Vanguard Explorer Fund Statement of Additional Information

APPENDIX A
INVESTMENT ADVISORY AGREEMENT

This Agreement, entered into as of , 1986, is between , a Maryland corporation (the "Fund"), and , a New York corporation (referred to herein as "the Adviser").

The Fund is an open-end investment company registered under the Investment Company Act of 1940, as amended. In managing the Fund's portfolio, as well as in the conduct of certain of its affairs, the Fund wishes to have the benefit of the services of the Adviser and its assistance in performing certain managerial functions. The Adviser desires to furnish such services and to perform the functions assigned to it under this Agreement for the considerations provided. Accordingly, the parties have agreed as follows:

1. Management Functions. In addition to the expenses which the Adviser may incur in the performance of its investment advisory functions under this Agreement, and the expenses which it may expressly undertake to incur and pay under other agreements with the Fund or otherwise, the Adviser shall incur and pay the following expenses relating to the Fund's operations:

(a) Reasonable compensation, fees and related expenses of the Fund's officers and its Directors (the "Directors"), except for such Directors who are not interested persons (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended).

(b) Rental of offices of the Fund; and

(c) All expenses of promoting the sale of shares of the Fund other than expenses incurred in complying with federal and state laws and the law of any foreign country applicable to the issue, offer, or sale of shares of the Fund.

2. Investment Advisory Functions. In its capacity as investment adviser to the Fund, the Adviser shall have the following responsibilities:

(a) To furnish continuous advice and recommendations to the Fund, as to the acquisition, holding or disposition of any or all of the securities or other assets which the Fund may own or contemplate acquiring from time to time;

(b) To cause its officers to attend meetings and furnish oral or written reports, as the Fund may reasonably require, in order to keep the Directors and appropriate officers of the Fund fully informed as to the condition of the investment portfolio of the Fund, the investment recommendations of the Adviser, and the investment considerations which have given rise to those recommendations; and

(c) To supervise the purchase and sale of securities as directed by the appropriate officers of the Fund.

3. Obligations of Fund. The Fund shall have the following obligations under this Agreement:

(a) To keep the Adviser continuously and fully informed as to the composition of the Fund's investment portfolio and the nature of all of its assets and liabilities from time to time;

(b) To furnish the Adviser with a certified copy of any financial statement or report prepared for it by certified or independent public accountants, and with copies of any financial statements or reports made to the Fund's shareholders or to any governmental body or securities exchange;

(c) To furnish the Adviser with any further materials or information which the Adviser may reasonably request to enable it to perform its functions under this Agreement; and

(d) To compensate the Adviser for its services in accordance with the provisions of paragraph 4 hereof.

4. Compensation. The Fund shall pay to the Adviser for its services a monthly fee, payable on the last day of each month during which or part of which this Agreement is in effect, of 1/12 of 75% of that part of the average daily closing net asset value of the Fund for such month which does not exceed $100,000,000; 1/12 of .625% of that part of the average daily closing net asset value of the Fund, if any, for such month in excess of $100,000,000 but not in excess of $200,000,000 and 1/12 of .50% of that part of the average daily closing net asset value of the Fund, if any, for such month in excess of $200,000,000. For the month during which this Agreement becomes effective and the month during which it terminates, however, there shall be an appropriate proration of the fee payable for such month based on the number of calendar days of such month during which this Agreement is effective.

5. Expenses Paid by Fund. Subject to the provisions of paragraph 6, below, and except as provided in this paragraph, nothing in this Agreement shall be construed to impose upon the Adviser the obligation to incur, pay, or reimburse the Fund for any expenses not specifically assumed by the Adviser under paragraph I above. The Fund shall pay all of its other expenses including, but not limited to, investment adviser fees, any compensation, fees, or reimbursements which the Fund pays to its Directors who are not interested persons (as that phrase is defined in Section 2(a)(19) of the Investment Act of 1940, as amended), compensation of the Fund's custodian, transfer agent, registrar or dividend disbursing agent, current legal, accounting and printing expenses, administrative, clerical, recordkeeping and bookkeeping expenses, brokerage commissions and all other expenses in connection with execution of portfolio transactions, interest, all federal, state and local taxes (including stamp, excise, income and franchise taxes), cost of share certificates, expenses of delivering such certificates to the purchasers thereof, expenses of local representation in Maryland, expenses of shareholders' meetings and of preparing, printing and distributing proxy statements, notices and reports to shareholders, expenses of preparing and filing reports and tax returns with federal and state regulatory authorities, and all expenses incurred in complying with all federal and state laws and the laws of any foreign country applicable to the issue, offer, or sale of shares of the Fund, including, but not limited to, all costs involved in the registration or qualification of shares of the Fund for sale in any jurisdiction and all costs involved in preparing and printing prospectuses and statements of additional information of the Fund. Upon the request of the Directors, the Adviser shall perform any of the above-described administrative and clerical functions for the Fund, including transfer agency, registrar, dividend disbursing, recordkeeping and bookkeeping functions, and the preparation of reports and returns; provided that the Fund shall reimburse the Adviser at least monthly for all costs and expenses reasonably incurred by the Adviser in connection with the performance of such functions.

6. Limitations on Expenses of the Fund. Whenever, for any fiscal year, the total cost to the Fund for normal operating expenses of the Fund chargeable to the Fund's income account, including, but not limited to, the fees of the Fund's investment adviser, the compensation of its custodian, transfer agent, registrar, auditors and legal counsel, printing expenses, expenses incurred in complying with all laws applicable to the sale of shares of the Fund and any compensation, fees, or reimbursements which the Fund pays to its Directors who are not interested persons (as that phrase is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended) but excluding all interest and all federal, state and local taxes (such as stamp, excise, income, franchise and similar taxes), and after reduction of such expenses by the amount of any redemption fees charged upon the redemption of shares of the Fund, exceeds the total of:

(1) of the first of the average net asset value of the Fund for said fiscal year, plus

(2) of the next of the average net asset value of the Fund for said fiscal year, plus

(3) of the average net asset value of the Fund for said fiscal year in excess of ,

The Adviser shall reimburse the Fund for the amount of said excess reasonably promptly after the end of such fiscal year. Expenses of the Fund shall be calculated and accrued monthly. If at the end of any month the accrued expenses of the Fund exceed a pro rata portion of the above-described expense limitation, based upon the average daily net asset value from the beginning of the fiscal year through the end of the month for which calculation is made, the amount of such excess shall be withheld from the advisory fee which is paid to the Adviser pursuant to paragraph 4 hereof at the end of such month, and such amount shall not be paid until the end of a month when such accrued expenses are less than the pro rata portion of such expense limitation. If at the end of any month the accrued expenses exceed the pro rata portion of the expense limitation by more than the amount of the advisory fee for such month, the Adviser shall promptly pay such excess to the Fund. If, after any portion or all of the advisory fee payable at the end of any month has been withheld from payment, the accrued expenses of the Fund at the end of a subsequent month are less than the pro rata portion of the expense limitation, the Fund shall pay to the Adviser the amounts previously withheld, up to the pro rata portion of the expense limitation.

Any necessary final adjusting payments, whether from the Adviser to the Fund or from the Fund to the Adviser, shall be made as soon as reasonably practicable after the end of the fiscal year.

7. Treatment of Investment Advice. The Fund shall treat the investment advice and recommendations of the Adviser as being advisory only, and shall retain full control over the investment policies of the Fund. However, the directors may delegate to the appropriate officers of the Fund, or to a committee of directors, the power to authorize purchases, sales or other actions affecting the portfolio of the Fund in the interim between meetings of the Directors, provided such action is consistent with the investment policy of the Fund and is reported to the Directors at their next meeting.

8. Brokerage Commissions. For purposes of this Agreement, brokerage commissions paid by the Fund upon the purchase or sale of the Fund's portfolio securities shall be considered a cost of securities of the Fund and shall be paid by the Fund. The Adviser is authorized and directed to place Fund portfolio transactions only with brokers and dealers who render satisfactory service in the execution of orders at the most favorable prices and at reasonable commission rates, provided, however, that the Adviser may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of either that particular transaction or the overall responsibilities of the Adviser. The Adviser will not deal with any affiliate in any transaction in which such affiliate acts as a principal and will not execute any negotiated trade with any affiliate if execution involves such affiliate's acting as a principal with respect to any part of the Fund's order. In placing portfolio business with broker-dealers, the Adviser shall seek the best execution of each transaction and all such brokerage placement shall be consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. Notwithstanding the foregoing, the Fund shall retain the right to direct the placement of all portfolio transactions, and the Directors may establish policies or guidelines to be followed by the Adviser in placing portfolio transactions for the Fund pursuant to the foregoing provisions. The Adviser shall report on the placement of portfolio transactions each quarter to the Directors.

9. Purchases by Affiliates. Neither the Adviser nor any officer or Director thereof shall take a short position in the shares of the Fund. Any purchases from the Fund of shares of the Fund by the officers or Directors of the Fund (or by deferred benefit plans established for their benefit) shall be made for investment purposes at the current price available to the public.

10. Termination. This Agreement may be terminated at any time, without penalty, by the Directors or by the shareholders of the Fund acting by vote of at least a majority of its outstanding voting securities (as that phrase is defined in Section 2(a)(42) of the Investment Company Act of 1940, as amended), provided in either case that 60 days' written notice of termination be given to the Adviser at its principal place of business. This Agreement may be terminated by the Adviser at any time by giving 60 days' written notice of termination to the Fund, addressed to its principal place of business.

11. Assignment. This Agreement shall terminate automatically in the event of any assignment (as the term is defined in Section 2(a)(4) of the Investment Company Act of 1940, as amended) of this Agreement.

12. Term. This Agreement shall continue in effect, unless sooner terminated in accordance with its terms, for two years from the date hereof, and shall continue in effect from year to year thereafter only so long as such continuance is specifically approved at least annually by the vote of a majority of the Directors who are not parties hereto or interested persons (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended) of any such party, cast in person at a meeting called for the purpose of voting on the approval of the terms of such renewal, and by either the Directors of the affirmative vote of a majority of the outstanding voting securities of the Fund (as that phrase is defined in Section 2(a)(42) of the Investment Company Act of 1940, as amended). The annual approvals provided for herein shall be effective to continue this Agreement from year to year if given within a period beginning not more than 60 days prior to the second and subsequent anniversary dates of this Agreement, notwithstanding the fact that more than 365 days may have elapsed since the date on which such approval was last given.

13. Amendments. This Agreement may be amended only with the approval by the affirmative vote of a majority of the outstanding voting securities of the Fund (as that phrase is defined in Section 2(a)(42) of the Investment Company Act of 1940, as amended) and the approval by the vote of a majority of Directors who are not parties hereto or interested persons (as that phrase is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended) of any such party cast in person at a meeting called for the purpose of voting on the approval of such amendment.

14. This Agreement shall be construed in accordance with the laws of the State of New York, provided, however that nothing herein shall be construed as being inconsistent with the Investment Company Act of 1940, as amended.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of , 1986.