-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SwmpycZAV3oDPPZLT2tD/0ShqwmH7I7K/5inmK6TKzecFjTv2NLZxzljlBiCS4sy XhzOLdSKwxwetn+1aNDL1A== 0000932471-02-000677.txt : 20020625 0000932471-02-000677.hdr.sgml : 20020625 20020625142053 ACCESSION NUMBER: 0000932471-02-000677 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020430 FILED AS OF DATE: 20020625 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD EXPLORER FUND CENTRAL INDEX KEY: 0000034066 IRS NUMBER: 510106626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01530 FILM NUMBER: 02686376 BUSINESS ADDRESS: STREET 1: PO BOX 2600 STREET 2: V26 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106696295 MAIL ADDRESS: STREET 1: P.O. BOX 2600 STREET 2: V26 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: EXPLORER FUND INC DATE OF NAME CHANGE: 19900305 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD EXPLORER FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 explorersemi042002.txt VANGUARD EXPLORER SEMIANNUAL REPORT 04 2002 VANGUARD EXPLORER(TM)FUND Semiannual Report * April 30, 2002 STOCK [PHOTO OF SHIP ON WATER] [THE VANGUARD GROUP(R) LOGO] WHAT YOU CAN CONTROL As an investor, you cannot control how the financial markets perform. But there are vital variables that you can control. You can decide how much to invest. You can limit the risk in your portfolio by diversifying your holdings. And you can control the investment costs you incur. Costs may seem the least dramatic of the three. But costs have a powerful impact on how your wealth accumulates; they reduce, dollar for dollar, the returns that you can derive from an investment. Every mutual fund has operating expenses--to pay for investment managers, telephone support, and so on. These costs appear in the fund's expense ratio, which reflects the percentage of average net assets (your money) consumed each year by operating costs. In 2001, the average mutual fund had an expense ratio of 1.34% (or $13.40 per $1,000 in assets), according to data from Lipper Inc. For Vanguard(R) funds, the average expense ratio was less than one-fourth that amount (0.27%, or $2.70 per $1,000 in assets). Our average expense ratio has been less than the industry average for 25 years, and it's an advantage we aim to maintain. Under our unique corporate structure, shareholders like you own the Vanguard funds, which in turn own The Vanguard Group. No middleman makes a profit from managing the operation. You bear all of the investment risk. It's only right that you reap as much of the potential reward as possible. ================================================================================ CONTENTS Letter from the Chairman 1 Report from the Advisers 5 Fund Profile 8 Glossary of Investment Terms 9 Performance Summary 10 Financial Statements 11 SUMMARY * Vanguard Explorer Fund returned 15.7% during the six months ended April 30, 2002, capitalizing on the strength of small growth stocks. * The nation's real (inflation-adjusted) gross domestic product surged at an estimated annual rate of 5.6% in the first three months of 2002. * The Explorer Fund enjoyed success with the stocks of fast-growing companies in the consumer discretionary sector, a group that includes retailers, restaurants, and media companies. LETTER FROM THE CHAIRMAN [PHOTO OF JOHN J. BRENNAN] Fellow Shareholder, VANGUARD(R) EXPLORER(TM) FUND returned 15.7% during the six months ended April 30, 2002. Your fund capitalized on the strength of reasonably priced small growth stocks, outpacing the returns of its average peer, the broad market, and the Russell 2000 Growth Index, a barometer of small growth stocks. The table below presents the total returns for the Explorer Fund's Investor and Admiral(TM) Shares and for the relevant benchmarks. (Please note that Admiral Shares became available on November 12, 2001, so their return is not comparable with the returns of the Investor Shares and the fund's benchmarks.) Total return includes the change in capital value plus reinvested dividends. Page 4 provides a breakdown of the components of your fund's total return. STOCKS ROSE IN A VOLATILE PERIOD During the six months ended April 30, the U.S. stock market alternately surged and receded, but still produced a total return of 5.2%, as measured by the Wilshire 5000 Total Market Index. It was a solid gain and a welcome reversal from the declines of recent years. For those who had investments in small-capitalization stocks, the period was especially rewarding, as the small-cap Russell 2000 Index gained 20.0%. The large-cap Russell 1000 Index returned 3.4%. Across all market caps, value stocks--those with below-average prices relative to earnings, book value, and other measures--retained the lead they more or less have had over growth shares since the market's peak in March 2000. In international markets, however, the lead was reversed, with growth slightly outperforming value. U.S. and international markets did have a common denominator in the period: Their returns were hampered by slumping share prices in the troubled telecommunications industry, which was burdened by overcapacity, weak demand, and heavy debt. =============================================== TOTAL RETURNS Six Months Ended April 30, 2002 - ----------------------------------------------- VANGUARD EXPLORER FUND Investor Shares 15.7% Admiral Shares* 11.5 Average Small-Cap Growth Fund** 8.2 Russell 2000 Growth Index 10.4 Wilshire 5000 Index 5.2 - ----------------------------------------------- *Since inception, November 12, 2001. **Derived from data provided by Lipper Inc. THE U.S. ECONOMY REBOUNDED A modest economic recovery set the stage for the turnaround in the stock market. The recession that began in March 2001 seemed to have ended even 1 before the year came to a close. After falling in the third quarter of 2001, the nation's real (inflation-adjusted) gross domestic product rose in the fourth quarter, then surged at an estimated annual rate of 5.6% in the first three months of 2002. The strong growth was bolstered by heavy investment in inventories and housing, by government defense expenditures, and by consumer spending, which never really slackened despite the economic slowdown. The job market, however, still had not caught up with the improving economy. In April the unemployment rate reached 6.0%--the highest level in almost eight years, though still low compared with the jobless rates following past recessions. MARKET BAROMETER Total Returns Periods Ended April 30, 2002 Six One Five Months Year Years* - -------------------------------------------------------------------------------- STOCKS Russell 1000 Index (Large-caps) 3.4% -12.0% 7.9% Russell 2000 Index (Small-caps) 20.0 6.7 9.7 Wilshire 5000 Index (Entire market) 5.2 -9.9 7.7 MSCI EAFE Index (International) 5.5 -13.9 1.3 - -------------------------------------------------------------------------------- BONDS Lehman Aggregate Bond Index 0.0% 7.8% 7.7% (Broad taxable market) Lehman 10 Year Municipal Bond Index 1.2 7.2 6.5 Salomon Smith Barney 3-Month U.S. Treasury Bill Index 1.0 2.9 4.8 ================================================================================ CPI Consumer Price Index 1.2% 1.6% 2.3% - -------------------------------------------------------------------------------- *Annualized. The economy was helped along by the Federal Reserve Board, which made 11 cuts in its target for short-term interest rates in 2001, including two during your fund's fiscal half-year. The cuts brought the federal funds rate--the interest rate that banks charge each other for overnight loans made through the Federal Reserve System--to 1.75%, the lowest level in four decades. Bonds Stagnated The Fed's rate cuts, the recovering economy, and concerns that the Fed may start raising interest rates before year-end caused yields on longer-term bonds to rise. The Lehman Brothers Aggregate Bond Index, a proxy for the taxable, investment-grade U.S. bond market, barely broke even for the six months, as falling prices completely offset interest income (bond prices move in the opposite direction from interest rates). Problems in the telecom industry made the situation worse--bonds issued by these companies fell drastically in price. The returns for high-yield ("junk") bonds were a notable exception to bonds' overall low returns: The Lehman High Yield Index gained 6.6% for the six months. The yield of the 10-year U.S. Treasury note rose 86 basis points (0.86 percentage point) during the six months to end the period at 5.09%. The yield of the 3-month Treasury bill--which follows the Fed's rate changes with a slight lag--fell 25 basis points to 1.76%. 2 REASONABLY PRICED GROWTH STOCKS RALLY During the first half of its 2002 fiscal year, Vanguard Explorer Fund earned strong returns from the stocks of fast-growing companies in the consumer discretionary sector. Restaurants, retailers, and other businesses that compete for consumers' discretionary dollars thrived as shoppers spent freely through the economic slowdown. On average, these stocks made up 24% of Explorer's assets--a high weighting relative to other small-cap growth-stock portfolios. The fund held some of this strong sector's better performers, too. The Explorer Fund also enjoyed success with its auto & transportation and financial services stocks. Like consumer discretionary stocks, these sectors boast companies with good growth prospects but more attractive valuations than traditional growth-stock sectors such as technology. DIVERSIFICATION, PATIENCE, AND COST The characteristics that made Explorer a strong relative performer during the past six months have also worked against it at times. In the growth-stock mania of the late 1990s, when momentum investing ruled the day, Explorer's attention to valuation was a liability, at least on a relative basis. And if the most highly valued small growth stocks return to favor, Explorer's emphasis on growth and price, a strategy employed by the five different investment advisers listed in the table above, could again hold back the performance of your fund relative to those of its most aggressive peers for a time. ================================================================================ FUND ASSETS MANAGED April 30, 2002 ----------------------- $ Million Percentage - -------------------------------------------------------------------------------- Granahan Investment Management, Inc. $1,613 32% Wellington Management Company, llp 1,242 25 Grantham, Mayo, Van Otterloo & Co. LLC 912 18 Vanguard Quantitative Equity Group 592 12 Chartwell Investment Partners 383 8 Cash Investments* 251 5 - -------------------------------------------------------------------------------- Total $4,993 100% - -------------------------------------------------------------------------------- *This cash is invested by The Vanguard Group in equity index products to simulate investment in stocks. Each adviser may also maintain a modest cash position. Our advice is to view periods of outperformance and underperformance from the same perspective: that is, within the context of a diversified investment plan. All asset classes and investment styles fall into and out of favor. It's wise to ignore their periodic rallies and retreats and simply allow your portfolio to benefit from the interest, earnings, and dividends generated over time by the financial markets. Finally, it's important to keep your investment costs low so that a greater share of the market's returns can accrue to your benefit. 3 We thank you for entrusting your hard-earned money to us. We look forward to reporting to you six months hence. Sincerely, Sincerely, /S/ JOHN J. BRENNAN JOHN J. BRENNAN CHAIRMAN AND CHIEF EXECUTIVE OFFICER May 14, 2002 John J. Brennan ================================================================================ YOUR FUND'S PERFORMANCE AT A GLANCE: October 31, 2001-April 30, 2002 Distributions Per Share --------------------- Starting Ending Income Capital Share Price Share Price Dividends Gains - -------------------------------------------------------------------------------- VANGUARD EXPLORER FUND Investor Shares $51.91 $59.94 $0.105 $0.00 Admiral Shares 50.00* 55.65 0.107 0.00 - -------------------------------------------------------------------------------- *At inception on November 12, 2001. 4 REPORT FROM THE ADVISERS Vanguard Explorer Fund earned 15.7% during the six months ended April 30, 2002, with nearly all of the gain coming during the first three months of the period. After a very difficult fiscal 2001, the fine start to fiscal 2002 was most welcome. The Explorer Fund not only outpaced the broad stock market (a 5.2% return) but also bested our comparative standards--the average small-cap growth fund (8.2%) and the Russell 2000 Growth Index (10.4%). THE INVESTMENT ENVIRONMENT Stocks bounced back sharply in the first few months following the September 11 terrorist attacks. Although small growth stocks joined in this rebound, small value stocks were the strongest performers over the full six months. Although economic data have indicated improvement, the backdrop remains murky. Many companies remain guarded in their outlook, as new orders have not been cascading in. Given this environment, it's difficult to forecast earnings for this year, let alone for 2003. But unless we experience a double-dip recession, earnings should improve as economic activity expands. In the Russell 2000 Growth Index, the strongest performers during the half-year--all with gains of roughly 30%--were consumer discretionary (for example, retailers and restaurants), producer durables (a diverse collection of manufacturers, equipment suppliers, and homebuilders), and auto & transportation stocks. The weakest sector, by far, was utilities, where many telecommunications-related stocks suffered big losses. Technology, despite a good start, fizzled its way to a -;5% total return. THE FUND'S SUCCESSES Each of our "big three" industry concentrations--health care, consumer discretionary, and technology, which together accounted for an average of 61% of the fund's assets during the six months--produced better results than the same sectors within the Russell 2000 Growth Index. Our largest concentration, averaging 24% of assets, was in the consumer discretionary group, where we earned more than 39% during the period, versus 31% for the index's stocks. Our health care holdings (20% of assets, on average) returned nearly 5% during the half-year, while the health care stocks within the index lost about -;7%. And technology, our third-largest weighting, eked out a gain of 1%, considerably better than the -;5% loss for tech stocks in the index. - -------------------------------------------------------------------------------- INVESTMENT PHILOSOPHY The fund reflects a belief that superior long-term investment results can be achieved by selecting a diversified group of small-company stocks with prospects for above-average growth. - -------------------------------------------------------------------------------- 5 In the auto & transportation group, we benefited from an overweighting--about 5% of Explorer's assets, on average, versus 2% for the index--and from strong stock selection. Our stocks earned about 41%, versus 30% for the stocks in the index. Among individual holdings, we had nice gains in the consumer discretionary group from such diverse firms as Pier 1 Imports, Expedia, Blockbuster, Furniture Brands International, PETsMART, Cox Radio, Career Education, and Circuit City. In the health care sector, winners included DENTSPLY International, Henry Schein, Triad Hospitals, and Caremark Rx. THE FUND'S SHORTFALLS The only sector in which the fund recorded losses was the utilities group, where a number of our holdings were hurt badly by continuing overcapacity in the telecommunications area. It helped that we were underweighted, but our -;41% total return was even worse than the -;25% decline of the index sector. One of our weak performers was Allegiance Telecom, which began the fiscal year as our largest holding in utilities. Relative to the index, our biggest performance shortfall was in producer durables, where our 19% return for the sector lagged the 31% gain within the index. And though our health care holdings outpaced those of the index, we had some disappointments in the group, including a number of biotechnology stocks and Thoratec, a medical equipment maker. Similarly, despite the outperformance of Explorer's tech stocks versus those in the index, some of our holdings had poor results, including Vignette, Enterasys Networks, and Corvis. THE FUND'S POSITION For many companies, the apparent rebound in economic activity has not yet materialized in the form of higher revenues and profits. Hence, many managements of firms in which we invest are not looking toward the economy's expansion as a source of growth. Rather, they're focused on cost reductions, internal growth initiatives, and acquisitions. Nevertheless, our holdings should benefit significantly when economic growth resumes in earnest. Although small-cap growth stocks are not cheap compared with historic averages, our stocks as a group have lower valuations than those in our benchmark index. In the technology sector, many companies remain under severe earnings pressure. But price declines in this group have created some opportunities, and our exposure to tech is now almost on a par with the index-sector weighting. It has paid to concentrate on the better-financed firms in this group, considering that a number of their competitors may not survive. 6 We're somewhat overweighted in consumer discretionary stocks relative to the Russell 2000 Growth Index, although we have trimmed some holdings in light of the group's strong half-year performance. Granahan Investment Management, Inc. Wellington Management Company, LLP Grantham, Mayo, Van Otterloo & Co. LLC Vanguard Quantitative Equity Group Chartwell Investment Partners May 13, 2002 7 FUND PROFILE As of April 30, 2002 for EXPLORER FUND This Profile provides a snapshot of the fund's characteristics, compared where appropriate to both an unmanaged index that we consider a "best fit" for the fund and a broad market index. Key terms are defined on page 9. ============================================================ PORTFOLIO CHARACTERISTICS Best Wilshire Fund Fit* 5000 - ------------------------------------------------------------ Number of Stocks 857 1,228 5,915 Median Market Cap $1.1B $0.8B $29.1B Price/Earnings Ratio 85.9x 88.6x 31.5x Price/Book Ratio 2.8x 3.2x 3.1x Yield 0.4% 1.4% Investor Shares 0.0% Admiral Shares 0.0% Return on Equity 14.4% 16.0% 21.5% Earnings Growth Rate 16.6% 17.6% 10.3% Foreign Holdings 1.9% 0.0% 0.0% Turnover Rate 70%** -- -- Expense Ratio -- -- Investor Shares 0.72%** Admiral Shares 0.63%** Cash Investments 4.0% -- -- - ------------------------------------------------------------ ============================================ TEN LARGEST HOLDINGS(% of total net assets) DENTSPLY International Inc. 0.9% (medical) Tidewater Inc. 0.9 (transportation) Maxtor Corp. 0.9 (computer technology) Coventry Health Care Inc. 0.7 (health products & services) Investment Technology Group, Inc. 0.7 (securities brokers & services) Triad Hospitals, Inc. 0.7 (health care) Pier 1 Imports Inc. 0.7 (retail) Western Digital Corp. 0.7 (computer technology) Foot Locker, Inc. 0.7 (retail) Oak Technology, Inc. 0.6 (electronics) - -------------------------------------------- Top Ten 7.5% - -------------------------------------------- ============================================================ VOLATILITY MEASURES Best Wilshire Fund Fit* Fund 5000 - ------------------------------------------------------------ R-Squared 0.95 1.00 0.63 1.00 Beta 0.80 1.00 1.24 1.00 - ------------------------------------------------------------ ==================== INVESTMENT FOCUS [GRAPHIC] MARKET CAP Small STYLE Growth - -------------------- ============================================================ Sector Diversification (% of common stocks) Best Wilshire Fund Fit* 5000 - ------------------------------------------------------------ Auto & Transportation 4.0% 2.2% 2.4% Consumer Discretionary 26.8 23.3 15.4 Consumer Staples 1.6 2.1 7.4 Financial Services 10.5 11.4 21.7 Health Care 20.9 20.5 13.8 Integrated Oils 0.0 0.0 3.7 Other Energy 4.8 5.3 2.3 Materials & Processing 4.3 3.6 4.0 Producer Durables 7.7 11.6 3.9 Technology 17.3 17.6 14.0 Utilities 1.2 1.7 6.9 Other 0.9 0.7 4.5 - ------------------------------------------------------------ *Russell 2000 Growth Index. **Annualized. [PHOTO OF COMPUTER] VISIT OUR WEBSITE WWW.VANGUARD.COM FOR REGULARLY UPDATED FUND INFORMATION. 8 GLOSSARY OF INVESTMENT TERMS BETA. A measure of the magnitude of a fund's past share-price fluctuations in relation to the ups and downs of the fund's "best fit" index benchmark and an overall market index. Each index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 would have seen its share price rise or fall by 12% when the index rose or fell by 10%. - -------------------------------------------------------------------------------- CASH INVESTMENTS. The percentage of a fund's net assets invested in "cash equivalents"--highly liquid, short-term, interest-bearing securities. This figure does not include cash invested in futures contracts to simulate stock investment. - -------------------------------------------------------------------------------- EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the past five years for the stocks now in a fund. - -------------------------------------------------------------------------------- EXPENSE RATIO. The percentage of a fund's average net assets used to pay its annual administrative and advisory expenses. These expenses directly reduce returns to investors. - -------------------------------------------------------------------------------- FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks or American Depositary Receipts of companies based outside the United States. - -------------------------------------------------------------------------------- MEDIAN MARKET CAP. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund's stocks, weighted by the proportion of the fund's assets invested in each stock. Stocks representing half of the fund's assets have market capitalizations above the median, and the rest are below it. - -------------------------------------------------------------------------------- PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds. - -------------------------------------------------------------------------------- PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company's future growth. - -------------------------------------------------------------------------------- R-SQUARED. A measure of how much of a fund's past returns can be explained by the returns from the market in general, as measured by the fund's "best fit" index benchmark and by an overall market index. If a fund's total returns were precisely synchronized with an index's returns, its R-squared would be 1.00. If the fund's returns bore no relationship to the index's returns, its R-squared would be 0. - -------------------------------------------------------------------------------- RETURN ON EQUITY. The annual average rate of return generated by a company during the past five years for each dollar of shareholder's equity (net income divided by shareholder's equity). For a fund, the weighted average return on equity for the companies whose stocks it holds. - -------------------------------------------------------------------------------- TURNOVER RATE. An indication of the fund's trading activity. Funds with high turnover rates incur higher transaction costs and are more likely to distribute capital gains (which are taxable to investors). - -------------------------------------------------------------------------------- YIELD. A snapshot of a fund's income from interest and dividends. The yield, expressed as a percentage of the fund's net asset value, is based on income earned over the past 30 days and is annualized, or projected forward for the coming year. The index yield is based on the current annualized rate of dividends paid on stocks in the index. - -------------------------------------------------------------------------------- 9 PERFORMANCE SUMMARY As of April 30, 2002 for EXPLORER FUND All of the data on this page represent past performance, which cannot be used to predict future returns that may be achieved by the fund. Note, too, that both share price and return can fluctuate widely. An investor's shares, when redeemed, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. ============================================================== FISCAL-YEAR TOTAL RETURNS (%) October 31, 1991-April 30, 2002 [MOUNTAIN CHART] FUND INDEX 1992 13 -0.4 1993 22.3 27.7 1994 4.5 -0.9 1995 17.5 20.6 1996 18 13.3 1997 18.9 21.2 1998 -11.2 -15.9 1999 25.1 29.3 2000 42.6 16.2 2001 -16.2 -31.5 2002* 15.7 10.4 - -------------------------------------------------------------- *Six months ended April 30, 2002. Note: See Financial Highlights tables on pages 24 and 25 for dividend and capital gains information. ================================================================================ AVERAGE ANNUAL TOTAL RETURNS for periods ended March 31, 2002 This table presents average annual total returns through the latest calendar quarter--rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information. Ten Years One Five ------------------------------- Inception Date Year Years Capital Income Total - -------------------------------------------------------------------------------- Explorer Fund Investor Shares 12/11/1967 13.60% 14.39% 12.47% 0.41% 12.88% Admiral Shares 11/12/2001 13.72* -- -- -- -- - -------------------------------------------------------------------------------- *Return since inception. 10 FINANCIAL STATEMENTS April 30, 2002 (unaudited) STATEMENT OF NET ASSETS This Statement provides a detailed list of the fund's holdings, including each security's market value on the last day of the reporting period. Securities are grouped and subtotaled by asset type (common stocks, bonds, etc.) and by industry sector. Other assets are added to, and liabilities are subtracted from, the value of Total Investments to calculate the fund's Net Assets. Finally, Net Assets are divided by the outstanding shares of the fund to arrive at its share price, or Net Asset Value (NAV) Per Share. At the end of the Statement of Net Assets, you will find a table displaying the composition of the fund's net assets. Because all income and any realized gains must be distributed to shareholders each year, the bulk of net assets consists of Paid-in Capital (money invested by shareholders). The amounts shown for Undistributed Net Investment Income and Accumulated Net Realized Gains usually approximate the sums the fund had available to distribute to shareholders as income dividends or capital gains as of the statement date, but may differ because certain investments or transactions may be treated differently for financial statement and tax purposes. Any Accumulated Net Realized Losses, and any cumulative excess of distributions over net income or net realized gains, will appear as negative balances. Unrealized Appreciation (Depreciation) is the difference between the market value of the fund's investments and their cost, and reflects the gains (losses) that would be realized if the fund were to sell all of its investments at their statement-date values. =============================================================================== Market Value* EXPLORER FUND Shares (000) - ------------------------------------------------------------------------------- COMMON STOCKS (89.4%)(1) - ------------------------------------------------------------------------------- AUTO & TRANSPORTATION (3.6%) Tidewater Inc. 1,006,600 43,787 C.H. Robinson Worldwide, Inc. 619,500 19,496 * EGL, Inc. 1,131,200 19,400 Polaris Industries, Inc. 205,800 15,497 BorgWarner, Inc. 208,200 13,008 * Heartland Express, Inc. 663,969 13,007 Navistar International Corp. 225,500 8,997 * Continental Airlines, Inc. Class B 250,700 6,518 Easyjet Airline Co. PLC 774,966 5,404 * Landstar System, Inc. 53,700 5,257 Airborne, Inc. 242,600 5,032 * Knight Transportation, Inc. 222,650 4,500 Superior Industries International, Inc. 45,000 2,321 * Atlantic Coast Airlines Holdings Inc. 102,700 2,244 Winnebago Industries, Inc. 47,300 2,209 Oshkosh Truck Corp. 35,500 2,021 * Gulfmark Offshore, Inc. 45,000 2,000 Atlas Air Worldwide Holdings, Inc. 114,200 1,424 Frontier Airlines, Inc. 88,850 1,373 * ExpressJet Holdings, Inc. 63,200 907 BE Avionics Inc. 65,500 852 Arctic Cat, Inc. 43,200 840 AirTran Holdings, Inc. 117,000 654 * Sports Resorts International, Inc. 71,600 532 * Mesa Air Group Inc. 43,200 428 ArvinMeritor, Inc. 13,200 418 * Offshore Logistics, Inc. 12,200 246 --------- 178,372 --------- CONSUMER DISCRETIONARY (24.0%) Pier 1 Imports Inc. 1,385,650 33,186 * Foot Locker, Inc. 2,072,800 32,647 Callaway Golf Co. 1,632,800 28,737 * The Corporate Executive Board Co. 738,600 28,067 * PETsMART, Inc. 1,847,300 27,746 * Lamar Advertising Co. Class A 623,600 26,771 Ruby Tuesday, Inc. 1,013,900 25,469 * Radio One, Inc. Class D 1,131,400 24,212 * Borders Group, Inc. 991,700 23,117 Intrawest Corp. 1,234,300 22,884 * Furniture Brands International Inc. 511,500 20,885 * Expedia Inc. 241,000 19,481 * Six Flags, Inc. 1,036,700 18,972 * Career Education Corp. 421,700 18,955 * FreeMarkets, Inc. 975,500 17,325 Blockbuster Inc. Class A 589,000 16,845 * Playboy Enterprises, Inc. Class B 1,279,700 16,802 * AMC Entertainment, Inc. 1,133,100 16,430 * Pacific Sunwear of California 654,500 16,349 * Stage Stores, Inc. 500,000 15,995 *(2)LodgeNet Entertainment Corp. 889,100 15,915 * Chico's FAS, Inc. 425,175 15,340 11 =============================================================================== Market Value* EXPLORER FUND Shares (000) - ------------------------------------------------------------------------------- * Bally Total Fitness Holding Corp. 690,800 15,094 Ross Stores, Inc. 362,500 14,721 * Insight Communications Co., Inc. 850,000 13,184 * Sinclair Broadcast Group, Inc. 975,600 13,024 * Shuffle Master, Inc. 541,100 12,391 * Ticketmaster Class B 525,000 12,353 * Cox Radio, Inc. 413,500 11,843 * Entercom Communications Corp. 224,200 11,714 * Michaels Stores, Inc. 289,000 11,690 * The Yankee Candle Company, Inc. 532,300 11,679 The Marcus Corp. 673,600 11,653 * Insight Enterprises, Inc. 436,900 11,403 * Direct Focus, Inc. 250,900 11,215 * Dollar Tree Stores, Inc. 281,100 10,721 * Corinthian Colleges, Inc. 175,019 10,307 ServiceMaster Co. 735,300 10,294 * Overture Services, Inc. 299,400 10,236 * Fisher Scientific International Inc. 358,350 10,206 * PLATO Learning, Inc. 759,166 10,189 * Rent-A-Center, Inc. 164,700 9,931 Regis Corp. 329,000 9,890 * Teletech Holdings Inc. 750,300 9,191 * Vans, Inc. 750,900 9,146 * United Natural Foods, Inc. 381,500 9,137 * Universal Electronics, Inc. 540,300 8,996 Club Mediterranee SA 217,200 8,784 * Cumulus Media Inc. 462,707 8,667 Tokyo Style Co., Ltd. 969,000 8,664 * MTR Gaming Group Inc. 493,200 8,266 * SOURCECORP, Inc. 275,000 8,250 G & K Services, Inc. 199,200 8,217 * Activision, Inc. 260,800 8,210 * Westwood One, Inc. 223,346 8,040 * GTech Holdings Corp. 133,000 7,968 * Hollywood Entertainment Corp. 358,800 7,406 * Hot Topic, Inc. 326,700 7,370 * Value Vision International, Inc. Class A 367,500 6,942 * The Cheesecake Factory 165,100 6,873 * AnnTaylor Stores Corp. 157,400 6,842 Phillips-Van Heusen Corp. 445,000 6,782 * Action Performance Cos., Inc. 142,900 6,723 * THQ Inc. 177,900 6,237 * DiamondCluster International, Inc. 458,700 5,780 * ITT Educational Services, Inc. 108,600 5,501 Sonic Automotive, Inc. 138,300 5,318 Applebee's International, Inc. 134,600 5,255 IKON Office Solutions, Inc. 400,700 5,209 * Sylvan Learning Systems, Inc. 186,200 5,139 * Jack in the Box Inc. 160,800 5,134 The McClatchy Co. Class A 85,600 5,118 * Timberland Co. 125,000 5,100 * FTI Consulting, Inc. 139,300 4,990 * Copart, Inc. 319,600 4,919 * Coinstar, Inc. 152,100 4,902 * Edison Schools Inc. 948,600 4,866 * American Eagle Outfitters, Inc. 187,850 4,777 * Metro-Goldwyn-Mayer Inc. 293,250 4,736 * SCP Pool Corp. 144,800 4,589 * The Topps Co., Inc. 433,000 4,430 * P.F. Chang's China Bistro, Inc. 58,400 4,231 * Men's Wearhouse, Inc. 171,700 4,227 Argosy Gaming Co. 117,100 4,216 * Panera Bread Co. 62,400 4,185 * Sonic Corp. 140,350 4,114 * Weight Watcher International, Inc. 108,000 4,078 * Cost Plus, Inc. 136,900 4,032 * Electronics Boutiqu Holdings Corp. 141,325 4,019 * The Children's Place Retail Stores, Inc. 112,500 3,895 Fred's, Inc. 97,450 3,793 University of Phoenix 117,133 3,767 Too Inc. 122,100 3,681 Blyth, Inc. 123,000 3,659 Lee Enterprises, Inc. 92,900 3,646 The Pep Boys (Manny, Moe & Jack) 184,900 3,541 * Lightbridge, Inc. 291,900 3,447 Education Management Corp. 79,900 3,445 * Group 1 Automotive, Inc. 78,200 3,428 * Lands' End, Inc. 67,900 3,415 * Waste Connections, Inc. 96,000 3,389 Oshkosh B' Gosh, Inc. Class A 80,000 3,348 Strayer Education, Inc. 57,400 3,249 * Tuesday Morning Corp. 121,100 3,227 * United Stationers, Inc. 82,700 3,226 Circuit City Stores, Inc. - CarMax Group 107,100 3,159 * iVillage Inc. 1,720,400 3,131 * Pre-Paid Legal Services, Inc. 102,800 3,008 Ryan's Family Steak Houses, Inc. 111,700 2,927 * Metro One Telecommunications, Inc. 149,200 2,656 * Renaissance Learning, Inc. 76,000 2,627 * Pegasus Communications Corp. Class A 1,259,800 2,608 * ProQuest Co. 63,800 2,597 * InterTAN, Inc. 213,100 2,589 MPS Group, Inc. 287,000 2,583 * MAXIMUS, Inc. 81,100 2,514 12 =============================================================================== Market Value* Shares (000) - ------------------------------------------------------------------------------- * Spanish Broadcasting System, Inc. 154,700 2,483 * Acclaim Entertainment Inc. 459,500 2,463 * Global Sports, Inc. 182,000 2,357 Skechers U.S.A., Inc. 100,800 2,344 Kenneth Cole Productions, Inc. 86,300 2,330 The Wet Seal, Inc. Class A 65,100 2,320 O'Reilly Automotive, Inc. 71,400 2,313 * Mandalay Resort Group 63,600 2,281 * MemberWorks, Inc. 130,700 2,274 The Gymboree Corp. 123,300 2,249 Footstar Inc. 75,700 2,232 American Woodmark Corp. 32,600 2,201 Matthews International Corp. 79,942 2,182 JAKKS Pacific, Inc. 113,100 2,179 Alliance Gaming Corp. 144,800 2,155 Fossil, Inc. 77,400 2,148 * Right Management Consultants, Inc. 78,100 2,085 Papa John's International, Inc. 65,700 2,043 * Mohawk Industries, Inc. 30,827 1,983 4Kids Entertainment Inc. 114,000 1,961 * Station Casinos, Inc. 103,100 1,907 * Take-Two Interactive Software, Inc. 75,700 1,900 Steven Madden, Ltd. 93,700 1,830 * Rare Hospitality International Inc. 62,200 1,742 Midway Games Inc. 122,400 1,671 * ICT Group, Inc. 66,900 1,669 Quiksilver, Inc. 67,000 1,635 On Assignment, Inc. 79,800 1,622 Pittston Brink's Group 57,800 1,591 * ProBusiness Services, Inc. 80,200 1,574 Wilsons The Leather Experts Inc. 108,600 1,518 * IHOP Corp. 41,600 1,512 dELiA*s 226,600 1,493 Penn National Gaming, Inc. 38,600 1,484 * Priceline.com Inc. 282,300 1,425 * Salem Communications Corp. 55,300 1,354 Tweeter Home Entertainment Group, Inc. 81,000 1,337 * Dendrite International, Inc. 94,500 1,252 * Hollywood Media Corp. 294,600 1,231 Oakley, Inc. 60,100 1,197 CoStar Group, Inc. 49,900 1,188 * Christopher & Banks Corp. 31,350 1,165 Brown Shoe Co., Inc. 55,300 1,125 Nautica Enterprises, Inc. 76,800 1,105 * Global Imaging Systems, Inc. 56,600 1,080 * Administaff, Inc. 44,100 1,012 O'Charley's Inc. 40,000 1,010 * Tropical Sportswear International Corp. 36,600 1,010 Acuity Brands, Inc. 54,400 1,009 Stein Mart, Inc. 85,200 1,005 Martha Stewart Living Omnimedia, Inc. 55,800 1,004 * First Consulting Group, Inc. 109,500 986 * Bright Horizons Family Solutions, Inc. 32,300 968 Hancock Fabrics, Inc. 52,800 960 Green Mountain Coffee, Inc. 39,000 959 Ultimate Electronics, Inc. 31,300 905 * School Specialty, Inc. 30,200 857 CBRL Group, Inc. 25,800 783 Factory 2-U Stores Inc. 48,400 670 * Wink Communications, Inc. 336,000 655 Navigant Consulting, Inc. 99,300 643 Wackenhut Corp. 19,500 643 * Ameristar Casinos, Inc. 19,300 601 Aztar Corp. 24,500 570 Deb Shops, Inc. 18,600 558 Cato Corp. Class A 19,600 502 * Management Network Group Inc. 90,000 439 TiVo Inc. 114,100 424 Movie Gallery, Inc. 20,400 409 * Urban Outfitters, Inc. 6,500 197 * Scholastic Corp. 3,500 178 * Choice Hotel International, Inc. 6,700 175 * MSC Industrial Direct Co., Inc. Class A 7,800 166 * Infogrames, Inc. 13,000 85 * PriceSmart, Inc. 2,100 81 * Trendwest Resorts, Inc. 2,100 52 ---------- 1,198,705 ---------- CONSUMER STAPLES (1.5%) *(2)Wild Oats Markets Inc. 1,286,900 14,130 * Hain Celestial Group, Inc. 587,300 10,765 Dial Corp. 310,700 6,518 * NBTY, Inc. 367,200 6,308 * American Italian Pasta Co. 120,800 6,009 Casey's General Stores, Inc. 432,000 5,625 Fleming Cos., Inc. 187,400 4,130 The Great Atlantic & Pacific Tea Co., Inc. 130,300 3,338 Dole Food Co. 90,200 3,001 Nash-Finch Co. 62,200 1,866 Universal Corp. VA 43,200 1,836 Performance Food Group Co. 42,400 1,528 Church & Dwight, Inc. 51,100 1,461 * Del Monte Foods Co. 131,500 1,391 13 =============================================================================== Market Value* EXPLORER FUND Shares (000) - ------------------------------------------------------------------------------- Flowers Foods, Inc. 51,700 1,349 Interstate Bakeries Corp. 52,000 1,284 Vector Group Ltd. 32,760 693 J. M. Smucker Co. 9,300 323 * National Beverage Corp. 15,100 224 ------- 71,779 ------- FINANCIAL SERVICES (9.4%) * Investment Technology Group, Inc. 798,131 36,714 Jefferies Group, Inc. 601,200 27,950 Avalonbay Communities, Inc. REIT 422,000 20,117 Sun Communities, Inc. REIT 440,100 17,868 Legg Mason Inc. 355,000 17,835 Manufactured Home Communities, Inc. REIT 525,550 17,669 Regency Centers Corp. REIT 591,600 17,393 GATX Corp. 519,000 16,618 Host Marriott Corp. REIT 1,342,000 15,983 Van Der Moolen Holding N.V. ADR 652,113 14,933 Arthur J. Gallagher & Co. 395,700 14,285 Prentiss Properties Trust REIT 446,000 13,715 Global Payments Inc. 329,120 12,645 New York Community Bancorp, Inc. 410,024 12,161 America First Mortgage Investments, Inc. REIT 1,294,000 11,775 Westcorp, Inc. 390,500 11,711 * BISYS Group, Inc. 259,000 8,858 Odyssey Re Holdings Corp. 418,100 8,153 Hilb, Rogal and Hamilton Co. 220,600 8,114 Brown & Brown, Inc. 224,300 7,447 * InterCept, Inc. 242,900 7,379 John H. Harland Co. 245,000 7,375 * Kronos, Inc. 165,800 6,740 * LaBranche & Co. Inc. 236,100 6,469 Doral Financial Corp. 177,200 6,191 Banco Latinoamericano de Exportaciones, SA Class E 319,000 5,933 UCBH Holdings, Inc. 148,900 5,874 Hudson United Bancorp 162,000 5,142 * Digital Insight Corp. 216,200 4,110 Affiliated Managers Group, Inc. 63,400 4,032 FactSet Research Systems Inc. 107,400 3,741 Fair, Isaac & Co. Inc. 65,850 3,670 * IndyMac Bancorp, Inc. 138,200 3,490 Community First Bankshares, Inc. 114,200 3,138 PRG-Schultz International, Inc. 222,400 3,051 First Midwest Bancorp, Inc. 99,400 3,025 Interactive Data Corp. 173,300 3,024 * Actrade Financial Technologies, Ltd. 181,200 3,015 * United Rentals, Inc. 115,500 2,945 S1 Corp. 289,300 2,595 Dime Community Bancshares 106,125 2,468 Cousins Properties, Inc. REIT 89,400 2,414 NCO Group, Inc. 81,900 2,280 Chittenden Corp. 66,125 2,185 * HomeStore.com, Inc. 825,000 2,096 Westamerica Bancorporation 47,300 2,093 BankAtlantic Bancorp, Inc. Class A 160,100 2,041 McGrath Rent Corp. 74,500 1,978 Ventas, Inc. REIT 140,100 1,891 Mills Corp. REIT 68,638 1,889 * Net.B@nk, Inc. 116,800 1,875 * eFunds Corp. 117,500 1,868 NDCHealth Corp. 57,500 1,850 Ohio Casualty Corp. 95,500 1,845 Boston Private Financial Holdings, Inc. 66,100 1,775 Oriental Financial Group Inc. 79,970 1,743 Independent Bank Corp. MA 68,200 1,702 Downey Financial Corp. 31,200 1,657 First Federal Financial Corp. 57,000 1,630 Triad Guaranty, Inc. 36,400 1,627 Sterling Bancshares, Inc. 113,900 1,558 Midwest Banc Holdings, Inc. 55,400 1,537 * National Processing, Inc. 51,400 1,534 Archstone-Smith Trust REIT 55,102 1,486 Seacoast Banking Corp. of Florida Class A 29,200 1,438 * SoundView Technology Group, Inc. 630,600 1,400 Citizens Banking Corp. 42,100 1,398 * Central Coast Bancorp 67,000 1,392 Chelsea Property Group REIT 21,700 1,312 Pennsylvania REIT 50,100 1,288 BlackRock, Inc. 27,900 1,283 Provident Bankshares Corp. 48,600 1,267 * BKF Capital Group, Inc. 37,000 1,175 Clark/Bardes Inc. 46,100 1,088 R & G Financial Corp. Class B 52,800 1,057 JP Realty Inc. REIT 39,600 1,045 Independent Bank Corp. MI 32,945 1,029 Cathay Bancorp, Inc. 9,100 777 United National Bancorp 29,600 681 CVB Financial Corp. 29,625 637 CompuCredit Corp. 81,600 636 * First Republic Bank 17,500 579 * Philadelphia Consolidated Holding Corp. 13,500 576 Sterling Bancorp 13,310 439 Washington REIT 14,800 416 Student Loan Corp. 3,300 321 14 =============================================================================== Market Value* Shares (000) - ------------------------------------------------------------------------------- First Source Corp. 13,554 321 * Corrections Corp. of America 13,900 240 New Century Financial Corp. 8,200 196 CCBT Financial Cos. Inc. 6,000 153 National Penn Bancshares Inc. 4,300 116 First Bancorp/Puerto Rico 700 23 ------- 470,188 ------- HEALTH CARE (18.7%) DENTSPLY International Inc. 1,168,350 46,348 * Coventry Health Care Inc. 1,181,875 37,229 * Triad Hospitals, Inc. 842,866 35,400 * Henry Schein, Inc. 620,000 29,506 * Transkaryotic Therapies, Inc. 651,800 25,981 Mentor Corp. 640,200 25,640 * Caremark Rx, Inc. 1,168,500 25,123 * Mid Atlantic Medical Services, Inc. 679,700 24,761 * LifePoint Hospitals, Inc. 560,800 23,554 * Regeneron Pharmaceuticals, Inc. 954,800 19,717 Bausch & Lomb, Inc. 524,000 18,848 * SangStat Medical Corp. 788,300 18,367 * Beverly Enterprises, Inc. 2,016,700 17,344 IMS Health, Inc. 800,000 16,488 * Humana Inc. 981,100 16,041 Arrow International, Inc. 335,500 15,919 * Biogen, Inc. 350,000 15,215 * Varian, Inc. 432,300 14,586 * Kindred Healthcare, Inc. 309,200 13,759 ICN Pharmaceuticals, Inc. 496,900 13,744 * IDEXX Laboratories Corp. 468,500 13,343 * Vertex Pharmaceuticals, Inc. 614,000 13,060 * Chiron Corp. 305,000 12,343 *(2)Matria Healthcare, Inc. 582,500 12,198 * Province Healthcare Co. 305,600 11,769 * Accredo Health, Inc. 180,200 11,664 * Sicor, Inc. 610,000 10,809 * Allscripts Healthcare Solutions, Inc. 1,756,500 10,627 * Gilead Sciences, Inc. 300,000 9,336 * Isis Pharmaceuticals, Inc. 680,000 8,609 * Neurocrine Biosciences, Inc. 259,900 8,548 * Cephalon, Inc. 139,900 8,204 *(2)I-STAT Corp. 1,247,300 8,182 * Sybron Dental Specialties, Inc. 413,733 8,151 * Cell Genesys, Inc. 573,000 8,142 * Express Scripts Inc. 124,350 7,860 * Cubist Pharmaceuticals, Inc. 558,500 7,808 * Gene Logic Inc. 493,117 7,658 * Endocare, Inc. 385,600 7,400 * AdvancePCS 215,700 7,293 * AmSurg Corp. 231,500 6,714 * Charles River Laboratories, Inc. 222,400 6,661 Diagnostic Products Corp. 137,100 6,578 * Tularik, Inc. 570,300 6,558 AmerisourceBergen Corp. 79,569 6,167 * Kos Pharmaceuticals, Inc. 220,400 5,730 * Renal Care Group, Inc. 160,000 5,680 * Varian Medical Systems, Inc. 130,600 5,662 * Abgenix, Inc. 395,300 5,578 * ImmunoGen, Inc. 652,000 5,372 Cooper Cos., Inc. 101,000 5,353 * STERIS Corp. 237,900 5,269 * Barr Laboratories, Inc. 76,978 5,131 * Covance, Inc. 254,100 5,100 * Wright Medical Group, Inc. 258,200 4,895 * Taro Pharmaceutical Industries Ltd. 220,300 4,835 * Stericycle, Inc. 69,100 4,666 * PolyMedica Corp. 119,100 4,640 * Immunomedics Inc. 350,000 4,606 * Telik, Inc. 442,468 4,602 * Sequenom, Inc. 771,100 4,542 * American Medical Systems Holdings, Inc. 195,900 4,502 * EPIX Medical, Inc. 322,200 4,240 * Amylin Pharmaceuticals, Inc. 425,700 4,040 * NPS Pharmaceuticals Inc. 135,300 4,033 * Ocular Sciences, Inc. 129,800 3,888 * Salix Pharmaceuticals, Ltd. 261,100 3,869 * Albany Molecular Research, Inc. 157,200 3,812 * DIANON Systems, Inc. 58,103 3,812 * Medarex, Inc. 374,000 3,792 * Sunrise Assisted Living, Inc. 126,600 3,419 * ILEX Oncology, Inc. 207,200 3,396 * Integra LifeSciences Holdings 173,000 3,374 PSS World Medical, Inc. 320,100 3,169 * Apria Healthcare Group Inc. 120,700 3,137 Kissei Pharmaceutical Co., Ltd. 213,000 2,930 * Edwards Lifesciences Corp. 115,200 2,894 * Pharmaceutical Resources, Inc. 114,400 2,860 * CIMA Labs Inc. 138,500 2,766 * Alkermes, Inc. 136,000 2,739 * Indevus Pharmaceuticals, Inc. 393,900 2,690 * InterMune Inc. 99,900 2,672 * MedSource Technologies, Inc. 201,025 2,611 * Trimeris, Inc. 52,000 2,493 Emisphere Technologies, Inc. 162,600 2,491 * Gentiva Health Services, Inc. 91,200 2,472 * Human Genome Sciences, Inc. 145,000 2,282 IGEN International, Inc. 54,600 2,258 * Scios, Inc. 70,700 2,187 * Celera Genomics Group- Applera Corp. 136,800 2,140 * Possis Medical Inc. 128,900 2,020 15 ============================================================================== Market Value* EXPLORER FUND Shares (000) ------------------------------------------------------------------------------- Sola International Inc. 140,700 2,019 * Eclipsys Corp. 115,300 1,846 * Ligand Pharmaceuticals Inc. Class B 116,200 1,809 * Martek Biosciences Corp. 62,200 1,799 * CryoLife Inc. 60,450 1,781 * Conceptus, Inc. 94,100 1,702 * BioMarin Pharmaceutical Inc. 281,000 1,694 * Haemonetics Corp. 50,400 1,670 * Cerus Corp. 32,200 1,649 * Genta Inc. 119,200 1,602 * Endo Pharmaceuticals Holdings, Inc. 136,200 1,576 * Bruker Daltonics, Inc. 208,800 1,560 * Enzo Biochem, Inc. 85,617 1,550 * aaiPharma Inc. 55,200 1,542 * Theragenics Corp. 170,300 1,529 Alpharma, Inc. Class A 89,100 1,524 * CV Therapeutics, Inc. 51,600 1,493 Pediatrix Medical Group, Inc. 31,000 1,457 * Incyte Genomics, Inc. 176,600 1,450 Invacare Corp. 38,300 1,449 Option Care, Inc. 72,500 1,362 * Impath, Inc. 57,201 1,354 * Kendle International Inc. 78,100 1,327 * Cyberonics, Inc. 96,100 1,302 * Lexicon Genetics Inc. 160,200 1,282 * Diversa Corp. 115,800 1,274 * Arena Pharmaceuticals, Inc. 155,500 1,267 The Med-Design Corp. 89,900 1,259 * Neose Technologies, Inc. 50,500 1,211 Serologicals Corp. 58,000 1,190 * Select Medical Corp. 74,600 1,123 * Cell Therapeutics, Inc. 89,700 1,114 American Healthways Inc. 41,250 1,112 * Nabi Biopharmaceuticals 175,300 1,101 * Noven Pharmaceuticals, Inc. 54,600 1,097 * Aksys, Ltd. 167,400 1,088 Vital Signs, Inc. 28,200 1,086 * Digene Corp. 47,500 1,084 * Pharmacopeia, Inc. 93,200 1,081 Magellan Health Services, Inc. 144,000 1,073 * NaPro BioTherapeutics, Inc. 151,200 1,051 Novoste Corp. 165,500 1,026 Thoratec Corp. 124,500 1,022 * Advanced Tissue Sciences Inc. 332,800 915 * CONMED Corp. 33,300 899 * Bio-Technology General Corp. 176,900 867 SonoSite, Inc. 46,100 855 * Syncor International Corp. 27,100 847 Array BioPharma Inc. 85,300 833 * AVI BioPharma, Inc. 115,200 829 Urologix, Inc. 59,200 816 * BriteSmile, Inc. 153,000 796 * INAMED Corp. 20,400 751 Biosite Inc. 23,700 741 Pharmacyclics, Inc. 114,200 702 * Transgenomic, Inc. 111,000 671 Corixa Corp. 122,100 670 * K-V Pharmaceutical Co. Class B 20,300 641 Datascope Corp. 20,000 629 * Cobalt Corp. 32,100 620 * Impax Laboratories, Inc. 89,300 616 * CorVel Corp. 17,900 593 * Dynacq International, Inc. 32,900 549 * Genencor International Inc. 46,400 490 Triangle Pharmaceuticals, Inc. 97,100 476 * BioSphere Medical Inc. 76,900 458 * Keryx Biopharmaceuticals, Inc. 119,000 388 * Tanox, Inc. 32,100 384 Closure Medical Corp. 25,000 373 Perrigo Co. 28,300 353 ArthroCare Corp. 21,900 351 * Collagenex Pharmaceuticals, Inc. 34,000 331 * Versicor, Inc. 24,600 308 * Applied Molecular Evolution 40,000 299 * Advanced Neuromodulation Systems, Inc. 9,100 282 * Genelabs Technologies, Inc. 369,500 281 * Genome Therapeutics Corp. 56,300 221 * Novavax, Inc. 23,400 117 Organogenesis, Inc. 44,300 21 Endo Pharmaceutical Warrants Exp. 3/31/2003 15,900 7 --------- 933,468 --------- MATERIALS & PROCESSING (3.8%) Precision Castparts Corp. 450,200 15,924 Granite Construction Co. 647,950 14,974 * Cytec Industries, Inc. 417,200 13,763 Cambrex Corp. 318,800 13,099 Minerals Technologies, Inc. 261,600 13,080 * Dycom Industries, Inc. 834,500 12,626 Yamato Kogyo Co., Ltd. 2,405,000 12,606 IMC Global Inc. 991,700 12,495 Bowater Inc. 260,000 12,397 Valmont Industries, Inc. 589,500 12,197 Wellman, Inc. 723,400 12,008 Croda International PLC 1,680,100 6,868 Getty Realty Holding Corp. 338,600 6,383 Airgas, Inc. 193,400 3,189 * Intermagnetics General Corp. 123,524 3,104 Elcor Corp. 111,100 2,997 Apogee Enterprises, Inc. 215,300 2,960 Shaw Group, Inc. 90,500 2,763 16 =============================================================================== Market Value* Shares (000) - ------------------------------------------------------------------------------- Ferro Corp. 89,400 2,532 * Ivex Packaging Corp. 85,200 1,960 RPM Inc. OH 108,000 1,831 * Simpson Manufacturing Co. 22,800 1,498 * Paxar Corp. 84,500 1,411 Lone Star Technologies, Inc. 51,700 1,378 Mueller Industries Inc. 40,200 1,370 N L Industries, Inc. 68,200 1,132 USEC Inc. 137,800 943 * Cadiz Inc. 76,250 839 Interface, Inc. 102,700 827 * Medis Technology Ltd. 106,645 711 * Valence Technology Inc. 257,100 594 * Buckeye Technology, Inc. 42,000 462 Hughes Supply, Inc. 10,600 442 Spartech Corp. 11,200 299 Liqui-Box Corp. 3,900 261 Forest City Enterprise Class A 4,600 177 Zapata Corp. 1,000 28 -------- 192,128 -------- OTHER ENERGY (4.3%) Helmerich & Payne, Inc. 607,400 25,031 * Grey Wolf, Inc. 4,860,800 22,117 *(2)TETRA Technologies, Inc. 763,300 21,861 St. Mary Land & Exploration Co. 891,000 21,553 * Unit Corp. 757,600 14,788 Carbo Ceramics Inc. 316,900 11,941 * Core Laboratories NV 733,600 11,004 Sunoco, Inc. 315,500 10,847 * Spinnaker Exploration Co. 181,800 7,790 * Patterson-UTI Energy, Inc. 172,700 5,526 * Smith International, Inc. 77,900 5,457 Equitable Resources, Inc. 132,800 4,774 Frontier Oil Corp. 168,500 3,539 * Ultra Petroleum Corp. 397,900 3,505 * Superior Energy Services, Inc. 305,100 3,405 * Plains Resources Inc. 113,200 3,102 Patina Oil & Gas Corp. 84,000 3,041 XTO Energy, Inc. 142,350 2,904 * Oceaneering International, Inc. 103,400 2,740 * Pioneer Natural Resources Co. 113,500 2,723 * Pride International, Inc. 141,500 2,630 Vintage Petroleum, Inc. 190,500 2,629 * Chesapeake Energy Corp. 297,000 2,539 * Key Energy Services, Inc. 204,900 2,490 * Hydrill Co. 68,200 1,740 Stone Energy Corp. 41,000 1,738 * Key Production Co., Inc. 79,900 1,710 * Comstock Resources, Inc. 169,900 1,572 * PetroQuest Energy, Inc. 204,700 1,390 Prima Energy Corp. 49,300 1,228 Newpark Resources, Inc. 138,200 1,157 Seitel, Inc. 128,300 1,033 Horizon Offshore, Inc. 94,200 933 * Veritas DGC Inc. 46,800 847 * Denbury Resources, Inc. 86,300 793 * Houston Exploration Co. 24,600 762 * W-H Energy Services, Inc. 19,600 505 * Clayton Williams Energy, Inc. 35,900 476 RPC Inc. 29,600 464 * ATP Oil & Gas Corp. 113,300 442 * Emex Corp. 136,266 342 The Meridian Resource Corp. 70,400 315 * Energy Partners, Ltd. 30,000 258 --------- 215,641 -------- PRODUCER DURABLES (6.9%) * Mettler-Toledo International Inc. 709,100 27,265 * AGCO Corp. 1,089,700 24,758 * Polycom, Inc. 961,500 19,826 * Headwaters Inc. 1,100,100 19,582 * Palm Harbor Homes, Inc. 703,108 16,488 Donaldson Co., Inc. 339,100 14,632 * NVR, Inc. 38,900 14,383 * Garmin Ltd. 512,000 11,525 * Plantronics, Inc. 512,800 10,800 Lindsay Manufacturing Co. 433,050 10,610 * Alliant Techsystems, Inc. 92,250 9,935 * Ultratech Stepper, Inc. 577,300 9,855 * DuPont Photomasks, Inc. 180,950 7,053 * Varian Semiconductor Equipment Associates, Inc. 146,000 6,821 Ametek Aerospace Products Inc. 155,800 6,034 * Photronics Labs Inc. 157,900 5,203 *(2)Ibis Technology Corp. 550,000 5,187 * Crown Castle International Corp. 668,400 4,879 * Veeco Instruments, Inc. 164,500 4,874 * Itron, Inc. 134,000 4,777 * Zygo Corp. 271,900 4,652 * SpectraLink Corp. 437,900 4,611 * Electro Scientific Industries, Inc. 152,600 4,587 * MKS Instruments, Inc. 130,300 4,416 * Photon Dynamics, Inc. 89,700 4,345 * Cymer, Inc. 90,300 4,268 Graco, Inc. 91,750 4,107 * Kulicke & Soffa Industries, Inc. 216,800 3,933 * LAM Research Corp. 140,200 3,598 Briggs & Stratton Corp. 85,000 3,583 * Brooks Automation, Inc. 88,000 3,137 The Manitowac Co., Inc. 63,700 2,784 * MICROS Systems, Inc. 96,600 2,705 * United Defense Industries Inc. 96,300 2,619 D. R. Horton, Inc. 97,722 2,521 Engineered Support Systems, Inc. 51,000 2,519 Champion Enterprises, Inc. 303,300 2,517 17 =============================================================================== Market Value* EXPLORER FUND Shares (000) ------------------------------------------------------------------------------- ATMI, Inc. 76,300 2,327 * Dionex Corp. 93,300 2,298 * Tollgrade Communications, Inc. 103,700 2,085 * LTX Corp. 93,000 1,973 Helix Technology Corp. 70,600 1,910 C-COR Electronics, Inc. 173,800 1,901 Roper Industries Inc. 41,100 1,890 Woodward Governor Co. 27,300 1,879 C & D Technologies, Inc. 77,800 1,789 * FEI Co. 67,300 1,779 Technitrol, Inc. 68,900 1,750 Beazer Homes USA, Inc. 19,600 1,735 Belden, Inc. 71,900 1,721 FSI International, Inc. 140,100 1,671 Cohu, Inc. 54,400 1,524 Rayovac Corp. 95,000 1,511 * TRC Cos., Inc. 62,400 1,423 * Therma-Wave Inc. 99,400 1,406 X-Rite Inc. 150,200 1,314 Nordson Corp. 42,400 1,314 * Powell Industries, Inc. 54,900 1,290 * Genlyte Group, Inc. 29,300 1,284 General Cable Corp. 109,000 1,251 * Arris Group Inc. 143,700 1,247 Terayon Communications Systems, Inc. 497,000 1,193 Somera Communications, Inc. 153,700 1,099 Astec Industries, Inc. 54,300 1,013 Lincoln Electric Holdings 34,300 974 Semitool, Inc. 65,700 929 Teledyne Technologies, Inc. 52,800 898 * Cable Design Technologies Corp. 65,700 826 * ADE Corp. 54,900 719 * Symmetricom Inc. 104,000 666 * CUNO Inc. 13,700 483 * Triumph Group, Inc. 8,800 405 * Andrew Corp. 22,600 375 * Flowserve Corp. 9,600 331 * Powerwave Technologies, Inc. 11,400 136 California Amplifier, Inc. 18,600 114 * Wesco International, Inc. 12,100 87 American Technical Ceramics Corp. 2,700 19 --------- 345,928 --------- TECHNOLOGY (15.5%) * Maxtor Corp. 6,217,080 43,084 * Western Digital Corp. 5,332,000 33,005 * Oak Technology, Inc. 2,075,257 29,531 * IDX Systems Corp. 1,187,800 20,513 * Adaptec, Inc. 1,127,400 16,573 * Actel Corp. 663,800 16,130 * Verity, Inc. 1,144,000 15,261 * Cree, Inc. 1,242,500 14,649 * Monolithic System Technology, Inc. 1,012,000 13,460 * 3Com Corp. 2,326,000 13,421 * Silicon Storage Technology, Inc. 1,228,300 12,185 * Palm, Inc. 3,767,200 11,942 * DSP Group Inc. 557,100 11,822 * Trimble Navigation Ltd. 712,450 11,820 * Ingram Micro, Inc. Class A 787,600 11,704 * The TriZetto Group, Inc. 931,600 10,993 * Fairchild Semiconductor Corp. 398,900 10,746 * Sycamore Networks, Inc. 3,093,200 10,455 * Openwave Systems Inc. 1,777,200 10,166 * Planar Systems, Inc. 407,600 10,145 * NetIQ Corp. 439,008 9,847 * eSPEED, Inc. 750,500 9,261 * Peregrine Systems, Inc. 1,351,100 9,255 * Vignette Corp. 3,400,400 8,739 * Sonus Networks, Inc. 2,906,600 7,993 * SeaChange International, Inc. 702,400 7,818 * Aeroflex, Inc. 556,700 7,783 * Hyperion Solutions Corp. 332,500 7,781 * Remec, Inc. 937,450 7,500 * Register.com, Inc. 882,800 7,433 * Concurrent Computer Corp. 1,072,500 7,347 * Corvis Corp. 6,100,000 7,320 * DRS Technologies, Inc. 150,500 6,961 * MSCi, Inc. 476,400 6,898 * Riverdeep Group PLC ADR 330,000 6,636 * Advanced Fibre Communications, Inc. 364,425 6,465 * Red Hat, Inc. 1,360,300 6,244 * Sipex Corp. 631,000 6,177 * Hutchinson Technology, Inc. 343,700 6,156 * Zebra Technologies Corp. Class A 106,100 6,013 * Perot Systems Corp. 337,700 6,011 * Liberate Technologies, Inc. 1,180,200 6,007 * ADTRAN Inc. 230,600 5,733 * CACI International, Inc. 187,900 5,670 * GlobespanVirata, Inc. 948,532 5,596 * Borland Software Corp. 502,100 5,473 * Numerical Technologies, Inc. 416,700 5,434 * Electronics for Imaging, Inc. 302,075 5,410 * SERENA Software, Inc. 388,300 5,339 * Caminus Corp. 285,300 5,327 * ManTech International Corp. 204,000 4,831 * Harmonic, Inc. 590,700 4,755 * FLIR Systems, Inc. 119,200 4,753 * WebEx Communications, Inc. 271,400 4,676 * Elantec Semiconductor, Inc. 112,000 4,630 * Emulex Corp. 154,700 4,485 * Microtune, Inc. 401,400 4,476 18 =============================================================================== Market Value* Shares (000) - ------------------------------------------------------------------------------- * J.D. Edwards & Co. 398,600 4,424 * RF Micro Devices, Inc. 251,200 4,371 * MatrixOne, Inc. 615,500 4,247 * Packeteer, Inc. 589,500 4,127 * StorageNetworks, Inc. 1,416,000 4,119 * Semtech Corp. 127,500 4,077 * Digitas Inc. 801,000 3,941 Kopin Corp. 496,300 3,941 Zoran Corp. 107,500 3,893 * Avant! Corp. 228,100 3,798 * Pixelworks, Inc. 380,000 3,789 Power Integrations, Inc. 170,400 3,604 * TTM Technologies, Inc. 435,475 3,579 Websense, Inc. 131,200 3,504 * Secure Computing Corp. 277,600 3,489 The Titan Corp. 151,800 3,470 * MetaSolv, Inc. 575,200 3,394 * SonicWALL, Inc. 445,000 3,302 * OpenTV Corp. Class A 756,300 3,207 * Black Box Corp. 67,800 3,172 * InterVoice-Brite, Inc. 704,700 3,101 * Exar Corp. 153,100 3,053 * Extreme Networks, Inc. 338,800 3,046 * Concord Communications, Inc. 160,000 3,008 * Stellent Inc. 570,000 3,004 * CommScope, Inc. 185,800 2,951 * DMC Stratex Networks, Inc. 690,000 2,898 ESS Technology, Inc. 177,700 2,838 * American Management Systems, Inc. 123,200 2,819 * Intergraph Corp. 162,500 2,763 * Alloy, Inc. 216,700 2,741 * Avocent Corp. 107,200 2,680 * Rambus Inc. 394,200 2,633 F5 Networks, Inc. 200,500 2,611 * Genesis Microchip Inc. 108,000 2,593 ANSYS, Inc. 97,200 2,479 * Xicor, Inc. 246,200 2,462 * Parlex Corp. 193,000 2,461 * Sapient Corp. 500,000 2,440 EDO Corp. 78,700 2,436 * Ulticom, Inc. 405,900 2,334 * Microsemi Corp. 175,900 2,331 RealNetworks, Inc. 319,000 2,243 * JDA Software Group, Inc. 71,200 2,153 * Progress Software Corp. 124,900 2,105 * Catapult Communications Corp. 83,600 2,095 * Systems & Computer Technology Corp. 129,700 2,017 * Netro Corp. 714,000 1,992 * FileNET Corp. 110,500 1,906 Inter-Tel, Inc. 91,500 1,877 * Moldflow Corp. 177,500 1,876 * McAfee.com Corp. 136,400 1,821 Manugistics Group, Inc. 114,300 1,801 Documentum, Inc. 92,300 1,792 * Cognizant Technology Solutions Corp. 38,000 1,786 Kroll Inc. 95,300 1,767 Answerthink Consulting Group, Inc. 273,900 1,767 * Silicon Image, Inc. 182,100 1,757 * Virage Logic Corp. 94,100 1,694 * Plexus Corp. 63,500 1,587 * BSQUARE Corp. 448,000 1,527 * Benchmark Electronics, Inc. 49,800 1,514 * Iomega Corp. 118,040 1,487 * Integrated Circuit Systems, Inc. 68,500 1,363 * Read Rite Corp. 380,600 1,351 * Pinnacle Systems, Inc. 141,500 1,316 Zomax Inc. 213,600 1,228 Kana Software, Inc. 117,900 1,213 * Computer Network Technology Corp. 126,000 1,202 RadiSys Corp. 80,600 1,182 * Interland Inc. 425,000 1,071 * Excel Technology, Inc. 41,600 1,069 United Industrial Corp. 41,100 1,040 MSC.Software Corp. 82,700 1,015 * SeeBeyond Technology Corp. 290,000 998 Digimarc Corp. 66,400 994 * Artisan Components, Inc. 65,200 961 * LeCroy Corp. 57,700 923 * Roxio, Inc. 41,600 884 SPSS, Inc. 49,800 883 Forrester Research, Inc. 48,400 883 * Predictive Systems, Inc. 633,700 855 * AsiaInfo Holdings, Inc. 83,500 850 * Lantronix, Inc. 344,000 826 * INT Media Group, Inc. 265,000 795 Inktomi Corp. 327,200 759 * PLX Technology, Inc. 102,000 759 * Ansoft Corp. 66,600 753 Advanced Digital Information Corp. 77,400 697 * Keane, Inc. 41,800 654 Akamai Technologies, Inc. 277,800 636 Entrust, Inc. 150,400 630 EPIQ Systems, Inc. 34,700 592 * MicroStrategy Inc. 341,400 591 * NYFIX, Inc. 53,200 536 * MRO Software Inc. 36,300 525 * Datastream Systems, Inc. 64,500 515 * AXT, Inc. 42,100 488 19 =============================================================================== Market Value* EXPLORER FUND Shares (000) - ------------------------------------------------------------------------------- Spectrian Corp. 41,900 458 * Ascential Software Corp. 125,000 430 BEI Technologies, Inc. 21,900 429 Centra Software, Inc. 128,700 399 Sanchez Computer Associates, Inc. 63,600 392 Saba Software, Inc. 117,600 345 * Siliconix, Inc. 8,900 282 * Gartner, Inc. Class A 17,700 207 InFocus Corp. 13,000 168 * Merix Corp. 7,600 127 Visual Networks, Inc. 92,500 121 SatCon Technology Corp. 43,000 92 * Inet Technologies, Inc. 7,800 66 Brooktrout Technology, Inc. 6,700 43 * FiberCore, Inc. 86,800 39 Diodes Inc. 3,500 28 NEON Systems, Inc. 4,000 27 * Checkpoint Systems, Inc. 1,400 24 * Clarent Corp. 58,800 23 * Micro General Corp. 600 10 -------- 774,279 ------- UTILITIES (1.0%) * General Communication, Inc. 1,181,100 11,787 * Nextel Partners, Inc. 1,925,600 9,801 * Allegiance Telecom, Inc. 2,340,000 4,750 * Commonwealth Telephone Enterprises, Inc. 105,640 3,998 * Intrado Inc. 213,400 3,967 * Triton PCS, Inc. 402,400 3,239 * US Unwired Inc. 421,400 2,684 * Touch America Holdings, Inc. 760,000 2,576 AirGate PCS, Inc. 158,100 2,261 Black Hills Corp. 60,100 2,095 Philadelphia Suburban Corp. 74,250 1,789 * IDT Corp. 60,600 1,212 North Pittsburgh Systems, Inc. 48,900 813 Hickory Tech Corp. 31,100 522 * NTELOS Inc. 58,400 164 * Dobson Communications Corp. 69,300 136 Middlesex Water Co. 3,100 77 ------- 51,871 ------- OTHER (0.7%) Brunswick Corp. 854,500 24,088 Lancaster Colony Corp. 84,700 3,261 Carlisle Co., Inc. 57,900 2,344 GenCorp, Inc. 108,700 1,707 Walter Industries, Inc. 115,200 1,555 Quixote Corp. 30,900 601 ------- 33,556 ------- - ---------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $4,102,419) 4,465,915 - ---------------------------------------------------------------------- Face Market Amount Value* (000) (000) - ---------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (12.6%) (1) - ---------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSN. (3) 1.83%, 7/31/2002 $ 22,000 $ 21,904 U.S. TREASURY BILLS 1.74%, 6/6/2002 749 749 1.82%, 6/6/2002 898 898 REPURCHASE AGREEMENTS Collateralized by U.S. Government Obligations in a Pooled Cash Account 1.92%, 5/1/2002 526,765 526,765 1.92%, 5/1/2002--Note G 77,708 77,708 - ---------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $628,019) 628,024 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (102.0%) (Cost $4,730,438) 5,093,939 - ---------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-;2.0%) - ---------------------------------------------------------------------- Other Assets--Note C 58,636 Liabilities--Note G (159,934) ---------- (101,298) ---------- - ---------------------------------------------------------------------- NET ASSETS (100%) $4,992,641 ====================================================================== *See Note A in Notes to Financial Statements. *Non-income-producing security. (1) The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund's effective common stock and temporary cash investment positions represent 96.0% and 6.0%, respectively, of net assets. See Note F in Notes to Financial Statements. (2) Considered an affiliated company as the fund owns more than 5% of the outstanding voting securities of such company. The total market value of investments in affiliated companies was $77,473,000. (3) Security segregated as initial margin for open futures contracts. ADR--American Depositary Receipt. REIT--Real Estate Investment Trust. 20 Amount (000) - ---------------------------------------------------------------------- AT APRIL 30, 2002, NET ASSETS CONSISTED OF: - ---------------------------------------------------------------------- Paid-in Capital $4,716,496 Overdistributed Net Investment Income (6,579) Accumulated Net Realized Losses (86,072) Unrealized Appreciation--Note F Investment Securities 363,501 Futures Contracts 5,295 - ---------------------------------------------------------------------- NET ASSETS $4,992,641 ====================================================================== Investor Shares--Net Assets Applicable to 79,802,951 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $4,783,035 - ---------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INVESTOR SHARES $59.94 ====================================================================== Admiral Shares--Net Assets Applicable to 3,766,487 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $209,606 - ---------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- ADMIRAL SHARES $55.65 ====================================================================== 21 STATEMENT OF OPERATIONS This Statement shows the types of income earned by the fund during the reporting period, and details the operating expenses charged to each class of its shares. These expenses directly reduce the amount of investment income available to pay to shareholders as income dividends. This Statement also shows any Net Gain (Loss) realized on the sale of investments, and the increase or decrease in the Unrealized Appreciation (Depreciation) of investments during the period. ====================================================================== EXPLORER FUND Six Months Ended April 30, 2002 (000) - --------------------------------------------------------------------------- INVESTMENT INCOME Income Dividends* $ 8,050 Interest 4,808 Security Lending 509 - --------------------------------------------------------------------------- Total Income 13,367 - --------------------------------------------------------------------------- EXPENSES Investment Advisory Fees--Note B Basic Fee 4,414 Performance Adjustment 1,441 The Vanguard Group--Note C Management and Administrative Investor Shares 9,969 Admiral Shares 206 Marketing and Distribution Investor Shares 353 Admiral Shares 3 Custodian Fees 12 Auditing Fees 6 Shareholders' Reports Investor Shares 128 Admiral Shares 1 Trustees' Fees and Expenses 3 - --------------------------------------------------------------------------- Total Expenses 16,536 Expenses Paid Indirectly--Note D (248) - --------------------------------------------------------------------------- Net Expenses 16,288 - --------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) (2,921) - --------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) Investment Securities Sold* 80,147 Futures Contracts 31,340 - --------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) 111,487 - --------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities 511,107 Futures Contracts 11,804 - --------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 522,911 - --------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $631,477 =========================================================================== *Dividend income and realized net gain (loss) from affiliated companies were $0 and $4,148,000, respectively. 22 STATEMENT OF CHANGES IN NET ASSETS This Statement shows how the fund's total net assets changed during the two most recent reporting periods. The Operations section summarizes information detailed in the Statement of Operations. The amounts shown as Distributions to shareholders from the fund's net income and capital gains may not match the amounts shown in the Operations section, because distributions are determined on a tax basis and may be made in a period different from the one in which the income was earned or the gains were realized on the financial statements. The Capital Share Transactions section shows the net amount shareholders invested in or redeemed from the fund. Distributions and Capital Share Transactions are shown separately for each class of shares.
=================================================================================================== EXPLORER FUND ------------------------------ Six Months Year Ended Ended Apr. 30, 2002 Oct. 31, 2001 (000) (000) - --------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net Investment Income (Loss) $ (2,921) $ 10,255 Realized Net Gain (Loss) 111,487 (207,701) Change in Unrealized Appreciation (Depreciation) 522,911 (582,165) - --------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 631,477 (779,611) DISTRIBUTIONS Net Investment Income Investor Shares (8,067) (15,049) Admiral Shares (188) -- Realized Capital Gain* Investor Shares -- (837,311) Admiral Shares -- -- - --------------------------------------------------------------------------------------------------- Total Distributions (8,255) (852,360) - --------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--Note H Investor Shares 168,891 1,062,190 Admiral Shares 204,467 -- Net Increase (Decrease) from Capital Share Transactions 373,358 1,062,190 - --------------------------------------------------------------------------------------------------- Total Increase (Decrease) 996,580 (569,781) - --------------------------------------------------------------------------------------------------- NET ASSETS Beginning of Period 3,996,061 4,565,842 -------------------------------------------------------------------------------------------------- End of Period $4,992,641 $3,996,061 =================================================================================================== *Includes fiscal 2001 short-term gain distributions totaling $505,035,000. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
23 FINANCIAL HIGHLIGHTS This table summarizes the fund's investment results and distributions to shareholders on a per-share basis for each class of shares. It also presents the Total Return and shows net investment income and expenses as percentages of average net assets. These data will help you assess: the variability of the fund's net income and total returns from year to year; the relative contributions of net income and capital gains to the fund's total return; how much it costs to operate the fund; and the extent to which the fund tends to distribute capital gains. The table also shows the Portfolio Turnover Rate, a measure of trading activity. A turnover rate of 100% means that the average security is held in the fund for one year.
EXPLORER FUND INVESTOR SHARES ================================================================================================================= Year Ended October 31, For a Share Outstanding Six Months Ended --------------------------------------------- Throughout Each Period April 30, 2002 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $51.91 $77.28 $61.49 $49.60 $62.31 $55.44 - ----------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income (Loss) (.036) .15 .25 .21 .21 .26 Net Realized and Unrealized Gain (Loss) on Investments 8.171 (11.36) 23.80 12.18 (6.82) 9.71 - ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations 8.135 (11.21) 24.05 12.39 (6.61) 9.97 - ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.105) (.25) (.23) (.20) (.25) (.27) Distributions from Realized Capital Gains -- (13.91) (8.03) (.30) (5.85) (2.83) - ----------------------------------------------------------------------------------------------------------------- Total Distributions (.105) (14.16) (8.26) (.50) (6.10) (3.10) - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $59.94 $51.91 $77.28 $61.49 $49.60 $62.31 ================================================================================================================= TOTAL RETURN 15.67% -16.22% 42.56% 25.14% -11.22% 18.93% ================================================================================================================= Ratios/Supplemental Data Net Assets, End of Period (Millions) $4,783 $3,996 $4,566 $2,484 $2,196 $2,550 Ratio of Total Expenses to Average Net Assets 0.72%* 0.72% 0.71% 0.74% 0.62% 0.62% Ratio of Net Investment Income (Loss) to Average Net Assets (0.13%)* 0.24% 0.36% 0.36% 0.37% 0.45% Portfolio Turnover Rate 70%* 77% 123% 79% 72% 84% ================================================================================================================= *Annualized.
24
EXPLORER FUND ADMIRAL SHARES ================================================================================================================= Nov. 12, 2001* to For a Share Outstanding Throughout The Period Apr. 30, 2002 - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $50.00 - ----------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income (Loss) (.020) Net Realized and Unrealized Gain (Loss) on Investments 5.777 - ----------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.757 - ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.107) Distributions from Realized Capital Gains -- - ----------------------------------------------------------------------------------------------------------------- Total Distributions (.107) - ----------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $55.65 ================================================================================================================= TOTAL RETURN 11.54% ================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $210 Ratio of Total Expenses to Average Net Assets 0.63%** Ratio of Net Investment Income (Loss) to Average Net Assets (0.07%)** Portfolio Turnover Rate 70%** - ----------------------------------------------------------------------------------------------------------------- *Inception. **Annualized.
25 NOTES TO FINANCIAL STATEMENTS Vanguard Explorer Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares, Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund's minimum purchase requirements. Admiral Shares were first issued on November 12, 2001, and are designed for investors who meet certain administrative, servicing, tenure, and account-size criteria. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements. 1. SECURITY VALUATION: Equity securities are valued at the latest quoted sales prices as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Prices are taken from the primary market in which each security trades. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value. Securities for which market quotations are not readily available are valued by methods deemed by the board of trustees to represent fair value. 2. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Accordingly, no provision for federal income taxes is required in the financial statements. 3. REPURCHASE AGREEMENTS: The fund, along with other members of The Vanguard Group, transfers uninvested cash balances to a pooled cash account, which is invested in repurchase agreements secured by U.S. government securities. Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. 4. FUTURES CONTRACTS: The fund uses S&P MidCap 400 and Russell 2000 Index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued at their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures contracts. 5. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. 6. Other: Dividend income is recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. 26 Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets. B. Granahan Investment Management, Inc., Wellington Management Company, llp, Chartwell Investment Partners, and Grantham, Mayo, Van Otterloo & Co. LLC provide investment advisory services to the fund for fees calculated at an annual percentage rate of average net assets. The basic fees of Granahan, Wellington, and Chartwell are subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2000 Index and the Small Company Growth Fund Stock Index (an index of the stocks held by the largest small-capitalization stock mutual funds). The basic fee of Grantham, Mayo, Van Otterloo is subject to quarterly adjustments based on performance relative to the Russell 2000 Growth Index. The Vanguard Group provides investment advisory services to a portion of the fund on an at-cost basis; the fund paid Vanguard advisory fees of $140,000 for the six months ended April 30, 2002. For the six months ended April 30, 2002, the aggregate investment advisory fee represented an effective annual basic rate of 0.19% of the fund's average net assets before an increase of $1,441,000 (0.06%) based on performance. C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At April 30, 2002, the fund had contributed capital of $888,000 to Vanguard (included in Other Assets), representing 0.02% of the fund's net assets and 0.89% of Vanguard's capitalization. The fund's trustees and officers are also directors and officers of Vanguard. D. The fund has asked its investment advisers to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund's management and administrative expenses. For the six months ended April 30, 2002, these arrangements reduced the fund's expenses by $248,000 (an annual rate of 0.01% of average net assets). E. During the six months ended April 30, 2002, the fund purchased $1,710,266,000 of investment securities and sold $1,454,321,000 of investment securities, other than temporary cash investments. At October 31, 2001, the fund had available a capital loss carryforward of $202,603,000 to offset future net capital gains through October 31, 2009. F. At April 30, 2002, net unrealized appreciation of investment securities for financial reporting and federal income tax purposes was $363,501,000, consisting of unrealized gains of $951,731,000 on securities that had risen in value since their purchase and $588,230,000 in unrealized losses on securities that had fallen in value since their purchase. 27 NOTES TO FINANCIAL STATEMENTS (continued) At April 30, 2002, the aggregate settlement value of open futures contracts expiring in June 2002 and the related unrealized appreciation were: - -------------------------------------------------------------------------------- (000) ----------------------------- Aggregate Unrealized Number of Settlement Appreciation Futures Contracts Long Contracts Value (Depreciation) - -------------------------------------------------------------------------------- S&P MidCap 400 Index 259 $ 69,781 $1,891 Russell 2000 Index 1,009 257,900 3,404 - -------------------------------------------------------------------------------- Unrealized appreciation on open futures contracts is required to be treated as realized gain for tax purposes. G. The market value of securities on loan to broker/dealers at April 30, 2002, was $75,511,000, for which the fund held cash collateral of $77,708,000. The fund invests cash collateral received in repurchase agreements, and records a liability for the return of the collateral, during the period the securities are on loan. H. Capital share transactions for each class of shares were: - -------------------------------------------------------------------------------- Six Months Ended Year Ended April 30, 2002 October 31, 2001 -------------------- ---------------------- Amount Shares Amount Shares (000) (000) (000) (000) - -------------------------------------------------------------------------------- Investor Shares Issued $ 711,502 12,086 $ 1,307,520 21,904 Issued in Lieu of Cash Distributions 7,898 133 839,334 14,653 Redeemed (550,509) (9,400) (1,084,664) (18,659) ------------------------------------------------- Net Increase (Decrease)-- Investor Shares 168,891 2,819 1,062,190 17,898 ------------------------------------------------- Admiral Shares Issued 212,393 3,910 -- -- Issued in Lieu of Cash Distributions 169 3 -- -- Redeemed (8,095) (147) -- -- ------------------------------------------------- Net Increase (Decrease-- Admiral Shares 204,467 3,766 -- -- - -------------------------------------------------------------------------------- 28 THE PEOPLE WHO GOVERN YOUR FUND The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis. A majority of Vanguard's board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the activities of the funds. Among board members' responsibilities are selecting investment advisers for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers. ================================================================================ TRUSTEES (Year Elected ) JOHN J. BRENNAN (1987) Chairman of the Board, Chief Executive Officer, and Director/Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group. CHARLES D. ELLIS (2001) The Partners of '63 (pro bono ventures in education); Senior Adviser to Greenwich Associates (international business-strategy consulting); Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. RAJIV L. GUPTA (2001) Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of Technitrol, Inc. (electronic components), and Agere Systems (communications components); Board Member of the American Chemistry Council; and Trustee of Drexel University. JOANN HEFFERNAN HEISEN (1998)Vice President, Chief Information Officer, and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/consumer products); Director of the Medical Center at Princeton and Women's Research and Education Institute. BURTON G. MALKIEL (1977) Chemical Bank Chairman's Professor of Economics, Princeton University; Director of Vanguard Investment Series plc (Irish investment fund), Vanguard Group (Ireland) Limited (Irish investment management firm), Prudential Insurance Co. of America, BKF Capital (investment management firm), The Jeffrey Co. (holding company), and NeuVis, Inc. (software company). ALFRED M. RANKIN, JR. (1993) Chairman, President, Chief Executive Officer, and Director of NACCO Industries, Inc. (forklift trucks/housewares/lignite); Director of Goodrich Corporation (industrial products/aircraft systems and services). J. LAWRENCE WILSON (1985) Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of Cummins Inc. (diesel engines), The Mead Corp. (paper products), and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University. - -------------------------------------------------------------------------------- EXECUTIVE OFFICERS R. GREGORY BARTON Secretary; Managing Director and General Counsel of The Vanguard Group, Inc.; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group. THOMAS J. HIGGINS Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group. More information about the trustees is in the Statement of Additional Information, available from The Vanguard Group. VANGUARD SENIOR MANAGEMENT TEAM Mortimer J. Buckley, Information Technology. F. William McNabb, III, Institutional Investor Group. James H. Gately, Direct Investor Services. Michael S. Miller, Planning and Development. Kathleen C. Gubanich, Human Resources. Ralph K. Packard, Finance. Ian A. MacKinnon, Fixed Income Group. George U. Sauter, Quantitative Equity Group. - -------------------------------------------------------------------------------- John C. Bogle, Founder; Chairman and Chief Executive Officer, 1974-;1996. [LOGO] The Vanguard Group Post Office Box 2600 Valley Forge, PA 19482-2600 Vanguard, The Vanguard Group, Vanguard.com, Admiral, Explorer, and the ship logo are trademarks of The Vanguard Group, Inc. S&P MIDCAP 400 is a trademark of The McGraw-Hill Companies, Inc. All other marks are the property of their respective owners. All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc., unless otherwise noted. ABOUT OUR COVER Our cover photographs were taken by Michael Kahn in September 2000 aboard HMS Rose in New York's Long Island Sound. Mr. Kahn is a renowned photographer--and accomplished sailor--whose work often focuses on seascapes and nautical images. The photographs are copyrighted by Mr. Kahn. FOR MORE INFORMATION This report is intended for the fund's shareholders. It may not be distributed to prospective investors unless it is preceded or accompanied by the current fund prospectus. To receive a free copy of the prospectus or the Statement of Additional Information, or to request additional information about the fund or other Vanguard funds, please contact us at one of the adjacent telephone numbers or by e-mail through Vanguard.com(TM). Prospectuses may also be viewed online. WORLD WIDE WEB www.vanguard.com FUND INFORMATION 1-800-662-7447 DIRECT INVESTOR ACCOUNT SERVICES 1-800-662-2739 INSTITUTIONAL INVESTOR SERVICES 1-800-523-1036 TEXT TELEPHONE 1-800-952-3335 (C)2002 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Q242 062002 -----END PRIVACY-ENHANCED MESSAGE-----