UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-1530
Name of Registrant: Vanguard Explorer Fund
Address of Registrant:
P.O. Box 2600
Valley Forge, PA 19482
Name and address of agent for service:
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, 2011 – April 30, 2012
Item 1: Reports to Shareholders
 |
| Semiannual Report | April 30, 2012 |
| Vanguard ExplorerTM Fund |
> For the six months ended April 30, 2012, Vanguard Explorer Fund’s Investor Shares returned 10.72% and its Admiral Shares returned 10.81%.
> The fund’s solid results were nevertheless a bit behind those of its comparative standards.
> The fund held strong performers and avoided some trouble spots in the consumer discretionary and materials sectors, but it missed a few opportunities in health care and technology.
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Advisors’ Report. | 6 |
| Fund Profile. | 11 |
| Performance Summary. | 12 |
| Financial Statements. | 13 |
| About Your Fund’s Expenses. | 26 |
| Trustees Approve Advisory Arrangements. | 28 |
| Glossary. | 30 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Vanguard was named for the HMS Vanguard, flagship of British Admiral Horatio Nelson. A ship—whose performance and safety depend on the work of all hands—has served as a fitting metaphor for the Vanguard crew as we strive to help clients reach their financial goals.
Your Fund’s Total Returns
Six Months Ended April 30, 2012
| Total | |
| Returns | |
| Vanguard Explorer Fund | |
| Investor Shares | 10.72% |
| Admiral™ Shares | 10.81 |
| Russell 2500 Growth Index | 11.72 |
| Small-Cap Growth Funds Average | 11.61 |
Small-Cap Growth Funds Average: Derived from data provided by Lipper Inc.
Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements.
Your Fund’s Performance at a Glance
October 31, 2011, Through April 30, 2012
| Distributions Per Share | ||||
| Starting | Ending | Income | Capital | |
| Share Price | Share Price | Dividends | Gains | |
| Vanguard Explorer Fund | ||||
| Investor Shares | $73.02 | $80.74 | $0.096 | $0.000 |
| Admiral Shares | 68.04 | 75.15 | 0.217 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
Vanguard Explorer Fund posted double-digit returns for the first half of the fiscal year but finished a few steps behind its benchmark index and its peer group. For the six months ended April 30, Explorer Fund’s Investor Shares returned 10.72%; its lower-cost Admiral Shares returned 10.81%. The Russell 2500 Growth Index rose 11.72%, and the average return of competing small-cap growth funds was 11.61%.
The strength of the fund’s consumer discretionary and materials stocks was offset by weaker holdings in health care and information technology—its largest sector exposure. The fund also missed a few opportunities in the strongly performing health care sector.
Stocks followed a familiar pattern, reflecting investors’ shifting moods
U.S. stocks delivered strong returns for the six months ended April 30. Signs of economic acceleration in the United States, strength in corporate earnings, and apparent progress in Europe’s debt negotiations created a sense of optimism through much of the period. In fact, the broad U.S. stock market turned in its best first-quarter gain since 1998.
2
By the end of the fiscal half-year, however, apprehension about the same sources of the earlier good news began to weigh on stock prices. Rapid changes in investor sentiment have been a prominent feature of the financial markets since the 2008–2009 crisis, a reflection of broader economic uncertainties.
International stocks generated a modestly positive return. European companies were the weakest performers, trailing the returns of the emerging markets and the developed markets of the Pacific region.
Municipal securities remained a bond market bright spot
The taxable bond market produced solid, if unremarkable, six-month total returns. The yields of U.S. Treasury bonds bobbed higher during the period but dropped at the end as investors put a premium on the safest securities. This “flight to quality” boosted bond prices modestly. (Bond yields and prices move in opposite directions.)
The six-month return of the broad municipal bond market was impressive. Investors have bid up prices as muni yields have continued to hover above those available from fully taxable U.S. Treasury bonds.
| Market Barometer | |||
| Total Returns | |||
| Periods Ended April 30, 2012 | |||
| Six | One | Five Years | |
| Months | Year | (Annualized) | |
| Stocks | |||
| Russell 1000 Index (Large-caps) | 12.89% | 4.11% | 1.23% |
| Russell 2000 Index (Small-caps) | 11.02 | -4.25 | 1.45 |
| Dow Jones U.S. Total Stock Market Index | 12.66 | 3.43 | 1.56 |
| MSCI All Country World Index ex USA (International) | 2.73 | -12.90 | -2.75 |
| Bonds | |||
| Barclays Capital U.S. Aggregate Bond Index (Broad | |||
| taxable market) | 2.44% | 7.54% | 6.37% |
| Barclays Capital Municipal Bond Index (Broad | |||
| tax-exempt market) | 5.50 | 11.36 | 5.60 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.01 | 0.04 | 1.03 |
| CPI | |||
| Consumer Price Index | 1.62% | 2.30% | 2.17% |
3
As it has since December 2008, the Federal Reserve Board kept its target for the shortest-term interest rates between 0% and 0.25%. That policy has kept a tight lid on the returns available from money market funds and savings accounts.
The materials sector stood out but energy and telecom lagged
Vanguard Explorer Fund is managed by six investment advisory firms. Each uses a distinctive strategy to identify small- and midsized companies it believes have the potential to generate robust growth and superior stock market returns.
For the period, the fund generated positive results in all ten industry sectors. Half of them delivered double-digit gains. Materials did best, returning more than 17%. Energy and telecommunication stocks were lackluster; each sector recorded returns of less than 2%.
Health care, the fund’s second-largest sector, was the biggest contributor to performance. Pharmaceuticals, biotechnology, and life sciences companies posted strong gains as investors cheered improved product pipelines and the likelihood of increased M&A activity. Compared with the index, however, the fund’s health care stocks came up short, reflecting some missed opportunities in biotech.
Expense Ratios
Your Fund Compared With Its Peer Group
| Investor | Admiral | Peer Group | |
| Shares | Shares | Average | |
| Explorer Fund | 0.50% | 0.34% | 1.51% |
The fund expense ratios shown are from the prospectus dated February 17, 2012, and represent estimated costs for the current fiscal year.
For the six months ended April 30, 2012, the fund’s annualized expense ratios were 0.50% for Investor Shares and 0.34% for Admiral Shares.
The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2011.
Peer group: Small-Cap Growth Funds.
4
Industrials contributed significantly to the fund’s performance. Capital goods firms benefited from improving demand thanks to the steady, if slow, economic recovery. The fund’s consumer discretionary stocks, notably homebuilding companies, also added. And in materials, the fund managed to avoid potholes in the precious metals mining industry.
One weak spot, at least on a relative basis, was information technology, which accounted for almost one-quarter of fund assets during the period. Although the fund’s holdings in this sector generated solid six-month returns, those in the benchmark index did better. The fund paid a price for its above-benchmark commitment to a handful of software and software-services stocks.
By saving more, you can help secure your financial future
A decade ago, Jack Brennan, my friend and predecessor as Vanguard’s chairman and chief executive officer, published an insightful book, Straight Talk on Investing. My favorite chapter is the one Jack devoted to the importance of savings. “If you really want to accumulate wealth,” he wrote, “live by this aphorism: ‘When in doubt, save it.’ ”
More recently, the authors of a Vanguard research paper affirmed the wisdom of Jack’s statement. The study—Penny Saved, Penny Earned, available at vanguard.com/ research—found that people investing for retirement have a greater likelihood of reaching their goals when they increase their savings rate or time horizon. Raising either of these factors, or both together, generally provides a higher chance of success than simply relying on the possibility of higher portfolio returns, the study’s authors concluded.
Of course, in emphasizing the value of savings, I’m in no way diminishing the importance of having a sound investment plan and balanced, diversified holdings in line with your goals and tolerance for risk. Vanguard Explorer Fund, which provides exposure to the stocks of fast-growing smaller companies, can play a valuable role in such a portfolio.
Thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 15, 2012
5
Advisors’ Report
For the six months ended April 30, 2012, Vanguard Explorer Fund returned 10.72% for Investor Shares and 10.81% for Admiral Shares. Your fund is managed by six independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct, yet complementary, investment approaches. It’s not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The table following this report lists the advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies. The advisors have provided the following assessment of the investment environment during the past six months and the notable successes and shortfalls in their portfolios. (Please note that the Granahan and Kalmar discussions refer to industry sectors as defined by Russell classifications, rather than by the Global Industry Classification Standard used elsewhere in this report.) These comments were prepared on May 11, 2012.
Wellington Management Company, LLP
Portfolio Manager:
Kenneth L. Abrams, Senior Vice President and Equity Portfolio Manager
Investment environment: U.S. stocks posted double-digit returns, but developed equity markets elsewhere saw more muted results. The market appeared to be returning to a more normalized environment following the extreme fear and volatility of recent periods. Regardless, we remain true to our process, using an opportunistic and flexible approach to build the portfolio from the bottom up by investing in high-quality, smaller market-capitalization companies.
Successes: Stock selection was favorable within the consumer discretionary sector. Liz Claiborne, PulteGroup, and Lennar boosted portfolio returns. Liz Claiborne, the clothing retailer, saw its shares climb during the period based on strong earnings results. We continue to hold our position in the company and believe the stock represents a solid growth opportunity. Security selection in financials and materials also contributed favorably.
Shortfalls: Security selection in the health care, telecommunication services, and information technology sectors hindered results. Broadband communications and device company Vonage was our largest detractor; its shares declined on lackluster earnings guidance. However, we view Vonage’s long-term prospects favorably. Our position in oil and natural gas exploration and production company Quicksilver Resources also detracted. Shares declined as a result of slow progress in shifting production from low-return natural gas to higher-margin oil.
6
Granahan Investment Management, Inc.
Portfolio Manager:
Jack Granahan, CFA, Managing Partner
Investment environment: Revenue growth in our universe of companies is the strongest it has been since the first quarter of 2008. However, while margins are still improving, this improvement has moderated as companies spend on new product development, equipment, and personnel. The price/earnings ratio on our portion of the fund’s portfolio is 24. This is lower than the portfolio’s earnings growth rate but higher than the 16 P/E ratio of the S&P 500 Index. The nimble, small firms in our portfolio are able to grow at faster rates than the larger companies, and trends remain favorable for them to continue to boost earnings. Stock prices follow earnings growth; the environment is encouraging for well-managed small-cap growth companies.
Successes: Regeneron continued its leading performance from last year; its new drug for treating wet age-related macular degeneration posted strong sales. In technology, VeriFone (POS systems) and Sourcefire (security software) had better-than-expected results, and SuccessFactors (HR software) was bought out by SAP, a large German software company. Lastly, Clean Energy rose because of falling natural gas prices, as well as announcements that natural gas engine vehicles will be available without a retrofit.
Shortfalls: Health care, consumer discretionary, and producer durable companies drove the six-month performance of the Russell 2500 Growth benchmark index. Our commensurate sector holdings pulled back from their strong showings in 2011 and detracted from relative performance. These stocks included WebMD Health (online medical education), Riverbed Technology (WAN optimization appliances), GeoEye (geospatial imaging), and Genesee & Wyoming (short-line railroad).
Kalmar Investment Advisers
Portfolio Manager:
Ford B. Draper, Jr., President and Chief Investment Officer
Investment environment: From 2011’s low at the beginning of October to the end of March 2012, the U.S. stock market experienced a powerful rally. It recovered from a confidence crisis precipitated by fears of a double-dip recession and anxiety over Eurozone sovereign debt. During April, moderating U.S. economic reports and fresh worries about Europe as its recession deepened reawakened the earlier concerns, causing the market to enter a period of correction. We remain optimistic that the United States will not repeat the sharp slowdowns of 2010 and 2011 and that a gradual economic recovery
7
will proceed. However, uncertainty on several important fronts suggests that concentrating on high-quality businesses and substantial diversification is warranted. Careful stock selection will be important, because valuations of many good growth companies are not as cheap as they were last fall.
Successes: Our biggest successes came from a variety of sectors, including EnerSys, IHS Inc., and Chicago Bridge & Iron in producer durables and W.R. Grace and FMC in materials and processing.
Shortfalls: Over the last six months, our largest detractors included Deckers Outdoor and Gentex in the consumer discretionary sector and Rovi and RF Micro Devices in technology.
Century Capital Management, LLC
Portfolio Manager:
Alexander L. Thorndike, Chief Investment Officer and Managing Partner
Investment environment: The equity markets delivered positive results during the period. Most of the excitement in the news over the next six months will center on the Supreme Court, the presidential election, and the resulting outlook for taxes and spending over the next congressional term. While we may expect stock market performance to pause and digest its recent gains, our earnings outlook remains optimistic. Operating margins are near peak levels, and many companies will need to drive sales growth in order to increase earnings at this stage of the recovery. This may require changes to their capital expenditures and hiring plans for the coming year.
Successes: Industrials was our best-performing sector, led by Beacon Roofing Supply, Inc., and TAL International Group, Inc. Consumer discretionary stocks also contributed, most notably Select Comfort Corp. and Sally Beauty Holdings, Inc.
Shortfalls: Materials was the weakest-performing sector during the period; Schnitzer Steel Industries, Inc., and Intrepid Potash, Inc., were among the top detractors. Financials also lagged as Och-Ziff Capital Management Group underperformed.
Chartwell Investment Partners, L.P.
Portfolio Managers:
Edward N. Antoian, CFA, CPA, Managing Partner
John A. Heffern, Managing Partner and Senior Portfolio Manager
Investment environment: The environment remains unsettled, with many global challenges to growth still unresolved. Against this backdrop, our portfolio decisions steadfastly reflected our bias toward quality, leadership, defensible margins, and a pattern of successful execution around growth-oriented business plans. 8
Successes: United Rentals was our top-performing holding during the period, appreciating meaningfully on good results and an outlook for continued strong demand and profit margins. Heartland Payment Systems, a transaction processor, also produced solid investment returns after a substantial acceleration in revenue and earnings growth. The portfolio also benefited from investments in two acquired companies: Catalyst Health Solutions, a pharmacy benefit manager, and AboveNet, a provider of high-bandwidth connectivity solutions.
Shortfalls: Our investment in MDC Partners, an advertising agency, performed poorly as growth investments drove disappointing margins. Rex Energy, a natural gas exploration and production company, was adversely affected by a decline in natural gas commodity prices.
Vanguard Equity Investment Group
Portfolio Managers:
James D. Troyer, CFA, Principal
James P. Stetler, Principal Michael R. Roach, CFA
Investment environment: U.S. equity markets posted strong returns in the first half of the fiscal year, buoyed largely by strength in corporate earnings, rising consumer confidence, and positive employment trends. However, concerns about European sovereign debt and global GDP growth continue to weigh on the market.
Against this macro backdrop, our stock selection model did well. Our growth, management decisions, market sentiment, and quality signals all experienced positive performance, while our valuation signal detracted slightly.
Successes: Stock selection results were best in the materials and consumer discretionary sectors, where overweight positions in Brinker International (+39%), Pier 1 Imports (+38%), Westlake Chemical (+56%), and Eastman Chemical (+39%) contributed most. Underweighting poorly performing securities such as Deckers Outdoor (–56%) also benefited performance.
Shortfalls: Stock selection in health care, industrials, and telecommunications detracted from performance relative to our benchmark index. Specifically, underweight positions in holdings such as Ametek (+28%) and overweight positions in securities such as Vonage (–39%) dragged.
9
Vanguard Explorer Fund Investment Advisors
| Fund Assets Managed | |||
| Investment Advisor | % | $ Million | Investment Strategy |
| Wellington Management | 27 | 2,671 | 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. | |||
| Granahan Investment | 24 | 2,354 | Bases its investment process on the beliefs that |
| Management, Inc. | earnings drive stock prices and that small, dynamic | ||
| companies with exceptional growth prospects have the | |||
| greatest long-term potential. A bottom-up, fundamental | |||
| approach places companies in one of three life-cycle | |||
| categories: pioneer, core growth, and special situation. | |||
| In each, the process looks for companies with strong | |||
| earnings growth potential and leadership in their | |||
| markets. | |||
| Kalmar Investment Advisers | 24 | 2,293 | Employs a “growth with value” strategy using creative, |
| bottom-up research to uncover vigorously growing, | |||
| high-quality businesses whose stocks can also be | |||
| bought inefficiently valued. The strategy has a dual | |||
| objective of strong returns with lower risk. | |||
| Century Capital Management, | 10 | 964 | Employs a fundamental, bottom-up approach that |
| LLC | attempts to identify reasonably priced companies that | ||
| will grow faster than the overall market. Companies | |||
| also must have a superior return on equity, high | |||
| recurring revenues, and improving margins. | |||
| Chartwell Investment Partners, | 9 | 864 | Uses a bottom-up, fundamental, research-driven |
| L.P. | 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. | |||
| Vanguard Equity Investment | 4 | 378 | Employs a quantitative fundamental management |
| Group | approach, using models that assess valuation, growth | ||
| prospects, management decisions, market sentiment, | |||
| and earnings quality of companies as compared with | |||
| their peers. | |||
| Cash Investments | 2 | 176 | 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. | |||
10
Explorer Fund
Fund Profile
As of April 30, 2012
| Share-Class Characteristics | ||
| Investor | Admiral | |
| Shares | Shares | |
| Ticker Symbol | VEXPX | VEXRX |
| Expense Ratio1 | 0.50% | 0.34% |
| 30-Day SEC Yield | 0.00% | 0.15% |
| Portfolio Characteristics | |||
| Russell | DJ | ||
| 2500 | U.S. Total | ||
| Growth | Market | ||
| Fund | Index | Index | |
| Number of Stocks | 568 | 1,433 | 3,716 |
| Median Market Cap | $2.5B | $2.8B | $36.0B |
| Price/Earnings Ratio | 22.3x | 25.6x | 16.7x |
| Price/Book Ratio | 2.6x | 3.5x | 2.3x |
| Return on Equity | 10.7% | 13.6% | 18.2% |
| Earnings Growth Rate | 11.4% | 11.3% | 8.6% |
| Dividend Yield | 0.5% | 0.8% | 2.0% |
| Foreign Holdings | 4.1% | 0.0% | 0.0% |
| Turnover Rate | |||
| (Annualized) | 57% | — | — |
| Short-Term Reserves | 1.9% | — | — |
| Sector Diversification (% of equity exposure) | |||
| Russell | DJ | ||
| 2500 | U.S. Total | ||
| Growth | Market | ||
| Fund | Index | Index | |
| Consumer | |||
| Discretionary | 16.5% | 15.1% | 12.2% |
| Consumer Staples | 2.6 | 4.0 | 9.5 |
| Energy | 6.5 | 8.2 | 10.5 |
| Financials | 6.7 | 8.4 | 15.8 |
| Health Care | 19.2 | 16.0 | 11.5 |
| Industrials | 16.9 | 17.4 | 10.9 |
| Information | |||
| Technology | 25.0 | 21.7 | 19.5 |
| Materials | 5.4 | 7.5 | 4.0 |
| Telecommunication | |||
| Services | 1.1 | 1.3 | 2.6 |
| Utilities | 0.1 | 0.4 | 3.5 |
| Volatility Measures | ||
| DJ | ||
| U.S. Total | ||
| Russell 2500 | Market | |
| Growth Index | Index | |
| R-Squared | 0.99 | 0.92 |
| Beta | 0.99 | 1.19 |
| These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. | ||
| Ten Largest Holdings (% of total net assets) | ||
| Cooper Cos. Inc. | Health Care | |
| Supplies | 1.2% | |
| Alliance Data Systems | Data Processing & | |
| Corp. | Outsourced | |
| Services | 0.9 | |
| Ariba Inc. | Systems Software | 0.9 |
| VeriFone Systems Inc. | Data Processing & | |
| Outsourced | ||
| Services | 0.8 | |
| Salix Pharmaceuticals | ||
| Ltd. | Pharmaceuticals | 0.8 |
| Bruker Corp. | Life Sciences Tools | |
| & Services | 0.8 | |
| Cadence Design | Application | |
| Systems Inc. | Software | 0.8 |
| Sapient Corp. | IT Consulting & | |
| Other Services | 0.7 | |
| TiVo Inc. | Application | |
| Software | 0.7 | |
| Urban Outfitters Inc. | Apparel Retail | 0.6 |
| Top Ten | 8.2% | |
| The holdings listed exclude any temporary cash investments and equity index products. | ||
Investment Focus
1 The expense ratios shown are from the prospectus dated February 17, 2012, and represent estimated costs for the current fiscal year. For the six months ended April 30, 2012, the annualized expense ratios were 0.50% for Investor Shares and 0.34% for Admiral Shares.
11
Explorer Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): October 31, 2001, Through April 30, 2012
Average Annual Total Returns: Periods Ended March 31, 2012
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| Inception | One | Five | Ten | |
| Date | Year | Years | Years | |
| Investor Shares | 12/11/1967 | 2.44% | 3.24% | 5.95% |
| Admiral Shares | 11/12/2001 | 2.62 | 3.42 | 6.12 |
See Financial Highlights for dividend and capital gains information.
12
Explorer Fund
Financial Statements (unaudited)
Statement of Net Assets—Investments Summary
As of April 30, 2012
This Statement summarizes the fund’s holdings by asset type. Details are reported for each of the fund’s 50 largest individual holdings and for investments that, in total for any issuer, represent more than 1% of the fund’s net assets. The total value of smaller holdings is reported as a single amount within each category.
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the complete listing of the fund’s holdings is available electronically on vanguard.com and on the Securities and Exchange Commission’s website (sec.gov), or you can have it mailed to you without charge by calling 800-662-7447. For the first and third fiscal quarters, the fund files the lists with the SEC on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | Percentage | |||
| Value | of Net | |||
| Shares | ($000) | Assets | ||
| Common Stocks | ||||
| Consumer Discretionary | ||||
| * | Urban Outfitters Inc. | 2,176,045 | 63,018 | 0.7% |
| * | Life Time Fitness Inc. | 1,346,145 | 62,677 | 0.6% |
| * | Liz Claiborne Inc. | 4,240,020 | 56,816 | 0.6% |
| Lennar Corp. Class A | 1,713,355 | 47,528 | 0.5% | |
| ^ | GameStop Corp. Class A | 1,993,445 | 45,371 | 0.5% |
| * | PulteGroup Inc. | 4,464,515 | 43,931 | 0.5% |
| * | CarMax Inc. | 1,406,070 | 43,405 | 0.4% |
| * | Express Inc. | 1,709,275 | 40,373 | 0.4% |
| * | Cheesecake Factory Inc. | 1,270,526 | 40,022 | 0.4% |
| Gentex Corp. | 1,815,620 | 39,889 | 0.4% | |
| Consumer Discretionary—Other † | 1,061,404 | 10.9% | ||
| 1,544,434 | 15.9% | |||
| Consumer Staples † | 241,020 | 2.5% | ||
| Energy | ||||
| ^ | Core Laboratories NV | 317,375 | 43,474 | 0.5% |
| * | Superior Energy Services Inc. | 1,547,251 | 41,652 | 0.4% |
| Energy—Other † | 521,670 | 5.4% | ||
| 606,796 | 6.3% | |||
| Exchange-Traded Funds | ||||
| 1 | Vanguard Small-Cap ETF | 865,083 | 67,407 | 0.7% |
| ^,1 | Vanguard Small-Cap Growth ETF | 713,200 | 61,407 | 0.6% |
| Exchange-Traded Funds—Other † | 11,670 | 0.1% | ||
| 140,484 | 1.4% | |||
| Financials | ||||
| *,2 | HFF Inc. Class A | 2,930,765 | 47,889 | 0.5% |
| *,2 | eHealth Inc. | 1,463,925 | 25,941 | 0.3% |
| Financials—Other † | 537,767 | 5.5% | ||
| 611,597 | 6.3% | |||
13
Explorer Fund
| Market | Percentage | |||
| Value | of Net | |||
| Shares | ($000) | Assets | ||
| Health Care | ||||
| Cooper Cos. Inc. | 1,291,938 | 113,910 | 1.2% | |
| * | Salix Pharmaceuticals Ltd. | 1,526,165 | 75,393 | 0.8% |
| * | Bruker Corp. | 4,920,427 | 73,954 | 0.8% |
| * | Gen-Probe Inc. | 750,075 | 61,169 | 0.6% |
| Coventry Health Care Inc. | 1,756,485 | 52,677 | 0.6% | |
| * | Alkermes plc | 3,005,435 | 51,994 | 0.5% |
| * | Elan Corp. plc ADR | 3,655,188 | 50,405 | 0.5% |
| * | Amylin Pharmaceuticals Inc. | 1,719,458 | 44,551 | 0.5% |
| * | Questcor Pharmaceuticals Inc. | 987,921 | 44,358 | 0.5% |
| * | Health Management Associates Inc. Class A | 5,947,887 | 42,825 | 0.4% |
| * | Regeneron Pharmaceuticals Inc. | 309,880 | 41,914 | 0.4% |
| *,^ | Seattle Genetics Inc. | 2,078,664 | 41,095 | 0.4% |
| Health Care—Other † | 1,107,126 | 11.4% | ||
| 1,801,371 | 18.6% | |||
| Industrials | ||||
| Kennametal Inc. | 1,459,527 | 61,636 | 0.6% | |
| * | IHS Inc. Class A | 576,140 | 58,230 | 0.6% |
| Triumph Group Inc. | 753,900 | 47,360 | 0.5% | |
| MSC Industrial Direct Co. Inc. Class A | 606,005 | 44,669 | 0.5% | |
| * | Genesee & Wyoming Inc. Class A | 785,673 | 42,356 | 0.4% |
| * | Middleby Corp. | 394,485 | 40,028 | 0.4% |
| Industrials—Other † | 1,284,766 | 13.3% | ||
| 1,579,045 | 16.3% | |||
| Information Technology | ||||
| * | Alliance Data Systems Corp. | 706,793 | 90,816 | 0.9% |
| * | Ariba Inc. | 2,246,622 | 85,821 | 0.9% |
| * | VeriFone Systems Inc. | 1,652,315 | 78,716 | 0.8% |
| * | Cadence Design Systems Inc. | 6,269,400 | 73,164 | 0.8% |
| Sapient Corp. | 5,740,903 | 68,719 | 0.7% | |
| * | TiVo Inc. | 5,985,420 | 64,583 | 0.7% |
| * | Teradyne Inc. | 3,536,920 | 60,870 | 0.6% |
| * | Microsemi Corp. | 2,601,990 | 55,995 | 0.6% |
| * | MICROS Systems Inc. | 868,221 | 49,341 | 0.5% |
| * | Rovi Corp. | 1,600,420 | 45,772 | 0.5% |
| * | Ultimate Software Group Inc. | 582,299 | 44,930 | 0.5% |
| * | Parametric Technology Corp. | 1,982,346 | 42,779 | 0.4% |
| Syntel Inc. | 705,033 | 42,224 | 0.4% | |
| MKS Instruments Inc. | 1,507,270 | 41,676 | 0.4% | |
| * | FEI Co. | 824,245 | 41,352 | 0.4% |
| * | F5 Networks Inc. | 302,495 | 40,513 | 0.4% |
| Information Technology—Other † | 1,412,987 | 14.6% | ||
| 2,340,258 | 24.1% | |||
| Materials | ||||
| * | WR Grace & Co. | 800,075 | 47,693 | 0.5% |
| FMC Corp. | 396,495 | 43,793 | 0.5% | |
| Silgan Holdings Inc. | 913,290 | 40,066 | 0.4% | |
| Materials—Other † | 370,865 | 3.8% | ||
| 502,417 | 5.2% | |||
| Telecommunication Services † | 105,275 | 1.1% | ||
| Utilities † | 8,860 | 0.1% | ||
| Total Common Stocks (Cost $7,543,466) | 9,481,557 | 97.8%3 | ||
14
Explorer Fund
| Market | Percentage | |||
| Value | of Net | |||
| Coupon | Shares | ($000) | Assets | |
| Temporary Cash Investments | ||||
| Money Market Fund | ||||
| 4,5 Vanguard Market Liquidity Fund | 0.137% | 268,633,189 | 268,633 | 2.7% |
| Repurchase Agreement † | 9,800 | 0.1% | ||
| 6U.S. Government and Agency Obligations † | 7,599 | 0.1% | ||
| Total Temporary Cash Investments (Cost $286,032) | 286,032 | 2.9%3 | ||
| Total Investments (Cost $7,829,498) | 9,767,589 | 100.7% | ||
| Other Assets and Liabilities | ||||
| Other Assets | 104,773 | 1.1% | ||
| Liabilities5 | (172,973) | (1.8%) | ||
| (68,200) | (0.7%) | |||
| Net Assets | 9,699,389 | 100.0% | ||
15
Explorer Fund
At April 30, 2012, net assets consisted of:
| Amount | |
| ($000) | |
| Paid-in Capital | 7,659,357 |
| Overdistributed Net Investment Income | (13,436) |
| Accumulated Net Realized Gains | 115,487 |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 1,938,091 |
| Futures Contracts | (116) |
| Foreign Currencies | 6 |
| Net Assets | 9,699,389 |
| Investor Shares—Net Assets | |
| Applicable to 73,135,171 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 5,905,207 |
| Net Asset Value Per Share—Investor Shares | $80.74 |
| Admiral Shares—Net Assets | |
| Applicable to 50,487,660 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 3,794,182 |
| Net Asset Value Per Share—Admiral Shares | $75.15 |
See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $52,376,000.
† Represents the aggregate value, by category, of securities that are not among the 50 largest holdings and, in total for any issuer, represent 1% or less of net assets.
1 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
2 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
3 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 98.3% and 2.4%, respectively, of net assets.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
5 Includes $54,347,000 of collateral received for securities on loan.
6 Securities with a value of $3,100,000 have been segregated as initial margin for open futures contracts.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Explorer Fund
Statement of Operations
| Six Months Ended | |
| April 30, 2012 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends1,2 | 27,254 |
| Interest2 | 148 |
| Security Lending | 1,077 |
| Total Income | 28,479 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 9,987 |
| Performance Adjustment | (637) |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 7,846 |
| Management and Administrative—Admiral Shares | 1,941 |
| Marketing and Distribution—Investor Shares | 670 |
| Marketing and Distribution—Admiral Shares | 422 |
| Custodian Fees | 84 |
| Shareholders’ Reports—Investor Shares | 16 |
| Shareholders’ Reports—Admiral Shares | 15 |
| Trustees’ Fees and Expenses | 11 |
| Total Expenses | 20,355 |
| Expenses Paid Indirectly | (128) |
| Net Expenses | 20,227 |
| Net Investment Income | 8,252 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold2 | 310,256 |
| Futures Contracts | 11,693 |
| Foreign Currencies | 2 |
| Realized Net Gain (Loss) | 321,951 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | 631,058 |
| Futures Contracts | 602 |
| Foreign Currencies | (15) |
| Change in Unrealized Appreciation (Depreciation) | 631,645 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 961,848 |
1 Dividends are net of foreign withholding taxes of $276,000.
2 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $1,128,000, $134,000, and $579,000, respectively.
See accompanying Notes, which are an integral part of the Financial Statements.
17
Explorer Fund
Statement of Changes in Net Assets
| Six Months Ended | Year Ended | |
| April 30, | October 31, | |
| 2012 | 2011 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 8,252 | 17,186 |
| Realized Net Gain (Loss) | 321,951 | 1,405,645 |
| Change in Unrealized Appreciation (Depreciation) | 631,645 | (411,730) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 961,848 | 1,011,101 |
| Distributions | ||
| Net Investment Income | ||
| Investor Shares | (7,529) | (9,771) |
| Admiral Shares | (10,619) | (9,545) |
| Realized Capital Gain | ||
| Investor Shares | — | — |
| Admiral Shares | — | — |
| Total Distributions | (18,148) | (19,316) |
| Capital Share Transactions | ||
| Investor Shares | (543,179) | (1,113,873) |
| Admiral Shares | 146,363 | 121,274 |
| Net Increase (Decrease) from Capital Share Transactions | (396,816) | (992,599) |
| Total Increase (Decrease) | 546,884 | (814) |
| Net Assets | ||
| Beginning of Period | 9,152,505 | 9,153,319 |
| End of Period1 | 9,699,389 | 9,152,505 |
| 1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($13,436,000) and ($3,542,000). | ||
See accompanying Notes, which are an integral part of the Financial Statements.
18
Explorer Fund
Financial Highlights
Investor Shares
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | April 30, | Year Ended October 31, | ||||
| Throughout Each Period | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 |
| Net Asset Value, Beginning of Period | $73.02 | $66.02 | $51.77 | $45.54 | $83.93 | $80.26 |
| Investment Operations | ||||||
| Net Investment Income | .036 | .077 | .109 | .178 | .295 | .362 |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 7.780 | 7.029 | 14.239 | 6.334 | (31.589) | 11.052 |
| Total from Investment Operations | 7.816 | 7.106 | 14.348 | 6.512 | (31.294) | 11.414 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.096) | (.106) | (.098) | (.282) | (.310) | (.320) |
| Distributions from Realized Capital Gains | — | — | — | — | (6.786) | (7.424) |
| Total Distributions | (.096) | (.106) | (.098) | (.282) | (7.096) | (7.744) |
| Net Asset Value, End of Period | $80.74 | $73.02 | $66.02 | $51.77 | $45.54 | $83.93 |
| Total Return1 | 10.72% | 10.76% | 27.74% | 14.46% | -40.17% | 15.31% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,905 | $5,864 | $6,290 | $5,677 | $5,026 | $8,937 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets2 | 0.50% | 0.50% | 0.49% | 0.54% | 0.44% | 0.41% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 0.11% | 0.12% | 0.19% | 0.38% | 0.40% | 0.44% |
| Portfolio Turnover Rate | 57% | 89%3 | 82% | 95% | 112% | 90% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Includes performance-based investment advisory fee increases (decreases) of (0.01%), 0.00%, (0.01%), (0.01%), (0.02%), and (0.04%).
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Explorer Fund
Financial Highlights
Admiral Shares
| Six Months | ||||||
| Ended | ||||||
| For a Share Outstanding | April 30, | Year Ended October 31, | ||||
| Throughout Each Period | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 |
| Net Asset Value, Beginning of Period | $68.04 | $61.50 | $48.21 | $42.45 | $78.25 | $74.82 |
| Investment Operations | ||||||
| Net Investment Income | .096 | .179 | .206 | .246 | .385 | .478 |
| Net Realized and Unrealized Gain (Loss) | ||||||
| on Investments | 7.231 | 6.550 | 13.259 | 5.881 | (29.442) | 10.299 |
| Total from Investment Operations | 7.327 | 6.729 | 13.465 | 6.127 | (29.057) | 10.777 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.217) | (.189) | (.175) | (.367) | (.427) | (.437) |
| Distributions from Realized Capital Gains | — | — | — | — | (6.316) | (6.910) |
| Total Distributions | (.217) | (.189) | (.175) | (.367) | (6.743) | (7.347) |
| Net Asset Value, End of Period | $75.15 | $68.04 | $61.50 | $48.21 | $42.45 | $78.25 |
| Total Return1 | 10.81% | 10.94% | 27.98% | 14.66% | -40.07% | 15.53% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $3,794 | $3,288 | $2,864 | $2,252 | $2,023 | $3,652 |
| Ratio of Total Expenses to | ||||||
| Average Net Assets2 | 0.34% | 0.34% | 0.32% | 0.34% | 0.26% | 0.23% |
| Ratio of Net Investment Income to | ||||||
| Average Net Assets | 0.27% | 0.28% | 0.36% | 0.58% | 0.58% | 0.62% |
| Portfolio Turnover Rate | 57% | 89%3 | 82% | 95% | 112% | 90% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
2 Includes performance-based investment advisory fee increases (decreases) of (0.01%), 0.00%, (0.01%), (0.01%), (0.02%), and (0.04%).
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares.
See accompanying Notes, which are an integral part of the Financial Statements.
20
Explorer Fund
Notes to Financial Statements
Vanguard Explorer Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. 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 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued at their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
21
Explorer Fund
4. Repurchase Agreements: The fund may enter into 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. In the event of default or bankruptcy by the other party to the agreement, the fund may sell or retain the collateral; however, such action 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. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2008–2011), and for the period ended April 30, 2012, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
6. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
7. 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 fees charged to borrowers plus 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. Wellington Management Company, LLP, Granahan Investment Management, Inc., Kalmar Investment Advisers, Century Capital Management, LLC, and Chartwell Investment Partners, L.P. each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fees of Wellington Management Company, LLP, Granahan Investment Management, Inc., and Kalmar Investment Advisers, are subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2500 Growth Index. The basic fee of Century Capital Management, LLC, is subject to quarterly adjustments based on performance for the preceding three years relative to a 50/50 blend of the Russell 2500 Index and Russell 2500 Growth Index. The basic fee of Chartwell Investment Partners, L.P. is subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 2500 Growth Index for periods prior to February 1, 2012, and the new benchmark, Russell 2000 Growth Index, beginning February 1, 2012. The new benchmark will be fully phased in by January 31, 2015.
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 $155,000 for the six months ended April 30, 2012.
22
Explorer Fund
For the six months ended April 30, 2012, the aggregate investment advisory fee represented an effective annual basic rate of 0.21% of the fund’s average net assets, before a decrease of $637,000 (0.01%) 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, 2012, the fund had contributed capital of $1,445,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.58% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. For the six months ended April 30, 2012, these arrangements reduced the fund’s expenses by $128,000 (an annual rate of 0.00% of average net assets).
E. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of April 30, 2012, based on the inputs used to value them:
| Level 1 | Level 2 | Level 3 | |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 9,451,499 | 30,058 | — |
| Temporary Cash Investments | 268,633 | 17,399 | — |
| Futures Contracts—Assets1 | 121 | — | — |
| Futures Contracts—Liabilities1 | (671) | — | — |
| Total | 9,719,582 | 47,457 | — |
| 1 Represents variation margin on the last day of the reporting period. | |||
23
Explorer Fund
F. At April 30, 2012, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
| ($000) | ||||
| Aggregate | ||||
| Number of | Settlement | Unrealized | ||
| Long (Short) | Value | Appreciation | ||
| Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
| E-mini S&P MidCap 400 Index | June 2012 | 385 | 38,100 | 26 |
| E-mini Russell 2000 Index | June 2012 | 131 | 10,675 | (142) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
G. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended April 30, 2012, the fund realized net foreign currency gains of $2,000, which increased distributable net income for tax purposes; accordingly, such gains have been reclassified from accumulated net realized gains to overdistributed net investment income.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at October 31, 2011, the fund had available capital loss carryforwards totaling $192,848,000 to offset future net capital gains through October 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending October 31, 2012; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At April 30, 2012, the cost of investment securities for tax purposes was $7,829,498,000. Net unrealized appreciation of investment securities for tax purposes was $1,938,091,000, consisting of unrealized gains of $2,386,352,000 on securities that had risen in value since their purchase and $448,261,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the six months ended April 30, 2012, the fund purchased $2,618,128,000 of investment securities and sold $3,028,045,000 of investment securities, other than temporary cash investments.
24
Explorer Fund
I. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| April 30, 2012 | October 31, 2011 | |||
| Amount | Shares | Amount | Shares | |
| ($000) | (000) | ($000) | (000) | |
| Investor Shares | ||||
| Issued | 302,851 | 3,947 | 1,036,029 | 14,148 |
| Issued in Lieu of Cash Distributions | 7,422 | 103 | 9,647 | 133 |
| Redeemed | (853,452) | (11,220) | (2,159,549) | (29,243) |
| Net Increase (Decrease)—Investor Shares | (543,179) | (7,170) | (1,113,873) | (14,962) |
| Admiral Shares | ||||
| Issued | 495,148 | 7,066 | 1,282,862 | 18,703 |
| Issued in Lieu of Cash Distributions | 9,801 | 146 | 8,743 | 130 |
| Redeemed | (358,586) | (5,054) | (1,170,331) | (17,067) |
| Net Increase (Decrease)—Admiral Shares | 146,363 | 2,158 | 121,274 | 1,766 |
J. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company. Transactions during the period in securities of these companies were as follows:
| Current Period Transactions | |||||
| Oct. 31, 2011 | Proceeds from | April 30, 2012 | |||
| Market | Purchases | Securities | Dividend | Market | |
| Value | at Cost | Sold | Income | Value | |
| ($000) | ($000) | ($000) | ($000) | ($000) | |
| eHealth Inc. | NA1 | 10,329 | (398) | — | 25,941 |
| HFF Inc. Class A | 34,678 | 356 | 3,511 | — | 47,889 |
| TiVo Inc. | 66,203 | 2,909 | 4,329 | — | NA2 |
| 100,881 | — | 73,830 | |||
1 Not applicable—At October 31, 2011, the issuer was not an affiliated company of the fund.
2 Not applicable—At April 30, 2012, the security was still held, but the issuer was no longer an affiliated company of the fund.
K. In preparing the financial statements as of April 30, 2012, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements.
25
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
26
Six Months Ended April 30, 2012
| Beginning | Ending | Expenses | |
| Account Value | Account Value | Paid During | |
| Explorer Fund | 10/31/2011 | 4/30/2012 | Period |
| Based on Actual Fund Return | |||
| Investor Shares | $1,000.00 | $1,107.19 | $2.62 |
| Admiral Shares | 1,000.00 | 1,108.06 | 1.78 |
| Based on Hypothetical 5% Yearly Return | |||
| Investor Shares | $1,000.00 | $1,022.38 | $2.51 |
| Admiral Shares | 1,000.00 | 1,023.17 | 1.71 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.50% for Investor Shares and 0.34% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
27
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Explorer Fund renewed the fund’s investment advisory arrangements with Granahan Investment Management, Inc.; Kalmar Investment Advisers; The Vanguard Group, Inc. (through its Equity Investment Group); Wellington Management Company, llp; and Century Capital Management, LLC, and approved amendments to the fund’s investment advisory agreement with Chartwell Investment Partners, L.P. Effective February 1, 2012, the compensation benchmark for Chartwell Investment Partners, L.P., was replaced with the Russell 2000 Growth Index. The board concluded that the new index is a more suitable index for the advisor. The board determined that the retention of the advisors and amendment to the investment advisory agreement with Chartwell was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the fund’s investment management over both the short and long term, and took into account the organizational depth and stability of each advisor. The board noted the following: Granahan Investment Management, Inc. Founded in 1985, Granahan specializes in small-cap growth equity investing. The firm uses fundamental research to select a portfolio of 125–175 stocks with sustainable growth characteristics. The advisor achieves portfolio diversification through dedicated allocations to three categories of growth companies: core growth (40%–70% of subportfolio assets), represented by companies with strong market position, based on proprietary products or services; pioneers (15%–30%), companies with unique technology or innovations; and special value (15%–30%), companies with growth potential overlooked by the market. The firm has managed a portion of the fund since 1990.
Wellington Management Company, LLP. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. Using a bottom-up, fundamentally driven approach, Wellington Management invests opportunistically in a diversified portfolio of high-quality stocks. The advisor attempts to identify companies that are early in their growth cycle. The research-intensive approach is supported by the team’s deep and tenured analytical staff, which may also make use of Wellington Management’s extensive industry research capabilities. The firm has advised the fund since 1967.
Kalmar Investment Advisers. Kalmar, together with its parent company, Kalmar Investments Inc., founded in 1982, specializes in small- and mid-cap growth equity investing. Kalmar is a research-driven investment firm that is entirely focused on the management of “growth with value” small- and mid-cap equity portfolios. Kalmar believes that there is a high-reward and low-risk anomaly offered by the equity market in the stocks of solid, well-managed, rapidly growing smaller companies. Through independent fundamental research, Kalmar attempts to discover such companies, buy them at undervalued levels, and own them for the longer term. The firm has managed a portion of the fund since 2005.
The Vanguard Group, Inc. Vanguard has been managing investments for more than three decades. The Equity Investment Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth. Vanguard has managed a portion of the fund since 1997.
28
Chartwell Investment Partners, L.P. Chartwell is an independent, employee-owned firm, founded in 1997. The firm has expertise in small- and mid-cap equity management and employs a fundamental bottom-up strategy, seeking companies with superior growth potential trading at reasonable valuations. The firm has managed a portion of the fund since 1997.
Century Capital Management, LLC. Century Capital is a Boston-based investment management boutique, owned by the investment professionals within the firm. The public equity team, led by chief investment officer Alexander L. Thorndike, oversees two mutual funds: a small-cap growth fund and a large-cap fund. The team also oversees small-cap growth and small/mid-cap growth portfolios for institutional investors. Century Capital employs a fundamental, bottom-up investment approach that seeks to identify reasonably priced companies that will grow faster than the overall market. Independent research is a core tenet. The ideal investment is a well-managed company that is reasonably valued, in a non-capital-intensive business, with established products or services, a high return on equity, high recurring revenues, and improving margins. The firm has managed a portion of the fund since 2008.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of and amendment to (as applicable) 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 a relevant benchmark and peer group. 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 peer group. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
The board did not consider profitability of Granahan, Wellington Management, Kalmar, Chartwell, and Century Capital 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 Granahan, Wellington Management, Kalmar, Chartwell, and Century Capital. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board also concluded that the fund’s 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.
29
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
30
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
31
The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 179 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
| InterestedTrustee1 | and Delphi Automotive LLP (automotive components); |
| Senior Advisor at New Mountain Capital; Trustee of | |
| F. William McNabb III | The Conference Board. |
| Born 1957. Trustee Since July 2009. Chairman of the | |
| Board. Principal Occupation(s) During the Past Five | Amy Gutmann |
| Years: Chairman of the Board of The Vanguard Group, | Born 1949. Trustee Since June 2006. Principal |
| Inc., and of each of the investment companies served | Occupation(s) During the Past Five Years: President |
| by The Vanguard Group, since January 2010; Director | of the University of Pennsylvania; Christopher H. |
| of The Vanguard Group since 2008; Chief Executive | Browne Distinguished Professor of Political Science |
| Officer and President of The Vanguard Group and of | in the School of Arts and Sciences with secondary |
| each of the investment companies served by The | appointments at the Annenberg School for |
| Vanguard Group since 2008; Director of Vanguard | Communication and the Graduate School of Education |
| Marketing Corporation; Managing Director of The | of the University of Pennsylvania; Member of the |
| Vanguard Group (1995–2008). | National Commission on the Humanities and Social |
| Sciences; Trustee of Carnegie Corporation of New | |
| York and of the National Constitution Center; Chair | |
| IndependentTrustees | of the U. S. Presidential Commission for the Study |
| of Bioethical Issues. | |
| Emerson U. Fullwood | |
| Born 1948. Trustee Since January 2008. Principal | JoAnn Heffernan Heisen |
| Occupation(s) During the Past Five Years: Executive | Born 1950. Trustee Since July 1998. Principal |
| Chief Staff and Marketing Officer for North America | Occupation(s) During the Past Five Years: Corporate |
| and Corporate Vice President (retired 2008) of Xerox | Vice President and Chief Global Diversity Officer |
| Corporation (document management products and | (retired 2008) and Member of the Executive |
| services); Executive in Residence and 2010 | Committee (1997–2008) of Johnson & Johnson |
| Distinguished Minett Professor at the Rochester | (pharmaceuticals/medical devices/consumer |
| Institute of Technology; Director of SPX Corporation | products); Director of Skytop Lodge Corporation |
| (multi-industry manufacturing), the United Way of | (hotels), the University Medical Center at Princeton, |
| Rochester, Amerigroup Corporation (managed health | the Robert Wood Johnson Foundation, and the Center |
| care), the University of Rochester Medical Center, | for Talent Innovation; Member of the Advisory Board |
| Monroe Community College Foundation, and North | of the Maxwell School of Citizenship and Public Affairs |
| Carolina A&T University. | at Syracuse University. |
| Rajiv L. Gupta | F. Joseph Loughrey |
| Born 1945. Trustee Since December 2001.2 | Born 1949. Trustee Since October 2009. Principal |
| Principal Occupation(s) During the Past Five Years: | Occupation(s) During the Past Five Years: President |
| Chairman and Chief Executive Officer (retired 2009) | and Chief Operating Officer (retired 2009) of Cummins |
| and President (2006–2008) of Rohm Haas Co. | Inc. (industrial machinery); Director of SKF AB |
| (chemicals); Director of Tyco International, Ltd. | (industrial machinery), Hillenbrand, Inc. (specialized |
| (diversified manufacturing and services), Hewlett- | consumer services), the Lumina Foundation for |
| Packard Co. (electronic computer manufacturing), | |
| Education, and Oxfam America; Chairman of the | Executive Officers | |
| Advisory Council for the College of Arts and Letters | ||
| and Member of the Advisory Board to the Kellogg | Glenn Booraem | |
| Institute for International Studies at the University | Born 1967. Controller Since July 2010. Principal | |
| of Notre Dame. | Occupation(s) During the Past Five Years: Principal | |
| of The Vanguard Group, Inc.; Controller of each of | ||
| Mark Loughridge | the investment companies served by The Vanguard | |
| Born 1953. Trustee Since March 2012. Principal | Group; Assistant Controller of each of the investment | |
| Occupation(s) During the Past Five Years: Senior Vice | companies served by The Vanguard Group (2001–2010). | |
| President and Chief Financial Officer at IBM (information | ||
| technology services); Fiduciary Member of IBM’s | Thomas J. Higgins | |
| Retirement Plan Committee. | Born 1957. Chief Financial Officer Since September | |
| 2008. Principal Occupation(s) During the Past Five | ||
| Scott C. Malpass | Years: Principal of The Vanguard Group, Inc.; Chief | |
| Born 1962. Trustee Since March 2012. Principal | Financial Officer of each of the investment companies | |
| Occupation(s) During the Past Five Years: Chief | served by The Vanguard Group; Treasurer of each of | |
| Investment Officer and Vice President at the University | the investment companies served by The Vanguard | |
| of Notre Dame; Assistant Professor of Finance at the | Group (1998–2008). | |
| Mendoza College of Business at Notre Dame; Member | ||
| of the Notre Dame 403(b) Investment Committee; | Kathryn J. Hyatt | |
| Director of TIFF Advisory Services, Inc. (investment | Born 1955. Treasurer Since November 2008. Principal | |
| advisor); Member of the Investment Advisory | Occupation(s) During the Past Five Years: Principal of | |
| Committees of the Financial Industry Regulatory | The Vanguard Group, Inc.; Treasurer of each of the | |
| Authority (FINRA) and of Major League Baseball. | investment companies served by The Vanguard | |
| Group; Assistant Treasurer of each of the investment | ||
| André F. Perold | companies served by The Vanguard Group (1988–2008). | |
| Born 1952. Trustee Since December 2004. Principal | ||
| Occupation(s) During the Past Five Years: George | Heidi Stam | |
| Gund Professor of Finance and Banking at the Harvard | Born 1956. Secretary Since July 2005. Principal | |
| Business School (retired 2011); Chief Investment | Occupation(s) During the Past Five Years: Managing | |
| Officer and Managing Partner of HighVista Strategies | Director of The Vanguard Group, Inc.; General Counsel | |
| LLC (private investment firm); Director of Rand | of The Vanguard Group; Secretary of The Vanguard | |
| Merchant Bank; Overseer of the Museum of Fine | Group and of each of the investment companies | |
| Arts Boston. | served by The Vanguard Group; Director and Senior | |
| Vice President of Vanguard Marketing Corporation. | ||
| Alfred M. Rankin, Jr. | ||
| Born 1941. Trustee Since January 1993. Principal | ||
| Occupation(s) During the Past Five Years: Chairman, | Vanguard Senior ManagementTeam | |
| President, and Chief Executive Officer of NACCO | ||
| Industries, Inc. (forklift trucks/housewares/lignite); | Mortimer J. Buckley | Michael S. Miller |
| Director of Goodrich Corporation (industrial products/ | Kathleen C. Gubanich | James M. Norris |
| aircraft systems and services) and the National | Paul A. Heller | Glenn W. Reed |
| Association of Manufacturers; Chairman of the Board | Martha G. King | George U. Sauter |
| of the Federal Reserve Bank of Cleveland and of | Chris D. McIsaac | |
| University Hospitals of Cleveland; Advisory Chairman | ||
| of the Board of The Cleveland Museum of Art. | ||
| Chairman Emeritus and Senior Advisor | ||
| Peter F. Volanakis | ||
| Born 1955. Trustee Since July 2009. Principal | John J. Brennan | |
| Occupation(s) During the Past Five Years: President | Chairman, 1996–2009 | |
| and Chief Operating Officer (retired 2010) of Corning | Chief Executive Officer and President, 1996–2008 | |
| Incorporated (communications equipment); Director | ||
| of SPX Corporation (multi-industry manufacturing); | ||
| Overseer of the Amos Tuck School of Business | Founder | |
| Administration at Dartmouth College; Advisor to the | ||
| Norris Cotton Cancer Center. | John C. Bogle | |
| Chairman and Chief Executive Officer, 1974–1996 | ||
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
 | |
| P.O. Box 2600 | |
| Valley Forge, PA 19482-2600 |
Connect with Vanguard® > vanguard.com
| Fund Information > 800-662-7447 | CFA® is a trademark owned by CFA Institute. |
| Direct Investor Account Services > 800-662-2739 | |
| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| With Hearing Impairment > 800-749-7273 | |
| This material may be used in conjunction | |
| with the offering of shares of any Vanguard | |
| fund only if preceded or accompanied by | |
| the fund’s current prospectus. | |
| All comparative mutual fund data are from Lipper Inc. or | |
| Morningstar, Inc., unless otherwise noted. | |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
| addition, you may obtain a free report on how your fund | |
| voted the proxies for securities it owned during the 12 | |
| months ended June 30. To get the report, visit either | |
| vanguard.com/proxyreporting or sec.gov. | |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| © 2012 The Vanguard Group, Inc. | |
| All rights reserved. | |
| Vanguard Marketing Corporation, Distributor. | |
| Q242 062012 | |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Common Stocks (97.8%)1 | |||
| Consumer Discretionary (15.9%) | |||
| * | Urban Outfitters Inc. | 2,176,045 | 63,018 |
| * | Life Time Fitness Inc. | 1,346,145 | 62,677 |
| * | Liz Claiborne Inc. | 4,240,020 | 56,816 |
| Lennar Corp. Class A | 1,713,355 | 47,528 | |
| ^ | GameStop Corp. Class A | 1,993,445 | 45,371 |
| * | PulteGroup Inc. | 4,464,515 | 43,931 |
| * | CarMax Inc. | 1,406,070 | 43,405 |
| * | Express Inc. | 1,709,275 | 40,373 |
| * | Cheesecake Factory Inc. | 1,270,526 | 40,022 |
| Gentex Corp. | 1,815,620 | 39,889 | |
| * | Sally Beauty Holdings Inc. | 1,390,771 | 36,995 |
| Aaron's Inc. | 1,348,790 | 36,647 | |
| Tractor Supply Co. | 357,525 | 35,184 | |
| * | MGM Resorts International | 2,598,350 | 34,870 |
| * | Steven Madden Ltd. | 793,500 | 34,287 |
| DSW Inc. Class A | 600,550 | 33,787 | |
| Cinemark Holdings Inc. | 1,454,000 | 33,384 | |
| * | TRW Automotive Holdings Corp. | 641,831 | 29,338 |
| * | Bally Technologies Inc. | 548,526 | 26,631 |
| * | LKQ Corp. | 777,695 | 26,014 |
| * | DreamWorks Animation SKG Inc. Class A | 1,432,640 | 25,802 |
| Texas Roadhouse Inc. Class A | 1,482,060 | 25,566 | |
| * | ANN Inc. | 903,471 | 25,017 |
| Tiffany & Co. | 361,300 | 24,735 | |
| * | AMC Networks Inc. Class A | 563,300 | 23,940 |
| Churchill Downs Inc. | 400,000 | 23,744 | |
| Dana Holding Corp. | 1,609,800 | 23,535 | |
| * | Crocs Inc. | 1,163,285 | 23,498 |
| Service Corp. International | 2,002,130 | 23,185 | |
| Dunkin' Brands Group Inc. | 715,865 | 23,173 | |
| DeVry Inc. | 679,195 | 21,836 | |
| * | Steiner Leisure Ltd. | 463,500 | 21,766 |
| * | Live Nation Entertainment Inc. | 2,179,380 | 19,745 |
| * | Coinstar Inc. | 311,571 | 19,564 |
| Men's Wearhouse Inc. | 491,400 | 18,201 | |
| * | Buffalo Wild Wings Inc. | 216,000 | 18,112 |
| Belo Corp. Class A | 2,569,800 | 17,320 | |
| GNC Holdings Inc. Class A | 414,957 | 16,208 | |
| Pier 1 Imports Inc. | 914,959 | 15,719 | |
| Chico's FAS Inc. | 1,015,300 | 15,595 | |
| Weight Watchers International Inc. | 204,300 | 15,519 | |
| * | Deckers Outdoor Corp. | 289,800 | 14,783 |
| * | American Public Education Inc. | 424,500 | 14,739 |
| Brunswick Corp. | 543,805 | 14,297 | |
| * | Select Comfort Corp. | 490,250 | 14,158 |
| Ulta Salon Cosmetics & Fragrance Inc. | 159,197 | 14,038 | |
| * | Genesco Inc. | 164,950 | 12,371 |
| * | WMS Industries Inc. | 489,800 | 12,005 |
| * | Hibbett Sports Inc. | 191,346 | 11,427 |
| * | Carter's Inc. | 208,300 | 11,311 |
| * | Lululemon Athletica Inc. | 150,000 | 11,121 |
| * | Fossil Inc. | 81,700 | 10,676 |
| Group 1 Automotive Inc. | 169,166 | 9,791 | |
| *,^ | ITT Educational Services Inc. | 147,104 | 9,712 |
| * | Jos A Bank Clothiers Inc. | 200,000 | 9,510 |
| * | O'Reilly Automotive Inc. | 86,100 | 9,080 |
| * | K12 Inc. | 335,990 | 8,568 |
| bebe stores inc | 1,031,000 | 8,454 | |
| * | Pandora Media Inc. | 933,200 | 8,026 |
| * | SodaStream International Ltd. | 210,000 | 7,213 |
| * | BJ's Restaurants Inc. | 160,000 | 6,910 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | ||
| Value | ||
| Shares | ($000) | |
| * Zagg Inc. | 521,300 | 6,793 |
| DR Horton Inc. | 339,619 | 5,553 |
| * Tempur-Pedic International Inc. | 92,165 | 5,423 |
| * Aeropostale Inc. | 222,000 | 4,924 |
| * Caribou Coffee Co. Inc. | 250,975 | 4,118 |
| PetSmart Inc. | 69,095 | 4,025 |
| * Cost Plus Inc. | 189,757 | 3,676 |
| Monro Muffler Brake Inc. | 88,025 | 3,632 |
| Polaris Industries Inc. | 45,458 | 3,611 |
| * Peet's Coffee & Tea Inc. | 40,100 | 3,080 |
| Brinker International Inc. | 88,699 | 2,791 |
| * Capella Education Co. | 80,400 | 2,630 |
| Foot Locker Inc. | 80,200 | 2,453 |
| * Goodyear Tire & Rubber Co. | 217,500 | 2,388 |
| Domino's Pizza Inc. | 59,442 | 2,247 |
| Buckle Inc. | 48,100 | 2,221 |
| * Sirius XM Radio Inc. | 897,400 | 2,028 |
| Ameristar Casinos Inc. | 110,800 | 1,992 |
| Harman International Industries Inc. | 40,100 | 1,988 |
| Regal Entertainment Group Class A | 126,800 | 1,726 |
| * Tumi Holdings Inc. | 63,200 | 1,610 |
| Sinclair Broadcast Group Inc. Class A | 143,800 | 1,478 |
| * Conn's Inc. | 88,697 | 1,450 |
| * Tenneco Inc. | 36,577 | 1,128 |
| * DineEquity Inc. | 15,600 | 758 |
| Sotheby's | 9,082 | 357 |
| * Vitamin Shoppe Inc. | 4,600 | 217 |
| 1,544,434 | ||
| Consumer Staples (2.5%) | ||
| Herbalife Ltd. | 553,793 | 38,943 |
| * Smithfield Foods Inc. | 1,578,250 | 33,080 |
| PriceSmart Inc. | 391,790 | 32,338 |
| * United Natural Foods Inc. | 598,194 | 29,485 |
| * Monster Beverage Corp. | 286,300 | 18,598 |
| * Hain Celestial Group Inc. | 355,850 | 16,832 |
| * Green Mountain Coffee Roasters Inc. | 333,600 | 16,263 |
| Casey's General Stores Inc. | 286,000 | 16,116 |
| McCormick & Co. Inc. | 215,150 | 12,029 |
| * Boston Beer Co. Inc. Class A | 115,653 | 11,949 |
| * Cott Corp. | 541,470 | 3,547 |
| Diamond Foods Inc. | 160,000 | 3,344 |
| * Susser Holdings Corp. | 73,000 | 1,948 |
| B&G Foods Inc. Class A | 78,940 | 1,756 |
| * Rite Aid Corp. | 1,115,100 | 1,617 |
| Church & Dwight Co. Inc. | 27,800 | 1,412 |
| Nu Skin Enterprises Inc. Class A | 23,027 | 1,227 |
| Lancaster Colony Corp. | 8,220 | 536 |
| 241,020 | ||
| Energy (6.3%) | ||
| ^ Core Laboratories NV | 317,375 | 43,474 |
| * Superior Energy Services Inc. | 1,547,251 | 41,652 |
| * Atwood Oceanics Inc. | 744,325 | 32,996 |
| Tidewater Inc. | 561,795 | 30,916 |
| * Key Energy Services Inc. | 2,398,025 | 30,359 |
| * SemGroup Corp. Class A | 929,900 | 29,571 |
| * Carrizo Oil & Gas Inc. | 1,035,180 | 29,026 |
| * Rosetta Resources Inc. | 575,000 | 28,905 |
| * Whiting Petroleum Corp. | 472,100 | 27,004 |
| * SandRidge Energy Inc. | 3,338,565 | 26,675 |
| Cabot Oil & Gas Corp. | 756,065 | 26,568 |
| * Clean Energy Fuels Corp. | 1,318,620 | 25,370 |
| * ION Geophysical Corp. | 3,641,538 | 22,687 |
| * Comstock Resources Inc. | 1,247,530 | 21,919 |
| * TETRA Technologies Inc. | 2,129,316 | 18,546 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | |||
| Value | |||
| Shares | ($000) | ||
| * | Tesco Corp. | 985,053 | 16,086 |
| * | Gulfport Energy Corp. | 552,025 | 14,469 |
| * | Pioneer Drilling Co. | 1,736,950 | 13,687 |
| Oceaneering International Inc. | 260,800 | 13,465 | |
| * | Southwestern Energy Co. | 397,625 | 12,557 |
| * | McDermott International Inc. | 1,068,590 | 12,075 |
| * | Kodiak Oil & Gas Corp. | 1,192,963 | 10,558 |
| Niko Resources Ltd. | 240,475 | 10,106 | |
| * | Rex Energy Corp. | 951,540 | 10,001 |
| RPC Inc. | 908,350 | 9,392 | |
| * | Energy XXI Bermuda Ltd. | 167,900 | 6,327 |
| * | Mitcham Industries Inc. | 205,990 | 4,894 |
| HollyFrontier Corp. | 113,546 | 3,500 | |
| SM Energy Co. | 49,800 | 3,292 | |
| CARBO Ceramics Inc. | 38,000 | 3,195 | |
| Helmerich & Payne Inc. | 60,000 | 3,083 | |
| * | Hornbeck Offshore Services Inc. | 72,000 | 2,997 |
| * | CVR Energy Inc. | 93,500 | 2,839 |
| Western Refining Inc. | 116,300 | 2,216 | |
| * | Stone Energy Corp. | 78,900 | 2,213 |
| * | Oil States International Inc. | 27,800 | 2,212 |
| * | Gulfmark Offshore Inc. | 42,000 | 2,023 |
| * | Oasis Petroleum Inc. | 56,400 | 1,865 |
| * | Clayton Williams Energy Inc. | 23,032 | 1,694 |
| W&T Offshore Inc. | 82,328 | 1,628 | |
| * | Basic Energy Services Inc. | 104,700 | 1,508 |
| * | Callon Petroleum Co. | 210,600 | 1,224 |
| Patterson-UTI Energy Inc. | 68,800 | 1,113 | |
| * | Vaalco Energy Inc. | 76,000 | 689 |
| * | Cloud Peak Energy Inc. | 14,313 | 220 |
| 606,796 | |||
| Exchange-Traded Funds (1.4%) | |||
| 2 | Vanguard Small-Cap ETF | 865,083 | 67,407 |
| ^,2 | Vanguard Small-Cap Growth ETF | 713,200 | 61,407 |
| ^ | iShares Russell 2000 Index Fund | 143,310 | 11,670 |
| 140,484 | |||
| Financials (6.3%) | |||
| *,3 | HFF Inc. Class A | 2,930,765 | 47,889 |
| * | Affiliated Managers Group Inc. | 318,875 | 36,231 |
| * | NASDAQ OMX Group Inc. | 1,317,977 | 32,383 |
| Regions Financial Corp. | 4,701,800 | 31,690 | |
| East West Bancorp Inc. | 1,387,500 | 31,593 | |
| Cash America International Inc. | 651,200 | 30,444 | |
| International Bancshares Corp. | 1,461,025 | 28,826 | |
| National Penn Bancshares Inc. | 2,955,613 | 27,251 | |
| Zions Bancorporation | 1,294,500 | 26,395 | |
| *,3 | eHealth Inc. | 1,463,925 | 25,941 |
| * | National Financial Partners Corp. | 1,748,447 | 25,790 |
| * | Signature Bank | 366,850 | 24,098 |
| MFA Financial Inc. | 3,227,325 | 23,818 | |
| * | LPL Investment Holdings Inc. | 654,180 | 23,478 |
| Och-Ziff Capital Management Group LLC Class A | 2,611,100 | 22,925 | |
| * | Financial Engines Inc. | 947,300 | 21,636 |
| PS Business Parks Inc. | 298,543 | 20,375 | |
| Protective Life Corp. | 554,397 | 16,222 | |
| Jefferies Group Inc. | 947,813 | 15,099 | |
| Cardinal Financial Corp. | 1,137,107 | 13,725 | |
| Evercore Partners Inc. Class A | 470,500 | 12,435 | |
| Wintrust Financial Corp. | 337,600 | 12,197 | |
| Essex Property Trust Inc. | 73,300 | 11,579 | |
| * | WisdomTree Investments Inc. | 1,200,300 | 10,263 |
| * | Ocwen Financial Corp. | 644,930 | 9,616 |
| First Midwest Bancorp Inc. | 297,922 | 3,173 | |
| Digital Realty Trust Inc. | 41,065 | 3,084 | |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | |||
| Value | |||
| Shares | ($000) | ||
| QC Holdings Inc. | 566,930 | 2,324 | |
| * | World Acceptance Corp. | 31,476 | 2,093 |
| * | Credit Acceptance Corp. | 22,103 | 2,078 |
| Nelnet Inc. Class A | 78,076 | 2,016 | |
| Camden Property Trust | 29,000 | 1,962 | |
| * | Ezcorp Inc. Class A | 61,629 | 1,651 |
| Home Properties Inc. | 26,600 | 1,624 | |
| * | First Cash Financial Services Inc. | 34,561 | 1,416 |
| Omega Healthcare Investors Inc. | 64,300 | 1,377 | |
| Extra Space Storage Inc. | 42,300 | 1,284 | |
| CBL & Associates Properties Inc. | 64,200 | 1,196 | |
| National Health Investors Inc. | 22,200 | 1,098 | |
| Rayonier Inc. | 18,127 | 822 | |
| Highwoods Properties Inc. | 21,200 | 736 | |
| Apartment Investment & Management Co. | 24,500 | 665 | |
| Federal Realty Investment Trust | 5,700 | 574 | |
| * | Investors Bancorp Inc. | 14,300 | 221 |
| * | Taylor Capital Group Inc. | 11,300 | 157 |
| Amtrust Financial Services Inc. | 5,400 | 147 | |
| 611,597 | |||
| Health Care (18.6%) | |||
| Cooper Cos. Inc. | 1,291,938 | 113,910 | |
| * | Salix Pharmaceuticals Ltd. | 1,526,165 | 75,393 |
| * | Bruker Corp. | 4,920,427 | 73,954 |
| * | Gen-Probe Inc. | 750,075 | 61,169 |
| Coventry Health Care Inc. | 1,756,485 | 52,677 | |
| * | Alkermes plc | 3,005,435 | 51,994 |
| * | Elan Corp. plc ADR | 3,655,188 | 50,405 |
| * | Amylin Pharmaceuticals Inc. | 1,719,458 | 44,551 |
| * | Questcor Pharmaceuticals Inc. | 987,921 | 44,358 |
| * | Health Management Associates Inc. Class A | 5,947,887 | 42,825 |
| * | Regeneron Pharmaceuticals Inc. | 309,880 | 41,914 |
| *,^ | Seattle Genetics Inc. | 2,078,664 | 41,095 |
| Universal Health Services Inc. Class B | 925,000 | 39,507 | |
| * | ResMed Inc. | 1,087,250 | 36,977 |
| * | Luminex Corp. | 1,397,190 | 34,986 |
| * | Henry Schein Inc. | 433,950 | 33,301 |
| * | ICON plc ADR | 1,400,195 | 31,056 |
| * | Volcano Corp. | 1,108,095 | 30,085 |
| * | BioMarin Pharmaceutical Inc. | 855,800 | 29,696 |
| DENTSPLY International Inc. | 718,350 | 29,495 | |
| * | Bio-Rad Laboratories Inc. Class A | 273,110 | 29,493 |
| * | Mettler-Toledo International Inc. | 160,359 | 28,756 |
| * | Onyx Pharmaceuticals Inc. | 618,300 | 28,139 |
| * | Incyte Corp. Ltd. | 1,235,680 | 28,025 |
| West Pharmaceutical Services Inc. | 623,850 | 28,011 | |
| * | Ardea Biosciences Inc. | 814,940 | 25,964 |
| * | Edwards Lifesciences Corp. | 298,600 | 24,775 |
| * | Alexion Pharmaceuticals Inc. | 272,800 | 24,639 |
| * | Insulet Corp. | 1,372,340 | 24,510 |
| * | Cubist Pharmaceuticals Inc. | 572,580 | 24,209 |
| * | IPC The Hospitalist Co. Inc. | 618,044 | 23,739 |
| * | Vertex Pharmaceuticals Inc. | 614,900 | 23,661 |
| * | Watson Pharmaceuticals Inc. | 306,835 | 23,123 |
| * | Kindred Healthcare Inc. | 2,383,819 | 22,980 |
| Quality Systems Inc. | 608,475 | 22,757 | |
| * | Jazz Pharmaceuticals plc | 445,400 | 22,729 |
| * | PAREXEL International Corp. | 827,550 | 22,294 |
| * | MWI Veterinary Supply Inc. | 234,587 | 22,145 |
| * | ABIOMED Inc. | 875,613 | 21,304 |
| * | SXC Health Solutions Corp. | 232,592 | 21,068 |
| * | Brookdale Senior Living Inc. Class A | 1,073,450 | 20,406 |
| * | WellCare Health Plans Inc. | 305,515 | 18,691 |
| * | QIAGEN NV | 1,058,100 | 17,702 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | ||
| Value | ||
| Shares | ($000) | |
| * Allscripts Healthcare Solutions Inc. | 1,498,200 | 16,600 |
| * Nektar Therapeutics | 2,137,500 | 16,288 |
| * Akorn Inc. | 1,295,620 | 15,716 |
| * Align Technology Inc. | 458,600 | 14,542 |
| * WuXi PharmaTech Cayman Inc. ADR | 989,650 | 14,231 |
| Patterson Cos. Inc. | 415,800 | 14,175 |
| * Momenta Pharmaceuticals Inc. | 880,690 | 13,985 |
| * Cyberonics Inc. | 359,130 | 13,755 |
| * Warner Chilcott plc Class A | 606,900 | 13,200 |
| * Catalyst Health Solutions Inc. | 141,014 | 12,179 |
| * Health Net Inc. | 333,410 | 11,873 |
| * Cepheid Inc. | 287,564 | 11,045 |
| * Sirona Dental Systems Inc. | 212,500 | 10,733 |
| * Immunogen Inc. | 823,400 | 10,498 |
| * Tornier NV | 407,202 | 9,667 |
| * Air Methods Corp. | 108,700 | 9,143 |
| Invacare Corp. | 475,550 | 7,537 |
| * Greenway Medical Technologies | 470,120 | 7,240 |
| * Optimer Pharmaceuticals Inc. | 487,308 | 7,212 |
| * Isis Pharmaceuticals Inc. | 791,439 | 6,332 |
| * NPS Pharmaceuticals Inc. | 642,820 | 4,603 |
| * ICU Medical Inc. | 80,997 | 4,252 |
| * AMERIGROUP Corp. | 61,100 | 3,774 |
| * NxStage Medical Inc. | 197,479 | 3,357 |
| * Sagent Pharmaceuticals Inc. | 167,288 | 3,009 |
| * Charles River Laboratories International Inc. | 72,400 | 2,572 |
| * InterMune Inc. | 241,775 | 2,524 |
| * Medicines Co. | 109,554 | 2,420 |
| * Orthofix International NV | 56,500 | 2,329 |
| * Dynavax Technologies Corp. | 447,150 | 2,240 |
| * Pharmacyclics Inc. | 80,400 | 2,216 |
| Chemed Corp. | 34,506 | 2,082 |
| * Centene Corp. | 52,300 | 2,071 |
| * Team Health Holdings Inc. | 94,700 | 2,040 |
| Perrigo Co. | 18,092 | 1,898 |
| * Molina Healthcare Inc. | 65,950 | 1,692 |
| * Thoratec Corp. | 47,200 | 1,643 |
| * Acorda Therapeutics Inc. | 49,800 | 1,257 |
| * Select Medical Holdings Corp. | 138,900 | 1,190 |
| * Hi-Tech Pharmacal Co. Inc. | 36,300 | 1,183 |
| * Auxilium Pharmaceuticals Inc. | 54,500 | 977 |
| * Array BioPharma Inc. | 266,145 | 929 |
| Atrion Corp. | 4,000 | 923 |
| Computer Programs & Systems Inc. | 14,900 | 888 |
| * Omnicell Inc. | 61,700 | 880 |
| * Covance Inc. | 15,200 | 711 |
| * Par Pharmaceutical Cos. Inc. | 16,100 | 682 |
| * Infinity Pharmaceuticals Inc. | 41,100 | 555 |
| PDL BioPharma Inc. | 84,500 | 531 |
| * ArthroCare Corp. | 19,650 | 490 |
| * Exelixis Inc. | 90,725 | 435 |
| * Genomic Health Inc. | 12,692 | 364 |
| * Impax Laboratories Inc. | 9,535 | 235 |
| 1,801,371 | ||
| Industrials (16.3%) | ||
| Kennametal Inc. | 1,459,527 | 61,636 |
| * IHS Inc. Class A | 576,140 | 58,230 |
| Triumph Group Inc. | 753,900 | 47,360 |
| MSC Industrial Direct Co. Inc. Class A | 606,005 | 44,669 |
| * Genesee & Wyoming Inc. Class A | 785,673 | 42,356 |
| * Middleby Corp. | 394,485 | 40,028 |
| * EnerSys | 1,132,140 | 39,568 |
| * BE Aerospace Inc. | 829,807 | 39,026 |
| * RBC Bearings Inc. | 821,818 | 38,527 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Pentair Inc. | 870,680 | 37,735 | |
| Chicago Bridge & Iron Co. NV | 798,551 | 35,472 | |
| * | Teledyne Technologies Inc. | 540,877 | 34,951 |
| Belden Inc. | 981,140 | 34,124 | |
| * | US Airways Group Inc. | 3,086,205 | 31,664 |
| Progressive Waste Solutions Ltd. | 1,448,405 | 31,372 | |
| * | AerCap Holdings NV | 2,553,526 | 29,570 |
| Knight Transportation Inc. | 1,795,625 | 29,484 | |
| * | Huron Consulting Group Inc. | 821,355 | 28,945 |
| Towers Watson & Co. Class A | 441,900 | 28,900 | |
| * | Esterline Technologies Corp. | 406,800 | 27,862 |
| * | Beacon Roofing Supply Inc. | 1,029,450 | 27,476 |
| Con-way Inc. | 838,410 | 27,248 | |
| * | United Rentals Inc. | 578,471 | 27,003 |
| Flowserve Corp. | 228,905 | 26,308 | |
| * | Moog Inc. Class A | 598,525 | 25,300 |
| Snap-on Inc. | 404,110 | 25,273 | |
| AMETEK Inc. | 490,020 | 24,663 | |
| Armstrong World Industries Inc. | 553,395 | 24,372 | |
| Manpower Inc. | 562,460 | 23,961 | |
| Lennox International Inc. | 551,676 | 23,943 | |
| Landstar System Inc. | 396,530 | 21,242 | |
| * | WESCO International Inc. | 305,261 | 20,266 |
| Waste Connections Inc. | 617,100 | 19,889 | |
| *,^ | Polypore International Inc. | 525,875 | 19,641 |
| UTi Worldwide Inc. | 1,152,235 | 19,208 | |
| * | Hub Group Inc. Class A | 545,126 | 19,079 |
| * | TrueBlue Inc. | 1,066,210 | 18,403 |
| Titan International Inc. | 577,500 | 16,684 | |
| TAL International Group Inc. | 391,388 | 16,168 | |
| * | Mobile Mini Inc. | 856,568 | 16,155 |
| ABM Industries Inc. | 692,900 | 16,131 | |
| * | Meritor Inc. | 2,443,567 | 15,908 |
| * | II-VI Inc. | 747,950 | 15,266 |
| * | Chart Industries Inc. | 198,905 | 15,202 |
| Woodward Inc. | 364,600 | 15,164 | |
| * | Stericycle Inc. | 174,815 | 15,139 |
| * | Rush Enterprises Inc. Class A | 834,401 | 15,086 |
| * | AGCO Corp. | 319,300 | 14,870 |
| * | Corrections Corp. of America | 474,760 | 13,716 |
| * | Advisory Board Co. | 149,750 | 13,651 |
| Corporate Executive Board Co. | 320,205 | 13,247 | |
| Graco Inc. | 247,700 | 13,205 | |
| * | Atlas Air Worldwide Holdings Inc. | 282,050 | 12,988 |
| * | Old Dominion Freight Line Inc. | 287,925 | 12,804 |
| * | Rexnord Corp. | 576,380 | 12,726 |
| * | Alaska Air Group Inc. | 373,749 | 12,633 |
| * | Colfax Corp. | 356,790 | 12,092 |
| * | Hexcel Corp. | 438,365 | 12,002 |
| * | CAI International Inc. | 459,546 | 9,494 |
| * | Trimas Corp. | 420,252 | 9,250 |
| * | Clean Harbors Inc. | 129,081 | 8,808 |
| Watsco Inc. | 109,200 | 7,857 | |
| Robbins & Myers Inc. | 155,348 | 7,567 | |
| * | Exponent Inc. | 147,522 | 7,052 |
| Gardner Denver Inc. | 88,632 | 5,774 | |
| * | General Cable Corp. | 173,640 | 5,112 |
| * | Team Inc. | 150,855 | 4,470 |
| * | Greenbrier Cos. Inc. | 237,800 | 4,102 |
| * | MasTec Inc. | 213,600 | 3,715 |
| * | Copart Inc. | 112,800 | 2,979 |
| Dun & Bradstreet Corp. | 37,000 | 2,878 | |
| Toro Co. | 38,535 | 2,754 | |
| Copa Holdings SA Class A | 33,200 | 2,700 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | ||
| Value | ||
| Shares | ($000) | |
| * DigitalGlobe Inc. | 199,100 | 2,443 |
| Healthcare Services Group Inc. | 114,465 | 2,429 |
| Applied Industrial Technologies Inc. | 58,697 | 2,307 |
| Hubbell Inc. Class B | 27,000 | 2,166 |
| Deluxe Corp. | 89,409 | 2,129 |
| KBR Inc. | 59,509 | 2,015 |
| * GeoEye Inc. | 86,800 | 1,989 |
| Sauer-Danfoss Inc. | 43,108 | 1,867 |
| Actuant Corp. Class A | 66,493 | 1,813 |
| Cubic Corp. | 38,422 | 1,776 |
| * Generac Holdings Inc. | 71,900 | 1,731 |
| Aircastle Ltd. | 135,900 | 1,651 |
| * Dollar Thrifty Automotive Group Inc. | 18,700 | 1,512 |
| Steelcase Inc. Class A | 167,879 | 1,450 |
| Kansas City Southern | 17,700 | 1,363 |
| United Stationers Inc. | 46,840 | 1,328 |
| Lincoln Electric Holdings Inc. | 25,900 | 1,269 |
| * Furmanite Corp. | 199,218 | 1,247 |
| Covanta Holding Corp. | 66,700 | 1,071 |
| Textainer Group Holdings Ltd. | 25,574 | 897 |
| Primoris Services Corp. | 52,900 | 763 |
| Intersections Inc. | 59,600 | 717 |
| * JetBlue Airways Corp. | 150,000 | 713 |
| Mueller Industries Inc. | 13,700 | 626 |
| Standex International Corp. | 10,600 | 467 |
| Werner Enterprises Inc. | 16,252 | 384 |
| Robert Half International Inc. | 11,800 | 352 |
| * Consolidated Graphics Inc. | 5,800 | 232 |
| Donaldson Co. Inc. | 6,000 | 208 |
| Marten Transport Ltd. | 1,300 | 27 |
| 1,579,045 | ||
| Information Technology (24.1%) | ||
| * Alliance Data Systems Corp. | 706,793 | 90,816 |
| * Ariba Inc. | 2,246,622 | 85,821 |
| * VeriFone Systems Inc. | 1,652,315 | 78,716 |
| * Cadence Design Systems Inc. | 6,269,400 | 73,164 |
| Sapient Corp. | 5,740,903 | 68,719 |
| * TiVo Inc. | 5,985,420 | 64,583 |
| * Teradyne Inc. | 3,536,920 | 60,870 |
| * Microsemi Corp. | 2,601,990 | 55,995 |
| * MICROS Systems Inc. | 868,221 | 49,341 |
| * Rovi Corp. | 1,600,420 | 45,772 |
| * Ultimate Software Group Inc. | 582,299 | 44,930 |
| * Parametric Technology Corp. | 1,982,346 | 42,779 |
| Syntel Inc. | 705,033 | 42,224 |
| MKS Instruments Inc. | 1,507,270 | 41,676 |
| * FEI Co. | 824,245 | 41,352 |
| * F5 Networks Inc. | 302,495 | 40,513 |
| * ON Semiconductor Corp. | 4,748,475 | 39,222 |
| IAC/InterActiveCorp | 796,275 | 38,341 |
| * Trimble Navigation Ltd. | 698,335 | 37,808 |
| Jabil Circuit Inc. | 1,477,475 | 34,647 |
| * RADWARE Ltd. | 859,850 | 33,087 |
| * Convergys Corp. | 2,471,645 | 33,046 |
| * ValueClick Inc. | 1,494,785 | 31,660 |
| * Silicon Laboratories Inc. | 844,070 | 29,956 |
| j2 Global Inc. | 1,093,385 | 28,242 |
| Cypress Semiconductor Corp. | 1,807,800 | 28,021 |
| * NCR Corp. | 1,175,874 | 27,633 |
| * Finisar Corp. | 1,648,045 | 27,226 |
| * Red Hat Inc. | 450,400 | 26,848 |
| FactSet Research Systems Inc. | 255,950 | 26,839 |
| * Acme Packet Inc. | 949,496 | 26,652 |
| * Euronet Worldwide Inc. | 1,217,230 | 26,329 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | |||
| Value | |||
| Shares | ($000) | ||
| Power Integrations Inc. | 690,315 | 26,149 | |
| * | Riverbed Technology Inc. | 1,319,950 | 26,043 |
| * | JDS Uniphase Corp. | 2,100,000 | 25,515 |
| * | SolarWinds Inc. | 538,900 | 25,280 |
| Heartland Payment Systems Inc. | 825,877 | 25,164 | |
| * | NICE Systems Ltd. ADR | 631,945 | 24,279 |
| * | Concur Technologies Inc. | 423,660 | 23,962 |
| * | Take-Two Interactive Software Inc. | 1,600,100 | 22,561 |
| * | CACI International Inc. Class A | 364,400 | 22,276 |
| * | Atmel Corp. | 2,251,615 | 19,972 |
| ADTRAN Inc. | 652,935 | 19,928 | |
| * | Informatica Corp. | 430,663 | 19,819 |
| * | Cardtronics Inc. | 740,432 | 19,518 |
| * | Aruba Networks Inc. | 905,325 | 19,120 |
| * | BroadSoft Inc. | 433,550 | 18,560 |
| * | Constant Contact Inc. | 750,100 | 18,130 |
| * | Sourcefire Inc. | 354,500 | 18,076 |
| * | Acxiom Corp. | 1,275,000 | 17,506 |
| * | Salesforce.com Inc. | 111,140 | 17,308 |
| * | Liquidity Services Inc. | 317,050 | 16,908 |
| * | Nuance Communications Inc. | 679,670 | 16,611 |
| * | Super Micro Computer Inc. | 926,557 | 16,354 |
| * | FleetCor Technologies Inc. | 396,553 | 15,684 |
| * | Ciena Corp. | 1,028,800 | 15,247 |
| Avago Technologies Ltd. | 422,630 | 14,572 | |
| * | Kenexa Corp. | 441,482 | 14,423 |
| * | WebMD Health Corp. | 631,791 | 14,373 |
| MercadoLibre Inc. | 147,350 | 14,255 | |
| *,^ | Jive Software Inc. | 589,996 | 14,048 |
| * | Progress Software Corp. | 591,700 | 13,692 |
| * | Nanometrics Inc. | 819,392 | 12,709 |
| * | Manhattan Associates Inc. | 241,312 | 12,102 |
| National Instruments Corp. | 440,741 | 11,988 | |
| * | LogMeIn Inc. | 303,450 | 10,927 |
| * | Aspen Technology Inc. | 551,525 | 10,909 |
| * | CommVault Systems Inc. | 206,100 | 10,732 |
| * | RF Micro Devices Inc. | 2,454,540 | 10,628 |
| * | Synchronoss Technologies Inc. | 337,750 | 10,572 |
| * | Gartner Inc. | 224,372 | 9,828 |
| * | WNS Holdings Ltd. ADR | 877,786 | 9,770 |
| * | KIT Digital Inc. | 1,396,800 | 9,470 |
| * | Ubiquiti Networks Inc. | 286,400 | 9,457 |
| * | QLIK Technologies Inc. | 324,800 | 9,357 |
| * | comScore Inc. | 466,475 | 9,292 |
| * | Celestica Inc. | 1,032,742 | 9,253 |
| * | Cymer Inc. | 177,340 | 9,193 |
| * | Polycom Inc. | 681,535 | 9,044 |
| * | DealerTrack Holdings Inc. | 300,000 | 8,949 |
| * | Volterra Semiconductor Corp. | 264,184 | 8,689 |
| * | Standard Microsystems Corp. | 327,750 | 8,679 |
| * | Saba Software Inc. | 860,360 | 8,363 |
| * | Perficient Inc. | 625,500 | 7,512 |
| * | Skyworks Solutions Inc. | 276,000 | 7,491 |
| * | Entropic Communications Inc. | 1,766,300 | 7,471 |
| * | Diodes Inc. | 317,775 | 7,083 |
| Black Box Corp. | 306,689 | 6,934 | |
| * | Hittite Microwave Corp. | 124,550 | 6,668 |
| * | Interactive Intelligence Group Inc. | 222,000 | 6,585 |
| * | Universal Display Corp. | 120,800 | 5,432 |
| * | Travelzoo Inc. | 165,000 | 4,283 |
| * | Monolithic Power Systems Inc. | 200,000 | 4,144 |
| * | ATMI Inc. | 186,600 | 3,920 |
| * | TIBCO Software Inc. | 110,987 | 3,651 |
| * | IPG Photonics Corp. | 68,100 | 3,296 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | ||
| Value | ||
| Shares | ($000) | |
| * Cavium Inc. | 107,050 | 3,132 |
| Littelfuse Inc. | 45,000 | 2,820 |
| Lender Processing Services Inc. | 100,100 | 2,658 |
| * PROS Holdings Inc. | 125,000 | 2,461 |
| MAXIMUS Inc. | 55,524 | 2,457 |
| * Zebra Technologies Corp. | 62,900 | 2,440 |
| * Tyler Technologies Inc. | 60,300 | 2,409 |
| * LSI Corp. | 297,000 | 2,388 |
| Fair Isaac Corp. | 55,000 | 2,360 |
| * Anixter International Inc. | 33,931 | 2,327 |
| DST Systems Inc. | 39,196 | 2,194 |
| * Synopsys Inc. | 68,900 | 2,068 |
| Booz Allen Hamilton Holding Corp. | 115,441 | 1,974 |
| * Plexus Corp. | 59,800 | 1,936 |
| * ACI Worldwide Inc. | 46,500 | 1,854 |
| * Mentor Graphics Corp. | 125,360 | 1,811 |
| * Freescale Semiconductor Holdings I Ltd. | 139,300 | 1,729 |
| Intersil Corp. Class A | 165,495 | 1,700 |
| * Entegris Inc. | 188,200 | 1,666 |
| * Lattice Semiconductor Corp. | 302,440 | 1,651 |
| * Coherent Inc. | 27,660 | 1,455 |
| * NETGEAR Inc. | 37,250 | 1,434 |
| * Nova Measuring Instruments Ltd. | 150,000 | 1,325 |
| * Stamps.com Inc. | 43,900 | 1,274 |
| * Brightpoint Inc. | 174,055 | 1,065 |
| * Websense Inc. | 51,251 | 1,063 |
| * Unisys Corp. | 52,940 | 988 |
| * ShoreTel Inc. | 170,000 | 814 |
| * Silicon Graphics International Corp. | 85,800 | 810 |
| * Exar Corp. | 101,200 | 802 |
| * Splunk Inc. | 22,500 | 764 |
| * Deltek Inc. | 70,500 | 736 |
| * Infoblox Inc. | 21,800 | 445 |
| * Synaptics Inc. | 14,100 | 433 |
| * GT Advanced Technologies Inc. | 42,000 | 273 |
| 2,340,258 | ||
| Materials (5.2%) | ||
| * WR Grace & Co. | 800,075 | 47,693 |
| FMC Corp. | 396,495 | 43,793 |
| Silgan Holdings Inc. | 913,290 | 40,066 |
| Albemarle Corp. | 563,035 | 36,766 |
| Methanex Corp. | 967,200 | 34,007 |
| * Graphic Packaging Holding Co. | 6,188,404 | 33,108 |
| Smurfit Kappa Group plc | 3,569,372 | 30,058 |
| Ball Corp. | 682,375 | 28,496 |
| Minerals Technologies Inc. | 419,800 | 28,169 |
| * KapStone Paper and Packaging Corp. | 1,327,762 | 23,979 |
| CF Industries Holdings Inc. | 107,950 | 20,841 |
| Sensient Technologies Corp. | 527,186 | 19,585 |
| Schnitzer Steel Industries Inc. | 476,392 | 18,994 |
| Schweitzer-Mauduit International Inc. | 264,600 | 17,945 |
| * Ferro Corp. | 3,383,855 | 17,562 |
| Noranda Aluminum Holding Corp. | 1,176,250 | 12,492 |
| Aptargroup Inc. | 227,200 | 12,385 |
| * OM Group Inc. | 278,200 | 6,710 |
| * Intrepid Potash Inc. | 260,450 | 6,472 |
| Airgas Inc. | 45,800 | 4,197 |
| * Rockwood Holdings Inc. | 58,895 | 3,259 |
| NewMarket Corp. | 12,473 | 2,784 |
| Westlake Chemical Corp. | 34,400 | 2,200 |
| Valspar Corp. | 42,900 | 2,194 |
| Eastman Chemical Co. | 40,024 | 2,160 |
| * Coeur d'Alene Mines Corp. | 73,800 | 1,590 |
| Worthington Industries Inc. | 75,550 | 1,348 |
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
| Market | |||||
| Value | |||||
| Shares | ($000) | ||||
| Myers Industries Inc. | 76,900 | 1,271 | |||
| Haynes International Inc. | 16,650 | 1,038 | |||
| * | TPC Group Inc. | 21,574 | 906 | ||
| * | Handy & Harman Ltd. | 24,100 | 349 | ||
| 502,417 | |||||
| Telecommunication Services (1.1%) | |||||
| * | SBA Communications Corp. Class A | 597,390 | 32,104 | ||
| * | tw telecom inc Class A | 1,263,385 | 27,517 | ||
| * | Vonage Holdings Corp. | 10,357,539 | 21,129 | ||
| * | Cogent Communications Group Inc. | 872,350 | 16,339 | ||
| * | Clearwire Corp. Class A | 3,419,810 | 5,010 | ||
| * | MetroPCS Communications Inc. | 298,000 | 2,175 | ||
| * | Cincinnati Bell Inc. | 143,800 | 547 | ||
| Consolidated Communications Holdings Inc. | 12,600 | 244 | |||
| * | Leap Wireless International Inc. | 37,500 | 210 | ||
| 105,275 | |||||
| Utilities (0.1%) | |||||
| IDACORP Inc. | 217,471 | 8,860 | |||
| Total Common Stocks (Cost $7,543,466) | 9,481,557 | ||||
| Coupon | |||||
| Temporary Cash Investments (2.9%)1 | |||||
| Money Market Fund (2.7%) | |||||
| 4,5 | Vanguard Market Liquidity Fund | 0.137% | 268,633,189 | 268,633 | |
| Face | |||||
| Maturity | Amount | ||||
| Date | ($000) | ||||
| Repurchase Agreement (0.1%) | |||||
| Deutsche Bank Securities, Inc.(Dated 4/30/12, | |||||
| Repurchase Value $9,800,000, collateralized by | |||||
| Government National Mortgage Assn. 3.500%- | |||||
| 5.000%, 12/20/26-8/20/41) | 0.210% | 5/1/12 | 9,800 | 9,800 | |
| U.S. Government and Agency Obligations (0.1%) | |||||
| 6,7 | Fannie Mae Discount Notes | 0.150% | 8/22/12 | 1,500 | 1,499 |
| 7,8 | Federal Home Loan Bank Discount Notes | 0.110% | 6/27/12 | 3,000 | 3,000 |
| 7,8 | Federal Home Loan Bank Discount Notes | 0.130% | 7/20/12 | 2,100 | 2,099 |
| 7 | United States Treasury Note/Bond | 0.625% | 6/30/12 | 1,000 | 1,001 |
| 7,599 | |||||
| Total Temporary Cash Investments (Cost $286,032) | 286,032 | ||||
| Total Investments (100.7%) (Cost $7,829,498) | 9,767,589 | ||||
| Other Assets and Liabilities—Net (-0.7%)5 | (68,200) | ||||
| Net Assets (100%) | 9,699,389 | ||||
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $52,376,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund's effective common stock and temporary cash investment positions represent 98.3% and 2.4%, respectively, of net assets.
2 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
3 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
5 Includes $54,347,000 of collateral received for securities on loan.
Vanguard® Explorer Fund
Schedule of Investments
April 30, 2012
6 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury in exchange for senior preferred stock.
7 Securities with a value of $3,100,000 have been segregated as initial margin for open futures contracts.
8 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full faith and credit of the U.S. government.
ADR—American Depositary Receipt.
© 2012 The Vanguard Group. Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
SNA 242_062012
Item 2:
Not Applicable.
Item 3:
Not Applicable.
Item 4: Principal Accountant Fees and Services.
Not Applicable.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
Item 6: Investments.
Not Applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not Applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not Applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not Applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
(a) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VANGUARD EXPLORER FUND | |
| By: | /s/ F. WILLIAM MCNABB III* |
| F. WILLIAM MCNABB III | |
| CHIEF EXECUTIVE OFFICER | |
| Date: June 15, 2012 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| VANGUARD EXPLORER FUND | |
| By: | /s/ F. WILLIAM MCNABB III* |
| F. WILLIAM MCNABB III | |
| CHIEF EXECUTIVE OFFICER | |
| Date: June 15, 2012 | |
| VANGUARD EXPLORER FUND | |
| By: | /s/ THOMAS J. HIGGINS* |
| THOMAS J. HIGGINS | |
| CHIEF FINANCIAL OFFICER | |
| Date: June 15, 2012 | |
* By:/s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on March 27, 2012, see file Number 2-11444, Incorporated by Reference.