VANGUARD INSTITUTIONAL INDEX FUND, 485APOS, 2000-02-18

VANGUARD INSTITUTIONAL INDEX FUND
485APOS, 2000-02-18

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 33-34494) UNDER THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 18

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 19

VANGUARD INSTITUTIONAL INDEX FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)

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

REGISTRANT'S TELEPHONE NUMBER (610) 669-1000

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

IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
ON APRIL 21, 2000 PURSUANT TO PARAGRAPH (A) OF RULE 485.

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

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<PAGE>

VANGUARD(R) INSTITUTIONAL INDEX FUND
INSTITUTIONAL SHARES AND
INSTITUTIONAL PLUS SHARES

VANGUARD(R) U.S. STOCK INDEX FUNDS
INSTITUTIONAL SHARES

Prospectus
April 21, 2000

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

VANGUARD INSTITUTIONAL
INDEX FUND

INSTITUTIONAL SHARES

INSTITUTIONAL PLUS
SHARES

VANGUARD U.S. STOCK
INDEX FUNDS
INSTITUTIONAL SHARES OF:

VANGUARD TOTAL STOCK
MARKET INDEX FUND

VANGUARD EXTENDED
MARKET INDEX FUND

VANGUARD MID-CAP
INDEX FUND

VANGUARD SMALL-CAP
INDEX FUND

VANGUARD VALUE
INDEX FUND

VANGUARD SMALL-CAP
VALUE INDEX FUND

VANGUARD GROWTH
INDEX FUND

VANGUARD SMALL-CAP
GROWTH INDEX FUND

[MEMBERS OF
THE VANGUARD GROUP LOGO]

<PAGE>

VANGUARD INSTITUTIONAL INDEX FUND
VANGUARD U.S. STOCK INDEX FUNDS
Prospectus
April 21, 2000

<TABLE>
<CAPTION>
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CONTENTS
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<S> <C>
1 FUND PROFILES 31 THE FUNDS AND VANGUARD

1 VANGUARD INSTITUTIONAL INDEX FUND 32 INVESTMENT ADVISER
INSTITUTIONAL AND INSTITUTIONAL PLUS SHARES
4 VANGUARD TOTAL STOCK MARKET INDEX FUND 32 DIVIDENDS, CAPITAL GAINS, AND TAXES
INSTITUTIONAL SHARES
6 VANGUARD EXTENDED MARKET INDEX FUND 34 SHARE PRICE
INSTITUTIONAL SHARES
9 VANGUARD MID-CAP INDEX FUND 34 FINANCIAL HIGHLIGHTS
INSTITUTIONAL SHARES
12 VANGUARD SMALL-CAP INDEX FUND 40 INVESTING WITH VANGUARD
INSTITUTIONAL SHARES 40 SERVICES AND ACCOUNT FEATURES
15 VANGUARD VALUE INDEX FUND 41 TYPES OF ACCOUNTS
INSTITUTIONAL SHARES 41 BUYING SHARES
18 VANGUARD SMALL-CAP VALUE INDEX FUND 43 REDEEMING SHARES
INSTITUTIONAL SHARES 46 TRANSFERRING REGISTRATION
21 VANGUARD GROWTH INDEX FUND 46 FUND AND ACCOUNT UPDATES
INSTITUTIONAL SHARES
24 VANGUARD SMALL-CAP GROWTH INDEX FUND 47 MANDATORY CONVERSION TO INSTITUTIONAL
INSTITUTIONAL SHARES OR INVESTOR SHARES

27 MORE ON THE FUNDS GLOSSARY (inside back cover)
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</TABLE>

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WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of certain
Vanguard index funds. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk(R)" explanations along the way. Reading
the prospectus will help you to decide which Funds, if any, are the right
investments for you. We suggest that you keep it for future reference.
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OTHER CLASSES OF SHARES AND OTHER PROSPECTUSES
Vanguard currently offers nine U.S. stock index funds. Each of these funds,
other than Vanguard 500 Index Fund, issues two classes of shares: Institutional
Shares and Investor Shares. Institutional Shares are intended for persons that
are investing at least $10 million and that generally do not require special
employee benefit services. For those wishing to invest at least $10 million in
an S&P 500 index fund and who generally do not require special employee benefit
services, Vanguard offers the Vanguard Institutional Index Fund. This Fund
issues Institutional Shares for those investing less than $200 million, and
Institutional Plus Shares for those investing $200 million or more.

This prospectus describes the Institutional Shares offered by each of the
Vanguard U.S. Stock Index Funds (other than Vanguard 500 Index Fund, which does
not offer Institutional Shares) and the Institutional Shares and Institutional
Plus Shares offered by Vanguard Institutional Index Fund. If you are interested
in purchasing Investor Shares, please call Vanguard at 1-800-662-7447 (or
1-800-523-1036 if you will be purchasing through an employer-sponsored
retirement plan).

Note that the Funds' separate share classes have different expenses; as a
result, their investment performances will vary.
- -------------------------------------------------------------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>

FUND PROFILE--VANGUARD INSTITUTIONAL INDEX FUND INSTITUTIONAL AND INSTITUTIONAL
PLUS SHARES

The following profile summarizes key features of Vanguard Institutional Index
Fund Institutional and Institutional Plus Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of large-capitalization stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's 500 Composite Stock Price Index, which is dominated by
the stocks of large U.S. companies.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from large-capitalization stocks will trail returns from other
asset classes or the overall stock market. Large-capitalization stocks tend
to go through cycles of doing better--or worse--than the stock market in
general. These periods have, in the past, lasted for as long as several
years.

PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the performance of the Fund's Institutional Shares
in each calendar year since the Fund's inception. (Performance information for
the Institutional Plus Shares would have been substantially similar because both
classes of shares are invested in the same portfolio securities; their returns
differ only to the extent of the differences between the expenses of the two
classes.) The table shows how the Fund's average annual total returns for one
and five calendar years and since inception (for Institutional Shares) and for
one calendar year and since inception (for Institutional Plus Shares) compare
with those of the index that the Fund seeks to track. Keep in mind that the
Fund's past performance does not indicate how it will perform in the future.

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------

CHART GOES HERE

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

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).
<PAGE>

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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
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SINCE
1 YEAR 5 YEARS INCEPTION*
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Vanguard Institutional Index Fund % % %
S&P 500 Index . . .
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*July 31, 1990.
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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
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SINCE
1 YEAR 5 YEARS INCEPTION*
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Vanguard Institutional Index Fund % % %
Institutional Plus Shares
S&P 500 Index . . .
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*July 7, 1997.
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FEES AND EXPENSES
The following table describes the fees and expenses you would pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended December 31, 1999.

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

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

INSTITUTIONAL PLUS SHARES
ANNUAL FUND OPERATING EXPENSES (expenses deducted from the
Fund's assets)
Management Expenses: .%
12b-1 Distribution Fee: None
Other Expenses: .%
TOTAL ANNUAL FUND OPERATING EXPENSES: .%

*Applies to both Institutional and Institutional Plus Shares.
**The Fund reserves the right to deduct a transaction fee, ranging from 0.07% to
0.12%, from purchases of shares.

The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain
<PAGE>

the same. The results apply whether or not you redeem your investment at the end
of each period.

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1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Institutional Shares $. $. $. $.
Institutional Plus Shares . . . .
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THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION--INSTITUTIONAL SHARES

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are distributed quarterly in March, InstIdx
June, September, and December; capital gains, if
any, are distributed annually in December VANGUARD FUND NUMBER
094
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., since CUSIP NUMBER
inception 922040100

INCEPTION DATE TICKER SYMBOL
July 31, 1990 VINIX

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

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ADDITIONAL INFORMATION--INSTITUTIONAL PLUS SHARES

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are distributed quarterly in March, InstPlus
June, September, and December; capital gains, if
any, are distributed annually in December VANGUARD FUND NUMBER
854
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., since CUSIP NUMBER
inception 922040209

INCEPTION DATE TICKER SYMBOL
July 7, 1997 VIIIX

NET ASSETS AS OF DECEMBER 31, 1999
$. billion
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<PAGE>

FUND PROFILE--VANGUARD TOTAL STOCK MARKET INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Total Stock Market
Index Fund Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of the overall stock market.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Wilshire 5000 Equity Index, which consists of all the U.S. common stocks
regularly traded on the New York and American Stock Exchanges and the Nasdaq
over-the-counter market. The Fund invests in selected stocks that comprise the
Index.

PRIMARY RISK
THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN A
WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG PERIODS.
Stock markets tend to move in cycles, with periods of rising prices and periods
of falling prices.

PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year since
inception of the Institutional class of shares. The table shows how the Fund's
average annual total returns for one calendar year and since inception compare
with those of the index that the Fund seeks to track. Keep in mind that the
Fund's past performance does not indicate how it will perform in the future.

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------

CHART GOES HERE

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

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
SINCE
1 YEAR INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Total Stock Market Index Fund
Institutional Shares .% .%
Wilshire 5000 Index . .
- --------------------------------------------------------------------------------
*July 7, 1997.
- --------------------------------------------------------------------------------

<PAGE>

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

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

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

*The Fund reserves the right to deduct a transaction fee, ranging from 0.07% to
0.12%, from purchases of shares.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

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

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are distributed quarterly in March, TotStIst
June, September, and December; capital gains, if
any, are distributed annually in December VANGUARD FUND NUMBER
855
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., since CUSIP NUMBER
inception 922908801

INCEPTION DATE TICKER SYMBOL
July 7, 1997 VITSX

NET ASSETS AS OF DECEMBER 31, 1999
$. billion
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<PAGE>

FUND PROFILE--VANGUARD EXTENDED MARKET INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Extended Market Index
Fund Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of mid- and small-capitalization stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Wilshire 4500 Equity Index, a broadly diversified index of stocks of
medium-size and small U.S. companies. The Wilshire 4500 Index contains all of
the U.S. common stocks regularly traded on the New York and American Stock
Exchanges and the Nasdaq over-the-counter market, except those stocks included
in the S&P 500 Index. The Fund invests in selected stocks that comprise the
Index.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from mid- or small-capitalization stocks will trail returns from
other asset classes or the overall stock market. Small- and mid-cap stocks
historically have been more volatile in price than the large-cap stocks
that dominate the S&P 500 Index, and perform differently than the overall
stock market.

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------

CHART GOES HERE

----------------------------------------------------
Return figures do not reflect the transaction fee on purchases.

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Extended Market Index Fund .% .%
Institutional Shares**
Wilshire 4500 Index . .
- --------------------------------------------------------------------------------
*July 7, 1997.
**Return figures reflect the transaction fee of 0.25% on purchases.
- --------------------------------------------------------------------------------

SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 0.25%*
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: .%
12b-1 Distribution Fee: None
Other Expenses: .%
TOTAL ANNUAL FUND OPERATING EXPENSES: .%

*The transaction fee is deducted from all purchases (including exchanges from
other Vanguard funds), but not from reinvested dividends or capital gains.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

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

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December ExtndIst

INVESTMENT ADVISER VANGUARD FUND NUMBER
The Vanguard Group, Valley Forge, Pa., since 856
inception
CUSIP NUMBER
INCEPTION DATE 922908884
July 7, 1997
TICKER SYMBOL
NET ASSETS AS OF DECEMBER 31, 1999 VIEIX
$. billion
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<PAGE>

FUND PROFILE--VANGUARD MID-CAP INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Mid-Cap Index Fund
Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of mid-capitalization stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's MidCap 400 Index, which is made up of a group of
medium-size U.S. companies. The Fund invests in the stocks that comprise the
Index.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from mid-capitalization stocks will trail returns from other asset
classes or the overall stock market. Mid-cap stocks historically have been
more volatile in price than the large-cap stocks that dominate the S&P 500
Index, and perform differently than the overall stock market.

PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in the one full calendar
year since inception of the Institutional class of shares. The table shows how
the Fund's average annual total returns for one year and since inception compare
with those of the index that the Fund seeks to track. Keep in mind that the
Fund's past performance does not indicate how it will perform in the future.

----------------------------------------------------
ANNUAL TOTAL RETURN
----------------------------------------------------

CHART GOES HERE

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

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Mid-Cap Index Fund
Institutional Shares .% .%
S&P's MidCap 400 Index . .
- --------------------------------------------------------------------------------
*May 21, 1998.
- --------------------------------------------------------------------------------

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

*The Fund reserves the right to deduct a transaction fee, ranging from 0.07% to
0.12%, from purchases of shares.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

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

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December MidCpIst

INVESTMENT ADVISER VANGUARD FUND NUMBER
The Vanguard Group, Valley Forge, Pa., since 864
inception
CUSIP NUMBER
INCEPTION DATE 922908835
May 21, 1998
TICKER SYMBOL
NET ASSETS AS OF DECEMBER 31, 1999 VMCIX
$. billion
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE--VANGUARD SMALL-CAP INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Small-Cap Index Fund
Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of small-capitalization stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Russell 2000 Small Stock Index, which is made up of the stocks of smaller
U.S. companies. The Russell 2000 Index is comprised of the 2,000 smallest
companies out of the 3,000 largest U.S. companies. The Fund invests in selected
stocks that comprise the Index.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from small-capitalization stocks will trail returns from other
asset classes or the overall stock market. Small-cap stocks historically
have been more volatile in price than the large-cap stocks that dominate
the S&P 500 Index, and perform differently than the overall stock market.

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------

CHART GOES HERE

----------------------------------------------------
Return figures do not reflect the transaction fee on purchases.

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Small-Cap Index Fund
Institutional Shares** .% .%
Russell 2000 Index . .
- --------------------------------------------------------------------------------
*July 7, 1997.
**Return figures reflect the transaction fee of 0.50% on purchases.
- --------------------------------------------------------------------------------

SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Transaction Fee on Purchases: 0.50%*
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: .%
12b-1 Distribution Fee: None
Other Expenses: .%
TOTAL ANNUAL FUND OPERATING EXPENSES: .%

*The transaction fee is deducted from all purchases (including exchanges from
other Vanguard funds), but not from reinvested dividends or capital gains.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

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

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December SmCapIst

INVESTMENT ADVISER VANGUARD FUND NUMBER
The Vanguard Group, Valley Forge, Pa., since 857
inception
CUSIP NUMBER
INCEPTION DATE 922908876
July 7, 1997
TICKER SYMBOL
NET ASSETS AS OF DECEMBER 31, 1999 VSCIX
$. billion
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE--VANGUARD VALUE INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Value Index Fund
Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of large-capitalization value stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's 500/BARRA Value Index, which includes those stocks of
the S&P 500 Index with lower than average price/book ratios. The Fund invests in
the stocks that comprise the Index.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from large-capitalization value stocks will trail returns from
other asset classes or the overall stock market. Value stocks tend to go
through cycles of doing better--or worse--than the stock market in general.
These periods have, in the past, lasted for as long as several years.

PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in the one full calendar
year since inception of the Institutional class of shares. The table shows how
the Fund's average annual total returns for one calendar year and since
inception compare with those of the index that the Fund seeks to track. Keep in
mind that the Fund's past performance does not indicate how it will perform in
the future.

----------------------------------------------------
ANNUAL TOTAL RETURN
----------------------------------------------------

CHART GOES HERE

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

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Value Index Fund Institutional Shares .% .%
S&P 500/BARRA Value Index . .
- --------------------------------------------------------------------------------
*July 2, 1998.
- --------------------------------------------------------------------------------

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

*The Fund reserves the right to deduct a transaction fee, ranging from 0.07% to
0.12%, from purchases of shares.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

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

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are distributed quarterly in March, ValueIst
June, September, and December; capital gains, if
any, are distributed annually in December VANGUARD FUND NUMBER
867
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., since CUSIP NUMBER
inception 922908850

INCEPTION DATE TICKER SYMBOL
July 2, 1998 VIVIX

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

<PAGE>

FUND PROFILE--VANGUARD SMALL-CAP VALUE INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Small-Cap Value Index
Fund Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of small-capitalization value stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's SmallCap 600/BARRA Value Index, which includes those
stocks of the S&P SmallCap 600 Index with lower than average price/book ratios.
The Fund invests in the stocks that comprise the Index.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from small-capitalization value stocks will trail returns from
other asset classes or the overall stock market. Value stocks tend to go
through cycles of doing better--or worse--than the stock market in general.
In addition, small-cap stocks historically have been more volatile in price
than the large-cap stocks that dominate the S&P 500 Index, and perform
differently than the overall stock market.

----------------------------------------------------
ANNUAL TOTAL RETURN
----------------------------------------------------

CHART GOES HERE

----------------------------------------------------
The return figure does not reflect the transaction fee on purchases.

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

<PAGE>
19

1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Small-Cap Value Index Fund
Institutional Shares** .% .%
S&P's SmallCap 600/BARRA Value Index Fund . .
- --------------------------------------------------------------------------------
*May 21, 1998.
**Return figures reflect the transaction fee of 0.50% on purchases.
- --------------------------------------------------------------------------------

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

*The transaction fee is deducted from all purchases (including exchanges from
other Vanguard funds), but not from reinvested dividends or capital gains.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

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

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December SmValIst

INVESTMENT ADVISER VANGUARD FUND NUMBER
The Vanguard Group, Valley Forge, Pa., since 865
inception
CUSIP NUMBER
INCEPTION DATE 922908785
May 21, 1998

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

<PAGE>

FUND PROFILE--VANGUARD GROWTH INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Growth Index Fund
Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of large-capitalization growth stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's 500/BARRA Growth Index, which includes those stocks of
the S&P 500 Index with higher than average price/book ratios. The Fund invests
in the stocks that comprise the Index.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from large-capitalization growth stocks will trail returns from
other asset classes or the overall stock market. Growth stocks tend to go
through cycles of doing better--or worse--than the stock market in general.
These periods have, in the past, lasted for as long as several years.

PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in the one full calendar
year since inception of the Institutional class of shares. The table shows how
the Fund's average annual total returns for one calendar year and since
inception compare with those of the index that the Fund seeks to track. Keep in
mind that the Fund's past performance does not indicate how it will perform in
the future.

----------------------------------------------------
ANNUAL TOTAL RETURN
----------------------------------------------------

CHART GOES HERE

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

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Growth Index Fund Institutional Shares .% .%
S&P 500/BARRA Growth Index . .
- --------------------------------------------------------------------------------
*May 14, 1998.
- --------------------------------------------------------------------------------

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

*The Fund reserves the right to deduct a transaction fee, ranging from 0.07% to
0.12%, from purchases of shares.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

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

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are distributed quarterly in March, GrowthIst
June, September, and December; capital gains, if
any, are distributed annually in December VANGUARD FUND NUMBER
868
INVESTMENT ADVISER
The Vanguard Group, Valley Forge, Pa., since CUSIP NUMBER
inception 922908868

INCEPTION DATE TICKER SYMBOL
May 14, 1998 VIGIX

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

<PAGE>

FUND PROFILE--VANGUARD SMALL-CAP GROWTH INDEX FUND INSTITUTIONAL SHARES

The following profile summarizes key features of Vanguard Small-Cap Growth Index
Fund Institutional Shares.

INVESTMENT OBJECTIVE
The Fund seeks to match the performance of a benchmark index that measures the
investment return of small-capitalization growth stocks.

INVESTMENT STRATEGIES
The Fund employs a passive management strategy designed to track the performance
of the Standard & Poor's SmallCap 600/BARRA Growth Index, which includes those
stocks of the S&P SmallCap 600 Index with higher than average price/book ratios.
The Fund invests in the stocks that comprise the Index.

PRIMARY RISKS
- - THE FUND'S TOTAL RETURN, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE WITHIN
A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
- - The Fund is also subject to investment style risk, which is the chance that
returns from small-capitalization growth stocks will trail returns from
other asset classes or the overall stock market. Growth stocks tend to go
through cycles of doing better--or worse--than the stock market in general.
In addition, small-cap stocks historically have been more volatile in price
than the large-cap stocks that dominate the S&P 500 Index, and perform
differently than the overall stock market.

----------------------------------------------------
ANNUAL TOTAL RETURN
----------------------------------------------------

CHART GOES HERE

----------------------------------------------------
The return figure does not reflect the transaction fee on purchases.

During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ended .) and the lowest return for a quarter was .%
(quarter ended .).

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- --------------------------------------------------------------------------------
Vanguard Small-Cap Growth Index Fund
Institutional Shares .% .%
S&P's SmallCap 600/BARRA Growth Index . .
- --------------------------------------------------------------------------------
*May 21, 1998.
**Return figures reflect the transaction fee of 0.50% on purchases.
- --------------------------------------------------------------------------------

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

*The transaction fee is deducted from all purchases (including exchanges from
other Vanguard funds), but not from reinvested dividends or capital gains.

- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
$. $. $. $.
- --------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December SmGthIst

INVESTMENT ADVISER VANGUARD FUND NUMBER
The Vanguard Group, Valley Forge, Pa., since 866
inception
CUSIP NUMBER
INCEPTION DATE 922908819
May 21, 1998

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

<PAGE>

MORE ON THE FUNDS

The following sections discuss other important features of Vanguard
Institutional Index Fund and the Vanguard U.S. Stock Index Funds.

INDEXING METHODS
In seeking to track a particular index, a fund generally uses one of two methods
to select stocks.
Some index funds hold each stock found in their target indexes in about the
same proportions as represented in the indexes themselves. This is called a
"replication" method. For example, if 5% of the S&P 500 Index were made up of
the stock of a specific company, a fund tracking that index (such as the
Institutional Index Fund) would invest about 5% of its assets in that company.
The Institutional Index Fund and the Mid-Cap, Value, Small-Cap Value, Growth,
and Small-Cap Growth Index Funds employ this method of indexing.
Because it would be very expensive to buy and sell all of the stocks held
in certain indexes (the Wilshire 5000 Index, for example, includes more than
7,200 stocks), funds tracking these larger indexes use a "sampling" technique.
Using a sophisticated computer program, these funds invest in a representative
sample of stocks from their target index that will resemble the full index in
terms of industry weightings, market capitalization, price/earnings ratio,
dividend yield, and other characteristics. For instance, if 10% of the Wilshire
5000 Index were made up of utility stocks, the Total Stock Market Index Fund
would invest about 10% of its assets in some--but not all--of those utility
stocks. The particular utility stocks selected by the Fund, as a group, would
have investment characteristics similar to those of the utility stocks in the
Index. The Total Stock Market, Extended Market, and Small-Cap Index Funds employ
this method of indexing.

The following table shows the number of stocks held by each of the Funds as
of December 31, 1999.

- --------------------------------------------------------------------------------
FUND NUMBER OF STOCKS HELD NUMBER OF STOCKS IN TARGET INDEX
- --------------------------------------------------------------------------------
Institutional Index . .
Total Stock Market . .
Extended Market . .
Mid-Cap . .
Small-Cap . .
Value . .
Small-Cap Value . .
Growth . .
Small-Cap Growth . .
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
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 values. 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 have above-average dividend
yields. Growth and value stocks have, in the past, produced similar long-term
returns, though each category has periods when it outperforms the other. In
general, growth funds appeal to investors who will accept more volatility in
hopes of a greater increase in share price. Growth funds also may appeal to
investors with taxable accounts who want a higher proportion of returns to come
as capital gains (which may be taxed at lower rates than dividend income). Value
funds, by contrast, are appropriate for investors who want some dividend income
and the potential for capital gains, but are less tolerant of share-price
fluctuations.
- --------------------------------------------------------------------------------

ADDITIONAL RISK INFORMATION

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

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

- --------------------------------------------------------------------------------
U.S. STOCK MARKET RETURNS (1926-1999)
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
- --------------------------------------------------------------------------------
Best 54.2% 28.6% 19.9% 17.9%
Worst -43.1 -12.4 -0.9 3.1
Average 13.2 11.0 11.1 11.1
- --------------------------------------------------------------------------------

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 11.0%, returns for individual 5-year periods
ranged from a -12.4% average (from 1928 through 1932) to 28.6% (from 1995
through 1999). These average returns reflect past performance on common stocks;
you should not regard them as an indication of future returns from either the
stock market as a whole or any Fund in particular.

<PAGE>

Even indexes that are subsets of the S&P 500 Index--such as the S&P
500/BARRA Value Index and the S&P 500/BARRA Growth Index (the target indexes for
the Value and Growth Index Funds)--will not perform in the same way as the
broader S&P 500 Index. Historically, stocks of the S&P 500/BARRA Value Index
have been less volatile than the stocks found in the broader S&P 500 Index;
stocks of the S&P 500/BARRA Growth Index, on the other hand, have displayed
somewhat greater short-term volatility than the S&P 500 Index's stocks. However,
both value and growth stocks have the potential at times to be more volatile
than the broader market.

[FLAG]THE FUNDS ARE ALSO SUBJECT, IN VARYING DEGREES, TO INVESTMENT STYLE RISK,
WHICH IS THE POSSIBILITY THAT RETURNS FROM A SPECIFIC TYPE OF STOCK (FOR
INSTANCE, SMALL-CAP OR VALUE) WILL TRAIL RETURNS FROM OTHER ASSET CLASSES
OR THE OVERALL STOCK MARKET. EACH TYPE OF STOCK TENDS TO GO THROUGH CYCLES
OF DOING BETTER--OR WORSE--THAN COMMON STOCKS IN GENERAL. THESE PERIODS
HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL YEARS.

RISK OF NONDIVERSIFICATION
[FLAG] As index funds, each of the Vanguard U.S. Stock Index Funds holds the
largest stocks in its target index in approximately the same percentages as
those stocks are represented in its index. When a target index becomes less
diversified, a Fund which tracks that index similarly becomes less diversified.
This has happened to Vanguard Growth Index Fund. Due to the rapid appreciation
of certain stocks in its target index, the Fund's top four holdings, as of the
date of this prospectus, represent more than 25% of its total assets. By
tracking its target index, the Fund technically has become "nondiversified"
under SEC standards, although it continues to hold more than 100 stock positions
in a variety of market sectors. As the market values of the Fund's largest
holdings rise and fall, there may be times when the Fund is diversified under
SEC standards and other times when it is not. Shareholders in Vanguard Growth
Index Fund are subject to the risk that the Fund's performance could be hurt
disproportionately by a decline in the price of just a few stocks.
In the unlikely event that the target index of any other Vanguard U.S.
Stock Index Fund becomes dominated by just a few companies, shareholders in that
Fund would similarly be subject to the risk of nondiversification.

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

Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization.
Market capitalization changes over time, and there is no "official" definition
of the boundaries of large-, mid-, and small-cap stocks. Vanguard generally
defines large-capitalization (large-cap) funds as those holding stocks of
companies whose outstanding shares have a market value exceeding $12 billion;
mid-cap funds as those holding stocks of companies with a market value between
$1 billion and $12 billion; and small-cap funds as those typically holding
stocks of companies with a market value of less than $1 billion. Vanguard
periodically reassesses these classifications.
- --------------------------------------------------------------------------------

<PAGE>

TRANSACTION FEES
Some of Vanguard's index funds charge a transaction fee on purchases of fund
shares to offset the higher costs of trading certain securities, particularly
small-company stocks. The transaction fee ensures that these higher costs are
borne by the investors making the transactions--and not by shareholders already
in the fund. All transaction fees are paid directly into the fund itself (unlike
the sales charge or load imposed by many fund companies, which ends up in the
pocket of the sponsor, adviser, or sales representative). Without transaction
fees, some index funds would have trouble tracking their target indexes.

COSTS AND MARKET-TIMING
Some investors try to profit from a strategy called market-timing--switching
money into investments when they expect prices to rise, and taking money out
when they expect prices to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Vanguard Institutional Index Fund and the Vanguard U.S. Stock
Index Funds have adopted the following policies, among others, designed to
discourage short-term trading:
- - Each Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. A purchase request could be rejected
because of the timing of the investment or because of a history of
excessive trading by the investor.
- - Four of the Funds (Extended Market, Small-Cap, Small-Cap Value, and
Small-Cap Growth) charge a transaction fee on purchases. The other Funds
reserve the right to impose such a fee on selected purchases.
- - There is a limit on the number of times you can exchange into and out of a
Fund (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).
- - Telephone and online exchanges are not permitted for non-IRA accounts.

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

TURNOVER RATE
Generally, a passively managed fund sells securities only to respond to
redemption requests or to adjust the number of shares held to reflect a change
in the fund's target index. Turnover rates for large-cap stock index funds tend
to be very low because large-cap indexes, such as the S&P 500, typically do not
change much from year to year. Turnover rates for mid-cap and small-cap stock
index funds tend to be higher (although still relatively low, compared to
actively managed stock funds) because the indexes they track are more likely to
change as a result of mergers, acquisitions, business failures, or growth of
companies than a larger-cap index. The turnover rate of each Fund for each of
the last five years (or since inception of the applicable share class, if
shorter) is shown in the FINANCIAL HIGHLIGHTS section of this prospectus.
<PAGE>

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

Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. As of December 31, 1999, the average turnover rate for
passively managed domestic equity index funds investing in common stocks was
approximately .%; for all domestic stock funds, the average turnover rate was
approximately .%, according to Morningstar, Inc. (A turnover rate of 100% would
occur, for example, if a fund sold and replaced securities valued at 100% of its
net assets within a one-year period.)
- --------------------------------------------------------------------------------

INVESTMENT POLICIES
Each Fund reserves the right to substitute a different index for the index it
currently tracks if the current index is discontinued or for any other reason
determined in good faith by the Fund's Board of Trustees. In every such
instance, the substitute index will measure the same general market (large-,
mid-, or small-cap, growth, or value) as the current index.
Each Fund may invest in foreign securities to the extent necessary to carry
out its investment strategy of holding all, or a representative sample, of the
stocks that comprise the index it tracks. It is not expected that any Fund will
invest more than 5% of its assets in foreign securities.
Although index funds, by their nature, tend to be tax-efficient investment
vehicles, the Funds generally are managed without regard to tax ramifications.
To track their target indexes as closely as possible, the Funds attempt to
remain fully invested in stocks. To help stay fully invested, and to reduce
transaction costs, the Funds may invest, to a limited extent, in stock futures
and options contracts, warrants, convertible securities, and swap agreements,
which are types of derivatives.
Losses (or gains) involving futures can sometimes be substantial--in part
because a relatively small price movement in a futures contract may result in an
immediate and substantial loss (or gain) for a fund. Similar risks exist for
warrants (securities that permit their owners to purchase a specific number of
stock shares at a predetermined price), convertible securities (securities that
may be exchanged for another asset), and swap agreements (contracts in which
each party agrees to make payments to the other based on the return of a
specified index or asset).

For this reason, the Funds will not use futures, options, warrants,
convertible securities, or swap agreements for speculative purposes or as
leveraged investments that magnify the gains or losses of an investment. A
Fund's obligation under futures contracts will not exceed 20% of that Fund's
total assets.

The reasons for which a Fund will invest in futures and options are:
- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
- - To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
<PAGE>

THE FUNDS AND VANGUARD

Vanguard U.S. Stock Index Funds are members of The Vanguard Group, a family of
more than 35 investment companies with more than 100 funds holding assets worth
more than $530 billion.* All of the funds that are members of The Vanguard Group
share in the expenses associated with business operations, such as personnel,
office space, equipment, and advertising.

Vanguard also provides marketing services to the member 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.

*Vanguard Institutional Index Fund is not a member of The Vanguard Group, but is
administered by Vanguard and pays Vanguard a fee to provide management,
advisory, marketing, and other services.

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

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

INVESTMENT ADVISER

The Vanguard Group (Vanguard), P.O. Box 2600, Valley Forge, PA 19482, founded in
1974, serves as the Funds' adviser through its Core Management Group. As of
December 31, 1999, Vanguard served as adviser for about $. in assets.
Under the terms of a service and advisory agreement, Vanguard pays for all
of the Institutional Index Fund's expenses (except taxes and brokerage
commissions). In turn, the Fund pays Vanguard a monthly management fee based on
an annual rate of 0.06% of the average daily net assets of the Institutional
Shares and 0.025% of the average daily net assets of the Institutional Plus
Shares. Vanguard manages the other Funds on an at-cost basis, subject to the
control of the Trustees and officers of the Funds.
For the fiscal year ended December 31, 1999, the Institutional Share
classes of the U.S. Stock Index Funds paid advisory fees at an effective annual
rate (applied to the average daily net assets of each Fund) of .%.
The Funds have authorized Vanguard to choose brokers or dealers to handle
the purchase and sale of securities for the Funds, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions. The Funds may direct Vanguard to use a particular broker for
certain transactions in exchange for commission rebates or research services
provided to the Funds.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUNDS' ADVISER

The individual responsible for overseeing each Fund's investments is:

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

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS
Each Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Income dividends for the Institutional Index Fund
(Institutional and Institutional Plus Shares) and the Total Stock Market, Value,
and Growth Index Funds generally are distributed in March, June, September, and
December; income dividends for the Extended Market, Mid-Cap, Small-Cap,
Small-Cap Value, and Small-Cap Growth Index Funds generally are distributed in
December. Capital gains distributions generally occur in December. In addition,
the Fund may occasionally be required to make supplemental dividend or capital
gains distributions at some other time during the year. You can receive
distributions of income dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.

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 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 as if received in December.
- - Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.
- - Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.
- - Capital gains distributions may vary considerably from year to year as a
result of the Funds' normal investment activities and cash flows.
- - A sale or exchange of Fund shares is a taxable event. This means that you
may have a capital gain to report as income, or a capital loss to report as
a deduction, when you complete your federal income tax return.
- - State and local income taxes may apply to any dividend or capital gains
distributions that you receive, as well as your gains or losses from any
sale or exchange of Fund shares.

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 identifi-

<PAGE>

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

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

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

<PAGE>

SHARE PRICE

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

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

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

FINANCIAL HIGHLIGHTS

The following financial highlights tables are intended to help you understand
each Fund's financial performance for the past five years or since inception*,
and certain information reflects financial results for a single Fund share in
each case. The total returns in each table represent the rate that an investor
would have earned or lost each 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 audited by PricewaterhouseCoopers
LLP, independent accountants, whose report--along with the Funds' financial
statements--is included in the Institutional Index Fund's and the U.S. Stock
Index Funds' most recent annual reports to shareholders. You may have the annual
reports for the Institutional Index Fund and the U.S. Stock Index Funds sent to
you without charge by contacting Vanguard.

*Because the Small-Cap Value and Small-Cap Growth Index Funds have not commenced
investment operations, tables are not included for these Funds.
<PAGE>

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

This explanation uses the Institutional Index Fund Institutional Shares as an
example. The Fund began fiscal 1999 with a net asset value (price) of $. per
share. During the year, the Fund earned $. per share from investment income
(interest and dividends) and $. per share from investments that had appreciated
in value or that were sold for higher prices than the Fund paid for them.

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

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

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
VANGUARD INSTITUTIONAL INDEX FUND
INSTITUTIONAL SHARES
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $. $89.56 $68.86 $57.93 $43.22
- --------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . 1.429 1.391 1.38 1.28
Net Realized and Unrealized Gain (Loss)
on Investments . 24.177 21.415 11.90 14.86
------------------------------------------------------------------
Total from Investment Operations . 25.606 22.806 13.28 16.14
------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (1.416) (1.391) (1.36) (1.27)
Distributions from Realized Capital Gains . (.900) (.715) (.99) (.16)
------------------------------------------------------------------
Total Distributions . (2.316) (2.106) (2.35) (1.43)
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $. $112.85 $89.56 $68.86 $57.93
========================================================================================================
TOTAL RETURN .% 28.79% 33.36% 23.06% 37.60%
========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $. $22,338 $15,348 $11,426 $6,674
Ratio of Total Expenses to Average
Net Assets .% 0.06% 0.06% 0.06% 0.06%
Ratio of Net Investment Income to Average
Net Assets .% 1.46% 1.77% 2.18% 2.49%
Turnover Rate* .% 11% 7% 9% 4%
========================================================================================================
</TABLE>
* Turnover rates excluding in-kind redemptions were 6%, 9%, 4%, 19%, and .%,
respectively.

<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
VANGUARD INSTITUTIONAL INDEX FUND
INSTITUTIONAL PLUS SHARES
YEAR ENDED DEC. 31,
--------------------------- JULY 7* TO
1999 1998 DEC. 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $. $89.56 $84.91
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . 1.464 .681
Net Realized and Unrealized Gain (Loss) on Investments . 24.177 5.455
------------------------------------------
Total from Investment Operations . 25.641 6.136
------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (1.451) (.866)
Distributions from Realized Capital Gains . (.900) (.620)
------------------------------------------
Total Distributions . (2.351) (1.486)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $. $112.85 $89.56
=================================================================================================
TOTAL RETURN .% 28.83% 7.29%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $. $4,951 $3,488
Ratio of Total Expenses to Average Net Assets .% 0.025% 0.025%**
Ratio of Net Investment Income to Average Net Assets .% 1.49% 1.72%**
Turnover Rate+ .% 11% 7%
- -------------------------------------------------------------------------------------------------
</TABLE>
* Inception.
** Annualized
+ Turnover rates excluding in-kind redemptions were 7%, 6%, and .%,
respectively.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
VANGUARD TOTAL STOCK MARKET INDEX FUND
INSTITUTIONAL SHARES
YEAR ENDED DEC. 31,
--------------------------- JULY 7* TO
1999 1998 DEC. 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $. $22.64 $21.27
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . .359 .172
Net Realized and Unrealized Gain (Loss) on Investments . 4.898 1.642
------------------------------------------
Total from Investment Operations . 5.257 1.814
------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (.352) (.214)
Distributions from Realized Capital Gains . (.125) (.230)
------------------------------------------
Total Distributions . (.477) (.444)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $. $27.42 $22.64
=================================================================================================
TOTAL RETURN .% 23.37% 8.60%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $. $2,445 $1,504
Ratio of Total Expenses to Average Net Assets .% 0.10% 0.10%**
Ratio of Net Investment Income to Average Net Assets .% 1.53% 1.70%**
Turnover Rate+ .% 3% 2%
- -------------------------------------------------------------------------------------------------
</TABLE>

* Inception.
** Annualized.
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
VANGUARD EXTENDED MARKET INDEX FUND
INSTITUTIONAL SHARES
YEAR ENDED DEC. 31,
--------------------------- JULY 7* TO
1999 1998 DEC. 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $. $30.76 $29.28
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . .427 .200
Net Realized and Unrealized Gain (Loss) on Investments . 2.025 3.191
------------------------------------------
Total from Investment Operations . 2.452 3.391
------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (.412) (.371)
Distributions from Realized Capital Gains . (2.170) (1.540)
------------------------------------------
Total Distributions . (2.582) (1.911)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $. $30.63 $30.76
=================================================================================================
TOTAL RETURN** .% 8.45% 11.82%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $. $456 $415
Ratio of Total Expenses to Average Net Assets .% 0.10% 0.10%+
Ratio of Net Investment Income to Average Net Assets .% 1.34% 1.43%+
Turnover Rate+ .% 27% 15%
- -------------------------------------------------------------------------------------------------
</TABLE>

* Inception.
** Total return figures do not reflect transaction fees on purchases (0.25%
after October 31, 1997; 0.5% from inception through October 31, 1997).
+ Annualized.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
VANGUARD MID-CAP INDEX FUND
INSTITUTIONAL SHARES
YEAR ENDED MAY 20* TO
DEC. 31,1999 DEC. 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $. $10.03
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . .055
Net Realized and Unrealized Gain (Loss) on Investments . .814
-----------------------------------
Total from Investment Operations . .869
-----------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (.059)
Distributions from Realized Capital Gains . (.050)
-----------------------------------
Total Distributions . (.109)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $. $10.79
=================================================================================================
TOTAL RETURN** .% 8.61%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $. $39
Ratio of Total Expenses to Average Net Assets .% 0.12%+
Ratio of Net Investment Income to Average Net Assets .% 1.30%+
Turnover Rate .% 44%
- -------------------------------------------------------------------------------------------------
</TABLE>

* Initial share purchase date. Subscription period for the Fund was April 20,
1998 to May 20, 1998, during which time all assets were held in money market
instruments. Performance measurement begins May 21, 1998.
** Total return does not reflect the 0.25% transaction fee on purchases imposed
prior to March 1, 1999.
+ Annualized.
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
VANGUARD SMALL-CAP INDEX FUND
INSTITUTIONAL SHARES
YEAR ENDED DEC. 31,
--------------------------- JULY 7* TO
1999 1998 DEC. 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $. $23.75 $22.56
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . .336 .158
Net Realized and Unrealized Gain (Loss) on Investments . (1.007) 2.370
------------------------------------------
Total from Investment Operations . (.671) 2.528
------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (.329) (.288)
Distributions from Realized Capital Gains . (1.550) (1.050)
------------------------------------------
Total Distributions . (1.879) (1.338)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $. $21.20 $23.75
=================================================================================================
TOTAL RETURN** .% -2.50% 11.42%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $. $264 $137
Ratio of Total Expenses to Average Net Assets .% 0.12% 0.12%+
Ratio of Net Investment Income to Average Net Assets .% 1.53% 1.52%+
Turnover Rate .% 35% 29%
- -------------------------------------------------------------------------------------------------
</TABLE>

* Inception.
** Total return figures do not reflect the 0.5% transaction fee on purchases.
+ Annualized.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
VANGUARD VALUE INDEX FUND
INSTITUTIONAL SHARES
YEAR ENDED JULY 2* TO
DEC. 31,1999 DEC. 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $. $23.22
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . .196
Net Realized and Unrealized Gain (Loss) on Investments . (.060)
-----------------------------------
Total from Investment Operations . .136
-----------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (.236)
Distributions from Realized Capital Gains . (.610)
-----------------------------------
Total Distributions . (.846)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $. $22.51
=================================================================================================
TOTAL RETURN .% 0.69%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $. $186
Ratio of Total Expenses to Average Net Assets .% 0.12%**
Ratio of Net Investment Income to Average Net Assets .% 1.90%**
Turnover Rate .% 33%
- -------------------------------------------------------------------------------------------------
</TABLE>

* Inception.
** Annualized.
<PAGE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
VANGUARD GROWTH INDEX FUND
INSTITUTIONAL SHARES
YEAR ENDED MAY 14* TO
DEC. 31,1999 DEC. 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $. $26.49
- -------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income . .167
Net Realized and Unrealized Gain (Loss) on Investments . 5.315
-----------------------------------
Total from Investment Operations . 5.482
-----------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . (.187)
Distributions from Realized Capital Gains . (.115)
-----------------------------------
Total Distributions . (.302)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $. $31.67
=================================================================================================
TOTAL RETURN .% 20.79%
=================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $. $224
Ratio of Total Expenses to Average Net Assets .% 0.12%**
Ratio of Net Investment Income to Average Net Assets .% 0.97%**
Turnover Rate .% 29%
- -------------------------------------------------------------------------------------------------
</TABLE>

* Inception.
** Annualized.

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," "500,"
"S&P MidCap 400," and "S&P SmallCap 600" are trademarks of The McGraw-Hill
Companies, Inc., and have been licensed for use by Vanguard U.S. Stock Index
Funds and The Vanguard Group. These mutual funds are not sponsored, endorsed,
sold, or promoted by Standard & Poor's, and Standard & Poor's makes no
representation regarding the advisability of investing in the Funds. "Wilshire
4500" and "Wilshire 5000" are registered trademarks of Wilshire Associates.
Frank Russell Company is the owner of the trademarks and copyrights relating to
the Russell Indexes.
<PAGE>

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

Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Vanguard can help. Our goal
is to make it easy and pleasant for you to do business with us.
The following sections of the prospectus briefly explain the many services
we offer. Booklets providing detailed information are available on the services
marked with a [BOOKLET]. Please call us to request copies.
- --------------------------------------------------------------------------------

SERVICES AND ACCOUNT FEATURES

Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS (SALES AND EXCHANGES)
Automatically set up for each Fund unless you notify us otherwise.

Note: Limitations do apply; see page 44.

- --------------------------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOKLET]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------

VANGUARD TELE-ACCOUNT(R) 1-800-662-6273 (ON-BOARD) [BOOKLET]
Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or ex-change shares to and from most
Vanguard funds.

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

ACCESS VANGUARD(TM) www.vanguard.com [COMPUTER]
You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through our website. We will then mail you an account access password
that allows you to process the following financial and administrative
transactions online:
- - Open a new account.*
- - Buy, sell, or exchange shares of most funds.
- - Change your name/address.
- - Add/change fund options (including dividend options, bank
instructions, checkwriting, and Vanguard Automatic Exchange Service).
(Some restrictions may apply.) Please call your assigned Service
Associate for assistance.

*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
SERVICES FOR CLIENTS OF VANGUARD'S INSTITUTIONAL DIVISION: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
<PAGE>

TYPES OF ACCOUNTS

Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
FOR ONE OR MORE PEOPLE
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
FOR HOLDING PERSONAL TRUST ASSETS [BOOKLET]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR AN ORGANIZATION [BOOKLET]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------

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

BUYING SHARES

You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value. You may convert Institutional
Shares of the Institutional Index Fund into Institutional Plus Shares, or may
convert Investor Shares of any U.S. Stock Index Fund (except the 500 Index Fund)
into Institutional Shares of the same Fund provided that you meet the minimum
initial investment requirements for such Shares.
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT TO . . .
open a new account
$10 million

add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
BY WIRE TO OPEN A NEW ACCOUNT OR ADD TO AN EXISTING ACCOUNT [WIRE]
Call your assigned Service Associate to arrange your wire transaction.

Wire to:
FRB ABA 021001088 HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard Institutional Index Fund-94
Vanguard Institutional Index Fund Institutional Plus Shares-854
<PAGE>

Vanguard Total Stock Market Index Fund Institutional Shares-855
Vanguard Extended Market Index Fund Institutional Shares-856
Vanguard Mid-Cap Index Fund Institutional Shares-864
Vanguard Small-Cap Index Fund Institutional Shares-857
Vanguard Value Index Fund Institutional Shares-867
Vanguard Small-Cap Value Index Fund Institutional Shares-865
Vanguard Growth Index Fund Institutional Shares-868
Vanguard Small-Cap Growth Index Fund Institutional Shares-866
[Account number, or temporary number for a new account]

[Registered account owner(s)]

[Registered address]
- --------------------------------------------------------------------------------

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

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

Make your check payable to: The Vanguard Group-(insert appropriate Fund number;
see below)
Vanguard Institutional Index Fund-94
Vanguard Institutional Index Fund Institutional Plus Shares-854
Vanguard Total Stock Market Index Fund Institutional Shares-855
Vanguard Extended Market Index Fund Institutional Shares-856
Vanguard Mid-Cap Index Fund Institutional Shares-864
Vanguard Small-Cap Index Fund Institutional Shares-857
Vanguard Value Index Fund Institutional Shares-867
Vanguard Small-Cap Value Index Fund Institutional Shares-865
Vanguard Growth Index Fund Institutional Shares-868
Vanguard Small-Cap Growth Index Fund Institutional Shares-866

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

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 100 Vanguard Boulevard
Valley Forge, PA 19482-2900 Malvern, PA 19355
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
BY TELEPHONE TO . . .[ENVELOPE]
open a new account

Call Vanguard Tele-Account* 24 hours a day--or your assigned Service Associate
during business hours--to exchange from another Vanguard fund account with the
same registration (name, address, taxpayer identification number, and account
type). (Note that some restrictions apply to index fund accounts.)

<PAGE>

add to an existing account
Call Vanguard Tele-Account* 24 hours a day--or your assigned Service Associate
during business hours--to exchange from another Vanguard fund account with the
same registration (name, address, taxpayer identification number, and account
type). (Note that some restrictions apply to index fund accounts.)

Vanguard Tele-Account
1-800-662-6273

*You must obtain a Personal Identification Number through Tele-Account at least
seven days before you request your first exchange.
- --------------------------------------------------------------------------------

IMPORTANT NOTE: Once you have initiated a telephone transaction and a
confirmation number has been assigned, the transaction cannot be revoked. We
reserve the right to refuse any purchase request.

- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check at any
time. However, while your redemption request will be processed at the
next-determined net asset value after it is received, your redemption proceeds
will not be available until payment for your purchase is collected, which may
take up to ten calendar days.
- --------------------------------------------------------------------------------

A NOTE ON LARGE PURCHASES It is important that you call Vanguard before you
invest a large dollar amount. It is our responsibility to consider the interests
of all Fund shareholders, and so we reserve the right to refuse any purchase
that may disrupt the Fund's operation or performance.

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

REDEEMING SHARES

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

When Selling Shares:
- Vanguard sends the redemption proceeds to you or a designated third
party.*
- You can sell all or part of your Fund shares at any time.

*May require a signature guarantee; see footnote on page 45.

When Exchanging Shares:
- The redemption proceeds are used to purchase shares of a different
Vanguard fund.
- You must meet the receiving fund's minimum investment requirements.
- Vanguard reserves the right to revise or terminate the exchange
privilege, limit the amount of an exchange, or reject an exchange at
any time, without notice.

- In order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification
number), you must include the guaranteed signatures of all current
account owners on your written instructions.

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

<PAGE>

HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of two ways: by
telephone (sell, but not exchange), or by mail.

The Vanguard funds whose shares you cannot exchange by telephone are
VANGUARD U.S. STOCK INDEX FUNDS, VANGUARD BALANCED INDEX FUND, VANGUARD
INTERNATIONAL STOCK INDEX FUNDS, VANGUARD REIT INDEX FUND,and VANGUARD GROWTH
AND INCOME FUND. These funds do, however, permit telephone exchanges within IRAs
and other retirement accounts.

- --------------------------------------------------------------------------------
TELEPHONE REQUESTS [TELEPHONE]
Call Vanguard Tele-Account 24 hours a day--or your assigned Service Associate
during business hours--to sell shares.
- --------------------------------------------------------------------------------
SPECIAL INFORMATION: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable to
provide:
- The ten-digit account number.
- The name and address exactly as registered on the account.
- The primary Social Security or employer identification number as
registered on the account.

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

Please note that Vanguard will not be responsible for any account losses
due to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A NOTE ON UNUSUAL CIRCUMSTANCES Vanguard reserves the right to revise or
terminate the telephone redemption privilege at any time, without notice. In
addition, Vanguard can stop selling shares or postpone payment at times when the
New York Stock Exchange is closed or under any emergency circumstances as
determined by the U.S. Securities and Exchange Commission. If you experience
difficulty making a telephone redemption during periods of drastic economic or
market change, you can send us your request by regular or express mail. Follow
the instructions on selling or exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
MAIL REQUESTS [ENVELOPE]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.
<PAGE>

It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may disrupt the Fund's operation or performance.
If you redeem more than $250,000 worth of Fund shares within any 90-day
period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in-kind, i.e., in securities, rather than in cash. If
payment is made in-kind, you may incur brokerage commissions if you elect to
sell the securities for cash.

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

OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of two ways: check, or exchange
to another Vanguard fund.
- --------------------------------------------------------------------------------
CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
EXCHANGE REDEMPTIONS
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------

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

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

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

TRANSACTIONS ARE PROCESSED AT THE NEXT-DETERMINED SHARE PRICE AFTER VANGUARD HAS
RECEIVED ALL REQUIRED INFORMATION.
- --------------------------------------------------------------------------------
LIMITS ON ACCOUNT ACTIVITY
Because excessive account transactions can disrupt management of the Fund and
increase the Fund's costs for all shareholders, Vanguard limits account activity
as follows:
- You may make no more than TWO SUBSTANTIVE "ROUND TRIPS" THROUGH THE
FUND during any 12-month period.
<PAGE>

- Your round trips through the Fund must be at least 30 days apart.
- The Fund may refuse a share purchase at any time, for any reason.
- Vanguard may revoke an investor's telephone exchange privilege at any
time, for any reason.

A "round trip" is a redemption from the Fund followed by a purchase back
into the Fund. Also, a "round trip" covers transactions accomplished by any
combination of methods, including transactions conducted by check, wire, or
exchange to/from another Vanguard fund. "Substantive" means a dollar amount that
Vanguard determines, in its sole discretion, could adversely affect the
management of the Fund.

- --------------------------------------------------------------------------------
ALL TRADES ARE FINAL

Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.
- --------------------------------------------------------------------------------
UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.

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

TRANSFERRING REGISTRATION

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

FUND AND ACCOUNT UPDATES

STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.

In addition, you will receive financial reports about the Fund twice a
year. These comprehensive reports include an assessment of the Fund's
performance (and a comparison to its industry benchmark), an overview of the
financial markets, a report from the advisers, and the Fund's financial
statements which include a listing of the Fund's holdings.
To keep the Fund's costs as low as possible (so that you and other
shareholders can keep more of the Fund's investment earnings), Vanguard attempts
to eliminate duplicate mailings to the same address. Whentwo or more Fund
shareholders have the same last name and address, we send just one Fund report
to that address--instead of mailing separate reports to each shareholder. If you
want us to send separate reports, notify our Institutional Division at
1-888-809-8102.

- --------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY [BOOKLET]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
FUND FINANCIAL REPORTS
Mailed in February and August for all nine Funds.
- --------------------------------------------------------------------------------
TAX STATEMENTS
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------

MANDATORY CONVERSION TO INSTITUTIONAL OR INVESTOR SHARES

Vanguard Institutional Index Fund reserves the right to convert an investor's
Institutional Plus Shares into Institutional Shares of the Fund if the
investor's account balance falls below $200 million. In addition, the
Institutional Index Fund reserves the right to redeem an investor's
Institutional Shares if the investor's account balance falls below $10 million.
The Total Stock Market, Extended Market, Mid-Cap, Small-Cap, Value, Small-Cap
Value, Growth, and Small-Cap Growth Index Funds each reserve the right to
convert an investor's Institutional Shares into Investor Shares of the same Fund
if the investor's account balance falls below $10 million. Any such conversion
will be preceded by written notice to the investor. No transaction fee will be
imposed on share-class conversions.

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

GLOSSARY OF INVESTMENT TERMS

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

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

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

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

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

DOLLAR-COST AVERAGING
Investing equal amounts of money at regular intervals on an ongoing basis. This
technique ensures that an investor buys fewer shares when prices are high and
more shares when prices are low.

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.

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

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

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.

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

PRINCIPAL
The amount of money you put into an investment.

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

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

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

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

[SHIP]
[THE VANGUARD GROUP LOGO]
Institutional Division
Post Office Box 2900
Valley Forge, PA 19482-2900

FOR MORE INFORMATION
If you'd like more information about
Vanguard Institutional Index Fund or
Vanguard U.S. Stock Index Funds,
the following documents are
available free upon request:

ANNUAL/SEMIANNUAL REPORT TO
SHAREHOLDERS
Additional information about the
Funds' investments is available in the
Funds'annual and semiannual
reports to shareholders. In these
reports, you will find a discussion
of the market conditions and
investment strategies that
significantly affected the Funds'
performance during the most recent
fiscal year. (The Institutional Index
Fund's reports are separate from
those of the U.S. Stock Index Funds.)

STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI provides more detailed
information about the Funds. (The
SAI for the Institutional Index Fund
is separate from that of the U.S.
Stock Index Funds.)

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

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

If you are an Individual Investor:
THE VANGUARD GROUP
INVESTOR INFORMATION
DEPARTMENT
P.O. BOX 2900
VALLEY FORGE, PA 19482-2900

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

TEXT TELEPHONE:
1-800-952-3335

If you are a client of Vanguard's
Institutional Division:
THE VANGUARD GROUP
INSTITUTIONAL INVESTOR
INFORMATION
P.O. BOX 2900
VALLEY FORGE, PA 19482-2900

TELEPHONE:
1-888-809-8102

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

Vanguard Institutional Index Fund's
Investment Company Act
file number: 811-6093

Vanguard U.S. Stock Index Funds'
Investment Company Act
file number: 811-2652

I854N-04/21/2000

<PAGE>

PART B

VANGUARD(R) INSTITUTIONAL INDEX FUND
(THE FUND)
STATEMENT OF ADDITIONAL INFORMATION

APRIL 21, 2000

This Statement is not a prospectus but should be read in conjunction with the
Fund's Prospectus dated April 21, 2000, as may be amended from time to time. To
obtain the Prospectus or an additional 1999 Annual Report to Shareholders, which
contains the Fund's financial statements as hereby incorporated by reference,
please call:

INSTITUTIONAL INVESTOR SERVICES DEPARTMENT

1-800-523-8066

TABLE OF CONTENTS

DESCRIPTION OF THE FUND......................................................B-.
INVESTMENT POLICIES..........................................................B-.
FUNDAMENTAL INVESTMENT LIMITATIONS...........................................B-.
PURCHASE OF SHARES...........................................................B-.
SHARE PRICE..................................................................B-.
REDEMPTION OF SHARES.........................................................B-.
MANAGEMENT OF THE FUND.......................................................B-.
PORTFOLIO TRANSACTIONS.......................................................B-.
FINANCIAL STATEMENTS.........................................................B-.
YIELD AND TOTAL RETURN.......................................................B-.
COMPARATIVE MEASURES.........................................................B-.

DESCRIPTION OF THE FUND

ORGANIZATION

The Fund was organized as a Pennsylvania business trust in 1990, and was
reorganized as a Delaware business trust in July, 1998. The Fund 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 investment company. It currently offers the following fund and
classes of shares:

Vanguard Institutional Index Fund--
Institutional Shares and Institutional Plus Shares

The Fund has the ability to offer additional funds or classes of shares.
There is no limit on the number of full and fractional shares that the Fund may
issue for a single fund or class of shares.

SERVICE PROVIDERS

CUSTODIAN. First Union National Bank, PA 4943, 530 Walnut Street,
Philadelphia, Pennsylvania 19106, serves as the Fund's custodian. The custodian
is responsible for maintaining the Fund's assets and keeping all necessary
accounts and records.

INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Fund's independent accountants.
The accountants audit the Fund's financial statements and provide other related
services.

B-1
<PAGE>

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

CHARACTERISTICS OF THE FUND'S SHARES

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

SHAREHOLDER LIABILITY. The Fund is 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 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 the Fund are entitled to receive any
dividends or other distributions declared by the Fund. No shares have priority
or preference over any other shares with respect to distributions. Distributions
will be made from the assets, and will be paid ratably to all shareholders of
the Fund (or class) according to the number of shares of the Fund (or class)
held by shareholders on the record date. The amount of income dividends per
share may vary between separate share classes based upon differences in the way
that expenses are allocated between share classes pursuant to the Fund's
multiple class plan.

VOTING RIGHTS. The Fund's shareholders are entitled to 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 class or series;
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 the Fund's net assets, and to change
any fundamental policy of the Fund. Fund shareholders 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 class affected by a particular matter are entitled to
vote on that matter. Voting rights are noncumulative 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 Fund's net assets.

PREEMPTIVE RIGHTS. There are no preemptive rights associated with shares of
the Fund.

CONVERSION RIGHTS. Fund shareholders may convert their shares into another
class of shares of the same fund upon the satisfaction of any then applicable
eligibility requirements.

REDEMPTION PROVISIONS. The Fund's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional
Information.

SINKING FUND PROVISIONS. The Fund has no sinking fund provisions.

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

TAX STATUS OF THE TRUST

The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. This special tax status means that
the Fund will not be liable for federal tax on income and capital gains
distributed to shareholders. In order to preserve its tax status, the Fund must
comply with certain requirements. If the 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.

B-2
<PAGE>

INVESTMENT POLICIES

REPURCHASE AGREEMENTS. The Fund 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 the 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 the Fund's custodial bank until repurchased. In
addition, the Board of Trustees will monitor the Fund's repurchase agreement
transactions generally and will establish guidelines and standards for review of
the creditworthiness of any bank, broker or dealer party to a repurchase
agreement with the Fund.

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, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Trust not within the control
of the Fund and therefore 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 Fund's management acknowledges these risks, it
is expected that they can be controlled through careful monitoring procedures.

LENDING OF SECURITIES. The Fund may lend its securities on a short-term or
long-term basis 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 portfolio securities, the Fund can increase its net investment income
through the receipt of 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 and
Regulations 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, a letter of credit issued by a domestic U.S.
bank, 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 the Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which rules 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 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 the Fund 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 fund

B-3
<PAGE>

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. The 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) shares of
other investment companies which have investment objectives consistent with
those of the Fund; (c) repurchase agreements involving any such securities; and
(d) other money market instruments. There is no limit on the extent to which the
Fund may take temporary defensive measures. In taking such measures, the Fund
may fail to achieve its investment objective.

ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
illiquid securities. Illiquid securities are securities that the Fund may not be
able to sell or dispose of in the ordinary course of business within seven
business days at approximately the value at which they are being carried on the
Fund's books.

FUTURES CONTRACTS

The Fund may enter into futures contracts, options, and options on futures
contracts for the purpose of simulating full investment and reducing
transactions costs. The Fund does not use futures or options for speculative
purposes. The Fund will only use futures and options to simulate full investment
in the underlying index while retaining a cash balance for fund management
purposes. 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 that 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 that has previously been "sold," or "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 that are higher than the exchange
minimums. Futures contracts are customarily purchased and sold on deposits which
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 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. The 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 either held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own, or intend to purchase, the securities underlying the futures contracts
which they trade, and use futures contracts with the expectation of realizing
profits from fluctuations in the prices of underlying securities. The Fund
intends to use futures contracts only for bona fide hedging purposes.

B-4
<PAGE>

Regulations of the CFTC applicable to the Fund require that all of its
futures transactions constitute bona fide hedging transactions except to the
extent that the aggregate initial margins and premiums required to establish any
non-hedging positions do not exceed five percent of the value of the Fund's
portfolio. The Fund will only sell futures contracts to protect the Fund against
declines in the prices of the securities underlying the futures contracts or
purchase contracts to protect against an increase in the price of securities it
intends to purchase. As evidence of this hedging interest, the Fund expects that
the majority of its futures contract purchases will be "completed"; that is,
equivalent amounts of related securities will have been purchased or are being
purchased by the Fund upon sale of open futures contracts.

Although techniques other than the sale and purchase of futures contracts
could be used to control the Fund's exposure to market fluctuations, the use of
futures contracts may be a more effective means of hedging this exposure. While
the Fund 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. The 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 market
value of its total assets. In addition, the 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 contracts may be
closed out only on an Exchange that 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, the 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, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions could also have an
adverse impact on the ability to effectively hedge. The Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures that 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 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. The Fund also bears the risk that the adviser
will incorrectly predict future stock market trends. However, because the
futures strategy of the Fund is engaged in only for hedging purposes, the Fund's
officers do not believe that the Fund is subject to the risks of loss frequently
associated with futures transactions. The 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 the 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 the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the 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

B-5
<PAGE>

to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of future positions and
subjecting some futures traders to substantial losses.

FEDERAL TAX TREATMENT OF FUTURES CONTRACTS. The 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 most 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. Furthermore, sales of futures
contracts which are intended to hedge against a change in the value of
securities held by the Fund may affect the holding period of such securities
and, consequently, the nature of the gain or loss on such securities upon
disposition. The Fund 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 Fund.

In order for the 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, gains from the sale of
securities or of foreign currencies or other income derived with respect to the
Fund's business of investing in securities. It is anticipated that any net gain
realized from the closing out of futures contracts will be considered qualifying
income for purposes of the 90% requirement.

The Fund will distribute to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including unrealized
gains at the end of the Fund's fiscal year) on futures transactions. Such
distributions will be combined with distributions of capital gains realized on
the Fund's other investments and shareholders will be advised on the nature of
the distributions.

FOREIGN INVESTMENTS

The Fund may invest in foreign securities to the extent necessary to carry
out its investment strategy of holding all of the stocks that comprise the index
it tracks. 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 Fund will be
affected favorably 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 the Fund permit it to enter into forward
foreign currency exchange contracts in order to hedge the Fund's 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.

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 market to market. The disposition
of a currency other than the U.S. dollar by a U.S. taxpayer 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 gain 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

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<PAGE>

for purposes of the Code. Any gain or loss attributable to the foreign currency
component of a transaction engaged in by the 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 Fund may make or enter into will be subject to the
special currency rules described above.

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 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 those countries.

Although the Fund will endeavor to achieve most favorable execution costs
in its portfolio transactions, fixed commissions on many foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges. In addition,
it is expected that the expenses for custodian arrangements of the Fund's
foreign securities will be somewhat greater than the expenses for the custodian
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 received from foreign companies held by the Fund. However, these
foreign withholding taxes are not expected to have a significant impact on the
Fund, since the Fund seeks long-term capital appreciation and any income should
be considered incidental.

FUNDAMENTAL INVESTMENT LIMITATIONS

The 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 shares
means the lesser of: (i) 67% or more of the votes cast, so long as shares
representing more than 50% of the Fund's net asset value are present or
represented by proxy; or (ii) shares representing more than 50% of the Fund's
net asset value.

BORROWING. The Fund may not borrow money, except for temporary or emergency
purposes in an amount not exceeding 15% of the Fund's net assets. The Fund may
borrow money through banks, reverse repurchase agreements, or Vanguard's
interfund lending program only, and must comply with all applicable regulatory
conditions. The Fund may not make any additional investments if its outstanding
borrowings exceed 5% of net assets.

COMMODITIES. The Fund may not invest in commodities, except that it may
invest in stock index futures contracts, stock options and options on stock
index 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 invested in futures contracts or options at any time.

DIVERSIFICATION. With respect to 75% of its total assets, the 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.

ILLIQUID SECURITIES. The Fund may not acquire any security if, as a result,
more than 15% of its net assets would be invested in securities that are
illiquid. From time to time, the Fund's Board of Trustees may determine that
certain restricted securities known as Rule 144A securities are liquid and not
subject to the 15% limitation.

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

INVESTING FOR CONTROL. The Fund may not invest in a company for purposes of
controlling its management.

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<PAGE>

INVESTMENT COMPANIES. The 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 a Fund acquires pursuant to Section 12 must have investment objectives
and investment policies consistent with those of the Fund.

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

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

OIL, GAS, MINERALS. The Fund may not invest in interests in oil, gas or
other mineral exploration or development programs.

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

PUTS/CALLS. The Fund may not purchase or sell put, call, straddle or spread
options.

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

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

UNDERWRITING. The 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.

The above-mentioned investment limitations are considered at the time
investment securities are purchased.

PURCHASE OF SHARES

The Fund reserves the right in its sole discretion (i) to suspend the offerings
of its shares, (ii) to reject purchase or exchange orders when in the judgment
of management such rejection is in the best interest of the Fund, (iii) to
impose a transaction fee on a purchase of the Fund's shares if the purchase, in
the opinion of Vanguard, would disrupt the efficient management of the Fund, and
(iv) 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.

EXCHANGE OF SECURITIES FOR SHARES OF THE FUND. In certain circumstances, shares
of the Fund may be purchased "in-kind," i.e., in exchange for securities, rather
than for cash. The securities tendered as part of an in-kind purchase must be
included in the Index tracked by the Fund and each position must have a market
value of $10,000 or more. Securities accepted by the Fund will be valued as set
forth in the Fund's prospectus as of the time of the next determination of net
asset value after such acceptance. Shares of the Fund are issued at net asset
value determined as of the same time. All dividends, subscription, or other
rights which are reflected in the market price of accepted securities at the
time of valuation become the property of the Fund and must be delivered to the
Fund by the investor upon receipt from the issuer. A gain or loss for Federal
income tax purposes would be realized by the investor upon the exchange
depending upon the cost of the securities tendered.

The Fund will not accept securities in exchange for its shares unless: (1)
such securities are, at the time of the exchange, eligible to be held by the
Fund; (2) the transaction will not cause the Fund's weightings to become
imbalanced with respect to the weightings of the stocks included in the Index;
(3) the investor represents and agrees that all securities offered to the Fund
are not subject to any restrictions upon their sale by the Fund under the
Securities Act of 1933, or otherwise; (4) such securities are traded in an
unrelated transaction with a quoted sales price on the same day the exchange
valuation is made; (5) the quoted sales price used as a basis of valuation is
representative (e.g., one that does not involve a trade of substantial size that
artificially influences the price of the security); and (6) the value of any
such security being exchanged will not exceed 5% of the Fund's net assets
immediately prior to the transaction.

Investors interested in purchasing Fund shares in kind should contact
Vanguard.

B-8
<PAGE>

SHARE PRICE

The Fund's share price, or "net asset value" per share, is calculated by
dividing the net assets of the Fund attributed to each share class, by the total
number of shares outstanding for each share class. The net asset value is
determined as of the close of the New York Stock Exchange (generally 4:00 p.m.
Eastern time) on each day 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 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 acquired 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.

Foreign securities are valued at the last quoted sales price, or the most
recently determined closing price calculated according to local market
convention, available at the time a Fund is valued. Prices are obtained from the
broadest and most representative market on which the securities trade. If events
which materially affect the value of a Fund's investments occur after the close
of the securities markets on which such securities are primarily traded, those
investments may be valued by such methods as the Board of Trustees deems in good
faith to reflect fair value.

In determining a Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars using the officially quoted daily exchange rates used by Morgan
Stanley Capital International in calculating various benchmarking indexes. This
officially quoted exchange rate may be determined prior to or after the close of
a particular securities market. If such quotations are not available, the rate
of exchange will be determined in accordance with policies established in good
faith by the Board of Trustees.

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 the Fund can be found daily in the mutual fund listings
of most major newspapers under the heading of Vanguard Index Funds.

REDEMPTION OF SHARES

The 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 rules of the Commission as a
result of which it is not reasonably practicable for the 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.

No charge is made by the Fund 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.

MANAGEMENT OF THE FUND

OFFICERS AND TRUSTEES

The officers of the Fund manage its day-to-day operations and are responsible to
the Fund's Board of Trustees. The Trustees set broad policies for the Fund and
choose its officers. The following is a list of the Trustees and officers of the
Fund and a statement of their present positions and principal occupations during
the past five years. As a group, the Fund's Trustees and officers own less than
1% of the outstanding shares of the Fund. Each Trustee also serves as a Director
of The Vanguard Group, Inc., and as a Trustee of each of the 36 investment
companies administered by Vanguard (35 in the case of Mr. Malkiel and 28 in the
case of Mr. MacLaury). The mailing address of the Trustees and officers of the
Fund is Post Office Box 876, Valley Forge, PA 19482.

B-9
<PAGE>

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.

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.

BURTON G. MALKIEL, (DOB: 8/28/1932) Trustee Chemical Bank Chairman's Professor
of Economics, Princeton University; Director of Prudential Insurance Co. of
America, Banco Bilbao Gestinova, Baker Fentress & Co. (Investment Management),
The Jeffrey Co. (Holding Company), and Select Sector SPDR Trust (Exchange-Traded
Mutual Fund).

ALFRED M. RANKIN, JR., (DOB: 10/8/1941) Trustee Chairman, President, Chief
Executive Officer, and Director of NACCO Industries (Machinery/Coal/
Appliances), and Director of The BFGoodrich Co. (Aircraft
Systems/Manufacturing/Chemicals).

JOHN C. SAWHILL, (DOB: 6/12/1936) Trustee President and Chief Executive Officer
of The Nature Conservancy (Non-Profit Conservation Group); Director of Pacific
Gas and Electric Co., Procter & Gamble Co., NACCO Industries (Machinery/Coal/
Appliances), and Newfield Exploration Co. (Energy); formerly, Director and
Senior Partner of McKinsey & Co., and President of New York University.

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 of Rohm & Haas Co.
(Chemicals); Director of Cummins Engine Co. (Diesel Engine Company), and The
Mead Corp. (Paper Products); and 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.

ROBERT D. SNOWDEN, (DOB: 9/4/1961) Controller* Principal of The Vanguard Group,
Inc.; Controller of each of the investment companies in The Vanguard Group.

*Officers of the Fund are "interested persons" as defined in the 1940 Act.

TRUSTEE COMPENSATION

The same individuals serve as Trustees of all Vanguard Trusts (with two
exceptions, which are noted in the table below), and each Trust pays a
proportionate share of Trustees' compensation. The Trusts employ their officers
on a shared basis, as well. However, officers are compensated by The Vanguard
Group, Inc., not the Trusts.

INDEPENDENT TRUSTEES. The Trusts compensate their independent Trustees--that is,
the ones who are not also officers of the Trust--in three ways:

. The independent Trustees receive an annual fee for their service to the
Trusts, 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.

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<PAGE>

. 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 Fund for each Trustee. In addition, the table shows
the total amount of benefits that we expect each Trustee to receive from all
Vanguard Trusts upon retirement, and the total amount of compensation paid to
each Trustee by all Vanguard Trusts. All information shown is for the fiscal
year ended December 31, 1999.

COMPENSATION TABLE

TOTAL
COMPENSATION
ESTIMATED ANNUAL FROM ALL
BENEFITS UPON VANGUARD FUNDS
NAMES OF TRUSTEES RETIREMENT PAID TO TRUSTEES(1)
- --------------------------------------------------------------------------------

John C. Bogle/(2/ . . . . . . . . None None
John J. Brennan. . . . . . . . . . None None

JoAnn Heffernan Heisen . . . . . .
Bruce K. MacLaury. . . . . . . . .
Burton G. Malkiel. . . . . . . . .
Alfred M. Rankin, Jr.. . . . . . .
John C. Sawhill. . . . . . . . . .
James O. Welch, Jr.. . . . . . . .
J. Lawrence Wilson . . . . . . . .

(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for their service as Trustee of 36 Vanguard trusts (35 in the
case of Mr. Malkiel; 28 in the case of Mr. MacLaury).

(2) Mr. Bogle has retired from the Fund's Board, effective December 31, 1999.

THE VANGUARD GROUP

The Fund currently employs The Vanguard Group, Inc. (Vanguard) to provide
management, administrative, and investment advisory services. Vanguard also
provides virtually all of the corporate management, administrative, and
distribution services for The Vanguard Group of Investment Companies, a family
of more than 100 funds. Vanguard also provides investment advisory services on
an at-cost basis to several of the Vanguard Trusts.

Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Fund and also
furnishes the Fund with the necessary office space, furnishings and equipment.

Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the 1940 Act. The Code is designed to prevent unlawful practices in
connection with the purchase or sale of securities by persons associated with
Vanguard. Under Vanguard's Code of Ethics certain officers and employees of
Vanguard who are considered access persons are permitted to engage in personal
securities transactions. However, such transactions are subject to procedures
and guidelines similar to, and in many cases more restrictive than, those
recommended by a blue ribbon panel of mutual fund industry executives.

The Fund receives all investment advisory services from Vanguard's Core
Management Group. The Core Management Group manages the investment and
reinvestment of the Fund's assets and continuously reviews, supervises, and
administers the Fund's investment program with respect to

B-11
<PAGE>

those assets. The Core Management Group discharges its responsibilities subject
to the control of the officers and Trustees of the Fund.

The Core Management Group also provides investment advisory services to
several other Vanguard Funds. Total assets under management by the Core
Management Group were approximately $. billion as of December 31, 1999. The Fund
is not actively managed, but is instead administered by the Core Management
Group using computerized, quantitative techniques.

Under the terms of a Service and Advisory Agreement, Vanguard pays all of
the Fund's expenses, except for taxes and brokerage commissions. For the fiscal
years ended December 31, 1997, 1998, and 1999, the Fund paid approximately
$8,915,000, $12,055,000, and $. respectively, to Vanguard for services rendered
under the Service and Advisory Agreement.

PORTFOLIO TRANSACTIONS

In placing portfolio transactions, Vanguard's Core Management Group uses
its best judgment to choose the broker most capable of providing the brokerage
services necessary to obtain best available price and most favorable execution.
The full range and quality of brokerage services available are 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 is
given to those brokers which supply statistical information and provide other
services in addition to execution services to the Fund.

Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Fund may place portfolio orders with qualified
broker-dealers who recommend the Fund to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider the sale of Fund shares by a broker or dealer in selecting
among broker dealers.

For the fiscal years ended December 31, 1997, 1998, and 1999, the Fund paid
$820,969, $1,356,000, and $. respectively, in brokerage commissions.

FINANCIAL STATEMENTS

The Fund's financial statements as of and for the year ended December 31,
1999, appearing in the Vanguard Institutional Index Fund 1999 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. For a more complete discussion of the
performance, please see the Fund's Annual Report to Shareholders, which may be
obtained without charge.

YIELD AND TOTAL RETURN

The average annual total return of the Institutional Shares of the Fund*
for one- and five-year periods ended December 31, 1999, and since inception on
July 31, 1990 was .%, .% and .%, respectively. The average annual total return
of the Institutional Plus Shares of the Fund* for the one-year period ended
December 31, 1999, and since inception on July 7, 1997 was .% and .%,
respectively. The annualized yield for the Institutional Shares of the Fund for
the thirty days ended December 31, 1999 was .%. The annualized yield for the
Institutional Plus Shares of the Fund for the thirty days ended December 31,
1999 was .%.

The Fund reserves the right to deduct a portfolio transaction fee, ranging
from 0.07% to 0.12%, from purchases of shares of the Fund if such purchase or
cumulative purchases are of a size that is reasonably deemed to be disruptive to
efficient portfolio management; total return figures are not adjusted to reflect
this transaction fee.

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 the Fund, all
ended on the last day of a recent month. Average annual total return quotations
reflect changes in the price of the 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

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<PAGE>

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
(or for periods of the Fund's operations) 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

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 hundreth 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):

B-13
<PAGE>

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.

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.

COMPARATIVE MEASURES

Vanguard may use reprinted material discussing The Vanguard Group, Inc. or any
of the member trusts of The Vanguard Group of Investment Companies.

Each of the investment company members of The Vanguard Group, and Vanguard
Institutional Index Fund, 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 500/BARRA VALUE INDEX--consists of the stocks in the Standard
and Poor's 500 Composite Stock Price Index ("S&P 500") with the lowest
price-to-book ratios, comprising 50% of the market capitalization of the S&P
500.

STANDARD & POOR'S 500/BARRA GROWTH INDEX--consists of the stocks in the S&P 500
Index with the highest price-to-book ratios, comprising 50% of the market
capitalization of the S&P 500.

STANDARD & POOR'S/MIDCAP 400 INDEX--is composed of 400 medium sized domestic
stocks.

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 EQUITY INDEX--consists of more than 7,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.

WILSHIRE 4500 EQUITY INDEX--consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.

RUSSELL 2000 STOCK INDEX--is composed of approximately 2,000 small
capitalization stocks.

B-14
<PAGE>

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, Australasia and the Far East.

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 approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury/agency issues and mortgage pass-through
securities.

LEHMAN 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 CORPORATE (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.

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, 30% NASDAQ Industrial Index.

COMPOSITE INDEX--65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.

COMPOSITE INDEX--65% Lehman Long-Term Corporate AA or Better Bond Index and a
35% weighting in a blended equity composite (75% Standard & Poor's/BARRA Value
Index, 12.5% Standard & Poor's Utilities Index and 12.5% Standard and Poor's
Telephone Index).

LEHMAN LONG-TERM CORPORATE AA 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
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 MUTUAL FUND SHORT (1-5) GOVERNMENT/CORPORATE INDEX--is a market
weighted index that contains 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/CORPORATE INDEX--is a
market weighted index that contains 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.

LEHMAN BROTHERS LONG (10+) GOVERNMENT/CORPORATE INDEX--is a market weighted
index that contains 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.

B-15
<PAGE>

SAI094-04/21/2000

B-16

<PAGE>

PART C

VANGUARD INSTITUTIONAL INDEX FUND
OTHER INFORMATION

ITEM 23. EXHIBITS

EXHIBITS 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) Not applicable
(e) Not applicable
(f) Reference is made to the section entitled "Management of the Fund" 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) Rule 18f-3 Plan*

-----------------
*Filed Previously
+Filed Herewith

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.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Investment advisory services are provided to the Registrant by The Vanguard
Group, Inc., a jointly-owned subsidiary of the Trusts in the Vanguard Group of
Investment Companies. See the information concerning The Vanguard Group, Inc.
set forth in Parts A and B. For information as to any other business, vocation
or employment of a substantial nature in which each trustee or officer of the
Registrant's investment advisor is or has been engaged for his own account or in
the capacity of officer, employee, partner or trustee, reference is made to Form
ADV (File #801-11953) filed by it under the Investment Advisers Act of 1940.

C-1

<PAGE>

ITEM 27. PRINCIPAL UNDERWRITERS

a. Not Applicable
b. Not Applicable
c. Not Applicable

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

The books, accounts and other documents required by Section 31(a) under the
Investment Company Act of 1940 and the rules promulgated thereunder will be
maintained in the physical possession of Registrant; Registrant's Transfer
Agent, The Vanguard Group, Inc., Valley Forge, Pennsylvania 19482; and the
Registrant's Custodian, 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

C-2

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to 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 18th day of February, 2000

VANGUARD INSTITUTIONAL INDEX FUND
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 February 18, 2000
--------------------------- Executive Officer, and Trustee
(Heidi Stam)
John J. Brennan*

By:/S/ JOANN HEFFERNAN HEISEN Trustee February 18, 2000
---------------------------
(Heidi Stam)
JoAnn Heffernan Heisen*

By:/S/ BRUCE K. MACLAURY Trustee February 18, 2000
---------------------------
(Heidi Stam)
Bruce K. MacLaury*

By:/S/ BURTON G. MALKIEL Trustee February 18, 2000
---------------------------
(Heidi Stam)
Burton G. Malkiel*

By:/S/ ALFRED M. RANKIN, JR. Trustee February 18, 2000
---------------------------
(Heidi Stam)
Alfred M. Rankin, Jr.*

By:/S/ JOHN C. SAWHILL Trustee February 18, 2000
---------------------------
(Heidi Stam)
John C. Sawhill*

By:/S/ JAMES O. WELCH, JR. Trustee February 18, 2000
---------------------------
(Heidi Stam)
James O. Welch, Jr.*

By:/S/ J. LAWRENCE WILSON Trustee February 18, 2000
---------------------------
(Heidi Stam)
J. Lawrence Wilson*

By:/S/ THOMAS J. HIGGINS Treasurer and Principal February 18, 2000
--------------------------- Financial Officer and
(Heidi Stam) Principal Accounting Officer
Thomas J. Higgins*

*By Power of Attorney. See File Number 33-4424, filed on January 25, 1999.
Incorporated by Reference.