N-CSR 1 explorerncsr.txt VANGUARD EXPLORER FUND SEMIANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-1530 Name of Registrant: Vanguard Explorer Fund Address of Registrant: P.O. Box 2600 Valley Forge, PA 19482 Name and address of agent for service: R. Gregory Barton, Esquire P.O. Box 876 Valley Forge, PA 19482 Registrant's telephone number, including area code: (610) 669-1000 Date of fiscal year end: October 31 Date of reporting period: November 1, 2002 - April 30, 2003 Item 1: Reports to Shareholders VANGUARD(R) EXPLORER(TM) FUND Semiannual Report [Graphic Art] April 30, 2003 THE VANGUARD GROUP (R) ETERNAL PRINCIPLES Markets change, but the principles of successful investing do not. During the past few years, radical upheaval in the stock market has displayed the power of this simple truth to dramatic effect. In the late 1990s, stocks experienced one of the greatest bull markets in financial history. Then, in March 2000, the longest downturn since the Great Depression began. In both bull and bear markets, however, the principles of successful investing are identical: balance, diversification, and attention to costs. Balance among stock, bond, and money market funds allows you to pursue long-term growth while moderating your risk. Diversification limits your exposure to the disasters that can befall any one security or sector. Attention to costs means you keep a larger share of any rewards produced by your investments. These principles are timeless. In fact, they're the basis of our very first mutual fund--Vanguard(R) Wellington(TM) Fund, a balanced portfolio established in 1929. Over time, balance, diversification, and attention to costs have proven to be the master keys to investment success. ================================================================================ SUMMARY -------------------------------------------------------------------------------- * Vanguard Explorer Fund's Investor Shares returned 6.1%--a solid performance that surpassed that of its average peer but lagged that of its primary index benchmark. * The six-month period was marked by short, powerful stock market rallies, with longer stretches of weakness in between. * More than a third of the Explorer Fund's returns came from just one sector: technology. -------------------------------------------------------------------------------- ================================================================================ CONTENTS -------------------------------------------------------------------------------- 1 Letter from the Chairman 5 Report from the Advisers 7 Fund Profile 8 Performance Summary 9 Results of Proxy Voting 10 Financial Statements ================================================================================ ================================================================================ LETTER FROM THE CHAIRMAN [Picture of John J. Brennan] Fellow Shareholder, The Investor Shares of Vanguard Explorer Fund produced a 6.1% return during the first six months of the fund's 2003 fiscal year. Explorer's Admiral Shares returned 6.2%. These results were superior to that of the broad stock market and the average return of the fund's peers but lagged the 7.8% gain of the Russell 2500 Growth Index--the unmanaged benchmark we consider the best comparative measure for the fund. The returns of your fund and its benchmarks appear in the adjacent table. ===================================================== TOTAL RETURNS SIX MONTHS ENDED APRIL 30, 2003 ----------------------------------------------------- VANGUARD EXPLORER FUND Investor Shares 6.1% Admiral Shares 6.2 Average Small-Cap Growth Fund* 4.6 Russell 2500 Growth Index 7.8 Wilshire 5000 Index 5.0 ----------------------------------------------------- *Derived from data provided by Lipper Inc. ===================================================== Although the Explorer Fund earned good absolute returns in growth-heavy sectors such as technology, its commitment to those strong-performing sectors wasn't quite as large as that of the Russell 2500 Growth Index, which explains much of the fund's relative underperformance. On the other hand, your fund produced solid gains in producer durables and auto & transportation--sectors not typically mined by growth funds--partially closing the gap. For the per-share components of your fund's six-month total returns--starting and ending net asset values, plus income distributions--see page 4. STOCKS OPENED AND CLOSED STRONGLY During the six months ended April 30, 2003, the overall U.S. stock market, as measured by the Wilshire 5000 Total Market Index, returned 5.0%, a performance reflecting vigorous rallies at the beginning and end of the period. Inside these bookends, however, stock prices drifted lower, depressed by investor apprehension about geopolitical tensions and generally glum economic news. Although the U.S. military campaign in Iraq was brief and successful, economic uncertainty remained. Consumer spending was strong, but the job market deteriorated, and the red-hot real estate market began to cool. The broad economy registered anemic growth. Small stocks, as represented by the Russell 2000 Index, performed better than the large stocks in the ================================================================================ ADMIRAL(TM) SHARES A LOWER-COST CLASS OF SHARES AVAILABLE TO MANY LONGTIME SHAREHOLDERS AND TO THOSE WITH SIGNIFICANT INVESTMENTS IN THE FUND. ================================================================================ 1 Russell 1000 Index, while growth stocks (those that are expected to produce rapid earnings growth) and value stocks (those that generally trade at below-market valuations) produced similar returns. BONDS DEFIED EXPECTATIONS Bonds generated surprisingly strong results, with the Lehman Brothers Aggregate Bond Index--a broad measure of the taxable bond market--returning 4.3%. Bond yields began the fiscal half-year at their lowest levels in 40 years, which would generally portend unimpressive returns, but the bond market rallied further, in part because of a strong rebound in hard-hit corporate bonds. Long- and intermediate-term interest rates fell modestly during the period, and the yield of the 3-month U.S. Treasury bill--a fair proxy for money market yields--declined 34 basis points (0.34 percentage point) to 1.11%. ================================================================================ MARKET BAROMETER TOTAL RETURNS PERIODS ENDED APRIL 30, 2003 --------------------------------- SIX ONE FIVE MONTHS YEAR YEARS* ------------------------------------------------------------------------------- STOCKS Russell 1000 Index (Large-caps) 4.8% -13.5% -2.3% Russell 2000 Index (Small-caps) 7.6 -20.8 -2.5 Wilshire 5000 Index (Entire market) 5.0 -13.6 -2.6 MSCI All Country World Index Free ex USA (International) 3.1 -15.2 -4.9 ------------------------------------------------------------------------------- BONDS Lehman Aggregate Bond Index 4.3% 10.5% 7.6% (Broad taxable market) Lehman Municipal Bond Index 3.6 8.5 6.3 Citigroup 3-Month Treasury Bill Index 0.6 1.5 4.0 =============================================================================== CPI Consumer Price Index 1.4% 2.2% 2.5% =============================================================================== *Annualized. ================================================================================ THE FUND'S ADVISERS CHOSE WELL IN MANY SECTORS In the first half of its 2003 fiscal year, Vanguard Explorer Fund benefited from the generally strong performance of smaller stocks, which delivered a return more than 2 percentage points higher than that of the broad stock market. In particular, your fund posted substantial gains in traditional growth-stock areas such as the technology sector. The Explorer Fund's stake in technology, which was the period's best-performing sector, accounted for more than one-third of the fund's half-year results. Your fund also earned good results outside the traditional growth sectors, distinguishing itself with fine stock selection in the auto & transportation, producer durables, and financial services sectors. Its stock selections in auto & transportation and producer durables--both sectors dominated by slow-growing, ================================================================================ THE FUND EARNED MUCH OF ITS RETURN IN THE TECHNOLOGY SECTOR, BUT ALSO BENEFITED FROM GOOD STOCK SELECTION IN PRODUCER DURABLES. ================================================================================ 2 heavy manufacturing companies--produced double-digit returns, far exceeding the returns of those same sectors in the Russell 2500 Growth Index. Overall, however, the advisers who manage the portfolio underperformed the Russell 2500 Growth Index, though they navigated your fund to peer-beating results. (The five advisers and their share of portfolio assets are listed in the table below.) This shortfall was primarily the result of Explorer's smaller average weighting in technology compared with the benchmark. It's also worth noting, however, that the index is a theoretical construct having no operating or transaction costs, which can be substantial among small-cap growth stocks. ================================================================================ YOUR FUND BESTED ITS AVERAGE PEER, BUT LAGGED THE UNMANAGED RUSSELL 2500 GROWTH INDEX. ================================================================================ DIVERSIFICATION: THE PRUDENT RESPONSE The stock market's strong returns in recent months represent a welcome break from what has been a very long downturn. While we hope that the market's broad-based upturn marks the start of a new performance cycle that will allow investors to recoup some of the losses sustained in recent years, the wisest investment approach is to build a portfolio that can weather any market-- up, down, or sideways. That's why we advise investors to establish an allocation of stock, bond, and money market funds consistent with their goals, time horizon, risk tolerance, and unique financial circumstances. Diversification is the most prudent response to the financial markets' inherent uncertainties. Vanguard Explorer Fund can play an important role in a diversified portfolio, providing broad-based exposure to the market's small growth stocks. It also exemplifies two keys to investment success: low costs and a long-term focus. During the first six months of fiscal 2003, for example, your fund carried an annualized expense ratio of 0.78% (0.61% for Admiral Shares); the average peer charged an imposing 1.74%. And this fiscal year Explorer marks 35 years of distinguished service to shareholders--a long life among mutual ================================================================================ ============================================================= FUND ASSETS MANAGED APRIL 30, 2003 --------------------- $ MILLION PERCENTAGE ------------------------------------------------------------- Granahan Investment Management, Inc. $1,309 33% Wellington Management Company, llp 964 23 Grantham, Mayo, Van Otterloo & Co. LLC 750 18 Vanguard Quantitative Equity Group 501 12 Chartwell Investment Partners 430 10 Cash Investments* 154 4 ------------------------------------------------------------- Total $4,108 100% ============================================================= *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. ================================================================================ 3 funds in general, and an unusually long record for those investing in the market's smaller stocks. We thank you for your continued trust and confidence. Sincerely, /s:/John J. Brennan/ John J. Brennan Chairman and Chief Executive Officer May 12, 2003 ================================================================================ YOUR FUND'S PERFORMANCE AT A GLANCE OCTOBER 31, 2002-APRIL 30, 2003 DISTRIBUTIONS PER SHARE --------------------------- STARTING ENDING INCOME CAPITAL SHARE PRICE SHARE PRICE DIVIDENDS GAINS -------------------------------------------------------------------------------- Explorer Fund Investor Shares $44.60 $47.31 $0.005 $0.000 Admiral Shares 41.43 43.95 0.043 0.000 ================================================================================ 4 REPORT FROM THE ADVISERS During the six months ended April 30, 2003, the Investor Shares of Vanguard Explorer Fund returned 6.1% and the Admiral Shares, 6.2%. The fund's performance was superior to the 4.6% return of our average peer, but was less impressive than the 7.8% return of the Russell 2500 Growth Index, Explorer's new primary benchmark as of January 31, 2003. (The Russell 2000 Growth Index, the fund's previous primary benchmark, returned 7.7% during the period.) The past six months have been volatile. Investors greeted the new year, and President George Bush's plan for "jobs and growth," with optimism. The subsequent preparation for the war with Iraq eroded this optimism, but the conflict's swift and successful resolution ignited a powerful rally in the broad stock market. The market is now looking beyond the war to the shape of the domestic and world economies. The talk among executives in our portfolio companies is not about wartime uncertainty and rising raw-materials costs (fuel, in particular) but about spending patterns in the months to come. We are paying close attention to business-confidence levels and are monitoring capital spending. U.S. consumers have done their "fair share" and may need a rest; if growth is to resume, it needs to be spurred by business investment. THE FUND'S SUCCESSES The Explorer Fund had strong performance in stocks that can be broadly classified as industrial holdings, most notably in AirTran Holdings, a low-fare airline that is benefiting from the contraction and bankruptcies that are roiling the hub carriers. AirTran returned more than 100% for the half-year. EGL, a global transportation and supply-chain management company, also performed admirably. Our producer durables stocks delivered solid results, thanks to our large investment in Garmin, a rapidly growing maker of GPS (Global Positioning System) products for consumers. Palm Harbor Homes, a producer of manufactured housing, was another top performer. Although, on average, we were modestly underweighted in technology stocks relative to the Russell 2500 Growth Index, we enjoyed strong performance from several holdings, with disk-drive companies Agere Systems, Maxtor, and Western Digital leading the way. THE FUND'S SHORTFALLS In addition to our underweighting in tech stocks, our shortfall relative to the benchmark was a ================================================================================ 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 function of several individual tech stock selections, including WebEx Communications, which was hit following Microsoft's acquisition of a competitor in collaborative Web browsing. A handful of Internet-related stocks, including Overture Services, an online marketing company, also turned in disappointing results. On balance, our consumer-oriented stocks also detracted from relative performance, both because we were slightly underweighted in these sectors and because we held some poorly performing stocks. Particularly burdensome were Scholastic (educational materials), which suffered from a decline in book-club and retail business, and BJ's Wholesale Club, a warehouse retail club that continues to struggle. We remain optimistic about Scholastic, but have cooled on BJ's Wholesale. THE FUND'S POSITIONING Among our portfolio companies, we are beginning to see some acceleration in earnings growth, albeit from depressed levels. In general, the higher earnings aren't yet the result of higher sales. Instead, company managements have succeeded in cutting costs in an environment of relatively tepid demand. Based on current earnings, stock valuations remain high. On a positive note, earnings are proving more stable than in recent periods. Whether stocks remain expensive depends in part on whether companies can drive earnings higher. Although a broad-based economic rebound is not a prerequisite (as stated, our companies have generated some growth through internal improvements), a healthy economy would greatly accelerate matters. In our opinion, sustained economic growth is mostly a question of "when," not "if." Accordingly, we have been combing through our expansive universe of potential holdings to find companies that should perform well in a growing economy. The three-year bear market has left small-capitalization managers with a much larger selection, and we continue to find a target-rich investment environment. Red Hat, a software company that we recently added, embodies many of the characteristics that we are emphasizing in the portfolio--market share leadership, lean cost structure, and solid capitalization. During the past quarter, we increased our weightings in this and other such promising names. Granahan Investment Management, Inc. Wellington Management Company, llp Grantham, Mayo, Van Otterloo & Co. LLC Vanguard Quantitative Equity Group Chartwell Investment Partners May 16, 2003 6 ================================================================================ FUND PROFILE As of April 30, 2003 This Profile provides a snapshot of the fund's characteristics, compared where indicated with both an appropriate market index and a broad market index. EXPLORER FUND ================================================== PORTFOLIO CHARACTERISTICS COMPARATIVE BROAD FUND INDEX* INDEX** -------------------------------------------------- Number of Stocks 926 1,529 5,546 Median Market Cap $1.2B $1.2B $28.2B Price/Earnings Ratio 30.2x 28.6x 20.8x Price/Book Ratio 2.2x 2.6x 2.6x Yield 0.6% 1.7% Investor Shares 0.0% Admiral Shares 0.2% Return on Equity 13.1% 15.6% 20.9% Earnings Growth Rate 11.1% 15.4% 8.6% Foreign Holdings 2.3% 0.0% 0.3% Turnover Rate 66%+ -- -- Expense Ratio -- -- Investor Shares 0.78%+ Admiral Shares 0.61%+ Cash Investments 4.0% -- -- -------------------------------------------------- ================================================== TEN LARGEST HOLDINGS (% of total net assets) Maxtor Corp. 0.9% (computer technology) Garmin Ltd. 0.8 (telecommunications) Cree, Inc. 0.8 (electronics) C.H. Robinson Worldwide, Inc. 0.7 (transportation) Western Digital Corp. 0.7 (computer technology) Coventry Health Care Inc. 0.7 (health care products and services) Foot Locker, Inc. 0.7 (retail) The Dun & Bradstreet Corp. 0.7 (financial services) Mettler-Toledo International Inc. 0.6 (electronics) Mentor Corp. 0.6 (medical) -------------------------------------------------- Top Ten 7.2% ================================================== The "Ten Largest Holdings" excludes any temporary cash investments and equity index products. ============================================================== VOLATILITY MEASURES COMPARATIVE BROAD FUND INDEX* FUND INDEX** -------------------------------------------------------------- R-Squared 0.94 1.00 0.82 1.00 Beta 0.80 1.00 1.24 1.00 ============================================================== ====================== INVESTMENT FOCUS STYLE - GROWTH MARKET CAP - SMALL ====================== ==================================================== SECTOR DIVERSIFICATION (% OF COMMON STOCKS) COMPARATIVE BROAD FUND INDEX* INDEX** ---------------------------------------------------- Auto & Transportation 4.1% 3.1% 2.6% Consumer Discretionary 22.1 23.6 15.6 Consumer Staples 1.6 2.6 6.8 Financial Services 13.8 15.5 22.5 Health Care 19.8 19.6 14.2 Integrated Oils 0.0 0.0 3.6 Other Energy 5.3 4.5 2.1 Materials & Processing 4.3 4.2 3.7 Producer Durables 7.4 6.6 3.9 Technology 19.3 18.1 13.2 Utilities 1.7 1.9 6.9 Other 0.6 0.3 4.9 ==================================================== *Russell 2500 Growth Index. **Wilshire 5000 Index. +Annualized. Visit our website at WWW.VANGUARD.COM for regularly updated fund information. 7 ================================================================================ PERFORMANCE SUMMARY As of April 30, 2003 All of the returns in this report 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. EXPLORER FUND -------------------------------------------------------------------------------- FISCAL-YEAR TOTAL RETURNS (%) October 31, 1992-April 30, 2003 SCALE RANGE -45% to 60% EXPLORER FUND RUSSELL 2500 INVESTOR SHARES GROWTH INDEX ---------------- ------------ 1993 22.3% 24.0% 1994 4.5 1.9 1995 17.5 23.5 1996 18.0 16.5 1997 18.9 21.8 1998 -11.2 -13.9 1999 25.1 37.4 2000 42.6 29.7 2001 -16.2 -33.1 2002 -13.9 -20.6 2003* 6.1 7.8 *Six months ended April 30, 2003. 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, 2003 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 -28.80% 0.48% 7.68% 0.35% 8.03% Admiral Shares 11/12/2001 -28.72 -14.11* -- -- -- *Return since inception. 8 ================================================================================ NOTICE TO SHAREHOLDERS At a special meeting of shareholders on December 3, 2002, fund shareholders approved the following proposals: - ELECT TRUSTEES FOR THE FUND. The individuals listed in the table below were elected as trustees for the fund. All trustees served as trustees to the fund prior to the shareholder meeting. -------------------------------------------------------------------------------- PERCENTAGE TRUSTEE FOR WITHHELD FOR -------------------------------------------------------------------------------- John J. Brennan 2,340,906,512 31,825,357 98.7% Charles D. Ellis 2,340,596,667 32,135,201 98.6 Rajiv L. Gupta 2,336,110,501 36,621,367 98.5 JoAnn Heffernan Heisen 2,339,958,404 32,773,464 98.6 Burton G. Malkiel 2,336,053,462 36,678,407 98.5 Alfred M. Rankin, Jr. 2,336,569,407 36,162,462 98.5 J. Lawrence Wilson 2,336,138,643 36,593,225 98.5 -------------------------------------------------------------------------------- - CHANGE THE FUND'S POLICY ON INVESTING IN OTHER MUTUAL FUNDS. This change enables the fund to invest its cash reserves in specially created money market and short-term bond funds. This new cash management program, which is similar to those of other large mutual fund complexes, should help the fund to achieve greater diversification and to earn modestly higher returns on its cash reserves. The fund will need Securities and Exchange Commission approval before implementing this new cash management program. -------------------------------------------------------------------------------- BROKER PERCENTAGE FOR AGAINST ABSTAIN NON-VOTES FOR -------------------------------------------------------------------------------- 2,186,352,220 83,993,382 36,323,444 66,062,823 92.1% -------------------------------------------------------------------------------- Note: Vote tabulations are rounded to the nearest whole number. 9 ================================================================================ FINANCIAL STATEMENTS April 30, 2003 (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 (92.1%)(1) -------------------------------------------------------------------------------- AUTO & Transportation (3.8%) C.H. Robinson Worldwide, Inc. 828,600 30,484 Tidewater Inc. 793,600 21,347 * EGL, Inc. 956,900 15,349 Polaris Industries, Inc. 287,400 15,195 * Heartland Express, Inc. 511,960 11,775 CNF Inc. 362,100 10,986 BorgWarner, Inc. 123,800 7,263 * AirTran Holdings, Inc. 858,600 6,740 * Pacer International, Inc. 360,215 5,727 * Navistar International Corp. 202,400 5,647 * Landstar System, Inc. 68,100 4,231 Thor Industries, Inc. 111,000 3,550 * JetBlue Airways Corp. 100,400 3,156 Oshkosh Truck Corp. 29,400 1,646 Superior Industries International, Inc. 39,100 1,547 Winnebago Industries, Inc. 34,100 1,262 ArvinMeritor, Inc. 73,900 1,169 * SCS Transportation, Inc. 83,100 996 * ExpressJet Holdings, Inc. 83,600 966 * Atlantic Coast Airlines Holdings Inc. 113,700 949 Arctic Cat, Inc. 47,932 873 * Mesa Air Group Inc. 157,000 845 * P.A.M. Transportation Services, Inc. 33,700 800 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Frontier Airlines, Inc. 101,650 615 * Aftermarket Technology Corp. 42,524 453 * Tower Automotive, Inc. 157,600 441 Spartan Motors, Inc. 32,400 303 Wabtec Corp. 23,900 293 * Keystone Automotive Industries, Inc. 13,300 243 ----------- 154,851 ----------- CONSUMER DISCRETIONARY (20.4%) ADVERTISING AGENCIES (1.0%) * Lamar Advertising Co. Class A 654,950 23,526 Harte-Hanks, Inc. 714,500 12,861 * Catalina Marketing Corp. 112,700 2,009 CABLE TELEVISION SERVICES (0.4%) * Insight Communications Co., Inc. 981,700 13,479 * TiVo Inc. 86,400 514 CASINOS & GAMBLING (1.0%) * Shuffle Master, Inc. 564,900 12,936 * Station Casinos, Inc. 236,000 5,100 * Wynn Resorts Ltd. 300,700 5,079 * GTECH Holdings Corp. 131,400 4,424 * MTR Gaming Group Inc. 476,100 3,856 * Boyd Gaming Corp. 249,200 3,551 * Multimedia Games Inc. 53,100 1,338 * Isle of Capri Casinos, Inc. 92,900 1,199 * Scientific Games Corp. 90,100 587 * Ameristar Casinos, Inc. 36,000 488 -------------------------------------------------------------------------------- 10 ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- COMMERCIAL INFORMATION SERVICES (0.2%) * SOURCECORP, Inc. 305,000 4,819 * ProQuest Co. 58,800 1,475 * LookSmart, Ltd. 434,294 1,464 * Arbitron Inc. 25,800 879 CONSUMER ELECTRONICS (0.5%) * Take-Two Interactive Software, Inc. 250,700 5,640 * United Online, Inc. 220,500 4,930 * Register.com, Inc. 635,300 3,621 * PLATO Learning, Inc. 401,666 1,868 * THQ Inc. 87,450 1,236 * iVillage Inc. 1,720,400 1,084 * Alloy, Inc. 133,500 808 * DoubleClick Inc. 93,100 801 * NetFlix.com, Inc. 33,900 776 * eUniverse, Inc. 111,882 430 CONSUMER PRODUCTS (0.4%) Blyth, Inc. 170,700 4,503 * Oakley, Inc. 183,700 1,929 Matthews International Corp. 71,342 1,681 The Nautilus Group, Inc. 128,700 1,634 * Jarden Corp. 51,600 1,522 * The Topps Co., Inc. 157,200 1,464 The Toro Co. 30,400 1,134 * The Yankee Candle Co., Inc. 28,400 622 COSMETICS Nu Skin Enterprises, Inc. 100,100 901 * Elizabeth Arden, Inc. 41,164 523 * Del Laboratories, Inc. 12,290 285 EDUCATION--SERVICES (1.1%) * Corinthian Colleges, Inc. 337,863 15,471 * Education Management Corp. 217,535 10,620 * ITT Educational Services, Inc. 222,300 6,558 * Career Education Corp. 100,900 6,067 * University of Phoenix 53,133 2,345 * DeVry, Inc. 81,000 1,874 * Sylvan Learning Systems, Inc. 84,800 1,487 * Bright Horizons Family Solutions, Inc. 42,900 1,288 Strayer Education, Inc. 14,200 924 ENTERTAINMENT (0.8%) *(2)LodgeNet Entertainment Corp. 919,700 9,565 * AMC Entertainment, Inc. 981,400 9,402 * Pixar, Inc. 99,400 5,804 * Hollywood Entertainment Corp. 209,600 3,720 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Movie Gallery, Inc. 145,200 2,685 * Alliance Gaming Corp. 30,930 494 HOTEL/MOTEL (0.6%) Intrawest Corp. 1,248,400 14,556 The Marcus Corp. 673,600 9,565 Hilton Hotels Corp. 189,350 2,522 HOUSEHOLD FURNISHINGS (0.3%) * Furniture Brands International Inc. 319,700 7,593 American Woodmark Corp. 40,500 1,942 Ethan Allen Interiors, Inc. 45,900 1,546 Haverty Furniture Cos., Inc. 87,500 1,229 Libbey, Inc. 28,100 632 JEWELRY, WATCHES & Gems (0.2%) Tiffany & Co. 250,000 6,935 * Fossil, Inc. 117,100 2,141 LEISURE TIME (0.7%) Callaway Golf Co. 1,514,000 21,090 * SCP Pool Corp. 93,600 3,090 * Penn National Gaming, Inc. 101,500 1,982 Action Performance Cos., Inc. 72,900 1,348 * Bally Total Fitness Holding Corp. 126,500 803 MISCELLANEOUS BUSINESS & CONSUMER DISCRETIONARY * RC2 Corp. 126,800 2,014 PUBLISHING--MISCELLANEOUS (0.5%) *(2) Playboy Enterprises, Inc. Class B 1,236,700 12,021 * Scholastic Corp. 266,600 7,574 Reader's Digest Association, Inc. 78,900 947 * PRIMEDIA Inc. 268,900 699 Courier Corp. 6,000 293 RADIO & TELEVISION BROADCASTERS (1.5%) * Entercom Communications Corp. 333,315 16,196 * Cox Radio, Inc. 413,500 9,432 Gray Television, Inc. 788,400 8,712 * Radio One, Inc. Class D 530,000 8,109 * Westwood One, Inc. 189,796 6,624 * Cumulus Media Inc. 355,532 6,129 * Lin TV Corp. 165,175 3,949 * Sinclair Broadcast Group, Inc. 154,300 1,636 * Entravision Communications Corp. 82,600 629 RENT/LEASE SERVICES--CONSUMER (0.3%) * Rent-A-Center, Inc. 170,000 10,914 Aaron Rents, Inc. Class B 50,400 1,126 ================================================================================ 11 ================================================================================ MARKET VALUE* EXPLORER FUND SHARES (000) -------------------------------------------------------------------------------- RESTAURANTS (1.3%) Ruby Tuesday, Inc. 481,900 9,493 * California Pizza Kitchen, Inc. 408,800 8,241 * Rare Hospitality International Inc. 223,500 6,511 * The Cheesecake Factory 142,400 4,498 Wendy's International, Inc. 142,880 4,149 Applebee's International, Inc. 123,250 3,377 Outback Steakhouse 84,900 3,034 * Papa John's International, Inc. 122,000 2,901 * P.F. Chang's China Bistro, Inc. 59,100 2,476 * Jack in the Box Inc. 138,800 2,470 Bob Evans Farms, Inc. 50,400 1,279 * Ryan's Family Steak Houses, Inc. 94,650 1,173 * CKE Restaurants Inc. 205,800 1,126 * Sonic Corp. 30,300 818 * Steak n Shake Co. 31,400 363 * Panera Bread Co. 8,100 276 RETAIL (4.9%) Foot Locker, Inc. 2,569,400 28,263 Ross Stores, Inc. 418,600 15,865 * Pacific Sunwear of California, Inc. 533,600 12,182 Pier 1 Imports Inc. 573,800 10,650 * Borders Group, Inc. 629,700 10,075 * Fisher Scientific International Inc. 342,350 9,863 * Cost Plus, Inc. 264,100 8,116 * MSC Industrial Direct Co., Inc. Class A 430,000 7,955 Claire's Stores, Inc. 226,200 5,879 * A.C. Moore Arts & Crafts, Inc. 291,250 5,018 * PETsMART, Inc. 327,850 4,960 * CDW Computer Centers, Inc. 105,320 4,491 * Abercrombie & Fitch Co. 136,200 4,478 * Williams-Sonoma, Inc. 168,040 4,349 * Insight Enterprises, Inc. 544,900 4,109 * FreeMarkets, Inc. 625,500 4,078 * Advance Auto Parts, Inc. 81,000 4,029 * Hot Topic, Inc. 158,425 3,873 * Tractor Supply Co. 89,300 3,782 * Tuesday Morning Corp. 158,200 3,699 * Chico's FAS, Inc. 148,500 3,614 * Urban Outfitters, Inc. 117,300 3,498 * Jo-Ann Stores, Inc. Class A 104,200 2,709 Fred's, Inc. 81,300 2,638 * Global Imaging Systems, Inc. 120,500 2,229 * American Eagle Outfitters, Inc. 115,700 2,025 * Sharper Image Corp. 94,900 1,878 * Dollar Tree Stores, Inc. 71,900 1,830 * The Gymboree Corp. 108,100 1,806 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Mothers Work, Inc. 69,800 1,751 * The Children's Place Retail Stores, Inc. 113,700 1,728 * Big Lots Inc. 130,700 1,636 * BJ's Wholesale Club, Inc. 112,200 1,584 Cato Corp. Class A 77,100 1,581 * The Sports Authority, Inc. 175,700 1,516 * Payless ShoeSource, Inc. 82,800 1,313 * AnnTaylor Stores Corp. 54,400 1,287 * bebe stores, inc 69,600 1,056 * Priceline.com Inc. 443,300 984 * United Natural Foods, Inc. 32,500 949 * Genesco, Inc. 59,200 888 * Stage Stores, Inc. 39,800 833 * Men's Wearhouse, Inc. 46,700 778 * Party City Corp. 76,800 758 * Stein Mart, Inc. 109,200 597 * J. Jill Group, Inc. 39,200 562 * The Dress Barn, Inc. 35,800 538 * GSI Commerce, Inc. 159,700 466 * Group 1 Automotive, Inc. 14,200 391 * Linens 'n Things, Inc. 15,700 333 * ShopKo Stores, Inc. 6,600 79 SERVICES--COMMERCIAL (3.4%) * Kroll Inc. 939,600 20,953 * FTI Consulting, Inc. 444,500 20,114 * The Corporate Executive Board Co. 469,500 19,245 ServiceMaster Co. 1,000,000 9,050 * Weight Watchers International, Inc. 181,075 8,507 * The Advisory Board Co. 210,150 7,696 * Iron Mountain, Inc. 167,145 6,661 Regis Corp. 201,700 5,713 * Teletech Holdings Inc. 1,259,000 5,137 * Tetra Tech, Inc. 260,150 4,032 * Waste Connections, Inc. 115,600 3,889 * ChoicePoint Inc. 106,350 3,752 * Getty Images, Inc. 104,600 3,541 * MemberWorks, Inc. 120,400 2,640 * Right Management Consultants, Inc. 166,150 2,077 * Labor Ready, Inc. 217,900 1,405 * Forrester Research, Inc. 86,600 1,341 * MPS Group, Inc. 197,500 1,333 * ProBusiness Services, Inc. 86,400 1,217 * Overture Services, Inc. 107,600 1,151 * CoStar Group, Inc. 49,900 1,111 * Pre-Paid Legal Services, Inc. 46,200 1,065 * Lightbridge, Inc. 134,200 960 ================================================================================ 12 ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Pegasus Solutions Inc. 75,900 903 * DiamondCluster International, Inc. 458,700 876 * Navigant Consulting, Inc. 111,800 840 Rollins, Inc. 32,250 781 * West Corp. 34,500 779 * MAXIMUS, Inc. 30,200 728 World Fuel Services Corp. 29,200 625 * Metro One Telecommunications, Inc. 93,200 603 * Spherion Corp. 125,900 548 * Cross Country, Inc. 45,200 512 * 4Kids Entertainment Inc. 24,300 374 * ICT Group, Inc. 47,300 362 * APAC Teleservices, Inc. 89,100 280 SHOES (0.5%) *(2)Vans, Inc. 1,295,840 6,065 * Reebok International Ltd. 128,500 3,991 * Steven Madden, Ltd. 128,900 2,284 * Kenneth Cole Productions, Inc. 88,800 2,047 * Timberland Co. 39,500 1,975 * Skechers U.S.A., Inc. 216,400 1,467 K-Swiss, Inc. 45,300 1,347 * Shoe Carnival, Inc. 16,900 246 TEXTILES & APPAREL MANUFACTURING (0.8%) * Tokyo Style Co., Ltd. 1,133,000 9,529 * Coach, Inc. 212,300 9,237 * Quiksilver, Inc. 148,500 4,841 Phillips-Van Heusen Corp. 361,700 4,803 * Columbia Sportswear Co. 80,300 3,855 Oshkosh B' Gosh, Inc. Class A 15,800 480 * Nautica Enterprises, Inc. 35,500 404 WHOLESALERS * United Stationers, Inc. 64,800 1,757 -------- 836,121 -------- CONSUMER STAPLES (1.4%) * Wild Oats Markets Inc. 1,269,100 13,732 * Constellation Brands, Inc. Class A 359,400 9,636 * Hain Celestial Group, Inc. 404,600 6,983 * Smithfield Foods, Inc. 295,300 5,788 * Whole Foods Market, Inc. 73,600 4,369 * NBTY, Inc. 191,800 2,973 Universal Corp. (VA) 71,200 2,780 Sensient Technologies Corp. 117,300 2,592 Dial Corp. 119,900 2,497 * Chiquita Brands International, Inc. 144,100 1,938 * American Italian Pasta Co. 42,600 1,879 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- J.M. Smucker Co. 39,100 1,419 Schweitzer-Mauduit International, Inc. 34,700 760 Interstate Bakeries Corp. 52,100 545 Sanderson Farms, Inc. 20,600 391 * Del Monte Foods Co. 43,100 343 * National Beverage Corp. 9,700 136 -------- 58,761 -------- FINANCIAL SERVICES (12.7%) * The Dun & Bradstreet Corp. 719,100 27,182 Avalonbay Communities, Inc. REIT 592,000 23,615 Jefferies Group, Inc. 606,800 23,556 * Providian Financial Corp. 2,975,800 21,932 Legg Mason Inc. 388,000 21,068 Regency Centers Corp. REIT 591,600 19,523 Sun Communities, Inc. REIT 440,100 16,961 Manufactured Home Communities, Inc. REIT 528,550 16,935 * CheckFree Corp. 611,700 16,865 MFA Mortgage Investments, Inc. REIT 1,356,200 12,708 Prentiss Properties Trust REIT 446,000 12,265 * Host Marriott Corp. REIT 1,377,300 10,633 Reinsurance Group of America, Inc. 346,300 9,921 * eSPEED, Inc. Class A 752,615 9,822 GATX Corp. 519,000 9,778 * Investment Technology Group, Inc. 662,900 9,473 * E*TRADE Group, Inc. 1,620,650 8,914 Westcorp, Inc. 400,800 8,497 * Concord EFS, Inc. 488,545 6,757 John H. Harland Co. 265,100 6,349 Redwood Trust, Inc. REIT 188,300 6,259 New York Community Bancorp, Inc. 171,500 5,954 Fidelity National Financial, Inc. 172,800 5,944 Odyssey Re Holdings Corp. 280,300 5,886 Doral Financial Corp. 145,800 5,833 UCBH Holdings, Inc. 222,600 5,663 * Affiliated Computer Services, Inc. Class A 118,500 5,652 Chelsea Property Group REIT 138,600 5,497 Everest Re Group, Ltd. 78,580 5,473 * BISYS Group, Inc. 304,250 5,136 Fair, Isaac, Inc. 97,000 5,052 Willis Group Holdings Ltd. 161,610 5,041 General Growth Properties Inc. REIT 90,100 5,011 Pacific Capital Bancorp 153,100 4,993 New Century Financial Corp. 122,500 4,512 ================================================================================ 13 ================================================================================ MARKET VALUE* EXPLORER FUND SHARES (000) -------------------------------------------------------------------------------- Moody's Corp. 91,565 4,422 * Alliance Data Systems Corp. 195,100 4,097 R & G Financial Corp. Class B 150,300 4,070 The PMI Group Inc. 127,315 3,924 FactSet Research Systems Inc. 106,600 3,710 LaBranche & Co. Inc. 218,150 3,617 Commerce Bancorp, Inc. 88,200 3,587 First Bancorp/Puerto Rico 116,150 3,586 Friedman, Billings, Ramsey Group, Inc. 306,410 3,364 The Macerich Co. REIT 100,100 3,303 Staten Island Bancorp, Inc. 187,700 3,221 East West Bancorp, Inc. 83,296 2,820 Texas Regional Bancshares, Inc. 77,110 2,799 Independent Bank Corp. (MI) 109,848 2,618 Irwin Financial Corp. 110,300 2,614 Community First Bankshares, Inc. 88,800 2,391 * Southwest Bancorporation of Texas, Inc. 67,000 2,277 Dime Community Bancshares 97,425 2,247 Hudson United Bancorp 67,100 2,237 Student Loan Corp. 20,100 2,155 Westamerica Bancorporation 47,300 2,039 Mills Corp. REIT 61,938 1,980 Federal Realty Investment Trust REIT 63,300 1,951 International Bancshares Corp. 44,400 1,945 * First Federal Financial Corp. 57,000 1,852 Chittenden Corp. 68,345 1,849 * CompuCredit Corp. 243,358 1,842 Bank of Hawaii Corp. 55,800 1,839 * Triad Guaranty, Inc. 41,200 1,641 Provident Bankshares Corp. 62,800 1,595 First Midwest Bancorp, Inc. 57,300 1,587 Shurgard Storage Centers, Inc. Class A REIT 47,800 1,562 The South Financial Group, Inc. 60,900 1,492 Hilb, Rogal and Hamilton Co. 41,800 1,486 CVB Financial Corp. 72,281 1,467 * Ameritrade Holding Corp. 281,300 1,412 Washington REIT 52,700 1,378 * Kronos, Inc. 29,500 1,346 * LendingTree, Inc. 89,200 1,264 * Saxon Capital Inc. 85,240 1,257 Essex Property Trust, Inc. REIT 22,800 1,253 Alexandria Real Estate Equities, Inc. REIT 28,200 1,193 * S1 Corp. 270,700 1,191 Republic Bancorp, Inc. 90,690 1,178 Oriental Financial Group Inc. 47,325 1,164 City Holding Co. 40,300 1,153 * PRG-Schultz International, Inc. 180,300 1,150 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- NDCHealth Corp. 57,500 1,107 * First Republic Bank 43,400 1,089 * eFunds Corp. 117,500 1,075 Midwest Banc Holdings, Inc. 58,103 1,045 Pacific Northwest Bancorp 36,850 1,038 * NCO Group, Inc. 61,400 1,028 Flushing Financial Corp. 53,600 1,024 R.L.I. Corp. 34,520 1,020 Net.Bank, Inc. 101,400 1,012 NBT Bancorp, Inc. 52,700 959 * Financial Federal Corp. 41,900 939 American Home Mortgage Holdings, Inc. 76,700 936 First Niagara Financial Group, Inc. 75,534 918 Pennsylvania REIT 31,700 905 Independent Bank Corp. (MA) 44,600 904 CPB, Inc. 34,400 875 Sterling Bancshares, Inc. 71,300 849 CBL & Associates Properties, Inc. REIT 19,700 836 Sandy Spring Bancorp, Inc. 25,320 803 Apex Mortgage Capital, Inc. REIT 122,400 800 MAF Bancorp, Inc. 23,700 800 Anchor Bancorp Wisconsin Inc. 34,000 787 United Bankshares, Inc. 27,100 783 McGrath Rent Corp. 31,600 782 Brookline Bancorp, Inc. 58,200 778 Cathay Bancorp, Inc. 17,595 765 Bank of the Ozarks, Inc. 22,431 763 Chateau Communities, Inc. REIT 35,000 757 Chemical Financial Corp. 24,360 717 Seacoast Financial Services Corp. 37,500 708 Glacier Bancorp, Inc. 22,600 631 Gold Banc Corp., Inc. 69,900 615 Tompkins Trustco, Inc. 13,200 607 Arrow Financial Corp. 20,990 606 Boston Private Financial Holdings, Inc. 31,700 598 Great Southern Bancorp, Inc. 15,400 584 Wintrust Financial Corp. 18,300 556 F & M Bancorp 11,300 543 First Essex Bancorp, Inc. 15,300 535 S & T Bancorp, Inc. 19,373 534 Tanger Factory Outlet Centers, Inc. REIT 16,300 525 Sterling Bancorp 17,812 487 Getty Realty Holding Corp. REIT 24,400 485 Umpqua Holdings Corp. 24,100 474 PrivateBancorp, Inc. 19,700 473 Hanmi Financial Corp. 28,100 469 * Clark/Bardes Inc. 39,600 463 Harleysville National Corp. 17,400 461 ================================================================================ 14 ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- First Financial Bankshares, Inc. 11,500 460 TrustCo Bank NY 43,400 453 Alfa Corp. 34,300 443 Columbia Bancorp 16,400 420 Seacoast Banking Corp. of Florida 19,700 364 Interchange Financial Services Corp. 18,700 334 * World Acceptance Corp. 28,100 305 Ventas, Inc. REIT 20,200 263 Humboldt Bancorp 19,898 258 Peoples Bancorp, Inc. 10,900 251 The Trust Co. of New Jersey 8,700 244 * Pacific Union Bank 17,800 231 Merchants Bancshares, Inc. 9,500 222 TriCo Bancshares 8,600 211 Peapack Gladstone Financial Corp. 7,300 210 Financial Institutions, Inc. 7,500 165 First Financial Holdings, Inc. 5,800 156 Camden National Corp. 6,000 152 Capitol Bancorp Ltd. 4,800 102 * Actrade Financial Technologies, Ltd. 84,100 53 --------- 520,530 --------- HEALTH CARE (18.3%) BIOTECH RESEARCH & PRODUCTION (3.1%) * Chiron Corp. 355,000 14,495 * Biogen, Inc. 350,000 13,297 * Millennium Pharmaceuticals, Inc. 1,040,100 11,441 * Human Genome Sciences, Inc. 817,000 9,551 * Protein Design Labs, Inc. 801,200 7,956 * Telik, Inc. 552,468 7,265 * Cephalon, Inc. 174,400 7,122 * OSI Pharmaceuticals, Inc. 328,900 6,907 * IDEXX Laboratories Corp. 138,800 5,412 * NPS Pharmaceuticals Inc. 281,200 5,357 * Martek Biosciences Corp. 129,700 4,414 * Abgenix, Inc. 457,400 4,345 * Gene Logic Inc. 656,117 4,337 * Charles River Laboratories, Inc. 106,900 2,902 * Neurocrine Biosciences, Inc. 55,000 2,489 * Cell Genesys, Inc. 273,300 2,438 * Transkaryotic Therapies, Inc. 378,000 2,268 * Trimeris, Inc. 38,600 1,713 * Enzon Pharmaceuticals, Inc. 107,100 1,469 * Applera Corp.- Celera Genomics Group 136,800 1,436 * Immunomedics Inc. 365,000 1,434 * Albany Molecular Research, Inc. 110,500 1,275 * Corixa Corp. 167,900 1,204 * Digene Corp. 62,437 1,187 * Tanox, Inc. 58,900 931 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Integra LifeSciences Holdings 30,300 809 * Aksys, Ltd. 81,600 636 * Invitrogen Corp. 17,100 559 * Harvard Bioscience, Inc. 127,300 432 * Exact Sciences Corp. 42,200 403 * Genencor International Inc. 35,800 396 * Allos Therapeutics Inc. 202,400 381 * Serologicals Corp. 28,800 266 * Array BioPharma Inc. 107,900 244 * Diversa Corp. 16,732 173 * Organogenesis, Inc. 44,300 3 DRUGS & PHARMACEUTICALS (4.6%) * Watson Pharmaceuticals, Inc. 785,400 22,832 * SICOR, Inc. 1,269,800 22,768 * Amylin Pharmaceuticals, Inc. 868,400 16,630 * Barr Laboratories, Inc. 242,855 13,503 * SangStat Medical Corp. 737,900 9,298 * Salix Pharmaceuticals, Ltd. 712,900 8,034 * Pharmaceutical Resources, Inc. 181,000 7,955 * Kos Pharmaceuticals, Inc. 353,800 7,218 * Andrx Group 445,000 7,182 * Vertex Pharmaceuticals, Inc. 564,400 6,812 * Taro Pharmaceutical Industries Ltd. 143,450 6,564 * Kissei Pharmaceutical Co., Ltd. 474,000 5,544 * Eon Labs, Inc. 180,080 5,518 Mylan Laboratories, Inc. 180,890 5,114 * Collagenex Pharmaceuticals, Inc. 508,627 4,679 * American Pharmaceuticals Partners, Inc. 182,755 4,267 * CV Therapeutics, Inc. 205,000 4,096 * Tularik, Inc. 546,000 2,987 * Priority Healthcare Corp. Class B 102,400 2,335 * Chattem, Inc. 170,690 2,333 * ImmunoGen, Inc. 652,000 1,976 Perrigo Co. 127,300 1,955 * IVAX Corp. 117,600 1,890 * Regeneron Pharmaceuticals, Inc. 284,294 1,800 * The Medicines Co. 85,300 1,753 * Endo Pharmaceuticals Holdings, Inc. 101,300 1,673 * Noven Pharmaceuticals, Inc. 172,300 1,659 * Medarex, Inc. 374,000 1,560 * Alkermes, Inc. 141,386 1,411 * CIMA Labs Inc. 47,900 1,157 * Enzo Biochem, Inc. 72,000 1,078 * AtheroGenics, Inc. 117,900 1,073 * aaiPharma Inc. 86,350 976 * Sepracor Inc. 40,200 770 * BioMarin Pharmaceutical Inc. 65,800 722 ================================================================================ 15 ================================================================================ MARKET VALUE* EXPLORER FUND SHARES (000) -------------------------------------------------------------------------------- * ILEX Oncology, Inc. 48,000 643 * Indevus Pharmaceuticals, Inc. 157,200 582 * Connetics Corp. 31,683 535 ELECTRONICS--MEDICAL SYSTEMS (0.8%) * Varian Medical Systems, Inc. 229,755 12,375 *(2)I-STAT Corp. 1,280,200 8,513 * EPIX Medical, Inc. 604,500 5,773 * eResearch Technology, Inc. 56,000 1,669 * Hologic, Inc. 65,900 593 * HealthTronics Surgical Services, Inc. 62,930 504 * Bruker Daltonics, Inc. 139,800 477 * Luminex Corp. 76,365 466 HEALTH & PERSONAL CARE (1.1%) * IDX Systems Corp. 970,300 14,234 *(2)Matria Healthcare, Inc. 612,500 7,644 * Stericycle, Inc. 184,600 7,253 * Lincare Holdings, Inc. 201,700 6,126 * Odyssey Healthcare, Inc. 114,900 2,969 * Apria Healthcare Group Inc. 106,200 2,490 * LabOne, Inc. 90,500 1,706 * Province Healthcare Co. 67,900 679 * Dynacq International, Inc. 50,600 651 * Impath, Inc. 12,301 181 HEALTH CARE FACILITIES (1.5%) * Manor Care, Inc. 742,800 14,447 * Triad Hospitals, Inc. 478,366 10,529 * Pharmaceutical Product Development, Inc. 374,750 9,807 * LifePoint Hospitals, Inc. 410,700 8,017 * Quest Diagnostics, Inc. 82,200 4,911 * Beverly Enterprises, Inc. 2,120,900 4,051 * United Surgical Partners International, Inc. 207,240 3,840 * Renal Care Group, Inc. 74,300 2,407 * DaVita, Inc. 66,100 1,363 * American Healthways Inc. 48,620 1,200 * National Healthcare Corp. 9,300 174 HEALTH CARE MANAGEMENT SERVICES (2.1%) * Caremark Rx, Inc. 1,199,300 23,878 IMS Health, Inc. 950,000 14,630 * Humana Inc. 1,072,300 11,849 * Mid Atlantic Medical Services, Inc. 115,000 5,008 * Pediatrix Medical Group, Inc. 122,300 3,897 * WebMD Corp. 386,200 3,723 * Universal Health Services Class B 93,000 3,596 * AMERIGROUP Corp. 113,800 3,314 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * AdvancePCS 110,200 3,313 * Sierra Health Services, Inc. 175,800 2,918 * AmSurg Corp. 69,300 1,800 * VitalWorks Inc. 493,318 1,727 * Centene Corp. 48,300 1,547 * First Health Group Corp. 57,500 1,440 * Select Medical Corp. 79,800 1,350 * Cobalt Corp. 72,700 1,196 * MIM Corp. 134,600 985 * American Medical Security Group, Inc. 51,200 870 * CorVel Corp. 17,900 560 * Computer Programs and Systems, Inc. 4,500 87 MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (4.2%) Mentor Corp. 1,325,476 24,535 * Henry Schein, Inc. 535,500 23,107 Bausch & Lomb, Inc. 574,000 20,182 DENTSPLY International Inc. 444,050 16,630 Arrow International, Inc. 345,000 14,718 * CONMED Corp. 656,500 11,436 * Sybron Dental Specialties, Inc. 473,833 9,643 * Immucor Inc. 314,300 6,453 * STERIS Corp. 232,500 5,278 * Biosite Inc. 117,100 4,998 * Cyberonics, Inc. 179,600 4,100 Cooper Cos., Inc. 125,600 3,504 PolyMedica Corp. 90,300 3,364 * Conceptus, Inc. 307,400 3,206 Invacare Corp. 72,201 2,307 * Merit Medical Systems, Inc. 116,300 2,278 * INAMED Corp. 59,200 2,208 * Advanced Neuromodulation Systems, Inc. 48,500 2,031 * Bio-Rad Laboratories, Inc. Class A 31,200 1,459 * Respironics, Inc. 36,800 1,414 * Sola International Inc. 94,800 1,328 * American Medical Systems Holdings, Inc. 76,200 1,209 * Osteotech, Inc. 107,100 1,120 * ICU Medical, Inc. 32,100 1,020 * Ocular Sciences, Inc. 68,500 993 * Alaris Medical, Inc. 91,600 875 * ResMed Inc. 21,300 781 * IGEN International, Inc. 20,879 759 Landauer, Inc. 19,600 752 * Techne Corp. 29,800 662 * CryoLife Inc. 85,350 649 * Cepheid, Inc. 82,000 308 * OraSure Technologies, Inc. 39,200 251 * Cytyc Corp. 1,000 13 ================================================================================ 16 ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- MEDICAL SERVICES (0.9%) * Coventry Health Care Inc. 726,430 29,653 * Covance, Inc. 297,300 5,271 * Hanger Orthopedic Group, Inc. 158,901 1,638 * Curative Health Services Inc. 63,300 791 * RehabCare Group, Inc. 19,800 346 ---------- 749,836 ---------- INTEGRATED OILS * Plains Exploration & Production Co. 115,300 960 OTHER ENERGY (4.9%) St. Mary Land & Exploration Co. 859,600 22,023 Sunoco, Inc. 422,000 15,703 * Unit Corp. 772,800 15,147 * Grey Wolf, Inc. 3,313,200 13,418 CARBO Ceramics Inc. 333,700 12,554 * TETRA Technologies, Inc. 425,600 11,321 Helmerich & Payne, Inc. 326,200 8,393 * Core Laboratories NV 779,500 7,795 * IHC Caland NV 139,600 7,206 Chesapeake Energy Corp. 829,800 6,688 XTO Energy, Inc. 310,933 6,063 * Patterson-UTI Energy, Inc. 157,585 5,214 Pogo Producing Co. 128,400 5,085 Patina Oil & Gas Corp. 136,700 4,720 * Pioneer Natural Resources Co. 195,100 4,666 * Denbury Resources, Inc. 419,500 4,447 * Cooper Cameron Corp. 89,500 4,283 * Evergreen Resources, Inc. 74,700 3,552 * Smith International, Inc. 98,100 3,488 Rowan Cos., Inc. 151,600 3,108 Equitable Resources, Inc. 73,700 2,832 * Ultra Petroleum Corp. 273,200 2,732 * Pride International, Inc. 172,500 2,677 * Stone Energy Corp. 76,100 2,673 Vintage Petroleum, Inc. 262,700 2,569 * Houston Exploration Co. 86,200 2,411 * Oceaneering International, Inc. 100,900 2,276 * Oil States International, Inc. 190,300 2,166 * Varco International, Inc. 117,900 2,074 Frontier Oil Corp. 96,900 1,640 * Key Energy Services, Inc. 151,000 1,521 * Plains Resources Inc. 104,600 1,268 * Prima Energy Corp. 62,400 1,225 * Comstock Resources, Inc. 107,400 1,192 * Hydrill Co. 48,300 1,150 * Quicksilver Resources, Inc. 40,600 939 * Harvest Natural Resources, Inc. 183,800 937 * Superior Energy Services, Inc. 88,900 805 * Horizon Offshore, Inc. 149,800 550 * Spinnaker Exploration Co. 21,100 452 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Atwood Oceanics, Inc. 16,300 425 Berry Petroleum Class A 25,300 392 * Cal Dive International, Inc. 19,000 306 * Veritas DGC Inc. 36,700 251 * Gulf Island Fabrication, Inc. 8,100 136 ---------- 200,473 ---------- MATERIALS & PROCESSING (3.9%) Valmont Industries, Inc. 638,700 12,340 * Cytec Industries, Inc. 378,200 12,106 * Dycom Industries, Inc. 1,054,600 11,643 Minerals Technologies, Inc. 253,500 11,217 IMC Global Inc. 974,000 8,824 Granite Construction Co. 509,850 8,565 Hughes Supply, Inc. 290,000 8,140 Wellman, Inc. 706,800 8,086 * Croda International PLC 1,724,300 7,234 Cambrex Corp. 412,000 7,169 Bowater Inc. 163,300 6,357 Delta & Pine Land Co. 211,700 4,924 Chicago Bridge & Iron Co. N.V 232,100 4,642 * Energizer Holdings, Inc. 142,600 4,110 * Pactiv Corp. 173,550 3,561 Great Lakes Chemical Corp. 112,200 2,756 Ball Corp. 49,000 2,752 * Steel Dynamics, Inc. 214,900 2,600 Olin Corp. 139,900 2,535 * Airgas, Inc. 98,800 1,999 Georgia Gulf Corp. 87,700 1,982 Clarcor Inc. 50,100 1,874 Albany International Corp. 78,600 1,866 * Crown Holdings, Inc. 350,300 1,857 * Phelps Dodge Corp. 58,300 1,818 * Trex Co., Inc. 44,100 1,809 Crompton Corp. 277,400 1,781 * Simpson Manufacturing Co. 45,800 1,608 Apogee Enterprises, Inc. 152,100 1,573 MacDermid, Inc. 60,700 1,380 Acuity Brands, Inc. 87,100 1,327 * Jones Lang Lasalle Inc. 78,800 1,187 * Hecla Mining Co. 314,600 1,177 New England Business Service, Inc. 40,700 1,036 The Standard Register Co. 56,600 978 Royal Gold, Inc. 55,200 881 * Cabot Microelectronics Corp. 17,900 774 Glatfelter 64,200 735 Centex Construction Products, Inc. 17,700 684 A. Schulman Inc. 39,500 646 * EMCOR Group, Inc. 10,200 521 Spartech Corp. 23,900 517 Wausau-Mosinee Paper Corp. 35,600 379 Interface, Inc. 102,700 370 ================================================================================ 17 ================================================================================ MARKET VALUE* EXPLORER FUND SHARES (000) -------------------------------------------------------------------------------- Ennis Business Forms, Inc. 25,400 317 * Maverick Tube Corp. 12,600 224 * Owens-Illinois, Inc. 12,000 107 * Drew Industries, Inc. 4,400 66 --------- 161,034 --------- PRODUCER DURABLES (6.8%) * Garmin Ltd. 791,600 33,548 * Mettler-Toledo International Inc. 709,100 25,173 Donaldson Co., Inc. 309,200 12,343 * Plantronics, Inc. 651,200 12,047 * Palm Harbor Homes, Inc. 699,708 11,713 * American Tower Corp. Class A 1,746,500 11,597 * Ultratech Stepper, Inc. 809,300 11,468 * Polycom, Inc. 1,089,900 10,703 * AGCO Corp. 568,800 10,358 Lindsay Manufacturing Co. 415,050 9,027 Kennametal, Inc. 284,100 8,946 * ATMI, Inc. 271,200 5,722 * NVR, Inc. 15,800 5,652 * Itron, Inc. 278,500 5,576 * Hovnanian Enterprises Class A 137,200 5,461 * Cymer, Inc. 164,600 4,699 * ASML Holding (New York) 532,795 4,694 * Photon Dynamics, Inc. 210,700 4,614 Ametek, Inc. 117,400 4,426 * KLA-Tencor Corp. 104,465 4,283 * Meritage Corp. 112,100 4,277 * Dionex Corp. 119,400 4,109 * Interdigital Communications Corp. 155,900 3,512 * LAM Research Corp. 237,150 3,446 * Rudolph Technologies, Inc. 228,000 3,445 * DuPont Photomasks, Inc. 176,100 3,274 Engineered Support Systems, Inc. 92,600 3,216 * Photronics Inc. 247,500 3,111 * SpectraLink Corp. 393,400 3,076 * MKS Instruments, Inc. 211,500 2,953 * Headwaters Inc. 170,900 2,803 Lincoln Electric Holdings, Inc. 144,700 2,780 * Zygo Corp. 344,000 2,570 * Axcelis Technologies, Inc. 411,200 2,336 * American Power Conversion Corp. 127,700 1,990 Pulte Homes, Inc. 33,700 1,954 * Varian Semiconductor Equipment Associates, Inc. 84,100 1,938 * Genlyte Group, Inc. 40,600 1,531 * FEI Co. 79,400 1,452 Briggs & Stratton Corp. 30,300 1,368 Curtiss-Wright Corp. 22,500 1,356 Cohu, Inc. 70,500 1,270 CTS Corp. 149,800 1,251 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- United Industrial Corp. 91,300 1,243 * Mykrolis Corp. 146,900 1,178 * Paxar Corp. 108,800 1,124 The Manitowac Co., Inc. 59,900 1,114 * Technitrol, Inc. 68,900 1,088 Nordson Corp. 40,800 1,031 Franklin Electric, Inc. 19,700 1,021 X-Rite Inc. 82,600 842 C & D Technologies, Inc. 61,500 818 Helix Technology Corp. 70,600 813 General Cable Corp. 177,000 796 Standard Pacific Corp. 26,300 796 * Orbital Sciences Corp. 130,100 726 * Cognex Corp. 32,700 716 * Entegris Inc. 60,900 699 * Astec Industries, Inc. 81,400 666 * Electro Scientific Industries, Inc. 49,000 658 Roper Industries Inc. 21,100 645 * Champion Enterprises, Inc. 257,100 622 * TRC Cos., Inc. 51,200 583 * C-COR Electronics, Inc. 167,900 573 * Rayovac Corp. 43,300 450 * Arris Group Inc. 102,200 399 * Powell Industries, Inc. 27,300 381 * Semitool, Inc. 81,500 373 * Somera Communications, Inc. 230,100 258 * Asyst Technologies, Inc. 47,900 228 Baldor Electric Co. 8,500 189 -------- 281,098 -------- TECHNOLOGY (17.8%) * Maxtor Corp. 6,841,580 37,629 * Cree, Inc. 1,681,300 33,542 * Western Digital Corp. 3,264,300 30,456 * Foundry Networks, Inc. 2,101,300 22,862 * Verity, Inc. 1,235,600 20,424 * Red Hat, Inc. 3,174,374 19,046 * 3Com Corp. 3,166,500 16,466 * Trimble Navigation Ltd. 640,696 16,178 * Agere Systems Inc. Class A 8,200,700 14,679 * Acxiom Corp. 1,020,450 14,245 * Varian, Inc. 430,300 13,602 * Actel Corp. 652,300 12,922 * Fairchild Semiconductor Corp. 1,057,600 12,554 * Hyperion Solutions Corp. 429,600 12,149 * McDATA Corp. Class A 1,074,365 11,367 * J.D. Edwards & Co. 939,400 11,254 * FLIR Systems, Inc. 215,800 11,239 * DSP Group Inc. 485,800 10,153 * Citrix Systems, Inc. 521,900 9,895 * Exar Corp. 669,800 9,880 * The TriZetto Group, Inc. 1,737,700 9,384 * Ingram Micro, Inc. Class A 932,500 9,325 ================================================================================ 18 ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Packeteer, Inc. 712,800 9,323 * Cray Inc. 1,166,800 8,809 * WebEx Communications, Inc. 832,000 8,570 * Artisan Components, Inc. 402,800 7,963 * Brocade Communications Systems, Inc. 1,350,100 7,790 * Emulex Corp. 378,400 7,753 * Hutchinson Technology, Inc. 324,300 7,666 * ActivCard Corp. 750,000 7,088 Applera Corp.- Applied Biosystems Group 400,000 7,012 * Sybase, Inc. 542,000 6,938 * NetIQ Corp. 494,708 6,817 * Netscreen Technologies, Inc. 333,100 6,755 * Solectron Corp. 2,095,600 6,685 * ManTech International Corp. 419,900 6,550 Scientific-Atlanta, Inc. 400,000 6,500 * Marvell Technology Group Ltd. 276,500 6,381 * Manhattan Associates, Inc. 261,100 6,316 * Silicon Laboratories Inc. 220,700 6,279 * Planar Systems, Inc. 354,800 6,241 * Electronics for Imaging, Inc. 323,125 6,204 * Digitas Inc. 1,471,500 5,886 * SanDisk Corp. 234,800 5,682 * Anteon International Corp. 234,175 5,545 * Rambus Inc. 377,259 5,395 * Cognizant Technology Solutions Corp. 291,900 5,243 * Borland Software Corp. 573,300 5,200 Microchip Technology, Inc. 243,990 5,073 * Monolithic System Technology, Inc. 841,800 5,051 * Genesis Microchip Inc. 282,900 4,855 * Silicon Image, Inc. 789,975 4,724 * Juniper Networks, Inc. 459,400 4,695 * Mercury Interactive Corp. 128,100 4,348 * L-3 Communications Holdings, Inc. 97,235 4,317 * Avocent Corp. 145,100 4,298 * Aeroflex, Inc. 786,000 4,229 * OmniVision Technologies, Inc. 172,400 4,186 * GlobespanVirata, Inc. 626,050 3,800 * Pinnacle Systems, Inc. 388,900 3,675 * Network Associates, Inc. 319,265 3,649 * Jabil Circuit, Inc. 194,800 3,643 * Imation Corp. 105,900 3,632 * Ulticom, Inc. 431,300 3,127 * Tier Technologies, Inc. 466,500 3,079 * Benchmark Electronics, Inc. 116,900 3,034 * ADTRAN Inc. 74,400 3,012 * Stratex Networks, Inc. 1,190,000 2,927 * Documentum, Inc. 154,100 2,834 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * ANSYS, Inc. 106,600 2,820 * Fidelity National Information Solutions, Inc. 159,400 2,797 * Concord Communications, Inc. 210,000 2,652 * Ceridian Corp. 188,200 2,625 * Skyworks Solutions, Inc. 487,000 2,605 * BEA Systems, Inc. 242,000 2,592 * j2 Global Communications, Inc. 87,100 2,572 * Avid Technology, Inc. 90,200 2,478 * American Management Systems, Inc. 199,800 2,458 * Extreme Networks, Inc. 565,200 2,391 Black Box Corp. 75,300 2,391 * TTM Technologies, Inc. 501,575 2,362 * MICROS Systems, Inc. 89,800 2,248 * CIENA Corp. 459,000 2,235 * Lexar Media, Inc. 431,170 2,091 * Dendrite International, Inc. 204,200 2,091 * Virage Logic Corp. 449,200 1,958 * Palm, Inc. 201,120 1,929 * WatchGuard Technologies, Inc. 431,000 1,896 * Digital River, Inc. 112,800 1,886 * Storage Technology Corp. 74,100 1,832 * Macromedia, Inc. 134,800 1,700 * Mentor Graphics Corp. 157,300 1,639 * Macrovision Corp. 90,400 1,597 * Progress Software Corp. 80,700 1,573 * Zoran Corp. 87,500 1,557 * Intergraph Corp. 74,600 1,522 * RealNetworks, Inc. 290,800 1,492 * CACI International, Inc. 42,300 1,478 * Moldflow Corp. 177,500 1,420 * MEMC Electronic Materials, Inc. 118,500 1,405 * Legato Systems, Inc. 235,000 1,391 * Advanced Digital Information Corp. 173,000 1,387 * Power Integrations, Inc. 62,100 1,374 * Adaptec, Inc. 196,200 1,342 Inter-Tel, Inc. 78,200 1,286 * Parlex Corp. 166,000 1,262 * ScanSoft, Inc. 232,500 1,202 * SPSS, Inc. 96,900 1,200 Talx Corp. 93,300 1,187 * SERENA Software, Inc. 68,300 1,076 * InVision Technologies, Inc. 43,100 1,024 * Overland Storage, Inc. 57,200 1,012 * Ariba, Inc. 308,854 1,007 * Catapult Communications Corp. 108,800 963 * Sapient Corp. 500,000 950 * Herley Industries Inc. 58,300 942 * Liberate Technologies, Inc. 362,500 937 * MSC.Software Corp. 150,100 928 ================================================================================ 19 ================================================================================ MARKET VALUE* EXPLORER FUND SHARES (000) -------------------------------------------------------------------------------- * OSI Systems Inc. 59,800 905 * DRS Technologies, Inc. 30,800 863 * Digimarc Corp. 66,400 853 * MRO Software Inc. 99,300 851 * RadiSys Corp. 99,600 843 * Tyler Technologies, Inc. 207,200 818 * F5 Networks, Inc. 59,300 816 * Standard Microsystem Corp. 63,100 799 * Enterasys Networks, Inc. 329,200 790 * Zomax Inc. 213,600 713 * EPIQ Systems, Inc. 33,800 698 * JDA Software Group, Inc. 61,200 689 * Sonus Networks, Inc. 214,700 687 * Excel Technology, Inc. 29,900 685 * Identix, Inc. 135,532 664 * Gartner, Inc. Class A 83,100 660 * Netegrity, Inc. 139,020 659 * Daktronics, Inc. 46,500 653 * webMethods, Inc. 62,500 629 * ESS Technology, Inc. 90,800 628 * Informatica Corp. 94,400 616 * Siliconix, Inc. 21,600 610 Sypris Solutions, Inc. 66,900 603 * Ascential Software Corp. 152,783 587 Cubic Corp. 28,400 551 * Micromuse Inc. 83,800 548 * Systems & Computer Technology Corp. 76,100 546 * RSA Security Inc. 56,300 540 * Answerthink Consulting Group, Inc. 273,900 534 * CommScope, Inc. 61,100 524 * Websense, Inc. 34,100 487 * Syntel, Inc. 31,000 465 Bel Fuse, Inc. Class B 23,000 453 * Datastream Systems, Inc. 51,600 451 * EMS Technologies, Inc. 36,000 437 * Verint Systems Inc. 21,700 426 * Docucorp International, Inc. 96,700 423 * Keane, Inc. 41,800 403 * Phoenix Technologies Ltd. 87,400 396 * InFocus Corp. 78,100 351 * Vitesse Semiconductor Corp. 108,500 338 * Manufacturers' Services Ltd. 79,100 305 * Pegasystems Inc. 41,000 280 * Plexus Corp. 25,200 257 -------------------------------------------------------------------------------- ================================================================================ MARKET VALUE* SHARES (000) -------------------------------------------------------------------------------- * Altiris, Inc. 15,700 256 * Radiant Systems, Inc. 37,512 237 * Roxio, Inc. 41,600 218 * Newport Corp. 15,800 204 * Checkpoint Systems, Inc. 14,600 195 * Mercury Computer Systems, Inc. 6,500 136 * Clearone Communications Inc. 72,700 69 * MSCi, Inc. 166,300 17 --------- 730,158 --------- UTILITIES (1.5%) * Nextel Partners, Inc. 2,408,200 13,992 * Qwest Communications International Inc. 3,000,000 11,310 * General Communication, Inc. 1,153,200 7,139 UGI Corp. Holding Co. 144,000 4,550 * UnitedGlobalCom Inc. Class A 1,159,400 4,464 * Commonwealth Telephone Enterprises, Inc. 106,240 4,223 Energen Corp. 109,900 3,605 * Level 3 Communications, Inc. 529,700 3,030 * Citizens Communications Co. 243,100 2,657 * Cablevision Systems- NY Group Class A 104,800 2,350 Black Hills Corp. 44,300 1,262 * Boston Communications Group, Inc. 64,400 1,165 * Time Warner Telecom Inc. 265,300 955 MGE Energy, Inc. 22,600 653 North Pittsburgh Systems, Inc. 44,900 620 * IDT Corp. 42,300 604 * Western Wireless Corp. Class A 88,800 543 Shenandoah Telecommunications Co. 7,300 322 * Price Communications Corp. 25,700 314 Southwest Water Co. 22,165 270 Otter Tail Corp. 6,700 184 -------- 64,212 -------- OTHER (0.6%) Brunswick Corp. 854,500 18,654 Lancaster Colony Corp. 63,000 2,692 Lennox International Inc. 164,000 2,437 Carlisle Co., Inc. 41,900 1,901 GenCorp, Inc. 95,100 723 -------- 26,407 -------- -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (Cost $3,691,823) 3,784,441 -------------------------------------------------------------------------------- 20 ================================================================================ FACE MARKET AMOUNT VALUE* (000) (000) -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS (10.3%)(1) -------------------------------------------------------------------------------- Federal National Mortgage Assn. (3) 1.17%, 7/2/2003 $16,500 16,467 Repurchase Agreements Collateralized by U.S. Government Obligations in a Pooled Cash Account 1.32%, 5/1/2003 325,432 325,432 1.32%, 5/1/2003--Note G 82,146 82,146 -------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $424,045) 424,045 -------------------------------------------------------------------------------- TOTAL INVESTMENTS (102.4%) (Cost $4,115,868) 4,208,486 -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES (-2.4%) -------------------------------------------------------------------------------- Other Assets--Note C 47,042 Liabilities--Note G (147,392) ---------- (100,350) ---------- -------------------------------------------------------------------------------- NET ASSETS (100%) $4,108,136 ================================================================================ *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 6.4%, respectively, of net assets. See Note E in Notes to Financial Statements. (2)Considered an affiliated company of the fund, 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 $43,808,000. (3)Security segregated as initial margin for open futures contracts. REIT--Real Estate Investment Trust. AMOUNT (000) -------------------------------------------------------------------------------- AT APRIL 30, 2003, NET ASSETS CONSISTED OF: -------------------------------------------------------------------------------- Paid-in Capital $4,883,903 Accumulated Net Investment Losses (5,472) Accumulated Net Realized Losses (875,787) Unrealized Appreciation Investment Securities 92,618 Futures Contracts 12,874 -------------------------------------------------------------------------------- NET ASSETS $4,108,136 ================================================================================ Investor Shares--Net Assets Applicable to 78,585,602 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $3,718,222 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- INVESTOR SHARES $47.31 ================================================================================ Admiral Shares--Net Assets Applicable to 8,871,809 outstanding $.001 par value shares of beneficial interest (unlimited authorization) $389,914 -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE-- ADMIRAL SHARES $43.95 ================================================================================ See Note E in Notes to Financial Statements for the tax-basis components of net assets. 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, 2003 (000) -------------------------------------------------------------------------------- INVESTMENT INCOME INCOME Dividends* $ 10,353 Interest 2,448 Security Lending 652 -------------------------------------------------------------------------------- Total Income 13,453 -------------------------------------------------------------------------------- EXPENSES Investment Advisory Fees--Note B Basic Fee 4,147 Performance Adjustment 1,591 The Vanguard Group--Note C Management and Administrative Investor Shares 7,800 Admiral Shares 479 Marketing and Distribution Investor Shares 261 Admiral Shares 18 Custodian Fees 45 Shareholders' Reports and Proxies Investor Shares 161 Admiral Shares -- Trustees' Fees and Expenses 3 -------------------------------------------------------------------------------- Total Expenses 14,505 Expenses Paid Indirectly--Note D (269) -------------------------------------------------------------------------------- Net Expenses 14,236 -------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) (783) -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) Investment Securities Sold* (287,531) Futures Contracts (9,699) -------------------------------------------------------------------------------- REALIZED NET GAIN (LOSS) (297,230) -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) Investment Securities 513,768 Futures Contracts 16,827 -------------------------------------------------------------------------------- CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 530,595 -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 232,582 ================================================================================ *Dividend income and realized net gain (loss) from affiliated companies of the fund were $0 and $(3,700,000), 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, 2003 OCT. 31, 2002 (000) (000) -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net Investment Income (Loss) $ (783) $ (332) Realized Net Gain (Loss) (297,230) (380,998) Change in Unrealized Appreciation (Depreciation) 530,595 (270,988) -------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations 232,582 (652,318) -------------------------------------------------------------------------------- DISTRIBUTIONS Net Investment Income Investor Shares (389) (8,068) Admiral Shares (309) (188) Realized Capital Gain Investor Shares -- -- Admiral Shares -- -- -------------------------------------------------------------------------------- Total Distributions (698) (8,256) -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS--Note H Investor Shares 76,547 9,090 Admiral Shares 75,161 379,967 -------------------------------------------------------------------------------- Net Increase (Decrease) from Capital Share Transactions 151,708 389,057 -------------------------------------------------------------------------------- Total Increase (Decrease) 383,592 (271,517) -------------------------------------------------------------------------------- NET ASSETS Beginning of Period 3,724,544 3,996,061 -------------------------------------------------------------------------------- End of Period $4,108,136 $3,724,544 ================================================================================ 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
SIX MONTHS YEAR ENDED OCTOBER 31, ENDED --------------------------------------------- FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD APR. 30, 2003 2002 2001 2000 1999 1998 ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $44.60 $51.91 $77.28 $61.49 $49.60 $62.31 ----------------------------------------------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income (Loss) (.011) (.005) .15 .25 .21 .21 Net Realized and Unrealized Gain (Loss) on Investments 2.726 (7.200) (11.36) 23.80 12.18 (6.82) ----------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.715 (7.205) (11.21) 24.05 12.39 (6.61) ----------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.005) (.105) (.25) (.23) (.20) (.25) Distributions from Realized Capital Gains -- -- (13.91) (8.03) (.30) (5.85) ----------------------------------------------------------------------------------------------------------------------- Total Distributions (.005) (.105) (14.16) (8.26) (.50) (6.10) ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $47.31 $44.60 $51.91 $77.28 $61.49 $49.60 ======================================================================================================================= TOTAL RETURN 6.09% -13.93% -16.22% 42.56% 25.14% -11.22% ======================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $3,718 $3,432 $3,996 $4,566 $2,484 $2,196 Ratio of Total Expenses to Average Net Assets 0.78%* 0.70% 0.72% 0.71% 0.74% 0.62% Ratio of Net Investment Income (Loss) to Average Net Assets (0.06%)* (0.01%) 0.24% 0.36% 0.36% 0.37% Portfolio Turnover Rate 66%* 69% 77% 123% 79% 72% =======================================================================================================================
*Annualized. 24 EXPLORER FUND ADMIRAL SHARES ================================================================================ SIX MONTHS NOV. 12, ENDED 2001* TO APR. 30, OCT. 31, FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2003 2002 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $41.43 $50.00 -------------------------------------------------------------------------------- INVESTMENT OPERATIONS Net Investment Income .028 .035 Net Realized and Unrealized Gain (Loss) on Investments 2.535 (8.498) -------------------------------------------------------------------------------- Total from Investment Operations 2.563 (8.463) -------------------------------------------------------------------------------- DISTRIBUTIONS Dividends from Net Investment Income (.043) (.107) Distributions from Realized Capital Gains -- -- -------------------------------------------------------------------------------- Total Distributions (.043) (.107) -------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $43.95 $41.43 ================================================================================ TOTAL RETURN 6.19% -16.98% ================================================================================ RATIOS/SUPPLEMENTAL DATA Net Assets, End of Period (Millions) $390 $293 Ratio of Total Expenses to Average Net Assets 0.61%** 0.61%** Ratio of Net Investment Income to Average Net Assets 0.10%** 0.13%* Portfolio Turnover Rate 66%** 69% ================================================================================ *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: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund's pricing time but after the close of their primary markets, are valued by methods deemed by the board of trustees to represent fair value. 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. 2. 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. 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. 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. 5. DISTRIBUTIONS: Distributions to shareholders are recorded on the ex-dividend date. 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. 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), shareholder reporting, and proxies. Marketing and 26 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, Grantham, Mayo, Van Otterloo & Co. LLC ("GMO"), and Chartwell Investment Partners each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the adviser. The basic fees of Granahan, Wellington, and Chartwell are subject to quarterly adjustments based on performance for the preceding three years relative to a combination of the Russell 2000 Growth Index and the Small Company Growth Fund Stock Index (an index of the stocks held by the largest small-capitalization stock mutual funds) for periods prior to January 31, 2003, and their new benchmark, the Russell 2500 Growth Index, beginning January 31, 2003. The basic fee of GMO is subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2000 Growth Index for periods prior to January 31, 2003, and its new benchmark, the Russell 2500 Growth Index, beginning January 31, 2003. The benchmark changes will be fully phased in by January 2006. 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 $304,000 for the six months ended April 30, 2003. For the six months ended April 30, 2003, the aggregate investment advisory fee represented an effective annual basic rate of 0.22% of the fund's average net assets before an increase of $1,591,000 (0.08%) 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, 2003, the fund had contributed capital of $709,000 to Vanguard (included in Other Assets), representing 0.02% of the fund's net assets and 0.71% 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, 2003, these arrangements reduced the fund's expenses by $269,000 (an annual rate of 0.01% of average net assets). E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund's tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at October 31, 2002, the fund had available realized losses of $580,717,000 to offset future net capital gains of $201,887,000 through October 31, 2009, and $378,830,000 through October 31, 2010. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending October 31, 2003; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above. At April 30, 2003, net unrealized appreciation of investment securities for tax purposes was $92,618,000, consisting of unrealized gains of $591,820,000 on securities that had risen in value 27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) since their purchase and $499,202,000 in unrealized losses on securities that had fallen in value since their purchase. At April 30, 2003, the aggregate settlement value of open futures contracts expiring in June 2003 and the related unrealized appreciation were: ================================================================================ (000) ------------------------------------------- AGGREGATE UNREALIZED NUMBER OF SETTLEMENT APPRECIATION FUTURES CONTRACTS LONG CONTRACTS VALUE (DEPRECIATION) -------------------------------------------------------------------------------- S&P MidCap 400 Index 130 $ 28,519 $3,043 Russell 2000 Index 663 132,152 9,831 ================================================================================ Unrealized appreciation on open futures contracts is required to be treated as realized gain for tax purposes. F. During the six months ended April 30, 2003, the fund purchased $1,293,360,000 of investment securities and sold $1,165,842,000 of investment securities, other than temporary cash investments. G. The market value of securities on loan to broker/dealers at April 30, 2003, was $77,254,000, for which the fund held cash collateral of $82,146,000. 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, 2003 OCTOBER 31, 2002 ------------------ ------------------ AMOUNT SHARES AMOUNT SHARES (000) (000) (000) (000) -------------------------------------------------------------------------------------------- Investor Shares Issued $ 441,909 9,785 $1,165,688 21,456 Issued in Lieu of Cash Distributions 380 8 7,898 133 Redeemed (365,742) (8,149) (1,164,496) (21,632) ---------------------------------------------- Net Increase (Decrease)--Investor Shares 76,547 1,644 9,090 (43) ---------------------------------------------- Admiral Shares Issued 105,968 2,549 434,053 8,238 Issued in Lieu of Cash Distributions 287 7 169 3 Redeemed (31,094) (748) (54,255) (1,177) ---------------------------------------------- Net Increase (Decrease)--Admiral Shares 75,161 1,808 379,967 7,064 ---------------------------------------------- ============================================================================================
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(R) 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 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. The dates in parentheses below show when each trustee was initially elected.
========================================================================================================================= JOHN J. BRENNAN* Chairman of the Board, Chief Executive Officer, and Director/Trustee of The Vanguard Group, Inc., (1987) and of each of the investment companies served by The Vanguard Group. ------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES CHARLES D. ELLIS The Partners of '63 (pro bono ventures in education); Senior Adviser to Greenwich Associates (2001) (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 Chairman and Chief Executive Officer (since October 1999), Vice Chairman (January-September 1999), (2001) and Vice President (prior to September 1999) of Rohm and Haas Co. (chemicals); Director of Technitrol, Inc. (electronic components), and Agere Systems (communications components); Board Member of the American Chemistry Council; Trustee of Drexel University. JOANN HEFFERNAN HEISEN Vice President, Chief Information Officer, and Member of the Executive Committee of Johnson & (1998) Johnson (pharmaceuticals/consumer products); Director of the Medical Center at Princeton and Women's Research and Education Institute. BURTON G. MALKIEL Chemical Bank Chairman's Professor of Economics, Princeton University; Director of Vanguard (1977) Investment Series plc (Irish investment fund) (since November 2001), Vanguard Group (Ireland) Limited (Irish investment management firm) (since November 2001), Prudential Insurance Co. of America, BKF Capital (investment management firm), The Jeffrey Co. (holding company), and NeuVis, Inc. (software company). ALFRED M. RANKIN, JR. Chairman, President, Chief Executive Officer, and Director of NACCO Industries, Inc. (forklift (1993) trucks/housewares/lignite); Director of Goodrich Corporation (industrial products/aircraft systems and services); Director until 1998 of Standard Products Company (a supplier for the automotive industry). J. LAWRENCE WILSON Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of (1985) Cummins Inc. (diesel engines), MeadWestvaco 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. (since September 1997); Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Principal of The Vanguard Group (prior to September 1997). THOMAS J. HIGGINS Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group. -------------------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment Company Act of 1940. 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, Client Relationship Group. JAMES H. GATELY, Investment Programs and 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. [SHIP] Post Office Box 2600 Valley Forge, PA 19482-2600 Vanguard, The Vanguard Group, Vanguard.com, Admiral, Explorer, Wellington, and the ship logo are trademarks of The Vanguard Group, Inc. All other marks are the exclusive property of their respective owners. ABOUT OUR COVER The photographs of the sails and ship that appear on the cover of this report are copyrighted by Michael 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(R). Prospectuses may also be viewed online. All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc., unless otherwise noted. 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) 2003 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Q242 062003 Item 2: Code(s) of Ethics - Not applicable to this semi-annual report. Item 3: Audit Committee Financial Expert - Not applicable to this semi-annual report. Item 4: Principal Accountant Fees and Services - Not applicable to this semi-annual report. Item 5: Not Applicable. Item 6: Reserved. Item 7: Not applicable. Item 8: Reserved. Item 9: Controls and Procedures. (a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) Internal Controls. There were no significant changes in Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10: Exhibits attached hereto. (Attach certifications as exhibits) Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VANGUARD EXPLORER FUND BY:_____________(signature)________________ (HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER Date: June 16, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. VANGUARD EXPLORER FUND BY:_____________(signature)________________ (HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER Date: : June 16, 2003 VANGUARD EXPLORER FUND BY:_____________(signature)________________ (HEIDI STAM) THOMAS J. HIGGINS* TREASURER Date: : June 16, 2003 *By Power of Attorney. See File Number 2-57689, filed on December 26, 2002. Incorporated by Reference.