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: | 811-01530 | |
Name of Registrant: | Vanguard Explorer Fund | |
Address of Registrant: | P.O. Box 2600 | |
Valley Forge, PA 19482 | ||
Name and address of agent for service: | Heidi Stam, 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, 2012 – April 30, 2013 | ||
Item 1: Reports to Shareholders |
Semiannual Report | April 30, 2013
Vanguard ExplorerTM Fund
![](https://capedge.com/proxy/N-CSRS/0000932471-13-007009/explorerfund_24x1x2.jpg)
> For the six months ended April 30, 2013, Vanguard Explorer Fund’s Investor
Shares returned 19.08% and its Admiral Shares returned 19.19%.
> The fund outpaced its benchmark and the average return of peer-group funds
by about 2 and 5 percentage points, respectively.
> Health care holdings contributed the most to the fund’s relative performance.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisors’ Report. | 7 |
Fund Profile. | 12 |
Performance Summary. | 13 |
Financial Statements. | 14 |
About Your Fund’s Expenses. | 27 |
Trustees Approve Advisory Arrangements. | 29 |
Glossary. | 32 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Our cover photograph shows rigging on the HMSSurprise, a replica of an 18th-century Royal Navy frigate. It was featured in the 2003 movie Master and Commander: The Far Side of the World, which was based on Patrick O’Brian’s sea novels, set amid the Napoleonic Wars. Vanguard was named for another ship of that era, the HMSVanguard, which was the flagship of British Admiral Horatio Nelson at the Battle of the Nile.
Your Fund’s Total Returns
Six Months Ended April 30, 2013 | |
Total | |
Returns | |
Vanguard Explorer Fund | |
Investor Shares | 19.08% |
Admiral™ Shares | 19.19 |
Russell 2500 Growth Index | 16.79 |
Small-Cap Growth Funds Average | 13.66 |
Small-Cap Growth Funds Average: Derived from data provided by Lipper Inc. | |
Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. |
Your Fund’s Performance at a Glance | ||||
October 31, 2012, Through April 30, 2013 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard Explorer Fund | ||||
Investor Shares | $78.03 | $89.97 | $0.272 | $2.303 |
Admiral Shares | 72.68 | 83.72 | 0.392 | 2.142 |
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![](https://capedge.com/proxy/N-CSRS/0000932471-13-007009/explorerfund_24x4x1.jpg)
Chairman’s Letter
Dear Shareholder,
Vanguard Explorer Fund produced a strong result for shareholders for the six months ended April 30. The fund returned about 19%, outpacing its benchmark index return of nearly 17% and the average return of almost 14% posted by competitive small-cap growth funds.
Explorer Fund’s results were achieved by six investment advisors, which employ independent and distinctive strategies aimed at identifying smaller companies with growth potential. While the broad stock market rally during the period certainly helped results, the fund also benefited greatly from the advisors’ adept stock selection, especially in health care.
Stock market rally proceeded, but not without challenges
Global stocks delivered a vigorous performance, recording gains in five of the six months ended April 30. U.S. equities finished with a strong return of about 15%.
The Standard & Poor’s 500 Index closed April the same way it had March: at a record high amid solid corporate earnings and encouraging economic data. Also following a productive path were international equities, which returned almost 13% for the half year, helped by strength in Japan.
Despite the impressive results and relatively low volatility, the period had its share of potential pitfalls. Investors continued to worry about the pace of economic growth in China and the United States. And the deadly Boston Marathon bombing on April 15 triggered market anxiety.
Bonds notched a slight return as yields remained low
Bonds, after sputtering for most of the half year, finished it with a bit of a flourish. The broad U.S. taxable bond market returned 0.9% for the six months, following a 1.0% boost in April. The yield of the 10-year U.S. Treasury note closed the period at 1.67%,
slightly below its starting level of 1.69%, and lower still than the 1.85% it registered a month earlier. (Bond yields and prices move in opposite directions.)
Municipal bonds delivered a return closer to 2%, with more than half the gain coming in April. The Federal Reserve’s target for short-term interest rates remained pegged between 0% and 0.25%, which kept a firm leash on returns from money market and savings accounts. In a statement issued May 1, the Fed said it would continue buying $85 billion a month in U.S. Treasury bonds and mortgage-backed securities until the job market improves substantially.
Market Barometer | |||
Total Returns | |||
Periods Ended April 30, 2013 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Stocks | |||
Russell 1000 Index (Large-caps) | 15.05% | 17.17% | 5.49% |
Russell 2000 Index (Small-caps) | 16.58 | 17.69 | 7.27 |
Russell 3000 Index (Broad U.S. market) | 15.16 | 17.21 | 5.63 |
MSCI All Country World Index ex USA (International) | 12.78 | 14.15 | -0.84 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 0.90% | 3.68% | 5.72% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 1.78 | 5.19 | 6.09 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.05 | 0.08 | 0.28 |
CPI | |||
Consumer Price Index | 0.52% | 1.06% | 1.60% |
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Kenneth Volpert, head of our Taxable Bond Group, noted recently that the Fed’s extraordinary actions to stimulate economic growth may have, in effect, pulled what would have been future investment gains into the present. The trade-off, he said, is that once the Fed begins to unwind the stimulus, “future returns are likely to be lower than they otherwise would have been for both bonds and stocks.”
Health care stocks powered performance
Health care stocks, one of the fund’s larger positions, contributed most to its strong total return during the period. Together, holdings in information
technology, consumer discretionary, and industrials were equal partners in contributing about half of the return.
Health care stocks were also the primary driver of the fund’s relative performance, contributing the most to the fund’s 2 percentage-point edge over the benchmark and its 5 percentage-point margin over the average return of its peer group. The advisors’ choices in materials and technology stocks provided an additional boost.
The advisors’ excellent stock selections in health care were wide-ranging, including holdings in biotech, pharmaceuticals, drug development, instrumentation, and health
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
Explorer Fund | 0.49% | 0.32% | 1.47% |
The fund expense ratios shown are from the prospectus dated February 26, 2013, and represent estimated costs for the current fiscal year. For the six months ended April 30, 2013, the fund’s annualized expense ratios were 0.50% for Investor Shares and 0.34% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2012.
Peer group: Small-Cap Growth Funds.
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care facilities. Within materials, the advisors benefited from strength in specialty chemical makers while sidestepping weakness among gold miners.
The fund’s information technology stocks, which represented the largest allocation, also helped relative performance. Astute selections here included providers of software (both application and systems), photovoltaic systems, touchscreen controllers, and digital advertising.
There were some minor stumbles in financials, energy, and consumer staples. For more details about the advisors’ stock choices during the period, please see the Advisors’ Report that follows this letter.
Remember to rebalance even as stock markets climb
More than four years have passed since the U.S. stock markets began an impressive recovery from the depths of the 2008–2009 global financial crisis. The S&P 500 Index has risen from a low of 677 on March 9, 2009, to a close of 1,598 on April 30, 2013, a cumulative total return of 158%. International stock markets, while not back to peak levels, have also rebounded strikingly.
Such a strong recovery is, of course, a welcome development that few would have predicted four years ago. And investors who had the discipline to maintain their stock allocation as part of a balanced, diversified portfolio have been able to more than recoup their crisis-era losses.
Discipline is just as important in good times as it is in bad. At Vanguard, we have long counseled investors to “stay the course”—to maintain a long-term commitment to a sensible portfolio. But staying the course doesn’t mean you should avoid taking action altogether.
Over time, returns will shift the weighting of stocks and bonds in a portfolio, and its asset mix may become more aggressive than originally planned. To manage this risk, investors should periodically consider rebalancing, or adjusting their asset allocation to bring it back to its target.
For example, you should consider rebalancing if you’ve established a 60%/40% stock/bond portfolio and you find that your target allocation is now off by 5 percentage points or more. (For more on this topic, see Best Practices for Portfolio Rebalancing, available at vanguard.com/research.)
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I realize that it’s not easy to contemplate rebalancing when stocks have surged and expectations for bond returns are very modest. However, we believe that bonds will continue to play a valuable role in helping to smooth out stocks’ volatility. Without rebalancing, an investor could end up with a portfolio that’s very different—and potentially more risky—than he or she intended.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSRS/0000932471-13-007009/explorerfund_24x8x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
May 15, 2013
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Advisors’ Report
For the six months ended April 30, 2013, Vanguard Explorer Fund returned about 19% for both share classes. Your fund is managed by six independent advisors, a strategy that enhances the fund’s diversification by providing exposure to complementary investment approaches. It’s not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table on page 11. The advisors have provided the following assessment of the investment environment during the past six months and the notable successes and shortfalls in their portfolios. These comments were prepared on May 10, 2013.
Wellington Management Company, llp
Portfolio Manager:
Kenneth L. Abrams, Senior Vice President and Equity Portfolio Manager Stocks rallied during the six months ended April 30, 2013, posting double-digit returns throughout much of the world. Smaller-capitalization equities outperformed large-caps. In recent years, significant macroeconomic anomalies have sometimes overwhelmed stock-specific decisions. However, during this period, the market appeared to be continuing its progress toward a more standard environment.
Our bottom-up approach to stock selection was especially helpful within materials,
consumer discretionary, information technology, health care, industrials, and financials.
Our position in Fifth & Pacific was among the top contributors to performance. Formerly Liz Claiborne, the company owns apparel brands including Lucky, Juicy Couture, and Kate Spade. In our view, the value of the underlying brands is compelling, and we believe the market has not fully appreciated the company’s growth prospects, particularly for the Kate Spade brand. Following the release of additional detail on the growth strategy for that brand, shares in Fifth & Pacific gained as investors became more confident, and we trimmed our position.
Relative performance was slightly hindered by sector allocation across the portfolio, particularly by our overweighted position in materials and underweighted exposure to industrials. This allocation was an indirect result of our individual stock picks.
In terms of individual holdings, VeriFone Systems was our most significant absolute detractor. When we initiated the position, we believed that the installed base and expanding market of this provider of electronic payment solutions would support long-term earnings growth. However, our view changed as weak macroeconomic conditions in Europe, lower revenue from the company’s Brazil-based business, decreased merger synergies, and delays in customer projects led to lower earnings estimates, which sent shares lower.
We sold out of the position.
7
Granahan Investment Management, Inc.
Portfolio Managers:
Jack Granahan, CFA, Co-founder and Chairman Gary C. Hatton, CFA, Co-founder and Chief Investment Officer Jane M. White, President and Chief Executive Officer Since the lows of October 2012, the markets have shrugged off the “fiscal cliff,” sequestration, the Cyprus collapse, and near-zero fourth-quarter GDP growth, rallying to record highs. True to its nature, the stock market has forecast a return to economic growth, driven largely by strength in housing. The Fed continues its accommodative policy and has stated that it will do so until unemployment drops, thus providing ongoing support for stocks.
Strong stock selection in health care—particularly biotechnology companies that are creating new markets—boosted performance. Regeneron (maker of drugs for eye disease), Alkermes (inventor of proprietary drug delivery technology), and BioMarin (orphan drug company) contributed most.
Performance was hampered by “core growth” stocks (which we define as stocks of established companies with a record of earnings) in the consumer and technology sectors. These included holdings in retail and hardware, specifically Aaron’s (furniture leasing), Francesca’s (women’s apparel), Riverbed (WAN optimization solutions), and Radware (network bandwidth optimization).
Kalmar Investment Advisers
Portfolio Manager:
Ford B. Draper, Jr., President and Chief Investment Officer Our market view going into 2013 was relatively optimistic despite significant uncertainties. So far so good. In the long term, although economic growth will ebb and flow, the continuation of unprecedented worldwide central bank support, low inflation, and output gaps here and abroad suggest a possible multiyear expansion. Together with the reasonable valuation of equities, this outlook in turn suggests that the stock market should override corrections and produce appealing returns.
In the last six months, our biggest detractors were Herbalife, Volcano Corp., and Nuance Communications. Cabot Oil & Gas, B/E Aerospace, Belden, CB&I, and Texas Roadhouse contributed most to return.
Century Capital Management, LLC
Portfolio Manager:
Alexander L. Thorndike, Chief Investment Officer and Managing Partner We are optimistic regarding the outlook for both equities and the U.S. economy. The domestic economy points to steady, moderate growth in 2013. Interest rates
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remain low, housing continues to recover, inflation is in check, and the employment rate is improving. We believe these are all important catalysts to long-term corporate profit growth. In the short term, we must contend with the partisan political overhang of unresolved government spending and debt ceiling negotiations. As companies gain clarity regarding the tax outlook, we expect business spending to improve.
We believe equity valuations are reasonable, both relative to the current market and on a historical basis. U.S. corporate profitability and excess capital are abundant, aiding companies in their efforts to fund future growth. We have maintained mostly neutral sector weightings, continuing to trim and build around high-quality businesses with solid fundamentals, clearly defined competitive advantages, and pricing power.
The top-performing holdings on a total-return basis during the period included HFF, provider of commercial real estate and capital markets services to both the users and providers of capital in the commercial real estate sector. Biopharmaceutical company NPS Pharmaceuticals, Inc., also contributed to returns.
Herbalife, a network marketing company that sells weight management and nutritional products, was among the worst performers. Select Comfort, a designer and distributor of adjustable-firmness mattresses and related products, lagged as well.
Chartwell Investment Partners, L.P.
Portfolio Managers:
Edward N. Antoian, CFA, CPA, Managing Partner John A. Heffern, Managing Partner and Senior Portfolio Manager The market environment proved resilient during the period. Equity indexes advanced, supported by continuing signs of economic recovery in employment and the housing markets. Fundamentally, corporate profitability appears more robust than underlying sales growth. Against this backdrop, our portfolio decisions steadfastly reflected our bias toward quality, leadership, defensible margins, and a pattern of successful execution based on growth-oriented business models.
HFF was our top performer; the commercial real estate and capital markets services firm reported solid transaction volume, captured market share, and paid a large special dividend. Vehicle rental company Avis Budget Group developed an improved fleet and expense management structure with more pricing discipline, driving a stronger earnings outlook.
The technology sector underperformed as BroadSoft and Vocus significantly reduced 2013 revenue and earnings guidance. Application software provider BroadSoft experienced a slowdown in service-provider VoIP rollouts, while marketing software provider Vocus expected macroeconomic weakness and an increase in operating expenses.
9
Vanguard Equity Investment Group
Portfolio Managers:
James D. Troyer, CFA, Principal James P. Stetler, Principal Michael R. Roach, CFA
For the six months, the results of our stock selection models were mixed in identifying the outperformers and underperformers within each sector. Our valuation, growth, and sentiment models were positive contributors, but our management decisions and quality models detracted.
Our stock picks were positive in six out of ten sectors, negative in three, and neutral in one. Holdings in information technology, industrials, and materials were the top relative performers. In technology, MAXIMUS, MEMC Electronic Materials, and Freescale Semiconductors contributed the most to our relative results.
Within industrials, Hertz Global Holdings and Alaska Air Group led; Packaging Corporation of America and Axiall Corp. did the same in materials. However, our selections in energy (Energy XXI and Vaalco Energy) and telecommunications (magicJack VocalTec) detracted.
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Vanguard Explorer Fund Investment Advisors | ||||
Fund Assets Managed | ||||
Investment Advisor | % | $ Million | Investment Strategy | |
Wellington Management | 29 | 2,901 | Conducts research and analysis of individual | |
Company, LLP | companies to select stocks believed to have | |||
exceptional growth potential relative to their market | ||||
valuations. Each stock is considered individually before | ||||
purchase, and company developments are continually | ||||
monitored for comparison with expectations for | ||||
growth. | ||||
Granahan Investment | 24 | 2,397 | Bases its investment process on the beliefs that | |
Management, Inc. | earnings drive stock prices and that small, dynamic | |||
companies with exceptional growth prospects have the | ||||
greatest long-term potential. A bottom-up, fundamental | ||||
approach places companies in one of three life-cycle | ||||
categories: pioneer, core growth, and special situation. | ||||
In each, the process looks for companies with strong | ||||
earnings growth potential and leadership in their | ||||
markets. | ||||
Kalmar Investment Advisers | 23 | 2,285 | Employs a “growth with value” strategy using creative, | |
bottom-up research to uncover vigorously growing, | ||||
high-quality businesses whose stocks can also be | ||||
bought inefficiently valued. The strategy has a dual | ||||
objective of strong returns with lower risk. | ||||
Century Capital Management, | 9 | 923 | Employs a fundamental, bottom-up approach that | |
LLC | attempts to identify reasonably priced companies that | |||
will grow faster than the overall market. Companies | ||||
also must have a superior return on equity, high | ||||
recurring revenues, and improving margins. | ||||
Chartwell Investment Partners, | 9 | 873 | Uses a bottom-up, fundamental, research-driven | |
L.P. | stock-selection strategy focusing on companies with | |||
sustainable growth, strong management teams, | ||||
competitive positions, and outstanding product and | ||||
service offerings. These companies should continually | ||||
demonstrate growth in earnings per share. | ||||
Vanguard Equity Investment | 4 | 403 | Employs a quantitative fundamental management | |
Group | approach, using models that assess valuation, growth | |||
prospects, management decisions, market sentiment, | ||||
and earnings quality of companies as compared with | ||||
their peers. | ||||
Cash Investments | 2 | 241 | These short-term reserves are invested by Vanguard in | |
equity index products to simulate investment in stocks. | ||||
Each advisor also may maintain a modest cash | ||||
position. |
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Explorer Fund
Fund Profile
As of April 30, 2013
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VEXPX | VEXRX |
Expense Ratio1 | 0.49% | 0.32% |
30-Day SEC Yield | 0.14% | 0.30% |
Portfolio Characteristics | |||
DJ U.S. | |||
Russell | Total | ||
2500 | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Number of Stocks | 585 | 1,379 | 3,587 |
Median Market Cap | $2.8B | $3.1B | $40.7B |
Price/Earnings Ratio | 28.9x | 28.5x | 18.1x |
Price/Book Ratio | 2.8x | 3.9x | 2.3x |
Return on Equity | 10.5% | 14.6% | 16.6% |
Earnings Growth Rate | 10.5% | 12.6% | 9.7% |
Dividend Yield | 0.5% | 0.8% | 2.0% |
Foreign Holdings | 3.6% | 0.0% | 0.0% |
Turnover Rate | |||
(Annualized) | 63% | — | — |
Short-Term Reserves | 1.6% | — | — |
Sector Diversification (% of equity exposure) | |||
DJ U.S. | |||
Russell | Total | ||
2500 | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Consumer Discretionary 18.8% | 18.7% | 12.6% | |
Consumer Staples | 2.4 | 4.0 | 9.6 |
Energy | 5.5 | 4.9 | 9.8 |
Financials | 7.7 | 10.7 | 17.5 |
Health Care | 18.3 | 15.9 | 12.3 |
Industrials | 16.7 | 17.4 | 10.8 |
Information Technology 23.7 | 19.6 | 17.2 | |
Materials | 5.5 | 6.7 | 3.8 |
Telecommunication | |||
Services | 1.3 | 1.5 | 2.7 |
Utilities | 0.1 | 0.6 | 3.7 |
Volatility Measures | ||
DJ U.S. | ||
Total | ||
Market | ||
Russell 2500 | FA | |
Growth Index | Index | |
R-Squared | 0.99 | 0.94 |
Beta | 0.99 | 1.21 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Ten Largest Holdings (% of total net assets) | ||
Alliance Data Systems | Data Processing & | |
Corp. | Outsourced Services | 1.1% |
Cooper Cos. Inc. | Health Care Supplies | 1.0 |
Alkermes plc | Biotechnology | 1.0 |
TiVo Inc. | Application Software | 0.8 |
Covance Inc. | Life Sciences Tools & | |
Services | 0.8 | |
Dick's Sporting Goods | ||
Inc. | Specialty Stores | 0.7 |
Ultimate Software Group | ||
Inc. | Application Software | 0.7 |
PTC Inc. | Application Software | 0.7 |
Kennametal Inc. | Industrial Machinery | 0.7 |
Cadence Design | ||
Systems Inc. | Application Software | 0.7 |
Top Ten | 8.2% | |
The holdings listed exclude any temporary cash investments and | ||
equity index products. |
Investment Focus
![](https://capedge.com/proxy/N-CSRS/0000932471-13-007009/explorerfund_24x14x1.jpg)
1 The expense ratios shown are from the prospectus dated February 26, 2013, and represent estimated costs for the current fiscal year. For the six months ended April 30, 2013, the annualized expense ratios were 0.50% for Investor Shares and 0.34% for Admiral Shares.
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Explorer Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, 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 sale of fund shares.
Fiscal-Year Total Returns (%): October 31, 2002, Through April 30, 2013
![](https://capedge.com/proxy/N-CSRS/0000932471-13-007009/explorerfund_24x15x1.jpg)
![](https://capedge.com/proxy/N-CSRS/0000932471-13-007009/explorerfund_24x15x2.jpg)
Note: For 2013, performance data reflect the six months ended April 30, 2013.
Average Annual Total Returns: Periods Ended March 31, 2013
This table presents 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.
Inception | One | Five | Ten | |
Date | Year | Years | Years | |
Investor Shares | 12/11/1967 | 13.34% | 8.39% | 10.99% |
Admiral Shares | 11/12/2001 | 13.51 | 8.58 | 11.17 |
See Financial Highlights for dividend and capital gains information.
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Explorer Fund
Financial Statements (unaudited)
Statement of Net Assets—Investments Summary
As of April 30, 2013
This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders canlook up the fund’s Forms N-Q on the SEC’s website. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | Percentage | |||
Value | of Net | |||
Shares | ($000) | Assets | ||
Common Stocks | ||||
Consumer Discretionary | ||||
Dick’s Sporting Goods Inc. | 1,494,010 | 71,862 | 0.7% | |
* | Life Time Fitness Inc. | 1,346,145 | 62,165 | 0.6% |
* | Urban Outfitters Inc. | 1,480,960 | 61,371 | 0.6% |
GameStop Corp. Class A | 1,514,492 | 52,856 | 0.5% | |
*,^ | Pandora Media Inc. | 3,569,200 | 49,719 | 0.5% |
* | Hanesbrands Inc. | 923,051 | 46,300 | 0.5% |
* | Buffalo Wild Wings Inc. | 480,654 | 43,259 | 0.5% |
DSW Inc. Class A | 611,729 | 40,447 | 0.4% | |
* | CarMax Inc. | 868,830 | 40,001 | 0.4% |
Consumer Discretionary—Other † | 1,340,093 | 13.4% | ||
1,808,073 | 18.1% | |||
Consumer Staples | ||||
* | Smithfield Foods Inc. | 1,638,310 | 41,941 | 0.4% |
Consumer Staples—Other † | 185,773 | 1.9% | ||
227,714 | 2.3% | |||
Energy | ||||
Cabot Oil & Gas Corp. | 675,915 | 45,996 | 0.5% | |
* | Superior Energy Services Inc. | 1,490,251 | 41,116 | 0.4% |
Energy—Other † | 434,019 | 4.3% | ||
521,131 | 5.2% | |||
Exchange-Traded Funds | ||||
^,1 | Vanguard Small-Cap ETF | 865,083 | 79,086 | 0.8% |
^,1 | Vanguard Small-Cap Growth ETF | 713,200 | 70,985 | 0.7% |
^ | iShares Russell 2000 Index Fund | 459,899 | 43,295 | 0.4% |
193,366 | 1.9% | |||
Financials | ||||
* | Affiliated Managers Group Inc. | 348,125 | 54,196 | 0.6% |
2 | HFF Inc. Class A | 1,935,888 | 40,557 | 0.4% |
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Explorer Fund | ||||
Market | Percentage | |||
Value | of Net | |||
Shares | ($000) | Assets | ||
NASDAQ OMX Group Inc. | 1,362,377 | 40,163 | 0.4% | |
*,2 | eHealth Inc. | 1,537,725 | 32,200 | 0.3% |
Financials—Other † | 524,265 | 5.2% | ||
691,381 | 6.9% | |||
Health Care | ||||
Cooper Cos. Inc. | 939,864 | 103,761 | 1.0% | |
* | Alkermes plc | 3,149,735 | 96,413 | 1.0% |
* | Covance Inc. | 1,077,725 | 80,355 | 0.8% |
West Pharmaceutical Services Inc. | 1,044,845 | 66,724 | 0.7% | |
* | Regeneron Pharmaceuticals Inc. | 256,930 | 55,276 | 0.5% |
* | Onyx Pharmaceuticals Inc. | 579,709 | 54,956 | 0.5% |
*,^,2Optimer Pharmaceuticals Inc. | 3,287,240 | 50,755 | 0.5% | |
* | Bruker Corp. | 2,768,270 | 49,192 | 0.5% |
* | Catamaran Corp. | 805,181 | 46,483 | 0.5% |
* | Salix Pharmaceuticals Ltd. | 877,915 | 45,906 | 0.5% |
Universal Health Services Inc. Class B | 631,020 | 42,020 | 0.4% | |
* | Vertex Pharmaceuticals Inc. | 529,800 | 40,699 | 0.4% |
* | Seattle Genetics Inc. | 1,075,194 | 39,728 | 0.4% |
*,2 | Kindred Healthcare Inc. | 2,852,739 | 29,925 | 0.3% |
Health Care—Other † | 968,866 | 9.7% | ||
1,771,059 | 17.7% | |||
Industrials | ||||
Kennametal Inc. | 1,693,065 | 67,706 | 0.7% | |
MSC Industrial Direct Co. Inc. Class A | 779,564 | 61,430 | 0.6% | |
* | WESCO International Inc. | 755,075 | 54,131 | 0.5% |
* | B/E Aerospace Inc. | 760,907 | 47,739 | 0.5% |
Pentair Ltd. | 865,650 | 47,048 | 0.5% | |
Triumph Group Inc. | 556,538 | 44,467 | 0.5% | |
Manpowergroup Inc. | 808,590 | 42,985 | 0.4% | |
Chicago Bridge & Iron Co. NV | 789,051 | 42,443 | 0.4% | |
Industrials—Other † | 1,196,502 | 11.9% | ||
1,604,451 | 16.0% | |||
Information Technology | ||||
* | Alliance Data Systems Corp. | 659,243 | 113,238 | 1.1% |
*,2 | TiVo Inc. | 7,099,360 | 83,204 | 0.8% |
* | Ultimate Software Group Inc. | 711,499 | 68,724 | 0.7% |
* | PTC Inc. | 2,825,416 | 67,838 | 0.7% |
* | Cadence Design Systems Inc. | 4,878,410 | 67,322 | 0.7% |
* | Aruba Networks Inc. | 2,885,758 | 64,901 | 0.6% |
*,^ | First Solar Inc. | 1,364,468 | 63,530 | 0.6% |
* | Sapient Corp. | 4,729,418 | 55,240 | 0.6% |
* | QLIK Technologies Inc. | 1,847,900 | 48,064 | 0.5% |
* | Euronet Worldwide Inc. | 1,516,705 | 46,305 | 0.5% |
* | Teradyne Inc. | 2,548,220 | 41,893 | 0.4% |
* | Rovi Corp. | 1,740,720 | 40,715 | 0.4% |
* | Trimble Navigation Ltd. | 1,390,340 | 39,958 | 0.4% |
Information Technology—Other † | 1,498,224 | 14.9% | ||
2,299,156 | 22.9% |
15
Explorer Fund | ||||
Market | Percentage | |||
Value | of Net | |||
Shares | ($000) | Assets | ||
Materials | ||||
KapStone Paper and Packaging Corp. | 1,459,740 | 43,179 | 0.4% | |
* Graphic Packaging Holding Co. | 5,446,464 | 40,957 | 0.4% | |
Smurfit Kappa Group plc | 2,647,757 | 39,379 | 0.4% | |
Materials—Other † | 407,391 | 4.1% | ||
530,906 | 5.3% | |||
Telecommunication Services † | 122,779 | 1.2% | ||
Utilities † | 1,799 | 0.0% | ||
Total Common Stocks (Cost $7,215,556) | 9,771,815 | 97.5%3 | ||
Coupon | ||||
Temporary Cash Investments | ||||
Money Market Fund | ||||
4,5 Vanguard Market Liquidity Fund | 0.142% | 428,920,421 | 428,920 | 4.3% |
Repurchase Agreement † | 34,300 | 0.3% | ||
6U.S. Government and Agency Obligations † | 6,396 | 0.1% | ||
Total Temporary Cash Investments (Cost $469,617) | 469,616 | 4.7%3 | ||
Total Investments (Cost $7,685,173) | 10,241,431 | 102.2% | ||
Other Assets and Liabilities | ||||
Other Assets | 102,069 | 1.0% | ||
Liabilities5 | (320,170) | (3.2%) | ||
(218,101) | (2.2%) | |||
Net Assets | 10,023,330 | 100.0% |
16
Explorer Fund | |
At April 30, 2013, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 7,004,169 |
Overdistributed Net Investment Income | (14,445) |
Accumulated Net Realized Gains | 475,905 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 2,556,258 |
Futures Contracts | 1,430 |
Foreign Currencies | 13 |
Net Assets | 10,023,330 |
Investor Shares—Net Assets | |
Applicable to 60,067,123 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 5,404,278 |
Net Asset Value Per Share—Investor Shares | $89.97 |
Admiral Shares—Net Assets | |
Applicable to 55,173,718 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 4,619,052 |
Net Asset Value Per Share—Admiral Shares | $83.72 |
17
Explorer Fund | |
Statement of Operations | |
Six Months Ended | |
April 30, 2013 | |
($000) | |
Investment Income | |
Income | |
Dividends1,2 | 39,451 |
Interest2 | 197 |
Security Lending | 5,503 |
Total Income | 45,151 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 9,945 |
Performance Adjustment | (572) |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 7,101 |
Management and Administrative—Admiral Shares | 2,362 |
Marketing and Distribution—Investor Shares | 482 |
Marketing and Distribution—Admiral Shares | 408 |
Custodian Fees | 64 |
Shareholders’ Reports—Investor Shares | 16 |
Shareholders’ Reports—Admiral Shares | 38 |
Trustees’ Fees and Expenses | 17 |
Total Expenses | 19,861 |
Expenses Paid Indirectly | (192) |
Net Expenses | 19,669 |
Net Investment Income | 25,482 |
Realized Net Gain (Loss) | |
Investment Securities Sold2 | 472,063 |
Futures Contracts | 8,364 |
Foreign Currencies | (8) |
Realized Net Gain (Loss) | 480,419 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 1,122,561 |
Futures Contracts | 3,613 |
Foreign Currencies | 13 |
Change in Unrealized Appreciation (Depreciation) | 1,126,187 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,632,088 |
1 Dividends are net of foreign withholding taxes of $201,000.
2 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $5,429,000, $168,000, and ($869,000), respectively.
See accompanying Notes, which are an integral part of the Financial Statements.
18
Explorer Fund | ||
Statement of Changes in Net Assets | ||
Six Months Ended | Year Ended | |
April 30, | October 31, | |
2013 | 2012 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 25,482 | 21,187 |
Realized Net Gain (Loss) | 480,419 | 484,760 |
Change in Unrealized Appreciation (Depreciation) | 1,126,187 | 125,178 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,632,088 | 631,125 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (16,823) | (7,529) |
Admiral Shares | (20,358) | (10,619) |
Realized Capital Gain | ||
Investor Shares | (142,436) | — |
Admiral Shares | (111,244) | — |
Total Distributions | (290,861) | (18,148) |
Capital Share Transactions | ||
Investor Shares | (349,321) | (1,230,052) |
Admiral Shares | 265,563 | 230,431 |
Net Increase (Decrease) from Capital Share Transactions | (83,758) | (999,621) |
Total Increase (Decrease) | 1,257,469 | (386,644) |
Net Assets | ||
Beginning of Period | 8,765,861 | 9,152,505 |
End of Period1 | 10,023,330 | 8,765,861 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($14,445,000) and ($2,738,000).
See accompanying Notes, which are an integral part of the Financial Statements.
19
Explorer Fund | ||||||
Financial Highlights | ||||||
Investor Shares | ||||||
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 |
Net Asset Value, Beginning of Period | $78.03 | $73.02 | $66.02 | $51.77 | $45.54 | $83.93 |
Investment Operations | ||||||
Net Investment Income | .197 | .108 | .077 | .109 | .178 | .295 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 14.318 | 4.998 | 7.029 | 14.239 | 6.334 | (31.589) |
Total from Investment Operations | 14.515 | 5.106 | 7.106 | 14.348 | 6.512 | (31.294) |
Distributions | ||||||
Dividends from Net Investment Income | (.272) | (.096) | (.106) | (.098) | (.282) | (.310) |
Distributions from Realized Capital Gains | (2.303) | — | — | — | — | (6.786) |
Total Distributions | (2.575) | (.096) | (.106) | (.098) | (.282) | (7.096) |
Net Asset Value, End of Period | $89.97 | $78.03 | $73.02 | $66.02 | $51.77 | $45.54 |
Total Return1 | 19.08% | 7.00% | 10.76% | 27.74% | 14.46% | -40.17% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $5,404 | $5,008 | $5,864 | $6,290 | $5,677 | $5,026 |
Ratio of Total Expenses to | ||||||
Average Net Assets2 | 0.50% | 0.49% | 0.50% | 0.49% | 0.54% | 0.44% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 0.36% | 0.16% | 0.12% | 0.19% | 0.38% | 0.40% |
Portfolio Turnover Rate | 63% | 59% | 89%3 | 82% | 95% | 112% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.03%), 0.00%, (0.01%), (0.01%), and (0.02%).
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares.
See accompanying Notes, which are an integral part of the Financial Statements.
20
Explorer Fund | ||||||
Financial Highlights | ||||||
Admiral Shares | ||||||
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 |
Net Asset Value, Beginning of Period | $72.68 | $68.04 | $61.50 | $48.21 | $42.45 | $78.25 |
Investment Operations | ||||||
Net Investment Income | .253 | .236 | .179 | .206 | .246 | .385 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 13.321 | 4.621 | 6.550 | 13.259 | 5.881 | (29.442) |
Total from Investment Operations | 13.574 | 4.857 | 6.729 | 13.465 | 6.127 | (29.057) |
Distributions | ||||||
Dividends from Net Investment Income | (.392) | (.217) | (.189) | (.175) | (.367) | (.427) |
Distributions from Realized Capital Gains | (2.142) | — | — | — | — | (6.316) |
Total Distributions | (2.534) | (.217) | (.189) | (.175) | (.367) | (6.743) |
Net Asset Value, End of Period | $83.72 | $72.68 | $68.04 | $61.50 | $48.21 | $42.45 |
Total Return1 | 19.19% | 7.16% | 10.94% | 27.98% | 14.66% | -40.07% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $4,619 | $3,757 | $3,288 | $2,864 | $2,252 | $2,023 |
Ratio of Total Expenses to | ||||||
Average Net Assets2 | 0.34% | 0.32% | 0.34% | 0.32% | 0.34% | 0.26% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 0.52% | 0.33% | 0.28% | 0.36% | 0.58% | 0.58% |
Portfolio Turnover Rate | 63% | 59% | 89%3 | 82% | 95% | 112% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.03%), 0.00%, (0.01%), (0.01%), and (0.02%).
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares.
See accompanying Notes, which are an integral part of the Financial Statements.
21
Explorer Fund
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 are designed for investors who meet certain administrative, service, 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 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 affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective 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 Statement of Net Assets. 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 futures gains (losses).
22
Explorer Fund
During the six months ended April 30, 2013, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on quarterly average aggregate settlement values.
4. Repurchase Agreements: The fund may enter into repurchase agreements. 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. In the event of default or bankruptcy by the other party to the agreement, the fund may sell or retain the collateral; however, such action may be subject to legal proceedings.
5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2009–2012), and for the period ended April 30, 2013, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
6. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
7. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents fees charged to borrowers plus income earned on investing cash collateral, less expenses associated with the loan.
8. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. 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) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. Wellington Management Company, LLP, Granahan Investment Management, Inc., Kalmar Investment Advisers, Century Capital Management, LLC, and Chartwell Investment Partners, L.P., 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 advisor. The basic fees of Wellington Management Company, LLP, Granahan Investment Management, Inc., and Kalmar Investment Advisers, are subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2500 Growth Index. The basic fee of Century Capital Management, LLC, is subject to quarterly adjustments based on performance for the preceding three years relative to a 50/50 blend of the Russell 2500 Index and Russell 2500 Growth Index. The basic fee of Chartwell
23
Explorer Fund
Investment Partners, L.P., is subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2500 Growth Index for periods prior to February 1, 2012, and the current benchmark, Russell 2000 Growth Index, beginning February 1, 2012. The current benchmark will be fully phased in by January 31, 2015.
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 $150,000 for the six months ended April 30, 2013.
For the six months ended April 30, 2013, the aggregate investment advisory fee represented an effective annual basic rate of 0.21% of the fund’s average net assets, before a decrease of $572,000 (0.01%) 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, 2013, the fund had contributed capital of $1,252,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.50% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. The fund has asked its investment advisors 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, 2013, these arrangements reduced the fund’s expenses by $192,000 (an annual rate of 0.00% of average net assets).
E. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of April 30, 2013, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 9,713,531 | 54,001 | 4,283 |
Temporary Cash Investments | 428,920 | 40,696 | — |
Futures Contracts—Assets1 | 739 | — | — |
Total | 10,143,190 | 94,697 | 4,283 |
1 Represents variation margin on the last day of the reporting period. |
24
Explorer Fund
F. At April 30, 2013, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
E-mini Russell 2000 Index | June 2013 | 1,016 | 96,022 | 725 |
E-mini S&P MidCap 400 Index | June 2013 | 239 | 27,669 | 705 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
G. 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.
During the six months ended April 30, 2013, the fund realized net foreign currency losses of $8,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized gains to overdistributed net investment income.
At April 30, 2013, the cost of investment securities for tax purposes was $7,685,173,000. Net unrealized appreciation of investment securities for tax purposes was $2,556,258,000, consisting of unrealized gains of $2,818,973,000 on securities that had risen in value since their purchase and $262,715,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the six months ended April 30, 2013, the fund purchased $2,892,303,000 of investment securities and sold $3,214,476,000 of investment securities, other than temporary cash investments.
25
Explorer Fund
I. Capital share transactions for each class of shares were: | ||||
Six Months Ended | Year Ended | |||
April 30, 2013 | October 31, 2012 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 176,481 | 2,084 | 476,407 | 6,191 |
Issued in Lieu of Cash Distributions | 157,298 | 2,003 | 7,422 | 103 |
Redeemed | (683,100) | (8,208) | (1,713,881) | (22,411) |
Net Increase (Decrease)—Investor Shares | (349,321) | (4,121) | (1,230,052) | (16,117) |
Admiral Shares | ||||
Issued | 536,914 | 6,890 | 946,621 | 13,411 |
Issued in Lieu of Cash Distributions | 123,108 | 1,686 | 9,801 | 146 |
Redeemed | (394,459) | (5,101) | (725,991) | (10,188) |
Net Increase (Decrease)—Admiral Shares | 265,563 | 3,475 | 230,431 | 3,369 |
J. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company. Transactions during the period in securities of these companies were as follows:
Current Period Transactions | |||||
Oct. 31, 2012 | Proceeds from | Apr. 30, 2013 | |||
Market | Purchases | Securities | Dividend | Market | |
Value | at Cost | Sold | Income | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | |
eHealth Inc. | 32,368 | 2,059 | 1,468 | — | 32,200 |
HFF Inc. Class A | 30,986 | 785 | 6,151 | 3,467 | 40,557 |
Kindred Healthcare Inc. | 27,981 | 1,276 | 1,353 | — | 29,925 |
Optimer Pharmaceuticals Inc. | NA1 | 25,090 | 6,060 | — | 50,755 |
TiVo Inc. | 63,219 | 12,288 | 2,383 | — | 83,204 |
154,554 | 3,467 | 236,641 | |||
1 Not applicable—At October 31, 2012, the issuer was not an affiliated company of the fund. |
K. In preparing the financial statements as of April 30, 2013, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements.
26
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
27
Six Months Ended April 30, 2013 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Explorer Fund | 10/31/2012 | 4/30/2013 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,190.83 | $2.72 |
Admiral Shares | 1,000.00 | 1,191.87 | 1.85 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.32 | $2.51 |
Admiral Shares | 1,000.00 | 1,023.11 | 1.71 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.50% for Investor Shares and 0.34% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
28
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Explorer Fund renewed the fund’s investment advisory arrangements with Century Capital Management, LLC (Century Capital); Chartwell Investment Partners, L.P. (Chartwell); Granahan Investment Management, Inc.(Granahan); Kalmar Investment Advisers (Kalmar); Wellington Management Company, LLP (Wellington Management); and The Vanguard Group, Inc. (Vanguard) (through its Equity Investment Group). The board determined that the retention of the advisors was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board noted the following:
Century Capital. Century Capital is an investment management boutique, owned by the investment professionals within the firm. Century Capital employs a fundamental, bottom-up investment approach that seeks to identify reasonably priced companies that will grow faster than the overall market. Independent research is a core tenet. The ideal investment is a well-managed company that is reasonably valued, in a non-capital-intensive business, with established products or services, a high return on equity, high recurring revenues, and improving margins. The firm has managed a portion of the fund since 2008.
Chartwell. Chartwell is an independent, employee-owned firm, founded in 1997. The firm has expertise in small- and mid-cap equity management and employs a fundamental bottom-up strategy, seeking companies with superior growth potential trading at reasonable valuations. Using fundamental research, the firm selects a relatively aggressive portfolio of 70-90 stocks concentrated mostly in the consumer, health care, and technology sectors. Stocks considered for purchase fall into three categories: superior growth potential, based on market trends or new products or services; lower relative valuation based on market trends or new products or services; lower relative valuation based on price/earnings ratios, price/sales ratios, and price/earnings to growth rates; and underpriced because of an industry downturn or short-term problems. The firm has managed a portion of the fund since 1997.
Granahan. Founded in 1985, Granahan specializes in small-cap growth equity investing. The firm uses fundamental research to select a portfolio of 125–175 stocks with sustainable growth characteristics. Granahan achieves portfolio diversification through dedicated allocations to three categories of growth companies: core growth (40%–70% of subportfolio assets), represented by companies with strong market position based on proprietary products or services; pioneers (15%–30%), companies with unique technology or innovations; and special situation (15%–30%), companies with growth potential overlooked by the market. The firm has managed a portion of the fund since 1990.
29
Kalmar. Kalmar, together with its parent company, Kalmar Investments Inc., founded in 1982, specializes in small- and mid-cap growth equity investing. Kalmar is a research-driven investment firm that is entirely focused on the management of “growth with value” small- and mid-cap equity portfolios. Kalmar believes that there is a high-reward and low-risk anomaly offered by the equity market in the stocks of solid, well-managed, rapidly growing smaller companies. Through independent fundamental research, Kalmar attempts to discover such companies, buy them at undervalued levels, and own them for the longer term. The firm has managed a portion of the fund since 2005.
Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. Using a bottom-up, fundamentally driven approach, Wellington Management invests opportunistically in a diversified portfolio of high-quality stocks. Wellington Management attempts to identify companies that are early in their growth cycle. The research-intensive approach is supported by the team’s deep and tenured analytical staff, which may also make use of Wellington Management’s extensive industry research capabilities. The firm has advised the fund since 1967.
Vanguard. Vanguard has been managing investments for more than three decades. The Equity Investment Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth. Vanguard has managed a portion of the fund since 1997.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term performance of the fund and each advisor, including any periods of outperformance or underperformance relative to a benchmark index and peer group. The board concluded that the performance was such that the advisory arrangement should continue. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
The board did not consider profitability of Century Capital, Chartwell, Granahan, Kalmar, or Wellington Management in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations. The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
30
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Century Capital, Chartwell, Granahan, Kalmar, and Wellington Management. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board also concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as the fund’s assets managed by Vanguard increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
31
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
32
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
33
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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’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 180 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | and Delphi Automotive LLP (automotive components); |
Senior Advisor at New Mountain Capital; Trustee of | |
F. William McNabb III | The Conference Board. |
Born 1957. Trustee Since July 2009. Chairman of the | |
Board. Principal Occupation(s) During the Past Five | Amy Gutmann |
Years: Chairman of the Board of The Vanguard Group, | Born 1949. Trustee Since June 2006. Principal |
Inc., and of each of the investment companies served | Occupation(s) During the Past Five Years: President |
by The Vanguard Group, since January 2010; Director | of the University of Pennsylvania; Christopher H. |
of The Vanguard Group since 2008; Chief Executive | Browne Distinguished Professor of Political Science |
Officer and President of The Vanguard Group and of | in the School of Arts and Sciences with secondary |
each of the investment companies served by The | appointments at the Annenberg School for |
Vanguard Group since 2008; Director of Vanguard | Communication and the Graduate School of Education |
Marketing Corporation; Managing Director of The | of the University of Pennsylvania; Member of the |
Vanguard Group (1995–2008). | National Commission on the Humanities and Social |
Sciences; Trustee of Carnegie Corporation of New | |
York and of the National Constitution Center; Chair | |
IndependentTrustees | of the U.S. Presidential Commission for the Study |
of Bioethical Issues. | |
Emerson U. Fullwood | |
Born 1948. Trustee Since January 2008. Principal | JoAnn Heffernan Heisen |
Occupation(s) During the Past Five Years: Executive | Born 1950. Trustee Since July 1998. Principal |
Chief Staff and Marketing Officer for North America | Occupation(s) During the Past Five Years: Corporate |
and Corporate Vice President (retired 2008) of Xerox | Vice President and Chief Global Diversity Officer |
Corporation (document management products and | (retired 2008) and Member of the Executive |
services); Executive in Residence and 2010 | Committee (1997–2008) of Johnson & Johnson |
Distinguished Minett Professor at the Rochester | (pharmaceuticals/medical devices/consumer |
Institute of Technology; Director of SPX Corporation | products); Director of Skytop Lodge Corporation |
(multi-industry manufacturing), the United Way of | (hotels), the University Medical Center at Princeton, |
Rochester, Amerigroup Corporation (managed health | the Robert Wood Johnson Foundation, and the Center |
care), the University of Rochester Medical Center, | for Talent Innovation; Member of the Advisory Board |
Monroe Community College Foundation, and North | of the Maxwell School of Citizenship and Public Affairs |
Carolina A&T University. | at Syracuse University. |
Rajiv L. Gupta | F. Joseph Loughrey |
Born 1945. Trustee Since December 2001.2 | Born 1949. Trustee Since October 2009. Principal |
Principal Occupation(s) During the Past Five Years: | Occupation(s) During the Past Five Years: President |
Chairman and Chief Executive Officer (retired 2009) | and Chief Operating Officer (retired 2009) of Cummins |
and President (2006–2008) of Rohm and Haas Co. | Inc. (industrial machinery); Chairman of the Board of |
(chemicals); Director of Tyco International, Ltd. | Hillenbrand, Inc. (specialized consumer services); |
(diversified manufacturing and services), Hewlett- | Director of SKF AB (industrial machinery), the Lumina |
Packard Co. (electronic computer manufacturing), |
Foundation for Education, and Oxfam America; | Executive Officers | |
Chairman of the Advisory Council for the College of | ||
Arts and Letters and Member of the Advisory Board to | Glenn Booraem | |
the Kellogg Institute for International Studies at the | Born 1967. Controller Since July 2010. Principal | |
University of Notre Dame. | Occupation(s) During the Past Five Years: Principal | |
of The Vanguard Group, Inc.; Controller of each of | ||
Mark Loughridge | the investment companies served by The Vanguard | |
Born 1953. Trustee Since March 2012. Principal | Group; Assistant Controller of each of the investment | |
Occupation(s) During the Past Five Years: Senior Vice | companies served by The Vanguard Group (2001–2010). | |
President and Chief Financial Officer at IBM (information | ||
technology services); Fiduciary Member of IBM’s | Thomas J. Higgins | |
Retirement Plan Committee. | Born 1957. Chief Financial Officer Since September | |
2008. Principal Occupation(s) During the Past Five | ||
Scott C. Malpass | Years: Principal of The Vanguard Group, Inc.; Chief | |
Born 1962. Trustee Since March 2012. Principal | Financial Officer of each of the investment companies | |
Occupation(s) During the Past Five Years: Chief | served by The Vanguard Group; Treasurer of each of | |
Investment Officer and Vice President at the University | the investment companies served by The Vanguard | |
of Notre Dame; Assistant Professor of Finance at the | Group (1998–2008). | |
Mendoza College of Business at Notre Dame; Member | ||
of the Notre Dame 403(b) Investment Committee; | Kathryn J. Hyatt | |
Director of TIFF Advisory Services, Inc. (investment | Born 1955. Treasurer Since November 2008. Principal | |
advisor); Member of the Investment Advisory | Occupation(s) During the Past Five Years: Principal of | |
Committees of the Financial Industry Regulatory | The Vanguard Group, Inc.; Treasurer of each of the | |
Authority (FINRA) and of Major League Baseball. | investment companies served by The Vanguard | |
Group; Assistant Treasurer of each of the investment | ||
André F. Perold | companies served by The Vanguard Group (1988–2008). | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years: George | Heidi Stam | |
Gund Professor of Finance and Banking at the Harvard | Born 1956. Secretary Since July 2005. Principal | |
Business School (retired 2011); Chief Investment | Occupation(s) During the Past Five Years: Managing | |
Officer and Managing Partner of HighVista Strategies | Director of The Vanguard Group, Inc.; General Counsel | |
LLC (private investment firm); Director of Rand | of The Vanguard Group; Secretary of The Vanguard | |
Merchant Bank; Overseer of the Museum of Fine | Group and of each of the investment companies | |
Arts Boston. | served by The Vanguard Group; Director and Senior | |
Vice President of Vanguard Marketing Corporation. | ||
Alfred M. Rankin, Jr. | ||
Born 1941. Trustee Since January 1993. Principal | Vanguard Senior ManagementTeam | |
Occupation(s) During the Past Five Years: Chairman, | ||
President, and Chief Executive Officer of NACCO | Mortimer J. Buckley | Chris D. McIsaac |
Industries, Inc. (housewares/lignite) and of Hyster-Yale | Kathleen C. Gubanich | Michael S. Miller |
Materials Handling, Inc. (forklift trucks); Director of | Paul A. Heller | James M. Norris |
the National Association of Manufacturers; Chairman | Martha G. King | Glenn W. Reed |
of the Board of University Hospitals of Cleveland; | John T. Marcante | |
Advisory Chairman of the Board of The Cleveland | ||
Museum of Art. | ||
Chairman Emeritus and Senior Advisor | ||
John J. Brennan | ||
Peter F. Volanakis | Chairman, 1996–2009 | |
Born 1955. Trustee Since July 2009. Principal | Chief Executive Officer and President, 1996–2008 | |
Occupation(s) During the Past Five Years: President | ||
and Chief Operating Officer (retired 2010) of Corning | ||
Incorporated (communications equipment); Director | ||
of SPX Corporation (multi-industry manufacturing); | Founder | |
Overseer of the Amos Tuck School of Business | ||
Administration at Dartmouth College; Advisor to the | John C. Bogle | |
Norris Cotton Cancer Center. | Chairman and Chief Executive Officer, 1974–1996 |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard
State Tax-Exempt Funds.
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P.O. Box 2600 | ||
Valley Forge, PA 19482-2600 | ||
Connect with Vanguard® > vanguard.com | ||
Fund Information > 800-662-7447 | CFA® is a trademark owned by CFA Institute. | |
Direct Investor Account Services > 800-662-2739 | ||
Institutional Investor Services > 800-523-1036 | ||
Text Telephone for People | ||
With Hearing Impairment > 800-749-7273 | ||
This material may be used in conjunction | ||
with the offering of shares of any Vanguard | ||
fund only if preceded or accompanied by | ||
the fund’s current prospectus. | ||
All comparative mutual fund data are from Lipper Inc. or | ||
Morningstar, Inc., unless otherwise noted. | ||
You can obtain a free copy of Vanguard’s proxy voting | ||
guidelines by visiting vanguard.com/proxyreporting or by | ||
calling Vanguard at 800-662-2739. The guidelines are | ||
also available from the SEC’s website, sec.gov. In | ||
addition, you may obtain a free report on how your fund | ||
voted the proxies for securities it owned during the 12 | ||
months ended June 30. To get the report, visit either | ||
vanguard.com/proxyreporting or sec.gov. | ||
You can review and copy information about your fund at | ||
the SEC’s Public Reference Room in Washington, D.C. To | ||
find out more about this public service, call the SEC at | ||
202-551-8090. Information about your fund is also | ||
available on the SEC’s website, and you can receive | ||
copies of this information, for a fee, by sending a | ||
request in either of two ways: via e-mail addressed to | ||
publicinfo@sec.gov or via regular mail addressed to the | ||
Public Reference Section, Securities and Exchange | ||
Commission, Washington, DC 20549-1520. | ||
© 2013 The Vanguard Group, Inc. | ||
All rights reserved. | ||
Vanguard Marketing Corporation, Distributor. | ||
Q242 062013 |
Item 2: Code of Ethics.
Not Applicable.
Item 3: Audit Committee Financial Expert.
Not Applicable.
Item 4: Principal Accountant Fees and Services.
Not Applicable.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
Item 6: Investments.
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
Common Stocks (97.5%)1 | |||
Consumer Discretionary (18.1%) | |||
Dick's Sporting Goods Inc. | 1,494,010 | 71,862 | |
* | Life Time Fitness Inc. | 1,346,145 | 62,165 |
* | Urban Outfitters Inc. | 1,480,960 | 61,371 |
GameStop Corp. Class A | 1,514,492 | 52,856 | |
*,^ | Pandora Media Inc. | 3,569,200 | 49,719 |
* | Hanesbrands Inc. | 923,051 | 46,300 |
* | Buffalo Wild Wings Inc. | 480,654 | 43,259 |
DSW Inc. Class A | 611,729 | 40,447 | |
* | CarMax Inc. | 868,830 | 40,001 |
Dana Holding Corp. | 2,166,100 | 37,365 | |
* | Crocs Inc. | 2,220,600 | 35,574 |
* | Fifth & Pacific Cos. Inc. | 1,709,730 | 35,255 |
Texas Roadhouse Inc. Class A | 1,482,060 | 34,828 | |
Service Corp. International | 2,002,130 | 33,796 | |
Cheesecake Factory Inc. | 843,198 | 33,576 | |
* | MGM Resorts International | 2,284,830 | 32,262 |
Tractor Supply Co. | 297,915 | 31,928 | |
*,^ | Francesca's Holdings Corp. | 1,103,350 | 31,512 |
* | LKQ Corp. | 1,300,115 | 31,307 |
Churchill Downs Inc. | 407,750 | 31,177 | |
* | Standard Pacific Corp. | 3,314,100 | 29,993 |
Abercrombie & Fitch Co. | 585,400 | 29,012 | |
Brunswick Corp. | 888,925 | 28,143 | |
* | Tenneco Inc. | 713,377 | 27,586 |
* | Live Nation Entertainment Inc. | 2,179,380 | 27,526 |
Chico's FAS Inc. | 1,501,500 | 27,432 | |
* | TRW Automotive Holdings Corp. | 450,765 | 27,077 |
Gentex Corp. | 1,147,350 | 25,815 | |
* | Hibbett Sports Inc. | 466,261 | 25,574 |
* | AMC Networks Inc. Class A | 398,600 | 25,116 |
* | PulteGroup Inc. | 1,179,700 | 24,762 |
*,^ | Coinstar Inc. | 462,521 | 24,426 |
* | DreamWorks Animation SKG Inc. Class A | 1,259,740 | 24,288 |
Oxford Industries Inc. | 406,373 | 24,029 | |
* | Steven Madden Ltd. | 476,945 | 23,194 |
HSN Inc. | 429,900 | 22,604 | |
Cinemark Holdings Inc. | 701,600 | 21,672 | |
* | Tumi Holdings Inc. | 935,420 | 21,543 |
* | Cabela's Inc. | 333,100 | 21,385 |
* | Ulta Salon Cosmetics & Fragrance Inc. | 232,625 | 20,390 |
PetSmart Inc. | 297,155 | 20,278 | |
Group 1 Automotive Inc. | 331,276 | 20,036 | |
* | Denny's Corp. | 3,447,800 | 19,549 |
Ryland Group Inc. | 399,982 | 18,023 | |
Domino's Pizza Inc. | 306,322 | 16,909 | |
Lennar Corp. Class A | 387,325 | 15,965 | |
* | BJ's Restaurants Inc. | 447,149 | 15,337 |
* | Under Armour Inc. Class A | 265,000 | 15,126 |
* | Imax Corp. | 561,350 | 14,331 |
* | Steiner Leisure Ltd. | 287,490 | 13,923 |
* | Sally Beauty Holdings Inc. | 445,465 | 13,391 |
* | Grand Canyon Education Inc. | 488,700 | 12,496 |
* | Marriott Vacations Worldwide Corp. | 268,861 | 12,228 |
* | HomeAway Inc. | 397,300 | 12,137 |
*,^ | K12 Inc. | 457,847 | 11,661 |
Six Flags Entertainment Corp. | 158,341 | 11,538 | |
Stage Stores Inc. | 400,200 | 11,082 | |
* | Del Frisco's Restaurant Group Inc. | 648,235 | 10,962 |
* | Krispy Kreme Doughnuts Inc. | 801,886 | 10,954 |
* | Genesco Inc. | 171,700 | 10,568 |
Vail Resorts Inc. | 174,748 | 10,537 |
1
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
* | Bloomin' Brands Inc. | 482,995 | 10,505 |
*,^ | Tesla Motors Inc. | 192,900 | 10,415 |
* | ANN Inc. | 348,271 | 10,288 |
Sturm Ruger & Co. Inc. | 179,284 | 9,192 | |
Pier 1 Imports Inc. | 393,846 | 9,141 | |
Guess? Inc. | 325,000 | 8,996 | |
Sotheby's | 250,000 | 8,870 | |
*,^ | Vera Bradley Inc. | 388,000 | 8,854 |
Tiffany & Co. | 105,100 | 7,744 | |
* | Select Comfort Corp. | 362,796 | 7,698 |
* | Lululemon Athletica Inc. | 94,700 | 7,209 |
KB Home | 303,800 | 6,848 | |
* | Meritage Homes Corp. | 128,400 | 6,265 |
Aaron's Inc. | 184,718 | 5,303 | |
* | Express Inc. | 285,325 | 5,196 |
* | Fiesta Restaurant Group Inc. | 112,500 | 3,067 |
Brinker International Inc. | 77,699 | 3,022 | |
* | Goodyear Tire & Rubber Co. | 222,000 | 2,774 |
American Eagle Outfitters Inc. | 138,900 | 2,702 | |
* | Jarden Corp. | 58,800 | 2,647 |
* | Asbury Automotive Group Inc. | 64,400 | 2,582 |
* | Papa John's International Inc. | 40,600 | 2,558 |
Cracker Barrel Old Country Store Inc. | 30,000 | 2,482 | |
Regal Entertainment Group Class A | 135,400 | 2,429 | |
Buckle Inc. | 49,400 | 2,398 | |
Sinclair Broadcast Group Inc. Class A | 84,200 | 2,257 | |
Foot Locker Inc. | 64,500 | 2,249 | |
* | Conn's Inc. | 51,497 | 2,230 |
* | Smith & Wesson Holding Corp. | 247,000 | 2,169 |
* | Lamar Advertising Co. Class A | 39,500 | 1,849 |
Thor Industries Inc. | 45,700 | 1,695 | |
* | Netflix Inc. | 6,200 | 1,340 |
* | Carter's Inc. | 18,400 | 1,203 |
* | Multimedia Games Holding Co. Inc. | 48,600 | 1,198 |
DineEquity Inc. | 15,600 | 1,111 | |
Blyth Inc. | 60,600 | 999 | |
PVH Corp. | 7,000 | 808 | |
Pool Corp. | 14,300 | 701 | |
* | Lumber Liquidators Holdings Inc. | 7,800 | 639 |
* | Panera Bread Co. Class A | 3,550 | 629 |
Tupperware Brands Corp. | 7,500 | 602 | |
* | Jack in the Box Inc. | 14,300 | 513 |
PetMed Express Inc. | 29,500 | 369 | |
Dunkin' Brands Group Inc. | 7,500 | 291 | |
GNC Holdings Inc. Class A | 6,000 | 272 | |
Ameristar Casinos Inc. | 7,300 | 193 | |
Cooper Tire & Rubber Co. | 7,600 | 189 | |
Hot Topic Inc. | 9,300 | 130 | |
Movado Group Inc. | 3,100 | 94 | |
1,808,073 | |||
Consumer Staples (2.3%) | |||
* | Smithfield Foods Inc. | 1,638,310 | 41,941 |
^ | Herbalife Ltd. | 758,223 | 30,109 |
* | United Natural Foods Inc. | 598,194 | 29,874 |
Hillshire Brands Co. | 600,000 | 21,546 | |
PriceSmart Inc. | 179,800 | 16,043 | |
Glanbia plc | 1,091,466 | 14,622 | |
Casey's General Stores Inc. | 228,400 | 13,227 | |
McCormick & Co. Inc. | 170,751 | 12,284 | |
* | Fresh Market Inc. | 270,900 | 11,088 |
* | Susser Holdings Corp. | 124,096 | 6,598 |
* | Monster Beverage Corp. | 115,600 | 6,520 |
* | Green Mountain Coffee Roasters Inc. | 108,600 | 6,234 |
* | Hain Celestial Group Inc. | 74,722 | 4,876 |
2
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
* | Dean Foods Co. | 151,300 | 2,896 |
Nu Skin Enterprises Inc. Class A | 54,327 | 2,756 | |
Ingredion Inc. | 34,400 | 2,477 | |
* | Pilgrim's Pride Corp. | 251,386 | 2,461 |
* | Rite Aid Corp. | 816,000 | 2,162 |
227,714 | |||
Energy (5.2%) | |||
Cabot Oil & Gas Corp. | 675,915 | 45,996 | |
* | Superior Energy Services Inc. | 1,490,251 | 41,116 |
* | SemGroup Corp. Class A | 713,140 | 36,976 |
* | Atwood Oceanics Inc. | 640,525 | 31,418 |
^ | Core Laboratories NV | 215,475 | 31,196 |
* | ION Geophysical Corp. | 4,203,338 | 26,229 |
* | Southwestern Energy Co. | 689,230 | 25,791 |
* | Gulfport Energy Corp. | 466,740 | 24,359 |
* | Rosetta Resources Inc. | 564,600 | 24,227 |
* | Comstock Resources Inc. | 1,511,930 | 23,677 |
* | Whiting Petroleum Corp. | 444,585 | 19,784 |
Trican Well Service Ltd. | 1,432,300 | 18,710 | |
*,^ | Clean Energy Fuels Corp. | 1,138,020 | 15,010 |
* | TETRA Technologies Inc. | 1,593,216 | 14,546 |
* | Carrizo Oil & Gas Inc. | 577,442 | 13,986 |
^ | RPC Inc. | 1,044,250 | 13,826 |
* | Helix Energy Solutions Group Inc. | 515,867 | 11,886 |
* | Pioneer Energy Services Corp. | 1,635,718 | 11,532 |
* | McDermott International Inc. | 1,068,590 | 11,413 |
* | Kodiak Oil & Gas Corp. | 1,321,748 | 10,349 |
* | Approach Resources Inc. | 417,575 | 9,905 |
* | Rex Energy Corp. | 600,950 | 9,657 |
Oceaneering International Inc. | 134,900 | 9,466 | |
* | Key Energy Services Inc. | 1,566,200 | 9,303 |
Patterson-UTI Energy Inc. | 235,370 | 4,964 | |
* | Basic Energy Services Inc. | 330,000 | 4,531 |
CONSOL Energy Inc. | 132,000 | 4,440 | |
* | Alpha Natural Resources Inc. | 426,200 | 3,162 |
Western Refining Inc. | 70,600 | 2,182 | |
CVR Energy Inc. | 38,000 | 1,872 | |
HollyFrontier Corp. | 37,746 | 1,867 | |
*,^ | James River Coal Co. | 979,200 | 1,616 |
Energy XXI Bermuda Ltd. | 70,700 | 1,608 | |
* | Vaalco Energy Inc. | 237,500 | 1,596 |
* | Geospace Technologies Corp. | 12,600 | 1,063 |
* | Oil States International Inc. | 11,700 | 1,045 |
Alon USA Energy Inc. | 49,800 | 827 | |
521,131 | |||
Exchange-Traded Funds (1.9%) | |||
^,2 | Vanguard Small-Cap ETF | 865,083 | 79,086 |
^,2 | Vanguard Small-Cap Growth ETF | 713,200 | 70,985 |
^ | iShares Russell 2000 Index Fund | 459,899 | 43,295 |
193,366 | |||
Financials (6.9%) | |||
* | Affiliated Managers Group Inc. | 348,125 | 54,196 |
3 | HFF Inc. Class A | 1,935,888 | 40,557 |
NASDAQ OMX Group Inc. | 1,362,377 | 40,163 | |
Zions Bancorporation | 1,517,290 | 37,356 | |
Financial Engines Inc. | 959,200 | 34,886 | |
* | WisdomTree Investments Inc. | 2,953,884 | 34,265 |
*,3 | eHealth Inc. | 1,537,725 | 32,200 |
East West Bancorp Inc. | 1,220,110 | 29,685 | |
MFA Financial Inc. | 2,837,925 | 26,308 | |
Radian Group Inc. | 2,153,655 | 25,736 | |
National Penn Bancshares Inc. | 2,598,993 | 25,444 | |
Och-Ziff Capital Management Group LLC Class A | 2,458,918 | 25,228 |
3
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
International Bancshares Corp. | 1,284,755 | 24,924 | |
* | Signature Bank | 347,986 | 24,919 |
Protective Life Corp. | 609,747 | 23,207 | |
Primerica Inc. | 645,500 | 21,921 | |
*,^ | Zillow Inc. Class A | 336,000 | 19,767 |
Redwood Trust Inc. | 765,100 | 17,460 | |
Cathay General Bancorp | 740,538 | 14,596 | |
* | Stifel Financial Corp. | 448,073 | 14,437 |
First Horizon National Corp. | 1,099,800 | 11,438 | |
Validus Holdings Ltd. | 242,653 | 9,369 | |
Evercore Partners Inc. Class A | 236,380 | 8,923 | |
Cardinal Financial Corp. | 550,369 | 8,393 | |
* | DFC Global Corp. | 566,118 | 7,643 |
Cash America International Inc. | 174,200 | 7,600 | |
TCF Financial Corp. | 419,233 | 6,100 | |
Tower Group International Ltd. | 310,629 | 5,877 | |
OFS Capital Corp. | 341,326 | 4,761 | |
CapitalSource Inc. | 527,696 | 4,723 | |
Old National Bancorp | 368,975 | 4,494 | |
* | Portfolio Recovery Associates Inc. | 20,900 | 2,565 |
* | World Acceptance Corp. | 28,076 | 2,495 |
Federated Investors Inc. Class B | 108,500 | 2,491 | |
Allied World Assurance Co. Holdings AG | 27,400 | 2,488 | |
Omega Healthcare Investors Inc. | 66,800 | 2,196 | |
Nelnet Inc. Class A | 63,176 | 2,148 | |
* | Nationstar Mortgage Holdings Inc. | 57,400 | 2,111 |
* | First Cash Financial Services Inc. | 38,861 | 2,000 |
Extra Space Storage Inc. | 45,500 | 1,983 | |
Apartment Investment & Management Co. Class A | 63,200 | 1,966 | |
Regency Centers Corp. | 34,800 | 1,958 | |
* | Credit Acceptance Corp. | 19,135 | 1,920 |
Montpelier Re Holdings Ltd. | 71,100 | 1,832 | |
Home Properties Inc. | 23,700 | 1,528 | |
Bryn Mawr Bank Corp. | 58,794 | 1,366 | |
Ryman Hospitality Properties | 28,700 | 1,276 | |
Inland Real Estate Corp. | 111,600 | 1,263 | |
* | Realogy Holdings Corp. | 25,500 | 1,224 |
QC Holdings Inc. | 399,119 | 1,213 | |
Spirit Realty Capital Inc. | 52,000 | 1,120 | |
Coresite Realty Corp. | 30,800 | 1,114 | |
* | St. Joe Co. | 51,200 | 1,002 |
CBL & Associates Properties Inc. | 40,600 | 980 | |
Federal Realty Investment Trust | 6,300 | 737 | |
* | FelCor Lodging Trust Inc. | 115,200 | 689 |
Sovran Self Storage Inc. | 9,600 | 659 | |
Essex Property Trust Inc. | 3,900 | 612 | |
Rayonier Inc. | 10,127 | 602 | |
CBOE Holdings Inc. | 12,700 | 477 | |
GAMCO Investors Inc. | 6,800 | 357 | |
Camden Property Trust | 4,100 | 297 | |
First American Financial Corp. | 5,100 | 136 | |
691,381 | |||
Health Care (17.7%) | |||
Cooper Cos. Inc. | 939,864 | 103,761 | |
* | Alkermes plc | 3,149,735 | 96,413 |
* | Covance Inc. | 1,077,725 | 80,355 |
West Pharmaceutical Services Inc. | 1,044,845 | 66,724 | |
* | Regeneron Pharmaceuticals Inc. | 256,930 | 55,276 |
* | Onyx Pharmaceuticals Inc. | 579,709 | 54,956 |
*,^,3 | Optimer Pharmaceuticals Inc. | 3,287,240 | 50,755 |
* | Bruker Corp. | 2,768,270 | 49,192 |
* | Catamaran Corp. | 805,181 | 46,483 |
* | Salix Pharmaceuticals Ltd. | 877,915 | 45,906 |
Universal Health Services Inc. Class B | 631,020 | 42,020 |
4
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
* | Vertex Pharmaceuticals Inc. | 529,800 | 40,699 |
* | Seattle Genetics Inc. | 1,075,194 | 39,728 |
* | Health Management Associates Inc. Class A | 3,402,785 | 39,098 |
ResMed Inc. | 813,089 | 39,045 | |
* | ICON plc | 1,210,645 | 38,886 |
* | BioMarin Pharmaceutical Inc. | 589,900 | 38,697 |
* | WellCare Health Plans Inc. | 623,000 | 36,327 |
* | Cyberonics Inc. | 780,493 | 33,889 |
* | Henry Schein Inc. | 373,850 | 33,796 |
* | Actavis Inc. | 306,835 | 32,442 |
* | Insulet Corp. | 1,225,015 | 30,919 |
*,3 | Kindred Healthcare Inc. | 2,852,739 | 29,925 |
* | MedAssets Inc. | 1,592,046 | 29,819 |
* | Allscripts Healthcare Solutions Inc. | 2,130,100 | 29,481 |
* | Mettler-Toledo International Inc. | 140,159 | 29,288 |
* | Elan Corp. plc ADR | 2,377,568 | 27,818 |
* | Bio-Rad Laboratories Inc. Class A | 231,140 | 27,679 |
* | Luminex Corp. | 1,643,386 | 27,330 |
DENTSPLY International Inc. | 619,150 | 26,221 | |
* | ABIOMED Inc. | 1,368,300 | 25,273 |
* | Brookdale Senior Living Inc. Class A | 846,096 | 21,821 |
* | Nektar Therapeutics | 1,997,700 | 21,655 |
* | IPC The Hospitalist Co. Inc. | 430,358 | 19,633 |
* | QIAGEN NV | 913,800 | 18,166 |
* | Isis Pharmaceuticals Inc. | 806,639 | 18,061 |
* | WuXi PharmaTech Cayman Inc. ADR | 931,970 | 17,773 |
* | Jazz Pharmaceuticals plc | 302,938 | 17,676 |
* | Incyte Corp. Ltd. | 780,915 | 17,297 |
*,^ | Exelixis Inc. | 2,946,847 | 15,294 |
* | Alexion Pharmaceuticals Inc. | 142,703 | 13,985 |
* | Hyperion Therapeutics Inc. | 631,440 | 13,544 |
Air Methods Corp. | 357,002 | 13,063 | |
* | Edwards Lifesciences Corp. | 197,200 | 12,579 |
* | MWI Veterinary Supply Inc. | 99,376 | 11,698 |
* | ImmunoGen Inc. | 707,100 | 11,328 |
* | ICU Medical Inc. | 172,325 | 10,383 |
* | Akorn Inc. | 686,195 | 10,327 |
Meridian Bioscience Inc. | 502,714 | 10,200 | |
* | Align Technology Inc. | 295,900 | 9,800 |
* | Globus Medical Inc. | 611,794 | 9,312 |
* | Santarus Inc. | 443,440 | 8,146 |
* | Thoratec Corp. | 216,575 | 7,840 |
* | AVEO Pharmaceuticals Inc. | 1,514,500 | 7,739 |
* | Myriad Genetics Inc. | 250,314 | 6,971 |
* | NPS Pharmaceuticals Inc. | 488,404 | 6,559 |
* | HeartWare International Inc. | 65,925 | 6,408 |
Trinity Biotech plc ADR | 343,900 | 5,499 | |
*,^ | Vivus Inc. | 401,100 | 5,331 |
* | Sarepta Therapeutics Inc. | 170,100 | 4,940 |
* | Aegerion Pharmaceuticals Inc. | 112,142 | 4,714 |
Invacare Corp. | 346,250 | 4,657 | |
* | ViroPharma Inc. | 167,300 | 4,559 |
* | Volcano Corp. | 217,989 | 4,423 |
* | Tornier NV | 236,623 | 4,304 |
* | Array BioPharma Inc. | 716,145 | 4,261 |
* | Syneron Medical Ltd. | 438,797 | 3,918 |
* | Pharmacyclics Inc. | 39,600 | 3,227 |
* | United Therapeutics Corp. | 46,800 | 3,125 |
* | Cubist Pharmaceuticals Inc. | 61,400 | 2,819 |
* | PAREXEL International Corp. | 67,800 | 2,776 |
* | Amarin Corp. plc ADR | 373,350 | 2,767 |
Chemed Corp. | 33,106 | 2,702 | |
* | Charles River Laboratories International Inc. | 57,500 | 2,501 |
* | BioScrip Inc. | 167,558 | 2,322 |
5
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
* | Sirona Dental Systems Inc. | 31,500 | 2,317 |
* | Molina Healthcare Inc. | 63,450 | 2,107 |
PDL BioPharma Inc. | 214,300 | 1,659 | |
^ | Questcor Pharmaceuticals Inc. | 51,624 | 1,587 |
* | Orthofix International NV | 47,700 | 1,545 |
* | Team Health Holdings Inc. | 32,000 | 1,193 |
* | Auxilium Pharmaceuticals Inc. | 79,300 | 1,184 |
* | Bio-Reference Labs Inc. | 46,300 | 1,181 |
Select Medical Holdings Corp. | 138,900 | 1,146 | |
*,^ | Arena Pharmaceuticals Inc. | 138,700 | 1,143 |
* | IDEXX Laboratories Inc. | 7,900 | 695 |
* | Dyax Corp. | 112,800 | 310 |
* | Prothena Corp. plc | 37,394 | 309 |
* | Endocyte Inc. | 14,550 | 202 |
* | Agenus Inc. | 21,925 | 107 |
* | Affymax Inc. | 78,226 | 70 |
1,771,059 | |||
Industrials (16.0%) | |||
Kennametal Inc. | 1,693,065 | 67,706 | |
MSC Industrial Direct Co. Inc. Class A | 779,564 | 61,430 | |
* | WESCO International Inc. | 755,075 | 54,131 |
* | B/E Aerospace Inc. | 760,907 | 47,739 |
Pentair Ltd. | 865,650 | 47,048 | |
Triumph Group Inc. | 556,538 | 44,467 | |
Manpowergroup Inc. | 808,590 | 42,985 | |
Chicago Bridge & Iron Co. NV | 789,051 | 42,443 | |
Belden Inc. | 761,985 | 37,657 | |
A.O. Smith Corp. | 497,265 | 37,509 | |
* | IHS Inc. Class A | 374,220 | 36,460 |
Waste Connections Inc. | 958,900 | 36,390 | |
* | Middleby Corp. | 240,535 | 35,979 |
* | AerCap Holdings NV | 2,245,416 | 35,635 |
* | Mobile Mini Inc. | 1,250,700 | 35,182 |
* | EnerSys Inc. | 724,115 | 33,193 |
* | JetBlue Airways Corp. | 4,777,800 | 32,919 |
* | Genesee & Wyoming Inc. Class A | 375,888 | 32,026 |
* | Moog Inc. Class A | 648,125 | 29,950 |
Flowserve Corp. | 184,475 | 29,169 | |
* | Armstrong World Industries Inc. | 565,535 | 28,865 |
* | Huron Consulting Group Inc. | 679,265 | 28,380 |
* | Clean Harbors Inc. | 495,375 | 28,222 |
* | Swift Transportation Co. | 1,957,700 | 27,447 |
Towers Watson & Co. Class A | 366,670 | 26,738 | |
* | Old Dominion Freight Line Inc. | 673,971 | 25,948 |
Con-way Inc. | 756,740 | 25,578 | |
* | RBC Bearings Inc. | 502,994 | 24,194 |
* | Teledyne Technologies Inc. | 310,903 | 23,336 |
AMETEK Inc. | 560,295 | 22,810 | |
*,^ | Polypore International Inc. | 530,155 | 22,229 |
* | Trimas Corp. | 722,507 | 22,036 |
Landstar System Inc. | 396,530 | 21,674 | |
Acuity Brands Inc. | 290,560 | 21,199 | |
* | Beacon Roofing Supply Inc. | 539,202 | 20,560 |
Lennox International Inc. | 318,546 | 19,750 | |
* | American Woodmark Corp. | 581,097 | 19,554 |
* | Hexcel Corp. | 623,550 | 19,018 |
* | Stericycle Inc. | 174,815 | 18,936 |
* | United Rentals Inc. | 331,026 | 17,415 |
Graco Inc. | 286,090 | 17,317 | |
UTi Worldwide Inc. | 1,152,235 | 16,926 | |
* | Quanta Services Inc. | 605,505 | 16,639 |
Corporate Executive Board Co. | 252,209 | 14,215 | |
* | CAI International Inc. | 542,519 | 13,829 |
* | Rush Enterprises Inc. Class A | 594,421 | 13,606 |
6
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
Kaman Corp. | 387,627 | 13,098 | |
Knight Transportation Inc. | 838,480 | 13,097 | |
TAL International Group Inc. | 295,682 | 12,241 | |
Nordson Corp. | 173,405 | 12,050 | |
Actuant Corp. Class A | 355,563 | 11,129 | |
Lindsay Corp. | 143,225 | 11,003 | |
H&E Equipment Services Inc. | 479,428 | 9,761 | |
Herman Miller Inc. | 381,569 | 9,574 | |
* | Avis Budget Group Inc. | 331,879 | 9,571 |
* | 51job Inc. ADR | 150,326 | 8,659 |
* | Aegion Corp. Class A | 380,405 | 8,011 |
* | MasTec Inc. | 264,328 | 7,348 |
KAR Auction Services Inc. | 321,000 | 7,181 | |
* | Advisory Board Co. | 136,496 | 6,709 |
Primoris Services Corp. | 272,200 | 5,999 | |
* | Thermon Group Holdings Inc. | 275,389 | 5,398 |
* | DigitalGlobe Inc. | 166,700 | 4,866 |
*,^ | Solarcity Corp. | 176,200 | 4,761 |
Exponent Inc. | 89,822 | 4,734 | |
* | Team Inc. | 118,173 | 4,580 |
* | Alaska Air Group Inc. | 54,624 | 3,367 |
Lincoln Electric Holdings Inc. | 62,500 | 3,298 | |
* | Hertz Global Holdings Inc. | 136,000 | 3,275 |
* | DXP Enterprises Inc. | 48,400 | 3,237 |
* | II-VI Inc. | 200,400 | 3,100 |
Dun & Bradstreet Corp. | 32,600 | 2,884 | |
* | US Airways Group Inc. | 168,200 | 2,843 |
Cintas Corp. | 58,100 | 2,607 | |
* | USG Corp. | 93,100 | 2,420 |
* | Fortune Brands Home & Security Inc. | 65,800 | 2,394 |
Deluxe Corp. | 61,609 | 2,350 | |
ITT Corp. | 81,100 | 2,238 | |
Mueller Water Products Inc. Class A | 342,800 | 2,029 | |
Carlisle Cos. Inc. | 31,200 | 2,024 | |
Hubbell Inc. Class B | 20,200 | 1,938 | |
Robert Half International Inc. | 57,600 | 1,890 | |
* | Taser International Inc. | 213,200 | 1,878 |
Steelcase Inc. Class A | 147,179 | 1,869 | |
Apogee Enterprises Inc. | 66,600 | 1,697 | |
Comfort Systems USA Inc. | 126,800 | 1,627 | |
Copa Holdings SA Class A | 11,900 | 1,494 | |
Standex International Corp. | 28,000 | 1,481 | |
Mine Safety Appliances Co. | 26,700 | 1,282 | |
Generac Holdings Inc. | 26,900 | 967 | |
* | Trex Co. Inc. | 19,300 | 940 |
Mueller Industries Inc. | 13,700 | 709 | |
Argan Inc. | 34,949 | 619 | |
* | Republic Airways Holdings Inc. | 54,100 | 605 |
Toro Co. | 7,600 | 342 | |
* | PGT Inc. | 43,500 | 335 |
Barrett Business Services Inc. | 5,600 | 297 | |
TransDigm Group Inc. | 1,400 | 206 | |
1,604,451 | |||
Information Technology (22.9%) | |||
* | Alliance Data Systems Corp. | 659,243 | 113,238 |
*,3 | TiVo Inc. | 7,099,360 | 83,204 |
* | Ultimate Software Group Inc. | 711,499 | 68,724 |
* | PTC Inc. | 2,825,416 | 67,838 |
* | Cadence Design Systems Inc. | 4,878,410 | 67,322 |
* | Aruba Networks Inc. | 2,885,758 | 64,901 |
*,^ | First Solar Inc. | 1,364,468 | 63,530 |
* | Sapient Corp. | 4,729,418 | 55,240 |
* | QLIK Technologies Inc. | 1,847,900 | 48,064 |
* | Euronet Worldwide Inc. | 1,516,705 | 46,305 |
7
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
* | Teradyne Inc. | 2,548,220 | 41,893 |
* | Rovi Corp. | 1,740,720 | 40,715 |
* | Trimble Navigation Ltd. | 1,390,340 | 39,958 |
* | Microsemi Corp. | 1,769,027 | 36,796 |
Convergys Corp. | 2,115,785 | 36,011 | |
* | Finisar Corp. | 2,796,160 | 35,903 |
j2 Global Inc. | 872,229 | 35,500 | |
* | WNS Holdings Ltd. ADR | 2,345,087 | 35,036 |
IAC/InterActiveCorp | 707,435 | 33,299 | |
* | ValueClick Inc. | 1,043,485 | 32,202 |
* | Silicon Laboratories Inc. | 796,638 | 31,634 |
FEI Co. | 490,720 | 31,347 | |
Genpact Ltd. | 1,684,400 | 31,330 | |
* | MICROS Systems Inc. | 719,825 | 30,528 |
* | LinkedIn Corp. Class A | 157,300 | 30,216 |
* | F5 Networks Inc. | 382,585 | 29,241 |
* | NCR Corp. | 1,057,540 | 28,839 |
* | Sourcefire Inc. | 603,200 | 28,809 |
* | Infoblox Inc. | 1,299,400 | 28,730 |
* | RADWARE Ltd. | 1,855,688 | 27,817 |
Cypress Semiconductor Corp. | 2,590,740 | 26,141 | |
* | ON Semiconductor Corp. | 3,305,240 | 25,979 |
* | Imperva Inc. | 654,300 | 25,505 |
* | Acxiom Corp. | 1,275,000 | 25,360 |
^ | IPG Photonics Corp. | 392,900 | 25,020 |
* | Informatica Corp. | 724,330 | 23,852 |
* | JDS Uniphase Corp. | 1,722,820 | 23,258 |
* | Red Hat Inc. | 480,400 | 23,026 |
* | NICE Systems Ltd. ADR | 631,945 | 22,415 |
* | Bankrate Inc. | 1,644,830 | 22,172 |
* | Nuance Communications Inc. | 1,153,020 | 21,953 |
* | WEX Inc. | 286,200 | 21,688 |
* | Concur Technologies Inc. | 295,585 | 21,610 |
FactSet Research Systems Inc. | 220,550 | 20,747 | |
Heartland Payment Systems Inc. | 609,219 | 20,037 | |
* | Atmel Corp. | 3,088,985 | 19,986 |
* | Riverbed Technology Inc. | 1,271,700 | 18,897 |
MercadoLibre Inc. | 186,230 | 18,733 | |
Fair Isaac Corp. | 396,410 | 18,465 | |
* | Cardtronics Inc. | 648,908 | 18,176 |
* | Salesforce.com Inc. | 440,560 | 18,111 |
*,^ | Liquidity Services Inc. | 522,364 | 17,186 |
* | Ciena Corp. | 1,147,120 | 17,161 |
* | Aspen Technology Inc. | 524,030 | 15,972 |
Syntel Inc. | 244,262 | 15,430 | |
* | Akamai Technologies Inc. | 349,884 | 15,363 |
* | Global Cash Access Holdings Inc. | 2,019,160 | 14,397 |
* | Dealertrack Technologies Inc. | 515,889 | 14,368 |
Avago Technologies Ltd. Class A | 422,630 | 13,507 | |
*,^ | RealD Inc. | 864,200 | 12,937 |
* | SPS Commerce Inc. | 270,900 | 12,768 |
*,^ | Ruckus Wireless Inc. | 644,600 | 12,441 |
* | VeriFone Systems Inc. | 570,240 | 12,249 |
^ | Ubiquiti Networks Inc. | 772,900 | 11,941 |
Mentor Graphics Corp. | 648,580 | 11,843 | |
* | Hittite Microwave Corp. | 205,763 | 11,545 |
* | Nanometrics Inc. | 819,392 | 11,496 |
National Instruments Corp. | 415,053 | 11,343 | |
*,^ | Stratasys Ltd. | 136,000 | 11,295 |
* | Manhattan Associates Inc. | 159,965 | 11,231 |
* | FleetCor Technologies Inc. | 144,374 | 11,102 |
* | Semtech Corp. | 336,185 | 10,781 |
* | Brocade Communications Systems Inc. | 1,815,700 | 10,567 |
* | CoStar Group Inc. | 96,300 | 10,440 |
8
Vanguard® Explorer Fund | |||
Schedule of Investments | |||
April 30, 2013 | |||
Market | |||
Value | |||
Shares | ($000) | ||
* | Angie's List Inc. | 424,470 | 10,289 |
* | Ultratech Inc. | 314,904 | 9,280 |
* | Super Micro Computer Inc. | 945,402 | 9,095 |
* | Entropic Communications Inc. | 2,055,200 | 8,714 |
Power Integrations Inc. | 208,160 | 8,620 | |
* | Ixia | 480,474 | 7,913 |
* | CommVault Systems Inc. | 107,280 | 7,889 |
* | Tyler Technologies Inc. | 115,000 | 7,273 |
Anixter International Inc. | 98,372 | 7,057 | |
Littelfuse Inc. | 100,000 | 6,982 | |
* | Progress Software Corp. | 300,000 | 6,771 |
* | SolarWinds Inc. | 132,455 | 6,735 |
* | Diodes Inc. | 317,775 | 6,438 |
* | OSI Systems Inc. | 102,242 | 5,858 |
* | PROS Holdings Inc. | 225,000 | 5,832 |
* | Vocus Inc. | 654,215 | 5,502 |
Monolithic Power Systems Inc. | 220,000 | 5,306 | |
* | BroadSoft Inc. | 186,232 | 4,760 |
* | Dropbox Private Placement | 445,203 | 4,283 |
* | Virtusa Corp. | 188,000 | 4,175 |
* | Interactive Intelligence Group Inc. | 100,629 | 4,169 |
* | Gartner Inc. | 66,938 | 3,872 |
Jack Henry & Associates Inc. | 70,700 | 3,280 | |
* | LSI Corp. | 452,200 | 2,957 |
MAXIMUS Inc. | 36,824 | 2,935 | |
Total System Services Inc. | 120,800 | 2,853 | |
Lender Processing Services Inc. | 99,300 | 2,755 | |
AOL Inc. | 60,800 | 2,349 | |
* | Vantiv Inc. Class A | 102,000 | 2,298 |
DST Systems Inc. | 32,896 | 2,275 | |
* | Freescale Semiconductor Ltd. | 138,200 | 2,139 |
* | Zebra Technologies Corp. | 45,800 | 2,137 |
* | ARRIS Group Inc. | 122,900 | 2,029 |
* | CalAmp Corp. | 180,461 | 2,009 |
* | CACI International Inc. Class A | 33,600 | 1,965 |
* | Unisys Corp. | 95,340 | 1,824 |
* | Plexus Corp. | 65,500 | 1,767 |
Booz Allen Hamilton Holding Corp. | 103,141 | 1,567 | |
Broadridge Financial Solutions Inc. | 61,100 | 1,538 | |
Intersil Corp. Class A | 175,495 | 1,362 | |
* | MEMC Electronic Materials Inc. | 231,900 | 1,252 |
MTS Systems Corp. | 20,500 | 1,249 | |
* | Electronics for Imaging Inc. | 41,600 | 1,112 |
* | RF Micro Devices Inc. | 197,030 | 1,105 |
* | Silicon Graphics International Corp. | 62,200 | 809 |
* | Exar Corp. | 71,200 | 768 |
* | Cray Inc. | 35,000 | 741 |
* | CSG Systems International Inc. | 24,000 | 519 |
* | Silicon Image Inc. | 99,100 | 489 |
* | Extreme Networks | 120,400 | 401 |
* | NeuStar Inc. Class A | 8,800 | 386 |
* | ATMI Inc. | 17,200 | 374 |
* | Cirrus Logic Inc. | 12,300 | 238 |
* | MaxLinear Inc. | 31,600 | 197 |
2,299,156 | |||
Materials (5.3%) | |||
KapStone Paper and Packaging Corp. | 1,459,740 | 43,179 | |
* | Graphic Packaging Holding Co. | 5,446,464 | 40,957 |
Smurfit Kappa Group plc | 2,647,757 | 39,379 | |
Ashland Inc. | 437,590 | 37,287 | |
Methanex Corp. | 850,490 | 36,044 | |
* | WR Grace & Co. | 460,835 | 35,535 |
PolyOne Corp. | 1,517,260 | 34,184 | |
Albemarle Corp. | 503,935 | 30,866 |
9
Vanguard® Explorer Fund | |||||
Schedule of Investments | |||||
April 30, 2013 | |||||
Market | |||||
Value | |||||
Shares | ($000) | ||||
Minerals Technologies Inc. | 738,460 | 30,004 | |||
Ball Corp. | 627,085 | 27,667 | |||
* | Ferro Corp. | 3,700,555 | 26,052 | ||
FMC Corp. | 423,170 | 25,686 | |||
Allegheny Technologies Inc. | 841,700 | 22,709 | |||
Schweitzer-Mauduit International Inc. | 561,200 | 22,611 | |||
Carpenter Technology Corp. | 413,430 | 18,588 | |||
Silgan Holdings Inc. | 363,545 | 17,403 | |||
Globe Specialty Metals Inc. | 984,337 | 12,855 | |||
* | OM Group Inc. | 188,200 | 4,605 | ||
Valspar Corp. | 57,200 | 3,651 | |||
Packaging Corp. of America | 68,800 | 3,272 | |||
* | Owens-Illinois Inc. | 113,100 | 2,972 | ||
NewMarket Corp. | 10,473 | 2,814 | |||
Axiall Corp. | 51,600 | 2,706 | |||
Rock Tenn Co. Class A | 24,900 | 2,493 | |||
Walter Energy Inc. | 119,800 | 2,147 | |||
Westlake Chemical Corp. | 25,000 | 2,079 | |||
* | Berry Plastics Group Inc. | 72,500 | 1,378 | ||
Olin Corp. | 46,932 | 1,134 | |||
International Flavors & Fragrances Inc. | 5,300 | 409 | |||
* | Chemtura Corp. | 6,700 | 142 | ||
Steel Dynamics Inc. | 6,500 | 98 | |||
530,906 | |||||
Telecommunication Services (1.2%) | |||||
* | SBA Communications Corp. Class A | 445,045 | 35,154 | ||
* | Vonage Holdings Corp. | 10,235,890 | 31,219 | ||
* | tw telecom inc Class A | 1,105,725 | 29,943 | ||
Cogent Communications Group Inc. | 831,788 | 23,822 | |||
*,^ | magicJack VocalTec Ltd. | 119,100 | 1,969 | ||
Atlantic Tele-Network Inc. | 9,900 | 503 | |||
* | Fairpoint Communications Inc. | 20,700 | 169 | ||
122,779 | |||||
Utilities (0.0%) | |||||
American States Water Co. | 17,700 | 982 | |||
Otter Tail Corp. | 26,200 | 817 | |||
1,799 | |||||
Total Common Stocks (Cost $7,215,556) | 9,771,815 | ||||
Coupon | |||||
Temporary Cash Investments (4.7%)1 | |||||
Money Market Fund (4.3%) | |||||
4,5 | Vanguard Market Liquidity Fund | 0.142% | 428,920,421 | 428,920 | |
Face | |||||
Maturity | Amount | ||||
Date | ($000) | ||||
Repurchase Agreement (0.3%) | |||||
Deutsche Bank Securities, Inc.(Dated 4/30/13, | |||||
Repurchase Value $34,300,000, collateralized by | |||||
Government National Mortgage Assn. 2.250%- | |||||
3.500%, 10/20/26-5/15/53) | 0.170% | 5/1/13 | 34,300 | 34,300 | |
U.S. Government and Agency Obligations (0.1%) | |||||
6,7 | Federal Home Loan Bank Discount Notes | 0.115% | 6/5/13 | 400 | 400 |
10
Vanguard® Explorer Fund | ||||
Schedule of Investments | ||||
April 30, 2013 | ||||
Face | Market | |||
Maturity | Amount | Value | ||
Coupon | Date | ($000) | ($000) | |
7,8 Freddie Mac Discount Notes | 0.130% | 9/16/13 | 6,000 | 5,996 |
6,396 | ||||
Total Temporary Cash Investments (Cost $469,617) | 469,616 | |||
Total Investments (102.2%) (Cost $7,685,173) | 10,241,431 | |||
Other Assets and Liabilities—Net (-2.2%)5 | (218,101) | |||
Net Assets (100%) | 10,023,330 |
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $177,443,000.
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 98.7% and 3.5%, respectively, of net
assets.
2 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
3 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day
yield.
5 Includes $181,677,000 of collateral received for securities on loan.
6 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full
faith and credit of the U.S. government.
7 Securities with a value of $5,996,000 have been segregated as initial margin for open futures contracts.
8 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal
Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior
preferred stock.
ADR—American Depositary Receipt.
11
© 2013 The Vanguard Group. Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
SNA242 062013
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not Applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not Applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not Applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11: 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 Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
(a) Certifications.
0282367, v0.33
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: | /s/ F. WILLIAM MCNABB III* |
F. WILLIAM MCNABB III | |
CHIEF EXECUTIVE OFFICER | |
Date: June 19, 2013 |
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: | /s/ F. WILLIAM MCNABB III* |
F. WILLIAM MCNABB III | |
CHIEF EXECUTIVE OFFICER | |
| |
Date: June 19, 2013 | |
| VANGUARD EXPLORER FUND |
| |
BY: | /s/ THOMAS J. HIGGINS* |
THOMAS J. HIGGINS | |
CHIEF FINANCIAL OFFICER | |
Date: June 19, 2013 |
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on March 27, 2012 see file Number
2-11444, Incorporated by Reference.