VANGUARD BOND INDEX FUND INC, 497, 2000-04-25

VANGUARD BOND INDEX FUND INC
497, 2000-04-25

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 33-6001) UNDER THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 27

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 29

VANGUARD BOND INDEX FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)

P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER (610) 669-1000

R. GREGORY BARTON, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482

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

IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
ON APRIL 28, 2000 PURSUANT TO PARAGRAPH (B) OF RULE 485.

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<PAGE>

VANGUARD(R)
BOND INDEX FUNDS

Prospectus
April 28, 2000

This prospectus contains
financial data for the
Funds through the
fiscal year ended
December 31, 1999.

VANGUARD TOTAL BOND
MARKET INDEX FUND

VANGUARD SHORT-TERM
BOND INDEX FUND

VANGUARD INTERMEDIATE-
TERM BOND INDEX FUND

VANGUARD LONG-TERM
BOND INDEX FUND

[MEMBERS OF
THE VANGUARD GROUP LOGO]

<PAGE>

VANGUARD BOND INDEX FUNDS
Prospectus
April 28, 2000

A Group of Bond Index Mutual Funds

<TABLE>
<CAPTION>
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CONTENTS
<S> <C>
1 AN INTRODUCTION TO INDEX FUNDS 22 DIVIDENDS, CAPITAL GAINS, AND TAXES

2 FUND PROFILES 24 SHARE PRICE

2 Vanguard Total Bond Market Index 25 FINANCIAL HIGHLIGHTS
Fund
28 INVESTING WITH VANGUARD
5 Vanguard Short-Term Bond Index
Fund 28 Services and Account Features

8 Vanguard Intermediate-Term Bond 29 Types of Accounts
Index Fund
30 Buying Shares
11 Vanguard Long-Term Bond Index
Fund 32 Redeeming Shares

14 MORE ON THE FUNDS 36 Transferring Registration

21 THE FUNDS AND VANGUARD 37 Fund and Account Updates

21 INVESTMENT ADVISER GLOSSARY (inside back cover)
- ---------------------------------------------------------------------------------------------------
</TABLE>

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WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of each of the
Vanguard Bond Index Funds. To highlight terms and concepts important to mutual
fund investors, we have provided ''Plain Talk (R)'' explanations along the way.
Reading the prospectus will help you to decide which Funds, if any, are the
right investments for you. We suggest that you keep it for future reference.
- -------------------------------------------------------------------------------

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IMPORTANT NOTE

The Total Bond Market Index Fund offers two separate classes of shares: Investor
and Institutional. This prospectus offers the Fund's Investor Shares, which have
an investment minimum of $3,000 ($1,000 for IRAs) and are intended for
individual investors. Please call Vanguard's Institutional Investor Group at
1-800-523-1036 to obtain a separate prospectus that offers the Fund's
Institutional Shares, which have an investment minimum of $10 million and
generally are not available to investors who require special employee benefit
plan services
The Fund's separate share classes have different expenses; as a result,
their investment performances will vary. UNLESS OTHERWISE NOTED, ALL REFERENCES
IN THIS PROSPECTUS TO FEES, EXPENSES, AND INVESTMENT PERFORMANCE RELATE
SPECIFICALLY TO INVESTOR SHARES.
- -------------------------------------------------------------------------------

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>

AN INTRODUCTION TO INDEX FUNDS

WHAT IS INDEXING?

An index is an unmanaged group of securities whose overall performance is used
as a standard to measure the investment performance of a particular market. An
index (or "passively managed") fund tries to match, as closely as possible, the
performance of an established target index. The fund does this by holding either
all or a representative sample of the securities in the index. KEEP IN MIND THAT
AN INDEX FUND HAS OPERATING EXPENSES AND TRANSACTION COSTS; A MARKET INDEX DOES
NOT. THEREFORE, AN INDEX FUND--WHILE EXPECTED TO TRACK ITS TARGET INDEX AS
CLOSELY AS POSSIBLE--WILL TYPICALLY BE UNABLE TO MATCH THE PERFORMANCE OF THE
INDEX EXACTLY.

Bond index funds may seek to track indexes that hold a certain type of
bond--such as short-term or long-term bonds--or they may seek to track indexes
that consist of a broader range of bonds--for example, the entire U.S. bond
market.
Index funds do not have active managers, who buy and sell securities based
on research and analysis. Rather, index funds are passively managed. To the
extent they invest in securities that are not in the index, they may be viewed
as enhanced or actively managed. The more the securities outside the index are
like those inside the index (e.g., for bond funds in terms of sector, credit
quality, etc.), the more likely that the funds will track their target index.

WHAT INDEX FUNDS DOES VANGUARD OFFER?
Vanguard offers a variety of stock (both U.S. and international), bond, and
balanced index funds. This prospectus provides information about Vanguard's Bond
Index Funds. There are four such funds, each of which seeks to track a different
segment of the U.S. bond market:

----------------------------------------------------------------
FUND SEEKS TO TRACK
----------------------------------------------------------------
Vanguard Total Bond Market Index The overall bond market
Vanguard Short-Term Bond Index Short-term bonds
Vanguard Intermediate-Term Bond Index Intermediate-term bonds
Vanguard Long-Term Bond Index Long-term bonds
----------------------------------------------------------------

This prospectus contains profiles that summarize key features of each Fund.
Following the profiles, there is important additional information about the
Funds.
<PAGE>

FUND PROFILE--VANGUARD(R) TOTAL BOND MARKET
INDEX FUND

The following profile summarizes key features of Vanguard Total Bond Market
Index Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a broad, market-weighted bond index.

The Fund invests at least 80% of its total assets in bonds represented in
the Index. The remainder of its assets may be invested outside the Index, in
bonds whose characteristics and risks--including maturity, credit quality, and
issuer type--are similar to those in the Index. To the extent that the Fund
invests outside the Index, it may employ active management strategies. The Index
and non-Index securities, in combination, will have characteristics and risks
similar to the Index. The Fund maintains a dollar-weighted average maturity of
between 5 and 10 years. For more information about passive management, see
"Indexing Methods" under MORE ON THE FUNDS.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These 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.
Interest rate risk should be least for shorter-term bond funds, and
greatest for longer-term bond funds.
- - Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk is generally higher for short-term
bond funds, and lower for long-term bond funds.
- - Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.
- - Prepayment risk, which is the chance that during periods of falling
interest rates, a mortgage-backed bond issuer will repay a higher-yielding
bond before its maturity date because the underlying mortgages have been
paid off ahead of schedule. If this were to occur, the Fund would lose the
opportunity for additional price appreciation, and would be forced to
reinvest the unanticipated proceeds at lower interest rates. As a result,
the Fund would experience a decline in income.
- - Index sampling risk, which is the chance that the securities selected for
the Fund do not provide investment performance matching that of the Index.
Index sampling risk for the Fund should be low.

PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risks of
investing in the Fund. The bar chart shows the Fund's performance in each
calendar

<PAGE>

3
year over a ten-year period. The table shows how the Fund's average annual total
returns for one, five, and ten calendar

----------------------------------------------------
ANNUAL TOTAL RETURNS*
----------------------------------------------------
1990 8.65%
1991 15.25%
1992 7.14%
1993 9.68%
1994 -2.66%
1995 18.18%
1996 3.58%
1997 9.44%
1998 8.58%
1999 -0.76%
----------------------------------------------------
*Total return figures do not reflect the annual
account maintenance fee of $10.
----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 6.01% (quarter ended June 30, 1995) and the lowest return for a
quarter was -2.71% (quarter ended March 31, 1994).

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------
Vanguard Total Bond Market Index Fund* -0.76% 7.62% 7.54%
Lehman Brothers Aggregate Bond Index -0.82 7.73 7.70
-------------------------------------------------------------------------
*Total return figures do not reflect the annual account maintenance
fee of $10.
-------------------------------------------------------------------------

FEES AND EXPENSES
The following table describes the fees and expenses you may pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended December 31, 1999.

SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None*
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fee: None
Exchange Fee: None
Account Maintenance Fee (for accounts under $10,000): $2.50/quarter**

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

*A portfolio transaction fee of 0.18% may apply to aggregate purchases over
$250 million by a single investor.

**Vanguard will deduct an account maintenance fee from your dividends four
times per year. If your dividend that month is less than the fee,
fractional shares will be automatically redeemed to make up the difference.

<PAGE>

The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year and that operating expenses remain the same. The results apply whether or
not you redeem your investment at the end of each period.

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

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ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Dividends are declared daily and $3,000; $1,000 for IRAs and custodial
distributed on the first business day of accounts
each month; capital gains, if any, are for minors
distributed annually in December
NEWSPAPER ABBREVIATION
INVESTMENT ADVISER TotBd
The Vanguard Group, Valley Forge, Pa.,
since inception VANGUARD FUND NUMBER
084

INCEPTION DATE CUSIP NUMBER
December 11, 1986 921937108

NET ASSETS (ALL SHARE CLASSES) AS OF TICKER SYMBOL
DECEMBER 31, 1999 VBMFX
$12.68 billion

SUITABLE FOR IRAS
Yes
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<PAGE>

FUND PROFILE--VANGUARD (R) SHORT-TERM BOND
INDEX FUND

The following profile summarizes key features of Vanguard Short-Term Bond Index
Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a market-weighted bond index with a
short-term dollar-weighted average maturity.

INVESTMENT STRATEGIES
The Fund employs a "passively managed"--or index--investment approach, by
holding a sample of bonds that seeks to match the performance of the Lehman
Brothers 1-5 Year Government/Corporate Bond Index. This Index is made up of all
U.S. government, investment-grade corporate, and international
dollar-denominated bonds, all with maturities between 1 and 5 years.
The Fund invests at least 65% of its total assets in bonds represented in
the Index. The remainder of its assets may be invested outside the Index, in
bonds whose characteristics--including maturity, credit quality, and issuer
type--are similar to those of the Index. To the extent that the Fund invests
outside the Index, it may employ active management strategies. The Index and
non-Index securities, in combination, will have characteristics and risks
similar to the Index. The Fund maintains a dollar-weighted average maturity of
between 1 and 5 years. For more information about passive management, see
"Indexing Methods" under MORE ON THE FUNDS.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These 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.
Interest rate risk should be low for short-term bond funds.
- - Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk is generally higher for short-term
bond funds than for long-term bond funds.
- - Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.
- - Index sampling risk, which is the chance that the securities selected for
the Fund do not provide investment performance matching that of the Index.
Index sampling risk for the Fund should be low.

PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual total returns for
one and five calendar years and since inception compare with those of a
market-weighted short-term bond index. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.

<PAGE>

----------------------------------------------------
ANNUAL TOTAL RETURNS*
----------------------------------------------------
1995 12.88%
1996 4.55%
1997 7.04%
1998 7.63%
1999 2.08%
----------------------------------------------------
*Total return figures do not reflect the annual
account maintenance fee of $10.
----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 3.96% (quarter ended March 31, 1995) and the lowest return for a
quarter was -0.29% (quarter ended June 30, 1994).

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
-------------------------------------------------------------------------
Vanguard Short-Term Bond Index Fund** 2.08% 6.77% 5.71%
Lehman Brothers 1-5 Year Government/
Corporate Index 2.09 6.82 5.78
-------------------------------------------------------------------------
* March 1, 1994.
**Total return figures do not reflect the annual account maintenance
fee of $10.
-------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's
assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

* A portfolio transaction fee of 0.15% may apply to aggregate purchases
over $50 million by a single investor.
**Vanguard will deduct an account maintenance fee from your dividends
four times per year. If your dividend that month is less than the fee,
fractional shares will be automatically redeemed to make up the
difference.

<PAGE>

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
hypotheticalexpenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year and that operating expenses remain the same. The results apply whether or
not you redeem your investment at the end of each period.

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Dividends are declared daily and $3,000; $1,000 for IRAs and custodial
distributed on the first business day of accounts
each month; capital gains, if any, are for minors
distributed annually in December
NEWSPAPER ABBREVIATION
INVESTMENT ADVISER STBond
The Vanguard Group, Valley Forge, Pa.,
since inception VANGUARD FUND NUMBER
132

INCEPTION DATE CUSIP NUMBER
March 1, 1994 921937207

NET ASSETS AS OF DECEMBER 31, 1999 TICKER SYMBOL
$1.16 billion VBISX

SUITABLE FOR IRAS
Yes
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE--VANGUARD(R) INTERMEDIATE-TERM BOND INDEX FUND

The following profile summarizes key features of Vanguard Intermediate-Term Bond
Index Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a market-weighted bond index with an
intermediate-term dollar-weighted average maturity.

INVESTMENT STRATEGIES
The Fund employs a "passively managed"--or index--investment approach, by
holding a sample of bonds that seeks to match the performance of the Lehman
Brothers 5-10 Year Government/Corporate Bond Index. This Index includes all U.S.
government, investment-grade corporate, and international dollar-denominated
bonds, all with maturities between 5 and 10 years.
The Fund invests at least 65% of its total assets in bonds represented in
the Index. The remainder of its assets may be invested outside the Index, in
bonds whose characteristics and risks--including maturity, credit quality, and
issuer type--are similar to those of the Index. To the extent the Fund invests
outside the Index, it may employ active management strategies. The Index and
non-Index securities, in combination, will have characteristics and risks
similar to the Index. The Fund maintains a dollar-weighted average maturity of
between 5 and 10 years. For more information about passive management, see
"Indexing Methods" under MORE ON THE FUNDS.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These 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.
Interest rate risk should be moderate for intermediate-term bond funds.
- - Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk should be moderate for
intermediate-term bond funds.
- - Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.
- - Index sampling risk, which is the chance that the securities selected for
the Fund do not provide investment performance matching that of the Index.
Index sampling risk for the Fund should be low.

PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual total returns for
one and five calendar years and since inception compare with those of a
market-weighted intermediate-term bond index. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.

<PAGE>

----------------------------------------------------
ANNUAL TOTAL RETURNS*
----------------------------------------------------
1995 21.07%
1996 2.55%
1997 9.41%
1998 10.09%
1999 -3.00%
----------------------------------------------------
*Total return figures do not reflect the annual
account maintenance fee of $10.
----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 7.37% (quarter ended June 30, 1995) and the lowest return for a
quarter was -2.52% (quarter ended March 31, 1996).

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
-------------------------------------------------------------------------
Vanguard Intermediate-Term Bond Index
Fund** -3.00% 7.72% 6.05%
Lehman Brothers 5-10 Year Government/
Corporate Index -2.88 7.86 6.15
-------------------------------------------------------------------------
* March 1, 1994.
**Total return figures do not reflect the annual account maintenance
fee of $10.
-------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

*A portfolio transaction fee of 0.23% may apply to aggregate purchases
over $50 million by a single investor.
**Vanguard will deduct an account maintenance fee from your dividends
four times per year. If your dividend that month is less than the fee,
fractional shares will be automatically redeemed to make up the
difference.

<PAGE>

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Dividends are declared daily and $3,000; $1,000 for IRAs and custodial
distributed on the first business day of accounts
each month; capital gains, if any, are for minors
distributed annually in December
NEWSPAPER ABBREVIATION
INVESTMENT ADVISER ITBond
The Vanguard Group, Valley Forge, Pa.,
VANGUARD FUND NUMBER
since inception 314

INCEPTION DATE CUSIP NUMBER
March 1, 1994 921937306

NET ASSETS AS OF DECEMBER 31, 1999 TICKER SYMBOL
$1.45 billion VBIIX

SUITABLE FOR IRAS
Yes
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE--VANGUARD(R) LONG-TERM BOND INDEX FUND

The following profile summarizes key features of Vanguard Long-Term Bond Index
Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a market-weighted bond index with a
long-term dollar-weighted average maturity.

INVESTMENT STRATEGIES
The Fund employs a "passively managed"--or index--investment approach, by
holding a sample of bonds that seeks to match the performance of the Lehman
Brothers Long Government/Corporate Bond Index. This Index is made up of all U.S.
government, investment-grade corporate, and international dollar-denominated
bonds, all with maturities greater than 10 years.
The Fund invests at least 65% of its total assets in bonds represented in
the Index. The remainder of its assets may be invested outside the Index, in
bonds whose characteristics--including maturity, credit quality, and issuer
type--are similar to those of the Index. To the extent that the Fund invests
outside the Index, it may employ active management strategies. The Index and
non-Index securities, in combination, will have characteristics and risks
similar to the Index. The Fund maintains a dollar-weighted average maturity of
between 20 and 30 years. For more information about passive management, see
"Indexing Methods" under MORE ON THE FUNDS.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These 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.
Interest rate risk is generally high for long-term bond funds.
- - Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk is generally lower for long-term bond
funds than for short-term bond funds.
- - Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.
- - Index sampling risk, which is the chance that the securities selected for
the Fund do not provide investment performance matching that of the Index.
Index sampling risk for the Fund should be low.

PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual total returns for
one and five calendar years and since inception compare with those of a
market-weighted long-term bond index. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.

<PAGE>

----------------------------------------------------
ANNUAL TOTAL RETURNS*
----------------------------------------------------
1995 29.72%
1996 -0.26%
1997 14.30%
1998 11.98%
1999 -7.85%
----------------------------------------------------
*Total return figures do not reflect the annual
account maintenance fee of $10.
----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 10.26% (quarter ended June 30, 1995) and the lowest return for a
quarter was -6.17% (quarter ended March 31, 1996).

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
-------------------------------------------------------------------------
Vanguard Long-Term Bond Index Fund** -7.85% 8.82% 6.66%
Lehman Brothers Long Government/
Corporate Index -7.65 8.99 6.78
-------------------------------------------------------------------------
* March 1, 1994.
**Total return figures do not reflect the annual account maintenance
fee of $10.
-------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

*A portfolio transaction fee of 0.21% may apply to aggregate purchases
over $10 million by a single investor.
**Vanguard will deduct an account maintenance fee from your dividends
four times per year. If your dividend that month is less than the fee,
fractional shares will be automatically redeemed to make up the
difference.

<PAGE>

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Dividends are declared daily and $3,000; $1,000 for IRAs and custodial
distributed on the first business day of accounts
each month; capital gains, if any, are for minors
distributed annually in December
NEWSPAPER ABBREVIATION
INVESTMENT ADVISER LTBond
The Vanguard Group, Valley Forge, Pa.,
since inception VANGUARD FUND NUMBER
522

INCEPTION DATE CUSIP NUMBER
March 1, 1994 921937405

NET ASSETS AS OF DECEMBER 31, 1999 TICKER SYMBOL
$313 million VBLTX

SUITABLE FOR IRAS
Yes
- --------------------------------------------------------------------------------

<PAGE>

MORE ON THE FUNDS

The following sections discuss other important features of Vanguard Bond Index
Funds, including indexing methods, security selection, additional risk
information, account maintenance fee, costs and market-timing, turnover rate,
and other investment policies and risks.

WHY INVEST IN INDEX FUNDS?

Index funds appeal to many investors for a number of reasons:
- - Variety of investments. Vanguard index funds generally invest in a wide
variety of companies and industries.
- - Relative performance consistency. Because they seek to track market
benchmarks, index funds by definition should not perform dramatically
better or worse than their target indexes.
- - Low cost. Index funds are inexpensive to run as compared to actively
managed funds. They have lower research costs and keep trading activity,
and thus trading costs, to a minimum.

INDEXING METHODS

In seeking to track a particular index, an index fund generally uses one of two
methods to select the stocks or bonds in which it invests.
Some index funds hold each stock or bond found in their target indexes in
about the same proportions as represented in the indexes themselves. This is
called a "replication" method. For example, if 5% of the S&P 500 Index were made
up of the stock of a specific company, a fund tracking that index would invest
about 5% of its assets in that company.
Other index funds may use a different security selection process. Because
it would be impractical to buy and sell all of the securities held in certain
indexes (the Lehman Brothers Aggregate Bond Index, for example, included more
than 5,500 bonds as of December 31, 1999), many funds tracking these larger
indexes use a "sampling" technique. Using sophisticated computer programs, these
funds select securities that will recreate their target indexes in terms of
duration, cash flow distribution, sector and quality weights, and other
characteristics. For instance, if 30% of the Lehman Brothers Aggregate Bond
Index were made up of mortgage-backed securities, the Total Bond Market Index
Fund would invest about 30% of its assets in mortgage-backed securities that
have similar characteristics as a group to those in the Index. Each of the
Vanguard Bond Index Funds employs this method of indexing.
The following table shows the number of bonds held by each of the Funds,
and the number of bonds in each Fund's target index as of December 31, 1999.

- --------------------------------------------------------------------------------
FUND NUMBER OF BONDS HELD NUMBER OF BONDS IN TARGET INDEX
- --------------------------------------------------------------------------------
Total Bond Market Index 721 5,545
Short-Term Bond Index 270 1,874
Intermediate-Term Bond Index 192 1,415
Long-Term Bond Index 190 1,385
- --------------------------------------------------------------------------------

CORPORATE SUBSTITUTION STRATEGY
In "sampling" its target index, each Fund has the flexibility to overweight
particular types of bonds relative to their representation in the index. For the
Total Bond Market Index and Short-Term Bond Index Funds, this normally involves
substituting corporate bonds for government bonds of the same maturity. The
corporate substitution strategy increases a
<PAGE>

Fund's income, but also marginally increases exposure to credit risk, which is
explained on page 18. The Funds limit corporate substitutions to bonds with less
than approximately 4 years' remaining maturity, and each Fund will limit
corporate substitutions to approximately 15% of its net assets.

SECURITY SELECTION
The Total Bond Index Fund invests at least 80% of its total assets in securities
included in its target index. The other Funds invest at least 65% of their total
assets in securities included in their target indexes. Each Fund's target index
is actually a subset of the Lehman Brothers Aggregate Bond Index (except for the
Total Bond Index Fund, whose target index is the Lehman Brothers Aggregate Bond
Index). This Index measures the total universe of investment-grade fixed-income
securities in the U.S.--including government, corporate, mortgage-backed,
asset-backed, and international dollar-denominated bonds, all with maturities
over 1 year.
As of December 31, 1999, each Fund's target index was composed of the
following types of bonds:

- --------------------------------------------------------------------------------
TARGET INDEX COMPOSITION
------------------------------------
INTERNATIONAL
U.S. MORTGAGE- DOLLAR-
FUND GOVERNMENT CORPORATE BACKED DENOMINATED TOTAL
- --------------------------------------------------------------------------------
Total Bond Market Index 41.6% 18.2% 35.6% 4.6% 100%
Short-Term Bond Index 74.0 20.3 0.0 5.7 100
Intermediate-Term Bond Index 52.5 35.5 0.0 12.0 100
Long-Term Bond Index 63.6 30.2 0.0 6.2 100
- --------------------------------------------------------------------------------

An explanation of each type of bond follows.
- - U.S. government securities include U.S. Treasury and agency bonds, which
represent loans by investors to the U.S. Treasury Department or a wide
variety of governmental agencies and instrumentalities. Timely payment of
principal and interest on U.S. Treasury bonds is always guaranteed by the
full faith and credit of the U.S. government; many (but not all) agency
bonds have the same guarantee.
- - Corporate bonds are IOUs issued by businesses that want to borrow money for
some purpose--often to develop a new product or service, to expand into a
new market, or to buy another company. As with other types of bonds, the
issuer promises to repay the principal on a specific date and to make
interest payments in the meantime. The amount of interest offered depends
on market conditions and also on the financial health of the corporation
issuing the bonds; a company whose credit rating is not strong will have to
offer a higher interest rate to obtain buyers for its bonds. (Note: The
Bond Index Funds expect to invest only in investment-grade corporate bonds,
which are corporate bonds rated in one of the four highest rating
categories by independent bond-rating agencies).

<PAGE>

Mortgage Association (GNMA or "Ginnie Mae"), the Federal Home Loan Mortgage
Corporation (FHLMC), and the Federal National Mortgage Association (FNMA or
"Fannie Mae"). GNMAs are guaranteed by the full faith and credit of the
U.S. government as to the timely payment of principal and interest;
mortgage-backed securities issued by other government agencies or private
corporations are not. (Note: The Total Bond Market Index Fund may also
invest to a lesser extent in conventional mortgage securities, which are
packaged by private corporations and are not guaranteed by the U.S.
government.)
- - International dollar-denominated bonds (or yankee bonds) are bonds
denominated in U.S. dollars issued by foreign governments and companies.
Because the bond's value is designated in dollars rather than the currency
of the issuer's country, the investor is not exposed to currency risk;
rather, the issuer assumes that risk, usually in order to attract U.S.
investors.

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

ADDITIONAL RISK INFORMATION
The Funds are subject to several risks associated with investments in bonds.

[FLAG] EACH FUND IS SUBJECT TO INTEREST RATE RISK, WHICH IS THE CHANCE THAT BOND
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS DUE TO RISING
INTEREST RATES. INTEREST RATE RISK SHOULD BE LOW FOR SHORTER-TERM BOND
FUNDS, MODERATE FOR INTERMEDIATE-TERM BOND FUNDS, AND HIGH FOR LONGER-TERM
BOND FUNDS.

Changes in interest rates will affect bond income as well as bond prices.

[FLAG] EACH FUND IS SUBJECT TO INCOME RISK, WHICH IS THE CHANCE THAT A FUND'S
DIVIDENDS (INCOME) WILL DECLINE DUE TO FALLING INTEREST RATES. INCOME RISK
IS GENERALLY HIGHER FOR SHORT-TERM BONDS AND LOWER FOR LONG-TERM BONDS.

In the past, bond investors have seen the value of their investment rise
and fall-- sometimes significantly--with changes in interest rates. Between
December 1976 and September 1981, for instance, rising interest rates caused
long-term bond prices to fall by almost 48%.

<PAGE>

Because each Fund invests mainly in bonds, changes in interest rates will
impact, to varying degrees, the value of each Fund's assets. To illustrate how
much of an impact,the following table shows the effect of a 1% and a 2% change
(both up and down) in interest rates on three bonds with a face value of $1,000;
each has a different maturity.

- --------------------------------------------------------------------------------
HOW INTEREST RATE CHANGES AFFECT THE
VALUE OF A $1,000 BOND
- -------------------------------------------------------------------------------
AFTER A 1% AFTER A 1% AFTER A 2% AFTER A 2%
TYPE OF BOND (MATURITY) INCREASE DECREASE INCREASE DECREASE
- -------------------------------------------------------------------------------
Short-Term (2.5 years) $978 $1.023 $956 $1,046
Intermediate-Term (10 years) 932 1,074 870 1,156
Long-Term (20 years) 901 1,116 816 1,251
- -------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
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 (short-term) to more
than 30 years (long-term). 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 for illustration only; you should not regard them as an
indication of future returns from the bond market as a whole or any Fund in
particular.
While falling interest rates tend to strengthen bond prices, they can cause
other sorts of problems for bond fund investors--bond calls and prepayments.

[FLAG] BECAUSE IT INVESTS IN MORTGAGE-BACKED SECURITIES, THE TOTAL BOND MARKET
INDEX FUND IS SUBJECT TO PREPAYMENT RISK, WHICH IS THE CHANCE THAT DURING
PERIODS OF FALLING INTEREST RATES, A HOMEOWNER WILL REPAY A HIGHER-YIELDING
MORTGAGE EARLIER THAN SCHEDULED. FORCED TO REINVEST THE UNANTICIPATED
PROCEEDS AT LOWER RATES, THE FUND WOULD EXPERIENCE A DECLINE IN INCOME AND
LOSE THE OPPORTUNITY FOR ADDITIONAL PRICE APPRECIATION ASSOCIATED WITH
FALLING RATES.

With only a portion of its assets invested in mortgage-backed securities,
prepayment risk for the Total Bond Market Index Fund is moderate.
<PAGE>

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

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
CREDIT QUALITY
A bond's credit quality depends on the issuer's ability to pay interest on the
bond and, ultimately, to repay the debt. The lower the rating by one of the
independent bond-rating agencies (for example, Moody's or Standard & Poor's),
the greater the chance (in the rating agency's opinion) that the bond issuer
will default, or fail to meet its payment obligations. All things being equal,
the lower a bond's credit rating, the higher its yield should be to compensate
investors for assuming additional risk. Bonds rated in one of the four highest
rating categories are considered "investment grade." The Funds' Statement of
Additional Information includes a detailed description of the credit-rating
scales used by major, independent bond-rating agencies.
- --------------------------------------------------------------------------------

The credit quality of each Fund is expected to be very high, and thus
credit risk should be low. The following table shows the weighted average credit
quality of each Fund's holdings and that of its target index, as rated by
Moody's Investors Service, as of December 31, 1999.

--------------------------------------------------------------
AVERAGE CREDIT QUALITY
--------------------------------------
FUND FUND'S HOLDINGS TARGET INDEX
--------------------------------------------------------------
Total Bond Market Index Aa1 Aaa
Short-Term Bond Index Aa1 Aaa
Intermediate-Term Bond Index Aa2 Aaa
Long-Term Bond Index Aa1 Aaa
--------------------------------------------------------------

[FLAG] EACH FUND IS SUBJECT TO INDEX SAMPLING RISK, WHICH IS THE CHANCE THAT THE
SECURITIES SELECTED FOR A FUND DO NOT PROVIDE INVESTMENT PERFORMANCE
MATCHING THAT OF THE INDEX. INDEX SAMPLING RISK FOR EACH FUND SHOULD BE
LOW.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE COSTS OF INVESTING
Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in fund expenses can, over time,
have a dramatic effect on a fund's performance.
- --------------------------------------------------------------------------------

To a limited extent, the Funds are also exposed to event risk, which is the
possibility that corporate fixed-income securities held by the Funds may suffer
a substantial decline in credit quality and market value due to a corporate
restructuring.
The Funds are generally managed without regard to tax ramifications.
<PAGE>

19
To help you distinguish between the Funds and their various risks, a
summary table is provided below.

- --------------------------------------------------------------------------------
RISKS OF THE FUNDS
---------------------------------------------
INCOME INTEREST PREPAYMENT/CALL CREDIT
FUND RISK RATE RISK RISK RISK
- --------------------------------------------------------------------------------
Total Bond Market Index Moderate Moderate Moderate Low
Short-Term Bond Index High Low Low Low
Intermediate-Term Bond Index Moderate Moderate Low Low
Long-Term Bond Index Low High Low Low
- --------------------------------------------------------------------------------

ACCOUNT MAINTENANCE FEE

Vanguard assesses an account maintenance fee on index fund shareholders whose
account balances are below $10,000 (for any reason, including a decline in the
value of a Fund's shares) on the date a dividend is distributed. This fee is
intended to allocate the costs of maintaining accounts more equitably among
shareholders. The account maintenance fee is $2.50 per quarter, deducted from
dividends, if your account balance is below $10,000 during the last week of
January, April, July, and October. If the fee is deducted from your dividend
distribution, you will still be taxed on the full amount of your dividend
(unless you hold your shares through a non-taxable account). If you are due a
dividend that is less than the fee, fractional shares will be automatically
redeemed to make up the difference. This fee cannot be prepaid.

COSTS AND MARKET-TIMING

Some investors try to profit from a strategy called market-timing--switching
money into investments when they expect prices to rise, and taking money out
when they expect prices to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, Vanguard Bond Index Funds have adopted the following policies, among
others, to discourage short-term trading:

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

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

TURNOVER RATE
Although the Funds generally seek to invest for the long term, they may sell
securities regardless of how long the securities have been held. Shorter-term
bonds will mature or be sold, and need to be replaced, more frequently than
longer-term bonds. As a result, shorter-term bond funds tend to have higher
turnover rates than longer-term bond funds.
<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
TURNOVER RATE
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. As of December 31, 1999, the average turnover rate for
passively managed domestic bond funds was roughly 68%; for all domestic bond
funds, the average turnover rate was approximately 150%, according to
Morningstar, Inc.
- --------------------------------------------------------------------------------

OTHER INVESTMENT POLICIES AND RISKS
Besides investing in fixed-income securities comprising its target index, each
Fund may invest up to 35% of its total assets, (20% in the case of the Total
Bond Market Index Fund,) in fixed-income securities not in the target index. The
Funds may purchase non-public, investment-grade securities, generally referred
to as 144A securities, as well as smaller public issues or medium-term notes not
included in the index due to the small size of the issue. The vast majority of
these securities will have characteristics and risks similar to those in the
target indexes. The Short-Term, Intermediate-Term, and Long-Term Bond Index
Funds may also purchase securities that are outside of their target indexes, but
are within the larger Lehman Brothers Aggregate Bond Index. Each Fund may also
purchase money market instruments and certain derivatives in order to manage
cash flow into and out of the Fund, reduce the Fund's transaction costs, or add
value when these instruments are favorably priced.

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

[FLAG] THE FUNDS MAY INVEST, TO A LIMITED EXTENT, IN DERIVATIVES.

The Funds may invest, to a limited extent, in bond (interest rate) futures
and options contracts and other types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small price movement in a futures contract may result in an immediate and
substantial loss (or gain) for a fund. The Funds will not use futures for
speculative purposes or as leveraged investments that magnify the gains or
losses of an investment. Each Fund's obligation to purchase securities under
futures con tracts will not exceed 20% of its total assets. The reasons for
which a Fund will invest in futures and options are:

<PAGE>

- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in bonds.
- - To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
The Funds may also invest in a relatively conservative class of
collateralized mortgage obligations (CMOs), which offer a high degree of
cashflow predictability and less vulnerability to mortgage prepayment risk. To
reduce credit risk, a Fund may purchase these less-risky classes of CMOs only if
they are issued by agencies of the U.S. government or, if issued by private
companies, carry high-quality, investment-grade ratings.

THE FUNDS AND VANGUARD

Vanguard Bond Index Funds are members of The Vanguard Group, a family of more
than 35 investment companies with more than 100 funds holding assets with more
than $540 billion. All of the Vanguard funds share in the expenses associated
with business operations, such as personnel, office space, equipment, and
advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.

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

INVESTMENT ADVISER

The Vanguard Group (Vanguard), P.O. Box 2600, Valley Forge, PA 19482, founded in
1975, serves as the Funds' adviser through its Fixed Income Group. As of
December 31, 1999, Vanguard served as adviser for about $371.4 billion in
assets. Vanguard manages the Funds on an at-cost basis, subject to the control
of the Trustees and officers of the Funds. For the fiscal year ended December
31, 1999, the Funds paid advisory fees at an effective annual rate (applied to
the average daily net assets of each Fund) of approximately 0.01%.

The Funds have authorized Vanguard to choose brokers or dealers to handle
the purchase and sale of securities for the Funds, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions. The Funds may direct Vanguard to use a particular broker for
certain transactions in exchange for commission rebates or research services
provided to the Funds.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUNDS' ADVISER
The individuals responsible for overseeing the Funds' investments are:

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

KENNETH E. VOLPERT, CFA, Principal, and head of Vanguard's Bond Index Group;
Fund Manager of the Total Bond Market and Intermediate-Term Bond Index Funds
since their inception; has worked in investment management since 1981; has
managed portfolio investments since 1982; B.S., University of Illinois; M.B.A.,
University of Chicago.

FELIX B. LIM, Fund Manager of the Short-Term and Long-Term Bond Index Funds
since January 2000; has worked in investment management since completing his
education in 1996; worked as credit analyst until January 2000; joined Vanguard
in January 1999; B.A. and M.S., University of Pennsylvania (Wharton School).
- --------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS

BASIC TAX POINTS

Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:

- - Distributions are taxable to you for federal income tax purposes whether or
not you reinvest these amounts in additional Fund shares.
- - Distributions declared in December--if paid to you by the end of
January--are taxable for federal income tax purposes as if received in
December.
- - Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.
- - Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.
- - Capital gains distributions may vary considerably from year to year as a
result of the Funds' normal investment activities and cash flows.
- - A sale or exchange of Fund shares is a taxable event. This means that you
may have a capital gain to report as income, or a capital loss to report as
a deduction, when you complete your federal income tax return.

<PAGE>

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

GENERAL INFORMATION

BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not:
- - provide us with your correct taxpayer identification number;
- - certify that the taxpayer identification number is correct; and
- - confirm that you are not subject to backup withholdings.
Similarly, Vanguard must withhold from your account if the IRS instructs us
to do so.
FOREIGN INVESTORS. The Vanguard funds generally do not offer their shares for
sale outside of the United States. Foreign investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.
INVALID ADDRESSES. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
TAX CONSEQUENCES. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.

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

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
"BUYING A CAPITAL GAIN"
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 capital gains distribution, because doing so can cost you money in
taxes. This is known as "buying a capital gain." For example: On December 15,
you invest $5,000, buying 250 shares for $20 each. If the fund pays a capital
gains 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 capital gains
distributions), but you owe tax on the $250 distribution you received, even if
you had reinvested it in more shares. To avoid "buying a capital gain," check a
fund's distribution schedule before you invest.
- --------------------------------------------------------------------------------

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

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

The Total Bond Market Index Fund, which offers two classes of shares,
computes a separate net asset value for each share class. This is done by
dividing the net assets attributed to each class by the number of Fund shares
outstanding for each class.

Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. A Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A NOTE ON PRICING: Each Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Funds' Board of Trustees.
Each Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading "Vanguard Index Funds." Different
newspapers use different abbreviations for each Fund, but the most common are:
TOTBD, STBOND, ITBOND, and LTBOND.
<PAGE>

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

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLES
This explanation uses the Total Bond Market Index Fund Investor Shares as an
example. The Fund began fiscal 1999 with a net asset value (price) of $10.27 per
share. During the year, the Fund earned $0.617 per share from investment income
(interest and dividends). There was a decline of $0.695 per share in the value
of investments held or sold by the Fund.

Shareholders received $0.632 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 dividend or capital gains.

The earnings decline ($0.078 per share) minus the distributions ($0.632 per
share) resulted in a share price of $9.56 at the end of the year. This was a
decrease of $0.71 per share (from $10.27 at the beginning of the year to $9.56
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 -0.76% for the
year.

As of December 31, 1999, the Fund had $9.48 billion in net assets. For the year,
its expense ratio was 0.20% ($2.00 per $1,000 of net assets); and its net
investment income amounted to 6.26% of its average net assets. It sold and
replaced securities valued at 55% of its net assets.
- --------------------------------------------------------------------------------

<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD TOTAL BOND MARKET INDEX FUND
INVESTOR SHARES
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.27 $10.09 $9.84 $10.14 $ 9.17
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .617 .624 .645 .640 .650
Net Realized and Unrealized Gain (Loss) on
Investments (.695) .218 .250 (.300) .970
-----------------------------------------------------------------
Total from Investment Operations (.078) .842 .895 .340 1.620
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.617) (.624) (.645) (.640) (.650)
Distributions from Realized Capital Gains (.015) (.038) -- -- --
-----------------------------------------------------------------
Total Distributions (.632) (.662) (.645) (.640) (.650)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.56 $10.27 $10.09 $ 9.84 $10.14
===================================================================================================================
TOTAL RETURN* -0.76% 8.58% 9.44% 3.58% 18.18%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $9,477 $7,765 $5,129 $2,962 $2,405
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 6.26% 6.10% 6.54% 6.54% 6.66%
Turnover Rate 55% 57%** 39% 39% 36%
===================================================================================================================
</TABLE>

*Total return figures do not reflect the annual account maintenance fee of $10.
**Turnover rate excluding in-kind redemptions was 56%.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD SHORT-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.10 $10.00 $ 9.92 $10.07 $ 9.50
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .539 .574 .597 .587 .623
Net Realized and Unrealized Gain (Loss) on
Investments (.336) .168 .080 (.146) .570
------------------------------------------------------------
Total from Investment Operations .203 .742 .677 .441 1.193
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.539) (.574) (.597) (.587) (.623)
Distributions from Realized Capital Gains (.034) (.068) -- (.004) --
------------------------------------------------------------
Total Distributions (.573) (.642) (.597) (.591) (.623)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.73 $10.10 $10.00 $ 9.92 $10.07
===================================================================================================================
TOTAL RETURN* 2.08% 7.63% 7.04% 4.55% 12.88%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,156 $709 $446 $328 $208
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 5.48% 5.68% 6.03% 5.93% 6.28%
Turnover Rate 108% 112% 88% 65% 65%
===================================================================================================================
</TABLE>

*Total return figures do not reflect the annual account maintenance fee of $10.
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD INTERMEDIATE-TERM BOND
INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.48 $10.20 $ 9.96 $10.37 $ 9.18
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .628 .647 .661 .648 .661
Net Realized and Unrealized Gain (Loss) on
Investments (.936) .353 .240 (.406) 1.217
------------------------------------------------------------
Total from
Investment Operations (.308) 1.000 .901 .242 1.878
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.628) (.647) (.661) (.648) (.661)
Distributions from
Realized Capital Gains (.034) (.073) -- (.004) (.027)
------------------------------------------------------------
Total Distributions (.662) (.720) (.661) (.652) (.688)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.51 $10.48 $10.20 $ 9.96 $10.37
===================================================================================================================
TOTAL RETURN* -3.00% 10.09% 9.41% 2.55% 21.07%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,449 $1,102 $687 $460 $346
Ratio of Total
Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 6.33% 6.23% 6.64% 6.54% 6.55%
Turnover Rate 120% 77% 56% 80% 71%
===================================================================================================================
</TABLE>

*Total return figures do not reflect the annual account maintenance fee of $10.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD LONG-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.32 $10.78 $10.08 $10.82 $ 8.96
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .662 .666 .678 .674 .692
Net Realized and Unrealized Gain (Loss) on
Investments (1.531) .588 .700 (.731) 1.884
------------------------------------------------------------
Total from Investment Operations (.869) 1.254 1.378 (.057) 2.576
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.662) (.666) (.678) (.674) (.692)
Distributions from Realized Capital Gains (.019) (.048) -- (.009) (.024)
------------------------------------------------------------
Total Distributions (.681) (.714) (.678) (.683) (.716)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.77 $11.32 $10.78 $10.08 $10.82
===================================================================================================================
TOTAL RETURN* -7.85% 11.98% 14.30% -0.26% 29.72
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $313 $210 $88 $44 $24
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 6.39% 6.01% 6.66% 6.75% 6.90%
Turnover Rate 61% 57% 58% 46% 45%
===================================================================================================================
</TABLE>

*Total return figures do not reflect the annual account maintenance fee of $10.

"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 [FLAG]. 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 each Fund unless you notify us otherwise.
- --------------------------------------------------------------------------------
CHECKWRITING [CHECK]
Method for drawing money from your account by writing a check for $250 or more.
- --------------------------------------------------------------------------------
VANGUARD(R) DIRECT DEPOSIT SERVICE [BOOKLET]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOKLET]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
VANGUARD FUND EXPRESS(R)[BOOKLET]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
VANGUARD DIVIDEND EXPRESS TM [BOOKLET]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
VANGUARD TELE-ACCOUNT(R) 1-800-662-6273 (ON-BOARD) [BOOKLET]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or ex-change shares to and from most
Vanguard funds.
- --------------------------------------------------------------------------------
ACCESS VANGUARD TM www.vanguard.com [COMPUTER]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through our website. We will then mail you an account access password
that allows you to process the following financial and administrative
transactions online:
- - Open a new account.*
- - Buy, sell, or exchange shares of most funds.
- - Change your name/address.

<PAGE>

- - Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
(Some restrictions may apply.) Please call our Client Services Department
for assistance.

*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
INVESTOR INFORMATION DEPARTMENT: 1-800-662-7447 (SHIP) TEXT TELEPHONE:
1-800-952-3335
Call Vanguard for information on our funds, fund services, and retirement
accounts, and to request literature.
- --------------------------------------------------------------------------------
CLIENT SERVICES DEPARTMENT: 1-800-662-2739 (CREW) TEXT TELEPHONE: 1-800-749-7273
Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
SERVICES FOR CLIENTS OF VANGUARD'S INSTITUTIONAL DIVISION: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------

TYPES OF ACCOUNTS

Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
FOR ONE OR MORE PEOPLE
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
FOR HOLDING PERSONAL TRUST ASSETS [BOOKLET]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOKLET]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
FOR AN ORGANIZATION [BOOKLET]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
FOR THIRD-PARTY TRUSTEE RETIREMENT INVESTMENTS
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
VANGUARD PROTOTYPE PLANS
Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------

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

<PAGE>

BUYING SHARES

You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
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. You will begin earning dividends
on your investment the following business day.You may convert Investor Shares of
the Total Bond Market Index Fund into Institutional Shares provided that you
meet the minimum initial requirements for Institutional Shares.
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT TO . . .
open a new account
$3,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).

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

- --------------------------------------------------------------------------------
BY MAIL TO . . .[ENVELOPE]
open a new account
Complete and sign the account registration form and enclose your check.

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

Make your check payable to: The Vanguard Group-(insert appropriate Fund number;
see below)
Vanguard Total Bond Market Index Fund-84;
Vanguard Short-Term Bond Index Fund-132;
Vanguard Intermediate-Term Bond Index Fund-314;
Vanguard Long-Term Bond Index Fund-522

All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.

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

<PAGE>

For clients of Vanguard's Institutional Division . . .

BY TELEPHONE TO . . .[TELEPHONE]
open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). (Note that
some restrictions apply to index fund accounts.)

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

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

Wire to:
FRB ABA 021001088 HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard Total Bond Market Index Fund-84;
Vanguard Short-Term Bond Index Fund-132;
Vanguard Intermediate-Term Bond Index Fund-314;
Vanguard Long-Term Bond Index Fund-522
<PAGE>

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

REDEEMING SHARES

This section describes how you can redeem--that is, sell or exchange--a 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 35.

When Exchanging Shares:
- - The redemption proceeds are used to purchase shares of a different Vanguard
fund.
- - You must meet the receiving fund's minimum investment requirements.
- - Vanguard reserves the right to revise or terminate the exchange privilege,
limit the amount of an exchange, or reject an exchange at any time, without
notice.
- - In order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification number),
you must include the guaranteed signatures of all current account owners on
your written instructions.

In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus.
- --------------------------------------------------------------------------------
NOTE: Once a redemption is initiated and a confirmation number given, the
transaction CANNOT be canceled.
- --------------------------------------------------------------------------------

HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of three ways:
online , by telephone, or by mail. You can also sell shares by check.

The Vanguard funds whose shares you cannot exchange online or by telephone
are: VANGUARD U.S. STOCK INDEX FUNDS, VANGUARD BALANCED INDEX FUND, VANGUARD
INTERNATIONAL STOCK INDEX FUNDS, VANGUARD REIT INDEX FUND, and VANGUARD GROWTH
AND INCOME FUND. These funds do, however, permit online and telephone exchanges
within IRAs and other retirement accounts. If you sell shares of these funds
online, you will receive a redemption check at your address of record.
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
ONLINE REQUESTS
ACCESS VANGUARD at www.vanguard.com
You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through our website. We will then mail you an account access password that will
enable you to sell or exchange shares online (as well as perform other
transactions).
- --------------------------------------------------------------------------------
TELEPHONE REQUESTS [TELEPHONE]
All Account Types Except Retirement: Call Vanguard Tele-Account 24 hours a
day--or Client Services during business hours-- to sell or exchange shares. You
can exchange shares from this Fund to open an account in another Vanguard fund
or to add to an existing Vanguard fund account with an identical registration.

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

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

- - The Personal Identification Number (PIN), if applicable (for instance,
Tele-Account).

Please note that Vanguard will not be responsible for any account losses
due to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------

<PAGE>

MAIL REQUESTS [ENVELOPE]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.

Vanguard Retirement Accounts:
For information on how to request distributions from:
- - Traditional IRAs and Roth IRAs--call Client Services.
- - SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and
Money Purchase Pension (Keogh) Plans--call Individual Retirement Plans at
1-800-662-2003.

Depending on your account registration type, additional documentation may be
required.

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

For clients of Vanguard's Institutional Division . . .

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
CHECK REQUESTS [CHECK]
You can sell shares by writing a check for $250 or more.
- --------------------------------------------------------------------------------
A NOTE ON LARGE REDEMPTIONS
It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may disrupt a Fund's operation or performance.
If you redeem more than $250,000 worth of Fund shares within any 90-day
period, each Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in-kind, i.e., in securities, rather than in cash. If
payment is made in-kind, you may incur brokerage commissions if you elect to
sell the securities for cash.
- --------------------------------------------------------------------------------
OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of four ways: wire (money market
funds and other daily dividend funds only), check, exchange to another Vanguard
fund, or Fund Express redemption.
- --------------------------------------------------------------------------------
CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.
<PAGE>

- --------------------------------------------------------------------------------
WIRE REDEMPTIONS [WIRE]
The wire redemption option is not automatic; you must establish it by completing
a special form or the appropriate section of your account application. Wire
redemptions can be initiated by mail or by telephone during Vanguard's business
hours, but not online.

For Money Market Funds:
For telephone requests made by 10:30 a.m. Eastern time, the wire will arrive at
your bank by the close of business that same day. Requests made by 4 p.m.
Eastern time will arrive at your bank by the close of business on the following
business day.

For Other Daily Dividend Funds:
For telephone requests made by 4 p.m. Eastern time, the wire will arrive at your
bank by the close of business on the following business day.
- --------------------------------------------------------------------------------
NOTE: Wire redemptions of less than $5,000 are subject to a $5 processing fee.
- --------------------------------------------------------------------------------
EXCHANGE REDEMPTIONS
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------

FUND EXPRESS REDEMPTIONS
Vanguard will electronically transfer funds to your pre-linked checking or
savings account.

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

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

*For instance, a signature guarantee must be provided by all registered account
shareholders when redemption proceeds are to be sent to a different person or
address. A signature guarantee can be obtained from most commercial and savings
banks, credit unions, trust companies, or member firms of a U.S. stock
exchange.

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 a 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 A FUND
during any 12-month period.
- - Your round trips through a Fund must be at least 30 days apart.
- - A 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.

<PAGE>

A "round trip" is a redemption from the Fund followed by a purchase back into
the Fund. Also, a "round trip" covers transactions accomplished by any
combination of methods, including transactions conducted by check, wire, or
exchange to/from another Vanguard fund. "Substantive" means a dollar amount that
Vanguard determines, in its sole discretion, could adversely affect the
management of the Fund.
- --------------------------------------------------------------------------------
RETURN YOUR SHARE CERTIFICATES
Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:

The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
ALL TRADES ARE FINAL
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.
- --------------------------------------------------------------------------------
UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
- --------------------------------------------------------------------------------

TRANSFERRING REGISTRATION

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

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

For clients of Vanguard's Institutional Division . . .

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 19482-1110 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------

<PAGE>

FUND AND ACCOUNT UPDATES

STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.
In addition, you will receive financial reports about your Fund twice a
year. These comprehensive reports include an assessment of the Fund's
performance (and a comparison to its industry benchmark), an overview of the
financial markets, a report from the advisers, and the Fund's financial
statements which include a listing of the Fund's holdings.
To keep each Fund's costs as low as possible (so that you and other shareholders
can keep more of the Fund's investment earnings), Vanguard attempts to eliminate
duplicate mailings to the same address. When two or more Fund shareholders have
the same last name and address, we send just one Fund report to that
address--instead of mailing separate reports to each shareholder. If you want us
to send separate reports, notify our Client Services Department at
1-800-662-2739.
- --------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY [BOOKLET]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
FUND FINANCIAL REPORTS
Mailed in February and August for these Funds.
- --------------------------------------------------------------------------------
TAX STATEMENTS
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
AVERAGE COST REVIEW STATEMENT [BOOKLET]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using only the average cost single category method.
- --------------------------------------------------------------------------------
CHECKWRITING STATEMENT
Sent monthly to shareholders using Vanguard's checkwriting option. Our statement
provides images of the front and back of each checkwriting draft paid in the
previous month. This consolidated statement is sent instead of the original
canceled drafts, which will not be returned.
- --------------------------------------------------------------------------------

<PAGE>

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<PAGE>

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<PAGE>

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<PAGE>

GLOSSARY OF INVESTMENT TERMS

ACTIVE MANAGEMENT
An investment approach that seeks to exceed the average returns of the financial
markets. Active managers rely on research, market forecasts, and their own
judgment and experience in selecting securities to buy and sell.

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

CORPORATE BOND
An IOU issued by a business that wants to borrow money. As with other types of
bonds, the issuer promises to repay the borrowed money on a specific date and to
make interest payments in the meantime.

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.

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

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

INDEX
An unmanaged group of securities whose overall performance is used as a standard
to measure investment performance.

INTERNATIONAL DOLLAR-DENOMINATED BOND
A bond denominated in U.S. dollars issued by foreign governments and companies.
Because the bond's value is designated in dollars, an investor is not exposed to
foreign currency risk.

INVESTMENT GRADE
A bond whose credit quality is considered by independent bond-rating agencies to
be sufficient to ensure timely payment of principal and interest under current
economic circumstances. Bonds rated in one of the four highest rating categories
are considered "investment grade."

MORTGAGE-BACKED SECURITY
A bond or pass-through certificate that represents an interest in an underlying
pool of mortgages and is issued by any number of government agencies or private
corporations. Unlike ordinary fixed-income securities, mortgage-backed
securities pay both interest and principal as part of their regular payments.

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.

PASSIVE MANAGEMENT
A low-cost investment strategy in which a mutual fund attempts to match--rather
than outperform--a particular stock or bond market index. Also known as
indexing.

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

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

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

<PAGE>

[SHIP]
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION
If you'd like more information about
Vanguard Bond Index Funds, the
following documents are available
free upon request:

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

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

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

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

THE VANGUARD GROUP
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 shareholder of
any of the Funds and would like
information about your account,
account transactions, and/or
account statements, please call:

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

TEXT TELEPHONE:
1-800-749-7273

INFORMATION PROVIDED BY THE
SECURITIES AND EXCHANGE
COMMISSION (SEC)
You can review and copy information
about the Funds (including the SAI)
at the SEC's Public Reference Room
in Washington, DC. To find out more
about this public service, call the
SEC at 1-202-942-8090. Reports and
other information about the Funds
are also available on the SEC's
website (www.sec.gov), or you can
receive copies of this information,
for a fee, by electronic request at the
following e-mail address:
[email protected], or by writing
the Public Reference Section,
Securities and Exchange
Commission, Washington, DC
20549-0102.

Funds' Investment Company Act
file number: 811-4681

P084N-04/28/2000

<PAGE>

VANGUARD(R)
BOND INDEX FUNDS

Participant Prospectus
April 28, 2000

This prospectus contains
financial data for the
Funds through the
fiscal year ended
December 31, 1999.

VANGUARD TOTAL BOND
MARKET INDEX FUND

VANGUARD SHORT-TERM
BOND INDEX FUND

VANGUARD INTERMEDIATE-
TERM BOND INDEX FUND

VANGUARD LONG-TERM
BOND INDEX FUND

<PAGE>

VANGUARD BOND INDEX FUNDS
Participant Prospectus
April 28, 2000

A Group of Bond Index Mutual Funds

- --------------------------------------------------------------------------------
CONTENTS
1 AN INTRODUCTION TO INDEX FUNDS 21 THE FUNDS AND VANGUARD

2 FUND PROFILES 21 INVESTMENT ADVISER

2 Vanguard Total Bond Market Index 22 DIVIDENDS, CAPITAL GAINS, AND TAXES
Fund
23 SHARE PRICE
5 Vanguard Short-Term Bond Index
Fund 23 FINANCIAL HIGHLIGHTS

8 Vanguard Intermediate-Term Bond 27 INVESTING WITH VANGUARD
Index Fund
28 ACCESSING FUND INFORMATION BY
11 Vanguard Long-Term Bond Index COMPUTER
Fund
GLOSSARY (inside back cover)
14 MORE ON THE FUNDS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of each of the
Vanguard Bond Index Funds. To highlight terms and concepts important to mutual
fund investors, we have provided ''Plain Talk(R)'' explanations along the way.
Reading the prospectus will help you to decide which Funds', if any, are the
right investments for you. We suggest that you keep it for future reference.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
IMPORTANT NOTE
The Total Bond Market Index Fund offers two separate classes of shares: Investor
and Institutional. This prospectus offers the Fund's Investor Shares to
participants in employer-sponsored retirement or savings plans. Please call
Vanguard to obtain separate prospectuses that offer:
- - Investor Shares for private investors ($3,000 minimum)--1-800-662-7447
- - Institutional Shares for very large investors ($10 million
minimum)--1-800-523-1036
The Fund's separate share classes have different expenses; as a result,
their investment performances will vary. UNLESS OTHERWISE NOTED, ALL REFERENCES
IN THIS PROSPECTUS TO FEES, EXPENSES, AND INVESTMENT PERFORMANCE RELATE
SPECIFICALLY TO INVESTOR SHARES.
- -------------------------------------------------------------------------------

AN INTRODUCTION TO INDEX FUNDS

WHAT IS INDEXING?

WHAT INDEX FUNDS DOES VANGUARD OFFER?

Vanguard offers a variety of stock (both U.S. and international), bond, and
balanced index funds. This prospectus provides information about Vanguard's Bond
Index Funds. There are four such funds, each of which seeks to track a different
segment of the U.S. bond market:

This prospectus contains profiles that summarize key features of each Fund.
Following the profiles, there is important additional information about the
Funds.
<PAGE>

FUND PROFILE--VANGUARD(R) TOTAL BOND MARKET INDEX FUND

The following profile summarizes key features of Vanguard Total Bond Market
Index Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a broad, market-weighted bond index.

The Fund invests at least 80% of its total assets in bonds represented in
the Index. The remainder of its assets may be invested outside the Index, in
bonds whose characteristics and risks--including maturity, credit quality, and
issuer type-- are similar to those in the Index. To the extent that the Fund
invests outside the Index, it may employ active management strategies. The Index
and non-Index securities, in combination, will have characteristics and risks
similar to the Index. The Fund maintains a dollar-weighted average maturity of
between 5 and 10 years. For more information about passive management, see
"Indexing Methods" under MORE ON THE FUNDS.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These include:

<PAGE>

3
PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risks 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 bond market index. Keep in mind that the Fund's past performance
does not indicate how it will perform in the future.

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------
1990 8.65%
1991 15.25%
1992 7.14%
1993 9.68%
1994 -2.66%
1995 18.18%
1996 3.58%
1997 9.44%
1998 8.58%
1999 -0.76%
----------------------------------------------------

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------
Vanguard Total Bond Market Index Fund -0.76% 7.62% 7.54%
Lehman Brothers Aggregate Bond Index -0.82 7.73 7.70
-------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

*A portfolio transaction fee of 0.18% may apply to aggregate purchases
over $250 million by a single investor.

<PAGE>

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are declared daily and distributed on TotBd
the first business day of each month; capital
gains, if any, are distributed annually in VANGUARD FUND NUMBER
December 084

INVESTMENT ADVISER CUSIP NUMBER
The Vanguard Group, Valley Forge, Pa., 921937108
since inception
TICKER SYMBOL
INCEPTION DATE VBMFX
December 11, 1986

NET ASSETS (ALL SHARE CLASSES) AS OF
DECEMBER 31, 1999
$12.68 billion
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE--VANGUARD(R) SHORT-TERM BOND INDEX FUND

The following profile summarizes key features of Vanguard Short-Term Bond Index
Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a market-weighted bond index with a
short-term dollar-weighted average maturity.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These 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.
Interest rate risk should be low for short-term bonds.
- - Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk is generally higher for short-term
bond funds than for long-term bond funds.
- - Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.
- - Index sampling risk, which is the chance that the securities selected for
the Fund do not provide investment performance matching that of the Index.
Index sampling risk for the Fund should be low.

<PAGE>

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------
1995 12.88%
1996 4.55%
1997 7.04%
1998 7.63%
1999 2.08%
----------------------------------------------------

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
-------------------------------------------------------------------------
Vanguard Short-Term Bond Index Fund 2.08% 6.77% 5.71%
Lehman Brothers 1-5 Year Government/
Corporate Index 2.09 6.82 5.78
-------------------------------------------------------------------------
* March 1, 1994.
-------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

*A portfolio transaction fee of 0.15% may apply to aggregate purchases
over $50 million by a single investor.
<PAGE>

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are declared daily and distributed on STBond
the first business day of each month; capital
gains, if any, are distributed annually in VANGUARD FUND NUMBER
December 132

INVESTMENT ADVISER CUSIP NUMBER
The Vanguard Group, Valley Forge, Pa., 921937207
since inception
TICKER SYMBOL
INCEPTION DATE VBISX
March 1, 1994

NET ASSETS AS OF DECEMBER 31, 1999
$1.16 billion
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE--VANGUARD(R) INTERMEDIATE-TERM BOND INDEX FUND

The following profile summarizes key features of Vanguard Intermediate-Term Bond
Index Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a market-weighted bond index with an
intermediate-term dollar-weighted average maturity.

INVESTMENT STRATEGIES
The Fund employs a "passively managed"-- or index--investment approach, by
holding a sample of bonds that seeks to match the performance of the Lehman
Brothers 5-10 Year Government/Corporate Bond Index. This Index includes all U.S.
government, investment-grade corporate, and international dollar-denominated
bonds, all with maturities between 5 and 10 years.
The Fund invests at least 65% of its total assets in bonds represented in
the Index. The remainder of its assets may be invested outside the Index, in
bonds whose characteristics and risks--including maturity, credit quality, and
issuer type--are similar to those of the Index. To the extent the Fund invests
outside the Index, it may employ active management strategies. The Index and
non-Index securities, in combination, will have characteristics and risks
similar to the Index. The Fund maintains a dollar-weighted average maturity of
between 5 and 10 years. For more information about passive management, see
"Indexing Methods" under MORE ON THE FUNDS.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These 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.
Interest rate risk should be moderate for intermediate-term bond funds.
- - Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk should be moderate for
intermediate-term bond funds.
- - Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.
- - Index sampling risk, which is the chance that the securities selected for
the Fund do not provide investment performance matching that of the Index.
Index sampling risk for the Fund should be low.

PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual total returns for
one and five calendar years and since inception compare with those of a
market-weighted intermediate-term bond index. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.

<PAGE>

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------
1995 21.07%
1996 2.55%
1997 9.41%
1998 10.09%
1999 -3.00%
----------------------------------------------------

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
-------------------------------------------------------------------------
Vanguard Intermediate-Term Bond
Index Fund -3.00% 7.72% 6.05%
Lehman Brothers 5-10 Year Government/
Corporate Index -2.88 7.86 6.15
-------------------------------------------------------------------------
* March 1, 1994.
-------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

*A portfolio transaction fee of 0.23% may apply to aggregate purchases
over $50 million by a single investor.

<PAGE>

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are declared daily and distributed on ITBond
the first business day of each month; capital
gains, if any, are distributed annually in VANGUARD FUND NUMBER
December 314

INVESTMENT ADVISER CUSIP NUMBER
The Vanguard Group, Valley Forge, Pa., 921937306
since inception TICKER SYMBOL
VBIIX
INCEPTION DATE
March 1, 1994

NET ASSETS AS OF DECEMBER 31, 1999
$1.45 billion
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE--VANGUARD(R) LONG-TERM BOND INDEX FUND

The following profile summarizes key features of Vanguard Long-Term Bond Index
Fund.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a market-weighted bond index with a
long-term dollar-weighted average maturity.

INVESTMENT STRATEGIES
The Fund employs a "passively managed"--or index--investment approach, by
holding a sample of bonds that seeks to match the performance of the Lehman
Brothers Long Government/Corporate Bond Index. This Index is made up of all U.S.
government, investment-grade corporate, and international dollar-denominated
bonds, all with maturities greater than 10 years.
The Fund invests at least 65% of its total assets in bonds represented in
the Index. The remainder of its assets may be invested outside the Index, in
bonds whose characteristics--including maturity, credit quality, and issuer
type--are similar to those of the Index. To the extent that the Fund invests
outside the Index, it may employ active management strategies. The Index and
non-Index securities, in combination, will have characteristics and risks
similar to the Index. The Fund maintains a dollar-weighted average maturity of
between 20 and 30 years. For more information about passive management, see
"Indexing Methods" under MORE ON THE FUNDS.

PRIMARY RISKS
The Fund is subject to several risks, any of which could cause investors to lose
money. These include:

PERFORMANCE/RISK INFORMATION
The following bar chart and table provide an indication of the risk of investing
in the Fund. The bar chart shows the Fund's performance in each calendar year
since inception. The table shows how the Fund's average annual total returns for
one and five calendar years and since inception compare with those of a
market-weighted long-term bond index. Keep in mind that the Fund's past
performance does not indicate how it will perform in the future.

<PAGE>

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------
1995 29.72%
1996 -0.26%
1997 14.30%
1998 11.98%
1999 -7.85%
----------------------------------------------------

-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION*
-------------------------------------------------------------------------
Vanguard Long-Term Bond Index Fund -7.85% 8.82% 6.66%
Lehman Brothers Long Government/
Corporate Index -7.65 8.99 6.78
-------------------------------------------------------------------------
* March 1, 1994.
-------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.17%
12b-1 Distribution Fee: None
Other Expenses: 0.03%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.20%

*A portfolio transaction fee of 0.21% may apply to aggregate purchases
over $10 million by a single investor.

<PAGE>

-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$20 $64 $113 $255
-------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are declared daily and distributed on LTBond
the first business day of each month; capital
gains, if any, are distributed annually in VANGUARD FUND NUMBER
December 522

INVESTMENT ADVISER CUSIP NUMBER
The Vanguard Group, Valley Forge, Pa., 921937405
since inception
TICKER SYMBOL
VBLTX
INCEPTION DATE
March 1, 1994

NET ASSETS AS OF DECEMBER 31, 1999
$313 million
- --------------------------------------------------------------------------------

<PAGE>

MORE ON THE FUNDS

The following sections discuss other important features of Vanguard Bond Index
Funds, including indexing methods, security selection, additional risk
information, costs and market-timing, turnover rate, and other investment
policies and risks.

WHY INVEST IN INDEX FUNDS?

Index funds appeal to many investors for a number of reasons:

- - Variety of investments. Vanguard index funds generally invest in a wide
variety of companies and industries.
- - Relative performance consistency. Because they seek to track market
benchmarks, index funds by definition should not perform dramatically
better or worse than their target indexes.
- - Low cost. Index funds are inexpensive to run as compared to actively
managed funds. They have lower research costs and keep trading activity,
and thus trading costs, to a minimum.

INDEXING METHODS

CORPORATE SUBSTITUTION STRATEGY

In "sampling" its target index, each Fund has the flexibility to overweight
particular types of bonds relative to their representation in the index. For the
Total Bond Market Index and Short-Term Bond Index Funds, this normally involves
substituting corporate bonds for government bonds of the same maturity. The
corporate substitution strategy increases a

<PAGE>

As of December 31, 1999, each Fund's target index was composed of the following
types of bonds:

An explanation of each type of bond follows:
- - U.S. government securities include U.S. Treasury and agency bonds, which
represent loans by investors to the U.S. Treasury Department or a wide
variety of governmental agencies and instrumentalities. Timely payment of
principal and interest on U.S. Treasury bonds is always guaranteed by the
full faith and credit of the U.S. government; many (but not all) agency
bonds have the same guarantee.
- - Corporate bonds are IOUs issued by businesses that want to borrow money for
some purpose--often to develop a new product or service, to expand into a
new market, or to buy another company. As with other types of bonds, the
issuer promises to repay the principal on a specific date and to make
interest payments in the meantime. The amount of interest offered depends
on market conditions and also on the financial health of the corporation
issuing the bonds; a company whose credit rating is not strong will have to
offer a higher interest rate to obtain buyers for its bonds. (Note: The
Bond Index Funds expect to invest only in investment-grade corporate bonds,
which are corporate bonds rated in one of the four highest rating
categories by independent bond-rating agencies).

- - International dollar-denominated bonds (or yankee bonds) are bonds
denominated in U.S. dollars issued by foreign governments and companies.
Because the bond's value is designated in dollars rather than the currency
of the issuer's country, the investor is not exposed to currency risk;
rather, the issuer assumes that risk, usually in order to attract U.S.
investors.

ADDITIONAL RISK INFORMATION
The Funds are subject to several risks associated with investments in bonds.

[FLAG] EACH FUND IS SUBJECT TO INTEREST RATE RISK, WHICH IS THE CHANCE THAT BOND
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS DUE TO RISING
INTEREST RATES. INTEREST RATE RISK SHOULD BE LOW FOR SHORTER-TERM BONDS,
MODERATE FOR INTERMEDIATE-TERM BOND FUNDS, AND HIGH FOR LONGER-TERM BOND
FUNDS.

Changes in interest rates will affect bond income as well as bond prices.

[FLAG]EACH FUND IS SUBJECT TO INCOME RISK, WHICH IS THE CHANCE THAT A FUND'S
DIVIDENDS (INCOME) WILL DECLINE DUE TO FALLING INTEREST RATES. INCOME RISK
IS GENERALLY HIGHER FOR SHORT-TERM BOND FUNDS AND LOWER FOR LONG-TERM BOND
FUNDS.

In the past, bond investors have seen the value of their investment rise
and fall--sometimes significantly--with changes in interest rates. Between
December 1976 and September 1981, for instance, rising interest rates caused
long-term bond prices to fall by almost 48%.

<PAGE>

17
Because each Fund invests mainly in bonds, changes in interest rates will
impact, to varying degrees, the value of each Fund's assets. To illustrate how
much of an impact, thefollowing table shows the effect of a 1% and a 2% change
(both up and down) in interest rates on three bonds with a face value of $1,000;
each has a different maturity.

With only a portion of its assets invested in mortgage-backed securities,
prepayment risk for the Total Bond Market Index Fund is moderate.
<PAGE>

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

[FLAG]EACH FUND IS SUBJECT TO INDEX SAMPLING RISK, WHICH IS THE CHANCE THAT THE
SECURITIES SELECTED FOR A FUND DO NOT PROVIDE INVESTMENT PERFORMANCE
MATCHING THAT OF THE INDEX. INDEX SAMPLING RISK FOR EACH FUND SHOULD BE
LOW.

19
To help you distinguish between the Funds and their various risks, a
summary table is provided below.

COSTS AND MARKET-TIMING
Some investors try to profit from a strategy called market-timing--switching
money into investments when they expect prices to rise, and taking money out
when they expect prices to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, Vanguard Bond Index Funds have adopted the following policies, among
others, to discourage short-term trading:

- - Each Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. A purchase request could be rejected
because of the timing of the investment or because of a history of
excessive trading by the investor.
- - There is a limit on the number of times you can exchange into and out of a
Fund (see "Exchanges" in the INVESTING WITH VANGUARD section).
- - Each Fund reserves the right to stop offering shares at any time.
THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THESE
FUNDS IF YOU ARE A MARKET-TIMER.

TURNOVER RATE

Although the Funds generally seek to invest for the long term, they may sell
securities regardless of how long the securities have been held. Shorter-term
bonds will mature or be sold, and need to be replaced, more frequently than
longer-term bonds. As a result, shorter-term bond funds tend to have higher
turnover rates than longer-term bond funds.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
TURNOVER RATE
Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. As of December 31, 1999 the average turnover rate for
passively managed domestic bond funds was roughly 68%; for all domestic bond
funds, the average turnover rate was approximately 150%, according to
Morningstar, Inc.
- --------------------------------------------------------------------------------

<PAGE>

OTHER INVESTMENT POLICIES AND RISKS
Besides investing in fixed-income securities comprising its target index, each
Fund may invest up to 35% of its total assets, (20% in the case of the Total
Bond Market Index Fund), in fixed income securities not in the target index. The
Funds may purchase non-public, investment-grade securities, generally referred
to as 144A securities, as well as smaller public issues or medium-term notes not
included in the index due to the small size of the issue. The vast majority of
these securities will have characteristics and risks similar to those in the
target indexes. The Short-Term, Intermediate-Term, and Long-Term Bond Index
Funds may also purchase securities that are outside of their target indexes, but
are within the larger Lehman Brothers Aggregate Bond Index. Each Fund may also
purchase money market instruments and certain derivatives in order to manage
cash flow into and out of the Fund, reduce the Fund's transaction costs, or add
value when these instruments are favorably priced.

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

[FLAG] THE FUNDS MAY INVEST, TO A LIMITED EXTENT, IN DERIVATIVES.

The Funds may invest, to a limited extent, in bond (interest rate) futures
and options contracts and other types of derivatives. Losses (or gains)
involving futures can sometimes be substantial--in part because a relatively
small price movement in a futures contract may result in an immediate and
substantial loss (or gain) for a fund. The Funds will not use futures for
speculative purposes or as leveraged investments that magnify the gains or
losses of an investment. Each Fund's obligation to purchase securities under
futures contracts will not exceed 20% of its total assets. The reasons for which
a Fund will invest in futures and options are:

THE FUNDS AND VANGUARD

INVESTMENT ADVISER

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUNDS' ADVISER
The individuals responsible for overseeing the Funds' investments are:

DIVIDENDS, CAPITAL GAINS, AND TAXES

Each Fund distributes to shareholders virtually all of its net income (interest
less expenses), as well as any capital gains realized from the sale of its
holdings. The Fund's income dividends accrue daily and are distributed on the
first business day of every month; capital gains distributions generally occur
in December. In addition, the Fund may occasionally be required to make
supplemental capital gains distributions at some other time during the year.
Your dividend and capital gains distributions will be reinvested in
additional Fund shares and accumulate on a tax-deferred basis if you are
investing through an employer-sponsored retirement or savings plan. You will not
owe taxes on these distributions until you begin withdrawals from the plan. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of plan withdrawals.

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

<PAGE>

SHARE PRICE

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

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

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand
each Fund's financial performance for the past five years, and certain
information reflects financial results for a single Fund share in each case. The
total returns in each table represent the rate that an investor would have
earned or lost each year on an investment in the Funds (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 each Fund's financial statements--is
included in the Funds' most recent annual report to shareholders. You may have
the annual report sent to you without charge by contacting Vanguard.
<PAGE>

Shareholders received $0.632 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 dividend or capital gains.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD TOTAL BOND MARKET INDEX FUND
INVESTOR SHARES
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.27 $10.09 $9.84 $10.14 $ 9.17
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .617 .624 .645 .640 .650
Net Realized and Unrealized Gain (Loss) on
Investments (.695) .218 .250 (.300) .970
-----------------------------------------------------------------
Total from Investment Operations (.078) .842 .895 .340 1.620
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.617) (.624) (.645) (.640) (.650)
Distributions from Realized Capital Gains (.015) (.038) -- -- --
-----------------------------------------------------------------
Total Distributions (.632) (.662) (.645) (.640) (.650)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.56 $10.27 $10.09 $ 9.84 $10.14
===================================================================================================================
TOTAL RETURN -0.76% 8.58% 9.44% 3.58% 18.18%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $9,477 $7,765 $5,129 $2,962 $2,405
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 6.26% 6.10% 6.54% 6.54% 6.66%
Turnover Rate 55% 57%* 39% 39% 36%
===================================================================================================================
</TABLE>

*Turnover rate excluding in-kind redemptions was 56%.

<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD SHORT-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.10 $10.00 $ 9.92 $10.07 $ 9.50
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .539 .574 .597 .587 .623
Net Realized and Unrealized Gain (Loss) on
Investments (.336) .168 .080 (.146) .570
------------------------------------------------------------
Total from Investment Operations .203 .742 .677 .441 1.193
-----------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.539) (.574) (.597) (.587) (.623)
Distributions from Realized Capital Gains (.034) (.068) -- (.004) --
------------------------------------------------------------
Total Distributions (.573) (.642) (.597) (.591) (.623)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.73 $10.10 $10.00 $ 9.92 $10.07
===================================================================================================================
TOTAL RETURN 2.08% 7.63% 7.04% 4.55% 12.88%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,156 $709 $446 $328 $208
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 5.48% 5.68% 6.03% 5.93% 6.28%
Turnover Rate 108% 112% 88% 65% 65%
===================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD INTERMEDIATE-TERM BOND
INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.48 $10.20 $ 9.96 $10.37 $ 9.18
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .628 .647 .661 .648 .661
Net Realized and Unrealized Gain (Loss) on
Investments (.936) .353 .240 (.406) 1.217
------------------------------------------------------------
Total from
Investment Operations (.308) 1.000 .901 .242 1.878
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.628) (.647) (.661) (.648) (.661)
Distributions from
Realized Capital Gains (.034) (.073) -- (.004) (.027)
------------------------------------------------------------
Total Distributions (.662) (.720) (.661) (.652) (.688)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.51 $10.48 $10.20 $ 9.96 $10.37
===================================================================================================================
TOTAL RETURN -3.00% 10.09% 9.41% 2.55% 21.07%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,449 $1,102 $687 $460 $346
Ratio of Total
Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 6.33% 6.23% 6.64% 6.54% 6.55%
Turnover Rate 120% 77% 56% 80% 71%
===================================================================================================================
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
VANGUARD LONG-TERM BOND INDEX FUND
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.32 $10.78 $10.08 $10.82 $ 8.96
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .662 .666 .678 .674 .692
Net Realized and Unrealized Gain (Loss) on
Investments (1.531) .588 .700 (.731) 1.884
------------------------------------------------------------
Total from Investment Operations (.869) 1.254 1.378 (.057) 2.576
------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.662) (.666) (.678) (.674) (.692)
Distributions from Realized Capital Gains (.019) (.048) -- (.009) (.024)
------------------------------------------------------------
Total Distributions (.681) (.714) (.678) (.683) (.716)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 9.77 $11.32 $10.78 $10.08 $10.82
===================================================================================================================
TOTAL RETURN -7.85% 11.98% 14.30% -0.26% 29.72
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $313 $210 $88 $44 $24
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of Net Investment Income to
Average Net Assets 6.39% 6.01% 6.66% 6.75% 6.90%
Turnover Rate 61% 57% 58% 46% 45%
===================================================================================================================
</TABLE>

"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

One or more of the Funds 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 a
Fund as an investment option.
- - If you have any questions about a Fund or Vanguard, including those about a
Fund's investment objective, strategies, or risks, contact Vanguard's
Participant Access Center, toll-free, at 1-800-523-1188.
- - If you have questions about your account, contact your plan administrator
or the organization that provides recordkeeping services for your plan.

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

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

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

<PAGE>

ACCESSING FUND INFORMATION BY COMPUTER

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