[SHIP]
[THE VANGUARD GROUP LOGO]
VANGUARD(R) EXPLORER(TM) FUND
MARCH 27, 2000
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 11, 2000
Effective April 3, 2000, GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC (GMO) will begin
managing a portion of Vanguard Explorer Fund's assets, bringing the Fund's
number of advisers to five. Founded in 1977, GMO's assets under management
totaled about $26 billion as of December 31, 1999. Initially, assets will be
directed to GMO from the Fund's normal cash flows, with no significant changes
in the assets currently assigned to the Fund's other advisers.
INVESTMENT STRATEGY
Like the Fund's other advisers, GMO will invest in stocks of smaller companies.
GMO uses computerized models to select the most attractive small-capitalization
stocks according to several criteria, including changes in projected earnings,
earnings growth, and recent price trends. This quantitative investment method is
expected to result in a portfolio that is broadly diversified among small-cap
stocks. GMO seeks to maintain reasonable liquidity by limiting positions in
individual issues.
ADVISORY FEES
Like the Fund's other advisers, GMO will be paid quarterly. The quarterly fee
will be based on the following annual percentage rates applied to average
month-end net assets of the Fund under GMO's management for each quarter:
NET ASSETS ANNUAL RATE
---------- -----------
First $500 million 0.275%
Next $500 million 0.225%
Over $1 billion 0.200%
After one year of managing the Fund's assets, GMO's fee will become subject to a
performance adjustment. This adjustment provides that GMO's fee will be
increased if the total return of its portion of the Fund is more than 1
percentage point annually ahead of the Russell 2000 Growth Index, and decreased
if the total return of its portion of the Fund is less than 1 percentage point
annually ahead of the Index. For these purposes, the cumulative investment
performance of GMO's portion of the Fund over a trailing 36-month period will be
compared to the cumulative total return of the Index over the same period. Under
this arrangement, the maximum possible adjustment to GMO's fee is 0.15%
annually.
FUND MANAGERS
The individuals primarily responsible for managing GMO's portion of the Fund
are:
CHRISTOPHER M. DARNELL, Chief Investment Officer of Quantitative Investment
Products and Chairman of the U.S. Equity Investment Policy Group at GMO; has
managed investments for GMO since 1979; began managing assets of the Fund in
2000; B.A., Yale University; M.B.A., Harvard University.
ROBERT M. SOUCY, Managing Director of U.S. Quantitative Equity at GMO; has
managed investments for GMO since 1987; began managing assets of the Fund in
2000; B.S., University of Massachusetts.
