VANGUARD WORLD FUND INC, 497, 1998-12-30

VANGUARD WORLD FUND INC
497, 1998-12-30

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A
REGISTRATION STATEMENT (NO. 2-17620) UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 75 [X]
AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 75 [X]
VANGUARD WORLD 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 December 29, 1998 pursuant to paragraph (b) 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
SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 OF THE INVESTMENT COMPANY ACT OF
1940. WE FILED OUR RULE 24f-2 NOTICE FOR THE FISCAL YEAR ENDED AUGUST 31, 1998,
WITH THE COMMISSION ON NOVEMBER 25, 1998.

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<PAGE> 2

VANGUARD WORLD FUND

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
- ----------- ----------------------
<S> <C> <C>
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
Risks.................................. A Word About Risk; Who 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 August 31, 1998
filed with the Securities & Exchange
Commission's EDGAR system on October
19, 1998
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
</TABLE>

<TABLE>
<CAPTION>
FORM N-1A LOCATION IN STATEMENT
ITEM NUMBER OF ADDITIONAL INFORMATION
- ----------- -------------------------
<S> <C> <C>
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; and 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
Services............................... Investment Advisory 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; and Share Price
Item 19. Taxation of the Fund................... Description of the Trust
Item 20. Underwriters........................... Not Applicable
Item 21. Calculation of Performance Data........ Yield & Total Return
Item 22. Financial Statements................... Financial Statements
</TABLE>
<PAGE> 3
VANGUARD
U.S. GROWTH FUND

Prospectus
December 29, 1998

[SHIP GRAPHIC]

This prospectus contains
financial data for the
Fund through the
fiscal year ended
August 31, 1998.

[VANGUARD LOGO]

<PAGE> 4
VANGUARD U.S. GROWTH FUND

Prospectus
December 29, 1998
A Growth Stock Mutual Fund

CONTENTS

1 FUND PROFILE

3 ADDITIONAL INFORMATION

3 A WORD ABOUT RISK

3 WHO SHOULD INVEST

4 PRIMARY INVESTMENT STRATEGIES

6 THE FUND AND VANGUARD

7 INVESTMENT ADVISER

7 YEAR 2000 CHALLENGE

8 DIVIDENDS, CAPITAL GAINS, AND TAXES

9 SHARE PRICE

10 FINANCIAL HIGHLIGHTS

11 INVESTING WITH VANGUARD

11 SERVICES AND ACCOUNT FEATURES

12 TYPES OF ACCOUNTS

12 BUYING SHARES

14 REDEEMING SHARES

17 TRANSFERRING REGISTRATION

17 FUND AND ACCOUNT UPDATES

GLOSSARY (inside back cover)

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WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of Vanguard U.S.
Growth 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.
- --------------------------------------------------------------------------------

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

<PAGE> 5
1

FUND PROFILE

The following profile summarizes key features of Vanguard U.S. Growth Fund.

INVESTMENT OBJECTIVE

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

INVESTMENT STRATEGIES

The Fund invests primarily in large-capitalization stocks of seasoned U.S.
companies with records of superior growth. The Fund chooses companies with
strong positions in their markets, reasonable financial strength, and low
sensitivity to changing economic conditions.

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.
Because the Fund invests a higher percentage of assets in its ten largest
holdings than the average stock fund, the Fund is subject to the risk that its
performance may be hurt disproportionately by the poor performance of
relatively few stocks. The Fund is also subject to:

- - Investment style risk, which is the chance that returns from
large-capitalization growth stocks will trail returns from other asset
classes or the overall stock market.

- - 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 compare 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

The Fund's return for the most recent calendar quarter ended September 30, 1998
was, -9.42%.

During the period shown in the bar chart, the highest return for a
calendar quarter was 20.31% (quarter ending March 1991) and the lowest return
for a quarter was -15.63% (quarter ending September 1990).
<PAGE> 6
2

AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Vanguard U.S. Growth Fund 25.93% 17.61% 18.18%
S&P 500 Index 33.36 20.27 18.05
</TABLE>

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 U.S. Growth Fund's expense ratio in fiscal year 1998 was
0.41%, or $4.10 per $1,000 of average net assets. The average growth equity
mutual fund had expenses in 1997 of 1.53%, or $15.30 per $1,000 of average net
assets, according to Lipper, Inc., 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 August
31, 1998.

<TABLE>
<S> <C>
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 Expenses: 0.38%
12b-1 Distribution Fees: None
Other Expenses: 0.03%
TOTAL ANNUAL OPERATING EXPENSES: 0.41%
</TABLE>

The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. It
illustrates the hypothetical expenses that you would incur over various periods
if you invest $10,000 in the Fund. This example assumes that the Fund provides a
return of 5% a year, and that operating expenses remain the same. The results
apply whether or not you redeem your investment at the end of each period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$ 42 $132 $230 $518
</TABLE>

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> 7
3

ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS
Paid annually in December

INVESTMENT ADVISER
Lincoln Capital Management Company, Chicago, Ill., since 1987

INCEPTION DATE
January 6, 1959

NET ASSETS AS OF AUGUST 31, 1998
$9.59 billion

SUITABLE FOR IRAs
Yes

MINIMUM INITIAL INVESTMENT
$3,000; $1,000 for IRAs and custodial accounts for minors

NEWSPAPER ABBREVIATION
USGro

VANGUARD FUND NUMBER
023

CUSIP NUMBER
921910105

TICKER SYMBOL
VWUSX

A WORD ABOUT RISK

This prospectus describes the risks you would face as an investor in Vanguard
U.S. Growth 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 U.S. Growth Fund,
you should also take into account your personal tolerance for the daily
fluctuations of the stock market.

Look for this [FLAG GRAPHIC] 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 growth stock fund 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 current income.

- - You characterize your investment temperament as "relatively aggressive."

- - You are seeking a fund that emphasizes companies with established records
of growth.

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> 8
4

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 adviser uses in pursuit
of the Fund's objective, long-term growth of capital. It also explains how the
adviser implements these strategies. In addition, this section discusses several
important risks -- market risk, investment style risk, concentration risk, and
manager risk -- faced by investors in the Fund. The Fund's 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 $10 billion. Mid-cap funds hold stocks of companies with a median
market value between $1 billion and $10 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 common stocks of
large-capitalization companies that offer favorable prospects for capital growth
but that produce little current income. The Fund may also invest in securities
that are convertible to common stocks.

[FLAG GRAPHIC] 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
<PAGE> 9
5

returns consist of dividend income plus change in market price.) Note that the
returns shown do not include the costs of buying and selling stocks or other
expenses that a real-world investment portfolio would incur. Note, also, that
the gap between best and worst tends to narrow over the long term.

U.S. STOCK MARKET RETURNS (1926 - 1997)

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS 20 YEARS
------ ------- -------- --------
<S> <C> <C> <C> <C>
Best 53.9% 23.9% 20.1% 16.9%
Worst -43.3 -12.5 -0.9 3.1
Average 13.0 10.5 10.9 10.9
</TABLE>

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1997. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 10.5%, returns for individual 5-year periods
ranged from a -12.5% average (from 1928 through 1932) to 23.9% (from 1950
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.

Finally, because Vanguard U.S. Growth Fund's holdings are not identical to
the S&P 500 Index or any other market index, the performance of the Fund will
not mirror the returns of any particular index.

PLAIN TALK ABOUT

FUND DIVERSIFICATION

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 invested 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.

[FLAG GRAPHIC] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE
POSSIBILITY THAT RETURNS FROM LARGE-CAPITALIZATION GROWTH STOCKS
WILL TRAIL RETURNS FROM OTHER ASSET CLASSES OR THE OVERALL STOCK
MARKET. AS A GROUP, LARGE-CAPITALIZATION GROWTH 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

Lincoln Capital Management Company ("Lincoln"), adviser to the Fund, selects
common stocks of large, seasoned U.S. companies that have past records of growth
and, in Lincoln's opinion, have above-average prospects for continued growth and
are selling at attractive prices. Such companies tend to have strong positions
in their markets, reasonable financial strength, and relatively low sensitivity
to changing economic conditions. Lincoln seeks to identify stocks that sell at
attractive prices in relation to their growth potential.

[FLAG GRAPHIC] BECAUSE THE FUND INVESTS A HIGHER PERCENTAGE OF ASSETS IN ITS TEN
LARGEST HOLDINGS THAN THE AVERAGE STOCK FUND DOES, THE FUND IS
SUBJECT TO THE RISK THAT ITS PERFORMANCE MAY BE HURT
DISPROPORTIONATELY BY THE POOR PERFORMANCE OF RELATIVELY FEW
STOCKS.

As of August 31, 1998, the Fund had invested 38.5% of its assets in its
top ten holdings.

The Fund is run by Lincoln according to traditional methods of active
investment management. This means that securities are bought and sold according
to Lincoln's judgments about companies and their financial prospects, within the
context of the stock market and the economy in general.

The Fund is generally managed without regard to tax ramifications.

[FLAG GRAPHIC] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY
THAT THE ADVISER MAY DO A POOR JOB OF SELECTING STOCKS.
<PAGE> 10
6

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% according to Morningstar, Inc.

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.

TURNOVER RATE

Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long the securities have been held.
The Fund's average turnover rate for the past five years has been about 41%. (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 invest, to a limited extent, in foreign securities.

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 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 and options 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 $410 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.
<PAGE> 11
7

PLAIN TALK ABOUT

VANGUARD'S UNIQUE CORPORATE STRUCTURE

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

INVESTMENT ADVISER

The Fund employs Lincoln Capital Management Company ("Lincoln"), 200 South
Wacker Drive, Chicago, IL 60606, as its investment adviser. Lincoln manages the
Fund subject to the control of the Trustees and officers of the Fund.

Lincoln's advisory fee is paid quarterly. This fee is based on certain
annual percentage rates applied to the Fund's average month-end assets for each
quarter.

For the year ended August 31, 1998, the investment advisory fee paid to
Lincoln was $11.4 million, which represented an effective annual rate of 0.13%
of the Fund's average net assets.

The Fund has authorized Lincoln 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, Lincoln
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
Lincoln is authorized to choose a broker who, in addition to executing the
transaction, will provide research services to Lincoln or the Fund. Also, the
Fund may direct Lincoln to use a particular broker for certain transactions in
exchange for commission rebates or research services provided to the Fund.

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 Lincoln or as an additional adviser. However, any
such change will be communicated to shareholders in writing.

PLAIN TALK ABOUT

THE FUND'S ADVISER

Lincoln Capital Management Company is an investment advisory firm founded in
1967. As of August 31, 1998, Lincoln managed more than $54 billion in assets. It
provides investment counseling services to a limited number of clients, most of
which are institutional clients such as pension funds. The managers responsible
for overseeing the implementation of Lincoln's strategy for Vanguard U.S. Growth
Fund are:

J. PARKER HALL III, Chief Executive Officer and Managing Director of
Lincoln; has worked in investment management since 1957; with Lincoln since
1971; Fund Manager since 1987; B.A., Swarthmore College; M.B.A., Harvard
Business School.

DAVID M. FOWLER, Executive Vice President and Managing Director of
Lincoln; has worked in investment management since 1972; with Lincoln since
1984; Fund Manager since 1987; B.S., Loyola University; M.B.A., Northwestern
University.

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.
<PAGE> 12
8

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.

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.

DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund distributes to shareholders virtually all of its net income (interest
and dividends less expenses), as well as any capital gains realized from the
sale of its holdings. Distributions generally occur in December. 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.

- - 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.

- - 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.

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.

<PAGE> 13
9

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

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 USGro.

<PAGE> 14
10

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 $.21 per share from investment income (interest
and dividends) and $3.57 per share from investments that had appreciated in
value or that were sold for higher prices than the Fund paid for them.

Shareholders received $1.16 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 ($3.78 per share) minus the distributions ($1.16 per share)
resulted in a share price of $30.36 at the end of the year. This was an increase
of $2.62 per share (from $27.74 at the beginning of the year to $30.36 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 14.01% for the year.

As of August 31, 1998, the Fund had $9.59 billion in net assets. For the
year, its expense ratio was 0.41% ($4.10 per $1,000 of net assets); and net
investment income amounted to 0.69% of its average net assets. It sold and
replaced securities valued at 48% of its net assets.

FINANCIAL HIGHLIGHTS

U.S. GROWTH FUND
YEAR ENDED AUGUST 31,

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $27.74 $22.62 $18.83 $15.52 $14.71
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income .21 .27 .26 .25 .20
Net Realized and Unrealized Gain (Loss)
on Investments 3.57 6.73 4.39 3.24 .82
------ ------ ------ ------ ------
Total from Investment Operations 3.78 7.00 4.65 3.49 1.02
------ ------ ------ ------ ------
DISTRIBUTIONS
Dividends from Net Investment Income (.27) (.26) (.29) (.18) (.21)
Distributions from Realized Capital Gains (.89) (1.62) (.57) -- --
------ ------ ------ ------ ------
Total Distributions (1.16) (1.88) (.86) (.18) (.21)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $30.36 $27.74 $22.62 $18.83 $15.52
====== ====== ====== ====== ======

TOTAL RETURN 14.01% 32.50% 25.28% 22.75% 6.98%
====== ====== ====== ====== ======

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $9,587 $7,445 $4,544 $2,989 $1,963
Ratio of Total Expenses to
Average Net Assets 0.41% 0.42% 0.43% 0.47% 0.52%
Ratio of Net Investment Income to
Average Net Assets 0.69% 1.13% 1.32% 1.59% 1.30%
Turnover Rate 48% 35% 44% 32% 47%
====== ====== ====== ====== ======
</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.

"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> 15

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 [BOOK GRAPHIC]. 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) [BOOK GRAPHIC]
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) [BOOK GRAPHIC]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.

VANGUARD FUND EXPRESS(R) [BOOK GRAPHIC]
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) [BOOK GRAPHIC]
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 (ON-BOARD) [BOOK GRAPHIC]
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(TM) www.vanguard.com [COMPUTER GRAPHIC]
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:

* 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> 16
12

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 [BOOK GRAPHIC]
Invest assets held in an existing personal trust.

FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOK GRAPHIC]
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 [BOOK GRAPHIC]
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 . . .[ENVELOPE GRAPHIC]
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> 17
13

Make your check payable to: The Vanguard Group - 23
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 . . . [PHONE GRAPHIC]
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 identification 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 identification 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 [WIRE GRAPHIC]

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 U.S. Growth Fund - 23
[Account number, or temporary number for a new account]
[Registered account owners/s]
[Registered address]
<PAGE> 18
14

BUYING SHARES (continued)

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 all 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 16.

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 [COMPUTER GRAPHIC]
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 [PHONE GRAPHIC]
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> 19
15

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:

- The ten-digit account number.
- The name and address exactly as registered on the account.
- The primary Social Security or employer identification number as
registered on the account.
- The Personal Identification Number, if applicable.

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 [ENVELOPE GRAPHIC]
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 1120 455 Devon Park Drive
Valley Forge, PA 19482-1120 Wayne, PA 19087-1815
<PAGE> 20
16

REDEEMING SHARES (continued)

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 two ways: check, or exchange
to another Vanguard fund.

CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.

EXCHANGE REDEMPTIONS
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.

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

REQUEST IN "GOOD ORDER"
All redemption requests must be received by Vanguard in "good order." This means
that your request must include:

- The Fund name and account number.

- The amount of the transaction (in dollars or shares).

- Signatures of all owners exactly as registered on the account (for mail
requests).

- Signature guarantees (if required).*

- Any supporting legal documentation that may be required.

- Any outstanding certificates representing shares to be redeemed.

*For instance, a signature guarantee must be provided by all registered account
shareholders when redemption proceeds are to be sent to a different person or
address. A signature guarantee can be obtained from most banks, credit unions,
and licensed brokers.

TRANSACTIONS ARE PROCESSED AT THE NEXT-DETERMINED SHARE PRICE AFTER VANGUARD HAS
RECEIVED ALL REQUIRED INFORMATION.
<PAGE> 21
17

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

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, and the Fund's financial statements which include a listing
of the Fund's holdings.

<PAGE> 22
18

FUND AND ACCOUNT UPDATES (continued)

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 [BOOK GRAPHIC]
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 October and April 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 [BOOK GRAPHIC]
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> 23

GLOSSARY OF INVESTMENT TERMS

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

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

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

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

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.

FIXED-INCOME SECURITIES
Investments, such as bonds, that have a fixed payment schedule. While the level
of income offered by these securities is predetermined, their prices may
fluctuate.

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

GROWTH STOCK FUND
A mutual fund that emphasizes stocks of companies believed to have above-average
prospects for growth. Reflecting market expectations for superior growth, the
prices of growth stocks often are relatively high in comparison to revenue,
earnings, book value, and dividends.

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.

PRICE/EARNINGS (P/E) RATIO
The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.

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.

VALUE STOCK FUND
A mutual fund that emphasizes stocks of companies whose growth prospects are
generally regarded as subpar by the market. Reflecting these market
expectations, the prices of value stocks typically are below-average in
comparison to such factors as revenue, earnings, book value, and dividends.

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> 24
[VANGUARD LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION
If you'd like more information about Vanguard U.S. Growth 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: 811-1027

P023N - 12/29/1998

<PAGE> 25

VANGUARD U.S. GROWTH FUND

Participant Prospectus
December 29, 1998

- ----------
This prospectus contains
financial data for the
Fund through the
fiscal year ended
August 31, 1998.

[GRAPHIC OF SHIP]

[A MEMBER OF THE VANGUARD GROUP(R) LOGO]

<PAGE> 26
VANGUARD U.S. GROWTH FUND

Participant Prospectus
December 29, 1998

A Growth Stock Mutual Fund

CONTENTS

1 FUND PROFILE 8 YEAR 2000 CHALLENGE

3 ADDITIONAL INFORMATION 8 DIVIDENDS, CAPITAL GAINS, AND TAXES

3 A WORD ABOUT RISK 8 SHARE PRICE

3 WHO SHOULD INVEST 9 FINANCIAL HIGHLIGHTS

4 PRIMARY INVESTMENT STRATEGIES 10 INVESTING WITH VANGUARD

6 THE FUND AND VANGUARD 10 ACCESSING FUND INFORMATION BY COMPUTER

7 INVESTMENT ADVISER GLOSSARY (INSIDE BACK COVER)

WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objective, risks, and strategies of Vanguard U.S.
Growth 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.

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.

<PAGE> 27
1
FUND PROFILE

The following profile summarizes key features of Vanguard U.S. Growth Fund.

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

INVESTMENT STRATEGIES
The Fund invests primarily in large-capitalization stocks of seasoned U.S.
companies with records of superior growth. The Fund chooses companies with
strong positions in their markets, reasonable financial strength, and low
sensitivity to changing economic conditions.

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.
Because the Fund invests a higher percentage of assets in its ten largest
holdings than the average stock fund, the Fund is subject to the risk that its
performance may be hurt disproportionately by the poor performance of relatively
few stocks. The Fund is also subject to:

- - Investment style risk, which is the chance that returns from
large-capitalization growth stocks will trail returns from other asset
classes or the overall stock market.

- - 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 compare 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

1988 8.76%
1989 37.70%
1990 4.60%
1991 46.76%
1992 2.76%
1993 -1.45%
1994 3.88%
1995 38.44%
1996 26.05%
1997 25.93%

The Fund's return for the most recent calendar quarter ended September
30, 1998 was, -9.42%.

During the period shown in the bar chart, the highest return for a calendar
quarter was 20.31% (quarter ending March 1991) and the lowest return for a
quarter was -15.63% (quarter ending September 1990).

<PAGE> 28
2

AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Vanguard U.S. Growth Fund 25.93% 17.61% 18.18%
S&P 500 Index 33.36 20.27 18.05
</TABLE>

PLAIN TALK ABOUT
THE COSTS OF INVESTING

PLAIN TALK ABOUT
FUND EXPENSES

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 August
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 Expenses: 0.38%
12b-1 Distribution Fees: None
Other Expenses: 0.03%
TOTAL ANNUAL OPERATING EXPENSES: 0.41%

The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and that operating expenses remain the same. The results apply whether
or not you redeem your investment at the end of each period.

1 Year 3 Years 5 Years 10 Years
$42 $132 $230 $518

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> 29
3

ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS
Paid annually in December

INVESTMENT ADVISER
Lincoln Capital Management Company, Chicago, Ill., since 1987

INCEPTION DATE
January 6, 1959

NET ASSETS AS OF AUGUST 31, 1998
$9.59 billion

NEWSPAPER ABBREVIATION
USGro

VANGUARD FUND NUMBER
023

CUSIP NUMBER
921910105

TICKER SYMBOL
VWUSX

A WORD ABOUT RISK

Look for this [FLAG] 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 growth stock fund 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 current income.

- - You characterize your investment temperament as "relatively aggressive."

- - You are seeking a fund that emphasizes companies with established records of
growth.

PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND IF
YOU ARE A MARKET-TIMER.
<PAGE> 30
4

PLAIN TALK ABOUT
GROWTH FUNDS AND VALUE FUNDS

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

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

MARKET EXPOSURE
The Fund's primary strategy is to invest chiefly in the common stocks of
large-capitalization companies that offer favorable prospects for capital growth
but that produce little current income. The Fund may also invest in securities
that are convertible to common stocks.

[FLAG]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.

<TABLE>
<CAPTION>
U.S. STOCK MARKET RETURNS (1926 - 1997)

1 YEAR 5 YEARS 10 YEARS 20 YEARS

<S> <C> <C> <C> <C>
Best 53.9% 23.9% 20.1% 16.9%
Worst -43.3 -12.5 -0.9 3.1
Average 13.0 10.5 10.9 10.9
</TABLE>

PLAIN TALK ABOUT
FUND DIVERSIFICATION

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 INVESTED 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.

[FLAG GRAPHIC] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE
POSSIBILITY THAT RETURNS FROM LARGE-CAPITALIZATION GROWTH STOCKS
WILL TRAIL RETURNS FROM OTHER ASSET CLASSES OR THE OVERALL STOCK
MARKET. AS A GROUP, LARGE-CAPITALIZATION GROWTH 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
Lincoln Capital Management Company ("Lincoln"), adviser to the Fund, selects
common stocks of large, seasoned U.S. companies that have past records of growth
and, in Lincoln's opinion, have above-average prospects for continued growth and
are selling at attractive prices. Such companies tend to have strong positions
in their markets, reasonable financial strength, and relatively low sensitivity
to changing economic conditions. Lincoln seeks to identify stocks that sell at
attractive prices in relation to their growth potential.

As of August 31, 1998, the Fund had invested 38.5% of its assets in its top
ten holdings.

The Fund is generally managed without regard to tax ramifications.

[FLAG GRAPHIC] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY
THAT THE ADVISER MAY DO A POOR JOB OF SELECTING STOCKS.
<PAGE> 32
6

PLAIN TALK ABOUT
TURNOVER RATE

PLAIN TALK ABOUT
DERIVATIVES

TURNOVER RATE
Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long the securities have been held.
The Fund's average turnover rate for the past five years has been about 41%. (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 invest, to a limited extent, in foreign securities.

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 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 and options 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

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.
<PAGE> 33
7

PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

INVESTMENT ADVISER

Lincoln's advisory fee is paid quarterly. This fee is based on certain annual
percentage rates applied to the Fund's average month-end assets for each
quarter.

For the year ended August 31, 1998, the investment advisory fee paid to
Lincoln was $11.4 million, which represented an effective annual rate of 0.13%
of the Fund's average net assets.

The Fund has authorized Lincoln 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, Lincoln 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 Lincoln
is authorized to choose a broker who, in addition to executing the transaction,
will provide research services to Lincoln or the Fund. Also, the Fund may direct
Lincoln to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.

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 Lincoln or as an additional adviser. However, any such change
will be communicated to shareholders in writing.

PLAIN TALK ABOUT
THE FUND'S ADVISER

J. PARKER HALL III, Chief Executive Officer and Managing Director of Lincoln;
has worked in investment management since 1957; with Lincoln since 1971; Fund
Manager since 1987; B.A., Swarthmore College; M.B.A., Harvard Business School.

DAVID M. FOWLER, Executive Vice President and Managing Director of Lincoln;
has worked in investment management since 1972; with Lincoln since 1984; Fund
Manager since 1987; B.S., Loyola University; M.B.A., Northwestern University.
<PAGE> 34
8

YEAR 2000 CHALLENGE

PLAIN TALK ABOUT
DISTRIBUTIONS

DIVIDENDS, CAPITAL GAINS, AND TAXES

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 tax adviser about the tax consequences of an investment in the Fund and of
any plan withdrawals.

SHARE PRICE

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

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
U.S. Growth Fund
----------------
Year Ended August 31,
---------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 27.74 $ 22.62 $ 18.83 $ 15.52 $ 14.71
--------- --------- --------- --------- ---------
Investment Operations
Net Investment Income .21 .27 .26 .25 .20
Net Realized and Unrealized Gain (Loss)
on Investments 3.57 6.73 4.39 3.24 .82
--------- --------- --------- --------- ---------
Total from Investment Operations 3.78 7.00 4.65 3.49 1.02
--------- --------- --------- --------- ---------
Distributions
Dividends from Net Investment Income (.27) (.26) (.29) (.18) (.21)
Distributions from Realized Capital Gains (.89) (1.62) (.57) -- --
--------- --------- --------- --------- ---------

Total Distributions (1.16) (1.88) (.86) (.18) (.21)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year $ 30.36 $ 27.74 $ 22.62 $ 18.83 $ 15.52
========= ========= ========= ========= =========

Total Return 14.01% 32.50% 25.28% 22.75% 6.98%
========= ========= ========= ========= =========

Ratios/Supplemental Data
Net Assets, End of Year (Millions) $ 9,587 $ 7,445 $ 4,544 $ 2,989 $ 1,963
Ratio of Total Expenses to
Average Net Assets 0.41% 0.42% 0.43% 0.47% 0.52%
Ratio of Net Investment Income to
Average Net Assets 0.69% 1.13% 1.32% 1.59% 1.30%
Turnover Rate 48% 35% 44% 32% 47%
========= ========= ========= ========= =========
</TABLE>

PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

Shareholders received $1.16 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.

"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> 36
10

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 recordkeeping 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 the 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> 37