<PAGE>
VANGUARD EXPLORER FUND, INC.
Prospectus Supplement
May 17, 1996
The Board of Directors of Vanguard Explorer Fund, Inc. (the "Fund") has approved
a revised investment advisory agreement with Wellington Management Company
("WMC"), under which WMC manages the investment and reinvestment of a portion of
the Fund's assets (the "WMC Portfolio"). The new agreement involves a reduction
in the annual rate of advisory fees to be paid to WMC.
Under the terms of the new agreement, the Fund will pay WMC a basic advisory
fee at the end of each fiscal quarter, calculated by applying the following
annual percentage rates to the WMC Portfolio's average month-end net assets for
the quarter:
<TABLE>
<CAPTION>
Net Assets Annual Basic Fee Rate
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<S> <C>
First $500 million 0.250%
Next $250 million 0.200
Next $250 million 0.150
Over $1 billion 0.100
</TABLE>
Both the current and revised agreements provide that the Basic Fee may be
increased or decreased by applying an incentive/penalty fee adjustment based on
the investment record of the net assets of the WMC Portfolio relative to the
Russell 2000 Small Company Stock Index.
The following table sets forth the incentive/penalty adjustment to the basic
advisory fee payable by the Portfolio to WMC under the new advisory agreement:
<TABLE>
<CAPTION>
Cumulative 36-Month Performance versus the Performance Fee
Russell 2000 Small Company Stock Index Adjustment
-------------------------------------- ----------
<S> <C>
Less than -12% -0.50 x Basic Fee*
Between -12% and -6% -0.25 x Basic Fee
Between -6% and 6% 0 x Basic Fee
Between 6% and 12% 0.25 x Basic Fee
More than 12% 0.50 x Basic Fee
</TABLE>
* For purposes of this calculation, the Basic Fee is calculated by applying a
quarterly rate based on the Annual Basic Fee Rate using average assets over the
same 36-month period over which the performance is measured.
Under the rules of the Securities and Exchange Commission, the new
incentive/penalty fee will not be fully operable until the quarter ending July
31, 1999, and until that date, will be calculated according to certain
transition rules. This revised investment advisory agreement replaces the Fund's
existing agreement with the adviser dated as of October 31, 1994, and will go
into effect on or about August 1, 1996. Until this date, the adviser has agreed
to waive its advisory fees to the extent necessary to abide by the new fee
schedule.
AFEX
