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, 2014 – April 30, 2015 |
| |
| Item 1: Reports to Shareholders | |
Semiannual Report | April 30, 2015
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. | 6 |
| Fund Profile. | 13 |
| Performance Summary. | 15 |
| Financial Statements. | 16 |
| About Your Fund’s Expenses. | 30 |
| Trustees Approve Advisory Arrangements. | 32 |
| Glossary. | 35 |
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
| |
| Six Months Ended April 30, 2015 | |
| | Total |
| | Returns |
| Vanguard Explorer Fund | |
| Investor Shares | 6.70% |
| Admiral™ Shares | 6.77 |
| Russell 2500 Growth Index | 8.31 |
| Small-Cap Growth Funds Average | 5.92 |
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, 2014, Through April 30, 2015 | | | | |
| | | | Distributions Per Share |
| | Starting | Ending | Income | Capital |
| | Share Price | Share Price | Dividends | Gains |
| Vanguard Explorer Fund | | | | |
| Investor Shares | $105.28 | $97.22 | $0.152 | $13.959 |
| Admiral Shares | 98.03 | 90.42 | 0.324 | 12.975 |
1
Chairman’s Letter
Dear Shareholder,
For the six months ended April 30, 2015, Vanguard Explorer Fund returned 6.70% for Investor Shares. The result trailed that of its benchmark, the Russell 2500 Growth Index, but exceeded the average return of its small-capitalization growth fund peers.
During the period, investors largely favored growth stocks over their value counterparts, and mid-cap stocks did better than large- and small-caps. The fund posted positive results in seven of its ten market sectors, with health care stocks contributing most to returns. The fund’s information technology stocks lagged, hurting its performance versus that of the benchmark.
On another note, I’m pleased to congratulate one of the fund’s eight advisors, Kalmar Investment Advisers, for recently reaching the tenth anniversary of its association with the Explorer Fund. Kalmar’s president, Ford Draper, has led the firm’s management of its portion of Explorer throughout those ten years.
U.S. stocks closed higher despite fluctuating returns
U.S. stocks returned almost 5% for the six months, despite stretches of shakiness. In two of those months, stocks declined. In two others, they were virtually unchanged or gained less than 1%. February’s surge of almost 6%, the largest monthly gain since October 2011, lifted stocks for the period.
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The Federal Reserve’s careful approach to potentially raising short-term interest rates helped stocks along, as did monetary stimulus efforts by other nations’ central banks. These factors offset concerns such as Greece’s debt crisis and the negative effect of the strong U.S. dollar on the profits of U.S.-based multinational companies.
For U.S. investors, international stocks returned about 6%. Still, results were restrained by the dollar’s strength against many foreign currencies. Returns for the developed markets of the Pacific region, led by Japan, exceeded those of Europe and emerging markets. (You can read about Vanguard’s assessment of Japan’s economy in Japan: The Long Road Back to Inflation, available at vanguard.com/research. This is part of the Global Macro Matters series produced by our economists.)
Stimulus policies and demand have driven up bond prices
Like equities, bonds have benefited from accommodative monetary policies from the world’s central banks. Investor demand for the perceived safety of fixed income assets has also boosted bond returns.
The broad U.S. taxable bond market returned 2.06% for the period, and the yield of the 10-year U.S. Treasury note ended April at 2.04%, down from 2.31% six months earlier. (Bond prices and yields move in opposite directions.)
| | | |
| Market Barometer | | | |
| |
| | Total Returns |
| | Periods Ended April 30, 2015 |
| | Six | One | Five Years |
| | Months | Year | (Annualized) |
| Stocks | | | |
| Russell 1000 Index (Large-caps) | 4.75% | 13.00% | 14.47% |
| Russell 2000 Index (Small-caps) | 4.65 | 9.71 | 12.73 |
| Russell 3000 Index (Broad U.S. market) | 4.74 | 12.74 | 14.33 |
| FTSE All-World ex US Index (International) | 6.00 | 3.53 | 6.40 |
| |
| Bonds | | | |
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.06% | 4.46% | 4.12% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 1.17 | 4.80 | 4.75 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.05 |
| |
| CPI | | | |
| Consumer Price Index | -0.35% | -0.20% | 1.65% |
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International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –4.83% as foreign currencies’ weakness relative to the dollar affected results. For international bonds hedged to eliminate the effect of changes in currency exchange rates, returns were positive.
Returns of money market funds and savings accounts remained checked by the Fed’s target of 0%–0.25% for short-term interest rates.
IT and health care notched gains but lagged their index counterparts
The fund’s advisors seek out smaller U.S. companies that they believe offer the best promise of above-average growth. For the six months, the advisors’ selections underperformed those in the Russell 2500 Growth Index. The index includes some mid-caps, the company-size segment that did best over the period.
Information technology, the fund’s largest sector, generated a 7% return. However, that was about 4 percentage points lower than the result for IT stocks in the index. The fund’s holdings in semiconductor firms and IT services were the most notable underperformers.
The second-largest sector, health care, returned 13% for the fund, a few percentage points less than the sector in the index. The biotechnology subsector continued its strong performance of late, returning about 24% for the index. The fund’s biotech stocks virtually matched
| | | |
| Expense Ratios | | | |
| Your Fund Compared With Its Peer Group | | | |
| |
| | Investor | Admiral | Peer Group |
| | Shares | Shares | Average |
| Explorer Fund | 0.53% | 0.36% | 1.39% |
The fund expense ratios shown are from the prospectus dated February 24, 2015, and represent estimated costs for the current fiscal year.
For the six months ended April 30, 2015, the fund’s annualized expense ratios were 0.49% for Investor Shares and 0.33% 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 2014.
Peer group: Small-Cap Growth Funds.
4
that result, but the advisors’ decision to underweight the subsector was a relative drag on performance.
Fund holdings in two other small-cap sectors with sizable weightings, consumer discretionary (+11%) and industrials (+3%), performed in line with those sectors in the index. The advisors’ selections among internet and apparel retailers did particularly well in consumer discretionary, as did airlines and industrial machinery firms in industrials.
Among sectors that declined, energy was notable because the plunge in oil and natural gas prices has hit these companies particularly hard. Although the fund’s energy portfolio retreated (–2%), it performed better than the index sector (–10%). This difference offset some of the underperformance among the fund’s IT and health care holdings.
You can find more information about the Explorer Fund’s performance and positioning in the Advisors’ Report that follows this letter.
Promoting good corporate governance is one way we protect your interests
Our core purpose is “to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” This means more than offering smart investments, trustworthy guidance, and low fees. It also means working with the companies held by Vanguard funds to make sure your interests remain paramount.
How do we meet that responsibility? As one of the world’s largest investment managers, we are making our voice heard in corporate boardrooms to promote the highest standards of stewardship. Our advocacy encompasses a range of corporate governance issues, including executive compensation and succession planning, board composition and effectiveness, oversight of strategy and risk, and communication with shareholders.
We also exert our influence in a very important way when Vanguard funds cast their proxy votes at companies’ shareholder meetings.
Most of these votes take place at this time of year, making it an appropriate time to remind you that we work hard to represent your best interests. Good governance, we believe, is essential for any company seeking to maximize its long-term returns to shareholders. You can learn more about our efforts at vanguard.com/corporategovernance.
Thank you for your confidence in Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 14, 2015
5
Advisors’ Report
For the six months ended April 30, 2015, Vanguard Explorer Fund returned 6.70% for Investor Shares. 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 11. The advisors have provided the following assessment of the investment environment during the past six months and the notable successes and shortfalls in their portfolios. These comments were prepared on May 19, 2015.
Wellington Management Company llp
Portfolio Managers:
Kenneth L. Abrams,
Senior Managing Director
and Equity Portfolio Manager
Daniel J. Fitzpatrick, CFA,
Managing Director
and Equity Portfolio Manager
The half year was another strong period for U.S. equities and other developed-market stocks as the Standard & Poor’s 500 Index returned 4.40% and the MSCI World Index 5.38%. Growth stocks generally outperformed value stocks across U.S. equity market capitalizations.
As has been the case over longer periods, our results for the six months were driven by strong stock selection. Our bottom-up selection decisions were especially helpful in the energy, industrial, and telecommunication services sectors.
Our position in Abiomed, a medical device technology company, was among the portfolio’s largest contributors to relative performance. Abiomed’s shares rose after it announced it had received Food and Drug Administration premarket approval for use of its Impella 2.5 heart pump during elective and urgent high-risk procedures. TESARO, an oncology-focused biopharmaceutical company, was another top contributor, returning more than 90%. We trimmed both positions on the stocks’ strong performance.
Relative performance was slightly hindered by our underweighting of, and weak selection in, the information technology sector. Our overweighting of financials also detracted from relative returns.
Among the biggest relative detractors was online insurance agency eHealth, which lagged as a result of lower-than-expected Medicare and Medicaid enrollment rates. We maintain holdings in it.
6
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
On the whole, the U.S. equity market was rewarding for the six-month period, though the last two months were more mixed. Reasons for that included a rising number of geopolitical flashpoints, particularly in the Middle East; the sharp appreciation in the U.S. dollar; and declines in commodity prices, most notably the plunge in oil.
Nevertheless, we anticipate improvement in U.S. growth, helped by West Coast port reopenings, continued employment gains, and subdued interest rates. Global deflation risk may also be waning amid a nascent upturn in Eurozone growth. This suggests that recession risk is still several years away. Earnings for well-positioned companies should keep expanding in the United States and abroad. Buoyed by worldwide central bank stimulus and mergers and acquisitions, the market should maintain its upward trend.
For the six months, our top three contributors to returns resulted from mergers and acquisitions, namely those involving Sapient, Life Time Fitness, and Salix Pharmaceuticals. Other successes in the consumer discretionary sector included Urban Outfitters, Ulta Salon, Service Corporation International, CarMax, and Texas Roadhouse.
More of our bigger detractors were buffeted by the slump in oil and gas prices than by any other factor. These included Chicago Bridge & Iron and Quanta Services (energy-related engineering and construction firms), Bonanza Creek Energy and Halcon Resources (exploration and production companies), and Atwood Oceanics (deepwater drill-ship operator). Although there are some arguments for even lower oil prices, a potential bottom seems to be forming. Herbalife and Worthington Industries also lagged.
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
A strong dollar, slowing gross domestic product growth, and weak oil prices generally favor small U.S. companies. Both the index and the portfolio confirmed that positive backdrop with strong six-month returns. Positive stock selections included
7
TASER International (smart weapons and on-officer video cameras and software) and several transportation companies. Our underweight allocation to the poorly performing energy sector helped relative results. Several of our biotech companies were top performers, yet health care was a detractor, as our shift away from companies in our “pioneer” category last year continued to hurt. Among consumer-oriented stocks, several companies in our “special situations” category hurt performance.
In addition to the biotech pioneers, stocks of our “core growth” companies with more predictable earnings were rewarded. We see compelling opportunities in both core growth and special situations, especially on a valuation basis. We continue to see the strongest earnings growth among information technology and industrial firms and remain overweighted in these areas.
Earnings trends in our portfolio companies remain strong and above those of the index, though they have moderated slightly in recent months. Strong performance over the long term is a result of a consistent adherence to a proven investment process. We remain focused on buying strong, innovative, market-leading companies while using our company life-cycle tool to gauge market sentiment and mitigate risk.
Stephens Investment Management
Group, LLC
Portfolio Manager:
Ryan E. Crane, CFA,
Chief Investment Officer
Domestic equity markets have been strong, with interest rates falling and the dollar strengthening throughout the period. Flows into U.S. markets have predominantly been in passive strategies, bidding up entire baskets of stocks, making it somewhat difficult for stock pickers. Along with that, valuations have risen to levels that are significantly above long-term averages. With the improved economy and labor market, there are signs that inflation may be picking up, taking interest rates higher. We believe that rising rates will relatively favor growth strategies and stock picking.
We had great success with our investments in network security. Several major hacking incidents and security breaches made headlines and led awareness to skyrocket along with corporate spending on network security software and services. The industrial sector was our best performer, with success across an array of companies, from business services to lighting to electronics for aviation applications.
Energy was a challenging area for us. The precipitous drop in crude oil prices sent stocks much lower. We remained overweighted in the industry, and we
8
repositioned the portfolio into higher-quality issuers and companies more focused on natural gas. More recently, commodity prices have stabilized, and we have even seen signs of an uptick in domestic oil-field activity.
Century Capital Management, LLC
Portfolio Manager:
Alexander L. Thorndike,
Managing Partner
The domestic economy appears to be on solid footing. Interest rates remain historically low, unemployment continues to fall, and we think inflation will remain low until wage pressure accelerates. In addition, the decline in energy prices has buoyed consumer sentiment. Generally, U.S. companies are enjoying high corporate earnings, low debt, and ample cash. Given the strong performance of U.S. equities since the market bottom in 2009, current valuations appear to be fully priced.
Overseas growth has been lackluster, as Europe, Asia, and Latin America struggle to sustain an economic recovery. We keep the following thoughts in mind: The United States remains the safest harbor in the global economy, the higher value of the U.S. dollar will help companies that import goods but hurt companies that export, and periods of volatility will provide opportunities to improve our portfolio holdings in quality growth enterprises. We believe this environment sets the stage for the domestic recovery to continue.
Consumer discretionary and financials were our strongest sectors during the period. Anacor Pharmaceuticals (health care) was a top performer, along with j2 Global and Palo Alto Networks (both information technology).
Industrials and IT were the weakest sectors. Homeaway and Movado Group (consumer discretionary) and Dealertrack Technologies (IT) were the biggest detractors.
Chartwell Investment Partners, Inc.
Portfolio Manager:
John A. Heffern, Managing Partner
Stock prices have risen over the last six months, despite the crosscurrents still roiling financial markets. Against this backdrop, our portfolio decisions steadfastly reflect our bias toward quality, leadership, defensible profit margins, and a pattern of successful execution of growth-oriented business models.
Horizon Pharma was our top contributor to performance. This specialty pharmaceutical company drove results through sustainable cash flow, earnings growth, and a recent acquisition. HFF, a commercial real estate and capital markets services firm, reported record transaction volume in 2014 and continues to capture market share. A special dividend was announced in January.
Our shortfalls included H&E Equipment Services, a provider of heavy industrial equipment rental, sales, and services;
9
recent results illustrate solid industrial demand offset by a slowdown in energy-related end markets. Rush Enterprises is an integrated retailer and servicer of heavy-duty trucks. Its decline was related to a perceived peak in the truck business and to its energy exposure.
Arrowpoint Partners
Portfolio Managers:
Chad Meade, Partner
Brian Schaub, CFA, Partner
Our strategy has historically performed best during periods of market volatility. Market pullbacks allow us to execute on our downside protection goal, while creating opportunities to position the portfolio in companies that are poised to outperform during subsequent rebounds. The recent period, however, presented a challenging backdrop to achieve our upside participation goal. Market returns were fueled by stocks with the most momentum, a factor in which we are almost universally underweighted, and by a significant rally in the health care sector, led by the biotechnology industry.
Among sectors, consumer discretionary helped the most. SS&C Technologies, Carter’s, and ServiceMaster Global Holdings were the top contributors.
Stock selection in information technology, along with an underweight position in health care, contributed to underperformance. Stratasys, CHC Group, and Kirby detracted.
Vanguard Equity Investment Group
Portfolio Managers:
James D. Troyer, CFA, Principal
James P. Stetler, Principal
Michael R. Roach, CFA
For the fiscal half year, our stock selection models, which we use to evaluate companies and rank them within their industries, were effective in identifying industry group leaders. The largest contributions to performance were from our growth and management decisions models, while our sentiment and quality models were moderately negative.
Our selection results within sectors were positive in six and negative in four. Our selections most boosted relative returns in information technology, materials, and financials. In IT, Freescale Semiconductor, Glu Mobile, and CommScope Holding contributed the most. Within materials, Sealed Air, Berry Plastics Group, and Chemtura led our results, as did Credit Acceptance, Universal Insurance Holdings, and MGIC Investment in financials.
However, our overall selections in health care and consumer staples detracted. In health care, Infinity Pharmaceuticals, PDL BioPharma, and IDEXX Laboratories did not perform as expected. Keurig Green Mountain, Avon Products, and Sanderson Farms had disappointing results in consumer staples.
10
| | | |
| Vanguard Explorer Fund Investment Advisors | |
| |
| | Fund Assets Managed | |
| Investment Advisor | % | $ Million | Investment Strategy |
| Wellington Management | 30 | 3,727 | 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 | 2,696 | 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 | 1,860 | 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 | 1,018 | 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. |
| Century Capital Management, | 7 | 887 | 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. |
| Chartwell Investment Partners, | 7 | 851 | 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. |
11
| | | |
| | Fund Assets Managed | |
| Investment Advisor | % | $ Million | Investment Strategy |
| Arrowpoint Partners | 4 | 559 | 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 | 540 | 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 | 315 | 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. |
12
Explorer Fund
Fund Profile
As of April 30, 2015
| | |
| Share-Class Characteristics | |
| | Investor | Admiral |
| | Shares | Shares |
| Ticker Symbol | VEXPX | VEXRX |
| Expense Ratio1 | 0.53% | 0.36% |
| 30-Day SEC Yield | 0.19% | 0.32% |
| | | |
| Portfolio Characteristics | | |
| | | | DJ |
| | | | U.S. |
| | | Russell | Total |
| | | 2500 | Market |
| | | Growth | FA |
| | Fund | Index | Index |
| Number of Stocks | 712 | 1,532 | 3,748 |
| Median Market Cap | $3.2B | $4.2B | $50.1B |
| Price/Earnings Ratio | 36.9x | 35.4x | 21.1x |
| Price/Book Ratio | 3.0x | 4.6x | 2.8x |
| Return on Equity | 12.4% | 16.3% | 17.9% |
| Earnings Growth | | | |
| Rate | 15.8% | 18.7% | 13.2% |
| Dividend Yield | 0.7% | 0.8% | 1.9% |
| Foreign Holdings | 4.1% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 70% | — | — |
| Short-Term | | | |
| Reserves | 1.5% | — | — |
| | |
| Volatility Measures | | |
| | | DJ |
| | | U.S. Total |
| | Russell 2500 | Market |
| | Growth Index | FA Index |
| R-Squared | 0.98 | 0.81 |
| Beta | 1.00 | 1.19 |
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) |
| IMAX Corp. | Movies & | |
| | Entertainment | 0.9% |
| Alliance Data Systems | Data Processing & | |
| Corp. | Outsourced Services | 0.8 |
| West Pharmaceutical | | |
| Services Inc. | Health Care Supplies | 0.8 |
| Urban Outfitters Inc. | Apparel Retail | 0.7 |
| Globus Medical Inc. | Health Care | |
| | Equipment | 0.7 |
| TreeHouse Foods Inc. | Packaged Foods & | |
| | Meats | 0.7 |
| NASDAQ OMX Group | | |
| Inc. | Specialized Finance | 0.6 |
| Clean Harbors Inc. | Environmental & | |
| | Facilities Services | 0.6 |
| Cadence Design | | |
| Systems Inc. | Application Software | 0.6 |
| Cooper Cos. Inc. | Health Care Supplies | 0.6 |
| Top Ten | | 7.0% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated February 24, 2015, and represent estimated costs for the current fiscal year. For the six
months ended April 30, 2015, the annualized expense ratios were 0.49% for Investor Shares and 0.33% for Admiral Shares.
Explorer Fund
| | | |
| Sector Diversification (% of equity exposure) |
| | | | DJ |
| | | | U.S. |
| | | Russell | Total |
| | | 2500 | Market |
| | | Growth | FA |
| | Fund | Index | Index |
| Consumer | | | |
| Discretionary | 16.7% | 18.2% | 13.2% |
| Consumer Staples | 2.0 | 3.4 | 8.3 |
| Energy | 5.1 | 3.6 | 7.8 |
| Financials | 9.1 | 8.9 | 17.5 |
| Health Care | 18.3 | 19.3 | 14.2 |
| Industrials | 17.8 | 16.6 | 11.0 |
| Information | | | |
| Technology | 24.3 | 22.2 | 19.2 |
| Materials | 5.5 | 7.0 | 3.6 |
| Telecommunication | | | |
| Services | 0.7 | 0.4 | 2.1 |
| Utilities | 0.5 | 0.4 | 3.1 |
14
Explorer Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): October 31, 2004, Through April 30, 2015
Note: For 2015, performance data reflect the six months ended April 30, 2015.
Average Annual Total Returns: Periods Ended March 31, 2015
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 | 9.57% | 16.11% | 9.23% |
| Admiral Shares | 11/12/2001 | 9.74 | 16.30 | 9.42 |
See Financial Highlights for dividend and capital gains information.
15
Explorer Fund
Financial Statements (unaudited)
Statement of Net Assets—Investments Summary
As of April 30, 2015
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 | | | |
| * | IMAX Corp. | 2,964,107 | 110,739 | 0.9% |
| * | Urban Outfitters Inc. | 2,159,201 | 86,454 | 0.7% |
| * | Ulta Salon Cosmetics & Fragrance Inc. | 456,059 | 68,906 | 0.6% |
| | Wolverine World Wide Inc. | 2,120,609 | 65,166 | 0.5% |
| * | LKQ Corp. | 2,371,267 | 64,190 | 0.5% |
| * | Tumi Holdings Inc. | 2,225,054 | 52,044 | 0.4% |
| | Consumer Discretionary—Other † | | 1,547,312 | 12.4% |
| | | | 1,994,811 | 16.0% |
| Consumer Staples | | | |
| * | TreeHouse Foods Inc. | 1,009,045 | 81,995 | 0.6% |
| * | United Natural Foods Inc. | 706,294 | 47,647 | 0.4% |
| | Consumer Staples—Other † | | 98,867 | 0.8% |
| | | | 228,509 | 1.8% |
| Energy | | | |
| | Patterson-UTI Energy Inc. | 2,397,653 | 53,588 | 0.5% |
| ^ | Core Laboratories NV | 369,533 | 48,512 | 0.4% |
| | Energy—Other † | | 514,328 | 4.1% |
| | | | 616,428 | 5.0% |
| Financials | | | |
| | NASDAQ OMX Group Inc. | 1,631,567 | 79,343 | 0.6% |
| * | Affiliated Managers Group Inc. | 334,311 | 75,598 | 0.6% |
| * | MGIC Investment Corp. | 6,618,164 | 68,961 | 0.6% |
| *,1 | eHealth Inc. | 1,380,405 | 16,924 | 0.1% |
| | Financials—Other † | | 752,700 | 6.1% |
| | | | 993,526 | 8.0% |
| Health Care | | | |
| | West Pharmaceutical Services Inc. | 1,866,845 | 99,465 | 0.8% |
| * | Globus Medical Inc. | 3,598,593 | 85,970 | 0.7% |
| | Cooper Cos. Inc. | 432,335 | 76,986 | 0.6% |
| * | Akorn Inc. | 1,788,160 | 74,459 | 0.6% |
| * | Insulet Corp. | 2,088,804 | 62,351 | 0.5% |
16
Explorer Fund
| | | | |
| | | | Market | Percentage |
| | | | Value | of Net |
| | | Shares | ($000) | Assets |
| | Universal Health Services Inc. Class B | 480,255 | 56,166 | 0.4% |
| * | Alkermes plc | 983,242 | 54,442 | 0.4% |
| | Kindred Healthcare Inc. | 2,191,329 | 50,291 | 0.4% |
| * | Cepheid | 894,460 | 50,179 | 0.4% |
| | ResMed Inc. | 737,189 | 47,136 | 0.4% |
| * | ICON plc | 718,665 | 46,239 | 0.4% |
| * | Allscripts Healthcare Solutions Inc. | 3,424,420 | 45,545 | 0.4% |
| | Health Care—Other † | | 1,455,028 | 11.7% |
| | | | 2,204,257 | 17.7% |
| Industrials | | | |
| * | Clean Harbors Inc. | 1,410,725 | 77,943 | 0.6% |
| * | Advisory Board Co. | 1,363,084 | 70,730 | 0.6% |
| | ManpowerGroup Inc. | 695,640 | 59,359 | 0.5% |
| | MSC Industrial Direct Co. Inc. Class A | 809,261 | 57,506 | 0.5% |
| 1 | John Bean Technologies Corp. | 1,476,003 | 56,959 | 0.4% |
| | Waste Connections Inc. | 1,113,130 | 52,774 | 0.4% |
| * | WESCO International Inc. | 720,228 | 51,957 | 0.4% |
| | Acuity Brands Inc. | 280,680 | 46,860 | 0.4% |
| * | WageWorks Inc. | 911,987 | 45,964 | 0.4% |
| | Industrials—Other † | | 1,628,627 | 13.1% |
| | | | 2,148,679 | 17.3% |
| Information Technology | | | |
| * | Alliance Data Systems Corp. | 352,573 | 104,823 | 0.8% |
| * | Cadence Design Systems Inc. | 4,175,920 | 77,881 | 0.6% |
| * | Demandware Inc. | 1,234,977 | 76,075 | 0.6% |
| * | Ultimate Software Group Inc. | 442,799 | 73,602 | 0.6% |
| * | Cardtronics Inc. | 1,934,419 | 72,986 | 0.6% |
| * | Dealertrack Technologies Inc. | 1,478,672 | 58,127 | 0.5% |
| * | Rogers Corp. | 783,283 | 56,952 | 0.5% |
| | Belden Inc. | 643,960 | 54,060 | 0.4% |
| * | Microsemi Corp. | 1,484,470 | 49,522 | 0.4% |
| | Teradyne Inc. | 2,598,710 | 47,426 | 0.4% |
| * | Euronet Worldwide Inc. | 803,966 | 47,016 | 0.4% |
| * | Ciena Corp. | 2,199,040 | 46,840 | 0.4% |
| * | WEX Inc. | 415,570 | 46,839 | 0.4% |
| | Information Technology—Other † | | 2,122,956 | 17.0% |
| | | | 2,935,105 | 23.6% |
| Materials | | | |
| | Graphic Packaging Holding Co. | 4,293,384 | 60,537 | 0.5% |
| | Smurfit Kappa Group plc | 1,770,241 | 54,185 | 0.4% |
| | Minerals Technologies Inc. | 768,070 | 52,021 | 0.4% |
| | PolyOne Corp. | 1,242,960 | 48,538 | 0.4% |
| | Materials—Other † | | 459,388 | 3.7% |
| | | | 674,669 | 5.4% |
| Other | | | |
| ^,2 | Vanguard Small-Cap Growth ETF | 463,200 | 60,596 | 0.5% |
| | Other—Other † | | 56,051 | 0.4% |
| | | | 116,647 | 0.9% |
| |
| Telecommunication Services † | | 79,973 | 0.6% |
| |
| Utilities † | | 46,684 | 0.4% |
| Total Common Stocks (Cost $9,325,159) | | 12,039,288 | 96.7%3 |
17
Explorer Fund
| | | | | |
| | | | | Market | Percentage |
| | | | | Value | of Net |
| | Coupon | | Shares | ($000) | Assets |
| Temporary Cash Investments | | | | | |
| Money Market Fund | | | | | |
| 4,5 Vanguard Market Liquidity Fund | 0.121% | | 585,299,466 | 585,299 | 4.7% |
| |
| | | | Face | | |
| | | Maturity | Amount | | |
| | | Date | ($000) | | |
| Repurchase Agreement | | | | | |
| Deutsche Bank Securities, Inc. | | | | | |
| (Dated 4/30/15, Repurchase | | | | | |
| Value $26,300,000, collateralized | | | | | |
| by U.S. Treasury Note/Bond | | | | | |
| 3.125%, 2/15/43, with a value | | | | | |
| of $26,826,000) | 0.100% | 5/1/15 | 26,300 | 26,300 | 0.2% |
| |
| 6U.S. Government and Agency Obligations † | | | 25,197 | 0.2% |
| Total Temporary Cash Investments (Cost $636,796) | | | 636,796 | 5.1%3 |
| Total Investments (Cost $9,961,955) | | | | 12,676,084 | 101.8% |
| Other Assets and Liabilities | | | | | |
| Other Assets | | | | 140,533 | 1.1% |
| Liabilities5 | | | | (363,562) | (2.9%) |
| | | | | (223,029) | (1.8%) |
| Net Assets | | | | 12,453,055 | 100.0% |
18
Explorer Fund
| |
| At April 30, 2015, net assets consisted of: | |
| | Amount |
| | ($000) |
| Paid-in Capital | 8,862,645 |
| Overdistributed Net Investment Income | (6,830) |
| Accumulated Net Realized Gains | 887,643 |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 2,714,129 |
| Futures Contracts | (4,718) |
| Foreign Currencies | 186 |
| Net Assets | 12,453,055 |
| |
| |
| Investor Shares—Net Assets | |
| Applicable to 45,933,494 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 4,465,698 |
| Net Asset Value Per Share—Investor Shares | $97.22 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 88,332,177 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 7,987,357 |
| Net Asset Value Per Share—Admiral Shares | $90.42 |
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 $173,724,000.
† 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 98.8% and 3.0%, 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 $184,087,000 of collateral received for securities on loan.
6 Securities with a value of $11,297,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Explorer Fund
Statement of Operations
| |
| | Six Months Ended |
| | April 30, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends1 | 46,413 |
| Interest | 281 |
| Securities Lending | 1,755 |
| Total Income | 48,449 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 13,577 |
| Performance Adjustment | (973) |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 5,853 |
| Management and Administrative—Admiral Shares | 4,323 |
| Marketing and Distribution—Investor Shares | 365 |
| Marketing and Distribution—Admiral Shares | 653 |
| Custodian Fees | 74 |
| Shareholders’ Reports—Investor Shares | 40 |
| Shareholders’ Reports—Admiral Shares | 46 |
| Trustees’ Fees and Expenses | 12 |
| Total Expenses | 23,970 |
| Expenses Paid Indirectly | (90) |
| Net Expenses | 23,880 |
| Net Investment Income | 24,569 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 873,129 |
| Futures Contracts | 29,977 |
| Foreign Currencies | (181) |
| Realized Net Gain (Loss) | 902,925 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | (99,043) |
| Futures Contracts | (11,976) |
| Foreign Currencies | 187 |
| Change in Unrealized Appreciation (Depreciation) | (110,832) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 816,662 |
| 1 Dividends are net of foreign withholding taxes of $176,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
20
Explorer Fund
Statement of Changes in Net Assets
| | |
| | Six Months Ended | Year Ended |
| | April 30, | October 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 24,569 | 27,973 |
| Realized Net Gain (Loss) | 902,925 | 1,838,039 |
| Change in Unrealized Appreciation (Depreciation) | (110,832) | (885,960) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 816,662 | 980,052 |
| Distributions | | |
| Net Investment Income | | |
| Investor Shares | (6,525) | (1,971) |
| Admiral Shares | (25,239) | (14,527) |
| Realized Capital Gain1 | | |
| Investor Shares | (599,236) | (533,162) |
| Admiral Shares | (1,010,718) | (676,723) |
| Total Distributions | (1,641,718) | (1,226,383) |
| Capital Share Transactions | | |
| Investor Shares | 156,296 | (830,676) |
| Admiral Shares | 829,145 | 1,300,061 |
| Net Increase (Decrease) from Capital Share Transactions | 985,441 | 469,385 |
| Total Increase (Decrease) | 160,385 | 223,054 |
| Net Assets | | |
| Beginning of Period | 12,292,670 | 12,069,616 |
| End of Period2 | 12,453,055 | 12,292,670 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $198,952,000 and $192,517,000, 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 ($6,830,000) and $546,000.
See accompanying Notes, which are an integral part of the Financial Statements.
21
Explorer Fund
Financial Highlights
| | | | | | |
| Investor Shares | | | | | | |
| Six Months | | | | | |
| | Ended | | | | | |
| For a Share Outstanding | April 30, | Year Ended October 31, |
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $105.28 | $107.96 | $78.03 | $73.02 | $66.02 | $51.77 |
| Investment Operations | | | | | | |
| Net Investment Income | .167 | .120 | . 2191 | .108 | .077 | .109 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | 5.884 | 8.062 | 32.286 | 4.998 | 7.029 | 14.239 |
| Total from Investment Operations | 6.051 | 8.182 | 32.505 | 5.106 | 7.106 | 14.348 |
| Distributions | | | | | | |
| Dividends from Net Investment Income | (.152) | (. 040) | (. 272) | (. 096) | (.106) | (. 098) |
| Distributions from Realized Capital Gains | (13.959) | (10.822) | (2.303) | — | — | — |
| Total Distributions | (14.111) | (10.862) | (2.575) | (.096) | (.106) | (.098) |
| Net Asset Value, End of Period | $97.22 | $105.28 | $107.96 | $78.03 | $73.02 | $66.02 |
| |
| Total Return2 | 6.70% | 8.20% | 42.89% | 7.00% | 10.76% | 27.74% |
| |
| Ratios/Supplemental Data | | | | | | |
| Net Assets, End of Period (Millions) | $4,466 | $4,623 | $5,573 | $5,008 | $5,864 | $6,290 |
| Ratio of Total Expenses to | | | | | | |
| Average Net Assets3 | 0.49% | 0.51% | 0.50% | 0.49% | 0.50% | 0.49% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | 0.30% | 0.12% | 0.27%1 | 0.16% | 0.12% | 0.19% |
| Portfolio Turnover Rate | 70% | 66% | 65% | 59% | 89%4 | 82% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
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 (0.02%), 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.
22
Explorer Fund
Financial Highlights
| | | | | | |
| Admiral Shares | | | | | | |
| Six Months | | | | | |
| | Ended | | | | | |
| For a Share Outstanding | April 30, | Year Ended October 31, |
| Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $98.03 | $100.54 | $72.68 | $68.04 | $61.50 | $48.21 |
| Investment Operations | | | | | | |
| Net Investment Income | .230 | .302 | .3751 | .236 | .179 | .206 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | 5.459 | 7.466 | 30.019 | 4.621 | 6.550 | 13.259 |
| Total from Investment Operations | 5.689 | 7.768 | 30.394 | 4.857 | 6.729 | 13.465 |
| Distributions | | | | | | |
| Dividends from Net Investment Income | (. 324) | (. 216) | (. 392) | (. 217) | (.189) | (.175) |
| Distributions from Realized Capital Gains | (12.975) | (10.062) | (2.142) | — | — | — |
| Total Distributions | (13.299) | (10.278) | (2.534) | (.217) | (.189) | (.175) |
| Net Asset Value, End of Period | $90.42 | $98.03 | $100.54 | $72.68 | $68.04 | $61.50 |
| |
| Total Return2 | 6.78% | 8.37% | 43.13% | 7.16% | 10.94% | 27.98% |
| |
| Ratios/Supplemental Data | | | | | | |
| Net Assets, End of Period (Millions) | $7,987 | $7,670 | $6,497 | $3,757 | $3,288 | $2,864 |
| Ratio of Total Expenses to | | | | | | |
| Average Net Assets3 | 0.33% | 0.35% | 0.34% | 0.32% | 0.34% | 0.32% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | 0.46% | 0.28% | 0.43%1 | 0.33% | 0.28% | 0.36% |
| Portfolio Turnover Rate | 70% | 66% | 65% | 59% | 89%4 | 82% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
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 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 (0.02%), 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.
23
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.
24
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 six months ended April 30, 2015, 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 counterparty’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 for the period ended April 30, 2015, 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 counterparty 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.
8. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 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
25
Explorer Fund
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 April 30, 2015, 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, Century Capital Management, LLC, Chartwell Investment Partners, Inc., and 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 current benchmark, a 50/50 blend of the Russell 2500 Growth Index and the Russell 2000 Growth Index, beginning November 1, 2013. The current 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 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 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 2000 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.
26
Explorer Fund
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 $294,000 for the six months ended April 30, 2015.
For the six months ended April 30, 2015, the aggregate investment advisory fee represented an effective annual basic rate of 0.22% of the fund’s average net assets, before a decrease of $973,000 (0.02%) 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 April 30, 2015, the fund had contributed capital of $1,134,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.45% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. For the six months ended April 30, 2015, these arrangements reduced the fund’s expenses by $90,000 (an annual rate of 0.00% of average net assets).
E. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of April 30, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 11,905,868 | 118,982 | 14,438 |
| Temporary Cash Investments | 585,299 | 51,497 | — |
| Futures Contracts—Liabilities1 | (4,709) | — | — |
| Total | 12,486,458 | 170,479 | 14,438 |
| 1 Represents variation margin on the last day of the reporting period. |
27
Explorer Fund
F. At April 30, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
| | | | |
| | | | ($000) |
| | | | Aggregate | |
| | | Number of | Settlement | Unrealized |
| | | Long (Short) | Value | Appreciation |
| Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
| E-mini Russell 2000 Index | June 2015 | 1,713 | 208,369 | (4,168) |
| E-mini S&P 500 Midcap 400 Index | June 2015 | 348 | 52,078 | (550) |
| | | | | (4,718) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
G. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At April 30, 2015, the cost of investment securities for tax purposes was $9,961,955,000. Net unrealized appreciation of investment securities for tax purposes was $2,714,129,000, consisting of unrealized gains of $3,016,868,000 on securities that had risen in value since their purchase and $302,739,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the six months ended April 30, 2015, the fund purchased $4,184,593,000 of investment securities and sold $4,931,500,000 of investment securities, other than temporary cash investments.
I. Capital share transactions for each class of shares were:
| | | | |
| | Six Months Ended | Year Ended |
| | April 30, 2015 | October 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Investor Shares | | | | |
| Issued | 173,832 | 1,784 | 511,418 | 5,003 |
| Issued in Lieu of Cash Distributions | 596,511 | 6,570 | 528,322 | 5,327 |
| Redeemed | (614,047) | (6,329) | (1,870,416) | (18,039) |
| Net Increase (Decrease)—Investor Shares | 156,296 | 2,025 | (830,676) | (7,709) |
| Admiral Shares | | | | |
| Issued | 842,192 | 9,358 | 1,952,958 | 20,183 |
| Issued in Lieu of Cash Distributions | 983,181 | 11,649 | 653,398 | 7,085 |
| Redeemed | (996,228) | (10,912) | (1,306,295) | (13,654) |
| Net Increase (Decrease)—Admiral Shares | 829,145 | 10,095 | 1,300,061 | 13,614 |
28
Explorer Fund
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 | | | April 30, |
| | 2014 | | from | | Capital Gain | 2015 |
| | Market | Purchases | Securities | | Distributions | Market |
| | Value | at Cost | Sold1 | Income | Received | Value |
| | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) |
| American Woodmark Corp. | 32,677 | 1,431 | 41,334 | — | — | NA2 |
| eHealth Inc. | 36,335 | — | 1,891 | — | — | 16,924 |
| John Bean Technologies Corp. | NA3 | 8,909 | 2,745 | 273 | — | 56,959 |
| Vanguard Small-Cap Growth ETF | 57,914 | — | — | 594 | — | 60,596 |
| Vanguard Market Liquidity Fund | 453,977 | NA4 | NA 4 | 257 | — | 585,299 |
| Total | 580,903 | | | 1,124 | — | 719,778 |
1 Includes net realized gain (loss) on affiliated investment securities sold of $21,987,000.
2 Not applicable—at April 30, 2015, the security was still held, but the issuer was no longer an affiliated company of the fund.
3 Not applicable—at October 31, 2014, the issuer was not an affiliated company of the fund.
4 Not applicable—purchases and sales are for temporary cash investment purposes.
K. Management has determined that no material events or transactions occurred subsequent to April 30, 2015, that would require recognition or disclosure in these financial statements.
29
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 April 30, 2015 | | | |
| | Beginning | Ending | Expenses |
| | Account Value | Account Value | Paid During |
| Explorer Fund | 10/31/2014 | 4/30/2015 | Period |
| Based on Actual Fund Return | | | |
| Investor Shares | $1,000.00 | $1,066.97 | $2.51 |
| Admiral Shares | 1,000.00 | 1,067.71 | 1.69 |
| Based on Hypothetical 5% Yearly Return | | | |
| Investor Shares | $1,000.00 | $1,022.36 | $2.46 |
| Admiral Shares | 1,000.00 | 1,023.16 | 1.66 |
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 0.49% for Investor Shares and 0.33% 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.
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Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Explorer Fund has renewed the fund’s investment advisory arrangements with Arrowpoint Asset Management, LLC (Arrowpoint Partners); 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). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board considered the following:
Arrowpoint Partners. Arrowpoint Partners, founded in 2007, offers a wide range of strategies, including equities, fixed income, and structured products to institutional, high net worth, and retail investors. Using in-depth, fundamental research, the investment team seeks to identify companies that it believes can control their own economic destiny. These are companies with strong competitive advantages in industries with high barriers to entry, large potential markets, and high-quality business models focused on growth. Arrowpoint Partners has managed a portion of the fund since 2014.
Century Capital. Century Capital is an investment management boutique, owned by the investment professionals within the firm. Century Capital employs a fundamental, bottom-up investment approach that seeks to identify reasonably priced, high-quality companies that will grow faster than the overall market. Independent research is a core tenet. The ideal investment is a well-managed company that is reasonably valued, in a non-capital-intensive business, with established products or services, a high return on equity, high recurring revenues, and improving margins. Century Capital has managed a portion of the fund since 2008.
Chartwell. Chartwell, founded in 1997, is a wholly owned subsidiary of TriState Capital. The firm has expertise in small- and mid-cap equity management and employs a fundamental bottom-up strategy, seeking companies with superior growth potential trading at reasonable valuations. Using fundamental research, the firm selects a portfolio of 70–90 stocks that it believes will generate accelerated earnings growth, with exposure typically concentrated in higher-growth industries such as information technology, consumer discretionary, and health care. Chartwell has managed a portion of the fund since 1997.
Granahan. Founded in 1985, Granahan specializes in small-cap growth equity investing. The firm uses fundamental research to select a portfolio of 150–170 stocks with sustainable growth characteristics. Granahan achieves portfolio diversification through dedicated allocations to three categories of growth companies: core growth (40%–70% of subportfolio assets), companies with strong market position and established profit growth; pioneers (15%–30%), companies earlier in their life cycle with unique technology or innovations; and special situation (15%–30%), companies with a catalyst for change that could lead to growth. Granahan has managed a portion of the fund since 1990.
32
Kalmar. Kalmar, together with its parent company, Kalmar Investments Inc., founded in 1982, specializes in small- and mid-cap growth equity investing. Kalmar is a research-driven investment firm that is entirely focused on the management of “growth with value” small- and mid-cap equity portfolios. Kalmar believes that there is a high-reward and low-risk anomaly offered by the equity market in the stocks of solid, well-managed, rapidly growing smaller companies. Through independent fundamental research, Kalmar attempts to discover such companies, buy them at undervalued levels, and own them for the longer term. Kalmar has managed a portion of the fund since 2005.
SIMG. SIMG, a subsidiary of Stephens Investments Holdings LLC, a privately held and family-owned company, is an investment advisory firm founded in 2005. SIMG employs a disciplined, bottom-up investment selection process that combines rigorous fundamental analysis with quantitative screening seeking to identify companies in which it invests: core growth and earnings catalyst. The characteristics it seeks for core growth stocks are consistent and predictable earnings growth that is generated by unique, defensible business models. For earnings catalyst stocks, it looks for inflection points such as large earnings surprises or positive revisions to earnings estimates or guidance. SIMG has managed a portion of the fund since 2013.
Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. Using a bottom-up, fundamentally driven approach, Wellington Management invests opportunistically in a diversified portfolio of high-quality stocks. The firm attempts to identify companies with key success factors such as top market share, substantial insider ownership, and fully funded business plans. The investment team has the support of Wellington Management’s global industry analysts in conducting its research-intensive approach. Wellington Management has advised the fund since 1967.
Vanguard. Vanguard has been managing investments for more than three decades. The Quantitative Equity Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth. Vanguard has managed a portion of the fund since 1997.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term performance of the fund and each advisor, including any periods of outperformance or underperformance relative to a benchmark index and peer group. The board concluded that the performance was such that each advisory arrangement should continue. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
The board did not consider profitability of Arrowpoint Partners, Century Capital, Chartwell, Granahan, Kalmar, SIMG, or Wellington Management in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations. The board does not conduct a profitability analysis of Vanguard because of Vanguard’s
33
unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Arrowpoint Partners, Century Capital, Chartwell, Granahan, Kalmar, SIMG, and Wellington Management. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board also concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as the fund’s assets managed by Vanguard increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
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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.
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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 178 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 | Rajiv L. Gupta |
| | Born 1945. Trustee Since December 2001.2 Principal |
| F. William McNabb III | Occupation(s) During the Past Five Years and Other |
| Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
| the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
| Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
| Board of The Vanguard Group, Inc., and of each of | International PLC (diversified manufacturing and |
| the investment companies served by The Vanguard | services), Hewlett-Packard Co. (electronic computer |
| Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive PLC |
| Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at New |
| President of The Vanguard Group, and of each of | Mountain Capital. |
| the investment companies served by The Vanguard | |
| Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
| Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
| Group (1995–2008). | Occupation(s) During the Past Five Years and |
| | Other Experience: President of the University of |
| IndependentTrustees | Pennsylvania; Christopher H. Browne Distinguished |
| | Professor of Political Science, School of Arts and |
| Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
| Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
| Occupation(s) During the Past Five Years and | appointments in the Department of Philosophy, School |
| Other Experience: Executive Chief Staff and | of Arts and Sciences, and at the Graduate School of |
| Marketing Officer for North America and Corporate | Education, University of Pennsylvania; Trustee of the |
| Vice President (retired 2008) of Xerox Corporation | National Constitution Center; Chair of the Presidential |
| (document management products and services); | Commission for the Study of Bioethical Issues. |
| Executive in Residence and 2009–2010 Distinguished | |
| Minett Professor at the Rochester Institute of | JoAnn Heffernan Heisen |
| Technology; Director of SPX Corporation (multi-industry | Born 1950. Trustee Since July 1998. Principal |
| manufacturing), the United Way of Rochester, | Occupation(s) During the Past Five Years and Other |
| Amerigroup Corporation (managed health care), the | Experience: Corporate Vice President and Chief |
| University of Rochester Medical Center, Monroe | Global Diversity Officer (retired 2008) and Member |
| Community College Foundation, and North Carolina | of the Executive Committee (1997–2008) of Johnson |
| A&T University. | & Johnson (pharmaceuticals/medical devices/ |
| | consumer products); Director of Skytop Lodge |
| | Corporation (hotels), the University Medical Center |
| | at Princeton, the Robert Wood Johnson Foundation, |
| | and the Center for Talent Innovation; Member of |
| | the Advisory Board of the Institute for Women’s |
| | Leadership at Rutgers University. |
| | |
| F. Joseph Loughrey | Executive Officers | |
| Born 1949. Trustee Since October 2009. Principal | | |
| Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
| Experience: President and Chief Operating Officer | Born 1967. Controller Since July 2010. Principal |
| (retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and Other |
| Chairman of the Board of Hillenbrand, Inc. (specialized | Experience: Principal of The Vanguard Group, Inc.; |
| consumer services), and of Oxfam America; Director | Controller of each of the investment companies served |
| of SKF AB (industrial machinery), Hyster-Yale Materials | by The Vanguard Group; Assistant Controller of each of |
| Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard |
| for Education, and the V Foundation for Cancer | Group (2001–2010). | |
| Research; Member of the Advisory Council for the | | |
| College of Arts and Letters and of the Advisory Board | Thomas J. Higgins | |
| to the Kellogg Institute for International Studies, both | Born 1957. Chief Financial Officer Since September |
| at the University of Notre Dame. | 2008. Principal Occupation(s) During the Past Five |
| Years and Other Experience: Principal of The Vanguard |
| Mark Loughridge | Group, Inc.; Chief Financial Officer of each of the |
| Born 1953. Trustee Since March 2012. Principal | investment companies served by The Vanguard Group; |
| Occupation(s) During the Past Five Years and Other | Treasurer of each of the investment companies served |
| Experience: Senior Vice President and Chief Financial | by The Vanguard Group (1998–2008). |
| Officer (retired 2013) at IBM (information technology | | |
| services); Fiduciary Member of IBM’s Retirement Plan | Kathryn J. Hyatt | |
| Committee (2004–2013); Director of the Dow Chemical | Born 1955. Treasurer Since November 2008. Principal |
| Company; Member of the Council on Chicago Booth. | Occupation(s) During the Past Five Years and Other |
| Experience: Principal of The Vanguard Group, Inc.; |
| Scott C. Malpass | Treasurer of each of the investment companies served |
| Born 1962. Trustee Since March 2012. Principal | by The Vanguard Group; Assistant Treasurer of each of |
| Occupation(s) During the Past Five Years and Other | the investment companies served by The Vanguard |
| Experience: Chief Investment Officer and Vice | Group (1988–2008). | |
| President at the University of Notre Dame; Assistant | | |
| Professor of Finance at the Mendoza College of | Heidi Stam | |
| Business at Notre Dame; Member of the Notre Dame | Born 1956. Secretary Since July 2005. Principal |
| 403(b) Investment Committee; Board Member of | Occupation(s) During the Past Five Years and Other |
| TIFF Advisory Services, Inc., and Catholic Investment | Experience: Managing Director of The Vanguard |
| Services, Inc. (investment advisors); Member of | Group, Inc.; General Counsel of The Vanguard Group; |
| the Investment Advisory Committee of Major | Secretary of The Vanguard Group and of each of the |
| League Baseball. | investment companies served by The Vanguard Group; |
| Director and Senior Vice President of Vanguard |
| André F. Perold | Marketing Corporation. | |
| Born 1952. Trustee Since December 2004. Principal | | |
| Occupation(s) During the Past Five Years and Other | Vanguard Senior ManagementTeam |
| Experience: George Gund Professor of Finance and | | |
| Banking, Emeritus at the Harvard Business School | Mortimer J. Buckley | Chris D. McIsaac |
| (retired 2011); Chief Investment Officer and Managing | Kathleen C. Gubanich | Michael S. Miller |
| Partner of HighVista Strategies LLC (private investment | Paul A. Heller | James M. Norris |
| firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
| the Museum of Fine Arts Boston. | John T. Marcante | |
| |
| Peter F. Volanakis | Chairman Emeritus and Senior Advisor | |
| Born 1955. Trustee Since July 2009. Principal | | |
| Occupation(s) During the Past Five Years and Other | John J. Brennan | |
| Experience: President and Chief Operating Officer | Chairman, 1996–2009 | |
| (retired 2010) of Corning Incorporated (communications | Chief Executive Officer and President, 1996–2008 |
| equipment); Trustee of Colby-Sawyer College; | | |
| Member of the Advisory Board of the Norris Cotton | | |
| Cancer Center and of the Advisory Board of the | Founder | |
| 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.
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| 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. | | |
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| 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 | |
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| find out more about this public service, call the SEC at | |
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| Commission, Washington, DC 20549-1520. | |
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| | | © 2015 The Vanguard Group, Inc. |
| | | All rights reserved. |
| | | Vanguard Marketing Corporation, Distributor. |
| |
| | | Q242 062015 |
Item 2: Code of Ethics.
Not Applicable.
Item 3: Audit Committee Financial Expert.
Not Applicable.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Not Applicable.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
Item 6: Investments.
VanguardTM Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| |
| Common Stocks (96.7%)1 | | |
| Consumer Discretionary (16.0%) | | |
| * | IMAX Corp. | 2,964,107 | 110,739 |
| * | Urban Outfitters Inc. | 2,159,201 | 86,454 |
| * | Ulta Salon Cosmetics & Fragrance Inc. | 456,059 | 68,906 |
| | Wolverine World Wide Inc. | 2,120,609 | 65,166 |
| * | LKQ Corp. | 2,371,267 | 64,190 |
| * | Tumi Holdings Inc. | 2,225,054 | 52,044 |
| | Texas Roadhouse Inc. Class A | 1,345,555 | 45,211 |
| | DSW Inc. Class A | 1,225,973 | 44,466 |
| *,^ | DreamWorks Animation SKG Inc. Class A | 1,667,830 | 43,464 |
| * | CarMax Inc. | 623,110 | 42,440 |
| | Churchill Downs Inc. | 352,658 | 42,026 |
| | Tractor Supply Co. | 488,130 | 42,009 |
| | Hanesbrands Inc. | 1,344,830 | 41,797 |
| * | Five Below Inc. | 1,228,025 | 41,409 |
| | Service Corp. International | 1,418,665 | 39,269 |
| * | Live Nation Entertainment Inc. | 1,486,165 | 37,243 |
| | HSN Inc. | 592,180 | 36,964 |
| | Cheesecake Factory Inc. | 733,448 | 36,768 |
| | New York Times Co. Class A | 2,623,026 | 35,122 |
| | Lennar Corp. Class A | 758,685 | 34,748 |
| * | Standard Pacific Corp. | 4,277,370 | 34,647 |
| | PulteGroup Inc. | 1,724,240 | 33,278 |
| * | Crocs Inc. | 2,508,570 | 33,113 |
| * | Jarden Corp. | 636,327 | 32,567 |
| ^ | Pier 1 Imports Inc. | 2,453,520 | 31,037 |
| | La-Z-Boy Inc. | 1,171,400 | 30,702 |
| * | Grand Canyon Education Inc. | 655,606 | 29,686 |
| * | Michaels Cos. Inc. | 1,114,745 | 28,827 |
| * | G-III Apparel Group Ltd. | 254,290 | 28,272 |
| | National CineMedia Inc. | 1,784,073 | 27,189 |
| | Brunswick Corp. | 531,210 | 26,582 |
| * | Cabela's Inc. | 453,075 | 23,895 |
| * | Burlington Stores Inc. | 454,972 | 23,463 |
| * | Buffalo Wild Wings Inc. | 146,790 | 23,384 |
| | Chico's FAS Inc. | 1,325,700 | 22,351 |
| * | MarineMax Inc. | 872,316 | 19,261 |
| | Sonic Corp. | 625,895 | 17,932 |
| * | Gentherm Inc. | 321,095 | 16,931 |
| | Columbia Sportswear Co. | 269,586 | 16,903 |
| * | Red Robin Gourmet Burgers Inc. | 223,635 | 16,793 |
| | Papa John's International Inc. | 271,537 | 16,664 |
| * | La Quinta Holdings Inc. | 678,297 | 16,333 |
| | Callaway Golf Co. | 1,665,596 | 16,123 |
| * | Vitamin Shoppe Inc. | 373,500 | 15,642 |
| | Bloomin' Brands Inc. | 675,645 | 15,310 |
| | Ryland Group Inc. | 352,246 | 14,520 |
| * | Steven Madden Ltd. | 368,967 | 14,397 |
| * | Hibbett Sports Inc. | 307,298 | 14,382 |
| | Carter's Inc. | 141,121 | 14,092 |
| | Ross Stores Inc. | 135,400 | 13,388 |
| | Sotheby's | 311,070 | 13,286 |
| * | Francesca's Holdings Corp. | 661,600 | 11,201 |
| * | Netflix Inc. | 19,900 | 11,074 |
| * | Krispy Kreme Doughnuts Inc. | 605,717 | 10,782 |
| * | ServiceMaster Global Holdings Inc. | 305,473 | 10,557 |
| | Harman International Industries Inc. | 78,600 | 10,248 |
| | Williams-Sonoma Inc. | 136,816 | 10,060 |
| * | Deckers Outdoor Corp. | 133,750 | 9,898 |
| * | Skechers U.S.A. Inc. Class A | 103,750 | 9,329 |
| * | Sally Beauty Holdings Inc. | 298,434 | 9,314 |
| * | Life Time Fitness Inc. | 128,282 | 9,172 |
1
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| * | Chipotle Mexican Grill Inc. Class A | 14,400 | 8,947 |
| | Dunkin' Brands Group Inc. | 166,726 | 8,688 |
| *,^ | iRobot Corp. | 251,496 | 8,154 |
| * | Universal Electronics Inc. | 148,849 | 8,029 |
| | Cinemark Holdings Inc. | 177,060 | 7,548 |
| *,^ | Noodles & Co. Class A | 365,100 | 7,309 |
| * | Ascena Retail Group Inc. | 484,550 | 7,263 |
| | Brinker International Inc. | 130,304 | 7,215 |
| * | Under Armour Inc. Class A | 89,372 | 6,931 |
| * | Rentrak Corp. | 140,273 | 6,649 |
| * | Boyd Gaming Corp. | 475,500 | 6,277 |
| | Men's Wearhouse Inc. | 109,375 | 6,190 |
| * | GoPro Inc. Class A | 120,000 | 6,010 |
| * | BJ's Restaurants Inc. | 112,405 | 5,261 |
| | Monro Muffler Brake Inc. | 81,367 | 4,873 |
| * | NVR Inc. | 3,200 | 4,245 |
| | Lithia Motors Inc. Class A | 42,300 | 4,219 |
| * | Tesla Motors Inc. | 17,939 | 4,055 |
| | Cablevision Systems Corp. Class A | 202,300 | 4,042 |
| | Jack in the Box Inc. | 41,100 | 3,566 |
| * | Kona Grill Inc. | 135,584 | 3,289 |
| * | American Axle & Manufacturing Holdings Inc. | 127,400 | 3,176 |
| | Outerwall Inc. | 46,721 | 3,104 |
| | Foot Locker Inc. | 51,100 | 3,038 |
| * | Murphy USA Inc. | 46,400 | 3,031 |
| | Cooper Tire & Rubber Co. | 71,300 | 3,030 |
| | Nutrisystem Inc. | 157,300 | 2,997 |
| * | Skullcandy Inc. | 264,460 | 2,859 |
| | Cato Corp. Class A | 71,600 | 2,817 |
| * | Strayer Education Inc. | 53,100 | 2,693 |
| | Dana Holding Corp. | 119,100 | 2,569 |
| * | Chuy's Holdings Inc. | 110,867 | 2,508 |
| *,^ | SodaStream International Ltd. | 127,000 | 2,468 |
| | Big Lots Inc. | 51,700 | 2,356 |
| | Dillard's Inc. Class A | 17,200 | 2,263 |
| | Aramark | 73,200 | 2,249 |
| *,^ | Zoe's Kitchen Inc. | 72,400 | 2,218 |
| * | Performance Sports Group Ltd. | 102,410 | 2,079 |
| | Nexstar Broadcasting Group Inc. Class A | 35,000 | 2,046 |
| * | Build-A-Bear Workshop Inc. | 109,500 | 2,018 |
| | Brown Shoe Co. Inc. | 62,900 | 1,868 |
| | Abercrombie & Fitch Co. | 82,000 | 1,843 |
| | Dick's Sporting Goods Inc. | 32,800 | 1,780 |
| *,^ | Jamba Inc. | 107,000 | 1,686 |
| ^ | Buckle Inc. | 37,600 | 1,685 |
| * | Starz | 42,800 | 1,683 |
| * | Diamond Resorts International Inc. | 51,200 | 1,639 |
| * | Fiesta Restaurant Group Inc. | 28,000 | 1,415 |
| * | MakeMyTrip Ltd. | 66,400 | 1,406 |
| * | Denny's Corp. | 125,600 | 1,308 |
| | Cracker Barrel Old Country Store Inc. | 9,600 | 1,272 |
| * | Vince Holding Corp. | 68,500 | 1,262 |
| | Tupperware Brands Corp. | 15,300 | 1,023 |
| | CST Brands Inc. | 22,400 | 934 |
| * | Tower International Inc. | 19,200 | 497 |
| | Polaris Industries Inc. | 3,500 | 479 |
| | PetMed Express Inc. | 20,800 | 329 |
| * | Nautilus Inc. | 17,500 | 294 |
| * | Martha Stewart Living Omnimedia Inc. Class A | 48,900 | 269 |
| | Domino's Pizza Inc. | 2,342 | 253 |
| * | Tenneco Inc. | 3,977 | 232 |
| * | Malibu Boats Inc. Class A | 9,300 | 197 |
| * | Liberty Ventures Class A | 3,800 | 158 |
| | | | 1,994,811 |
2
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| Consumer Staples (1.8%) | | |
| * | TreeHouse Foods Inc. | 1,009,045 | 81,995 |
| * | United Natural Foods Inc. | 706,294 | 47,647 |
| | Greencore Group plc | 7,134,282 | 38,715 |
| * | Monster Beverage Corp. | 82,600 | 11,325 |
| ^ | Sanderson Farms Inc. | 142,557 | 10,709 |
| * | Fresh Market Inc. | 225,469 | 7,923 |
| | PriceSmart Inc. | 80,520 | 6,479 |
| * | Boulder Brands Inc. | 675,150 | 6,441 |
| * | Natural Grocers by Vitamin Cottage Inc. | 183,700 | 4,835 |
| | Cal-Maine Foods Inc. | 78,200 | 3,496 |
| ^ | Pilgrim's Pride Corp. | 114,286 | 2,823 |
| * | Rite Aid Corp. | 170,200 | 1,312 |
| | Avon Products Inc. | 145,800 | 1,191 |
| | Casey's General Stores Inc. | 12,000 | 986 |
| * | Seaboard Corp. | 217 | 781 |
| * | USANA Health Sciences Inc. | 5,500 | 626 |
| * | SUPERVALU Inc. | 69,000 | 606 |
| | Coty Inc. Class A | 9,100 | 218 |
| | Coca-Cola Bottling Co. Consolidated | 1,800 | 203 |
| * | Central Garden & Pet Co. Class A | 15,800 | 155 |
| | Inter Parfums Inc. | 1,430 | 43 |
| | | | 228,509 |
| Energy (5.0%) | | |
| | Patterson-UTI Energy Inc. | 2,397,653 | 53,588 |
| ^ | Core Laboratories NV | 369,533 | 48,512 |
| ^ | Veresen Inc. | 2,782,700 | 41,839 |
| | Energen Corp. | 565,660 | 40,258 |
| * | Gulfport Energy Corp. | 805,159 | 39,404 |
| * | Whiting Petroleum Corp. | 991,219 | 37,577 |
| * | RSP Permian Inc. | 1,158,700 | 33,625 |
| * | Matador Resources Co. | 1,047,790 | 29,045 |
| | Cabot Oil & Gas Corp. | 853,775 | 28,875 |
| | Superior Energy Services Inc. | 1,128,625 | 28,780 |
| * | Bonanza Creek Energy Inc. | 917,680 | 25,291 |
| *,^ | Laredo Petroleum Inc. | 1,558,828 | 24,630 |
| * | Carrizo Oil & Gas Inc. | 382,870 | 21,337 |
| * | Paramount Resources Ltd. Class A | 540,500 | 15,989 |
| | Atwood Oceanics Inc. | 418,940 | 13,984 |
| * | RigNet Inc. | 367,642 | 13,772 |
| * | Diamondback Energy Inc. | 152,310 | 12,576 |
| * | Key Energy Services Inc. | 4,236,557 | 10,337 |
| * | Rice Energy Inc. | 399,500 | 9,840 |
| * | Southwestern Energy Co. | 333,605 | 9,351 |
| | RPC Inc. | 557,950 | 8,877 |
| | Oceaneering International Inc. | 146,200 | 8,057 |
| | Range Resources Corp. | 122,600 | 7,792 |
| * | Dril-Quip Inc. | 93,910 | 7,487 |
| ^ | US Silica Holdings Inc. | 172,419 | 6,440 |
| * | Forum Energy Technologies Inc. | 249,800 | 5,810 |
| | Scorpio Tankers Inc. | 469,895 | 4,389 |
| *,^ | Sanchez Energy Corp. | 232,664 | 3,418 |
| * | Basic Energy Services Inc. | 310,000 | 3,159 |
| * | REX American Resources Corp. | 48,867 | 3,089 |
| * | Pacific Ethanol Inc. | 230,200 | 2,753 |
| | Targa Resources Corp. | 26,000 | 2,729 |
| * | Kosmos Energy Ltd. | 276,300 | 2,702 |
| | Green Plains Inc. | 75,900 | 2,364 |
| | Nabors Industries Ltd. | 133,000 | 2,221 |
| | SM Energy Co. | 36,500 | 2,116 |
| | Western Refining Inc. | 41,600 | 1,832 |
| *,^ | FMSA Holdings Inc. | 149,400 | 1,313 |
| * | CHC Group Ltd. | 539,134 | 642 |
| | Alon USA Energy Inc. | 28,000 | 451 |
3
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| * | ION Geophysical Corp. | 77,800 | 177 |
| | | | 616,428 |
| Financials (8.0%) | | |
| | NASDAQ OMX Group Inc. | 1,631,567 | 79,343 |
| * | Affiliated Managers Group Inc. | 334,311 | 75,598 |
| * | MGIC Investment Corp. | 6,618,164 | 68,961 |
| | Assured Guaranty Ltd. | 1,716,440 | 44,610 |
| | Pebblebrook Hotel Trust | 1,036,119 | 44,491 |
| | PacWest Bancorp | 951,226 | 42,900 |
| | International Bancshares Corp. | 1,528,297 | 39,705 |
| | Zions Bancorporation | 1,378,500 | 39,060 |
| | MFA Financial Inc. | 4,857,005 | 37,739 |
| ^ | Financial Engines Inc. | 835,301 | 35,225 |
| | Paramount Group Inc. | 1,771,623 | 32,456 |
| | WisdomTree Investments Inc. | 1,639,718 | 31,220 |
| | Redwood Trust Inc. | 1,753,420 | 30,141 |
| * | Signature Bank | 203,852 | 27,335 |
| * | Solar Capital Ltd. | 1,370,110 | 27,073 |
| | First Industrial Realty Trust Inc. | 1,348,535 | 26,607 |
| * | First BanCorp | 4,013,102 | 24,119 |
| | Och-Ziff Capital Management Group LLC Class A | 1,771,846 | 22,875 |
| | MarketAxess Holdings Inc. | 217,450 | 18,668 |
| *,2 | eHealth Inc. | 1,380,405 | 16,924 |
| | LPL Financial Holdings Inc. | 399,256 | 16,158 |
| | STAG Industrial Inc. | 720,900 | 15,665 |
| * | SVB Financial Group | 104,100 | 13,820 |
| | Evercore Partners Inc. Class A | 265,180 | 12,792 |
| | Hancock Holding Co. | 434,275 | 12,642 |
| | Cohen & Steers Inc. | 324,884 | 12,300 |
| * | Texas Capital Bancshares Inc. | 225,855 | 11,894 |
| * | Encore Capital Group Inc. | 249,021 | 10,070 |
| * | First NBC Bank Holding Co. | 275,562 | 9,694 |
| * | PRA Group Inc. | 173,000 | 9,476 |
| | Cardinal Financial Corp. | 430,109 | 8,873 |
| | Bank of the Ozarks Inc. | 225,861 | 8,754 |
| * | Hilltop Holdings Inc. | 413,500 | 8,316 |
| | Opus Bank | 243,664 | 7,627 |
| | State Bank Financial Corp. | 329,679 | 6,597 |
| * | Cowen Group Inc. Class A | 941,143 | 5,261 |
| | Lazard Ltd. Class A | 86,800 | 4,603 |
| | East West Bancorp Inc. | 103,074 | 4,184 |
| * | Credit Acceptance Corp. | 16,517 | 3,901 |
| | Radian Group Inc. | 186,200 | 3,326 |
| | Lexington Realty Trust | 350,595 | 3,250 |
| | Legg Mason Inc. | 60,000 | 3,159 |
| | Universal Insurance Holdings Inc. | 111,620 | 2,681 |
| | Iron Mountain Inc. | 72,200 | 2,490 |
| * | World Acceptance Corp. | 28,076 | 2,376 |
| | Nelnet Inc. Class A | 49,676 | 2,224 |
| | Reinsurance Group of America Inc. Class A | 22,600 | 2,071 |
| *,^ | National Storage Affiliates Trust | 160,240 | 2,056 |
| | Investar Holding Corp. | 128,006 | 1,971 |
| * | Strategic Hotels & Resorts Inc. | 158,500 | 1,854 |
| | Extra Space Storage Inc. | 28,000 | 1,846 |
| | Apartment Investment & Management Co. | 45,400 | 1,713 |
| | Ryman Hospitality Properties Inc. | 29,000 | 1,672 |
| | Omega Healthcare Investors Inc. | 44,000 | 1,588 |
| | DuPont Fabros Technology Inc. | 46,600 | 1,452 |
| | AmTrust Financial Services Inc. | 24,300 | 1,445 |
| * | Marcus & Millichap Inc. | 38,700 | 1,369 |
| | CoreSite Realty Corp. | 25,300 | 1,216 |
| | CBOE Holdings Inc. | 16,800 | 945 |
| | HFF Inc. Class A | 22,836 | 895 |
| | GEO Group Inc. | 21,800 | 850 |
4
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | |
| | | Market |
| | | Value |
| | Shares | ($000) |
| Sovran Self Storage Inc. | 9,600 | 838 |
| Lamar Advertising Co. Class A | 11,900 | 690 |
| * Heritage Insurance Holdings Inc. | 24,700 | 495 |
| OM Asset Management plc | 18,700 | 362 |
| Universal Health Realty Income Trust | 7,000 | 348 |
| * Western Alliance Bancorp | 11,200 | 346 |
| Federal Realty Investment Trust | 2,400 | 321 |
| | | 993,526 |
| Health Care (17.7%) | | |
| West Pharmaceutical Services Inc. | 1,866,845 | 99,465 |
| * Globus Medical Inc. | 3,598,593 | 85,970 |
| Cooper Cos. Inc. | 432,335 | 76,986 |
| * Akorn Inc. | 1,788,160 | 74,459 |
| * Insulet Corp. | 2,088,804 | 62,351 |
| Universal Health Services Inc. Class B | 480,255 | 56,166 |
| * Alkermes plc | 983,242 | 54,442 |
| Kindred Healthcare Inc. | 2,191,329 | 50,291 |
| * Cepheid | 894,460 | 50,179 |
| ResMed Inc. | 737,189 | 47,136 |
| * ICON plc | 718,665 | 46,239 |
| * Allscripts Healthcare Solutions Inc. | 3,424,420 | 45,545 |
| * LifePoint Hospitals Inc. | 575,371 | 43,084 |
| * PharMerica Corp. | 1,482,187 | 42,479 |
| * Surgical Care Affiliates Inc. | 1,103,700 | 41,609 |
| * Team Health Holdings Inc. | 672,775 | 40,077 |
| Teleflex Inc. | 321,500 | 39,532 |
| * Molina Healthcare Inc. | 660,090 | 39,097 |
| * WellCare Health Plans Inc. | 490,740 | 37,998 |
| * Quidel Corp. | 1,623,208 | 37,821 |
| * Acadia Healthcare Co. Inc. | 492,726 | 33,752 |
| * Align Technology Inc. | 568,527 | 33,452 |
| * Medivation Inc. | 272,135 | 32,858 |
| * Mettler-Toledo International Inc. | 101,059 | 32,037 |
| * Jazz Pharmaceuticals plc | 177,152 | 31,657 |
| * Bruker Corp. | 1,606,950 | 30,468 |
| * Mallinckrodt plc | 264,758 | 29,965 |
| * NuVasive Inc. | 663,710 | 29,688 |
| * Sirona Dental Systems Inc. | 306,305 | 28,410 |
| * Actavis plc | 100,140 | 28,326 |
| * Alnylam Pharmaceuticals Inc. | 266,160 | 27,114 |
| * Ligand Pharmaceuticals Inc. | 342,554 | 26,596 |
| * Spectranetics Corp. | 1,004,032 | 25,753 |
| * ABIOMED Inc. | 405,554 | 25,639 |
| * QIAGEN NV | 1,051,000 | 25,024 |
| * NxStage Medical Inc. | 1,343,155 | 24,620 |
| * Bio-Rad Laboratories Inc. Class A | 180,240 | 24,233 |
| * Vertex Pharmaceuticals Inc. | 194,100 | 23,929 |
| * Catamaran Corp. | 387,544 | 23,001 |
| * Brookdale Senior Living Inc. | 567,076 | 20,545 |
| * Illumina Inc. | 108,700 | 20,028 |
| * Medidata Solutions Inc. | 329,629 | 17,612 |
| * Envision Healthcare Holdings Inc. | 427,573 | 16,231 |
| * Cardiovascular Systems Inc. | 510,000 | 15,963 |
| * LDR Holding Corp. | 446,991 | 15,131 |
| * Hologic Inc. | 442,000 | 14,913 |
| * athenahealth Inc. | 119,255 | 14,628 |
| * Tetraphase Pharmaceuticals Inc. | 402,900 | 14,214 |
| * Portola Pharmaceuticals Inc. Class A | 396,200 | 14,140 |
| * Cerner Corp. | 194,200 | 13,945 |
| * IDEXX Laboratories Inc. | 110,400 | 13,841 |
| * AMAG Pharmaceuticals Inc. | 268,729 | 13,697 |
| * Neogen Corp. | 301,750 | 13,440 |
| * Charles River Laboratories International Inc. | 187,020 | 12,934 |
| * INC Research Holdings Inc. Class A | 379,625 | 12,733 |
5
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| * | Esperion Therapeutics Inc. | 133,000 | 12,652 |
| * | Nektar Therapeutics | 1,321,400 | 12,580 |
| | CONMED Corp. | 249,297 | 12,522 |
| * | AMN Healthcare Services Inc. | 545,498 | 12,443 |
| * | Anacor Pharmaceuticals Inc. | 229,103 | 12,071 |
| *,^ | Accuray Inc. | 1,480,283 | 12,035 |
| * | Sucampo Pharmaceuticals Inc. Class A | 650,000 | 11,544 |
| * | Luminex Corp. | 743,030 | 11,532 |
| * | Receptos Inc. | 74,000 | 10,903 |
| * | Zeltiq Aesthetics Inc. | 348,890 | 10,711 |
| * | IPC Healthcare Inc. | 215,170 | 10,526 |
| * | Prestige Brands Holdings Inc. | 264,943 | 10,399 |
| * | HMS Holdings Corp. | 579,355 | 9,855 |
| *,^ | Exact Sciences Corp. | 447,410 | 9,351 |
| * | HealthEquity Inc. | 347,325 | 9,103 |
| * | Omnicell Inc. | 252,953 | 8,987 |
| * | Acceleron Pharma Inc. | 322,000 | 8,903 |
| * | Horizon Pharma plc | 279,530 | 7,860 |
| * | Endologix Inc. | 501,309 | 7,800 |
| * | Pacira Pharmaceuticals Inc. | 111,629 | 7,644 |
| * | TESARO Inc. | 132,378 | 7,211 |
| * | Cambrex Corp. | 185,180 | 7,128 |
| * | Masimo Corp. | 209,865 | 7,085 |
| * | Sage Therapeutics Inc. | 119,048 | 6,310 |
| * | Isis Pharmaceuticals Inc. | 109,585 | 6,216 |
| * | Zafgen Inc. | 154,597 | 4,811 |
| * | United Therapeutics Corp. | 29,800 | 4,759 |
| *,^ | Myriad Genetics Inc. | 140,900 | 4,654 |
| * | Centene Corp. | 73,100 | 4,531 |
| * | Inovalon Holdings Inc. Class A | 171,000 | 4,318 |
| * | Incyte Corp. | 42,240 | 4,104 |
| * | Pharmacyclics Inc. | 15,800 | 4,048 |
| * | PAREXEL International Corp. | 58,900 | 3,745 |
| * | Adeptus Health Inc. Class A | 54,183 | 3,439 |
| * | Quintiles Transnational Holdings Inc. | 51,600 | 3,399 |
| * | PTC Therapeutics Inc. | 56,800 | 3,337 |
| *,^ | Sequenom Inc. | 730,456 | 3,243 |
| * | Natus Medical Inc. | 83,700 | 3,156 |
| * | Depomed Inc. | 134,500 | 3,128 |
| * | Revance Therapeutics Inc. | 158,342 | 3,115 |
| * | Merrimack Pharmaceuticals Inc. | 265,400 | 2,946 |
| * | Synageva BioPharma Corp. | 31,286 | 2,877 |
| * | Affymetrix Inc. | 235,100 | 2,852 |
| * | Cynosure Inc. Class A | 85,300 | 2,851 |
| * | DexCom Inc. | 40,905 | 2,764 |
| * | Infinity Pharmaceuticals Inc. | 216,000 | 2,737 |
| * | Dyax Corp. | 108,485 | 2,594 |
| * | Chimerix Inc. | 74,384 | 2,529 |
| * | Neurocrine Biosciences Inc. | 71,722 | 2,445 |
| * | Novadaq Technologies Inc. | 217,943 | 2,356 |
| *,^ | Juno Therapeutics Inc. | 52,231 | 2,232 |
| * | Lannett Co. Inc. | 38,600 | 2,219 |
| *,^ | OvaScience Inc. | 83,843 | 2,075 |
| | Ensign Group Inc. | 42,800 | 1,802 |
| * | Avalanche Biotechnologies Inc. | 49,775 | 1,586 |
| | Quality Systems Inc. | 92,600 | 1,444 |
| * | PRA Health Sciences Inc. | 49,100 | 1,398 |
| * | Merge Healthcare Inc. | 261,100 | 1,298 |
| | PDL BioPharma Inc. | 191,300 | 1,276 |
| | Phibro Animal Health Corp. Class A | 34,700 | 1,102 |
| * | Prothena Corp. plc | 33,894 | 1,099 |
| * | Sagent Pharmaceuticals Inc. | 46,300 | 1,079 |
| * | VWR Corp. | 30,300 | 804 |
| * | Sarepta Therapeutics Inc. | 63,655 | 777 |
6
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| * | CTI BioPharma Corp. | 425,400 | 757 |
| * | Alliance HealthCare Services Inc. | 28,500 | 606 |
| * | Ironwood Pharmaceuticals Inc. Class A | 43,610 | 596 |
| * | Cytokinetics Inc. | 88,400 | 556 |
| * | Anika Therapeutics Inc. | 15,500 | 529 |
| * | Sangamo BioSciences Inc. | 34,000 | 421 |
| * | Veeva Systems Inc. Class A | 11,900 | 316 |
| * | NewLink Genetics Corp. | 6,700 | 299 |
| * | Genesis Healthcare Inc. | 38,900 | 269 |
| * | HealthStream Inc. | 5,700 | 165 |
| | | | 2,204,257 |
| Industrials (17.3%) | | |
| * | Clean Harbors Inc. | 1,410,725 | 77,943 |
| * | Advisory Board Co. | 1,363,084 | 70,730 |
| | ManpowerGroup Inc. | 695,640 | 59,359 |
| | MSC Industrial Direct Co. Inc. Class A | 809,261 | 57,506 |
| 2 | John Bean Technologies Corp. | 1,476,003 | 56,959 |
| | Waste Connections Inc. | 1,113,130 | 52,774 |
| * | WESCO International Inc. | 720,228 | 51,957 |
| | Acuity Brands Inc. | 280,680 | 46,860 |
| * | WageWorks Inc. | 911,987 | 45,964 |
| * | Teledyne Technologies Inc. | 424,543 | 44,564 |
| | AO Smith Corp. | 694,200 | 44,359 |
| * | IHS Inc. Class A | 345,400 | 43,337 |
| | Pentair plc | 688,910 | 42,816 |
| | HEICO Corp. Class A | 919,214 | 42,164 |
| | Ryder System Inc. | 438,030 | 41,771 |
| | EnerSys | 588,880 | 39,985 |
| * | Stericycle Inc. | 293,440 | 39,154 |
| * | Middleby Corp. | 378,716 | 38,379 |
| | Watts Water Technologies Inc. Class A | 695,669 | 37,949 |
| | Carlisle Cos. Inc. | 370,015 | 35,706 |
| * | JetBlue Airways Corp. | 1,712,670 | 35,161 |
| | AMETEK Inc. | 656,380 | 34,407 |
| *,^ | TASER International Inc. | 1,138,943 | 34,385 |
| * | Trex Co. Inc. | 731,145 | 34,305 |
| | Owens Corning | 886,000 | 34,253 |
| | Kennametal Inc. | 909,243 | 32,196 |
| * | United Rentals Inc. | 329,177 | 31,792 |
| * | Generac Holdings Inc. | 760,750 | 31,716 |
| * | Swift Transportation Co. | 1,298,770 | 31,430 |
| | Landstar System Inc. | 501,680 | 31,260 |
| | RBC Bearings Inc. | 407,194 | 29,721 |
| * | Armstrong World Industries Inc. | 531,205 | 29,078 |
| | H&E Equipment Services Inc. | 1,166,570 | 28,838 |
| * | Esterline Technologies Corp. | 248,720 | 27,680 |
| | Watsco Inc. | 220,935 | 26,576 |
| * | On Assignment Inc. | 783,033 | 26,349 |
| | Corporate Executive Board Co. | 312,474 | 26,195 |
| | B/E Aerospace Inc. | 401,627 | 24,013 |
| ^ | Greenbrier Cos. Inc. | 412,474 | 23,796 |
| * | UTi Worldwide Inc. | 2,627,040 | 23,722 |
| * | Quanta Services Inc. | 778,920 | 22,519 |
| * | TrueBlue Inc. | 781,775 | 22,500 |
| | Aircastle Ltd. | 933,100 | 22,376 |
| * | Hub Group Inc. Class A | 546,085 | 21,789 |
| | Donaldson Co. Inc. | 554,620 | 20,726 |
| | Flowserve Corp. | 342,870 | 20,068 |
| * | DXP Enterprises Inc. | 440,506 | 19,845 |
| * | Genesee & Wyoming Inc. Class A | 206,430 | 19,188 |
| * | Proto Labs Inc. | 258,857 | 18,120 |
| | Robert Half International Inc. | 307,080 | 17,028 |
| | Herman Miller Inc. | 603,827 | 16,551 |
| * | Huron Consulting Group Inc. | 272,495 | 16,519 |
7
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | |
| | | Market |
| | | Value |
| | Shares | ($000) |
| * Verisk Analytics Inc. Class A | 211,200 | 15,848 |
| * NCI Building Systems Inc. | 1,014,817 | 15,709 |
| Equifax Inc. | 155,990 | 15,120 |
| Tennant Co. | 231,896 | 14,909 |
| Kaman Corp. | 350,827 | 14,633 |
| Mobile Mini Inc. | 370,378 | 14,274 |
| * Saia Inc. | 277,312 | 11,300 |
| Forward Air Corp. | 204,356 | 10,293 |
| Knight Transportation Inc. | 347,480 | 10,042 |
| Woodward Inc. | 199,064 | 9,366 |
| * Astronics Corp. | 138,080 | 9,294 |
| Towers Watson & Co. Class A | 70,300 | 8,921 |
| * Old Dominion Freight Line Inc. | 117,673 | 8,370 |
| Heartland Express Inc. | 388,281 | 8,123 |
| * Sensata Technologies Holding NV | 145,809 | 8,050 |
| Exponent Inc. | 90,422 | 8,012 |
| Ritchie Bros Auctioneers Inc. | 315,953 | 7,990 |
| * TriNet Group Inc. | 217,683 | 7,623 |
| * Kirby Corp. | 88,645 | 6,961 |
| * CAI International Inc. | 280,644 | 6,685 |
| * Polypore International Inc. | 106,036 | 6,210 |
| * Roadrunner Transportation Systems Inc. | 252,844 | 6,187 |
| * Hawaiian Holdings Inc. | 261,100 | 6,026 |
| * Paylocity Holding Corp. | 198,313 | 5,583 |
| * Rush Enterprises Inc. Class A | 213,000 | 5,568 |
| Columbus McKinnon Corp. | 218,197 | 5,534 |
| Apogee Enterprises Inc. | 101,700 | 5,351 |
| * Echo Global Logistics Inc. | 172,400 | 4,982 |
| Alaska Air Group Inc. | 76,748 | 4,917 |
| KAR Auction Services Inc. | 123,165 | 4,583 |
| Cintas Corp. | 55,700 | 4,453 |
| * Spirit AeroSystems Holdings Inc. Class A | 84,900 | 4,321 |
| Expeditors International of Washington Inc. | 92,457 | 4,237 |
| Huntington Ingalls Industries Inc. | 31,900 | 4,198 |
| IDEX Corp. | 54,150 | 4,062 |
| Primoris Services Corp. | 200,300 | 3,852 |
| Lennox International Inc. | 34,000 | 3,603 |
| Deluxe Corp. | 49,209 | 3,186 |
| * Wabash National Corp. | 227,100 | 3,184 |
| Trinity Industries Inc. | 116,900 | 3,167 |
| Korn/Ferry International | 94,600 | 2,983 |
| Lincoln Electric Holdings Inc. | 44,300 | 2,962 |
| Pitney Bowes Inc. | 131,300 | 2,937 |
| Allegion plc | 47,900 | 2,929 |
| Allison Transmission Holdings Inc. | 93,100 | 2,856 |
| * Meritor Inc. | 201,200 | 2,640 |
| * Power Solutions International Inc. | 33,200 | 2,118 |
| Douglas Dynamics Inc. | 94,900 | 2,064 |
| Matson Inc. | 42,600 | 1,725 |
| * Avis Budget Group Inc. | 29,200 | 1,581 |
| Celadon Group Inc. | 61,100 | 1,579 |
| ITT Corp. | 38,700 | 1,534 |
| * Spirit Airlines Inc. | 21,900 | 1,500 |
| * American Woodmark Corp. | 29,000 | 1,470 |
| * Virgin America Inc. | 42,600 | 1,224 |
| * Aerojet Rocketdyne Holdings Inc. | 53,700 | 1,056 |
| Albany International Corp. | 24,600 | 964 |
| Argan Inc. | 27,300 | 882 |
| * PAM Transportation Services Inc. | 15,000 | 879 |
| * Hudson Technologies Inc. | 174,507 | 729 |
| Quanex Building Products Corp. | 36,800 | 710 |
| * Enphase Energy Inc. | 43,700 | 549 |
| * Dycom Industries Inc. | 10,300 | 474 |
| Griffon Corp. | 25,500 | 429 |
8
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| * | Blount International Inc. | 31,300 | 415 |
| | HNI Corp. | 5,800 | 271 |
| * | Moog Inc. Class A | 2,200 | 154 |
| | | | 2,148,679 |
| Information Technology (23.6%) | | |
| * | Alliance Data Systems Corp. | 352,573 | 104,823 |
| * | Cadence Design Systems Inc. | 4,175,920 | 77,881 |
| * | Demandware Inc. | 1,234,977 | 76,075 |
| * | Ultimate Software Group Inc. | 442,799 | 73,602 |
| * | Cardtronics Inc. | 1,934,419 | 72,986 |
| * | Dealertrack Technologies Inc. | 1,478,672 | 58,127 |
| * | Rogers Corp. | 783,283 | 56,952 |
| | Belden Inc. | 643,960 | 54,060 |
| * | Microsemi Corp. | 1,484,470 | 49,522 |
| | Teradyne Inc. | 2,598,710 | 47,426 |
| * | Euronet Worldwide Inc. | 803,966 | 47,016 |
| * | Ciena Corp. | 2,199,040 | 46,840 |
| * | WEX Inc. | 415,570 | 46,839 |
| * | ON Semiconductor Corp. | 3,866,460 | 44,542 |
| * | TiVo Inc. | 4,028,990 | 44,520 |
| * | CoStar Group Inc. | 208,714 | 42,667 |
| | Power Integrations Inc. | 852,910 | 42,211 |
| * | SPS Commerce Inc. | 646,305 | 42,178 |
| * | PTC Inc. | 1,054,834 | 40,442 |
| * | Proofpoint Inc. | 745,801 | 40,258 |
| * | VeriFone Systems Inc. | 1,104,110 | 39,494 |
| * | Mellanox Technologies Ltd. | 836,653 | 38,896 |
| * | Red Hat Inc. | 496,700 | 37,382 |
| * | Entegris Inc. | 2,743,916 | 36,522 |
| | Convergys Corp. | 1,587,821 | 36,012 |
| * | WNS Holdings Ltd. ADR | 1,470,302 | 35,478 |
| * | Bankrate Inc. | 2,799,155 | 34,710 |
| * | Finisar Corp. | 1,674,635 | 34,045 |
| *,^ | SunPower Corp. Class A | 1,035,110 | 33,320 |
| | Atmel Corp. | 4,393,655 | 33,304 |
| * | First Solar Inc. | 557,668 | 33,276 |
| * | Pandora Media Inc. | 1,851,249 | 33,026 |
| * | F5 Networks Inc. | 268,435 | 32,754 |
| * | Acxiom Corp. | 1,835,750 | 32,052 |
| * | Infoblox Inc. | 1,264,600 | 29,794 |
| * | Radware Ltd. | 1,204,700 | 28,515 |
| * | Ruckus Wireless Inc. | 2,428,900 | 28,370 |
| * | Gigamon Inc. | 955,585 | 28,123 |
| | Methode Electronics Inc. | 661,215 | 28,075 |
| * | Electronics For Imaging Inc. | 661,765 | 27,615 |
| * | Palo Alto Networks Inc. | 177,963 | 26,289 |
| * | GrubHub Inc. | 633,230 | 26,070 |
| * | Cognex Corp. | 549,785 | 24,680 |
| | j2 Global Inc. | 352,068 | 24,423 |
| | FLIR Systems Inc. | 789,755 | 24,396 |
| * | Manhattan Associates Inc. | 441,101 | 23,184 |
| * | Constant Contact Inc. | 650,291 | 22,663 |
| * | Silicon Laboratories Inc. | 428,088 | 22,119 |
| | SS&C Technologies Holdings Inc. | 364,568 | 21,936 |
| | Intersil Corp. Class A | 1,628,095 | 21,735 |
| *,^ | VASCO Data Security International Inc. | 853,918 | 21,707 |
| * | comScore Inc. | 412,373 | 21,592 |
| | Littelfuse Inc. | 218,514 | 21,412 |
| * | Super Micro Computer Inc. | 728,102 | 20,947 |
| * | Fortinet Inc. | 546,400 | 20,621 |
| * | Cavium Inc. | 312,679 | 20,258 |
| * | Verint Systems Inc. | 325,490 | 19,995 |
| * | Syntel Inc. | 435,494 | 19,606 |
| | Monotype Imaging Holdings Inc. | 601,731 | 19,502 |
9
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| * | Aspen Technology Inc. | 433,945 | 19,263 |
| * | Qlik Technologies Inc. | 550,700 | 19,159 |
| * | Informatica Corp. | 387,085 | 18,607 |
| * | Integrated Device Technology Inc. | 954,254 | 17,358 |
| * | HomeAway Inc. | 617,520 | 17,260 |
| * | Tyler Technologies Inc. | 140,800 | 17,171 |
| | Cypress Semiconductor Corp. | 1,223,062 | 16,291 |
| | FactSet Research Systems Inc. | 98,650 | 15,527 |
| | MercadoLibre Inc. | 107,500 | 15,300 |
| * | Rackspace Hosting Inc. | 275,225 | 14,835 |
| * | Inphi Corp. | 687,380 | 14,744 |
| | Heartland Payment Systems Inc. | 289,191 | 14,720 |
| | Solera Holdings Inc. | 300,521 | 14,581 |
| * | Gartner Inc. | 173,113 | 14,365 |
| | Brocade Communications Systems Inc. | 1,269,100 | 14,341 |
| * | PROS Holdings Inc. | 621,900 | 13,825 |
| | SolarWinds Inc. | 282,125 | 13,762 |
| | Monolithic Power Systems Inc. | 259,678 | 13,459 |
| | MAXIMUS Inc. | 205,714 | 13,168 |
| * | Imperva Inc. | 288,400 | 13,157 |
| * | Polycom Inc. | 1,001,705 | 13,072 |
| * | Infinera Corp. | 693,849 | 13,044 |
| | Brooks Automation Inc. | 1,209,733 | 13,017 |
| * | Nanometrics Inc. | 826,028 | 12,770 |
| * | LinkedIn Corp. Class A | 49,862 | 12,572 |
| * | PDF Solutions Inc. | 659,208 | 11,912 |
| * | M/A-COM Technology Solutions Holdings Inc. | 389,019 | 11,853 |
| * | LivePerson Inc. | 1,135,723 | 10,676 |
| * | Trimble Navigation Ltd. | 416,455 | 10,590 |
| | Microchip Technology Inc. | 222,000 | 10,579 |
| *,^ | InvenSense Inc. | 689,900 | 10,293 |
| * | Guidewire Software Inc. | 204,600 | 10,220 |
| * | Progress Software Corp. | 380,000 | 10,032 |
| *,^ | Arista Networks Inc. | 139,456 | 8,927 |
| *,^ | TrueCar Inc. | 575,180 | 8,869 |
| * | Akamai Technologies Inc. | 118,958 | 8,777 |
| * | Synchronoss Technologies Inc. | 190,400 | 8,736 |
| * | Diodes Inc. | 323,485 | 8,644 |
| * | Fleetmatics Group plc | 187,000 | 8,523 |
| * | Tableau Software Inc. Class A | 84,000 | 8,219 |
| * | IPG Photonics Corp. | 92,729 | 8,214 |
| * | EPAM Systems Inc. | 126,300 | 8,173 |
| * | Semtech Corp. | 345,677 | 8,051 |
| * | Virtusa Corp. | 198,000 | 7,880 |
| *,^ | FireEye Inc. | 189,200 | 7,814 |
| * | Allot Communications Ltd. | 878,400 | 7,791 |
| *,^ | Stratasys Ltd. | 206,382 | 7,729 |
| * | II-VI Inc. | 412,366 | 7,336 |
| | Information Services Group Inc. | 1,732,999 | 6,811 |
| | FEI Co. | 87,300 | 6,588 |
| * | Perficient Inc. | 300,000 | 6,189 |
| | National Instruments Corp. | 183,000 | 5,234 |
| | Skyworks Solutions Inc. | 54,600 | 5,037 |
| * | ANSYS Inc. | 56,200 | 4,824 |
| * | ChannelAdvisor Corp. | 470,331 | 4,811 |
| | Broadridge Financial Solutions Inc. | 85,500 | 4,610 |
| *,^ | Endurance International Group Holdings Inc. | 246,600 | 4,523 |
| *,^ | CyberArk Software Ltd. | 70,800 | 4,457 |
| * | Cvent Inc. | 158,309 | 4,255 |
| * | ARRIS Group Inc. | 125,332 | 4,221 |
| | Jack Henry & Associates Inc. | 62,900 | 4,183 |
| | CDW Corp. | 102,100 | 3,912 |
| | DST Systems Inc. | 32,996 | 3,797 |
| *,^ | Nimble Storage Inc. | 153,500 | 3,755 |
10
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| | Blackbaud Inc. | 74,000 | 3,739 |
| * | Yodlee Inc. | 292,923 | 3,732 |
| * | BroadSoft Inc. | 113,800 | 3,601 |
| * | Qorvo Inc. | 54,257 | 3,576 |
| * | RealPage Inc. | 177,005 | 3,512 |
| * | Cimpress NV | 40,009 | 3,358 |
| * | Blackhawk Network Holdings Inc. | 91,000 | 3,346 |
| | Booz Allen Hamilton Holding Corp. Class A | 118,941 | 3,271 |
| | Science Applications International Corp. | 64,000 | 3,206 |
| * | Cree Inc. | 101,000 | 3,200 |
| * | MicroStrategy Inc. Class A | 16,400 | 2,987 |
| | Avnet Inc. | 70,000 | 2,984 |
| * | Plexus Corp. | 65,500 | 2,820 |
| * | Envestnet Inc. | 54,382 | 2,788 |
| *,^ | Care.com Inc. | 416,916 | 2,677 |
| * | Ambarella Inc. | 35,425 | 2,591 |
| * | Sykes Enterprises Inc. | 100,100 | 2,505 |
| * | Glu Mobile Inc. | 364,000 | 2,461 |
| * | Advanced Micro Devices Inc. | 1,062,000 | 2,400 |
| * | Quantum Corp. | 1,192,400 | 2,397 |
| | CSG Systems International Inc. | 74,400 | 2,167 |
| * | FARO Technologies Inc. | 51,000 | 2,031 |
| | Pegasystems Inc. | 91,400 | 1,969 |
| | Diebold Inc. | 52,400 | 1,822 |
| * | CommScope Holding Co. Inc. | 61,717 | 1,821 |
| * | Anixter International Inc. | 18,731 | 1,322 |
| | QAD Inc. Class A | 54,100 | 1,319 |
| * | Unisys Corp. | 41,300 | 899 |
| * | Freescale Semiconductor Ltd. | 22,800 | 891 |
| * | Amkor Technology Inc. | 123,200 | 866 |
| * | Synaptics Inc. | 9,900 | 839 |
| * | ePlus Inc. | 7,800 | 647 |
| * | Barracuda Networks Inc. | 11,600 | 470 |
| * | WebMD Health Corp. | 9,300 | 411 |
| | TeleTech Holdings Inc. | 15,600 | 405 |
| * | Xcerra Corp. | 27,500 | 270 |
| * | ShoreTel Inc. | 33,600 | 234 |
| * | Angie's List Inc. | 26,900 | 158 |
| | Hackett Group Inc. | 14,100 | 135 |
| | | | 2,935,105 |
| Materials (5.4%) | | |
| | Graphic Packaging Holding Co. | 4,293,384 | 60,537 |
| | Smurfit Kappa Group plc | 1,770,241 | 54,185 |
| | Minerals Technologies Inc. | 768,070 | 52,021 |
| | PolyOne Corp. | 1,242,960 | 48,538 |
| | Ashland Inc. | 336,465 | 42,516 |
| | Methanex Corp. | 700,620 | 42,184 |
| | KapStone Paper and Packaging Corp. | 1,296,084 | 36,225 |
| | Sensient Technologies Corp. | 506,160 | 33,083 |
| * | Constellium NV Class A | 1,752,765 | 32,198 |
| | OM Group Inc. | 1,051,300 | 31,581 |
| * | WR Grace & Co. | 316,690 | 30,630 |
| | Steel Dynamics Inc. | 1,373,620 | 30,398 |
| | Allegheny Technologies Inc. | 832,480 | 28,296 |
| | RPC Group plc | 2,837,925 | 26,082 |
| | Worthington Industries Inc. | 662,525 | 17,908 |
| | Eagle Materials Inc. | 162,521 | 13,553 |
| | FMC Corp. | 194,515 | 11,537 |
| | Schweitzer-Mauduit International Inc. | 235,814 | 10,425 |
| | Scotts Miracle-Gro Co. Class A | 156,575 | 10,101 |
| | Balchem Corp. | 189,867 | 9,953 |
| | Airgas Inc. | 72,600 | 7,353 |
| | Valspar Corp. | 83,912 | 6,805 |
| | Ball Corp. | 77,300 | 5,675 |
11
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | | | |
| | | | | | Market |
| | | | | | Value |
| | | | | Shares | ($000) |
| | Sealed Air Corp. | | | 119,100 | 5,431 |
| | Quaker Chemical Corp. | | | 54,515 | 4,537 |
| * | Chemtura Corp. | | | 120,900 | 3,643 |
| | Avery Dennison Corp. | | | 57,200 | 3,180 |
| * | Berry Plastics Group Inc. | | | 88,300 | 3,022 |
| * | Stillwater Mining Co. | | | 201,300 | 2,703 |
| | Westlake Chemical Corp. | | | 29,400 | 2,293 |
| | International Flavors & Fragrances Inc. | | | 17,600 | 2,020 |
| * | Ferro Corp. | | | 115,600 | 1,559 |
| | Silgan Holdings Inc. | | | 24,510 | 1,320 |
| | NewMarket Corp. | | | 2,773 | 1,239 |
| * | Owens-Illinois Inc. | | | 29,100 | 696 |
| | Innophos Holdings Inc. | | | 11,000 | 581 |
| | Materion Corp. | | | 8,700 | 348 |
| | Kronos Worldwide Inc. | | | 23,300 | 313 |
| | | | | | 674,669 |
| Other (0.9%) | | | | |
| ^,3 | Vanguard Small-Cap Growth ETF | | | 463,200 | 60,596 |
| ^ | iShares Russell 2000 ETF | | | 343,453 | 41,613 |
| * | Dropbox Private Placement | | | 378,066 | 7,221 |
| * | Pure Storage Inc. Private Placement | | | 437,384 | 7,217 |
| | | | | | 116,647 |
| Telecommunication Services (0.6%) | | | | |
| * | Vonage Holdings Corp. | | | 8,742,501 | 40,478 |
| * | SBA Communications Corp. Class A | | | 296,575 | 34,349 |
| | Inteliquent Inc. | | | 107,200 | 2,038 |
| * | FairPoint Communications Inc. | | | 99,400 | 1,960 |
| * | Cincinnati Bell Inc. | | | 289,000 | 991 |
| * | General Communication Inc. Class A | | | 9,900 | 157 |
| | | | | | 79,973 |
| Utilities (0.4%) | | | | |
| | ITC Holdings Corp. | | | 1,223,630 | 44,051 |
| | American States Water Co. | | | 68,600 | 2,633 |
| |
| | | | | | 46,684 |
| |
| Total Common Stocks (Cost $9,325,159) | | | | 12,039,288 |
| |
| |
| |
| | | Coupon | | | |
| |
| Temporary Cash Investments (5.1%)1 | | | | |
| Money Market Fund (4.7%) | | | | |
| 4,5 | Vanguard Market Liquidity Fund | 0.121% | | 585,299,466 | 585,299 |
| |
| |
| | | | | Face | |
| | | | Maturity | Amount | |
| | | Coupon | Date | ($000) | |
| Repurchase Agreement (0.2%) | | | | |
| | Deutsche Bank Securities, Inc.(Dated 4/30/15, | | | | |
| | Repurchase Value $26,300,000, collateralized by U.S. | | | | |
| | Treasury Note/Bond 3.125%, 2/15/43, with a value | | | | |
| | of $26,856,000) | 0.100% | 5/1/15 | 26,300 | 26,300 |
| |
| U.S. Government and Agency Obligations (0.2%) | | | | |
| 6,7 | Fannie Mae Discount Notes | 0.170% | 6/17/15 | 1,500 | 1,500 |
| 8 | Federal Home Loan Bank Discount Notes | 0.070% | 5/14/15 | 3,500 | 3,500 |
| 8 | Federal Home Loan Bank Discount Notes | 0.070% | 5/15/15 | 8,000 | 8,000 |
| 7,8 | Federal Home Loan Bank Discount Notes | 0.089% | 7/6/15 | 4,100 | 4,099 |
| 7,8 | Federal Home Loan Bank Discount Notes | 0.140% | 7/8/15 | 1,900 | 1,900 |
| 7,8 | Federal Home Loan Bank Discount Notes | 0.130% | 7/24/15 | 6,000 | 5,998 |
12
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2015
| | | | |
| | | | Face | Market |
| | | Maturity | Amount | Value |
| | Coupon | Date | ($000) | ($000) |
| 6,7 Freddie Mac Discount Notes | 0.118% | 7/31/15 | 200 | 200 |
| | | | | 25,197 |
| Total Temporary Cash Investments (Cost $636,796) | | | | 636,796 |
| Total Investments (101.8%) (Cost $9,961,955) | | | | 12,676,084 |
| Other Assets and Liabilities—Net (-1.8%)5 | | | | (223,029) |
| Net Assets (100%) | | | | 12,453,055 |
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $173,724,000.
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 98.8% and 3.0%, 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 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 $184,087,000 of collateral received for securities on loan.
6 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.
7 Securities with a value of $11,297,000 have been segregated as initial margin for open futures contracts.
8 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.
13
© 2015 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
SNA242 _062015
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management
Investment Companies.
Not Applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not Applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and
Affiliated Purchasers.
Not Applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
(a) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
| | VANGUARD EXPLORER FUND |
| |
| |
| BY: | /s/ F. WILLIAM MCNABB III* |
| | F. WILLIAM MCNABB III |
| | CHIEF EXECUTIVE OFFICER |
| |
| Date: June 18, 2015 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| |
| | VANGUARD EXPLORER FUND |
| |
| BY: | /s/ F. WILLIAM MCNABB III* |
| | F. WILLIAM MCNABB III |
| | CHIEF EXECUTIVE OFFICER |
| Date: June 18, 2015 |
| VANGUARD EXPLORER FUND |
| |
| BY: | /s/ THOMAS J. HIGGINS* |
| | THOMAS J. HIGGINS |
| | CHIEF FINANCIAL OFFICER |
| Date: June 18, 2015 |
* 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.
