<PAGE> 1
VANGUARD
EXPLORER FUND
Semiannual Report - April 30, 1998
[PHOTO]
[THE VANGUARD GROUP LOGO]
<PAGE> 2
OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 7,000 highly
motivated men and women--who form the cornerstone of our operations. We could
not survive long--let alone prosper--without them. That's why we chose this
fiscal year's fund reports to celebrate the spirit, enthusiasm, and achievements
of our crew. (We call those who work at Vanguard crew members, not employees,
because they operate as a team to accomplish our mission of serving you, our
clients.)
But while we prize the collective contributions of our crew, we also
take time to recognize the importance of the individual. Each calendar quarter,
we present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more than
300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving
you in the years ahead.
[PHOTO] [PHOTO]
John C. Bogle John J. Brennan
Senior Chairman Chairman & CEO
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS .................... 1
THE MARKETS IN PERSPECTIVE ....................... 3
REPORT FROM THE ADVISERS ......................... 5
PERFORMANCE SUMMARY .............................. 7
PORTFOLIO PROFILE ................................ 8
FINANCIAL STATEMENTS ............................. 10
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
The stock market continued its unprecedented ascent during the six months
ended April 30, 1998, the first half of Vanguard Explorer Fund's fiscal year.
Explorer's total return of +8.5%, while more than respectable on an absolute
basis, trailed its comparative benchmarks in the small-capitalization stock
arena, which, in turn, fell far behind the return on large-cap stocks, the
market's leaders.
The adjacent table compares the six-month total return (capital change
plus reinvested dividends) of Explorer Fund with those of its two primary
benchmarks: the average small-cap growth fund and the Small Company Growth Fund
Stock Index, which is based on the stocks held by the nation's largest small-cap
mutual funds.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
APRIL 30, 1998
- --------------------------------------------------------------------
<S> <C>
Vanguard Explorer Fund + 8.5%
- --------------------------------------------------------------------
Average Small-Cap Growth Fund +11.0%
- --------------------------------------------------------------------
Small Company Growth Fund
Stock Index +12.0%
- --------------------------------------------------------------------
</TABLE>
The Fund's return is based on a decrease in net asset value from $62.31
per share on October 31, 1997, to $60.60 per share on April 30, 1998, with the
latter figure adjusted for our annual dividend of $0.25 per share paid from net
investment income and distributions totaling $5.85 per share paid from net
realized capital gains.
THE PERIOD IN REVIEW
The U.S. economy's performance during the six months ended April 30 was, quite
simply, astounding. After growing by nearly 4% in 1997, the economy expanded at
a 4.8% annual pace in the January-March period, even though a stronger U.S.
dollar and economic turmoil in Asia began to crimp U.S. exports and to boost
sales of imported goods. The nation's unemployment rate fell to 4.3% in April,
its lowest level in more than 28 years. Yet key inflation measures showed a
slowing in price increases.
Financial markets flourished in this ideal environment. Interest rates
declined by roughly 20 basis points (0.20 percentage point) on balance during
the six months, engendering modest price increases in bonds. The Lehman Brothers
Aggregate Bond Index, a good measure of the overall taxable bond market,
returned +3.6%. The yield on 3-month U.S. Treasury bills was 4.97% on April 30,
nearly one-quarter percentage point below the 5.20% level at which it began the
half-year.
In the stock market, investor confidence--some would say
overconfidence--was evident, as prices surged despite lackluster growth in
corporate profits and uncertainty about how Asia's financial and economic woes
would affect the U.S. economy. The Standard & Poor's 500 Composite Stock Price
Index, which is dominated by large-cap stocks, zoomed to a six-month total
return of +22.5%, having risen during each month of the period. For perspective,
we note that this half-year result is equal to approximately two years' worth of
returns at the stock market's long-term annual average of about +11%.
By contrast, the six-month return of the Russell 2000 Index was
+11.9%--or just over half that of the S&P 500. In short, small-caps were the
runts of a very healthy litter. They were the picks of the litter, however,
during the twelve months ended April 30, when the return of the Russell 2000 was
actually a tad higher than the S&P 500's: +42.4% versus +41.1%.
1
<PAGE> 4
Explorer Fund's +8.5% return for the six months was 2.5 percentage
points behind that of the average small-cap growth fund, which earned +11.0%,
and another point behind the Small Company Growth Index's +12.0% return. Much of
Explorer's difficulty during the period can be traced to its holdings in the
consumer discretionary, health-care, and technology sectors. Although the Fund's
weightings in those areas were in line with our benchmark Index's, our stocks in
those sectors were laggards. A large cash position (partly the result of heavy
cash inflows) toward the beginning of the period--10% at year-end 1997 versus
about 4% at the end of April--also weighed down the Fund's performance. On a
brighter note, strong stock selection helped us to beat our benchmarks in the
financial-services and producer-durables sectors.
As you know, Explorer Fund now uses four advisers to select stocks. The
adjacent table shows the share of Explorer's assets managed by each adviser as
of April 30.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
TOTAL ASSETS MANAGED
AS OF APRIL 30, 1998
---------------------------
$ MILLION PERCENT
- ------------------------------------------------------------------------------------
<S> <C> <C>
Granahan Investment Management, Inc. $1,265 46%
Wellington Management Company, LLP 800 29
Vanguard Core Management Group 295 11
Chartwell Investment Partners 291 11
Cash Reserves* 87 3
- ------------------------------------------------------------------------------------
Total $2,738 100%
- ------------------------------------------------------------------------------------
</TABLE>
*Each adviser also may maintain a modest cash reserve.
Like most equity mutual funds, Explorer maintains a modest cash reserve,
in part to accommodate redemptions of shares. Because stocks usually provide
higher returns than cash investments over long periods, such cash holdings can
serve as a drag on long-term returns. To avoid this drag, your Fund began in
December to use equity index futures contracts to give its cash pool the
performance of common stocks. We believe this change will improve returns over
the long run, although it also should lead to a slight increase in the Fund's
share-price fluctuations.
IN SUMMARY
Investors in stocks have enjoyed truly historic gains in the past few years.
Since April 30, 1995, the Russell 2000 Index has produced a cumulative gain of
+89.5% and an annualized return of +23.7%, double the long-term average return
on common stocks. Returns have been even more impressive, however, for large-cap
stocks during this period. We believe that such outsized returns cannot be
expected to continue indefinitely. Investors in stocks are sure to encounter
downturns, some of them severe, from time to time. We also believe that
small-cap stocks will not always play second fiddle to their large-cap brethren
and that small-caps remain a sensible element of a diversified portfolio.
Indeed, because both the returns and risks of stocks can be sizable, a
diversified portfolio should also include bond funds and money market funds in
proportions suitable to each person's financial situation, investment goals, and
attitude toward risk. Such a balanced portfolio should help investors to "stay
the course" toward their investment objectives, whether the financial markets
provide smooth or stormy sailing.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
May 12, 1998
2
<PAGE> 5
THE MARKETS IN PERSPECTIVE
Six Months Ended April 30, 1998
Financial markets, it is said, don't like surprises. But when the surprises are
positive-- remarkably strong economic growth coupled with conspicuously tame
inflation--the markets seem to cope quite nicely. So it was during the half-year
ended April 30, when the good times kept rolling for U.S. stock and bond
markets. The stock market produced half-year returns that would have been
excellent even for a full year. The bond market, helped by lower interest rates,
generated solid returns.
Plentiful jobs--the nation's unemployment rate fell in April to a 28-year low of
4.3%--and rising wages clearly put American households in a buying mood. (The
stock market's big gains, by pumping up millions of families' investment
accounts, certainly didn't dampen spirits either.) With strong spending by
consumers leading the way, the U.S. economy grew at an annual rate of about 4%,
even after adjusting for inflation.
Although most economists believe that sustained growth in excess of 3% is bound
to be inflationary, evidence to support the theory has been scarce of late.
Consumer prices rose just 0.6% during the six months, and the Consumer Price
Index was up a relatively benign 1.4% for the 12 months ended April 30, 1998.
Wholesale prices declined 1.2% during the past year. Stiff competitive pressure,
including an increasing flow of imported products and materials, appears to be
keeping the lid on prices, despite the bubbling economy.
Economic troubles in Asia--where currency and banking crises are afflicting
several nations--have resulted in lower prices for many imported goods and are
being blamed by some U.S. companies for cutting into profits. But Asia's
problems haven't spooked U.S. consumers and investors, and have only slightly
slowed the domestic economy's powerful momentum.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED APRIL 30, 1998
-----------------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 22.5% 41.1% 23.2%
Russell 2000 Index 11.9 42.4 18.5
MSCI EAFE Index 15.6 19.2 10.4
- ---------------------------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 3.6% 10.9% 6.9%
Lehman 10-Year Municipal Bond Index 2.5 9.0 6.6
Salomon Brothers Three-Month
U.S. Treasury Bill Index 2.6 5.3 4.9
- ---------------------------------------------------------------------------------------------
OTHER
Consumer Price Index 0.6% 1.4% 2.4%
- ---------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
U.S. EQUITY MARKETS
Wall Street sprinted to record heights during the half-year. The gains were
broad-based, although the big blue chip stocks again led the way.
Large-capitalization stocks, as represented by the S&P 500 Index, returned
22.5%, nearly double the 11.9% return on the small-cap Russell 2000 Index.
Lower interest rates supported stock prices by making interest-bearing
investments relatively less attractive to investors looking for a place to put
new cash. The good inflation news helped, too. Even so, the size of the market's
gains was surprising in light of an evident slowing in the growth rate for
corporate profits. Since November, analysts have been reducing their estimates
of future corporate earnings, and actual profits reported
3
<PAGE> 6
for the January-March quarter were only modestly above those of first-quarter
1997. If corporate earnings growth does not accelerate, stocks may lose some of
their allure.
Health-care stocks were the market's best-performing sector during the
period, as a number of hot-selling new drugs and exciting potential therapies
heightened interest in pharmaceutical companies. Also, some health-maintenance
organization stocks rebounded from depressed levels. The only sectors that
didn't post double-digit gains during the half-year were integrated oil
companies (up 9.5%) and the "other energy" group, which includes oil-services
and exploration firms (down 3.5%). Lower energy prices--a key factor in
inflation's good behavior--explained the weakness in energy stocks.
U.S. FIXED-INCOME MARKETS
Fixed-income investors earned the coupon rates on their bonds during the
half-year, and saw a modest rise in the prices of their holdings, thanks to
declining interest rates. The Lehman Aggregate Bond Index, a good measure of the
overall market for taxable bonds, provided a 3.6% return for the six months,
bringing its total return over the past 12 months to 10.9%, a superb
inflation-adjusted return of 9.5%. The yield on the benchmark 30-year U.S.
Treasury bond decreased from 6.15% on October 31, 1997, to 5.95% on April 30. A
rate decline of 20 basis points in the face of such strong economic growth was
possible because inflation--the enemy of the fixed-income investor--was so weak
during the six months.
Short-term interest rates also declined, although the Federal Reserve
Board made no policy changes. The yield on 3-month U.S. Treasury bills fell from
5.20% on October 31 to 4.97% on April 30, at least partly because it became
clear that the federal government would run a sizable budget surplus, which will
reduce the Treasury's need to borrow and, therefore, reduce the supply of new
Treasury securities.
INTERNATIONAL EQUITY MARKETS
Europe's stock markets were even hotter than Wall Street during the first half
of fiscal 1998, while most Asian markets declined in U.S. dollar terms. Overall,
the Morgan Stanley Capital International Europe, Australasia, Far East Index
gained 15.6% in U.S. dollar terms. The Index returned 21.3% in local currency
terms, but a generally stronger U.S. dollar cut the result for U.S. investors.
European markets were buoyed by a variety of factors and rose 33.6% in
local-currency terms. The dollar's gains against European currencies diminished
the return for U.S. investors only slightly to a still-exceptional 29.2%. The
markets benefited from signs that the economic slump on the continent is ending,
from evidence that corporate managements are adopting a U.S.-style emphasis on
adding shareholder value, and from increasing confidence that the planned
adoption of the euro--a single European currency--would begin as planned in
January 1999.
The Pacific region's experience was very different. Although some
emerging markets (Malaysia, Thailand, South Korea) rebounded from their lows,
stock returns for the region on balance fell 8.8% in U.S.-dollar terms. Japan,
by far the Pacific Rim's largest market, was beset by economic recession and
dropped 10.0%, while Hong Kong fell 9.6%. Investors in Tokyo were decidedly
unimpressed with the Japanese government's program for reviving the economy and
dealing with the problems of the nation's banking system.
Emerging markets, as a group, returned 5.6% in dollar terms. Gains in
Greece (50.0%), Hungary (30.1%), Brazil (16.6%), and Argentina (13.7%) more than
offset weakness in Asian emerging markets, most notably Indonesia (down a
stunning 61.4%).
4
<PAGE> 7
REPORT FROM THE ADVISERS
Small-capitalization growth stocks produced solid gains during the six months
ended April 30, 1998, the first half of Vanguard Explorer Fund's fiscal year.
However, the overall performance of small caps was well behind that of large-cap
stocks. The Fund's total return of 8.5% trailed its comparative standards, the
average small-cap growth fund (up 11.0%) and the Small Company Growth Fund Stock
Index, which is based on the stocks held by the nation's largest small-cap
mutual funds (up 12.0%).
THE ENVIRONMENT FOR SMALL-CAP STOCKS
Small-cap stocks joined in the exuberant rise of the overall U.S. stock market
during the past half-year. However, the ascent wasn't as smooth or strong for
these stocks as for their large-cap counterparts. Large stocks, as represented
by the S&P 500 Index, earned 22.5% during the six months, while the rest of the
market, as measured by the Wilshire 4500 Equity Index, earned 15.8%. Two factors
played a role in the large/small disparity.
First, small-cap stocks--especially those of technology-related
companies--took longer than large-cap issues to shake off the psychological
effects of the Asian financial crisis last autumn. While there is no doubt that
some Asian companies have put a hold on new capital expenditures, including
purchases of computer equipment, this factor will not halt the tremendously
powerful product cycles that continue to ripple through our own economy.
Second, large-cap stocks had greater earnings growth during the most
recent stage of the bull market, perhaps as a result of corporate restructurings
and expanding international sales.
The strongest sectors for small-cap stocks during the period were
utilities, consumer discretionary, and financial services. Technology and
consumer-staples stocks were laggards with relatively small gains, while the
energy sector was down by more than 10% because ample supplies of oil depressed
energy prices as well as the market values of exploration, production, and
service companies.
CHANGES IN THE FUND'S HOLDINGS
There were no big shifts in our industry-group weightings on balance for the
period. The consumer-discretionary sector, which benefited from a boom in
consumer spending during the six months, saw its weight grow by 7 percentage
points, to 23% of the Fund's assets. Our technology holdings fell by about 4
percentage points, to 13.3% of assets. Other changes--up or down--in sector
weightings amounted to no more than 1.5% of assets.
Within the technology sector, we eliminated several holdings whose
earnings were disappointing. However, we believe the trend is positive for both
semiconductor-equipment stocks, where we are making selected additions, and
software stocks, where we hold several large positions.
Standout holdings in the consumer sector included Family Golf Centers,
which operates driving ranges and recreation centers, and Oneida, a tableware
maker. Manufactured-housing makers Palm Harbor Homes and American Homestar,
while listed among the producer-
5
<PAGE> 8
durables stocks, and Midwest Express, an airline company, were also
beneficiaries of strong consumer spending fueled by the nation's strong job
market.
Health-care stocks, currently the second-largest industry concentration
for the Fund, were quite mixed in terms of performance. Among the better
holdings were Sofamor Danek, Sybron, and Biogen. We eliminated some health-care
positions, including Vencor, and cut back sharply our holdings of Genesis Health
Ventures.
LOOKING FORWARD
We believe that the economic environment--characterized by low inflation and low
interest rates--remains constructive for smaller companies. The Fund's holdings
continue to show strong earnings growth, and valuations of small-cap stocks
remain relatively attractive, particularly in comparison with large-cap stocks.
We continue to find new opportunities to invest in interesting companies that
have excellent prospects and are fairly valued.
Granahan Investment Management, Inc.
Wellington Management Company, LLP
Vanguard Core Management Group
Chartwell Investment Partners
May 13, 1998
INVESTMENT PHILOSOPHY
The Fund reflects a belief that superior long-term investment results can be
achieved by selecting a diversified group of small-company stocks with prospects
for above-average growth.
6
<PAGE> 9
PERFORMANCE SUMMARY
All of the data on this page represent past performance, which cannot be used to
predict future returns that may be achieved by the Fund. Note, too, that both
share price and return can fluctuate widely, so an investment in the Fund could
lose money.
<TABLE>
<CAPTION>
EXPLORER FUND
TOTAL INVESTMENT RETURNS: OCTOBER 31, 1977-APRIL 30, 1998
- ---------------------------------------------------------------------
EXPLORER FUND SMALL
COMPANY
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1978 26.0% 0.1% 26.1% 6.3%
1979 30.6 1.9 32.5 15.3
1980 60.7 2.3 63.0 55.3
1981 8.5 1.1 9.6 4.1
1982 20.5 2.2 22.7 14.8
1983 35.2 1.0 36.2 38.3
1984 -15.3 1.4 -13.9 -3.2
1985 5.4 1.4 6.8 15.8
1986 1.0 1.0 2.0 22.2
1987 -11.5 0.1 -11.4 -13.6
1988 28.2 0.5 28.7 27.1
1989 9.8 1.2 11.0 15.6
1990 -23.9 1.0 -22.9 -27.3
1991 62.5 2.1 64.6 58.6
1992 12.2 0.8 13.0 9.5
1993 21.9 0.4 22.3 32.4
1994 4.2 0.3 4.5 -0.3
1995 17.0 0.5 17.5 18.3
1996 17.4 0.6 18.0 16.6
1997 18.4 0.5 18.9 29.3
1998** 8.0 0.5 8.5 12.0
- ---------------------------------------------------------------------
</TABLE>
* S&P 500 Index through 1979; Russell 2000 Index from 1980 through July 1997;
Small Company Growth Fund Stock Index thereafter.
**Six months ended April 30, 1998.
See Financial Highlights table on page 18 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998*
- ---------------------------------------------------------------------------------------------------------------
INCEPTION 10 YEARS
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Explorer Fund 12/11/1967 36.12% 16.14% 13.58% 0.76% 14.34%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
7
<PAGE> 10
PORTFOLIO PROFILE
Explorer Fund
This Profile provides a snapshot of the Fund's characteristics as of April 30,
1998, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 9.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -----------------------------------------------------------------------
EXPLORER RUSSELL 2000
- -----------------------------------------------------------------------
<S> <C> <C>
Number of Stocks 519 1,838
Median Market Cap $0.8B $0.9B
Price/Earnings Ratio 22.9x 21.4x
Price/Book Ratio 3.7x 2.9x
Yield 0.2% 1.2%
Return on Equity 17.1% 13.9%
Earnings Growth Rate 18.6% 15.0%
Foreign Holdings 3.0% 0%
Turnover Rate 82%* --
Expense Ratio 0.59%* --
Cash Reserves 3.5% --
</TABLE>
*Annualized.
INVESTMENT FOCUS
- ------------------------
[GRAPH]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ----------------------------------------------------------------------
EXPLORER S&P 500
- ----------------------------------------------------------------------
<S> <C> <C>
R-Squared 0.36 1.00
Beta 0.75 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- ------------------------------------------------------------------
<S> <C>
Genzyme Corp. 1.2%
St. John Knits, Inc. 1.1
Synopsys, Inc. 1.1
Palm Harbor Homes, Inc. 1.1
General Cable Corp. 1.0
Comdisco, Inc. 1.0
Boole & Babbage Inc. 1.0
Service Experts Inc. 1.0
Concord EFS, Inc. 0.9
Investment Technology Group, Inc. 0.9
- ------------------------------------------------------------------
Top Ten 10.3%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- -------------------------------------------------------------------------------------------------------------------
APRIL 30, 1997 APRIL 30, 1998
----------------------------------------------------------------
EXPLORER EXPLORER RUSSELL 2000
----------------------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation 9.1% 5.7% 4.4%
Consumer Discretionary 17.0 25.1 17.1
Consumer Staples 1.4 1.2 2.5
Financial Services 16.9 15.8 24.7
Health Care 20.2 16.5 9.5
Integrated Oils 0.0 0.1 0.4
Other Energy 4.8 3.1 3.5
Materials & Processing 2.8 4.6 9.6
Producer Durables 8.2 8.2 7.8
Technology 15.4 14.4 12.3
Utilities 2.1 4.2 7.0
Other 2.1 1.1 1.2
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing investments. This
figure does not include cash invested in futures contracts to simulate stock
investments.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a portfolio.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FOREIGN HOLDINGS. The percentage of a portfolio's net assets represented by
stocks or American Depositary Receipts of companies based outside the United
States.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes: market capitalization (large, medium, or small) and relative
valuation (growth, value, or a blend).
MEDIAN MARKET CAP. An indicator of the size of companies in which a portfolio
invests; the midpoint of market capitalization (market price x shares
outstanding) of a portfolio's stocks, weighted by the proportion of the
portfolio's assets invested in each stock. Stocks representing half of the
portfolio's assets have market capitalization above the median, and the rest are
below it.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a portfolio
holds, the more diversified it is and the more likely to perform in line with
the overall stock market.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a portfolio, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a portfolio, 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 portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a portfolio, the weighted average return
on equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a portfolio's common stocks that come
from each of the major industry groups that compose the stock market.
TEN LARGEST HOLDINGS. The percentage of net assets that a portfolio has invested
in its ten largest holdings. (The average for stock mutual funds is about 30%).
As this percentage rises, a portfolio's returns are likely to be more volatile,
because they are more dependent on the fortunes of a few companies.
TURNOVER RATE. An indication of trading activity during the period. Portfolios
with high turnover rates incur higher transaction costs and are more likely to
distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a portfolio's income from interest and dividends. The
yield, expressed as a percentage of the portfolio's net asset value, is based on
income earned over the past 30 days and is annualized, or projected forward for
the coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
9
<PAGE> 12
FINANCIAL STATEMENTS
April 30, 1998 (unaudited)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the Fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, preferred stocks, bonds,
etc.) and by industry sector. Other assets are added to, and liabilities are
subtracted from, the value of Total Investments to calculate the Fund's Net
Assets. Finally, Net Assets are divided by the outstanding shares of the Fund to
arrive at its share price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table
displaying the composition of the Fund's net assets on both a dollar and
per-share basis. Because all income and any realized gains must be distributed
to shareholders each year, the bulk of net assets consists of Paid in Capital
(money invested by shareholders). The amounts shown for Undistributed Net
Investment Income and Accumulated Net Realized Gains usually approximate the
sums the Fund had available to distribute to shareholders as income dividends or
capital gains as of the statement date. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the Fund's investments and their cost,
and reflects the gains (losses) that would be realized if the Fund were to sell
all of its investments at their statement-date values.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
EXPLORER FUND SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (92.6%)(3)
- ---------------------------------------------------------------------
AUTO & TRANSPORTATION (5.3%)
AAR Corp. 213,750 $ 5,598
Air Express International Corp. 686,600 18,023
Airborne Freight Corp. 29,800 1,181
- - Atlas Air, Inc. 15,700 612
Borg-Warner Automotive, Inc. 17,000 1,057
C.H. Robinson Worldwide, Inc. 295,500 6,760
- - Coach USA, Inc. 59,900 2,842
ComAir Holdings, Inc. 5,300 145
- - Covenant Transport, Inc. 355,000 6,767
- - Heartland Express, Inc. 788,733 19,620
- - Hvide Marine, Inc. Class A 378,600 6,389
- - Landstar System, Inc. 33,700 1,104
- - M.S. Carriers Inc. 525,000 17,850
- - Mark VII, Inc. 48,200 916
- - Mesaba Holdings, Inc. 37,300 1,236
- - Midwest Express Holdings, Inc. 419,700 19,962
- - Miller Industries, Inc. 46,800 369
- - Monaco Coach Corp. 9,900 285
- - National R. V. Holdings, Inc. 21,300 817
- - Old Dominion Freight Line, Inc. 19,200 350
- - O'Reilly Automotive, Inc. 29,000 797
Petroleum Helicopters, Inc. 29,200 653
Pittston Burlington Group 33,600 630
Polaris Industries, Inc. 217,100 7,734
- -(1)Simon Transportation
Services, Inc. 274,500 2,316
- - Swift Transportation Co., Inc. 474,300 10,850
Werner Enterprises, Inc. 343,000 8,275
- - Wisconsin Central
Transportation Corp. 35,300 865
Wynn's International Inc. 23,400 526
--------
144,529
--------
CONSUMER DISCRETIONARY (23.2%)
- - ADVO, Inc. 41,600 1,191
- - AMC Entertainment, Inc. 517,200 9,956
- - APAC Teleservices, Inc. 81,900 778
- - Action Performance Cos., Inc. 445,000 15,408
- - Activision, Inc. 500,000 5,437
- - Alternative Resources Corp. 110,900 2,204
- - Ambassadors International, Inc. 102,700 3,081
- - American Disposal Services, Inc. 120,400 4,827
- - American Skiing Co. 500,000 7,750
- - BJ's Wholesale Club, Inc. 470,000 18,829
- - BT Office Products
International, Inc. 82,500 975
BeautiControl Cosmetics 91,700 940
Blair Corp. 21,800 602
- - Blyth Industries, Inc. 10,200 374
- - Boise Cascade Office
Products Corp. 29,200 560
- - Brinker International, Inc. 54,300 1,303
- - Budget Group, Inc. 214,200 7,176
CKE Restaurants Inc. 46,190 1,599
- - CapStar Hotel Co. 218,500 7,019
- - Caribiner International, Inc. 20,900 418
- - Catalina Marketing Corp. 23,500 1,222
- - Central Garden and Pet Co. 210,300 7,203
- - The Cheesecake Factory 45,300 1,144
- - Circuit City Stores, Inc.-
CarMax Group 88,900 1,133
- - Claremont Technology Group, Inc. 44,800 1,053
- - Clear Channel
Communications, Inc. 9,163 864
- - Kenneth Cole Productions, Inc. 55,100 1,291
- - Computer Learning Centers, Inc. 69,920 839
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
Computer Task Group, Inc. 16,200 $ 630
- - Consolidated Graphics, Inc. 27,400 1,581
- - Copart, Inc. 40,500 816
Crown Crafts, Inc. 50,100 1,108
- - Daisytek International Corp. 45,500 1,103
- - dELiA*s Inc. 305,300 7,709
- - Discount Auto Parts Inc. 23,600 568
(1)Dover Downs Entertainment, Inc. 273,600 8,960
- - The Dress Barn, Inc. 703,600 20,492
- - Education Management Corp. 35,400 1,230
Ethan Allen Interiors, Inc. 18,300 932
- - Extended Stay America, Inc. 507,600 6,631
- - Family Golf Centers, Inc. 250,000 10,531
Food Lion Inc. Class A 85,800 869
- - Footstar Inc. 31,100 1,238
Fred's, Inc. 41,125 1,028
- - French Fragrances, Inc. 350,000 5,950
- - Friendly Ice Cream Corp. 310,000 7,866
- - GT Interactive Software Corp. 1,152,300 12,171
Gaylord Entertainment Co.
Class A 6,166 210
- - General Nutrition Cos., Inc. 248,500 8,915
- - Genesco, Inc. 56,700 960
Gray Communications
Systems, Inc. Class B 1,000 30
- - Gymboree Corp. 48,800 897
Hancock Fabrics, Inc. 7,900 118
- - Hearst-Argyle Television Inc. 17,104 609
- - Hibbett Sporting Goods, Inc. 35,035 1,174
- - Tommy Hilfiger Corp. 12,600 769
- -(1)ITI Technologies, Inc. 459,000 14,688
- - Interim Services, Inc. 26,000 848
International Speedway Corp. 36,400 1,306
- - King World Productions, Inc. 152,600 4,073
La Quinta Inns Inc. 151,600 3,335
- - Lamar Advertising Co. Class A 200,000 6,900
- - Landry's Seafood
Restaurants, Inc. 362,300 10,326
- - Linens 'n Things, Inc. 113,700 6,850
- - Lo-Jack Corp. 270,000 3,679
- - LodgeNet Entertainment Corp. 500,000 6,125
- - Lone Star Steakhouse &
Saloon, Inc. 46,300 984
- - Mail-Well, Inc. 28,900 1,398
(1)Marcus Corp. 993,400 17,571
Meredith Corp. 26,500 1,139
- - Metro One
Telecommunications, Inc. 35,800 468
- - Metro Networks, Inc. 32,900 1,308
- - Fred Meyer Inc. 16,820 755
- - Midway Games Inc. 193,463 3,579
- - Mortons Restaurant Group 150,300 3,701
Movado Group, Inc. 125,000 3,805
- - NCO Group, Inc. 38,100 950
- - NPC International Class A 15,400 202
- - N2K Inc. 13,700 344
- - Nautica Enterprises Inc. 965,000 24,004
Norrell Corp. 27,600 581
- - The North Face, Inc. 370,000 8,302
- - Nu Skin Asia Pacific Inc. 10,300 281
- - Object Design, Inc. 609,000 3,844
Oneida Ltd. 715,600 21,423
- - Outback Steakhouse 145,200 5,536
- - PalEx, Inc. 28,100 323
- -(1)Pegasus Communications Corp.
Class A 342,000 8,635
- - Penske Motorsports, Inc. 15,900 546
- - Personnel Group of America, Inc. 320,500 6,370
Pier 1 Imports Inc. 47,600 1,255
- - Piercing Pagoda, Inc. 17,300 597
Pittston Brink's Group 22,000 861
- - Plantronics, Inc. 283,000 12,027
- - Playboy Enterprises Inc. Class B 700,000 12,250
- - Play-By-Play Toys &
Novelties, Inc. 237,200 4,032
- - Premier Parks Inc. 93,200 5,184
- - Prime Hospitality Corp. 752,400 15,565
- - QuickResponse Services, Inc. 353,200 16,600
- - Rainforest Cafe, Inc. 33,150 502
- - Rental Service Corp. 144,300 4,194
- - Renters Choice, Inc. 682,400 18,681
- - Republic Industries, Inc. 200,000 5,562
- - Revlon, Inc. Class A 9,600 503
- -(1)Rex Stores Corp. 464,000 6,670
The Rival Co. 22,000 353
- - Romac International, Inc. 53,800 1,426
Ross Stores, Inc. 24,700 1,144
Russ Berrie, Inc. 420,000 12,022
St. John Knits, Inc. 685,800 30,604
- - Samsonite Corp. 36,000 1,035
Sbarro, Inc. 36,900 1,089
- - Scholastic Corp. 149,900 5,584
- - ShowBiz Pizza Time, Inc. 150,000 5,794
- - Signature Resorts, Inc. 31,300 559
- - Stage Stores, Inc. 26,100 1,343
Stride Rite Corp. 1,140,100 14,323
- - Sun International Hotels Ltd. 128,300 5,894
- - Tefron Ltd. 300,000 8,044
- - TETRA Technologies, Inc. 450,000 10,772
Tiffany & Co. 24,600 1,119
- - Trans World Entertainment Corp. 152,900 4,128
- - U.S. Rentals, Inc. 53,300 1,586
- - USA Networks, Inc. 383,400 9,417
- - Urban Outfitters, Inc. 640,000 10,480
- - Vail Resorts Inc. 62,800 1,837
- - Vistana, Inc. 419,000 10,580
- - Wackenhut Corrections Corp. 20,000 522
The Warnaco Group, Inc.
Class A 200,000 8,450
- - Waste Industries, Inc. 19,400 396
--------
637,434
--------
CONSUMER STAPLES (1.1%)
- - American Italian Pasta Co. 240,000 7,440
Casey's General Stores 10,000 164
- - Consolidated Cigar Holdings Inc. 33,100 457
- - Corn Products International, Inc. 215,100 7,663
- - Robert Mondavi Corp. Class A 250,000 9,875
Nash-Finch Co. 17,800 349
- - Ralcorp Holdings, Inc. 74,500 1,481
Richfood Holdings, Inc. 29,000 796
- - Suiza Foods Corp. 25,500 1,511
--------
29,736
--------
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
EXPLORER FUND SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES (14.7%)
- - Advent Software, Inc. 323,500 $ 13,789
Advest Group, Inc. 28,100 880
- - Affiliated Computer Services,
Inc. Class A 288,900 10,148
Allmerica Financial Corp. 10,200 639
AmerUs Life Holdings, Inc. 35,890 1,149
- - Annuity and Life Re
(Holdings), Ltd. 216,400 5,167
Astoria Financial Corp. 21,800 1,278
- - BA Merchant Services, Inc.
Class A 500,000 7,500
Banco Latinoamericano de
Exportaciones, SA 5,600 200
- - Banctec, Inc. 38,100 831
- - Billing Concepts Corp. 49,900 1,397
- - BISYS Group, Inc. 527,400 20,832
- - CheckFree Holdings Corp. 315,000 8,111
City National Corp. 280,600 10,435
- - Columbia Banking System, Inc. 22,700 885
Comdisco, Inc. 614,900 27,209
- - Concord EFS, Inc. 810,800 25,540
- - ContiFinancial Corp. 18,500 597
Cullen/Frost Bankers, Inc. 137,300 8,032
Dain Rauscher Corp. 137,600 8,282
- - Data Transmission
Network Corp. 27,800 1,157
- - E*TRADE Group, Inc. 375,700 9,369
- - Envoy Corp. 27,400 1,154
- - Farm Family Holdings, Inc. 14,800 589
Felcor Suite Hotels, Inc. REIT 1,500 53
Fidelity National Financial, Inc. 546,200 20,141
FINOVA Group, Inc. 15,900 931
- - First Alliance Corp. 126,350 2,085
First Mutual Bancorp, Inc. 34,500 647
- - FIRSTPLUS Financial Group, Inc. 23,500 1,140
Franklin Bank N.A. 23,020 377
HUBCO, Inc. 31,760 1,167
- - Hambrecht & Quist Group 46,000 1,538
Hartford Life, Inc. 96,700 4,781
Jack Henry & Associates 28,000 973
- - ITLA Capital Corp. 41,400 947
Interpool, Inc. 8,500 134
- - Investment Technology
Group, Inc. 838,200 24,308
Investors Financial Services
Corp. Class A 20,700 1,115
Jefferies Group, Inc. 101,000 4,993
John Alden Financial Corp. 59,800 1,308
LandAmerica Financial
Group, Inc. 25,500 1,345
Legg Mason Inc. 192,733 11,371
MMI Cos., Inc. 39,300 924
Magna Group 18,300 1,082
Manufactured Home
Communities, Inc. REIT 599,250 15,131
McDonald & Co. Investments 201,900 5,805
McGrath RentCorp 440,200 8,694
The Money Store 11,900 391
NAC Re Corp. 272,700 13,635
- - National Western Life
Insurance Co. Class A 2,800 291
Ohio Casualty Corp. 23,300 1,127
Omega Healthcare Investors,
Inc. REIT 10,400 361
- - Omega Worldwide, Inc. 2,758 23
- - Omega Worldwide, Inc.
Rights Exp. 5/8/1998 2,600 2
The PMI Group Inc. 7,200 585
Peoples Bank Bridgeport 377,500 14,581
Peoples Heritage Financial
Group Inc. 172,100 8,304
- - Philadelphia Consolidated
Holding Corp. 17,200 398
Phoenix Duff & Phelps Corp. 81,100 715
Piper Jaffray Cos., Inc. 220,700 8,193
- - Policy Management
Systems Corp. 200,000 16,125
Protective Life Corp. 15,200 564
Raymond James Financial, Inc. 375,000 12,211
Regency Realty Corp. REIT 300,000 7,725
Reinsurance Group of
America, Inc. 112,500 5,576
Resource Bancshares
Mortgage Group, Inc. 450,000 7,988
- - SPS Transaction Services 37,500 1,155
- - Silicon Valley Bancshares 21,000 1,370
- - Southwest Bancorporation
of Texas, Inc. 9,100 364
Stifel Financial Corp. 44,570 682
Student Loan Corp. 18,300 913
Sun Communities, Inc. REIT 595,000 20,825
- - UICI 34,800 1,009
WestAmerica Bancorporation 7,500 248
401,521
HEALTH CARE (15.3%)
- -(1)Advanced Health Corp. 500,000 7,125
- - Agouron Pharmaceuticals, Inc. 341,600 11,614
- - Alliance Pharmaceutical Corp. 700,000 5,600
- - American HomePatient, Inc. 55,700 1,027
- - American Retirement Corp. 252,800 5,467
Arrow International, Inc. 629,800 20,783
- - Arterial Vascular
Engineering, Inc. 9,200 325
- - Atria Communities, Inc. 187,400 3,607
Ballard Medical Products 881,100 22,138
- - Biogen, Inc. 540,000 23,962
- - Calypte Biomedical Corp. 35,300 214
- - Cell Genesys, Inc. 675,000 4,978
- - Concentra Managed Care 39,200 1,220
- - Coventry Health Care Inc. 19,100 324
DENTSPLY International Inc. 563,900 18,538
- - FPA Medical Management, Inc. 73,500 919
- - Genesis Health Ventures Inc. 43,700 1,155
- - Genome Therapeutics Corp. 600,600 4,542
- - Genzyme Corp. 1,100,000 34,031
- - Gilead Sciences, Inc. 204,200 7,760
- - Guilford Pharmaceuticals, Inc. 38,600 767
- - HCIA, Inc. 102,900 1,151
- - Harborside Healthcare Corp. 249,000 5,914
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
- - HEALTHSOUTH Corp. 60,000 $ 1,811
- - Health Management Associates
Class A 129,300 4,073
- - Hologic, Inc. 40,000 940
- - IDX Systems Corp. 273,200 11,901
- - Inhale Therapeutic Systems 34,800 974
Integrated Health Services, Inc. 30,900 1,192
Jones Medical Industries, Inc. 36,700 1,083
- - Ligand Pharmaceuticals Inc.
Class B 240,000 3,480
- - MIM Corp. 104,100 586
- - Magainin Pharmaceuticals, Inc. 559,630 3,323
- - Magellan Health Services, Inc. 651,800 18,087
- - Marquette Medical Systems Inc. 34,500 932
- - Matria Healthcare, Inc. 1,300,000 6,175
McKesson Corp. 320,000 22,620
- - Medicis Pharmaceutical Corp. 32,700 1,398
- - MedPartners, Inc. 323,600 3,317
- - Mid Atlantic Medical
Services, Inc. 95,100 1,218
Minntech Corp. 84,100 1,177
- - NaPro BioTherapeutics, Inc. 13,000 26
- - PSS World Medical, Inc. 22,400 503
- - PathoGenesis Corp. 373,000 14,780
- - Patterson Dental Co. 666,375 19,616
- - Pediatrix Medical Group, Inc. 37,900 1,599
- - PharMerica, Inc. 554,800 7,698
- - PhyCor, Inc. 195,200 4,441
- - Province Heathcare Co. 188,900 5,218
- - Renal Care Group, Inc. 40,300 1,541
- - Res-Care, Inc. 22,900 896
- - Safeskin Corp. 21,400 762
- - Sangstat Medical Corp. 35,200 1,190
- - Henry Schein, Inc. 40,700 1,587
- - R. P. Scherer Corp. 15,300 1,117
- - Schick Technologies, Inc. 160,895 3,459
- - Sierra Health Services 26,100 1,003
- - Sofamor Danek Group, Inc. 144,300 12,662
- - Sola International, Inc. 170,700 7,255
- - STERIS Corp. 28,100 1,653
- - Sunrise Assisted Living, Inc. 159,800 7,161
- - Sybron International Corp. 840,000 22,260
- - TheraTech, Inc. 579,000 4,704
- - United Payors & United
Providers, Inc. 260,000 8,060
- - Universal Health Services
Class B 38,300 2,205
- - ViroPharma Inc. 188,100 4,091
- - Vista Medical Technologies, Inc. 210,275 2,024
- - Wellpoint Health Networks Inc.
Class A 200,000 14,425
--------
419,384
--------
INTEGRATED OILS (0.1%)
Giant Industries, Inc. 47,200 1,021
- - Seagull Energy Corp. 56,200 959
--------
1,980
--------
OTHER ENERGY (2.9%)
- - Chieftain International, Inc. 191,400 4,283
Devon Energy Corp. 27,300 1,089
- - EVI Inc. 124,100 6,608
- - Evergreen Resources, Inc. 50,100 983
- - Global Industries Ltd. 73,600 1,670
ICO, Inc. 33,100 157
- - Marine Drilling Co., Inc. 57,500 1,398
- - Newpark Resources, Inc. 71,300 1,716
- - Noble Drilling Corp. 600,000 19,388
- - Patterson Energy, Inc. 89,700 1,256
- - Precision Drilling Corp. 255,700 6,105
- - Pride International Inc. 55,400 1,347
- - R & B Falcon Corp. 338,700 10,860
- - SEACOR SMIT Inc. 190,000 11,139
- - Seitel, Inc. 54,400 918
- - Stolt Comex Seaway SA 13,600 442
- - Trico Marine Services, Inc. 297,600 6,733
- - Varco International, Inc. 58,000 1,784
- - Veritas DGC Inc. 24,400 1,322
--------
79,198
--------
MATERIALS & PROCESSING (4.2%)
- - ABT Building Products Corp. 51,100 814
- - Airgas, Inc. 51,700 801
- - American Pad & Paper Co. 42,500 305
- - ArQule, Inc. 51,700 895
- - Avatar Holding, Inc. 8,100 217
BMC Industries, Inc. 57,800 1,055
Cambrex Corp. 125,000 6,938
- - The Carbide/Graphite Group, Inc. 39,300 1,267
Chesapeake Corp. of Virginia 10,100 367
Commonwealth Industries Inc. 48,500 825
Culp, Inc. 51,100 971
Elcor Corp. 518,000 14,407
- - Fairfield Communities, Inc. 338,600 7,915
The BFGoodrich Co. 18,800 1,012
- - Kaynar Technologies Inc. 151,500 5,227
Lilly Industries Inc. Class A 34,500 649
Lindberg Corp. 48,400 1,113
- - Metals USA, Inc. 402,500 7,849
Minerals Technologies, Inc. 15,200 827
- - Mohawk Industries, Inc. 35,500 1,096
- - NS Group Inc. 65,700 883
- - N L Industries, Inc. 32,600 736
Northland Cranberries, Inc. 70,400 1,175
OM Group, Inc. 36,600 1,622
Schnitzer Steel Industries, Inc.
Class A 7,800 207
- - Service Experts Inc. 782,800 26,028
- - Shaw Group, Inc. 349,500 8,213
Spartech Corp. 10,000 212
- - Steel Dynamics, Inc. 55,700 1,274
- - Triangle Pacific Corp. 25,200 1,096
- - United States Can Co. 45,000 790
Valmont Industries, Inc. 808,000 17,978
Wausau-Mosinee Paper Corp. 41,720 884
- - Zoltek Cos., Inc. 12,300 426
--------
116,074
--------
PRODUCER DURABLES (7.6%)
- - AFC Cable Systems, Inc. 600 21
- - Allied Waste Industries, Inc. 411,100 11,305
- - American Homestar Corp. 704,050 14,609
- - American Power
Conversion Corp. 377,400 12,148
- - Antec Corp. 23,300 460
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
EXPLORER FUND SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
- - Brooks Automation, Inc. 30,200 $ 457
- - Cuno Inc. 285,800 5,609
- - The Cherry Corp. Class A 351,500 6,503
- - Culligan Water Technologies 25,800 1,498
Donaldson Co., Inc. 340,000 8,628
- - Dynatech Corp. 23,700 1,155
EG&G, Inc. 34,000 1,024
- - Electro Scientific Industries, Inc. 9,800 372
- - GTS Duratek, Inc. 27,400 322
General Cable Corp. 610,000 27,641
- - Interdigital Communications
Corp. 196,100 1,348
- - inTEST Corp. 52,500 387
- - Kellstrom Industries, Inc. 278,027 7,194
Kennametal, Inc. 56,900 3,033
- - Knoll, Inc. 32,200 1,121
- - Kulicke & Soffa Industries, Inc. 28,100 604
- - LAM Research Corp. 255,100 7,908
Lindsay Manufacturing Co. 163,000 7,641
- - MTI Technology Corp. 322,500 5,140
- - Mettler-Toledo International Inc. 430,000 8,654
Herman Miller, Inc. 57,400 1,733
- - Oak Industries, Inc. 250,000 9,078
Oakwood Homes Corp. 35,300 995
- - Orbital Sciences Corp. 8,300 369
- - ORBIT/FR, Inc. 14,600 173
- - Osmonics, Inc. 32,600 491
- - PRI Automation, Inc. 155,500 4,160
- - Palm Harbor Homes, Inc. 658,487 29,220
Pittway Corp. Class A 15,100 1,129
Pulte Corp. 21,800 1,116
Scotsman Industries, Inc. 49,700 1,423
- - Southern Energy Homes, Inc. 692,750 7,664
Standard Pacific Corp. 46,900 809
- - Transcrypt International, Inc. 266,900 942
- -(1) Trident International, Inc. 391,500 6,753
- - TriStar Aerospace Co. 85,300 1,407
Virco Manufacturing Corp. 6,000 151
- - Vivid Technologies, Inc. 417,000 5,838
--------
208,233
--------
TECHNOLOGY (13.3%)
- - Acxiom Corp. 384,340 9,320
- - Adtran, Inc. 37,900 1,007
- - Advanced Fibre
Communications, Inc. 38,300 1,623
- - Alliant Techsystems, Inc. 12,800 818
- - American Precision
Industries Inc. 38,700 701
- - Anixter International Inc. 59,500 1,186
- - Aspect Development, Inc. 20,000 1,266
- - Aspen Technologies, Inc. 31,700 1,549
- - Black Box Corp. 29,800 991
- - Boole & Babbage Inc. 1,118,475 26,843
- - Burr-Brown Corp. 19,200 584
- - CDW Computer Centers, Inc. 19,000 922
- - CSG Systems International, Inc. 17,400 792
- - Cadence Design Systems, Inc. 116,300 4,223
- -(1) Cayenne Software Inc. 2,102,758 4,271
- - Ciber, Inc. 48,500 1,576
- - Citrix Systems, Inc. 7,300 454
- - Cognos Inc. 363,700 10,013
- - Coherent Communications
Systems Corp. 35,200 1,731
- - CompUSA, Inc. 275,000 5,105
- - Comverse Technology, Inc. 25,900 1,227
- - CyberMedia, Inc. 28,100 210
- - Cyberoptics Corp. 28,900 641
- - DII Group, Inc. 63,000 1,465
- - Davox Corp. 292,300 6,540
- - Discreet Logic, Inc. 49,700 888
- - Documentum, Inc. 195,000 10,506
- - ENCAD, Inc. 299,900 4,142
- - ESS Technology, Inc. 78,860 498
- - Esterline Technologies Corp. 47,000 1,081
- - Glenayre Technologies, Inc. 40,000 628
- - Hadco Corp. 27,700 1,060
- - Harbinger Corp. 34,900 1,269
- - Hutchinson Technology, Inc. 152,700 4,724
- - IKOS Systems, Inc. 149,400 952
- - Ingram Micro, Inc. Class A 400,000 18,250
- - Intuit, Inc. 121,300 6,452
- - JDA Software Group, Inc. 9,700 490
- - Legato Systems, Inc. 22,800 721
- - Mechanical Dynamics, Inc. 74,500 866
- - Melita International Corp. 516,700 6,911
- - MetaCreations Corp. 22,200 233
- - Metro Information
Services, Inc. 30,500 1,060
- - Micrel, Inc. 34,600 1,358
- - National Instruments Corp. 37,850 1,344
- - Natural Microsystems Corp. 247,900 7,995
Newport News
Shipbuilding Inc. 7,200 196
- - NICE-Systems Ltd. 200,000 8,600
- - Oak Technology, Inc. 955,000 5,491
- - Omtool, Ltd. 733,100 8,980
- - P-Com, Inc. 326,900 6,436
- - PMC Sierra Inc. 197,000 8,964
- - Pairgain Technologies, Inc. 281,400 5,188
- - Pinnacle Systems, Inc. 369,500 14,872
- - Planar Systems, Inc. 43,300 530
- - RadiSys Corp. 21,200 578
- - Rational Software Corp. 600,000 10,088
- - Read Rite Corp. 26,500 366
- - Remedy Corp. 672,700 14,841
- - SEEC, Inc. 7,700 106
- - SPSS, Inc. 11,300 283
- - STB Systems, Inc. 410,375 5,873
- - Safeguard Scientifics, Inc. 34,100 1,441
- - Sanmina Corp. 16,100 1,449
- - Sapient Corp. 21,000 1,037
- - Scopus Technology, Inc. 30,700 576
- - Semtech Corp. 221,900 5,298
- - Sequent Computer
Systems, Inc. 450,000 8,831
- - SMART Modular
Technologies, Inc. 27,000 667
- - Speedfam International, Inc. 304,300 8,825
- - Splash Technology
Holdings, Inc. 261,800 4,876
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------------------
<S> <C> <C>
- - Stanford
Telecommunications, Inc. 25,800 $ 452
- - Sterling Software, Inc. 799,800 21,145
- - Stratus Computer, Inc. 25,700 1,120
- - Summit Design, Inc. 222,700 3,438
- - Sykes Enterprises, Inc. 24,600 515
- - Symantec Corp. 19,300 560
Symbol Technologies, Inc. 31,500 1,213
- - Synopsys, Inc. 683,500 29,391
- - Tech-Sym Corp. 41,200 1,293
- - Technology Solutions Co. 39,300 1,263
- - Teledata Communications Ltd. 9,700 154
- - Tracor, Inc. 21,800 857
- - Transaction Systems
Architects, Inc. 10,000 420
- - TranSwitch Corp. 54,400 677
- - TriQuint Semiconductor, Inc. 5,000 114
- - VLSI Technology, Inc. 509,000 10,498
- - Veritas Software Corp. 23,850 1,306
- -(1)VideoServer, Inc. 909,000 9,772
----------
365,066
----------
UTILITIES (3.9%)
- - Davel Communications
Group, Inc. 15,100 408
- - EchoStar Communications Corp. 420,000 11,051
- - Gilat Satellite Networks Ltd. 320,900 12,274
- - IXC Communications, Inc. 19,600 978
KN Energy, Inc. 4,100 241
- - McLeodUSA, Inc. Class A 211,500 9,729
Montana Power Co. 550,000 20,453
- - NTL Inc. 200,000 7,800
New Jersey Resources Corp. 16,000 604
- -(1)Peoples Telephone Co., Inc. 1,142,500 3,356
TCA Cable Television, Inc. 162,000 10,004
- - Teleport Communications
Group Inc. 20,587 1,109
- - US LEC Corp. Class A 85,200 2,066
- - UniSource Energy Corp. 1,164,200 20,592
- - Western Wireless Corp.
Class A 254,500 4,963
----------
105,628
----------
OTHER (1.0%)
Kaman Corp. Class A 42,600 815
- - PEC Israel Economic Corp. 42,800 1,008
Select Appointments
(Holdings) PLC 325,300 8,824
Teleflex Inc. 412,000 17,510
----------
28,157
----------
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $1,964,902) 2,536,940
- ---------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (0.4%)
- ---------------------------------------------------------------------
MedPartners, Inc.
6.50% Cvt. Pfd. 533,000 7,029
(4)SGW Holding Inc.
0.00% Cvt. Pfd. 483,840 3,617
- ---------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $12,034) 10,646
- ---------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------
FACE
AMOUNT
(000)
- ---------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (8.5%)
- ---------------------------------------------------------------------
U.S. Treasury Bills
(2) 4.97%, 7/23/1998 $ 1,000 $ 989
(2) 5.03%, 7/9/1998 3,500 3,467
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.51%, 5/1/1998 198,137 198,137
5.52%, 5/1/1998--Note F 28,970 28,970
- ---------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $231,563) 231,563
- ---------------------------------------------------------------------
TOTAL INVESTMENTS (101.5%)
(COST $2,208,499) 2,779,149
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.5%)
- ---------------------------------------------------------------------
Other Assets--Note C 46,371
Liabilities--Note F (87,179)
----------
(40,808)
- ---------------------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------------------
Applicable to 45,186,339 outstanding
$.001 par value shares
(authorized 100,000,000 shares) $2,738,341
=====================================================================
NET ASSET VALUE PER SHARE $60.60
=====================================================================
</TABLE>
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
(1)Considered an affiliated company as the Fund owns more than 5% of the
outstanding voting securities of such company. The total market value of
investments in affiliated companies was $90,117,000.
(2)Securities with an aggregate value of $4,456,000 have been segregated as
initial margin for open futures contracts.
(3)The combined market value of common stocks, and index futures contracts
represents 96.1% of net assets. See Note E in Notes to Financial Statements.
(4)Restricted security represents 0.1% of net assets.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
APRIL 30, 1998, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $2,015,978 $44.61
Undistributed Net
Investment Income 1,379 .03
Accumulated Net
Realized Gains 148,138 3.28
Unrealized Appreciation--
Note E
Investment Securities 570,650 12.63
Futures Contracts 2,196 .05
- ------------------------------------------------------------------
NET ASSETS $2,738,341 $60.60
==================================================================
</TABLE>
15
<PAGE> 18
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by the Fund during the
reporting period, and details the operating expenses charged to the Fund. These
expenses directly reduce the amount of investment income available to pay to
shareholders as dividends. This Statement also shows any Net Gain (Loss)
realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) on investments during the period. If the
Fund invested in futures contracts during the period, the results of these
investments are shown separately.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
EXPLORER FUND
SIX MONTHS ENDED APRIL 30, 1998
(000)
- -----------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends* $ 3,894
Interest 7,769
--------
Total Income 11,663
--------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 2,689
Performance Adjustment (666)
The Vanguard Group--Note C
Management and Administrative 4,998
Marketing and Distribution 339
Taxes (other than income taxes) 97
Custodian Fees 52
Auditing Fees 5
Shareholders' Reports 65
Annual Meeting and Proxy Costs 52
Directors' Fees and Expenses 3
--------
Total Expenses 7,634
- -----------------------------------------------------------------------------------
NET INVESTMENT INCOME 4,029
- -----------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold* 140,766
Futures Contracts 5,174
- -----------------------------------------------------------------------------------
REALIZED NET GAIN 145,940
- -----------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 56,087
Futures Contracts 5,689
- -----------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 61,776
- -----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $211,745
===================================================================================
</TABLE>
*Dividend income and realized net gain from affiliated companies were $186,000
and $3,027,000, respectively.
16
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the Fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the Fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in the
Fund, either by purchasing shares or by reinvesting distributions, as well as
the amounts redeemed. The corresponding numbers of Shares Issued and Redeemed
are shown at the end of the Statement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
EXPLORER FUND
-------------------------------------
SIX MONTHS YEAR
ENDED ENDED
APR. 30, 1998 OCT. 31, 1997
(000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net Investment Income $ 4,029 $ 10,301
Realized Net Gain 145,940 244,061
Change in Unrealized Appreciation (Depreciation) 61,776 143,547
-------------------------------------
Net Increase in Net Assets Resulting from Operations 211,745 397,909
-------------------------------------
DISTRIBUTIONS
Net Investment Income (10,298) (10,671)
Realized Capital Gain (240,985) (111,842)
-------------------------------------
Total Distributions (251,283) (122,513)
-------------------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 391,056 746,689
Issued in Lieu of Cash Distributions 247,191 120,564
Redeemed (410,268) (778,827)
-------------------------------------
Net Increase from Capital Share Transactions 227,979 88,426
- --------------------------------------------------------------------------------------------------------------------------
Total Increase 188,441 363,822
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 2,549,900 2,186,078
-------------------------------------
End of Period $2,738,341 $2,549,900
==========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 6,677 13,183
Issued in Lieu of Cash Distributions 4,672 2,263
Redeemed (7,085) (13,954)
-------------------------------------
Net Increase in Shares Outstanding 4,264 1,492
==========================================================================================================================
</TABLE>
17
<PAGE> 20
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's investment results and distributions to
shareholders on a per-share basis. It also presents the Fund's Total Return and
shows net investment income and expenses as percentages of average net assets.
These data will help you assess: the variability of the Fund's net income and
total returns from year to year; the relative contributions of net income and
capital gains to the Fund's total return; how much it costs to operate the Fund;
and the extent to which the Fund tends to distribute capital gains.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in the
Fund for one year. Finally, the table lists the Fund's Average Commission Rate
Paid, a disclosure required by the Securities and Exchange Commission beginning
in 1996. This rate is calculated by dividing total commissions paid on portfolio
securities by the total number of shares purchased and sold on which commissions
were charged.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXPLORER FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
FOR A SHARE OUTSTANDING SIX MONTHS ENDED
THROUGHOUT EACH PERIOD APRIL 30, 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $62.31 $55.44 $51.05 $45.99 $49.37 $41.23
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .09 .26 .26 .24 .16 .14
Net Realized and Unrealized Gain (Loss)
on Investments 4.30 9.71 8.37 7.25 1.77 8.91
Total from Investment Operations 4.39 9.97 8.63 7.49 1.93 9.05
DISTRIBUTIONS
Dividends from Net Investment Income (.25) (.27) (.24) (.17) (.14) (.13)
Distributions from Realized Capital Gains (5.85) (2.83) (4.00) (2.26) (5.17) (.78)
Total Distributions (6.10) (3.10) (4.24) (2.43) (5.31) (.91)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $60.60 $62.31 $55.44 $51.05 $45.99 $49.37
===================================================================================================================================
TOTAL RETURN 8.47% 18.93% 17.97% 17.46% 4.49% 22.28%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $2,738 $2,550 $2,186 $1,476 $1,112 $802
Ratio of Total Expenses to
Average Net Assets 0.59%* 0.62% 0.63% 0.68% 0.70% 0.73%
Ratio of Net Investment Income to
Average Net Assets 0.31%* 0.45% 0.51% 0.52% 0.39% 0.32%
Portfolio Turnover Rate 82%* 84% 51% 66% 82% 51%
Average Commission Rate Paid $.0434 $.0434 $.0424 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
18
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
Vanguard Explorer Fund is registered under the Investment Company Act of 1940 as
a diversified open-end investment company, or mutual fund.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Equity securities are valued at the latest quoted
sales prices as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) on the valuation date; such securities not
traded on the valuation date are valued at the mean of the latest quoted bid and
asked prices. Prices are taken from the primary market in which each security
trades. 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. FEDERAL INCOME TAXES: The Fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: The Fund, along with other members of The
Vanguard Group, transfers uninvested cash balances to a Pooled Cash Account,
which is invested in repurchase agreements secured by U.S. government
securities. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal; however, in the event of default or bankruptcy by the other party
to the agreement, retention of the collateral may be subject to legal
proceedings.
4. FUTURES: The Fund uses S&P Midcap 400 and Russell 2000 Index futures
contracts to a limited extent, with the objectives of maintaining full exposure
to the stock market while maintaining liquidity. The Fund may purchase or sell
futures contracts to achieve a desired level of investment, whether to
accommodate portfolio turnover or cash flows from capital shares transactions.
The primary risks associated with the use of futures contracts are imperfect
correlation between changes in market values of stocks held by the Fund and the
prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued at their quoted daily settlement prices.
The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in
the Statement of Net Assets as an asset (liability) and in the Statement of
Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized futures gains (losses).
5. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
6. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date securities are bought or sold. Costs
used to determine realized gains (losses) on the sale of investment securities
are those of the specific securities sold.
B. Granahan Investment Management, Inc., Wellington Management Company, LLP, and
Chartwell Investment Partners provide investment advisory services to the Fund
for fees calculated at an annual percentage rate of average net assets. The
basic fees of Granahan and Wellington are subject to quarterly adjustments based
on performance relative to the Russell 2000 Index and an index of the stocks
held by the largest small-capitalization stock mutual funds. For the six months
ended April 30, 1998, the aggregate investment advisory fee represented an
effective annual basic rate of 0.21% of average net assets before a decrease of
$666,000 (0.05%) based on performance.
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 $7,000 for
the six months ended April 30, 1998.
19
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Directors. At April 30, 1998,
the Fund had contributed capital of $157,000 to Vanguard (included in Other
Assets), representing 0.8% of Vanguard's capitalization. The Fund's Directors
and officers are also Directors and officers of Vanguard.
D. During the six months ended April 30, 1998, the Fund purchased $1,026,358,000
of investment securities and sold $962,893,000 of investment securities, other
than temporary cash investments.
E. At April 30, 1998, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $570,650,000, consisting
of unrealized gains of $652,618,000 on securities that had risen in value since
their purchase and $81,968,000 in unrealized losses on securities that had
fallen in value since their purchase.
At April 30, 1998, the aggregate settlement value of open futures
contracts expiring in June 1998, and the related unrealized appreciation were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(000)
-----------------------------------------
AGGREGATE
NUMBER OF SETTLEMENT UNREALIZED
FUTURES CONTRACTS LONG CONTRACTS VALUE APPRECIATION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S&P Midcap 400 Index 115 $21,689 $ 513
Russell 2000 Index 305 74,268 1,683
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
F. The market value of securities on loan to brokers/dealers at April 30, 1998,
was $27,624,000, for which the Fund held cash collateral of $28,970,000. Cash
collateral received is invested in repurchase agreements.
20
<PAGE> 23
DIRECTORS AND OFFICERS
JOHN C. BOGLE
Senior Chairman of the Board and Director of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc., and
of each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN
Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions, Inc.,
Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance Co., and
Ladies Professional Golf Association; Trustee Emerita of Wellesley College.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
JOHN C. SAWHILL
President and Chief Executive Officer of The Nature Conservancy; formerly,
Director and Senior Partner of McKinsey & Co. and President of New York
University; Director of Pacific Gas and Electric Co., Procter & Gamble Co., and
NACCO Industries.
JAMES O. WELCH, JR.
Retired Chairman of Nabisco Brands, Inc.; retired Vice Chairman and Director of
RJR Nabisco; Director of TECO Energy, Inc., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary
of The Vanguard Group, Inc.; Secretary of
each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"STANDARD & POOR'S(R)," "S&P(R)," "S&P 500(R)," "STANDARD & POOR'S 500," AND
"500" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. FRANK RUSSELL
COMPANY IS THE OWNER OF TRADEMARKS AND COPYRIGHTS RELATING TO THE
RUSSELL INDEXES. "WILSHIRE 4500" AND "WILSHIRE 5000" ARE
TRADEMARKS OF WILSHIRE ASSOCIATES.
<PAGE> 24
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
Global Equity Portfolio
Index Trust
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Mid Capitalization Stock
Portfolio
Small Capitalization Growth
Stock Portfolio
Small Capitalization Stock
Portfolio
Small Capitalization Value
Stock Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
International Growth Portfolio
International Value Portfolio
Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
MONEY MARKET FUNDS
Admiral Funds
U.S. Treasury Money Market
Portfolio
Money Market Reserves
Federal Portfolio
Prime Portfolio
Municipal Bond Fund
Money Market Portfolio
State Tax-Free Funds
(CA, NJ, NY, OH, PA)
Treasury Money Market Portfolio
BOND FUNDS
Admiral Funds
Intermediate-Term U.S.
Treasury Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term U.S. Treasury
Portfolio
Bond Index Fund
Intermediate-Term Bond
Portfolio
Long-Term Bond Portfolio
Short-Term Bond Portfolio
Total Bond Market Portfolio
Fixed Income Securities Fund
GNMA Portfolio
High Yield Corporate Portfolio
Intermediate-Term Corporate
Portfolio
Intermediate-Term U.S.
Treasury Portfolio
Long-Term Corporate
Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term Corporate
Portfolio
Short-Term Federal Portfolio
Short-Term U.S. Treasury
Portfolio
Municipal Bond Fund
High-Yield Portfolio
Insured Long-Term Portfolio
Intermediate-Term Portfolio
Limited-Term Portfolio
Long-Term Portfolio
Short-Term Portfolio
Preferred Stock Fund
State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
Q242-4/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor.
All rights reserved.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
