VANGUARD EXPLORER FUND INC, 485APOS, 1998-12-07

VANGUARD EXPLORER FUND INC
485APOS, 1998-12-07

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 2-27203) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 61

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

AMENDMENT NO. 62

VANGUARD EXPLORER 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 February 5, 1999, pur-
suant to paragraph (a) of Rule 485.

Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.

We have elected to register an indefinite number of securities under the Se-
curities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. We filed our Rule 24f-2 notice for its fiscal year ended October 31,
1998, with the Commission on . , .

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VANGUARD EXPLORER FUND

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
<C> <C> <S>
Item 1. Front and Back Cover Pages............ Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments,
Risks, and Performance................ Fund Profile
Item 3. Risk/Return Summary: Fee Table........ Fee Table
Item 4. Investment Objectives, Principal
Investment Strategies, and Related A Word About Risk; Who
Risks................................. Should Invest; Primary
Investment Strategies
Item 5. Management's Discussion of Fund
Performance........................... Herein incorporated by
reference to Registrant's
Annual Report to
Shareholders dated October
31, 1998 filed with the
Securities & Exchange
Commission's EDGAR system
on .
Item 6. Management, Organization, and Capital
Structure............................. The Fund and Vanguard;
Investment Adviser
Item 7. Shareholder Information............... Share Price; Dividends,
Capital Gains, and Taxes;
Investing with Vanguard
Item 8. Distribution Arrangements............. Not Applicable
Item 9. Financial Highlights Information...... Financial Highlights
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
<C> <C> <S>
Item 10. Cover Page and Table of Contents...... Cover Page; Table of
Contents
Item 11. Fund History.......................... Description of the Trust
Item 12. Description of the Fund and its
Investments and Risks................. Investment Policies;
Description of the Trust;
Fundamental Investment
Limitations
Item 13. Management of the Fund................ Management of the Trust
Item 14. Control Persons and Principal Holders
of Securities......................... Management of the Trust
Item 15. Investment Advisory and Other Investment Advisory
Services.............................. Services
Item 16. Brokerage Allocation and Other
Practices............................. Portfolio Transactions
Item 17. Capital Stock and Other Securities.... Description of the Trust
Item 18. Purchase, Redemption, and Pricing of
Shares................................ Purchase of Shares;
Redemption of Shares; Share
Price
Item 19. Taxation of the Fund.................. Description of the Trust
Item 20. Underwriters.......................... Not Applicable
Item 21. Calculation of Performance Data....... Yield and Total Return
Item 22. Financial Statements.................. Financial Statements
</TABLE>
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Vanguard Explorer Fund

Participant Prospectus
February 5, 1999

A Small-Company Stock Mutual Fund

Contents

1 Fund Profile 9 Year 2000 Challenge

3 Additional Information 9 Dividends, Capital Gains, and Taxes

3 A Word About Risk 10 Share Price

3 Who Should Invest 10 Financial Highlights

4 Primary Investment Strategies 12 Investing with Vanguard

7 The Fund and Vanguard 12 Accessing Fund Information by Computer

7 Investment Advisers Glossary (inside back cover)

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

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

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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.

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Fund Profile

The following profile summarizes key features of Vanguard Explorer Fund.

INVESTMENT OBJECTIVE

The Fund is a stock fund that seeks to provide long-term capital growth.

INVESTMENT STRATEGIES

The Fund invests mainly in the stocks of small companies (which, at the time of
purchase, typically have a market value of less than $1 billion). These
companies tend to be unseasoned but are considered by the Fund's advisers to
have superior growth potential.

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

PERFORMANCE/RISK INFORMATION

The 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 over
a ten-year period. The table shows how the Fund's average annual returns for
one, five, and ten calendar years compared with those of a broad-based
securities market index. Keep in mind that the Fund's past performance does not
indicate how it will perform in the future.

-------------------------------------------------------------------------
Annual Total Returns
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During the period shown in the bar chart, the highest return for a calendar
quarter was .% (quarter ending_____ ) and the lowest return for a quarter was
-.% (quarter ending______ ).

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Average Annual Total Returns For Years Ended December 31, 1998
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1 Year 5 Years 10 Years
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Vanguard Explorer Fund .% .% .%
Small Company Growth Fund Stock Index* . . .
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*Russell 2000 Index from 1987 through July 1997; Small Company Growth
Fund Stock Index thereafter.
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<PAGE>

PLAIN TALK ABOUT

The Costs of Investing

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

PLAIN TALK ABOUT

Fund Expenses

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Explorer Fund's expense ratio in fiscal year 1998 was . %, or
$ . per $1,000 of average net assets. The average growth equity mutual fund had
expenses in 1998 of . %, or $ . per $1,000 of average net assets, according to
Lipper Analytical Services, which reports on the mutual fund industry.

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 October 31, 1998.

Shareholder Fees (fees paid directly from your investment)

Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

Annual Fund Operating Expenses (expenses deducted from the Fund's assets)

Management (Administrative and Investment Advisory) Expenses: .%
12b-1 Distribution Fees: None
Other Expenses (Marketing, Taxes, Auditing, etc.): .%
Total Operating Expenses (Expense Ratio): .%

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 the operating expenses remain 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
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$. $. $. $.
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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.
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3
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<CAPTION>
Additional Information
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Dividends and Capital Gains Net Assets as of October 31, 1998
Paid annually in December $* billion

Investment Adviser Newspaper Abbreviation
The Fund employs a multi-adviser approach: Explr

. Granahan Investment Management, Inc., Waltham, Vanguard Fund Number
Mass., since 1990 024
. Wellington Management Company, LLP, Boston, Mass.,
since 1967 Cusip Number
. Chartwell Investment Partners, Berwyn, Pa., 921926101
since 1997
. Vanguard Core Management Group, Valley Forge, Pa., Ticker Symbol
since 1997 VEXPX
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Inception Date
December 11, 1967

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A Word About Risk

This prospectus describes the risks you would face as an investor in Vanguard
Explorer Fund. It is important to keep in mind one of the main axioms of
investing: The higher the risk of losing money, the higher the potential reward.
The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in Vanguard Explorer Fund, you
should also take into account your personal tolerance for the daily fluctuations
of the stock market.

Look for this [GRAPHIC OF FLAG APPEARS HERE] symbol throughout the prospectus.
It is used to mark detailed information about each type of risk that you would
confront as a shareholder of the Fund.
================================================================================

Who Should Invest

The Fund may be a suitable investment for you if:

. You wish to add a fund that focuses on small and/or emerging companies to your
existing holdings, which could include other stock investments as well as
bond, money market, and tax-exempt investments.
. You are seeking growth of capital over the long term--at least five years.
. You are not looking for dividend income.
. You characterize your investment temperament as "aggressive."

PLAIN TALK ABOUT

Costs and Market-Timing

Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market 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 Fund discourages short-term trading by, among other
things, limiting the number of exchanges it permits.

The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.
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PLAIN TALK ABOUT

Growth Funds and Value Funds

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

The Fund has adopted the following policies, among others, to discourage
short-term trading:

. The 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. This could be because of the timing of the
investment or because of a history of excessive trading by the investor.
. There is a limit on the number of times you can exchange into and out of the
Fund (see "Exchanges" in the Investing with Vanguard section).
. The Fund reserves the right to stop offering shares at any time.

Primary Investment Strategies

This section explains the strategies that the investment advisers use in pursuit
of the Fund's objective, long-term growth in capital. It also explains how the
advisers implement these strategies. In addition, this section discusses several
important risks--market risk, investment style risk, and manager risk--faced by
investors in the Fund. The Board of Trustees oversees the management of the Fund
and may change the investment strategies in the interest of shareholders.

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.
Generally, Vanguard defines large-capitalization (large-cap) funds as those
holding stocks of companies whose outstanding shares have a median market value
exceeding $7.5 billion. Mid-cap funds hold stocks of companies with a median
market value between $1 billion and $7.5 billion. Small-cap funds typically hold
stocks of companies with a median market value of less than $1 billion.

Market Exposure

The Fund's primary strategy is to invest chiefly in the stocks of small-capi-
talization companies that offer strong growth potential. These companies
typically provide little or no dividend income. The Fund may also invest in
securities that are convertible to common stocks.

[GRAPHIC OF FLAG APPEARS HERE] The 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
prices and periods of falling prices.

To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Composite Stock Price Index, a
widely used barometer of market activity. (Total returns con-
<PAGE>

sist 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.

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U.S. Stock Market Returns (1926-1998)
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1 Year 5 Years 10 Years 20 Years
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Best . . . .
Worst . . . .
Average . . . .
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The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926 through
1998. You can see, for example, while the average return on stocks for all of
the 5-year periods was .%, returns for individual 5-year periods ranged from a
- -12.5% average (from 1928 through 1932) to 23.9% (from 1951 through 1954). These
average returns reflect past performance on common stocks; you should not regard
them as an indication of future returns from either the stock market as a whole
or this Fund in particular.

Keep in mind that Vanguard Explorer Fund focuses on the stocks of smaller
companies. Small-cap stocks have historically been more volatile than--and at
times have performed quite differently from--the large-cap stocks found in the
S&P 500 Index. This is due to several factors, including smaller companies,
less-certain prospects for growth and dividends. For these reasons and because
Vanguard Explorer Fund's holdings are not identical to the S&P 500 Index or any
other market index, the Fund's performance will not mirror the returns of any
particular index.

PLAIN TALK ABOUT

Fund Diversification and
Concentration

In general, the more diversified a fund's stock holdings, the less likely it is
that a specific stock's poor performance will hurt the fund. One measure of a
fund's diversification is the percentage of its assets represented by its ten
largest holdings. The average U.S. equity mutual fund has about 30% of its
assets concentrated in its ten largest holdings, while some less-diversified
funds have more than 50% of their assets invested in the stocks of just ten
companies.

[GRAPHIC The Fund is subject to investment style risk, which is the
APPEARS possibility that returns from stocks of small companies will
HERE] trail returns from other asset classes or the overall stock market.
As a group, these stocks tend to go through cycles of doing better--
or worse--than common stocks in general. These periods have, in the
past, lasted for as long as several years.

Security Selection

Vanguard Explorer Fund employs four groups as investment advisers. Each of the
four independently chooses and maintains a portfolio of common stocks for the
Fund. Each is responsible for investing a specific percentage of the Fund's
assets.

The four advisers manage investments actively. This means that securities are
bought and sold according to the advisers' evaluations about companies and their
financial prospects, and about the stock market and the economy in general.

Each adviser uses different processes to select securities for its portion of
the Fund; however, each is committed to buying stocks of small companies that,
in the adviser's opinion, have strong growth potential.

Granahan Investment Management, Inc. (Granahan), which is expected to be
responsible for roughly [45%] of the Fund's assets, groups securities into three
categories as part of its selection process. The first category, "core growth,"
emphasizes companies that have a well-known or established product and, as a
result, have a proven record of growth and a strong market position. The second
category, "pioneers," comprises companies that offer unique products or
technologies that may lead to new products or expansion into new markets.
Granahan judges "pioneer" stocks on the estimated growth potential compared to
market value. The third category, "special value," includes companies that lack
a record of strong growth but that, in the adviser's view, are both undervalued
in the market and likely to grow in the next few years. "Core growth" stocks
make up 50% to 75% of Granahan's share of Fund assets, with the other two
categories at 10% to 25% each.
<PAGE>

Wellington Management Company, LLP (WMC), which is expected to be responsible
for approximately [30%] of the Fund's assets, uses research and analysis of
individual companies to select stocks that it feels have exceptional growth
potential relative to their valuation in the marketplace.

WMC considers each stock individually before purchase, and continually
monitors developments at these companies for comparison to WMC's expectations
for growth. To help protect against risk, the portfolio is broadly diversified
both by number of stocks and by exposure to a range of industries.

Chartwell Investment Partners (Chartwell), which is expected to be responsible
for approximately [10%] of the Fund's assets, uses a research-driven process to
choose stocks judged to have exceptional growth potential and to be selling at
reasonable prices.

After considering each stock individually before purchase, Chartwell
constantly monitors characteristics of its Fund holdings as a group. In doing
so, Chartwell uses computerized techniques to constantly evaluate the Fund's
holdings.

The fourth adviser, Vanguard Core Management Group, employs a "quantitative"
investment approach. In other words, it uses computer techniques to select a
sampling of stocks that, as a group, are expected to have returns and investment
characteristics similar to the Small Company Growth Fund Stock Index, which is
made up of stocks held by the nation's 25 largest small-company mutual funds.
Vanguard Core Management Group is expected to be responsible for about [10%] of
the Fund's assets.

The balance of Vanguard Explorer Fund's assets (about 5%) is held in cash
reserves. These assets are also managed by Vanguard. Vanguard may invest in
stock futures to give the cash reserve the performance of common stocks. This
strategy is intended to keep the Fund more fully invested in common stocks while
retaining cash on hand to meet liquidity needs. See below for more details on
the Fund's policy on futures.

The Fund is generally managed without regard to tax ramifications.

[GRAPHIC OF FLAG The Fund is subject to manager risk, which is the
APPEARS HERE] possibility that the advisers may do a poor job of
selecting stocks.

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. (These costs are in addition to those described in the
fee table on page 2.) 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. The average turnover rate for all domestic stock funds is
approximately 80%.

Turnover Rate

Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long they have been held. The Fund's
average turnover rate for the past five years has been about .%. (A turnover
rate of 100% would occur, for example, if the Fund sold and replaced securities
valued at 100% of its net assets within a one-year period.)

Other Investment Policies and Risks

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

Although the Fund typically does not make significant investments in
securities of companies based outside the United States, it reserves the right
to invest up to 20% of its assets in foreign securities. These securities may be
traded in U.S. or foreign markets. To the extent that it owns foreign stocks,
the Fund is subject to (1) country risk, which is the possibility that political
events (such as a war), financial problems (such as government default), or
natural disasters (such as an earthquake) will weaken a country's economy and
cause investments in that country to lose money; and (2) currency risk, which is
the possibility that Americans investing abroad could lose money because of a
rise in the value of the U.S. dollar versus foreign currencies.

The Fund may also invest, to a limited extent, in stock futures and options
contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be
<PAGE>

PLAIN TALK ABOUT

Derivatives

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

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.
This Fund will not use futures for speculative purposes or as leveraged
investments that magnify the gains or losses of an investment. The value of all
futures contracts in which the Fund acquires an interest cannot exceed 20% of
total assets

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

. To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in stocks.
. To reduce the Fund's transaction costs or add value when these instruments are
favorably priced.

The Fund may, from time to time, take temporary defensive measures--such as
holding cash reserves without limit--that are inconsistent with the Fund's
primary investment strategies, in response to adverse market, economic,
political, or other conditions. In taking such measures, the Fund may not
achieve its investment objective.

The Fund and Vanguard

The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 distinct investment portfolios holding assets worth
more than $400 billion. All of the Vanguard funds share in the expenses
associated with business operations, such as personnel, office space, equipment,
and advertising.

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

Investment Advisers

The Fund uses four investment advisers, each of which independently manages a
percentage of Explorer's assets subject to the control of the Trustees and
officers of the Fund.

Granahan Investment Management, Inc., 275 Wyman Street, Waltham, MA 02154, is
an investment advisory firm specializing in small-company stock investments.
Founded in 1985, Granahan currently manages about $1.2 billion in assets.

Granahan's advisory fee is paid quarterly. This fee is based on certain
annual percentage rates applied to its portion's average month-end assets for
each quarter. In addition, Granahan's advisory fee is increased or decreased,
based on cumulative investment performance of its portion of the Fund over a
trailing 36-month period as compared to the cumulative total return of the Small
Company Growth Fund Index over the same period.

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.
<PAGE>

PLAIN TALK ABOUT

The Fund's Advisers

The individuals primarily responsible for Vanguard Explorer Fund are:

John J. Granahan, CFA, Founder and President of Granahan Investment
Management, Inc.; in investment management since 1963 (with Granahan since
1985); adviser to the Fund since 1990; B.S., St. Joseph's University; Graduate
Fellow of Catholic University of America.

Kenneth L. Abrams, Senior Vice President of Wellington Management Company,
LLP; in investment management since 1982, with WMC since 1986, adviser to the
Fund since 1994; B.A. and M.B.A. Stanford University.

Edward N. Antoian, CFA, Partner and one of the founders of Chartwell
Investment Partners; in investment management since 1984, cofounder of Chartwell
in 1997, adviser to the Fund since 1997; B.S., State University of New York;
M.B.A., University of Pennsylvania.

George U. Sauter, Managing Director of Vanguard; in investment management
since 1985, primary responsibility for Vanguard Core Management Group since
1987; A.B., Dartmouth College; M.B.A., University of Chicago.

Note that this incentive/penalty fee structure will not be in full operation
until August 1, 2000. Until then, Granahan's fee will be calculated using
certain transition rules. (The incentive/penalty fee schedule and calculation
process for the Fund since its inception are described in the Fund's Statement
of Additional Information dated February 5, 1999.)

Wellington Management Company, LLP (WMC), 75 State Street, Boston, MA 02109,
was founded in 1928. The investment advisory firm currently manages more than
$185 billion in stock and bond portfolios, including 14 Vanguard funds.

WMC's advisory fee is paid quarterly. This fee is based on certain annual
percentage rates applied to its portion's average month-end assets for each
quarter. In addition, WMC's advisory fee is increased or decreased, based on
cumulative investment performance of its portion of the Fund over a trailing
36-month period as compared to the cumulative total return of the Small Company
Growth Fund Index over the same period.

Note that this incentive/penalty fee structure will not be in full operation
until August 1, 2000. Until then, the fee will be calculated using certain
transition rules. (The incentive/penalty fee schedule and calculation process
for the Fund since its inception are described in the Fund's Statement of
Additional Information dated February 5, 1999.)

Chartwell Investment Partners, 1235 Westlakes Drive, Suite 330, Berwyn, PA
19312, was founded in 1997. The investment advisory firm currently manages about
$2.1 billion in assets. Chartwell began managing a portion of the Fund's assets
on August 1, 1997.

Chartwell's advisory fee is paid quarterly. This fee is based on certain
annual percentage rates applied to its portion's average month-end assets for
each quarter. In addition, Chartwell's advisory fee is increased or decreased,
based on cumulative investment performance of its portion of the Fund over a
trailing 36-month period as compared to the cumulative total return of the Small
Company Growth Fund Index over the same period.

Vanguard Core Management Group (the "Group"), P.O. Box 2600, Valley Forge, PA
19482, began managing a portion of the Fund's assets on August 1, 1997. The
Group provides investment advisory services to the Fund on an at-cost basis. The
Group serves as investment adviser to several Vanguard funds. As of
September 30, 1998, the Group managed more than $116 billion in total assets.

For the fiscal year ended October 31, 1998, the net fee paid to Granahan was
$., after a decrease of $. based on performance. For the fiscal year ended
October 31, 1998, the net fee paid to WMC was $., after a decrease of $. based
on performance. For the fiscal year ended October 31, 1998, the net fee paid to
Chartwell was $. based on performance. For the fiscal year ended October 31,
1998, the net fee paid to The Vanguard Group was $. based on performance.
<PAGE>

The Fund has authorized the advisers to choose brokers or dealers to handle
the purchase and sale of securities for the Fund, and to get the best available
price and most favorable execution from these brokers with respect to all
transactions.

In the interest of obtaining better execution of a transaction, the advisers
may choose brokers who charge higher commissions. If more than one broker can
obtain the best available price and favorable execution of a transaction, then
the adviser is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to the advisers or the Fund. Also,
the Fund may direct the advisers to use a particular broker for certain
transactions in exchange for commission rebates or research services provided to
the Fund. However, the advisers will not pay higher commissions specifically for
the purpose of obtaining research services.

The Board of Trustees may, without prior approval from shareholders, change
the terms of the advisory agreement or hire a new investment adviser, either as
a replacement for the advisers or as an additional adviser. However, any such
change will be communicated to shareholders in writing.

Year 2000 Challenge

The common practice in computer programming of using just two digits to identify
a year has resulted in the Year 2000 challenge throughout the information
technology industry. If unchanged, many computer applications and systems could
misinterpret dates occurring after December 31, 1999, leading to errors or
failure. Such failure could adversely affect a fund's operations, including
pricing, securities trading, and the servicing of shareholder accounts.

The Vanguard Group is dedicated to providing uninterrupted, high-quality
performance from our computer systems before, during, and after 2000. In July
1998, we completed the renovation and initial testing of our internal systems.
Vanguard is diligently working with external partners, suppliers, and vendors,
including fund managers and other service providers, to assure that the systems
with which we interact remain operational at all times.

In addition to taking every reasonable step to secure our internal systems and
external relationships, Vanguard is further developing contingency plans
intended to assure that unexpected systems failures will not adversely affect
the Fund's operations. Vanguard intends to monitor these processes through the
rollover of 1999 into 2000 and to quickly implement alternate solutions if
necessary.

However, despite Vanguard's efforts and contingency plans, noncompliant
computer systems could have a material adverse effect on the Fund's business,
operations, or financial condition. Additionally, the Fund's performance could
be hurt if a computer-system failure at a company or governmental unit affects
the price of securities the Fund owns.

Dividends, Capital Gains, and Taxes

Each December, the Fund distributes to shareholders virtually all of its income
from interest and dividends, as well as any capital gains realized from the sale
of securities.

Dividend and capital gains distributions of Fund shares that are held as an
investment option in an employer-sponsored retirement or savings plan will be
reinvested in additional Fund shares and accumulate on a tax-deferred basis.
You will not owe taxes on these distributions until you begin withdrawals. You
should consult your plan administrator, your plan's Summary Plan Document, or
your own tax adviser about the tax consequences of an investment in the Fund and
of any plan withdrawals.

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. The capital gains are either short-term or long-term depending on
whether the fund held the securities for less than or more than one year.
<PAGE>

10
Share Price

The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of trading on the New York Stock Exchange (the NAV
is not calculated on holidays or other days 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, subtracting any of its liabilities (debts), and
then dividing by the number of Fund shares outstanding:

Total Assets - Liabilities
Net Asset Value = --------------------------------------
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: The Fund's investments will be priced at their market value
when market quotations are readily available. When these quotations are not
readily available, investments will be priced at their fair value, calculated
according to procedures adopted by the Fund's Board of Trustees.

The Fund's share price can be found daily in the mutual fund listings of most
major newspapers under the heading "Vanguard Funds." Different newspapers use
different abbreviations of the Fund's name, but the most common is Explr.

Financial Highlights

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

- --------------------------------------------------------------------------------
Explorer Fund
Year Ended October 31,
------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Year . $55.44 $51.05 $45.99 $49.37
- --------------------------------------------------------------------------------
Investment Operations
Net Investment Income . .26 .26 .24 .16
Net Realized and Unrealized Gain (Loss)
on Investments . 9.71 8.37 7.25 1.77
------------------------------------
Total from Investment Operations . 9.97 8.63 7.49 1.93
------------------------------------
Distributions
Dividends from Net Investment Income . (.27) (.24) (.17) (.14)
Distributions from Realized Capital Gains . (2.83) (4.00) (2.26) (5.17)
------------------------------------
Total Distributions . (3.10) (4.24) (2.43) (5.31)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year . $62.31 $55.44 $51.05 $45.99
================================================================================

Total Return . 18.93% 17.97% 17.46% 4.49%
================================================================================

From time to time, the Vanguard funds advertise yield and total return
figures. Yield is a measure of past dividend income. Total return includes both
past dividend income (assuming that it has been reinvested) plus realized and
unrealized capital appreciation (or depreciation). Neither yield nor total
return should be used to predict the future performance of a fund.

PLAIN TALK ABOUT

How to Read the
Financial Highlights Table

The Fund began fiscal 1998 with a net asset value (price) of $27.74 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 $27.74 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 October 31, 1998, the Fund had $ . billion in net assets. For the year,
its expense ratio was . % ($ . per $1,000 of net assets); and its net investment
income amounted to . % of its average net assets. It sold and replaced
securities valued at . % of its net assets.

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc.
<PAGE>

Investing with Vanguard

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

. If you have any questions about the Fund or Vanguard, including the Fund's
investment objective, strategies, or risks, contact Vanguard's Participant
Services Center, toll-free, at 1-800-523-1188.
. If you have questions about your account, contact your plan administrator or
the organization that provides record-keeping services for your plan.

Investment Options and Allocations

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

Transactions

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

Exchanges

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

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

. Certain investment options, particularly funds made up of company stock or
investment contracts, may be subject to unique restrictions.
. Make sure to read that fund's prospectus. Contact Participant Services,
toll-free, at 1-800-523-1188 for a copy.
. Vanguard can accept exchanges only as permitted by your plan. Contact your
plan administrator for details on the exchange policies that apply to your
plan.

Accessing Fund Information by Computer

- --------------------------------------------------------------------------------
Vanguard on the World Wide Web www.vanguard.com
Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard funds and services; an
online "university" that offers a variety of mutual fund classes;
and easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
- --------------------------------------------------------------------------------
<PAGE>

Glossary of Investment Terms

Capital Gains Distribution

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

Cash 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.

Country Risk

The possibility that events such as changes in regulation, political or
financial troubles, or natural disasters will weaken a country's economy and
cause investments in that country to lose money.

Currency Risk

The possibility that an American's foreign investment will lose money because of
unfavorable exchange rate movements.

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.

Fund Diversification

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

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.

Principal

The amount of your own money you put into an investment.

Securities

Stocks, bonds, 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>

[LOGO OF THE VANGUARD GROUP(R) APPEARS HERE]

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

For More Information
If you'd like more information about Vanguard Explorer Fund, the following
documents are available free upon request:

Annual/Semiannual Report to
Shareholders
Additional information about the Fund's investments is available in the Fund's
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 Fund's performance during the most recent fiscal
year.

Statement of Additional
Information (SAI)
The SAI provides more detailed information about the Fund.

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

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

The Vanguard Group
Participant Services Center
P.O. Box 2900
Valley Forge, PA 19482-2900

Telephone:
1-800-523-1188

Text Telephone:
1-800-523-8004

World Wide Web
www.vanguard.com

E-mail:
[email protected]

Information provided by the Securities and Exchange Commission (SEC)

You can review and copy information about the Fund (including the SAI) at the
SEC's Public Reference Room in Washington, D.C. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Fund 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.

Fund's Investment Company Act
file number: 811-1530

I024N-2/5/1999

<PAGE>

Vanguard Explorer Fund

Prospectus
February 5, 1999

A Small-Company Stock Mutual Fund

Contents

1 Fund Profile 11 Financial Highlights

3 Additional Information 12 Investing with Vanguard

3 A Word About Risk 12 Services and Account Features

3 Who Should Invest 13 Types of Accounts

4 Primary Investment Strategies 13 Buying Shares

7 The Fund and Vanguard 15 Redeeming Shares

7 Investment Advisers 18 Transferring Registration

9 Year 2000 Challenge 19 Fund and Account Updates

9 Dividends, Capital Gains, and Taxes Glossary (inside back cover)

10 Share Price

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

Why Reading This Prospectus Is Important

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

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

24
<PAGE>

1
Fund Profile

The following profile summarizes key features of Vanguard Explorer Fund.

INVESTMENT OBJECTIVE

The Fund is a stock fund that seeks to provide long-term capital growth.

INVESTMENT STRATEGIES

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

PERFORMANCE/RISK INFORMATION

------------------------------------------------------------------------
Annual Total Returns
------------------------------------------------------------------------

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

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

------------------------------------------------------------------------
Average Annual Total Returns For Years Ended December 31, 1998
------------------------------------------------------------------------
1 Year 5 Years 10 Years
------------------------------------------------------------------------
Vanguard Explorer Fund . % . % . %
Small Company Growth Fund Stock Index* . . .
------------------------------------------------------------------------
*Russell 2000 Index from 1987 through July 1997; Small Company Growth
Fund Stock Index thereafter.
------------------------------------------------------------------------

<PAGE>

PLAIN TALK ABOUT
The Costs of Investing

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

PLAIN TALK ABOUT
Fund Expenses

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Explorer Fund's expense ratio in fiscal year 1998 was .%, or
$. per $1,000 of average net assets. The average growth equity mutual fund had
expenses in 1998 of *%, or $* per $1,000 of average net assets, according to
Lipper Analytical Services, which reports on the mutual fund industry.

FEES AND EXPENSES

Shareholder Fees (fees paid directly from your investment)

Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fees: None
Exchange Fees: None

Annual Fund Operating Expenses (expenses deducted from the
Fund's assets)
Management (Administrative and Investment Advisory) Expenses: .%
12b-1 Distribution Fees: None
Other Expenses (Marketing, Taxes, Auditing, etc.): .%
Total Operating Expenses (Expense Ratio): .%

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 are turn of 5% a year, and that the operating expenses
remain the same. The results apply whether or not you redeem your
investment at the end of each period.

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>

3
<TABLE>
<CAPTION>
Additional Information
<S> <C>
Dividends and Capital Gains Suitable for IRAs
Paid annually in December Yes

Investment Adviser Minimum Initial Investment
The Fund employs a multi-adviser approach: $3,000; $1,000 for IRAs and custodial accounts for minors

. Granahan Investment Management, Inc., Waltham,
Mass., since 1990 Newspaper Abbreviation
. Wellington Management Company, LLP, Boston, Mass., Explr
since 1967
. Chartwell Investment Partners, Berwyn, Pa., since 1997 Vanguard Fund Number
. Vanguard Core Management Group, Valley Forge, Pa., 024
since 1997
Cusip Number
Inception Date 921926101
December 11, 1967
Ticker Symbol
Net Assets as of October 31, 1998 VEXPX
$ . billion
</TABLE>
- --------------------------------------------------------------------------------
A Word About Risk

Look for this [GRAPHIC APPEARS HERE] symbol throughout the prospectus. It is
used to mark detailed information about each type of risk that you would
confront as a shareholder of the Fund.

- --------------------------------------------------------------------------------
Who Should Invest

The Fund may be a suitable investment for you if:

PLAIN TALK ABOUT

Costs and Market-Timing

Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market 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 Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.

The Vanguard funds do not permit market-timing. Do not invest in this Fund if
you are a market-timer.

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

The Fund has adopted the following policies, among others, to discourage
short-term trading:

. The 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. This could be because of the timing of the
investment or because of a history of excessive trading by the investor.
. There is a limit on the number of times you can exchange into and out of the
Fund (see "Redeeming Shares" in the Investing with Vanguard section).
. The Fund reserves the right to stop offering shares at any time.

Primary Investment Strategies

This section explains the strategies that the investment advisers use in pursuit
of the Fund's objective, long-term growth in capital. It also explains how the
advisers implement these strategies. In addition, this section discusses
several important risks--market risk, investment style risk, and manager risk--
faced by investors in the Fund. The Board of Trustees oversees the management of
the Fund and may change the investment strategies in the interest of
shareholders.

PLAIN TALK ABOUT
Large-Cap,Mid-Cap,and Small-CapStocks

Stocks of publicly traded companies--and mutual funds that hold these stocks--
can be classified by the companies' market value, or capitalization. Generally,
Vanguard defines large-capitalization (large-cap) funds as those holding stocks
of companies whose outstanding shares have a median market value exceeding $7.5
billion. Mid-capfunds hold stocks of companies with a median market value
between $1 billionand $7.5 billion. Small-capfunds typically hold stocks of
companies with a median market value of less than $1 billion.

Market Exposure
The Fund's primary strategy is to invest chiefly in the stocks of small-capi-
talization companies that offer strong growth potential. These companies
typically provide little or no dividend income. The Fund may also invest in
securities that are convertible to common stocks.

[GRAPHIC The Fund is subject to market risk, which is the possibility that
OF FLAG stock prices overall will decline over short or even long periods.
APPEARS Stock markets tend to move in cycles, with periods of rising prices
HERE] and periods of falling prices.

<PAGE>

Best . . . .
Worst . . . .
Average . . . .
- --------------------------------------------------------------------------------

[GRAPHIC The Fund is subject to investment style risk, which is the possibility
APPEARS that returns from stocks of small companies will trail returns from
HERE] other asset classes or the overall stock market. As a group, these
stocks tend to go through cycles of doing better--or worse--than
common stocks in general. These periods have, in the past, lasted for
as long as several years.

Security Selection

Granahan Investment Management, Inc. (Granahan), which is expected to be
responsible for roughly [45%] of the Fund's assets, groups securities into three
categories as part of its selection process. The first category, "core growth,"
emphasizes companies that have a well-known or established product and, as a
result, have a proven record of growth and a strong market position. The second
category, "pioneers," comprises companies that offer unique products or
technologies that may lead to new products or expansion in to new markets.
Granahan judges "pioneer" stocks on the estimated growth potential compared to
market value. The third category, "special value," includes companies that lack
a record of strong growth but that, in the adviser's view, are both under valued
in the market and likely to grow in the next few years. "Core growth" stocks
make up 50% to 75% of Granahan's share of Fund assets, with the other two
categories at 10% to 25% each.

PLAIN TALK ABOUT
Fund Diversification and Concentration

<PAGE>

The Fund is generally managed without regard to tax ramifications.

[GRAPHIC The Fund is subject to manager risk, which is the possibility
APPEARS that the advisers may do a poor job of selecting stocks.
HERE]
PLAIN TALK ABOUT

Turnover Rate

Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long they have been held. The Fund's
average turnover rate for the past five years has been about . %. (A turnover
rate of 100% would occur, for example, if the Fund sold and replaced securities
valued at 100% of its net assets within a one-year period.)

Other Investment Policies and Risks

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

The Fund may also invest, to a limited extent, in stock futures and options
contracts, which are traditional types of derivatives. Losses (or gains)
involving futures can sometimes be sub-
<PAGE>

PLAIN TALK ABOUT

Derivatives

stantial--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.
This Fund will not use futures for speculative purposes or as leveraged
investments that magnify the gains or losses of an investment. The value of all
futures contracts in which the Fund acquires an interest cannot exceed 20% of
total assets.

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

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

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

The Fund and Vanguard

Investment Advisers

The Fund uses four investment advisers, each of which independently manages a
percentage of Explorer's assets subject to the control of the Trustees and
officers of the Fund.

PLAIN TALK ABOUT

Vanguard's Unique
Corporate Structure

PLAIN TALK ABOUT

The Fund's Advisers

The individuals primarily responsible for Vanguard Explorer Fund are:

Vanguard Core Management Group (the "Group"), P.O. Box 2600, Valley Forge, PA
19482, began managing a portion of the Fund's assets on August 1, 1997. The
Group provides investment advisory services to the Fund on an at-cost basis. The
Group serves as investment adviser to several Vanguard funds. As of September
30, 1998, the Group managed more than $116 billion in total assets. For the
fiscal year ended October 31, 1998, the net fee paid to Granahan was $., after a
decrease of $. based on performance.

For the fiscal year ended October 31, 1998, the net fee paid to WMC was $.,
after a decrease of $. based on performance. For the fiscal year ended October
31, 1998, the net fee paid to Chartwell was $. based on performance. For the
fiscal year ended October 31, 1998, the net fee paid to The Vanguard Group was
$. based on performance.

Year 2000 Challenge

Dividends, Capital Gains, and Taxes

Each December, the Fund distributes to shareholders virtually all of its income
from interest and dividends, as well as any capital gains realized from the sale
of its holdings. You can receive distributions of income or capital gains in
cash, or you can have them automatically invested in more shares of the Fund. In
either case, these distributions are taxable to you. It is important to note
that distributions of dividends and capital gains that are declared in
December--if paid to you by the end of January--are taxed as if they had been
paid to you in December.

Vanguard will send you a statement each year showing the tax status of all
your distributions. If you have chosen to receive dividend and/or capital gains
distributions in cash, and the postal or other delivery service is unable to
deliver checks to your address of record, we will change the distribution option
so that all dividends and other distributions are automatically invested in
additional shares. We will not pay interest on uncashed distribution checks.

. The dividends and short-term capital gains that you receive are considered
ordinary income for tax purposes.

PLAIN TALK ABOUT

Distributions

PLAIN TALK ABOUT
"Buying a Dividend"

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

. Any distributions of net long-term capital gains by the Fund are taxable to
you as long-term capital gains, no matter how long you've owned shares in the
Fund.
. The Fund's advisers do not consider taxes when deciding to buy or sell
securities. Although the Fund does not seek to realize any particular amount
of capital gains during a year, such gains are realized from time to time as
by-products of its ordinary investment activities. Consequently, distributions
may vary considerably from year to year.
. If you sell or exchange shares, any gain or loss you have 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.
. Distributions of dividends or capital gains, and capital gains or losses from
your sale or exchange of Fund shares, may be subject to state and local income
taxes as well.

The tax information in this prospectus is provided as general information and
will not apply to you if you are investing through a tax-deferred account such
as an IRA or a qualified employee benefit plan. You should consult your tax
adviser about the tax consequences of an investment in the Fund.

Share Price

Total Assets - Liabilities
Net Asset Value = --------------------------------------------
Number of Shares Outstanding

Financial Highlights

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Explorer Fund
Year Ended October 31,
-------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year . $ 55.44 $ 51.05 $ 45.99 $ 49.37
- -------------------------------------------------------------------------------------
Investment Operations
Net Investment Income . .26 .26 .24 .16
Net Realized and Unrealized Gain (Loss)
on Investments . 9.71 8.37 7.25 1.77
-------------------------------------------
Total from Investment Operations . 9.97 8.63 7.49 1.93
Distributions -------------------------------------------
Dividends from Net Investment Income . (.27) (.24) (.17) (.14)
Distributions from Realized Capital Gains . (2.83) (4.00) (2.26) (5.17)
-------------------------------------------
Total Distributions . (3.10) (4.24) (2.43) (5.31)
- -------------------------------------------------------------------------------------
Net Asset Value, End of Year . $ 62.31 $ 55.44 $ 51.05 $ 45.99
=====================================================================================

Total Return . 18.93% 17.97% 17.46% 4.49%
=====================================================================================

Ratios/Supplemental Data
Net Assets, End of Year (Millions) . $ 2,550 $ 2,186 $ 1,476 $ 1,112
Ratio of Total Expenses to
Average Net Assets . 0.62% 0.63% 0.68% 0.70%
Ratio of Net Investment Income to
Average Net Assets . 0.45% 0.51% 0.52% 0.39%
Turnover Rate . 84% 51% 66% 82%
- -------------------------------------------------------------------------------------
</TABLE>
From time to time, the Vanguard funds advertise yield and total return
figures. Yield is a measure of past dividend income. Total return includes both
past dividend income (assuming that it has been reinvested) plus realized and
unrealized capital appreciation (or depreciation). Neither yield nor total
return should be used to predict the future performance of a fund.

PLAIN TALK ABOUT

How to Read the Financial Highlights Table

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 $27.74 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 October 31, 1998, the Fund had $. billion in net assets. For the year,
its expense ratio was .% ($. per $1,000 of net assets); and its net investment
income amounted to .% of its average net assets. It sold and replaced
securities valued at .% of its net assets.

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc.
<PAGE>

Investing with Vanguard

Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?

Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.

The following sections of the prospectus briefly explain the many services we
offer. Booklets providing detailed information are available on the services
marked with a [GRAPHIC OF BOOK APPEARS HERE] 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 this Fund unless you notify us otherwise.
- --------------------------------------------------------------------------------
Vanguard Direct Deposit Service(TM) [GRAPHIC OF BOOK APPEARS HERE]

Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
Vanguard Automatic Exchange Service(TM) [GRAPHIC OF BOOK APPEARS HERE]

Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
Vanguard Fund Express(R) [GRAPHIC OF BOOK APPEARS HERE]

Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
Vanguard Dividend Express(TM) [GRAPHIC OF BOOK APPEARS HERE]

Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
Vanguard Tele-Account(R) 1-800-662-6273 [GRAPHIC OF BOOK APPEARS HERE]

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 exchange fund shares.
- --------------------------------------------------------------------------------
Access Vanguard(R) www.vanguard.com [GRAPHIC OF PC APPEARS HERE]

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 the website. We will then send to you, by mail, 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, Vanguard Fund Express(R),
bank instructions, checkwriting, and Vanguard Automatic Exchange Service(TM)).

*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
Investor Information Department: 1-800-662-7447 (SHIP) Text Telephone:
1-800-952-3335

Call Vanguard for information on our funds, fund services, and retirement
accounts, and to request literature.
- --------------------------------------------------------------------------------
Client Services Department: 1-800-662-2739 (CREW) Text Telephone: 1-800-662-2738

Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
Services for Clients of Vanguard's Institutional Division: 1-888-809-8102

Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------
<PAGE>

13
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 [GRAPHIC OF BOOK APPEARS HERE]

Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
For Individual Retirement Accounts [GRAPHIC OF BOOK APPEARS HERE]

Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
For an Organization [GRAPHIC OF BOOK APPEARS HERE]

Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
For Third-Party Trustee Retirement Investments

Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
Vanguard Prototype Plans

Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
A Note on Investing with Vanguard Through Other Firms

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

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.
- --------------------------------------------------------------------------------
Minimum Investment to . . .

open a new account
$3,000 (regular account); $1,000 (Traditional IRAs and Roth IRAs).

add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
A Note on Low Balances

The Fund reserves the right to close any nonretirement account whose balance
falls below the minimum initial investment. The Fund will deduct a $10 annual
fee in June if your nonretirement account balance falls below $2,500.
The fee is waived if your total Vanguard account assets are $50,000 or more.
- --------------------------------------------------------------------------------
By Mail to . . . [GRAPHIC OF ENVELOPE APPEARS HERE]

open a new account
Complete and sign the application 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.
<PAGE>

Buying Shares (continued)

Make your check payable to: The Vanguard Group-24
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 2600 455 Devon Park Drive
Valley Forge, PA 19482-2600 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division . . .

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
By Telephone to . . . [GRAPHIC APPEARS HERE]

open a new account
Call Vanguard Tele-Account(*) 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer I.D. number, and account type).

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

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
*You must obtain a Personal Identification Number through Tele-Account at
least seven days before you request your first exchange.
- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you've requested a telephone transaction and a confirmation
number has been assigned, the transaction cannot be revoked. We reserve the
right to refuse any purchase request.
- --------------------------------------------------------------------------------
By Wire to Open a New Account or Add to an Existing Account
Call Client Services to arrange your wire transaction. Wire transactions are not
available for retirement accounts, except for asset transfers and direct
rollovers.

Wire to:
FRB ABA 021001088
Marine Midland Bank, New York

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard Explorer Fund--24
[Account number, or temporary number for a new account]
[Registered account owner]
[Registered address]
- --------------------------------------------------------------------------------
<PAGE>

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

Keep in mind that if you buy or sell Fund shares through a registered
broker/dealer or investment adviser, the broker/dealer or adviser may charge you
a service fee.
- --------------------------------------------------------------------------------
A Note on Large Purchases

It is important that you call Vanguard before you invest a large dollar amount.
We must consider the interests of Fund shareholders and so reserve the right to
refuse any purchase that will 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.

*Proceeds sent to third parties require a signature guarantee; see footnote on
page 17.

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 both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in this prospectus. For
exchanges, the purchase side of the transaction will be based on the receiving
fund's next-determined share price, again subject to any special rules discussed
in this prospectus.
- --------------------------------------------------------------------------------
Note: Once a redemption is processed and a confirmation number given, the
transaction cannot be canceled.
- --------------------------------------------------------------------------------

HOW TO REQUEST A REDEMPTION

You can request a redemption (that is, either a sale or exchange of shares) from
your Fund account in any one of three ways: online, by telephone, or by mail.
- --------------------------------------------------------------------------------
Online Requests [GRAPHIC APPEARS HERE]

Access Vanguard at www.vanguard.com

You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through the website. We will then send you, by mail, an account access password
that will enable you to sell or exchange shares online (as well as perform other
transactions).

Note: The Vanguard funds whose shares you cannot exchange online or by
telephone are Vanguard U.S. Stock Index Funds, Vanguard Balanced Index Fund,
Vanguard International Stock Index Funds, Vanguard REIT Index Fund, Vanguard
Total International Stock Index Fund, and Vanguard Growth and Income Fund. These
funds do, however, permit online and telephone exchanges within IRAs and other
retirement accounts. If you sell shares of these funds online, you will receive
a redemption check at your address of record.
- --------------------------------------------------------------------------------
Telephone Requests [GRAPHIC APPEARS HERE]

All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours--to sell or exchange shares. You can exchange shares from this Fund to
open an account in another Vanguard fund or to add to an existing Vanguard fund
account with an identical registration.
<PAGE>

Redeeming Shares (continued)

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

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

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 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 [GRAPHIC APPEARS HERE]

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

Vanguard Retirement Accounts:

For information on how to request distributions from:

. Traditional IRAs and Roth IRAs--call Client Services.
. SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and
Money Purchase Pension (Keogh) Plans--call Individual Retirement Plans at
1-800-662-2003.

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

First-class mail to: Express or Registered mail to:

The Vanguard Group The Vanguard Group
P.O. Box 2600 455 Devon Park Drive
Valley Forge, PA 19482-2600 Wayne, PA 19087-1815
<PAGE>

17
For clients of Vanguard's Institutional Division...

First-class mail to: Express or Registered mail to:

The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
A Note on Large Redemptions

It is important that you call Vanguard before you redeem a large dollar amount.
We must consider the interests of all fund shareholders and so reserve the right
to delay delivery of your redemption proceeds--up to seven days--if the amount
will 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 three ways: check, wire
(money market funds and daily dividend funds only), or exchange to another
Vanguard fund.
- --------------------------------------------------------------------------------
Check Redemptions

Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
Wire Redemptions

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

For Money Market Funds:

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

For Daily Dividend Funds:

For telephone requests made by 4 p.m. EST, the wire will arrive at your bank by
the close of business on the following business day.
- --------------------------------------------------------------------------------
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:

x The Fund name and account number.
x The amount of the transaction (in dollars or shares).
x Signatures of all owners exactly as registered on the account (for mail
requests).
x Signature guarantees (if required).(*)
x Any supporting legal documentation that may be required.
x 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 banks,
credit unions, and licensed brokers.

Transactions are processed at the next-determined share price after Vanguard
has received all required information.
- --------------------------------------------------------------------------------
<PAGE>

Redeeming Shares (continued)

- --------------------------------------------------------------------------------
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.
. 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, "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 management of the
Fund.
- --------------------------------------------------------------------------------
Return Your Share Certificates

Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:

The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
All Trades Final

Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been received
and a confirmation number assigned.
- --------------------------------------------------------------------------------

Transferring Registration

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

First-class mail to: Express or Registered mail to:

The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division...

First-class mail to: Express or Registered mail to:

The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
<PAGE>

Fund and Account Updates

STATEMENTS AND REPORTS

We will send you clear, concise 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 markets, a report
from the advisers, a listing of the Fund's holdings, and other financial
statements.

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. When we find that two or more Fund
shareholders have the same last name and address, we send just one Fund report
to that address--instead of mailing separate reports to each shareholder. If you
want us to send separate reports, however, you may notify our Investor
Information Department at 1-800-662-7447.
- --------------------------------------------------------------------------------
Confirmation Statement

Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
Portfolio Summary [GRAPHIC APPEARS HERE]

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 December and June for this Fund.
- --------------------------------------------------------------------------------
Tax Statements

Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------
Average Cost Review Statement Issued quarterly for

most taxable accounts (accompanies your Portfolio Summary); shows the average
cost of shares that you redeemed during the calendar year, using the average
cost single category method.
- --------------------------------------------------------------------------------
<PAGE>

[TO COME]
<PAGE>

Glossary of Investment Terms

Capital Gains Distribution

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

Cash Reserves

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.

Country Risk

The possibility that events such as changes in regulation, political or
financial troubles, or natural disasters will weaken a country's economy and
cause investments in that country to lose money.

Currency Risk

The possibility that an American's foreign investment will lose money because of
unfavorable exchange rate movements.

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.

Fund Diversification

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

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.

Principal

The amount of your own money you put into an investment.

Securities

Stocks, bonds, and other investment vehicles.

Total Return

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>

[LOGO OF THE VANGUARD GROUP(R) APPEARS HERE]

Post Office Box 2600
Valley Forge, PA 19482-2600

For More Information

If you'd like more information about Vanguard Explorer Fund, the following
documents are available free upon request:

Annual/Semiannual Report to Shareholders

Additional information about the Fund's investments is available in the Fund's
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 Fund's performance during the most recent fiscal year.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Fund.

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

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

The Vanguard Group

Investor Information

Department
P.O. Box 2600
Valley Forge, PA 19482-2600

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

Text Telephone:
1-800-952-3335

World Wide Web
www.vanguard.com

E-mail:
[email protected]

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:
1-800-662-2738

Information provided by the Securities and Exchange Commission (SEC)

You can review and copy information about the Fund (including the SAI) at the
SEC's Public Reference Room in Washington, D.C. To find out more about this
public service, call the SEC at 1-800-SEC-0330. Reports and other information
about the Fund 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.

Fund's Investment Company Act file number: 811-1530

P024N-2/5/1999

22
<PAGE>

PART B

VANGUARD EXPLORER FUND

(THE "TRUST")

STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 5, 1999

This Statement is not a prospectus but should be read in conjunction with
the Trust's current Prospectus (dated February 5, 1999). To obtain the Pro-
spectus please call:

INVESTOR INFORMATION DEPARTMENT
1-800-662-7447

TABLE OF CONTENTS

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PAGE
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Description of the Trust................................................... B-1
Investment Policies........................................................ B-3
Purchase of Shares......................................................... B-8
Redemption of Shares....................................................... B-8
Share Price................................................................ B-9
Yield and Total Return..................................................... B-10
Fundamental Investment Limitations......................................... B-10
Management of the Trust.................................................... B-12
Investment Advisory Services............................................... B-15
Portfolio Transactions..................................................... B-23
Performance Measures....................................................... B-24
Financial Statements....................................................... B-28
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DESCRIPTION OF THE TRUST

ORGANIZATION

The Trust was originally known as the Executive Fund, and was organized as a
Delaware corporation in 1967. The Fund merged into a Maryland corporation in
1973, and was subsequently reorganized as a Delaware business trust in June
1998. Prior to its reorganization as a Delaware business trust, the Trust was
known as Vanguard Explorer Fund, Inc. The Trust is registered with the United
States Securities and Exchange Commission under the Investment Company Act of
1940 (the "1940 Act") as an open-end, diversified management investment compa-
ny. It currently offers the following fund and class of shares: Vanguard Ex-
plorer Fund, (the "Fund").

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 Trust
may issue for a single fund or class of shares.

SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the custodian. The custodian is responsible for
maintaining the Fund's assets and keeping all necessary accounts and records.

INDEPENDENT PUBLIC ACCOUNTANT. PricewaterhouseCoopers LLP, 30 South 17th
Street, Philadelphia, Pennsylvania 19103, serves as the Trust's independent
public accountant. The accountant audits the Trust's financial statements and
provides other related services.

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.

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CHARACTERISTICS OF THE TRUST'S SHARES

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

SHAREHOLDER LIABILITY. The Trust is organized under Delaware law, which pro-
vides that shareholders of a business trust are entitled to the same limita-
tions of personal liability as shareholders of a corporation organized under
Delaware law. Effectively, this means that a shareholder of the Trust will not
be personally liable for payment of the Trust'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 Trust obligation only if the Trust itself had no remain-
ing assets with which to meet such obligation. We believe that the possibility
of such a situation arising is extremely remote.

DIVIDEND RIGHTS. The shareholders of a fund are entitled to receive any div-
idends or other distributions declared for such fund. No shares have priority
or preference over any other shares of the same fund with respect to distribu-
tions. Distributions will be made from the assets of a fund, and will be paid
ratably to all shareholders of the fund (or class) according to the number of
shares of such fund (or class) held by shareholders on the record date. The
amount of income dividends per share may vary between separate share classes
of the same fund based upon differences in the way that expenses are allocated
between share classes pursuant to a multiple class plan.

VOTING RIGHTS. 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 mate-
rial degree the rights and preferences of the shares of any class or fund; or
(iii) the Trustees determine that it is necessary or desirable to obtain a
shareholder vote. The 1940 Act requires a shareholder vote under various cir-
cumstances, including to elect or remove Trustees upon the written request of
shareholders representing 10% or more of the Trust's net assets, and to change
any fundamental policy of the Trust. Shareholders of the Trust receive one
vote for each dollar of net asset value owned on the record date, and a frac-
tional vote for each fractional dollar of net asset value owned on the record
date. However, only the shares of the fund affected by a particular matter are
entitled to vote on that matter. Voting rights are non-cumulative and cannot
be modified without a majority vote of shareholders.

LIQUIDATION RIGHTS. In the event of liquidation, shareholders will be enti-
tled to receive a pro rata share of the net assets of applicable funds of the
Trust.

PREEMPTIVE RIGHTS. There are no preemptive rights associated with the Trust.

CONVERSION RIGHTS. There are no conversion rights associated with the Trust.

REDEMPTION PROVISIONS. The Trust's redemption provisions are described in
its current prospectus and elsewhere in this Statement of Additional Informa-
tion.

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

CALLS OR ASSESSMENT. The Trust's shares are fully paid and non-assessable.

TAX STATUS OF THE TRUST

The Fund qualifies 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

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capital gains distributed to shareholders. In order to preserve its tax sta-
tus, 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 tax-
able income at corporate rates, and all distributions from earnings and prof-
its, including any distributions of net tax-exempt income and net long-term
capital gains, will be taxable to shareholders as ordinary income. In addi-
tion, the Fund could be required to recognize unrealized gains, pay substan-
tial taxes and interest, and make substantial distributions before regaining
its tax status as a regulated investment company.

INVESTMENT POLICIES

The following policies supplement the Trust's investment objective and poli-
cies set forth in the Prospectus.

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 re-
purchase agreement is an agreement under which the Fund acquires a money mar-
ket instrument (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 in-
strument is held by the Fund and is unrelated to the interest rate on the un-
derlying instrument. In these transactions, the securities acquired by the
Fund (including accrued interest earned thereon) must have a total value in
excess of the value of the repurchase agreement and are held by a custodian
bank until repurchased. In addition, the Trust's Board of Trustees will moni-
tor the Fund's repurchase agreement transactions generally and will establish
guidelines and standards for review by the investment adviser of the credit-
worthiness 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 un-
derlying 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 under-
lying security is collateral for a loan by the Fund not within the control of
the Fund and therefore the realization by the Fund on such collateral may be
automatically stayed. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Fund's man-
agement acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.

LENDING OF SECURITIES

The Fund may lend its portfolio securities to qualified institutional in-
vestors (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 complet-
ing arbitrage operations. By lending its portfolio securities, the Fund at-
tempts to increase its 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
and the structure of such loans must be consistent with the Investment Company
Act of 1940, and the Rules and Regulations or interpretations of the Securi-
ties and Exchange 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 pledges and maintains with the Fund collateral consist-
ing of cash, a letter of credit, or securities issued or guaranteed by the
United States Government having a value at all times not less than

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100% of the value of the securities loaned, (b) the borrower adds to such col-
lateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan is made subject to ter-
mination by the Fund at any time, and (d) the Fund receives reasonable inter-
est on the loan (which may include the Fund's investing any cash collateral in
interest bearing short-term investments), any distributions on the loaned se-
curities 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 settle-
ment time of three business days. All relevant facts and circumstances, in-
cluding the creditworthiness of the broker, dealer, or institution, will be
considered in making decisions with respect to the lending of securities, sub-
ject to review by the Trust's Board of Trustees.

At the present time, the Staff of the Commission does not object if an in-
vestment company pays reasonable negotiated fees in connection with loaned se-
curities, so long as such fees are set forth in a written contract and ap-
proved by the investment company's Trustees. In addition, voting rights pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.

VANGUARD INTERFUND LENDING PROGRAM. The SEC 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 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 com-
pliance with all conditions of the SEC's exemptive order.

FUTURES CONTRACTS AND OPTIONS

The Fund may enter into futures contracts, options, and options on futures
contracts for several reasons: to maintain cash reserves while simulating full
investment, to facilitate trading, to reduce transaction costs, or to seek
higher investment returns when a futures contract is priced more attractively
than the underlying equity security or index. Futures contracts provide for
the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. Futures contracts which are standardized as to maturity date and under-
lying 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. As-
sets committed to futures contracts will be segregated to the extent required
by law.

Although futures contracts by their terms call for actual delivery or ac-
ceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Clos-
ing out an open futures position is done by taking an opposite position ("buy-
ing" a contract which has previously been "sold" or "selling" a contract pre-
viously "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 comple-
tion 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. Bro-
kers may establish deposit requirements which

B-4
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are higher than the exchange minimums. Futures contracts are customarily pur-
chased and sold on margin that may range upward from less than 5% of the value
of the contract being traded.

After a futures contract position is opened, the value of the contract is
marked to the market daily. If the futures contract price changes to the ex-
tent 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 ex-
cess 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 ex-
pects 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 unfavor-
able changes in the value of securities otherwise held for investment purposes
or expected to be acquired by them. Speculators are less inclined to own the
securities underlying the futures contracts which they trade, and use futures
contracts with the expectation of realizing profits from fluctuations in the
underlying securities. The Fund intends to use futures contracts only for bona
fide hedging purposes.

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 securi-
ties it owns against price declines 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 approximately 75% 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 the Fund's total assets. In addi-
tion, the Fund will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts would ex-
ceed 20% of the Fund's total assets.

RISK FACTORS IN FUTURES TRANSACTIONS

Positions in futures contracts may be closed out only on an Exchange which
provides a secondary market for such futures. However, there can be no assur-
ance that a liquid secondary market will exist for any particular futures con-
tract 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 port-
folio 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 deliv-
ery of the instruments underlying futures contracts it holds. The inability to
close options and futures positions also could have an adverse impact on the
ability of the Fund to hedge its portfolio effectively. The Fund will minimize
the risk that it will be unable to close out a futures contract by only enter-
ing into futures which are traded on national futures exchanges and for which
there appears to be a liquid secondary market.

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<PAGE>

The risk of loss in trading futures contracts in some strategies can be sub-
stantial, due to both 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 sub-
stantial 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 Advisers will incorrectly predict future market trends. However, be-
cause the futures strategies of the Fund are engaged in only for hedging pur-
poses, the Fund will not be 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 a fund does involve the risk of im-
perfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is
also possible that a 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 a 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 unfa-
vorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of 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 futures contracts
held 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 con-
tract. 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 unrecog-
nized gains on related positions held by the Fund.

In order for the Fund to continue to qualify for federal income tax treat-
ment 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, inter-
est, income derived from loans of securities, gains from the sale of securi-
ties, and other income derived with respect to its 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

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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 payments.

FOREIGN INVESTMENTS. As indicated in the Prospectus, the Trust may invest up
to 20% of its assets in foreign securities and may engage in currency transac-
tions with respect to such investments. Investors should recognize that in-
vesting 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 Trust will be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, and may incur costs in connection with conversions
between various currencies. The investment policies of the Fund permit it to
enter into forward foreign currency exchange contracts in order to hedge
holdings and commitments against changes in the level of future currency
rates. Such contracts involve an obligation to purchase or sell a specific
currency at a future date at a price set at the time of the contract.

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 ac-
quisition of any forward contract, futures contract, option and similar finan-
cial instrument if such instrument is not marked 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 ap-
plicable 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 con-
tracts 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 inte-
grated and treated as a single transaction or otherwise treated consistently
for purposes of the Code. Any gain or loss attributable to the foreign cur-
rency component of a transaction engaged in by a Fund which is not subject to
the special currency rules (such as foreign equity investments other than cer-
tain 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 antici-
pated that some of the non-U.S. dollar-denominated investments and foreign
currency contracts Vanguard Explorer Fund may make or enter into will be sub-
ject to the special currency rules described above.

Country Risk. As foreign companies are not generally subject to uniform ac-
counting, auditing, and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly avail-
able information about certain foreign companies than about domestic compa-
nies. 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.

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Although the Fund will endeavor to achieve most favorable execution costs in
its portfolio transactions in foreign securities, 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 custodial
arrangements of the Fund's foreign securities will be somewhat greater than
the expenses for the custodial arrangements for handling U.S. securities of
equal value.

Certain foreign governments levy withholding taxes against dividend and in-
terest income. Although in some countries a portion of these taxes is recover-
able, the non-recovered portion of foreign withholding taxes will reduce the
income the Fund receives from its foreign investments. However, these foreign
withholding taxes are not expected to have a significant impact on the Fund,
since it seeks long-term capital appreciation and any income should be consid-
ered incidental.

ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in il-
liquid securities. Illiquid securities are securities that may not be sold or
disposed of in the ordinary course of business within seven business days at
approximately the value at which they are being carried on the Fund's book.

The Fund may invest in restricted, privately placed securities that, under
SEC rules, may be sold only to qualified institutional buyers. Because these
securities can be resold only to qualified institutional buyers, they may be
considered illiquid securities--meaning that they could be difficult for the
Fund to convert to cash if needed.

If a substantial market develops for a restricted security held by the Fund,
it will be treated as a liquid security, in accordance with procedures and
guidelines approved by the Fund's Board of Trustees. This generally includes
securities that are unregistered that can be sold to qualified institutional
buyers in accordance with Rule 144A under the 1933 Act. While the Fund's in-
vestment adviser determines the liquidity of restricted securities on a daily
basis, the Board oversees and retains ultimate responsibility for the advis-
er's decisions. Several factors the Board considers in monitoring these deci-
sions include the valuation of a security, the availability of qualified in-
stitutional buyers, and the availability of information about the security's
issuer.

PURCHASE OF SHARES

The purchase price of shares of the Trust is the net asset value per share
next determined after the order is received. The net asset value per share is
calculated as of the close of the New York Stock Exchange on each day the Ex-
change is open for business. An order received prior to the close of the Ex-
change (generally 4:00 P.M. Eastern time) will be executed at the price com-
puted on the date of receipt, and an order received after the close of the
Exchange will be executed at the price computed on the next day the Exchange
is open.

The Trust reserves the right in its sole discretion (i) to suspend the of-
fering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interests of the Trust, and (iii) to
reduce or waive the minimum investment for, or any other restrictions on, ini-
tial and subsequent investments for certain fiduciary accounts such as em-
ployee benefit plans or under circumstances where certain economies can be
achieved in sales of the Trust's shares.

REDEMPTION OF SHARES

The Trust 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 Securities and Exchange
Commission (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 rea-
sonably 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.

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No charge is made by the Fund for redemptions. Any redemption may be more or
less than the shareholder's cost depending on the market value of the Fund's
portfolio securities.

SIGNATURE GUARANTEES. To protect your account, the Fund, and Vanguard from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Fund to verify the identity of a person who has autho-
rized a redemption from your account. Signature guarantees are required in
connection with: (1) all redemptions, regardless of the amount involved, when
the proceeds are to be paid to someone other than the registered owner(s); and
(2) share transfer requests. These requirements are not applicable to redemp-
tions in Vanguard's prototype plans except in connection with: (1) distribu-
tions made when the proceeds are to be paid to someone other than the plan
participant; (2) certain authorizations to effect exchanges by telephone; and
(3) when proceeds are to be wired. These requirements may be waived by the
Trust in certain instances.

Signature guarantees can be obtained from a bank, broker, or any other guar-
antor that Vanguard deems acceptable. Notaries public are not acceptable guar-
antors.

The signature guarantees must appear either: (1) on the written request for
redemption; (2) on a separate instrument for assignment ("stock power") which
should specify the total number of shares to be redeemed; or (3) on all stock
certificates tendered for redemption and, if shares held by the Fund are also
being redeemed, on the letter of stock power.

SHARE PRICE

The Fund's share price, or "net asset value" per share, is calculated by di-
viding the total assets of the Fund, less all liabilities, by the total number
of shares outstanding. The net asset value is determined as of the close of
the New York Stock Exchange (generally 4:00 p.m. Eastern time) on each day
that the Exchange is open for trading.

Portfolio securities for which market quotations are readily available
(which include 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 ex-
change where the security is primarily traded. 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 premi-
um, which approximates market value.

Bonds and other fixed income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the
fair market value of such securities. The prices provided by a pricing service
may be determined without regard to bid or last sale prices of each security,
but take into account institutional-size transactions in similar groups of se-
curities as well as any developments related to specific securities.

Foreign securities are valued at the last quoted sales price, according to
the broadest and most representative market, available at the time the Fund is
valued. If events which materially affect the value of a Fund's investment oc-
cur 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 the Fund's net asset value per share, all assets and liabili-
ties initially expressed in foreign currencies will be converted into U.S.
dollars using the officially quoted daily exchange rates

B-9
<PAGE>

used by Morgan Stanley Capital International in calculating various
benchmarking indices. This officially quoted exchange rate may be determined
prior to or after the close of a particular securities market. If such quota-
tions 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 the 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 Funds.

YIELD AND TOTAL RETURN

The yield of the Vanguard Explorer Fund for the thirty-day period ended Oc-
tober 31, 1998 was . %.

The average annual total returns for the Fund for the one-, five- and ten-
year periods ending October 31, 1998, were + . %, + . %, and + . %, respec-
tively. Total return is computed by determining the average compounded rates
of return over the one-, five-, and ten-year periods set forth above that
would equate an initial amount invested at the beginning of the period to the
ending redeemable value of the investment.

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 hold-
ers of a majority of the Fund's outstanding voting shares. For these purposes,
a "majority" of shares means shares representing the lesser of: (i) 67% or
more of a fund's net asset value, so long as shares representing more than 50%
of a fund's net asset value are present or represented by proxy; or (ii) more
than 50% of a 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, or Vanguard's interfund lending program only, and
must comply with all applicable regulatory conditions. The Fund may not make
any additional investments whenever its outstanding borrowings exceed 5% of
net assets.

COMMODITIES. The Fund may not invest in commodities, except that the Fund
may invest in stock futures contracts, stock options, and options on stock
futures contracts. No more than 5% of the Fund's total assets may be used as
initial margin deposit for futures contracts, and no more than 20% of the
Fund's total assets may be 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 is-
suer, 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 il-
liquid.

B-10
<PAGE>

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 the purpose
of controlling its management.

INVESTMENT COMPANIES. The Fund may not invest in any other investment compa-
ny, except through a merger, consolidation or acquisition of assets, or to the
extent permitted by Section 12 of the 1940 Act. Investment companies whose
shares the Fund acquires pursuant to Section 12 must have investment objec-
tives 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 securi-
ties, 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 com-
modities.

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

REAL ESTATE. The Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate and bonds se-
cured by real estate.

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

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

None of these limitations prevents the Fund from participating in The Van-
guard Group ("Vanguard"). Because the Fund is a member of the Group, the Fund
may own securities issued by Vanguard, make loans to Vanguard, and contribute
to Vanguard's costs or other financial requirements. See "Management of the
Trust" for more information.

The investment limitations set forth above are considered at the time in-
vestment securities are purchased. If a percentage restriction is adhered to
at the time the investment is made, a later increase in percentage resulting
from a change in the market value of assets will not constitute a violation of
such restriction.

B-11
<PAGE>

MANAGEMENT OF THE TRUST

OFFICERS AND TRUSTEES

The Officers of the Trust manage its day-to-day operations and are responsi-
ble to the Trust's Board of Trustees. The Trustees set broad policies for the
Trust and choose its Officers. The following is a list of the Trustees and Of-
ficers of the Trust and a statement of their present positions and principal
occupations during the past five years. As a group, the Trust's Trustees and
Officers own less than 1% of the outstanding shares of the Trust. Each Trustee
also serves as a Director of The Vanguard Group, Inc., and as a Trustee of
each of the 35 investment companies administered by Vanguard (34 in the case
of Mr. Malkiel and 28 in the case of Mr. MacLaury). The mailing address of the
Trustees and Officers of the Trust is Post Office Box 876, Valley Forge, PA
19482.

JOHN C. BOGLE, (DOB: 5/8/1929) Senior Chairman and Trustee*

Senior Chairman and Director of The Vanguard Group, Inc., and Trustee of each
of the investment companies in The Vanguard Group; Director of The Mead Corp.
(Paper Products), General Accident Insurance, and Chris-Craft Industries, Inc.
(Broadcasting & Plastics Manufacturer).

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.

BARBARA BARNES HAUPTFUHRER, (DOB: 10/11/1928) Trustee
Director of The Great Atlantic and Pacific Tea Co. (Retail Stores), IKON Of-
fice Solutions, Inc. (Office Products), Raytheon Co. (Defense/Electronics),
Knight-Ridder, Inc. (Publishing), Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; and Trustee Emerita of Wellesley Col-
lege.

JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) Trustee
Vice President, Chief Information Officer, and member of the Executive Commit-
tee of Johnson and Johnson (Pharmaceuticals/Consumer Products), Director of
Johnson & Johnson*MERCK Consumer Pharmaceuticals Co., Women First HealthCare,
Inc. (Research and Education Institution), Recording for the Blind and
Dyslexic, 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 Re-
search 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; Direc-
tor of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker
Fentress & Co. (Investment Management), The Jeffrey Co. (Holding Company), and
Southern New England Telecommunications Co.

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

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 & Gam-
ble Co., NACCO Industries (Machinery/Coal/Appliances), and Newfield Explora-
tion Co. (Energy); formerly, Director and Senior Partner of McKinsey & Co.,
and President of New York University.

B-12
<PAGE>

JAMES O. WELCH, JR., (DOB: 5/13/1931) Trustee
Retired Chairman of Nabisco Brands, Inc. (Food Products); retired Vice Chair-
man 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
Chairman and Chief Executive Officer of Rohm & Haas Co. (Chemicals); Director
of Cummins Engine Co. (Diesel Engine Company), and The Mead Corp. (Paper Prod-
ucts); 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 Trust are "interested persons" as defined in the Investment
Company Act of 1940.

THE VANGUARD GROUP

The Trust is a member of The Vanguard Group of Investment Companies, which
consists of more than 30 investment companies (the "Trusts"). Through their
jointly-owned subsidiary, The Vanguard Group, Inc. ("Vanguard"), the Trust,
and the other Trusts in The Vanguard Group obtain at cost virtually all of
their corporate management, administrative, and distribution services.
Vanguard also provides investment advisory services on an at-cost basis to
some of the Vanguard Trusts.

Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services to the Trusts and also
furnishes the Trusts with necessary office space, furnishings, and equipment.
Each Trust pays its share of Vanguard's total expenses, which are allocated
among the funds under procedures approved by the Board of Trustees of each
Trust. In addition, each Trust bears its own direct expenses, such as legal,
auditing, and custodian fees.

The Trust's Officers are also Officers and employees of Vanguard. No Officer
or employee owns, or is permitted to own, any securities of any external
adviser for the Trusts.

Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-1
under the Investment Company Act of 1940. 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.

Vanguard was established and operates under an Amended and Restated Funds'
Service Agreement which was approved by the shareholders of each of the
Trusts. The Amended and Restated Funds' Service Agreement provides for the
following arrangement: (a) each Vanguard Fund may invest up to .40% of its
current net assets in Vanguard, and (b) there is no limit on the dollar amount
that each Vanguard Fund may contribute to Vanguard's capitalization. The
amounts which each of the Funds has invested are adjusted from time to time in
order to maintain the proportionate relationship between each Fund's relative
net assets and its contribution to Vanguard's capital. At October 31, 1998,
Vanguard

B-13
<PAGE>

Explorer Fund had contributed capital of $ . to Vanguard, representing . %
of Vanguard's capitalization.

MANAGEMENT

Corporate management and administrative services include: (1) executive
staff; (2) accounting and financial; (3) legal and regulatory; (4) shareholder
account maintenance; (5) monitoring and control of custodian relationships;
(6) shareholder reporting; and (7) review and evaluation of advisory and other
services provided to the Trusts by third parties. During the fiscal year ended
October 31, 1998, the Trust's share of Vanguard's actual net costs of opera-
tion relating to management and administrative services (including transfer
agency) totaled approximately $ . .

DISTRIBUTION

Vanguard Marketing Corporation, a wholly-owned subsidiary of The Vanguard
Group, Inc., provides all distribution and marketing activities for the Trusts
in the Group. The principal distribution expenses are for advertising,
promotional materials, and marketing personnel. Distribution services may also
include organizing and offering to the public, from time to time, one or more
new investment companies which will become members of The Vanguard Group. The
Trustees and Officers of Vanguard determine the amount to be spent annually on
distribution activities, the manner and amount to be spent on each Trust, and
whether to organize new investment companies.

One half of the distribution expenses of a marketing and promotional nature
is allocated among the Funds based upon their relative net assets. The remain-
ing one half of these expenses is allocated among the Funds based upon each
Fund's sales for the preceding 24 months relative to the total sales of the
Trusts as a Group, provided, however, that no Fund's aggregate quarterly rate
of contribution for distribution expenses of a marketing and promotional na-
ture shall exceed 125% of the average distribution expense rate for The Van-
guard Group, and that no Fund shall incur annual distribution expenses in ex-
cess of .20 of 1% of its average month-end net assets. During the fiscal year
ended October 31, 1998, the Trust paid approximately $ . of The Vanguard
Group's distribution and marketing expenses, which represented an effective
annual rate of . of 1% of the Trust's average net assets.

INVESTMENT ADVISORY SERVICES

Vanguard provides investment advisory services to the Trust and several
other Vanguard Trusts. These services are provided on an at-cost basis from a
money management staff employed directly by Vanguard. The compensation and
other expenses of this staff are paid by the funds and Trusts utilizing these
services.

TRUSTEE COMPENSATION

The individuals in the following table serve as Trustees of all Vanguard
Trusts, and each Trust pays a proportionate share of the Trustees' compensa-
tion. 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.

. 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.

B-14
<PAGE>

"INTERESTED" TRUSTEES. The Trusts' interested Trustees--Messrs. Bogle and
Brennan--receive no compensation for their service in that capacity. However,
they are paid in their role as officers of The Vanguard Group, Inc.

COMPENSATION TABLE. The following table provides compensation details for
each of the Trustees. For the Trust, we list the amounts paid as compensation
and accrued as retirement benefits by the Trust 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 com-
pensation paid to each Trustee by all Vanguard Trusts. All information shown
is for the fiscal year ended October 31, 1998.

VANGUARD EXPLORER FUND
COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
BENEFITS ANNUAL FROM ALL
AGGREGATE ACCRUED AS BENEFITS VANGUARD
COMPENSATION PART OF TRUST UPON TRUSTS PAID TO
NAMES OF TRUSTEES FROM TRUST EXPENSES RETIREMENT TRUSTEES(1)
- ----------------- ------------ ------------- ---------- --------------
<S> <C> <C> <C> <C>
John C. Bogle............. -- -- -- --
John J. Brennan........... -- -- -- --
Barbara Barnes
Hauptfuhrer.............. $ . $ . $ . $ .
JoAnn Heffernan Heisen.... $ . $ . $ . $ .
Robert E. Cawthorn(2)..... $ . $ . $ . $ .
Bruce K. MacLaury......... $ . $ . $ . $ .
Burton G. Malkiel......... $ . $ . $ . $ .
Alfred M. Rankin, Jr...... $ . $ . $ . $ .
John C. Sawhill........... $ . $ . $ . $ .
James O. Welch, Jr........ $ . $ . $ . $ .
J. Lawrence Wilson........ $ . $ . $ . $ .
</TABLE>
- --------
(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 35 Vanguard Trusts (34
in the case of Mr. Malkiel; 28 in the case of Mr. MacLaury).
(2) Mr. Cawthorn has retired from the Trust's Board, effective May 31, 1998.

INVESTMENT ADVISORY SERVICES

The Trust currently uses four separate investment advisers, each of whom
manages the investment and reinvestment of a portion of the Trust's assets.
Until February 28, 1990, when the Trust acquired the assets of Explorer II,
WMC was sole investment adviser to the Trust (then known simply as Explorer
Fund), and Granahan served as sole investment adviser to Explorer II, the ac-
quired Trust. Chartwell Investment Partners and The Vanguard Group Inc. were
added as advisers August 1, 1997.

The proportion of the net assets of the Trust managed by each adviser was
established by the Board of Trustees and may be changed in the future by the
Board of Trustees as circumstances warrant. Investors will be advised of any
substantive change in the proportions managed by each adviser. Because the
Trust uses four advisers it is possible that the advisers would purchase or
sell the same security at the same time. Such a situation might result in in-
creased brokerage costs or adverse tax consequences to the Trust. The Board of
Trustees monitors portfolio activity in order to minimize any possible adverse
consequences.

B-15
<PAGE>

WELLINGTON MANAGEMENT COMPANY, LLP

The Trust has entered into an advisory agreement with WMC under which WMC
manages the investment and reinvestment of a portion of the Trust's assets
(the "WMC Portfolio") and continuously reviews, supervises and administers the
Trust's investment program with respect to those assets. As of October 31,
1998, WMC managed approximately . % of the Trust's net assets. WMC discharges
its responsibilities subject to the control of the Officers and Trustees of
the Trust.

WMC is a professional investment counseling firm which globally provides in-
vestment services to investment companies, other institutions and individuals.
WMC is a Massachusetts limited liability partnership of which the following
persons are managing partners: Robert W. Doran, Duncan M. McFarland and John
R. Ryan.

WMC and its predecessor organizations have provided investment advisory
services to investment companies since 1928 and to investment counseling cli-
ents since 1960.

Kenneth L. Abrams, Senior Vice President of WMC, serves as portfolio manager
of the assets of the Trust assigned to WMC. Mr. Abrams has been employed by
WMC for 13 years and has served as portfolio manager of the Trust since 1994.

The Fund pays WMC a Basic Fee at the end of each fiscal quarter, calculated
by applying a quarterly rate, based on the following annual percentage rates,
to the average month-end net assets of the WMC Portfolio for the quarter:

<TABLE>
<CAPTION>
NET ASSETS RATE
---------- -----
<S> <C>
First $500 million..................................................... .250%
Next $250 million...................................................... .200%
Next $250 million...................................................... .150%
Assets in excess of $1 billion......................................... .100%
</TABLE>

The Basic Fee, as provided above, shall be increased or decreased by apply-
ing an incentive/penalty fee adjustment based on the investment performance of
the WMC Portfolio relative to the investment performance of the Small Company
Growth Fund Stock Index (the "Index")(1).

The following table sets forth the adjustment factors to the base advisory
fee payable by the Fund to WMC under this investment advisory agreement:

CUMULATIVE 36-MONTH
PERFORMANCE VERSUS THE INDEX

<TABLE>
<CAPTION>
PERFORMANCE FEE
ADJUSTMENT(2)
-----------------
<S> <C>
Trails by -12% or more........................................ -0.50 X Basic Fee
Trails by more than -6% up to -12%............................ -0.25 X Basic Fee
Trails/exceeds from -6% through 6%............................ 0.00 X Basic Fee
Exceeds by more than 6% but less than 12%..................... +0.25 X Basic Fee
Exceeds by 12% or more........................................ +0.50 X Basic Fee
</TABLE>
- --------

(1) For purposes of this calculation, the basic fee is calculated by applying
the quarterly rate against the Fund's average net assets over the same
time period that performance is measured.
(2) Prior to July 31, 1997, WMC's fees were calculated by using the Russell
2000 Index as a performance benchmark. Beginning with the quarter-ending
October 31, 1997, the "new" benchmark (Small Company Growth Fund Stock
Index) has been phased in over a 36-month period by calculating WMC's
incentive/penalty fee based on the linked performance of new and old
benchmarks.

B-16
<PAGE>

For the purpose of determining the fee adjustment for investment perfor-
mance, as described above, the net assets of the WMC Portfolio shall be aver-
aged over the same period as the investment performance of the WMC Portfolio
and the investment record of the Index are computed.

Under the rules of the Securities and Exchange Commission, and as a result
of a prior advisory agreement dated August 1, 1996, the current
incentive/penalty fee will not be fully operable until the quarter ending July
31, 1999. Until that date, a "blended" fee rate consisting of varying percent-
ages of (i) the performance adjustment based on the schedule set forth above
(the "current rate"), and (ii) the performance adjustment based on the sched-
ule set forth in the Trust's previous investment advisory agreement with
WMC(1) (the "previous rate") shall be used as follows:

1. QUARTER ENDING APRIL 30, 1997. The incentive/penalty fee was cal-
culated as the sum of 25% of the fee payable under the new rate plus
75% of the fee payable under the previous rate.

2. QUARTER ENDING JULY 31, 1997. The incentive/penalty fee was calcu-
lated as the sum of 33% of the fee payable under the new rate plus 67%
of the fee payable under the previous rate.

3. QUARTER ENDING OCTOBER 31, 1997. The incentive/penalty fee was
calculated as the sum of 41.6% of the fee payable under the new rate
plus 58.4% of the fee payable under the previous rate.

4. QUARTER ENDING JANUARY 31, 1998. The incentive/penalty fee was
calculated as the sum of 50% of the fee payable under the new rate plus
50% of the fee payable under the previous rate.

5. QUARTER ENDING APRIL 30, 1998. The incentive/penalty fee was cal-
culated as the sum of 58.4% of the fee payable under the new rate plus
41.6% of the fee payable under the previous rate.

6. QUARTER ENDING JULY 31, 1998. The incentive/penalty fee was calcu-
lated as the sum of 67% of the fee payable under the new rate plus 33%
of the fee payable under the previous rate.

7. QUARTER ENDING OCTOBER 31, 1998. The incentive/penalty fee was
calculated as the sum of 75% of the fee payable under the new rate plus
25% of the fee payable under the previous rate.

8. QUARTER ENDING JANUARY 31, 1999. The incentive/penalty fee was
calculated as the sum of 83.3% of the fee payable under the new rate
plus 16.7% of the fee payable under the previous rate.

9. QUARTER ENDING APRIL 30, 1999. The incentive/penalty fee shall be
calculated as the sum of 91.7% of the fee payable under the new rate
plus 8.3% of the fee payable under the previous rate.

10. QUARTER ENDING JULY 31, 1999. New rate fully operable.
- --------

(1) The previous incentive/penalty fee structure provided that the Basic Fee
be increased or decreased by an amount equal to .0375% per annum (.009375
of 1% per quarter) of the average month-end assets if the Fund's
investment performance for the 36 months preceding the end of the quarter
was between 6 and 12 percentage points above or below, respectively, the
investment record of the Russell 2000 Small Company Stock Index and .075%
per annum (.01875 of 1% per quarter) of the average month-end assets of
the Fund if the Fund's investment performance for the 36 months preceding
the end of the quarter was twelve percentage points or more above or
below, respectively, the investment record of the Russell 2000 Small
Company Stock Index.

B-17
<PAGE>

The investment performance of the WMC Portfolio for any period, expressed as
a percentage of the "WMC Portfolio unit value" at the beginning of such peri-
od, is the sum of: (i) the change in the WMC Portfolio unit value during such
period; (ii) the unit value of the Fund's cash distributions from the WMC
Portfolio net investment income and realized net capital gains (whether long-
term or short-term) having an ex-dividend date occurring within such period;
and (iii) the unit value of capital gains taxes paid or accrued during such
period by the Fund for undistributed realized long-term capital gains realized
from the WMC Portfolio.

The "WMC Portfolio unit value" is determined by dividing the total net as-
sets of the WMC Portfolio by a given number of units. Pursuant to the Trust's
investment advisory agreement with WMC dated February 28, 1990, the number of
units in the WMC Portfolio originally equaled the total shares outstanding of
the Trust on that date. Subsequently, as assets have been added to or with-
drawn from the WMC Portfolio, the number of units of the WMC Portfolio has
been and shall continue to be adjusted based on the unit value of the WMC
Portfolio on the day such changes are executed.

The investment record of the Index or Russell 2000 for any period, expressed
as a percentage of the Index or Russell 2000 at the beginning of such period,
is the sum of (i) the change in the level of the Index or Russell 2000 during
such period and (ii) the value, computed consistently with the Index or Rus-
sell 2000, of cash distributions having an ex-dividend date occurring within
such period made by companies whose securities comprise the Index or Russell
2000. For this purpose, cash distributions on the securities which comprise
the Small Company Growth Stock Index shall be treated as reinvested in the In-
dex or Russell 2000 as applicable at least as frequently as the end of each
calendar quarter following the payment of the dividend.

For the purposes of determining the fee adjustment for investment perfor-
mance, the net assets of the WMC Portfolio are averaged over the same period
as the investment performance of the WMC Portfolio and the investment record
of the linked return of the Russell 2000 and the Index is computed.

Any computation of the investment performance of the WMC Portfolio and the
investment record of the Russell 2000 and Indexes shall be subject to and in
accordance with any then applicable rules of the Securities and Exchange Com-
mission.

During the fiscal years ended October 31, 1996, 1997, and 1998, the Fund
paid WMC approximately the following advisory fees:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----
<S> <C> <C> <C>
Basic Fee........................................ $1,922,594 $1,950,387 $ .
Increase (Decrease) for Performance Adjustment... 6,708 (89,408) .
---------- ---------- ----
Total.......................................... $1,929,302 $1,860,979 $ .
========== ========== ====
</TABLE>

These fees were paid under a previous fee schedule that provided for a
higher rate of fees.

GRANAHAN INVESTMENT MANAGEMENT, INC.

On February 28, 1990, effective with the acquisition of the assets of Ex-
plorer II, the Trust retained Granahan Investment Management, Inc.
("Granahan") as a second investment adviser. Under its advisory agreement with
the Trust, Granahan manages the investment and reinvestment of a portion of
the Trust's assets (the "Granahan Portfolio") and continuously reviews, super-
vises and administers the Trust's investment program with respect to those as-
sets. As of October 31, 1998, Granahan managed approximately . % of the
Trust's net assets. Granahan discharges its responsibilities subject to the
control of the Officers and Trustees of the Trust.

B-18
<PAGE>

Granahan Investment Management, Inc., is an investment advisory firm spe-
cializing in small company stock investments. Mr. John Granahan is the Presi-
dent and major stockholder of Granahan Investment Management, Inc.

The Fund pays Granahan a Basic Fee at the end of each fiscal quarter, calcu-
lated by applying a quarterly rate, based on the following annual percentage
rates, to the average month-end net assets of the Granahan Portfolio for the
quarter:

<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C>
First $500 million..................................................... .300%
Next $250 million...................................................... .200%
Next $250 million...................................................... .150%
Assets in excess of $1 billion......................................... .100%
</TABLE>

The Basic Fee paid to Granahan may be increased or decreased by applying an
adjustment formula based on the investment performance of the net assets of
the Granahan Portfolio. Such formula provides for an increase or decrease in
Granahan's Basic Fee in an amount equal to .075% per annum (.01875 per quar-
ter) of the average month-end net assets of the Granahan Portfolio if the in-
vestment performance of the Granahan Portfolio for the thirty-six months pre-
ceding the end of the quarter is twelve percentage points or more above or
below, respectively, the investment record of the Index for the same period;
or by an amount equal to .0375% per annum (.009375 of 1% per quarter) if the
investment performance of the Granahan Portfolio for such thirty-six months is
six or more but less than twelve percentage points above or below, respective-
ly, the investment record of the Index for the same period.(1) The incentive
portion of the fee may be earned even if the performance of the Granahan Port-
folio for the period is negative provided that the Portfolio's performance ex-
ceeds the Index by the required percentage.

The investment performance of the Granahan Portfolio for any period, ex-
pressed as a percentage of the "Granahan Portfolio unit value" at the begin-
ning of such period, is the sum of: (i) the change in the Granahan Portfolio
unit value during such period; (ii) the unit value of the Fund's cash distri-
butions from the Granahan Portfolio net investment income and realized net
capital gains (whether long-term or short-term) having an ex-dividend date oc-
curring within such period; and (iii) the unit value of capital gains taxes
paid or accrued during such period by the Trust for undistributed realized
long-term capital gains realized from the Granahan Portfolio.

The "Granahan Portfolio unit value" is determined by dividing the total net
assets of the Granahan Portfolio by a given number of units. Pursuant to the
Trust's investment advisory agreement with Granahan dated February 28, 1990,
the number of units in the Granahan Portfolio originally equalled the total
shares outstanding of the Trust on that date. Subsequently, as assets have
been added to or withdrawn from the Granahan Portfolio, the number of units of
the Granahan Portfolio has been, and shall continue to be, adjusted based on
the unit value of the Granahan Portfolio on the day such changes are executed.

The investment record of the Small Company Growth Fund Stock Index or Rus-
sell 2000 for any period, expressed as a percentage of the Index or Russell
2000 at the beginning of such period, is the sum of (i) the change in the
level of the Index or Russell 2000 during such period and (ii) the value, com-
puted consistently with the Index or Russell 2000, of cash distributions hav-
ing an ex-dividend date
- --------
(1) Prior to July 31, 1997, Granahan's fees were calculated by using the
Russell 2000 Index as a performance benchmark. Beginning with the quarter-
ending October 31, 1997, the "new" benchmark (Small Company Growth Fund
Stock Index) has been phased in over a 36-month period by calculating
Granahan's incentive/penalty fee based on the linked performance of the
new and old benchmarks.

B-19
<PAGE>

occurring within such period made by companies whose securities comprise the
Index or Russell 2000. For this purpose cash distributions on the securities
which comprise the Index or Russell 2000 shall be treated as reinvested in the
Index or Russell 2000, as applicable, at least as frequently as the end of
each calendar quarter following the payment of the dividend.

For the purposes of determining the fee adjustment for investment perfor-
mance, the net assets of the Granahan Portfolio are averaged over the same pe-
riod as the investment performance of the Granahan Portfolio and the invest-
ment record of the linked return of the Russell 2000 and Index is computed.

The Index shall not be fully operable as the performance benchmark used to
determine Granahan's performance fee adjustment until the quarter ending July
31, 2000. Until that date, Granahan's performance fee adjustment shall be de-
termined by linking the investment performance of the Index and that of the
Russell 2000 Small Company Stock Index (the "Russell 2000") as follows:

1. QUARTER ENDING OCTOBER 31, 1997. Granahan's performance fee adjustment
was determined by linking the investment performance of the Russell 2000
for the eleven quarters ending July 31, 1997 with that of the Index for the
quarter ending October 31, 1997.

2. QUARTER ENDING JANUARY 31, 1998. Granahan's performance fee adjustment
was determined by linking the investment performance of the Russell 2000
for the ten quarters ending July 31, 1997 with that of the Index for the
two quarters ending January 31, 1998.

3. QUARTER ENDING APRIL 30, 1998. Granahan's performance fee adjustment
was determined by linking the investment performance of the Russell 2000
for the nine quarters ending July 31, 1997 with that of the Index for the
three quarters ending April 30, 1998.

4. QUARTER ENDING JULY 31, 1998. Granahan's performance fee adjustment
was determined by linking the investment performance of the Russell 2000
for the eight quarters ending July 31, 1997 with that of the Index for the
four quarters ending July 31, 1998.

5. QUARTER ENDING OCTOBER 31, 1998. Granahan's performance fee adjustment
was determined by linking the investment performance of the Russell 2000
for the seven quarters ending July 31, 1997 with that of the Index for the
five quarters ending October 31, 1998.

6. QUARTER ENDING JANUARY 31, 1999. Granahan's performance fee adjustment
was determined by linking the investment performance of the Russell 2000
for the six quarters ending July 31, 1997 with that of the Index for the
six quarters ending January 31, 1999.

7. QUARTER ENDING APRIL 30, 1999. Granahan's performance fee adjustment
shall be determined by linking the investment performance of the Russell
2000 for the five quarters ending July 31, 1997 with that of the Index for
the seven quarters ending April 30, 1999.

8. QUARTER ENDING JULY 31, 1999. Granahan's performance fee adjustment
shall be determined by linking the investment performance of the Russell
2000 for the four quarters ending July 31, 1997 with that of the Index for
the eight quarters ending July 31, 1999.

9. QUARTER ENDING OCTOBER 31, 1999. Granahan's performance fee adjustment
shall be determined by linking the investment performance of the Russell
2000 for the three quarters ending July 31, 1997 with that of the Index for
the nine quarters ending October 31, 1999.

10. QUARTER ENDING JANUARY 31, 2000. Granahan's performance fee adjust-
ment shall be determined by linking the investment performance of the Rus-
sell 2000 for the two quarters ending July 31, 1997 with that of the Index
for the ten quarters ending January 31, 2000.

11. QUARTER ENDING APRIL 30, 2000. Granahan's performance fee adjustment
shall be determined by linking the investment performance of the Russell
2000 for the quarter ending July 31, 1997 with that of the Index for the
eleven quarters ending April 30, 2000.

12. QUARTER ENDING JULY 31, 2000. The Index shall be fully operable.

B-20
<PAGE>

Any computation of the investment performance of the Granahan Portfolio and
the investment record of the Russell 2000 shall be subject to and in accor-
dance with any then applicable rules of the Securities and Exchange Commis-
sion.

During the fiscal years ended October 31, 1996, 1997 and 1998, the Fund paid
Granahan approximately the following advisory fees:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----
<S> <C> <C> <C>
Basic Fee........................................ $2,389,787 $2,532,966 $ .
Increase (Decrease) for Performance Adjustment... 386,752 (242,952) .
---------- ---------- ----
Total.......................................... $2,776,539 $2,290,014 $ .
========== ========== ====
</TABLE>

These fees were paid under a previous fee schedule that provided for a
higher rate of fees.

CHARTWELL INVESTMENT PARTNERS

The Trust also employs Chartwell Investment Partners ("Chartwell") under an
investment advisory agreement to manage the investment and reinvestment of ap-
proximately 10% of the Trust's assets. Chartwell discharges its responsibili-
ties subject to the control of the Officers and Trustees of the Trust.

For the services provided by Chartwell under the advisory agreement the Fund
will pay Chartwell a basic fee at the end of each fiscal quarter, calculated
by applying a quarterly rate, based on the following annual percentage rates,
to the average month-end net assets of the Chartwell Portfolio for the quar-
ter:

<TABLE>
<CAPTION>
NET ASSETS RATE
---------- ----
<S> <C>
First $250 million..................................................... 0.40%
Next $250 million...................................................... 0.30%
Over $500 million...................................................... 0.20%
</TABLE>

Effective with the quarter ending July 31, 1998 the Basic Fee, as provided
above, was increased or decreased by applying an incentive/penalty fee adjust-
ment based on the investment performance of the Chartwell Portfolio relative
to the investment performance of the Small Company Growth Fund Stock Index.
The following table sets forth the fee payable by the Fund to Chartwell based
upon the incentive/penalty adjustment:

<TABLE>
<CAPTION>
THREE-YEAR CUMULATIVE
PERFORMANCE DIFFERENTIAL PERFORMANCE FEE
VERSUS SCGFSI ADJUSTMENT*
------------------------ -----------------
<S> <C>
Trails by -12% or more..................................... -0.20 X Basic Fee
Trails by more than -6% up to -12%......................... -0.10 X Basic Fee
Trails/exceeds from -6 through +6.......................... 0.00 X Basic Fee
Exceeds by more than 6% but less than 12%.................. +0.10 X Basic Fee
Exceeds by 12% of more..................................... +0.20 X Basic Fee
</TABLE>
- --------

* For purposes of this calculation, the Basic Fee is calculated by applying
the quarterly rate against the Fund's average net assets over the same time
period which the performance is measured.

Through the quarter ending July 31, 2000, the incentive/penalty fee for
Chartwell will be calculated according to the following transition rules:

(A) AUGUST 1, 1997 THROUGH APRIL 30, 1998. Beginning with the quarter
ending October 31, 1997 and through the quarter ending April 30, 1998,
there has been no Performance Fee Adjustment.

B-21
<PAGE>

(B) MAY 1, 1998 THROUGH JULY 31, 2000. Beginning with the quarter ending
July 31, 1998 and through the quarter ending July 31, 2000, the Performance
Fee Adjustment will be computed based upon a comparison of the investment
performance of the Chartwell Portfolio and that of the Index over the num-
ber of quarters that have elapsed between August 1, 1997 and the end of the
quarter for which the fee is computed. During this period, the number of
percentage points by which the investment performance of the Chartwell
Portfolio must exceed or trail the investment performance of the Index at
each Performance Fee Adjustment level shall be determined on the basis of a
fraction applied to the performance differentials shown in the above table.
For each quarter, this fraction shall equal the number of quarters elapsed
since August 1, 1997 divided by twelve.

(C) ON AND AFTER JULY 31, 2000. For the quarter ending July 31, 2000 and
thereafter, the period used to calculate the Performance Fee Adjustment
shall be the 36 months through the end of the quarter for which the fee is
being computed and the number of percentage points used shall be as stated
in the table above.

The investment performance of the Fund, for any period, expressed as a per-
centage of the "Portfolio Unit Value" at the beginning of such period, will be
the sum of: (i) the change in the Portfolio Unit Value during such period;
(ii) the unit value of the Fund's cash distributions from the Fund's net in-
vestment income and realized net capital gains (whether long-term or short-
term) having an ex-dividend date occurring within such period; and (iii) the
unit value of taxes paid including withholding taxes and capital gains taxes
paid or accrued during such period by the Trust for undistributed realized
long-term capital gains realized from the Fund.

The "Portfolio Unit Value" will be determined by dividing the total net as-
sets of the Fund by a given number of units. On the initial date of the agree-
ment, the number of units in the Fund will equal the total shares outstanding
of the Trust. After such initial date, as assets are added to or withdrawn
from the Fund, the number of units of the Fund will be adjusted based on the
unit value of the Fund on the day such changes are executed.

For the purposes of determining the incentive/penalty fee adjustment, the
Fund's net assets will be averaged over the same time period as the investment
performance of those assets and the investment record of the Small Company
Growth Fund Stock Index are computed.

For the period August 1, 1997 to October 31, 1997, and the fiscal year ended
October 31, 1998, the Fund paid Chartwell Investment Partners the following
advisory fee:

<TABLE>
<CAPTION>
FISCAL YEAR
8/1/1997-10/31/1997 ENDED 10/31/1998
------------------- ----------------
<S> <C> <C>
Basic Fee.............................. $202,329 $ .
Increase (Decrease) for Performance
Adjustment............................ 0 .
-------- ----
Total................................ $202,329 $ .
======== ====
</TABLE>

DURATION AND TERMINATION OF INVESTMENT ADVISORY AGREEMENTS

The Trust's current agreements with WMC, Granahan and Chartwell will be re-
newable for successive one year periods, only if each renewal is specifically
approved by a vote of the Fund's Board of Trustees, including the affirmative
votes of a majority of the Trustees who are not parties to the contract or
"interested persons" (as defined in the Investment Company Act of 1940) of any
such party, cast in person at a meeting called for the purpose of considering
such approval. An agreement is automatically terminated if assigned, and may
be terminated without penalty at any time (1) either by vote of the Board of
Trustees of the Trust on 60 days' written notice to the adviser, or (2) by the
adviser upon 90 days' written notice to the Trust.

B-22
<PAGE>

MORE INFORMATION ON ADVISERS' INCENTIVE PENALTY FEES

In April 1972, the Securities and Exchange Commission ("SEC") issued Release
No. 7113 under the Investment Company Act of 1940 to call the attention of
trustees and investment advisers to certain factors which must be considered
in connection with investment company incentive fee arrangements. One of these
factors is to "avoid basing significant fee adjustments upon random or insig-
nificant differences" between the investment performance of a trust and that
of the particular index with which it is being compared. The Release provides
that "preliminary studies (of the SEC staff) indicate that as a "rule of
thumb' the performance difference should be at least P10 percentage points"
annually before the maximum performance adjustment may be made. However, the
Release also states that "because of the preliminary nature of these studies,
the Commission is not recommending, at this time, that any particular perfor-
mance difference exist before the maximum fee adjustment may be made." The Re-
lease concludes that the trustees of a trust should satisfy themselves that
the maximum performance adjustment will be made only for performance differ-
ences that can reasonably be considered "significant." The Board of Trustees
of Vanguard Explorer Fund has fully considered the SEC Release and believes
that the performance adjustments as included in the above mentioned agreements
are appropriate, although not within the P10 percentage point per year range
suggested in the Release. Under the proposed investment advisory agreement be-
tween Vanguard Explorer Fund and Granahan, and Vanguard Explorer Fund and WMC,
the maximum performance adjustment is made at a difference of P12 percentage
points from the performance of the index over a thirty-six month period, which
would effectively be the equivalent of approximately P4 percentage points dif-
ference per year.

THE VANGUARD GROUP, INC.

Vanguard's Core Management Group provides investment advisory services on an
at-cost basis with respect to 10% of Vanguard Explorer Fund's assets, and any
cash reserves held by the Fund. The Core Management Group employs a quantita-
tive investment approach that uses computer techniques to track--and, if pos-
sible, outperform--a specific market standard. For Explorer Fund, this market
standard is the Small Company Growth Fund Stock Index, which is made up of
stocks held by the nation's 25 largest small company funds.

The Core Management Group also provides investment advisory services to sev-
eral other Vanguard Trusts. The Core Management Group is supervised by the Of-
ficers of the Trust.

The Trust's Board of Trustees may, without the approval of shareholders,
provide for:

A. The employment of a new investment adviser pursuant to the terms of a
new advisory agreement, either as a replacement for an existing adviser or
as an additional adviser.

B. A change in the terms of an advisory agreement.

C. The continued employment of an existing adviser on the same advisory
contract terms where a contract has been assigned because of a change in
control of the adviser.

Any such change will be communicated to the shareholders in writing.

PORTFOLIO TRANSACTIONS

The Advisers are authorized (with the approval of the Trust's Board of
Trustees) to select the brokers or dealers that will execute the purchases and
sales of portfolio securities for the Trust and direct the advisers to use
their best efforts to obtain the best available price and most favorable exe-
cution as to all transactions for the Fund. The Advisers have undertaken to
execute each investment transaction at a price and commission which provides
the most favorable total cost or proceeds reasonably obtainable under the cir-
cumstances.

B-23
<PAGE>

In placing portfolio transactions, the Advisers will use their best judgment
to choose the broker most capable of providing the brokerage services neces-
sary to obtain best available price and most favorable execution. The full
range and quality of brokerage services available will be considered in making
these determinations. In those instances where it is reasonably determined
that more than one broker can offer the brokerage services needed to obtain
the best available price and most favorable execution, consideration may be
given to those brokers which supply investment research and statistical infor-
mation and provide other services in addition to execution services to the
Fund and/or the Advisers. The Advisers consider such information useful in the
performance of their obligations under the agreements but are unable to deter-
mine the amount by which such services may reduce their expenses.

The investment advisory agreements also incorporate the concepts of Section
28(e) of the Securities Exchange Act of 1934 by providing that, subject to the
approval of the Trust's Board of Trustees, the Advisers may cause the Trust to
pay a broker-dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for ef-
fecting the same transaction; provided that such commission is deemed reason-
able in terms of either that particular transaction or the overall responsi-
bilities of the Advisers to the Trust and the other Trusts in the Group.

Currently, it is the Trust's policy that the Advisers may at times pay
higher commissions in recognition of brokerage services felt necessary for the
achievement of better execution of certain securities transactions that other-
wise might not be available. The Advisers will only pay such higher commis-
sions if they believe this to be in the best interest of the Fund. Some bro-
kers or dealers who may receive such higher commissions in recognition of
brokerage services related to execution of securities transactions are also
providers of research information to the Advisers and/or the Fund. However,
the Advisers have informed the Trust that they will not pay higher commission
rates specifically for the purpose of obtaining research services.

During the fiscal years ended October 31, 1996, 1997 and 1998, the Fund paid
$1,804,896, $3,057,037 and $ . in brokerage commissions, respectively.

Some securities considered for investment by the Fund may also be appropri-
ate for other Vanguard funds and/or clients served by the Advisers. If pur-
chase or sale of securities consistent with the investment policies of the
Fund and one or more of these other funds or clients served by the advisers
are considered at or about the same time, transactions in such securities will
be allocated among the several Trusts and clients in a manner deemed equitable
by the Advisers.

PERFORMANCE MEASURES

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

The Trust may use one or more, either singularly or in a composite, of the
following unmanaged indexes for comparative performance purposes:

SMALL COMPANY GROWTH FUND STOCK INDEX--is composed of the various common
stocks that are held in the 25 largest small company stock mutual funds, using
year-end net assets, monitored by Morningstar, Inc. Under an agreement with
the Trust, Morningstar, Inc. maintains the composition of the Index and its
total return each quarter. Neither The Vanguard Group, Inc., WMC, Granahan nor
Chartwell are affiliated with Morningstar in any way.

STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX--contains the stocks of
500 of the largest domestic companies.

B-24
<PAGE>

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 secu-
rities, 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 ex-
cept for the 500 stocks in the Standard & Poor's 500 Index.

MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX--is an arithmetic, market
value-weighted average of the performance of over 900 securities listed on the
stock exchanges of countries in Europe, Australia, Asia, and the Far East.

GOLDMAN SACHS 100 CONVERTIBLE BOND INDEX--currently includes 71 bonds and 29
preferreds. The original list of names was generated by screening for convert-
ible issues of $100 million or greater in market capitalization. The index is
priced monthly.

SALOMON BROTHERS GNMA INDEX--includes pools of mortgages originated by pri-
vate lenders and guaranteed by the mortgage pools of the Government National
Mortgage Association.

SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly is-
sued, 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.

LEHMAN LONG-TERM TREASURY BOND INDEX--is composed of all bonds covered by
the Shearson Lehman Hutton Treasury Bond Index 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, noncon-
vertible domestic corporate bonds rated Baa by Moody's, with a maturity longer
than 1 year and with more than $25 million outstanding. This index includes
over 1,000 issues.

LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX--is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate, non-
convertible U.S. debt issues rated at least Baa, with at least $50 million
principal outstanding and maturity greater than 10 years.

BOND BUYER MUNICIPAL BOND INDEX--is a yield index on current coupon high-
grade general obligation municipal bonds.

STANDARD & POOR'S PREFERRED INDEX--is a yield index based upon the average
yield of four high-grade, noncallable preferred stock issues.

B-25
<PAGE>

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 in-
clude income.

COMPOSITE INDEX--70% Standard & Poor's 500 Index and 30% NASDAQ Industrial
Index.

COMPOSITE INDEX--65% Standard & Poor's 500 Index and 35% Lehman 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 &
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 con-
tains 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 $4 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 be-
tween 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 $700 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 in-
dex has a market value of over $900 billion.

LIPPER SMALL COMPANY GROWTH FUND AVERAGE--the average performance of small
company growth funds as defined by Lipper Analytical Services, Inc. Lipper de-
fines a small company growth fund as a fund that by prospectus or portfolio
practice, limits its investments to companies on the basis of the size of the
company. From time to time, Vanguard may advertise using the average perfor-
mance and/or the average expense ratio of the small company growth funds.
(This fund category was first established in 1982. For years prior to 1982,
the results of the Lipper Small Company Growth category were estimated using
the returns of the Trusts that constituted the Group at its inception.)

RUSSELL 3000 INDEX--consists of approximately the 3,000 largest stocks of
U.S.-domiciled companies commonly traded on the New York and American Stock
Exchanges or the NASDAQ over-the-counter market, accounting for over 90% of
the market value of publicly traded stocks in the U.S.

RUSSELL 2000 STOCK INDEX--consists of the smallest 2,000 stocks within the
Russell 3000; a widely used benchmark for small capitalization common stocks.

LIPPER BALANCED FUND AVERAGE--an industry benchmark of average balanced
funds with similar investment objectives and policies, as measured by Lipper
Analytical Services, Inc.

LIPPER NON-GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of
average non-government money market funds with similar investment objectives
and policies, as measured by Lipper Analytical Services, Inc.

B-26
<PAGE>

LIPPER GOVERNMENT MONEY MARKET FUND AVERAGE--an industry benchmark of aver-
age government money market funds with similar investment objectives and poli-
cies, as measured by Lipper Analytical Services, Inc.

LIPPER GENERAL EQUITY FUND AVERAGE--an industry benchmark of average general
equity funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.

LIPPER FIXED INCOME FUND AVERAGE--an industry benchmark of average fixed in-
come funds with similar investment objectives and policies, as measured by
Lipper Analytical Services, Inc.

B-27
<PAGE>

FINANCIAL STATEMENTS

The Trust's audited Financial Statements for the year ended October 31,
1998, including the financial highlights for each of the five fiscal years in
the period ended October 31, 1998, appearing in the Vanguard Explorer Fund
1998 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 complete discussion of the performance, please see the Trust's Annual Report
to Shareholders, which may be obtained without charge.

B-28
<PAGE>

PART C

VANGUARD EXPLORER FUND

OTHER INFORMATION

ITEM 23. EXHIBITS

<TABLE>
<C> <S>
(a) Declaration of Trust*
(b) By-Laws*
(c) Not Applicable
(d) Investment Advisory Contracts*
(e) Not Applicable
(f) Reference is made to the section entitled "Management of the Trust" 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) Financial Data Schedule+
(o) Not Applicable
</TABLE>
- --------

*Filed Previously

+Filed Herewith

**To be filed by Amendment

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 Regis-
trant 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 gener-
ally provides that the Registrant shall indemnify its Trustees and officers
from any liability arising out of their past or present service in that capac-
ity. Among other things, this provision excludes any liability arising by rea-
son of willful misfeasance, bad faith, gross negligence, or the reckless dis-
regard 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 THE INVESTMENT ADVISER

Wellington Management Company, LLP ("Wellington Management") is an invest-
ment adviser registered under the Investment Advisers Act of 1940, as amended
(the "Advisers Act"). The list required by this Item 26 of officers and part-
ners of Wellington Management, together with any information as to any busi-
ness profession, vocation or employment of substantial nature engaged in by
such officers and partners during the past two years, is incorporated herein
by reference from Schedules B and D of Form ADV filed by Wellington Management
pursuant to the Advisers Act (SEC File No. 801-159089).

C-1
<PAGE>

Granahan Investment Management, Inc. ("Granahan") is an investment adviser
registered under the Investment Advisers Act of 1940, as amended (the "Advis-
ers Act"). The list required by this Item 26 of officers and directors of
Granahan, together with any information as to any business profession, voca-
tion or employment of a substantial nature engaged in by such officers and di-
rectors during the past two years, is incorporated herein by reference from
Schedules B and D of Form ADV filed by Granahan pursuant to the Advisers Act
(SEC File No. 801-23705).

Chartwell Investment Partners ("Chartwell") is an investment adviser regis-
tered under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"). The list required by this Item 26 of officers and partners of
Chartwell, together with any information as to any business profession, voca-
tion or employment of substantial nature engaged in by such officers and part-
ners during the past two years, is incorporated herein by reference from
Schedules B and D of Form ADV filed by Chartwell pursuant to the Advisers Act
(SEC File No. 801-54124).

The Vanguard Group, Inc. ("Vanguard") is an investment adviser registered
under the Investment Advisers Act of 1940, as amended (the "Advisers Act").
The list required by this Item 26 of officers and directors of Vanguard, to-
gether with any information as to any business profession, vocation or employ-
ment of substantial nature engaged in by such officers and directors during
the past two years, is incorporated herein by reference from Schedules B and D
of Form ADV filed by Vanguard pursuant to the Advisers Act (SEC File No. 801-
11953).

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 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, State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110.

ITEM 29. MANAGEMENT SERVICES

Other than as set forth under the description of The Vanguard Group in Part
B of this Registration Statement, 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 INVEST-
MENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT 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 7TH DAY OF DECEMBER, 1998.

Vanguard Explorer Fund

By: (signature)
---------------------------------
(HEIDI STAM)
JOHN J. BRENNAN*,
PRESIDENT 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:

SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
By: (signature) Chairman of the December 7, 1998
--------------------------------- Board and Trustee
(HEIDI STAM)
JOHN C. BOGLE*

By: (signature) President, Chief December 7, 1998
--------------------------------- Executive Officer,
(HEIDI STAM) and Trustee
JOHN J. BRENNAN*

By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
BARBARA B. HAUPTFUHRER*

By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
JOANN HEFFERNAN HEISEN*

By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
BURTON G. MALKIEL*

By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
BRUCE K. MACLAURY*

By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
ALFRED M. RANKIN, JR.*

By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
JOHN C. SAWHILL*
</TABLE>

<PAGE>

SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
JAMES O. WELCH, JR.*

By: (signature) Trustee December 7, 1998
---------------------------------
(HEIDI STAM)
J. LAWRENCE WILSON*

By: (signature) Treasurer and December 7, 1998
--------------------------------- Principal Financial
(HEIDI STAM) Officer and
THOMAS J. HIGGINS* Accounting Officer
</TABLE>

* By Power of Attorney. See 1933 Act File No. 333-63579, filed on December 4,
1998. Incorporated by Reference.
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<S> <C>
Financial Data Schedule................................................ EX-99.BN
</TABLE>

<PAGE>
[ARTICLE] 6
[CIK] 0000034066
[NAME] VANGUARD EXPLORER FUND
[MULTIPLIER] 1,000
[CURRENCY] U.S.
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] APR-30-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 2,208,499
[INVESTMENTS-AT-VALUE] 2,779,149
[RECEIVABLES] 45,985
[ASSETS-OTHER] 386
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2,825,520
[PAYABLE-FOR-SECURITIES] 49,938
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 37,241
[TOTAL-LIABILITIES] 87,179
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2,015,978
[SHARES-COMMON-STOCK] 45,186
[SHARES-COMMON-PRIOR] 40,923
[ACCUMULATED-NII-CURRENT] 1,379
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 148,138
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 572,846
[NET-ASSETS] 2,738,341
[DIVIDEND-INCOME] 3,894
[INTEREST-INCOME] 7,769
[OTHER-INCOME] 0
[EXPENSES-NET] 7,634
[NET-INVESTMENT-INCOME] 4,029
[REALIZED-GAINS-CURRENT] 145,940
[APPREC-INCREASE-CURRENT] 61,776
[NET-CHANGE-FROM-OPS] 211,745
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 10,298
[DISTRIBUTIONS-OF-GAINS] 240,985
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 6,677
[NUMBER-OF-SHARES-REDEEMED] 7,085
[SHARES-REINVESTED] 4,672
[NET-CHANGE-IN-ASSETS] 188,441
[ACCUMULATED-NII-PRIOR] 7,648
[ACCUMULATED-GAINS-PRIOR] 243,183
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,023
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 7,634
[AVERAGE-NET-ASSETS] 2,596,249
[PER-SHARE-NAV-BEGIN] 62.31
[PER-SHARE-NII] 0.09
[PER-SHARE-GAIN-APPREC] 4.30
[PER-SHARE-DIVIDEND] 0.25
[PER-SHARE-DISTRIBUTIONS] 5.85
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 60.60
[EXPENSE-RATIO] 0.59
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>