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, 2013 – October 31, 2014 | ||
Item 1: Reports to Shareholders | ||
Annual Report | October 31, 2014
Vanguard Explorer™ Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Advisors’ Report. | 8 |
| Fund Profile. | 15 |
| Performance Summary. | 17 |
| Financial Statements. | 19 |
| Your Fund’s After-Tax Returns. | 34 |
| About Your Fund’s Expenses. | 35 |
| Trustees Approve Advisory Arrangement. | 37 |
| Glossary. | 39 |
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: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns
| Fiscal Year Ended October 31, 2014 | |
| Total | |
| Returns | |
| Vanguard Explorer Fund | |
| Investor Shares | 8.20% |
| Admiral™ Shares | 8.37 |
| Russell 2500 Growth Index | 10.24 |
| Small-Cap Growth Funds Average | 5.89 |
| Small-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| 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, 2013, Through October 31, 2014 | ||||
| Distributions Per Share | ||||
| Starting | Ending | |||
| Share | Share | Income | Capital | |
| Price | Price | Dividends | Gains | |
| Vanguard Explorer Fund | ||||
| Investor Shares | $107.96 | $105.28 | $0.040 | $10.822 |
| Admiral Shares | 100.54 | 98.03 | 0.216 | 10.062 |
1
Chairman’s Letter
Dear Shareholder,
U.S. stocks climbed to record highs during the 12 months ended October 31, 2014, despite occasional reversals triggered by worries about the pace of economic growth, the prospect of rising interest rates, and bouts of geopolitical instability.
Companies with larger market capitalizations, which tend to have steadier earnings and higher yields, held more allure for investors as prospects for economic growth cooled. The attractive valuations of such companies also played a role, especially after the strong run enjoyed by small-cap stocks since the financial crisis of 2008–2009.
In this market, Vanguard Explorer Fund returned a little over 8% for the 12 months, which was only about half the return of the broad U.S. market. The fund finished roughly 2 percentage points behind the return of its benchmark, the Russell 2500 Growth Index, but more than 2 percentage points ahead of the average return of its peers.
If you own shares of your fund in a taxable account, you may wish to review the after-tax returns that appear later in this report.
Their smooth ride turned jagged, but U.S. stocks ended higher
Punctuated by a roller coaster of an October, the broad U.S. stock market returned about 16% for the 12 months ended October 31.
Impressive corporate earnings and various global stimulus measures generally supported the market against a bleaker backdrop that included tensions in the Middle East and Ukraine and other international economic concerns. But over the first two weeks of October, stocks declined sharply as investors reacted to weakness in the global economy, especially the slowdown in China and the threat of deflation in Europe. Reflecting confidence in the U.S. economy, the
Federal Reserve announced on October 29 that it was ending its stimulative bond-buying program as anticipated.
U.S. stocks staged an impressive rebound in the period’s final two weeks, and several major indexes finished at record highs. International stocks didn’t fare as well. Emerging markets posted a modest advance, and stocks from the developed markets of Europe and the Pacific region slipped.
U.S. bonds posted positive returns as already low yields declined
The broad U.S. taxable bond market returned 4.14%. Bond prices, which backtracked at times over the summer, climbed in October as investors sought sanctuary from stock market volatility.
| Market Barometer | |||
| Average Annual Total Returns | |||
| Periods Ended October 31, 2014 | |||
| One | Three | Five | |
| Year | Years | Years | |
| Stocks | |||
| Russell 1000 Index (Large-caps) | 16.78% | 19.90% | 16.98% |
| Russell 2000 Index (Small-caps) | 8.06 | 18.18 | 17.39 |
| Russell 3000 Index (Broad U.S. market) | 16.07 | 19.77 | 17.01 |
| FTSE All-World ex US Index (International) | 0.45 | 8.07 | 6.38 |
| Bonds | |||
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 4.14% | 2.73% | 4.22% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 7.82 | 4.93 | 5.26 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.04 | 0.04 | 0.06 |
| CPI | |||
| Consumer Price Index | 1.66% | 1.60% | 1.89% |
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Overall, returns have been strong despite many analysts’ expectations that already low yields wouldn’t decline further. Prices rose and yields fell even as the Fed began steadily reducing its bond purchases in January. (Bond prices and yields move in opposite directions.) The yield of the 10-year U.S. Treasury note ended October at 2.31%, down from 2.54% a year earlier.
Municipal bonds returned 7.82%, with tax-exempt issues in high demand even at a time of reduced supply.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) slid in September and October en route to a –2.53% return for the 12 months.
The Fed’s target for short-term interest rates remained at 0%–0.25%, restraining returns for money market funds and savings accounts.
Small-cap stocks fell behind as the fund lagged in most sectors
Vanguard Explorer Fund focuses on the stocks of small U.S. companies with strong growth potential. Its advisors’ selections lagged when measured against the Russell 2500 Growth Index, which includes some mid-capitalization stocks; both mid- and large-caps outpaced small-caps overall during the period.
Seven of the ten industry sectors produced positive returns for the fund. The weakest sectors compared to their benchmark counterparts were consumer discretionary
| Expense Ratios | |||
| Your Fund Compared With Its Peer Group | |||
| Investor | Admiral | Peer Group | |
| Shares | Shares | Average | |
| Explorer Fund | 0.52% | 0.35% | 1.42% |
| The fund expense ratios shown are from the prospectus dated August 15, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended October 31, 2014, the fund’s expense ratios were 0.51% for Investor Shares and 0.35% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2013. | |||
Peer group: Small-Cap Growth Funds.
4
and health care, which together accounted for three-quarters of Explorer’s underper-formance.
Consumer discretionary stocks in the index returned around 4%, but the fund’s corresponding holdings were flat. Gains from the advisors’ positive selections in the hotels, restaurant, and leisure subsector couldn’t offset losses elsewhere. In health care, the advisors did very well in pharmaceuticals (89%), but that wasn’t enough to make up for a significant underweight position in biotechnology. The fund’s stocks in this growing field did almost as well (32%) as their counterparts in the index (34%). However, the fund’s weighting in the subsector was less than half that of the index.
The fund outpaced the index in just two sectors: financials and utilities. In financials, the advisors’ selections beat the benchmark by about 3 percentage points. The thrifts and mortgage finance subsector (9%) provided a nice boost even as it returned –29% for the index. The small utilities sector was another bright spot as the advisors’ handful of picks returned 32%, about 18 percentage points more than the utilities in the index.
For more about the advisors’ strategies and the fund’s positioning during the 12 months, see the Advisors’ Report that follows this letter.
| Total Returns | |
| Ten Years Ended October 31, 2014 | |
| Average | |
| Annual Return | |
| Explorer Fund Investor Shares | 9.17% |
| Russell 2500 Growth Index | 10.26 |
| Small-Cap Growth Funds Average | 8.08 |
| Small-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
The figures shown represent past performance, which is not a guarantee of future results. (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.
5
The fund’s long-term record compares favorably with its peers
Seasoned investors know that small-cap stocks are generally more volatile than large-caps. Along with the opportunity for sizable gains come the risks of underperformance or substantial losses. For example, the Explorer Fund’s most recent 12-month return of about 8% is significantly lower than the 12-month return of about 43% that we reported a year ago. But the fund’s reliance on the different but complementary strategies of its eight advisors and its broad exposure to more than 650 stocks can help to reduce the risk inherent in small-caps.
Time also “smooths out” volatility. For the decade ended October 31, 2014, the Explorer Fund’s Investor Shares recorded an average annual return of 9.17%. The fund trailed its index, which has no expenses, but outperformed its peer-group average by about 1 percentage point.
Over the longer term, the fund has done well: For the 25 years ended October 31, it outpaced its benchmark index by about a full percentage point, returning 10.6% on average annually, compared with 9.5% for the index. We’re confident that the advisors’ skill, supported by the fund’s low costs, will continue this competitive performance over the long term.
When market volatility heats up, the best response is to stay cool
After several years of strength, stocks hit a rough patch toward the close of the fiscal year, as I noted earlier. For the first half of October, global stock markets (as measured by the FTSE Global All Cap Index) returned –5.56%. Even though stocks rebounded in the second half of the month, many investors undoubtedly were left feeling unsettled.
What’s my best advice to anxious shareholders? Remain calm and remember that volatility is a normal part of stock market investing. The value of keeping a cool head is highlighted in a Vanguard research paper that looked at how investors behaved during the financial crisis, when global stocks declined about 58% and U.S. stocks about 55%.
The 2010 paper, Resilience in Volatile Markets: 401(k) Participant Behavior, September 2007–December 2009, examined the behavior of participants in Vanguard-administered retirement plans. During that time, about three-quarters of participants made no changes to their accounts, and only 3% gave up on stocks completely.
As stocks recovered, this discipline yielded big benefits. From the end of 2008 to the end of 2013, the average Vanguard 401(k) portfolio nearly doubled in value, largely because of the surge in stock prices.
6
I’m pleased that, over time, our clients have demonstrated an impressive ability to remain focused on their long-term goals. They stayed the course through the 1987 correction, the dot-com boom of the 1990s, and the more recent financial crisis, and they continue to do so today.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
November 13, 2014
7
Advisors’ Report
For the 12 months ended October 31, 2014, Vanguard Explorer Fund returned about 8% for both share classes. Your fund is managed by eight independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct yet 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 that begins on page 13. The advisors have provided the following assessment of the investment environment during the past 12 months and the notable successes and shortfalls in their portfolios. These comments were prepared on November 21, 2014.
Wellington Management Company, llp
Portfolio Managers:
Kenneth L. Abrams, Senior Vice President
and Equity Portfolio Manager
Daniel J. Fitzpatrick, CFA, Vice President
and Equity Portfolio Manager
For the 12 months ended October 31, 2014, smaller-capitalization stocks returned 10.24% as measured by the fund’s benchmark, the Russell 2500 Growth Index. After posting dramatic gains in 2013, smaller-caps have exhibited more volatility this year, with substantially more variation in sector and industry results.
As has been the case over longer time spans, our results for this period were driven by strong stock selection. Our choices were especially helpful in industrials, energy, and materials.
AerCap Holdings, a Netherlands-based integrated global aviation company, contributed most to our portfolio’s relative performance, boosted by its announcement that it would acquire the aircraft leasing business of AIG.
We eliminated the position into strength. Shares of Kindred Healthcare, a diversified provider of post-acute health care services in the United States, also rallied, returning more than 60%; we continue to own the stock.
Weak stock selection in telecommunication services had a modestly negative impact on relative performance. Our underweight allocation to health care (an indirect result of our individual stock picks) also hurt, as health care generated the strongest sector returns for the benchmark.
Health care insurance services firm eHealth was among the largest relative detractors. The firm’s revenues were below consensus expectations in the face of declining conversion rates and lower per-member commissions in the second quarter of 2014. We maintained our position as we believe the company remains a long-term beneficiary of the “consumerization” of health care benefits.
8
Television and movie producer Dream-Works Animation lagged as well. Business activity in the company’s 2014 projections trailed expectations, and recognition of key television-related revenue was delayed until 2015. We continue to own Dream-Works and believe the company is building new businesses in TV and online and will deliver a very strong film lineup in 2016.
Kalmar Investment Advisers
Portfolio Managers:
Ford B. Draper, Jr., President,
Chief Investment Officer, and
Co-Leader of the Investment Team
Dana F. Walker, CFA, Portfolio Manager,
and Co-Leader of the Investment Team
During the fiscal year, the U.S. equity market was rewarding for small- to mid-sized stocks but more so for larger companies. Further down the size spectrum there was more volatility, including a sharp correction that affected stocks of every size from mid-September through mid-October. This was followed by an equally abrupt rally to all-time highs for the major averages. The causes of the correction were rising geopolitical risk, the approaching switch from Fed stimulus to tightening, and increasing worries about global slowing outside the United States, especially in Europe and China. This also resulted in a pronounced advance in the U.S. dollar and widespread weakness in commodities, including oil prices.
Still, the risk of a recession appears to be several years away. Sturdier U.S. growth seems likely to provide demand that should allow growth to be maintained in important world economies. With equity valuations not extreme, we believe the beneficial outlook of the last several years can continue, albeit with more market corrections. The United States should remain, as we like to put it, “the best house on the world block.”
For the fiscal year, the financial services sector, and Alliance Data Systems in particular, added most to our returns. Other significant contributors included Salix Pharmaceuticals, The Cooper Companies, and Actavis in health care. United Rentals, F5 Networks, PolyOne, and CarMax were notable successes in other areas.
Our biggest laggards were the information technology, health care, and energy sectors. In IT, individual stocks such as Acxiom hurt most; in health care, we did not own the red-hot biotechnology companies; and in energy, an unexpectedly steep decline in oil prices dragged down the sector’s returns. Other individual detractors included Conn’s, Chicago Bridge & Iron, and Urban Outfitters.
9
Granahan Investment
Management, Inc.
Portfolio Managers:
Gary C. Hatton, CFA, Co-Founder
and Chief Investment Officer
Jane M. White, Co-Founder,
President, and Chief Executive Officer
Jennifer M. Pawloski,
Vice President
John V. Schneider, CFA,
Vice President
In the first three quarters of the period, earnings growth for the companies in our portfolio was steady but lackluster. Since then, earnings growth rates have accelerated significantly and valuations have come down appreciably. As always, our industry experts continue to seek out small U.S. companies benefiting from innovation and dynamic change. We then use our investment process, honed over more than 30 years, to construct a strong portfolio.
Our best performer for the fiscal year was Super Micro Computer. Three of our top five contributors were in health care: Alkermes, Exact Sciences, and Vertex Pharmaceuticals. Euronet Worldwide and FactSet drove outperformance in financial services.
Shortfalls included Pandora Media and Crocs in consumer discretionary, Natural Grocers in consumer staples, DXP Enterprises in industrials, and OM Group in materials.
Stephens Investment Management
Group, LLC
Portfolio Manager:
Ryan E. Crane, CFA,
Chief Investment Officer
As the domestic economy continued to show signs of improvement, the Federal Reserve’s quantitative easing policy has—coincidentally and appropriately—ended in October. However, this introduced some volatility and uncertainty into the market as investors shifted strategies to deal with the new environment. Ultimately, we believe the volatility represents a lack of strong consensus. This is a good thing, because it creates a market with more opportunities for stock picking.
Our strongest performers were health care stocks, particularly in biotechnology, pharmaceuticals, and companies involved in the drug discovery process. Despite early volatility, our information technology stocks also did well. We have significant exposure to software and network security companies, where fundamentals remain robust.
Following a period of strong relative and absolute performance for our portfolio, our investment style faced some turbulence during the past 12 months. Despite generally strong fundamentals and compelling secular growth, many of our holdings trailed as the market digested higher valuations and rewarded more cyclically sensitive stocks. This trend cut across nearly every sector and industry.
10
Chartwell Investment Partners, Inc.
Portfolio Managers:
Edward N. Antoian, CFA, CPA,
Managing Partner
John A. Heffern, Managing Partner
and Senior Portfolio Manager
The financial markets rallied over the last 12 months, but beneath the surface the economic environment remains uncertain and the markets turbulent. More than ever, stock selection seems central to investment performance. Against this backdrop, our portfolio decisions steadfastly reflect our bias toward quality, leadership, defensible margins, and a pattern of successful execution around growth-oriented business models.
Akorn was our top contributor. The fast-growing generic drug company attained strong results through pricing power on key products and an improving financial outlook. A pickup in new drug approvals is encouraging for Akorn’s large pipeline. Avis Budget Group, a global vehicle rental services company, benefited from a strengthening pricing structure, cost execution, and a more aggressive capital allocation process.
Independent energy company Rex Energy underperformed in sympathy with weakening natural gas commodity prices. Its successful strategic moves have been offset by higher relative leverage. Slowed momentum and lower revenue guidance at biotechnology firm
Aegerion Pharmaceuticals was associated with concerns about one of the drugs it is developing.
Century Capital Management, LLC
Portfolio Manager:
Alexander L. Thorndike, Managing Partner
The equity markets continued to march upward during the period. The domestic economic recovery appears to be intact. Corporate earnings and profit margins remain strong, unemployment is dropping, and the index of leading economic indicators keeps rising. After several years of strong returns for the stock market, companies now seem fairly valued but are enjoying the benefits of historically low interest rates and energy prices.
Globally, the economic outlook in Europe has decelerated along with growth in most emerging markets. The Chinese economy is growing at a rate lower than previously expected. Although slower overseas growth could affect domestic growth, we remain optimistic about the state of the U.S. economy and are still finding attractive investment candidates. We will continue to trim and build around high-quality franchises with solid fundamentals, competitive advantages, and pricing power.
Health care and financials were our best-performing sectors during the period. Salix Pharmaceuticals and Jazz Pharmaceuticals in health care and Palo Alto Networks in information technology were standout holdings.
11
Information technology and consumer discretionary were our weakest sectors. Web.com in IT and MercadoLibre and DSW in consumer discretionary were the biggest individual detractors.
Arrowpoint Partners
Portfolio Managers:
Chad Meade, Partner
Brian Schaub, CFA, Partner
We began managing our portion of the fund in June. After two years of relative calm, volatility returned to the markets in 2014. From early September through mid-October, the Russell 2500 Growth Index notched its first 10% correction in more than two years. Across a variety of measures, high-quality companies outperformed their low-quality counterparts during this period of heightened volatility.
We were able to take advantage of this volatility and deliver on our goals of protecting capital during market pullbacks and matching the benchmark return during periods of market appreciation. From a sector standpoint, information technology and consumer discretionary were our largest positive contributors. Vistaprint, The Cooper Companies, and SolarWinds were standouts.
On a relative basis, the financial sector was our biggest detractor: Clean Harbors, LPL Financial Holdings, and Solera Holdings all hurt performance.
Vanguard Equity Investment Group
Portfolio Managers:
James D. Troyer, CFA, Principal
James P. Stetler, Principal
Michael R. Roach, CFA
For the 12-month period, our stock selection models accurately identified the outperformers within most industry groups. Our valuation and management decision models were most successful, and our sentiment model underperformed.
Our stock selection was positive in six out of the ten industry sectors. Our choices had the strongest positive impact on relative return in information technology, consumer discretionary, and consumer staples. In IT, RF Micro Devices, Manhattan Associates, and Booz Allen Hamilton contributed the most to relative results.
In consumer discretionary, Hanesbrands, Jack in the Box, and Strayer Education led, while Keurig Green Mountain and Pilgrim’s Pride led in consumer staples.
However, our overall selections in health care and energy generated poor results. In health care, returns were mostly affected by companies such as InterMune, Puma Biotechnology, and Jazz Pharmaceuticals, which our models did not like although they had strong returns. At the same time, picks including Cytokinetics and CorVel did not perform as expected. In energy, SM Energy, Nabors Industries, and Clayton Williams Energy detracted.
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| Vanguard Explorer Fund Investment Advisors | ||||
| Fund Assets Managed | ||||
| Investment Advisor | % | $ Million | Investment Strategy | |
| Wellington Management | 30 | 3,712 | 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. | ||||
| Kalmar Investment Advisers | 22 | 2,725 | 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. | ||||
| Granahan Investment | 15 | 1,839 | 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. | ||||
| Stephens Investment | 8 | 1,038 | Employs a disciplined, bottom-up investment selection | |
| Management Group, LLC | process that combines rigorous fundamental analysis | |||
| with quantitative screening to identify companies with | ||||
| superior earnings growth potential. The approach | ||||
| screens for core growth stocks and for catalyst stocks. | ||||
| Core growth stocks have strong growth franchises, | ||||
| recurring revenue, and above-average growth rates; | ||||
| catalyst stocks are experiencing changes that could | ||||
| lead to accelerated earnings growth. | ||||
| Chartwell Investment Partners, | 7 | 895 | Uses a bottom-up, fundamental, research-driven | |
| Inc. | 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. | ||||
| Century Capital Management, | 7 | 881 | Employs a fundamental, bottom-up approach that | |
| LLC | attempts to identify reasonably priced companies that | |||
| will grow faster than the overall market. The ideal | ||||
| investment is a reasonably valued, well-managed | ||||
| company with established products or services, a high | ||||
| return on equity, high recurring revenues, and | ||||
| improving margins. | ||||
13
| Fund Assets Managed | ||||
| Investment Advisor | % | $ Million | Investment Strategy | |
| Arrowpoint Partners | 4 | 533 | The firm uses in-depth fundamental research to | |
| uncover companies that, in its opinion, can control their | ||||
| own economic destiny. It starts by identifying | ||||
| businesses with strong competitive advantages in | ||||
| industries with high barriers to entry, then narrows the | ||||
| focus to companies with large potential markets and | ||||
| high-quality business models focused on the future. | ||||
| Finally, considerations are made for potential | ||||
| down-side risk, resulting in a diversified portfolio of | ||||
| between 75 and 100 stocks. | ||||
| Vanguard Equity Investment | 4 | 509 | Employs a quantitative fundamental management | |
| Group | approach, using models that assess valuation, growth | |||
| prospects, management decisions, market sentiment, | ||||
| and earnings and balance-sheet quality of companies | ||||
| as compared with their peers. | ||||
| Cash Investments | 3 | 161 | 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. | ||||
14
Explorer Fund
Fund Profile
As of October 31, 2014
| Share-Class Characteristics | ||
| Investor | Admiral | |
| Shares | Shares | |
| Ticker Symbol | VEXPX | VEXRX |
| Expense Ratio,/sup>1 | 0.52% | 0.35% |
| 30-Day SEC Yield | 0.10% | 0.26% |
| Portfolio Characteristics | |||
| DJ | |||
| U.S. | |||
| Russell | Total | ||
| 2500 | Market | ||
| Growth | FA | ||
| Fund | Index | Index | |
| Number of Stocks | 666 | 1,516 | 3,756 |
| Median Market Cap | $3.3B | $3.8B | $47.3B |
| Price/Earnings Ratio | 31.6x | 33.2x | 20.4x |
| Price/Book Ratio | 3.0x | 4.5x | 2.7x |
| Return on Equity | 12.2% | 15.8% | 17.8% |
| Earnings Growth | |||
| Rate | 16.1% | 16.4% | 15.7% |
| Dividend Yield | 0.6% | 0.8% | 1.9% |
| Foreign Holdings | 2.7% | 0.0% | 0.0% |
| Turnover Rate | 66% | — | — |
| Short-Term Reserves | 1.8% | — | — |
| Volatility Measures | ||
| DJ | ||
| U.S. Total | ||
| Russell 2500 | Market | |
| Growth Index | FA Index | |
| R-Squared | 0.98 | 0.83 |
| Beta | 0.98 | 1.23 |
| 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) | ||
| West Pharmaceutical | ||
| Services Inc. | Health Care Supplies | 1.0% |
| Alliance Data Systems | Data Processing & | |
| Corp. | Outsourced Services | 0.9 |
| Cadence Design | ||
| Systems Inc. | Application Software | 0.7 |
| Urban Outfitters Inc. | Apparel Retail | 0.7 |
| TreeHouse Foods Inc. | Packaged Foods & | |
| Meats | 0.6 | |
| Akorn Inc. | Pharmaceuticals | 0.6 |
| NASDAQ OMX Group | ||
| Inc. | Specialized Finance | 0.6 |
| Graphic Packaging | ||
| Holding Co. | Paper Packaging | 0.6 |
| Cooper Cos. Inc. | Health Care Supplies | 0.6 |
| Minerals Technologies | ||
| Inc. | Specialty Chemicals | 0.6 |
| Top Ten | 6.9% | |
| The holdings listed exclude any temporary cash investments and equity index products. | ||
Investment Focus
1 The expense ratios shown are from the prospectus dated August 15, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended October 31, 2014, the expense ratios were 0.51% for Investor Shares and 0.35% for Admiral Shares.
15
Explorer Fund
| Sector Diversification (% of equity exposure) | |||
| Russell | DJ | ||
| 2500 | U.S. Total | ||
| Growth | Market | ||
| Fund | Index | FA Index | |
| Consumer | |||
| Discretionary | 17.2% | 18.1% | 12.5% |
| Consumer Staples | 2.4 | 3.4 | 8.3 |
| Energy | 4.8 | 4.2 | 8.5 |
| Financials | 9.3 | 8.6 | 17.7 |
| Health Care | 17.1 | 18.6 | 13.9 |
| Industrials | 17.8 | 17.1 | 11.3 |
| Information | |||
| Technology | 23.7 | 21.6 | 18.8 |
| Materials | 6.5 | 7.1 | 3.6 |
| Other | 0.1 | 0.0 | 0.0 |
| Telecommunication | |||
| Services | 0.7 | 0.9 | 2.2 |
| Utilities | 0.4 | 0.4 | 3.2 |
16
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.
Cumulative Performance: October 31, 2004, Through October 31, 2014
Initial Investment of $10,000
| Average Annual Total Returns | |||||
| Periods Ended October 31, 2014 | |||||
| Final Value | |||||
| One | Five | Ten | of a $10,000 | ||
| Year | Years | Years | Investment | ||
| Explorer Fund*Investor Shares | 8.20% | 18.54% | 9.17% | $24,044 | |
| •••••••• | Russell 2500 Growth Index | 10.24 | 19.20 | 10.26 | 26,568 |
| – – – – | Small-Cap Growth Funds Average | 5.89 | 17.02 | 8.08 | 21,748 |
| Dow Jones U.S. Total Stock Market | |||||
| Float Adjusted Index | 16.00 | 17.09 | 8.71 | 23,060 | |
| Small-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |||||
| Final Value | ||||
| One | Five | Ten | of a $50,000 | |
| Year | Years | Years | Investment | |
| Explorer Fund Admiral Shares | 8.37% | 18.74% | 9.35% | $122,278 |
| Russell 2500 Growth Index | 10.24 | 19.20 | 10.26 | 132,841 |
| Dow Jones U.S. Total Stock Market Float | ||||
| Adjusted Index | 16.00 | 17.09 | 8.71 | 115,300 |
See Financial Highlights for dividend and capital gains information.
17
Explorer Fund
Fiscal-Year Total Returns (%): October 31, 2004, Through October 31, 2014
| Average Annual Total Returns: Periods Ended September 30, 2014 | ||||
| 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 | 6.75% | 16.17% | 8.98% |
| Admiral Shares | 11/12/2001 | 6.92 | 16.36 | 9.16 |
18
Explorer Fund
Financial Statements
Statement of Net Assets—Investments Summary
As of October 31, 2014
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 can look 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 | ||||
| * | Urban Outfitters Inc. | 2,648,465 | 80,407 | 0.6% |
| * | IMAX Corp. | 2,340,737 | 68,958 | 0.6% |
| * | LKQ Corp. | 2,404,037 | 68,683 | 0.6% |
| Churchill Downs Inc. | 652,778 | 66,570 | 0.5% | |
| * | Ulta Salon Cosmetics & Fragrance Inc. | 510,034 | 61,617 | 0.5% |
| * | Life Time Fitness Inc. | 1,046,000 | 58,335 | 0.5% |
| * | CarMax Inc. | 1,020,605 | 57,062 | 0.5% |
| * | Tumi Holdings Inc. | 2,495,382 | 51,829 | 0.4% |
| Tractor Supply Co. | 670,655 | 49,105 | 0.4% | |
| Consumer Discretionary—Other † | 1,480,272 | 12.0% | ||
| 2,042,838 | 16.6% | |||
| Consumer Staples | ||||
| * | TreeHouse Foods Inc. | 933,925 | 79,542 | 0.6% |
| * | United Natural Foods Inc. | 831,444 | 56,555 | 0.5% |
| Consumer Staples—Other † | 146,979 | 1.2% | ||
| 283,076 | 2.3% | |||
| Energy † | 568,542 | 4.6% | ||
| Financials | ||||
| NASDAQ OMX Group Inc. | 1,801,327 | 77,925 | 0.6% | |
| * | Affiliated Managers Group Inc. | 349,006 | 69,728 | 0.6% |
| *,1 | eHealth Inc. | 1,456,325 | 36,335 | 0.3% |
| Financials—Other † | 892,512 | 7.3% | ||
| 1,076,500 | 8.8% | |||
| Health Care | ||||
| West Pharmaceutical Services Inc. | 2,373,195 | 121,626 | 1.0% | |
| * | Akorn Inc. | 1,758,565 | 78,344 | 0.7% |
| Cooper Cos. Inc. | 463,952 | 76,042 | 0.6% | |
| * | Alkermes plc | 1,266,832 | 64,038 | 0.5% |
19
Explorer Fund
| Market | Percentage | |||
| Value• | of Net | |||
| Shares | ($000) | Assets | ||
| * | Bruker Corp. | 2,892,280 | 59,957 | 0.5% |
| * | Cepheid | 1,115,100 | 59,111 | 0.5% |
| * | Salix Pharmaceuticals Ltd. | 368,553 | 53,016 | 0.4% |
| Kindred Healthcare Inc. | 2,419,319 | 52,620 | 0.4% | |
| * | ABIOMED Inc. | 1,565,000 | 51,316 | 0.4% |
| * | Charles River Laboratories International Inc. | 780,370 | 49,288 | 0.4% |
| Health Care—Other † | 1,364,440 | 11.1% | ||
| 2,029,798 | 16.5% | |||
| Industrials | ||||
| * | Armstrong World Industries Inc. | 1,454,705 | 70,437 | 0.6% |
| MSC Industrial Direct Co. Inc. Class A | 767,873 | 62,175 | 0.5% | |
| * | WESCO International Inc. | 686,424 | 56,568 | 0.5% |
| * | Generac Holdings Inc. | 1,230,073 | 55,771 | 0.4% |
| AO Smith Corp. | 1,006,015 | 53,671 | 0.4% | |
| Acuity Brands Inc. | 380,880 | 53,106 | 0.4% | |
| Waste Connections Inc. | 1,059,610 | 52,875 | 0.4% | |
| Pentair plc | 767,725 | 51,476 | 0.4% | |
| * | WageWorks Inc. | 886,929 | 50,564 | 0.4% |
| * | Teledyne Technologies Inc. | 485,923 | 50,356 | 0.4% |
| * | IHS Inc. Class A | 377,190 | 49,423 | 0.4% |
| *,1 | American Woodmark Corp. | 798,759 | 32,677 | 0.3% |
| Industrials—Other † | 1,469,937 | 12.0% | ||
| 2,109,036 | 17.1% | |||
| Information Technology | ||||
| * | Alliance Data Systems Corp. | 383,148 | 108,565 | 0.9% |
| * | Cadence Design Systems Inc. | 4,628,560 | 83,083 | 0.7% |
| * | Ultimate Software Group Inc. | 461,178 | 69,412 | 0.6% |
| * | Demandware Inc. | 1,118,697 | 67,066 | 0.6% |
| * | TiVo Inc. | 4,940,010 | 64,467 | 0.5% |
| * | Euronet Worldwide Inc. | 1,198,658 | 64,332 | 0.5% |
| * | Dealertrack Technologies Inc. | 1,266,189 | 59,574 | 0.5% |
| * | Silicon Laboratories Inc. | 1,178,901 | 53,746 | 0.4% |
| Belden Inc. | 731,415 | 52,069 | 0.4% | |
| Teradyne Inc. | 2,802,320 | 51,563 | 0.4% | |
| * | Electronics For Imaging Inc. | 1,121,075 | 51,256 | 0.4% |
| * | Microsemi Corp. | 1,879,800 | 49,006 | 0.4% |
| Information Technology—Other † | 2,042,987 | 16.6% | ||
| 2,817,126 | 22.9% | |||
| Materials | ||||
| * | Graphic Packaging Holding Co. | 6,390,464 | 77,516 | 0.6% |
| Minerals Technologies Inc. | 947,830 | 72,708 | 0.6% | |
| Ball Corp. | 901,635 | 58,092 | 0.5% | |
| Materials—Other † | 566,039 | 4.6% | ||
| 774,355 | 6.3% | |||
| Other | ||||
| ^ | iShares Russell 2000 ETF | 962,395 | 112,177 | 0.9% |
| ^,2 | Vanguard Small-Cap Growth ETF | 463,200 | 57,914 | 0.5% |
| Other—Other † | 12,736 | 0.1% | ||
| 182,827 | 1.5% | |||
| Telecommunication Services † | 84,907 | 0.7% | ||
| Utilities † | 45,504 | 0.4% | ||
| Total Common Stocks (Cost $9,201,337) | 12,014,509 | 97.7%3 | ||
20
Explorer Fund
| Market | Percentage | |||
| Value• | of Net | |||
| Coupon | Shares | ($000) | Assets | |
| Temporary Cash Investments | ||||
| Money Market Fund | ||||
| 4,5 Vanguard Market Liquidity Fund | 0.114% | 453,977,154 | 453,977 | 3.7% |
| Repurchase Agreement † | 25,600 | 0.2% | ||
| 6U.S. Government and Agency Obligations † | 9,099 | 0.1% | ||
| Total Temporary Cash Investments (Cost $488,676) | 488,676 | 4.0%3 | ||
| Total Investments (Cost $9,690,013) | 12,503,185 | 101.7% | ||
| Other Assets and Liabilities | ||||
| Other Assets | 117,691 | 1.0% | ||
| Liabilities5 | (328,206) | (2.7%) | ||
| (210,515) | (1.7%) | |||
| Net Assets | 12,292,670 | 100.0% | ||
21
Explorer Fund
| At October 31, 2014, net assets consisted of: | |
| Amount | |
| ($000) | |
| Paid-in Capital | 7,877,204 |
| Undistributed Net Investment Income | 546 |
| Accumulated Net Realized Gains | 1,594,491 |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 2,813,172 |
| Futures Contracts | 7,258 |
| Foreign Currencies | (1) |
| Net Assets | 12,292,670 |
| Investor Shares—Net Assets | |
| Applicable to 43,908,794 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 4,622,885 |
| Net Asset Value Per Share—Investor Shares | $105.28 |
| Admiral Shares—Net Assets | |
| Applicable to 78,237,468 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 7,669,785 |
| Net Asset Value Per Share—Admiral Shares | $98.03 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $161,303,000.
† Represents the aggregate value, by category, of securities that are not among the 50 largest holdings and, in total for any issuer, represent
1% or less of net assets.
1 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
2 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
3 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 98.6% and 3.1%, respectively, of net assets.
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 $164,635,000 of collateral received for securities on loan.
6 Securities with a value of $5,199,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
22
Explorer Fund
Statement of Operations
| Year Ended | |
| October 31, 2014 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends1 | 74,536 |
| Interest | 452 |
| Securities Lending | 3,927 |
| Total Income | 78,915 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 26,767 |
| Performance Adjustment | (392) |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 14,080 |
| Management and Administrative—Admiral Shares | 8,483 |
| Marketing and Distribution—Investor Shares | 883 |
| Marketing and Distribution—Admiral Shares | 1,272 |
| Custodian Fees | 181 |
| Auditing Fees | 43 |
| Shareholders’ Reports—Investor Shares | 45 |
| Shareholders’ Reports—Admiral Shares | 81 |
| Trustees’ Fees and Expenses | 24 |
| Total Expenses | 51,467 |
| Expenses Paid Indirectly | (525) |
| Net Expenses | 50,942 |
| Net Investment Income | 27,973 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 1,820,129 |
| Futures Contracts | 17,931 |
| Foreign Currencies | (21) |
| Realized Net Gain (Loss) | 1,838,039 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | (887,576) |
| Futures Contracts | 1,618 |
| Foreign Currencies | (2) |
| Change in Unrealized Appreciation (Depreciation) | (885,960) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 980,052 |
| 1 Dividends are net of foreign withholding taxes of $330,000. | |
See accompanying Notes, which are an integral part of the Financial Statements.
23
Explorer Fund
Statement of Changes in Net Assets
| Year Ended October 31, | ||
| 2014 | 2013 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 27,973 | 34,926 |
| Realized Net Gain (Loss) | 1,838,039 | 1,321,182 |
| Change in Unrealized Appreciation (Depreciation) | (885,960) | 2,274,875 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 980,052 | 3,630,983 |
| Distributions | ||
| Net Investment Income | ||
| Investor Shares | (1,971) | (16,823) |
| Admiral Shares | (14,527) | (20,358) |
| Realized Capital Gain1 | ||
| Investor Shares | (533,162) | (142,437) |
| Admiral Shares | (676,723) | (111,244) |
| Total Distributions | (1,226,383) | (290,862) |
| Capital Share Transactions | ||
| Investor Shares | (830,676) | (1,200,040) |
| Admiral Shares | 1,300,061 | 1,163,674 |
| Net Increase (Decrease) from Capital Share Transactions | 469,385 | (36,366) |
| Total Increase (Decrease) | 223,054 | 3,303,755 |
| Net Assets | ||
| Beginning of Period | 12,069,616 | 8,765,861 |
| End of Period2 | 12,292,670 | 12,069,616 |
| 1 Includes fiscal 2014 and 2013 short-term gain distributions totaling $192,517,000 and $0, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes. 2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $546,000 and ($8,098,000). | ||
See accompanying Notes, which are an integral part of the Financial Statements.
24
Explorer Fund
Financial Highlights
| Investor Shares | |||||
| For a Share Outstanding | Year Ended October 31, | ||||
| Throughout Each Period | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $107.96 | $78.03 | $73.02 | $66.02 | $51.77 |
| Investment Operations | |||||
| Net Investment Income | .120 | .2191 | .108 | .077 | .109 |
| Net Realized and Unrealized Gain (Loss) | |||||
| on Investments | 8.062 | 32.286 | 4.998 | 7.029 | 14.239 |
| Total from Investment Operations | 8.182 | 32.505 | 5.106 | 7.106 | 14.348 |
| Distributions | |||||
| Dividends from Net Investment Income | (.040) | (.272) | (.096) | (.106) | (.098) |
| Distributions from Realized Capital Gains | (10.822) | (2.303) | — | — | — |
| Total Distributions | (10.862) | (2.575) | (.096) | (.106) | (.098) |
| Net Asset Value, End of Period | $105.28 | $107.96 | $78.03 | $73.02 | $66.02 |
| Total Return 2 | 8.20% | 42.89% | 7.00% | 10.76% | 27.74% |
| Ratios/Supplemental Data | |||||
| Net Assets, End of Period (Millions) | $4,623 | $5,573 | $5,008 | $5,864 | $6,290 |
| Ratio of Total Expenses to Average Net Assets3 | 0.51% | 0.50% | 0.49% | 0.50% | 0.49% |
| Ratio of Net Investment Income to | |||||
| Average Net Assets | 0.12% | 0.27%1 | 0.16% | 0.12% | 0.19% |
| Portfolio Turnover Rate | 66% | 65% | 59% | 89%4 | 82% |
| 1 Net investment income per share and the ratio of net investment income to average net assets include $.038 and 0.03%, respectively, resulting from a special dividend from HFF Inc. in December 2012. 2 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. 3 Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.00%, (0.03%), 0.00%, and (0.01%). 4 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.
25
Explorer Fund
Financial Highlights
| Admiral Shares | |||||
| For a Share Outstanding | Year Ended October 31, | ||||
| Throughout Each Period | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $100.54 | $72.68 | $68.04 | $61.50 | $48.21 |
| Investment Operations | |||||
| Net Investment Income | .302 | .3751 | .236 | .179 | .206 |
| Net Realized and Unrealized Gain (Loss) | |||||
| on Investments | 7.466 | 30.019 | 4.621 | 6.550 | 13.259 |
| Total from Investment Operations | 7.768 | 30.394 | 4.857 | 6.729 | 13.465 |
| Distributions | |||||
| Dividends from Net Investment Income | (.216) | (.392) | (.217) | (.189) | (.175) |
| Distributions from Realized Capital Gains | (10.062) | (2.142) | — | — | — |
| Total Distributions | (10.278) | (2.534) | (.217) | (.189) | (.175) |
| Net Asset Value, End of Period | $98.03 | $100.54 | $72.68 | $68.04 | $61.50 |
| Total Return | 8.37% | 43.13% | 7.16% | 10.94% | 27.98% |
| Ratios/Supplemental Data | |||||
| Net Assets, End of Period (Millions) | $7,670 | $6,497 | $3,757 | $3,288 | $2,864 |
| Ratio of Total Expenses to Average Net Assets2 | 0.35% | 0.34% | 0.32% | 0.34% | 0.32% |
| Ratio of Net Investment Income to | |||||
| Average Net Assets | 0.28% | 0.43%1 | 0.33% | 0.28% | 0.36% |
| Portfolio Turnover Rate | 66% | 65% | 59% | 89%3 | 82% |
| 1 Net investment income per share and the ratio of net investment income to average net assets include $.019 and 0.03%, respectively, resulting from a special dividend from HFF Inc. in December 2012. 2 Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.00%, (0.03%), 0.00%, and (0.01%). 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.
26
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. investment companies. 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
27
Explorer Fund
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the year ended October 31, 2014, the fund’s average investments in long and short futures contracts represented 2% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under 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. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counter-party’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.
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, 2011–2014), 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount 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 further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counter-party risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
28
Explorer Fund
8. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at October 31, 2014, or at any time during the period then ended.
9. 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. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. 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, Kalmar Investment Advisers, Granahan Investment Management, Inc., Stephens Investment Management Group, LLC, Chartwell Investment Partners, Inc., Century Capital Management, LLC, and beginning June 2014, Arrowpoint Asset Management, LLC, 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, 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 Granahan Investment Management, Inc., is subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2500 Growth Index for periods prior to November 1, 2013, and the new benchmark, a 50/50 blend of the Russell 2500 Growth Index and the Russell 2000 Growth Index, beginning November 1, 2013. The new benchmark will be fully phased in by October 31, 2016. The basic fee of Stephens Investment Management Group, LLC, is subject to quarterly adjustments based on performance since October 31, 2013, relative to the Russell 2500 Growth Index. The basic fee of Chartwell Investment Partners, Inc., 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 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
29
Explorer Fund
the Russell 2500 Growth Index. In accordance with the advisory contract entered into with Arrowpoint Asset Management, LLC, beginning May 1, 2015, the investment advisory fee will be subject to quarterly adjustments based on performance since July 31, 2014, relative to the Russell 2500 Growth Index.
The Vanguard Group provides investment advisory services to a portion of the fund on an at-cost basis; the fund paid Vanguard advisory fees of $535,000 for the year ended October 31, 2014.
For the year ended October 31, 2014, 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 $392,000 (0.00%) 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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At October 31, 2014, the fund had contributed capital of $1,182,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.47% 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 year ended October 31, 2014, these arrangements reduced the fund’s expenses by $525,000 (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 October 31, 2014, based on the inputs used to value them: | |||
| Level 1 | Level 2 | Level 3 | |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 11,960,909 | 40,864 | 12,736 |
| Temporary Cash Investments | 453,977 | 34,699 | — |
| Futures Contracts—Assets1 | 1,708 | — | — |
| Futures Contracts—Liabilities1 | (110) | — | — |
| Total | 12,416,484 | 75,563 | 12,736 |
| 1 Represents variation margin on the last day of the reporting period. | |||
| 30 |
Explorer Fund
| F. At October 31, 2014, 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 | December 2014 | 732 | 85,717 | 6,096 |
| E-mini S&P MidCap 400 Index | December 2014 | 143 | 20,240 | 1,162 |
| 7,258 | ||||
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.
During the year ended October 31, 2014, the fund realized net foreign currency losses of $21,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized gains to undistributed net investment income. Certain of the fund’s investments are in securities considered to be passive foreign investment companies, for which any unrealized appreciation and/or realized gains are required to be included in distributable net income for tax purposes. During the year ended October 31, 2014, the fund realized gains on the sale of passive foreign investment companies of $12,000, which have been included in current and prior periods’ taxable income; accordingly, such gains have been reclassified from accumulated net realized gains to undistributed net investment income.
The fund used a tax accounting practice to treat a portion of the price of capital shares redeemed during the year as distributions from net investment income and realized capital gains. Accordingly, the fund has reclassified $2,822,000 from undistributed net investment income, and $233,839,000 from accumulated net realized gains, to paid-in capital.
For tax purposes, at October 31, 2014, the fund had $220,737,000 of ordinary income and $1,411,222,000 of long-term capital gains available for distribution.
At October 31, 2014, the cost of investment securities for tax purposes was $9,698,446,000. Net unrealized appreciation of investment securities for tax purposes was $2,804,739,000, consisting of unrealized gains of $3,177,853,000 on securities that had risen in value since their purchase and $373,114,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the year ended October 31, 2014, the fund purchased $8,052,912,000 of investment securities and sold $8,493,006,000 of investment securities, other than temporary cash investments.
31
Explorer Fund
| I. Capital share transactions for each class of shares were: | ||||
| Year Ended October 31, | ||||
| 2014 | 2013 | |||
| Amount | Shares | Amount | Shares | |
| ($000) | (000) | ($000) | (000) | |
| Investor Shares | ||||
| Issued | 511,418 | 5,003 | 512,781 | 5,468 |
| Issued in Lieu of Cash Distributions | 528,322 | 5,327 | 157,299 | 2,003 |
| Redeemed | (1,870,416) | (18,039) | (1,870,120) | (20,041) |
| Net Increase (Decrease)—Investor Shares | (830,676) | (7,709) | (1,200,040) | (12,570) |
| Admiral Shares | ||||
| Issued | 1,952,958 | 20,183 | 1,844,750 | 20,811 |
| Issued in Lieu of Cash Distributions | 653,398 | 7,085 | 123,108 | 1,686 |
| Redeemed | (1,306,295) | (13,654) | (804,184) | (9,572) |
| Net Increase (Decrease)—Admiral Shares | 1,300,061 | 13,614 | 1,163,674 | 12,925 |
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 or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows:
| Current Period Transactions | ||||||
| Oct. 31, | Proceeds | Oct. 31, | ||||
| 2013 | from | Capital Gain | 2014 | |||
| Market | Purchases | Securities | Distributions | Market | ||
| Value | at Cost | Sold1 | Income | Received | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
| American Woodmark Corp. | NA2 | 8,343 | 1,419 | — | — | 32,677 |
| eHealth Inc. | 63,502 | 15,428 | 21,736 | — | — | 36,335 |
| Kindred Healthcare Inc. | 44,737 | 3,660 | 20,509 | 1,250 | — | NA3 |
| TiVo Inc. | 81,667 | 13,917 | 28,577 | — | — | NA3 |
| WNS Holdings Ltd. ADR | NA4 | 28,967 | 30,526 | — | — | NA4 |
| Vanguard Small-Cap ETF | 91,483 | — | 92,844 | — | — | — |
| Vanguard Small-Cap Growth ETF | 83,701 | — | 29,540 | 368 | — | 57,914 |
| Vanguard Market Liquidity Fund | 644,213 | NA5 | NA5 | 419 | — | 453,977 |
| Total | 1,009,303 | 2,037 | — | 580,903 | ||
| 1 Includes net realized gain (loss) on affiliated investment securities sold of $84,294,000. | ||||||
| 2 Not applicable—At October 31, 2013, the issuer was not an affiliated company of the fund. | ||||||
| 3 Not applicable—At October 31, 2014, the security was still held, but the issuer was no longer an affiliated company of the fund. | ||||||
| 4 Not applicable—At October 31, 2013, and October 31, 2014, the issuer was not an affiliated company of the fund, but it was affiliated during the year. | ||||||
| 5 Not applicable—Purchases and sales are for temporary cash investment purposes. | ||||||
K. Management has determined that no material events or transactions occurred subsequent to October 31, 2014, that would require recognition or disclosure in these financial statements.
| 32 |
Report of Independent Registered
Public Accounting Firm
To the Board of Trustees and Shareholders of Vanguard Explorer Fund:
In our opinion, the accompanying statement of net assets - investments summary and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Explorer Fund (the “Fund”) at October 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2014 by correspondence with the custodians and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 16, 2014
| Special 2014 tax information (unaudited) for Vanguard Explorer Fund |
This information for the fiscal year ended October 31, 2014, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $1,229,796,000 as capital gain dividends (from net long-term capital gains) to shareholders during the fiscal year.
For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the fund are qualified short-term capital gains.
The fund distributed $38,657,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 23.4% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
33
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2014. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
| Average Annual Total Returns: Explorer Fund Investor Shares | |||
| Periods Ended October 31, 2014 | |||
| One | Five | Ten | |
| Year | Years | Years | |
| Returns Before Taxes | 8.20% | 18.54% | 9.17% |
| Returns After Taxes on Distributions | 5.36 | 17.79 | 8.27 |
| Returns After Taxes on Distributions and Sale of Fund Shares | 6.24 | 15.02 | 7.38 |
34
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.
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| Six Months Ended October 31, 2014 | |||
| Beginning | Ending | Expenses | |
| Account Value | Account Value | Paid During | |
| Explorer Fund | 4/30/2014 | 10/31/2014 | Period |
| Based on Actual Fund Return | |||
| Investor Shares | $1,000.00 | $1,048.50 | $2.58 |
| Admiral Shares | 1,000.00 | 1,049.35 | 1.76 |
| Based on Hypothetical 5% Yearly Return | |||
| Investor Shares | $1,000.00 | $1,022.68 | $2.55 |
| Admiral Shares | 1,000.00 | 1,023.49 | 1.73 |
| 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. | |||
36
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Explorer Fund added Arrowpoint Asset Management, LLC (Arrowpoint Partners), to the fund’s investment advisory team in June 2014. The board had previously renewed the fund’s investment advisory arrangements with Century Capital Management, LLC (Century Capital); Chartwell Investment Partners, Inc. (Chartwell); Granahan Investment Management, Inc. (Granahan); Kalmar Investment Advisers (Kalmar); Stephens Investment Management Group, LLC (SIMG); Wellington Management Company, LLP (Wellington Management); and The Vanguard Group, Inc. (Vanguard) (through its Quantitative Equity Group). Please see the fund’s semiannual report dated April 30, 2014, for more information about the board’s approval of the arrangements with Century Capital, Chartwell, Granahan, Kalmar, SIMG, Wellington Management, and Vanguard.
The board decided to approve the arrangement with Arrowpoint Partners based upon an evaluation of the 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 arrangement. 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 advisor’s investment management services, and took into account the organizational depth and stability of the advisor. The board noted the following:
Arrowpoint Partners. Arrowpoint Partners, founded in 2007, uses in-depth, fundamental research to uncover companies that, in its opinion, can control their own economic destiny. Arrowpoint Partners starts by identifying businesses with strong competitive advantages in industries with high barriers to entry. It then narrows its focus to companies with large potential markets and high-quality business models focused on the future. Arrowpoint Partners minimizes potential downside risk, resulting in a diversified portfolio of stable growth companies, cyclical share gainers, and to a lesser extent, game-changing growth businesses that Arrowpoint Partners feels will deliver returns beyond those of the benchmark index over time.
The board concluded that the advisor’s experience, stability, depth, and performance, among other factors, warranted approval of the advisory arrangement.
Investment performance
Since Arrowpoint Partners had no performance history with the fund, the board analyzed the performance of similar funds and strategies previously managed by Mr. Schaub and Mr. Meade. The board noted that Mr. Schaub and Mr. Meade’s record in small-cap growth products dates back to 2006 and that their composite portfolio has produced a solid performance record over both short- and long-term periods, with outperformance occurring in a variety of environments.
Cost
The board considered the cost of services to be provided, including consideration of competitive fee rates. The board concluded that the addition of Arrowpoint Partners would result in a slight increase in the fund’s aggregate investment advisory fee (assuming no changes in performance incentives or penalties) but that the fund’s advisory fee and expense ratio would remain significantly below the fund’s peer averages. 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.
37
The board did not consider profitability of Arrowpoint Partners in determining whether to approve the advisory fees, because the firm is independent of Vanguard and the advisory fees are the result of arm’s-length negotiations.
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 schedule for Arrowpoint Partners. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by the advisor increase.
38
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.
39
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.
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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 177 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. | |
| F. William McNabb III | |
| Born 1957. Trustee Since July 2009. Chairman of the | Amy Gutmann |
| Board. Principal Occupation(s) During the Past Five | Born 1949. Trustee Since June 2006. Principal |
| Years: Chairman of the Board of The Vanguard Group, | Occupation(s) During the Past Five Years: President of |
| Inc., and of each of the investment companies served | the University of Pennsylvania; Christopher H. Browne |
| by The Vanguard Group, since January 2010; Director | Distinguished Professor of Political Science, School of |
| of The Vanguard Group since 2008; Chief Executive | Arts and Sciences, and Professor of Communication, |
| Officer and President of The Vanguard Group, and of | Annenberg School for Communication, with secondary |
| each of the investment companies served by The | faculty appointments in the Department of Philosophy, |
| Vanguard Group, since 2008; Director of Vanguard | School of Arts and Sciences, and at the Graduate |
| Marketing Corporation; Managing Director of The | School of Education, University of Pennsylvania; |
| Vanguard Group (1995–2008). | Trustee of the National Constitution Center; Chair |
| of the Presidential Commission for the Study of | |
| IndependentTrustees | Bioethical Issues. |
| Emerson U. Fullwood | JoAnn Heffernan Heisen |
| Born 1948. Trustee Since January 2008. Principal | Born 1950. Trustee Since July 1998. Principal |
| Occupation(s) During the Past Five Years: Executive | Occupation(s) During the Past Five Years: Corporate |
| Chief Staff and Marketing Officer for North America | Vice President and Chief Global Diversity Officer |
| and Corporate Vice President (retired 2008) of Xerox | (retired 2008) and Member of the Executive |
| Corporation (document management products and | Committee (1997–2008) of Johnson & Johnson |
| services); Executive in Residence and 2009–2010 | (pharmaceuticals/medical devices/consumer |
| Distinguished Minett Professor at the Rochester | products); Director of Skytop Lodge Corporation |
| Institute of Technology; Director of SPX Corporation | (hotels), the University Medical Center at Princeton, |
| (multi-industry manufacturing), the United Way of | the Robert Wood Johnson Foundation, and the Center |
| Rochester, Amerigroup Corporation (managed health | for Talent Innovation; Member of the Advisory Board |
| care), the University of Rochester Medical Center, | of the Maxwell School of Citizenship and Public Affairs |
| Monroe Community College Foundation, and North | at Syracuse University. |
| Carolina A&T University. | |
| F. Joseph Loughrey | |
| Rajiv L. Gupta | Born 1949. Trustee Since October 2009. Principal |
| Born 1945. Trustee Since December 2001.2 | Occupation(s) During the Past Five Years: President |
| Principal Occupation(s) During the Past Five Years: | and Chief Operating Officer (retired 2009) of Cummins |
| Chairman and Chief Executive Officer (retired 2009) | Inc. (industrial machinery); Chairman of the Board |
| and President (2006–2008) of Rohm and Haas Co. | of Hillenbrand, Inc. (specialized consumer services), |
| (chemicals); Director of Tyco International, Ltd. | and of Oxfam America; Director of SKF AB (industrial |
| (diversified manufacturing and services), Hewlett- | machinery), Hyster-Yale Materials Handling, Inc. |
| Packard Co. (electronic computer manufacturing), | (forklift trucks), the Lumina Foundation for Education, |
| and the V Foundation for Cancer Research; Member | Executive Officers | |
| of the Advisory Council for the College of Arts and | ||
| Letters and of the Advisory Board to the Kellogg | Glenn Booraem | |
| Institute for International Studies, both 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 (retired 2013) | ||
| at IBM (information technology services); Fiduciary | Thomas J. Higgins | |
| Member of IBM’s Retirement Plan Committee (2004– | Born 1957. Chief Financial Officer Since September | |
| 2013); Member of the Council on Chicago Booth. | 2008. Principal Occupation(s) During the Past Five | |
| Years: Principal of The Vanguard Group, Inc.; Chief | ||
| Scott C. Malpass | Financial Officer of each of the investment companies | |
| Born 1962. Trustee Since March 2012. Principal | served by The Vanguard Group; Treasurer of each of | |
| Occupation(s) During the Past Five Years: Chief | the investment companies served by The Vanguard | |
| Investment Officer and Vice President at the University | Group (1998–2008). | |
| of Notre Dame; Assistant Professor of Finance at the | ||
| Mendoza College of Business at Notre Dame; Member | Kathryn J. Hyatt | |
| of the Notre Dame 403(b) Investment Committee; | Born 1955. Treasurer Since November 2008. Principal | |
| Board Member of TIFF Advisory Services, Inc. | Occupation(s) During the Past Five Years: Principal of | |
| (investment advisor); Member of the Investment | The Vanguard Group, Inc.; Treasurer of each of the | |
| Advisory Committees of the Financial Industry | investment companies served by The Vanguard | |
| Regulatory Authority (FINRA) and of Major League | Group; Assistant Treasurer of each of the investment | |
| Baseball. | companies served by The Vanguard Group (1988–2008). | |
| André F. Perold | Heidi Stam | |
| Born 1952. Trustee Since December 2004. Principal | Born 1956. Secretary Since July 2005. Principal | |
| Occupation(s) During the Past Five Years: George | Occupation(s) During the Past Five Years: Managing | |
| Gund Professor of Finance and Banking, Emeritus | Director of The Vanguard Group, Inc.; General Counsel | |
| at the Harvard Business School (retired 2011); | of The Vanguard Group; Secretary of The Vanguard | |
| Chief Investment Officer and Managing Partner of | Group and of each of the investment companies | |
| HighVista Strategies LLC (private investment firm); | served by The Vanguard Group; Director and Senior | |
| Director of Rand Merchant Bank; Overseer of the | Vice President of Vanguard Marketing Corporation. | |
| Museum of Fine Arts Boston. | ||
| Vanguard Senior ManagementTeam | ||
| Alfred M. Rankin, Jr. | ||
| Born 1941. Trustee Since January 1993. Principal | Mortimer J. Buckley | Chris D. McIsaac |
| Occupation(s) During the Past Five Years: Chairman, | Kathleen C. Gubanich | Michael S. Miller |
| President, and Chief Executive Officer of NACCO | Paul A. Heller | James M. Norris |
| Industries, Inc. (housewares/lignite), and of Hyster- | Martha G. King | Glenn W. Reed |
| Yale Materials Handling, Inc. (forklift trucks); Chairman | John T. Marcante | |
| of the Board of University Hospitals of Cleveland. | ||
| Chairman Emeritus and Senior Advisor | ||
| Peter F. Volanakis | ||
| Born 1955. Trustee Since July 2009. Principal | John J. Brennan | |
| Occupation(s) During the Past Five Years: President | Chairman, 1996–2009 | |
| and Chief Operating Officer (retired 2010) of Corning | Chief Executive Officer and President, 1996–2008 | |
| Incorporated (communications equipment); Trustee of | ||
| Colby-Sawyer College; Member of the Advisory Board | Founder | |
| of the Norris Cotton Cancer Center and of the Advisory | ||
| Board of the Parthenon Group (strategy consulting). | John C. Bogle | |
| 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, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
 | |
| P.O. Box 2600 | |
| Valley Forge, PA 19482-2600 | |
| Connect with Vanguard® > vanguard.com | |
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| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| Who Are Deaf or Hard of Hearing> 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, a | |
| Thomson Reuters Company, 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. | |
| © 2014 The Vanguard Group, Inc. | |
| All rights reserved. | |
| Vanguard Marketing Corporation, Distributor. | |
| Q240 122014 | |
Item 2: Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics was amended during the reporting period covered by this report to make certain technical, non-material changes.
Item 3: Audit Committee Financial Expert. The following members of the Audit Committee have been determined by the Registrant’s Board of Trustees to be Audit Committee Financial Experts serving on its Audit Committee, and to be independent: Rajiv L. Gupta, Amy Gutmann, JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, Scott C. Malpass, André F. Perold, and Alfred M. Rankin, Jr.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Audit Fees of the Registrant
Fiscal Year Ended October 31, 2014: $43,000
Fiscal Year Ended October 31, 2013: $39,000
Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.
Fiscal Year Ended October 31, 2014: $6,605,127
Fiscal Year Ended October 31, 2013: $5,714,113
Includes fees billed in connection with audits of the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc. and Vanguard Marketing Corporation.
(b) Audit-Related Fees.
Fiscal Year Ended October 31, 2014: $2,176,479
Fiscal Year Ended October 31, 2013: $1,552,950
Includes fees billed in connection with assurance and related services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(c) Tax Fees.
Fiscal Year Ended October 31, 2014: $316,869
Fiscal Year Ended October 31, 2013: $110,000
Includes fees billed in connection with tax compliance, planning, and advice services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(d) All Other Fees.
Fiscal Year Ended October 31, 2014: $198,163
Fiscal Year Ended October 31, 2013: $132,000
Includes fees billed for services related to tax reported information provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(e) (1) Pre-Approval Policies. The policy of the Registrant’s Audit Committee is to consider and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit and non-audit services provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant’s independence.
In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the Chairman of the Audit Committee would be called on to consider and, if appropriate, pre-approve audit or permitted non-audit services in an amount sufficient to complete services through the next Audit Committee meeting, and to determine if such services would be consistent with maintaining the accountant’s independence. At the next scheduled Audit Committee meeting, services and fees would be presented to the Audit Committee for formal consideration, and, if appropriate, approval by the entire Audit Committee. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant’s independence.
The Registrant’s Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Vanguard complex, whether such services are provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., or other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant.
(2) No percentage of the principal accountant’s fees or services were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) For the most recent fiscal year, over 50% of the hours worked under the principal accountant’s engagement were not performed by persons other than full-time, permanent employees of the principal accountant.
(g) Aggregate Non-Audit Fees.
Fiscal Year Ended October 31, 2014: $515,032
Fiscal Year Ended October 31, 2013: $242,000
Includes fees billed for non-audit services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(h) For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services was consistent with maintaining the principal accountant’s independence.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
Item 6: Investments.
Vanguard® Explorer™ Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Common Stocks (97.7%)1 | |||
| Consumer Discretionary (16.6%) | |||
| * | Urban Outfitters Inc. | 2,648,465 | 80,407 |
| * | IMAX Corp. | 2,340,737 | 68,958 |
| * | LKQ Corp. | 2,404,037 | 68,683 |
| Churchill Downs Inc. | 652,778 | 66,570 | |
| * | Ulta Salon Cosmetics & Fragrance Inc. | 510,034 | 61,617 |
| * | Life Time Fitness Inc. | 1,046,000 | 58,335 |
| * | CarMax Inc. | 1,020,605 | 57,062 |
| * | Tumi Holdings Inc. | 2,495,382 | 51,829 |
| Tractor Supply Co. | 670,655 | 49,105 | |
| Hanesbrands Inc. | 454,850 | 48,037 | |
| * | Jarden Corp. | 711,705 | 46,325 |
| * | Crocs Inc. | 3,772,300 | 44,060 |
| * | Live Nation Entertainment Inc. | 1,690,295 | 43,948 |
| * | Five Below Inc. | 1,096,577 | 43,721 |
| Wolverine World Wide Inc. | 1,606,282 | 43,595 | |
| Texas Roadhouse Inc. Class A | 1,508,690 | 43,556 | |
| * | HomeAway Inc. | 1,175,846 | 41,037 |
| HSN Inc. | 603,480 | 39,872 | |
| Service Corp. International | 1,722,810 | 37,678 | |
| Cheesecake Factory Inc. | 809,758 | 37,200 | |
| Signet Jewelers Ltd. | 305,826 | 36,702 | |
| Lennar Corp. Class A | 837,615 | 36,084 | |
| * | Standard Pacific Corp. | 4,722,400 | 34,946 |
| * | Grand Canyon Education Inc. | 673,833 | 32,277 |
| * | DreamWorks Animation SKG Inc. Class A | 1,448,640 | 32,276 |
| New York Times Co. Class A | 2,369,436 | 30,424 | |
| * | Buffalo Wild Wings Inc. | 202,290 | 30,198 |
| Brunswick Corp. | 631,360 | 29,548 | |
| * | Tenneco Inc. | 521,507 | 27,306 |
| DSW Inc. Class A | 907,448 | 26,906 | |
| * | Under Armour Inc. Class A | 397,875 | 26,093 |
| * | Cabela's Inc. | 533,600 | 25,623 |
| National CineMedia Inc. | 1,598,323 | 25,413 | |
| * | Steven Madden Ltd. | 756,742 | 23,724 |
| * | Dorman Products Inc. | 507,695 | 23,537 |
| * | Deckers Outdoor Corp. | 267,500 | 23,396 |
| * | Denny's Corp. | 2,682,881 | 23,126 |
| * | Krispy Kreme Doughnuts Inc. | 1,059,181 | 20,040 |
| * | Vitamin Shoppe Inc. | 420,150 | 19,718 |
| Brinker International Inc. | 341,609 | 18,324 | |
| * | Gentherm Inc. | 407,589 | 16,996 |
| Dick's Sporting Goods Inc. | 337,775 | 15,325 | |
| Carter's Inc. | 194,315 | 15,182 | |
| Monro Muffler Brake Inc. | 274,420 | 14,665 | |
| Papa John's International Inc. | 313,512 | 14,660 | |
| Sally Beauty Holdings Inc. | 486,021 | 14,245 | |
| Movado Group Inc. | 398,510 | 14,067 | |
| Ross Stores Inc. | 171,500 | 13,843 | |
| Vail Resorts Inc. | 158,717 | 13,707 | |
| Ryland Group Inc. | 376,577 | 13,485 | |
| Callaway Golf Co. | 1,679,300 | 13,166 | |
| Sotheby's | 331,229 | 13,137 | |
| Capella Education Co. | 173,743 | 12,291 | |
| * | Ascena Retail Group Inc. | 969,100 | 12,065 |
| * | Francesca's Holdings Corp. | 988,200 | 11,769 |
| * | Chuy's Holdings Inc. | 378,767 | 11,329 |
| *,^ | iRobot Corp. | 316,093 | 11,291 |
| * | BJ's Restaurants Inc. | 245,810 | 10,821 |
| * | Vince Holding Corp. | 299,500 | 10,497 |
| Cinemark Holdings Inc. | 295,100 | 10,423 | |
| Abercrombie & Fitch Co. | 305,000 | 10,211 | |
1
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Six Flags Entertainment Corp. | 252,832 | 10,189 | |
| * | Skechers U.S.A. Inc. Class A | 176,300 | 9,652 |
| * | Hibbett Sports Inc. | 206,873 | 9,390 |
| * | Universal Electronics Inc. | 153,445 | 8,729 |
| *,^ | Noodles & Co. Class A | 365,100 | 8,335 |
| * | Netflix Inc. | 20,600 | 8,091 |
| * | Sonic Corp. | 307,355 | 7,748 |
| * | Burlington Stores Inc. | 155,878 | 6,538 |
| PetSmart Inc. | 84,520 | 6,115 | |
| ServiceMaster Global Holdings Inc. | 217,076 | 5,205 | |
| Dunkin' Brands Group Inc. | 111,469 | 5,070 | |
| Men's Wearhouse Inc. | 105,100 | 4,943 | |
| * | Shutterfly Inc. | 117,300 | 4,907 |
| * | Fiesta Restaurant Group Inc. | 87,675 | 4,835 |
| * | Tesla Motors Inc. | 17,939 | 4,336 |
| Domino's Pizza Inc. | 45,442 | 4,035 | |
| * | Express Inc. | 262,615 | 3,931 |
| * | NVR Inc. | 3,200 | 3,928 |
| Cablevision Systems Corp. Class A | 198,600 | 3,698 | |
| * | MarineMax Inc. | 192,548 | 3,691 |
| Popeyes Louisiana Kitchen Inc. | 76,491 | 3,545 | |
| *,^ | zulily Inc. Class A | 97,215 | 3,537 |
| Jack in the Box Inc. | 49,400 | 3,509 | |
| Polaris Industries Inc. | 22,400 | 3,379 | |
| * | Starz | 102,100 | 3,155 |
| * | Strayer Education Inc. | 42,700 | 3,125 |
| * | Murphy USA Inc. | 52,700 | 3,020 |
| Foot Locker Inc. | 51,100 | 2,862 | |
| Aramark | 100,600 | 2,808 | |
| *,^ | SodaStream International Ltd. | 127,000 | 2,799 |
| Nutrisystem Inc. | 162,800 | 2,742 | |
| * | Barnes & Noble Inc. | 119,400 | 2,605 |
| Brown Shoe Co. Inc. | 97,500 | 2,593 | |
| * | Asbury Automotive Group Inc. | 36,100 | 2,528 |
| * | Tower International Inc. | 103,200 | 2,508 |
| ^ | Buckle Inc. | 49,400 | 2,437 |
| * | Outerwall Inc. | 35,621 | 2,254 |
| La-Z-Boy Inc. | 97,000 | 2,217 | |
| * | Liberty Ventures Class A | 58,000 | 2,036 |
| Dillard's Inc. Class A | 17,200 | 1,819 | |
| Williams-Sonoma Inc. | 22,100 | 1,437 | |
| Tupperware Brands Corp. | 21,000 | 1,339 | |
| * | G-III Apparel Group Ltd. | 16,600 | 1,317 |
| Dana Holding Corp. | 59,000 | 1,207 | |
| Columbia Sportswear Co. | 29,800 | 1,149 | |
| Cato Corp. Class A | 32,000 | 1,141 | |
| Ruth's Hospitality Group Inc. | 90,100 | 1,097 | |
| * | Visteon Corp. | 10,600 | 995 |
| Harman International Industries Inc. | 8,600 | 923 | |
| * | Orbitz Worldwide Inc. | 104,800 | 867 |
| * | K12 Inc. | 51,665 | 641 |
| Big Lots Inc. | 11,700 | 534 | |
| Wayfair Inc. | 17,895 | 449 | |
| * | Kona Grill Inc. | 7,675 | 173 |
| * | Martha Stewart Living Omnimedia Inc. Class A | 38,700 | 168 |
| * | ANN Inc. | 3,271 | 126 |
| 2,042,838 | |||
| Consumer Staples (2.3%) | |||
| * | TreeHouse Foods Inc. | 933,925 | 79,542 |
| * | United Natural Foods Inc. | 831,444 | 56,555 |
| ^ | Herbalife Ltd. | 809,788 | 42,482 |
| Ingredion Inc. | 479,945 | 37,076 | |
| PriceSmart Inc. | 161,040 | 14,337 | |
| Inter Parfums Inc. | 394,275 | 11,197 | |
2
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| * | Monster Beverage Corp. | 90,200 | 9,099 |
| * | Boulder Brands Inc. | 964,500 | 8,565 |
| * | Natural Grocers by Vitamin Cottage Inc. | 367,400 | 6,654 |
| Keurig Green Mountain Inc. | 18,700 | 2,838 | |
| Sanderson Farms Inc. | 33,000 | 2,771 | |
| * | Sprouts Farmers Market Inc. | 93,600 | 2,725 |
| * | Rite Aid Corp. | 487,400 | 2,559 |
| * | Pilgrim's Pride Corp. | 83,786 | 2,380 |
| Cal-Maine Foods Inc. | 19,900 | 1,747 | |
| * | Harbinger Group Inc. | 59,600 | 783 |
| * | Omega Protein Corp. | 49,800 | 720 |
| * | SUPERVALU Inc. | 69,000 | 595 |
| Greencore Group plc | 107,366 | 451 | |
| 283,076 | |||
| Energy (4.6%) | |||
| Energen Corp. | 624,520 | 42,280 | |
| Core Laboratories NV | 302,093 | 42,151 | |
| Western Refining Inc. | 875,680 | 39,922 | |
| * | RSP Permian Inc. | 1,279,260 | 31,304 |
| Superior Energy Services Inc. | 1,236,570 | 31,100 | |
| Cabot Oil & Gas Corp. | 959,435 | 29,838 | |
| Alon USA Energy Inc. | 1,855,992 | 29,770 | |
| * | Gulfport Energy Corp. | 541,977 | 27,196 |
| * | Dresser-Rand Group Inc. | 317,139 | 25,910 |
| Patterson-UTI Energy Inc. | 1,041,170 | 23,978 | |
| * | Paramount Resources Ltd. Class A | 540,500 | 22,636 |
| * | Bonanza Creek Energy Inc. | 485,760 | 21,976 |
| * | Atwood Oceanics Inc. | 533,525 | 21,688 |
| * | Carrizo Oil & Gas Inc. | 399,550 | 20,753 |
| * | Dril-Quip Inc. | 171,679 | 15,443 |
| * | Southwestern Energy Co. | 458,200 | 14,896 |
| * | Rex Energy Corp. | 1,753,164 | 13,745 |
| RPC Inc. | 679,850 | 11,150 | |
| Oceaneering International Inc. | 152,700 | 10,730 | |
| RigNet Inc. | 233,428 | 10,142 | |
| *,^ | Halcon Resources Corp. | 3,191,625 | 9,926 |
| * | Kodiak Oil & Gas Corp. | 829,323 | 8,948 |
| * | Oil States International Inc. | 138,800 | 8,292 |
| * | Basic Energy Services Inc. | 550,759 | 7,105 |
| * | Forum Energy Technologies Inc. | 258,200 | 7,049 |
| Range Resources Corp. | 98,900 | 6,765 | |
| * | Oasis Petroleum Inc. | 190,900 | 5,719 |
| CHC Group Ltd. | 539,134 | 3,623 | |
| * | Pacific Ethanol Inc. | 204,400 | 2,884 |
| SM Energy Co. | 49,800 | 2,804 | |
| * | REX American Resources Corp. | 36,867 | 2,682 |
| * | Kosmos Energy Ltd. | 276,300 | 2,578 |
| * | Penn Virginia Corp. | 292,368 | 2,506 |
| Green Plains Inc. | 69,700 | 2,384 | |
| Nabors Industries Ltd. | 121,500 | 2,169 | |
| * | Matrix Service Co. | 70,400 | 1,764 |
| * | Abraxas Petroleum Corp. | 289,200 | 1,194 |
| * | Clayton Williams Energy Inc. | 13,800 | 1,147 |
| * | Alpha Natural Resources Inc. | 526,200 | 1,031 |
| World Fuel Services Corp. | 17,595 | 726 | |
| * | Pioneer Energy Services Corp. | 69,500 | 638 |
| 568,542 | |||
| Financials (8.8%) | |||
| NASDAQ OMX Group Inc. | 1,801,327 | 77,925 | |
| * | Affiliated Managers Group Inc. | 349,006 | 69,728 |
| International Bancshares Corp. | 1,687,297 | 47,869 | |
| PacWest Bancorp | 1,041,918 | 44,448 | |
| Zions Bancorporation | 1,442,580 | 41,792 | |
| Assured Guaranty Ltd. | 1,650,800 | 38,100 | |
3
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| * | WisdomTree Investments Inc. | 2,518,356 | 37,146 |
| Redwood Trust Inc. | 1,935,840 | 36,374 | |
| *,2 | eHealth Inc. | 1,456,325 | 36,335 |
| Pebblebrook Hotel Trust | 814,059 | 34,679 | |
| * | Encore Capital Group Inc. | 755,218 | 34,370 |
| Financial Engines Inc. | 817,523 | 32,595 | |
| Synovus Financial Corp. | 1,277,538 | 32,398 | |
| Primerica Inc. | 633,200 | 32,388 | |
| Douglas Emmett Inc. | 1,150,100 | 32,352 | |
| MSCI Inc. Class A | 681,000 | 31,775 | |
| First Industrial Realty Trust Inc. | 1,488,835 | 29,077 | |
| Radian Group Inc. | 1,680,681 | 28,319 | |
| Solar Capital Ltd. | 1,433,800 | 26,654 | |
| * | MGIC Investment Corp. | 2,548,000 | 22,728 |
| MFA Financial Inc. | 2,584,725 | 21,660 | |
| Och-Ziff Capital Management Group LLC Class A | 1,868,415 | 20,590 | |
| HFF Inc. Class A | 589,272 | 18,550 | |
| STAG Industrial Inc. | 720,900 | 17,590 | |
| * | Signature Bank | 140,237 | 16,987 |
| * | Portfolio Recovery Associates Inc. | 255,600 | 16,167 |
| Cohen & Steers Inc. | 345,352 | 14,802 | |
| * | Texas Capital Bancshares Inc. | 225,855 | 13,811 |
| * | SVB Financial Group | 111,500 | 12,487 |
| American Equity Investment Life Holding Co. | 477,729 | 12,330 | |
| LPL Financial Holdings Inc. | 265,435 | 10,986 | |
| * | First NBC Bank Holding Co. | 266,130 | 9,775 |
| MarketAxess Holdings Inc. | 150,700 | 9,743 | |
| First Horizon National Corp. | 719,750 | 9,256 | |
| PrivateBancorp Inc. | 286,297 | 9,253 | |
| Cardinal Financial Corp. | 475,344 | 9,127 | |
| Evercore Partners Inc. Class A | 172,780 | 8,945 | |
| * | Hilltop Holdings Inc. | 405,100 | 8,924 |
| Lexington Realty Trust | 805,255 | 8,826 | |
| Bank of the Ozarks Inc. | 199,514 | 7,031 | |
| East West Bancorp Inc. | 163,300 | 6,003 | |
| Lazard Ltd. Class A | 83,100 | 4,089 | |
| Jones Lang LaSalle Inc. | 29,649 | 4,009 | |
| * | Cowen Group Inc. Class A | 930,118 | 3,758 |
| Universal Insurance Holdings Inc. | 188,500 | 3,299 | |
| Waddell & Reed Financial Inc. Class A | 62,100 | 2,965 | |
| Reinsurance Group of America Inc. Class A | 34,800 | 2,932 | |
| * | Credit Acceptance Corp. | 19,217 | 2,836 |
| Nelnet Inc. Class A | 49,676 | 2,364 | |
| * | Strategic Hotels & Resorts Inc. | 158,500 | 2,037 |
| * | World Acceptance Corp. | 28,076 | 2,012 |
| * | Howard Hughes Corp. | 13,300 | 1,960 |
| Omega Healthcare Investors Inc. | 46,400 | 1,771 | |
| Extra Space Storage Inc. | 28,000 | 1,628 | |
| Apartment Investment & Management Co. Class A | 45,400 | 1,625 | |
| Ryman Hospitality Properties Inc. | 32,600 | 1,609 | |
| DuPont Fabros Technology Inc. | 49,800 | 1,542 | |
| Columbia Property Trust Inc. | 57,800 | 1,458 | |
| Iron Mountain Inc. | 26,100 | 941 | |
| Geo Group Inc. | 21,800 | 871 | |
| Fidelity & Guaranty Life | 36,100 | 857 | |
| Sovran Self Storage Inc. | 9,600 | 817 | |
| Montpelier Re Holdings Ltd. | 9,200 | 305 | |
| * | Western Alliance Bancorp | 11,200 | 298 |
| QTS Realty Trust Inc. Class A | 7,400 | 261 | |
| Universal Health Realty Income Trust | 5,000 | 242 | |
| Federal Realty Investment Trust | 900 | 119 | |
| 1,076,500 | |||
| Health Care (16.5%) | |||
| West Pharmaceutical Services Inc. | 2,373,195 | 121,626 | |
4
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| * | Akorn Inc. | 1,758,565 | 78,344 |
| Cooper Cos. Inc. | 463,952 | 76,042 | |
| * | Alkermes plc | 1,266,832 | 64,038 |
| * | Bruker Corp. | 2,892,280 | 59,957 |
| * | Cepheid | 1,115,100 | 59,111 |
| * | Salix Pharmaceuticals Ltd. | 368,553 | 53,016 |
| Kindred Healthcare Inc. | 2,419,319 | 52,620 | |
| * | ABIOMED Inc. | 1,565,000 | 51,316 |
| * | Charles River Laboratories International Inc. | 780,370 | 49,288 |
| * | Insulet Corp. | 1,059,363 | 45,733 |
| ^ | ResMed Inc. | 805,609 | 42,069 |
| * | WellCare Health Plans Inc. | 579,910 | 39,359 |
| * | Globus Medical Inc. | 1,765,658 | 39,145 |
| * | Molina Healthcare Inc. | 800,900 | 38,956 |
| * | Hospira Inc. | 708,100 | 38,025 |
| * | Alnylam Pharmaceuticals Inc. | 406,411 | 37,691 |
| Universal Health Services Inc. Class B | 355,470 | 36,866 | |
| * | ICON plc | 683,238 | 35,945 |
| * | Mallinckrodt plc | 386,808 | 35,656 |
| * | Catamaran Corp. | 721,258 | 34,382 |
| * | Nektar Therapeutics | 2,478,300 | 34,176 |
| * | Allscripts Healthcare Solutions Inc. | 2,394,800 | 32,857 |
| * | athenahealth Inc. | 264,828 | 32,441 |
| * | Acadia Healthcare Co. Inc. | 517,643 | 32,120 |
| * | LifePoint Hospitals Inc. | 451,440 | 31,601 |
| * | Mettler-Toledo International Inc. | 113,859 | 29,429 |
| * | Team Health Holdings Inc. | 420,900 | 26,323 |
| * | Actavis plc | 105,330 | 25,568 |
| * | Align Technology Inc. | 465,535 | 24,496 |
| * | Bio-Rad Laboratories Inc. Class A | 209,240 | 23,606 |
| * | TESARO Inc. | 838,808 | 23,336 |
| * | CareFusion Corp. | 384,312 | 22,048 |
| * | Vertex Pharmaceuticals Inc. | 194,100 | 21,863 |
| * | Illumina Inc. | 112,300 | 21,627 |
| * | Brookdale Senior Living Inc. | 613,811 | 20,692 |
| * | NuVasive Inc. | 493,400 | 20,180 |
| * | Auxilium Pharmaceuticals Inc. | 625,000 | 20,106 |
| * | PTC Therapeutics Inc. | 484,000 | 19,781 |
| * | Tornier NV | 699,333 | 19,546 |
| * | QIAGEN NV | 827,000 | 19,401 |
| * | Spectranetics Corp. | 537,357 | 17,072 |
| * | PharMerica Corp. | 564,046 | 16,183 |
| * | Quidel Corp. | 547,290 | 15,625 |
| * | Medidata Solutions Inc. | 346,261 | 15,620 |
| * | Luminex Corp. | 811,260 | 15,414 |
| * | Air Methods Corp. | 310,799 | 14,679 |
| * | Neogen Corp. | 331,850 | 14,568 |
| * | HMS Holdings Corp. | 598,655 | 13,907 |
| * | Covance Inc. | 169,300 | 13,527 |
| * | IDEXX Laboratories Inc. | 94,000 | 13,317 |
| * | Cerner Corp. | 206,000 | 13,048 |
| * | Hologic Inc. | 491,600 | 12,875 |
| * | Wright Medical Group Inc. | 405,389 | 12,818 |
| * | Cardiovascular Systems Inc. | 402,000 | 12,462 |
| * | Zeltiq Aesthetics Inc. | 483,490 | 12,397 |
| * | Prestige Brands Holdings Inc. | 328,296 | 11,628 |
| * | Alexion Pharmaceuticals Inc. | 51,262 | 9,810 |
| * | Pacira Pharmaceuticals Inc. | 103,729 | 9,628 |
| * | IPC The Hospitalist Co. Inc. | 222,370 | 9,264 |
| * | Hyperion Therapeutics Inc. | 367,274 | 8,925 |
| * | Anacor Pharmaceuticals Inc. | 289,844 | 8,524 |
| *,^ | Exact Sciences Corp. | 330,213 | 7,948 |
| * | Incyte Corp. | 116,490 | 7,812 |
| * | LDR Holding Corp. | 221,550 | 7,630 |
5
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| * | Jazz Pharmaceuticals plc | 44,407 | 7,498 |
| * | Ligand Pharmaceuticals Inc. | 131,600 | 7,274 |
| * | Cubist Pharmaceuticals Inc. | 95,200 | 6,882 |
| * | Isis Pharmaceuticals Inc. | 147,175 | 6,779 |
| *,^ | Sarepta Therapeutics Inc. | 403,660 | 6,527 |
| * | Envision Healthcare Holdings Inc. | 181,925 | 6,358 |
| * | WuXi PharmaTech Cayman Inc. ADR | 163,820 | 6,176 |
| * | HealthEquity Inc. | 277,113 | 5,653 |
| * | ExamWorks Group Inc. | 142,250 | 5,516 |
| Endologix Inc. | 404,215 | 4,608 | |
| * | NPS Pharmaceuticals Inc. | 164,715 | 4,513 |
| * | Centene Corp. | 48,100 | 4,457 |
| * | United Therapeutics Corp. | 32,900 | 4,309 |
| * | NxStage Medical Inc. | 239,000 | 3,623 |
| Clovis Oncology Inc. | 55,816 | 3,330 | |
| * | Natus Medical Inc. | 93,500 | 3,179 |
| DexCom Inc. | 70,216 | 3,156 | |
| * | PAREXEL International Corp. | 58,000 | 3,150 |
| * | Quintiles Transnational Holdings Inc. | 53,600 | 3,138 |
| * | Seattle Genetics Inc. | 82,500 | 3,025 |
| Neurocrine Biosciences Inc. | 161,301 | 2,987 | |
| Synageva BioPharma Corp. | 39,368 | 2,982 | |
| * | Medivation Inc. | 27,868 | 2,946 |
| * | Depomed Inc. | 187,500 | 2,888 |
| Novadaq Technologies Inc. | 178,323 | 2,785 | |
| ^ | PDL BioPharma Inc. | 309,500 | 2,640 |
| *,^ | Sequenom Inc. | 782,800 | 2,560 |
| * | Anika Therapeutics Inc. | 59,600 | 2,392 |
| Revance Therapeutics Inc. | 118,197 | 2,383 | |
| * | Providence Service Corp. | 52,400 | 2,315 |
| * | MedAssets Inc. | 102,900 | 2,229 |
| * | Lannett Co. Inc. | 38,000 | 2,155 |
| * | XOMA Corp. | 453,730 | 1,947 |
| *,^ | Myriad Genetics Inc. | 48,400 | 1,911 |
| * | Premier Inc. Class A | 50,000 | 1,669 |
| * | CorVel Corp. | 46,075 | 1,586 |
| * | Alliance HealthCare Services Inc. | 63,200 | 1,525 |
| Chimerix Inc. | 42,030 | 1,305 | |
| * | Dendreon Corp. | 788,000 | 772 |
| * | Prothena Corp. plc | 33,894 | 743 |
| * | Dyax Corp. | 54,400 | 673 |
| Chemed Corp. | 6,006 | 621 | |
| * | Sagent Pharmaceuticals Inc. | 18,600 | 589 |
| HealthSouth Corp. | 12,200 | 492 | |
| * | Cytokinetics Inc. | 133,100 | 489 |
| 2,029,798 | |||
| Industrials (17.1%) | |||
| * | Armstrong World Industries Inc. | 1,454,705 | 70,437 |
| MSC Industrial Direct Co. Inc. Class A | 767,873 | 62,175 | |
| * | WESCO International Inc. | 686,424 | 56,568 |
| * | Generac Holdings Inc. | 1,230,073 | 55,771 |
| AO Smith Corp. | 1,006,015 | 53,671 | |
| Acuity Brands Inc. | 380,880 | 53,106 | |
| Waste Connections Inc. | 1,059,610 | 52,875 | |
| Pentair plc | 767,725 | 51,476 | |
| * | WageWorks Inc. | 886,929 | 50,564 |
| * | Teledyne Technologies Inc. | 485,923 | 50,356 |
| * | IHS Inc. Class A | 377,190 | 49,423 |
| * | Middleby Corp. | 521,001 | 46,109 |
| * | Advisory Board Co. | 852,764 | 45,768 |
| Chicago Bridge & Iron Co. NV | 748,705 | 40,909 | |
| Manpowergroup Inc. | 605,650 | 40,427 | |
| EnerSys | 642,135 | 40,326 | |
| * | Stericycle Inc. | 317,190 | 39,966 |
6
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Watsco Inc. | 386,110 | 39,236 | |
| * | JetBlue Airways Corp. | 3,336,020 | 38,498 |
| John Bean Technologies Corp. | 1,280,743 | 38,384 | |
| AMETEK Inc. | 730,365 | 38,089 | |
| * | Swift Transportation Co. | 1,433,900 | 35,417 |
| * | Trex Co. Inc. | 798,370 | 34,330 |
| * | Moog Inc. Class A | 434,738 | 33,275 |
| *,2 | American Woodmark Corp. | 798,759 | 32,677 |
| * | Esterline Technologies Corp. | 274,600 | 32,158 |
| * | Quanta Services Inc. | 936,965 | 31,932 |
| * | Orbital Sciences Corp. | 1,200,000 | 31,560 |
| Kennametal Inc. | 800,881 | 30,922 | |
| Watts Water Technologies Inc. Class A | 507,300 | 30,758 | |
| RBC Bearings Inc. | 477,194 | 28,990 | |
| * | United Rentals Inc. | 252,936 | 27,838 |
| * | UTi Worldwide Inc. | 2,461,120 | 26,900 |
| Herman Miller Inc. | 835,649 | 26,741 | |
| * | Taser International Inc. | 1,407,869 | 26,524 |
| Robert Half International Inc. | 479,527 | 26,268 | |
| Flowserve Corp. | 382,275 | 25,991 | |
| * | DXP Enterprises Inc. | 382,406 | 25,350 |
| Carlisle Cos. Inc. | 280,820 | 24,959 | |
| Corporate Executive Board Co. | 306,208 | 22,568 | |
| Mobile Mini Inc. | 510,982 | 22,396 | |
| * | B/E Aerospace Inc. | 285,727 | 21,272 |
| * | Clean Harbors Inc. | 426,318 | 21,158 |
| * | Huron Consulting Group Inc. | 285,165 | 19,850 |
| * | Proto Labs Inc. | 280,744 | 18,352 |
| ^ | Greenbrier Cos. Inc. | 277,834 | 17,376 |
| Tennant Co. | 229,573 | 16,926 | |
| * | Genesee & Wyoming Inc. Class A | 175,630 | 16,896 |
| Kaman Corp. | 350,827 | 15,107 | |
| Ryder System Inc. | 163,785 | 14,490 | |
| HEICO Corp. Class A | 315,380 | 14,429 | |
| * | Rush Enterprises Inc. Class A | 366,958 | 13,981 |
| * | Verisk Analytics Inc. Class A | 218,200 | 13,605 |
| * | Copart Inc. | 406,008 | 13,577 |
| * | NCI Building Systems Inc. | 652,392 | 12,963 |
| * | Saia Inc. | 239,899 | 11,760 |
| Sensata Technologies Holding NV | 233,309 | 11,388 | |
| Exponent Inc. | 142,322 | 11,360 | |
| * | Rexnord Corp. | 368,426 | 10,887 |
| Nordson Corp. | 139,877 | 10,708 | |
| Knight Transportation Inc. | 347,480 | 10,167 | |
| MSA Safety Inc. | 170,243 | 9,784 | |
| Columbus McKinnon Corp. | 334,557 | 9,518 | |
| * | Hexcel Corp. | 223,925 | 9,380 |
| H&E Equipment Services Inc. | 250,279 | 9,358 | |
| * | TriMas Corp. | 284,253 | 8,999 |
| * | Astronics Corp. | 167,280 | 8,667 |
| * | On Assignment Inc. | 287,717 | 8,373 |
| * | CAI International Inc. | 363,230 | 7,646 |
| Heartland Express Inc. | 299,812 | 7,537 | |
| KAR Auction Services Inc. | 246,330 | 7,479 | |
| * | Spirit Airlines Inc. | 95,331 | 6,970 |
| McGrath RentCorp | 188,054 | 6,870 | |
| Lennox International Inc. | 69,100 | 6,144 | |
| Ritchie Bros Auctioneers Inc. | 249,636 | 6,089 | |
| Towers Watson & Co. Class A | 54,400 | 6,000 | |
| Woodward Inc. | 112,444 | 5,758 | |
| Polypore International Inc. | 124,617 | 5,473 | |
| * | TriNet Group Inc. | 176,657 | 5,286 |
| Expeditors International of Washington Inc. | 114,871 | 4,900 | |
| Kirby Corp. | 42,701 | 4,722 |
7
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Alaska Air Group Inc. | 86,948 | 4,628 | |
| Roadrunner Transportation Systems Inc. | 222,712 | 4,590 | |
| Cintas Corp. | 55,700 | 4,079 | |
| IDEX Corp. | 54,150 | 4,056 | |
| * | Avis Budget Group Inc. | 70,900 | 3,953 |
| Huntington Ingalls Industries Inc. | 37,000 | 3,915 | |
| * | Spirit AeroSystems Holdings Inc. Class A | 99,100 | 3,899 |
| Lincoln Electric Holdings Inc. | 45,700 | 3,312 | |
| Deluxe Corp. | 54,109 | 3,290 | |
| Trinity Industries Inc. | 90,500 | 3,232 | |
| Pitney Bowes Inc. | 123,800 | 3,063 | |
| * | WABCO Holdings Inc. | 31,200 | 3,038 |
| * | Chart Industries Inc. | 62,800 | 2,923 |
| Copa Holdings SA Class A | 24,600 | 2,876 | |
| ITT Corp. | 62,700 | 2,825 | |
| * | Power Solutions International Inc. | 43,030 | 2,818 |
| Mueller Water Products Inc. Class A | 283,700 | 2,800 | |
| * | Meritor Inc. | 234,900 | 2,699 |
| Manitowoc Co. Inc. | 109,100 | 2,274 | |
| * | DigitalGlobe Inc. | 70,300 | 2,010 |
| Steelcase Inc. Class A | 112,079 | 1,986 | |
| RR Donnelley & Sons Co. | 110,700 | 1,932 | |
| Toro Co. | 27,800 | 1,716 | |
| * | Korn/Ferry International | 46,400 | 1,296 |
| Douglas Dynamics Inc. | 43,800 | 908 | |
| Hyster-Yale Materials Handling Inc. | 10,300 | 808 | |
| Harsco Corp. | 34,000 | 737 | |
| HNI Corp. | 5,800 | 271 | |
| Argan Inc. | 6,000 | 209 | |
| 2,109,036 | |||
| Information Technology (22.9%) | |||
| * | Alliance Data Systems Corp. | 383,148 | 108,565 |
| * | Cadence Design Systems Inc. | 4,628,560 | 83,083 |
| * | Ultimate Software Group Inc. | 461,178 | 69,412 |
| * | Demandware Inc. | 1,118,697 | 67,066 |
| * | TiVo Inc. | 4,940,010 | 64,467 |
| * | Euronet Worldwide Inc. | 1,198,658 | 64,332 |
| * | Dealertrack Technologies Inc. | 1,266,189 | 59,574 |
| * | Silicon Laboratories Inc. | 1,178,901 | 53,746 |
| Belden Inc. | 731,415 | 52,069 | |
| Teradyne Inc. | 2,802,320 | 51,563 | |
| * | Electronics For Imaging Inc. | 1,121,075 | 51,256 |
| * | Microsemi Corp. | 1,879,800 | 49,006 |
| * | WNS Holdings Ltd. ADR | 2,321,844 | 46,924 |
| * | Bankrate Inc. | 4,152,264 | 45,094 |
| * | Sapient Corp. | 2,572,045 | 44,548 |
| * | CoStar Group Inc. | 249,149 | 40,135 |
| * | PTC Inc. | 1,017,816 | 38,830 |
| * | Mellanox Technologies Ltd. | 853,145 | 38,212 |
| IAC/InterActiveCorp | 563,414 | 38,137 | |
| * | Atmel Corp. | 5,042,905 | 37,418 |
| * | ON Semiconductor Corp. | 4,496,820 | 37,279 |
| * | F5 Networks Inc. | 302,495 | 37,201 |
| * | First Solar Inc. | 615,678 | 36,263 |
| * | Proofpoint Inc. | 822,847 | 36,238 |
| * | Verint Systems Inc. | 627,170 | 36,056 |
| Convergys Corp. | 1,753,011 | 35,358 | |
| * | Ruckus Wireless Inc. | 2,705,200 | 35,113 |
| * | WEX Inc. | 276,100 | 31,354 |
| * | Red Hat Inc. | 517,100 | 30,468 |
| * | VeriFone Systems Inc. | 811,625 | 30,241 |
| *,^ | SunPower Corp. Class A | 942,900 | 30,022 |
| * | Aruba Networks Inc. | 1,386,700 | 29,925 |
| * | Aspen Technology Inc. | 809,832 | 29,907 |
8
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| * | Finisar Corp. | 1,776,395 | 29,701 |
| * | SPS Commerce Inc. | 488,933 | 28,505 |
| * | Ciena Corp. | 1,673,120 | 28,041 |
| * | Pandora Media Inc. | 1,438,949 | 27,743 |
| * | Informatica Corp. | 772,520 | 27,548 |
| * | Super Micro Computer Inc. | 831,102 | 26,562 |
| * | SS&C Technologies Holdings Inc. | 544,156 | 26,294 |
| FactSet Research Systems Inc. | 199,650 | 26,242 | |
| * | Palo Alto Networks Inc. | 246,066 | 26,009 |
| j2 Global Inc. | 480,096 | 25,968 | |
| Power Integrations Inc. | 498,460 | 25,102 | |
| Monolithic Power Systems Inc. | 555,890 | 24,565 | |
| * | Cavium Inc. | 474,488 | 24,346 |
| * | Cognex Corp. | 608,000 | 24,052 |
| *,^ | Stratasys Ltd. | 198,668 | 23,912 |
| * | Radware Ltd. | 1,209,700 | 22,972 |
| * | Tyler Technologies Inc. | 201,975 | 22,605 |
| * | Syntel Inc. | 248,652 | 21,536 |
| * | Acxiom Corp. | 1,120,785 | 21,116 |
| Intersil Corp. Class A | 1,574,795 | 20,929 | |
| Methode Electronics Inc. | 530,965 | 20,909 | |
| * | Akamai Technologies Inc. | 331,693 | 20,001 |
| * | Semtech Corp. | 785,822 | 19,944 |
| * | Manhattan Associates Inc. | 486,681 | 19,521 |
| * | Constant Contact Inc. | 538,753 | 19,050 |
| * | Infoblox Inc. | 1,139,600 | 18,393 |
| * | Cardtronics Inc. | 477,795 | 18,343 |
| * | Gartner Inc. | 222,706 | 17,975 |
| * | Qlik Technologies Inc. | 573,400 | 16,256 |
| * | PROS Holdings Inc. | 575,300 | 16,097 |
| Heartland Payment Systems Inc. | 309,699 | 15,996 | |
| * | comScore Inc. | 375,437 | 15,821 |
| MercadoLibre Inc. | 114,200 | 15,548 | |
| * | Fortinet Inc. | 590,600 | 15,385 |
| * | LivePerson Inc. | 1,041,973 | 15,004 |
| * | Virtusa Corp. | 361,191 | 14,802 |
| ^ | Ubiquiti Networks Inc. | 403,182 | 14,422 |
| MAXIMUS Inc. | 297,039 | 14,395 | |
| * | Gigamon Inc. | 948,085 | 14,164 |
| * | Integrated Device Technology Inc. | 840,520 | 13,793 |
| FLIR Systems Inc. | 391,600 | 13,130 | |
| Brocade Communications Systems Inc. | 1,210,600 | 12,990 | |
| * | Imperva Inc. | 298,400 | 12,225 |
| * | Concur Technologies Inc. | 92,077 | 11,815 |
| * | LinkedIn Corp. Class A | 51,262 | 11,737 |
| SolarWinds Inc. | 238,426 | 11,337 | |
| * | Nanometrics Inc. | 826,028 | 11,184 |
| * | VASCO Data Security International Inc. | 424,314 | 10,744 |
| Littelfuse Inc. | 110,000 | 10,729 | |
| * | Guidewire Software Inc. | 211,500 | 10,562 |
| *,^ | InvenSense Inc. | 638,500 | 10,350 |
| * | Synchronoss Technologies Inc. | 198,389 | 10,251 |
| Microchip Technology Inc. | 229,500 | 9,894 | |
| * | Riverbed Technology Inc. | 510,000 | 9,685 |
| * | Progress Software Corp. | 355,000 | 9,194 |
| * | Polycom Inc. | 695,350 | 9,095 |
| * | Rogers Corp. | 131,550 | 8,994 |
| * | EPAM Systems Inc. | 186,300 | 8,894 |
| *,^ | Allot Communications Ltd. | 774,100 | 8,840 |
| * | IPG Photonics Corp. | 115,500 | 8,479 |
| * | Sonus Networks Inc. | 2,440,586 | 8,469 |
| * | iGATE Corp. | 227,590 | 8,432 |
| * | Diodes Inc. | 323,485 | 8,356 |
| Vistaprint NV | 120,989 | 8,089 |
9
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Solera Holdings Inc. | 150,981 | 7,843 | |
| Blackbaud Inc. | 167,005 | 7,432 | |
| * | ANSYS Inc. | 92,195 | 7,243 |
| * | Bottomline Technologies de Inc. | 287,426 | 7,212 |
| * | WebMD Health Corp. | 159,968 | 6,827 |
| *,^ | Endurance International Group Holdings Inc. | 410,365 | 6,820 |
| * | Tableau Software Inc. Class A | 79,400 | 6,558 |
| National Instruments Corp. | 189,100 | 5,991 | |
| FEI Co. | 69,800 | 5,883 | |
| * | Synaptics Inc. | 85,125 | 5,825 |
| * | FireEye Inc. | 166,500 | 5,659 |
| * | Information Services Group Inc. | 1,292,619 | 5,468 |
| Trimble Navigation Ltd. | 196,452 | 5,277 | |
| * | II-VI Inc. | 362,366 | 4,888 |
| * | Cornerstone OnDemand Inc. | 134,600 | 4,882 |
| *,^ | Care.com Inc. | 576,757 | 4,787 |
| * | Global Cash Access Holdings Inc. | 609,600 | 4,444 |
| Broadridge Financial Solutions Inc. | 95,600 | 4,200 | |
| RealPage Inc. | 211,310 | 4,199 | |
| * | RF Micro Devices Inc. | 308,230 | 4,010 |
| * | Entropic Communications Inc. | 1,512,830 | 3,782 |
| Jack Henry & Associates Inc. | 62,900 | 3,763 | |
| * | Perficient Inc. | 220,000 | 3,648 |
| * | ARRIS Group Inc. | 120,800 | 3,626 |
| DST Systems Inc. | 34,996 | 3,372 | |
| Booz Allen Hamilton Holding Corp. Class A | 126,541 | 3,334 | |
| CDW Corp. | 108,100 | 3,334 | |
| * | Cree Inc. | 104,400 | 3,287 |
| * | Take-Two Interactive Software Inc. | 118,200 | 3,126 |
| * | Freescale Semiconductor Ltd. | 155,000 | 3,083 |
| * | Blackhawk Network Holdings Inc. | 83,200 | 2,875 |
| Science Applications International Corp. | 58,100 | 2,842 | |
| ChannelAdvisor Corp. | 201,147 | 2,794 | |
| * | CommScope Holding Co. Inc. | 127,117 | 2,738 |
| Anixter International Inc. | 31,931 | 2,720 | |
| * | Plexus Corp. | 65,500 | 2,708 |
| Skyworks Solutions Inc. | 46,300 | 2,697 | |
| * | AVG Technologies NV | 141,400 | 2,534 |
| Monotype Imaging Holdings Inc. | 87,700 | 2,509 | |
| *,^ | Advanced Micro Devices Inc. | 882,900 | 2,472 |
| * | Envestnet Inc. | 54,382 | 2,416 |
| * | Zebra Technologies Corp. | 28,700 | 2,117 |
| * | Nimble Storage Inc. | 75,000 | 2,052 |
| * | Glu Mobile Inc. | 524,300 | 2,029 |
| Pegasystems Inc. | 91,400 | 1,981 | |
| * | Amkor Technology Inc. | 197,500 | 1,339 |
| CSG Systems International Inc. | 44,500 | 1,180 | |
| * | E2open Inc. | 201,187 | 1,175 |
| * | ShoreTel Inc. | 117,900 | 954 |
| * | MicroStrategy Inc. Class A | 4,400 | 708 |
| * | Lionbridge Technologies Inc. | 128,600 | 621 |
| * | HubSpot Inc. | 14,000 | 499 |
| * | Aerohive Networks Inc. | 98,100 | 491 |
| * | GTT Communications Inc. | 20,000 | 260 |
| QAD Inc. Class A | 11,900 | 256 | |
| * | Callidus Software Inc. | 16,199 | 228 |
| * | MaxLinear Inc. | 31,600 | 224 |
| 2,817,126 | |||
| Materials (6.3%) | |||
| * | Graphic Packaging Holding Co. | 6,390,464 | 77,516 |
| Minerals Technologies Inc. | 947,830 | 72,708 | |
| Ball Corp. | 901,635 | 58,092 | |
| Ashland Inc. | 418,005 | 45,174 | |
| PolyOne Corp. | 1,180,100 | 43,675 | |
10
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Smurfit Kappa Group plc | 1,954,421 | 40,413 | |
| Methanex Corp. | 670,860 | 39,809 | |
| * | KapStone Paper and Packaging Corp. | 1,223,854 | 37,646 |
| Sensient Technologies Corp. | 622,631 | 36,847 | |
| Worthington Industries Inc. | 942,470 | 36,426 | |
| Steel Dynamics Inc. | 1,516,540 | 34,895 | |
| * | WR Grace & Co. | 337,060 | 31,886 |
| OM Group Inc. | 1,051,300 | 27,365 | |
| * | Constellium NV Class A | 1,143,439 | 23,155 |
| Allegheny Technologies Inc. | 699,810 | 22,989 | |
| Carpenter Technology Corp. | 420,860 | 21,064 | |
| Schweitzer-Mauduit International Inc. | 410,514 | 17,677 | |
| Eagle Materials Inc. | 172,182 | 15,054 | |
| US Silica Holdings Inc. | 307,541 | 13,808 | |
| Scotts Miracle-Gro Co. Class A | 207,000 | 12,263 | |
| FMC Corp. | 213,760 | 12,259 | |
| Airgas Inc. | 79,700 | 8,890 | |
| Balchem Corp. | 123,521 | 7,992 | |
| Valspar Corp. | 91,684 | 7,533 | |
| Sealed Air Corp. | 134,100 | 4,861 | |
| Quaker Chemical Corp. | 54,515 | 4,475 | |
| NewMarket Corp. | 8,773 | 3,404 | |
| * | Owens-Illinois Inc. | 104,300 | 2,688 |
| Avery Dennison Corp. | 57,200 | 2,680 | |
| * | Stillwater Mining Co. | 201,300 | 2,643 |
| Westlake Chemical Corp. | 29,400 | 2,074 | |
| * | Berry Plastics Group Inc. | 72,500 | 1,886 |
| International Flavors & Fragrances Inc. | 17,600 | 1,745 | |
| * | Ferro Corp. | 115,600 | 1,517 |
| Cytec Industries Inc. | 19,600 | 914 | |
| * | Advanced Emissions Solutions Inc. | 16,400 | 332 |
| 774,355 | |||
| Other (1.5%) | |||
| ^ | iShares Russell 2000 ETF | 962,395 | 112,177 |
| ^,3 | Vanguard Small-Cap Growth ETF | 463,200 | 57,914 |
| *,4 | Pure Storage Inc. Private Placement | 437,384 | 6,878 |
| *,4 | Dropbox Private Placement | 425,730 | 5,858 |
| 182,827 | |||
| Telecommunication Services (0.7%) | |||
| * | SBA Communications Corp. Class A | 315,155 | 35,401 |
| * | Vonage Holdings Corp. | 9,652,091 | 33,589 |
| * | 8x8 Inc. | 1,182,519 | 9,295 |
| * | FairPoint Communications Inc. | 109,400 | 1,816 |
| Inteliquent Inc. | 107,200 | 1,804 | |
| * | Level 3 Communications Inc. | 37,200 | 1,745 |
| * | Cincinnati Bell Inc. | 171,800 | 631 |
| IDT Corp. Class B | 38,000 | 626 | |
| 84,907 | |||
| Utilities (0.4%) | |||
| ITC Holdings Corp. | 1,137,620 | 45,061 | |
| Otter Tail Corp. | 14,274 | 443 | |
| 45,504 | |||
| Total Common Stocks (Cost $9,201,337) | 12,014,509 | ||
11
Vanguard® Explorer Fund
Schedule of Investments
October 31, 2014
| Market | |||||
| Value | |||||
| Coupon | Shares | ($000) | |||
| Temporary Cash Investments (4.0%)1 | |||||
| Money Market Fund (3.7%) | |||||
| 5,6 | Vanguard Market Liquidity Fund | 0.114% | 453,977,154 | 453,977 | |
| Face | |||||
| Maturity | Amount | ||||
| Date | ($000) | ||||
| Repurchase Agreement (0.2%) | |||||
| Deutsche Bank Securities, Inc.(Dated 10/31/14, | |||||
| Repurchase Value $25,600,000, collateralized by | |||||
| Government National Mortgage Assn. 4.000%, | |||||
| 7/20/44, with a value of $26,112,000) | 0.140% | 11/3/14 | 25,600 | 25,600 | |
| U.S. Government and Agency Obligations (0.1%) | |||||
| 7,8 | Fannie Mae Discount Notes | 0.100% | 1/28/15 | 1,000 | 1,000 |
| 8,9 | Federal Home Loan Bank Discount Notes | 0.050% | 12/10/14 | 100 | 100 |
| 9 | Federal Home Loan Bank Discount Notes | 0.032% | 12/24/14 | 2,000 | 2,000 |
| 7,8 | Freddie Mac Discount Notes | 0.050% | 1/14/15 | 6,000 | 5,999 |
| 9,099 | |||||
| Total Temporary Cash Investments (Cost $488,676) | 488,676 | ||||
| Total Investments (101.7%) (Cost $9,690,013) | 12,503,185 | ||||
| Other Assets and Liabilities—Net (-1.7%)6 | (210,515) | ||||
| Net Assets (100%) | 12,292,670 | ||||
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $161,303,000.
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 98.6% and 3.1%, respectively, of net
assets.
2 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
3 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
4 Restricted securities totaling $12,736,000, representing 0.1% of net assets.
5 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day
yield.
6 Includes $164,635,000 of collateral received for securities on loan.
7 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.
8 Securities with a value of $5,199,000 have been segregated as initial margin for open futures contracts.
9 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.
ADR—American Depositary Receipt.
12
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© 2014 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
SNA240 122014
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Vanguard Explorer Fund:
In our opinion, the accompanying statement of net assets - investments summary and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Explorer Fund (the “Fund”) at October 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2014 by correspondence with the custodians and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
December 16, 2014
PricewaterhouseCoopers LLP, Two Commerce Square, 2001 Market Street, Suite 1700, Philadelphia, PA 19103-7042
T: (267) 330-3000, F: (267) 330-3300, www.pwc.com/us
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) Code of Ethics.
(b) Certifications.
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: December 18, 2014 | |
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: December 18, 2014 | |
| VANGUARD EXPLORER FUND |
| BY: | /s/ THOMAS J. HIGGINS* |
| THOMAS J. HIGGINS | |
| CHIEF FINANCIAL OFFICER | |
Date: December 18, 2014 | |
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on April 22, 2014 see file Number
2-17620, Incorporated by Reference.