns shown do not
include the costs 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 (1926-1998)
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1 Year 5 Years 10 Years 20 Years
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Best 54.2% 24.1% 19.9% 17.7%
Worst -43.1 -12.4 -0.8 3.1
Average 13.1 10.7 11.0 11.0
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PLAIN TALK ABOUT
Balanced Funds

Balanced funds are generally "middle-of-the-road" investments that seek to
provide some combination of growth, income, and conservation of capital by
investing in a mix of stocks, bonds, and/or money market instruments. Because
the prices of stocks and bonds often move in different directions, balanced
funds are able to use rewards from one type of investment to help offset the
risks from another.

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.
Generally, Vanguard defines large-capitalization (large-cap) funds as those
holding stocks of companies whose outstanding shares have a market value ex-
ceeding $10 billion. Mid-cap funds hold stocks of companies with a market value
between $1 billion and $10 billion. Small-cap funds typically holds stocks of
companies with a market value of less than $1 billion.
<PAGE>

Because stock and bond prices can move in different directions or in different
amounts, the Fund's bond and money market fund holdings may help to dampen--but
will not eliminate--the volatility experienced by the Fund as a result of its
stock fund holdings. The Fund's balanced portfolio, in the long run, should
result in less investment risk--and a lower investment return--than a fund
investing exclusively in common stocks.

[FLAG GRAPHIC APPEARS HERE]

The Fund is subject to investment-style risk, which is the possibility that
returns from the stock market segments in which the Fund is most heavily
weighted may underperform other asset classes or the overall stock market.

Through its share ownership of the underlying stock funds, STAR Fund
indirectly owns a diversified mixture of common stocks. Although its indirect
stock holdings are predominantly large-cap, the Fund has significant exposure to
mid-cap stocks and some exposure to small-cap stocks. Mid-cap and small-cap
stocks tend to be more volatile than large-cap stocks. The Fund's indirect stock
holdings are predominantly value-oriented, although the Fund has significant
exposure to growth stocks.

Bonds
Through two underlying Vanguard funds, STAR Fund invests roughly 20% to 30% of
its assets in bonds, predominantly intermediate- and long-term bonds. The Fund's
indirect investment in bonds is designed to provide a high level of current
income with less price volatility than would be expected from the stock portion
of its holdings. The underlying bond funds are described on page 8.

[FLAG GRAPHIC APPEARS HERE]

The Fund is subject to interest rate risk, which is the possibility that
bond prices overall will decline over short or even long periods due to
rising interest rates. Interest rate risk is modest for shorter-term bonds
and higher fo r longer-term bonds.

To illustrate the relationship between bond prices and interest rates, the
following table shows the impact of a 2% change (both up and down) in interest
rates on three bonds of different maturities, each with a face value of $1,000.

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How Interest Rate Changes Affect Bond Prices*
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Value of a $1,000 Bond Value of a $1,000 Bond
After a 2% Increase After a 2% Decrease
Type of Bond (Maturity) in Interest Rates in Interest Rates
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Short-Term (2.5 years) $956 $1,046
Intermediate-Term (10 years) 870 1,156
Long-Term (20 years) 816 1,251
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*Assuming a 7% yield.
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PLAIN TALK ABOUT
Bonds and Interest Rates

As a rule, when interest rates rise, bond prices fall. The opposite is also
true: Bond prices go up when interest rates fall. Why do bond prices and
interest rates move in opposite directions? Let's assume that you hold a bond
offering a 5% yield. A year later, interest rates are on the rise and bonds
are offered with a 6% yield. With higher-yielding bonds available, you would
have trouble selling your 5% bond for the price you paid--causing you to lower
your asking price. On the other hand, if interest rates were falling and 4%
bonds were being offered, you should be able to sell your 5% bond for more than
you paid.
<PAGE>

PLAIN TALK ABOUT
Bond Maturities

A bond is issued with a specific maturity date--the date when the bond's
issuer, or seller, must pay back the bond's initial value (known as its
"face value"). Bond maturities generally range from less than one year to more
than 30 years. The longer a bond's maturity, the more risk you, as a bond
investor, face as interest rates rise--but also the more interest you could
receive. Long-term bonds are more suitable for investors willing to take
greater risks in hope of higher yields; short-term bond investors should be
willing to accept lower yields in return for less fluctuation in the value of
their investment.

These figures are intended only to illustrate interest rate risk; they should
not be regarded as an indication of future returns from the bond market as a
whole, or STAR Fund in particular. Also, changes in interest rates may not have
as dramatic an effect on the Fund as they would on a fund made up entirely of
bonds.

[FLAG GRAPHIC APPEARS HERE]

The Fund is subject to credit risk, which is the possibility that a bond
issuer will fail to pay interest and principal in a timely manner.

Since the underlying Vanguard bond funds invest primarily in high-quality
obligations, credit risk is relatively low.

[FLAG GRAPHIC APPEARS HERE]

The Fund is also subject to call risk (in the case of corporate bonds) and
prepayment risk (in the case of mortgage-backed bonds), which is the
possibility that during periods of falling interest rates a bond issuer will
repay a higher-yielding bond before its maturity date. Forced to reinvest
the unanticipated proceeds at lower interest rates, the Fund would
experience a decline in income.

Short-Term Reserves
Through two underlying Vanguard funds, STAR Fund invests roughly 10% to 20% of
its assets in short-term reserves. These reserves consist of investment-grade
short-term bonds and high quality money market instruments, including commercial
paper and repurchase agreements. From this investment, the Fund seeks to obtain
current income and to moderate the overall volatility of the Fund.

The Fund's short-term reserves are subject to a high level of income risk,
which is the possibility that dividends will fall if short-term interest rates
fall, and a low level of credit risk, which is the chance that an issuer of a
money market instrument or short-term bond will fail to pay interest or repay
principal in a timely manner. Because the Fund does not invest heavily in
short-term reserves, however, both income risk and credit risk to STAR Fund will
be low.

Security Selection
Vanguard STAR Fund is a "fund of funds," which means that it achieves its
objective by investing in a combination of other mutual funds rather than in
individual securities.

PLAIN TALK ABOUT
"Fund of Funds"
The term "fund of funds" is used to describe a mutual fund that pursues its
objective by investing in other mutual funds rather than in individual
stocks or bonds. A fund of funds may charge for its own direct expenses,
in addition to bearing a proportionate share of the expenses charged by the
underlying funds in which it invests. Funds of funds are best suited
for long-term investors.
<PAGE>

market fund. While these allocations may shift from time to time, stocks can be
expected to represent at least 60% of the Fund's holdings at any given time.
Within any given asset class, Vanguard may increase or decrease the percentage
of assets invested in any particular fund without advance notice to
shareholders.

The Fund is subject to manager risk, which is the possibility that the
investment advisers of the underlying funds may do a poor job of selecting
securities.

The underlying Vanguard funds are run by their investment advisers according
to traditional methods of active investment management. This means that
securities are bought and sold according to the advisers' judgments about
companies and their financial prospects, about issuers of bonds and money market
instruments, and about the general level of interest rates.

The Fund is generally managed without regard to tax ramifications.

Stocks
STAR Fund invests in the following stock funds, in approximately the percentages
indicated:
1. Vanguard Windsor II Fund(27%)
2. Vanguard Windsor Fund(16%)
3. Vanguard Explorer Fund(5%)
4. Vanguard Morgan Growth Fund(5%)
5. Vanguard PRIMECAP Fund(5%)
6. Vanguard U.S. Growth Fund(5%)

Vanguard Windsor Fund and Vanguard Windsor II Fund are value-oriented stock
funds, chosen primarily for their potential for long-term capital growth, as
well as for their current income-producing capabilities. They work toward these
goals by investing in large- and medium-size companies believed by the adviser
to be undervalued when purchased. These stocks typically--but not always--have
lower-than-average price/earnings ratios and higher-than-average dividend
yields.

Vanguard Morgan Growth Fund, Vanguard PRIMECAP Fund, and Vanguard U.S. Growth
Fund are growth funds and Vanguard Explorer Fund is an aggressive growth fund.
These funds are held by STAR Fund primarily to provide long-term capital growth.
They work in different ways to achieve this goal.

. Vanguard Explorer Fund invests in common stocks of small U.S. companies
which, in the advisers' opinion, have above-average prospects for growth.
. Vanguard Morgan Growth Fund invests mainly in the common stocks of large- and
medium-size domestic companies whose revenues and/or earnings are expected to
grow faster than those of the average company in the market. The fund also
invests in common stocks of smaller companies with similar characteristics.
. Vanguard PRIMECAP Fund invests in common stocks that the adviser believes
have above-average prospects for continued growth. The fund's portfolio
consists predominately of large-cap and mid-cap stocks.
. Vanguard U.S. Growth Fund invests in common stocks of large, seasoned U.S.
companies that have past records of growth and, in the adviser's opinion,
above-average prospects for continued growth.

Although there are no present plans to do so, the Fund also is authorized to
invest in Vanguard 500 Index Fund, which tracks the performance of the S&P 500
Index.

PLAIN TALK ABOUT
Types of Bonds
Bonds are issued(sold) by many sources: Corporations issue corporate bonds; the
federal government issues U.S. Treasury bonds; agencies of the federal
government issue agency bonds; and mortgage holders issue "mortgage-backed"
bonds such as those issued by the Government National Mortgage Association
(GNMA). Each issuer is responsible for paying back the bond's initial value as
well as making periodic interest payments.
<PAGE>

PLAIN TALK ABOUT
Credit Quality

A bond's credit quality depends on the issuer's ability to pay interest on
the bond and, ultimately, to repay the debt. The lower the rating by one of
the independent bond-rating agencies (for example, Moody's or Standard
& Poor's), the greater the chance (in the rating agency's opinion) that the
bond issuer will default, or fail to meet its payment obligations. All things
being equal, the lower a bond's cedit rating, the higher its yield should
be to compensate investors for assuming additional risk.

Bonds
STAR Fund invests in two bond funds, in approximately the percentages indicated:
1. Vanguard GNMA Fund (12.5%)
2. Vanguard Long-Term Corporate Fund (12.5%)

Both bond funds seek to provide a high and stable level of income. They work
toward this goal, however, in different ways:

. Vanguard GNMA Fund invests at least 80% of its total assets in
mortgage-backed bonds issued by the Government National Mortgage
Association. The bonds offer a U.S. government guarantee of timely principal
and interest payments, along with income that usually exceeds that of
comparable U.S. Treasury securities. The fund's effective dollar-weighted
average maturity depends on homeowner prepayments of the underlying
mortgages, but normally falls within an intermediate-term range (5 to 10
years).
. Vanguard Long-Term Corporate Fund invests in a diversified group of
investment-grade corporate bonds--that is, bonds issued by corporations that
are rated at least Baa by Moody's Investors Service, Inc., or BBB by Standard
& Poor's Corporation. The fund maintains a dollar-weighted average maturity
of 15 to 25 years.

Short-Term Reserves
To satisfy its policy of allocating 10% to 20% of assets to short-term reserves,
STAR Fund invests in the following two funds in approximately the percentages
indicated:
1. Vanguard Short-Term Corporate Fund (12%)
2. Vanguard Prime Money Market Fund (0.5%)

. Vanguard Short-Term Corporate Fund invests in a diversified group of
investment-grade corporate bonds. The fund maintains a dollar-weighted
average maturity of between one and three years.
. Vanguard Prime Money Market Fund invests in high quality short-term money
market instruments rated in one of the two highest credit quality
categories.

PLAIN TALK ABOUT
Vanguard's Unique Corporate Structure

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

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. STAR Fund's indirect expense ratio in fiscal year 1998 was 0.37%,
or $3.70 per $1,000 of average net assets. The average balanced mutual fund
had expenses in 1998 of 1.31%, or $13.10 per $1,000 of average net assets,
according to Lipper Inc., which reports on the mutual fund industry.

Other Investment Policies and Risks

The Fund's underlying funds may invest, to a limited extent, in foreign
securities.

The Fund's underlying funds may, from time to time, take temporary defensive
measures--such as holding cash reserves without limit--that are inconsistent
with the funds' primary investment strategies, in response to adverse market,
economic, political, or other conditions. If one or more of the underlying funds
takes temporary defensive measures, STAR Fund may not achieve its investment
objective.

The Fund and Vanguard

STAR Fund has entered into an agreement with Vanguard under which Vanguard
provides all management, administrative, and distribution services to the Fund
at cost. The Fund owes Vanguard a sum sufficient to cover Vanguard's out-of-
pocket costs. The Fund also bears the expenses of services provided by other
parties (such as auditors, legal counsel, and the Fund's custodian), as well as
taxes and other direct expenses of the Fund. However, the agreement provides
that the Fund's expenses will be offset by reimbursements from Vanguard for (a)
contributions made by the Fund to the cost of operating the underlying Vanguard
funds in which STAR Fund invests, and (b) certain savings in administrative and
marketing costs that Vanguard is expected to derive from the operation of the
Fund.

The Fund's Trustees believe that the reimbursements should be sufficient to
offset most, if not all, of the expenses incurred by the Fund. Therefore, the
Fund is expected to operate at a very low or zero expense ratio. Since its
inception in 1985, the Fund in fact has had no direct net expenses.

Of course, shareholders of STAR Fund will still bear, indirectly, their
proportionate share of the costs of operating the underlying Vanguard funds. The
following chart provides the expense ratio for each of the underlying funds
during STAR Fund's 1998 fiscal year, as well as the percentage of STAR Fund's
net assets invested in each fund as of December 31, 1998:

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Percentage of
Expense STAR Fund's
Underlying Fund Ratio Net Assets
- --------------------------------------------------------------------------------
Windsor II Fund 0.41% 27.3%
Windsor Fund 0.27 15.4
PRIMECAP Fund 0.51 5.1
U.S. Growth Fund 0.41 5.1
Morgan Growth Fund 0.44 5.2
Explorer Fund 0.62 5.3
GNMA Fund 0.30 12.3
Long-Term Corporate Fund 0.30 12.5
Prime Money Market Fund 0.33 11.8
- --------------------------------------------------------------------------------
100.0%
- --------------------------------------------------------------------------------

Based on these figures, the indirect expense ratio for STAR Fund's underlying
investments on December 31, 1998 was 0.37%. Vanguard expects the Fund's indirect
expense ratio in 1999 to remain at or about 0.37%.
<PAGE>

Investment Adviser

STAR Fund does not employ an investment adviser. Rather decisions about how its
assets will be invested in the underlying funds are made by the Fund's Board of
Trustees based on the Fund's investment objective and policies. Of course, the
Fund benefits from the investment advisory services rendered to the underlying
funds. Some of the underlying funds employ one investment advisory firm, while
others have as many as four.

The chart below lists the investment advisory firms employed by each
underlying fund:

- --------------------------------------------------------------------------------
Underlying Fund Investment Adviser
- --------------------------------------------------------------------------------
Vanguard Windsor Fund Wellington Management Company, LLP
Sanford C. Bernstein & Company, Inc.
- --------------------------------------------------------------------------------
Vanguard Windsor II Fund Barrow, Hanley, Mewhinney & Strauss, Inc.
Equinox Capital Management, Inc.
Tukman Capital Management, Inc.
Vanguard Core Management Group
- --------------------------------------------------------------------------------
Vanguard Morgan Growth Fund Franklin Portfolio Associates, LLC
Vanguard Core Management Group
Wellington Management Company, LLP
- --------------------------------------------------------------------------------
Vanguard U.S. Growth Fund Lincoln Capital Management Company
- --------------------------------------------------------------------------------
Vanguard PRIMECAP Fund PRIMECAP Management Company
- --------------------------------------------------------------------------------
Vanguard Explorer Fund Granahan Investment Management, Inc.
Wellington Management Company, LLP
Chartwell Investment Partners
Vanguard Core Management Group
- --------------------------------------------------------------------------------
Vanguard GNMA Fund Wellington Management Company, LLP
- --------------------------------------------------------------------------------
Vanguard Long-Term Corporate Fund Wellington Management Company, LLP
- --------------------------------------------------------------------------------

Vanguard Short-Term Corporate Fund Vanguard Fixed Income Group
- --------------------------------------------------------------------------------
Vanguard Prime Money Market Fund Vanguard Fixed Income Group
- --------------------------------------------------------------------------------
<PAGE>

The chart below briefly describes each investment advisory firm:

- --------------------------------------------------------------------------------
Firm Background
- --------------------------------------------------------------------------------
Wellington Management Company, LLP Based in Boston, Massachusetts
Founded in 1928
Manages more than $209 billion
in assets
- --------------------------------------------------------------------------------
Sanford C. Bernstein & Company, Inc. Based in New York, New York
Founded in 1968
Manages more than $78 billion in
assets
- --------------------------------------------------------------------------------
Barrow, Hanley, Mewhinney & Strauss, Inc. Based in Dallas, Texas
Founded in 1979
Manages more than $36 billion in
assets
- --------------------------------------------------------------------------------
Equinox Capital Management, Inc. Based in New York, New York
Founded in 1989
Manages more than $12 billion in
assets
- --------------------------------------------------------------------------------
Tukman Capital Management, Inc. Based in Larkspur, California
Founded in 1980
Manages more than $7.9 billion in
assets
- --------------------------------------------------------------------------------
Franklin Portfolio Associates, LLC Based in Boston, Massachusetts
Founded in 1982
Manages more than $18 billion in
assets
- --------------------------------------------------------------------------------
Lincoln Capital Management Company Based in Chicago, Illinois
Founded in 1967
Manages more than $62 billion in
assets
- --------------------------------------------------------------------------------
PRIMECAP Management Company Based in Pasadena, California
Founded in 1983
Manages more than $15 billion in
assets
- --------------------------------------------------------------------------------
Granahan Investment Management, Inc. Based in Waltham, Massachusetts
Founded in 1985
Manages more than $1.3 billion in
assets
- --------------------------------------------------------------------------------
Chartwell Investment Partners Based in Berwyn, Pennsylvania
Founded in 1997
Manages more than $2.7 billion in
assets
- --------------------------------------------------------------------------------
Vanguard Core Management Group Based in Valley Forge, Pennsylvania
Founded in 1974
Manages more than $147 billion in
assets
- --------------------------------------------------------------------------------
Vanguard Fixed Income Group Based in Valley Forge, Pennsylvania
Founded in 1974
Manages more than $127 billion in
assets
- --------------------------------------------------------------------------------

The Board of Trustees of an underlying fund may, without prior approval from
shareholders of the underlying fund or STAR Fund, change the terms of any
advisory agreement or hire a new investment adviser, either as a replacement for
an adviser or as an additional adviser.
<PAGE>

Year 2000 Challenge

The Vanguard Group is dedicated to providing uninterrupted, high-quality
performance from our computer systems before, during, and after 2000. In July
1998, we completed the renovation and initial testing of our internal systems.
Vanguard is diligently working with external partners, suppliers, and vendors,
including fund managers and other service providers, to assure that the systems
with which we interact remain operational at all times.

In addition to taking every reasonable step to secure our internal systems and
external relationships, Vanguard is further developing contingency plans
intended to assure that unexpected systems failures will not adversely affect
the Fund's operations. Vanguard intends to monitor these processes through the
rollover of 1999 into 2000 and to quickly implement alternate solutions if
necessary.

However, despite Vanguard's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Fund's business,
operations, or financial condition. Additionally, the Fund's performance could
be hurt if a computer-system failure at a company or governmental unit affects
the price of securities the Fund's underlying funds own.

Dividends, Capital Gains, and Taxes

You can receive distributions of income or capital gains in cash, or you can
have them automatically invested in more shares of the Fund. In either case,
these distributions are taxable to you. It is important to note that
distributions of dividends and capital gains that are declared in December--if
paid to you by the end of January--are taxed as if they had been paid to you in
December.

Vanguard will send you a statement each year showing the tax status of all
your distributions. If you have chosen to receive dividend and/or capital gains
distributions in cash, and the postal or other delivery service is unable to
deliver checks to your address of record, we will change the distribution option
so that all dividends and other distributions are automatically invested in
additional shares. We will not pay interest on uncashed distribution checks.

. The dividends and short-term capital gains that you receive are considered
ordinary income for tax purposes.
. Any distributions of net long-term capital gains by the Fund are taxable to
you as long-term capital gains, no matter how long you've owned shares in
the Fund.
. Although the Fund does not seek to realize any particular amount of capital
gains during a year, such gains are realized from time to time as by-products
of its ordinary investment activities and the investment activities of the
underlying funds. Consequently, distributions may vary considerably from year
to year.
. If you sell or exchange shares, any gain or loss you have 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.
. Distributions of dividends or capital gains, and capital gains or losses from
your sale or exchange of Fund shares, may be subject to state and local
income taxes as well.
<PAGE>

PLAIN TALK ABOUT
"Buying a Dividend"

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

The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be
subject to U.S. withholding and estate tax.) You should consult your tax adviser
about the tax consequences of an investment in the Fund.

Important Note: By law, the Fund must withhold 31% of your taxable
distributions and any redemption proceeds if you do not provide your correct
taxpayer identification number, or certify that it is correct, or if the IRS
instructs the Fund to do so.

Share Price

The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of trading on the New York Stock Exchange (the NAV
is not calculated on holidays or other days the Exchange is closed). Net asset
value per share is computed by adding up the total value of the Fund's
investments (i.e., shares of the underlying Vanguard funds) 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

The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations of the Fund's name, but the most common is STAR.
<PAGE>

PLAIN TALK ABOUT
How to Read the Financial
Highlights Table

Shareholders received $1.56 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 ($2.14 per share) minus the distributions ($1.56 per share)
resulted in a share price of $17.96 at the end of the year. This was an increase
of $.58 per share (from $17.38 at the beginning of the year to $17.96 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 12.38% for the year.

As of December 31, 1998, the Fund had $8.08 billion in net assets. For the
year, its net investment income amounted to 3.18% of its average net assets;
and it sold and replaced securities valued at 16% of its net assets.

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 dividends and
distributions). This information has been derived from the financial statements
audited by PricewaterhouseCoopers LLP, independent accountants, whose
report--along with the Fund's financial statements--is included in the Fund's
most recent annual report to shareholders. You may have the annual report sent
to you without charge by contacting Vanguard.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Vanguard STAR Fund
Year Ended December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $17.38 $15.86 $15.03 $12.61 $13.41
- --------------------------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .58 .60 .58 .590 .53
Capital Gains Distributions Received .86 1.06 .63 .435 .26
Net Realized and Unrealized Gain (Loss)
on Investments .70 1.65 1.19 2.550 (.82)
----------------------------------------------------------------------------
Total from Investment Operations 2.14 3.31 2.40 3.575 (.03)
----------------------------------------------------------------------------
Distributions
Dividends from Net Investment Income (.58) (.59) (.59) (.590) (.52)
Distributions from Realized Capital Gains (.98) (1.20) (.98) (.565) (.25)
----------------------------------------------------------------------------
Total Distributions (1.56) (1.79) (1.57) (1.155) (.77)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $17.96 $17.38 $15.86 $15.03 $12.61
================================================================================================================================
Total Return 12.38% 21.15% 16.11% 28.64% -0.21%
================================================================================================================================
Ratios/Supplemental Data
Net Assets, End of Year (Millions) $8,083 $7,355 $5,863 $4,842 $3,766
Ratio of Total Expenses to
Average Net Assets 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 3.18% 3.46% 3.71% 4.12% 4.01%
Turnover Rate 16% 15% 18% 13% 9%
================================================================================================================================
</TABLE>

From time to time, the Vanguard funds advertise yield and total return figures.
Yield is a measure of past dividend income. Total return includes both past
dividend income (assuming that it has been reinvested) plus realized and
unrealized capital appreciation (or depreciation). Neither yield nor total
return should be used to predict the future performance of a fund.

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500,"
and "500" are trademarks of The McGraw-Hill Companies, Inc.
<PAGE>

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 [GRAPHIC APPEARS HERE]. 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 Direct Deposit Service(TM) [GRAPHIC APPEARS HERE]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
Vanguard Automatic Exchange Service(TM) [GRAPHIC APPEARS HERE]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
Vanguard Fund Express(R) [GRAPHIC APPEARS HERE]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
Vanguard Dividend Express(TM) [GRAPHIC APPEARS HERE]
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) [GRAPHIC APPEARS HERE]
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 fund shares.
- --------------------------------------------------------------------------------
Access Vanguard(TM) www.vanguard.com [GRAPHIC APPEARS HERE]
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 the website. We will then send to you, by mail, 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.
. Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
* 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: 1-800-662-2738
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.
- --------------------------------------------------------------------------------
<PAGE>

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 [GRAPHIC APPEARS HERE]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
For Individual Retirement Accounts [GRAPHIC APPEARS HERE]
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 [GRAPHIC APPEARS HERE]
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.
- --------------------------------------------------------------------------------

Buying Shares

You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
Minimum Investment to . . .
open a new account
$1,000

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 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 $500.
The fee is waived if your total Vanguard account assets are $50,000 or more.
- --------------------------------------------------------------------------------
By Mail to . . . [GRAPHIC APPEARS HERE]
open a new account
Complete and sign the application 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.
<PAGE>

Make your check payable to: The Vanguard Group-56
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 2600 455 Devon Park Drive
Valley Forge, PA 19482-2600 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 . . . [GRAPHIC APPEARS HERE]

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).

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). 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 in place.

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
(*)You must obtain a Personal Identification Number through Tele-Account at
least seven days before you request your first exchange.
- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you've requested 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 [GRAPHIC APPEARS
HERE]
Call Client Services to arrange your wire transaction. Wire transactions are not
available for retirement accounts, except for asset transfers and direct
rollovers.

Wire to:
FRB ABA 021001088
HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard STAR Fund-56
[Account number, or temporary number for a new account]
[Registered account owner/s]
[Registered address]
- --------------------------------------------------------------------------------
<PAGE>

Buying Shares (continued)

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.
We must consider the interests of all Fund shareholders and so reserve the right
to refuse any purchase that will disrupt the Fund's operation or performance.
- --------------------------------------------------------------------------------

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 20.

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 both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus.
- --------------------------------------------------------------------------------
Note: Once a redemption is requested and a confirmation number given, the
transaction cannot be canceled.
- --------------------------------------------------------------------------------

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 the website. We will then send you, by mail, an account access password
that will enable you to sell or exchange shares online (as well as perform other
transactions).

Note: The Vanguard funds whose shares you cannot exchange online or by
telephone are Vanguard U.S. Stock Index Funds, Vanguard Balanced Index Fund,
Vanguard International Stock Index Funds, Vanguard REIT Index Fund, Vanguard
Total International Stock Index Fund, and Vanguard Growth and Income Fund. These
funds do, however, permit online and telephone exchanges within IRAs and other
retirement accounts. If you sell shares of these funds online, you will receive
a redemption check at your address of record.
- --------------------------------------------------------------------------------
Telephone Requests [GRAPHIC APPEARS HERE]
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.

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 [GRAPHIC APPEARS HERE]
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.

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1120 455 Devon Park Drive
Valley Forge, PA 19482-1120 Wayne, PA 19087-1815
<PAGE>

Redeeming Shares (continued)

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.
We must consider the interests of all fund shareholders and so reserve the right
to delay delivery of your redemption proceeds--up to seven days--if the amount
will 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.
- --------------------------------------------------------------------------------

OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of two ways: check, or exchange
to another Vanguard fund.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

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:

x The Fund name and account number.
x The amount of the transaction (in dollars or shares).
x Signatures of all owners exactly as registered on the account (for mail
requests).
x Signature guarantees (if required).(*)
x Any supporting legal documentation that may be required.
x 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 banks,
credit unions, and licensed brokers.

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, "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.
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
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 Final
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been received
and a confirmation number assigned.
- --------------------------------------------------------------------------------

Transferring Registration

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

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

For clients of Vanguard's Institutional Division . . .

Fund and Account Updates

STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.
In addition, you will receive financial reports about the Fund twice a year.
These comprehensive reports include an assessment of the Fund's performance (and
a comparison to its industry benchmark), an overview of the 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 we find that 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, however, you may 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 [GRAPHIC APPEARS HERE]
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.
- --------------------------------------------------------------------------------
<PAGE>

Fund and Account Updates (continued)

- --------------------------------------------------------------------------------
Fund Financial Reports
Mailed in February and August for this Fund.
- --------------------------------------------------------------------------------
Tax Statements
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
Average Cost Review Statement [GRAPHIC APPEARS HERE]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using the average cost single category method.
- --------------------------------------------------------------------------------
<PAGE>

(This page intentionally left blank.)
<PAGE>

Glossary of Investment Terms

Balanced Fund
A mutual fund that seeks to provide some combination of income, capital growth,
and conservation of capital by investing in stocks, bonds, and/or money market
instruments.

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

Capital Gains Distribution
Payment to mutual fund shareholders of gains realized on securities that the
fund has sold at a profit, minus any realized losses.

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

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.

Credit Quality
A measure of a bond issuer's ability to pay interest and principal in a timely
manner.

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

Duration
A measure of the sensitivity of bond--and bond fund--prices to interest rate
movements. For example, if a bond has a duration of two years, its price would
fall by about 2% when interest rates rose one percentage point. On the other
hand, the bond's price would rise by about 2% when interest rates fell by one
percentage point.

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

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

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

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

Investment Grade
Bonds whose credit quality is considered to be among the highest by independent
bond-rating agencies.

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

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

Principal
The amount of your own money you put into an investment.

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

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>

[LOGO OF THE VANGUARD GROUP APPEARS HERE]

Post Office Box 2600
Valley Forge, PA 19482-2600

For More Information
If you'd like more information about Vanguard STAR Fund, the following documents
are available free upon request:

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

Statement of Additional Information (SAI)
The SAI provides more detailed information about the Fund.

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

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

The Vanguard Group
Investor Information
Department
P.O. Box 2600
Valley Forge, PA 19482-2600

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

Text Telephone:
1-800-952-3335

World Wide Web:
www.vanguard.com

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

Client Services Department
Telephone:
1-800-662-2739 (CREW)

Text Telephone:
1-800-662-2738

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, D.C. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are also available on the SEC's website (www.sec.gov), or you can
receive copies of this information, for a fee, by writing the Public Reference
Section, Securities and Exchange Commission, Washington, DC 20549-6009.

Fund's Investment Company Act file number: 811-3919

P056N-09/29/1999

<PAGE>

Vanguard STAR Fund

Participant Prospectus
September 29, 1999

A Balanced Mutual Fund

Contents

1 Fund Profile

3 Additional Information

3 A Word About Risk

3 Who Should Invest

4 Primary Investment Strategies

9 The Fund and Vanguard

10 Investment Adviser

12 Year 2000 Challenge

12 Dividends, Capital Gains, and Taxes

12 Share Price

13 Financial Highlights

14 Investing with Vanguard

14 Accessing Fund Information by Computer

Glossary (inside back cover)

- --------------------------------------------------------------------------------
Why Reading This Prospectus Is Important

- --------------------------------------------------------------------------------
Important Note

This prospectus is intended for participants in employer-sponsored retirement or
savings plans. Another version--for investors who would like to open a personal
investment account--can be obtained by calling Vanguard at 1-800-662-7447.
- --------------------------------------------------------------------------------

Fund Profile
The following profile summarizes key features of Vanguard STAR Fund.

INVESTMENT OBJECTIVE
The Fund is a balanced fund that seeks to provide long-term capital growth and
income.

INVESTMENT STRATEGIES
As a "fund of funds," STAR Fund invests in a diversified group of other
Vanguard mutual funds, rather than in individual securities. The Fund follows a
balanced investment approach by placing 60% to 70% of its assets in common
stocks through six stock funds; 20% to 30% of its assets in bonds through two
bond funds; and 10% to 20% of its assets in short-term reserves through a short-
term bond fund and a money market fund. Through the underlying funds, STAR Fund
owns a diversified mix of stocks (with emphasis on large-cap value stocks) and
bonds (primarily short-and long-term investment-grade corporate bonds and
intermediate-term GNMA mortgage-backed bonds).

PRIMARY RISKS
The Fund is subject to several stock and bond market risks, any of which
could cause an investor to lose money. However, because stock and bond prices
can move in different directions or in different amounts, the Fund's bond and
short-term reserve holdings may counteract some of the volatility experienced by
the Fund's stock holdings. The Fund's balanced portfolio, in the long run,
should result in less investment risk--but a lower investment return--than that
of a fund investing exclusively in common stocks.
. Stock risks include: stock market risk, which is the chance that stock prices
in general will decline over short or even long periods; and investment style
risk, which is the chance that returns from the stock market segments in which
the Fund is most heavily weighted (large-capitalization and value stocks) may
underperform other asset classes or the overall stock market.
. Bond risks include: interest rate risk, which is the chance that bond prices
overall will decline over short or even long periods due to rising interest
rates; credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner; and call/prepayment risk, which is
the chance that during periods of falling interest rates, a bond issuer will
repay a higher-yielding bond before its maturity date, forcing the Fund to
reinvest the unanticipated proceeds at lower interest rates.
. The Fund is also subject to manager risk, which is the chance that poor
security selection by the investment advisers of the underlying funds will
cause the Fund to underperform other funds with similar investment objectives.
For additional information on investment risks, see Primary Investment
Strategies.

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 a composite stock/bond index weighted to match
the Fund's target allocation. Keep in mind that the Fund's past performance does
not indicate how it will perform in the future.
<PAGE>

-----------------------------------------------------
Annual Total Returns
-----------------------------------------------------

Year Annual Total Returns
----- ----------------------
1989 18.8%
1990 -3.62%
1991 24.18%
1992 10.51%
1993 10.88%
1994 -0.21%
1995 28.64%
1996 16.11%
1997 21.15%
1998 12.38%

Vanguard STAR Fund 12.38% 15.20% 13.46%
Wilshire 5000 Index 23.39 21.78 18.10
Lehman Brothers Aggregate Bond Index 8.69 7.27 9.26
STAR Lipper Composite(*) 11.30 12.69 12.33
- --------------------------------------------------------------------------------
(*)Weighted 62.5% Lipper General Equity, 25% Lipper Fixed Income, and 12.5%
Lipper Money Market
- --------------------------------------------------------------------------------

FEES AND EXPENSES
The following table describes the fees and expenses you would pay if
you buy and hold shares of the Fund. The expenses shown under Annual
Fund Operating Expenses are based upon those incurred in the fiscal year
ended December 31, 1998.
Shareholder Fees (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

Annual Fund Operating Expenses (expenses deducted from the
underlying funds' assets)

Indirect Operating Expenses: *

*Although STAR Fund is not expected to incur any net expenses directly, the
Fund's shareholders indirectly bear the expenses of the underlying Vanguard
funds in which the Fund invests. See The Fund and Vanguard. The Fund's
indirect expense ratio, based on its investments in the underlying Vanguard
funds, was 0.37% as of December 31, 1998.

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.

<PAGE>

3
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$38 $119 $207 $467
- --------------------------------------------------------------------------------

This example should not be considered to represent actual expenses or
performance from the past or for the future. Actual future expenses may be
higher or lower than those shown.

Additional Information

Dividends and Capital Gains
Dividends are distributed in June and December; capital gains, if any, are
distributed annually in December

Investment Adviser
The Fund does not employ an investment adviser, but rather benefits from the
investment advisory services provided to the underlying Vanguard funds in which
it invests

Inception Date
March 29,1985

Net Assets as of December 31, 1998
$8.08 billion

Newspaper Abbreviation
STAR

Vanguard Fund Number
056

Cusip Number
921909107

Ticker Symbol
VGSTX

================================================================================
A Word About Risk

This prospectus describes the risks you would face as an investor in Vanguard
STAR Fund. It is important to keep in mind one of the main axioms of investing:
The higher the risk of losing money, the higher the potential reward. The
reverse, also, is generally true: The lower the risk, the lower the potential
reward. As you consider an investment in Vanguard STAR Fund, you should also
take into account your personal tolerance for the daily fluctuations of the
stock and bond markets.
Look for this [GRAPHIC APPEARS HERE] 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 balanced fund to your existing holdings, which could
include other stock and bond--as well as money market and
tax-exempt--investments.
. You are seeking growth of your capital over the long term--at least five
years--without taking undue risk.
. You are seeking moderate current income.

PLAIN TALK ABOUT
Costs and Market-Timing

4
The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.

The Fund has adopted the following policies, among others, to discourage
short-term trading:

. The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. A purchase request could be rejected
because of the timing of the request or because of a history of excessive
trading by the investor.
. There is a limit on the number of times you can exchange into and out of
the Fund (see "Exchanges" in the Investing with Vanguard section).
. The Fund reserves the right to stop offering shares at any time.

Primary Investment Strategies

Market Exposure

[GRAPHIC APPEARS HERE]
The Fund is subject to stock market risk, which is the possibility that stock
prices overall will decline over short or even long periods. Stock markets tend
to move in cycles, with periods of rising prices and periods of falling prices.

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. Generally,
Vanguard defines large-capitalization (large-cap) funds as those holding stocks
of companies whose outstanding shares have a market value exceeding $10 billion.
Mid-cap funds hold stocks of companies with a market value between $1 billion
and $10 billion. Small-cap funds typically hold stocks of companies with a
market value of less than $1 billion.
<PAGE>

[GRAPHIC APPEARS HERE]
The Fund is subject to investment-style risk, which is the possibility that
returns from the stock market segments in which the Fund is most heavily
weighted may underperform other asset classes or the overall stock market.

[GRAPHIC APPEARS HERE]
The Fund is subject to interest rate risk, which is the possibility that bond
prices overall will decline over short or even long periods due to rising
interest rates. Interest rate risk is modest for shorter-term bonds and higher
for longer-term bonds.

Although bonds are often thought to be less risky than stocks, there have been
periods when bond prices have fallen significantly due to rising interest rates.
For instance, prices of long-term bonds fell by almost 48% between December 1976
and September 1981.
To illustrate the relationship between bond prices and interest rates, the
following table shows the impact of a 2% change (both up and down) in interest
rates on three bonds of different maturities, each with a face value of $1,000.

- --------------------------------------------------------------------------------
How Interest Rate Changes Affect Bond Prices(*)
- --------------------------------------------------------------------------------
Value of a $1,000 Bond Value of a $1,000 Bond
After a 2% Increase After a 2% Decrease
Type of Bond (Maturity) in Interest Rates in Interest Rates
- --------------------------------------------------------------------------------

Short-Term (2.5 years) $ 956 $1,046
Intermediate-Term (10 years) 870 1,156
Long-Term (20 years) 816 1,251
- --------------------------------------------------------------------------------
(*)Assuming a 7% yield
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
Bonds and Interest Rates

As a rule, when interest rates rise, bond prices fall. The opposite is also
true: Bond prices go up when interest rates fall. Why do bond prices and
interest rates move in opposite directions? Let's assume that you hold a bond
offering a 5% yield. A year later, interest rates are on the rise and bonds are
offered with a 6% yield. With higher-yielding bonds available, you would have
trouble selling your 5% bond for the price you paid--causing you to lower your
asking price. On the other hand, if interest rates were falling and 4% bonds
were being offered, you should be able to sell your 5% bond for more than you
paid.
<PAGE>

PLAIN TALK ABOUT
Bond Maturities

A bond is issued with a specific maturity date--the date when the bond's issuer,
or seller, must payback the bond's initial value (known as its "facevalue").
Bond maturities generally range from less than one year to more than 30 years.
The longer a bond's maturity, the more risk you, as a bond investor, face as
interest rates rise--but also the more interest you could receive. Long-term
bonds are more suitable for investors willing to take greater risks in hope of
higher yields; short-term bond investors should be willing to accept lower
yields in return for less fluctuation in the value of their investment.

[GRAPHICS APPEARS HERE]
The Fund is subject to credit risk, which is the possibility that a bond issuer
will fail to pay interest and principal in a timely manner.

Since the underlying Vanguard bond funds invest primarily in high-quality
obligations, credit risk is relatively low.

[GRAPHICS APPEARS HERE]
The Fund is also subject to call risk (in the case of corporate bonds) and
prepayment risk (in the case of mortgage-backed bonds), which is the possibility
that during periods of falling interest rates a bond issuer will repay a
higher-yielding bond before its maturity date. Forced to reinvest the
unanticipated proceeds at lower interest rates, the Fund would experience a
decline in income.

Short-Term Reserves

Through two underlying Vanguard funds, STAR Fund invests roughly 10% to 20% of
its assets in short-term reserves. These reserves consist of investment-grade
short-term bonds and high quality money market instruments, including commercial
paper and repurchase agreements. From this investment, the Fund seeks to obtain
current income and to moderate the overall volatility of the Fund.

Security Selection

Vanguard STAR Fund is a "fund of funds," which means that it achieves its
objective by investing in a combination of other mutual funds rather than in
individual securities.

Decisions about how to allocate STAR Fund's assets among the three asset
classes (stocks, bonds, and short-term reserves) and among the underlying funds
are made by the Trustees of the Fund. Generally, the Fund invests 60% to 70% of
its assets in stock funds, 20% to 30% in bond funds, and 10% to 20% in a
short-term bond fund and a money market fund. While these allocations may shift
from time to time, stocks can be expected to represent at least 60% of the
Fund's holdings at any given time. Within any given asset class, Vanguard may
increase or decrease the percentage of assets invested in any particular fund
without advance notice to shareholders.
<PAGE>

7
PLAIN TALK ABOUT
"Fund of Funds"

The term "fund of funds" is used to describe a mutual fund that pursues its
objective by investing in other mutual funds rather than in individual stocks or
bonds. A fund of funds may charge for its own direct expenses, in addition to
bearing a proportionate share of the expenses charged by the underlying funds in
which it invests. Funds of funds are best suited for long-term investors.

[GRAPHICS APPEARS HERE]
The Fund is subject to manager risk, which is the possibility that the
investment advisors of the underlying funds may do a poor job of selecting
securities.

The Fund is generally managed without regard to tax ramifications.

Stocks

STAR Fund invests in the following stock funds, in approximately the
percentages indicated:

1. Vanguard Windsor II Fund (27%)
2. Vanguard Windsor Fund (16%)
3. Vanguard Explorer Fund (5%)
4. Vanguard Morgan Growth Fund (5%)
5. Vanguard PRIMECAP Fund (5%)
6. Vanguard U.S. Growth Fund (5%)

. Vanguard Explorer Fund invests in common stocks of small U.S. companies
which, in the advisers' opinion, have above-average prospects for growth.
. Vanguard Morgan Growth Fund invests mainly in the common stocks of large-
and medium-size domestic companies whose revenues and/or earnings are
expected to grow faster than those of the average company in the market.
The fund also invests in common stocks of smaller companies with similar
characteristics.
. Vanguard PRIMECAP Fund invests in common stocks that the advisor believes
have above-average prospects for continued growth. The fund's portfolio
consists predominately of large-cap and mid-cap stocks.
. Vanguard U.S. Growth Fund invests in common stocks of large, seasoned U.S.
companies that have past records of growth and, in the adviser's opinion,
above-average prospects for continued growth.

Although there are no present plans to do so, the Fund also is authorized
to invest in Vanguard 500 Index Fund, which tracks the performance of the S&P
500 Index.
<PAGE>

PLAIN TALK ABOUT
Types of Bonds

Bonds are issued (sold) by many sources: Corporations issue corporate bonds; the
federal government issues U.S. Treasury bonds; agencies of the federal
government issue agency bonds; and mortgage holders issue "mortgage-backed"
bonds such as those issued by the Government National Mortgage Association
(GNMA). Each issuer is responsible for paying back the bond's initial value as
well as making periodic interest payments.

Bonds

STAR Fund invests in two bond funds, in approximately the percentages indicated:
1. Vanguard GNMA Fund (12.5%)
2. Vanguard Long-Term Corporate Fund (12.5%)

Both bond funds seek to provide a high and stable level of income. They work
toward this goal, however, in different ways:

. Vanguard Long-Term Corporate Fund invests in a diversified group of
investment-grade corporate bonds--that is, bonds issued by corporations
that are rated at least Baa by Moody's Investors Service, Inc., or BBB by
Standard & Poor's Corporation. The fund maintains a dollar-weighted average
maturity of 15 to 25 years.

PLAIN TALK ABOUT
Credit Quality

A bond's credit quality depends on the issuer's ability to pay interest on the
bond and, ultimately, to repay the debt. The lower the rating by one of the
independent bond-rating agencies (for example, Moody's or Standard & Poor's),
the greater the chance (in the rating agency's opinion) that the bond issuer
will default, or fail to meet its payment obligations. All things being equal,
the lower a bond's credit rating, the higher its yield should be to compensate
investors for assuming additional risk.

Short-Term Reserves

To satisfy its policy of allocating 10% to 20% of assets to short-term reserves,
STAR Fund invests in the following two funds in approximately the percentages
indicated:
1. Vanguard Short-Term Corporate Fund (12%)
2. Vanguard Prime Money Market Fund (0.5%)

Other Investment Policies and Risks

The Fund's underlying funds may invest, to a limited extent, in foreign
securities.

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.

The Fund and Vanguard

STAR Fund has entered into an agreement with Vanguard under which Vanguard
provides all management, administrative, and distribution services to the Fund
at cost. The Fund owes Vanguard a sum sufficient to cover Vanguard's
out-of-pocket costs. The Fund also bears the expenses of services provided by
other parties (such as auditors, legal counsel, and the Fund's custodian), as
well as taxes and other direct expenses of the Fund. However, the agreement
provides that the Fund's expenses will be offset by reimbursements from Vanguard
for (a) contributions made by the Fund to the cost of operating the underlying
Vanguard funds in which STAR Fund invests, and (b) certain savings in
administrative and marketing costs that Vanguard is expected to derive from the
operation of the Fund.

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. STAR Fund's indirect expense ratio in fiscal year 1998 was 0.37%,or
$3.70 per $1,000 of average net assets.The average balanced mutual fund had
expenses in 1998 of 1.31%, or $13.10 per $1,000 of average net assets, according
to Lipper Inc., which reports on the mutual fund industry.

Based on these figures, the indirect expense ratio for STAR Fund's underlying
investments on December 31, 1998 was 0.37%.Vanguard expects the Fund's indirect
expense ratio in 1999 to remain at or about 0.37%.
<PAGE>

Investment Adviser

The chart below briefly describes each investment advisory firm:

Firm Background
- --------------------------------------------------------------------------------

Wellington Management Company, LLP Based in Boston, Massachusetts
Founded in 1928
Manages more than $209 billion in
assets
- --------------------------------------------------------------------------------

Sanford C. Bernstein & Company, Inc. Based in New York, New York
Founded in 1968
Manages more than $78 billion in
assets
- --------------------------------------------------------------------------------

Barrow, Hanley, Mewhinney & Strauss, Inc. Based in Dallas, Texas
Founded in 1979
Manages more than $36 billion in
assets
- --------------------------------------------------------------------------------
Equinox Capital Management, Inc. Based in New York, New York
Founded in 1989
Manages more than $12 billion in
assets
- --------------------------------------------------------------------------------
Tukman Capital Management, Inc. Based in Larkspur, California
Founded in 1980
Manages more than $7.9 billion in
assets
- --------------------------------------------------------------------------------
Franklin Portfolio Associates, LLC Based in Boston, Massachusetts
Founded in 1982
Manages more than $18 billion in
assets
- --------------------------------------------------------------------------------

Lincoln Capital Management Company Based in Chicago, Illinois
Founded in 1967
Manages more than $62 billion in
assets
- --------------------------------------------------------------------------------

PRIMECAP Management Company Based in Pasadena, California
Founded in 1983
Manages more than $15 billion in
assets
- --------------------------------------------------------------------------------

Granahan Investment Management, Inc. Based in Waltham, Massachusetts
Founded in 1985
Manages more than $1.3 billion in
assets
- --------------------------------------------------------------------------------
Chartwell Investment Partners Based in Berwyn, Pennsylvania
Founded in 1997
Manages more than $2.7 billion in
assets
- --------------------------------------------------------------------------------
Vanguard Core Management Group Based in Valley Forge, Pennsylvania
Founded in 1974
Manages more than $147 billion in
assets
- --------------------------------------------------------------------------------
Vanguard Fixed Income Group Based in Valley Forge, Pennsylvania
Founded in 1974
Manages more than $127 billion in
assets
- --------------------------------------------------------------------------------
The Board of Trustees of an underlying fund may, without prior approval from
shareholders of the underlying fund or STAR Fund, change the terms of any
advisory agreement or hire a new investment adviser, either as a replacement for
an adviser or as an additional adviser.
<PAGE>

Year 2000 Challenge

The common practice in computer programming of using just two digits to identify
a year has resulted in the Year 2000 challenge throughout the information
technology industry. If unchanged, many computer applications and systems could
misinterpret dates occurring after December 31, 1999, leading to errors or
failure. Such failure could adversely affect a fund's operations, including
pricing, securities trading, and the servicing of shareholder accounts.
The Vanguard Group is dedicated to providing uninterrupted, high-quality
performance from our computer systems before, during, and after 2000. In July
1998, we completed the renovation and initial testing of our internal systems.
Vanguard is diligently working with external partners, suppliers, and vendors,
including fund managers and other service providers, to assure that the systems
with which we interact remain operational at all times.
In addition to taking every reasonable step to secure our internal systems and
external relationships, Vanguard is further developing contingency plans
intended to assure that unexpected systems failures will not adversely affect
the Fund's operations. Vanguard intends to monitor these processes through the
rollover of 1999 into 2000 and to quickly implement alternate solutions if
necessary.
However, despite Vanguard's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Fund's business,
operations, or financial condition. Additionally, the Fund's performance could
be hurt if a computer-system failure at a company or governmental unit affects
the price of securities the Fund's underlying funds own.

Dividends, Capital Gains, and Taxes

The Fund distributes to shareholders virtually all of its net income (interest
and dividends paid by the underlying funds) as well as any capital gains
realized from the sale of its holdings or received as capital gains
distributions from the underlying funds. Income distributions generally occur in
June and December; capital gains distributions generally occur in December. In
addition, the Fund may occasionally be required to make supplemental income or
capital gains distributions at some other time during the year.
Dividend and capital gains distributions of Fund shares that are held as an
investment option in an employer-sponsored retirement or savings plan will be
reinvested in additional Fund shares and accumulate on a tax-deferred basis. You
will not owe taxes on these distributions until you begin withdrawals. You
should consult your plan administrator, your plan's Summary Plan Description, or
your own tax adviser about the tax consequences of an investment in the Fund and
of any plan withdrawals.

Share Price

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.
The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations of the Fund's name, but the most common is STAR.
<PAGE>

13
Financial Highlights

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Vanguard STAR Fund
Year Ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $17.38 $15.86 $15.03 $12.61 $13.41
- -----------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .58 .60 .58 .590 .53
Capital Gains Distributions Received .86 1.06 .63 .435 .26
Net Realized and Unrealized Gain (Loss)
on Investments .70 1.65 1.19 2.550 (.82)
----------------------------------------------
Total from Investment Operations 2.14 3.31 2.40 3.570 (.03)
----------------------------------------------
Distributions
Dividends from Net Investment Income (.58) (.59) (.59) (.590) (.52)
Distributions from Realized Capital Gains (.98) (1.20) (.98) (.565) (.25)
----------------------------------------------
Total Distributions (1.56) (1.79) (1.57) (1.155) (.77)
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Year $17.96 $17.38 $15.86 $15.035 $12.61
=========================================================================================
Total Return 12.38% 21.15% 16.11% 28.64% -0.21%
=========================================================================================

Ratios/Supplemental Data
Net Assets, End of Year (Millions) $8,083 $7,355 $5,863 $ 4,842 $3,766
Ratio of Total Expenses to
Average Net Assets 0% 0% 0% 0% 0%
Ratio of Net Investment Income to
Average Net Assets 3.18% 3.46% 3.71% 4.12% 4.01%
Turnover Rate 16% 15% 18% 13% 9%
=========================================================================================
</TABLE>

PLAIN TALK ABOUT
How to Read the Financial
Highlights Table

The Fund began fiscal 1998 with a net asset value (price) of $17.38 per share.
During the year, the Fund earned $.58 per share from investment income, $.86 per
share in capital gains distributions, and $.70 per share from investments that
had appreciated in value or that were sold for higher prices than the Fund paid
for them.
Shareholders received $1.56 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 ($2.14 per share) minus the distributions ($1.56 per
share) resulted in a share price of $17.96 at the end of the year. This was an
increase of $.58 per share (from $17.38 at the beginning of the year to $17.96
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 12.38% for the
year.
As of December 31, 1998, the Fund had $8.08 billion in net assets. For the
year, its net investment income amounted to 3.18% of its average net assets; and
it soaaaand replaced securities valued at 16% 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.
<PAGE>

14
Investing with Vanguard

The Fund is an investment option in your retirement or savings plan. Your plan
administrator or your employee benefits office can provide you with detailed
information on how to participate in your plan and how to elect the Fund as an
investment option.
. If you have any questions about the Fund or Vanguard, including the Fund's
investment objective, strategies, or risks, contact Vanguard's Participant
Services Center, toll-free, at 1-800-523-1188.
. If you have questions about your account, contact your plan administrator
or the organization that provides record-keeping services for your plan.

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

Transactions
Contributions, exchanges, or redemptions of the Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your contribution, exchange, or
redemption, and that Vanguard has received the appropriate assets.
In all cases, your transaction will be based on the Fund's next-determined net
asset value after Vanguard receives your request (or, in the case of new
contributions, the next-determined net asset value after Vanguard receives the
order from your plan administrator). As long as this request is received before
the close of trading on the New York Stock Exchange, generally 4 p.m. Eastern
time, you will receive that day's net asset value.

Exchanges
The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. Although we
make every effort to maintain the exchange privilege, Vanguard reserves the
right to revise or terminate this privilege, limit the amount of an exchange or
reject any exchange, at any time, without notice. Because excessive exchanges
can potentially disrupt the management of the Fund and increase its transaction
costs, Vanguard limits participant exchange activity to no more than four
substantive "round trips" through the Fund (at least 90 days apart) during any
12-month period. A "round trip" is a redemption from the Fund followed by a
purchase back into the Fund. "Substantive" means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.
Before making an exchange to or from another fund available in your plan,
consider the following:
. Certain investment options, particularly funds made up of company stock or
investment contracts, may be subject to unique restrictions.
. Make sure to read that fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.
. Vanguard can accept exchanges only as permitted by your plan. Contact your
plan administrator for details on the exchange policies that apply to your
plan.

Accessing Fund Information by Computer
- --------------------------------------------------------------------------------
Vanguard on the World Wide Web www.vanguard.com
Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard funds and services; an
online "university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
- --------------------------------------------------------------------------------
<PAGE>