Fund Numer:0536

Fund Symbol:VFIJX

Internet Address:

http://www.vanguard.com

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• Personal Investors
• Research Funds and Stocks or type in "GNMA Funds"
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Objective

The Vanguard GNMA Fund seeks a high and sustainable level of current income while seeking to maintain account principal and liquidity by investing in Government National Mortgage Association (GNMA) mortgage-backed certificates.

Investment Type

The Vanguard GNMA Fund is a mutual fund which invests at least 80% of its assets in the securities of the Government National Mortgage Association. These are fixed income securities representing part ownership in a pool of mortgage loans backed by the U.S. government. The balance of its assets may be invested in U.S. Treasury or other U.S. government securities. The Fund's average maturity normally falls within an intermediate-term range of 5-10 years.

Investment Risk and Return

The Fund expects to yield a higher level of income than short-term bond funds due to the longer maturity of its investments. However, the Fund can experience share price fluctuation due to changes in interest rates. The Fund's yield level and asset value will vary depending upon market conditions. Although the Fund invests in obligations issued or guaranteed by the U.S. Government, a plan participant's investment in Vanguard is not guaranteed by the U.S. Government.

Strategy

The Fund buys and sells government securities to maximize current income to the shareholder while potential capital gains resulting from changes in interest rates are not a major investment consideration. Such changes in interest rates can cause wide fluctuations in share prices.

Portfolio Composition:

(as of 12/31/03 )

                   GNMA* Securities 100%

               *Government National Mortgage Association

Current Yield (Annualized)

(as of 12/31/03 )

4.70%

Fund Manager

The Vanguard GNMA Fund, started in 1980, is managed by Vanguard Funds, one of the largest investment management firms in the country with assets under management as of December 31, 2003 of over $550 billion.

Performance

The chart below shows the annual total return of the Vanguard GNMA Fund over each of the past 10 years. Total return is the combination of interest from bonds in the portfolio and the in market value over time.

Over the past 10 years, a hypothetical investment of $1,000 in the Vanguard GNMA Fund would have grown to approximately $1,931 assuming reinvestment of all distributions. Future results, however, may be different than past performance.

Comparison To Other Plan Funds

The Vanguard GNMA Fund offers higher return potential, but carries with it greater volatility or "risk" than the Calvert Social Investment Money Market Portfolio or the GIC Fund. The Fund offers less return potential and volatility than the UMWA 401(k) Balanced Fund, the Fidelity Equity-Income Fund, and the BGI Equity Index Fund. A participant's investment in this option can be subject to wide fluctuations in both yield and market value.

Investment Costs

An investor in the Vanguard GNMA Fund pays no commissions or sales load. The Fund does incur investment management and expense fees based on the average assets of the Fund. For the year ending December 31, 2003 , total fund operating expenses were 0.22% of average assets or $2.20 per $1,000. Plan administrative expenses are not included in these fund expenses.