UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-1530
Name of Registrant: Vanguard Explorer Fund
Address of Registrant: P.O. Box 2600
Valley Forge, PA 19482
Name and address of agent for service: R. Gregory Barton, Esquire
P.O. Box 876
Valley Forge, PA 19482
Registrant's telephone number, including area code: (610) 669-1000
Date of fiscal year end: October 31
Date of reporting period: November 1, 2003 - April 30, 2004
Item 1: Reports to Shareholders
VANGUARD(R) EXPLORER(TM) FUND
APRIL 30, 2004
[GRAPHICS APPEAR HERE]
semiannual report
[THE VANGUARD GROUP(R) LOGO]
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, you'll get an understanding of
how the fund invests and how the market environment affected its performance.
The statistical information that follows can help you understand how the fund's
performance and characteristics stack up against those of similar funds and
market benchmarks.
It's important to keep in mind that the opinions expressed here are just that:
informed opinions. They should not be considered promises or advice. The
opinions, like the statistics, cover the period through the date on the cover of
this report. As things change--and in the financial markets you can be certain
only of change--an investment manager's job is to evaluate new information and
make adjustments, if necessary. Of course, the risks of investing in the fund
are spelled out in the prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com(R).
- --------------------------------------------------------------------------------
CONTENTS
1 LETTER FROM THE CHAIRMAN
6 FUND PROFILE
7 GLOSSARY OF INVESTMENT TERMS
8 PERFORMANCE SUMMARY
9 ABOUT YOUR FUND'S EXPENSES
11 FINANCIAL STATEMENTS
SUMMARY
* The Investor Shares of Vanguard Explorer Fund posted a 3.7% return during the
first half of the 2004 fiscal year.
* The fund's gain outpaced that of the average competing fund. However,
Explorer's return was lower than those of the benchmark index and the broad
stock market.
* Reversing an earlier trend, growth stocks lagged the broad market during the
six months ended April 30.
Want less clutter in your mailbox? Just register with
Vanguard.com and opt to get fund reports online.
LETTER FROM THE CHAIRMAN
Fellow Shareholder,
The stock rally that began in early 2003 continued through much of the fiscal
half-year that ended April 30, 2004. Small-capitalization stocks again led the
market, though just barely. However, growth stocks lagged value stocks by fairly
wide margins during the period.
[PHOTOS OF JOHN J. BRENNAN APPEAR HERE]
- ------------------------------------------
TOTAL RETURNS SIX MONTHS ENDED
APRIL 30, 2004
- ------------------------------------------
VANGUARD EXPLORER FUND
Investor Shares 3.7%
Admiral Shares 3.8
Russell 2500 Growth Index 4.6
Average Small-Cap Growth Fund* 1.7
Dow Jones Wilshire 5000 Index 6.4
- ------------------------------------------
*Derived from data provided by Lipper Inc.
In this environment, the Investor Shares of Vanguard Explorer Fund earned
3.7%--a respectable six-month result. Your fund's gain was more than double that
of the average mutual fund peer but was somewhat lower than the returns of the
benchmark index and the broad U.S. stock market.
The adjacent table compares the fund's total returns (capital change plus
reinvested distributions) with those of the Russell 2500 Growth Index, the
average small-cap growth fund, and the Dow Jones Wilshire 5000 Composite Index,
a proxy for the broad market. The table on page 5 shows beginning and ending
share prices for the fund; there were no distributions to shareholders during
the half-year.
STOCKS ROSE EARLY ON, THEN GAVE UP SOME OF THEIR GAINS
For most of the fiscal half-year, the broad U.S. stock market advanced. However,
in March and April, stock prices retreated somewhat as higher oil prices and
reports of robust economic growth provoked fears of inflation. The Russell 2000
Index, a proxy for small-cap stocks, returned 6.5%, slightly surpassing the 6.1%
gain of the mid- to large-cap Russell 1000 Index. Across the market-cap
spectrum, value-oriented
1
stocks (those that generally trade at below-market valuations relative to their
book values and other fundamental measures) posted better results than growth
stocks (those expected to produce above-average earnings growth).
- --------------------------------------------------------------------------------
ADMIRAL(TM) SHARES
A LOWER-COST CLASS OF SHARES AVAILABLE TO MANY LONGTIME SHAREHOLDERS AND TO
THOSE WITH SIGNIFICANT INVESTMENTS IN THE FUND.
- --------------------------------------------------------------------------------
International stock markets continued to provide attractive returns to
U.S.-based investors. Although the U.S. dollar's decline relative to major
foreign currencies tailed off somewhat, it still enhanced results from European
markets, where solid gains looked even better when translated from local
currencies into dollars. Elsewhere, currency fluctuation played only a minor
role.
BOND YIELDS ROSE ON NEWS OF THE STRENGTHENING ECONOMY
In the fixed income markets, interest rates remained low through much of the
period but rose sharply in April, propelled by the strength of the economy. For
the six months, the yield of the benchmark 10-year U.S. Treasury note increased
22 basis points, from 4.29% to 4.51%. (Indicative of April's notable increase in
interest rates, the benchmark note's yield climbed 67 basis points during the
month, from 3.84% to 4.51%.) With investors gravitating toward higher-yielding
securities as the economy and credit quality improved, returns of corporate
bonds outpaced those of government bonds with similar maturities. High-yield
corporate bonds continued their strong showing as the Lehman Brothers High Yield
Bond Index, a benchmark of below-investment-grade bonds, posted a 6-month return
of 5.5%. Meanwhile, the Lehman Aggregate Bond Index, a measure of the taxable
investment-grade bond market, returned 1.2%.
Short-term interest rates remained low and demonstrated little volatility during
the period, staying within a tight range of 0.87% to 0.99%. The yield of the
3-month Treasury bill, a proxy for money market rates, was 0.96% on April 30,
just 1 basis point higher than its initial 0.95% yield.
FOR THE FUND, TECH WAS A DRAG--BUT OTHER SECTORS OVERCAME IT
With a growth-oriented portfolio, the Explorer Fund lagged the broad market
during the six-month period. Its 3.7% return was also roughly 1 percentage point
lower than that of the Russell 2500 Growth Index.
2
Explorer topped the average return of competing funds by about 2 percentage
points, however.
In absolute terms, the biggest contributors to your fund's return were its
holdings in the health care, consumer discretionary, and "other energy" sectors.
With energy prices surging, Explorer's holdings in the latter sector--which
includes oil and gas exploration companies and the businesses that serve
them--returned a remarkable 33% during the six months. The fund's health care
and consumer discretionary stocks posted more modest returns of 18% and 9%,
respectively, but they had a larger impact on the bottom line because of their
heavier weightings in the fund. (Consumer discretionary stocks were the fund's
largest sector commitment, making up 24% of assets on average.)
- --------------------------------------------------------------------------------
MARKET BAROMETER TOTAL RETURNS
PERIODS ENDED APRIL 30, 2004
-------------------------------
SIX ONE FIVE
MONTHS YEAR YEARS*
- --------------------------------------------------------------------------------
STOCKS
Russell 1000 Index (Large-caps) 6.1% 23.9% -1.7%
Russell 2000 Index (Small-caps) 6.5 42.0 6.7
Dow Jones Wilshire 5000 Index 6.4 26.1 -1.2
(Entire market)
MSCI All Country World Index
ex USA (International) 11.7 41.3 0.4
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 1.2% 1.8% 6.7%
(Broad taxable market)
Lehman Municipal Bond Index 1.2 2.7 5.4
Citigroup 3-Month Treasury Bill Index 0.5 1.0 3.3
================================================================================
CPI
Consumer Price Index 1.6% 2.3% 2.5%
- --------------------------------------------------------------------------------
*Annualized.
Explorer's second-largest sector commitment was technology, at 23% of average
assets. Tech companies in the fund were the largest drag on performance,
declining almost -13% as a group. This sector was also most responsible for the
fund lagging the Russell 2500 Growth Index. However, the underperformance was
marginal: The tech issues within the index did almost as poorly (-12% return),
and their average weighting in the index was only slightly smaller (21%).
Because your fund is well diversified within its investment mandate, no single
holding is primarily responsible for the fund's underperformance of its
benchmark. Instead, there was an accumulation of small differences. For example,
Maxtor, a maker of computer hard disk drives, was included in both the fund and
the index. Despite being one of Explorer's top-ten holdings, Maxtor represented
a little less than 1% of fund assets on average during the period, but that was
far more than its index weighting. As a result, Maxtor's -52% return hit the
fund harder than the index.
3
Viewed against the results of competing active managers, our half-year record
was much stronger. As you're aware, the Explorer Fund employs five investment
advisors, each with its own unique approach to stock selection. (The adjacent
table shows the percentage of assets managed by each advisor on April 30.) The
multimanager structure adds an extra level of diversification to the portfolio.
However, the advisors do share the philosophy of seeking superior growth
potential at reasonable prices. Because of that price sensitivity, your fund is
somewhat lighter in the more speculative stocks that often populate the
portfolios of our competitors. That can be an advantage, as it has been in
recent periods, or a disadvantage when such stocks lead the market.
- --------------------------------------------------------------
FUND ASSETS MANAGED APRIL 30, 2004
------------------------
$ MILLION PERCENTAGE
- --------------------------------------------------------------
Grantham, Mayo, Van Otterloo & Co. LLC $1,936 26%
Granahan Investment Management, Inc. 1,758 23
Vanguard Quantitative Equity Group 1,628 21
Wellington Management Company, llp 1,264 16
Chartwell Investment Partners 651 8
Cash Investments* 434 6
- --------------------------------------------------------------
Total $7,671 100%
- --------------------------------------------------------------
*These short-term reserves are invested by The Vanguard Group in equity index
products to simulate investment in stocks. Each advisor may also maintain a
modest cash position.
Through all market conditions, our investors have been able to count on one
enduring advantage: Vanguard(R) funds typically have expense ratios (annualized
operating costs as a percentage of average net assets) that are far lower than
the average for their respective peer groups. Seemingly small differences in
expense ratios, when compounded over time, can make large differences in wealth
accumulation. For information about the Explorer Fund's expenses, see pages 9
and 10.
BALANCE AND DIVERSIFICATION ARE STILL KEY TO LONG-TERM SUCCESS
Through much of the 1990s, when large-cap U.S. stocks were on a tear, it was
difficult to persuade some investors to invest in anything else. The last few
years have shown the enduring value of diversification. Bonds excelled while
stocks tumbled during the bear market, and small-cap and international stocks
have easily outpaced domestic large-caps during the rally since then. In
Vanguard's view, the lesson has not changed: We advocate following a disciplined
investment strategy of allocating your portfolio among different asset classes
in proportions suitable for your objectives, time horizon, and risk tolerance.
Absent a crystal ball, staying
4
faithful to such a plan--rather than listening to the "noise" of short-term
market fluctuations and media hype--will give you the best chance of reaching
your long-term financial goals. Thank you for entrusting your hard-earned
dollars to Vanguard.
Sincerely,
[SIGNATURE JOHN J. BRENNAN]
John J. Brennan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MAY 14, 2004
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YOUR FUND'S PERFORMANCE AT A GLANCE OCTOBER 31, 2003-APRIL 30, 2004
DISTRIBUTIONS PER SHARE
-----------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------------
Explorer Fund
Investor Shares $63.17 $65.51 $0.00 $0.00
Admiral Shares 58.71 60.94 0.00 0.00
- --------------------------------------------------------------------------------
5
FUND PROFILE
AS OF 4/30/2004
This Profile provides a snapshot of the fund's characteristics, compared where
indicated with both an appropriate market index and a broad market index. Key
terms are defined on page 7.
EXPLORER FUND
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PORTFOLIO CHARACTERISTICS
COMPARATIVE BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Number of Stocks 947 1,554 5,128
Median Market Cap $1.6B $1.6B $27.0B
Price/Earnings Ratio 32.5x 34.0x 22.6x
Price/Book Ratio 3.0x 3.4x 2.8x
Yield 0.5% 1.6%
Investor Shares 0.0%
Admiral Shares 0.1%
Return on Equity 12.9% 14.5% 16.0%
Earnings Growth Rate 14.6% 15.4% 6.6%
Foreign Holdings 2.4% 0.0% 0.9%
Turnover Rate 86%+ -- --
Expense Ratio -- --
Investor Shares 0.61%+
Admiral Shares 0.44%+
Short-Term Reserves 2% -- --
- --------------------------------------------------------------------------------
- -----------------------------------------------
TEN LARGEST HOLDINGS (% of total net assets)
Red Hat, Inc. 1.1%
(software)
Foot Locker, Inc. 0.7
(retail)
Nextel Partners, Inc. 0.6
(telecommunications)
Bausch & Lomb, Inc. 0.6
(medical)
Henry Schein, Inc. 0.5
(medical)
Mentor Corp. 0.5
(medical)
Chico's FAS, Inc. 0.4
(retail)
Education Management Corp. 0.4
(education)
Maxtor Corp. 0.4
(computer technology)
Alliance Data Systems Corp. 0.4
(financial services)
- -----------------------------------------------
Top Ten 5.6%
- -----------------------------------------------
"Ten Largest Holdings" excludes any temporary
cash investments and equity index products.
- ---------------------------------------------------------------------
VOLATILITY MEASURES
COMPARATIVE BROAD
FUND INDEX* FUND INDEX**
- ---------------------------------------------------------------------
R-Squared 0.97 1.00 0.81 1.00
Beta 0.92 1.00 1.18 1.00
- ---------------------------------------------------------------------
- -----------------------------------------------
INVESTMENT FOCUS
[GRID APPEARS HERE]
MARKET CAP SMALL
STYLE GROWTH
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
COMPARATIVE BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Auto & Transportation 4% 4% 3%
Consumer Discretionary 25 24 16
Consumer Staples 1 1 7
Financial Services 10 13 23
Health Care 19 23 13
Integrated Oils 0 0 4
Other Energy 5 4 3
Materials & Processing 5 4 4
Producer Durables 8 7 4
Technology 19 19 13
Utilities 2 1 6
Other 0 0 4
- --------------------------------------------------------------------------------
Short-Term Reserves 2% -- --
- --------------------------------------------------------------------------------
VISIT OUR WEBSITE AT VANGUARD.COM
FOR REGULARLY UPDATED FUND INFORMATION.
*Russell 2500 Growth Index.
**Dow Jones Wilshire 5000 Index.
+Annualized.
6
GLOSSARY OF INVESTMENT TERMS
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of 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%. A fund's beta should be reviewed in conjunction with its R-squared (see
definition below). 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.
- --------------------------------------------------------------------------------
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
- --------------------------------------------------------------------------------
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
- --------------------------------------------------------------------------------
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or depositary receipts of companies based outside the United States.
- --------------------------------------------------------------------------------
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by 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.
- --------------------------------------------------------------------------------
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).
- --------------------------------------------------------------------------------
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of income
provided by securities in the index.
- --------------------------------------------------------------------------------
7
PERFORMANCE SUMMARY
AS OF 4/30/2004
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. (For the
performance data current to the most recent month-end, which may be higher or
lower than that cited, visit our website at www.vanguard.com.) 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 in this report do not reflect taxes that a shareholder would
pay on fund distributions or on the sale of fund shares.
EXPLORER FUND
- --------------------------------------------------------------------------------
FISCAL-YEAR TOTAL RETURNS (%) OCTOBER 31, 1993-APRIL 30, 2004
[CHART APPEARS HERE - SCALE -45% TO 60%]
FISCAL YEAR EXPLORER FUND INVESTOR SHARES RUSSELL 2500 GROWTH INDEX
1994 4.5 1.9
1995 17.5 23.5
1996 18 16.5
1997 18.9 21.8
1998 -11.2 -13.9
1999 25.1 37.4
2000 42.6 29.7
2001 -16.2 -33.1
2002 -13.9 -20.6
2003 41.7 44.8
2004* 3.7 4.6
- --------------------------------------------------------------------------------
*Six months ended April 30, 2004.
Note: See Financial Highlights table on pages 26 and 27 for dividend and capital
gains information.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED MARCH 31, 2004
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
TEN YEARS
ONE FIVE --------------------------
INCEPTION DATE YEAR YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
Explorer Fund
Investor Shares 12/11/1967 58.38% 13.11% 11.50% 0.33% 11.83%
Admiral Shares 11/12/2001 58.60 11.12* -- -- --
- --------------------------------------------------------------------------------
*Return since inception.
8
ABOUT YOUR FUND'S EXPENSES
We believe it is important for you to understand the impact of costs on your
investment. All mutual funds have operating 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 table below illustrates your fund's costs in two ways:
* 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."
* HYPOTHETICAL 5% 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
return of 5% before expenses during the period shown, 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.
- --------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 2004
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING
EXPLORER FUND 10/31/2003 4/30/2004 PERIOD*
- --------------------------------------------------------------------------------
Actual Fund Return
Investor Shares $1,000 $1,038 $3.06
Admiral Shares 1,000 1,039 2.24
Hypothetical 5% Return
Investor Shares $1,000 $1,047 $3.07
Admiral Shares 1,000 1,048 2.25
- --------------------------------------------------------------------------------
*Expenses are equal to the fund's annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in the
most recent fiscal half-year, then divided by 366.
Note that the expenses shown in the table are meant to highlight and help you
compare ongoing costs only and do not reflect any transactional costs or account
maintenance fees. They do not include your fund's low-balance fee, which is
described in the prospectus. If this fee were applied to your account, your
costs would be higher. Your fund does not charge transaction fees, such as
purchase or redemption fees, nor does it carry a "sales load."
9
- --------------------------------------------------------------------------------
ANNUALIZED EXPENSE RATIOS:
YOUR FUND COMPARED WITH ITS PEER GROUP
AVERAGE
SMALL-CAP
INVESTOR ADMIRAL GROWTH
SHARES SHARES FUND
- --------------------------------------------------------------------------------
Explorer Fund 0.61% 0.44% 1.78%*
- --------------------------------------------------------------------------------
*Peer-group ratio captures data through year-end 2003.
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 for the past five years, in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the appropriate fund prospectus.
10
AS OF 4/30/2004
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.), and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
- --------------------------------------------------------------------------------
MARKET
VALUE^
EXPLORER FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (92.1%)(1)
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION (3.5%)
C.H. Robinson Worldwide, Inc. 561,400 $ 23,040
* EGL, Inc. 892,000 16,538
Visteon Corp. 1,443,600 15,677
Polaris Industries, Inc. 364,300 15,628
CNF Inc. 420,400 15,370
* J.B. Hunt Transport
Services, Inc. 434,400 13,753
Dana Corp. 669,800 13,503
Heartland Express, Inc. 541,960 13,305
* Northwest Airlines
Corp. Class A 1,411,100 13,264
Tidewater Inc. 467,100 13,177
Oshkosh Truck Corp. 255,200 13,066
* Navistar International Corp. 271,799 12,272
* AMR Corp. 897,100 10,182
Winnebago Industries, Inc. 316,200 9,116
Thor Industries, Inc. 288,100 8,026
* Mesa Air Group Inc. 948,100 6,703
* Pacer International, Inc. 259,415 4,877
Lear Corp. 75,000 4,547
* Wabash National Corp. 176,000 4,472
* ExpressJet Holdings, Inc. 336,800 4,284
* Landstar System, Inc. 87,400 3,930
BorgWarner, Inc. 47,900 3,925
* America West Holdings Corp.
Class B 389,700 3,858
Superior Industries
International, Inc. 110,000 3,749
* Frontier Airlines, Inc. 365,700 3,321
* Swift Transportation Co., Inc. 194,072 3,284
Gentex Corp. 71,500 2,812
* Atlantic Coast Airlines
Holdings Inc. 418,300 2,740
* Continental Airlines, Inc. Class B 248,600 2,650
* AirTran Holdings, Inc. 128,400 1,568
* Covenant Transport, Inc. 72,900 1,284
* Old Dominion Freight Line, Inc. 30,200 1,126
* JetBlue Airways Corp. 39,600 1,096
ArvinMeritor, Inc. 41,300 854
-----------
266,997
-----------
CONSUMER DISCRETIONARY (24.0%)
ADVERTISING AGENCIES (0.5%)
* ValueClick, Inc. 1,315,775 13,631
* Lamar Advertising Co. Class A 320,700 13,168
* Catalina Marketing Corp. 390,300 6,471
* aQuantive, Inc. 209,401 2,104
Grey Global Group Inc. 2,570 1,863
* Valassis Communications, Inc. 22,900 708
* R.H. Donnelley Corp. 7,700 349
11
- --------------------------------------------------------------------------------
MARKET
VALUE^
EXPLORER FUND SHARES (000)
- --------------------------------------------------------------------------------
CABLE TELEVISION SERVICES (0.2%)
* Insight Communications Co., Inc. 895,100 $ 8,154
* TiVo Inc. 931,400 6,529
* Charter Communications, Inc. 714,400 2,858
CASINOS & GAMBLING (1.4%)
GTECH Holdings Corp. 353,100 21,511
Station Casinos, Inc. 426,250 19,215
Mandalay Resort Group 227,420 13,065
* Scientific Games Corp. 660,735 11,920
* Shuffle Master, Inc. 299,400 9,805
* Aztar Corp. 341,800 8,853
* Argosy Gaming Co. 197,200 7,334
* Isle of Capri Casinos, Inc. 297,464 6,247
* Caesars Entertainment, Inc. 437,230 5,793
Ameristar Casinos, Inc. 134,991 4,282
* MTR Gaming Group Inc. 119,100 1,030
COMMERCIAL INFORMATION SERVICES (0.4%)
* Ask Jeeves, Inc. 695,400 24,666
* ProQuest Co. 142,800 3,813
* infoUSA Inc. 217,128 1,974
* CMGI Inc. 865,100 1,497
CONSUMER ELECTRONICS (1.0%)
* iVillage Inc. 1,720,400 11,011
* Activision, Inc. 709,700 10,688
Harman International
Industries, Inc. 136,300 10,338
* NetFlix.com, Inc. 321,900 8,141
* DoubleClick Inc. 902,200 7,281
* Earthlink, Inc. 762,800 7,025
* CNET Networks, Inc. 722,696 6,157
* United Online, Inc. 325,321 5,400
* Take-Two Interactive
Software, Inc. 158,700 4,585
* InfoSpace, Inc. 64,200 2,099
* FindWhat.com 92,500 1,865
CONSUMER PRODUCTS (0.4%)
Alberto-Culver Co. Class B 188,700 8,899
Blyth, Inc. 123,200 4,005
Oakley, Inc. 217,200 3,006
Tupperware Corp. 153,500 2,875
The Nautilus Group, Inc. 171,950 2,765
* The Yankee Candle Co., Inc. 88,900 2,407
Matthews International Corp. 76,042 2,319
The Topps Co., Inc. 202,600 1,809
* RC2 Corp. 60,900 1,651
* USANA Health Sciences, Inc. 27,100 730
COSMETICS (0.3%)
* Helen of Troy Ltd. 465,300 15,471
Nu Skin Enterprises, Inc. 169,200 4,005
* Elizabeth Arden, Inc. 128,357 2,811
EDUCATION--SERVICES (1.6%)
* Education Management Corp. 875,268 31,037
* DeVry, Inc. 707,900 20,388
* Career Education Corp. 285,200 18,253
* ITT Educational Services, Inc. 440,500 17,765
* Corinthian Colleges, Inc. 554,026 16,964
* Sylvan Learning Systems, Inc. 206,199 7,269
Strayer Education, Inc. 39,944 4,992
* Bright Horizons Family
Solutions, Inc. 108,442 4,812
Renaissance Learning, Inc. 9,600 217
ELECTRICAL--HOUSEHOLD APPLIANCES (0.1%)
Maytag Corp. 170,600 4,760
ENTERTAINMENT (0.8%)
Movie Gallery, Inc. 1,067,286 20,727
*(2)LodgeNet Entertainment Corp. 799,800 16,156
* AMC Entertainment, Inc. 1,010,800 16,122
* Hollywood Entertainment Corp. 414,900 5,585
* Gaylord Entertainment Co. 90,200 2,827
* Alliance Gaming Corp. 14,400 360
HOTEL/MOTEL (0.3%)
The Marcus Corp. 563,600 9,130
Hilton Hotels Corp. 340,050 5,947
Intrawest Corp. 300,000 4,584
Choice Hotel International, Inc. 32,400 1,455
HOUSEHOLD EQUIPMENT & PRODUCTS
The Stanley Works 74,600 3,171
HOUSEHOLD FURNISHINGS (0.5%)
* Select Comfort Corp. 718,200 17,409
Furniture Brands
International Inc. 604,700 17,016
Ethan Allen Interiors, Inc. 98,800 4,107
American Woodmark Corp. 37,200 2,388
JEWELRY, WATCHES & GEMS (0.1%)
* Fossil, Inc. 236,250 5,786
LEISURE TIME (0.4%)
Callaway Golf Co. 1,207,500 20,491
* SCP Pool Corp. 150,000 6,032
* Penn National Gaming, Inc. 150,520 4,439
12
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MARKET
VALUE^
SHARES (000)
- --------------------------------------------------------------------------------
* Bally Total Fitness Holding Corp. 303,900 $ 1,252
* Vail Resorts Inc. 67,100 1,043
* Steiner Leisure Ltd. 45,274 920
MISCELLANEOUS BUSINESS & CONSUMER DISCRETIONARY (0.2%)
Techtronic Industries Co. Ltd. ADR 1,172,600 15,710
PUBLISHING--MISCELLANEOUS (0.3%)
* Playboy Enterprises, Inc. Class B 1,064,000 13,885
*(2)Hollywood Media Corp. 1,774,923 6,585
Reader's Digest Association, Inc. 161,700 2,317
PUBLISHING--NEWSPAPERS (0.1%)
Hollinger International, Inc. 296,800 5,921
* Journal Register Co. 34,600 686
RADIO & TELEVISION BROADCASTERS (1.1%)
* XM Satellite Radio Holdings, Inc. 903,100 21,638
* Entercom Communications Corp. 259,300 11,824
* Westwood One, Inc. 313,000 9,246
Gray Television, Inc. 556,700 8,250
* Citadel Broadcasting Corp. 397,500 6,897
* Sirius Satellite Radio, Inc. 1,714,200 5,657
* Emmis Communications, Inc. 227,561 5,325
* Radio One, Inc. Class D 270,400 5,127
* Sinclair Broadcast Group, Inc. 393,108 4,859
* Cumulus Media Inc. 211,932 4,455
* Beasley Broadcast Group, Inc. 8,500 134
RENT & LEASE SERVICES--CONSUMER (0.2%)
* Rent-A-Center, Inc. 277,400 8,119
Aaron Rents, Inc. Class B 133,850 3,876
RESTAURANTS (1.7%)
* Rare Hospitality International Inc. 898,475 24,591
Applebee's International, Inc. 534,160 20,715
Ruby Tuesday, Inc. 535,400 16,019
* CEC Entertainment Inc. 441,550 15,088
Outback Steakhouse 336,300 14,774
CBRL Group, Inc. 327,500 12,298
* California Pizza Kitchen, Inc. 243,100 5,108
* Papa John's International, Inc. 137,526 4,600
* Krispy Kreme Doughnuts, Inc. 121,600 3,953
* Sonic Corp. 87,400 2,820
* Jack in the Box Inc. 103,000 2,789
* Brinker International, Inc. 66,600 2,561
* Red Robin Gourmet Burgers 48,842 1,404
* Ryan's Family Steak Houses, Inc. 54,050 980
Bob Evans Farms, Inc. 26,300 806
Triarc Cos., Inc. Class A 62,287 685
RETAIL (7.1%)
Foot Locker, Inc. 2,344,600 56,270
* Chico's FAS, Inc. 809,500 32,971
MSC Industrial Direct Co.,
Inc. Class A 1,015,399 29,101
* Urban Outfitters, Inc. 508,500 23,477
* Fisher Scientific
International Inc. 383,965 22,481
Claire's Stores, Inc. 1,055,900 21,519
Nordstrom, Inc. 511,400 18,221
* Dick's Sporting Goods, Inc. 576,600 15,551
* Insight Enterprises, Inc. 900,400 15,073
* Aeropostale, Inc. 648,150 14,253
* Hibbett Sporting Goods, Inc. 562,350 13,654
* Pacific Sunwear of
California, Inc. 625,925 13,439
* The Children's Place
Retail Stores, Inc. 486,303 12,809
* AnnTaylor Stores Corp. 314,600 12,751
PETsMART, Inc. 446,250 12,361
CDW Corp. 197,220 12,324
Borders Group, Inc. 498,200 11,942
* O'Reilly Automotive, Inc. 255,800 11,483
* Hot Topic, Inc. 509,200 11,335
* Men's Wearhouse, Inc. 412,400 10,512
* Electronics Boutique
Holdings Corp. 374,200 10,122
* Global Imaging Systems, Inc. 241,600 8,364
The Neiman Marcus Group, Inc.
Class A 159,600 7,763
* Advance Auto Parts, Inc. 178,300 7,694
* Barnes & Noble, Inc. 255,999 7,647
Abercrombie & Fitch Co. 241,100 7,583
* Tuesday Morning Corp. 235,000 6,930
* Too Inc. 387,000 6,788
Fred's, Inc. 363,850 6,757
* Guitar Center, Inc. 162,500 6,747
Fastenal Co. 122,900 6,744
* Cost Plus, Inc. 178,240 6,452
* Sharper Image Corp. 211,000 6,448
* Tractor Supply Co. 160,100 6,254
* FreeMarkets, Inc. 839,800 5,837
* bebe stores, inc. 178,300 5,688
* Genesco, Inc. 251,400 5,594
* American Eagle Outfitters, Inc. 208,500 5,356
Pier 1 Imports Inc. 255,500 5,279
* BJ's Wholesale Club, Inc. 204,200 4,948
Ross Stores, Inc. 162,200 4,947
* Cache, Inc. 174,600 4,889
* GameStop Corp. 237,800 4,188
* CarMax, Inc. 157,500 4,082
* Jos. A. Bank Clothiers, Inc. 117,900 3,709
13
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MARKET
VALUE^
EXPLORER FUND SHARES (000)
- --------------------------------------------------------------------------------
* Dollar Tree Stores, Inc. 98,800 $ 2,663
* GSI Commerce, Inc. 240,985 2,338
* PETCO Animal Supplies, Inc. 72,700 2,134
* Mothers Work, Inc. 79,245 1,942
* Linens 'n Things, Inc. 56,900 1,846
* Big 5 Sporting Goods Corp. 67,935 1,686
* Stein Mart, Inc. 121,200 1,542
* 99 Cents Only Stores 68,900 1,361
* Jo-Ann Stores, Inc. 32,600 922
* The Dress Barn, Inc. 35,800 602
Sonic Automotive, Inc. 21,000 523
* barnesandnoble.com inc. 118,600 359
SERVICES--COMMERCIAL (3.2%)
The Corporate Executive
Board Co. 515,600 26,631
* CoStar Group, Inc. 428,600 16,900
* Getty Images, Inc. 304,400 16,620
Manpower Inc. 294,800 13,826
* DiamondCluster
International, Inc. 1,327,350 13,605
* MPS Group, Inc. 1,107,000 12,111
Sabre Holdings Corp. 460,800 10,870
Regis Corp. 241,100 10,469
* Monster Worldwide Inc. 374,400 9,588
* Harris Interactive Inc. 1,221,403 8,904
* Kroll Inc. 287,525 8,522
* Wireless Facilities, Inc. 879,700 8,436
* Navigant Consulting, Inc. 443,700 7,778
* West Corp. 314,800 7,691
* Labor Ready, Inc. 604,100 7,636
* Coinstar, Inc. 405,000 6,986
* Tetra Tech, Inc. 392,800 6,524
* Resources Connection, Inc. 127,600 5,144
* Charles River Associates Inc. 155,537 5,019
Aramark Corp. Class B 158,100 4,522
* Integrated Alarm
Services Group, Inc. 444,080 4,308
* Copart, Inc. 210,398 3,989
* MemberWorks, Inc. 134,500 3,969
* ChoicePoint Inc. 85,830 3,770
* 4Kids Entertainment Inc. 164,100 3,586
* Convergys Corp. 237,600 3,450
* Korn/Ferry International 205,400 3,077
* MAXIMUS, Inc. 86,400 3,024
Rollins, Inc. 94,950 2,255
* AMN Healthcare Services, Inc. 115,472 1,880
World Fuel Services Corp. 44,000 1,862
* Forrester Research, Inc. 107,300 1,861
The Pep Boys
(Manny, Moe & Jack) 60,100 1,651
* Lightbridge, Inc. 223,247 1,420
* Gartner, Inc. Class B 107,200 1,266
* Teletech Holdings Inc. 42,600 260
SHOES (0.7%)
*(2)Vans, Inc. 956,740 19,422
* Timberland Co. 179,000 11,227
* Finish Line, Inc. 239,600 8,034
Kenneth Cole Productions, Inc. 180,251 6,235
Reebok International Ltd. 112,600 4,096
K-Swiss, Inc. 197,095 3,845
* Steven Madden, Ltd. 159,700 3,050
* Skechers U.S.A., Inc. 123,100 1,515
TEXTILE--APPAREL MANUFACTURING (1.0%)
* Quiksilver, Inc. 1,332,900 28,831
Phillips-Van Heusen Corp. 551,700 9,969
Jones Apparel Group, Inc. 268,200 9,816
* Columbia Sportswear Co. 169,600 9,030
World Co. Ltd. 231,700 7,810
* Guess ?, Inc. 421,200 6,558
* The Warnaco Group, Inc. 244,800 4,683
TOYS (0.1%)
Hasbro, Inc. 190,900 3,606
* Marvel Enterprises Inc. 37,850 719
WHOLESALE & INTERNATIONAL TRADE (0.1%)
* Central European Distribution Corp. 175,000 5,364
WHOLESALERS (0.2%)
* Tech Data Corp. 140,400 4,774
* United Stationers, Inc. 122,000 4,636
* Brightpoint, Inc. 338,860 3,690
-----------
1,839,864
-----------
CONSUMER STAPLES (1.0%)
* Constellation Brands, Inc.
Class A 427,300 14,156
* Rite Aid Corp. 2,588,000 12,681
* Wild Oats Markets Inc. 792,700 10,939
* NBTY, Inc. 242,400 9,008
* Smithfield Foods, Inc. 274,500 7,302
SuperValu Inc. 159,200 4,902
Sanderson Farms, Inc. 126,994 4,722
* 7-Eleven, Inc. 209,100 3,367
Universal Corp. (VA) 37,700 1,894
Tootsie Roll Industries, Inc. 47,483 1,654
* Boston Beer Co., Inc. Class A 69,800 1,330
* Chiquita Brands International, Inc. 69,200 1,246
Church & Dwight, Inc. 22,200 998
* Performance Food Group Co. 12,400 436
-----------
74,635
-----------
14
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MARKET
VALUE^
SHARES (000)
- --------------------------------------------------------------------------------
FINANCIAL SERVICES (8.5%)
* Alliance Data Systems Corp. 865,400 $ 30,090
* E*TRADE Group, Inc. 2,178,150 24,744
* CheckFree Corp. 728,600 21,887
Friedman, Billings,
Ramsey Group, Inc. REIT 1,168,600 21,619
* The Dun & Bradstreet Corp. 391,700 20,466
* Providian Financial Corp. 1,605,300 19,472
Westcorp, Inc. 406,385 17,922
Avalonbay Communities, Inc.
REIT 328,400 16,298
* Investment Technology
Group, Inc. 1,120,800 16,061
IndyMac Bancorp, Inc. REIT 477,000 15,340
* Affiliated Managers Group, Inc. 283,350 13,799
* S1 Corp. 1,707,643 13,764
Jefferies Group, Inc. 399,900 13,637
Regency Centers Corp. REIT 359,000 13,610
Commerce Bancorp, Inc. 238,300 13,585
City National Corp. 220,200 13,575
Prentiss Properties Trust REIT 423,700 13,575
Bank of Hawaii Corp. 298,500 13,050
* BISYS Group, Inc. 898,100 13,022
Legg Mason Inc. 138,700 12,769
The Chicago
Mercantile Exchange 108,600 12,739
Reinsurance Group of
America, Inc. 323,600 12,562
* Knight Trading Group, Inc. 1,078,600 12,533
* AmeriCredit Corp. 677,300 10,979
Global Payments Inc. 202,100 9,697
* eSPEED, Inc. Class A 521,455 9,178
* Silicon Valley Bancshares 250,219 8,598
Fair, Isaac, Inc. 249,055 8,398
Redwood Trust, Inc. REIT 167,500 7,278
* CompuCredit Corp. 438,358 7,264
* Euronet Worldwide, Inc. 373,816 7,263
* CapitalSource Inc. 344,650 7,258
FactSet Research Systems Inc. 178,200 7,085
Eaton Vance Corp. 184,750 6,745
New Century Financial Corp. 156,600 6,645
* Digital Insight Corp. 343,100 6,622
Fremont General Corp. 306,600 6,607
First American Corp. 239,100 6,484
* Allmerica Financial Corp. 177,500 6,170
Brown & Brown, Inc. 145,500 5,676
John H. Harland Co. 176,000 5,423
Catellus Development Corp. REIT 251,508 5,420
* eFunds Corp. 327,100 5,253
* Bristol West Holdings, Inc. 234,250 4,802
Flagstar Bancorp, Inc. 222,000 4,535
International Bancshares Corp. 84,550 4,507
Certegy, Inc. 124,700 4,462
* Tradestation Group Inc. 670,000 4,308
Federated Investors, Inc. 146,000 4,292
WFS Financial, Inc. 91,765 4,087
Student Loan Corp. 28,300 4,007
Investors Financial
Services Corp. 100,100 3,891
Max Re Capital Ltd. 173,051 3,807
The Phoenix Cos., Inc. 286,800 3,634
* Commercial Capital
Bancorp, Inc. 205,500 3,629
* Accredited Home
Lenders Holding Co. 120,400 3,490
Everest Re Group, Ltd. 40,311 3,434
Jack Henry & Associates Inc. 182,100 3,312
East West Bancorp, Inc. 57,500 3,239
* Metris Cos., Inc. 457,400 3,202
Community First
Bankshares, Inc. 98,800 3,179
* First Federal Financial Corp. 76,200 3,080
SEI Corp. 104,200 3,076
PFF Bancorp, Inc. 80,600 3,018
* Sterling Financial Corp. 89,047 2,939
* Conseco, Inc. 147,300 2,917
* Piper Jaffray Cos., Inc. 60,100 2,910
Arthur J. Gallagher & Co. 87,900 2,833
W Holding Co., Inc. 161,600 2,754
Independent Bank Corp. (MI) 106,115 2,656
Novastar Financial, Inc. REIT 79,000 2,564
Hudson United Bancorp 70,000 2,501
* Interactive Data Corp. 139,800 2,337
Net.Bank, Inc. 210,000 2,266
Impac Mortgage
Holdings, Inc. REIT 118,300 2,225
* Triad Guaranty, Inc. 39,300 2,150
Hanmi Financial Corp. 84,800 2,100
Hudson River Bancorp. Inc. 115,378 2,078
PrivateBancorp, Inc. 35,200 1,947
* Portal Software, Inc. 325,140 1,766
Waddell & Reed Financial, Inc. 74,100 1,647
HCC Insurance Holdings, Inc. 49,500 1,585
Irwin Financial Corp. 66,700 1,577
Bank of the Ozarks, Inc. 65,462 1,561
Gabelli Asset Management Inc. 35,900 1,443
Westamerica Bancorporation 27,200 1,322
McGrath RentCorp 38,900 1,212
* Financial Federal Corp. 38,500 1,205
UCBH Holdings, Inc. 30,777 1,139
* USI Holdings Corp. 55,800 845
* iPayment Holdings, Inc. 23,682 803
* United Rentals, Inc. 44,800 771
* Hawthorne Financial Corp. 18,695 631
15
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MARKET
VALUE^
EXPLORER FUND SHARES (000)
- --------------------------------------------------------------------------------
Harleysville National Corp. 23,150 $ 605
* CCC Information Services Group 28,200 454
-----------
654,896
-----------
HEALTH CARE (18.2%)
BIOTECH RESEARCH & PRODUCTION (3.6%)
* ImClone Systems, Inc. 434,500 29,059
* OSI Pharmaceuticals, Inc. 330,100 24,358
* Biogen Idec Inc. 402,500 23,748
* Protein Design Labs, Inc. 961,800 23,545
* Human Genome Sciences, Inc. 1,896,500 23,137
* Invitrogen Corp. 237,000 17,119
* Chiron Corp. 320,000 14,848
* IDEXX Laboratories Corp. 214,900 13,165
* Martek Biosciences Corp. 202,600 12,863
* Zymogenetics, Inc. 640,100 10,146
* Cephalon, Inc. 178,125 10,137
* Abgenix, Inc. 583,800 9,498
* Digene Corp. 238,837 8,479
* Telik, Inc. 271,568 6,374
* Flamel Technologies SA ADR 240,400 6,344
* Nabi Biopharmaceuticals 338,598 5,536
* Transkaryotic Therapies, Inc. 378,000 5,492
* NPS Pharmaceuticals Inc. 214,600 5,376
* Charles River Laboratories, Inc. 107,400 4,940
* Vicuron Pharmaceuticals Inc. 203,825 4,649
* Tanox, Inc. 231,025 3,939
* Neurocrine Biosciences, Inc. 51,756 3,397
* Cell Genesys, Inc. 273,300 3,020
* Geron Corp. 333,181 2,522
* Serologicals Corp. 99,900 1,850
* Immunomedics Inc. 296,400 1,435
* Pharmacopeia, Inc. 59,491 1,067
* Albany Molecular Research, Inc. 57,700 936
* ARIAD Pharmaceuticals, Inc. 59,700 678
* Encysive Pharmaceuticals, Inc. 56,300 566
* Cytokinetics, Inc. 30,000 488
DRUGS & PHARMACEUTICALS (4.5%)
* Sepracor Inc. 554,020 26,488
* MGI Pharma, Inc. 370,700 22,917
* Salix Pharmaceuticals, Ltd. 626,143 19,367
Kissei Pharmaceutical Co., Ltd. 783,000 17,632
* Watson Pharmaceuticals, Inc. 475,000 16,915
* Amylin Pharmaceuticals, Inc. 625,300 14,007
* Andrx Group 569,100 13,021
* Ligand Pharmaceuticals Inc.
Class B 599,698 12,840
Medicis Pharmaceutical Corp. 296,900 12,743
* Eon Labs, Inc. 192,400 12,650
* Onyx Pharmaceuticals, Inc. 242,300 11,950
* Impax Laboratories, Inc. 550,615 11,458
* Kos Pharmaceuticals, Inc. 258,300 10,632
* Bradley Pharmaceuticals, Inc. 375,100 9,835
* Nektar Therapeutics 464,500 9,406
* Pharmaceutical Resources, Inc. 212,500 8,564
* Angiotech Pharmaceuticals, Inc. 387,250 8,074
* Chattem, Inc. 282,890 7,658
Valeant Pharmaceuticals
International 314,500 7,265
* Medarex, Inc. 744,000 7,090
* CV Therapeutics, Inc. 491,300 7,080
* The Medicines Co. 206,200 6,745
* King Pharmaceuticals, Inc. 322,300 5,560
* Endo Pharmaceuticals
Holdings, Inc. 225,900 5,392
* ImmunoGen, Inc. 592,000 5,050
* Shire Pharmaceuticals
Group PLC ADR 180,300 5,003
* Vertex Pharmaceuticals, Inc. 564,400 4,876
* American Pharmaceuticals
Partners, Inc. 112,032 4,739
* ILEX Oncology, Inc. 198,442 4,602
* Alkermes, Inc. 291,286 4,465
Perrigo Co. 187,700 4,049
* Regeneron Pharmaceuticals, Inc. 261,900 3,282
* Priority Healthcare Corp. Class B 152,600 3,060
* Connetics Corp. 141,983 2,762
* SuperGen, Inc. 313,800 2,576
* Novavax, Inc. 478,800 2,394
* Tularik, Inc. 95,100 2,346
* Noven Pharmaceuticals, Inc. 107,700 2,115
* SciClone Pharmaceuticals, Inc. 371,300 1,860
* K-V Pharmaceutical Co. Class A 67,650 1,625
* Enzo Biochem, Inc. 110,600 1,609
* Barr Pharmaceuticals Inc. 33,300 1,379
* aaiPharma Inc. 172,800 1,099
* CIMA Labs Inc. 25,600 810
* Dendreon Corp. 58,562 761
* AtheroGenics, Inc. 27,047 639
* Atrix Laboratories, Inc. 16,900 510
* Lannett Company, Inc. 28,503 456
ELECTRONICS--MEDICAL SYSTEMS (0.6%)
* Affymetrix, Inc. 393,400 12,022
* eResearch Technology, Inc. 339,500 10,687
* Bruker BioSciences Corp. 1,880,500 9,760
* VISX Inc. 295,200 6,462
* Intuitive Surgical, Inc. 248,640 4,016
* Haemonetics Corp. 52,500 1,482
HEALTH & PERSONAL CARE (1.0%)
* IDX Systems Corp. 452,100 14,332
Omnicare, Inc. 343,700 14,257
* Accredo Health, Inc. 279,500 10,803
16
- --------------------------------------------------------------------------------
MARKET
VALUE^
SHARES (000)
- --------------------------------------------------------------------------------
* Matria Healthcare, Inc. 450,600 $ 8,638
* Stericycle, Inc. 165,499 7,914
* Apria Healthcare Group Inc. 188,400 5,434
* Lincare Holdings, Inc. 148,300 5,150
* NeighborCare Inc. 156,600 3,624
* Odyssey Healthcare, Inc. 198,600 3,338
* LabOne, Inc. 110,499 3,264
* Inveresk Research Group Inc. 69,200 1,961
* Gentiva Health Services, Inc. 106,340 1,554
* Dynacq Healthcare, Inc 21,000 119
HEALTH CARE FACILITIES (1.7%)
* DaVita, Inc. 435,099 22,234
* Triad Hospitals, Inc. 616,866 20,980
Manor Care, Inc. 556,200 18,043
* United Surgical Partners
International, Inc. 352,200 12,757
* American Healthways Inc. 511,800 12,401
* Renal Care Group, Inc. 234,400 11,598
* Beverly Enterprises, Inc. 1,865,900 11,102
* LifePoint Hospitals, Inc. 200,500 7,170
* Kindred Healthcare, Inc. 139,850 6,850
* Mariner Health Care, Inc. 193,400 3,493
* Pharmaceutical Product
Development, Inc. 82,896 2,451
* Sunrise Senior Living, Inc. 14,100 446
HEALTH CARE MANAGEMENT SERVICES (1.4%)
* Humana Inc. 1,441,300 23,479
Select Medical Corp. 788,700 14,946
IMS Health, Inc. 490,800 12,393
* AMERIGROUP Corp. 212,400 8,817
* Pediatrix Medical Group, Inc. 118,900 8,501
* Community Health Systems, Inc. 227,500 5,867
* Sierra Health Services, Inc. 151,300 5,621
Oxford Health Plans, Inc. 93,800 5,106
Universal Health
Services Class B 104,400 4,583
* First Health Group Corp. 206,600 3,450
* AmSurg Corp. 134,150 3,243
* Eclipsys Corp. 216,000 3,048
* Per-Se Technologies, Inc. 255,156 2,730
* Centene Corp. 63,900 2,141
* WebMD Corp. 200,000 1,758
* Cerner Corp. 33,000 1,413
* CorVel Corp. 19,000 591
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (4.9%)
Bausch & Lomb, Inc. 686,200 43,114
* Henry Schein, Inc. 547,400 38,575
Mentor Corp. 1,099,800 34,864
Cooper Cos., Inc. 549,400 29,668
Arrow International, Inc. 749,028 22,411
DENTSPLY International Inc. 430,650 20,869
* CONMED Corp. 719,500 17,757
* Dade Behring Holdings Inc. 244,200 11,233
* Patterson Dental Co. 149,000 10,981
* Techne Corp. 233,093 9,081
* Kyphon Inc. 358,673 9,003
* INAMED Corp. 144,500 8,502
* Sybron Dental Specialties, Inc. 290,300 8,491
PolyMedica Corp. 298,300 8,305
Invacare Corp. 203,701 8,113
Beckman Coulter, Inc. 138,100 7,712
* Respironics, Inc. 145,553 7,628
* Gen-Probe Inc. 224,000 7,468
* ResMed Inc. 131,600 6,485
* Merit Medical Systems, Inc. 358,190 5,627
* Apogent Technologies Inc. 158,300 5,132
* Advanced Medical Optics, Inc. 159,000 5,015
* Align Technology, Inc. 270,184 4,680
* ALARIS Medical Systems, Inc. 234,000 4,544
* STERIS Corp. 196,400 4,352
* PSS World Medical, Inc. 377,878 4,228
* Conceptus, Inc. 302,700 3,481
* Immucor Inc. 130,000 3,205
* Bio-Rad Laboratories, Inc.
Class A 52,600 3,082
* Cytyc Corp. 139,203 2,979
* Advanced Neuromodulation
Systems, Inc. 108,600 2,959
* Ocular Sciences, Inc. 97,600 2,743
* Kinetic Concepts, Inc. 53,500 2,589
* Wright Medical Group, Inc. 65,466 2,248
* Edwards Lifesciences Corp. 51,200 1,764
* Synovis Life Technologies, Inc. 92,700 1,483
* Laserscope 23,100 686
* OraSure Technologies, Inc. 80,800 680
Diagnostic Products Corp. 14,100 602
* Molecular Devices Corp. 19,800 388
MEDICAL SERVICES (0.5%)
* Coventry Health Care Inc. 570,800 23,882
* US Physical Therapy, Inc. 509,000 7,233
* Covance, Inc. 146,400 4,940
* Hanger Orthopedic Group, Inc. 150,300 2,460
* VCA Antech, Inc. 25,000 1,022
* RehabCare Group, Inc. 22,400 458
-----------
1,400,818
-----------
MATERIALS & PROCESSING (4.2%)
Hughes Supply, Inc. 354,900 19,835
* Maverick Tube Corp. 845,800 19,140
Watsco, Inc. 586,000 17,082
Bowater Inc. 375,100 15,735
17
- --------------------------------------------------------------------------------
MARKET
VALUE^
EXPLORER FUND SHARES (000)
- --------------------------------------------------------------------------------
Temple-Inland Inc. 248,700 $ 15,362
Cytec Industries, Inc. 388,100 15,260
* Dycom Industries, Inc. 646,500 15,244
Chicago Bridge & Iron Co. N.V. 526,700 15,143
Great Lakes Chemical Corp. 565,900 14,215
Central Glass Co., Ltd. 1,831,000 13,522
* Pactiv Corp. 577,500 13,254
Fluor Corp. 333,800 12,738
Minerals Technologies, Inc. 214,500 12,580
* Energizer Holdings, Inc. 271,600 11,760
IMC Global Inc. 796,400 10,011
Precision Castparts Corp. 179,800 8,093
* URS Corp. 309,000 7,981
Louisiana-Pacific Corp. 333,500 7,867
* Ceradyne, Inc. 218,199 6,227
* GrafTech International Ltd. 682,000 6,049
United States Steel Corp. 198,100 5,672
Ball Corp. 85,200 5,623
Florida Rock Industries, Inc. 141,100 5,614
* Jacobs Engineering Group Inc. 128,900 5,376
* Scotts Co. 78,400 5,170
* Steel Dynamics, Inc. 191,700 4,614
* Rogers Corp. 68,053 4,063
MacDermid, Inc. 109,200 3,536
* Cleveland-Cliffs Inc. 69,900 3,312
Brookfield Homes Corp. 76,300 2,467
Lennox International Inc. 146,200 2,443
* OM Group, Inc. 86,500 2,201
* Armor Holdings, Inc. 60,800 2,009
* Mobile Mini, Inc. 93,906 1,808
* NCI Building Systems, Inc. 56,300 1,648
Forest City Enterprise Class A 25,800 1,353
* Jones Lang Lasalle Inc. 54,400 1,284
* Cabot Microelectronics Corp. 42,900 1,267
* Stillwater Mining Co. 82,600 1,109
Simpson Manufacturing Co. 19,200 1,001
* Tejon Ranch Co. 20,400 710
* Silgan Holdings, Inc. 11,600 488
AptarGroup Inc. 8,600 338
* Avatar Holding, Inc. 8,316 317
Schnitzer Steel Industries,
Inc. Class A 12,000 315
Penn Engineering &
Manufacturing Corp. 11,700 199
-----------
321,035
-----------
OTHER ENERGY (4.6%)
St. Mary Land & Exploration Co. 746,599 26,990
CARBO Ceramics Inc. 394,500 25,516
* Cal Dive International, Inc. 715,700 19,353
* Grey Wolf, Inc. 4,778,100 19,017
* Denbury Resources, Inc. 1,038,400 18,961
* Unit Corp. 554,200 15,656
* Patterson-UTI Energy, Inc. 413,600 14,968
Chesapeake Energy Corp. 1,070,925 14,725
* IHC Caland NV 307,498 14,483
Peabody Energy Corp. 284,200 13,326
* Key Energy Services, Inc. 1,197,800 12,769
* Newfield Exploration Co. 240,300 12,659
* Comstock Resources, Inc. 596,800 12,145
* Smith International, Inc. 196,000 10,731
* Core Laboratories NV 467,700 10,635
* TETRA Technologies, Inc. 427,700 10,226
* National-Oilwell, Inc. 307,350 8,581
* Premcor, Inc. 230,900 7,950
* Evergreen Resources, Inc. 164,100 6,585
Patina Oil & Gas Corp. 226,024 6,283
* Tom Brown, Inc. 122,300 5,856
* Ultra Petroleum Corp. 160,900 5,284
* Encore Acquisition Co. 166,889 4,965
* Magnum Hunter Resources Inc. 473,100 4,859
Cabot Oil & Gas Corp. 129,000 4,605
* Energy Partners, Ltd. 324,400 4,542
* Westport Resources Corp. 128,100 4,385
* The Meridian Resource Corp. 618,200 4,043
Vintage Petroleum, Inc. 265,200 3,997
Frontier Oil Corp. 223,305 3,970
* Prima Energy Corp. 83,000 3,082
* Stone Energy Corp. 53,300 2,622
* Plains Exploration &
Production Co. 126,100 2,484
* Oceaneering International, Inc. 82,100 2,299
* Houston Exploration Co. 50,800 2,273
* Matrix Service Co. 202,900 2,106
* Global Power
Equipment Group Inc. 205,400 1,487
* Grant Prideco, Inc. 87,200 1,330
* Remington Oil & Gas Corp. 56,700 1,242
* Capstone Turbine Corp. 417,276 1,064
* FuelCell Energy, Inc. 64,300 1,060
* Varco International, Inc. 48,000 993
* FMC Technologies Inc. 30,300 826
* Spinnaker Exploration Co. 21,100 753
Helmerich & Payne, Inc. 15,500 418
-----------
352,104
-----------
PRODUCER DURABLES (7.3%)
* Plantronics, Inc. 550,600 20,895
Tektronix, Inc. 700,500 20,735
Donaldson Co., Inc. 720,900 19,774
* Moog Inc. 516,350 17,040
Kennametal, Inc. 384,000 16,573
* Ultratech, Inc. 1,005,599 16,200
* Polycom, Inc. 847,000 16,161
* AGCO Corp. 781,700 15,048
* Otsuka Kagu Ltd. 404,200 14,688
18
- --------------------------------------------------------------------------------
MARKET
VALUE^
SHARES (000)
- --------------------------------------------------------------------------------
* MKS Instruments, Inc. 748,000 $ 14,377
* Mettler-Toledo International Inc. 319,299 14,311
* Photronics Inc. 913,872 13,608
* United Defense Industries Inc. 392,400 13,597
* LAM Research Corp. 600,100 13,286
* Hovnanian Enterprises Inc.
Class A 339,900 12,226
* Triumph Group, Inc. 367,000 11,799
Engineered Support
Systems, Inc. 242,600 11,798
Garmin Ltd. 348,500 11,208
Ryland Group, Inc. 136,400 10,769
* DuPont Photomasks, Inc. 471,600 9,753
* Rayovac Corp. 364,600 9,717
Lindsay Manufacturing Co. 389,550 9,213
* NVR, Inc. 19,400 8,749
Joy Global Inc. 308,100 8,088
* Palm Harbor Homes, Inc. 335,100 7,540
* Crown Castle
International Corp. 512,500 7,149
* American Tower Corp. Class A 573,600 7,141
Cummins Inc. 119,100 7,123
* Meritage Corp. 102,900 6,982
* Dionex Corp. 132,400 6,756
Herman Miller, Inc. 239,300 6,289
* Metrologic Instruments, Inc. 395,800 6,222
* Rudolph Technologies, Inc. 382,315 6,144
Goodrich Corp. 212,200 6,109
* Applied Films Corp. 256,600 6,107
* Zygo Corp. 540,200 5,953
CTS Corp. 454,000 5,925
* Axcelis Technologies, Inc. 551,600 5,797
* Varian Semiconductor
Equipment Associates, Inc. 164,800 5,366
HON Industries, Inc. 138,400 5,122
* Orbital Sciences Corp. 397,100 5,115
* Terex Corp. 143,400 4,711
* Toll Brothers, Inc. 118,800 4,701
Standard Pacific Corp. 92,700 4,676
Ametek, Inc. 172,600 4,574
MDC Holdings, Inc. 73,930 4,568
* Mykrolis Corp. 312,100 4,541
* ASML Holding (New York) 290,645 4,520
* Kulicke & Soffa Industries, Inc. 449,396 4,463
* Novatel Wireless, Inc. 283,000 4,171
* Champion Enterprises, Inc. 373,400 4,066
* Imagistics International Inc. 96,699 3,915
Molex, Inc. 128,800 3,836
* Photon Dynamics, Inc. 120,800 3,745
KB HOME 53,800 3,708
* Brooks Automation, Inc. 217,900 3,626
* Mattson Technology, Inc. 359,600 3,517
American Power
Conversion Corp. 186,800 3,486
Graco, Inc. 111,050 3,132
* William Lyon Homes, Inc. 34,200 3,015
* LTX Corp. 273,800 2,993
* C-COR Electronics, Inc. 322,900 2,932
* Arris Group Inc. 489,950 2,930
Lincoln Electric Holdings, Inc. 92,300 2,910
* Semitool, Inc. 258,500 2,841
* Audiovox Corp. 188,076 2,840
Helix Technology Corp. 155,300 2,733
* Veeco Instruments, Inc. 111,900 2,546
* Actuant Corp. 72,800 2,488
The Manitowoc Co., Inc. 81,000 2,463
* Headwaters Inc. 102,800 2,363
* Advanced Energy Industries, Inc. 171,200 2,267
Curtiss-Wright Corp. 41,000 1,931
* General Cable Corp. 232,300 1,789
Briggs & Stratton Corp. 23,600 1,652
* Technitrol, Inc. 76,000 1,617
Roper Industries Inc. 32,200 1,563
* Teledyne Technologies, Inc. 70,900 1,346
Keithley Instruments Inc. 60,000 1,251
C & D Technologies, Inc. 75,200 1,166
* Littelfuse, Inc. 28,700 1,102
* Cable Design Technologies Corp. 118,600 1,012
Cohu, Inc. 56,500 989
* Levitt Corp. Class A 42,700 974
* Electro Scientific Industries, Inc. 42,000 858
* Entegris Inc. 64,700 657
* Cymer, Inc. 17,200 550
* Optical Cable Corp.
Warrants Exp. 10/24/2007 8,891 7
-----------
564,194
-----------
TECHNOLOGY (18.3%)
COMMUNICATIONS TECHNOLOGY (3.0%)
* Foundry Networks, Inc. 1,952,800 22,067
ADTRAN Inc. 888,120 21,768
* Avaya Inc. 1,432,800 19,601
* WebEx Communications, Inc. 782,500 17,559
* TIBCO Software Inc. 1,749,900 13,124
* Brocade Communications
Systems, Inc. 2,439,400 13,051
* Avocent Corp. 307,800 9,877
Scientific-Atlanta, Inc. 304,900 9,876
* SeaChange International, Inc. 834,569 9,698
* NCR Corp. 215,400 9,626
Inter-Tel, Inc. 367,900 8,808
* Comverse Technology, Inc. 522,000 8,540
Black Box Corp. 126,748 6,458
* Stratex Networks, Inc. 1,850,600 6,051
* Aspect Communications Corp. 401,600 4,751
19
- --------------------------------------------------------------------------------
MARKET
VALUE^
EXPLORER FUND SHARES (000)
- --------------------------------------------------------------------------------
* Secure Computing Corp. 493,400 $ 4,717
* Ulticom, Inc. 481,300 4,515
* Sycamore Networks, Inc. 1,099,300 4,067
* j2 Global Communications, Inc. 174,800 4,048
* Westell Technologies, Inc. 547,099 4,004
Harris Corp. 86,100 3,879
* Network Associates, Inc. 244,870 3,840
* Standard Microsystem Corp. 135,000 3,218
* Net2Phone, Inc. 811,000 3,155
* Sonus Networks, Inc. 661,792 2,515
* Extreme Networks, Inc. 454,700 2,514
* Anaren, Inc. 165,200 2,437
* Ditech Communications Corp. 109,700 1,577
* Catapult Communications Corp. 79,000 1,486
* Inet Technologies, Inc. 135,301 1,333
* Advanced Fibre
Communications, Inc. 75,300 1,258
* KVH Industries, Inc. 87,200 1,200
* Netopia, Inc. 200,000 1,194
Anixter International Inc. 37,600 1,102
* InterVoice, Inc. 80,800 1,006
Bel Fuse, Inc. Class B 19,500 602
COMPUTER SERVICES SOFTWARE & SYSTEMS (7.0%)
* Red Hat, Inc. 3,557,400 80,789
Acxiom Corp. 1,159,200 26,824
* Hyperion Solutions Corp. 608,500 23,354
* Cognizant Technology
Solutions Corp. 525,100 22,716
* Sapient Corp. 3,603,000 20,177
* Digitas Inc. 1,961,700 19,440
Autodesk, Inc. 542,415 18,171
* CACI International, Inc. 391,300 17,804
* Electronics for Imaging, Inc. 663,425 16,838
* Akamai Technologies, Inc. 1,339,238 15,830
* ManTech International Corp. 574,300 14,415
* MICROS Systems, Inc. 302,800 13,284
* At Road, Inc. 1,188,100 10,004
* Open Text Corp. 355,000 9,645
* Digital River, Inc. 368,600 9,491
* F5 Networks, Inc. 328,772 8,351
* Anteon International Corp. 241,500 7,535
* American Management
Systems, Inc. 378,560 7,310
* Cadence Design Systems, Inc. 570,000 7,307
* The TriZetto Group, Inc. 1,060,500 7,201
* Agile Software Corp. 952,200 7,189
* Mentor Graphics Corp. 433,200 7,187
* Ascential Software Corp. 415,795 7,069
* Amdocs Ltd. 253,400 6,728
* Transaction Systems
Architects, Inc. 309,400 6,569
* Gartner, Inc. Class A 538,300 6,427
* Siebel Systems, Inc. 603,400 6,203
* MicroStrategy Inc. 128,800 6,188
* Novell, Inc. 598,200 5,767
* Openwave Systems Inc. 617,867 5,264
* eCollege.com Inc. 289,000 5,225
* Concur Technologies, Inc. 500,000 5,175
* Mercury Interactive Corp. 119,500 5,085
* Manhattan Associates, Inc. 168,400 4,525
* BEA Systems, Inc. 387,300 4,419
* ANSYS, Inc. 114,516 4,243
* SonicWALL, Inc. 579,800 4,151
* Keane, Inc. 271,400 3,854
* SafeNet, Inc. 178,795 3,844
* WatchGuard Technologies, Inc. 548,500 3,818
* Tyler Technologies, Inc. 395,400 3,733
* Epicor Software Corp. 283,601 3,633
* Interwoven Inc. 420,250 3,526
* Compuware Corp. 453,400 3,469
* Macromedia, Inc. 167,700 3,455
* OPNET Technologies, Inc. 236,859 3,453
* Staktek Holdings Inc. 378,200 3,404
* ActivCard Corp. 509,225 3,213
* Dendrite International, Inc. 178,100 3,053
* Macrovision Corp. 173,500 2,922
* Lionbridge Technologies, Inc. 321,300 2,898
* Retek Inc. 394,719 2,755
* Netegrity, Inc. 309,900 2,603
* Ceridian Corp. 114,200 2,442
Reynolds & Reynolds Class A 80,500 2,299
* Magma Design Automation, Inc. 122,000 2,274
* Micromuse Inc. 338,800 2,273
* Informatica Corp. 312,972 2,266
* Lawson Software Inc. 307,200 2,178
* PC-Tel, Inc. 195,500 2,166
* Progress Software Corp. 101,200 2,075
* SPSS, Inc. 126,700 1,802
* MSC Software Corp. 185,900 1,733
* SERENA Software, Inc. 89,500 1,590
* Manugistics Group, Inc. 257,800 1,395
* Pegasystems Inc. 161,399 1,388
* QAD Inc. 115,717 1,274
* Verity, Inc. 99,000 1,228
* MRO Software Inc. 79,600 1,061
* Quest Software, Inc. 91,740 1,032
* BearingPoint, Inc. 74,600 747
Syntel, Inc. 35,100 703
* SupportSoft, Inc. 44,300 438
COMPUTER TECHNOLOGY (2.2%)
* Maxtor Corp. 4,717,680 30,712
* Western Digital Corp. 2,301,900 18,599
20
- --------------------------------------------------------------------------------
MARKET
VALUE^
SHARES (000)
- --------------------------------------------------------------------------------
* SanDisk Corp. 636,200 $ 14,703
* McDATA Corp. Class A 2,044,700 10,898
* Cray Inc. 1,673,200 10,374
* RSA Security Inc. 639,700 10,248
* Ingram Micro, Inc. Class A 857,000 10,241
* Hutchinson Technology, Inc. 303,900 7,473
* Lexar Media, Inc. 803,170 7,469
* Mobility Electronics, Inc. 799,900 6,551
* Advanced Digital
Information Corp. 527,000 5,565
* Emulex Corp. 292,875 4,882
* UNOVA, Inc. 267,300 4,678
* Synopsys, Inc. 162,000 4,330
* Perot Systems Corp. 252,866 3,368
* RadiSys Corp. 166,900 3,116
* Komag, Inc. 224,400 2,852
* Dot Hill Systems Corp. 321,969 2,415
* Intergraph Corp. 87,916 2,216
* Adaptec, Inc. 233,900 1,829
* Stratasys, Inc. 85,200 1,741
* Computer Network
Technology Corp. 253,000 1,657
ELECTRICAL & ELECTRONICS (0.3%)
* TTM Technologies, Inc. 743,350 8,259
* Power Integrations, Inc. 265,000 6,527
* Universal Display Corp. 511,400 6,469
* Benchmark Electronics, Inc. 146,600 3,963
ELECTRONICS (1.1%)
* FLIR Systems, Inc. 573,300 26,894
* Sanmina-SCI Corp. 1,820,100 18,237
* Avid Technology, Inc. 284,393 13,642
* Amphenol Corp. 324,400 10,254
* Aeroflex, Inc. 554,825 6,980
* Daktronics, Inc. 136,907 2,907
* Semtech Corp. 122,100 2,567
* Parlex Corp. 137,200 919
ELECTRONICS--SEMICONDUCTORS/COMPONENTS (4.1%)
* Cypress Semiconductor Corp. 1,300,700 18,171
* ON Semiconductor Corp. 3,689,300 17,819
PerkinElmer, Inc. 825,600 15,893
* Silicon Storage
Technology, Inc. 1,194,200 15,823
* Silicon Laboratories Inc. 325,100 15,328
* Artisan Components, Inc. 576,200 13,483
* Atmel Corp. 2,176,400 12,710
* DSP Group Inc. 505,600 12,529
* Avnet, Inc. 561,899 12,159
* International Rectifier Corp. 288,500 11,436
* Integrated Device
Technology Inc. 803,551 10,808
* PMC Sierra Inc. 857,600 10,420
* LSI Logic Corp. 1,358,300 10,106
* Exar Corp. 646,200 9,861
* OmniVision Technologies, Inc. 396,200 8,836
* MEMC Electronic
Materials, Inc. 981,226 7,820
* Agere Systems Inc. Class A 3,379,700 7,638
* Microsemi Corp. 692,128 7,523
* Conexant Systems, Inc. 1,616,888 7,033
* ESS Technology, Inc. 650,078 6,969
* Amkor Technology, Inc. 838,700 6,777
* Arrow Electronics, Inc. 264,200 6,679
* Jabil Circuit, Inc. 236,675 6,246
* Integrated Silicon Solution, Inc. 451,158 6,194
* Cirrus Logic 863,363 5,379
* SigmaTel Inc. 209,250 5,116
* ChipPAC, Inc. 821,000 5,033
* Advanced Micro Devices, Inc. 347,400 4,940
* Silicon Image, Inc. 390,675 3,981
* Cree, Inc. 189,400 3,513
* ATI Technologies Inc. 206,500 3,005
* Mindspeed Technologies, Inc. 571,780 2,939
* Vitesse Semiconductor Corp. 651,600 2,789
* Actel Corp. 138,500 2,759
* Rambus Inc. 134,959 2,514
AU Optronics Corp. ADR 105,829 2,273
* Pixelworks, Inc. 88,309 1,579
* Virage Logic Corp. 182,677 1,441
* Lattice Semiconductor Corp. 187,000 1,331
* Integrated Circuit Systems, Inc. 53,000 1,256
* Excel Technology, Inc. 33,900 1,147
* Applied Micro Circuits Corp. 254,300 1,121
* Skyworks Solutions, Inc. 82,600 707
* Planar Systems, Inc. 41,922 511
* Siliconix, Inc. 6,974 270
* Bookham Technology PLC 35,800 50
ELECTRONICS--TECHNOLOGY (0.5%)
* Trimble Navigation Ltd. 900,144 22,549
* Solectron Corp. 2,106,600 10,322
* Herley Industries Inc. 79,500 1,658
* The Titan Corp. 74,600 1,432
* ScanSource, Inc. 6,200 342
SCIENTIFIC EQUIPMENT & SUPPLIES (0.1%)
Applera Corp.-Applied Biosystems Group 400,000 7,428
* Varian, Inc. 4,800 197
-----------
1,403,797
-----------
21
- --------------------------------------------------------------------------------
MARKET
VALUE^
EXPLORER FUND SHARES (000)
- --------------------------------------------------------------------------------
UTILITIES (2.2%)
* Nextel Partners, Inc. 3,264,500 $ 43,581
* NII Holdings Inc. 629,900 22,047
* Philippine Long Distance
Telephone Co. ADR 967,000 19,011
* NTL Inc. 248,700 14,119
* Western Wireless Corp.
Class A 624,100 12,994
* General Communication, Inc. 1,258,500 11,201
* Intrado Inc. 353,536 6,077
* Southwestern Energy Co. 228,200 5,739
Energen Corp. 137,100 5,669
* PTEK Holdings, Inc. 479,241 4,874
* UnitedGlobalCom Inc. Class A 504,300 3,772
* Primus Telecommunications
Group, Inc. 613,500 3,417
* Mediacom Communications Corp. 405,704 2,958
DPL Inc. 131,400 2,315
Western Gas Resources, Inc. 40,100 2,183
* Boston Communications
Group, Inc. 187,481 2,017
* Talk America Holdings, Inc. 222,453 1,984
UGI Corp. Holding Co. 62,750 1,977
* IDT Corp. Class B 85,200 1,584
* Alamosa Holdings, Inc. 127,500 918
* Time Warner Telecom Inc. 95,600 363
-----------
168,800
-----------
OTHER (0.3%)
Brunswick Corp. 372,700 15,322
* FMC Corp. 89,900 3,856
Lancaster Colony Corp. 86,700 3,581
-----------
22,759
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $6,127,862) 7,069,899
- --------------------------------------------------------------------------------
TEMPORARY INVESTMENTS (9.8%)(1)
- --------------------------------------------------------------------------------
Vanguard Index Participation
Equity Receipts--
Small-Cap Growth 124,900 5,915
Small-Cap 98,900 4,750
FACE AMOUNT
(000)
-----------
FEDERAL NATIONAL MORTGAGE ASSN.
(3)1.028%, 7/7/2004 $ 13,000 12,975
(3)1.048%, 7/14/2004 11,000 10,977
REPURCHASE AGREEMENTS
Goldman Sachs & Co.
0.93%, 5/3/2004 40,027 40,027
(Dated 4/30/2004,
Repurchase Value $40,030,000,
collateralized by U. S. Treasury Bond,
7.625%, 2/15/2025)
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.04%, 5/3/2004 474,381 474,381
1.04%, 5/3/2004--Note G 200,873 200,873
- --------------------------------------------------------------------------------
TOTAL TEMPORARY INVESTMENTS
(Cost $750,362) 749,898
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.9%)
(Cost $6,878,224) 7,819,797
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.9%)
- --------------------------------------------------------------------------------
Other Assets--Note C 236,651
Payables for Investment
Securities Purchased (156,903)
Security Lending Collateral
Payable to Brokers--Note G (200,873)
Other Liabilities (27,403)
-----------
(148,528)
-----------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $7,671,269
================================================================================
^See Note A in Notes to Financial Statements.
*Non-income-producing security.
(1)The fund invests a portion of its cash reserves in equity markets through the
use of index futures contracts and exchange-traded funds. After giving effect to
these investments, the fund's effective common stock and temporary cash
investment positions represent 97.7% and 4.2%, respectively, of net assets. See
Note E in Notes to Financial Statements.
(2)Considered an affiliated company of the fund as the fund owns more than 5% of
the outstanding voting securities of such company. The total market value of
investments in affiliated companies was $42,163,000. See Note I in Notes to
Financial Statements.
(3)Securities with an aggregate value of $23,952,000 have been segregated as
initial margin for open futures contracts.
ADR--American Depositary Receipt.
REIT--Real Estate Investment Trust.
22
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
AT APRIL 30, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $6,785,382
Accumulated Net Investment Losses (13,947)
Accumulated Net Realized Losses (31,125)
Unrealized Appreciation (Depreciation)
Investment Securities 941,573
Futures Contracts (10,614)
- --------------------------------------------------------------------------------
NET ASSETS $7,671,269
================================================================================
Investor Shares--Net Assets
Applicable to 101,696,162 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $6,662,532
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- INVESTOR SHARES $65.51
================================================================================
Admiral Shares--Net Assets
Applicable to 16,552,020 outstanding $.001 par value shares
of beneficial interest (unlimited authorization) $1,008,737
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-- ADMIRAL SHARES $60.94
================================================================================
See Note E in Notes to Financial Statements for the tax-basis components of net
assets.
23
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
- --------------------------------------------------------------------------------
EXPLORER FUND
SIX MONTHS ENDED APRIL 30, 2004
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends* $ 8,773
Interest 2,965
Security Lending 991
- --------------------------------------------------------------------------------
Total Income 12,729
- --------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 6,174
Performance Adjustment 800
The Vanguard Group--Note C
Management and Administrative
Investor Shares 12,792
Admiral Shares 964
Marketing and Distribution
Investor Shares 431
Admiral Shares 68
Custodian Fees 60
Shareholders' Reports
Investor Shares 86
Admiral Shares --
Trustees' Fees and Expenses 4
- --------------------------------------------------------------------------------
Total Expenses 21,379
Expenses Paid Indirectly--Note D (622)
- --------------------------------------------------------------------------------
Net Expenses 20,757
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (8,028)
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold* 533,923
Futures Contracts 37,557
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 571,480
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (335,075)
Futures Contracts (20,295)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (355,370)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $208,082
================================================================================
*Dividend income and realized net gain (loss) from affiliated companies of the
fund were $0 and $1,567,000, respectively. See Note I in Notes to Financial
Statements.
24
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the net amount shareholders invested in
or redeemed from the fund. Distributions and Capital Share Transactions are
shown separately for each class of shares.
- --------------------------------------------------------------------------------
EXPLORER FUND
-----------------------------
SIX MONTHS YEAR
ENDED ENDED
APR. 30, 2004 OCT. 31, 2003
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income (Loss) $ (8,028) $ (2,980)
Realized Net Gain (Loss) 571,480 (24,048)
Change in Unrealized Appreciation (Depreciation) (355,370) 1,711,432
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 208,082 1,684,404
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares -- (389)
Admiral Shares -- (309)
Realized Capital Gain
Investor Shares -- --
Admiral Shares -- --
- --------------------------------------------------------------------------------
Total Distributions -- (698)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--NOTE H
Investor Shares 809,346 717,013
Admiral Shares 270,996 257,582
- --------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 1,080,342 974,595
- --------------------------------------------------------------------------------
Total Increase (Decrease) 1,288,424 2,658,301
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 6,382,845 3,724,544
- --------------------------------------------------------------------------------
End of Period $7,671,269 $6,382,845
================================================================================
25
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
EXPLORER FUND INVESTOR SHARES
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2004 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $63.17 $44.60 $51.91 $77.28 $61.49 $49.60
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income (Loss) (.07) (.012) (.005) .15 .25 .21
Net Realized and Unrealized Gain (Loss) on Investment 2.41 18.587 (7.200) (11.36) 23.80 12.18
- ----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.34 18.575 (7.205) (11.21) 24.05 12.39
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -- (.005) (.105) (.25) (.23) (.20)
Distributions from Realized Capital Gains -- -- -- (13.91) (8.03) (.30)
- ----------------------------------------------------------------------------------------------------------------
Total Distributions -- (.005) (.105) (14.16) (8.26) (.50)
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $65.51 $63.17 $44.60 $51.91 $77.28 $61.49
================================================================================================================
TOTAL RETURN 3.70% 41.65% -13.93% -16.22% 42.56% 25.14%
================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $6,663 $5,662 $3,432 $3,996 $4,566 $2,484
Ratio of Total Expenses to Average Net Assets* 0.61%** 0.72% 0.70% 0.72% 0.71% 0.74%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.24%)** (0.08%) (0.01%) 0.24% 0.36% 0.36%
Portfolio Turnover Rate 86%** 77% 69% 77% 123% 79%
================================================================================================================
*Includes performance-based investment advisory fee increases (decreases) of 0.02%, 0.07%, 0.07%, 0.06%, 0.05%,
and 0.03%.
**Annualized.
26
EXPLORER FUND ADMIRAL SHARES
- --------------------------------------------------------------------------------
SIX MONTHS YEAR NOV. 12,
ENDED ENDED 2001* TO
APR. 30, OCT. 31, OCT. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2004 2003 2002
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $58.71 $41.43 $50.00
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income (Loss) (.01) .064 .035
Net Realized and Unrealized Gain (Loss)
on Investments 2.24 17.259 (8.498)
- --------------------------------------------------------------------------------
Total from Investment Operations 2.23 17.323 (8.463)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -- (.043) (.107)
Distributions from Realized Capital Gains -- -- --
- --------------------------------------------------------------------------------
Total Distributions -- (.043) (.107)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $60.94 $58.71 $41.43
================================================================================
TOTAL RETURN 3.80% 41.85% -16.98%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,009 $721 $293
Ratio of Total Expenses to Average
Net Assets** 0.44%+ 0.57% 0.61%+
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.08%)+ 0.05% 0.13%+
Portfolio Turnover Rate 86%+ 77% 69%
================================================================================
*Inception.
**Includes performance-based investment advisory fee increases (decreases) of
0.02%, 0.07%, and 0.07%.
+Annualized.
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
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, servicing, tenure, and
account-size criteria.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. The fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Securities are valued as of the close of trading on the
New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund's pricing time but after the close of the securities'
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Temporary cash investments acquired over 60 days to
maturity are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields,
maturities, and ratings), both as furnished by independent pricing services.
Other temporary cash investments are valued at amortized cost, which
approximates market value.
2. FUTURES CONTRACTS: The fund uses S&P MidCap 400 and Russell 2000 Index
futures contracts to a limited extent, with the objectives of maintaining full
exposure to the stock market while maintaining liquidity. The fund may purchase
or sell futures contracts to achieve a desired level of investment, whether to
accommodate portfolio turnover or cash flows from capital share transactions.
The primary risks associated with the use of futures contracts are imperfect
correlation between changes in market values of stocks held by the fund and the
prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued at their quoted daily settlement prices. The
aggregate principal amounts of the contracts are not recorded in the financial
statements. Fluctuations in the value of the contracts are recorded in the
Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized gains (losses) on futures contracts.
3. REPURCHASE AGREEMENTS: The fund, along with other members of The Vanguard
Group, transfers uninvested cash balances to a pooled cash account, which is
invested in repurchase agreements secured by U.S. government securities. The
fund may also invest directly in repurchase agreements. Securities pledged as
collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each agreement requires that the market value of the
collateral be sufficient to cover payments of interest and principal; however,
in the event of default or bankruptcy by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
4. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for federal income taxes is required in the financial statements.
5. DISTRIBUTIONS: Distributions to shareholders are recorded on the ex-dividend
date.
6. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold.
28
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. Grantham, Mayo, Van Otterloo & Co. LLC ("GMO"), Granahan Investment
Management, Inc., Wellington Management Company, llp, and Chartwell Investment
Partners each provide investment advisory services to a portion of the fund for
a fee calculated at an annual percentage rate of average net assets managed by
the advisor. The basic fees of each advisor are subject to quarterly adjustments
based on performance for the preceding three years relative to the Russell 2000
Growth Index for periods prior to January 31, 2003, and their new benchmark, the
Russell 2500 Growth Index, beginning January 31, 2003. The benchmark changes
will be fully phased in by January 2006.
The Vanguard Group provides investment advisory services to a portion of the
fund on an at-cost basis; the fund paid Vanguard advisory fees of $290,000 for
the six months ended April 30, 2004.
For the six months ended April 30, 2004, the aggregate investment advisory fee
represented an effective annual basic rate of 0.17% of the fund's average net
assets before an increase of $800,000 (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 under methods approved by the board of trustees. The fund has
committed to provide up to 0.40% of its net assets in capital contributions to
Vanguard. At April 30, 2004, the fund had contributed capital of $1,139,000 to
Vanguard (included in Other Assets), representing 0.01% of the fund's net assets
and 1.14% 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, 2004, these arrangements reduced the fund's expenses by
$622,000 (an annual rate of 0.02% of average net assets).
E. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
The fund's tax-basis capital gains and losses are determined only at the end of
each fiscal year. For tax purposes, at October 31, 2003, the fund had available
realized losses of $591,459,000 to offset future net capital gains of
$201,887,000 through October 31, 2009, $378,066,000 through October 31, 2010,
and $11,506,000 through October 31, 2011. The fund will use these capital losses
to offset net taxable capital gains, if any, realized during the year ending
October 31, 2004; should the fund realize net capital losses for the year, the
losses will be added to the loss carryforward balances above.
29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At April 30, 2004, net unrealized appreciation of investment securities for tax
purposes was $941,573,000, consisting of unrealized gains of $1,358,941,000 on
securities that had risen in value since their purchase and $417,368,000 in
unrealized losses on securities that had fallen in value since their purchase.
At April 30, 2004, the aggregate settlement value of open futures contracts
expiring in June 2004 and the related unrealized depreciation were:
- --------------------------------------------------------------------------------
(000)
--------------------------
AGGREGATE UNREALIZED
NUMBER OF SETTLEMENT APPRECIATION
FUTURES CONTRACTS LONG CONTRACTS VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
S&P MidCap 400 Index 539 $120,781 ($2,320)
Russell 2000 Index 815 228,139 (7,791)
E-mini Russell 2000 Index 1,159 64,887 (503)
- --------------------------------------------------------------------------------
Unrealized depreciation on open futures contracts is required to be treated as
realized loss for tax purposes.
F. During the six months ended April 30, 2004, the fund purchased $3,887,442,000
of investment securities and sold $2,856,355,000 of investment securities, other
than temporary cash investments.
G. The market value of securities on loan to broker/dealers at April 30, 2004,
was $186,455,000, for which the fund held cash collateral of $200,873,000. The
fund invests cash collateral received in repurchase agreements, and records a
liability for the return of the collateral, during the period the securities are
on loan.
H. Capital share transactions for each class of shares were:
- ----------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31, 2003
--------------------------------------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------
Investor Shares
Issued $1,391,667 20,738 $1,492,083 28,092
Issued in Lieu of Cash Distributions -- -- 380 8
Redeemed (582,321) (8,680) (775,450) (15,403)
--------------------------------------------------
Net Increase (Decrease)--Investor Shares 809,346 12,058 717,013 12,697
--------------------------------------------------
Admiral Shares
Issued 458,331 7,279 374,098 7,567
Issued in Lieu of Cash Distributions -- -- 287 7
Redeemed (187,335) (3,002) (116,803) (2,363)
--------------------------------------------------
Net Increase (Decrease)--Admiral Shares 270,996 4,277 257,582 5,211
- ----------------------------------------------------------------------------------------------
30
I. Certain of the fund's investments are in companies that are considered to be
affiliated companies of the fund because the fund owns more than 5% of the
outstanding voting securities of the company. Transactions during the period in
securities of affiliated companies were as follows:
- -----------------------------------------------------------------------------------------------------------
(000)
------------------------------------------------------------------------
CURRENT PERIOD TRANSACTIONS
---------------------------
OCT. 31, 2003 COST OF APR. 30, 2004
MARKET PURCHASES SECURITIES DIVIDEND MARKET
VALUE AT COST SOLD INCOME VALUE
- -----------------------------------------------------------------------------------------------------------
Hollywood Media Corp. $ 2,784 $2,100 $ 357 -- $ 6,585
LodgeNet Entertainment Corp. 16,175 1,435 2,869 -- 16,156
Matria Healthcare, Inc. 11,997 1,210 6,100 -- n.a.*
Vans, Inc. 11,615 2,103 3,107 -- 19,422
------- ---------------------------
$42,571 -- $42,163
------- ---------------------------
- -----------------------------------------------------------------------------------------------------------
*At April 30, 2004, the security is still held but the issuer is no longer an affiliated company of the fund.
31
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard(R) funds and provides
services to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------
John J. Brennan* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee of
(1954) Board, Chief The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(129)
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Charles D. Ellis Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (129) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ----------------------------------------------------------------------------------------------------------------
Rajiv L. Gupta Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (129) Chairman (January-September 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; Trustee of Drexel University.
- ----------------------------------------------------------------------------------------------------------------
JoAnn Heffernan Trustee Vice President, Chief Information Officer, and Member of the
Heisen (129) Executive Committee of Johnson & Johnson (pharmaceuticals/
(1950) consumer products); Director of the University Medical Center at
July 1998 Princeton and Women's Research and Education Institute.
- ----------------------------------------------------------------------------------------------------------------
Burton G. Malkiel Trustee Chemical Bank Chairman's Professor of Economics, Princeton
(1932) (127) University; Director of Vanguard Investment Series plc (Irish
May 1977 investment fund) (since November 2001), Vanguard Group (Ireland)
Limited (Irish investment management firm) (since November 2001),
Prudential Insurance Co. of America, BKF Capital (investment
management), The Jeffrey Co. (holding company), and NeuVis, Inc.
(software company).
- ----------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------
ALFRED M. RANKIN, Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
JR. (1941) (129) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ----------------------------------------------------------------------------------------------------------------
J. LAWRENCE Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
WILSON (1936) (129) (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceutical
distribution); Trustee of Vanderbilt University.
- ----------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. GREGORY BARTON Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (129) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ----------------------------------------------------------------------------------------------------------------
THOMAS J. HIGGINS Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (129) investment companies served by The Vanguard Group.
July 1998
- ----------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ---------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ---------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ---------------------------------------------------------------------------------------------------------
[SHIP(R) GRAPHIC]
[THE VANGUARD GROUP(R) LOGO]
Post Office Box 2600
Valley Forge, PA 19482-2600
Vanguard, The Vanguard Group, Vanguard.com, Admiral, Explorer, and the ship logo
are trademarks of The Vanguard Group, Inc.
All other marks are the exclusive property of their respective owners.
ABOUT OUR COVER
The photographs that appear on the cover of this report are copyrighted by
Michael Kahn.
FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
To receive a free copy of the prospectus or the Statement of Additional
Information, or to request additional information about the fund or other
Vanguard funds, please contact us at one of the adjacent telephone numbers or by
e-mail through VANGUARD.COM. Prospectuses may also be viewed online.
You can obtain a free copy of Vanguard's proxy voting guidelines by visiting our
website, www.vanguard.com, and searching for "proxy voting guidelines," or by
calling 1-800-662-2739. They are also available from the SEC's website,
www.sec.gov.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
DIRECT INVESTOR ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
TEXT TELEPHONE
1-800-952-3335
(C) 2004 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
Q242 062004
Item 2: Not applicable.
Item 3: Not applicable.
Item 4: Not applicable.
Item 5: Not applicable.
Item 6: Not applicable.
Item 7: Not applicable.
Item 8: Not applicable.
Item 9: Not applicable.
Item 10: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and
Financial Officers concluded that the Registrant's Disclosure Controls and
Procedures are effective based on their evaluation of the Disclosure Controls
and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Controls. There were no significant changes in Registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Item 11: 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: (signature)
----------------------------------------
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: June 14, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
VANGUARD EXPLORER FUND
BY: (signature)
----------------------------------------
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: June 14, 2004
VANGUARD EXPLORER FUND
BY: (signature)
----------------------------------------
(HEIDI STAM)
THOMAS J. HIGGINS*
TREASURER
Date: June 14, 2004
*By Power of Attorney. See File Number 2-57689, filed on December 26, 2002.
Incorporated by Reference.