VANGUARD EQUITY INCOME FUND INC
485BPOS, 2001-01-16
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM N-1A

                   REGISTRATION STATEMENT (NO. 33-19446) UNDER
                           THE SECURITIES ACT OF 1933



                          PRE-EFFECTIVE AMENDMENT NO.
                        POST-EFFECTIVE AMENDMENT NO. 22

                                      AND


        REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940


                                AMENDMENT NO. 24



                              VANGUARD FENWAY 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 JANUARY 19, 2001, PURSUANT TO PARAGRAPH (B) OF RULE 485.




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<PAGE>


VANGUARD(R) EQUITY INCOME FUND

INVESTOR SHARES - JANUARY 19, 2001

This prospectus
contains financial data
for the Fund through
the fiscal year ended
September 30, 2000.

STOCK

PROSPECTUS

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
commission has approved or  disapproved  of these  securities or passed upon the
accurace or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.


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

<PAGE>

VANGUARD EQUITY INCOME FUND
Prospectus
January 19, 2001

A Value Stock Mutual Fund

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  CONTENTS
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  1 FUND PROFILE

  3 ADDITIONAL INFORMATION

  3 MORE ON THE FUND

  8 THE FUND AND VANGUARD

  8 INVESTMENT ADVISERS

 10 DIVIDENDS, CAPITAL GAINS, AND TAXES

 12 SHARE PRICE

 12 FINANCIAL HIGHLIGHTS

 14 INVESTING WITH VANGUARD

    14  Buying Shares

    15  Redeeming Shares

    17  Other Rules You Should Know

    19  Fund and Account Updates

    20  Contacting Vanguard

 GLOSSARY (inside back cover)
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WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the investment  objective,  policies,  strategies,  and
risks  associated  with the Fund. To highlight  terms and concepts  important to
mutual fund investors,  we have provided "Plain Talk(R)"  explanations along the
way.  Reading the prospectus  will help you decide whether the Fund is the right
investment  for you.  We  suggest  that  you keep  this  prospectus  for  future
reference.
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<PAGE>

                                                                               1

FUND PROFILE

The Fund seeks to provide high current income and reasonable  long-term  capital
growth.

INVESTMENT STRATEGIES

The Fund invests mainly in dividend-paying  common stocks of established,  large
U.S. companies.  Each stock is purchased when it is undervalued  relative to its
individual history and to the market.  Generally,  at the time of purchase,  the
stocks are out of favor with the investment community.

PRIMARY RISKS

An investment in the Fund could lose money over short or even long periods.  You
should expect the Fund's share price and total return to fluctuate within a wide
range like the overall stock market.  The Fund's performance could be hurt by:

-    Investment   style   risk,   which  is  the  chance   that   returns   from
     large-capitalization  value  stocks--which  make  up  most  of  the  Fund's
     holdings--will  trail returns from other asset classes or the overall stock
     market.  Specific  types  of  stocks  tend to go  through  cycles  of doing
     better--or  worse--than the stock market in general. These periods have, in
     the past, lasted for as long as several years.

-    Manager risk,  which is the chance that poor security  selection will cause
     the Fund to underperform other funds with similar investment objectives.

PERFORMANCE/RISK INFORMATION

The  following  bar  chart is  intended  to help  you  understand  the  risks of
investing in the Fund. It shows how the Fund's  performance  has varied from one
calendar year to another over the past ten years. In addition,  there is a table
that shows how the Fund's  average  annual total  returns  compare with those of
relevant  market indexes over set periods of time.  Keep in mind that the Fund's
past performance does not indicate how it will perform in the future.

       ----------------------------------------------------
                        ANNUAL TOTAL RETURNS
      [SCALE -40% TO 80%]
                        1991          25.38%
                        1992           9.18%
                        1993          14.65%
                        1994          -1.59%
                        1995          37.34%
                        1996          17.39%
                        1997          31.17%
                        1998          17.34%
                        1999          -0.19%
                        2000          13.57%
      ----------------------------------------------------

     During the period shown in the bar chart, the highest return for a calendar
quarter was 13.38%  (quarter ended March 31, 1991),  and the lowest return for a
quarter was -8.37% (quarter ended September 30, 1999).

      --------------------------------------------------------------------
        AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 2000
      --------------------------------------------------------------------
                                       1 YEAR     5 YEARS       10 YEARS
      --------------------------------------------------------------------
      Vanguard Equity Income Fund       13.57%     15.42%        15.82%
      Standard & Poor's 500 Index       -9.10      18.33         17.46
      Average Equity Income Fund*        6.77      13.06         14.33
      --------------------------------------------------------------------

<PAGE>

2

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 on those incurred in the fiscal year ended September 30, 2000.


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

      ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
      Management Expenses:                                                0.40%
      12b-1 Distribution Fee:                                              None
      Other Expenses:                                                     0.03%
       TOTAL ANNUAL FUND OPERATING EXPENSES:                              0.43%

     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's  shares.  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 the given period.

--------------------------------------------------
   1 YEAR      3 YEARS    5 YEARS      10 YEARS
--------------------------------------------------
    $44         $138       $241         $542
--------------------------------------------------

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

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

 All mutual funds have operating  expenses.  These expenses,  which are deducted
 from a fund's gross income,  are expressed as a percentage of the net assets of
 the fund.  Vanguard  Equity Income Fund's expense ratio in fiscal year 2000 was
 0.43%,  or $4.30 per $1,000 of average net assets.  The average  equity  income
 mutual fund had expenses in 1999 of 1.38%,  or $13.80 per $1,000 of average net
 assets (derived from data provided by Lipper Inc.,  which reports on the mutual
 fund industry).  Management expenses, which are one part of operating expenses,
 include  investment  advisory  fees  as well  as  other  costs  of  managing  a
 fund--such as account  maintenance,  reporting,  accounting,  legal,  and other
 administrative expenses.
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<PAGE>

                                                                               3

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                               PLAIN TALK ABOUT
                              COSTS OF INVESTING

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

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ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS               NET ASSETS AS OF SEPTEMBER 30, 2000
Dividends are distributed quarterly in    $2.4 billion
March, June, September, and December;
capital gains, if any, are distributed    SUITABLE FOR IRAS
in December                               Yes

INVESTMENT ADVISERS                       MINIMUM INITIAL INVESTMENT
- Newell Associates, Palo Alto, Calif.,   $3,000; $1,000 for IRAs and custodial
  since inception                         accountsfor minors
- John A. Levin & Co., Inc., New York
  City, N.Y., since 1995                  NEWSPAPER ABBREVIATION
- Wellington Management Company, LLP,     EqInc
  Boston, Mass., since 2000
- The Vanguard Group, Valley Forge, Pa.,  VANGUARD FUND NUMBER
  since 1998                              065

INCEPTION DATE                            CUSIP NUMBER
March 21, 1988                            921921102

                                          TICKER SYMBOL
                                          VEIPX
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MORE ON THE FUND

This  prospectus  describes  risks you would face as a Fund  shareholder.  It is
important  to keep in mind one of the main axioms of  investing:  The higher the
risk of losing money,  the higher the potential  reward.  The reverse,  also, is
generally  true:  The lower the risk,  the lower the  potential  reward.  As you
consider an  investment  in any mutual  fund,  you should take into account your
personal  tolerance for daily fluctuations in the securities  markets.  Look for
this [FLAG] symbol  throughout  the  prospectus.  It is used  to  mark  detailed
information  about  each  type  of  risk  that  you  would  confront  as a  Fund
shareholder.

     The  following  sections  explain the  primary  investment  strategies  and
policies  that the Fund uses in pursuit of its  objective.  The Fund's  board of
trustees, which oversees the Fund's management, may change investment strategies
or policies in the interest of  shareholders  without a shareholder  vote unless
those strategies or policies are designated as fundamental.

     Finally, you'll find information on other important features of the Fund.

MARKET EXPOSURE

The Fund invests  mainly in common stocks of large,  established  companies that
pay  above-average  dividends.  At the time of purchase by the Fund,  a stock is
usually out of favor with the investment  community and undervalued  relative to
its individual history and to the market.

<PAGE>

4

     Stocks  purchased by the Fund are expected to produce a relatively high and
stable  level  of  income,  and to have  the  potential  for  long-term  capital
appreciation.  In the past,  stocks with  relatively  high dividend  yields have
tended to lag the overall stock market during rising markets,  and to outperform
it during periods of flat or declining prices.

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

 Value  investing  and growth  investing  are two styles  employed by stock fund
 managers.  Value funds generally  emphasize  stocks of companies from which the
 market does not expect strong growth.  The prices of value stocks typically are
 below-average  in comparison  to such measures as earnings and book value,  and
 these  stocks  typically  have  above-average  dividend  yields.  Growth  funds
 generally  focus on  companies  believed to have  above-average  potential  for
 growth in revenue and earnings.  Reflecting the market's high  expectations for
 superior   growth,   such  stocks   typically  have  low  dividend  yields  and
 above-average  prices in relation to such  measures as revenue,  earnings,  and
 book  value.  Value and  growth  stocks  have,  in the past,  produced  similar
 long-term  returns,  though each category has periods when it  outperforms  the
 other.  In general,  value funds are  appropriate  for  investors who want some
 dividend  income and the potential for capital gains,  but are less tolerant of
 share-price  fluctuations.  Growth funds, by contrast,  appeal to investors who
 will  accept more  volatility  in hopes of a greater  increase in share  price.
 Growth  funds also may appeal to  investors  with  taxable  accounts who want a
 higher  proportion  of returns to come as capital  gains (which may be taxed at
 lower rates than dividend income).
--------------------------------------------------------------------------------

[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK,  WHICH IS THE CHANCE THAT STOCK
     PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS.  STOCK MARKETS
     TEND TO MOVE IN  CYCLES,  WITH  PERIODS  OF RISING  PRICES  AND  PERIODS OF
     FALLING PRICES.

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

----------------------------------------------------------
         U.S. STOCK MARKET RETURNS (1926-2000)
----------------------------------------------------------
                     1 YEAR  5 YEARS  10 YEARS   20 YEARS
----------------------------------------------------------
Best                  54.2%   28.6%    19.9%      17.8%
Worst                -43.1   -12.4     -0.8        3.1
Average               12.9    11.1     11.2       11.2
----------------------------------------------------------

     The table  covers all of the 1-, 5-,  10-,  and 20-year  periods  from 1926
through 2000. You can see, for example,  that while the average return on common
stocks for all of the 5-year periods was 11.1%,  returns for  individual  5-year
periods  ranged from a -12.4%  average  (from 1928 through  1932) to 28.6% (from
1995 through 1999).  These average  returns  reflect past  performance on common
stocks;  you should not regard  them as an  indication  of future  returns  from
either the stock market as a whole or this Fund in particular.

<PAGE>

                                                                               5

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                               PLAIN TALK ABOUT
                             FUND DIVERSIFICATION

 In general,  the more  diversified  a fund's stock or bond  holdings,  the less
 likely  that  fund  performance  may be  hurt  disproportionately  by the  poor
 performance   of   relatively   few   securities.   One  measure  of  a  fund's
 diversification  is the percentage of its assets represented by its ten largest
 holdings.  The  average  U.S.  equity  mutual  fund has about 35% of its assets
 invested in its ten largest holdings,  while some less-diversified mutual funds
 have more than 50% of assets invested in their top ten.
--------------------------------------------------------------------------------

     As of September 30, 2000,  the Fund had invested 21.3% of net assets in its
top ten holdings.

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

SECURITY SELECTION

Vanguard  Equity  Income Fund employs four  investment  advisers,  each of which
independently  chooses and  maintains a portfolio of common stocks for the Fund.
The Fund's board of trustees decides the proportion of Fund assets to be managed
by each adviser and may change these proportions at any time.

     Three of the four advisers use active investment management methods,  which
means they buy and sell securities  based on their judgments about the financial
prospects of companies,  the prices of the securities,  and the stock market and
economy in general.  Although each of these advisers uses different processes to
select  securities  for its portion of the Fund's  assets,  each is committed to
buying  stocks that  produce  above-average  income and that,  in the  adviser's
opinion, have the potential for long-term capital growth.

     Newell Associates (Newell), which managed about 51% of the Fund's assets as
of September 30, 2000, selects stocks of large, well-established dividend-paying
U.S.-traded  companies.  These stocks are purchased when their valuation  levels
are low, based on the firm's proprietary  Relative Yield Strategy analysis,  and
sold when valuation levels are high, based on that analysis.

     John A. Levin & Co.,  Inc.  (Levin),  which managed about 24% of the Fund's
assets as of September 30, 2000, selects stocks of companies with one or more of
the following  attributes:  a strong proprietary product or service; a low share
price in relation to cash flow or asset value; a new product or development;  or
some other unique  situation  that offers  attractive  prospects  for  long-term
returns and limited risk. Levin generally considers purchasing stocks when their
valuation  levels are low and  considers  selling  stocks  when their  valuation
levels are high.

     Wellington Management Company, LLP (Wellington  Management),  which managed
about 20% of the Fund's assets as of September  30, 2000,  employs a fundamental
approach  to  identify   individual   stocks,   and  seeks   stocks  that  offer
above-average dividend yields,  below-average valuations,  and the potential for
dividend  increases in the future.  Securities are sold when an investment is no
longer  considered  as  attractive  as  other  available  investments,  based on
Wellington Management's fundamental valuation approach.

<PAGE>

6

     The Vanguard Group (Vanguard),  which managed about 5% of the Fund's assets
as of September 30, 2000, as cash investments,  invests in stock futures so that
the cash  investment  portion of the Fund's  portfolio  may achieve  performance
similar to that of common  stocks.  This  strategy  is intended to keep the Fund
more  fully  exposed  to  common  stocks  while  retaining  cash on hand to meet
liquidity needs. See "Other  Investment  Policies and Risks" for more details on
the Fund's policy on futures.

     The Fund is generally managed without regard to tax ramifications.

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

OTHER INVESTMENT POLICIES AND RISKS

Besides  investing in  dividend-paying  stocks,  the Fund may make certain other
kinds of investments to achieve its objective.

     Although  the  Fund  typically  does not make  significant  investments  in
foreign securities, it reserves the right to invest up to 20% of its assets this
way. Foreign securities may be traded on U.S. or foreign markets.  To the extent
that it owns foreign securities,  the Fund is subject to (1) country risk, which
is the chance  that  domestic  events--such  as  political  upheaval,  financial
troubles, or a natural disaster--will weaken a country's securities markets; and
(2) currency risk,  which is the chance that a foreign  investment will decrease
in value because of unfavorable changes in currency exchange rates.

     The Fund may also invest in stock futures and options contracts,  which are
traditional  types of  derivatives.  Losses (or  gains)  involving  futures  can
sometimes be substantial--in part because a relatively small price movement in a
futures contract may result in an immediate and substantial loss (or gain) for a
fund.  The Fund will not use futures for  speculative  purposes or as  leveraged
investments  that magnify gains or losses.  The Fund's  obligation under futures
contracts will not exceed 20% of its total assets.

     The reasons for which the Fund will invest in futures and options are:

-    To keep cash on hand to meet  shareholder  redemptions or other needs while
     simulating full investment in stocks.

-    To reduce the Fund's  transaction costs or add value when these instruments
     are favorably priced.

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                               PLAIN TALK ABOUT
                                  DERIVATIVES

 A  derivative  is a financial  contract  whose value is based on (or  "derived"
 from) a traditional  security (such as a stock or a bond),  an asset (such as a
 commodity like gold), or a market index (such as the S&P 500 Index). Some forms
 of  derivatives,  such as  exchange-traded  futures and options on  securities,
 commodities, or indexes, have been trading on regulated exchanges for more than
 two decades.  These types of derivatives  are  standardized  contracts that can
 easily be bought and sold, and whose market values are determined and published
 daily.  Nonstandardized  derivatives,  on  the  other  hand,  tend  to be  more
 specialized or complex,  and may be harder to value. If used for speculation or
 as leveraged investments, derivatives can carry considerable risks.
--------------------------------------------------------------------------------

<PAGE>

                                                                               7

     The Fund may temporarily  depart from its normal  investment  policies--for
instance,  by  investing  substantially  in  cash  investments--in  response  to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

COSTS AND MARKET-TIMING

Some  investors  try to profit from a strategy  called  market-timing--switching
money into  mutual  funds 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.
This is why all  Vanguard  funds have  adopted  special  policies to  discourage
short-term  trading.  Specifically:

-    Each   Vanguard   fund   reserves   the  right  to  reject   any   purchase
     request--including  exchanges from other Vanguard funds--that it regards as
     disruptive to efficient portfolio  management.  A purchase request could be
     rejected because of the timing of the investment or because of a history of
     excessive trading by the investor.

-    Each  Vanguard  fund (except the money market  funds)  limits the number of
     times that an investor can exchange into and out of the fund.

-    Each Vanguard fund reserves the right to stop offering shares at any time.

-    Vanguard  U.S.  Stock Index Funds,  International  Stock Index Funds,  REIT
     Index Fund,  Balanced  Index Fund,  and Growth and Income Fund generally do
     NOT accept  exchanges  by  telephone  or fax,  or  online.  (IRAs and other
     retirement accounts are not subject to this rule.)

-    Certain  Vanguard  funds  charge   transaction  fees  on  purchases  and/or
     redemptions of their shares.

-    Vanguard funds that hold foreign  securities may value those  securities at
     their "fair value,"  rather than the price at which those  securities  last
     traded on their primary foreign markets or exchanges,  to take into account
     events that occur after the close of those markets or exchanges.

See the INVESTING WITH VANGUARD  section of this  prospectus for further details
on Vanguard's transaction policies.

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

TURNOVER RATE

Although  the Fund  normally  seeks to  invest  for the long  term,  it may sell
securities  regardless of how long they have been held. The FINANCIAL HIGHLIGHTS
section  of this  prospectus  shows  historic  turnover  rates for the  Fund.  A
turnover  rate of  100%,  for  example,  would  mean  that the Fund had sold and
replaced securities valued at 100% of its net assets within a one-year period.

<PAGE>

8

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                               PLAIN TALK ABOUT
                                 TURNOVER RATE

 Before  investing in a mutual fund, you should review its turnover  rate.  This
 gives an  indication  of how  transaction  costs could affect the fund's future
 returns. In general,  the greater the volume of buying and selling by the fund,
 the greater the impact that brokerage  commissions and other  transaction costs
 will have on its  return.  Also,  funds  with high  turnover  rates may be more
 likely to generate  capital gains that must be distributed to  shareholders  as
 taxable  income.  As of September 30, 2000,  the average  turnover rate for all
 large-cap value funds was approximately 81%, according to Morningstar, Inc.
--------------------------------------------------------------------------------

THE FUND AND VANGUARD

The Fund is a member of The Vanguard  Group, a family of more than 35 investment
companies  with more than 100 funds holding assets worth more than $550 billion.
All of the  Vanguard  funds  share  in the  expenses  associated  with  business
operations, such as personnel, office space, equipment, and advertising.

     Vanguard  also  provides   marketing   services  to  the  funds.   Although
shareholders do not pay sales commissions or 12b-1  distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.

--------------------------------------------------------------------------------
                               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 ADVISERS

The Fund uses a multimanager  approach. It employs four investment advisers that
each  independently  manage a separate portion of the Fund's assets,  subject to
the  control of the  trustees  and  officers  of the Fund.

-    Newell Associates (Newell),  525 University Avenue, Palo Alto, CA 94301, is
     an  investment  advisory  firm founded in 1986.  As of September  30, 2000,
     Newell managed about $1.7 billion in assets.

-    John A. Levin & Co., Inc. (Levin),  One Rockefeller  Plaza, 19th Floor, New
     York,  NY 10020,  is an  investment  advisory  firm founded in 1982.  As of
     September 30, 2000, Levin managed about $10.5 billion in assets.

-    Wellington  Management  Company,  LLP  (Wellington  Management),  75  State
     Street,Boston, MA 02109, is an investment advisory firm founded in 1928. As
     of September 30, 2000,  Wellington Management managed about $266 billion in
     assets.

<PAGE>

                                                                               9

-    The Vanguard  Group  (Vanguard),  P.O. Box 2600,  Valley  Forge,  PA 19482,
     founded in 1975, is a wholly owned  subsidiary of the Vanguard funds. As of
     September  30, 2000,  Vanguard  served as adviser for about $396 billion in
     assets.

     The  Fund  pays  three  of  its  investment  advisers--Newell,  Levin,  and
Wellington Management--on a quarterly basis. For each adviser, the quarterly fee
is based on certain  annual  percentage  rates  applied  to  average  net assets
managed by the adviser over the  quarterly  period.  In addition,  the quarterly
fees paid to Levin and Wellington  Management  are increased or decreased  based
upon the adviser's  performance  in comparison to a benchmark  index.  For these
purposes, the cumulative total return of each adviser's portion of the Fund over
a trailing 36-month period is compared to the cumulative total return of the S&P
500 Index (for Levin) and the Lipper Equity Income Fund Average (for  Wellington
Management) over the same period.

     Please  consult  the  Fund's  Statement  of  Additional  Information  for a
complete  explanation  of how  advisory  fees are  calculated.  The Fund pays no
advisory fees to Vanguard,  since it provides services to the Fund on an at-cost
basis.

     For the  fiscal  year ended  September  30,  2000,  the  advisory  fees and
expenses represented an effective annual rate of 0.16% of the Fund's average net
assets before a decrease of 0.02% based on performance.

     The advisers are authorized to choose broker-dealers to handle the purchase
and sale of the Fund's  portfolio  securities,  and to obtain the best available
price and most  favorable  execution for all  transactions.  Also,  the Fund may
direct the  advisers  to use a  particular  broker for certain  transactions  in
exchange for commission rebates or research services provided to the Fund.

     In the  interest  of  obtaining  better  execution  of a  transaction,  the
advisers may at times choose brokers who charge higher commissions. If more than
one broker can obtain the best  available  price and most  favorable  execution,
then the  advisers  are  authorized  to  choose a broker  who,  in  addition  to
executing the transaction, will provide research services to the advisers or the
Fund.

     The board of trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory  arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

<PAGE>

10

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                              THE FUND'S ADVISERS

The individuals primarily responsible for overseeing the Fund's investments are:

ROGER D. NEWELL, Chairman and Chief Investment Officer of Newell Associates.  He
has worked in investment  management  since 1958; has managed equity funds since
1959;  has been with  Newell  since  1986;  and has managed the Fund since 1988.
Education:  B.A.,  University  of  Minnesota;  J.D.,  Harvard Law School;  M.A.,
University of Minnesota.

JENNIFER C. NEWELL,  CFA,  President,  and Portfolio Manager of Newell.  She has
worked in investment  management since 1986; has been with Newell since 1992 and
its investment team since 1993; and has managed the Fund since 1999.  Education:
B.A., Wheaton College;  M.B.A., Haas Business School,  University of California,
Berkeley.

JOHN A. LEVIN, Chairman and Chief Executive Officer of John A. Levin & Co., Inc.
He has managed  equity funds since 1963; has been with Levin since 1982; and has
managed the Fund since 1995. Education: B.A. and L.L.B., Yale University.

JOSEPH A. AUSTIN,  Senior Portfolio Manager and Securities  Analyst of Levin. He
has worked in investment  management since 1984; has been with Levin since 1993;
and has  managed  the Fund since  2000.  Education:  B.B.A.,  Millsaps  College;
M.B.A., Columbia University.

JOHN W. MURPHY, Senior Portfolio Manager and Securities Analyst of Levin. He has
worked in investment  management since 1988; has been with Levin since 1995; and
has  managed the Fund since  2000.  Education:  B.S.,  Bryant  College;  M.B.A.,
Northwestern University.

DANIEL M. THERIAULT,  CFA, CPA, Senior Portfolio Manager, and Securities Analyst
of Levin. He has worked in investment management since 1986; has been with Levin
since  1997;  and has  managed  the Fund since  2000.  Education:  B.A.,  Boston
College.

JOHN R. RYAN,  CFA, Senior Vice  President,  and Managing  Partner of Wellington
Management Company,  LLP. He has worked in investment management with Wellington
Management  since 1981 and has  managed the Fund since  2000.  Education:  B.S.,
Lehigh University; M.B.A., University of Virginia.

GEORGE  U.  SAUTER,  Managing  Director  of  Vanguard  and  head  of  Vanguard's
Quantitative Equity Group. He has worked in investment management since 1985 and
has had primary  responsibility  for Vanguard's  stock indexing  investments and
strategy since joining the company in 1987. Education:  A.B., Dartmouth College;
M.B.A., University of Chicago.
--------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS

The Fund  distributes to shareholders  virtually all of its net income (interest
and dividends,  less  expenses),  as well as any capital gains realized from the
sale of its holdings. Income dividends generally are distributed in March, June,
September,  and  December;   capital  gains  distributions  generally  occur  in
December. You can receive distributions of income

<PAGE>

                                                                              11

dividends  or  capital  gains  in  cash,  or you  can  have  them  automatically
reinvested in more shares of the Fund.

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

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

BASIC TAX POINTS

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

-    Distributions are taxable to you for federal income tax purposes whether or
     not you reinvest these amounts in additional Fund shares.

-    Distributions   declared  in  December--if  paid  to  you  by  the  end  of
     January--are  taxable  for  federal  income tax  purposes as if received in
     December.

-    Any dividends and short-term  capital gains that you receive are taxable to
     you as ordinary income for federal income tax purposes.

-    Any  distributions  of net  long-term  capital  gains are taxable to you as
     long-term capital gains for federal income tax purposes, no matter how long
     you've owned shares in the Fund.

-    Capital gains  distributions  may vary  considerably from year to year as a
     result of the Fund's normal investment activities and cash flows.

-    A sale or exchange of Fund shares is a taxable  event.  This means that you
     may have a capital gain to report as income, or a capital loss to report as
     a deduction, when you complete your federal income tax return.

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

GENERAL INFORMATION

BACKUP  WITHHOLDING.   By  law,  Vanguard  must  withhold  31%  of  any  taxable
distributions or redemptions from your account if you do not:

-    provide us with your correct taxpayer identification number;

-    certify that the taxpayer identification number is correct; and

-    confirm that you are not subject to backup withholding.

Similarly,  Vanguard  must withhold from your account if the IRS instructs us to
do so.

FOREIGN  INVESTORS.  The Vanguard funds  generally do not offer their shares for
sale outside of the United States.  Foreign  investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.

INVALID  ADDRESSES.  If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest  all future  distributions  until you  provide us with a valid  mailing
address.

<PAGE>

12

TAX CONSEQUENCES.  This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed  information about
a fund's tax consequences for you.

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                              "BUYING A DIVIDEND"

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

SHARE PRICE

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

     Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the  number of  shares  you own,  gives you the  dollar  amount  you would  have
received had you sold all of your shares back to the Fund that day.

     A NOTE ON PRICING:  The Fund's  investments  will be priced at their market
value when market  quotations are readily  available.  When these quotations are
not  readily  available,  investments  will  be  priced  at  their  fair  value,
calculated according to procedures adopted by the Fund's board of trustees.

     The Fund's  share price can be found  daily in the mutual fund  listings of
most major newspapers under the heading "Vanguard Funds."

FINANCIAL HIGHLIGHTS

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

<PAGE>

                                                                              13

                                                                         <TABLE>
                                                                       <CAPTION>
-----------------------------------------------------------------------------------------
                                          VANGUARD EQUITY INCOME FUND
                                           YEAR ENDED SEPTEMBER 30,

                        -----------------------------------------------------------------
                          2000         1999         1998         1997         1996
-----------------------------------------------------------------------------------------
<S>                     <C>          <C>          <C>          <C>          <C>

NET ASSET VALUE,
 BEGINNING OF YEAR      $24.14       $22.80       $22.28       $17.69       $15.65
-----------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
 Net Investment Income     .62          .64          .64          .64          .63
 Net Realized and
  Unrealized Gain
  (Loss) on Investments    .81         2.20         1.44         5.17         2.18
                        -----------------------------------------------------------------
   Total from Investment
    Operations            1.43         2.84         2.08         5.81         2.81
                        -----------------------------------------------------------------
DISTRIBUTIONS
 Dividends from Net
  Investment Income       (.64)        (.67)        (.67)        (.64)        (.60)
 Distributions from
  Realized Capital Gains  (.87)        (.83)        (.89)        (.58)        (.17)
                        -----------------------------------------------------------------
   Total Distributions   (1.51)       (1.50)       (1.56)       (1.22)        (.77)
-----------------------------------------------------------------------------------------
NET ASSET VALUE, END
 OF YEAR                $24.06       $24.14       $22.80       $22.28       $17.69
-----------------------------------------------------------------------------------------
TOTAL RETURN             6.28%       12.56%        9.54%       34.17%       18.22%
-----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
 DATA
 Net Assets, End of
  Year (Millions)       $2,420       $3,009       $2,378       $1,948       $1,309
 Ratio of Total
  Expenses to Average
  Net Assets             0.43%        0.41%        0.39%        0.45%        0.42%
 Ratio of Net
  Investment Income to
  Average Net Assets     2.59%        2.59%        2.80%        3.25%        3.69%
 Turnover Rate             36%          18%          23%          22%          21%
-----------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                  HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

 The Fund began fiscal 2000 with a net asset value  (price) of $24.14 per share.
 During  the  year,  the Fund  earned  $0.62 per share  from  investment  income
 (interest  and  dividends)  and  $0.81  per  share  from  investments  that had
 appreciated in value or that were sold for higher prices than the Fund paid for
 them.

 Shareholders received $1.51 per share in the form of dividend and capital gains
 distributions.  A portion of each year's  distributions may come from the prior
 year's income or capital gains.

 The  earnings  ($1.43  per  share)  minus the  distributions  ($1.51 per share)
 resulted in a share price of $24.06 at the end of the year. This was a decrease
 of $0.08 per share (from  $24.14 at the  beginning of the year to $24.06 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 6.28% for the year.

 As of  September  30, 2000,  the Fund had $2.4  billion in net assets.  For the
 year, its expense ratio was 0.43% ($4.30 per $1,000 of net assets); and its net
 investment  income  amounted to 2.59% of its  average  net assets.  It sold and
 replaced securities valued at 36% of its net assets.
--------------------------------------------------------------------------------

<PAGE>

14

--------------------------------------------------------------------------------
 INVESTING WITH VANGUARD

 This section of the prospectus explains the basics of doing business with
 Vanguard. A special booklet, The Vanguard Service Directory, provides details
 of our many shareholder services for individual investors. A separate
 booklet, The Compass, does the same for institutional investors. You can
 request either booklet by calling or writing Vanguard, using the Contacting
 Vanguard instructions found at the end of this section.

                                 BUYING SHARES
                               REDEEMING SHARES
                          OTHER RULES YOU SHOULD KNOW
                           FUND AND ACCOUNT UPDATES
                              CONTACTING VANGUARD
--------------------------------------------------------------------------------

BUYING SHARES

ACCOUNT MINIMUMS

TO OPEN AND MAINTAIN AN ACCOUNT:  $3,000 for regular  accounts;  $1,000 for IRAs
and custodial accounts for minors.

TO ADD TO AN EXISTING ACCOUNT: $100 by mail or exchange; $1,000 by wire.

HOW TO BUY SHARES

BY CHECK: Mail your check and a completed account registration form to Vanguard.
When adding to an existing account,  send your check with an Invest-By-Mail form
detached  from your last  account  statement.  Make the check  payable  to:  The
Vanguard Group-65. For addresses, see Contacting Vanguard.

BY EXCHANGE PURCHASE:  You can purchase shares with the proceeds of a redemption
from another  Vanguard fund. All open Vanguard funds permit  exchange  purchases
requested in writing.  MOST  VANGUARD  FUNDS--OTHER  THAN THE STOCK AND BALANCED
INDEX-ORIENTED  FUNDS--ALSO  ACCEPT EXCHANGE  PURCHASES  REQUESTED  ONLINE OR BY
TELEPHONE. See Other Rules You Should Know for specifics.

BY WIRE: Call Vanguard to purchase shares by wire. See Contacting Vanguard.

YOUR PURCHASE PRICE

You buy  shares at a fund's  next-determined  NAV after  Vanguard  accepts  your
purchase  request.  As long as your  request  is  received  before  the close of
regular trading on the New York Stock Exchange (generally 4 p.m., Eastern time),
you will buy your shares at that day's NAV. This is known as your TRADE DATE.

PURCHASE RULES YOU SHOULD KNOW

^THIRD PARTY  CHECKS.  To protect the funds from check fraud,  Vanguard will not
accept checks made payable to third parties.

<PAGE>

15

^U.S. CHECKS ONLY. All purchase checks must be written in U.S. dollars and drawn
on a U.S. bank.

^LARGE  PURCHASES.  Vanguard  reserves the right to reject any purchase  request
that may  disrupt  a fund's  operation  or  performance.  Please  call us before
attempting to invest a large dollar amount.

^NO CANCELLATIONS.  Place your transaction requests carefully. Vanguard will NOT
cancel any transaction once it has been initiated and a confirmation  number has
been assigned (if applicable).

^FUTURE  PURCHASES.  All Vanguard funds reserve the right to stop selling shares
at any time, or to reject specific  purchase  requests,  including  purchases by
exchange from another Vanguard fund.

REDEEMING SHARES


HOW TO REDEEM SHARES

Be sure to check Other Rules You Should Know before initiating your request.

ONLINE: Request a redemption through our website at Vanguard.com.

BY  TELEPHONE:  Contact  Vanguard  by  telephone  to request a  redemption.  For
telephone numbers, see Contacting Vanguard.

BY MAIL: Send your written redemption  instructions to Vanguard.  For addresses,
see Contacting Vanguard.

YOUR REDEMPTION PRICE

You redeem shares at a fund's  next-determined  NAV after Vanguard  accepts your
redemption  request,  including  any special  documentation  required  under the
circumstances.  As long as your request is received  before the close of regular
trading on the New York Stock Exchange  (generally 4 p.m.,  Eastern time),  your
shares are redeemed at that day's NAV. This is known as your TRADE DATE.

TYPES OF REDEMPTIONS

^CHECK REDEMPTIONS. Unless instructed otherwise, Vanguard will mail you a check,
normally within two business days of your trade date.

^EXCHANGE  REDEMPTIONS.  You may instruct Vanguard to apply the proceeds of your
redemption to purchase shares of another  Vanguard fund. All open Vanguard funds
accept exchange  redemptions  requested in writing.  Most Vanguard  funds--other
than the index-oriented funds--also accept exchange redemptions requested online
or by telephone. See Other Rules You Should Know for specifics.

^WIRE  REDEMPTIONS.  When redeeming from a money market fund,  bond fund, or the
Preferred Stock Fund, you may instruct Vanguard to wire your redemption proceeds
to a previously  designated  bank  account.  Wire  redemptions

<PAGE>


                                                                              16

are not available for Vanguard's other funds. The wire redemption  option is not
automatic; you must establish it by completing a special form or the appropriate
section of your account  registration.  Also, wire redemptions must be requested
in writing or by  telephone,  not online.  A $5 fee applies to wire  redemptions
under $5,000.

Money Market Funds: For telephone  requests  accepted at Vanguard by 10:45 a.m.,
Eastern time, the  redemption  proceeds will arrive at your bank by the close of
business that same day. For other requests accepted before 4 p.m., Eastern time,
the redemption proceeds will arrive at your bank by the close of business on the
following business day.

Bond Funds and  Preferred  Stock Fund:  For  requests  accepted at Vanguard by 4
p.m.,  Eastern  time,  the  redemption  proceeds will arrive at your bank by the
close of business on the following business day.

REDEMPTION RULES YOU SHOULD KNOW

^SPECIAL ACCOUNTS.  Special documentation may be required to redeem from certain
types of accounts, such as trust, corporate,  nonprofit, or retirement accounts.
Please call us before attempting to redeem from these types of accounts.

^POTENTIALLY DISRUPTIVE  REDEMPTIONS.  Vanguard reserves the right to pay all or
part of your  redemption  in-kind--that  is,  in the form of  securities--if  we
believe  that  a  cash  redemption   would  disrupt  the  fund's   operation  or
performance.  Under these  circumstances,  Vanguard  also  reserves the right to
delay  payment of your  redemption  proceeds for up to seven days. By calling us
before you attempt to redeem a large dollar amount, you are more likely to avoid
in-kind or delayed payment of your redemption.

^RECENTLY  PURCHASED SHARES.  While you can redeem shares at any time,  proceeds
will not be made  available  to you until  the Fund  collects  payment  for your
purchase. This may take up to ten calendar days for shares purchased by check or
Vanguard Fund Express(R).

^SHARE  CERTIFICATES.  If share  certificates have been issued for your account,
those shares cannot be redeemed until you return the certificates  (unsigned) to
Vanguard by registered mail. For the correct address, see Contacting Vanguard.

^PAYMENT TO A DIFFERENT  PERSON OR ADDRESS.  We can make your  redemption  check
payable to a different person or send it to a different address.  However,  this
requires the written  consent of all registered  account  owners,  which must be
provided under signature  guarantees.  You can obtain a signature guarantee from
most commercial and savings banks,  credit unions,  trust  companies,  or member
firms of a U.S. stock exchange.

<PAGE>

17

^NO CANCELLATIONS.  Place your transaction requests carefully. Vanguard will NOT
cancel any transaction once it has been initiated and a confirmation  number has
been assigned (if applicable).

^EMERGENCY  CIRCUMSTANCES.  Vanguard  funds can postpone  payment of  redemption
proceeds for up to seven calendar days at any time. In addition,  Vanguard funds
can suspend redemptions and/or postpone payments of redemption proceeds at times
when the New York Stock Exchange is closed or during emergency circumstances, as
determined by the U.S. Securities and Exchange Commission.

OTHER RULES YOU SHOULD KNOW

TELEPHONE TRANSACTIONS

^AUTOMATIC.  In setting up your account,  we'll  automatically  enable you to do
business  with us by regular  telephone,  unless you  instruct us  otherwise  in
writing.

^TELE-ACCOUNT(TM).  To conduct account transactions through Vanguard's automated
telephone service, you must first obtain a personal identification number (PIN).
Call  Tele-Account  to obtain a PIN,  and allow  seven  days  before  using this
service.

^PROOF OF A  CALLER'S  AUTHORITY.  We  reserve  the right to refuse a  telephone
request if the caller is unable to provide the following  information exactly as
registered on the account:

-    Ten-digit account number.

-    Complete owner name and address.

-    Primary Social Security or employer identification number.

-    Personal Identification Number (PIN), if applicable.

^SUBJECT TO  REVISION.  We reserve the right to revise or  terminate  Vanguard's
telephone transaction service at any time, without notice.

^SOME  VANGUARD  FUNDS  DO  NOT  PERMIT  TELEPHONE   EXCHANGES.   To  discourage
market-timing,  Vanguard's  Stock  Index  Funds,  Growth  and Income  Fund,  and
Balanced  Index Fund  generally do not permit  telephone  exchanges (in or out),
except for IRAs and certain other retirement accounts.

VANGUARD.COM

^REGISTRATION.  You can use  your  personal  computer  to  review  your  account
holdings,  to sell or exchange  shares of most  Vanguard  funds,  and to perform
other transactions. To establish this service, you can register online.

<PAGE>


                                                                              18

^SOME   VANGUARD   FUNDS  DO  NOT  PERMIT   ONLINE   EXCHANGES.   To  discourage
market-timing,  Vanguard's  Stock  Index  Funds,  Growth  and Income  Fund,  and
Balanced Index Fund do not permit online exchanges (in or out),  except for IRAs
and certain other retirement accounts.

WRITTEN INSTRUCTIONS

^"GOOD ORDER" REQUIRED.  We reserve the right to reject any written  transaction
instructions  that are not in "good  order."  This means that your  instructions
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.

-    Signature guarantees, if required for the type of transaction.*

*For instance, signature guarantees must be provided by all registered account
 shareholders when redemption proceeds are to be sent to a different person or
 address.

RESPONSIBILITY FOR FRAUD

Vanguard will not be responsible for any account losses due to fraud, so long as
we reasonably believe that the person transacting on an account is authorized to
do so. Please take precautions to protect yourself from fraud. Keep your account
information  private and immediately  review any account statements that we send
to you.  Contact Vanguard  immediately  about any transactions you believe to be
unauthorized.

UNCASHED CHECKS

Please cash your distribution or redemption  checks promptly.  Vanguard will not
pay interest on uncashed checks.

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 NON-MONEY
     MARKET FUND during any 12-month period.

-    Your round trips  through a non-money  market fund must be at least 30 days
     apart.

-    All funds may refuse share purchases at any time, for any reason.

-    Vanguard reserves the right to revise or terminate the exchange  privilege,
     limit the amount of an exchange,  or reject an exchange,  at any time,  for
     any reason.

A "round trip" is a redemption  from a fund followed by a purchase back into the
same  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.

<PAGE>

19

UNUSUAL CIRCUMSTANCES

If you experience  difficulty  contacting  Vanguard online, by telephone,  or by
Tele-Account,  you can send us your  transaction  request  by regular or express
mail. See Contacting Vanguard for addresses.

INVESTING WITH VANGUARD THROUGH OTHER FIRMS

You may  purchase  or sell  shares of most  Vanguard  funds  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.

LOW BALANCE ACCOUNTS

All   Vanguard   funds   reserve   the  right  to  close   any   investment-only
retirement-plan  account or any nonretirement  account whose balance falls below
the minimum initial investment.

     Vanguard  deducts a $10 fee in June from each  nonretirement  account whose
balance at that time is below $2,500 ($500 for Vanguard  STAR(TM) Fund). The fee
is waived if your total Vanguard account assets are $50,000 or more.

FUND AND ACCOUNT UPDATES

PORTFOLIO SUMMARIES

We will send you  quarterly  portfolio  summaries to help you keep track of your
accounts  throughout  the year.  Each  summary  shows the  market  value of your
account  at the close of the  statement  period,  as well as all  distributions,
purchases, sales, and exchanges for the current calendar year.

AVERAGE COST REVIEW STATEMENTS

For most taxable  accounts,  average cost review  statements  will accompany the
quarterly portfolio summaries.  These statements show the average cost of shares
that you  redeemed  during the current  calendar  year,  using the average  cost
single category method.

CONFIRMATION STATEMENTS

Each time you buy,  sell,  or  exchange  shares,  we will  send you a  statement
confirming the trade date and amount of your transaction.

TAX STATEMENTS

We will send you annual tax  statements  to assist in preparing  your income tax
returns.  These statements,  which are generally mailed in January,  will report
the previous year's dividend and capital gains distributions,  proceeds from the
sale of shares, and distributions from IRAs or other retirement plans.

<PAGE>


                                                                              20

REPORTS

Fund financial  reports will be mailed twice a year--in May and November.  These
comprehensive  reports  include an  assessment  of a fund's  performance  (and a
comparison to its industry benchmark), an overview of the financial markets, the
fund's adviser  reports,  and the fund's financial  statements,  which include a
listing of the fund's holdings.

     To  keep  a  fund's  costs  as low as  possible  (so  that  you  and  other
shareholders can keep more of the fund's investment earnings), Vanguard attempts
to eliminate  duplicate  mailings to the same address.  When we find that two or
more  shareholders  have the same last name and  address,  we send just one fund
report to that address--instead of mailing separate reports to each shareholder.
If you want us to send  separate  reports,  however,  you may  notify our Client
Services Department.

CONTACTING VANGUARD

ONLINE

VANGUARD.COM

-    Your best source of Vanguard news

-    For fund, account, and service information

-    For most account transactions

-    For literature requests

-    24 hours per day, 7 days per week

VANGUARD TELE-ACCOUNT(R)
1-800-662-6273 (ON-BOARD)

-    For automated fund and account information

-    For redemptions by check, exchange, or wire

-    Toll-free, 24 hours per day, 7 days per week

INVESTOR INFORMATION
1-800-662-7447 (SHIP)
(Text telephone at 1-800-952-3335)

-    For fund and service information

-    For literature requests

-    Business hours only

CLIENT SERVICES
1-800-662-2739 (CREW)
(Text telephone at 1-800-749-7273)

-    For account information

-    For most account transactions

-    Business hours only

INSTITUTIONAL DIVISION
1-888-809-8102

-    For information and services for large institutional investors

-    Business hours only

<PAGE>

21

VANGUARD ADDRESSES

REGULAR MAIL (INDIVIDUALS--CURRENT CLIENTS):
The Vanguard Group
P.O. Box 1110
Valley Forge, PA 19482-1110

REGULAR MAIL (INSTITUTIONS):
The Vanguard Group
P.O. Box 2900
Valley Forge, PA 19482-2900

REGULAR MAIL (GENERAL INQUIRIES):
The Vanguard Group
P.O. Box 2600
Valley Forge, PA 19482-2600

REGISTERED OR EXPRESS MAIL:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815

FUND NUMBER

Always use this fund number when  contacting  us about  Vanguard  Equity  Income
Fund-65.

<PAGE>

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<PAGE>

                     (THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

                     (THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

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

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

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

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

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

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

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

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

MUTUAL FUND
An  investment  company  that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

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

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

PRINCIPAL
The amount of money you put into an investment.

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

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

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

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

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

<PAGE>

[SHIP]
[THE VANGUARD GROUP(R) LOGO]

Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION
If you'd like more information about
Vanguard Equity Income Fund, the
following documents are available
free upon request:

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

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

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

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

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

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

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

TEXT TELEPHONE:
1-800-952-3335

WORLD WIDE WEB:
WWW.VANGUARD.COM

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

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

TEXT TELEPHONE:
1-800-749-7273

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

Fund's Investment Company Act
file number: 811-5445


(C) 2001 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.

P065 012001


<PAGE>


VANGUARD(R) EQUITY INCOME FUND

FOR PARTICIPANTS - JANUARY 19, 2001

This prospectus
contains financial data
for the Fund through
the fiscal year ended
September 30, 2000.

STOCK

PROSPECTUS

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
commission has approved or  disapproved  of these  securities or passed upon the
accurace or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.


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

<PAGE>

VANGUARD EQUITY INCOME FUND
Participant Prospectus
January 19, 2001

A Value Stock Mutual Fund

--------------------------------------------------------------------------------
  CONTENTS
--------------------------------------------------------------------------------
  1 FUND PROFILE

  3 ADDITIONAL INFORMATION

  3 MORE ON THE FUND

  8 THE FUND AND VANGUARD

  8 INVESTMENT ADVISERS

 10 DIVIDENDS, CAPITAL GAINS, AND TAXES

 11 SHARE PRICE

 11 FINANCIAL HIGHLIGHTS

 13 INVESTING WITH VANGUARD

 14 ACCESSING FUND INFORMATION BY COMPUTER

 GLOSSARY (inside back cover)
--------------------------------------------------------------------------------

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

This prospectus explains the investment  objective,  policies,  strategies,  and
risks  associated  with the Fund. To highlight  terms and concepts  important to
mutual fund investors,  we have provided "Plain Talk(R)"  explanations along the
way.  Reading the prospectus  will help you decide whether the Fund is the right
investment  for you.  We  suggest  that  you keep  this  prospectus  for  future
reference.

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

<PAGE>

1

FUND PROFILE

The Fund seeks to provide high current income and reasonable  long-term  capital
growth.

INVESTMENT STRATEGIES

The Fund invests mainly in dividend-paying  common stocks of established,  large
U.S. companies.  Each stock is purchased when it is undervalued  relative to its
individual history and to the market.  Generally,  at the time of purchase,  the
stocks are out of favor with the investment community.

PRIMARY RISKS

An investment in the Fund could lose money over short or even long periods.  You
should expect the Fund's share price and total return to fluctuate within a wide
range like the overall stock market.  The Fund's performance could be hurt by:

-    Investment   style   risk,   which  is  the  chance   that   returns   from
     large-capitalization  value  stocks--which  make  up  most  of  the  Fund's
     holdings--will  trail returns from other asset classes or the overall stock
     market.  Specific  types  of  stocks  tend to go  through  cycles  of doing
     better--or  worse--than the stock market in general. These periods have, in
     the past, lasted for as long as several years.

-    Manager risk,  which is the chance that poor security  selection will cause
     the Fund to underperform other funds with similar investment objectives.

PERFORMANCE/RISK INFORMATION

The  following  bar  chart is  intended  to help  you  understand  the  risks of
investing in the Fund. It shows how the Fund's  performance  has varied from one
calendar year to another over the past ten years. In addition,  there is a table
that shows how the Fund's  average  annual total  returns  compare with those of
relevant  market indexes over set periods of time.  Keep in mind that the Fund's
past performance does not indicate how it will perform in the future.

       ----------------------------------------------------
                        ANNUAL TOTAL RETURNS
      [SCALE -40% TO 80%]
                        1991          25.38%
                        1992           9.18%
                        1993          14.65%
                        1994          -1.59%
                        1995          37.34%
                        1996          17.39%
                        1997          31.17%
                        1998          17.34%
                        1999          -0.19%
                        2000          13.57%
      ----------------------------------------------------

     During the period shown in the bar chart, the highest return for a calendar
quarter was 13.38%  (quarter ended March 31, 1991),  and the lowest return for a
quarter was -8.37% (quarter ended September 30, 1999).

      --------------------------------------------------------------------
        AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 2000
      --------------------------------------------------------------------
                                       1 YEAR     5 YEARS       10 YEARS
      --------------------------------------------------------------------
      Vanguard Equity Income Fund       13.57%     15.42%        15.82%
      Standard & Poor's 500 Index       -9.10      18.33         17.46
      Average Equity Income Fund*        6.77      13.06         14.33
      --------------------------------------------------------------------

<PAGE>

                                                                               2

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 on those incurred in the fiscal year ended September 30, 2000.


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

      ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
      Management Expenses:                                                0.40%
      12b-1 Distribution Fee:                                              None
      Other Expenses:                                                     0.03%
       TOTAL ANNUAL FUND OPERATING EXPENSES:                              0.43%

     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's  shares.  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 the given period.

--------------------------------------------------
   1 YEAR      3 YEARS    5 YEARS      10 YEARS
--------------------------------------------------
    $44         $138       $241         $542
--------------------------------------------------

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

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

 All mutual funds have operating  expenses.  These expenses,  which are deducted
 from a fund's gross income,  are expressed as a percentage of the net assets of
 the fund.  Vanguard  Equity Income Fund's expense ratio in fiscal year 2000 was
 0.43%,  or $4.30 per $1,000 of average net assets.  The average  equity  income
 mutual fund had expenses in 1999 of 1.38%,  or $13.80 per $1,000 of average net
 assets (derived from data provided by Lipper Inc.,  which reports on the mutual
 fund industry).  Management expenses, which are one part of operating expenses,
 include  investment  advisory  fees  as well  as  other  costs  of  managing  a
 fund--such as account  maintenance,  reporting,  accounting,  legal,  and other
 administrative expenses.
--------------------------------------------------------------------------------

<PAGE>

3

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                              COSTS OF INVESTING

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

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS                     INCEPTION DATE
Dividends are  distributed  quarterly           March 21, 1988
in March, June, September, and December;
capital gains, if any, are distributed
in December                                     NET ASSETS AS OF SEPTEMBER 30,
                                                2000
INVESTMENT ADVISERS                             $2.4 billion
- Newell Associates, Palo Alto, Calif.,
  since inception                               NEWSPAPER ABBREVIATION
- John A. Levin & Co., Inc., New York City,     EqInc
  N.Y., since 1995
- Wellington Management Company, LLP, Boston,   VANGUARD FUND NUMBER
  Mass., since 2000                             065
- The Vanguard Group, Valley Forge, Pa.,
  since 1998                                    CUSIP NUMBER
                                                921921102

                                                TICKER SYMBOL
                                                VEIPX
--------------------------------------------------------------------------------

MORE ON THE FUND

This  prospectus  describes  risks you would face as a Fund  shareholder.  It is
important  to keep in mind one of the main axioms of  investing:  The higher the
risk of losing money,  the higher the potential  reward.  The reverse,  also, is
generally  true:  The lower the risk,  the lower the  potential  reward.  As you
consider an  investment  in any mutual  fund,  you should take into account your
personal  tolerance for daily fluctuations in the securities  markets.  Look for
this [FLAG] symbol  throughout  the  prospectus.  It is used  to  mark  detailed
information  about  each  type  of  risk  that  you  would  confront  as a  Fund
shareholder.

     The  following  sections  explain the  primary  investment  strategies  and
policies  that the Fund uses in pursuit of its  objective.  The Fund's  board of
trustees, which oversees the Fund's management, may change investment strategies
or policies in the interest of  shareholders  without a shareholder  vote unless
those strategies or policies are designated as fundamental.

     Finally, you'll find information on other important features of the Fund.

MARKET EXPOSURE

The Fund invests  mainly in common stocks of large,  established  companies that
pay  above-average  dividends.  At the time of purchase by the Fund,  a stock is
usually out of favor with the investment  community and undervalued  relative to
its individual history and to the market.

     Stocks  purchased by the Fund are expected to produce a relatively high and
stable  level  of  income,  and to have  the  potential  for  long-term  capital
appreciation.  In the past,  stocks with  relatively  high dividend  yields have
tended to lag the overall stock market during rising markets,  and to outperform
it during periods of flat or declining prices.

<PAGE>

                                                                               4

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

 Value  investing  and growth  investing  are two styles  employed by stock fund
 managers.  Value funds generally  emphasize  stocks of companies from which the
 market does not expect strong growth.  The prices of value stocks typically are
 below-average  in comparison  to such measures as earnings and book value,  and
 these  stocks  typically  have  above-average  dividend  yields.  Growth  funds
 generally  focus on  companies  believed to have  above-average  potential  for
 growth in revenue and earnings.  Reflecting the market's high  expectations for
 superior   growth,   such  stocks   typically  have  low  dividend  yields  and
 above-average  prices in relation to such  measures as revenue,  earnings,  and
 book  value.  Value and  growth  stocks  have,  in the past,  produced  similar
 long-term  returns,  though each category has periods when it  outperforms  the
 other.  In general,  value funds are  appropriate  for  investors who want some
 dividend  income and the potential for capital gains,  but are less tolerant of
 share-price  fluctuations.  Growth funds, by contrast,  appeal to investors who
 will  accept more  volatility  in hopes of a greater  increase in share  price.
 Growth  funds also may appeal to  investors  with  taxable  accounts who want a
 higher  proportion  of returns to come as capital  gains (which may be taxed at
 lower rates than dividend income).
--------------------------------------------------------------------------------

[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK,  WHICH IS THE CHANCE THAT STOCK
     PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS.  STOCK MARKETS
     TEND TO MOVE IN  CYCLES,  WITH  PERIODS  OF RISING  PRICES  AND  PERIODS OF
     FALLING PRICES.

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

----------------------------------------------------------
         U.S. STOCK MARKET RETURNS (1926-2000)
----------------------------------------------------------
                     1 YEAR  5 YEARS  10 YEARS   20 YEARS
----------------------------------------------------------
Best                  54.2%   28.6%    19.9%      17.8%
Worst                -43.1   -12.4     -0.8        3.1
Average               12.9    11.1     11.2       11.2
----------------------------------------------------------

     The table  covers all of the 1-, 5-,  10-,  and 20-year  periods  from 1926
through 2000. You can see, for example,  that while the average return on common
stocks for all of the 5-year periods was 11.1%,  returns for  individual  5-year
periods  ranged from a -12.4%  average  (from 1928 through  1932) to 28.6% (from
1995 through 1999).  These average  returns  reflect past  performance on common
stocks;  you should not regard  them as an  indication  of future  returns  from
either the stock market as a whole or this Fund in particular.

<PAGE>

5

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

 In general,  the more  diversified  a fund's stock or bond  holdings,  the less
 likely  that  fund  performance  may be  hurt  disproportionately  by the  poor
 performance   of   relatively   few   securities.   One  measure  of  a  fund's
 diversification  is the percentage of its assets represented by its ten largest
 holdings.  The  average  U.S.  equity  mutual  fund has about 35% of its assets
 invested in its ten largest holdings,  while some less-diversified mutual funds
 have more than 50% of assets invested in their top ten.
--------------------------------------------------------------------------------

     As of September 30, 2000,  the Fund had invested 21.3% of net assets in its
top ten holdings.

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

SECURITY SELECTION

Vanguard  Equity  Income Fund employs four  investment  advisers,  each of which
independently  chooses and  maintains a portfolio of common stocks for the Fund.
The Fund's board of trustees decides the proportion of Fund assets to be managed
by each adviser and may change these proportions at any time.

     Three of the four advisers use active investment management methods,  which
means they buy and sell securities  based on their judgments about the financial
prospects of companies,  the prices of the securities,  and the stock market and
economy in general.  Although each of these advisers uses different processes to
select  securities  for its portion of the Fund's  assets,  each is committed to
buying  stocks that  produce  above-average  income and that,  in the  adviser's
opinion, have the potential for long-term capital growth.

     Newell Associates (Newell), which managed about 51% of the Fund's assets as
of September 30, 2000, selects stocks of large, well-established dividend-paying
U.S.-traded  companies.  These stocks are purchased when their valuation  levels
are low, based on the firm's proprietary  Relative Yield Strategy analysis,  and
sold when valuation levels are high, based on that analysis.

     John A. Levin & Co.,  Inc.  (Levin),  which managed about 24% of the Fund's
assets as of September 30, 2000, selects stocks of companies with one or more of
the following  attributes:  a strong proprietary product or service; a low share
price in relation to cash flow or asset value; a new product or development;  or
some other unique  situation  that offers  attractive  prospects  for  long-term
returns and limited risk. Levin generally considers purchasing stocks when their
valuation  levels are low and  considers  selling  stocks  when their  valuation
levels are high.

     Wellington Management Company, LLP (Wellington  Management),  which managed
about 20% of the Fund's assets as of September  30, 2000,  employs a fundamental
approach  to  identify   individual   stocks,   and  seeks   stocks  that  offer
above-average dividend yields,  below-average valuations,  and the potential for
dividend  increases in the future.  Securities are sold when an investment is no
longer  considered  as  attractive  as  other  available  investments,  based on
Wellington Management's fundamental valuation approach.

<PAGE>

                                                                               6

     The Vanguard Group (Vanguard),  which managed about 5% of the Fund's assets
as of September 30, 2000, as cash investments,  invests in stock futures so that
the cash  investment  portion of the Fund's  portfolio  may achieve  performance
similar to that of common  stocks.  This  strategy  is intended to keep the Fund
more  fully  exposed  to  common  stocks  while  retaining  cash on hand to meet
liquidity needs. See "Other  Investment  Policies and Risks" for more details on
the Fund's policy on futures.

     The Fund is generally managed without regard to tax ramifications.

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

OTHER INVESTMENT POLICIES AND RISKS

Besides  investing in  dividend-paying  stocks,  the Fund may make certain other
kinds of investments to achieve its objective.

     Although  the  Fund  typically  does not make  significant  investments  in
foreign securities, it reserves the right to invest up to 20% of its assets this
way. Foreign securities may be traded on U.S. or foreign markets.  To the extent
that it owns foreign securities,  the Fund is subject to (1) country risk, which
is the chance  that  domestic  events--such  as  political  upheaval,  financial
troubles, or a natural disaster--will weaken a country's securities markets; and
(2) currency risk,  which is the chance that a foreign  investment will decrease
in value because of unfavorable changes in currency exchange rates.

     The Fund may also invest in stock futures and options contracts,  which are
traditional  types of  derivatives.  Losses (or  gains)  involving  futures  can
sometimes be substantial--in part because a relatively small price movement in a
futures contract may result in an immediate and substantial loss (or gain) for a
fund.  The Fund will not use futures for  speculative  purposes or as  leveraged
investments  that magnify gains or losses.  The Fund's  obligation under futures
contracts will not exceed 20% of its total assets.

     The reasons for which the Fund will invest in futures and options are:

-    To keep cash on hand to meet  shareholder  redemptions or other needs while
     simulating full investment in stocks.

-    To reduce the Fund's  transaction costs or add value when these instruments
     are favorably priced.

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

 A  derivative  is a financial  contract  whose value is based on (or  "derived"
 from) a traditional  security (such as a stock or a bond),  an asset (such as a
 commodity like gold), or a market index (such as the S&P 500 Index). Some forms
 of  derivatives,  such as  exchange-traded  futures and options on  securities,
 commodities, or indexes, have been trading on regulated exchanges for more than
 two decades.  These types of derivatives  are  standardized  contracts that can
 easily be bought and sold, and whose market values are determined and published
 daily.  Nonstandardized  derivatives,  on  the  other  hand,  tend  to be  more
 specialized or complex,  and may be harder to value. If used for speculation or
 as leveraged investments, derivatives can carry considerable risks.
--------------------------------------------------------------------------------

<PAGE>

7

     The Fund may temporarily  depart from its normal  investment  policies--for
instance,  by  investing  substantially  in  cash  investments--in  response  to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

COSTS AND MARKET-TIMING

Some  investors  try to profit from a strategy  called  market-timing--switching
money into  mutual  funds 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.
This is why all  Vanguard  funds have  adopted  special  policies to  discourage
short-term  trading.  Specifically:

-    Each   Vanguard   fund   reserves   the  right  to  reject   any   purchase
     request--including  exchanges from other Vanguard funds--that it regards as
     disruptive to efficient portfolio  management.  A purchase request could be
     rejected because of the timing of the investment or because of a history of
     excessive trading by the investor.

-    Each  Vanguard  fund (except the money market  funds)  limits the number of
     times that an investor can exchange into and out of the fund.

-    Each Vanguard fund reserves the right to stop offering shares at any time.

-    Certain  Vanguard  funds  charge   transaction  fees  on  purchases  and/or
     redemptions of their shares.

-    Vanguard funds that hold foreign  securities may value those  securities at
     their "fair value,"  rather than the price at which those  securities  last
     traded on their primary foreign markets or exchanges,  to take into account
     events that occur after the close of those markets or exchanges.

See the INVESTING WITH VANGUARD  section of this  prospectus for further details
on Vanguard's transaction policies.

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

TURNOVER RATE

Although  the Fund  normally  seeks to  invest  for the long  term,  it may sell
securities  regardless of how long they have been held. The FINANCIAL HIGHLIGHTS
section  of this  prospectus  shows  historic  turnover  rates for the  Fund.  A
turnover  rate of  100%,  for  example,  would  mean  that the Fund had sold and
replaced securities valued at 100% of its net assets within a one-year period.

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                                 TURNOVER RATE

 Before  investing in a mutual fund, you should review its turnover  rate.  This
 gives an  indication  of how  transaction  costs could affect the fund's future
 returns. In general,  the greater the volume of buying and selling by the fund,
 the greater the impact that brokerage  commissions and other  transaction costs
 will have on its  return.  Also,  funds  with high  turnover  rates may be more
 likely to generate  capital gains that must be distributed to  shareholders  as
 taxable  income.  As of September 30, 2000,  the average  turnover rate for all
 large-cap value funds was approximately 81%, according to Morningstar, Inc.
--------------------------------------------------------------------------------

<PAGE>

                                                                               8

THE FUND AND VANGUARD

The Fund is a member of The Vanguard  Group, a family of more than 35 investment
companies  with more than 100 funds holding assets worth more than $550 billion.
All of the  Vanguard  funds  share  in the  expenses  associated  with  business
operations, such as personnel, office space, equipment, and advertising.

     Vanguard  also  provides   marketing   services  to  the  funds.   Although
shareholders do not pay sales commissions or 12b-1  distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.

--------------------------------------------------------------------------------
                               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 ADVISERS

The Fund uses a multimanager  approach. It employs four investment advisers that
each  independently  manage a separate portion of the Fund's assets,  subject to
the  control of the  trustees  and  officers  of the Fund.

-    Newell Associates (Newell),  525 University Avenue, Palo Alto, CA 94301, is
     an  investment  advisory  firm founded in 1986.  As of September  30, 2000,
     Newell managed about $1.7 billion in assets.

-    John A. Levin & Co., Inc. (Levin),  One Rockefeller  Plaza, 19th Floor, New
     York,  NY 10020,  is an  investment  advisory  firm founded in 1982.  As of
     September 30, 2000, Levin managed about $10.5 billion in assets.

-    Wellington  Management  Company,  LLP  (Wellington  Management),  75  State
     Street,Boston, MA 02109, is an investment advisory firm founded in 1928. As
     of September 30, 2000,  Wellington Management managed about $266 billion in
     assets.

-    The Vanguard  Group  (Vanguard),  P.O. Box 2600,  Valley  Forge,  PA 19482,
     founded in 1975, is a wholly owned  subsidiary of the Vanguard funds. As of
     September  30, 2000,  Vanguard  served as adviser for about $396 billion in
     assets.

     The  Fund  pays  three  of  its  investment  advisers--Newell,  Levin,  and
Wellington Management--on a quarterly basis. For each adviser, the quarterly fee
is based on certain  annual  percentage  rates  applied  to  average  net assets
managed by the adviser over the  quarterly  period.  In addition,  the quarterly
fees paid to Levin and Wellington  Management  are increased or decreased  based
upon the adviser's  performance  in comparison to a benchmark  index.  For these
purposes, the cumulative total return of each adviser's portion of the Fund over
a trailing 36-month period is compared to the cumulative total return of the S&P
500 Index (for Levin) and the Lipper Equity Income Fund Average (for  Wellington
Management) over the same period.

<PAGE>

9

     Please  consult  the  Fund's  Statement  of  Additional  Information  for a
complete  explanation  of how  advisory  fees are  calculated.  The Fund pays no
advisory fees to Vanguard,  since it provides services to the Fund on an at-cost
basis.

     For the  fiscal  year ended  September  30,  2000,  the  advisory  fees and
expenses represented an effective annual rate of 0.16% of the Fund's average net
assets before a decrease of 0.02% based on performance.

     The advisers are authorized to choose broker-dealers to handle the purchase
and sale of the Fund's  portfolio  securities,  and to obtain the best available
price and most  favorable  execution for all  transactions.  Also,  the Fund may
direct the  advisers  to use a  particular  broker for certain  transactions  in
exchange for commission rebates or research services provided to the Fund.

     In the  interest  of  obtaining  better  execution  of a  transaction,  the
advisers may at times choose brokers who charge higher commissions. If more than
one broker can obtain the best  available  price and most  favorable  execution,
then the  advisers  are  authorized  to  choose a broker  who,  in  addition  to
executing the transaction, will provide research services to the advisers or the
Fund.

     The board of trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory  arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

<PAGE>

                                                                              10

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                              THE FUND'S ADVISERS

The individuals primarily responsible for overseeing the Fund's investments are:

ROGER D. NEWELL, Chairman and Chief Investment Officer of Newell Associates.  He
has worked in investment  management  since 1958; has managed equity funds since
1959;  has been with  Newell  since  1986;  and has managed the Fund since 1988.
Education:  B.A.,  University  of  Minnesota;  J.D.,  Harvard Law School;  M.A.,
University of Minnesota.

JENNIFER C. NEWELL,  CFA,  President,  and Portfolio Manager of Newell.  She has
worked in investment  management since 1986; has been with Newell since 1992 and
its investment team since 1993; and has managed the Fund since 1999.  Education:
B.A., Wheaton College;  M.B.A., Haas Business School,  University of California,
Berkeley.

JOHN A. LEVIN, Chairman and Chief Executive Officer of John A. Levin & Co., Inc.
He has managed  equity funds since 1963; has been with Levin since 1982; and has
managed the Fund since 1995. Education: B.A. and L.L.B., Yale University.

JOSEPH A. AUSTIN,  Senior Portfolio Manager and Securities  Analyst of Levin. He
has worked in investment  management since 1984; has been with Levin since 1993;
and has  managed  the Fund since  2000.  Education:  B.B.A.,  Millsaps  College;
M.B.A., Columbia University.

JOHN W. MURPHY, Senior Portfolio Manager and Securities Analyst of Levin. He has
worked in investment  management since 1988; has been with Levin since 1995; and
has  managed the Fund since  2000.  Education:  B.S.,  Bryant  College;  M.B.A.,
Northwestern University.

DANIEL M. THERIAULT,  CFA, CPA, Senior Portfolio Manager, and Securities Analyst
of Levin. He has worked in investment management since 1986; has been with Levin
since  1997;  and has  managed  the Fund since  2000.  Education:  B.A.,  Boston
College.

JOHN R. RYAN,  CFA, Senior Vice  President,  and Managing  Partner of Wellington
Management Company,  LLP. He has worked in investment management with Wellington
Management  since 1981 and has  managed the Fund since  2000.  Education:  B.S.,
Lehigh University; M.B.A., University of Virginia.

GEORGE  U.  SAUTER,  Managing  Director  of  Vanguard  and  head  of  Vanguard's
Quantitative Equity Group. He has worked in investment management since 1985 and
has had primary  responsibility  for Vanguard's  stock indexing  investments and
strategy since joining the company in 1987. Education:  A.B., Dartmouth College;
M.B.A., University of Chicago.
--------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund  distributes to shareholders  virtually all of its net income (interest
and dividends,  less  expenses),  as well as any capital gains realized from the
sale of its holdings. Income dividends generally are distributed in March, June,
September,  and  December;   capital  gains  distributions  generally  occur  in
December.

     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

<PAGE>

11

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

SHARE PRICE

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

     Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the  number of  shares  you own,  gives you the  dollar  amount  you would  have
received had you sold all of your shares back to the Fund that day.

     A NOTE ON PRICING:  The Fund's  investments  will be priced at their market
value when market  quotations are readily  available.  When these quotations are
not  readily  available,  investments  will  be  priced  at  their  fair  value,
calculated according to procedures adopted by the Fund's board of trustees.

     The Fund's  share price can be found  daily in the mutual fund  listings of
most major newspapers under the heading "Vanguard Funds."

FINANCIAL HIGHLIGHTS

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

<PAGE>

                                                                              12

                                                                         <TABLE>
                                                                       <CAPTION>
-----------------------------------------------------------------------------------------
                                          VANGUARD EQUITY INCOME FUND
                                           YEAR ENDED SEPTEMBER 30,

                        -----------------------------------------------------------------
                          2000         1999         1998         1997         1996
-----------------------------------------------------------------------------------------
<S>                     <C>          <C>          <C>          <C>          <C>

NET ASSET VALUE,
 BEGINNING OF YEAR      $24.14       $22.80       $22.28       $17.69       $15.65
-----------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
 Net Investment Income     .62          .64          .64          .64          .63
 Net Realized and
  Unrealized Gain
  (Loss) on Investments    .81         2.20         1.44         5.17         2.18
                        -----------------------------------------------------------------
   Total from Investment
    Operations            1.43         2.84         2.08         5.81         2.81
                        -----------------------------------------------------------------
DISTRIBUTIONS
 Dividends from Net
  Investment Income       (.64)        (.67)        (.67)        (.64)        (.60)
 Distributions from
  Realized Capital Gains  (.87)        (.83)        (.89)        (.58)        (.17)
                        -----------------------------------------------------------------
   Total Distributions   (1.51)       (1.50)       (1.56)       (1.22)        (.77)
-----------------------------------------------------------------------------------------
NET ASSET VALUE, END
 OF YEAR                $24.06       $24.14       $22.80       $22.28       $17.69
-----------------------------------------------------------------------------------------
TOTAL RETURN             6.28%       12.56%        9.54%       34.17%       18.22%
-----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
 DATA
 Net Assets, End of
  Year (Millions)       $2,420       $3,009       $2,378       $1,948       $1,309
 Ratio of Total
  Expenses to Average
  Net Assets             0.43%        0.41%        0.39%        0.45%        0.42%
 Ratio of Net
  Investment Income to
  Average Net Assets     2.59%        2.59%        2.80%        3.25%        3.69%
 Turnover Rate             36%          18%          23%          22%          21%
-----------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                  HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

 The Fund began fiscal 2000 with a net asset value  (price) of $24.14 per share.
 During  the  year,  the Fund  earned  $0.62 per share  from  investment  income
 (interest  and  dividends)  and  $0.81  per  share  from  investments  that had
 appreciated in value or that were sold for higher prices than the Fund paid for
 them.

 Shareholders received $1.51 per share in the form of dividend and capital gains
 distributions.  A portion of each year's  distributions may come from the prior
 year's income or capital gains.

 The  earnings  ($1.43  per  share)  minus the  distributions  ($1.51 per share)
 resulted in a share price of $24.06 at the end of the year. This was a decrease
 of $0.08 per share (from  $24.14 at the  beginning of the year to $24.06 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 6.28% for the year.

 As of  September  30, 2000,  the Fund had $2.4  billion in net assets.  For the
 year, its expense ratio was 0.43% ($4.30 per $1,000 of net assets); and its net
 investment  income  amounted to 2.59% of its  average  net assets.  It sold and
 replaced securities valued at 36% of its net assets.
--------------------------------------------------------------------------------

<PAGE>

13

INVESTING WITH VANGUARD

The Fund is an investment  option in your  retirement or savings plan. Your plan
administrator  or your  employee  benefits  office can provide you with detailed
information  on how to  participate in your plan and how to elect the Fund as an
investment  option.

-    If you have any questions about the Fund or Vanguard, including those about
     the Fund's investment objective,  strategies,  or risks, contact Vanguard's
     Participant Access Center, toll-free, at 1-800-523-1188.

-    If you have questions about your account,  contact your plan  administrator
     or the organization that provides recordkeeping services for your plan.

INVESTMENT OPTIONS AND ALLOCATIONS

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

TRANSACTIONS

Contributions,  exchanges,  or redemptions of the Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete  information on your contribution,  exchange,  or
redemption, and that Vanguard has received the appropriate assets.

     In all cases, your transaction will be based on the Fund's  next-determined
net asset value after  Vanguard  receives  your  request (or, in the case of new
contributions,  the  next-determined net asset value after Vanguard receives the
order from your plan administrator).  As long as this request is received before
the close of trading on the New York Stock Exchange,  generally 4 p.m.,  Eastern
time, you will receive that day's net asset value.

EXCHANGES

The exchange  privilege (your ability to redeem shares from one fund to purchase
shares of another  fund) may be available to you through your plan.  Although we
make every  effort to maintain  the exchange  privilege,  Vanguard  reserves the
right to revise or terminate this privilege, limit the amount of an exchange, or
reject any exchange,  at any time, without notice.  Because excessive  exchanges
can potentially  disrupt the management of the Fund and increase its transaction
costs,  Vanguard  limits  participant  exchange  activity  to no more  than FOUR
SUBSTANTIVE  "ROUND TRIPS"  THROUGH THE FUND (at least 90 days apart) during any
12-month  period.  A "round  trip" is a redemption  from the Fund  followed by a
purchase back into the Fund.  "Substantive"  means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.

     Before  making an exchange to or from another fund  available in your plan,
consider the following:

-    Certain investment options,  particularly funds made up of company stock or
     investment contracts, may be subject to unique restrictions.

-    Make sure to read that fund's prospectus.  Contact  Vanguard's  Participant
     Access Center, toll-free, at 1-800-523-1188 for a copy.

-    Vanguard can accept exchanges only as permitted by your plan.  Contact your
     plan  administrator for details on the exchange policies that apply to your
     plan.

<PAGE>

                                                                              14

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;  the
online  Education  Center  that  offers a variety of mutual  fund  classes;  and
easy-to-use,  interactive  tools to help you  create  your  own  investment  and
retirement strategies.

<PAGE>

                     (THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

                     (THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

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

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

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

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

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

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

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

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

MUTUAL FUND
An  investment  company  that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

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

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

PRINCIPAL
The amount of money you put into an investment.

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

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

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

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

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

<PAGE>

[SHIP]
[THE VANGUARD GROUP(R) LOGO]

Institutional Division
Post Office Box 2900
Valley Forge, PA 19482-2900

FOR MORE INFORMATION
If you'd like more information about
Vanguard Equity Income Fund, the
following documents are available
free upon request:

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

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

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

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

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

THE VANGUARD GROUP
PARTICIPANT ACCESS CENTER
P.O. BOX 2900
VALLEY FORGE, PA 19482-2900

TELEPHONE:
1-800-523-1188

TEXT TELEPHONE:
1-800-523-8004

WORLD WIDE WEB:
WWW.VANGUARD.COM

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

Fund's Investment Company Act
file number: 811-5445


(C) 2001 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.

I065 012001


<PAGE>


VANGUARD(R) GROWTH EQUITY FUND

INVESTOR SHARES - JANUARY 19, 2001

This prospectus
contains financial data
for the Fund through
the fiscal year ended
September 30, 2000.

STOCK

PROSPECTUS

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
commission has approved or  disapproved  of these  securities or passed upon the
accurace or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.


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

<PAGE>

VANGUARD GROWTH EQUITY FUND
Prospectus
January 19, 2001

A Growth Stock Mutual Fund

--------------------------------------------------------------------------------
  CONTENTS
--------------------------------------------------------------------------------
  1 FUND PROFILE

  3 ADDITIONAL INFORMATION

  4 MORE ON THE FUND

  9 THE FUND AND VANGUARD

  9 INVESTMENT ADVISER

 10 DIVIDENDS, CAPITAL GAINS, AND TAXES

 12 SHARE PRICE

 12 FINANCIAL HIGHLIGHTS

 14 INVESTING WITH VANGUARD

    14 Buying Shares

    15 Redeeming Shares

    17 Other Rules You Should Know

    19 Fund and Account Updates

    20 Contacting Vanguard

 GLOSSARY (inside back cover)
--------------------------------------------------------------------------------

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

This prospectus explains the investment  objective,  policies,  strategies,  and
risks  associated  with the Fund. To highlight  terms and concepts  important to
mutual fund investors,  we have provided "Plain Talk(R)"  explanations along the
way.  Reading the prospectus  will help you decide whether the Fund is the right
investment  for you.  We  suggest  that  you keep  this  prospectus  for  future
reference.
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IMPORTANT NOTE

The minimum initial investment for the Fund is $10,000.
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<PAGE>

1

FUND PROFILE

INVESTMENT OBJECTIVE

The Fund seeks to long-term capital appreciation.

INVESTMENT STRATEGIES

The  Fund  invests  mainly--at  least  65%  of its  total  assets--in  mid-  and
large-capitalization  stocks of U.S.  companies.  The Fund's  adviser  looks for
companies that are believed to have strong earnings  growth  potential and to be
reasonably  valued at the time of  purchase.  The Fund  seeks to remain  "sector
neutral" as compared to the Russell 1000 Growth  Index,  meaning that it invests
across  economic  sectors in roughly the same  proportions  as those sectors are
represented in the Index. The Fund trades stocks aggressively,  which may result
in higher  transaction costs for the Fund, greater capital gains tax liabilities
for shareholders, and reduced after-tax performance.

PRIMARY RISKS

An investment in the Fund could lose money over short or even long periods.  You
should expect the Fund's share price and total return to fluctuate within a wide
range like the overall stock market.  The Fund's performance could be hurt by:

-    Investment  style  risk,  which is the chance  that  returns  from mid- and
     large-capitalization  growth  stocks  will trail  returns  from other asset
     classes or the overall  stock market.  Specific  types of stocks tend to go
     through cycles of doing better--or worse--than the stock market in general.
     These periods have, in the past, lasted for as long as several years.

-    Manager risk,  which is the chance that poor security  selection will cause
     the Fund to underperform other funds with similar investment objectives.

-    Sector  risk,  which is the chance  that the Fund's  returns  could be hurt
     significantly by problems  affecting a particular  economic sector.  With a
     substantial  portion of the Fund's  total  assets  invested  in  technology
     stocks,  sector  risk is quite  high for the  Fund.  The pace of  change is
     extremely rapid in the technology  sector,  and new technology  products or
     services can become obsolete just a short period of time after they emerge.
     Consequently,  technology  stocks tend to be much more volatile than stocks
     of other economic sectors.

PERFORMANCE/RISK INFORMATION

The  following  bar  chart is  intended  to help  you  understand  the  risks of
investing in the Fund. It shows how the Fund's  performance  has varied from one
calendar year to another  since  inception.  In addition,  there is a table that
shows how the  Fund's  average  annual  total  returns  compare  with those of a
relevant  market  index over set  periods of time.  Keep in mind that the Fund's
past performance does not indicate how it will perform in the future.*

*Prior to June 12, 2000,  Vanguard  Growth  Equity Fund was  organized as Turner
 Growth Equity Fund and was sponsored by Turner Investment  Partners,  Inc., its
 investment adviser. A reorganization  brought the Fund into The Vanguard Group,
 while maintaining the same investment objective, strategies, and adviser.

<PAGE>

                                                                               2

      ----------------------------------------------------
                        ANNUAL TOTAL RETURNS
      [SCALE -40% TO 80%]
                        1993          15.38%
                        1994          -6.73%
                        1995          29.96%
                        1996          19.23%
                        1997          31.36%
                        1998          38.07%
                        1999          53.60%
                        2000         -23.10%
      ----------------------------------------------------

     During the period shown in the bar chart, the highest return for a calendar
quarter was 39.67% (quarter ended December 31, 1999),  and the lowest return for
a quarter was -28.91% (quarter ended December 31, 2000).

      -----------------------------------------------------------------
      AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 2000
      -----------------------------------------------------------------
                                   1 YEAR   5 YEARS   SINCE INCEPTION*
      -----------------------------------------------------------------
      Vanguard Growth Equity Fund  -23.10%   20.63%        17.19%
      Russell 1000 Growth Index    -22.43    18.15         16.14
      -----------------------------------------------------------------
      *March 11, 1992.
      -----------------------------------------------------------------

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 on amounts now in effect.*

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

      ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's
      assets)
      Management Expenses:                                                0.63%
      12b-1 Distribution Fee:                                              None
      Other Expenses:                                                     0.02%
       TOTAL ANNUAL FUND OPERATING EXPENSES:                              0.65%

    *The  information  in  the  table has been  restated  to  reflect  estimated
     expenses  for the Fund's first full fiscal year as a member of The Vanguard
     Group,  rather  than  to  reflect  last  year's  expenses,   which  changed
     materially  when the Fund became a member of The Vanguard Group on June 12,
     2000.

<PAGE>

3

     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's  shares.  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 the given period.

--------------------------------------------------
   1 YEAR      3 YEARS    5 YEARS      10 YEARS
--------------------------------------------------
    $66         $208       $362         $810
--------------------------------------------------

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

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                               PLAIN TALK ABOUT
                                 FUND EXPENSES

 All mutual funds have operating  expenses.  These expenses,  which are deducted
 from a fund's gross income,  are expressed as a percentage of the net assets of
 the fund. We expect the Fund's  expense ratio for the current fiscal year to be
 0.65%, or $6.50 per $1,000 of average net assets.  The average large-cap growth
 mutual fund had expenses in 1999 of 1.41%,  or $14.10 per $1,000 of average net
 assets (derived from data provided by Lipper Inc.,  which reports on the mutual
 fund industry).  Management expenses, which are one part of operating expenses,
 include  investment  advisory  fees  as well  as  other  costs  of  managing  a
 fund--such as account  maintenance,  reporting,  accounting,  legal,  and other
 administrative expenses.
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                               PLAIN TALK ABOUT
                              COSTS OF INVESTING

 Costs are an important  consideration in choosing a mutual fund. That's because
 you, as a shareholder,  pay the costs of operating a fund, plus any transaction
 costs associated with the fund's buying and selling of securities.  These costs
 can erode a substantial  portion of the gross income or capital  appreciation a
 fund  achieves.  Even seemingly  small  differences in expenses can, over time,
 have a dramatic effect on a fund's performance.
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ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS            MINIMUM INITIAL INVESTMENT
Distributed annually in December       $10,000; $1,000 for IRAs and custodial
                                       accountsfor minors
INVESTMENT ADVISER
Turner Investment Partners, Inc.,      NEWSPAPER ABBREVIATION
Berwyn, Pa., since inception           GrowEq

INCEPTION DATE                         VANGUARD FUND NUMBER
March 11, 1992                         544

NET ASSETS AS OF SEPTEMBER 30, 2000    CUSIP NUMBER
$918 million                           921921201

SUITABLE FOR IRAS                      TICKER SYMBOL
Yes                                    VGEQX
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<PAGE>


                                                                               4

MORE ON THE FUND

This  prospectus  describes  risks you would face as a Fund  shareholder.  It is
important  to keep in mind one of the main axioms of  investing:  The higher the
risk of losing money,  the higher the potential  reward.  The reverse,  also, is
generally  true:  The lower the risk,  the lower the  potential  reward.  As you
consider an  investment  in any mutual  fund,  you should take into account your
personal  tolerance for daily fluctuations in the securities  markets.  Look for
this  [FLAG]  symbol  throughout  the  prospectus.  It is used to mark  detailed
information  about  each  type  of  risk  that  you  would  confront  as a  Fund
shareholder.

     The  following  sections  explain the  primary  investment  strategies  and
policies  that the Fund uses in pursuit of its  objective.  The Fund's  board of
trustees, which oversees the Fund's management, may change investment strategies
or policies in the interest of  shareholders  without a shareholder  vote unless
those strategies or policies are designated as fundamental.

     Finally, you'll find information on other important features of the Fund.

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                               PLAIN TALK ABOUT
                         GROWTH FUNDS AND VALUE FUNDS

 Growth  investing  and value  investing  are two styles  employed by stock fund
 managers.   Growth  funds  generally  focus  on  companies   believed  to  have
 above-average  potential  for growth in revenue and  earnings.  Reflecting  the
 market's high expectations for superior growth,  such stocks typically have low
 dividend  yields and  above-average  prices in  relation  to such  measures  as
 revenue,  earnings,  and book value. Value funds generally  emphasize stocks of
 companies  from which the market does not expect strong  growth.  The prices of
 value stocks  typically  are  below-average  in  comparison  to such factors as
 earnings and book value, and these stocks typically pay above-average  dividend
 yields.  Growth and value stocks have, in the past,  produced similar long-term
 returns,  though each category has periods when it  outperforms  the other.  In
 general,  growth funds appeal to investors  who will accept more  volatility in
 hopes of a greater  increase in share  price.  Growth  funds also may appeal to
 investors with taxable accounts who want a higher proportion of returns to come
 as capital  gains  (which may be taxed at lower  rates than  dividend  income).
 Value funds, by contrast,  are appropriate for investors who want some dividend
 income  and  the  potential  for  capital  gains,  but  are  less  tolerant  of
 share-price fluctuations.
--------------------------------------------------------------------------------

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

 Stocks  of  publicly  traded   companies--and  mutual  funds  that  hold  these
 stocks--can be classified by the companies'  market value,  or  capitalization.
 Market capitalization  changes over time, and there is no "official" definition
 of the boundaries of large-,  mid-, and small-cap  stocks.  Vanguard  generally
 defines  large-capitalization  (large-cap)  funds as those  holding  stocks  of
 companies whose outstanding  shares have, on average,  a market value exceeding
 $13 billion;  mid-cap funds as those holding  stocks of companies with a market
 value  between  $1.5  billion and $13  billion;  and  small-cap  funds as those
 typically  holding  stocks of  companies  with a market value of less than $1.5
 billion. Vanguard periodically reassesses these classifications.
--------------------------------------------------------------------------------

<PAGE>

5

MARKET EXPOSURE

The Fund  invests  mainly in common  stocks  of  large-  and  mid-capitalization
companies that are believed to have strong  earnings  growth  potential and that
are reasonably valued at the time of purchase.

[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK,  WHICH IS THE CHANCE THAT STOCK
     PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS.  STOCK MARKETS
     TEND TO MOVE IN  CYCLES,  WITH  PERIODS  OF RISING  PRICES  AND  PERIODS OF
     FALLING PRICES.

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

----------------------------------------------------------
         U.S. STOCK MARKET RETURNS (1926-2000)
----------------------------------------------------------
                     1 YEAR  5 YEARS  10 YEARS   20 YEARS
----------------------------------------------------------
Best                  54.2%   28.6%    19.9%      17.8%
Worst                -43.1   -12.4     -0.8        3.1
Average               12.9    11.1     11.2       11.2
----------------------------------------------------------

     The table  covers all of the 1-, 5-,  10-,  and 20-year  periods  from 1926
through 2000. You can see, for example,  that while the average return on common
stocks for all of the 5-year periods was 11.1%,  returns for  individual  5-year
periods  ranged from a -12.4%  average  (from 1928 through  1932) to 28.6% (from
1995 through 1999).  These average  returns  reflect past  performance on common
stocks;  you should not regard  them as an  indication  of future  returns  from
either the stock market as a whole or this Fund in particular.

     As of September  30,  2000,  the Fund had invested 40% of net assets in its
top ten holdings.

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

 In general,  the more  diversified  a fund's stock or bond  holdings,  the less
 likely  that  fund  performance  may be  hurt  disproportionately  by the  poor
 performance   of   relatively   few   securities.   One  measure  of  a  fund's
 diversification  is the percentage of its assets represented by its ten largest
 holdings.  The  average  U.S.  equity  mutual  fund has about 35% of its assets
 invested in its ten largest holdings,  while some less-diversified mutual funds
 have more than 50% of assets invested in their top ten.
--------------------------------------------------------------------------------

[FLAG] THE FUND IS SUBJECT TO  INVESTMENT  STYLE RISK,  WHICH IS THE CHANCE THAT
     RETURNS FROM THE MARKET  SECTOR IN WHICH IT INVESTS WILL TRAIL RETURNS FROM
     OTHER MARKET SECTORS.  AS A GROUP, MID- AND LARGE-CAP GROWTH STOCKS TEND TO
     GO THROUGH CYCLES OF DOING BETTER--OR WORSE--THAN COMMON STOCKS IN GENERAL.
     THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL YEARS.

<PAGE>

                                                                               6

SECURITY SELECTION

Turner Investment  Partners,  Inc.  (Turner),  adviser to the Fund, seeks to buy
stocks  of  companies  with  strong  earnings  prospects  and  sell  those  with
deteriorating  earnings  prospects.  The adviser evaluates a company's  earnings
prospects through a blend of quantitative,  fundamental, and technical criteria.
First,  Turner uses a proprietary  computer model to screen stocks  according to
numerous earnings-growth and valuation factors. Next, Turner applies fundamental
analysis--meeting  with  companies'  management  teams and  talking to  industry
authorities  in an effort to  anticipate  changes in corporate  earnings  before
other investors do. Finally,  Turner uses technical  analysis to evaluate trends
in  trading  volume  and  prices of  individual  stocks.  Turner  is  interested
primarily in money flow,  which measures  investor  interest in a stock based on
its volume,  pricing patterns, and relative strengths versus other stocks in the
same industry.

     The adviser believes  forecasts for  market-timing  and sector rotation are
unreliable  and  introduce  an  unacceptable  level  of  risk  to  a  portfolio.
Accordingly,  Turner invests the Fund's assets across major economic sectors and
attempts to maintain sector  weightings that approximate the Russell 1000 Growth
Index. The sector weightings of the Index were as follows on September 30, 2000:

----------------------------------------------------
SECTOR                           PERCENTAGE OF INDEX
----------------------------------------------------
Technology                             50.5%
Health Care                            16.2
Consumer Discretionary                 12.1
Other                                   7.7
Consumer Staples                        3.1
Financial Services                      3.1
Utilities                               2.7
Producer Durables                       2.2
Other Energy                            2.0
Auto and Transportation                 0.3
Materials and Processing                0.1
Integrated Oils                         0.0
----------------------------------------------------

     Keep in mind that,  because sector weightings change daily, this listing is
only a "snapshot" at one point in time.

[FLAG] THE FUND IS ALSO  SUBJECT TO SECTOR  RISK,  WHICH IS THE CHANCE  THAT THE
     FUND'S  RETURN  COULD  BE  HURT   SIGNIFICANTLY  BY  PROBLEMS  AFFECTING  A
     PARTICULAR  ECONOMIC SECTOR. WITH A SUBSTANTIAL PORTION OF THE FUND'S TOTAL
     ASSETS  INVESTED IN  TECHNOLOGY  STOCKS,  SECTOR RISK IS QUITE HIGH FOR THE
     FUND.

     The pace of change is extremely  rapid in the  technology  sector,  and new
technology  products or services can become obsolete just a short period of time
after they emerge. Consequently, technology stocks tend to be much more volatile
than stocks of other economic sectors.

<PAGE>

7

     The adviser also believes that it is imprudent to be overly invested in any
one stock, and therefore limits the Fund's investments as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
IF A STOCK'S MONTH-END
WEIGHTING WITHIN THE
INDEX IS:                THEN THE FUND WILL LIMIT INVESTMENTS AT-COST IN THAT STOCK TO:
-----------------------------------------------------------------------------------------
<S>                      <C>
Less than 2%             No more than 3.5% of Fund assets
2% to 5%                 No more than twice the Index weight at time of purchase
More than 5%             No more than 1 1/2 times the Index weight at time of purchase
-----------------------------------------------------------------------------------------
</TABLE>

     In addition, the Fund may invest no more than 3% of its assets in any stock
that is not part of the Index.

     The Fund is run  according  to  traditional  methods  of active  investment
management.  This means that  securities  are bought and sold  according  to the
adviser's  judgments about companies and their financial  prospects,  within the
context of the stock market and the economy in general.

     The Fund is generally managed without regard to tax ramifications.

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

OTHER INVESTMENT POLICIES AND RISKS

Besides  investing  in  common  stocks of  growth  companies,  the Fund may make
certain other kinds of investments to achieve its objective.

     The  Fund  may  invest a  portion  of its  assets  in  securities  that are
convertible to common stocks,  warrants,  rights to purchase common stocks,  and
American  Depositary  Receipts  (ADRs).  The Fund may also invest,  to a limited
extent, in foreign securities.

     The Fund may also invest in stock futures and options contracts,  which are
traditional  types of  derivatives.  Losses (or  gains)  involving  futures  can
sometimes be substantial--in part because a relatively small price movement in a
futures contract may result in an immediate and substantial loss (or gain) for a
fund.  The Fund will not use futures for  speculative  purposes or as  leveraged
investments  that magnify gains or losses.  The Fund's  obligation under futures
contracts will not exceed 20% of its total assets.

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

 A  derivative  is a financial  contract  whose value is based on (or  "derived"
 from) a traditional  security (such as a stock or a bond),  an asset (such as a
 commodity like gold), or a market index (such as the S&P 500 Index). Some forms
 of  derivatives,  such as  exchange-traded  futures and options on  securities,
 commodities, or indexes, have been trading on regulated exchanges for more than
 two decades.  These types of derivatives  are  standardized  contracts that can
 easily be bought and sold, and whose market values are determined and published
 daily.  Nonstandardized  derivatives,  on  the  other  hand,  tend  to be  more
 specialized or complex,  and may be harder to value. If used for speculation or
 as leveraged investments, derivatives can carry considerable risks.
--------------------------------------------------------------------------------

<PAGE>

                                                                               8

     The reasons for which the Fund will invest in futures and options are:

-    To keep cash on hand to meet  shareholder  redemptions or other needs while
     simulating full investment in stocks.

-    To reduce the Fund's  transaction costs or add value when these instruments
     are favorably priced.

     The Fund may temporarily  depart from its normal  investment  policies--for
instance,  by  investing  substantially  in  cash  investments--in  response  to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

COSTS AND MARKET-TIMING

Some  investors  try to profit from a strategy  called  market-timing--switching
money into  mutual  funds 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.
This is why all  Vanguard  funds have  adopted  special  policies to  discourage
short-term  trading.  Specifically:

-    Each   Vanguard   fund   reserves   the  right  to  reject   any   purchase
     request--including  exchanges from other Vanguard funds--that it regards as
     disruptive to efficient portfolio  management.  A purchase request could be
     rejected because of the timing of the investment or because of a history of
     excessive trading by the investor.

-    Each  Vanguard  fund (except the money market  funds)  limits the number of
     times that an investor can exchange into and out of the fund.

-    Each Vanguard fund reserves the right to stop offering shares at any time.

-    Vanguard  U.S.  Stock Index Funds,  International  Stock Index Funds,  REIT
     Index Fund,  Balanced  Index Fund,  and Growth and Income Fund generally do
     NOT accept  exchanges  by  telephone  or fax,  or  online.  (IRAs and other
     retirement accounts are not subject to this rule.)

-    Certain  Vanguard  funds  charge   transaction  fees  on  purchases  and/or
     redemptions of their shares.

-    Vanguard funds that hold foreign  securities may value those  securities at
     their "fair value,"  rather than the price at which those  securities  last
     traded on their primary foreign markets or exchanges,  to take into account
     events that occur after the close of those markets or exchanges.

See the INVESTING WITH VANGUARD  section of this  prospectus for further details
on Vanguard's transaction policies.

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

TURNOVER RATE

The  Fund may sell  securities  regardless  of how long  they  have  been  held.
Historically, the Fund has bought and sold securities frequently, resulting in a
HIGH turnover rate. The FINANCIAL  HIGHLIGHTS  section of this prospectus  shows
historic  turnover  rates for the Fund.  A turnover  rate of 100%,  for example,
would mean that the Fund had sold and replaced  securities valued at 100% of its
net assets within a one-year period.

<PAGE>

9

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                               PLAIN TALK ABOUT
                                 TURNOVER RATE

 Before  investing in a mutual fund, you should review its turnover  rate.  This
 gives an  indication  of how  transaction  costs could affect the fund's future
 returns. In general,  the greater the volume of buying and selling by the fund,
 the greater the impact that brokerage  commissions and other  transaction costs
 will have on its  return.  Also,  funds  with high  turnover  rates may be more
 likely to generate  capital gains that must be distributed to  shareholders  as
 taxable  income.  As of September 30, 2000,  the average  turnover rate for all
 large-cap growth funds was approximately 128%, according to Morningstar, Inc.
--------------------------------------------------------------------------------

THE FUND AND VANGUARD

The Fund is a member of The Vanguard  Group, a family of more than 35 investment
companies  with more than 100 funds holding assets worth more than $550 billion.
All of the  Vanguard  funds  share  in the  expenses  associated  with  business
operations, such as personnel, office space, equipment, and advertising.

     Vanguard  also  provides   marketing   services  to  the  funds.   Although
shareholders do not pay sales commissions or 12b-1  distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.

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

Turner Investment  Partners,  Inc.  (Turner),  1235 Westlakes Drive,  Suite 350,
Berwyn, PA 19312, adviser to the Fund, is an investment advisory firm founded in
1990. As of September 30, 2000, Turner managed about $12 billion in assets.  The
firm manages the Fund subject to the control of the trustees and officers of the
Fund.

     Turner's  advisory fee is paid  quarterly,  and is based on certain  annual
percentage  rates  applied  to the  Fund's  average  month-end  assets  for each
quarter.  In addition,  the firm's  advisory fee may be increased or  decreased,
based on the cumulative total return of the Fund over a trailing 36-month period
as compared  with the  cumulative  total return of the Russell 1000 Growth Index
over  the same  period.  Please  consult  the  Fund's  Statement  of  Additional
Information for a complete explanation of how advisory fees are calculated.

     Advisory  fees  for  the  full  fiscal  year  ended   September  30,  2000,
represented an effective  annual rate of 0.53%. For the period prior to June 12,
2000, when the Fund

<PAGE>

                                                                              10

became  associated with Vanguard,  the effective  annual rate was 0.75%. For the
period from June 12 to September 30, 2000, the effective annual rate was 0.41%.

     The adviser is authorized to choose  broker-dealers  to handle the purchase
and sale of the Fund's  securities,  and to obtain the best available  price and
most  favorable  execution for all  transactions.  Also, the Fund may direct the
adviser to use a  particular  broker for certain  transactions  in exchange  for
commission rebates or research services provided to the Fund.

     In the interest of obtaining better execution of a transaction, the adviser
may at times  choose  brokers who charge  higher  commissions.  If more than one
broker can obtain the best available  price and most favorable  execution,  then
the adviser is  authorized  to choose a broker who, in addition to executing the
transaction, will provide research services to the adviser or the Fund.

     The board of trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory  arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

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                               PLAIN TALK ABOUT
                              THE FUND'S ADVISER

The managers primarily responsible for overseeing the Fund's investments are:

ROBERT  E.  TURNER,  CFA,  Chairman,  and  Chief  Executive  Officer  of  Turner
Investment Partners,  Inc. He has worked in investment management since 1981 and
has been with Turner since  co-founding  the firm in 1990.  Education:  B.S. and
M.B.A., Bradley University.

MARK TURNER,  President of Turner. He has worked in investment  management since
1982 and has been with Turner  since  co-founding  the firm in 1990.  Education:
B.S., Bradley University; M.B.A., University of Illinois.

JOHN HAMMERSCHMIDT,  Senior Equity Portfolio Manager of Turner. He has worked in
investment management since 1983 and has been with Turner since 1992. Education:
B.S., Lehigh University; M.B.A., Duke University.

CHRISTOPHER MCHUGH,  Senior Equity Portfolio Manager of Turner. He has worked in
investment management since 1986 and has been with Turner since 1990. Education:
B.S.,  Philadelphia  College of  Textiles  and  Science;  M.B.A.,  St.  Joseph's
University.
--------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund  distributes to shareholders  virtually all of its net income (interest
and dividends,  less  expenses),  as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. You can receive
distributions of income dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.

<PAGE>


11

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

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

BASIC TAX POINTS

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

-    Distributions are taxable to you for federal income tax purposes whether or
     not you reinvest these amounts in additional Fund shares.

-    Distributions   declared  in  December--if  paid  to  you  by  the  end  of
     January--are  taxable  for  federal  income tax  purposes as if received in
     December.

-    Any dividends and short-term  capital gains that you receive are taxable to
     you as ordinary income for federal income tax purposes.

-    Any  distributions  of net  long-term  capital  gains are taxable to you as
     long-term capital gains for federal income tax purposes, no matter how long
     you've owned shares in the Fund.

-    Capital gains  distributions  may vary  considerably from year to year as a
     result of the Fund's normal investment activities and cash flows.

-    A sale or exchange of Fund shares is a taxable  event.  This means that you
     may have a capital gain to report as income, or a capital loss to report as
     a deduction, when you complete your federal income tax return.

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

GENERAL INFORMATION

BACKUP  WITHHOLDING.   By  law,  Vanguard  must  withhold  31%  of  any  taxable
distributions or redemptions from your account if you do not:

-    provide us with your correct taxpayer identification number;

-    certify that the taxpayer identification number is correct; and

-    confirm that you are not subject to backup withholding.

Similarly,  Vanguard  must withhold from your account if the IRS instructs us to
do so.

FOREIGN  INVESTORS.  The Vanguard funds  generally do not offer their shares for
sale outside of the United States.  Foreign  investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.

INVALID  ADDRESSES.  If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest  all future  distributions  until you  provide us with a valid  mailing
address.

TAX CONSEQUENCES.  This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply.

<PAGE>


                                                                              12

Please  consult  your tax adviser for  detailed  information  about a fund's tax
consequences for you.

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                              "BUYING A DIVIDEND"

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

SHARE PRICE

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

     Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the  number of  shares  you own,  gives you the  dollar  amount  you would  have
received had you sold all of your shares back to the Fund that day.

     A NOTE ON PRICING:  The Fund's  investments  will be priced at their market
value when market  quotations are readily  available.  When these quotations are
not  readily  available,  investments  will  be  priced  at  their  fair  value,
calculated according to procedures adopted by the Fund's board of trustees.

     The Fund's  share price can be found  daily in the mutual fund  listings of
most major newspapers under the heading "Vanguard Funds."

FINANCIAL HIGHLIGHTS

The following financial  highlights table is intended to help you understand the
Fund's financial  performance for the past five years,  and certain  information
reflects  financial  results for a single Fund share.  The total  returns in the
table  represent the rate that an investor would have earned or lost each period
on an investment in the Fund (assuming  reinvestment of all dividend and capital
gains  distributions).  This  information  has been derived  from the  financial
statements.  Other independent  accountants audited the financial statements for
years  prior  thereto.   PricewaterhouseCoopers   LLP,  the  Fund's  independent
accountants, audited those financial statements for the year ended September 30,
2000, and their report--along with the Fund's financial  statements--is included
in the Fund's most recent annual report to shareholders. You may have the annual
report sent to you without charge by contacting Vanguard.

<PAGE>

13

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                  VANGUARD GROWTH EQUITY FUND
                                           YEAR ENDED SEPTEMBER 30,
                               ---------------------------------------------------     OCT. 31, 1995, TO          YEAR ENDED
                                  2000          1999          1998          1997          SEP. 30, 1996*       OCT. 31, 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>           <C>           <C>                     <C>                 <C>
NET ASSET VALUE, BEGINNING OF
 PERIOD                         $15.88        $12.87        $16.64        $17.03                  $14.97              $12.46
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
 Net Investment Income (Loss)     (.01)         (.05)         (.05)         (.03)                    .02                 .10
 Net Realized and Unrealized
  Gain (Loss) on Investments      7.33          4.66          1.10          4.23                    2.91                2.52
                               ----------------------------------------------------------------------------------------------------
   Total from Investment
    Operations                    7.32          4.61          1.05          4.20                    2.93                2.62
                               ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS
 Dividends from Net
  Investment Income                 --            --            --            --                    (.02)               (.11)
 Distributions from Realized
  Capital Gains                  (4.52)        (1.60)        (4.82)        (4.59)                   (.85)                 --
                               ----------------------------------------------------------------------------------------------------
   Total Distributions           (4.52)        (1.60)        (4.82)        (4.59)                   (.87)               (.11)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD  $18.68        $15.88        $12.87        $16.64                  $17.03              $14.97
===================================================================================================================================

TOTAL RETURN                    51.07%        38.15%        10.71%        32.61%                  20.61%              21.15%
===================================================================================================================================

RATIOS/SUPPLEMENTAL DATA
 Net Assets, End of Period
  (Millions)                      $918          $143           $98          $100                     $96                $116
 Ratio of Total Expenses to
  Average Net Assets             0.74%         0.96%        1.04%+        1.02%+                 1.06%**               1.03%
 Ratio of Net Investment
  Income (Loss) to Average
  Net Assets                   (0.19%)       (0.42%)       (0.42%)       (0.25%)                 0.03%**               0.69%
 Turnover Rate                    303%          328%          250%          178%                    148%                178%
===================================================================================================================================
</TABLE>
 *The Fund's fiscal year-end changed from October 31 to September 30, effective
  September 30, 1996.
**Annualized.
 +Expense ratios before waivers and reimbursements of expenses were 1.12% in
  1998 and 1.05% in 1997.

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

 The Fund began fiscal 2000 with a net asset value  (price) of $15.88 per share.
 During the year, the Fund had negative  investment  income of ($0.01) per share
 (because expenses were greater than interest and dividend  income),  and a gain
 of $7.33 per share from  investments that had appreciated in value or that were
 sold for higher prices than the Fund paid for them.

 Shareholders received $4.52 per share in the form of dividend and capital gains
 distributions.  A portion of each year's  distributions may come from the prior
 year's income or capital gains.

 The  earnings  ($7.32  per  share)  minus the  distributions  ($4.52 per share)
 resulted  in a share  price  of  $18.68  at the end of the  year.  This  was an
 increase of $2.80 per share (from $15.88 at the beginning of the year to $18.68
 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 51.07% for the
 year.

 As of  September  30, 2000,  the Fund had $918  million in net assets.  For the
 year, its expense ratio was 0.74% ($7.40 per $1,000 of net assets); and its net
 investment  income  amounted to -0.19% of its  average net assets.  It sold and
 replaced securities valued at 303% of its net assets.
--------------------------------------------------------------------------------

<PAGE>


                                                                              14

--------------------------------------------------------------------------------
 INVESTING WITH VANGUARD

 This section of the prospectus explains the basics of doing business with
 Vanguard. A special booklet, The Vanguard Service Directory, provides details
 of our many shareholder services for individual investors. A separate
 booklet, The Compass, does the same for institutional investors. You can
 request either booklet by calling or writing Vanguard, using the Contacting
 Vanguard instructions found at the end of this section.

                                 BUYING SHARES
                               REDEEMING SHARES
                          OTHER RULES YOU SHOULD KNOW
                           FUND AND ACCOUNT UPDATES
                              CONTACTING VANGUARD
--------------------------------------------------------------------------------

BUYING SHARES

ACCOUNT MINIMUMS

TO OPEN AND MAINTAIN AN ACCOUNT:  $10,000 for regular accounts;  $1,000 for IRAs
and custodial accounts for minors.

TO ADD TO AN EXISTING ACCOUNT: $100 by mail or exchange; $1,000 by wire.

HOW TO BUY SHARES

BY CHECK: Mail your check and a completed account registration form to Vanguard.
When adding to an existing account,  send your check with an Invest-By-Mail form
detached  from your last  account  statement.  Make the check  payable  to:  The
Vanguard Group-544. For addresses, see Contacting Vanguard.

BY EXCHANGE PURCHASE:  You can purchase shares with the proceeds of a redemption
from another  Vanguard fund. All open Vanguard funds permit  exchange  purchases
requested in writing.  MOST  VANGUARD  FUNDS--OTHER  THAN THE STOCK AND BALANCED
INDEX-ORIENTED  FUNDS--ALSO  ACCEPT EXCHANGE  PURCHASES  REQUESTED  ONLINE OR BY
TELEPHONE. See Other Rules You Should Know for specifics.

BY WIRE: Call Vanguard to purchase shares by wire. See Contacting Vanguard.

YOUR PURCHASE PRICE

You buy  shares at a fund's  next-determined  NAV after  Vanguard  accepts  your
purchase  request.  As long as your  request  is  received  before  the close of
regular trading on the New York Stock Exchange (generally 4 p.m., Eastern time),
you will buy your shares at that day's NAV. This is known as your TRADE DATE.

PURCHASE RULES YOU SHOULD KNOW

^THIRD PARTY  CHECKS.  To protect the funds from check fraud,  Vanguard will not
accept checks made payable to third parties.

<PAGE>

15

^U.S. CHECKS ONLY. All purchase checks must be written in U.S. dollars and drawn
on a U.S. bank.

^LARGE  PURCHASES.  Vanguard  reserves the right to reject any purchase  request
that may  disrupt  a fund's  operation  or  performance.  Please  call us before
attempting to invest a large dollar amount.

^NO CANCELLATIONS.  Place your transaction requests carefully. Vanguard will NOT
cancel any transaction once it has been initiated and a confirmation  number has
been assigned (if applicable).

^FUTURE  PURCHASES.  All Vanguard funds reserve the right to stop selling shares
at any time, or to reject specific  purchase  requests,  including  purchases by
exchange from another Vanguard fund.

REDEEMING SHARES


HOW TO REDEEM SHARES

Be sure to check Other Rules You Should Know before initiating your request.

ONLINE: Request a redemption through our website at Vanguard.com.

BY  TELEPHONE:  Contact  Vanguard  by  telephone  to request a  redemption.  For
telephone numbers, see Contacting Vanguard.

BY MAIL: Send your written redemption  instructions to Vanguard.  For addresses,
see Contacting Vanguard.

YOUR REDEMPTION PRICE

You redeem shares at a fund's  next-determined  NAV after Vanguard  accepts your
redemption  request,  including  any special  documentation  required  under the
circumstances.  As long as your request is received  before the close of regular
trading on the New York Stock Exchange  (generally 4 p.m.,  Eastern time),  your
shares are redeemed at that day's NAV. This is known as your TRADE DATE.

TYPES OF REDEMPTIONS

^CHECK REDEMPTIONS. Unless instructed otherwise, Vanguard will mail you a check,
normally within two business days of your trade date.

^EXCHANGE  REDEMPTIONS.  You may instruct Vanguard to apply the proceeds of your
redemption to purchase shares of another  Vanguard fund. All open Vanguard funds
accept exchange  redemptions  requested in writing.  Most Vanguard  funds--other
than the index-oriented funds--also accept exchange redemptions requested online
or by telephone. See Other Rules You Should Know for specifics.

^WIRE  REDEMPTIONS.  When redeeming from a money market fund,  bond fund, or the
Preferred Stock Fund, you may instruct Vanguard to wire your redemption proceeds
to a

<PAGE>


                                                                              16

previously  designated  bank  account.  Wire  redemptions  are not available for
Vanguard's  other funds. The wire redemption  option is not automatic;  you must
establish it by  completing a special  form or the  appropriate  section of your
account registration.  Also, wire redemptions must be requested in writing or by
telephone, not online. A $5 fee applies to wire redemptions under $5,000.

Money Market Funds: For telephone  requests  accepted at Vanguard by 10:45 a.m.,
Eastern time, the  redemption  proceeds will arrive at your bank by the close of
business that same day. For other requests accepted before 4 p.m., Eastern time,
the redemption proceeds will arrive at your bank by the close of business on the
following business day.

Bond Funds and  Preferred  Stock Fund:  For  requests  accepted at Vanguard by 4
p.m.,  Eastern  time,  the  redemption  proceeds will arrive at your bank by the
close of business on the following business day.

REDEMPTION RULES YOU SHOULD KNOW

^SPECIAL ACCOUNTS.  Special documentation may be required to redeem from certain
types of accounts, such as trust, corporate,  nonprofit, or retirement accounts.
Please call us before attempting to redeem from these types of accounts.

^POTENTIALLY DISRUPTIVE  REDEMPTIONS.  Vanguard reserves the right to pay all or
part of your  redemption  in-kind--that  is,  in the form of  securities--if  we
believe  that  a  cash  redemption   would  disrupt  the  fund's   operation  or
performance.  Under these  circumstances,  Vanguard  also  reserves the right to
delay  payment of your  redemption  proceeds for up to seven days. By calling us
before you attempt to redeem a large dollar amount, you are more likely to avoid
in-kind or delayed payment of your redemption.

^RECENTLY  PURCHASED SHARES.  While you can redeem shares at any time,  proceeds
will not be made  available  to you until  the Fund  collects  payment  for your
purchase. This may take up to ten calendar days for shares purchased by check or
Vanguard Fund Express(R).

^PAYMENT TO A DIFFERENT  PERSON OR ADDRESS.  We can make your  redemption  check
payable to a different person or send it to a different address.  However,  this
requires the written  consent of all registered  account  owners,  which must be
provided under signature  guarantees.  You can obtain a signature guarantee from
most commercial and savings banks,  credit unions,  trust  companies,  or member
firms of a U.S. stock exchange.

^NO CANCELLATIONS.  Place your transaction requests carefully. Vanguard will NOT
cancel any transaction once it has been initiated and a confirmation  number has
been assigned (if applicable).

<PAGE>

17

^EMERGENCY  CIRCUMSTANCES.  Vanguard  funds can postpone  payment of  redemption
proceeds for up to seven calendar days at any time. In addition,  Vanguard funds
can suspend redemptions and/or postpone payments of redemption proceeds at times
when the New York Stock Exchange is closed or during emergency circumstances, as
determined by the U.S. Securities and Exchange Commission.

OTHER RULES YOU SHOULD KNOW

TELEPHONE TRANSACTIONS

^AUTOMATIC.  In setting up your account,  we'll  automatically  enable you to do
business  with us by regular  telephone,  unless you  instruct us  otherwise  in
writing.

^TELE-ACCOUNT(TM).  To conduct account transactions through Vanguard's automated
telephone service, you must first obtain a personal identification number (PIN).
Call  Tele-Account  to obtain a PIN,  and allow  seven  days  before  using this
service.

^PROOF OF A  CALLER'S  AUTHORITY.  We  reserve  the right to refuse a  telephone
request if the caller is unable to provide the following  information exactly as
registered on the account:

-    Ten-digit account number.

-    Complete owner name and address.

-    Primary Social Security or employer identification number.

-    Personal Identification Number (PIN), if applicable.

^SUBJECT TO  REVISION.  We reserve the right to revise or  terminate  Vanguard's
telephone transaction service at any time, without notice.

^SOME  VANGUARD  FUNDS  DO  NOT  PERMIT  TELEPHONE   EXCHANGES.   To  discourage
market-timing,  Vanguard's  Stock  Index  Funds,  Growth  and Income  Fund,  and
Balanced  Index Fund  generally do not permit  telephone  exchanges (in or out),
except for IRAs and certain other retirement accounts.

VANGUARD.COM

^REGISTRATION.  You can use  your  personal  computer  to  review  your  account
holdings,  to sell or exchange  shares of most  Vanguard  funds,  and to perform
other transactions. To establish this service, you can register online.

^SOME   VANGUARD   FUNDS  DO  NOT  PERMIT   ONLINE   EXCHANGES.   To  discourage
market-timing,  Vanguard's  Stock  Index  Funds,  Growth  and Income  Fund,  and
Balanced Index Fund do not permit online exchanges (in or out),  except for IRAs
and certain other retirement accounts.

<PAGE>


                                                                              18

WRITTEN INSTRUCTIONS

^"GOOD ORDER" REQUIRED.  We reserve the right to reject any written  transaction
instructions  that are not in "good  order."  This means that your  instructions
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.

-    Signature guarantees, if required for the type of transaction.*

*For instance, signature guarantees must be provided by all registered account
 shareholders when redemption proceeds are to be sent to a different person or
 address.

RESPONSIBILITY FOR FRAUD

Vanguard will not be responsible for any account losses due to fraud, so long as
we reasonably believe that the person transacting on an account is authorized to
do so. Please take precautions to protect yourself from fraud. Keep your account
information  private and immediately  review any account statements that we send
to you.  Contact Vanguard  immediately  about any transactions you believe to be
unauthorized.

UNCASHED CHECKS

Please cash your distribution or redemption  checks promptly.  Vanguard will not
pay interest on uncashed checks.

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 NON-MONEY
     MARKET FUND during any 12-month period.

-    Your round trips  through a non-money  market fund must be at least 30 days
     apart.

-    All funds may refuse share purchases at any time, for any reason.

-    Vanguard reserves the right to revise or terminate the exchange  privilege,
     limit the amount of an exchange,  or reject an exchange,  at any time,  for
     any reason.

A "round trip" is a redemption  from a fund followed by a purchase back into the
same  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.

<PAGE>

19

UNUSUAL CIRCUMSTANCES

If you experience  difficulty  contacting  Vanguard online, by telephone,  or by
Tele-Account,  you can send us your  transaction  request  by regular or express
mail. See Contacting Vanguard for addresses.

INVESTING WITH VANGUARD THROUGH OTHER FIRMS

You may  purchase  or sell  shares of most  Vanguard  funds  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.

LOW BALANCE ACCOUNTS

All   Vanguard   funds   reserve   the  right  to  close   any   investment-only
retirement-plan  account or any nonretirement  account whose balance falls below
the minimum initial investment.

     Vanguard  deducts a $10 fee in June from each  nonretirement  account whose
balance at that time is below $2,500 ($500 for Vanguard  STAR(TM) Fund). The fee
is waived if your total Vanguard account assets are $50,000 or more.

FUND AND ACCOUNT UPDATES

PORTFOLIO SUMMARIES

We will send you  quarterly  portfolio  summaries to help you keep track of your
accounts  throughout  the year.  Each  summary  shows the  market  value of your
account  at the close of the  statement  period,  as well as all  distributions,
purchases, sales, and exchanges for the current calendar year.

AVERAGE COST REVIEW STATEMENTS

For most taxable  accounts,  average cost review  statements  will accompany the
quarterly portfolio summaries.  These statements show the average cost of shares
that you  redeemed  during the current  calendar  year,  using the average  cost
single category method.

CONFIRMATION STATEMENTS

Each time you buy,  sell,  or  exchange  shares,  we will  send you a  statement
confirming the trade date and amount of your transaction.

TAX STATEMENTS

We will send you annual tax  statements  to assist in preparing  your income tax
returns.  These statements,  which are generally mailed in January,  will report
the previous year's dividend and capital gains distributions,  proceeds from the
sale of shares, and distributions from IRAs or other retirement plans.

<PAGE>


                                                                              20

REPORTS

Fund financial  reports will be mailed twice a year--in May and November.  These
comprehensive  reports  include an  assessment  of a fund's  performance  (and a
comparison to its industry benchmark), an overview of the financial markets, the
fund's adviser  reports,  and the fund's financial  statements,  which include a
listing of the fund's holdings.

     To  keep  a  fund's  costs  as low as  possible  (so  that  you  and  other
shareholders can keep more of the fund's investment earnings), Vanguard attempts
to eliminate  duplicate  mailings to the same address.  When we find that two or
more  shareholders  have the same last name and  address,  we send just one fund
report to that address--instead of mailing separate reports to each shareholder.
If you want us to send  separate  reports,  however,  you may  notify our Client
Services Department.

CONTACTING VANGUARD

ONLINE

VANGUARD.COM

-    Your best source of Vanguard news

-    For fund, account, and service information

-    For most account transactions

-    For literature requests

-    24 hours per day, 7 days per week

VANGUARD TELE-ACCOUNT(R)
1-800-662-6273 (ON-BOARD)

-    For automated fund and account information

-    For redemptions by check, exchange, or wire

-    Toll-free, 24 hours per day, 7 days per week

INVESTOR INFORMATION
1-800-662-7447 (SHIP)
(Text telephone at 1-800-952-3335)

-    For fund and service information

-    For literature requests

-    Business hours only

CLIENT SERVICES
1-800-662-2739 (CREW)
(Text telephone at 1-800-749-7273)

-    For account information

-    For most account transactions

-    Business hours only

INSTITUTIONAL DIVISION
1-888-809-8102

-    For information and services for large institutional investors

-    Business hours only

<PAGE>

21

VANGUARD ADDRESSES

REGULAR MAIL (INDIVIDUALS--CURRENT CLIENTS):
The Vanguard Group
P.O. Box 1110
Valley Forge, PA 19482-1110

REGULAR MAIL (INSTITUTIONS):
The Vanguard Group
P.O. Box 2900
Valley Forge, PA 19482-2900

REGULAR MAIL (GENERAL INQUIRIES):
The Vanguard Group
P.O. Box 2600
Valley Forge, PA 19482-2600

REGISTERED OR EXPRESS MAIL:
The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815

FUND NUMBER

Always use this fund number when  contacting  us about  Vanguard  Growth  Equity
Fund-544.

<PAGE>

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<PAGE>

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<PAGE>

GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION

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

CASH INVESTMENTS

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

COMMON STOCK

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

DIVIDEND INCOME

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

EXPENSE RATIO

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

GROWTH STOCK FUND

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

INVESTMENT ADVISER

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

MUTUAL FUND

An  investment  company  that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

NET ASSET VALUE (NAV)

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

PRICE/EARNINGS (P/E) RATIO

The current share price of a stock, divided by its per-share earnings (profits).
A stock  selling for $20, with  earnings of $2 per share,  has a  price/earnings
ratio of 10.

PRINCIPAL

The amount of money you put into an investment.

SECURITIES

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

TOTAL RETURN

A percentage change,  over a specified time period, in a mutual fund's net asset
value,  assuming the reinvestment of all  distributions of dividends and capital
gains.

VALUE STOCK FUND

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

VOLATILITY

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

YIELD

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

<PAGE>

[SHIP]
[THE VANGUARD GROUP(R) LOGO]

Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION
If you'd like more information about
Vanguard Growth Equity Fund, the
following documents are available
free upon request:

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

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

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

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

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

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

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

TEXT TELEPHONE:
1-800-952-3335

WORLD WIDE WEB:
WWW.VANGUARD.COM

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

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

TEXT TELEPHONE:
1-800-749-7273

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

Fund's Investment Company Act
file number: 811-5445


(C) 2001 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.

P544 012001


 <PAGE>


VANGUARD(R) EQUITY INCOME FUND

FOR PARTICIPANTS - JANUARY 19, 2001

This prospectus
contains financial data
for the Fund through
the fiscal year ended
September 30, 2000.

STOCK

PROSPECTUS

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
commission has approved or  disapproved  of these  securities or passed upon the
accurace or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.


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

<PAGE>

VANGUARD GROWTH EQUITY FUND
Participant Prospectus
January 19, 2001

A Growth Stock Mutual Fund

--------------------------------------------------------------------------------
  CONTENTS
--------------------------------------------------------------------------------
  1 FUND PROFILE

  3 ADDITIONAL INFORMATION

  4 MORE ON THE FUND

  9 THE FUND AND VANGUARD

  9 INVESTMENT ADVISER

 10 DIVIDENDS, CAPITAL GAINS, AND TAXES

 11 SHARE PRICE

 11 FINANCIAL HIGHLIGHTS

 13 INVESTING WITH VANGUARD

 14 ACCESSING FUND INFORMATION BY COMPUTER

 GLOSSARY (inside back cover)
--------------------------------------------------------------------------------

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

This prospectus explains the investment  objective,  policies,  strategies,  and
risks  associated  with the Fund. To highlight  terms and concepts  important to
mutual fund investors,  we have provided "Plain Talk(R)"  explanations along the
way.  Reading the prospectus  will help you decide whether the Fund is the right
investment  for you.  We  suggest  that  you keep  this  prospectus  for  future
reference.

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

<PAGE>

1

FUND PROFILE

INVESTMENT OBJECTIVE

The Fund seeks to long-term capital appreciation.

INVESTMENT STRATEGIES

The  Fund  invests  mainly--at  least  65%  of its  total  assets--in  mid-  and
large-capitalization  stocks of U.S.  companies.  The Fund's  adviser  looks for
companies that are believed to have strong earnings  growth  potential and to be
reasonably  valued at the time of  purchase.  The Fund  seeks to remain  "sector
neutral" as compared to the Russell 1000 Growth  Index,  meaning that it invests
across  economic  sectors in roughly the same  proportions  as those sectors are
represented in the Index. The Fund trades stocks aggressively,  which may result
in higher  transaction costs for the Fund, greater capital gains tax liabilities
for shareholders, and reduced after-tax performance.

PRIMARY RISKS

An investment in the Fund could lose money over short or even long periods.  You
should expect the Fund's share price and total return to fluctuate within a wide
range like the overall stock market.  The Fund's performance could be hurt by:

-    Investment  style  risk,  which is the chance  that  returns  from mid- and
     large-capitalization  growth  stocks  will trail  returns  from other asset
     classes or the overall  stock market.  Specific  types of stocks tend to go
     through cycles of doing better--or worse--than the stock market in general.
     These periods have, in the past, lasted for as long as several years.

-    Manager risk,  which is the chance that poor security  selection will cause
     the Fund to underperform other funds with similar investment objectives.

-    Sector  risk,  which is the chance  that the Fund's  returns  could be hurt
     significantly by problems  affecting a particular  economic sector.  With a
     substantial  portion of the Fund's  total  assets  invested  in  technology
     stocks,  sector  risk is quite  high for the  Fund.  The pace of  change is
     extremely rapid in the technology  sector,  and new technology  products or
     services can become obsolete just a short period of time after they emerge.
     Consequently,  technology  stocks tend to be much more volatile than stocks
     of other economic sectors.

PERFORMANCE/RISK INFORMATION

The  following  bar  chart is  intended  to help  you  understand  the  risks of
investing in the Fund. It shows how the Fund's  performance  has varied from one
calendar year to another  since  inception.  In addition,  there is a table that
shows how the  Fund's  average  annual  total  returns  compare  with those of a
relevant  market  index over set  periods of time.  Keep in mind that the Fund's
past performance does not indicate how it will perform in the future.*

*Prior to June 12, 2000,  Vanguard  Growth  Equity Fund was  organized as Turner
 Growth Equity Fund and was sponsored by Turner Investment  Partners,  Inc., its
 investment adviser. A reorganization  brought the Fund into The Vanguard Group,
 while maintaining the same investment objective, strategies, and adviser.

<PAGE>

                                                                               2

      ----------------------------------------------------
                        ANNUAL TOTAL RETURNS
      [SCALE -40% TO 80%]
                        1993          15.38%
                        1994          -6.73%
                        1995          29.96%
                        1996          19.23%
                        1997          31.36%
                        1998          38.07%
                        1999          53.60%
                        2000         -23.10%
      ----------------------------------------------------

     During the period shown in the bar chart, the highest return for a calendar
quarter was 39.67% (quarter ended December 31, 1999),  and the lowest return for
a quarter was -28.91% (quarter ended December 31, 2000).

      -----------------------------------------------------------------
      AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 2000
      -----------------------------------------------------------------
                                   1 YEAR   5 YEARS   SINCE INCEPTION*
      -----------------------------------------------------------------
      Vanguard Growth Equity Fund  -23.10%   20.63%        17.19%
      Russell 1000 Growth Index    -22.43    18.15         16.14
      -----------------------------------------------------------------
      *March 11, 1992.
      -----------------------------------------------------------------

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 on amounts now in effect.*

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

      ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's
      assets)
      Management Expenses:                                                0.63%
      12b-1 Distribution Fee:                                              None
      Other Expenses:                                                     0.02%
       TOTAL ANNUAL FUND OPERATING EXPENSES:                              0.65%

    *The  information  in  the  table has been  restated  to  reflect  estimated
     expenses  for the Fund's first full fiscal year as a member of The Vanguard
     Group,  rather  than  to  reflect  last  year's  expenses,   which  changed
     materially  when the Fund became a member of The Vanguard Group on June 12,
     2000.

<PAGE>

3

     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's  shares.  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 the given period.

--------------------------------------------------
   1 YEAR      3 YEARS    5 YEARS      10 YEARS
--------------------------------------------------
    $66         $208       $362         $810
--------------------------------------------------

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

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

 All mutual funds have operating  expenses.  These expenses,  which are deducted
 from a fund's gross income,  are expressed as a percentage of the net assets of
 the fund. We expect the Fund's  expense ratio for the current fiscal year to be
 0.65%, or $6.50 per $1,000 of average net assets.  The average large-cap growth
 mutual fund had expenses in 1999 of 1.41%,  or $14.10 per $1,000 of average net
 assets (derived from data provided by Lipper Inc.,  which reports on the mutual
 fund industry).  Management expenses, which are one part of operating expenses,
 include  investment  advisory  fees  as well  as  other  costs  of  managing  a
 fund--such as account  maintenance,  reporting,  accounting,  legal,  and other
 administrative expenses.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                              COSTS OF INVESTING

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

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS                      NEWSPAPER ABBREVIATION
Distributed annually in December                 GrowEq

INVESTMENT ADVISER                               VANGUARD FUND NUMBER
Turner Investment Partners, Inc., Berwyn, Pa.,   544
since inception
                                                 CUSIP NUMBER
INCEPTION DATE                                   921921201
March 11, 1992
                                                 TICKER SYMBOL
NET ASSETS AS OF SEPTEMBER 30, 2000              VGEQX
$918 million
--------------------------------------------------------------------------------

<PAGE>

                                                                               4

MORE ON THE FUND

This  prospectus  describes  risks you would face as a Fund  shareholder.  It is
important  to keep in mind one of the main axioms of  investing:  The higher the
risk of losing money,  the higher the potential  reward.  The reverse,  also, is
generally  true:  The lower the risk,  the lower the  potential  reward.  As you
consider an  investment  in any mutual  fund,  you should take into account your
personal  tolerance for daily fluctuations in the securities  markets.  Look for
this  [FLAG]  symbol  throughout  the  prospectus.  It is used to mark  detailed
information  about  each  type  of  risk  that  you  would  confront  as a  Fund
shareholder.

     The  following  sections  explain the  primary  investment  strategies  and
policies  that the Fund uses in pursuit of its  objective.  The Fund's  board of
trustees, which oversees the Fund's management, may change investment strategies
or policies in the interest of  shareholders  without a shareholder  vote unless
those strategies or policies are designated as fundamental.

     Finally, you'll find information on other important features of the Fund.

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

 Growth  investing  and value  investing  are two styles  employed by stock fund
 managers.   Growth  funds  generally  focus  on  companies   believed  to  have
 above-average  potential  for growth in revenue and  earnings.  Reflecting  the
 market's high expectations for superior growth,  such stocks typically have low
 dividend  yields and  above-average  prices in  relation  to such  measures  as
 revenue,  earnings,  and book value. Value funds generally  emphasize stocks of
 companies  from which the market does not expect strong  growth.  The prices of
 value stocks  typically  are  below-average  in  comparison  to such factors as
 earnings and book value, and these stocks typically pay above-average  dividend
 yields.  Growth and value stocks have, in the past,  produced similar long-term
 returns,  though each category has periods when it  outperforms  the other.  In
 general,  growth funds appeal to investors  who will accept more  volatility in
 hopes of a greater  increase in share  price.  Growth  funds also may appeal to
 investors with taxable accounts who want a higher proportion of returns to come
 as capital  gains  (which may be taxed at lower  rates than  dividend  income).
 Value funds, by contrast,  are appropriate for investors who want some dividend
 income  and  the  potential  for  capital  gains,  but  are  less  tolerant  of
 share-price fluctuations.
--------------------------------------------------------------------------------

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

 Stocks  of  publicly  traded   companies--and  mutual  funds  that  hold  these
 stocks--can be classified by the companies'  market value,  or  capitalization.
 Market capitalization  changes over time, and there is no "official" definition
 of the boundaries of large-,  mid-, and small-cap  stocks.  Vanguard  generally
 defines  large-capitalization  (large-cap)  funds as those  holding  stocks  of
 companies whose outstanding  shares have, on average,  a market value exceeding
 $13 billion;  mid-cap funds as those holding  stocks of companies with a market
 value  between  $1.5  billion and $13  billion;  and  small-cap  funds as those
 typically  holding  stocks of  companies  with a market value of less than $1.5
 billion. Vanguard periodically reassesses these classifications.
--------------------------------------------------------------------------------

<PAGE>

5

MARKET EXPOSURE

The Fund  invests  mainly in common  stocks  of  large-  and  mid-capitalization
companies that are believed to have strong  earnings  growth  potential and that
are reasonably valued at the time of purchase.

[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK,  WHICH IS THE CHANCE THAT STOCK
     PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS.  STOCK MARKETS
     TEND TO MOVE IN  CYCLES,  WITH  PERIODS  OF RISING  PRICES  AND  PERIODS OF
     FALLING PRICES.

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

----------------------------------------------------------
         U.S. STOCK MARKET RETURNS (1926-2000)
----------------------------------------------------------
                     1 YEAR  5 YEARS  10 YEARS   20 YEARS
----------------------------------------------------------
Best                  54.2%   28.6%    19.9%      17.8%
Worst                -43.1   -12.4     -0.8        3.1
Average               12.9    11.1     11.2       11.2
----------------------------------------------------------

     The table  covers all of the 1-, 5-,  10-,  and 20-year  periods  from 1926
through 2000. You can see, for example,  that while the average return on common
stocks for all of the 5-year periods was 11.1%,  returns for  individual  5-year
periods  ranged from a -12.4%  average  (from 1928 through  1932) to 28.6% (from
1995 through 1999).  These average  returns  reflect past  performance on common
stocks;  you should not regard  them as an  indication  of future  returns  from
either the stock market as a whole or this Fund in particular.

     As of September  30,  2000,  the Fund had invested 40% of net assets in its
top ten holdings.

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

 In general,  the more  diversified  a fund's stock or bond  holdings,  the less
 likely  that  fund  performance  may be  hurt  disproportionately  by the  poor
 performance   of   relatively   few   securities.   One  measure  of  a  fund's
 diversification  is the percentage of its assets represented by its ten largest
 holdings.  The  average  U.S.  equity  mutual  fund has about 35% of its assets
 invested in its ten largest holdings,  while some less-diversified mutual funds
 have more than 50% of assets invested in their top ten.
--------------------------------------------------------------------------------

[FLAG] THE FUND IS SUBJECT TO  INVESTMENT  STYLE RISK,  WHICH IS THE CHANCE THAT
     RETURNS FROM THE MARKET  SECTOR IN WHICH IT INVESTS WILL TRAIL RETURNS FROM
     OTHER MARKET SECTORS.  AS A GROUP, MID- AND LARGE-CAP GROWTH STOCKS TEND TO
     GO THROUGH CYCLES OF DOING BETTER--OR WORSE--THAN COMMON STOCKS IN GENERAL.
     THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL YEARS.

<PAGE>

                                                                               6

SECURITY SELECTION

Turner Investment  Partners,  Inc.  (Turner),  adviser to the Fund, seeks to buy
stocks  of  companies  with  strong  earnings  prospects  and  sell  those  with
deteriorating  earnings  prospects.  The adviser evaluates a company's  earnings
prospects through a blend of quantitative,  fundamental, and technical criteria.
First,  Turner uses a proprietary  computer model to screen stocks  according to
numerous earnings-growth and valuation factors. Next, Turner applies fundamental
analysis--meeting  with  companies'  management  teams and  talking to  industry
authorities  in an effort to  anticipate  changes in corporate  earnings  before
other investors do. Finally,  Turner uses technical  analysis to evaluate trends
in  trading  volume  and  prices of  individual  stocks.  Turner  is  interested
primarily in money flow,  which measures  investor  interest in a stock based on
its volume,  pricing patterns, and relative strengths versus other stocks in the
same industry.

     The adviser believes  forecasts for  market-timing  and sector rotation are
unreliable  and  introduce  an  unacceptable  level  of  risk  to  a  portfolio.
Accordingly,  Turner invests the Fund's assets across major economic sectors and
attempts to maintain sector  weightings that approximate the Russell 1000 Growth
Index. The sector weightings of the Index were as follows on September 30, 2000:

----------------------------------------------------
SECTOR                           PERCENTAGE OF INDEX
----------------------------------------------------
Technology                             50.5%
Health Care                            16.2
Consumer Discretionary                 12.1
Other                                   7.7
Consumer Staples                        3.1
Financial Services                      3.1
Utilities                               2.7
Producer Durables                       2.2
Other Energy                            2.0
Auto and Transportation                 0.3
Materials and Processing                0.1
Integrated Oils                         0.0
----------------------------------------------------

     Keep in mind that,  because sector weightings change daily, this listing is
only a "snapshot" at one point in time.

[FLAG] THE FUND IS ALSO  SUBJECT TO SECTOR  RISK,  WHICH IS THE CHANCE  THAT THE
     FUND'S  RETURN  COULD  BE  HURT   SIGNIFICANTLY  BY  PROBLEMS  AFFECTING  A
     PARTICULAR  ECONOMIC SECTOR. WITH A SUBSTANTIAL PORTION OF THE FUND'S TOTAL
     ASSETS  INVESTED IN  TECHNOLOGY  STOCKS,  SECTOR RISK IS QUITE HIGH FOR THE
     FUND.

     The pace of change is extremely  rapid in the  technology  sector,  and new
technology  products or services can become obsolete just a short period of time
after they emerge. Consequently, technology stocks tend to be much more volatile
than stocks of other economic sectors.

<PAGE>

7

     The adviser also believes that it is imprudent to be overly invested in any
one stock, and therefore limits the Fund's investments as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
IF A STOCK'S MONTH-END
WEIGHTING WITHIN THE
INDEX IS:                THEN THE FUND WILL LIMIT INVESTMENTS AT-COST IN THAT STOCK TO:
-----------------------------------------------------------------------------------------
<S>                      <C>
Less than 2%             No more than 3.5% of Fund assets
2% to 5%                 No more than twice the Index weight at time of purchase
More than 5%             No more than 1 1/2 times the Index weight at time of purchase
-----------------------------------------------------------------------------------------
</TABLE>

     In addition, the Fund may invest no more than 3% of its assets in any stock
that is not part of the Index.

     The Fund is run  according  to  traditional  methods  of active  investment
management.  This means that  securities  are bought and sold  according  to the
adviser's  judgments about companies and their financial  prospects,  within the
context of the stock market and the economy in general.

     The Fund is generally managed without regard to tax ramifications.

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

OTHER INVESTMENT POLICIES AND RISKS

Besides  investing  in  common  stocks of  growth  companies,  the Fund may make
certain other kinds of investments to achieve its objective.

     The  Fund  may  invest a  portion  of its  assets  in  securities  that are
convertible to common stocks,  warrants,  rights to purchase common stocks,  and
American  Depositary  Receipts  (ADRs).  The Fund may also invest,  to a limited
extent, in foreign securities.

     The Fund may also invest in stock futures and options contracts,  which are
traditional  types of  derivatives.  Losses (or  gains)  involving  futures  can
sometimes be substantial--in part because a relatively small price movement in a
futures contract may result in an immediate and substantial loss (or gain) for a
fund.  The Fund will not use futures for  speculative  purposes or as  leveraged
investments  that magnify gains or losses.  The Fund's  obligation under futures
contracts will not exceed 20% of its total assets.

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

 A  derivative  is a financial  contract  whose value is based on (or  "derived"
 from) a traditional  security (such as a stock or a bond),  an asset (such as a
 commodity like gold), or a market index (such as the S&P 500 Index). Some forms
 of  derivatives,  such as  exchange-traded  futures and options on  securities,
 commodities, or indexes, have been trading on regulated exchanges for more than
 two decades.  These types of derivatives  are  standardized  contracts that can
 easily be bought and sold, and whose market values are determined and published
 daily.  Nonstandardized  derivatives,  on  the  other  hand,  tend  to be  more
 specialized or complex,  and may be harder to value. If used for speculation or
 as leveraged investments, derivatives can carry considerable risks.
--------------------------------------------------------------------------------

<PAGE>

                                                                               8

     The reasons for which the Fund will invest in futures and options are:

-    To keep cash on hand to meet  shareholder  redemptions or other needs while
     simulating full investment in stocks.

-    To reduce the Fund's  transaction costs or add value when these instruments
     are favorably priced.

     The Fund may temporarily  depart from its normal  investment  policies--for
instance,  by  investing  substantially  in  cash  investments--in  response  to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

COSTS AND MARKET-TIMING

Some  investors  try to profit from a strategy  called  market-timing--switching
money into  mutual  funds 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.
This is why all  Vanguard  funds have  adopted  special  policies to  discourage
short-term  trading.  Specifically:

-    Each   Vanguard   fund   reserves   the  right  to  reject   any   purchase
     request--including  exchanges from other Vanguard funds--that it regards as
     disruptive to efficient portfolio  management.  A purchase request could be
     rejected because of the timing of the investment or because of a history of
     excessive trading by the investor.

-    Each  Vanguard  fund (except the money market  funds)  limits the number of
     times that an investor can exchange into and out of the fund.

-    Each Vanguard fund reserves the right to stop offering shares at any time.

-    Certain  Vanguard  funds  charge   transaction  fees  on  purchases  and/or
     redemptions of their shares.

-    Vanguard funds that hold foreign  securities may value those  securities at
     their "fair value,"  rather than the price at which those  securities  last
     traded on their primary foreign markets or exchanges,  to take into account
     events that occur after the close of those markets or exchanges.

See the INVESTING WITH VANGUARD  section of this  prospectus for further details
on Vanguard's transaction policies.

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

TURNOVER RATE

The  Fund may sell  securities  regardless  of how long  they  have  been  held.
Historically, the Fund has bought and sold securities frequently, resulting in a
HIGH turnover rate. The FINANCIAL  HIGHLIGHTS  section of this prospectus  shows
historic  turnover  rates for the Fund.  A turnover  rate of 100%,  for example,
would mean that the Fund had sold and replaced  securities valued at 100% of its
net assets within a one-year period.

<PAGE>

9

--------------------------------------------------------------------------------
                               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
 taxable  income.  As of September 30, 2000,  the average  turnover rate for all
 large-cap growth funds was approximately 128%, according to Morningstar, Inc.
--------------------------------------------------------------------------------

THE FUND AND VANGUARD

The Fund is a member of The Vanguard  Group, a family of more than 35 investment
companies  with more than 100 funds holding assets worth more than $550 billion.
All of the  Vanguard  funds  share  in the  expenses  associated  with  business
operations, such as personnel, office space, equipment, and advertising.

     Vanguard  also  provides   marketing   services  to  the  funds.   Although
shareholders do not pay sales commissions or 12b-1  distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.

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

Turner Investment  Partners,  Inc.  (Turner),  1235 Westlakes Drive,  Suite 350,
Berwyn, PA 19312, adviser to the Fund, is an investment advisory firm founded in
1990. As of September 30, 2000, Turner managed about $12 billion in assets.  The
firm manages the Fund subject to the control of the trustees and officers of the
Fund.

     Turner's  advisory fee is paid  quarterly,  and is based on certain  annual
percentage  rates  applied  to the  Fund's  average  month-end  assets  for each
quarter.  In addition,  the firm's  advisory fee may be increased or  decreased,
based on the cumulative total return of the Fund over a trailing 36-month period
as compared  with the  cumulative  total return of the Russell 1000 Growth Index
over  the same  period.  Please  consult  the  Fund's  Statement  of  Additional
Information for a complete explanation of how advisory fees are calculated.

     Advisory  fees  for  the  full  fiscal  year  ended   September  30,  2000,
represented an effective  annual rate of 0.53%. For the period prior to June 12,
2000, when the Fund

<PAGE>

                                                                              10

became  associated with Vanguard,  the effective  annual rate was 0.75%. For the
period from June 12 to September 30, 2000, the effective annual rate was 0.41%.

     The adviser is authorized to choose  broker-dealers  to handle the purchase
and sale of the Fund's  securities,  and to obtain the best available  price and
most  favorable  execution for all  transactions.  Also, the Fund may direct the
adviser to use a  particular  broker for certain  transactions  in exchange  for
commission rebates or research services provided to the Fund.

     In the interest of obtaining better execution of a transaction, the adviser
may at times  choose  brokers who charge  higher  commissions.  If more than one
broker can obtain the best available  price and most favorable  execution,  then
the adviser is  authorized  to choose a broker who, in addition to executing the
transaction, will provide research services to the adviser or the Fund.

     The board of trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory  arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

--------------------------------------------------------------------------------
                               PLAIN TALK ABOUT
                              THE FUND'S ADVISER

The managers primarily responsible for overseeing the Fund's investments are:

ROBERT  E.  TURNER,  CFA,  Chairman,  and  Chief  Executive  Officer  of  Turner
Investment Partners,  Inc. He has worked in investment management since 1981 and
has been with Turner since  co-founding  the firm in 1990.  Education:  B.S. and
M.B.A., Bradley University.

MARK TURNER,  President of Turner. He has worked in investment  management since
1982 and has been with Turner  since  co-founding  the firm in 1990.  Education:
B.S., Bradley University; M.B.A., University of Illinois.

JOHN HAMMERSCHMIDT,  Senior Equity Portfolio Manager of Turner. He has worked in
investment management since 1983 and has been with Turner since 1992. Education:
B.S., Lehigh University; M.B.A., Duke University.

CHRISTOPHER MCHUGH,  Senior Equity Portfolio Manager of Turner. He has worked in
investment management since 1986 and has been with Turner since 1990. Education:
B.S.,  Philadelphia  College of  Textiles  and  Science;  M.B.A.,  St.  Joseph's
University.
--------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

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

     Your  dividend  and  capital  gains  distributions  will be  reinvested  in
additional  Fund  shares  and  accumulate  on a  tax-deferred  basis  if you are
investing through an employer-sponsored retirement or savings plan. You will not
owe taxes on these  distributions until you begin withdrawals from the plan. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of plan withdrawals.

<PAGE>

11

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

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

SHARE PRICE

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

     Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the  number of  shares  you own,  gives you the  dollar  amount  you would  have
received had you sold all of your shares back to the Fund that day.

     A NOTE ON PRICING:  The Fund's  investments  will be priced at their market
value when market  quotations are readily  available.  When these quotations are
not  readily  available,  investments  will  be  priced  at  their  fair  value,
calculated according to procedures adopted by the Fund's board of trustees.

     The Fund's  share price can be found  daily in the mutual fund  listings of
most major newspapers under the heading "Vanguard Funds."

FINANCIAL HIGHLIGHTS

The following financial  highlights table is intended to help you understand the
Fund's financial  performance for the past five years,  and certain  information
reflects  financial  results for a single Fund share.  The total  returns in the
table  represent the rate that an investor would have earned or lost each period
on an investment in the Fund (assuming  reinvestment of all dividend and capital
gains  distributions).  This  information  has been derived  from the  financial
statements.  Other independent  accountants audited the financial statements for
years  prior  thereto.   PricewaterhouseCoopers   LLP,  the  Fund's  independent
accountants, audited those financial statements for the year ended September 30,
2000, and their report--along with the Fund's financial  statements--is included
in the Fund's most recent annual report to shareholders. You may have the annual
report sent to you without charge by contacting Vanguard.

<PAGE>

                                                                              12

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                  VANGUARD GROWTH EQUITY FUND
                                           YEAR ENDED SEPTEMBER 30,
                               ---------------------------------------------------     OCT. 31, 1995, TO          YEAR ENDED
                                  2000          1999          1998          1997          SEP. 30, 1996*       OCT. 31, 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>           <C>           <C>                     <C>                 <C>

NET ASSET VALUE, BEGINNING OF
 PERIOD                         $15.88        $12.87        $16.64        $17.03                  $14.97              $12.46
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
 Net Investment Income (Loss)     (.01)         (.05)         (.05)         (.03)                    .02                 .10
 Net Realized and Unrealized
  Gain (Loss) on Investments      7.33          4.66          1.10          4.23                    2.91                2.52
                               ----------------------------------------------------------------------------------------------------
   Total from Investment
    Operations                    7.32          4.61          1.05          4.20                    2.93                2.62
                               ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS
 Dividends from Net
  Investment Income                 --            --            --            --                    (.02)               (.11)
 Distributions from Realized
  Capital Gains                  (4.52)        (1.60)        (4.82)        (4.59)                   (.85)                 --
                               ----------------------------------------------------------------------------------------------------
   Total Distributions           (4.52)        (1.60)        (4.82)        (4.59)                   (.87)               (.11)
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD  $18.68        $15.88        $12.87        $16.64                  $17.03              $14.97
===================================================================================================================================

TOTAL RETURN                    51.07%        38.15%        10.71%        32.61%                  20.61%              21.15%
===================================================================================================================================

RATIOS/SUPPLEMENTAL DATA
 Net Assets, End of Period
  (Millions)                      $918          $143           $98          $100                     $96                $116
 Ratio of Total Expenses to
  Average Net Assets             0.74%         0.96%        1.04%+        1.02%+                 1.06%**               1.03%
 Ratio of Net Investment
  Income (Loss) to Average
  Net Assets                   (0.19%)       (0.42%)       (0.42%)       (0.25%)                 0.03%**               0.69%
 Turnover Rate                    303%          328%          250%          178%                    148%                178%
===================================================================================================================================
</TABLE>
 *The Fund's fiscal year-end changed from October 31 to September 30, effective
  September 30, 1996.
**Annualized.
 +Expense ratios before waivers and reimbursements of expenses were 1.12% in
  1998 and 1.05% in 1997.

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

 The Fund began fiscal 2000 with a net asset value  (price) of $15.88 per share.
 During the year, the Fund had negative  investment  income of ($0.01) per share
 (because expenses were greater than interest and dividend  income),  and a gain
 of $7.33 per share from  investments that had appreciated in value or that were
 sold for higher prices than the Fund paid for them.

 Shareholders received $4.52 per share in the form of dividend and capital gains
 distributions.  A portion of each year's  distributions may come from the prior
 year's income or capital gains.

 The  earnings  ($7.32  per  share)  minus the  distributions  ($4.52 per share)
 resulted  in a share  price  of  $18.68  at the end of the  year.  This  was an
 increase of $2.80 per share (from $15.88 at the beginning of the year to $18.68
 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 51.07% for the
 year.

 As of  September  30, 2000,  the Fund had $918  million in net assets.  For the
 year, its expense ratio was 0.74% ($7.40 per $1,000 of net assets); and its net
 investment  income  amounted to -0.19% of its  average net assets.  It sold and
 replaced securities valued at 303% of its net assets.
--------------------------------------------------------------------------------

<PAGE>

13

INVESTING WITH VANGUARD

The Fund is an investment  option in your  retirement or savings plan. Your plan
administrator  or your  employee  benefits  office can provide you with detailed
information  on how to  participate in your plan and how to elect the Fund as an
investment  option.

-    If you have any questions about the Fund or Vanguard, including those about
     the Fund's investment objective,  strategies,  or risks, contact Vanguard's
     Participant Access Center, toll-free, at 1-800-523-1188.

-    If you have questions about your account,  contact your plan  administrator
     or the organization that provides recordkeeping services for your plan.

INVESTMENT OPTIONS AND ALLOCATIONS

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

TRANSACTIONS

Contributions,  exchanges,  or redemptions of the Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete  information on your contribution,  exchange,  or
redemption, and that Vanguard has received the appropriate assets.

     In all cases, your transaction will be based on the Fund's  next-determined
net asset value after  Vanguard  receives  your  request (or, in the case of new
contributions,  the  next-determined net asset value after Vanguard receives the
order from your plan administrator).  As long as this request is received before
the close of trading on the New York Stock Exchange,  generally 4 p.m.,  Eastern
time, you will receive that day's net asset value.

EXCHANGES

The exchange  privilege (your ability to redeem shares from one fund to purchase
shares of another  fund) may be available to you through your plan.  Although we
make every  effort to maintain  the exchange  privilege,  Vanguard  reserves the
right to revise or terminate this privilege, limit the amount of an exchange, or
reject any exchange,  at any time, without notice.  Because excessive  exchanges
can potentially  disrupt the management of the Fund and increase its transaction
costs,  Vanguard  limits  participant  exchange  activity  to no more  than FOUR
SUBSTANTIVE  "ROUND TRIPS"  THROUGH THE FUND (at least 90 days apart) during any
12-month  period.  A "round  trip" is a redemption  from the Fund  followed by a
purchase back into the Fund.  "Substantive"  means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.

     Before  making an exchange to or from another fund  available in your plan,
consider the following:

-    Certain investment options,  particularly funds made up of company stock or
     investment contracts, may be subject to unique restrictions.

-    Make sure to read that fund's prospectus.  Contact  Vanguard's  Participant
     Access Center, toll-free, at 1-800-523-1188 for a copy.

-    Vanguard can accept exchanges only as permitted by your plan.  Contact your
     plan  administrator for details on the exchange policies that apply to your
     plan.

<PAGE>

                                                                              14

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;  the
online  Education  Center  that  offers a variety of mutual  fund  classes;  and
easy-to-use,  interactive  tools to help you  create  your  own  investment  and
retirement strategies.

<PAGE>

                     (THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

                     (THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

CAPITAL GAINS DISTRIBUTION

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

CASH INVESTMENTS

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

COMMON STOCK

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

DIVIDEND INCOME

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

EXPENSE RATIO

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

GROWTH STOCK FUND

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

INVESTMENT ADVISER

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

MUTUAL FUND

An  investment  company  that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over time.

NET ASSET VALUE (NAV)

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

PRICE/EARNINGS (P/E) RATIO

The current share price of a stock, divided by its per-share earnings (profits).
A stock  selling for $20, with  earnings of $2 per share,  has a  price/earnings
ratio of 10.

PRINCIPAL

The amount of money you put into an investment.

SECURITIES

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

TOTAL RETURN

A percentage change,  over a specified time period, in a mutual fund's net asset
value,  assuming the reinvestment of all  distributions of dividends and capital
gains.

VALUE STOCK FUND

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

VOLATILITY

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

YIELD

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

<PAGE>

[SHIP]
[THE VANGUARD GROUP(R) LOGO]

Institutional Division
Post Office Box 2900
Valley Forge, PA 19482-2900

FOR MORE INFORMATION
If you'd like more information about
Vanguard Growth Equity Fund, the
following documents are available
free upon request:

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

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

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

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

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

THE VANGUARD GROUP
PARTICIPANT ACCESS CENTER
P.O. BOX 2900
VALLEY FORGE, PA 19482-2900

TELEPHONE:
1-800-523-1188

TEXT TELEPHONE:
1-800-523-8004

WORLD WIDE WEB:
WWW.VANGUARD.COM

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

Fund's Investment Company Act
file number: 811-5445


(C) 2001 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation,
Distributor.

I544 012001


<PAGE>

                                     PART B

                      VANGUARD(R) FENWAY FUNDS (THE TRUST)

                      STATEMENT OF ADDITIONAL INFORMATION


                                JANUARY 19, 2001

     This Statement is not a Prospectus  but should be read in conjunction  with
the Trust's  current  Prospectuses  dated January 19, 2001.  To obtain,  without
charge,  a Prospectus or the most recent Annual  Report to  Shareholders,  which
contain the Trust's  financial  statements as hereby  incorporated by reference,
please call:


                        INVESTOR INFORMATION DEPARTMENT

                                 1-800-662-7447

                               TABLE OF CONTENTS

                                                                  PAGE
                                                                  ----
DESCRIPTION OF THE TRUST .........................................B-1
INVESTMENT POLICIES ..............................................B-3
FUNDAMENTAL INVESTMENT LIMITATIONS ...............................B-9
PURCHASE OF SHARES ...............................................B-10
REDEMPTION OF SHARES .............................................B-10
SHARE PRICE ......................................................B-10
MANAGEMENT OF THE FUNDS ..........................................B-11
YIELD AND TOTAL RETURNS ..........................................B-14
INVESTMENT ADVISORY SERVICES .....................................B-15
PORTFOLIO TRANSACTIONS ...........................................B-20
FINANCIAL STATEMENTS .............................................B-22
COMPARATIVE INDEXES ..............................................B-22

                            DESCRIPTION OF THE TRUST

ORGANIZATION

     The Trust was organized as Vanguard  Equity  Income Fund,  Inc., a Maryland
corporation,  in 1987,  and was  reorganized  as Vanguard  Equity Income Fund, a
Delaware  business  trust,  in May 1998. On March 1, 2000, the Trust was renamed
Vanguard Fenway Funds. The Trust is registered with the United States Securities
and Exchange  Commission (the  Commission)  under the Investment  Company Act of
1940 (the 1940 Act) as an open-end, diversified management company. It currently
offers the following funds, each of which is an open-end diversified  management
company:

                         Vanguard(R) Equity Income Fund

                         Vanguard(R) Growth Equity Fund

                 (individually, a Fund; collectively the Funds)

     The Trust has the ability to offer  additional  funds or classes of shares.
There is no limit on the number of full and fractional shares that each Fund may
issue.

                                      B-1

<PAGE>

SERVICE PROVIDERS

     CUSTODIAN.  State  Street  Bank and Trust  Company,  225  Franklin  Street,
Boston,  MA 02110,  serves as the custodian for Vanguard Equity Income Fund. The
custodian for Vanguard Growth Equity Fund is First Union National Bank,  PA4943,
530 Walnut Street,  Philadelphia,  PA 19106.  The custodians are responsible for
maintaining the Funds' assets and keeping all necessary  accounts and records of
Fund assets.

     INDEPENDENT ACCOUNTANTS.  PricewaterhouseCoopers  LLP, Two Commerce Square,
Suite 1700,  2001 Market Street,  Philadelphia,  PA 19103,  serves as the Funds'
independent  accountants.  The accountants audit the Funds' financial statements
and provide other  related  services.  Prior to the Vanguard  Growth Equity Fund
reorganization, the Fund employed other auditors as its independent auditors.

     TRANSFER  AND   DIVIDEND-PAYING   AGENT.  The  Funds'  transfer  agent  and
dividend-paying  agent is The Vanguard  Group,  Inc.,  100  Vanguard  Boulevard,
Malvern, PA 19355.

CHARACTERISTICS OF THE FUNDS' SHARES

     RESTRICTIONS  ON HOLDING OR DISPOSING OF SHARES.  There are no restrictions
on the right of  shareholders  to retain or dispose of the Funds' shares,  other
than the possible future  termination of the Funds.  Each Fund may be terminated
by reorganization into another mutual fund or by liquidation and distribution of
its assets.  Unless terminated by reorganization or liquidation,  the Funds will
continue indefinitely.

     SHAREHOLDER  LIABILITY.  The Funds are organized  under Delaware law, which
provides  that  shareholders  of a  business  trust  are  entitled  to the  same
limitations of personal  liability as  shareholders  of a corporation  organized
under  Delaware law.  Effectively,  this means that a shareholder of a Fund will
not be personally liable for payment of the Fund's debts except by reason of his
or her own conduct or acts. In addition,  a shareholder  could incur a financial
loss on account of a Fund  obligation  only if the Fund itself had no  remaining
assets with which to meet such  obligation.  We believe that the  possibility of
such a situation arising is extremely remote.

     DIVIDEND  RIGHTS.  The  shareholders  of a Fund are entitled to receive any
dividends or other distributions declared for such Fund. No shares have priority
or  preference  over  any  other  shares  of  the  same  Fund  with  respect  to
distributions. Distributions will be made from the assets of a Fund, and will be
paid ratably to all  shareholders  of the Fund according to the number of shares
of such Fund held by shareholders on the record date.

     VOTING  RIGHTS.  Shareholders  are entitled to a vote on a matter if: (i) a
shareholder  vote is required  under the 1940 Act;  (ii) the matter  concerns an
amendment to the Declaration of Trust that would adversely  affect to a material
degree  the  rights  and  preferences  of the  shares of any Fund;  or (iii) the
trustees  determine  that it is necessary  or desirable to obtain a  shareholder
vote.  The 1940 Act requires a  shareholder  vote under  various  circumstances,
including to elect or remove  trustees upon the written  request of shareholders
representing  10% or more of a Fund's net assets,  and to change any fundamental
policy of a Fund. Unless otherwise  required by applicable law,  shareholders of
each Fund  receive  one vote for each  dollar of net  asset  value  owned on the
record date, and a fractional vote for each fractional dollar of net asset value
owned on the record  date.  However,  only the shares of the Fund  affected by a
particular  matter  are  entitled  to vote on that  matter.  Voting  rights  are
non-cumulative and cannot be modified without a majority vote.

     LIQUIDATION  RIGHTS.  In the  event of  liquidation,  shareholders  will be
entitled to receive a pro rata share of the applicable Fund's net assets.

     PREEMPTIVE  RIGHTS.  There are no preemptive  rights  associated  with each
Fund's shares.

     CONVERSION  RIGHTS.  There are no conversion  rights  associated  with each
Fund's shares.

     REDEMPTION  PROVISIONS.  The Funds' redemption  provisions are described in
their  current  prospectuses  and  elsewhere  in this  Statement  of  Additional
Information.

     SINKING FUND PROVISIONS. The Funds have no sinking fund provisions.

     CALLS OR ASSESSMENT.  Each Fund's shares,  when issued,  are fully paid and
non-assessable.

                                      B-2

<PAGE>

TAX STATUS OF THE FUNDS

     Each Fund  intends  to  continue  to  qualify  as a  "regulated  investment
company"  under  Subchapter M of the  Internal  Revenue  Code.  This special tax
status  means  that a Fund  will not be liable  for  federal  tax on income  and
capital gains distributed to shareholders.  In order to preserve its tax status,
each Fund must comply with certain  requirements.  If a Fund fails to meet these
requirements  in any  taxable  year,  it will be subject  to tax on its  taxable
income at corporate  rates,  and all  distributions  from  earnings and profits,
including any  distributions of net tax-exempt  income and net long-term capital
gains, will be taxable to shareholders as ordinary income. In addition, the Fund
could be required to  recognize  unrealized  gains,  pay  substantial  taxes and
interest, and make substantial  distributions before regaining its tax status as
a regulated investment company.

                              INVESTMENT POLICIES

     The following  policies  supplement  the Funds'  investment  objectives and
policies set forth in the  Prospectuses.  Vanguard Equity Income Fund intends to
invest at least 65% of its total assets in equity securities intended to produce
income.  Vanguard Growth Equity Fund intends to invest at least 65% of its total
assets in common stocks of growth companies.

FUTURES CONTRACTS AND OPTIONS

     Each Fund may enter into futures contracts, options, and options on futures
contracts in order to maintain cash reserves while  simulating full  investment.
Futures  contracts  provide  for the future  sale by one party and  purchase  by
another party of a specified amount of a specific security at a specified future
time and at a specified  price.  Futures  contracts which are standardized as to
maturity date and underlying financial instrument are traded on national futures
exchanges.  Futures  exchanges  and trading are  regulated  under the  Commodity
Exchange  Act  by  the  Commodity  Futures  Trading  Commission  (CFTC),  a U.S.
Government  agency.  Assets committed to futures contracts will be segregated to
the extent required by law.

     Although  futures  contracts  by their  terms call for actual  delivery  or
acceptance of the underlying securities,  in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures  position is done by taking an opposite  position  (buying a
contract  which  has  previously  been  sold,  selling  a  contract   previously
purchased)  in an  identical  contract  to  terminate  the  position.  Brokerage
commissions are incurred when a futures contract is bought or sold.

     Futures traders are required to make a good faith margin deposit in cash or
government  securities  with a broker or custodian to initiate and maintain open
positions  in  futures  contracts.  A  margin  deposit  is  intended  to  assure
completion of the contract  (delivery or acceptance of the underlying  security)
if it is not terminated  prior to the specified  delivery date.  Minimal initial
margin  requirements are established by the futures exchange and may be changed.
Brokers may establish  deposit  requirements  which are higher than the exchange
minimums.  Futures  contracts are customarily  purchased and sold on margin that
may range upward from less than 5% of the value of the contract being traded.

     After a futures contract  position is opened,  the value of the contract is
marked to the market daily. If the futures  contract price changes to the extent
that the margin on deposit  does not  satisfy  margin  requirements,  payment of
additional  "variation"  margin  will be  required.  Conversely,  change  in the
contract  value may reduce the  required  margin,  resulting  in a repayment  of
excess margin to the contract holder.  Variation margin payments are made to and
from the futures  broker for as long as the  contract  remains  open.  Each Fund
expects to earn interest income on its margin deposits.

     Traders in futures contracts may be broadly  classified as either "hedgers"
or   "speculators."   Hedgers  use  the  futures  markets  primarily  to  offset
unfavorable  changes in the value of securities  otherwise  held for  investment
purposes or expected to be acquired by them.  Speculators  are less  inclined to
own the securities  underlying the futures  contracts which they trade,  and use
futures contracts with the expectation of realizing profits from fluctuations in
the  value of the  underlying  securities.  Each  Fund  intends  to use  futures
contracts  only  for  bona  fide  hedging  purposes.  Regulations  of  the  CFTC
applicable to each Fund require that all of its futures transactions  constitute
bona fide hedging transactions except to the extent that the aggregate initial

                                      B-3

<PAGE>

margins and premiums  required to  establish  any  non-hedging  positions do not
exceed five percent of the value of the respective Fund's portfolio.

     Although  techniques other than the sale and purchase of futures  contracts
could be used to control the exposure of a Fund's income to  fluctuations in the
market  value of its  securities,  the use of  futures  contracts  may be a more
effective means of hedging this exposure.  While the Funds will incur commission
expenses in both  opening and  closing  out futures  positions,  these costs are
lower than transaction costs incurred in the purchase and sale of the underlying
securities.

     RESTRICTIONS  ON THE USE OF FUTURES  CONTRACTS AND OPTIONS.  Each Fund will
not enter into futures  contract  transactions  to the extent that,  immediately
thereafter,  the sum of its initial margin deposits on open contracts exceeds 5%
of the Fund's total assets.  In addition,  each Fund will not enter into futures
contracts to the extent that its outstanding  obligations to purchase securities
under these contracts would exceed 20% of the Fund's total assets.

     RISK  FACTORS IN FUTURES  TRANSACTIONS.  Positions in futures may be closed
out only on an  Exchange  which  provides a secondary  market for such  futures.
However, there can be no assurance that a liquid secondary market will exist for
any  particular  futures  contract at any  specific  time.  Thus,  it may not be
possible to close a futures  position.  In the event of adverse price movements,
each Fund would  continue to be required to make daily cash payments to maintain
its required margin. In such situations,  if the Fund has insufficient  cash, it
may have to sell  portfolio  securities to meet daily margin  requirements  at a
time  when it may be  disadvantageous  to do so. In  addition,  each Fund may be
required to make delivery of the instruments underlying the futures contracts it
holds.  The inability to close options and futures  positions also could have an
adverse impact on the ability to effectively  hedge. Each Fund will minimize the
risk that it will be unable to close  out a futures  contract  by only  entering
into futures which are traded on national futures  exchanges and for which there
appears to be a liquid secondary market.

     The risk of loss in trading  futures  contracts in some  strategies  can be
substantial,  due both to the low margin  deposits  required,  and the extremely
high degree of leverage  involved in futures pricing.  As a result, a relatively
small  price  movement  in a  futures  contract  may  result  in  immediate  and
substantial loss (as well as gain) to the investor.  For example, if at the time
of purchase,  10% of the value of the futures contract is deposited as margin, a
subsequent  10% decrease in the value of the futures  contract would result in a
total  loss of the margin  deposit,  before any  deduction  for the  transaction
costs, if the account were then closed out.

     A 15% decrease in the value of the futures  contract would result in a loss
equal to 150% of the original  margin  deposit if the contract  were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the contract.  However, because the futures strategies of
each Fund are engaged in only for hedging purposes,  the Advisers do not believe
that the  Funds are  subject  to the risks of loss  frequently  associated  with
futures  transactions.  Each Fund would  presumably  have  sustained  comparable
losses if,  instead of the futures  contract,  it had invested in the underlying
financial instrument and sold it after the decline.

     Utilization of futures  transactions  by each Fund does involve the risk of
imperfect or no correlation  where the securities  underlying  futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible  that each Fund could both lose  money on  futures  contracts  and also
experience a decline in the value of its portfolio securities. There is also the
risk of loss by each Fund of margin  deposits  in the event of  bankruptcy  of a
broker with whom the respective Fund has an open position in a futures  contract
or related option.

     Most futures exchanges limit the amount of fluctuation permitted in futures
contract  prices during a single  trading day. The daily limit  establishes  the
maximum  amount that the price of a futures  contract may vary either up or down
from the previous day's settlement  price at the end of a trading session.  Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit.  The daily limit  governs only
price  movement  during a particular  trading day and  therefore  does not limit
potential  losses,  because the limit may prevent the liquidation of unfavorable
positions.  Futures contract prices have  occasionally  moved to the daily limit
for  several  consecutive  trading  days  with  little  or no  trading,  thereby
preventing  prompt  liquidation of futures positions and subjecting some futures
traders to substantial losses.

                                      B-4

<PAGE>

     FEDERAL TAX TREATMENT OF FUTURES  CONTRACTS.  Except for transactions  that
each Fund has  identified  as hedging  transactions,  each Fund is required  for
Federal income tax purposes to recognize as income for each taxable year its net
unrealized  gains and losses on certain  futures  contracts as of the end of the
year as well as those  actually  realized  during the year. In these cases,  any
gain or loss recognized  with respect to a futures  contract is considered to be
60%  long-term  capital  gain or loss and 40%  short-term  capital gain or loss,
without  regard to the  holding  period  of the  contract.  Gains and  losses on
certain other futures contracts  (primarily non-U.S.  futures contracts) are not
recognized  until the  contracts  are closed and are  treated  as  long-term  or
short-term  depending on the holding  period of the  contract.  Sales of futures
contracts  which  are  intended  to  hedge  against  a  change  in the  value of
securities  held by a Fund may affect the holding period of such securities and,
consequently,   the  nature  of  the  gain  or  loss  on  such  securities  upon
disposition.  The Funds may be  required to defer the  recognition  of losses on
futures  contracts to the extent of any unrecognized  gains on related positions
held by the Funds.

     In order for each Fund to  continue  to  qualify  for  Federal  income  tax
treatment as a regulated  investment  company,  at least 90% of its gross income
for a taxable  year must be derived from  qualifying  income;  i.e.,  dividends,
interest,  income derived from loans of  securities,  and gains from the sale of
securities or foreign  currencies,  or other income derived with respect to each
Fund's business of investing in such securities or currencies. It is anticipated
that any net gain recognized on futures contracts will be considered  qualifying
income for purposes of the 90% requirement.

     Each Fund will  distribute to  shareholders  annually any net capital gains
which  have  been   recognized  for  Federal  income  tax  purposes  on  futures
transactions.  Such distributions will be combined with distributions of capital
gains realized on a Fund's other investments and shareholders will be advised on
the nature of the transactions.

REPURCHASE AGREEMENTS

     Each Fund,  along with other members of The Vanguard  Group,  may invest in
repurchase  agreements with  commercial  banks,  brokers,  or dealers either for
defensive  purposes  due to market  conditions  or to  generate  income from its
excess cash balances.  A repurchase agreement is an agreement under which a Fund
acquires  a  fixed-income  security  (generally  a  security  issued by the U.S.
Government or an agency  thereof,  a banker's  acceptance,  or a certificate  of
deposit) from a commercial  bank,  broker,  or dealer,  subject to resale to the
seller at an agreed upon price and date  (normally,  the next  business  day). A
repurchase agreement may be considered a loan collateralized by securities.  The
resale price  reflects an agreed upon interest rate effective for the period the
instrument  is held by the Fund and is  unrelated  to the  interest  rate on the
underlying  instrument.  In these  transactions,  the securities acquired by the
Fund  (including  accrued  interest  earned  thereon) must have a total value in
excess of the value of the repurchase agreement and are held by a custodian bank
until  repurchased.  In  addition,  each Fund's  board of trustees  will monitor
repurchase  agreement  transactions  generally and will establish guidelines and
standards for review by the investment  adviser of the  creditworthiness  of any
bank, broker, or dealer party to a repurchase agreement.

     The use of repurchase  agreements  involves certain risks. For example,  if
the other party to the agreement  defaults on its  obligation to repurchase  the
underlying  security at a time when the value of the  security has  declined,  a
Fund may incur a loss upon  disposition  of the security.  If the other party to
the agreement becomes insolvent and subject to the liquidation or reorganization
under  bankruptcy  or other  laws,  a court may  determine  that the  underlying
security is  collateral  for a loan by a Fund not within the control of the Fund
and  therefore  the   realization  by  the  Fund  on  such   collateral  may  be
automatically  stayed.  Finally, it is possible that the Fund may not be able to
substantiate  its  interest  in the  underlying  security  and may be  deemed an
unsecured  creditor  of the other  party to the  agreement.  While the  advisers
acknowledge  these risks,  it is expected that they will be  controlled  through
careful monitoring procedures.

LENDING OF SECURITIES

     Each Fund may lend its  investment  securities  to qualified  institutional
investors (typically brokers,  dealers,  banks, or other financial institutions)
who need to borrow securities in order to complete certain transactions, such as
covering short sales,  avoiding  failures to deliver  securities,  or completing
arbitrage operations.  By lending its investment securities,  a Fund attempts to
increase its net investment income through the receipt of

                                      B-5

<PAGE>

interest  on the loan.  Any gain or loss in the market  price of the  securities
loaned that might occur  during the term of the loan would be for the account of
the Fund. The terms, the structure,  and the aggregate amount of such loans must
be  consistent  with  the  1940  Act and the  Rules  or  interpretations  of the
Commission  thereunder.  These  provisions limit the amount of securities a Fund
may  lend to 33 1/3% of the  Fund's  total  assets,  and  require  that  (a) the
borrower  pledge and maintain  with the Fund  collateral  consisting of cash, an
irrevocable  letter of credit,  or securities issued or guaranteed by the United
States  Government  having  at all  times not less than 100% of the value of the
securities loaned, (b) the borrower add to such collateral whenever the price of
the securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loan be made subject to termination by the Fund at any time, and
(d) the Fund  receive  reasonable  interest  on the loan  (which may include the
Fund's   investing   any  cash   collateral  in  interest   bearing   short-term
investments),  any  distribution on the loaned  securities,  and any increase in
their market value.  Loan arrangements made by a Fund will comply with all other
applicable  regulatory  requirements,  including the rules of the New York Stock
Exchange,  which presently require the borrower,  after notice, to redeliver the
securities  within  the  normal  settlement  time of three  business  days.  All
relevant facts and circumstances,  including the creditworthiness of the broker,
dealer,  or institution,  will be considered in making decisions with respect to
the lending of securities, subject to review by the Funds' board of trustees.

     At the  present  time,  the Staff of the  Commission  does not object if an
investment  company pays  reasonable  negotiated  fees in connection with loaned
securities,  so long as such  fees  are set  forth  in a  written  contract  and
approved by the investment company's trustees.  In addition,  voting rights pass
with the loaned  securities,  but if a material  event  occurs that  affects the
securities on loan, the Fund must call the loan and vote the securities.

VANGUARD INTERFUND LENDING PROGRAM

     The Commission has issued an exemptive order permitting each Fund and other
Vanguard funds to  participate in Vanguard's  interfund  lending  program.  This
program  allows the  Vanguard  funds to borrow money from and loan money to each
other for temporary or emergency purposes. The program is subject to a number of
conditions,  including  the  requirement  that no fund may  borrow or lend money
through the program  unless it receives a more  favorable  interest rate than is
available  from a typical bank for a  comparable  transaction.  In  addition,  a
Vanguard fund may participate in the program only if and to the extent that such
participation  is  consistent  with the fund's  investment  objective  and other
investment  policies.   The  boards  of  trustees  of  the  Vanguard  funds  are
responsible  for  ensuring  that  the  interfund  lending  program  operates  in
compliance with all conditions of the Commission's exemptive order.

TEMPORARY INVESTMENTS

     Each Fund may take temporary  defensive measures that are inconsistent with
the  Fund's  normal  fundamental  or  non-fundamental  investment  policies  and
strategies  in  response  to  adverse  market,  economic,  political,  or  other
conditions.  Such  measures  could  include  investments  in (a)  highly  liquid
short-term  fixed  income  securities  issued by or on behalf  of  municipal  or
corporate  issuers,  obligations  of  the  U.S.  Government  and  its  agencies,
commercial  paper, and bank certificates of deposit;  (b) repurchase  agreements
involving any such securities;  (c) shares of other  investment  companies which
have  investment  objectives  consistent  with those of the Fund;  and (d) other
money  market  instruments.  There is no limit on the extent to which a Fund may
take temporary defensive measures. In taking such measures, the Fund may fail to
achieve its investment objective.

FOREIGN INVESTMENTS

     Each Fund may invest up to 20% of its total assets in securities of foreign
companies.  Investors  should  recognize  that  investing  in foreign  companies
involves certain special  considerations which are not typically associated with
investing in U.S. companies.

     CURRENCY  RISK.  Since  the  stocks of  foreign  companies  are  frequently
denominated  in  foreign  currencies,  and since the Fund may  temporarily  hold
uninvested  reserves in bank deposits in foreign  currencies,  The Funds will be
affected  favorably or  unfavorably by changes in currency rates and in exchange
control regulations,  and may incur costs in connection with conversions between
various currencies. The investment policies of each

                                      B-6

<PAGE>

Fund permit it to enter into  forward  foreign  currency  exchange  contracts in
order to hedge holdings and  commitments  against changes in the level of future
currency  rates.  Such  contracts  involve an  obligation  to purchase or sell a
specific currency at a future date at a price set at the time of the contract.

     COUNTRY  RISK. As foreign  companies  are not generally  subject to uniform
accounting, auditing, and financial reporting standards and practices comparable
to those applicable to domestic companies,  there may be less publicly available
information  about certain  foreign  companies  than about  domestic  companies.
Securities of some foreign companies are generally less liquid and more volatile
than  securities  of  comparable  domestic  companies.  There is generally  less
government  supervision and regulation of foreign stock exchanges,  brokers, and
listed  companies than in the U.S. In addition,  with respect to certain foreign
countries,  there is the possibility of expropriation or confiscatory  taxation,
political or social instability,  or diplomatic  developments which could affect
U.S. investments in companies in those countries.

     Although the Fund will endeavor to achieve most favorable  execution  costs
in its portfolio transactions in foreign securities, commissions on many foreign
stock  exchanges are generally  higher than  commissions on U.S.  exchanges.  In
addition, it is expected that the expenses for custodial arrangements of foreign
securities  will be  somewhat  greater  than  the  expenses  for  the  custodial
arrangements for handling U.S. securities of equal value.

     Certain foreign  governments  levy  withholding  taxes against dividend and
interest  income.  Although  in some  countries  a  portion  of  these  taxes is
recoverable,  the non-recovered portion of foreign withholding taxes will reduce
the income the Fund receives from its foreign investments.

     FEDERAL TAX  TREATMENT OF NON-U.S.  TRANSACTIONS.  Special rules govern the
Federal income tax treatment of certain  transactions  denominated in terms of a
currency  other than the U.S.  dollar or determined by reference to the value of
one or more  currencies  other than the U.S.  dollar.  The types of transactions
covered by the special rules include the following:  (i) the  acquisition of, or
becoming the obligor under, a bond or other debt instrument  (including,  to the
extent provided in Treasury regulations,  preferred stock); (ii) the accruing of
certain  trade  receivables  and  payables;  and  (iii)  the  entering  into  or
acquisition  of any  forward  contract,  futures  contract,  option,  or similar
financial instrument if such instrument is not marked to market. The disposition
of a currency other than the U.S. dollar by a taxpayer whose functional currency
is the U.S.  dollar is also  treated as a  transaction  subject  to the  special
currency rules. However,  foreign  currency-related  regulated futures contracts
and nonequity options are generally not subject to the special currency rules if
they are or would be  treated as sold for their fair  market  value at  year-end
under the  marking-to-market  rules applicable to other futures contracts unless
an  election  is made  to have  such  currency  rules  apply.  With  respect  to
transactions  covered by the special  rules,  foreign  currency  gain or loss is
calculated separately from any gain or loss on the underlying transaction and is
normally  taxable as  ordinary  gain or loss.  A taxpayer  may elect to treat as
capital  gain or loss  foreign  currency  income or loss  arising  from  certain
identified  forward contracts,  futures contracts,  and options that are capital
assets in the hands of the  taxpayer  and which are not part of a straddle.  The
Treasury Department issued regulations under which certain  transactions subject
to  the  special  currency  rules  that  are  part  of a  "section  988  hedging
transaction" (as defined in the Internal  Revenue Code of 1986, as amended,  and
the Treasury regulations) will be integrated and treated as a single transaction
or otherwise  treated  consistently  for purposes of the Code.  Any gain or loss
attributable to the foreign currency component of a transaction  engaged in by a
Fund which is not subject to the special  currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss  and  will not be  segregated  from  the gain or loss on the  underlying
transaction.  It is  anticipated  that some of the  non-U.S.  dollar-denominated
investments and foreign currency contracts the Funds may make or enter into will
be subject to the special currency rules described above.

ILLIQUID SECURITIES

     Each Fund may  invest up to 15% of its net assets in  illiquid  securities.
Illiquid  securities are  securities  that may not be sold or disposed of in the
ordinary  course of business  within seven  business days at  approximately  the
value at which they are being carried on a Fund's books.

     Each Fund may invest in restricted, privately placed securities that, under
securities  laws, may be sold only to qualified  institutional  buyers.  Because
these securities can be resold only to qualified institutional

                                      B-7

<PAGE>

buyers  or  after  they  have  been  held  for a number  of  years,  they may be
considered illiquid  securities--meaning that they could be difficult for a Fund
to convert to cash if needed.

     If a substantial market develops for a restricted  security held by a Fund,
it will be treated as a liquid  security,  in  accordance  with  procedures  and
guidelines  approved by the Funds' board of trustees.  This  generally  includes
securities  that are  unregistered  that can be sold to qualified  institutional
buyers in accordance  with Rule 144A under the  Securities Act of 1933 (the 1933
Act). While the Funds' investment advisers determine the liquidity of restricted
securities  on  a  daily  basis,   the  board  oversees  and  retains   ultimate
responsibility  for the  advisers'  decisions.  Several  factors  that the board
considers in monitoring these decisions include the valuation of a security, the
availability  of  qualified   institutional  buyers,  and  the  availability  of
information about the security's issuer.

AMERICAN DEPOSITARY RECEIPTS (ADRS)

     ADRs are securities,  typically issued by a U.S. financial institutional (a
depositary),  that  evidence  ownership  interests  in a  security  or a pool of
securities  issued by a foreign issuer and deposited with the  depositary.  ADRs
may be available through  "sponsored" or "unsponsored"  facilities.  A sponsored
facility is  established  jointly by the issuer of the security  underlying  the
receipt and a depositary,  whereas an unsponsored facility may be established by
a depositary  without  participation  by the issuer of the underlying  security.
Holders of unsponsored  depositary  receipts generally bear all the costs of the
unsponsored  facility.  The depositary of an unsponsored  facility frequently is
under no obligation to distribute shareholder  communications  received from the
issuer of the  deposited  security  or to pass  through,  to the  holders of the
receipts, voting rights with respect to the deposited securities.

CONVERTIBLE SECURITIES

     Convertible securities are corporate securities that are exchangeable for a
set number of another  security at a  prestated  price.  Convertible  securities
typically  have  characteristics  of both fixed  income  and equity  securities.
Because of the conversion  feature,  the market value of a convertible  security
tends to move with the  market  value of the  underlying  stock.  The value of a
convertible  security is also affected by prevailing  interest rates, the credit
quality of the issuer, and any call provisions.

VARIABLE AND FLOATING RATE INSTRUMENTS

     Certain  obligations may carry variable or floating rates of interest,  and
may involve a conditional or unconditional demand feature. Such instruments bear
interest at rates which are not fixed,  but which vary with changes in specified
market rates or indices.  The interest  rates on these  securities  may be reset
daily,  weekly,  quarterly,  or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand  instrument  with a demand notice  exceeding seven days may be considered
illiquid if there is no secondary market for such security.

WARRANTS

     Warrants are instruments  giving holders the right, but not the obligation,
to buy equity or fixed income  securities of a company at a given price during a
specified period.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

     When-issued   or  delayed   delivery   securities  are  subject  to  market
fluctuations due to changes in market interest rates and it is possible that the
market  value  at the  time of  settlement  could be  higher  or lower  than the
purchase  price if the general level of interest  rates has changed.  Although a
Fund generally purchases securities on a when-issued or forward commitment basis
with  the  intention  of  actually  acquiring   securities  for  its  investment
portfolio,  a Fund may dispose of a when-issued  security or forward  commitment
prior to settlement if it deems appropriate.

                                      B-8

<PAGE>

                       FUNDAMENTAL INVESTMENT LIMITATIONS

     Each Fund is subject to the following fundamental  investment  limitations,
which  cannot be changed in any material way without the approval of the holders
of a majority of the Fund's  shares.  For these  purposes,  a "majority"  of the
Fund's  shares means shares  representing  the lesser of: (i) 67% or more of the
shares  voted,  so long as more  than 50% of a  Fund's  outstanding  shares  are
present or represented by proxy;  or (ii) more than 50% of a Fund's  outstanding
shares.

     BORROWING.  Vanguard  Equity Income Fund may not borrow  money,  except for
temporary  purposes  in an amount not  exceeding  15% of the Fund's net  assets.
Vanguard Growth Equity Fund may not borrow money in an amount  exceeding 33 1/3%
of  the  value  of its  total  assets,  provided  that,  for  purposes  of  this
limitation,  investment  strategies  which either  obligate the Fund to purchase
securities  or require the Fund to  segregate  assets are not  considered  to be
borrowings.  For Vanguard Growth Equity Fund, asset coverage of at least 300% is
required for all  borrowings,  except where the Fund has borrowed for  temporary
purposes in amounts not exceeding 5%. Each Fund may borrow money through  banks,
or  Vanguard's  interfund  lending  program  only,  and  must  comply  with  all
applicable  regulatory  conditions.  Each  Fund  may  not  make  any  additional
investments whenever outstanding borrowings exceed 5% of net assets.

     COMMODITIES.  Each Fund may not invest in  commodities,  except that a Fund
may invest in stock  futures  contracts,  stock  options,  and  options on stock
futures  contracts.  No more than 5% of the Fund's  total  assets may be used as
initial margin deposit for futures contracts, and no more than 20% of the Fund's
total assets may be obligated under futures contracts or options at any time.

     DIVERSIFICATION.  With  respect to 75% of its total  assets,  each fund may
not: (i) purchase more than 10% of the outstanding  voting securities of any one
issuer, or (ii) purchase  securities of any issuer if, as a result, more than 5%
of the Fund's total assets would be invested in that issuer's  securities.  This
limitation  does not apply to obligations of the United States  Government,  its
agencies, or instrumentalities.

     INDUSTRY CONCENTRATION. Each Fund may not invest more than 25% of its total
assets in any one industry.

     INVESTING  FOR  CONTROL.  Each Fund may not  invest  in a  company  for the
purpose of controlling its management.*

     INVESTMENT  COMPANIES.  Each Fund may not  invest  in any other  investment
company, except through a merger, consolidation, or acquisition of assets, or to
the extent permitted by Section 12 of the 1940 Act.  Investment  companies whose
shares the Fund acquires pursuant to Section 12 must have investment  objectives
and investment policies consistent with those of the Fund.*

     LOANS.  Each Fund may not lend  money to any  person  except by  purchasing
fixed  income  securities  that  are  publicly  distributed,  by  entering  into
repurchase  agreements,   by  lending  its  portfolio  securities,   or  through
Vanguard's interfund lending program.

     MARGIN.  Each Fund may not purchase securities on margin or sell securities
short,  except as  permitted  by the  Fund's  investment  policies  relating  to
commodities.*

     PLEDGING ASSETS.  Each Fund may not pledge,  mortgage,  or hypothecate more
than 15% of its net assets.*

     REAL ESTATE. Each Fund may not invest directly in real estate,  although it
may invest in securities of companies that deal in real estate.

     SENIOR  SECURITIES.  Each Fund may not issue senior  securities,  except in
compliance with the 1940 Act.

     UNDERWRITING.  Each Fund may not  engage in the  business  of  underwriting
securities  issued  by  other  persons.  The  Fund  will  not be  considered  an
underwriter when disposing of its investment securities.

* For Vanguard Growth Equity Fund, this is a non-fundamental  limitation and may
  be changed by the Fund's board of trustees.

     None of these  limitations  prevents  the Funds from  participating  in The
Vanguard Group (Vanguard). Because each Fund is a member of the Group, each Fund
may own securities issued by Vanguard, make loans to Vanguard, and contribute to
Vanguard's costs or other financial requirements.  See "Management of the Funds"
for more information.  The investment limitations set forth above are considered
at the time investment securities are purchased.  If a percentage restriction is
adhered to at the time the  investment  is made, a later  increase in percentage
resulting  from a change in the market  value of assets  will not  constitute  a
violation of such restriction.

                                      B-9

<PAGE>

                               PURCHASE OF SHARES

     Each Fund  reserves  the right in its sole  discretion  (i) to suspend  the
offerings of its shares,  (ii) to reject purchase orders when in the judgment of
management  such  rejection  is in the best  interest of the Fund,  and (iii) to
reduce or waive the  minimum  investment  for,  or any  other  restrictions  on,
initial  and  subsequent  investments  for certain  fiduciary  accounts or under
circumstances  where  certain  economies  can be achieved in sales of the Fund's
shares.


                              REDEMPTION OF SHARES

     Each Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed,  or trading on
the Exchange is  restricted as  determined  by the  Commission,  (ii) during any
period  when an  emergency  exists as defined by the  Commission  as a result of
which it is not  reasonably  practicable  for each Fund to dispose of securities
owned by it, or fairly to determine the value of its assets,  and (iii) for such
other periods as the Commission may permit.

     Each Fund has made a Rule 18f-1 election with the Commission to pay in cash
all redemptions  requested by any shareholder of record limited in amount during
any 90-day  period to the lesser of $250,000 or 1% of the net assets of the Fund
at the beginning of such period.

     No  charge is made by the Funds for  redemptions.  Shares  redeemed  may be
worth more or less than what was paid for them, depending on the market value of
the securities held by the Funds.

                                  SHARE PRICE

     Each Fund's share price,  or "net asset value" per share,  is calculated by
dividing the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. The net asset value is determined as of the regular close
of the New York Stock Exchange (the Exchange)  generally 4 p.m.  Eastern time on
each day that the Exchange is open for trading.

     Portfolio  securities  for which market  quotations  are readily  available
(includes those securities listed on national securities  exchanges,  as well as
those quoted on the NASDAQ Stock Market) will be valued at the last quoted sales
price or the  official  closing  price on the day the  valuation  is made.  Such
securities  which are not traded on the valuation date are valued at the mean of
the bid and ask prices. Price information on exchange-listed securities is taken
from the exchange where the security is primarily traded. Any foreign securities
are valued at the  latest  quoted  sales  price  available  before the time when
assets are valued. Securities may be valued on the basis of prices provided by a
pricing  service  when such prices are believed to reflect the fair market value
of such securities.

     Short-term instruments (those with remaining maturities of 60 days or less)
may be valued at cost,  plus or minus any amortized  discount or premium,  which
approximates market value.

     Bonds  and  other  fixed  income  securities  may be valued on the basis of
prices  provided by a pricing  service  when such prices are believed to reflect
the fair  market  value of such  securities.  The prices  provided  by a pricing
service  may be  determined  without  regard to bid or last sale  prices of each
security,  but take into  account  institutional-size  transactions  in  similar
groups of securities as well as any developments related to specific securities.

     Other assets and securities  for which no quotations are readily  available
or which are restricted as to sale (or resale) are valued by such methods as the
board of trustees deems in good faith to reflect fair value.

     The  share  price  for  each  Fund can be found  daily in the  mutual  fund
listings of most major newspapers under the heading of Vanguard Funds.

                                      B-10

<PAGE>

                            MANAGEMENT OF THE FUNDS

OFFICERS AND TRUSTEES

     The  officers  of the Funds  manage  their  day-to-day  operations  and are
responsible to the Funds' board of trustees. The trustees set broad policies for
each Fund and choose its  officers.  The  following  is a list of  trustees  and
officers of each Fund and a statement of their  present  positions and principal
occupations  during the past five years.  As a group,  the Funds'  trustees  and
officers own less than 1% of the  outstanding  shares of each Fund. Each trustee
(except  Mr.  MacLaury)  serves as a director  of The  Vanguard  Group,  Inc. In
addition, each trustee serves as a trustee of each of the 109 funds administered
by  Vanguard  (99 in the  case of Mr.  MacLaury).  The  mailing  address  of the
trustees  and  officers of the Funds is Post Office Box 876,  Valley  Forge,  PA
19482.

JOHN J. BRENNAN,  (DOB: 7/29/1954) Chairman,  Chief Executive Officer & Trustee*
Chairman,  Chief Executive Officer and Director of The Vanguard Group, Inc., and
Trustee of each of the investment companies in The Vanguard Group.

CHARLES  D.  ELLIS,  (DOB:  10/23/1937)  Trustee  Retired  Managing  Partner  of
Greenwich Associates  (International  Business Strategy  Consulting);  Successor
Trustee of Yale University; Overseer of the Stern School of Business at New York
University; Trustee of the Whitehead Institute for Biomedical Research.

JOANN  HEFFERNAN  HEISEN,  (DOB:   1/25/1950)  Trustee  Vice  President,   Chief
Information  Officer, and member of the Executive Committee of Johnson & Johnson
(Pharmaceuticals/Consumer   Products);   Director  of  Johnson  &  Johnson*MERCK
Consumer  Pharmaceuticals  Co.,  The Medical  Center at  Princeton,  and Women's
Research and Education Institute.

BRUCE K. MACLAURY,  (DOB:  5/7/1931) Trustee President Emeritus of The Brookings
Institution  (Independent  Non-Partisan  Research  Organization);   Director  of
American  Express  Bank,  Ltd.,  The St. Paul  Companies,  Inc.  (Insurance  and
Financial Services), and National Steel Corp.

ALFRED M. RANKIN,  JR., (DOB:  10/8/1941)  Trustee  Chairman,  President,  Chief
Executive  Officer,  and  Director of NACCO  Industries,  Inc.  (Machinery/Coal/
Appliances);      Director     of     The     BFGoodrich      Co.      (Aircraft
Systems/Manufacturing/Chemicals).

JAMES O.  WELCH,  JR.,  (DOB:  5/13/1931)  Trustee  Retired  Chairman of Nabisco
Brands, Inc. (Food Products);  retired Vice Chairman and Director of RJR Nabisco
(Food and Tobacco Products); Director of TECO Energy, Inc., and Kmart Corp.

J. LAWRENCE WILSON,  (DOB:  3/2/1936) Trustee Retired Chairman and CEO of Rohm &
Haas Co. (Chemicals);  Director of Cummins Engine Co. (Diesel Engines), The Mead
Corp.   (Paper   Products),   and  AmeriSource   Health  Corp.   (Pharmaceutical
Distribution); Trustee of Vanderbilt University.

RAYMOND J.  KLAPINSKY,  (DOB:  12/7/1938)  Secretary*  Managing  Director of The
Vanguard Group,  Inc.;  Secretary of The Vanguard Group, Inc. and of each of the
investment companies in The Vanguard Group.

THOMAS J. HIGGINS,  (DOB: 5/21/1957) Treasurer* Principal of The Vanguard Group,
Inc.; Treasurer of each of the investment companies in The Vanguard Group.



* Officers of the Fund are "interested persons" as defined in the 1940 Act.

THE VANGUARD GROUP

     Each Fund is a member of The Vanguard Group of Investment Companies,  which
consists of more than 100 funds.  Through their  jointly-owned  subsidiary,  The
Vanguard Group, Inc.  (Vanguard),  the Funds and the other funds in The Vanguard
Group   obtain   at  cost   virtually   all  of  their   corporate   management,
administrative,  and distribution  services.  Vanguard also provides  investment
advisory services on an at-cost basis to certain of the Vanguard funds.

                                      B-11

<PAGE>

     Vanguard  employs  a  supporting  staff of  management  and  administrative
personnel  needed  to  provide  the  requisite  services  to the  funds and also
furnishes the funds with necessary office space, furnishings and equipment. Each
fund pays a share of Vanguard's  total  expenses  which are allocated  among the
funds under methods approved by the board of trustees of each fund. In addition,
each fund bears its own direct  expenses  such as legal,  auditing and custodian
fees. In order to generate  additional  revenues for Vanguard and thereby reduce
the funds' expenses,  Vanguard also provides certain administrative  services to
other organizations.

     The funds' officers are also officers and employees of Vanguard. No officer
or employee owns, or is permitted to own, any securities of any external adviser
for the funds.

     Vanguard and the Funds'  advisers have adopted Codes of Ethics  designed to
prevent employees who may have access to nonpublic information about the trading
activities of the Funds (access  persons) from profiting from that  information.
The Codes permit access  persons to invest in securities for their own accounts,
including  securities that may be held by the Funds,  but place  substantive and
procedural  restrictions  on their trading  activities.  For example,  the Codes
require that access persons receive advance  approval for every securities trade
to ensure that there is no conflict with the trading activities of the Funds.

     Vanguard was  established and operates under an Amended and Restated Funds'
Service  Agreement which was approved by the  shareholders of each of the funds.
The amounts which each of the funds have invested are adjusted from time to time
in order to maintain the proportionate relationship between each fund's relative
net assets and its  contribution to Vanguard's  capital.  At September 30, 2000,
the Funds had  contributed  $589,000  to  Vanguard,  representing  0.02% of each
Fund's  net assets  and 0.60% of  Vanguard's  capitalization.  The  Amended  and
Restated Funds' Service  Agreement  provides as follows:  (a) each Vanguard fund
may be called upon to invest up to 0.40% of its current assets in Vanguard,  and
(b) there is no other  limitation  on the dollar  amount that each Vanguard fund
may contribute to Vanguard's capitalization.

     MANAGEMENT.  Corporate management and administrative  services include: (1)
executive  staff;  (2) accounting and financial;  (3) legal and regulatory;  (4)
shareholder  account  maintenance;  (5)  monitoring  and  control  of  custodian
relationships;  (6)  shareholder  reporting;  and (7) review and  evaluation  of
advisory and other services provided to the funds by third parties.

     DISTRIBUTION.  Vanguard Marketing Corporation, a wholly-owned subsidiary of
The Vanguard Group, Inc., provides all distribution and marketing activities for
the funds in the Group. The principal distribution expenses are for advertising,
promotional  materials and marketing personnel.  Distribution  services may also
include  organizing  and offering to the public,  from time to time, one or more
new investment  companies which will become members of The Vanguard  Group.  The
trustees and officers of Vanguard  determine the amount to be spent  annually on
distribution  activities,  the manner  and amount to be spent on each fund,  and
whether to organize new investment companies.

     One half of the distribution expenses of a marketing and promotional nature
is allocated  among the funds based upon relative net assets.  The remaining one
half of those expenses is allocated among the funds based upon each fund's sales
for the preceding 24 months relative to the total sales of the funds as a Group,
provided,  however,  that no fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
the average  distribution  expense rate for The Vanguard Group, and that no fund
shall incur annual distribution  expenses in excess of 0.20 of 1% of its average
month-end net assets.

     During the fiscal years ended September 30, 1998, 1999, and 2000,  Vanguard
Equity Income Fund incurred the  following  approximate  amounts of The Vanguard
Group's  management  (including  transfer agency),  distribution,  and marketing
expenses: $5,443,000, $7,897,000, and $6,854,000 respectively.

     Prior to joining The Vanguard Group,  Vanguard Growth Equity Fund was party
to an  administration  agreement,  under  which,  for  the  fiscal  years  ended
September 30, 1998,  1999, and the period ended June 11, 2000, the Fund paid the
following administrative fees, net of waivers: $114,049, $117,203, and $138,000,
respectively.  For the period June 12, 2000 through September 30, 2000, Vanguard
Growth  Equity  Fund  incurred  $462,000  of  the  Vanguard  Group's  Management
(including transfer agency), distribution, and marketing expenses.

                                      B-12

<PAGE>

     INVESTMENT ADVISORY SERVICES.  An experienced  investment  management staff
employed directly by Vanguard provides  investment advisory services to Vanguard
Equity Income Fund and many Vanguard  funds.  These  services are provided on an
internalized,  at-cost basis.  The compensation and other expenses of this staff
are paid by the funds utilizing these services.

TRUSTEE COMPENSATION

     The same  individuals  serve as  trustees of all  Vanguard  funds (with two
exceptions,  which are noted in the table appearing below), and each fund pays a
proportionate  share of the  trustees'  compensation.  The  funds  employ  their
officers on a shared basis,  as well.  However,  officers are compensated by the
Vanguard Group, Inc., not the funds.

     INDEPENDENT TRUSTEES. The funds compensate their independent trustees--that
is, the ones who are not also officers of the fund--in three ways:

-    The  independent  trustees  receive an annual fee for their  service to the
     Funds, which is subject to reduction based on absences from scheduled board
     meetings.

-    The  independent  trustees are reimbursed for the travel and other expenses
     that they incur in attending board meetings.

-    Upon retirement,  the independent  trustees receive an aggregate annual fee
     of  $1,000  for each year  served  on the  board,  up to  fifteen  years of
     service.  This annual fee is paid for ten years  following  retirement,  or
     until each trustee's death.

     "INTERESTED"  TRUSTEE.  Mr. Brennan serves as a trustee, but is not paid in
this  capacity.  He is,  however,  paid in his role as officer  of The  Vanguard
Group, Inc.

     COMPENSATION TABLE. The following table provides  compensation  details for
each of the trustees.  We list the amounts paid as  compensation  and accrued as
retirement benefits by the Funds for each trustee. In addition,  the table shows
the total  amount of benefits  that we expect each  trustee to receive  from all
Vanguard funds upon  retirement,  and the total amount of  compensation  paid to
each trustee by all Vanguard funds.

                              VANGUARD FENWAY FUNDS
                          TRUSTEES' COMPENSATION TABLE

<TABLE>
<CAPTION>
<S>                                               <C>                    <C>                   <C>                <C>

                                                                             PENSION OR                                 TOTAL
                                                                             RETIREMENT                             COMPENSATION
                                                       AGGREGATE          BENEFITS ACCRUED                        FROM ALL VANGUARD
                                                      COMPENSATION        AS PART OF THESE     ESTIMATED ANNUAL     FUNDS PAID TO
                                                    FROM THESE FUNDS       FUNDS' EXPENSES      BENEFITS UPON          TRUSTEES
NAMES OF TRUSTEES                                         (1)                   (1)               RETIREMENT             (2)
------------------------------------------------------------------------------------------------------------------------------------
John C. Bogle(3). . . . . . . . . . . . . . . .                    None                  None               None                None
John J. Brennan . . . . . . . . . . . . . . . .                    None                  None               None                None
Charles D. Ellis(4) . . . . . . . . . . . . . .                     N/A                   N/A                N/A                 N/A
JoAnn Heffernan Heisen. . . . . . . . . . . . .                    $652                   $29            $15,000            $100,000
Bruce K. MacLaury . . . . . . . . . . . . . . .                    $673                   $48            $12,000            $ 95,000
Alfred M. Rankin, Jr. . . . . . . . . . . . . .                    $652                   $34            $15,000            $100,000
John C. Sawhill(5). . . . . . . . . . . . . . .                    $291                   $34                N/A             $44,483
James O. Welch, Jr. . . . . . . . . . . . . . .                    $652                    $0            $15,000            $100,000
J. Lawrence Wilson. . . . . . . . . . . . . . .                    $652                   $37            $15,000            $100,000
</TABLE>
(1)  The amounts  shown in this column are based on the Funds' fiscal year ended
     September 30, 2000.

(2)  The amount reported in this column reflect the total  compensation  paid to
     each trustee for his or her service as trustee of 109 Vanguard funds (99 in
     the case of Mr. MacLaury) for the 2000 calendar year.

(3)  Mr. Bogle retired from the Funds' board on December 31, 1999.

(4)  Mr. Ellis joined the Funds' board effective January 1, 2001.

(5)  Mr. Sawhill died in May 2000.

                                      B-13

<PAGE>

                            YIELD AND TOTAL RETURNS

     The yield of  Vanguard  Equity  Income  Fund for the  30-day  period  ended
September 30, 2000 was 2.50%.  The yield of Vanguard  Growth Equity Fund for the
30-day  period  ended  September  30, 2000 was 0.14%.  The average  annual total
return of the Funds for the following  periods  ended  September 30, 2000 is set
forth below.

                                 1 YEAR ENDED   5 YEARS ENDED  10 YEARS ENDED
                                    9/30/00        9/30/00        9/30/00
                                 ------------   -------------  --------------
   Vanguard Equity Income Fund       6.28%         15.76%          15.68%
   Vanguard Growth Equity Fund      51.07%         30.37%          22.53%*

* Since Inception--March 11, 1992.

SEC YIELDS

     Yield is the net  annualized  yield  based on a  specified  30-day  (or one
month) period assuming semiannual  compounding of income. Yield is calculated by
dividing the net  investment  income per share  earned  during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:

                         YIELD = 2[((A-B)/CD+1)6 - 1]

  Where:

          a   =dividends and interest earned during the period.
          b   =expenses accrued for the period (net of
               reimbursements).
          c   =the average daily number of shares outstanding during
               the period that were entitled to receive dividends.
          d   =the maximum offering price per share on the last day of
               the period

AVERAGE ANNUAL TOTAL RETURN

     Average annual total return is the average annual compounded rate of return
for the periods of one year,  five years,  ten years or the life of a Fund,  all
ended on the last day of a recent month.  Average annual total return quotations
will  reflect  changes in the price of each  Fund's  shares and assume  that all
dividends and capital gains  distributions  during the  respective  periods were
reinvested in Fund shares.

     Average  annual total return is  calculated  by finding the average  annual
compounded  rates of  return of a  hypothetical  investment  over  such  periods
according  to the  following  formula  (average  annual  total  return  is  then
expressed as a percentage):

                              T = (ERV/P)1/N - 1

  Where:

          T   =average annual total return
          P   =a hypothetical initial investment of $1,000
          n   =number of years
          ERV =ending redeemable value: ERV is the value, at the end
               of the applicable period, of a hypothetical $1,000
               investment made at the beginning of the applicable
               period

AVERAGE ANNUAL AFTER-TAX TOTAL RETURN QUOTATION

     We calculate the Fund's  average annual  after-tax  total return by finding
the  average  annual  compounded  rate of return  over the 1-, 5-,  and  10-year
periods that would equate the initial  amount  invested to the after-tax  value,
according to the following formulas:

After-tax return:

                                P (1+T)N = ATV

                                      B-14

<PAGE>

  Where:

          P   =a hypothetical initial payment of $1,000
          T   =average annual after-tax total return
          n   =number of years
          ATV =after-tax value at the end of the 1-,5-, or 10-year
               periods of a hypothetical $1,000 payment made at the
               beginning of the time period, assuming no liquidation
               of the investment at the end of the measurement
               periods

Instructions:

1.   Assume all distributions by the fund are  reinvested--less the taxes due on
     such  distributions--at  the price on the  reinvestment  dates  during  the
     period.  Adjustments  may be made for  subsequent  re-characterizations  of
     distributions.

2.   Calculate  the  taxes  due on  distributions  by the fund by  applying  the
     highest federal  marginal tax rates to each component of the  distributions
     on the reinvestment date (e.g.,  ordinary income,  short-term capital gain,
     long-term  capital gain,  etc.).  For periods after  December 31, 1997, the
     federal marginal tax rates used for the calculations are 39.6% for ordinary
     income and  short-term  capital gains and 20% for long-term  capital gains.
     Note that the  applicable tax rates may vary over the  measurement  period.
     Assume no taxes are due on the portions of any distributions  classified as
     exempt  interest  or  non-taxable  (i.e.,  return of  capital).  Ignore any
     potential tax liabilities other than federal tax liabilities  (e.g.,  state
     and local taxes).

3.   Include all recurring  fees that are charged to all  shareholder  accounts.
     For any  account  fees that vary  with the size of the  account,  assume an
     account size equal to the fund's mean (or median) account size. Assume that
     no  additional  taxes or tax credits  result from any  redemption of shares
     required to pay such fees.

4.   State the total return quotation to the nearest hundredth of one percent.

CUMULATIVE TOTAL RETURN

     Cumulative  total return is the cumulative rate of return on a hypothetical
initial  investment of $1,000 for a specified  period.  Cumulative  total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains  distributions  during the period were reinvested in
Fund shares.  Cumulative  total return is calculated  by finding the  cumulative
rates of a return of a hypothetical  investment over such periods,  according to
the  following  formula   (cumulative  total  return  is  then  expressed  as  a
percentage):

                                C = (ERV/P) - 1

  Where:

          C   =cumulative total return
          P   =a hypothetical initial investment of $1,000
          ERV =ending redeemable value: ERV is the value, at the end
               of the applicable period, of a hypothetical $1,000
               investment made at the beginning of the applicable
               period

                          INVESTMENT ADVISORY SERVICES

VANGUARD EQUITY INCOME FUND

     The  Fund  currently  has  four  investment  advisers:   Newell  Associates
(Newell),  525 University Avenue, Palo Alto, CA 94301; John A. Levin & Co., Inc.
(Levin),  One  Rockefeller  Plaza,  19th Floor,  New York, NY 10020;  Wellington
Management Company,  LLP (Wellington  Management),  75 State Street,  Boston, MA
02109; and The Vanguard Group,  Inc.  (Vanguard),  Post Office Box 2600,  Valley
Forge,  PA 19482.  Prior to  January 1,  1995,  Newell  was the sole  investment
adviser to the Fund. Spare,  Kaplan,  Bischel & Associates (Spare Kaplan) served
as an  adviser  to the Fund  from  1995  through  1999.  Levin  was  added as an
investment  adviser effective January 1, 1995.  Vanguard was added as an adviser
effective  January  16,  1998.  Wellington  Management  was added as an  adviser
effective  January  1,  2000.  The Fund has  entered  into  investment  advisory
agreements with Newell,  Levin, and Wellington Management which provide that the
advisers manage the investment and reinvestment

                                      B-15

<PAGE>

of the Fund's  assets and  continuously  review,  supervise and  administer  the
Fund's investment program. The advisers discharge their responsibilities subject
to the control of the officers and trustees of the Fund.

     The  proportion  of the net assets of the Fund  managed by each  adviser is
established  by the  board of  trustees,  and may be  changed  in the  future as
circumstances  warrant.  As of September 30, 2000,  Newell was  responsible  for
approximately  51%  of  the  Fund's   investment,   Levin  was  responsible  for
approximately  24%, and Wellington  Management was responsible for approximately
20%.  Vanguard's  advisory role is limited; it currently manages just the Fund's
cash reserves, which normally represent about 5% of the Fund's assets.

NEWELL ASSOCIATES

  The Fund  pays  Newell  an  advisory  fee at the end of each  fiscal  quarter,
calculated  by  applying  a  quarterly  rate,  based  on  the  following  annual
percentage  rates, to the average month-end net assets managed by Newell for the
quarter:

            NET ASSETS                      ANNUAL RATE
            ----------                      -----------
            First $250 million . . .           .200%
            Next $500 million. . . .           .150%
            Next $250 million. . . .           .100%
            Over $1 billion. . . . .           .080%

     During the fiscal years ended September 30, 1998, 1999, and 2000,  Vanguard
Equity  Income  Fund  incurred  the  following  advisory  fees  owed to  Newell:
$1,851,435, $2,150,288, and $1,835,000, respectively.

JOHN A. LEVIN & CO., INC.

     The Fund pays Levin a basic advisory fee at the end of each fiscal quarter,
calculated  by  applying  a  quarterly  rate,  based  on  the  following  annual
percentage  rates, to the average  month-end assets of the Fund managed by Levin
(Levin Portfolio) for the quarter:

            NET ASSETS                     ANNUAL RATE
            ----------                     -----------
            First $100 million . . .          0.40%
            Next $200 million. . . .          0.25%
            Next $200 million. . . .          0.30%
            Next $500 million. . . .          0.20%
            Over $1 billion. . . . .          0.10%

     The  basic  fee paid to Levin,  as  provided  above,  may be  increased  or
decreased by applying a performance  fee  adjustment to the basic fee reflecting
the investment  performance of the Levin Portfolio relative to the return of the
Standard and Poor's 500  Composite  Stock Price Index (S&P 500 Index),  an index
which emphasizes large capitalization companies.

     The  following  table sets forth the  performance  fee rates payable by the
Fund to Levin under the investment advisory agreement:

            THREE YEAR PERFORMANCE                 PERFORMANCE FEE
            DIFFERENTIAL VS. THE S&P 500 INDEX         ADJUSTMENT*
            ----------------------------------     ---------------
            Less than 0%. . . . . . . . .        -0.40 x Basic Fee
            Between 0% and 3% . . . . . .        -0.20 x Basic Fee
            Between 3% and 6% . . . . . .         0.00 x Basic Fee
            Between 6% and 9% . . . . . .         0.20 x Basic Fee
            More than 9%. . . . . . . . .         0.40 x Basic Fee

* For purposes of this  calculation,  the basic fee is  calculated by applying a
  quarterly  rate based on the annual basic fee rate using  average  assets over
  the same period over which the performance is measured.

     The investment performance of the Levin Portfolio for any period, expressed
as a percentage of the "Levin  Portfolio  unit value" per share at the beginning
of such period, will be the sum of: (i) the change in the Levin

                                      B-16

<PAGE>

Portfolio unit value during such period;  (ii) the unit value of the Fund's cash
distributions  from the Levin Portfolio's net investment income and realized net
capital gains  (whether  long-term or  short-term)  having an  ex-dividend  date
occurring  within such period;  and (iii) the unit value of capital  gains taxes
paid or  accrued  during  such  period by the Fund for  undistributed  long-term
capital gains realized from the Levin Portfolio.

     The Levin Portfolio unit value will be determined by dividing the total net
assets of the Levin Portfolio by a given number of units. On the initial date of
the agreement, the number of units in the Levin Portfolio was equal to the total
shares  outstanding of the Fund. After such initial date, as assets are added to
or  withdrawn  from the  Levin  Portfolio,  the  number  of  units of the  Levin
Portfolio will be adjusted based on the unit value of the Levin Portfolio on the
day such changes are executed.

     The  investment  record  of the S&P 500  Index  will  be  obtained  from an
independent source at the end of each applicable  quarter.  The calculation will
be based on the thirty-six  month period ending with the applicable  quarter and
will be gross of applicable costs and expenses.

     For the purposes of determining the  performance  fee  adjustment,  the net
assets  managed by Levin will be averaged over the same period as the investment
performance of those assets and the  investment  record of the S&P 500 Index are
computed.

     Under the Fund's  investment  advisory  agreement  with Levin,  the maximum
performance  adjustment  for an  incentive  fee is  made at a  difference  of +9
percentage  points from the  performance  of the index over a  thirty-six  month
period.  The  maximum  performance  adjustment  for a  penalty  fee is made at a
difference of less than +0 percentage  points from the  performance of the index
over a thirty-six month period. On a per year basis,  these maximum  adjustments
effectively  would occur at differences  from the index of +3 percentage  points
and less than +0 percentage point, respectively.

     During the fiscal years ended September 30, 1998, 1999, and 2000,  Vanguard
Equity Income Fund incurred the following advisory fees owed to Levin:

                                                 1998        1999        2000
                                           ----------------------------------
   Basic Fee. . . . . . . . . .            $1,085,000  $1,584,000  $1,655,000
   Increase or Decrease for Performance
    Adjustment. . . . . . . . .              (290,000)   (403,000)   (527,000)
                                            ---------   ---------   ---------
   Total. . . . . . . . . . . .              $795,000  $1,181,000  $1,128,000

WELLINGTON MANAGEMENT COMPANY, LLP

     The Fund pays Wellington Management a basic advisory fee at the end of each
fiscal quarter,  calculated by applying a quarterly rate, based on the following
annual percentage rates, to the average month-end net assets of the Fund managed
by Wellington Management (Wellington Management Portfolio) for the quarter:

            NET ASSETS                      ANNUAL RATE
            ----------                      -----------
            First $1 billion . . . .           .125%
            Next $4 billion. . . . .           .100%
            Over $5 billion. . . . .           .080%

     The basic fee paid to  Wellington  Management,  as provided  above,  may be
increased or decreased by applying a performance fee adjustment to the basic fee
reflecting the investment  performance  of the Wellington  Management  Portfolio
relative to the return of the Lipper Equity Income average.

                                      B-17

<PAGE>

     The  following  table sets forth the  performance  fee rates payable by the
Fund to Wellington Management under the investment advisory agreement:

            THREE YEAR PERFORMANCE DIFFERENTIAL               PERFORMANCE FEE
            AVERAGE VS. THE LIPPER EQUITY INCOME                  ADJUSTMENT*
            -----------------------------------------         ---------------
            Exceeds by 3% to 6% . . . . .                    0.10 x Basic Fee
            Exceeds by more than 6% . . .                    0.20 x Basic Fee
            Trails by 3% to 6%. . . . . .                   -0.10 x Basic Fee
            Trails by more than 6%. . . .                   -0.20 x Basic Fee

* For purposes of this  calculation,  the basic fee is  calculated by applying a
  quarterly  rate based on the annual basic fee rate using  average  assets over
  the same period over which the performance is measured.

     The performance fee adjustment will not be fully operable until the quarter
ending December 31, 2002.  Until that time, the following  transition rules will
apply:

(A)  JANUARY  1,  2000  THROUGH  SEPTEMBER  30,  2000.  Wellington  Management's
     compensation  was the basic fee. No performance  fee adjustment was applied
     during this period.

(B)  OCTOBER 1, 2000 THROUGH DECEMBER 31, 2002.  Beginning  October 1, 2000, the
     performance  fee  adjustment  will take effect on a progressive  basis with
     regard to the number of months  elapsed  between  January 1, 2000,  and the
     quarter for which  Wellington  Management's  fee is being computed.  During
     this  period,  the  performance  fee  adjustment  will be  multiplied  by a
     fraction.  The  fraction  will  equal the  number of months  elapsed  since
     January 1, 2000, divided by thirty-six.

(C)  ON AND AFTER DECEMBER 31, 2002.  For the quarter ending  December 31, 2002,
     and thereafter,  the performance fee adjustment will be fully operable. The
     period used to calculate the  adjustment  shall be the 36 months  preceding
     the end of the quarter for which the fee is being computed.

     The investment  performance of the Wellington  Management Portfolio for any
period,  expressed as a percentage of the "Wellington  Management Portfolio unit
value"  at the  beginning  of  such  period,  will  be  calculated  in a  manner
consistent with the total return  methodology  used by Lipper Inc., to calculate
investment performance.

     The  Wellington  Management  Portfolio  unit  value will be  determined  by
dividing the total net assets of the Wellington  Management Portfolio by a given
number of units.  Initially,  the number of units in the  Wellington  Management
Portfolio  was equal to the total shares  outstanding  of the Fund on January 1,
2000.  Subsequently,  as assets are added to or  withdrawn  from the  Wellington
Management Portfolio, the number of units of the Wellington Management Portfolio
will be adjusted based on the unit value of the Wellington  Management Portfolio
on the day such changes are  executed.  Any cash buffer  maintained  by the Fund
outside of the Wellington  Management Portfolio shall neither be included in the
total net assets of the  Wellington  Management  Portfolio  nor  included in the
computation of the Wellington Management Portfolio unit value.

     The  investment  record of the Lipper Equity Income  average for any period
will  be  obtained  from an  independent  source  at the end of each  applicable
quarter.  The  calculation  will be based on the thirty-six  month period ending
with the applicable quarter and will be gross of applicable costs and expenses.

     For the period January 1, 2000, through September 30, 2000, Vanguard Equity
Income Fund incurred  investment advisory fees of $641,000 (before a decrease of
$34,000 based on performance) owed to Wellington Management.

DESCRIPTION OF THE ADVISERS

     NEWELL ASSOCIATES. Newell Associates, a California corporation, was founded
in 1986 to  provide  investment  management  services  to  institutions.  Newell
Associates uses its proprietary Relative Yield Strategy to determine when stocks
are  undervalued  and,  therefore,  candidates  for purchase or overvalued  and,
therefore,  candidates for sale. The officers of the  corporation  are: Roger D.
Newell,  Chairman;  Robert A. Huret, Vice Chairman; and Jennifer C. Newell, CFA,
President.

     JOHN A. LEVIN & CO. INC. John A. Levin, which commenced operations in 1982,
provides  investment  advisory  services to  institutional  and private clients,
including registered investment trusts and several private

                                      B-18

<PAGE>


investment partnerships.  The investment process at Levin emphasizes identifying
investment  value  through  fundamental  research.  John A.  Levin,  a  founding
principal  and  Chairman  and Chief  Executive  Officer of Levin,  and Joseph A.
Austin,  John W. Murphy,  and Daniel M. Theriault,  Senior Portfolio Managers of
Levin,  are responsible for managing the portion of the Fund's assets managed by
Levin. Levin is an indirect subsidiary of BKF Capital Group, Inc.

     WELLINGTON MANAGEMENT COMPANY, LLP. Wellington Management is a professional
investment advisory firm that provides services to individuals, employee benefit
plans,  endowment funds, and other  institutions.  The firm was founded in 1928,
and is organized as a Massachusetts limited liability partnership.  The managing
partners of Wellington  Management are Duncan M.  McFarland,  Laurie A. Gabriel,
and John R. Ryan. Mr. Ryan is the portfolio manager who is primarily responsible
for Wellington Management's portion of the Fund.

     THE VANGUARD  GROUP.  The Vanguard Group is a family of more than 100 funds
holding  assets worth more than $550 billion.  Vanguard  serves as an investment
adviser to the Fund and currently manages about $396 billion in total assets.

VANGUARD GROWTH EQUITY FUND

     The Fund pays Turner Investment Partners (Turner) a basic fee at the end of
each fiscal  quarter,  calculated  by applying a  quarterly  rate,  based on the
following annual  percentage  rates, to the average  month-end net assets of the
Fund.

            NET ASSETS                                 ANNUAL RATE
            ----------                                 -----------
            First $200 million . . . . . . .              0.50%
            Next $300 million. . . . . . . .              0.40%
            Next $1.5 billion. . . . . . . .              0.30%
            Over $2 billion. . . . . . . . .              0.20%

     The basic fee paid to  Turner,  as  provided  above,  may be  increased  or
decreased by applying a  performance  fee  adjustment.  The  adjustment  will be
calculated as a percentage of the basic fee and will change proportionately with
the  investment  performance  of the Fund  relative to the return of the Russell
1000 Growth Index (the Index) for the 36-month period ending with the then-ended
quarter.

     The  following  table sets forth the  performance  fee rates payable by the
Fund to Turner under the investment advisory agreement.

            CUMULATIVE 36-MONTH
            PERFORMANCE OF THE FUND                         ADJUSTMENT AS A
            VERSUS THE INDEX (A)                PERCENTAGE OF BASIC FEE (B)
            --------------------                ---------------------------
            Trails by more than 9%. .                                  -75%
            Trails by 0% to 9%. . . .        Linear decrease from 0% to 75%
            Exceeds by 0% to 9% . . .       Linear increase from 0% to +75%
            Exceeds by more than 9% .                                  +75%

(A)  During the first  thirty-six  month  (36)  period,  inception-to-date  Fund
     performance  versus  performance  of the Index for the same  period will be
     utilized.  Subject to the transition  rules  provided for below,  the +/-9%
     hurdle  rate  illustrated  in the  table  above  will  be  multiplied  by a
     fraction,  the numerator  being the months elapsed since  inception and the
     denominator being thirty-six (36).

     For purposes of the adjustment  calculator,  the basic fee is calculated by
applying the above rate schedule  against the average  month-end net assets over
the same time period for which the performance is measured.

(B)  Linear  application  of the adjustment  provides for an infinite  number of
     results within the stated range.  Example:  Cumulative 36-month performance
     of the Fund  versus  the Index is +7.2%.  Accordingly,  a  performance  fee
     adjustment of +60% [(7.2%  divided by 9.0%) times 75% maximum] of the basic
     fee would be due and payable.

     The adjustment will not be fully operable until the Fund has operated under
the agreement for a full 36 months.  Until that time,  the following  transition
rules will apply:

                                      B-19

<PAGE>

(A)  JUNE 12, 2000 THROUGH  APRIL 30,  2001.  Adviser  compensation  will be the
     basic fee. No adjustment will apply during this period.

(B)  MAY 1, 2001  THROUGH JUNE 30, 2003.  Beginning  May 1, 2001 the  adjustment
     will take effect on a progressive basis with regard to the number of months
     elapsed  between July 1, 2000 and the quarter end for which the adviser fee
     is  being  computed.  During  this  period,  the  adjustment  that has been
     determined  as  provided  above  will  be  multiplied  by a  fraction.  The
     fraction's  numerator  will  equal the number of months  that have  elapsed
     since July 1, 2000 and the denominator will be thirty-six (36).

(C)  ON AND AFTER JULY 1, 2003.  Commencing July 1, 2003, the adjustment will be
     fully operable.

     During the fiscal years ended  September 30, 1998 and 1999,  and the period
ended  June 11,  2000,  Vanguard  Growth  Equity  Fund  incurred  the  following
investment advisory fees:**

                                              1998        1999          2000
                                              ----        ----          ----
   Basic Fee. . . . . . . . . . .         $664,449    $987,424    $1,207,000
   Advisory Fee Waived. . . . . .           76,793           0             0

** These fees were paid under a prior investment advisory fee structure.

     For the period June 12, 2000, through September 30, 2000, the Fund incurred
$784,000 in investment advisory fees under the existing fee structure.

DESCRIPTION OF TURNER

     Turner is a professional  advisory firm,  founded in March 1990.  Robert E.
Turner is the Chairman and  controlling  shareholder.  As of September 30, 2000,
Turner had discretionary  management authority with respect to approximately $12
billion,  including  22  non-Vanguard  mutual funds with $2.6 billion in assets.
Turner has provided investment  advisory services to investment  companies since
1992.

DURATION AND TERMINATION OF INVESTMENT ADVISORY AGREEMENTS

     Each  Fund's  current  agreement  with  its  adviser(s)  is  renewable  for
successive one-year periods,  only if (1) each renewal is specifically  approved
by a vote of the Fund's board of trustees,  including the affirmative votes of a
majority of trustees who are not parties to the contract or "interested persons"
(as  defined  in the 1940  Act) of any such  party,  cast in person at a meeting
called for the purpose of  considering  such  approval,  or (2) each  renewal is
specifically  approved by a vote of a majority of the Fund's  outstanding voting
securities.  An agreement is  automatically  terminated if assigned,  and may be
terminated  without  penalty at any time (1) by vote of the board of trustees of
the Fund on 60 days' written notice to the adviser,  (2) by a vote of a majority
of the Fund's outstanding voting securities, or (3) by the adviser upon 90 days'
written notice to the Fund.

                             PORTFOLIO TRANSACTIONS

     The  investment  advisory  agreements  authorize  the  advisers  (with  the
approval of the Funds'  board of trustees) to select the brokers or dealers that
will execute the purchases and sales of portfolio  securities  for the Funds and
direct the advisers to use their best efforts to obtain the best available price
and most favorable  execution as to all transactions for the Funds. The advisers
have undertaken to execute each investment transaction at a price and commission
which provides the most favorable total cost or proceeds  reasonably  obtainable
under the circumstances.

     In placing portfolio transactions,  each adviser will use its best judgment
to choose the broker most capable of providing the brokerage  services necessary
to obtain the best available price and most favorable execution.  The full range
and quality of brokerage  services  available will be considered in making these
determinations.  In those instances where it is reasonably  determined that more
than one  broker  can offer the  brokerage  services  needed to obtain  the best
available  price and most  favorable  execution,  consideration  may be given to
those brokers which supply investment  research and statistical  information and
provide other services in addition to execution services to the Funds and/or the
adviser. Each adviser considers such information useful in the

                                      B-20

<PAGE>

performance of its obligations  under the agreement,  but is unable to determine
the amount by which such services may reduce its expenses.

     The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities  Exchange Act of 1934 by providing that,  subject to the
approval of the Funds'  board of  trustees,  each adviser may cause the Funds to
pay a  broker-dealer  which furnishes  brokerage and research  services a higher
commission  than that  which  might be  charged  by  another  broker-dealer  for
effecting  the  same  transaction;  provided  that  such  commission  is  deemed
reasonable  in  terms of  either  that  particular  transaction  or the  overall
responsibilities of the adviser to the Funds.

     Currently,  it is the  Funds'  policy  that each  adviser  may at times pay
higher  commissions in recognition of brokerage  services felt necessary for the
achievement  of  better  execution  of  certain  securities   transactions  that
otherwise  might  not be  available.  Each  adviser  will  only pay such  higher
commissions  if it believes this to be in the best  interest of the Funds.  Some
brokers or dealers who may receive such higher  commissions  in  recognition  of
brokerage  services  related to execution of  securities  transactions  are also
providers of research information to the adviser and/or the Funds. However, each
adviser has informed the Funds that it generally will not pay higher  commission
rates solely for the purpose of obtaining research services.

     Some securities considered for investment by a Fund may also be appropriate
for other  clients  served by each  adviser.  If purchase or sale of  securities
consistent  with the  investment  policies  of the Fund and one or more of these
other clients  serviced by the adviser are considered at or about the same time,
transactions  in such securities will be allocated among the Fund and such other
clients in a manner deemed  equitable by the adviser.  Although  there may be no
specified formula for allocating such transactions, the allocation methods used,
and the results of such  allocations,  will be subject to periodic review by the
Funds' board of trustees.

     During the fiscal years ended September 30, 1998,  1999 and 2000,  Vanguard
Equity Income Fund paid $1,404,979,  $1,624,448 and $2,875,000 respectively,  in
brokerage  commissions.  During the fiscal years ended September 30, 1998, 1999,
and 2000, Vanguard Growth Equity Fund paid $464,404,  $671,953,  and $1,642,000,
respectively, in brokerage commissions.

5% SHAREHOLDERS

     As of September 30, 2000,  the following  persons were the only persons who
were record owners (or to the knowledge of the Fund, beneficial owners) of 5% or
more of the  outstanding  shares of the Vanguard  Growth  Equity Fund.  The Fund
believes  that most of the shares  referred  to below  were held by the  persons
indicated in accounts for their fiduciary, agency, or custodial customers:

                                           TOTAL NUMBER      PERCENTAGE OF
SHAREHOLDER                                  OF SHARES       FUND'S SHARES
-----------                                  ---------       -------------
Security Trust Company Custodian           4,585,795.945         6.54%
FBO Sheet Metal Workers
Annuity Fund of Local Union #19
A/C 9943312678
2390 E. Camelback Rd.
Suite 240
Phoenix, AZ 85016-3434


                                      B-21

<PAGE>

                              FINANCIAL STATEMENTS

     Vanguard Equity Income Fund's  financial  statements as of and for the year
ended  September  30, 2000,  appearing in the Vanguard  Equity  Income Fund 2000
Annual Report to Shareholders,  and the report thereon of PricewaterhouseCoopers
LLP,  independent  accountants,  also appearing  therein,  are  incorporated  by
reference in this Statement of Additional Information.

     The financial  statements of Vanguard  Growth Equity Fund as of and for the
fiscal year ended  September 30, 2000,  appearing in the Vanguard  Growth Equity
Fund 2000 Annual Report to Shareholders,  including notes thereto and the report
thereon  of  PricewaterhouseCoopers,  LLP,  independent  accountants,  are  also
incorporated by reference in this Statement of Additional Information. (Prior to
June 12, 2000, Vanguard Growth Equity Fund was organized as Turner Growth Equity
Fund.)

     For a more complete  discussion of the performance,  please see each Fund's
Annual Report to Shareholders, which may be obtained without charge.

                              COMPARATIVE INDEXES

     Vanguard may use reprinted material  discussing The Vanguard Group, Inc. or
any of the member funds of The Vanguard Group of Investment  Companies.  Each of
the investment company members of The Vanguard Group,  including Vanguard Fenway
Funds,  may,  from  time to  time,  use one or more of the  following  unmanaged
indexes for comparative performance purposes.

STANDARD & POOR'S 500 COMPOSITE STOCK PRICE  INDEX--includes  stocks selected by
Standard & Poor's  Index  Committee  to  include  leading  companies  in leading
industries and to reflect the U.S. stock market.

STANDARD & POOR'S  MIDCAP 400  INDEX--is  composed of 400 medium sized  domestic
stocks.

STANDARD & POOR'S 500/BARRA VALUE  INDEX--consists of the stocks in the Standard
& Poor's 500 Composite Stock Price Index with the lowest  price-to-book  ratios,
comprising 50% of the market capitalization of the S&P 500.

STANDARD & POOR'S  SMALLCAP  600/BARRA VALUE  INDEX--contains  stocks of the S&P
SmallCap 600 Index which have a lower than average price-to-book ratio.

STANDARD & POOR'S SMALLCAP  600/BARRA GROWTH  INDEX--contains  stocks of the S&P
SmallCap 600 Index which have a higher than average price-to-book ratio.

RUSSELL  1000  VALUE  INDEX--consists  of the stocks in the  Russell  1000 Index
(comprising  the 1,000  largest  U.S.-based  companies  measured by total market
capitalization)  with the lowest  price-to-book  ratios,  comprising  50% of the
market capitalization of the Russell 1000.

WILSHIRE  5000 TOTAL MARKET  INDEX--consists  of more than 7,000  common  equity
securities,  covering all stocks in the U.S. for which daily listing  pricing is
available.

WILSHIRE  4500  COMPLETION  INDEX--consists  of all stocks in the Wilshire  5000
except for the 500 stocks in the Standard and Poor's 500 Index.

RUSSELL  1000 GROWTH  INDEX--consists  of the stocks in the  Russell  1000 Index
(comprising  the 1,000  largest  U.S.-based  companies  measured by total market
capitalization)  with the highest  price-to-book  ratios,  comprising 50% of the
market capitalization of the Russell 1000.

RUSSELL 3000 STOCK  INDEX--a  diversified  portfolio of over 3,000 common stocks
accounting  for over 90% of the market  value of publicly  traded  stocks in the
U.S.

RUSSELL  2000 STOCK  INDEX--composed  of the 2,000  smallest  securities  in the
Russell  3000,  representing  approximately  7% of the Russell 3000 total market
capitalization.

RUSSELL  2000 VALUE  INDEX--contains  stocks from the Russell  2000 Index with a
less-than-average growth orientation.

MORGAN  STANLEY  CAPITAL  INTERNATIONAL  EAFE  INDEX--is an  arithmetic,  market
value-weighted  average of the performance of over 900 securities  listed on the
stock exchanges of countries in Europe, Australia, Asia and the Far East.

                                      B-22

<PAGE>

GOLDMAN SACHS 100  CONVERTIBLE  BOND  INDEX--currently  includes 71 bonds and 29
preferreds.   The  original  list  of  names  was  generated  by  screening  for
convertible  issues of $100  million or greater  in market  capitalization.  The
index is priced monthly.

SALOMON BROTHERS GNMA  INDEX--includes  pools of mortgages originated by private
lenders and guaranteed by the mortgage pools of the Government National Mortgage
Association.

SALOMON BROTHERS HIGH-GRADE  CORPORATE BOND  INDEX--consists of publicly issued,
non-convertible  corporate bonds rated Aa or Aaa. It is a value weighted,  total
return index, including  approximately 800 issues with maturities of 12 years or
greater.

SALOMON BROTHERS BROAD  INVESTMENT-GRADE  BOND INDEX--is a market-weighted index
that contains over 4,800 individually  priced  investment-grade  corporate bonds
rated BBB or  better,  U.S.  Treasury/agency  issues and  mortgage  pass-through
securities.

LEHMAN BROTHERS LONG-TERM  TREASURY BOND INDEX--is a market-weighted  index that
contains  individually  priced U.S.  Treasury  Securities  with maturities of 10
years or greater.

MERRILL LYNCH  CORPORATE & GOVERNMENT  BOND  INDEX--consists  of over 4,500 U.S.
Treasury, Agency and investment grade corporate bonds.

LEHMAN  BROTHERS  CREDIT  (BAA) BOND  INDEX--all  publicly  offered  fixed rate,
nonconvertible  domestic  corporate bonds rated Baa by Moody's,  with a maturity
longer  than 1 year and with more  than $100  million  outstanding.  This  index
includes over 1,500 issues.

LEHMAN  BROTHERS  LONG  CREDIT BOND  INDEX--is  a subset of the Lehman  Brothers
Credit  Bond  Index  covering  all  corporate,   publicly  issued,   fixed-rate,
nonconvertible  U.S.  debt issues rated at least Baa, with at least $100 million
principal outstanding and maturity greater than 10 years.

BOND BUYER  MUNICIPAL  BOND INDEX--is a yield index on current coupon high grade
general obligation municipal bonds.

STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average yield
of four high grade, non-callable preferred stock issues.

NASDAQ INDUSTRIAL INDEX--is composed of more than 3,000 industrial issues. It is
a  value-weighted  index  calculated  on price  change only and does not include
income.

COMPOSITE  INDEX--70%  Standard  & Poor's  500 Index and 30%  NASDAQ  Industrial
Index.

COMPOSITE  INDEX--65%  Standard  & Poor's  500  Index  and 35%  Lehman  Brothers
Corporate A or Better Bond Index.

COMPOSITE  INDEX--65%  Lehman  Brothers Long Credit A or Better Bond Index and a
35% weighting in a blended  equity  composite  (75% Standard & Poor's  500/BARRA
Value Index,  and 12.5% Standard & Poor's  Utilities  Index and 12.5% Standard &
Poor's Telephone Index).

LEHMAN  BROTHERS  LONG CREDIT A OR BETTER BOND  INDEX--consists  of all publicly
issued,  fixed  rate,  nonconvertible   investment  grade,   dollar-denominated,
SEC-registered corporate debt rated AA or AAA.

LEHMAN  BROTHERS  AGGREGATE BOND INDEX--is a market weighted index that contains
over 4,000 individually priced U.S. Treasury,  agency,  corporate,  and mortgage
pass-through  securities  corporate rated BBB- or better. The Index has a market
value of over $5 trillion.

LEHMAN BROTHERS CREDIT A OR BETTER BOND  INDEX--consists of all publicly issued,
investment grade corporate bonds rated A or better, of all maturity levels.

LEHMAN  BROTHERS  MUTUAL FUND SHORT (1-5)  GOVERNMENT/CREDIT  INDEX--is a market
weighted  index that  contains  over 1,500  individually  priced U.S.  Treasury,
agency,  and  corporate  investment  grade  bonds  rated  BBB-  or  better  with
maturities  between 1 and 5 years.  The  index  has a market  value of over $1.6
trillion.

LEHMAN BROTHERS MUTUAL FUND INTERMEDIATE  (5-10)  GOVERNMENT/CREDIT  INDEX--is a
market  weighted  index  that  contains  over  1,500  individually  priced  U.S.
Treasury,  agency, and corporate securities rated BBB- or better with maturities
between 5 and 10 years. The index has a market value of over $800 billion.

                                      B-23

<PAGE>

LEHMAN BROTHERS LONG (10+)  GOVERNMENT/CREDIT  INDEX--is a market weighted index
that  contains  over  1,900  individually  priced  U.S.  Treasury,  agency,  and
corporate securities rated BBB- or better with maturities greater than 10 years.
The index has a market value of over $1.1 trillion.

LIPPER  SMALL-CAP  GROWTH FUND  AVERAGE--a  fund that by prospectus or portfolio
practice invests primarily in growth companies with market  capitalizations less
than $1 billion at the time of purchase.

LIPPER BALANCED FUND  AVERAGE--an  industry  benchmark of average balanced funds
with similar investment objectives and policies, as measured by Lipper Inc.

LIPPER  NON-GOVERNMENT  MONEY  MARKET FUND  AVERAGE--an  industry  benchmark  of
average non-government money market funds with similar investment objectives and
policies, as measured by Lipper Inc.

LIPPER  GOVERNMENT MONEY MARKET FUND AVERAGE--an  industry  benchmark of average
government money market funds with similar  investment  objectives and policies,
as measured by Lipper Inc.

LIPPER GENERAL EQUITY FUND  AVERAGE--an  industry  benchmark of average  general
equity funds with similar  investment  objectives  and policies,  as measured by
Lipper Inc.

LIPPER FIXED INCOME FUND AVERAGE--an  industry benchmark of average fixed income
funds with similar  investment  objectives  and policies,  as measured by Lipper
Inc.

LIPPER  EQUITY  INCOME FUND  AVERAGE--an  industry  benchmark of average  equity
income funds with similar  investment  objectives  and policies,  as measured by
Lipper Inc.


                                                                   SAI065 012001


                                      B-24

<PAGE>

                                     PART C

                              VANGUARD FENWAY FUNDS

                                OTHER INFORMATION

ITEM 23. EXHIBITS

EXHIBIT DESCRIPTION

(a)    Declaration of Trust**
(b)    By-Laws**
(c)    Reference is made to Articles III and V of the Registrant's Declaration
       of Trust
(d)    Investment Advisory Contracts + (e) Not applicable
(f)    Reference is made to the section  entitled  "Management  of the Funds" in
       the Registrant's Statement of Additional Information
(g)    Custodian Agreement**
(h)    Amended and Restated Funds' Service Agreement**
(i)    Legal Opinion**
(j)    Consent of Independent Accountants*
(k)    Not Applicable
(l)    Not Applicable
(m)    Not Applicable
(n)    Not Applicable
(o)    Not Applicable
(p)    Codes of Ethics**

 *Filed herewith.
**Filed previously.
 +Filed herewith  for John A. Levin & Co., Inc.;  filed previously for all other
  investment advisers.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Registrant is not controlled by or under common control with any person.

ITEM 25. INDEMNIFICATION

The  Registrant's   organizational  documents  contain  provisions  indemnifying
Trustees and officers  against  liability  incurred in their official  capacity.
Article VII,  Section 2 of the Declaration of Trust provides that the Registrant
may  indemnify  and hold  harmless  each and every  Trustee and officer from and
against  any and all  claims,  demands,  costs,  losses,  expenses,  and damages
whatsoever  arising out of or related to the performance of his or her duties as
a Trustee or officer.  However,  this  provision does not cover any liability to
which a Trustee  or  officer  would  otherwise  be  subject by reason of willful
misfeasance,  bad faith,  gross negligence,  or reckless disregard of the duties
involved  in  the  conduct  of  his or her  office.  Article  VI of the  By-Laws
generally provides that the Registrant shall indemnify its Trustees and officers
from  any  liability  arising  out of  their  past or  present  service  in that
capacity.  Among other things,  this provision excludes any liability arising by
reason of willful  misfeasance,  bad faith,  gross  negligence,  or the reckless
disregard  of the duties  involved in the conduct of the  Trustee's or officer's
office with the Registrant.

<PAGE>

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

John A. Levin & Co., Inc. (Levin) is an investment  adviser registered under the
Advisers  Act. The list  required by this Item 26 of officers  and  directors of
Levin, together with any information as to any business profession, vocation, or
employment  of a  substantial  nature  engaged in by such officers and directors
during the past two years, is incorporated  herein by reference from Schedules B
and D of Form ADV  filed by Levin  pursuant  to the  Advisers  Act (SEC File No.
801-18010).

Newell  Associates  (Newell)  is an  investment  adviser  registered  under  the
Investment  Advisers  Act of 1940,  as  amended  (the  Advisers  Act).  The list
required by this Item 26 of officers and directors of Newell,  together with any
information  as  to  any  business  profession,  vocation,  or  employment  of a
substantial nature engaged in by such officers and directors during the past two
years,  is  incorporated  herein by reference from Schedules B and D of Form ADV
filed by Newell pursuant to the Advisers Act (SEC File No. 801-26949).

Turner Investment  Partners,  Inc., (Turner) is an investment adviser registered
under the  Advisers  Act.  The list  required  by this Item 26 of  officers  and
partners of Turner, together with any information as to any business profession,
vocation,  or employment of  substantial  nature engaged in by such officers and
partners  during the past two years,  is  incorporated  herein by reference from
Schedules B and D of Form ADV filed by Turner  pursuant to the Advisers Act (SEC
File No. 801-07527).

The Vanguard Group, Inc.  (Vanguard) is an investment  adviser  registered under
the Advisers Act. The list required by this Item 26 of officers and directors of
Vanguard, together with any information as to any business profession, vocation,
or employment of  substantial  nature  engaged in by such officers and directors
during the past two years, is incorporated  herein by reference from Schedules B
and D of Form ADV filed by Vanguard  pursuant to the  Advisers Act (SEC File No.
801-11953).

Wellington  Management  Company,  LLP  (Wellington  Management) is an investment
adviser  registered under the Advisers Act. The list required by this Item 26 of
officers and partners of Wellington Management, together with any information as
to any business  profession,  vocation,  or  employment  of  substantial  nature
engaged  in by such  officers  and  partners  during  the  past  two  years,  is
incorporated  herein by  reference  from  Schedules B and D of Form ADV filed by
Wellington Management pursuant to the Advisers Act (SEC File No. 801-15908).

ITEM 27. PRINCIPAL UNDERWRITERS

(a)    Not Applicable
(b)    Not Applicable
(c)    Not Applicable

<PAGE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

The books,  accounts,  and other documents  required to be maintained by Section
31(a) under the 1940 Act and the rules promulgated thereunder will be maintained
at the offices of Registrant;  Registrant's  Transfer Agent, The Vanguard Group,
Inc.,  100  Vanguard   Boulevard,   Malvern,  PA  19355;  and  the  Registrant's
Custodians, State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110, and First Union National Bank, PA4943,  530 Walnut Street,  Philadelphia,
PA 19106.

ITEM 29. MANAGEMENT SERVICES

Other than as set forth under the description of The Vanguard Group in Part B of
this   Registration   Statement,   the   Registrant   is  not  a  party  to  any
management-related service contract.

ITEM 30. UNDERTAKINGS

Not Applicable

<PAGE>

                                   SIGNATURES


Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company  Act of  1940,  the  Registrant  hereby  certifies  that  it  meets  all
requirements for effectiveness of this Registration  Statement  pursuant to Rule
485(b) under the  Securities  Act of 1933 and has duly caused this  Registration
Statement  to be  signed  on its  behalf  by  the  undersigned,  thereunto  duly
authorized, in the Town of Valley Forge and the Commonwealth of Pennsylvania, on
the 16th day of January, 2001.



                                                    VANGUARD FENWAY FUNDS

                                            BY:_________________________________
                                                          (signature)
                                                         (HEIDI STAM)
                                                       JOHN J. BRENNAN*
                                            CHAIRMAN AND CHIEF EXECUTIVE OFFICER


Pursuant to the requirements of the Securities Act of 1933, this  Post-Effective
Amendment to the  Registration  Statement has been signed below by the following
persons in the capacities and on the date indicated:

SIGNATURE                     TITLE                           DATE
--------------------------------------------------------------------------------

By:/S/ JOHN J. BRENNAN        President, Chairman, Chief      January 16, 2001
   ---------------------------Executive Officer, and Trustee
       (Heidi Stam)
      John J. Brennan*


By:/S/ CHARLES D. ELLIS       Trustee                         January 16, 2001
   ---------------------------
       (Heidi Stam)
     Charles D. Ellis*


By:/S/ JOANN HEFFERNAN HEISEN Trustee                         January 16, 2001
   ---------------------------
       (Heidi Stam)
     JoAnn Heffernan Heisen*


By:/S/ BRUCE K. MACLAURY      Trustee                         January 16, 2001
   ---------------------------
       (Heidi Stam)
      Bruce K. MacLaury*


By:/S/ ALFRED M. RANKIN, JR.  Trustee                         January 16, 2001
   ---------------------------
       (Heidi Stam)
     Alfred M. Rankin, Jr.*


By:/S/ JAMES O. WELCH, JR.    Trustee                         January 16, 2001
   ---------------------------
       (Heidi Stam)
     James O. Welch, Jr.*


By:/S/ J. LAWRENCE WILSON     Trustee                         January 16, 2001
   ---------------------------
       (Heidi Stam)
     J. Lawrence Wilson*


By:/S/ THOMAS J. HIGGINS      Treasurer and Principal         January 16, 2001
   ---------------------------Financial Officer and Principal
       (Heidi Stam)           Accounting Officer
      Thomas J. Higgins*


*By Power of  Attorney.  See File Number  33-4424,  filed on January  25,  1999.
 Incorporated by Reference.

<PAGE>

                                INDEX TO EXHIBITS


Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . . .Ex-99.BD
Consent of Independent Accountants. . . . . . . . . . . . . . . . . . .Ex-99.BJ



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