VANGUARD EXPLORER(TM) FUND
SEMIANNUAL
[PHOTO OF SHIP]
April 30, 2000
[THE VANGUARD GROUP LOGO]
<PAGE>
HAVE THE PRINCIPLES OF INVESTING CHANGED?
In a world of frenetic change in business, technology, and the financial
markets, it is natural to wonder whether the basic principles of investing have
changed.
We don't think so.
The most successful investors over the coming decade will be those who
began the new century with a fundamental understanding of risk and who had the
discipline to stick with long-term investment programs.
Certainly, investors today confront a challenging, even unprecedented,
environment. Valuations of market indexes are at or near historic highs. The
strength and duration of the bull market in U.S. stocks have inflated people's
expectations and diminished their recognition of the market's considerable
risks. And the incredible divergence in stock returns--many technology-related
stocks gained 100% or more in 1999, yet prices fell for more than half of all
stocks--has made some investors question the idea of diversification.
And then there is the Internet. Undeniably, it is a powerful medium for
communications and transacting business. For investors, the Internet is a vast
source of information about investments, and online trading has made it
inexpensive and convenient to trade stocks and invest in mutual funds.
However, new tools do not guarantee good workmanship. Information is not the
same as wisdom. Indeed, much of the information, opinion, and rumor that swirl
about financial markets each day amounts to "noise" of no lasting significance.
And the fact that rapid-fire trading is easy does not make it beneficial.
Frequent trading is almost always counterproductive because costs--even at low
commission rates--and taxes detract from the returns that the markets provide.
Sadly, many investors jump into a "hot" mutual fund just in time to see it cool
off. Meanwhile, long-term fund investors are hurt by speculative trading
activity because they bear part of the costs involved in accommodating purchases
and redemptions.
Vanguard believes that intelligent investors should resist short-term
thinking and focus instead on a few time-tested principles:
o Invest for the long term. Pursuing your long-term investment goals is
more like a marathon than a sprint.
o Diversify your investments with holdings in stocks, bonds, and cash
investments. Remember that, at any moment, some part of a diversified portfolio
will lag other parts, and be wary of taking on more risk by "piling onto" the
best-performing part of your holdings. Today's leader could well be tomorrow's
laggard.
o Step back from the daily frenzy of the markets; focus on your overall
asset allocation.
o Capture as much of the market's return as possible by minimizing costs
and taxes. Costs and taxes diminish long-term returns while doing nothing to
reduce the risks you incur as an investor.
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CONTENTS
REPORT FROM THE CHAIRMAN ...........1 PERFORMANCE SUMMARY ..............9
THE MARKETS IN PERSPECTIVE .........5 FUND PROFILE ....................10
REPORT FROM THE ADVISERS ...........7 FINANCIAL STATEMENTS ............12
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All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"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 5000(R)" and "Wilshire 4500" are trademarks of Wilshire Associates
Incorporated.
<PAGE>
REPORT FROM THE CHAIRMAN
During the six months ended April 30, 2000, small-capitalization stocks sizzled
and Vanguard Explorer Fund achieved an outstanding return of 37.6%. The
half-year result surpassed the returns of Explorer's benchmark indexes and
matched the average return for small-cap growth funds.
The table at right compares the six-month total return (capital change plus
reinvested dividends) for the fund with those of the average peer fund, the
unmanaged Russell 2000 Index of small-cap stocks, and the Small Company Growth
Fund Stock Index, which is based on the stocks held by the nation's largest
small-cap mutual funds.
[PHOTO OF JOHN J. BRENNAN]
JOHN J. BRENNAN
The fund's return is based on an increase in net asset value from $61.49
per share on October 31, 1999, to $74.61 per share on April 30, 2000, and is
adjusted for a dividend of $0.23 per share paid from net investment income and a
distribution of $8.03 per share paid from net realized capital gains.
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TOTAL RETURNS
SIX MONTHS ENDED
APRIL 30, 2000
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Vanguard Explorer Fund 37.6%
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Average Small-Cap Growth Fund* 37.6%
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Russell 2000 Index 18.7%
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Small Company Growth Fund Stock Index 30.7%
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*Derived from data provided by Lipper Inc.
THE PERIOD IN REVIEW
The U.S. economy displayed remarkable vigor during the six months. Its staying
power was impressive, too: April marked the 109th month of uninterrupted
expansion--more than nine years without a recession. Preliminary estimates for
the first quarter of 2000 indicated the economy was growing at a 5.4% annual
rate, a strong follow-up to the previous quarter's astounding 7.3% rate.
A growing economy creates a good climate for stocks, and corporate profits
posted robust gains as well. The overall stock market, as measured by the
Wilshire 5000 Total Market Index, rose 9.7% for the half-year. However, concerns
about inflation and the high valuations of many technology stocks led to
frequent and wide market fluctuations. The volatility was especially evident
among small-cap and tech issues. The small-cap Russell 2000 Index, for example,
saw a 35.2% gain from October 31 through February 29, followed by a -12.2%
decline in March and April, resulting in an 18.7% half-year return. The index's
growth component, a better yardstick for the stocks that Explorer Fund
emphasizes (see "Notice to Shareholders" on page 4), gained 27.8% during the six
months, based on a 58.8% gain during the first two-thirds of the period,
followed by a -19.5% return during the last third. The table at right shows the
striking shift in leadership from growth stocks in the first four months of the
period to value stocks in the final two.
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TOTAL RETURNS
-----------------------------------------------
OCT. 31, 1999, FEB. 29, 2000,
STOCK INDEX TO FEB. 29, 2000 TO APR. 30, 2000
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Russell 1000 Growth 16.3% 2.1%
Russell 1000 Value -10.7 10.9
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Russell 2000 Growth 58.8% -19.5%
Russell 2000 Value 7.1 1.1
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Nasdaq Composite 58.8% -17.7%
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1
<PAGE>
The bull market in stocks continued despite three quarter-point (0.25%)
increases in short-term interest rates by the Federal Reserve Board, which
boosted its target federal-funds rate from 5.25% to 6.00%. The yield on 3-month
Treasury bills responded by climbing 74 basis points (0.74 percentage point), to
5.83% as of April 30. However, long-term interest rates went the other way. The
yield of the 30-year Treasury bond fell 20 basis points, on balance, ending the
half-year at 5.96%. The yield of the 10-year Treasury note rose only 19 basis
points during the period, to 6.21%. The overall bond market, as measured by the
Lehman Brothers Aggregate Bond Index, recorded a 1.4% total return.
PERFORMANCE OVERVIEW
Vanguard Explorer Fund's six-month return of 37.6% was simply stupendous on an
absolute basis--providing in just half a year the equivalent of three years'
worth of "normal" stock market returns. The fund also did well relative to its
unmanaged indexes. But reflecting the experience of growth stocks in general,
Explorer's journey during the half-year was eventful--a skyrocket ride from
November through February (up 52.2%), followed by a dive in March and April
(down -9.6%).
Relative to its benchmarks, Explorer owed its strong performance largely to
two sectors: health care and technology. Explorer held on average about 18% of
its assets in health-care stocks during the half-year, versus about 11% for the
Russell 2000 Index. Small-cap health stocks, led by red-hot
biotechnology-related companies, gained 45% within the index, but Explorer's
holdings in the sector gained nearly 87%.
Technology was the market's hottest sector, and Explorer's weighting of
about one-quarter of assets in tech issues was about the same as the index's
weighting. But again, Explorer's tech holdings did much better than the overall
market during the period, returning 72% for the six months, versus 57% for tech
stocks in the index. Explorer's tech weighting is smaller than that of the
typical small-cap growth fund--a distinction that hurt our relative performance
during the previous fiscal year but that proved very helpful when tech stocks
plunged in March and April.
Explorer's advisers also added value with their stock selections in
financial services, where our average return of 8% represented a significant
achievement, given the Russell 2000 Index sector's -4% return. One negative for
the fund during the period was our overweighting compared with the index in the
consumer-discretionary group (primarily retail companies). This sector, where
Explorer's advisers committed about one-fifth of the fund's assets, recorded a
-3% return.
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TOTAL ASSETS MANAGED
AS OF APRIL 30, 2000
--------------------------------
$ MILLION PERCENT
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Granahan Investment Management, Inc. $1,429 35%
Wellington Management Company, LLP 1,144 28
Vanguard Quantitative Equity Group 663 16
Chartwell Investment Partners 472 12
Grantham, Mayo, Van Otterloo & Co. LLC 152 4
Cash Reserve* 214 5
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Total $4,074 100%
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*This cash reserve is invested in equity index futures to simulate investment in
stocks; each adviser may also maintain a modest cash reserve.
As you know, as of April 3, 2000, Grantham, Mayo, Van Otterloo & Co.
LLC (GMO) was added to our roster of fund advisers, each of which selects
securities according to its own methods in pursuit of the common goal of
achieving long-term capital growth. The addition of GMO increases the fund's
capacity for future growth and brings an additional perspective to the selection
of Explorer's securities. The table at left shows the share of assets managed by
each adviser as of April 30.
2
<PAGE>
IN SUMMARY
During the first half of our fiscal year, the stock market provided some useful
lessons in unpredictability. Daily price swings were unusually wide and there
was an abrupt change in fashion during the spring, when high-flying technology
issues suddenly fell and downtrodden value stocks rose.
Sudden price movements and shifts in market leadership are certain to occur
now and then, but the timing and duration of such movements are unpredictable.
That is why we advocate diversification and a long-term orientation. Investors
who maintain exposure to the major asset classes through balanced portfolios of
growth and value stock funds, bond funds, and money market funds have generally
found it easier to maintain equilibrium in turbulent times. We urge you to base
your investment plans on your own goals, time horizon, and risk tolerance--and
then to stick with those plans over the long haul.
/s/
John J. Brennan
Chairman and Chief Executive Officer
May 17, 2000
3
<PAGE>
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NOTICE TO SHAREHOLDERS
CHANGE IN BENCHMARK FOR EXPLORER FUND The Board of Trustees of Vanguard Explorer
Fund has approved a change in the investment benchmark for Explorer Fund. On
July 31, 2000, the fund's benchmark will change from the Small Company Growth
Fund Stock Index to the Russell 2000 Growth Index. The new benchmark will be
cited in fund reports to help investors evaluate our relative performance, and
it will help determine the compensation paid to four of the fund's five
investment advisers (Vanguard Quantitative Equity Group provides its services on
an at-cost basis). Because the two indexes' characteristics are broadly similar,
the change will have little effect on the fund's composition, policies,
strategies, or risk level.
THE REASON FOR THE CHANGE The Small Company Growth Fund Stock Index, which has
been the fund's benchmark since August 1997, is made up of the stocks held by
the 25 largest small-capitalization mutual funds. While this index has been a
suitable benchmark for Explorer Fund, the Russell 2000 Growth Index is equally
suitable and is a more widely recognized measure of the performance of small-cap
growth stocks. The Trustees believe that the Russell Index will be easier for
investors to understand and follow.
AMENDING THE ADVISORY CONTRACT Compensation for four of the fund's five
investment advisers is tied to the fund's performance relative to that of its
unmanaged index benchmark. Accordingly, the fund's advisory contracts will be
amended to adopt the new benchmark for determining compensation after July 31,
2000. All other terms of the advisory contracts will remain the same.
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4
<PAGE>
THE MARKETS IN PERSPECTIVE
SIX MONTHS ENDED APRIL 30, 2000
A surging economy, rising corporate profits, and enthusiasm for technology
stocks carried broad stock market indexes higher during the volatile but
generally rewarding six months ended April 30, 2000.
Stocks rose despite a modest pickup in inflation and a rise in interest
rates, both of which did some damage to bond prices. Through the first four
months of the period, the stock market was dominated by optimism about the
long-term outlook for technology, telecommunications, and media companies. But
sentiment then shifted and the tech and telecom groups fell sharply, giving back
some of the spectacular gains achieved over the previous year or so.
<TABLE>
<CAPTION>
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TOTAL RETURNS
PERIODS ENDED APRIL 30, 2000
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6 MONTHS 1 YEAR 5 YEARS*
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<S> <C> <C> <C>
STOCKS
S&P 500 Index 7.2% 10.1% 25.3%
Russell 2000 Index 18.7 18.4 15.3
Wilshire 5000 Index 9.7 12.2 23.9
MSCI EAFE Index 6.8 14.2 10.7
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BONDS
Lehman Aggregate Bond Index 1.4% 1.3% 6.8%
Lehman 10 Year Municipal Bond Index 2.4 -0.3 6.1
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 2.7 5.1 5.2
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OTHER
Consumer Price Index 1.8% 3.0% 2.4%
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*Annualized.
</TABLE>
For both bond and stock investors, uncertainty centered mainly on how the
Federal Reserve Board would react to the surprising performance of the U.S.
economy, which grew at a 7.3% pace in the final three months of 1999 and at a
still-robust 5.4% during the first quarter of 2000. With U.S. unemployment at a
three-decade low of 3.9%, Fed policymakers grew increasingly concerned that
inflation was bound to worsen. The Fed raised short-term interest rates by 0.25
percentage point three times during the six-month period. These boosts,
following identical increases in June and August of 1999, took the Fed's target
for short-term rates to 6.0%. Yet the economy continued to soar--including even
the housing and automobile sectors, which often are the first to slow down in
response to higher interest rates.
Inflation gauges provided ambiguous readings. The Consumer Price Index
increased 1.8% and 3.0% for the 6- and 12-month periods ended April 30, but much
of the acceleration in inflation was due to higher energy and food prices. The
core inflation rate, which excludes those sectors, was up a less-ominous 2.2%
over the year.
U.S. STOCK MARKETS
The technology sector, which accounts for about one-quarter of the stock
market's total value, dominated the market during the half-year, despite
suffering a sharp setback late in the period. Even after a -34% fall from March
10 through mid-April, the tech-heavy Nasdaq Composite Index registered a 30.8%
return for the six months.
The overall stock market, as measured by the Wilshire 5000 Total Market
Index, gained 9.7%. There was a decided split in results from large- and
small-capitalization stocks.
<PAGE>
The large-cap S&P 500 Index returned 7.2%, while the rest of the U.S. stock
market gained 19.2%.
Top performers during the half-year were companies in computer software and
hardware, semiconductors, Internet-related businesses, and wireless
communications. Fully half of the 58 companies in the S&P 500's technology group
gained more than 50%, and the average return for tech stocks exceeded 39%. A
number of tech-related companies in the producer-durables sector also posted
impressive gains, and the sector as a whole returned 32%. A return of 34% was
achieved by the oil-drilling and services companies in the "other energy"
category, which benefited from higher oil and gas prices. The worst-performing
sector was consumer staples (-18%), a category that includes supermarket, food,
beverage, and tobacco stocks. Next in line were financial-services companies
(-7%), hurt by higher short-term interest rates, which tend to raise borrowing
costs for banks and can lead to increased loan defaults.
U.S. BOND MARKETS
The Federal Reserve Board's three rate increases succeeded in elevating other
short-term rates. For example, yields of 3-month U.S. Treasury bills rose during
the half-year to 5.83%, an increase of 0.74 percentage point (74 basis points)
that virtually matched the Fed's target. However, long-term rates didn't move
nearly as far. The 10-year Treasury note rose just 19 basis points, to 6.21%, as
of April 30. And yields actually fell a bit for very long-term Treasury bonds, a
result of shrinking supply. Because of the federal government's budget surplus,
the U.S. Treasury decided to reduce issuance of new bonds and to buy back some
of its existing long-term bonds. As investors reacted, the yield of the 30-year
Treasury declined 20 basis points--from 6.16% to 5.96%--during the half-year.
The result of higher short-term rates and relatively stable long-term rates
was an unusual inversion in the Treasury yield curve. Instead of the usual
upward-sloping curve--which shows yields increasing in tandem with
maturities--there was a pronounced drop-off. As of April 30, the yield of
30-year Treasuries was two-thirds of a percentage point below the 6.62% yield on
3-year Treasury notes.
A similar pattern emerged outside the Treasury market, although long-term
yields remained above yields for short-term corporate, municipal, and
mortgage-backed securities. The overall bond market, as measured by the Lehman
Aggregate Bond Index, provided a 1.4% return, as an average price decline of
-2.0% offset most of a 3.4% income return.
INTERNATIONAL STOCK MARKETS
Despite declines in March and April, stock markets in Europe, Asia, and many
emerging markets produced strong half-year gains as investors responded to
improving global economic growth and a rise in corporate merger-and-acquisition
activity. However, many of the gains were slashed for U.S. investors as the
dollar gained strength against most other currencies. (Conversely, when the
dollar falls in value, returns from abroad are enhanced for U.S. investors.)
In U.S.-dollar terms, the overall return from developed foreign markets was
a very solid 6.8%, as measured by the Morgan Stanley Capital International
Europe, Australasia, Far East Index. However, in local currencies, the EAFE
Index return was 16.4%.
In Europe, an average 21.1% gain in local-currency terms was reduced to
8.4% for U.S. investors because of the dollar's strength. Stocks in the Pacific
region, which is dominated by Japan, returned 3.6% in dollars, less than half
the 7.5% gain in local currencies. The Select Emerging Markets Free Index
returned 12.3% in U.S. dollars, with the biggest gains in Turkey (+148%), Russia
(+123%), and Israel (+50%).
6
<PAGE>
REPORT FROM THE ADVISERS
Vanguard Explorer Fund achieved a 37.6% return during the six months ended April
30, 2000, the first half of our fiscal year. This stellar result matched the
average return for comparable funds, but handily outpaced both the 18.7% return
of the Russell 2000 Index of small-capitalization stocks and the 30.7% gain of
the Small Company Growth Fund Stock Index.
THE ENVIRONMENT FOR SMALL-CAP STOCKS
The market's clear leaders during the half-year were small-cap growth
stocks--Explorer Fund's meat and potatoes. The growth stocks within the Russell
2000 Index posted a 27.8% gain, more than three times the 8.2% return achieved
by the index's value component. As in 1999, the period's gains were concentrated
in "new economy" stocks, particularly technology companies (especially those
working on Internet infrastructure) and biotechnology firms (especially those
involved in using human genome research to develop therapies).
However, starting March 10 there was an abrupt change in market psychology,
and for the remaining seven weeks of the half-year the "new economy" stocks fell
sharply while the "old economy" stocks held up well.
The market's sudden reversal is as inexplicable as the logic behind the
extraordinary run-up in prices of technology and biotechnology companies.
Perhaps, as some commentators suggested, the changeover was due to a realization
that the Federal Reserve Board is likely to continue tightening monetary policy
until the economy's rapid growth rate starts to moderate.
PERSPECTIVES ON THE FUND'S HOLDINGS
Explorer Fund was not immune to the March-April drop in tech and biotech stocks,
although the blow was cushioned somewhat by the fact that we had been cautious
about a number of stocks whose valuations were the most extreme. For example, we
were underrepresented in Internet-related stocks, a stance that appeared unwise
early in calendar 2000, but turned out to be very beneficial in March and April.
Also, after a number of our biotech holdings soared early in the
period--reaching valuations that appeared to be strained--we sold substantial
parts of those positions.
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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.
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Several biotech companies--Human Genome Sciences, Gene Logic, PE-Celera,
Abgenix, and Genset--were among our top-performing stocks during the period. We
expect to resume buying in this area when valuations are more reasonable. From
the tech sector, winners during the half-year included SeaChange International,
Wind River Systems, Macrovision, and Exchange Applications. Satellite
communications was another strong area for the fund, with names such as Pegasus
Communications, Gilat Satellite, and American Tower.
The fund also benefited from takeover activity, as a number of our holdings
were acquired or agreed to be acquired, including Sterling Software, PairGain
Technologies, Teltrend, Ardent Software, and Architel Systems.
7
<PAGE>
Among the stocks that hurt our performance during the half-year were Ames
Department Stores, Diversinet, and Isis Pharmaceuticals.
Stocks new to the fund, or in which we added to our stakes during the
period, included Core Laboratories and Hanover Compressor (in the energy
sector); brokerage firms Dain Rauscher and Jefferies (financial services); REMEC
and Digital Microwave (technology); Clayton Homes (producer durables); and Jones
Apparel (consumer discretionary). We also were able to add some good consumer
companies whose stocks had fallen sufficiently to bring them within the
small-cap bailiwick, including AnnTaylor and American Eagle Outfitters. Both
names have terrific brand equity and are generating free cash flow.
The biggest change in Explorer Fund's industry weightings during the six
months was a decline in exposure to the consumer-discretionary group, a broad
category that includes retailers, restaurants, media, and entertainment
companies. The sector fell from 29.0% to 21.6% of the fund's equity holdings.
Much of the decline stemmed not from sales activity but from the group's
relatively poor performance--our holdings in the sector posted a -3% return for
the period.
On balance, only small changes occurred in other sector holdings, with the
biggest being increases in allocations to the "other energy" group (up from 1.7%
to 4.8% of equities), technology (from 21.9% to 23.9%), and producer durables
(from 7.6% to 9.7%). Our health-care holdings increased from 14.7% of equities
last October 31 to 15.8% as of April 30. If not for sales of some highly
appreciated holdings in the health-care and tech groups, our commitments to both
sectors would have increased much more.
The newest member of Explorer Fund's roster of investment advisers,
Grantham, Mayo, Van Otterloo & Co. (GMO), began investing a portion of the
fund's assets on April 3 and had fully invested its share in individual stocks
by April 10.
THE OUTLOOK
In general, the fund's holdings are registering strong growth in profits.
However, it must be noted that rising earnings don't necessarily translate into
rising stock prices, particularly when valuations are quite high, as they are
now.
Daily fluctuations in the stock market continue to be extremely wide by
historical norms. The threat of even higher interest rates has chilled some of
the speculation that drove the market until recently, and investors seem to be
looking for more substantial reasons to buy stocks than simply a "hot concept."
We believe that Explorer Fund's emphasis on companies with high potential
for above-average earnings growth will continue to serve our shareholders well
over the long term.
Granahan Investment Management, Inc.
Wellington Management Company, LLP
Vanguard Quantitative Equity Group
Chartwell Investment Partners
Grantham, Mayo, Van Otterloo & Co. LLC
May 15, 2000
8
<PAGE>
PERFORMANCE SUMMARY
EXPLORER FUND
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. An investor's shares, when
redeemed, could be worth more or less than their original cost.
TOTAL INVESTMENT RETURNS: OCTOBER 31, 1979-APRIL 30, 2000
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EXPLORER FUND RUSSELL
2000
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
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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 -11.6 0.4 -11.2 -11.8
1999 24.7 0.4 25.1 14.9
2000* 37.2 0.4 37.6 18.7
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*Six months ended April 30, 2000.
See Financial Highlights table on page 24 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 2000*
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10 YEARS
INCEPTION ------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Explorer Fund 12/11/1967 71.13% 20.91% 17.26% 0.59% 17.85%
----------------------------------------------------------------------------------------------------
</TABLE>
*SEC rules require that we provide this average annual total return information
through the latest calendar quarter.
9
<PAGE>
FUND PROFILE
EXPLORER FUND
This Profile provides a snapshot of the fund's characteristics as of April 30,
2000, compared where appropriate to an unmanaged index. Key elements of this
Profile are defined on page 11.
PORTFOLIO CHARACTERISTICS
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EXPLORER RUSSELL 2000
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Number of Stocks 888 1,781
Median Market Cap $1.1B $1.0B
Price/Earnings Ratio 18.8x 17.9x
Price/Book Ratio 3.5x 2.7x
Yield 0.4% 1.2%
Return on Equity 14.9% 13.5%
Earnings Growth Rate 18.6% 12.5%
Foreign Holdings 0.8% 0.0%
Turnover Rate 144%* --
Expense Ratio 0.71%* --
Cash Reserves 5.1% --
*Annualized.
INVESTMENT FOCUS
------------------------------
[grid]
SYTLE BLEND
MARKET CAP SMALL
VOLATILITY MEASURES
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EXPLORER S&P 500
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R-Squared 0.38 1.00
Beta 0.89 1.00
TEN LARGEST HOLDINGS
(% OF TOTAL NET ASSETS)
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Investment Technology Group, Inc. 1.2%
Maxtor Corp. 1.0
Rational Software Corp. 0.8
Vertex Pharmaceuticals, Inc. 0.8
Core Laboratories N.V. 0.8
Forest Laboratories, Inc. 0.7
Caremark Rx, Inc. 0.7
Mettler-Toledo International Inc. 0.7
Pacific Sunwear of California 0.7
Equity Residential Properties Trust REIT 0.7
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Top Ten 8.1%
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
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APRIL 30, 1999 APRIL 30, 2000
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EXPLORER EXPLORER RUSSELL 2000
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<S> <C> <C> <C>
Auto & Transportation ................. 6.1% 6.5% 3.1%
Consumer Discretionary ................ 28.1 21.6 14.6
Consumer Staples ...................... 0.3 1.3 2.1
Financial Services .................... 14.2 10.9 16.5
Health Care ........................... 13.8 15.8 11.5
Integrated Oils ....................... 0.3 0.1 0.0
Other Energy .......................... 1.9 4.8 3.7
Materials & Processing ................ 4.2 3.5 7.4
Producer Durables ..................... 7.1 9.7 10.0
Technology ............................ 17.8 23.9 24.9
Utilities ............................. 4.6 1.6 5.3
Other ................................. 1.6 0.3 0.9
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</TABLE>
10
<PAGE>
BETA. A measure of the magnitude of a fund'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 fund 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 fund's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate stock
investment.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or American Depositary Receipts of companies based outside the United States.
INVESTMENT FOCUS. This grid indicates the focus of a fund 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 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.
NUMBER OF STOCKS. An indicator of diversification. The more stocks a fund 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 fund, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the overall market (or its benchmark index). If a fund's total
return were precisely synchronized with the overall market's return, its
R-squared would be 1.00. If a fund'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 fund, the weighted average return on
equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a fund'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 fund has invested in
its ten largest holdings. (The average for stock mutual funds is about 35%.) As
this percentage rises, a fund'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. Funds 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 fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of
dividends paid on stocks in the index.
11
<PAGE>
FINANCIAL STATEMENTS
APRIL 30, 2000 (UNAUDITED)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table
displaying the composition of the fund's net assets 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, but may differ because certain
investments or transactions may be treated differently for financial statement
and tax purposes. Any Accumulated Net Realized Losses, and any cumulative excess
of distributions over net income or net realized gains, will appear as negative
balances. Unrealized Appreciation (Depreciation) is the difference between the
market value of the fund's investments and their cost, and reflects the gains
(losses) that would be realized if the fund were to sell all of its investments
at their statement-date values.
<TABLE>
<CAPTION>
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MARKET
VALUE*
EXPLORER FUND SHARES (000)
---------------------------------------------------------------------------------------------------
COMMON STOCKS (89.3%)+
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Auto & Transportation (5.8%)
o Swift Transportation Co., Inc. 1,265,450 $ 25,387
o(1)M.S. Carriers, Inc. 1,008,700 23,956
Tidewater Inc. 694,000 20,646
o Heartland Express, Inc. 1,070,733 18,068
Skywest, Inc. 423,800 17,852
Oshkosh Truck Corp. 529,500 16,678
Polaris Industries, Inc. 488,100 14,947
o(1)Mesaba Holdings, Inc. 1,165,800 14,572
Wabash National Corp. 867,400 12,631
o(1)Mesa Air Group Inc. 1,923,400 12,501
C.H. Robinson Worldwide, Inc. 213,500 10,674
Werner Enterprises, Inc. 424,000 7,949
Covenant Transport, Inc. 545,000 7,186
o Atlas Air, Inc. 200,000 6,987
Forward Air Corp. 82,300 2,828
o Knight Transportation, Inc. 125,000 2,298
o Tower Automotive, Inc. 140,700 2,197
Superior Industries International, Inc. 64,500 2,075
Borg-Warner Automotive, Inc. 48,600 2,031
o Landstar System 35,500 2,031
o Stoneridge, Inc. 144,300 1,901
o AirTran Holdings, Inc. 427,700 1,817
Circle International Group, Inc. 66,400 1,763
o Monaco Coach Corp. 94,500 1,546
Meritor Automotive, Inc. 100,600 1,508
o Arkansas Best Corp. 110,200 1,425
o Hayes Lemmerz International, Inc. 63,400 998
Audiovox Corp. 11,200 383
Petroleum Helicopters, Inc. 29,200 276
o American Freightways 13,400 249
o Old Dominion Freight Line, Inc. 18,700 205
EGL, Inc. 8,500 194
Winnebago Industries, Inc. 7,100 120
American Axle & Manufacturing Holdings, Inc. 5,200 77
o Aftermarket Technology Corp. 6,300 72
o National R. V. Holdings, Inc. 5,300 64
-----------
236,092
-----------
CONSUMER DISCRETIONARY (19.3%)
o Pacific Sunwear of California 851,100 28,990
o Pegasus Communications Corp. Class A 261,285 28,513
The Corporate Executive Board Co. 440,200 25,862
o Outback Steakhouse 676,950 22,170
o Learning Tree International, Inc. 436,200 20,910
(1)LodgeNet Entertainment Corp. 725,000 18,669
o Jones Apparel Group, Inc. 600,000 17,813
Callaway Golf Co. 1,018,200 16,928
o(1)TETRA Technologies, Inc. 1,148,200 16,362
Insight Communications Co., Inc. 800,000 16,300
PrimaCom AG ADR 345,000 14,318
o Diamond Technology Partners Inc. 176,700 13,981
E.W. Scripps Co. Class A 275,000 12,839
(1)Vans, Inc. 835,500 12,637
o Furniture Brands
International Inc. 650,400 12,154
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Heidrick & Struggles International, Inc. 335,800 $ 12,089
o Linens `n Things, Inc. 379,600 11,720
Edison Schools Inc. 500,000 11,438
Central Newspapers, Inc. 372,000 11,416
American Eagle Outfitters, Inc. 669,300 11,378
o Premier Parks Inc. 525,000 11,320
o NCO Group, Inc. 326,400 11,220
o Emmis Communications, Inc. 256,130 10,886
o Ames Department Stores, Inc. 569,150 10,209
Tweeter Home Entertainment Group, Inc. 275,800 10,170
Oneida Ltd. 521,900 9,981
o Borders Group, Inc. 610,000 9,684
o(1)Urban Outfitters, Inc. 900,000 9,675
o ShopKo Stores, Inc. 529,000 9,456
Liz Claiborne, Inc. 198,400 9,188
o AnnTaylor Stores Corp. 429,800 8,891
Dover Downs Entertainment, Inc. 705,700 8,645
On Command Corp. 400,000 8,550
The Marcus Corp. 783,000 8,368
Manpower Inc. 233,300 8,238
o The Topps Co., Inc. 935,900 8,189
Regis Corp. 660,000 7,714
Latitude Communications, Inc. 514,000 7,453
Penton Media, Inc. Class A 275,800 7,257
o BJ's Wholesale Club, Inc. 200,000 7,088
o Playboy Enterprises, Inc. Class B 438,400 7,069
o Westwood One, Inc. 196,400 6,948
o Nautica Enterprises, Inc. 579,300 6,517
o Brightpoint, Inc. 532,200 6,287
ValueVision International, Inc. Class A 296,900 5,919
(1)AMC Entertainment, Inc. 1,377,500 5,854
Spanish Broadcasting System, Inc. 287,860 5,379
o Speedway Motorsports, Inc. 220,000 5,266
Wink Communications, Inc. 237,500 4,691
Regional Cablesystems, Inc. 440,000 4,603
o Activision, Inc. 711,800 4,449
o Insight Enterprises, Inc. 105,600 4,415
New Horizons Worldwide, Inc. 240,000 4,230
o Williams-Sonoma, Inc. 120,500 4,172
o United Stationers, Inc. 109,100 3,641
o Valassis Communications, Inc. 106,100 3,614
o Brinker International, Inc. 107,800 3,436
Ethan Allen Interiors, Inc. 119,950 3,201
o Footstar Inc. 85,700 3,187
o Bally Total Fitness Holding Corp. 142,300 3,184
Harman International Industries, Inc. 48,200 3,151
o Rare Hospitality International Inc. 100,600 3,112
o ACNielson Corp. 134,600 3,104
Jack in the Box Inc. 126,500 3,099
i3 Mobile, Inc. 163,900 3,073
Pier 1 Imports Inc. 266,250 3,029
Fossil, Inc. 144,900 3,007
o Mohawk Industries, Inc. 116,900 2,901
o Venator Group, Inc. 240,700 2,858
o MSC Industrial Direct Co., Inc. Class A 201,700 2,824
Ruby Tuesday, Inc. 131,400 2,751
o Timberland Co. 39,600 2,747
Cox Radio, Inc. 37,700 2,733
o Dollar Thrifty Automotive Group, Inc. 130,100 2,732
o Education Management Corp. 164,600 2,695
Meredith Corp. 95,000 2,642
Tupperware Corp. 139,000 2,624
o Young Broadcasting Inc. 121,900 2,621
Ross Stores, Inc. 124,400 2,581
o Copart, Inc. 147,000 2,536
o The IT Group, Inc. 375,500 2,511
o MAXIMUS, Inc. 103,400 2,436
o Sunglass Hut International, Inc. 324,600 2,435
o ADVO, Inc. 80,900 2,427
Rent-Way, Inc. 92,400 2,397
Pinnacle Entertainment, Inc. 119,300 2,393
o Kenneth Cole Productions, Inc. 57,300 2,342
Midas Inc. 89,200 2,258
Jostens Inc. 89,300 2,205
o Vail Resorts Inc. 135,900 2,191
Wallace Computer Services, Inc. 200,300 2,191
Pittston Brink's Group 132,089 2,163
o Genesco, Inc. 163,600 2,117
Landry's Seafood Restaurants, Inc. 245,100 2,114
o Choice Hotel International, Inc. 159,100 2,098
o NPC International Class A 192,500 1,997
John H. Harland Co. 129,200 1,986
o Buffets Inc. 201,065 1,973
Collectors Universe, Inc. 400,000 1,950
Banta Corp. 95,500 1,868
o Musicland Stores Corp. 246,100 1,846
o QRS Corp. 54,900 1,812
o Teletech Holdings Inc. 55,000 1,794
o Discount Auto Parts Inc. 167,800 1,793
Polaroid Corp. 86,000 1,736
Stewart Enterprises, Inc. Class A 360,000 1,733
o CDI Corp. 77,000 1,733
o Lands' End, Inc. 40,900 1,731
o Mail-Well, Inc. 193,300 1,728
o Lone Star Steakhouse & Saloon, Inc. 145,000 1,713
Media Metrix, Inc. 52,700 1,693
Talbots Inc. 33,100 1,674
o MemberWorks, Inc. 50,600 1,634
Burns International Services Corp. 147,900 1,608
o The Cheesecake Factory 39,200 1,605
o 24/7 Media, Inc. 79,900 1,568
o Interim Services, Inc. 91,300 1,564
Rare Medium Group, Inc. 71,000 1,460
o Bell & Howell Co. 54,800 1,456
Wilsons The Leather Experts Inc. 114,550 1,389
MGM Grand, Inc. 46,600 1,375
Strayer Education, Inc. 66,500 1,367
Cumulus Media Inc. 101,700 1,335
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
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MARKET
VALUE*
EXPLORER FUND SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Oshkosh B Gosh, Inc. Class A 80,100 $ 1,292
Movado Group, Inc. 141,600 1,221
Intimate Brands, Inc. 29,000 1,117
o Administaff, Inc. 26,800 1,079
Startek, Inc. 20,300 1,043
Electronics Boutique Holdings Corp. 63,800 1,037
MDC Communications Corp. 112,200 1,024
Tiffany & Co. 13,800 1,003
P.F. Chang's China Bistro, Inc. 27,300 956
o Saks Inc. 78,800 901
Ziff-Davis Inc.-ZDNet 71,700 892
o Scientific Games Holdings Corp. 46,400 858
Quanta Services, Inc. 18,000 836
Darden Restaurants Inc. 45,200 833
Braun's Fashions Corp. 34,800 796
o West TeleServices Corp. 37,500 792
o Gadzooks, Inc. 34,300 757
Provant, Inc. 134,700 745
o Chico's Fas, Inc. 39,900 716
o Piercing Pagoda, Inc. 48,150 680
Westpoint Stevens, Inc. 31,900 598
Block Drug Co. Class A 20,490 584
Meta Group, Inc. 25,900 583
o Taco Cabana 95,100 577
o Cost Plus, Inc. 18,700 572
o Wackenhut Corrections Corp. 68,900 543
Rent-A-Center, Inc. 26,100 532
o Polo Ralph Lauren Corp. 31,600 514
Applebee's International, Inc. 13,600 496
Blair Corp. 24,900 482
Ticketmaster Online-City Search, Inc. 23,700 474
o Station Casinos, Inc. 15,600 445
Finlay Enterprises, Inc. 43,700 442
CEC Entertainment Inc. 13,500 405
The Children's Place Retail Stores, Inc. 15,600 347
o Dendrite International, Inc. 14,600 334
o Donna Karan International Inc. 48,000 324
Salton, Inc. 7,300 313
o Sonic Corp. 11,200 312
Nu Skin Enterprises, Inc. 40,500 311
SCP Pool Corp. 7,600 280
Entercom Communications Corp. 6,500 276
JAKKS Pacific, Inc. 14,400 265
o Papa John's International, Inc. 9,400 259
o Men's Wearhouse, Inc. 12,000 257
o Quiksilver, Inc. 13,000 245
o ACTV, Inc. 12,700 230
Navigant Consulting, Inc. 22,100 220
o Factory 2-U Stores Inc. 6,500 217
Media General, Inc. Class A 4,300 212
o O'Reilly Automotive, Inc. 15,200 205
o On Assignment, Inc. 6,500 204
o Windmere-Durable Holdings Inc. 12,600 202
o 99 Cents Only Stores 4,900 184
Korn/Ferry International 6,900 183
Radio One, Inc. 3,100 180
Pegasus Systems Inc. 9,700 172
Career Education Corp. 4,100 155
o SITEL Corp. 22,000 151
THQ Inc. 9,700 150
o WMS Industries, Inc. 16,700 146
o Guess ?, Inc. 5,300 146
Direct Focus, Inc. 4,300 141
Gaylord Entertainment Co. Class A 5,500 132
Cato Corp. Class A 12,200 129
o ITT Educational Services, Inc. 7,100 127
Waste Connections, Inc. 9,800 123
o Trans World Entertainment Corp. 10,700 112
o Romac International, Inc. 10,800 111
Shop At Home, Inc. 17,500 110
Haverty Furniture Cos., Inc. 9,700 109
o Michaels Stores, Inc. 2,700 106
Whitehall Jewellers, Inc. 5,200 89
o Midway Games Inc. 12,200 81
o Championship Auto Racing Teams, Inc. 3,900 79
Beyond.com Corp. 29,600 65
CDnow Inc. 14,900 64
o CSK Auto Corp. 5,900 62
o Jo-Ann Stores, Inc. Class A 5,400 50
o Group 1 Automotive, Inc. 3,600 43
Charles River Associates Inc. 2,100 43
o Lason Holdings, Inc. 9,000 41
e4L, Inc. 19,000 26
Cyberian Outpost, Inc. 4,600 24
-----------
787,122
-----------
CONSUMER STAPLES (1.1%)
o Beringer Wine Estates
Holdings, Inc. 377,000 13,619
o Rexall Sundown, Inc. 546,500 10,520
Fleming Cos., Inc. 427,000 7,019
o American Italian Pasta Co. 126,400 3,128
Del Monte Foods Co. 272,700 2,420
Universal Corp. 128,200 2,420
Dreyer's Grand Ice Cream, Inc. 62,900 1,510
Celestial Seasonings, Inc. 40,600 1,365
o Aurora Foods Inc. 260,900 1,256
Schweitzer-Mauduit
International, Inc. 77,800 1,133
7-Eleven, Inc. 166,200 623
International Multifoods Corp. 27,300 350
Church & Dwight, Inc. 15,800 282
o Hain Food Group, Inc. 9,200 247
o Smithfield Foods, Inc. 10,600 226
o Performance Food Group Co. 4,500 119
Pilgrim's Pride Corp. 10,500 78
-----------
46,315
-----------
FINANCIAL SERVICES (9.7%)
Investment Technology
Group, Inc. 1,303,921 48,897
Equity Residential Properties Trust REIT 628,000 28,574
Sun Communities, Inc. REIT 753,900 24,973
Manufactured Home Communities, Inc. REIT 699,250 17,481
o Affiliated Computer Services, Inc. Class A 473,600 15,688
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
o BISYS Group, Inc. 237,400 $ 14,852
o Concord EFS, Inc. 659,175 14,749
Jefferies Group, Inc. 660,000 14,561
Regency Realty Corp. REIT 600,000 13,275
Dain Rauscher Corp. 208,000 12,883
o Nova Corp. (Georgia) 407,200 12,878
Cullen/Frost Bankers, Inc. 520,000 12,838
Federal Realty Investment Trust REIT 597,000 12,686
Pinnacle Holdings Inc. REIT 197,250 11,083
Fidelity National Financial, Inc. 732,615 10,806
Heller Financial, Inc. 520,000 10,108
Annuity and Life Re (Holdings), Ltd. 400,000 8,650
S1 Corp. 144,400 7,843
National Data Corp. 275,000 7,631
First Washington Realty Trust, Inc. REIT 300,000 6,244
o AmeriCredit Corp. 260,600 4,870
Labranche & Co. Inc. 373,075 4,454
Saul Centers, Inc. REIT 262,000 4,045
Radian Group, Inc. 66,600 3,392
Hudson United Bancorp 149,536 3,374
Downey Financial Corp. 107,000 3,197
Financial Security Assurance Holdings Ltd. 38,700 2,857
o Affiliated Managers Group, Inc. 67,700 2,716
o Barra, Inc. 63,300 2,667
The PMI Group Inc. 52,400 2,538
SEI Corp. 21,000 2,507
WestAmerica Bancorporation 97,300 2,439
o Golden State Bancorp Inc. 157,000 2,414
Washington Federal Inc. 136,360 2,378
Commerce Group, Inc. 75,800 2,236
XTRA Corp. 44,500 2,092
Wit Capital Group, Inc. 195,000 2,060
First Midwest Bancorp 80,600 2,005
AmerUs Life Holdings, Inc. 95,390 1,902
Legg Mason Inc. 48,200 1,823
John Nuveen Co. Class A 43,800 1,747
Presidential Life Corp. 102,300 1,629
TCF Financial Corp. 68,200 1,594
Jack Henry & Associates 35,800 1,414
The MONY Group Inc. 45,700 1,414
U.S. Trust Corp. 8,900 1,369
McGrath Rent Corp. 83,900 1,345
Erie Indemnity Co. Class A 44,800 1,333
Oriental Financial Group 72,700 1,236
o Hamilton Bancorp, Inc. 63,700 1,170
o Advent Software, Inc. 22,000 1,155
First Federal Capital Corp. 93,900 1,080
Commonwealth Bancorp 81,600 1,061
Metris Cos., Inc. 23,800 893
St. Francis Capital Corp. 60,900 864
Texas Regional Bancshares, Inc. 27,400 783
MeriStar Hospitality Corp. REIT 39,100 772
o First Federal Financial Corp. 57,500 719
Phoenix Investment Partners Ltd. 81,100 705
Hartford Life, Inc. 14,200 699
Farm Family Holdings, Inc. 21,300 607
Nationwide Financial Services, Inc. 21,600 601
ITLA Capital Corp. 41,400 567
Federated Investors, Inc. 18,900 534
o Imperial Credit 132,000 512
Stifel Financial Corp. 46,798 500
Investors Financial Services Corp. 5,400 441
o The Profit Recovery Group International, Inc. 22,300 392
Columbia Banking System, Inc. 29,187 359
o Triad Guaranty, Inc. 16,700 351
Arthur J. Gallagher & Co. 8,800 328
First Commonwealth Financial Corp. 27,600 321
Associated Banc-Corp. 12,000 307
Commerce Bancorp, Inc. 7,400 294
Southwest Securities Group, Inc. 6,300 259
Professionals Group, Inc. 13,600 241
Corus Bankshares Inc. 9,452 236
Susquehanna Bancshares, Inc. 17,100 236
Greater Bay Bancorp 5,500 234
Eaton Vance Corp. 4,900 207
FactSet Research Systems Inc. 6,600 190
o Pegasystems Inc. 19,600 174
Harbor Florida Bancshares, Inc. 15,400 162
East West Bancorp, Inc. 12,700 159
Hilb, Rogal and Hamilton Co. 5,300 150
Cousins Properties, Inc. REIT 3,700 145
Queens County Bancorp, Inc. 5,700 116
E.W. Blanch Holdings, Inc. 4,700 105
o Financial Federal Corp. 5,500 102
Charles E. Smith Residential Realty, Inc. REIT 2,600 98
o Data Broadcasting Corp. 17,500 86
CVB Financial Corp. 5,200 84
Frontier Financial Corp. 3,800 72
Medallion Financial Corp. 4,100 68
FiNet.com, Inc. 68,500 60
First Source Corp. 2,800 58
CyberCash, Inc. 7,000 52
SierraCities.com, Inc. 7,800 47
-----------
395,103
-----------
HEALTH CARE (14.1%)
o Vertex Pharmaceuticals, Inc. 610,100 31,878
o Forest Laboratories, Inc. 355,000 29,842
Caremark Rx, Inc. 4,617,500 29,437
o Genzyme Corp. General Division 541,700 26,442
DENTSPLY International Inc. 775,700 22,544
o Gilead Sciences, Inc. 361,000 19,562
Abgenix, Inc. 197,700 17,707
Varian Medical Systems, Inc. 439,800 17,592
o Chiron Corp. 385,000 17,421
BioChem Pharma Inc. 730,000 16,790
o Cytyc Corp. 339,300 15,184
o Millennium Pharmaceuticals, Inc. 174,256 13,832
o Lincare Holdings, Inc. 444,900 13,569
o IDX Systems Corp. 780,300 13,216
o Regeneron Pharmaceuticals, Inc. 430,000 12,282
o Coventry Health Care Inc. 1,149,600 12,215
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
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MARKET
VALUE*
EXPLORER FUND SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
o Foundation Health Systems
Class A 1,207,700 $ 12,152
Medarex, Inc. 200,000 10,600
o I-STAT Corp. 775,000 10,027
United Therapeutics Corp. 170,500 9,633
Arrow International, Inc. 279,500 9,538
PE Corp.-Celera Genomics
Group 114,800 9,471
o(1)Matria Healthcare, Inc. 2,100,000 9,319
Cell Genesys, Inc. 498,500 9,316
o Human Genome Sciences, Inc. 121,600 9,310
o Protein Design Labs, Inc. 80,600 8,181
Kissei Pharmaceutical Co., Ltd. 479,000 7,850
PolyMedica Corp. 136,300 7,318
o Acuson Corp. 500,000 6,156
Gene Logic Inc. 220,000 5,913
Cubist Pharmaceuticals, Inc. 182,500 5,863
Bindly Western Industries, Inc. 308,400 5,378
o Sybron International Corp. 158,000 4,918
QLT PhotoTherapeutics Inc. 82,100 4,562
ICN Pharmaceuticals, Inc. 179,000 4,509
o Universal Health Services
Class B 80,400 4,402
o Isis Pharmaceuticals, Inc. 394,000 4,383
Allscripts, Inc. 138,400 4,290
Endocare, Inc. 252,300 4,163
o Biotechnology General 279,000 3,923
o Zoll Medical Corp. 83,100 3,672
o Wesley Jessen VisionCare, Inc. 93,200 3,670
Albany Molecular Research, Inc. 82,800 3,633
o Priority Healthcare Corp.
Class B 63,900 3,538
o Kensey Nash Corp. 264,200 3,435
Invitrogen Corp. 51,200 3,194
Ebenx Inc. 191,700 3,148
o Oxford Health Plan 152,600 2,899
o Trigon Healthcare, Inc. 79,600 2,861
o Quest Diagnostics, Inc. 49,100 2,857
o IDEXX Laboratories Corp. 106,000 2,783
o Apria Healthcare 188,900 2,633
o Beverly Enterprises, Inc. 773,900 2,612
o INCYTE Pharmaceuticals, Inc. 32,800 2,526
ORATEC Interventions, Inc. 72,200 2,459
o ImClone Systems, Inc. 25,900 2,357
o Transkaryotic Therapies, Inc. 75,000 2,245
Eclipsys Corp. 278,105 2,225
Cooper Cos., Inc. 63,900 2,149
Alpharma, Inc. Class A 53,400 2,063
Rehabcare Corp. 58,500 1,744
Jones Pharma, Inc. 54,575 1,572
o Ventana Medical Systems, Inc. 55,300 1,559
o Mid Atlantic Medical
Services, Inc. 163,900 1,526
o AmeriPath, Inc. 190,700 1,490
o The Liposome Co., Inc. 84,200 1,474
Aurora Biosciences Corp. 39,050 1,416
Celgene Corp. 24,300 1,144
o Techne 16,000 1,138
o STERIS Corp. 124,100 1,117
Sunquest Information Systems, Inc. 96,600 1,099
Alexion Pharmaceuticals, Inc. 22,500 1,004
o Cephalon, Inc. 17,000 956
CuraGen Corp. 28,600 761
o QuadraMed Corp. 187,200 731
o Pharmaceutical Product Development, Inc. 42,300 711
ArQule, Inc. 59,500 703
Minntech Corp. 80,600 685
o ProxyMed, Inc. 400,000 650
o Cor Therapeutics, Inc. 8,400 640
Cyberonics, Inc. 31,300 638
o Express Scripts 17,500 626
o IDEC Pharmaceuticals Corp. 9,700 621
o ResMed Inc. 18,000 612
o MedQuist, Inc. 16,400 581
American Retirement Corp. 76,200 572
Nabi 115,800 557
o Chirex, Inc. 31,000 527
o Patterson Dental Co. 10,000 481
King Pharmaceuticals, Inc. 9,300 459
o Ocular Sciences, Inc. 27,100 449
Varian, Inc. 12,300 447
Mallinckrodt, Inc. 16,100 433
o Magellan Health Services, Inc. 109,600 411
Mentor Corp. 23,200 410
Hooper Holmes, Inc. 23,000 400
o Renal Care Group, Inc. 17,500 390
Enzon, Inc. 10,100 376
Diagnostic Products Corp. 11,400 350
o Orthodontic Centers of America, Inc. 15,900 337
o Pediatrix Medical Group, Inc. 40,400 333
o Noven Pharmaceuticals, Inc. 28,200 331
o Alkermes, Inc. 5,900 314
Novoste Corp. 7,300 299
o Enzo Biochem, Inc. 6,800 275
o Summit Technology, Inc. 30,600 272
o Laboratory Corp. of America 43,700 259
Stericycle, Inc. 11,900 250
o Ligand Pharmaceuticals Inc. Class B 17,700 237
o Affymetrix, Inc. 1,600 216
OraPharma, Inc. 20,000 204
o AmeriSource Health Corp. 10,100 202
o Syncor International Corp. 4,700 194
Coulter Pharmaceutical, Inc. 9,900 181
o Sangstat Medical Corp. 6,300 181
o Cygnus Inc. 14,500 181
Province Healthcare Co. 6,200 179
o Theragenics Corp. 17,600 175
o First Health Group Corp. 5,500 167
o PathoGenesis Corp. 6,800 145
o Columbia Laboratories Inc. 15,100 143
Gliatech Inc. 8,500 130
LifePoint Hospitals, Inc. 7,600 130
Corixa Corp. 3,600 111
o Algos Pharmaceutical Corp. 7,300 110
o Advance Paradigm, Inc. 8,400 105
o Biomatrix, Inc. 5,400 103
o LCA-Vision, Inc. 23,800 86
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
LaserSight Inc. 14,700 $ 74
o Duramed Pharmaceuticals, Inc. 12,500 59
o Bio-Rad Laboratories, Inc. Class A 1,900 48
o Trex Medical Corp. 16,600 46
-----------
575,184
-----------
INTEGRATED OILS (0.1%)
o Tesoro Petroleum Corp. 241,800 2,841
-----------
OTHER ENERGY (4.3%)
Core Laboratories N.V. 1,083,100 30,733
o Hanover Compressor Co. 300,000 17,475
o Marine Drilling Co., Inc. 669,400 17,404
St. Mary Land & Exploration Co. 455,000 15,356
Chieftain International, Inc. 599,900 11,398
o Noble Drilling Corp. 250,000 9,984
o Global Industries Ltd. 530,000 7,553
Weatherford International, Inc. 160,100 6,504
o UTI Energy Corp. 169,750 5,899
ENSCO International, Inc. 158,800 5,270
o Rowan Cos., Inc. 183,500 5,127
Spinnaker Exploration Co. 213,040 4,953
o National-Oilwell, Inc. 176,500 4,225
o Newfield Exploration Co. 88,300 3,587
o Forest Oil Corp. 256,400 2,868
Vintage Petroleum, Inc. 141,800 2,818
o SEACOR SMIT Inc. 45,700 2,799
Equitable Resources, Inc. 57,200 2,653
Noble Affiliates, Inc. 64,400 2,322
o HS Resources Inc. 95,300 2,305
Cross Timbers Oil Co. 153,300 2,213
o Stone Energy Corp. 38,100 1,800
Helmerich & Payne, Inc. 48,000 1,503
Tom Brown, Inc. 78,700 1,495
o Grey Wolf, Inc. 317,200 1,289
Pride International Inc. 47,500 1,075
o Veritas DGC Inc. 27,100 650
Penn Virginia Corp. 30,000 540
o Patterson Energy, Inc. 16,800 475
Pogo Producing Co. 15,800 405
Ocean Energy, Inc. 30,800 398
o Seitel, Inc. 57,400 359
o Barrett Resources Corp. 8,600 273
Chesapeake Energy Corp. 59,300 222
o Nuevo Energy Co. 6,000 105
o The Meridian Resource Corp. 28,700 104
o Plains Resources 6,000 85
o Newpark Resources, Inc. 8,300 68
-----------
174,292
-----------
MATERIALS & PROCESSING (3.1%)
Cambrex Corp. 300,000 12,300
o Cytec Industries, Inc. 400,000 12,050
Polymer Group, Inc. 784,500 9,120
Granite Construction Co. 377,200 8,959
Nagase & Co., Ltd. 2,100,000 7,190
o Bethlehem Steel Corp. 1,200,000 6,450
Wellman, Inc. 300,000 6,413
Freeport-McMoRan Copper & Gold Inc. Class B 600,000 5,775
Valmont Industries, Inc. 256,100 5,090
o Insituform Technologies Class A 123,000 4,128
Grant Prideco, Inc. 214,000 4,120
OM Group, Inc. 65,800 3,027
o Catellus Development Corp. 230,600 2,998
o Agribrands International, Inc. 73,800 2,763
Allegheny Technologies Inc. 101,700 2,460
o Fairfield Communities, Inc. 261,800 2,373
Corn Products International, Inc. 95,700 2,297
Texas Industries, Inc. 66,700 2,176
Spartech Corp. 53,400 1,856
o U.S. Can Corp. 100,300 1,843
Centex Construction Products,Inc. 56,800 1,754
U.S. Plastic Lumber Corp. 371,100 1,624
o Cadiz Inc. 219,200 1,589
American Superconductor Corp. 40,700 1,554
o Buckeye Technology, Inc. 80,900 1,547
o Dal-Tile International Inc. 154,400 1,505
o Paxar Corp. 145,900 1,486
Ethyl Corp. 437,000 1,366
Carpenter Technology Corp. 67,600 1,356
Ferro Corp. 49,300 1,128
Lilly Industries Inc. Class A 84,200 916
o Dycom Industries, Inc. 15,200 790
o Silgan Holdings, Inc. 52,900 681
o Stillwater Mining Co. 22,300 624
Commonwealth Industries Inc. 73,900 554
Owens Corning 25,600 466
Georgia Gulf Corp. 18,600 448
BMC Industries, Inc. 81,800 409
USEC Inc. 84,800 398
Quanex Corp. 22,600 370
o Advanced Lighting
Technologies, Inc. 21,200 323
o Maverick Tube Corp. 11,200 319
AMCOL International Corp. 14,200 233
W.R. Grace & Co. 17,000 221
o Lone Star Technologies, Inc. 4,000 185
Brady Corp. Class A 5,600 165
Battle Mountain Gold Co.
Class A 75,300 155
o Steel Dynamics, Inc. 13,500 154
Geon Co. 6,700 147
H.B. Fuller Co. 3,400 131
Elcor Corp. 3,900 124
o Gaylord Container Corp. 21,200 109
o Earthshell Corp. 28,400 92
LSI Industries Inc. 3,900 70
o Crestline Capital Corp. 4,000 69
o Insignia Financial Group, Inc. 3,000 31
American Pad & Paper Co. 107,600 14
-----------
126,495
-----------
PRODUCER DURABLES (8.7%)
o Mettler-Toledo International Inc. 844,100 29,121
Polycom, Inc. 331,300 26,214
o American Power
Conversion Corp. 591,000 20,870
o Plantronics, Inc. 233,400 20,656
o Waters Corp. 197,000 18,715
Clayton Homes Inc. 1,604,500 15,243
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
MARKET
VALUE*
EXPLORER FUND SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
o American Tower Corp. Class A 300,000 $ 13,950
Cohu, Inc. 322,200 12,264
o Palm Harbor Homes, Inc. 683,108 11,271
o PRI Automation, Inc. 136,100 10,871
Brooks Automation, Inc. 112,300 10,072
MKS Instruments, Inc. 179,400 8,432
Moritex Corp. 110,000 8,245
o Zygo Corp. 304,200 7,757
o E-Tek Dynamics, Inc. 34,400 7,043
Lindsay Manufacturing Co. 392,750 7,020
o ATMI, Inc. 179,800 6,922
o AstroPower, Inc. 325,000 6,642
o DuPont Photomasks, Inc. 112,475 6,306
Donaldson Co., Inc. 271,000 6,301
SpeedFam-IPEC, Inc. 376,500 5,953
o Credence Systems Corp. 38,800 5,539
o Adaptive Broadband Corp. 154,200 5,012
Therma-Wave Inc. 167,650 4,610
o Crown Castle International Corp. 113,500 4,356
Newport News Shipbuilding Inc. 118,900 3,968
o Alliant Techsystems, Inc. 51,000 3,551
Varian Semiconductor
Equipment Associates, Inc. 50,800 3,416
o LTX Corp. 72,400 3,312
o Electroglas, Inc. 79,000 3,061
SpectraLink Corp. 210,200 3,035
Ametek Aerospace Products Inc. 144,000 2,961
o Kulicke & Soffa Industries, Inc. 36,800 2,882
o NVR, Inc. 44,800 2,789
o Mastec Inc. 30,500 2,634
Cordant Technologies, Inc. 45,100 2,554
Herman Miller, Inc. 86,900 2,379
Graco, Inc. 65,000 2,202
Mark IV Industries, Inc. 99,000 2,098
Briggs & Stratton Corp. 52,000 1,996
o LAM Research Corp. 41,300 1,895
X-Rite Inc. 162,400 1,857
MDC Holdings, Inc. 96,800 1,845
NACCO Industries, Inc. Class A 39,100 1,755
o Magnatek 209,500 1,741
Applied Industrial
Technology, Inc. 88,600 1,539
Standex International Corp. 89,500 1,471
o Esterline Technologies Corp. 110,700 1,342
o Novellus Systems, Inc. 19,000 1,267
o Silicon Valley Group, Inc. 43,800 1,248
Terayon Communications
Systems, Inc. 13,300 1,237
inTEST Corp. 52,500 1,175
Inter-Tel, Inc. 54,800 1,110
Photon Dynamics, Inc. 14,900 1,103
o California Amplifier, Inc. 37,000 999
o Genrad, Inc. 128,000 952
o Asyst Technologies, Inc. 16,100 861
o Scott Technologies, Inc. 38,700 755
o Electro Scientific Industries, Inc. 11,700 738
Helix Technology Corp. 12,600 643
Pulte Corp. 24,400 525
o Advanced Energy Industries, Inc. 7,000 483
Tut Systems, Inc. 8,200 394
o Comdial Corp. 29,200 361
o Cymer, Inc. 9,000 352
Manitowac Co., Inc. 9,300 309
o Cognex Corp. 5,400 307
C & D Technology Inc. 4,700 303
D. R. Horton, Inc. 22,200 287
Power-One, Inc. 4,000 273
o Interdigital Communications Corp. 11,900 246
o C-COR Electronics, Inc. 6,100 239
Stewart & Stevenson Services, Inc. 17,300 209
o Kent Electronics Corp. 7,000 204
Astec Industries, Inc. 8,000 201
o Vicor Corp. 6,100 159
Technitrol, Inc. 2,100 143
o Rayovac Corp. 6,700 140
Standard Pacific Corp. 12,900 130
Kennametal, Inc. 4,500 129
JLG Industries, Inc. 12,200 116
o Terex Corp. 7,200 113
Dynatech Corp. 12,650 112
Transcrypt International, Inc. 8,400 24
Arguss Holdings, Inc. 100 2
-----------
353,517
-----------
TECHNOLOGY (21.3%)
Maxtor Corp. 3,361,400 40,127
o Rational Software Corp. 385,000 32,773
Quantum Corp.-
Hard Disk Drive 2,200,000 25,713
Cognos Inc. 639,800 23,993
o Avant! Corp. 1,302,900 23,452
o Verity, Inc. 690,000 22,382
o Advanced Fibre
Communications, Inc. 488,825 22,333
o Westell Technologies, Inc.
Class A 776,780 22,090
o Remedy Corp. 389,500 20,692
o Burr-Brown Corp. 281,800 19,198
ANADIGICS, Inc. 248,700 18,715
o Aspen Technology, Inc. 500,000 17,688
o REMEC, Inc. 450,300 17,083
AirGate PCS, Inc. 190,700 16,353
o Oak Technology, Inc. 1,159,057 16,299
o Informix Corp. 1,473,000 16,203
o Sybase, Inc. 765,600 15,456
o Digital Microwave Corp. 405,400 14,974
o Semtech Corp. 219,250 14,950
o Mercury Interactive Corp. 157,430 14,169
o S3, Inc. 1,000,000 14,063
o Trimble Navigation Ltd. 495,400 13,685
o Acxiom Corp. 489,140 13,207
o TriQuint Semiconductor, Inc. 124,400 12,790
o Sensormatic Electronics Corp. 763,500 12,741
o Electronics for Imaging, Inc. 232,300 12,138
Gartner Group, Inc. Class A 850,000 11,475
o Integrated Silicon Solution, Inc. 371,700 11,360
o Documentum, Inc. 182,600 10,773
Methode Electronics, Inc.
Class A 250,000 10,418
Internet Pictures Corp. 658,800 10,376
Extreme Networks, Inc. 174,575 10,060
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
o Ceridian Corp. 400,000 $ 8,675
o RealNetworks, Inc. 171,400 8,163
Ditech Communications Corp. 93,800 8,043
o P-Com, Inc. 715,500 7,736
o Manugistics Group, Inc. 179,600 7,689
iVillage Inc. 754,800 7,595
Alteon Websystems, Inc. 110,950 7,545
SeaChange International, Inc. 245,850 7,376
SERENA Software, Inc. 327,450 7,163
o Western Digital Corp. 1,000,000 6,938
o Actel Corp. 185,100 6,814
eSPEED, Inc. 138,100 6,525
o Davox Corp. 250,000 6,375
Inet Technologies, Inc. 146,240 6,307
Optibase Ltd. 325,000 6,155
Exar Corp. 76,200 6,109
Marimba, Inc. 303,000 6,003
Powerwave Technologies, Inc. 28,000 5,826
Macrovision Corp. 109,500 5,352
Micromuse Inc. 52,700 5,171
o New Era of Networks, Inc. 161,900 5,080
(1)Zoom Telephonics, Inc. 500,000 4,938
o Internet.com Corp. 250,000 4,750
Cerprobe Corp. 300,000 4,725
Register.com, Inc. 91,850 4,684
NetSpeak Corp. 290,000 4,676
Maxwell Technologies, Inc. 300,000 4,538
o Hutchinson Technology, Inc. 350,000 4,463
o National Instruments Corp. 71,725 3,497
Diversinet Corp. 400,000 3,425
Keithley Instruments Inc. 59,700 3,328
o CSG Systems International, Inc. 71,600 3,303
o KEMET Corp. 44,200 3,293
o Aspect Development, Inc. 46,400 3,207
Caminus Corp. 206,400 3,083
o American Management
Systems, Inc. 82,500 3,053
o CommScope, Inc. 60,600 2,879
Moldflow Corp. 152,500 2,821
BSQUARE Corp. 161,000 2,818
Digitas Inc. 182,100 2,811
o General Semiconductor, Inc. 138,300 2,766
o International Rectifier Corp. 52,500 2,579
Reynolds & Reynolds Class A 99,700 2,368
Allaire Corp. 41,800 2,302
Aeroflex, Inc. 61,700 2,298
OTG Software, Inc. 102,000 2,244
o Xircom, Inc. 55,800 2,201
o Anixter International Inc. 64,800 2,183
o Ciber, Inc. 119,600 2,160
MicroStrategy Inc. 83,000 2,148
Computer Associates
International, Inc. 38,184 2,131
Natural Microsystems Corp. 32,000 2,084
o BroadVision, Inc. 46,600 2,047
In Focus Systems, Inc. 67,900 2,033
o Advanced Digital
Information Corp. 82,500 2,026
o SPSS, Inc. 68,900 1,964
Park Electrochemical Corp. 73,700 1,889
C-bridge Internet Solutions, Inc. 70,200 1,860
o Progress Software Corp. 92,500 1,850
o FileNet Corp. 62,900 1,848
o SanDisk Corp. 19,300 1,768
Elantec Semiconductor, Inc. 43,200 1,750
o Kronos, Inc. 53,900 1,732
Optimal Robotics Corp. 40,000 1,700
Cognizant Technology
Solutions Corp. 36,400 1,670
Zomax Inc. 33,800 1,599
o Cypress Semiconductor Corp. 29,100 1,511
o Symantec Corp. 23,000 1,436
o Actuate Software Corp. 47,200 1,413
CAIS Internet, Inc. 102,000 1,352
o ISS Group, Inc. 14,000 1,266
LCC International, Inc. Class A 50,300 1,229
o Cree, Inc. 8,100 1,179
Planar Systems, Inc. 98,600 1,103
Harmonic, Inc. 14,400 1,063
Cyberoptics Corp. 27,700 1,060
Indus International, Inc. 173,500 1,041
o CompuCom Systems, Inc. 292,300 1,005
TranSwitch Corp. 11,200 986
RSA Security Inc. 15,700 921
o Technology Solutions Co. 136,750 897
Netopia, Inc. 21,300 889
o(3)P-Com, Inc. 87,565 852
o Tech-Sym Corp. 39,000 829
o Emulex Corp. 18,200 826
NVIDIA Corp. 9,000 802
o Open Market, Inc. 74,700 770
Akamai Technologies, Inc. 7,446 736
Intraware, Inc. 44,300 709
o C-Cube Microsystems, Inc. 10,800 694
The Titan Corp. 16,100 691
o Zebra Technologies Corp.
Class A 11,600 661
CACI International, Inc. 27,400 642
o Sawtek Inc. 12,600 602
o MRV Communications Inc. 8,700 600
CTS Corp. 9,300 586
o Amkor Technology, Inc. 9,500 581
Entrust Technologies, Inc. 11,500 565
PerkinElmer, Inc. 10,100 553
Mercury Computer Systems, Inc. 14,100 542
o Black Box Corp. 7,000 539
National Computer Systems, Inc. 10,100 520
Alpha Industries, Inc. 9,600 499
o Integrated Device
Technology Inc. 9,900 476
o Pinnacle Systems, Inc. 19,200 461
Go2Net, Inc. 7,200 428
IPC Communications, Inc. 2,500 418
Gerber Scientific, Inc. 29,000 402
o Harbinger Corp. 19,700 372
o Amphenol Corp. 5,800 370
o Lattice Semiconductor Corp. 5,200 350
o Adtran, Inc. 5,000 338
ZixIt Corp. 8,800 325
o Micrel, Inc. 3,600 311
Ancor Communications, Inc. 10,200 308
o HNC Software, Inc. 6,200 307
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
MARKET
VALUE*
EXPLORER FUND SHARES (000)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
o Network Peripherals, Inc. 10,900 $ 305
Carrier Access Corp. 6,900 301
o Power Integrations, Inc. 13,100 298
o MTI Technology Corp. 19,000 295
o Littelfuse, Inc. 7,900 280
o Metro Information Services, Inc. 20,300 277
Phoenix Technologies Ltd. 13,800 271
o Brio Technology, Inc. 10,800 267
Aspect Communications Corp. 7,300 259
o Cybex Computer Products Corp. 9,400 257
o Project Software &
Development, Inc. 8,300 253
o Siliconix, Inc. 3,000 249
RadiSys Corp. 5,900 244
o Great Plains Software, Inc. 5,700 241
o Radiant Systems, Inc. 12,600 235
o Ingram Micro, Inc. Class A 11,000 217
o Proxim, Inc. 2,800 215
o Concord Communications, Inc. 7,600 213
o Plexus Corp. 2,600 199
o Peregrine Systems, Inc. 8,100 195
o 3Dfx Interactive, Inc. 17,700 184
o ESS Technology, Inc. 14,000 182
o Auspex Systems, Inc. 23,700 181
o Flextronics International Ltd. 2,415 170
o Sanchez Computer
Associates, Inc. 8,700 169
Pomeroy Computer
Resources, Inc. 9,600 158
o Visual Networks, Inc. 3,600 140
o AXENT Technologies, Inc. 5,800 117
o About.com, Inc. 2,900 100
o Objective Systems Integrators, Inc. 6,000 86
Dallas Semiconductor Corp. 2,000 86
Brooktrout Technology, Inc. 3,000 81
Santa Cruz Operation, Inc. 12,600 76
o Inprise Corp. 11,500 60
o Renaissance Worldwide, Inc. 15,500 58
Miami Computer Supply Corp. 2,700 56
o QAD Inc. 1,800 11
-----------
867,863
-----------
UTILITIES (1.4%)
Viatel, Inc. 235,000 8,989
o MGC Communications, Inc. 115,200 5,645
o Intermedia Communications Inc. 138,000 5,624
Illuminet Holdings, Inc. 110,560 4,982
Mediacom Communications
Corp. 392,300 4,855
Focal Communications Corp. 131,455 4,379
Netro Corp. 84,400 3,640
o Commonwealth Telephone
Enterprises, Inc. 52,740 2,561
Price Communications Corp. 120,500 2,440
o ITC DeltaCom, Inc. 64,400 2,117
o El Paso Electric Co. 180,700 1,999
o Boston Communications
Group, Inc. 184,900 1,687
Adelphia Business Solutions, Inc. 34,700 1,215
UniSource Energy Corp. 61,000 991
o Western Wireless Corp. Class A 18,400 914
RGS Energy Group Inc. 38,400 902
TALK.com, Inc. 87,200 850
o Powertel Inc. 8,600 578
NUI Corp. 21,300 570
o Aerial Communications Inc. 12,000 530
CapRock Communications Corp. 13,600 456
o CTC Communications Group, Inc. 5,800 196
Motient Corp. 15,300 191
WebLink Wireless, Inc. 16,700 190
Metricom 6,000 168
o Paging Network, Inc. 66,400 112
o Pacific Gateway Exchange, Inc. 9,500 60
-----------
56,841
-----------
OTHER (0.4%)
o Thermo Electron Corp. 600,000 11,625
U.S. Industries, Inc. 279,600 3,408
Teleflex Inc. 47,400 1,638
Gentek, Inc. 4,500 60
-----------
16,731
-----------
---------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $3,115,268) 3,638,396
---------------------------------------------------------------------------------------------------
FACE
AMOUNT
(000)
---------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (10.8%)+
---------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK
(2)6.14%, 8/9/2000 $ 1,000 983
FEDERAL HOME LOAN MORTGAGE CORP.
(2)5.86%, 5/11/2000 3,000 2,995
(2)5.93%, 5/4/2000 3,000 2,999
FEDERAL NATIONAL MORTGAGE ASSN.
(2)6.15%, 7/13/2000 7,500 7,409
U.S. TREASURY BILL
(2)5.57%, 6/29/2000 100 99
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.75%, 5/1/2000 409,400 409,400
5.79%, 5/1/2000--Note G 16,969 16,969
---------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $440,853) 440,854
---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(COST $3,556,121) 4,079,250
---------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
-----------------------------------------------------------------
MARKET
VALUE*
(000)
-----------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.1%)
-----------------------------------------------------------------
Other Assets--Note C 49,976
Liabilities--Note G (55,022)
---------
(5,046)
-----------------------------------------------------------------
NET ASSETS (100%)
-----------------------------------------------------------------
Applicable to 54,604,734 outstanding
$.001 par value shares of
beneficial interest
(unlimited authorization) $4,074,204
=================================================================
NET ASSET VALUE PER SHARE $74.61
=================================================================
*See Note A in Notes to Financial Statements.
oNon-Income-Producing Security.
+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 94.9% and 5.2%, respectively, of net assets. See Note F in Notes to
Financial Statements.
(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 $128,483,000.
(2)Securities with an aggregate value of $14,485,000 have been segregated as
initial margin for open futures contracts.
(3)Restricted security.
ADR--American Depositary Receipt.
REIT--Real Estate Investment Trust.
--------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
--------------------------------------------------------------------------
AT APRIL 30, 2000, NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------
Paid in Capital $2,764,894 $50.63
Undistributed Net
Investment Income 2,466 .05
Accumulated Net Realized Gains 789,833 14.46
Unrealized Appreciation
(Depreciation)--Note F
Investment Securities 523,129 9.58
Futures Contracts (6,118) (.11)
--------------------------------------------------------------------------
Net Assets $4,074,204 $74.61
==========================================================================
21
<PAGE>
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.
--------------------------------------------------------------------------------
EXPLORER FUND
SIX MONTHS ENDED APRIL 30, 2000
(000)
--------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends* $ 6,773
Interest 10,481
Security Lending 266
-----------
Total Income 17,520
-----------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 3,371
Performance Adjustment 900
The Vanguard Group--Note C
Management and Administrative 7,506
Marketing and Distribution 194
Custodian Fees 91
Auditing Fees 5
Shareholders' Reports 43
Trustees' Fees and Expenses 2
-----------
Total Expenses 12,112
Expenses Paid Indirectly--Note D (77)
-----------
Net Expenses 12,035
--------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,485
--------------------------------------------------------------------------------
REALIZED NET GAIN
Investment Securities Sold* 758,977
Futures Contracts 29,557
--------------------------------------------------------------------------------
REALIZED NET GAIN 788,534
--------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 114,583
Futures Contracts (4,307)
--------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 110,276
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $904,295
================================================================================
*Dividend income and realized net loss from affiliated companies were
$16,000 and $(4,296,000), respectively.
22
<PAGE>
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, 2000 OCT. 31, 1999
(000) (000)
-----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 5,485 $ 8,535
Realized Net Gain 788,534 334,544
Change in Unrealized Appreciation (Depreciation) 110,276 177,769
--------------------------------
Net Increase in Net Assets Resulting from Operations 904,295 520,848
--------------------------------
DISTRIBUTIONS
Net Investment Income (9,305) (8,697)
Realized Capital Gain (324,836) (13,054)
--------------------------------
Total Distributions (334,141) (21,751)
--------------------------------
CAPITAL SHARE TRANSACTIONS1
Issued 1,458,561 581,427
Issued in Lieu of Cash Distributions 329,592 21,406
Redeemed (768,264) (813,686)
--------------------------------
Net Increase (Decrease) from Capital Share Transactions 1,019,889 (210,853)
-----------------------------------------------------------------------------------------------
Total Increase 1,590,043 288,244
-----------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 2,484,161 2,195,917
--------------------------------
End of Period $4,074,204 $2,484,161
===============================================================================================
1Shares Issued (Redeemed)
Issued 19,344 10,222
Issued in Lieu of Cash Distributions 5,360 403
Redeemed (10,499) (14,495)
--------------------------------
Net Increase (Decrease) in Shares Outstanding 14,205 (3,870)
===============================================================================================
</TABLE>
23
<PAGE>
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.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
EXPLORER FUND
YEAR ENDED OCTOBER 31,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------
THROUGHOUT EACH PERIOD APRIL 30, 2000 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $61.49 $49.60 $62.31 $55.44 $51.05 $45.99
----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .12 .21 .21 .26 .26 .24
Net Realized and Unrealized Gain
(Loss) on Investments 21.26 12.18 (6.82) 9.71 8.37 7.25
---------------------------------------------------------------
Total from Investment Operations 21.38 12.39 (6.61) 9.97 8.63 7.49
---------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.23) (.20) (.25) (.27) (.24) (.17)
Distributions from Realized Capital Gains (8.03) (.30) (5.85) (2.83) (4.00) (2.26)
---------------------------------------------------------------
Total Distributions (8.26) (.50) (6.10) (3.10) (4.24) (2.43)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $74.61 $61.49 $49.60 $62.31 $55.44 $51.05
======================================================================================================================
TOTAL RETURN 37.64% 25.14% -11.22% 18.93% 17.97% 17.46%
======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $4,074 $2,484 $2,196 $2,550 $2,186 $1,476
Ratio of Total Expenses to
Average Net Assets 0.71%* 0.74% 0.62% 0.62% 0.63% 0.68%
Ratio of Net Investment Income to
Average Net Assets 0.32%* 0.36% 0.37% 0.45% 0.51% 0.52%
Portfolio Turnover Rate 144%* 79% 72% 84% 51% 66%
======================================================================================================================
*Annualized.
</TABLE>
24
<PAGE>
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.
Securities for which market quotations are not readily available are valued by
methods deemed by the Board of Trustees to represent fair 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 CONTRACTS: The fund uses S&P MidCap 400 and Russell 2000 Index
futures contracts to a limited extent, with the objectives of maintaining full
exposure to the stock market while maintaining liquidity. The fund may purchase
or sell futures contracts to achieve a desired level of investment, whether to
accommodate portfolio turnover or cash flows from capital 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. Distributions are determined on a tax basis and may differ
from net investment income and realized capital gains for financial reporting
purposes.
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,
Chartwell Investment Partners, and as of April 3, 2000, Grantham, Mayo, Van
Otterloo & Co. llc 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 for the preceding three years relative to the Russell 2000 Index and
the Small Company Growth Fund Stock Index (an index of the stocks held by the
largest small-capitalization stock
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
mutual funds). The basic fee of Chartwell is subject to quarterly adjustments
based on performance relative to the Small Company Growth Fund Stock Index. For
the six months ended April 30, 2000, the aggregate investment advisory fee
represented an effective annual basic rate of 0.20% of the fund's average net
assets before an increase of $900,000 (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 $79,000
for the six months ended April 30, 2000.
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, 2000, the fund had contributed capital of $808,000 to Vanguard
(included in Other Assets), representing 0.02% of the fund's net assets and 0.8%
of Vanguard's capitalization. The fund's Trustees and officers are also
directors and officers of Vanguard.
D. The fund has asked its investment advisers to direct certain security trades,
subject to obtaining the best price and execution, to brokers who have agreed to
rebate to the fund part of the commissions generated. Such rebates are used
solely to reduce the fund's management and administrative expenses. The fund's
custodian bank has also agreed to reduce its fees when the fund maintains cash
on deposit in the non-interest-bearing custody account. For the six months ended
April 30, 2000, directed brokerage and custodian fee offset arrangements reduced
expenses by $57,000 and $20,000, respectively.
E. During the six months ended April 30, 2000, the fund purchased $2,716,059,000
of investment securities and sold $2,198,957,000 of investment securities, other
than temporary cash investments.
F. At April 30, 2000, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was $523,129,000, consisting
of unrealized gains of $831,249,000 on securities that had risen in value since
their purchase and $308,120,000 in unrealized losses on securities that had
fallen in value since their purchase.
At April 30, 2000, the aggregate settlement value of open futures contracts
expiring in June 2000, and the related unrealized appreciation (depreciation)
were:
--------------------------------------------------------------------------------
(000)
--------------------------------
AGGREGATE UNREALIZED
NUMBER OF SETTLEMENT APPRECIATION
FUTURES CONTRACTS LONG CONTRACTS VALUE (DEPRECIATION)
--------------------------------------------------------------------------------
S&P MidCap 400 Index 307 $ 74,102 $ 16
Russell 2000 Index 612 155,754 (6,134)
--------------------------------------------------------------------------------
G. The market value of securities on loan to broker/dealers at April 30, 2000,
was $16,294,000, for which the fund held cash collateral of $16,969,000. Cash
collateral received is invested in repurchase agreements.
26
<PAGE>
THE VANGUARD(R)FAMILY OF FUNDS
STOCK FUNDS
---------------------------------------
500 Index Fund
Aggressive Growth Fund
Capital Opportunity Fund
Convertible Securities Fund
Emerging Markets Stock
Index Fund
Energy Fund
Equity Income Fund
European Stock Index Fund
Explorer(TM) Fund
Extended Market Index Fund*
Global Equity Fund
Gold and Precious Metals Fund
Growth and Income Fund
Growth Index Fund*
Health Care Fund
Institutional Index Fund*
International Growth Fund
International Value Fund
Mid-Cap Index Fund*
Morgan(TM) Growth Fund
Pacific Stock Index Fund
PRIMECAP Fund
REIT Index Fund
Selected Value Fund
Small-Cap Growth Index Fund*
Small-Cap Index Fund*
Small-Cap Value Index Fund*
Tax-Managed Capital Appreciation Fund*
Tax-Managed Growth and Income Fund*
Tax-Managed International Fund*
Tax-Managed Small-Cap Fund*
Total International Stock
Index Fund
Total Stock Market Index Fund*
U.S. Growth Fund
Utilities Income Fund
Value Index Fund*
Windsor(TM) Fund
Windsor(TM) II Fund
BALANCED FUNDS
---------------------------------------
Asset Allocation Fund
Balanced Index Fund
Global Asset Allocation Fund
LifeStrategy(R) Conservative
Growth Fund
LifeStrategy(R) Growth Fund
LifeStrategy(R) Income Fund
LifeStrategy(R) Moderate
Growth Fund
STAR(TM) Fund
Tax-Managed Balanced Fund
Wellesley(R) Income Fund
Wellington(TM) Fund
BOND FUNDS
---------------------------------------
Admiral(TM) Intermediate-Term
Treasury Fund
Admiral(TM)Long-Term Treasury Fund
Admiral(TM)Short-Term Treasury Fund
GNMA Fund
High-Yield Corporate Fund
High-Yield Tax-Exempt Fund
Insured Long-Term Tax-Exempt Fund
Intermediate-Term Bond Index Fund
Intermediate-Term Corporate Fund
Intermediate-Term Tax-Exempt Fund
Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
Preferred Stock Fund
Short-Term Bond Index Fund
Short-Term Corporate Fund*
Short-Term Federal Fund
Short-Term Tax-Exempt Fund
Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida,
Massachusetts, New Jersey,
New York, Ohio, Pennsylvania)
Total Bond Market Index Fund*
MONEY MARKET FUNDS
---------------------------------------
Admiral(TM) Treasury Money
Market Fund
Federal Money Market Fund
Prime Money Market Fund*
State Tax-Exempt Money Market Funds
(California, New Jersey, New York
Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY PLAN
---------------------------------------
Balanced Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
High-Grade Bond Portfolio
High Yield Bond Portfolio
International Portfolio
Mid-Cap Index Portfolio
Money Market Portfolio
REIT Index Portfolio
Short-Term Corporate Portfolio
Small Company Growth Portfolio
*Offers Institutional Shares.
For information about Vanguard funds and our variable annuity plan, including
charges and expenses, obtain a prospectus from The Vanguard Group, P.O. Box
2600, Valley Forge, PA 19482-2600.
Read it carefully before you invest or send money.
27
<PAGE>
--------------------------------------------------------------------------------
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 part owner of
the fund. Your fund Trustees also serve on the Board of Directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Seven of Vanguard's eight 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. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new Trustees/Directors; and electing
Vanguard officers.
The list below provides a brief description of each Trustee's
professional affiliations. Noted in parentheses is the year in which the Trustee
joined the Vanguard Board.
TRUSTEES
JOHN J. BRENNAN (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
JohnsonoMerck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. (1993) Chairman, President, Chief Executive Officer, and
Director of NACCO Industries, Inc.; Director of The BFGoodrich Co.
JOHN C. SAWHILL (1991) 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., NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR. (1971) 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 (1985) Retired Chairman of Rohm & Haas Co.; Director of
AmeriSource Health Corporation, 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.
THOMAS J. HIGGINS Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of
each of the investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON Legal Department.
ROBERT A. DISTEFANO Information Technology.
JAMES H. GATELY Individual Investor Group.
KATHLEEN C. GUBANICH Human Resources.
IAN A. MACKINNON Fixed Income Group.
F. WILLIAM MCNABB, III Institutional Investor Group.
MICHAEL S. MILLER Planning and Development.
RALPH K. PACKARD Chief Financial Officer.
GEORGE U. SAUTER Quantitative Equity Group.
<PAGE>
[SHIP GRAPHIC]
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q242-062000
(C)2000 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
