[SHIP]
[THE VANGUARD GROUP LOGO]
VANGUARD(R) U.S. GROWTH FUND
SUPPLEMENT TO THE PROSPECTUS DATED DECEMBER 17, 1999
Effective September 1, 2000, the Fund's investment advisory agreement has been
revised to include a performance adjustment to the basic fee paid to Lincoln
Capital Management Company.
Lincoln's advisory fee will be increased or decreased, based on the
cumulative investment performance of the Fund over a trailing 36-month period as
compared with the cumulative total return of the Russell 1000 Growth Index over
the same period.
The performance adjustment will not be fully operable until the quarter
ended August 31, 2003. Until that date, the performance adjustment will be
calculated using certain transition rules that are explained in the Statement of
Additional Information.
(C)2000 The Vanguard Group, Inc. All rights reserved. PS23N 102000
Vanguard Marketing Corporation, Distributor
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VANGUARD(R)U.S. GROWTH FUND
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 17, 1999
Effective September 1, 2000, the Fund's investment advisory agreement has been
revised to include a performance adjustment to the basic fee paid to Lincoln
Capital Management Company. Lincoln's investment advisory fee structure is as
follows:
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%
The Basic Fee, as provided above, will be increased or decreased by
applying a Performance Fee Adjustment (the "Adjustment") based on the investment
performance of the Fund relative to the investment performance of the Russell
1000 Growth Index (the "Index"). The investment performance of the Fund will be
based on its cumulative return over a trailing 36-month period ending with the
applicable quarter, compared with the cumulative total return of the Index for
the same period. The Adjustment applies as follows:
CUMULATIVE 36-MONTH PERFORMANCE OF PERFORMANCE FEE ADJUSTMENT AS A
THE FUND VERSUS THE INDEX PERCENTAGE OF BASIC FEE*
------------------------------------ --------------------------------
Exceeds by more than +9% +15%
Exceeds by 0% to +9% Linear increase between 0% and +15%
Trails by 0% to -9% Linear decrease between 0% and -15%
Trails by more than -9% -15%
* For purposes of the Adjustment calculation, the Basic Fee is calculated by
applying the above rate schedule against the average net assets of the Fund over
the same period for which the performance is measured. Linear application of the
Adjustment provides for an infinite number of results within the stated range.
Example: Cumulative 36-month performance of the Fund versus the Index is +7.2%.
Accordingly, a Performance Fee Adjustment of +12% [(7.2% divided by 9.0%) times
15% maximum] of the Basic Fee, as calculated over the trailing 36-months, would
be due and payable.
The Adjustment will not be fully operable until the close of the
quarter ending August 31, 2003. Until that date, the following transition rules
will apply:
(A) SEPTEMBER 1, 2000, THROUGH MAY 31, 2001. Lincoln's compensation will
be the Basic Fee. No Adjustment will apply during this period.
(B) JUNE 1, 2001, THROUGH AUGUST 31, 2003. Beginning June 1, 2001, the
Adjustment will take effect on a progressive basis with regards to the
number of months elapsed between September 1, 2000, and the quarter
for which Lincoln's fee is computed. During this period, the +/-9%
hurdle rate, as well as the Adjustment described above, will be
multiplied by a fraction, which will equal the number of months
elapsed since September 1, 2000, divided by 36. Example: Cumulative
18-month performance of the Fund versus the Index is +8.1%.
Accordingly, a Performance Fee Adjustment of +7.5% [(8.1% divided by
4.5%(1)) times 7.5% maximum] of the Basic Fee, as calculated over the
trailing 18-months, would be due and payable.
(1) Note that the cumulative performance versus the Index exceeds the
maximum hurdle rate (adjusted in this case).
(C) ON AND AFTER SEPTEMBER 1, 2003. The Adjustment will be fully operable
at this time.
BS23N 102000
