-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JoZS6spCnu6NLahXsXCy2j7gh1gnWKqwscCZH8JmJiVwC0EtygORFDRqDwI5z6dg jIEJ0MKwfCs/gN3zkgj+Mw== 0000932471-07-001710.txt : 20071220 0000932471-07-001710.hdr.sgml : 20071220 20071220102330 ACCESSION NUMBER: 0000932471-07-001710 CONFORMED SUBMISSION TYPE: NSAR-B PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20071031 FILED AS OF DATE: 20071220 DATE AS OF CHANGE: 20071220 EFFECTIVENESS DATE: 20071220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD EXPLORER FUND CENTRAL INDEX KEY: 0000034066 IRS NUMBER: 510106626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: NSAR-B SEC ACT: 1940 Act SEC FILE NUMBER: 811-01530 FILM NUMBER: 071318026 BUSINESS ADDRESS: STREET 1: PO BOX 2600 STREET 2: V26 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106696295 MAIL ADDRESS: STREET 1: P.O. 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Registered Public Accounting Firm To the Board of Trustees and Shareholders of Vanguard Explorer Fund In planning and performing our audit of the financial statements of Vanguard Explorer Fund (hereafter referred to as the ?Trust?) as of and for the year ended October 31, 2007, in accordance with the standards of the Public Company Accounting Oversight Board (United States), we considered the Trust?s internal control over financial reporting, including control activities for safeguarding securities, as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements and to comply with the requirements of Form N-SAR, but not for the purpose of expressing an opinion on the effectiveness of the Trust?s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Trust's internal control over financial reporting. The management of the Trust is responsible for establishing and maintaining effective internal control over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. A company?s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Such internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company?s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the company?s ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company?s annual or interim financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our consideration of the Trust?s internal control over financial reporting was for the limited purpose described in the first paragraph and would not necessarily disclose all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses under standards established by the Public Company Accounting Oversight Board (United States). However, we noted no deficiencies in the Trust's internal control over financial reporting and its operation, including controls for safeguarding securities, that we consider to be material weaknesses as defined above as of October 31, 2007. This report is intended solely for the information and use of management and the Board of Trustees of Vanguard Explorer Fund and the Securities and Exchange Commission and is not intended to be and should not be used by anyone other than these specified parties. PricewaterhouseCoopers LLP December 6, 2007 2 2 EX-99.77D POLICIES 3 d77explorer103107.txt ADVISER CONTRACT-AXA [SHIP LOGO VANGUARD /(R)/] VANGUARD(/R/)EXPLORER(/TM/)FUND SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 28, 2007 IMPORTANT CHANGE TO VANGUARD EXPLORER FUND NEW MANAGER JOINS INVESTMENT ADVISORY TEAM The board of trustees of Vanguard Explorer Fund has added AXA Rosenberg Investment Management LLC (AXA Rosenberg) to the Fund's investment advisory team. Effective immediately, AXA Rosenberg will manage a modest portion of the Fund's assets (approximately 10%). AXA Rosenberg and the Fund's other investment advisors independently select and maintain separate portfolios of common stocks for the Fund. The Fund's board of trustees designates the proportion of Fund assets to be managed by each advisor and may change these proportions at any time. INVESTMENT OBJECTIVE, PRIMARY INVESTMENT STRATEGIES, PRIMARY RISKS, AND FEES AND EXPENSES The Fund's investment objective, primary investment strategies, and primary risks will not change. The addition of AXA Rosenberg is not expected to cause a material increase in the Fund's fees or expenses for the current fiscal year. PROSPECTUS TEXT CHANGES The prospectus is revised as follows: In the Fund Profile section, under "Additional Information," the following is added to "Investment Advisors": o AXA ROSENBERG INVESTMENT MANAGEMENT LLC, Orinda, Calif., since 2007 In the More on the Fund section under "Security Selection," the following text is added: AXA ROSENBERG INVESTMENT MANAGEMENT LLC (AXA Rosenberg), which manages approximately 10% of the Fund's assets, constructs a portfolio of common stocks based on fundamental analysis using a two-part quantitative model: a valuation model and an earnings forecast model. The valuation model seeks to identify the fair value of a stock using a sum-of-the-parts technique. The sum of a company's parts is then compared to the current stock price to determine whether the stock appears to be under- or overvalued by the market. The earnings forecast model seeks to identify companies that are expected to have superior, year-ahead earnings. A mix of fundamental indicators (e.g., profitability measures) and indicators from market participants (e.g., analyst forecasts) is combined to generate a forecast of next year's earnings for a company. The output of the two models is combined to form a single predicted return for each company that AXA Rosenberg covers. The predicted returns are fed into a risk model that maximizes the portfolio's expected return while minimizing common factor differences versus the benchmark index. Each stock is compared with its next-best alternative, taking into account round-trip trading costs. AXA Rosenberg optimizes its portfolio against the Russell 2500 Growth Index, the benchmark for the Fund. The following text is added to the Investment Advisors section: AXA ROSENBERG INVESTMENT MANAGEMENT LLC, 4 Orinda Way, Building E, Orinda, CA 94563, is an investment advisory firm founded in 1985. As of April 30, 2007, AXA Rosenberg managed approximately $120 billion in assets. In addition, the first sentence after the list is replaced with the following text: The Fund pays six of its investment advisors--Granahan, Wellington Management, GMO, Chartwell, Kalmar, and AXA Rosenberg--on a quarterly basis. In the Plain Talk((R))titled "The Fund's Portfolio Managers," the following text is added immediately following the paragraph about Mr. Draper: WILLIAM E. RICKS, Americas Chief Executive and Chief Investment Officer at AXA Rosenberg. He has worked in investment management with AXA Rosenberg since 1989 and has managed a portion of the Fund since June 2007. Education: B.S., University of New Orleans; Ph.D., University of California, Berkeley. (C)2007 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. PS24 062007 [SHIP LOGO VANGUARD /(R)/] VANGUARD(/R/)EXPLORER(/TM/)FUND SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 28, 2007 IMPORTANT CHANGE TO VANGUARD EXPLORER FUND NEW MANAGER JOINS INVESTMENT ADVISORY TEAM The board of trustees of Vanguard Explorer Fund has added AXA Rosenberg Investment Management LLC (AXA Rosenberg) to the Fund's investment advisory team. Effective immediately, AXA Rosenberg will manage a modest portion of the Fund's assets (approximately 10%). AXA Rosenberg and the Fund's other investment advisors independently select and maintain separate portfolios of common stocks for the Fund. The Fund's board of trustees designates the proportion of Fund assets to be managed by each advisor and may change these proportions at any time. INVESTMENT OBJECTIVE, PRIMARY INVESTMENT STRATEGIES, PRIMARY RISKS, AND FEES AND EXPENSES The Fund's investment objective, primary investment strategies, and primary risks will not change. The addition of AXA Rosenberg is not expected to cause a material increase in the Fund's fees or expenses for the current fiscal year. PROSPECTUS TEXT CHANGES The prospectus is revised as follows: In the Fund Profile section, under "Additional Information," the following is added to "Investment Advisors": o AXA ROSENBERG INVESTMENT MANAGEMENT LLC, Orinda, Calif., since 2007 In the More on the Fund section under "Security Selection," the following text is added: AXA ROSENBERG INVESTMENT MANAGEMENT LLC (AXA Rosenberg), which manages approximately 10% of the Fund's assets, constructs a portfolio of common stocks based on fundamental analysis using a two-part quantitative model: a valuation model and an earnings forecast model. The valuation model seeks to identify the fair value of a stock using a sum-of-the-parts technique. The sum of a company's parts is then compared to the current stock price to determine whether the stock appears to be under- or overvalued by the market. The earnings forecast model seeks to identify companies that are expected to have superior, year-ahead earnings. A mix of fundamental indicators (e.g., profitability measures) and indicators from market participants (e.g., analyst forecasts) is combined to generate a forecast of next year's earnings for a company. The output of the two models is combined to form a single predicted return for each company that AXA Rosenberg covers. The predicted returns are fed into a risk model that maximizes the portfolio's expected return while minimizing common factor differences versus the benchmark index. Each stock is compared with its next-best alternative, taking into account round-trip trading costs. AXA Rosenberg optimizes its portfolio against the Russell 2500 Growth Index, the benchmark for the Fund. The following text is added to the Investment Advisors section: AXA ROSENBERG INVESTMENT MANAGEMENT LLC, 4 Orinda Way, Building E, Orinda, CA 94563, is an investment advisory firm founded in 1985. As of April 30, 2007, AXA Rosenberg managed approximately $120 billion in assets. In addition, the first sentence after the list is replaced with the following text: The Fund pays six of its investment advisors--Granahan, Wellington Management, GMO, Chartwell, Kalmar, and AXA Rosenberg--on a quarterly basis. In the Plain Talk((R))titled "The Fund's Portfolio Managers," the following text is added immediately following the paragraph about Mr. Draper: WILLIAM E. RICKS, Americas Chief Executive and Chief Investment Officer at AXA Rosenberg. He has worked in investment management with AXA Rosenberg since 1989 and has managed a portion of the Fund since June 2007. Education: B.S., University of New Orleans; Ph.D., University of California, Berkeley. (C)2007 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. PS24 062007 [SHIP LOGO VANGUARD/(R)/] VANGUARD/(R)/ EXPLORER(TM) FUND SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 28, 2007 NEW MANAGER JOINS INVESTMENT ADVISORY TEAM The board of trustees of Vanguard Explorer Fund has added AXA Rosenberg Investment Management LLC (AXA Rosenberg) to the Fund's investment advisory team. Effective immediately, AXA Rosenberg will manage a modest portion of the Fund's assets. AXA Rosenberg and the Fund's other investment advisors each independently select and maintain a portfolio of common stocks for the Fund. The Fund's board of trustees designates the proportion of Fund assets to be managed by each advisor and may change these proportions at any time. STATEMENT OF ADDITIONAL INFORMATION TEXT CHANGES Under the heading "Investment Advisory Services," the following text replaces similar text on page B-29 and adds one bullet point at the top of the list: The Explorer Fund currently uses seven investment advisors: - - AXA ROSENBERG INVESTMENT MANAGEMENT LLC, founded in 1985, provides investment advisory services to a portion of the assets in the Fund. On page B-30, the following text is added before the heading "Chartwell Investment Partners, L.P.": A. AXA ROSENBERG INVESTMENT MANAGEMENT LLC AXA Rosenberg Investment Management LLC (AXA Rosenberg) is an independently operated, 75%-owned subsidiary of AXA Group; the remaining 25% is owned by the firm's founding partners. 1. OTHER ACCOUNTS MANAGED William E. Ricks, Ph.D., manages a portion of the Explorer Fund. As of April 30, 2007, the Fund held assets of $12.4 billion. As of April 30, 2007, Dr. Ricks also managed 15 other registered investment companies with total assets of over $5.5 billion, (including eight with total assets of $1.8 billion for which the advisory fee was based on account performance); 13 other pooled investment vehicles with total assets of over $2.8 billion (including one with assets of $17.5 million for which the advisory fee was based on account performance); and 138 other accounts with total assets of $23.6 billion (including 33 with total assets of $9.3 billion for which the advisory fee was based on account performance). 2. MATERIAL CONFLICTS OF INTEREST AXA Rosenberg recognizes that conflicts of interest are inherent in its business and accordingly has developed policies, procedures, and disclosures that it believes are reasonably designed to detect, manage, and mitigate the effects of potential conflicts of interest in the areas of employee personal trading; managing multiple accounts for multiple clients, including funds; and allocating investment opportunities. Employees are subject to these policies, and oversight is designed to ensure that all clients are treated fairly. Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities for more than one fund or account (including Vanguard Explorer Fund), such as devotion of unequal time and attention to the management of the accounts, inability to allocate limited investment opportunities across a broad band of accounts, and incentive to allocate opportunities to an account where there is a greater financial incentive, such as a performance fee account. AXA Rosenberg believes it has adopted policies and procedures that are reasonably designed to address these types of conflicts and to ensure that the company operates in a manner that is fair and equitable among its clients, including the Fund. Dr. Ricks's management of other accounts may give rise to potential conflicts of interest in connection with his management of the Fund's investments, on the one hand, and the investments of the other accounts, on the other. The other accounts might have investment objectives similar to the Fund's, or hold, purchase, or sell securities that are eligible to be held, purchased, or sold by the Fund. AXA Rosenberg believes that its quantitative investment process and pro rata allocation of investment opportunities diminish the possibility of any conflict of interest resulting in unfair or inequitable allocation of investment opportunities among accounts. AXA Rosenberg also believes that it has adopted policies and procedures designed to manage those conflicts in an appropriate way. 3. DESCRIPTION OF COMPENSATION Compensation is paid by AXA Rosenberg Investment Management LLC. The components include base salary and bonus, both of which are discretionary, and not derived formulaically from performance of any individual accounts, including mutual funds like the Explorer Fund. 4. OWNERSHIP OF SECURITIES As of April 30, 2007, Dr. Ricks owned no shares of the Explorer Fund. On page B-37, the following text is added to the first paragraph under the heading "Duration and Termination of Investment Advisory Agreements": The Trust's current agreement with AXA Rosenberg is binding for a two-year period. At the end of that time, the agreement will become renewable for successive one-year periods, subject to the above conditions. (C)2007 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. 062007 EX-99.77Q3 OTHR EXHB 4 q773explorer103107.txt CAP GAINS ATTACHMENT EXHIBIT 77Q3 TO FORM N-SAR Registrant Name: Vanguard Explorer Fund File Number: 811-1530 Registrant CIK Number: 0000034066 Items 72, 73 and 74 Because the electronic format for filing Form N-SAR does not provide adequate space for responding to Items 72 through 74 completely, the Registrant has set forth in their entirety the complete responses to the indicated Items or Sub-Items below, in accordance with verbal instructions provided to the Registrant by the staff of the Commission on September 20, 2002, and September 23, 2002.
Series 0 Explorer Fund Item 73 Distributions per share for which record date passed during the period: B) 1. Distributions of capital gains $7.424 2. Distributions of capital gains $6.910
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