N-CSRS 1 explorerfinal.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT COMPANY


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: Heidi Stam, Esquire
P.O. Box 876
Valley Forge, PA 19482

Registrant’s telephone number, including area code: (610) 669-1000


Date of fiscal year end: October 31

Date of reporting period: November 1, 2005 - April 30, 2006

Item 1: Reports to Shareholders



 

 

Vanguard® ExplorerTM Fund

 

 

 

> Semiannual Report

 

 

 

 

April 30, 2006

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

>

Vanguard Explorer Fund returned nearly 19% during the first half of the fund’s 2006 fiscal year.

>

Small-capitalization stock returns were roughly twice those of their large-cap counterparts for the period.

>

The fund modestly trailed its benchmarks because of under allocations to top-performing sectors and some weak stock selections.

 

 

Contents

 

 

 

Your Fund’s Total Returns

1

Chairman’s Letter

2

Advisors’ Report

6

Fund Profile

12

Performance Summary

13

Financial Statements

14

About Your Fund’s Expenses

39

Trustees Renew Advisory Arrangements

41

Glossary

43

 

 

Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the cover of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

 

 


 

 

Your Fund’s Total Returns

 

Six Months Ended April 30, 2006

 

 

Total

 

Return

Vanguard Explorer Fund

 

Investor Shares

18.6%

Admiral™ Shares1

18.7

Russell 2500 Growth Index

19.1

Average Small-Cap Growth Fund2

19.4

Dow Jones Wilshire 5000 Index

11.1

 

Your Fund’s Performance at a Glance

 

 

October 31, 2005–April 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

Distributions Per Share

 

Starting

Ending

Income

Capital

 

Share Price

Share Price

Dividends

Gains

Vanguard Explorer Fund

 

 

 

 

Investor Shares

$76.67

$83.81

$0.230

$6.206

Admiral Shares

71.47

78.06

0.346

5.776

 

 

 

1

A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund.
   

2

Derived from data provided by Lipper Inc.
 

 

1

 

 


 

 


Chairman’s Letter

 

Dear Shareholder,

During the six months ended April 30, 2006, U.S. equity markets advanced strongly, even as investors grappled with rising energy prices and higher interest rates. Against this backdrop, the Explorer Fund’s Investor Shares returned 18.6%. (The Admiral Shares returned 18.7%.) This excellent return was nevertheless slightly short of the results for the fund’s index benchmark and its average peer group.

Stocks continued their healthy climb despite high energy prices

 

Following a lackluster finish in 2005, U.S. stock prices climbed steadily during the first four months of 2006, ending near a five-year high. Despite continuing worries over rising energy costs and the possibility of inflation, investors’ confidence in the economy remained firm. The job market remained tight and retail sales were strong during the fiscal half-year.

Small-capitalization stocks in the United States continued to outperform their large-cap counterparts, as has been the general trend since the bear market ended in 2002. During the half-year, small-caps bested large-caps by a margin of 9 percentage points. International stocks continued to produce outstanding gains, most notably in Japan and emerging markets.

 

2

 

 


 

 

 

The Fed continued its measured pace of raising short-term rates

 

For the six-month period, bonds provided slim returns as rising interest rates put a lid on bond performance. On March 28, the Federal Reserve Board raised its target for the federal funds rate to 4.75%, continuing its gradual tightening of monetary policy to defuse the threat of inflation. This was the Fed’s 15th consecutive rate increase since June 2004. (Shortly after the close of the fiscal period, the Fed extended its streak of rate increases to 16, raising its target to 5.00%.) Interest rate movements followed a normal pattern during the period, rising across the maturity spectrum. Short-term and municipal securities outperformed long-term bonds.

 

Your fund generated good returns in a great market

 

Explorer’s 18.6% return for the half-year was a reflection of the outstanding gains seen among small-capitalization stocks. Returns in nine of the ten sectors in which the fund invested were strongly positive. In absolute terms, the fund’s return was outstanding; in relative terms it was very good.

The fund’s small shortfall relative to its benchmark resulted from comparatively small positions in a few top-performing sectors and a handful of missed opportunities and subpar stock selections in other sectors. For example, the fund was somewhat underweighted in the strong-performing energy and industrials

 

Market Barometer

 

 

 

 

 

Total Returns

 

Periods Ended April 30, 2006

 

Six Months

One Year

Five Years1

Stocks

 

 

 

Russell 1000 Index (Large-caps)

9.9%

16.7%

3.4%

Russell 2000 Index (Small-caps)

18.9

33.5

10.9

Dow Jones Wilshire 5000 Index (Entire market)

11.1

18.9

4.5

MSCI All Country World Index ex USA (International)

25.0

38.1

11.4

 

 

 

 

Bonds

 

 

 

Lehman Aggregate Bond Index (Broad taxable market)

0.6%

0.7%

5.2%

Lehman Municipal Bond Index

1.6

2.2

5.4

Citigroup 3-Month Treasury Bill Index

2.0

3.6

2.1

 

 

 

 

CPI

 

 

 

Consumer Price Index

1.2%

3.5%

2.6%

 

 

1

Annualized.
 

 

3

 

 


 

 

sectors versus their corresponding weightings in the Russell 2500 Growth Index, which detracted from relative return. Although the fund’s six independent investment advisors largely succeeded in identifying good stocks, their strong security selection couldn’t offset the penalty paid for not committing greater portions of their portfolios to surging stocks in those sectors.

Explorer also missed out on some outstanding performers, particularly in the health care sector. The fund did not hold some of the more speculative, better-performing names among biotech firms, equipment makers, and drugmakers. And in the telecommunication services area, the fund did not hold a number of wireless communication companies that posted excellent six-month returns.

Despite its somewhat disappointing relative return during this short period, the fund’s long-term results are very strong. Over time, Explorer has delivered solid performance by drawing upon the complementary talents of its six advisory firms, each of which manages its portion of fund assets according to its own investment philosophy and strategy. In addition to excellent returns, our multiadvisor approach has produced an exceptional level of diversification not typically seen among small-cap funds. Indeed, as of April 30, the fund held more than 1,000 stocks, far more than the average small-cap fund.

The fund’s extremely low expenses are an important element of its competitive long-term record. As shown in the table below, the fund’s expenses are far below those of the average small-cap growth fund.

For more details on the fund’s positioning and performance during the period, please see the Advisors’ Report, which begins on page 6.

Keep your ‘investing road map’ handy as you invest

 

Road maps can be a practical and invaluable tool for drivers venturing toward a distant destination. In the same way, your personal investing road map can help keep you on course as you navigate your way toward your financial goals.

 

 

Annualized Expense Ratios1

 

 

 

Your fund compared with its peer group

 

 

 

 

 

Average

 

Investor

Admiral

Small-Cap

 

Shares

Shares

Growth Fund

Explorer Fund

0.48%

0.30%

1.68%

 

 

1

Fund expense ratios reflect the six months ended April 30, 2006. Peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2005.
 

 

4

 

 


 

 

In meeting with thousands of Vanguard investors over the years, I have often heard about how difficult it can be to keep an objective outlook on investing, especially in the midst of the incessant market analysis to which we are all subject through television, the Internet, and other news media. However, I always respond to these observations by suggesting that the best way to move toward your destination is to keep your eyes straight ahead, and not get sidetracked by the distractions and detours that are bound to pop up.

To reach your investment goals—whether they include, for example, a secure retirement, a new home, or a college education for your children—your investing road map should be based on your risk tolerance and time horizon.

 

It should reflect a carefully thought-out strategy and consist of a portfolio of stock, bond, and money market funds that is designed to meet your long-term goals. While the road to these goals may not always be as smooth as you would like, you’ll always be prepared if you remember your map.

Thank you for your continued confidence in Vanguard.

Sincerely,

 


 

John J. Brennan

Chairman and Chief Executive Officer

May 12, 2006

 

5

 

 


 

 

Advisors’ Report

 

During the six months ended April 30, 2006, the Investor Shares of Vanguard Explorer Fund returned 18.6% and the lower-cost Admiral Shares 18.7%. This performance reflects the combined efforts of your fund’s six independent advisors. The use of multiple advisors provides exposure to distinct, yet complementary, investment approaches, enhancing the fund’s diversification.

The advisors, the percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table on page 11. The advisors have also prepared a discussion of the investment environment that existed during the fiscal half-year and of how their portfolio positioning reflects this assessment.

Grantham, Mayo,

Van Otterloo & Co. LLC

 

Portfolio Manager:

Sam Wilderman, CFA, Partner and Director

of U.S. Equity Management

On the positive side, our portfolio’s holdings in health care and materials & processing had favorable impacts on overall relative performance for the period. In addition, the portfolio made notable stock selections among consumer discretionary, other energy, and financial services issues. The portfolio’s earnings-and price-momentum models for stock selection helped to raise overall relative returns for the period. (We use index sectors as categorized by Russell, which are different from the Global Industry Classification System used by Vanguard funds and reflected in the Fund Profile.)

On the negative side, both sector weights and stock selection detracted from overall portfolio performance. At the sector level, our portfolio’s underweighting in producer durables and technology and its overweighting in consumer discretionary and other energy were the chief detractors from relative returns. Meanwhile, stock selections among health care and producer durables were weak for the period. The portfolio’s valuation component for stock selection detracted from performance.

Over the fiscal half-year, we enlarged the portfolio’s weighting in integrated oils so that it is now on par with the benchmark weighting. At the same time, the portfolio added to its tech sector weighting and reduced its exposure to utilities. As of April 30, the portfolio continued its focus on traditional growth-oriented sectors, including consumer discretionary, technology, and health care.

Vanguard Quantitative

Equity Group

 

Portfolio Manager:

James D. Troyer, CFA, Principal

Our quantitative investment process evaluates a security’s attractiveness in terms of three attributes: valuation, sentiment, and balance-sheet characteristics.

 

6

 

 


 

 

In our experience, each of our underlying models performs well over long time frames, but their effectiveness varies over shorter periods. For example, over the past six months, our sentiment and balance-sheet models performed relatively well, but our valuation model was out of sync with the small-cap growth market.

Our process evaluates securities relative to their peer group (e.g., comparing a semiconductor stock to the universe of semiconductor stocks). We purchase the most attractively ranked stocks and sell those that we believe are overvalued, based on our model’s output. At the same time, our process neutralizes risk characteristics versus a small-cap growth benchmark. During the period, the benchmark we used to manage the risk exposures of the portfolio changed from the MSCI U.S. Small-Cap Growth Index to the Russell 2500 Growth Index.

We do not maintain a “view” on the market or individual sectors that is applied in the current management of our portfolio. Our process is focused solely on stockpicking—that is, overweighting those stocks in an industry group that we believe will outperform their peers, while avoiding securities in the same industry group that we believe will underperform. Although it may seem incongruous, our portfolio positioning is both static and dynamic. It’s static in that our portfolio always reflects the market cap and industry-group weightings of its benchmark. Yet, it’s dynamic because we are regularly buying and selling securities within these market-cap and industry-group buckets to try to outperform the benchmark’s return.

Granahan Investment

Management, Inc.

 

Portfolio Manager:

Jack Granahan, Managing Partner

Stocks in the technology, financial services, and transportation industries made major positive contributions to our portfolio’s performance during the six months ended April 30. The fund’s health care sector holdings were strong relative to the benchmark sector. (We use index sectors as categorized by Russell, which are different from the Global Industry Classification System used by Vanguard funds and reflected in the Fund Profile.)

Our tech holdings benefited from two related developments. The first was an improvement in spending on product development by worldwide carriers and cable companies following five years of reduced expenditures on optical components and hardware. The second development was a dramatic increase in usage of Internet and cell-phone bandwidth for music and video, which generated demand for components enabling wireless capability.

Financial services stocks, including Jefferies Group, United Rentals, and Dun & Bradstreet provided strong results.

 

7

 

 


 

 

 

Transportation, while not a big sector for us, nonetheless provided strong contributions from holdings such as Swift Transportation, C.H. Robinson, and Tidewater.

Our large health care holdings showed good performance relative to the benchmark sector and included several significant individual contributors. Two of our holdings—Abgenix (acquired by Amgen) and Serologicals—were bought at premiums. Good product-development news boosted returns for Vertex, Nektar, Medarex, and Adolor. We incurred some penalties in the device and equipment area, where Bausch & Lomb’s well-publicized problems with lens-care solutions provided a significant negative, and, to a lesser degree, Cyberonics, Affymetrix, and Cooper Companies were also detractors.

Producer durables and materials & processing, two relatively small sectors in the portfolio, were disappointments. Other sectors, including the consumer-oriented and energy groups, were a slight negative to performance.

Overall, our portfolio holdings continued to show strong earnings comparisons, ranging from triple-digit gains in energy and technology to more modest gains in consumer and materials companies. Profit-margin improvements are still the main driver of profit gains, though we also saw some acceleration in our companies’ revenue gains during this period. Valuations, as measured on reported earnings, remained high by historical standards.

 

Wellington Management

Company, LLP

 

Portfolio Manager:

Kenneth L. Abrams, Senior Vice President

and Partner

Over the last six months, our portion of the fund benefited from favorable security selection in the health care, energy, and financials sectors. Within health care, our holdings in biotechnology companies Abgenix and Human Genome Sciences aided returns. Abgenix was acquired by Amgen, and Human Genome Sciences benefited from positive clinical data for its hepatitis treatment. Within energy, shares of energy services provider TETRA Technologies climbed on record profits as energy exploration and production companies seek to increase production. And in financials, shares of Investment Technology Group, an alternative trading network, rose on strong earnings growth amid record electronic-trading volumes.

Conversely, detractors over the fiscal period included PortalPlayer, a maker of semiconductors and software for digital music players; the company’s share price declined on concern that its products may no longer be used in the manufacture of Apple’s iPod. Another detractor was specialty drug maker Salix Pharmaceuticals, whose shares decreased on lower-than-expected earnings. And shares of biotech holding ICOS fell as a result of increasing concerns that the market for its key drug, Cialis, may be diminishing.

 

8

 

 


 

 

 

Our sector positioning remains predominantly a consequence of our bottom-up stock-selection process. In light of continued strong small-cap performance and the prospects for an economic slowdown in the second half of 2006, we have begun to adopt a more defensive posture. Compared with the benchmark, we ended the period overweighted in financials and underweighted in the industrials and information technology sectors.

Chartwell Investment Partners

Portfolio Managers:

Edward N. Antoian, CFA, Managing Partner

John A. Heffern, Managing Partner

Mark J. Cunneen, Managing Partner

Stock selection was the primary driver of our performance during the period, and the most positive contributors were the consumer-oriented, energy, and business services categories. Consumer-oriented stocks were robust as individuals continued to spend despite rising energy costs. Our portfolio’s selections in apparel retail and lodging were noteworthy contributors.

In energy, we benefited from an overweighted position relative to the benchmark and from outstanding stock selection. We expect continued growth in this sector, but we trimmed several of our investments following their vigorous performance during the period.

Within business services, continued solid fundamentals and earnings reports drove a number of our holdings.

 

During the half-year, stocks geared toward capital spending and technology were slight drags on our portfolio on a relative basis. Although some of our holdings fell shy of the impressive Russell 2500 Growth Index sector returns, in general, our holdings were up nicely.

We continue to identify pockets of growth for small and mid-size companies with products and capabilities to exploit changing demand patterns. This underscores our optimism about potential long-term investment returns from small- and mid-cap growth companies. Quantitatively, valuations in these asset classes are supportive. While small- and mid-cap growth stocks have outperformed value recently, they have lagged considerably in the last several years, and we believe that the opportunity for reversion to a more normalized return environment strongly favors our investment style.

Kalmar Investment Advisers

Portfolio Managers:

Ford B. Draper, Jr., President and Chief

Investment Officer

Dana F. Walker, CFA

Gregory A. Hartley, CFA

As the newest subadvisor to the Explorer Fund, we remind shareholders that Kalmar’s “growth with value” approach concentrates on the discovery and longer-term ownership of legitimate growth businesses whose stocks are currently undervalued. These are “real companies” that have the capability to add meaningfully to their intrinsic business value over time and that can also benefit from upward stock revaluation.

 

9

 

 


 

 

 

In the six months covered by this semiannual report, our portfolio’s holdings—with the exception of temporary “problem issues,” of which we will always have a few in our roughly 80-stock selection—have indeed grown their revenues and earnings well. As part of our long-term investment strategy, we continue to focus primarily on higher-quality businesses with more sustainable growth models and not on the clearly more cyclical, commodity-oriented materials, industrials, and durable goods companies that have led market returns when commodity prices soared.

In our opinion, the market has made an increasingly aggressive bet on the endurance of a hot commodity cycle and has also been driven by a higher level of risk-taking by investors, as stocks with high betas (high volatility relative to that of the market) and low returns on equity have set the pace. This makes Kalmar increasingly nervous about the risks in these sectors and strategies. Even though our growth-with-value investment approach may appear out of sync when the market embraces such a risk-taking psychology, we feel that the approach has proven itself ably over time.

Despite our concern for risk in these areas of the market, we continue to expect that 2006 will produce better returns than 2005, for a number of reasons. Those include strong corporate balance sheets, profitability, and earnings growth; reasonable overall valuations; ongoing restrained inflation; a likely end to Fed interest rate hikes; still-adequate monetary liquidity; shareholder-friendly corporate cash deployment; and rising merger-and-acquisition activity.

 

10

 

 


 

 

 

Vanguard Explorer Fund Investment Advisors

 

 

 

 

 

Fund Assets Managed

 

Investment Advisor

%

$ Million

Investment Strategy

Grantham, Mayo,

27

3,381

Employs a highly disciplined approach to buying and

Van Otterloo & Co. LLC

 

 

selling stocks ranked among the 3,000 largest in the

 

 

 

U.S. market, minus the very largest 500. Stocks are

 

 

 

compared with one another and evaluated monthly

 

 

 

using three disciplines, each of which represents an

 

 

 

individual subportfolio.

Vanguard Quantitative

24

3,124

Conducts quantitative management using models that

Equity Group

 

 

assess valuation, marketplace sentiment, and balance-

 

 

 

sheet characteristics of companies as compared with

 

 

 

their peers.

Granahan Investment

20

2,558

Bases its investment process on the beliefs that

Management, Inc.

 

 

earnings drive stock prices and that small, dynamic

 

 

 

companies with exceptional growth prospects have

 

 

 

the greatest long-term potential. A bottom-up,

 

 

 

fundamental approach places companies in one of

 

 

 

three life-cycle categories: core growth, pioneer, and

 

 

 

special situation. In each, the process looks for

 

 

 

companies with strong earnings growth and

 

 

 

leadership in their markets.

Wellington Management

11

1,456

Conducts research and analysis of individual

Company, LLP

 

 

companies to select stocks believed to have

 

 

 

exceptional growth potential relative to their market

 

 

 

valuations Each stock is considered individually

 

 

 

before purchase, and company developments are

 

 

 

continually monitored for comparison with

 

 

 

expectations for growth.

Chartwell Investment Partners

7

897

Uses a bottom-up, fundamental, research-driven

 

 

 

stock-selection strategy focusing on companies with

 

 

 

sustainable growth, strong management teams,

 

 

 

competitive positions, and outstanding product and

 

 

 

service offerings. These companies should continually

 

 

 

demonstrate growth in earnings per share.

Kalmar Investment Advisers

6

816

Employs a “growth with value” strategy using

 

 

 

creative, bottom-up research to uncover vigorously

 

 

 

growing, high-quality businesses. The process also

 

 

 

seeks out stocks that are inefficiently valued or that

 

 

 

offer value through longer-term company ownership.

 

 

 

The strategy has a dual objective of superior returns

 

 

 

with lower risk.

Cash Investments1

5

651

—

 

 

1

These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor also may maintain a modest cash position.
 

 

11

 

 


 

 

 

Fund Profile

As of April 30, 2006

 

 

Portfolio Characteristics

 

 

 

 

Comparative

Broad

 

Fund

Index1

Index2

Number of Stocks

1,073

1,671

4,978

Median Market Cap

$2.3B

$2.5B

$27.3B

Price/Earnings Ratio

25.6x

28.8x

20.2x

Price/Book Ratio

3.4x

3.9x

3.0x

Yield

 

0.5%

1.7%

Investor Shares

0.3%

 

 

Admiral Shares

0.4%

 

 

Return on Equity

12.0%

13.2%

17.3%

Earnings Growth Rate

18.4%

18.8%

9.9%

Foreign Holdings

1.8%

0.0%

1.9%

Turnover Rate

97%3

—

—

Expense Ratio

 

—

—

Investor Shares

0.48%3

 

 

Admiral Shares

0.30%3

 

 

Short-Term Reserves

2%

—

—

 

 

Sector Diversification (% of portfolio)

 

 

Comparative

Broad

 

Fund

Index1

Index2

Consumer Discretionary

18%

17%

13%

Consumer Staples

2

2

8

Energy

8

9

9

Financials

9

10

22

Health Care

17

17

12

Industrials

14

16

11

Information Technology

25

23

16

Materials

3

4

3

Telecommunication Services

1

2

3

Utilities

1

0

3

Short-Term Reserves

2%

—

—

 

 

Volatility Measures

 

 

 

 

 

Comparative

 

Broad

 

Fund

Index1

Fund

Index2

R-Squared

0.99

1.00

0.86

1.00

Beta

0.98

1.00

1.56

1.00

 

 

Ten Largest Holdings4 (% of total net assets)

 

 

 

Red Hat, Inc.

systems software

0.8%

Helix Energy Solutions Group, Inc.

oil and gas equipment and services

0.6

MSC Industrial

trading companies

 

Direct Co., Inc. Class A

and distributors

0.6

Alliance Data Systems Corp.

data processing and outsourced services

0.6

Tidewater Inc.

oil and gas equipment and services

0.5

Akamai Technologies, Inc.

internet software and services

0.5

Swift Transportation Co., Inc.

trucking

0.5

O’Reilly Automotive, Inc.

automotive retail

0.5

Foundry Networks, Inc.

Communications equipment

0.5

Grant Prideco, Inc.

oil and gas equipment and services

0.5

Top Ten

 

5.6%

 

 

Investment Focus

 


 

 

 

1

Russell 2500 Growth Index.
   

2

Dow Jones Wilshire 5000 Index.
   

3

Annualized.
   

4

“Ten Largest Holdings” excludes any temporary cash investments and equity index products. See page 43 for a glossary of investment terms.
 

 

12

 

 


 

 

 

Performance Summary

 

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at 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 shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

Fiscal-Year Total Returns (%): October 31, 1995–April 30, 2006

 


 

Average Annual Total Returns: Periods Ended March 31, 2006

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.

 

 

 

Inception Date

One Year

Five Years

Ten Years

Investor Shares

12/11/1967

25.77%

11.06%

11.22%

Admiral Shares

11/12/2001

25.99

12.902

—

 

 

 

1

Six months ended April 30, 2006.
   

2

Return since inception.
 

Note: See Financial Highlights tables on pages 33 and 34 for dividend and capital gains information.

 

13

 

 


 

 

 

Financial Statements (unaudited)

 

Statement of Net Assets

As of April 30, 2006

 

The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Common Stocks (94.3%)1

 

 

 

Consumer Discretionary (17.5%)

 

 

*

O’Reilly Automotive, Inc.

1,876,150

63,564

 

Advance Auto Parts, Inc.

1,073,850

43,190

*

Carter’s, Inc.

533,050

35,906

 

^Garmin Ltd.

407,125

35,159

*

Hibbett Sporting Goods, Inc.

1,135,640

34,421

*

Lamar Advertising Co. Class A

620,860

34,141

*^

Netflix.com, Inc.

1,133,600

33,600

 

Ryland Group, Inc.

515,400

32,527

 

Brinker International, Inc.

808,300

31,653

 

Phillips-Van Heusen Corp.

773,800

31,107

 

Men’s Wearhouse, Inc.

841,548

29,824

*

Rare Hospitality International Inc.

938,965

29,221

*

Genesco, Inc.

703,300

29,067

*

Career Education Corp.

731,100

26,956

 

Ethan Allen Interiors, Inc.

594,600

26,692

 

Claire’s Stores, Inc.

744,700

26,228

*

Dollar Tree Stores, Inc.

954,964

24,896

 

SCP Pool Corp.

525,800

24,565

*

Valassis Communications, Inc.

823,000

24,089

*

Tractor Supply Co.

369,355

23,931

 

Polo Ralph Lauren Corp.

375,915

22,826

*

The Gymboree Corp.

756,993

22,770

*

The Dress Barn, Inc.

899,800

22,756

 

Ross Stores, Inc.

719,516

22,046

*

Coldwater Creek Inc.

779,285

21,789

*

ITT Educational Services, Inc.

338,700

21,524

 

Harte-Hanks, Inc.

773,800

21,125

*

Guess ?, Inc.

519,700

20,596

 

BorgWarner, Inc.

335,500

20,375

*

The Pantry, Inc.

301,102

19,930

*

Papa John’s International, Inc.

581,533

19,435

*

Helen of Troy Ltd.

914,300

18,889

*

TiVo Inc.

2,273,800

18,873

 

ADVO, Inc.

660,700

18,724

*

Quiksilver, Inc.

1,359,400

18,583

*

DreamWorks Animation SKG, Inc.

674,100

18,268

 

Laureate Education Inc.

350,195

17,541

*

Bright Horizons Family Solutions, Inc.

439,421

17,454

*

Life Time Fitness, Inc.

379,275

17,371

 

Aaron Rents, Inc. Class B

641,675

17,235

*^

Nutri/System Inc.

247,600

16,802

*

TRW Automotive Holdings Corp.

738,800

16,387

*

The Goodyear Tire & Rubber Co.

1,161,803

16,265

*

NVR, Inc.

21,500

16,232

*

Texas Roadhouse, Inc.

1,068,650

16,137

*

DSW Inc. Class A

513,837

16,083

*

GameStop Corp. Class A

321,925

15,195

 

Catalina Marketing Corp.

639,300

15,139

 

Abercrombie & Fitch Co.

245,900

14,934

 

Williams-Sonoma, Inc.

353,000

14,780

 

 

14

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Tenma Corp.

773,000

14,741

 

Borders Group, Inc.

615,600

14,528

 

Tiffany & Co.

416,205

14,521

 

Harman International Industries, Inc.

157,325

13,843

 

Service Corp. International

1,684,250

13,558

 

K-Swiss, Inc.

465,895

13,362

 

Beazer Homes USA, Inc.

231,400

13,336

*

The Cheesecake Factory Inc.

419,948

13,254

 

DeVry, Inc.

511,975

13,240

 

United Auto Group, Inc.

310,400

13,130

 

Thor Industries, Inc.

258,000

13,024

*

LodgeNet Entertainment Corp.

674,600

12,871

*

Panera Bread Co.

172,500

12,796

 

Ruby Tuesday, Inc.

428,200

12,748

*

priceline.com, Inc.

513,500

12,550

*

AnnTaylor Stores Corp.

331,800

12,386

*

Imax Corp.

1,237,000

12,333

 

Circuit City Stores, Inc.

422,300

12,141

*^

Charter Communications, Inc.

10,245,700

12,090

 

CBRL Group, Inc.

284,189

11,569

*

Pacific Sunwear of California, Inc.

491,042

11,441

 

Applebee’s International, Inc.

491,161

11,400

 

MDC Holdings, Inc.

195,749

11,310

*

Meritage Corp.

172,300

11,299

 

Regis Corp.

321,000

11,257

*

Playboy Enterprises, Inc. Class B

849,738

11,208

*

MarineMax, Inc.

341,245

11,179

*

Sonic Corp.

325,950

11,053

*

Jack in the Box Inc.

256,500

10,722

*

Ruth’s Chris Steak House

459,100

10,720

*

Too Inc.

274,100

10,531

*

CEC Entertainment Inc.

291,850

10,244

 

KB Home

164,000

10,097

*

Hovnanian Enterprises Inc. Class A

252,300

10,034

*

Sotheby’s Holdings Class A

329,822

9,891

 

OSI Restaurant Partners, Inc.

228,600

9,761

 

Barnes & Noble, Inc.

215,554

9,717

*

Penn National Gaming, Inc.

232,625

9,472

 

Liz Claiborne, Inc.

235,500

9,196

*

Insight Enterprises, Inc.

464,325

9,180

 

Jackson Hewitt Tax Service Inc.

307,100

9,176

*

Morningstar, Inc.

213,921

9,100

 

Foot Locker, Inc.

386,800

8,966

*

Champion Enterprises, Inc.

587,100

8,959

*

Gaylord Entertainment Co.

200,030

8,851

^

Brookfield Homes Corp.

189,420

8,827

 

Standard Pacific Corp.

276,400

8,765

 

Astro All Asia Networks PLC

6,930,200

8,753

*

Guitar Center, Inc.

162,730

8,748

 

Darden Restaurants Inc.

220,400

8,728

 

Tupperware Corp.

408,300

8,615

*

VistaPrint Ltd.

268,720

8,594

*

Build-A-Bear-Workshop, Inc.

261,100

8,434

*

Jos. A. Bank Clothiers, Inc.

199,831

8,393

^

Regal Entertainment Group Class A

393,700

8,276

 

bebe stores, inc.

460,537

8,142

*

Leapfrog Enterprises, Inc.

770,000

8,085

 

Hilton Hotels Corp.

297,100

8,004

 

John Wiley & Sons Class A

217,900

7,984

*

Harris Interactive Inc.

1,612,500

7,788

*

Toll Brothers, Inc.

241,600

7,767

*

The Children’s Place Retail Stores, Inc.

125,500

7,753

*

The Warnaco Group, Inc.

346,200

7,713

*

Timberland Co.

220,000

7,491

*

Hollywood Media Corp.

1,561,823

7,341

*

WMS Industries, Inc.

233,668

7,302

*

Payless ShoeSource, Inc.

313,800

7,208

 

Finish Line, Inc.

435,089

7,170

*

Zumiez Inc.

220,000

7,150

*

Rent-A-Center, Inc.

255,300

7,051

*

CarMax, Inc.

197,500

6,974

 

Orient-Express Hotel Ltd.

169,490

6,949

*

Education Management Corp.

163,440

6,940

*^

William Lyon Homes, Inc.

69,200

6,923

 

 

15

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Brunswick Corp.

172,900

6,781

 

Stein Mart, Inc.

426,487

6,738

 

Building Materials Holding Corp.

199,100

6,654

 

Sinclair Broadcast Group, Inc.

844,673

6,631

 

Station Casinos, Inc.

85,500

6,590

^

Oakley, Inc.

361,800

6,570

*^

Select Comfort Corp.

163,784

6,545

*

Urban Outfitters, Inc.

279,220

6,478

*

Chico’s FAS, Inc.

169,500

6,282

*^

Columbia Sportswear Co.

122,500

6,234

 

Michaels Stores, Inc.

164,325

6,216

*

Zale Corp.

250,300

6,170

 

Harrah’s Entertainment, Inc.

75,120

6,133

*

Tenneco Automotive, Inc.

245,800

5,911

*

The Sports Authority, Inc.

158,800

5,901

 

Domino’s Pizza, Inc.

222,051

5,847

*

Emmis Communications, Inc.

468,971

5,768

 

Getty Images, Inc.

89,025

5,698

*

Steiner Leisure Ltd.

131,909

5,688

 

Gentex Corp.

385,850

5,657

*

IAC/InterActiveCorp

195,705

5,650

*

JAKKS Pacific, Inc.

242,400

5,495

 

American Eagle Outfitters, Inc.

164,400

5,327

 

Steven Madden, Ltd.

97,200

5,175

 

RadioShack Corp.

296,900

5,047

 

Talbots Inc.

212,200

5,033

 

International Speedway Corp.

101,300

4,983

 

Fortune Brands, Inc.

61,115

4,908

*

Pinnacle Entertainment, Inc.

177,700

4,851

*

ProQuest Co.

305,800

4,801

*

Charlotte Russe Holding Inc.

220,558

4,764

 

PETsMART, Inc.

165,900

4,589

^

Red Robin Gourmet Burgers

98,475

4,427

 

The Stanley Works

82,100

4,290

*

Volcom, Inc.

120,000

4,280

*

Fleetwood Enterprises, Inc.

453,700

4,265

*

P.F. Chang’s China Bistro, Inc.

98,300

4,189

 

Polaris Industries, Inc.

83,400

3,995

*

RCN Corp.

143,225

3,830

*

Steak n Shake Co.

200,100

3,824

^

Winnebago Industries, Inc.

128,400

3,781

*

Fossil, Inc.

227,250

3,695

*^

Tempur-Pedic International Inc.

214,300

3,384

*

Marvel Entertainment, Inc.

172,400

3,364

 

Choice Hotel International, Inc.

62,600

3,351

*

XM Satellite Radio Holdings, Inc.

163,890

3,314

 

Family Dollar Stores, Inc.

132,200

3,305

 

Oxford Industries, Inc.

74,100

3,238

*

Monarch Casino & Resort, Inc.

100,987

3,179

*

Aeropostale, Inc.

99,100

3,043

 

Meredith Corp.

60,800

3,016

*

Charming Shoppes, Inc.

218,000

2,997

 

Whirlpool Corp.

33,170

2,977

 

Speedway Motorsports, Inc.

76,400

2,909

*

Alderwoods Group, Inc.

151,983

2,897

*

Citi Trends Inc.

59,477

2,888

^

Pre-Paid Legal Services, Inc.

79,300

2,680

 

Blyth, Inc.

129,400

2,659

*

Blount International, Inc.

169,300

2,622

^

Charles & Colvard Ltd.

181,125

2,139

 

Journal Register Co.

183,200

2,048

 

Kenneth Cole Productions, Inc.

73,500

1,875

 

Cato Corp. Class A

74,500

1,686

*

McCormick & Schmick’s Seafood Restaurants, Inc.

66,400

1,660

*

Saks Inc.

74,300

1,496

 

IHOP Corp.

31,100

1,490

 

Interactive Data Corp.

66,141

1,473

 

AFC Enterprises, Inc.

101,397

1,407

*

PetMed Express, Inc.

84,900

1,367

*

R.H. Donnelley Corp.

23,500

1,319

 

Christopher & Banks Corp.

48,000

1,268

 

World Wrestling Entertainment, Inc.

72,000

1,248

 

 

16

 

 


 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Group 1 Automotive, Inc.

22,500

1,228

*^

Escala Group, Inc.

40,318

1,109

*

MTR Gaming Group Inc.

107,000

1,054

 

Ambassadors Group, Inc.

39,000

1,041

*

Conn’s, Inc.

27,000

923

 

Journal Communications, Inc.

78,400

920

*

Radio One, Inc. Class D

116,918

841

*

Skechers U.S.A., Inc.

24,800

678

 

Matthews International Corp.

19,000

661

*

The Wet Seal, Inc. Class A

100,400

577

*

Lincoln Educational Services

27,927

475

*

Interface, Inc.

35,911

462

 

CKE Restaurants Inc.

27,600

437

*

Isle of Capri Casinos, Inc.

10,400

324

 

Autoliv, Inc.

5,700

315

 

M/I Homes, Inc.

6,800

294

*

GameStop Corp. Class B

5,953

253

 

Dover Downs Gaming & Entertainment, Inc.

6,700

173

*

Visteon Corp.

23,000

135

 

Monro Muffler Brake, Inc.

2,700

98

 

Value Line, Inc.

2,100

87

*

Dolby Laboratories Inc.

3,500

82

 

Stage Stores, Inc.

2,135

67

 

Deb Shops, Inc.

1,757

51

*

Cache, Inc.

1

—

 

 

 

2,251,729

 

Consumer Staples (1.8%)

 

 

*

Revlon, Inc. Class A

9,229,842

29,997

*^

Hansen Natural Corp.

174,900

22,643

*

Performance Food Group Co.

721,100

22,138

*

Central Garden and Pet Co.

433,587

21,358

*

Playtex Products, Inc.

1,666,900

18,686

 

Longs Drug Stores, Inc.

359,232

17,031

 

Nu Skin Enterprises, Inc.

812,900

13,429

*

Energizer Holdings, Inc.

215,300

11,013

 

The Great Atlantic & Pacific Tea Co., Inc.

389,300

10,550

 

Brown-Forman Corp. Class B

118,500

8,828

^

Sanderson Farms, Inc.

271,200

7,190

*^

USANA Health Sciences, Inc.

159,500

5,836

*

NBTY, Inc.

249,848

5,659

*^

Parlux Fragrances, Inc.

181,537

4,952

 

American Italian Pasta Co.

566,300

4,706

 

Alberto-Culver Co. Class B

80,100

3,602

 

Lancaster Colony Corp.

79,981

3,283

 

Seaboard Corp.

2,115

3,261

*

Chattem, Inc.

66,634

2,401

 

Church & Dwight, Inc.

60,500

2,219

^

Mannatech, Inc.

118,700

2,181

*

Wild Oats Markets Inc.

123,500

2,122

 

Inter Parfums, Inc.

74,061

1,403

*

BJ’s Wholesale Club, Inc.

45,400

1,390

 

Pilgrim’s Pride Corp.

51,400

1,343

 

Flowers Foods, Inc.

43,000

1,208

 

Premium Standard Farms Inc.

39,100

651

*

Pathmark Stores, Inc.

62,900

651

 

Coca-Cola Bottling Co.

11,800

569

 

WD-40 Co.

15,532

488

 

Alico, Inc.

8,400

422

 

National Beverage Corp.

18,700

287

*

Gold Kist Inc.

17,000

228

 

J & J Snack Foods Corp.

2,319

79

 

 

 

231,804

 

Energy (7.9%)

 

 

*

Helix Energy Solutions Group, Inc.

2,115,200

82,112

 

Tidewater Inc.

1,194,850

69,588

*

Grant Prideco, Inc.

1,179,760

60,404

 

St. Mary Land & Exploration Co.

1,303,998

54,977

 

Patterson-UTI Energy, Inc.

1,615,921

52,291

 

Frontier Oil Corp.

780,300

47,232

 

Helmerich & Payne, Inc.

586,434

42,657

*

Cooper Cameron Corp.

746,430

37,501

 

Tesoro Petroleum Corp.

430,500

30,101

 

CONSOL Energy, Inc.

326,200

27,779

*

Unit Corp.

407,000

23,504

*

Hornbeck Offshore Services, Inc.

623,110

22,376

*

Western Oil Sands Inc.

711,400

21,465

 

17

 

 


 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Rowan Cos., Inc.

442,100

19,598

*

TETRA Technologies, Inc.

394,400

19,404

 

Holly Corp.

239,100

18,451

 

TODCO Class A

398,959

18,300

*

Oil States International, Inc.

448,003

18,086

*

Comstock Resources, Inc.

562,200

17,473

*

Grey Wolf, Inc.

2,215,195

17,279

 

Ultra Petroleum Corp.

263,500

16,853

*

Pride International, Inc.

419,300

14,629

*

OPTI Canada Inc.

362,700

13,860

 

CARBO Ceramics Inc.

232,550

13,472

 

Arch Coal, Inc.

140,500

13,346

 

World Fuel Services Corp.

321,800

12,885

*

Superior Energy Services, Inc.

398,470

12,811

*

Southwestern Energy Co.

351,300

12,654

 

Alon USA Energy, Inc.

467,300

12,538

*

Maverick Tube Corp.

230,100

12,522

 

Western Gas Resources, Inc.

226,200

11,762

*

Giant Industries, Inc.

162,700

11,695

 

XTO Energy, Inc.

268,258

11,361

*

NS Group Inc.

204,672

10,238

*

KCS Energy, Inc.

331,000

9,715

 

Range Resources Corp.

302,626

8,029

 

ENSCO International, Inc.

147,405

7,885

*

Complete Production Services, Inc.

285,255

7,539

 

Atwood Oceanics, Inc.

140,200

7,480

*

Parker Drilling Co.

882,100

7,410

*

FMC Technologies Inc.

134,200

7,325

*

Forest Oil Corp.

189,425

6,927

*

Hercules Offshore, Inc.

164,900

6,743

*

Hydrill Co.

83,800

6,717

*

Veritas DGC Inc.

133,629

6,404

*

National Oilwell Varco Inc.

90,280

6,227

*

Oceaneering International, Inc.

99,400

6,066

*

Pioneer Drilling Co.

369,100

5,983

 

Niko Resources Ltd.

77,475

4,529

 

Duvernay Oil Corp.

111,875

4,273

 

Pogo Producing Co.

81,300

4,040

 

Cabot Oil & Gas Corp.

77,100

3,798

*

SEACOR Holdings Inc.

35,900

3,175

*^

GMX Resources Inc.

69,500

2,927

*

Gulfmark Offshore, Inc.

106,465

2,917

*

Energy Partners, Ltd.

112,758

2,908

*

Denbury Resources, Inc.

72,500

2,363

 

Lufkin Industries, Inc.

31,800

2,037

 

RPC Inc.

71,600

1,983

*

Edge Petroleum Corp.

50,400

1,165

 

Massey Energy Co.

23,600

912

 

W&T Offshore, Inc.

20,000

854

*

Plains Exploration & Production Co.

20,300

748

*

Newpark Resources, Inc.

102,900

685

*

NATCO Group Inc.

17,300

512

 

Hugoton Royalty Trust

15,988

442

 

 

 

1,021,922

 

Financials (8.2%)

 

 

*

CB Richard Ellis Group, Inc.

558,990

49,130

*

Affiliated Managers Group, Inc.

456,790

46,273

*

Nasdaq Stock Market Inc.

1,148,090

42,962

*

Investment Technology Group, Inc.

801,000

42,445

 

CapitalSource Inc. REIT

1,589,796

37,359

 

Jefferies Group, Inc.

545,800

36,268

 

Cullen/Frost Bankers, Inc.

607,800

35,179

 

W.R. Berkley Corp.

774,715

28,990

 

Cash America International Inc.

881,100

28,971

 

Nuveen Investments, Inc. Class A

484,800

23,329

 

IndyMac Bancorp, Inc.

433,700

20,956

 

TCF Financial Corp.

756,200

20,312

 

Strategic Hotels and Resorts, Inc. REIT

845,395

19,174

*

AmeriCredit Corp.

622,900

18,861

 

^Corus Bankshares Inc.

268,100

17,947

 

Kilroy Realty Corp. REIT

232,800

16,603

*

First Cash Financial Services, Inc.

772,683

16,358

 

 

18

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

HCC Insurance Holdings, Inc.

486,700

16,300

 

Webster Financial Corp.

344,708

16,184

 

Aspen Insurance Holdings Ltd.

645,150

15,709

 

Apollo Investment Corp.

798,475

14,931

 

Hanover Insurance Group Inc.

280,100

14,817

 

Redwood Trust, Inc. REIT

348,300

14,792

*

Conseco, Inc.

583,400

14,731

 

International Bancshares Corp.

505,400

14,459

 

U-Store-It Trust REIT

761,100

13,913

*

Signature Bank

375,300

13,274

 

Platinum Underwriters Holdings, Ltd.

466,200

12,853

 

Reinsurance Group of America, Inc.

254,500

12,241

 

First American Corp.

271,600

11,570

 

Equity Inns, Inc. REIT

703,100

11,390

 

First Community Bancorp

188,000

10,904

 

Federated Investors, Inc.

297,599

10,446

*

E*TRADE Financial Corp.

418,350

10,409

 

Willis Group Holdings Ltd.

291,975

10,263

 

BankUnited Financial Corp.

330,124

10,132

*

Arch Capital Group Ltd.

154,725

9,400

 

Bank of Hawaii Corp.

167,900

9,119

 

The Phoenix Cos., Inc.

600,100

9,116

 

People’s Bank

272,595

8,927

 

Jones Lang Lasalle Inc.

104,000

8,815

 

Student Loan Corp.

41,800

8,705

 

Brown & Brown, Inc.

272,400

8,507

 

Federal Realty Investment Trust REIT

121,200

8,269

*

Argonaut Group, Inc.

210,708

7,354

 

Arthur J. Gallagher & Co.

266,500

7,313

 

UCBH Holdings, Inc.

412,725

7,301

 

Host Marriott Corp. REIT

345,135

7,255

 

BlackRock, Inc.

47,600

7,213

 

Commerce Bancorp, Inc.

176,100

7,104

 

Tanger Factory Outlet Centers, Inc. REIT

206,700

6,776

 

Zenith National Insurance Corp.

146,477

6,463

 

Hanmi Financial Corp.

316,162

6,159

 

Equity Lifestyle Properties, Inc. REIT

138,330

6,085

*

CompuCredit Corp.

152,300

6,084

 

StanCorp Financial Group, Inc.

121,000

5,970

 

Sterling Financial Corp.

180,632

5,807

 

Wintrust Financial Corp.

112,187

5,806

 

Investors Financial Services Corp.

118,495

5,671

 

Wilmington Trust Corp.

127,100

5,631

 

Unitrin, Inc.

113,700

5,554

 

Mid-America Apartment Communities, Inc. REIT

104,300

5,528

*

Universal American Financial Corp.

360,300

5,311

 

Boston Private Financial Holdings, Inc.

151,796

5,047

 

Greenhill & Co., Inc.

67,700

4,801

 

International Securities Exchange, Inc.

107,225

4,713

 

American Equity Investment Life Holding Co.

339,075

4,598

 

AmerUs Group Co.

69,900

4,100

*

GFI Group Inc.

69,127

3,932

 

Independent Bank Corp. (MI)

142,270

3,884

 

Flagstar Bancorp, Inc.

234,800

3,757

 

First BanCorp Puerto Rico

343,000

3,636

 

Doral Financial Corp.

456,100

3,608

 

Nara Bancorp, Inc.

189,728

3,567

 

The Macerich Co. REIT

46,000

3,368

*

Portfolio Recovery Associates, Inc.

62,700

3,226

 

United Dominion Realty Trust REIT

117,400

3,192

 

LandAmerica Financial Group, Inc.

45,100

3,129

 

Global Signal, Inc. REIT

61,300

3,047

 

Fremont General Corp.

135,300

3,009

 

Westamerica Bancorporation

57,500

2,941

 

 

19

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

*

Asset Acceptance Capital Corp.

123,711

2,584

^

The First Marblehead Corp.

53,442

2,571

 

Bristol West Holdings, Inc.

127,738

2,358

 

Eaton Vance Corp.

76,200

2,169

 

Financial Federal Corp.

74,100

2,104

 

Glimcher Realty Trust REIT

73,400

1,894

 

Mills Corp. REIT

58,800

1,876

 

Scottish Re Group Ltd.

75,000

1,742

 

Advanta Corp. Class B

44,293

1,690

 

LaSalle Hotel Properties REIT

37,300

1,631

*

Primus Guaranty, Ltd.

137,900

1,600

 

CBL & Associates Properties, Inc. REIT

39,200

1,568

 

United Community Banks, Inc.

52,216

1,547

 

ASTA Funding, Inc.

39,603

1,439

*

Trammell Crow Co.

35,400

1,378

 

Ventas, Inc. REIT

41,800

1,366

 

Old Second Bancorp, Inc.

43,900

1,352

 

Republic Bancorp, Inc.

116,400

1,335

*^

Tejon Ranch Co.

29,500

1,331

 

American Financial Group, Inc.

29,400

1,302

*

Texas Capital Bancshares, Inc.

53,736

1,239

 

Placer Sierra Bancshares

43,300

1,150

 

Forest City Enterprise Class A

24,300

1,097

 

City Holding Co.

29,636

1,072

 

Advance America Cash Advance Centers Inc.

70,300

1,040

 

Erie Indemnity Co. Class A

20,100

1,024

 

Center Financial Corp.

44,000

982

 

City National Corp.

10,400

759

 

GMH Communities Trust REIT

55,600

684

 

Highland Hospitality Corp. REIT

52,400

676

 

Radian Group, Inc.

9,600

602

 

Frontier Financial Corp.

13,969

466

 

Midland Co.

12,879

459

 

Glacier Bancorp, Inc.

14,717

447

 

Safety Insurance Group, Inc.

9,000

417

 

Preferred Bank, Los Angeles

7,756

392

 

First State Bancorporation

14,666

378

 

Saul Centers, Inc. REIT

8,900

364

 

TriCo Bancshares

13,302

363

 

Delphi Financial Group, Inc.

6,200

325

 

U.S.B. Holding Co., Inc.

13,900

309

 

Consolidated-Tomoka Land Co.

4,800

294

*

Capital Crossing Bank

7,500

220

 

Camden National Corp.

5,500

210

*

World Acceptance Corp.

7,151

206

 

National Financial Partners Corp.

3,200

166

 

Suffolk Bancorp

5,100

156

*

United PanAm Financial Corp.

4,700

141

 

Digital Realty Trust, Inc. REIT

3,500

99

 

Harleysville National Corp.

4,765

95

 

Raymond James Financial, Inc.

2,700

82

 

Univest Corp. of Pennsylvania

3,000

80

 

SEI Investments Co.

1,700

73

 

Mercantile Bank Corp.

1,188

49

 

United Security Bancshares, Inc.

1,900

49

 

Washington Trust Bancorp, Inc.

800

21

 

 

 

1,060,256

 

Health Care (16.4%)

 

 

 

Pharmaceutical Product Development, Inc.

1,593,306

57,152

*

Health Net Inc.

1,276,500

51,954

*

Henry Schein, Inc.

1,105,845

51,554

*

Cephalon, Inc.

722,425

47,434

*

Lincare Holdings, Inc.

1,155,500

45,677

 

Omnicare, Inc.

726,200

41,183

^

Bausch & Lomb, Inc.

746,300

36,531

*

Covance, Inc.

611,115

35,659

*

Endo Pharmaceuticals Holdings, Inc.

1,063,790

33,456

*

Community Health Systems, Inc.

894,235

32,407

*

PDL BioPharma Inc.

1,043,602

30,035

 

20

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

*

Intuitive Surgical, Inc.

235,564

29,917

*

Genesis Healthcare Corp.

627,564

29,665

 

Manor Care, Inc.

661,907

29,025

*

ResMed Inc.

662,150

28,572

*

Serologicals Corp.

889,800

27,691

*

Pediatrix Medical Group, Inc.

544,250

27,550

*

Barr Pharmaceuticals Inc.

431,250

26,112

*

Techne Corp.

458,774

25,994

*

Human Genome Sciences, Inc.

2,263,700

25,829

*

Respironics, Inc.

697,450

25,541

*

Vertex Pharmaceuticals, Inc.

691,778

25,160

 

Universal Health Services Class B

485,122

24,639

*

IDEXX Laboratories Corp.

294,702

24,522

*

Amylin Pharmaceuticals, Inc.

560,800

24,423

*

United Surgical Partners International, Inc.

735,358

24,274

*

Nektar Therapeutics

1,095,700

23,569

*

Hologic, Inc.

486,846

23,208

*

Alkermes, Inc.

1,056,608

22,685

*^

Cerner Corp.

541,286

21,462

*

ICOS Corp.

965,395

21,171

*

Millennium Pharmaceuticals, Inc.

2,321,100

21,076

*

Celgene Corp.

487,945

20,572

 

DENTSPLY International Inc.

326,250

19,467

*

Invitrogen Corp.

288,300

19,031

*

Medarex, Inc.

1,553,200

18,654

*

Kindred Healthcare, Inc.

759,700

18,430

*

AMN Healthcare Services, Inc.

948,172

18,224

*

LifePoint Hospitals, Inc.

558,500

17,704

 

Cooper Cos., Inc.

315,450

17,293

*

Millipore Corp.

227,600

16,792

 

Kissei Pharmaceutical Co.

847,000

16,392

*

Matria Healthcare, Inc.

516,400

15,848

*

Per-Se Technologies, Inc.

564,875

15,788

 

Hogy Medical Co., Ltd.

289,300

15,270

*

Kyphon Inc.

367,342

15,263

*

Advanced Medical Optics, Inc.

325,100

15,150

*

Cyberonics, Inc.

649,700

15,067

 

Dade Behring Holdings Inc.

378,800

14,773

 

Chemed Corp.

265,850

14,486

*

Bruker BioSciences Corp.

2,391,860

13,992

*

Edwards Lifesciences Corp.

313,301

13,923

*

Watson Pharmaceuticals, Inc.

485,800

13,816

*

King Pharmaceuticals, Inc.

767,800

13,352

*

American Retirement Corp.

519,700

13,200

*

DaVita, Inc.

234,425

13,189

*

Neurocrine Biosciences, Inc.

228,056

13,081

*

Healthways, Inc.

265,000

13,001

*

Cubist Pharmaceuticals, Inc.

566,270

12,837

*

Salix Pharmaceuticals, Ltd.

908,514

12,447

*

Qiagen NV

823,300

12,267

*

IntraLase Corp.

570,000

12,244

*

Emdeon Corp.

1,043,639

11,908

*

Zymogenetics, Inc.

579,137

11,855

*

Gen-Probe Inc.

217,575

11,634

*

QLT Inc.

1,384,900

11,384

*

Kinetic Concepts, Inc.

257,600

11,247

*

Haemonetics Corp.

201,780

10,996

*

WellCare Health Plans Inc.

250,500

10,491

*

Affymetrix, Inc.

363,400

10,411

*

Illumina, Inc.

327,265

10,351

*

Thoratec Corp.

568,772

10,244

*

Ventana Medical Systems, Inc.

208,700

10,164

*

Cambridge Antibody Technology Group

755,600

10,057

*

CV Therapeutics, Inc.

502,400

9,973

*^

Abraxis Bioscience, Inc.

316,800

9,897

*

Sunrise Senior Living, Inc.

261,400

9,724

*

Sierra Health Services, Inc.

247,000

9,685

*

Connetics Corp.

637,150

9,653

 

Medicis Pharmaceutical Corp.

290,900

9,565

*

Nuvelo, Inc.

571,400

9,354

 

Valeant Pharmaceuticals International

514,300

9,206

*

Sybron Dental Specialties, Inc.

195,600

9,201

 

21

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Varian Medical Systems, Inc.

174,950

9,164

*

InterMune Inc.

562,500

8,994

*

Triad Hospitals, Inc.

215,800

8,891

 

Intermagnetics General Corp.

409,000

8,883

*

Rigel Pharmaceuticals, Inc.

816,400

8,760

*

United Therapeutics Corp.

143,103

8,522

 

Mentor Corp.

195,100

8,454

 

Hillenbrand Industries, Inc.

163,600

8,402

*

NPS Pharmaceuticals Inc.

973,800

8,345

*

ViroPharma Inc.

733,500

8,245

*

Cell Genesys, Inc.

1,210,500

8,231

*

Axcan Pharma Inc.

611,700

8,209

*

Candela Corp.

332,350

7,727

*

Kos Pharmaceuticals, Inc.

159,100

7,700

*

Psychiatric Solutions, Inc.

229,000

7,571

*

The TriZetto Group, Inc.

479,675

7,540

*

Exelixis, Inc.

679,700

7,314

*

Regeneron Pharmaceuticals, Inc.

500,100

7,261

*

Apria Healthcare Group Inc.

328,100

7,185

*

Syneron Medical Ltd.

275,000

7,114

*

Myriad Genetics, Inc.

262,400

6,725

 

Mylan Laboratories, Inc.

306,190

6,687

*

Seattle Genetics, Inc.

1,358,504

6,670

*

Adolor Corp.

281,700

6,626

*

Xenoport Inc.

294,313

6,607

*

ICU Medical, Inc.

159,586

6,573

*

Arena Pharmaceuticals, Inc.

455,850

6,455

*

Momenta Pharmaceuticals, Inc.

375,274

6,346

 

LCA-Vision Inc.

112,100

6,296

*

Odyssey Healthcare, Inc.

356,650

6,202

*

Durect Corp.

1,270,000

6,172

*

Myogen, Inc.

185,900

6,146

*

Impax Laboratories, Inc.

662,300

6,143

*

Magellan Health Services, Inc.

150,400

6,114

*

Isis Pharmaceuticals, Inc.

675,849

5,799

*

Molina Healthcare Inc.

176,700

5,778

*

Radiation Therapy Services, Inc.

225,744

5,768

*

Noven Pharmaceuticals, Inc.

302,300

5,713

*^

Pain Therapeutics, Inc.

613,200

5,678

*

Symmetry Medical Inc.

282,200

5,616

*

Cytokinetics, Inc.

729,049

5,286

*

ImmunoGen, Inc.

1,286,000

5,247

*

Nighthawk Radiology Holdings, Inc.

208,875

5,061

*

Onyx Pharmaceuticals, Inc.

212,500

4,962

*^

Tanox, Inc.

297,379

4,785

*

Digene Corp.

112,469

4,646

*^

Telik, Inc.

251,055

4,617

 

STERIS Corp.

199,200

4,586

*

Cutera, Inc.

173,800

4,574

*

Sirna Therapeutics, Inc.

594,000

4,491

 

PolyMedica Corp.

104,502

4,317

*^

Geron Corp.

558,693

4,190

*

Greatbatch, Inc.

168,400

4,126

*

LifeCell Corp.

147,000

3,975

*

AmSurg Corp.

143,563

3,667

 

Computer Programs and Systems, Inc.

77,300

3,650

*

Ventiv Health, Inc.

119,682

3,595

 

Alpharma, Inc. Class A

131,300

3,447

 

Owens & Minor, Inc. Holding Co.

107,800

3,436

*

AMERIGROUP Corp.

130,000

3,358

*

VCA Antech, Inc.

107,800

3,352

*^

Idenix Pharmaceuticals Inc.

333,187

3,345

*

ArthroCare Corp.

71,255

3,230

*

Diversa Corp.

301,171

3,171

*

OraSure Technologies, Inc.

293,600

3,150

*

Symbion, Inc.

130,487

3,003

 

^Martek Biosciences Corp.

93,400

2,774

*

Humana Inc.

60,600

2,738

*

Charles River Laboratories, Inc.

55,700

2,632

*

Hi-Tech Pharmacal Co., Inc.

96,000

2,343

*

PSS World Medical, Inc.

124,978

2,255

*

First Horizon Pharmaceutical Corp.

99,625

2,219

*

Abaxis, Inc.

78,300

2,045

*^

SurModics, Inc.

56,477

2,008

 

 

22

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Vital Signs, Inc.

39,509

1,964

*

Applera Corp.–Celera Genomics Group

157,980

1,894

*

Alnylam Pharmaceuticals Inc.

105,500

1,625

*

Viasys Healthcare Inc.

55,000

1,599

*

Allscripts Healthcare Solutions, Inc.

83,366

1,420

*

Kendle International Inc.

36,600

1,374

*

American Medical Systems Holdings, Inc.

60,100

1,335

*

Merit Medical Systems, Inc.

113,434

1,326

 

Beckman Coulter, Inc.

24,600

1,263

*

Quidel Corp.

109,700

1,256

*

Cytyc Corp.

45,703

1,181

 

Meridian Bioscience Inc.

41,700

1,083

*

Somanetics Corp.

63,400

1,040

*

Merge Technologies, Inc.

73,213

925

*

Immunomedics Inc.

303,100

921

*

New River Pharmaceuticals Inc.

20,400

694

 

CNS, Inc.

30,600

658

*

Zoll Medical Corp.

23,742

629

*^

WebMD Health Corp. Class A

12,900

561

*

Pharmion Corp.

24,926

483

 

PerkinElmer, Inc.

19,800

425

 

Young Innovations, Inc.

10,361

369

 

West Pharmaceutical Services, Inc.

9,700

346

*

PRA International

12,294

286

*

IRIS International, Inc.

20,500

243

*

BioMarin Pharmaceutical Inc.

4,900

60

 

 

 

2,109,547

 

Industrials (13.6%)

 

 

 

MSC Industrial Direct Co., Inc. Class A

1,518,019

78,724

*

Swift Transportation Co., Inc.

2,174,247

65,119

*

The Dun & Bradstreet Corp.

617,300

47,544

 

Robert Half International, Inc.

1,122,837

47,462

 

Joy Global Inc.

719,700

47,277

*

AMR Corp.

1,487,700

36,657

 

Fastenal Co.

752,400

35,220

 

Harsco Corp.

420,560

35,054

*

The Advisory Board Co.

616,440

34,595

 

Oshkosh Truck Corp.

554,400

33,929

*

Monster Worldwide Inc.

557,415

31,996

 

Donaldson Co., Inc.

957,200

31,817

*

Labor Ready, Inc.

1,063,028

28,096

 

Con-way, Inc.

500,748

27,902

*^

USG Corp.

256,200

27,406

 

Albany International Corp.

697,700

27,280

 

JLG Industries, Inc.

945,300

27,111

*

ChoicePoint Inc.

607,181

26,734

*

Wesco International, Inc.

350,900

26,317

*

Alliant Techsystems, Inc.

322,500

25,797

 

UTI Worldwide, Inc.

813,045

25,359

 

Cummins Inc.

241,600

25,247

*

Jacobs Engineering Group Inc.

300,900

24,884

*

Aviall, Inc.

652,000

24,580

 

Watsco, Inc.

385,700

24,473

 

The Corporate Executive Board Co.

223,552

23,949

*

McDermott International, Inc.

390,489

23,742

 

Heartland Express, Inc.

964,140

23,438

 

Knight Transportation, Inc.

1,129,600

22,061

*

United Rentals, Inc.

582,200

20,767

*

Continental Airlines, Inc. Class B

788,700

20,538

*

AirTran Holdings, Inc.

1,375,750

19,233

 

Manpower Inc.

279,700

18,222

*

BE Aerospace, Inc.

697,043

18,144

 

Herman Miller, Inc.

588,000

18,105

 

Lennox International Inc.

538,600

17,575

*

URS Corp.

403,200

17,366

 

Chicago Bridge & Iron Co. N.V.

693,225

16,617

 

Carlisle Co., Inc.

186,225

15,736

*

Terex Corp.

175,400

15,181

 

DRS Technologies, Inc.

269,500

14,965

 

The Timken Co.

420,499

14,675

 

 

23

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

*

Flowserve Corp.

254,400

14,633

*

Corrections Corp. of America

323,065

14,499

 

Administaff, Inc.

244,400

14,114

*

JetBlue Airways Corp.

1,374,300

14,100

*

Energy Conversion Devices, Inc.

273,952

13,700

 

Werner Enterprises, Inc.

675,500

12,956

*

West Corp.

270,059

12,509

*

FuelCell Energy, Inc.

949,200

12,463

 

Mueller Industries Inc.

309,200

11,712

*

Navistar International Corp.

439,157

11,585

 

The Toro Co.

228,900

11,319

 

Arkansas Best Corp.

263,300

11,301

 

HNI Corp.

213,500

11,290

 

Equifax, Inc.

280,900

10,826

*

US Airways Group Inc.

247,400

10,703

*

Resources Connection, Inc.

391,975

10,544

 

Simpson Manufacturing Co.

243,900

9,754

 

^United Industrial Corp.

147,789

9,710

 

Precision Castparts Corp.

140,705

8,862

 

Skywest, Inc.

375,011

8,839

*

Trex Co., Inc.

290,000

8,665

 

Ametek, Inc.

174,775

8,611

 

Pacer International, Inc.

247,185

8,476

*

Stericycle, Inc.

128,600

8,467

*

Allied Waste Industries, Inc.

594,600

8,420

 

Landstar System, Inc.

196,200

8,337

 

Pentair, Inc.

217,000

8,307

 

Roper Industries Inc.

173,400

8,230

 

Aramark Corp. Class B

292,300

8,217

*

Encore Wire Corp.

194,857

8,170

*

Hexcel Corp.

362,097

7,999

*

American Commercial Lines Inc.

147,465

7,953

*

H&E Equipment Services, Inc.

227,800

7,952

*

Amerco, Inc.

74,494

7,780

*

Global Cash Access, Inc.

394,680

7,692

*

AAR Corp.

282,800

7,545

 

Steelcase Inc.

400,100

7,490

*

Consolidated Graphics, Inc.

140,825

7,364

*

General Cable Corp.

230,100

7,264

*

Spherion Corp.

680,000

7,194

*

Teletech Holdings Inc.

514,672

6,608

*

FTI Consulting, Inc.

218,600

6,283

 

Actuant Corp.

97,725

6,250

 

Lincoln Electric Holdings, Inc.

113,100

6,199

 

Walter Industries, Inc.

93,139

6,178

 

J.B. Hunt Transport Services, Inc.

258,832

6,168

^

Dynamic Materials Corp.

160,100

6,114

*

Thomas & Betts Corp.

100,400

5,718

 

Freightcar America Inc.

82,200

5,499

*

Copart, Inc.

203,400

5,461

 

John H. Harland Co.

129,500

5,368

*

EGL, Inc.

114,400

5,345

*

The Middleby Corp.

59,400

5,246

*

Mobile Mini, Inc.

148,976

4,913

*

United Stationers, Inc.

90,300

4,845

*

Williams Scotsman International Inc.

168,425

4,138

*

Genlyte Group, Inc.

59,386

4,092

 

The Manitowoc Co., Inc.

77,710

3,854

 

Trinity Industries, Inc.

55,300

3,512

 

C.H. Robinson Worldwide Inc.

78,600

3,486

*

CRA International Inc.

70,300

3,428

*

Quanta Services, Inc.

205,200

3,328

 

GATX Corp.

69,700

3,262

 

Mine Safety Appliances Co.

75,600

3,160

*^

Distributed Energy Systems Corp.

450,500

2,843

 

American Woodmark Corp.

79,600

2,767

*

Insituform Technologies Inc. Class A

104,600

2,665

 

Applied Industrial Technology, Inc.

62,350

2,591

 

Apogee Enterprises, Inc.

151,300

2,456

*

American Reprographics Co.

68,300

2,423

 

Bluelinx Holdings Inc.

146,300

2,216

 

 

24

 

 


 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Washington Group International, Inc.

39,400

2,191

*

Ceradyne, Inc.

40,539

2,149

*

K&F Industries Holdings

121,100

2,148

*

ExpressJet Holdings, Inc.

353,000

1,977

*

American Superconductor Corp.

157,400

1,725

 

Forward Air Corp.

41,300

1,659

*

Innovative Solutions and Support, Inc.

104,000

1,645

*

Teledyne Technologies, Inc.

41,700

1,518

*

Accuride Corp.

131,800

1,351

*

Cenveo Inc.

78,400

1,328

*

Herley Industries Inc.

58,600

1,241

*

Builders FirstSource, Inc.

56,506

1,218

*

Clean Harbors Inc.

39,693

1,142

*

RailAmerica, Inc.

97,700

1,116

 

Graco, Inc.

23,350

1,092

 

Navigant Consulting, Inc.

51,400

1,084

*

Old Dominion Freight Line, Inc.

33,355

1,074

 

Franklin Electric, Inc.

17,700

1,032

 

Bowne & Co., Inc.

59,400

933

*^

Lamson & Sessions Co.

35,800

900

*

Columbus McKinnon Corp.

26,800

717

 

McGrath RentCorp

26,103

702

*

ABX Air, Inc.

103,034

668

*

Kirby Corp.

8,400

619

 

Brady Corp. Class A

16,300

586

*

On Assignment, Inc.

41,300

537

*

Heidrick & Struggles International, Inc.

14,225

514

 

HEICO Corp.

15,600

512

 

Regal-Beloit Corp.

9,900

462

 

Ryder System, Inc.

8,000

417

*

U.S. Xpress Enterprises, Inc.

17,400

342

 

The Greenbrier Cos., Inc.

8,000

321

*

American Science & Engineering, Inc.

3,441

295

*

Armor Holdings, Inc.

3,700

226

*

Kforce Inc.

15,800

222

 

UAP Holding Corp.

6,900

143

 

Cubic Corp.

4,700

108

 

 

 

1,754,776

 

Information Technology (23.1%)

 

 

 

Communications Equipment (3.4%)

 

 

*

Foundry Networks, Inc.

4,335,628

61,609

 

Harris Corp.

810,100

37,726

*

Polycom, Inc.

1,409,275

31,004

 

ADTRAN Inc.

1,134,650

28,525

*

CommScope, Inc.

765,100

25,287

*

Ciena Corp.

6,065,000

24,806

*

Stratex Networks, Inc.

3,857,500

24,341

*

Powerwave Technologies, Inc.

1,964,804

21,908

 

Plantronics, Inc.

534,800

20,055

*

Avocent Corp.

670,038

18,051

*

ViaSat, Inc.

576,600

17,373

*

Tellabs, Inc.

1,086,700

17,224

*

NICE-Systems Ltd. ADR

265,246

14,535

*

Sycamore Networks, Inc.

3,053,354

14,351

*

Avaya Inc.

971,700

11,660

*

Bookham, Inc.

1,874,500

11,416

*

Tekelec

636,404

9,088

*^

Finisar Corp.

1,571,500

7,386

*

Andrew Corp.

579,402

6,130

*

F5 Networks, Inc.

97,800

5,727

*

Comverse Technology, Inc.

245,345

5,557

 

Ixia

442,875

5,004

*

Blue Coat Systems, Inc.

200,900

4,372

*

Arris Group Inc.

325,304

3,855

*

NETGEAR, Inc.

132,412

2,973

*

Symmetricom Inc.

114,600

928

*

JDS Uniphase Corp.

224,700

784

*

Anaren, Inc.

23,400

481

 

Inter-Tel, Inc.

19,339

444

*

ADC Telecommunications, Inc.

14,800

331

 

SpectraLink Corp.

20,355

243

 

Optical Cable Corp.

8,891

—

 

 

25

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Computers & Peripherals (1.5%)

 

 

*

Western Digital Corp.

2,221,800

46,747

*

Brocade Communications Systems, Inc.

4,330,300

26,675

*

Electronics for Imaging, Inc.

949,500

26,073

*

Hutchinson Technology, Inc.

764,600

18,175

*

Komag, Inc.

403,128

16,948

*

Emulex Corp.

911,277

16,540

 

NCR Corp.

343,450

13,532

*

QLogic Corp.

517,000

10,759

*

Intermec, Inc.

311,825

8,260

 

Diebold, Inc.

162,200

6,902

*

Synaptics Inc.

93,862

2,461

*

Palm, Inc.

102,000

2,305

*

Neoware Systems, Inc.

104,700

2,269

*

Presstek, Inc.

100,400

1,201

*

Rimage Corp.

27,300

604

 

Electronic Equipment & Instruments (2.5%)

 

 

*

Ingram Micro, Inc. Class A

2,260,800

41,576

*

Mettler-Toledo International Inc.

397,699

25,771

*

Plexus Corp.

583,054

25,398

*

Trimble Navigation Ltd.

522,100

24,737

 

Tektronix, Inc.

671,900

23,732

 

Amphenol Corp.

410,400

23,721

*

Avnet, Inc.

756,800

19,790

*

Benchmark Electronics, Inc.

700,200

19,115

*

Brightpoint, Inc.

473,962

15,868

*

Littelfuse, Inc.

486,800

15,719

*

Itron, Inc.

191,561

12,844

*^

Multi-Fineline Electronix, Inc.

188,669

10,996

*

Vishay Intertechnology, Inc.

572,100

8,936

*

Solectron Corp.

2,092,895

8,372

*

TTM Technologies, Inc.

478,560

7,781

 

AVX Corp.

415,400

7,394

*

Coherent, Inc.

161,756

5,987

*

Global Imaging Systems, Inc.

104,200

3,892

*

ScanSource, Inc.

60,700

3,800

*

Aeroflex, Inc.

225,188

2,840

 

Anixter International Inc.

48,000

2,440

*

Paxar Corp.

86,400

1,887

*

Photon Dynamics, Inc.

83,300

1,587

 

CDW Corp.

24,100

1,434

*

Metrologic Instruments, Inc.

83,600

1,420

*

Tech Data Corp.

36,800

1,351

 

MTS Systems Corp.

13,200

591

*

LoJack Corp.

24,200

535

*

PAR Technology Corp.

12,100

203

*

Fargo Electronics

1,417

26

 

Internet Software & Services (2.3%)

 

 

*

Akamai Technologies, Inc.

2,007,280

67,625

*

ValueClick, Inc.

1,914,675

32,262

*

WebEx Communications, Inc.

677,000

23,932

*

CNET Networks, Inc.

1,944,261

20,959

*

Digital Insight Corp.

501,899

17,310

*

Marchex, Inc.

792,100

17,236

*

aQuantive, Inc.

599,468

15,023

*

Vignette Corp.

890,500

14,114

*

Ariba, Inc.

1,375,725

12,712

*

Openwave Systems Inc.

587,058

10,925

 

VeriSign, Inc.

458,785

10,791

*

Digitas Inc.

700,200

9,880

*

RealNetworks, Inc.

980,300

9,823

*

Websense, Inc.

342,600

8,517

*

InfoSpace, Inc.

281,600

7,189

*

EarthLink, Inc.

716,300

6,511

*

The Knot, Inc.

285,000

5,250

*

j2 Global Communications, Inc.

94,535

4,641

 

United Online, Inc.

338,722

4,366

*^

Bankrate, Inc.

33,000

1,593

*

24/7 Real Media, Inc.

111,700

1,130

 

IT Services (3.7%)

 

 

*

Alliance Data Systems Corp.

1,291,790

71,047

*

MPS Group, Inc.

2,514,845

40,137

*

DST Systems, Inc.

624,200

38,401

 

26

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

*

Euronet Worldwide, Inc.

946,300

33,821

*

Ceridian Corp.

1,300,050

31,500

 

Global Payments Inc.

518,000

24,569

*

SRA International, Inc.

741,275

23,736

*

Sapient Corp.

2,886,600

22,602

*

CheckFree Corp.

385,751

20,780

 

Affiliated Computer Services, Inc. Class A

309,100

17,235

*

Iron Mountain, Inc.

406,400

15,890

*

ManTech International Corp.

465,335

15,370

*

BISYS Group, Inc.

828,569

13,207

 

Fidelity National Information Services, Inc.

326,600

12,411

 

Acxiom Corp.

466,550

12,093

*

CSG Systems International, Inc.

477,770

12,078

*

Anteon International Corp.

218,800

11,957

 

MoneyGram International, Inc.

295,100

10,004

 

Talx Corp.

364,202

9,473

 

Hewitt Associates, Inc.

291,775

8,459

*

Cognizant Technology Solutions Corp.

112,947

7,185

*^

Heartland Payment Systems, Inc.

264,566

6,942

 

MAXIMUS, Inc.

169,225

5,896

*

Kanbay International Inc.

358,667

5,559

*

Sykes Enterprises, Inc.

151,785

2,457

*

Keane, Inc.

152,300

2,154

*

TNS Inc.

93,000

1,928

 

infoUSA Inc.

169,128

1,889

*

iPayment Holdings, Inc.

39,597

1,713

*

Wright Express Corp.

28,969

892

*

Tyler Technologies, Inc.

48,600

536

*

eFunds Corp.

15,700

404

*

SI International Inc.

7,400

252

 

Office Electronics (0.0%)

 

 

*

Zebra Technologies Corp. Class A

14,600

579

 

Semiconductors & Semiconductor Equipment (4.6%)

 

 

*

MEMC Electronic

 

 

 

Materials, Inc.

1,296,815

52,651

*

Microsemi Corp.

1,499,347

40,962

*

Zoran Corp.

1,373,140

37,679

*

Atheros Communications

1,362,900

34,604

*

LAM Research Corp.

623,803

30,491

 

Intersil Corp.

955,464

28,291

*

RF Micro Devices, Inc.

2,383,100

22,163

*

Integrated Device Technology Inc.

1,374,622

20,922

*

Varian Semiconductor Equipment Associates, Inc.

627,400

20,547

*

ON Semiconductor Corp.

2,724,697

19,536

*

Trident Microsystems, Inc.

685,286

18,229

*

SiRF Technology Holdings, Inc.

500,846

17,103

 

International Rectifier Corp.

358,225

16,192

*

Cymer, Inc.

299,887

15,501

*

Silicon Laboratories Inc.

296,700

13,829

*

Entegris Inc.

1,348,000

13,723

*

Cypress Semiconductor Corp.

772,700

13,260

*

OmniVision Technologies, Inc.

449,400

13,069

*

Agere Systems Inc.

781,200

12,280

*

Teradyne, Inc.

712,100

12,006

*

LSI Logic Corp.

1,035,100

11,024

 

Tessera Technologies, Inc.

310,200

9,948

*

Novellus Systems, Inc.

360,536

8,905

*

Micrel, Inc.

672,200

8,631

*^

PortalPlayer Inc.

769,268

8,500

*

Cirrus Logic, Inc.

857,685

8,105

*

Atmel Corp.

1,366,410

7,160

*

Silicon Image, Inc.

700,514

7,145

*

FormFactor Inc.

170,036

7,089

*

ATMI, Inc.

241,350

6,854

*

Advanced Energy Industries, Inc.

406,651

6,380

*

Photronics Inc.

353,769

6,357

 

 

27

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

National Semiconductor Corp.

206,119

6,179

*

Marvell Technology Group Ltd.

87,165

4,976

*

Kopin Corp.

798,036

4,437

*

Amkor Technology, Inc.

323,200

3,907

*^

Netlogic Microsystems Inc.

92,400

3,721

*

EMCORE Corp.

309,120

3,295

*

Silicon Storage Technology, Inc.

683,453

3,123

*

Mattson Technology, Inc.

249,658

2,869

*

Cabot Microelectronics Corp.

84,300

2,757

*

Genesis Microchip Inc.

165,302

2,599

 

FEI Co.

117,625

2,557

*

Rambus Inc.

56,500

2,194

*

Supertex, Inc.

53,500

2,066

*

Power Integrations, Inc.

48,600

1,029

 

Cohu, Inc.

45,400

871

*

Standard Microsystem Corp.

12,296

286

*

Kulicke & Soffa Industries, Inc.

28,700

260

*

Diodes Inc.

2,000

81

 

Software (5.1%)

 

 

*

Red Hat, Inc.

3,639,381

106,961

*

Informatica Corp.

3,482,840

53,531

*

Citrix Systems, Inc.

1,052,030

41,997

*

RSA Security Inc.

1,571,500

32,907

*

Cadence Design Systems, Inc.

1,477,000

27,960

*

BMC Software, Inc.

1,295,800

27,912

*

Compuware Corp.

3,172,600

24,366

 

Fair Isaac, Inc.

556,800

20,663

*

Progress Software Corp.

735,025

20,279

*

Witness Systems, Inc.

859,333

20,065

 

FactSet Research Systems Inc.

381,497

16,839

*

MICROS Systems, Inc.

400,339

16,734

*

Activision, Inc.

1,145,500

16,255

*

Concur Technologies, Inc.

1,027,900

16,025

*

Internet Security Systems, Inc.

708,600

15,901

*

Take-Two Interactive Software, Inc.

911,250

15,537

*

Sonic Solutions, Inc.

833,600

14,771

*

Opsware, Inc.

1,556,500

13,168

*

BEA Systems, Inc.

782,400

10,367

*

ANSYS, Inc.

173,400

9,788

*

Transaction Systems Architects, Inc.

242,344

9,679

*

Hyperion Solutions Corp.

308,141

9,435

*

Nuance Communications, Inc.

713,900

9,159

*

Lawson Softward, Inc.

1,167,000

8,963

*

MicroStrategy Inc.

92,800

8,699

*

Parametric Technology Corp.

573,587

8,569

 

Quality Systems, Inc.

254,800

8,551

*

Sybase, Inc.

343,991

7,489

*

Ulticom, Inc.

646,600

6,485

*

Quest Software, Inc.

338,034

5,818

*

Autodesk, Inc.

136,978

5,759

*

SPSS, Inc.

160,243

5,586

*

salesforce.com, Inc.

158,700

5,562

 

Jack Henry & Associates Inc.

218,000

4,894

*

TIBCO Software Inc.

441,700

3,807

 

Reynolds & Reynolds Class A

119,800

3,563

*

NAVTEQ Corp.

84,500

3,508

*

Intergraph Corp.

62,600

2,756

*

JDA Software Group, Inc.

93,500

1,277

 

QAD Inc.

158,917

1,208

*

Blackboard Inc.

35,197

1,034

*

Radiant Systems, Inc.

48,200

627

*

InterVoice, Inc.

56,919

409

*

Novell, Inc.

2,000

16

 

 

 

2,978,535

 

Materials (2.9%)

 

 

 

Martin Marietta Materials, Inc.

393,700

41,795

 

AptarGroup Inc.

493,200

25,849

 

Reliance Steel & Aluminum Co.

233,983

20,813

 

Albemarle Corp.

409,050

19,561

 

 

28

 

 


 

 

 

 

 

 

Market

 

 

 

Value•

 

 

Shares

($000)

 

Eagle Materials, Inc.

289,000

19,146

*

Hercules, Inc.

1,305,700

18,554

 

Minerals Technologies, Inc.

301,700

17,263

 

Cytec Industries, Inc.

281,800

17,040

 

Florida Rock Industries, Inc.

270,500

16,871

 

Allegheny Technologies Inc.

238,500

16,538

 

Carpenter Technology Corp.

132,500

15,761

*

Titanium Metals Corp.

205,760

14,743

 

Ferro Corp.

726,800

14,013

*

Century Aluminum Co.

287,800

13,702

 

Celanese Corp. Series A

482,000

10,580

^

Cleveland-Cliffs Inc.

116,899

10,005

*

RTI International Metals, Inc.

135,950

8,176

*

Pactiv Corp.

324,900

7,908

 

Steel Dynamics, Inc.

120,200

7,505

*

AK Steel Corp.

412,500

6,150

*

Crown Holdings, Inc.

366,200

5,870

 

Ball Corp.

109,300

4,370

 

Silgan Holdings, Inc.

104,356

4,052

 

Quanex Corp.

92,700

3,964

 

Airgas, Inc.

95,800

3,875

*

Nalco Holding Co.

156,000

2,941

 

Sealed Air Corp.

52,300

2,816

 

Greif Inc. Class A

40,500

2,624

 

International Flavors & Fragrances, Inc.

32,300

1,141

*

Tronox Inc. Class B

60,500

1,047

*

W.R. Grace & Co.

60,200

945

 

Scotts Miracle-Gro Co.

14,076

623

 

Worthington Industries, Inc.

29,000

573

 

United States Steel Corp.

3,700

253

 

 

 

357,067

 

Telecommunication Services (1.1%)

 

 

*

American Tower Corp. Class A

960,675

32,797

*

NeuStar, Inc. Class A

755,485

26,518

*

NII Holdings Inc.

388,900

23,295

 

Philippine Long Distance Telephone Co. ADR

495,200

19,684

 

Valor Communications Group, Inc.

511,763

6,679

*

Cincinnati Bell Inc.

1,329,419

5,584

 

Telephone & Data Systems, Inc.

126,209

4,947

*

Crown Castle International Corp.

120,600

4,058

*

Premiere Global Services, Inc.

494,883

3,865

 

Centennial Communications Corp. Class A

560,507

3,823

 

Commonwealth Telephone Enterprises, Inc.

100,020

3,319

^

Golden Telecom, Inc.

96,488

2,947

*

Time Warner Telecom Inc.

162,300

2,722

*

U.S. Cellular Corp.

24,820

1,549

*

Syniverse Holdings Inc.

27,500

487

 

North Pittsburgh Systems, Inc.

5,422

123

 

 

 

142,397

 

Utilities (0.4%)

 

 

 

PNM Resources Inc.

588,700

14,900

 

UGI Corp. Holding Co.

480,400

10,761

 

Energen Corp.

204,300

7,206

 

Equitable Resources, Inc.

196,900

6,992

 

CenterPoint Energy Inc.

522,700

6,283

 

New Jersey Resources Corp.

48,500

2,147

*

El Paso Electric Co.

101,600

2,007

 

MGE Energy, Inc.

11,100

354

 

 

 

50,650

 

Exchange-Traded Funds (1.4%)

 

 

^2

Vanguard Small-Cap

 

 

 

VIPERs

1,982,703

132,643

^2

Vanguard Small-Cap

 

 

 

Growth VIPERs

780,800

51,728

 

 

 

184,371

 

Total Common Stocks

 

 

 

(Cost $9,897,880)

 

12,143,054

 

Temporary Cash Investments (7.3%)1

 

 

 

Money Market Fund (6.7%)

 

 

3

 

Vanguard Market Liquidity Fund, 4.771%

679,648,727

679,649

3

Vanguard Market Liquidity Fund,

 

 

 

4.771%—Note G

192,951,000

192,951

 

 

 

872,600

 

29

 

 


 

 

 

 

Face

Market

 

Amount

Value•

 

($000)

($000)

Repurchase Agreement (0.3%)

 

 

Deutsche Bank 4.790%, 5/1/06

 

 

(Dated 4/28/06, Repurchase Value

 

 

$33,713,000, Collateralized by

 

 

Federal National Mortgage Assn.,

 

 

4.500%–5.500%,

 

 

4/1/18–9/1/24)

33,700

33,700

U.S. Government & Agency Obligations (0.3%)

 

4 Federal National Mortgage Assn.

 

 

5 4.847%, 7/5/06

20,000

19,826

5 4.937%–4.946%, 7/19/06

12,000

11,873

U.S. Treasury Bill

 

 

5 4.666%, 8/24/06

3,400

3,349

 

 

35,048

Total Temporary Cash Investments

 

 

(Cost $941,348)

 

941,348

Total Investments (101.6%)

 

 

(Cost $10,839,228)

 

13,084,402

Other Assets and Liabilities (–1.6%)

 

 

Other Assets—Note C

 

179,208

Other Liabilities—Note G

 

(380,895)

 

 

(201,687)

Net Assets (100%)

 

12,882,715

 

 

At April 30, 2006, net assets consisted of:6

 

 

Amount

 

($000)

Paid-in Capital

9,616,578

Overdistributed Net Investment Income

(2,012)

Accumulated Net Realized Gains

1,012,078

Unrealized Appreciation

 

Investment Securities

2,245,174

Futures Contracts

10,892

Foreign Currencies

5

Net Assets

12,882,715

 

 

 

 

Investor Shares—Net Assets

 

Applicable to 111,713,370 outstanding

 

$.001 par value shares of beneficial

 

interest (unlimited authorization)

9,363,191

Net Asset Value Per Share—

 

Investor Shares

$83.81

Admiral Shares—Net Assets

 

Applicable to 45,084,683 outstanding

 

$.001 par value shares of beneficial

 

interest (unlimited authorization)

3,519,524

Net Asset Value Per Share—

 

Admiral Shares

$78.06

 

 

 

•

See Note A in Notes to Financial Statements.
   

*

Non-income-producing security.
   

^

Part of security position is on loan to broker/dealers. See Note G in Notes to Financial Statements.
   

1

The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 98.4% and 3.2%, respectively, of net assets. See Note E in Notes to Financial Statements.
   

2

Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
   

3

Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
   

4

The issuer operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government. If needed, access to additional funding from the U.S. Treasury (beyond the issuer's line of credit) would require congressional action.
   

5

Securities with a value of $35,048,000 have been segregated as initial margin for open futures contracts.
   

6

See Note E in Notes to Financial Statements for the tax-basis components of net assets.

 

ADR—American Depositary Receipt.

REIT—Real Estate Investment Trust.

 

30

 

 


 

 

 

Statement of Operations

 

 

 

Six Months Ended

 

April 30, 2006

 

($000)

Investment Income

 

Income

 

Dividends1,2

35,728

Interest2

13,626

Security Lending

2,537

Total Income

51,891

Expenses

 

Investment Advisory Fees—Note B

 

Basic Fee

9,768

Performance Adjustment

(1,518)

The Vanguard Group—Note C

 

Management and Administrative

 

Investor Shares

13,093

Admiral Shares

1,987

Marketing and Distribution

 

Investor Shares

1,181

Admiral Shares

418

Custodian Fees

50

Shareholders’ Reports

 

Investor Shares

151

Admiral Shares

2

Trustees’ Fees and Expenses

6

Total Expenses

25,138

Expenses Paid Indirectly—Note D

(243)

Net Expenses

24,895

Net Investment Income

26,996

Realized Net Gain (Loss)

 

Investment Securities Sold2

971,582

Futures Contracts

38,134

Foreign Currencies

(16)

Realized Net Gain (Loss)

1,009,700

Change in Unrealized Appreciation (Depreciation)

 

Investment Securities

899,760

Futures Contracts

13,050

Foreign Currencies

6

Change in Unrealized Appreciation (Depreciation)

912,816

Net Increase (Decrease) in Net Assets Resulting from Operations

1,949,512

 

 

1

Dividends are net of foreign withholding taxes of $122,000.
   

2

Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $1,539,000, $12,086,000, and $0, respectively.
 

 

31

 

 


 

 

Statement of Changes in Net Assets

 

 

Six Months Ended

Year Ended

 

Apr. 30,

Oct. 31,

 

2006

2005

 

($000)

($000)

Increase (Decrease) in Net Assets

 

 

Operations

 

 

Net Investment Income

26,996

18,100

Realized Net Gain (Loss)

1,009,700

958,645

Change in Unrealized Appreciation (Depreciation)

912,816

266,311

Net Increase (Decrease) in Net Assets Resulting from Operations

1,949,512

1,243,056

Distributions

 

 

Net Investment Income

 

 

Investor Shares

(23,606)

—

Admiral Shares

(12,258)

—

Realized Capital Gain1

 

 

Investor Shares

(636,944)

(8,028)

Admiral Shares

(204,628)

(1,311)

Total Distributions

(877,436)

(9,339)

Capital Share Transactions—Note H

 

 

Investor Shares

729,396

(518,704)

Admiral Shares

843,175

1,060,504

Net Increase (Decrease) from Capital Share Transactions

1,572,571

541,800

Total Increase (Decrease)

2,644,647

1,775,517

Net Assets

 

 

Beginning of Period

10,238,068

8,462,551

End of Period2

12,882,715

10,238,068

 

 

1

Includes fiscal 2006 and 2005 short-term gain distributions totaling $212,902,000 and $0, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
   

2

Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($2,012,000) and $6,872,000.
 

 

32

 

 


 

 

Financial Highlights

 

 

Explorer Fund Investor Shares

 

 

 

 

 

 

 

Six

 

 

 

 

 

 

Months

 

 

 

 

 

 

Ended

Year Ended October 31,

For a Share Outstanding

April 30,

 

 

 

 

 

Throughout Each Period

2006

2005

2004

2003

2002

2001

Net Asset Value, Beginning of Period

$76.67

$67.01

$63.17

$44.60

$51.91

$77.28

Investment Operations

 

 

 

 

 

 

Net Investment Income (Loss)

.179

.111

(.05)

(.012)

(.005)

.15

Net Realized and Unrealized Gain (Loss)

 

 

 

 

 

 

on Investments

13.397

9.622

3.89

18.587

(7.200)

(11.36)

Total from Investment Operations

13.576

9.733

3.84

18.575

(7.205)

(11.21)

Distributions

 

 

 

 

 

 

Dividends from Net Investment Income

(.230)

—

—

(.005)

(.105)

(.25)

Distributions from Realized Capital Gains

(6.206)

(.073)

—

—

—

(13.91)

Total Distributions

(6.436)

(.073)

—

(.005)

(.105)

(14.16)

Net Asset Value, End of Period

$83.81

$76.67

$67.01

$63.17

$44.60

$51.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

18.61%

14.53%

6.08%

41.65%

–13.93%

–16.22%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

Net Assets, End of Period (Millions)

$9,363

$7,836

$7,302

$5,662

$3,432

$3,996

Ratio of Total Expenses to

 

 

 

 

 

 

Average Net Assets1

0.48%2

0.51%

0.57%

0.72%

0.70%

0.72%

Ratio of Net Investment Income (Loss)

 

 

 

 

 

 

to Average Net Assets

0.41%2

0.16%

(0.11%)

(0.08%)

(0.01%)

0.24%

Portfolio Turnover Rate

97%2

80%

82%

77%

69%

77%

 

 

1

Includes performance-based investment advisory fee increases (decreases) of (0.03%), (0.01%), 0.02%, 0.07%, 0.07%, and 0.06%.
   

2

Annualized.
 

 

33

 

 


 

 

Explorer Fund Admiral Shares

 

 

 

 

 

 

Six Months

 

 

 

Nov. 12,

 

Ended

 

 

 

20011 to

 

Apr. 30,

Year Ended October 31,

Oct. 31,

For a Share Outstanding

 

 

 

 

 

Throughout Each Period

2006

2005

2004

2003

2002

Net Asset Value, Beginning of Period

$71.47

$62.37

$58.71

$41.43

$50.00

Investment Operations

 

 

 

 

 

Net Investment Income

.236

.215

.04

.064

.035

Net Realized and Unrealized Gain (Loss)

 

 

 

 

 

on Investments

12.476

8.953

3.62

17.259

(8.498)

Total from Investment Operations

12.712

9.168

3.66

17.323

(8.463)

Distributions

 

 

 

 

 

Dividends from Net Investment Income

(.346)

—

—

(.043)

(.107)

Distributions from Realized Capital Gains

(5.776)

(.068)

—

—

—

Total Distributions

(6.122)

(.068)

—

(.043)

(.107)

Net Asset Value, End of Period

$78.06

$71.47

$62.37

$58.71

$41.43

 

 

 

 

 

 

 

 

 

 

 

 

Total Return

18.72%

14.70%

6.23%

41.85%

–16.98%

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

Net Assets, End of Period (Millions)

$3,520

$2,402

$1,161

$721

$293

Ratio of Total Expenses to

 

 

 

 

 

Average Net Assets2

0.30%3

0.34%

0.43%

0.57%

0.61%3

Ratio of Net Investment Income to

 

 

 

 

 

Average Net Assets

0.59%3

0.33%

0.04%

0.05%

0.13%3

Portfolio Turnover Rate

97%3

80%

82%

77%

69%

 

 

1

Inception.
   

2

Includes performance-based investment advisory fee increases (decreases) of (0.03%), (0.01%), 0.02%, 0.07%, and 0.07%.
   

3

Annualized.
 

See accompanying Notes, which are an integral part of the Financial Statements.

 

34

 

 


 

 

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 affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds) between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.

2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates on the valuation date as employed by Morgan Stanley Capital International (MSCI) in the calculation of its indexes. As part of the fund’s fair-value procedures, exchange rates may be adjusted if they change significantly before the fund’s pricing time but after the time at which the MSCI rates are determined (generally 11:00 a.m., Eastern time).

Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the asset or liability is settled in cash, when they are recorded as realized foreign currency gains (losses).

3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market.

 

35

 

 


 

 

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 futures gains (losses).

4. Repurchase Agreements: The fund may invest 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.

5. 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.

6. Distributions: Distributions to shareholders are recorded on the ex-dividend date.

7. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents the income earned on investing cash collateral, less expenses associated with the loan.

8. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.

Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.

B. Grantham, Mayo, Van Otterloo & Co. LLC (“GMO”), Granahan Investment Management, Inc., Wellington Management Company, LLP, Chartwell Investment Partners, and Kalmar Investment Advisers 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 GMO, Granahan Investment Management, Inc., Wellington Management Company, and Chartwell Investment Partners are subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2500 Growth Index. In accordance with the advisory contract entered into with Kalmar Investment Advisers in February 2005, beginning in February 2007 the investment advisory fee will be subject to quarterly adjustments based on performance since April 30, 2005, relative to the Russell 2500 Growth Index.

 

36

 

 


 

 

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 $368,000 for the six months ended April 30, 2006.

For the six months ended April 30, 2006, the aggregate investment advisory fee represented an effective annual basic rate of 0.17% of the fund’s average net assets before a decrease of $1,518,000 (0.03%) 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, 2006, the fund had contributed capital of $804,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.80% 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. The fund’s custodian bank has also agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended April 30, 2006, these arrangements reduced the fund’s management and administrative expenses by $236,000 and custodian fees by $7,000.

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.

During the six months ended April 30, 2006, the fund realized net foreign currency losses of $16,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized gains to overdistributed net investment income. Certain of the fund’s investments are in securities considered to be “passive foreign investment companies,” for which any unrealized appreciation and/or realized gains are required to be included in distributable net income for tax purposes. Unrealized appreciation through October 31, 2005, on passive foreign investment company holdings at April 30, 2006, was $8,914,000, which has been distributed and is reflected in the balance of overdistributed net investment income.

At April 30, 2006, net unrealized appreciation of investment securities for tax purposes was $2,236,260,000, consisting of unrealized gains of $2,571,905,000 on securities that had risen in value since their purchase and $335,645,000 in unrealized losses on securities that had fallen in value since their purchase.

 

37

 

 


 

 

At April 30, 2006, the aggregate settlement value of open futures contracts expiring in June 2006 and the related unrealized appreciation (depreciation) were:

 

 

 

($000)

 

 

Aggregate

Unrealized

 

Number of

Settlement

Appreciation

Futures Contracts

Long Contracts

Value

(Depreciation)

Russell 2000 Index

776

298,294

9,350

E-Mini Russell 2000 Index

1,458

112,091

780

E-Mini Nasdaq 100 Index

3,227

110,428

589

Nasdaq 100 Index

39

6,673

173

 

Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.

F. During the six months ended April 30, 2006, the fund purchased $5,866,217,000 of investment securities and sold $5,411,464,000 of investment securities, other than temporary cash investments.

G. The market value of securities on loan to broker/dealers at April 30, 2006, was $184,182,000, for which the fund received cash collateral of $192,951,000.

H. Capital share transactions for each class of shares were:

 

 

Six Months Ended

Year Ended

 

April 30, 2006

October 31, 2005

 

Amount

Shares

Amount

Shares

 

($000)

(000)

($000)

(000)

Investor Shares

 

 

 

 

Issued

958,927

11,892

1,728,503

23,376

Issued in Lieu of Cash Distributions

648,831

8,577

7,866

106

Redeemed

(878,362)

(10,960)

(2,255,073)

(30,239)

Net Increase (Decrease)—Investor Shares

729,396

9,509

(518,704)

(6,757)

Admiral Shares

 

 

 

 

Issued

899,268

12,062

1,422,697

20,258

Issued in Lieu of Cash Distributions

207,776

2,951

1,242

18

Redeemed

(263,869)

(3,542)

(363,435)

(5,277)

Net Increase (Decrease)—Admiral Shares

843,175

11,471

1,060,504

14,999

 

38

 

 


 

 

About Your Fund’s Expenses

 

As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.

A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

The table below illustrates your fund’s costs in two ways:

• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

 

 

Six Months Ended April 30, 2006

 

 

 

 

 

 

 

 

Beginning

Ending

Expenses

 

Account Value

Account Value

Paid During

Explorer Fund

10/31/2005

4/30/2006

Period1

Based on Actual Fund Return

 

 

 

Investor Shares

$1,000.00

$1,186.13

$2.60

Admiral Shares

1,000.00

1,187.16

1.63

Based on Hypothetical 5% Yearly Return

 

 

 

Investor Shares

$1,000.00

$1,022.41

$2.41

Admiral Shares

1,000.00

1,023.31

1.51

 

 

 

1

The calculations are based on expenses incurred in the most recent six-month period. The fund's annualized six-month expense ratios for that period are 0.48% for Investor Shares and 0.30% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
 

 

39

 

 


 

 

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.”

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate fund prospectus.

 

40

 

 


 

 

Trustees Renew Advisory Arrangements

 

The board of trustees of Vanguard Explorer Fund has renewed the fund’s investment advisory arrangements with Grantham, Mayo, Van Otterloo & Co. LLC (GMO); Kalmar Investment Advisers; Chartwell Investment Partners, L.P.; and The Vanguard Group, Inc. In addition, the board approved amended investment advisory agreements with Granahan Investment Management, Inc., and Wellington Management Company, LLP. The amended agreements contain new advisory fee schedules that increase the fee paid to Granahan and Wellington Management. The board determined that retaining the fund’s advisors and amending Granahan’s and Wellington Management’s fee schedules were in the best interests of the fund and its shareholders.

The board based its decisions upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.

 

Nature, extent, and quality of services

 

The board considered the quality of the fund’s investment management over both short- and long-term periods and took into account the organizational depth and stability of each advisor. The board noted the following:

Grantham, Mayo, Van Otterloo & Co. LLC. GMO has a diverse product line whose assets are well distributed across products. U.S. equities, developed-market international equities, emerging-market equities, and global fixed income securities each make up a meaningful portion of GMO’s total business. GMO has managed a portion of the fund since 2000.

Kalmar Investment Advisers. Kalmar is a research-driven investment firm that is entirely focused on the management of “growth-with-value” smaller-cap equity portfolios. Kalmar began advising a portion of the fund in 2005.

Chartwell Investment Partners. Chartwell has expertise in small-cap equity management. The firm employs a fundamental, bottom-up strategy in seeking companies that offer superior growth potential at lower relative valuations. Chartwell has managed a portion of the fund since 1997.

Granahan Investment Management. Granahan was founded in 1985 and has advised the fund since 1990. The portfolio management team, whose members have over 20 years’ experience in working together at Granahan, continues to execute its disciplined process for identifying attractive small-cap growth companies diversified across all phases of the business life cycle. The board concluded that the existing advisory fee schedule for Granahan had been in place for many years, and that the schedule should be adjusted to reflect the fair market value of Granahan’s services and the firm’s need to maintain an expanded portfolio management team to manage a large fund in the small-cap growth market segment. The board decided that adjusting the Granahan fee schedule would support enhanced organizational depth and stability in the best interests of the fund and its shareholders.

Wellington Management Company. Wellington Management, which was founded in 1928, is among the nation’s oldest and most respected institutional investment managers. The firm has advised the fund since its inception in 1967. Wellington Management seeks out stocks of high-quality companies that are out of favor with investors. Stocks are selected using a bottom-up approach, supported by

 

41

 

 


 

 

Wellington Management’s deep industry research capabilities. The board concluded that the existing advisory fee schedule had been in place for many years and that it should be adjusted to enable Wellington Management to continue to attract and retain top investment talent. In the board’s view, adjusting the fee schedule for Wellington Management supports enhanced organizational depth and stability for the benefit of the fund and its shareholders.

The Vanguard Group. Vanguard has been managing investments for more than two decades.

George U. Sauter, Vanguard managing director and chief investment officer, has been in the investment management business since 1985 and oversees more than $690 billion in assets (stocks and bonds). The group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.

The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation (or amendment with respect to Granahan and Wellington Management) of the advisory arrangements.

 

Investment performance

 

The board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance of relevant benchmarks and peer groups. The board concluded that each advisor has carried out the fund’s investment strategy in disciplined fashion, and that performance results have allowed the fund to remain competitive versus its benchmark and its average peer funds. Information about the fund’s performance, including some of the performance data considered by the board, can be found in the Performance Summary section of this report.

 

Cost

 

The board considered the cost of services to be provided, including consideration of competitive fee rates and the fact that, after the implementation of the amended agreements with Granahan and Wellington Management, the fund’s advisory fee rate and expense ratio remain below the advisory fee rates and expense ratios of the fund’s peers. Information about the fund’s expense ratio appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the advisory fee rate.

The board did not consider profitability of GMO, Kalmar, Chartwell, Granahan, and Wellington

Management in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations. The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.

 

The benefit of economies of scale

 

The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for GMO, Kalmar, Chartwell, Granahan, and Wellington Management. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by the firms increase. The board also concluded that the fund’s low-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as the fund’s assets managed by Vanguard increase.

The board will consider whether to renew the advisory arrangements again after a one-year period.

 

42

 

 


 

 

Glossary

 

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 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. The turnover rate excludes in-kind transactions, which have minimal impact on costs.

 

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.

 

43

 

 


 

 

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 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 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.

 

 

Chairman of the Board, Chief Executive Officer, and Trustee

 

 

John J. Brennan1

 

Born 1954

Principal Occupation(s) During the Past Five Years: Chairman of the Board, Chief

Trustee since May 1987;

Executive Officer, and Director/Trustee of The Vanguard Group, Inc., and of each

Chairman of the Board and

of the investment companies served by The Vanguard Group.

Chief Executive Officer

 

135 Vanguard Funds Overseen

 

 

 

Independent Trustees

 

 

 

Charles D. Ellis

 

Born 1937

Principal Occupation(s) During the Past Five Years: Applecore Partners (pro bono ventures

Trustee since January 2001

in education); Senior Advisor to Greenwich Associates (international business strategy

135 Vanguard Funds Overseen

consulting); Successor Trustee of Yale University; Overseer of the Stern School of

 

Business at New York University; Trustee of the Whitehead Institute for Biomedical

 

Research.

 

 

Rajiv L. Gupta

 

Born 1945

Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer

Trustee since December 20012

of Rohm and Haas Co. (chemicals); Board Member of the American Chemistry Council;

135 Vanguard Funds Overseen

Director of Tyco International, Ltd. (diversified manufacturing and services) (since 2005);

 

Trustee of Drexel University and of the Chemical Heritage Foundation.

 

 

JoAnn Heffernan Heisen

 

Born 1950

Principal Occupation(s) During the Past Five Years: Corporate Vice President and Chief

Trustee since July 1998

Global Diversity Officer (since January 2006), Vice President and Chief Information

135 Vanguard Funds Overseen

Officer (1997–2005), and Member of the Executive Committee of Johnson & Johnson

 

(pharmaceuticals/consumer products); Director of the University Medical Center

 

at Princeton and Women’s Research and Education Institute.

 

 

 


 

 

 

André F. Perold

 

Born 1952

Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance

Trustee since December 2004

and Banking, Harvard Business School (since 2000); Senior Associate Dean, Director

135 Vanguard Funds Overseen

of Faculty Recruiting, and Chair of Finance Faculty, Harvard Business School; Director

 

and Chairman of UNX, Inc. (equities trading firm) (since 2003); Director of registered

 

investment companies advised by Merrill Lynch Investment Managers and affiliates

 

(1985–2004), Genbel Securities Limited (South African financial services firm)

 

(1999–2003), Gensec Bank (1999–2003), Sanlam, Ltd. (South African insurance

 

company) (2001–2003), and Stockback, Inc. (credit card firm) (2000–2002).

 

 

Alfred M. Rankin, Jr.

 

Born 1941

Principal Occupation(s) During the Past Five Years: Chairman, President, Chief

Trustee since January 1993

Executive Officer, and Director of NACCO Industries, Inc. (forklift trucks/housewares/

135 Vanguard Funds Overseen

lignite); Director of Goodrich Corporation (industrial products/aircraft systems and

 

services); Director of Standard Products Company (supplier for the automotive

 

industry) until 1998.

 

 

J. Lawrence Wilson

 

Born 1936

Principal Occupation(s) During the Past Five Years: Retired Chairman and Chief

Trustee since April 1985

Executive Officer of Rohm and Haas Co. (chemicals); Director of Cummins Inc.

135 Vanguard Funds Overseen

(diesel engines), MeadWestvaco Corp. (packaging products), and AmerisourceBergen

 

Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver

 

Educational Foundation.

 

 

Executive Officers1

 

 

 

Heidi Stam

 

Born 1956

Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.,

Secretary since July 2005

since November 1997; General Counsel of The Vanguard Group since July 2005;

135 Vanguard Funds Overseen

Secretary of The Vanguard Group and of each of the investment companies served

 

by The Vanguard Group since July 2005.

 

 

Thomas J. Higgins

 

Born 1957

Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.;

Treasurer since July 1998

Treasurer of each of the investment companies served by The Vanguard Group.

135 Vanguard Funds Overseen

 

 

 

Vanguard Senior Management Team

 

 

 

R. Gregory Barton

 

Mortimer J. Buckley

 

James H. Gately

 

Kathleen C. Gubanich

 

F. William McNabb, III

 

Michael S. Miller

 

Ralph K. Packard

 

George U. Sauter

 

 

 

Founder

 

 

 

John C. Bogle

 

Chairman and Chief Executive Officer, 1974–1996

 

 

1

Officers of the funds are “interested persons” as defined in the Investment Company Act of 1940.
   

2

December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
 

More information about the trustees is in the Statement of Additional Information, available from The Vanguard Group.

 

 


 

 

 

 


P.O. Box 2600

Valley Forge, PA 19482-2600

 

Connect with Vanguard™ > www.vanguard.com

 

 

Fund Information > 800-662-7447

Vanguard, Admiral, Explorer, Connect with Vanguard, and

 

the ship logo are trademarks of The Vanguard Group, Inc.

Direct Investor Account Services > 800-662-2739

 

 

All other marks are the exclusive property of their

Institutional Investor Services > 800-523-1036

respective owners.

 

 

Text Telephone > 800-952-3335

 

 

All comparative mutual fund data are from Lipper Inc.

 

or Morningstar, Inc., unless otherwise noted.

 

 

 

You can obtain a free copy of Vanguard’s proxy voting

This material may be used in conjunction

guidelines by visiting our website, www.vanguard.com,

with the offering of shares of any Vanguard

and searching for “proxy voting guidelines,” or by calling

fund only if preceded or accompanied by

 

the fund’s current prospectus.

 

 

Vanguard at 800-662-2739. They are also available from

 

the SEC’s website, www.sec.gov. In addition, you may

 

obtain a free report on how your fund voted the proxies for

 

securities it owned during the 12 months ended June 30.

 

To get the report, visit either www.vanguard.com

 

or www.sec.gov.

 

 

 

You can review and copy information about your fund

 

at the SEC’s Public Reference Room in Washington, D.C.

 

To find out more about this public service, call the SEC

 

at 202-551-8090. Information about your fund is also

 

available on the SEC’s website, and you can receive

 

copies of this information, for a fee, by sending a

 

request in either of two ways: via e-mail addressed to

 

publicinfo@sec.gov or via regular mail addressed to the

 

Public Reference Section, Securities and Exchange

 

Commission, Washington, DC 20549-0102.

 

 

 

© 2006 The Vanguard Group, Inc.

 

All rights reserved.

 

Vanguard Marketing Corporation, Distributor.

 

 

 

Q242 062006



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: Not applicable.

Item 11: Controls and Procedures

        (a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.

        (b) Internal Control Over Financial Reporting. There were no significant changes in Registrant‘s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 12: Exhibits.

        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 19, 2006

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 19, 2006

VANGUARD EXPLORER FUND

BY: (signature)
(HEIDI STAM)
THOMAS J. HIGGINS*
TREASURER

Date:   June 19, 2006

*By Power of Attorney. See File Number 2-31333, filed on January 23, 2006. Incorporated by Reference.