VANGUARD WORLD FUND INC, 497, 1999-12-22

VANGUARD WORLD FUND INC
497, 1999-12-22

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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. 76

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 76

VANGUARD WORLD FUNDS

(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 17, 1999, 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. REGISTRANT FILED ITS RULE 24F-2 NOTICE FOR ITS FISCAL YEAR ENDED AUGUST
31, 1999 WITH THE COMMISSION ON NOVEMBER 26, 1999.

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VANGUARD WORLD FUNDS
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C>
FORM N-1A
ITEM NUMBER LOCATION IN PROSPECTUS
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Item 1. Front and Back Cover Pages .................Front and Back Cover Pages

Item 2. Risk/Return: Investments, Risk, 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, 1999 filed with the
Securities & Exchange Commission's EDGAR
system October 19, 1999.
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

FORM N-1A LOCATION IN STATEMENT OF ADDITIONAL
ITEM NUMBER INFORMATION
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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 Trust ....................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;
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/(R)/
U.S. GROWTH FUND

Prospectus December 17, 1999

This prospectus
contains financial data
for the Fund through the
fiscal year ended
August 31, 1999.

[A MEMBER OF
THE VANGUARD GROUP LOGO]

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VANGUARD U.S. GROWTH FUND

Prospectus
December 17, 1999

A Growth Stock Mutual Fund

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CONTENTS
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1 FUND PROFILE 12 FINANCIAL HIGHLIGHTS
3 ADDITIONAL INFORMATION 14 INVESTING WITH VANGUARD
3 A WORD ABOUT RISK 14 SERVICES AND ACCOUNT FEATURES
3 WHO SHOULD INVEST 15 TYPES OF ACCOUNTS
4 PRIMARY INVESTMENT STRATEGIES 16 BUYING SHARES
8 THE FUND AND VANGUARD 18 REDEEMING SHARES
8 INVESTMENT ADVISER 21 TRANSFERRING REGISTRATION
9 YEAR 2000 CHALLENGE 22 FUND AND ACCOUNT UPDATES
10 DIVIDENDS, CAPITAL GAINS, AND TAXES GLOSSARY (inside back cover)
11 SHARE PRICE
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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.

<PAGE>

FUND PROFILE

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

INVESTMENT OBJECTIVE

The Fund 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 relatively
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 does, 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 following bar chart and table 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 total
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.

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ANNUAL TOTAL RETURNS
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1989 33.70%
1990 4.60%
1991 46.76%
1992 2.76%
1993 -1.45%
1994 3.88%
1995 38.44%
1996 26.05%
1997 25.93%
1998 39.98%
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The Fund's year-to-date return as of the most recent calendar quarter
ended September 30, 1999, was 1.73%.
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During the period shown in the bar chart, the highest return for a calendar
quarter was 24.73% (quarter ended December 31,1998) and the lowest return for a
quarter was -15.63% (quarter ended September 30,1990).

<PAGE>

<TABLE>
<CAPTION>
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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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<S> <C> <C> <C>
Vanguard U.S. Growth Fund 39.98% 26.16% 21.20%
Standard & Poor's 500 Index 28.58 24.06 19.21
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</TABLE>

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, 1999.

<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 Fee: None
Exchange Fee: None

ANNUAL FUND OPERATING EXPENSES (expenses deducted from
the fund's assets)
Management Expenses: 0.37%
12b-1 Distribution Fee: None
Other Expenses: 0.02%

TOTAL ANNUAL FUND OPERATING EXPENSES: 0.39%

</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>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------
<S> <C> <C> <C>
$40 $125 $219 $493
--------------------------------------------------
</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.

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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 1999 was
0.39%, or $3.90 per $1,000 of average net assets. The average large-cap growth
mutual fund had expenses in 1998 of 1.39%, or $13.90 per $1,000 of average net
assets (derived from data provided by Lipper Inc., which reports on the mutual
fund industry).
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3

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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.
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ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Distributed annually in December $3,000; $1,000 for IRAs and custodial
accounts for minors

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

INCEPTION DATE VANGUARD FUND NUMBER
January 6, 1959 023

NET ASSETS AS OF AUGUST 31, 1999 CUSIP NUMBER
$16 billion 921910105

SUITABLE FOR IRAS TICKER SYMBOL
Yes VWUSX
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A WORD ABOUT RISK

This prospectus describes 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] 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 are seeking a fund that emphasizes companies with established records
of growth.

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND
IF YOU ARE A MARKET-TIMER.

<PAGE>

4
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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.
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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. A purchase request could be rejected
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.

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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, and
book value. Generally, growth stocks have below-average dividend yields relative
to value stocks. 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.
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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.

<PAGE>

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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.
Market capitalization changes over time, and there is no "official" definition
of the boundaries of large-, mid-, and small-cap stocks. Vanguard generally
defines large-capitalization (large-cap) funds as those holding stocks of
companies whose outstanding shares have a market value exceeding $12 billion;
mid-cap funds as those holding stocks of companies with a market value between
$1 billion and $12 billion; and small-cap funds as those typically holding
stocks of companies with a market value of less than $1 billion. Vanguard
periodically reassesses these classifications.
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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.

[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.

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 Index, a widely used barometer
of market activity. (Total 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.

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U.S. STOCK MARKET RETURNS (1926-1998)
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1 YEAR 5 YEARS 10 YEARS 20 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Best 54.2% 24.1% 19.9% 17.7%
Worst -43.1 -12.4 -0.8 3.1
Average 13.1 10.7 11.0 11.0
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</TABLE>

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1998. You can see, for example, that while the average return on stocks
for all of the 5-year periods was 10.7%, returns for individual 5-year periods
ranged from a -12.4% average (from 1928 through 1932) to 24.1% (from 1994
through 1998). 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.

<PAGE>

[FLAG]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.

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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 34% 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.
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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 industry, 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]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 DISPRO-PORTIONATELY BY THE POOR
PERFORMANCE OF RELATIVELY FEW STOCKS.

As of August 31, 1999, the Fund had invested 40.3% 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]THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE POSSIBILITY THAT THE
ADVISER MAY DO A POOR JOB OF SELECTING STOCKS.

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 42%. (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.)

<PAGE>

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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. 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 86%, according to Morningstar, Inc.
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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 in securities that are convertible to common stocks,
and, 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 Fund's obligation to purchase securities under
futures contracts will not exceed 20% of its 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 temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

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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.
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<PAGE>

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 $510 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.

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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.
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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, 1999, the investment advisory fee paid to
Lincoln represented an effective annual rate of 0.12% 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.

<PAGE>

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PLAIN TALK ABOUT
THE FUND'S ADVISER

Lincoln Capital Management Company is an investment advisory firm founded in
1967. As of August 31, 1999, Lincoln managed more than $60 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.

JOHN S. COLE, Principal of Lincoln; has worked in investment management since
1992; Executive Vice President and Chief Equity Officer of Boatman's Trust
Company from 1992 until joining Lincoln in 1997; and Fund Manager since 1999;
B.S., Bentley College; M.B.A., University of Notre Dame.
- --------------------------------------------------------------------------------

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.
Those systems have been back in use since that time. We completed mission
- -critical hardware and software product upgrades in 1998; remaining non-mission
- -critical upgrades were completed in March 1999.
Vanguard has worked closely with external partners, suppliers, and vendors,
including fund managers and other service providers, to determine their level of
compliance with Year 2000 standards and to ensure 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 has updated existing contingency plans so
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.

<PAGE>

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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. These capital gains are either short-term or long-term depending
on whether the fund held the securities for one year or less, or more than one
year.
- --------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS

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 dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.

BASIC TAX POINTS

Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:

- - Distributions are taxable to you whether or not you reinvest these amounts
in additional Fund shares.

- - Distributions declared in December--if paid to you by the end of
January--are taxable as if received in December.

- - Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.

- - Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.

- - Capital gains distributions may vary considerably from year to year as a
result of the Fund's normal investment activities and cash flows.

- - A sale or exchange of Fund shares 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.

- - State and local income taxes may apply to any dividend or capital gains
distributions that you receive, as well as your gains or losses from any
sale or exchange of Fund shares.

GENERAL INFORMATION

BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not provide us with
your correct taxpayer identification number and certify that it is correct.
Similarly, Vanguard must withhold from your account if the IRS instructs us to
do so.

<PAGE>

FOREIGN INVESTORS. The Vanguard funds generally do not offer their shares for
sale outside of the United States. Foreign investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.
INVALID ADDRESSES. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
TAX CONSEQUENCES. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

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 when 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:

NET ASSET VALUE = TOTAL ASSETS - LIABILITIES
-------------------------------
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 USGRO.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights table is intended to help you understand the
Fund's financial performance for the past five years, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each year on
an investment in the Fund (assuming reinvestment of all dividend and capital
gains distributions). This information has been derived from the financial
statements 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.

- --------------------------------------------------------------------------------
VANGUARD U.S. GROWTH FUND
YEAR ENDED AUGUST 31,
------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $30.36 $27.74 $22.62 $18.83 $15.52
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .21 .21 .27 .26 .25
Net Realized and Unrealized Gain Loss)
on Investments 10.85 3.57 6.73 4.39 3.24
------------------------------------------
Total from Investment Operations 11.06 3.78 7.00 4.65 3.49
------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.19) (.27) (.26) (.29) (.18)
Distributions from Realized Capital
Gains (2.31) (.89) (1.62) (.57) ---
------------------------------------------
Total Distributions (2.50) (1.16) (1.88) (.86) (.18)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $38.92 $30.36 $27.74 $22.62 $18.83
================================================================================
TOTAL RETURN 37.38% 14.01% 32.50% 25.28% 22.75%
================================================================================

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $16,007 $9,587 $7,445 $4,544 $2,989
Ratio of Total Expenses to
Average Net Assets 0.39% 0.41% 0.42% 0.43% 0.47%
Ratio of Net Investment Income to
Average Net Assets 0.59% 0.69% 1.13% 1.32% 1.59%
Turnover Rate 49% 48% 35% 44% 32%
================================================================================

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began fiscal 1999 with a net asset value (price) of $30.36 per share.
During the year, the Fund earned $.21 per share from investment income (interest
and dividends) and $10.85 per share from investments that had appreciated in
value or that were sold for higher prices than the Fund paid for them.

Shareholders received $2.50 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 ($11.06 per share) minus the distributions ($2.50 per share)
resulted in a share price of $38.92 at the end of the year. This was an increase
of $8.56 per share (from $30.36 at the beginning of the year to $38.92 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 37.38% for the year.

As of August 31, 1999, the Fund had $16.0 billion in net assets. For the year,
its expense ratio was 0.39% ($3.90 per $1,000 of net assets); and its net
investment income amounted to 0.59% of its average net assets. It sold and
replaced securities valued at 49% 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 [BOOK ICON].
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(R) DIRECT DEPOSIT SERVICE/TM/[BOOK ICON]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOK ICON]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.

- --------------------------------------------------------------------------------
VANGUARD FUND EXPRESS/(R)/[BBOK ICON]
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 ICON]
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 ICON]
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 shares to and from most
Vanguard funds.

- ----------------------------------------------------------------
ACCESS VANGUARD/(R)/ www.vanguard.com [COMPUTER ICON]

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 our website. We will then mail you 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.

<PAGE>

- - Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
(Some restrictions may apply.) Please call our Client Services Department
for assistance.

*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: 1-800-749-7273
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.
- --------------------------------------------------------------------------------

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 ICON]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOK ICON]
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 ICON]
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.
- --------------------------------------------------------------------------------
<PAGE>

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 fund account whose
balance falls below the minimum initial investment. The Fund will deduct a $10
annual fee in June if your nonretirement account balance at that time is below
$2,500. The low balance fee is waived for investors who have aggregate Vanguard
account assets of $50,000 or more.

- --------------------------------------------------------------------------------
BY MAIL TO . . .[ENVELOPE ICON]

open a new account
Complete and sign the account registration 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. Please do not alter Invest-By-Mail
forms, since they are fund- and account-specific.

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 . . .[TELEPHONE ICON]
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).

<PAGE>

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). (Note that
some restrictions apply to index fund accounts.) 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 available.

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 have 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 ICON]

Call Client Services to arrange your wire transaction. Wire transactions to
retirement accounts are only available for asset transfers and rollovers from
other financial institutions. Individual IRA contributions will not be accepted
by wire.

Wire to:
FRB ABA 021001088
HSBC Bank USA

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 owner(s)]
[Registered address]

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

A NOTE ON LARGE PURCHASES
It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.
- --------------------------------------------------------------------------------
<PAGE>

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.

* May require a signature guarantee; see footnote on page 20. A signature
guarantee may be obtained from most commercial and savings banks, credit
unions, trust companies, or member firms of a U.S. Stock Exchange.

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 order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification number),
you must include the guaranteed signatures of all current account owners on
your written instructions.

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 initiated and a confirmation number given, the
transaction CANNOT be canceled.

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

HOW TO REQUEST A REDEMPTION

You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.

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.

- --------------------------------------------------------------------------------
ONLINE REQUESTS [COMPUTER ICON]
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 our website. We will then mail you an account access password that will
enable you to sell or exchange shares online (as well as perform other
transactions).

- --------------------------------------------------------------------------------
TELEPHONE REQUESTS [TELEPHONE ICON]
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>

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 (for instance,
Tele-Account).

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 telephone 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 ICON]
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.

<PAGE>

20
REDEEMING SHARES (continued)

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

For clients of Vanguard's Institutional Division . . .

A NOTE ON LARGE REDEMPTIONS

It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may 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, exchange
to another Vanguard fund, or Fund Express redemption.

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

FUND EXPRESS REDEMPTIONS

Vanguard will electronically transfer funds to your pre-linked checking or
savings account.

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

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>

- --------------------------------------------------------------------------------
LIMITS ON ACCOUNT ACTIVITY
Because excessive account transactions can disrupt the 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, a "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 the
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 ARE FINAL
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.

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

UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.

- --------------------------------------------------------------------------------
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...

<PAGE>

FUND AND ACCOUNT UPDATES

STATEMENTS AND REPORTS

We will send you 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
financial markets, a report from the adviser, and the Fund's financial
statements which include a listing of the Fund's holdings.
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 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, notify our Client Services Department at
1-800-662-2739.

- --------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY [ICON]
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 [ICON]

Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using only the average cost single category method.

- --------------------------------------------------------------------------------
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>
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.

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 with such
factors as 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 distrib-utions 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 with 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>
[LOGO]
[The Vanguard Group(R)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

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:
1-800-749-7273

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, DC. 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

<PAGE>

VANGUARD/(R)/
U.S. GROWTH FUND

Participant Prospectus

December 17, 1999

This prospectus
contains financial data
for the Fund through the
fiscal year ended
August 31, 1999.

[A MEMBER OF
THE VANGUARD GROUP LOGO]
<PAGE>

VANGUARD U.S. GROWTH FUND
Participant Prospectus

December 17, 1999

A Growth Stock Mutual Fund

- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------

1 FUND PROFILE 9 YEAR 2000 CHALLENGE
3 ADDITIONAL INFORMATION 10 DIVIDENDS, CAPITAL GAINS, AND TAXES
3 A WORD ABOUT RISK 10 SHARE PRICE
3 WHO SHOULD INVEST 11 FINANCIAL HIGHLIGHTS
4 PRIMARY INVESTMENT STRATEGIES 13 INVESTING WITH VANGUARD
8 THE FUND AND VANGUARD 14 ACCESSING FUND INFORMATION BY COMPUTER
8 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>
1

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

INVESTMENT OBJECTIVE

The Fund seeks to provide long-term capital growth.

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 does, 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

<PAGE>

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, 1999.

SHAREHOLDER FEES (FEES PAID directly FROM YOUR INVESTMENT)

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

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM
THE FUND'S ASSETS)
Management Expenses: 0.37%
12b-1 Distribution Fee: None
Other Expenses: 0.02%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.39%

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
-----------------------------------------------------------
$40 $125 $219 $493
-----------------------------------------------------------

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.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
FUND EXPENSES

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

<PAGE>
3
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December USGro

INVESTMENT ADVISER VANGUARD FUND NUMBER
Lincoln Capital Management Company, 023
Chicago, Ill., since 1987

INCEPTION DATE CUSIP NUMBER
January 6, 1959 921910105

NET ASSETS AS OF AUGUST 31, 1999 TICKER SYMBOL
$16 billion VWUSX

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

================================================================================
A WORD ABOUT RISK

This prospectus describes 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] 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 are seeking a fund that emphasizes companies with established records
of growth.

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND
IF YOU ARE A MARKET-TIMER.

<PAGE>
4

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

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

- - 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.

- --------------------------------------------------------------------------------
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, and
book value. Generally, growth stocks have below-average dividend yields relative
to value stocks.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.
- --------------------------------------------------------------------------------

PRIMARY INVESTMENT STRATEGIES

<PAGE>

- --------------------------------------------------------------------------------
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.
Market capitalization changes over time, and there is no "official" definition
of the boundaries of large-, mid-, and small-cap stocks. Vanguard generally
defines large-capitalization (large-cap) funds as those holding stocks of
companies whose outstanding shares have a market value exceeding $12 billion;
mid-cap funds as those holding stocks of companies with a market value between
$1 billion and $12 billion; and small-cap funds as those typically holding
stocks of companies with a market value of less than $1 billion.Vanguard
periodically reassesses these classifications.
- --------------------------------------------------------------------------------

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.

[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.

<PAGE>
6

[FLAG] 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.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
FUND DIVERSIFICATION

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 industry, 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, 1999, the Fund had invested 40.3% of its assets in its top
ten holdings.

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

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 42%. (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.)

<PAGE>
7

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
TURNOVER RATE

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 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.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DERIVATIVES

THE FUND AND VANGUARD

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

INVESTMENT ADVISER

For the year ended August 31, 1999, the investment advisory fee paid to
Lincoln represented an effective annual rate of 0.12% of the Fund's average net
assets.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUND'S ADVISER

YEAR 2000 CHALLENGE

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DISTRIBUTIONS

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.
Your dividend and capital gains distributions will be reinvested in
additional Fund shares and accumulate on a tax-deferred basis, if you are
investing through an employer-sponsored retirement or savings plan. You will not
owe taxes on these distributions until you begin withdrawals from the plan. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of plan withdrawals.

SHARE PRICE

NET ASSET VALUE = TOTAL ASSETS - LIABILITIES
-------------------------------
NUMBER OF SHARES OUTSTANDING

<PAGE>

11
FINANCIAL HIGHLIGHTS

<PAGE>
12
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

Shareholders received $2.50 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>

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 those about
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.

In all cases, your transaction will be based on the Fund's next-determined
net asset value after Vanguard receives your request (or, in the case of new
contributions, the next-determined net asset value after Vanguard receives the
order from your plan administrator). As long as this request is received before
the close of trading on the New York Stock Exchange, generally 4 p.m. Eastern
time, you will receive that day's net asset value.

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 participant 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.

<PAGE>

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>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>

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.

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.

GROWTH STOCK FUND

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.

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

SECURITIES
Stocks, bonds, and other investment vehicles.

VALUE STOCK FUND

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>
[SHIP LOGO]
[THE VANGUARD GROUP(R) LOGO]

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

FOR MORE INFORMATION
If you'd like more information about
Vanguard U.S. Growth Fund, the
following documents are available free
upon request:

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

Fund's Investment Company Act
file number: 811-1027

I023N-12/17/1999

<PAGE>

VANGUARD/(R)/
INTERNATIONAL GROWTH FUND

Prospectus

December 17, 1999

This prospectus contains
financial data
for the Fund through the
fiscal year ended
August 31, 1999.

[A MEMBER OF
THE VANGUARD GROUP LOGO]

<PAGE>

VANGUARD INTERNATIONAL GROWTH FUND

Prospectus

December 17, 1999

An International Stock Mutual Fund

<PAGE>

FUND PROFILE
The following profile summarizes key features of Vanguard International Growth
Fund.

INVESTMENT OBJECTIVE

The Fund seeks to provide long-term capital growth.

INVESTMENT STRATEGIES
The Fund invests primarily in the stocks of seasoned companies located outside
the United States. In selecting stocks, the Fund evaluates foreign markets
around the world, choosing companies in those markets with above-average 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:

- - Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.

- - Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.

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

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

PERFORMANCE/RISK INFORMATION

The following bar chart and table provide an indication of the risks 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 total 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
1989 24.76%
1990 -12.05%
1991 4.74%
1992 -5.79%
1993 44.74%
1994 0.76%
1995 14.89%
1996 14.65%
1997 4.12%
1998 16.93%
---------------------------------------------------------------------
The Fund's year-to-date return as of the most recent calendar quarter
ended September 30, 1999, was 3.68%.
---------------------------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 17.94% (quarter ended September 30, 1989) and the lowest return for
a quarter was -18.25% (quarter ended September 30, 1990).

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Vanguard International Growth Fund 16.9% 10.1% 9.7%
MSCI EAFE Index* 20.3 9.5 5.9
- --------------------------------------------------------------------------------
*Morgan Stanley Capital International Europe, Australasia, Far East Index
- --------------------------------------------------------------------------------

SHAREHOLDER FEES (fees paid directly from your investment)

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

ANNUAL FUND OPERATING EXPENSES (expenses deducted from
the fund's assets)
Management Expenses: 0.50%
12b-1 Distribution Fee: None
Other Expenses: 0.08%

TOTAL ANNUAL FUND OPERATING EXPENSES: 0.58%

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
---------------------------------------------------------------
$59 $186 $324 $726
---------------------------------------------------------------

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.

- --------------------------------------------------------------------------------
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 International Growth Fund's expense ratio in fiscal year 1999
was 0.58%, or $5.80 per $1,000 of average net assets. The average actively
managed international equity mutual fund had expenses in 1998 of 1.66%, or
$16.60 per $1,000 of average net assets (derived from data provided by Lipper
Inc., which reports on the mutual fund industry).
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE COSTS OF INVESTING

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Distributed annually in December $3,000; $1,000 for IRAs and custodial
accounts for minors

INVESTMENT ADVISER NEWSPAPER ABBREVIATION
Schroder Investment Management North IntlGr
America Inc., London, England,
since 1981

INCEPTION DATE VANGUARD FUND NUMBER
September 30, 1981 081

NET ASSETS AS OF AUGUST 31, 1999 CUSIP NUMBER
$8 billion 921910204

SUITABLE FOR IRAS TICKER SYMBOL
Yes VWIGX
- --------------------------------------------------------------------------------

================================================================================
A WORD ABOUT RISK

This prospectus describes risks you would face as an investor in Vanguard
International 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
International Growth Fund, you should also take into account your personal
tolerance for the daily fluctuations of the stock market.
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 an international stock fund to your existing holdings,
which could include other stock investments as well as bond, money market,
and tax-exempt investments.

- - You are willing to accept the additional risks (country risk, currency
risk, etc.) associated with international investments.

- - You are seeking growth of capital over the long term--at least five years.

- - You are not looking for current income.

<PAGE>

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND IF
YOU ARE A MARKET-TIMER.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

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. A purchase request could be rejected
becauseof the timing of the investment or because of a history of excessive
trading by the investor.

- - There is a limit to 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 how the investment adviser implements the Fund's strategy
to achieve the objective of long-term growth of capital. It also explains
several important risks-- investment style risk, market risk, currency risk,
country risk, and manager risk--faced by investors in the Fund. The Fund's Board
of Trustees oversees the management of the Fund and in the interest of
shareholders may change the investment strategies.

MARKET EXPOSURE
The Fund's primary strategy is to invest in the stocks of non-U.S. companies in
foreign markets with above-average potential for growth. About two-thirds of the
Fund's assets are invested in long-term growth stocks; the remaining third may
be invested in companies that pursue shorter-term opportunities.

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

<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, and
book value. Generally, growth stocks have below-average dividend yields relative
to value stocks. 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.
- --------------------------------------------------------------------------------

[FLAG]THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT STOCK
LOGO 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.
IN ADDITION, INVESTMENTS IN FOREIGN STOCK MARKETS CAN BE AS RISKY AS,
IF NOT MORE RISKY THAN, U.S. STOCK INVESTMENTS. THE PRICES OF INTERNATIONAL
STOCKS AND THE PRICES OF U.S. STOCKS HAVE OFTEN MOVED IN OPPOSITE
DIRECTIONS. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS SEVERAL
YEARS.

To illustrate the volatility of international stock prices, the following
table shows the best, worst, and average total returns for foreign stock markets
over various periods as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East (MSCI EAFE) Index, a widely used barometer of
international market activity. (Total 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.

- --------------------------------------------------------------------------------
INTERNATIONAL STOCK MARKET RETURNS (1969-1998)
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
- --------------------------------------------------------------------------------
Best 69.9% 36.5% 22.8% 16.3%
Worst -23.2 1.5 5.9 12.0
Average 14.7 13.6 14.9 14.7
- --------------------------------------------------------------------------------

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1969
through 1998. Keep in mind that this was a particularly favorable period for all
stock markets. These average returns reflect past performance on international
stocks; you should not regard them as an indication of future returns from
either foreign markets as a whole or this Fund in particular.

<PAGE>

Keep in mind, too, that because Vanguard International Growth Fund's
holdings are not identical to the MSCI EAFE Index or any other market index, the
performance of the Fund will not mirror the returns of any particular index.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE RISKS OF INTERNATIONAL INVESTING

Because foreign stock markets operate differently from the U.S. market,
Americans investing abroad will encounter risks not typically associated with
U.S. companies. For instance, foreign companies are not subject to the same
accounting, auditing, and financial reporting standards and practices as U.S.
companies; and their stock may not be as liquid as the stock of similar U.S.
companies. In addition, foreign stock exchanges, brokers, and companies
generally have less government supervision and regulation than their
counterparts in the United States. These factors, among others, could negatively
impact the returns Americans receive from a foreign investment.
- --------------------------------------------------------------------------------

[FLAG]THE FUND IS SUBJECT TO CURRENCY RISK, WHICH IS THE POSSIBILITY THAT A
STRONGER U.S. DOLLAR WILL REDUCE RETURNS FOR AMERICANS INVESTING OVERSEAS.
GENERALLY, WHEN THE DOLLAR RISES IN VALUE AGAINST ANOTHER COUNTRY'S
CURRENCY, YOUR INVESTMENT IN THAT COUNTRY LOSES VALUE BECAUSE ITS CURRENCY
IS WORTH FEWER U.S. DOLLARS. ON THE OTHER HAND, A WEAKER U.S. DOLLAR
GENERALLY LEADS TO HIGHER RETURNS FOR AMERICANS HOLDING FOREIGN
INVESTMENTS.

[FLAG]THE FUND IS SUBJECT TO COUNTRY RISK, WHICH IS THE POSSIBILITY THAT
POLITICAL EVENTS (A WAR, NATIONAL ELECTIONS), FINANCIAL PROBLEMS (RISING
INFLATION, GOVERNMENT DEFAULT), OR NATURAL DISASTERS (AN EARTHQUAKE, A
FLOOD) WILL WEAKEN A COUNTRY'S ECONOMY AND CAUSE INVESTMENTS IN THAT
COUNTRY TO LOSE MONEY.

SECURITY SELECTION

Schroder Investment Management North America Inc. (Schroder), adviser to the
Fund, believes that the two most important factors in managing the investments
of an international stock fund are country selection and stock selection.
Schroder continually evaluates financial markets around the world--including
Japan, the United Kingdom, the Netherlands, Germany, France, Switzerland,
Sweden, Australia, Hong Kong, Singapore, Malaysia, and Italy--and identifies
those countries with, in the adviser's opinion, the most favorable business
climates.

Once an attractive market has been identified, Schroder analyzes the
companies there and ranks them according to their potential for above-average
earnings growth. Schroder considers on-site evaluations a vital part of the
security selection process, and members of its team therefore visit more than
6,000 companies in more than 20 countries each year. The companies chosen by
Schroder reflect a wide variety of countries and industries.
The Fund is run by Schroder according to traditional methods of active
investment management, which means securities are bought and sold according to
Schroder's judgments about companies and their financial prospects, and about
foreign stock markets and economies in general.
The Fund is generally managed without regard to tax ramifications.

<PAGE>

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

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 30%. (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.)

- --------------------------------------------------------------------------------
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. 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 international stock funds is
approximately 72%, according to Morningstar, Inc.
- --------------------------------------------------------------------------------

OTHER INVESTMENT POLICIES AND RISKS

Besides investing in stocks of foreign companies, the Fund may follow a number
of other investment policies to achieve its objective.

The Fund may enter into forward foreign currency contracts, which help
protect its holdings against unfavorable short-term changes in exchange rates. A
forward foreign currency contract is an agreement to buy or sell a country's
currency at a specific price on a specific date, usually 30, 60, or 90 days in
the future. In other words, the contract guarantees an exchange rate on a given
date. Managers of international stock funds use these contracts to guard against
sudden, unfavorable changes in U.S. dollar/foreign currency exchange rates. The
contracts will not prevent the Fund's securities from falling in value during
foreign market downswings. Schroder will use these contracts to eliminate some
of the uncertainty of foreign exchange rates.

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 Fund's obligation to purchase securities under
futures contracts will not exceed 20% of its 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.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DERIVATIVES

THE FUND AND VANGUARD

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

INVESTMENT ADVISER

The Fund employs Schroder Investment Management North America, Inc. (Schroder),
31 Gresham Street, London EC2V7QA, England, as its investment adviser. Schroder
manages the Fund subject to the control of the Trustees and officers of the
Fund.

Schroder's advisory fee is paid quarterly and is based on certain annual
percentage rates multiplied by the Fund's average month-end assets for each
quarter.

In addition, Schroder's advisory fee is increased or decreased, based on
the cumulative investment performance of the Fund over a trailing 36-month
period as compared to the cumulative total return of the MSCI EAFE Index over
the same period. This index is a widely-used barometer of European and Pacific
stock market activity.

For the year ended August 31, 1999, the investment advisory fee paid to
Schroder represented an effective annual rate of 0.13% of the Fund's average net
assets before an increase of 0.01% based on performance.

<PAGE>

The Fund has authorized Schroder to choose brokers or dealers to handle the
purchase and sale of securities, 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, Schroder
may at times choose brokers who charge higher commissions. If more than one
broker can obtain the best available price and favorable execution of a
transaction, then Schroder is authorized to choose a broker who, in addition to
executing the transaction, will provide research services to Schroder or the
Fund. Also, the Fund may direct Schroder 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 Schroder or as an additional adviser. However, any such change
will be communicated to shareholders in writing.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUND'S ADVISER

Schroder Investment Management North America Inc. (Schroder) is part of a
worldwide group of banks and financial services companies known as The Schroder
Group. As of August 31, 1999, the Group managed more than $200 billion in
assets. The manager responsible for overseeing Schroder's strategy for Vanguard
International Growth Fund is:

RICHARD FOULKES, Executive Vice President and Deputy Chairman of Schroder;
with Schroder since 1968; Fund Manager since 1981; educated at the Sorbonne,
France; B.A., M.A., Cambridge University, England.
- --------------------------------------------------------------------------------

YEAR 2000 CHALLENGE

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

<PAGE>

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

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS

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 dividends or capital gains in cash, or you can have them
automatically reinvested in more shares of the Fund.

BASIC TAX POINTS

Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:

- - Distributions are taxable to you whether or not you reinvest these amounts
in additional Fund shares.

- - Distributions declared in December--if paid to you by the end of
January--are taxable as if received in December.

- - Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.

- - Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.

- - Capital gains distributions may vary considerably from year to year as a
result of the Fund's normal investment activities and cash flows.

- - State and local income taxes may apply to any dividend or capital gains
distributions that you receive, as well as your gains or losses from any
sale or exchange of Fund shares.

- - The Fund may be subject to foreign taxes or foreign tax withholding on
dividends, interest and some capital gains that it receives on foreign
securities. You may qualify for an offsetting credit or deduction under
U.S. tax laws for your portion of the Fund's foreign tax obligations,
provided that you meet certain requirements. See your tax adviser or IRS
Form 1116 for more information.

<PAGE>

GENERAL INFORMATION
BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not provide us with
your correct taxpayer identification number and certify that it is correct.
Similarly, Vanguard must withhold from your account if the IRS instructs us to
do so.

INVALID ADDRESSES. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.

TAX CONSEQUENCES. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
"BUYING A DIVIDEND"

SHARE PRICE

NET ASSET VALUE = TOTAL ASSETS - LIABILITIES
-------------------------------
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, invest-

<PAGE>

ments will be priced at their fair value, calculated according to procedures
adopted by the Fund's Board of Trustees. The Fund also may use fair value
pricing if the value of a security held by the Fund is materially affected by
events occurring after the close of the primary markets or exchanges on which
such security is traded. In these situations, prices used by the Fund to
calculate its net asset value may differ from quoted or published prices for the
underlying securities.

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 INTLGR.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
VANGUARD INTERNATIONAL GROWTH FUND
YEAR ENDED AUGUST 31,

----------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

NET ASSET VALUE, BEGINNING OF YEAR $16.57 $17.86 $16.13 $14.70 $14.36
- -------------------------------------------------------------------------------
INVESTMENT OPERATIONS

Net Investment Income .27 .25 .19 .19 .20
Net Realized and Unrealized Gain(Loss) 3.29 (.81) 2.28 1.65 .32
on Investments
----------------------------------------
Total from Investment Operations 3.56 (.56) 2.47 1.84 .52
----------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.22) (.21) (.19) (.20) (.18)
Distributions from Realized Capital (.16) (.52) (.55) (.21) ---
Gains
----------------------------------------
Total Distributions (.38) (.73) (.74) (.41) (.18)
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $19.75 $16.57 $17.86 $16.13 $14.70
- -------------------------------------------------------------------------------
21.70% -2.99% 15.84% 12.72% 3.76%
TOTAL RETURN
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $8,000 $6,820 $7,089 $4,997 $3,354
Ratio of Total Expenses to
Average Net Assets 0.58% 0.59% 0.57% 0.56% 0.59%
Ratio of Net Investment Income to
Average Net Assets 1.42% 1.39% 1.26% 1.35% 1.53%
Turnover Rate 37% 37% 22% 22% 31%
- -------------------------------------------------------------------------------
</TABLE>

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began fiscal 1999 with a net asset value (price) of $16.57 per share.
During the year, the Fund earned $.27 per share from investment income (interest
and dividends) and $3.29 per share from investments that had appreciated in
value or that were sold for higher prices than the Fund paid for them.

Shareholders received $.38 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 ($3.56 per share) minus the distributions ($.38 per share) resulted
in a share price of $19.75 at the end of the year. This was an increase of $3.18
per share (from $16.57 at the beginning of the year to $19.75 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 21.70% for the year.

As of August 31, 1999, the Fund had $8 billion in net assets. For the year, its
expense ratio was 0.58% ($5.80 per $1,000 of net assets); and its net investment
income amounted to 1.42% of its average net assets. It sold and replaced
securities valued at 37% 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 [BOOK ICON]. 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(R) DIRECT DEPOSIT SERVICE/TM/ [BOOK ICON]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOK ICON]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.

- --------------------------------------------------------------------------------
VANGUARD FUND EXPRESS/(R)/ [BOOK ICON]
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 ICON]
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 ICON]
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 shares to and from most
Vanguard funds.
- --------------------------------------------------------------------------------

ACCESS VANGUARD/(R)/ www.vanguard.com [COMPUTER ICON]
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 our website. We will then mail you 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.

<PAGE>

CLIENT SERVICES DEPARTMENT: 1-800-662-2739 (CREW) TEXT TELEPHONE: 1-800-749-7273

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.
- --------------------------------------------------------------------------------

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 ICON]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNTS [BOOK ICON]
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 ICON]
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.
- --------------------------------------------------------------------------------
<PAGE>

BUYING SHARES

$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.
- --------------------------------------------------------------------------------

BY MAIL TO . . .[ENVELOPE ICON]

open a new account

Complete and sign the account registration 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. Please do not alter Invest-By-Mail
forms, since they are fund- and account-specific.

Make your check payable to: The Vanguard Group-81
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 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division . . .

BY TELEPHONE TO . . .[TELEPHONE ICON]

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).

<PAGE>

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739

IMPORTANT NOTE: Once you have 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 ICON]

Wire to:

FRB ABA 021001088

HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard International Growth Fund-81
[Account number, or temporary number for a new account]

[Registered account owner(s)]

[Registered address]
- --------------------------------------------------------------------------------
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.

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

- --------------------------------------------------------------------------------
<PAGE>

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.

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.

NOTE: Once a redemption is initiated and a confirmation number given, the
transaction CANNOT be canceled.

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

HOW TO REQUEST A REDEMPTION

You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.
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.

- --------------------------------------------------------------------------------
ONLINE REQUESTS [COMPUTER ICON]
ACCESS VANGUARD at www.vanguard.com

<PAGE>

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

- - 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 (for instance,
Tele-Account).

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 a
1-800-662-2003.

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

<PAGE>

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

A NOTE ON LARGE REDEMPTIONS

It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders, and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may 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, exchange
to another Vanguard fund, or Fund Express redemption.

FUND EXPRESS REDEMPTIONS
Vanguard will electronically transfer funds to your pre-linked checking or
savings account.

- --------------------------------------------------------------------------------
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.

TRANSACTIONS ARE PROCESSED AT THE NEXT-DETERMINED SHARE PRICE AFTER VANGUARD HAS
RECEIVED ALL REQUIRED INFORMATION.

<PAGE>

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

LIMITS ON ACCOUNT ACTIVITY

Because excessive account transactions can disrupt the 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.

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

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

UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
- --------------------------------------------------------------------------------
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...

FUND AND ACCOUNT UPDATES

STATEMENTS AND REPORTS

We will send you 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
financial markets, a report from the advisers, and the Fund's financial
statements which include a listing of the Fund's holdings.
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 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, notify our Client Services Department at
1-800-662-2739.

- --------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY [BOOK ICON]
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 ICON]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using only the average cost single category method.

- --------------------------------------------------------------------------------
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK.)

<PAGE>

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.

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 political or financial troubles or natural
disasters will weaken a country's economy.

CURRENCY RISK
The possibility that an American's foreign investment will lose money because of
unfavorable currency exchange rates.

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.

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 with such
factors as revenue, earnings, book value, and dividends.

INTERNATIONAL STOCK FUND
A mutual fund that invests in the stocks of companies located outside the United
States.

VALUE STOCK FUND

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>

[SHIP LOGO]
[THE VANGUARD GROUP (R)LOGO]

Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION
If you'd like more information
about Vanguard International Growth Fund, the
following documents are available free
upon request:

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

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:
1-800-749-7273

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

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, DC. 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

P081N-12/17/1999

<PAGE>

VANGUARD/(R)/
INTERNATIONAL GROWTH FUND

Participant Prospectus

December 17, 1999

This prospectus contains
financial data for the
Fund through the
fiscal year ended
August 31, 1999.

[A MEMBER OF
THE VANGUARD GROUP LOGO]

<PAGE>

VANGUARD INTERNATIONAL GROWTH FUND

Participant Prospectus

December 17, 1999

An International Stock Mutual Fund

- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
1 FUND PROFILE 9 YEAR 2000 CHALLENGE
3 ADDITIONAL INFORMATION 10 DIVIDENDS, CAPITAL GAINS, AND TAXES
3 A WORD ABOUT RISK 10 SHARE PRICE
3 WHO SHOULD INVEST 12 FINANCIAL HIGHLIGHTS
4 PRIMARY INVESTMENT STRATEGIES 14 INVESTING WITH VANGUARD
8 THE FUND AND VANGUARD 15 ACCESSING FUND INFORMATION BY COMPUTER
8 INVESTMENT ADVISER GLOSSARY (inside back cover)
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
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>

FUND PROFILE

The following profile summarizes key features of Vanguard International Growth
Fund.

INVESTMENT OBJECTIVE

The Fund seeks to provide long-term capital growth.

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:

- - Country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.

- - Currency risk, which is the chance that returns will be hurt by a rise in
the value of the U.S. dollar versus foreign currencies.

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

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

PERFORMANCE/RISK INFORMATION

<PAGE>

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 Fee: None
Exchange Fee: None

ANNUAL FUND OPERATING EXPENSES (expenses deducted from
the fund's assets)
Management Expenses: 0.50%
12b-1 Distribution Fee: None
Other Expenses: 0.08%

TOTAL ANNUAL FUND OPERATING EXPENSES: 0.58%

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.

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.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
FUND EXPENSES

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE COSTS OF INVESTING

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Distributed annually in December IntlGr

INVESTMENT ADVISERS
Schroder Investment Management North VANGUARD FUND NUMBER
America Inc., London, England, since 1981 081

INCEPTION DATE CUSIP NUMBER
September 30, 1981 921910204

NET ASSETS AS OF AUGUST 31, 1999 TICKER SYMBOL
$8 billion VWIGX

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

================================================================================
A WORD ABOUT RISK

WHO SHOULD INVEST

The Fund may be a suitable investment for you if:
- - You wish to add an international stock fund to your existing holdings,
which could include other stock investments as well as bond, money market,
and tax-exempt investments.

- - You are willing to accept the additional risks (country risk, currency
risk, etc.) associated with international investments.

- - You are seeking growth of capital over the long term--at least five years.

- - You are not looking for current income.

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND
IF YOU ARE A MARKET-TIMER.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

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

- - There is a limit to 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 how the investment adviser implements the Fund's strategy
to achieve the objective of long-term growth of capital. It also explains
several important risks--investment style risk, market risk, currency risk,
country risk, and manager risk--faced by investors in the Fund. The Fund's Board
of Trustees oversees the management of the Fund and in the interest of
shareholders may change the investment strategies.

<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, and
book value. Generally, growth stocks have below-average dividend yields relative
to value stocks. 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 table covers all of the 1-, 5-, 10-, and 20-year periods from 1969 through
1998. Keep in mind that this was a particularly favorable period for all stock
markets. These average returns reflect past performance on international stocks;
you should not regard them as an indication of future returns from either
foreign markets as a whole or this Fund in particular.

<PAGE>

Keep in mind, too, that because Vanguard International Growth Fund's holdings
are not identical to the MSCI EAFE Index or any other market index, the
performance of the Fund will not mirror the returns of any particular index.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE RISKS OF INTERNATIONAL INVESTING

SECURITY SELECTION

The Fund is run by Schroder according to traditional methods of active
investment management, which means securities are bought and sold according to
Schroder's judgments about companies and their financial prospects, and about
foreign stock markets and economies in general.

The Fund is generally managed without regard to tax ramifications.
<PAGE>

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

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 30%. (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.)

- --------------------------------------------------------------------------------
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. 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 international stock funds is
approximately 72%, according to Morningstar, Inc.
- --------------------------------------------------------------------------------

OTHER INVESTMENT POLICIES AND RISKS

Besides investing in stocks of foreign companies, the Fund may follow a number
of other investment policies to achieve its objective.

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 temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic,
<PAGE>

political, or other conditions. In doing so, the Fund may succeed in avoiding
losses but otherwise fail to achieve its investment objective.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DERIVATIVES

THE FUND AND VANGUARD

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

INVESTMENT ADVISER

The Fund employs Schroder Investment Management North America Inc. (Schroder),
31 Gresham Street, London, EC2V7QA, England, as its investment adviser. Schroder
manages the Fund subject to the control of the Trustees and officers of the
Fund.

Schroder's advisory fee is paid quarterly and is based on certain annual
percentage rates multiplied by the Fund's average month-end assets for each
quarter.
In addition, Schroder's advisory fee is increased or decreased, based on
the cumulative investment performance of the Fund over a trailing 36-month
period as compared to the cumulative total return of the MSCI EAFE Index over
the same period. This index is a widely-used barometer of European and Pacific
stock market activity.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUND'S ADVISER
Schroder Investment Management North America Inc. (Schroder) is part of a
worldwide group of banks and financial services companies known as The Schroder
Group. As of August 31, 1999, the Group managed more than $200 billion in
assets. The manager responsible for overseeing Schroder's strategy for Vanguard
International Growth Fund is:

RICHARD FOULKES, Executive Vice President and Deputy Chairman of Schroder; with
Schroder since 1968; Fund Manager since 1981; educated at the Sorbonne, France;
B.A., M.A., Cambridge University, England.
- --------------------------------------------------------------------------------

YEAR 2000 CHALLENGE

<PAGE>

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

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.
Your dividend and capital gains distributions will be reinvested in
additional Fund shares and accumulate on a tax-deferred basis, if you are
investing through an employer-sponsored retirement or savings plan. You will not
owe taxes on these distributions until you begin withdrawals from the plan. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of plan withdrawals.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DISTRIBUTIONS

SHARE PRICE

NET ASSET VALUE = TOTAL ASSETS - LIABILITIES
-------------------------------
NUMBER OF SHARES OUTSTANDING

<PAGE>

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 also may use fair value pricing if the value of a security held by the Fund
is materially affected by events occurring after the close of the primary
markets or exchanges on which such security is traded. In these situations,
prices used by the Fund to calculate its net asset value may differ from quoted
or published prices for the underlying securities.

FINANCIAL HIGHLIGHTS

The financial highlights table on the following page is intended to help you
understand the Fund's financial performance for the past five years, and certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost each year on an investment in the Fund (assuming reinvestment of all
dividend and capital gains distributions). This information has been derived
from the financial statements 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>
FINANCIAL HIGHLIGHTS continued
12

<TABLE>
<CAPTION>
VANGUARD INTERNATIONAL GROWTH FUND
YEAR ENDED AUGUST 31,

----------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

NET ASSET VALUE, BEGINNING OF YEAR $16.57 $17.86 $16.13 $14.70 $14.36
- -------------------------------------------------------------------------------
INVESTMENT OPERATIONS

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
The Fund began fiscal 1999 with a net asset value (price) of $16.57 per share.
During the year, the Fund earned $.27 per share from investment income (interest
and dividends) and $3.29 per share from investments that had appreciated in
value or that were sold for higher prices than the Fund paid for them.

Shareholders received $.38 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>

INVESTING WITH VANGUARD

- - If you have questions about your account, contact your plan administrator
or the organization that provides recordkeeping services for your plan.

EXCHANGES

- - 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.

<PAGE>

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.

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 political or financial troubles or natural
disasters will weaken a country's economy.

CURRENCY RISK
The possibility that an American's foreign investment will lose money because of
unfavorable currency exchange rates.

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.

INTERNATIONAL STOCK FUND
A mutual fund that invests in the stocks of companies located outside the United
States.

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 with 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>
[SHIP LOGO]
[THE VANGUARD GROUP (R) LOGO]

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

FOR MORE INFORMATION
If you'd like more information about
Vanguard International 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
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

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, DC. 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

<PAGE>

PART B

VANGUARD(R) WORLD FUNDS
(THE TRUST)

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 17, 1999

This Statement is not a prospectus but should be read in conjunction with the
Trust's current Prospectuses (dated December 17, 1999). To obtain the
Prospectuses or an additional 1999 Annual Report to Shareholders, which contains
the Funds' Financial Statements as hereby incorporated by reference, please
call:

INVESTOR INFORMATION DEPARTMENT
1-800-662-7447

TABLE OF CONTENTS

PAGE
DESCRIPTION OF THE TRUST.........................................B-1
INVESTMENT POLICIES..............................................B-3
YIELD AND TOTAL RETURN...........................................B-9
SHARE PRICE......................................................B-10
PURCHASE OF SHARES...............................................B-11
REDEMPTION OF SHARES.............................................B-12
FUNDAMENTAL INVESTMENT LIMITATIONS...............................B-12

MANAGEMENT OF THE FUNDS .........................................B-14

INVESTMENT ADVISORY SERVICES.....................................B-17
PORTFOLIO TRANSACTIONS...........................................B-20
FINANCIAL STATEMENTS.............................................B-21
COMPARATIVE INDEXES..............................................B-21

DESCRIPTION OF THE TRUST

ORGANIZATION

The Trust was organized as Ivest Fund, a Massachusetts corporation, in 1959. It
became a Maryland corporation in 1973, and was reorganized as a Delaware
business trust in June 1998. Prior to its reorganization as a Delaware business
trust, the Trust was known as Vanguard World Fund, Inc. The Trust is registered
with the United States Securities and Exchange Commission (the Commission) under
the Investment Company Act of 1940 (the 1940 Act) as an open-end diversified
management investment company. It currently offers the following funds:

Vanguard U.S. Growth Fund
Vanguard International Growth Fund
(individually, the Fund; collectively, the Funds)

The Trust has the ability to offer additional funds or classes of shares.
There is no limit on the number of full and fractional shares that each Fund may
issue.

SERVICE PROVIDERS

CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 (for Vanguard U.S. Growth Fund), and The Chase
Manhattan Bank, N.A., 4 Chase MetroTech Center, Brooklyn, New York 11245 (for
Vanguard International Growth Fund), serve as the custodians. The custodians are
responsible for maintaining the Funds' assets and keeping all necessary accounts
and records.

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INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, 30 South 17th Street,
Philadelphia, Pennsylvania 19103, serves as the Funds' independent accountants.
The accountants audit each Fund's financial statements and provide other related
services.

TRANSFER AND DIVIDEND-PAYING AGENT. The Funds' transfer agent and
dividend-paying agent is The Vanguard Group, Inc., 100 Vanguard Boulevard,
Malvern, Pennsylvania 19355.

CHARACTERISTICS OF THE FUNDS' SHARES

RESTRICTIONS ON HOLDING OR DISPOSING OF SHARES. There are no restrictions
on the right of shareholders to retain or dispose of the Funds shares, other
than the possible future termination of the Funds'. Each Fund may be terminated
by reorganization into another mutual fund or by liquidation and distribution of
the assets of the affected series. Unless terminated by reorganization or
liquidation, each Fund will continue indefinitely.

SHAREHOLDER LIABILITY. The Funds are organized under Delaware law, which
provides that shareholders of a business trust are entitled to the same
limitations of personal liability as shareholders of a corporation organized
under Delaware law. Effectively, this means that a shareholder of a Fund will
not be personally liable for payment of the Fund'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 Fund obligation only if the Fund itself had no remaining
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
dividends or other distributions declared for such Fund. No shares have priority
or preference over any other shares of the same Fund with respect to
distributions. Distributions will be made from the assets of a Fund, and will be
paid ratably to all shareholders of the Fund according to the number of shares
of such Fund held by shareholders on the record date.

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 material
degree the rights and preferences of the shares of any 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 circumstances,
including to elect or remove Trustees upon the written request of shareholders
representing 10% or more of a Fund's net assets, and to change any fundamental
policy of a Fund. Shareholders of each Fund receive one vote for each dollar of
net asset value owned on the record date, and a fractional 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.

LIQUIDATION RIGHTS. In the event of liquidation, shareholders will be
entitled to receive a pro rata share of the applicable Fund's net assets.

PREEMPTIVE RIGHTS. There are no preemptive rights associated with shares of
each Fund.

CONVERSION RIGHTS. There are no conversion rights associated with shares of
each Fund.

REDEMPTION PROVISIONS. Each Fund's redemption provisions are described in
its current prospectuses and elsewhere in this Statement of Additional
Information.

SINKING FUND PROVISIONS. The Funds have no sinking fund provisions.

CALLS OR ASSESSMENT. Each Fund's shares, when issued, are fully paid and
non-assessable.

TAX STATUS OF THE FUNDS

Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code. This special tax status means that a
Fund will not be liable for federal tax on income and capital gains distributed
to shareholders. In order to preserve its tax status, each Fund must comply with
certain requirements. If a Fund fails to meet these requirements in any taxable

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year, it will be subject to tax on its taxable income at corporate rates, and
all distributions from earnings and profits, including any distributions of net
tax-exempt income and net long-term capital gains, will be taxable to
shareholders as ordinary income. In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest, and make
substantial distributions before regaining its tax status as a regulated
investment company.

INVESTMENT POLICIES

The following policies supplement each Fund's investment policies set forth in
the Prospectus for each Fund.

FUTURES CONTRACTS AND OPTIONS. Each Fund may enter into stock futures
contracts, options, and options on futures contracts for the following 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 underlying 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. Assets committed to futures contracts will be segregated
to the extent required by law.

Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold," "selling" a contract previously
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
completion 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.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Futures contracts are customarily purchased 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 market daily. If the futures contract price changes to the extent 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
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. Each Fund
expects 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
unfavorable 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 market value of the underlying securities. Each Fund intends to use futures
contracts only for bona fide hedging purposes.

Regulations of the CFTC applicable to each 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

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value of the respective Fund's portfolio. Each Fund will only sell futures
contracts to protect securities 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, each 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 each Fund upon sale of open futures contracts.

Although techniques other than the sale and purchase of futures contracts
could be used to control the exposure of a Fund's income to fluctuations in the
market value of the underlying securities, the use of futures contracts may be a
more effective means of hedging this exposure. While the Funds 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
portfolio securities.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. Each 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 Fund's
total assets. In addition, each Fund will not enter into futures contracts to
the extent that its outstanding obligations to purchase securities under these
contracts would exceed 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 assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, each 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 portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition,
each Fund may be required to make delivery 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 to effectively hedge. Each Fund will
minimize the risk that it will be unable to close out a futures contract by only
entering into futures contracts which are traded on national futures exchanges
and for which there appears to be a liquid secondary market.

The risk of loss in trading futures contracts in some strategies can be
substantial, due both to 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
substantial 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. However, because the futures
strategies of each Fund are engaged in only for hedging purposes, the investment
advisers do not believe that the Funds are subject to the risks of loss
frequently associated with futures transactions. Each 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
imperfect 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 experience a
decline in the value of its portfolio securities. There is also the risk of loss
by a Fund of margin deposits in the event of bankruptcy of a broker with whom
the 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

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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 unfavorable 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. Except for transactions each
Fund has identified as hedging transactions, each 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 contract. (Different rules may apply to
foreign futures contracts.) Furthermore, sales of futures contracts which are
intended to hedge against a change in the value of securities held by each Fund
may affect the holding period of such securities and, consequently, the nature
of the gain or loss on such securities upon disposition. The Funds may be
required to defer the recognition of losses on futures contracts to the extent
of any unrecognized gains on related positions held by the Funds.

In order for each Fund to continue to qualify for federal income tax
treatment 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,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income derived with respect to its
business of investing in such stock, securities, or currencies. 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.

Each 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 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. Vanguard International Growth Fund seeks to diversify
its assets among various foreign stock markets and, with respect to 65% of its
gross assets, will invest in the securities of at least three different
countries. Vanguard U.S. Growth Fund may invest up to 20% of its assets in
securities of foreign companies. Investors should recognize that investing 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 Funds may temporarily hold
uninvested reserves in bank deposits in foreign currencies, the Funds 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 Vanguard International Growth
Fund permit it to enter into forward foreign currency exchange contracts in
order to hedge the Fund's 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
acquisition of any forward contract, futures contract, option or similar

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financial 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
applicable 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 contracts 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 integrated and treated
as a single transaction or otherwise treated consistently for purposes of the
Code. Any gain or loss attributable to the foreign currency 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 certain 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 anticipated that some of the
non-U.S. dollar-denominated investments and foreign currency contracts Vanguard
International Growth Fund may make or enter into will be subject to the special
currency rules described above.

FOREIGN TAX CREDIT. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Foreign governments may also
impose taxes on other payments or gains with respect to foreign securities. If,
at the close of its fiscal year, more than 50% of a Fund's total assets are
invested in securities of foreign issuers, the Fund may elect to pass through
foreign taxes paid, and thereby allow shareholders to take a tax credit or
deduction on their tax returns. If shareholders meet certain holding period
requirements with respect to Fund shares, an offsetting tax credit may be
available. If shareholders do not meet the holding period requirements, they may
still be entitled to a deduction for certain foreign taxes. In either case, a
shareholder's tax statement will show more taxable income or capital gains than
was actually distributed by the Fund, but will also show the amount of the
available offsetting credit or deduction.

A shareholder that is a nonresident alien for U.S. tax purposes may be
subject to adverse U.S. tax consequences. For example, dividends and short-term
capital gains paid by the Fund will generally be subject to U.S. federal
withholding tax at a rate of 30% (or lower treaty rate if applicable). Foreign
investors are urged to consult their tax advisers regarding the U.S. tax
treatment of ownership of shares in the Fund.

COUNTRY RISK. As foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards and practices comparable
to those applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies.
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.

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

Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes is
recoverable, the non-recovered portion of

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foreign withholding taxes will reduce the income received from foreign companies
held by the Funds. However, these foreign withholding taxes are not expected to
have a significant impact on the Funds, since each Fund seeks long-term capital
appreciation and any income should be considered incidental.

TURNOVER RATE. While the turnover rate is not a limiting factor when
management deems changes appropriate, it is anticipated that the annual turnover
rate for each Fund will not normally exceed 100%. A rate of turnover of 100%
could occur, for example, if all of the securities held by a Fund are replaced
within a period of one year. The portfolio turnover rate for each Fund for each
of the fiscal years presented is set forth under "Financial Highlights," in each
Fund's Prospectus.

LLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
illiquid 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 books.

Each Fund may invest in restricted, privately placed securities that, under
the Commission's 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 Securities Act of 1933 (the 1933
Act). While the Fund's investment adviser determines the liquidity of restricted
securities on a daily basis, the Board oversees and retains ultimate
responsibility for the adviser's decisions. Several factors the Board considers
in monitoring these decisions include the valuation of a security, the
availability of qualified institutional buyers, and the availability of
information on the security's issuer.

REPURCHASE AGREEMENTS. Each Fund along with other members of the Vanguard
Group 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 repurchase agreement is an agreement
under which the Fund acquires a fixed-income security (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 instrument is held by the Fund and is unrelated to the interest
rate on the underlying 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
monitors repurchase agreement transactions generally and has established
guidelines and standards for review by the investment adviser of the
creditworthiness of any bank, broker or dealer party to a repurchase agreement.

The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying 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 the liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying 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
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.

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LENDING OF SECURITIES. Each Fund may lend its investment securities to
qualified institutional investors (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 completing arbitrage operations. By lending its investment
securities, a Fund attempts to increase its net investment 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 and the aggregate amount of
such loans must be consistent with the 1940 Act, and the Rules and Regulations
or interpretations of the 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 pledge and maintain with the Fund collateral
consisting of cash, an irrevocable letter of credit or securities issued or
guaranteed by the United States Government having at all times not less than
100% of the value of the securities loaned, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the Fund at any time, and (d) the Fund receive reasonable
interest on the loan (which may include the Fund's investing any cash collateral
in interest bearing short-term investments), any distribution on the loaned
securities and any increase in their market value. Loan arrangements made by
each Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which presently require the
borrower, after notice, to redeliver the securities within the normal settlement
time of three business days. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Trust's Board of Trustees.

At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved 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 Commission has issued an exemptive
order permitting the Funds 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
compliance with all conditions of the Commission's exemptive order.

TEMPORARY INVESTMENTS. The Funds may take temporary defensive measures that
are inconsistent with the Funds' normal fundamental or non-fundamental
investment policies and strategies in response to adverse market, economic,
political or other conditions. Such measures could include investments in (a)
highly liquid short-term fixed income securities issued by or on behalf of
municipal or corporate issuers, obligations of the U.S. Government and its
agencies, commercial paper, and bank certificates of deposit; (b) shares of
other investment companies which have investment objectives consistent with
those of the Fund; (c) repurchase agreements involving any such securities; and
(d) other money market instruments. There is no limit on the extent to which the
Funds may take temporary defensive measures. In taking such measures, each Fund
may fail to achieve its investment objective.

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YIELD AND TOTAL RETURN

The yield of Vanguard U.S. Growth Fund for the 30-day period ended August 31,
1999, was 0.32%.

The average annual total return of each Fund for certain periods ended August
31, 1999, is set forth below:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 YEAR 5 YEARS 10 YEARS
ENDED ENDED ENDED
8/31/1999 8/31/1999 8/31/1999
--------------------------------------------
Vanguard U.S. Growth Fund +37.38% +26.12% +18.21%
Vanguard International Growth Fund +21.70% +9.85% +8.98%
</TABLE>

AVERAGE ANNUAL TOTAL RETURN

Average annual total return is the average annual compounded rate of return for
the periods of one year, five years, ten years or the life of the Fund, all
ended on the last day of a recent month. Average annual total return quotations
will reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in Fund shares. Average annual total return is calculated by finding
the average annual compounded rates of return of a hypothetical investment over
such periods according to the following formula (average annual total return is
then expressed as a percentage):

T = (ERV/P)/1/N/-1

Where:

T =average annual total return
P =a hypothetical initial investment of $1,000
n =number of years
ERV =ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.

AVERAGE ANNUAL AFTER-TAX TOTAL RETURN QUOTATION

We calculate the Fund's average annual after-tax total return by finding the
average annual compounded rate of return over the 1-, 5-, and 10-year periods
(or for periods of the Fund's operations) that would equate the initial amount
invested to the after-tax value, according to the following formulas:

After-tax return:

P (1+T)/N/=ATV

Where:

P =a hypothetical initial payment of $1,000
T =average annual after-tax total return
n =number of years
ATV =after-tax value at the end of the 1-,5-, or 10-year
periods of a hypothetical $1,000 payment made at the
beginning of the time period, assuming no liquidation
of the investment at the end of the measurement
periods.
Instructions:

1. Assume all distributions by the Fund are reinvested--less the taxes due on
such distributions--at the price on the reinvestment dates during the period.
Adjustments may be made for subsequent re-characterizations of distributions.

B-9
<PAGE>

2. Calculate the taxes due on distributions by the Fund by applying the
highest federal marginal tax rates to each component of the distributions
on the reinvestment date (e.g., ordinary income, short-term capital gain,
long-term capital gain, etc.). For periods after December 31, 1997, the
federal marginal tax rates used for the calculations are 39.6% for ordinary
income and short-term capital gains and 20% for long-term capital gains.
Note that the applicable tax rates may vary over the measurement period.
Assume no taxes are due on the portions of any distributions classified as
exempt interest or non-taxable (i.e. return of capital). Ignore any
potential tax liabilities other than federal tax liabilities (e.g., state
and local taxes).
3. Include all recurring fees that are charged to all shareholder accounts.
For any account fees that vary with the size of the account, assume an
account size equal to the Fund's mean (or median) account size. Assume that
no additional taxes or tax credits result from any redemption of shares
required to pay such fees.
4. State the total return quotation to the nearest hundreth of one percent.

CUMULATIVE TOTAL RETURN

Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the cumulative
rates of a return of a hypothetical investment over such periods, according to
the following formula (cumulative total return is then expressed as a
percentage):

C = (ERV/P)-1

Where:

C =cumulative total return
P =a hypothetical initial investment of $1,000
ERV =ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.

SEC YIELDS

Yield is the net annualized yield based on a specified 30-day (or one month)
period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:

YIELD = 2[((A-B)/CD+1)/6/-1]

Where:

a =dividends and interest earned during the period.
b =expenses accrued for the period (net of reimbursements).
c =the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d =the maximum offering price per share on the last day of
the period.

SHARE PRICE

Each Fund's share price, or "net asset value" per share, is calculated by
dividing the total assets of each 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 (the Exchange) generally 4:00 p.m. Eastern time
on each day the Exchange is open for trading.

Portfolio securities for which market quotations are readily available
(includes those securities listed on national securities exchanges, as well as
those quoted on the NASDAQ Stock Market) will

B-10
<PAGE>

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 exchange 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 premium,
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 securities as well as any developments related to specific securities.

Foreign securities are valued at the last quoted sales price, or the most
recently determined closing price calculated according to local market
convention, available at the time a Fund is valued. Prices are obtained from the
broadest and most representative market on which the securities trade. If events
which materially affect the value of each Fund's investments occur 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 each Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars using the officially quoted daily exchange rates 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 quotations 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 fair value.

The share price for each Fund can be found daily in the mutual fund
listings of most major newspapers under the heading of Vanguard Funds.

PURCHASE OF SHARES

The purchase price of shares of each Fund 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
Exchange is open for business. An order received prior to the close of the
Exchange will be executed at the price computed 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.

Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of each Fund, and (iii) to
reduce or waive the minimum investment for or any other restrictions on initial
and subsequent investments for certain fiduciary accounts such as employee
benefit plans or under circumstances where certain economies can be achieved in
sales of a Fund's shares.

TRADING SHARES THROUGH CHARLES SCHWAB

Each Fund has authorized Charles Schwab & Co., Inc. (Schwab) to accept on its
behalf purchase and redemption orders under certain terms and conditions. Schwab
is also authorized to designate other intermediaries to accept purchase and
redemption orders on each Fund's behalf subject to those terms and conditions.
Under this arrangement, the Fund will be deemed to have received a purchase or
redemption order when Schwab or, if applicable, Schwab's authorized designee,

B-11
<PAGE>

accepts the order in accordance with each Fund's instructions. Customer orders
that are properly transmitted to each Fund by Schwab, or if applicable, Schwab's
authorized designee, will be priced as follows:

Orders received by Schwab before 3 p.m. Eastern time on any business day,
will be sent to Vanguard that day and your share price will be based on the
Fund's net asset value calculated at the close of trading that day. Orders
received by Schwab after 3 p.m. Eastern time, will be sent to Vanguard on the
following business day and your share price will be based on the Fund's net
asset value calculated at the close of trading that day.

REDEMPTION OF SHARES

The Funds 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 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 reasonably practicable for a 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.

No charge is made by a Fund for redemptions. Shares redeemed may be worth
more or less than what was paid for them, depending on the market value of the
securities held by the Fund.

If the Board of Trustees determines that it would be detrimental to the
best interests of the remaining shareholders of a Fund to make payment wholly or
partly in cash, a Fund may pay the redemption price in whole or in part by a
distribution in kind of readily marketable securities held by the Fund in lieu
of cash in conformity with applicable rules of the Commission. Investors may
incur brokerage charges on the sale of such securities so received in payment of
redemptions.

SIGNATURE GUARANTEES. To protect your account, the Funds and Vanguard from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Funds to verify the identity of a person who has
authorized 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
redemptions in Vanguard's prototype plans except in connection with: (1)
distributions 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
Funds in certain instances.

Signature guarantees can be obtained from a bank, broker or any other
guarantor that Vanguard deems acceptable. Notaries public are not acceptable
guarantors.

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 or stock power.

FUNDAMENTAL INVESTMENT LIMITATIONS

Each Fund is subject to the following fundamental investment limitations, which
cannot be changed in any material way without the approval of the holders of a
majority of the affected Fund's shares. For these purposes, a "majority" of
shares means shares representing the lesser of: (i) 67% or more of the votes
cast to approve a change so long as shares representing more than 50% of the
Fund's net asset value are present or represented by proxy; or (ii) more than
50% of the Fund's net asset value.

BORROWING. Each Fund may not borrow money, except for temporary or
emergency purposes in an amount not exceeding 15% of the Fund's net assets. Each
Fund may borrow money through

B-12
<PAGE>

banks, or Vanguard's interfund lending program only, and must comply with all
applicable regulatory conditions. Each Fund may not make any additional
investments whenever its outstanding borrowings exceed 5% of net assets.

COMMODITIES. Each Fund may not invest in commodities, except that each Fund
may invest in stock futures contracts, stock options, and options on stock
futures contracts and, in the case of Vanguard International Growth Fund,
foreign currency futures contracts and options. No more than 5% of a Fund's
total assets may be used as initial margin deposit for futures contracts, and no
more than 20% of a Fund's total assets may be invested in futures contracts or
options at any time.

DIVERSIFICATION. With respect to 75% of its total assets, each Fund may
not: (i) purchase more than 10% of the outstanding voting securities of any one
issuer, 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. Each Fund may not acquire any security if, as a
result, more than 15% of its net assets would be invested in securities that are
illiquid.

INDUSTRY CONCENTRATION. Each Fund may not invest more than 25% of its total
assets in any one industry.

INVESTING FOR CONTROL. Each Fund may not invest in a company for the
purpose of controlling its management.

INVESTMENT COMPANIES. Each Fund may not invest in any other investment
company, 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 objectives
and investment policies consistent with those of the Fund.

LOANS. Each Fund may not lend money to any person except by purchasing
fixed income securities that are publicly distributed, lending its portfolio
securities, or through Vanguard's interfund lending program.

MARGIN. Each Fund may not purchase securities on margin or sell securities
short, except as permitted by the Funds' investment policies relating to
commodities.

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

REAL ESTATE. Each Fund may not invest directly in real estate, although it
may invest in securities of companies that deal in real estate and bonds secured
by real estate.

SENIOR SECURITIES. Each Fund may not issue senior securities, except in
compliance with the 1940 Act.

UNDERWRITING. Each Fund may not engage in the business of underwriting
securities 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
Vanguard Group (Vanguard). Because each Fund is a member of Vanguard, each 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 Funds"
for more information.

The investment limitations set forth above are considered at the time
investment 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-13
<PAGE>

MANAGEMENT OF THE FUNDS

OFFICERS AND TRUSTEES

The officers of the Funds manage its day-to-day operations and are responsible
to the Funds' Board of Trustees. The Trustees set broad policies for each Fund
and choose its officers. The following is a list of the Trustees and officers of
the Funds and a statement of their present positions and principal occupations
during the past five years. As a group, the Funds' Trustees and officers own
less than 1% of the outstanding shares of each Fund. Each Trustee also serves as
a Director of The Vanguard Group, Inc., and as a Trustee of each of the 36
investment companies administered by Vanguard (35 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). Mr. Bogle will retire from his Vanguard
directorships on December 31, 1999.

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.

JOANN HEFFERNAN HEISEN, (DOB: 1/25/1950) Trustee
Vice President, Chief Information Officer, and member of the Executive Committee
of Johnson & Johnson (Pharmaceuticals/Consumer Products), Director of Johnson &
Johnson*MERCK Consumer Pharmaceuticals Co., 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
Research 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; Director
of Prudential Insurance Co. of America, Banco Bilbao Gestinova, Baker Fentress &
Co. (Investment Management), The Jeffrey Co. (Holding Company), and Select
Sector SPDR Trust (Exchange-Traded Mutual Fund).

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

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 & Gamble
Co., NACCO Industries (Machinery/Coal/ Appliances), and Newfield Exploration Co.
(Energy); formerly, Director and Senior Partner of McKinsey & Co., and President
of New York University.

JAMES O. WELCH, JR., (DOB: 5/13/1931) Trustee
Retired Chairman of Nabisco Brands, Inc. (Food Products); retired Vice Chairman
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
Retired Chairman of Rohm & Haas Co. (Chemicals); Director of Cummins Engine Co.
(Diesel Engine Company), and The Mead Corp. (Paper Products); and Trustee of
Vanderbilt University.

B-14
<PAGE>

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: 9/14/1961) 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 Act.

THE VANGUARD GROUP

Each Fund is a member of The Vanguard Group of Investment Companies which
consists of more than 100 funds. Through their jointly-owned subsidiary, The
Vanguard Group, Inc. (Vanguard), the Funds and the other funds 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 several of the funds.

Vanguard employs a supporting staff of management and administrative
personnel needed to provide the requisite services, furnishings and equipment.
Each fund pays its share of Vanguard's total expenses which are allocated among
the funds under methods approved by the Board of Trustees of each fund. In
addition, each fund bears its own direct expenses such as legal, auditing and
custodian fees. In order to generate additional revenues for Vanguard and
thereby reduce the funds' expenses, Vanguard also provides certain
administrative services to other organizations.

Each fund'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 funds.

Vanguard adheres to a Code of Ethics established pursuant to Rule 17j-l
under the 1940 Act. 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 funds.
The amounts which each of the funds have 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 August 31, 1999, each
fund had contributed capital to Vanguard representing 0.02% of each Fund's net
assets. The total amount contributed by the Funds was $5,111,000, which
represented 5.1% of Vanguard's capitalization. The Amended and Restated Funds'
Service Agreement provides as follows: (a) each Vanguard fund may be called upon
to invest up to 0.40% of its current assets in Vanguard, and (b) there is no
other limitation on the dollar amount each Vanguard fund may contribute to
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 Funds by third parties.

DISTRIBUTION. Vanguard Marketing Corporation, a wholly-owned subsidiary of
The Vanguard Group, Inc., provides all distribution and marketing activities for
the funds in the Group. The principal distribution expenses are for advertising,
promotional materials, and marketing

B-15
<PAGE>

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 fund, 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 relative net assets. The remaining one
half of those expenses is allocated among the funds based upon each fund's sales
for the preceding 24 months relative to the total sales of the funds as a Group,
provided, however, that no fund's aggregate quarterly rate of contribution for
distribution expenses of a marketing and promotional nature shall exceed 125% of
the average distribution expense rate for The Vanguard Group, and that no fund
shall incur annual distribution expenses in excess of of 1% of its average
month-end net assets.

During the last three fiscal years, the Funds incurred the following
approximate amounts of The Vanguard Group's management (including transfer
agency), distribution, and marketing expenses.

- --------------------------------------------------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND 8/31/1997 8/31/ 1998 8/31/1999
- --------------------------------------------------------------------------------
U.S. Growth Fund $16,574,000 $24,303,000 $36,880,000
International Growth
Fund 19,620,000 25,651,000 29,133,000
- --------------------------------------------------------------------------------

INVESTMENT ADVISORY SERVICES. Vanguard also provides investment advisory
services to several Vanguard funds. 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 utilizing
these services.

TRUSTEE COMPENSATION

The same individuals serve as Trustees of all Vanguard funds (with two
exceptions, which are noted in the table appearing on page B-17), and each fund
pays a proportionate share of the Trustees' compensation. The funds employ their
officers on a shared basis, as well. However, officers are compensated by The
Vanguard Group, Inc., not the funds.

INDEPENDENT TRUSTEES. The funds compensate their independent Trustees--that
is, the ones who are not also officers of the funds--in three ways:

- - The independent Trustees receive an annual fee for their service to the
funds, 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.

"INTERESTED" TRUSTEES. The funds' 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. We list the amounts paid as compensation and accrued as
retirement benefits by each Fund for each Trustee. In addition, the table shows
the total amount of benefits that we expect each Trustee to receive from all
Vanguard funds upon retirement, and the total amount of compensation paid to
each Trustee by all Vanguard funds. All information shown is for the fiscal year
ended August 31, 1999.

B-16
<PAGE>

<PAGE>

<TABLE>
<CAPTION>
TRUSTEES COMPENSATION TABLE
<S> <C> <C> <C> <C>

PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM ALL
AGGREGATE ACCRUED AS ANNUAL VANGUARD
COMPENSATION PART OF TRUST BENEFITS UPON TRUSTS PAID TO
NAMES OF TRUSTEES FROM TRUST EXPENSES RETIREMENT TRUSTEES/ (1)/
- ---------------------------------------------------------------------------------------------------------------
John C. Bogle . . . . None None None None
John J. Brennan . . . None None None None
Barbara Barnes Hauptfuhrer/(2)/. . . $1,477 $187 $15,000 $0
JoAnn Heffernan Heisen $4,430 $244 $15,000 $80,000
Bruce K. MacLaury . . $4,590 $413 $12,000 $75,000
Burton G. Malkiel . . $4,462 $404 $15,000 $80,000
Alfred M. Rankin, Jr. $4,430 $295 $15,000 $80,000
John C. Sawhill . . . $4,430 $374 $15,000 $80,000
James O. Welch, Jr. . $4,430 $432 $15,000 $80,000
J. Lawrence Wilson. . $4,430 $312 $15,000 $80,000
</TABLE>
TRUSTEES COMPENSATION TABLE

(1) The amounts reported in this column reflect the total compensation paid to
each Trustee for his or her service as Trustee of 103 funds (102 in the
case of Mr. Malkiel; 93 in the case of Mr. MacLaury).

(2) Mrs. Hauptfuhrer retired from the funds' Board, effective December 31,
1998.

INVESTMENT ADVISORY SERVICES

VANGUARD U.S. GROWTH FUND INVESTMENT ADVISORY AGREEMENT

The Fund entered into an investment advisory agreement with Lincoln Capital
Management Company (Lincoln), under which Lincoln manages the investment and
reinvestment of the assets included in Vanguard U.S. Growth Fund and
continuously reviews, supervises and administers the Fund. Lincoln will invest
or reinvest such assets primarily in U.S. securities. Lincoln discharges its
responsibilities subject to the control of the officers and Trustees of the
Fund. Under this agreement the Fund pays Lincoln an advisory fee at the end of
each fiscal quarter, calculated by applying a quarterly rate, based on the
following annual percentage rates, to the Fund's average month-end net assets
for the quarter:

NET ASSETS RATE
---------- ----
First $25 million............... .40%
Next $125 million............... .35%
Next $350 million............... .25%
Next $500 million............... .20%
Next $1.5 billion............... .15%
Next $12.5 billion.............. .10%
Over $15 billion................ .08%

For the fiscal years ended August 31, 1997, 1998, and 1999, the Fund incurred
advisory fees of $8,475,000, $11,377,000, and $16,307,000 respectively.

B-17
<PAGE>

DESCRIPTION OF LINCOLN

Lincoln is an Illinois corporation in which a controlling interest is held by
the following persons: Timothy H. Ubben, Chairman; J. Parker Hall III, Chief
Executive Officer; Kenneth R. Meyer, President; Ray B. Zemon, Executive Vice
President; David M. Fowler, Executive Vice President; Richard W. Knee, Executive
Vice President; and Jay H. Freedman, Executive Vice President.

The agreement with Lincoln is renewable 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 agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
considering such approval. The agreement is automatically terminated if
assigned, and may be terminated without penalty at any time (1) by vote of the
Board of Trustees of the Fund on sixty (60) days' written notice to Lincoln, or
(2) by Lincoln upon ninety (90) days' written notice to the Fund.

The Trustees may make any of these changes without the approval of
shareholders, however, any such change will be communicated to shareholders in
writing.

VANGUARD INTERNATIONAL GROWTH FUND INVESTMENT ADVISORY AGREEMENT

Vanguard International Growth Fund has entered into an investment advisory
agreement with Schroder Investment Management North America, Inc. (Schroder) to
manage the investment and reinvestment of fund's assets and to continuously
review, supervise, and administer Vanguard International Growth Fund's
investment program. In this regard, it is the responsibility of Schroder to make
decisions relating to the Fund's investment in foreign securities and to place
the Fund's purchase and sale orders for such securities. Schroder will invest or
reinvest the assets of the Fund only in foreign (non-U.S.) securities. Schroder
discharges its responsibilities subject to the control of the officers and
Trustees of the Trust.

As compensation for the services rendered by Schroder under the agreement,
the Fund pays Schroder 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 Fund for the quarter:

NET ASSETS RATE
---------- ----
First $50 million............... .350%
Next $950 million............... .175%
Over $1 billion................. .125%

The Basic Fee, as provided above, shall be increased or decreased by
applying an adjustment formula based on the investment performance of Vanguard
International Growth Fund relative to that of the Morgan Stanley Capital
International Europe, Australasia, Far East (MSCI EAFE) Index as follows:

(a) On assets of the Fund of $1 billion or less:

THREE-YEAR PERFROMANCE
DIFFERENTIAL VS. MSCI ANNUAL INCENTIVE (+)/
EAFE INDEX PENALTY (-) FEE RATE
- --------------------------------------------------------------------------------
+12% or above +0.0750%
Between +6% and +12% +0.0375%
Between +6% and -6% -0-
Between -6% and -12% -0.0375%
-12% and below -0.0750%

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(b) On assets of the Fund of more than $1 billion:

THREE-YEAR PERFROMANCE
DIFFERENTIAL VS. MSCI ANNUAL INCENTIVE (+)/
EAFE INDEX PENALTY (-) FEE RATE
- --------------------------------------------------------------------------------
+12% or above +0.0500%
Between +6% and +12% +0.0250%
Between +6% and -6% -0-
Between -6% and -12% -0.0250%
-12% and below -0.0500%

The incentive/penalty fee adjustment for assets in excess of $1 billion was
not fully operable until the quarter ended February 29, 1996, and, until that
date, was calculated according to certain transition rules. From April 1, 1993
through November 30, 1993, the incentive/penalty fee on assets in excess of $1
billion was not operable. For quarters ending after this period, the
incentive/penalty fee adjustment on assets in excess of $1 billion has been
computed based on a comparison of the investment performance of the Fund and
that of the MSCI EAFE Index over the number of months that have elapsed between
March 1, 1993 and the end of the quarter for which the fee is computed.

For the purpose of determining the fee adjustment for investment
performance, as described above, the net assets of Vanguard International Growth
Fund are averaged over the same period as the investment performance of the Fund
and the investment record of the MSCI EAFE Index are computed.

The investment performance of Vanguard International Growth Fund for such
period, expressed as a percentage of the net asset value per share of the Fund
at the beginning of such period, shall be the sum of: (i) the change in the net
asset value per share of the Fund during such period; (ii) the value of the cash
distributions per share of the Fund accumulated to the end of such period; and
(iii) the value of capital gains taxes per share paid or payable by the Fund on
undistributed realized long-term capital gains accumulated to the end of such
period. For this purpose, the value of distributions per share of realized
capital gains, of dividends per share paid from investment income and of capital
gains taxes per share paid or payable on undistributed realized long-term
capital gains shall be treated as reinvested in shares of the Fund at the net
asset value per share in effect at the close of business on the record date for
the payment of such distributions and dividends and the date on which provision
is made for such taxes, after giving effect to such distributions, dividends and
taxes. The investment record of the MSCI EAFE Index for any period, expressed as
a percentage of the MSCI EAFE Index level at the beginning of such period, shall
be the sum of (i) the change in the level of the MSCI EAFE Index during such
period and (ii) the value, computed consistently with the MSCI EAFE Index, of
cash distributions made by companies whose securities comprise the MSCI EAFE
Index accumulated to the end of such period. For this purpose cash distributions
on the securities which comprise the MSCI EAFE Index shall be treated as
reinvested in the MSCI EAFE Index at least as frequently as the end of each
calendar quarter following the payment of the dividend. The foregoing
notwithstanding, any computation of the investment performance of the Fund and
the investment record of the MSCI EAFE Index shall be in accordance with any
then applicable rules of the Commission.

The Trustees believe that the MSCI EAFE Index is an appropriate standard
against which the investment performance of Vanguard International Growth Fund
can be measured. The MSCI EAFE Index is the only index available which covers
the major international markets outside North America. The weighting of
securities in the MSCI EAFE Index is based on each stock's relative total market
value, that is, its market price per share times the number of shares
outstanding.

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<PAGE>

The agreement with Schroder is renewable 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 agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
considering such approval. The agreement is automatically terminated if
assigned, and may be terminated without penalty at any time (1) by vote of the
Board of Trustees of the Fund on sixty (60) days' written notice to Schroder, or
(2) by Schroder upon ninety (90) days' written notice to the Fund.

During the three fiscal years ending August 31, 1997, 1998, and 1999,
respectively, the Fund paid Schroder the following advisory fees:

1997 1998 1999
---- ----- -----
Basic Fee $8,245,000 $9,793,000 $10,068,000
Increase/(Decrease) for Performance
Adjustment 1,980,000 2,526,000 418,000
Total $10,225,000 $12,319,000 $10,486,000
============ =========== =============

DESCRIPTION OF SCHRODER CAPITAL

Vanguard International Growth Fund is managed by the London branch office of
Schroder Investment Management North America, Inc. (SIMNA). SIMNA is a
wholly-owned subsidiary of Schroders Incorporated, 787 7th Avenue, New York, New
York. Schroders PLC is the holding company parent of a large world-wide group of
banks and financial service companies (referred to as "The Schroder Group") with
associated companies and branch and representative offices located in seventeen
countries. The Schroder Group specializes in providing investment management
services, with Group funds under management currently in excess of $200 billion.

PORTFOLIO TRANSACTIONS

The investment advisory agreements with Lincoln and Schroder authorize the
investment advisers (with the approval of the Funds' Board of Trustees) to
select the brokers or dealers that will execute the purchases and sales of
portfolio securities for the Trust and direct each investment adviser to use its
best efforts to obtain the best available price and most favorable execution
with respect to all transactions for each Fund. Each investment adviser has
undertaken to execute each investment transaction at a price and commission
which provides the most favorable total cost or proceeds reasonably obtainable
under the circumstances.

In placing portfolio transactions, each investment adviser will use its
best judgment to choose the broker most capable of providing the brokerage
services necessary 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, statistical
information, or provide other services in addition to execution services to the
Funds and/or the investment advisers. Each investment adviser considers the
investment services it receives useful in the performance of its obligations
under the agreement but is unable to determine the amount by which such services
may reduce its expenses.

Currently, it is each Fund's policy that each investment adviser may at
times pay higher commissions in recognition of brokerage services felt necessary
for the achievement of better execution of certain securities transactions than
otherwise might not be available. An investment adviser will only pay such
higher commissions if it believes this to be in the best interest of a Fund.
Some brokers or dealers who may receive such higher commissions in recognition
of brokerage

B-20
<PAGE>

services related to execution of securities transactions are also providers of
research information to the investment advisers and/or the Funds. However, each
investment adviser has informed the Funds that it generally will not pay higher
commission rates specifically for the purpose of obtaining research services.

During the fiscal years ending August 31, 1997, 1998, and 1999, the Funds paid
the following amounts in brokerage commissions:

- --------------------------------------------------------------------------------
FUND 1997 1998 1999
- --------------------------------------------------------------------------------
U.S. Growth Fund $4,076,812 $6,538,324 $11,950,441
International Growth Fund $7,912,581 $10,369,101 $10,770,933
- --------------------------------------------------------------------------------

Some securities considered for investment by the Funds may also be
appropriate for other Vanguard funds or clients served by the investment
advisers. If purchase or sale of securities consistent with the investment
policies of the Funds and one or more of these other funds or clients served by
the investment advisers are considered at or about the same time, transactions
in such securities will be allocated among the Funds and the several funds and
clients in a manner deemed equitable by the respective investment adviser.
Although there will be no specified formula for allocating such transactions,
the allocation methods used, and the results of such allocations, will be
subject to periodic review by the Fund's Board of Trustees.

FINANCIAL STATEMENTS

The Financial Statements of Vanguard U.S. Growth Fund and Vanguard International
Growth Fund as of and for the year ended August 31, 1999, including the
financial highlights for each of the five years in the period ended August 31,
1999, appearing in the Funds' respective 1999 Annual Reports to Shareholders,
and the reports thereon of PricewaterhouseCoopers LLP, independent accountants,
also appearing therein, are incorporated by reference in this Statement of
Additional Information. For a more complete discussion of the performance,
please see the Funds' Annual Reports to Shareholders, which may be obtained
without charge.

COMPARATIVE INDEXES

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

Each of the investment company members of The Vanguard Group, including
Vanguard World Fund, may from time to time, use one or more of the following
unmanaged indexes for comparative performance purposes.

STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX--includes stocks selected by
Standard & Poor's Index Committee to include leading industries and to reflect
the U.S. stock market.

STANDARD & POOR'S MIDCAP 400 INDEX--is composed of 400 medium sized domestic
stocks.

STANDARD & POOR'S SMALL CAP 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 SMALL CAP 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
securities, covering all stocks in the U.S. for which daily pricing is
available.

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<PAGE>

WILSHIRE 4500 EQUITY INDEX--consists of all stocks in the Wilshire 5000 except
for the 500 stocks in the Standard & Poor's 500 Index.

RUSSELL 3000 STOCK INDEX--a diversified portfolio of approximately 3,000 common
stocks accounting for over 90% of the market value of publicly traded stocks in
the U.S.

RUSSELL 2000 STOCK INDEX--composed of the 2,000 smallest stocks contained in the
Russell 3000, representing approximately 7% of the Russell 3000 total market
capitalization.

RUSSELL 2000+ VALUE INDEX--contains stocks from the Russell 2000 Index with a
less-than-average growth orientation.

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, Australasia 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
convertible issues of $100 million or greater in market capitalization. The
index is priced monthly.

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

SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX--consists of publicly issued,
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 a market weighted index that contains
individually priced U.S. Treasury securities with maturities of ten years or
greater.

MERRILL LYNCH CORPORATE & GOVERNMENT BOND--consists of over 4,500 U.S. Treasury,
Agency and investment grade corporate bonds.

LEHMAN CORPORATE (BAA) BOND INDEX--all publicly offered fixed-rate,
nonconvertible domestic corporate bonds rated Baa by Moody's, with a maturity
longer than one year and with more than $100 million outstanding. This index
includes over 1,500 issues.

LEHMAN BROTHERS LONG-TERM CORPORATE BOND INDEX--is a subset of the Lehman
Corporate Bond Index covering all corporate, publicly issued, fixed-rate,
nonconvertible U.S. debt issues rated at least Baa, with at least $100 million
principal outstanding and maturity greater than tenyears.

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, non-callable preferred stock issues.

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 include
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.

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<PAGE>

LEHMAN BROTHERS AGGREGATE BOND INDEX--is a market weighted index that contains
individually priced U.S. Treasury, agency, corporate, and mortgage pass-through
securities corporate rated Baa-or better. The Index has a market value of over
$5 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 between one
and five 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 five and
ten years. The index has a market value of over $800 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 ten years. The index
has a market value of over $1.1 trillion.

LIPPER SMALL COMPANY GROWTH FUND AVERAGE--the average performance of 25 largest
small company growth funds as defined by Lipper Inc. Lipper defines 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 performance 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 Funds that
constituted the Group at its inception.)

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

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

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SAI023